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Ellington Financial Inc. Reports First Quarter 2019 Results
OLD GREENWICH, Conn.–(BUSINESS WIRE)–Ellington Financial Inc. (NYSE: EFC) (“Ellington Financial” or the
“Company”) today reported financial results for the quarter ended
March 31, 2019.
Highlights
- Net income of $15.4 million, or $0.52 per basic and diluted share.
-
Book value per share as of March 31, 2019 of $18.90, including the
effect of dividends of $0.55 per share, which included the Company’s
final quarterly dividend of $0.41 per share and its first monthly
dividend of $0.14 per share. -
Credit strategy gross income of $16.5 million for the quarter, or
$0.54 per share. -
Agency strategy gross income of $5.4 million for the quarter, or $0.18
per share. - Core Earnings1 of $13.3 million, or $0.45 per share.
-
Dividend yield of 9.3% based on the May 6, 2019 closing stock price of
$18.08 per share. -
Debt-to-equity ratio of 3.39:12 and total recourse
debt-to-equity ratio of 2.63:13 as of March 31, 2019. -
Announced that the Company intends to be taxed as a REIT for U.S.
federal income tax purposes for tax year 2019, and announced the
conversion of the Company to a corporation under Delaware law.
1 Core Earnings is a non-GAAP financial measure. See “Reconciliation of Net Income (Loss) to Core Earnings” below for an explanation regarding the calculation of Core Earnings. |
2 Excludes repo borrowings on U.S. Treasury securities. |
3 Includes borrowings at certain unconsolidated entities that are recourse to the Company. |
First Quarter 2019 Results
“During the quarter, our first quarter as a REIT, Ellington Financial
grew net income and generated Core Earnings in excess of our newly
increased dividend run rate of $0.42 per quarter,” stated Laurence Penn,
Chief Executive Officer and President. “We had excellent results from
our diversified credit and Agency portfolios, and produced an annualized
economic return of 11.7%.
“We continued to benefit from the excellent performance of our
residential non-performing loans, small-balance commercial mortgage
loans, non-QM loans, and consumer loans. Our Agency portfolio also
performed very well this quarter. In addition, we successfully executed
on several notable transactions during the quarter, including a
securitization of re-performing Irish residential loans, and the fourth
Ellington-sponsored CLO, which was upsized due to strong investor
demand. At the same time, we participated in the asset ramp-up for two
additional planned CLOs, one in the U.S. and one in Europe.
“Also this quarter, we shifted to a monthly dividend, while at the same
time increasing our annualized dividend by 2.4%, reflecting the steady
growth of our net interest income and overall earnings power. Given that
we have always reported our book value on a monthly basis, we believe
that our shift to a monthly dividend was a natural one, and will further
enhance performance transparency. We believe that this will not only
benefit our existing shareholders, but increase the breadth of our
investor base as well.
“The year is off to a great start, and we believe that our performance
over the past several quarters demonstrates Ellington Financial’s
ability to generate strong and steady returns in a diversity of market
environments, including periods of volatility and of stability, rising
and falling interest rates, and widening and tightening yield spreads.
We attribute our consistent performance to our rigorous asset selection
and steady investment pipelines, which have resulted in a diversified
and high-yielding portfolio, and our commitment to protecting book
value, including through the use of dynamic and disciplined hedging
strategies.”
Corporate Structure Update
The Company intends to elect to be taxed as a REIT for U.S. federal
income tax purposes for the taxable year ending December 31, 2019. To
facilitate this election, the Company has elected to be taxed as a
corporation for U.S. federal income tax purposes effective as of January
1, 2019. The Company has also converted to a corporation under Delaware
law. In March 2019, the Company issued a final Schedule K-1 to those
shareholders who held shares in 2018. For 2019, the Company will issue a
Form 1099 to shareholders, reporting all dividends paid.
Financial Results
During the quarter, the Company continued to rotate capital from
non-REIT-qualifying assets to REIT-qualifying assets. As a result of
these efforts, the Agency RMBS portfolio grew significantly, while the
composition of the overall credit portfolio shifted somewhat,
highlighted by net purchases of small balance commercial mortgage loans,
non-QM loans, and residential transition loans, and net sales of UK
non-conforming RMBS and CLOs. The Company’s total long credit portfolio4
was $1.195 billion as of March 31, 2019, which was up slightly from
$1.185 billion as of December 31, 2018. The Company’s total long Agency
RMBS portfolio was $1.144 billion as of March 31, 2019, an increase of
approximately 17% from $975 million as of December 31, 2018. The Company
continues to see attractive risk-adjusted return opportunities in both
credit and Agency strategies.
