FQ3 2020 Supplemental Earnings Slides July 8, 2020 OTCQX: KSHB
IMPORTANT CAUTIONS REGARDING FORWARD LOOKING STATEMENTS 2
A G E N DA 1. FQ3 2020 Highlights and Progress on Strategic Plan 2. FQ3 2020 Financial Summary 3. Outlook for Q4 and Achieving Positive Adjusted EBITDA 4. Q&A Session 3
FQ3 2020 Highlights and Progress on Strategic Plan
FQ3 2 0 2 0 HIGHL IGHTS ✓ FQ3 Net Revenue of $22.3 Million ✚ Revenue from Top 100 Customers down 26% sequentially due to order lumpiness from larger customers ✓ Continued Operational Efficiencies and Favorable Product Mix Help Drive 28% Non-GAAP Gross Margins ✚ Fifth consecutive quarter of 20%+ non-GAAP gross margins ✓ Cost-Cutting Initiatives Being Executed Ahead of Schedule with FQ3 Cash SG&A of $7.7 million ✚ Cash SG&A down 50% from FQ1 to FQ3 2020 ✚ Improving FQ4 2020 Cash SG&A Guidance to $6.5 million to $7.5 million (previously $7.5 million to $8.5 million) ✓ Substantial Improvement in Adjusted EBITDA Even With Lower Revenue Base, Demonstrating Operating Leverage ✚ Adj. EBITDA improved substantially to ($2.7) million in FQ3 2020, compared to ($14.8) million in FQ2 2020 and ($7.5) million in FQ3 2019 ✚ Well-positioned to achieve positive adjusted EBITDA in Q4 2020 ✓ Cash Burn Substantially Reduced and Company On Track to Generate Positive Cash Flow From Operations ✚ Cash flow from operations improved from ($10.7) million in FQ2 2020 to ($1.4) million in FQ3 2020 5
REV ENUE BY CUSTOMER GROUP Top 100 Customers Rest of Customers $35.0 $30.1 $22.3 69% 82% 82% $24.6 $24.0 $18.3 FQ1 2020 FQ2 2020 FQ3 2020 Note: The figures in yellow dots represent the percentage of the quarter’s total revenue that is represented by the Top 100 customers by revenue. Revenue in millions. 6
REVENUE BREAKOUT BY LOCATION Geography Q3 2020 Revenue % Q3 2020 Revenue YoY Growth QoQ Growth QoQ Growth YoY Growth CA $3.5 15.6% -84% -41% RECREATIONAL -33% -64% WA $1.9 8.7% -39% -16% STATES MI $1.6 7.4% 38% -26% MEDICAL STATES 0% 79% CO $1.5 6.9% -48% -37% TOTAL NV $1.0 4.6% -52% -14% -26% -46% REVENUE MA $1.0 4.4% -46% -47% IL $1.0 4.3% 185% -12% OR $1.0 4.3% -63% -49% ME $0.3 1.4% -30% 4% Other Rec States $0.1 0.6% -41% -32% REC STATES TOTAL $13.0 58.2% -64% -33% Medical States $7.1 32.0% 79% 0% Canada $2.0 9.0% 217% -42% Other Countries <$0.1 0.2% -63% -59% Other* $0.1 0.6% -83% 149% TOTAL REVENUES $22.3 100.0% -46% -26% Note: Amounts in millions. Total amounts may not add up due to rounding * Other includes states that currently do not have an adult recreational use and/or medical use program 7
REVENUE BREAKOUT BY CATEGORY Product Categories Q3 2020 Revenue % of Revenue YoY Growth Q3 2019 Revenue QoQ Growth Q2 2020 Revenue Vape $13.4 60.2% -55% $29.6 -35% $20.7 Packaging, Papers & $6.6 29.8% -5% $7.0 -4% $6.9 Supplies Energy & Natural $2.2 10.0% -48% $4.3 -2% $2.3 Products Services** NM NM -99% $0.5 -98% $0.2 TOTAL REVENUES $22.3 100.0% -46% $41.5 -26% $30.1 * Amounts in millions. Total amounts may not add up due to rounding ** Services revenue includes sales from hemp trading, retail services, and the Hybrid Creative NM = Not Meaningful 8
SKU CROSS - SELL PROGRESSION (T TM) Change from Q2 (TTM) Change from Q2 (TTM) Customer Value # of Customers Avg Revenue Avg # of SKUs CUSTOMERS (Customers) (SKUs) REST OF 484 $21,800 10 $10 – 49K -67 -2 117 $70,012 17 0 +2 $50 – 99K $100 – 249K 79 $156,126 25 -6 0 $250 – 499K 35 $361,399 32 +1 -5 TOP 100 28 $697,372 52 $500 – 999K -6 -4 20 $3,306,596 75 +1 -9 $1,000K+ Customer Size FY 2016 FY 2017 FY 2018 FY 2019 TTM CUSTOMERS REST OF $50-99k 6 29 88 126 117 $100 - $249k 5 13 51 89 79 $250 - $499k 2 7 18 39 35 TOP 100 $500 - $999k 0 5 10 23 28 $1000k+ 0 0 4 19 20 Note: KushCo considers its Top 100 customers to be financially stronger and more creditworthy 9 MSOs, LPs, and leading brands that currently drive the majority of the Company’s business.
