Ayr Wellness Reports Second Quarter 2022 Results
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 three months ended June 30, 2022. Unless otherwise noted, all results are presented in U.S. dollars.
Jonathan Sandelman, Founder and CEO of Ayr, said, “Over the past few months, we have achieved many of the key transformational milestones to operationalize Ayr’s core footprint, and we are now moving to optimize this footprint for substantial growth. We’re doing this in the face of macro headwinds from the broader economy, but it’s never been clearer that cannabis is a consumer staple that is here to stay.”
“Q2 2022 results were in line with our expectations, and we now look ahead to the second half of 2022. Our second half growth will be slower than previously expected, but the earnings power of the business remains outstanding. We continue to make investments in people and processes, while remaining prudent through these turbulent economic times. With our core operating footprint in place, the vast majority of our capex behind us, and a strong, $117 million cash position on our balance sheet, we believe that we are well-placed to weather this economic environment and emerge stronger on the other side.”
Second Quarter Financial Highlights ($ in millions, excl. margin items)
Q2 2021
Q1 2022
Q2 2022
% Change
Q2/Q2
% Change
Q2/Q1
Revenue
$91.3
$111.2
$110.1
20.6%
-1.0%
Gross Profit
$22.3
$45.5
$40.3
80.6%
-11.5%
Adjusted Gross Profit1
$53.1
$57.9
$57.2
7.7%
-1.2%
Operating Loss
$(24.9)
$(21.1)
$(24.8)
NA
NA
Adjusted EBITDA1
$27.4
$19.5
$19.6
-28.5%
0.5%
Adjusted EBITDA Margin1
30.0%
17.5%
17.8%
-1,220bps
30bps
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.
Second Quarter and Recent Highlights
Northeast
Began serving adult-use customers at three New Jersey dispensaries in Woodbridge, Union and Eatontown.
Completed the first harvest from second New Jersey cultivation facility in August.
Opened first adult-use dispensaries, one in Boston’s Back Bay and one in Watertown, in July.
Received state regulatory approval to convert Somerville, Massachusetts dispensary to adult use, pending local approvals.
Received state regulatory approval to begin phased production at new cultivation expansion in Massachusetts.
Launched the award-winning flower brand, LIT, for wholesale as well as retail purchase in four Ayr Greater Boston locations.
Announced the opening of ninth affiliated medical dispensary in Pennsylvania, AYR Indiana, in July.
Southwest
Completed the first sale from new 80,000 square foot cultivation facility in Phoenix, Arizona.
Launched Levia water-soluble tinctures in Arizona and Nevada, representing the first expansion of Levia outside of Massachusetts, in August.
Ayr’s Kynd flower continues to be the #1 selling flower brand in Nevada.
Florida
Opened three new dispensaries during the second quarter and an additional two stores in July and August, bringing Ayr’s total footprint to 50 dispensaries across the state.i
Biomass yields up 125% during the first half of 2022 when compared to the same period of 2021.
37 unique strains being grown at Gainesville cultivation campus, with each store averaging ~16 strains available.
M&A Highlights
Closed acquisition of Herbal Remedies Dispensaries, LLC, an operator of two licensed retail dispensaries in Quincy, Illinois on May 25, 2022.
Financing and Capital Structure
Ended the quarter with a cash balance of $116.7 million.
Closed $81.5 million of real estate financing transactions during the quarter, bringing the YTD total to $108 million with an annualized blended cost of capital of 7.8%.
Approximately 68.9 million fully diluted shares outstanding based on a treasury method calculation, as of June 30, 2022.ii
Deployed $17.9 million of capital expenditures in Q2.
Outlook
Based on the results to date coupled with an uncertain macroeconomic backdrop, Ayr is updating its previously issued guidance regarding 2022 financial results.
The Company expects Revenue, Adjusted EBITDA and Operating Income to grow approximately 10% sequentially from Q2 2022 to Q3 2022, and an acceleration in the pace of sequential growth in Q4 2022.
The Company’s expectations for future results are based on the assumptions and risks detailed in its MD&A for the period ended June 30, 2022 as filed on SEDAR.
_______________
i Pending the completed re-location of Ayr’s Dania Beach store.
ii Includes pending M&A and excludes Ayr granted but unvested service-based LTIP shares totaling 6.4 million.
Conference Call
Ayr CEO Jonathan Sandelman, Co-COO Jennifer Drake, and CFO Brad Asher will host a conference call tomorrow, followed by a question-and-answer period.
