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Arch Capital Group Ltd. Reports 2019 First Quarter Results

Published

5 years ago

on

Reading Time: 13 minutes

PEMBROKE, Bermuda–(BUSINESS WIRE)–Arch Capital Group Ltd. (NASDAQ: ACGL) announces its 2019 first quarter
results. The results included:

  • Net income available to Arch common shareholders of $438.1 million, or
    $1.07 per share, a 19.5% annualized return on average common equity,
    compared to $137.3 million, or $0.33 per share, for the 2018 first
    quarter;
  • After-tax operating income available to Arch common shareholders, a
    non-GAAP measure, of $275.9 million, or $0.67 per share, a 12.3%
    annualized return on average common equity, compared to $235.1
    million, or $0.56 per share, for the 2018 first quarter;
  • Book value per common share of $23.12 at March 31, 2019, a 7.4%
    increase in the 2019 first quarter and a 13.3% increase for the
    trailing twelve months;
  • Pre-tax current accident year catastrophic losses, net of reinsurance
    and reinstatement premiums(1) of $7.9 million;
  • Favorable development in prior year loss reserves, net of related
    adjustments(1) of $36.7 million;
  • Combined ratio excluding catastrophic activity and prior year
    development(1) of 81.4%.

All earnings per share amounts discussed in this release are on a
diluted basis. The following table summarizes the Company’s underwriting
results, both (i) on a consolidated basis and (ii) on a consolidated
basis excluding the ‘other’ segment (i.e., results of Watford Re,
as defined below):

     
(U.S. dollars in thousands) Consolidated Consolidated Excluding ‘Other’ Segment (1)
Three Months Ended March 31, Three Months Ended March 31,
2019   2018   % Change 2019   2018   % Change
Gross premiums written $ 2,077,879 $ 1,838,214 13.0 $ 1,980,453 $ 1,721,605 15.0
Net premiums written 1,525,259 1,412,544 8.0 1,379,872 1,232,992 11.9
Net premiums earned 1,368,866 1,234,899 10.8 1,222,772 1,098,151 11.3
Underwriting income 260,148 236,997 9.8 265,526 237,557 11.8
Underwriting Ratios % Point Change % Point Change
Loss ratio 52.5 % 51.6 % 0.9 49.7 % 49.1 % 0.6
Underwriting expense ratio 29.2 % 29.7 % (0.5 ) 29.3 % 29.7 % (0.4 )
Combined ratio 81.7 % 81.3 % 0.4   79.0 % 78.8 % 0.2  
Combined ratio excluding catastrophic activity and prior year
development 		81.4 % 83.2 % (1.8 )
(1)   Excluding the ‘other’ segment. See ‘Comments on Regulation G’ for
further details.
 

Pursuant to GAAP, the Company consolidates the results of Watford
Holdings Ltd. in its financial statements, although it only owns
approximately 11% of Watford Holdings Ltd.’s outstanding common equity.
Watford Holdings Ltd. is the parent of Watford Re Ltd., a multi-line
Bermuda reinsurance company (together with Watford Holdings Ltd.,
“Watford Re”). See ‘Comments on Regulation G’ for further details.

The following table summarizes the Company’s consolidated financial
data, including a reconciliation of net income or loss available to Arch
common shareholders to after-tax operating income or loss available to
Arch common shareholders and related diluted per share results:

   
(U.S. dollars in thousands, except share data) Three Months Ended
March 31,
2019   2018
Net income available to Arch common shareholders $ 438,125 $ 137,276
Net realized (gains) losses (115,644 ) 111,764
Net impairment losses recognized in earnings 1,309 162
Equity in net (income) loss of investment funds accounted for using
the equity method 		(46,867 ) (28,069 )
Net foreign exchange (gains) losses (4,994 ) 15,556
Transaction costs and other 1,190 830
Loss on redemption of preferred shares — 2,710
Income tax expense (benefit) (1) 2,778   (5,086 )
After-tax operating income available to Arch common shareholders $ 275,897   $ 235,143  
 

Diluted per common share results:

Net income available to Arch common shareholders $ 1.07 $ 0.33
Net realized (gains) losses (0.29 ) 0.26
Net impairment losses recognized in earnings 0.00 0.00
Equity in net (income) loss of investment funds accounted for using
the equity method 		(0.11 ) (0.07 )
Net foreign exchange (gains) losses (0.01 ) 0.04
Transaction costs and other 0.00 0.00
Loss on redemption of preferred shares — 0.01
Income tax expense (benefit) (1) 0.01   (0.01 )
After-tax operating income available to Arch common shareholders $ 0.67   $ 0.56  
 
