Xebec Adsorption Inc.

Xebec’s Pressure Swing Adsorption (PSA) systems, according to the company, are among the most compact, economic, and reliable systems available, replacing bulky network of piping and valves used in conventional PSA systems with 2 compact integrated valves resulting in minimal pressure drop, remarkable uptime performance, and occupying a fraction of the footprint.  They enable easy and flexible installation.

Renewable Natural Gas (RNG) is the most significant opportunity facing Xebec, specifically from gas utilities as they transition to renewable gas.  3 components to renewable natural gas include conversion from organic waste, conversion of forestry waste to RNG, and the conversion of electricity to gas for energy storage, all of which Xebec is positioned to serve.  

The company is also positioned for Hydrogen and Renewable Hydrogen (RH2) with systems that operate at much higher cycles/minute than conventional systems which reduces the amount of adsorbent material, the equipment footprint, and energy required.  The company sees hydrogen purification as one of their major opportunities over the next decade and beyond.  Xebec has already worked with several fuel cell manufacturers to provide purification equipment. In China the current opportunities are primarily in refinery and petro-chemical industries for off-gas purification.  Xebec is already position in China with partnerships and a joint venture in Shanghai with Shenergy Energy.  

Xebec has been buying established small to mid-sized compressed air and gas services business in Ontario, AB, and BC to create a leading national compressed air and gas distribution business.  

Backlog 71m vs 65.5m a year ago, 13.9m 2 years ago, 26m in tenders to be added to backlog once formally contracted over next 12-14 weeks.  Order lead times are normally 3-9 months with visibility at least 2-3 quarters. 

Over past 2 years mgmt. taken significant steps to streamline operating and production costs

Major Shareholders:

Sorschak 16.5%, CE), Arnsby 12.3%, Private investor

Ests:     1Q22   2Q22   FY22    FY23

Revs    40.9m  44.7     198      261

EPS      (0.04)  (0.05)  (0.12)  (0.02)

 

Gross cash 34.7m, 82.8 gross debt, 48m net debt, additional NWC of 48.4m

 

1Q22 (.09) vs (.05) ex (.03) ex fx and legal

  • May 12, 2022, P=1.83, TTM EPS (.19)

  • Revs 41.29m vs 20.6m, GM 11% vs 20%, adj EBITDA (9m) vs (4.9m) (est -0.9m) incl 2.6m from legacy contracts in COGS (in start-up phase, no construction risk)

  • Backlog 260.5m vs 88.5m, Working capital 66.6,

  • 34.7m cash vs 51.1m at Dec 31

  • Costs impacted by supply chains and rising costs, still not being clear on timing/magnitude of inefficient Biostream units and legacy contracts other than “by year end” which was supposed to be last year.

  • Market Cap 283m, still reflects optimism rather than pessimism especially given their current challenges, liquidity is getting tighter and this is not the environment to need to raise liquidity.

  • Exited until better clarity on turnaround and liquidity.

4Q21 (.03) vs (.05), est 0.0, ex intangible amort, FY21 EPS (.14) vs (.06) 

Investor Day – March 29, 2022

  • 3 year targets: Revs 300-350m (FY21 126m), EBITDA margin 8-10%, mainly organic but some acquisitions.

  • Signed MOU with SCS Carbon Removal , order could be >100m for 51 CO2 reciprocating compression packages to be completed by end of 3Q23. Subsequently signed US $113m contract on April 12th. 

Mar 17, 2022, P=1.69, TTM EPS (.14), 

  • Revs +143% to 45.9m (est 43.6m), GM 21.9% vs 5.6%, adj EBITDA 0.2m vs (22.6)m, well below implied guidance and estimates but modest improvement q/q due to modestly better GP, R&D reversal, offset by large increase in SG&A (4.9m from stepped up intangible amort), but interest expense increased Q/Q by 1.5m, reconciling improved EBITDA but weaker EPS.

  • Systems 23.3m vs 8.6m and 13.6m in 3Q, GM 10% vs 39% in 3Q, OpInc (0.6m) vs 2m in 3Q

  • Support  22.6m vs 10.4m, GM 35% vs 14%, OpInc 4.2m vs (0.5m)

  • CEO transitioning immediately, former CEO no longer serving on board

  • RNG quoting activity in first 2 months of 2022 is 3X a year ago, Biostream bidding almost 2X.

  • Still working on completing final 2 projects, first few Biostream units expected to be at higher cost.

