MJardin Group, Inc. Reports Third Quarter 2018 Financial Results
November 28, 2018
DENVER–(BUSINESS WIRE)–MJardin Group, Inc. (“MJardin” or the “Company”) (CSE:
MJAR), a leader in cannabis management, today reported financial results
for its third quarter ended September 30, 2018. All amounts are
expressed in United States dollars. Certain metrics, including those
expressed on an adjusted basis, are non-IFRS measures. See “Non-IFRS
Financial Measures” below.
Highlights of the Third Quarter 2018 Results Versus Third Quarter
2017 Results
-
Revenue increased 65.1% to $7.0 million compared to the prior year of
$4.3 million; -
Gross margin1 increased to 56.3% from 38.7% in the prior
year; -
Adjusted EBITDA increased 48.4% to $1.0 million compared to the prior
year of $0.6 million; -
Net loss was $0.4 million compared to net income of $0.6 million in
the prior year, largely reflecting higher interest expense,
compensation and benefits, and higher legal and consulting fees
related to recent acquisitions, equity and RTO transactions; -
Completed Cheyenne acquisition (license transfers pending),
establishing MJardin as a principal operator in Nevada; -
Completed an investment into DNA Genetics, providing an entry into the
California market and expansion in the European region, with a leading
Cannabis brand; -
In addition, subsequent to the end of the third quarter, in November
2018 the Company announced the pending acquisition of GrowForce
Holdings (“GrowForce”).
|
1 Gross margin is defined as net revenue |
||
“We are pleased to report our first quarterly results as a publicly
traded company, continuing our strong growth trends and positive
EBITDA,” said Rishi Gautam, Chairman of MJardin. “This is a very
exciting time for MJardin with this month’s public listing of Mjardin
shares and the announcement of the proposed acquisition of GrowForce. We
believe we are well positioned as one of the largest and most
experienced cannabis operators in North America and as the largest
multi-national operator. We intend to continue to grow our footprint of
managed and owned facilities, both across the U.S. and Canada as well as
globally, and are pleased with the progress we have and are continuing
to make towards becoming a preeminent global operator of legal cannabis
assets.”
“Based on current operations, MJardin has one of the largest
international footprints of any cannabis provider. MJardin now operates
with direct ownership, or has investment, in three provinces and three
states. MJardin will continue to expand either organically or through
acquisitions both in these locations and into new markets that are
consistent with our operating principles,” continued Gautam.
Third Quarter 2018 Results
Revenue increased 65.1% to $7.0 million in the third quarter of 2018
from $4.2 million in the third quarter of 2017. The growth was driven
primarily by facility design and build-out fees earned from GrowForce
for cultivation centers, interest on notes receivable and rent income
earned from Buddy Boy Brands. At the end of the third quarter of 2018,
the Company was managing 37 total facilities / operations.
| Three months ended | Nine months ended | |||||||||||||
| September 30, | September 30, | |||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||
| Gross revenue | 2018 | 2017 | 2018 | 2017 | ||||||||||
| Affiliated operators | ||||||||||||||
| Cultivation and management services | $ | 3,898,635 | $ | 3,231,302 | $ | 10,886,279 | $ | 10,033,139 | ||||||
| Facility design and build out services | 1,848,077 | – | 1,848,077 | – | ||||||||||
| Interest income | 829,141 | – | 2,488,297 | – | ||||||||||
| Rent | 292,107 | – | 876,321 | – | ||||||||||
| Total affiliated operator revenue | 6,867,960 | 3,231,302 | 16,098,974 | 10,033,139 | ||||||||||
| Non-affiliated operators | ||||||||||||||
| Cultivation and management services | 169,041 | 745,462 | 801,154 | 1,299,435 | ||||||||||
| Consulting | 285,400 | 7,283 | 1,190,972 | |||||||||||
| Total non-affiliated revenue | 169,041 | 1,030,862 | 808,437 | 2,490,407 | ||||||||||
| Total revenue | $ | 7,037,001 | $ | 4,262,164 | $ | 16,907,411 | $ | 12,523,546 | ||||||
Net revenue, defined as gross revenue less direct expenses incurred for
compensation and benefits and other operating costs borne by the Company
in performing its consulting, and cultivation and operations management
services, increased 140.1% to $4.0 million in the third quarter of 2018
from $1.7 million in the third quarter of 2017 and gross margin
increased to 56.3% from 38.7% in the same period a year ago. The
increase in gross margin primarily reflects revenue earned for facility
design and build-out fees from GrowForce-owned cultivation centers in
Canada, the increase in revenue from interest income and rent earned
from affiliated operator Buddy Boy Brands.
