Q1 2025 Curaleaf Holdings Inc Earnings Call
Speaker Change: [music].
and welcome to the Curaleaf Holding Dink First Quarter 2025 conference call. All participants will be in listen only mode. Should you need assistance, please signally conference specialist by pressing the start key followed by zero.
After today's presentation, there will be an opportunity to ask questions.
To ask a question, you may press star then one on the touch tone tone. Do it through all your question, please press star and then two. Please note this event is being recorded. I would now like to turn the conference over to Camila.
Lyon, Chief Investment Officer, please go ahead. Good afternoon everyone and welcome to Curaleaf holding the first quarter 2025 conference call. Today I'm joined by Chairman and Chief Executive Officer, Boris Jordan and Chief Financial Officer, Ed Kremer.
Speaker Change: Before we begin, I'd like to remind everyone that the comments on today's call will include four looking statements within the meaning of a Canadian and United States Security Laws.
Speaker Change: which by their nature involve estimates, projections, plans, goals, forecasting assumptions, including the successful integration of acquisitions and our subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the four of the statements.
Speaker Change: Uncertain material factors or assumptions that were applied in drawing a conclusion or making a forecast in such statements.
Speaker Change: These four-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. We're going to take no obligation to update or revise any four-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
Speaker Change: Additional information about the material factors and assumptions forming the basis of the forward looking statements and the factors can be found on the company's filings and press releases on Cedar and Edgar.
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Speaker Change: During today's conference call, in order to provide greater transparency regarding Curaleaf's operating performance, we will refer to certain non-GAAP financial measures and non-GAAP financial ratios that involve adjustments to gap results.
Speaker Change: Such non-GAAP measures and ratios do not have a standard meaning under US gap. Any non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by US gap, should not be considered measures of security and are unlikely to be comparable to non-GAAP financial measures provided by other companies.
Speaker Change: Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable US GAAP financial measures under the heading reconciliation of non-GAAP financial
Speaker Change: and their earnings press release issue today and available on our Investor Relations website at ir.curaleaf.com
Speaker Change: With that, I'll turn the call over to Chairman and CEO Boris Jordan. Boris?
Speaker Change: Good afternoon, everyone, and thank you for joining us to discuss our first quarter results. We've been actively executing our return to Ruth's plan to reposition the company for stronger margins and sustained profitability, and our efforts are beginning to deliver results.
Speaker Change: In quarter one, we reported revenue of 310 million, a 6% sequential decline that was in line with our guidance and primarily driven by seasonality, one less selling day, year over year, and an ongoing price compression.
Speaker Change: Despite these factors, gross margin expanded by 250 basis points to 50% from the fourth quarter, reflecting an improved efficiencies in our cultivation operations.
Speaker Change: We generate $65 million in adjusted EBITDA, representing a 21% margin even after accounting for a 130 basis point drag from our international and hemp businesses.
Speaker Change: We also strengthened our balance sheet by reducing working capital accounts and ended the quarter with 122 million in cash.
Speaker Change: Operating and free cash flow from continuing operations came in at 42 million and 26 million respectively. Additionally, we paid down 20 million in acquisition-related debt. Overall, we're making meaningful progress toward achieving our 2025 goals.
Speaker Change: As expected, our domestic revenue declined 8% sequentially, primarily due to macro factors such as price compression and normal seasonality, as well as deliberate actions to improve the quality and sustainability of our sales.
Speaker Change: This proactive approach reflected in our improved balance sheet metrics and disciplined receivables management, limited near-term growth but enhanced the quality of our sales.
Speaker Change: Second, we aggressively optimize retail inventory by reducing days on hand and eliminating underperforming excuse, steps that support our transition to a just-in-time inventory model.
Speaker Change: This shift enables a fresher, faster-turning product disortment, improves the customer experience, and accelerates cash generation.
Speaker Change: These tightening measures had the greatest revenue impact in New York, New Jersey, Pennsylvania, and Maryland.
Speaker Change: Importantly, they are already delivering improvements in sales quality evidence by our significant gross margin expansion. We remain committed to rationalizing our product portfolio, exiting non-core gap. Part of me, it's the conference operator. We're speaking privately. May I have your name for the call?
Speaker Change: Hi, this is the conference operator. We're speaking privately. May I have your name for the call?
Speaker Change: You are now rejoining the main conference. Reading to the expansion.
Speaker Change: Our team executed effectively driving wholesale account penetration to 61% by quarter and up from 50% last quarter.
