Earlier this week cannabis packaging company KushCo Holdings (KSHB) took a beating when the company reported its earnings as some analysts complained that the company had missed its revenue estimates. However, the stock slowly began to gain traction as the week progressed and more people had time to digest what the company had to say, plus there were some gems sprinkled throughout the earnings call.
Even though the stock has overall had a good run over the last four months, recently trading at $1.36, it's still a long way from its 52-week high of $2.18. Here are the items that stood as strong points heading into 2021:
NASDAQ
KushCo currently trades Over-the-Counter and was asked on the earnings call why it wasn't trading on the Nasdaq. The caller suggested the company was missing out on institutional buyers. CEO Nick Kovacevich said, "There's not a lot we can say about our progress there. Everybody is aware though that the exchange is extremely busy given all the activity. So we're working just as you would expect we are. We know the benefit, I mean, again, just look at some of our peers. It wasn't long ago that we traded in line with our [indiscernible] generation for years. They were fortunate to get the up-listing about a year ago. We unfortunately have struggled to get the up-listing, and look where they are today."
He added, "So we know the benefit of the up-listing and what it could potentially bring to the stock. So it's certainly a high priority, it's certainly something that we're very focused on. But unfortunately, as we always say, it's something that is somewhat out of our control."
With companies like Greenlane (GNLN) and GrowGeneration (GRWG) on the Nasdaq, the reasons for not allowing KushCo become harder to explain. If KushCo gets the approval this year, no doubt the stock will rise accordingly.
Increased Guidance
KushCo increased its net revenue guidance for its fiscal 2021 to be between $130.0 million and $160.0 million from between $120.0 million and $150.0 million. In addition, the company reiterated its expectation for adjusted EBITDA for the fiscal year to be between $5.0 million and $7.0 million. The company gave three reasons for the increased estimate. Kovacevich said, "We are continuing to see outsized growth with our MSO and LP customers as evidenced by our strong December and how we see the rest of the year panning out with some of the large custom projects we have in the pipeline. Number two, we have invested significantly in our sales team, bringing on folks from traditional CPG and other relevant backgrounds to nurture deep relationships with our top customers and to further penetrate our newer prospects. And number three, we are starting to secure a more long-term supply contracts, giving us better visibility into future business and acting like a right of first refusal for all of our products and services."
The company did have issues with its fiscal first-quarter ending November 30, 2020, as net revenue decreased 23% from the prior-year period to $26.8 million. Many of the company's challenges stemmed from the decision to right-size the business, which resulted in tighter credit terms being extended to smaller and less creditworthy customers. In addition, the company faced problems at the ports, where increased shipments to the U.S. combined with fewer port workers due to Covid issues caused delays.
Kovacevich said that some of the revenue that was expected to hit in the first quarter has now been pushed into the second quarter. KushCo couldn't get the products off of the boat and into the warehouses on time before the quarter ended. He added, "The good news is that the business was not lost and it actually contributed to our strongest December in company history, December being the first month of Q2 and we saw $14.7 million in revenue during that month. And we still have a nice pipeline of business that we plan to execute on throughout the remainder of this Q2."
That bodes well for a strong second quarter earnings announcement.
Adding employees is a double-edged sword. Increased hiring means things are going well, but of course it costs money to pay people. "However, I'll take hiring new employees over layoffs anytime as a positive sign for a company. Kovacevich said on the earnings call, "It's worth noting that we have been ramping up our hiring again as we are preparing for growth, particularly in bolstering our salesforce, which we expect will slightly increase our cash SG&A."
New Markets
KushCo is looking at Arizona and New Jersey as new markets for growth. On the call, Kovacevish noted, "If these programs do have somewhat of an accelerated rollout and can go live in the calendar first half of 2021, then we do believe there is upside to this midpoint where we might be able to achieve upwards of $160 million in sales."
These positives jumped off the page, however, investors should also be aware that the company currently has a $19 million debt due at the end of April 2021. On the call, CFO Stephen Christoffersen said, "We've been evaluating some term sheets and believe we can execute on an appropriate solution before the note is due, especially given the fact that we are now a profitable business that is more aligned with MSOs and LPs than ever before."
Also, the port problem isn't completely solved. Kovacevich said he saw 25-28 container ships this week stacked up waiting to unload at the Long Beach, California port. He also said he expected export goods to pick up after the Chinese New Year in late February. The company is also air shipping some of the vape products because it isn't crazy expensive to move it that way although he prefers boat shipping. Despite these drawbacks, the company looks like it is turning a corner on its decision to cut loose the smaller, less credit-worthy customers and has weathered many of the challenges thrown at them.
