ENFIELD, Conn.--(BUSINESS WIRE)--STR Holdings, Inc. (NYSE: STRI) today announced its consolidated financial results for the quarter and nine months ended September 30, 2009.

Third Quarter 2009 consolidated financial and operating highlights include:

• Solar Net Sales rose 19% to $35.4 million, on a quarterly sequential basis
• Quality Assurance Net Sales increased 13% to $32.0 million from the 2008 third quarter
• Operating Cash Flow of $15.7 million significantly exceeded Net Income

During the third quarter of 2009, the Company’s Solar segment net sales declined by $12.8 million, or 27%, compared to the third quarter of 2008. Solar segment adjusted EBITDA for the third quarter of 2009 was $16.5 million, compared with $21.9 million a year ago.

During 2009, the Company’s Solar segment has been negatively impacted by an oversupply of inventory in the Solar module supply chain. However, on a sequential basis, third quarter 2009 Solar sales rose 19% to $35.4 million as a result of increased sales in the United States and Europe as overall solar industry conditions have shown improvement during the quarter in key end markets including California, Germany and Italy.

STR’s Quality Assurance segment net sales for the third quarter of 2009 rose $3.6 million, or 13%, from the same quarter last year due to increased testing volume in the United States and Asia. Quality Assurance adjusted EBITDA rose to $7.1 million, up from $5.6 million a year ago.

“This quarter’s financial results reflected double digit improvement in our sequential top-line performance as well as significant growth in our cash flow generation,” stated Chairman, President and Chief Executive Officer Dennis L. Jilot. “And, while it came as no surprise that we saw a year over year decline in our Solar segment sales, we are now seeing signs that economic conditions are improving. At the same time, we recently began shipping from our new Malaysian plant, making us the only encapsulant provider with manufacturing and distribution capabilities in North America, Europe and Asia. As such, STR is well positioned to capitalize on the solar industry’s global expansion, including the emerging China market.”

Selling, general and administrative expense for the third quarter of 2009 declined by $2.3 million, or 19% compared to the corresponding third quarter of 2008. This reduction was primarily due to lower professional fees and lower annual incentive compensation expense.

On November 12, 2009, the Company closed its initial public offering (IPO) of 12.3 million shares of common stock at $10 per share. Prior to the closing of the IPO, the Company converted from a limited liability company to a corporation and all of the Company’s outstanding units were converted into 36.7 million shares of common stock and 1.3 million shares of restricted common stock. The impact of this issuance has been applied on a retrospective basis to determine earnings per share (EPS) for each of the periods presented.

Net income for the third quarter of 2009 was $7.9 million, or $0.21 on a diluted EPS basis, compared with $8.9 million, or $0.24 on a diluted EPS basis for the corresponding 2008 period. Diluted non-GAAP EPS for the third quarter of 2009 totaled $0.32. This compares with $0.33 on a diluted non-GAAP EPS basis, for the third quarter of 2008. (See discussion of Non-GAAP Financial Measures and the reconciliation table below for details).

During the third quarter of 2009, the Company generated $15.7 million of operating cash flow, up 19% from $13.2 million of the same quarter last year. Free Cash Flow, which is defined as operating cash flow less capital expenditures, increased 137%, or $7.4 million, from the third quarter of 2008. This increase in free cash flow was primarily due to lower spending on capacity expansion and improved working capital performance. (See discussion of Non-GAAP Financial Measures and the reconciliation table below for details).

STR’s Executive Vice President and Chief Financial Officer Barry A. Morris stated, “Even in recessionary times, STR continues to deliver strong cash flow to fund future growth and provide liquidity. We will continue to focus on maintaining effective cost controls and managing working capital in order to increase shareholder value as we have demonstrated this quarter.”

About STR

STR Holdings, Inc. is a diversified global leader providing high quality, superior performance solar encapsulants to the photovoltaic module industry. It is also one of the world’s top providers of quality assurance testing, audit, inspection and responsible sourcing services. STR works with over 6,000 manufacturers, importers, raw materials suppliers and retailers around the globe to ensure that they have the highest level of confidence in the quality and safety of their products and the social standards of the supply chain producing them. Further information about STR Holdings, Inc. can be obtained via the Company’s website at www.strholdings.com.

