Excluding Discontinued Operations, Revenue up 18% Y/Y to $117.7 Million, up 3% sequentially
Excluding Discontinued Operations, Adjusted EBITDA1 up 64% Y/Y to $26.3 Million, up 9% sequentially (GAAP loss from operations was $21.7 Million, compared to $21.0 Million in Q1/22)
Q1 Ending Cash Balance of $96.5 Million
MIAMI, May 16, 2023 — AYR Wellness Inc. (CSE: AYR.A, OTCQX: AYRWF) (“AYR” or the “Company”), a leading vertically integrated U.S. multi-state cannabis operator (“MSO”), is reporting financial results for the first quarter ended March 31, 2023. Unless otherwise noted, all results are presented in U.S. dollars.
The following financial measures are reported as results from continuing operations due to the sale of the Company’s business in Arizona, which are reported as discontinued operations. All historical comparisons have been restated accordingly.
David Goubert, President & CEO of AYR, said, “I’m excited to share our strong profitability improvements during the quarter, as we began to execute on our financial and operational goals. Revenue and adjusted EBITDA1 each modestly beat our expectations, and respectively grew quarter over quarter by 3% and 9%. We grew revenue by 18% year-over-year and adjusted EBITDA1 over 60% year-over-year with significantly expanded adjusted EBITDA margin, while generating positive operating cash flow for the third consecutive quarter.
“From a balance sheet standpoint, we were pleased to announce that we have reached an agreement to provide significant liquidity improvement for the next few years via amendments to contingent consideration for the acquisitions of Garden State Dispensary and Sira Naturals, as well as resolving what otherwise would have been a potentially significant near-term dilution event for our shareholders, related to our acquisition of GSD. The agreements align with our goal of prioritizing the financial health of the Company and allow AYR to remain flexible as we continue to scale and optimize the business.
“I am encouraged to see the early progress in the execution of our 2023 optimization plan, which includes initiatives aimed at boosting sales, improving margins, reducing operating expenses and unlocking working capital through better inventory management. Managing cash is crucial at this stage of the cannabis industry, and the plan has already begun to improve our balance sheet and overall financial health.
“The early results from these initiatives are positively impacting our performance across our footprint, including states like Nevada or Pennsylvania where, despite more stagnant top line revenue, we have better leveraged our data to lower input costs, optimize pricing and become more deliberate with product promotions. Our operational initiatives led to a quarter-over-quarter improvement of 8% in adjusted gross profit1 and 29% in adjusted EBITDA in Nevada, and a 20% quarter-over-quarter increase in adjusted EBITDA1 in Pennsylvania.
“Over the past few months, we have also introduced to our teams and started implementing our Grow Forward Plan, a collection of initiatives aimed at driving strong revenue growth during the second half of 2023 and beyond. Key initiatives in the plan include upgrading our retail expertise, further developing our customer algorithm, rationalizing and building equity in our CPG brands portfolio, and continuing to improve our product quality. The combination of these initiatives is designed to further cement AYR as a retailer of choice and a house of brands across each of our markets over the medium to long-term.”
First Quarter Financial Summary (excludes results from AZ for all periods) ($ in millions, excl. margin items)
|Q1 2022||Q4 2022||Q1 2023||% Change
|Adjusted Gross Profit1||$52.0||$66.6||$65.3||25.6%||-1.9%|
|Adjusted EBITDA Margin1||16.1%||21.1%||22.4%||620bps||120bps|
1Adjusted EBITDA, Adjusted Gross Profit and Adjusted EBITDA Margin are non-GAAP measures, and accordingly are not standardized measures and may not be comparable to similar measures used by other companies. See Definition and Reconciliation of Non-GAAP Measures below. For a reconciliation of Operating Loss to Adjusted EBITDA as well as Gross Profit to Adjusted Gross Profit, see the reconciliation table appended to this release.
2Based on current market conditions, including the impact of price compression, the Company incurred a non-cash goodwill impairment charge of $118M (excludes AZ), reducing the carrying value of goodwill across all reporting units.