Weighted average common shares and common share equivalents
outstanding — diluted 		408,971,029 417,893,802
 
Beginning common shareholders’ equity $ 8,659,827 $ 8,324,047
Ending common shareholders’ equity 9,334,596   8,370,372  
Average common shareholders’ equity $ 8,997,212   $ 8,347,210  
 
Annualized return on average common equity 19.5 % 6.6 %
Annualized operating return on average common equity 12.3 % 11.3 %
(1)   Income tax expense on net realized gains or losses, net impairment
losses recognized in earnings, equity in net income (loss) of
investment funds accounted for using the equity method, net foreign
exchange gains or losses, transaction costs and other and loss on
redemption of preferred shares reflects the relative mix reported by
jurisdiction and the varying tax rates in each jurisdiction.
 

Each line item in the table above reflects the impact of the Company’s
approximate 11% ownership of Watford Re’s outstanding common equity. See
‘Comments on Regulation G’ for a discussion of non-GAAP financial
measures.

Segment Information

The following section provides analysis on the Company’s 2019 first
quarter performance by operating segment. For additional details
regarding the Company’s operating segments, please refer to the
Company’s Financial Supplement dated March 31, 2019. The Company’s
segment information includes the use of underwriting income (loss) and a
combined ratio excluding catastrophic activity (if applicable for the
segment) and prior year development. Such items are non-GAAP financial
measures (see ‘Comments on Regulation G’ for further details).

Insurance Segment

    Three Months Ended March 31,
(U.S. dollars in thousands) 2019   2018   % Change
 
Gross premiums written $ 941,954 $ 823,378 14.4
Net premiums written 621,332 576,198 7.8
Net premiums earned 553,505 538,737 2.7
 
Underwriting income $ 562 $ 7,864 (92.9 )
 
Underwriting Ratios % Point Change
Loss ratio 64.4 % 65.7 % (1.3 )
Underwriting expense ratio 35.5 % 32.9 % 2.6  
Combined ratio 99.9 % 98.6 % 1.3  
 
Catastrophic activity and prior year development:
Current accident year catastrophic events, net of reinsurance and
reinstatement premiums 		0.0 % 0.2 % (0.2 )
Net (favorable) adverse development in prior year loss reserves, net
of related adjustments 		(0.3 )% (0.3 )% 0.0  
Combined ratio excluding catastrophic activity and prior year
development (1) 		100.2 % 98.7 % 1.5  
(1)   See ‘Comments on Regulation G’ for further discussion.
 

Gross premiums written by the insurance segment in the 2019 first
quarter were 14.4% higher than in the 2018 first quarter while net
premiums written were 7.8% higher than in the 2018 first quarter. The
increase in net premiums written primarily reflects the acquisition of a
U.K. commercial lines book of business on January 1, 2019, along with
the growth in most lines of business. The percentage increase in gross
premiums written is higher than the increase in net premiums written due
to a single large national account, for which the premium written in the
quarter was substantially ceded. Net premiums earned by the insurance
segment in the 2019 first quarter were 2.7% higher than in the 2018
first quarter, and reflect changes in net premiums written over the
previous five quarters.

The 2019 first quarter loss ratio reflected minimal current year
catastrophic activity, compared to 0.2 points in the 2018 first quarter.
Estimated net favorable development of prior year loss reserves, before
related adjustments, reduced the loss ratio by 0.8 points in the 2019
first quarter, compared to 0.4 points in the 2018 first quarter. The
balance of the change in the 2019 first quarter loss ratio primarily
resulted from changes in mix of business.

The underwriting expense ratio was 35.5% in the 2019 first quarter,
compared to 32.9% in the 2018 first quarter. The increase in the
underwriting expense ratio reflected a previously announced change in
the timing of our incentive compensation practices, with a large portion
of the expense associated with the share based compensation grants
reflected in the 2019 first quarter. In prior periods, share based
compensation grants occurred in the second quarter. On the U.K.
acquisition noted above, only a small portion of net premiums written
were earned in the 2019 first quarter while the Company incurred a full
quarter of expenses. This resulted in a higher expense ratio in the
period, which is expected to moderate as the business matures. The
Company did not acquire any loss reserves or unearned premiums as part
of the transaction.

