Strategic Environmental & Energy Resources, Inc. (OTCQB:SENR) Q4 2015 Earnings Conference Call April 11, 2016 4:30 PM ET
John Combs - Chairman and CEO
Monty Lamirato - CFO
Jim McCleary - Shardane Capital
Robert Limbert - Private Investor
Craig McNabb - Private Investor
Good afternoon, welcome to The Strategic Environmental & Energy Resources Fourth Quarter and Full-Year 2015 Earnings Conference Call. My name is Kellyanne, and I’ll be your operator today. Joining us for today’s presentation is Chairman and CEO, John Combs; and CFO, Monty Lamirato. Following their remarks, we will open the call for your questions. Then before we conclude today’s call, I’ll provide the necessary disclaimers and cautions regarding the forward-looking statements made by management during this call, as well as information about the Company’s use of non-GAAP financial information. I’d like to remind everyone that this call is being recorded and made available for replay via link in the Investors Section of the Company’s Web site.
Now I’d like to turn the call over to SEER’s Chief Executive Officer, Mr. John Combs. Please go ahead.
Thank you, Kalian, and thank you all for attending, especially our European shareholders that have stayed up to join us today on our fourth quarter and full-year 2015 earnings conference call. As many of our current shareholders know, there has been a relatively long silence in terms of operational announcements for the last four months or so, I’ll be addressing these new developments in detail on this call.
Before we look at the state of the Company, recent progress, and moving forward into 2016, I’ll have our CFO, Monty Lamirato, report and comment on SEER’s 2015 financial results. Monty?
Thanks, John. I’ll run through the fourth quarter and the full-year of 2015 financial results -- look at fourth quarter and full-year of 2015. Total revenue in the fourth quarter of 2015 declined to $3.2 million compared to $5.4 million in the same quarter a year-ago.
For the full-year of 2015, total revenue was $12.6 million versus $17.3 million in 2014. The decrease is primarily attributable to the decreases in revenue from our industrial cleaning segment, which decreased approximately $10.2 million in 2014 to 2015 and an approximate decrease of $5.3 million in 2015, which ultimately resulted in an overall $4.9 million or 48% decrease, primarily attributable to a single customer.
Industrial and Railcar Cleaning revenue in the fourth quarter of 2015 totaled $1.9 million versus $3.8 million in the same period a year-ago. Environmental Solutions revenue in the fourth quarter of 2015 totaled $437,900 versus $1.5 million in the same period a year-ago, and solid waste revenue in the fourth quarter of 2015 totaled $881,300 versus 9,700 in the same period a year-ago.
Industrial and Railcar Cleaning revenue for the full-year of 2015 totaled $8.3 million versus $12.8 million in 2014. Environmental Technology Solutions revenue for the full-year of 2015 totaled $3.2 million versus $4.3 million in 2014. The decrease is primarily attributable to lower media replacement sales and lower long-term contracts.
Solid Waste which is Paragon Waste Solutions, revenue for the full-year of 2015 totaled $1 million versus $109,000 in 2014. The increase in solid waste revenue in both periods is primarily attributable from the sale of two CoronaLux units to our China and U.K. partners.
Gross margins in the fourth quarter of 2015 decreased to 8.2% from 27.8% in the same year-ago quarter, and for the full-year of 2015 decreased to 17.8% versus 30.5% in 2014. The decrease in margin is due to a reduced utilization of both equipment and manpower as a result of the significant reduction in service revenue.
Industrial and Railcar Cleaning gross margins decreased to 21% versus 34% in 2014. Environmental Solutions gross margins increased 40 basis points to 27% versus 26.6% in 2014.
Solid Waste gross margins were a negative 48% versus negative 264% in 2014. The increase in solid waste costs was the primary reason for the negative gross margins in our solid waste division due to an increase in personnel to support the placement and operation of CoronaLux units with customers, along with product development and product enhancement activity.
Total operating expenses for the full-year of 2015 decreased 11% to $16 million versus $18 million in 2014. The $2 million decrease in total operating costs is a result of 1) a decrease in service costs of approximately $1.9 million associated with a 35% decrease in service revenues of $4.5 million and 2) a decrease in SG&A of approximately $333,000 comparing 2014 to 2015.
Net loss attributable to SEER in the fourth quarter of 2015 totaled $1.1 million or $0.02 per share -- diluted share, compared to a net loss of $93,000, which is essentially a $0.00 diluted per share from the same quarter of a year-ago.
