AYR Wellness Reports Second Quarter 2023 Results

Revenue up 18% Y/Y to $116.7 Million, Excluding Discontinued Operations

Company Delivers Record Adjusted EBITDA¹ of $29.4 Million, up 78% Y/Y, 12% Sequentially, with Adjusted EBITDA Margin of 25% 

GAAP Loss from Operations Improved 81% Y/Y, 79% Sequentially to $(4.5) Million, Excluding Discontinued Operations

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 second quarter ended June 30, 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 in March 2023, which are reported as discontinued operations. All historical comparisons have been restated accordingly.

David Goubert, President & CEO of AYR, said, “The second quarter represented a meaningful step in AYR’s journey towards generating meaningful cash flow, as we simultaneously got leaner and more efficient while continuing to lay the foundation for revenue growth. We generated record Adjusted EBITDA, up 78% year-over-year with an Adjusted EBITDA margin of 25% and improved our GAAP loss from operations by 81% year-over-year to a loss of $4.5 million. Our efforts around cost savings and optimization accelerated margin expansion ahead of our expectations, and we believe these efforts will enable us to maintain Adjusted EBITDA margin in the mid-twenties for the second half as we unlock working capital through aggressive inventory management throughout the remainder of the year.

“We have also made meaningful progress on improving our liquidity profile in the second quarter. Along with the amendments to various earnout considerations completed in May, we also reached contingent agreements to extend the maturity of $69 million in promissory notes by two years and recently refinanced and upsized our Gainesville cultivation facility mortgage. As a result of the collective amendments to the vendor notes, contingent promissory notes and earn-out payments, and refinancing and upsizing of our Gainesville facility mortgage, we have extended the payment terms of more than $120 million of obligations, inclusive of the $69 million of contingent agreements. These important milestones reflect our commitment to strengthening AYR’s balance sheet, as we are intently focused on improving our working capital and liquidity.

“We are positioning AYR for sustainable long-term growth and profitability across all our markets, while prioritizing the financial health of the Company. As we look to the rest of the year, we plan to accelerate our cash generation via our 2023 optimization plan, making strides in inventory optimization, continuing to align our production with demand, and developing further synergies within our supply chain, retail, wholesale and purchasing functions. Additionally, we believe our ongoing initiatives to grow our Florida footprint, improve operations in New Jersey, and build out retail footprints in Ohio, Illinois, and Connecticut will enable us to accelerate growth in the quarters ahead.”

Second Quarter Financial Summary (excludes results from AZ for all periods) ($ in millions, excl. margin items) 

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 tables appended to this release.

Second Quarter and Recent Highlights

• Retail Updates
  
  • Opened the Company’s 86^th retail location, subsequent to quarter end.
  • Q2 retail sales increased 1% sequentially from Q1, with total transactions up 6%.
  • The Company has opened 10 Florida stores thus far in 2023, bringing its Florida store total to 62 open locations to date. The Company plans to exit 2023 with a total of Florida 64 stores, compared to 52 to start the year.
  • Completed re-brand of full fleet of Florida stores to AYR Cannabis Dispensary.
  • Announced agreement to acquire third Ohio dispensary license.
  • Announced an exclusive licensing and retail agreement in Florida with Kiva Confections, a global leader in cannabis edibles. As previously announced, the agreement will bring Kiva’s collection of award-winning cannabis edibles to the Florida market for the first time via AYR’s retail locations across the state.
• Corporate Updates
  
  • Closed the acquisition of Tahoe Hydroponics, an award-winning cultivator and one of Nevada’s top producers of high-quality cannabis flower.
  • As previously announced, reached an agreement to amend the terms of contingent consideration under the membership interest purchase agreements of GSD NJ, LLC and Sira Naturals Inc.
  • As previously announced, reached contingent agreements to defer approximately $69 million of promissory note payments.
  • Subsequent to quarter end, closed a $40 million refinancing and upsizing of its existing mortgage for its Gainesville cultivation facility, contributing a net $14 million of cash proceeds. The new loan carries an interest rate of 5-year FHLB Rate + 4%.

Financing and Capital Structure

• The Company deployed $6.7 million of capital expenditures in Q2 and ended the quarter with a cash balance of $60.0 million.
• The Company has approximately 77.2 million fully diluted shares outstanding based on a treasury method calculation.ⁱ
• Subsequent to the quarter end, the Company closed on a $40 million refinancing and upsizing of its existing mortgage for its Gainesville cultivation facility. Following the July 7, 2023, paydown of its existing $25.3 million mortgage, the Company had a pro forma cash balance of $74 million.
• In 2023, the Company filed an application with the U.S. Internal Revenue Service (“IRS”) for the employee retention credit (“ERC”), as originally enacted through the U.S. Coronavirus Aid, Relief, and Economic Security Act. The Company anticipates receiving $12.3 million relating to its ERC application.

Outlook 

The Company remains committed to its financial health and is positioning itself to achieve sustainable long-term growth and profitability across all markets of operation. AYR expects to generate revenue and Adjusted EBITDA growth in the second half of 2023 and into 2024 and to generate positive GAAP cash flow from operations for the calendar year 2023.

AYR’s expectations for future results are based on the assumptions and risks detailed in its Management’s Discussion and Analysis (“MD&A”) for the period ended June 30, 2023, as filed on SEDAR+ and with the U.S. Securities and Exchange Commission (“SEC”).

Conference Call

AYR management will host a conference call today, followed by a question-and-answer period.

Date: Thursday, August 17, 2023
Time: 8:30 a.m. ET
Toll-free dial-in number: (800) 319-4610
International dial-in number: (604) 638-5340
Conference ID: 10022068

Please dial into the conference call 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 ir@ayrwellness.com.

The conference will be broadcast live and available for replay here.

A telephonic replay of the conference call will also be available for one month until end of day Sunday, September 17, 2023.

Toll-free replay number: (855) 669-9658
International replay number: (412) 317-0088
Replay ID: 0257