Conference Call Date: Thursday, August 18, 2022
Time: 8:30 a.m. Eastern time
Toll-free dial-in number: (800) 319-4610
International dial-in number: (604) 638-5340
Conference ID: 10019872
Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact the Company’s investor relations team at AYR@elevate-ir.com.
The conference call will be broadcast live and available for replay here.
A telephonic replay of the conference call will also be available for one month beginning at 11:30 a.m. ET on Thursday, August 18, 2022.
Toll-free replay number: (855) 669-9658
International replay number: (412) 317-0088
Replay ID: 9258
Financial Statements
Certain financial information reported in this news release is extracted from Ayr’s Unaudited Interim Condensed Consolidated Financial Statements and MD&A for the three and six months ended June 30, 2022 and 2021. 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
“Adjusted EBITDA” represents loss from 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, the accounting for the incremental costs to acquire cannabis inventory in a business combination, acquisition related costs, start-up costs and the gain on sale of assets.
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, and start-up 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 and six months ended June 30, 2022 and 2021.
Forward-Looking Statements
Certain information contained in this news release may be forward-looking statements within the meaning of applicable securities laws. Forward-looking statements are often, but not always, identified by the use of words such as “target”, “expect”, “anticipate”, “believe”, “foresee”, “could”, “would”, “estimate”, “goal”, “outlook”, “intend”, “plan”, “seek”, “will”, “may”, “tracking”, “pacing” and “should” and similar expressions or words suggesting future outcomes. This news release includes forward-looking information and statements pertaining to, among other things, Ayr’s future growth plans. Numerous risks and uncertainties could cause the actual events and results to differ materially from the estimates, beliefs and assumptions expressed or implied in the forward-looking statements, including, but not limited to: anticipated strategic, operational and competitive benefits may not be realized; events or series of events, including in connection with COVID-19, may cause business interruptions; required regulatory approvals may not be obtained in a timely manner or at all; inflationary pressures may increase input costs; supply chain issues may hamper production and distribution; and Ayr may not be able to raise additional debt or equity capital if required. Among other things, Ayr has assumed that its businesses will operate as anticipated and that all required regulatory approvals will be obtained on satisfactory terms and within expected time frames.
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 three and six months ended June 30, 2022.
Additional Information
For more information about the Company’s Q2 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.
Company/Media Contact:
Robert Vanisko
VP, Corporate Communications
Email: robert.vanisko@ayrwellness.com
Investor Relations Contact:
Sean Mansouri, CFA
Elevate IR
T: (720) 330-2829
Email: IR@ayrwellness.com
Ayr Wellness Inc.
Unaudited Interim Consolidated Balance Sheets
(Expressed in United States Dollars, in Thousands, Except Share Amounts)
June 30, 2022
December 31, 2021
ASSETS
Current
Cash
$
116,743
$
154,342
Accounts receivable, net
6,974
7,413
Inventory
106,471
93,363
Prepaid expenses, deposits, & other current assets
8,744
10,949
Total Current Assets
238,932
266,067
Non-current
Property, plant, & equipment, net
301,861
275,222
Intangible assets, net
971,948
978,915
Right-of-use assets – operating
133,756
88,721
Right-of-use assets – finance, net
39,296
17,527
Goodwill
241,972
229,910
Deposits & other assets
7,947
3,550
TOTAL ASSETS
$
1,935,712
$
1,859,912
LIABILITIES & SHAREHOLDERS’ EQUITY
Liabilities
Current
Trade payables
$
24,520
$
26,983
Accrued liabilities
21,451
32,724
Lease liabilities – operating – current portion
7,275
4,195
Lease liabilities – finance – current portion
7,968
3,185
Contingent consideration – current portion
4,779
39,868
Purchase consideration payable
2,183
812
Income tax payable
20,758
28,915
Debts payable – current portion
17,063
8,112
Accrued interest payable – current portion
2,970
7,542
Total Current Liabilities
108,967
152,336
Non-current
Deferred tax liabilities
69,385
70,081
Lease liabilities – operating – non-current portion
131,051
87,767
Lease liabilities – finance – non-current portion
23,365
9,406
Construction finance liabilities – non-current portion
27,779
–
Contingent consideration – non-current portion
116,628
145,654
Debts payable – non-current portion
193,448
125,746
Senior secured notes, net of debt issuance costs – non-current portion
245,045
245,408
Accrued interest payable – non-current portion
4,149
3,451
TOTAL LIABILITIES
919,817
839,849
Shareholders’ equity
Multiple Voting Shares: no par value, unlimited authorized.
Issued & outstanding – 3,696,486 shares
–
–
Subordinate, Restricted, & Limited Voting Shares: no par value, unlimited authorized.
