Humble & Fume Inc. Announces Financial Results for Third Quarter Fiscal 2022 and Aggressive Launch Strategy into California

Rhea-AI Summary

Humble & Fume Inc. (OTCQX: HUMBF) reported Q3 2022 financial results, with revenues decreasing to $16 million, down 4% from the previous quarter. Despite this, gross margins improved by 6% to 20%, and operating expenses fell by 18%. The company is expanding cannabis distribution in California, partnering with leading brands for an anticipated annual revenue contribution of $25-$35 million starting in Q4. Management emphasized a focus on profitability and business optimization amidst a strategic review.

Positive

• Gross margin increased by 6%, from 14% in Q2 to 20% in Q3.
• Operating expenses reduced by 18% to $5.3 million compared to $6.6 million in Q2.
• Expansion into California is ahead of schedule, with new partnerships expected to boost revenues by $25-$35 million annually.

Negative

• Quarterly revenue declined 4% from Q2 and 19% year-over-year.
• Net losses for the quarter decreased to ($3 million), but operating loss increased 50% over nine months due to rising operational expenses.

• The Company is on schedule to execute its aggressive strategy to become the leading North American distributor for cannabis and cannabis accessories.
• Optimizing the business and driving toward profitability remains a priority. Stabilizing quarterly consolidated net revenue for the quarter of $16 million (-4% vs. Q2) while driving optimization and with an eye on profitability with operating expenses down by 18% and a 6% increase in gross margins vs. last quarter.
• Rapid expansion into cannabis distribution in California is ahead of schedule and operational, with multiple tier-one brand partners onboarded in the first three months with an anticipated annualized revenue contribution of USD $25-35 million which is slated to start in Q4 (April - June 2022).
• White label products developed across five different categories strengthen relationships with legal dispensaries.

TORONTO, May 26, 2022 /PRNewswire/ - Humble & Fume Inc. (CSE: HMBL) (OTCQX: HUMBF) ("Humble" or the "Company"), the leading North American distributor for cannabis and cannabis accessories, today reported its third-quarter fiscal 2022 ("Q3 2022") financial and operating results for the three and nine months ended March 31, 2022.

Joel Toguri, Chief Executive Officer of Humble, commented, "We are laser-focused on cost-cutting, optimizing the business, improving on our end-to-end customer experience, and aggressively pursuing expansion opportunities in the US. Our commitment to right-sizing the business has resulted in faster turnaround times, improved accuracy in our fulfillment and a meaningful reduction in our inventory. We have made significant improvements to our cost base while stabilizing revenue and improving gross margins."

Highlights Include:

• Gross margin improved by 6%, going from 14% in Q2 to 20% in Q3;
• Q3 saw a decrease in operating expenses as a percent of revenue, with Q3 decreasing to 33% from 39% in the previous quarter; from $6.6 million to $5.3 million;
• Inventory levels were reduced by $812,124 with a YTD reduction of $1,814,216; or a 5% decrease; and
• Operational costs are down 12% from Q2, with the bulk of the savings coming from shipping efficiency and our inventory reduction. 

Mr. Toguri continued, "In a service-focused industry such as ours, the priority will always be to provide the most effective, efficient, and informed customer service possible. In Q3, we enhanced our analytical capabilities to provide our brand and retail partners with actionable insights to inform their decision-making process, resulting in improved promotions and sales results. Data-driven insights inform our internal portfolio development, guiding the procurement of products and inventory, resulting in improved working capital allocated to inventory."

"Our expansion into cannabis distribution in the US is ahead of schedule. In Q3, the build-out of our cannabis operations in California resulted in the on-boarding of multiple partners, including California's preeminent flower brand Canndescent and industry-leading brands such as Leune, Proof, Highsman, and Humboldt Farms. We are very proud to be associated with these brands who share our vision for the future growth of the cannabis industry. They have chosen us as partners because we are dedicated to helping them grow their businesses, and we are committed to moving with pace. We will continue to be disciplined in our approach in seeking out new partners who will be part of our accelerated expansion efforts."

As part of the overall US expansion strategy, multiple white label products across five different categories were developed to serve the needs of legal dispensaries in the US. The company's industry-leading product portfolio and go-to-market expertise have helped secure a significant increase in dispensary partner relationships, ultimately leading to our ambition to become the leading cannabis and cannabis accessory distributor in North America.

