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Green Thumb Industries Inc
CNSX:GTII

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Green Thumb Industries Inc
CNSX:GTII
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Earnings Call Transcript

Earnings Call Transcript
2023-Q1

from 0
Operator

Good afternoon and welcome to Green Thumb’s First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the conclusion of formal remarks. During the question-and-answer session, we would ask for a limit of one question per person. As a reminder, a live audio webcast of the call is available on the Investor Relations section of Green Thumb's website and will be archived for replay. I'd like to remind everyone that, today's call is being recorded.

I will now turn the call over to Shannon Weaver, Vice President of Communications. Please go ahead.

S
Shannon Weaver
Vice President-Communications

Thank you, Betty. Good afternoon and welcome to Green Thumb’s first quarter 2023 earnings call. I'm here today with Founder and CEO, Ben Kovler; President, Anthony Georgiadis and our Chief Financial Officer, Matt Faulkner.

Today's discussion and responses to questions may include forward-looking statements, which are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. These risks and uncertainties are detailed in the earnings press release issued today, along with our reports filed with the United States Securities and Exchange Commission and Canadian Securities regulators, including the 2022 annual report filed on Form 10-K. This report along with today's earnings release can be found under the Investors section of our website. Green Thumb assumes no obligations to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call.

Throughout the discussion, Green Thumb will refer to non-GAAP financial measures, including EBITDA and adjusted EBITDA. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is included in our earnings press release and SEC and SEDAR filing. Please note all financial information is provided in U.S. dollars unless otherwise indicated.

Thanks, everyone. And now, here's Ben.

B
Ben Kovler
Founder and Chie Executive Officer

Thank you, Shannon. Good afternoon everyone, and thank you for joining our first quarter 2023 conference call. I'll lead off with an overview of our results and some observations on the current state of the industry. Anthony will discuss our operations. Matt will dive into the financials and then we'll open the call to questions.

Zooming out, given that the industry is still feeling pricing compression, inflationary pressure on input costs, lack of progress in DC and limited access to capital, we feel good about delivering solid results in the first quarter. We posted $249 million in revenue. GAAP net income was $9.1 million or $0.04 per basic and diluted share, adjusted EBITDA was $76 million or 31% of revenue, a more than 300 basis point improvement year-over-year. In the face of double-digit pricing compression, expanding margins more than 300 basis points year-over-year feels pretty good.

Finally, our cash flow from operations was $75 million. The most important message I can convey this quarter is that Green Thumb remains a fiscally sound enterprise with a strong balance sheet including cash totaling $185 million at quarter-end. The management team here appreciates this setup, which gives us the optionality as we continue to execute our long-term growth strategy in a patient and deliberate manner.

As I've said before, this is a marathon, not a sprint, and there will always be hurdles to jump. Luckily, our team is quite skilled at navigating challenges. We remain engaged and excited about the future and our ability to play offense, with large amounts of cash and time on our side. At the end of 2022, the legal cannabis industry in the U.S. reached $26 billion and it's estimated by analysts to grow to $75 billion over the next decade.

Green Thumb is in the fortunate position to strategically play this growth opportunity. We operate in attractive states that give us access to 50% of the U.S. adult population. We don't need to shed any assets or close facilities to fund future initiatives, and we have the dry powder and cash flow to explore options that will create profitable growth and sustainable value. As Buffet has taught us, only when the tide goes out do you learn who has been swimming naked.

I’m confident that we have a great foundation team and board in place. Last week, we welcomed Ethan Nadelmann, one of the nation's experts on drug policy reform to our Board of Directors. Ethan's deep understanding of the cannabis industry and passion for our mission make him a perfect fit for our board. Ethan's appointment will further strengthen our corporate governance and we look forward to his contributions to the team.

As we've discussed from the start, we have always been disciplined stewards of capital and resist growth for growth sake. We can sleep at night by playing the long game. We have plenty of runway for meaningful growth as we scale our business in our 15 operating states, several of which have yet to launch adult-use sales such as Virginia, Minnesota, Maryland, and New York, to name a few.

