I am watching BAS very closely, for reasons that should be plain. I dug into the most reason filing and have a few observations.
BAS lost $0.45 per share in the most recent quarter ($0.56 per share after further impairment of goodwill), driven by business disruption for lower prices and extreme cold weather. However, this loss was driven entirely by write downs and does not appear to have consumed cash.
Without asset impairment BAS had earnings of $0.11 per share. As of right now BAS operations appear to be conserving cashflow well. The most recent quarter, expenses exceeded revenues by about $10 million. BAS has $59.5 million in depreciation and amortization, leading me to believe that BAS operations are still cash flow positive.
BAS is aggressively cutting into payroll, reducing employees by 10% in the most recent quarter. They are negotiating with their customers, offering concessions to defend business, and even managed to mildly grow revenues in the most recent quarter as a result.
I do not expect BAS to hold this performance. That is asking too much. They are currently expecting revenues to decline by 21% to 26% sequentially. That is an enormous drop and more losses should be expected.
For the moment, BAS is well capitalized. They have $80 million in cash and an addition $233 million in revolving credit.
It is my belief that BAS will weather the storm. I trust their management to make the right moves here; they have done so before so this is not new territory for them. They are watching cash flows closely and will keep expenses in or around those levels to preserve the business.
I believe that BAS will succeed in keeping cash burn to some level that staves off any insolvency concerns for some years, thereby allowing them to outlast the recent downturn in oil prices. I also believe that BAS has competitors that are in much worse position than BAS.
BAS will survive, and BAS will flourish in the aftermath of this oil industry crisis.
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Their receivables are risky. I imagine
they are not alone in that.
I don’t think their receivables are at any more risk than other companies outside the bad debt allowance. Impairment doesn’t mean much since that was expected and a non-cash item which is just accounting focused.
I would be worried about receivables if those receivables were changing. I need to see the most recent quarter, but they’ve been pretty steady as a ratio of business before now.
It’s not like a Poseidon Concepts, here.
Look It’s hard talking about BAS cause
it’s a touchy subject. I just am trying to
convey that receivables in that
industry right now are way more
risky than say one year ago. When
trying to determine value here it’s
just a bigger factor than it other wise
would be.
Oh sure, that’s fair. I’m not trying to be particularly defensive here; I actually like the challenges. When I read your comment, I earnestly was like “wait what!?” and ran to the filing to see if I had missed this.
I didn’t think I had, but I couldn’t recall so I went back through my notes.
My general theme here is “yes BAS and the industry writ large has gotten its teeth kicked in, and somebody is going to eat it. But BAS will not be one such body”.
You are welcome (and encouraged) to continue challenging me. If you touch something I hadn’t thought about, I am not the kind of person to blindly have faith. I will sell faster than you would believe.
Cool
Per the conference call, basics DSO was at 60 which indicates that their AR is in better shape than peers. I think management has been exercising propriety in that regard, so I’m not too concerned about it.
I own bonds of Basic and I believe the company will survive. As for the company thriving in the aftermath of this downcycle, I’m not as confident.
I was disappointed that they only made eleven cents on 400m revenue. Cash balance increased but most of that was drawn from their line of credit.
Agreed, the cash issue is not so straightforward. They will surely draw on the $200 million facility, that’s why they restructured it so recently.
As for only making $0.11, the industry is a bloodbath right now. Let them do what they need to do to keep the cash flow. Cash flow is what will determine if BAS survives, not earnings. Less capable competitors can chase a few quarters earnings to their graves.
I don’t think the industry had much to do with the miss. Their gross margin was still 32% for the quarter which is the same as it has been. I had a really small position in the common and sold it after hours on Thursday.
BAS has survived other downturns in the industry, and I’m confident they’ll survive this one. I’m just not all that interested in the common because I don’t think their earnings potential is that great. During this whole fracking bonanza the last few years, they didn’t make much to show for it.
That is true, although there was the natural gas price disruption in 2011 (I believe) from Chesapeake. It seems fair to consider this is the second panic in less than 5 years.
Good point, I don’t have much of an idea on how the 2011 disruption impacted their earnings.
Btw, I was wrong about them drawing on their line of credit. The long-term debt increase was from equipment leases, per the 10-k which is now available.
So, that means that the increase in their cash balance was from A/R collections, which is good news.
If you consider the debt capital, then, yes, they are well capitalized. LOL. I would pay attention to their covenant package and realize that senior lenders get very nervous when these levels are breached.
So many better stocks out there, Cain. I don’t know why you punish yourself.
100% upside