For the full-year of 2015, a net loss attributable to SEER, totaled $2.9 million or $0.05 per share, compared to a net loss of $248,000 or $0.01 per share in 2014. The net loss in both periods is primarily due to a 29% decrease in revenue in 2015 compared to 2014.
Adjusted EBITDA loss in the fourth quarter of 2015 totaled $635,000 compared to a gain of $296,000 in the same period a year-ago. Adjusted EBITDA loss in 2015 totaled $1.7 million compared to an adjusted EBITDA gain of $1.3 million in 2014.
Cash at December 31, 2015, totaled $257,000 compared to $443,000 at December 31, 2014. Subsequent to year-end, the Company raised $325,000 in equity financing. While we expect modified EBITDA to be negative for the first quarter of 2016 by approximately 300,000, the short fall will be covered by our trade accounts receivable which exceed our trade payables by approximately 750,000 at April 1, 2016.
On this positive note, I will turn it back over to John.
Thank you, Monty. Before I jump into the development, I’d like to present the prologue assorts. I’ve listened in on countless presentations to shareholders over my 30 plus years as a Corporate Attorney and I’m always most impressed by those that present the facts and down to earth terms that all of us can understand. Read any of Mr. Buffett's letters on behalf of Berkshire Hathaway, and you will appreciate the power of Canter and straightforward language.
With that said, I strongly believe that the intangibles of the Company that are sometimes manifested in the form of what Management and the Company have gone through to get to where they’re can be as valuable an indicator of future success as any number of definitions of enterprise value, PE ratios, or other fiscal formulae or analytical metrics.
With this in mind, you’re invited to consider not only the 2015 an historic numbers of the Company, but also the significant obstacles that have been overcome and the many milestones achieved to position SEER on the verge of a game changing inflection point or SEER appears ready to break into huge medical waste markets with the detested path to disruptive technologies.
The Company is also well prepared and positioned to bring proven and patented technologies into enormous oil field markets that are being confronted with more and more burdensome regulations regarding oil field emissions. In both markets, these businesses have very few, if any cost effective options or alternatives until now.
Consequently my remarks today are not intended to be a strict fiscal analysis of the operating history of SEER as a whole, nor any specific evaluation of its operating entities. Indeed, each entity is in a different phase of its lifecycle and consequently each has vastly different balance sheet and income statement characteristics.
SEER will file this week it’s audited 2015 annual financial results, and there will be as many different opinions and interpretations as there will be viewers. Mr. Buffett said in his 2009 letter to shareholders and I quote “our goal is to tell you what we’d like you to know if our positions were reversed. I’m also a large shareholder, I’m reversing our roles and my intent here today as we discuss SEER and moving forward is to tell you what I think you would like to know for better or for worse.
Management and I realize that 2015 results were not stellar. We get it. We completely acknowledge the result and I stand personally accountable for them. The 2015 results must, however, be put in context. We know exactly why the fall in revenue occurred and in essence the downturn was isolated within our services division for reasons I hope all of you appreciate and have no doubt read about in any number of newspapers or journals.
In short, an industry-wide downturn in the energy space resulted in the downturn of our service division and SEER as a whole felt it. By mid year, however, we were already implementing steps to counter it and further better insulate the Company from the impact of a similar event in the future. Some more good news, our other divisions were unaffected by these macro industry events. Indeed our technology division, MV, performed as expected and is positioned itself for growth in 2016.
The 2015 revenue of our other technology division, Paragon, was up significantly and seems postured for breakout in 2016. We readily acknowledge, however, that our technology divisions are not performing anywhere near where they can and should, and we realize we’ve a lot of work to do before we, as shareholders, really start to realize their value.
Let’s talk about cash flow. As you all might imagine cash flow in 2015 was and remains tight. There is no secret. Even though SEER management prides itself as being frugal even in the best of times, we took some additional steps throughout 2015 to streamline expenses and reduce our annual SG&A by well over $300,000 on a go-forward basis.
More measures were implemented in late 2015 that will further reduce operating expenses in 2016, thereby further improving overall margins. Despite these remedial cost saving measures, we’ve remained successful in continuing our commitment to diversifying and expanding our services divisions, which will be discussed later.
We’ve also been successful in strategically growing our MV media product line, continuing to rollout our patented oilfield emissions capture system, and maintaining our aggressive marketing campaign for MV in the growing land field -- landfill and biogas markets.
We achieved these important objectives and completed the acquisition of an important technology company with the help of several of our long-term and loyal shareholders. In late 2015, the Company took in $1.25 million through a convertible note and recently took in approximately $325,000 of equity financing at $0.50 a share when the market price of the share was close to that price.
