Trulieve reported June 30, 2021 earnings today.

We will leave this up for F2021: Trulieve Q1F2021 Earnings release and provided guidance for 2021:

• Guidance for 2021 incorporates a full year of operations from Trulieve’s Pennsylvania operations, continued growth in Florida as well as the Company’s Massachusetts, Connecticut, and California locations. Based on Trulieve’s markets, current regulations, and foreseeable store growth, the Company estimates 2021 revenues in the range of $815 million to $850 million, and $355 million to $375 million in adjusted EBITDA.

The guidance represents a Sales increase of +56% and EBITDA increase of +54% from F2020.

At the second quarter pole: They are tracking easily to lower end sales guidance and are in the mid-range of EBITDA with two quarters to go.

Harvest shareholders approved the merger yesterday.  Closing by end of September 2021 would be welcomed.

Open up the fins and MDA and follow along. I note the MDA offers very little QoQ information.

Income Statement Drivers & Breakeven Sales: Trend

Trulieve operates in: Florida, Massachusetts, California, Connecticut, Pennsylvania, West Virigina (just planted) and are entering Georgia. 

With Harvest acquisition they will be adding 15 dipos in AZ, 9 in PA (bringing them to the 15 limit), 3 in MD and 4 in CALI.  They will likely have to divest the 6 FLA and cultivation.  Net addition will be approximately 31 dipos and two new states.

Store count: 91 +9 QoQ, FLA 85 (+8 QoQ), CA 1, CT 1, PA 3, 1 Mass (+1 QoQ) and WV.

91 dispensaries opened versus 82 last Q and 75 the Q prior. 

Average dispensary revenue was $2.5 million on the Q +1% change QoQ.

Sales are up 11% +$21 million to $215 million, after a 15% +$26 million increase last Q, with 8 more FLA dispensaries opened in the Q and 91 total across footprint.  They opened their first Massachusetts store and slated to open another this Q.  The FLA market continues to grow and the addition of flower, and more recently edibles, has certainly propelled Trulieve well. 

I saw estimates that FLA for them was $174 million in the Q, which would make FLA 81% of sales. There were lots of Qs on the conference call about competition ratchetting up in Florida.  I believe they were alluding to CURA constant sales discounts.  CEO Rivers quipped on CC that it is odd that in Florida, still a market where demand outstrips supply, that doing extended sales discounts likely means the quality of flower is not great.

Pennsylvania allows wholesale, so we will start seeing how TRUL does as a supplier.  I do note they now have an Account Receivable of $3.5 million on the balance sheet after a $2.3 million A/R last Q.  If they offer 30 day terms that would mean wholesale sales in final month were roughly that amount or $10.5 million for the Q on wholesale.

TRUL provides no segmentation on sales by state nor by retail versus wholesale.  Analysts pressed for segmentation.  CEO Rivers indicated they would probably look to provide post-Harvest acquisition. When you are as profitable as TRUL I guess you don’t have to feed the analysts as much.

Retail Revenue: Peer and Trend

TRUL does not break out wholesale yet, so we will keep it all in retail.

Interestingly they have $7 million less sales than CURA and they get there with 16 less dispensaries. Efficiency and asset quality.

 Annualized Sales $ per (PPE + Goodwill/Intangibles)

What I have done above is annualize the last Q’s sales and divided it by the aggerate of PPE and G/I to see how much sales are being generated and what the trend is. I added PPE +ROU + G/I to try to normalize the companies that have gone an organic path (TRUL and CWEB until their new acquisition) versus the more acquisitive (Cura and GTII).

They reverse last Q’s step back under this metrics at $1.24 versus $1.30 last Q, but in line with two Q’s ago. The addition of $135 million in G/I was the culprit in the Q4F20. 

This is the most efficient in peer group AND if you consider that over 28% of their current PPE ($135 million) is construction in progress, this metric is heavily understated.  It will be interesting to see what they can do when those assets go into production. Construction in Progress reduced $74 million in Q, so those assets should start delivering revenue over the next couple of quarters.

Income Statement Drivers & Breakeven Sales: Peer

Trulieve is no longer the sales leader as CURA took that crown in the prior Q.  They will regain it with Harvest on the books.

Gross Margin

Gross Margin declines to 67%, the third QoQ decrease in a row from a record high of 75%. Last Q they had an inventory step up of $2.5 million that did not re-occur this Q.  They did launch new assets and they take six months to produce revenue (grow, harvest, cure, transport). 

On the conference call they indicated GM will be impacted by new states that are less vertical and by Harvest acquisition.

Absolute GM is $144 million up +$9 million on a sales increase of $21 million, fully due to sales increase overpowering GM% decrease.

Annualized Gross Margin $ per (PPE + Goodwill/Intangibles)

This is our attempt to normalize the companies growing organically from the roll ups.  We have annualized the gross margin and divided that by aggregate of PPE + ROU + G&I.

This metric decreased to $0.83 from $0.91 QoQ. But at $0.83 it is WELL above peers, almost double the closest peer.

This metric is dropping from its lofty status as they added G/I from PA acquisitions. This metric will reduce with Harvest being onboarded in a few Q’s.

Gross Margin: US Peers

TRUL is at #1 spot. Being vertically integrated and with little wholesale is the differentiator.  We calculate that 98% of their dispos are margin friendly limited license states.

