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ON Semiconductor Reports First Quarter 2019 Results
- Revenue of $1,386.6 million
- Gross margin of 37.0 percent
-
GAAP operating margin of 12.9 percent and non-GAAP operating margin of
15.5 percent -
GAAP diluted earnings per share of $0.27 and non-GAAP diluted earnings
per share of $0.43
PHOENIX–(BUSINESS WIRE)–ON Semiconductor Corporation (Nasdaq: ON)
today announced that revenue in first quarter of 2019 was
$1,386.6 million, up approximately one percent compared to revenue in
first quarter of 2018. First quarter 2019 revenue was down approximately
eight percent as compared to revenue in fourth quarter of 2018.
“Our execution continues to be strong, despite soft business conditions.
While we are facing near-term headwinds, key secular drivers powering
our business remain intact, and we are well positioned to benefit from
increasing semiconductor content in automotive, industrial, and
cloud-power applications,” said Keith Jackson, president and CEO of ON
Semiconductor. “We are prudently managing our business, and we intend to
deliver strong operational results to mitigate the impact of slowing
demand environment.”
“We remain upbeat about our future, and we are making prudent long term
investments to strengthen our position in our strategic markets and to
further improve our industry-leading cost structure.”
First Quarter Results (GAAP) |
||||||||||||||||
(in millions, except per share data) | 1Q 2019 | 1Q 2018 |
Year-Over- |
4Q 2018 |
Sequential
Change |
|||||||||||
Revenue | $1,386.6 | $1,377.6 | 1 | % | $1,503.1 | (8 | )% | |||||||||
Gross Profit | $513.7 | $517.4 | (1 | )% | $569.7 | (10 | )% | |||||||||
Operating Income | $179.4 | $185.7 | (3 | )% | $222.7 | (19 | )% | |||||||||
Net Income Attributable to ON Semiconductor Corporation | $114.1 | $139.6 | (18 | )% | $165.6 | (31 | )% | |||||||||
Diluted Earnings Per Share | $0.27 | $0.31 | (13 | )% | $0.39 | (31 | )% | |||||||||
Diluted Share Count | 417.7 | 444.2 | (6 | )% | 420.0 | (1 | )% | |||||||||
First Quarter Results (Non-GAAP) |
||||||||||||||||
(in millions, except per share data) | 1Q 2019 | 1Q 2018 |
Year-Over- Year Change |
4Q 2018 |
Sequential
Change |
|||||||||||
Revenue | $1,386.6 | $1,377.6 | 1 | % | $1,503.1 | (8 | )% | |||||||||
Gross Profit | $513.7 | $517.4 | (1 | )% | $570.3 | (10 | )% | |||||||||
Operating Income | $215.2 | $216.7 | (1 | )% | $253.0 | (15 | )% | |||||||||
Net Income Attributable to ON Semiconductor Corporation | $177.1 | $170.7 | 4 | % | $222.0 | (20 | )% | |||||||||
Diluted Earnings Per Share | $0.43 | $0.40 | 8 | % | $0.53 | (19 | )% | |||||||||
Diluted Share Count | 413.8 | 431.6 | (4 | )% | 420.0 | (1 | )% | |||||||||
First Quarter Key Cash Flow Items |
|||||||||||||||||
(in millions) | 1Q 2019 | 1Q 2018 |
Year-Over- Year Change |
4Q 2018 |
Sequential
Change |
||||||||||||
Cash Taxes, net of indemnification | $15.2 | $19.1 | (20 | )% | $8.2 | 85 | % | ||||||||||
Operating Cash Flow | $138.2 | $226.5 | (39 | )% | $421.0 | (67 | )% | ||||||||||
Free Cash Flow | ($18.8 | ) | $127.0 | (115 | )% | $289.0 | (107 | )% | |||||||||
SECOND QUARTER 2019 OUTLOOK
Based on product booking trends, backlog levels, and estimated turns
levels, the Company anticipates revenue in second quarter of 2019 to be
approximately $1,360 to $1,410 million. Revenue outlook for second
quarter of 2019 includes revenue of approximately $15 million from
manufacturing services provided by ON Semiconductor Aizu Co., Ltd.
(“OSA”).
Gross margin for second quarter of 2019 is expected to be in range of
36.5 percent to 37.5 percent. Second quarter 2019 gross margin outlook
includes negative impact of 40 basis points from manufacturing services
provided by OSA.
The outlook for second quarter of 2019 also includes anticipated
stock-based compensation expense of approximately $26 million to $28
million. Net cash paid for income taxes is expected to be $12 million to
$16 million.
The following table outlines ON Semiconductor’s projected second quarter
of 2019 GAAP and non-GAAP outlook.
Total ON Semiconductor
GAAP |
Special
Items *** |
Total ON Semiconductor
Non-GAAP**** |
||||
Revenue | $1,360 to $1,410 | $1,360 to $1,410 | ||||
Gross Margin | 36.5% to 37.5% | 36.5% to 37.5% | ||||
Operating Expenses | $322 to $340 million | $27 to $31 million | $295 to $309 million | |||
Other Income and Expense (including interest expense), net | $31 to $34 million | $9 to $10 million* | $22 to $24 million | |||
Diluted Share Count ** | 418 million | 4 million | 414 million |
* |
Convertible Notes, Non-cash Interest Expense is calculated pursuant to FASB’s Accounting Standards Codification Topic 470: Debt. |
|
** |
Diluted share count can vary as a result of, among other things, the actual exercise of options or vesting of restricted stock units, the incremental dilutive shares from the Company’s convertible senior subordinated notes, and the repurchase or the issuance of stock or convertible notes or the sale of treasury shares. In periods in which the quarterly average stock price per share exceeds $18.50, the non-GAAP diluted share count and non-GAAP net income per share includes the impact of the Company’s hedge transactions issued concurrently with our 1.00% convertible notes. As such, at an average stock price per share between $18.50 and $25.96, the hedging activity offsets the potentially dilutive effect of the 1.00% convertible notes. In periods when the quarterly average stock price per share exceeds $20.72, the non-GAAP diluted share count and non-GAAP net income per share includes the anti-dilutive impact of the Company’s hedge transactions issued concurrently with the 1.625% convertible notes. At an average stock price per share between $20.72 and $30.70, the hedging activity offsets the potentially dilutive effect of the 1.625% convertible notes. Both GAAP and non-GAAP diluted share counts are based on the Company’s stock price as of March 29, 2019. |
|
*** |
Special items may include: amortization of acquisition-related intangibles; expensing of appraised inventory fair market value step-up; purchased in-process research and development expenses; restructuring, asset impairments and other, net; goodwill impairment charges; gains and losses on debt prepayment; non-cash interest expense; actuarial (gains) losses on pension plans and other pension benefits; and certain other special items, as necessary. These special items are out of our control and could change significantly from period to period. As a result, we are not able to reasonably estimate and separately present the individual impact or probable significance of these special items, and we are similarly unable to provide a reconciliation of the non-GAAP measures. The reconciliation that is unavailable would include a forward-looking income statement, balance sheet and statement of cash flows in accordance with GAAP. For this reason, we use a projected range of the aggregate amount of special items in order to calculate our projected non-GAAP operating expense outlook. |
|
**** |
We believe these non-GAAP measures provide important supplemental information to investors. We use these measures, together with GAAP measures, for internal managerial purposes and as a means to evaluate period-to-period comparisons. However, we do not, and you should not, rely on non-GAAP financial measures alone as measures of our performance. We believe that non-GAAP financial measures reflect an additional way of viewing aspects of our operations that, when taken together with GAAP results and the reconciliations to corresponding GAAP financial measures that we also provide in our releases, provide a more complete understanding of factors and trends affecting our business. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures, even if they have similar names. |
TELECONFERENCE
ON Semiconductor will host a conference call for the financial community
at 9 a.m. Eastern Daylight Time (EDT) on April 29, 2019 to discuss this
announcement and ON Semiconductor’s results for first quarter of 2019.
The Company will also provide a real-time audio webcast of the
teleconference on the Investor Relations page of its website at http://www.onsemi.com.
The webcast replay will be available at this site approximately one hour
following the live broadcast and will continue to be available for
approximately 30 days following the conference call. Investors and
interested parties can also access the conference call through a
telephone call by dialing (877) 356-3762 (U.S./Canada) or (262) 558-6155
(International). In order to join this conference call, you will be
required to provide the Conference ID Number, which is 2874546.
About ON Semiconductor
ON Semiconductor (Nasdaq: ON) is driving energy efficient innovations,
empowering customers to reduce global energy use. The Company is a
leading supplier of semiconductor-based solutions, offering a
comprehensive portfolio of energy efficient power management, analog,
sensors, logic, timing, connectivity, discrete, SoC and custom devices.
The Company’s products help engineers solve their unique design
challenges in automotive, communications, computing, consumer,
industrial, medical, aerospace and defense applications. ON
Semiconductor operates a responsive, reliable, world-class supply chain
and quality program, a robust compliance and ethics program and a
network of manufacturing facilities, sales offices and design centers in
key markets throughout North America, Europe and the Asia Pacific
regions. For more information, visit http://www.onsemi.com.
ON Semiconductor and the ON Semiconductor logo are registered
trademarks of Semiconductor Components Industries, LLC. All other
brand and product names appearing in this document are registered
trademarks or trademarks of their respective holders. Although
the Company references its website in this news release, information on
the website is not to be incorporated herein.
