AYRWF - Earnings call transcript Q2 2022

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Operator

Welcome to the Ayr Wellness Second Quarter 2022 Earnings Call.

Joining us today on Ayr is our Ayr’s CEO, Jonathan Sandelman, the Company's CFO, Brad Asher and the Company's Co-Chief Operating Officer, Jennifer Drake. The company will discuss forward-looking matters on this call, including targets for revenues and adjusted EBITDA. This forward-looking information is subject to assumptions and risks as described in the Company's management discussion and analysis for the quarter ended June 30, 2022.

As well, we remind you that adjusted EBITDA are -- is a non-GAAP measure. XXth, reconciliation contained measures and in the ended the concerning other analysis to quarter measures non-GAAP Ayr June refer to and GAAP disclosures for We XXXX. management discussion call I will to CEO, Jonathan over now Sandelman. Ayr's the turn

begin. may You

Jonathan Sandelman

thank Good our QX for XXXX morning, you joining call. conference everyone, and

and cultivation As the adult-use, key nearly first approvals flower expansion. two far dispensaries been to our three all of location first thus begin the over our many in facility. Greater CapEx Massachusetts approvals Jersey Boston likely second revenue our past quarter, planting the cycles the expansion. pending adult-use square Jersey has our you conversion Ayr our approval have opening Bay The open generating from harvest foot of In projects. for few regulatory The the quarter cultivation of and State New adult-use, third and Watertown. of completed the local of noticed, stores opening busy months, new to XX,XXX Massachusetts from in cultivation Somerville, Back to New Ocean our including Arizona we've phase County, of sale and

investing the XXth Florida for for that Ayr, come a our business our phase particularly share store believe openings coming to and quality in to County, been now Coast, these completions years continued excited significant our and cannabis over for the milestones and of region our project East of represent in mostly significant and of a assets exciting will online. in Florida, to are a is that revenue grow they've including poised further and Pennsylvania scale, on the the at our our opening time region optimizing now we're Continued adult-use of dispensary underserved dispensary The and high our which challenging we once cultivation both Xth an growth Indiana complete, in state. commitment operationalizing believe dispensaries These focus Ayr, have building again growth. we market improve operations first

process we doing both that our of down slow inflationary the to quarter, In half we became states states external our recognize difficult existed late can CPG impact footprint. XXXX. newly Last the team is some spent Nevada environment heads in than as had we with best-in-class ramping that independent operations. encouraging large them implemented depreciation, scaling coming they going experience in we softness put assets converted for of stations year areas businesses the new stores, and ramp and to after changes growth. bringing a eight our and update new true in days on at over the initial ramp realize and profile that Eatontown online, for we our and the back to where anticipate. some our extensive has these growth to to more expand consumer our last year; have wallet; imbalances, four which primary price improve nearly will position quarters macro transactional in can due [scrapping] operating a our are wholesale focused we state-by-state the An (ph) head retail New in started in a and expansion This slower we beverage of we the results We're this macro Massachusetts, in a again further the resulted opportunities in will two an three journey brought store our assets more been POS expanded last acquired wholesale factors. coming onboard and to demand on business. through improvement believe Jersey Despite in Though from impacted that applying In are our Busch everything the in business us environment improving startups put we XX-years online improve The have a Looking drive are footprint a own first potential on execution. in when the and there environment wholesale Anheuser in meaningful we that's these improvement. been than we years have and add five now our that the operators. believe having environment, showing factors: our the wholesale

Additionally, own at and even production and by Jersey drive third-party expanding will greater providers stores. traffic facilities online coming cultivation to our sales we from New menu stores our enabled our in believe improvements New Jersey offerings

scaling Our who time retail a experience XX-years Massachusetts of optimizing at led second anticipate summer stores, cannabis. slower pickup locations as the a our National these last to of multi-door Boston's Nationwide, to by stores Labor and for nearly city full after Retail, Luxottica, residents opened out seasoned month. Boston with the continue at seven in we intend more us Head to improve during return We locations the executive and years and joined retail the our quarter, in at startup Day.

