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Fiserv Reports First Quarter 2019 Results
GAAP revenue growth of 4 percent and internal revenue growth of 5
percent;
GAAP EPS decrease of 44 percent and adjusted EPS increase of 12 percent;
Full year 2019 guidance affirmed
BROOKFIELD, Wis.–(BUSINESS WIRE)–Fiserv, Inc. (NASDAQ: FISV), a leading global provider of financial
services technology solutions, today reported financial results for the
first quarter of 2019.
First Quarter 2019 GAAP Results
GAAP revenue for the company increased 4 percent to $1.50 billion in the
first quarter of 2019 compared to the first quarter of 2018, with 9
percent growth in the Payments segment and 3 percent decline in the
Financial segment. The sale of a 55 percent interest of the company’s
Lending Solutions business (the “Lending Transaction”) in the first
quarter of 2018 resulted in a decline in GAAP revenue in 2019 for the
Financial segment.
GAAP earnings per share was $0.56 in the first quarter of 2019,
decreasing 44 percent compared to the first quarter of 2018. GAAP
earnings per share in the first quarter of 2019 included costs of $0.16
per share related to the previously announced merger agreement to
acquire First Data Corporation. GAAP earnings per share in the first
quarter of 2018 included a gain of $0.37 per share on the Lending
Transaction.
GAAP operating margin was 24.8 percent in the first quarter of 2019,
compared to 42.2 percent in the first quarter of 2018. GAAP operating
margin in the first quarter of 2018 included a $232 million gain
resulting from the Lending Transaction.
Net cash provided by operating activities was $373 million in the first
quarter of 2019 compared to $372 million in the first quarter of 2018.
“We are off to a strong start to the year, with first quarter internal
revenue growth and sales ahead of our initial expectations,” said
Jeffery Yabuki, President and Chief Executive Officer of Fiserv. “In
addition to strong financial performance, we are well into integration
planning and looking forward to completing the First Data acquisition in
the second half of the year.”
First Quarter 2019 Non-GAAP Results and Additional Information
-
Adjusted revenue increased 5 percent to $1.43 billion in the quarter
compared to the prior year period. -
Internal revenue growth for the company was 5 percent in the quarter,
with 4 percent growth in the Payments segment and 6 percent growth in
the Financial segment. -
Adjusted earnings per share increased 12 percent to $0.84 in the
quarter compared to the prior year period. -
Adjusted operating margin was 31.9 percent in the quarter compared to
32.5 percent in the prior year period. -
Free cash flow was $302 million in the quarter compared to $316
million in the prior year period. -
Sales results were up 10 percent in the quarter compared to the prior
year period. -
The company repurchased 1.6 million shares of common stock for
$120 million in the quarter prior to the announcement of the First
Data Corporation transaction, as described below. The company has
deferred additional share repurchase until the close of the
acquisition. As of March 31, 2019, the company had 24.3 million
remaining shares authorized for repurchase. -
On April 18, 2019, Fiserv shareholders approved the issuance of shares
in connection with the First Data Corporation transaction with more
than 99 percent of the vote in favor of the action.
Agreement to Merge with First Data Corporation
On January 16, 2019, Fiserv announced that it had entered into a
definitive merger agreement to acquire First Data Corporation in an
all-stock transaction for an equity value of approximately $22 billion
as of the announcement. The transaction is expected to close during the
second half of 2019 subject to customary closing conditions and
regulatory approvals.
Outlook for 2019
Fiserv continues to expect internal revenue growth in a range of 4.5 to
5 percent for the year. The company also expects adjusted earnings per
share in a range of $3.39 to $3.52, which represents growth of 10 to 14
percent, as adjusted for the Lending Transaction. The company’s outlook
for the year does not include any impact related to its proposed
transaction with First Data Corporation.
“Our strong start to the year has us well positioned to meet our
full-year financial commitments,” said Yabuki.
Earnings Conference Call
The company will discuss its first quarter 2019 results on a conference
call and webcast at 4 p.m. CT on Tuesday, April 30, 2019. To register
for the event, go to fiserv.com
and click on the Q1 Earnings webcast link. Supplemental materials will
be available in the “Investor Relations” section of the website.
