Q1 2025 Cronos Group Inc Earnings Call
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Jacinda: Good morning, my name is Jacinda, and I will be your conference operator for today.
Speaker Change: Thank you and thank you for joining us today to review Kronos is 2025 first quarter financial and business performance today I'm joined by our Chairman President and CEO, Mike <unk> and our CFO initially mark.
Speaker Change: <unk> issued a news release announcing our financial results. This morning, which was filed on our Edgar and SEDAR profiles. This.
Speaker Change: Information and the prepared remarks will also be posted on our website under Investor Relations.
Speaker Change: Before I turn the call over to Mike, Let me remind you that we may make forward looking statements and recruiting non-GAAP financial measures. During this call. These forward looking statements are based on management's current expectations assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward looking statements.
Speaker Change: Factors that could cause actual results to differ materially from expectations are detailed in our earnings materials in our SEC filings that are available on our website by which any forward looking statements made during this call are qualified in their entirety.
Speaker Change: Information about non-GAAP financial measures, including reconciliations to U S. GAAP can also be found in the earnings materials that are available on our website.
Speaker Change: Lastly, we will be making statements regarding market share information throughout this conference call and unless otherwise stated all market share data is provided by high fire.
Speaker Change: We will now make prepared remarks, and then we'll move to a question and answer session.
Mike: With that I'll pass it over to Kronos is chairman President and CEO, Mike <unk>.
Mike: Thank you Gary and good morning, everyone.
Mike: Our goals for 2025 remain unchanged from the strategic objectives that have always guided kronos.
Mike: We remain focused on leading the market in product innovation quality and distribution and then leveraging these strengths into leading positions in cannabis markets globally.
Mike: As we look ahead, we see opportunity for continued strong revenue growth and we aim to deliver additional margin improvement overtime through operating leverage and continued cost discipline.
Mike: Now turning to brand update our spinach grant ended the quarter and the second most popular brand in Canada with four 6% market share demonstrating category leading performance across multiple formats.
Mike: In the flower category that has slipped to the number three spot with market share of five 1%.
Mike: Strong and growing consumer demand for our flower products has led to supply constraints that are restricted growth for that brand.
Mike: We believe this restricted growth to be temporary.
Mike: These shortages reflect the exceptional popularity of our flower offerings and while there's pent up demand presents a near term challenge we are taking deliberate steps to ensure we meet it swiftly.
Mike: Our team is carefully allocating an existing inventory to maintain the availability of our most sought after products across markets.
Mike: The upcoming completion of our <unk> expansion will mark a pivotal moment unlocking significant additional capacity in the second half of 2025 that will allow us to capitalize on this demand.
Mike: We remain steadfast in our commitment to deliver the cannabis industry best buy our products and our strategic investment in growth positions us to strengthen our market share of supply becomes available.
Mike: Our leading edibles remains strong where we hold the number one position with 27% market share.
Mike: The salaries best finish line continues to set the standard capturing over 23% of the gummy category.
Mike: We strengthened us lead with new innovative offerings fully blasted gallery, featuring 10 milligrams of THC and Raritan avenova, including three new standout flavors.
Mike: <unk> with CVC Peach passion for CBS, and TBD and Strawberry Watermelon CPG.
Mike: And the vape category, we've achieved a number four position overall with five 7% share while our vape cartridges, specifically rank even higher at number three was 7% share.
Mike: We successfully extended our winning sours flavor profiles into the vape category with three new rare cannabinoid infused offerings.
Mike: Mango Kiwi Hays, the CBC Peach passion fruit crush with TVN and Strawberry watermelon with CPG.
Mike: Our premium Lord Jones brand continues to demonstrate the category specific strengths across the Canadian market.
Mike: The brand maintains its position as the number three chocolate brands with nine 6% market share solidifying its status as a leader in the confectionary space and recently expanded its lineup in January with the launch of a fudge Brownie bites featuring Phd TBN in CVD ratio.
Mike: The Lord Jones brand as the category leader in the <unk> segment with an outstanding 31, 1% market share.
Mike: This number one position highlights our ability to create differentiated and high quality products that resonate with discerning canvas consumers.
Mike: The performance across multiple categories demonstrates Lord Jones ability to achieve premium positioning while delivering strong results in specialized market segments.