Reinsurance Segment

    Three Months Ended March 31,
(U.S. dollars in thousands) 2019   2018   % Change
 
Gross premiums written $ 682,855 $ 577,483 18.2
Net premiums written 451,288 381,753 18.2
Net premiums earned 346,365 279,172 24.1
Other underwriting income (loss) 4,377 1,232 255.3
 
Underwriting income $ 20,902 $ 54,839 (61.9 )
 
Underwriting Ratios % Point Change
Loss ratio 69.2 % 50.7 % 18.5
Underwriting expense ratio 26.0 % 30.0 % (4.0 )
Combined ratio 95.2 % 80.7 % 14.5  
 
Catastrophic activity and prior year development:
Current accident year catastrophic events, net of reinsurance and
reinstatement premiums 		2.3 % 0.3 % 2.0
Net (favorable) adverse development in prior year loss reserves, net
of related adjustments 		0.5 % (13.0 )% 13.5  
Combined ratio excluding catastrophic activity and prior year
development (1) 		92.4 % 93.4 % (1.0 )
(1)   See ‘Comments on Regulation G’ for further discussion.
 

Gross and net premiums written by the reinsurance segment in the 2019
first quarter were 18.2% higher than in the 2018 first quarter. The
increase in net premiums written in the 2019 first quarter primarily
reflected growth from selected new business opportunities in casualty
and property excluding property catastrophe. Net premiums earned by the
reinsurance segment in the 2019 first quarter were 24.1% higher than in
the 2018 first quarter, and reflect changes in net premiums written over
the previous five quarters.

The 2019 first quarter loss ratio included 2.3 points of current year
catastrophic activity, compared to 0.4 points of catastrophic activity
in the 2018 first quarter. Estimated net adverse development of prior
year loss reserves, before related adjustments, increased the loss ratio
by 0.5 points in the 2019 first quarter, compared to 13.1 points of
favorable development in the 2018 first quarter. The estimated net
adverse development in the 2019 first quarter included an increase in
reserves on Typhoon Jebi of $16.0 million, or 4.6 points, based on
receipt of updated information from cedents and additional updated
industry data.

The underwriting expense ratio was 26.0% in the 2019 first quarter,
compared to 30.0% in the 2018 first quarter, primarily as a result of
growth in net premiums earned and changes in mix of business.

Mortgage Segment

    Three Months Ended March 31,
(U.S. dollars in thousands) 2019   2018   % Change
 
Gross premiums written $ 356,050 $ 321,178 10.9
Net premiums written 307,252 275,041 11.7
Net premiums earned 322,902 280,242 15.2
Other underwriting income 3,856 3,416 12.9
 
Underwriting income $ 244,062 $ 174,854 39.6
 
Underwriting Ratios % Point Change
Loss ratio 3.5 % 15.5 % (12.0 )
Underwriting expense ratio 22.1 % 23.3 % (1.2 )
Combined ratio 25.6 % 38.8 % (13.2 )
 
Prior year development:
Net (favorable) adverse development in prior year loss reserves, net
of related adjustments 		(11.3 )% (4.6 )% (6.7 )
Combined ratio excluding prior year development (1) 36.9 % 43.4 % (6.5 )
(1)   See ‘Comments on Regulation G’ for further discussion.
 

Gross premiums written by the mortgage segment in the 2019 first quarter
were 10.9% higher than in the 2018 first quarter, while net premiums
written were 11.7% higher. The growth in net premiums written primarily
reflected an increase in monthly premiums business due to growth in U.S.
insurance in force, partially offset by a lower level of U.S. single
premium business, a decrease in Australian mortgage reinsurance business
and higher ceded premiums related to Bellemeade transactions. The
increase in net premiums earned for the 2019 first quarter primarily
reflected the growth in insurance in force over the last twelve months,
with $390.4 billion of insurance in force at March 31, 2019, compared to
$349.9 billion at March 31, 2018.

Arch MI U.S. generated $11.2 billion of new insurance written (“NIW”) in
the 2019 first quarter, consistent with the $11.4 billion in the 2018
first quarter. Monthly premium policies contributed 91.6% of NIW in the
2019 first quarter, compared to 91.4% in the 2018 first quarter.

