GREENSPACE BRANDS INC. REPORTS FIRST QUARTER FISCAL 2023 RESULTS, HIGHLIGHTING STABLE GROSS REVENUE AND IMPROVEMENTS IN ADJUSTED EBITDA VERSUS THE PRIOR YEAR
Gross Revenue from continuing operations was $5.1 million, representing a 26.6% improvement versus the prior quarter ended March 31 20221 and in line with the prior year 2. Gross Revenue compared to prior year reflects the following counter-balancing factors: (i) during the fiscal year ended March 31, 2021 certain customers decided to reduce or stop doing business with the Company due to poor customer service levels, but were still doing some business with the Company last year, positively impacting the three-month period ended June 30, 2021; (ii) a one-time inventory pipeline replenishment by certain customers positively impacted the comparative period ended June 30, 2021; (iii) price increases implemented in response to increasing costs during the prior twelve months positively impacted the period ended June 30, 2022; (iv) several new product listings from the Company’s largest customer positively impacted the current period; and, (v) the portfolio simplification implemented as part of the Project FIT initiative reduced active stock keeping units (“SKUs”) across the business that enabled the Company to achieve higher gross revenue per SKU, on this simplified portfolio.Gross Profit Percentage was 20.4% of net revenue compared to 22.6% in the prior year 2, largely attributable to: (i) inflationary pressures leading to higher input costs; (ii) the return to higher promotional activities to drive growth of the branded business; (iii) listing fees incurred for broadening the distribution of existing and margin-accretive new products in the portfolio, which were not incurred during the same three-month period of the prior year; partially offset by, (iv) the positive impact of pricing actions implemented in the prior fiscal year; and, (v) a decrease in the provision for obsolete inventory compared to the same three-month period of the prior year. Excluding listing fees incurred during the three-month period ended June 30, 2022, the Company’s adjusted gross profit percentage was 22.0%, generally in-line with the prior year period. It is important to note that the Company has announced additional price increases to its customers during the quarter to help offset industry-wide inflationary pressures. These additional price increases are expected to protect gross profit percentage over subsequent periods. In addition, the Company continues to progress its Project FIT cost savings initiatives which are expected to help achieve its gross profit percentage targets.
Selling, General and Administrative (“SG&A”) expenses of $1.6 million improved by 15.8% compared to $1.9 million in the prior year2 with significant reductions in salaries and benefits. This improvement reflects the Company’s progress in reducing SG&A expenses as it executes its Project FIT initiatives.
Net Loss of $1.8 million, compared with a $0.3 million net loss in the prior year 2, was primarily attributable to: (i) restructuring gains of $1.2 million recognized in the prior year; (ii) higher accretion expense recorded during the period of $0.5 million (2021 – $0.1 million); (iii) lower salaries and benefits expenses of $0.7 million for the current period (2021 – $1.1 million); (iv) higher rebates and discounts of $0.9 million for the current period (2021 – $0.7 million); and, (v) foreign exchange gains of $0.1 million for the current period (2021 – $0.1 million loss).
Adjusted EBITDA3 of negative $0.6 million was improved 24.1% compared to the prior year2, reflecting the matters described above.
2-Quarter 1 Fiscal 2023 compared to Quarter 1 Fiscal 2022.
3-See “Non-IFRS Financial Measures And Key Metrics” below. EBITDA adds back certain non-cash items to net income or loss from continuing operations and is used by Management to measure operating performance. Adjusted EBITDA further adjusts EBITDA by adding back income or expenses of a non-cash, non-recurring, unusual or one-time nature. Refer to the Company’s Management Discussion and Analysis”This past year we have been implementing our Focused Growth Strategy across the business and heightening our drive towards profitable growth,” said Shawn Warren, President and CEO of GreenSpace Brands Inc. “We are seeing encouraging progress with broader retailer support, new distribution wins with large retailers and continued Project FIT cost savings initiatives. To address inflationary pressures across our industry, we have announced a series of additional pricing actions for retail and foodservice customers. Overall, Management is optimistic that Fiscal 2023 will show continued adjusted EBITDA improvements with better topline growth and improved gross profit percentages as we continue to focus and simplify the business.”
Management believes that its new Vision, Strategic Plan and implementation of its Focused Growth Strategy will lead to improvements in adjusted EBITDA that will continue into subsequent years. The Company has improved customer service levels across all three of its branded businesses, leading to the resumption of widespread promotional activities with select retailers. The Company has been able to regain distribution with certain strategic customers and has been able to make inroads into launching margin-accretive new products and new channel growth across e-commerce platforms. Aligned with its Focused Growth Strategy, Management has prioritized improvements in gross profit percentage and overall profitability through better product mix, price increases and enhanced cost management at all levels.
GreenSpace has been able to rebuild credibility with its supplier base and renegotiate payment terms with a number of key suppliers across its ingredient and manufacturing network. While rebuilding customer revenue momentum may take time after the working capital challenges of the previous two years, Management expects that the foundational elements have been established to deliver improvements in both topline performance and profitability. Management believes that its Focused Growth Strategy will continue to drive improvements in the operation over time and remains optimistic that this initiative will improve adjusted EBITDA to help finance the future growth opportunities available to the Company.
On June 2, 2022, the Company announced that it had initiated a review of strategic alternatives to enhance shareholder value, which would consider a range of potential strategic alternatives. The Company engaged financial advisors to assist in the review and no formalized timetable was established for the completion of the strategic review.
Almost all of the Company’s loans payable mature on or around September 30, 2022 and extension, renewal or replacement facilities have not yet been arranged. There can be no certainty that Management will be successful in its negotiations with the current or alternative lenders to extend or replace these facilities nor is there certainly that the terms of any extension or replacement facility will be as favourable as the existing terms.