  • Backlog 123.8m, +23.7m q/q and y/y

  • Not providing guidance due to supply chain uncertainties and war in Ukraine.

  • OCF before NWC (7.1m), similar run rate to past 3 quarters. Gross cash 39.9m, 83m debt.

  • New initiative, will be providing PSA technology to CarbonQuest to remove carbon from buildings. 

  • While adjusted out of income in the quarter, Chinese subsidiary was revalued 20m higher. 

  • Mgmt says GM and EBITDA came in lower than previous guidance due to supply chain disruptions

3Q21   (.02) vs (.02) ex .04 items, est (.02)

  • Nov 11 2021, P=3.39, TTM EPS=(0.16)

  • Revs +45% to 26.7m (est 33.7m) -59% ex acquisitions with shift to standardized products from turnkey projects, GM 38% vs 24% adj EBITDA 0.3m vs 0.4m

  • Systems +28% to 13.1m, GM 39% vs 18%, Support +66% to 13.6m, GM 37% vs 31%

  • Backlog 100.1m up from 75.9m at 3Q, 88.4m last year.

  • FY Outlook: Revs 120-130m, EBITDA margin -3% to -5% to account for UECompression and supply chain, implies strong 4Q, Revs 45m, EBITDA $6.7m-9.2m

  • Switched Rev rec to shipment from % completion (standardized vs turn-key customization).

  • Expect shipments from UECompression facility in 2H22

 

Mid Quarter Update – Nov 3, 2021

Acquired UECompression to expand NA prodn capacy by 5X to 150-190 BGX Biostream and Hy.GEN hydrogen units per year. 

Paid USD $8m, expect USD $35m FY21 revs 

2Q21   (.05) vs (.01) vs .02, est (.02)

  • Aug 12, 2021, P=3.75, TTM EPS=(0.16)

  • Revs 32.7m (est 29), -56% ex acquisitions?, adj EBITDA (4.6m) vs (0.1m)

  • Systems Revs 21.5m vs 13.9m, GM 6% vs 16%

  • Support Revs 11.2m vs 5.6m, GM 33% vs 36%

  • Backlog 75.9m down from 88.5m last quarter (as of Aug 11th) but does not include recent 18-unit order (would put backlog >100m)

  • FY21 Guidance: Maintained FY21 Revs 110-130m, significantly lowered EBITDA guidance to (3%) to (4%) which implies 5100 in 2H or an EBITDA margin of 7.6% due to investments for growth and lower margins in RNG projects (still have some installation and commissioning work), appears to mostly be due to 2Q lower than expected.  

  • Mgmt discussed their Biostrem unit which is a compete system which can be installed in 5 days, competitors offer parts rather than compete systems, must be integrated by customer or EPC.

Mid Quarter Update – July 6, 2021

  • Announced MSA with a leading US based developer for dairy farm RNG projects.

  • Initially 18 units, potential for more, largest Biostream order so far (~$US 27m? based on 1.5m list price), deliveries to start 1H22, likely to drive capacity expansion and poses upside to FY22 estimates.

  • Following this announcement plus expected orders, Xbec has started production of 30 Biostream units for delivery over the next year.

  • Cdn facility target annual prodn ~3-40 units, looking for a US facility with capacity ~100, currently operating 2 shifts with no plan for more shifts. 

  • Target RNG GMs 30-35%, this order won’t achieve those margins due to labour hours, mgmt. hopes to learn to drive future efficiencies and further optimize supply chain

1Q21   (.05) vs (.02) est (.03)

  • May 13, 2021, P=3.90, TTM EPS=(.12), FY22 P/E=78X but est probably low.

  • Revs +61% to 19.6m ex 1m govt grants (-21 % ex acquisitions, est 23.7), GM 20% vs 25%, adj EBITDA (5.8m) vs 0.5m, SG&A 9.9m vs 3.8m ex 1m transaction/integration, down from 13.6m in 4Q

  • CFO -20.2m vs -803k due to 12.7m into NWC, -7.5m before NWC, 35m spent on acquisitions and assets

  • Backlog 88.5m vs 89.8m last year, down from 100.1m at 4Q

  • FY21 Guidance: Maintained: Revs 110-130m, adj EBITDA margin 3-4%

  • “significant progress” on the challenging contracts, letting them see “much stronger quarters going forward”, expect some “limited impact” in 2Q, guidance implies EBITDA ~10m for remainder of year which would be ~FY20 expectation prior to pandemic, likely weighted for 2H, suggests FY22 estimates likely low

