FQ4 and FY 2020 Supplemental Earnings Slides October 29, 2020 OTCQX: KSHB
IMPORTANT CAUTIONS REGARDING FORWARD LOOKING STATEMENTS 2
A G E N DA 1. FQ4 2020 Highlights and Progress on Strategic Plan 2. FQ4 2020 Financial Summary 3. Outlook for FQ1 2021 and FY 2021 Guidance 4. Q&A Session 3
FQ4 2020 Highlights and Progress on Strategic Plan
FQ4 2 0 2 0 HIGHL IGHTS ✓ Net Revenue of $26.5 Million ✚ Represents growth of 19% compared to FQ3 2020 ✚ Exceeded financial guidance of between $25.5 million and $26.0 million ✚ Revenue from Top 100 Customers up 26% sequentially due to growth with larger customers and securing new customers ✓ Strong GAAP Gross Margins of 26% and Continued Strong Non-GAAP Gross Margins of 29% ✚ Returned to 25%+ GAAP gross margins ✚ Sixth consecutive quarter of 20%+ non-GAAP gross margins ✓ Cost-Cutting Reductions Substantially Complete with Cash SG&A of $7.3 million ✚ Cash SG&A down 50%+ from FQ1 to FQ4 2020 ✓ Achieved Positive Adjusted EBITDA For First Time in Three Years, Demonstrating Continued Operating Leverage ✚ Improved from ($2.7) million in FQ3 2020 to $1.0 million in FQ4 2020 ✓ Positive Cash Flow From Operations For First Time in Three Years ✚ Cash flow from operations improved from ($1.4) million in FQ3 2020 to $0.5 million in FQ4 2020 5
RET URNED TO SEQUENT IA L GROWT H Top 100 Customers Rest of Customers $35.0 $30.1 $26.5 81% $22.3 82% 87% 82% $28.2 $24.6 $23.1 $18.4 FQ1 2020 FQ2 2020 FQ3 2020 FQ4 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 Q4 2020 Revenue % Q4 2020 Revenue QoQ Growth FY 2020 Revenue % FY 2020 Revenue QoQ Growth CA $4.2 16.0% 24% $21.4 18.8% RECREATIONAL 18% MI $2.3 8.7% 40% $7.2 6.3% STATES WA $2.0 7.7% 4% $8.8 7.8% MEDICAL STATES 27% MA $1.5 5.9% 58% $5.0 4.4% TOTAL CO $1.5 5.8% 1% $8.7 7.6% 19% REVENUE IL $1.4 5.4% 48% $4.1 3.6% OR $1.0 4.0% 2% $5.9 5.2% NV $0.6 2.4% -37% $4.5 4.0% ME $0.3 1.2% 3% $1.2 1.1% Other Rec States $0.2 0.7% 19% $0.7 0.6% REC STATES TOTAL $15.3 57.6% 18% $67.6 59.4% Medical States $9.0 34.1% 27% $34.7 30.5% Canada $1.6 6.0% -21% $8.3 7.3% Other Countries $0.2 0.6% 297% $0.2 0.2% Other* $0.5 1.7% 222% $3.0 2.6% TOTAL REVENUES $26.5 100.0% 19% $113.8 100.0% 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 Q4 2020 Revenue % of Revenue QoQ Growth FY 2020 Revenue % of Revenue Vape $18.3 69.1% 37% $73.7 64.8% Packaging, Papers & $6.3 23.9% -5% $27.1 23.8% Supplies Energy & Natural $1.7 6.4% -24% $9.3 8.2% Products Services** $0.1 0.6% NM $3.7 3.2% TOTAL REVENUES $26.5 100.0% 19% $113.8 100% * 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
C O N T I N U E D E X E C U T I O N O F S T R AT E G Y T O T O D R I V E P R O F I TA B L E G R O W T H Strategy Component Achievements and Milestones • Strategic targeting of leading operators and consolidators • Enhanced Focus on Top 100 Customers Salesforce focused on profitability vs. volume, as well as additional cross-selling opportunities • Introduction of long-term supply agreements with high sell-through operators • Implementation of disciplined underwriting criteria to help ensure healthy AR Improved KYC and More Profitable Approach • Improved customer intake process to better understand our customers and their compliance with Customer Orders measures • Successfully closed and exited Las Vegas, Denver, and Santa Rosa facilities, and sublet Garden Grove warehouse Warehouse Optimization • Elimination of lease costs related to underutilized satellite warehouses • Significant reduction of consulting, software, and transportation costs • Elimination of temporary labor needed to support satellite warehouses Streamlined Workforce • Reduction of salesforce in line with more concentrated customer focus Reduced capital intensity of business plan and projecting steady improvement of Adjusted EBITDA margin 9
