Q1 2025 Organigram Holdings Inc Earnings Call
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Krista: Good morning. My name is Krista and I will be your conference operator today. At this time, I would like to welcome everyone to the Organogram Holdings First Quarter Fiscal 2025 Earnings Conference Call.
Krista: Further reference will be made to certain non <unk> measures during this call, including adjusted EBITDA adjusted gross margin and adjusted gross margin percentage. These measures do not have any standardized meaning under IRS and are intended to provide additional information and as such should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IRS.
Krista: Our approach to calculating these measures may differ from other issuers. So these measures may not be directly comparable please see today's earnings report for more information about these measures listener should be where does the company realized a reputable third party providers on making certain statements related to market share data unless otherwise indicated all references to market data or saw some high fire in combination with data from blue color.
Krista: It'll box retailers and our internal sales figures.
Ms Goldberg: Today, we'll be hearing from key members of our senior leadership team beginning with vehicles and Burke Chief Executive Officer, who will provide opening remarks and commentary followed by Greg Guyett, Chief Financial Officer, who will review our financial results for Q1 fiscal 2025 with that I will now would you be seeing a Goldberg Chief Executive Officer Graham Holdings, Inc. Please go ahead Ms Goldberg.
Krista: Okay.
Speaker Change: Good morning, everyone and thank you for joining us today for our Q1 fiscal 2025 earnings call. It's only been six weeks since our Q4 call, but we've been very busy so let's dive into our Q1 results and discuss the key themes shaping our trajectory for the rest of the year.
Speaker Change: We exited Q1 fiscal 2025 with strong momentum as Canada's largest cannabis company by market share.
Speaker Change: Operating from five strategically located and highly specialized facilities, we remain one of the world's most innovative dynamic and efficient indoor cannabis growers and specialized extractor supported by our expensive R&D work with British American tobacco.
Speaker Change: On December six we completed the <unk> acquisition and consistent performance across our core organic Ram and newly acquired product lines. Our flagship brand shred embark sought continue to resonate with consumers by the end of Q1, they approached $100 million in combined retail sales for the quarter.
Speaker Change: And over $385 million over the last 12 months.
Speaker Change: Meanwhile, our supporting brands Big bag of Budge, and the bank, Tom perhaps a growth in excess of doubling their market share compared to Q1 last year.
Speaker Change: The Canadian cannabis industry grew seven 7% year over year in Q1, driven by strong demand and pre rolls and bank two categories, where we've made significant investments.
Speaker Change: This backdrop organic expanded international market share by 500 basis points year over year, and 100 basis points sequentially, reflecting our strategic positioning in these high growth segments.
Speaker Change: In Q1 last year, we ranked 16th in Vegas with 5% market share today, we're number one holding over 22% of the category. Similarly in pre rolled leaf climb from the number three to the number one position Nashville.
Speaker Change: We see further opportunities for expansion in certain categories and edibles category, we faced competitive headwinds with market share declined due to the influx of low cost single counts gummies as well as price compression throughout the category.
Speaker Change: Responded to these competitive threats not only by launching our own value single count Skus under our popular <unk> brand, but we also launched a highly differentiated and premium Edison Phonics gummy featuring.
Speaker Change: Our proprietary primary nano emulsion developed in PBC with a higher price and its strong margin profile. This gummy is clinically validated.
Speaker Change: Deliver faster onset and up to two times higher cannabinoid concentration that peak something other traditional gummies are not able to do.
Speaker Change: And it's in Phoenix has been has seen strong demand exceeding initial expectations at the top 10 gummy offerings in markets like New Brunswick can be seen where we have maintained consistent product availability.
Speaker Change: It is great to read some of the social programs, such as Phoenix are fast or Aphonic pie one.
Speaker Change: One consumer summed it up beautifully with the falling review on cannabis New Brunswick website.
Speaker Change: Gummies are noticeably different than my normal PC gummies I had a noticeable effect at 25% to 30 minutes and you feel the effect climbing the highest also tomorrow, Ken and predictable.
Speaker Change: No pre rolls, we introduced shred heavy slim our first MPS tube style payrolls building on the continued success of our regular to start pre rolls, we anticipate the familiar feel convenient packaging and high product quality to result in strong consumer adoption. We are also building distribution.