About Fiserv
Fiserv, Inc. (NASDAQ: FISV) enables clients worldwide to create and
deliver financial services experiences in step with the way people live
and work today. For 35 years, Fiserv has been a trusted leader in
financial services technology, helping clients achieve best-in-class
results by driving quality and innovation in payments, processing
services, risk and compliance, customer and channel management, and
insights and optimization. Fiserv is a member of the FORTUNE®
500 and has been named among the FORTUNE Magazine World’s Most Admired
Companies® for six consecutive years, recognized for strength
of business model, people management, social responsibility and
innovation leadership. Visit fiserv.com
and follow on social media for more information and the latest company
news.
Use of Non-GAAP Financial Measures
In this earnings release, the company supplements its reporting of
information determined in accordance with GAAP, such as revenue,
operating income, operating margin, net income, earnings per share and
net cash provided by operating activities, with “adjusted revenue,”
“internal revenue growth,” “adjusted operating income,” “adjusted
operating margin,” “adjusted net income,” “adjusted earnings per share,”
“adjusted earnings per share, as adjusted for the Lending Transaction
impact,” and “free cash flow.” Management believes that adjustments for
certain non-cash or other items and the exclusion of certain
pass-through revenue and expenses should enhance shareholders’ ability
to evaluate the company’s performance, as such measures provide
additional insights into the factors and trends affecting its business.
Therefore, the company excludes these items from GAAP revenue, operating
income, operating margin, net income, earnings per share and net cash
provided by operating activities to calculate these non-GAAP measures.
The corresponding reconciliations of these non-GAAP financial measures
to the most comparable GAAP measures are included in this earnings
release, except for forward-looking measures where a reconciliation to
the corresponding GAAP measures is not available due to the variability,
complexity and limited visibility of the non-cash and other items
described below that are excluded from the non-GAAP outlook measures.
See page 13 for additional information regarding the company’s
forward-looking non-GAAP financial measures.
Examples of non-cash or other items may include, but are not limited to,
non-cash deferred revenue adjustments arising from acquisitions,
non-cash intangible asset amortization expense associated with
acquisitions, non-cash impairment charges, severance costs, charges
associated with early debt extinguishment and bridge financing costs,
merger and integration costs, certain costs associated with the
achievement of the company’s operational effectiveness objectives, gains
or losses from dispositions and unconsolidated affiliates, and certain
discrete tax benefits and expenses. The company excludes these items to
more clearly focus on the factors management believes are pertinent to
its operations, and management uses this information to make operating
decisions, including the allocation of resources to the company’s
various businesses.
Internal revenue growth and free cash flow are non-GAAP financial
measures and are described on page 12. Management believes internal
revenue growth is useful because it presents revenue growth excluding
acquisitions, dispositions and the impact of postage reimbursements in
the company’s Output Solutions business, and including deferred revenue
purchase accounting adjustments. Management believes free cash flow is
useful to measure the funds generated in a given period that are
available for debt service requirements and strategic capital decisions.
Management believes this supplemental information enhances shareholders’
ability to evaluate and understand the company’s core business
performance.
These non-GAAP measures may not be comparable to similarly titled
measures reported by other companies and should be considered in
addition to, and not as a substitute for, revenue, operating income,
operating margin, net income, earnings per share and net cash provided
by operating activities or any other amount determined in accordance
with GAAP.
Forward-Looking Statements
This news release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
including statements regarding anticipated internal revenue growth,
adjusted earnings per share and adjusted earnings per share growth.
Statements can generally be identified as forward-looking because they
include words such as “believes,” “anticipates,” “expects,” “could,”
“should” or words of similar meaning. Statements that describe the
company’s future plans, objectives or goals are also forward-looking
statements.
