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Frontdoor Announces First Quarter 2019 Revenue Increase of 10 Percent to $271 Million Gross Profit Margin Improved 150 Basis Points to 47 Percent
MEMPHIS, Tenn.–(BUSINESS WIRE)–Frontdoor, Inc.
(NASDAQ: FTDR), the nation’s leading provider of home service plans,
today announced first-quarter 2019 results.
Financial Results | |||||||||||||
Three Months Ended | |||||||||||||
March 31, | |||||||||||||
$ millions (except as noted) | 2019 | 2018 | Change | ||||||||||
Revenue | $ | 271 | $ | 247 | 10 | % | |||||||
Gross Profit | 128 | 113 | 13 | % | |||||||||
Net Income | 13 | 13 | (3 | )% | |||||||||
Diluted Earnings per Share | 0.15 | 0.16 | (6 | )% | |||||||||
Adjusted Net Income(1) | 16 | 22 | (24 | )% | |||||||||
Adjusted Diluted Earnings per Share(1) | 0.19 | 0.26 | (27 | )% | |||||||||
Adjusted EBITDA(1) | 43 | 32 | 34 | % | |||||||||
Home Service Plans (number in millions) | 2.1 | 2.0 | 5 | % | |||||||||
First-Quarter 2019 Summary
-
Revenue increased 10 percent to $271 million on higher number of
home service plans and improved price realization -
Gross profit margin of 47 percent was 150 basis points higher than
the prior year period due to lower number of claims from favorable
weather and early progress from cost containment and business process
improvement initiatives -
Net income of $13 million was relatively flat compared to prior
year period as greater gross margin contribution and lower Spin-off
charges were offset by higher interest expense and continued
investments in the business -
Adjusted EBITDA of $43 million was up 34 percent over the prior
year period -
Progressed strategic objectives by fully implementing price
increases across all channels, launching Customer Service Central to
enhance the customer service experience and accelerating cost
reduction initiatives -
Completed the secondary equity offering of all remaining shares of
common stock held by ServiceMaster
Full-Year 2019 Outlook
-
Increasing 2019 revenue outlook to $1.36 billion to $1.38 billion
and increasing 2019 Adjusted EBITDA(2)
outlook to $250 million to $260 million
“We advanced a number of our strategic objectives in the first quarter
and I am pleased with the velocity of our operational improvements as we
continue to discover additional opportunities to reduce costs and
improve the customer service experience,” said Chief Executive Officer
Rex Tibbens. “For the balance of 2019, we will look to leverage our
investments in technology and people to further unlock Frontdoor’s full
potential by improving our core home service plan business while
building the foundation for our on-demand services. Frontdoor remains
obsessed with taking the hassle out of owning a home and driving value
for our customers, contractors, and key stakeholders.”
“Our first quarter financial results reflect the benefit of lower claims
costs from both favorable weather and progress from our business process
improvements,” said Chief Financial Officer Brian Turcotte. “While we
expect the weather to revert to more normal seasonal patterns over the
remainder of the year, we are raising our full-year outlook to reflect
the promising trends from our cost reduction initiatives.”
First-Quarter 2019 Results |
|||||||||||||
Revenue by Major Customer Acquisition Channel | |||||||||||||
Three Months Ended | |||||||||||||
March 31, | |||||||||||||
$ millions | 2019 | 2018 | Change | ||||||||||
Renewals | $ | 182 | $ | 162 | 13 | % | |||||||
Real estate (First-Year) | 54 | 53 | 1 | % | |||||||||
Direct-to-consumer (First-Year) | 33 | 31 | 8 | % | |||||||||
Other | 1 | 1 | * | ||||||||||
Total | $ | 271 | $ | 247 | 10 | % | |||||||
* not meaningful |
|||||||||||||
First-quarter 2019 revenue increased 10 percent over the prior year
period. Renewal revenue increased 13 percent as a result of growth in
the number of home service plans and improved price realization. The one
percent increase in real estate revenue reflects improved price
realization and a mix shift to higher priced home service plan
offerings. The eight percent increase in direct-to-consumer revenue
reflects growth in new sales, driven by ongoing investments in
marketing, as well as improved price realization.
