Ayr Wellness Inc. (CSE: AYR.A) (OTCQX: AYRWF) delivered financial results for the first quarter ending March 31, as revenue grew 18% to $117 million over last year’s $99.5 million.
It also grew 3% sequentially from the fourth quarter’s $114 million, however it did miss the Yahoo Finance average analyst estimate for sales of $124 million.
The net loss for the quarter was an eye-popping $197 million as the company took a loss from discontinued operations of $185 million, net of taxes (including loss on disposal of $180,753) related to the sale of the Arizona business. The operating losses were flat at $21 million.
“Revenue and adjusted EBITDA each modestly beat our expectations, and respectively grew quarter over quarter by 3% and 9%,” David Goubert, president & CEO of Ayr, said. “We grew revenue by 18% year-over-year and adjusted EBITDA over 60% year-over-year with significantly expanded adjusted EBITDA margin, while generating positive operating cash flow for the third consecutive quarter.”
Many Moving Parts
Ayr Wellness has been very busy adding parts and also opting to walk away from some deals. The company decided against buying Gentle Ventures, also known as Dispensary 33, which would have been two licensed retail dispensaries in Chicago.
Instead the company pivoted to Ohio, where it agreed to an option to buy two Ohio dispensary licenses from Daily Releaf and Heaven Wellness to begin establishing a vertically integrated presence in the state.
After the quarter ended, Ayr closed on a deal to buy Nevada-based Tahoe Hydroponics.
“From a balance sheet standpoint, we were pleased to announce that we have reached an agreement to provide significant liquidity improvement for the next few years via amendments to contingent consideration for the acquisitions of Garden State Dispensary and Sira Naturals, as well as resolving what otherwise would have been a potentially significant near-term dilution event for our shareholders, related to our acquisition of GSD,” Goubert said. “The agreements align with our goal of prioritizing the financial health of the company and allow AYR to remain flexible as we continue to scale and optimize the business.”
Ayr also managed to change the terms regarding the agreements to buy GSD NJ LLC and Sira Naturals Inc. in order to give the balance sheet a little more breathing room.
The amendment for GSD NJ settles the contingent consideration with total proceeds of $37.2 million, consisting of:
- $10 million in cash.
- $14 million in promissory notes.
- $3 million in equity shares.
- $10.2 million in cash payable at a future time based on circumstances related to negotiations with other debtholders.
The promissory notes are due December 2026 with monthly interest-only payments of 13.5% until May 2024 (with 1% monthly amortization thereafter).
The amendment for Sira Naturals Inc. represented a two-year deferral of $27.5 million in proceeds from the original May 2024 payment date, with an annual interest rate of 6.0% and 10% annual amortization payments.
In addition, the company executed amendments to promissory notes issued to the GSD NJ to extend the maturity dates of notes with outstanding principal amount of $27.65 million in the aggregate for two years, conditioned upon, among other things, holders of at least 75% of the Senior Secured Notes agreeing to extend the maturity date of such notes by at least two years.
The company ended the quarter with a cash balance of $96.5 million.
Ayr Wellness said it expects second-quarter revenue and adjusted EBITDA will grow in line with first quarter sequential growth trends. AYR also reiterated its expectation of generating positive cash flow from operations for the full year 2023, although the company cautioned that operating cash flow trends will not be linear given the timing of tax payments.
“I am encouraged to see the early progress in the execution of our 2023 optimization plan, which includes initiatives aimed at boosting sales, improving margins, reducing operating expenses and unlocking working capital through better inventory management,” Goubert said. “Managing cash is crucial at this stage of the cannabis industry, and the plan has already begun to improve our balance sheet and overall financial health.”