This document contains “forward-looking statements,” as that term is
defined in Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All
statements, other than statements of historical facts, included or
incorporated in this document could be deemed forward-looking
statements, particularly statements about the future financial
performance of ON Semiconductor, including financial guidance for the
year ending December 31, 2019. Forward-looking statements are often
characterized by the use of words such as “believes,” “estimates,”
“expects,” “projects,” “may,” “will,” “intends,” “plans” or
“anticipates” or by discussions of strategy, plans or intentions. All
forward-looking statements in this document are made based on our
current expectations, forecasts, estimates and assumptions and involve
risks, uncertainties and other factors that could cause results or
events to differ materially from those expressed in the forward-looking
statements. Among these factors are our revenue and operating
performance; economic conditions and markets (including current
financial conditions); risks related to our ability to meet our
assumptions regarding outlook for revenue and gross margin as a
percentage of revenue; effects of exchange rate fluctuations; the
cyclical nature of the semiconductor industry; changes in demand for our
products; changes in inventories at our customers and distributors;
risks associated with restructuring actions and workforce reductions;
technological and product development risks; enforcement and protection
of our intellectual property rights and related risks; risks related to
the security of our information systems and secured network;
availability of raw materials, electricity, gas, water and other supply
chain uncertainties; our ability to effectively shift production to
other facilities when required in order to maintain supply continuity
for our customers; variable demand and the aggressive pricing
environment for semiconductor products; our ability to successfully
manufacture in increasing volumes on a cost-effective basis and with
acceptable quality for our current products; risks associated with our
acquisitions and dispositions generally, including our ability to
realize the anticipated benefits of our acquisitions and dispositions;
risks that acquisitions or dispositions may disrupt our current plans
and operations, the risk of unexpected costs, charges or expenses
resulting from acquisitions or dispositions and difficulties arising
from integrating and consolidating acquired businesses, our timely
filing of financial information with the Securities and Exchange
Commission (“SEC”) for acquired businesses and our ability to accurately
predict the future financial performance of acquired businesses);
competitor actions, including the adverse impact of competitor product
announcements; pricing and gross profit pressures; loss of key customers
or distributors; order cancellations or reduced bookings; changes in
manufacturing yields; control of costs and expenses and realization of
cost savings and synergies from restructurings; significant litigation;
risks associated with decisions to expend cash reserves for various uses
in accordance with our capital allocation policy such as debt
prepayment, stock repurchases or acquisitions rather than to retain such
cash for future needs; risks associated with our substantial leverage
and restrictive covenants in our debt agreements that may be in place
from time to time; risks associated with our worldwide operations,
including changes in trade policies, foreign employment and labor
matters associated with unions and collective bargaining arrangements as
well as man-made and/or natural disasters affecting our operations or
financial results; the threat or occurrence of international armed
conflict and terrorist activities both in the United States and
internationally; risks of changes in U.S. or international tax rates or
legislation; risks and costs associated with increased and new
regulation of corporate governance and disclosure standards; risks
related to new legal requirements; and risks involving environmental or
other governmental regulation. Additional factors that could affect our
future results or events are described under Part I, Item 1A “Risk
Factors” in our 2018 Annual Report on Form 10-K filed with the SEC on
February 20, 2019 (our “2018 Form 10-K”) and from time-to-time in our
other SEC reports. Readers are cautioned not to place undue reliance on
forward-looking statements. We assume no obligation to update such
information, except as may be required by law. You should carefully
consider the trends, risks and uncertainties described in this document,
our 2018 Form 10-K and other reports filed with or furnished to the SEC
before making any investment decision with respect to our securities. If
any of these trends, risks or uncertainties actually occurs or
continues, our business, financial condition or operating results could
be materially adversely affected, the trading prices of our securities
could decline and you could lose all or part of your investment. All
forward-looking statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by this cautionary
statement.
ON SEMICONDUCTOR CORPORATION | ||||||||||||
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS | ||||||||||||
(in millions, except per share data) |
||||||||||||
Quarters Ended | ||||||||||||
March 29, 2019 | December 31, 2018 | March 30, 2018 | ||||||||||
Revenue | $ | 1,386.6 | $ | 1,503.1 | $ | 1,377.6 | ||||||
Cost of revenue (exclusive of amortization shown below) | 872.9 | 933.4 | 860.2 | |||||||||
Gross profit | 513.7 | 569.7 | 517.4 | |||||||||
Gross margin | 37.0 | % | 37.9 | % | 37.6 | % | ||||||
Operating expenses: | ||||||||||||
Research and development | 151.8 | 162.2 | 155.2 | |||||||||
Selling and marketing | 77.1 | 82.1 | 77.8 | |||||||||
General and administrative | 72.9 | 74.5 | 70.9 | |||||||||
Amortization of acquisition-related intangible assets | 25.7 | 28.4 | 27.4 | |||||||||
Restructuring, asset impairments and other, net | 5.6 | (3.7 | ) | 0.4 | ||||||||
Intangible asset impairment | 1.2 | 3.5 | — | |||||||||
Total operating expenses |
334.3 | 347.0 | 331.7 | |||||||||
Operating income | 179.4 | 222.7 | 185.7 | |||||||||
Other income (expense), net: | ||||||||||||
Interest expense | (31.7 | ) | (32.9 | ) | (31.5 | ) | ||||||
Interest income | 2.5 | 2.8 | 0.9 | |||||||||
Licensing income | — | 3.7 | 3.8 | |||||||||
Other income (expense) | 2.1 | (7.6 | ) | (2.0 | ) | |||||||
Other income (expense), net | (27.1 | ) | (34.0 | ) | (28.8 | ) | ||||||
Income before income taxes | 152.3 | 188.7 | 156.9 | |||||||||
Income tax provision | (38.2 | ) | (22.7 | ) | (16.4 | ) | ||||||
Net income | 114.1 | 166.0 | 140.5 | |||||||||
Less: Net income attributable to non-controlling interest | — | (0.4 | ) | (0.9 | ) | |||||||
Net income attributable to ON Semiconductor Corporation | $ | 114.1 | $ | 165.6 | $ | 139.6 | ||||||
Net income per common share attributable to ON Semiconductor Corporation: |
||||||||||||
Basic | $ | 0.28 | $ | 0.40 | $ | 0.33 | ||||||
Diluted | $ | 0.27 | $ | 0.39 | $ | 0.31 | ||||||
Weighted average common shares outstanding: | ||||||||||||
Basic | 410.6 | 416.9 | 425.9 | |||||||||
Diluted | 417.7 | 420.0 | 444.2 | |||||||||
ON SEMICONDUCTOR CORPORATION | ||||||||||||
UNAUDITED CONSOLIDATED BALANCE SHEETS | ||||||||||||
(in millions) |
||||||||||||
March 29, 2019 | December 31, 2018 | March 30, 2018 | ||||||||||
Assets | ||||||||||||
Cash and cash equivalents | $ | 939.6 | $ | 1,069.6 | $ | 924.9 | ||||||
Receivables, net | 704.0 | 686.0 | 696.9 | |||||||||
Inventories | 1,225.2 | 1,225.2 | 1,160.0 | |||||||||
Other current assets | 177.9 | 187.0 | 185.2 | |||||||||
Total current assets | 3,046.7 | 3,167.8 | 2,967.0 | |||||||||
Property, plant and equipment, net | 2,585.0 | 2,549.6 | 2,336.4 | |||||||||
Goodwill | 932.5 | 932.5 | 916.9 | |||||||||
Intangible assets, net | 539.5 | 566.4 | 600.9 | |||||||||
Deferred tax assets | 238.2 | 266.2 | 333.3 | |||||||||
Other assets | 222.4 | 105.1 | 108.6 | |||||||||
Total assets | $ | 7,564.3 | $ | 7,587.6 | $ | 7,263.1 | ||||||
Liabilities, Non-Controlling Interest and Stockholders’ Equity | ||||||||||||
Accounts payable | $ | 583.3 | $ | 671.7 | $ | 612.0 | ||||||
Accrued expenses and other current liabilities | 603.4 | 659.1 | 585.8 | |||||||||
Current portion of long-term debt | 130.8 | 138.5 | 747.2 | |||||||||
Total current liabilities | 1,317.5 | 1,469.3 | 1,945.0 | |||||||||
Long-term debt | 2,639.0 | 2,627.6 | 2,084.4 | |||||||||
Deferred tax liabilities | 54.1 | 54.8 | 57.1 | |||||||||
Other long-term liabilities | 333.0 | 241.8 | 225.1 | |||||||||
Total liabilities | 4,343.6 | 4,393.5 | 4,311.6 | |||||||||
ON Semiconductor Corporation stockholders’ equity: | ||||||||||||
Common stock | 5.6 | 5.6 | 5.5 | |||||||||
Additional paid-in capital | 3,722.5 | 3,702.3 | 3,615.5 | |||||||||
Accumulated other comprehensive loss | (43.7 | ) | (37.9 | ) | (34.4 | ) | ||||||
Accumulated earnings | 1,093.7 | 979.6 | 491.7 | |||||||||
Less: Treasury stock, at cost | (1,579.9 | ) | (1,478.0 | ) | (1,149.9 | ) | ||||||
Total ON Semiconductor Corporation stockholders’ equity | 3,198.2 | 3,171.6 | 2,928.4 | |||||||||
Non-controlling interest | 22.5 | 22.5 | 23.1 | |||||||||
Total stockholders’ equity | 3,220.7 | 3,194.1 | 2,951.5 | |||||||||
Total liabilities and stockholders’ equity | $ | 7,564.3 | $ | 7,587.6 | $ | 7,263.1 | ||||||
ON SEMICONDUCTOR CORPORATION | ||||||||||||
UNAUDITED RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA AND | ||||||||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | ||||||||||||
(in millions) |
||||||||||||
Quarters Ended | ||||||||||||
March 29, 2019 | December 31, 2018 | March 30, 2018 | ||||||||||
Net income | $ | 114.1 | $ | 166.0 | $ | 140.5 | ||||||
Adjusted for: | ||||||||||||
Licensing income | — | (3.7 | ) | (3.8 | ) | |||||||
R&D costs related to licensing income | — | — | 2.8 | |||||||||
Restructuring, asset impairments and other, net | 5.6 | (3.7 | ) | 0.4 | ||||||||
Intangible asset impairment | 1.2 | 3.5 | — | |||||||||
Interest expense | 31.7 | 32.9 | 31.5 | |||||||||
Interest income | (2.5 | ) | (2.8 | ) | (0.9 | ) | ||||||
Income tax provision | 38.2 | 22.7 | 16.4 | |||||||||
Net income attributable to non-controlling interest | — | (0.4 | ) | (0.9 | ) | |||||||
Depreciation and amortization | 135.8 | 136.2 | 119.9 | |||||||||
Amortization of fair market value step-up of inventory | — | 0.6 | — | |||||||||
Adjustment to contingent consideration | — | — | (2.1 | ) | ||||||||
Actuarial losses on pension plans and other pension benefits | — | 5.8 | — | |||||||||
Third party acquisition and divestiture related costs | 3.3 | 1.5 | 0.4 | |||||||||
Indemnification gain | (4.9 | ) | — | — | ||||||||
