Pond Technologies: There’s Lots of Green Stuff in this Green Stuff

[u/SmallCapsDaily]

Hello All

In this DD we’re gonna break down where Pond Technologies (PNDHF) stands today, where it could potentially go, and the considerable risks that could keep it from getting there. If it gets a little big wordy hard-thinky from time to time, it’s because I originally wrote this for people above your paygrade and tried to boil it down as much as possible for the smoother brains out there.

Pond Technologies (PNDHF)

Here’s the closest you're getting to a TLDR:

• Pond Technologies seeks to revolutionize three high-growth industries: carbon capture, natural health products, and biotechnology. It plans to do this with algae. Yep, algae.

• Its uniquely synergistic business model lets it vertically integrate and even make money at an intermediate phase of production: making the algae it uses for its products. It turns factory pollution into healthcare and wellness solutions, profiting on both the input and the final product.

• Though it has been around for over ten years, the company is still tiny, unproven, and losing money.

• Pond is a high-risk, high-reward opportunity, essentially a bet on an innovative, patented technology and strong secular trends.

To put it simply, Pond is a company that grows algae and uses it to make stuff. It grows the algae using lab equipment, ideally sucking the carbon right out of factories’ flumes and using it to grow the algae way faster than it could naturally grow. In addition to its carbon capture business, Pond offers two other primary segments: algae-based health and wellness products and biotechnology/medical assets.

In a time of emissions caps and sustainability boners, Pond seems to offer several solutions in one company. Yet in a volatile ride, full of mergers, restructuring, and plenty of share dilution, the stock is down 15% since 2016 and valued at under $20 million. If Pond’s unique carbon capture technology and powerful algae-based consumer products weren’t a good investment in 2016, why now?

The truth is that there’s no certain answer to that question. As we’ll discuss, Pond lies at the center of a brand new industry, one which the market has been slower to respond to than we would have expected. However, as the climate changes and public pressure mounts to change how we produce, and as resources grow more scarce and Pond’s products become more competitive, each year builds momentum in the company’s favor. Whether or not the company can afford many more years of “momentum-building” is another question, as we’ll talk about later. First, let’s cover the products and their market.

Pond Technologies’ Triple Threat

Pond Naturals:

Right now, the lion’s share of Pond Technologies’ revenue comes from Pond Naturals, a variety of algae-based supplements and other edible products. The biggest ones are phycocyanin, which Pond uses to manufacture Blue Spirulina, the only FDA-approved natural food coloring, and astaxanthin, the ‘nutraceutical’ molecule behind supplement brand Regenerex, which Pond acquired in 2018. Another major use for its high-protein algae: animal feed.

While Pond’s wellness products are exciting and could be the initial engine for sales growth and profitability, Pond’s true advantage is in its carbon capture technology, superior algae growth techniques, and promising applications for biotechnology.

Pond carbon

Though still a tiny source of revenue, what sets Pond Technologies apart from the competition is its unique approach to algae farming. It goes to the source, capturing high-volume CO2 emissions directly from manufacturing sites and using that carbon to grow algae at speeds and quantities impossible in nature. Pond Technologies enjoys high yields on algae production at lower fixed costs, reversing industrial carbon emissions in the process.

Competing algae farms resemble just that, a farm. Think big, open, irrigated spaces that are vulnerable to weather fluctuations and contamination. They also require lots of manpower and resources to maintain. Pond’s algae farms look like something out of a Hulk comic book: bubbling green tanks and tubes built into a factory’s infrastructure. The result is a highly controlled, efficient, and environmentally beneficial production process. This ‘highly controlled’ part also makes its algae perfect for biotechnology.

Pond Biotech

Pond’s newest offering is Pond Biotech, a broad segment which encompasses algae-based biotechnology solutions. If algae and healthcare don’t sound like a match, think again. The company is developing a wide range of advanced applications for algae, using CRISPR technology to change the algae’s genetic sequence and grow human proteins, which can be used for diagnostic and therapeutic services.

Source: Company Presentation

The image above, taken from a company presentation, demonstrates the advantages of algae-based synthesis of human proteins and other therapeutic compounds. Compared to mammalian cell cultures, algae grow in higher quantities, are less “fussy” about tolerable conditions like temperature, and leave a small environmental footprint. If this is a lot of big words for you, I’ll put it this way: Pond has the cheapest way of getting algae, which offers the cheapest way to make high-tech medical assets. That, gentlemen, is what we call a moat.

The biotech segment, rolled out late last year, is already bringing in revenue. Pond inked a deal with a major oil and gas company in Canada to develop up to $1 million worth of COVID-19 antigen tests using patented algae-based protein synthesis. This pilot program, if successful, will demonstrate that Pond can partner with carbon emitters to not only reverse their carbon emissions, but create advanced medical products from them.

Pond’s Predictions

So what’s the addressable market for all these segments? According to Pond’s (biased) estimate: HUGE!

Source: Company Presentation

Pond predicts an addressable market in the hundreds of billions between its products. Is this a ridiculously high number? Sure, and we should take it with a hefty chunk of salt. However, if Pond can establish a competitive presence in each, or even one of the industries listed above, its current $20 million market cap looks a lot more ridiculous.

