Ascend Wellness Holdings’ Earnings Call: Mixed Sentiment and Strategic Growth

Ascend Wellness Holdings Llc Class A (($TSE:AAWH.U)) has held its Q3 earnings call. Read on for the main highlights of the call.

Ascend Wellness Holdings’ recent earnings call presented a mixed outlook, reflecting both challenges and opportunities. Despite a decline in net revenue and retail sales, the company reported significant improvements in adjusted gross profit and EBITDA. Successes in cost reduction, digital platform deployment, and market expansion in Ohio and New Jersey provide optimism. However, pricing pressures, regulatory delays, and negative operating cash flow pose ongoing challenges.

Adjusted Gross Profit Increase

The company reported an increase in adjusted gross profit for Q3, reaching $57.8 million. This reflects a 4.6% increase quarter-over-quarter, with the adjusted gross margin improving by 300 basis points to 46.4%. This improvement highlights the company’s effective cost management strategies.

Adjusted EBITDA Growth

Ascend Wellness Holdings saw its adjusted EBITDA grow by 8.9% to $31.1 million. The adjusted EBITDA margin expanded to 24.9%, reflecting a 250-basis point improvement quarter-over-quarter, showcasing enhanced operational efficiency.

Sustainability Initiative Success

The company’s ongoing sustainability initiative has been successful, eliminating over $30 million in annual expenses ahead of schedule. This initiative supports margin expansion and improved profitability, underscoring Ascend’s commitment to sustainable growth.

Expansion in Ohio and New Jersey

Ohio continues to be the strongest retail market for Ascend, while the New Jersey Cannabis Regulatory Commission’s approval of a partner store in Little Falls marks progress in the state’s social equity program. These expansions are crucial for the company’s growth strategy.

Digital E-commerce Platform Launch

Ascend launched a fully integrated digital e-commerce platform and Ascend Pay in Q3. This initiative increased transactions through the feature from 2.7% to 6.7% of total sales by October, indicating a successful digital transformation.

Net Revenue Decline

Net revenue for the third quarter was $124.7 million, representing a modest 2% decline from the prior quarter. This decline was due to pricing pressures and heightened discounting, reflecting the competitive market environment.

Retail Revenue Challenges

Retail sales for the quarter were $83.8 million, a $2.7 million or 3% net decline from Q2. This was driven by declines in average basket size and transaction volume, mainly in Illinois and New Jersey, highlighting challenges in these markets.

Operating Cash Flow Negative

Operating cash flow was slightly negative due to the transition to biannual interest payments of $19.1 million. This created variability in quarterly cash flows, posing a challenge for the company’s financial management.

Regulatory Delays in Store Openings

Recent regulatory delays have slowed the anticipated pace of store openings, impacting expected revenue contribution from new locations. This highlights the regulatory challenges faced by the company.

Forward-Looking Guidance

Ascend Wellness Holdings’ guidance focuses on maintaining profitability amid challenging market conditions and regulatory uncertainties. The company plans to expand its footprint, particularly in high-profile states like Ohio, aiming to reach 60 total locations within 12 months. Strategic initiatives in product innovation and automation are designed to optimize labor and boost throughput, with a goal of achieving sustainable growth and profitability.

In summary, Ascend Wellness Holdings’ earnings call reflected a mixed sentiment, with significant achievements in cost management and market expansion counterbalanced by challenges in revenue and regulatory delays. The company’s forward-looking strategies emphasize profitability and growth, positioning it to navigate the competitive landscape effectively.