Ackroo's Q2 2016 results may prove to be one of those moments in the company's history that we look back on and say..."wow, that was the one". Investors that are in-tune with Ackroo's business and the strategic partnerships that Steve Levely, CEO, has been executing on, should have been able to sense that the potential for organic growth to accelerate was near. Well, this quarter (with 77% revenue growth over the same period in 2015...roughly 30% of that organic), is the start of what I believe will represent significant organic growth in the quarters and years to come.
The business model is proving to be one that works. I do not think anyone could suggest it doesn't at this point. Once cash is available for growth initiatives vs. debt initiatives (such as in the past), the company can aggressively scale (vs. conservatively scale) what has proven itself to be a successful business model. More on this below.
Here are the highlights of the quarter from the company's MD&A released on Thursday night:
Here are a few questions and/or concerns investors will have, so I will address them to the best of my knowledge in a Q& A format:
Question: Revenue growth from same period last year of 77% is fantastic, but didn't they "buy" that revenue with the Dealer Rewards Canada ("DRC") acquisition? How much of it truly is organic?
Answer: The DRC acquisition absolutely added revenues, but it was not just handed to the company. They still had to integrate, migrate, and retain the customers with DRC. However, the pure organic growth from Q2 2015 to Q2 2016 can be represented as follows:
- Q2 2015= approx. $315k in revenues
- Q2 2016= approx. $560k in revenues
- Q2 2016 revs are $245k more than Q2 2015 revenues
- Q2 2016 "DRC" revenues= approx. $150k
- $245k-$150k DRC revenues= $95k organic growth, approx. 30%
The attrition rate is around 10% for the 12 month period so the organic growth would actually gross up to around 40%. But heck, 30% organic growth under any circumstance is awesome!
Question: There is, once again, almost no cash on the balance sheet. Am I missing something?
Answer: Nope, not missing anything. Let's go ahead and address the elephant in the room....cash.
The company essentially closed the first tranche of its previously announced private placement and raised over $580k. Those funds were essential to cover debt of the company (DRC payment, Line of Credit paydown, and operating losses/working capital needed in Q2). I suspect that in a few months the company will finish the final tranche of the initial private placement, looking to raise another $1M or so. Whereas the previous PP funds were used for debt initiatives, any future raise would be 100% used toward growth initiatives. Dilution-wise the shareholders should win because the second tranche will be at a much higher price (I would certainly think!) then the $0.20. So, perhaps it was a blessing in disguise that the last raise did not bring in more than the $580k or so that it did.
It is important to keep in mind that positive cash flows should start hitting in the quarters ahead, so even without raising any capital Ackroo can continue to conservatively grow organically.
Questions? Comments? Concerns? Leave a comment below and interact with myself and others!