Mr. Toguri concluded, "We are getting better every day, and the business is ahead of schedule on multiple fronts. The shape of the P&L is stronger today than when we began the strategic review in Q1, and it's anticipated to continue to deliver significantly next quarter. The business optimization is now resulting in lower operating costs and higher margins, and we remain focused on healthy revenue generation."

Operational Updates

March 2022 - Humble Cannabis Solutions officially launches operations in California as a premier cannabis sales, distribution, and field marketing company. Building on its experience in the Canadian market, Humble Cannabis Solutions is committed to its brand and retail partners to help grow their businesses by providing data-driven insights, proven go-to-market expertise, innovative trade marketing initiatives and best-in-class distribution for cannabis and cannabis accessories. Launch includes hiring of key personnel and sales team, securing over 20 distribution vehicles and outfitting the distribution facility with cutting edge technology and security.

Subsequent Events

April 2022 – The Company announced that, further to the Company's press release on November 15, 2021, it has formed HC Solutions Holdings Inc., a Joint Venture with Green Acre Capital Distribution Corp., for the purpose of distribution of cannabis throughout the United States, initially focused on accelerating the Company's expansion into cannabis distribution operations in California. Subsequent to the formation of the Joint Venture, Green Acre Capital Distribution Corp. completed a US$2 million investment directly in the Joint Venture. Green Acre Capital Distribution Corp. has funded its investment through an option agreement with Johnson Brothers, a leading wine, spirits and beer distributor in the United States.

April 2022 – Humble Cannabis Solutions California announces an exclusive distribution service agreement with the most sought-after California brand house, Canndescent Brands, for the sale and distribution of all its product lines. Well-known retailers and consumers alike, Canndescent's brand portfolio offers something for all consumer groups. Humble will provide exclusive sales agent representation and distribution services for Canndescent across the Californian market, focusing on generating new listings, trade marketing services, promotional services, commercial planning support and order fulfillment. The team will service all product lines in the Canndescent Brands portfolio. 

April 2022 – Humble Cannabis Solutions California announces an exclusive sales agreement with LEUNE, one of California's premier cannabis lifestyle brands. Through the agreement, Humble will be responsible for exclusive sales representation for LEUNE branded products across the California market, focusing on generating new listings, trade marketing services, promotional services, and commercial planning support.  LEUNE has a well-known reputation for uncompromising quality, product transparency and a commitment to social advocacy. 

May 2022 – In Canada, the Company announced an exclusive distribution service agreement with Molecule for its innovative line of quality craft beverages. This is a welcome addition to the existing portfolio of category-leading brands Kalvara, Nuveev, Wyld, Harts, and Olli. Reaffirming the Company's commitment to becoming North America's leading distributor for cannabis and cannabis accessories, the Company expanded its exclusive Canadian distribution service agreement with PAX Labs, Inc. to include the US.

Financial Results for the Third Quarter Ended March 31, 2022

	Three months ended March 31,		Nine months ended March 31,
($ Thousands)	2021	2022	2021	2022
Revenue	$18,482	$16,111	$54,709	$51,016
Gross margin	$2,573	$3,277	$10,062	$9,887
Operating (loss) expenses	$(2,680)	($2,055)	($5,503)	($8,251)
Net loss after taxes	($5,837)	($2,545)	($12,909)	($8,404)
Loss per common share	(0.10)	(0.02)	(0.22)	(0.07)
Adjusted EBITDA	($2,167)	($1,288)	($3,508)	($5,467)

 

Revenue for the third quarter was $16 million, compared to $19 million in the same quarter prior year. Third quarter revenue decreased as a result of management's focus on selling higher margin products and moving away from lower margin sales channels. Revenue for the nine months ended March 31, 2022 decreased from $55 million to $51 million. In Canada, revenue increased by 13% over the nine months ended March 31, 2022 as a result of onboarding over 750 new customer accounts plus net new revenue from white labeling. In the US, revenue declined by 19% for the nine months ended March 31, 2022 as a result of management's continued focus on higher margin products.

In the third quarter, gross profit was $3 million, which resulted in a gross margin of 20%, compared to $3 million, or a gross margin of 14%, year-over-year. The increase in gross profit margin is primarily due increased controls on discounting, focus on higher margin sales plus favorable inventory provision adjustment. Gross profit decreased 2% for the nine months ended March 31, 2022 compared to the same period prior year, as a result of a move away from high volume, low margin sales channels in the US.