We are extremely sensitive to dilution and the trading price, so we’ve been very conservative in our minimal funding efforts. Bottom line, we’ve weathered the worst of the storm in 2015, we’ve maintained our commitment to expand and rollout our new technologies and cash flow of peers improved and stable in this first quarter of 2016.
We’ve an inventory of three large CoronaLux systems, two small CoronaLux systems and one VOC destruction system, all of which are bought paid for. The placement of only two of the large systems would generate nearly $1 million and put us back in healthy and even more stable cash flow position.
With all this in mind, despite the 2015 performance, management remains undeterred and unwavering in our commitment to our market, our strategies, and most important our multiple patented and proprietary technologies.
It is impossible for you as shareholders to appreciate the onerous and tedious process to obtain the many layers of permitting and bring disruptive technologies to any market, especially the state in conservative oil and gas and medical waste market. Indeed in many instances, the Company has prohibited from disclosing information regarding progress in our efforts to permit and bring to market our technologies.
Despite all of this, we understand our shareholders collective frustration in this regard and thank you all for your patience and understanding. Having achieved significant milestones, and made it through the hardest parts over the last three years, we believe we’re on the proverbial goal line and will not let up until we push up and over.
Let’s get more specific what exactly were we doing in 2015. Our focus in 2015 were primarily in four areas. As I mentioned earlier, our first focus was to stabilize and reverse the revenue downturn in our oil and gas service division caused by the impact of the energy sector shake up. Our second focus was to aggressively continue our ongoing efforts to rollout and expand our MV solutions and product offering. Our third area of focus and closely related to our MV growth objective was to acquire and launch our newest division SEER Environmental Materials or SEM as we call it. And finally, our fourth critical area of focus was continuing to innovate and advance the progress of our Paragon Waste Disruption Technology and secure the expanded intellectual property necessary to protect our competitive advantages worldwide. These four areas of focus during 2015 combined with executing on our strategy to achieve our objectives were all essential for us to create the level of growth we’re targeting in the coming years that will ultimately drive increased shareholder value for us all.
Now let’s talk about the developments, progress, and challenges within each of these four areas of focus and each of the four divisions. In our services division, stabilizing and minimizing similar impact in the future was twofold. First, diversify our customer base as well as our market sectors, both of which were heavily weighted in the refinery space and second expand our expertise of SEER’s Railcar Cleaning division that is currently enjoying an upswing in the first quarter of 2016 as oil commodity cars are brought out of service in the cleaning before storage.
In our 10-K filing, we’re mentioning the loss of maintenance responsibilities at one of our large refinery customers. We projected the loss of this revenue could be as high as $2.5 million to $3 million. First, it is important to understand we did not loose the customer, only a segment of the services we provide. We continue to be one of the service providers for the refinery. Second, we believe we’ve implemented immediate remedial measures and initiated steps to make up for the majority, if not all of this lost revenue in 2016 on an annualized basis.
Indeed it appears our efforts to diversify both our customer base and market concentration are already paying off. REGS was recently awarded three new chemical cleaning jobs in the Oklahoma region. While these jobs are not significant from a strict revenue and income perspective, totaling approximately $300,000, they represent a new market opportunity, a new large customer, and the chance to deploy our new proprietary chemical cleaning systems. Indeed, we are proud of REGS.
Also of note, our service division reported a record month in February of this year and the first quarter of 2016 is on track to be a significant improvement over any quarter last year. Sustaining record revenue is never easy, especially in the unpredictable service sector. But we believe our efforts to adapt our services division will continue to pay off in 2016 and beyond as our technology divisions began to more significantly contribute to the bottom line.
Our rail division is also growing. Together with our partner Union Tank Car Company, our service division is opening a new full-service railcar cleaning facility in Illinois. Railcars have already been delivered to the site and it is expected to be up and operational this month.
By the end of this year, if not sooner, this new facility is expected to operate similarly or superior to our Denver facility that now generates approximately $2 million of revenue and good margin income each year. In addition, our Kansas service facility has received all the necessary permitting and approvals to install flaring capabilities necessary to commence cleaning of liquid propane gas or LPG as it is known, liquid propane gas cars and a new high margin sector of railcars. All the necessity expenses have been made and no additional labor will be required. LPG cars have already been directed to the Kansas facility and we expect to commence flaring and LPG car cleaning operations this month.
