Velan Inc T.VLN

Q4 results - shaking my head

[screamer99]

What the company doesn't present / mention:

1. The EBITDA of $16m is substantially all from the net gain on the sale of the JV interest.

2. With the above, EBITDA would have been break-even for the quarter.

3. What they did is bury a "long-term" provision of $13m related to the claims that was first recorded in Q4. They've finally acknoweldged there should have been something recorded in the accounts related to future claims which was the subject of my previous posts, but this is amount is a fraction of the potential liability.

Without the above provision, cash claims costs are around $6m which is higher than last year.

4. No mention of the number of claims settled in the quarter or how many remain to be settled. This is a major red flag IMHO. If trends were improving (e.g., claims decreasing or cost per claim decreasing), they would have presented the info.

With the order backlog > 12 months returning to historical norms, I'm expecting a neutral year next year (but still profitable). With the backlog informaiton provided over the last 4 - 6 quarters, no doubt this year was going to be a record year. Can it be repeated? I don't think so.

When you realize the company's cash balance is funded by customer deposits, the cash position isn't as impressive.

Obviously plenty of cautionary notes here and with less information disclosed, I'm continuing to wait on the sidelines. Good luck to those who continue to hold.

[knicksman]

Wow. I'm impressed with how you picked up (only) all the negatives.  Yes, a cleaner EBITDA would exclude the gain -- but it would also exclude the litigation provision.  According to the company, the provision "would account for all oustanding litigations rather than only settlements". Management essentially thinks the future litigation costs have susbtantially decreased.

[Deepvalue1981]

Not to mention that the bidding environment must be very robust at the moment. Their book to bill ration was negative but look at the date of the end of Q4 and what the energy markets have done subsuquently.  They have significantly improved their disipline when bidding on projects over the past couple of years resulting in much better GM's. If they can maintain this level of volume and

[knicksman]

100% agree. I think they can generate $30m to $40m in EBITDA next year.  The biggest opportunity remains with the working capital.  I think they have at least $70 million of excess working capital. It should improve over time. Hopefully they put that capital back to work in a better way. 

[screamer99]

Lower sales and profitablity due to delays related to government documentation and increased freight costs - fine. But what they don't disclose this quarter is anything to do with the asbestos claims. Nothing. Nada. With taking a provision last quarter and the lack of disclosure this quarter, watch out. If things were improving on this front, you'd be sure to hear about it. The next

[undervalue]

Question asked on call. Asbestos, same as last q 4.3 million. ST was annoyed. 

[1condor]

screamer99...good call..since your July post the stock has fell from 8 bucks to about 5. One has to wonder if it going to dip to the 2020 lows (just above 4 dollars). I will continue to monitor and may look at a trade on further weakness.

[screamer99]

I don't know how low this will go. From what I can estimate, between actual cash costs and provisions, asbestos claims are costing the company $7m over each of the last 3 quarters ($4m cash costs, $3m provisions). They didn't hit the $90m revenue mark I discussed earlier, but it seems like one order would have put them over the edge. For the next quarter then, I think we need to see