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Cree Reports Financial Results for the Third Quarter of Fiscal Year 2019
DURHAM, N.C.–(BUSINESS WIRE)–Cree, Inc. (Nasdaq: CREE) today announced financial results for its
third quarter of fiscal 2019, ended March 31, 2019. Revenue from
continuing operations for the third quarter of fiscal 2019 was $274
million, which represents a 22% increase compared to revenue from
continuing operations of $225 million for the third quarter of fiscal
2018. GAAP net loss from continuing operations for the third quarter of
fiscal 2019 was $22 million, or $0.22 per diluted share. This compares
to a GAAP net loss from continuing operations of $10 million, or $0.10
per diluted share for the third quarter of fiscal 2018. On a non-GAAP
basis, net income from continuing operations for the third quarter of
fiscal 2019 was $20 million, or $0.20 per diluted share, compared to
non-GAAP net income from continuing operations for the third quarter of
fiscal 2018 of $17 million, or $0.17 per diluted share.
As previously announced, on March 14, 2019, Cree executed a definitive
agreement to sell the Lighting Products business to IDEAL Industries,
Inc. (IDEAL). As a result, the results of the Lighting Products business
have been classified as discontinued operations in the consolidated
statements of (loss) income for all periods presented. Additionally, the
related assets and liabilities associated with the discontinued
operations are classified as held for sale in the consolidated balance
sheets. Unless otherwise noted, discussions herein relate to the
Company’s continuing operations. The transaction is expected to close by
the end of Cree’s fiscal year 2019, subject to customary closing
conditions and governmental approvals. The parties received early
termination of the waiting period under the Hart-Scott-Rodino Act in
April 2019.
“Our Wolfspeed business continued to post strong performance in the
third quarter, which helped drive non-GAAP earnings per share above the
top end of our range,” said Cree CEO Gregg Lowe. “We are also very
pleased to have recorded gross margin improvements across the business
while addressing some softness within our LED business. We are well
positioned to meet the growing demand for next generation silicon
carbide solutions over the next five years that support a variety of
mega trends including the auto industry’s transition to electric
vehicles and the rapid deployment of faster 5G wireless networks.”
Business Outlook:
For its fourth quarter of fiscal 2019 ending June 30, 2019, Cree targets
revenue from continuing operations in a range of $263 million to $271
million. GAAP net loss from continuing operations is targeted at $19
million to $24 million, or $0.18 to $0.23 per diluted share. Non-GAAP
net income from continuing operations is targeted to be in a range of
$12 million to $17 million, or $0.12 to $0.16 earnings per diluted
share. Targeted non-GAAP income from continuing operations excludes $36
million of estimated expenses, net of tax, related to stock-based
compensation expense, the amortization of debt issuance costs and
discount, costs associated with corporate restructuring, interest
accretion on our convertible notes’ issue costs and fair value
adjustments, and transaction-related costs. The GAAP and non-GAAP
targets from continuing operations do not include any estimated change
in the fair value of Cree’s Lextar investment.
Quarterly Conference Call:
Cree will host a conference call at 5:00 p.m. Eastern time today to
review the highlights of the fiscal 2019 third quarter results and the
fiscal 2019 fourth quarter business outlook, including significant
factors and assumptions underlying the targets noted above.
The conference call will be available to the public through a live audio
web broadcast via the internet. For webcast details, visit Cree’s
website at investor.cree.com/events.cfm.
Supplemental financial information, including the non-GAAP
reconciliation attached to this press release, is available on Cree’s
website at investor.cree.com/results.cfm.
About Cree, Inc.
Cree is an innovator of Wolfspeed® power and radio frequency
(RF) semiconductors and lighting class LEDs. Cree’s Wolfspeed product
families include SiC materials, power-switching devices and RF devices
targeted for applications such as electric vehicles, fast charging
inverters, power supplies, telecom and military and aerospace. Cree’s
LED product families include blue and green LED chips, high-brightness
LEDs and lighting-class power LEDs targeted for indoor and outdoor
lighting, video displays, transportation and specialty lighting
applications.
For additional product and Company information, please refer to www.cree.com.
Non-GAAP Financial Measures:
This press release highlights the Company’s financial results on both a
GAAP and a non-GAAP basis. The GAAP results include certain costs,
charges and expenses that are excluded from non-GAAP results. By
publishing the non-GAAP measures, management intends to provide
investors with additional information to further analyze the Company’s
performance, core results and underlying trends. Cree’s management
evaluates results and makes operating decisions using both GAAP and
non-GAAP measures included in this press release. Non-GAAP results are
not prepared in accordance with GAAP and non-GAAP information should be
considered a supplement to, and not a substitute for, financial
statements prepared in accordance with GAAP. Investors and potential
investors are encouraged to review the reconciliation of non-GAAP
financial measures to their most directly comparable GAAP measures
attached to this press release.
