GTII’s earning release.
What I Said last Q:
These could be the weakest disclosure financial statements and MDA that I have ever read in this industry. They have removed SGA schedules, they don’t even have note numbers on any balance sheet or income statement items, the MDA is only ten pages long and offers no QoQ comparisons, … I had to use the Adj EBITDA from MDA to figure out components of Other Income.
What I do not understand is why a company that on the surface has good looking financial operations does not provide better disclosure. If it is good… strut it, show it off.
Why are they improving their operational results this Q? Illinois opening and stress opened last Q having a full Q run is the guess.
Investing in GTII is like flying in an airplane without radar. You are trusting the Captain an awful lot.
Pluses this Q:
- Sales increase +35% QoQ
- GM in $ increase $12 million QoQ
- SGA control
- Cash Flow generated by operations + $27 million
- Small GM% decrease
- Did they use Accrued Expenses, which increased significantly Dec/19 Q end, to feather operational results this Q?
- FG reduced QoQ indicating throughput did not keep pace with sales.
- Strong sales increase
- GM increased as % of sales and the sales surge increased it $11 million in absolute terms
- Opened 6 new retailers and saw a bump of $2 million in SGA.
- +NOP and EBITDA both improved
- I cannot figure out what is in the SGA as they report it as one large figure.
- Need for cash looming.
Open up the fins and MDA and follow along
Income Statement Drivers & Breakeven Sales: Trend
Table 1: Revenue by Segment
Note: I am using 6-month intervals as they just started providing segmented data at year end. Next Q I will be able to complete F2019 quarterlies and move to Q over Q historicals.
Retail in 10 States: Connecticut, Florida, Illinois, Maryland, Massachusetts, Nevada, New Jersey, New York, Ohio, Pennsylvania.
CPG Only in 2 States: Colorado and California
Store count: 48 +6 for Q.
Manufacturing facilities: 13 no change QoQ
Sales growth continued its climb with QoQ increase of +17% to $120 million. The +$17 million increase is their third largest increase on record.
Retail sales grew 15% QoQ by $12 million to $88 million. Retail of other companies’ products accounted for $7 million if that growth.
They indicated they had 48 stores opened for the Q up from 42 last Q for average stores open for the Q of 45 (This is a metric we have resorted to due to weak disclosure. It does not take timing differences into account, meaning stores opened late in the Q do not show as much benefit). We impute this Q sales per average retail location at $2.0 million up from $1.9 million last Q (which was a step back from Sept/19). This could be timing driven.
It is interesting to note that CPG Wholesale is very consistent over the last two Q’s at 26-27%, whereas if we look at the last two 6-month intervals wholesale has dropped from 33% to 26% of overall revenue. They are moving more of their own product over the latest 6 months versus other producers products as a percentage of overall sales.
Their CPG grew 22% QoQ and their Wholesale to other companies’ stores grew 20% QoQ or $5.5 million to $32 million. Flow through to their own stores grew 23% or $4.6 million to $24 million.
- Comparable sales growth (stores opened at least 12 months) exceeded 75.0% on a base of 16 stores, driven primarily by increased transactions. Sequential quarter-over-quarter comparable sales were up 8.3% on a base of 40 stores.
They ended last fiscal at 39 stores and last Q at 42, so not sure what the 40 base is.
- During the quarter, Green Thumb opened six new stores, for a total of nine stores opened year-to-date:
- Pennsylvania: Opened Rise™ Duncansville and Rise™ Chambersburg.
- Illinois: Opened Rise™ Niles, bringing total open stores in the state to eight.
- Nevada: Opened Essence South Durango and Essence South Rainbow, bringing total open stores in Nevada to seven. Subsequent to the quarter end, in August the Company announced a partnership with Cookies to rebrand its Essence store on the Las Vegas Strip to the first Cookies store in Nevada.
- Ohio: Opened Rise™ Lakewood Detroit, bringing total open stores in the state to five, our current maximum allowed.
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.
Single state operators, TRUL and LHS, have a higher metric than GTII, as does CWEB a non THC company.
GTII does not fair as well as CURA on this revenue-based metric but are second in the MSO space. GTII had a nice increase QoQ of $0.07 to $0.50.
Income Statement Drivers & Breakeven Sales: Peer
Sales only trail Trulieve. Cura still has to report their June 30, 2020 Q.
Gross Margin: Trend & Peer
GM increased from 52% to 53% QoQ. No narrative is given as to why. I assume improvement might be tied to the slight decrease in Others company products sold in their Retail stores.
