Today’s article will be going through my thoughts and predictions for FY 2022 for ALPP. I did one of these for AITX that my readers really liked, so I figured I should do one as well for ALPP. I’ve already touched on a lot of these sprinkled throughout a few articles, but this will have some more predictions plus a summary of other things I’ve brought up.
Now, let’s get to it!
Revenue Growth
Now, I’m going to sound like the laziest analyst ever, but I have to at least bring this up. In a letter to shareholders on January 13, 2022, the CEO of ALPP sent out revenue guidance for FY 2022. He stated that they are expecting revenue in excess of 100m.
My take on that? Let’s break this down.
As a base, let’s start with the Q3 2021 figures and work from there. Revenue was 17.3m in Q3. By my count then, if we annualize Q3 revenue, that’s about $70m in revenue as a base. This is missing some pieces though.
First, Q3 2021 didn’t consider the acquisitions of RCA, Elecjet, and Identified Technologies. Out of those three, RCA is the only one expected to hit the ground running and have immediate revenue impact, an estimated 40m annually per the CEO. So, call it 10m a quarter (roughly).
Now, as a check-in, let’s call our running revenue rate 70m plus 40m for RCA, call it 110m for 2022 roughly.
Next, let’s consider organic growth from the stabilizer businesses (i.e. not drones and batteries). If we ballpark it to 10% growth organically, that’s another 11m, for a total of 121m.
Finally, and everyone’s favorite part, we have to get into our driver businesses: drones and batteries. For both businesses, which are sort of working hand-in-hand because ALPP’s proprietary batteries are used in their drones, we are unexpectedly seeing similar timelines hinted at. The most recent timelines I’ve seen for both are limited production runs beginning in Q2, with full scale production by FY 2023.
Now, as you all know I like to keep it conservative. So let’s say limited scale production starts in Q3 and doesn’t really ramp up much until the next fiscal year. This appeared to be re-iterated by the press release on February 16, 2022. I’m going to assume minimal FY 2022 revenue then for both businesses in total. Let’s call it about 10m for FY 2022.
To wrap up then, my revenue forecast for FY 2022 is somewhere around 131m. And that’s excluding acquisitions, so it could be more. But I cannot speculate on acquisition revenue impact.
I know I’ve basically just told you exactly what ALPP revenue guidance was, but at least take this as some reassurance that ALPP isn’t just pulling those revenue numbers out of thin air. I think they’re very attainable, and as always, I hope I was wrong about being conservative with them 😊.
Profitability
I think I’ve rustled some jimmies in the past bringing this up, but I’ll say it again. I’m not expecting a profitable Q1 or Q2 for FY 2022. Q1 I am almost certain of, but Q2 is a bit more of a 50/50 toss-up. I think a lot of that is based on macroeconomic factors (i.e. if big Jay Powell is right about supply chain relief). I am fairly confident, barring any major “Driver” acquisitions, that we’ll be cash flow positive at a minimum by Q3/Q4. We may even see book profits.
Why do I think this? Frankly, I’m basing it on the shareholder letter recapping FY 2021. I’m probably being even more conservative than the CEO, as I typically do, so they may even exceed my expectations. And I hope they do!
I’m not worried about a few more months of non-profitability, though. The company is well capitalized, it isn’t drowning in obnoxious debt and/or diluting like crazy just to pay the bills. ALPP took care of a lot of that early last year. So as long as it’s not a persistent (1-3 years more of not being cash flow positive), this is just a small bump in the road.
Drivers – Product Launches
I mentioned this above, but just to reiterate, I’m generally pretty conservative on the timeline for full rollouts of drones and new battery technology. By rollouts, I mean full production runs, not small batch test-cases. Like I said above, my timeline for a full production run of drones and graphene batteries is FY 2023, likely not in the beginning of the year either.
I’m not bearish at all because of that though. I think, in general, ALPP investors can be a tad impatient. If you truly believe that these products have massive potential, which I do, I don’t think another 6-12 months of waiting is going to destroy the company. If anything, as long as progress is being made, I’d be more comfortable with them getting it right the first time rather than rushing some junk out the door to appease antsy investors.