The loss ratio for the 2019 first quarter reflected estimated net
favorable development in prior year loss reserves, before related
adjustments, of 11.3 points in the 2019 first quarter, compared to 4.6
points in the 2018 first quarter. The estimated net favorable
development in the 2019 first quarter was primarily driven by lower
expected claim rates on first lien business and subrogation activity on
second lien business. The percentage of loans in default on first lien
business was 1.54% at March 31, 2019, a decrease from 1.60% at
December 31, 2018 and from 1.98% at March 31, 2018.

The mortgage segment’s underwriting expense ratio was 22.1% in the 2019
first quarter, compared to 23.3% in the 2018 first quarter. The lower
ratio in the 2019 first quarter primarily resulted from the higher level
of net premiums earned.

At March 31, 2019, the mortgage segment’s risk-in-force (before
reinsurance) of $77.1 billion consisted of $71.1 billion from Arch MI
U.S. with the remainder from reinsurance and credit-risk sharing
operations.

Corporate and Non-Underwriting

Corporate and non-underwriting results include net investment income,
other income (loss), corporate expenses, transaction costs and other,
amortization of intangible assets, interest expense, items related to
the Company’s non-cumulative preferred shares, net realized gains or
losses, net impairment losses included in earnings, equity in net income
or loss of investment funds accounted for using the equity method, net
foreign exchange gains or losses and income taxes. Such amounts exclude
the results of the ‘other’ segment.

Pre-tax net investment income for the 2019 first quarter was $0.30 per
share, or $121.2 million, compared to $0.24 per share, or $100.2
million, for the 2018 first quarter. The growth in 2019 first quarter
net investment income reflected the reinvestment of fixed income
securities at higher available yields and the shift from municipal bonds
to corporates. The annualized pre-tax investment income yield was 2.67%
for the 2019 first quarter, compared to 2.13% for the 2018 first
quarter. Total return, a non-GAAP measure, was 2.70% for the 2019 first
quarter, primarily reflecting the decline in interest rates during the
period and attendant appreciation in the Company’s fixed income
portfolio. See ‘Comments on Regulation G’ for a discussion of non-GAAP
financial measures.

Interest expense for the 2019 first quarter was $23.5 million, compared
to $25.9 million for the 2018 first quarter, reflecting the paydown of
revolving credit agreement borrowings in the second half of 2018.

On a pre-tax basis, net foreign exchange gains for the 2019 first
quarter were $5.2 million, compared to net foreign exchange losses for
the 2018 first quarter of $15.0 million. For both periods, such amounts
were primarily unrealized and resulted from the effects of revaluing the
Company’s net insurance liabilities required to be settled in foreign
currencies at each balance sheet date. Changes in the value of
available-for-sale investments held in foreign currencies due to foreign
currency rate movements are reflected as a direct increase or decrease
to shareholders’ equity and are not included in the consolidated
statements of income. Although the Company generally attempts to match
the currency of its projected liabilities with investments in the same
currencies, the Company may elect to over or underweight one or more
currencies from time to time, which could increase the Company’s
exposure to foreign currency fluctuations and increase the volatility of
the Company’s shareholders’ equity.

The Company’s effective tax rate on income before income taxes (based on
the Company’s annual effective tax rate) was 9.3% for the 2019 first
quarter, compared to 12.7% for the 2018 first quarter. The Company’s
effective tax rate on pre-tax operating income available to Arch common
shareholders was 13.1% for the 2019 first quarter, compared to 9.9% for
the 2018 first quarter. The effective tax rates for the 2019 first
quarter included a discrete income tax benefit of $1.8 million related
to share-based compensation. This benefit had the effect of reducing the
effective tax rate on operating income available to Arch common
shareholders by 0.5%. The Company’s effective tax rate may fluctuate
from period to period based upon the relative mix of income or loss
reported by jurisdiction, the level of catastrophic loss activity
incurred, and the varying tax rates in each jurisdiction.

Conference Call

The Company will hold a conference call for investors and analysts at
11:00 a.m. Eastern Time on May 1, 2019. A live webcast of this call will
be available via the Investors section of the Company’s website at http://www.archcapgroup.com.
A telephone replay of the conference call also will be available
beginning on May 1, 2019 at 2:00 p.m. Eastern Time until May 8, 2019 at
midnight Eastern Time. To access the replay, domestic callers should
dial 855-859-2056, and international callers should dial 404-537-3406
(passcode 7196298 for all callers).