Issued & outstanding – 58,647,169 & 56,337,175 shares, respectively
–
–
Exchangeable Shares: no par value, unlimited authorized.
Issued & outstanding – 7,141,614 & 7,368,285 shares, respectively
–
–
Additional paid-in capital
1,324,241
1,289,827
Treasury stock – 645,300 & 568,300 shares, respectively
(8,987)
(7,828)
Accumulated other comprehensive income
3,266
3,266
Accumulated Deficit
(311,136)
(265,202)
Equity of Ayr Wellness Inc.
1,007,384
1,020,063
Noncontrolling interest
8,511
–
TOTAL SHAREHOLDERS’ EQUITY
1,015,895
1,020,063
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY
$
1,935,712
$
1,859,912
Ayr Wellness Inc.
Unaudited Interim Consolidated Statements of Operations
(Expressed in United States Dollars, in Thousands, Except Share Amounts)
Three Months Ended
Six Months Ended
June 30, 2022
June 30, 2021
June 30, 2022
June 30, 2021
Revenues, net of discounts
$
110,131
$
91,251
$
221,356
$
149,650
Cost of goods sold excluding fair value items
66,624
42,342
129,812
70,483
Incremental costs to acquire cannabis inventory in a business combination
3,212
26,596
5,731
32,388
Cost of goods sold
69,836
68,938
135,543
102,871
Gross profit
40,295
22,313
85,813
46,779
Operating expenses
Selling, general, and administrative
50,375
34,844
101,925
59,624
Depreciation and amortization
13,995
11,065
27,638
15,982
Acquisition expense
2,722
1,285
4,173
4,422
Gain on sale of assets
(2,000)
–
(2,000)
–
Total operating expenses
65,092
47,194
131,736
80,028
Loss from operations
(24,797)
(24,881)
(45,923)
(33,249)
Other income (expense)
Share of loss on equity investments
–
(6)
–
(19)
Fair value gain (loss) on financial liabilities
1,701
12,091
31,780
11,545
Interest expense, net
(7,474)
(3,818)
(14,342)
(6,571)
Interest income
11
65
40
124
Other, net
–
457
–
437
Total other income (expense)
(5,762)
8,789
17,478
5,516
Income (Loss) before taxes & noncontrolling interests
(30,559)
(16,092)
(28,445)
(27,733)
Income Taxes
Current tax provision
(10,779)
(8,767)
(21,693)
(15,819)
Deferred tax benefit
1,089
4,121
696
6,192
Total income taxes
(9,690)
(4,646)
(20,997)
(9,627)
Net loss before noncontrolling interest
(40,249)
(20,738)
(49,442)
(37,360)
Net loss attributable to noncontrolling interest
(1,892)
–
(3,508)
–
Net loss attributable to Ayr Wellness Inc.
$
(38,357)
$
(20,738)
$
(45,934)
$
(37,360)
Basic and diluted loss per share
$
(0.56)
$
(0.36)
$
(0.67)
$
(0.73)
Weighted average number of shares outstanding (basic and diluted)
68,625
58,115
68,108
51,091
Ayr Wellness Inc.
Unaudited Interim Consolidated Statements of Cash Flows
(Expressed in United States Dollars, in Thousands)
Six Months Ended
June 30, 2022
June 30, 2021
Operating activities
Net loss before noncontrolling interest
(49,442)
(37,360)
Adjustments for:
Fair value (gain) loss on financial liabilities
(31,780)
(11,545)
Stock-based compensation
19,381
15,376
Stock-based compensation – related parties
707
–
Depreciation and amortization
8,243
2,887
Amortization on intangible assets
35,567
19,177
Share of loss on equity investments
–
19
Gain on disposal of equity investments
–
(500)
Gain on disposal of property, plant, and equipment
(2,000)
–
Incremental costs to acquire cannabis inventory in a business combination
5,731
32,388
Deferred tax (benefit)
(696)
(6,192)
Amortization on financing costs
1,146
817
Amortization on financing premium
(1,509)
–
Changes in operating assets and liabilities, net of business combinations:
Accounts receivable
986
(3,048)
Inventory
(8,577)
(21,618)
Prepaid expenses, deposits, and other current assets
1,513
(508)
Trade payables
1,886
3,260
Accrued liabilities
(5,486)
(1,880)
Interest accrued
(3,714)
560
Lease liabilities – operating
1,329
713
Income tax payable
(8,157)
(14,961)
Cash used in operating activities
(34,872)
(22,415)
Investing activities
Purchase of property, plant, and equipment
(50,972)
(27,748)
Loss on disposal of property, plant, and equipment
–
(57)
Capitalized interest
(7,366)
–
Proceeds from the sale of assets, net of transaction costs
