Fire & Flower Announces Third Quarter 2020 Financial Results and Achieves Positive Adjusted EBITDA

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<br /> Fire & Flower Announces Third Quarter 2020 Financial Results and Achieves Positive Adjusted EBITDA<br />
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/NOT FOR DISSEMINATION IN THE UNITED STATES OR FOR DISTRIBUTION TO

UNITED STATES

WIRE SERVICES/


This news release constitutes a “designated news release” for the purposes of the Company’s prospectus supplement dated

December 2, 2020

to its short form base shelf prospectus and amended and restated base shelf prospectus dated

November 24, 2020

.


142% increase in quarterly revenue to

$33.1 million

year-over-year and a 147% increase in annual revenue to

$84.8 million


TORONTO

,

Dec. 15, 2020

/CNW/ – Fire & Flower Holdings Corp. (“Fire & Flower” or the “Company”) (TSX: FAF) (OTCQX: FFLWF), today announced its financial and operational results for the thirteen-weeks ended

October 31, 2020

.


Financial and Operational Highlights for the Thirteen Weeks Ended

October 31, 2020

.


  • Milestone achievement of positive Adjusted EBITDA of

    $1.2 million


    compared to a

    $0.3 million

    negative Adjusted EBITDA in Q2 2020.

  • Total revenue of

    $33.1 million

    at a gross profit of 34.7%

    , compared to revenue of

    $13.7 million

    in Q3 2019 at a gross profit of 34.7% –

    representing a 142% increase in year-over- year revenue. Quarter-over-quarter revenue increased 15.8% sequentially from

    $28.6 million

    in Q2 2020.
  • Obtained shareholder approval of the amendment agreement for the strategic investment of a wholly-owned subsidiary of Alimentation Couche-Tard (“ACT”) and received

    $10.3 million

    in proceeds from the exercise of warrants by ACT.
  • Expanded the presence of Fire & Flower stores in the key market of the province of

    Ontario

    through the completion the acquisitions for 2 retail store locations.

  • Significant sequential revenue growth in the wholesale distribution business, Open Fields, contributing

    $1.0 million

    of gross profit

    , an increase of 22% compared to Q2 2020.

  • Meaningful sequential growth of 55.8% in the Hifyre™ digital retail and analytics platform

    , contributing

    $1.5 million

    of gross profit compared to Q2 2020.

  • Continued to refine the Company’s business practices in response to the COVID-19 public health crisis

    as consumer behaviours and preferences evolve through a digital customer service model and a focus on customer and employee safety.


Subsequent Financial and Operational Highlights post

October 31, 2020


  • Established the Company’s market leadership with the largest cannabis retail footprint in

    Canada

    with licences to 71 cannabis retail stores including 67 open and operating cannabis retail stores and 4 accessory stores which are temporarily closed


    due to COVID-19 restrictions in the province of

    Ontario

    .

  • Became a multi-brand cannabis retail operator through the acquisition of Friendly Stranger Holdings Corp.

    including the Friendly Stranger™, Happy Dayz™ and Hotbox™ brands with 21 operating cannabis retail locations in the province of

    Ontario

    .
  • Initiated an at-the-market equity program (“ATM Program”) to raise up to

    $15 million

    in equity financing to further support growth opportunities.
  • Completed acquisitions for 3 additional retail store locations in the key urban market of

    Toronto

    .
  • As the

    Toronto

    and Peel regions moved towards home delivery and curbside pickup, the

    Company rapidly responded and immediately deployed e-commerce capabilities

    through the Hifyre platform.

  • Hifyre’s Spark Perks™ member program achieved an increase of more than 38,000 members since the beginning of Q3 2020 and now has more than 183,000 members

    in the program that typically visit more frequently and transact with higher basket sizes, compared to non-members.

  • Launched industry-leading digital products including Hifyre Reach and Hifyre Spark

    which deliver compliant marketing solutions and tailor recommendations to individual consumer preferences.

  • Continued to realize positive financial and operational results as a result of optimization of the retail store network

    with a focus on maximizing the number of retail stores delivering positive margin contribution.


“The achievement of positive Adjusted EBITDA is a significant milestone and demonstrates our continued track record of delivering on our corporate objectives,” shared

Trevor Fencott

, Chief Executive Officer of Fire & Flower. “Despite the challenges presented by the COVID-19 public health crisis, Fire & Flower has continued to grow and demonstrate leadership as the largest cannabis retailer in

Canada

. We continue to work at maintaining positive Adjusted EBITDA and aggressively pursue growth opportunities for the Company.”


