MedMen Enterprises Inc.
Q2 2021 Earnings Call Transcript
Published:
- Operator:
- Ladies and gentlemen, thank you for standing by. And welcome to the MedMen Second Quarter Fiscal 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker today, Mr. Reece Fulgham, Chief Financial Officer. Please go ahead. Ladies and gentlemen, please standby, we are experiencing Technical Difficulty. Mr. Fulgham, please go ahead.
- Reece Fulgham:
- Thank you. Good afternoon, and welcome everyone. Today, I am joined by our CEO, Tom Lynch; and COO, Tim Bossidy. On today's call, management will provide prepared remarks and then we will open the call to your questions.
- Tom Lynch:
- Thank you everyone for joining us this afternoon. On the call today, we'll provide an update on the company's turnaround progress and plans to drive future growth and then discuss our financial performance for the second quarter. First, we're thrilled at the increased enthusiasm in the sector as U.S. makes continued progress towards broader cannabis legalization which will lead to better outcomes in our criminal justice system, healthy alternatives in a number of medical applications and we believe more optimistic and peaceful world to live in. We are impressed with how quickly Arizona was able to flip through recreational sales in 2021. We are excited about continued progress in our core markets.
- Tim Bossidy:
- Thank you, Tom. First, I like Tom some optimistic about the durability of our model, which as we mentioned in our last earnings call, we believe will be well positioned, even with the retail capacity restrictions in California. This is borne out in a way where we're even more excited for the future here MedMen. There's also been fantastic welcoming Tracy and Reece to the team and together with the rest of leadership; we're positioning MedMen for a significant success this year.
- Reece Fulgham:
- Thank you, Tim. First, I note that for the second quarter, we are considered a U.S. domestic issuer under the rules of the SEC. And as such, our financial statements were prepared in accordance with U.S. GAAP. Also consistent with prior quarters, all the figures on today's call are in U.S. dollars. In addition, I'll refer to our top-line performance in terms of system wide revenue. As we believe that this is the best representation of our economic progress. You can find further information on these financial measures in our MD&A for the second quarter. Overall, we continued progress from the last quarter, which was the best quarter in the history of the company in terms of revenue growth, profitability and cash burn. System wide revenue for the fiscal second quarter was $33.8 million, up 0.3% from $33.7 million in the previous quarter excluding Evanston. Gross profit for the quarter was 17.9 million, leading to a gross margin of 53%, a 6 point increase over gross margin in the previous quarter. This increase is reflective of the fact we continue to make strong improvements to our gross margin due not only to the increases in retail margin, but due to increased operational efficiency in cultivation and manufacturing. Operating expenses to the quarter totaled $44.4 million, a 46% decrease from the $82.2 million in the prior year period, within operating expenses, general and administrative expenses, which totaled $33.6 million, declined by 44% from the same period last year, and increase of 6% from the previous quarter. The reduction in general and administrative expenses was primarily driven by a significant reduction in corporate related expenses, including payroll, professional fees and deal costs. Our second quarter selling, general and administrative expenses, excluding deal costs and stock-based compensation totaled approximately $30 million, a 49% decrease from the same period last year and a 2% decrease from the previous quarter. Further, our second quarter corporate SG&A excluding pre-opening costs totaled approximately $9.2 million, a 66% decrease from the same period last year and a 10% decrease from the previous quarter. While there are other additional optimization opportunities, we believe our corporate infrastructure is now at the appropriate levels for both managing our existing asset base and supporting the growth we expect over the next 12 to 18 months. Turning to profitability, overall adjusted EBITDA loss for the quarter was $11.8 million, compared to $33.4 million in the same period last year and $11.7 million in the previous quarter. As revenue continues to rebound from the early days of COVID and as we move our cultivation and production partnership discussions at DHS and Mustang alone, we believe there's a clear path to achieving positive EBITDA, especially considering the retail profitability we were able to achieve this past quarter, which I'll get into shortly. Overall, net loss attributable to shareholders of MedMen was $49.7 million for the second quarter, or $0.11 per share compared to $41.3 million or $0.02 per share in the previous year. Now let's take a deeper look at our retail business. Retail revenue for the second quarter totaled $33.8 million, up 1.2% sequentially adjusted for the Evanston divestiture. The relatively flat revenue was driven by our California footprint, which was on pace for a same-store sales increase this quarter over the previous quarter, until mid-November, when we saw significant additional capacity restrictions due to COVID-19 in California. We believe this period while challenging, has shown the importance of the flexibility in our model and the value we derive from our robust and efficient curbside pickup and delivery options. Our product assortment and quality has also continued to improve and we are seeing this in customer feedback, increased web traffic and of course, increased margin. Moving down to retail gross margin, we recorded our best quarter ever, at 57% nationally. During the turnaround, we have worked hard to build back vendor trust. And in sticking to our commitments to clean up old balances, providing unrivaled visibility and shelf space and consolidating our product portfolio. We've developed extremely strong relationships with our key vendors in each of our markets on pricing and payment terms that are very favorable to MedMen. And we want to be clear, we are not done with our retail gross margin expansion. There's still significant opportunity to expand margins in markets like Illinois and Nevada, as we improve our wholesale relationships in each market and look to secure additional supply agreements. We maintained our overall adjusted retail EBITDA decreasing slightly quarter-over-quarter but up from negative 5% to positive 17% year-over-year. We have some additional costs and efficiency improvements. We will see rolling through in the coming quarters. But overall, the increases in retail EBITDA margin in the go forward will be driven by our projected increases in sales. There's a significant amount of operating leverage in our platform as we drive additional traffic and more visits. Critically, even when factoring in federal, state and local taxes we were cash flow positive for the quarter across retail for the second quarter in a row, which until last quarter had never been accomplished in the company's history. As top-line normalizes and our gross margins continue to expand, we are positioning ourselves to cover our corporate costs and new store pipeline through the cash flow we generate across our stores. Turning to our balance sheet, we ended the quarter with $7.5 million cash and cash equivalents. As Tom mentioned, we did raise an additional $10 million from Gotham Green Partners in January and we will continue to work closely with our Capital Partners to fund the final stretches of our turnaround plan. We also announced this month we are partnering with Moelis a strategic advisor as we look to potentially diversify our funding sources and deleverage our balance sheet. I want to continue to provide updates on our cap table as well. Given our multi-class structure as of February 15, we had approximately 519,098,036 subordinate voting shares and an additional 143,839,755 million redeemable shares, which are convertible into subordinate voting shares on a one-to-one basis. In conclusion, I am excited to join the MedMen team. I think the MedMen team has done a fantastic job in the turnaround so far. And I think fiscal 2021 looks bright for MedMen. With the talent we continue to add, with the renewed momentum in the sector as we move toward common sense cannabis legislation in addition to the improvements we make financially and operationally every day, I can say this is one of the most exciting growth stories that I've been a part of. We are well positioned to grow our footprint and become profitable and in so doing provide even more patients and customers with the best experience in cannabis retail. We will now open up the call to your questions. Operator?
- Operator:
- We don't seem to have any questions at this moment. I'll turn it over to the presenters. Q - Unidentified Analyst A - Unidentified Company Speaker
- Tom Lynch:
- This is Tom once again. Thank you all for joining us today and listening to our presentation. As we said this is an exciting story. We're very, very pleased with where we are right now. We hope that as COVID begins to loosen and restrictions begin to loosen, our capital increase and add a new element to our story. So we're very pleased to have this group here today with us. And thank you again for your attendance before speaking with you again.
- Operator:
- And this concludes today's conference call. Thank you for joining. You may disconnect.