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Tech Data Reports First Quarter Fiscal Year 2020 Results
Reading Time: 11 minutes
CLEARWATER, Fla.–(BUSINESS WIRE)–Tech Data (NASDAQ: TECD) (the “Company”) today announced its financial
results for the first quarter ended April 30, 2019.
| First quarter ended April 30, | ||||||
|
($ in millions,
except per share amounts) |
2019 | 2018 |
Y/Y |
|||
| Net Sales | $8,406.4 | $8,548.3 | -2% | |||
| Gross profit | $509.4 | $523.1 | -3% | |||
| Gross margin | 6.06% | 6.12% | -6 bps | |||
| SG&A expenses (GAAP) | $405.8 | $422.4 | -4% | |||
| % of net sales | 4.83% | 4.94% | -11 bps | |||
| SG&A expenses (Non-GAAP) | $384.6 | $399.1 | -4% | |||
| % of net sales | 4.58% | 4.67% | -9 bps | |||
| Operating income (GAAP) | $97.6 | $70.5 | 38% | |||
| Operating margin (GAAP) | 1.16% | 0.82% | 34 bps | |||
| Operating income (Non-GAAP) | $124.8 | $124.1 | 1% | |||
| Operating margin (Non-GAAP) | 1.48% | 1.45% | 3 bps | |||
| Net income (GAAP) | $55.4 | $33.7 | 64% | |||
| Net income (Non-GAAP) | $75.9 | $70.8 | 7% | |||
| EPS – diluted (GAAP) | $1.49 | $0.87 | 71% | |||
| EPS – diluted (Non-GAAP) | $2.04 | $1.84 | 11% | |||
A reconciliation of GAAP to non-GAAP financial measures is presented in
the financial tables of this press release.
This information is
also available on the Investor Relations section of Tech Data’s website
at www.techdata.com/investor.
“We are pleased to report a solid start to Tech Data’s fiscal year 20.
In Q1 we delivered double-digit earnings per share growth, generated
positive cash flow and earned an industry-leading return on invested
capital – all while making good progress on our strategy and continuing
to invest for the future. Our worldwide teams executed well in the
quarter, despite market uncertainty,” said Rich Hume, chief executive
officer. “Looking ahead, although IT market growth has slowed somewhat
from the year-ago levels, demand continues to be solid, and we remain
positive on the overall IT spending outlook.”
Regional Financial Highlights for the First Quarter Ended April 30,
2019:
| First quarter ended April 30, | ||||||
| ($ in millions) | 2019 | 2018 |
Y/Y |
|||
|
AMERICAS |
||||||
| Net Sales | $3,789.2 | $3,618.2 | 5% | |||
| % of WW net sales | 45% | 42% | ||||
| Operating income (GAAP) | $68.6 | $61.3 | 12% | |||
| % of net sales | 1.81% | 1.70% | 11 bps | |||
| Operating income (Non-GAAP) | $84.7 | $85.9 | -1% | |||
| % of net sales | 2.24% | 2.38% | -14 bps | |||
|
EUROPE |
||||||
| Net Sales | $4,309.5 | $4,661.7 | -8% | |||
| % of WW net sales | 51% | 55% | ||||
| Operating income (GAAP) | $36.4 | $17.3 | 110% | |||
| % of net sales | 0.85% | 0.37% | 48 bps | |||
| Operating income (Non-GAAP) | $45.6 | $43.6 | 4% | |||
| % of net sales | 1.06% | 0.94% | 12 bps | |||
|
ASIA PACIFIC |
||||||
| Net Sales | $307.7 | $268.4 | 15% | |||
| % of WW net sales | 4% | 3% | ||||
| Operating income (loss) (GAAP) | $0.9 | ($0.6) | NM | |||
| % of net sales | 0.28% | -0.21% | 49 bps | |||
| Operating income (Non-GAAP) | $2.8 | $1.1 | 161% | |||
| % of net sales | 0.91% | 0.40% | 51 bps | |||
Note: NM = not meaningful, WW = worldwide
Stock-based compensation
expense was $8.3 million, an increase of $0.7 million, compared to the
prior-year quarter. These expenses are excluded from the regional
operating results and presented as a separate line item in the company’s
segment reporting (see the GAAP to non-GAAP reconciliation in the
financial tables of this press release).
-
Net sales were $8.4 billion, a decrease of 2 percent compared to the
prior-year quarter. On a constant currency basis, net sales increased
3 percent.-
Americas: Net sales were $3.8 billion, an increase of 5 percent
compared to the prior-year quarter. On a constant currency basis,
net sales increased 6 percent. -
Europe: Net sales were $4.3 billion, a decrease of 8 percent
compared to the prior-year quarter. On a constant currency basis,
net sales increased 1 percent. -
Asia Pacific: Net sales were $0.3 billion, an increase of 15
percent compared to the prior-year quarter. On a constant currency
basis, net sales increased 19 percent.
-
Americas: Net sales were $3.8 billion, an increase of 5 percent
- Net cash generated by operations during the quarter was $63 million.
-
Return on invested capital for the trailing twelve months was 13
percent, compared to 4 percent in the prior year. Adjusted return on
invested capital for the trailing twelve months was 14 percent,
compared to 11 percent in the prior year.
“During Q1, we generated $63 million in cash from operations, returned
$36 million to our shareholders through share repurchases, and for the
trailing twelve-month period, earned an adjusted return on invested
capital of 14 percent. In addition, we recently improved our liquidity
profile to enhance our financial strength and flexibility – all of which
reflect our disciplined approach to optimizing our business and
commitment to creating shareholder value,” said Chuck Dannewitz,
executive vice president, chief financial officer.
Business Outlook
-
For the quarter ending July 31, 2019, the Company anticipates:
-
Worldwide net sales to be in the range of $8.6 billion to $8.9
billion -
EPS to be in the range of $1.53 to $1.83 and non-GAAP EPS to be in
the range of $2.15 to $2.45 - An effective tax rate in the range of 24 percent to 26 percent
-
Worldwide net sales to be in the range of $8.6 billion to $8.9
-
This guidance assumes an average U.S. dollar to euro exchange rate of
$1.12 to €1.00 which compares to $1.17 to €1.00 in the year-ago period.