Selected Summary of Financial Results



(in thousands of dollars, except per share amounts)



Thirteen weeks ended



Thirty-nine weeks ended



Statement of Loss and Comprehensive Loss



October 31,

2020 ($)



November 2,

2019 ($)



$ Change



October 31,

2020 ($)



November 2,

2019 ($)



$ Change



% Change



% Change



Revenue



33,119


13,700


19,419



84,834


34,318


50,516


142%


147%


Cost of goods sold



(21,614)


(8,949)


(12,665)



(55,844)


(21,859)


(33,985)


142%


155%



Gross profit



11,505


4,751


6,754



28,990


12,459


16,531


142%


133%



Expenses


General and administrative



9,575


7,115


2,460



26,986


20,236


6,750


35%


33%


Share-based payments



581


788


(207)



1,990


2,373


(383)


-26%


-16%


Marketing and promotion



241


499


(258)



677


1,292


(615)


-52%


-48%


Acquisition and business development costs



780


180


600



966


201


765


333%


381%


Depreciation & Amortization



2,914


2,094


820



8,926


5,508


3,418


39%


62%


Impairment











4,279




4,279


NM


100%


Gain on remeasurement of lease liabilities



(2,119)




(2,119)



(2,119)

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(2,119)


100%


100%



Total Expenses



11,972


10,676


1,296



41,705


29,610


12,095


12%


41%



Loss from operations



(467)


(5,925)


5,458



(12,715)


(17,151)


4,436


-92%


-26%


Listing expense














(1,835)


1,835


NM


-100%


Gain on revaluation of derivative liability



35,796


23,089


12,707



21,082


29,483


(8,401)


55%


-28%


Loss on debt extinguishment



(53,862)




(53,862)



(53,862)


(9,028)


(44,834)


100%


497%


Interest income



110


53


57



198


223


(25)


108%


-11%


Finance costs



(6,082)


(7,010)


928



(21,027)


(11,999)


(9,028)


-13%


75%



Other (expense) income



(24,038)


16,132


(40,170)



(53,609)


6,844


(60,453)


-249%


-883%



Total (loss) income before tax



(24,505)



10,207


(34,712)



(66,324)



(10,307)


(56,017)


-340%


543%


Income tax expense



(1,218)




(1,218)



(1,218)




(1,218)


100%


100%



Net (loss) income and comprehensive (loss) income



(25,723)


10,207


(35,930)



(67,542)


(10,307)


(57,235)


-352%


555%



Net (loss) income per share, basic


($0.15)


$0.08


($0.23)


($0.42)


($0.09)


($0.33)


-288%


367%



Net (loss) income per share, diluted


($0.15)


$0.07


($0.22)


($0.42)


($0.09)


($0.33)


-314%


367%



NM – Not Meaningful


Q3 2020 Operational and Financial Highlights

During the thirteen weeks ended

October 31, 2020

, the Company generated revenue of

$33.1 million

including sales of

$26.5 million

in the Retail channel,

$5.1 million

in the Distribution channel and

$1.5 million

in the Digital Retail and Analytics channel.

Total gross profit for the thirteen weeks ended

October 31, 2020

was

$11.5 million

including gross profit of

$9.0 million

in the Retail channel,

$1.0 million

in the Distribution channel and

$1.5 million

in the Digital Retail and Analytics channel, compared to

$4.8 million

or 34.7% for the thirteen weeks ended

November 2, 2019

.

For the thirteen weeks ended

October 31, 2020

, the Company recorded net comprehensive loss of

$25.7 million

, or net loss per share, and on a basic and fully diluted basis, of

$0.15

. The net comprehensive loss incurred during the quarter was principally due to

$53.9 million

in extinguishment losses related to the amended of debentures and warrants held by ACT, partially offset by

$35.8 million

in revaluation gains on derivative liabilities in Q3 2020 and a decrease in loss from operations of

$5.5 million

in Q3 2020 as a result of increase in gross profit of

$6.8 million

in Q3 2020.


Growth Driving Positive Adjusted EBITDA

Fire & Flower achieved positive Adjusted EBITDA through a number of factors across all revenue channels including optimization and growth in our retail network and significant growth in both revenue and contributing gross margin from our Open Fields Distribution Business in the province of

Saskatchewan

and external independent revenue from the Hifyre Digital Retail and Analytics Platform.


Retail Update

Fire & Flower’s focus on “four-wall retail economics”, the optimization and expansion of its retail network was a contributing factor in achieving positive Adjusted EBITDA. In addition, the Company continues to monitor the COVID-19 public health crisis and adapt its business model to optimally serve customers.

As of

December 15, 2020

, the Company was operating a total 67 cannabis retail stores with 37 located in

Alberta

, 21 stores in

Ontario

, 7 stores in

Saskatchewan

and 1 store in each of

Manitoba

and

Yukon

territory.

