FormerXBC Inc XEBEQ

TD Flash Note (a long lunchfor him)

[savyinvestor333]

Xebec Adsorption Inc. (XBC-T) C$3.22 Company at Potential Inflection Point with Q3/21 ResultsEvent Xebec reported Q3/21 results.

Impact: NEUTRAL

Q3/21 Results: Xebec reported Q3/21 revenue of $26.7 million, below our estimate of $36.4 million. That said, Xebec produced stronger-than-expected gross margins (42.2% vs. our estimate of 36.7%) that helped to narrow the gap between our EBITDA estimate of $1.6 million and reported EBITDAS of $0.4 million. Details on page 2.

Too Early to Assess RNG Order Execution: Xebec is nearing completion in the manufacturing of its first 2nd generation BGX Biostream unit as part of its 18 unit order for Chevron/Brightmark. While management noted that costs are tracking 'in line' with internal expectations, longer-term internal profitability targets require incremental manufacturing efficiencies and scaled up purchasing advantages which will take time to realize. In our view, this is the primary catalyst for the stock and something we will be monitoring closely.

Two Small Services Acquisitions Announced: Xebec announced the acquisition of California Compression ($9.2 million) and the assets of Wisconsin Compressed Air ($2.7 million) as the company continues to expand its geographic footprint.

Estimate Changes: Based on management's revised 2021 guidance, tuck-in acquisitions, and outlook commentary, we are not making any material changes to our Q4/21 and 2022 EBITDAS estimates. However, we are making an upward revision to our 2023 EBITDAS estimate that contemplates improved margin performance. Details on page 3.

TD Investment Conclusion While the company has acquired revenue streams from several companies serving relatively mature markets (a combination of product sales and service for the compressed air and natural gas, oxygen, and nitrogen markets), we believe that the profitability and future performance of its high-growth-potential RNG and hydrogen products will be key factors in determining investor confidence and, ultimately, valuation. With the acute RNG product profitability issues first disclosed in March 2021 ( full report) now in the rear view, our focus turns to evaluating go-forward manufacturing execution and the ability of its revamped RNG product offering to attract higher order flow. With the quarter, we are maintaining our HOLD rating and $3.75 target price.

[ZouZS3]

Longer-term internal profitability targets require incremental manufacturing efficiencies and scaled up purchasing advantages which takes time to realize. The primary catalyst for the stock and something they will monitor closely. They made an upward revision to 2023 EBITDAS estimate that contemplates improved margin performance. TD is focusing on manufacturing execution and the ability of its

[ZouZS3]

Fair assessment to me. Now that major issues are in the "rear view" Xebec has to execute execute execute & increases their orders. I like that he acknowledged that they produced stronger-than-expected gross margins + Too Early to Assess RNG Order Execution + 2 "Small" Services Acquisitionsexpand its geographic footprint. + profitability issues now in the REAR view + focus

[kulewater]

When did these transactions close? I like the strategic locations but some detail and disclosure would have been nice.

[savyinvestor333]

Yes the California deal is $9.2 million onsidering it is almost the same value as the  EUCompression deal