Mr. John Hartmann reports

AWH ANNOUNCES Q3 2023 FINANCIAL RESULTS

Ascend Wellness Holdings Inc. has released its financial results for the three months ending Sept. 30, 2023 (Q3 2023). Financial results are reported in accordance with U.S. generally accepted accounting principles (GAAP) and all currency is in U.S. dollars.

Q3 2023 financial highlights:

• Gross revenue increased 26.6 per cent year-over-year and 12.5 per cent quarter-over-quarter to $169.9-million.
• Net revenue, which excludes intercompany sales of wholesale products, increased 27 per cent year-over-year and 14.9 per cent quarter-over-quarter to $141.3-million.
• Retail revenue increased 22.3 per cent year-over-year and 12.7 per cent quarter-over-quarter to $101.3-million.
• Gross wholesale revenue increased 33.4 per cent year-over-year and 12.2 per cent quarter-over-quarter to $68.7-million. Wholesale revenue, net of intercompany sales, increased 40.6 per cent year-over-year and 20.7 per cent quarter-over-quarter to $40-million.
• Net loss of $11.2-million during the quarter represented an improvement compared with $16.9-million in Q3 2022.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $29.5-million, representing a 20.9-per-cent margin. Adjusted EBITDA improved 38.5 per cent and adjusted EBITDA margin improved by 356 basis points quarter-over-quarter. Adjusted EBITDA increased 6 per cent and margins declined 406 basis points year-over-year.
• As of Sept. 30, 2023, cash and cash equivalents were $63.9-million and net debt was $243.5-million.
• Generated $24.2-million of cash flows from operations, representing the third quarter in a row of positive operating cash flow. This excluded a benefit from receipt of $3.3-million in cash received during the quarter related to the employee retention tax credit (ERTC), which was collected and then returned to the lender as debt repayment of an advance previously received. The company generated $12.9-million in free cash flow in Q3, excluding this same ERTC cash receipt.

Business highlights:

• During the quarter, the company commenced adult-use sales at four dispensaries in Maryland.
• Subsequent to the quarter, the company announced key leadership changes. These changes include the appointment of Mark Cassebaum as chief financial officer, effective Nov. 27, 2023; the appointment of Chris Holzer as chief of operations; and the appointment of Denise Pedulla as chief legal officer and corporate secretary.

Management commentary

"With sincere thanks to our customers, partners, investors, lenders and the Ascend team, our Q3 performance exceeded expectations. We achieved a record-breaking six-quarter net revenue streak with a 15-per-cent quarter-over-quarter and 27-per-cent year-over-year growth. Improvements in gross profit and EBITDA further position Ascend for success. We remain focused on scaling in adult-use markets and accretive acquisitions to bolster our robust asset footprint across key regions," said Abner Kurtin, executive chairman.

John Hartmann, chief executive officer, remarked: "In my first full quarter as Ascend's CEO, we've been diligently optimizing operations and fortifying our team. Early signs of results are encouraging, with a noteworthy 13-per-cent sequential surge in retail revenue, chiefly propelled by the successful launch of adult-use sales in Maryland. Moreover, our net wholesale business experienced an impressive 21-per-cent sequential growth, driven by growth in New Jersey, Illinois and Massachusetts. We've further expanded our offerings, introducing the Royale superpremium brand, while actively working to resolve cultivation challenges in New Jersey. With gratitude for our dedicated team, I'm enthusiastic about Ascend's promising future."

Dan Neville, outgoing chief financial officer, emphasized: "Our commitment to generating cash flow and achieving self-sufficiency is clear. This is exemplified by our achievement of generating $24-million in cash from operations. Additionally, we achieved positive free cash flow during the quarter. We are firmly on course to continue generating cash from operations for the full year, a momentous milestone in our journey toward self-sufficiency."

Q3 2023 financial overview

Net revenue increased 14.9 per cent quarter-over-quarter, driven by growth in both the retail and wholesale businesses.

Total retail revenue in the third quarter of 2023 was $101.3-million, which represents a 12.7-per-cent increase compared with the prior quarter and was driven by the start of adult-use sales in Ascend's four Maryland dispensaries; the full-quarter benefit of Tinley Park, Ill.; and sequential improvements across the bulk of the footprint.

Gross wholesale revenue was $68.7-million, a 12.2-per-cent sequential increase, driven by increases in wholesale revenue across all six of the company's markets, with the largest growth in the New Jersey, Illinois and Massachusetts markets. Net wholesale revenue, excluding intercompany sales, increased 20.7 per cent sequentially to $40-million, driven by increases in third party wholesale sales in New Jersey, Illinois and Massachusetts, partially offset by small declines in Michigan.

Q3 2023 gross profit was $43.6-million, or 30.8 per cent of revenue, compared with $28.3-million, or 23 per cent of revenue, in the prior quarter. Q3 2023 adjusted gross profit was $56.4-million, or 39.9 per cent of revenue, compared with $44.9-million, or 36.5 per cent of revenue, in the prior quarter. Adjusted gross profit excludes depreciation and amortization included in cost of goods sold, equity-based compensation included in cost of goods sold, and non-cash inventory adjustments. Adjusted gross profit margin increased 340 basis points sequentially driven by margin improvements as a result of adult-use sales commencing in Maryland and margin improvements in the Massachusetts and New Jersey wholesale businesses.

Total Q3 2023 general and administrative (G&A) expenses were $40-million, compared with $36.3-million in the prior quarter. Total G&A expenses as a percentage of revenue improved from 29.5 per cent of revenue in the prior quarter to 28.3 per cent of revenue as the company leveraged existing G&A infrastructure.

Net loss in the third quarter of 2023 was $11.2-million.

Adjusted EBITDA, which adjusts for tax, interest, depreciation, amortization, equity-based compensation and other items deemed one-time or non-recurring in nature, was $29.5-million in Q3 2023. This represents a 38.5-per-cent increase quarter-over-quarter driven by the aforementioned gross profit improvements. Adjusted EBITDA margin of 20.9 per cent represented a 356-basis-point increase compared with the prior quarter.

Conference call and webcast

Ascend will host a conference call on Nov. 7, 2023, at 8:30 a.m. ET to discuss its financial results for the quarter ended Sept. 30, 2023. The conference call may be accessed by dialling 888-390-0605. A live audio webcast of the call will also be available on the investor relations section of Ascend's website and will be archived for replay.

About Ascend Wellness Holdings Inc.

Ascend is a vertically integrated operator with assets in Illinois, Maryland, Massachusetts, Michigan, Ohio, New Jersey and Pennsylvania. Ascend owns and operates state-of-the-art cultivation facilities, growing award-winning strains and producing a curated selection of products for retail and wholesale customers. Ascend produces and distributes its in-house Common Goods, Simply Herb, Ozone, Ozone Reserve, Tunnel Vision and Royale branded products.

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