Canaccord Genuity 2020 Cannabis Conference May 12, 2020
IMPORTANT CAUTIONS REGARDING FORWARD LOOKING STATEMENTS 2
New Strategic Plan to Accelerate Path to Positive Adj. EBITDA
REV IEW OF NEW ST RAT EGIC PL A N ✓ Going Deeper with MSOs, LPs, and Leading Brands ✚ 80%+ of business today driven by this more stable, predictable, creditworthy and financially stronger customer group ✚ Strategic shift should result in better forecast of demand, reduced inventory & warehouse space, improved collections & cash flow, and upside from expansion & consolidation activity ✓ Implementing a Profitable, More Efficient, and Automated Approach With Legacy Customers ✚ Servicing these customers in more cost-effective ways, including cash-only transactions, stock SKUs, and 24/7 customer service support line ✓ Reductions in Force to Better Align Workforce with New Strategy ✚ New strategy requires less dedicated sales reps and other related headcount to service fewer overall customers ✚ 50% overall headcount reduction since Sept. 2019, generating approximately $12 million in annual cash compensation savings ✓ Warehouse Optimization and Reduction of Other Operating Expenses ✚ In process of consolidating warehouses, while significantly reducing 3 rd -party consulting costs and other expenses Note: Strategic plan was unveiled on March 26, 2020. For more information, please read the Company’s press release as of that date as well as the Company’s fiscal Q2 2020 earnings materials, which can be found on the 4 Company’s IR website, ir.kushco.com.
REV ENUE BY CUSTOMER GROUP Core Legacy $47.0 $41.5 $35.2 $35.0 $30.1 82% 66% 40% 33% $24.6 $23.0 21% $18.6 $13.8 $7.5 FQ2 2019 FQ3 2019 FQ4 2019 FQ1 2020 FQ2 2020 Note: Core customers are represented by the Company’s top 100 MSO, LP, and leading brand Revenue in millions. customers as of the most recent quarter. The figures in yellow dots represent the percentage of 5 the quarter’s total revenue that is represented by the Core customers.
W O R K I N G C A P I TA L T R E N D I N G I N T H E R I G H T D I R E C T I O N ✓ Experiencing early, but encouraging, success in collecting from customers ✚ Creative, high-touch and value-add approach with working with past due accounts is resulting in more payment plans, better collections, and greater alignment with customers ✚ Implementing more discipline in extending future credit terms, especially with delinquent or non-Core customers ✓ Quality of inventory is improving and resulting in better inventory turns and less warehouse space required ✚ Focus on custom and top 60 best-selling stock SKUs is improving overall turns ✚ Discontinued low-velocity items has freed up a lot of warehouse space , allowing us to consolidate our footprint without a degradation in customer service ✚ Custom projects only for select customers is enabling better inventory planning and management 6
G E N E R A L C O M M E N T S R E G A R D I N G T H E B U S I N E S S A N D S T R AT E G I C P L A N ’ S E A R LY S U C C E S S ✓ Cost-cutting initiatives going according to plan and putting us on track to achieve our $7.5 million to $8.5 million cash SG&A guidance* for fiscal Q4 2020: ✚ Operating with a leaner and more productive team that is laser-focused on a smaller group of premier customers, with decision-making and customer service improved due to fewer organizational layers ✚ In addition to reductions in headcount, the C-suite team has agreed to temporary base salary cuts to preserve cash and better execute on the strategic plan ✓ Comfortable liquidity position with sufficient cash and line of credit, along with improving working capital: ✚ Operating more efficiently with the liquidity resources currently at our disposal ✓ COVID-19 supply chain impact, which was small and manageable to begin with, is slowly dissipating: ✚ Chinese factories now nearly fully online ✚ Small increase in freight expense because of air shipping, which is being passed on to customers through a surcharge *Cash SG&A is a non-GAAP metric that excludes non-cash expenses, such as bad debt, depreciation, amortization, and 7 stock-based compensation, from GAAP sales, general, and administrative (SG&A) expenses .
GET T ING TO POSIT IV E A DJUST ED EB IT DA Revenue Post-Restructuring Pre-Restructuring 35 40 45 55 65 75 $ (0.2) $ 0.9 $ 2.0 $ 4.1 $ 6.2 $ 8.3 7.5 Cash SG&A $ (1.2) $ (0.1) $ 0.9 $ 3.1 $ 5.2 $ 7.3 8.5 $ (2.2) $ (1.1) $ (0.1) $ 2.1 $ 4.2 $ 6.3 9.5 $ (4.2) $ (3.1) $ (2.1) $ 0.0 $ 2.2 $ 4.3 11.5 $ (6.2) $ (5.1) $ (4.1) $ (2.0) $ 0.2 $ 2.3 13.5 15.5 $ (8.2) $ (7.1) $ (6.1) $ (4.0) $ (1.9) $ 0.3 Significantly lower revenue levels needed to achieve positive adjusted EBITDA , following comprehensive restructuring activities Note: The figures above represent quarterly levels. The graph assumes the Company maintains a 21% gross margin. Amounts in millions. 8
T H A N K YO U Investor Relations Contact: Najim Mostamand, CFA Director of Investor Relations 714-539-7653 ir@kushco.com
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