Ayr Strategies Inc. (CSE: AYR.A, OTCQX: AYRSF) (“Ayr”), a
vertically-integrated cannabis multi-state operator (MSO), is
reporting financial results for the three months ended March 31,
2020. Unless otherwise noted, all results are presented in U.S.
dollars.
“Our results in 2020 have continued to
demonstrate the strength of our business and the superior
capabilities of our team,” said Jonathan Sandelman, CEO of Ayr
Strategies. “Although cannabis has been deemed an ‘essential
business’, the regulators in Massachusetts and Nevada, where we
currently operate, were among the few nationwide to place material
restrictions on cannabis sales. So unlike many cannabis
companies in the U.S., our business faced headwinds.”
“Despite these limitations, in the first quarter
we produced sequentially higher revenue and substantial adjusted
EBITDA, and added material cash from operations to our balance
sheet,” continued Sandelman. “Since then, we have
successfully accelerated our digital transformation initiatives,
and we expect to exit the challenges presented by COVID a
materially stronger business, as evidenced by the rebound in ticket
size, transaction volume and retail margins we are seeing thus far
in May.
“However, given the disruption caused by COVID,
and the uncertainty around the pandemic’s ultimate impact on our
markets and the regulatory environment, our prior revenue and
adjusted EBITDA guidance for 2020 can no longer apply. Even
though COVID has delayed some of our initiatives, we are confident
that we will deliver strong revenue and adjusted EBITDA growth over
the prior year.”
Q1 Financial Highlights
- Revenue: Total revenue increased 4% to $33.6
million compared to $32.3 million in Q4 2019, driven through early
March by higher retail sales in Nevada and higher wholesale
revenues in Massachusetts. Revenues declined beginning in
mid-March due to COVID-related closures and began to rebound in
Q2
- Gross Profit1: Gross profit
increased 10% to $16.6 million compared to $15.1 million in Q4
2019
- Adjusted EBITDA: Adjusted EBITDA was $8.4
million compared to $9.2 million in Q4 2019, as March expenses
decreased at a slower pace than revenues, which declined due to
COVID-related closures
- Loss from Operations: Loss from operations
improved to $4.9 million compared to $16.9 million in Q4 2019
- Cash Flow from Operations: Cash generated by
operating activities increased 85% to $7.4 million compared to $4.0
million in Q4 2019
- Balance Sheet: At March 31, 2020, cash and
cash equivalents was $9.9 million, an 18% increase compared to $8.4
million of cash and cash equivalents at December 31, 2019
“Through early March, our business was
performing well above the record pace we set in the fourth quarter
of 2019,” continued Sandelman. “Had regulators not restricted
our businesses in mid-March, total revenue and adjusted EBITDA
would have been up nearly 16% and 10% quarter-over-quarter,
respectively.
“In Q2, we are pleased to have
continued to produce positive adjusted EBITDA and cash flow from
operations in both April and May to date, despite the COVID
shutdowns. In fact, because of the improvements made to our
business model in April, for those business areas currently open
(only our Massachusetts wholesale business is closed) May is pacing
to produce more adjusted EBITDA than our prior monthly records in
January and February 2020. Given that regulators announced on
Monday that Massachusetts adult use sales can commence again next
week, we anticipate returning to Q1 levels of adjusted EBITDA or
better beginning in June.”
Operational Highlights
As a reminder, Nevada regulators limited all
cannabis sales to delivery-only beginning March 21, 2020, with
curbside pick-up approved on May 1st and in-store sales on May
9th. In Massachusetts, regulators restricted adult use
cannabis sales beginning March 24, 2020, with adult use curbside
pick-up scheduled to re-commence on May 25th.
