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Triton International Reports First Quarter 2019 Results: Adjusted EPS of $1.19, Quarterly Dividend of $0.52, and New $200 Million Share Repurchase Authorization
HAMILTON, Bermuda–(BUSINESS WIRE)–Triton International Limited (NYSE: TRTN) (“Triton”)
First Quarter Highlights:
-
Adjusted net income was $92.8 million or $1.19 per diluted share, an
increase of 20.2% per diluted share from the first quarter of 2018 and
a decrease of 4.8% per diluted share from the fourth quarter of 2018.
Triton’s first quarter results included several non-recurring items
which in total contributed $0.04 per share. -
Net income attributable to common shareholders was $91.9 million or
$1.17 per diluted share. - Utilization averaged 97.6% in the first quarter of 2019.
-
Triton raised gross proceeds of $86.3 million through an initial
perpetual preferred equity offering in March 2019. -
Triton purchased 2.6 million common shares during the first quarter.
As of April 22, 2019, Triton has repurchased 5.1 million shares under
the share repurchased program authorized in August 2018. -
Triton announced the Board of Directors has authorized a new $200.0
million common share repurchase program. -
Triton announced a quarterly dividend of $0.52 per common share
payable on June 27, 2019 to shareholders of record as of June 6, 2019.
Financial Results
The following table summarizes Triton’s selected key financial
information for the three months ended March 31, 2019, December 31,
2018, and March 31, 2018.
(in millions, except per share data) | ||||||||||||
Three Months Ended, | ||||||||||||
March 31, 2019 | December 31, 2018 | March 31, 2018 | ||||||||||
Total leasing revenues | $340.9 | $355.4 | $315.1 | |||||||||
GAAP |
||||||||||||
Net income attributable to common shareholders | $91.9 | (4) | $69.6 | (3) | $80.9 | |||||||
Net income per share – Diluted | $1.17 | $0.87 | $1.00 | |||||||||
Non-GAAP (1) |
||||||||||||
Adjusted net income | $92.8 | $99.4 | $79.8 | |||||||||
Adjusted net income per share – Diluted | $1.19 | $1.25 | $0.99 | |||||||||
Return on equity (2) | 17.2 | % | 17.7 | % | 15.4 | % |
(1) |
Refer to the “Use of Non-GAAP Financial Measures” and “Non-GAAP Reconciliations of Adjusted Net Income” set forth below. |
|
(2) | Refer to the “Calculation of Return on Equity” set forth below. | |
(3) |
Net income attributable to common shareholders was reduced by $24.7 million tax expense related to the intra-entity transfer of assets. |
|
(4) | Net of dividends on preferred shares of $0.3 million. | |
Operating Performance
“Triton achieved excellent results in the first quarter of 2019,”
commented Brian M. Sondey, Chief Executive Officer of Triton. “We
generated $92.8 million of Adjusted net income in the first quarter, or
$1.19 of Adjusted net income per share, and we realized an annualized
Return on equity of 17.2%.”
“Triton’s strong financial results in the first quarter were supported
by our continued outstanding operating performance, and key operating
metrics such as utilization and used container sale prices remained at
high levels. However, new lease transaction activity and container
pick-up volumes were slow throughout the first quarter and we have so
far limited our purchases of new containers. The first quarter typically
represents the depth of the slow season for dry containers, and this
typical seasonal weakness has likely been compounded this year by
increased uncertainty related to the ongoing trade dispute between the
United States and China. We recently have seen some increase in lease
inquiries, and new container prices have rebounded toward the $1,900
range for a 20’ dry container, but the overall pace of leasing activity
has not yet shifted to typical pre-peak season levels.”
“Triton has taken a number of actions this year to drive shareholder
value. We repurchased 2.6 million shares of our common stock during the
first quarter at values we believe are compelling, increasing our total
purchases to 5.1 million shares since last summer. In addition, we
repurchased the majority of the third-party investor interests in a
partnership which owns a portfolio of containers in our fleet. We also
completed an inaugural issuance of perpetual preferred stock. We believe
the perpetual preferred stock provides an attractive combination of risk
protection and cost, and will be a valuable addition to our capital
structure. Overall, our strong cash flow, unrivaled operating
capabilities and range of financing options continue to give us many
levers to drive shareholder value.”
Outlook
“Our customers continue to expect trade growth will be moderately
positive in 2019 and we expect leasing activity will accelerate as we
move deeper into the second quarter, supporting our utilization and
providing more investment opportunities. However, we do not expect the
one-time items benefiting the first quarter to reoccur, and we
transferred a large number of containers from short-term to long-term
lease with one of our major customers, which will negatively impact our
leasing revenue in the near-term but lead to an attractive and more
secure long-term value for the containers. Overall, we expect our
Adjusted net income per share will decrease slightly from the first
quarter of 2019 to the second quarter, and then increase from the second
quarter through the end of the year.”
Dividends
Triton’s Board of Directors has approved a cash dividend of $0.53125 per
share on its 8.5% Series A Preferred Shares (NYSE:TRTN-PA) payable
June 17, 2019 to holders on record at the close of business as of
June 10, 2019.
Triton’s Board of Directors has approved and declared a $0.52 per share
quarterly cash dividend on its issued and outstanding common shares,
payable on June 27, 2019 to shareholders of record at the close of
business on June 6, 2019.
Share Repurchase Update
As of April 22, 2019, we have repurchased approximately 5.1 million
common shares under the share repurchase plan authorized in August 2018
for a total of $162.0 million at an average price per-share of $31.56.
This represents 6.3% of the shares outstanding at the start of the
repurchase plan. On April 25, 2019, Triton’s Board of Directors
authorized a new $200.0 million share repurchase program replacing the
previous authorization.
