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CUI Global 4Q17 report ?3
09:47 14-Mar-18
The CUI Global conference call has just concluded. Some good
details were available, but the executive summary is that the data
center business will take most of the year to ramp, and the GasPT
business is still seeing European governmental delays.
More specifically, deployment in Italy was delayed for the election, and management has little visibility on how it will progress. This caused a Goodwill write-down and magnified the EPS loss in turn. What it is known is that there are still 350 units in inventory, and 100 units per month is still the expected installation rate. The best guess is that installations will be able to resume in the first half, and the formation of a government in Italy wold be a good sign, but is not necessarily a prerequisite to progress.
In the U.K. National Grid divested its distribution business.
The spin-off company has been engaged and management hopes for a
field trial this year, with deployment to follow in 2019 or 2020.
This would be for a billing solution, with approximately 1 device
per 500 customers.
Things could move faster in the U.S., but General Electric's own
issues with its water and Power business is another source of
delay. That deployment is much earlier stage and would only be
for 20-30 units in any case. It was disclosed that the recent
northeast American GasPT order was for an in-field pipeline
compression application, which represents a potentially large
market. CUI Global is selecting a sponsor for other field trials
in North America as well. Bio-methane to grid announcements for
California or Oregon could surface in the weeks or months to come.
Financially, the company is targeting low to mid-thirty percent gross margins across both product lines, which is slightly higher than my guesses, but won't be realized right away. The end result is that we should NOT expect CUI Global to achieve profitability this year, especially if GasPT delays continue. The market is taking all this mostly in stride, but we may have seen a temporary top.
CUI Global has reported financial results for its fourth quarter:
- a loss of 20 cents per share misses by 15 cents
- on $21.1M in revenue, which beats by $500K
Management sees gas demand building due to larger operations in Houston and the resumption of projects that were put on hold as the result of Brexit. As already mentioned, it also intends to market its data center projects more vigorously now that it has certification in hand.
Despite the big EPS miss, cash flow improved leaving the company with over $12M available as of year end. That leaves me hopeful that dilution will not be necessary. The conference call is at 8:30, and I'll be looking for something firmer than the vague statements on demand to confirm that.