Nevada May to Date Retail
- Average daily revenues are currently over $200k; daily
transaction volumes over 2,400, with average ticket of $84 per
transaction; estimated gross margin levels just under 60%
- We have retooled our technology, rapidly implemented new
software and an e-commerce oriented website, and launched digital
marketing campaigns to support online sales
- As a result of these business initiatives, May adjusted EBITDA
in the state is tracking 3% above the record months of January and
February 2020 despite lower revenues
Massachusetts May to Date Retail
- Average daily revenues are currently over $59k; daily
transaction volumes over 300, with average ticket of $186 per
transaction; estimated gross margin levels in the low 60%
range
- We successfully redirected wholesale capacity into our retail
stores, increased available inventory and average spend, promoted
incentive programs to increase penetration of medical cards and
increased medical patient count
- As a result, May dispensary revenues are tracking to over $1.8
million, 90% above January and February 2020 levels
Cultivation Expansions
- In Massachusetts, we have completed four harvests to date from
our cultivation expansion, resulting in strong inventories
available to address pent-up demand when adult use sales are
expected to resume May 25
- Massachusetts cultivation expansion is expected to double
wholesale capacity from the $2.5 million monthly average in Q1 and
is expected to improve gross margins in the state from the low 60%
range in Q1 to approximately 70% in Q2 and beyond
- In Nevada, product from our cultivation expansion is expected
to arrive in stores in June, allowing for internally sourced
product to increase from 25% in Q1 up to 50% in Q2
- Nevada gross margin is expected to increase as a result, from
45% in Q1 to approximately 60% in Q2
“Over the weeks following the COVID closures, we
streamlined and improved our business. In Nevada, prior to
COVID, growth from our existing dispensary footprint was limited by
transaction capacity. Today, with Ayr generating higher
levels of adjusted EBITDA on fewer transactions, we estimate our
adjusted EBITDA capacity has increased 35% in the state, assuming
we can reach pre-COVID revenue at these margin levels,” said Mr.
Sandelman.
“In Massachusetts, the excellent results being
generated from our newest cultivation facility put us in a position
to address the wholesale market with more than double our prior
capacity. In terms of our Massachusetts retail operations, we
entered 2020 expecting one of our current medical dispensaries to
open for adult use sales in May, and two more in September; and in
supplement to these, in February we secured an alternate adult-use
license in a favorable greater Boston town. However, COVID
has closed local governments in Massachusetts and delayed approvals
for these adult use dispensary conversions by several months, if
not more. While we are disappointed at the COVID-related
delays in converting to adult-use sales in our dispensaries, we are
confident that our high density, high traffic greater Boston
locations will result in persistently strong retail sales
opportunities when our stores convert to adult use.
“As a management team, we work tirelessly to
exceed expectations on what we can control, and to mitigate what we
can’t. We will continue to execute on our strategy and seek
to operate at the highest levels, and the strong foundation and
culture we have created at Ayr is expected to pay off as we further
expand in 2020.
“I want to highlight how impressively the men
and women on our team have pulled together to reshape our company
through COVID. Looking forward, it is this strong culture
that we believe will differentiate us from our competitors.”
_____________________________1 Q1 2020 gross
profit is compared to “adjusted gross profit” in Q4 2019,
refer to the “Definition and Reconciliation of Non-IFRS Measures”
section below for additional information.
Conference Call
Ayr CEO Jonathan Sandelman, COO Jennifer Drake and
CFO Brad Asher will host a conference call, followed by a question
and answer period.
Conference Call Date: Thursday, May 21, 2020Time:
8:30 a.m. Eastern timeToll-free dial-in number: (877)
282-0546International dial-in number: (270) 215-9898Conference ID:
9793158
Please call the conference telephone number 5-10
minutes prior to the start time. An operator will register your
name and organization. If you have any difficulty connecting with
the conference call, please contact Gateway Investor Relations at
(949) 574-3860.
The conference call will be broadcast live and
available for replay here.
A telephonic replay of the conference call will
also be available after 11:30 a.m. Eastern time on the same day
through May 28, 2020.
Toll-free replay number: (855)
859-2056International replay number: (404) 537-3406Replay ID:
9793158
Financial Statements
Certain financial information reported in this news
release is extracted from Ayr’s financial statements as at and for
the three month period ended March 31, 2020. These results
presented herein are preliminary and subject to change. Ayr will
file its interim financial statements on SEDAR shortly. All such
financial information contained in this news release is qualified
in its entirety by reference to such financial statements.
