By Jeff Sanford
Toronto, Ontario -- August 5, 2015 -- New publicly-traded recycler, Fenix Parts, has held one of its first public conference calls. The company previously reported financial results for the holding company, Fenix Parts, as well as the financial statements for some of its founding companies. Today’s release updated the financials for the majority of the founding companies.
Fenix was founded in January of 2014. The company brings together the operations of eight founding companies into one organization. The founding companies only officially merged when Fenix went public this spring, so there is a temporary and “unique” period in which the founding company numbers are being reported separately from the parent company.
The results announced today are for the bulk of the founders and represent an improvement from an earnings report made June 29 of this year. According to the executives, revenues of six founding companies for the three months ending March 31, 2015 were $14.3 million. This compares favourably with $13.2 million for the first quarter of 2014. The companies also reported that revenues from the sale of auto parts is up 8 percent. So this is good. The June 29 earnings report suggested a loss of $1.02 per share for the quarter, which was much lower than a consensus estimate of a gain of $0.05 per share.
At the time price of Fenix shares took a bit of a hit, dropping from about $11.00 per share to $9.00 per share. Today’s earnings conference should help restore investor confidence. The merger was undertaken so that the eight founding companies can share resources, leverage economic efficiencies a larger organization delivers, while and creating a vehicle for growth-oriented acquisitions, In the call company officials were careful to emphasize that the ongoing strategy around the creation of Fenix—the efficiencies of scale and growth from acquisitions—is coming along just as planned.
"Since our May IPO, we have been focused on bringing together our management team, integrating our founding companies and executing our expansion strategy," said Kent Robertson, CEO of Fenix, in a press release accompanying the earnings call.
An important step for Fenix is filling out its management team. Art Golden and John Blaseos recently joined Fenix as Chief Operating Officer and EVP-Supply Chain, respectively. “We have assembled a strong leadership team,” said Robertson in the earnings call.
Robertson went on to report that, according to plan, procurement strategies are being streamlined. Fenix is already beginning to distribute more parts through its new Jacksonville-based hub that will serve the founding companies. An integrated hi-tech platform for pricing is coming together. The founders are also beginning to aggregate their commodity buying, which is going to bring down costs. The new company has already leveraged its size to reduce its spend on towing according to Robertson. So the plans to reduce overall operating costs are going ahead.
Fenix officials were also careful to note that the company’s intent to begin consolidating the recycling sector along the East Coast of North America and in Ontario is coming along nicely. Investors have been intrigued by the growth prospects an a spate of acquisitions could incur. According to Robertson Fenix is now “in talks with many well run companies with successful management teams. The interest in joining Fenix has been strong. There has been substantial interest since last call. Our acquisition pipeline is expanding quickly.” He went on so say there is a growing pipeline of $150 million in acquisitions in the pipeline, ready to go.
Fenix is looking at companies that have operations next to existing operations or in the same region and that are between $5 and $10 million in value. It seems that as other recyclers see the roll up working they are beginning to line up to be a part of the Fenix banner. This is one way to explain the growth in the acquisition pipeline since just last quarter. Robertson said he expects Fenix will be doing “one to three acquisitions per quarter, starting in the third quarter.”
Analysts on the call seemed to clue in on the growth in the acquisition pipeline, which is no surprise—the acquisitions are where the growth in the Fenix deal will come from. One analyst, pointing out that “we are halfway through the third quarter … will Fenix announce acquisitions this quarter?” (as the CEO indicated). The answer from Robertson was a definite, “yes.” So the suggestion seems to be that we could hear have some acquisitions announced in the next couple of weeks.
As for the first quarter loss announced in the June 29 call, it can be argued that in the numbers being reported were for companies that were still being run for the benefit of the previous owners. Now that the merger has been accomplished in coming quarters the company will be reporting more unified numbers.
“We are getting everyone on the same financial platform. As we do we’ll get more visibility in the business,” said Robertson. He expects second quarter numbers to be reported the third week of August. “We’ll do another call and do the numbers at that time. We look forward to having another conversation in a few weeks,” he said. “We are doing everything we promised we would.”
Fenix shares had been trading as high as $11.00 in the wake of the spring IPO. Since then shares have been trading down at about $9.00, presumably as a result of the reported Q1 loss. Assuming those numbers improve once the founding companies are fully merged into Fenix this could be a good point to buy into the stock. Analysts typically rate Fenix a “buy” or “strong buy.” Many analysts have a target price of $13.00 a share, suggesting share appreciation of $4.00 a share over the months ahead. Fenix Parts now trades on Nasdaq under the symbol FENX.
For more information, please visit fenixparts.com.