FormerXBC Inc XEBEQ

TD comments

[mingzhu]

Xebec reported Q1/22 results. Impact: NEGATIVE Q1/22 Results: Xebec reported Q1/22 revenue, EBITDA and EPSD of $41.2 million, a loss of $8.4 million and a loss of $0.12/share, below our estimates of $46.9 million, $0.1 million and a loss of $0.02/share. The quarter was negatively impacted by continued losses from legacy contracts, inflationary pressures and supply chain challenges. Details on page 2. Management Addresses Margin Challenges on Conference Call: Management outlined its "Center of Excellence Framework" on the Q1/22 conference call that it anticipates will drive a 2% to 4% improvement in adjusted EBITDA margins over the next 12 months. Estimate Changes: Management indicated that the negative impact of legacy contracts will persist throughout 2022 and that it expects to face continued headwinds from inflationary costs pressures and supply chain impacts in 2022. As a result, we are reducing our 2022 and 2023 EBITDA estimates to a loss of $11.8 million and positive $7.6 million, down from $1.7 million and $9.9 million, respectively. Details on page 3. TD Investment Conclusion Given the company's high financial leverage (2023E ND/EBITDA of 15.7x), continued losses from operations (2022E and 2023E funds flow from operations of negative $28.3 million and $13.6 million), increased working capital needs to execute on its growing backlog and ongoing pursuit of a hydrogen Gas-as-a-Service infrastructure strategy (importantly, our estimates feature a lower spending profile relative to management's guidance for 20-25 hubs at $2.5 million to $4.5 million per hub) we believe that Xebec is on an unsustainable path. As a result, we believe that there are more compelling opportunities elsewhere in our Clean Technology coverage and are maintaining our HOLD rating with a reduced $1.40 target price ($2.25 previously).