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Beacon Roofing Supply Reports Second Quarter 2019 Results

Published

5 years ago

on

Reading Time: 14 minutes

  • Record second quarter net sales of $1.43 billion
  • Existing market daily sales growth of 1.2% year-over-year
  • Second quarter net income (loss) of $(68.1) million vs. $(66.7)
    million in the prior year; Adjusted Net Income (Loss) of $(30.9)
    million vs. $(23.5) million in the prior year
  • Second quarter EPS of $(1.08) vs. $(1.07) in the prior year;
    Adjusted EPS of $(0.45) vs. $(0.35) in the prior year
  • Opened four greenfield locations in the second quarter (five total
    in fiscal 2019 to-date)

HERNDON, Va.–(BUSINESS WIRE)–Beacon Roofing Supply, Inc. (Nasdaq:BECN) (“Beacon” or the “Company”)
announced results today for its second quarter and six-month period
ended March 31, 2019 (“2019”).

Paul Isabella, the Company’s President and Chief Executive Officer,
stated: “We produced positive organic sales growth, highlighted by a
daily sales increase of nearly 5% in residential roofing, despite the
harsh weather adversely impacting quarterly demand (as noted in our
March 25 press release). In an effort to help mitigate the challenging
weather patterns, we were able to implement more aggressive late-quarter
cost controls to match the unusually soft seasonal environment. We once
again exhibited attractive price-cost performance in the second quarter,
as we have done in each of the past four quarters. Importantly, the
winter is now behind us and existing market sales accelerated the last
several weeks of March, and that momentum has continued into April.
Through key initiatives, including digital, private label, and
complementary products, coupled with new branch openings, we are
continuing to expand our competitive advantage in the marketplace. We
remain firmly committed to reaching our long-term sales and margin
objectives.”

Second Quarter

Net sales increased 0.2% to $1.43 billion in 2019, a level similar to
2018. Residential roofing product sales increased 2.9%, non-residential
roofing product sales decreased 5.7% and complementary product sales
increased 1.1% over the prior year. Existing markets net sales decreased
0.4% compared to the prior year period, primarily due to weather related
events; however, sales by business day increased by 1.2% compared to the
prior year period. The second quarter of fiscal years 2019 and 2018 had
63 and 64 business days, respectively.

Net income (loss) attributable to common shareholders was $(74.1)
million, compared to $(72.7) million in 2018. Net income (loss) per
share (“EPS”) was $(1.08), compared to $(1.07) in 2018. Second quarter
results were positively impacted by strong sales in geographies less
impacted by the unfavorable weather and lower operating expense. Second
quarter results were negatively impacted by lower gross margins.

Adjusted Net Income (Loss) was $(30.9) million, compared to $(23.5)
million in 2018. Adjusted EPS was $(0.45), compared to $(0.35) in 2018.
Adjusted EBITDA was $27.4 million, compared to $31.7 million in 2018.
(Please see the included financial tables for a reconciliation of
“Adjusted” financial measures to the most directly comparable GAAP
financial measures as well as further detail on the components driving
the net changes over the comparative periods).

Six Months

Net sales increased 23.7% to $3.15 billion, up from $2.55 billion in the
comparative 2018 period. Residential roofing product sales increased
13.5%, non-residential roofing product sales increased 10.7% and
complementary product sales increased 52.0% over the prior year.
Existing markets net sales increased 0.8% compared to the prior year
period, primarily due to price gains across all product lines. The first
six months of fiscal years 2019 and 2018 each had 125 business days.

Net income (loss) attributable to common shareholders was $(81.0)
million, compared to $(5.1) million in 2018. Net income (loss) per share
(“EPS”) was $(1.18), compared to $(0.07) in 2018. The six-month results
were positively impacted by price gains across all product lines and
improved gross margin performance. The six-month results were negatively
impacted by higher operating expenses and increase in interest expense
and preferred dividend payments that were both related to the
acquisition of Allied. In addition, 2018 results include a $48.0 million
non-recurring net tax benefit resulting from the enactment of the Tax
Cuts and Jobs Act of 2017.

Adjusted Net Income (Loss) was $9.6 million, compared to $23.2 million
in 2018. Adjusted EPS was $0.14, compared to $0.34 in 2018. Adjusted
EBITDA was $149.1 million, compared to $117.6 million in 2018. (Please
see the included financial tables for a reconciliation of “Adjusted”
financial measures to the most directly comparable GAAP financial
measures as well as further detail on the components driving the net
changes over the comparative periods).

