Trulieve Cannabis Corp

Good morning everyone and welcome to the Trulieve Cannabis Corporation first quarter 2022 financial results conference call. My name is Andrew and I will be your conference operator today. As a reminder, this conference call is being recorded. If you require operator assistance, please press star then zero. I would now like to introduce your host for today's conference, Christine Hersey, Director of Investor Relations for Trulieve. You may begin.

Thank you. Good morning and thank you for joining us. During today's call, Kim Rivers, Chief Executive Officer, and Alex D'Amico, Chief Financial Officer, will deliver prepared remarks on the financial performance and outlook for Trulieve. Following the prepared remarks, we will open the call to questions. Steve White, President, will also be available to answer questions. As a reminder, Statements made during this call that are not historical facts constitute forward-looking statements, and these statements are subject to risks, uncertainties, and other factors that could cause our actual results to differ materially from our historical results or from our forecast, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including item 1A, risk factors of the company's annual report on Form 10-K for the year ended December 31, 2021. Although the company may voluntarily do so from time to time, it undertakes no commitment to update or revise these forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. During the call, management will also discuss certain financial measures that are not calculated in accordance with the United States generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. These measures should not be considered in isolation or as a substitute for truly financial statements prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is available in our earnings press release that is an exhibit to our current report on Form 8K that we furnished to the SEC today and can be found in the investor relations section of our website. Lastly, at times during our prepared remarks or responses to your questions, we may offer metrics to provide greater insight into the dynamics of our business or our quarterly results. Please be advised that we may or may not continue to provide these additional details in the future. This morning, we reported results for the first quarter of 2022. A copy of our earnings press release and an accompanying PowerPoint presentation may be found on the investor relations section of our website, www.trueleads.com. An archived version of today's conference call will be available on our website later today. I will now turn the call over to our CEO, Kim Rivers.

Please go ahead. Thanks, Christine, and good morning, everyone, and thank you for joining us today. I apologize about my voice, but we're going to give it a shot here. We're thrilled to report record first quarter results delivering top-line growth, gap margin improvement, and positive operating cash flow. Throughout the quarter, momentum grew with the strongest results in March in line with historical trends. Following this great start to the year, we continue to make progress as we execute on our strategic plan. Our team is laser focused on further optimizing assets across our platform and positioning our organization for the next phase of growth. Given our strong balance sheet, cash generation, and flexibility to adjust capital expenditures, Trulieve is incredibly well positioned in the current environment to take advantage of market conditions. I am highly confident in our strategy and our ability to capitalize on the opportunities ahead. Turning now to our first quarter results. Trulieve achieved record first quarter revenue of $318 million, up 64% year-over-year and 4% sequentially. First quarter revenue growth was primarily attributable to organic growth in both retail and wholesale channels. First quarter gap growth margin was 56% as compared to 43% last quarter, and adjusted growth margin was 58%. Adjusted EBITDA margin was 33%, or $105 million, representing our 17th consecutive profitable quarter. First quarter operating cash flow was $45 million, and we exited the quarter with $267 million in cash. Our retail platform grew to 162 locations, with market-leading positions in Arizona, Florida, and Pennsylvania. During the first quarter, production increased by 91% year-over-year and 24% sequentially to approximately 9.8 million units. Distribution across our retail and wholesale network is supported by over 4 million square feet of cultivation and processing capacity. The benefits of our scale and depth in markets were further illustrated last month by our strong performance on 420. Compared to the prior record results on Black Friday 2021, we achieved record revenue, transactions, and units, up 19%, 11%, and 18%, respectively. We marked the occasion with numerous events, including new product launches, Limited time offers strains and doorbuster promotions. The cannabis community turned out to celebrate the holiday, enjoying food trucks and DJs with lines wrapped around the buildings. The spike in demand on 420 underscores the tremendous untapped potential for this