TerrAscend Corp. (CSE: TER) (OTCQX: TRSSF) ticked up in trading on Thursday despite missing expectations on revenue, which were buoyed by New Jersey sales and an injection of sales from its recent acquisition of Gage.
The multi-state cannabis operator reported its financial results for the first quarter ending June 30, 2022.
For the key metric of revenue, TerrAscend delivered approximately $65 million in total revenue during the period, a gain of 4.8% versus the same period last year — missing the Yahoo Finance Average analyst estimate for revenues of $77.4 million.
Net revenue increased 30% sequentially to $64.8 million as compared to $49.7 million in the previous quarter, according to SEDAR filings. The company attributed the growth to a “partial quarter of adult-use sales in New Jersey along with a full quarter of contribution related to the acquisition of Gage, partially offset by the Company’s decision to discontinue non-branded wholesale sales in Michigan.”
“We grew revenue 31% sequentially for the second quarter as New Jersey adult-use sales got off to a great start,” said executive chairman Jason Wild. “Growth should continue as we remain on track for each of our stores in New Jersey to achieve at least a $40 million run rate in their first full year of adult-use sales. Adjusted EBITDA and margins grew sequentially, and I expect this to continue into the second half of the year. The leadership team, which has been significantly bolstered over the past few quarters, remains focused on building the business for success over the long term and we will continue to make decisions with that mindset.”
The company reported a gross margin in the second quarter of 35.5%. Adjusted gross margin was 47.1% versus 38.4% in the previous quarter, an improvement of 870 basis points quarter over quarter.
The sequential margin expansion was driven by “strong improvements across all of the company’s core businesses,” it said. Adjusted gross margin excludes the one-time impact of reserves and write-downs related to aged inventory in Pennsylvania, it said, dating back to the revamp of its cultivation facility in the second half of last year.
The company also reported a second-quarter net income of $14.2 million versus a net loss of $23 million in the same period last year. The earnings were for a gain of five cents per share, versus earnings per share of $0.14 in the same period last year.
Adjusted EBITDA was $5.8 million in the second quarter of 2022, versus an income of $24.3 million in the same period last year. Adjusted EBITDA margin improved from 6.6% in the first quarter to 8.9% in the second quarter.
TerrAscend said that the improvement was driven by higher sales and improved gross margin, offset by higher General & Administrative expenses (G&A) expenses “with the addition of Gage for a full quarter and costs associated with the launch of adult-use in New Jersey.”
G&A expenses — excluding stock-based compensation — increased by $10 million versus the first quarter of 2022 to $29.5 million, “mainly driven by the full quarter addition of the Gage acquisition.”
“Excluding Michigan, G&A expenses were up $1.1 million quarter over quarter related to additional staffing and other pre-opening expenses in preparation for the start of adult-use sales in New Jersey. As a percentage of revenue, G&A increased to 45.5% in the second quarter from 38.7% in the previous quarter. The increase as a percentage of revenue was impacted by the addition of Gage for a full quarter as well as staffing for all three stores in New Jersey despite the delayed opening of the Lodi store, which opened subsequent to the quarter. ”
The company said it had $49 million worth of cash and cash equivalents in the second quarter, versus $88.4 million in the previous quarter. It said it possesses “ample liquidity and access to capital, mainly through its capacity for additional borrowing related to its unencumbered owned assets and minimal usage of sale-leasebacks.”
The company also said it has the ability to raise equity should the capital markets improve.
TerrAscend said it used $16.1 million worth of cash from operations due to tax payments of $9.2 million and interest payments of $6.4 million. Current income taxes payable at the end of the period was $13 million.
Capital expenditures — including deposits — were $12.3 million in the quarter, it said, primarily related to the ongoing expansion work at the company’s Maryland and Michigan cultivation and processing facilities. The company said that it also made final note payments of $5 million related to its previous acquisitions of HMS in Maryland and KCR in Pennsylvania.
As of August 11, 2022, there were 318 million basic shares outstanding including 253 million common shares, 13 million preferred shares as converted, and 52 million exchangeable shares.
New Jersey and Gage
Last year, the company signed an agreement to supply COOKIES licensed products and bring COOKIES Corners to all three Apothecarium dispensaries in New Jersey, in addition to inking a deal to acquire Gage Growth in March — and the moves have borne fruit since.
TerrAscend said that between the Cookies and Gage brands’ launches in New Jersey, the company has seen a 40% increase in sales for the first full weekend versus the prior weekend “with continued momentum and growth since launch.”
“Between our state lineup and the wide-open map that will allow us to be selective on where we go next, TerrAscend is set up for strong growth for years to come,” president and COO Ziad Ghanem said. “We will achieve that growth while improving margins and driving profitability.”