Sign in

You're signed outSign in or to get full access.

SE

Strategic Environmental & Energy Resources, Inc. (SENR)·Q2 2016 Earnings Summary

Executive Summary

  • Q2 2016 revenue declined to $2.56M, down 14–15% year-over-year, driven by the loss of routine industrial maintenance services with the largest customer on April 1; gross margin improved to 17.5% and diluted EPS was -$0.02 .
  • Environmental Technology Solutions (MV/SEM) offset some pressure: media replacement sales surged 554% to $0.45M and MV booked a $0.75M H2SPlus system order; Paragon’s CoronaLux received “Final Review Status” from SCAQMD, the last step before an unconditional permit .
  • Services mix reset underway: REGS/Tactical launched projects with new Fortune 500 customers in August and secured chemical cleaning work for September/October, positioning a H2 2016 rebound .
  • Balance sheet actions contemplated: management is evaluating asset sales; the CFO retained a bank and cited active negotiations, with potential >$2.5M proceeds to strengthen liquidity and fund growth .

What Went Well and What Went Wrong

What Went Well

  • Media monetization accelerated: “SEM shipped 10 orders… generating approximately $400,000 in high-margin sales,” and MV’s media replacement sales rose 554% to ~$445,000 in Q2 .
  • MV execution and pipeline: secured a $750,000 H2SPlus order for a landfill gas project with a leading operator; 10 projects under management with ~$3M revenue opportunity and 10 landfill systems operational (3 more under contract) .
  • Regulatory progress for CoronaLux: “Received ‘Final Review Status’ from SCAQMD for an unconditional, non-research permit,” with emissions modeling submission imminent; management called commercial launch “now imminent” .

What Went Wrong

  • Services contraction: Industrial cleaning revenue fell 66% (-$842k) YoY due to losing routine maintenance work with the largest customer; segment gross margin dropped to 0% .
  • Consolidated profitability: net loss widened to $0.80M and diluted EPS was -$0.02; Solid Waste gross margin remained negative (-9%), albeit improved from (-45%) a year ago .
  • Liquidity tight: cash was $255k at June 30; management emphasized cost controls and contemplated asset sales to shore up the balance sheet .

Financial Results

Consolidated Performance vs prior periods

MetricQ4 2015Q1 2016Q2 2016
Revenue ($USD Millions)$3.20 $3.50 $2.56
Gross Margin (%)8.2% 38.3% 17.5%
Net Income (Loss) ($USD Millions)($1.10) $0.13 ($0.80)
Diluted EPS ($USD)($0.02) $0.00 ($0.02)
Adj. EBITDA ($USD Millions)($0.64) $0.40 ($0.41)

Notes:

  • Q2 revenue -14% YoY (press release) and -27% sequentially vs Q1; gross margin improved YoY to 17.5% from 16.2% .

Segment revenue breakdown

SegmentQ4 2015 ($USD Millions)Q1 2016 ($USD Millions)Q2 2016 ($USD Millions)
Products (Environmental Technology Solutions/MV)$0.44 $0.57 $1.13
Services (Industrial & Railcar Cleaning)$1.90 $2.86 $1.37
Solid Waste (Paragon Waste Solutions)$0.88 $0.07 $0.06
Total$3.20 $3.50 $2.56

Segment margins (selected)

Segment Gross Margin (%)Q1 2016Q2 2016
Industrial & Railcar Cleaning41% 0%
Environmental Solutions32.8% 38%
Solid Waste (Paragon)-45.2% -9%

KPIs and operating metrics

KPIQ4 2015Q1 2016Q2 2016
Cash & Equivalents ($USD Thousands)$257 $663 $255
Media Replacement Sales ($USD Thousands)——~$445
MV H2SPlus New Order ($USD Thousands)——$750
Rail Division Modified EBITDA (6M YoY)——“>8x higher” YoY (6M)

