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First Quarter 2019 Results Announced by Reading International
Earnings Call Webcast to Discuss 2019 First Quarter Financial Results
Scheduled to Post to Corporate Website on Tuesday, May 14, 2019
CULVER CITY, Calif.–(BUSINESS WIRE)–Reading International, Inc. (NASDAQ: RDI) today announced results for
the first quarter ended March 31, 2019. Our Company reported Basic
Earnings (Loss) per Share (“EPS”) of $(0.09), for the quarter ended
March 31, 2019 compared to an EPS of $0.13 for the same period in the
prior year, which was primarily driven by a weaker film slate in the
first quarter compared to the same period last year. The success of
films such as “Black Panther,” “Jumanji: Welcome to the Jungle,” and
“The Greatest Showman” during the first quarter of 2018 was not
repeated by the films offered in the first quarter of 2019. Cinema
segment revenues for the first three months of 2019 decreased by 20%, or
$14.3 million, to $58.0 million, compared to $72.3 million for the first
three months of 2018. We believe that our cinema results for the quarter
were similarly impacted as those of our competitors.
On the real estate front, our signature U.S. redevelopment project – the
historic Tammany Hall at 44 Union Square in Manhattan nears completion.
While no assurances can be given, we are in lease negotiations with a
credit tenant with respect to approximately 90% of the net rentable area
of the project. The prospective tenant has begun preparation of drawings
for the fit-out of the space and we have reached an agreement in
principle with respect to the key economic points. Drafts of the lease
have been exchanged. We anticipate that the project will be ready for
the commencement of tenant improvement work this quarter.
Ellen Cotter, Chair, President and Chief Executive Officer, said, “We
anticipated that when compared to the first quarter of 2018 the Black
Panther box office would be tough to match. However, the recent
blockbuster success of Avengers: Endgame again re-affirms our
confidence in the cinema industry and we look forward to that box office
momentum continuing through 2019.
“Also, we are pleased with the progress we have made on our 44 Union
Square project – the historic Tammany Hall in New York City and believe
this signature project, when completed, will unlock the long term value
in this one-time theatre property.”
Consolidated revenue for the first quarter of 2019 decreased by 19%, or
$14.3 million, to $61.6 million compared to the first quarter of 2018,
primarily due to a decreased attendance resulting from the weaker film
slate. These results were additionally negatively impacted by a
9.4% decline in the Australian dollar and a 6.3% decline in the New
Zealand dollar for the quarter ended March 31, 2019, compared to the
quarter ended March 31, 2018. Our New Zealand results were also
negatively impacted by the closure, due to seismic concerns, of our
Courtenay Central cinema in Wellington, which has historically been our
top performer in New Zealand.
The following table summarizes the first quarter results for 2019 and
2018:
Three Months Ended | ||||||||||||||||||||||
March 31, |
% Change Favorable/ |
|||||||||||||||||||||
(Dollars in millions, except EPS) | 2019 | 2018 | (Unfavorable) | |||||||||||||||||||
Revenue | $ | 61.6 | $ | 75.9 | (19 | ) | % | |||||||||||||||
– US | 33.1 | 38.7 | (14 | ) | % | |||||||||||||||||
– Australia | 23.8 | 29.1 | (18 | ) | % | |||||||||||||||||
– New Zealand | 4.7 | 8.1 | (42 | ) | % | |||||||||||||||||
Operating expense | $ | (62.9 | ) | $ | (70.2 | ) | (10 | ) | % | |||||||||||||
Segment operating income (1) | $ | 3.8 | $ | 12.0 | (68 | ) | % | |||||||||||||||
Net income/(loss) (2) |
$ | (2.1 | ) | $ | 3.1 | (168 | ) | % | ||||||||||||||
EBITDA (1) | $ | 4.3 | $ | 11.1 | (61 | ) | % | |||||||||||||||
Adjusted EBITDA (1) | $ | 4.8 | $ | 12.5 | (62 | ) | % | |||||||||||||||
