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POLA & rare earth metals for their use of Neodymium permanent magnet from China. A few things:
1. I think this outlying worry that China will cut quotas is why POLA is down in price as there is probably some individual investor/s worried that they will be set back in their business. I think it's overblown. China cut the export of rare metals in 2010 to approx 1/2 of what they were they year before. It was for the raw metal, not for finished products. According to one article I read, there was only 1 company on a cc call that even brought up the rare metal quota drop as even a concern.
2. POLA obviously was around in 2010 and so has dealt with this before. They don't buy raw rare earth metals, but finished magnets.
3. From article this week that detailed it vs just hyped the whole conversation like most of the media...........
"Last year the United States imported only about 4,100 tonnes of China’s production of the rare earths, or around 3.5%. Most of the rare earth materials used in the United States come in as finished goods, largely because China pressured Japanese and U.S. manufacturers of products using rare earths to build factories in China during the last quota cut in 2010.
The story is a bit different on the finished product side. Finished magnets, like those made in the Jiangxi factory President Xi visited, are also by U.S. manufacturers of automobiles and home appliances, and U.S. production capacity for these magnets amounts to about 500 tonnes a year.
The current price to import finished magnet materials from China is about $43,000 a tonne. If China were to cut off exports to U.S. customers, those customers would have to buy the materials from Japan at double the price, according to the Bank of America analysts."
----This would be worse case scenario. POLA would have to probably pay 2x the cost for their magnets they use. In the bigger scheme of things that's not such a big deal. They will easily save far more on the tariff's being dropped for aluminum and steel plus money saved going forward on labor efficiency.
----I would also assume within that $7.2M they have in "raw materials" inventory, they have a healthy supply of magnets.
---of course this all assumes that China even does anything vs just saber rattle. The risk they have if they do limit quotas is that they shoot themselves in the foot long term as the world then develops their own sources. Rare earth metals aren't actually rare, it's just that China processes them cheaper than anywhere else and so no one else has bothered to do it themselves anymore.
This also assumes that China puts some kind of restriction on exporting "finished goods" using rare earth metals. That rather hurts their own manufacturers.
There just are no buyers on the ask right now (again). Beyond frustrating as I had hoped this was all behind shareholders.
If you read the cc call, they mention they have 400 of the new Toyota NG engines in inventory. They are waiting for international orders to sell them now or EPA certification (4-9 weeks from when call was) to sell domestically. They obviously are expecting good things here. You figure at $7.3M in Q1, that probably less than 600 generators in total sold so they expect to do stronger sales with the new product line.
News we are hoping for soon:
1. Army SMET news on what is happening there. POLA may not put out a pr, but we will get a better idea of what's going on here soon.
2. International contracts. In the cc call transcript it says they are waiting on 3 contracts. However, if you listen to the call he actually says 13. Something needs to come here soon.
3. Domestic residential partnerships announced with LPG/NG distributors.
4. POLA getting their short-term bank line of credit established in case they need to borrow against Tier 1 accounts receivables. That should just be a SEC filing update.
There's too much volatility already with the low float. It doesn't need to be reduced more. ex. Last Friday it went to $4.70 when someone was buying. Now it's floating at $4.00 when someone is selling.
ebase...Perhaps you need to re-think your idea of a backup generator and one that is tied to a power pack for energy storage. Generac's CEO is describing a whole different scenario vs anything they have done before (and an area he's very excited about). The moment you start talking a battery pack, then a DC generator is far superior in charging it than an A/C one. Also, POLA's Heat exchanger technology is tied to their residential idea so it can be used in conjunction with heating. I'm not saying it will be huge for POLA, but don't discount it as nothing.
