Contrary to what most think, guidance was depressing.On the Nov 12th earnings call, it was mentioned that Q1 Revenues would have been $35.8 million on a pro-forma basis had MedReleaf, Anandia, and Agropro been acquired July 1st (full three month quarter). The increase to $50 million for Q2 represents only about a 44 percent increase on a pro forma basis. Also this comparison while referred to as net revenue is only net of excise tax and represents the very top line against which COGS and IFORS adjustments must be made.
The real story here is that this is the first full three months of earnings and that revenues from operations don't cover ACB's operating costs to maintain the numerous assets it carries as they only operate at about 1% of capacity. I think ACB management is finally waking up to this fact and I am glad that the press release mentions "aggressive cost control." However, how does the comment that SG&A costs will be about the same as last quarter qualify as aggressive cost management? We know from the earnings call that marketing expenses will be down because of non-recurring legalization expense - we expected that, but if not these two, what else is being
reigned in?
While ACB fundamentals appear to be better than average, the asset utilization is dismal. Below is a comparison showing ACB to the rest of the pack. For every dollar ACB invests in assets on an annual basis, it earns just 3 cents of revenue. While it is true that because of the huge asset base, ACB earns more revenue than competing LP's, it is also true that ACB incurs the most expense.
I have adjusted my forecast to reflect the guidance issued today. Hopefully I am high on expense but given the numerous offices and greenhouses ACB operates, aside from temporary closures and layoffs, I don't see these coming down drastically in the near term.
