Management filure to control costs
Q3-23 Net Loss after tax way below expectation.
Analyst consensus = (US$0.05) / share
Actuals = (US$0.19) / share
So our losses were about 4 times higher than expected.
A disaster not due to sales but caused by out-of-control costs. The costs of revenues are costs associated with sales. Cost of revenue is the total cost incurred to produce and sell a good. It includes the COGS / cost of production / cost of distribution and other costs that are needed to deliver / sell a product.
The following speaks volume about management failure to control costs in Q3-23
| Item | Q2-23 | Q3-23 | Increase or (decrease) from Q2 to Q3 | % Increase or (Decrease) from Q2 to Q3 |
| Sales | US$53.1 | US$44M | (US$9.1M) | (17%) |
| Costs of Revenue | US$36M | US$35.5 | (US$0.5M) | (1.4%) |
In Q3-23 Largo incurred about the same costs of revenue to deliver 17% less in sales than the previous Q, a situation which was not in line with previous cost control effort as demonstrated by the comparison between Q1 & Q2 (see table below) showing that the costs of revenues declined at a rate comparable to the decrease in sales in Q2-23.
| Item | Q1-23 | Q2-23 | Increase or (decrease) from Q2 to Q3 | % Increase or (Decrease) from Q2 to Q3 |
| Sales | US$57.4 | US$53.1 | (US$4.3M) | (7.5%) |
| Costs of Revenue | US$38.3M | US$36M | (US$2.3M) | (6%) |
With a staggering (US$0.19) loss in Q3-23, we have already reached a cumulative (US$0.30) loss for the first 9 months of 2023 while the (pre Q3-23 results) analyst consensus EPS = (US$0.21) for the whole year 2023. Largo’s actual cumulative EPS is even lower than the most pessimistic full-year expectation of (US$0.25).
I expect 2023 to be a total disaster. So brace for impact!
Nasdaq LGO trading in the US$1.00 range (thus the risk of delisting) before year-end would not be a surprise for me.
DYODD