Gross Margin: North American Peers

SGA & SBC: Trend

Selling expense increased by $2 million to $47 million and stayed relatively stable at 22% of sales.

Combined G&A increased by $2 million in the Q (excellent for adding 9 stores in Q) and increased as % of sales to 7% +1% QoQ.  The new stores and PA are likely the reason.

They have $0.7 million in SBC, flat QoQ.  They also have Super Shares, so SBC is not a huge factor.

Depreciation rounds out Opex at $6.7 million +$1.3 million QoQ on the non-production assets (retail stores).

Total Opex was $68 million at 32% of sales versus $63 million at 32% last Q.   Quite efficient adding the store count with Opex rising only $5 million.

SGA & SBC: Peer

Trulieve is no longer the US leader in combined SGA and SBC as GTII is now less than them.

Net Operating Profit Breakeven: US Peers

NOP under GAAP was $76 million versus NOP of $73 million last Q.  The pick-up was the +$9 million in GM was offset by Opex increase of $5 million. Remarkably, this figure has increased QoQ since March 31, 2019.

Other Income and Expenses: Total other expense of $6 million this Q versus $8 million last Q.

• Interest expense of $6.6 million versus $7.9 million QoQ. 
• Income Taxes was $29 million versus $35 million last Q.

Net Income for the Q was $41 million versus $30 million last Q. A $21 million increase in sales flowing $9 million to Net income is VERY good. (NOTE: TRUL does not have a lot of exotic fair values pushing around Net Income.  This is one of the few companies in the industry this clean, so as to be able to make that statement.)

Net Operating Profit Breakeven: North American Peers

The leader by far on this measure.

EBITDA: Trend and Peer

They improved their Adj EBITDA by $6.3 million to $89 million on the quarter from $82 million last Q. An enviable figure.

Their Adj EBITDA has $1.7 million covid costs and $4.5 million in transaction costs that are not itemized anywhere in their financials.  I did not back these out.

Cash provided by

• Operating Activities was a USE of $11 million versus a Source of $60 million last Q
• Investing Activities was a Use of $83 million versus a Use of $53 million last Q. Purchase of PPE the big increase.
• Financing Activities was a Source of $230 million (largely warrants) versus Source of $8 million last Q.  $217 million from private placement was the big driver.

Net increase in Cash was $142 million.

+EBITDA Breakeven: US Peers

The cost structure that comes with focusing largely on one state, coupled with their market dominance in FLA, allows Trulieve to be EBITDA positive at 39% of existing sales, stable from last Q. 

Interestingly, AYR and VRNO (new this Q) slid in front of Trulieve. 

+EBITDA Breakeven: North American Peers

Net Operating Profit + Non-Cash Expense – Interest – Taxes: $ Thousands of Dollars

Here is our new metric from last Q.  It is meant to show how much cash went into the bank account from operations after Interest and Taxes are serviced.  Essentially EBITDA without the I + T added back. 

Trulieve jumped forward in this metric as interest + taxes decreased by $6 million to $35 million whereas EBITDA increase $6 million, allowing for $12 million improvement QoQ.

Net Operating Profit + Non-Cash Expense – Interest – Taxes: % of Sales

As a percentage of sales, this metric bounced back QoQ after a three Q slide.   Interestingly, VRNO is the leader now.

Balance Sheet Items of Note:

Cash increased by $126 million to $289 million largely on the private placement of $215 million.  Their ability to put cash in the bank quarterly from operations allows them to hold less of a cash balance than some of their peers.  They also have a better ability to add incremental debt.

Sales, Bio Assets, Inventory, WIP, FG:

Inventory value increased $9 million to $113 million. FG were depleted by $4.4 million and are now $21 million.  They had new cultivation come online, so we will see if the FG draws down anymore or becomes a hindrance to sales growth.

Based on Q CoGS they have 1.6 Q’s inventory on hand versus 1.8 Q’s last Q.

Waterfall: Peer

This is comparing apples and oranges given some are GAAP and some IFRS.  You can spot the US GAAP as they have no biological assets like GTII. 

Not much worth noting as to deltas in the balance sheet other than

• the $62 million increase in PPE to $428 million. Construction in progress -$74 million and Buildings +$127 million are the reasons.
• Income Tax Receivable of $8 million.  Over paid income tax.
• Intangibles +$31 million with Nature’s Remedy in MA of +$19 million the large contributor.
• Note payable of $12 million to a related party moved back to Current Liabilities from Long term as it was extended until May 2022.
• +$231 million in share capital from warrants and private placement.

What we said last Q:

Another progress quarter.  Their cost structure will change as PA launches and Harvest is brought on board. 

A very efficient company that will now be tasked with integration of PA and Harvest assets.

I am looking forward to how some of our efficiency metrics respond to construction in progress converting to revenue producing. 

This Q:

TRUL is a treat to analyze.  Good results and clean balance sheet (I’ll leave equity box to Molly).

Nothing untoward in the Q. The market has responded with a flat morning for them.  The regulatory overhangs, in our opinion, are braking very good operating results.

The addition of Harvest will be interesting, as will greater disclosure.

GoBlue

The preceding is the opinion of the author and is in no way intended to be a recommendation to buy or sell any security or derivative. The author does not have a position in TRUL and will not start one in the next five days.