The Company will host a webcast and conference call today at 5:00 p.m.
ET to discuss these results. The webcast link and call-in details are as
follows:

           
What: Beacon Roofing Supply Second Quarter 2019 Earnings Conference Call
When Tuesday, May 7, 2019
Time: 5:00 p.m. ET
Webcast:

http://ir.beaconroofingsupply.com/events.cfm
(live and replay)

Live Call: 720-634-9063; Conf. ID #6843668
 

To assure timely access, conference call participants should dial in
prior to the 5:00 p.m. ET start time.

Forward-Looking Statements:

This release contains information about management’s view of the
Company’s future expectations, plans and prospects that constitute
forward-looking statements for purposes of the safe harbor provisions
under the Private Securities Litigation Reform Act of 1995. Actual
results may differ materially from those indicated by such
forward-looking statements as a result of various important factors,
including, but not limited to, those set forth in the “Risk Factors”
section of the Company’s latest Form 10-K. In addition, the
forward-looking statements included in this press release represent the
Company’s views as of the date of this press release and these views
could change. However, while the Company may elect to update these
forward-looking statements at some point, the Company specifically
disclaims any obligation to do so, other than as required by federal
securities laws. These forward-looking statements should not be relied
upon as representing the Company’s views as of any date subsequent to
the date of this press release.

About Beacon Roofing Supply

Founded in 1928, Beacon Roofing Supply, Inc. is the largest publicly
traded distributor of residential and commercial roofing materials and
complementary building products, operating over 500 branches throughout
all 50 states in the U.S. and 6 provinces in Canada. To learn more about
Beacon and its family of regional brands, please visit www.becn.com.

 
BEACON ROOFING SUPPLY, INC.
Consolidated Statements of Operations
(Unaudited; In thousands, except share and per share amounts)
   
Three Months Ended March 31, Six Months Ended March 31,
2019  

% of
Net
Sales

  2018  

% of
Net
Sales

2019  

% of
Net
Sales

  2018  

% of
Net
Sales

Net sales $ 1,429,037   100.0 % $ 1,425,625   100.0 % $ 3,150,713   100.0 % $ 2,547,604   100.0 %
Cost of products sold   1,094,049     76.6 %   1,087,248     76.3 %   2,380,156     75.5 %   1,939,474     76.1 %
Gross profit 334,988 23.4 % 338,377 23.7 % 770,557 24.5 % 608,130 23.9 %
Operating expense1:
Selling, general and administrative 320,408 22.4 % 341,587 24.0 % 648,101 20.6 % 535,340 21.0 %
Depreciation 17,447 1.2 % 17,120 1.2 % 35,048 1.1 % 25,829 1.0 %
Amortization   51,763     3.6 %   37,068     2.6 %   103,784     3.3 %   55,263     2.2 %
Total operating expense   389,618     27.2 %   395,775     27.8 %   786,933     25.0 %   616,432     24.2 %
Income (loss) from operations (54,630 ) (3.8 %) (57,398 ) (4.1 %) (16,376 ) (0.5 %) (8,302 ) (0.3 %)
Interest expense, financing costs, and other2   40,452     2.8 %   39,570     2.8 %   78,813     2.5 %   62,138     2.4 %
Income (loss) before provision for income taxes (95,082 ) (6.6 %) (96,968 ) (6.9 %) (95,189 ) (3.0 %) (70,440 ) (2.7 %)
Provision for (benefit from) income taxes   (26,996 )   (1.8 %)   (30,313 )   (2.2 %)   (26,210 )   (0.8 %)   (71,381 )   (2.7 %)
Net income (loss)   (68,086 )   (4.8 %)   (66,655 )   (4.7 %)   (68,979 )   (2.2 %)   941     0.0 %
Dividends on preferred shares3   6,000     0.4 %   6,000     0.4 %   12,000     0.4 %   6,000     0.2 %
Net income (loss) attributable to common shareholders $ (74,086 )   (5.2 %) $ (72,655 )   (5.1 %) $ (80,979 )   (2.6 %) $ (5,059 )   (0.2 %)
 
Weighted-average common stock outstanding:
Basic 68,451,920 68,019,300 68,348,850 67,922,276
Diluted 68,451,920 68,019,300 68,348,850 67,922,276
 