Speaker Change: While market demand in New York remains solid, we believe there's potential for even greater growth.
Speaker Change: A recent raid by the OCM on the Long Island Distributor highlights a critical challenge.
Speaker Change: This practice harms licensed operators, local farmers, and consumers alike. A straightforward solution exists, the implementation of a long overdue track and trace system which the OCM was mandated to establish two years ago. We continue to advocate for this regulatory action to help ensure a level playing field and protect the integrity of the New York market. We continue to advocate for this regulatory action. We continue to advocate for this regulatory action. We continue to advocate for this regulatory action.
A higher-delivered robust of year-over-year growth of 58% in quarter-one [inaudible]
Speaker Change: with strong performance from both our two retail locations and our expanding wholesale business.
Speaker Change: We continue to build momentum in the state in our third store.
and Lima are ready to open pending state approvals.
Speaker Change: Our fourth and fifth locations are on track to open in early quarter three, with additional openings planned for the second half of the year, given our operational strength and expanding retail footprint, Ohio is well positioned to remain a significant growth engine for Curaleaf. [inaudible]
Speaker Change: Our international segment continues, it's a strong momentum, delivering 74% year-over-year growth, marking the fourth consecutive quarter of 70% growth and 14% sequential growth even despite a 2% effects headwind.
Speaker Change: Germany led this exceptional performance with the UK also contributing solid gains
Speaker Change: Martin Strength was driven by strategic pricing initiatives, improved procurement, and increased operating leverage from higher production volumes in Portugal. As a result, both Gross Margin A. and Tom Margin saw significant expansion.
Speaker Change: Notably, international A.B. Dodd margins are rapidly narrowing the gap with the US, as the total A.B. Dodd margin drag from international operations was just 70 basis points, the smallest impact to date.
Speaker Change: Germany delivered outstanding triple-digit year-over-year growth driven by accelerating demand amid a favorable regulatory environment. The successful role out of Canvas legislation last year and the ensuing market expansion is increasingly seen as a blueprint for effective common sense Canvas legislation.
Speaker Change: The new coalition government has given its support for keeping the status quo as is, with likely changes to the timeline on phase two adult use rollout.
Speaker Change: We suspect other countries will follow suit, emulating the cannabis market Germany has created. To capitalize on the strong momentum in Germany, we expanded our portfolio late last year by introducing mid-tier and value flower offerings under the cure-leaf and koala brands, respectively.
Speaker Change: Both of which have been met with strong market enthusiasm, Koala brand emerging as one of the leading value brands in the country.
Speaker Change: With growing consumer demand and regulatory clarity under the new government that aims to maintain the status quo, we are exceptionally well positioned to scale our presence and lead this next phase of market development.
Speaker Change: Meanwhile in the UK delivered another quarter of strong double digit growth, reinforcing our position as a market leader, although still in the early stages the UK market is benefiting from an unwavering commitment to patient satisfaction and operational excellence.
Speaker Change: We're actively investing in AI and automation to enhance efficiency and through put leveraging intelligent warehousing faster dispatch and recently incorporating [inaudible]
Speaker Change: An automated dispensing robot which increases our capacity and automates four stages of our manual processing to drive innovation and sustainable profitability while elevating the patient experience.
Speaker Change: Our international segment is off to a strong start in 2025, and we are encouraged by prospects for new market openings that could materialize over the next year. Focus remains on sustaining our leadership in existing markets while actively preparing to enter and shape the next wave of legal cannabis markets across Europe .
Speaker Change: According to BDSA, we maintained a strong market position holding the number two spot overall while select remained the number one vape brand driven by our continued focus on innovation.
Speaker Change: That same innovation engine is fueling momentum across the portfolio as seen in the strong reception of our recent product launches.
Speaker Change: As we shared in our last call, we began prioritizing our premium flower offerings with the introduction of our old star straights.
Further elevating our position in T-Martins.
Speaker Change: In March and April , we successfully expanded these strains into 11 key markets including Arizona, Florida, Illinois, Pennsylvania, New York, New Jersey, and Ohio and Ohio.
Speaker Change: Early consumer response has been highly encouraging with noticeable consumer trade-up for mid-tier to premium offerings achieved without any incremental discounting.
Speaker Change: In addition, Anthem, our new cylindrical style pre-roll brand that has rooted in American heritage and innovation launched a couple of weeks ago in New York. Illinois, Massachusetts, Arizona, Florida, and New Jersey.
