Taronis Technologies Inc (NASDAQ: TRNX) is tumbling in the market this morning, trading on declines of more than 13%. Interestingly, the declines come after the company issued what looked to be a great press release.
Nonetheless, with certain data omitted, uncertainty is brewing and some investors are becoming concerned. Nonetheless, in my view, TRNX has plenty of room to head up. Moreover, giving up shares now means giving up shares of Taronis Fuels once the spinoff is complete. Here’s what’s happening.
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TRNX Stock Falls On Positive News
Taronis Technologies is tumbling after issuing a press release this morning. We’ll talk about why in a moment. Here’s what we saw from the release
In the release, the company said that it reached record quarterly revenue. For the three months ended June 30, 2019, revenue came in at $5,860,062, representing an increase of 102% year over year. TRNX said that some of the revenue growth is the result of recent acquisitions.
Importantly, the company said that organic growth in revenues accelerated in the second quarter. Sales climbed by 19% compared to the first quarter of 2019. The company also pointed to the fact that it made no revenue-generating acquisitions in the quarter, so all sales growth was the result of organic activity across a comparable base of operations.
EBITDA saw a 47% improvement over the first quarter, coming in at -$1,936,136. Adjusted EBITDA margins came in at -33%, showing significant improvement over Q1, when it came in at -74%. The company also said that it expects improved profitability in excess of a quarter million dollars per month through the remaineder of 2019 due to a series of capital investments in its industrial gas distribution capabilities.
In a statement, Scott Mahoney, CEO at TRNX, had the following to offer:
We are very proud of the financial performance generated in the second quarter. Our acquisitions generated a scalable, growing platform on which we can execute a compelling expansion model. Without the benefit of any acquisitions, our team delivered 77% annualized revenue growth on entirely organic performance.
Furthermore, we also generated strong improvements toward our goal of consistent operating profits and positive cash flows. We reduced our monthly cash burn rate from $1.2 million in the first quarter of 2019 to less than $0.65 million in the second quarter of 2019. During our recent town hall, we shared a series of projects in progress that we believe could improve our monthly profitability by approximately $0.25 million.
It is also important for shareholders to note that all of these figures include the financial burden of expenses related to our emerging water technologies applications. While these are compelling opportunities with scalable potential, these projects do carry significant cost. When the upcoming Form 10 for Taronis Fuels is released, we believe shareholders may benefit by seeing additional improvements in the overall profitability of Taronis Fuels as an independent business.
Why Is TRNX Falling?
The news proved to be overwhelmingly positive. So, what’s the deal? Why is the stock falling?
The answer is simple. The release was cherry picked data. Sure revenue grew, EBITDA is improving, margins are improving, great. Now, let’s talk debt and cash on hand. It’s no secret that TRNX has been working hard to turn things around. I’ve personally reported on tons of positive activity. However, investors are looking to learn where the company stands with regard to cash runway to get through its goals.
With this data being omitted from the release, investors seem to be concerned that it’s not positive news. Nonetheless, NASDAQ estimates that the company will issue a full earnings report tomorrow. So, we will see this data soon.
Taronis Fuels Shares
Let’s not forget that Taronis Technologies recently announced that it will be spinning off Taronis Fuels. Moreover, once spun off, TRNX investors will receive shares of Taronis Fuels on a one-for-one basis.
However, to get your hands on these shares, you have to have been a shareholder on record by August 15, 2019 and you must hold your shares through the closing of the transaction, expected to take place on September 1, 2019.
So, for every share of TRNX being sold right now, a free share of Taronis Fuels is falling by the wayside. These aren’t garbage shares either.
Sure, they wil trade on OTC to start with, but they are valuable. The truth of the matter is that Taronis Fuels has seen incredible growth in production, and in demand for the Venturi Plasma Arc Gasification system. As such, the company’s revenue, is expected to be very stron. Of course, TRNX will receive royalties of 7% from Taronis Fuels in exchange for use of patented technology, but the opportunity to gain from Taronis Fuels shares here is a strong one.
An Opportunity At A Discount
The truth of the matter is that investors are concerned with the company’s cash runway. However, with efforts to reduce costs while increasing revenue, I believe that investors will be pleasantly surprised once earnings are released.
Nonetheless, regardless of how the report goes, things are starting to look up for TRNX. Once Taronis Fuels is spun off, it will become an entity that generates revenue for TRNX with no overhead cost and no need for general spending. That’s a win in my book.
Moreover, the company will have the ability to focus its efforts on its water-related products and services. In particular, the company recently announced that it successfully and significantly reduced the amount of cyanobacteria in a Central-Florida lake during a blue green algae bloom.
Cyanobacteria is a serious threat to both humans and animals. As such, municipalities arcorss the Southern United States are willing to spend serious money to combat it. With a successful run, proving that the company’s technology can successfully reduce and nearly eliminate cyanobacteria during an outbreak, revenue opportunities here are strong.
It’s also worth mentioning that the company’s Water Pilot subsidiary is no laughing matter either. The company recently signed a multi-million dollar contract with a large Holiday Inn Franchisee and continues to see strong growth in demand.
The Bottom Line
There’s no doubt that theres a reason that TRNX is firing on all cylinders here. However, I believe that their efforts have greatly expanded the opportunity for investors to realize appreciation in their shares. Today’s declines hurt, but they may represent the potential to get in on strong future gains at a great discount.
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