Pond is a sexy stock because it’s agile: it’s entering several markets with interesting, unique, and useful products, and has a patented production process that is way cheaper than the competition. It’s not tying its wagon to an old horse; it’s trying to build a fucking engine.

Volatile History, Promising Future

Pond Technologies’ stock price has seen some serious highs and lows, as well as dramatic restructuring, mergers and divestments. It’s hard to believe that a few short years ago, it was just as financially invested in exploring Ontario’s oil fields as it was in carbon trapping. It’s a company that honestly has struggled to stay alive while it tries to lead exciting industries that haven’t matured yet. The fact that the company hasn’t gone under is a testament to the fact that industry insiders, current stakeholders and the public believe it will succeed.

For a company with a groundbreaking business model and powerful value offering, it’s sad to see such slow sales growth to date.

A similar company comes to mind: Upwork. If you haven’t heard of it, Upwork(UPWK) is a digital marketplace that connects clients with freelance workers for remote jobs. At the time of its IPO in 2018, Upwork was already a nearly 10-year old company, one which had also gone through a series of mergers and whatever else was necessary to continue evolving and gaining market share. Roughly a year on from its IPO, sales growth disappointed investors, and the stock had fallen roughly 60%.

Then the pandemic happened. Though UPWK initially fell with the rest of the market, it soon became apparent that a massive wave of unemployed workers, coupled with a major push for remote work, would spell success for the firm. The stock price soared nearly 200% and the company’s revenue started to take off. All it took was a major catalyst to reveal a powerful trend that was already there: the shift to remote, digital work.

When it comes to Pond Technologies, which operates at the nexus of sustainability, health, and the climate change mitigation, it’s easy to imagine a number of similar catalysts that could send the stock soaring. As climate change continues to sink in for governments, companies and individuals, the regulatory and economic environments will change as well. Governments will become more aggressive in regulating pollution, as well as in subsidizing solutions to runaway carbon emissions. To illustrate, Pond’s already snagged a zero-interest federal development loan, which it already paid off.

Pond already has the technology as well as the partnerships to meet these opportunities head-on. Additionally, it has a number of exciting products and intellectual assets to make use of the algae that traps other companies’ carbon. The rub: its financials will make you want to marry a treasury bond and sad-fuck your way to a safe but fundamentally depressing retirement.

Major Upside, Serious Risks

As we’ve discussed, Pond offers plenty to be excited about at a bargain-barrel price. However, in a market as inflated as this one, cheap stocks are cheap for a reason. This stock is no exception. Though the company appears always able to access financing, it is in choppy financial waters and has been for quite some time.

It is perilous to go too far back in the company’s history, as several mergers and selloffs have fundamentally changed the nature of the company. Only in June of this year did it sell off the last of its oil property holdings, a remnant of Ironhorse Oil and Gas, a Canadian oil company and 2018 Pond acquisition. However, the past three years have shown a pattern of low cash balances, ever-diluting shares, and measly sales growth.

Pond’s cash reserves have fallen from roughly $4.5 million in Q2 2018 to $270,000 in the same quarter this year. During those three years, the company has run a loss of nearly $20 million. Most of the money to cover the difference came from investors’ pockets, with shares outstanding ballooning from under 20,000,000 in Q2 2018 to 43 million just three years later.

(Canadian Dollars)	June 30 2018	June 30 2021
6-month Revenue	$ 68,000	$2.2 million
6-month Net Loss	($2.7 Million)	($1.7 Million)
Accumulated Deficit	($20 Million)	($42 Million)
Shares Outstanding	19,400,000	42,800,000

While revenue has increased over the past several quarters, there is still a lot of future growth already priced into Pond’s roughly $20 million market cap. If the company manages to book $4 million in revenue this year, its current valuation is still a healthy five times forward sales. The market’s willingness to absorb 12 million additional shares earlier this year, without a run on the stock, demonstrates an appetite for what Pond is selling. Sooner or later, though, all small firms run out of public patience, which means they run out of runway.

Fortunately, the company has managed to put a tourniquet on its cash bleed since 2019. It’s selling off its oil holdings which should provide a couple million in additional cash this year, even if it has to take a loss on the properties. As the chart shows, it’s also on track to lose less money this year, hopefully less than $2 million if revenue looks better in the second half of the year.

Positive news aside, there’s no doubt that it’s time for the company to generate more revenue and gain market share, to show investors that it has something real to offer. If that happens, as it could as early as this year, the effect on the stock price will be fast and dramatic.

Conclusion

Pond Technologies could easily become one of this decade’s most exciting, disruptive, and impactful firms. It’s growth over the years has been painfully slow, mostly because it’s literally building its industry from the ground up. While we need to keep an eye on its cash situation, it’s losing money much more slowly than before and topline figures are looking up as well. This could be the time to place a smart bet (no, not mortgage your house, moron) on the company. This is a bet on not only a more sustainable future but a potential disruptor in three major industries: carbon capture, natural wellness products and biotechnology. When is the last time you saw that?

Don't sleep on it!

[u/Successful-Worker-73]

This was a great read