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GreenSpace Brands Reports First Quarter Fiscal 2019 Results

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GreenSpace Brands Reports First Quarter Fiscal 2019 Results

Canada NewsWire

Record revenue represents growth of 48% year over year and 10% sequentially

TSXV: JTR
www.greenspacebrands.ca
(all amounts in Cdn$ unless otherwise noted)                                                                       

TORONTO, Aug. 22, 2018 /CNW/ - GreenSpace Brands Inc. ("GreenSpace" or "the Company") (TSXV:JTR) today reported its first quarter fiscal year 2019 results for the period ending June 30, 2018.

GreenSpace Brands Inc. (CNW Group/GreenSpace Brands Inc.)

Key Highlights for the First Quarter of Fiscal 2019:

  • Record gross revenue of $21.0 million, representing a 48% increase over the prior year period and a 10% sequential increase from the fourth quarter of fiscal 2018.
  • Adjusted gross margin of 23.7% compared to 22.8% for the prior year period and 20.4% in the fourth quarter of fiscal 2018.
  • SG&A expenses increased from 21.4% to 36.5% of net revenue year over year, largely as a result of non-recurring costs associated with Love Child voluntary recall, restructuring costs and costs related to the MeatBar launch.
  • Adjusted EBITDA margins fell to (2.1%) as a percentage of net revenue excluding listing fees, from 3.5% in the prior year period and (1.5%) in the fourth quarter of fiscal 2018.
  • Rebates and Discounts as a percentage of gross revenue was 11.2% compared to 11.8% in the prior year period.

"Our record revenue reported in the first quarter illustrates the strength in the portfolio of brands we have amassed with national scale across some of the fastest growing areas in the food industry. Adjusted EBITDA declined from the prior year and was negatively impacted by substantial investments in the US business in particular. Our expectation is that as we launch some of our Canadian brands into the US, and re-launch our plant-based brand, we believe we will generate a meaningful return on that investment through an increased revenue base in the US." said Matthew von Teichman, President and CEO, GreenSpace. "The value in our business is rooted in the strength of our brands. Although we saw some challenges in the first quarter due to the decision to voluntarily recall seven Love Child SKU's, we're pleased by the resiliency of Love Child as sales have returned to pre-recall levels and are continuing to grow. GreenSpace remains uniquely positioned as an innovator within the natural and organic marketplace which will continue to drive increasing shareholder value."

Consolidated Performance Summary


Three months ended


June 30         June 30

(in thousands of Canadian dollars, except per share amounts)

2018

2017

$

$




Gross revenue

20,985

14,233

Less: rebates and discounts

(2,344)

(1,674)

Less: listing fees

(70)

(130)

Net revenue

18,571

12,429




Gross profit

4,315

2,735

Adjusted Gross Profit1

4,413

2,865

Adjusted Gross Profit margin1

23.7%

22.8%




SG&A expenses

6,773

2,657

Amortization of intangible assets

692

353

Deferred income tax (recovery)

(193)

(93)

Interest expense

392

81

Accretion expense

30

47

Foreign exchange loss

234

-

Net income (loss)

(3,613)

(310)

Net loss per share (basic and diluted)

(0.05)

(0.00)




EBITDA

(2,335)

123

EBITDA, as a percentage of net revenue

(12.6%)

1.0%




Adjusted EBITDA1

(388)

444

Adjusted EBITDA, as a percentage of net revenue excluding listing fees1

-2.1%

3.5%


1 – See Non-IFRS Measures

 

Revenue
Gross revenue, for the first quarter ended June 30, 2018, was the highest gross revenue amount earned by the Company in a single quarter. Gross revenue for the quarter ended June 30, 2018 increased 47.5% and net revenue, which is gross revenue net of deductions for rebates, discounts and one-time listing fees, increased 49.4% over the same period in prior year. Gross revenue for Love Child was temporarily negatively impacted by approximately $0.9 million as a result of a voluntary product recall as described below.

The gross and net revenue increases in the quarter were the result of the inclusion of sales of our GO VEGGIE brands through the acquisition of Galaxy Nutritional Foods, Inc. ("Galaxy") effective January 28, 2018, as well as continued growth from the internally launched brands including Rolling Meadow, and MeatBar. Additionally, there was growth in the acquired brands of Love Child, Central Roast, Kiju and Cedar. The revenue growth was partially offset by the discontinuation of Nudge and Holistic Choice whose results had appeared in previous quarters.