Webcast Details
Tech Data will hold a conference call today at 9:00 a.m. (ET) to discuss
its financial results for the first quarter ended April 30, 2019. A
webcast of the call, including supplemental schedules, will be available
to all interested parties and can be obtained at www.techdata.com/investor.
The webcast will be available for replay for three months.
Non-GAAP Financial Information
The non-GAAP financial information contained in this release is included
with the intention of providing investors a more complete understanding
of the Company’s operational results and trends, but should only be used
in conjunction with results reported in accordance with Generally
Accepted Accounting Principles (“GAAP”). Certain non-GAAP measures
presented in this release or other releases, presentations and similar
documents issued by the Company include sales, income or expense items
as adjusted for the impact of changes in foreign currencies (referred to
as “constant currency”), non-GAAP operating income, non-GAAP operating
margin, non-GAAP net income, non-GAAP earnings per diluted share and
Adjusted Return on Invested Capital. Certain non-GAAP measures also
exclude acquisition-related intangible assets amortization expense,
benefits associated with legal settlements, acquisition, integration and
restructuring expenses, value-added tax assessments and related interest
expense, tax indemnifications and changes in deferred tax valuation
allowances. A detailed reconciliation of the adjustments between results
calculated using GAAP and non-GAAP in this release is contained in the
attached financial schedules. This information can also be obtained from
the Company’s Investor Relations website at www.techdata.com/investor.
Forward-Looking Statements
Certain statements in this communication may contain “forward-looking
statements” within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements, including statements regarding
Tech Data’s plans, objectives, expectations and intentions, Tech Data’s
financial results and estimates and/or business prospects, involve a
number of risks and uncertainties and actual results could differ
materially from those projected. These forward looking statements are
based on current expectations, estimates, forecasts, and projections
about the operating environment, economies and markets in which Tech
Data operates and the beliefs and assumptions of our management. Words
such as “expects,” “anticipates,” “targets,” “goals,” “projects,”
“intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such
words, and similar expressions are intended to identify such forward
looking statements. In addition, any statements that refer to
projections of Tech Data’s future financial performance, our anticipated
growth and trends in our businesses, and other characterizations of
future events or circumstances, are forward looking statements. These
forward looking statements are only predictions and are subject to
risks, uncertainties, and assumptions. Therefore, actual results may
differ materially and adversely from those expressed in any forward
looking statements.
For additional information with respect to risks and other factors which
could occur, see Tech Data’s Annual Report on Form 10-K for the year
ended January 31, 2019, including Part I, Item 1A, “Risk Factors”
therein, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
other securities filings with the Securities and Exchange Commission
(the “SEC”) that are available at the SEC’s website at www.sec.gov
and other securities regulators. Readers are cautioned not to place
undue reliance upon any such forward-looking statements, which speak
only as of the date made. Many of these factors are beyond Tech Data’s
control. Unless otherwise required by applicable securities laws, Tech
Data disclaims any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise. Tech Data undertakes no duty to update any
forward looking statements contained herein to reflect actual results or
changes in Tech Data’s expectations.
About Tech Data
Tech Data connects the world with the power of technology. Our
end-to-end portfolio of products, services and solutions, highly
specialized skills, and expertise in next-generation technologies enable
channel partners to bring to market the products and solutions the world
needs to connect, grow and advance. Tech Data is ranked No. 88 on the
Fortune 500® and has been named one of Fortune’s “World’s
Most Admired Companies” for 10 straight years. To find out more, visit www.techdata.com or
follow us on Twitter, LinkedIn,
and Facebook.
| TECH DATA CORPORATION AND SUBSIDIARIES | ||||||
| CONSOLIDATED STATEMENT OF OPERATIONS | ||||||
| (In thousands, except per share amounts) | ||||||
| (Unaudited) | ||||||
| Three months ended April 30, | ||||||
| 2019 | 2018 | |||||
| Net sales | $ | 8,406,424 | $ | 8,548,319 | ||
| Cost of products sold | 7,897,045 | 8,025,202 | ||||
| Gross profit | 509,379 | 523,117 | ||||
| Operating expenses: | ||||||
| Selling, general and administrative expenses | 405,816 | 422,361 | ||||
| Acquisition, integration, and restructuring expenses | 6,221 | 33,225 | ||||
| Legal settlements and other, net | (282) | (2,965) | ||||
| 411,755 | 452,621 | |||||
| Operating income | 97,624 | 70,496 | ||||
| Interest expense | 26,257 | 25,922 | ||||
| Other (income) expense, net | (693) | 1,917 | ||||
| Income before income taxes | 72,060 | 42,657 | ||||
