REC Silicon ASA

OSE:RECSI

Q2-2025 Earnings Call

[Kurt Levens, executive]

Good morning. My name is Kurt Levens. I'm the CEO of REC Silicon. And with me is Jack Yun, the CFO of REC Silicon. Welcome to the second quarter 2025 Interim Results Presentation. We're going to go through some highlights and updates as well as the financial review, discussion of the strategic direction and activities that we've been undertaking. And then finally, a summary of where we're at.

We made significant progress in cost reduction activities in the quarter relative to the prior quarter. We had some benefits of one-off effects on our EBITDA that we will discuss subsequent that led to a positive EBITDA of $4.9 million. Subsequent to quarter end, Anchor AS completed voluntary offer for shares and launched a mandatory share offer.

Additional financing was received and is still needed. Additionally, trade actions and concern around the market effects of this have created forecast and demand uncertainty for our silicon gases. Silicon gas shipments are in a range that we have settled in for the last 3 quarters. As I stated, we are still having trade-related effects due to tariffs and trade actions on our products, however, also on the goods, which require our products.

Expected opportunities for volume expansion increases are still being delayed or suspended. Semi memory market demand is still soft compared to prior periods and affecting underlying demand, particularly for silane. On the other hand, our other silicon gas shipments continue to regain volume and grow in terms of sequential quarters on quarters.

Note, the other income effect due to the modification of a lease agreement. This is what was giving us a positive EBITDA for the quarter and for the first half, find this in the Moses Lake segment. This is part of our ongoing cost reduction program. Our Siemens polysilicon inventory clearance is as planned, and we're still expecting that we will continue to move the product through the end of this year. Silicon gas sales volume did increase. But again, as I stated, they are -- it's within the range that we have been settled into the past few quarters.

Slightly lower ASPs due to mix effect and planned maintenance in the quarter contributed to a lower EBITDA from our Butte operation. We finished the quarter with $8.3 million -- and I want to note that our interest payment items are at $7.2 million within the quarter. We also have noted that we -- as we stated, we did receive $10 million in proceeds from our borrowing activities.

Subsequent to the quarter end, we have received an additional $13 million in short-term loans from Hanwha International. We have continued to monitor slower-than-expected project development execution and start-up of reshoring activities. Trade action uncertainty, policy uncertainty and market uncertainty, all are affecting our expected volume growth opportunities.

While we see fewer actualization of PV cell fabs, we have noted more semiconductor fab announcements. Our cost reduction efforts in Moses Lake continue and material progress was made over Q1. We expect to continue incremental reductions through the remainder of the year as we finish and negotiate prior commitments. Our Butte operation has also continued to optimize for cost reduction and has achieved cost reduction targets over our internal targets, particularly on manufacturing overhead.

We need to redouble our efforts in improving our silicon gas sales in spite of the challenging market. This is especially important, given our current distressed situation. As a result of passing the 33.3% threshold, Anchor AS launched a mandatory offer. Mandatory offer expires on 29 August. As stated, we will need additional financing. This includes the possibility of further short-term loans. We are focused now on the disposal of noncore assets, targeting completion before the end of this year.

We are complying with the request for investigation submitted to the Norwegian District Court, and we are complying with the process requirements and associated requests for information on all legal processes. We expect for the sequential quarter-on-quarter cost reduction to continue through the end of this year. For Q3, we expect to be in the same range with silicon gas shipments, slight possibility for small increment improvements.

Global trade and market uncertainty still continue to impact timing on expansions and our sales growth. Our short- and long-term financing options are still in progress. Right now, the most important thing for the company is to focus on the basics of being able to increase our revenues in a challenging environment and control our costs in spite of having higher commitment levels prior to us making the decision to shut down polysilicon at Moses Lake.

This is what we will continue to do through the end of the year to ensure that our best chances for setting ourselves up to be in a sustainable situation is by having a strong revenue base and having strong cost reduction.

Thank you, and we will be back for the next quarter through November 6. We will take some questions.

[Douglas Moore, executive]

Moving into questions. So recently, the minority shareholders replaced the Board of REC Silicon and partly due to the perceived weak corporate governance and the principle of equal treatment of all shareholders. What does management of REC Silicon plan to do differently going forward?

[Kurt Levens, executive]

We will continue to communicate to the market as needed. We will continue to take actions, which are in the interest of all of the shareholders regardless of majority, minority or otherwise, as we have done prior, and we will continue to do.

[Douglas Moore, executive]

Can you get into more details on what's specifically happening with both CEVA and also Group 14 as far as what agreements are in place and when and what demand of silane volume is expected by these 2 in 2026 and going forward?

[Kurt Levens, executive]

As far as we know, CEVA has announced that they will be moving forward with their opening of their facilities. We are aware that they will be taking a delivery -- their first delivery from us coming up. As far as the volumes go for Sila, that is not something that we're disclosing at this time due to our contractual agreements as well as respect of our customers' guidance over their recipes and how much product is used in their product.

The same goes with G14 with regards to how much they will use. That's going to be highly dependent upon the level at which they ramp. As of right now, per their last communications, they do not expect to begin ramping until the end of this year or the beginning of Q1. At such time that we have visibility into when that may be. And if those volumes are something we can discuss specifically to those customers, then we will certainly be willing to discuss them.

[Douglas Moore, executive]

Okay. At the general meeting that took place in June, REC decided to initiate an investigation. The petition has been submitted to the District Court in Norway and REC has filed its response. How does management view this?

[Kurt Levens, executive]

That was voted on at the AGM, and that is per the rules, that is the right of any shareholder holding a certain amount of shares, has the right to petition the court for that. As I stated in the slide, we as REC Silicon are fully compliant with what will be required in the process and we will continue to do so.