Forward Looking Statements:
The schedules attached to this release are an integral part of the
release. This press release contains forward-looking statements
involving risks and uncertainties, both known and unknown, that may
cause Cree’s actual results to differ materially from those indicated in
the forward-looking statements. Forward-looking statements by their
nature address matters that are, to different degrees, uncertain, such
as statements about the anticipated benefits of the transaction and
future financial and operating results. Actual results, including with
respect to our ability to complete the Cree Lighting Products business
unit divestiture transaction on time or at all, our plans to grow the
Wolfspeed business and our ability to achieve our targets for the fourth
quarter of fiscal 2019, could differ materially due to a number of
factors, including risks associated with divestiture transactions
generally, including the inability to obtain, or delays in obtaining,
required regulatory approvals; issues, delays or complications in
completing required carve-out activities to allow Cree Lighting to
operate on a stand-alone basis after the closing, including incurring
unanticipated costs to complete such activities; risks associated with
integration or transition of the operations, systems and personnel of
Cree Lighting, each, as applicable, within the term of the post-closing
transition services agreement between IDEAL and Cree; unfavorable
reaction to the sale by customers, competitors, suppliers and employees;
the risk that costs associated with the transaction will be greater than
we expect; the risk that we may not obtain sufficient orders to achieve
our targeted revenues; price competition in key markets; the risk that
we or our channel partners are not able to develop and expand customer
bases and accurately anticipate demand from end customers, which can
result in increased inventory and reduced orders as we experience wide
fluctuations in supply and demand; the risk that we may experience
production difficulties that preclude us from shipping sufficient
quantities to meet customer orders or that result in higher production
costs and lower margins; our ability to lower costs; the risk that our
results will suffer if we are unable to balance fluctuations in customer
demand and capacity, including bringing on additional capacity on a
timely basis to meet customer demand; the risk that longer manufacturing
lead times may cause customers to fulfill their orders with a
competitor’s products instead; the risk that the economic and political
uncertainty caused by the already imposed and proposed tariffs by the
United States on Chinese goods, and corresponding Chinese tariffs in
response, may negatively impact demand for our products; product mix;
risks associated with the ramp-up of production of our new products, and
our entry into new business channels different from those in which we
have historically operated; the risk that customers do not maintain
their favorable perception of our brand and products, resulting in lower
demand for our products; the risk that our products fail to perform or
fail to meet customer requirements or expectations, resulting in
significant additional costs, including costs associated with warranty
returns or the potential recall of our products; ongoing uncertainty in
global economic conditions, infrastructure development or customer
demand that could negatively affect product demand, collectability of
receivables and other related matters as consumers and businesses may
defer purchases or payments, or default on payments; risks resulting
from the concentration of our business among few customers, including
the risk that customers may reduce or cancel orders or fail to honor
purchase commitments; the risk that our investments may experience
periods of significant stock price volatility causing us to recognize
fair value losses on our investment; the risk posed by managing an
increasingly complex supply chain that has the ability to supply a
sufficient quantity of raw materials, subsystems and finished products
with the required specifications and quality; the risk we may be
required to record a significant charge to earnings if our remaining
goodwill or amortizable assets become impaired; risks relating to
confidential information theft or misuse, including through
cyber-attacks or cyber intrusion; our ability to complete development
and commercialization of products under development, such as our
pipeline of Wolfspeed products, improved LED chips and LED components;
the rapid development of new technology and competing products that may
impair demand or render our products obsolete; the potential lack of
customer acceptance for our products; risks associated with ongoing
litigation; and other factors discussed in our filings with the
Securities and Exchange Commission (SEC), including our report on Form
10-K for the fiscal year ended June 24, 2018, and subsequent reports
filed with the SEC. These forward-looking statements represent Cree’s
judgment as of the date of this release. Except as required under the
U.S. federal securities laws and the rules and regulations of the SEC,
Cree disclaims any intent or obligation to update any forward-looking
statements after the date of this release, whether as a result of new
information, future events, developments, changes in assumptions or
otherwise.
Cree® and Wolfspeed® are registered trademarks of
Cree, Inc.
CREE, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME (in thousands, except per share amounts and percentages) |
||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, |
March 25, |
March 31, |
March 25, |
|||||||||||||
Revenue, net | $274,050 | $225,200 | $828,729 | $659,128 | ||||||||||||
Cost of revenue, net | 173,596 | 150,337 | 526,444 | 445,198 | ||||||||||||
Gross profit | 100,454 | 74,863 | 302,285 | 213,930 | ||||||||||||
Gross margin percentage | 36.7 | % | 33.2 | % | 36.5 | % | 32.5 | % | ||||||||
Operating expenses: | ||||||||||||||||
Research and development | 40,722 | 31,144 | 117,235 | 95,184 | ||||||||||||
Sales, general and administrative | 61,626 | 46,631 | 157,937 | 128,743 | ||||||||||||
Amortization or impairment of acquisition-related intangibles | 3,906 | 1,516 | 11,717 | 3,224 | ||||||||||||
