Better Choice Company Inc. (NYSE American: BTTR) (the “Company” or “Better Choice”), a pet health and wellness company, today reported its financial results for the third quarter ended September 30, 2022.

Lionel F. Conacher, Interim CEO of Better Choice, stated, “In the third quarter, we generated $11.9 million in net sales, highlighted by strong performance internationally, where we delivered 31% growth, and relative softness domestically, which we believe is a result of our channel partners electing to reduce weeks of supply as a response to rising interest rates. On a year-to-date basis, net sales totaled $45.4 million, an increase of 30% as compared to the same year-over-year period.”

Mr. Conacher continued, “In the third quarter, we delivered a third consecutive quarter of gross margin improvement, with gross profit and adjusted gross profit margins improving to 35% and 37%. This represents a six percentage point improvement from Q2 2022 and a twelve percentage point improvement from Q4 2021. Subsequent to the third quarter, we also made meaningful improvements to our balance sheet by extending and upsizing our current revolving credit facility to $13.5 million. Following the completion of this refinance, we were able to remove the going concern language from our 10-Q.”

“Despite what has been a challenging operating environment so far this year, we have the foundation in place to be able to compete and grow across all of our distribution channels. We have committed Brick & Mortar retail partners, a network of International distributors, a recurring base of online subscribers, strong E-commerce partners and co-manufacturing partners with the capacity to support our growth, and a banking relationship that allows us to strategically deploy working capital. Going forward, it is our plan to focus on execution, reduce our quarterly cash burn, and grow to ultimately deliver a return to shareholders,” said Mr. Conacher.

Year-to-Date 2022 Financial Highlights

  • Gross sales of $53.7 million.
  • Net sales of $45.4 million.
  • Adjusted net sales of $45.9 million.
  • International net sales of $19.7 million.
  • E-commerce net sales of $11.0 million.
  • Brick & Mortar net sales of $9.6 million.
  • Direct to Consumer net sales of $5.1 million.
  • Gross margin of 30%.
  • Adjusted gross margin of 31%.
  • Loss from operations of $14.6 million.
  • Adjusted EBITDA loss of $7.0 million.
  • Net loss available to common stockholders of $15.0 million.

Third Quarter 2022 Financial Highlights

  • Gross sales of $14.2 million.
  • Net sales of $11.9 million.
  • Gross margin of 35%.
  • Adjusted gross margin of 37%.
  • Loss from operations of $6.4 million.
  • Adjusted EBITDA loss of $2.9 million.
  • Net loss available to common stockholders of $6.5 million.

Conference Call and Webcast Information The Company will host a conference call and audio webcast on Thursday, November 10, 2022 at 8:30 am (Eastern Time) to answer questions about the Company's operational and financial highlights for the third quarter of 2022.

Event: Better Choice Third Quarter 2022 Earnings Call
Date: Thursday, November 10, 2022
Time: 8:30 a.m. Eastern Time
Live Call: +1-888-348-8935 (U.S. Toll-Free) or +1-412-317-0454 (International)
Webcast: https://viavid.webcasts.com/starthere.jsp?ei=1576512&tp_key=ccc202c0ba

For interested individuals unable to join the conference call, a dial-in replay of the call will be available until November 24, 2022 and can be accessed by dialing +1-844-512-2921 (U.S. Toll Free) or +1-412-317-6671 (International) and entering replay pin number: 10169599.

Better Choice Company Inc.Unaudited Consolidated Statements of Operations(Dollars in thousands, except share and per share amounts)

    Three Months EndedSeptember 30,   Nine Months EndedSeptember 30,
      2022       2021       2022       2021  
Net sales   $ 11,865     $ 13,200     $ 45,394     $ 35,019  
Cost of goods sold     7,700       8,762       31,795       22,407  
Gross profit     4,165       4,438       13,599       12,612  
Operating expenses:                
Selling, general and administrative     10,007       7,745       25,771       21,397  
Share-based compensation     562       660       2,454       3,517  
Total operating expenses     10,569       8,405       28,225       24,914  
Loss from operations     (6,404 )     (3,967 )     (14,626 )     (12,302 )
Other (expense) income:                
Interest expense, net     (142 )     (79 )     (324 )     (3,148 )
Gain on extinguishment of debt, net                       457  
Change in fair value of warrant liabilities           590             23,463  
Total other (expense) income, net     (142 )     511       (324 )     20,772  
Net (loss) income before income taxes     (6,546 )     (3,456 )     (14,950 )     8,470  
Income tax expense     1             4        
Net (loss) income available to common stockholders   $ (6,547 )   $ (3,456 )   $ (14,954 )   $ 8,470  
                 