Speaker Change: ACE are proprietary aqueous extraction technology, officially launched in New York, Massachusetts and Florida this quarter, with strong initial self-rule, backed by five years of dedicated R&D ACE delivers the clearest, cleanest oil on the market, setting a new standard for purity and consumer experience.
Speaker Change: It's a rival market and major milestone the first time this innovation is commercially available to scale positioning us to disrupt the traditional distillate market and redefine expectations around cannabis oil quality.
Speaker Change: We're seeing strong and accelerating demand for these innovations and our teams are working quickly to ramp up production. Anthem and Ace have already sold that of their initial production run at wholesale in New York, New Jersey, underscoring the market's enthusiasm.
Speaker Change: Our hemp business had a very productive quarter. Highlighted by the launch of Formula X, our new hemp derived THC energy drive.
Speaker Change: and the expansion of our beverage distribution into more than a hundred total wine stores across nine states. We also broadened our seltzer lineup with nude low-dose and flavored options to meet evolving consumer preferences.
Last month we opened our first half.
Speaker Change: A hemp-only retail store in Florida, offering a curated disortment of beverages and edibles.
Speaker Change: This pilot's door serves two strategic purposes. First, to deepen our understanding of the hemp consumer, their behaviors, preferences and purchase patterns. And second, to expand our brand reach through a channel with fewer regulatory barriers.
Speaker Change: Our mission remains clear to provide access to safe legal and tested products, whether hemp or cannabis arrived.
Speaker Change: Wherever and however consumers choose to shop, with the flexibility, hemp or fords, we're well positioned to enter new markets quickly and efficiently.
Speaker Change: We plan to expand into every state that supports complying him for commerce [inaudible]
Speaker Change: and Florida's favorable legislative stance gives us strong momentum. Expect more from us on this front in the quarters ahead.
Speaker Change: Since stepping into the CEO role last August, we've completed much of the heavy lifting needed to reposition the business for long-term success. We've streamlined operations, improved key manufacturing metrics, and sharpened our focus on flower quality, evident in the markets like Arizona and Pennsylvania where we've successfully introduced our high-performing all-star strengths.
Speaker Change: We've also launched a comprehensive ERP integration project and removed unnecessary layers of management to increase agility and accountability. As we look ahead, our focus will shift to more targeted surgical improvements as Curaleaf enters its next phase of discipline sustainable growth.
Speaker Change: We're off to a good start in quarter one with meaningful progress in both gross margin expansion and cash generation. As we look ahead the quarter two we remain confident in our strategy while keeping a close eye on external risk factors such as tariffs and shifts in consumer sentiment. [inaudible]
Speaker Change: In response, we're taking proactive steps, streamlining our product assortment, renegotiating supplier contract and optimizing logistics to mitigate inflationary pressures and protect our margins.
Speaker Change: At the same time, we're focused on driving profitability, sustainable growth, while managing expenses with discipline and precision . . .
Speaker Change: As we finalize our retail inventory repositioning work by the end of quarter two, we anticipate stabilization, of course, our core domestic markets with accelerated growth driven by strategic expansions in New York, Ohio, International, and 12 new store openings this year.
Speaker Change: Lastly, we will continue assessing retail, store tuck-in acquisitions in a few of our larger markets. [inaudible]
Speaker Change: By controlling the controllables, we're positioning the business to remain resilient and agile in a dynamic environment.
Speaker Change: I want to extend our gratitude to our team of 5,000 strong for their hard work, resilience and dedication. In an environment where we're all being challenged to do more with less your unwavering commitment and adaptability continue to drive our progress and make us better every day.
Speaker Change: With your passion and perseverance, the fuel are success, and I couldn't be prouder of what we've been building together. With that, I'll turn the call over to our CFO at Kremer, Ed.
Ed Kremer: Thank you, Boris. Total revenue for the first quarter was 310 million, a 6 percent sequential decline compared to the fourth quarter and a 9 percent decrease compared to the same period last year.
Speaker Change: Strength in International, New York and Ohio was offset by pricing pressure in New Jersey, Arizona, and Illinois.
Speaker Change: International revenue grew by 74% year-over-year, driven primarily by Germany and the UK.
Speaker Change: By Channel, Retail Revenue was $231 million compared to $268 million in the first quarter of 2024.
Speaker Change: A decline of 14% year-over-year, partially offset by strength and wholesale, which increased 12% year-over-year to $78 million, representing 25% of total revenue.
