Halo Collective $HCANF Prints Record Revenues

Halo Collective printed record revenue for Q1 2021; this after pre-reporting $3.6M for April.  Projections are for $75M for 2021 as well as EBTIDA profitability.  Can Halo Collective get to that high of a level?  I believe they are on track to exceed that.  But, two things need to happen before that occurs: They need to address the cash on hand situation and they need to get their margins more in line with what it takes to achieve profitability.

I put together a breakdown of the latest financial data showing where Halo is and what could come next.  If they finally achieve EBITDA break-even, it is likely to happen in Q3.  Then, in Q4, EBITDA profitability is also likely to occur.  From there, with all of the pieces of the puzzle coming together, Halo is likely to achieve net profitability in 2022.

And, maybe then the stock price will start to move upwards:

Halo Collective Stock HCANF
Halo Collective Stock

Let’s take a look at the latest numbers.

Revenue

As stated, Halo printed record revenues at $9.9M.  After retooling they have seen progressively higher and higher revenue growth and this goes in line with their projections:

Halo Collective Revenue
Revenue

If we look at $9.9M for the quarter, on average that was $3.3M per month for January, February, and March.  Halo has already posted a record-breaking month of $3.6M for April.  When I look at this I think that most of the months for the first quarter were likely about the same seeing how $3.6M is just slightly higher than the average.

But, how does Halo get to $75M?  I have had the question asked of me.  Likely, they hit about $4M in May, and $4.5M in June totally about $12M.  They would need to also hit about $20M and $30M for the following two quarters.  Should they hit these numbers they will also hit their projections of $75M.

But, I wonder if Q3 & Q4 will be a lot more robust?  We will see moving forward.  For now, their $75M is on track.

Gross Margins

Gross margins are lacking severely.  In order to achieve EBITDA break-even soon, they would need to see very large economies of scale and productivity gains coming from increased revenues.  As it is, despite the record revenue level, there is plenty of room for upside potential:

Halo Collective Gross Margins
Gross Margins

I broke down getting to EBITDA profitability in my video attached to this analysis.  In that video, I showed how Halo gets to break even in Q3 with cost of goods and operating costs.  Cost of goods will likely have to hit about 55% (45% gross margins) with 45% in total operating costs; effectively EBITDA break-even.  Then, with even more revenue in Q4, gross margins will need to push upwards to 55% (45% cost of goods) and total operating costs come down to ~40% leaving 10% of revenue for EBITDA profits.

This will be the main focus for what I am going to be looking at.

Total Operating Costs

Operationally, Halo is expanding and getting ready to roll out a lot of its production capabilities.  That increased expenses.  And, despite the fact that revenues increased, total operating costs also increased:

Halo Collective Operating Expenses
Operating Expenses

Getting to EBITDA profitability is going to be somewhat of a challenge.  The real savings will be moving forward from where Halo is now.  Should operating costs remain muted in growth comparatively versus revenue growth then the metric (below) will continue downward.  But, at 96%, it is far too high for now:

Operating Efficiencies
Operating Efficiencies

Expansion comes at a cost, of course.  And, if the revenue growth actually comes to fruition then operating efficiencies will start the decline to more palatable levels.  What I am thinking is that at the end of this year they should be printing about ~$35M in revenue for Q4.  They would need to contain operating costs down to about $12.5M.  There is not much room on the upside to achieve this.  But, at $12.5M that gets Halo to about 35% – 40% operating efficiencies.  So, they would be allowed to add in about 30% more in costs per quarter given this metric.

EBITDA & Net Profits

Net profits are likely to go positive in 2022.  Cash on hand is the next variable that is in question and burning some $9M per quarter is going to make things tough:

Net Profit
Net Profit

By my reckoning, Halo is likely to need approximately $50M in more cash to sustain itself through to the end of the year for cash burn and operating capital (It looks as if they have about $10M right now).  Kiran has already stated he is doing everything he can to not hit the ATM machine in the markets.  I have had minor conversations via Twitter with Kiran regarding potential companies to raise capital via debt.

It would be a shame to not get to the finish line seeing that Halo is so close.  But, they will need cash; there is no getting around that.

Is Halo Collective a good buy?

As I walked through, I can see a break-even EBTIDA position in Q3 (Above).  I can see Q4 hitting positive; the goal for this year.  As momentum generates, very likely the stock may finally start to move upwards.  Finally.  But, as I mentioned, Halo is not out of the woods just yet.  They need to raise cash.  And, the hope is that revenues grow fast enough to attract lenders as well as stock purchasers.

Speaking of stock purchases, when a CEO of a company puts his hard0-earned money into the company to demonstrate the commitment and conviction of the company, that tells me a significant story.

Here are some screenshots I took from Kiran’s Twitter feed:

Kiran Sidhu

If the CEO is buying $HALO, what more would anyone else need to show this company is a strong buy?

 

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