| Provision for income taxes | 16,660 | 8,958 | ||||
| Net income | $ | 55,400 | $ | 33,699 | ||
| Earnings per share: | ||||||
| Basic | $ | 1.50 | $ | 0.88 | ||
| Diluted | $ | 1.49 | $ | 0.87 | ||
| Weighted average common shares outstanding: | ||||||
| Basic | 37,011 | 38,281 | ||||
| Diluted | 37,247 | 38,561 | ||||
| TECH DATA CORPORATION AND SUBSIDIARIES | ||||||
| CONSOLIDATED BALANCE SHEET | ||||||
| (In thousands, except par value and share amounts) | ||||||
| (Unaudited) | ||||||
| April 30, | January 31, | |||||
| 2019 | 2019 | |||||
| ASSETS | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 797,500 | $ | 799,123 | ||
| Accounts receivable, net | 5,423,370 | 6,241,740 | ||||
| Inventories | 3,260,840 | 3,297,385 | ||||
| Prepaid expenses and other assets | 367,858 | 354,601 | ||||
| Total current assets | 9,849,568 | 10,692,849 | ||||
| Property and equipment, net | 271,906 | 274,917 | ||||
| Goodwill | 887,175 | 892,990 | ||||
| Intangible assets, net | 924,338 | 950,858 | ||||
| Other assets, net | 378,762 | 174,938 | ||||
| Total assets | $ | 12,311,749 | $ | 12,986,552 | ||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||
| Current liabilities: | ||||||
| Accounts payable | $ | 6,715,555 | $ | 7,496,466 | ||
| Accrued expenses and other liabilities | 984,366 | 1,000,126 | ||||
| Revolving credit loans and current maturities of long-term debt, net | 123,092 | 110,368 | ||||
| Total current liabilities | 7,823,013 | 8,606,960 | ||||
| Long-term debt, less current maturities | 1,297,943 | 1,300,554 | ||||
| Other long-term liabilities | 274,887 | 142,315 | ||||
| Total liabilities | $ | 9,395,843 | $ | 10,049,829 | ||
| Shareholders’ equity: | ||||||
|
Common stock, par value $0.0015; 200,000,000 shares authorized; 59,245,585 |
$ | 89 | $ | 89 | ||
| shares issued at April 30, 2019 and January 31, 2019 | ||||||
| Additional paid-in capital | 836,508 | 844,206 | ||||
|
Treasury stock, at cost (22,483,529 and 22,305,464 shares at April 30, 2019 |
||||||
| and January 31, 2019) | (1,065,657) | (1,037,872) | ||||
| Retained earnings | 3,141,914 | 3,086,514 | ||||
| Accumulated other comprehensive income | 3,052 | 43,786 | ||||
| Total shareholders’ equity | 2,915,906 | 2,936,723 | ||||
| Total liabilities and shareholders’ equity | $ | 12,311,749 | $ | 12,986,552 | ||
| TECH DATA CORPORATION AND SUBSIDIARIES | ||||||||
| CONSOLIDATED STATEMENT OF CASH FLOWS | ||||||||
| (In thousands) | ||||||||
| (Unaudited) | ||||||||
| Three months ended April 30, | ||||||||
| 2019 | 2018 | |||||||
| Cash flows from operating activities: | ||||||||
| Cash received from customers | $ | 11,913,347 | $ | 11,514,374 | ||||
| Cash paid to vendors and employees | (11,800,318 | ) | (12,038,399 | ) | ||||
| Interest paid, net | (35,101 | ) | (33,763 | ) | ||||
| Income taxes paid | (14,739 | ) | (8,830 | ) | ||||
| Net cash provided by (used in) operating activities | 63,189 | (566,618 | ) | |||||
| Cash flows from investing activities: | ||||||||
| Expenditures for property and equipment | (7,745 | ) | (4,894 | ) | ||||
| Software and software development costs | (7,534 | ) | (3,561 | ) | ||||
| Other | (548 | ) | (267 | ) | ||||
| Net cash used in investing activities | (15,827 | ) | (8,722 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Principal payments on long-term debt | (5,224 | ) | (2,899 | ) | ||||
| Cash paid for debt issuance costs | (1,028 | ) | — | |||||
| Net borrowings (repayments) on revolving credit loans | 14,227 | (13,291 | ) | |||||
| Payments for employee tax withholdings on equity awards | (8,602 | ) | (6,255 | ) | ||||
| Proceeds from the reissuance of treasury stock | 495 | 442 | ||||||
| Repurchases of common stock | (35,681 | ) | — | |||||
|
Net cash used in financing activities |
(35,813 | ) | (22,003 | ) | ||||
| Effect of exchange rate changes on cash and cash equivalents | (13,172 | ) | (12,708 | ) | ||||
| Net decrease in cash and cash equivalents | (1,623 | ) | (610,051 | ) | ||||
| Cash and cash equivalents at beginning of year | 799,123 | 955,628 | ||||||
| Cash and cash equivalents at end of period | $ | 797,500 | $ | 345,577 | ||||
|
Reconciliation of net income to net cash provided by operating activities: |
||||||||
| Net income | $ | 55,400 | $ | 33,699 | ||||
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
||||||||
|
Depreciation and amortization |
37,257 | 40,481 | ||||||
| Provision for losses on accounts receivable | 1,765 | 924 | ||||||
| Stock-based compensation expense | 8,305 | 7,587 | ||||||
| Accretion of debt discount and debt issuance costs | 378 | 378 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 751,836 | 670,528 | ||||||
| Inventories | 2,450 | (7,387 | ) | |||||
| Prepaid expenses and other assets | 2,245 | (30,344 | ) | |||||
| Accounts payable | (706,381 | ) | (1,132,019 | ) | ||||
| Accrued expenses and other liabilities | (90,066 | ) | (150,465 | ) | ||||
| Total adjustments | 7,789 | (600,317 | ) | |||||
| Net cash provided by (used in) operating activities | $ | 63,189 | $ | (566,618 | ) | |||
| TECH DATA CORPORATION AND SUBSIDIARIES | ||||||||||||
| GAAP TO NON-GAAP RECONCILIATION | ||||||||||||
| (In thousands) | ||||||||||||
| Three months ended April 30, 2019 | ||||||||||||
| Americas (1) | Europe (1) | Asia Pacific (1) |
Stock |
Consolidated | ||||||||
| Net Sales | $ 3,789,198 | $ 4,309,500 | $ 307,726 | $ 8,406,424 | ||||||||