Adjusted EBITDA | 322.5 | 358.6 | 304.2 | |||||||||
Increase (decrease): | ||||||||||||
Licensing income | — | 3.7 | 3.8 | |||||||||
R&D costs related to licensing income | — | — | (2.8 | ) | ||||||||
Restructuring, asset impairments and other, net | (5.6 | ) | 3.7 | (0.4 | ) | |||||||
Interest expense | (31.7 | ) | (32.9 | ) | (31.5 | ) | ||||||
Interest income | 2.5 | 2.8 | 0.9 | |||||||||
Income tax provision | (38.2 | ) | (22.7 | ) | (16.4 | ) | ||||||
Net income attributable to non-controlling interest | — | 0.4 | 0.9 | |||||||||
Amortization of fair market value step-up of inventory | — | (0.6 | ) | — | ||||||||
Adjustment to contingent consideration | — | — | 2.1 | |||||||||
Actuarial losses on pension plans and other pension benefits | — | (5.8 | ) | — | ||||||||
Third party acquisition and divestiture related costs | (3.3 | ) | (1.5 | ) | (0.4 | ) | ||||||
Indemnification gain | 4.9 | — | — | |||||||||
Loss (gain) on sale or disposal of fixed assets | 0.4 | (1.2 | ) | 1.3 | ||||||||
Amortization of debt discount and issuance costs | 3.2 | 3.4 | 3.3 | |||||||||
Share-based compensation expense | 19.7 | 18.9 | 18.4 | |||||||||
Non-cash interest on convertible notes | 9.1 | 9.5 | 8.7 | |||||||||
Change in deferred taxes | 29.0 | (10.7 | ) | 7.5 | ||||||||
Other | (4.3 | ) | 2.0 | (1.2 | ) | |||||||
Changes in operating assets and liabilities | (170.0 | ) | 93.4 | (71.9 | ) | |||||||
Net cash provided by operating activities | $ | 138.2 | $ | 421.0 | $ | 226.5 | ||||||
Cash flows from investing activities: | ||||||||||||
Purchase of property, plant and equipment | $ | (157.0 | ) | $ | (132.0 | ) | $ | (99.5 | ) | |||
Proceeds from sales of property, plant and equipment | — | 30.2 | 5.6 | |||||||||
Deposits utilized (made) for purchase of property, plant and equipment |
(10.1 | ) | 9.7 | (11.6 | ) | |||||||
Purchase of equity interest and assets, net of cash acquired | — | (4.8 | ) | — | ||||||||
Proceeds from divestiture of business, net of cash transferred | — | 1.1 | — | |||||||||
Other | — | 2.2 | — | |||||||||
Net cash used in investing activities | $ | (167.1 | ) | $ | (93.6 | ) | $ | (105.5 | ) | |||
Cash flows from financing activities: | ||||||||||||
Proceeds for the issuance of common stock under the ESPP | 7.4 | $ | 6.3 | $ | — | |||||||
Proceeds from exercise of stock options | 0.5 | 1.3 | 3.6 | |||||||||
Payment of tax withholding for RSUs | (26.1 | ) | (2.4 | ) | (18.8 | ) | ||||||
Repurchase of common stock | (75.0 | ) | (200.3 | ) | — | |||||||
Proceeds from debt issuance | 4.5 | 7.1 | 5.3 | |||||||||
Repayment of long-term debt | (12.2 | ) | (18.5 | ) | (135.9 | ) | ||||||
Payment of finance lease obligations | (0.2 | ) | (0.3 | ) | (1.1 | ) | ||||||
Dividend to non-controlling shareholder | — | (2.2 | ) | — | ||||||||
Net cash used in financing activities | $ | (101.1 | ) | $ | (209.0 | ) | $ | (146.9 | ) | |||
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
$ | — | $ | 0.2 | $ | 1.6 | ||||||
Net (decrease) increase in cash, cash equivalents and restricted cash | $ | (130.0 | ) | $ | 118.6 | $ | (24.3 | ) | ||||
Cash, cash equivalents and restricted cash, beginning of period | $ | 1,087.1 | $ | 968.5 | $ | 966.6 | ||||||
Cash, cash equivalents and restricted cash, end of period | $ | 957.1 | $ | 1,087.1 | $ | 942.3 | ||||||
ON SEMICONDUCTOR CORPORATION | |||||||||||||||
RECONCILIATION OF GAAP VERSUS NON-GAAP DISCLOSURES | |||||||||||||||
(in millions, except per share and percentage data) |
|||||||||||||||
Quarters Ended | |||||||||||||||
March 29, 2019 | December 31, 2018 | March 30, 2018 | |||||||||||||
Reconciliation of GAAP gross profit to non-GAAP gross profit: | |||||||||||||||
GAAP gross profit | $ | 513.7 | $ | 569.7 | $ | 517.4 | |||||||||
Special items: | |||||||||||||||
a) | Expensing of appraised inventory at fair market value step-up | — | 0.6 | — | |||||||||||
Total special items | — | 0.6 | — | ||||||||||||
Non-GAAP gross profit | $ | 513.7 | $ | 570.3 | $ | 517.4 | |||||||||
Reconciliation of GAAP gross margin to non-GAAP gross margin: | |||||||||||||||
GAAP gross margin | 37.0 | % | 37.9 | % | 37.6 | % | |||||||||
Special items: | |||||||||||||||
a) | Expensing of appraised inventory at fair market value step-up | — | % | — | % | — | % | ||||||||
Total special items | — | % | — | % | — | % | |||||||||
Non-GAAP gross margin | 37.0 | % | 37.9 | % | 37.6 | % | |||||||||
Reconciliation of GAAP operating expenses to non-GAAP operating expenses: |
|||||||||||||||
GAAP operating expenses | $ | 334.3 | $ | 347.0 | $ | 331.7 | |||||||||
Special items: | |||||||||||||||
a) | Amortization of acquisition-related intangible assets | (25.7 | ) | (28.4 | ) | (27.4 | ) | ||||||||
b) | Restructuring, asset impairments and other, net | (5.6 | ) | 3.7 | (0.4 | ) | |||||||||
c) | Intangible asset impairment | (1.2 | ) | (3.5 | ) | — | |||||||||
d) | Third party acquisition and divestiture related costs | (3.3 | ) | (1.5 | ) | (0.4 | ) | ||||||||
e) | R&D costs related to licensing income | — | — | (2.8 | ) | ||||||||||
Total special items | (35.8 | ) | (29.7 | ) | (31.0 | ) | |||||||||
Non-GAAP operating expenses | $ | 298.5 | $ | 317.3 | $ | 300.7 | |||||||||
Reconciliation of GAAP operating income to non-GAAP operating income: |
|||||||||||||||
GAAP operating income | $ | 179.4 | $ | 222.7 | $ | 185.7 | |||||||||
Special items: | |||||||||||||||
a) | Expensing of appraised inventory at fair market value step-up | — | 0.6 | — | |||||||||||
b) | Amortization of acquisition-related intangible assets | 25.7 | 28.4 | 27.4 | |||||||||||
c) | Restructuring, asset impairments and other, net | 5.6 | (3.7 | ) | 0.4 | ||||||||||
d) | Intangible asset impairment | 1.2 | 3.5 | — | |||||||||||
e) | Third party acquisition and divestiture related costs | 3.3 | 1.5 | 0.4 | |||||||||||
f) | R&D costs related to licensing income | — | — | 2.8 | |||||||||||
Total special items | 35.8 | 30.3 | 31.0 | ||||||||||||
Non-GAAP operating income | $ | 215.2 | $ | 253.0 | $ | 216.7 | |||||||||
Reconciliation of GAAP operating margin to non-GAAP operating margin (operating income / revenue): |
|||||||||||||||
GAAP operating margin | 12.9 | % | 14.8 | % | 13.5 | % | |||||||||
Special items: | |||||||||||||||
a) | Expensing of appraised inventory at fair market value step-up | — | % | — | % | — | % | ||||||||
b) | Amortization of acquisition-related intangible assets | 1.9 | % | 1.9 | % | 2.0 | % | ||||||||
c) | Restructuring, asset impairments and other, net | 0.4 | % | (0.2 | )% | — | % | ||||||||
d) | Intangible asset impairment | 0.1 | % | 0.2 | % | — | % | ||||||||
e) | Third party acquisition and divestiture related costs | 0.2 | % | 0.1 | % | — | % | ||||||||
f) | R&D costs related to licensing income | — | % | — | % | 0.2 | % | ||||||||
Total special items | 2.6 | % | 2.0 | % | 2.2 | % | |||||||||
Non-GAAP operating margin | 15.5 | % | 16.8 | % | 15.7 | % | |||||||||
Reconciliation of GAAP income before income taxes to non-GAAP income before income taxes: |
|||||||||||||||
GAAP income before income taxes | $ | 152.3 | $ | 188.7 | $ | 156.9 | |||||||||
Special items: | |||||||||||||||
a) | Expensing of appraised inventory at fair market value step-up | — | 0.6 | — | |||||||||||
b) | Amortization of acquisition-related intangible assets | 25.7 | 28.4 | 27.4 | |||||||||||
c) | Restructuring, asset impairments and other, net | 5.6 | (3.7 | ) | 0.4 | ||||||||||
d) | Intangible asset impairment | 1.2 | 3.5 | — | |||||||||||
e) | Third party acquisition and divestiture related costs | 3.3 | 1.5 | 0.4 | |||||||||||
f) | R&D costs related to licensing income | — | — | 2.8 | |||||||||||
g) | Actuarial losses on pension plans and other pension benefits | — | 5.8 | — | |||||||||||
h) | Non-cash interest on convertible notes | 9.1 | 9.5 | 8.7 | |||||||||||
i) | Indemnification gain | (4.9 | ) | — | — | ||||||||||
j) | Adjustment to contingent consideration | — | — | (2.1 | ) | ||||||||||
k) | Licensing income | — | (3.7 | ) | (3.8 | ) | |||||||||
Total special items | 40.0 | 41.9 | 33.8 | ||||||||||||
Non-GAAP income before income taxes | $ | 192.3 | $ | 230.6 | $ | 190.7 | |||||||||
Reconciliation of GAAP net income attributable to ON Semiconductor Corporation to non-GAAP net income attributable to ON Semiconductor Corporation: |
|||||||||||||||
GAAP net income attributable to ON Semiconductor Corporation | $ | 114.1 | $ | 165.6 | $ | 139.6 | |||||||||
Special items: | |||||||||||||||
a) | Expensing of appraised inventory at fair market value step-up | — | 0.6 | — | |||||||||||
b) | Amortization of acquisition-related intangible assets | 25.7 | 28.4 | 27.4 | |||||||||||
c) | Restructuring, asset impairments and other, net | 5.6 | (3.7 | ) | 0.4 | ||||||||||
d) | Intangible asset impairment | 1.2 | 3.5 | — | |||||||||||
e) | Third party acquisition and divestiture related costs | 3.3 | 1.5 | 0.4 | |||||||||||
f) | R&D costs related to licensing income | — | — | 2.8 | |||||||||||
g) | Actuarial losses on pension plans and other pension benefits | — | 5.8 | — | |||||||||||
h) | Non-cash interest on convertible notes | 9.1 | 9.5 | 8.7 | |||||||||||
i) | Indemnification gain | (4.9 | ) | — | — | ||||||||||
j) | Adjustment to contingent consideration | — | — | (2.1 | ) | ||||||||||
k) | Licensing income | — | (3.7 | ) | (3.8 | ) | |||||||||
l) | Adjustment of income taxes | 23.0 | 14.5 | (2.7 | ) | ||||||||||
Total special items | 63.0 | 56.4 | 31.1 | ||||||||||||
Non-GAAP net income attributable to ON Semiconductor Corporation | $ | 177.1 | $ | 222.0 | $ | 170.7 | |||||||||
Adjustment of income taxes: | |||||||||||||||
Tax adjustment for special items (1) | $ | (8.4 | ) | $ | (8.8 | ) | $ | (7.1 | ) | ||||||
Other non-GAAP tax adjustment (2) | 31.0 | 36.4 | 4.4 | ||||||||||||
Non-cash impact of U.S. tax reform (3) | — | 35.1 | — | ||||||||||||
Impact of U.S. tax method changes | — | (48.2 | ) | — | |||||||||||
Tax indemnified by third parties | 0.4 | — | — | ||||||||||||
Total adjustment of income taxes | $ | 23.0 | $ | 14.5 | $ | (2.7 | ) | ||||||||
Reconciliation of GAAP diluted share count to non-GAAP diluted share count: |
|||||||||||||||
GAAP diluted share count | 417.7 | 420.0 | 444.2 | ||||||||||||
Special items: | |||||||||||||||
a) | Dilutive share count attributable to convertible notes | (3.9 | ) | — | (12.6 | ) | |||||||||
Total special items | (3.9 | ) | — | (12.6 | ) | ||||||||||
Non-GAAP diluted share count | 413.8 | 420.0 | 431.6 | ||||||||||||
Non-GAAP diluted earnings per share: | |||||||||||||||
Non-GAAP net income attributable to ON Semiconductor Corporation | $ | 177.1 | $ | 222.0 | $ | 170.7 | |||||||||
Non-GAAP diluted share count | 413.8 | 420.0 | 431.6 | ||||||||||||
Non-GAAP diluted earnings per share | $ | 0.43 | $ | 0.53 | $ | 0.40 | |||||||||
Reconciliation of net cash provided by operating activities to free cash flow: |
|||||||||||||||