The Company’s debt-to-equity ratio2 increased to 3.39:1 as of
March 31, 2019, from 3.35:1 as of December 31, 2018. In addition, as of
March 31, 2019 the Company had approximately $145.4 million of net
unsettled Agency RMBS purchases; had the anticipated financings of these
investments been included in borrowings as of March 31, 2019, the
Company’s debt-to-equity ratio2 would have been approximately
3.62:1.
During the first quarter, the Company’s credit strategy generated total
gross income of $16.5 million, or $0.54 per share, and its Agency
strategy generated total gross income of $5.4 million, or $0.18 per
share.
The Company’s credit portfolio continues to be the primary driver of its
earnings. Steady growth in the net interest income of this portfolio was
a key contributor to the Company’s strong first quarter results, along
with tighter yield spreads in many credit sectors and gains from
securitizations. During the first quarter, the Company’s credit strategy
generated net interest income5 of $18.2 million, net realized
and unrealized gains on credit assets of $7.4 million, net realized and
unrealized losses on interest rate hedges of $(0.8) million, net
realized and unrealized losses of $(6.6) million on credit hedges and
other activities, and other investment related expenses of $3.5 million.
The Company also had $1.8 million in earnings from investments in
unconsolidated entities. The Company’s strongest-performing credit
strategies for the quarter included residential non-performing loans,
retained tranches in Ellington-sponsored CLOs, European RMBS, and CMBS.
In addition, the Company continued to benefit from excellent performance
in small-balance commercial mortgage loans, non-QM loans, and consumer
loans. Investments in loan originators underperformed during the quarter.
The Company also benefited from excellent performance in its Agency RMBS
portfolio during the quarter. Declining interest rates and tightening
yield spreads on many Agency RMBS generated net realized and unrealized
gains of $13.3 million, while net interest income6 totaled
$1.6 million. Additionally, outperformance of specified pools compared
to TBAs, in the form of higher pay-ups for specified pools, also
contributed to results, as the Company continued to concentrate its long
investments in specified pools, as opposed to TBAs. Pay-ups are price
premiums for specified pools relative to their TBA counterparts.
Increasing prepayment expectations related to declining mortgage rates
were the key drivers of the expansion in specified pool pay-ups. Average
pay-ups on the Company’s specified pools increased to 0.94% as of March
31, 2019, from 0.64% as of December 31, 2018. Meanwhile, declining
interest rates during the quarter led to net realized and unrealized
losses of $(9.5) million on the Company’s interest rate hedges.
4 Includes REO at the lower of cost or fair value. Excludes hedges and other derivative positions, as well as tranches of the Company’s consolidated non-QM securitization trusts that were sold to third parties, but that are consolidated for GAAP reporting purposes. Including such tranches, the Company’s total long credit portfolio was $1.473 billion and $1.480 billion, as of March 31, 2019 and December 31, 2018, respectively. |
5 Excludes any interest income and interest expense items from Interest rate hedges, net and Credit hedges and other activities, net. |
6 Excludes any interest income and interest expense items from Interest rate hedges and other activities, net. |
The following table summarizes the Company’s investment portfolio(1)
holdings as of March 31, 2019:
(In thousands) | Fair Value | |||||
Long: | ||||||
Credit: | ||||||
Dollar Denominated: | ||||||
CLO(2) | $ | 98,497 | ||||
CMBS | 29,995 | |||||
Commercial Mortgage Loans and REO(3)(4) | 277,947 | |||||
Consumer Loans and ABS backed by Consumer Loans(2) | 218,027 | |||||
Corporate Debt and Equity | 3,867 | |||||
Equity Investments in Loan Origination Entities | 34,849 | |||||
Non-Agency RMBS | 130,372 | |||||
Residential Mortgage Loans and REO(3) | 584,779 | |||||
Non-Dollar Denominated: | ||||||
CLO(2) | 4,332 | |||||
CMBS | 3,198 | |||||
Consumer Loans and ABS backed by Consumer Loans | 770 | |||||
Corporate Debt and Equity | 3,335 | |||||
RMBS(5) | 82,846 | |||||
Agency: | ||||||
Fixed-Rate Specified Pools | 1,019,982 | |||||