[Douglas Moore, executive]

Are you able to disclose which REC employees have been issued a subpoena as part of the investigation?

[Kurt Levens, executive]

No. We're not disclosing right now what employees might have been issued subpoenas for request for information.

[Douglas Moore, executive]

Okay. Changing subjects a little bit. What is REC's Board and management doing specifically to address debt? Can you get into more detail on the sale of noncore assets? Or are you looking to sell Butte or Moses Lake either fully or partially?

[Kurt Levens, executive]

So at this time, there is no plan to sell core assets, meaning either Moses Lake or Butte. In order to maintain optionality through this period for Moses Lake, obviously, for the opportunities to restart the silane plant and then in Butte for us to continue to take advantage of the growth opportunities that are presented through the reshoring investments that I made.

So the -- as far as addressing the debt, we are currently investigating how we're going to be able to do that and what the options are. And that's all we can really say about that right now. Obviously, there's only going to be a certain level of debt that's going to be manageable for the company going forward.

[Douglas Moore, executive]

Okay. Are you able to more fully explain the other income amount of $13.1 million reported for Moses Lake?

[Kurt Levens, executive]

Yes. It's -- again, it's a renegotiation of a lease that we had. So in essence, we reached an agreement to lower that amount. And then on a technical basis, that resulted in that becoming noted as other income for us within that quarter.

[Douglas Moore, executive]

You've already gone into more detail on both Sila and G14, but specifically related to G14 or Group 14's announcement of over $400 million in funding, is this new and exciting opportunities for REC?

[Kurt Levens, executive]

As of now, it hasn't changed anything for REC, and that's because the Moses Lake plant across the street from us is still in a suspended state and they have indicated that they will not be getting back to that until sometime towards the end of this year or Q1. Should we hear that, that changes, then obviously, that potentially could be more favorable for us. But as I stated before in other presentations or in other questions, we continue discussion and welcome the opportunity to be able to supply G14.

[Douglas Moore, executive]

Okay. Moving back to the investigation in the legal process, can you disclose what are the key milestones coming up in both Norway and the United States?

[Kurt Levens, executive]

Well, in Norway, we need to submit our response, and that's the first key milestone. And in the United States, we've already begun the providing of information as requested, as the information request was made of us. So we have already been doing that, and we will continue to do that as required by the courts.

[Douglas Moore, executive]

Okay. Being that we're just over halfway through the third quarter, can you get into how the third quarter is looking so far? And specifically, will there be improvement from the second quarter?

[Kurt Levens, executive]

Yes. I think as I stated in there, if you look at the level to which we're guiding, one thing that we're saying is that we believe that we should see sequential cost reduction in our Moses Lake continuing through the end of the year. And as far as our shipments go and potential revenues, when you look at what we stated in the summary, we expect to be somewhere in the range of where we were this past quarter.

[Douglas Moore, executive]

Okay. And to date, REC Silicon has relied exclusively on Hanwha as a lender to secure financing. Have you approached other financial institutions or strategic investors for loan financing? And if not, why not?

[Kurt Levens, executive]

We went through a process of entertaining other sources of financing and would still entertain other sources of financing. At the end of the day, it came down to the cost and the willingness of the other party to engage. So when it's come down to, as noted from our last round with Hanwha in the public statements that were made, we had a few choices when it came to being able to access short-term loans that we were looking for.

[Douglas Moore, executive]

Okay. You previously mentioned that you're in discussions with up to 6 other potential silicon anode customers. And can you give an update on the current status of these negotiations and whether you expect any offtake agreements from these?

[Kurt Levens, executive]

Yes. Of those, we do expect some offtake agreements. It's a function of when. There are no longer 6, 1 has dropped off, so there are 5. And they are all in different states as far as their evolution or their qualification or their production operations versus their pilot operations.

So it's really all over the place right now. I would say that from our perspective, if you look at those that we would consider to be most advanced and this is only on the basis of what we see going in the ground, that would be sila and that would be G14. And that's only because of where they're at in their life cycle. I make no representations around the technology and who's going to be successful. We hope they're all successful as far as I'm concerned.

[Douglas Moore, executive]

As the management of REC conducted an analysis of potentially restarting polysilicon in Butte, and I guess to go along that -- with that, will there ever be polysilicon produced again in Moses Lake?

[Kurt Levens, executive]

As of right now, we have not currently evaluated restarting Butte. And that is based upon the fact that the equipment there is still going to require tremendous amount of investment for us to make the product that's going to be required for the larger diameter flow cell. And the economics are not there or not justified for that given what the end product will be able to absorb in terms of price.

In addition to that, while the power situation has improved, some of that is because, of course, we took a relatively large load off of the market there. So that is not something that's at this point can be verified to be sustainable. And until we can see a situation where we have a partner who, for some reason, it makes sense for them to want to work with us on that polysilicon and absorb the cost or the price that's needed and we have stability in our electricity input, it doesn't make sense there.

Regarding Moses Lake, again, we have entered into this under the premise that we are not going to be restarting production in Moses Lake. If there was ever something that came up, well, that would be something that would need to be addressed at the time. But that's not in the plans, and that's not what we're operating under. And that's not how the plant is set up to operate at this time.

[Douglas Moore, executive]

Are you able to give an update on Sila Nano?

[Kurt Levens, executive]

No, other than as indicated, we have been having discussions with a number of different silicon anode producers. And we have also supplied a number of different silicon anode producers to their pilot production. Sila Nano hasn't made any public statements to our knowledge regarding their status and where they're at. Therefore, it's not appropriate for us to.

[Douglas Moore, executive]

Going through the questions, I think you've touched on the questions that have come up.

[Kurt Levens, executive]

Okay. Well, thank you for your questions and your time, and we'll see you next quarter.