Release Date: August 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ascend Wellness Holdings Inc (AAWH, Financial) reported a 15% year-over-year increase in revenue, reaching $141.5 million, and a 33% rise in adjusted EBITDA to $28.3 million.
- The company achieved positive cash flow from operations for the sixth consecutive quarter, generating $14 million in Q2.
- Ascend Wellness Holdings Inc (AAWH) successfully refinanced its term loan, securing $235 million in senior secured notes, enhancing financial flexibility.
- The company opened two new dispensaries and supported partners in opening two additional dispensaries in Illinois, expanding its retail footprint.
- Ascend Wellness Holdings Inc (AAWH) reported a 46% year-over-year growth in net wholesale revenue, driven by strong market penetration in Illinois, Massachusetts, and New Jersey.
Negative Points
- Wholesale profitability in the Massachusetts market declined, impacting overall financial performance.
- Increased competition in key markets like Illinois, New Jersey, and Massachusetts led to a sequential decline in retail revenue.
- Adjusted gross profit margins dropped by 635 basis points to 37.5% of revenue, driven by margin reductions in the wholesale business.
- The company faced challenges with product mix and increased discounting in the Massachusetts market, affecting profitability.
- Ascend Wellness Holdings Inc (AAWH) had to implement a reduction in headcount to streamline operations and address profitability declines.
Q & A Highlights
Q: Can you comment on the observed gross margin compression in Massachusetts and whether these drivers are temporary or permanent?
A: Mark Cassebaum, CFO: We expect continued pressure into Q3, with a rebound in Q4. The compression is due to product mix, discounting, and moving through low-margin inventory to manage working capital.
Q: Regarding Ohio's market structure, how much of a lift do you expect from the adult-use flip, and is this included in the updated guidance?
A: John Hartmann, CEO: We anticipate a 2 to 2.5 times lift from medical to adult-use, similar to Maryland. The updated guidance includes Ohio's non-medical sales.
Q: With recent headcount reductions, should we expect further synergies or changes in operating expenses?
A: Mark Cassebaum, CFO: We continuously review our business structure to align with market conditions, balancing COGS and SG&A to improve margins.
Q: What are you seeing in terms of wholesale sales and pricing in New Jersey, and is there room for growth?
A: Mark Cassebaum, CFO: Despite increased retail licenses, our wholesale penetration is strong, with over 95% of social equity doors and 82-83% of total doors in New Jersey. Wholesale business grew 30% year-over-year.
Q: How do you expect the adult-use conversion in Ohio to impact EBITDA margins?
A: Mark Cassebaum, CFO: Most revenue lift drops to the bottom line, but initial ramp-up is required. Over time, margins align with existing door profitability.
Q: Is the retail revenue pressure in Illinois, New Jersey, and Massachusetts due to price decline or transaction drop?
A: John Hartmann, CEO: It's a combination of increased competition and a slight decline in transactions. We've seen stabilization in July, and our forecast is based on current trends.
Q: How much did inventory issues in Massachusetts contribute to the gross margin decline, and what steps are being taken to stabilize it?
A: John Hartmann, CEO: Factors include product mix, testing changes affecting THC potency, and customer behavior. We are managing cultivation output and focusing on customer behavior and discounting.
Q: Are you confident in moving additional supply in Massachusetts with the new cultivation canopy coming online?
A: John Hartmann, CEO: Yes, the new facility allows us to produce new products and reduce biomass purchases, leveraging the asset for better pricing and product deployment.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
