TerrAscend Corp. (CSE: TER) (OTCQX: TRSSF) was down nearly 4% in late trading on Monday after the company posted revenue figures that missed expectations, coupled with a steep rise in net losses.
The multistate cannabis operator reported its financial results for the third quarter ending Sept. 30.
Net revenue for the third quarter totaled $67 million, up 3.4% sequentially and 36.4% since the same time last year. However, this missed Yahoo Finance’s average analysts’ estimate of $69.18 million.
In a statement, the company said that 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 Pennsylvania and Michigan.”
Net loss was $311 million versus $14.2 million of net income for the previous quarter. The loss was driven by a $331 million non-cash impairment “to goodwill and intangibles of its Michigan business.”
Earnings were for a loss of $1.23 per share, versus 30 cents per share in the same quarter last year.
“We took decisive action to reduce our operating expenses in the quarter while still generating record sales,” CEO Jason Wild said. “These factors combined to drive substantial improvement in adjusted EBITDA margins quarter-over-quarter and positive cash flow from operations.”
Gross margin for the quarter was 36.3%, impacted by a $6 million write-off of inventory in Canada, the company said.
Adjusted gross margin for the quarter, excluding the inventory write-off in Canada, was 46.1% versus 47.1% in the previous quarter. The drop represented a decline of 100 basis points sequentially, “driven mainly by temporary operational drags from Maryland and Canada.”
The company also said that it has now fully exited its legacy facility in Maryland and scaled down the business in Canada, “such 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 – almost 10% -to $26.7 million, 39.8% of revenue, versus $29.5 million – 45.5% of revenue – in the second quarter.
The $26.7 million G&A expenses in the third quarter included $3 million of one-time items mainly related to severance and legal settlements. It said that cost reductions, which included a 12% reduction in its workforce, are expected to generate further savings into the fourth quarter as the company builds out a full period 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.
TerrAscend ended the quarter with $34.3 million worth of cash. The company also said that it closed on a $45.5 million nonbrokered debt financing following the end of the quarter.
Cash flow from operations totaled a positive $1.5 million in the third quarter, an 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, which the company attributed to the recently completed expansion at TerrAscend’s Hagerstown facility. A $10 million cash component was included in the company’s closing of the Pinnacle acquisition.
There were 324 million shares outstanding as of Nov. 11, which includes 259 million common shares, with 13 million preferred shares as converted and 52 million exchangeable shares.