Revenue Increases 23% Sequentially to $32.9 Million, Driven By Higher Sales to Top MSOs, LPs, and Leading Brands
CYPRESS, CA / ACCESSWIRE / April 8, 2021 / KushCo Holdings, Inc. (OTCQX:KSHB) (“KushCo” or the “Company”), a premier provider of ancillary products and services to the legal cannabis and CBD industries, today reported financial results for its fiscal second quarter ended February 28, 2021.
Recent Operational and Financial Highlights
- Announced transformative merger with Greenlane Holdings (NASDAQ: GNLN), creating the leading ancillary cannabis company and house of brands.
- Raised $40 million in equity capital and used a portion of the proceeds to retire senior unsecured term debt.
- Achieved revenue of $32.9 million, or 23% sequential growth, in fiscal Q2 2021, driven by increased sales to the Company’s top customers, including leading multi-state operators (“MSOs”) and licensed producers (“LPs”).
- Secured a long-term supply contract with a leading West Coast operator.
- Secured 38 supply contracts for the Company’s stainless steel tanks as of April 2021, compared to 20+ as of January 2021.
Fiscal Second Quarter 2021 Financial Summary
- Net revenue increased 9% from the prior year period, and 23% from fiscal Q1 2021, to $32.9 million, primarily as a result of an increase in sales to the Company’s MSO and LP customers, as part of the Company’s continued strategy to align with the industry’s leading operators.
- On a GAAP basis, gross profit was 20%, compared to (30%) in the prior year period. The increase in gross profit percentage is due primarily to the Company’s restructuring initiatives, which led to prepaid inventory write-offs of $3.3 million and excess and obsolete (E&O) inventory charges of $11.9 million in fiscal Q2 2020.
- On a Non-GAAP basis, excluding the impact of certain non-recurring items, gross profit was approximately 23% (see note below regarding “About Non-GAAP Financial Measures” for further discussion of this and other non-GAAP measures included in this earnings release), compared to 22% in the prior year period.
- SG&A expenses were approximately $10.9 million, compared to $27.2 million in the prior year period. The decrease was driven by reductions in headcount, bad debt expense, consulting spend, and travel and entertainment expenses, as a result of the COVID-19 pandemic and the Company’s implementation of a comprehensive strategic plan to right-size the organization and align it with the industry’s leading operators.
- On a Non-GAAP basis, Cash SG&A expenses (which exclude non-cash expenses, such as bad debt expense, stock-based compensation, depreciation, and amortization) were approximately $8.4 million, compared to $13.6 million in the prior year period.
- On a GAAP basis, net loss was approximately $5.0 million, compared to approximately $44.4 million in the prior year period. Basic loss per share was $0.04 compared to $0.40 in the prior year period.
- On a Non-GAAP basis, excluding the impact of certain non-recurring charges and gains, net loss for the quarter was $3.1 million, or $0.02 per share, compared to a net loss of $17.5 million, or $0.16 per basic share, in the prior year period.
- Adjusted EBITDA totaled ($0.7) million compared to approximately ($14.8) million in the prior year period. The improvement in adjusted EBITDA was driven by the aforementioned cost reductions.
- Cash was approximately $35.0 million as of February 28, 2021, compared to approximately $10.5 million as of August 31, 2020 and $5.7 million as of November 30, 2020. The sequential increase in cash was driven by the Company’s $40 million equity raise.
Nick Kovacevich, KushCo’s Co-founder, Chairman and Chief Executive Officer, commented: “We are thrilled to have not only achieved meaningful sequential revenue growth in fiscal Q2 2021, but more importantly, to return to generating robust year-over-year revenue growth, as we make further progress on our strategy of aligning deeper with the top MSOs, LPs, and leading brands. In fact, our top 25 customers together made up 77% of our total revenue for the quarter, up from 61% in the prior year period, demonstrating our success in deepening our relationships with these elite customers who are continuing to rapidly scale and consolidate the industry.
“During the quarter, we secured another long-term supply contract with a leading operator, and continued to build momentum in securing contracts for our stainless steel tanks with 38 total contracts executed as of April 2021, compared to just above 20 contracts at the start of the year. In addition, we are starting to recognize meaningful revenue from our custom packaging projects, as these products come online after months of collaboration with our customers to enhance their brand and differentiate their offering.
“Revenue for fiscal Q2 2021 would have been even higher than $32.9 million, but we did continue to experience the temporary and uncontrollable shipping delays we experienced in fiscal Q1, due primarily to record shipments to U.S. ports and COVID-19 restrictions. As a reminder, these delays have impacted virtually all importers of goods, and continued to increase freight costs, putting pressure on our gross margins. Fortunately, we are starting to see the delays slowly clear up. In the meantime, we are doing the best we can to preserve margins while still getting products to our customers on time. Cash SG&A for the quarter increased due to higher professional fees and costs related to opening our new California warehouse, which represents the last major leg of our warehouse consolidation strategy that we expect will generate more than $1 million in annual cost savings. Overall, we are very pleased with our progress and growth during the quarter, despite these temporary challenges.
“Looking ahead, we remain encouraged by the rapid pace of new states legalizing cannabis, as seen earlier this year by Virginia, and more recently, New York. These catalysts, along with meaningful momentum for cannabis reform at the federal level, coincide nicely with our anticipated strategic merger with Greenlane, which once closed, will position us well to capitalize on macro tailwinds through our enhanced scale, differentiated customer offering, and significant cross-selling opportunities. Due to the pending merger, which we expect to close in late second quarter or early third quarter of calendar 2021, we are retracting our net revenue and adjusted EBITDA guidance for fiscal 2021. That being said, we could not be more excited for the attractive opportunities that lie ahead, as we join forces with another industry pioneer to create the leading ancillary cannabis products and services company.”
Fiscal 2021 Financial Outlook
As a result of the pending merger between KushCo and Greenlane, which is expected to close in late second quarter or early third quarter of calendar 2021, the Company is retracting its net revenue guidance for fiscal 2021 of between $130 million to $160 million, originally issued on January 11, 2021. The Company is also retracting its expectation for adjusted EBITDA for the fiscal year to be between $5.0 million and $7.0 million.
Conference Call Information
The company will host a conference call on Thursday, April 8, 2021 at 4:30 PM Eastern Time.
Date: Thursday, April 8, 2021
Time: 4:30 p.m. Eastern time (1:30 p.m. Pacific time)
Toll-free Number: 1-877-407-9124
International Number: 1-201-689-8584
Webcast Link: Here
KushCo management will host the conference call and presentation followed by a question and answer session. The call will be webcast with an accompanying slide deck, which can be accessed by visiting the Financial Results page of the Company’s investor relations website.
All interested parties are invited to listen to the live conference call and presentation by dialing the number above or by clicking the webcast link available on the Financial Results page of the Company’s investor relations website.
Please visit the website at least 15 minutes prior to the call to register, download, and install any necessary audio software. An operator will register your name and organization. If you have any difficulty connecting with the conference call or webcast, please contact KushCo’s investor relations at email@example.com or 714-539-7653.
A replay of the call will be available on the Financial Results page of the Company’s investor relations website approximately two hours after the conference call has ended.