KushCo Stock Falls As Revenue Gets Pushed To Second Quarter

KushCo (OTC: KSHB) stock was falling over 6% to lately sell at $1.11 after the company reported the numerous challenges affecting the company. After the market closed on Monday, KushCo announced financial results for its fiscal first-quarter ending November 30, 2020, with net revenue decreasing 23% from the prior-year period to $26.8 million. On a positive note, the net loss was trimmed to $4.5 million from $12.5 million in the prior-year period. The basic loss per share was $0.03 compared to $0.12 in the prior-year period.

Many of the company’s challenges stem from the decision to right-size the business, which resulted in tighter credit terms being extended to smaller and less creditworthy customers. In addition to that, the company faced problems at the ports, where increased shipments to the U.S. combined with fewer port workers due to COVID issues causing delays.

Nick Kovacevich, KushCo’s Co-founder, Chairman and Chief Executive Officer said on the company’s earnings call, “We were expecting more significant growth in Q1, but like many other importers of goods, we were hit with unexpected and uncontrollable shipping delays due to record-breaking shipments to U.S. ports around the holiday season, which were exacerbated by COVID-19 restrictions.”

He went on to add, “This is a problem that has affected many importers, but fortunately, we have been working diligently with our network of freight partners and suppliers to expedite shipments and provide solutions to reduce the impact to our customers, which we expect will persist for another couple of weeks or more as the ports start to clear through the backlog that has been building up.

The net result of all of this is that some of the revenue that we were expecting to realize in Q1 has now been pushed into Q2 because we could not get the products off of the boat and into our warehouses on time before the quarter ended. The good news is that the business was not lost and it actually contributed to our strongest December in company history, December being the first month of Q2 and we saw $14.7 million in revenue during that month. And we still have a nice pipeline of business that we plan to execute on throughout the remainder of this Q2.” KushCo generated 21% gross margins for the quarter, which was lower than the 26% generated in the fourth quarter and was blamed on the shipping delays.

Looking Ahead

KushCo increased its net revenue guidance for its fiscal 2021 to be between $130.0 million and $160.0 million (previously between $120.0 million and $150.0 million). In addition, the company reiterated its expectation for adjusted EBITDA for the fiscal year to be between $5.0 million and $7.0 million. The company gave three reasons for the increased estimate. Kovacevich said, “We are continuing to see outsized growth with our MSO and LP customers as evidenced by our strong December and how we see the rest of the year panning out with some of the large custom projects we have in the pipeline. Number two, we have invested significantly in our sales team, bringing on folks from traditional CPG and other relevant backgrounds to nurture deep relationships with our top customers and to further penetrate our newer prospects. And number three, we are starting to secure a more long-term supply contracts, giving us better visibility into future business and acting like a right of first refusal for all of our products and services.”

The company also noted that it currently has $19 million due at the end of April 2021. CFO Stephen Christoffersen said on the earnings call, “We’ve been evaluating some term sheets and believe we can execute on an appropriate solution before the note is due, especially given the fact that we are now a profitable business that is more aligned with MSOs and LPs than ever before.”

KushCo also noted that if New Jersey and Arizona roll out programs, then revenue could be even higher this year. The company also said that uplisting to the NASDAQ is a priority, but that the process is somewhat out of their control.

 

Debra Borchardt

Debra Borchardt is the CEO, Co-Founder, and Editor-In-Chief of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Masters degree in Business Journalism from New York University.


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