Net income (loss) per share4:
Basic $ (1.08 ) $ (1.07 ) $ (1.18 ) $ (0.07 )
Diluted $ (1.08 ) $ (1.07 ) $ (1.18 ) $ (0.07 )
 
______________________________________________

1

  Operating expense for the three months ended March 31, 2019 and 2018
includes non-recurring acquisition costs of $6.7 million ($4.7
million, net of taxes) and $28.3 million ($20.0 million, net of
taxes), respectively. Operating expense for the six months ended
March 31, 2019 and 2018 includes non-recurring acquisition costs of
$15.6 million ($11.4 million, net of taxes) and $33.9 million ($23.9
million, net of taxes), respectively.
 
2 Interest expense, financing costs, and other for the three months
ended March 31, 2019 and 2018 includes non-recurring acquisition
costs of $3.0 million ($2.2 million, net of taxes) and $6.3 million
($4.5 million, net of taxes), respectively. Interest expense,
financing costs, and other for the six months ended March 31, 2019
and 2018 includes non-recurring acquisition costs of $6.1 million
($4.4 million, net of taxes) and $18.6 million ($13.2 million, net
of taxes), respectively.
 
3 Amounts for the three months ended March 31, 2019 and the three and
six months ended March 31, 2018 are composed of $5.0 million in
undeclared cumulative Preferred Stock dividends, as well as an
additional $1.0 million of Preferred Stock dividends that had been
declared and paid as of period end. Six months ended March 31, 2019
amount is composed of $5.0 million in undeclared cumulative
Preferred Stock dividends, as well as an additional $7.0 million of
Preferred Stock dividends that had been declared and paid as of
period end.
 
4 Basic net income (loss) per share is calculated by dividing net
income (loss) attributable to common shareholders by the
weighted-average number of common shares outstanding during the
period, without consideration for common share equivalents or the
conversion of Preferred Stock. Common share equivalents consist of
the incremental common shares issuable upon the exercise of stock
options and vesting of restricted stock unit awards. Diluted net
income (loss) per common share is calculated by dividing net income
(loss) attributable to common shareholders by the fully diluted
weighted-average number of common shares outstanding during the
period. The following table presents the components and calculations
of basic and diluted net income (loss) per share for each period
presented (in thousands, except share and per share amounts):
 
   
Three Months Ended March 31, Six Months Ended March 31,
2019   2018 2019   2018
Net income (loss) $ (68,086 ) $ (66,655 ) $ (68,979 ) $ 941
Dividends on preferred shares   6,000     6,000     12,000     6,000  
Net income (loss) attributable to common shareholders $ (74,086 ) $ (72,655 ) $ (80,979 ) $ (5,059 )
Undistributed income allocated to participating securities   –     –     –     –  
Net income (loss) attributable to common shareholders – basic and
diluted 		$ (74,086 ) $ (72,655 ) $ (80,979 ) $ (5,059 )
 
Weighted-average common shares outstanding – basic 68,451,920 68,019,300 68,348,850 67,922,276
Effect of common share equivalents   –     –     –     –  
Weighted-average common shares outstanding – diluted   68,451,920     68,019,300     68,348,850     67,922,276  
 
Net income (loss) per share – basic $ (1.08 ) $ (1.07 ) $ (1.18 ) $ (0.07 )
Net income (loss) per share – diluted $ (1.08 ) $ (1.07 ) $ (1.18 ) $ (0.07 )
 
 
BEACON ROOFING SUPPLY, INC.
Consolidated Balance Sheets
(Unaudited; In thousands)
     
March 31, September 30, March 31,
2019 2018 2018
Assets
Current assets:
Cash and cash equivalents $ 645 $ 129,927 $ 16,000
Accounts receivable, net 869,760 1,090,533 832,823
Inventories, net 1,031,183 936,047 1,005,577
Prepaid expenses and other current assets   332,100     244,360     240,315  
Total current assets 2,233,688 2,400,867 2,094,715
Property and equipment, net 271,022 280,407 294,222
Goodwill 2,490,326 2,491,779 2,381,620
Intangibles, net 1,229,949 1,334,366 1,410,302
Other assets, net   1,243     1,243     1,511  
Total assets $ 6,226,228   $ 6,508,662   $ 6,182,370  
 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 510,434 $ 880,872 $ 593,559
Accrued expenses 453,889 611,539 348,050
Current portions of long-term debt/obligations   19,988     19,661     19,597  
Total current liabilities 984,311 1,512,072 961,206
Borrowings under revolving lines of credit, net 416,614 92,442 424,528
Long-term debt, net 2,494,673 2,494,725 2,493,889
Deferred income taxes, net 110,064 106,994 91,101
Long-term obligations under equipment financing and other, net 8,527 13,639 18,313
Other long-term liabilities   5,702     5,290     10,617  
Total liabilities   4,019,891     4,225,162     3,999,654  
 
