REC Silicon ASA

Welcome to REC Silicon's fourth quarter 2024 earnings call. My name is Curt Levins and I am REC Silicon's CEO. I am joined today by Jack Jung, REC Silicon's CFO. Today we will report on REC Silicon's fourth quarter 2024 earnings call. NOW TURNING TO THE AGENDA FOR TODAY'S CALL, FIRST, WE WILL TALK THROUGH A FEW HIGHLIGHTS FROM THE FOURTH QUARTER. WE'LL THEN DISCUSS OUR NEAR-TERM STRATEGIC PLANS AS WE ENTER 2025, AND FINALLY WE WILL SUMMARIZE OUR DISCUSSION POINTS AND HAVE Q&A. SUPPORTS AN OVERVIEW OF SOME HIGHLIGHTS AND UPDATES FROM THE FOURTH QUARTER. During the fourth quarter, revenues from continuing operations totaled $29.7 million, driven by an increase in silicon gas sales and planned sales of polysilicon inventory. EBITDA loss from continuing operations was $5.3 million, primarily affected by the shutdown of our facilities. As you know, during the fourth quarter, we made the decision to discontinue the production of polysilicon at our Moses Lake facility. Following that decision, we successfully secured financing to support the business through this process and transition period. We would like to review the factors that led up to and contributed to our decision to cease polysilicon production in Moses Lake. As previously communicated, We struggled with post-reaction processing and handling equipment systems and appurtenances that were contributing impurities and undesirable qualities into our material or not performing as efficient as desired. We worked with our customer to provide a product of a modified quality levels that would allow us to begin shipping if successfully qualified. In the meantime, we worked at implementing the last of our initially identified solutions on one line and ran the bypass line with further modifications with the intent of improving the product quality and consistency further. We had some improvements and also suffered some failures with system robustness and product consistency with the various solutions. We received notification of an unsuccessful qualification test. We attempted to modify the specification again and gain another qualification test. While open to this, the customer reasonably wanted our material to be within the specifications and target and within a timeframe that was reasonable and at the volumes that we were contracted to deliver. We also continued to operate the lines and implement other ideas to improve the product consistency, equipment reliability and robustness. And we did so up until the day the decision was made. We considered alternative commercial arrangements such as discounts, other markets or customers in light of a historically low price PV polysilicon market. We also contemplated the economics and effects of reduced rate operating. Ultimately, the decision came down to our uncertainty and risk factors around the timing of when we could make the necessary product quality, the quantifiable success of further identified modifications fixes in terms of quality, yield, production rate. There was no silver bullet. the unknown cost of some of the potential modifications and fixes. At this point, we were nine to 10 months late for our first delivery and operating with a high ratio of fixed costs, the plan. We made the decision to shut down the facility to stabilize the company and maintain optionality for future decisions and opportunities. I would like to express my gratitude and respect for the team across RAC Silicon for all their hard work, tenacity, ingenuity during a very challenging process. Now I'll provide an update on what we achieved in the rest of our business during that time. In our Silicon gas business, we shipped 543 metric tons in the fourth quarter, an increase of 5% over the previous quarter. The memory device market is a driver for semiconductor silane demand and standard memory utilization remains soft. Demand for PV and FPD affected our silane demand as well as we face lower utilization rates in China and Southeast Asia. Our DCS and MCS volumes grew 48% and 37% respectively over Q3. We remain confident in our leading market share and capability to serve our customers in this market in order to maintain a strong and stable business in this area. Turning to our polysilicon business in Butte. After shutting down polysilicon in mid-year, we are in the process of clearing inventory and selling material from test reactors. We sold 216 metric tons in Q4, doubling our shipments over the last quarter. While softened demand impacted shipments at the end of 2024, we aim to clear our residual finished goods inventory by mid 2025. Next, I'll review our financial performance in more detail. We generated revenues of $29.7 million during the quarter, all from our Butte operations. As noted, EBITDA was a negative $5.3 million. And we had a net expense of $7.9 million reflective of Inc. costs. In Butte, we generated revenues of $29.6 million during the quarter. As polysilicon sales volume was lower than planned and silicon gas sales price was lower than expected. However, silicon gas sales volume was up, as noted before, over 5% over the previous quarter. EBITDA was an increase of 2.2 million over Q3. And Q3 had maintenance turnaround costs contained. In January, we secured a $40 million loan from Hanwha to finance our restructuring activities. Our existing 50 million bridge loans from Hanwha were rolled into this financing with a maturity of January, 2026. We are continuing to search for and evaluate opportunities to strengthen