Flower One Reports Record Revenue in Second Quarter 2021, Following Successful Restructuring

Rhea-AI Summary

Flower One Holdings has reported a record revenue of $18.3M for Q2 2021, exceeding guidance and marking a 373% year-over-year increase. The adjusted EBITDA loss reduced to $0.6M from $1.9M a year prior. The successful restructuring of Convertible Debentures decreased debt from $40.7M to $16.3M, enhancing cash flow. Despite a net loss of $15.2M, improved yield and sales mix indicate strong momentum. The Company aims to drive profitability and has added strategic brand partnerships.

Positive

• Record Q2 revenue of $18.3M, a 373% year-over-year increase.
• Adjusted EBITDA loss improved to $0.6M from $1.9M year-over-year.
• Successful debt restructuring reducing obligations from $40.7M to $16.3M.

Negative

• Net loss of $15.2M, although improved from $21.3M in the prior year.
• Cost of sales increased by 45% to $11.1M due to higher utility and labor costs.

Flower One Holdings Inc. (“Flower One” or the “Company”) (CSE: FONE) (OTCQX: FLOOF) (FSE: F11), the leading cannabis cultivator and producer in Nevada, is pleased to announce its financial and operating results for the second quarter ended June 30, 2021. All amounts are expressed in U.S. dollars unless indicated otherwise.

Second Quarter Highlights:

• The Company reported record revenue of $18.3M, ahead of its guidance of $16M-$18M and representing a 373% increase over the same period of the prior year and a sequential increase of 32% compared to the first quarter 2021.
• The Company holds two of the top three flower brands in Nevada (Cookies and in-house brand, NLVO), while its various bulk and white label offerings represent more sales by volume than the top selling brands in the state.
• Adjusted EBITDA loss was $0.6M compared with Adjusted EBITDA loss of $1.9M in the same period of the prior year and an Adjusted EBITDA loss of $1.3M during the first quarter of 2021.
• The Company consummated the restructuring of its Convertible Debentures, significantly reducing the Company’s debt and ongoing debt service obligations for those Convertible Debentures.

“We are very pleased with the momentum we are seeing at Flower One. With this being the first full quarter under new management, we are proud to report our second, consecutive quarter of record topline results and improved profitability,” said Kellen O’Keefe, Flower One’s President & newly appointed full-time Chief Executive Officer (CEO). “We are continually focused on creating long-term value for our shareholders and I am very proud of our team’s achievements to date. As we continue to evolve, we remain unwavering in our commitment to high-quality low-cost production, enabling us to deliver on our mission to share cannabis with the world at an approachable price. We have reached an important inflection point in our business as evident by the progress and results released today and look forward to using this momentum to continue to drive strong and sustainable growth.”

Second Quarter 2021 Financial Results:

Revenues

For the three-month period ended June 30, 2021, the Company reported revenue of $18.3M, up 32% from first quarter 2021 revenue of $13.9M and more than five times its second quarter 2020 revenues of $3.4M. The growth was driven by increased volume from both facilities as well as: higher quality product resulting in higher selling prices and a more favorable allocation between in-house brands and private label products.

Expenses

Cost of sales of $11.1M for the second quarter of 2021, 45% higher than first quarter 2021 and increased by $9.2M over second quarter 2020. These increases were principally driven by the higher revenue as well as: seasonally higher utility costs, increased costs of some of our supplies and packaging resulting from COVID-19 supply chain issues, and increased labor costs resulting from recent hiring competition within Las Vegas. The cash component of cost of sales increased to 46% from 43% in the first quarter of 2021 – also due to the higher labor, utility, supply and packaging costs.

General and administrative expenses (G&A) for the quarter totaled $7.7M, which included more than $0.5M of audit and tax related expenses – all of which are incurred annually and must be expensed in the quarter incurred vs accrued throughout the year. Net of those expenses, G&A expenses were down from the first quarter of 2021. The Company continues to identify ways to introduce automation, reduce expenses and overhead costs.