Forward-looking statements are subject to assumptions, risks and
uncertainties that may cause actual results to differ materially from
those contemplated by such forward-looking statements. The factors that
could cause Fiserv’s actual results to differ materially include, among
others: the possibility that Fiserv and First Data Corporation may be
unable to achieve expected synergies and operating efficiencies from the
proposed merger within the expected time frames or at all or to
successfully integrate the operations of First Data Corporation into
those of Fiserv; such integration may be more difficult, time-consuming
or costly than expected; revenues following the transaction may be lower
than expected, including for possible reasons such as unexpected costs,
charges or expenses resulting from the transaction; operating costs,
customer loss and business disruption (including, without limitation,
difficulties in maintaining relationships with employees, customers,
clients or suppliers) may be greater than expected following the
transaction; the retention of certain key employees; the occurrence of
any event, change or other circumstances that could give rise to the
termination of the merger agreement; the outcome of any legal
proceedings that may be instituted against Fiserv, First Data
Corporation and others related to the merger agreement; unforeseen risks
relating to liabilities of Fiserv or First Data Corporation may exist;
the conditions to the completion of the transaction may not be
satisfied, or the regulatory approvals required for the transaction may
not be obtained on the terms expected or on the anticipated schedule;
the amount of the costs, fees, expenses and charges related to the
transaction, including the costs, fees, expenses and charges related to
any financing arrangements entered into in connection with the
transaction; the parties’ ability to meet expectations regarding the
timing, completion and accounting and tax treatments of the transaction.
Fiserv and First Data Corporation are subject to, among other matters,
changes in customer demand for their products and services; pricing and
other actions by competitors; general changes in local, regional,
national and international economic conditions and the impact they may
have on Fiserv and First Data Corporation and their customers and
Fiserv’s and First Data Corporation’s assessment of that impact; rapid
technological developments and changes, and the ability of Fiserv’s and
First Data Corporation’s technology to keep pace with a rapidly evolving
marketplace; the impact of a security breach or operational failure on
Fiserv’s and First Data Corporation’s business; the effect of proposed
and enacted legislative and regulatory actions in the United States and
internationally affecting the financial services industry as a whole
and/or Fiserv and First Data Corporation and their subsidiaries
individually or collectively; regulatory supervision and oversight, and
Fiserv’s and First Data Corporation’s ability to comply with government
regulations; the impact of Fiserv’s and First Data Corporation’s
strategic initiatives; Fiserv’s and First Data Corporation’s ability to
continue to introduce competitive new products and services on a timely,
cost-effective basis; the ability to contain costs and expenses; the
protection and validity of intellectual property rights; the outcome of
pending and future litigation and governmental proceedings; acts of war
and terrorism; and other factors included in “Risk Factors” in Fiserv’s
and First Data Corporation’s respective filings with the SEC, including
their respective Annual Reports on Form 10-K for the year ended December
31, 2018, and in other documents that the companies file with the SEC,
which are available at http://www.sec.gov.
You should consider these factors carefully in evaluating
forward-looking statements and are cautioned not to place undue reliance
on such statements. Fiserv assumes no obligation to update any
forward-looking statements, which speak only as of the date of this news
release.
Fiserv, Inc. | ||||||||
Condensed Consolidated Statements of Income | ||||||||
(In millions, except per share amounts, unaudited) | ||||||||