Mr. Sondey concluded, “We continue to view share repurchases as a
compelling investment for the company and a high value use for our
strong and stable equity cash flow. We believe the embedded value of our
existing contractual lease streams and containers compare favorably to
our current market valuation, even without considering the value of our
best-in-class market leading franchise.”
Investors’ Webcast
Triton will hold a Webcast at 8:30 a.m. (New York time) on Tuesday,
April 30, 2019 to discuss its first quarter results. To listen by phone,
please dial 1-877-418-5277 (domestic) or 1-412-717-9592 (international)
approximately 15 minutes prior to the start time and reference the
Triton International Limited conference call. To access the live Webcast
please visit Triton’s website at http://www.trtn.com.
An archive of the Webcast will be available one hour after the live call.
About Triton International Limited
Triton International Limited is the world’s largest lessor of intermodal
freight containers. With a container fleet of 6.1 million twenty-foot
equivalent units (“TEU”), Triton’s global operations include
acquisition, leasing, re-leasing and subsequent sale of multiple types
of intermodal containers and chassis.
The following table sets forth the equipment fleet utilization for the
periods indicated:
Quarter Ended | ||||||||||||
March 31, 2019 | December 31, 2018 | September 30, 2018 | June 30, 2018 | March 31, 2018 | ||||||||
Average Utilization (1) | 97.6% | 98.2% | 98.7% | 98.8% | 98.6% | |||||||
Ending Utilization (1) | 97.4% | 97.8% | 98.6% | 98.7% | 98.7% | |||||||
(1) |
Utilization is computed by dividing total units on lease (in cost equivalent units, or “CEUs”) by the total units in fleet (in CEUs), excluding new units not yet leased and off-hire units designated for sale. |
|
The following table summarizes the equipment fleet as of March 31, 2019,
December 31, 2018 and March 31, 2018:
Equipment Fleet in Units | Equipment Fleet in TEU | ||||||||||||
March 31, 2019 | December 31, 2018 | March 31, 2018 | March 31, 2019 | December 31, 2018 | March 31, 2018 | ||||||||
Dry | 3,322,723 | 3,340,946 | 3,103,671 | 5,448,267 | 5,476,406 | 5,039,302 | |||||||
Refrigerated | 229,971 | 228,778 | 221,810 | 443,402 | 440,781 | 426,335 | |||||||
Special | 93,361 | 93,900 | 90,867 | 168,755 | 169,614 | 163,155 | |||||||
Tank | 12,600 | 12,509 | 12,188 | 12,600 | 12,509 | 12,188 | |||||||
Chassis | 24,879 | 24,832 | 22,477 | 45,885 | 45,787 | 40,996 | |||||||
Equipment leasing fleet | 3,683,534 | 3,700,965 | 3,451,013 | 6,118,909 | 6,145,097 | 5,681,976 | |||||||
Equipment trading fleet | 17,504 | 13,138 | 12,022 | 27,014 | 21,361 | 19,245 | |||||||
Total | 3,701,038 | 3,714,103 | 3,463,035 | 6,145,923 | 6,166,458 | 5,701,221 | |||||||
Equipment in CEU | ||||||||
March 31, 2019 | December 31, 2018 | March 31, 2018 | ||||||
Operating leases | 6,997,855 | 7,009,605 | 6,752,636 | |||||
Finance leases | 539,854 | 538,867 | 329,659 | |||||
Equipment trading fleet | 50,117 | 47,476 | 53,454 | |||||
Total | 7,587,826 | 7,595,948 | 7,135,749 | |||||
Important Cautionary Information Regarding Forward-Looking Statements
Certain statements in this release, other than statements of historical
information, are “forward-looking statements”, including statements
regarding our strategy, future operations, and future financial
positions, within the meaning of the 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. Statements that include the words “expect,” “estimate”,
“anticipate,” “predict”, “believe,” “plan”, “will,” “should”, “intend”,
“seek”, “potential” and similar expressions and variations are intended
to identify forward-looking statements, although not all forward looking
statements contain these identifying words. All forward-looking
statements address matters that involve risks and uncertainties, many of
which are beyond Triton’s control. Accordingly, there are or will be
important factors that could cause actual results to differ materially
from those indicated in such statements and, therefore, you should not
place undue reliance on any such statements.
These factors include, without limitation, economic, business,
competitive, market and regulatory conditions and the following:
uncertainty as to the long-term value of Triton’s common shares;
decreases in the demand for leased containers; decreases in market
leasing rates for containers; difficulties in re-leasing containers
after their initial fixed-term leases; our customers’ decisions to buy
rather than lease containers; our dependence on a limited number of
customers for a substantial portion of our revenues; customer defaults;
decreases in the selling prices of used containers; extensive
competition in the container leasing industry; difficulties stemming
from the international nature of our business; decreases in the demand
for international trade; disruption to our operations resulting from the
political and economic policies of the United States and other
countries, particularly China, including but not limited to the impact
of trade wars, tariffs and other trade actions; disruption to our
operations from failures of, or attacks on, our information technology
systems; our compliance or failure to comply with laws and regulations
related to economic and trade sanctions, security, anti-terrorism,
environmental protection and corruption; our ability to obtain
sufficient capital to support our growth; restrictions imposed by the
terms of our debt agreements; changes in tax laws in Bermuda, the United
States and other countries and other risks and uncertainties, including
those risk factors set forth in the section entitled “Risk Factors” in
our Annual Report on Form 10-K for the year ended December 31, 2018 (the
“Form 10-K”) filed with the Securities and Exchange Commission (“SEC”),
on February 19, 2019, in any Form 10-Q filed or to be filed by Triton,
and in other documents we file with the SEC from time to time.