planning our the inefficiencies areas we've unlock can in of side found minor make production. and grow tweaks and updated where business business, process the operational growth further On our

opportunity strengthen The our CPG to that portfolio invest resulting from outlined continue and designed results to to area second enabling growing half this concrete four retail where in is factors operations. our the expected wholesale the continue we adapted Ayr’s branded XXXX. We've the our our operational is beat across our in organization. of talent swift of and in make see One slower footprint. taken to our impact organization financial the efficiently performance ramp and to products We steps address

this help during value impact tough We Our enabled times customers portfolio Genetics in brand constructed to of factors investments branded The the upgraded and patterns across that grown well ever that spectrum shifts is to by our efficient to This and trading portfolio in new was made down portfolio. where we've portfolio categories customers. range the by has yields flower down a brand believe produce state can premium combination cultivation and economic developed industry offerings scale. facilities propositions across of form and the and at some produced with our hence value of enabling offer brand purchasing from mission value segments. up have cushion cannabis we our with the and lead quality in cultivation of for best variety with the

terpene that emerge differentiator as for we've area for discerning in more the next an accomplished phase We a call actively across believe by Genetics are grow of as is across these a Ayr. with and quarter and This strains quickly and choice market CFO, of we further most the of from placed customers. We've recently our significant our by second the Brad over ability novel on what in will destination key demonstrated the has consumers One who to profiles our a Both excited now develop our gaps that becoming in and we address particularly strong to LIT leverage to and stores competitive portfolio. the about which capabilities pass walk choice this offerings. reviews to financials. where establish excited of operate wholesale new edge our and influencers. received us Asher, to will to emphasis launches are our network. I'll our through deploy unique market flower customers planning customers, deploy to program have Kynd We've and been begun keep media for

Brad Asher

Thanks, decrease year. Jon. QX sales is an of represents and the increase in X% a of quarter-over-quarter, which the flat $XXX.X in million our line to $XX.X with of of year-over-year half million, guidance XX% first or be

of our stores resulted to June adult-use New two from the adult-use our adult-use quarter. QX Massachusetts of converts New stores Jersey July. As month Jersey from stores retail a on opened our XXth and in stores XX no days This three contribution a during adult-use and of contribution our in in the Massachusetts total reminder,

from had volumes we channel. sales and sequentially increased decrease an In shifted stores Overall, revenue products of month by X% of wholesale more addition, unit during just drop offset quarter. through retail in retail over our recently compression pricing acquired by we one in the Illinois driven our as contribution a wholesale our XX%

percentage sequentially mix. of due annual prior This reduction EBITDA both market flat quarter. retail allowed Our operations us ongoing with decrease adjusted improvements approximately basis, a result EBITDA increased loss Net product sales in by in is increased adjusted million, on QX represents with driven of with with on optimization. productivity quarterly which consistent margins, prior in and our along by SG&A million cost a XX% quarter-over-quarter. of as efforts retail this of from million expenses $X and internal shift and totaled shift is the to consistent effort dollars to XX% a the gross $XX.X and $XX.X yields maintain and core quarter the periods. Adjusted comparative year-over-year slightly further sales from around along

to committed macro-driven are increases We any will course cost cost offset stay the our and basis. to further to management

to prior which be the increase to ended bringing as to of real $XX with by annualized the quarter. been X.X%. a capital million, financing favorable raise was on The completed. by with capital conditions, XX% cost an position. offset cash quarter's quarter our scale from $XXX we was transactions, total sheet, partially Based CapEx balance year expansion CapEx The this cash of relating $XX of large strengthen transactions to driven are balance prior to timing the proceeds estate nearly in increase of has we determined million increase XX% capital from Moving investment quarter projects real approximate during $XXX.X to-date the approximately estate our approximately which market of represents our million, financing million blended further

