Poseidon Concepts
- North American investors will remember the case of Poseidon Concepts (http://www.theglobeandmail.com/report-on-business/rob-magazine/the-13-billion-fraud-bay-street-forgot/article32651690/)
- Poseidon developed and leased out pools used by oil and gas customers to store dirty fracking water
- The stock went from over 16 DOLLARS to 16 CENTS in ~5 mos, wiping out well over $1 billion of market value
Also read:
- Q2/H1 Hedge Fund Letters - Letters, Conferences, Calls, And More
- Baupost Letter Points To Concern Over Risk Parity, Systematic Strategies During Crisis
- AI Hedge Fund Robots Beating Their Human Masters
Badger vs. Poseidon
What happened with Poseidon’s AR?
Poseidon’s 2011 Annual Report, Page 42 on Revenue Recognition:
- Fracturing fluid tank rental revenues are generally derived from the provision of rentals and related services which are based on contracts that include fixed or determinable prices based on daily rental rates. Revenue is recognized when there is persuasive evidence of an arrangement, tank rentals and related services are provided, the rate is fixed and determinable and collectability is reasonably assured.
SEC v. Joseph A. Kostelecky, Filed 2/6/2015, Page 6
- There was no basis, however, to book a material amount of the revenues from these contracts because the purported take-or-pay contracts simply did not exist or were otherwise
What Was The Outcome?
SEC v. Joseph A. Kostelecky, Filed 2/6/2015, Page 9
- an independent member of Poseidon’s board of directors learned that the Operations Controller believed that at least $70 million of the company’s take-or- pay receivables were uncollectable.
Further analyzing BAD’s receivables for collectability may make sense
- Badger’s revenue recognition policy is conspicuously missing an assurance of collectability clause:
- “Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Corporation and the revenue can be reliably measured” (Badger 2014 Consolidated Financials Statements, “Revenue recognition,” p 10)
- Badger’s closest (and until recently public) comparable LoneStar West:
- “Accordingly, revenue is recorded on a gross basis, excluding any taxes, when the service has been performed, the related costs are incurred, the revenues can be reliably measured and when collectability is assured” (LoneStar West, 6/30/13 YE Audited Consolidated Financial Statements, “Revenue,” p6)
- Examples of other public Canadian companies:
- “Revenue is recognized in the period services are provided or performed and when collectability is reasonably assured, economic benefits will flow to the Corporation and revenue can be reliably ”
- SES Energy Services (~$1.6bn market cap), 2014 Consolidated Financial Statements, “Revenue Recognition,” p7
- “Revenue is recognized when services are performed and only when collectability is reasonably assured”
- Ensign Energy Services ($1.0bn market cap), 2014 Consolidated Financial Statements, “Revenue recognition,” p58
EVEN POSEIDON HAD A COLLECTABILITY CLAUSE
So why question Badger’s Receivables? June is too good to be true
So why question Badger's Receivables?
| 2014 | 2015 | 2016 | Q1:17 | |
| Badger Daylighting | ||||
| Trade Receivables (Avg. Over Period) | 98.9 | 94.8 | 85.9 | |
| Allow ance for Doubtful Accts | 1.0 | 2.1 | 1.5 | |
| Allowances / Trade Receivables 1.0% 2.2% 1.7% | ||||
| Lonestar West | ||||
| Trade Receivables (Avg. Over Period) | 12.4 | 16.0 | 12.8 | 8.2 |
| Allow ance for Doubtful Accts | 0.2 | 1.5 | 0.0 | 0.2 |
| Allowances / Trade Receivables 1.2% 9.3% 0.0% 3.0% | ||||
| Bad Debt Exp. | 0.3 | 1.4 | 0.8 | 0.2 |
| Bad Debt Exp. / Trade Receivables 2.1% 8.8% 6.5% 3.0% | ||||
Lonestar & T-Rex write offs have been driven by Large Projects… Badger worked on the Same Projects with more trucks on site…
How Much of Badger’s A/R is Impaired Due to Broke Customers?
So what happened to Poseidon?
- Well, a lot…but we’ll keep it brief
- Q3 2012 results showed EBITDA margins down from 84% to 65%*1
- Come spring 2013 , Poseidon’s shares were worth practically nothing *2
- More details can be found on Google or in the Globe and Mail article cited below.
Article by Turn Out The Badger Daylight
See the full PDF below.
