InterCure Ltd. Q2 FY2022 earnings call

• InterCure had a record-breaking second quarter with a 9% quarter-over-quarter top line growth to $37 million, representing the 10th consecutive quarter of high growth and an annual run rate of $150 million. - Adjusted EBITDA grew by 4% to $9 million, accounting for 23% of revenue. Gross profit saw a year-over-year increase of over 115% and a sequential increase of 16% to over $16 million. - It was the eighth consecutive quarter with positive cash flow from operations, ending the quarter with $96 million in cash. - The company expanded its international supply chain across 4 continents, utilizing 6 cultivation sites globally. - Continued to invest in scaling up cultivation, production, and operations. The Southern cultivation site remained 100% operational during the military conflict. - Added nearly 2,500 new patients in July, with expectations of resumed patient recruitment growth. - Scaled up upstream operations, enlarged the Southern facility's post-harvest and nursery, and added 12 new highly demanded strains. - Completed the first importation from Clever Leaves under the Canndoc brand, though the new 109 protocol may slow imports; exportation process was eased. - Expanded the medical cannabis dedicated pharmacy chain to 25 locations, 17 of which are actively dispensing. Opened flagship Cookies pharmacy in Be'er Sheva and a location in Nahariya, with plans to add more locations by year-end. - Successfully opened the first flagship Cookies store in Austria, launching CBD and lifestyle products.

In the second quarter of 2022, InterCure achieved a record revenue of $37 million, marking a 9% quarter-over-quarter growth. Adjusted EBITDA grew by 4% to $9 million, which is 23% of revenue. Gross profit increased by over 115% year-over-year and 16% sequentially to over $16 million. For the first half of 2022, the company recorded record revenues of approximately $72 million, with gross profit exceeding $30 million and adjusted EBITDA reaching $17 million.

• Anticipates revenue growth to continue throughout 2022. - Is well positioned to continue scaling up and building shareholder value as the leading cannabis company outside North America.

• The new 109 protocol may cause a slowdown in importation into Israel. - Intensifying price competition from peers with weak balance sheets, which may affect low- to mid-quality products.

Q: Victor Ma on for Vivien Azer inquired about inventory in Israel given IMCA's stance on limiting cannabis imports.

A: Alexander Rabinovitch stated there's no official data on total inventory in Israel, no shortage of low and medium quality products, but the new 109 regulation may soon lead to a shortage of high-quality products.

Q: Follow-up on increased discounting in the Israeli market.

A: Alexander Rabinovitch said InterCure has vertical integration and strong distribution, focusing on producing high-grade products, and there's no impact on the business as it doesn't produce low- to mid-quality products.

Q: Follow-up on higher sales and marketing expense in the second quarter due to the Vienna store opening.

A: Alexander Rabinovitch said the opening was a spearhead, the retail location is performing as expected and even profitable, with no material impact on future performance.

Q: Pablo Zuanic asked about current relationships with partners like Tilray, Organigram, and Clever Leaves.

A: Alexander Rabinovitch said relationships with partners are healthy, and with Clever Leaves, there's a need to ramp up production.

Q: Follow-up on retail vs wholesale sales.

A: Alexander Rabinovitch said the company operates in a vertically integrated model and doesn't disclose breakdowns, but gross profit indicates more internal sales as retail reach grows.

Q: Follow-up on e-commerce capabilities.

A: Alexander Rabinovitch said the Israel online segment is 10%-15% of the market, and the company launched the first app for ordering, leading in the online segment.

Q: Follow-up on demand acceleration in the Israeli market.

A: Alexander Rabinovitch said demand is solid, a committee recommended easing the prescription process, and they're waiting for a new government to implement regulations.

Q: Follow-up on operating in Germany.

A: Alexander Rabinovitch said the strategy is to duplicate the Israeli model in Germany, working with leading companies and aiming to launch the best products.

Q: Yewon Kang asked about Cookies branded dispensaries vs InterCure's branded stores.

A: Alexander Rabinovitch said Cookies branded pharmacies perform well, are top pharmacies in Israel, and sell exclusive products.

Q: Follow-up on market share in Israel.

A: Alexander Rabinovitch said there are no official numbers, but the company grew 9%-10% quarter-over-quarter, indicating an increased market share.