Pre-market down 37% at the moment
I listened to the conference call and it seemed to be saying don’t expect profits in 2015 they are going to focus on reducing expenses. They also want to focus on higher margins as opposed to volumes which seems like maybe a shift in strategy. The conference call didn’t seem horrible to me in typed format but did seem to be saying a good amount of patience is required.
Anybody else have any feedback from the earnings and direction to take?
I guess I’ll sit here and be patient with my shares. I think this will be the lowest it hits for a while.
Make that down 47% now.
It never seems to be simple with these “breakthrough” companies…at least not the ones I run across. I thought they were on their way after last quarter’s report. Things seemed to be coming together and they were ready to start growing and working toward profits. I started buying more shares, but then the slide started. I bought a few more on the way down thinking the market was just impatient. But now this.
I listened to the call yesterday and I understand a drop, but not to this degree considering the drop that had already taken place. The two points I got out of the call were that they were having some difficulties ramping up production in Moema, partly due to their process and partly due to power reliability. The first of those should be expected, although I don’t think we know the degree of the problems. Both seem to be issues that will be resolved.
The other point was that they are cutting back/out on some of the products they produce because the products they compete with (crude oil, palm oil) have dropped in price for now to a point where they are not competitive. I’m not sure how bad that is for them. They still have other products that are higher margin, like Encapso.
Saul, I wasn’t following the WPRT boards too closely when you were talking them vs. PSIX but I think I know the story fairly well from a few posts there and most of the references here. I’m wondering if you have any thoughts to share with us on comparing the SZYM situation to WPRT at that time.
I’m surprised by the size of the drop this morning. I’m not buying more now because I already have as much as I want to hold. I’m not selling either because I think this will be close to the bottom unless they completely fold.
I’m wondering if you have any thoughts to share with us on comparing the SZYM situation to WPRT at that time.
Yes, as I’ve said before, it’s pretty clear that I should have applied my principles about not investing in money-losing development stocks to SZYM as well, and I shouldn’t have made an exception for SZYM. My error.
Thanks for the reply. I’m wondering more if you think the situations are similar for the companies or whether SZYM is in a different place than WPRT was/is and if you think SZYM is worth it to you to hang on to. I’ll be hanging on to it for now, myself. However, I think most people following this board value your opinions, so if you think/do otherwise I, for one, will file that away and if I end up losing more it will be one more lesson and have more background.
For the record, I owned shares before it was mentioned on this board. I did buy more after reading comments on this board, but I think more just because it kept it in my attention and probably provided some positive feedback rather than just following anyone else’s moves.
Here is what I see:
I actually like the shift to focusing on higher-margin products and maximizing profit on factory capacity. But one has to ask: why weren’t they doing this all along? Management basically said they just now realized that they could make a business from these higher-margin products rather than competing with commodity products.
It’s pretty clear that the shift in strategy is being prompted by cash burn. Moema not only is costing a lot more money to ramp up than they thought, but management said they will probably have to invest additional capital to solve the downstream problems they’ve run into. And they also continue to experience power issues, and those won’t be solved until they get hooked into the electric grid sometime in 2015. Again, one has to ask: why weren’t they hooked into the grid from the start?
Management said it would make a lot of sense to invest in the Clinton/Galva facility to expand volumes, but management doesn’t feel like they’re able to do that right now given the problems at Moema. So instead they will look to repurpose the facility and focus it on higher-margin products.
Management believes things are going well with their existing high-margin products, and they have some new ones in advanced stages (such as undergoing regulatory approval) with ready and large markets. SZYM also announced today a partnership with Versalis, the chemical arm of Eni, to sell Encapso. Versalis already sells specialty oilfield chemicals with a dedicated sales team, and will be adding Encapso to their portfolio of products.
Management dodged questions about what basic metrics might look like for the next couple of years with these new higher-margin products. They wouldn’t even say what kinds of margins to expect on these higher-margin products, nor the market opportunities (beyond “large”). Maybe there’s a strategic reason for staying mum on all of this, but I think the lack of data supporting this sudden shift in strategy exaggerated the natural skepticism the market already is going to have. Management came across to me as very non-committal and/or unsure, which is not at all what was needed in this situation IMHO.
There was, in my opinion, some double-speak about Moema. In the prepared remarks, management said:
Moema is a “first of its kind” plant, and as such, it’s had some “first of its kind” challenges.
which makes their ramp-up issues sound more reasonable. But then later during the Q&A, they admitted:
Peoria, the Clinton/Galva setup and Moema are all very similar. They have the same unit operations, the same pieces of equipment, in some cases, the exact same manufacturer. So really, what we’re going through are start-up challenges that we face in all of our facilities. The Moema plant is larger and more complex, and it’s taking us more time than we had planned. But really, we had conveying challenges, optimization that we had to do at Peoria and Clinton and the same with processing.
That just sounds like poor planning and execution to me.
- I also think management was hazy on required additional CapEx for Moema, at one point saying it would be needed and then later trying to say it wouldn’t really be needed. And while that’s probably not an important detail in the grand scheme of things, these kinds of seemingly contradictory remarks add up to give the impression that management is trying to paint a picture for shareholders that may be divorced from reality, and it makes their decision to withhold financial metrics behind their new strategy look even more questionable IMHO.
So what’s my take? I like their new strategy and think it will put the company in a much better competitive position – if they can execute. And that’s a big “if” to me given all the stumbles and poor judgement calls so far, and is the part of the story that eerily resembles WPRT to me. I don’t have any concerns about the long-term potential of the business, but I need to do some soul-searching to figure out if I really can continue to trust this management to see things through. My confidence in them has definitely been shaken, and it wasn’t helped by their remarks on the call that seemed evasive and even contradictory to me.