GTII’s earning release.

What I Said last Q:

Pluses

• Without opening a single new store in the Q, revenue is up +31% with retail increasing 28%
• Each revenue segment is up in excess of 22% with retail of Non GTII brands at +30% and GTII Wholesale at +41%
• GM increased as a % of sales and strongly on $’s
• Opex stayed flat in $’s, which given increase in sales is fantastic.
• EBITDA increase by the amount of incremental GM$’s.

Minuses

• No Geographic disclosure
• No SGA segment disclosure
• No QoQ comparatives in MDA

This Q:

GTII continues to impress in the top MSO group.

Pluses

Revenue up 13% or +$20 million.

Retail +10% on 46 stores +5 new stores for Q.

GTII brands in GTII stores increased mix from 26% to 33%.

Wholesale +25%.

GM increased as a % of sales

Opex stayed relatively flat in $’s and decreased as % of sales EBITDA increase by the almost

Minuses

Retail sales up only 8% in a holiday Q.

YoY same store sales and QoQ same store sales increases are getting smaller.

No Geographic disclosure

No SGA segment disclosure

No QoQ comparatives in MDA

Open up the fins and MDA and follow along

Income Statement Drivers & Breakeven Sales: Trend

Table 1: Revenue by Segment

Retail in 11 States: California, Connecticut, Florida, Illinois, Maryland, Massachusetts, Nevada, New Jersey, New York, Ohio, Pennsylvania.

CPG Only in 1 States: Colorado

Store count: 51 +5 for Q. +1 CT, +1 FLA, +2 IL, +1 NJ, +1 CA

Revenue per Average Store Opened in Q:

Manufacturing facilities:  13 no change QoQ

Sales growth continued its climb with QoQ increase of +13% to $177 million.  The +$20 million increase was the 3^rd largest QoQ increase on record.  

Retail sales grew 8% QoQ by $9 million to $121 million.  Given this was a Holiday Q, the slower growth rate is surprising.  Similar trend showed up in AYR and Cura (when acquisitions are removed).

Retail of other companies’ products accounted for -$2 million of that growth as GTII products in GTII stores increased $11 million. The GTII own product sales mix improved from 26% last Q to 33% this Q. Retail of others merchandise accounted for 67% of Retail sales, a decrease from 74% QoQ

Revenue per GTII store increased to $2.4 million for the Q up $0.1 million or +5% QoQ.

Their CPG grew 29% QoQ and their Wholesale to other companies’ stores grew 25% QoQ or $11 million to $56 million. Flow through to their own stores grew 36% or $11 million to $40 million.

From presser:

• Comparable sales growth (stores opened at least 12 months) was 60.0% on a base of 32 stores, driven primarily by increased transactions. Sequential quarter-over-quarter comparable sales were up 6% on a base of 48 stores.

Sales growth from same stores YoY has slowed from 75% Q1 and Q2, 65% Q3 to 60% Q4. Still strong but declining.  Sequential QoQ has also fluctuated with Q4 lowest of the fiscal: Q1 45%, Q2 15%, Q3 28%, Q4 6%.

Retail Sales: Trend and Peer

A steady upward trend in their retail store sales. They trail only Trulieve and Cura in retail revenue. However, CURA needed 96 stores to get their $164 million ($1.7 million/store), Trulieve had 61 to get their Sept 2020 figure ($2.2 million/store), while GTII is at 51 stores ($2.4 million/store).

Wholesale Sales: Trend and Peer

Wholesale evidence its second largest increase on record of $11 million.  They trail only Cresco in Wholesale revenue.

Annualized Sales per PPE + Goodwill+ Intangibles:

This is my attempt to try and normalize those companies growing organically and those acquiring operations.  I have added PPE and G/I and divided Annualized Sales by that figure to determine who is being efficient with their long term asset capital.

This is a metric that we are starting to see separation.  TRUL leads followed by CL and GTII.  Cura is a step further down along with CWEB which is non-THC. Then a mob in the $0.40-0.47 range.

Strong trend line with GTII as they had no major M&A in F2020.

Income Statement Drivers & Breakeven Sales: Peer

Second to Cura on Sales. Trulieve still has to report their December 31, 2020 Q.

Gross Margin: Trend & Peer

GM increased to 57% from 55% QoQ.  No narrative is given as to why. But I believe it to be selling a higher mix of GTII products in their own stores to be the margin driver.

Absolute GM was $101 million up from $87 million +$14 million from last Q.   Impressive.

Annualized Gross Margin per PPE + Goodwill+ Intangibles:

This is my attempt to try and normalize those companies growing organically and those acquiring operations.  I have added PPE and G/I and divided Annualized Gross Margin by that figure to determine who is being efficient with their long-term asset capital.

GTII improved to $0.41 from $0.36 QoQ. Solid trend line.

GTII has oved into second place a long way back of TRUL (who has not grown much through acquisition). CL remains in third in THC touching but are yet to report and Cura lags (common theme) quite far back from TRUL, GTII, and CL.

Gross Margin: USA Peer

This peer group is dominated by the more single state operators from “Fortress Florida” TRUL and LHS and CWEB, with TerrAscend in third. AYR a 2-state operator is a touch ahead of GTII.  GTII is 6^th.

Gross Margin: North American Peer

The first 11 slots are all US companies, as they get to generate retail margins versus wholesale in Canada.  This difference will lead to different scaling issues with SGA, as we have seen with the scaling of Canadian retailers.  However, US Retailers are generating far more sales than Cdn per store locations.