Net cash provided by operating activities | $ | 138.2 | $ | 421.0 | $ | 226.5 | |||||||||
Special items: | |||||||||||||||
a) | Purchase of property, plant and equipment | (157.0 | ) | (132.0 | ) | (99.5 | ) | ||||||||
Total special items | (157.0 | ) | (132.0 | ) | (99.5 | ) | |||||||||
Free cash flow | $ | (18.8 | ) | $ | 289.0 | $ | 127.0 | ||||||||
(1) |
Tax impact of non-GAAP special items (a-k) is calculated using the federal statutory rate of 21% for all periods presented. |
||||||||||||||
(2) |
The income tax adjustment primarily represents the use of the net operating loss, non-cash impact of not asserting indefinite reinvestment on earnings of our foreign subsidiaries, deferred tax expense not affecting taxes payable, and non-cash expense (benefit) related to uncertain tax positions. |
||||||||||||||
(3) |
Tax impacts of U.S. tax reform legislation, H.R.1, commonly referred to as the “Tax Cuts and Jobs Act,” and related provisional impacts recorded pursuant to Staff Accounting Bulletin (SAB) No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act. |
||||||||||||||
Contacts
Kris Pugsley
Corporate/Media Communications
ON Semiconductor
(312)
909-0661
[email protected]
Parag Agarwal
Vice President – Investor Relations & Corporate
Development
ON Semiconductor
(602) 244-3437
[email protected]
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Cannabis
IM Cannabis Reports 2023 Financial Results
TORONTO and GLIL YAM, Israel, March 28, 2024 /PRNewswire/ — IM Cannabis Corp. (the “Company” or “IMC“) (NASDAQ: IMCC) (CSE: IMCC), an international medical cannabis company, announced its financial and operational results for the year ended December 31, 2023, the highlights of which are included in this news release. All figures are reported in Canadian dollars. The Company’s full set of consolidated audited financial statements for the years ended December 31, 2023 and 2022 (the “Annual Financial Statements“) and accompanying management’s discussion and analysis (the “Annual MD&A“) can be accessed by visiting the Company’s website at https://investors.imcannabis.com/, and its profile pages on SEDAR+ at www.sedarplus.ca, and EDGAR at http://www.sec.gov/edgar.
FINANCIAL HIGHLIGHTS FOR THE THREE MONTHS AND YEAR ENDED DECEMBER 31, 2023
- Revenue decreased to $48.8 million for the fiscal year ended December 31, 2023 (compared to $53.3 in 2022), representing a decrease of 10%.
- Primarily due to negative currency fluctuations and the impact of the Israel-Hamas war on the Company’s operations.
- Revenue decreased to $10.7 million for the three months ended December 31, 2023 (compared to $14.5 million in 2022), representing a decrease of 26%.
- Primarily due to the interruption on the Company’s supply chain caused by the Israel-Hamas war and the Company discounting certain outstanding inventory at lower prices.
- Gross profit increased to $9.8 million for the fiscal year ended December 31, 2023 (compared to $9.2 million in 2022), representing an increase of 7.5%
- Gross profit decreased to $0.8 million for the three months ended December 31, 2023 (compared to $2.6 million in 2022), representing a decrease of 68%
- Primarily due to the interruption on the Company’s supply chain caused by the Israel-Hamas war and the Company discounting certain outstanding inventory at lower prices.
- The Company’s fair value adjustment was approximately $1 million for the fiscal year ended December 31, 2023 (compared to $2.1 million in 2022).
- G&A expenses decreased to $11 million for the fiscal year ended December 31, 2023 (compared to $21.5 million in 2022), representing an decrease of 49%
- G&A expenses decreased to $3.3 million for the three months ended December 31, 2023 (compared to $9.8 million in 2022), representing a decrease of 66%
- Primarily due to the impairment on Y2022 and restructuring and HC adjustments in 2023.
- Selling and marketing expenses decreased to $10.8 million for the fiscal year ended December 31, 2023 (compared to $11.5 million in 2022), representing an decrease of 6%
- Selling and marketing expenses decreased to $2.8 million for the three months ended December 31, 2023 (compared to $3.1 million in 2022), representing a decrease of 10%
- Primarily due to a decrease in share based compensation payments and a restructuring of the Company’s personnel.
- Net Loss from continuing operations for the fiscal year ended December 31, 2023 was $10.2 million, as compared to $24.9 million in 2022.
- Net Loss from continuing operations for the three months ended December 31, 2023 was $3.5 million, as compared to a Net Loss of $9.6 million in the fourth quarter of 2022.
- Diluted Loss per Share for the fiscal year ended December 31, 2023 was $0.74, compared to a loss of $3.81 per Share in 2022.
- Diluted Loss per Share for the three months ended December 31, 2023 was $(0.25), compared to a basic loss of $)2.94( per share and a diluted loss of $)3.55( per share in for the three months ended December 31, 2022.
- Cash and Cash Equivalents as of December 31, 2023, was $1.8 million, compared to $2.4 million as of December 31, 2022.
- Total assets were $48.8 million as of December 31, 2023, compared to $60.7 million as of December 31, 2022, representing a decrease of 20%.
- Primarily attributed to an inventory reduction of about $6.6 million, a reduction in other current assets of $1.8 million and a reduction of non-current assets of about $3.5 million.
- Total Liabilities were $35.1 million as of December 31, 2023, compared to $36.9 as of December 31, 2022, representing a decrease of about 5%.
- Primarily attributed to a reduction in trade payables of $6.1 million.
- Operating expenses decreased to $22.6 million for the year ended December 31, 2023 (compared to $40 million in 2022), representing a decrease of 43%
- Operating expenses decreased to $6 million for the three months ended December 31, 2023 (compared to $13.3 million in 2022), representing a decrease of 55%
- Adjusted EBITDA1 decreased to $8 million for the year ended December 31, 2023, (compared to $11.5 in 2022), representing a decrease of 30%
- Total Dried Flower sold in 2023 was approximately 8,609 kg with an average selling price of $5.14 per gram (compared to approximately 6,794kg, with an average selling price of $7.12 per gram in 2022).
- Primarily due to increased competition within the retail segment and the Company discounting certain outstanding inventory at lower prices.
- Total Dried Flower sold in the fourth quarter of 2023 was about 2,082kg with an average selling price of $4.52 per gram (compared to about 2,334kg with an average selling price of $5.19 per gram in 2022).
- Primarily due to increased competition within the retail segment and the Company discounting certain outstanding inventory at lower prices.
The Annual Financial Statements include a note regarding the Company’s ability to continue as a going concern. The Annual Financial Statements do not include any adjustments relating to the recoverability and classification of assets or liabilities that might be necessary should the Company be unable to continue as a going concern. For more information, please refer to the “Liquidity and Capital Resources” and “Risk Factors” sections in the 2023 Annual MD&A.
Management Commentary
“IMC Germany delivered accelerated growth in 2023, growing 181% from $252K in 2022 to $709K in 2023. During this time, IMC Germany was #1 in sales per stock keeping unit and posted the highest growth against its competitors in the German market.2 With the regulatory rescheduling of cannabis in Germany set to occur effective April 1st, the Company hopes to continue its growth in the market as the market evolves,” said Oren Shuster, Chief Executive Officer of IMC. “In addition, as we are constantly looking for opportunities to maximize shareholder value, we are hopeful that our potential reverse merger with Israel-based Kadimastem Ltd., a clinical cell therapy public company traded on the Tel Aviv stock exchange under the symbol (TASE: KDST) will proceed as expected, which we believe will create significant value for the shareholders.”
“As previously warned and as expected, unfortunately, the Israel-Hamas war had a negative impact on our fourth quarter 2023 results, which weighed on our full year results. Due to the ongoing conflict, there was a 6% decrease in our yearly revenue. Coupled with our fourth quarter of 2023 inventory reduction, the war caused our fourth quarter gross profit to decrease by 68% as compared to the fourth quarter of 2022. However, our gross profit for 2023 increased by 7.5% to $9.8 million as compared to last year,” said Uri Birenberg, Chief Financial Officer of IMC. “Partially offsetting these declines, we were able to reduce our operating costs in the fourth quarter of 2023 by 55% as compared to the fourth quarter of 2022, ending the year with a 43% reduction in our operating costs as compared to last year, as we leaned further into our goal of active cost management.”
Conference Call
The Company will host a Zoom web conference call today at 9:00 a.m. ET to discuss the results, followed by a question-and-answer session for the investment community. Investors are invited to register by clicking here. All relevant information will be sent upon registration.
If you are unable to join us live, a recording of the call will be available on our website at https://investors.imcannabis.com/ within 24 hours after the call.
Non-IFRS Measures
This press release makes reference to “Gross Margin” and “Adjusted EBITDA”, which are financial measures that are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. These measures are provided as complementary information to the Company’s IFRS measures by providing further understanding of our results of operations from management’s perspective. Accordingly, these measures should neither be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS.
For an explanation of how management defines Gross Margin and Adjusted EBITDA, see the 2023 MD&A.
We reconcile these non-IFRS financial measures to the most comparable IFRS measures as set out below:
About IM Cannabis Corp.
IM Cannabis Corp. (Nasdaq: IMCC) (CSE: IMCC) is an international cannabis company that provides premium cannabis products to medical patients in Israel and Germany, two of the largest medical cannabis markets. The Company has exited operations in Canada to pivot its focus and resources to achieve sustainable and profitable growth in its highest value markets, Israel and Germany. The Company leverages a transnational ecosystem powered by a unique data-driven approach and a globally sourced product supply chain. With an unwavering commitment to responsible growth and compliance with the strictest regulatory environments, the Company strives to amplify its commercial and brand power to become a global high-quality cannabis player.
