RE:The numbers are about what I expected, butfdxflyboy wrote: I'm suprised nobody has mentioned the obvious..... the net income of 329,000 pales in conparison to the 540,000 handed out like candy to the big wigs doing all the work. Do they deserve higher salaries, of course they do, do they deserve stock compensation well in excess of net income for the quarter,.... I think not. I still have confidence in the team, hope comp. issues will be addressed, and still feel they will exceed 36 mil for the year and stand by projections of quarterly revenue I shared with you a few weeks ago. Fine quarter, now lets get busy and make the stakeholders some long awaited money.
I'm surprised that you haven't realized that you can't look at net income without backing out of one-time events. If you adjust for the $430k unrealized forex loss due to the weakened canadian dollar, and the $530k for share-based compensation, you'd get an EBIT (earnings before interest and taxes) of $1.63M which is about equal to Q1 2014 EBIT. That makes sense given that gross margins are down 3% (because of the higher product liability insurance premiums due to all the recent derailments) and expenses are a higher % of sales compared last year Q1 (this too is normal since fast growing companies need to invest in their growth). That 3% gross margin took away $200k from their EBIT, but you obviously shouldn't adjust for that.
Think of it in terms of blood tests. There's a reason they tell you to fast prior to getting one: it's so you can compare base levels each time. If you do one blood test after fasting and the next without fasting, they will conclude you're diabetic since your blood sugar levels will be much higher in the latter case. In short, you have to compare oranges to oranges and apples to apples.
I think the important fact to realize is that inventory ballooned by 51% since last quarter. That's two quarters in a row, we see inventory build at significant levels (51% and 39%). It should be obvious to anyone that rising inventory levels usually translate to larger sales either in the immediate next quarter or the ones after. In this case, the increase in inventory in Q4 2014 didn't result in larger sales in Q1 2015 since OEMs were still holding orders back in anticipation of regulations. Now that regulations are finalized and backlogs are as high as they ever been, sales should start skyrocketting very soon. There might a slight delay in Q2, but we should be in full swing by Q3 IMO.
I have been a little dissapointed by the recent stock price action and I truly believe the stock is worth significantly more from these levels. It seems like investors are fixated on a few small non-issues such as management compensation, Kelso products not made mandatory in regulations, missing the $24M sales target in 2014, small sequential growth this quarter, etc. At the end of the day, this is a superb company growing at over 100% in the last two years (adjusted for forex) with excellent economics and huge barriers to entry that will result in an eventual monopoly. Furthermore, it's really impressive that they've managed to maintain a 23% EBIT and 44% GM while growing like a weed.