Company Provides Update on Accelerating Path to Profitability program and Financial Guidance
- Quarterly revenue increased to $8.6 million, a 12% increase over Q2 2019
- Adjusted EBITDA1 increased by $1.6M from Q2 2019 and reaches breakeven ahead of schedule
- Secured long-term contracts with Licensed Producers worth $6 million annualized
- Realized tangible annualized cost savings of more than $3.5 million
- Management projects an increase to more than $9.0 million in revenues in Q4 2019
Key Q3 2019 and Subsequent Financial Highlights
- Quarterly revenue increased to $8.6 million, a 12% increase
over Q2 2019 revenue of $7.5 million, and a 325% increase over Q3 2018
revenues of $2.0 million - Adjusted EBITDA1 improved significantly to approximately breakeven from $(1.6) million in Q2 2019 and ($0.7) million in Q3 2018
- Net loss of $(2.5) million improved sequentially by $1.1
million over Q2 2019 but increased compared to ($1.2) million in Q3
2018. Net loss in Q3 2019 reflected a $2.0 million non-cash depreciation
expense incurred, approximately $0.7 million of which was incurred in
Q3 2019 but related to a year-to-date adjustment to amortization of
intangible assets - Reported Loss per share of $(0.02) was stable versus $(0.02) in Q2 2019 and ($0.02) in Q3 2018
- Realized tangible annualized cost savings of more than $3.5
million driven by cost synergies stemming from the acquisition of INKAS
in Q2 and through enhanced operational efficiencies, and continues to
target annualized cost savings of $4 million by end of 2019, and further
efficiencies expected in Q1 2020 - First full quarter of operations in the United States,
providing security services to cannabis company 1933 Industries and
multiple dispensaries in Nevada and managed services in New Jersey - Achieved and exceeded Q3 financial guidance targets previously set by management
ALMONTE, Ontario, Nov. 19, 2019 (GLOBE NEWSWIRE) — 3 Sixty Risk Solutions Ltd. (“3 Sixty” or the “Company”)
(CSE: SAFE) (OTCQB: SAYFF) (FSE: 62P2) a leader in the risk management
and security services sector of the burgeoning cannabis industry, today
reported its unaudited financial results for the three month period
ended September 30, 2019 and provided certain additional highlights and
updates. Unless otherwise indicated, all references herein to dollars or
“$” are to Canadian dollars.
“I am extremely pleased with our
performance in the third quarter, particularly our strong organic growth
and new long-term contracts, as well as breaking even in Adjusted
EBITDA ahead of schedule and our significant improvement in net cash
flows,” said Thomas Gerstenecker, CEO and Founder. “These improvements
were driven by continued strong organic revenue growth both in Canada
and in the U.S., the initial visible results of our announced efforts to
realize on cost synergies following acquisitions earlier this year and
to improve operational efficiency, and a reduction in one time charges
and capital investments that we incurred in the first half of 2019
related to our multiple transactions and corporate change.”
“Our
optimized cost structure provides us with financial flexibility to
execute against our growth strategy as we remain focused on leading the
cannabis security industry in Canada and expanding our services within
the U.S.,” Mr. Gerstenecker said.
“Looking ahead, growth of the
legal cannabis market in Canada has been slower than anticipated due to
the underdeveloped retail store network in many provinces across the
country. This has resulted in a small volume of contracts we anticipated
beginning in the fourth quarter of 2019 being pushed out to the first
quarter of 2020. However, we expect access constraints to the legal
cannabis market to reduce in the new year and are encouraged by the
commitment of the Ontario provincial government to move to an open
allocation of retail stores based on market demand.
Mr.
Gerstenecker concluded: “We are reiterating our revenue expectations for
2020, which reflects anticipated growth of 110% to 180% compared to
anticipated 2019 revenues. This growth is anticipated to be driven
primarily by organic growth, notably benefiting from a full year of
operations from INKAS and our U.S. business and the anticipated growth
of these business as well as the continued deployment and execution of
long-term contracts with licensed producers worth approximately $36
million in annualized predictable revenue that we have secured thus far
in 2019. We also anticipate benefiting from certain “tuck in”
acquisitions which we continue to explore, with a strategic focus on
expansion into strategic locations in the U.S.”