From Generac's last cc call:
"From the over 2 million homeowners that already have solar installed and are looking to dramatically improve the payback of their system to the millions of homeowners that want to take full control of their energy costs, while also providing added relief from short-term power outages, this new solution will be a natural fit. Although very different than the backup power space we serve today, we believe that the market creation opportunity around energy storage is very similar to what we saw with the home standby generator market nearly 20 years ago"
also from that cc call:
"The area of first interest for us is people that already have installed solar systems. There are roughly 2 million solar installations around the U.S., and only 2% of those installations actually have a battery backup system. The addition of a battery backup system has come down nicely in price over the last several years. And with the addition of that, you can dramatically improve the payback on your -- the money you've already invested in solar. And it gives you a lot more flexibility. And you couple that with Neurio's monitoring and energy management, and what you get is not only a way for people to improve the payback on their solar systems and get more control, but in it can help them actually save on their energy bills. And this is where we think the big differentiating factor between what we've done with home standby. So this is where the playbook deviates.
Home standby is all about reliability, it's about long-term outages and major outages. That's a -- and grid stability type issues. That's an industry that's fundamentally different than what we see forming here with energy management and storage. We see this as being about energy savings, we see this about -- being about the changing energy landscape that I mentioned in my prepared remarks."
"And I would say one last comment on this point. The Western part of the U.S. is where you're seeing a lot of activity around storage. That's not necessarily a strong market for us in home standby historically. Power quality is a little bit better, although recently it's kind of broken down in California because some of the issues around grid stability and issues with PG&E in particular. And PG&E made an announcement earlier this week that their grand plan for heading off wildfires is when the wind blows, they're going to shut off the grid to 5.5 million people for maybe days at that time. That could obviously develop for us into a nice home standby market because the battery is not going to get you days of backup.
But that being said, I think we can have that market is going to be a great complimentary market for us with home standby and with the storage markets to develop. And so we're going to be very focused on growing a market that, up until this point, I don't want to say we've ignored it, but it just really hasn't been there for standby. So I think it's going to be a nice complementary region of the country to what we're already doing everywhere else."
.....later in call on size of this residential power storage market: "It's forecasted to be a multibillion-dollar market very quickly. So we're really excited about it. I mean, it represents a whole new area for us, and we -- look, we've looked for a long time for kind of, I'll call it, ancillary products that we could bolt into our -- this awesome thing we built in home standby. We've looked at a lot of different things, and we just -- we haven't really found the right thing that fit naturally that didn't distract from what we were trying to be in home standby and actually fit with the channel and everything else we were trying to do in creating a market, market-creation type of activities. This energy monitoring and storage market is spot on, and it could be huge. It could be as big or bigger than home standby. And if you look at the way it's projected it could be twice the size of home standby in not too long time -- not too long of a time. So incredibly excited about."
Here is why POLA going into NG DC generators for residential may actually work:
https://www.marketwatch.com/story/california-utilities-get-ok-to-shut-off-power-to-cities-to-prevent-wildfires-2019-05-30?mod=mw_latestnews
ebase...Raj made a point of injecting (separately) that March and April were running between 60-70% of capacity. Capacity is $5M/month. My hope---at the least---is it adds up to $10.5M for the quarter and comes out at around 6-7 cents/share full taxed. I'm not going to jump for joy at that, but if they did do it it means that June would be the strongest month most likely and they could have a chance at $12M for Q3 (which would be approx 11 cents/share). Again, I'm not jumping for joy, however, it is a trend that might get others interested in the stock.
At $15M/qtr, they are doing 15+ cents/share even with 31.5% margins and expenses up a bit. At that point we are all solidly back in the profit on this investment and can make our decisions on what to do then. I'd still love to get over double digits here if possible.
The quicker they get to $15M/qtr, the higher the p/e ratio imo as it would show there is widespread demand that is ramping up for DC generators. It would also mean that internationally they are getting the full package of deals (i.e build towers, generators, monitor them for continuing revenue).
ebase22...I think it is or hope at least. I'm not sure why Q4 was up so much, but they seemed pretty confident that this is the new norm.
The worry we have now (and may be why someone is selling) is that POLA gets their magnets from China. It could be an issue if they put a limit on exports of rare metals. I can't think of any reason why anyone is selling otherwise. The magnets are not part of any tariff right now.
ebase.....I've seen military comments that the next round goes from 4 to 2 at the end of May. I've also seen where the final decision may happen. I'd lean towards the first though.