The foregoing list of important factors should not be construed as
exhaustive and should be read in conjunction with the other cautionary
statements that are included herein and elsewhere, including the risk
factors set forth in our Form 10-K.. Any forward-looking statements made
herein are qualified in their entirety by these cautionary statements,
and there can be no assurance that the actual results or developments
anticipated by us will be realized or, even if substantially realized,
that they will have the expected consequences to, or effects on Triton
or its business or operations. Except to the extent required by
applicable law, we undertake no obligation to update publicly or revise
any forward-looking statement, whether as a result of new information,
future developments or otherwise. Certain financial measures are
identified as not being prepared in accordance with U.S. generally
accepted accounting principles (“GAAP”). Please refer to the “Use of
Non-GAAP Financial Measures” and “Non-GAAP Reconciliations of Adjusted
Net Income” set forth below for a reconciliation of such non-GAAP
measures to their most comparable GAAP measures.
-Financial Tables Follow-
TRITON INTERNATIONAL LIMITED |
||||||||
March 31, |
December 31, |
|||||||
ASSETS: | ||||||||
Leasing equipment, net of accumulated depreciation of $2,634,305 and $2,533,446 |
$ | 8,796,491 | $ | 8,923,451 | ||||
Net investment in finance leases | 465,480 | 478,065 | ||||||
Equipment held for sale | 86,211 | 66,453 | ||||||
Revenue earning assets | 9,348,182 | 9,467,969 | ||||||
Cash and cash equivalents | 60,768 | 48,950 | ||||||
Restricted cash | 116,551 | 110,589 | ||||||
Accounts receivable, net of allowances of $1,097 and $1,240 | 222,567 | 264,382 | ||||||
Goodwill | 236,665 | 236,665 | ||||||
Lease intangibles, net of accumulated amortization of $216,340 and $205,532 |
82,117 | 92,925 | ||||||
Other assets | 38,692 | 34,610 | ||||||
Fair value of derivative instruments | 4,580 | 13,923 | ||||||
Total assets | $ | 10,110,122 | $ | 10,270,013 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY: | ||||||||
Equipment purchases payable | $ | 38,463 | $ | 22,392 | ||||
Fair value of derivative instruments | 19,487 | 10,966 | ||||||
Accounts payable and other accrued expenses | 112,357 | 99,885 | ||||||
Net deferred income tax liability | 286,495 | 282,129 | ||||||
Debt, net of unamortized debt costs of $43,684 and $44,889 | 7,364,725 | 7,529,432 | ||||||
Total liabilities | 7,821,527 | 7,944,804 | ||||||
Shareholders’ equity: | ||||||||
Preferred shares, $0.01 par value, 3,450,000 authorized, 3,450,000 and no shares issued and outstanding, respectively; at liquidation preference |
86,250 | — | ||||||
Common shares, $0.01 par value, 270,000,000 shares authorized, 80,982,197 and 80,843,472 shares issued, respectively |
811 | 809 | ||||||
Undesignated shares, $0.01 par value, 26,550,000 and 30,000,000 shares authorized, respectively, no shares issued and outstanding |
— | — | ||||||
Treasury shares, at cost, 4,489,682 and 1,853,148 shares, respectively |
(141,407 | ) | (58,114 | ) | ||||
Additional paid-in capital | 906,164 | 896,811 | ||||||
Accumulated earnings | 1,400,491 | 1,349,627 | ||||||
Accumulated other comprehensive income (loss) | (1,034 | ) | 14,563 | |||||
Total shareholders’ equity | 2,251,275 | 2,203,696 | ||||||
Noncontrolling interests | 37,320 | 121,513 | ||||||
Total equity | 2,288,595 | 2,325,209 | ||||||
Total liabilities and equity | $ | 10,110,122 | $ | 10,270,013 | ||||
TRITON INTERNATIONAL LIMITED |
||||||||
Three Months Ended March 31, |
||||||||
2019 | 2018 | |||||||
Leasing revenues: | ||||||||
Operating leases | $ | 330,422 | $ | 310,231 | ||||
Finance leases | 10,437 | 4,866 | ||||||
Total leasing revenues | 340,859 | 315,097 | ||||||
Equipment trading revenues | 17,828 | 13,375 | ||||||
Equipment trading expenses | (14,241 | ) | (10,384 | ) | ||||
Trading margin | 3,587 | 2,991 | ||||||
Net gain on sale of leasing equipment | 8,469 | 9,218 | ||||||
Operating expenses: | ||||||||
Depreciation and amortization | 134,609 | 130,433 | ||||||
Direct operating expenses | 16,802 | 11,048 | ||||||
Administrative expenses | 18,187 | 19,582 | ||||||
Transaction and other (income) costs | — | (29 | ) | |||||
Provision (reversal) for doubtful accounts | (142 | ) | (101 | ) | ||||
Total operating expenses | 169,456 | 160,933 | ||||||
Operating income (loss) | 183,459 | 166,373 | ||||||
Other expenses: | ||||||||
Interest and debt expense | 83,520 | 75,098 | ||||||
Realized (gain) loss on derivative instruments, net | (704 | ) | (248 | ) | ||||
Unrealized (gain) loss on derivative instruments, net | 986 | (1,186 | ) | |||||
Other (income) expense, net | (1,004 | ) | (659 | ) | ||||
Total other expenses | 82,798 | 73,005 | ||||||
Income (loss) before income taxes | 100,661 | 93,368 | ||||||
Income tax expense (benefit) | 7,850 | 10,503 | ||||||
Net income | $ | 92,811 | $ | 82,865 | ||||
Less: income (loss) attributable to noncontrolling interest | 592 | 1,973 | ||||||
Less: dividend on preferred shares | 305 | — | ||||||