Speaker Change: With <unk> now available in eight provinces.
Speaker Change: Regionally, we saw market share growth across the country. We remain number one in all regions, excluding Quebec, where we ranked number four.
See significant opportunities to grow further in Quebec by introducing our market, leading baked to Quebec consumers contingent on the timing of Mtbc's baked rollout as well as our recently launched grown in Quebec flower cash and pre will skus produced in our facility in <unk>.
Speaker Change: While top line growth and market share expansion remain priorities. We are equally focused on operational efficiencies and sales mix optimization, both on the product level and on a geographic basis.
Speaker Change: Our long term investment and efficiency based cultivation continues to ramp up at our <unk> facility.
Speaker Change: As we continue our efforts to advance cannabis cultivation to the level of other mature agricultural industries. We are at the forefront of an exciting shift fee based cultivation is faster and cheaper than the dominant clone based methodologies seen across the sector. While clothing has the benefit of quickly trialing different genetics seed base.
Speaker Change: Cultivation lends itself to the stabilization of attractive genetics and more robust plants.
Speaker Change: We plan to employ both methods for the foreseeable future and in Q1, 21% of our harvests were from seed base rent.
Speaker Change: Shifting a portion of our garden seed based cultivation has already driven increased capacity market.
We plan to further increase flower output from Moncton with the upgrade of 76 flower rooms with higher intensity led lighting beginning in March this year.
Speaker Change: This is projected to increase plant yields by up to 15%, resulting in up to 6100 kilograms of additional capacity annually.
Speaker Change: The increased power from this project will lower cost further through scale.
Speaker Change: And Winnipeg this quarter, we completed an optimization of western Canada distribution, yielding $400000 in annual savings.
Speaker Change: In Ontario, we continue assessing our recently acquired London warehouse to improve service for Ontario customers, especially on flow through products, while also reducing logistics costs.
Speaker Change: Now speaking of recently acquired facilities one of our key focal points. This quarter has been the integration of <unk> and beginning to realize the significant operational synergies coming from this acquisition.
Speaker Change: The integration process is progressing as planned in the first two months of our combined operations have confirmed that our initial estimate of $10 million in annualized savings realized in 24 months is achievable and very likely to be surpassed.
Speaker Change: Early wins have been in manufacturing where extraction volume is above original estimates and extracts are already flowing from our new Elmer, Ontario facility to Milton and biomass is flowing from our mountain cultivation facility to Elmer.
Speaker Change: Now in THC, a hydrocarbon production, where organic brands strong balance sheet has allowed us to begin unlocking at two times expansion of THC output a key ingredient in <unk> pretty Walsh.
Speaker Change: In sales, where our combined teams are already winning new listings by starting to fill sales coverage gaps in Atlantic, Canada, and select retailers in Ontario.
Speaker Change: And in innovation, where our teams are hard at work to make each other's technology to fill innovation gap, such as accelerating innovation edible cash and certain pre wall formats for the motif brands.
Speaker Change: Additionally, we are leveraging our London warehouses to free up storage space in motion for the construction of new pre vegetation roads.
Speaker Change: This shift will open up additional flower rooms, resulting in an annual capacity increase of up to 6700 case of kilograms.
Speaker Change: This project is anticipated to be completed by the end of the first half of fiscal 2026.
Speaker Change: Taken together with our lead project, we will unlock almost 13000 kilograms of additional capacity annually to meet the growing power demands from international markets, while spreading more of our fixed costs over higher cultivation volume.
Speaker Change: As with Q1 three weeks of Ot's financials are consolidated with organic ramp beginning in Q2, we expect to see synergies begin to flow through more significantly to our P&L.
Speaker Change: And as well, we will have a full quarter of consolidated earnings.
Speaker Change: Expanding our global footprint also remains a top priority over the past quarter, we've made significant progress in evaluating new markets and strengthening our partnerships. We currently serve a diverse international customer base across four countries, allowing us to have a more predictable demand.
Speaker Change: Germany presents a particularly exciting opportunity our $21 million investment insanity group positions us well within the German medical cannabis market.
Speaker Change: Finally, the group is actively applying for German recreational pilot projects in six jurisdictions.
Speaker Change: Given their expertise from Swift pilot project and Germany's medical market, we are optimistic about their leadership potential and the German recreational space as regulations evolve.