Total operating expenses increased 58.9% to $5.8 million from $3.6
million in the prior year period. The increase reflects increased
compensation and benefits to support growth, including increased grow
facility personnel at affiliated and non-affiliated operator facilities
and the continued expansion of the Company’s executive team and
corporate office personnel. The operating expense increase also includes
a $0.7 million increase in professional fees to support recent equity,
public listing and strategic transactions.
Operating income increased 101.1% to $1.3 million in the third quarter
of 2018 from $0.6 million in the third quarter of 2017 and operating
margin increased to 17.9% from 14.7% in the same respective periods.
Net loss for the third quarter of 2018 was $0.4 million, or $0.01 per
common share, compared to a net income of $0.6 million in the third
quarter of 20171.
Adjusted EBITDA increased 48.4% to $1.0 million in the third quarter of
2018 from $0.6 million in the third quarter of 2017. Adjusted EBITDA,
which is not an IFRS measure, is defined by us to mean EBITDA adjusted
for acquisition-related costs, share-based compensation, corporate
restructuring charges, compensation-related derivative gains or losses
(e.g. stock options and warrants) and gains or losses on property and
equipment. There is no directly comparable IFRS measure for Adjusted
EBITDA; the most directly comparable measure is net (loss) income.
See the reconciliation of Net (Loss) Income to Adjusted EBITDA below.
Balance Sheet and Cash Flow
As of September 30, 2018, the Company had $2.5 million in cash and cash
equivalents, total assets of $78.3 million and $31.8 million of total
debt. After the end of the third quarter, on October 19, 2018, MJardin
completed an equity capital raise in the form of a subscription receipt
offering in the approximate amount of CAD$26 million. On November 13,
2018, MJardin completed the reverse take-over of Sumtra Holdings. On
November 15, 2018 the Company commenced trading on the Canadian
Securities Exchange and the $26 million of subscription receipt proceeds
were released from escrow and available to the Company.
During the first nine months of fiscal 2018, the Company used $3.4
million of cash in operations and invested $3.6 million in capital
expenditures, including $2.6 million of payments made for equipment on
behalf of GrowForce Holdings. The operating cash use primarily reflects
a $5.4 million increase in payments due from affiliates.
Conference Call
Management will host a conference call to discuss the Company’s third
quarter 2018 results today at 6:00 a.m. Mountain Time (8:00 a.m. Eastern
Time). Investors interested in participating in the live call can dial
(888) 254-3590 from the U.S. and Canada or international callers can
dial (323) 994-2093. A telephone replay will be available approximately
two hours after the call concludes and will be available through
Wednesday, December 5, 2018, by dialing (844) 512-2921 from the U.S. and
Canada or (412) 317-6671 from international locations and entering
confirmation code 7162341.
There also will be a simultaneous, live webcast available on the
Investors – Events and Presentations section of the Company’s web site
at http://investors.mjardin.com/
or directly at http://public.viavid.com/index.php?id=132426.
The webcast will be archived for approximately 90 days on the Company’s
website.
About MJardin
MJardin is a global cannabis management platform with extensive
experience in cultivation, processing, distribution and retail. For over
10 years, MJardin has refined cultivation methodologies, developed state
of the art facilities and implemented vertical integration for and on
behalf of license owners. As a well-capitalized organization, MJardin
continues to pursue strategic expansion and M&A opportunities across
global legal cannabis markets. MJardin is based in Denver Colorado, with
offices in Toronto, Canada and Barcelona, Spain.
|
________________________________ |
|
1 The third quarter of 2018 is the first full quarter of operations during which the entity was structured as a corporation. Previously, the entity was structured primarily as a group of pass-through entities with ownership interests represented by member interests instead of common shares. |
The CSE has neither approved nor disapproved the contents of this
news release.
This news release does not constitute an offer to sell or a
solicitation of an offer to sell any of the securities in the United
States. The securities have not been and will not be registered under
the United States Securities Act of 1933, as amended (the “U.S.
Securities Act”) or any state securities laws and may not be offered
or sold within the United States or to U.S. Persons unless registered
under the U.S. Securities Act and applicable state securities laws or an
exemption from such registration is available.
