08/13/20 07:50 AM EDT

TCNNF | Q2 2020 Earnings

Howard Penney

Daniel Biolsi

Takeaway: TRUL's Q2 beat and raise shows why it is a best in class operator.

Trulieve posted stronger-than-expected earnings, beat consensus estimates, and raised 2020 guidance. The company had record revenue in Q2 at $120.8M vs FactSet Consensus $106M, a 109% YoY increase and a 26% QoQ increase. Adjusted EBITDA was $60.5M vs FactSet Consensus $45.6M, growing 91% YoY and 22% QoQ. Gross margin improved to 75.4%, a 500 bps sequential increase from Q1’s gross margin of 70%. The company bolstered their cash position by generating $53.3 million in operating cash flow and spending $13.3 million in capital spending. The total cash on hand stands at $150.3M.

Net income was $6.6M, an 89% YoY decrease from Q1 2019. The decrease was primarily driven from the decrease in the fair value of biological assets of $83M period-over-period. The decrease in the fair value was due to the company’s decision to not do a spring plant for greenhouses in 2020 – as a result, there were less plants undergoing transformation and therefore a corresponding decrease in the fair value of biological assets, resulting in a decrease to net income

The company gave a new outlook on their 2020 guidance, raising revenue guidance to $465M - $485M from $380M - $400M, a roughly 22% increase. Adjusted EBITDA was raised to $205M - $225M from $140M - $160M, a roughly 43% increase. At the time of writing, FactSet Consensus estimates for 2020 are $440M for revenue and $197M for adjusted EBITDA.

The company added 5 new stores in Q2, bringing its Florida total to 54 and nationwide total to 56 – management expressed that they were “very, very comfortable” in meeting the yearend goal of 68 stores nationwide. Data from Florida’s Office of Medical Marijuana Use (OMMU) indicates that on a 12 week-moving average basis ending on July 2^nd (roughly Q2’s end), Trulieve had 19.3% market share of units, 51.4% share of mgs THC sold, 44.9% of mgs CBD sold, and 54.6% of flower (oz.) sold. As of August 7^th, the number of qualified patients with active ID cards in Florida’s medical marijuana program is ~389K, a 30% increase YTD.

Other Key Takeaways

Management indicated interest in exploring potential strategic M&A opportunities to continue the company’s expansion. Per CEO Kim Rivers, “As we enter the second half of the year, we will continue to actively explore M&A opportunities that will positively contribute to our business and adhere to our strict growth criteria.”
On patient behavior, at the end of Q2, walk-ins increased to 45%, deliveries decreased to 7% and pickups decreased to 48%.
For Q2, the customer retention rate was approximately 76% compared to 74% in Q1. Patients visited an average of 2.7 times per month with an average basket size of $125. Towards Q2’s end, baskets were settling at approximately $121. Same-store sales growth was 30% for the 26 stores that were open in both Q2 2020 and Q2 2019.
CFO Alex D’Amico, a recent addition to Trulieve’s management, outlined his top initiatives: to transition Trulieve to become a US reporting company (converting from IFRS to GAAP) and to strategically position Trulieve for M&A opportunities.
At the end of Q2, the company had cultivation of approximately 1.8M sq. ft. and annual capacity to produce 74,000 kilograms. Trulieve plans to bring on an additional ~100,000 sq. ft. of indoor grow by yearend.
Management anticipates a CapEx investment of approximately $60 million this year to expand store footprint and cultivation and estimates approximately $7 million dollars per month of CapEx spend in Florida for the remainder of 2020.
Rivers shared that Trulieve has been anticipating the introduction of edibles to the Florida market, with a state-of-the-art, 10,000 sq. ft. kitchen, products formulated, and in-house brands/brand partnerships in place.