Third Quarter 2019 Financial Results
Three-Months Ended | Nine-Months Ended | |||||||
Monday, September 30, 2019 | Sunday, September 30, 2018 | Monday, September 30, 2019 | Sunday, September 30, 2018 | |||||
$ | $ | $ | $ | |||||
Revenue | 8,579,505 | 2,017,420 | 19,570,911 | 3,074,967 | ||||
Operating Expenses | ||||||||
Wages and benefits (note 14) | 6,726,868 | 1,615,709 | 16,317,705 | 3,061,133 | ||||
Office and administrative | 76,489 | 226,068 | 881,362 | 399,742 | ||||
Depreciation and amortization (note 7 and note 8) | 1,979,106 | 492,768 | 3,191,549 | 492,768 | ||||
Consultants (note 14) | 250,345 | 431,730 | 2,432,536 | 582,956 | ||||
Vehicle | 373,664 | 90,258 | 950,748 | 153,042 | ||||
Travel | 256,697 | 36,355 | 656,597 | 80,525 | ||||
Advertising | 156,341 | 98,664 | 1,158,167 | 131,465 | ||||
Financing costs | 191,244 | 19,239 | 404,503 | 49,828 | ||||
Bad debt expense (notes 6 and 16) | 65,993 | – | 199,079 | – | ||||
Stock-based compensation (note 11) | 78,611 | – | 250,972 | – | ||||
Insurance | 261,635 | 104,820 | 595,834 | 121,880 | ||||
Information technology | 135,981 | 27,357 | 312,512 | 34,917 | ||||
Freight & storage | 463,119 | 43,757 | 1,365,837 | 57,933 | ||||
Training | 36,112 | 20,344 | 125,529 | 40,869 | ||||
Gain on sale of fixed assets | (83,573 | ) | – | (83,573 | ) | – | ||
Income tax expense | 88,343 | – | 88,343 | – | ||||
Listing Expense (note 3(a)) | – | – | 1,616,149 | – | ||||
11,056,975 | 3,207,069 | 30,463,849 | 5,207,058 | |||||
Operating loss | (2,477,470 | ) | (1,189,649 | ) | (10,892,938 | ) | (2,132,091 | ) |
Cumulative translation adjustment | (1,567 | ) | – | (158 | ) | – | ||
Net loss and comprehensive loss | (2,479,037 | ) | (1,189,649 | ) | (10,893,096 | ) | (2,132,091 | ) |
For notes referenced in table above, refer
to the Company’s Q3 2019 Financial Statements filed under the Company’s
profile on SEDAR.
EBITDA & Adjusted EBITDA (Non-IFRS Measures)
The
table below present reconciliations of EBITDA and Adjusted EBITDA to
Net and Comprehensive Loss, which is the nearest IFRS measure. For
additional information, see the Q3 2019 MD&A including under “EBITDA
& ADJUSTED EBITDA (NON-IFRS MEASURE)”.
(in $ thousands) | For the Three-Months Ended | For the Nine-Months Ended | |||||||
September 30, 2019 | September 30, 2018 | September 30, 2019 | September 30, 2018 | ||||||
Net and comprehensive loss | (2,479 | ) | (1,190 | ) | (10,893 | ) | (2,132 | ) | |
Add back: | |||||||||
Depreciation and amortization | 1,979 | 493 | 3,192 | 493 | |||||
Income taxes | 88 | – | 88 | – | |||||
Interest | 191 | 19 | 405 | 50 | |||||
EBITDA | (220 | ) | (678 | ) | (7,209 | ) | (1,589 | ) | |
Stock-based compensation | 79 | – | 251 | – | |||||
Listing expense | – | – | 1,616 | – | |||||
Cumulative translation adjustment | (2 | ) | – | – | – | ||||
One-time charges | 134 | – | 1,914 | – | |||||
Adjusted EBITDA | (9 | ) | (678 | ) | (3,427 | ) | (1,589 | ) |
- Revenues – Revenue increased to $8.6 million, a 325% increase
over Q3 2018 revenues of $2.0 million driven by a significant growth of
the business in Canada and expansion into the U.S. as well as the
contribution from acquisition and amalgamation activity in the first
half of 2019. Revenue increased sequentially by 12% over Q2 2019 revenue
of $7.5 million driven by organic growth in Canada and the U.S. - Adjusted EBITDA – Adjusted EBITDA was essentially breakeven, a
significant improvement of $0.7 million as compared to the three-month
period ended September 30, 2018 ($0.7 million). Growth was driven by the
increase in revenues partially offset by additional operating costs,
including labour and infrastructure related to the significant growth
and expansion of the Company. In the quarter the Company achieved record
revenues and began a cost cutting initiative at the end of the second
quarter to decrease operating and overhead expenses, such as labour
costs, advertising, promotion and professional fees. Adjusted EBITDA
improved by $1.6 million sequentially as compared to Q2 2019 of ($1.6)
million, reflecting a $1.0 million increase in revenues and a $0.6
million reduction in cash operating expenses excluding one-time charges. - Expenses – Total expenses for the three-month period ended
September 30, 2019 were $11.1 million, or a $7.8 million increase
compared to the three months ended September 30, 2018, when total
expenses were $3.2 million. The increase in total expenditures is due to
additional operating costs including labour and infrastructure related
to the significant growth and expansion of the Company, which has seen
record revenue levels. Also included in the increase in expenses is
additional depreciation and amortization which was recognized on the
intangible assets pertaining to the amalgamation with TCSS and the
acquisition of INKAS. A minimal amount of the cost reductions related to
the Accelerating Path to Profitability program appeared in Q3, with the