  • Stock price back to Feb 2020 levels prior to visibility of pandemic impacts but that level was historically high although the company has evolved a fair amount since then through acquisitions/growth, expected FY21 revs are 40% higher than pre-pandemic expectation for FY20 

Mid Quarter Update May 3, 2021

  • Acquired Tennessee based Nortec for $8.5m

  • Immediately increases manufacturing capacity

  • Compressed air producer for >30 10 years ago

4Q20   (.04) vs (.01) ex (.29) items, est (.18) down from .02, FY20 EPS (.13) vs .03 ex (.20) items

  • Mar 25, 2021, P=4.62, market cap 665m vs FY21 rev mid-point guid 120m,5.5X revs 

  • Reported Revs -53% to 6.4m, ex 12.5m rev adjustments +39% to 18.9, SG&A ex 5.9m costs 7.7m vs 3.6m, adj EBITDA (22.6m) vs 2.1m but (4.2m) ex rev adjustments and 1-time costs

  • Systems ex prev rev adj -19% to 8.4m, GM ex rev adjustments (5%) vs 31% 

  • Support +225% to 10.4m, GM 14% vs 29% due to lower GM of acquired companies

  • 4Q revs include 5.2m adjustment from previously recognized revs due to % completion correction, 1.9m due to a customer’s deteriorating financial position, 5.4m adjustment from cancellation.

  • 4Q costs include 4.8m tx costs to buy HyGear, 1.1m bad debt prov, 

  • Backlog 100.1m vs 99.3m last year, up from 88.4m in 3Q driven by support, systems down

  • Cash 168.6m, net cash 104m, non-cash NWC 20.8m

  • FY20 Revs +15% to 56.5m, adj EBITDA (22m) vs 7m

  • FY21 Guidance: Revs 110-130m, lower than ests but better than prev FY20 Rev guidance, est EBITDA margin 3-4% which is significantly lower than prev FY20 EBITDA guidance

  • Cost overruns to drag into 2Q due to 0 GM and not opex coverage, 3Q at “better level”

  • Quote log remains strong over $1bn, Biostream quotes increased significantly over last “several months” and account for almost 24% of total quotes, 

  • Made changes to quoting and project management procedures to better account for risks/cost increases. 

  • Biostream product will be standardized, no custom engineering/quotes,  etc. 

  • Market cap down to about 665m or 5.5X FY21 guided revs vs 12X expected revenues at highs in Jan, still optimism reflected in the valuation but not nearly as much as before, probably somewhat reasonable depending on path forward for profitability given muted guidance. 

  • Stock was briefly -12% following previous weakness but recovered about half the day’s losses, could be in the penalty box for a while depending on when things expected to really improve.

Mar 12, 2021 – Warned on 4Q

  • I’ve been wary of this possibility although they just confirmed the reporting date and this announcement comes 2.5 months after year-end, they should be getting better quality data sooner.

  • Expecting FY Revs ~57m vs guidance of 70-80, implies 4Q 6.8m,

  • FY20 GP -1m to 1m, SG&A 15-16m, 

  • 12.9m Revenue impacts: 5.6m review of fixed price contracts rev/cost recognition and some now expected to be unprofitable, 5.4m cancellation of 2 systems which were already 50% recognized based on % completion, 1.9 reversal of recognized revs on a project due to deteriorating condition at client,  

Mid quarter Update Dec 8, 2020

  • Acquiring HyGear for or onsite hydrogen generation 

  • In 2019 HyGear generated Revs €11.4m, €3.4m EBITDA, €2.5m net income

  • ~6m of debt$65.2m in cash, assume ~28..6m in debt, issue 10.3m shares in consideration

  • Doing 100m bought deal plus 50m private placement with Caisse plus ~62.1m equity consideration, total ~212.1m

  • Steam Methane Reforming technology is unique, small-scale and “cost-effective” on site hydrogen generation from natural gas, can use existing nat gas infrastructure or combined with Xebec’s RNG feedstock to generate Green Hydrogen.  Also acquiring electrolyzers 

  • Xebec also signed 2 LOIs to acquire an industrial gas generation company and a compressed air

 

3Q20   (.02) vs .02, est .01 down from .02

  • Nov 10, 2020, P=5.49, TTM EPS (.04)

