GTII’s earning release.

What I Said last Q:

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 $’s and decreased as % of sales
• EBITDA increase by the almost the exact amount of incremental GM$’s

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

This Q:

Pluses

Revenue increase 10%

Nice cash balance post Q end, with very reasonable debt and no major maturities in the next year.

EBITDA growth continues

SGA reductions as % of sales increased minorly after seven straight QoQ declines

Net Operating Profit increases for 5^th QoQ in absolute terms and  as % of sales.

Minuses

Growth increases has slowed each of last two Q’s.

Quarterly retail revenue growth for same store both YoY and QoQ is slowing

Revenue from GTII own branded products in their stores declined albeit minimally

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: 56 +5 for Q:  +1 IL, +1 NJ, +1 CA, +2 PA.  NOTE: All new dispos were late in Q.

Revenue per Average Store Opened in Q:

Manufacturing facilities:  13 no change QoQ

Sales growth continued its climb with QoQ increase of +10% to $194 million.  The +$17.205 million increase was the 2^nd lowest in the five months under review, only surpassing June 30, 2020 revenue increase of +$17.039 million.  Growth percentage has slowed each of last two Q’s.

Retail sales grew 8% (same as last Q) QoQ by $9 million to $130 million.  I note their five new stores were opened late in Q and will show first full Q next Q.

Retail of other companies’ products accounted for +$9.7 million of that growth as GTII products in GTII stores decreased $0.6 million. Interesting that GTII own products sales within their stores actually slipped QoQ in absolute dollars. Not by much though.

The GTII own product sales mix slid from 33% last Q to 31% this Q. Retail of others merchandise accounted for 69% of Retail sales, an increase from 67% QoQ

Revenue per GTII store was flat at $2.4 million for the Q, as 4 of 5 new stores were opened in March 2021 and did not have much opportunity to impact sales.

This will be an interesting metric to follow going forward.  As it will likely show inflection as saturation is reached (likely not for a while for some states), but conversely the wholesale revenue should increase as saturation of retail means more competing stores to wholesale too.

Their CPG brands grew 8% QoQ and their Wholesale to other companies’ stores grew 14% QoQ or $8 million to $64 million. Flow through to their own stores shrunk 1% or $0.6 million, as mentioned above, to $39.8 million.

From presser:

• Comparable sales growth (stores opened at least 12 months) was 35.0% on a base of 40 stores, driven primarily by increased transactions. Sequential comparable sales were up 2.0% on a base of 48 stores.

Sales growth from same stores YoY has slowed from 75% Q1F20 and Q2F20, 65% Q3F20 to 60% Q4F20 to 35%. Still strong but declining. 

Sequential QoQ same store sales has also fluctuated with Q4 lowest of the fiscal: Q1F20 45%, Q2F20 15%, Q3F20 28%, Q4F20 6% to Q1F21 2%.

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 102 stores to get their $188 million ($1.8 million/store), Trulieve had 82 to get their March 31, 2021 figure ($2.5 million/store), while GTII is at 56 stores ($2.4 million/store). GTII’s SGA is lower as % of sales as they operate much fewer stores than their competitors, and SGA expenses are below the GM line.

Wholesale Sales: Trend and Peer

Wholesale evidence its third largest increase on record of $8 million.  They trail Cresco and Cura 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 GTII and then CL.  Cura is a step further down along with CWEB which is non-THC. Then a mob in the $0.36-0.50 range.

Strong trend line with GTII as they had no major M&A in F2020. QoQ they increased from $0.72 to $0.79 as they continue a solid uptrend in converting PPE and acquisitions into sales.

Income Statement Drivers & Breakeven Sales: Peer

Third to Cura and TRUL on Sales.  

Gross Margin: Trend & Peer

GM was stable at 57% QoQ and remains at a peak.  No narrative is given in MDA on any QoQ. Given sales mix was very stable I cannot offer much narrative.

Absolute GM was $111 million up from $101 million +$10 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 $0.45 from $0.41 QoQ. Solid trend line meaning… they are converting PPE and acquisitions into more GM per dollar of PPE+G/I.