Profitability Measures

Gross profit in the second quarter of 2021 amounted to $6.2M, or 33% of revenues, compared to $0.5M, or 1% of revenue, for the second quarter of 2020. Second quarter 2021 gross profit, prior to fair value adjustments (non-cash adjustments based on the fair value of biological inventory and inventory) was $7.2M, or 39% of revenues, compared to $1.8M for the second quarter of 2020. These improvements reflected the Company’s improving yields and selling price as well as reduced costs of cultivation, harvesting, drying and production.

For the second quarter of 2021, net loss was $15.2M, as compared to a net loss of $21.3M for the same period of the prior year. The net loss in the quarter included non-recurring and mostly non-cash expenses related to the debt and restructure ($14M) and the write-downs of the assets disposed of by the Company that were purchased by prior management and no longer utilized by the company ($7M). Excluding these items, the Company generated an Adjusted EBITDA loss of $0.6M – a significant improvement from the $1.9M Adjusted EBITDA loss in the first quarter of 2021.

Non-IFRS Measures
		Three-Months Ended June 30, 2021				Three-Months Ended June 30, 2020				Six-Months Ended June 30, 2021				Six-Months Ended June 30, 2020
Net Income (loss) before income taxes	$	(15,194,651	)		$	(21,280,800	)		$	(26,496,947	)		$	(27,670,601	)
Plus Adjustments:
Depreciation and amortization		180,182				239,913				360,364				479,826
Finance expenses		2,506,559				6,527,535				12,045,927				13,212,671
EBITDA	$	(12,507,910	)		$	(14,513,352	)		$	(14,090,656	)		$	(13,978,104	)
Plus Adjustments:
Realized fair value adjustment on sale of inventory		3,520,112				1,043,195				13,294,377				5,177,621
Unrealized fair value adjustment (loss) on growth of biological assets		(3,773,811	)			182,663				(19,546,707	)			(7,324,771	)
Write-down and provision for inventory		1,209,363				82,277				2,072,066				10,647,643
Share-based compensation		122,026				379,705				769,054				776,209
Fair value gain on derivative		(10,660,810	)			605,511				(6,640,719	)			(6,906,722	)
Gain on note payable modification		(88,966	)			0				(14	)			0
Provision for impairment on intangible assets		0				9,300,225				0				9,300,225
Loss on disposal of property, plant and equipment		6,981,561				0				6,981,561				0
Loss on debt modifications and extinguishment		4,726,601				0				5,181,747				0
Loss on convertible debt restructure		9,234,619				0				9,234,619				0
Foreign exchange gain (loss)		684,533				1,059,791				923,966				(1,998,320	)
Adjusted EBITDA	$	(552,682	)		$	(1,859,985	)		$	(1,820,705	)		$	(4,306,219	)

Balance Sheet

The Company used a portion of the proceeds from the Convertible Notes Units and operating cash flows to make significant reductions in accounts payables, accrued liabilities and the remaining short-term debt, which have been reduced by more than $8M since December 31, 2020.

In April, the Company completed the restructure of its Convertible Debentures, which reduced its debt from approximately $40.7M to approximately $16.3M. The debt restructuring allowed Flower One to right-size its capital structure by reducing the debt service burden on the business and improving cash flow.

The following chart highlights the Company’s improving financial position as at June 30, 2021, March 31, 2021 and December 31, 2020. All funded debts and leases noted below are at their respective face value irrespective of IFRS-based discounts.

Non-IFRS Measures
		December 31, 2020				March 31, 2021				June 30, 2021
Cash and equivalents	$	1,055,861			$	5,897,744			$	2,171,180
Accounts Receivable		3,057,545				6,129,467				6,987,141
Trade accounts payable and accrued liabilityes		28,124,299				19,527,984				20,667,362
Net Working Capital (Current Assets - Current Liabilities)		(64,822,019	)			(27,004,418	)			900,345
Funded Debts
Nonconvertible Debt
Short Term	$	34,233,000			$	30,803,065			$	635,545
Long Term & RB Equipment Lease		46,760,879				43,929,208				53,139,429
Total Nonconvertible Debt		80,993,879				74,732,273				53,774,974
Convertible Debt
Convertible Debentures	$	40,748,236			$	40,748,236			$	11,361,635
Convertible Notes		0				19,004,520				18,940,232
Total Convertible Debt		40,748,236				59,752,756				30,301,867
Total Funded Debt	$	121,742,115			$	134,485,029			$	84,076,841
Share capital and contributed surplus	$	117,732,950			$	128,518,479			$	150,087,317

