Maricann Group Inc :MARI-CA: Earnings Analysis: Q3, 2017 By the Numbers : April 25, 2018

Maricann Group Inc reports financial results for the quarter ended September 29, 2017.

Highlights

  • Summary numbers: Revenues of CAD 0.72 million, Net Earnings of CAD -5.38 million.
  • Gross margins narrowed from 72.48% to 31.23% compared to the same period last year, operating (EBITDA) margins now -745.92% from -112.05%.
  • Change in operating cash flow of -298.42% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating margins contributed to decline in earnings.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-09-29 2017-06-29 2017-03-30 2016-12-30 2016-09-29
Relevant Numbers (Quarterly)
Revenues (mil) 0.72 0.66 1.14 0.89 0.91
Revenue Growth (%YOY) -20.44 -30.92 0 0 0
Earnings (mil) -5.38 14.7 -66.89 -0.03 -1.12
Earnings Growth (%YOY) -380.55 1998.85 -7466.6 -24.27 -7454.25
Net Margin (%) -746.13 2222.6 -5851.3 -2.9 -123.54
EPS -0.08 0.22 -1.09 -0 -0.03
Return on Equity (%) -28.85 142.24 N/A N/A N/A
Return on Assets (%) -81.35 468.55 -2162.12 -0.84 -942770.53

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, MARI-CA’s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if MARI-CA’s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by 8.98% and earnings by -136.59% compared to the previous period.

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 72.48% to 31.23%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from -112.05% to -745.92% in this time frame. For comparison, gross margins were 61.63% and EBITDA margins were -670.20% in the previous period.

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

MARI-CA’s decline in gross margins has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 49.28 days, compared to last year’s level of -52.54 days.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

MARI-CA’s year-on-year change in operating cash flow of -298.42% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from -112.05% to -745.92% and (2) one-time items that contributed to a decrease in pretax margins from -123.54% to -746.13%

EBIT Margin History
PreTax Margin History

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Company Profile

Maricann Group Inc, formerly Danbel Industries Corporation, is a Canada-based integrated producer and distributor of marijuana for medical purposes. As one of approximately 43 companies with a federal license to cultivate cannabis and one of approximately 30 independent licensed producers with a federal license to process and distribute cannabis, the Company’s services a patient base with more than 8,000 registered patients. The Company is undertaking an expansion of the cultivation and support facilities to support existing and future patient growth.

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