Floating-Rate Specified Pools | 9,460 | |||||
IOs | 25,428 | |||||
Reverse Mortgage Pools | 89,345 | |||||
Government Debt: | ||||||
Dollar Denominated | 16,601 | |||||
Total Long | $ | 2,633,630 | ||||
Short: | ||||||
Credit: | ||||||
Dollar Denominated: | ||||||
Corporate Debt and Equity | $ | (4,441 | ) | |||
Government Debt: | ||||||
Dollar Denominated | (2,910 | ) | ||||
Non-Dollar Denominated | (18,861 | ) | ||||
Total Short | $ | (26,212 | ) | |||
(1) | This information does not include financial derivatives. | |
(2) | Includes equity investment in securitization-related vehicles. | |
(3) |
REO is not considered a financial instrument and as a result is included at the lower of cost or fair value. |
|
(4) |
Includes equity investments in a limited liability companies holding small balance commercial mortgage loans and REO. |
|
(5) |
Includes European RMBS secured by non-performing loans and REO, |
|
The following table summarizes the Company’s operating results for the
quarter ended March 31, 2019:
Three-Month |
Per Share |
% of Average |
|||||||||||||
(In thousands, except per share amounts) | |||||||||||||||
Credit: | |||||||||||||||
Interest income and other income(1) | $ | 29,409 | $ | 0.97 | 4.95 | % | |||||||||
Realized gain (loss), net | (4,299 | ) | (0.14 | ) | (0.72 | )% | |||||||||
Unrealized gain (loss), net | 11,713 | 0.38 | 1.97 | % | |||||||||||
Interest rate hedges, net(2) | (822 | ) | (0.03 | ) | (0.14 | )% | |||||||||
Credit hedges and other activities, net(3) | (6,556 | ) | (0.22 | ) | (1.10 | )% | |||||||||
Interest expense(4) | (11,246 | ) | (0.37 | ) | (1.89 | )% | |||||||||
Other investment related expenses | (3,476 | ) | (0.11 | ) | (0.59 | )% | |||||||||
Earnings from investments in unconsolidated entities | 1,797 | 0.06 | 0.30 | % | |||||||||||
Total Credit profit (loss) | 16,520 | 0.54 | 2.78 | % | |||||||||||
Agency RMBS: | |||||||||||||||
Interest income | 7,562 | 0.25 | 1.27 | % | |||||||||||
Realized gain (loss), net | (967 | ) | (0.03 | ) | (0.16 | )% | |||||||||
Unrealized gain (loss), net | 14,227 | 0.47 | 2.39 | % | |||||||||||
Interest rate hedges and other activities, net(2) | (9,484 | ) | (0.31 | ) | (1.59 | )% | |||||||||
Interest expense | (5,981 | ) | (0.20 | ) | (1.01 | )% | |||||||||
Total Agency RMBS profit (loss) | 5,357 | 0.18 | 0.90 | % | |||||||||||
Total Credit and Agency RMBS profit (loss) | 21,877 | 0.72 | 3.68 | % | |||||||||||
Other interest income (expense), net | 346 | 0.01 | 0.06 | % | |||||||||||
Other expenses | (5,735 | ) | (0.19 | ) | (0.97 | )% | |||||||||
Net income (loss) (before incentive fee) | 16,488 | 0.54 | 2.77 | % | |||||||||||
Incentive fee | — | — | — | % | |||||||||||
Net income (loss) | $ | 16,488 | $ | 0.54 | 2.77 | % | |||||||||
Less: Net income (loss) attributable to non-controlling interests | 1,080 | ||||||||||||||
Net income (loss) attributable to common stockholders(5) | $ | 15,408 | $ | 0.52 | 2.73 | % | |||||||||
Weighted average shares and convertible |
|||||||||||||||
units(6) outstanding |
30,481 | ||||||||||||||
Average equity (includes non-controlling interests)(7) | $ | 594,206 | |||||||||||||
Weighted average shares outstanding(8) | 29,748 | ||||||||||||||
Average stockholders’ equity (excludes non-controlling interests)(7) | $ | 563,492 | |||||||||||||
(1) |
Other income primarily consists of rental income on real estate owned and loan origination fees. |
|
(2) | Includes U.S. Treasury securities, if applicable. | |
(3) |
Includes equity and other relative value trading strategies and related hedges and net realized and unrealized gains (losses) on foreign currency. |
|
(4) | Includes interest expense on the Company’s Senior Notes. | |
(5) |
Per share information is calculated using weighted average common shares outstanding. Percentage of average equity is calculated using average stockholders’ equity, which excludes non-controlling interests. |
|
(6) |
Convertible units include Operating Partnership units attributable to non-controlling interests. |
|
(7) |
Average equity and average stockholders’ equity are calculated using month end values. |
|
(8) |
Excludes Operating Partnership units attributable to non-controlling interests. |
|
About Ellington Financial
Ellington Financial invests in a diverse array of financial assets,
including residential and commercial mortgage-backed securities,