Speaker Change: The growth in wholesale was driven by International, continued door expansion coupled with strong self-throughs and re-orders in New York and Ohio.
Speaker Change: Price compression remains significant across the industry and will likely persist especially in the face of turbulent macroeconomic backdrop. In the meantime, we're taking proactive steps to protect our margins by enhancing the quality of our sales.
Speaker Change: We're also driving greater efficiency across our cultivation facilities and aggressively optimizing operational processes to reduce cost program.
Speaker Change: At the same time, we're conducting deep pricing analysis to identify additional opportunities for smart market-align adjustments that enhance both competitiveness and profitability.
Speaker Change: To this point, our first quarter adjusted gross profit was 155 million, resulting in a 50% adjusted gross margin and increase of 250 basis points compared to the prior year period.
Speaker Change: The primary drivers of this expansion were strong cultivation productivity and efficiency gains, an increase in vertical mix and discipline labor expense controls.
Speaker Change: These games were partially offset by price compression and higher promotions [inaudible]
Speaker Change: S.GNA expenses were $107 million in the first quarter, an increase of 3 million from the year or a gold period.
Speaker Change: Corus GNA was $104 million dollars, an increase of 4 million from the prior year.
Speaker Change: The year-over-year increase in our Coruscinae primarily reflects international expansion to launch of our hemp division and new store openings in Florida and New York.
Speaker Change: Chores, Jenae was 34% of revenue in the first quarter, a 410 basis point increase compared to the prior year, due to the aforementioned investments coupled with lower revenue.
Speaker Change: First quarter net loss from continuing operations was $55 million or a loss of $0.7 per share.
Speaker Change: First quarter, adjusted EBITDA was $65 million, a decrease of 16% compared to last year, while adjusted EBITDA margin was 21%, a decrease of 180 basis points versus last year.
Speaker Change: Our international segment profitability is improving quickly as the scale benefits from strong demand are taking hold.
Speaker Change: Notably, the first quarter international ABA.margin drag improved by 70 basis points from 170 basis points last year separately our hemp business weighed on ABA.margin by 60 basis points as we continue to invest behind this important initiative.
Turning to our balance sheeting cash flow.
Speaker Change: We ended the quarter with cash and cash equivalence of $122 million, inventory increased $5 million or 2% compared to the fourth quarter due to growth in our international segment and inventory stocking ahead of the 420 holiday.
Speaker Change: Capital expenditures in the first quarter were 16 million, a majority of which was carry-over cat-backs from 2024.
Speaker Change: For 25, we continue to expect capital expenditures to be roughly half of 24 levels with investments focused on international facility expansion, IT infrastructure, and approximately 12 new store openings.
Speaker Change: In the first quarter, we generated operating and free cash loan from continuing operations of 42 million and 26 million respectively.
Speaker Change: Operating cash flow was similar to that of Q4 despite Q1's typical seasonal slowdown. This strong cash generation underscores the effectiveness of our discipline approach to enhancing the quality of our sales and tightening our working capital management, particularly with our foreseeable balances.
I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Speaker Change: Our outstanding debt was $561 million, and during the quarter, we reduced our acquisition debt by approximately $20 million. We will continue reducing various components of our debt throughout the year while maintaining ample liquidity to support our operations and growth objectives.
Speaker Change: The impact of tariffs is generating increasing uncertainty for our business with the full effect still unfolding.
Speaker Change: We face potential headwinds to consumer demand as rising prices may damp and discretionary spending.
Speaker Change: At the same time, we're seeing cost pressures in several key product categories, most notably Vape Park, Hardware, and Proofural Packaging.
Speaker Change: Well, while the ultimate impact on our cost structure remains to be seen, we are proactively managing this situation.
Speaker Change: We're working closely with our packaging and hardware suppliers to mitigate near-term risks by accelerating inventory purchases ahead of further tariff hikes.
Speaker Change: In parallel, we're exploring long-term solutions including vendor support, shifting production to lower care of countries and selective pricing actions.
Speaker Change: That said, our exposure to China sourcing is just 5% and will be zero in a matter of weeks as our suppliers pivot to lower cost countries.
We will provide additional updates as more information becomes available.
I'm sorry. I'm sorry. I'm sorry. I'm sorry. I'm sorry.
Speaker Change: Taking these macroeconomic factors into account for the second quarter, we expect total revenue to increase low single digits sequentially from the first quarter [inaudible]
Speaker Change: With that, I'll turn a call back over to the operator to open the line for questions.
