Costs run amok What kept Mark Smith awake at night when he was Largo’s CEO?
Mark Smith in an interview with Matthew Gordon of Crux about 3 years ago (paraphrasing): “We’ve worked very hard internally, we have management meeting consistently and regularly to keep the alignment and discipline going on: we have to be a low-cost producer….Keeping that discipline is what keeps me up at night.”
In 2021 Largo’’s full-year net profit margin = 11.4% (US$22.6M in net income out of a revenue of US$198.3M)
In Q2-22 the company’s net profit margin = ~21% (~US$18M in net income out of a revenue of US$84.8M)
In Q3-22 the margin was negative as we had a net loss of (US$2.6M) out of a revenue of ~US$54M due mainly to non-recurring expenses. Non-recurring expenses? No company can stay afloat with recurring negative margin, right? So this was supposed to be an outlier, right?
So what a surprise when Largo registered an even bigger negative margin with a staggering net loss of (US$15.6M) out of a revenue of US$47.5M due again to “non-recurring costs” in Q4-22. The only difference this time around was the shocking amount of the “non-recurring expenses”.
In conclusion here is what I think about the repeating “non-recurring costs”:
If management can not control the company’s costs including operating costs and “non-recurring costs” Largo will likely sink to the bottom before we can see a dime of revenue from the energy storage pillar.
DYODD