reductions anticipated to become more visible and benefit profitability
in the latter portion of the fourth quarter and in 2020. - Net Loss – Net loss of $(2.5) million improved sequentially by
$1.1 million over Q2 2019. Net Loss increased to ($2.5) million
compared to ($1.2) million in Q3 2018. Net loss in Q3 2019 reflected a
$2.0 million non-cash depreciation expense, approximately $0.7 million
of which was due to year-to-date adjustment to amortization of
intangible assets but incurred during the third quarter.
Accelerating Path to Profitability Update
The
Company has realized tangible annual cost savings of $3.5 million (net)
through enhanced operational efficiencies, most of which is anticipated
to become visible in the fourth quarter and in 2020. The Company
maintains its annualized cost reduction target of $4 million to be
achieved by the end of 2019 and expects further efficiencies in Q1 2020.
These realized and expected cost savings are driven primarily by the
reduction of duplicate and redundant costs, notably labour costs,
following the acquisition of INKAS in April, as well as ongoing efforts
to optimize the Company’s cost structure and a reduction in certain
discretionary spending. These reductions are anticipated to accelerate
the Company’s path to sustainable profitability while supporting its
growth strategy.
U.S. Expansion Update
In
Q2 2019, the Company expanded operations to the United States,
providing security services to 1933 Industries and multiple dispensaries
in Nevada and managed services in New Jersey. The Company anticipates
continued expansion within the U.S. potentially including but not
limited to Florida, Ohio, Colorado, and Arizona in 2019 and Missouri,
New York, and California in 2020.
Canadian Cannabis Industry Update
The
slower than anticipated rollout of the legal cannabis retail store
network in many provinces in Canada, notably including Ontario, has
hampered revenue growth for the licensed, legal industry thus far in
2019. However, the Company continues to anticipate strong organic growth
both from market share gains as well as continued growth of the
industry. The Company notes the recent commitment by the Ontario
provincial government to address access constraints to the legal
cannabis market by moving to an open allocation of retail stores based
solely on market demand is expected to bode well for future customer
volumes.
Financial Guidance2 for Q4 2019 and Fiscal 2020
Management
projects an increase in revenue to more than $9.0 million in revenues
in Q4 2019, based on predictable recurring revenue which the Company
expects to be driven by organic growth.
The Company is
reaffirming its 2020 full year consolidated revenue guidance of
approximately $60 million to $80 million, as provided on August 20,
2019.
The unaudited expected results, targets and other
information contained in this news release and the associated
Management’s Discussion and Analysis for the three and nine-months of
operations ended September 30, 2019 (the “Q3 2019 MD&A) reflect
management’s view of current and future market and business conditions,
and based on various assumptions including:
(i) | No material delays to the deployment and execution of long-term contracts secured with customers or material changes to the terms and conditions in these agreements; |
(ii) | No material changes in the current operating conditions in certain markets from regulatory changes; |
(iii) | No adverse legal or regulatory changes that would impact the Company; |
(iv) | No material changes to current expectations with respect to certain macroeconomic or political events; |
(v) | No material changes to pricing of legal cannabis or other pricing that impact cannabis-related products; |
(vi) | No material changes to the expected growth of the market for cannabis-based products and/or the ability of the Company to maintain and attract new clients; |
(vii) | No material changes in the Company’s estimated aggregate addressable U.S. market, nor material changes or delays to the Company’s expansion plans within the U.S. including completion of identified acquisition opportunities |
(viii) | No material changes to the Company’s ability to access future funding needed to advance its business and pursue prospective opportunities; |
(ix) | The Company’s ability to effectively manage growth; |
(x) | No material change in the Company’s success in achieving competitive margins; |
(xi) | The Company’s continued success in its ability to develop necessary infrastructure; and, |
(xii) | No material foreign currency exchange rate fluctuations, particularly against the U.S. dollar. Such guidance, targets and information are based on a U.S. dollar to Canadian dollar exchange rate of 1.33 to 1.00. |
Conference Call
Management
will host a conference call to discuss its Q3 financial results and
related updates on Tuesday, November 19, 2019 at 9:00am EST.