Here is an article:
https://www.shephardmedia.com/news/uv-online/ausa-global-2019-grizzly-ugv-breaks-cover/
"Phase II of the SMET programme will finish at the end of May 2019 and the presence of the UGV for the first time indicates the confidence of Howe and Howe technologies in the platform being selected for Phase III, where the programme could become a robotics programme of record."
POLA provides the generator for the Grizzly (plus the Hunter Wolf).
Wadirum...it'd be nice if we could catch a break on some international order news. Hopefully something comes in the next month at least.
From cc call:
"So at $7.75 million if we are breakeven with all the expenses that we're incurring to hire the additional production infrastructure, the production management and the second factory and all the development we're doing there. So every $1 million that we are adding to it, to the top line, would add whatever gross margin that you've reported. Like, let's just say, even in the low 30s, even if you take 30%, even if we target want to go super aggressive on pricing for some of these international customers, because the revenue per site so high with these Tier 1 carriers around the world, even though they're price-sensitive. Now there we're building sell-sites from the ground up, there we’re providing hybrid systems, complete solar hybrid systems, as opposed to just selling a generator.
So you're talking about revenues which are 4 times to 8 times the size of what they're getting here from Verizon or an AT&T. So a percentage that of the gross margin -- a significant percentage of that gross margin is directly going as EBITDA.
Short interest lowest level ever:
5/15/2019 38,449
4/30/2019 63,250
4/15/2019 66,530
3/29/2019 68,911
3/15/2019 79,475
2/28/2019 62,761
2/15/2019 67,147
1/31/2019 68,322
1/15/2019 71,456
12/31/2018 79,261
12/14/2018 75,457
11/30/2018 86,145
11/15/2018 81,679
10/31/2018 89,188
10/15/2018 89,961
9/28/2018 90,796
9/14/2018 103,956
8/31/2018 119,624
8/15/2018 147,978
7/31/2018 130,299
7/13/2018 160,943
6/29/2018 167,593
6/15/2018 172,922
5/31/2018 187,146
5/15/2018 180,312
ARMY SMET decision...... I initially had heard that there would be a decision in late May to go from 4 participants to 2. I then read an article that said a final decision would happen the end of May. Not sure which is true.
I just found an article from April 24th where a defense official says "Squad Mission Equipment Transport (SMET) – Currently staffing the Capability Development Document (CCD);"
When you look at what a CCD document is, it's right at the stage where a decision is made.
http://acqnotes.com/acqnote/acquisitions/capability-development-document-cdd
It sure would be nice if the Howe & Howe Grizzly (the one with the tank tracks) would just be declared the outright winner and POLA could start to plan on a contract forming for production. I say this because, imo, it's the strongest candidate. It won't happen quickly, but it'd be a nice addition to revenue for POLA for multiple years. The Army SMET contract is for 3000+ vehicles. It'd set them up well for other unmanned vehicles that want to run on electric part of the time. POLA's water-cooled DC generator could be useful in other contracts..
ebase...It's a large spread on the bid vs ask. I noticed it yesterday and it's carrying over today.
bid $4.15 vs ask $4.49.
Metal & margins. If you take a $15K generator at 31% margins = $4650 gross profit. If they can save just $150 for metal from the tariffs being dropped (esp steel since it drops 25%) then it adds 1% to margins.
Everything helps here.
Canada & Mexico steel n aluminum tariffs are getting dropped. It will help with margins for POLA in time. They said on cc call they bought a bunch of metal just recently, but I don't blame them as aluminum prices are the lowest they've been in a year. Were 80 cents/pound in early May vs over $1/lb a year ago. The dropping of the tariffs probably doesn't lower the prices more, but it does help keep them at current prices going forward.
wadirum....also, the Roth Analyst will have to bump up estimates. He has them at $7M and 1 cent/share for Q2.
wadirum....I think we are just 1 news release from breaking back above $5. It sounds like something will come soon from international. We just need investors to believe that $ is going to be happening from overseas to add to U.S. telecom.
ebase....one of the comments I liked best in the cc call was when the CEO said they still felt confident in international otherwise they would shut it all down. It was a prudent comment that I haven't heard him make before.