First-quarter 2019 net income was $13 million, or diluted earnings per
share of $0.15, versus $13 million in first-quarter 2018, or diluted
earnings per share of $0.16. First-quarter 2019 net income included a
$15 million favorable impact from higher revenue conversion(3),
a 150 basis point increase in gross margin and lower Spin-off charges
versus prior year. These benefits were offset by a $15 million increase
in interest expense related to the debt offering completed in
conjunction with the Spin-off and a $7 million increase in selling and
administrative expenses primarily relating to investments in sales,
marketing and technology.
Period-over-Period Adjusted EBITDA Bridge | ||||||
$ millions | ||||||
Three Months Ended March 31, 2018 | $ | 32 | ||||
Impact of change in revenue(3) | 15 | |||||
Claims costs | 3 | |||||
Sales and marketing costs | (2 | ) | ||||
Spin-off dis-synergies | (2 | ) | ||||
Other | (4 | ) | ||||
Three Months Ended March 31, 2019 | $ | 43 | ||||
First-quarter 2019 Adjusted EBITDA of $43 million was 34 percent higher
than the prior year period, primarily due to the following items:
-
$15 million of higher revenue conversion(3), including the
net contribution from new customers and higher pricing; -
$3 million of lower claims costs, primarily due to favorable weather
as well as cost reduction initiatives which were partially offset by
an increase in the underlying cost of repairs; -
$2 million of increased sales and marketing costs to drive home
service plan growth; -
$2 million of Spin-off dis-synergies, primarily related to the
separation of information technology systems; and -
$4 million of other costs, primarily related to technology-related
investments in the business and higher professional fees, incentive
compensation and bad debt expense.
Cash Flow |
|||||||||||
Three Months Ended | |||||||||||
March 31, | |||||||||||
$ millions | 2019 | 2018 | |||||||||
Net cash provided from (used for): | |||||||||||
Operating Activities | $ | 52 | $ | 49 | |||||||
Investing Activities | (5 | ) | (5 | ) | |||||||
Financing Activities | (2 | ) | (37 | ) | |||||||
Cash increase during the period | $ | 45 | $ | 8 | |||||||
For the three months ended March 31, 2019, net cash provided from
operating activities was $52 million, an increase of $2 million from the
three months ended March 31, 2018. Working capital was a $29 million
source of cash for the three months ended March 31, 2019 compared to $24
million for the prior year period.
Net cash used for investing activities was $5 million for each of the
three months ended March 31, 2019 and 2018.
Net cash used for financing activities was $2 million for the three
months ended March 31, 2019, and was primarily related to debt payments.
This compares to $37 million for the three months ended March 31, 2018,
which was related to net cash transfers to ServiceMaster that occurred
prior to the Spin-off.
Free Cash Flow(1) was $47 million for the three months ended
March 31, 2019 compared to $44 million for the prior year period. The
increase of $3 million includes higher Adjusted EBITDA and positive
working capital contributions that were partially offset by higher cash
payments for interest and taxes.
Cash and marketable securities totaled $348 million as of March 31,
2019, a $42 million increase from December 31, 2018.
Total restricted net assets increased to $197 million at March 31, 2019
from $187 million at December 31, 2018.
Updated Full-Year 2019 Outlook
-
Revenue is now anticipated to range from $1.36 billion to $1.38
billion; - Gross profit margin is now anticipated to be approximately 46 percent;
-
Adjusted EBITDA(2) is now anticipated to range from $250
million to $260 million; -
Capital expenditures remains within a range of $30 million to $40
million; and -
Annual Effective Tax Rate has been updated and is now anticipated to
be approximately 25 percent.
Additionally, second-quarter 2019 Adjusted EBITDA(2) is
anticipated to range from $75 million to $80 million.
First-Quarter 2019 Earnings Conference Call
Frontdoor has scheduled a conference call today, May 8, 2019, at 8:00
a.m. Central time (9:00 a.m. Eastern time). During the call, Rex
Tibbens, Chief Executive Officer, and Brian Turcotte, Chief Financial
Officer, will discuss first-quarter 2019 financial and operating
results. To participate on the conference call, interested parties
should call 877-407-8291 (or international participants, 201-689-8345).
Additionally, the conference call will be available via webcast which
will include a slide presentation highlighting the company’s results. To
participate via webcast and view the slide presentation, visit
Frontdoor’s investor
relations home page. The call will be available for replay for
approximately 90 days. To access the replay of this call, please call
877-660-6853 and enter conference ID 13689612 (international
participants: 201-612-7415, conference ID 13689612).