Operating loss for the quarter decreased to ($2) million from ($3) million compared to the same period in the prior year. The decrease in operating loss was driven primarily by increased gross margin. Operating loss for the nine months ended March 31, 2022 increased 50% compared to the same period prior year, as a result of increased operational expenses of which $1 million relates to one-time restructuring costs.

Net losses for the quarter decreased from ($6) million to ($3) million compared to the same period in the prior year. The decrease in net losses was primarily driven by the decrease in accretion expense on the convertible debentures issued May 2019 and exercised on June 14, 2021, resulting in conversion of the debt to share capital. Net loss for the nine months ended March 31, 2022 improved by $5 million compared to the same period prior year, as a result of the conversion of the debt to share capital.

Adjusted EBITDA for the quarter was ($1) million, compared to ($2) million for the same period in the prior year. The improvement was driven primarily by increased gross margin. For the nine months ended March 31, 2022, adjusted EBITDA was ($6) million compared to ($4) million for the same period in the prior year, as a result of increased operational expenses of which $0.9m relates to one-time restructuring costs.

About Humble & Fume Inc.

Humble & Fume Inc. is a leading North American distributor of cannabis and cannabis accessories. Humble is committed to our brand and retail partners to help grow their businesses by providing data-driven insights, proven go-to-market expertise and best-in-class distribution for cannabis and cannabis accessories. As the only fully-integrated cannabis distribution solution, Humble bridges the gap for retailers, Canadian licensed producers, American multi-state operators, and cannabis customers increasing sales penetration to maximize financial performance. With over 20 years of North American operating experience, Humble has cultivated extensive vendor and customer relationships distributing premium cannabis consumables and consumption devices. The Company is comprised of Humble+Fume / B.O.B. Headquarters Inc. , Windship Trading LLC, and Humble Cannabis Solutions.

Non-IFRS Financial Measures.

EBITDA and Adjusted EBITDA are financial measures that are not defined under IFRS. We define EBITDA as net income (loss), or "earnings", before interest, income taxes, depreciation, and amortization. We define Adjusted EBITDA as EBITDA before: (i) finance expenses (ii) fair value adjustments; (iii) share-based compensation expense; and (iv) foreign exchange (gain) loss. We believe Adjusted EBITDA is a useful measure to assess the performance of the Company as it provides more meaningful operating results by excluding the effects of expenses that are not reflective of our operating business performance and other one-time or non- recurring expenses, and also provide additional perspective and insights when analyzing the core operating performance of the business. These supplemental non-IFRS financial measures should not be considered superior to, as a substitute for or as an alternative to, and should only be considered in conjunction with, the IFRS financial measures presented herein.

Forward-Looking Information and Statements.

This news release contains "forward-looking information" within the meaning of applicable securities laws relating to the Company's growth and strategic plans for each of its business segments, including distribution of cannabis in the United States and the strategic focus in California, as well as expected future results including expected anticipated annualized revenue contributions of California operations, and anticipated future P&L. Any such forward-looking statements may be identified by words such as "expects", "anticipates", "intends", "contemplates", "believes", "projects", "plans" and similar expressions. Readers are cautioned not to place undue reliance on forward-looking statements. Statements about, among other things, Humble & Fume Inc.'s strategic plans including future growth opportunities and strategies in the United States and expected anticipated annualized revenue contributions of California operations 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. Although such statements are based on management's reasonable assumptions, there can be no assurance that such forward-looking statements will occur as described herein. The Company assumes no responsibility to update or revise forward-looking information to reflect new events or circumstances or actual results unless required by applicable law. Readers are encouraged to refer to the Company's disclosure available on its SEDAR profile (at www.sedar.com) for information as to the risks and other factors which may affect the Company's business objectives and strategic plans.

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SOURCE Humble & Fume Inc.

FAQ

What were Humble & Fume's revenues for Q3 2022?

Humble & Fume reported revenues of $16 million for Q3 2022, a 4% decrease from Q2 2022.

How did Humble & Fume's gross margin change in Q3 2022?

The gross margin improved by 6%, increasing from 14% in Q2 to 20% in Q3 2022.

What is the expected annual revenue contribution from California operations?

Humble & Fume anticipates an annualized revenue contribution of $25-$35 million from its California operations.

What were the operating expenses for Humble & Fume in Q3 2022?

Operating expenses decreased to $5.3 million in Q3 2022, down from $6.6 million in Q2 2022.

What is the stock symbol for Humble & Fume?

The stock symbol for Humble & Fume is HUMBF.