I’m getting back into the swing of more regular analysis articles, and I wanted to make a shorter article about my predictions for ALPP’s Q1 2022 10Q.
Now, I’m ready to bring on the metaphorical downvotes for writing this one, but I think it’s true even as someone who has a long position…this is going to be an ugly filing. However, we’ve had like six months of warning from the company that financials were going to be rocky up through Q2 2022, so unless you’re overdosed on copium, this shouldn’t be a surprise.
So again, before the discord burns an effigy of my non-existent profile picture, just know that this based on what the company is already saying. This isn’t some hyper speculative bash piece. This is just so that everyone sets their expectations correctly, much like I said about the 10k when I said it would be rough (and it was).
To wrap up, I’ll get into my opinion that, while this 10Q is going to look rough, there is still plenty of hope for the company long term. If there wasn’t, I wouldn’t be long still 😊.
Let’s get into it.
Q1 2022 Predictions
On April 26th, ALPP released their guidance for revenue for Q1 2022. They are forecasting between 24m and 26m in revenue for the quarter, which is right about where we thought it’d be. Remember, we’re forecasting just north of 100m of revenue for the year which is huge for them.
However, whenever a company focuses on revenue in a financial guidance release without mentioning profits specifically, we all know that usually means losses. So that should be warning sign number one.
In the release, they specifically call out the most important piece of information, namely that they are seeing their gross margins at a consolidated level around 20%. That tells me basically everything I need to know about their income statement for Q1…
Let’s assume revenue of $25m and a 20% gross profit, that’s $5m in gross profit approximately. For the rest of the income statement, we can do a bit of estimation. Q4 2021 resulted in operating expenses as a percentage of revenue of around 89%, but that was overinflated by the Elecjet and RCA acquisitions. Q3 was more like 35%.
Given the size of the business has presumably increased quite a bit (but with a corresponding increase in revenue) since Q4 2021, let’s call it 40%. So if gross profit is $5m, operating expenses could be around 40%*$25m or $10m. It honestly could be higher, but this is just a ballpark estimate.
This means that operating income for the quarter would be around -$5m, so we’re already in a loss before we even hit interest, etc. Luckily, ALPP has paid off a good chunk of its debt, so interest is pretty minimal all things considered. Q3 2021 was around 500k, and Q4 2021 was around 600k. Let’s call it 600k for Q1 2022 to be safe.
To recap, that leaves us with:
- Net Revenue: $25m
- Cost of Goods Sold: $20m
- Gross Profit: $5m
- Operating Expenses: $10m
- Operating Income: -$5m
- Interest Expense: $0.6m
- Income Before Tax: $-5.6m
- Pretax Margin: -22.4%
Like I said, it’s pretty rough and not very close to profitability. Obviously, the numbers are all ballparked, but I think this is roughly what we’ll see when the 10Q is released…But all is not lost!
Reasons for Upside
Things have been pretty bleak for ALPP the last several months. We had a fairly rough 10k get released and we’ve now seen the share price dip well below $1 per share. But in my opinion there’s still plenty of upside for the company this year.
First, I know I sound like Jay Powell, but the supply chain issues and inflation raging in the global economy will be temporary. Most are predicting end of this year or early next year for them to really lighten up. ALPP has gotten their metaphorical shit kicked in by these issues as they are right smack in the middle of the issue: they are getting squeezed on raw material prices and labor costs are skyrocketing.
As these supply chain pressures ease, ALPP will be well positioned to transition into a more profitable business if they just keep up what they’re doing. You’ll actually see Stabilizers making money, which is the whole point 😊.
Second, when the company raised a ton of money via share issuances last year, they used a big chunk of the money to pay off debt. So we’ve seen significantly less bleed in terms of interest expense as in the past. So this means that the company can more easily survive rough patches like this.
Lastly, people need to remember that like half of this company is still in the very early growth stage. The drone business is the best example. This is a very early-stage endeavor that will take several years to seriously bear fruit. We’re just seeing drone sales start rolling out of older drone models, and soon we’ll start seeing even better drones going out. I didn’t even mention the batteries business which is also forecast to have exponential growth.
So it’s not like the company is stagnating with lower growth business and will be losing money forever, there’s plenty of hope on the horizon. For that reason, I’m still staying long as I trust the company to make their stabilizers work and also effectively develop and roll out their drivers.
To conclude, I am predicting that by Q4 2022 and Q1 2023 we’ll really start to see the financials reflect what we’ve all been hoping for, which is not only profits but also 20%+ annual organic revenue growth consistently.
So, while 2022 may be a loss-making year on the whole, I think the tail end will be a complete turnaround from this Q1 2022. Also, Q1 2023 should look considerably better than Q1 2022, so much so that we’ll hopefully be wondering what we were all worried about 😊.
That’s it for me, thanks for reading! If you enjoy my articles, consider email subscribing in the sidebar.
DISCLAIMER – AT THE TIME OF WRITING THIS ARTICLE I HAVE A LONG POSITION IN ALPP. THIS ARTICLE IS NOT FINANCIAL ADVICE AND IS INTENDED ONLY FOR EDUCATIONAL PURPOSES. I AM NOT A FINANCIAL ADVISOR. DO YOUR OWN RESEARCH.