About Frontdoor
Frontdoor is a company that’s obsessed with taking the hassle out of
owning a home. With services powered by people and enabled by
technology, it is the parent company of four home service plan brands:
American Home Shield, HSA, Landmark and OneGuard. Frontdoor serves more
than two million customers across the U.S. through a network of more
than 16,000 pre-qualified contractor firms that employ over 45,000
technicians. The company’s customizable home service plans help
customers protect and maintain their homes from costly and unexpected
breakdowns of essential home systems and appliances. With more than 45
years of experience, the company responds to over four million service
requests annually (or one request every eight seconds). For details,
visit frontdoorhome.com.
References in this news release to “ServiceMaster” refer to
ServiceMaster Global Holdings, Inc. and its consolidated subsidiaries.
References to the “Spin-off” refer to the spin-off by ServiceMaster of
the ownership and operations of its businesses operated under the
American Home Shield, HSA, OneGuard and Landmark brand names into
Frontdoor, which was completed on October 1, 2018 and resulted in
Frontdoor operating as an independent, publicly traded company trading
on Nasdaq under the symbol “FTDR”.
Forward-Looking Statements
This news release contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, including, in
particular, projected future performance and any statements about
Frontdoor’s plans, strategies and prospects. Forward-looking statements
can be identified by the use of forward-looking terms such as “believe,”
“expect,” “estimate,” “could,” “should,” “intend,” “may,” “plan,”
“seek,” “anticipate,” “project,” “will,” “shall,” “would,” “aim,” or
other comparable terms. These forward-looking statements are subject to
known and unknown risks and uncertainties, many of which may be beyond
our control. Such risks and uncertainties include, but are not limited
to: weather conditions and seasonality; weakening general economic
conditions; lawsuits, enforcement actions and other claims by third
parties or governmental authorities; the effects of our substantial
indebtedness; the success of our business strategies; and failure to
achieve some or all of the expected benefits of the Spin-off. We caution
you that forward-looking statements are not guarantees of future
performance or outcomes and that actual performance and outcomes,
including, without limitation, our actual results of operations,
financial condition and liquidity, and the development of new markets or
market segments in which we operate, may differ materially from those
made in or suggested by the forward-looking statements contained in this
news release. For a discussion of other important factors that could
cause Frontdoor’s results to differ materially from those expressed in,
or implied by, the forward-looking statements included in this document,
you should refer to the risks and uncertainties detailed from time to
time in Frontdoor’s periodic reports filed with the SEC as well as the
disclosure contained in Item 1A. Risk Factors in our 2018 Annual Report
on Form 10-K filed with the SEC. Except as required by law, Frontdoor
does not undertake any obligation to update or revise these
forward-looking statements to reflect new information or events or
circumstances that occur after the date of this news release or to
reflect the occurrence of unanticipated events or otherwise. Readers are
advised to review Frontdoor’s filings with the Securities and Exchange
Commission, which are available from the SEC’s EDGAR database at sec.gov,
and via Frontdoor’s website at frontdoorhome.com.
Spin-off Impact to Financials
The accompanying condensed consolidated and combined financial
statements for periods prior to the Spin-off include all revenues,
costs, assets and liabilities directly attributable to us.
ServiceMaster’s debt and corresponding interest expense have not been
allocated to us for periods prior to the Spin-off since we were not the
legal obligor of the debt. The accompanying condensed consolidated and
combined financial statements include expense allocations for certain
corporate functions historically provided by ServiceMaster. These
allocations may not be indicative of the level of expense which would
have been incurred had the company operated as a separate entity prior
to the Spin-off, nor are these costs necessarily indicative of costs we
may incur in the future.
Non-GAAP Financial Measures
To supplement Frontdoor’s results presented in accordance with
accounting principles generally accepted in the United States (“GAAP”),
Frontdoor has disclosed the non-GAAP financial measures of Adjusted
EBITDA, Free Cash Flow, Adjusted Net Income, and Adjusted Diluted
Earnings per Share.
