AYR Wellness Earnings + Call Notes
Leveraged to states transitioning to adult use.
$117.3M Revs; est. $119.3M
$25.7M AEBITDA; est. $29.2M
$47.2M GP; est. $55.6M
$(7.7mm)M OI; est. $3.5M
40% GM; est. 46.6%
($39.3M) NI; est. ($26.8M)
($0.34 ) EPS; est. ($0.25)
“Our team remains acutely focused on laying the groundwork for AYR’s next phase of growth. This includes advancing the progress made over the last 18 months to improve operations across our markets, continuing to invest in our CPG brands and retail experience, and ensuring that AYR is best positioned to capitalize on the anticipated transition to adult-use in three of our core markets: Ohio, Florida, and Pennsylvania. We continue to believe AYR has more upside from these three markets than any other company in our industry.” CEO David Goubert
Call Notes
Confident that rescheduling will be complete before election day.
OH FL PA opportunity in forward AYR markets.
OH launched, FL polling well, PA continues to move towards A/U.
Conversion provides massive opportunity to AYR.
aEBITDA margin did not meet target.
^ stems from tightening consumer wallet
^ wholesale price compression in several key markets where previously saw strength ^ production increases in certain markets that are not yet optimized
^ investment into FL cult/manu facilities (cult/manu/automation+ gummy production)
Confident that step back in margin is temporary.
Well positioned for margin expansion as return to growth in 2H24.
Growth in 2H ’24 stems from growth across markets, investment in CPG brands, investment in retail locations, positioning for growth markets in OH FL PA.
In OH, A/U across first tranche of stores; all 3 AYR stores were included.
First time in company’s history that AYR could participate in day 1 AU sales.
Plan to spend further in OH this year, plan to have 8 stores open by early ’25.
Option to acquire each opened store, once open for a year.
Scaling cultivation / manufacturing at OH facilities to service in-house + wholesale.
At 100% capacity in 8 current rooms.
Still lack premium flower at owned FL facilities.
New FL cult facility will 2x+ capacity + open new premium offerings to customers.
Planned facility to be completed in Q2 ’25, fully financed w/ IIPR.
In PA, AYR optimistic on progress made in recent months towards AU.
Laser focused on business model of retailer of choice + house of CPG brands.
Kynd / Haze 2 major brands.
Highly focused on product innovation under kynd/haze.
^ increasing haze premium offerings.
Launched live resin / live rosin gummies in July, and live resin / live rosin vapes for premium vape offerings.
Expanding kitchen / extraction facilities, introducing new strains into cultivation facilities, and standardization of inventory across facilities.
Changes has allowed AYR to launch significant number of new products in ’24.
Flat QoQ in 6 of 7 markets, NJ the exception, 1% QoQ retail decline from price + retail compression; 30% increase in stores during the quarter, up 80% for the year.
Retail transaction counts up 2% QoQ and 1% YoY.
Basket sizes down 3% QoQ and 6% YoY.
^ driven by wallet pressure and increased competition.
Q2 aGM of 51.8% down 180bps QoQ from retail price compression.
Wholesale represented 16% of sales, highest ratio since Q1 ’22.
Lower margin from lack of economy of scale in OH + MA, both under 50% utilization.
Saw FL cultivation yield improvement in THC / overall quality.
Expect to see benefit in COGS in 2H.
Flower market share in June representing the highest weekly average since Sept ’23.
Launched Kynd gummies last quarter, complimenting Kiva offerings.
Gummies as a % of sales from 3% in Q1 to 6% in Q2.
^ expect to grow segment from here.
Internal retail sales at 53.4% of total retail sales, 41.6% when excluding FL.
Expect to improve a few percentage points from OH AU.
SG&A increase caused by a shift of allocation between COGS / SG&A.
aEBITDA of 21.9% margin.
^ impacted by price compression and change in accounting for OH cultivation.
^ no changes on CF basis, but $1m/quarter now reflecting as rent expense.
$47.5m cash. $16.3m debt payments thus far this year.
^ less than $7m remaining for 2H24 and $17m remaining over next 12mo.
YTD positive operating cash flow of $2.7m.
Will ebb/flow quarterly based on interest payments, etc.
Expect $20m capex FY’24.
Expect OPCF+ FY’24 and FCF+ when excluding uncertain tax provision.
Conversion of outstanding warrants could generate $50m net proceeds.
ERC tax credit of $12m could still be received.
OH first of 3 significant growth opportunities embedded in AYR footprint.
^ one of the highest relative exposures to AU optionality of MSOs.
Anticipate opening first CT stores immediately.
Will add a 2nd CT store by ’25.
Opened 2 new IL stores, 1 june + 1 july.
Targeting 5 stores in FL for 2H ’24.
Further growing wholesale business, which already grew 25% in 1H24.
Expect to improve aEBITDA margins from current levels in 2H ’24.
^ working towards 25% margin target.
Margins largely a game of offsets.
Volatility in price compression / cost inflation vs. scale / optimization.
Seeing improved cultivation in FL, OH A/U kicking in; will counter pressures.
Pricing pressure not as severe as ’22.
^ more modest, but compounding effect each month.
Expect FL cultivation facility completion in Q225, first harvests Q325.
Only company in the state w/o indoor flower.
^ will help sales per store in the sense that underweight on flower vs. oils.
Saw good wholesale growth in Q1/Q2; Q2 up 4% vs. Q1 and 50% vs. Q123.
NJ seeing more retailers come online in the state.
^ gives hope that AYR can continue to increase wholesale in 2H24.
Happy w/ what saw in NJ wholesale in Q2.
Quarterly fluctuations in margins.
Building back towards 25% aEBITDA target and expect to end the year there.
2H from a retail standpoint, 3 growth elements
1) OH an element of growth in Q3 + 2H.
2) rebound in FL expected, expect more Q4 than Q3, but some rebound in Q3.
3) And opening of new stores (2 IL, 1 CT, 5 stores in FL).
New FL facility will allow to double flower capacity.
Serves 2 purpose, closing gap on flower mix in existing stores.
^ no indoor flower currently; undermixed on flower.
Target for 10% of retail doors in FL.
If by end of ’26, if 1,000 stores in FL, want to be 100 stores.
Need 2nd facility to have enough flower.
Moved from 6 rooms single stacked to 8 double stacked rooms in OH.
^ only utilizing 50% of capacity of that facility, which is very significant.
Could triple stack or add more rooms.
Sold in one day yesterday in OH what used to sell in a week pre-AU.
Significant penetration in number of OH doors.
1% QoQ decline in retail.
^ primarily due to NJ.
Wholesale up 4% QoQ.
Plan to reach 8 stores in OH by Q1 ’25 / as soon as possible.
All locations are identified / locked, in process of construction of those stores.
/end
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