Healthier Choices Management Corp. (HCMC)·Q3 2015 Earnings Summary

Executive Summary

• Q3 revenue was $2.88M, up vs. Q3’14 on new retail stores but down sequentially as wholesale softened; gross profit improved year over year on retail mix, while operating losses widened QoQ from higher retail labor and kiosk closure costs .
• GAAP results were dominated by non‑cash items: a $45.21M gain from derivative fair value changes and a $38.07M deemed dividend tied to preferred stock. This produced GAAP net income of $33.63M but a net loss allocable to common of $(4.44)M ($0.55/sh) for Q3, underscoring that core operations remain loss‑making .
• Liquidity improved materially following a late‑July equity offering (net proceeds ≈$38.7M), with quarter‑end cash of $30.57M to fund retail expansion and debt repayment .
• Execution on the retail strategy accelerated: 11 stores opened/acquired in the quarter across FL, GA, AL and TN; management targets continued footprint build‑out (up to 20–30 new stores contemplated) .
• No numerical guidance or earnings call transcript was available; consensus estimates appear unavailable for this micro‑cap period, limiting “vs. Street” comparisons .

What Went Well and What Went Wrong

• What Went Well

  • Gross profit increased 57% YoY to $1.02M on greater retail contribution; retail revenue reached $0.98M in Q3 (34% of total) .
  • Balance sheet strength: cash ended Q3 at $30.57M after the late‑July offering (net ≈$38.7M), enabling debt paydowns and future store investments .
  • Strategic progress: 11 additional retail stores opened/acquired, including Vulcan Vape (Birmingham, Atlanta, Nashville) and multiple Florida/Atlanta locations; CEO emphasized retail expansion as the path to profitability: “each new store [is] contributing to the growth of our revenue and putting us on the path towards profitability” .

• What Went Wrong

  • Sequential revenue down to $2.88M from $3.01M in Q2; operating loss widened to $(2.88)M vs. $(2.24)M in Q2 on higher retail labor and kiosk closure costs .
  • Non‑cash financial complexity: large derivative revaluation gain ($45.21M) and deemed dividend ($38.07M) obscure underlying operational loss and complicate EPS interpretation for common shareholders .
  • Disclosure inconsistency: while the filing shows retail was 34% of Q3 sales (984k/2.879M), the CFO quote cited 52%—a disconnect that raises questions on communication rigor (data supports 34%) .

Financial Results

Income statement summary (oldest → newest)

Q3 segment breakdown and YoY compare

Adjusted EBITDA (non‑GAAP)

Balance sheet/liquidity KPIs (oldest → newest)

Notes:

• Management attributes Q3 operating loss pressure to higher retail labor from new stores and kiosk closure costs ($430k) .
• Retail mix: press release states retail was 34% of Q3 sales; the CFO quote of 52% contradicts the reported data (984k/2.879M = ~34%) .

Guidance Changes

Earnings Call Themes & Trends

No Q3 2015 earnings call transcript was found in company documents for the period; management commentary is drawn from the 8‑K press release and 10‑Q .

Management Commentary

• CEO Jeff Holman: “We have delivered on our expansion strategy by opening and acquiring 11 additional vape retail stores… each new store contributing to the growth of our revenue and putting us on the path towards profitability… we are continuing to invest and build out our retail footprint” .
• CFO Gina Hicks: “With effective management of our retail store expansion and cost control, the Company’s gross profit has grown during this quarter” .
• Forward‑looking posture: the company’s safe harbor includes plans around “opening up to 20‑30 new vape stores” and achieving “future profitability,” while noting regulatory and consumer preference risks .

Q&A Highlights

• No earnings call transcript was available for Q3 2015; no Q&A themes to report from the period’s filings .

Estimates Context

• Wall Street consensus (S&P Global) for Q1–Q3 2015 appears unavailable for this micro‑cap period; our attempt to retrieve estimates was unsuccessful, and no “vs. Street” figures were disclosed by the company .
• Implication: estimate revisions and beat/miss dynamics are not determinable for this quarter; investors should focus on sequential trends and non‑GAAP/operational drivers presented above.

Key Takeaways for Investors

• Core operations: despite YoY gross profit improvement from retail mix, the business remains loss‑making on an operating basis; sequential operating loss widened as the company absorbed new‑store labor and kiosk exit costs .
• Quality of earnings: GAAP profitability in Q3 was driven by a large non‑cash derivative gain and offset by a sizable deemed dividend; EPS for common reflects a $(0.55) loss, better aligned with operating reality .
• Liquidity runway: the $30.57M cash balance post‑offering provides ample runway to execute the retail roll‑out and service obligations; management already repaid various notes shortly after the raise .
• Strategy execution: rapid retail footprint growth (21 stores) is translating into higher gross profit dollars, but scale is still small and profitability timelines depend on retail productivity and cost discipline .
• Disclosure rigor: the retail mix discrepancy (34% vs. a 52% quote) warrants closer attention to future disclosures and KPI consistency .
• Legal/regulatory overhangs persist (patent litigation; CA Prop 65), though nothing new resolved in Q3; monitor updates and potential cash impacts .
• With no guidance or coverage, trading may key off operational milestones (store additions, retail mix/GP dollars, cost control) and any legal developments rather than estimate beats/misses .

Supporting documents:

• Q3 2015 8‑K with press release and detailed Q3 financial table .
• Q3 2015 Form 10‑Q (financials, cash, derivative liabilities, share count) .
• Q2 2015 Form 10‑Q (sequential comps; MD&A; legal matters) .
• Q1 2015 8‑K press release (baseline, strategy) .