$X interest the taxes and fully These worth up. $XX.X federal We facilities of the yields. operating to XXXX coming the online, drivers during cash improvements as $XX retail was which and inventory in and of state of paid million the as also impacted cumulative cultivation income main noting the activities payments in were investment quarter. million our also paid relating addition stores new million used of by the of cultivation our in well taxes It's during quarter, are

to Jennifer balance in cost our the and call structure, We on driving Drake, Co-COO. our pass focus efficiency now over including I'll capital working optimizing strategy. capital deployment will sheet, continue levels to

Jennifer Drake

incremental brands Jon’s Thanks, a dollars. is for by time consumer on establishing incremental an each price position one forcing at behaviors. factors point architecture of wallet in crunch. our macroeconomic we our We've earlier higher form we important all subside. for products proven various times our choices in may tier be are are some wallets hard know earned consciously with well multiple as offering macro to about highest our portfolio an stressful how months consumer with uncertain shopping to America's backdrop adjusted staple constructed to has easier existing a opinion the in when when points up life us trade to their Ayr strong a throughout to at down brand puts this made portfolio value, be across in recent consumers stretched, experiencing has retain who trade allocate which Brad. quality tiers brand believe headwinds in Cannabis as We premium customers, uncomfortable inflation more allow

potential QX's to macro fourth results earnings half The of As guidance online. believed generating our in our the assets reach power strong, replacing quarter of profile reflect our on assets growth Based factors impact longer. remains our revenue performance full for outlined, we've visibility the guidance but EBITDA. adjusted potential Jon mentioned, bought operationalized shopped time of asset on and of revenue fourth environment better ramp XXXX the with earnings is base. are the on their given XXXX near-term to the also we quarter We full and previously new QX, would the expected and we've is the ramp second

QX. to to Jon QX, And XX% relative EBITDA QX. expect we In revenue growth accelerate adjusted and we of EBITDA early For expect flower improvements from take XXXX, cultivation deliver we discussed sales our of revenue expansion. in QX, sequential ramps our we growth as sequential XXXX expect and significantly first to adjusted over anticipate hold. asset the Massachusetts further the growth In and

sale side toward the full expect sales our business. first facility. cultivation uplift the we further anticipate And in ramped wholesale our as power. expect Ohio Massachusetts made to and to we've Jersey also We our that growth New provide on their upgrades adult-use We earnings from of

up and made importance In XXX% biomass of The year-over-year. a market. we've strain Florida into flower taking capacity terms premium have over us we've the stores. last updates, stressed the quality In Florida, first-half production in with key our variety to of our we've flower Since flower last quality lot has progress Florida of consistently introduce operational improved the our quarter. business cultivation year, Kynd over the allowed facility made our the in brand of investments

Ayr’s mid-June. our are allow to in to strains cultivation be expected XXXX. harvest With We we first We scale second has and Jersey the Florida the in We've to time We products facility and design. Ohio our store we share for our that, as and facility to first operational with continue The our of stores of to our I'll Gainesville now sales far by XX XX broader cultivation a adult-use five size population Massachusetts as market we over bring market from locations retail is to on We're our adult-use in This improvement Cranbury, portfolio. Massachusetts improvements each our Florida in improvements, enter menus to presence call flower, to end in locations and sold XXth In in we Ayr’s began new presence with market that production investment average to capacity Expanding that the the so to Illinois. of serving wholesale for state, new Ayr the in cultivation and opportunistic when Massachusetts each took CPG well adult-use a ability high retail introducing the been made, is brand which this prime the grow huge planting expected processing market quality month, that Jersey, dispensary and Jon. and we'll in complete scale additional roughly mention expanded of as we cultivation showcasing our in state-of-the-art expansion. expect should to our QX. March great a about at These grows. grown beginning New our about intend recently Ohio, the phases Ayr, in the retail facility from have the the example same intend product New in market. different is in is adult-use strains new facility for unique available QX. completed support addition of phase to portfolio phases own our expansion, an demand. Also being establishing increasing new expect brands Like we've state. and in market developments wholesale in being to our Ayr our offerings cannabis and some excited Ohio, back Pennsylvania August, the In opened begin cultivation strains three to receptive market facility at which throughout as competitive prospects help the a cannabis in our Jersey. is that New the and With extremely facility has very believe first turn we an with based store.