Convertible preferred stock   399,195     399,195     399,195  
 
Stockholders’ equity:
Common stock 684 681 680
Undesignated preferred stock – – –
Additional paid-in capital 1,073,243 1,067,040 1,056,248
Retained earnings 752,855 833,834 743,127
Accumulated other comprehensive income (loss)   (19,640 )   (17,250 )   (16,534 )
Total stockholders’ equity   1,807,142     1,884,305     1,783,521  
Total liabilities and stockholders’ equity $ 6,226,228   $ 6,508,662   $ 6,182,370  
 
 
BEACON ROOFING SUPPLY, INC.
Consolidated Statements of Cash Flows
(Unaudited; In thousands)
 
Six Months Ended March 31,
2019   2018
Operating Activities
Net income (loss) $ (68,979 ) $ 941
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 138,832 81,092
Stock-based compensation 8,264 7,835
Certain interest expense and other financing costs 6,051 3,987
Beneficial lease amortization 1,145 –
Loss on debt extinguishment – 1,725
Gain on sale of fixed assets (1,172 ) (319 )
Deferred income taxes 3,086 (47,260 )
Changes in operating assets and liabilities, net of the effects of
businesses acquired in the period:
Accounts receivable 219,740 186,170
Inventories (96,052 ) (131,789 )
Prepaid expenses and other assets (85,320 ) 67,425
Accounts payable and accrued expenses (368,154 ) (130,695 )
Other liabilities   415     854  
Net cash provided by (used in) operating activities   (242,144 )   39,966  
 
Investing Activities
Purchases of property and equipment (26,320 ) (24,833 )
Acquisition of businesses, net (163,973 ) (2,726,561 )
Proceeds from the sale of assets   1,428     413  
Net cash provided by (used in) investing activities   (188,865 )   (2,750,981 )
 
Financing Activities
Borrowings under revolving lines of credit 1,880,684 1,530,667
Repayments under revolving lines of credit (1,557,615 ) (1,097,463 )
Borrowings under term loan – 970,000
Repayments under term loan (4,850 ) (441,000 )
Borrowings under senior notes – 1,300,000
Payment of debt issuance costs – (67,723 )
Repayments under equipment financing facilities and other (2,642 ) (5,643 )
Proceeds from issuance of convertible preferred stock – 400,000
Payment of stock issuance costs – (1,279 )
Payment of dividends on preferred stock (12,000 ) (978 )
Proceeds from issuance of common stock related to equity awards 1,559 5,317
Taxes paid related to net share settlement of equity awards   (3,617 )   (3,933 )
Net cash provided by (used in) financing activities   301,519     2,587,965  
 
Effect of exchange rate changes on cash and cash equivalents   208     800  
 
Net increase (decrease) in cash and cash equivalents (129,282 ) (122,250 )
Cash and cash equivalents, beginning of period   129,927     138,250  
Cash and cash equivalents, end of period $ 645   $ 16,000  
 
 
BEACON ROOFING SUPPLY, INC.
Consolidated Sales by Product Line
(Unaudited; In thousands)
 
Consolidated Sales by Product Line
  Three Months Ended March 31,      
2019   2018 Change
Net Sales   Mix % Net Sales   Mix % $ %
Residential roofing products $ 598,917   42.0 % $ 581,834   40.8 % $ 17,083 2.9 %
Non-residential roofing products 313,626 21.9 % 332,690 23.3 % (19,064 ) (5.7 %)
Complementary building products   516,494     36.1 %   511,101     35.9 %   5,393   1.1 %
$ 1,429,037     100.0 % $ 1,425,625     100.0 % $ 3,412   0.2 %
 