Loss on disposal and impairment of other assets | 5,286 | 1,112 | 5,708 | 6,940 | ||||||||||||
Total operating expenses | 111,540 | 80,403 | 292,597 | 234,091 | ||||||||||||
Operating (loss) income | (11,086 | ) | (5,540 | ) | 9,688 | (20,161 | ) | |||||||||
Operating (loss) income percentage | (4.0 | )% | (2.5 | )% | 1.2 | % | (3.1 | )% | ||||||||
Non-operating (expense) income, net | (8,440 | ) | (10,000 | ) | (23,695 | ) | 14,942 | |||||||||
Loss before income taxes | (19,526 | ) | (15,540 | ) | (14,007 | ) | (5,219 | ) | ||||||||
Income tax expense (benefit) | 2,785 | (5,377 | ) | 9,252 | (17,633 | ) | ||||||||||
Net (loss) income from continuing operations | (22,311 | ) | (10,163 | ) | (23,259 | ) | 12,414 | |||||||||
Loss from discontinued operations, net of tax | (205,420 | ) | (230,370 | ) | (218,085 | ) | (259,067 | ) | ||||||||
Net loss | (227,731 | ) | (240,533 | ) | (241,344 | ) | (246,653 | ) | ||||||||
Net income attributable to non-controlling interest | 121 | 44 | 23 | 59 | ||||||||||||
Net loss attributable to controlling interest | ($227,852 | ) | ($240,577 | ) | ($241,367 | ) | ($246,712 | ) | ||||||||
Diluted (loss) income per share for continuing operations | ($0.22 | ) | ($0.10 | ) | ($0.23 | ) | $0.12 | |||||||||
Shares used in diluted per share calculation | 103,659 | 100,140 | 102,807 | 100,672 | ||||||||||||
CREE, INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except par value) |
||||||||
March 31, |
June 24, |
|||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash, cash equivalents, and short-term investments | $789,268 | $387,085 | ||||||
Accounts receivable, net | 150,390 | 86,398 | ||||||
Income tax receivable | 489 | 2,256 | ||||||
Inventories | 172,793 | 151,636 | ||||||
Prepaid expenses | 19,201 | 24,521 | ||||||
Other current assets | 25,916 | 12,921 | ||||||
Current assets held for sale | 340,782 | 225,544 | ||||||
Total current assets | 1,498,839 | 890,361 | ||||||
Property and equipment, net | 607,659 | 589,073 | ||||||
Goodwill | 530,004 | 530,004 | ||||||
Intangible assets, net | 203,016 | 215,815 | ||||||
Other long-term investments | 44,122 | 57,501 | ||||||
Deferred income taxes | 9,958 | 5,766 | ||||||
Other assets | 5,559 | 11,604 | ||||||
Long-term assets held for sale | — | 337,692 | ||||||
Total assets | $2,899,157 | $2,637,816 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable, trade | $111,203 | $105,354 | ||||||
Accrued salaries and wages | 63,361 | 41,877 | ||||||
Income taxes payable | 1,701 | — | ||||||
Accrued contract liabilities | 47,328 | — | ||||||
Other current liabilities | 20,472 | 19,280 | ||||||
Current liabilities held for sale | 90,355 | 82,053 | ||||||
Total current liabilities | 334,420 | 248,564 | ||||||
Long-term liabilities: | ||||||||
Long-term debt | — | 292,000 | ||||||
Convertible notes, net | 463,491 | — | ||||||
Deferred income taxes | 5,878 | 3,148 | ||||||
Other long-term liabilities | 29,453 | 518 | ||||||
Long-term liabilities held for sale | — | 21,505 | ||||||
Total long-term liabilities | 498,822 | 317,171 | ||||||
Shareholders’ equity: | ||||||||
Common stock | 131 | 127 | ||||||
Additional paid-in-capital | 2,772,042 | 2,549,123 | ||||||
Accumulated other comprehensive income, net of taxes | 2,554 | 596 | ||||||
Accumulated deficit | (713,780 | ) | (482,710 | ) | ||||
Total shareholders’ equity | 2,060,947 | 2,067,136 | ||||||
Non-controlling interest | 4,968 | 4,945 | ||||||
Total liabilities and equity | $2,899,157 | $2,637,816 | ||||||
CREE, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS |
||||||||
Nine Months Ended | ||||||||
March 31, |
March 25, |
|||||||
(In thousands) | ||||||||
Cash flows from operating activities: | ||||||||
Net loss | ($241,344 | ) | ($246,653 | ) | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization | 116,256 | 113,244 | ||||||
Amortization of debt issuance costs and discount | 12,687 | — | ||||||
Stock-based compensation | 40,497 | 33,319 | ||||||
Impairment charges | 197,580 | 247,455 | ||||||
Loss on disposal or impairment of long-lived assets | 2,842 | 8,803 | ||||||
Amortization of premium/discount on investments | 2,113 | 3,943 | ||||||
Loss (gain) on equity investment | 12,443 | (7,510 | ) | |||||
Foreign exchange loss (gain) on equity investment | 936 | (2,543 | ) | |||||
Deferred income taxes | (1,655 | ) | (49,875 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable, net | (56,339 | ) | 5,728 | |||||
Inventories | (19,237 | ) | (4,640 | ) | ||||
Prepaid expenses and other assets | 3,517 | 2,041 | ||||||
Accounts payable, trade | 6,590 | 15,328 | ||||||
Accrued salaries and wages and other liabilities | 110,083 | 6,783 | ||||||
Net cash provided by operating activities | 186,969 | 125,423 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (106,522 | ) | (128,433 | ) | ||||
Purchases of patent and licensing rights | (9,148 | ) | (7,913 | ) | ||||
Proceeds from sale of property and equipment | 286 | 538 | ||||||
Purchases of short-term investments | (251,676 | ) | (174,623 | ) | ||||
Proceeds from maturities of short-term investments | 146,368 | 166,771 | ||||||
Proceeds from sale of short-term investments | 28,185 | 176,981 | ||||||
Purchase of acquired business, net of cash acquired | — | (427,120 | ) | |||||
Net cash used in investing activities | (192,507 | ) | (393,799 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from issuing shares to non-controlling interest | — | 4,900 | ||||||
Payment of acquisition-related contingent consideration | — | (1,850 | ) | |||||
Proceeds from long-term debt borrowings | 95,000 | 555,000 | ||||||
Payments on long-term debt borrowings | (387,000 | ) | (384,000 | ) | ||||
Proceeds from convertible notes | 575,000 | — | ||||||
Payments of debt issuance costs | (12,938 | ) | — | |||||
Net proceeds from issuance of common stock | 72,948 | 62,240 | ||||||
Net cash provided by financing activities | 343,010 | 236,290 | ||||||
Effects of foreign exchange changes on cash and cash equivalents | (239 | ) | 715 | |||||
Net increase (decrease) in cash and cash equivalents | 337,233 | (31,371 | ) | |||||
Cash and cash equivalents: | ||||||||
Beginning of period | 118,924 | 132,597 | ||||||
End of period | $456,157 | $101,226 | ||||||
Supplemental disclosure of cash flow information: | ||||||||
Significant non-cash transactions: | ||||||||
Accrued property and equipment | $15,247 | $19,275 | ||||||
CREE, INC.
