Given new leadership, the Abacus acquisition, and ‘new’ roles filled with CPG wunderkind….one might expect this will be a ‘bridge’ quarter. I doubt we’ll see much in terms of what the new guys have done – because they’ll need some time to do it. For a company that rode a high fast wave onto the CBD beach, it’s been a long drop for their share price (now around $4…from a high of $28 barely 14 months ago). It’s very easy to imagine there’s considerable pressure on the company – and the CEO – to address it.
Inventory took another provision ($2.5MM), overall levels relatively static. Some $5MM came in from Abacus.
Which, leads into gross margin, which is now at 53%. Reasons? Yes, COVID. Yes, reduced ‘velocity’ in the F/D/M categories (food, drug, mass). And $CWEB tells us that shopping patterns have changed during the pandemic, and reduced margins stem from a large increase in direct-to-consumer (DTC) transactions.
According to $CWEB, DTC channels apparently require inducements and discounts – reducing sales price. Harder to stand out when someone’s got every single competitor’s product in front of them on a screen.
Sales largely flat, with some growth in consumer sales being offset by declines in B2B commerce. The sales mix has seen a 34% increase in DTC channel YoY.
SG&A over $28MM for the quarter. I expect this to remain bloated through the next quarter too as their acquisition is digested. Legal fees up to $7MM this quarter (up from $3MM prior), will likely be similar next as well.
We noted SBC in our previous structure as it wasn’t apparent how the value was derived. It’s similar this time, with a composite of options and RSU’s being identified as drivers, but, Abacus saw a basket of optionality crystallize on acquisition, so there is probably some moving parts in there as well. Little visibility at this point.
Optionality has potential to be a harsh mistress here, as previous share price loftiness has waned, and much was repriced. Abacus could bring in much more. Where capital structure was a relatively ‘minor’ issue previously, share price declines and loads installed through last winter has potential to bring it to the forefront.
This last point should be of new concern to shareholders.
Ok. We’ve been somewhat dour on the company, but it’s pretty clear where our concerns (and the market’s) lay.
$CWEB’s overall disclosure is pretty good. Their MD&A is descriptive, and now features an expanded list of CPG vocabulary like ‘conversions’ and ‘velocity’ and ‘channels’ and ‘F/D/M’. It comes up short on SBC derivation though, which is incomplete and opaque.
Ababcus’ on-boarding is an unknown as yet. $CWEB claims it’ll land the combined entity with a 35% market share without much product overlap. That’s yet to be seen.
That’s about all I have. This is an ‘in-between’ quarter as their new management hoists their CPG mainsail – and presumeably will begin increasing the velocity of F/D/M DTC conversions.
Look for the next quarter to be as impolite for SG&A, but more than that, look for continued sales increases in their consumer channel. This quarter’s wasn’t large, but it is in the right direction. Margin will likely be constrained over the next two quarters as well, but I’ll be looking for per unit improvements.
These guys have bought a year with a costly raise. Time to see what they can do with it.
The preceding is the opinion of the author, and is in no way intended to be a recommendation to buy or sell any security or derivative. The author holds no position in $CWEB.