The IMC ecosystem operates in Israel through its commercial relationship with Focus Medical Herbs Ltd., which imports and distributes cannabis to medical patients, leveraging years of proprietary data and patient insights. The Company also operates medical cannabis retail pharmacies, online platforms and logistical hubs in Israel that enable the safe delivery and quality control of IMC products throughout the entire value chain. In Germany, the IMC ecosystem operates through Adjupharm GmbH, where it distributes cannabis to pharmacies for medical cannabis patients. Until recently, the Company also actively operated in Canada through Trichome Financial Corp and its wholly owned subsidiaries, where it cultivated, processed, packaged, and sold premium and ultra-premium cannabis at its own facilities under the WAGNERS and Highland Grow brands for the adult-use market in Canada. The Company has exited operations in Canada and considers these operations as discontinued.
Disclaimer for Forward-Looking Statements
This press release contains forward-looking information or forward-looking statements under applicable Canadian and United States securities laws (collectively, “forward-looking statements“). All information that addresses activities or developments that we expect to occur in the future are forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “seek”, “anticipate”, “believe”, “plan”, “estimate”, “expect”, “likely” and “intend” and statements that an event or result “may”, “will”, “should”, “could” or “might” occur or be achieved and other similar expressions. Forward-looking statements are based on the estimates and opinions of management on the date the statements are made. In the press release, such forward-looking statements include, but are not limited to, statements relating to: the Company leaving the Canadian cannabis market to pivot its focus and resources to achieve sustainable and profitable growth in its highest value markets, Israel and Germany; the impact of the Israel-Hamas war on the Company, including its operations and the medical cannabis industry in Israel; the timing and impact of the partial legalization of medicinal cannabis in Germany, including, the Company having it “all in house”, the Company being positioned to take advantage of the partial legalization, the Company’s growth in 2024, the market growth for medicinal cannabis in Germany, and the stated benefits of the Company’s EU-GMP processing facility and an EU-GDP logistics center; the Company to host a teleconference meeting as stated; and the Company’s stated goals, scope, and nature of operations in Germany, Israel, and other jurisdictions the Company may operate.
Forward-looking statements are based on assumptions that may prove to be incorrect, including but not limited to: the Company’s ability to focus and resources to achieve sustainable and profitable growth in its highest value markets; the Company’s ability to mitigate the impact of the Israel-Hamas war on the Company; the Company’s ability to take advantage of the partial legalization of medicinal cannabis in Germany; the Company’s ability to host a teleconference meeting as stated; and the Company’s ability to carry out its stated goals, scope, and nature of operations in Germany, Israel, and other jurisdictions the Company may operate.
The above lists of forward-looking statements and assumptions are not exhaustive. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated or implied by such forward-looking statements due to a number of factors and risks. These include: the failure of the Company to comply with applicable regulatory requirements in a highly regulated industry; unexpected changes in governmental policies and regulations in the jurisdictions in which the Company operates; the Company’s ability to continue to meet the listing requirements of the Canadian Securities Exchange and the NASDAQ Capital Market; any unexpected failure to maintain in good standing or renew its licenses; the ability of the Company and Focus Medical (collectively, the “Group“) to deliver on their sales commitments or growth objectives; the reliance of the Group on third-party supply agreements to provide sufficient quantities of medical cannabis to fulfil the Group’s obligations; the Group’s possible exposure to liability, the perceived level of risk related thereto, and the anticipated results of any litigation or other similar disputes or legal proceedings involving the Group; the impact of increasing competition; any lack of merger and acquisition opportunities; adverse market conditions; the inherent uncertainty of production quantities, qualities and cost estimates and the potential for unexpected costs and expenses; risks of product liability and other safety-related liability from the usage of the Group’s cannabis products; supply chain constraints; reliance on key personnel; the risk of defaulting on existing debt; risks surrounding war, conflict and civil unrest in Eastern Europe and the Middle East, including the impact of the Israel-Hamas war on the Company, its operations and the medical cannabis industry in Israel; risks associated with the Company focusing on the Israel and Germany markets; the inability of the Company to achieve sustainable profitability and/or increase shareholder value; the inability of the Company to actively manage costs and/or improve margins; the inability of the company to grow and/or maintain sales; the inability of the Company to meet its goals and/or strategic plans; the inability of the Company to reduce costs and/or maintain revenues; the Company’s inability to take advantage of the partial legalization of medicinal cannabis in Germany; and the Company’s inability to host a teleconference meeting as stated.
Please see the other risks, uncertainties and factors set out under the heading “Risk Factors” in the Company’s annual report dated March 28, 2024, which is available on the Company’s issuer profile on SEDAR+ at www.sedarplus.ca and Edgar at www.sec.gov/edgar. Any forward-looking statement included in this press release is made as of the date of this press release and is based on the beliefs, estimates, expectations and opinions of management on the date such forward looking information is made. The Company does not undertake any obligation to update forward-looking statements except as required by applicable securities laws. Investors should not place undue reliance on forward-looking statements. Forward-looking statements contained in this press release are expressly qualified by this cautionary statement.
1 Earnings before interest, taxes, depreciation, and amortization (“EBITDA“) and Adjusted EBITDA. These measures do not have a standardized meaning prescribed by International Financial Reporting Standards (“IFRS“) and are therefore unlikely to be comparable to similar measures presented by other issuers. Non-IFRS measures provide investors with a supplemental measure of the Company’s operating performance and therefore highlight trends in Company’s core business that may not otherwise be apparent when relying solely on IFRS measures. Management uses non-IFRS measures in measuring the financial performance of the Company.
2 Based on reporting by Insight Health’s as of December 31, 2023.
Company Contact:
Anna Taranko, Director Investor & Public Relations
IM Cannabis Corp.
+49 157 80554338
[email protected]
Oren Shuster, CEO
IM Cannabis Corp.
+972-77-3603504
[email protected]
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION |
||||||
Canadian Dollars in thousands |
||||||
December 31, |
||||||
Note |
2023 |
2022 |
||||
ASSETS |
||||||
CURRENT ASSETS: |
||||||
Cash and cash equivalents |
$ 1,813 |
$ 2,449 |
||||
Trade receivables |
6 |
7,651 |
8,684 |
|||
Advances to suppliers |
936 |
1,631 |
||||
Other accounts receivable |
7 |
3,889 |
3,323 |
|||
Inventory |
9 |
9,976 |
16,585 |
|||
24,265 |
32,672 |
|||||
NON-CURRENT ASSETS: |
||||||
Property, plant and equipment, net |
10 |
5,058 |
5,221 |
|||
Investments in affiliates |
15c |
2,285 |
2,410 |
|||
Right-of-use assets, net |
12 |
1,307 |
1,929 |
|||
Deferred tax assets, net |
17 |
– |
763 |
|||
Intangible assets, net |
11 |
5,803 |
7,910 |
|||
Goodwill |
11 |
10,095 |
9,771 |
|||
24,548 |
28,004 |
|||||
Total assets |
$ 48,813 |
$ 60,676 |
||||
The accompanying notes are an integral part of the consolidated financial statements. |
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION |
||||||
Canadian Dollars in thousands |
||||||
December 31, |
||||||
Note |
2023 |
2022 |
||||
LIABILITIES AND EQUITY |
||||||
CURRENT LIABILITIES: |
||||||
Trade payables |
14 |
$ 9,223 |
$ 15,312 |
|||
Credit from banks and others |
13 |
12,119 |
9,246 |
|||
Other accounts payable and accrued expenses |
15 |
6,218 |
6,013 |
|||
Accrued purchase consideration liabilities |
5 |
2,097 |
2,434 |
|||
PUT Option liability |
2,697 |
|||||
Current maturities of operating lease liabilities |
12 |
454 |
814 |
|||
32,808 |
33,819 |
|||||
NON-CURRENT LIABILITIES: |
||||||
Warrants measured at fair value |
17 |
38 |
8 |
|||
Operating lease liabilities |
12 |
815 |
1,075 |
|||
Credit from banks and others |
394 |
399 |
||||
Employee benefit liabilities, net |
16 |
95 |
246 |
|||
Deferred tax liability, net |
19 |
963 |
1,332 |
|||
2,305 |
3,060 |
|||||
Total liabilities |
35,113 |
36,879 |
||||
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY: |
20 |
|||||
Share capital and premium |
253,882 |
245,776 |
||||
Translation reserve |
95 |
1,283 |
||||
Reserve from share-based payment transactions |
9,637 |
15,167 |
||||
Accumulated deficit |
(249,145) |
(239,574) |
||||
Total equity attributable to shareholders of the Company |
14,469 |
22,652 |
||||
Non-controlling interests |
(769) |
1,145 |
||||
Total equity |
13,700 |
23,797 |
||||
Total equity and liabilities |
$ 48,813 |
$ 60,676 |
||||
The accompanying notes are an integral part of the consolidated financial statements. |
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS |
||||||||
AND OTHER COMPREHENSIVE INCOME |
||||||||
Canadian Dollars in thousands |
||||||||
Year ended December 31, |
||||||||
Note |
2023 |
2022 |
*) 2021 |
|||||
Revenues |
21 |
$ 48,804 |
$ 54,335 |
$ 34,053 |
||||
Cost of revenues |
21 |
37,974 |
43,044 |
25,458 |
||||
Gross profit before fair value adjustments |
10,830 |
11,291 |
8,595 |
|||||
Fair value adjustments: |
||||||||
Unrealized change in fair value of biological assets |
– |
(315) |
6,308 |
|||||
Realized fair value adjustments on inventory sold in the year |
(984) |
(1,814) |
(8,570) |
|||||
Total fair value adjustments |
(984) |
(2,129) |
(2,262) |
|||||
Gross profit after fair value adjustments |
9,846 |
9,162 |
6,333 |
|||||
General and administrative expenses |
21 |
11,008 |
21,460 |
17,221 |
||||
Selling and marketing expenses |
21 |
10,788 |
11,473 |
6,725 |
||||
Restructuring expenses |
1 |
617 |
4,383 |
– |
||||
Share-based compensation |
20 |
225 |
2,637 |
5,422 |
||||
Total operating expenses |
22,638 |
39,953 |
29,368 |
|||||
Operating loss |
(12,792) |
(30,791) |
(23,035) |
|||||
Finance income |
7,006 |
6,703 |
23,544 |
|||||
Finance expenses |
(3,671) |
(1,972) |
(673) |
|||||
Finance income (expense), net |
3,335 |
4,731 |
22,871 |
|||||
Loss before income taxes |
(9,457) |
(26,060) |
(164) |
|||||
Income tax expense (benefit) |
18 |
771 |
(1,138) |
500 |
||||
Net loss from continuing operations |
(10,228) |
(24,922) |
(664) |
|||||
Net loss from discontinued operations, net of tax |
