Curaleaf Reports Second Quarter 2023 Results

Second quarter 2023 revenue of $339 million, representing an increase of 4% year-over-year, and adjusted EBITDA⁽¹⁾ of $70 million

Second quarter 2023 operating cash flow from continuing operations of $16 million and free cash flow from continuing operations⁽¹⁾ of $8 million

NEW YORK, Aug. 9, 2023 /PRNewswire/ -- Curaleaf Holdings, Inc. (CSE: CURA) (OTCQX: CURLF) ("Curaleaf" or the "Company"), a leading international provider of consumer products in cannabis, today reported its financial and operating results for the second quarter ended June 30, 2023. All financial information is reported in accordance with U.S. generally accepted accounting principles (GAAP) and is provided in U.S. dollars unless otherwise indicated.

Boris Jordan, Executive Chairman of Curaleaf, stated, "Our second quarter revenue grew 4% year over year to $339 million, adjusted gross margin was 44% and adjusted EBITDA was 21%. We ended the second quarter with $85 million in cash on the balance sheet and generated $37 million in year-to-date cash flow from continuing operations. As the U.S. industry regains its supply-demand equilibrium and we eagerly anticipate the game changing catalysts on the horizon, we continue to control costs and remain focused on long-term growth opportunities, particularly in Europe and our advantage in Germany specifically. We remain committed to the long game and will continue to position the Company globally for years of robust growth and margin improvement in '24, '25, '26 and beyond."

Matt Darin, Chief Executive Officer of Curaleaf, commented, "In Q2 we continued to prioritize the highest return growth opportunities balanced by a relentless focus on driving efficiencies across the business. We made solid progress towards these objectives by shrinking our expense base by 7%, increasing our retail vertical mix to 65% and reducing our inventory by $17 million from the first quarter. As we further optimize our best-in-class CPG portfolio with a continuously innovative and growing brand and product assortment, our focus remains on profitable, responsible growth in every aspect of our business, both in the U.S. and Europe. The fact is that no company is better positioned than Curaleaf to capitalize on the global cannabis market opportunities when the sector eventually and fully unlocks."

Second Quarter 2023 Financial Highlights

• Net Revenue of $338.6 million, a year-over-year increase of 4% compared to Q2 2022 revenue of $327.0 million, which excludes discontinued operations. Sequentially, net revenue grew 1%
• Gross profit of $146.5 million and gross margin of 43%
• Adjusted gross profit⁽¹⁾ of $149.9 million, resulting in adjusted gross margin of 44%, which includes an 80 basis point impact from an additional expense reclassification into cost of goods sold
• Net loss attributable to Curaleaf Holdings, Inc., including discontinued operations, of $71.2 million or net loss per share $0.10
• Adjusted net loss from continuing operations attributable to Curaleaf Holdings, Inc.⁽¹⁾ of $68.9 million or adjusted net loss per share^([1]) of $0.09
• Adjusted EBITDA of $70.0 million or 21% of revenue
• Cash position at quarter end totaled $85.0 million
• Free cash flow from continuing operations⁽¹⁾ of $8 million

Six Months Ended June 30, 2023 Financial Highlights

• Net revenue of $675.1 million, a 8% increase year-over-year
• Gross profit of $307.3 million and gross margin of 46%
• Adjusted gross profit⁽¹⁾ of $312.1 million, a 9% decrease year-over-year
• Adjusted gross margin⁽¹⁾ of 46%
• Operating cash flow of $27.6 million
• Net loss attributable to Curaleaf Holdings, Inc. of $125.6 million or net loss per share of $0.17
• Adjusted net loss⁽¹⁾ attributable to Curaleaf Holdings, Inc. of $115 million or net loss per share⁽¹⁾ of $0.15
• Adjusted EBITDA⁽¹⁾ of $143.2 million or 21% of revenue

Second Quarter 2023 Operational Highlights

• Completed the acquisition of Deseret Wellness in Utah.
• Continued to strategically expand our retail footprint in Florida by adding two additional stores reaching 60 in the state, and 152 stores nationwide.
• Launched new Curaleaf mobile app.
• Introduced Grassroots brand to Florida.
• Expanded Find, our value flower line, to six additional states including Florida, Nevada, New York, Ohio, Pennsylvania, and Utah; Find is now in twelve markets.
• Introduced Jams, our new edibles line, in Arizona, Florida, and New Jersey.
• Launched Grassroots diamond infused pre-rolls in Arizona, Illinois, Maryland, and Nevada.
• Completed sale of Colorado cultivation assets.