UNAUDITED FINANCIAL RESULTS BY OPERATING
SEGMENT
(in thousands, except percentages)
The following table reflects the results of the Company’s reportable
segments as reviewed by the Company’s Chief Executive Officer, its Chief
Operating Decision Maker or CODM, for the three and nine months ended
March 31, 2019 and the three and nine months ended March 25, 2018. The
CODM does not review inter-segment transactions when evaluating segment
performance and allocating resources to each segment. As such, total
segment revenue is equal to the Company’s consolidated revenue.
Three Months Ended | ||||||||||||||||
March 31, |
March 25, |
Change | ||||||||||||||
Wolfspeed revenue | $141,253 | $81,902 | $59,351 | 72 | % | |||||||||||
Percent of revenue |
51.5 |
% |
36.4 |
% |
||||||||||||
LED Products revenue | 132,797 | 143,298 |
(10,501 |
) |
(7 |
)% |
||||||||||
Percent of revenue |
48.5 |
% |
63.6 |
% |
||||||||||||
Total revenue | $274,050 | $225,200 | $48,850 | 22 | % | |||||||||||
Nine Months Ended | ||||||||||||||||
March 31, |
March 25, |
Change | ||||||||||||||
Wolfspeed revenue | $403,958 | $218,628 | $185,330 | 85 | % | |||||||||||
Percent of revenue |
48.7 |
% |
33.2 |
% |
||||||||||||
LED Products revenue | 424,771 | 440,500 |
(15,729 |
) |
(4 |
)% |
||||||||||
Percent of revenue |
51.3 |
% |
66.8 |
% |
||||||||||||
Total revenue | $828,729 | $659,128 | $169,601 | 26 | % | |||||||||||
Three Months Ended | ||||||||||||||||
March 31, |
March 25, |
Change | ||||||||||||||
Wolfspeed gross profit | $68,851 | $39,285 | $29,566 | 75 | % | |||||||||||
Wolfspeed gross margin | 48.7 | % | 48.0 | % | ||||||||||||
LED Products gross profit | 36,982 | 37,764 | (782 | ) | (2 | )% | ||||||||||
LED Products gross margin | 27.8 | % | 26.4 | % | ||||||||||||
Unallocated costs | (3,938 | ) | (2,186 | ) | (1,752 | ) | (80 | )% | ||||||||
COGS acquisition related costs | (1,441 | ) | — |
(1,441 |
) |
(100 | )% | |||||||||
Consolidated gross profit | $100,454 | $74,863 | $25,591 | 34 | % | |||||||||||
Consolidated gross margin | 36.7 | % | 33.2 | % | ||||||||||||
Nine Months Ended | ||||||||||||||||
March 31, |
March 25, |
Change | ||||||||||||||
Wolfspeed gross profit | $193,947 | $105,816 | $88,131 | 83 | % | |||||||||||
Wolfspeed gross margin | 48.0 | % | 48.4 | % | ||||||||||||
LED Products gross profit | 121,787 | 115,180 | 6,607 | 6 | % | |||||||||||
LED Products gross margin | 28.7 | % | 26.1 | % | ||||||||||||
Unallocated costs | (10,782 | ) | (7,066 | ) | (3,716 | ) | (53 | )% | ||||||||
COGS acquisition related costs | (2,667 | ) | — | (2,667 | ) | (100 | )% | |||||||||
Consolidated gross profit | $302,285 | $213,930 | $88,355 | 41 | % | |||||||||||
Consolidated gross margin | 36.5 | % | 32.5 | % | ||||||||||||
Reportable Segments Description
The Company’s Wolfspeed segment’s products consists of silicon carbide
(SiC) and gallium nitride (GaN) materials, and power devices and RF
devices based on silicon (Si) and wide bandgap semiconductor materials.
The Company’s LED Products segment’s products include LED chips and LED
components.
Financial Results by Reportable Segment
The Company’s CODM reviews gross profit as the lowest and only level of
segment profit. As such, all items below gross profit in the
consolidated statements of loss must be included to reconcile the
consolidated gross profit presented in the preceding table to the
Company’s consolidated loss before taxes.
The Company allocates direct costs and indirect costs to each segment’s
cost of revenue. The allocation methodology is based on a reasonable
measure of utilization considering the specific facts and circumstances
of the costs being allocated.
Certain costs are not allocated when evaluating segment performance.
These unallocated costs consist primarily of manufacturing employees’
stock-based compensation, expenses for profit sharing and quarterly or
annual incentive plans, and matching contributions under the Company’s
401(k) Plan.
The cost of goods sold (COGS) acquisition related cost adjustment
includes RF Power acquisition costs impacting cost of revenue for fiscal
2019. These costs were not allocated to the reportable segments’ gross
profit for fiscal 2019 because they represent an adjustment which does
not provide comparability to the corresponding prior period and
therefore were not reviewed by the Company’s CODM when evaluating
segment performance and allocating resources.
Non-GAAP Measures of Financial Performance
To supplement the Company’s consolidated financial statements presented
in accordance with generally accepted accounting principles, or GAAP,
Cree uses non-GAAP measures of certain components of financial
performance. These non-GAAP measures include non-GAAP gross margin,
non-GAAP operating income, non-GAAP non-operating income, net, non-GAAP
net income, non-GAAP diluted earnings per share and free cash flow.
Reconciliation to the nearest GAAP measure of all historical non-GAAP
measures included in this press release can be found in the tables
included with this press release. In this press release, Cree also
presents its target for non-GAAP expenses, which are expenses less
expenses in the various categories described below. Both our GAAP
targets and non-GAAP targets do not include any estimated changes in the
fair value of our Lextar investment.
