SIRC Analysis – FY 2021 Annual Report Part 1

The time has finally come for me to dig into fully audited financials of SIRC for the year ended 12/31/2021! I have been very excited to get through this as there were many outstanding questions I had which would only be answered in audited financial statements.

Because of this, as I look over at my notes from my detailed read-through, I see that my notes already span about four entire pages… I didn’t want to have to do this, but I think I’m going to need to spread this analysis piece over multiple articles.

One initial point. We’ve now reached the point where the old unaudited filings (quarterly reports for the periods ended 5/31/2021, 8/31/2021, and 11/30/2021) are now basically useless for my purposes. Yes, there is interesting info in them. But they are unaudited, technically incomplete, and are therefore not comparable to these higher quality reports which cover the same periods.

Therefore, I will be focusing on these with minimal look-back to those quarterly reports.

Second disclaimer. Everyone needs to remember that these reports are basically three months old at this point. It reflects the past and is not the best metric of the business today. You can still infer business performance from this for Q1 2022, but it’s imprecise.

With that said, let’s get started!

Income Statement – High Level Look

See below a brief summary of the income statements for the periods ended 12/31/2021 and 12/31/2020.

These should have been no surprise to any SIRC investor not living under a rock. We all know SIRC had a massive Q3 after some (mostly) successful acquisitions. We’re seeing almost 400% revenue growth YoY and we’re seeing revenue growth far exceeding cost of sales and operating expenses growth.

The company was quite profitable for the year as well, which we all expected again. 23% operating margins are great, but like I warned before and the CEO echoed, we can expect margins to normalize a bit more.

In general though, from a pure operating performance perspective, the company absolutely knocked it out of the park. There isn’t much else to say!

Looking forward, I know the general consensus is annual revenue of 200-300m depending on how acquisitions pan out. Looking at this with the context of most of this 84m in revenue being back-loaded to the end of the year, 200-300m seems very attainable.

Balance Sheet – High Level Look

The balance sheet is really the area, in my opinion, that is holding back SIRC and the share price. That being said, the company is making all of the right steps to remedy it, so I can’t be critical. They are still trying to clean off the garbage from their balance sheet from back in the day. Let’s discuss…

When we look at the balance sheet at first glance, we see a company with 158m in assets, 67m in liabilities, and a ton of shareholder equity. This looks awesome, right? Yes and no.


First, we need to look at the asset composition. At first glance, we see that the company does not have very much cash on hand, only about 1.1m. Its pure trade receivables (those for work that has been completed and/or billed) is sitting at only 3.6m. Compare that to current liabilities of 63m and we start to see the issue, which I’ll get to.

The vast majority of their current assets then are tied up in something called “Work in Progress Receivable”. I’ll get to that later, but it’s basically work that has been partially finished, but not billed and/or collected on. So the revenue has been recognized, and company expects to bill and/or collect on these within 12 months. But it isn’t cash and the work isn’t done yet. So it may be a bit longer before all of this gets collected and converted to cash which can be used to pay off its current liabilities.

Second, we finally get to see that big goodwill figure we’ve been hearing so much about. I wrote a separate article on it, so I won’t rehash. But this isn’t necessarily a bad thing, it’s just an accounting construct.

Lastly, no Arbiter money. But we all knew that.


On the liabilities front, we are seeing a rather large build-up of current liabilities which investors should be aware of, 63m to be exact. The “current” piece means that they are presumably due within 12 months as per the terms of the purchase orders, debt, etc. Again, this is not actually much of an issue as long as the company can continue to generate revenue and also collect on its work in progress receivables once work is completed.

But I have to stress for everyone reading that this isn’t necessarily a bad thing. What this shows to me is that SIRC is aggressively growing and pushing the limits of their financial muscle. They are aggressively spending to expand their business and are therefore building up some large liabilities in the form of debt and trade payables. Assuming the growth occurs, which it clearly has, these payables won’t be an issue as it will all get cleared out as cash is collected.

