Trulieve Cannabis Corp

Good morning, everyone, and welcome to the Trulieve Cannabis Corporation Fourth Quarter and Full Year 2022 Financial Results Conference Call. My name is Betsy, and I will be your conference operator today. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Christine Hersey, Vice President 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. This morning, we reported fourth quarter and full year 2022 results. A copy of our earnings press release and PowerPoint presentation may be found on the investor relations section of our website, www.trueleaf.com. An archived version of today's conference call will be available on our website later today. 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 forecasts, 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 31st, 2022. 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's financial results 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 financial results. Please be advised that we may or may not continue to provide these additional details in the future. I'll now turn the call over to our CEO, Kim Rivers.

Please go ahead. Thanks, Christine. Good morning, everyone, and thank you for joining us today. We are pleased to report fourth quarter and full year results and provide an overview of our 2023 outlook. Since inception, Trulieve has embraced a strategy-driven approach to building a sustainable and scalable company. This winning philosophy has been a key contributor to our long track record of profitable growth. In 2022, revenue surpassed $1.2 billion, a huge milestone considering our very first sale was just six and a half years ago. In order to achieve such remarkable growth, a lot of things had to go right, and the team had to make a lot of intelligent decisions along the way. Our success is attributable to operational excellence, well-timed capital raises, and legal and regulatory victories, all by design and a byproduct of thoughtful intention. Initially, Trulieve was primarily focused on market development within Florida. Our commitment and investment in our home state was the driving force of our success from that very first sale in 2016. In 2021, we meaningfully expanded our reach, completing seven acquisitions, including the largest completed transaction in U.S. cannabis history. With this change, our company transformed into a diversified, multi-state operator with the leading retail cannabis footprint in the world. The timing of this major expansion at Trulieve coincided with a reversal in favorable economic trends brought about by the unwinding of COVID-related tailwinds and a decade-long period of global excess liquidity. The goal of 2022 was to digest and integrate Harvest while transforming the company into a scaled multi-state operator. Following a series of strategic planning sessions in mid-2022, our ongoing merger integration efforts evolved into a broader set of actions designed to bolster our business resilience while improving our competitive positioning for the long term. The two objectives that we have for 2023 are one, maximize cash generation and preservation, and two, make strategic investments to support future growth. Efforts to boost cash generation began in earnest in 2022 and will continue this year. The net result of these actions is meaningful improvement with anticipated operating cash flow of $100 million up from $23 million in 2022. We expect higher operating cash flow combined with at least 50% lower capital expenditures will yield positive free cash flow. We are targeting annualized gross cost savings of approximately $100 million, partially offset by investments in strategic growth initiatives. Actions taken to date include shuttering of margin and cash dilutive assets, adjustments of production mix and capacity utilization, and inventory and expense reduction. As a result of the elimination of redundancies and the harvest integration, we have reduced wages by approximately 20%. Last year, we jettisoned select California retail assets, exited the Nevada market, shuttered duplicative production assets in Florida, and adjusted canopy to align with current demand. As we fully ramp our new 750,000 square foot indoor facility in Florida, we plan to pull back additional canopy at legacy sites, continuing to bank capacity for future use. The new facility utilizes state-of-the-art automation and a proprietary design, which we expect will yield efficiencies and cost savings as the facility ramps throughout the year. Lower production costs should lead to lower cost of goods sold as inventory from legacy sites is reduced and more product from this facility is sold through our retail network. Production mix adjustments and targeted promotional activity were utilized in the fourth quarter to accelerate inventory reduction and generate cash. Inventory was reduced by $4 million, representing a meaningful shift compared to the inventory build of $32 million in the third quarter. We are prioritizing inventory reduction throughout 2023, which will pressure growth margin but increase cash generation. In December, we closed $90 million in loans with an average fixed interest rate of 7.5%, which is lower than our overall interest rate of 8.2%. With our strong financial profile, including additional unencumbered real estate and anticipated free cash flow, Trulieve has significant optionality and access to a capital at attractive rates. Given our financial strength and operational flexibility, our team is well equipped to navigate the current economic climate. While industry headwinds have persisted into 2023, we believe industry growth will resume as cyclical trends inevitably reverse and numerous catalysts come to fruition. Turning now to our results. Full year revenue of $1.24 billion increased 32% compared to 2021. Contributions from the harvest acquisition, new market expansion, and new store openings in