Speaker Change: We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchdown's phones. If you are using a speaker phone, please pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. Also please limit yourself to one question.
The First Eye
Question comes from Matt Bottomley with... [inaudible]
Private Investor. Please go ahead.
Speaker Change: Thanks, you have Matt Bottomley here from Canacord. Thank you guys for the question. I just wanted to get a better understanding Boris of the international contribution going forward. So 75% is growth year over year. I mean, that's been pretty successful since you guys onboarded a few years back with the launches in Germany now. You know, some of the innovations there and some of the the the branding that you've noticed. How should we think about that growth profile into the next couple of years because I imagine it's on a decelerated basis, but obviously there's less visibility for us analysts.
with respect to what's going on over in those markets. Thank you very much.
And I think we thank you, Matt. I think that—
Speaker Change: One has to be careful because I don't want to predict. [inaudible]
Speaker Change: New Markets, although we know there are several major countries that are anticipating launching…
Speaker Change: Canvas programs over the next several months that would likely launch next year. We are working with those countries, but until they actually make the announcements and they publish the rules.
Speaker Change: We don't want to speculate on that. If we talk about the existing main markets which we sell into, which is the UK, Germany, Poland, Australia and New Zealand, I think that we could probably anticipate a continuation of the current trend of growth. So we forecasted earlier in the year that we were going to grow from about 100 and 7 million, which was our number for last year to call it somewhere around 170 million this year.
Speaker Change: and that's where we're estimating at this point in time and we feel very comfortable with that number. Going forward after that I think a lot has to depend on new countries as well as a continued expansion of the program in the UK and Germany. I would just say that both the UK and Germany are still very much under-paradrated and have a lot more room to continue growth.
Speaker Change: on the negative side, I would just say, that there is a lot of product hitting the European market, you know, Colombia, African countries, Canada are exporting and there is some price compression that's showing up in the market. We tend to play in the premium side of the market, so we haven't felt it, and have actually been, we have...
Speaker Change: largely been expanding our margins, but it is a threat to the market and there's a tremendous amount of cannabis that can't be sold in Canada or other markets that's now making its way into the European market.
[inaudible]
Speaker Change: Appreciate that. I'm just wondering if you could maybe just very quickly on the CapEx side when it comes to internationals. It's about 11% of your business. It's going to be I guess the same consideration of what your estimate is of you know expanding markets but on a steady state just those three core markets you mentioned, how should we think of the ratio of your CapEx? I know it's pretty CapEx light but any color would be great.
Speaker Change: Most of the capex that we've already been sunk and invested into those markets at this point in time, we do have some small things here and there I would have to make somewhere around $20 million is what we're looking at over the next year and a half into the European market and that should be more than enough to complete our cycle of investment.
Thanks, Boris.
Thank you.
Speaker Change: And the next question comes from Russell Stanley with Beacon Securities. Please go ahead.
Russell Stanley: Good afternoon, and thank you for taking my question. If I could on New York, can you talk about what you're seeing on the wholesale front with respect to that?
Russell Stanley: competitive environment. You had a start being one of, I think, few with Winample into a production facility, but I'd love to hear what you're seeing there now. Thanks.
Yeah.
Speaker Change: Hi, thanks for us. So New York is a very strong market. It continues to grow. We're seeing.
Speaker Change: More and more stores continue to opening up and it's a large geographic footprint, but we're doing well in the market and continue to...
Speaker Change: to expand our ability to distribute products. As I said in my prepared remarks that the biggest issue in New York, and we definitely saw that in the first quarter.
Speaker Change: We saw our revenues from the fourth quarter to February drop almost by 50 percent because of what we would call the inversion. The inversion is where illicit cannabis from California and other markets made it into the New York.
Speaker Change: because of a lack of a seed to sale, tracking system, and that definitely affected the New York growers. Now, as I also mentioned in my prepare remarks, the OCM, which is a regulator, did clamp down on one of those.
Speaker Change: Organizations that was doing that and we're seeing a little bit of hesitancy from the retailers and taking on any more of this product.
Speaker Change: and so we are seeing a recovery in our wholesale sales in New York ever since the action of the OCEM. And so if that continues, then I would say that the growth trajectory in New York is still very, very great.
Eric Lauriers.
Speaker Change: This concludes our question in the answer session. I would now like to turn the conference back over to Camilo Lyon for any closing remarks.