The largest opportunity for our services division is related to our patented and proprietary MV Technology. As a trusted service company with over 20 years of experience in the oil and gas field, and an impressive stable long-term major energy industry customers, REGS is now heading up the rollout of our patented V3RU and our proprietary V3RU Plus vapor control technologies, as part of a broad regulatory oil and gas field compliance program.
Both systems, as you may recall, are designed to target harmful fugitive emissions in the U.S oil and gas fields, for example, methane, propane, butane and other volatile organic compounds. The patented V3RU captures and regulates the harmful gases to the customer’s flares to be burned. This alone makes this solution compliant with current regulations here in the Colorado oil and gas fields.
In response to environmental groups and several customers, however, we took the solution a step further and are bringing to market the V3RU Plus system, made possible by our underlying patent related to capturing the gas in an expandable bladder. This enhanced system not only captures the emissions in our patented bladder system, it then through compression and chilling converts most of the gases to valuable liquids such as liquid propane, that have, one, monetary value for resale as renewable fuel commodity. Two, operational value as products that can be injected back down oil to improve well productivity and/or three, value as a fuel to assist in the evaporation of produced water at the well site thereby obviating the need for costly transport and off-site disposal. Any one of these potential uses creates tremendous cost saving possibilities for the customer.
As we all know, the proof is indeed in the performance and at the request of the Western oil and gas producer, REGS is currently in the process of mobilizing a field crew with our V3RU Plus unit to designated wells in Wyoming, in order to demonstrate the technology in the field and began data gathering this month.
Based on our initial testing, we are optimistic regarding our ability to perform as advertised, and the Company continues to believe it has one of the most cost-effective, efficient, and reliable solutions for smaller stranded wells that are abundant throughout the United States, over 10,000 of which are in Colorado alone.
We also remain convinced that while the demand is being driven by regulations, being able to offer a compelling solution that results in compliance and creates monetary savings for our customers, and possibly enhances well productivity for the industry, will demonstrate our technology as perhaps the most attractive solution for regulators and politicians, the oil and gas industry, and the environment.
We acknowledge the fugitive emissions market in the oilfield is in its early stages. This early stage, however, is exactly what makes it so exciting. We are one of the first companies to specifically address the smaller wells and are extremely well-positioned to make immediate sales of our patented technology once the regulations become enforced in earnest.
Now let's talk about our MV Technologies division. With increasing regulatory pressures in a burgeoning interest in the use of biogas as a renewable fuel energy source, MV continues to respond to continuing request for project proposals, mostly in the U.S., but also from perspective customers abroad.
MV’s H2SPlus System remove hydrogen sulfide, known as H2S impurities from biogas produced in landfills, wastewater treatment facilities, and agricultural digesters. The system addresses a critical need for operators to improve the efficiency of power generating operations from waste gas, while at the same time meeting stringent emission standards.
MV continues to expand its installed base -- its installed system base nationwide with new projects in 2015 coming mostly from very large landfill operations. As we have discussed, these installations offer recurring revenue streams to sales of MV’s bioactive media or BAM as we call it, as a replacement media with every $1 million in system installations generating approximately $150,000 to $300,000 annually during its 10-year plus life-cycle.
For example, in 2015, MV completed installation of its largest H2SPlus system to date at a major landfill facility in Florida. This system consisted of six vessels and nearly 10,000 cubic feet of BAM media to commence operations. Under normal operating condition, this system alone is anticipated to require approximately 10,000 cubic feet of replacement media every 12 to 15 months or approximately $170,000 each service cycle.
The future potential for stable long-term and recurring revenue enhances the importance of SEER’s new media products division that will enable us to most effectively fulfill this increasing demand and contribute high margin products and technologies to the Company and improve its bottom line.
So let's talk about this new SEER environmental materials division. In order to capitalize on this recurring and growing demand for all types of media, the Company forms SEER Environmental Material or SEM. SEM was established as a wholly-owned subsidiary of SEER in the fourth quarter of 2015 as materials technology company focused on developing a broad range of advanced chemical absorbents and catalysts that enhance the capability of biogas produced from landfill, wastewater treatment operations, and agricultural digester operations.
Through a combination of internal research and development efforts, and hard assets and intellectual property acquired externally, SEM’s new technologies were successfully developed and field tested with very positive results. Indeed, sales commenced in 2015. We’re now rapidly scaling our capability and expect to be fully operational by mid year 2016 with significant contributions to SEER’s consolidated financial results and profitability also occurring in 2016 and beyond.
In addition, MV has recently launched an entirely new product line of H2S Reduction Systems based on a different chemical absorbent technology than its current wood based BAM. The new granular technology is available exclusively to MV for certain markets through a new partnership with one of the world’s largest catalyst providers. This comes after nearly a year of collaboration and technology assessment.