- To access via tele-conference, please dial 1-888-664-6383 or
+1-416-764-8650 ten minutes prior to the scheduled start of the call. - The playback will be made available approximately two hours
after the event at 1-888-390-0541 or +1-416-764-8677. The Conference ID
number is 120171 #.
Consolidated Financial Statements, Management’s Discussion and Analysis and Additional Information
The
Company’s Condensed interim consolidated financial statements for the
three and nine-month periods ended September 30, 2019 and 2018 (the “Q3
2019 Financial Statements”), the Q3 2019 MD&A, this news release,
and additional information relating to the Company and its business, can
be found on or through SEDAR at www.sedar.com and the Company’s website at www.3sixtysecure.com, as applicable. The financial information presented in this news release was derived from the Q3 2019 Financial Statements.
______________________________
1
Non-IFRS measure. For important information on the Company’s non-IFRS
measures and reconciliation to nearest IFRS measures, see below under
“EBITDA & Adjusted EBITDA (Non-IFRS Measures)”” and “Non-IFRS
Measures”.2 For important information on risks to the
Company’s financial guidance, please refer to the Forward-Looking
Information disclaimer in this news release, as well as in the Q3 2019
MD&A under “Forward-Looking Statements” and “Risk Factors”.
About 3 Sixty Risk Solutions Ltd.
3
Sixty Risk Solutions Ltd., operating through its wholly-owned
subsidiary, 3 Sixty Secure Corp., is Canada’s leading security service
provider to the cannabis sector, transporting millions of dollars of
product every month. 3 Sixty now provides enhanced cash management,
cannabis security consulting, guarding and secure transport security
services to more than 600 customers and more than 100 cannabis licensed
producers. 3 Sixty employs over 650 staff, operates a fleet of over 150
vehicles and is one of the largest cash management service providers in
Canada. Find out more at www.3sixtysecure.com and follow us on Twitter, Instagram or Facebook.
For further information regarding the Company, please contact:
Carlo Rigillo, Chief Financial Officer, 3 Sixty Secure Corp.
(866) 360-3360,
[email protected]
Forward-Looking Information
This
news release contains “forward-looking information” and
“forward-looking statements” (collectively, “forward-looking
statements”) within the meaning of the applicable Canadian securities
legislation. All statements, other than statements of historical fact,
are forward-looking statements and are based on expectations, estimates
and projections as at the date of this news release. Any statement that
involves discussions with respect to predictions, expectations, beliefs,
plans, projections, objectives, assumptions, future events or
performance (often but not always using phrases such as “expects”, or
“does not expect”, “is expected”, “anticipates” or “does not
anticipate”, “plans”, “budget”, “scheduled”, “forecasts”, “estimates”,
“believes” or “intends” or variations of such words and phrases or
stating that certain actions, events or results “may” or “could”,
“would”, “might” or “will” be taken to occur or be achieved) are not
statements of historical fact and may be forward-looking statements. In
this news release, forward-looking statements include, but are not
limited to, the Company’s business and operations and the ability to
successfully implement and execute strategic opportunities; the
Company’s intention to grow the business and operations by pursuing
opportunities domestically and internationally; the Company’s ability to
continue reducing costs, including labour, by eliminating redundancies;
the Company’s expectations for future results and increased revenue
resulting in sustained profitability and growth; the expected growth of
the Company from market share gains and industry expansion (including
expansion into the U.S. market); the Company’s ongoing relationship with
INKAS and continued execution of long-term contracts with licensed
producers; the cannabis industry in Canada generally and management’s
expectations regarding consumer demand for certain products.
Forward-looking statements are necessarily based upon a number of
estimates and assumptions that, while considered reasonable, are subject
to known and unknown risks, uncertainties, and other factors which may
cause the actual results and future events to differ materially from
those expressed or implied by such forward-looking statements. Such
factors include, but are not limited to: general business, economic,
competitive, political and social uncertainties. There can be no
assurance that such statements will prove to be accurate, as actual
results and future events could differ materially from those anticipated
in such statements. Accordingly, readers should not place undue
reliance on the forward-looking statements and information contained in
this news release. Except as required by law, 3 Sixty assumes no
obligation to update the forward-looking statements of beliefs,
opinions, projections, or other factors, should they change, except as
required by law.