Love Child Voluntary Recall
In May 2018, select Love Child brand baby food pouches were voluntarily recalled due to packaging defects that may have allowed premature spoilage; the recall had no impact on product safety. The Company estimates that the sales impact to the affected SKU's, as well as the indirect effect on non-affected SKU's in the first quarter was approximately $0.9 million. The total non-recurring costs recorded to date is $1.476 million. The Company expects to recover a significant amount of this cost through its suppliers and insurers. Since the completion of the recall, Love Child sales have returned to pre-recall levels.

Gross Profit and Adjusted Gross Profit (see Non-IFRS Measures)
The Company's Adjusted Gross Profit margin for the first quarter ended June 30, 2018 increased by 0.9% over the same period last year. The increase was primarily due to a larger proportion of revenue being earned through the relatively higher margin CEDAR and GO VEGGIE brands, which were acquired during the third and fourth quarters of fiscal 2018, respectively.

Consistent with prior periods, listing fees incurred in the current quarter (considered one-time, non-recurring costs) have been added back to gross profit by the Company in calculating Adjusted Gross Profit. Please see the non-IFRS measures for details on these adjustments.

Selling, General and Administrative ("SG&A") Expenses
Overall, SG&A expenses for the first quarter ended June 30, 2018 increased from 21.4% of net revenue in the first quarter of fiscal 2018 to 36.5% of net revenue in the current quarter. The increase was primarily due to non-recurring costs associated with the Love Child recall of $1.476 million and restructuring costs associated with the hiring of key staff in the Toronto office, costs related to the MeatBar launch, and costs incurred by Galaxy for refrigerated storage and delivery which are currently higher as a percentage of net revenue compared to the rest of the GreenSpace business. Excluding the recall and restructuring costs, SG&A was $4.924 million or 28.5% of net revenue. As discussed last quarter, the Company expects several quarters of higher SG&A costs as a percentage of revenue as it launches new brands, re-brands some of the Galaxy products and integrates and rationalizes the cost structure of the Galaxy acquisition.

Outlook

GreenSpace continues to believe that there are a number of fundamental trends occurring within both the Global and North American food industries. These trends will continue to drive consumer demand for GSB brands and customers will continue to be attracted by the Company's innovation within the natural and organic marketplace.

As a result of this the Company is optimistic that anticipated market growth will continue to drive demand for the Company's acquired and developed brands and provides a significant opportunity for further expansion into new product offerings. This has been evidenced by several distribution wins announced over the last three quarters and entrance into new product categories. In particular GreenSpace expects that it will continue to execute on a two-pronged growth strategy. Firstly, the Company expects to have a strong and ongoing internal brand and product development program. There are currently a number of new product offerings in various stages of development that the Company expects to release strategically, to fill gaps in the Canadian natural and organic marketplace, over the next few quarters.  Secondly, the tripling in size of the Canadian natural and organic food market over the last decade has been driven by a number of new entrants, creating a highly fragmented competitive landscape. The Company seeks to continue to take advantage of this and expects to eventually grow through strategic investments in strong, simple ingredient businesses which are accretive to revenue and profitability.

With its increasing revenue base and numerous new distribution wins, management expects to see year on year quarterly organic revenue growth of 20% or more, incremental gross margin improvement and positive adjusted EBITDA margins, once the Go Veggie acquisition is integrated. The Company continues to believe it is in a strong position to be one of the innovation leaders, as well as a principle consolidator, in the North American natural and organic food market, due to its industry position and accumulated reputational goodwill.

Use of Non-IFRS Measures, Measures of Operating Performance and Reconciliation of Net (Loss) Earnings to Adjusted EBITDA

This press release contains references to "Adjusted Gross Profit" and "Adjusted EBITDA" which are not measures prescribed by International Financial Reporting Standards (IFRS). Management uses IFRS, non-IFRS and operating performance measures as key performance indicators to better assess the Company's underlying performance and provides this additional information in this MD&A.

Adjusted Gross Profit is a non-IFRS measure which represents gross profit adjusted to exclude non-recurring, one-time listing fees which would not be considered part of on-going, normal operations.  The Company's management believes that in addition to gross profit, adjusted gross profit is a useful supplemental measure of gross profit prior to one-time expense

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