Estimate comparison

  • Wall Street consensus EPS and revenue estimates via S&P Global were unavailable for SENR for Q2 2016 and adjacent periods after attempts; no comparison to estimates can be made at this time. We attempted retrieval via S&P Global but did not receive data.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent Guidance/CommentaryChange
CoronaLux California non-research permitH2 2016Operating under research/conditional framework; testing completeReceived “Final Review Status”; emissions modeling to be submitted imminently; timing for final permit not specified Progressing
CoronaLux rollout (Northern CA, UK, FL)H2 2016Pursuing permits in multiple regionsNorthern CA permitting commenced; UK unit commissioned and awaiting final approval; Florida relaunch with new partner targeted by year-end Progressing
Services (REGS/Tactical) bookingsH2 2016Diversification underwayNew Fortune 500 projects started Aug; chemical cleaning projects slated for Sep/Oct; negotiating future refinery/hydrovac projects Positive setup
Asset sale/strategic alternativesH2 2016Not previously highlightedRetained investment bank; active negotiations; CFO indicated potential >$2.5M proceeds; evaluating sale of certain services assets New initiative
Revenue/Margins/OpExH2 2016No numeric guidanceManagement expects improved revenue and income across divisions in H2 2016 and beyond; continued cost controls Narrative only (no ranges)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2015, Q1 2016)Current Period (Q2 2016)Trend
CoronaLux permitting/regulatoryQ4’15: CA partner designated only facility approved to treat all types of medical waste; conditional permit; broader permits being pursued . Q1’16: “On verge” of broader operating permitting; California designation reiterated .“Final Review Status” secured; emissions modeling submission imminent; UK unit commissioned; Florida relaunch targeted .Advancing toward commercialization
MV pipeline/media strategyQ4’15: $1.0M landfill system; ~$38M proposal pipeline . Q1’16: SEM launched; granular absorbent partnership; MV closed $235k biogas projects; 40+ installed base .$750k H2SPlus order; 10 active projects (~$3M); media shipments ~$400k; 10 landfills operational, 3 under contract .Strengthening; higher margin mix
Services diversification/customersQ4’15: Energy downturn pressured services; diversification efforts initiated . Q1’16: Industrial cleaning up YoY; chemical cleaning entry .New Fortune 500 projects commenced; chemical cleaning schedule set; railcar LPG cleaning capability .Recovery groundwork laid
Rail operations performanceQ4’15: Services pressured; railcar cleaning upturn expected . Q1’16: Illinois facility launched; LPG capabilities .Rail modified EBITDA up >8x YoY (6M); flaring enabled higher margin LPG cleaning .Improving profitability
IP and patentsQ4’15: CoronaLux patent filings; continuation patent progress . Q1’16: Notice of Allowance for continuation patent .Second U.S. patent granted; broader IP protection strategy .Portfolio expanding
Oil & gas emissions tech (V3RU)Q1’16: Regulatory tailwinds in CO for methane; V3RU Plus highlighted .Ongoing field testing; capturing/compressing fugitive gases to generate NGLs; monitoring CO politics .Continued R&D and pilot

Management Commentary

  • “Environmental Technology Solutions revenues… strong with a 20% increase… more important is the 554% growth… media replacement sales… MV’s $750,000 purchase order for its H2SPlus” (John Combs, CEO) .
  • “The long-term growth engine… Paragon Waste Solutions… recent award of ‘final review status’ from SCAQMD… commercial launch is now imminent” (John Combs) .
  • “Adjusted EBITDA… improved… despite a 14% decline in consolidated sales… laser focused on controlling all of our costs” (John Combs) .
  • “We retained an investment bank… sale could generate in excess of $2.5 million… currently in active negotiations” (Monty Lamirato, CFO) .
  • “Automation… operator touches down to fewer than a dozen… operating costs… pennies per pound” (on CoronaLux improvements) (John Combs) .

Q&A Highlights

  • CoronaLux advancements: automation and throughput refinements; reduced operator touches; operating costs “pennies per pound” .
  • Oil field emissions capture: enhanced tech now compresses captured gases to produce NGLs; ongoing testing in Wyoming .
  • China and Northern California update: China partner paid full deposit (~$450k); pursuing waste contracts; Northern CA permitting initiated, expected to be faster than Southern CA .
  • Business development: negotiations with a Houston waste facility ongoing; management withheld details pending outcomes .

Estimates Context

  • S&P Global consensus estimates for SENR’s Q2 2016 EPS and revenue, and the adjacent quarters, were unavailable after attempts to retrieve via SPGI; as a result, no beat/miss analysis versus consensus can be provided at this time. We attempted retrieval through S&P Global but did not receive data.

Key Takeaways for Investors

  • Near-term catalyst: California CoronaLux non-research permit appears close (Final Review Status, emissions modeling submission pending); commercialization in CA and UK could pivot Solid Waste to positive margin revenue .
  • Mix shift to higher-margin technology: SEM media and MV systems are scaling; recurring media revenue strengthens earnings quality even as services reset continues .
  • Services recovery setup: REGS has new Fortune 500 wins and chemical cleaning projects scheduled in Q3/Q4, with rail EBITDA materially higher YoY; watch H2 2016 revenue trajectory .
  • Balance sheet watch: cash at quarter-end was $255k; asset sale proceeds (> $2.5M targeted) would be a liquidity inflection and fund growth/permit rollouts .
  • Profitability sensitivities: Industrial cleaning’s 66% revenue drop compressed margin to 0%; continued execution in MV/SEM and services diversification are key to stabilizing consolidated margins .
  • Risk management: Permitting timing is not guaranteed; Solid Waste margin remains negative; absent consensus coverage, stock reaction will hinge on permitting milestones and asset sale execution .

Cross-references and notes

  • Operating expenses disclosure discrepancy: press release cites OpEx of $3.4M (down 13%) , while call remarks cite $3.3M (down 17%) ; underlying drivers consistent (lower service costs and reduced Solid Waste startup costs).
  • Non-GAAP: Adjusted EBITDA is non-GAAP; reconciliation provided in the 8-K exhibits .