This news release also contains
future-oriented financial information and financial outlook information
(collectively, “FOFI”) about 3 Sixty’s prospective results of operations
including, without limitation, cash flow and various components
thereof, annualized revenue and other metrics, all of which are subject
to the same assumptions, risk factors, limitations, and qualifications
as set forth above and in addition are grounded on the assumption of the
continued performance of the Company’s long-term customers contracts
and no early termination of same. Readers are cautioned that the
assumptions used in the preparation of such information, although
considered reasonable at the time of preparation, may prove to be
imprecise and, as such, undue reliance should not be placed on FOFI. 3
Sixty’s actual results, performance or achievement could differ
materially from those expressed in, or implied by, these FOFI, or if any
of them do so, what benefits 3 Sixty will derive therefrom. The FOFI do
not purport to present the Company’s financial condition in accordance
with IFRS, and there can be no assurance that the assumptions made in
preparing the FOFI will prove accurate. 3 Sixty has included the FOFI in
order to provide readers with a more complete perspective on 3 Sixty’s
future operations and such information may not be appropriate for other
purposes. 3 Sixty disclaims any intention or obligation to update or
revise any FOFI statements, whether as a result of new information,
future events or otherwise, except as required by law. The inclusion of
the FOFI in the earnings disclosure should not be regarded as an
indication that 3 Sixty considers the FOFI to be a reliable prediction
of future events, and the FOFI should not be relied upon as such.
Neither
the Canadian Securities Exchange nor its Regulation Services Provider
(as that term is defined in the policies of the CSE) accepts
responsibility for the adequacy or accuracy of this release.
Non-IFRS Measures
This
news release references non-IFRS measures including EBITDA and Adjusted
EBITDA to help evaluate its performance and liquidity as well as to
assess potential acquisitions.
The Company
believes these measures will provide investors with useful supplemental
information about the financial and operational performance of its
business, enable comparison of financial results between periods where
certain items may vary independent of business performance, and allow
for greater transparency with respect to the measures used by management
in operating its business, identifying and evaluating trends, and
making decisions. The Company believes that such non-IFRS financial
measures provide useful information about its underlying, core operating
results and trends, enhance the overall understanding of its past
performance and future prospects and allow for greater transparency with
respect to measures used by management in its financial and operational
decision-making.
Although management believes
these non-IFRS financial measures and key metrics are important in
evaluating the Company, they are not intended to be considered in
isolation or as a substitute for, or superior to, financial information
prepared and presented in accordance with IFRS. They are not recognized
measures under IFRS and do not have standardized meanings prescribed by
IFRS. These measures may be different from non-IFRS financial measures
used by other companies and may not be comparable to similar meanings
prescribed by other companies, limiting their usefulness for comparison
purposes. Moreover, presentation of certain of these measures is
provided for period-over-period comparison purposes, and investors
should be cautioned that the effect of the adjustments thereto provided
herein have an actual effect on the Company’s operating results.
The Company provides the following non-IFRS measures in this news release:
EARNINGS BEFORE INTEREST, TAX, DEPRECIATION AND AMORTIZATION (“EBITDA”)
EBITDA
refers to earnings or loss before interest, taxes, depreciation and
amortization. EBITDA is a term not recognized under IFRS and may not be
comparable to similar measures presented by other companies. The Company
considers EBITDA as a metric to provide additional information and
indicate the Company’s ability to generate cash and to fund future
growth through capital investment.
ADJUSTED EARNINGS BEFORE INTEREST, TAX, DEPRECIATION AND AMORTIZATION (“ADJUSTED EBITDA”)
Adjusted
EBITDA is used by management as a supplemental measure to review and
assess operating performance and trends on a comparable basis. The
Company defines Adjusted EBITDA as EBITDA adjusted for the impact of
stock-based compensation, advertising and marketing expenses related to
readying the Company for its amalgamation and reverse takeover
transaction, and other non-recurring costs the Company deems unrelated
to current operations and one-time in nature.
For
additional information on the Company’s non-IFRS measures and the
reasons why it believes such measures are useful, see above and the Q3
2019 MD&A, including under the headings “Non-IFRS Measures”.
Source: 3 Sixty Secure
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