Mike: Moving to the international side of the business to peace Naturals brand and product portfolio continues to grow that.
Mike: Peace Naturals portfolio in Israel was overhauled with a revised pricing strategy with focus cultivars that meet the needs of our patient base.
Mike: Peace Naturals ended the quarter as the number one flower brand in Israel with well over 20% market share. According to pharmacy data collected by Kronos.
Mike: New launches in Q1 included two new peace naturals strengths to the cannabis oils designed to deliver the full benefits in essence of each stream.
Mike: We've been investing in building our team and business in Israel since 2017 and through consistent delivery of high quality products that leverage our extensive investments in genetics breeding cultivation in R&D grew to earn the trust of Israeli patients in pharmacies and attain the leading share position in the market.
Mike: We are committed to Israel, which we have been investing and operating for almost a decade building a robust supply chain and a competitive medical market.
Mike: As the top medical provider in Israel. This was a record quarter across the P&L, which stands in sharp contrast, with allegations that were dumping.
Mike: At Kronos, we believe in a fair and equitable market structure that benefits Israel medical cannabis patients and we will continue to advocate for them and opposing these tariffs as patients are counting on us and our products.
Mike: Our international expansion continues to gain traction across key markets.
Mike: In Germany, we expect to see further growth as our <unk> capacity expansion comes online.
Mike: And we continue to build demand and momentum in the U K market.
Mike: Looking ahead to the remainder of 2025, we're focused on successfully bringing the <unk> expansion online to address current supply constraints continuing to realize operational efficiencies and operating leverage pursuing international expansion in markets offering the strongest ROI and maintaining our disciplined approach to cost management.
Mike: <unk> maintains a strongest balance sheet in the industry with no debt and cash equivalents and short term investments of $838 million.
Mike: Reinforcing our ability to invest in growth innovation and global expansion and today, we announced our board's authorization of $50 million share repurchase program.
Mike: Now I'll turn it over to Anna to walk you through the first quarter financials.
Anna: Thanks, Mike and good morning, everyone.
Speaker Change: I will now review our first quarter 2025 results, which include the consolidation of Kraft Heinz financials.
Speaker Change: The company reported consolidated net revenue of $32 3, Million% to 28% increase from the prior year period with constant currency net revenue credit higher at 33% year over year net revenues, our kronos, excluding <unk> was $29 4 million, representing a 16% growth.
Speaker Change: Every year or 21% year over year aircrafts on a constant currency basis.
Speaker Change: <unk> net revenue was $2 9 million for Q1 2025 overall, the consolidated net revenue increase.
Speaker Change: This is driven by higher flower sales in Israel higher flower sales internationally and higher extract sales in Canada.
Speaker Change: <unk> profit in the first quarter was $13 7 million equating to a 43% gross margin.
Speaker Change: Adjusting for the impact of the inventory step up from the <unk> transaction that was recorded into cost of sales.
Speaker Change: Our adjusted gross profit was $14 3 million equating to a 44% adjusted gross margin.
Speaker Change: During Q1 2025, we sold through the last of the inventory that was stepped up to fair market value to the purchase accounting adjustment. So gross profit in future quarters will not be impacted by this adjustment.
Speaker Change: The 44% adjusted gross margin in Q1 2025 is a significant improvement from 18% in Q1 2020 for this improvement is driven by regional mix shift lower direct cost and production efficiencies as well as by timing.
Speaker Change: Which flatter Q1 2025 gross margin.
Speaker Change: Given these timing benefits, we would view the blended adjusted gross margin over Q4, 2024, and Q1 2025 as more indicative of the current underlying margins of the business.
Speaker Change: Operating expenses, excluding restructuring costs and impairment charges were $17 3 million in the quarter a year over year decline of nearly 1 million.
Speaker Change: Primarily due to lower sales and marketing costs.
Speaker Change: The reversal of previously accrued bonuses benefited reporting operating expenses in the quarter and a portion of the Opex reduction was timing related due to the cadence of sales and marketing activation and R&D activities. As a result for the balance of 2025, we expect quarterly operating expenses.
Speaker Change: To be higher than Q1, 2025 levels, but to remain relatively flat on a year over year basis.
