KushCo Holdings Releases 1st Fiscal Quarter Financial Results

KushCo Holdings has released its latest financial results, including commentary from management with an overview of KushCo's successes in 2019.

KushCo Holdings, Inc. (OTCQX: KSHB), the premier producer of ancillary products and services to the legal cannabis and CBD industries, today reported financial results for its fiscal first quarter ended November 30, 2019.

Fiscal First Quarter 2020 Financial Summary

  • Net revenue increased 38% from the prior year quarter to $35.0 million.
  • On a GAAP basis, gross profit was 20.8%, compared to 12.8% in the prior year period.
  • On a Non-GAAP basis, excluding the impact of certain non-recurring items, gross profit was approximately 22.6%.
  • On a GAAP basis, net loss was approximately $12.5 million, compared to approximately $8.6 million in the prior year period. Basic and diluted loss per share was $0.12 compared to $0.11 in the prior year period.
  • On a Non-GAAP basis, excluding the impact of certain non-recurring charges and gains, net loss for the quarter was $9.2 million and net loss per share was $0.09.
  • Cash was approximately $14.7 million as of November 30, 2019, compared to approximately $3.9 million as of August 31, 2019.

Recent Operational Highlights

Management Commentary

Building off of an exceptional year for KushCo in fiscal 2019, Q1 2020 helped us start off the new fiscal year on the right foot, with significant progress on all fronts operationally and financially. Nick Kovacevich, Co-founder, Chairman and Chief Executive Officer,

Kovacevich went on to say that "From an operational standpoint, we made major inroads in restructuring and right-sizing the business, including completing a sizeable reduction in force, reducing our stock-item SKU count, cutting non-essential costs, tightening our inventory management, and further streamlining our operations, which will be reflected in our results going forward. We also have been ramping up our newer higher-margin services, including gaining traction with our Retail Services division, which is building momentum in securing new brands and retailer authorizations."

"We are also experiencing a positive start with our recently launched hemp trading desk, which is on pace to achieve our previously disclosed target of $25 million in revenue for fiscal 2020 as our pipeline continues to grow and we establish a more dominant presence in this burgeoning part of the industry. Last, but not least, we strengthened our leadership team with the appointment of Rhiana Barr as our Chief People Officer.

"Financially, we completed a $30.1 million capital raise and produced another strong quarter of year-over-year revenue growth and margin enhancement, despite a challenging market backdrop that has affected the entire industry. Q1 2020 revenue was up 38% year-over-year, but down on a sequential basis, as expected, due to the widespread industry slowdown caused in large part by the black market vaping crisis. This caused many of our customers to slow down their purchasing activity so as to not incur additional inventory risk in the event that their state implemented a ban on vaping products."

"Fortunately, the market dynamics have recently been improving, given the decline in new illnesses and deaths, concrete findings from the CDC narrowing down the potential causes of these illnesses and deaths, and a lack of new states implementing a ban on vaping products, with Massachusetts lifting its ban one month before its official expiration. We believe these developments-along with states like Michigan and Illinois recently legalizing adult recreational use and Canada approving derivative products-set the stage for a stronger second half of the fiscal year, as our customers gradually resume their purchasing patterns and our business begins to rebound and accelerate."

"Looking closer at our financial results for the fiscal first quarter, we continued to experience robust growth in our medical state sales, which increased 51% quarter-over-quarter and helped offset some of the softness we experienced in the adult recreational use markets. This substantial growth was driven by the increasing momentum we're generating with customers in states like Florida, Pennsylvania, and Maryland."

We also continued to gain traction cross-selling to our customer base, particularly with our larger customers, which are ramping up their businesses both organically and inorganically, and as a result are purchasing more SKUs from us. Gross margins for the quarter were 20.8%, representing the fourth consecutive quarter of gross margin improvement. This has been driven in part by initiatives we took in fiscal 2019, such as passing along the tariff supplement fee, as well as more recent initiatives, such as focusing on products that have higher gross margins, including our new CBD packaging portfolio, hyper custom and proprietary packaging solutions, and new vape products."

"We expect gross margins to continue increasing throughout fiscal 2020, helping us move closer toward our goal of achieving adjusted EBITDA profitability in the second half of the fiscal year. In line with that objective, we also continued to make progress on our cost-cutting and cost containment initiatives, which we expect will not only make us a leaner and stronger organization that can take advantage of the recent market shakeout, but also one that can self-sustain itself through improving profitability and cash flow."

"In summary, given the headwinds entering Q1 2020, we are pleased with how we responded to the challenges affecting the sector, laying the groundwork for what we believe to be a robust recovery in the business throughout the remainder of the fiscal year. Given our current pipeline and progress to-date, we continue to expect a stronger second half for the fiscal year, which should help us achieve our previously disclosed revenue guidance range of between $230 million and $250 million. We also continue to believe that our current cash resources, along with our improving working capital situation and cash flow from operations, will enable us to execute on our strategy of achieving adjusted EBITDA profitability in the back half of fiscal 2020. For years, we've demonstrated an ability to produce outsized growth, market share gains, and increasing value for our customers. Now, it's time to leverage this strong base we have built to enhance our margins further and get to a more disciplined, profitable, and sustainable state."

Fiscal 2020 Financial Outlook

KushCo reiterates its net revenue guidance for fiscal 2020 to be between $230 million and $250 million. The Company also reiterates that included in this financial guidance is its expectation that net revenue from its hemp trading business will exceed $25 million for fiscal 2020.

KushCo also reiterates its expectation to achieve positive adjusted EBITDA on a quarterly basis in the second half of fiscal 2020.

To learn more about KushCo, visit their company HQ here.

Disclaimer: Past performance is not an indicator of future performance.

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Louis O'Neill
Louis O'Neill

Louis is a writer based in Sydney with a focus on social and political issues. Having interviewed local politicians and entrepreneurs, Louis now focuses on cannabis culture, legislation & reform.

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