Friday, January 13, 2012

Lucky Day

It is Friday the Thirteenth, a day to stay in the bed with the covers over your head.  Not so, says the management team for Arcis Resources, Inc. (ARCS: OTC/BB).  Earlier today I met Robert Di Marco and Kenneth Flatt, President and CEO, respectively, of Arcis as they were finishing up a week of hand-shaking in New York.  For Di Marco and Flatt making friends on Wall Street is too important to worry about old superstitions.

Arcis Resources is a fluid recovery company, focused on recycling chemicals, solvents and distillates used in industrial and maintenance processes.  Usually rags and other sorbent materials -  think of those huge booms that were used to clean up BP’s oil spill in the Gulf  -  are used and then industrial producers pay a waste disposal service to collect and remove them.  Arcis management estimates U.S. industry spends as much as $1.5 billion per year in collection and removal.

Di Marco and Flatt  -  call him Butch, please  -  want to turn a big part of that $1.5 billion into savings for their customers and a nice fee for Arcis Resources.  The company is using a proprietary process to recover and recycle 100% of the chemicals, solvents and sorbent materials.  Most customers take the recovered materials and chemicals back for reuse.  If that is not possible, Arcis’ phones are always ringing with buyers interested in recycled materials.

Compelling economics make the Arcis “beneficial reuse and fluid recovery solution” a comparatively easy sell.  It can reduce waste disposal and industrial sorbent replacement by as much as 30% to 40%.  Many customers have achieved 100% closed loop systems where wastes going to landfills have been reduced to zero.  Boasting rights on environmental neutrality is fast becoming a key to staying in business for producers and users of petrochemicals.

It is not surprising that Arcis’ customer base is growing.  Of course, BP (BP:  NYSE) is on the list, along with General Motors, Chrysler, Honda, Nissan, and Ford all of which have generate a lot of greasy rags.  Arcis has strong relationships in the waste and chemicals industries, working with Waste Management (WM:  NYSE), Nexeo Solutions, LLC, General Oil Co., Inc. and Tradebe Environmental Services.  A twenty-year exclusive agreement with Al-Suwaiket Trading and Contracting, Inc. has also opened the door for Arcis in Saudi Arabia.       

One of the most compelling elements of the Arcis’ business model is the distributed nature of their service.  The technology and solution  -  a so-called “spin-cycle”  -  requires a fairly small form factor and fits neatly into a mid-size trailer truck.  A one-person crew operates in a range of about 150 miles and can generate between $600,000 and $1.0 million in revenue per year.  Arcis is using a hub and spoke organizational structure to expand geographically.  Augmentation appears manageable from both an operational standpoint as well as in terms of capital. 

That said, Arcis’ last quarterly balance sheet suggested the company is operating on fumes and could use a capital infusion for working capital and capex.  Investors with some tolerance for risk as Arcis scales up might find the stock  -   priced below a buck  -  to be value-priced option on the technology and interesting business model.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.  Arcis Resources is included in Crystal Equity Research’s Beach Boys Index in the recycling group.

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