| Operating income (GAAP) (1) | $ 68,633 | $ 36,420 | $ 876 | $ (8,305) | $ 97,624 | |||||||
| Acquisition, integration and restructuring expenses | 2,911 | 3,024 | 286 | – | 6,221 | |||||||
| Legal settlements and other, net | (282) | – | – | (282) | ||||||||
| Tax indemnifications | – | – | 320 | 320 | ||||||||
| Acquisition-related intangible assets amortization expense | 13,440 | 6,115 | 1,324 | 20,879 | ||||||||
| Total non-GAAP operating income adjustments | $ 16,069 | $ 9,139 | $ 1,930 | $ – | $ 27,138 | |||||||
| Operating income (non-GAAP) | $ 84,702 | $ 45,559 | $ 2,806 | $ (8,305) | $ 124,762 | |||||||
| Operating margin (GAAP) | 1.81% | 0.85% | 0.28% | 1.16% | ||||||||
| Operating margin (non-GAAP) | 2.24% | 1.06% | 0.91% | 1.48% | ||||||||
|
(1) GAAP operating income does not include stock compensation expense at the regional level. |
||||||||||||
| Three months ended April 30, 2018 | ||||||||||||
| Americas (1) | Europe (1) | Asia Pacific (1) |
Stock |
Consolidated | ||||||||
| Net Sales | $ 3,618,206 | $ 4,661,702 | $ 268,411 | $ 8,548,319 | ||||||||
| Operating income (loss) (GAAP) (1) | $ 61,342 | $ 17,318 | $ (577) | $ (7,587) | $ 70,496 | |||||||
| Acquisition, integration and restructuring expenses | 13,916 | 17,988 | 321 | 1,000 | 33,225 | |||||||
| Legal settlements and other, net | (2,965) | – | – | (2,965) | ||||||||
| Acquisition-related intangible assets amortization expense | 13,643 | 8,329 | 1,332 | 23,304 | ||||||||
| Total non-GAAP operating income adjustments | $ 24,594 | $ 26,317 | $ 1,653 | $ 1,000 | $ 53,564 | |||||||
| Operating income (non-GAAP) | $ 85,936 | $ 43,635 | $ 1,076 | $ (6,587) | $ 124,060 | |||||||
| Operating margin (GAAP) | 1.70% | 0.37% | -0.21% | 0.82% | ||||||||
| Operating margin (non-GAAP) | 2.38% | 0.94% | 0.40% | 1.45% | ||||||||
|
(1) GAAP operating income does not include stock compensation expense at the regional level. |
||||||||||||
| TECH DATA CORPORATION AND SUBSIDIARIES | ||||||
| GAAP TO NON-GAAP RECONCILIATION | ||||||
| (In thousands) | ||||||
| Selling, general and administrative expenses (“SG&A”) | Three months ended April 30, | |||||
| 2019 | 2018 | |||||
| Net Sales | $ | 8,406,424 | $ | 8,548,319 | ||
| SG&A Expenses (GAAP) | $ | 405,816 | $ | 422,361 | ||
| Tax indemnifications | (320) | – | ||||
| Acquisition-related intangible assets amortization expense | (20,879) | (23,304) | ||||
| SG&A Expenses (non-GAAP) | $ | 384,617 | $ | 399,057 | ||
| SG&A Expenses (GAAP) % | 4.83% | 4.94% | ||||
| SG&A Expenses (non-GAAP) % | 4.58% | 4.67% | ||||
| Three months ended April 30, | ||||||||
| 2019 | 2018 | |||||||
| Net Income | Diluted EPS | Net Income | Diluted EPS | |||||
| GAAP Results | $55,400 | $1.49 | $33,699 | $0.87 | ||||
| Acquisition, integration and restructuring expenses | 6,221 | 0.17 | 33,225 | 0.86 | ||||
| Legal settlements and other, net | (282) | (0.01) | (2,965) | (0.08) | ||||
| Value added tax assessments and related interest expense | – | – | (928) | (0.02) | ||||
| Tax indemnifications | 320 | 0.01 | – | – | ||||
| Acquisition-related intangible assets amortization expense | 20,879 | 0.56 | 23,304 | 0.61 | ||||
| Income tax effect of tax indemnifications | (320) | (0.01) | – | – | ||||
| Income tax effect of other adjustments above | (6,321) | (0.17) | (12,908) | (0.33) | ||||
| Change in deferred tax valuation allowances | – | – | (2,600) | (0.07) | ||||
| Non-GAAP Results | $75,897 | $2.04 | $70,827 | $1.84 | ||||
|
Return on Invested Capital (ROIC) |
||||||
| Twelve months ended April 30, | ||||||
| TTM Net Operating Profit After Tax (NOPAT)*: | 2019 | 2018 | ||||
| Operating income | $ | 520,930 | $ | 405,497 | ||
| Income taxes on operating income (1) | (52,272) | (242,229) | ||||
| NOPAT | $ | 468,658 | $ | 163,268 | ||
| Average Invested Capital: | ||||||
| Short-term debt (5-qtr end average) | $ | 115,018 | $ | 262,413 | ||
| Long-term debt (5-qtr end average) | 1,361,506 | 1,683,828 | ||||
| Shareholders’ Equity (5-qtr end average) | 2,881,968 | 2,745,501 | ||||
| Total average capital | 4,358,492 | 4,691,742 | ||||
| Less: Cash (5-qtr end average) | (676,308) | (751,732) | ||||
| Average invested capital less average cash | $ | 3,682,184 | $ | 3,940,010 | ||
| ROIC | 13% | 4% | ||||
| * Trailing Twelve Months is abbreviated as TTM. | ||||||
|
(1) Income taxes on operating income was calculated using the trailing twelve months effective tax rate. |
||||||
Adjusted Return on Invested Capital (ROIC)
| Twelve months ended April 30, | |||
| TTM Net Operating Profit After Tax (NOPAT), as adjusted*: | 2019 | 2018 | |
| Non-GAAP operating income (1) | $ 708,588 | $ 603,559 | |
| Income taxes on non-GAAP operating income (2) | (179,283) | (178,518) | |
| NOPAT, as adjusted | $ 529,305 | $ 425,041 | |
| Average Invested Capital, as adjusted: | |||
| Short-term debt (5-qtr end average) | $ 115,018 | $ 262,413 | |
| Long-term debt (5-qtr end average) | 1,361,506 | 1,683,828 | |
| Shareholders’ Equity (5-qtr end average) | 2,881,968 | 2,745,501 | |
| Tax effected impact of non-GAAP adjustments (3) | 44,860 | 95,713 | |
| Total average capital, as adjusted | 4,403,352 | 4,787,455 | |
| Less: Cash (5-qtr end average) | (676,308) | (751,732) | |
| Average invested capital less average cash | $ 3,727,044 | $ 4,035,723 | |
| Adjusted ROIC | 14% | 11% | |
| * | Trailing Twelve Months is abbreviated as TTM. | |
|
(1) |