Speaker Change: Adjusted EBITDA in the first quarter with $2 3 million, representing a $13 million improvement from the prior year period. The improvement was driven by increased revenue significantly higher adjusted gross margins and reductions in operating expenses, while a portion of the gross margin improvement in the quarter was related to.
Speaker Change: Underlying business improvements a portion was timing related reduced operating expenses are partly due to our ongoing efficiency measures, but also partly a reflection of the expense timing benefits in the bonus accrual reversal.
Speaker Change: Turning to the balance sheet and cash flow statement.
Speaker Change: The company ended the quarter with $838 million in cash and cash equivalents and short term investments down $21 million from Q4, 2024, driven primarily by an approximately 15 million networking capital outflow and capex spend of approximately $15 million partially.
Speaker Change: That by positive cash flow from operations before changes in working capital of approximately 12 million <unk>.
Speaker Change: The majority of Capex is related to the previously announced facility expansion at Graco Capex spend will remain elevated for the next couple of quarters as the <unk> expansion continues and is completed after which capex levels are expected to normalize lower.
Speaker Change: In summary, we posted a strong quarter and with our large scale capacity expansion at Grubhub, we are well positioned for continued medium and long term improvement in our operating fundamentals.
Speaker Change: Notwithstanding shorter term headwinds due to supply constraints and gross margin and Opex normalization over the next couple of quarters with that I would like to hand, it back to Mike for a brief comment before going into Q&A.
Mike: Thanks, Andrew as we look ahead, we remain relentlessly focused on three strategic pillars.
Mike: <unk> innovation operational excellence and disciplined global expansion.
Mike: Our core business is performing well with market and category leadership positions that demonstrate the strength of our brands and execution and our team has built incredible momentum going into 2025.
Mike: As we move through this year, we're particularly excited about several catalysts.
Mike: Our upcoming capacity expansion, new product launches and growth in international markets.
Mike: With our best in class balance sheet and market, leading products, we have the pieces in place to navigate and succeed in a rapidly evolving global cannabis industry.
Mike: With that I'll open the line for questions.
Mike: Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you would need to press star one one all your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Mike: Please stand by while we compile the Q&A roster.
Mike: I'm showing no questions at this time.
Mike: Thank you for your participation in today's conference.
Speaker Change: Oh I see a participant has now entered into the queue.
Speaker Change: Bill Kirk at Ross Your line is open.
Bill Kirk: Hey, Thank you good morning, everybody.
Bill Kirk: Mike you talked a bit about product shortages and that's not an idea we've had to think about much in the years since since Canada legalized adult use.
Speaker Change: So I guess my question is is the shortage more specific to kronos product and demand or is it a broader industry wide phenomenon right now as well.
Speaker Change: Yeah.
Speaker Change: Hi, Bill apologies I think Mike accidentally dropped the call.
Speaker Change: Hopefully he'll dialed back end, but.
Speaker Change: I think it's.
Speaker Change: It's really about having the right product to supply the market and you're I think you're seeing a shortage of good product in market and that's something we're dealing with and why one of the biggest reasons for investing in the growth how expansion and it does.
Speaker Change: Leading genetics, a leading products that we have in Canada and Israel.
Speaker Change: We'd like to supply more globally.
Speaker Change: Okay.
Speaker Change: And then Ana I think you said that underlying gross margin is more likely have a blend of <unk> and <unk>.
Speaker Change: How does the underlying gross margin change may be when the <unk> expansion is complete.
Speaker Change: Yeah.
Speaker Change: That's correct, so a blended rate between.
Speaker Change: Q4, and Q1 is what we expect to see you know for the rest of the year.
Speaker Change: Thank all else being equal the expansion of Kronos Graco is expected to be neutral to accretive to gross margins.
Speaker Change: As the expanded cultivation area you know.
Speaker Change: You know, we're incrementally going to.
Speaker Change: The eight basis be able to better leverage fixed costs at the facility.
Speaker Change: But you know it will take us time to ramp and kind of hit our stride there as well.
Speaker Change: Okay perfect. Thank you.
Speaker Change: Thanks, Tom.
Okay.
Speaker Change: Thank you. This concludes the question and answer session.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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