Midwest Energy Emissions Corp. (OTCQB:MEEC) Q3 2016 Results Earnings Conference Call November 15, 2016 11:30 AM ET
Richard MacPherson - President and CEO
Rich Gross - CFO
Dallas Salazar - Atlas Consulting
Steven Ralston - Zacks
Aaron Martin - AIGH Investment Partners
Good morning, ladies and gentlemen and thank you for standing by. Welcome to the Midwest Energy Emissions Corp. Third Quarter 2016 Earnings Call Conference. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. [Operator Instructions] This conference is being recorded today, November 15, 2016, and the earnings press release accompanying this conference call was issued earlier this morning.
Our call today is ME2C's President and CEO, Richard MacPherson; and Chief Financial Officer, Rich Gross.
Before I get started, I will read a disclaimer about forward-looking statements. This conference call may contain in addition to historical information, forward-looking statements within the meaning of the Federal Securities laws regarding Midwest Energy Emissions Corp. Forward-looking statements include statements about plans, objectives, goals, strategies, future events of performance and underlying assumptions and other statements that are different than historical facts.
Forward-looking statements are generally identified by using words such as anticipate, believe, plan, expect, intend, will, and similar expressions, but these words are not the exclusive means of identifying forward-looking statements. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances.
Investors are cautioned that forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the statements made. Matters that may cause actual results to differ materially from those in the forward-looking statements include, among other factors, the gain or loss of a major customer, change in environmental regulations, disruption in supply of materials, capacity factor fluctuations of power plant operations and power demands, a significant change in general economic conditions in any of the regions where our customer utilities might experience significant changes in electrical demand, a significant disruption in the supply of coal to our customer units, the loss of key management personnel, availability of capital and any major litigation regarding the Company.
In addition, this conference call contains time-sensitive information that reflects management’s best analysis only as of the date of this conference call. The Company does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of this conference call. Further information concerning issues that could materially affect financial performance related to forward-looking statements contained in this presentation can be found in the Company's periodic filings with the Securities and Exchange Commission.
This conference call does not constitute an offer to sell or the solicitation of an offer to buy of any of the securities described in this conference call, nor shall there be any sale of these securities in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such jurisdiction. The securities described in this conference have not been registered under the Securities Act of 1933.
At this time, I would like to turn the conference over to Richard MacPherson, the Company's President and CEO. Sir, the floor is yours.
Thank you, Operator. And thank you everybody for joining us today. We are very pleased with our significant progress to-date which is evidenced by our record revenues of $11.8 million in the third quarter of 2016. That's an improvement of 225% over the third quarter of last year and 25% over the previous quarter. It's the record quarter in a row speaks not just of the significant revenue generation but also serves as validation that our customers are choosing us as the go-to-technology and the team over the competition.
Earlier this morning we also announced definitive purchase agreement for the sale of approximately 13.5 million in shares of our common stock in a private placement transaction with certain institutional and accredited investors.
This transaction provides us with numerous benefit and I will briefly touch on them but delve into more detail later in the call. First, it allows us to successfully move forward with our debt exchange with Alterna Capital which will provide a simplified capital structure, reduce the company's total outstanding shares on a fully diluted basis by approximately $34.2 million.
Second, it will allow us to exercise our outright purchase, a 100% of our intellectual property from the Energy Environment Research Center or the EERC, which is currently licensing its IP.
Thirdly, it will used for working capital and general corporate purposes which we expect will help us continue to grow well into the foreseeable future. But before going further, I would like to give a brief overview of our company for those of your who maybe joining us for the first time.
Midwest Energy captures Mercury emissions from coal-fired power plants all across North America. And this is relevant due to the EPA mandate which requires all U.S. based coal and oil-fired electric power units, generating 25 megawatts and higher to reduce the mercury emissions from their plant by approximately 90%, more on this later.
In October, the six month grace period pass with this mandate and utilities across the U.S. are recognizing our inherent patent solution as a necessary option. We’ll talk more about this as we go on.