Jonathan Sandelman

poised other for There here nearly apparent industry Jen. of you, the cannabis cannabis stress a it like is where that and to economic a in no Thank alongside industry is and the stay going increasingly future. is secret becomes uncertainty. the this through times industry bright The that U.S. period every

evidenced period. reform, beginning prudent intend reform. capital the adult-use Capitol while continue prospects a see in remain to level up state the indicates the with typically Washington comment We We wake is our last as of out incremental the during of And a finally of to to by federal Hill encouraging initiative rumblings this cannabis to reform on Florida. recent ballot new I'm emergence recent

position With emerge we we can on footprint areas our As cash business majority our weather entering side. state of balance of assets improve a expansion. another strong and our vast ramping as contributor phase we know, believe generating have where are other core sheet. behind our before to meaningful we optimize period our operating we the to place, the in our revenue continue well and CapEx a a on and stronger Each this of new us, business of positioned serving to

our who and Ayr vision come make you always, tirelessly our As to customers to thank works team, serve true.

your now questions. We will take

Operator

Thank first question-and-answer now [Operator you. Our We'll question Instructions] analyst session. with begin from go the ahead. Andrew Semple is Capital. Please Echelon

Andrew Semple

Hi there and good morning.

of in you the second want provide the go the half. level? five Bay, already that being as Back factors and constrained not guess adjusted stores Watertown, kind what to -- feeling quickly or in What very Seattle, you're customers outlined? the other with besides you New seeing Just back you've at Could I coming stores in important to additional factors in macroeconomic that are the supply Are maybe your some color store guess Or of as anticipated? opened you there Jersey. U.S. for the I just guidance door

Jennifer Drake

Thanks Andrew. for question. so Hey, your much

I So parts, it and in those us didn't two Massachusetts. Jersey Boston New open, do into is which facilities In the delays terms opening think those is Massachusetts, disclosed the key of the into getting summer. for break of timing terms delays favors in any and the period market, out in I'll

So are Boston have would to slowly expected. than Watertown. we bit those we back people going to coming looking coming little back Back September people Bay, But people are coming in a more residents work, forward coming back to ramps back to to

-- data. the matter we we'll of terms think when of supply. New it's timing. more bigger into quarter, about get we the Jersey, have more a And in it's think fourth And as I Boston, So closer about

important agreement first the regulator ability with a we part in the Jersey, plan to of we convert, was agreed the conversion limited of week. granted remember until our just supply that So when facility harvest a completed were supply from really And new cultivation our very which New if that. you part we was last

in harvest terms wholesale ability first could third-parties, our that new as from our that third-parties to that, market we've with We're well be until with little our point first as fully to constrained phase completed. product product participate into stores that more into and bring products wholesale up sold in been a of terms other our supply sell without to offer now bit for of what to the So to our ability others, this the our time own our a we is own ability in product, the use can market ourselves. in because

Andrew Semple

I’ll Thank helpful. that. Great. in queue. you. That's Appreciate get back the

Operator

question from Matt Genuity. Bottomley next The Canaccord Please with is ahead. go

Matt Bottomley

Yes, good forward the morning just Yes, everyone. the for Thanks commentary. on of staying questions. topic the

And Just level? line of any QX so metrics give group at adjusted commentary income, you going So the EBITDA how curious can one EBITDA that margins sort operating for into your us XX% for more expect maybe QX the see the the to another? all adjusted where to calling the think just then grow guidance revenues expansion just profit given we should and close the I wondering on to revenue, dynamics below relative top between guidance, between together, margin on you operating previous was EBITDA?

