MariMed Inc. (PNK:MRMD) Q4 2022 Earnings Call Transcript
MariMed Inc. (PNK:MRMD) Q4 2022 Earnings Call Transcript March 2, 2023
Operator: Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the MariMed Inc. Fourth Quarter 2022 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I will now turn the line over to Steve West, Vice President of Investor Relations, to begin the conference.
Steve West: Good morning, everyone, and welcome to MariMed's fourth quarter and full year 2022 earnings call. Joining me on the call today are Jon Levine, our Chief Executive Officer; Tim Shaw, our Chief Operating Officer; and Susan Villare, our Chief Financial Officer. This call is being recorded and will be archived on our Investor Relations website. Today's call contains forward-looking statements. Actual events or results may differ materially from these forward-looking statements and are subject to various risks and unknowns. A discussion of these risks and other factors is contained in our SEC filings, and our earnings release, which are available on our website. Any forward-looking statements reflect the management's expectations as of today, and we assume no obligation to update them unless required by law.
Additionally, we will refer to certain non-GAAP financial information. A reconciliation of these non-GAAP financial measures is included in our earnings release and our supplemental slides. Finally, our first quarter 2023 earnings release is tentatively scheduled to be issued after the market closes on May 8, 2023, and our subsequent analyst call will be held the morning of May 9, 2023. I will now turn the call over to Jon.
Jon Levine: Thank you, Steve, and good morning, everyone. I'm pleased to report that MariMed had another solid quarter of financial and operational results. Our revenue continues to grow year-over-year and quarter-over-quarter. We invested in our core foundation throughout 2022, positioning us for long-term growth. We reported our 12th consecutive quarter of positive adjusted EBITDA, and we are very proud to share that for the third consecutive year, we generated positive cash flow from operations. Quite simply, MariMed has set itself apart as one of the most financially sound companies in the cannabis industry. From an organic perspective, MariMed constantly outperformed competition throughout 2022 in terms of sales growth in the markets where we operate.
In addition to our strong organic growth, we were very active in M&A: with the acquisition and consolidation of our Maryland vertical operation, which allowed us to open our dispensary in Annapolis in the fourth quarter; the acquisition of an Illinois craft grow license and dispensary license; and the acquisition of a Missouri processing and distribution license. We also completed the construction of an adult-use dispensary in Beverly, Mass. And finally, we applied for and we were awarded a new medical dispensary license in Ohio. We are very excited for Ohio and Missouri, two newest high-growth markets. MariMed is also very active in marketing in new product development in 2022. We launched InHouse, a full suite of high-quality products at affordable pricing, which has already grown into one of the largest brands in our portfolio.
We also launched Vibations, a high energy drink mix which give customers a convenient and affordable way to enjoy cannabis as a beverage. And we continue appealing to our core high-end customers by innovating our award-winning premium brands with new products such as Betty's Eddies Ice Cream and Nature's Heritage LIVE Flower. Looking forward, in 2023, MariMed will continue to focus on going deeper in our core footprint by expanding our existing facilities and into new ones. Our $35 million credit facility provides us with capital necessary to accelerate our growth. Susan and Tim will give more detail, but we expect meaningful acceleration of growth in the back half of 2023, which should continue to build throughout 2024. We continue to have one of the strongest balance sheets in the industry.
In addition to growing our existing footprint, we are well-positioned to grow through transformational acquisitions if we choose to. Our philosophy and approach have always been that any transaction must be accretive and improve long-term shareholder value. I'm very excited for the next couple of years as MariMed strengthens its position as a leading cannabis company. With that, I will turn the call over to Tim for his operational update.
Tim Shaw: Thank you, Jon, and good morning, everyone. Let me start my operations review with our retail business, where we increased revenue 5% sequentially compared to the third quarter. Throughout the year, we increased advertising, launched a new customer loyalty program, exceeded our operating hours and invested in technologies to improve the customer experience across our entire retail base. According to BDSA data, our key states experienced declining or slowing revenue growth in 2022. However, I am pleased to report that we outperformed the industry in every quarter this past year. We took the bull by the horns and all of our proactive traffic driving initiatives clearly paid off. Now let's talk about our wholesale business.