Three Months Ended March 31, |
||||||||
2019 | 2018 | |||||||
Revenue | ||||||||
Processing and services | $ | 1,293 | $ | 1,238 | ||||
Product | 209 | 202 | ||||||
Total revenue | 1,502 | 1,440 | ||||||
Expenses | ||||||||
Cost of processing and services | 624 | 568 | ||||||
Cost of product | 174 | 191 | ||||||
Selling, general and administrative | 341 | 305 | ||||||
Gain on sale of business | (10 | ) | (232 | ) | ||||
Total expenses | 1,129 | 832 | ||||||
Operating income | 373 | 608 | ||||||
Interest expense | (59 | ) | (45 | ) | ||||
Debt financing activities | (59 | ) | — | |||||
Non-operating income | 3 | — | ||||||
Income before income taxes and income from investments in |
258 | 563 | ||||||
Income tax provision | (31 | ) | (140 | ) | ||||
Loss from investments in unconsolidated affiliates | (2 | ) | — | |||||
Net income | $ | 225 | $ | 423 | ||||
GAAP earnings per share – diluted | $ | 0.56 | $ | 1.00 | ||||
Diluted shares used in computing earnings per share | 399.1 | 421.6 | ||||||
Earnings per share is calculated using actual, unrounded amounts. | ||||||||
Fiserv, Inc. | ||||||||
Reconciliation of GAAP to | ||||||||
Adjusted Net Income and Adjusted Earnings Per Share | ||||||||
(In millions, except per share amounts, unaudited) | ||||||||
Three Months Ended March 31, |
||||||||
2019 | 2018 | |||||||
GAAP net income | $ | 225 | $ | 423 | ||||
Adjustments: | ||||||||
Merger, integration and other costs 1 | 41 | 23 | ||||||
Severance costs | 7 | 5 | ||||||
Amortization of acquisition-related intangible assets | 45 | 40 | ||||||
Debt financing activities 2 | 59 | — | ||||||
Lending Transaction impact 3 | — | (9 | ) | |||||
Tax impact of adjustments 4 | (34 | ) | (13 | ) | ||||
Gain on sale of business 5 | (10 | ) | (232 | ) | ||||
Tax impact of gain on sale of business 4 | 2 | 78 | ||||||
Unconsolidated affiliate activities 6 | 3 | — | ||||||
Tax impact of unconsolidated affiliate activities 4 | (1 | ) | — | |||||
Adjusted net income | $ | 337 | $ | 315 | ||||
GAAP earnings per share | $ | 0.56 | $ | 1.00 | ||||
Adjustments – net of income taxes: | ||||||||
Merger, integration and other costs 1 | 0.08 | 0.04 | ||||||
Severance costs | 0.01 | 0.01 | ||||||
Amortization of acquisition-related intangible assets | 0.09 | 0.07 | ||||||
Debt financing activities 2 | 0.11 | — | ||||||
Lending Transaction impact 3 | — | (0.02 | ) | |||||
Gain on sale of business 5 | (0.02 | ) | (0.37 | ) | ||||
Unconsolidated affiliate activities 6 | 0.01 | — | ||||||
Adjusted earnings per share | $ | 0.84 | $ | 0.75 | ||||
1 |
Merger, integration and other costs include acquisition and related integration costs of $30 million in 2019 and $15 million in 2018, and certain costs associated with the achievement of the company’s operational effectiveness objectives of $11 million in 2019 and $8 million in 2018, primarily consisting of expenses related to data center consolidation activities. Acquisition and related integration costs in 2019 include $23 million, primarily consisting of legal and other professional service fees, related to the previously announced acquisition of First Data Corporation. |
2 |
Represents expenses associated with entering into and maintaining a bridge term loan facility for the purpose of refinancing certain indebtedness of First Data Corporation upon the closing date of the acquisition. |
3 |
Represents the earnings attributable to the disposed 55 percent interest of the company’s Lending Solutions business. |
4 |
The tax impact of adjustments is calculated using a tax rate of 22 percent, which approximates the company’s annual effective tax rate, exclusive of the actual tax impacts associated with the gain on sale of business and unconsolidated affiliate activities. |
5 |
Represents the gain on the Lending Transaction, including contingent consideration received in 2019. |
6 |
Represents the company’s share of amortization of acquisition-related intangible assets on the Lending Transaction. |
See page 3 for disclosures related to the use of non-GAAP financial measures. |
|
Earnings per share is calculated using actual, unrounded amounts. | |
Fiserv, Inc. | ||||||||
Financial Results by Segment | ||||||||