We believe the combination of MV system engineering expertise and the performance characteristics from our partner’s new absorbent technology will enable MV to address large market needs it wasn't able to address before with its existing product line up.
We sold our first granular based system in the first quarter of 2016 and are processing several other proposals for additional projects in 2016. An additional advantage of an expanded product and technology portfolio is the broader range of cost-effective gas treatment solution and enhanced pricing flexibility that will enable SEER’s MV subsidiary to more aggressively and competitively pursue markets and customers in the biogas base, both improving MV’s revenue and gross margin opportunity while in turn increasing the need for SEM’s media products. It becomes a very compelling cyclical support model.
Let's now focus on Paragon Waste Solutions. In California, while the final and unconditional permit has not been granted as of today, we continue to engage in substantive and encouraging communications with the regulatory agency responsible for the issuance of that permit. Believe me, when I say we’ve done absolutely everything possible to accelerate and expedite the permitting process, the extensive testing conducted over the last two months went extremely well and we are exceptionally pleased with the system's performance relative to any other available technology.
Based on the success of the extensive testing done at the direction of one of California's regional air quality management districts, and the collection of vast empirical data, we remain confident that a broader operating permit will be granted as to win this mediocre [ph] we simply cannot say.
The California partner continues to operate at full capacity three days a week under our current conditional permit, confirming initial revenue and profitability projections. Actual operating costs were tracking better than initially projected and the system has been operating as designed without incident for nearly three quarters.
The success with which the CoronaLux system has been destroying medical waste in California has exceeded our expectations confirming the facilities designation as “the only California waste treatment facility that is approved to treat all types of medical waste including pharmaceutical waste, which no other facility can treat within that state”.
The designation is the first approval granted by California in over 12 years and paves the way for the Company to treat waste streams that have some of the highest associated costs. If and when approved, Paragon will change the way the entire state of California deals with medical waste and positively impact the entire West Coast from an environmental and economic perspective, and eventually perhaps the nation since virtually all other states seem to follow California’s lead.
Operational efficiencies, system automation, and throughput have been optimized, all of which are accelerating the move to a centralized control room with remote control access to multiple on-site systems. Once final permitting is obtained Paragon’s California plants to implement initially up to 12 large CoronaLux systems in a statewide rollout with at least two central processing facilities strategically located in the state.
The facility for a new processing site in Northern California anticipated to house multiple system is already been secured by our partner. All of the incinerate-only waste generated in California is currently transported to Texas, Utah or Maryland. The associated cost savings tremendous improvement and environment impact and reduction of liability issues, create an incredible opportunity on which SEER can capitalize and we look forward to achieving several milestones in California during 2016 that we believe will drive significant shareholder value.
The system shift in the Paragon U.K. customer facility, in the United Kingdom has been installed. The final stages of [indiscernible] preparation are scheduled to be completed in the next month or two, followed by start up at the system and the start of site specific testing by mid year.
In Florida, our technology continues to be approved by the State of Florida and fully permitted for operation in Broward County. We’re working closely with our existing partner to bring in third parties that possess extensive experience in medical waste collection and treatment.
Alternatively we are in negotiations with several other groups interested in partnering with Paragon to establish state wide medical waste disruption facilities in Florida. These groups that were well capitalized and we believe they have the necessary experience to officially bring the CoronaLux technology to market. Management is committed to having operations up and running in the State of Florida this year.
In South Carolina, Paragon’s partner has engaged a permitted consultant and will begin operations as soon as the construction permit is obtained. Of particular note, our South Carolina partners are also currently exploring other high value streams including large scale pharmaceutical products for disruption. Again as in another states and countries, our South Carolina partners continue to expenditures and commitment to push forward reflects their shared belief that commercial and profitable operation will soon occur.
Paragon’s Chinese partner has narrowed the number of candidates for the CoronaLux large unit will be installed with finer selection expected by mid year. Discussions about timing of the second unit continues.
As miscellaneous developments, recent business development also include the establishment of relationships with the U.S. Food and Drug Administration in conjunction with our customers and partners for the destruction of certain regulated products as well as controlled substances from other government agencies. Our customers and partners have also entered into discussions with several established environmental companies with no thermal destruction assets in the Eastern U.S. to use Paragon Systems to destroy their waste rather than ship it to the Eastern United States. All of these activities add to potential sales and eminent opportunities.
