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Strategic Environmental & Energy Resources, Inc. (SENR)·Q2 2017 Earnings Summary

Executive Summary

  • Q2 2017 revenue rose 71% year over year to $2.49M, led by Environmental Technology Solutions (MV) up 64% to $1.86M; gross margin improved to 14% from 11%, but the company reported a GAAP net loss of $1.30M and diluted EPS of ($0.02) .
  • MV booked over $3.5M in first-half purchase orders and recurring media sales, with segment net income of $540K in H1 2017; management expects continued growth from SulfAx and V3RU deployments, including a new Canadian JV .
  • Tactical railcar cleaning division was sold on July 31, 2017 for $2.4M upfront, $1.1M guaranteed over 3 years, and up to $1.5M performance bonus (total possible $5.0M); proceeds targeted to debt repayment and technology-unit growth; SG&A guided down to $2.3–$2.4M for H2 2017 and $0.5–$0.7M annualized savings in 2018 .
  • Wall Street consensus estimates (EPS and revenue) via S&P Global were unavailable for SENR in Q2 2017; comparisons to estimates could not be made (S&P Global data unavailable).

What Went Well and What Went Wrong

What Went Well

  • MV revenue grew 64% YoY to $1.86M with $3.5M in first-half POs; recurring high-margin media revenue is scaling with installed base. “MV Technologies had another great quarter… highest revenue growth and most profitable segment” — CEO John Combs .
  • Strategic re-focus completed: sale of Tactical enhances liquidity and enables SG&A reductions ($2.3–$2.4M H2’17; $0.5–$0.7M annualized savings 2018) to support higher-margin tech divisions .
  • Operational momentum: new master services agreement with a large U.S. refiner; pipeline service work increased; multiple tank cleaning awards; near-term revenues expected to impact bottom line starting Q3 2017 .

What Went Wrong

  • Profitability remains challenged: Q2 operating expenses rose to $3.42M (from $2.36M), driven by higher product/service costs and G&A; net loss widened to $1.34M (pre-NCI) and interest expense surged to $0.53M, including warrant/stock penalties tied to short-term notes .
  • Services margins compressed due to underutilized manpower/equipment; service costs outpaced service revenue, and product margins were pressured by higher absorbent costs .
  • Liquidity/going concern risk: working capital deficit (~$4.3M), substantial doubt highlighted; heavy short-term financing and IRS payroll tax liability persisted into Q2 (paydown actions underway post Tactical sale) .

Financial Results

MetricQ2 2016Q1 2017Q2 2017
Revenue ($USD)$1,460,500 $4,200,000 $2,492,500
Gross Margin (%)11% 27.9% 14%
Net Income (Loss) Attributable to SEER ($USD)($795,900) ($400,000) ($1,296,500)
Diluted EPS ($USD)($0.02) ($0.01) ($0.02)

Note: Q2 2017 press release reflects continuing operations post-classification of rail as discontinued; Q1 2017 call referenced consolidated totals before the July sale, limiting strict QoQ comparability .

Segment revenue (continuing ops):

SegmentQ2 2016Q2 2017
Industrial Cleaning (REGS) Revenue ($USD)$271,400 $555,500
Environmental Solutions (MV & SEM) Revenue ($USD)$1,132,600 $1,862,500
Solid Waste (PWS) Revenue ($USD)$56,500 $74,500

KPIs and other financials:

KPIQ2 2016Q2 2017
Adjusted EBITDA (Loss) ($USD)($422,600) ($413,900)
Interest Expense ($USD)$154,600 $529,600
Cash And Equivalents ($USD)—$287,300 (6/30/17)
Weighted Avg Shares (Basic/Diluted)54,470,134 54,708,905