Like I said earlier, we have the capital to invest in expanding our platform. In 2023, we plan to open around 15 retail stores across Virginia, Pennsylvania, Minnesota, Nevada, and Florida. On April 17, we added two new stores, RISE New Hope in Minnesota and RISE Grove City in Pennsylvania, bringing our total store count to 79. On the production side of the business, we will continue to make investments in our cultivation facilities and our product development. We are continuously inspired to pursue new and outstanding experiences for our consumers. For example, infused pre-rolls are one of the fastest growing categories in cannabis, and we recently added Show Dog to the Dogwalkers Pack, a new line of infused cannabis pre-rolls. Like our four-legged best friends, Show Dogs are the perfect companions for an elevated journey that's all about new experiences and even greater heights.

On 4/20, we launched Show Dogs in Illinois and plan to expand to additional markets, including Massachusetts, Maryland, and Nevada later this year. I'm very proud of our family of brands that range across the cannabis value chain. We have something for everyone from our premium brands to our value brands like Good Green and &Shine. The latter of which is gaining market share according to PDSA. Having these sought after value brands is especially important when consumers are trading down during an economic squeeze.

While we are seeing average tickets down, transactions continue to increase in our value segment. That's the beauty of a diversified portfolio in action. We want everyone to have access to safe, satisfying, and personally affordable wellbeing. It's easy to be passionate about your business when you know you're contributing to the wellbeing of millions of Americans. I want to thank our entire team for never losing sight of that. It drives each of us every day.

We also will never lose sight of people left behind those incarcerated for cannabis possession. The black and brown communities that have been disproportionately harmed by the failed war on drugs and those struggling to participate in this great American growth story, reversing this damage won't happen overnight, but we will continue to fight to good fight.

Now I'll turn the call over to Anthony to discuss our operations in more detail. Anthony?

A
Anthony Georgiadis
President

Thanks, Ben. Good afternoon everyone. Thanks for joining. As Ben mentioned, we had a solid start to 2023. Despite continued price compression in many of our markets, along with persistent inflationary pressure, the company was able to deliver close to $250 million of revenue and over $76 million in adjusted EBITDA in the first quarter. This allowed us to generate over $75 million in cash flow from operations, solidifying our strong capital position.

While macro factors remain outside of our controls, we continue to manage the business using a cautious lens that obsesses over cash flow generation and balance sheet stability. During the quarter, the company continued its aggressive capital spend investing $65 million across its fleet. CPG CapEx accounted for approximately 80% of our spend as the company continued making substantial progress on its facility investments in New York, New Jersey, Minnesota, and Virginia.

All four projects remain on track to open late this year, and we'll provide meaningful commercial opportunities in 2024 and beyond. In retail, the company is focused on expanding its overall footprint as we anticipate opening approximately 15 new stores this year. As Ben mentioned, we opened our Grove City in Pennsylvania and New Hope Minnesota stores in April and have about a dozen or so additional stores under development in Nevada, Pennsylvania, Virginia, Minnesota, and Florida.

That should open before year-end. Throughout the rest of the year, in addition to completing our capital projects, our team is focused on the following, one, driving operating efficiencies to combat continued pricing and cost pressures. Given the rate of growth the company experienced since 2018, we have an opportunity to continue to refine our processes, especially within the CPG side of our business.

In addition, any revenue growth should provide incremental leverage to our fixed cost infrastructure. Two, continuing to allocate our resources and capital to markets and activities that optimize the current operating environment along with long-term company objectives, this means focusing on the consumer through innovation and expansion of our product portfolios, as well as driving further development of our omnichannel strategy.

Last, optimize our opportunity in Maryland come July 1. As a reminder, we have four stores in an established wholesale business in Maryland, and we are all excited to celebrate this historic event with our team in one of Green Thumb's earliest medical cannabis markets. Should any listeners find themselves in Maryland, please come see us in Hagerstown, Joppa, Silver Spring or Bethesda. We'll be sure to have something special, especially for our RISE Awards members. Kudos to the state for quickly establishing a framework that provides consumers with accessibility to high quality lab-tested cannabis products.