So no, SIRC isn’t going to default in my opinion. Dave Massey isn’t getting a one-way ticket to a debtor’s prison straight out of Oliver Twist. While it may be a bit nerve wracking to see that, just know that this is all part of the strategy and how a high growth company tends to operate. If it wasn’t risky, we wouldn’t be making any money! We’re not investing in I-bonds here people…

However, to end here, you can start to see why they are aggressively pursuing the Arbiter money. This cash would free up a lot of the current liability load, and any future cash flow and excess cash could go right into more acquisitions, buybacks, etc. The Arbiter debt would be paid off over a decade and wouldn’t require much in terms of outbound cash flow.

More on that later.

As a final note, long term debt is minimal without Arbiter in there. So again, not much to see there. Just know that almost all of their debt is due within 12 months, which is why Arbiter and cash collection is so key.

Cash Flow Statement – High Level Look

Now, if you can see a balance sheet and an income statement, you can typically guess how the cash flow statement will look. What we can see is that the company started off the year thin on cash, only about 400k, and ended around 1.1m. How did it all break down, where did the money come from and where did it go?

Operating Activities

From an operating perspective, the company was cash flow negative, burning about 3.7m in cash. This was mostly driven by them not yet collecting on more than 50m in recognized revenue versus almost 20m in book profits.

But wait, how did they only burn 3.7m in cash?? First, they received an 11m advance from a related party (we’ll get to that). Basically, an executive or someone affiliated fronted 11m directly, via a company they own, etc. Second, they have payables outstanding totaling 19m which presumably aren’t going to be paid until SIRC gets paid. These could be for anything like inventory sourced from suppliers, money owed to service providers, etc. Simple enough, right?

So all in all, SIRC cushioned the blow of the massive receivable balance they had by holding off on paying their payables (that’s a mouthful) and also receiving a cash advance from a related party.

Investing Activities

In this very short section, we see the company spent around 14.3m (cash) on acquisitions and purchasing property and equipment. This is no surprise as we’ve already seen how their acquisitions were funded.

Financing Activities

Here it gets interesting. First, we see they raised 7.3m in traditional debt while also repaying 1.9m in traditional debt. Simple enough.

Next, we see the 23.7m raised from convertible debt that we’ve all heard about. We all hate convertible debt, I know. But their convertible debt remaining as of 12/31/2021 is not really toxic on the whole. So think of this more like traditional debt. It only gets toxic if we start seeing a share price about $2-$3 per share in the next 12 months. We lastly see that they paid off about 500k in convertible debt.

Lastly, we see the ever so glorious sight of 12m dollars spent buying back Series B preferred shares. This was equal to 6m Series B preferred shares, leaving 8m left. A great start and I am certain these are the first things the company will buy back with available cash flow / Arbiter money (if it comes through). To round this off, they issued 1m Series B preferred shares for an acquisition and valued those shares at 4.8m, which equates to 0.48 per common share if converted. Pretty good deal.

So what did we see net here? We saw SIRC raise 18.5m net through these financing methods. So basically any cash raised from financing that wasn’t used for acquisitions was used to help offset the negative operating cash flow.

And that, folks, is how we end up at cash on-hand staying about the same YoY!

Wrap-up – My High-Level Take

Let’s summarize here. Basically, the company is in full-on growth mode and cash collections haven’t quite happened yet. This is really just a timing issue, and we should expect those to be collected in the first half of 2022. But we have seen explosive growth from the company and there are no signs of it slowing down, so investors should continue to be very confident.

However, given their cash position and high-octane growth strategy, the Arbiter money is absolutely crucial for them. It will not only give them an immediate cash cushion for anything that business cash flow can’t cover immediately, but it will also allow them to immediately re-deploy it into acquisitions. In my opinion, SIRC will be able to redeploy the Arbiter cash in no time and it will have paid itself off in a matter of quarters, not years.

So, all in all, not a ton of surprises at a high level and I am still confident. BUT! My next articles will really dig deep into more of the details and more interesting (in my opinion) tidbits that came out of this filing. So be on the lookout for those as they come out….

Thanks for reading!!

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