Non-GAAP measures presented in this press release are not in accordance
with or an alternative to measures prepared in accordance with GAAP and
may be different from non-GAAP measures used by other companies. In
addition, these non-GAAP measures are not based on any comprehensive set
of accounting rules or principles. Non-GAAP measures have limitations in
that they do not reflect all of the amounts associated with Cree’s
results of operations as determined in accordance with GAAP. These
non-GAAP measures should only be used to evaluate Cree’s results of
operations in conjunction with the corresponding GAAP measures.
Cree believes that these non-GAAP measures, when shown in conjunction
with the corresponding GAAP measures, enhance investors’ and
management’s overall understanding of the Company’s current financial
performance and the Company’s prospects for the future, including cash
flows available to pursue opportunities to enhance shareholder value. In
addition, because Cree has historically reported certain non-GAAP
results to investors, the Company believes the inclusion of non-GAAP
measures provides consistency in the Company’s financial reporting.
For its internal budgeting process, and as discussed further below,
Cree’s management uses financial statements that do not include the
items listed below and the income tax effects associated with the
foregoing. Cree’s management also uses non-GAAP measures, in addition to
the corresponding GAAP measures, in reviewing the Company’s financial
results.
Cree excludes the following items from one or more of its non-GAAP
measures when applicable:
Stock-based compensation expense. This expense consists of
expenses for stock options, restricted stock, performance stock awards
and employee stock purchases through its ESPP. Cree excludes stock-based
compensation expenses from its non-GAAP measures because they are
non-cash expenses that Cree does not believe are reflective of ongoing
operating results.
Contacts
Tyler Gronbach
Cree, Inc.
Vice President, Investor Relations
Phone:
919-407-4820
[email protected]
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Cannabis
Rubicon Organics Reports Q1 2024 Financial Results
SCHWAZZE
Schwazze Announces First Quarter 2024 Financial Results
Schwazze Management to Host Conference Call Today at 5:00 p.m. Eastern Time
DENVER, May 15, 2024 /PRNewswire/ — Medicine Man Technologies, Inc., operating as Schwazze, (OTCQX: SHWZ) (Cboe CA: SHWZ) (“Schwazze” or the “Company”), today announced financial and operational results for the first quarter ended March 31, 2024.
“We delivered another period of revenue growth in Q1 as we further refined our retail strategy while contending with the prolonged competitive challenges in Colorado and New Mexico,” said Forrest Hoffmaster, Interim CEO of Schwazze. “Throughout the quarter, we continued to sharpen our pricing and promotional efforts while enhancing the in-store experience, widening assortment, improving in-stock position, and advancing our loyalty program to attract and retain new customers. We also strengthened our wholesale business with quarter-over-quarter growth, while surpassing 30% total door penetration across both states.”
“The Colorado market remains highly competitive with more than 680 active recreational licenses, underscoring the importance of delivering an exceptional customer experience and fully integrated retail support program. Although retail pricing has recently stabilized, Colorado sales in Q1 were down 10% year-over-year due to lower volumes. Nonetheless, we significantly outpaced the market as our sales were up 9%, demonstrating the effectiveness of our operating playbook to compete in challenging environments. We expect to continue driving improvements in customer acquisition, retention, and loyalty as we further increase market share in the state.”
“In New Mexico, the proliferation of new licenses continued to outpace state cannabis sales as store count in Q1 increased 31% year-over-year while the market grew only 13%. In addition to pricing and promotional efforts, we’ve focused on driving traffic into our stores by expanding assortment with high quality flower and delivering an elevated customer experience. The New Mexico regulatory body has also increased its license enforcement efforts in recent months, contributing to more than 70 store closures and a 33% sequential decrease in net new store openings in the first quarter. We will continue to support the New Mexico Cannabis Control Division as it develops its regulatory framework.”
“Over the past four years we have rapidly scaled our footprint through 13 acquisitions, building a leading retail presence in both Colorado and New Mexico. We are beginning to see positive momentum from our pricing and promotional strategy and will remain focused on driving operating efficiencies while further optimizing our assets as we consolidate cultivation facilities and eliminate underperforming stores that do not meet our high-margin thresholds. We believe these initiatives, coupled with our operating playbook and strict cost controls, will enable us to return to stronger levels of profitability moving forward.”
First Quarter 2024 Financial Summary
$ in Thousands USD |
Q1 2024 |
Q4 2023 |
Q1 2023 |
Total Revenue |
$41,601 |
$43,325 |
$40,001 |
Gross Profit |
$17,934 |
$7,034[1] |
$21,849 |
Operating Expenses |
$20,643 |
$23,276 |
$16,199 |
Income (Loss) from Operations |
$(2,709) |
$(16,242) |
$5,650 |
Adjusted EBITDA[2] |
$7,341 |
$10,953 |
$14,525 |
Operating Cash Flow |
$(3,700) |
$3,452 |
$(880) |
Recent Highlights
- Announced the grand opening of a medical and recreational dispensary in March under the Everest Apothecary banner in Las Cruces, New Mexico, increasing the Company’s retail footprint to 34 stores across the state.
- Increased wholesale penetration in the first quarter to more than 30% of total doors in Colorado and New Mexico.
- Lowell Herb Co. pre-roll sales increased more than 3x quarter-over-quarter in Colorado, where it continues to be the #1 pre-roll in the state.
- Wana gummy sales up more than 2x quarter-over-quarter in New Mexico.
First Quarter 2024 Financial Results
Total revenue in the first quarter of 2024 increased 4% to $41.6 million compared to $40.0 million for the same quarter last year. The increase was primarily due to growth from new stores compared to the prior year period, partially offset by continued pricing pressure and the proliferation of new licenses in New Mexico.
Gross profit for the first quarter of 2024 was $17.9 million or 43.1% of total revenue, compared to $21.8 million or 54.6% of total revenue for the same quarter last year. The decrease in gross margin was primarily driven by the aforementioned pricing pressure in New Mexico, as well as higher medical sales mix in Colorado.