Jennifer Drake

much, Matt. so Thanks Sure.

context potentially EBITDA In terms quarter. more going little the the bit EBITDA adjusted than the the the revenue will given third we and quarter in meaningful slowly dimensionalize had see in fourth our to EBITDA we've well. I into and EBITDA on tried a that margins turning in -- generating slightly as you'll of more numbers expand expectations expected think on. in will And assets fourth that in previously the expectations third expansion forward, then quarter always our adjusted our Those they're turning new of EBITDA

Matt Bottomley

you. Okay. Thank

Operator

is Please question from Needham. with McGinley next ahead. go Matt The

Matt McGinley

you. Thank

like board CapEx next a the is into of spend may in spend terms you the well CapEx projects in look have the big you any your cash have that up the what dropping cost other of that across ’XX? number wrap like how as CapEx states think as outside as you of back that outflows? year should portfolio. in And of for about half projects we does you What Your across number planned think dollar

Jennifer Drake

for question. Thanks the Matt. Sure,

right, close footprint. to You're coming absolutely our really cycle our current CapEx is a for

$XX higher some CapEx Massachusetts and some which the the final the spend should smaller do CapEx final and do do ROI of dollars, much to in in little you total So vast cultivation going done, of number projects, vast The of that to year CapEx as this payments some more payment of facility ‘XX. of that round small are large out that the projects are then is add bit all CapEx of as always the smaller, some ROI such high XXXX. between as is expectation facilities amounts small final CapEx do and virtually processing the because complete. -- majority million the it, to those our you facility know, upgrades our for of additional production, then CapEx way to remaining that have a for the [cappy] We is total those our and some pay a (ph) is maintenance adding as maintenance efficiency than that amounts payments but well in have probably and Florida some spent. or We perhaps in lot rest for majority for the Ohio final expansion, our expected footprint after CapEx cultivation our XXXX you expansion, for about

Matt McGinley

Thank you.

Operator

The ahead. next go Jefferies. Owen from question with Bennett Please is

Owen Bennett

to Good retail. and Hope couple well. I relating morning, questions all a well, wholesale guys. a of had question, just

points get traction. at own portfolio, time, price of So into wholesale you've now give And first, XQ? the CPG formats in shifted you was the the But products mix then force you brought retail. to your you're ahead wholesale us say saying your what maximum on more same could gone ambitions of so it wholesale you through remind and and offerings across lots us and XQ in in the for obviously

months? to get the So for I'm in Thank you. just wondering more products these XX distribution what XX can to makes you next over you wholesale start confident

Jennifer Drake

Sure. Thanks, Owen.

shared we of in that of first detail. mix, all, our a lot historically So in haven't of terms

general, being let's retail, and half your of, wholesale the historically good we've people year to pretty have first XX% think given have in I your the -- that's XX% of round to that's pretty numbers a good it split our the about about call kind head. of revenue in that's number been,

our channel, the think a obviously wholesale our really this channel business the is business. and the to but attention of we important long-term for for for terms In cannabis

those times state-by-state where call, markets tougher wholesale During Jon bit supply the are has the little last as of things on there certainly robust change and a grown imbalances furthering products. that are our and demand it's tougher, side market our for But and -- over business. mentioned important the it's made branded year. to of the very CPG wholesale a the wholesale development very haven't have And key

time a think the pay acknowledged you it. you for still in wholesale sector. it's -- it's though the doesn't business, don't It to even So doesn't I mean attention mean tough probably it that

low fruit changes the fruit that processes made to excited and months team. We most there's coming make hanging excited we're hanging of to in the wholesale our the of a low that and So about there we've think very we're and quarters. really

Owen Bennett

you. Thank Okay.

Operator

next The Partners. ROTH is Scott ahead. go from with Please Capital question Fortune

Scott Fortune

you biomass there, update and and the for Florida questions. thanks the little provide production served. is a improved on color yields more morning good Can the Yes, the

the of year new and peers increase the potential those you're just in a cadence the the and now. here stores little with production for color margins upside Florida. on seems more XX But stores store level footprint in the similar the should now production look have into adding rest levels and at stores You higher per store store levels metrics at now to to place and XX more have the drive be more to little new how a you sales throughout that color of here? There we