Post Second Quarter 2023 Operational Highlights

• In Connecticut, we opened our third store for adult-use sales, and our fourth location got approved for adult use in August.
• Launched Briq, our revolutionary two-gram vape, into six key markets including Arizona, Florida, Maryland, Maine, Michigan and New York, which set record breaking sales of $2 million in the first month. Briq is expanding four more states in August.
• Successfully launched adult-use sales in Maryland across our four stores and wholesale
• Completed the acquisition of EU GMP processing assets from Clever Leaves in Portugal to further vertically integrate our European supply chain.
• Unveiled the rebrand of our Select cannabis lifestyle brand.
• Entered into an agreement to sell our Oregon assets.

Total revenue was a record $338.6 million in the second quarter of 2023, a increase of 1% from $336.5 million in the first quarter of 2023 and an increase of 4% from $327.0 million in the second quarter of 2022. The Company's year-over-year revenue growth primarily reflects continued organic growth driven by strength in Nevada, Arizona, Connecticut, New Jersey, Arizona, and Massachusetts, and our international segment.

Retail revenue was $277.4 million, compared with $273.0 million in the first quarter of 2023, and up 10% from $251.1 million in the second quarter of 2022. Retail revenue represented 82% of total revenue. Curaleaf's year-over-year retail revenue growth was supported by product expansion, new store openings, and the further expansion of adult-use cannabis around the country.

Wholesale revenue was $59.7 million, a decrease of 4% from the first quarter of 2023 and represented 18% of total revenue. Wholesale revenue declined 20% year-over-year due to price compression, a proactive reduction of wholesale accounts, and an intentional reduction of low profit raw material sales.

Net loss attributable to Curaleaf Holdings, Inc. was $71.2 million, compared with a net loss of $54.4 million in the first quarter of 2023 and $21.9 million in the second quarter of 2022. The year-over-year degradation in net loss was mainly due to reduced gross margin rate stemming from price compression in Florida and New York, intentional actions to reduce inventory, and an 80 basis point reclassified expense into cost of goods sold.

Total revenue for the six months ended 2023 was a record $675 million, an increase of 8% from $623 million for the six months ended 2022.

Retail revenue was $550 million for the six months ended 2023, an increase of 16% from $476 million for the six months ended 2022. The increase in retail revenue was primarily driven by the expansion of product lines into new markets and new store openings.

Wholesale revenue was $122 million, a decrease of 16% from $144 million for the six months ended 2022. The decline in wholesale revenue was primarily due to price compression, a reduction of wholesale accounts, and an intentional reduction of sales to accounts with increased credit risk.

Net loss, attributable to Curaleaf Holdings, Inc., for the six months end 2023 was $126 million, compared with a net loss of $58 million for the six months ended Q2 2022. The $67 million degradation in net loss year-over-year was primarily due to the degradation in gross margin and increase in total other expenses.

Balance Sheet and Cash Flow

As of June 30, 2023, the Company had $85.0 million of cash and $574.1 million of outstanding debt net of unamortized debt discounts.

As of the end of the second quarter, Curaleaf has invested $34.9 million, net in capital expenditures, focused on cultivation, processing, and selective retail expansion in strategic markets.

Shares Outstanding

For the second quarter of 2023 and 2022, the Company's weighted average subordinate voting shares plus multiple voting shares outstanding amounted to 719,269,057 and 709,965,526 shares, respectively.

