Green Thumb Industries September 30. 2020 “Quarter in Pictures”
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NOTE: CWEB, and Sundial are in the queue. Waiting on Harvest Health and Acreage to release full financials on Sedar.
GTII’s earning release.
What I Said last Q:
- 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.
- 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.
- 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 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 no change for Q
Revenue per Average Store Opened in Q:
Manufacturing facilities: 13 no change QoQ
Sales growth continued its climb with QoQ increase of +31% to $157 million. The +$37 million increase was the largest QoQ increase on record.
Retail sales grew 28% QoQ by $24 million to $112 million. Retail of other companies’ products accounted for $19 million of that growth. Retail of others merchandise accounted for 74% of Retail sales, an increase from 72% QoQ
Revenue per GTII store increased to $2.3 million for the Q up $0.4 million or +20% QoQ.
It is interesting to note that CPG Wholesale is very consistent over the last three Q’s at 26-29%, whereas in F2019 it ranged from 31-42% but trended down during the period. They are moving more of their own product over the latest 9 months versus other producers’ products as a percentage of overall sales.
Their CPG grew 22% QoQ and their Wholesale to other companies’ stores grew 41% QoQ or $13 million to $45 million. Flow through to their own stores grew 22% or $5.3 million to $30 million.
- Comparable sales growth (stores opened at least 12 months) exceeded 65.0% on a base of 25 stores, driven primarily by increased transactions. Sequential quarter-over-quarter comparable sales were up 17.9% on a base of 42 stores.
Retail Sales: Trend and Peer
A steady upward trend in their retail store sales. They trail only Trulieve in retail revenue.
Wholesale Sales: Trend and Peer
Wholesale evidences its largest increase on record. 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.
Single state operators, TRUL and LHS, have a higher metric than GTII, as does CWEB a non THC company (and CL moved ahead with their later released Q, updated above). GTII had a nice increase QoQ of $0.15 to $0.65. This means they are improving their revenue generation from their PPE and G/I base and becoming more efficient.
Income Statement Drivers & Breakeven Sales: Peer
Leader in the clubhouse. Cura and Trulieve still has to report their September 30, 2020 Q.
Gross Margin: Trend & Peer
GM increased from 53% to 55% QoQ. No narrative is given as to why. Wholesale increased in mix from 27% to 29% which should put pressure downward on margins. Without more disclosure I would be guessing.
Absolute GM was $87 million up from $64 million +$23 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 $0.36 from $0.27 QoQ.
Again, while not fairing as well in this metric against other roll up company CL (post CL update), they do generate better EBITDA than CL, stemming from better OPEX control.
GTII moves to third from fourth out of 10 in this peer group metric trailing CWEB (non-THC), single state operator TRUL 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 TerrAscend.
Gross Margin: North American Peer
The first nine 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, despite no new stores, increased $4.0 million QoQ. SGA seems to be GTII’s “secret sauce”. SGA as % of sales dropped from 25% to 22%. If I had to guess, professional fees would have decreased in the Q with the new new opening and no lag of getting a store ready to open, and respective expenses, versus later arriving revenue.
SBC was reported at $4.4 million a decrease of $1.3 million QoQ.
Depreciation improved $3 mllion reducing to $11.5 million. This could be due to sale leaseback transactions.
Total OPEX as % of sales was 32% of sales an decrease from 41% last Q. Opex stayed flat 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 57% of existing sales at present GM% and OPEX to generate a +NOP.
GTII was +$37 million NOP positive this Q versus +$14 million last Q. The increase of $23 million in GM coupled with flat Opex was the reason.
Other Income (Expenses) aggregate was +$2 million versus -$10 million last Q.
Other expenses flipped from – $5.7 million to + $6.4 million this Q. This is all fair value adjustments on equity investments (+$8 million), warrants (-$3 million), and contingent consideration (+$0.4) and Other (+$1 million)
Interest expense decreased from negative $4.7 million to negative $4.5 million.
Income tax of $28 million rounds out the expenses, an increase from $15 million last Q. That 280e tax is a burden given taxes exceed NOP.
This leads to a Net Income of +$11 million versus -$12 million last Q.
+Net Operating Profit Sales Breakeven divided by Current Q Sales: North American Peer
Again, MSO are dominating the top part of this graph. Where MSO’s could start to falter versus Cdn LP’s is opening up more retail stores will add OPEX and will need capital to roll out new stores. Whereas the Cdn LP’s should be fully built out on cultivation and reap more GM$’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 $19 million to $53 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 $4.6 million they have very good debt serviceability. With existing EBITDA, they could take on a sizeable chunk of traditional debt.
+EBITDA Sales Breakeven divided by Current Q Sales: USA Peer
At 39% of current sales levels at current GM% and Cash OPEX$’s GTII could generate a +EBITDA.
+EBITDA Sales Breakeven divided by Current Q Sales: North American Peer
GTII is actually pretty thin on inventory as they have $55 million on hand versus $70 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 weakened slightly in the Q despite the large 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 $78 million a decrease of $5 million QoQ. They are raising another $25 million subsequent to Q end in a leasing transaction for their Toledo, Ohio cultivation facility.
A/P and accrued are steady $57 million, $17 million in income tax payable (having reduced $17 million in Q) and they have some current liabilities for acquisitions $27 million that are due in next 12 months.
Share capital increased $37 million in the Q from a raise.
What I said last Q:
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.
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.
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.
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