27,591
(3,851)
Cash paid for business combinations and asset acquisitions, net of cash acquired
(11,465)
(17,777)
Cash paid for business combinations and asset acquisitions, working capital
(2,812)
(3,275)
Payments for interests in equity accounted investments
–
(46)
Cash received in disposal of equity investment
–
500
Advances to related corporation
–
(42)
Purchase of intangible asset
(1,000)
–
Cash received (paid) for bridge financing
1,258
(15,810)
Deposits for business combinations, net of cash on hand
(2,825)
(1,700)
Cash used in investing activities
(47,591)
(69,806)
Financing activities
Proceeds from exercise of Warrants
–
5,346
Proceeds from exercise of options
300
86
Proceeds from financing transaction, net of financing costs
27,599
–
Proceeds from issuance of notes payable, net of financing costs
51,713
118,052
Payments of financing costs
–
(136)
Payment for settlement of contingent consideration
(10,000)
–
Deposits received (paid) for financing lease and note payable
(924)
–
Tax withholding on stock-based compensation awards
(3,996)
(28,421)
Repayments of debts payable
(6,563)
(4,300)
Repayments of lease liabilities – finance (principal portion)
(4,835)
(1,807)
Repurchase of Equity Shares
(8,430)
–
Cash provided by financing activities
44,864
88,820
Net (decrease) increase in cash
(37,599)
(3,401)
Cash, beginning of the period
154,342
127,237
Cash, end of the period
116,743
123,836
Supplemental disclosure of cash flow information:
Interest paid during the period
26,049
9,501
Income taxes paid during the period
30,680
29,780
Non-cash investing and financing activities:
Recognition of right-of-use assets for operating leases
23,002
52,047
Recognition of right-of-use assets for finance leases
23,342
4,356
Issuance of Promissory Note related to business combinations
16,000
–
Issuance of Equity Shares related to business combinations and asset acquisitions
6,352
526,976
Issuance of Equity Shares related to equity component of debt
–
7,429
Issuance of Equity Shares related to settlement of contingent consideration
11,748
–
Issuance of promissory note related to settlement of contingent consideration
14,934
–
Cancellation of Equity Shares
78
–
Ayr Wellness Inc.
Unaudited Interim Consolidated Adjusted EBITDA and Gross Profit Reconciliation
(Expressed in United States Dollars, in Thousands)
Three Months Ended
Six Months Ended
June 30, 2022
June 30, 2021
June 30, 2022
June 30, 2021
$
$
$
$
Loss from operations (GAAP)
(24,797)
(24,881)
(45,923)
(33,249)
Non-cash items accounting for inventory
Incremental costs to acquire cannabis inventory in a business combination
3,212
26,596
5,731
32,388
Interest (within cost of goods sold “COGS”)
772
213
1,252
457
Depreciation and amortization (from statement of cash flows)
22,570
14,587
43,810
22,064
Acquisition costs
2,722
1,284
4,173
4,422
Stock-based compensation, non-cash
9,727
7,152
20,088
15,376
Start-up costs1
3,862
1,350
6,511
2,973
Other2
3,576
1,122
5,499
1,408
Gain on sale of assets
(2,000)
–
(2,000)
–
41,229
25,708
79,333
46,700
Adjusted EBITDA (non-GAAP)
19,644
27,423
39,141
45,839
1 Costs to prepare a location for its intended use, including facilities not yet operating at scale. Start-up costs are expensed as incurred and are not indicative of ongoing operations.
2 Other non-core costs including non-operating adjustments and non-cash inventory write-downs
Three Months Ended
Six Months Ended
June 30, 2022
June 30, 2021
June 30, 2022
June 30, 2021
$
$
$
$
Gross profit (GAAP)
40,295
22,313
85,813
46,779
Incremental costs to acquire cannabis inventory in a business combination
3,212
26,596
5,731
32,388
Interest (within COGS)
772
212
1,252
457
Depreciation and amortization (within COGS)
8,574
3,600
16,172
6,100
Start-up costs (within COGS)
1,154
400
2,133
1,600
Other (within COGS)
3,215
–
4,052
–
Adjusted Gross Profit (non-GAAP)
57,222
53,121
115,153
87,324
MAPH Enterprises, LLC | (305) 414-0128 | 1501 Venera Ave, Coral Gables, FL 33146 | new@marijuanastocks.com
