OK… you may have read my Bah Humbug comment on the Sports Bar last night about Q4’s and how I wished that company’s would lay out the Q4 versus just doing an Annual aggregation. Here is why…
|9 mos YTD||12 mos F2018||Delta||Reported via MDA|
|31-May-18||31-Aug-18||Q4 F2018||Q4 F2018|
|Cost of Sales||$4,009||$4,659||$650||$1,068|
|Indirect production costs||$1,002||$1,289||$287||$287|
|Gross Margin B4 IFRS||$5,089||$6,481||$1,392||$1,858|
|Fair Value adjustments||$15,172||$46,018||$30,846||$30,846|
|Sales and mkting||$4,033||$6,303||$2,270||$2,326|
This is very confounding. I hope LP’s reading this will not make a similar mistake.
A couple of other things before I try and make sense of this…
- SBC from MDA is reported as $1,172 for Expense discussion [page 32 MDA] but $1,977 for Cash Flow discussion [MDA page 22].
- The OGI starting point for EBITDA is $18,091 Net Income from continuing operation. I cannot figure out how they got this number.
So open up the Fins and MDA and I’ll try to make some sense out of this.
Note: I am using the reported info from Q3 F2018 for comparisons. These figures may have to be adjusted based on the changes the Annual only format presentation.
I am going with their number for the Q of $3,213. Which would mean $884 would have to be deducted from the previous 9 months to balance the number for the entire year. Leading to 9 month sales of $9,216 vs reported $10,100 a reduction of 9%.
Sales QoQ as reported in MDA went down 14% from previously reported 3QF2018. This is largely attributable to the lack of wholesaling to other LP’s. In Q3 they had sales to LPs of 81 kgs. This Q grams of flower sales dropped by 103 kgs. This reduction is likely a reflection of them vaulting for rec.
Oil sales increased to $1,579 or 16% QoQ, but it wasn’t suffice to off set Flower sales falling in $ terms by 10%.
Gross Margin B4 IFRS Voodoo
Cost of Goods sold consists of Cost of Sales of and Indirect Production Costs. Indirect Production Costs sure sounds like waste, as its plants that are destroyed/culled that do not meet Ogi standards. I applaud Ogi for including this… but it is 9% of sales at $287 a slight reduction from last Q 9.3%.
This is the 2nd consecutive Q that GM as % of sales has gone up: 52% to 58% over the 2 Q’s. But it also the second Q where absolute GM in $’s has gone down, and in Q4 it was $1,858. The latter is not what you are looking for in a growth industry but I would bet it would have been the vaulting of inventory for rec that curtailed it.
The absolute GM is important as it is what pays the Operating Expenses and other expenses.
Cost of cultivation weakened slightly from $0.80 to $0.83/gram. The increase in higher value oil was likely the reason for the improved GM %.
Their 58% GM is better than CGC, Tilray and Cronos last Q [ 28%, 30%, 55%, respectively] but behind TRST, ACB and APHA [ 69%, 68%, 64%, respectively].
IFRS Voodoo… OGI remains one of the only LP’s not to breakdown Fair Value Increment [coming from Inventory for product sold in Q] and Gain on Bios [going to Inventory and increasing Bio Assets]. So determining how aggressive they are on pulling profit forward is difficult.
|Q3 F18||MDA Q4 F18|
|Sales and mkting||$1,754||47.3%||$2,326||72.6%|
Sales and marketing followed industry trend and increased 26% as % of sales.
G&A, which they are good enough to provide a full schedule in Notes to Fins, but without a Q4 deduced delta Q4 of $815 is far less than the MDA reported above of $1,601. So you get no comment from me on G&A.
SBC increased marginally QoQ from by $16 but the Adj EBITDA shows SBC of $1,977 which would be an increase of 71% QoQ [BTW my 3Q SBC matched their YE MDA at $1,156 for 3Q… so I have no idea why there is a discrepancy.]. The Delta would have yielded a SBC of $1,196.
If you are wondering where the standard Peer Analysis and Trend Analysis is, as per usual in my rundowns,… well I don’t know if the numbers have integrity for past Q’s… so I will not be doing that.
Operating Profit… I will also not be doing that, as I do not know if the Q4 number by delta deduction are accurate.
Their Finance Charges of $4,359 for the Q are largely their LT Debt.
They did book some taxes for the Q of $5,653. And they wrote down the last of their investment by $1,611.
Adj EBITDA [including backing out SBC] … they report negative $3,569 a slight improvement from negative $3,917 last Q. I haven’t done my own EBITDA as I was so far off from their figures [mine was much better than what they reported.]
Balance Sheet Items of note:
- Net Cash plus ST Investments have decreased by $26 million QoQ to $130 million
- Bio Assets increased by $11 million to $20 million with a yield of 11,036 kgs versus 4,123 KGs last Q. This is evidence of more growing rooms coming online during the Q.
- Inventory increased by $27 million to $45 million… but as they changed their reporting format for inventory breakdown I can offer not much QoQ insight. They do not disclose Fair Value Increment on Inventory but the $45 million in inventory represents a good amount available for sale to provinces if you assume it has been fully loaded for FVI. Although both Flower and Oil Finished Goods inventory is quite low they still had 6 weeks to process the Work in progress until Rec hit
- PPE increased $16 million as construction continues.
- Goodwill of $999 was written off with the sale of THC and now sits at $0. Q4F2017 this was $2,328. So it has been all written off.
- Not much interesting happened on the Liability and Equity side
Again… the truncated Rundown is reflective of my uncertainty with the Q4 numbers. I would have reached out to OGI but I am pretty sure I would have received the “selective disclosure” reply given the extent of info I needed to get this correct.
That’s all I got.