Represents operating income as adjusted to exclude acquisition, integration and restructuring expenses, legal settlements and other, net, gain on disposal of subsidiary, value added tax assessments, acquisition-related intangible assets amortization expense, goodwill impairment and tax indemnifications. |
|
|
(2) |
Income taxes on non-GAAP operating income was calculated using the trailing twelve months effective tax rate adjusted for the impact of non-GAAP adjustments during the respective periods. |
|
|
(3) |
Represents the 5 quarter average of the year-to-date impact of non-GAAP adjustments. |
Guidance Reconciliation
| Three months ending July 31, 2019 | |||
|
Low end of |
High end of |
||
| Earnings per share – diluted | $1.53 | $1.83 | |
| Acquisition, integration and restructuring expenses | 0.59 | 0.59 | |
| Acquisition-related amortization of intangibles | 0.24 | 0.24 | |
| Income tax effect of the above adjustments | (0.21) | (0.21) | |
| Non-GAAP earnings per share – diluted | $2.15 | $2.45 | |
Contacts
Investor Contact
Tania Almond
Investor Relations
Director
+1 727.538.7064
[email protected]
Media Contact
Bobby Eagle
Director, External
Communications
+1 727.538.5864
[email protected]
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Schwazze Management to Host Conference Call Today at 5:00 p.m. Eastern Time
DENVER, May 15, 2024 /PRNewswire/ — Medicine Man Technologies, Inc., operating as Schwazze, (OTCQX: SHWZ) (Cboe CA: SHWZ) (“Schwazze” or the “Company”), today announced financial and operational results for the first quarter ended March 31, 2024.
“We delivered another period of revenue growth in Q1 as we further refined our retail strategy while contending with the prolonged competitive challenges in Colorado and New Mexico,” said Forrest Hoffmaster, Interim CEO of Schwazze. “Throughout the quarter, we continued to sharpen our pricing and promotional efforts while enhancing the in-store experience, widening assortment, improving in-stock position, and advancing our loyalty program to attract and retain new customers. We also strengthened our wholesale business with quarter-over-quarter growth, while surpassing 30% total door penetration across both states.”
“The Colorado market remains highly competitive with more than 680 active recreational licenses, underscoring the importance of delivering an exceptional customer experience and fully integrated retail support program. Although retail pricing has recently stabilized, Colorado sales in Q1 were down 10% year-over-year due to lower volumes. Nonetheless, we significantly outpaced the market as our sales were up 9%, demonstrating the effectiveness of our operating playbook to compete in challenging environments. We expect to continue driving improvements in customer acquisition, retention, and loyalty as we further increase market share in the state.”
“In New Mexico, the proliferation of new licenses continued to outpace state cannabis sales as store count in Q1 increased 31% year-over-year while the market grew only 13%. In addition to pricing and promotional efforts, we’ve focused on driving traffic into our stores by expanding assortment with high quality flower and delivering an elevated customer experience. The New Mexico regulatory body has also increased its license enforcement efforts in recent months, contributing to more than 70 store closures and a 33% sequential decrease in net new store openings in the first quarter. We will continue to support the New Mexico Cannabis Control Division as it develops its regulatory framework.”
“Over the past four years we have rapidly scaled our footprint through 13 acquisitions, building a leading retail presence in both Colorado and New Mexico. We are beginning to see positive momentum from our pricing and promotional strategy and will remain focused on driving operating efficiencies while further optimizing our assets as we consolidate cultivation facilities and eliminate underperforming stores that do not meet our high-margin thresholds. We believe these initiatives, coupled with our operating playbook and strict cost controls, will enable us to return to stronger levels of profitability moving forward.”
First Quarter 2024 Financial Summary
|
$ in Thousands USD |
Q1 2024 |
Q4 2023 |
Q1 2023 |
|
Total Revenue |
$41,601 |
$43,325 |
$40,001 |
|
Gross Profit |
$17,934 |
$7,034[1] |
$21,849 |
|
Operating Expenses |
$20,643 |
$23,276 |
$16,199 |
|
Income (Loss) from Operations |
$(2,709) |
$(16,242) |
$5,650 |
|
Adjusted EBITDA[2] |
$7,341 |
$10,953 |
$14,525 |
|
Operating Cash Flow |
$(3,700) |
$3,452 |
$(880) |
Recent Highlights
- Announced the grand opening of a medical and recreational dispensary in March under the Everest Apothecary banner in Las Cruces, New Mexico, increasing the Company’s retail footprint to 34 stores across the state.
- Increased wholesale penetration in the first quarter to more than 30% of total doors in Colorado and New Mexico.
- Lowell Herb Co. pre-roll sales increased more than 3x quarter-over-quarter in Colorado, where it continues to be the #1 pre-roll in the state.
- Wana gummy sales up more than 2x quarter-over-quarter in New Mexico.
First Quarter 2024 Financial Results
Total revenue in the first quarter of 2024 increased 4% to $41.6 million compared to $40.0 million for the same quarter last year. The increase was primarily due to growth from new stores compared to the prior year period, partially offset by continued pricing pressure and the proliferation of new licenses in New Mexico.