Forward-Looking Information
This news release contains forward-looking information based on
current expectations. Statements about, among other things, future
developments and the business and operations of MJardin and GrowForce
are all forward-looking information. These statements should not be read
as guarantees of future performance or results. Such statements involve
known and unknown risks, uncertainties and other factors that may cause
actual results, performance or achievements to be materially different
from those implied by such statements. Such factors include, but are not
limited to: the ability to integrate the operations of companies we
acquire and pursue growth, financing and other strategic objectives.
Although such statements are based on management’s reasonable
assumptions at the date such statements are made, there can be no
assurance that such forward-looking information will prove to be
accurate, actual results and future events could differ materially from
those anticipated in such forward-looking information. Accordingly,
readers should not place undue reliance on the forward-looking
information. MJardin assumes no responsibility to update or revise
forward-looking information to reflect new events or circumstances
unless required by applicable law.
| MJardin Group, Inc. | |||||||||||||||
|
Condensed Interim Combined Consolidated Statements of Operations |
|||||||||||||||
|
For the three and nine months ended September 30, 2018 and 2017 |
|||||||||||||||
|
(Expressed in United States dollars) |
|||||||||||||||
|
Three months ended |
Nine months ended |
||||||||||||||
| 2018 | 2017 | 2018 | 2017 | ||||||||||||
| Revenue | $ | 7,037,001 | $ | 4,262,164 | $ | 16,907,411 | $ | 12,523,546 | |||||||
| Operating Expenses: | |||||||||||||||
| Compensation and benefits | 4,139,954 | 3,149,677 | 11,417,656 | 8,966,880 | |||||||||||
| Sales, general and administrative | 764,104 | 321,649 | 1,791,779 | 1,233,651 | |||||||||||
| Software development and IT infrastructure | 62,566 | 57,707 | 170,256 | 177,017 | |||||||||||
| Depreciation and amortization | 62,546 | 15,961 | 89,093 | 36,908 | |||||||||||
| Professional fees | 749,022 | 91,075 | 1,511,469 | 289,462 | |||||||||||
| Total operating expenses | 5,778,192 | 3,636,069 | 14,980,253 | 10,703,918 | |||||||||||
|
(Loss) Income before interest income (expense), other income (expense) and income taxes |
1,258,809 | 626,095 | 1,927,158 | 1,819,628 | |||||||||||
| Restructuring charge |
– |
– |
(3,429,864 | ) |
– |
||||||||||
| Interest expense | (1,251,538 | ) | 9 | (3,687,659 | ) | 47 | |||||||||
| Change in fair value of derivative liability | – |
– |
466,904 |
– |
|||||||||||
| Foreign currency transaction losses, net | (368,631 | ) |
– |
(410,320 | ) | – | |||||||||
| Total other (expense) income, net | (1,620,169 | ) | 9 | (7,060,939 | ) | 47 | |||||||||
|
(Loss) Income before provision for income taxes, non-controlling interests and comprehensive income |
(361,360 | ) | 626,104 | (5,133,781 | ) | 1,819,675 | |||||||||
| Provision for income taxes | 80,280 | – | 80,280 | – | |||||||||||
|
Net (Loss) income before other comprehensive income (loss) and non-controlling interests |
(441,640 | ) | 626,104 | (5,214,061 | ) | 1,819,675 | |||||||||
| Other comprehensive income: | |||||||||||||||
| Foreign currency translation adjustment (loss) | 64,019 | – | 32,519 | – | |||||||||||
| Comprehensive (loss) income for the period | $ | (377,621 | ) | $ | 626,104 | $ | (5,246,580 | ) | $ | 1,819,675 | |||||
| Net (loss) income is attributable to: | |||||||||||||||
| Owners of MJardin Group Companies | $ | (436,973 | ) | 626,104 | (5,179,050 | ) | 1,819,675 | ||||||||
| Non-controlling interests | (4,667 | ) | – | (35,011 | ) | – | |||||||||
| $ | (441,640 | ) | $ | 626,104 | $ | (5,214,061 | ) | $ | 1,819,675 | ||||||
