FormerXBC Inc XEBEQ

Digested Q1

[GGreen]

After taking a couple of days to digest the news, here’s my take on XBCs Q1 results using a scorecard-type analysis of the key area’s (IMO)…

Looking back:

• Q1 Financials: C+  although a 69% rev. increase (vs PY Qtr) would normally deserve a much better grade, when you strip out the rev. contribution from HyGear $5.7M and from acquired services cos $4.4M, they had a 15% decrease from Q1’20 which you’ll recall was a weak Qtr to begin with; also supporting a mediocre grade on financials was the decreasing EBITDA & GM% down although expected residual from Q4’20 project mgmt. debacle; high SG&A which is bad but not a surprise due to high number of acq’ns and ST inefficiencies but reinforces  the critical need to focus on execution (& integration of acq’ns) which only points to importance of a strong COO being appointed

Looking forward:

• Overall Strategy: A- but not across the board
  • Cleantech BGX / RNG: A- (standardized product in a box should reduce the number of moving parts (literally & figuratively) should improve efficiencies & bottom line)
  • Hydrogen on-site (HyGear): A+ I like high profile project rollouts eg. Coregas (large co in Australia & New Zealand) & OmAir (India)
  • N&O on-site (Inamtec): A another containerized plug & play product is a very timely play
  • Services Cos: C target to get to 30 acq’ns and $250M by 2025 doesn’t seem realistic IMO and fraught with risk and quite frankly I think few people are here because they want part of a “services” driven business which I don’t think drives a high multiple from a valuation perspective (as an alternative: the GRN’s outsourcing model is delivering good GM and reduced risk…hmmm)
  • BOO: C- GaaS sounds interesting but they have been talking about it since I’ve been following it and delivered little; adding FTQ / GNRQC will just push back any tangible results for another 2-3 years
  • China JV: F I’ve never liked this strategy (more of a drain & distraction than anything else)
• Mgmt: C-  but will re-evaluate after the COO is announced (I initially bought into XBC because of CEO and then drank the COO flavor of the Kool-Aid
• Board: C  I’m not seeing the value that they are bringing to the table but will admit this is hard to evaluate as an outsider.

Concerns: Cash burn with through acquisitions or Ops; looking forward to Cashflow from ops but numerous acquisitions could keep pushing it back (points to need for execution / integration); Getting the right COO.

As an aside: did anyone else notice the tall buildings outside the CFO’s office during the webcast? The last time I was in Blainville, Qc I don’t recall see any tall bldgs but it could have grown a lot since (read sarcasm) – check Google Maps. My guess is the CFO is working from a downtown Montreal office – perhaps a sales office but certainly not the heart of the business. Even if it is less than an hr drive away, given he’s new to the business and at such a critical time I would say “get your @$$ to where the ops are.” I’ve been holding back on making a opinion on new CFO but right now I’m not convinced based on last 2 calls.

Conclusion: Cautiously optimistic but will re-evaluate after COO announcement which should be later this week.

Tempted to do the same type of review on GRN (on that board).