Net income (loss) attributable to common shareholders | $ | 91,914 | $ | 80,892 | ||||
Net income per common share—Basic | $ | 1.18 | $ | 1.01 | ||||
Net income per common share—Diluted | $ | 1.17 | $ | 1.00 | ||||
Cash dividends paid per common share | $ | 0.52 | $ | 0.45 | ||||
Weighted average number of common shares outstanding—Basic | 77,721 | 79,968 | ||||||
Dilutive restricted shares | 549 | 604 | ||||||
Weighted average number of common shares outstanding—Diluted | 78,270 | 80,572 | ||||||
TRITON INTERNATIONAL LIMITED |
||||||||
Three months ended March 31, |
||||||||
2019 | 2018 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 92,811 | $ | 82,865 | ||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
Depreciation and amortization | 134,609 | 130,433 | ||||||
Amortization of deferred debt cost and other debt related amortization |
3,601 | 3,113 | ||||||
Lease related amortization | 12,254 | 20,009 | ||||||
Share-based compensation expense | 1,818 | 2,512 | ||||||
Net (gain) loss on sale of leasing equipment | (8,469 | ) | (9,218 | ) | ||||
Unrealized (gain) loss on derivative instruments | 986 | (1,186 | ) | |||||
Deferred income taxes | 7,116 | 9,301 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 41,421 | (1,071 | ) | |||||
Accounts payable and other accrued expenses | 3,019 | 844 | ||||||
Net equipment sold for resale activity | (8,803 | ) | (5,185 | ) | ||||
Cash collections on finance lease receivables, net of income earned | 17,125 | 14,771 | ||||||
Other assets | (1,757 | ) | (953 | ) | ||||
Net cash provided by (used in) operating activities | 295,731 | 246,235 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of leasing equipment and investments in finance leases | (43,981 | ) | (258,668 | ) | ||||
Proceeds from sale of equipment, net of selling costs | 49,947 | 38,885 | ||||||
Other | 26 | 55 | ||||||
Net cash provided by (used in) investing activities | 5,992 | (219,728 | ) | |||||
Cash flows from financing activities: | ||||||||
Issuance of preferred shares, net of underwriting discount and expenses |
83,058 | — | ||||||
Purchases of treasury shares | (82,266 | ) | — | |||||
Redemption of common shares | (978 | ) | (822 | ) | ||||
Debt issuance costs | (1,962 | ) | (4,976 | ) | ||||
Borrowings under debt facilities | 125,000 | 510,210 | ||||||
Payments under debt facilities and capital lease obligations | (293,290 | ) | (469,841 | ) | ||||
Dividends paid | (40,427 | ) | (36,008 | ) | ||||
Distributions to noncontrolling interests | (2,078 | ) | (4,249 | ) | ||||
Purchase of noncontrolling interest | (71,000 | ) | — | |||||
Net cash provided by (used in) financing activities | (283,943 | ) | (5,686 | ) | ||||
Net increase (decrease) in cash, cash equivalents and restricted cash |
$ | 17,780 | $ | 20,821 | ||||
Cash, cash equivalents and restricted cash, beginning of period | 159,539 | 226,171 | ||||||
Cash, cash equivalents and restricted cash, end of period | $ | 177,319 | $ | 246,992 | ||||
Supplemental disclosures: | ||||||||
Interest paid | $ | 66,106 | $ | 56,571 | ||||
Income taxes paid (refunded) | $ | 155 | $ | 244 | ||||
Right-of-use asset for leased property | $ | 8,289 | $ | — | ||||
Supplemental non-cash investing activities: | ||||||||
Equipment purchases payable | $ | 38,463 | $ | 125,978 | ||||
Use of Non-GAAP Financial Measures
We use the term “Adjusted net income” throughout this press release.
Adjusted net income is adjusted for certain items management believes
are not representative of our operating performance. Adjusted net income
is defined as net income attributable to shareholders excluding debt
termination costs net of tax, gains and losses on interest rate swaps
net of tax, transaction and other costs net of tax, and taxes
adjustments related to the intra-entity transfer.
Adjusted net income is not a presentation made in accordance with U.S.
GAAP. Adjusted net income should not be considered as an alternative to,
or more meaningful than, amounts determined in accordance with U.S.
GAAP, including net income.
We believe that Adjusted net income is useful to an investor in
evaluating our operating performance because this measure:
-
is widely used by securities analysts and investors to measure a
company’s operating performance; -
helps investors to more meaningfully evaluate and compare the results
of our operations from period to period by removing the impact of our
capital structure, our asset base and certain non-routine events which
we do not expect to occur in the future; and -
is used by our management for various purposes, including as measures
of operating performance and liquidity, to assist in comparing
performance from period to period on a consistent basis, in
presentations to our board of directors concerning our financial
performance and as a basis for strategic planning and forecasting.
We have provided a reconciliation of net income attributable to
shareholders, the most directly comparable U.S. GAAP measure, to
Adjusted net income in the table below for the three months ended
March 31, 2019, December 31, 2018, and March 31, 2018.