At Midwest we help capture Mercury emission using our patented SEA technology, which is short for Sorbent Enhancement Additive technology. The SEA technology consists of a piece of low cost proprietary equipment which we install for each boiler as well as ongoing supply of our special blend of both SEA and sorbent materials.
Another important component in addition to our SEA technology is our consulting services which we provide by leveraging our team of tenured highly trained mercury control experts. So, let me walk you through a typical customer engagement.
First, our team evaluates the coal-fired plant to determine exactly what’s needed based on the type of boiler as well as the coal being used. This includes fuel analysis, optimization of the design of the injection services, stack emissions testing and much more.
Our technical knowhow is a significant competitive advantage for us, and we’ve retained some of the brightest emissions experts in the country who can determine exactly what’s needed for each specific situations for the operators to comply with MATS.
Then we come in and install our patented equipment on the front-end, which cost the customer between a $100,000 and $250,000 as a one-time cost depending on the size of the boiler. And from there, we supply our customers a proprietary blend of products on an ongoing basis based on the fuel gas chemistry that we’ve experienced in the prior testing.
The equipment is a one-time fee, but the supply is ongoing, which provides an element of recurring revenue to our model. Again having a technical team in place in conjunction with the best technology driven solution in mercury controlled market it gives us a significant competitive advantage.
And I will talk for a minute about the relationship with EERC. The Energy Environment Research Center, all of this technology is protected by our robust patent portfolio which consists of over 30 issued and pending patent covering U.S., Canada most of Europe and Asia.
Our technologies come from the EERC which is one of the oldest research facilities for coal in the country with over 250 people working there in engineering and various parts of their scientific team. And over the years they’ve developed the best technology available for mercury control today which we implement on a daily basis.
That technology now has over 20 years and $65 million invested in development and several of the core individuals, specifically John Pavlish, our CTO were primarily responsible for the technology are now on our team on a full-time basis.
In 2009 we formalized a license agreement to utilize the EERC patent portfolio and fully commercialize the mercury control technology suite. So we paid 25,000 per month plus annual royalties.
However, we had the option to acquire all of the patents pending and knowhow for $2.5 million but 925,000 shares and its our plan to acquire this asset in the very near future with the completion of our announced offering this morning.
Let’s talk about the market for a sec, and the market we are playing is huge, approximately $2.5 billion annually. The Mercury and Air Toxics or MATS law is an EPA mandate that requires all U.S. based coal and oil-fired plants generating 25 megawatts or higher to reduce the mercury emissions by over 90%.
This went into full effect in April of this year and is providing a significant tailwind for our patent Mercury control technology. Power plants must either need to capture rate or de-rate their boiler by dialing it back to a point that they meet that compliance level, very significant to us as the technology company and our capacity to be able to get people into compliance at reasonable cost.
And we guaranteed to be able to do that in order to alleviate any concerns that the utility love. So global opportunity is present, but we’re focused on North America, at least for the next two to three years as we focus on the market here at home.
Our current customer base in future business, I’d like to speak about that. Our proven commercial solution has been demonstrated for past 10 years and it's been commercially operable for the last stake.
For our customers, we can guarantee to get any boiler under MATS compliant under reasonable conditions and for boilers that can't get into compliance without de-rating we’re able to provide a system that will most likely allow them to run at full capacity.
The market opportunity across North America is approximately 700 unit, many of which have expensive backend systems in place, we’re able to, due to our technology to go in and optimize those units giving them a significant cost improvement and operating advantage over where they are now.
We believe our low hanging fruit as is called is approximately 15% to 20% of those boilers, so we think there are 120 or more that we can actively go after with a significant improvement over their present operation.
So our technology is currently being used at 20 unit and we believe we will not only be able to win new customers but be able to successfully penetrate the fleet of our current customer base which were currently contracted.