industry. As always, our team rose to the occasion, delivering great customer service. Our success on 420 reinforces how our strategy and positioning are designed to provide fantastic experiences every day, while having the flexibility to accommodate sharp increases in traffic and demand. Turning now to our cornerstone markets, strong first quarter results were driven by sequential revenue growth in Florida and Pennsylvania. In Florida, improved first quarter performance was attributable to a combination of factors. Lower promotional activity, several new branded product launches, greater availability of premium products, and greater depth of inventory for differentiated products all contributed to strong results. In Pennsylvania, revenue increased compared to the fourth quarter despite the recall of select vape products on February 4th due to stronger sales in the wholesale channel. During the fourth quarter call, we outlined plans to optimize assets and streamline operations across our affiliates. Year to date, we have made progress in accordance with our plan. We have been working to refine production mix and expand our branded product suite in order to better meet customer demand. We launched new branded products, including concentrates, flour, and vapes in premium and value segments. Throughout 2022, we are adding new branded products pending regulatory approvals. Our efforts to optimize our affiliated operations across Pennsylvania remain on track. In Arizona, we are focused on optimizing and augmenting our supply chain capacity to increase sales of internal products throughout our resale footprint. We have added indoor cultivation capacity, additional extraction technologies, added or changed lighting in some of the acquired facilities, and started to add additional automation. So in addition to increased capacity in coming quarters, We anticipate seeing better efficiency in the near term. As we move through 2022, we will continue to optimize our supply chain. First quarter results demonstrate further progress as we execute on our plan, building scale and depth in attractive markets. Our leadership and unrivaled success with this strategy to invest heavily in high conviction markets is undeniable. Trulieve has always tuned out the noise to focus on opportunities that meet our stringent criteria for investment. Given the current macro environment, we are actively managing our cash and expenditures. With $267 million in cash at quarter end and cash generation from operating assets, we are well positioned to weather short-term volatility in capital markets, and we can throttle capital expenditures based on market conditions and timing for expected catalysts. We have the flexibility and access to capital to be opportunistic with strategic acquisitions and investments within this tighter market environment. During our fourth quarter earnings call in March, we outlined four strategic priorities for TrueLeave in 2022 to reinforce our leadership position and set the stage for the future. These four initiatives focus on number one, delivering exceptional customer and retail experiences. Two, expanding through our regional hub strategy. Three, distributing branded products through branded retail and wholesale channels. And four, adhering to our disciplined approach to capital allocation. First, we are delivering exceptional customer and retail experiences. with convenient transactions, frictionless returns, broad and innovative product assortments, and enhanced loyalty and rewards programs. First quarter activities included rewards for return customers, appreciation offers for top customers, and hyper-personalized marketing outreach for specific brand activations. Personalized marketing is an effective tool to drive traffic for specific products and events, ensuring high sell-through and preserving margins while matching customers with their preferred products. We realize the benefits of this approach, garnering high sell-through rates for Muse Live Diamonds and Muse Live Sugar product releases in the first quarter. Second, we are continuing to expand through our regional hub strategy. We are investing in our distribution network to deepen our presence in cornerstone markets while developing emerging markets. In the first quarter, we opened three new medical dispensaries in Pennsylvania and Florida. Trulieve exited the first quarter with 162 retail locations in eight states. including 30% located outside of the state of Florida. This year, we're adding a total of 25 to 30 new dispensaries. Now turning to the supply chain. In the first quarter, we added indoor cultivation capacity for premium flower in Arizona, continued our expansion efforts in Florida and Pennsylvania, added capacity in West Virginia, and ramped capacity in Maryland ahead of adult use. We are leveraging our existing scale and depth across markets, providing a strong foundation for future growth. In the coming years, we fully expect to play a meaningful role in the development of new market opportunities in the southeast, like Georgia. In accordance with our regional hub strategy, we will continue to be opportunistic when expanding into new hubs and markets. Third, we