residential and commercial mortgage loans, consumer loans and
asset-backed securities backed by consumer loans, collateralized loan
obligations, non-mortgage and mortgage-related derivatives, equity
investments in loan origination companies, and other strategic
investments. Ellington Financial is externally managed and advised by
Ellington Financial Management LLC, an affiliate of Ellington Management
Group, L.L.C.
Conference Call
The Company will host a conference call at 12:00 p.m. Eastern Time on
Wednesday, May 8, 2019, to discuss its financial results for the quarter
ended March 31, 2019. To participate in the event by telephone, please
dial (877) 241-1233 at least 10 minutes prior to the start time and
reference the conference ID number 9295259. International callers should
dial (810) 740-4657 and reference the same conference ID number. The
conference call will also be webcast live over the Internet and can be
accessed via the “For Our Shareholders” section of the Company’s web
site at www.ellingtonfinancial.com.
To listen to the live webcast, please visit www.ellingtonfinancial.com
at least 15 minutes prior to the start of the call to register,
download, and install necessary audio software. In connection with the
release of these financial results, the Company also posted an investor
presentation, that will accompany the conference call, on its website at www.ellingtonfinancial.com
under “For Our Shareholders—Presentations.”
A dial-in replay of the conference call will be available on Wednesday,
May 8, 2019, at approximately 3 p.m. Eastern Time through Wednesday,
May 22, 2019 at approximately 11:59 p.m. Eastern Time. To access this
replay, please dial (800) 585-8367 and enter the conference ID number
9295259. International callers should dial (404) 537-3406 and enter the
same conference ID number. A replay of the conference call will also be
archived on the Company’s web site at www.ellingtonfinancial.com.
Cautionary Statement Regarding Forward-Looking Statements
This press release contains forward-looking statements within the
meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements involve
numerous risks and uncertainties. Actual results may differ from the
Company’s beliefs, expectations, estimates, and projections and,
consequently, you should not rely on these forward-looking statements as
predictions of future events. Forward-looking statements are not
historical in nature and can be identified by words such as “believe,”
“expect,” “anticipate,” “estimate,” “project,” “plan,” “continue,”
“intend,” “should,” “would,” “could,” “goal,” “objective,” “will,”
“may,” “seek,” or similar expressions or their negative forms, or by
references to strategy, plans, or intentions. Examples of
forward-looking statements in this press release include without
limitation management’s beliefs regarding the current economic and
investment environment and the Company’s ability to implement its
investment and hedging strategies, performance of the Company’s
investment and hedging strategies, the Company’s exposure to prepayment
risk in its Agency portfolio, statements regarding the drivers of the
Company’s returns, statements regarding the Company’s planned REIT tax
election, and statements regarding the Company’s intended dividend
policy. The Company’s results can fluctuate from month to month and from
quarter to quarter depending on a variety of factors, some of which are
beyond the Company’s control and/or are difficult to predict, including,
without limitation, changes in interest rates and the market value of
the Company’s securities, changes in mortgage default rates and
prepayment rates, the Company’s ability to borrow to finance its assets,
changes in government regulations affecting the Company’s business, the
Company’s ability to maintain its exclusion from registration under the
Investment Company Act of 1940; the Company’s ability to qualify and
maintain its qualification as a real estate investment trust, or “REIT”;
and other changes in market conditions and economic trends. Furthermore,
forward-looking statements are subject to risks and uncertainties,
including, among other things, those described under Item 1A of the
Company’s Annual Report on Form 10-K filed on March 14, 2019 which can
be accessed through the Company’s website at www.ellingtonfinancial.com
or at the SEC’s website (www.sec.gov).
