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TC

TerrAscend Corp. (TSNDF)·Q2 2024 Earnings Summary

Executive Summary

  • Net revenue rose to $77.5M (+7.5% YoY) with Adjusted EBITDA of $15.6M (20.2% margin); gross margin held at 48.6%, and the company delivered its eighth consecutive quarter of positive operating cash flow ($13.1M) and positive free cash flow ($11.7M) .
  • Management closed a $140M senior secured term loan at 12.75% (maturing Aug-2028, no prepayment penalties), reclassifying debt to long-term, turning working capital positive, and removing the going concern disclosure; proceeds mainly retired higher-rate debt, with residual cash available for M&A .
  • New Jersey remained a core strength with #1 market share in H1 2024; retail stabilized and returned to sequential growth, while wholesale was choppy QoQ but +100% YoY; management initiated the Boonton facility expansion to support demand .
  • Q3 outlook guided “flat to slightly down” sequentially across the P&L, with gross margins expected to remain ~48–50%; Maryland capacity increases and PA wholesale strength are offsets to NJ/Michigan pressure .
  • Potential stock catalysts discussed: Ohio entry (near-term deal(s)), federal reform momentum (DEA rescheduling and Boies lawsuit), sustained cash flow generation, and New Jersey share/mix dynamics .

What Went Well and What Went Wrong

  • What Went Well

    • #1 market share in New Jersey in H1 2024; retail returned to sequential growth after three quarters of decline; wholesale +100% YoY despite sequential lumpiness .
    • Eighth consecutive quarter of positive operating cash flow ($13.1M) and positive free cash flow ($11.7M); cash and equivalents rose to $30.5M QoQ .
    • Debt refinancing ($140M at 12.75%) extended maturities to 2028, removed going concern disclosure, and left “several million” for M&A; management highlighted optionality to pursue accretive expansion (Ohio priority) .
    • Quote: “We have the right team, high-performing assets, strong cash flow and the financial flexibility… along with possible greenfield expansion and transformational deal opportunities” .

  • What Went Wrong

    • New Jersey wholesale revenue was down sequentially and below internal expectations (even as YoY growth was +100%); wholesale is intrinsically “choppy” QoQ; Boonton expansion was decided to meet demand .
    • Retail revenue declined 8.7% YoY, mainly driven by new door openings in New Jersey and reductions in unprofitable Michigan revenue (offset by Maryland growth) .
    • GAAP net loss remained negative at $(6.2)M and diluted EPS $(0.03); G&A benefited from a one-time $4.2M bad debt reversal (excluded in Adjusted EBITDA) .
    • Analyst concern: guidance miss vs Q1 commentary (Q2 actual revenue +7.5% YoY vs prior +11–13% guidance) driven by NJ wholesale shortfall vs internal plan .

Financial Results

MetricQ1 2024Q2 2024Q3 2024
Revenue ($USD Millions)$80.6 $77.5 $74.2
Gross Profit Margin %48.0% 48.6% 48.8%
Adjusted EBITDA ($USD Millions)$16.2 $15.6 $13.7
Adjusted EBITDA Margin %20.1% 20.2% 18.5%
GAAP Net Loss – Cont. Ops ($USD Millions)$(14.9) $(6.2) $(21.4)
Diluted EPS ($USD)$(0.06) $(0.03) $(0.08)
Cash from Operations ($USD Millions)$13.3 $13.1 $1.8
Free Cash Flow ($USD Millions)$10.5 $11.7 $1.5
SegmentQ1 2024Q2 2024
Wholesale Revenue ($USD Millions)$26.9 $24.4
Retail Revenue ($USD Millions)$53.7 $53.2
Q2 YoY Wholesale Change—+75%
Q2 YoY Retail Change—−8.7%
KPIsQ1 2024Q2 2024Q3 2024
Cash & Equivalents ($USD Millions, incl. restricted)$25.7 $30.5 $27.2
G&A as % of Revenue (reported)34.7% 31.1% 42.6%
Positive Operating CF Streak (quarters)7th 8th 9th

Notes:

  • One-time items: $4.2M bad debt reversal reduced Q2 G&A; excluded from Adjusted EBITDA; Q3 G&A rose sequentially but was flat QoQ excluding SBC and Q2 one-time benefits (bad debt reversal and insurance recovery) .
  • Michigan gross margin sustained at ~40% (third consecutive quarter in Q2) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue YoY GrowthQ2 2024+11% to +13% YoY (Q1 call) Actual +7.5% YoY Lower than guided
Gross Margin % RangeQ3 2024 / Near-term48–50% (near-term expectation from Q1) Maintain ~48–50% for Q3 Maintained
Sequential P&LQ3 2024Not providedFlat to slightly down sequentially New guidance