At the same time, this company is not beholden to these products becoming blockbuster successes for the company to survive. The whole point of DSF is that the stabilizer companies continue to bankroll the business as it invests in currently non-revenue generating products, like drones or graphene batteries. So it’s not like ALPP is going bankrupt if drones aren’t flying off the shelves in six months.
This brings me to…
Stabilizers – Profits Soon
This has been a tricky past twelve months for our stabilizer businesses like QCA, Excel, MSM, JTD, Alt Labs, etc. These businesses have taken the brunt of the well documented supply chain issues over the last twelve months. I am not surprised that they have had profitability issues that are expected to bleed into FY 2022.
That being said, I don’t think it’s necessarily ALPP’s fault. The reason why investors in microcaps like ALPP expect to earn returns that exceed large cap stocks is increased risk. Generally, this risk manifests itself in microcaps taking a bigger brunt of the blow from macroeconomic factors, such as COVID and associated supply chain issues.
So I’m not sure what ALPP could have done over the next few months, it hit everyone their size pretty hard.
All of that being said, with things starting to ease up (ALPP said this as well), now is when we start to judge ALPP’s ability to run these businesses. I’ve already said that I think they’ll be profitable by Q3. But I really want to judge each businesses’ performance more closely as these pressures ease. These businesses aren’t designed for high 20-30% margins like Driver businesses. But I also don’t want to see them scrape by earning ultra slim margins.
In the end, I want them to be earning stable 5-10% margins with high cash flow. If ALPP has trouble achieving that by the end of FY 2022 and into FY 2023 (barring more COVID issues), then it may be time to be concerned.
But I’m not concerned at all right now.
Funding and Dilution
I’ve already said above that I don’t think ALPP is going to need excessive funding to run the business. But if they want to acquire any new businesses, and ALPP claims there’s two targets for FY 2022, then expect them to either have to issue new debt or issue new shares.
To be quite honest, I’m actually thinking that dilution will be the most heavily used form of funding if these businesses are acquired (without knowing how big they are). They are already having some issues with cash flow right now and it might be difficult to expose themselves to more debt heavy acquisitions. Remember, ALPP generally uses a mix of cash (raised from debt) and share issuances to fund acquisitions.
So I’m not saying these acquisitions will be purely funded from share issuances, but it seems they will likely be heavily weighted towards shares or cash raised from shares.
I’m a broken record on this topic, so I’ll keep it quick. I don’t mind if they use shares for acquisitions this year. Once the business is positively cash flowing, expect them to pivot to cash buys raised from debt or business cash flows. But that might be a year or more out.
Either way, ALPP has signaled it is slowing down acquisitions in favor of investing in its current businesses, which I’m totally fine with. The high growth areas of ALPP have the potential to transform the company much like an acquisition would. So don’t be disappointed if acquisition activity is slow this year.
Wrap Up
If I could sum up my thoughts on ALPP’s FY 2022, it’d be this: expect a slow start in terms of profitability, strong revenue growth to over 100m easily, nice developments out of drivers but not full-scale production until next year, and some level of continued dilution for acquisitions (if they pan out).
All in all, I’m excited for ALPP this year. The business should keep plugging along and doing what they said they would. I wouldn’t expect the company to go crazy (which we all hope it will), but we’ll see some nice significant milestones hit this year. Moving into FY 2023 is when I think we’ll start seeing the fruits of their labor in the high growth business.
Anyways, that’s all I’ve got. I’m on vacation the rest of the week so I’ll get back to you all next week (unless I can sneak in some writing time😊). Thanks for reading!
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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. AT THE TIME OF WRITING THIS ARTICLE, PERSONS AFFILIATED WITH THE COMPANY ANALYZED ABOVE MAY BE PROVIDING MONETARY COMPENSATION AS MONTHLY PATRONS THROUGH MY PATREON. THIS COMPENSATION IS NOT PROVIDED IN RETURN FOR ANY SERVICE, WRITING ABOUT A PARTICULAR TOPIC, AND/OR FAVORABLE OR UNFAVORABLE OPINIONS. MY PATREON SUPPORTERS HAVE NO INFLUENCE ON THE CONTENT OF MY ARTICLES.
