I have questioned the finances and balance sheet of Evergreen Solar (ESLR). I have claimed that betting on ESLR is a speculative bet on survival. I used a pullback from the stock’s last big rally as an entry to make that crazy boom or bust bet. Now, I must prepare for the very real possibility that ESLR is simply not going to make it as a going concern.
Tonight, ESLR delivered an earnings warning, citing a faster than expected market-wide inventory build as a prime culprit for the latest cash crunch:
“As a result of our low year to date sales volume and potentially slower sales for the remainder of this year as the industry balances inventory levels, along with significantly increased pricing pressure, the cash that we had previously expected to realize through the reduction in accounts receivable and inventory from our recently closed Devens facility will be less than expected and will take longer than expected to realize. Therefore, our near term liquidity has been negatively impacted and may require us to secure additional sources of cash sooner than expected. Accordingly, we will continue to aggressively pursue opportunities to address our capital structure in the near term, including restructuring our existing debt, in order to significantly deleverage and better position ourselves to secure additional financing…”
ESLR had sales in the first quarter of about $33.5M, a whopping drop of 62% from the previous quarter (I had to calculate these numbers based on reported shipments and average selling prices – both of which declined). This will set up ESLR for a massive net profit loss in the first quarter; we already know the company had to close its Devens manufacturing facility in the face of mounting costs.
The second quarter seems to be running at the same pace as the first quarter, but I am guessing sales go downhill from here. ESLR now has $33M in cash and restricted cash left in the bank after paying $10.75M in interest to bondholders. The high costs of servicing debt have been an area of concern for several years as the company has not been able to get good terms on its past financing schemes. Any future financing will certainly be on even worse terms and require massive amounts of dilution of the quickly shrinking value in the stock. If ESLR is correct about looming poor market conditions in the solar industry (we have to suspect that the company’s own persistently poor sales performance motivates such dire outlooks), financing and a restructuring may be next to impossible. Forget about favorable terms.
Can ESLR survive? After a two week 57% rally this month, I thought maybe the market knew something good about some kind of revival. Instead, this phoenix proved to be just as much smoke as the previous big rally last October. The stock closed down over 17% in after-hours trading. The weekly chart below shows a stock on a forced “death march.” ESLR’s 1:6 reverse stock split only bought the company a few more months out of dollar store territory.
*Chart created using TeleChart:
To long-suffering ESLR shareholders, this latest setback is likely not surprising. Perhaps the best outcome for the company will be a (fire?)sale of its patented technology (probably to a Chinese company) that salvages some remnants of the company.
(Click here for my archived commentary on ESLR)
Be careful out there!
Full disclosure: (unfortunately) long ESLR