____________________________ |
1 Q4 2023 Gross Profit includes one-time, non-cash inventory adjustments of approximately $13.1 million comprised of $3.1 million of product consolidation, obsolescence, and shrinkage expenses, $4.3 million of net realizable value adjustments, and $5.8 million of fair value adjustments on acquired inventory in New Mexico in 2023. |
Operating expenses for the first quarter of 2024 were $20.6 million compared to $16.2 million for the same quarter last year. The year-ago period benefitted from a payroll tax credit of $3.9M. The remaining increase was primarily driven by personnel expenses and four-wall SG&A costs associated with 21 additional stores in Colorado and New Mexico that are still ramping.
Loss from operations for the first quarter of 2024 was $2.7 million compared to income from operations of $5.6 million in the same quarter last year. Net loss was $16.1 million for the first quarter of 2024 compared to net income of $1.7 million for the same quarter last year.
Adjusted EBITDA for the first quarter of 2024 was $7.3 million compared to $14.5 million for the same quarter last year. The decrease in Adjusted EBITDA was primarily driven by lower gross margin and higher operating expenses associated with the 21 additional stores that are still ramping.
As of March 31, 2024, cash and cash equivalents were $13.2 million compared to $19.2 million on December 31, 2023. Total debt as of March 31, 2024, was $159.7 million compared to $156.8 million on December 31, 2023.
Conference Call
The Company will conduct a conference call today, May 15, 2024, at 5:00 p.m. Eastern time to discuss its results for the first quarter ended March 31, 2024.
Schwazze management will host the conference call, followed by a question-and-answer period. Interested parties may submit questions to the Company prior to the call by emailing [email protected].
Date: Wednesday, May 15, 2024
Time: 5:00 p.m. Eastern time
Toll-free dial-in: (888) 664-6383
International dial-in: (416) 764-8650
Conference ID: 84167910
Webcast: SHWZ Q1 2024 Earnings Call
The conference call will also be broadcast live and available for replay on the investor relations section of the Company’s website at https://ir.schwazze.com.
Toll-free replay number: (888) 390-0541
International replay number: (416) 764-8677
Replay ID: 167910
If you have any difficulty registering or connecting with the conference call, please contact Elevate IR at (720) 330-2829.
About Schwazze
Schwazze (OTCQX: SHWZ) (Cboe CA: SHWZ) is building a premier vertically integrated regional cannabis company with assets in Colorado and New Mexico and will continue to explore taking its operating system to other states where it can develop a differentiated regional leadership position. Schwazze is the parent company of a portfolio of leading cannabis businesses and brands spanning seed to sale.
Schwazze is anchored by a high-performance culture that combines customer-centric thinking and data science to test, measure, and drive decisions and outcomes. The Company’s leadership team has deep expertise in retailing, wholesaling, and building consumer brands at Fortune 500 companies as well as in the cannabis sector.
Medicine Man Technologies, Inc. was Schwazze’s former operating trade name. The corporate entity continues to be named Medicine Man Technologies, Inc. Schwazze derives its name from the pruning technique of a cannabis plant to enhance plant structure and promote healthy growth. To learn more about Schwazze, visit https://schwazze.com/.
Forward-Looking Statements
This press release contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include financial outlooks; any projections of net sales, earnings, or other financial items; any statements of the strategies, plans and objectives of our management team for future operations; expectations in connection with the Company’s previously announced business plans; any statements regarding future economic conditions or performance; and statements regarding the intent, belief or current expectations of our management team. Such statements may be preceded by the words “may,” “will,” “could,” “would,” “should,” “expect,” “intends,” “plans,” “strategy,” “prospects,” “anticipate,” “believe,” “approximately,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” or the negative of these terms or other words of similar meaning in connection with a discussion of future events or future operating or financial performance, although the absence of these words does not necessarily mean that a statement is not forward-looking. We have based our forward-looking statements on management’s current expectations and assumptions about future events and trends affecting our business and industry. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. Therefore, forward-looking statements are not guarantees of future events or performance, are based on certain assumptions, and are subject to various known and unknown risks and uncertainties, many of which are beyond the Company’s control and cannot be predicted or quantified. Consequently, actual events and results may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include, without limitation, risks and uncertainties associated with (i) regulatory limitations on our products and services and the uncertainty in the application of federal, state, and local laws to our business, and any changes in such laws; (ii) our ability to manufacture our products and product candidates on a commercial scale on our own or in collaboration with third parties; (iii) our ability to identify, consummate, and integrate anticipated acquisitions; (iv) general industry and economic conditions; (v) our ability to access adequate capital upon terms and conditions that are acceptable to us; (vi) our ability to pay interest and principal on outstanding debt when due; (vii) volatility in credit and market conditions; (viii) the loss of one or more key executives or other key employees; and (ix) other risks and uncertainties related to the cannabis market and our business strategy. More detailed information about the Company and the risk factors that may affect the realization of forward-looking statements is set forth in the Company’s filings with the Securities and Exchange Commission (SEC), including the Company’s Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q. Investors and security holders are urged to read these documents free of charge on the SEC’s website at http://www.sec.gov. The Company assumes no obligation to publicly update or revise its forward-looking statements as a result of new information, future events or otherwise except as required by law.