(In millions, unaudited) | ||||||||
Three Months Ended March 31, |
||||||||
2019 | 2018 | |||||||
Total Company | ||||||||
Revenue | $ | 1,502 | $ | 1,440 | ||||
Output Solutions postage reimbursements | (69 | ) | (74 | ) | ||||
Deferred revenue purchase accounting adjustments | — | 2 | ||||||
Adjusted revenue | $ | 1,433 | $ | 1,368 | ||||
Operating income | $ | 373 | $ | 608 | ||||
Merger, integration and other costs | 42 | 23 | ||||||
Severance costs | 7 | 5 | ||||||
Amortization of acquisition-related intangible assets | 45 | 40 | ||||||
Gain on sale of business | (10 | ) | (232 | ) | ||||
Adjusted operating income | $ | 457 | $ | 444 | ||||
Operating margin | 24.8 | % | 42.2 | % | ||||
Adjusted operating margin | 31.9 | % | 32.5 | % | ||||
Payments and Industry Products (“Payments”) | ||||||||
Revenue | $ | 914 | $ | 842 | ||||
Output Solutions postage reimbursements | (69 | ) | (74 | ) | ||||
Deferred revenue purchase accounting adjustments | — | 2 | ||||||
Adjusted revenue | $ | 845 | $ | 770 | ||||
Operating income | $ | 287 | $ | 271 | ||||
Merger, integration and other costs | — | 1 | ||||||
Adjusted operating income | $ | 287 | $ | 272 | ||||
Operating margin | 31.4 | % | 32.2 | % | ||||
Adjusted operating margin | 34.0 | % | 35.4 | % | ||||
Financial Institution Services (“Financial”) | ||||||||
Revenue | $ | 598 | $ | 616 | ||||
Operating income | $ | 199 | $ | 202 | ||||
Operating margin | 33.3 | % | 32.8 | % | ||||
Corporate and Other | ||||||||
Revenue | $ | (10 | ) | $ | (18 | ) | ||
Operating (loss) income | $ | (113 | ) | $ | 135 | |||
Merger, integration and other costs | 42 | 22 | ||||||
Severance costs | 7 | 5 | ||||||
Amortization of acquisition-related intangible assets | 45 | 40 | ||||||
Gain on sale of business | (10 | ) | (232 | ) | ||||
Adjusted operating loss | $ | (29 | ) | $ | (30 | ) | ||
See page 3 for disclosures related to the use of non-GAAP financial measures. |
||||||||
Operating margin percentages are calculated using actual, unrounded amounts. |
||||||||
Fiserv, Inc. | ||||||||
Condensed Consolidated Statements of Cash Flows | ||||||||
(In millions, unaudited) | ||||||||
Three Months Ended March 31, |
||||||||
2019 | 2018 | |||||||
Cash flows from operating activities | ||||||||
Net income | $ | 225 | $ | 423 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and other amortization | 100 | 93 | ||||||
Amortization of acquisition-related intangible assets | 45 | 40 | ||||||
Amortization of financing costs and debt discounts | 60 | 1 | ||||||
Share-based compensation | 19 | 19 | ||||||
Deferred income taxes | 8 | 77 | ||||||
Gain on sale of business | (10 | ) | (232 | ) | ||||
Loss from investments in unconsolidated affiliates | 2 | — | ||||||
Other operating activities | (2 | ) | — | |||||
Changes in assets and liabilities, net of effects from acquisitions and dispositions: |
||||||||
Trade accounts receivable | 6 | 67 | ||||||
Prepaid expenses and other assets | (26 | ) | (44 | ) | ||||
Contract costs | (58 | ) | (50 | ) | ||||
Accounts payable and other liabilities | (26 | ) | 38 | |||||
Contract liabilities | 30 | (60 | ) | |||||
Net cash provided by operating activities | 373 | 372 | ||||||
Cash flows from investing activities | ||||||||
Capital expenditures, including capitalization of software costs | (98 | ) | (77 | ) | ||||
Proceeds from sale of business | — | 419 | ||||||
Payments for acquisition of business, including working capital adjustments |
56 | — | ||||||
Purchases of investments | — | (1 | ) | |||||
Other investing activities | 6 | (10 | ) | |||||
Net cash (used in) provided by investing activities | (36 | ) | 331 | |||||
Cash flows from financing activities | ||||||||
Debt proceeds | 587 | 509 | ||||||
Debt repayments | (680 | ) | (806 | ) | ||||
Payments of debt financing, redemption and other costs | (56 | ) | — | |||||
Proceeds from issuance of treasury stock | 32 | 28 | ||||||
Purchases of treasury stock, including employee shares withheld for tax obligations |
(183 | ) | (427 | ) | ||||
Net cash used in financing activities | (300 | ) | (696 | ) | ||||
Net change in cash and cash equivalents | 37 | 7 | ||||||
Net cash flows from discontinued operations | — | 50 | ||||||