This will represent a significant increase in horizontal growth for us as we go forward. We’re actively working on obtaining some of those boilers and experiencing success, which we expect to turn into long-term master contract supply agreement as we go forward.
In the first quarter of 2016, we only had four boilers or electric generating units under contract, and so that explains our significant ramp up in revenue in the second and continuing into the third quarters as we moved up to the 20 units that we now have under operation.
And as I noted in our pipeline is the most significant its been our company’s history, we hope to announce additional contract wins in the near future which will lead to long-term revenue that is essentially reoccurring in nature. While we attempt to be as transparent as possible about our business and provide regular update, given the tight left and conservative nature of our industry, there’s instances where we may be unable to announce detail surrounding a new contract win at the request of our customer. And it’s also worth noting that cost of sales in developing each customers is reducing as a result of economies of scale.
So we look at our initiatives, one of our key initiatives ongoing now that we have at this base of 20 plants across the country that are operating flawlessly and our ability to move horizontally into the rest of the fleet, optimizing the rest of the boilers, now that we've made that beachhead into the fleet itself and establish ourselves as a credible vendor in the state.
We don't necessarily announce new business until a new master agreement contract is been placed. And that being said, we currently have many potential customers with ongoing testing equipment installed or operating and in some instances our customers will continue to operate in a demonstration profile for continued period of time prior to us being able to sign a master supply contract.
So any of the units that have a challenge out there in the North American fleet to get into MATS compliant or that are experiencing extra cost of difficulties, cycling output from the boilers or de-rating the boilers stay in compliance, our technologies have proven to be able to improve that situation drastically and allow them to maintain compliance at peak performance.
One of our main challenges as of now is adding enough people in the field to be able to carry out the demonstrations and show these we can beat fixed or ongoing challenges. And so we are adding field people as we go as quickly as possible.
With regards to recent hires, one of the most significant – once recently was a power industry veteran at the regional sales manager and that enhance our ability to meet our client needs in the southwest in particular. We continue our R&D efforts both with the EERC, and as well as part of our field effort where we introduced new technologies and product on a regular basis.
To this end, with regards to new product, in September we secured a three-year contract with the utility for our latest commercialize high sulfur-tolerant product. Its been tested in numerous plants and now implemented on a large broiler that uses sulfur injected compounds to improve the performance of the particular component wise and we expect that a number of additional perspective plants will benefit from replacing their present sorbent with this new product of Midwest.
Other initiative as I touched on earlier is to acquire the patent portfolio from the EERC which will anticipate sometime in the near future. We would also like to uplift to a major exchange at some point, which we believe will ultimately help broadly disseminate our story to the general public, and we've been working on that for some time now.
So I’d like to turn the call over to Rich, to go through some of the financial detail for the quarter as well as our outlook for the rest of 2016 and full-year 2017, before I wrap up the call with some closing statements and open it to Q&A. Rich?
Thanks, Rick. As Rick touched on earlier, we generate our revenues I know many of you’ve heard this before from three primary sources. The first of the demonstration and consulting services we do. The second our equipment sales to get set up and the third, our own product sales, which are typically recurring in nature and recognize as we provide our ongoing supply of the SCA and sort of material.
The sales mix this quarter more closely reflect we expect to see going forward. The quarter three, 97% of our revenues were from product sales. This compares to 66% of product sales and 34% from equipment installations and other services in Q3 of 2015.
Total revenues in the third quarter of 2016 increased 225% to $11.8 million compared to $3.6 million in the same year ago quarter. This represents an increase of 25% when compared to the revenues of $9.4 million achieved in the second quarter of 2016.
This quarter over quarter growth is primarily due to the high usage of our customer site during this peak period of generation demand in their region. Total revenues for the nine months ended September 30, 2016 were $24.5 million, increased of 274% when compared to the revenues of $6.6 million during the same period in 2015.