In conclusion, while we recognize our industry is experiencing a challenging time, we remain incredibly bullish on our business and the demand for cannabis by the consumer. We never anticipated our growth to be linear, yet, we remain confident in our team and our ability to achieve strong profitable growth over the long-term.

With that, I’ll turn the call over to Matt to review our financial results.

M
Matt Faulkner
Chief Financial Officer

Thanks, Anthony, and hello, everyone. As Ben mentioned, we generated over $248 million in revenue in the first quarter of 2023, a 2.4% increase compared to the prior year quarter. The revenue increase was primarily driven by the operations of the Retail segment. Our strong retail performance in the first quarter was supported by the commencement of adult use sales in New Jersey, Rhode Island and Connecticut, along with the increase store traffic in our open and operating retail stores, particularly in Virginia, Minnesota, and Maryland.

Overall, Retail revenue increased 9% versus the first quarter of 2022. Comparable sales increased 6% over the first quarter last year on a base of 73 stores. CPGs gross revenue in the quarter increased 4% versus last year. Gross profit for the first quarter was $124.7 million or 50.2% of revenue compared to $122.9 million or 50.7% of revenue last year. The decline in gross margin was primarily driven by price compression.

Turning to OpEx, selling, general and administrative expense for the first quarter was $80.5 million, or 32.4% of revenue compared to $68.4 million or 28.2% of revenue for the first quarter of 2022. SG&A excluding depreciation, amortization, one-time transaction costs and stock-based comp, which we refer to as normalized operating costs approximated $56 million compared to $61 million last year.

Disciplined expense management remains a top priority as we navigate this challenging environment. The company generated net income of $9.1 million or $0.04 per basic and diluted share during the quarter. This compares to net income of $28.9 million or $0.12 per basic and diluted share reported last year.

Adjusted EBITDA, which excludes non-cash stock-based compensation and other non-operating costs was $76.2 million or 30.7% of revenue for the quarter as compared to $67 million or 27.6% of revenue for the first quarter last year. We ended the first quarter of the strong balance sheet, including cash of $185.4 million and working capital of $170.7 million, compared to $149.2 million a year ago. At quarter end, we had $277.8 million in debt with the majority being the $250 million of senior notes at 7% due in April of 2025.

In closing, I’m very proud of our execution in the first quarter and I’m confident in our ability to execute our strategic plan, deliver high quality cannabis to our patients and customers, and generate strong returns for our shareholders.

With that, I’ll open the call to questions. Operator?

Operator

We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Gerald Pascarelli with Wedbush Securities. Please go ahead.

G
Gerald Pascarelli
Wedbush Securities

Hi, good evening. Thanks very much for the question. So it looks like your gross margin definitely came in a little better than expected just given the sequential improvement and then the an improvement just in the magnitude of the year-on-year contraction. So Matt, maybe just a little bit of color on the cost environment whether or not that is improving at all, relative to last year, how we should think about margins on a go forward basis using this as a benchmark, just trying to reconcile it back to some of the commentary that you made previously. Thank you.

A
Anthony Georgiadis
President

Hey, Gerald, this is Anthony here. I’ll take it. That’s a great question. So look, we’re pleased with our year-over-year margin improvement. Shout out to the team for their execution. As you know, it’s hard to predict kind of margins on a quarter-to-quarter basis. And as we said before, despite some of the price compression that we’re seeing, we’ve got a number of levers within the business that we can pull to try to kind of minimize the impact on the overall profitability. And so really what we’re doing is we’re focusing on the long-term taking it market to market and really just focusing on cash flow generation on a per market basis.

G
Gerald Pascarelli
Wedbush Securities

Got it. Thanks very much for the color. I’ll pass it on.

Operator

The next question comes from Matt McGinley with Needham. Please go ahead.

M
Matt McGinley
Needham

Thank you. So on G&A, I’m a little bit surprised at a $6 million quarter-over-quarter bump in G&A dollars, given that you didn’t add any stores. Is that $56 million in core G&A the new base to build from? That’ll then build I guess with new store growth, or was there some spend in the first quarter that that’s may not repeat again and that maybe there’s something incorporated or what have you that that won’t repeat later on in the year? Just trying to understand kind of what the big driver of the sequential increase was.

