TerrAscend Corp. (“TerrAscend” or the “Company”) (CSE: TER) (OTCQX: TRSSF), a leading North American cannabis operator, today reported its financial results for the third quarter ending September 30, 2022. All amounts are expressed in U.S. dollars unless indicated otherwise and are prepared under U.S. Generally Accepted Accounting principles (GAAP).
Third Quarter 2022 Financial Highlights
- Net Revenue increased 3.4% sequentially and 36.4% year over year to $67 million.
- Gross Profit Margin was 36.3%, compared to 35.5% in Q2 2022 and 43.7% in Q3 2021.
- Adjusted Gross Profit Margin1 was 46.1%, compared to 47.1% in Q2 2022 and 46.1% in Q3 2021.
- Adjusted EBITDA1 was $11.3 million, an increase of 96% sequentially and 22.8% year over year.
- Adjusted EBITDA Margin1 was 16.9%, compared to 8.9% in Q2 2022 and 18.8% in Q3 of 2021.
- GAAP Net Loss was $311 million, compared to net income of $14.2 million in Q2 2022. A $331 non-cash impairment charge was recorded against goodwill and intangibles for the Company’s Michigan business.
- Cashflow from Operations was positive $1.5 million, compared to negative $16.1 million in Q2 2022.
- Cash and Cash Equivalents totaled $34.3 million as of September 30, 2022. Subsequent to the third quarter, the Company closed on a $45.5 million non-brokered senior secured term loan.
“We took decisive action to reduce our operating expenses in the quarter while still generating record sales. These factors combined to drive substantial improvement in adjusted EBITDA margins quarter over quarter and positive cash flow from operations.” commented Jason Wild, Executive Chairman of TerrAscend, “Our strong brand presence is evidenced by our retail and wholesale results in New Jersey, where we have quickly established ourselves as a leading operator with three of the top ten flower SKUs, including #1. We look forward to deploying our branded strategy in Maryland and Pennsylvania when these states implement adult use.” continued Wild.
Financial Summary Q3 2022 and Comparative Periods
|(in millions of U.S. Dollars)||Q3 2021||Q2 2022||Q3 2022|
|Gross profit margin||43.7||%||35.5||%||36.3||%|
|Adjusted gross profit1||22.7||30.5||30.9|
|Adjusted gross margin %||46.1||%||47.1||%||46.1||%|
|Share-based compensation expense||5.2||4.4||2.6|
|General & Administrative expense (excluding share based compensation)||16.1||29.5||26.7|
|% of revenue, net||32.8||%||45.5||%||39.8||%|
|Net income (loss)||55.8||14.2||(311.0)|
|Adjusted EBITDA % of revenue, net||18.8||%||8.9||%||16.9||%|
|Cash provided by (used in) operations||(17.9)||(16.1)||1.5|
|1. Adjusted Gross Profit and Adjusted Gross Profit Margin, and Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP measures. Please see discussion of non-GAAP measures and reconciliation to Gross Profit and Net Income (Loss), the closest comparable GAAP measures at the end of this press release.|
Third Quarter 2022 Business and Operational Highlights
- Entered into an agreement to exclusively introduce the Cookies brand to Pennsylvania.
- Appointed Karim Bouaziz as President of the Northeast Region.
- Closed on the acquisition of Pinnacle in Michigan, which includes six dispenary licenses, five of which are currently operational.
- Opened third New Jersey Apothecarium Dispensary in Lodi.
- Opened “Cookies Corners” at all three Apothecarium locations in New Jersey.
- Introdroduced Gage and Cookies brands in Pennsylvania.
- Closed on a non-brokered senior secured term loan in an aggregate principal amount of approximately $45.5 million.
Third Quarter 2022 Financial Results
Net revenue for the third quarter totaled $67 million, an increase of 3.4% sequentially and 36.4% year-over-year. The sequential growth was primarily driven by strong results in New Jersey and a partial quarter benefit from the Pinnacle acquisition, partially offset by a decline in wholesale sales in Pennsylvania and challenging retail trends in Pennsylvaniaand Michigan.
Gross margin for the quarter was 36.3%, impacted by a $6 million USD write-off of inventory in Canada. Adjusted gross margin for the quarter, excluding the inventory write-off in Canada, was 46.1% compared to 47.1% in the previous quarter, a decline of 100 basis points sequentially, driven mainly by temporary operational drags from Maryland and Canada. The Company has now fully exited its legacy facility in Maryland and has scaled down the business in Canadasuch that neither of these areas are expected to be a material drag on gross margin beginning in 2023.
General and Administrative expenses (G&A) for the quarter were reduced by $2.8 million, or almost 10%, to $26.7 million, or 39.8% of revenue, compared to $29.5 million, or 45.5% of revenue, in the second quarter. The $26.7 million in the third quarter included $3 million of one-time items mainly related to severance and legal settlements. The cost reductions, partly driven by a 12% reduction in the Company’s workforce, are expected to generate further savings into the fourth quarter as the Company realizes a full quarter of the benefit, without the one-time costs.
Adjusted EBITDA for the quarter was $11.3 million versus $5.8 million in the previous quarter, representing a 96% increase sequentially. Adjusted EBITDA margin improved 800 basis points to 16.9% in the third quarter from 8.9% in the second quarter, driven by operating expense reductions.
GAAP net loss for the third quarter was $311 million compared to $14.2 million of net income for the previous quarter. The net loss for the quarter was driven by a $331 million non-cash impairment to goodwill and intangibles of its Michigan business.
Balance Sheet and Cash Flow
Ending cash position for the third quarter was $34.3 million. Following the quarter end, the Company closed on a $45.5 million non-brokered debt financing.
Cash flow from operations totaled a positive $1.5 million in the third quarter, a significant improvement versus negative cash flow from operations of $16.1 million in the second quarter, which included $9 million of taxes paid.
Capital expenditures were $3.6 million in the third quarter, primarily related to the recently completed expansion at TerrAscend’s Hagerstown facility. The Company also closed on the acquisition of Pinnacle, which included a $10 millioncash component.
As of November 11, 2022, there were 324 million shares outstanding including 259 million common shares, 13 million preferred shares as converted, and 52 million exchangeable shares, using the treasury method.
TerrAscend will host a conference call today, November 14, 2022, to discuss these results. Jason Wild, Executive Chairman, Ziad Ghanem, President and Chief Operating Officer, and Keith Stauffer, Chief Financial Officer, will host the call starting at 5:00 p.m. Eastern time. A question-and-answer session will follow management’s presentation.
|DATE:||Monday, November 14, 2022|
|TIME:||5:00 p.m. Eastern Time|
|REPLAY:||416-764-8677 or 1-888-390-0541|
Available until 12:00 midnight Eastern Time Monday, November 28, 2022Replay Code: 993713#
Financial results and analyses are available on the Company’s website (www.terrascend.com) and SEDAR (www.sedar.com).
The Canadian Securities Exchange (“CSE”) has neither approved nor disapproved the contents of this news release. Neither the CSE nor its Market Regulator (as that term is defined in the policies of the CSE) accepts responsibility for the adequacy or accuracy of this release.