25 |
– |
(166,379) |
(17,854) |
||||
Net loss |
(10,228) |
(191,301) |
(18,518) |
|||||
*) Reclassified in respect of discontinued operations – see Note 25. |
||||||||
The accompanying notes are an integral part of the consolidated financial statements. |
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS |
||||||||
AND OTHER COMPREHENSIVE INCOME |
||||||||
Canadian Dollars in thousands, except per share data |
||||||||
Year ended December 31, |
||||||||
Note |
2023 |
2022 |
*) 2021 |
|||||
Other comprehensive income that will not be reclassified to profit or loss in subsequent periods: |
||||||||
Remeasurement gain on defined benefit plans |
38 |
59 |
21 |
|||||
Exchange differences on translation to presentation currency |
(894) |
(1,238) |
858 |
|||||
Total other comprehensive income that will not be reclassified to profit or loss in subsequent periods |
(856) |
(1,179) |
879 |
|||||
Other comprehensive income that will be reclassified to profit or loss in subsequent periods: |
||||||||
Adjustments arising from translating financial statements of foreign operation |
231 |
(246) |
530 |
|||||
Total other comprehensive income (loss) |
(625) |
(1,425) |
1,409 |
|||||
Total comprehensive loss |
$ (10,853) |
$ (192,726) |
$ (17,109) |
|||||
Net loss attributable to: |
||||||||
Equity holders of the Company |
$ (9,498) |
$ (188,890) |
$ (17,763) |
|||||
Non-controlling interests |
(730) |
(2,411) |
(755) |
|||||
$ (10,228) |
$ (191,301) |
$ (18,518) |
||||||
Total comprehensive loss attributable to: |
||||||||
Equity holders of the Company |
$ (10,648) |
$ (190,162) |
$ (16,357) |
|||||
Non-controlling interests |
$ (205) |
(2,564) |
(752) |
|||||
$ (10,853) |
$ (192,726) |
$ (17,109) |
||||||
Earnings (loss) per share attributable to equity holders of the Company from continuing operations: |
22 |
|||||||
Basic earnings (loss) per share (in CAD) |
$ (0.74) |
$ (3.13) |
$ 0.02 |
|||||
Diluted loss per share (in CAD) |
$ (0.74) |
$ (3.81) |
$ (3.62) |
|||||
Loss per share attributable to equity holders of the Company from discontinued operations: |
||||||||
Basic and diluted loss per share (in CAD) |
– |
$ (23.17) |
$ (3.08) |
|||||
Loss per share attributable to equity holders of the Company from net loss: |
||||||||
Basic earnings (loss) per share (in CAD) |
$ (0.74) |
$ (26.3) |
$ (3.06) |
|||||
Diluted loss per share (in CAD) |
$ (0.74) |
$ (26.98) |
$ (6.7) |
|||||
*) Reclassified in respect of discontinued operations – see Note 25. |
||||||||
The accompanying notes are an integral part of the consolidated financial statements. |
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
||||||||||||||||
Canadian Dollars in thousands |
||||||||||||||||
Share capital and premium |
Treasury Stock |
Reserve from share-based payment transactions |
Translation reserve |
Accumulated deficit |
Total |
Non-controlling interests |
Total |
|||||||||
Balance as of January 1, 2021 |
$ 37,040 |
$ – |
$ 5,829 |
$ 1,229 |
$ (33,001) |
$ 11,097 |
$ 1,513 |
$ 12,610 |
||||||||
Net loss |
– |
– |
– |
– |
(17,763) |
(17,763) |
(755) |
(18,518) |
||||||||
Total other comprehensive income |
– |
– |
– |
1,385 |
21 |
1,406 |
3 |
1,409 |
||||||||
Total comprehensive income (loss) |
– |
– |
– |
1,385 |
(17,742) |
(16,357) |
(752) |
(17,109) |
||||||||
Issuance of common shares, net of issuance costs of $3,800 |
195,259 |
– |
– |
– |
– |
195,259 |
2,948 |
198,207 |
||||||||
Purchase of treasury common shares |
– |
(660) |
– |
– |
– |
(660) |
– |
(660) |
||||||||
Exercise of warrants and compensation options |
4,293 |
– |
– |
– |
– |
4,293 |
– |
4,293 |
||||||||
Exercise of options |
1,053 |
– |
(920) |
– |
– |
133 |
– |
133 |
||||||||
Share-based compensation |
– |
– |
7,471 |
– |
– |
7,471 |
– |
7,471 |
||||||||
Expired options |
32 |
– |
(32) |
– |
– |
– |
– |
– |
||||||||
Balance as of December 31, 2021 |
237,677 |
(660) |
12,348 |
2,614 |
(50,743) |
201,236 |
3,709 |
204,945 |
||||||||
Net loss |
– |
– |
– |
– |
(188,890) |
(188,890) |
(2,411) |
(191,301) |
||||||||
Total other comprehensive income (loss) |
– |
– |
– |
(1,331) |
59 |
(1,272) |
(153) |
(1,425) |
||||||||
Total comprehensive loss |
– |
– |
– |
(1,331) |
(188,831) |
(190,162) |
(2,564) |
(192,726) |
||||||||
Issuance of treasury common shares |
– |
660 |
– |
– |
– |
660 |
– |
660 |
||||||||
Issuance of shares, net of issuance costs of $178 |
6,818 |
– |
– |
– |
– |
6,818 |
– |
6,818 |
||||||||
Exercise of options |
992 |
– |
(659) |
– |
– |
333 |
– |
333 |
||||||||
Share-based compensation |
– |
– |
3,767 |
– |
– |
3,767 |
– |
3,767 |
||||||||
Expired options |
289 |
– |
(289) |
– |
– |
– |
– |
– |
||||||||
Balance as of December 31, 2022 |
245,776 |
– |
15,167 |
1,283 |
(239,574) |
22,652 |
1,145 |
23,797 |
||||||||
The accompanying notes are an integral part of the consolidated financial statements. |
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY |
||||||||||||||
Canadian Dollars in thousands |
||||||||||||||
Share capital |
Reserve from |
Translation |
Accumulated |
Total |
Non-controlling interests |
Total |
||||||||
Balance as of December 31, 2022 |
245,776 |
15,167 |
1,283 |
(239,574) |
22,652 |
1,145 |
23,797 |
|||||||
Net loss |
– |
– |
– |
(9,498) |
(9,498) |
(730) |
(10,228) |
|||||||
Total other comprehensive income (loss) |
– |
– |
(1,188) |
38 |
(1,150) |
525 |
(625) |
|||||||
Total comprehensive loss |
– |
– |
(1,188) |
(9,460) |
(10,648) |
(205) |
(10,853) |
|||||||
Issuance of treasury common shares |
2,351 |
– |
– |
– |
2,351 |
– |
2,351 |
|||||||
Issuance of shares, net of issuance costs of $178 |
||||||||||||||
Exercise of options |
||||||||||||||
Other comprehensive income Classification |
– |
– |
– |
(111) |
(111) |
(1,709) |
(1,820) |
|||||||
Share-based compensation |
– |
225 |
– |
– |
225 |
– |
225 |
|||||||
Expired options |
5,755 |
(5,755) |
– |
– |
– |
– |
– |
|||||||
Balance as of December 31, 2023 |
253,882 |
9,637 |
95 |
(249,145) |
14,469 |
(769) |
13,700 |
|||||||
The accompanying notes are an integral part of the consolidated financial statements. |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
||||||
Canadian Dollars in thousands |
||||||
Year ended December 31, |
||||||
2023 |
2022 |
2021 |
||||
Cash provided from operating activities: |
||||||
Net loss |
$ (10,228) |
$ (191,301) |
$ (18,518) |
|||
Adjustments for non-cash items: |
||||||
Unrealized gain on changes in fair value of biological assets |
– |
(84) |
(7,210) |
|||
Fair value adjustment on sale of inventory |
984 |
4,342 |
8,796 |
|||
Fair value adjustment on warrants, investments, and accounts receivable |
(6,955) |
(6,000) |
(21,638) |
|||
Depreciation of property, plant and equipment |
644 |
3,044 |
3,021 |
|||
Amortization of intangible assets |
1,758 |
2,343 |
1,158 |
|||
Depreciation of right-of-use assets |
594 |
1,944 |
1,550 |
|||
Impairment of goodwill |
– |
107,854 |
275 |
|||
Impairment of property, plant and equipment |
– |
2,277 |
– |
|||
Impairment of intangible assets |
– |
7,199 |
– |
|||
Impairment of right-of-use assets |
– |
1,914 |
– |
|||
Finance income, net |
3,019 |
6,532 |
1,262 |
|||
Deferred tax payments (benefit), net |
394 |
(3,004) |
278 |
|||
Share-based payments |
225 |
3,767 |
7,471 |
|||
Share based acquisition costs related to business combination |
– |
– |
807 |
|||
Revaluation of other accounts receivable |
– |
3,982 |
– |
|||
Restructuring expenses |
– |
8,757 |
– |
|||
Loss from revaluation of investments |
601 |
– |
– |
|||
1,264 |
144,867 |
(4,230) |
||||
Changes in non-cash working capital: |
||||||
Increase (decrease) in trade receivables, net |
2,320 |
6,058 |
(6,602) |
|||
Increase (decrease) in other accounts receivable and advances to suppliers |
1,299 |
3,622 |
845 |
|||
Decrease in biological assets, net of fair value adjustments |
– |
565 |
6,412 |
|||
Increase (decrease) in inventory, net of fair value adjustments |
4,771 |
883 |
(19,707) |
|||
Increase (decrease) in trade payables |
(6,098) |
11,284 |
5,573 |
|||
Changes in employee benefit liabilities, net |
(139) |
(63) |
28 |
|||
Increase in other accounts payable and accrued expenses |
(750) |
12,126 |
2,661 |
|||
1,403 |
34,475 |
(10,790) |
||||
Taxes paid |
(514) |
(681) |
(834) |
|||
Net cash used in operating activities |
(8,075) |
(12,640) |
(34,372) |
|||
The accompanying notes are an integral part of the consolidated financial statements. |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
||||||
Canadian Dollars in thousands |
||||||
Year ended December 31, |
||||||
2023 |
2022 |
2021 |
||||
Cash flows from investing activities: |
||||||
Purchase of property, plant and equipment |
(581) |
(1,562) |
(4,578) |
|||
Proceeds from sales of property, plant and equipment |
– |
210 |
– |
|||
Proceeds from loans receivable |
– |
350 |
7,796 |
|||
Purchase of intangible assets |
– |
– |
(17) |
|||
Acquisition of businesses, net of cash acquired |
– |
– |
(12,536) |
|||
Deconsolidation of subsidiary (see Note 25) |
– |
(406) |
– |
|||
Investments in financial assets |
– |
– |
(13) |
|||
Proceeds from sale of investment |
– |
– |
319 |
|||
Proceeds from (investment in) restricted deposits |
– |
– |
17 |
|||
Investments in associates |
(601) |
(125) |
– |
|||
Net cash used in investing activities |
(1,182) |
(1,533) |
(9,012) |
|||
Cash provided by financing activities: |
||||||
Proceeds from issuance of share capital, net of issuance costs |
1,688 |
3,756 |
28,131 |
|||
Proceeds from issuance of warrants measured at fair value |
6,585 |
– |
11,222 |
|||
Proceeds from exercise of warrants |
– |
– |
3,682 |
|||
Proceeds from exercise of options |
– |
333 |
133 |
|||
Repayment of lease liability |
(586) |
(1,656) |
(633) |
|||
Payment of lease liability interest |
(63) |
(1,429) |
(1,347) |
|||
Proceeds from loans |
5,482 |
9,636 |
7,804 |
|||
Repayment of loans |
(4,827) |
(4,976) |
– |
|||
Interest paid |
(1,664) |
(902) |
(261) |
|||
Proceeds from discounted checks |
2,802 |
– |
– |
|||
Net cash provided by financing activities |
9,417 |
4,762 |
48,731 |
|||
Effect of foreign exchange on cash and cash equivalents |
(796) |
(2,043) |
(329) |
|||
Increase (decrease) in cash and cash equivalents |
(636) |
(11,454) |
5,018 |
|||
Cash and cash equivalents at beginning of year |
2,449 |
13,903 |
8,885 |
|||
Cash and cash equivalents at end of year |
$ 1,813 |
$ 2,449 |
$ 13,903 |
|||
Supplemental disclosure of non-cash activities: |
||||||
Right-of-use asset recognized with corresponding lease liability |
$ 309 |
$ 613 |
$ 1,678 |
|||
Conversion of warrant and compensation options into common shares |
$ – |
$ – |
$ 611 |
|||
Issuance of shares in payment of purchase consideration liability |
$ – |
$ 3,061 |
$ – |
|||
Issuance of shares in payment of debt settlement to a non-independent director of the company |
$ 1,061 |
$ – |
$ – |
Logo – https://mma.prnewswire.com/media/1742228/IM_Cannabis_Logo.jpg
View original content:https://www.prnewswire.co.uk/news-releases/im-cannabis-reports-2023-financial-results-302102584.html
SCHWAZZE
Schwazze Announces Fourth Quarter and Full Year 2023 Financial Results
FY 2023 Revenue of $172.4 Million; Income from Operations of $3.3 Million; Adjusted EBITDA of $53.4 Million or 31% of Revenue
Generated $12.2 Million of Operating Cash Flow in FY 2023
DENVER, March 27, 2024 /PRNewswire/ — Medicine Man Technologies, Inc., operating as Schwazze, (OTCQX: SHWZ) (Cboe: SHWZ) (“Schwazze” or the “Company”), today announced financial and operational results for the fourth quarter and full year ended December 31, 2023.