M
Matt Faulkner
Chief Financial Officer

Thanks, Matt. This is Matt. I’ll take that. So when we think about SG&A, yes, we’re pleased with performance in the first quarter, but at the same time, when we look forward, we’re constantly watching the SG&A line in conjunction with top line performance. But we do expect the SG&A line to grow, especially in the second half of the year when we’re talking about the number of new stores we’re projected to open, which is going to increase that SG&A on a relative base. So once again, we do expect that to increase come the back half of the year.

M
Matt McGinley
Needham

And what drove that increase in this quarter?

M
Matt Faulkner
Chief Financial Officer

There are a number of items, Matt, that, that we can point to. But a lot of it is really just staying disciplined on what we’re incurring, what costs we are willing to take on for the business, and how we can manage those on a go forward basis. So there’s nothing overly significant that we can point to as a single driver. It was a confluence of a series of events.

M
Matt McGinley
Needham

Okay. Thank you.

Operator

The next question comes from Michael Lavery with Piper Sandler. Please go ahead.

M
Michael Lavery
Piper Sandler

Thank you. Good afternoon. Just would love to get your sense of the industry landscape and how you think and what it takes for it to evolve, obviously price compression is still an issue pretty broadly – you’re in a position to be inquisitive if you find the right thing, but are there interesting assets? What does it take to get some rationalization in the industry or consolidation? Just would love to get some of your thoughts of how that might play out and what it would take to see some improvement there.

B
Ben Kovler
Founder and Chie Executive Officer

Sure. Hey Michael, it’s Ben. Thanks for the question. I think you summed it up well. We’re seeing pricing compression in the mid-double digits depends on which markets you look at, and they’re seeing much higher 20% to 30% unit growth year-over-year across the country. So we’re seeing continued demand for the products and we’re seeing this capital cycle continue to take shape. I would say for us in the M&A environment, phone brings a lot, we understand what’s going on out there, but don’t look for massive or transformational M&A from us as you go forward. Certainly, there are some things that are interesting. It’s been the same strategy for a while. Integrating deals is hard, closing big deals is hard. Then it’s even hard to measure those returns. So we love our portfolio today.

We love the states we’re in. And as I tried to say the prepared remarks, we have the growth embedded in the portfolio now and we’re putting in massive amounts of capital into our business directly that’s far cheaper than even these bargain basement “M&A prices that are out there because there’s hair on the story”. So I love to cleanly build a brand new facility in Cottage Grove, Minnesota and understand that investment of what the returns on those are going to be are in Low Moor, Virginia or in Hackettstown, New Jersey that are essentially us buying our own business at much, much cheaper than in the M&A with less problems because we ground up or we know what we’re doing, we think after this many years.

So that’s a little bit how we look at it. There’s market share for us to take. There’s massive growth out there and we think we’re in a position to play offense and initiate things begin new projects, new product innovations and new investments in the brand that now have national reach to develop that relationship here in sort of these middle innings with the consumer, which is where we should start to see our dial shift as we scale down this CapEx cycle into the next middle innings of the industry.

M
Michael Lavery
Piper Sandler

That’s great color. Thank you.

B
Ben Kovler
Founder and Chie Executive Officer

Sure.

Operator

The next question comes from Eric Des Lauriers with Craig-Hallum. Please go ahead.

E
Eric Des Lauriers
Craig-Hallum

Thanks for taking my question. Just wondering if you could comment on some of the working capital changes in the quarter that impacted cash flow from ops. Thanks.

M
Matt Faulkner
Chief Financial Officer

Well, this is Matt. I can take that one of the main things when we think about cash flow from operations in the quarter, reminder there’s not a Q1 tax payment in the quarter, so we did benefit from that in this quarter. But on the downside, we have two tax payments that will be coming in the second quarter. So when we look forward to the second quarter, we’ll see a more flattish cash flow from operations. So when you balance the two out, we should be in good shape there.