Please refer to the Company’s Financial Supplement dated March 31, 2019,
which is available via the Investors section of the Company’s website at http://www.archcapgroup.com.
The Financial Supplement provides additional detail regarding the
financial performance of the Company. From time to time, the Company
posts additional financial information and presentations to its website,
including information with respect to its subsidiaries. Investors and
other recipients of this information are encouraged to check the
Company’s website regularly for additional information regarding the
Company.

Arch Capital Group Ltd., a Bermuda-based company with approximately
$11.85 billion in capital at March 31, 2019, provides insurance,
reinsurance and mortgage insurance on a worldwide basis through its
wholly owned subsidiaries.

Comments on Regulation G

Throughout this release, the Company presents its operations in the way
it believes will be the most meaningful and useful to investors,
analysts, rating agencies and others who use the Company’s financial
information in evaluating the performance of the Company and that
investors and such other persons benefit from having a consistent basis
for comparison between quarters and for comparison with other companies
within the industry. These measures may not, however, be comparable to
similarly titled measures used by companies outside of the insurance
industry. Investors are cautioned not to place undue reliance on these
non-GAAP financial measures in assessing the Company’s overall financial
performance.

This presentation includes the use of “after-tax operating income or
loss available to Arch common shareholders,” which is defined as net
income available to Arch common shareholders, excluding net realized
gains or losses, net impairment losses recognized in earnings, equity in
net income or loss of investment funds accounted for using the equity
method, net foreign exchange gains or losses, transaction costs and
other and loss on redemption of preferred shares, net of income taxes,
and the use of annualized operating return on average common equity. The
presentation of after-tax operating income available to Arch common
shareholders and annualized operating return on average common equity
are non-GAAP financial measures as defined in Regulation G. The
reconciliation of such measures to net income available to Arch common
shareholders and annualized return on average common equity (the most
directly comparable GAAP financial measures) in accordance with
Regulation G is included on the following page of this release.

The Company believes that net realized gains or losses, net impairment
losses recognized in earnings, equity in net income or loss of
investment funds accounted for using the equity method, net foreign
exchange gains or losses, transaction costs and other and loss on
redemption of preferred shares in any particular period are not
indicative of the performance of, or trends in, the Company’s business
performance. Although net realized gains or losses, net impairment
losses recognized in earnings, equity in net income or loss of
investment funds accounted for using the equity method and net foreign
exchange gains or losses are an integral part of the Company’s
operations, the decision to realize investment gains or losses, the
recognition of the change in the carrying value of investments accounted
for using the fair value option in net realized gains or losses, the
recognition of net impairment losses, the recognition of equity in net
income or loss of investment funds accounted for using the equity method
and the recognition of foreign exchange gains or losses are independent
of the insurance underwriting process and result, in large part, from
general economic and financial market conditions. Furthermore, certain
users of the Company’s financial information believe that, for many
companies, the timing of the realization of investment gains or losses
is largely opportunistic. In addition, net impairment losses recognized
in earnings on the Company’s investments represent other-than-temporary
declines in expected recovery values on securities without actual
realization. The use of the equity method on certain of the Company’s
investments in certain funds that invest in fixed maturity securities is
driven by the ownership structure of such funds (either limited
partnerships or limited liability companies). In applying the equity
method, these investments are initially recorded at cost and are
subsequently adjusted based on the Company’s proportionate share of the
net income or loss of the funds (which include changes in the fair value
of the underlying securities in the funds). This method of accounting is
different from the way the Company accounts for its other fixed maturity
securities and the timing of the recognition of equity in net income or
loss of investment funds accounted for using the equity method may
differ from gains or losses in the future upon sale or maturity of such
investments. Transaction costs and other include advisory, financing,
legal, severance, incentive compensation and other costs related to
acquisitions and Watford Re’s non-recurring listing expenses.

Contacts

Arch Capital Group Ltd.
François Morin: (441) 278-9250

Investor Relations
Donald Watson: (914) 872-3616; [email protected]

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SCHWAZZE

Schwazze Announces First Quarter 2024 Financial Results

Published

5 days ago

on

May 15, 2024

By

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. 
2  Adjusted EBITDA is a non-GAAP measure as defined by the SEC, and represents earnings before interest, taxes, depreciation, and amortization, adjusted for other income, non-cash share-based compensation, one-time transaction related expenses, or other non-operating costs. The Company uses Adjusted EBITDA as it believes it better explains the results of its core business. See “ADJUSTED EBITDA RECONCILIATION (NON-GAAP)” section herein for an explanation and reconciliations of non-GAAP measure used throughout this release.

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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