Speaker Change: What's even more exciting is that is possible that the pilot projects will not be subject to the same product restrictions as the medical market meaning.
Speaker Change: Meaning we may have the opportunity of bringing our brands and IP to the German market.
Speaker Change: Our flower shipments to Germany continued to scale once our mountain facility secures EU GMP certification expected. This spring, we anticipate an increase volume to Germany, and other international markets along with improved margins.
Speaker Change: Our international sales grew to $3 3 million in Q1, and we expect to continue our year over year trend of increasing international sales throughout fiscal 2025.
Speaker Change: Supported by our Jupiter investment pool, we are actively assessing global expansion opportunities and are in discussions regarding other strategic investment opportunities.
Speaker Change: Additionally, we expect to close the final $41 $5 million tranche of our.
Speaker Change: Follow on investment later, this month, 100% of which will be allocated to international strategic growth.
Speaker Change: With that I'll turn it over to Greg to discuss our financial performance for the quarter.
Greg Guyett: Thanks, Dana and thank you everyone for joining us today. This quarter. We are pleased to begin reporting contribution from motif.
Greg Guyett: Okay.
Greg Guyett: Second quarter seasonality is typically softer in Q1, we experienced strong year over year growth in the quarter, a recreational business grew 15%, while net revenue increased 17% to $42 7 million compared to Q1 of last year.
Greg Guyett: The increase in the quarter was driven by growth in our flags flagship spread and box off brand as well as growth in our <unk>.
Greg Guyett: <unk> brands, such as big bag of bonds and the bank.
Greg Guyett: Also contributing to net revenue growth was a two three year over year increase in international sales to $3 3 million during the quarter.
Greg Guyett: Adjusted gross margin in the quarter increased to $14 3 million or 33% versus $11 2 million or 31% in the prior year period. The increase was primarily attributed to increased international sales lower unit costs due to increased operational efficiencies.
Greg Guyett: Higher net average selling price per Gram.
Speaker Change: <unk>, we saw a reduction in adjusted gross margin from 37% to 33%. The reduction was primarily due to seasonally lower volume competitive forces in the gummy category combined with the scale up of our Edison phonics launch and product mix, including lower international sales.
Speaker Change: Based on the current supply and demand dynamics in the marketplace. We have recently taken price increases in certain flower category, which will flow through in the second quarter and will continue to make we will continue to make adjustments in line with market conditions.
Speaker Change: As we stated in our Q4 call. We expect adjusted gross margin to stabilize around 35% in fiscal 2025 with fluctuations owing primarily to seasonality of our business.
Speaker Change: Regarding our operating expenses in the quarter, we saw an increase of 11% to $25 1 million from $22 6 million in the prior year period, primarily due to acquisition and transaction costs of $4 $5 million related to multi but partially offset by lower R&D costs.
Speaker Change: G&A in the quarter were essentially flat at $11 2 million versus $11 3 million in the prior year period, selling cost for the quarter, including marketing were $5 8 million versus $4 6 million last year, an increase of 26%. The increase was attributable to higher trade investments and with our <unk>.
Speaker Change: Retail partners to support the growth of the business.
Speaker Change: Total SG&A costs for the quarter were 17 million, an increase of 7% versus the prior year period as a percentage of net revenue. However, SG&A costs dropped from 44% to 40% since the prior year period.
Speaker Change: We expect SG&A as a proportion of net revenue to decrease further as we realize operational synergies from the motif transaction. We are confident in achieving the $10 million in run rate synergies and we continue to be on track to achieve the $5 million previously disclosed for fiscal 2025, we will provide additional updates on our <unk>.
Speaker Change: <unk> on this throughout the year.
Speaker Change: Adjusted EBITDA during the quarter was $1 4 million compared to zero point $1 million in prior year period.
Speaker Change: Year over year increase was primarily due to higher gross margin as a result of international sales.
Speaker Change: An increase in operational efficiency, we expect adjusted EBITDA in fiscal 2025 to outperform 2024 with larger growth anticipated in the back half of the year due to seasonality and the timing of international shipments.
Speaker Change: Our net loss for the quarter was $23 million compared to a net loss of $50 8 million in Q1 fiscal 2024 adjusting for the impact of the fair value loss of $18 9 million primarily related to the top up right.