Costs and expenses were $10 million and $3 million during the quarters ended 2016 and 2015, the increase, obviously due to the increase in revenue. Operating income for the third quarter 2016 was $1.7 million compared to a loss of $0.2 million in the third quarter of 2015, operating income for the nine months ended September 30, 2016 was $1.9 million compared to an operating loss of $2.2 million in the first nine months of last year.
Adjusted EBITDA for Q3 2016 totaled $2.3 million compared to $0.2 million in the same year-ago quarter. This increase is primarily due to the affirmation increase in revenues and improved gross margins achieved due to the change in sales mix.
Net loss in the third quarter of 2016 was $9.3 million compared to a net loss of $1.2 million in the third quarter 2015. This is highly impacted by a $10 million valuation charge for warrants outstanding as of the close of the quarter 2016. And in 2015 there was a actual pickup of the $145,000 for the valuation adjustment made during that quarter of last year. On September 30, 2016 we had cash equivalents of $2 million compared to $1.1 million as of 12/31/15.
Earlier this month, we announced we entered into a debt exchange agreement with AC Midwest Energy LLC, an affiliate of Alterna Capital Partners LLC, a registered investment advisor located in Wilton, Connecticut. This debt exchange will provide a simplified capital structure and reduced dilution for the Company. Once complete the transaction is affected to reduce the Company's total outstanding shares on a fully diluted basis by approximately $34 million.
This morning we announced, we’ve entered into Definitive Securities Purchase Agreement with a group of investors for a private placement of common stock, which expected gross proceeds of approximately $13.5 million. Before deducting placement agent fees and estimated offering expenses for the - we intend to use this for the purchase of intellectual property, some debt repayment and then working capital and corporate focuses going forward.
Now looking towards the remainder of 2016 and full year 2017, we expect lower revenues in the fourth quarter due to our current customer concentration in Southern U.S., where many clients do lower demand and decrease their output as the temperature is lower. However, we expect this seasonality to eventually be mitigated as we secure customers in different geographic region such as the central and northern regions of the U.S. and even in Canada.
That being said, we are increasing our previously provided guidance for the full-year of 2016 of at least $30 million. We are increasing it to $31 million to $33 million. This represents an increase of at least 146% when compared to the $12.6 million for the full-year ended 12/31/15.
For the full-year ended December 31, 2017, we expect revenues to range between $60 million to $70 million based on demand forecasts from our current customers who will be in MATS compliance for the entire year, as well as expected increases in our client basis, we win new business.
And with that, I'll turn the call back over to Rick.
Yes, sorry Richard little technical gush there. Thank you very much. Overall I'm very pleased with what we achieved during the first nine months of 2016, as well as the progress we've made investing in our future. We put ourselves in a great position and we’re certainly excited about our opportunities going forward.
I’d like to open up the lines now for questions-and-answers. Operator, please?
[Operator Instructions] And we'll take our first question from Dallas Salazar with Atlas Consulting. Please go ahead.
Hi, guys nice quarter. Actually nice run here as of late, stock has reflected it. We think you guys take advantage of that. Couple of questions to your handful, if there is time, if there isn't cut me off, first what is the potential effects, the change in presidential regime if you will? Is there any net effects go to debt Midwest?
This is Rich. Dallas thanks for the question. I know it’s on everybody’s mind. Our interpretation of things at this point is that it will make very little of any change in the short-term and quite possibly be a very positive for us in the long-term. I think the clean power plant is on the chopping block and it had the potential to cut into operating fleet over time. But we all feel very comfortable and have had no negative feedback from the marketplace or the utility with regards to the MATS regulation continuing as we go forward, given that most if not all utilities are in compliance at this time and have been so for the past six months.
Right, yes, and I can appreciate the speculative nature of the question obviously I mean it’s up in the air right, but I would agree with a lot - of what you’ve said, which is actually kind of a nice segue to my second question. In Q2 you guys had 19 boilers under contract, half way through Q4, you’re still - I guess you could say only have 20 boilers. Given the guidance for 2017, do you expect many more to come on board?
