Replies to post #41436 on Koil Energy Solutions Inc. (KLNG)

[mystic krewe]

As you stated, we all know Mako is going to bring a boost to the bottom line. Think taxes may be another reason for the delay?

[xZx]

darwindows, imo you're parsing the financials in a way that gives them a very bearish slant, and i think you realize this. let me use dahlman rose's approach to valuation as a point of comparison. they use a 9.5X peer group enterprise value/09 EBITDA multiple applied to their 2009 EBITDA estimate. it's very forward-looking, but they do this because they know growing companies don't have huge net margins. debt, interest expenses, integration costs -- all of these things cut into what a much more mature company would show as a net margin.

i've used net margins in my calculations for pps here on the board because they are more conservative than EBITDA, and this method is also the formula most investors know best. i chose 19% from the last 10K after backing out $3.4M in a one-time charge for stock based compensation. again in Q2 of this year net margins were 18.4%, based on the actual numbers, but this isn't something you want to emphasize imo.

you do make a big deal (bearishly) out of debt reduction that went to the bottom line as not "real profit". what's so horrible about a fast-growing company reducing their debt? i notice you make no mention whatsoever of the huge reduction in interest expense during Q3 either, and (as you know) this will make for even greater profitability going forward.

acquisitions, tend to have high integration costs in the early-going (administrative, infrastructure-related, etc.) that are one-time expenses. dahlman rose knows this, and i think you do too. i appreciate the fact that this management team is protecting the net profitability during the lean times (now) through debt reduction, etc., so that once subsidiaries like electrowave (and mako) are fully integrated, and kicking out much higher revenues, they can take up the slack and build the net margins back up to historic levels or better.

so let's get real. when you invest, do you tend to use rear-view mirror numbers for a growth stock? i see you gave a quick nod to mako improving margins, but only in a cursory way. imo for you to lead people on this board to think that 2007's numbers will be typical of 2008 is either misguided or downright manipulative. jmho.

[wweeaazz]

What part of this dont you get?

Gross margins were impacted by increased engineering and other costs associated with new product development, including our new line of Proteus(TM) custom-engineered active heave compensated in-line winches, deep water rated (4000 meter) launch and retrieval systems, and other products in development. We expect gross margins on these products to increase on future orders. We are actively looking at broadening the breadth of product and service offerings to meet the increasing demands of our growing customer base," commented Ron E. Smith, Deep Down's President and CEO.