Speaker Change: In association with the shares issued in the motif transaction net loss for the quarter would have been $4 1 million.
Speaker Change: From a cash flow perspective accused by operating activities before working capital changes was $6 $3 million in the quarter compared to cash used of $8 1 million in.
Speaker Change: In the prior year period.
Speaker Change: Change in cash used was primarily due to improvements in adjusted gross margin during the quarter versus the prior year.
Speaker Change: On the topic of cash we're pleased to reiterate that we continue to have strong balance sheet as of December 31, we had a total cash position of $72 million, including both restricted and unrestricted cash and negligible debt.
Speaker Change: We plan on investing $8 million to $10 million in sustaining capital expenditures during fiscal 2025 and in addition to this we intend to invest up to $16 million and the previously mentioned Moncton flower capacity enhancement project over the next 18 months.
Speaker Change: These capital expenditures will be funded out of operation operating cash flow. Although we will continue to evaluate our long term cash needs and optimize our capital structure Accordingly.
Speaker Change: Our pro forma cash, including restricted cash as of.
Speaker Change: The final Q1 dollars 5 million follow on investment tranche is expected approximately $113 million note. The restricted cash balance represents the remainder of our PDP funding from <unk> as well as cash year for Jupiter pool investments.
Speaker Change: We are encouraged by our results for the quarter as we see our efforts to increase efficiency scale market position and accelerate the international expansion contribute to our year over year growth throughout fiscal 2025, we expect <unk> costs as a proportion of net revenue, while increasing higher margin international sales.
Speaker Change: Further industry supply and demand dynamics are tightening altogether. We expect these trends to continue throughout fiscal 2025, and we look forward to providing you updates on our next earnings call with that I will turn the call back to Vienna.
Speaker Change: Thank you Greg.
Speaker Change: As we progress through fiscal 2025, we are confident in our ability to execute on our strategic priorities. The integration of our international expansion efforts and the continued success of our innovation pipeline all position us well for sustainable growth.
Speaker Change: We appreciate the continued support of our shareholders customers and employees, we remain committed to driving innovation operational excellence and long term value creation. Thank you for joining US today, we look forward to providing further updates in the coming quarters now, let's open the floor for questions.
Speaker Change: Thank you we will now begin the question and answer session.
Speaker Change: I would like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue and if you would like to withdraw that question again press Star one and as a reminder, we ask that you limit yourself to one question and one follow up. Your first question comes from the line of Aaron Grey from AGP. Please go ahead.
Speaker Change: Okay.
Aaron Grey: Hi, Good morning, and thank you for the questions first question for me just on the international front. So I know the receipt of your GMP certificate isn't meaningful and I believe you mentioned some discussions for some other international opportunities. So I'm just curious if you could provide any color in terms of the types of investments or acquisitions. You believe are available to help capitalize on the growth of an international.
Aaron Grey: Market, so maybe the geographies or different areas of the supply chain to help capitalize on that thank you.
Eric: Sure. Thanks for the question Eric.
Eric: So here's what we know right now the German market medical market has grown four times since the announcement last April of the decriminalization of cannabis and hemp.
Eric: There is a high demand in that market. We are already a strong strategic partner insanity group and we have a lot of opportunity to increase our exposure in that market.
Eric: We also know.
Eric: That there are opportunities in other medical markets around the world that continue to grow.
Eric: Australia is a big medical market and we currently supply that market through exporting flower into that market and what's interesting about Australia as they also have the opportunity of exporting some 2.0.
Eric: Products, such as baby or Gummies add down the road and certainly with our EU GMP certification. We will also be certified on extracts. So this is an exciting opportunity. There's a lot of discussion right now about product at flower moving all over internationally, but really the opportunity become.
Eric: Even greater when the shipments start moving into the two categories. So we're excited about that opportunity in terms of Jupiter investments. We certainly have funding it will increase with the additional $41 $5 million that comes in later this month and we will continue to look at investing internationally.
Eric: And that could mean in the U S market as well as European or.
Eric: Australia markets or wherever we look at higher opportunity markets. We're looking at the right opportunities, where obviously, we will see the benefit of that investment.
Eric: What I would say comfortably is.