Wholesale sales increased 9% sequentially in the fourth quarter, driven by our strong performance in Massachusetts, which grew sequentially for the fourth consecutive quarter. Maryland also had a strong quarter and grew 31% sequentially. We continue to see strong demand for our branded products in both Massachusetts and Maryland, and we are investing accordingly to keep our outsize growth in these states on track. According to BDSA data, Nature's heritage finished the year as the number one flower brand in the state of Massachusetts. We literally do not have enough capacity to meet the demand for a very special premium flower. Looking ahead, I'd like to talk about some of our plans for 2023. We have eight -- yes, eight construction projects planned across five states, making this the most active year of construction in our company's history.
Photo by Diyahna Lewis on Unsplash
In Maryland, now that adult-use sales have been approved, we will continue the expansion of our cultivation facility and prepare our Annapolis medical dispensary for recreational sales. We recently received GMP certification for our Hagerstown Kitchen and are awaiting regulatory approval to reintroduce high-dose Betty's Eddies, which were our top seller prior to the law change in 2021. We are continuing to build our craft cultivation and processing facility in Mount Vernon, Illinois, which will allow us to begin selling our branded edible products at our retail stores and through wholesale channels. In addition, we are construction and adult-use dispensary in KC, Illinois, which is located in the state's Eastern Central region and will be our fifth dispensary in the state.
We believe 2023 will be a big year for us in Massachusetts. We are waiting for final approval to open our adult-use dispensary in Beverly. We are also awaiting final approval to close on our recently announced acquisition of a medical cannabis operation in Quincy. The seventh largest city in the State, we are applying for an adult-use license for the Quincy dispensary and plan to immediately expand the site to accommodate the anticipated increased customer traffic. We plan to offer delivery service out of this new dispensary to the city as well as surrounding areas, including Boston. We will also plan to repurpose the Quincy cultivation facility for our pheno-hunting processes which is currently done in New Bedford, Massachusetts. This will provide us with much needed increased capacity to expand the growth for our Nature's Heritage Flower.
Moving on to Missouri, which just began adult-use sales in February, we have started construction of a new processing kitchen, which will allow us to manufacture and wholesale, our entire portfolio of branded edibles, vapes and pre-rolls. Finally, in Ohio, we are building a medical dispensary in Tiffin, which will be our first four rating to this rapidly expanding medical program. We believe our wholesale and retail operations are well equipped with the necessary processes and personnel. We intend to continue increasing our sales and marketing efforts to support our operations. For example, we are exploring recent developments such as Twitter's announcement to allow cannabis advertising. Before turning the call over to Susan, I'd like to extend my congratulations to Jon for his well-deserved appointment as CEO.
Jon took on the role on an interim basis, when my dear friend Bob passed away. And I can tell you, he did it flawlessly. Keeping our team spirits high and making sure we stay laser-focused on our growth plan. I know I speak for the other members of our leadership team, when I say, we know Jon will continue to do an unbelievable job. I'll now turn it over to Susan.
Susan Villare: Thank you, Tim, and good morning, everyone. I'd like to start with a brief recap of our fourth quarter and full year 2022 financial results. Total revenue was $35.8 million in the fourth quarter, which increased 15% year-over-year and increased 6% sequentially. For the full year 2022, we reported revenue of $134 million, which was up 10% versus the full year 2021. To give some context fiscal 2022 marks the fifth consecutive year of double-digit revenue growth. Our year-over-year growth both in the fourth quarter and in the full year was driven by our retail and wholesale operations, partially offset by lower revenue from other sources such as rental income and management fees from the consolidation of our Maryland operations.
Moving to gross margin. Our non-GAAP gross margin for the fourth quarter was 44% compared to 50% in the comparable period in 2021. Non-GAAP gross margin for the full year was 48% and compared to 55% in fiscal 2021. Fourth quarter and full year gross margins declined, due to inflation in our input costs, increased headcount and the shift away from higher-margin management fees after we consolidated our Maryland operations in April 2022. We are focused on driving margins back up to 50%, once our in-play assets are fully operational. Moving now to non-GAAP operating expenses. Our non-GAAP operating expenses for the fourth quarter was $12.5 million, compared to $7.8 million in the comparable period in 2021. Non-GAAP operating expenses for the full year 2022 was $35.5 million, compared to $25.6 million last year.