“We have improved our capital structure due to the successful debt restructuring completed in April 2021, as well as the many operational changes made throughout the organization,” said Richard Groberg, Flower One’s Interim CFO. “While we are pleased with our progress to date, we will continue to work to achieve operating efficiencies and optimize the balance sheet. With our stronger financial position and more efficient production capabilities, we expect to continue to drive improved topline and profitability results in the second half of the year.”

Flower One’s second quarter and first half 2021 financial statements and management’s discussion and analysis will be issued and filed on SEDAR at www.sedar.com on August 11, 2021 and will be available on Flower One’s website at www.flowerone.com/investors/financial-reports.

Subsequent Events:

Executive & Advisory Board Appointments:

The Company is pleased to announce the official appointments of Kellen O’Keefe and Salpy Boyajian as members of the Company’s executive team. Kellen O’Keefe has been named the Company’s full-time CEO, whereas previously he was Interim CEO, in addition to his current position as President. Salpy Boyajian has been appointed as the Company’s Executive Vice President in addition to her position as the Chairman of the Board.

On August 10, 2021, the Company announced the appointment of Nikki Brown to its advisory board. Nikki Brown is the first member of the Company’s advisory board, bringing her CPG and wellness-industry expertise to Flower One.

Brand Partnerships:

In July and August of 2021, the Company announced its latest brand exclusive brand partnerships with both Miss Grass and ALTWELL. Through these partnerships, Flower One will become the exclusive brand partner to both brands in the state of Nevada. Miss Grass and ALTWELL products will be available in Nevada in the fourth quarter of 2021.

Notice of Conference Call:

Management will host a conference call at 10:00 a.m. ET on August 12, 2021, to discuss its financial results.

Date:		Thursday, August 12, 2021
Time:		10:00 a.m. ET
Call:		1-877-407-0789 (Canada and US)
		1-201-689-8562 (International)
Conference ID:		13722109
Webcast:		A live webcast will be available on Flower One’s website or at ViaVid.

All interested parties are invited to participate. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast.

For those unable to join the live webcast, a replay will be available until 11:59 p.m. ET on Thursday, August 11, 2022. To access the archived webcast, please visit Flower One’s website.

About Flower One Holdings Inc.

Flower One is the largest cannabis cultivator, producer, and full-service brand fulfillment partner in the state of Nevada. By combining more than 20 years of greenhouse operational excellence with best-in-class cannabis operators, Flower One offers consistent, reliable, and scalable fulfillment to a growing number of industry-leading cannabis brands (Cookies, Kiva, Old Pal, Heavy Hitters, Lift Ticket’s, The Clear, HUXTON, and Flower One’s leading in-house brand, NLVO, and more). Flower One currently produces a wide range of products from flower, full-spectrum oils, and distillates to finished consumer packaged goods, including a variety of: pre-rolls, concentrates, edibles, topicals, and more for top-performing brands in cannabis. Flower One’s Nevada footprint includes the Company’s flagship facility, a 400,000 square-foot high-tech greenhouse and 55,000 square-foot production facility, as well as a second site with a 25,000 square-foot indoor cultivation facility and commercial kitchen. Flower One has built an industry-leading team passionate about sharing cannabis with the world.

The Company’s common shares are traded on the Canadian Securities Exchange under the Company’s symbol “FONE”, in the United States on the OTCQX Best Market under the symbol “FLOOF” and on the Frankfurt Stock Exchange under the symbol “F11”. For more information, visit: https://flowerone.com.

Cautionary Note Regarding Forward-Looking Information

Statements in this press release that are not statements of historical or current fact constitute “forward-looking information” within the meaning of Canadian securities laws and “forward-looking statements” within the meaning of United States securities laws (collectively, “forward-looking statements”). Such forward-looking statements involve known and unknown risks, uncertainties, and other unknown factors that could cause the actual results of the Company to be materially different from historical results or from any future actual results expressed or implied by such forward-looking statements. In addition to statements which explicitly describe such risks and uncertainties, readers are urged to consider statements labeled with the terms “believes,” “belief,” “expects,” “intends,” “anticipates,” “potential,” “should,” “may,” “will,” “plans,” “continue” or other similar expressions to be uncertain and forward-looking.