Yes, one of the things that is happening in the market that we’re seeing is that we’re being engaged on a demonstration level and that demonstration equipment is being used over a much longer period of time. And what's happening is our efforts in the field rather than turning into a new customer, which is announceable only when we put out major long-term supply contract in place, the work in the field a lot of just ongoing demonstrations at this point in time.
Given that the folks that we're demonstrating on, already have a system in place and they had a contract in place and a system that they expect it was going to perform to the level that necessary. So when we go in and improve on the systems, it takes a little longer for them to actually make the decision, but that's not to say that our revenues are not increasing in spite of not announcing major long-term contracts. We do expect that they will turn into long-term contract, but there's – it's taking a little longer at this point for us to make those actual announcement, but we expect several to be coming.
Yes. No, it's funny I mean that’s a great segue into my next question, which I guess we're just going to keep going a line here. So a big conceptual question I think that is probably on a lot of peoples mind is the timeline as to when you guys can move fast sort of servicing the hard to get into compliance boilers, right that’s kind of in your boilerplate statement, forget the phrasing, but and when can you start to penetrate the fleets of current customers with an opportunity for optimization right? So I guess when can you move pass that sort of market seeding into penetrating the totality of the vertical.
Good question. First and foremost there is such an opportunity for us to be able to mitigate the problems that are being experienced at a significant number of challenge boilers that will keep focused on that. But we are actively demonstrating and pursuing horizontal growth into the fleet that we are now a part of on a regular basis.
And I expect that we will be able to announce success in that regard in the very near future, specifically in contracted form and it will continue to be an ongoing strategy of ours as we go forward with the amount of opportunity that it holds.
Awesome, thank you. Just and the last kind of items that you might be able to answer concisely, but on what can investors expect profitability to be $60 million mark, so sort of the low-end of your guidance?
I would very - simply say that we would expect an EBITDA at $60 million, somewhere in $50 million range.
Nice, okay. And then last question here, thank you for your patience. Do you guys have any plans to uplift or take advantage sort of this new marketability and visibility, which you have?
Yes, it’s been a objective of ours for some time, this reorganization and new financing moves us very close to what's going to be required for uplisting and I look forward to getting back to the market, specifically in this regard either towards the end of this quarter or the first of next quarter, but we’re getting very close to where we need to be in order to effect the uplifting, and so that's very much something we would like to be able to accomplish in the very near future.
Yes, no, and I cancelled that away from today’s news as well. So for taking an extensive Q&A with me. I’ll jump back in queue. Andy by the way guys have their shot. Congrats on the run guys. Thank you.
And we’ll take our next question from Steven Ralston from Zacks. Go ahead sir.
Good morning. Congratulations on the quarter, and especially for the funding things that you announce this month
You are welcome. Could you talk about your profit margin, your operating profit margin it jumped up sequentially from 4.5% to 14.8%. What would you consider to be your normalized profit margin and if probably it’s in the stairs step phase where you get your $60 million level and then ultimately and what would the range be due to the seasonality of your business you would expect it to oscillate between during the year?
Rich, perhaps I’ll turn this one over to you. If you wouldn’t mind respond?
Steve, the increase that we saw in the third quarters directly related to the sales mix. This is the sales mix that we would anticipate going forward. With this level of revenues mostly from product sales we were able to achieve a 33% margin that is due to the run overall overhead rate that we have.
So we would anticipate even further growth in the profitability and the margin as we continue to grow at those rate. For the year, I would expect the EBITDA for 2016 to come in as more into the 15% range because of the sales mix that we saw in the first half of the year, and we will continue to – but I think for going forward, this third quarter would be a prime rate to show what we expect to achieve when this quarter is more like a normalized quarter as we grow and achieve the high revenues that we anticipate.
Maybe I should drill down a little deeper currency, the 33% margin includes the SG&A and you are going to get through a leverage on the cost of goods sold. obviously SG&A is not going to rise as much in with revenue. Can you give a little more color about that?