TRITON INTERNATIONAL LIMITED Non-GAAP Reconciliations of Adjusted Net Income (In thousands, except per share amounts) |
|||||||||||||
Three Months Ended, | |||||||||||||
March 31, |
December 31, |
March 31, |
|||||||||||
Net income attributable to common shareholders | $ | 91,914 | $ | 69,557 | $ | 80,892 | |||||||
Adjustments: | |||||||||||||
Unrealized loss (gain) on derivative instruments, net | 903 | 1,250 | (1,052 | ) | |||||||||
Transaction and other (income) costs | — | 104 | (26 | ) | |||||||||
Debt termination expense | — | 3,800 | — | ||||||||||
Tax adjustments related to intra-entity asset transfer(1) | — | 24,728 | — | ||||||||||
Adjusted net income | $ | 92,817 | $ | 99,439 | $ | 79,814 | |||||||
Adjusted net income per common share—Diluted | $ | 1.19 | $ | 1.25 | $ | 0.99 | |||||||
Weighted average number of common shares outstanding—Diluted | 78,270 | 79,741 | 80,572 |
(1) |
The primary driver leading to the difference between net income (loss) attributable to shareholders and Adjusted net income in the fourth quarter of 2018 was a one-time increase in GAAP taxes resulting from internal transfers of approximately $600.0 million of containers. These transfers were structured as taxable sales between Triton entities, and led to an increase in taxable income for Triton’s U.S. entities. Triton was able to utilize a portion of its accumulated net operating losses to offset the taxable income generated by the sales, and Triton’s U.S. cash taxes remained minimal in the fourth quarter. However, Triton was required to accrue taxes on the sales for GAAP purposes because the containers were sold for a value in excess of their net book value when adjusted for purchase accounting. These taxes were excluded from the calculation of Adjusted net income in the fourth quarter, and we expect the transfer to result in reduced GAAP tax accruals in future periods. |
|
TRITON INTERNATIONAL LIMITED |
||||||||||||||
Three Months Ended, | ||||||||||||||
March 31, |
December 31, |
March 31, |
||||||||||||
Adjusted net income | $ | 92,817 | $ | 99,439 | $ | 79,814 | ||||||||
Annualized Adjusted net income (1) | 376,425 | 394,513 | 323,690 | |||||||||||
Average Shareholders’ equity (2)(3) | $ | 2,184,361 | $ | 2,230,590 | $ | 2,104,895 | ||||||||
Return on equity | 17.2 | % | 17.7 | % | 15.4 | % |
(1) |
Annualized Adjusted net income was calculated based on calendar days per quarter. |
|
(2) |
Average Shareholders’ equity was calculated using the quarter’s beginning and ending Shareholder’s equity for the three-month ended periods. |
|
(3) | Shareholders’ equity was adjusted to exclude preferred shares. | |
Contacts
Andrew Greenberg
Senior Vice President
Finance & Investor
Relations
(914) 697-2900
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Cannabis
Rubicon Organics Reports Q1 2024 Financial Results
SCHWAZZE
Schwazze Announces First Quarter 2024 Financial Results
Schwazze Management to Host Conference Call Today at 5:00 p.m. Eastern Time
DENVER, May 15, 2024 /PRNewswire/ — Medicine Man Technologies, Inc., operating as Schwazze, (OTCQX: SHWZ) (Cboe CA: SHWZ) (“Schwazze” or the “Company”), today announced financial and operational results for the first quarter ended March 31, 2024.
“We delivered another period of revenue growth in Q1 as we further refined our retail strategy while contending with the prolonged competitive challenges in Colorado and New Mexico,” said Forrest Hoffmaster, Interim CEO of Schwazze. “Throughout the quarter, we continued to sharpen our pricing and promotional efforts while enhancing the in-store experience, widening assortment, improving in-stock position, and advancing our loyalty program to attract and retain new customers. We also strengthened our wholesale business with quarter-over-quarter growth, while surpassing 30% total door penetration across both states.”
“The Colorado market remains highly competitive with more than 680 active recreational licenses, underscoring the importance of delivering an exceptional customer experience and fully integrated retail support program. Although retail pricing has recently stabilized, Colorado sales in Q1 were down 10% year-over-year due to lower volumes. Nonetheless, we significantly outpaced the market as our sales were up 9%, demonstrating the effectiveness of our operating playbook to compete in challenging environments. We expect to continue driving improvements in customer acquisition, retention, and loyalty as we further increase market share in the state.”
“In New Mexico, the proliferation of new licenses continued to outpace state cannabis sales as store count in Q1 increased 31% year-over-year while the market grew only 13%. In addition to pricing and promotional efforts, we’ve focused on driving traffic into our stores by expanding assortment with high quality flower and delivering an elevated customer experience. The New Mexico regulatory body has also increased its license enforcement efforts in recent months, contributing to more than 70 store closures and a 33% sequential decrease in net new store openings in the first quarter. We will continue to support the New Mexico Cannabis Control Division as it develops its regulatory framework.”
“Over the past four years we have rapidly scaled our footprint through 13 acquisitions, building a leading retail presence in both Colorado and New Mexico. We are beginning to see positive momentum from our pricing and promotional strategy and will remain focused on driving operating efficiencies while further optimizing our assets as we consolidate cultivation facilities and eliminate underperforming stores that do not meet our high-margin thresholds. We believe these initiatives, coupled with our operating playbook and strict cost controls, will enable us to return to stronger levels of profitability moving forward.”
First Quarter 2024 Financial Summary
$ in Thousands USD |
Q1 2024 |
Q4 2023 |
Q1 2023 |
Total Revenue |
$41,601 |
$43,325 |
$40,001 |
Gross Profit |
$17,934 |
$7,034[1] |
$21,849 |
Operating Expenses |
$20,643 |
$23,276 |
$16,199 |
Income (Loss) from Operations |
$(2,709) |
$(16,242) |
$5,650 |
Adjusted EBITDA[2] |
$7,341 |
$10,953 |
$14,525 |
Operating Cash Flow |
$(3,700) |
$3,452 |
$(880) |
Recent Highlights
- Announced the grand opening of a medical and recreational dispensary in March under the Everest Apothecary banner in Las Cruces, New Mexico, increasing the Company’s retail footprint to 34 stores across the state.
- Increased wholesale penetration in the first quarter to more than 30% of total doors in Colorado and New Mexico.
- Lowell Herb Co. pre-roll sales increased more than 3x quarter-over-quarter in Colorado, where it continues to be the #1 pre-roll in the state.
- Wana gummy sales up more than 2x quarter-over-quarter in New Mexico.
First Quarter 2024 Financial Results
Total revenue in the first quarter of 2024 increased 4% to $41.6 million compared to $40.0 million for the same quarter last year. The increase was primarily due to growth from new stores compared to the prior year period, partially offset by continued pricing pressure and the proliferation of new licenses in New Mexico.