Forward-looking statements may include, without limitation, timing of filing the unaudited interim consolidated financial statements and accompanying management’s discussion and analysis on SEDAR in due course, expectation of continued financial performance of the Company, statements relating to the Company’s position as a leader in the Nevada cannabis market and anticipated sales and record revenue, the Company’s leadership as a cannabis cultivator, producer, innovator and full-service brand fulfillment partner, and the production of a wide range of products for the nation’s top-performing brands.

The forward-looking statements contained in this press release are expressly qualified in their entirety by this cautionary statement, the “Cautionary Statement regarding Forward-Looking Information” section contained the Company’s management’s discussion and analysis for the three months ended June 31, 2021 (the “MD&A”). All forward-looking statements in this press release are made as of the date of this press release. The forward-looking statements contained herein are also subject generally to assumptions and risks and uncertainties that are described from time to time in the Company’s public securities filings with the Canadian securities commissions, including the MD&A. Although Flower One has attempted to identify important factors that could cause actual results, performance or achievements to differ materially from those contained in the forward-looking statements, there can be other factors that cause results, performance or achievements not to be as anticipated, estimated or intended.

Although the Company believes that any forward-looking information and statements herein are reasonable, in light of the use of assumptions and the significant risks and uncertainties inherent in such information and statements, there can be no assurance that any such forward-looking information and statements will prove to be accurate, and accordingly readers are advised to rely on their own evaluation of such risks and uncertainties and should not place undue reliance upon such forward-looking information and statements. Accordingly, readers should not place undue reliance on forward-looking statements. The forward-looking statements in this news release are made as of the date of this release. Flower One disclaims and does not undertake any intention or obligation to update or revise any such forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

Non-IFRS Measures

EBITDA, Adjusted EBITDA and certain other financial information provide herein are non-IFRS financial measures that the Company uses to assess its operating performance and financial position. EBITDA is defined as net earnings (loss) before net finance costs, income tax expense (benefit) and depreciation and amortization expense. Management defines Adjusted EBITDA as EBITDA adjusted for other non-cash items such as the impact of unrealized fair values, share based compensation expense, impairments, one-time gains and losses, and one-time revenues and expenses. This data is furnished to provide additional information and are non-IFRS measures and do not have any standardized meaning prescribed by IFRS. The Company uses these non-IFRS measures to provide shareholders and others with supplemental measures of its operating performance. The Company also believes that securities analysts, investors and other interested parties, frequently use these non-IFRS measures in the evaluation of companies, many of which present similar metrics when reporting their results. As other companies may calculate these non-IFRS measures differently than the Company, these metrics may not be comparable to similarly titled measures reported by other companies. We caution readers that Adjusted EBITDA should not be substituted for determining net loss as an indicator of operating results, or as a substitute for cash flows from operating and investing activities.

NEITHER THE CANADIAN SECURITIES EXCHANGE NOR THEIR REGULATIONS SERVICES PROVIDER HAVE REVIEWED OR ACCEPT RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210811005893/en/

FAQ

What were Flower One's financial results for Q2 2021?

Flower One reported record revenue of $18.3M for Q2 2021, a 373% increase year-over-year.

How much did Flower One reduce its debt by?

Flower One's successful restructuring reduced its convertible debentures debt from $40.7M to $16.3M.

What was the adjusted EBITDA loss for Flower One in Q2 2021?

The adjusted EBITDA loss for Q2 2021 was $0.6M, an improvement from a loss of $1.9M in the previous year.

What caused the increase in Flower One's cost of sales?

The increase in cost of sales was driven by higher revenue, increased utility costs, and labor expenses driven by hiring competition.

When will Flower One's financial statements be available?

Flower One's Q2 2021 financial statements will be filed on SEDAR and available on their website on August 11, 2021.