We define “Adjusted EBITDA” as net income before: provision for income
taxes; interest expense; interest income from affiliate; depreciation
and amortization expense; non-cash stock-based compensation expense;
restructuring charges; Spin-off charges; secondary offering costs;
affiliate royalty expense; (gain) loss on insured home service plan
claims; and other non-operating expenses. We believe Adjusted EBITDA is
useful for investors, analysts and other interested parties as it
facilitates company-to-company operating performance comparisons by
excluding potential differences caused by variations in capital
structures, taxation, the age and book depreciation of facilities and
equipment, restructuring initiatives, Spin-off charges, arrangements
with affiliates and equity-based, long-term incentive plans.
We define “Free Cash Flow” as net cash provided from operating
activities less property additions. Free Cash Flow is not a measurement
of our financial performance or liquidity under GAAP and does not
purport to be an alternative to net cash provided from operating
activities or any other performance or liquidity measures derived in
accordance with GAAP. Free Cash Flow is useful as a supplemental measure
of our liquidity. Management uses Free Cash Flow to facilitate
company-to-company cash flow comparisons, which may vary from company to
company for reasons unrelated to operating performance.
We define “Adjusted Net Income” as net income before: amortization
expense; restructuring charges; Spin-off charges; secondary offering
costs; affiliate royalty expense; interest income from affiliate; (gain)
loss on insured home service plan claims; and the tax impact of the
aforementioned adjustments. We believe Adjusted Net Income is useful for
investors, analysts and other interested parties as it facilitates
company-to-company operating performance comparisons by excluding
potential differences caused by items listed in this definition.
We define “Adjusted Diluted Earnings per Share” as Adjusted Net Income
divided by the weighted-average diluted common shares outstanding.
See the schedules attached hereto for additional information and
reconciliations of such non-GAAP financial measures. Management believes
these non-GAAP financial measures provide useful supplemental
information for its and investors’ evaluation of Frontdoor’s business
performance and are useful for period-over-period comparisons of the
performance of Frontdoor’s business. While we believe that these
non-GAAP financial measures are useful in evaluating our business, this
information should be considered as supplemental in nature and is not
meant to be considered in isolation or as a substitute for the related
financial information prepared in accordance with GAAP. In addition,
these non-GAAP financial measures may not be the same as similarly
entitled measures reported by other companies.
(1) See “Reconciliations of Non-GAAP Financial Measures”
accompanying this release for a reconciliation of Adjusted Net Income,
Adjusted Diluted Earnings per Share, Adjusted EBITDA, and Free Cash
Flow, each a non-GAAP measure, to the nearest GAAP measure. See
“Non-GAAP Financial Measures” included in this release for descriptions
of calculations of these measures.
(2) A reconciliation of the forward-looking second-quarter
and full-year 2019 Adjusted EBITDA outlook to net income cannot be
provided without unreasonable effort because of the inherent difficulty
of accurately forecasting the occurrence and financial impact of the
various adjusting items necessary for such reconciliation that have not
yet occurred, are out of our control, or cannot be reasonably predicted.
For the same reasons, the company is unable to assess the probable
significance of the unavailable information, which could have a material
impact on its future GAAP financial results.
(3) Revenue conversion is calculated using the estimated
gross margin impact of new home service plan revenue along with the
impact of price changes.
