Our first quarter performance reflects the steps we have taken to reduce costs in our drive towards cash flow break even, said Barry Cinnamon, president and chief executive officer of Akeena Solar. We brought operating expenses down by 19.8% from last year and 24.3% from the fourth quarter through headcount reductions and other expense reduction measures. As a result, we reduced cash burn to about $2.7 million for the quarter, the lowest level since the second quarter of 2007. “
Continued Cinnamon, First quarter revenue came in at $7.6 million, with residential sales driving results and commercial sales remaining weak. Our diverse mix of business is providing balance in these challenging times. Gross margin increased as expected to 29.7%, reflecting the flow-through of last quarter’s inventory write-down, lower incremental costs for Andalay solar panels and improved installation efficiency. Falling panel prices are driving better solar economics for our customers and creating opportunities for a differentiated product like Andalay.”
During the quarter we moved forward with our strategy to establish a direct-to-dealer distribution channel to help scale our business and diversify our revenue streams. We signed several dealers, both large and small — including MS Solar Solutions Corp. (MSSS), a subsidiary of Morgan Stanley’s Commodities group. Akeena is MSSS’ exclusive supplier of Andalay AC solar panels for two years for projects to outfit low-income households nationwide. As the solar industry continues to evolve, we believe differentiated products such as Andalay AC solar panels will have the greatest appeal in new distribution channels, concluded Cinnamon.
First Quarter Financial Results
The decline in the first quarter 2009 compared with first quarter of 2008 and the prior quarter reflects lower commercial sales of $915,000 in the first quarter of 2009, compared with $7.0 million in the first quarter of 2008, and $2.4 million in the fourth quarter of 2008. Residential installations in the first quarter of 2009 were $6.7 million or 88% of total revenue, compared with $5.3 million or 43% of total revenue in the first quarter of 2008 and $8.4 million or 78% of total revenue in the fourth quarter of 2008.
Gross profit for the first quarter of 2009 was $2.3 million, or 29.7% of sales, compared with $2.4 million, or 19.7% of sales, in the first quarter of 2008 and $1.2 million, or 10.7% of sales in the fourth quarter of 2008. On a year-over-year basis and serially, the increase in gross margin was due primarily to lower panel prices and lower direct labor costs.
Total operating expenses for the first quarter of 2009 were $5.7 million compared with $7.1 million for first quarter of 2008, and $7.5 million in the fourth quarter of 2008. Stock-based compensation expense was $540,000 in the first quarter of 2009 compared with $1.0 million for first quarter of 2008, and $578,000 in the fourth quarter of 2008. Cash operating expenses (adjusted for stock-based compensation expense, depreciation and amortization expense) were $5.0 million in the first quarter of 2009 compared with $5.9 million for the first quarter of 2008 and $6.8 million in the fourth quarter of 2008. During the first quarter of 2009, the company made the decision to close direct installation offices in Colorado and Connecticut. The company believes it can grow market share outside of California more profitably through a distribution model.
Loss from operations for the first quarter of 2009 was $3.5 million, the lowest level since the second quarter of 2007. Net loss for the first quarter of 2009 was $5.1 million, or $0.17 per share, compared with a net loss of $4.6 million, or $0.16 per share, in the first quarter of 2008, and a net loss of $9.2 million or $0.32 per share in the fourth quarter of 2008. Average common and equivalent shares outstanding during the first quarter of 2009 were 29.2 million.
The first quarter net loss comprises of a $1.5 million non-cash charge to adjust the fair value of common stock warrants as required by a new accounting rule, EITF 07-05, Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock. In accordance with this new rule, stock warrants with certain terms that were previously accounted for as equity must now be accounted for as a liability with adjustments of the fair value recorded on the income statement.
Installations for the quarter amounted to about 945 kilowatts (kW) compared with about 1,587 kW in the first quarter of 2008 and about 1,410 kilowatts in the fourth quarter of 2008. Backlog as of March 31, 2009 was $4.8 million, reflecting lower commercial bookings and fewer installation offices.
Cash and cash equivalents at March 31, 2009 were $2.9 million. On March 3, 2009, the company closed a $2 million stock offering. Concurrent with the close, the company paid in full the balance on its current line of credit. The $25.0 million line of credit facility with Comerica was replaced with a $1.0 million cash-backed line, which had no balance drawn as of March 31, 2009.
The number of employees at quarter end decreased to 137 from 185 at the end of the fourth quarter of 2008 and from 217 at March 31, 2008.
Outlook
For 2009, the company management continues to expect modest growth in residential sales, driven by improving solar economics, offset by stagnant commercial installations until late in the year when the benefits of the stimulus package are expected to start to take effect. As a result, management now projects second quarter revenue to be flat or slightly down compared to the second quarter of 2008.
Given increasingly limited visibility in the company’s business, sluggish residential build and slower than expected additions to the backlog of commercial installations, management is not providing annual guidance at this time. With the steps taken to lower the company’s expense structure, the quarterly EBITDA breakeven revenue level stays at about $15 million.