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

Gross Margin: USA Peer

This peer group is dominated by the more single state operators from “Fortress Florida” TRUL and LHS and CWEB on non-THC side.

GTII is sandwiched between AYR and TER in 5^th place.

Gross Margin: North American Peer

The first 10 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.

A slight bump interupts a very good trend line.

SGA, with five new stores opened late in Q, increased $5.2 million QoQ.   SGA seems to be GTII’s “secret sauce”.  SGA as % of sales increased nominally from 20% to 21% following SEVEN QoQ decreases as % of sales.  I would imagin the stores that opened late in the Q contributed to the decline.

SBC was reported at $4.0 million a decrease of $0.1 million QoQ.  As the founders have super shares the SBC is minor.

Depreciation increased $1 million reducing to $15 million.

Total OPEX as % of sales was 31% of sales an decrease from 32% last Q, the fifth QoQ decrease.  Opex increased $6.1 million QoQ in absolute terms.

SGA & SBC as % of Sales: Peer

GTII is the lowest in aggregate SGA and lowest aggregate SGA + SBC, with AYR in second presently.  This is where GTII is outperforming the other roll ups by a considerable margin. SGA % is low as they have very few stores until they consolidate LHS.

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

GTII needs only 54% of existing sales at present GM% and OPEX to generate a +NOP.

GTII was +$51 million NOP positive this Q versus +$47 million last Q, the fifth consecutive QoQ increase.  The increase of $10 million in GM offset with increase in Opex was the reason.

Other Income (Expenses) aggregate was -$9.2 million versus +$3.4 million last Q.

• Other income swung from +$7.9 million to – $5.2 million this Q.  This is all fair value adjustments on warrants driven as stock price escalated in the Q from $31 to $37.
• Interest expense was stable at negative $4.1 million.

Income tax of $31 million rounds out the expenses, an increase from $27 million last Q. That 280e tax is a burden given taxes exceed NOP.

This leads to a Net Income of +$11 million versus +$22 million last Q. Three positive Net income in a row.

+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 $5.1 million to $71 million, the increased in sales with stable GM was the driver.  They only trail Trulieve in this metric.

With Q interest at $5 million and Current Portion of Leases and Loans of $10 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 $1.5 million in this metric QoQ to $35.6 million.  A lot of effort for that level of gain.

This shows the relative stark discrepancy between TRUL and GTII (both well positive) from CURA (just broke positive this Q). 

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

GTII in third place but they are in far more states in a meaningful way than the two MSOs ahead of them in TRUL and AYR.

GTII actually slid backwards from 19% to 18% in this metric QoQ.

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

At 36% of current sales levels at current GM% and Cash OPEX$’s GTII could generate a +EBITDA.  

+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 $72 million on hand versus $84 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 but could stymie growth.

FG delta strengthened considerably in Q4F20 but only increased a nominal amount this Q.  Watch this for Q2F21.

“Waterfall” Peer

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

Cash is at $276 million an increase of $192 million QoQ this is largely from $155 million in equity raised plus $6 million in warrants exercised.  They raised another $217 million subsequent to Q end in debt which was in part used to retire $105 million senior secured notes that were due in May 2023.

PPE increased $11 million to $201 million while Right of Use Assets increased $4 million to $144 million.

Investments decreased $12 million to $29 million, as they sold half of their interest in a privately held company for $18 million in cash.  They added an undisclosed investment of $6 million.

Intangibles decreased through amortization by $10 million to $396 million.

A/P and accrued decreased to an aggregate $63 million +$13 million QoQ, $30 million in income tax payable +$14 million QoQ.

Current contingent liabilities for acquisitions $10 million that are due in next 12 months.  These declined $12 million QoQ as shares were issue to satisfy contingent consideration in the Q.

What I said last 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. 

This Q:

This was another progress Q, albeit progress is slowing. 

The Retail store quarterly YOY increases and the QoQ same store figures are showing a slowing of acceleration.  GTII brand sales in their own stores backed up QoQ. 

SGA is still industry leading.   

They have +$380 million in cash after post Q debt raise with no major debt maturities or obligations in the short term. I expect them to be on the prowl for assets in Michigan and Arizona, two adult use states with good population bases that they are not presently in.

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.