“This past year, the Schwazze team delivered solid top-line growth in two highly competitive markets with 31% adjusted EBITDA margins and improved operating cash flow,” said Forrest Hoffmaster, Interim CEO of Schwazze. “We continued to sharpen our retail strategy while expanding our store footprint by more than 50% to 63 dispensaries across our two markets. Although the Colorado and New Mexico markets were pressured in 2023, we have built a solid foundation with best-in-class service for our patients and customers. Internally, we are also relentlessly focused on maximizing the operating efficiencies of our manufacturing and cultivation facilities to drive higher yields, improved flower quality, and greater output.”
“With strong demand and over 680 recreational retail stores at year-end, the competitive landscape in Colorado is fierce, underscoring the importance of our investments in and attention to elevating the customer experience. We significantly outpaced the market in Q4 on a sequential and year-over-year basis and expect to bolster our growth through improvements in customer acquisition, retention, and loyalty, as well as in the overall retail experience. Additionally, we are beginning to see wholesale pricing stabilize, which we anticipate will continue based on plant counts and ongoing retail pricing pressure.”
“In New Mexico, the proliferation of new licenses has led to increased competition and aggressive pricing strategies from certain players. Cannabis sales in the state were up 18% across a store base that was over 50% higher year-over-year in Q4, leading to lower average revenue per store. While we are beginning to see a slow-down in net new store openings, we anticipate a challenging market ahead. We remain focused on cost optimization and asset utilization while implementing a balanced pricing and promotional strategy to drive traffic into our stores, where we believe we excel in delivering an elevated retail experience. We are committed to fulfilling our promise of being the retailer of choice in New Mexico.”
“Looking ahead, we are optimistic about the regulatory momentum in the industry at large. In the meantime, we will continue to elevate the customer experience, improve our loyalty program, increase our cost efficiencies, and enhance our retail assets. Our team has a demonstrated track record of executing in competitive markets like Colorado and New Mexico where we remain one of the largest operators. We look forward to driving growth and profitability across each of our markets in 2024.”
Fourth Quarter 2023 Financial Summary
$ in Thousands USD |
Q4 2023 |
Q3 2023 |
Q4 2022 |
Total Revenue |
$43,325 |
$46,747 |
$40,147 |
Gross Profit |
$7,034 |
$21,438 |
$21,719 |
Adjusted Gross Profit[1] |
$20,180 |
$21,438 |
$21,719 |
Operating Expenses |
$23,276 |
$12,514 |
$24,224 |
Income (Loss) from Operations |
$(16,242) |
$8,924 |
$(2,505) |
Adjusted EBITDA[2] |
$10,953 |
$14,119 |
$13,285 |
Operating Cash Flow |
$3,452 |
$6,946 |
$6,260 |
Full Year 2023 Financial Summary
$ in Thousands USD |
FY 2023 |
FY 2022 |
Total Revenue |
$172,448 |
$159,379 |
Gross Profit |
$76,024 |
$80,289 |
Adjusted Gross Profit1 |
$89,170 |
$86,830 |
Operating Expenses |
$72,735 |
$67,434 |
Income from Operations |
$3,289 |
$12,855 |
Adjusted EBITDA2 |
$53,412 |
$52,010 |
Operating Cash Flow |
$12,201 |
$6,694 |
___________________________ |
1 Adjusted Gross Profit is a non-GAAP measure as defined by the SEC and represents gross profit excluding non-cash inventory adjustments. The Company uses Adjusted Gross Profit as it believes it better explains the results of its core business. See “ADJUSTED GROSS PROFIT RECONCILIATION (NON-GAAP)” section herein for an explanation and reconciliations of non-GAAP measure used throughout this release. |
2 Adjusted EBITDA is a non-GAAP measure as defined by the SEC, and represents earnings before interest, taxes, depreciation, and amortization, adjusted for other income, non-cash share-based compensation, one-time transaction related expenses, or other non-operating costs. The Company uses Adjusted EBITDA as it believes it better explains the results of its core business. See “ADJUSTED EBITDA RECONCILIATION (NON-GAAP)” section herein for an explanation and reconciliations of non-GAAP measure used throughout this release. |
Full Year 2023 Operational Highlights
- Expanded the Company’s retail footprint by more than 50% in New Mexico and Colorado to 63 dispensaries.
- Completed the acquisition of Everest Apothecary, adding 14 dispensaries, one cultivation facility, and one manufacturing plant to the Company’s New Mexico operations.
- Acquired Standing Akimbo, the largest medical cannabis dispensary in Colorado, and opened the Company’s first medical dispensary in Colorado Springs under the Standing Akimbo banner.
- Acquired two Colorado retail dispensaries in Fort Collins and Garden City from Smokey’s.
- Unveiled an enhanced, custom ecommerce platform in New Mexico under the R. Greenleaf banner.
- Increased wholesale penetration in Colorado and New Mexico by over 3x year-over-year to more than 27% total door penetration in both states.
- Grew Lowell Farms pre-roll sales by over 250% in Colorado where it is now the #1 pre-roll in the state. In addition, Lowell is in six of the largest Colorado accounts and will be available for wholesale in New Mexico starting April 1st, 2024.
- Grew sales with Wana, our fan-favorite gummies brand, by 48% in New Mexico where it is now in 130 doors with eight of the top ten accounts in the state.
Fourth Quarter 2023 Financial Results
Total revenue in the fourth quarter of 2023 increased 8% to $43.3 million compared to $40.1 million for the same quarter last year. The increase was primarily due to growth from new stores compared to the prior year period and increased wholesale revenue, partially offset by pricing pressure from the proliferation of new licenses in New Mexico.
Gross profit for the fourth quarter of 2023 was $7.0 million or 16.2% of total revenue, compared to $21.7 million or 54.1% of total revenue for the same quarter last year. The decrease in gross margin was primarily driven by 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. Adjusted gross profit, which excludes non-cash inventory adjustments, for the fourth quarter of 2023 was $20.2 million or 46.6% of revenue.
Operating expenses for the fourth quarter of 2023 were $23.3 million compared to $24.2 million for the same quarter last year. The decrease was primarily due to a lower impairment charge in the fourth quarter of 2023. This was partially offset by an increase in four-wall SG&A expenses associated with the 22 additional stores in Colorado and New Mexico that are still ramping, as well as greater salaries and stock-based compensation.
Loss from operations for the fourth quarter of 2023 was $16.2 million compared to $2.5 million in the same quarter last year. The decrease was driven by the aforementioned lower gross profit, primarily related to the non-cash inventory adjustment. Net loss was $33.9 million for the fourth quarter of 2023 compared to $27.3 million for the same quarter last year.
Adjusted EBITDA for the fourth quarter of 2023 was $11.0 million or 25.3% of revenue, compared to $13.3 million or 33.1% of revenue for the same quarter last year. The decrease in Adjusted EBITDA margin was primarily driven by higher operating expenses associated with the 22 additional stores that are still ramping.
As of December 31, 2023, cash and cash equivalents were $19.2 million compared to $38.9 million on December 31, 2022. Total debt as of December 31, 2023, was $156.8 million compared to $127.8 million on December 31, 2022.
Conference Call
The Company will conduct a conference call today, March 27, 2024, at 5:00 p.m. Eastern time to discuss its results for the fourth quarter and full year ended December 31, 2023.
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, March 27, 2024
Time: 5:00 p.m. Eastern time
Toll-free dial-in: (888) 664-6383
International dial-in: (416) 764-8650
Conference ID: 38840334
Webcast: SHWZ Q4 & FY 2023 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: 840334
If you have any difficulty registering or connecting with the conference call, please contact Elevate IR at (720) 330-2829.
Schwazze (OTCQX: SHWZ) (Cboe: 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/.
