Ascent Solar Technologies Inc (ASTI)

[JohnCM]

Ascent Solar: Ironically Poised For A Prolonged Descent
Dec. 8, 2015 8:17 AM ET

Seeking Alpha

http://seekingalpha.com/article/3740486-ascent-solar-ironically-poised-prolonged-descent

Ascent Solar has recently moved from BIPV into the relatively high margin portable solar market, targeting consumer and government customers.

The company is finally developing substantive revenue opportunities through its rapidly expanding retail footprint and recent contract with the GSA to expedite government purchasing.

Even with this new revenue, substantial operating and interest expenses are simply too great for the company to overcome with its current sales model.

Ascent Solar is destroying shareholder capital by significantly diluting the common stock, sending shares outstanding soaring from 5M to 93M in just a few years.

Bankruptcy or continued dilution is inevitable, and I would recommend investors avoid Ascent Solar.

Background

Ascent Solar (NASDAQ:ASTI) has been an interesting story. The company has historically been research driven, developing efficient CIGS solar cells and finding efficient manufacturing methods. In 2006, the company completed its IPO and received lots of investor interest and media hype due to its promising CIGS solar technology. The company's shareholders have been a roller coaster ride ever since.



After a few years, like many CIGS manufacturers before it, Ascent Solar failed to successfully enter the BIPV market due to a drastic fall in multi-Si manufacturing costs. In 2013, the company was forced to change its focus to higher margin consumer/military portable solar products. Since 1Q 2014, the company has taken in only $9.2M in revenue and posted $78.6M in net losses.

Shortly after presenting its state-of-the-art Milpak E platform at a Defense Energy Innovation Summit & Showcase on December 1st, the company was awarded a Schedule 56 contract by the GSA. This does not mean that the company has made a sale, but it essentially allows the federal government to purchase its products more easily. This has drawn increased interest to Ascent Solar due to a large government demand for these types of products, in both military and disaster relief applications.

In this article, I am going to analyze Ascent Solar's market potential for its consumer and government products and whether or not they can save the company.

Government Sales - A Comparison With Global Solar Energy

Global Solar Energy is another CIGS manufacturer that is astoundingly similar to Ascent Solar. Global Solar has a 40MW production capacity compared to Ascent's 30MW production capacity. Both companies tried and failed to enter the BIPV market and have decided to scale down operations and focus on the consumer/military markets.

In 2001, Global Solar developed the P3 line of portable CIGS solar chargers for the US military. The company has been a primary supplier of portable solar chargers to the US government ever since, having sold over 40,000 units. In 2008, the Marines chose the company's P3-62 panels as part of its Solar Portable Alternative Communications Energy System (SPACES I).

I estimate the company has made the majority of its sales since its contract with the Marines in 2008. This is because by 2008, Global Solar had many years of experience in CIGS manufacturing and is thought to have significantly reduced manufacturing costs since the product line's inception in 2001.

I have reason to believe that as of 2014, Global Solar sold these panels to the military for somewhere between $9.09-13/Watt (~$563-806 per unit), at a cost of ~$161 per unit. Assuming Global Solar has made 75% of its government sales since its 2008 contract at a sales price between $563 and $806 per unit, I estimate the company has received between $16.9M and $24.2M in revenue from government sales.

This equates to $2.5-3.5M in potential revenue annually assuming Ascent Solar is successful in acquiring government clients. Note that this is a rough estimate, as I doubt Global Solar has updated the unit sales statistics on its website regularly. Despite this, I think Global Solar's success provides a good idea of the higher end of potential revenues Ascent Solar can expect from government sales.

Consumer Sales - Competition in a Fast Growing Market

The consumer portable power market is a new and rapidly expanding market. A 2011 white paper estimated the "Advanced Charging Technologies" market, which includes portable solar chargers among other technologies, to be $1.5B in 2011. I consider this to be Ascent Solar's largest potential revenue source, and believe that the company will not survive without successfully driving adequate consumer sales.

The industry leader in portable solar power is Goal Zero. The company ranked on the Inc. 500 list of fastest growing companies in 2013, experienced 3 year sales growth of 16,981%. Its 2013 revenue was listed at $35M, and I would consider them the primary competitor to Ascent Solar in consumer sales. Goal Zero very effectively markets cheaper, albeit lower quality, portable mono-Si solar chargers.

The company's consumer oriented Enerplex line currently makes up the majority of its 2015 YTD revenue of $4.1M, with the exception of government research and development contracts, which totaled ~$323,000 in FY 2014.