Other risks, uncertainties, and factors that could cause actual results
to differ materially from those projected or implied may be described
from time to time in reports the Company’s files with the SEC, including
reports on Forms 10-Q, 10-K and 8-K. The Company undertakes no
obligation to update or revise any forward-looking statements, whether
as a result of new information, future events, or otherwise.
ELLINGTON FINANCIAL INC. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) |
||||||
Three-Month |
||||||
(In thousands, except per share amounts) | ||||||
NET INTEREST INCOME | ||||||
Interest income | $ | 36,016 | ||||
Interest expense | (17,618 | ) | ||||
Total net interest income | 18,398 | |||||
Other Income (Loss) | ||||||
Realized gains (losses) on securities and loans, net | (5,322 | ) | ||||
Realized gains (losses) on financial derivatives, net | (11,570 | ) | ||||
Realized gains (losses) on real estate owned, net | (58 | ) | ||||
Unrealized gains (losses) on securities and loans, net | 26,388 | |||||
Unrealized gains (losses) on financial derivatives, net | (5,689 | ) | ||||
Unrealized gains (losses) on real estate owned, net | (247 | ) | ||||
Other, net | 2,002 | |||||
Total other income (loss) | 5,504 | |||||
EXPENSES | ||||||
Base management fee to affiliate (Net of fee rebates of $447) | 1,722 | |||||
Investment related expenses: | ||||||
Servicing expense | 2,393 | |||||
Other | 1,083 | |||||
Professional fees | 1,956 | |||||
Compensation expense | 1,072 | |||||
Other expenses | 985 | |||||
Total expenses | 9,211 | |||||
Net Income (Loss) before Earnings from equity method investments | 14,691 | |||||
Earnings from investments in unconsolidated entities | 1,797 | |||||
Net Income (Loss) | 16,488 | |||||
Net Income (Loss) Attributable to Non-Controlling Interests | 1,080 | |||||
Net Income (Loss) Attributable to Common Stockholders | $ | 15,408 | ||||
Net Income (Loss) per Common Share: | ||||||
Basic and Diluted | $ | 0.52 | ||||
Weighted average shares outstanding | 29,748 | |||||
Weighted average shares and convertible units outstanding | 30,481 | |||||
ELLINGTON FINANCIAL INC. CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) |
||||||
As of | ||||||
(In thousands, except share amounts) | March 31, 2019 | |||||
ASSETS | ||||||
Cash and cash equivalents | $ | 55,876 | ||||
Restricted cash | 175 | |||||
Securities, at fair value | 1,529,485 | |||||
Loans, at fair value | 1,014,990 | |||||
Investments in unconsolidated entities, at fair value | 58,152 | |||||
Real estate owned | 31,003 | |||||
Financial derivatives–assets, at fair value | 15,356 | |||||
Reverse repurchase agreements | 25,381 | |||||
Due from brokers | 58,145 | |||||
Investment related receivables | 78,223 | |||||
Other assets | 3,779 | |||||
Total Assets | $ | 2,870,565 | ||||
LIABILITIES | ||||||
Securities sold short, at fair value | $ | 26,212 | ||||
Repurchase agreements | 1,550,016 | |||||
Financial derivatives–liabilities, at fair value | 26,904 | |||||
Due to brokers | 4,820 | |||||
Investment related payables | 168,211 | |||||
Other secured borrowings | 117,315 | |||||
Other secured borrowings, at fair value | 282,124 | |||||
Senior notes, net | 85,100 | |||||
Accounts payable and accrued expenses | 6,167 | |||||
Base management fee payable to affiliate | 1,722 | |||||
Dividend payable | 4,267 | |||||
Interest payable | 4,995 | |||||
Other liabilities | 278 | |||||
Total Liabilities | 2,278,131 | |||||
EQUITY | ||||||
Common stock, par value $0.001 per share, 100,000,000 shares |
||||||
29,745,776 shares issued and outstanding |
30 | |||||
Additional paid-in-capital | 664,654 | |||||
Retained earnings (accumulated deficit) | (102,475 | ) | ||||
Total Stockholders’ Equity | 562,209 | |||||
Non-controlling interests | 30,225 | |||||
Total Equity | 592,434 | |||||
TOTAL LIABILITIES AND EQUITY | $ | 2,870,565 | ||||
PER SHARE INFORMATION: | ||||||
Common stock | $ | 18.90 | ||||
Reconciliation of Net Income (Loss) to Core Earnings
The Company calculates Core Earnings as U.S. GAAP net income (loss) as
adjusted for: (i) realized and unrealized gain (loss) on investments,
REO, financial derivatives (excluding net accrued periodic (payments)
receipts on interest rate swaps), other secured borrowings, at fair
value, and foreign currency transactions; (ii) incentive fee to
affiliate; (iii) Catch-up Premium Amortization Adjustment (as defined
below); (iv) non-cash equity compensation expense; (v) miscellaneous
non-recurring expenses; (vi) provision for income taxes; and (vii)
certain other income or loss items that are of a non-recurring nature.