Investor Relations Contact
Sean Mansouri, CFA or Aaron D’Souza
Elevate IR
(720) 330-2829
[email protected]
MEDICINE MAN TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
For the Periods Ended March 31, 2024 and December 31, 2023
Expressed in U.S. Dollars
March 31, |
December 31, |
||||
2024 |
2023 |
||||
ASSETS
|
|||||
Current Assets |
|||||
Cash & Cash Equivalents |
$ |
13,151,317 |
$ |
19,248,932 |
|
Accounts Receivable, net of Allowance for Doubtful Accounts |
3,356,032 |
4,261,159 |
|||
Inventory |
26,382,184 |
25,787,793 |
|||
Marketable Securities, net of Unrealized Loss of $347,516 and Loss of $1,816, respectively |
108,583 |
456,099 |
|||
Prepaid Expenses & Other Current Assets |
3,502,310 |
3,914,064 |
|||
Total Current Assets |
46,500,426 |
53,668,047 |
|||
Non-Current Assets |
|||||
Fixed Assets, net Accumulated Depreciation of $10,061,700 and $8,741,782, respectively |
31,326,000 |
31,113,630 |
|||
Investments |
2,000,000 |
2,000,000 |
|||
Investments Held for Sale |
– |
202,111 |
|||
Goodwill |
67,492,705 |
67,499,199 |
|||
Intangible Assets, net Accumulated Amortization of $36,483,160 and $32,706,765, respectively |
162,391,482 |
166,167,877 |
|||
Other Non-Current Assets |
1,328,187 |
1,263,837 |
|||
Operating Lease Right of Use Assets |
34,575,832 |
34,233,142 |
|||
Deferred Tax Assets, net |
992,144 |
1,996,489 |
|||
Total Non-Current Assets |
300,106,350 |
304,476,285 |
|||
Total Assets |
$ |
346,606,776 |
$ |
358,144,332 |
|
LIABILITIES & STOCKHOLDERS’ EQUITY
|
|||||
Current Liabilities |
|||||
Accounts Payable |
$ |
9,443,233 |
$ |
13,341,561 |
|
Accrued Expenses |
8,106,618 |
7,774,691 |
|||
Derivative Liabilities |
1,319,845 |
638,020 |
|||
Lease Liabilities – Current |
5,186,316 |
4,922,724 |
|||
Current Portion of Long Term Debt |
29,579,713 |
3,547,011 |
|||
Income Taxes Payable |
28,235,039 |
25,232,782 |
|||
Total Current Liabilities |
81,870,764 |
55,456,789 |
|||
Non-Current Liabilities |
|||||
Long Term Debt, net of Debt Discount & Issuance Costs |
130,120,753 |
153,262,203 |
|||
Lease Liabilities – Non-Current |
30,735,072 |
30,133,452 |
|||
Total Non-Current Liabilities |
160,855,825 |
183,395,655 |
|||
Total Liabilities |
$ |
242,726,589 |
$ |
238,852,444 |
|
Stockholders’ Equity |
|||||
Preferred Stock, $0.001 Par Value. 10,000,000 Shares Authorized; 82,185 Shares Issued and |
|||||
82,185 Outstanding as of March 31, 2024 and 85,534 Shares Issued and 85,534 Outstanding as of |
|||||
December 31, 2023. |
82 |
86 |
|||
Common Stock, $0.001 Par Value. 250,000,000 Shares Authorized; 79,168,539 Shares Issued |
|||||
and 78,248,389 Shares Outstanding as of March 31, 2024 and 74,888,392 Shares Issued |
|||||
and 73,968,242 Shares Outstanding as of December 31, 2023. |
79,169 |
74,888 |
|||
Additional Paid-In Capital |
202,677,665 |
202,040,968 |
|||
Accumulated Deficit |
(96,843,602) |
(80,790,927) |
|||
Common Stock Held in Treasury, at Cost, 920,150 Shares Held as of March 31, 2024 and |
|||||
920,150 Shares Held as of December 31, 2023. |
(2,033,127) |
(2,033,127) |
|||
Total Stockholders’ Equity |
103,880,187 |
119,291,888 |
|||
Total Liabilities & Stockholders’ Equity |
$ |
346,606,776 |
$ |
358,144,332 |
MEDICINE MAN TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND (LOSS)
For the Periods Ended March 31, 2024 and 2023
Expressed in U.S. Dollars
For the Three Months Ended |
|||||
March 31, |
|||||
2024 |
2023 |
||||
(Unaudited) |
(Unaudited) |
||||
Operating Revenues |
|||||
Retail |
$ |
37,633,252 |
$ |
35,820,111 |
|
Wholesale |
3,898,320 |
4,058,925 |
|||
Other |
69,421 |
121,900 |
|||
Total Revenue |
41,600,993 |
40,000,936 |
|||
Total Cost of Goods & Services |
23,667,319 |
18,152,163 |
|||
Gross Profit |
17,933,674 |
21,848,773 |
|||
Operating Expenses |
|||||
Selling, General and Administrative Expenses |
11,835,818 |
10,100,934 |
|||
Professional Services |
1,671,881 |
1,187,364 |
|||
Salaries |
6,880,988 |
4,695,971 |
|||
Stock Based Compensation |
253,916 |
214,544 |
|||
Total Operating Expenses |
20,642,603 |
16,198,813 |
|||
Income from Operations |
(2,708,929) |
5,649,960 |
|||
Other Income (Expense) |
|||||
Interest Expense, net |
(8,307,369) |
(7,745,854) |
|||
Unrealized Gain (Loss) on Derivative Liabilities |
(681,825) |
8,501,685 |
|||
Other Loss |
10,500 |
– |
|||
Loss on Investment |
(33,382) |
– |
|||
Unrealized Gain on Investment |
(347,516) |
1,816 |
|||
Total Other Income (Expense) |
(9,359,592) |
757,647 |
|||