Definition and Reconciliation of
Non-IFRS Measures
The Company reports certain non-IFRS measures that
are used to evaluate the performance of its businesses and the
performance of their respective segments, as well as to manage
their capital structures. As non-IFRS measures generally do not
have a standardized meaning, they may not be comparable to similar
measures presented by other issuers. Securities regulators require
such measures to be clearly defined and reconciled with their most
comparable IFRS measure.
The Company references non-IFRS measures and
cannabis industry metrics in this document and elsewhere. Non-IFRS
measures are not recognized measures under IFRS and do not have a
standardized meaning prescribed by IFRS and are therefore unlikely
to be comparable to similar measures presented by other companies.
Rather, these are provided as additional information to complement
those IFRS measures by providing further understanding of the
results of the operations of the Company from management’s
perspective. Accordingly, these measures should not be considered
in isolation, nor as a substitute for analysis of the Company’s
financial information reported under IFRS. Non-IFRS measures used
to analyze the performance of the Company’s businesses include
“adjusted EBITDA” and “adjusted gross profit”.
The Company believes that these non-IFRS financial
measures provide meaningful supplemental information regarding the
Company’s performances and may be useful to investors because they
allow for greater transparency with respect to key metrics used by
management in its financial and operational decision-making. These
financial measures are intended to provide investors with
supplemental measures of the Company’s operating performances and
thus highlight trends in the Company’s core businesses that may not
otherwise be apparent when solely relying on the IFRS measures.
Adjusted EBITDA
“Adjusted EBITDA” represents income (loss) from
operations, as reported, before interest and tax, adjusted to
exclude extraordinary items, non-recurring items, other non-cash
items, including stock-based compensation expense, depreciation and
amortization, the adjustments for the accounting of the fair value
of biological assets and the incremental costs to acquire cannabis
inventory in a business combination, and further adjusted to remove
acquisition related costs.
Adjusted Gross Profit
“Adjusted gross profit” represents the gross
profit, as reported, adjusted to exclude the accounting for the
fair value of biological assets and the incremental costs to
acquire cannabis inventory in a business combination.
A reconciliation of how Ayr calculates adjusted
EBITDA is provided below. Additional reconciliations of
adjusted EBITDA and other disclosures concerning non-IFRS measures
will be provided in our MD&A for the 3 months ended March 31,
2020. For a reconciliation of how Ayr calculates adjusted
gross profit refer to the MD&A for the three months and
year-end December 31, 2019. As well, the Company reminds you that
adjusted EBITDA and adjusted gross profit are non-IFRS
measures.
Forward-Looking Statements
Certain information contained in this news release
may be forward-looking statements within the meaning of applicable
securities laws. Forward-looking statements are often, but not
always, identified by the use of words such as “target”, “expect”,
“anticipate”, “believe”, “foresee”, “could”, “estimate”, “goal”,
“outlook”, “intend”, “plan”, “seek”, “will”, “may”, “tracking”,
“pacing” and “should” and similar expressions or words suggesting
future outcomes. This news release includes forward-looking
information and statements pertaining to, among other things, Ayr’s
future growth plans. Numerous risks and uncertainties could cause
the actual events and results to differ materially from the
estimates, beliefs and assumptions expressed or implied in the
forward-looking statements, including, but not limited to:
anticipated strategic, operational and competitive benefits may not
be realized; events or series of events may cause business
interruptions; required regulatory approvals may not be obtained;
acquisitions may not be able to be completed on satisfactory terms
or at all; and Ayr may not be able to raise additional capital.
Among other things, Ayr has assumed that its businesses will
operate as anticipated, that it will be able to complete
acquisitions on reasonable terms, and that all required regulatory
approvals will be obtained on satisfactory terms and within
expected time frames.
2020 estimates and assumptions involve known and
unknown risks and uncertainties that may cause actual results to
differ materially. While Ayr believes there is a reasonable basis
for these assumptions, such estimates may not be met. These
estimates represent forward-looking information. Actual results may
vary and differ materially from the estimates.
Assumptions
Forward-looking information in this subject to the
assumptions and risks as described in our MD&A for March 31,
2020. For more information about the Company’s 2020 operations and
outlook, please view Ayr’s corporate presentation posted in the
Investors section of the Company’s website at
www.ayrstrategies.com. As well, we remind you that adjusted EBITDA
and adjusted gross profit are non-IFRS measures. Additional
reconciliations and other disclosures concerning non-IFRS measures
will be provided in our MD&A for the 3 months ended March 31,
2020.
