Trulieve reported September 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 third quarter pole: They are tracking to exceed sales guidance at $857 million and are above range of EBITDA with a quarter to go at $382 million. (Q1+Q2+ 2xQ3… their aEBITDA not mine)

Harvest was rolled up on October 1, 2021, and will appear as a full Q next reporting.

They close acquisitions in the Q:

• Keystone Shops in PA July 8, 2021.  PP $55.6 million with G/I aggregating $67 million or 122% of PP.
• Patient Care in MA July 2, 2021. PP $10 million with G/I aggregating $13 million or 130% of PP.

As we mentioned in CURA and GTII Quarter in Pictures for September 30, 2021 Q… we are watching for sales to exceed market and GM in $’s to increase, as this Q was generally thought to be flat in most major markets:

• TRUL managed a 4% increase in sales versus CURA +2% GTII +5% and CL +3%. Middle of the pack.
• GM Improves as % and in $’s.  Very nicely done.

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 entered 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. 

Store count: 100 (+9 QoQ) = FLA 85 (+5 QoQ), CA 1, CT 1, PA 6 (+3 QoQ), 1 Mass (+1 QoQ) and WV.

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

Average dispensary revenue for average dispensaries opened during Q was $2.4 million on the Q, a -6% change QoQ.  This could be timing related (although PA was added early in Q) or the new adds could be producing under average.

Sales are up 4% +$9 million to $215 million, after a 15% +$26 million increase last Q, with 5 more FLA, 3 more PA and one more MA dispensaries opened in the Q, and 100 total across footprint.  The $9 million increase in sales is the lowest net increase since Dec 31, 2019 Q.

Pennsylvania allows wholesale, so we will start seeing how TRUL does as a supplier.  I do note they now have an Account Receivable of $8.4 million on the balance sheet after a $3.8 million A/R last Q.  If they offer 30-day terms that would mean wholesale sales in final month were roughly that amount or $8.4 million for the Q on wholesale.

TRUL provides no segmentation on sales by state nor by retail versus wholesale.  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.

 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).

This metric takes a sizeable step backward as they add $184 million to the denominator ($80 million in G/I and PPE + ROU $4 million from acquisitions) while revenue grew only $9 million.

This is the most efficient in peer group, AND if you consider that over 30% of their current PPE ($163 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 increased $28 million in Q, while assets in production increased +$52 million in the 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.  TRUL might regain it with Harvest on the books. They indicate if HARV was on books in September 2021 they would have had combined sales of $316 million vs CURA $317 million.

Gross Margin

Gross Margin improves to 69%.  This is impressive given the reported price war on FLA.  They did launch new assets and they do 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 $154 million up +$9 million on a sales increase of $9 million, fully due to sales GM% increase.

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 $0.70 from $0.83 QoQ, from aforementioned denominator increase. But at $0.70 it is WELL above peers.

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

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 $5 million to $52 million and stayed relatively stable at 23% of sales. Increase in store count likely the reason.

Combined G&A increased by $13 million in the Q and increased as % of sales to 13% +6% QoQ.  They indicate on aEBITDA calculation that they have $11 million in transaction costs on acquisitions.

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 $7.7 million +$1.1 million QoQ on the non-production assets (retail stores).

Total Opex was $87 million at 39% of sales versus $68 million at 32% last Q.   This should go lower next Q without the acquisition costs.

SGA & SBC: Peer

Trulieve is no longer the US leader in combined SGA and SBC as transaction expenses take their toll in the Q.  GTII, CL and TER are now less than them.

Net Operating Profit Breakeven: US Peers

NOP under GAAP was $66 million versus NOP of $76 million last Q.  The step backwards would be largely from transaction costs.

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

• Interest expense of $6.1 million versus $6.6 million QoQ. 
• Income Taxes was $42 million versus $29 million last Q.

Net Income for the Q was $19 million versus $41 million last Q.

Net Operating Profit Breakeven: North American Peers

GTII slides into first place this Q.

EBITDA: Trend and Peer

Adj EBITDA decreased by $8.3 million to $80 million on the quarter from $88.7 million last Q. Still, an enviable figure.

Their Adj EBITDA has $11 million in transaction costs that are not line itemed within financials or MDA and $5.0 million in SBC costs that do not track to the Cash Flow statement. Cash flow statement has SBC as $2.2 million for nine months, so I am not sure where their get the balance from? I did not back these out.

Annualized Adjusted EBITDA to (PPE + ROU + Goodwill and Intangibles):

We have added this metric to look at who is being the most efficient with PPE + ROU + G/I based on Annualized EBITDA.

While this measure takes a step back to $0.37 from $0.51 last Q as denominator increases in the Q. They remain well above peers.

Cash Sources and Uses:

Cash provided by

• Operating Activities was a Source of $26 million versus a Use of $11 million last Q
• Investing Activities was a Use of $100 million versus a Use of $83 million last Q. Purchase of PPE the big increase.
• Financing Activities was a Use of $0.1 million versus Source of $221 million last Q.  $217 million from private placement was the big driver in the prior Q.

Net increase in Cash was $66 million.  They raised debt capital post Q for net proceeds of $343 million at 8%. These are senior secured notes.

+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 36% of existing sales, stable from last Q. 

+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 fell backward in this metric as taxes increased by $13 million to $42 million whereas EBITDA decrease $8 million.

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

As a percentage of sales, this metric slid back QoQ to 15% from 25% with the increase in taxes and reduction in aEBITDA.

Balance Sheet Items of Note:

Cash decreased by $76 million to $214 million largely the acquisitions and capex.  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, and they used same post Q to add $343 million.

Sales, Bio Assets, Inventory, WIP, FG:

Inventory value increased $21 million to $134 million. FG were increased by $6.4 million and are now $27 million.  They had new cultivation come online two Q’s ago, so we will see if the FG continues to strengthen.

Based on Q CoGS they have 1.9 Q’s inventory on hand versus 1.6 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 $73 million increase in PPE to $502 million. Construction in progress +$28 million and Buildings +$37 million are the reasons.
• ROU +$31 million to $104 million.  Assets being commissioned and leases placed against same.
• Income Tax Receivable of $4 million or -$4 million QoQ.  Over paid income tax.
• Intangibles +$38 million to $161 million with acquisitions noted above.
• Goodwill +$41 million to $112 million with acquisitions noted above.
• +$90 million in share capital from warrants and private placement.

What we said last 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.

This Q:

Solid Q. Despite the reduction in sales velocity, they improved efficiency in GM as % and in $s.  SGA shows an increase greater than GM but should retreat next Q with a professional fees relating to acquisitions reducing.

Adequate capital after post Q raise.

I am looking forward to seeing how Harvest is integrated.

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.