Cematrix Corp. (CVX.V) manufactures and supplies technologically advanced cellular concrete products developed from proprietary formulations across North America. This unique cement-based material with superior thermal protection delivers cost-effective, innovative solutions to a broad range of problems facing the infrastructure, industrial (including oil and gas) and commercial markets.
Through recent acquisitions of Chicago based MixOnSite (MOS) and Bellingham based Pacific International Grout (PIGCO), CEMATRIX is now North America’s largest Cellular Concrete company.
Coverage was initiated August 2020.
News Releases
Sep. 8 - Announces $4.0M CDN in New Contracts; Provides COVID 19 Update: One project is a $2.1M pipeline bedding project scheduled to start January of 2021. The balance represents smaller projects in Canada and the U.S.
Total contracted and verbally awarded (mainly contracts in process) projects now sit at $82.1 million CDN. $46.0 million CDN of this $82.2 million CDN total backlog is currently scheduled to be completed in 2021/22.
Nov. 5 - Announces Record Third Quarter Results: “The third quarter delivered solid financial results, even as CEMATRIX continues to deal with the significant project delays associated with the ongoing COVID 19 pandemic,” - CVX.V's CEO.
Contracts/verbally awarded (backlog), which includes this year’s sales now sits at $86.2 million, up from $82.2 million, of which $55.1 million relates to 2021 and beyond.
Nov. 24 - To host Investor Webcast on December 3, 2020.
Dec. 10 - Announces Change of Chief Financial Officer: Appointment of Randy Boomhour as Chief Financial Officer of the Company, effective December 10, 2020, replacing James Chong who will be leaving the Company.
Dec. 22 - Announces Record $23.5M USD Project Award; Provides COVID 19 Update: Awarded a record $23.5 million USD (approximately $30.1 million CDN) tunnel project. CEMATRIX’s total contracted and verbally awarded (mainly contracts in process) projects now exceeds $108.1 million CDN.
The Company will continue to report on project backlog growth. However, due to the uncertainty around the timing of some of these projects as a result of COVID-19 pandemic related delays, we are no longer allocating the awarded projects to specific time periods and will be suspending guidance.
Dec. 30 - Grants Incentive Options to Executive Officer: Incentive stock options to an Executive Officer of the Corporation, pursuant to the Corporation’s Stock Option Plan, on December 29, 2020 for the purchase of a total of 250,000 common shares at an exercise price of $0.59 per share, at any time up to and including December 29, 2025.
Feb. 25 - Recognized as a TSX Venture 50 Company for the Second Year in a Row.
Mar. 1 - Announces an Increase of $9.9M in Contracted and Contracts in Process: Awarded $9.9 million in new projects, $1.7 million of which are contracted sales and $8.2 million of which are contracts in process.
Including the $9.9M in new contracts and contracts in process, the Corporation’s Backlog now totals $89.1 million CDN; $10.6 million of which are Contracts and $78.5 million that are Contracts In Process.
Prior to the start of this is year, the Corporation’s Backlog previously included the current year’s sales. Since January 1, 2021, the Corporation’s Backlog is defined as Contracts plus Contracts in Process. Contracts in Process are defined as projects where the related contract is in office for review or signature; or signed and returned to the client for their signature; or is in the post award project submission process; or is awarded by letter of intent; or is awarded by some other form of written communication.
Mar. 1 - Announce Public Offering of Units Co-Led by Gravitas Securities and Clarus Securities: Filed a preliminary short form prospectus with the securities regulatory authorities in the provinces of Ontario, Manitoba, Alberta, Saskatchewan and British Columbia, in connection with a marketed public offering of units of the Company at a price of $0.65 per Unit for gross proceeds of a minimum of $5,000,000 and up to a maximum of $10,000,000.
Each Unit will consist of one common share of the Company and one-half of one common share purchase warrant. Each Warrant will be exercisable at a price of $0.81, for a period of 24 months following closing of the Offering.
The net proceeds from the Offering will be used to fund future acquisitions, new equipment and personnel to support regional expansion, and general working capital including repayment of debt.
Mar. 3 - Upsizing of Public Offering of Units Co-Led by Gravitas Securities and Clarus Securities: Restated preliminary short form prospectus for the Company’s offering of units at a price of $0.65 per Unit (Warrant 0.81 cents) for an aggregate gross proceeds of up to $20,000,000, an increase from the previous maximum of $10,000,000.
The closing of the Offering is anticipated on March 15, 2021 or such other date as the Company and the Agents may agree.
Mar. 8 - Announces Filing of Amended Third Quarter 2020 Interim Financial Statements: The only change from the previously released financial reports relates to the accounting write down of a tax asset in the amount of $1,481,840.
The tax loss carry forwards still exist and are still available for use in the future, however the tax asset is now no longer recognized on the Company’s Statement of Financial Position (Balance Sheet) as an asset.
Mar. 15 - Announces Filing of Final Short Form Prospectus:
Mar. 18 -Closing of $23 Million of Public Offering of Units Co-Led by Gravitas Securities and Clarus Securities: A total of 35,384,600 units were issued at $0.65 cents (Warrants $0.81 cents) for aggregate gross proceeds of $22,999,990.
The net proceeds from the Offering will be used to fund future acquisitions, new equipment and personnel to support regional expansion, and general working capital including repayment of debt.