Forward Looking Statements

This press release contains forward-looking statements that are subject to inherent risks and uncertainties. These forward-looking statements present the Company’s current expectations and projections relating to its financial condition, results of operations, plans, objectives, future performance and business and are based on assumptions that the Company has made in light of its industry experience and perceptions of historical trends, current conditions, expected future developments and other factors management believes are appropriate under the circumstances. However, these forward-looking statements are not guarantees of future performance or financial or operating results. In addition to the risks and uncertainties discussed in this release, the Company faces risks and uncertainties that include, but are not limited to, the following: (i) demand for solar energy in general and solar modules in particular; (ii) the timing and effects of the implementation of recently announced government incentive plans for renewable energy, primarily in China and the United States.; (iii) the continual operation of the Company’s Malaysian plant which commenced shipments in August 2009; (iv) the need to utilize its existing $20 million revolving credit facility, and the ability to further access the credit markets on acceptable terms; (v) maintaining sufficient liquidity in order to fund future profitable growth and long term vitality; (vi) the continuing effects of the ongoing recession on sales in Europe for the remainder of 2009; (vii) pricing pressures and other changes in competitive markets; (viii) the impact the current negative credit markets may have on the Company or its customers or suppliers; (viii) loss of professional accreditations and memberships; (ix) the extent to which the Company may be required to write-off accounts receivable or inventory; (x) potential supply chain disruptions, including those resulting from bankruptcy filings by customers or vendors; (xi) any potential inflation of commodity costs, including paper and resin used in the Company’s encapsulants, and the Company’s ability to successfully manage any increases in these commodity costs; (xii) the impact of changes in foreign currency exchange rates on financial results, and the geographic distribution of revenues and earnings; (xiii) the impact of changes in interest rates in relation to the Company’s variable rate debt; (xiv) the impact of events that cause or may cause disruption in the Company inspection, testing, manufacturing, distribution and sales networks such as war, terrorist activities, and political unrest; and (xv) the extent and duration of the current recession in the global economy, including the timing of expected economic recovery in the United States. and abroad; (xvi) outcomes of litigation and regulatory actions; and (xvii) the other risks and uncertainties described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s prospectus filed pursuant to Rule 424(b) under the Securities Act of 1933 as amended (the Securities Act), with the SEC on November 9, 2009 and in subsequent periodic reports on Forms 10-K and 10-Q. Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove to be incorrect, actual results may vary in material respects from those projected in these forward-looking statements. The Company undertakes no obligation to publicly update any forward-looking statement contained in this release, whether as a result of new information, future developments or otherwise, except as may be required by law.

STR Holdings, Inc.
CONDENSED CONSOLIDATED INCOME STATEMENT
All amounts in thousands except shares and per share amounts
		Quarter Ended September 30, 2009				Quarter Ended September 30, 2008				Nine Months Ended September 30, 2009				Nine Months Ended September 30, 2008
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Net sales - Solar		$	35,362			$	48,134			$	99,192			$	134,007
Net sales - Quality Assurance			31,956				28,333				85,804				79,192
Total net sales			67,318				76,467				184,996				213,199
Cost of sales - Solar			21,837				26,324				62,904				69,407
Cost of sales - Quality Assurance			20,155				18,273				56,259				53,311
Total cost of sales			41,992				44,597				119,163				122,718
Gross profit			25,326				31,870				65,833				90,481
Selling, general and administrative expenses			9,498				11,771				29,760				33,414
Bad debt expense			20				129				1,372				726
Operating Income			15,808				19,970				34,701				56,341
Other income (expense)			(3,966	)			(5,846	)			(12,020	)			(16,457	)
Income before income tax expense			11,842				14,124				22,681				39,884
Income tax expense			3,955				5,219				8,551				15,006
Net Income		$	7,887			$	8,905			$	14,130			$	24,878
Earnings per share:
Basic		$	0.22			$	0.25			$	0.39			$	0.69
Diluted		$	0.21			$	0.24			$	0.38			$	0.67
* Non-GAAP earnings per share:
Basic		$	0.32			$	0.34			$	0.70			$	0.99
Diluted		$	0.32			$	0.33			$	0.68			$	0.96
Weighted average shares outstanding:
Basic			36,665,586				36,175,080				36,490,833				36,051,405
Diluted			37,298,120				37,398,417				37,201,579				37,260,225
* Please refer to the reconciliation of Non-GAAP measures included in this release.

STR Holdings, Inc.
CONDENSED CONSOLIDATED BALANCE SHEET
All amounts in thousands except unit amounts
		September 30, 2009			December 31, 2008
ASSETS		(Unaudited)
CURRENT ASSETS
Cash, cash equivalents and short term investments		$	50,340		$	27,868
Accounts receivable, trade, net			32,453			36,454
Inventories			10,295			18,771
Other current assets			7,173			7,145
Total current assets			100,261			90,238
Property, plant and equipment, net			67,403			62,516
Intangibles			442,397			450,965
Other noncurrent assets			17,554			17,203
Total assets		$	627,615		$	620,922
LIABILITIES, CONTINGENTLY REDEEMABLE UNITS AND UNITHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt		$	2,023		$	2,015
Interest rate swap			5,110			-
Other current liabilities			37,850			45,055
Total current liabilities			44,983			47,070
Long-term debt, less current portion			253,988			255,506
Interest rate swap liability			-			6,013
Other long-term liabilities			96,886			97,436
Total liabilities			395,857			406,025
CONTINGENTLY REDEEMABLE UNITS			3,776			2,930
UNITHOLDERS' EQUITY
Unitholders' equity			227,982			211,967
Total liabilities, contingently redeemable units and unitholders' equity		$	627,615		$	620,922