Gross profit for the first quarter of 2024 was $17.9 million or 43.1% of total revenue, compared to $21.8 million or 54.6% of total revenue for the same quarter last year. The decrease in gross margin was primarily driven by the aforementioned pricing pressure in New Mexico, as well as higher medical sales mix in Colorado.
|
____________________________ |
|
1 Q4 2023 Gross Profit includes one-time, non-cash inventory adjustments of approximately $13.1 million comprised of $3.1 million of product consolidation, obsolescence, and shrinkage expenses, $4.3 million of net realizable value adjustments, and $5.8 million of fair value adjustments on acquired inventory in New Mexico in 2023. |
Operating expenses for the first quarter of 2024 were $20.6 million compared to $16.2 million for the same quarter last year. The year-ago period benefitted from a payroll tax credit of $3.9M. The remaining increase was primarily driven by personnel expenses and four-wall SG&A costs associated with 21 additional stores in Colorado and New Mexico that are still ramping.
Loss from operations for the first quarter of 2024 was $2.7 million compared to income from operations of $5.6 million in the same quarter last year. Net loss was $16.1 million for the first quarter of 2024 compared to net income of $1.7 million for the same quarter last year.
Adjusted EBITDA for the first quarter of 2024 was $7.3 million compared to $14.5 million for the same quarter last year. The decrease in Adjusted EBITDA was primarily driven by lower gross margin and higher operating expenses associated with the 21 additional stores that are still ramping.
As of March 31, 2024, cash and cash equivalents were $13.2 million compared to $19.2 million on December 31, 2023. Total debt as of March 31, 2024, was $159.7 million compared to $156.8 million on December 31, 2023.
Conference Call
The Company will conduct a conference call today, May 15, 2024, at 5:00 p.m. Eastern time to discuss its results for the first quarter ended March 31, 2024.
Schwazze management will host the conference call, followed by a question-and-answer period. Interested parties may submit questions to the Company prior to the call by emailing [email protected].
Date: Wednesday, May 15, 2024
Time: 5:00 p.m. Eastern time
Toll-free dial-in: (888) 664-6383
International dial-in: (416) 764-8650
Conference ID: 84167910
Webcast: SHWZ Q1 2024 Earnings Call
The conference call will also be broadcast live and available for replay on the investor relations section of the Company’s website at https://ir.schwazze.com.
Toll-free replay number: (888) 390-0541
International replay number: (416) 764-8677
Replay ID: 167910
If you have any difficulty registering or connecting with the conference call, please contact Elevate IR at (720) 330-2829.
About Schwazze
Schwazze (OTCQX: SHWZ) (Cboe CA: SHWZ) is building a premier vertically integrated regional cannabis company with assets in Colorado and New Mexico and will continue to explore taking its operating system to other states where it can develop a differentiated regional leadership position. Schwazze is the parent company of a portfolio of leading cannabis businesses and brands spanning seed to sale.
Schwazze is anchored by a high-performance culture that combines customer-centric thinking and data science to test, measure, and drive decisions and outcomes. The Company’s leadership team has deep expertise in retailing, wholesaling, and building consumer brands at Fortune 500 companies as well as in the cannabis sector.
Medicine Man Technologies, Inc. was Schwazze’s former operating trade name. The corporate entity continues to be named Medicine Man Technologies, Inc. Schwazze derives its name from the pruning technique of a cannabis plant to enhance plant structure and promote healthy growth. To learn more about Schwazze, visit https://schwazze.com/.
Forward-Looking Statements
This press release contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements include financial outlooks; any projections of net sales, earnings, or other financial items; any statements of the strategies, plans and objectives of our management team for future operations; expectations in connection with the Company’s previously announced business plans; any statements regarding future economic conditions or performance; and statements regarding the intent, belief or current expectations of our management team. Such statements may be preceded by the words “may,” “will,” “could,” “would,” “should,” “expect,” “intends,” “plans,” “strategy,” “prospects,” “anticipate,” “believe,” “approximately,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” or the negative of these terms or other words of similar meaning in connection with a discussion of future events or future operating or financial performance, although the absence of these words does not necessarily mean that a statement is not forward-looking. We have based our forward-looking statements on management’s current expectations and assumptions about future events and trends affecting our business and industry. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. Therefore, forward-looking statements are not guarantees of future events or performance, are based on certain assumptions, and are subject to various known and unknown risks and uncertainties, many of which are beyond the Company’s control and cannot be predicted or quantified. Consequently, actual events and results may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include, without limitation, risks and uncertainties associated with (i) regulatory limitations on our products and services and the uncertainty in the application of federal, state, and local laws to our business, and any changes in such laws; (ii) our ability to manufacture our products and product candidates on a commercial scale on our own or in collaboration with third parties; (iii) our ability to identify, consummate, and integrate anticipated acquisitions; (iv) general industry and economic conditions; (v) our ability to access adequate capital upon terms and conditions that are acceptable to us; (vi) our ability to pay interest and principal on outstanding debt when due; (vii) volatility in credit and market conditions; (viii) the loss of one or more key executives or other key employees; and (ix) other risks and uncertainties related to the cannabis market and our business strategy. More detailed information about the Company and the risk factors that may affect the realization of forward-looking statements is set forth in the Company’s filings with the Securities and Exchange Commission (SEC), including the Company’s Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q. Investors and security holders are urged to read these documents free of charge on the SEC’s website at http://www.sec.gov. The Company assumes no obligation to publicly update or revise its forward-looking statements as a result of new information, future events or otherwise except as required by law.