For certain investments in unconsolidated entities, the Company includes
the relevant net operating income in core earnings. The Catch-up Premium
Amortization Adjustment is a quarterly adjustment to premium
amortization triggered by changes in actual and projected prepayments on
the Company’s Agency RMBS (accompanied by a corresponding offsetting
adjustment to realized and unrealized gains and losses). The adjustment
is calculated as of the beginning of each quarter based on the Company’s
then-current assumptions about cashflows and prepayments, and can vary
significantly from quarter to quarter.
Core Earnings is a supplemental non-GAAP financial measure. The Company
believes that the presentation of Core Earnings provides a consistent
measure of operating performance by excluding the impact of gains and
losses and other adjustments listed above from operating results. The
Company believes that Core Earnings provides information useful to
investors because it is a metric that the Company uses to assess its
performance and to evaluate the effective net yield provided by the
portfolio. In addition, the Company believes that presenting Core
Earnings enables its investors to measure, evaluate, and compare its
operating performance to that of its peers. However, because Core
Earnings is an incomplete measure of the Company’s financial results and
differs from net income (loss) computed in accordance with U.S. GAAP, it
should be considered as supplementary to, and not as a substitute for,
net income (loss) computed in accordance with U.S. GAAP.
The following table provides U.S. GAAP measures of net income (loss) and
details with respect to reconciling the aforementioned line items to
Core Earnings for the three-month period ended March 31, 2019:
(In thousands, except per share amounts) |
Three-Month
Period Ended March 31, 2019 |
|||||
Net income (loss) | $ | 16,488 | ||||
Adjustments: | ||||||
Realized (gains) losses on securities and loans, net | 5,322 | |||||
Realized (gains) losses on financial derivatives, net(1) | 12,289 | |||||
Realized (gains) losses on real estate owned, net | 58 | |||||
Unrealized (gains) losses on securities and loans, net | (26,388 | ) | ||||
Unrealized (gains) losses on financial derivatives, net(2) | 5,414 | |||||
Unrealized (gains) losses on real estate owned, net | 247 | |||||
Other realized and unrealized (gains) losses, net(3) | (386 | ) | ||||
Non-cash equity compensation expense | 116 | |||||
Catch-up Premium Amortization Adjustment | 507 | |||||
Miscellaneous non-recurring expenses(4) | 1,075 | |||||
(Earnings) losses from investments in unconsolidated entities(5) | (364 | ) | ||||
Total Core Earnings | $ | 14,378 | ||||
Core Earnings attributable to non-controlling interests | 1,029 | |||||
Core Earnings Attributable to Common Stockholders | $ | 13,349 | ||||
Core Earnings Attributable to Common Stockholders, per share | $ | 0.45 | ||||
Contacts
Investors:
Ellington Financial
Investor Relations
(203)
409-3575
[email protected]
or
Media:
Amanda
Klein or Kevin FitzGerald
Gasthalter & Co.
for Ellington
Financial
(212) 257-4170
[email protected]
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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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