Pre-Tax Net Income (Loss) |
(12,068,521) |
6,407,607 |
|||
Provision for Income Taxes |
3,984,154 |
4,662,178 |
|||
Net Income (Loss) |
$ |
(16,052,675) |
$ |
1,745,429 |
|
Less: Accumulated Preferred Stock Dividends for the Period |
(2,155,259) |
(2,029,394) |
|||
Net Income (Loss) Attributable to Common Stockholders |
$ |
(18,207,934) |
$ |
(283,965) |
|
Earnings (Loss) per Share Attributable to Common Stockholders |
|||||
Basic Earnings (Loss) per Share |
$ |
(0.24) |
$ |
(0.01) |
|
Diluted Earnings (Loss) per Share |
$ |
(0.24) |
$ |
(0.06) |
|
Weighted Average Number of Shares Outstanding – Basic |
76,006,932 |
55,835,501 |
|||
Weighted Average Number of Shares Outstanding – Diluted |
76,006,932 |
101,608,278 |
|||
Comprehensive Income (Loss) |
$ |
(16,052,675) |
$ |
1,745,429 |
MEDICINE MAN TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Periods Ended March 31, 2024 and 2023
Expressed in U.S. Dollars
For the Three Months Ended |
|||||
March 31, |
|||||
2024 |
2023 |
||||
(Unaudited) |
(Unaudited) |
||||
Cash Flows from Operating Activities: |
|||||
Net Income (Loss) for the Period |
$ |
(16,052,675) |
$ |
1,745,429 |
|
Adjustments to Reconcile Net Income (Loss) to Cash for Operating Activities |
|||||
Depreciation & Amortization |
5,096,314 |
6,151,395 |
|||
Non-Cash Interest Expense |
1,031,431 |
991,184 |
|||
Non-Cash Lease Expense |
2,871,226 |
2,251,459 |
|||
Deferred Taxes |
1,004,345 |
(637,225) |
|||
Loss on Investment |
202,111 |
– |
|||
Change in Derivative Liabilities |
681,825 |
(8,501,685) |
|||
Amortization of Debt Issuance Costs |
421,512 |
421,513 |
|||
Amortization of Debt Discount |
2,303,246 |
1,999,933 |
|||
(Gain) Loss on Investments, net |
347,516 |
(1,816) |
|||
Stock Based Compensation |
640,974 |
214,544 |
|||
Changes in Operating Assets & Liabilities (net of Acquired Amounts): |
|||||
Accounts Receivable |
905,127 |
(118,181) |
|||
Inventory |
(587,900) |
(3,023,251) |
|||
Prepaid Expenses & Other Current Assets |
411,754 |
(3,036,801) |
|||
Other Assets |
(64,350) |
360,674 |
|||
Change in Operating Lease Liabilities |
(2,348,703) |
(1,531,765) |
|||
Accounts Payable & Other Liabilities |
(3,566,401) |
(3,464,671) |
|||
Income Taxes Payable |
3,002,257 |
5,299,403 |
|||
Net Cash Provided by (Used in) Operating Activities |
(3,700,390) |
(879,861) |
|||
Cash Flows from Investing Activities: |
|||||
Collection of Notes Receivable |
– |
10,631 |
|||
Purchase of Fixed Assets |
(1,532,287) |
(2,913,394) |
|||
Net Cash Provided by (Used in) Investing Activities |
(1,532,287) |
(2,902,763) |
|||
Cash Flows from Financing Activities: |
|||||
Payment on Notes Payable |
(864,938) |
– |
|||
Net Cash Provided by (Used in) Financing Activities |
(864,938) |
– |
|||
Net (Decrease) in Cash & Cash Equivalents |
(6,097,615) |
(3,782,624) |
|||
Cash & Cash Equivalents at Beginning of Period |
19,248,932 |
38,949,253 |
|||
Cash & Cash Equivalents at End of Period |
$ |
13,151,317 |
$ |
35,166,628 |
|
Supplemental Disclosure of Cash Flow Information: |
|||||
Cash Paid for Interest |
$ |
4,515,205 |
$ |
6,540,748 |
MEDICINE MAN TECHNOLOGIES, INC.
ADJUSTED EBITDA RECONCILIATION (NON-GAAP)
For the Periods Ended March 31, 2024 and 2023
Expressed in U.S. Dollars
For the Three Months Ended |
|||||
March 31, |
|||||
2024 |
2023 |
||||
Net Income (Loss) |
$ |
(16,052,675) |
$ |
1,745,429 |
|
Interest Expense, net |
8,307,369 |
7,745,854 |
|||
Provision for Income Taxes |
3,984,154 |
4,662,178 |
|||
Other (Income) Expense, net of Interest Expense |
1,052,223 |
(8,503,501) |
|||
Depreciation & Amortization |
5,618,834 |
6,612,814 |
|||
Earnings Before Interest, Taxes, Depreciation and |
|||||
Amortization (EBITDA) (non-GAAP) |
$ |
2,909,905 |
$ |
12,262,774 |
|
Non-Cash Stock Compensation |
253,916 |
214,544 |
|||
Deal Related Expenses |
637,761 |
1,195,802 |
|||
Capital Raise Related Expenses |
20,760 |
35,068 |
|||
Severance |
484,561 |
118,436 |
|||
Retention Program Expenses |
807,500 |
280,632 |
|||
Pre-Operating & Dark Carry Expenses |
1,053,837 |
391,917 |
|||
One-Time Legal Settlements |
417,653 |
– |
|||
Other Non-Recurring Items |
754,751 |
25,707 |
|||
Adjusted EBITDA (non-GAAP) |
$ |
7,340,644 |
$ |
14,524,880 |
|
Revenue |
41,600,993 |
40,000,936 |
|||
Adjusted EBITDA Percent |
17.6 % |
36.3 % |
View original content:https://www.prnewswire.co.uk/news-releases/schwazze-announces-first-quarter-2024-financial-results-302146858.html
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