E
Eric Des Lauriers
Craig-Hallum

Thank you.

Operator

The next question comes from Andrew Partheniou with Stifel. Please go ahead.

A
Andrew Partheniou
Stifel

Hi, good evening. Thanks for taking my questions and congrats on the cash generation. I’d like to continue the theme on that, please. So you talked about a little bit on the tax payment here, but wondering about other working capital items like your inventory. Last quarter, you did achieve a record breaking number in this quarter, you beat it, last quarter, you had a working capital drag and a tax payment. So just wondering if you can parse out, how did you achieve this impressive cash flow number? Are there any markets to call out here that were maybe outside contributors? Or was this more broad based? Just wondering if you can break that out that had you achieved that impressive number?

M
Matt Faulkner
Chief Financial Officer

Certainly, I could take that. This is Matt. So – and I think – when we’re talking about cash flow in the first three months of the year, yes, we were definitely pleased with the results there. And I think a lot of it is really coming from a number of factors, where we didn’t see our inventory balloon in the first quarter. So we’ve maintained a line in the sand on inventory that we feel good about on the balance sheet, our accounts receivable also towing the line there. And at the same time, we’re not inflating – artificially inflating obviously our accounts payable or accrued expenses to achieve that. So I think a lot of it really just comes down to good discipline actions that we’re taking to control the finances of the business. And it’s nothing really – one action, it’s the compilation of all the actions we take on a daily basis to achieve those results.

B
Ben Kovler
Founder and Chie Executive Officer

Yes, I would just jump in. I totally agree with what Matt said and Andrew, you ask a good question and I think sitting where I’m at, it’s not one thing. This has been part of our ethos. We’ve been thinking about the cash, managing the business as if it’s our own. As I think about whether we talk about cash used or Anthony preaches to the team to spend treasury, like, it’s your own, it’s part of how we operate. So we don’t have a lot of slippage of cash. The fortunate thing in the first quarter is Matt said in the last question, which is totally true, is there’s no tax payment.

We pay our taxes on time in full, when they’re due. So the second quarter we’ll have two payments, so that won’t – that’ll balance it out. Same thing happened last year just look at our quarterly cash flow, same deal there. But in terms of managing to the cash, industry that’s tough for four to six quarters in a row, we’ve been talking about that ethos with our team and publicly. And so we’re sitting with 188. We like our situation, we like the visibility we have and we continue to do it, but there’s not some big revelation of what we’re doing. It’s more of an ethos, a culture and a mentality, and we like it and we want to continue with that sort of head down, execute, build the cash and be opportunistic mentality.

A
Andrew Partheniou
Stifel

Appreciate that. I’ll get back in the queue.

Operator

The next question comes from Aaron Grey with Alliance Global Partners. Please go ahead.

A
Aaron Grey
Alliance Global Partners

Hi, good evening and thank you for the question. So verticality has been a key theme, so I want to get some color in terms of how comfortable you feel today where you stand in terms of in-house brands being sold in your stores. Is there still a lever to be pulled there to increase that for some price installation? And also do you believe we might start to see more of a CPG growth in terms of third party stores? I know in terms of the wholesale, it’s been around the low-60s now for the past four quarters now. So how I – we might see some more growth on that wholesale side or if we still keep the – look to keep it in house with that installation on the verticality. Thanks.

A
Anthony Georgiadis
President

Hey Aaron, Anthony here. Great question. So I’ll start holistically with the business and then give a little bit more detail. When you zoom out, so verticality for the quarter, not materially different from Q4. Do we have any more opportunity there within the business? Certainly. The way we look at it, again, it just comes down to a market to market kind of assessment that we make. But there’s definitely, we’ve got some – we have some dry powder there if we need it. What I’ll also say is that on the CPG side, look, we’re working hard to continue to introduce brands that can really stand on their own two feet, and sell on any shelf, whether they be ours or someone else’s.

And so what Ben talks about the Show Dogs and some of the other things that we’re doing behind the scenes. That’s the hard work that we’re putting in now that hopefully will pay big rewards for shareholders into the future. But we’re certainly focused on continuing to kind of drive third party CPG distribution. We’re going to continue to do that and then obviously at the same time we’re looking to optimize our business on a market to market basis and verticality as one of the levers that we use to effectively do that.