| Comprehensive (loss) is attributable to: | |||||||||||||||
| Owners of MJardin Group Companies | (377,621 | ) | 626,104 | (5,246,580 | ) | 1,819,675 | |||||||||
| Non-controlling interests | – | – | – | – | |||||||||||
| $ | (377,621 | ) | $ | 626,104 | $ | (5,246,580 | ) | $ | 1,819,675 | ||||||
|
MJardin Group of Companies |
||||||
|
Condensed Interim Combined Consolidated Statements of Financial |
||||||
|
as of September 30, 2018, and December 31, 2017 |
||||||
|
(Expressed in United States dollars) |
||||||
| September 30, 2018 |
PY |
|||||
| (Unaudited) | (Audited) | |||||
| Assets | ||||||
| Current assets | ||||||
| Cash and cash equivalents | $2,468,049 | $5,665,987 | ||||
| Margin deposit | 1,153,810 | – | ||||
| Accounts receivable, net | 5,000 | 84,007 | ||||
| Escrowed funds receivable | – | 50,430,428 | ||||
| Subscriptions receivable | – | 450,000 | ||||
| Due from affiliates | 9,881,996 | 784,278 | ||||
| Deposit to purchase real estate | – | 590,000 | ||||
| Deferred legal charges | 580,182 | – | ||||
| Prepaid expenses and other current assets | 282,977 | 121,348 | ||||
| Total current assets | 14,372,014 | 58,126,048 | ||||
| Non-current assets | ||||||
| Property and equipment, net | 9,839,868 | 785,718 | ||||
| Goodwill and other intangible assets | 26,037,818 | – | ||||
| Notes Receivable | 27,866,432 | – | ||||
| Other non-current assets | 187,884 | 65,541 | ||||
| Total assets | $78,304,016 | $58,977,307 | ||||
| Liabilities | ||||||
| Current liabilities | ||||||
| Accounts payable and accrued liabilities | 1,184,413 | 416,563 | ||||
| Other current liabilities | 2,076,258 | 925,451 | ||||
| Forward currency contract | 780,702 | – | ||||
| Accrued bridging loan transaction costs payable | – | 1,004,596 | ||||
| Bridging loan payable, net | 31,613,122 | 24,236,460 | ||||
| Total current liabilities | 35,654,495 | 26,583,070 | ||||
| Non-current liabilities | ||||||
| Derivative liability | 2,629 | 1,674,320 | ||||
| Convertible debentures, net | 195,056 | 17,889,466 | ||||
| Total liabilities | 35,852,180 | 46,146,856 | ||||
| Commitments and contingencies | ||||||
| Post-reporting date events | ||||||
| Shareholders’ / Members’ equity | ||||||
| Common share equity | – | 5,251,512 | ||||
| Series A Preferred shares Equity | – | 6,780,767 | ||||
| Shares Reserved for issuance | 5,694,000 | – | ||||
| Share capital | 45,838,062 | – | ||||
| Accumulated deficit | (9,880,536) | – | ||||
| Non-controlling interests | (35,011) | (4,630) | ||||
| Warrant Reserve | 846,532 | 846,532 | ||||
| Accumulated other comprehensive income | (11,211) | (43,730) | ||||
| Total shareholders’ / members’ equity | 42,451,836 | 12,830,451 | ||||
| Total liabilities and shareholders’ / members’ equity | $78,304,016 | $58,977,307 | ||||
|
MJardin Group, Inc. |
|||||||||
|
Condensed Interim Combined Consolidated Statements of Cash Flows |
|||||||||
|
For the Nine Months Ended September 30, 2018 and 2017 |
|||||||||
|
(Expressed in United States dollars) |
|||||||||
|
(Unaudited) |
|||||||||
|
For the Nine months ended |
|||||||||
|
2018 |
2017 |
||||||||
|
Cash flows from operating activities |
|||||||||
| Net (loss) income |
$ |
(5,214,061 |
) |
$ |
1,819,675 |
||||
|
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: |
|||||||||
| Foreign currency transaction gains, net |
410,320 |
– |
|||||||
| Restructuring charge |
3,429,864 |
– |
|||||||
| Interest paid in-kind |
1,032,563 |
– |
|||||||
| Depreciation |
89,093 |
36,908 |
|||||||
| Change in fair value of derivative liability |
(466,904 |
) |
– |
||||||
| Other adjustments from conversion of debentures |
339,768 |
– |
|||||||
| Accretion of deferred transaction costs and interest paid-in-kind |
594,082 |
– |
|||||||
| Change in operating assets and liabilities: | |||||||||
| Accounts receivable, net |
79,007 |