  • Revs +39% to 18.4m, GM 24% vs 31%, adj EBITDA (.7m) vs 1.5m

  • CFO before NWC (1.3) vs 1.3, after NWC (4.8) vs (0.64)

  • Backlog 88.4m, quote log 1.17bn

  • Continue see delays and higher costs due to pandemic health and safety measures

  • FY20 Guidance: Lowered to Revs 70-80m from 80-90m, does not expect positive adj EBITDA 

  • Implies 4Q Revs 20-30m, est 28.2m, YTD adj EBITDA (1.7), difficult to read into 4Q but 3Q print suggests it’s negative

  • FY21 Guidance to be provided with 4Q results but does not expect record revenues in Renewable Gas Infrastructure

  • Mgmt discussed Biostream, new small-scale biogas system (one aspect of the market they were missing) for farms and wastewater treatment facilities, can handle flows up to 280CFM or 450 normal cubic feet per hour, designed for easy install and minimal construction, can be tested prior to shipment which reduces commissioning time, quoting >$100m, launching NA and expect Euro launch in 2H21

  • New CFO

  • Expect to move to TSX before Jan 19, 2021

2Q20   (.01) vs .02 est .01

  • Aug 11, 2020, P=4.99, TTM EPS (.02), P/E=N/A, FY21 P/E=33X

  • Revs +53% to 19.6m, GM 22% vs 32%, adj EBITDA (0.1m) vs 1.8m

  • Bookings 15.3m vs 4.4m, B/B=0.78

  • Backlog 85.5m vs 63.5m and down from 89.8m at 1Q and 99.3m at 4Q, quote log 1.05bn (a very tenuous number but indicates quoting activity), Signed several LOIs for RNG systems in 2Q, received a number of orders for hydrogen purification, significant helium purification order, expects solid orders in 3Q

  • CFO before NWC (518.6k) vs 1.2m, after NWC (12m) vs (95k)

  • FY20 Outlook: Maintained Rev guidance 80-90m, retracted EBITDA and earnings guidance due to 1H results, expects positive EBITDA and net earnings for FY20

  • Company has been growing costs ahead of revenue for growth, sharpening focus on GMs in low 30s and SG&A <20%, expect operating leverage with revenue growth

  • Europe recovering slower than expected

  • Profitability impacted by higher than expected delivery costs especially installation (shouldn’t be surprising during pandemic), installations in 4Q should benefit from what they learned and focus on controlling costs

  • Stock selling off up to -11% after a strong run, while retracting EBITDA guidance is not positive, mgmt. indicates it’s primarily from 1H results but more importantly revenue guidance is unchanged, growth is solid and their opportunity is significant.

1Q20   (.02) vs .01 ex g/l, est 0.00

  • May 27, 2020, P=3.80, TTM EPS .01

  • Revs +24% to 12.2m, GM 25% vs 34%, adj EBITDA 0.4m vs 1m

  • Revs impacted ~3.8-4m due to shut downs, expect improved cadence 

  • Bookings 2.7m vs 3.3m, can be very lumpy

  • Expect 2Q Revs ~20m due to deferrals from 1Q

  • 23.7m in cash, 18.2m net cash, 

4Q19   (.01) vs (.02), est .01, FY19 EPS .03 vs (.07)

  • Apr 15, 2020, P=3.15, TTP EPS=.03, P/E=105X, FY20 P/E=39X

  • Revs +123% to 13.6m, GM 30% vs 25%, adj EBITDA 1.9m vs (0.8m), adj OM 3.7% vs (13.4%)

  • Working Capital 36.9m, 22.7m cash, 5.25m debt, Backlog 99.3m vs 78.3m last year, quote book>937m, 11.98m warrants o/s

  • Declared essential business, office workers migrated to home-based work, prodn staff continue to work on products for healthcare and other essential customers, no furloughs/layoffs. 

  • Shanghai facility fully operational, deliveries restarted in March and continue to expand, Italian facility still on hold, expect restart by early to mid-May.

  • FY20 Guidance: maintained previous guidance, Revs 80-90m (+72% at midpoint), EBITDA 11-13%, 10.2m at midpoint vs 5.1m, 

3Q19:

  • Nov 11, 2019, P=2.03

  • FY19 Guidance: Revs 48-49m, EPS .06-.07, Implied 4Q Revs ~12.3m, EPS .02, 

  • FY20 Guidance Revs 80-90m, NI 7-9%, EBITDA 11-13%, implies EPS ~.12 depending on share count

  • Quoting pipeline >880m