Basic EPS (2) | $ | (0.09 | ) | $ | 0.13 | (169 | ) | % | ||||||||||||||
(1) |
Aggregate segment operating income, earnings before interest |
||
(2) |
Reflect amounts attributable to stockholders of Reading |
||
COMPANY HIGHLIGHTS
-
Operating Results: For
the quarter ended March 31, 2019, we had worldwide revenue of
$61.6 million, down $14.3 million from the prior year. Our operating
results were negatively impacted by (i) a weaker film slate worldwide,
(ii) a weaker film slate from the specialty distribution companies in
the U.S., and (iii) the closure of a majority of the net rentable area
of Courtenay Central, including our Reading Cinema at that location,
due to seismic concerns. -
Capex program: During
the first quarter of 2019, we invested $11.4 million in capital
improvements, including our continued investment in the redevelopment
of Tammany Hall, the upgrading of our multiplex cinemas (Harbour Town
in Australia and Mililani in the U.S.) and the lease acquisition of an
existing cinema in Devonport, Tasmania. -
Cinema Additions and Pipeline:
In early 2019, we purchased a well-established four-screen
cinema in Devonport, Tasmania. This lease acquisition brings our
global cinema count to 60 and our global screen count to 484. In
addition, we currently have signed lease agreements for four new
cinemas in Australia representing an additional 25 screens, which we
anticipate opening between 2019 and 2021. -
Building new revenue sources:
We continue to focus on the development of our self-ticketing
capabilities. We achieved a first quarter record for U.S. online
revenue, beating the prior year first quarter record by 14%. Online
sales consisted of 25% of our global box office revenue, which is a
first quarter record and represents an 18% increase from the prior
year period. Our continued improvements to our websites and apps in
the U.S. and improved global online sales infrastructure are enabling
us to better serve high sales volume.
Real estate activities:
-
44 Union Square Redevelopment (New York, U.S.)
– Our signature U.S. redevelopment project – the historic Tammany Hall
at 44 Union Square in Manhattan – is nearing completion. While
no assurances can be given, we are in negotiations on a lease with a
credit tenant for approximately 90% of the net rentable area of the
project. We anticipate that our project will be ready for the
commencement of tenant improvement work this quarter. -
Minetta Lane Theatre (New York, U.S.)
– In April, we negotiated an extension through March 2020 (with an
option to extend for an additional year through March 2021) of our
Minetta Lane Theatre license agreement with Audible, Inc., a
subsidiary of Amazon. Audible will continue to use our theatre as the
location for its production of various plays featuring one or two
actors, to be recorded before a live theatre audience, and offered on
Audible.com. -
Courtenay Central Redesign/Expansion
(Wellington, New Zealand) – Located in the heart of
Wellington – New Zealand’s capital city – this center is comprised of
161,071 square feet of land situated proximate to the Te Papa
Tongarewa Museum (attracting more than 1.5 million visitors annually),
across the street from the site of Wellington’s newly announced
convention center (estimated to open in 2022) and at a major public
transit hub. Damage from the 2016 earthquake necessitated demolition
of our nine-story parking garage at the site. Further, unrelated
seismic issues have caused us to close portions of the existing cinema
and retail structure while we reevaluate the property for
redevelopment as an entertainment themed urban center with a major
food and grocery component. Wellington continues to be rated as one of
the top cities in the world in which to live, and we continue to
believe that Courtenay Central is located in one of the most vibrant
and growing commercial and entertainment precincts of New Zealand.