Yes, Steve this is Rick. One of the advantages of the way the company has been set up is that there’s a very low Opec due the outsourcing of a significant amount of it consumable generation roughly about 80% of our operating expense is outsourced to major regional and national compounders and suppliers and warehousing and delivery folks.
So there is a terrific growth delta as we continue to grow, especially as we expand into fleet even that we have a very limited amount of bricks-and-mortar and overhead attached to the new business. So we very much expect to be able to increase the bottom line dramatically as we grow the top line over the next couple of years.
And there's not a huge amount of additional cost per million of new revenue going forward. So the SG&A as a percentage of revenue will decrease significantly going forward.
Okay. I’ll work with what I have. You answered quite a few questions about the - how you see - how are you’re going to do - obtain your anticipated revenues next year. Just as a follow-on. You mentioned that you host several demonstrations going on in place, I assume that the revenues from that are in the demonstration services line as opposed to product sales?
Rich would you address that.
Yes sure. That is correct Steven. We are not seeing compared to the demonstration revenues that we have done in the past we have a little bit of a different model so they are in the other services line and we expect to have show it there. The product sales if they are using it for MATS compliance though would show up in the product sales line. We’re splitting out what we consider consolidated…
Okay, I understood. You mentioned that some are existing customers. What is the mix, I know you are not going to give me an exact answer but are there - of the demonstration are over 50% of existing customers or is it under 50% and that remainder would obviously would be new customers.
We basically would be probably in the 50-50 range which speaks to developing new business with non-customers versus expanding through customer fleet.
Thank you. Concerning your recent financing activities, obviously you have sufficient funds to acquire the assignment of patents. How do you see you debt structure being and what at level of working capital do you think you would operate?
Rich, do you want to take a crack at that.
With the closing of the financing and the other activity in our - that we have announced with our convertible note holders, we expect to have when this is all said and done about 16 million of long-term debt I believe in that range. As of - we get to the end of the year we will then have working capital of - or I would expect to have more than enough working capital and probably in the regularly be able to maintain 4 million to 5 million plus as we continue to generate these EBITDA and have our cash available for further growth on top of the fund raising we did.
Thank you. Last two questions. You announced in September that you have another three year contract. Does that mean at some point I guess in the fourth quarter you are going to have at least 21 EGUs running?
That was actually the 20th that we started up and started running in the third quarter.
And we accounted for that was a case where we didn’t make specific announcement of it as it was a very long-term demonstration which just literally trued into a long-term supply contract which seems to be happening - is more of a probability going forward so that we will be assuming new client as we go through the demonstration effort.
Okay. And last question, simplistically when is this value of warrant liability going to disappear. I mean, without it you would be profitable this quarter and just masking your operating results and there are lot of different levels of warrants and then in your table you don’t put out exactly when they expire but them being in the money obviously they would be exercised and when do you expect the majority of those warrants to be exercised so we won’t really be affected, your earnings will be affected that much by this change in value of warranty, the warrant liability.
Steven, this is Rich. The recapitalization that is done through the alternative agreement in the present placement that we announced will eliminate the majority of the warrants that are valued for this purpose and we’ve negotiated with the holders of the rest of the warrants that will remain outstanding that also have to be valued due to some of the clauses that make them be considered derivative in nature. We have negotiated with that group to work towards eliminating those clauses and have - and no longer has to value any of the warrants as a liability going forward.
So our anticipated result is that we will no longer have that line on our balance sheet at the end of the year.
That's great news. Thank you for your time.
And we'll take our next question from [indiscernible]. Please go ahead sir.
Nice job gentlemen. I appreciate the thorough overview and the continued progress. Just want to make sure I understand you mentioned 16 million of debt pro forma of the deal is that a net number, net of cash.
No that would be outstanding debt on the balance sheet after we pay down what we do to affect the closing with the alternate agreement.