our balance sheet and liquidity position. And these efforts will ultimately support our strategic goals moving forward. So RAC has entered into a period of transition. As we navigate this phase of the business, our management team and board have aligned on an operating plan driven by the key priorities. which will be our focus over the coming months. We believe focusing on these priorities in the immediate term will put the company on a path towards sustainable growth over the long term. First and foremost, we need all of our attention at this time on stabilizing the business and continuing the very difficult work of restructuring and doing so as quickly as possible. We are committed to aggressively cutting costs and streamlining our remaining operations. This includes reductions in fixed overheads, SG&A, cost avoidance, and deferral opportunities, minimization of capex to maintenance level, and completion of select cost reduction reliability projects. This also includes a review and minimization of third party resources and costs and consolidation of ancillary support facilities. Our aim is to bring the cost of optionality and business functions in line with the underlying business as quickly as possible. This will help to support our bottom line and aid in our journey towards long-term growth. We will be focused on margin expansion and volume growth to drive our utilization efficiencies in Butte. However, this won't be the last time I say it, but our number one priority right now is on stabilization of our business as quickly as possible. While we are focused on Immediate and short-term activities we are transitioning to a pure plate silicon gases producer Which historically has better margin opportunity and less price volatility over shorter periods than polysilicon We will focus on where we are differentiated due to quality performance location or cost The priority asset wise is is to drive greater utilization of our Butte facility. We want to, again, highlight the various applications of our silicon gases and point out one that is poised for tremendous growth. And that is for use as a silicon source for active anode material. The primary use of our silicon gases is in chemical vapor deposition as a silicon source in various thin films. The applications themselves are driven at the macro level by global trends, digitalization, electrification, energy applications, AI, the Internet of Things, and data. However, we are also looking to utilize our geographic position to grow from the reshoring of manufacturing capacity in the semiconductor and PV industry. The figures on this slide are illustrative of how much our core and targeted markets are growing. The U.S. semiconductor market is expected to double its production capacity by 2032, much of it in advanced technology that preferentially uses silicon gas products such as MCS and DCS, as well as silane. Solar PV cell production is expected to grow by as much as 15 times its current size, and potentially much larger if the upside plan scenario is taken into account. Together, these investments and trends create opportunity for the silicon gases market, and by extension of our focus and location, opportunities for RAC silicons. Turning to the next slide. The market for silicon containing anodes also shows potential for rapid growth as illustrated by these benchmark research figures. And commensurate with that, a large scale demand for sideline. While there is still a wide range of potential demand and utilization scenarios that are investment and process dependent, We have seen some that put the derived potential silane demand in North America in the thousands of metric tons. While our first priority is fully utilizing our butte production asset, the silane production facility in Moses Lake is being maintained in a safe and recoverable mode. This provides RAC Silicon with access to additional capacity and positions the company to capitalize on these opportunities as demand for silicon anode grows. Even though we are very focused on stabilizing the business in the short term, we will remain flexible with our production to capitalize on this demand in order to drive sustainable long-term growth. I want to briefly summarize our near-term focus for this business. As stated, The number one thing is the number one thing. We will continue to focus on stabilization of the company. In the near term, we will reduce costs and seek to streamline our operations. We know that collectively maintaining this focus will position us on the path to stabilization and ultimately being able to realize our ambition for long-term sustainable development. Thank you for your attendance. We now have some time for Q&A.

Okay. Turning to questions that have been submitted. There's a few questions surrounding the silicon anodes. And previously we've been more specific in that we've stated that we're in talks with numerous potential customers and there's nothing in here specific with these Customers, can you expand or elaborate on how any contracts are going?

Yes, what I can say is that we are still in discussions with multiple customers over the supply of silane for active anode material. While we didn't put it in this particular presentation, that was because we were trying to address overall the opportunity itself. On a tactical level, we are specifically engaged, as I had stated before, with at least six different companies in terms of discussing opportunities of various degrees and timing.