RESEARCH NOTE | LASE: Blasting the Sand Blasting Industry Via Dramatically Lower Cost and Environmentally Friendly Laser Technology
NASDAQ:LASE
Sandblasting is a $46 billion market just for cleaning. It has been around for centuries with no replacement technology, but finally, there is a high-tech low-cost way to achieve the same results but faster, more inexpensively, and in a way that is more environmentally friendly. Now lasers can do the same job without using any media to blast, or the labor and precautions needed for execution and clean-up. Sandblasting can cost over $6.00 a square foot versus 6 CENTS using lasers for just the media alone. Add the cost to clean up the media and debris, as well as actions to ensure EPA compliance, and switching to laser remediation is a no-brainer. The leader in providing laser-based equipment for a wide variety of applications is Laser Photonics of Orlando, Florida. It has very few competitors and is the only manufacturer based in the US.
Laser Photonics (NASDAQ:LASE) IPOed on NASDAQ on September 30th and is pioneering a new generation of laser blasting technologies focused on disrupting the sandblasting and abrasives blasting markets. Its equipment is used for cleaning, laser marking, laser cutting, laser engraving, 3D printing, and among other materials processing applications. It typically sells to the aerospace, automotive, defense, energy, industrial, maritime, and medical verticals.
The company went public at $5 per share and post-deal is trading at $3.55 per share, or a market cap of approximately $28 million. Minus the cash on the books, the enterprise value is approximately $15 million. It booked $4.9 million in revenues for the past twelve months through June, is profitable, and now has 7.9 million fully diluted shares. In the first six months of 2022, revenues grew 35%, while EPS was up 40%. The company expects revenues for the year to come in at a range of $5.5 million to $6 million with EPS of approximately $0.24, yielding a current PE of 14.5. It is cash flow and EBITDA positive and generated $888,000 in EBITDA for the first six months of 2022. Currently, it has about $13 million in cash ($1.65 per share,) no debt, and is cash flow neutral while employing only 20 people.
Through its IPO the company raised $12.5 million in cash and that cash is expected to be used approximately in the following ways:
• $1.5 million in new R&D, including the development of a 4.0-kilowatt laser blaster surpassing its highest wattage current offering, the 3.0-kilowatt solution that was released this May
• $1.5 million for existing product development, modernization, and commercialization
• $2.0 million to develop international markets, particularly in Asia and the Middle East
• $3.0 million to expand and streamline North American sales adding distributors, dealer networks, and salespeople
• $2.0 million to purchase raw materials and parts, such as laser pumps and optical components with long lead times
• $3.5 million for general working capital
We believe the company’s main hurdle to growth is marketing and sales. Its solution is compelling and economical, its technology is leading-edge and competitive, and the total addressable market is huge. It just needs to get the word out. With a large investment in growing distribution and its salesforce, combined with more visibility generated by activities such as attending trade shows and buying advertising, we believe revenues could explode. To date there has been no spending on marketing and all growth has been through word of mouth. Imagine what could happen with effort.
The company’s product prices range from $50,000 to $350,000 and its average selling price is $150,000. Its most popular products are its highest wattage as the higher the watts, the faster the job gets done. Its largest sales this year were to Daimler, Detroit Diesel, Aurora Lasers, Johnson Controls, and Dorner Manufacturing. The automotive industry is just starting to evaluate Laser’s products and Daimler and Honda have taken their first units and should be adding more soon. One of the ways they are using the lasers is to clean parts before being painted on the assembly line and they are most interested in robotically controlled solutions to eliminate labor for cost and safety reasons. Coca-Cola is also a big customer and it uses laser equipment to clean and maintain its machinery.
In the first six months, sales increases were driven by two main products, the roughing high power 2000CTH, and the conditioning 300CTH model.
Once customers try its products, usually opting for portable units, the company tries to move them to stationary solutions for recurring activities such as those found on assembly lines. These offer more efficiency as they have contained areas and require less protection and clean-up, offering a higher return for the customer.
The CleanTech Titan Series Laser Cleaning System is a high-power, large format laser parts cleaning, rust removal, and surface conditioning system, with up to a 6′ x12′ working envelope. The industrial, turn-key laser cleaning system operates as a stand-alone unit or easily integrates into a production line environment. Customers can use it for applications such as cleaning: automotive tire rims, mold, phalanges for the oil and gas industry, or even sheets for a hull. The company believes its technology allows users to clean materials more quickly and more fully than other systems on the market and it touts a mean time between failure of 100,000 hours (five years.) Its systems offer CE Certified Class 1 enclosures for its Class 4 lasers. It also provides an integrated dust and residue collection system. For complicated shapes users have the option of adding a 3D scanner typically used to clean parts.
Laser Photonics’ installed base is found at the Fortune 500 companies shown below.
To date, the company has had the most success selling to the US government and particularly to the Navy. Approximately 22% of its US revenues this year have been from the US Government which it expects to grow to 25% in the next 12 months. It has current contracts with the U.S. Army, Navy, and Air Force, are they are defense-related. Laser Photonics states that of its $46 billion TAM, $22 billion is from the money spent annually by the Pentagon to control corrosion. To date, the majority of government sales the company has made has been to the US Navy which has a $3 billion rust problem. Laser needs to get the awareness of its products to the right people and is confident that its solution will be quickly adopted once it is shown to them. To achieve that end with the US government, it hopes to add salespeople with military supply chain experience using its IPO proceeds.
Laser technology solves so many issues for customers. It is cheaper than sandblasting. It is cleaner and requires no media. It increases the safety of the operators and can even eliminate human operators by using robots (which also increases accuracy and speed.) In addition to cleaning, Laser Photonics products also allow operators to cut and engrave and do 3D metal printing, all of which have a myriad of applications in various industries and are speedier and more accurate than legacy techniques. Laser technology also solves another problem for customers--- hiring operators, because who wouldn’t rather be a leading-edge laser operator than work on a dangerous, low-tech sandblasting crew?
SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR.
DISCLOSURE: Zacks SCR has received compensation from the issuer directly, from an investment manager, or from an investor relations consulting firm, engaged by the issuer, for providing research coverage for a period of no less than one year. Research articles, as seen here, are part of the service Zacks SCR provides and Zacks SCR receives quarterly payments totaling a maximum fee of up to $40,000 annually for these services provided to or regarding the issuer. Full Disclaimer HERE.