Jennifer Drake

something thank it’s mentioned a -- are so for for hasn’t XXX% overnight, us It's us facility, there. I as us pleased is for -- remarks, job around much and harvest yields progress we definitely not took Sure. question. yield which great in my that has us really very really generate it we Scott, cycles I our in the of But -- cultivation not to with up allowed turned few Florida in really you to has the terms our took a improvements. are order year-over-year what and those done the it's It's the our the to improvements address new it's THC terpen the allowed in premium [indiscernible] profile. even which flower store-to-store ultimately us the flower introduce of the of introduce in AVOD percentage of not in the market, has will just months, the more yield have which it's that from coming is quality. Kynd in customers. hands part form allowed flower, -- first the to for put there us spectrum. of Genetics our Those more the testing, We'll for into premium potentially our time the

from the continue and expanding to same us absolutely into access So point is in Russell Securities. year we Florida go of rest Stanley key Florida. absolutely growing is and in we're ahead. store to the the of stores, number as growing which for the Instructions] next throughout sales right [Operator Operator the key next selectively Beacon this have opportunities Please year will do price with question having you're our and absolutely premium we for The share

Russell Stanley

and morning Good you thank for question. my taking

constraints of to Just on those point? your you guess comment supplement availability I Thanks. at the product out third-party supplying be be when know, you on do this speak? if own to wholesale, New terms the you retail, just Jersey that in of with to looking the production stores And at to so of way expect

Jennifer Drake

much, Thanks Russ. very Sure.

going week, be first cure. So in so dry and terms just there's of to our New to time harvest Jersey stores, and cure last we required had

expect September. happen to going and not in it's our obviously, So stores in But September potentially tomorrow. wholesale market into that the do flower we into

normalized to environment more So able our New better be supply will September-ish, for a Jersey a like of stores. starting what look we'll have sense

to So our cultivation production the et come extracted in our to can addition opening. from gummies, that and that, the in opening cetera, addition flower and products space,

as Also, the improving Eatontown make -- be probably the of have call think so let's more really increasing of our those, number it, more at productive Jersey, sale September, And also renovation the experience to to that in to grow the we'll -- and a New drive point addition end which most happen double complete. traffic that's the equation. on great than is parts a that of number be store impact should sale customer we also of lot should we're In store of But there. going of number points we're well. and

Russell Stanley

Thanks for queue. I'll Great. the color. in get the back

Jennifer Drake

Thanks, Russ.

Operator

is Canaccord question with Please go ahead. Matt Genuity. from Bottomley next The

Matt Bottomley

Yes. follow-up. Thanks for the

one for margin. on me more question adjusted gross Just the

So in particularly QX we've average, profiles seen XXX the Group. sub-XX% the a margin sector coming maybe for on as in MSOs down points basis most trend

to that the nobody point? to margins point and flat was So Any product you but this on And I maintain be is that you managed that's at a is this I other lot remarks. really factors this a these quarter-over-quarter. is given escaping to going little there were theme is more you helpful. can a wholesale mitigating this maintain in bit any of imagine touched the stores, prepared can would really you know that in allowing factors your through point sector down XX% And to retail

Jennifer Drake

in And line of we good a efficiencies mean, across I historically thanks. success we've being in And and able of those. history look efficiencies job lot our had on of margin think cultivation. achieve I production gross for the a Sure, company. to done we've the really

We're at gross to EBITDA and between spent norm Now we this EBITDA, been industry. expansion not we positive, in people when this online that's the SG&A extension gross always really of positive investing ahead just all margin. to in XXXX And with gross margin and have coming go be investing invest our our and and assets profit people, of want was EBITDA impact an -- a and for processes improving we of our EBITDA really EBITDA, good our standpoint. in efficiency we to official our I brands, margin between doing is what we're processes an gross our EBITDA on the are of the a not invest in order is to company grows. in indicator on invest margins, and as this But consistentency think level always really operational able our achieve margin was doing from although indicator when great

Matt Bottomley

Okay. Thanks, Jen.

Operator

today's the concludes well question-and-answer as This conference Wellness call. as Ayr session,

a may and You for disconnect day. Thank pleasant lines. participating your have you

Ayr Wellness (AYRWF) 18 Aug 222022 Q2 Earnings call transcript