66,153 |
|||||||
| Due from affiliates |
(5,416,750 |
) |
704,674 |
||||||
| Prepaid expenses and other current assets |
(161,629 |
) |
12,132 |
||||||
| Accounts payable and accrued liabilities |
767,850 |
(17,367 |
) |
||||||
| Other current liabilities |
1,150,807 |
124,120 |
|||||||
|
Net cash provided by (used in) operating activities |
$ |
(3,365,990 |
) |
$ |
2,746,295 |
||||
|
Cash flows from investing activities |
|||||||||
| Payments made for equipment on behalf of GrowForce Holdings Inc. |
(2,551,777 |
) |
– |
||||||
|
Margin deposits pursuant to forward currency contract |
(1,153,810 |
) |
– |
||||||
| Working capital advances paid to affiliated operators |
(629,191 |
) |
– |
||||||
|
Payments for short-term loans to affiliated operators |
(500,000 |
) |
– |
||||||
| Purchases of property, plant and equipment |
(1,040,359 |
) |
(40,408 |
) |
|||||
|
Net cash used in investing activities |
$ |
(5,875,137 |
) |
$ |
(40,408 |
) |
|||
|
Cash flows from financing activities |
|||||||||
| Cash proceeds from borrowing – bridging loan payable |
7,229,558 |
– |
|||||||
| Financing costs for increase in bridging loan payable |
(466,778 |
) |
– |
||||||
|
|
|||||||||
|
Prepaid financing costs for issuance of common shares in |
(580,182 |
) |
– |
||||||
| Cash proceeds from issuance of convertible debentures |
450,000 |
– |
|||||||
| Distributions paid to founding common equity share members |
(589,409 |
) |
– |
||||||
|
Net cash provided by financing activities |
$ |
6,043,189 |
$ |
– |
|||||
| Net (decrease) increase in cash |
(3,197,938 |
) |
2,705,887 |
||||||
| Cash and cash equivalents – beginning of period |
5,665,987 |
668,229 |
|||||||
|
Cash and cash equivalents – end of period |
$ |
2,468,049 |
$ |
3,374,116 |
|||||
| Income taxes paid |
$ |
– |
$ |
– |
|||||
| Interest paid on loans |
$ |
665,695 |
$ |
– |
|||||
|
Supplemental disclosure of non-cash |
|||||||||
| Purchases of notes receivable |
$ |
27,866,432 |
$ |
– |
|||||
| Purchases of property, plant and equipment |
$ |
8,168,000 |
$ |
– |
|||||
| Purchased goodwill and other intangible assets |
$ |
26,037,818 |
$ |
– |
|||||
|
Supplemental disclosure of non-cash |
|||||||||
| Escrowed funds receivable |
$ |
(50,430,428 |
) |
$ |
– |
||||
| Accrued bridging loan transaction costs payable |
$ |
(1,004,596 |
) |
$ |
– |
||||
| Bridging loan payable |
$ |
11,341,380 |
$ |
– |
|||||
| Common shares reserved for issuance in connection with acquisition |
$ |
5,624,000 |
$ |
– |
|||||
| Common shares issued in connection with acquisition |
$ |
7,286,000 |
$ |
– |
|||||
| MJardin Group, Inc. | ||||||||||||||||
|
EBITDA Reconciliation |
||||||||||||||||
|
For the Three and Nine Months Ended September 30, 2018 and 2017 |
||||||||||||||||
| Three months ended | Nine months ended | |||||||||||||||
| Adjusted EBITDA Non-GAAP Measure | September 30, | September 30, | ||||||||||||||
| 2018 | 2017 | 2018 |
2017 |
|||||||||||||
|
Net (loss) income before other comprehensive income (loss) from operations and non-controlling interests – as reported |
$ | (441,640 | ) | $ | 626,104 | $ | (5,214,061 | ) | $ | 1,819,675 | ||||||
| Interest Expense | (1,251,538 | ) | 9 | (3,687,659 | ) | 47 | ||||||||||
| Depreciation and amortization | 62,546 | 15,961 | 89,093 | 36,908 | ||||||||||||
| Income taxes | 80,280 |
– |
80,280 |
– |
||||||||||||
| EBITDA |
$ |
952,724 |
$ |
642,056 |
$ |
(1,357,029 |
) |
$ |
1,856,536 |
|||||||
| Restructuring charge | – | – | (3,429,864 | ) | – | |||||||||||
| Adjusted EBITDA |
$ |
952,724 |
$ |
642,056 |
$ |
2,072,835 |
$ |
1,856,536 |
||||||||
Contacts
Media Contact:
Cory Ziskind, ICR
646-277-1232
Cory.Ziskind@icrinc.com
Investor Contacts:
Ali Mahdavi
Capital Markets &
Investor Relations
416-962-3300
Ali.Mahdavi@MJardin.com
Frank Knuettel II
CFO
MJardin
720-613-4019
Frank.Knuettel@MJardin.com