MEEC: Midwest Energy Emissions reports 2Q results – new installations drive top-line
Zacks Small Cap Research 1 day 2 hrs ago
By Steven Ralston, CFA
OTC:MEEC
Last week, on Friday August 14th, Midwest Energy Emissions (MEEC) filed results for the second quarter ending June 30, 2015. The company reported a 207% increase in total revenues from $878,957 to $2,696,685. Equipment sales for new installations at for projects generated revenues of $1,967,039 versus no revenues from new installations in the comparable quarter last year. Though delivered product sales declined 7.5% to $609,328 versus $659,052 in the second quarter last year, the figures are not comparable. Delivered product revenue includes product deliveries for demonstrations as well as product deliveries associated with operations at EGUs (two EGUs in the Pacific Northwest last year and the same two EGUs plus recent installations at two EGUs this year). A comment from the press release indicates that approximately $502,000 of the product sales were to customers under contract in the quarter just reported. Additional commentary by the CEO (namely, “product sales are increasing dramatically”) reinforces that the comparison to last year’s gross product sales figure is misleading (since it also included product deliveries for demonstrations). During the second quarter, the company received unrecognized advance payments of $807,638. At the end of the second quarter, deferred revenues on the balance sheet was $6,035,850, which in the future will be recognized as revenues on the income statement when equipment is delivered and commissioned at customer sites.
Total operating expenses increased 83.0% to $3.39 million versus $1.85 million in the second quarter of 2014, primarily due a 390% (or $1,422,087) increase in cost of goods sold, which was primarily associated with the cost of equipment sold to customers and recognized as revenue during the second quarter of 2015. Operating expenses increased $299,423 (or 119%) from $252,379 to $551,802 primarily attributable increased labor and technical consulting costs were incurred as the company assisted its customers with testing in preparation for compliance with MATS, along with increased salary and overhead costs associated increased operations staff. Depreciation & amortization increased 8.5% to $65.6 thousand, which attributable to the amortization of customer acquisition costs. Interest expense increased 129% to $936,116 versus $408,647 during the first quarter of 2014.
The company reported a net income of $599,365 (or $0.01 per diluted share) versus a loss of $1,380,378 (or $0.04 per diluted share) in the first quarter of 2014. The positive net income is primarily due to the gain on a change in value of warrant liability of $3,195,279, which is attributable to performing a new valuation on the warrants issued to Drexel in August 2014 that decreased the total value of the warrants to $4,280,282 from$7,475,561 at the end of the first quarter of 2015. Shares outstanding have increased 13.3% to 45,591,412 from 40,228,123 at year-end (December 31, 2014). During the quarter the company repaid $3.0 million of the $10.0 million in convertible promissory notes issued to AC Midwest Energy LLC on August 14, 2014 as part of a waiver and amendment to the original financing agreement.
Management is currently not observing any behavioral changes by customers under contract in reaction to the Supreme Court’s decision in June. In addition, the company has experienced a renewed increase in the demand for demonstrations from both existing and prospective customers generating demonstration and consulting services revenue of $120,318 in the second quarter.
Midwest Energy Emissions continues to install the infrastructure required MATS compliance. The company has 15 electric generating units (EGUs) under contract, of which four have been installed and operating in compliance. Two EGUs have been operational since 2011. Management continues to estimate that product sales, equipment installations and consulting services will generate over $8 million in equipment sales during 2015, over $30 million in revenues in 2016 and over $110 million over the terms of existing contracts.
Midwest Energy is unique in that it 1) has a singular focus (the mercury emissions control market), 2) holds exclusive rights to patented processes, 3) has achieved market penetration through the commercialization of SEA Technology and 4) is positioned to take advantage of further growth opportunities afforded by the implementation of MATS in whatever form develops from the process initiated from the Supreme Court’s ruling. Midwest Energy Emissions should experience a dramatic increase in revenues over the next few years as the coal-fired plants, which have contract for Midwest Energy’s SEA Technology, ramp up their mercury emissions control efforts to become MATS-compliant.
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