Gross profit for the first quarter of 2024 was $17.9 million or 43.1% of total revenue, compared to $21.8 million or 54.6% of total revenue for the same quarter last year. The decrease in gross margin was primarily driven by the aforementioned pricing pressure in New Mexico, as well as higher medical sales mix in Colorado.
____________________________ |
1 Q4 2023 Gross Profit includes one-time, non-cash inventory adjustments of approximately $13.1 million comprised of $3.1 million of product consolidation, obsolescence, and shrinkage expenses, $4.3 million of net realizable value adjustments, and $5.8 million of fair value adjustments on acquired inventory in New Mexico in 2023. |
Operating expenses for the first quarter of 2024 were $20.6 million compared to $16.2 million for the same quarter last year. The year-ago period benefitted from a payroll tax credit of $3.9M. The remaining increase was primarily driven by personnel expenses and four-wall SG&A costs associated with 21 additional stores in Colorado and New Mexico that are still ramping.
Loss from operations for the first quarter of 2024 was $2.7 million compared to income from operations of $5.6 million in the same quarter last year. Net loss was $16.1 million for the first quarter of 2024 compared to net income of $1.7 million for the same quarter last year.
Adjusted EBITDA for the first quarter of 2024 was $7.3 million compared to $14.5 million for the same quarter last year. The decrease in Adjusted EBITDA was primarily driven by lower gross margin and higher operating expenses associated with the 21 additional stores that are still ramping.
As of March 31, 2024, cash and cash equivalents were $13.2 million compared to $19.2 million on December 31, 2023. Total debt as of March 31, 2024, was $159.7 million compared to $156.8 million on December 31, 2023.
Conference Call
The Company will conduct a conference call today, May 15, 2024, at 5:00 p.m. Eastern time to discuss its results for the first quarter ended March 31, 2024.
Schwazze management will host the conference call, followed by a question-and-answer period. Interested parties may submit questions to the Company prior to the call by emailing [email protected].
Date: Wednesday, May 15, 2024
Time: 5:00 p.m. Eastern time
Toll-free dial-in: (888) 664-6383
International dial-in: (416) 764-8650
Conference ID: 84167910
Webcast: SHWZ Q1 2024 Earnings Call
The conference call will also be broadcast live and available for replay on the investor relations section of the Company’s website at https://ir.schwazze.com.
Toll-free replay number: (888) 390-0541
International replay number: (416) 764-8677
Replay ID: 167910
If you have any difficulty registering or connecting with the conference call, please contact Elevate IR at (720) 330-2829.
About Schwazze
Schwazze (OTCQX: SHWZ) (Cboe CA: SHWZ) is building a premier vertically integrated regional cannabis company with assets in Colorado and New Mexico and will continue to explore taking its operating system to other states where it can develop a differentiated regional leadership position. Schwazze is the parent company of a portfolio of leading cannabis businesses and brands spanning seed to sale.
Schwazze is anchored by a high-performance culture that combines customer-centric thinking and data science to test, measure, and drive decisions and outcomes. The Company’s leadership team has deep expertise in retailing, wholesaling, and building consumer brands at Fortune 500 companies as well as in the cannabis sector.
Medicine Man Technologies, Inc. was Schwazze’s former operating trade name. The corporate entity continues to be named Medicine Man Technologies, Inc. Schwazze derives its name from the pruning technique of a cannabis plant to enhance plant structure and promote healthy growth. To learn more about Schwazze, visit https://schwazze.com/.
Forward-Looking Statements
This press release contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include financial outlooks; any projections of net sales, earnings, or other financial items; any statements of the strategies, plans and objectives of our management team for future operations; expectations in connection with the Company’s previously announced business plans; any statements regarding future economic conditions or performance; and statements regarding the intent, belief or current expectations of our management team. Such statements may be preceded by the words “may,” “will,” “could,” “would,” “should,” “expect,” “intends,” “plans,” “strategy,” “prospects,” “anticipate,” “believe,” “approximately,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” or the negative of these terms or other words of similar meaning in connection with a discussion of future events or future operating or financial performance, although the absence of these words does not necessarily mean that a statement is not forward-looking. We have based our forward-looking statements on management’s current expectations and assumptions about future events and trends affecting our business and industry. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. Therefore, forward-looking statements are not guarantees of future events or performance, are based on certain assumptions, and are subject to various known and unknown risks and uncertainties, many of which are beyond the Company’s control and cannot be predicted or quantified. Consequently, actual events and results may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include, without limitation, risks and uncertainties associated with (i) regulatory limitations on our products and services and the uncertainty in the application of federal, state, and local laws to our business, and any changes in such laws; (ii) our ability to manufacture our products and product candidates on a commercial scale on our own or in collaboration with third parties; (iii) our ability to identify, consummate, and integrate anticipated acquisitions; (iv) general industry and economic conditions; (v) our ability to access adequate capital upon terms and conditions that are acceptable to us; (vi) our ability to pay interest and principal on outstanding debt when due; (vii) volatility in credit and market conditions; (viii) the loss of one or more key executives or other key employees; and (ix) other risks and uncertainties related to the cannabis market and our business strategy. More detailed information about the Company and the risk factors that may affect the realization of forward-looking statements is set forth in the Company’s filings with the Securities and Exchange Commission (SEC), including the Company’s Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q. Investors and security holders are urged to read these documents free of charge on the SEC’s website at http://www.sec.gov. The Company assumes no obligation to publicly update or revise its forward-looking statements as a result of new information, future events or otherwise except as required by law.