Cash and cash equivalents, beginning balance | 415 | 325 | ||||||
Cash and cash equivalents, ending balance | $ | 452 | $ | 382 | ||||
Certain prior period amounts have been reclassified to conform to current period presentation. |
||||||||
Fiserv, Inc. | |||||||
Condensed Consolidated Balance Sheets | |||||||
(In millions, unaudited) | |||||||
March 31, |
December 31, |
||||||
Assets | |||||||
Cash and cash equivalents | $ | 452 | $ | 415 | |||
Trade accounts receivable – net | 1,044 | 1,049 | |||||
Prepaid expenses and other current assets | 779 | 760 | |||||
Total current assets | 2,275 | 2,224 | |||||
Property and equipment – net | 409 | 398 | |||||
Intangible assets – net | 2,117 | 2,143 | |||||
Goodwill | 5,703 | 5,702 | |||||
Contract costs – net | 435 | 419 | |||||
Other long-term assets | 737 | 376 | |||||
Total assets | $ | 11,676 | $ | 11,262 | |||
Liabilities and Shareholders’ Equity | |||||||
Accounts payable and accrued expenses | $ | 1,718 | $ | 1,626 | |||
Current maturities of long-term debt | 7 | 4 | |||||
Contract liabilities | 395 | 380 | |||||
Total current liabilities | 2,120 | 2,010 | |||||
Long-term debt | 5,868 | 5,955 | |||||
Deferred income taxes | 745 | 745 | |||||
Long-term contract liabilities | 103 | 89 | |||||
Other long-term liabilities | 446 | 170 | |||||
Total liabilities | 9,282 | 8,969 | |||||
Shareholders’ equity | 2,394 | 2,293 | |||||
Total liabilities and shareholders’ equity | $ | 11,676 | $ | 11,262 | |||
Fiserv, Inc. Selected Non-GAAP Financial Measures ($ in millions, unaudited) |
||
Internal Revenue Growth 1 |
Three Months Ended |
|
Payments Segment | 4% | |
Financial Segment | 6% | |
Total Company | 5% | |
1 |
Internal revenue growth is measured as the increase in adjusted revenue (see page 9) for the current period excluding acquired revenue and revenue attributable to dispositions, divided by adjusted revenue from the prior year period excluding revenue attributable to dispositions. Revenue attributable to dispositions includes transition services revenue within Corporate and Other. |
In the first quarter of 2019, acquired revenue was $46 million (all in the Payments segment). Revenue attributable to dispositions was $9 million (all in Corporate and Other) and $54 million (all in the Financial segment) in the first quarter of 2019 and 2018, respectively, from the Lending Transaction. |
|
Free Cash Flow |
Three Months Ended March 31, |
|||||||
2019 | 2018 | |||||||
Net cash provided by operating activities | $ | 373 | $ | 372 | ||||
Capital expenditures | (98 | ) | (77 | ) | ||||
Adjustments: | ||||||||
Severance, merger and integration payments | 35 | 27 | ||||||
Tax payments on adjustments | (8 | ) | (6 | ) | ||||
Free cash flow | $ | 302 | $ | 316 | ||||
See page 3 for disclosures related to the use of non-GAAP |
||||||||
Fiserv, Inc. |
Full Year Forward-Looking Non-GAAP Financial Measures |
Internal Revenue Growth – The company’s internal revenue growth
outlook for 2019 excludes acquisitions, dispositions, and the impact of
postage reimbursements in its Output Solutions business, and includes
deferred revenue purchase accounting adjustments. These adjustments are
subject to variability and are anticipated to increase 2019 GAAP revenue
growth by approximately 1 percentage point as compared to the internal
revenue growth rate.
Adjusted Earnings Per Share – The company’s adjusted earnings per
share outlook for 2019 excludes certain non-cash or other items which
should enhance shareholders’ ability to evaluate the company’s
performance, as such measures provide additional insights into the
factors and trends affecting its business.
Contacts
Media Relations:
Britt Zarling
Vice President,
Corporate Communications
Fiserv, Inc.
414-378-4040
[email protected]
Investor Relations:
Tiffany Willis
Vice President,
Investor Relations
Fiserv, Inc.
678-375-4643
[email protected]
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Cannabis
Medical Cannabis Market Report 2024-2030: Asia-Pacific Set to Witness Robust Growth, Driven by R&D Discovery Initiatives
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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