are distributing branded products through branded retail and wholesale channels. Our product portfolio includes a wide variety of form factors across segments offered at appropriate price points. We are continually innovating in response to evolving preferences. In the first quarter, we launched several new products based on market feedback. Examples include RSO tinctures, value-sized single-serve edibles, and high-end Primo buds, which have one or two buds per eighth. We are very encouraged by the high velocity of sell-through for these products. Differentiated products are an important part of our strategy to meet customer demand while building and reinforcing long-term brand value. We now have a defined brand portfolio with specific brands that speak to customers and have successfully launched those brands across multiple markets. During the first quarter, we successfully launched Cultivar Collection, Muse, Modern Flower, Momenta, and Roll1 branded products across markets including Florida, Maryland, Massachusetts, Pennsylvania, and West Virginia. By offering the right branded products that customers want, we are demonstrating true brand building capabilities. As we continue to launch branded products across our markets and hubs, we can provide customers with a more consistent retail experience and greater access to our evolving product portfolio. In support of our brand-building efforts, in March we welcomed a new brand ambassador to the True Family, cancer survivor and winner of the Survivor television show, Ethan Zahn, who recently finished the Boston Marathon using Momenta products as part of his health and wellness program. Through sharing his personal experience, Ethan is an authentic and powerful advocate for cannabis and wellness, and we are thrilled to have him representing Momenta. National and mainstream media outlets, including ABC News, E! Online, and Health Digest, covered Ethan's participation in the marathon and his amazing journey, providing broader reach and exposure for Trulieve and the Momentum brand. Regional and local brand partnerships complement distribution of our own brands. In April, we launched Khalifa Kush pre-rolls in Arizona and Delisioso pre-rolls in Florida. While most folks know Wiz Khalifa, some may not be as familiar with Richard Delisi. He is one of the longest-serving nonviolent cannabis prisoners in U.S. history, having served 32 years of a 90-year sentence. Delisioso is a Florida-based cannabis brand founded by Richard Delisi and his son, Rick. The Delisioso brand pays it forward by donating a portion of its profits to nonprofits, including Free Delisi and The Last Prisoner Project, which was instrumental in securing Delisi's release in December 2020. Early responses to both branded products have been fantastic. Working with these amazing partners who bring such passion and energy to the industry is inspiring and further connects us to the community. Our branded retail platform is a key component of our overall customer experience and an important contributing factor to building long-term brand equity. During the first quarter, we completed the rebranding of all retail locations in Maryland and Pennsylvania to the Trulieve brand. Overall, initial performance for rebranded stores has been strong, with higher revenue and units sold realized at most locations. Fourth, we remain committed to our disciplined approach to capital allocation. We have a clear and defined strategy and well-established criteria for evaluating assets and markets. During this quarter, we divested redundant cultivation assets in Florida and a non-revenue generating location in Massachusetts, those of which were acquired as part of the harvest transaction. We continually evaluate the performance of assets across our platform and may choose to divest additional assets in the future as appropriate. As we reposition assets and streamline operations, we will continue to invest in our markets to add capacity, expand distribution, and fortify infrastructure to prepare for and support future growth. Our track record of profitability and disciplined capital allocation affords us access to growth capital at industry-leading terms. In January, we closed the second tranche of 8% senior secured notes, totaling $75 million. Trilieve has sufficient capital to fund our growth plans and strategic initiatives in 2022. We expect our strong balance sheet, access to capital, and financial discipline will uniquely position us to capitalize on market opportunities created by the macroeconomic factors impacting our industry. We are building a leading company in an emerging industry. As always, we are taking a proactive approach to strategic development and decision-making. We have a long track record of financial outperformance and positioning ahead of changes in market conditions. As we previously signaled, we expect to realize improved performance as our initiatives take hold. Year to date, we've made great progress on our plan and we're on track to reach our articulated goals this year. Trulieve is poised and ready to define the future of cannabis. With that, I'll turn the call over to Alex for more details on our first quarter.