Investor Relations Contact
Sean Mansouri, CFA or Aaron D’Souza
Elevate IR
(720) 330-2829
[email protected]
MEDICINE MAN TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
For the Periods Ended March 31, 2024 and December 31, 2023
Expressed in U.S. Dollars
March 31, |
December 31, |
||||
2024 |
2023 |
||||
ASSETS
|
|||||
Current Assets |
|||||
Cash & Cash Equivalents |
$ |
13,151,317 |
$ |
19,248,932 |
|
Accounts Receivable, net of Allowance for Doubtful Accounts |
3,356,032 |
4,261,159 |
|||
Inventory |
26,382,184 |
25,787,793 |
|||
Marketable Securities, net of Unrealized Loss of $347,516 and Loss of $1,816, respectively |
108,583 |
456,099 |
|||
Prepaid Expenses & Other Current Assets |
3,502,310 |
3,914,064 |
|||
Total Current Assets |
46,500,426 |
53,668,047 |
|||
Non-Current Assets |
|||||
Fixed Assets, net Accumulated Depreciation of $10,061,700 and $8,741,782, respectively |
31,326,000 |
31,113,630 |
|||
Investments |
2,000,000 |
2,000,000 |
|||
Investments Held for Sale |
– |
202,111 |
|||
Goodwill |
67,492,705 |
67,499,199 |
|||
Intangible Assets, net Accumulated Amortization of $36,483,160 and $32,706,765, respectively |
162,391,482 |
166,167,877 |
|||
Other Non-Current Assets |
1,328,187 |
1,263,837 |
|||
Operating Lease Right of Use Assets |
34,575,832 |
34,233,142 |
|||
Deferred Tax Assets, net |
992,144 |
1,996,489 |
|||
Total Non-Current Assets |
300,106,350 |
304,476,285 |
|||
Total Assets |
$ |
346,606,776 |
$ |
358,144,332 |
|
LIABILITIES & STOCKHOLDERS’ EQUITY
|
|||||
Current Liabilities |
|||||
Accounts Payable |
$ |
9,443,233 |
$ |
13,341,561 |
|
Accrued Expenses |
8,106,618 |
7,774,691 |
|||
Derivative Liabilities |
1,319,845 |
638,020 |
|||
Lease Liabilities – Current |
5,186,316 |
4,922,724 |
|||
Current Portion of Long Term Debt |
29,579,713 |
3,547,011 |
|||
Income Taxes Payable |
28,235,039 |
25,232,782 |
|||
Total Current Liabilities |
81,870,764 |
55,456,789 |
|||
Non-Current Liabilities |
|||||
Long Term Debt, net of Debt Discount & Issuance Costs |
130,120,753 |
153,262,203 |
|||
Lease Liabilities – Non-Current |
30,735,072 |
30,133,452 |
|||
Total Non-Current Liabilities |
160,855,825 |
183,395,655 |
|||
Total Liabilities |
$ |
242,726,589 |
$ |
238,852,444 |
|
Stockholders’ Equity |
|||||
Preferred Stock, $0.001 Par Value. 10,000,000 Shares Authorized; 82,185 Shares Issued and |
|||||
82,185 Outstanding as of March 31, 2024 and 85,534 Shares Issued and 85,534 Outstanding as of |
|||||
December 31, 2023. |
82 |
86 |
|||
Common Stock, $0.001 Par Value. 250,000,000 Shares Authorized; 79,168,539 Shares Issued |
|||||
and 78,248,389 Shares Outstanding as of March 31, 2024 and 74,888,392 Shares Issued |
|||||
and 73,968,242 Shares Outstanding as of December 31, 2023. |
79,169 |
74,888 |
|||
Additional Paid-In Capital |
202,677,665 |
202,040,968 |
|||
Accumulated Deficit |
(96,843,602) |
(80,790,927) |
|||
Common Stock Held in Treasury, at Cost, 920,150 Shares Held as of March 31, 2024 and |
|||||
920,150 Shares Held as of December 31, 2023. |
(2,033,127) |
(2,033,127) |
|||
Total Stockholders’ Equity |
103,880,187 |
119,291,888 |
|||
Total Liabilities & Stockholders’ Equity |
$ |
346,606,776 |
$ |
358,144,332 |
MEDICINE MAN TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND (LOSS)
For the Periods Ended March 31, 2024 and 2023
Expressed in U.S. Dollars
For the Three Months Ended |
|||||
March 31, |
|||||
2024 |
2023 |
||||
(Unaudited) |
(Unaudited) |
||||
Operating Revenues |
|||||
Retail |
$ |
37,633,252 |
$ |
35,820,111 |
|
Wholesale |
3,898,320 |
4,058,925 |
|||
Other |
69,421 |
121,900 |
|||
Total Revenue |
41,600,993 |
40,000,936 |
|||
Total Cost of Goods & Services |
23,667,319 |
18,152,163 |
|||
Gross Profit |
17,933,674 |
21,848,773 |
|||
Operating Expenses |
|||||
Selling, General and Administrative Expenses |
11,835,818 |
10,100,934 |
|||
Professional Services |
1,671,881 |
1,187,364 |
|||
Salaries |
6,880,988 |
4,695,971 |
|||
Stock Based Compensation |
253,916 |
214,544 |
|||
Total Operating Expenses |
20,642,603 |
16,198,813 |
|||
Income from Operations |
(2,708,929) |
5,649,960 |
|||
Other Income (Expense) |
|||||
Interest Expense, net |
(8,307,369) |
(7,745,854) |
|||
Unrealized Gain (Loss) on Derivative Liabilities |
(681,825) |
8,501,685 |
|||
Other Loss |
10,500 |
– |
|||
Loss on Investment |
(33,382) |
– |
|||
Unrealized Gain on Investment |
(347,516) |
1,816 |
|||
Total Other Income (Expense) |
(9,359,592) |
757,647 |
|||