Investor Relations Contact
Sean Mansouri, CFA or Aaron D’Souza
Elevate IR
(720) 330-2829
[email protected]
MEDICINE MAN TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
For the Periods Ended March 31, 2024 and December 31, 2023
Expressed in U.S. Dollars
|
March 31, |
December 31, |
||||
|
2024 |
2023 |
||||
|
ASSETS
|
|||||
|
Current Assets |
|||||
|
Cash & Cash Equivalents |
$ |
13,151,317 |
$ |
19,248,932 |
|
|
Accounts Receivable, net of Allowance for Doubtful Accounts |
3,356,032 |
4,261,159 |
|||
|
Inventory |
26,382,184 |
25,787,793 |
|||
|
Marketable Securities, net of Unrealized Loss of $347,516 and Loss of $1,816, respectively |
108,583 |
456,099 |
|||
|
Prepaid Expenses & Other Current Assets |
3,502,310 |
3,914,064 |
|||
|
Total Current Assets |
46,500,426 |
53,668,047 |
|||
|
Non-Current Assets |
|||||
|
Fixed Assets, net Accumulated Depreciation of $10,061,700 and $8,741,782, respectively |
31,326,000 |
31,113,630 |
|||
|
Investments |
2,000,000 |
2,000,000 |
|||
|
Investments Held for Sale |
– |
202,111 |
|||
|
Goodwill |
67,492,705 |
67,499,199 |
|||
|
Intangible Assets, net Accumulated Amortization of $36,483,160 and $32,706,765, respectively |
162,391,482 |
166,167,877 |
|||
|
Other Non-Current Assets |
1,328,187 |
1,263,837 |
|||
|
Operating Lease Right of Use Assets |
34,575,832 |
34,233,142 |
|||
|
Deferred Tax Assets, net |
992,144 |
1,996,489 |
|||
|
Total Non-Current Assets |
300,106,350 |
304,476,285 |
|||
|
Total Assets |
$ |
346,606,776 |
$ |
358,144,332 |
|
|
LIABILITIES & STOCKHOLDERS’ EQUITY
|
|||||
|
Current Liabilities |
|||||
|
Accounts Payable |
$ |
9,443,233 |
$ |
13,341,561 |
|
|
Accrued Expenses |
8,106,618 |
7,774,691 |
|||
|
Derivative Liabilities |
1,319,845 |
638,020 |
|||
|
Lease Liabilities – Current |
5,186,316 |
4,922,724 |
|||
|
Current Portion of Long Term Debt |
29,579,713 |
3,547,011 |
|||
|
Income Taxes Payable |
28,235,039 |
25,232,782 |
|||
|
Total Current Liabilities |
81,870,764 |
55,456,789 |
|||
|
Non-Current Liabilities |
|||||
|
Long Term Debt, net of Debt Discount & Issuance Costs |
130,120,753 |
153,262,203 |
|||
|
Lease Liabilities – Non-Current |
30,735,072 |
30,133,452 |
|||
|
Total Non-Current Liabilities |
160,855,825 |
183,395,655 |
|||
|
Total Liabilities |
$ |
242,726,589 |
$ |
238,852,444 |
|
|
Stockholders’ Equity |
|||||
|
Preferred Stock, $0.001 Par Value. 10,000,000 Shares Authorized; 82,185 Shares Issued and |
|||||
|
82,185 Outstanding as of March 31, 2024 and 85,534 Shares Issued and 85,534 Outstanding as of |
|||||
|
December 31, 2023. |
82 |
86 |
|||
|
Common Stock, $0.001 Par Value. 250,000,000 Shares Authorized; 79,168,539 Shares Issued |
|||||
|
and 78,248,389 Shares Outstanding as of March 31, 2024 and 74,888,392 Shares Issued |
|||||
|
and 73,968,242 Shares Outstanding as of December 31, 2023. |
79,169 |
74,888 |
|||
|
Additional Paid-In Capital |
202,677,665 |
202,040,968 |
|||
|
Accumulated Deficit |
(96,843,602) |
(80,790,927) |
|||
|
Common Stock Held in Treasury, at Cost, 920,150 Shares Held as of March 31, 2024 and |
|||||
|
920,150 Shares Held as of December 31, 2023. |
(2,033,127) |
(2,033,127) |
|||
|
Total Stockholders’ Equity |
103,880,187 |
119,291,888 |
|||
|
Total Liabilities & Stockholders’ Equity |
$ |
346,606,776 |
$ |
358,144,332 |
|
MEDICINE MAN TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND (LOSS)
For the Periods Ended March 31, 2024 and 2023
Expressed in U.S. Dollars
|
For the Three Months Ended |
|||||
|
March 31, |
|||||
|
2024 |
2023 |
||||
|
(Unaudited) |
(Unaudited) |
||||
|
Operating Revenues |
|||||
|
Retail |
$ |
37,633,252 |
$ |
35,820,111 |
|
|
Wholesale |
3,898,320 |
4,058,925 |
|||
|
Other |
69,421 |
121,900 |
|||
|
Total Revenue |
41,600,993 |
40,000,936 |
|||
|
Total Cost of Goods & Services |
23,667,319 |
18,152,163 |
|||
|
Gross Profit |
17,933,674 |
21,848,773 |
|||
|
Operating Expenses |
|||||
|
Selling, General and Administrative Expenses |
11,835,818 |
10,100,934 |
|||
|
Professional Services |
1,671,881 |
1,187,364 |
|||
|
Salaries |
6,880,988 |
4,695,971 |
|||
|
Stock Based Compensation |
253,916 |
214,544 |
|||
|
Total Operating Expenses |
20,642,603 |
16,198,813 |
|||
|
Income from Operations |
(2,708,929) |
5,649,960 |
|||
|
Other Income (Expense) |
|||||
|
Interest Expense, net |
(8,307,369) |
(7,745,854) |
|||
|
Unrealized Gain (Loss) on Derivative Liabilities |
(681,825) |
8,501,685 |
|||
|
Other Loss |
10,500 |
– |
|||
|
Loss on Investment |
(33,382) |
– |
|||
|
Unrealized Gain on Investment |
(347,516) |
1,816 |
|||
|
Total Other Income (Expense) |
(9,359,592) |
757,647 |
|||
|