A
Aaron Grey
Alliance Global Partners

All right, great. Thanks for the color.

Operator

The next question comes from Ty Collin with Eight Capital. Please go ahead.

T
Ty Collin
Eight Capital

Hey, thanks for taking the questions. Ben, I’m curious to get your thoughts on the M&A landscape as things sit today. Obviously, that’s an area where you’ve been very methodical in the past and it’s paid off, but are you starting to see any actionable opportunities out there given the stress that’s emerging and maybe seeing somewhere to put that cash pile to work?

B
Ben Kovler
Founder and Chie Executive Officer

Yes, thanks for the question. Like I said before, we’re out there, we’re listening, we’re talking, but we’re really focused on our own business and how to drive the highest returns for what we’re doing. So I wouldn’t look for massive transformational M&A. We know the difficulties of integration and what’s associated with that. So the bar remains very, very high. We have a lot of opportunity within our business to spend our capital, your capital, so shareholder money into the business versus to buy somebody else’s problems, theoretical EBITDA and non-existent cash flow. Because there aren’t businesses that have that, we’re talking to everybody, so are you guys, and there’s just so much noise and hair and problems all over the place.

So we’re – we like our spot, we’re listening, we’re talking, we’re trying to help where we can, but it’s not so attractive out there. So how to measure the returns on what we do, whereas, like I said, investments in the business, which is why you see our CapEx, we’re putting our money where our mouth is by investing in the business, and we hope we can produce those returners that should benefit all the shareholders. So on the run rate of whatever the EBITDA is today where we can take it into the future, we think that growth is here in the business.

All that said, everything’s on the table. It’s just spending the equity, spending the cash versus the alternatives we have, given the multiple, given what’s out there and the lack of anything really positive available for sale or even existent. Makes us love what we’re doing, makes us just continue to preach to the team, head down and execute and let’s go execute into this next level these middle innings have growth of cannabis in the U.S., because we got a really good formula going.

Operator

The next question comes from Scott Fortune with ROTH Capital. Please go ahead.

S
Scott Fortune
ROTH Capital

Yes, good afternoon. Thanks for the questions. As we’ve seen kind of normalization play out here. Maybe Ben, can you walk us through the last couple quarters with the sequential down growth here and how much of that is seasonal versus kind of industry challenges and with your current footprint, do you expect kind of seasonal 2Q pickup and how much or limited to the pricing or the challenges that you’ve indicated in the market? And then just on top of that, can you provide some light on kind the new adult youth markets and the runway there with New Jersey, Connecticut and likely Minnesota and Maryland turning on here pretty quickly.

B
Ben Kovler
Founder and Chie Executive Officer

Yes. Hey, Scott, this is Ben. I think your first question was around top line, right? And what’s going to happen? I mean…

S
Scott Fortune
ROTH Capital

Yes. Is that more seasonal or industry challenges and how do you look at 2Q kind playing out as we usually a stronger 2Q?

B
Ben Kovler
Founder and Chie Executive Officer

Yes, I would think it’s a combo of things. I would say, expect Q2 to be in the flat zone, so we have a lot of confidence in the back half of the year. We’ve got new store openings, we’ve got Maryland adult use turning on July 1, which as Anthony mentioned in his prepared remarks of something we’ve been getting ready for a while and we have facility expansions coming on really at the very tail end of the year that should impact first quarter 2024.

So all that puts us in a position with the new stores in Maryland to see growth in the back half of the year that some of the SG&A Matt was talking about before. But yes, there is seasonal we’ve seen it over time and you just have to look at which markets we’re in and what’s happening. To understand that, again, the business is really bottom up, it’s the sum of the parts versus the top down macro call and that’s why the bottom up we’re able to put chips on the table for where that future growth is coming.

S
Scott Fortune
ROTH Capital

And can you provide a little color on New Jersey, Connecticut and those states as they turn on? How you’re viewing it from a bottom up standpoint?