As you can see below, Ascent Solar has done a great job of rapidly expanding its retail footprint, which has in turn marginally grown revenues. The company's revenues are hardly stable though, calling into the question the long term success of its Enerplex line. The company had revenues of $600K in 1Q, $2.2M in 2Q, and only $1.2M in 3Q.

I believe that Ascent Solar's marketing techniques help cause lagging sales. The company faces stiff competition from competitors selling Chinese made mono-Si panels, which have much lower manufacturing costs but are not as effective as CIGS in portable applications (which is why the military uses CIGS). The inherent light weight, shade tolerance, and flexibility of CIGS solar cells gives the company's products a competitive advantage.

The only way for Ascent Solar to stand out is to stress the benefits of CIGS solar chargers, which I do not think its marketing department does a very good job of. Without stressing the inherent technological benefits of its chargers, consumers will always go with the lower cost mono-Si panels.

So while the potential consumer market is massive, the company has failed to showcase its superior technology which justifies the higher price point. I believe this factor has contributed to its stagnating revenue and decline in 3Q sales.

Ascent Solar Financials - Dilution & Unsustainable Practices

Ascent Solar would like to be considered a 'developmental stage' company, but after nearly a decade has passed since the company went public with over $200MM in CAPEX and R&D spend, only to find out that it could not compete in BIPV, there comes a point where continued operations are pointless. Consumer and military applications are solid markets, but the revenue opportunity simply is not big enough to support a company with such a high cash burn.

Ascent Solar has consistently operated at a substantial loss, even now that it is actively marketing its Enerplex line of consumer products. 2015 YTD, the company has had only $4.1M in revenue and posted a net loss of $35M. In FY 2014, the company reported revenues of $5M posted a net loss of $43.4M. Even taking into account that some of these costs naturally come with launching a new product line, this company is still doomed in the long term.

If the company could astronomically grow sales to $35M+ next year and instantly usurp the market leader Goal Zero, this would still not be enough for the company to post a profit. If the company additionally took Global Solar's position as a primary portable solar provider to the US military, its revenue is estimated to increase by only another $3.5M. So under the best of circumstances, Ascent Solar is unlikely to ever post a profit.

One should also consider how the company has heavily diluted shares over the years to raise capital to continue operations, sending the shares outstanding skyrocketing from ~5M to over 93M in just a few years. This hugely devalues the common stock and senselessly robs shareholders of capital.

As of 3Q 2015, the company has $8.2M in current assets, with just $600K in cash and $4.5M stuck in inventory. This pales in comparison to its $14.2M in current liabilities, so the company will have to dilute the common stock even more to raise capital sometime in the near future.

I believe that Ascent Solar, while once promising, is now destroying shareholder capital through substantial dilution and an unjustified continuation of operations. I believe that anyone currently holding ASTI should sell their shares and get out while they still can.

The only upside I see in Ascent Solar would be a result of media hype, such as the 100% pop and subsequent crash that happened after the Schedule 56 contract was awarded by the GSA. It is only a matter of time until bankruptcy, and if the company don't go bankrupt, it will only be because management has diluted the common shares even more to raise more capital. Either way, I think the company has significant downside with little potential for profitability.

The most likely long term scenario I see for Ascent Solar, bankruptcy aside, is a continued share price decline before an acquisition by Hanergy. Hanergy is a Chinese thin-film solar conglomerate, which has acquired numerous failing US CIGS manufacturers over the years for pennies on the dollar. The company has stated it is aggressively looking to make further acquisitions, and if one looks at Hanergy's previous acquisitions, Ascent Solar definitely fits the mold.

Conclusion

Ascent Solar is a company with great technology, valuable patents, but little growth potential. I believe it is far too late for the company to successfully stage a turnaround, though with lower operating costs the company may have previously had a chance to successfully survive in some capacity. Over the next 12-18 months, I predict further dilution and continued net losses until an inevitable bankruptcy. I would consider this stock to be a strong sell.

I contacted management as well as investor relations at Ascent Solar prior to writing this article to see if I could talk to someone at the company. I didn't receive a reply, but I'd like to have discussion with management and hear their point of view, so I encourage them to contact me. Perhaps their situation is not as bad as I thought, but with next to no coverage on Seeking Alpha or by analysts, ASTI investors are left clueless. If I am contacted by management, I will happily post an update article for Seeking Alpha readers.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclosure: At this time I am long ASTI.