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
SG&A ($USD)H2 2017—$2.3M–$2.4M Lowered
SG&A Annualized Savings ($USD)FY 2018—$0.5M–$0.7M New
Near-term revenue impact to bottom lineQ3 2017—Management expects impact starting Q3 New
SCAQMD full operating permit (CoronaLux)Q3 2017 (expected)—Full permit expected Q3 (post public hearing) Timing update
Gain on sale of Tactical (discontinued ops)Q3 2017—Company expects to record a gain New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2016 and Q1 2017)Current Period (Q2 2017)Trend
MV growth and media revenueMV Q4’16 revenue $1.0M vs $0.4M YoY; FY’16 $4.5M vs $3.5M . Q1’17 MV revenue up 195% to $1.7M; media sales +120% .Q2’17 MV revenue $1.86M; >$3.5M H1 POs; H1 net income $540K .Strengthening
CoronaLux permitting (CA/FL/TX/UK)Texas permit ~2 months; SCAQMD process 3.5 years; CA R&D ops since May 2015 . Q1’17: SCAQMD “Notice of Intent”; FL and TX permitted .CA: SCAQMD public hearing; full permit expected Q3; FL county permit secured; TX JV LOI .Progress with delays
Canadian V3RU JV (oil & gas)Partnership with IET; Phase 1 Western Canada rollout planned .JV 90/10 (SEER/IET); aim to deploy pilot units before winter; potential industry capital light .Advancing
Tactical sale and SG&AQ4’16: sale negotiations and EBITDA upshift .Sale closed 7/31/17; $2.4M upfront + $1.1M guaranteed + $1.5M earn-out; SG&A cuts guided .Executed
REGS customer pipelineQ1’17: regained large customer; new chemical cleaning services .New MSA with large refiner; pipeline/tank cleaning projects in OK/TX/WY; Q3 impact expected .Improving
Liquidity/Going ConcernPrior losses and working capital deficit flagged .Continued going concern risk; heavy interest expense from stock penalties on short-term notes .Persistent risk

Management Commentary

  • “Midway through 2017 we are seeing positive results in all of our divisions, with decent year-over-year growth. MV Technologies had another great quarter, with revenues up 64% to $1.9 million… over $3.5 million in new purchase orders” — CEO John Combs .
  • “Management expects to continue our growth trajectory in the second half of this year, as our patented fugitive emission capture technology, the V3RU and the V3RU Plus, continue to garner interest” — CEO John Combs .
  • “We anticipate selling, general and administrative (SG&A) expenses to be reduced into the range of $2.3 million to $2.4 million for the second half of 2017… expected annualized savings in the range of $0.5 million to $0.7 million” — CEO John Combs .

Q&A Highlights

  • Texas medical waste JV structure: SEER expects to recognize ~$0.5M revenue immediately from existing inventory; JV partner contributes $6M; plan to purchase 24 large CoronaLux systems over five years; SEER owns 25% and earns management fees; no dilution at SEER level .
  • SCAQMD permit specifics: anticipated full permit allows ~3,000 lbs/day operation at Paramount site (sensitivity to neighborhood logistics); management modeling revenue per pound and operating costs underway .
  • REGS revenue visibility: management to provide guidance after observing Q3 trajectory; multiple significant customer events including pipeline services and returning 20-year customer .
  • Canada V3RU rollout: JV 90% SEER/10% IET; capital-light approach; goal to deploy pilots before winter; potential industry-linked funding for influence rather than capital need .
  • Hospital on-site opportunity: considering smaller units for destruction on-site, leveraging mobile nature and operating characteristics; viewed as viable and lucrative .

Estimates Context

  • Wall Street consensus (S&P Global) for Q2 2017 EPS and revenue was unavailable for SENR; no estimate-vs-actual comparison could be made.
  • Implication: With limited/no formal sell-side coverage, near-term estimate revisions are unlikely to be a stock catalyst; narrative and execution milestones (permits, JV commercialization, SG&A savings realization) become the primary drivers.
MetricQ2 2017 ConsensusActual
Revenue ($USD)Unavailable (S&P Global)$2,492,500
EPS ($USD)Unavailable (S&P Global)($0.02)

Key Takeaways for Investors

  • MV momentum is real: sustained order flow and recurring media revenue underpin higher-margin growth; H1 MV net income of $540K provides proof of earnings power even as consolidated results remain loss-making .
  • Operating leverage potential hinges on SG&A cuts and services margin recovery; H2 2017 SG&A reduction and 2018 savings targets, plus better manpower/equipment utilization in services, are key to narrowing losses .
  • Liquidity improved post-Tactical sale, but balance sheet risk persists; working capital deficit and interest burden (stock/warrant penalties) remain watch items until debt is reduced and IRS liability resolved .
  • Near-term catalysts: Q3 gain on sale, SCAQMD final permit, Texas JV commercialization, and Canadian V3RU pilots; successful execution should support a narrative turn and potential multiple expansion for the technology story .
  • Compare quarters carefully: Q2 results reflect continuing ops, while Q1 included rail before divestiture; investors should focus on segment trajectories (MV, REGS, PWS) rather than headline QoQ swings .
  • Non-GAAP use: Adjusted EBITDA loss improved slightly YoY; management’s Modified EBITDA excludes non-cash items, warrant expenses; track progress but anchor on GAAP margins and cash generation .
  • Medium-term thesis: If MV continues scaling high-margin media and SulfAx/V3RU placements, and PWS commercializes CoronaLux under more permissive jurisdictions (TX/FL), SENR’s pivot to a dedicated environmental tech platform can materially improve profitability and reduce reliance on low-margin services .