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Xebec 3Q21 results ?3

09:46 11-Nov-21

The Xebec conference call has just concluded.  Questions were focused on hydrogen, but I reiterate Biostream and RNG is the currently important product and market.  To that end, I note that production output from UEC should begin in 2H22, and Biostream is sold out through then.  Investment is limited to Biostream-specific tooling, which helps to ally CapEx concerns.  Xebec had $61.9 million of cash and restricted cash at quarter end, compared to $168.6 million as at December 31, 2020.

With regard to future sales, management points out that up to 30% tax credit for systems is slated in Build Back Better, but I don't think investors should rely on that in short term as the debt load is likely to be intimidating.  However, it's clear that this is the way the world is heading and possible that deliveries will spike once policy is decided, regardless of what it is.

Management also sees supply chain problems continuing through next year and possibly into 2023.  Even basic supplies such as paint are being affected, which speaks to the pivotal nature of the coming months referenced in my macro/trading note earlier this morning.  Similarly, it's of interest to me that the CarbonQuest carbon capture pilot project output in NYC is being used for cement manufacturing in Brooklyn.  A second project is currently being designed, but it's obvious to me that the long term prospect are a matter of appropriate regulation. 

I do at least find it encouraging that and investor day has been put off to 1H22, and will now probably occur in the U.S.  XEBEF has been down as much as 5% but has recovered for the moment.  I would not be surprised to see further weakness and will continue to monitor it for my own and subscriber benefit.

Xebec has announced its third quarter results:

• a loss of 6 Canadian cents per share misses by 4 Canadian cents
• from CAD26.7M of revenue, which misses by CAD8.2M
• FY guidance upgraded to upper half of prior CAD110-130M revenue range but EBITDA margin downgraded for up to 5% loss to reflect the acquisition of UECompression and supply chain risks.

It's clear to me that Xebec is investing for growth but I had warned that it was probably too soon for that to show up as positive headline numbers, with Biostream units only be recognized when they are delivered.  The backlog is at over $100M, which is an all-time high.  The conference call is underway and I am listening, but I can't be sure there will be much more to say.  XEBEF hasn't traded yet in the pre-market.  I think it's under-priced for the long term, but could easily see renewed weakness in the short term.

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