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2: Q4 2023; Q-1: Q1 2024)Current Period (Q2 2024)Trend
New Jersey share & mixNJ wholesale doubled YoY; margin improved; retail pressure from new doors #1 market share in H1; retail sequentially up; wholesale +100% YoY but choppy QoQ Retail stabilization; wholesale demand strong but uneven
Maryland capacity & marginsQ4 margin impacted by equipment issue; expected improvement Q1/Q2 Hagerstown expansion completed; wholesale +117% YoY; margin improving Improving margins and output
Pennsylvania adult use & capacityAdult use momentum; sizable canopy; capacity ready Expect adult use in 2025; turning on additional rooms; inventory healthy Preparatory ramp for rec
Ohio entry & M&APlan to enter new states; target Ohio; integrate regionally Active talks with multiple operators; pricing unchanged; aim to enter within 1–3 months of AU start Advancing toward entry
Federal reformChanged 280E tax position; refunds expected DEA rescheduling comment period; Boies case progressing; tax refund $8.4M received of $30M sought Regulatory momentum; cash inflow from refunds
SG&A disciplineAchieved ~30% excluding SBC in Q4; target ~30% G&A excluding SBC 28.5%; ongoing cost reviews; target at/near 30% Continued leverage

Management Commentary

  • “We reported… positive operating and free cash flow… closed on a $140 million senior secured loan… This refinancing provides us with the financial flexibility and optionality to execute on our growth strategy” — Jason Wild .
  • “If you said to me then that we would be reporting a quarter with almost $78 million of revenue, 48% gross margins and positive cash flow… and the stock today would be down 75%… In the short run, the market is a voting machine… in the long run, it’s a weighing machine” — Jason Wild .
  • “We held the #1 market share position in [New Jersey] throughout the first half of 2024… retail returned to sequential growth… wholesale increased 100% year-over-year” — Ziad Ghanem .
  • “Adjusted EBITDA… grew 21.9% YoY to $15.6 million… G&A as a % of revenue… 28.5% [ex SBC] vs 39.5% last year” — Keith Stauffer .
  • “Looking into Q3, we expect to be flat to slightly down across the P&L sequentially” — Keith Stauffer .

Q&A Highlights

  • New Jersey dynamics: BDSA methodology confirms TerrAscend has been #1; retail stabilized; expanding Boonton facility to meet demand; June NJ growth outpaced market (+4% vs market +1%) .
  • Tax refunds: $30M total expected; $8M received; none denied to date .
  • Refinancing & M&A capacity: ~$120M debt retired; “several million” left for M&A; mix of seller notes/earn-outs; sparing use of equity despite rising target appetite .
  • Pennsylvania: Turning on additional rooms; confident demand will absorb supply; inventory position “very healthy” .
  • Gross margin outlook: ~48–50% remains reasonable for Q3 .
  • Bad debt reversal: booked in operating expenses; excluded from Adjusted EBITDA; underlying OpEx down $0.4M QoQ excluding reversal .

Estimates Context

  • Wall Street consensus (S&P Global/Capital IQ) for Q2 2024 revenue and EPS was unavailable due to a daily request limit; therefore, comparison vs consensus could not be provided and should be treated as unavailable at this time (Values intended to be retrieved from S&P Global).
  • Given the prior Q1 guidance of +11–13% YoY revenue for Q2, actual +7.5% implies a shortfall vs internal expectations, which may prompt downwards adjustments to near-term revenue models absent NJ wholesale normalization .

Key Takeaways for Investors

  • Execution: Another quarter of positive operating and free cash flow amid stable gross margins; operating discipline (G&A leverage) remains a differentiator .
  • NJ trajectory: Retail has stabilized and resumed sequential growth; wholesale remains strong YoY but choppy; Boonton expansion positions for continued share/mix benefits — monitor Q3 QoQ wholesale recovery .
  • Balance sheet: Refinancing pushes maturities to 2028, removes going concern disclosure, and supports M&A; watch interest expense trajectory and incremental M&A deployment .
  • Near-term guide: Q3 “flat to slightly down” with margins ~48–50%; expect puts/takes by state (NJ wholesale recovery, Maryland wholesale growth, PA wholesale steady, Michigan retail pressure) .
  • Regulatory catalysts: DEA rescheduling process and Boies lawsuit could materially impact tax and capital access; additional refunds ($22M remaining) are a cash tailwind if realized .
  • Expansion: Ohio entry is near-term; management indicates attractive pricing unchanged despite faster timeline; leverage Michigan SG&A regionally to boost margins .
  • Non-GAAP clarity: Adjusted EBITDA excludes one-time items (e.g., Q2 bad debt reversal); focus on Adjusted EBITDA trends and underlying OpEx to gauge operational momentum .