Retail revenue for the thirteen weeks ended

October 31, 2020

was

$26.5 million

, an increase of

$14.7 million

from the prior year and

$3.2 million

from the previous quarter. The increase in revenue was driven by a larger number of operating retail stores during the quarter and stronger sequential same store sales.

Gross profit for the thirteen weeks ended

October 31, 2020

was

$9 million

, an increase of

$5.2 million

from the prior year and

$0.9 million

from the previous quarter. Gross profit dollars increased due to the expanded store network and several successful product promotions. The gross margin percentage improved over the prior year with the addition of higher margin cannabis 2.0 products into the sale mix, better product costing and reduced discounting activity on slower moving product. Gross margin percentage was lower over the second quarter as a result of planned traffic- driving promotions.

At the initial outset of the COVID-19 pandemic lockdown in

mid-March 2020

, the Company experienced higher than normal sales, but sales have since normalized and there was no material adverse impact to financial results despite temporarily closing certain stores to ensure the Company was sufficiently staffed and equipped to operate in the best interests of customers, employees and the community.


Open Fields Distribution Update

During the thirteen weeks ended

October 31, 2020

, Open Fields revenue increased to

$5.1 million

from

$4.3 million

in Q2 2020, representing a 19.3% increase between Q2 2020 and Q3 2020. Wholesale distribution revenue increased as the

Saskatchewan

market continued to open up with more retailers sourcing inventory from Open Fields. Improved supply from key distribution partners and the continued growth of cannabis 2.0 products and legacy categories are key drivers of this improvement.

In addition to creating an increased margin opportunity in the province, the Distribution channel demonstrates how this supply chain model can be adapted by the Company for use in other jurisdictions where direct wholesale relationships with licensed producers and accessory suppliers are permitted.


Hifyre

TM

Digital Retail and Analytics Update

During the thirteen weeks ended

October 31, 2020

, Hifyre continued to develop and commercialize products within the Digital Retail and Analytics Platform. Digital product subscription revenue increased 55.8% sequentially from

$0.9 million

at Q2 2020 to

$1.5 million

at Q3 2020, as the Company increased commercial digital platform subscription and recurring monthly services to external clients, which had slowed in Q1 2020 during the onset of COVID-19. In Q1 2020 through Q3 2020, the platform also played a key role in adapting the Company’s retail business model to meet the regulatory and operational changes in response to COVID-19.

The Spark Perks program has surpassed more than 183,000 members. Program members typically transact more frequently and spend more per transaction than non-member customers. During the quarter, the platform has provided the Company with an enhanced understanding of its customers which allowed the Company to create a tailored customer experience resulting in anticipated higher customer lifetime value.

Customers using the Hifyre IQ platform now include the majority of major cannabis licensed producers. Customers also include equity research analysts, consulting firms and investment banks. The platform provides clients with a comprehensive understanding of consumer purchase behaviours in the Canadian adult-use cannabis market.


Non-IFRS Measures – Adjusted EBITDA

“Adjusted EBITDA” is a Non-IFRS metric used by management that does not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. Management defines the Adjusted EBITDA as the Income (loss) for the period, as reported, before accretion and interest, tax, and adjusted for removing the share-based compensation expense, depreciation and amortization, gains and losses related to derivative liability revaluations and debt extinguishments, professional fees associated with financing and acquisition and business development activities, impairment charges, restructuring costs, and includes lease liability cash payments that would have been excluded from profit and loss due to the application of IFRS 16 accounting standards. Management believes “Adjusted EBITDA” is a useful financial metric to assess its operating performance on a cash basis before the impact of non-cash items. 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 activities. A reconciliation of net income to Adjusted EBITDA is presented below:

Adjusted EBITDA for the thirteen weeks ended

October 31, 2020

was

$1.2 million

compared to

$4.3 million

negative Adjusted EBITDA for the thirteen weeks ended

November 2, 2019

and a

$0.3 million

loss for the thirteen weeks ended

August 1

, 2020.