Eric: Moving money into the U S, where it's ring fenced and you can access it is probably not our top priority.
Eric: Priority will be looking at areas like that hemp Delta nine space in the U S.
Eric: So that's kind of the focus of our international expansion plan opportunities to continue to drive growth and leverage our IP and leverage our brands as possible into those markets.
Eric: Thanks for that color.
Speaker Change: Really helpful. There second question from me just in terms of looking at the company on a pro forma basis.
Speaker Change: You disclosed within our financial statements I believe the company would have had more like $98 million in revenue if motif had been there for the full quarter, but correct me if I'm wrong. There. So just any color in terms of the pro forma company, particularly on a profitability basis for EBITDA and how that also trended both sequentially or year over year, just give us a better picture.
Speaker Change: The trends on a pro forma basis. Thank you.
Speaker Change: Perhaps I'll start and then I'll pass this one over to Gregg to comment further so first of all very important to highlight again, there's seasonality in the cannabis business. The fourth quarter is always our strongest quarter, given the summer months, where our consumption eyas.
Speaker Change: So we like to really focus on year over year as opposed to sequential quarters as you would in normal seasonal type of industry.
Speaker Change: That's the first point.
Speaker Change: Motif, we only had as we said three weeks of their numbers.
Speaker Change: Weeks of their numbers in our consolidated financials, but we will see significant.
Speaker Change: Consolidated earnings next quarter.
Speaker Change: We expect as typically in our business that are back half of the year will be a much stronger.
Speaker Change: In terms of revenue than the front half of the year that that is the seasonality of our business and on that maybe I'll pass it over to Greg to add some further comments.
Greg Guyett: Sure. Thanks, Thanks P&L.
Greg Guyett: Mentioned, we expect consolidated EBITDA excluding both.
Greg Guyett: Gammagram motif.
Greg Guyett: To exceed our EBITDA from last year, and like Bina mentioned, the seasonality will play a play a role here, we expect Q3 and Q4 to be the time period, when that profitability really ramps up.
Greg Guyett: Not just the increased volume that we're driving but also in the back half of the year is when we really start to expect to see the synergies.
Greg Guyett: It's starting to take hold as I mentioned, we expect to get realized about $5 million out of the 10 of annual run rate synergies in the back half of the year. So we will see that in our profitability.
Greg Guyett: In terms of.
Greg Guyett: Cash flow, we expect we expect that positive cash flow from operations for the end of the year and positive cash flow from operations for the full year.
Greg Guyett: By the time, we get to the end of Q4 so.
Greg Guyett: Really I think next quarter, we will start to see some of the benefit but really be.
Greg Guyett: The synergies that we will get through the cost savings and the THC.
Greg Guyett: Input costs really thats going to start flowing through in the third and fourth quarter, and we will see a significant benefit from that.
Greg Guyett: Okay.
Speaker Change: Okay, great. Thanks for the color I'll jump back in the queue.
Speaker Change: Your next question comes from the line of <unk> with Canaccord Genuity. Please go ahead.
Speaker Change: Hi, Good morning, Thank you for the question.
Speaker Change: Just wanted to get your thoughts on the strength of international markets, specifically, Germany, and the timing of the EU GMP certification completion in your marketing facility. So obviously good to see that Germany is G&A Forex growth in its medical program since April of last year.
Speaker Change: Lately, we've also seen more lp's moving into our space and given that the certification will be completed by spring of this year. How are you thinking about the growth profile by then versus how its tracking today.
Speaker Change: Do you foresee any headwinds related to oversupply in that market, which was something that we've seen in Israel. Previously just wanted to get your guys thoughts on that thank you.
Speaker Change: Yes, no problem. So so here's the story I mean right now there.
Speaker Change: Limited barriers I guess to product moving into.
Speaker Change: Export markets. When you go through converters. So you could get any G. ACP flower could move through a converter in in lets say, Portugal and get into the market, but once we get our certification in our facility not only does that eliminate the middleman.
Speaker Change: Which increases obviously, our margins and our end customers margins as they get our product.
Speaker Change: Not only will that happen as you recall with a $21 million investment in sanity group one of the agreements was our actual demand would go up.
Speaker Change: Some of these demand for our flower would go up once we receive our <unk> certification. So really yes, there's more players moving product in but we have a strong partnership insanity group, we have demand that will go up.