Pre-Tax Net Income (Loss) |
(12,068,521) |
6,407,607 |
|||
|
Provision for Income Taxes |
3,984,154 |
4,662,178 |
|||
|
Net Income (Loss) |
$ |
(16,052,675) |
$ |
1,745,429 |
|
|
Less: Accumulated Preferred Stock Dividends for the Period |
(2,155,259) |
(2,029,394) |
|||
|
Net Income (Loss) Attributable to Common Stockholders |
$ |
(18,207,934) |
$ |
(283,965) |
|
|
Earnings (Loss) per Share Attributable to Common Stockholders |
|||||
|
Basic Earnings (Loss) per Share |
$ |
(0.24) |
$ |
(0.01) |
|
|
Diluted Earnings (Loss) per Share |
$ |
(0.24) |
$ |
(0.06) |
|
|
Weighted Average Number of Shares Outstanding – Basic |
76,006,932 |
55,835,501 |
|||
|
Weighted Average Number of Shares Outstanding – Diluted |
76,006,932 |
101,608,278 |
|||
|
Comprehensive Income (Loss) |
$ |
(16,052,675) |
$ |
1,745,429 |
|
MEDICINE MAN TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Periods Ended March 31, 2024 and 2023
Expressed in U.S. Dollars
|
For the Three Months Ended |
|||||
|
March 31, |
|||||
|
2024 |
2023 |
||||
|
(Unaudited) |
(Unaudited) |
||||
|
Cash Flows from Operating Activities: |
|||||
|
Net Income (Loss) for the Period |
$ |
(16,052,675) |
$ |
1,745,429 |
|
|
Adjustments to Reconcile Net Income (Loss) to Cash for Operating Activities |
|||||
|
Depreciation & Amortization |
5,096,314 |
6,151,395 |
|||
|
Non-Cash Interest Expense |
1,031,431 |
991,184 |
|||
|
Non-Cash Lease Expense |
2,871,226 |
2,251,459 |
|||
|
Deferred Taxes |
1,004,345 |
(637,225) |
|||
|
Loss on Investment |
202,111 |
– |
|||
|
Change in Derivative Liabilities |
681,825 |
(8,501,685) |
|||
|
Amortization of Debt Issuance Costs |
421,512 |
421,513 |
|||
|
Amortization of Debt Discount |
2,303,246 |
1,999,933 |
|||
|
(Gain) Loss on Investments, net |
347,516 |
(1,816) |
|||
|
Stock Based Compensation |
640,974 |
214,544 |
|||
|
Changes in Operating Assets & Liabilities (net of Acquired Amounts): |
|||||
|
Accounts Receivable |
905,127 |
(118,181) |
|||
|
Inventory |
(587,900) |
(3,023,251) |
|||
|
Prepaid Expenses & Other Current Assets |
411,754 |
(3,036,801) |
|||
|
Other Assets |
(64,350) |
360,674 |
|||
|
Change in Operating Lease Liabilities |
(2,348,703) |
(1,531,765) |
|||
|
Accounts Payable & Other Liabilities |
(3,566,401) |
(3,464,671) |
|||
|
Income Taxes Payable |
3,002,257 |
5,299,403 |
|||
|
Net Cash Provided by (Used in) Operating Activities |
(3,700,390) |
(879,861) |
|||
|
Cash Flows from Investing Activities: |
|||||
|
Collection of Notes Receivable |
– |
10,631 |
|||
|
Purchase of Fixed Assets |
(1,532,287) |
(2,913,394) |
|||
|
Net Cash Provided by (Used in) Investing Activities |
(1,532,287) |
(2,902,763) |
|||
|
Cash Flows from Financing Activities: |
|||||
|
Payment on Notes Payable |
(864,938) |
– |
|||
|
Net Cash Provided by (Used in) Financing Activities |
(864,938) |
– |
|||
|
Net (Decrease) in Cash & Cash Equivalents |
(6,097,615) |
(3,782,624) |
|||
|
Cash & Cash Equivalents at Beginning of Period |
19,248,932 |
38,949,253 |
|||
|
Cash & Cash Equivalents at End of Period |
$ |
13,151,317 |
$ |
35,166,628 |
|
|
Supplemental Disclosure of Cash Flow Information: |
|||||
|
Cash Paid for Interest |
$ |
4,515,205 |
$ |
6,540,748 |
|
MEDICINE MAN TECHNOLOGIES, INC.
ADJUSTED EBITDA RECONCILIATION (NON-GAAP)
For the Periods Ended March 31, 2024 and 2023
Expressed in U.S. Dollars
|
For the Three Months Ended |
|||||
|
March 31, |
|||||
|
2024 |
2023 |
||||
|
Net Income (Loss) |
$ |
(16,052,675) |
$ |
1,745,429 |
|
|
Interest Expense, net |
8,307,369 |
7,745,854 |
|||
|
Provision for Income Taxes |
3,984,154 |
4,662,178 |
|||
|
Other (Income) Expense, net of Interest Expense |
1,052,223 |
(8,503,501) |
|||
|
Depreciation & Amortization |
5,618,834 |
6,612,814 |
|||
|
Earnings Before Interest, Taxes, Depreciation and |
|||||
|
Amortization (EBITDA) (non-GAAP) |
$ |
2,909,905 |
$ |
12,262,774 |
|
|
Non-Cash Stock Compensation |
253,916 |
214,544 |
|||
|
Deal Related Expenses |
637,761 |
1,195,802 |
|||
|
Capital Raise Related Expenses |
20,760 |
35,068 |
|||
|
Severance |
484,561 |
118,436 |
|||
|
Retention Program Expenses |
807,500 |
280,632 |
|||
|
Pre-Operating & Dark Carry Expenses |
1,053,837 |
391,917 |
|||
|
One-Time Legal Settlements |
417,653 |
– |
|||
|
Other Non-Recurring Items |
754,751 |
25,707 |
|||
|
Adjusted EBITDA (non-GAAP) |
$ |
7,340,644 |
$ |
14,524,880 |
|
|
Revenue |
41,600,993 |
40,000,936 |
|||
|
Adjusted EBITDA Percent |
17.6 % |
36.3 % |
|||
View original content:https://www.prnewswire.co.uk/news-releases/schwazze-announces-first-quarter-2024-financial-results-302146858.html
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