Absolute GM was $64 million up $53 million +$11 million from last Q.
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 $0.27 from $0.22 QoQ.
Again, while not fairing as well in this metric against other roll up company Cura, they do generate better EBITDA than Cura, stemming from better OPEX control.
GTII is 4 out of 10 in this peer group metric trailing CWEB (non THC), the two single state operators and Cura.
Gross Margin: USA Peer
This peer group is dominated by the more single state operators from “Fortress Florida” TRUL and LHS and CWEB, with GTII falling in behind them and Curaleaf.
Gross Margin: North American Peer
The first six 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 last Q and this Q: 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, despite new stores, went up only $2.0 million QoQ. SGA seems to be GTII’s “secret sauce”. SGA as % of sales dropped from 27% to 25%. If I had to guess, professional fees would have increased in the Q with the new new opening.
SBC was reported at $5.7 million an increase of $0.7 million QoQ.
Total OPEX as % of sales was 41% of sales an decrease from 44% last Q. It did increase $5 million in absolute terms.
SGA & SBC as % of Sales: Peer
GTII is the lowest in aggregate SGA and aggregate SGA + SBC, with SSO TRUL in second presently. This is where GTII is outperforming the other roll ups.
+Net Operating Profit Sales Breakeven divided by Current Q Sales: USA Peer
GTII needs only 78% of existing sales at present GM% and OPEX to generate a +NOP.
GTII was $14 million NOP POSITIVE this Q versus +$7.6 million last Q. The increase of $11 million in GM was offset by the $5 million increase in Opex.
Other Income (Expenses) aggregate was -$10 million versus + $1.8 million last Q.
Other expenses decrease to – $5.7 million from + $6.8 million last Q.
Interest expense decreased from negative $5.0 million to negative $4.7 million.
Income tax of $15 million rounds out the expenses, an increase from $13 million last Q. That 280e tax is a burden given taxes exceed NOP.
This leads to a Net Income of negative $12 million versus -$4 million last Q.
+Net Operating Profit Sales Breakeven divided by Current Q Sales: North American Peer
Again, MSO are dominating the top part of this graph. Where MSO’s could start to falter versus Cdn LP’s is opening up more retail stores will add OPEX and will need capital to roll out new stores. Whereas the Cdn LP’s should be fully built out on cultivation and reap more GM$’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 $9 million to $34 million, the increased GM was the primary driver. They only trail Trulieve in this metric.
+EBITDA Sales Breakeven divided by Current Q Sales: USA Peer
At 47% of current sales levels at current GM% and Cash OPEX$’s GTII could generate a +EBITDA.
GTII has some $4 million in P coming due in the next 12 months plus a quarterly interest of $4.7 million to service.
With existing EBITDA they could take on a sizeable chunk of traditional debt.
+EBITDA Sales Breakeven divided by Current Q Sales: North American Peer
GTII is actually pretty thin on inventory as they have $54 million on hand versus $56 million in CoGS last Q. They do operate in some states that allow wholesale, so they can supplement their inventory from those suppliers. A 1:1 Inventory to CoGS ratio is very tight and efficient
FG delta improved in the Q despite the sales surge.
Inventory levels seems tight. Keep an eye on their ability to feed their stores.
GTII has the leanest inventory to sales as compared to peers.
Cash is at $89 million an increase of $11 million QoQ.
A/P and accrued are $56 million, $34 million in income tax payable and they have some current liabilities for acquisitions ($38 million of which $11 million was settled subsequent to Q end via a share issuance) that are due in next 12 months. They will likely need more money.
Share capital increased $15 million in the Q.
What Is aid last Q:
Operations wise this was a good Q. Sales increase significantly on the opening of Illinois Adult Use. They have already opened up 2 more stores, so Illinois should continue to contribute.
I am cautious that they are using Accrued Liabilities to feather SGA this Q, and there is more in the kitty to do so going forward.
+NOP also a good sign with sufficient NOP to cover interest payments.
But dang, the cash flow generated from operations, net of working capital assets, of $14 million is impressive. That cash can be plowed back into more store openings.
Strong sales increase, gross margin $ increase, and +NOP generation this Q. They have to be thinking about a raise with the appreciation in stock price and the need for cash looming.
I would really like a better breakdown in their SGA to see what is Selling expense and what is G&A in order to better understand this companies operations.
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.