STR Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
As of September 30, 2009
All amounts in thousands
		Quarter Ended September 30, 2009				Quarter Ended September 30, 2008				Nine Months Ended September 30, 2009				Nine Months Ended September 30, 2008
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
OPERATING ACTIVITIES
Net income		$	7,887			$	8,905			$	14,130			$	24,878
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			3,062				2,203				8,822				6,304
Amortization of intangibles			2,876				2,875				8,628				8,627
Amortization of deferred financing costs			288				285				863				878
Stock-based compensation expense			859				413				1,852				1,346
Unrealized (gain) loss on interest rate swap			(316	)			(172	)			(903	)			115
Earnings in equity investments			(68	)			(74	)			(227	)			(74	)
Loss on disposal of property, plant and equipment			-				-				10				-
Provision for bad debt expense			20				129				1,372				726
Provision for deferred taxes			(520	)			373				(573	)			(521	)
Changes in operating assets and liabilities			1,616				(1,728	)			2,636				(3,335	)
Net cash provided by operating activities			15,704				13,209				36,610				38,944
INVESTING ACTIVITIES			(3,832	)			(7,774	)			(14,443	)			(22,733	)
FINANCING ACTIVITIES			(1,167	)			(2,753	)			(2,403	)			(3,754	)
Effect of exchange rate changes on cash			1,170				(1,934	)			1,708				(774	)
Net increase in cash and cash equivalents			11,875				748				21,472				11,683
Cash and cash equivalents, Beginning of period			37,465				32,115				27,868				21,180
Cash and cash equivalents, End of period		$	49,340			$	32,863			$	49,340			$	32,863
* Free cash flow		$	12,872			$	5,435			$	23,167			$	16,211
* Please refer to the reconciliation of Non-GAAP measures included in this release.

STR Holdings, Inc.
RECONCILIATION OF NON-GAAP MEASURES
As of September 30, 2009
All amounts in thousands except shares and per share amounts
		Three Months Ended September 30, 2009				Three Months Ended September 30, 2008				Nine Months Ended September 30, 2009				Nine Months Ended September 30, 2008
Non-GAAP Earnings Per Share		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Net Income		$	7,887			$	8,905			$	14,130			$	24,878
Add:
Amortization of deferred financing costs			288				285				863				878
Stock-based compensation expense			858				413				1,852				1,346
Intangible asset amortization expense			2,876				2,875				8,628				8,627
Non-GAAP net income		$	11,909			$	12,478			$	25,473			$	35,729
Non-GAAP earnings per share:
Basic		$	0.32			$	0.34			$	0.70			$	0.99
Diluted		$	0.32			$	0.33			$	0.68			$	0.96
Weighted average shares outstanding:
Basic			36,665,586				36,175,080				36,490,833				36,051,405
Diluted			37,298,120				37,398,417				37,201,579				37,260,225
		Three Month Ended September 30, 2009				Three Month Ended September 30, 2008				Nine Months Ended September 30, 2009				Nine Months Ended September 30, 2008
Free Cash Flow		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Cash flow from operations		$	15,704			$	13,209			$	36,610			$	38,944
Less:
Capital expenditures			(2,832	)			(7,774	)			(13,443	)			(22,733	)
Free cash flow		$	12,872			$	5,435			$	23,167			$	16,211

Non-GAAP Financial Measures

To supplement the Company’s condensed consolidated financial statements, which statements are prepared and presented in accordance with accounting principles generally accepted in the United States of America (GAAP), the Company uses two non-GAAP financial measures called non-GAAP EPS and free cash flow. The Company defines non-GAAP EPS as net income not including the impact of amortization of deferred financing costs, stock-based compensation and intangible asset amortization expense divided by the weighted average shares outstanding. Free cash flow is defined as cash flow from operations less capital expenditures. The Company uses these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. Our presentations of these measures, however, may not be comparable to similarly titled measures used by other companies.

Management believes that non-GAAP EPS provides meaningful supplemental information regarding the Company's performance by excluding certain expenses that may not be indicative of the core business operating results and may help in comparing current-period results with those of prior periods as well as with its peers.

The Company believes free cash flow is an important measure of its overall liquidity and its ability to fund future growth and provide a return to shareowners. Free cash flow does not reflect, among other things, mandatory debt service, other borrowing activity, discretionary dividends on the Company's common stock and acquisitions.

STR Holdings, Inc.
Barry Morris, Executive Vice President and Chief Financial Officer
(860) 749-8371
barry.morris@strus.com
or
Joseph Radziewicz, Controller and Principal Accounting Officer
(860) 749-8371
joseph.radziewicz@strus.com
or
ICR Inc.
Ina McGuiness, Investor Relations Consultant
(310) 954-1100
Ina.McGuinness@icrinc.com