existing markets drove top line growth. Adjusted EBITDA of $400 million, or 32% margin, increased 4% over 2021. Full year adjusted EBITDA reflects integration and repositioning activities following the harvest acquisition and shifts in the economy and competitive dynamics across our markets. Fourth quarter revenue of $302 million was up slightly, with 2% growth in retail revenue. Adjusted EBITDA was 85 million, or 28% margin, representing our 20th consecutive profitable quarter. Fourth quarter adjusted EBITDA reflects margin pressure due to inventory flow-through and miscellaneous one-time year-end accounting true-ups and investments in new markets and accruals. Fourth quarter operating cash flow was $55 million, and free cash flow was $21 million. We exited the year with $219 million in cash. The only near-term debt maturity is $130 million due in June 2024. Beginning in July, this debt can be prepaid without penalty. With our cash balance, cash generation, and access to capital, PureLeave is well-positioned to retire this debt. Our strong capital position affords Trulieve the luxury of continuing to make thoughtful investments during this cycle when many cannabis operators are fighting for survival with expensive debt maturities looming within this tighter capital market environment. These growth opportunities include the Florida Adult Use Ballot Initiative, new market and retail development, M&A, and technology to drive success in an integrated commerce environment. The most impactful upcoming opportunity for Trulieve is the potential launch of adult use sales in Florida. As such, Trulieve intends to continue financial support of the Smart and Safe Florida campaign for an adult use ballot initiative. Campaign efforts are ongoing to collect the 890,000 validated signatures required for inclusion on the November 2024 ballot. As of mid-February, the campaign gathered over one million raw signatures, and the state of Florida just reported that 420,000 of those have been validated. With 22 million residents and 138 million annual tourist visits, We believe Florida will be a top legal cannabis market, reaching $6 billion in annual revenue. Given our leading and outsized market share in Florida, the adult yeast opportunity will be a very meaningful contributor to financial performance in the near term. Today, we announced the opening of our 184th store in Palatka, Florida. Alongside retail expansion and poor markets, we will continue to invest in new market development. In Georgia, we began production at our ADEL facility last year, and we expect to launch sales at our first two medical dispensaries pending regulatory approvals. In Maryland, discussions are ongoing with the legislature to define and codify rules for the launch of adult use sales this year. In Connecticut, we launched adult use sales at our Bristol dispensary three weeks ago and are pursuing opportunities to expand our presence. We are encouraged by recent developments in Pennsylvania, where just yesterday, Governor Shapiro included adult use cannabis in his budget proposal. Beyond our existing operational footprint, we plan to pursue organic growth opportunities across the Southeast. Within our existing network, we are allocating resources to further advance our competitive position. Our proprietary customer data platform, SAP enterprise software, and technology platforms to analyze and actionize insights provide a meaningful competitive edge versus peers today. As one example, because of our data insights, last year we expanded the availability of premium and value-branded products such as Cultivar Collection, Muse, and Roll1. We employed these timely, data-driven adjustments to optimize assortment and depth of inventory, ultimately meeting evolving customer preferences and fostering customer loyalty. On the M&A front, we believe constricted capital markets in the face of significant near-term debt obligations will spur industry consolidation and yield opportunities to acquire standalone and distressed assets. While Trulieve has significant flexibility and access to capital, we will remain patient and evaluate potential opportunities against our stringent criteria. As the cannabis industry evolves, we believe investments in technology and data will gain importance. The next major industry phase, which we call Cannabis 2.0, will likely be triggered by meaningful regulatory reform. While the precise timing and exact outcomes are unknown, we believe the next wave will be defined by a more open and diverse competitive landscape, including age-restricted access structures and or direct-to-consumer models. Ongoing investments in scale, distribution, and technology favorably position Trulieve to excel within a more robust industry ecosystem and increasingly sophisticated marketplace while providing significant optionality. Our capacity and scale to provide flexibility to quickly ramp up production as demand increases. We believe in a more open environment, the ability to produce and distribute branded products at scale will be an important competitive differentiator. Trulie's industry-leading retail platform provides an opportunity to directly connect with the customer, build brand equity, glean valuable insights into customer segmentation, and test methods to define and perfect the customer journey. We're investing in retail and technology platforms in 2023 in order to provide a competitive edge today while building the foundation for Cannabis 2.0. The long-term prospects for cannabis have never been brighter. Trulieve is uniquely poised to bolster business resilience through a relentless focus on cash alongside targeted investments for the future. I've never been more confident in our ability to emerge from this period as a leaner organization ready for the many opportunities ahead. At this time, I'll turn the call over to Alex to discuss her financial results.