P R O G R E S S O N N E W S T R AT E G I C P L A N Status Strategy Component Progress Update • Becoming more entrenched in our Top 100 customers’ decision - Going Deeper with the MSOs, LPs, making processes In Progress • and Leading Brands Using long-term supply agreements to lock in customers • Sales team focused on winning additional lines of business • Customer support line launched and processing smaller orders Implementing a Profitable, More more efficiently Completed Efficient, and Automated Approach • Stricter credit terms resulting in healthier AR with Customer Orders • More lean and efficient team accomplishing “More with Less” Reductions in Force to Better Align Completed • 50% reduction in Cash SG&A in FQ3 compared to FQ1 Workforce with New Strategy • Warehouse Optimization and Significant reduction of consulting and software costs • In Progress Reduction of Other Operating Successfully closed and exited Las Vegas, Denver and Santa Rosa Expenses facilities, and sublet Garden Grove warehouse
FQ3 2020 Financial Summary
FQ3 2020 I NCOME STAT EMENT SNAPSHOT 1) Gross profit during fiscal Q3 2020 was impacted by several restructuring Q3 2020 Q3 2019 activities the Company implemented to execute its strategic plan of aligning more closely with its Top 100 customers and achieving positive adjusted EBITDA. These activities led to a $2.1 million excess and obsolete inventory write-down and a $1.0 million purchase order cancellation charge, both Net Revenue $22.3 $41.5 driven by the Company’s decision to right size inventory levels and discontinue nearly all of its stock SKUs in order to focus more on custom and best-selling stock inventory demanded by its larger customers. GAAP Gross Profit [Margin] 1 $2.4 [11%] $7.4 [18%] 2) Non-GAAP Gross Profit excludes the impact of certain non-recurring items. Non-GAAP Gross Profit Margin is calculated by dividing Non-GAAP Non-GAAP Gross Profit [Margin] 2 Gross Profit by Non-GAAP Net Revenue [Net Revenue minus the total $5.7 [28%] $9.4 [23%] amount billed for Section 301 Tariffs]. Non-GAAP Net Revenue for the three months ended May 31, 2020 and May 31, 2019 were $20.4 million and $41.1 million, respectively. Cash SG&A 3 $7.7 $16.4 3) Cash SG&A excludes non-cash expenses, such as bad debt, depreciation, amortization, and stock-based compensation. Adjusted EBITDA ($2.7) ($7.5) Amounts in millions. NM = Not Meaningful 12
FQ3 2 0 2 0 BALANCE SHEET SNAPSHOT May 31, 2020 Feb. 29, 2020 Aug. 31, 2019 Accounts Receivable, Net $11.2 16.9 $26.0 Inventory, Net $24.0 26.4 $43.8 Cash $11.1 11.4 $3.9 Amounts in millions. 13
Outlook for Q4 and Achieving Positive Adj. EBITDA
OUTLOOK FOR Q4 ✓ Anticipating Q3 to be the “Bottom” for Revenue in Fiscal 2020 ✚ Expecting to secure most of the orders that were pushed out from Q3 ✚ Anticipate signing additional supply agreements with leading MSOs and LPs ✚ Improving regulatory landscape to support growth (e.g. MA gradually returning to normal) ✓ Laser-focused on Core Businesses (Vape, Packaging, and Energy) to Drive Sales Again ✚ Vape: enhanced focus on retaining core business and exercising more competitive pricing approved by vendor ✚ Packaging: enhanced focus on becoming more efficient while working with Top 100 customers to promote stickier and more value-add custom packaging solutions ✚ Energy: new initiative to fully launch stainless steel tanks to customer and partner network, and monetize investment ✓ Keeping a Tight Lid on Costs ✚ Monthly departmental checks to ensure budgets are being met ✚ “A - Player” mentality contributing to “doing more with less” while setting the foundation for a more disciplined and selective hi ring approach going forward ✓ Fiscally Prudent Cash Management and Working Capital Improvement to Continue Supporting the Business ✚ Reiterating expectation that current cash on hand, cash flow from operations, and lender capital to support the business as it works to achieve positive adjusted EBITDA and positive cash flow from operations 15
POSIT IV E ADJ. EB IT DA W IT HIN REACH Metric FQ4 2020 Guidance Revenue $24.0 - $26.0 million Cash SG&A $6.5 - $7.5 million Adj. EBITDA ($1.0) - $1.0 million Amounts in millions. Note: Guidance is effective only as of the date of this presentation. 16
THANK YOU Investor Relations Contact: Najim Mostamand, CFA Director of Investor Relations 714-539-7653 ir@kushco.com
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