About Ayr Strategies Inc.
Ayr Strategies (“Ayr”) is an expanding vertically
integrated, U.S. multi-state cannabis operator, focusing on
high-growth markets. With anchor operations in Massachusetts and
Nevada, the company cultivates and manufactures branded cannabis
products for distribution through its network of retail outlets and
through third-party stores. Ayr strives to enrich and enliven
consumers’ experience every day – helping them to live their best
lives, elevated.
Ayr’s leadership team brings proven expertise in
growing successful businesses through disciplined operational and
financial management, and is committed to driving positive impact
for customers, employees and the communities they touch. For
more information, please visit www.ayrstrategies.com.
Company Contact:Jennifer Drake,
COOT: (212) 299-7606
Investor Relations Contact:Sean
Mansouri, CFA or Cody SlachGateway Investor RelationsT: (949)
574-3860Email: ayr@gatewayir.com
Ayr Strategies Inc. (formerly, Cannabis
Strategies Acquisition Corp.)
Unaudited Condensed Interim Consolidated
Statements of Financial Position
(Expressed in United States
Dollars)
|
|
|
|
|
|
As at |
|
|
March 31, 2020 |
|
December
31, 2019 |
|
|
|
$ |
|
$ |
|
ASSETS |
|
|
Current |
|
|
|
Cash and cash equivalents |
9,935,245 |
|
8,403,196 |
|
|
Accounts
receivable |
493,730 |
|
2,621,239 |
|
|
Due from
related parties |
85,000 |
|
85,000 |
|
|
Inventory |
17,831,232 |
|
13,718,840 |
|
|
Biological
assets |
6,131,439 |
|
2,935,144 |
|
|
Prepaid expenses and other current assets |
2,325,204 |
|
2,163,329 |
|
|
|
36,801,850 |
|
29,926,748 |
|
Non-current |
|
|
|
Property,
plant and equipment |
39,747,420 |
|
37,152,861 |
|
|
Intangible
assets |
186,423,469 |
|
189,802,136 |
|
|
Right-of-use
assets |
11,857,489 |
|
12,315,417 |
|
|
Goodwill |
84,837,304 |
|
84,837,304 |
|
|
Equity
investments |
412,274 |
|
427,399 |
|
|
Other
assets |
698,395 |
|
638,394 |
|
Total assets |
360,778,201 |
|
355,100,259 |
|
|
|
|
|
LIABILITIES |
|
|
Current |
|
|
|
Trade
payables |
7,677,778 |
|
6,806,053 |
|
|
Accrued
liabilities |
4,352,751 |
|
5,123,865 |
|
|
Lease
obligations - current portion |
1,014,632 |
|
1,087,835 |
|
|
Purchase
consideration payable |
10,630,993 |
|
9,831,700 |
|
|
Income tax
payable |
9,246,939 |
|
5,202,943 |
|
|
Debts
payable - current portion |
7,399,151 |
|
6,628,843 |
|
|
|
40,322,244 |
|
34,681,239 |
|
Non-current |
|
|
|
Deferred tax
liabilities |
41,686,448 |
|
41,077,761 |
|
|
Warrant
liability |
22,192,412 |
|
36,874,124 |
|
|
Lease
obligations - non-current portion |
12,823,044 |
|
13,033,310 |
|
|
Contingent
consideration |
23,013,758 |
|
22,656,980 |
|
|
Debts
payable - non-current portion |
35,790,023 |
|
37,366,818 |
|
|
Accrued
interest payable |
1,187,211 |
|
815,662 |
|
Total liabilities |
177,015,140 |
|
186,505,894 |
|
|
|
|
|
SHAREHOLDERS' EQUITY (DEFICIENCY) |
|
|
|
Share
capital |
382,210,006 |
|
382,210,006 |
|
|
Treasury
stock |
(552,911 |
) |
(245,469 |
) |
|
Contributed
surplus |
41,024,527 |
|
28,879,225 |
|
|
Accumulated
other comprehensive income |
5,041,378 |
|
3,265,610 |
|
|
Deficit |
(243,959,939 |
) |
(245,515,007 |
) |
Total shareholders' equity (deficiency) |
183,763,061 |
|
168,594,365 |
|
Total liabilities and shareholders' equity |
360,778,201 |
|
355,100,259 |
|
|
|
|
|
Ayr Strategies Inc. (formerly, Cannabis
Strategies Acquisition Corp.)