Final institutional #s for end of Q1 came out today:
https://www.nasdaq.com/symbol/pola/institutional-holdings
Wadirum1....the database project was them working on the 200kw generator prototype awhile back. They also added that guy to the Board of Directors who was very familiar with the database centers.
I can understand why it got put back. The telecoms have required more specialization for their generators than they expected and they are there is only so many engineers.
ebase....as the last guy said "looks like you've learned to crawl and now can start to walk soon" So true :)
It isn't out of the realm that they could do $10M in 2Q at 31.5% margins - $2.4M expenses = $750K before taxes. However, they probably have just enough tax loss carryforward to protect most of that. I'd be real happy with $10M and 6-7 cents/share. It would show investors this really is happening. Then if 3Q builds on it and 4th on top of that (especially if they actually could get to $5M/month by the end of the year) the stock should do well. Wall Street likes quarter-to-quarter sequential growth. Especially if the upper revenue market is potentially huge in time. Maybe our suffering will be worth it in the end still? i.e double digits a year from now sure would be nice. It'd take longer than I thought, but it would feel good to be right in the end!
I still think the CEO sounds horrible on the cc call, but he's better when he's not reading and actually talking about the company direct. I was glad to hear they brought in experienced people to run the manufacturing facilities who know what the heck they are doing in growing it big. Sometimes, when I'm not frustrated, I actually think they are doing a decent job in lining things up. Nothing ever goes as easy or as fast as investors like.
At this point, I see little downside other than the overall market tanking. Even then I think buyers would step in who see the longer picture now. Not sure how fast it goes up---depends on contracts announced and 2Q revenue. Not sure how high it goes. But it is nice to think the worst of our worry is over with.
ebase22...
Listen to it, don't just read the transcript. You will love the last guy.
Imo, the floor is in on the stock for sure.
Highlights:
---Plant capacity $5M/month. Want to be there before the end of the year. They've replaced their plant managers with quality ones who have built up big production lines.
---expenses should be flat going forward
---margins will go up, but nothing sounds definitive there as far as getting them to 35% anytime soon. My bet is they are looking at doing tower builds internationally (i.e. Namibia) and so those are lower which keeps them in the low 30% range possibly for now. That's fine if it doesn't use up manufacturing capacity.
---trying hard to diversify revenue away from Tier 1 U.S. to get better margins
---will get line of credit against receivables to open up cash. Expect that in the next week or so.
---13 deals internationally they are waiting on. They are as frustrated as shareholders
---the last guy was an awesomely frustrated shareholder who summed it up nicely for all of us
earnings....Q1 vs Q4. Expenses down and Margins up. Those bode well for us going forward. They still have issues with getting the manufacturing up---how weak was January vs it ending in March? At least they made a profit. Lots of cash tied up in accounts receivables and inventory.
I think the bottom is in at least on the stock price. We'll see later today.
ebase.....at this point anything that makes the stock start to have believers again and begin the move upwards again. What I want is irrelevant. It's what do institutions and individuals want. The Roth analyst is saying $6.5M and -.03 cents/share. I think that is crazy, but the stock seems to be predicting it. I'd like to see something above Q4 even with a weak January and, more importantly, that March was solid and April has grown above that.
Wadirum.....I figure the CEO and COO are flying to the Oppenheimer 1 on 1 conference on Tuesday because the story keeps improving. The question now is at what rate? Hopefully Wed provides a positive answer.
Wadirum. I did too (picked up 1K shares) I think people are burned out here, but isn't that when it's best to buy?!? There is no way they are flying to NY for a conference if the story isn't improving. I'm not saying that Q1 will be exciting, but hopefully it shows the bottom is in and growth is emerging and will ramp up. Perhaps by Q2 these prices in the low $4s will be looked back on as a buying opportunity.
I will be waiting Wed morning with more cash to buy at the open if the report is good.
