Ackroo Inc V.AKR

Organic growth vs inorganic growth

[Torontojay]

Organic growth:

The customer acquisition cost for 2021 was $2,487 per customer. They added 475 new locations and each customer on average spends $101 per location per month. Therefore we can conclude that the total sales produced from their internal marketing efforts to be $575,700

In 2021 they spent $1,124,278 on sales and marketing and another $100+ on initial set up fees. Therefore we can conclude that in order for the company to generate $1 of sales they need to invest approximately $2 in sales and marketing. 

Inorganic growth:

The company has historically purchased other companies for 2 times sales which is consistent with their organic growth strategy. However, when they acquire companies, they are able to add customers as well as technology. This looks to be a better deal. 

On the md&a there is an asterisk on the customer acquisition cost. The company believes they can reduce the cac to about $1,200 per location. One can refer to this as location acquisition cost instead. At 475 new locations added, the company would be able to spend ~ $570k to generate sales of $575k or a 1 to 1 correspondence. 

In my opinion, if the company can reduce their location acquisition cost to $1200 then they are much better off to grow the business organically. This is certainly true if they are acquiring businesses at 2 times sales for client growth rather than technology growth.

[HarryBarry]

Interesting analysis TJ, but it seems to me looking at the cash position that the Inorganic Growth runway is effectively closed off unless we see another captial raise - which would obviously be highly dilutionary at the current share price. Although the Q2 results are decent on most metrics and Steve is flagging future acquisitions in his commentary, the cash generation just isn't happening

[Torontojay]

Good points you made. So far we have a full year of results to test the effectiveness of the organic growth strategy and it has performed reasonably well.  What I like about the organic growth strategy is that it's cheaper, doesn't require you to dilute shareholders and, at the same time you can pay down debt with excess cash.  The churn rate at 10% is way too high for me

[HarryBarry]

Thanks TJ, I'm a bit puzzled by the following statistics on Page 6 the MD&A report. the Company now supports 1,900 customers and 5,000 + locations across North America the Company added 53 new customers and 123 locations in Q2 through organic sales The new store numbers would seem to broadly equate to the 8% Sales Growth range reported. But if these are before deducting

[Torontojay]

  Hi Barry this is what I observed from the financials. It appears that customer churn, or loss of clients, is more or less equal to number of new clients added. The revenue increase in Q2 comes from price increases which also increased gross margins to 95%!  Monthly recurring revenue in ytd 2022 increased to $90 per location and one time revenue of $10 per location for an average of

[HarryBarry]

Thanks TJ for highlighting that detail. Of course the higher revenue per location may include a degree of "land and expand" cross selling as referenced on Page 4 of the MD&A report. If, on the other hand, it is pure price increase then this in itself could be contributing to higher customer churn. This detail from the table on Page 5, would seem to indicate that location