Unaudited Condensed Interim Consolidated
Statements of Loss and Comprehensive Loss
(Expressed in United States
Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
March 31, 2020 |
|
March 31,
2019 |
|
|
|
|
|
|
|
|
Restated |
|
|
|
|
|
|
$ |
|
$ |
|
|
|
|
|
|
|
|
Revenues, net of discounts |
|
|
|
33,552,681 |
|
- |
|
|
|
|
|
|
|
|
Cost of goods sold before biological asset adjustments |
|
|
|
16,910,723 |
|
- |
|
|
|
|
|
|
|
|
Gross profit before fair value adjustments |
|
|
|
16,641,958 |
|
- |
|
|
|
|
|
|
|
|
Fair value adjustment on sale of inventory |
|
|
|
(7,003,489 |
) |
- |
|
Unrealized gain on biological asset transformation |
|
|
|
10,625,878 |
|
- |
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
20,264,347 |
|
- |
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
General and administrative |
|
|
|
8,806,232 |
|
- |
|
|
Sales and
marketing |
|
|
|
534,598 |
|
- |
|
|
Depreciation |
|
|
|
524,631 |
|
105,990 |
|
|
Amortization |
|
|
|
2,998,666 |
|
- |
|
|
Stock-based
compensation |
|
|
|
12,145,302 |
|
- |
|
|
Acquisition
expense |
|
|
|
128,380 |
|
1,420,678 |
|
Total expenses |
|
|
|
25,137,809 |
|
1,526,668 |
|
|
|
|
|
|
|
|
Loss from operations |
|
|
|
(4,873,462 |
) |
(1,526,668 |
) |
|
|
|
|
|
|
|
Other (expense) income |
|
|
|
|
|
|
Share of
loss on equity investments |
|
|
|
(15,126 |
) |
- |
|
|
Foreign
exchange |
|
|
|
(2,810 |
) |
16,715 |
|
|
Unrealized
gain (loss) - changes to fair value of financial liabilities |
|
|
|
11,749,873 |
|
(135,384,772 |
) |
|
Interest
expense |
|
|
|
(766,416 |
) |
(17,040 |
) |
|
Interest
income |
|
|
|
(573 |
) |
226,500 |
|
|
Other |
|
|
|
116,265 |
|
- |
|
Total other income (expense) |
|
|
|
11,081,213 |
|
(135,158,597 |
) |
|
|
|
|
|
|
|
Income (Loss) before income tax |
|
|
|
6,207,751 |
|
(136,685,265 |
) |
|
|
|
|
|
|
|
|
Current
tax |
|
|
|
(4,043,996 |
) |
- |
|
|
Deferred
tax |
|
|
|
(608,687 |
) |
- |
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
1,555,068 |
|
(136,685,265 |
) |
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment |
|
|
|
1,775,768 |
|
(1,146,962 |
) |
|
|
|
|
|
|
|
Net income (loss) and comprehensive income
(loss) |
|
|
|
3,330,836 |
|
(137,832,227 |
) |
|
|
|
|
|
|
|
Basic earnings (loss) per share |
|
|
|
0.06 |
|
(36.98 |
) |
Diluted earnings (loss) per share |
|
|
|
0.05 |
|
(36.98 |
) |
|
|
|
|
|
|
|
Weighted average number of shares outstanding
(basic) |
|
|
|
26,889,923 |
|
3,696,486 |
|
Weighted average number of shares outstanding
(diluted) |
|
|
|
29,739,435 |
|
3,696,486 |
|
|
|
|
|
|
|
|
Ayr Strategies Inc. (formerly, Cannabis
Strategies Acquisition Corp.)