A
Anthony Georgiadis
President

Sure. Yes, Scott, I’ll take that. Look, I’d say that are progressing nicely. These are markets that went live in the last call it, 12, 18 months, continue to see nice economics. We haven’t seen any real deterioration. The step function up has really already happened. We do have a couple stores in Connecticut that we have not converted over to adult use. We’ve got one in New Jersey as well that’s still 100% medical. So we have some kind of embedded growth once we can figure those out. But generally, they’re performing according to plan and like I said, the step function up on the top line was really already felt. And so now it’s continued to optimize each of the markets themselves.

S
Scott Fortune
ROTH Capital

Appreciate the color. Thanks.

Operator

The next question comes from Sonny Randhawa with Seaport. Please go ahead.

S
Sonny Randhawa
Seaport

All right. So what percentage of the industry-wide pricing weakness that we’re experiencing right now? Do you think it’s coming from the value segment taking on more share versus just overall industry oversupply? And then where do you guys stand in terms of the value segment as a percentage of revenues? And where are you in terms of I guess a rollout across all your markets for your value brands?

A
Anthony Georgiadis
President

Sure. So Sonny, I’ll take that. Couple pieces to that puzzle. Great first question, I mean, look that’s very difficult to measure, right? You have a couple things happening within that. Yes, we have seen a trade down. However, we’ve seen compression really within all facets of the value curve. So, how much is really the consumer trading down versus other portions and other factors, really tough to say.

Look, this is something we saw early and we reacted as quickly as we could to it. We’ve obviously continued to make additional investments into the Good Green and &Shine brands that Ben mentioned in his prepared remarks. We’re seeing nice progress according to the BDS data that we all look at. And we’re continuing to introduce products not only at the – at our Rhythm and Dogwalkers brands, but also at the &Shine and Good Green brand because, look, we think this is here to stay.

So, as the market segmentation really kind of settles, which is something that we anticipated in the middle innings of this industry that’s probably just going to continue to happen. So, I mean, it’s just premature to really guess, is the value factor how much of that is really impacting the overall compression that we’re seeing? It’s difficult to say. But what we’re doing is we’re making investments into all facets of the value chain so that we’re kind of well prepared to take – optimize the business today, but also take advantage of the time when perhaps the consumer’s looking to trade up versus trade down.

S
Sonny Randhawa
Seaport

Okay. And just I guess as an unrelated follow-up I think we’ve got the bulk of the store openings in the second half of the year, if you could just give a little bit of color in terms of the quarterly world out there?

A
Anthony Georgiadis
President

Yes. So we’ve got approximately 15 new stores opening, we’ve already opened two this quarter. We’ve got a few more that should turn on and then really the balance, call it, anywhere from eight to 10-ish in the second half of the year. It’s hard to guess right now exactly Q3 versus Q4, these are – these projects are at various stages of build out. They’re generally well-spaced out, kind of influence space effectively. It just kind of happened by design. We’re not by design, but just kind of naturally. So from here on out, we think we’ve got, call it 12 to 13 additional stores that should open up through the end of the year.

S
Sonny Randhawa
Seaport

Great. I’ll turn it back.

Operator

[Operator Instructions] The next question comes from Matt Bottomley with Canaccord. Please go ahead.

M
Matt Bottomley
Canaccord

Good evening, everyone. Thanks for taking the questions here. Just wanted to go back to free cash flow. It’s obviously a question a lot of the analysts are getting on the inbounds just given where valuations are and perceived sort of access to capital anytime in the near-term. So, I know if you look at any individual quarter it can get convoluted with different things that don’t necessarily relate period-over-period. But if you take the $75 million that you did given that there’s no tax payments there, and then compare it to Q2 where there’s two tax payments.

It seems like, about $150 million of cash flow, which is similar to what you did last year is kind of where it looks like everything’s falling, assuming a flattened environment. And I’m not trying to put that assessment to you guys, but just assuming that everything is flat. Can you talk to the sort of $150 million of operating cash flows in relation to your PP&E spend last year, which I think was about $180 million? And then where you perceive interest payments or cash interest payments over the next 12 months to be just in relation to those three dynamics, which I know people are often asking about?