SGA & SBC as % of Sales: Trend

What I said for many Q’s: They lumped SGA, SBC and depreciation under one line item without a schedule.  Aaargh!!! FFS,  I have to use a freaking earnings release and MDA to break down SGA. 

Note: I have taken full depreciation from SGA as there is no CoGS depreciation and no non production assets depreciation disclosure/segmentation.

SGA, with five new stores, increased $1.3 million QoQ.   SGA seems to be GTII’s “secret sauce”.  SGA as % of sales dropped from 36% to 20% with QoQoQoQ decreases

SBC was reported at $4.1 million a decrease of $0.3 million QoQ. This will reverse next Q with SP increases.

Depreciation increased $3 million reducing to $14 million.

Total OPEX as % of sales was 30% of sales an decrease from 32% last Q. Opex increased $3.5 million QoQ in absolute terms, which given sales increase, is very nice to see.

SGA & SBC as % of Sales: Peer

GTII is the lowest in aggregate SGA and lowest aggregate SGA + SBC, with SSO TRUL in second presently.  This is where GTII is outperforming the other roll ups by a considerable margin.

+Net Operating Profit Sales Breakeven divided by Current Q Sales: USA Peer

GTII needs only 53% of existing sales at present GM% and OPEX to generate a +NOP.

GTII was +$47 million NOP positive this Q versus +$37 million last Q.  The increase of $14 million in GM coupled with minor increase in Opex was the reason.

Other Income (Expenses) aggregate was +$3.4 million versus $2 million last Q.

• Other income increased from $6.4 million to + $7.9 million this Q.  There is no table for Q4.  This is all fair value adjustments on equity investments, warrants, and contingent consideration and Other.

• Interest expense was stable at negative $4.4 million.

Income tax of $27 million rounds out the expenses, a decrease from $28 million last Q. That 280e tax is a burden given taxes exceed NOP.

This leads to a Net Income of +$24 million versus +$10 million last Q.

+Net Operating Profit Sales Breakeven divided by Current Q Sales: North American Peer

Again, MSO are dominating the top part of this graph.  Where MSO’s could start to falter versus Cdn LP’s is opening up more retail stores will add OPEX and will need capital to roll out new stores.  Whereas the Cdn LP’s should be fully built out on cultivation and reap more GM$’s without the need for more capital IF THEY CAN SELL THROUGH and IF they are not burning through OPEX. (Two big “IFs” in there).

EBITDA: Trend and Peer

I have been able to tie in my EBITDA very closely to theirs. 

EBITDA increased by $11 million to $65 million, the increased GM was the driver.  They only trail Trulieve in this metric.

With Q interest at $4.5 million and Current Portion of Leases and Loans of $3.8 million they have very good debt serviceability. With existing EBITDA, they could take on a sizeable chunk of traditional debt.

Net Operating Profit + Non-Cash Expense – Interest – Taxes: $ Thousands of Dollars

Here is our new metric.  It is meant to show how much cash went into the bank account from operations after Interest and Taxes are serviced.  Essentially EBITDA without the I + T added back. 

GTII increased $14 million in this metric QoQ.

This shows the relative stark discrepancy between TRUL and GTII (both well positive) from CURA (still negative). 

Net Operating Profit + Non-Cash Expense – Interest – Taxes: % of Sales

GTII in fourth place but they are in far more states in a meaningful way than the three MSOs ahead of them in TRUL, AYR and TER.

+EBITDA Sales Breakeven divided by Current Q Sales: USA Peer

At 35% of current sales levels at current GM% and Cash OPEX$’s GTII could generate a +EBITDA. This metric has improved four straight Q’s.

+EBITDA Sales Breakeven divided by Current Q Sales: North American Peer

“Waterfall” Trend

US GAAP. 

GTII is actually pretty thin on inventory as they have $69 million on hand versus $77 million in CoGS last Q.  They do operate in some states that allow wholesale, so they can supplement their inventory from those suppliers.  A less than 1:1 Inventory to CoGS ratio is very tight and efficient

FG delta strengthened considerably QoQ despite the large sales surge, indicating good throughput.  This bodes well for Q1 F2021.

“Waterfall” Peer

GTII has the leanest inventory to sales as compared to peers.

Cash is at $84 million an increase of $6 million QoQ. They raised another $156 million subsequent to Q end.

Right of use assets increased $41 million QoQ as they leased more assets.

A/P and accrued increased to an aggregate $77 million +$20 million QoQ, $16 million in income tax payable and they have some current liabilities for acquisitions $22 million that are due in next 12 months.  Orderly.

What I said last Q:

Another very strong increase in sales, GM $ and %, Opex control, and a good gain in EBITDA.  Enough cash flow generated from operations with sufficient debt serviceability to tap more debt as needed.

This company is starting to hit its stride.  I am looking forward to Molly’s Structure and Current State to see what type of overhangs in the capital structure might still be lingering.

This Q:

GTII, in my opinion, is really separating itself from Cura and everyone not named TRUL and CL.  And TRUL still must show scalability in the states they have entered.

Their sales improved more so than those that have already reported, their own goods are selling at a greater mix than competitors in their stores, improving gross margin. Their stores generate more revenue per store than similar sized competitors. And their SGA control is industry leading.

Cash plus raise is sufficient and they should have good access to debt capital.

GTII is the most efficient large-scale MSO presently. 

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 does not have a position in GTII and will not start one in the next five days.