SEGMENT RESULTS
The following table summarizes the first quarter segment operating
results for 2019 and 2018:
Three Months Ended | ||||||||||||||||||||||
March 31, |
% Change Favorable/ |
|||||||||||||||||||||
(Dollars in thousands) | 2019 | 2018 | (Unfavorable) | |||||||||||||||||||
Segment revenue | ||||||||||||||||||||||
Cinema |
||||||||||||||||||||||
United States | $ | 32,033 | $ | 37,987 | (16 | ) | % | |||||||||||||||
Australia | 21,441 | 26,717 | (20 | ) | % | |||||||||||||||||
New Zealand | 4,512 | 7,551 | (40 | ) | % | |||||||||||||||||
Total | $ | 57,986 | $ | 72,255 | (20 | ) | % | |||||||||||||||
Real estate |
||||||||||||||||||||||
United States | $ | 988 | $ | 655 | 51 | % | ||||||||||||||||
Australia | 3,916 | 4,154 | (6 | ) | % | |||||||||||||||||
New Zealand | 527 | 1,199 | (56 | ) | % | |||||||||||||||||
Total | $ | 5,431 | $ | 6,008 | (10 | ) | % | |||||||||||||||
Inter-segment elimination | (1,866 | ) | (2,391 | ) | 22 | % | ||||||||||||||||
Total segment revenue | $ | 61,551 | $ | 75,872 | (19 | ) | % | |||||||||||||||
Segment operating income | ||||||||||||||||||||||
Cinema |
||||||||||||||||||||||
United States | $ | (765 | ) | $ | 3,000 | (125 | ) | % | ||||||||||||||
Australia | 3,102 | 5,916 | (48 | ) | % | |||||||||||||||||
New Zealand | 305 | 1,369 | (78 | ) | % | |||||||||||||||||
Total | $ | 2,643 | $ | 10,285 | (74 | ) | % | |||||||||||||||
Real estate |
||||||||||||||||||||||
United States | $ | 27 | $ | (293 | ) | 109 | % | |||||||||||||||
Australia | 1,305 | 1,515 | (14 | ) | % | |||||||||||||||||
New Zealand | (174 | ) | 459 | (138 | ) | % | ||||||||||||||||
Total |
$ | 1,158 | $ | 1,681 | (31 | ) | % | |||||||||||||||
Total segment operating income (1) | $ | 3,801 | $ | 11,966 | (68 | ) | % | |||||||||||||||
“nm” – not meaningful for further analysis |
|||
(1) |
Aggregate segment operating income is a non-GAAP financial |
||
Consolidated and Non-Segment Results:
1st
Quarter Net Results
Compared to the quarter ended March 31, 2018, cinema segment operating
income decreased by 74%, or $7.6 million, to $2.6 million for the
quarter ended March 31, 2019, primarily driven by a decrease in
operating income in U.S., Australia, and New Zealand. The decrease was
due to a decrease in cinema attendance worldwide (principally due to a
weaker film slate), and fluctuations in average ticket price (“ATP”) and
spend per patron (“SPP”) as outlined below:
-
Revenue in the U.S. decreased by 16%, or $6.0 million, to
$32.0 million, due to a 22% decrease in attendance, offset partially
by a 12% increase in SPP and a 4% increase in ATP. -
Australia’s cinema revenue decreased by 20%, or $5.3 million, to $21.4
million primarily due to a 15% decrease in attendance, a 4% decrease
in ATP, and a decrease of 9% in SPP. -
New Zealand’s cinema revenue decreased by 40%, or $3.0 million versus
the same period in 2018. Attendance decreased by 40%, while ATP and
SPP percentages remained relatively flat compared to the same period
in the prior year. Not only did the weaker film slate from the major
studios impact our results, but our New Zealand cinema revenues were
also adversely impacted by the January 2019 closure of our Courtenay
Central cinema in Wellington due to seismic concerns.
The top three grossing films for the first quarter of 2019 were “Captain
Marvel,” “Aquaman,” and “How to Train Your Dragon: The
Hidden World,” representing approximately 29% of Reading’s worldwide
admission revenues for the quarter. The top three grossing films in the
first quarter of 2018 for Reading’s worldwide cinema circuits were “Black
Panther,” “Jumanji: Welcome to the Jungle,” and “The
Greatest Showman,” which represented approximately 32% of Reading’s
worldwide admission revenues for the quarter.
Real Estate
Segment Operating Income and Revenues:
Real estate segment operating income decreased by 31%, or $0.5 million,
to $1.2 million for the quarter ended March 31, 2019 compared to
March 31, 2018. For the quarter ended March 31, 2019, the real estate
segment revenue decreased by 10%, or $0.6 million, to $5.4 million,
compared to the same period in 2018. This was primarily attributable to
the closure due to seismic concerns of a majority of the net rentable
area of our Courtenay Central ETC during the first quarter of 2019,
compared to same period in 2018, which had a full quarter of operations,
offset by an increase in revenue at our Live Theatres.