Worthy..... they are in NY on Tuesday doing the conference, as such, they can do the cc call in the morning on Wed and then fly home after. I'm sure they want to follow up on their 1v1's with earnings immediately. Why else go? They can't really discuss Q1 at the conference, but they can say watch what we say Wed morning to those interested.
On the stock price-----it's pure manipulation now. I just did an "all or nothing" at $4.24 for 1000 shares. A split second after I hit enter the Bid went to $4.24 for 300 shares and follow up bids were listed under it at $4.19 and $4.18. A split second after I cancelled it, the Bid dropped to $4.12.
Imo, the price is getting played because we have no buyers and computers can make people worry.
CC call on Wed 15th at 10am Eastern. Earnings will be released prior to the call.
They are also at Oppenheimer IR conference on Tuesday to do 1 on 1's
https://ir.polarpower.com/press-releases/detail/38/polar-power-to-host-first-quarter-2019-financial-results
Imo, someone just stole a bunch of shares the last few days. the delay in the pr was a bit of a worry, but nothing else the company is doing indicates that the story is weak. They are hiring, expanding operations & doing a lot of IR work to get the word out of what is (hopefully) starting to emerge.
They posted today an employment ad for Field Service Technician so things can't be too bad with the delayed earnings report:
https://www.linkedin.com/jobs/view/field-service-technician-generators-at-polar-power-inc-1227820828/?utm_campaign=google_jobs_apply&utm_source=google_jobs_apply&utm_medium=organic
I know. I'm not foolishly bullish here as they seem to take 1/2 step backwards for every step they take forward. However, read the GNRC cc call. It's a concern that they are coming into the market, however, he says the same things that POLA's CEO says---namely DC Power + telecom, hybrid systems, natural gas, international, tying together with 2M residential solar houses. It validates there is a growing trend there at least. I'm not pretending that POLA is going to capture a huge market, just that they will get some and hopefully enough for shareholders. I just wish GNRC would buy them out and call it a day. They did do 2 acquisitions in the last two months.
Part of me has daydreamed already that the delay in Q announcement is that they get bought out instead.
I'm worried, same as you. IR didn't seem concerned. There will be a pr on the earnings date the moment they get the ok from the accountants.
CEO Arthur just did an interview at the EMEA TowerXchange. I can't read most of it, but the summary indicates he's bullish on the direction they are going.
https://www.linkedin.com/feed/update/urn:li:activity:6530662604283711489
I've been tracking their employment ads still. They were running them all quarter long so that's a good sign. The last ones were 2 weeks ago with a Generator Tester and a Welder Prep wanted.
Also, Generac is going into the DC generator business. The CEO pretty much made it clear in the cc call that they see it as the future for telecom and hybrid systems in the US and international. Yes, it's a negative, but they are also months from it + then months for demoing systems. Their CEO figures there are only 100K towers in the US backed up and 200K to go and 5g will require a good portion of them to be done. He also sees natural gas generators as the future rather than diesel. He also sees residential power supply with solar panels as a huge market.
These are all the areas POLA is going after. They only need to capture a small market share to reward us. Also, if this does become a big area of growth, it ups the ability of POLA to get bought out.
Even with small market share, if POLA sells 1000 generators/qtr we all do well here. They pretty much have the infrastructure + employees to do it. The question is can they still get the orders, can they get them out the door, and at what level of efficiency?
Even if they never get above 33% margins, on $15M in revenue that's $5M gross.
I communicated with IR. They haven't put out a pr on earnings date because they haven't gotten the ok yet from accountant. it is a worry.
I also found out that they are scheduled to be at the OpCo Investor conference on May 14th in NY.