On the patent front, let us not forget it was just October, 2014 when Paragon was finally awarded very broad patent protection for its disruptive technology. This was after nearly three years of effort and expense and overcoming the pundit that predicted we would “never get a patent”. In just 17 months as we received the patent award, we believe we have made major strides forward in bringing the technology to market.
The existing CoronaLux patent has now been filed in several other important countries and we are in various stages of having those foreign patents issue. We have received the first office communication from United States Patent and Trademark Office on our second domestic patent filing regarding our CoronaLux technology. Additional intellectual property protection on heavy metals removable and other technology add-ons are also being prepared for filing to further expand and protect the companies increasingly valuable intellectual property portfolio.
In conclusion and for our 2016 outlook, we have weathered the storm in 2015, during which time we diverse to fight our customer and market base for our services division to mitigate impact of future market downturns. We renewed our efforts to bring to market our patented oilfield emission capture system. Greatly expanded MV’s technology product offering acquired and successfully commenced the operations of new environmental materials division and achieved remarkable and outstanding test results in Paragon’s operations in California.
As we look into 2016, we believe the Company is well positioned to achieve many of our critical objectives that should contribute to enhancing SEER’s long-term revenues, cash flows and profits in the coming quarters and years all of which will drive shareholder value. As this occurs, SEER will be better able to articulate comprehensive earning models for our divisions that will provide more accurate performance metrics for our shareholders and investors going forward.
As always, all of us at SEER think each of you as our shareholders, for your trust and continued support. You own the company; we work for you and we believe our hard work and commitment is and will continue to payoff for us all. This concludes my remarks.
With that we’re ready to open the call for your questions. Kellyanne?
Thank you, gentlemen. [Operator Instructions] We’ll go first to Jim McCleary with Shardane Capital.
Thanks and good afternoon. John, you talked about the loss of the refinery -- of the services for one large refinery customer and then you said you could make it up. Are you saying that you can make up the entire $2.5 million to $3 million this year or at some point during the year you would have made up that lost revenue?
The question sounded the same to me, Jim. Good afternoon by the way, Jim. One, as I said, we didn’t loose the customer. We lost just a segment of our services provided there. So its quite possible the other work that we may be awarded will make up for it on site without expecting that -- go ahead.
Yes, I’m just asking about the timing of that. So, if you loose one of the services business or one of the services that you’re providing today, will you get the stuff that mixes up today or will you get that six months from now or nine months from now? That’s what I’m asking.
Yes, I better understand the question now. Thank you. We anticipate starting the new rail division this month, annualized we hope to generate approximately $2 million from that, of course there’ll be a 30 to 60 day ramp up. But as I said 28 cars have already been delivered to the site. The flaring operations should commence in the next 30 days give or take in Kansas. So once we’re up and running with those we should be on an annualized basis Jim, able to make up the loss to the extent it actually occurs of the $2.5 million. Its possible the loss on the refinery will not be anywhere near that, but you the mentality of auditors and our valuable financial department we’re having to assume the worst and we believe we can make it up in the next 12 months.
Right. I got it. Okay, great. And then …
It will almost replace the revenue Jim, as we forgo it at that refinery we should be able to replace it to other operations and come -- and get to that offset level within 30 to 60 days.
All right. I’m with you. Great, that’s helpful. And then on the solid waste business, the big jump in revenue in Q4 versus any other prior quarters, is that from the recognition of some of the installation or some of the U.K. shipments or is there something else going on there?
No, that’s exactly right. That was sale of the two units.
And Jim, you’re in -- it’s an insightful question. We were able to recognize the revenue all in the fourth quarter as opposed to amortizing the recognition over the term of the agreement.
And so, is all of the U.K. revenue now been recognized or is there some still to be recognized?
All that has been paid has been recognized, there’s still some owning. But as opposed to amortizing payments over time we can now recognize it as it’s received.
So for that particular line in your segment reporting and that’s in the waste line, you’re going to have -- in 2016 you’ll have some from the U.K., you’ll have the Florida and California services business, and then potentially you’ll have something from China. Is that it or is there more or am I misstated what you’re ….?
Well, understand there’s really two phases of revenue we anticipate from our affiliate partners. One is the placement fee or sale proceeds, and those will now be recognized as received. Two is the ongoing revenue stream derived from operations. So I want to make sure I’m answering the question clearly. So we anticipate ongoing revenue from every installed site as long as they’re in business. The initial placement fee or sales fee once it’s realized it’s onetime for each unit.