FQ4 2020 Financial Summary
FQ4 2020 I NCOME STAT EMENT SNAPSHOT 1) Gross profit during fiscal Q3 2020 was impacted by several restructuring Q4 2020 Q3 2020 Q4 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 $26.5 $22.3 $47.0 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] $6.8 [26%] $2.4 [11%] 1 $9.4 [20%] 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 Gross Profit by Non-GAAP Net Revenue [Net Revenue minus the total $6.9 [29%] $5.7 [28%] $9.6 [20%] [Margin] 2 amount billed for Section 301 Tariffs]. Non-GAAP Net Revenue for the three months ended August 31, 2020, May 31, 2020, and August 31, 2019 were $24.0 million, $20.4 million, and $47.0 million, respectively. Cash SG&A 3 $7.3 $7.7 $15.1 3) Cash SG&A excludes non-cash expenses, such as bad debt, depreciation, amortization, and stock-based compensation. Adjusted EBITDA $1.0 ($2.7) ($5.2) Amounts in millions. NM = Not Meaningful 11
PROFITAB IL IT Y INCREA SED Revenue Adj. EBITDA $35.0 $30.1 $26.5 $22.3 $1.0 $(2.7) $(5.7)* $(6.8) $(14.8) FQ1 2020 FQ2 2020 FQ3 2020 FQ4 2020 * Adj. EBITDA for FQ2 2020 included approximately $9.1 million of bad debt expense that the company views as one-time in nature. Note: Amounts in millions. 12
FQ4 2 0 2 0 BALANCE SHEET SNAPSHOT Aug. 31, 2020 May 31, 2020 Aug. 31, 2019 Accounts Receivable, Net $9.4 $11.2 $26.0 Inventory, Net $28.0 $24.0 $43.8 Cash $10.5 $11.1 $3.9 Amounts in millions. 13
Outlook for FQ1 2021 and FY 2021 Guidance
OUTLOOK FOR Q1 2 0 2 0 ✓ Continuing to Grow Business with Top Customers ✚ Additional cross-selling opportunities ✚ Improvement or extension of credit terms to select customers ✚ Secure supply agreements ✓ Focusing on Adding New MSO and LP Customers ✚ Investing in salesforce and launching campaigns to secure new MSO customers 15
FISCAL 2 0 2 1 GUIDA NCE Metric FY 2021 Guidance Revenue $120.0 - $150.0 million Adj. EBITDA $5.0 - $7.0 million Note: Guidance is effective only as of the date of this presentation. The Company has provided Adjusted EBITDA guidance only on a non-GAAP basis and has not provided a reconciliation of the forward-looking non-GAAP Adjusted EBITDA financial measure to the most directly comparable GAAP financial measure, net income (loss), because not all of the information necessary for a quantitative reconciliation is available to the Company without unreasonable effort. For the same reasons, the Company is unable to address the probable significance of the unavailable information. Forward-looking non-GAAP financial measures provided without the most directly comparable GAAP financial measures may vary materially from the corresponding GAAP financial measures. Amounts in millions. 16
THANK YOU Investor Relations Contact: Najim Mostamand, CFA Director of Investor Relations 714-539-7653 ir@kushco.com
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