CONSOLIDATED AND NON-SEGMENT RESULTS
The first quarter consolidated and non-segment results for 2019 and 2018
are summarized as follows:
Three Months Ended | ||||||||||||||||||||||||
March 31, |
% Change Favorable/ |
|||||||||||||||||||||||
(Dollars in thousands) | 2019 | 2018 | (Unfavorable) | |||||||||||||||||||||
Segment operating income | $ | 3,801 | $ | 11,966 | (68 | ) | % | |||||||||||||||||
Non-segment income and expenses: | ||||||||||||||||||||||||
General and administrative expense | (5,041 | ) | (6,156 | ) | 18 | % | ||||||||||||||||||
Interest expense, net | (1,852 | ) | (1,594 | ) | (16 | ) | % | |||||||||||||||||
Other | (47 | ) | 58 | 181 | % | |||||||||||||||||||
Total non-segment income and expenses | $ | (6,940 | ) | $ | (7,692 | ) | 10 | % | ||||||||||||||||
Income before income taxes | (3,139 | ) | 4,274 | 173 | % | |||||||||||||||||||
Income tax benefit (expense) | 1,042 | (1,170 | ) | 189 | % | |||||||||||||||||||
Net income/(loss) | $ | (2,097 | ) | $ | 3,104 | (168 | ) | % | ||||||||||||||||
Less: net income (loss) attributable to noncontrolling interests |
(16 | ) | 22 | nm | ||||||||||||||||||||
Net income (loss) attributable to RDI common stockholders |
$ | (2,081 | ) | $ | 3,082 | (168 | ) | % | ||||||||||||||||
“nm” – not meaningful for further analysis |
First Quarter Net Results
Net income attributable to RDI common stockholders was down $5.2 million
to a loss of $(2.1) million for the first quarter March 31, 2019,
compared to the same period prior year. Basic EPS for the quarter ended
March 31, 2019 decreased by $0.22 to a loss per share of $(0.09) from
the prior-year quarter, mainly attributable to a significant decrease in
revenue from both our Cinema and Real Estate business segments.
Non-Segment General & Administrative Expenses
Non-segment general and administrative expense for the quarter ended
March 31, 2019 compared to the same period of the prior year decreased
by 18%, or $1.1 million, to $5.0 million. The quarterly decrease mainly
relates to lower legal expenses for the quarter ending March 31, 2019 of
$1.0 million compared to the same period last year.
Income Tax Expense
Income tax expense for the quarter ended March 31, 2019, decreased 189%,
or $2.2 million, compared to the equivalent prior year period. The
change between 2019 and 2018 is primarily related to the pretax loss in
2019.
OTHER FINANCIAL INFORMATION
Balance Sheet and Liquidity
Total assets increased by $235.5 million, to $674.5 million at March 31,
2019, compared to $439.0 million at December 31, 2018. This was
primarily driven by the implementation of the lease accounting standards
effective January 1, 2019, which also resulted in a similar increase in
our liabilities. Additionally, assets increased due to the capital
investments relating to major real estate projects, primarily (i) the
redevelopment of our Union Square property in New York, and (ii)
improvements at our Mililani and Harbour Town cinemas. These were
partially offset by a reduction in our foreign-operation asset values
due to a decrease in the foreign exchange rates relative to the U.S.
dollar.
Cash and cash equivalents at March 31, 2019 were $12.6 million,
including approximately $8.8 million in the U.S., $3.2 million in
Australia, and $0.7 million in New Zealand. We manage our cash,
investments and capital structure so we are able to meet short-term and
long-term obligations for our business, while maintaining financial
flexibility and liquidity.
As part of our operating cycle, we utilize cash collected from (i) our
cinema business when selling tickets and F&B items, and (ii) rental
income typically received in advance, to reduce our long-term borrowings
and realize savings on interest charges. We then settle our operating
expenses generally with a lag within traditional trade terms. This
generates a temporary working capital deficit. We review the maturities
of our borrowings and negotiate for renewals and extensions, as
necessary for liquidity purposes. We believe the cash flow generated
from our operations coupled with our ability to renew and extend our
credit facilities will provide sufficient liquidity in the upcoming year.
OTHER INFORMATION
Our Stock Repurchase Program that expired on March 2, 2019, has been
extended by our Board of Directors through March 2, 2021. $16.2 million
remains available under that extended program. This will allow Reading
to repurchase its Class A Common Stock from time to time in accordance
with the requirements of the Securities and Exchange Commission on the
open market, in block trades and in privately negotiated transactions,
depending on market conditions and other factors.
On March 14, 2019, our Board of Directors approved the Company’s
three-year Strategic Plan to focus across the U.S., Australia, and New
Zealand on the upgrading of our existing cinemas to add luxury recliner
seating, TITAN branded auditoriums and enhanced F&B options, the
development in appropriate markets of new cinema opportunities, and the
continued development and/or redevelopment of our current real estate
assets.