 
Existing Market1 Sales by Product Line
Three Months Ended March 31,
2019 2018 Change
Net Sales Mix % Net Sales Mix % $ %
Residential roofing products $ 598,795 42.2 % $ 581,834 40.9 % $ 16,961 2.9 %
Non-residential roofing products 313,591 22.1 % 332,651 23.3 % (19,060 ) (5.7 %)
Complementary building products   506,602     35.7 %   510,622     35.8 %   (4,020 ) (0.8 %)
$ 1,418,988     100.0 % $ 1,425,107     100.0 % $ (6,119 ) (0.4 %)
 
 
Existing Market1 Sales By Business Day2
Three Months Ended March 31,
2019 2018 Change
Net Sales Mix % Net Sales Mix % $ %
Residential roofing products $ 9,505 42.2 % $ 9,091 40.9 % $ 414 4.6 %
Non-residential roofing products 4,978 22.1 % 5,198 23.3 % (220 ) (4.2 %)
Complementary building products   8,041     35.7 %   7,978     35.8 %   63   0.8 %
$ 22,524     100.0 % $ 22,267     100.0 % $ 257   1.2 %
__________________________________________________
1   Excludes acquired branches that have not been under ownership for at
least four fiscal quarters prior to the start of the second quarter
of fiscal year 2019.
 
2 There were 63 and 64 business days in the quarters ended March 31,
2019 and 2018, respectively.
 
 
BEACON ROOFING SUPPLY, INC.
Consolidated Sales by Product Line
(Unaudited; In thousands)
 
Consolidated Sales by Product Line
  Six Months Ended March 31,      
2019   2018   Change
Net Sales   Mix % Net Sales   Mix % $ %
Residential roofing products $ 1,323,780   42.0 % $ 1,166,361   45.8 % $ 157,419 13.5 %
Non-residential roofing products 729,939 23.2 % 659,431 25.9 % 70,508 10.7 %
Complementary building products   1,096,994     34.8 %   721,812     28.3 %   375,182   52.0 %
$ 3,150,713     100.0 % $ 2,547,604     100.0 % $ 603,109   23.7 %
 
 
Existing Market1 Sales by Product Line
Six Months Ended March 31,
2019 2018 Change
Net Sales Mix % Net Sales Mix % $ %
Residential roofing products $ 971,124 52.7 % $ 945,947 51.8 % $ 25,177 2.7 %
Non-residential roofing products 524,728 28.5 % 531,956 29.1 % (7,228 ) (1.4 %)
Complementary building products   345,553     18.8 %   348,509     19.1 %   (2,956 ) (0.8 %)
$ 1,841,405     100.0 % $ 1,826,412     100.0 % $ 14,993   0.8 %
 
 
Existing Market1 Sales By Business Day2
Six Months Ended March 31,
2019 2018 Change
Net Sales Mix % Net Sales Mix % $ %
Residential roofing products $ 7,769 52.7 % $ 7,568 51.8 % $ 201 2.7 %
Non-residential roofing products 4,198 28.5 % 4,256 29.1 % (58 ) (1.4 %)
Complementary building products   2,764     18.8 %   2,788     19.1 %   (24 ) (0.8 %)
$ 14,731     100.0 % $ 14,612     100.0 % $ 119   0.8 %
__________________________________________________

1

 

Excludes acquired branches that have not been under ownership for
at least four fiscal quarters prior to the start of fiscal year
2019.

 

2

There were 125 business days in each of the six month periods
ended March 31, 2019 and 2018.

 
 
BEACON ROOFING SUPPLY, INC.

Adjusted Net Income (Loss) and Adjusted EPS1

(Unaudited; In thousands, except per share amounts)
   
Three Months Ended March 31, Six Months Ended March 31,
2019   2018   2019   2018
Amount  

Per
Share2

  Amount  

Per
Share2

Amount  

Per
Share3

  Amount  

Per
Share3

Net income (loss) $ (68,086 ) $ (0.99 ) $ (66,655 ) $ (0.98 ) $ (68,979 ) $ (1.01 ) $ 941 $ 0.01
Dividends on preferred shares   6,000     0.09     6,000     0.09     12,000     0.18     6,000     0.08  
Net income (loss) attributable to common shareholders $ (74,086 ) $ (1.08 ) $ (72,655 ) $ (1.07 ) $ (80,979 ) $ (1.18 ) $ (5,059 ) $ (0.07 )
Adjustments:
Acquisition costs4 43,664 0.64 50,604 0.74 91,057 1.33 76,237 1.12
Effects of tax reform5   (462 )   (0.01 )   (1,491 )   (0.02 )   (462 )   (0.01 )   (47,983 )   (0.71 )
Adjusted Net Income (Loss) $ (30,884 ) $ (0.45 ) $ (23,542 ) $ (0.35 ) $ 9,616   $ 0.14   $ 23,195   $ 0.34  
____________________________________________