Thirteen weeks ended



Thirty-nine weeks ended



(in thousands of dollars)



October 31,





2020 ($)



November 2,





2019 ($)



October 31,





2020 ($)



November 2,





2019 ($)



Net (loss) income and comprehensive (loss) income – as reported



(25,723)


10,207



(67,542)


(10,307)


Other (income) expense



24,038


(16,132)



53,609


(6,844)


Income tax expense



1,218





1,218




Share-based payments



581


788



1,990


2,373


Acquisition and business development costs



780


180



966


201


Depreciation & Amortization



2,914


2,094



8,926


5,508


Professional fees related to financing activities



280





372


168


Impairment









4,279




Gain on remeasurement of lease liabilities



(2,119)





(2,119)




Lease liability payments

(1)



(750)


(1,409)



(3,194)


(3,523)



Adjusted EBITDA



1,219


(4,272)



(1,495)


(12,424)


(1)


Q3 2020 amounts represents two months of lease payments and is due to the timing of the fiscal accounting period end. Lease payments are made on the first of the calendar month. Payment for the calendar month of August 2020 was included as part of the twenty-six weeks ended August 1, 2020 financial results. In Q3 2019, amounts include lease payments not reflected in occupancy costs in the statement of income (loss).


Conference Call

Fire & Flower will host a conference call with

Trevor Fencott

, President and Chief Executive Officer, and

Nadia Vattovaz

, Executive Vice President, Operations and Chief Financial Officer at

8:30 AM Eastern Time

on

December 15, 2020

. The conference call will discuss Fire & Flower’s third quarter financial and operational results and updates on the Company’s plans for the balance of the current fiscal year.


Dial In Information


Toll-Free Dial In Number: 1-888-390-0546


Replay Information (Available until

January 5, 2021

)


Toll-Free Dial In Number: 1-888-390-0541

Replay Code: 610767#

Upon completion of the live conference call, a replay of the conference call will be accessible on Fire & Flower’s website at

https://fireandflower.com/investor-relations

.

Fire & Flower’s financial statements and management discussion and analysis for the period are available on Fire & Flower’s SEDAR profile at

www.sedar.com

and on Fire & Flower’s website at

www.fireandflower.com/investor-relations/

.


About Fire & Flower


Fire & Flower is a leading purpose-built, independent adult-use cannabis retailer poised to capture significant Canadian market share. The Company guides consumers through the complex world of cannabis through education-focused, best-in-class retailing while the Hifyre

TM

digital platform connects consumers with cannabis products. The Company’s leadership team combines extensive experience in the cannabis industry with strong capabilities in retail operations.

Fire & Flower is a multi-banner cannabis retail operator that owns and operates the Fire & Flower, Friendly Stranger, Happy Dayz and Hotbox brands.

Fire & Flower Holdings Corp. owns all issued and outstanding shares in Fire & Flower Inc. and Friendly Stranger Holdings Corp., licensed cannabis retailers that own and operate cannabis retail stores in the provinces of

Alberta

,

Saskatchewan

,

Manitoba

and

Ontario

, and the

Yukon

territory.

Through the strategic investment of Alimentation Couche-Tard Inc., the Company has set its sights on the global expansion as new cannabis markets emerge.



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION


This news release contains certain forward-looking information within the meaning of applicable Canadian securities laws (“forward-looking statements”). All statements other than statements of present or historical fact are forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “anticipate”, “achieve”, “could”, “believe”, “plan”, “intend”, “objective”, “continuous”, “ongoing”, “estimate”, “outlook”, “expect”, “project” and similar words, including negatives thereof, suggesting future outcomes or that certain events or conditions “may” or “will” occur. These statements are only predictions.


Forward-looking statements are based on the opinions and estimates of management of Fire & Flower at the date the statements are made based on information then available to the Fire & Flower. Various factors and assumptions are applied in drawing conclusions or making the forecasts or projections set out in forward-looking statements, including with respect to the closing of the Transaction on the terms described herein or at all. Forward-looking statements are subject to and involve a number of known and unknown, variables, risks and uncertainties, many of which are beyond the control of Fire & Flower, which may cause Fire & Flower’s actual performance and results to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. Such factors, among other things, include: final regulatory and other approvals or consents; fluctuations in general macroeconomic conditions; fluctuations in securities markets; the impact of the COVID-19 pandemic; the ability of the Company to successfully achieve its business objectives and political and social uncertainties.


No assurance can be given that the expectations reflected in forward-looking statements will prove to be correct. Although the forward-looking statements contained in this news release are based upon what management of the Company believes, or believed at the time, to be reasonable assumptions, the Company cannot assure shareholders that actual results will be consistent with such forward-looking statements, as there may be other factors that cause results not to be as anticipated, estimated or intended. Readers should not place undue reliance on the forward-looking statements and information contained in this news release. Additional information regarding risks and uncertainties relating to the Company’s business are contained under the heading “Risk Factors” in the Company’s annual information form dated

April 29, 2020

and the heading “Risks and Uncertainties” in the management discussion and analysis for the thirteen and thirty-nine weeks ended

October 31, 2020

filed on its issuer profile on SEDAR at

www.sedar.com

.


No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein.

SOURCE Fire & Flower Holdings Corp.

Cision
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