Here is the Beacon ReportQ4/FY21 Results. Xebec reported Q4/FY21 revenue of $45.9 million, marginally ahead of our $43.2 million estimate and consensus $43.7 million.
The Service segment reported revenue of $22.6 million, ahead of our $15.7 million, with Cleantech revenues of $23.3 million below our forecast of $27.5 million. The company reported adjusted EBITDA of $0.2 million, well below our $4.9 million forecast and consensus $3.2 million. The miss was largely attributable to weaker gross margins, which came in at 22.3% (Vs. our 37.1% forecast). The weakness in gross margins was due to weak performance in the Cleantech segment (gross margins were 10.4% vs our forecast of 31.2%), while gross margins at the Service segment were largely inline with expectations (34.6% vs 35.0% forecast).
For FY21, the company’s consolidated revenue of $125.9 million was inline with its lastprovided guidance ($120-$130 million) but adjusted EBITDA margin of ~-7.0% was below the provided range of -3% to -5%. Solid Backlog Growth But New Management Elects to Stop Providing Guidance. Xebec’s backlog stood at $123.8 million as of March 16th, 2022, solid growth of ~$23.8 million compared to November 10th, 2021 figure. The bulk of the growth came from Cleantech segment, with Xebec adding $19.3 million in new contracts since last November.
However, the new management team elected to stop providing annual revenue, adjusted EBITDA and earnings guidance. The company blamed the recent geopolitical crisis in Ukraine and the continued impact of the global pandemic as the reason behind this move. We understand that global supply chains remain challenged, and the recent geopolitical crisis might have added some complications to that (mostly on commodity/basic materials side). However, Xebec generates more than 2/3rd of its revenues from non-Europeanbased operations and the US market is its growth engine, especially given the bottlenecks at its German operations (Inmatec) and relatively small contribution form Netherlands (HyGear). Thus, at minimum, the company should have been able to provide revenue guidance for FY22E. We will have to wait for the company’s investor day later this month where it will unveil “multi-year strategic plan to enable the successful execution of its many growth opportunities”. RNG Infrastructure Activity Continues.
XBC did not provide major updates regarding RNG Infrastructure (partnership with FTQ). To date, the partnership evaluated 31 projects (up slightly from 28 as of Q3/FY21) and remains actively involved in 18 projects (down from 24 as of Q3/FY21) with several LOIs signed. Revising TP Lower on Lack of Visibility and Multiple Contraction. We adjusted our forecast to reflect lower revenue and margins at the Cleantech segment, higher SG&A, offset by stronger revenue performance at the Service segment (see sidebar). With the new management team highlighting continued challenges to its supply chain, we believe modeling a conservative improvement in margins is prudent. We note that this improvement is based on a ramp up in delivery of BGX Biostream (containerized system) and the wind down of custom systems (expected by the end of Q1/FY22E). We rolled forward our valuation base to FY23E and now use EV/Sales multiple of 2.1x (vs. 3.5x FY22E previously), which is 1.0x discount (unchanged) to diversified industrial gases peers.
Our new target price is $2.50 (vs. $4.30 previously) and we maintain our BUY recommendation. We note that upside to our forecast could come from better performance in the ramp up of BGX Biostream production as well as strong orders in PSA systems (potentially from carbon capture applications).