Weighted average number of shares outstanding, basic     29,364,712       29,466,520       29,339,918       16,799,796  
Weighted average number of shares outstanding, diluted     29,364,712       29,466,520       29,339,918       23,685,351  
Net (loss) income per share available to common stockholders, basic   $ (0.22 )   $ (0.12 )   $ (0.51 )   $ 0.48  
Net (loss) income per share available to common stockholders, diluted   $ (0.22 )   $ (0.12 )   $ (0.51 )   $ 0.34  
                                 
                                 

Better Choice Company Inc.Unaudited Condensed Consolidated Balance Sheets(Dollars in thousands, except share and per share amounts)

    September 30, 2022   December 31, 2021
Assets        
Cash and cash equivalents   $ 5,652     $ 21,729  
Restricted cash     6,963       7,213  
Accounts receivable, net     9,594       6,792  
Inventories, net     11,611       5,245  
Prepaid expenses and other current assets     1,108       2,940  
Total Current Assets     34,928       43,919  
Fixed assets, net     421       369  
Right-of-use assets, operating lease     186       56  
Intangible assets, net     10,441       11,586  
Goodwill     18,614       18,614  
Other assets     110       116  
Total Assets   $ 64,700     $ 74,660  
Liabilities & Stockholders’ Equity        
Current Liabilities        
Accounts payable   $ 3,852     $ 4,553  
Accrued and other liabilities     3,109       1,879  
Line of credit     640        
Term loan, net     1,282       855  
Operating lease liability     51       54  
Total Current Liabilities     8,934       7,341  
Non-current Liabilities        
Line of credit, net     6,735       4,856  
Term loan, net     3,495       4,559  
Deferred tax liability     24       24  
Operating lease liability     137       5  
Total Non-current Liabilities     10,391       9,444  
Total Liabilities     19,325       16,785  
Stockholders’ Equity        
Common Stock, $0.001 par value, 200,000,000 shares authorized, 29,364,712 and 29,146,367 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively     29       29  
Additional paid-in capital     319,556       317,102  
Accumulated deficit     (274,210 )     (259,256 )
Total Stockholders’ Equity     45,375       57,875  
Total Liabilities and Stockholders’ Equity   $ 64,700     $ 74,660  
 

Better Choice Company Inc.Non-GAAP Measures(Dollars in thousands)

Adjusted EBITDA

We define Adjusted EBITDA as EBITDA further adjusted to eliminate the impact of certain items that we do not consider indicative of our core operations. Adjusted EBITDA is determined by adding the following items to net (loss) income: interest expense, tax expense, depreciation and amortization, share-based compensation, warrant expense, loss on disposal of assets, change in fair value of warrant liabilities, gain or loss on extinguishment of debt, equity and debt offering expenses and other non-recurring expenses.

We present Adjusted EBITDA as it is a key measure used by our management and board of directors to evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. We believe that the disclosure of Adjusted EBITDA is useful to investors as this non-GAAP measure forms the basis of how our management team reviews and considers our operating results. By disclosing this non-GAAP measure, we believe that we create for investors a greater understanding of and an enhanced level of transparency into the means by which our management team operates our company. We also believe this measure can assist investors in comparing our performance to that of other companies on a consistent basis without regard to certain items that do not directly affect our ongoing operating performance or cash flows.

Adjusted EBITDA does not represent cash flows from operations as defined by GAAP. Adjusted EBITDA has limitations as a financial measure and you should not consider it in isolation, or as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Because of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net (loss) income, gross margin, and our other GAAP results.

The following table presents a reconciliation of net (loss) income, the closest GAAP financial measure, to EBITDA and Adjusted EBITDA for each of the periods indicated (in thousands):