First Quarter and Recent Highlights
- Retail Updates
- Opened seven new stores in Florida since the beginning of 2023, bringing AYR’s total footprint to 60 dispensaries across the state. The Company plans to open an additional 10 new stores in 2023 for a total of 70 stores at year end.
- On track to rebrand all of the Company’s Florida stores from Liberty Health Sciences to AYR Cannabis Dispensary this summer.
- Leadership Updates: new company leadership organization fully in place to lead our “Grow Forward Plan”
- Appointed four Regional General Managers, coming from internal and external sources and with full P&L ownership of their respective markets.
- Appointed Andy Cho as Chief Digital & Marketing Officer.
- Appointed Kenny Stoll as Chief Supply Chain Officer.
- Appointed Alexandra Gonzalez Burke as VP of Retail Performance.
- Realized multiple internal promotions and new hires across key departments, including retail excellence, client development and supply chain, among others.
- Corporate Updates
- Announced mutual termination of AYR’s proposed acquisition of the equity interests of Gentle Ventures, LLC d/b/a Dispensary 33, and certain of its affiliates that collectively own and operate two licensed retail dispensaries in Chicago, Illinois.
- Entered into an option to acquire two Ohio dispensary licenses from Daily Releaf, LLC and Heaven Wellness, LLC, to begin establishing a vertically integrated presence in the state.
- Closed the sale of Blue Camo, LLC which comprises the Company’s Arizona business, to AZ Goat, LLC, a group consisting primarily of the former owners of Blue Camo, which included $20 million in cash, an elimination of $22.5 million in seller notes and elimination of approximately $15 million in lease liabilities.
- Closed a $10 million real estate financing in Q1 with an 8% interest rate, which was an upsizing of an existing mortgage with a community bank that originally closed in March 2022.
- Subsequent to quarter end, AYR closed the acquisition of Tahoe Hydroponics, an award-winning cultivator and one of Nevada’s top producers of high-quality cannabis flower.
Financing and Capital Structure
The Company deployed $7.2 million of capital expenditures in Q1 and ended the quarter with a cash balance of $96.5 million.
The Company has approximately 74.1 million fully diluted shares outstanding based on a treasury method calculation.i
Subsequent to quarter end, the Company announced it has reached an agreement to amend the terms of contingent consideration under the membership interest purchase agreements of GSD NJ, LLC and Sira Naturals Inc. The amendment for GSD NJ, LLC settles the contingent consideration with total proceeds of $37.2 million, consisting of $10 million in cash, $14 million in promissory notes, $3 million in Equity Shares, and another $10.2 million in cash payable at a future time based on circumstances related to negotiations with other debtholders.
The promissory notes are due December 2026 with monthly interest-only payments of 13.5% until May 2024 (with 1% monthly amortization thereafter). The number of Equity Shares was calculated based on a market price equal to US$0.79 which represents 3,797,468 Equity Shares. The amendment for Sira Naturals Inc. represents a two (2) year deferral of $27.5 million of proceeds from the original May 2024 payment date, with an annual interest rate of 6.0% and 10% annual amortization payments. In addition, the Company has executed amendments to promissory notes issued to the GSD NJ, LLC seller representative and certain of its affiliates to extend the maturity dates of notes with outstanding principal amount of $27.65 million in the aggregate for two (2) years, conditioned upon, among other things, holders of at least 75% of the Senior Secured Notes agreeing to extend the maturity date of such notes by at least two (2) years.
The Company anticipates second quarter revenue and Adjusted EBITDA1 to grow in-line with Q1 sequential growth trends. AYR is also reiterating its expectation of generating positive cash flow from operations for the full year 2023 although operating cash flow trends will not be linear given the timing of tax payments.
AYR’s expectations for future results are based on the assumptions and risks detailed in its MD&A for the period ended March 31, 2023 as filed on SEDAR and with the SEC.
The conference will be broadcast live and available for replay here.
Certain financial information reported in this news release is extracted from AYR’s Consolidated Financial Statements and MD&A for the quarter ended March 31, 2023. AYR files its financial statements and MD&A on SEDAR and with the SEC. All financial information contained in this news release is qualified in its entirety by reference to such financial statements and MD&A.