After considering the approval of the Strategic Plan, our Board
concluded that the interests of our Company and our stockholders would
be best served by the continued pursuit of our Strategic Plan as an
independent company and that it had no interest in considering any sale
process at this time. Accordingly, we have advised Patton Vision that
our Board does not have any present interest in engaging in discussions
regarding their unsolicited indication of interest in the sale of our
Company. Our controlling stockholders are in agreement with this
approach.
In a matter potentially impacting the control of our company, but to
which our company is not a party (In re: James J. Cotter Living Trust
dated August 1, 2000 (Case No. BP159755) (the “Trust Case”)), the
California Court of Appeals on April 15, 2019, struck down the
California Trial Court’s order appointing a trustee ad litem to solicit
offers for the purchase of a controlling interest in our Company. The
basis for that disposition was the Appeals Court’s determination that
Mr. James J. Cotter, Jr., lacks standing to seek the appointment of such
a trustee ad litem. The Appeals Court noted that Mr. Cotter, Jr., is
neither a trustee of nor a beneficiary of the trust established to hold
such controlling interest (the “Voting Trust”) and accordingly,
determined that he lacked any standing to bring before the trial court
matters relating to the internal affairs of that trust, such as the
appointment of a trustee ad litem. The Court of Appeals also noted, in
an observation not material to the specific grounds on which the
California Trial Court’s order was struck down, but nevertheless likely
to be given weight by the court below, that “the plain language [of the
Trust Document] appears to show that the settlor [Mr. Cotter, Sr.]
instructed the Trustee [Margaret Cotter] not to diversify [i.e. not to
sell the voting shares held by the Voting Trust].” The Trust Document
directs the Trustee of the Voting Trust that this voting stock is “to be
retained for as long as possible.”
Ms. Margaret Cotter has advised the Board that she does not intend to
sell the controlling interest in our Company at this time, and that it
is her current intention that the Voting Trust hold such controlling
interest as provided in the Trust Document “as long as possible.”
We are informed that the Court of Appeal’s Order becomes final 30 days
after issuance.
The table below presents the changes in our working capital position and
other relevant information addressing our liquidity as of and for the
three months ended March 31, 2019 and preceding four years:
As of and for the 3-Months Ended |
Year Ended December 31 |
||||||||||||||||||||||||||||
($ in thousands) | 3/31/2019 | 2018 | 2017 | 2016 |
2015( (2)) |
||||||||||||||||||||||||
Total Resources (cash and borrowings) | |||||||||||||||||||||||||||||
Cash and cash equivalents (unrestricted) | $ | 12,648 | $ | 13,127 | $ | 13,668 | $ | 19,017 | $ | 19,702 | |||||||||||||||||||
Unused borrowing facility | 107,111 | 85,886 | 137,231 | 117,599 | 70,134 | ||||||||||||||||||||||||
Restricted for capital projects (1) | 23,566 | 30,318 | 62,280 | 62,024 | 10,263 | ||||||||||||||||||||||||
Unrestricted capacity | 83,545 | 55,568 | 74,951 | 55,575 | 59,871 | ||||||||||||||||||||||||
Total resources at period end | 119,759 | 99,013 | 150,899 | 136,616 | 89,836 | ||||||||||||||||||||||||
Total unrestricted resources at period end | 96,193 | 68,695 | 88,619 | 74,592 | 79,573 | ||||||||||||||||||||||||
Debt-to-Equity Ratio | |||||||||||||||||||||||||||||
Total contractual facility | $ | 290,879 | $ | 252,929 | $ | 271,732 | $ | 266,134 | $ | 207,075 | |||||||||||||||||||
Total debt (gross of deferred financing costs) | 184,099 | 167,043 | 134,501 | 148,535 | 130,941 | ||||||||||||||||||||||||
Current | 40,077 | 30,393 | 8,109 | 567 | 15,000 | ||||||||||||||||||||||||
Non-current | 143,691 | 136,650 | 126,392 | 147,968 | 115,941 | ||||||||||||||||||||||||
Finance lease liabilities | 331 | — | — | — | — | ||||||||||||||||||||||||
Total book equity(2) | 179,946 | 180,547 | 181,618 | 146,890 | 138,951 | ||||||||||||||||||||||||
Debt-to-equity ratio | 1.02 | 0.93 | 0.74 | 1.01 | 0.94 | ||||||||||||||||||||||||
Changes in Working Capital | |||||||||||||||||||||||||||||
