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 and April 2021.
Apr. 27 - Anna Cuglietta joins the Board of Directors
May 5 - $3.6 Million in New Awards, Growing Backlog now at $96.2 Million: $14.8 million of the Corporation’s backlog is Contracted and $81.4 million is Contracts in Process.
May 12 - Announces 2021 First Quarter Results
June 10 - $8.1 Million in New Awards: The majority of which were converted from contracts in process. Factoring in the $6.6M in converted and new contracts and sales completed to date, the Corporation’s backlog now totals $94.0 million. $21.3 million of the Corporation’s backlog is now Contracted and $72.7 million is Contracts in Process.
Aug. 11 - Announces 2021 Second Quarter Results:
Aug. 12 - Grant Incentive Stock Options: Total of 950,000 shares at an exercise price of $0.415 cents, subject to the vesting provisions of the options, at any time up to and including August 12, 2026.
Aug. 25 - Renewal of Joint Marketing and Cement Supply Agreements With Lafarge Canada: Another five years.
Sept. 8 - $5.5 Million in New Contracts of which $3.4 million was previously characterized as contracts in process. Factoring in these $5.5M in new contracts, the converted contracts and the sales completed to date, the Corporation’s backlog now totals $91.4 million. $22.2 million of the backlog is Contracted and $69.2 million is Contracts in Process.
Oct. 1 - Announces the retirement of Dan Koyich and the appointment of John Kim to the Board of Directors
Oct. 6 - $5.5 Million in New Contracts: of which $4.8 million was previously characterized as contracts in process. Backlog now totals $91.2 million. $26.8 million is Contracted and $64.4 million is Contracts in Process.
Nov. 10 -Announces 2021 Third Quarter Results:
The drop in sales this quarter and year to date is mainly attributed to delay in the $16 million North Carolina project that was originally scheduled to require our cellular concrete starting in the second quarter of 2021. After numerous delays, the project got underway this fall, so the requirement is now scheduled for the spring/summer of 2022.
The scheduling of tunnel projects also contributed to reduced sales to date in the U.S. There are numerous tunnels in our backlog, but most are not scheduled to be completed until 2022 and beyond.
“We continue to pursue organic growth opportunities throughout North America; we are moving forward with regional expansion plans; and we are evaluating various strategic growth and acquisition opportunities, particularly in the U.S.”
-Cematrix President and CEO.
Grant of stock options: November 10, 2021 for the purchase of 780,000 shares at an exercise price set to the closing price the issue date, subject to the vesting provisions of the options, at any time up to November 10, 2026.
Dec. 16 -Announces $4.6 Million in New Contracts of which $3.2 million was previously characterized as contracts in process: Factoring in these $4.6M in new contracts, the converted contracts and the sales completed to date, the Corporation’s backlog now totals $86.1 million. $24.9 million is Contracted and $61.2 million is Contracts in Process.
No financing activities were announced in the last period. However, the Q3 2021 earning releases cited that $1.6M was obtain from warrant and stock options exercises in the quarter and a total of $4.1M from the past nine months.
Last equity financing was completed in March 2021, for $23M at $0.65 cents ; warrants at $0.81 cents (17.6M)
Year to date (YTD) 2021 revenue is significantly lower than 2020. Unfortunately, Q2 and Q3 2021 revenues cames much lower than respective quarters from the previous year. However, Net Income results are much better in FY 2021.
Overall, The company is also in a much better cash position (20.5M) which is attributable to the last equity financing.
Awards & Backlog
A total of five award announcements were made in the last nine months totalling $27.3M. The size of the backlog went from $96.2M to $86.1M representing a $10M in reduction.
As depicted, the share of converted (% Conv) has moved from 15% to 29% while the share of In Process (84% to 71%).
Incentive Stock Options
Two announcements were made; i) August 2021, 950,000 stock options were granted at $0.415 cents. ii) November 2021, 780,000 stock options at $0.38 cents were granted. Hence, a total of 1.7M were granted in the past nine months.
In August 2021, the joint marketing and cement supply agreement with Lafarge was renewed for five years.
Anna Cuglietta as Board Member (April 2021), Dan Koyich retired, John Kim appointed to the board (October 2021).
Cematrix's revenues have suffered in the last three quarters but its net income has drastically improved YTD approaching the breakeven point. CVX.V also holds $20M in cash for the eventuality of further acquisition(s).
For Q4 2021, the likelihood that Cematrix will bridge the gap in revenue from FY 2020 is slimmer than it surpassing net income. The likelihood that FY2021 might rival recent years in net income performance is high but time will tell!
Otherwise, Cematrix has demonstrated the ability to work through its backlog by nearly doubling the percentage of converted contracts from 15% ($14M) to 29% ($24.9M) which represents a $10M drop in backlog.
Nonetheless, valuation has declined in the past nine months going from the mid-fifties to below mid-thirties. In part, due to the revenue performance but also because 11M warrants were exercised as of September 30, 2021.
A total of 20M warrants still remains at a weighted average price of $0.779 cents mostly from the March 2021 equity financing. In addition, there were roughly 3M more Stock Options ($0.19 to $0.59 cents), 3.7M Broker Warrants ($0.40 and $0.65 cents), and 9M in convertible debentures at $0.45 cents (See most recent MD&A).
As a result, one can explain the selling pressure in the absence of significant incremental awards or revenue catalyst.
Back in May 2021, M Partner set a $1.20 price target based on FY2021 revenue of $40M. In June 2021, Clarus re-iterated a price target of $1.25 based on $40M in revenue for FY 2021. After Q3 2021, Clarus maintained a $1.25 price target (on $57M revenue for FY 2022) while Mpartners decrease its price target to $1.00 (on $45M for FY 2022). Incidentally,Clarus and M Partners revised FY2021 revenues to $22.6 million and $22.8 million respectively.
Given the YTD revenue performance, outstanding warrants, broker warrants, and convertible debenture, these price targets appear rather optimistic. The rate at which Cematrix can grow and churn through its backlog are critical.
Currently valuation appears relatively cheap but it's imperative to factor in capacity as well as, realistic revenue expectations. In the case of Cematrix, this seems to be especially warranted.
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