Definition and Reconciliation of Non-GAAP Measures
The Company reports certain non-GAAP measures that are used to evaluate the performance of its businesses and the performance of their respective segments, as well as to manage their capital structures. As non-GAAP measures generally do not have a standardized meaning, they may not be comparable to similar measures presented by other issuers. Securities regulators require such measures to be clearly defined and reconciled with their most comparable GAAP measures.
Rather, these are provided as additional information to complement those GAAP measures by providing further understanding of the results of the operations of the Company from management’s perspective. Accordingly, these measures should not be considered in isolation, nor as a substitute for analysis of the Company’s financial information reported under GAAP. Non-GAAP measures used to analyze the performance of the Company’s businesses include “Adjusted EBITDA,” and “Adjusted Gross Profit.”
The Company believes that these non-GAAP financial measures provide meaningful supplemental information regarding the Company’s performances and may be useful to investors because they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making. These financial measures are intended to provide investors with supplemental measures of the Company’s operating performances and thus highlight trends in the Company’s core businesses that may not otherwise be apparent when solely relying on the GAAP measures.
“Adjusted EBITDA” represents (loss) income from continuing operations, as reported under GAAP, before interest and tax, adjusted to exclude non-core costs, other non-cash items, including depreciation and amortization, and further adjusted to remove non-cash stock-based compensation, impairment expense, the accounting for the incremental costs to acquire cannabis inventory in a business combination, acquisition related costs, and start-up costs.
Adjusted Gross Profit
“Adjusted Gross Profit” represents gross profit, as reported, adjusted to exclude the accounting for the incremental costs to acquire cannabis inventory in a business combination, interest, depreciation and amortization, start-up costs and other non-core costs.
A reconciliation of how AYR calculates Adjusted EBITDA and Adjusted Gross Profit is provided in the tables appended below. Additional reconciliations of Adjusted EBITDA, Adjusted Gross Profit and other disclosures concerning non-GAAP measures are provided in our MD&A for the three months ended March 31, 2023.
Certain statements are forward-looking statements within the meaning of applicable securities laws, including, but not limited to, those statements relating to the Company and its financial capacity and availability of capital and other statements that are not historical facts. These statements are based upon certain material factors, assumptions, and analyses that were applied in drawing a conclusion or making a forecast or projection, including experience of the Company, as applicable, and perception of historical trends, current conditions, and expected future developments, as well as other factors that are believed to be reasonable in the circumstances. Forward-looking statements are provided for the purpose of presenting information about management’s current expectations and plans relating to the future and readers are cautioned that such statements may not be appropriate for other purposes. These statements may include, without limitation, statements regarding the operations, business, financial condition, expected financial results, performance, prospects, opportunities, priorities, targets, goals, ongoing objectives, strategies, and outlook of the Company. Forward-looking statements are often identified by the words “may”, “would”, “could”, “should”, “will”, “intend”, “plan”, “anticipate”, “believe”, “estimate”, “project”, “expect”, “target”, “continue”, “forecast”, “design”, “goal” or negative versions thereof and other similar expressions.
Forward-looking estimates and assumptions involve known and unknown risks and uncertainties that may cause actual results to differ materially. While AYR believes there is a reasonable basis for these assumptions, such estimates may not be met. These estimates represent forward-looking information. Actual results may vary and differ materially from the estimates.
Assumptions and Risks
Forward-looking information in this release is subject to the assumptions and risks as described in our MD&A for the quarter ended March 31, 2023.
For more information about the Company’s Q1 and full year 2022 operations and outlook, please view AYR’s corporate presentation posted in the Investors section of the Company’s website at www.ayrwellness.com.
About AYR Wellness Inc.
AYR is an expanding vertically integrated, U.S. multi-state cannabis operator. Based on the belief that everything starts with the quality of the plant, the Company’s mission is to cultivate the finest quality cannabis at scale and deliver remarkable experiences to its customers every day.
AYR’s leadership team brings proven expertise in growing successful businesses through disciplined operational and financial management, and is committed to driving positive impact for customers, employees and the communities they serve. For more information, please visit www.ayrwellness.com.