The increase in non-GAAP operating expenses for both the fourth quarter and the full year were due to planned increases in both personnel expenses and marketing programs to support our strategic growth initiatives. Our adjusted EBITDA for the fourth quarter was $4.5 million, compared to $8.3 million in the comparable period in 2021. For the full year 2022, our adjusted EBITDA was $32.4 million, compared to $42.8 million in 2021. Our adjusted EBITDA in the fourth quarter and full year decline versus the previous period, due primarily to a onetime noncash bad debt reserve of $3.7 million, as well as planned increases in operating expenses to support our growth plan. Now, turning to our balance sheet. We ended the year with $9.7 million of cash and equivalents.
After closing our recently announced credit facility, our cash balance was approximately $30 million, which included paying off our kind seller note and our cash taxes for 2022. Our networking capital increased to $17.6 million at the end of the fourth quarter, compared to $13.6 million at the end of the third quarter. I would like to now turn to our 2023 financial outlook. As you know, new cannabis operations are 100% dependent on obtaining regulatory approvals, and we have tried to incorporate a high degree of conservatism in our assumptions. Our full year 2023 financial outlook has the following embedded assumptions. We assume competition in Illinois will increase, due to numerous social equity dispensaries and Missouri adult use sales coming online.
We assumed stable pricing conditions in Massachusetts and stabilizing pricing conditions in Maryland. We projected no revenue from adult-use sales in Maryland, which could commence in the back half of the year and would be upside to our guidance. Additionally, we assumed no acquisitions other than what we have already communicated. As it relates to our 2023 operating expenses, we are pushing very fast this year to open several new revenue-generating assets, which means, initial spending will increase at a faster pace than our revenue growth. Our full-time headcount will increase from approximately 600 employees to 800 at the end of 2023. This is needed to staff all these new and expanded facilities months ahead of their official opening. We plan to expand our product manufacturing capacity in both Massachusetts and in Maryland.
We also plan to ramp up new wholesale businesses in Illinois and Missouri. Accordingly, we plan to increase our sales and marketing expenditures at a faster rate than our revenue growth. So considering all these factors, our 2023 outlook is as follows. Revenue of at least $150 million, non-GAAP gross margin consistent with full year 2022, which was 48%, non-GAAP adjusted EBITDA of at least $35 million, $30 million of CapEx spend. And within our outlook, I also want to point out some specific line items for your modeling purposes. We currently expect to pay $10 million to $12 million in taxes and approximately $7 million in interest expense for the full year 2023. We do expect modest revenue growth in the first half of the year and more meaningful growth in the back half of the year as these investments in new and expanded facilities come online.
That concludes my review of our financial results and outlook. So, at this time, I'd like to turn the call back to Jon for his concluding remarks.
Jon Levine: Before I close, I want to take a few moments to recognize my brother and dearest friend, Bob Fireman, a co-Founder of MariMed and our former CEO and Chairman. Bob was a pioneer in the industry, always giving of his time to help anyone. It didn't matter if they were a competitor, he just wanted to help people. His passing was hard on everyone at MariMed, but especially me. I loved and respected Bob very much. Bob's lasting legacy at MariMed is that we created one of the most financially-sound companies in the industry with a family-like culture that fosters respect and passion from the top to bottom. Together, we assembled a robust executive team and developed a proven strategic growth plan and a roadmap for us to follow and achieve continued success.
We will miss him terribly, but we are all fully committed to carrying on his legacy to grow MariMed into the leading cannabis operator we always envision. I'm incredibly proud of our company working together from top to bottom to deliver the highest quality product to our patients and customers. While we expect 2023 to continue to be a challenge for consumers, we believe there is a light at the end of the tunnel with respect to rising inflation and interest rates. Good and bad economies come and go, they are never consistent, what will remain consistent is MariMed's focus on what we do best. Our operational and financial discipline has provided us with some of the best fundamentals in the industry. I'm a diehard sports fan, and I can't wait for the NCAA Tournament to begin.
Forgive the comparison, but if cannabis had its own version of March Madness, I think MariMed would be the Cinderella story. We earned our way into the tournament, but no one gave us a shot to win. I watch our team every day and I know that we have what it takes to win the championship. In all seriousness, assuming no delays, 2023 should be another year of accelerating revenue growth with 2024, reflecting the full impact of all investments we made over the past two years. As Bob always said, I would encourage you to continue to watch the MariMed story. I'd like to thank all the MariMed employees for their hard work and dedication. It is your efforts that keep us as a top player in the industry. Operator, open the line for questions.
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