frontdoor, inc. | |||||||||||
Condensed Consolidated and Combined Statements of Operations and Comprehensive Income (Unaudited) |
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($ millions, except per share data) |
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|
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Three Months Ended | |||||||||||
March 31, | |||||||||||
2019 | 2018 | ||||||||||
Revenue | $ | 271 | $ | 247 | |||||||
Cost of services rendered | 143 | 134 | |||||||||
Gross Profit | 128 | 113 | |||||||||
Selling and administrative expenses | 89 | 81 | |||||||||
Depreciation and amortization expense | 6 | 4 | |||||||||
Restructuring charges | — | 2 | |||||||||
Spin-off charges | 1 | 7 | |||||||||
Interest expense | 16 | — | |||||||||
Interest income from affiliate | — | (1 | ) | ||||||||
Interest and net investment income | (1 | ) | (1 | ) | |||||||
Income before Income Taxes | 18 | 18 | |||||||||
Provision for income taxes | 5 | 5 | |||||||||
Net Income | $ | 13 | $ | 13 | |||||||
Other Comprehensive Income (Loss), Net of Income Taxes: | |||||||||||
Net unrealized loss on derivative instruments | (5 | ) | — | ||||||||
Total Comprehensive Income | $ | 8 | $ | 13 | |||||||
Earnings per Share: | |||||||||||
Basic | $ | 0.15 | $ | 0.16 | |||||||
Diluted | $ | 0.15 | $ | 0.16 | |||||||
Weighted-average Common Shares Outstanding: | |||||||||||
Basic | 84.6 | 84.5 | |||||||||
Diluted | 84.7 | 84.5 | |||||||||
frontdoor, inc. | |||||||||||
Condensed Consolidated Statements of Financial Position (Unaudited) |
|||||||||||
($ millions, except share data) |
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As of | |||||||||||
March 31, | December 31, | ||||||||||
2019 | 2018 | ||||||||||
Assets: | |||||||||||
Current Assets: | |||||||||||
Cash and cash equivalents | $ | 341 | $ | 296 | |||||||
Marketable securities | 7 | 9 | |||||||||
Receivables, less allowance of $2 in each period | 8 | 12 | |||||||||
Prepaid expenses and other assets | 13 | 13 | |||||||||
Total Current Assets | 369 | 330 | |||||||||
Other Assets: | |||||||||||
Property and equipment, net | 48 | 47 | |||||||||
Goodwill | 476 | 476 | |||||||||
Intangible assets, net | 156 | 158 | |||||||||
Operating lease right-of-use assets | 18 | — | |||||||||
Deferred customer acquisition costs | 20 | 21 | |||||||||
Other assets | 12 | 10 | |||||||||
Total Assets | $ | 1,097 | $ | 1,041 | |||||||
Liabilities and Shareholders’ Equity: | |||||||||||
Current Liabilities: | |||||||||||
Accounts payable | $ | 48 | $ | 41 | |||||||
Accrued liabilities: | |||||||||||
Payroll and related expenses | 8 | 10 | |||||||||
Home service plan claims | 61 | 67 | |||||||||
Interest payable | 4 | 9 | |||||||||
Other | 28 | 26 | |||||||||
Deferred revenue | 219 | 185 | |||||||||
Current portion of long-term debt | 7 | 7 | |||||||||
Total Current Liabilities | 374 | 345 | |||||||||
Long-Term Debt | 976 | 977 | |||||||||
Other Long-Term Liabilities: | |||||||||||
Deferred taxes | 38 | 39 | |||||||||
Operating lease liabilities | 21 | — | |||||||||
Other long-term obligations | 22 | 24 | |||||||||
Total Other Long-Term Liabilities | 80 | 63 | |||||||||
Commitments and Contingencies | |||||||||||
Shareholders’ Equity: | |||||||||||
Common stock, $0.01 par value; 2,000,000,000 shares authorized; 84,617,424 shares issued and outstanding at March 31, 2019 and 84,545,152 shares issued and outstanding at December 31, 2018 |
1 | 1 | |||||||||
Additional paid-in capital | 3 | 1 | |||||||||
Accumulated deficit | (323 | ) | (336 | ) | |||||||
Accumulated other comprehensive loss | (14 | ) | (9 | ) | |||||||
Total Deficit | (334 | ) | (344 | ) | |||||||
Total Liabilities and Shareholders’ Equity | $ | 1,097 | 1,041 | ||||||||
frontdoor, inc. | |||||||||||
Condensed Consolidated and Combined Statements of Cash Flows (Unaudited) |
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($ millions) |
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Three Months Ended | |||||||||||
March 31, | |||||||||||
2019 | 2018 | ||||||||||
Cash and Cash Equivalents at Beginning of Period | $ | 296 | $ | 282 | |||||||
Cash Flows from Operating Activities: | |||||||||||
Net Income | 13 | 13 | |||||||||
Adjustments to reconcile net income to net cash provided from operating activities: |
|||||||||||
Depreciation and amortization expense | 6 | 4 | |||||||||