1

 

Adjusted Net Income (Loss) is defined as net income that excludes
non-recurring acquisition costs, the amortization of intangibles,
business restructuring costs, and the non-recurring effects of tax
reform. Adjusted net income (loss) per share or “Adjusted EPS” is
calculated by dividing the Adjusted Net Income (Loss) for the
period by the weighted-average diluted shares outstanding for the
period.

 

2

The weighted-average share count utilized in the calculation of
Adjusted EPS for the three months ended March 31, 2019 is
68,451,920. The weighted-average share count utilized in the
calculation of Adjusted EPS for the three months ended March 31,
2018 is 68,019,300.

 

3

The weighted-average share count utilized in the calculation of
Adjusted EPS for the six months ended March 31, 2019 is
68,348,850. The weighted-average share count utilized in the
calculation of Adjusted EPS for the six months ended March 31,
2018 is 67,922,276.

 

4

Three months ended March 31, 2019 amount is composed of $9.7
million of non-recurring acquisition costs ($6.9 million, net of
tax) and $51.8 million of amortization expense related to
intangibles ($36.8 million, net of tax). Three months ended March
31, 2018 amount is composed of $34.6 million of non-recurring
acquisition costs ($24.4 million, net of tax) and $37.1 million of
amortization expense related to intangibles ($26.2 million, net of
tax). Six months ended March 31, 2019 amount is composed of $21.7
million of non-recurring acquisition costs ($15.7 million, net of
tax) and $103.8 million of amortization expense related to
intangibles ($75.3 million, net of tax). Six months ended March
31, 2018 amount is composed of $52.5 million of non-recurring
acquisition costs ($37.1 million, net of tax) and $55.3 million of
amortization expense related to intangibles ($39.1 million, net of
tax).

 

5

Impact of the Tax Cuts and Jobs Act of 2017.

 
 
We use Adjusted Net Income (Loss) and Adjusted EPS to evaluate
financial performance, analyze the underlying trends in our business
and establish operational goals and forecasts that are used when
allocating resources.
 
We believe that Adjusted Net Income (Loss) and Adjusted EPS are
useful measures because they permit investors to better understand
changes in underlying operating performance over comparative periods
by providing financial results that are unaffected by cyclical
variances that can be driven by items such as investment activity or
purchase accounting adjustments.
 
While we believe Adjusted Net Income (Loss) and Adjusted EPS are
useful to investors when evaluating our business, they are not
prepared and presented in accordance with United States Generally
Accepted Accounting Principles (“GAAP”), and therefore should be
considered supplemental in nature. You should not consider Adjusted
Net Income (Loss) or Adjusted EPS in isolation or as a substitute
for net income and net income per share or diluted earnings per
share calculated in accordance with GAAP. In addition, Adjusted Net
Income (Loss) and Adjusted EPS may have material limitations and may
differ from similarly titled measures presented by other companies.
 
 
BEACON ROOFING SUPPLY, INC.

Adjusted EBITDA1

(Unaudited; In thousands)
   
Three Months Ended March 31, Six Months Ended March 31,
2019   2018 2019   2018
Net income (loss) $ (68,086 ) $ (66,655 ) $ (68,979 ) $ 941
Acquisition costs2 6,687 28,301 15,605 33,870
Interest expense, net 41,815 41,763 81,631 65,279
Income taxes (26,996 ) (30,313 ) (26,210 ) (71,381 )
Depreciation and amortization 69,210 54,188 138,832 81,092
Stock-based compensation   4,807     4,376     8,264     7,835  
Adjusted EBITDA $ 27,437   $ 31,660   $ 149,143   $ 117,636  
 
Adjusted EBITDA as a % of net sales 1.9 % 2.2 % 4.7 % 4.6 %

Contacts

Beacon Roofing Supply, Inc.
Joseph Nowicki, Executive VP & CFO
571-323-3939
[email protected]

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Rubicon Organics Reports Q1 2024 Financial Results

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SCHWAZZE

Schwazze Announces First Quarter 2024 Financial Results

Published

3 days ago

on

May 15, 2024

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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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