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 STATEMENTS OF COMPREHENSIVE INCOME AND (LOSS)
For the Periods Ended December 31, 2023 and 2022
Expressed in U.S. Dollars
For the Three Months Ended |
For the Twelve Months Ended |
||||||||||
December 31, |
December 31, |
||||||||||
2023 |
2022 |
2023 |
2022 |
||||||||
(Unaudited) |
(Unaudited) |
(Audited) |
(Audited) |
||||||||
Operating Revenues |
|||||||||||
Retail |
$ |
39,592,779 |
$ |
36,868,429 |
$ |
155,463,816 |
$ |
141,254,893 |
|||
Wholesale |
3,730,749 |
3,158,670 |
16,765,425 |
17,819,938 |
|||||||
Other |
1,287 |
120,188 |
218,545 |
304,388 |
|||||||
Total Revenue |
43,324,815 |
40,147,287 |
172,447,786 |
159,379,219 |
|||||||
Total Cost of Goods & Services |
36,291,059 |
18,428,528 |
96,424,150 |
79,090,461 |
|||||||
Gross Profit |
7,033,756 |
21,718,759 |
76,023,636 |
80,288,758 |
|||||||
Operating Expenses |
|||||||||||
Selling, General and Administrative Expenses |
10,848,029 |
8,922,627 |
39,916,518 |
29,036,962 |
|||||||
Professional Services |
1,115,457 |
1,112,975 |
3,558,501 |
6,722,554 |
|||||||
Loss on Impairment |
1,810,890 |
8,011,405 |
1,801,740 |
8,011,405 |
|||||||
Salaries |
6,561,800 |
5,292,996 |
23,883,354 |
20,990,290 |
|||||||
Stock Based Compensation |
2,952,669 |
883,890 |
3,574,831 |
2,672,713 |
|||||||
Total Operating Expenses |
23,288,845 |
24,223,893 |
72,734,944 |
67,433,924 |
|||||||
Income from Operations |
(16,255,089) |
(2,505,134) |
3,288,692 |
12,854,834 |
|||||||
Other Income (Expense) |
|||||||||||
Interest Expense, net |
(8,112,391) |
(6,827,557) |
(32,069,082) |
(30,139,645) |
|||||||
Unrealized Gain (Loss) on Derivative Liabilities |
1,384,228 |
(9,690,200) |
15,870,233 |
18,414,760 |
|||||||
Other Loss |
68,400 |
3,736 |
68,400 |
24,136 |
|||||||
Loss on Business Disposition |
(1,968,807) |
(4,684,366) |
(1,968,807) |
(4,684,366) |
|||||||
Unrealized Gain (Loss) on Investments |
– |
3,083 |
1,816 |
(39,270) |
|||||||
Total Other Income (Expense) |
(8,628,570) |
(21,195,304) |
(18,097,441) |
(16,424,385) |
|||||||
Pre-Tax Net Income (Loss) |
(24,883,659) |
(23,700,438) |
(14,808,749) |
(3,569,551) |
|||||||
Provision for Income Taxes |
4,494,049 |
3,638,695 |
19,740,595 |
14,898,064 |
|||||||
Net Income (Loss) |
$ |
(29,377,708) |
$ |
(27,339,133) |
$ |
(34,549,344) |
$ |
(18,467,615) |
|||
Less: Accumulated Preferred Stock Dividends for the Period |
(1,541,341) |
(2,508,677) |
(8,154,993) |
(7,802,809) |
|||||||
Net Income (Loss) Attributable to Common Stockholders |
$ |
(30,919,049) |
$ |
(29,847,810) |
$ |
(42,704,337) |
$ |
(26,270,424) |
|||
Earnings (Loss) per Share Attributable to Common Stockholders |
|||||||||||
Basic Earnings (Loss) per Share |
$ |
(0.43) |
$ |
(0.57) |
$ |
(0.66) |
$ |
(0.49) |
|||
Diluted Earnings (Loss) per Share |
$ |
(0.43) |
$ |
(0.57) |
$ |
(0.66) |
$ |
(0.49) |
|||
Weighted Average Number of Shares Outstanding – Basic |
71,680,200 |
53,637,003 |
64,535,245 |
53,637,003 |
|||||||
Weighted Average Number of Shares Outstanding – Diluted |
71,680,200 |
53,637,003 |
64,535,245 |
53,637,003 |
|||||||
Comprehensive Income (Loss) |
$ |
(29,377,708) |
$ |
(27,339,133) |
$ |
(34,549,344) |
$ |
(18,467,615) |
MEDICINE MAN TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Periods Ended December 31, 2023 and 2022
Expressed in U.S. Dollars
For the Twelve Months Ended |
||||||
December 31, |
||||||
2023 |
2022 |
|||||
(Audited) |
(Audited) |
|||||
Cash Flows from Operating Activities: |
||||||
Net Income (Loss) for the Period |
$ |
(34,549,344) |
$ |
(18,467,615) |
||
Adjustments to Reconcile Net Income (Loss) to Cash for Operating Activities |
||||||
Depreciation & Amortization |
20,933,541 |
10,660,172 |
||||
Non-Cash Interest Expense |
4,024,604 |
4,118,391 |
||||
Impairment of Goodwill |
1,801,740 |
8,011,405 |
||||
Non-Cash Lease Expense |
7,648,531 |
3,910,679 |
||||
Deferred Taxes |
(2,090,967) |
502,070 |
||||
Loss on Disposition of Business Units |
1,968,807 |
4,684,369 |
||||
Change in Derivative Liabilities |
(15,870,233) |
(18,414,760) |
||||
Amortization of Debt Issuance Costs |
1,686,049 |
1,686,048 |
||||
Amortization of Debt Discount |
8,523,493 |
7,484,613 |
||||
(Gain) Loss on Investments, net |
(1,816) |
39,270 |
||||
Stock Based Compensation |
3,590,473 |
812,073 |
||||
Changes in Operating Assets & Liabilities (net of Acquired Amounts): |
||||||
Accounts Receivable |
927,259 |
(105,185) |
||||
Inventory |
4,571,069 |
789,399 |
||||
Prepaid Expenses & Other Current Assets |
1,579,349 |
(2,770,179) |
||||
Other Assets |
263,419 |
(248,682) |
||||
Change in Operating Lease Liabilities |
(7,498,128) |
(13,113,041) |
||||
Accounts Payable & Other Liabilities |
(3,241,850) |
11,845,245 |
||||
Income Taxes Payable |
17,934,967 |
5,270,074 |
||||
Net Cash Provided by (Used in) Operating Activities |
12,200,963 |
6,694,346 |
||||
Cash Flows from Investing Activities: |
||||||
Collection of Notes Receivable |
11,944 |
– |
||||
Cash Consideration for Acquisition of Business, net of Cash Acquired |
(15,834,378) |
(58,981,226) |
||||
Purchase of Fixed Assets |
(7,865,654) |
(14,007,892) |
||||
Purchase of Intangible Assets |
(2,750,000) |
– |
||||
Investment in Private Entity |
– |
(2,000,000) |
||||
Net Cash Provided by (Used in) Investing Activities |
(26,438,088) |
(74,989,118) |
||||
Cash Flows from Financing Activities: |
||||||
Payment on Notes Payable |
(5,354,218) |
(134,498) |
||||
Proceeds from Issuance of Common Stock |
– |
978,308 |
||||
Payment for Statutory Withholdings on RSU |
(108,978) |
– |
||||
Net Cash Provided by (Used in) Financing Activities |
(5,463,196) |
843,810 |
||||
Net (Decrease) in Cash & Cash Equivalents |
(19,700,321) |
(67,450,962) |
||||
Cash & Cash Equivalents at Beginning of Period |
38,949,253 |
106,400,216 |
||||
Cash & Cash Equivalents at End of Period |
$ |
19,248,932 |
$ |
38,949,253 |
||
Supplemental Disclosure of Cash Flow Information: |
||||||
Cash Paid for Interest |
$ |
17,896,954 |
$ |
15,243,990 |
||
Cash Paid for Income Taxes |
5,000,000 |
12,340,000 |
MEDICINE MAN TECHNOLOGIES, INC.
ADJUSTED EBITDA RECONCILIATION (NON-GAAP)
For the Periods Ended December 31, 2023 and 2022
Expressed in U.S. Dollars
For the Three Months Ended |
For the Twelve Months Ended |
||||||||||
December 31, |
December 31, |
||||||||||
2023 |
2022 |
2023 |
2022 |
||||||||
Net Income (Loss) |
$ |
(29,364,680) |
$ |
(27,339,133) |
$ |
(34,549,344) |
$ |
(18,467,615) |
|||
Interest Expense, net |
8,112,391 |
6,827,557 |
32,069,082 |
30,139,645 |
|||||||
Provision for Income Taxes |
4,494,049 |
3,638,695 |
19,740,595 |
14,898,064 |
|||||||
Other (Income) Expense, net of Interest Expense |
516,180 |
14,367,747 |
(13,971,641) |
(13,715,260) |
|||||||
Depreciation & Amortization |
3,162,425 |
3,701,128 |
18,970,960 |
12,524,677 |
|||||||
Earnings Before Interest, Taxes, Depreciation and |
|||||||||||
Amortization (EBITDA) (non-GAAP) |
$ |
(13,079,635) |
$ |
1,195,994 |
$ |
22,259,652 |
$ |
25,379,511 |
|||
Non-Cash Stock Compensation |
1,597,157 |
883,890 |
2,219,319 |
2,672,713 |
|||||||
Deal Related Expenses |
2,196,733 |
1,914,820 |
5,528,048 |
6,822,111 |
|||||||
Capital Raise Related Expenses |
1,779 |
(257,271) |
38,559 |
533,958 |
|||||||
Inventory Adjustment to Fair Market Value for |
|||||||||||
Purchase Accounting |
5,792,488 |
– |
5,792,488 |
6,541,651 |
|||||||
One-Time Inventory Impairment |
7,353,972 |
– |
7,353,972 |
– |
|||||||
One-Time Goodwill Impairment |
1,801,740 |
8,011,405 |
1,801,740 |
8,011,405 |
|||||||
Severance |
111,752 |
263,374 |
537,584 |
334,910 |
|||||||
Retention Program Expenses |
– |
– |
505,655 |
– |
|||||||
Employee Relocation Expenses |
5,065 |
(3,750) |
70,107 |
15,360 |
|||||||
Pre-Operating & Dark Carry Expenses |
2,663,824 |
1,027,738 |
2,663,824 |
1,027,738 |
|||||||
One-Time Legal Settlements |
1,204,058 |
440,000 |
1,204,058 |
440,000 |
|||||||
Other Non-Recurring Items |
1,304,501 |
(191,674) |
3,436,773 |
230,858 |
|||||||
Adjusted EBITDA (non-GAAP) |
$ |
10,953,434 |
$ |
13,284,526 |
$ |
53,411,779 |
$ |
52,010,215 |
|||
Revenue |
43,324,815 |
40,147,287 |
172,447,786 |
159,379,219 |
|||||||
Adjusted EBITDA Percent |
25.3 % |
33.1 % |
31.0 % |
32.6 % |
View original content:https://www.prnewswire.co.uk/news-releases/schwazze-announces-fourth-quarter-and-full-year-2023-financial-results-302101678.html
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