10 Takeaways from Q2 Conference Call…I never did a Q2 summary and I am a little late so I thought I would hit the conference call, clearly all of you didn’t listen to it or you wouldn’t be blowing out the stock down here which is just ridiculous. I was adding aggressively in the 0.70s and PTQ has quickly grown into my third largest position.
So lets dig in;
11,641 Setups or Deliveries compared to 9,798 up 18.8%
IMPACT: Setups and Deliveries are the one KPI you must follow, this is what drives revenue growth and scalability of their platform. As long as the core Setup and Delivery number continues to grow revenue and cashflow growth should follow.
Recurring Revenue stood at 37% or $8.1M growing in line with broader revenue growth
IMPACT: Investors love recurring revenue growth, it’s the holy grail. Given its predictability and stickiness and it is usually associated with higher margin and valuation attached to it. For example, if we just annualize the recurring revenue figure in Q2 we get to a number of $32.4M. This equates to less that 2.0x Sales on the ENITRE MARKET CAP OF THE COMPANY and you get the other $70M in revenue generating business for free.
Gross Margin Maintaining >70%+ as product mix is streamlined and pricing standardization across the company
IMPACT: This is all Greg & Hardik here, the business got cluttered and distracted in ’16 – ‘ 17 the realignment of focus and discipline that is driven from these two individuals and supports teams has been a big reason for the turnaround. Their willingness to lean into tech and staff growth to grow and streamline the business is so critical. Couldn’t ask for more here.
Actively engaged with debt sources to establish a line of credit to support accelerating growth
IMPACT: This is so timely right here, with the US 10 yr going so much lower the cost of money continues to decline. This is critical to their acquisition program. If I look at NLH.V (Great company by the way you should join me LONG that name as well) also a US based healthcare business has major tier one bank lending at PRIME + 1.0 – 2.0%. You give access to Greg and Hardik access to capital at that kind of rates look out. The acquisition program will take off.
33 Locations in 12 States with 13,000 referring physicians
IMPACT: I don’t think the average investor understands the scale of this company, Greg did a great job on the call laying out on the call how there is massive growth even within current states through cross selling and sales staff training to expand the depth of product take by each individual patient/customer. SO BULLISH!!!
Industry Growth rate maintaining in 3 – 5% but management believes they can achieve more than double the industry growth rate
IMPACT: Don’t listen to say watch what they do, they put up organic growth in the last Q in the range of 6 -7%. Now add to that a doubling of sales staff and if you don’t think they can put up mid single digit to double digit growth you are crazy.
Goal of $100M Revenue run rate by end of 2019
IMPACT: I think this target is easily achievable by year end, I brought this point up months ago if you dig back in my posts. With the growth in sales staff I think this figure is easily achievable just with current operations and is not dependent on incremental acquisitions.
Cycber Attack Comment; “We are in a position today to say that there are some reasons for cautious optimism regarding recovery of the stolen funds”
IMPACT: Yes this sucks, if we assume no recovery it should of taken 0.10/share off the share price, since the announcement the stock has declined 0.30/share. So even after a strong Q2 and an already cheap stock the stock is trading at least 0.20/share cheaper. I know they don’t sell weed but just close your eyes and buy it at this point!!!
Doubling of Sales Staff with benefits of volume based and purchasing still to come as business scales
IMPACT: That’s the thing about business, you have to invest in growth, costs come before you see it in revenue growth. You don’t double sales staff if you see growth going forward. I would be more concerned if they weren’t doing this. Look for big revenue and margin going forwards because of these moves. Its all about scale in this business, especially on the volume purchase side.
Operating cashflow in Q3 is currently running real strong with working capital growth $2 – 3M already generated in the quarter
IMPACT: You have to back into this number based on the Beacon analyst’s comments. Key point, last year working capital was running $4 – 5M in working capital and Hardik stated that working capital was running strong and was inferred that working capital was running above 2018 levels. Seeing that working capital ended last Q at 3M you are looking at big cashflow growth in the last 2 months.
On Valuation
If I take Greg on his word which I believe could be conservative of $100M run rate and a 20% EBITDA margin which is conservative given VMD 25% margin and put a VMD multiple (12 – 14x EBITDA multiple) on PTQ the future looks quite bright.
A 12 – 14x EBITDA multiple gets me to a target of 2.73 – 3.18/share using a 88M share count or 2.96/share at the midpoint or 323% upside just to get to its spin out peer group multiple.
This is how silly some of these valuations have gotten in small cap CDN non weed/crypto space…
LONG