Unaudited Condensed Interim Consolidated
Statements of Cash Flows
(Expressed in United States
Dollars)
|
|
|
|
Three Months Ended |
|
March 31, 2020 |
|
March 31,
2019 |
|
|
|
|
Restated |
|
|
$ |
|
$ |
|
Operating activities |
|
|
Net income (loss) |
1,555,068 |
|
(136,685,265 |
) |
Adjustments for: |
|
|
Net unrealized (gain) loss on changes in the fair value of
financial liabilities |
(11,749,873 |
) |
135,384,772 |
|
Stock-based compensation |
12,145,302 |
|
- |
|
Depreciation |
889,510 |
|
105,990 |
|
Amortization on intangible assets |
3,378,666 |
|
- |
|
Share of loss on equity investments |
15,126 |
|
- |
|
Fair value adjustment on sale of inventory |
7,003,489 |
|
- |
|
Unrealized gain on biological asset transformation |
(10,625,878 |
) |
- |
|
Deferred tax expense |
608,687 |
|
- |
|
Interest accrued |
371,549 |
|
- |
|
Interest income |
- |
|
(226,500 |
) |
Changes in non-cash operations, net of business
acquisition: |
|
|
Accounts receivable |
2,127,509 |
|
- |
|
Inventory and biological assets |
(3,686,298 |
) |
- |
|
Prepaid expenses and other assets |
(221,876 |
) |
266,121 |
|
Trade payables |
2,279,780 |
|
- |
|
Accrued liabilities |
(771,114 |
) |
1,112,379 |
|
Income tax payable |
4,043,996 |
|
- |
|
Cash provided by (used in) operating activities |
7,363,643 |
|
(42,503 |
) |
|
|
|
Investing activities |
|
|
Purchase of property, plant and equipment |
(4,434,196 |
) |
- |
|
Advances from related corporation |
- |
|
66,875 |
|
Cash (used in) provided by investing activities |
(4,434,196 |
) |
66,875 |
|
|
|
|
Financing activities |
|
|
Repayments of debts payable |
(806,487 |
) |
- |
|
Repayments of lease obligations (principal portion) |
(283,469 |
) |
- |
|
Repurchase of Subordinate Voting Shares |
(307,442 |
) |
- |
|
Cash used in financing activities |
(1,397,398 |
) |
- |
|
|
|
|
Net
increase in cash |
1,532,049 |
|
24,372 |
|
Effect of foreign currency translation |
- |
|
(97,978 |
) |
Cash
and cash equivalents, beginning of the period |
8,403,196 |
|
109,952 |
|
Cash and cash equivalents, end of the period |
9,935,245 |
|
36,346 |
|
|
|
|
Supplemental disclosure of cash flow
information: |
|
|
Interest
paid during the period |
607,288 |
|
- |
|
Taxes paid
during the period |
- |
|
- |
|
|
|
|
Ayr Strategies Inc. (formerly, Cannabis
Strategies Acquisition Corp.)
Unaudited Condensed Interim Consolidated
Adjusted EBITDA Reconciliation
(Expressed in United States
Dollars)
|
Three Months ended March 31, |
|
2020 |
|
|
2019 |
|
Loss from
operations |
(4,873,462 |
) |
|
(1,526,668 |
) |
|
|
|
|
Non-cash items accounting for biological assets and
inventory |
|
|
Fair value
adjustment on sale of inventory |
7,003,489 |
|
|
- |
|
Unrealized
gain on biological asset transformation |
(10,625,878 |
) |
|
- |
|
|
(3,622,389 |
) |
|
- |
|
|
|
|
|
Interest |
212,421 |
|
|
- |
|
Depreciation
and amortization (from statement of cash flows) |
4,268,176 |
|
|
105,990 |
|
Acquisition
costs |
128,380 |
|
|
1,420,678 |
|
Stock-based
compensation, non-cash |
12,145,302 |
|
|
- |
|
Other1 |
181,112 |
|
|
- |
|
|
16,935,391 |
|
|
1,526,668 |
|
|
|
|
|
Adjusted EBITDA (non-IFRS) |
8,439,540 |
|
|
- |
|
|
|
|
|
1 Other adjustments made to exclude the impact of non-recurring
items. |
|
|
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