Revenue Increases 27% Year-over-Year to $28.3 Million, Driven By Continued Success in Penetrating Top MSOs, LPs, and Leading Brands
CYPRESS, CA / ACCESSWIRE / July 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 third quarter ended May 31, 2021.
Recent Operational and Financial Highlights
- Announced special shareholder meeting date of August 26, 2021 at 12:00 p.m., Eastern Time to approve transformative merger with Greenlane Holdings, Inc. (Nasdaq: GNLN) (“Greenlane”), which is expected to create the leading ancillary cannabis company and house of brands.
- Achieved revenue of $28.3 million, or 27% year-over-year growth, in fiscal Q3 2021, driven by increased sales to the Company’s top 25 customers, including leading multi-state operators (“MSOs”) and licensed producers (“LPs”).
- Announced dismissal of federal shareholder class action and derivative suit.
- Opened new 130,000 square foot West Coast warehouse in Moreno Valley, California, as part of the Company’s warehouse consolidation strategy to reap an aggregate of $1.3 million in annual cost savings.
- Raised $40 million in equity capital in February 2021, and used a portion of the proceeds to retire senior unsecured term debt.
Fiscal Third Quarter 2021 Financial Summary
- Net revenue increased 27% from the prior year period to $28.3 million, primarily as a result of an increase in sales to the Company’s existing MSO and LP customers, as well as securing new MSO customers, as part of the Company’s continued strategy to align with the industry’s leading operators.
- On a GAAP basis, gross profit was 15%, compared to 11% in the prior year period. The increase in gross profit percentage was due primarily to excess and obsolete (E&O) inventory charges of $2.1 million and prepaid inventory write-offs of $1.0 million in the prior year period, resulting from the Company’s introduction of a comprehensive strategic plan to right-size the organization and align it with the industry’s leading operators (the “2020 Plan”). The increase was partially offset by a decrease in direct material margins.
- On a Non-GAAP basis, excluding the impact of certain non-recurring items, gross profit was approximately 20% (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 28% in the prior year period.
- SG&A expenses were approximately $9.1 million, compared to $12.7 million in the prior year period. The decrease was primarily driven by reductions in headcount, bad debt expense, consulting spend, and stock compensation expenses, largely as a result of the COVID-19 pandemic and the Company’s implementation of the 2020 Plan.
- 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 $7.1 million, compared to $7.7 million in the prior year period.
- On a GAAP basis, net loss was approximately $8.0 million, compared to approximately $13.5 million in the prior year period. Basic loss per share was $0.05 compared to $0.11 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 $3.2 million, or $0.02 per share, compared to a net loss of $5.5 million, or $0.05 per basic share, in the prior year period.
- Adjusted EBITDA totaled ($1.1) million compared to approximately ($2.7) million in the prior year period. The improvement in adjusted EBITDA was primarily driven by higher revenue and the aforementioned cost reductions.
- Cash was approximately $1.1 million as of May 31, 2021, compared to approximately $35.0 million as of February 28, 2021. The sequential decrease in cash was primarily driven by the Company using a portion of its proceeds from its $40 million equity raise in February 2021 to pay off its $17 million term debt and existing balance on its revolving line of credit. As of May 31, 2021, the Company had $0.7 million of total debt outstanding.
Management Commentary
Nick Kovacevich, KushCo’s Co-founder, Chairman and Chief Executive Officer, commented: “Fiscal Q3 represented another major step forward for KushCo, as we achieved our second consecutive quarter of year-over-year growth with $28.3 million in revenue, which was up 27% from the prior year period. More importantly, sales to our top 25 customers, which include many of the industry’s top MSOs, LPs, and leading brands, was up by more than 60% year-over-year, as we continue to penetrate these customers and secure new ones. Not only are our sales to these customers continuing to grow, but the quality of the customers we are serving is also continuing to improve, putting us in a strong position to capitalize on the industry’s next stage of growth-one which we believe will be dominated by the elite operators who have shown successful track records of scaling, acquiring, and integrating.
“Our gross margins for fiscal Q3 continued to reflect the uncontrollable shipping delays we, and other importers of goods, have been experiencing for the past couple of quarters. Even though the situation has somewhat improved since the end of 2020-where there were record-breaking shipments during the holiday season, severe COVID-19-related restrictions at domestic ports, and a global shortage of containers-a significant percentage of all products coming from overseas continue to experience delays, resulting in higher freight costs across the board. In addition, we experienced lower direct material margins on several of our products, as we cycle through higher priced inventory and continue to work with our vendors to obtain more favorable pricing. While we expect these dynamics to persist for the next couple of quarters, we are pleased to have been able to control the variables we can control, including our costs. Cash SG&A for the quarter was $7.1 million, representing one of the lowest levels in recent quarters, as we continue to operate with fiscal prudence amidst an ever-evolving macro landscape.
“Looking ahead, we are excited to move closer toward consummating our merger with Greenlane and creating the industry’s leading ancillary cannabis company and house of brands. One of the final milestones left is obtaining the requisite approval from our stockholders to approve the merger. We strongly encourage all stockholders to make their voices heard and vote their shares by following the instructions included in the proxy materials that are being delivered to them. We are thrilled by the prospects of joining forces with Greenlane and generating significant value for our stockholders by creating enhanced financial scale and a platform for profitable growth, capitalizing on significant expected cost savings, cross-selling Greenlane’s proprietary owned brands to our customers and vice versa, and uplisting to Nasdaq, among many other benefits we expect to reap from the combined company.”
Conference Call Information
The company will host a conference call on Thursday, July 8, 2021 at 4:30 PM Eastern Time.
Date: Thursday, July 8, 2021
Time: 4:30 p.m. Eastern time (1:30 p.m. Pacific time)
Toll-free Number: 877-407-9124
International Number: 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 ir@kushco.com or 714-539-7653.
KuahA 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.
