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VICTORY CLEAN ENERGY, INC. (VYEY)·Q2 2018 Earnings Summary

Executive Summary

  • Q2 2018 was a structural “pivot” quarter driven by a large related‑party debt-to-equity conversion and the closing of the Pro‑Tech acquisition; continuing operations generated no revenue and reported a non‑cash, stock‑compensation driven loss from continuing operations of $(11.84)MM and EPS of $(0.50) .
  • General & administrative expense surged to $11.77MM largely from the VPEG note settlement recorded as stock‑based compensation; interest expense fell year over year; discontinued operations contributed $36K income and $55K revenue .
  • Management closed the Pro‑Tech Hardbanding deal (expected ~$2.0MM 2018 gross revenue) and added $375K secured financing (10% coupon, optional conversion); a $7MM private placement is targeted to fund distribution, M&A and product build‑out .
  • No Wall Street consensus estimates were available via S&P Global for VYEY; comparisons to estimates are therefore not possible (S&P Global consensus unavailable).

What Went Well and What Went Wrong

What Went Well

  • Closed strategic acquisition: Victory acquired 100% of Pro‑Tech Hardbanding on July 31, 2018; Seller’s covenant not to compete and collateral structure support integration; management highlights Pro‑Tech’s “active growth curve” and ~$2MM expected 2018 revenue .
  • Balance sheet clean‑up and financing: Converted $1.41MM related‑party debt to equity/warrants; obtained new $520K affiliate financing and a $375K secured note to fund Pro‑Tech, lowering interest expense YoY .
  • Strategic narrative: “Our second quarter represented a pivot point… reducing a large liability… well positioned for an early‑stage rollout of our exclusively licensed amorphous alloy products and services” — Kenny Hill, CEO .

What Went Wrong

  • Non‑cash expense spike: G&A escalated to $11.77MM (vs. $0.51MM YoY) primarily from $11.28MM stock‑based compensation tied to the VPEG settlement; this drove a sharp loss from continuing operations and EPS degradation .
  • No continuing revenue/margins: With the upstream assets classified as discontinued operations, continuing operations reported zero revenue; margin analysis is not meaningful this quarter .
  • Ongoing going‑concern and controls issues: Management reiterates going‑concern risks and material weaknesses in internal control (segregation of duties) remain under remediation .

Financial Results

Income Statement and EPS (Continuing and Discontinued)

MetricQ2 2017 (oldest)Q1 2018Q2 2018 (newest)
General & Administrative ($)$513,826 $427,387 $11,771,825
Interest Expense ($)$98,633 $58,316 $63,744
Loss from Continuing Ops ($)$(620,161) $(485,896) $(11,835,688)
EPS, Basic & Diluted ($)$(0.74) $(0.07) $(0.50)
Revenues from Discontinued Ops ($)$70,680 $86,483 $55,420
Income from Discontinued Ops ($)$5,988 $49,086 $36,361
Weighted Avg Shares823,278 5,903,454 23,479,779

Notes: Continuing operations reported no revenue; margins are not meaningful for continuing operations given zero sales .
Q2 2018 EPS deterioration reflects large non‑cash stock compensation and a much higher share count .

KPIs and Balance Sheet Highlights

KPIQ1 2018Q2 2018
Cash & Equivalents ($)$20,324 $33,521
Current Liabilities ($)$2,293,013 $1,488,272
Working Capital Deficit ($)$(2,167,222) $(1,363,520)
Stock‑Based Compensation (Quarter, $)$25,000 $11,331,602
Intangible Assets (Licensed IP, $)$17,630,000 $17,630,000

Segment Breakdown

Not applicable; Victory reports continuing operations in oilfield tech with former upstream operations classified as discontinued .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Pro‑Tech Gross RevenueFY 2018—~$2.0MM expected (if achieved) New
Capital Raise (Private Placement)Near‑term—Target up to $7.0MM to fund distribution, M&A, product build‑out New

No formal guidance for revenue/margins/EPS was issued for core Victory operations; management framed strategic funding and acquisition expectations .

Earnings Call Themes & Trends

No Q2 2018 earnings call transcript is available.

TopicPrevious Mentions (Q2 2017, Q1 2018)Current Period (Q2 2018)Trend
Business model transitionQ2 2017: legacy E&P, small revenues; Q1 2018: shift to oilfield tech licensing and acquisitions Emphasizes pivot, rollout of amorphous alloy products; Pro‑Tech acquisition Accelerating towards oilfield services/tech
Financing & capital structureQ1 2018: $467K affiliate debt; planning private placement $520K affiliate debt, $1.41MM conversion to equity/warrants, $375K secured note; $7MM targeted raise Active financing; reduced near‑term interest burden; added secured debt
Discontinued operationsQ2 2017/Q1 2018: upstream ops reclassified; modest discontinued revenue Continues; $55K revenue, $36K income Winding down legacy impact
Product/technology narrativeQ1 2018: exclusive license; planned rollout “Combination of friction reduction, torque reduction… RFID solution” detailed; expansion plans Reinforced; customer collaboration focus
Controls/going-concernQ1 2018: material weaknesses; going-concern Ongoing; remediation in progress Unchanged risk profile

Management Commentary

  • “Our second quarter represented a pivot point for the Company as we converted a large related‑party debt facility with VPEG into Victory equity, thus reducing a large liability… Combined with the recent completion of our strategic acquisition of Pro‑Tech, we believe we are well positioned for an early‑stage rollout of our exclusively licensed amorphous alloy products and services.” — Kenny Hill, CEO .
  • “The combination of friction reduction, torque reduction, reduced corrosion and wear… as well as enhanced asset utilization from the deployment of our RFID solution… We anticipate new innovative products will come to market as we continue to collaborate with drillers to solve their most challenging down‑hole needs.” — Kenny Hill .
  • “Over the past several months we have made important progress… we intend to begin to fully leverage our ownership of a worldwide, perpetual, royalty‑free, fully paid up and exclusive license… to create a meaningfully differentiated oilfield services business with little effective competition.” — Kenny Hill (Q1 release) .

Q&A Highlights

No Q2 2018 earnings call transcript or Q&A was available.

Estimates Context

  • S&P Global consensus estimates (EPS, revenue) were unavailable for VYEY; we attempted to retrieve Q2 2018 but received no CIQ mapping (S&P Global consensus unavailable).
  • Without consensus, no beat/miss assessment can be provided.

Key Takeaways for Investors

  • The quarter’s headline loss was driven by a one‑time, non‑cash stock compensation from the VPEG settlement; excluding this, cash burn improved vs prior year (interest down 35% YoY in H1) .
  • Strategic execution accelerated: closing Pro‑Tech adds an operating platform and expected ~$2MM FY18 gross revenue; integration secured via asset liens and non‑compete .
  • Liquidity runway modest but improving: cash rose to $33.5K; working capital deficit narrowed to $(1.36)MM; additional debt capacity via VPEG and Kodak supports near‑term operations pending equity raise .
  • Share count expansion materially affects per‑share metrics; weighted average shares increased to 23.48MM vs 0.82MM YoY, amplifying EPS sensitivity to expenses .
  • Near‑term trading implications: stock may react to capital raise milestones, Pro‑Tech performance cadence, and progress on product rollouts; lack of continuing revenue/margins keeps fundamental valuation anchored to execution risk .
  • Medium‑term thesis hinges on converting licensed IP into recurring revenue through acquired channels, improving controls/discipline, and scaling with less dilutive financing .