Was that a heartbeat I detected at the end with some buyers coming in? Hopefully whoever dumped on us is done and the stock starts to recover. Imo, Q1 report will be decide if it goes over $5 or under $4.
ebase.... even with the stock price down, I'm still not concerned about the future. I have no doubt we are going to make money here as investors. If you read Generac's cc call, then you can see that POLA is going in the right direction that even that CEO thinks needs to be happening. I think POLA gets to $15M/qtr in revenue (not sure when though I think they come close to $12M in Q2). My concern is that with margins lower and expenses higher that the stock will be $10 when $15M/qtr is reached, not $15 as I had planned due to less money flowing to the bottom line. If I was new to the stock, I'd have no hesitation of buying shares right now. However, I'm not and my average price isn't that much higher than current levels and so I don't need to average down at all. I'm also a bit skittish as I've sat on dead money for a year too. I'd rather load up the boat at $5+ when I'm almost certain the future is set than buy before Q1 earnings.
I'm just rooting for them to ramp up production as quickly as possible. If manufacturing, not demand, is the limiting factor here, then it also opens the door to a partnership or buyout more in the future as others would be wanting to take the company to the next level. POLA though needs to show that there is a strong market out there just waiting for them to be able to produce enough to fill it.
He made it clear that management's interests are aligned with shareholders.
Side note: One thing to remember is that it's not just management who owns shares (primarily CEO Arthur and COO Raj), but the Board also who has interest in the stock price. Mathew Goldman, Board member, owns 466K shares. (He's been involved in founding some hedge funds, but the most recent High Tide Capital, isn't very large---sub $150M. As such, him making money in POLA is probably worthwhile for him). He's also probably not going to be selling in the open market to get out so it opens the door eventually to him supporting a buyout.
Worthy.... I told Raj point blank that it was pure foolishness on their part to even discuss a further capital raise to expand capacity in 2020 with the stock below IPO prices.
As for needing it now, they have cash + receivables from Tier 1 companies. If they announced receiving a rotating line of credit against receivables I think it'd drop any concern about the need of a secondary to deal with growth in 2019.
I think today's selling is just what you said.....dry heaves. It's from someone who doesn't care anymore and wants out. Sometimes that's when the bottom finally happens. Hopefully it's here too, but we won't know till next report.
I agree on a lot of your points. I keep pushing revenue because that, imo, is what makes us money even if worst case scenario plays out:
Worst case imo if they did $15M/rev/qtr.............$15M rev/qtr x 30% margins (never get them higher) -$3.0M in expenses ($450K higher than last Q) x 0.74 for taxes = 11 cents/share.
I think in the absolute worst case scenario with them getting to $15M/qtr, that we at least get back to mid $6's. That is no where near what I want or be happy at, but it's better than today.
Raj said the emphasis right now is on getting revenue maximized and using that as to then bring efficiency. The question is can they get revenue to $15M/qtr? That solves our first problem. The next question is can they do it to make the stock truly reward shareholders or just give us a decent exit point?
What do you think Q1 revenue needs to be to bring confidence to investors that things are truly happening? What about Q2?
In the last pic of their equipment in the facilities, I looked at the shelving and the parts and the inventory organized in the background and wonder how many man hours were spent on this vs revenue generation? How much was Q4 and how much carried into Q1?
ebase.... The company has and is hiring a lot of people for a reason. They post pics on Linkedin of the equipment they are bringing in to boost efficiency and production:
https://www.linkedin.com/feed/update/urn:li:activity:6482821010256171008
https://www.linkedin.com/feed/update/urn:li:activity:6482820171319865345
https://www.linkedin.com/feed/update/urn:li:activity:6525962391472177152
I doubt they are doing it just to waste money. If some individual investor sells today because their patience is broken, then there isn't much can be done about it. For the rest of us who sit and wait, the hope is that revenue shows enough growth in Q1 to turn the stock upwards a bit. Then enough growth shows in Q2 to finally get it moving back up strong with enough volume to take out those that want out even if the company is succeeding.
I did make a very strong point to Raj that the trust in management with this investment is broken and that they need to step back, assess why it's happened, and move forward in a way that rebuilds it. It could be one of the reasons they didn't put out some half-ass pr on "backlog as of". I made it clear that investors want to see execution, not potential anymore.
More automated equipment added to manufacturing facility:
https://www.linkedin.com/feed/update/urn:li:activity:6525962391472177152