Conference Call Information

The Company will host a conference call and audio webcast for investors and analysts on Wednesday, August 9, 2023 at 5:00 P.M. ET to discuss Q2 2023 earnings results. The call can be accessed by dialing 1-844-512-2926 in the U.S., internationally 1-412-317-6300, or from Canada 1-416-639-5883. The conference ID # is 2931212.

A replay of the conference call can be accessed at 1-877-344-7529, or internationally 1-412-317-0088, or from Canada 1-855-669-9658 using the replay ID # 1724947.

A webcast of the call can be accessed on the investor relations section of the Curaleaf website at ir.curaleaf.com. The teleconference will be available for replay starting at approximately 7:00 P.M. ET on August 9, 2023, and will end at 11:59 P.M. ET on August 16, 2023.

Non-GAAP Financial and Performance Measures

Curaleaf reports its financial results in accordance with GAAP and uses a number of financial measures and ratios when assessing its results and measuring overall performance. Some of these financial measures and ratios are not calculated in accordance with GAAP. Curaleaf refers to certain non-GAAP financial measures and ratios such as "adjusted gross profit", "adjusted gross margin", "adjusted net loss from continuing operations attributable to Curaleaf Holdings, Inc.", "adjusted net loss per share", "adjusted EBITDA", and "adjusted EBITDA margin". These measures do not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other issuers. The Company defines "adjusted gross profit" as gross profit net of cost of goods sold and related other add-backs. "Adjusted gross margin" is defined by Curaleaf as adjusted gross profit divided by total revenues. "Adjusted net loss from continuing operations attributable to Curaleaf Holdings, Inc." is defined by Curaleaf as net loss, adjusted to remove the impact of discontinued operations and less other add-backs. "Adjusted net loss per share" is defined by Curaleaf as adjusted net loss from continuing operations attributable to Curaleaf Holdings, Inc. divided by the weighted average shares outstanding during the applicable period. "Adjusted EBITDA" is defined by Curaleaf as earnings before interest, taxes, depreciation and amortization less share-based compensation expense and other add-backs related to business development, acquisition, financing and reorganization costs. "Adjusted EBITDA margin" is defined by Curaleaf as adjusted EBITDA divided by total revenue. "Free Cash Flow From Operations" is defined by Curaleaf as cash from operating activities from continuing operations less the purchases of property and equipment, or capital expenditures. Curaleaf considers these measures to be an important indicator of the financial strength and performance of our business. We believe the adjusted results presented provide relevant and useful information for investors because they clarify our actual operating performance, make it easier to compare our results with those of other companies and allow investors to review performance in the same way as our management. Since these measures are not calculated in accordance with GAAP, they should not be considered in isolation of, or as a substitute for, our reported results as indicators of our performance, and they may not be comparable to similarly named measures from other companies. The tables below provide reconciliations of Non-GAAP measures to the most directly comparable GAAP measures.

Gross profit from continuing operations was $146.5 million in the second quarter of 2023, compared with $160.8 million in the first quarter of 2023. Adjusted gross profit from continuing operations net of add-backs for the second quarter was $149.9 million compared with $162.2 million in the first quarter of 2023. Adjusted gross margin for the second quarter of 2023 was 44.3%, a decrease of 390 basis points compared with the first quarter of 2023. The decrease in gross margin was largely due to price compression in certain markets, intentional efforts to reduce inventory and idle capacity, and 80 basis points of reclassified expense into cost of goods sold.

Adjusted EBITDA was $70.0 million for the second quarter of 2023, a decrease of 4% from $73.2 million in the first quarter of 2023 and an decrease of 19% from $86.6 million in the second quarter of 2022. Adjusted EBITDA margin was 20.7%, a decrease of 100 basis points from 21.7% in the prior quarter and an decrease of 580 basis points from 26.5% in the second quarter of 2022. The sequential decrease in Adjusted EBITDA primarily reflects gross margin contraction, partially offset by expense leverage. Additionally, our international segment had a 150 basis point drag on Adjusted EBITDA margins, as an investment into future growth catalysts, like Germany.