This morning Ackroo (AKR.V) released its business and strategic plan for 2016. I commend Steve (the CEO) for providing the update and felt it was very thorough and necessary given the share price performance, albeit there was nothing necessary "new" in the PR.
The more due diligence I do on Ackroo and the more I more understand their lucrative business model, the higher my conviction grows for the company. I absolutely, without a doubt, invested in the company a bit too early (my cost basis now is around $0.235), but that is my investing style. I have the tolerance to absorb a high level of volatility, so I would rather be early and potentially be rewarded with more overall return than to be late and miss an initial run. But, thats just me.
What Steve has been able to accomplish as CEO has been remarkable in his short time as CEO. He is a shrewd operator with a very keen ability to understand the industry in ways that I don't think many do. I have only spoken and emailed with Steve, but he is one of the most impressive and communicative CEOs I have ever invested in. To me, that means a whole hell of a lot.
A few points worth noting from today's PR:
- "The company has delivered year over year revenue and customer growth in 2015 and is now only a quarter or two away from profitability, putting the Company at a very exciting inflection point."
- Maybe I am reading a bit too much into this, but something I have learned from communicating with Steve is that he is constantly looking to acquire. After all, his strategy is to consolidate the industry to Ackroo's advantage by acquiring unprofitable companies and making them profitable by significantly cutting costs once absorbed into the Ackroo system. I think Steve mentions Q1 or Q2 for profitability because possibly there is something developing that could accelerate such profitability.
- "Maintain and further develop the current sales operations model with a focus on Canadian merchants and partnerships but also being pursuing focus in the United States as well."
- Significant for obvious reasons, not to mention current currency advantages.
- "The Company will maintain current 2015 operating costs with no more than 10% increase to support organic growth."
- CFO retiring due to Steve relocating the CFO position to Hamilton area office to be more local to him.
- Relatively strange timing perhaps. And it will be very interesting to see if Steve pulls in a CFO that has an extensive M&A background.
Matthew stated it best in an article in late October when he said the following:
- Despite not currently having the balance sheet to continue with the roll-up acquisition and the impossibility of raising money at this time as a result of the stock price, the company can still continue to perform just by growing organically at 20% per year until the share price is high enough to warrant an equity raise. I believe the share price will seriously appreciate as the company becomes cash flow positive in Q4 and continues to grow organically at 20%. That said, the focus is definitely on the roll-up strategy. Acquisitions in this space are so compelling as Steve can acquire a recurring revenue stream with a good chunk of the costs stripped out of it since he doesn't need to retain many employees, hence the incremental 40-50% EBIT margin of acquisitions. More importantly, he only keeps the top talent from these acquisitions which raises the talent bar for the organization as a whole.
What do I expect? I expect Ackroo being cash flow positive by the end of Q4, with profitability and a positive EPS at the end of Q1 2016. I suspect we will hear of some new partnerships during Q4 or in early January, and I also expect to hear positive developments of the company's test with Perkins restaurants, with the potential for 400+ locations throughout USA/Canada.
With a company as small as Ackroo currently is it isn't always easy to hit guidance due to fluctuations of the early business cycle for a young company, and I believe Steve recognizes that now and realizes he shouldn't have provided specific guidance early on. But, what I personally care about, is that here today is a company that is likely a month or less away from being cash flow positive, and a quarter or two out from profitability. Once cash flow starts coming in, and the share price begins to increase to more reasonable and appropriately valued levels, it sure is going to be interesting to see what kind of explosive growth Steve is able to make happen with his aggressive acquisition model that he wants to pursue.