The sun is shining on GT Solar



Published:

Things must be going pretty well when a company can turn its back on a business that just provided $40 million of revenue in the last quarter because it can find higher margins elsewhere, but that is what GT Solar announced in its day-after earnings conference call on Thursday.Flush with roughly doubling its quarterly revenue and earnings from last year, racking up a backlog of more than $1 billion, raising its annual guidance by 50 percent to as high as $1 a share, and on the heels of entering the rapidly expanding LED market with the acquisition of Crystal Systems, the Merrimack-based maker of solar equipment and materials said it would no longer offer turnkey operations."We are not getting the same return on investment," said Tom Gutierrez, president and chief executive officer of GT Solar, that went public two years ago. "So we are exiting the turnkey business."Revenue from the turnkey business accounted for about $40 million of the $135 million in revenue in the first quarter of fiscal year, ending July 3, which was nearly double the $71 million in 2009. Yet such projects "only" provide profit margins in the high teens, when the company can get nearly 30 percent if it concentrates on building furnaces that produce solar cells and the polysilicon materials that are used to make them.And the hunger for both "exceeded our expectations for the quarter," said Gutierrez. The company shipped more furnaces last quarter than it did all last year.As a result, the company earned $16.5 million in the first fiscal quarter, or 11 cents a share -- more than double the $7.8 million for the first quarter last year, and the company reported $321 million of deferred revenue and $1.12 billion.Half of that backlog, the company emphasized, is secure -- either shipped or paid for with letters of credit, but not yet recognized as revenue, or secured with non refundable deposit. About $614 million is expected to be recognized in the next year. The company also raised its guidance this year from high of 65 cents a share to 90 cents to $1. That guidance includes the company’s acquisition of Crystal Systems Inc, based in Salem, Mass., for $24 million in cash, 5.4 million shares of company common stock and a $21 million cash earn-out.Crystal is a leading supplier of sapphire, which in turn is the main component of the chips used for LEDs, which are increasingly used for the screens of flat monitors and TVs, laptops and cell phones and even more importantly energy efficient lighting. During Thursday’s conference call, Paul Beaulieu, vice president of business development, cited one report that estimated that the demand for sapphire is expected to grow tenfold over the next ten years.Crystal is a small, profitable company that is only expected to add $8 to $11 million in revenue for the next fiscal year, but GT Solar plans to "significantly" invest in the company, resulting in $40 million to $60 million in material revenue in 2012, Beaulieu said. (GT Solar also plans to explore entering the equipment segment of the manufacturing market, just as it does for the solar energy field, he said.)The strong earnings report seemed to overcome Wall Street's jitters about the solar energy industry and the economy. GT Solar's stock jumped nearly 13 percent Thursday peaking at $7.98 (matching its 52-week high) before closing at $7.82. In the words of one analyst, "What could go wrong?""I lose sleep over two things," replied Gutierrez. "Absolute execution," he said, noting that it was a "tall order" to keep up with the demand for solar equipment and materials, as well as the companies reputation for high quality, and "just an absolute focus on R&D" to bring new technology to market "at a speed to keep our competition off balance." -- BOB SANDERS/NEW HAMPSHIRE BUSINESS REVIEW

 

NHBR Poll