Working capital (deficit) (3) | $ | (77,236 | ) | $ | (55,270 | ) | $ | (46,971 | ) | $ | 6,655 | $ | (35,581 | ) | |||||||||||||||
Current ratio | 0.28 | 0.35 | 0.42 | 1.10 | 0.51 | ||||||||||||||||||||||||
Capital Expenditures (including acquisitions) | $ | 11,476 | $ | 56,827 | $ | 76,708 | $ | 49,166 | $ | 53,119 | |||||||||||||||||||
(1) |
This relates to the construction facilities specifically negotiated for: (i) Union Square redevelopment project, obtained in December 2016, and (ii) New Zealand construction projects, obtained in May 2015. The New Zealand construction loan expired December 31, 2018. |
|||||||
(2) |
Certain 2015 balances included the restatement impact as a result |
|||||||
(3) |
Typically our working capital (deficit) is negative as we receive revenue from our cinema business ahead of the time that we have to pay our associated liabilities. We use the money we receive to pay down our borrowings in the first instance. |
|||||||
Below is a summary of the available credit facilities as of March 31,
2019:
As of March 31, 2019 | |||||||||||||||||||||||||
(Dollars in thousands) |
Available Contractual Capacity |
Capacity Used |
Unused Capacity |
Restricted for Capital Projects |
Unrestricted Capacity |
||||||||||||||||||||
Bank of America Credit Facility (USA) | $ | 55,000 | $ | 30,000 | $ | 25,000 | $ | — | $ | 25,000 | |||||||||||||||
Bank of America Line of Credit (USA) | 5,000 | 3,500 | 1,500 | — | 1,500 | ||||||||||||||||||||
Union Square Construction Financing (USA) | 57,500 | 33,934 | 23,566 | 23,566 | — | ||||||||||||||||||||
NAB Corporate Term Loan (AU) (1) | 85,248 | 40,138 | 45,110 | — | 45,110 | ||||||||||||||||||||
Westpac Bank Corporate (NZ) (1) | 21,824 | 9,889 | 11,935 | — | 11,935 | ||||||||||||||||||||
Total | $ | 224,572 | $ | 117,461 | $ | 107,111 | $ | 23,566 | $ | 83,545 |
(1) |
The borrowings are denominated in foreign currency. The |
|||||||
The $23.6 million representing borrowings restricted for capital
projects is wholly composed of the $23.6 million of unused capacity for
the Union Square development and construction.
Our overall global operating strategy is to conduct business mostly on a
self-funding basis by country (except for funds used to pay an
appropriate share of our U.S. corporate overhead). However, we may, from
time to time, move funds between jurisdictions where circumstances merit
such action as part of our goal to minimize our cost of capital.
Trust Preferred Securities – On October 11, 2018, Reading secured a
waiver that provides significant additional financial flexibility
through the elimination of financial covenants with respect to our Trust
Preferred Securities through the end of the term loan in consideration
of payments totaling $1.6 million, consisting of an initial payment of
$1.1 million paid on October 31, 2018, and a contractual obligation to
pay $270,000 in October 2021 and $225,000 in October 2025.
Minetta/Orpheum Loan – On October 12, 2018, the Minetta and Orpheum
Theatres loan of $7.5 million was increased to $8.0 million and the
maturity extended to November 1, 2023.
Non-GAAP Financial Measures
This earnings release presents aggregate segment operating income, and
EBITDA, which are important financial measures for the Company, but are
not financial measures defined by U.S. GAAP.
These measures should be reviewed in conjunction with the relevant U.S.
GAAP financial measures and are not presented as alternative measures of
EPS, cash flows or net income as determined in accordance with U.S.
GAAP. Aggregate segment operating income and EBITDA, as we have
calculated them, may not be comparable to similarly titled measures
reported by other companies.
Aggregate segment operating income – We evaluate the
performance of our business segments based on segment operating income,
and management uses aggregate segment operating income as a measure of
the performance of operating businesses separate from non-operating
factors.
Contacts
Gilbert Avanes, Interim Chief Financial Officer
Andrzej
Matyczynski, Executive Vice President for Global Operations
Reading
International, Inc.
(213) 235-2240
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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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