Okay. So after the deal what type of net that we have, how much cash?
After the deal we would have at least 4 million in cash.
What is the fully diluted share count pro forma for the deal if you are having that handy?
The pro forma fully diluted will be after all these deals are fully closed will be in between 90 million and 95 million.
Okay, very good. You mentioned earlier 16 million in revenue, so EBITDA would be about 15 million. Can you give us a sense of sensitivity what would be at 70?
Yes, Jeff we would be looking at an increase on that last 10 both in the percentage and the total so we will be looking probably closer to $20 million on the EBITDA at $70.
Very good. And finally you have a history here over the last year being nicely conservative appropriately so in your guidance and just like today raising that, is that the same philosophy of approaching 2017?
Very much so. It has become a bit of a hallmark for us. We'd like to continue down that road with an average of 3 million per boiler going forward and the carryover of business into '17 we feel that the 60 to 70 is a very conservative number.
Wonderful. When we look out three to five years, how can we think about the revenue opportunity for the company here?
I think we’re going stay focused on North America for the next two years in particular. There is a great deal of business there for us to earn and expand our base as a leader in the industry into some significant fleet. I think towards the latter part of '18 we’ll start to take a look at the rest of the world and see what opportunities arise that are basically just being talked about now but we think will be tangible end of '18 going into '19. That will be an opportunity for the company to take a look at international opportunities either as a joint venture with some international companies or to broaden what we're doing at the time in the international markets.
Okay, wonderful. Thank you very much. Continued success.
[Operator Instructions] And we'll take our next question from Aaron Martin with AIGH Investment Partners. Please go ahead.
Hi, it’s Aaron Martin from AIGH. Congratulations guys on the progress after all these years. I was looking down, just review again on the seasonality, make sure I’m understanding and you talked about hopefully we’re going to be able to move away from the seasonality, just try to understand the [indiscernible] around that and the details around that.
Sure, it’s an interesting dynamic. We presently have the majority of our business in some southern states and therefore, the capacity factor or the output of the boilers in those areas are very much controlled by the heat in that area. As we continue to expand eastward and northward without majority of our client base, then the output of those boilers would actually counteract the southwest temperature base and so that capacity in those boilers would average out our revenue base as we go forward.
We have opportunities in the northeast and in Canada we're pursing and those areas in particular will provide us with a leveling of the capacity that our boilers are operating on.
Okay. And what kind of time frame do you think in terms of or it’s going to be something where we’ll have the seasonality still be mitigated but it will take us a while before more offset.
With what we’re doing right now I can see this being leveled out in the second half of '17.
Okay great. And in terms of talking about the uplisting, is the game plan that when we get rid of more of these driven liabilities that will just take care before us or do we have quarter or two of profitability building up equity, how do we look at that?
There is a combination of things. We're looking at the New York Exchange. We’ve had several meeting with them and right now we’re getting very close to the shareholder equity position that's necessary as one of the criteria and then we need to tick the box on the $2 stock price and this reorganization we're yet to hear back exactly from the auditors but this reorganization takes us and raise, it takes us very close to where we need to be if not there on the shareholder equity line and so we think as we continue to execute on the business plan we will get the organic growth necessary in order to get the stock value to where it needs to be as well.
So I expect as I mentioned earlier to be able to respond back sooner rather than later on this initiatives and it's something that we very much would like to accomplish as soon as possible.
Okay, great. Thanks congratulations on the progress.
And that will conclude today's question and answer session. I would like to turn it back over to Mr. Richard MacPherson. Please go ahead.
Well thank you very much operator. Ladies and gentlemen, thank you so much for your interest and continued support of Midwest. We're executing very successfully on a daily basis. I look very much forward to getting back to your to talk more about our growth and new wins and expect to be able to do that sooner rather than later.
I wish you all the best and thanks again for participating in our call today. Thank you.
Ladies and gentlemen that does conclude today's presentation. Thank you for your participation. You may now disconnect.
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