Got it. Okay, great. And …
So for example, Jim. Sorry, I want to make sure I’m abundantly clear on that because it’s important for everybody to understand. For example, our California partner has paid for in full the first unit on site at the facility where many of you have visited. So that will be the last revenue from the placement of that unit. However we will derive, have been deriving and will continue to derive revenue each and every day it operates. As they place additional units, we will get an upfront fee for each of those units and then an additional ongoing revenue stream from operation of those. That makes sense?
Got it. Okay. Yes, very much. Thank you. I appreciate that clarification. And I just want to understand -- I just want to make sure I understand the railcar business as well. So you’re going to -- you have three facilities now up and running, is that correct?
We have two. We have Denver and El Dorado, Kansas and now as third just recently commenced operations in Illinois. So, yes.
Okay. And the Illinois -- the new facility in Illinois, you think can be just as large contributor to revenue as the Denver facility?
Probably -- yes, at least. It’s a large facility, more storage capabilities and on paper it can be larger then Denver, we’re taking a conservative approach and analogizing it to that operation that we know well.
And so the railcar business is going to benefit from the new LPG cleaning service that you have as well as the Illinois partnership. Is that partnership going to be fully consolidated and then there’s going to be a minority interest taken out or is that some other accounting that would be going on?
Another good question. I’m glad you asked it, Jim. When I say partner, UT is our partner in terms of service. The way the railcar business works, if you can provide cleaning as well as car maintenance service you’re a much better positioned facility. So they are our partner only in the -- only to the extent they provide the service welding for example, car repairs as opposed to cleaning. So I use -- that was an inarticulate use of the term partner. They are partner only in the sense of providing a service not in monitory or reporting purposes. So 100% of the clean revenue is ours. We own a 100% of it. They will simply provide repair services onsite, and for that reason I refer to them as a partner.
Okay. I think I got it. So you go out on a joint marketing call, for instance you say we can do all of these things in aggregates and then when the car gets to the facility, it will have it serviced on and you’ll split the revenues, however, you [multiple speakers].
Exactly. That’s correct. It’s a one stop shopping proposition. And as you probably know Jim, UT is one of the largest tank car operators in the world, we feel confident that they will have to bring in service for themselves and it’s necessary to clean the car before you can perform repairs on it. So it’s a very symbiotic self synergistic relationship.
Okay. Thanks a lot, and keep plugging away, it’s been a really tough environment for the guys I know that, and so I admire your confidence and your optimism, keep plugging away. Thank you.
Thank you, Jim. I appreciate it.
[Operator Instructions] We’ll go next to Robert Limbert with Private Investor.
Hi, John. Thanks for a very nice explanation of where we are. One of the obvious things to me is a mandate by the supreme leader of China to really come down on pollution as you know it’s very serious over there. Would it make sense, I know to when we can afford it. So let’s get an office there and it looks to me like it could be a very large market and I know that you can't be everywhere, and we’re spread think at the present time. But shouldn’t China become a very big part of the company’s future?
Good afternoon, Bob. I appreciate the question. Yes, it should be. As any businessmen or business that has conducted business there it’s a wild card to say the least. We’re happy to report our Chinese partners have indeed formed a domestic entity at our request. So we have a California limited liability company set up here and they travel here which obviates the need for us to travel there. If as negotiations mature and a second or a third or fourth unit become installed, it may very well justify the expenditure of both human and capital resources to get a footprint there.
As you know I visited there personally. I visited their production facilities, met the principals. And I think made major inroads towards the relationship. We have one of our employees at Paragon is a Chinese national. Chinese is his native tongue. Does a very good job in keeping us apprised and staying in contact with our partners there. So that’s a long answer to yes, at some point that may make sense. Now it is not our priority. As you might imagine we are focused on the domestic and U.K. installations. But we see it as a very large potential market and will take whatever steps necessary to exploit it if and when the conditions justify.
Just one point, does the California approval affect the Chinese thinking that you’re dealing with, I mean or actual partner there. I mean, do they -- are they concerned at all about that?
Short answer, no. As you can imagine the permitting requirements in China are much different. To say the least, however, with that said, the issuance of approval from one of the most draconian regulatory agencies in the nation if not world would certainly go a long way towards collaborating the technology as the gold standard.
The reason I mentioned that is because a group of Chinese people came to California in fact to Los Angeles and when they did that wonderful video for the Chinese consumer to see about how Los Angeles cleaned up their pollution, and that’s why I thought that might be meaningful.