Speaker Change: And certainly we see the opportunity.
Speaker Change: The advantage of that EU GMP certification not only in Germany, but other markets.
Speaker Change: Reality is our investment in our Moncton facility has allowed us to produce high quality product at a lower cost. So while right now the margins are really strong on international sales.
Speaker Change: Obviously, because they don't have the excise tax on them there will be price compression in international markets. That's just going to happen as more players are moving product there, but we have the advantage of our low cost base, a high quality product that goes out and strategic partnerships with with.
Speaker Change: Customers like Sanity group, where we know we're going to have increased demand.
Obviously by taking out the middleman at the converters as well so we feel pretty good about.
Speaker Change: Short term growth projections on international and as I said earlier.
Speaker Change: There is opportunity to come to start moving into some of those extract sale as well.
Speaker Change: Into markets like Australia that.
Speaker Change: We believe we will have opportunity to expand that access in and change the dynamics a bit from just flower exports too.
Speaker Change: Dates or gummies, and really expand that opportunity that probably doesn't have the same level of competition is flower does so we're pretty confident about the growth in our international projections for the balance of this year.
Speaker Change: Thanks for the color.
Speaker Change: If I could just shift gears back to the Canadian domestic market.
Speaker Change: Obviously.
Speaker Change: The new federal election is happening very soon I guess, just how are you guys thinking about the impact of the government changing potentially.
Speaker Change: And specifically its impact on the tax reform that Hudson are recommended by the current governance committee going forward.
Speaker Change: Great question. So so look we spend a lot of time thinking through what.
Speaker Change: But the change in government could be so if there is a new conservative government, we believe they will be.
Speaker Change: Be supportive of the industry their stance has changed over the years, they will be supportive really to be able to show how they can fix what the Liberals messed up I think.
Speaker Change: Their focus will be on cracking down on crime, there ex the tax and reduction of red tape and so as you apply that to the cannabis industry, we think.
Speaker Change: There is obviously the crackdown on the illicit market and that conversion, which I think will take a bigger.
Speaker Change: <unk> than what we've seen with the Liberal government.
We expect that we will see the harmonized stamps, so a national staff across the country, which would.
Speaker Change: Eliminate some of the provincial barriers that were seeing between right now that is big news topic with the tariffs.
Speaker Change: And we do expect to see some.
Speaker Change: Other red tape reductions, which they would focus on in terms of exercise reform that you asked about I think given their focus on asking the tax we think that.
Speaker Change: Excise tax will come under a part of the broader tax review and.
Speaker Change: The idea of strengthening the cannabis industry.
Speaker Change: So that we could leverage our first unit user advantage and export more product internationally.
Speaker Change: B sort of supporting our our national stance with this whole <unk>.
Speaker Change: Challenged south of the border.
All that being said if the Liberals do they stay in power, we think the change in leadership.
Speaker Change: The Liberals will allow an open door for re <unk>.
Speaker Change: Looking at.
Speaker Change: Sort of some of the disappointing results.
Speaker Change: The results, we've seen or the current liberal government on advancement.
Speaker Change: We think there will be a heavy emphasis on economic growth and innovation and to counter U S economic measures. So.
Speaker Change: For us we think this could be an opportunity regardless of which.
Speaker Change: Government comes in.
Speaker Change: We think that.
Speaker Change: Changing the exercise.
Speaker Change: The tax rate what helped us strengthen our industry, it's an industry that contributes a lot to our GDP, we need to find other industries that hire people invest in capital expansion. There is an international demand for cannabis as more and more markets open up to medical markets we produce.
Speaker Change: Great quality product and I think both possible governments will see the opportunity of leveraging this industry in a bigger way than our current.
Our current government.
Speaker Change: Thanks for the color I'll jump back into the queue.
Speaker Change: Okay.
Speaker Change: If you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: It seems we have no further questions in our queue. At this time I will turn the call back to you for closing comments.
Speaker Change: Well, thank you everybody for joining our call today.
Speaker Change: We're excited about the quality of our earnings over Q1 of last year and our projections for the balance of this year. We look forward to updating you further in the upcoming quarters. Thanks for joining.
Speaker Change: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation and you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
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