Reconciliation of Net (Loss) Income to EBITDA and Adjusted EBITDA

    Three Months Ended September 30,   Nine Months Ended September 30,
      2022       2021       2022       2021  
Net (loss) income available to common stockholders   $ (6,547 )   $ (3,456 )   $ (14,954 )   $ 8,470  
Interest expense, net     142       79       324       3,148  
Tax expense     1             4        
Depreciation and amortization     426       431       1,265       1,255  
EBITDA     (5,978 )     (2,946 )     (13,361 )     12,873  
Non-cash share-based compensation and warrant expense (a)     562       660       2,454       3,563  
Loss on disposal of assets     23       10       26       275  
Non-cash change in fair value of warrant liability and warrant derivative liability           (590 )           (23,463 )
Gain on extinguishment of debt, net                       (457 )
Offering relating expenses (b)           10             220  
Non-recurring strategic branding initiatives (c)     277             948        
Launch expenses (d)     43             523        
Non-recurring and other expenses (e)     2,205       1,467       2,390       2,772  
Adjusted EBITDA   $ (2,868 )   $ (1,389 )   $ (7,020 )   $ (4,217 )
(a) Reflects non-cash expenses related to equity compensation awards. 2021 additionally includes non-cash expenses related to stock purchase warrants issued for third-party services provided. Share-based compensation is an important part of the Company's compensation strategy and without our equity compensation plans, it is probable that salaries and other compensation related costs would be higher.
(b) Reflects administrative costs associated with the registration of common shares and other debt and equity financing transactions.
(c) Includes one-time marketing agency and design fees as well as other charges related to our strategic re-branding initiatives.
(d) Reflects non-recurring launch expenses related to the Elevate® launch.
(e) For the three months ended September 30, 2022, includes non-recurring severance costs of $0.2 million and non-cash third party share-based compensation of $2.1 million issued in 2020 as part of a multi-year contract, partially offset by $0.1 million of non-recurring customer refunds related to prior year periods included in cost of goods sold. The nine months ended September 30, 2022 additionally includes non-recurring severance costs of $0.1 million and non-recurring professional fees of $0.1 million. For the three months ended September 30, 2021, includes non-cash third party share-based compensation of $1.3 million and director costs of $0.2 million. The nine months ended September 30, 2021 additionally includes non-recurring severance costs of $0.7 million, non-cash third party share-based compensation of $0.6 million, non-recurring consulting costs of $0.4 million and director fees of $0.1 million, partially offset by a $0.5 million reduction to sales tax liability.
 

Adjusted Financial Performance Measures

The "Adjusted Financial Performance Measures" present non-GAAP financial information and should not be considered a measure of financial performance under GAAP. These measures are presented as an alternative method for assessing our operating results by adjusting for the impact of certain non-recurring, infrequent or unusual items in a manner that is focused on the performance of our underlying operations. Each of these measures are intended to provide greater consistency, comparability and clarity of our results. Management uses this non-GAAP financial information to assess our core operating results and consequently, management believes it is similarly useful information to investors.

The following table presents a reconciliation of net sales and gross profit to adjusted net sales and gross profit for each of the periods indicated (in thousands):

Reconciliation of Net Sales and Gross Profit to Adjusted Net Sales and Gross Profit

    Three Months Ended September 30, 2022
    As Reported(GAAP)   Adjustments   As Adjusted(Non-GAAP)
Net sales   $ 11,865     $     $ 11,865  
Cost of goods sold     7,700       (190 ) (a)   7,510  
Gross profit   $ 4,165     $ 190     $ 4,355  
Gross profit %     35 %         37 %
(a) Reflects an inventory write-off attributable to our Halo Holistic™ rebranding initiatives, partially offset by non-recurring customer refunds related to prior year periods.
             
    Nine Months Ended September 30, 2022
    As Reported(GAAP)   Adjustments   As Adjusted(Non-GAAP)
Net sales   $ 45,394     $ 480   (a) $ 45,874  
Cost of goods sold     31,795       (190 ) (b)   31,605  
Gross profit   $ 13,599     $ 670     $ 14,269  
Gross profit %     30 %         31 %
(a) Reflects non-recurring launch expenses related to the Elevate® launch.
(b) Reflects an inventory write-off attributable to our Halo Holistic™ rebranding initiatives, partially offset by non-recurring customer refunds related to prior year periods.
 

About Better Choice Company Inc.Better Choice Company Inc. is a pet health and wellness company focused on providing pet products and services that help dogs and cats live healthier, happier and longer lives. We offer a broad portfolio of pet health and wellness products for dogs and cats sold under our Halo brand across multiple forms, including foods, treats, toppers, dental products, chews, and supplements. We have a demonstrated, multi-decade track record of success and are well positioned to benefit from the mainstream trends of growing pet humanization and consumer focus on health and wellness. Our products consist of kibble and canned dog and cat food, freeze-dried raw dog food and treats, vegan dog food and treats, oral care products and supplements. Halo’s core products are made with high-quality, thoughtfully sourced ingredients for natural, science-based nutrition. Each innovative recipe is formulated with leading veterinary and nutrition experts to deliver optimal health. For more information, please visit https://www.betterchoicecompany.com. 

Forward Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “could,” “target,” “potential,” “is likely,” “will,” “expect” and similar expressions, as they relate to us, are intended to identify forward-looking statements. The Company has based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Some or all of the results anticipated by these forward-looking statements may not be achieved. Further information on the Company’s risk factors is contained in our filings with the SEC. Any forward-looking statement made by us herein speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

Company Contact:Better Choice Company Inc.Lionel F. Conacher, Interim CEO

Investor Contact:KCSA Strategic CommunicationsValter Pinto, Managing DirectorT: 212-896-1254Valter@KCSA.com

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