Well, and that’s an insightful question. We in fact at the Chinese request prepared a video of a cycle, waste destruction cycle. So we provided them with several things and tools if you will that other jurisdictions have not requested. So they do have a video, it shows the entire cycle from being loaded time lapsed of course and unloaded. So they do have in their possession things that we think will help them. But your question is germane on a couple of other levels too, Bob. Technically it’s not necessary for us to get permitting in Southern California to operate in Northern California. So while there is a lot of eyes and anticipation on this result in Southern California, its not critical or even necessarily essential to operate in other jurisdictions. Our partners and we are convinced it will become the Holy Grail, if you will, of permitting, which is why we’re so zealously pursuing it. But the other interesting point to note is that its not a pass or fail permit, its possible they could come back and say you can operate this many hours or that many hours a week based on our empirical data we’re confident that we could operate 24/7, 365 and a quarter days a year and not be anywhere close to any emission standard promulgated in the State of California. So we remain very optimistic. I can't impress upon shareholders sufficiently that we are doing everything we can, being as political and polite as possible to keep pressure on the agency and we’ll keep all of you posted.
Well, that’s a lot. That’s a great job that you’re getting this company ready to make some serious money. Thank you.
Thank you, Bob.
We’ll go next to Craig McNabb, a Private Investor
Good evening. Please could you talk a little bit about your thoughts on cash and liquidity and whether you have sufficient capital to execute your plan this year?
Thank you for the question, Craig. Yes, we addressed it briefly in the prepared remarks.
Now I heard that, but you had to raise more money in the first quarter from last year.
Yes, we raised the money last year for primarily acquisition opportunities, and raised a small amount approximately $325,000 early this year that was really to sustain our offense, if you will, Craig. As we reported our trade receivables are in excess of payables by $750,000. We will be reporting first quarter, they are not finalized, but I think we will be pleased with first quarter results. As I also reported we had a record service month in February, which we will do everything we can to sustain. So, the short answer to your question is based on current indicators, we think we will be fine with cash flow going forward. One of the principal backstops, Craig, is the existing inventory of Paragon as I detailed. We have several -- approximately $2.5 million of inventory all bought and paid for and again we are optimistic that those units will be being deployed in the near future, which will more than offset cash flow needs.
Thank you, Craig.
[Operator Instructions] And with no further questions, I will turn the conference back to you, Mr. John Combs for closing remarks.
Thank you, Kellyanne. First, I’d like to thank everybody for joining us today and for the patience extended to us during 2015. We have many dedicated hard-working people throughout the Company, from our financial department that grinds it out day-to-day to our hard core field crews that sometimes are asked to work in the freezing wind blown oilfield and refineries, a sincere thanks from all of Management to all of you. We couldn't do without you, and I'm sure you shareholders appreciate the importance.
Lastly, if we weren’t able to address all of your questions on today's call or if you think of any other follow-up questions, feel free to contact the Company or contact our investor relations firm [Embassy] Group, will be happy to answer them. We look forward to more positive announcements in the near future and welcome the opportunity to host interview here in the Colorado area. With that, I'll turn the call back over to the operator. Kellyanne?
Thank you. Before we conclude today’s call, I’d like to provide SEER’s Safe Harbor statement that includes important cautions regarding forward-looking statements made during this call, as well as the statement regarding the Company's use of non-GAAP financial information. Examples of forward-looking statements on this call include statements related to our new strategic focus, products, verticals, anticipated revenue, and profitability. Such matters involve risks and uncertainties that may cause actual results to differ materially including the following. Changes in economic conditions, general competitive factors, acceptance of the Company's products in the market, the Company’s [indiscernible] obtaining new customers, the Company’s successive technology and product development, the Company’s ability to execute its business model and strategic plan, the Company’s success in integrating acquired entities and assets, and all the risks and related information described from time to time in the Company’s filings with the Securities and Exchange Commission, including the financial statements and related information contained in the Company's annual report on form 10-K, and interim quarterly reports on form 10-Q.
The Company assumes no obligation to update the cautionary information in this presentation. Today's presentation also included financial measures defined as non-GAAP financial measures by the SEC. The presentation of this financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with the Generally Accepted Accounting Principles accepted in the U.S., otherwise reported you as GAAP. Please refer to more detailed discussion about the Company's use of non-GAAP measures and a reconciliation to the nearest GAAP measures in today’s earnings press release, which is available on the Company’s Web site at www.seer-corp.com.
Finally, I’d like to remind everyone that the recording of today's call will be available for replay immediately after the call and through May 11, 2016. Please refer to today’s press release for dial-in instructions. Again, thank you for joining us in today’s presentation and you may now disconnect.
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