Pre-Tax Net Income (Loss) |
(12,068,521) |
6,407,607 |
|||
Provision for Income Taxes |
3,984,154 |
4,662,178 |
|||
Net Income (Loss) |
$ |
(16,052,675) |
$ |
1,745,429 |
|
Less: Accumulated Preferred Stock Dividends for the Period |
(2,155,259) |
(2,029,394) |
|||
Net Income (Loss) Attributable to Common Stockholders |
$ |
(18,207,934) |
$ |
(283,965) |
|
Earnings (Loss) per Share Attributable to Common Stockholders |
|||||
Basic Earnings (Loss) per Share |
$ |
(0.24) |
$ |
(0.01) |
|
Diluted Earnings (Loss) per Share |
$ |
(0.24) |
$ |
(0.06) |
|
Weighted Average Number of Shares Outstanding – Basic |
76,006,932 |
55,835,501 |
|||
Weighted Average Number of Shares Outstanding – Diluted |
76,006,932 |
101,608,278 |
|||
Comprehensive Income (Loss) |
$ |
(16,052,675) |
$ |
1,745,429 |
MEDICINE MAN TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Periods Ended March 31, 2024 and 2023
Expressed in U.S. Dollars
For the Three Months Ended |
|||||
March 31, |
|||||
2024 |
2023 |
||||
(Unaudited) |
(Unaudited) |
||||
Cash Flows from Operating Activities: |
|||||
Net Income (Loss) for the Period |
$ |
(16,052,675) |
$ |
1,745,429 |
|
Adjustments to Reconcile Net Income (Loss) to Cash for Operating Activities |
|||||
Depreciation & Amortization |
5,096,314 |
6,151,395 |
|||
Non-Cash Interest Expense |
1,031,431 |
991,184 |
|||
Non-Cash Lease Expense |
2,871,226 |
2,251,459 |
|||
Deferred Taxes |
1,004,345 |
(637,225) |
|||
Loss on Investment |
202,111 |
– |
|||
Change in Derivative Liabilities |
681,825 |
(8,501,685) |
|||
Amortization of Debt Issuance Costs |
421,512 |
421,513 |
|||
Amortization of Debt Discount |
2,303,246 |
1,999,933 |
|||
(Gain) Loss on Investments, net |
347,516 |
(1,816) |
|||
Stock Based Compensation |
640,974 |
214,544 |
|||
Changes in Operating Assets & Liabilities (net of Acquired Amounts): |
|||||
Accounts Receivable |
905,127 |
(118,181) |
|||
Inventory |
(587,900) |
(3,023,251) |
|||
Prepaid Expenses & Other Current Assets |
411,754 |
(3,036,801) |
|||
Other Assets |
(64,350) |
360,674 |
|||
Change in Operating Lease Liabilities |
(2,348,703) |
(1,531,765) |
|||
Accounts Payable & Other Liabilities |
(3,566,401) |
(3,464,671) |
|||
Income Taxes Payable |
3,002,257 |
5,299,403 |
|||
Net Cash Provided by (Used in) Operating Activities |
(3,700,390) |
(879,861) |
|||
Cash Flows from Investing Activities: |
|||||
Collection of Notes Receivable |
– |
10,631 |
|||
Purchase of Fixed Assets |
(1,532,287) |
(2,913,394) |
|||
Net Cash Provided by (Used in) Investing Activities |
(1,532,287) |
(2,902,763) |
|||
Cash Flows from Financing Activities: |
|||||
Payment on Notes Payable |
(864,938) |
– |
|||
Net Cash Provided by (Used in) Financing Activities |
(864,938) |
– |
|||
Net (Decrease) in Cash & Cash Equivalents |
(6,097,615) |
(3,782,624) |
|||
Cash & Cash Equivalents at Beginning of Period |
19,248,932 |
38,949,253 |
|||
Cash & Cash Equivalents at End of Period |
$ |
13,151,317 |
$ |
35,166,628 |
|
Supplemental Disclosure of Cash Flow Information: |
|||||
Cash Paid for Interest |
$ |
4,515,205 |
$ |
6,540,748 |
MEDICINE MAN TECHNOLOGIES, INC.
ADJUSTED EBITDA RECONCILIATION (NON-GAAP)
For the Periods Ended March 31, 2024 and 2023
Expressed in U.S. Dollars
For the Three Months Ended |
|||||
March 31, |
|||||
2024 |
2023 |
||||
Net Income (Loss) |
$ |
(16,052,675) |
$ |
1,745,429 |
|
Interest Expense, net |
8,307,369 |
7,745,854 |
|||
Provision for Income Taxes |
3,984,154 |
4,662,178 |
|||
Other (Income) Expense, net of Interest Expense |
1,052,223 |
(8,503,501) |
|||
Depreciation & Amortization |
5,618,834 |
6,612,814 |
|||
Earnings Before Interest, Taxes, Depreciation and |
|||||
Amortization (EBITDA) (non-GAAP) |
$ |
2,909,905 |
$ |
12,262,774 |
|
Non-Cash Stock Compensation |
253,916 |
214,544 |
|||
Deal Related Expenses |
637,761 |
1,195,802 |
|||
Capital Raise Related Expenses |
20,760 |
35,068 |
|||
Severance |
484,561 |
118,436 |
|||
Retention Program Expenses |
807,500 |
280,632 |
|||
Pre-Operating & Dark Carry Expenses |
1,053,837 |
391,917 |
|||
One-Time Legal Settlements |
417,653 |
– |
|||
Other Non-Recurring Items |
754,751 |
25,707 |
|||
Adjusted EBITDA (non-GAAP) |
$ |
7,340,644 |
$ |
14,524,880 |
|
Revenue |
41,600,993 |
40,000,936 |
|||
Adjusted EBITDA Percent |
17.6 % |
36.3 % |
View original content:https://www.prnewswire.co.uk/news-releases/schwazze-announces-first-quarter-2024-financial-results-302146858.html
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