B
Ben Kovler
Founder and Chie Executive Officer

Yes, sure. Thanks, Matt. Good question. So yes, the CapEx, there’s a lot to that. So we – where are the CapEx this year? We spent about $60 million so far in the first quarter, a little more than that. We’re comfortable with where we’re putting that capital. That capital is funded with cash on the balance sheet. And as you nicely articulated, cash flow from operations after tax, after interest. The I and the T of EBITDA, they cost real cash. So we expect about another $100 million for the rest of the year in CapEx into the business in the projects that we’ve talked about. No new news there, finishing those off. And we do not think 2024 looks like 2023, just as 2023 is less than 2022, it’s coming off on those big ones.

And so what do we do with that cap, that free cash flow that you articulated, again, out of a – basically like you said, a flat environment of $300 million is, one, CapEx, we have that funded, we have that well done. Two, we’re thinking about the debt. Yes, we have a low level of debt, but it’s something we’re talking about and thinking about. We have $250 million at 7% due in April of 2025, and then we look at what other things we could do with the cash, whether it’s M&A on our own equity, certainly looking at things in this environment that could be exciting as we look at a medium and long-term lens in the best interest of shareholders.

So it’s a fortunate spot that we’re in with that kind of powder to play with, given the balance sheet we have and the cash it produces. But it’s important that people understand the tax rate, which you obviously do, and then interest, because interest is real cashish out the window. So we like the situation, it produces cash, we have the projects well-funded, fully funded on the balance sheet today. The business produces the cash and then puts us in a position to wait for a few good things or a few good ideas to come along, which we’re excited about.

M
Matt Bottomley
Canaccord

Got it. Appreciate that. And just as a – not a follow-up, but maybe just if we can maybe in context of last year, if you’re able to tell us what the actual 280E payments were? Was it around $150 million? That’s kind of where I earmark it. I’m just not sure if that’s been said in the past?

B
Ben Kovler
Founder and Chie Executive Officer

Total tax about last year and Matt to be honest here it was about $120 million plus of cash taxes to Uncle Sam’s, Anthony’s talked about our largest financial partner. 280E is responsible for a big portion of that. We’ve been hesitant to give exact guidance given depreciation, all the capital and all kinds of deduction things, but a significant portion of that could have been saved in cash to either invest in the business, buyback stock, M&A, anything you name it. So 280E takes away a lot of our cash, we think about $120 million last year total taxes.

M
Matt Bottomley
Canaccord

Got it. Thanks so much.

B
Ben Kovler
Founder and Chie Executive Officer

Sure.

Operator

The next question comes from Andrew Partheniou with Stifel. Please go ahead.

A
Andrew Partheniou
Stifel

Hi. Thanks for taking my follow-up question and I kind of wanted to continue that line from the last question. Your CapEx seems to be coming down substantially in 2024. You mentioned thinking about debt. I’m wondering specifically about share buybacks, if you have any thoughts about that given where stocks are now and where they might go. Is there any point in particular that you would see this as very attractive?

B
Ben Kovler
Founder and Chie Executive Officer

I mean, the short answer to your last question is yes, of course, prices can get silly. We want to be ready to play offense if that were to happen. But the business at about $300 million was, like you said, $300 million of EBITDA, $120 million of taxes, our total cash interest to Matt’s question last is under $20 million, about $18 million a year annual, which leaves cash available. So once we cover the CapEx, once we understand the debt, we’re certainly out there thinking about it. Everything’s on the table if it makes sense. And we’re watching what’s going on out there. But we’re not in this in a short-term game, the stock, issue a press release or something like that. We’re thinking about long-term owners of an enterprise and if we could certainly own more of the enterprise, it was a good use of company capital and we were covered in the other places, it’s on the table. So sort of evaluating everything.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Ben Kovler for any closing remarks.

B
Ben Kovler
Founder and Chie Executive Officer

Thanks everybody for dialing in. Great questions and look forward to giving the update on the second quarter in a few months. Thank you.

Operator

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

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