Starco Brands, Inc. has reported financial results for its third fiscal quarter and first nine months ended Sept. 30, 2023.

 

For third fiscal quarter ended Sept. 30, 2023, reported net revenue was $17.7 million, compared to $1.7 million in the third quarter of 2022. The increase in reported net revenue was primarily driven by sales from the company’s recent three “strategic” acquisitions: Soylent, acquired in February of 2023; Skylar, acquired in December of 2022; and AOS, acquired in September 2022. 

 

The year-over-year increase was also driven by growth in royalty revenues from the Whipshots business. Whipshots royalty revenue increased by 62% or $0.9 million versus the prior year third quarter.

 

In the nine months ended Sept. 30, 2023, reported net revenue for the first nine months of 2023 was $46.3 million, compared to $3.8 million in the same period of 2022. The increase in reported net revenue was again driven primarily driven by sales from the company’s most recent trio of acquisitions. The year-over-year increase was also driven by growth in royalty revenues from the Whipshots business. Whipshots royalty revenue increased by 125% or $4.5 million versus the prior year period.

 

Gross profit improved to $21.6 million for the first nine months of 2023, as compared to $3.5 million in the same period of 2022 due to the company’s acquisition activity during that time frame.

 

Marketing, general and administrative expenses for the first nine months of 2023 increased to $14.2 million, or 31% of reported net revenue, compared to $1.8 million, or 47% of reported net revenue in the same period of 2022. Compensation expense was $5.3 million in the third quarter of 2023, compared to $395,974 in the third quarter of 2022. Professional fees were $4.2 million for the first nine months of 2023, compared to $1.1 million in the same period of 2022. The increases were primarily driven by the addition of the acquired businesses AOS, Skylar and Soylent.

 

Reported net loss for the first nine months of 2023 was $5.4 million, as compared to net income of $32,819 in the same period of 2022.

 

Adjusted EBITDA was approximately $4.9 million for the first nine months of 2023, compared to a loss of approximately $0.9 million for the same period of 2022. The year-over-year increase was primarily due to improving profitability of Skylar and AOS, as well as gross profit growth due to volume gains on Whipshots and Winona Pure. Adjusted EBITDA is a non-GAAP financial measure. See the supplementary schedules in this press release for a reconciliation thereof to the most directly comparable GAAP measure.

 

Said Starco Brands Chairman and CEO Ross Sklar said, “Since our company’s inception, we have focused on inventing behavior changing technologies and building a platform to support these businesses at scale. We designed Starco Brands to be an active operator and holding company that leverages a shared service platform to optimize and expand our capabilities to grow online and in-store through an integrated salesforce, supply chain and R&D, while leveraging our fixed costs and infrastructure to enhance our bottom-line.”

 

Sklar continued, “This platform allows us to continue to expand both organically and through acquisitions. We have successfully introduced many new products over the past year and strategically acquired and integrated three companies – Art of Sport (AOS), Skylar and Soylent. All three companies met our strict M&A criteria of being a behavior-changing technology that sparks excitement in the everyday; is a product fit within our technical competency; is a sale fit through our existing distribution; has the elasticity to expand into other categories; and has a sizable, addressable market that hasn't been reached. Since acquiring these brands, we have focused on building value by increasing brand awareness, increasing the commercialization of innovation, rebuilding the pipeline of retail revenue and stabilizing the ecommerce base. I’m incredibly proud of the milestones we’ve achieved to date with all three of these brands, as well as with our in-house Whipshots and Winona Pure brands and the fact that we are projecting to achieve $66 to $77 million in reported net revenue and $7 to $9 million in Adjusted EBITDA this fiscal year, which on the low end represents 746% and 159% growth, respectively. We truly are on the path to building a consumer products powerhouse.”

In June 2023, the company increased prices throughout the portfolio, which is anticipated to generate $2 million in annual revenue growth from its existing distribution base, and reduced headcount due to synergies realized from integrating acquisitions, resulting in $1.2 million of annualized savings.

 

In December 2022, the company acquired Skylar, a pioneer in prestige hypoallergenic fragrances distributed online and through Sephora, Nordstrom and others. Skylar’s largest shareholder at the time of acquisition was Upfront Ventures. Skylar a tremendous brand among Millennials and has historically achieved very high gross margins, exceeding 74% in 2022.
 

In June 2023, Skylar’s Boardwalk Delight eau de parfum launched and sold out at Sephora in 10 days, becoming the brand’s most popular introduction to date. This fragrance marks Skylar’s third new fragrance in 2023, and the brand’s 10th scent offered across more than 500 Sephora retail locations and online.

 

In September 2023, the company expanded Skylar’s most popular scents into a new category: Hair and Body Mists. The new product line launched on Sephora.com in September and rolled out to Sephora stores in October 2023.

 

In the ten months since acquiring Skylar, Starco Brands has turned Skylar into a profitable brand that adds significant revenue and synergized adjusted EBITDA to the company. The third quarter of 2023 was the most profitable quarter in Skylar’s history, driven by new and innovative marketing and more efficiency in overall marketing spend, reduction in head count and increased revenue from Amazon and Sephora. Revenue more than doubled at Amazon and increased by over 45% at Sephora in the third quarter of 2023 compared to the prior year period.