It looks like the inevitable is marching closer for shareholders of Evergreen Solar (Nasdaq: ESLR).
In its quarterly filing after the bell on Thursday, the company not only missed consensus estimates by a mile, but warned that it may need to seek bankruptcy protection in the not-so-distant future if it doesn't receive a much-needed cash infusion.
Evergreen employs string-ribbon silicon technology, which greatly reduces the amount of silicon needed in a solar panel, but has found selling its product tough -- especially when competing against a considerably cheaper labor force in China. When the company decided in January to shut down its Devens manufacturing plant in Massachusetts, it all but sealed the company's fate.
Unfortunately, all solar companies are currently facing downward pricing pressure on their products as demand dries up and inventories build. Low-cost solar supplier First Solar (Nasdaq: FSLR) last week warned of a tough road ahead, but kept full-year estimates steady, whereas Trina Solar (NYSE: TSL) wasn't as lucky. Even recent winner SunPower (Nasdaq: SPWRA) (Nasdaq: SPWRB) is struggling to find buyers for its products.
This weakness in the solar sector literally couldn't have come at a worse time for Evergreen, who saw revenue fall more than 60% sequentially! Despite a smaller sequential quarterly loss and higher gross margins, the company still clocked in with a loss of $0.70 versus expectations of a loss of $0.55. Then again, by higher gross margins, I mean -62.5% versus -84%, so don't get too excited.
More worrisome, of course, than even the rapid demise of Evergreen's solar business is the company's immediate need for cash. With no existing "easy fixes," the company could resort to a massive share offering to solve its problems. This would, in all likelihood, wipe out most of the shareholder value left in the company. A possible debt restructuring could be in the cards as well, but I find it highly unlikely that its debtors would budge on their terms given the weak financial performance from the company as of late. As if that wasn't enough, the company's stock price is getting dangerously close to dipping below $1 per share, and that could trigger a possible delisting letter from Nasdaq.
Evergreen burned through $30 million in cash during the first quarter and now has just $33 million in cash remaining with $397 million in debt. The company stated in its quarterly report that it's going to take longer than expected to receive cash from the sale of inventory at its recently closed Devens plant.
This all seems like the perfect storm that has the capability to bankrupt Evergreen Solar. Unless something changes drastically within the next few months, it's likely that shareholder value will continue to be pummeled -- and in a worst case scenario, someone may turn off the lights for good.
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