Yahoo Finance
Filing
Sept. 20, 2018
Q2 2018 Data
Price: $2.45, Shares: 26.5m, Cap: $65m
1.Basic Information
(1) History
The company was founded in 1994. Daniel Motyka joined the company in 1995 and led the IPO in 1997. It developed waste gas combustion equipment that can be used in the gas and oil industry to control methane flaring and emission.
In 1999, Audrey Mascarenhas joined the company to help improve the product. She was an engineer for 17 years and retired at that time. Later in 2005, Audrey replaced Daniel as CEO of the company and led the company up to now. She has an incredible story as a female working in the oil and gas industry.
The company's revenue was quite low at the beginning and reached $2m in 2005, then over $3m in 2006. In 2007, it had a one-time revenue boost of $6m from a China sale. Revenue continue to grow to over 12m in 2014. In 2015 and 2016, revenue dropped to $7-8m level but recovered to over $19m in 2017.
(2) Business-related.
Methane Incinerator: This is its main product. The incinerator has an efficiency of 99.9% compared to just a 60% level if just flaring methane. It has no visible flare as well. Also significantly improves air quality and smells. Previously it sells its incinerator to its customer. Now it relies more on rental revenue which provides more flexibility for its customers.
Currently, rental revenue counts for over 60% of its revenue. Rental seems to have a higher gross margin.
The company was actually very profitable. Its gross margin has improved to over 50% which is very impressive. Also, its SG&A ratio is getting down to just 15% right now.
The company's business is heavily concentrated in Colorado. Mainly because the state has a strict methane emission regulation. In Sept. 2018, the US government signed a rollback on federal methane regulation signed at Obama time. Thus causing the stock to fall from over $4 to the $2 level.
(3) Management.
Audrey Mascarenhas: She is a very talented engineer and seems to manage the company very conservatively. The company's shares since 2002 were 23.4m and now are 26.4m. It was profitable since then.
(4) Debt and Credit Facility.
$5m cash and no debt.
(5) Insider holding, options, Insider trading info, share buyback.
(6) Employee numbers
(7) Industry comparison.
(8) Major events
2. Financial data.
3. Valuation
(1) Currently, the company generates over $2m/quarter in income. It is traded at just around 8 P/E which is very cheap. Obviously, people are expecting the company's revenue will shrink significantly because of the regulation change. If the revenue shrinks by half, it still could get around $4m/year of income, the current price is still acceptable.
4. Risk
(1) The regulation change is obviously the biggest risk the company is facing right now. However, Colorado has indicated that it will not changes its regulation. Also, just from a cultural point of view, I don't think its customers will suddenly end those rentals and start burning methane. But for new projects, the oil and gas company may choose not to use the company's product. It is possible that its revenue will shrink for quite a while. But I believe it will be a slow process.
(2) Its revenue is concentrated in Colorado which is quite a risk.
5. Conclusion
Overall the company was very well managed and has good growth potential. Although there are some risks, I think the current price is very attractive.
6.Links
http://www.investorfile.com/blog/blogcat.asp?catid=341
https://www.youtube.com/watch?v=DGOLcI6ga0k
Update: July 31, 2022
Price: 0.98. Shares: 27.8m. Cap: $27m.
1. It has been quite a hard time for the company during the last two years as its major rental customer filed for bankruptcy in early 2020. Now its rental revenue is around $0.5/quarter vs $4m/quarter at the highest point. Equipment sale was also down a lot with only $4.1m in 2020 and $2.6 in 2021 vs $12m in 2019. The company's 2020 cash flow is positive while in 2021 it burned around $2.5m.
2. So far in Q1 2022, its equipment sale is $1.6m. In Q2 2022. It is expected to have similar equipment sales as in Q1. It also has $4.9m committed equipment sales in total.
3. In late 2021, Sustainable Development Technology Canada (“SDTC”) signed a Waste Heat to Power generation product development project with the company with $4.5m funding. The first $0.75m was received in Q1 2022.
4. Currently, it has around $15.8m in cash which is actually $2m higher than at the end of 2019. The main reason for this is a $1m interest-free loan from the government and the $0.75m received recently, plus some working capital changes.
5. With higher equipment sales and the $4.5m funding from SDTC, it is more than likely that the company will achieve a cash flow positive in the near future.
6. Generally speaking, the outlook of the company is going up. Although it is hard to tell when it will really turn around. It would be very positive if we can see its rental revenue going up as well.
7. Removing the cash, the company is trading around just $12m. It is much less than its hard asset. The price is very acceptable as long as it can maintain cash positive.
8. On the negative side, the company seems not doing so great in marketing and capital allocation. It might not need to be so conservative.