Mar. 31 - Announces $6 Million in New Awards, Growing Backlog now $94.4 Million: $13.2 million of the Corporation’s backlog is Contracted and $81.2 million is Contracts in Process.
Apr. 14 - Announces 2020 Fourth Quarter and Annual Results.
Summary
Financing
CVX.V completed a brokered public offering for $23M by issuing 35M shares at $0.65 cents (warrant $0.81 cents). The initial offer of "up to $10M "was doubled in two days ($20M) and it closed oversubscribed (+$3M) within two weeks!
Earnings
Yesterday, CVX.V reported consecutive record revenues. For perspective, annual revenues almost quadruple from FY 2017 to FY 2020. However, Q4 2020 earnings were down from Q4 2019 and mostly attributed to "project delays resulting from the pandemic". This is unfortunate because by Q3 2020, CVX.V had almost surpassed revenues for FY 2019.
However, the Q4 2020 negative net income of (6.9M) was definitely notable. The MD&A stated:
In the fourth quarter, the Corporation recorded a $6.0 million non-cash fair value adjustment expense and a corresponding increase in current liabilities under the current portion of convertible debt – non-cash derivative liability due to the IFRS accounting treatment for imbedded derivatives related to the MOS convertible note.
The adjustment is due to the increase in the price of the Company’s shares compared to the conversion price of the note. The closing share price on December 31, 2020 was $0.72 per share, as compared to the stated convertible share price at acquisition of $0.2375 per share.
The convertible note matures on May 31, 2021 and will be repaid or converted to equity on that date. In the event that the MOS convertible note is repaid, the fair value adjustment will be reversed, thus resulting in a corresponding $6.0 million gain to be recorded in Q2 2021. In the event that the MOS convertible note is converted, the non-cash derivative liability will be reclassified to equity and not flow through the income statement.
Hence, the convertible note liability is at issue. The delta between the actual share price at year end (December 31, 2020, $0.72 cent) vs. the actual stated convertible share price of $0.2375 accounts for $6.0M or 86% of the Net Loss.
Backlog and Guidance
The current backlog is reported at $94.4M. It is up by $5.3M since March 1, 2021 ($89.1M). Backlog is defined as such:
As of January 1, 2021, the Corporation’s Backlog is defined as Contracts plus Contracts in Process. Contracts in Process are defined as projects where the related contract is in office for review or signature; or signed and returned to the client for their signature; or is in the post award project submission process; or is awarded by letter of intent; or is awarded by some other form of written communication.
In short
CVX.V continues to scale its revenues in FY 2020 and with the recent financing ($23M) it is well funded. Covid-19 related project delays and the impact of the convertible debenture ($6.0M) significantly impacted Q4 2021 and FY2020 earnings. Nonetheless, CVX.V still managed to grow revenues for three consecutive years.
Looking forward to Q1 2021, the likelihood that CVX.V exceeds its Q1 2020 remains unknown. Moreover, concerns around delays related to Covid-19 had been explicitly cited by management in the December 22, 2020 release:
The Company will continue to report on project backlog growth. However, due to the uncertainty around the timing of some of these projects as a result of COVID-19 pandemic related delays, we are no longer allocating the awarded projects to specific time periods and will be suspending guidance.
As of March 31, 2021 (which coincides with rapid rise in vaccination in the US), CVX.V seems to strike a different tone.
“Although the COVID situation continues, management is seeing most of its projects move forward as anticipated and does not expect significant future delays at this time. Furthermore, management is also experiencing an uptick in weekly bid levels, in both the United States and Canada. This recent market strength does not include potential project opportunities that may arise from the $1 trillion of replacement infrastructure projects that the government of the United States announced earlier this year to spur economic activity.” - CVX.V's CEO
This optimism has materialized in a rise in backlog of about $5.3M since March 2021. It is also reflected in the recent note by Clarus Securities which still maintains a price target of $1.25.
forecasting 2020 revenues of $27.6M and EBITDA of $1.4M. We note that the contracts in hand are equivalent to 3.2 times his 2020 revenue forecast. He’s forecasting revenues of $38.6M and EBITDA of $6.1M for 2021 and revenues of $50.1M and EBITDA of $10.9M for 2022. His $1.25 price target is based on an 8.5 multiple of 2022 EBITDA.
CVX.V's actual FY2020 revenue ($26.6M) and EBITDA ($1.3 million) are pretty much in line with these expectations. The question now is whether CVX.V will be able to meet/exceed FY 2021 estimates ($38.6M), initially set for FY 2020.
CVX.V's decline in valuation since March 2021 is related to the financing along with softer earning expectations for Q4 2020 (and FY 2020) and possibly also for Q1 2021. Today CVX.V closed at $0.56 cents, well below the most recent financing ($0.65 cents) which makes it attractive. However, the impending resolution of the convertible debenture, as well as. the recent raise which added 35M shares (warrants at $0.81 cents) are potentially limiting factors.
CVX.V's challenge for FY 2021 lies in its ability to scale revenue revenue faster than its funding needs. As depicted in the chronology, large contracts can also enable large funding participation. This is positive for organic revenue but can also have limitation on valuation. The speed at which CVX.V can churn through the backlog along with potential additional acquisition(s) could be material in tipping the pace of future growth.
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