Deferred income tax provision | — | 3 | |||||||||
Stock-based compensation expense | 2 | 1 | |||||||||
Restructuring charges | — | 2 | |||||||||
Payments for restructuring charges | — | (3 | ) | ||||||||
Spin-off charges | 1 | 7 | |||||||||
Payments for spin-off charges | (1 | ) | (3 | ) | |||||||
Other | 1 | — | |||||||||
Change in working capital, net of acquisitions: | |||||||||||
Receivables | 4 | 7 | |||||||||
Prepaid expenses and other current assets | 1 | 1 | |||||||||
Accounts payable | 8 | (2 | ) | ||||||||
Deferred revenue | 34 | 35 | |||||||||
Accrued liabilities | (10 | ) | (17 | ) | |||||||
Accrued interest payable | (6 | ) | — | ||||||||
Current income taxes | (1 | ) | — | ||||||||
Net Cash Provided from Operating Activities | 52 | 49 | |||||||||
Cash Flows from Investing Activities: | |||||||||||
Purchases of property and equipment | (4 | ) | (5 | ) | |||||||
Purchases of available-for-sale securities | — | (9 | ) | ||||||||
Sales and maturities of available-for-sale securities | 3 | 10 | |||||||||
Other investing activities | (3 | ) | — | ||||||||
Net Cash Used for Investing Activities | (5 | ) | (5 | ) | |||||||
Cash Flows from Financing Activities: | |||||||||||
Payments of debt and capital lease obligations | (2 | ) | — | ||||||||
Net transfers to Parent | — | (37 | ) | ||||||||
Net Cash Used for Financing Activities | (2 | ) | (37 | ) | |||||||
Cash Increase During the Period | 45 | 8 | |||||||||
Cash and Cash Equivalents at End of Period | $ | 341 | $ | 290 | |||||||
Reconciliations of Non-GAAP Financial Measures |
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The following table presents reconciliations of net income to |
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Three Months Ended | |||||||||||
March 31, | |||||||||||
($ millions, except per share amounts) | 2019 | 2018 | |||||||||
Net Income | $ | 13 | $ | 13 | |||||||
Amortization expense | 2 | 2 | |||||||||
Restructuring charges | — | 2 | |||||||||
Spin-off charges | 1 | 7 | |||||||||
Interest income from affiliate | — | (1 | ) | ||||||||
Gain on insured home service plan claims | — | (1 | ) | ||||||||
Secondary offering costs | 1 | — | |||||||||
Tax impact of adjustments | (1 | ) | (2 | ) | |||||||
Adjusted Net Income | $ | 16 | $ | 22 | |||||||
Adjusted Earnings per Share: | |||||||||||
Basic | $ | 0.19 | $ | 0.26 | |||||||
Diluted | $ | 0.19 | $ | 0.26 | |||||||
Weighted-average common shares outstanding(1): | |||||||||||
Basic | 84.6 | 84.5 | |||||||||
Diluted | 84.7 | 84.5 | |||||||||
(1) For the three months ended March 31, 2018, earnings |
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The following table presents reconciliations of net cash provided |
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Three Months Ended | |||||||||||
March 31, | |||||||||||
(In millions) | 2019 | 2018 | |||||||||
Net Cash Provided from Operating Activities | $ | 52 | $ | 49 | |||||||
Property Additions | (4 | ) | (5 | ) | |||||||
Free Cash Flow | $ | 47 | $ | 44 | |||||||
The following table presents reconciliations of net income to |
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Three Months Ended | ||||||||||
March 31, | ||||||||||
(In millions) | 2019 | 2018 | ||||||||
Net Income | $ | 13 | $ | 13 | ||||||
Depreciation and amortization expense | 6 | 4 | ||||||||
Restructuring charges | — | 2 | ||||||||
Spin-off charges | 1 | 7 | ||||||||
Provision for income taxes | 5 | 5 | ||||||||
Non-cash stock-based compensation expense | 2 | 1 | ||||||||
Interest expense | 16 | — | ||||||||
Secondary offering costs | 1 | — | ||||||||
Interest income from affiliate | — | (1 | ) | |||||||
Gain on insured home service plan claims | — | (1 | ) | |||||||
Adjusted EBITDA | $ | 43 | $ | 32 | ||||||
Key Business Metrics |
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As of March 31, | ||||||||
2019 | 2018 | |||||||
Growth in number of home service plans | 5 | % | 6 | % | ||||
Customer retention rate(1) | 75 | % | 75 | % | ||||
(1) Customer retention rate is presented on a rolling |
Contacts
Investor Relations:
Matt Davis
901.701.5199
[email protected]
Media:
Nicole
Ritchie
901.701.5198
[email protected]
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“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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