Q1 2027 Canopy Growth Corp Earnings Call
Speaker #1: Good morning. My name is Joanna, and I will be your conference operator today. I would like to welcome you to Canopy Growth's first-quarter fiscal 2027 financial results conference call.
Speaker #1: Currently, all participants are in a listen-only mode. I will now turn the call over to John Vincic, Investor Relations. John, you may begin the conference call.
Speaker #2: thank you, operator, and good morning. And thank you to everyone for joining us. On our call today, we have Canopy Growth's Chief Executive Officer, Luc Mangeaux, and Chief Financial Officer, Tom Stewart.
Speaker #2: Prior to the opening of financial markets today, Canopy Growth issued a news release announcing the financial results for its first quarter ended June 30, 2026.
Speaker #2: The news release and financial statements have been filed on Edgar and Cedar, and will be available on the website under the Investors tab. Before we begin, I would like to remind you that our discussion during the call will include forward-looking statements that are based on management's current views and assumptions, and that this discussion is qualified in its entirety by the cautionary note regarding forward-looking statements included at the end of the news release issued today.
Speaker #2: Please review today's earnings release and Canopy's reports filed with the SEC and Cedar for various factors that could cause actual results to differ materially from projections.
Speaker #2: In addition, reconciliations between any non-GAAP measures to their closest reported GAAP measures are included in our earnings release. Please note that all financial information is provided in penny and dollars unless otherwise stated.
Speaker #2: Following the remarks by Luc and Tom, we will conduct a question-and-answer session where we will take questions from analysts. And with that, I would like to turn the call over to Luc.
Speaker #3: Thank you. Good morning, everyone. And thank you for joining us today. Fiscal 2027 is up to a strong start. In its build on real momentum from fiscal 2026, I'm confident to say that our first-quarter results have us well positioned to build on that momentum all year long.
Speaker #3: Fiscal 2026 was all about sharpening our focus and tightening execution and positioning us for growth, including the strategic acquisition of MTL Cannabis. That work is truly paying off.
Speaker #3: Since I joined, as Canopy's CEO in January of 2025, this is the first quarter we've reported year-over-year growth in every single business. Fiscal 2027 is about growth and moving our focus to cultivation, to improve yields, and accelerate growth, especially in Europe, and it's as well about increasing our manufacturing efforts to improve margin and accelerate our journey to positive adjusted EBITDA.
Speaker #3: In the quarter, net revenue was $81.2 million, an increase of 13% from Q1 of last year, while our cannabis segment growing at 14%, and stores and BICO growing at 6%.
Speaker #3: An importantly, adjusted gross margin was up 600 basis points over last year, reflecting the effort we've made across our supply chain to reduce our cost structure and improve execution.
Speaker #3: This gives us confidence our strategy is working, our cannabis growth was led by our Canadian medical business, which reported net revenue of $28.25 million up 22% from Q1 2026.
Speaker #3: Strong year-over-year growth in medical was driven by a steady increase in patient count over the past year, our medical business was re-recently strengthened by the addition of MTL Cannabis with its Canada Isles clinics and ABA Medics online distribution platform.
Speaker #3: As a combined company, we continue to add patients and increase the number of orders we fill during the first quarter, helping to cement our position as the number one Canadian medical cannabis provider.
Speaker #3: Our Apollo Cannabis clinics were recently voted best medical cannabis clinic in the Toronto Star Reader's Choice Awards. This recognition reflects our commitment to positive patient outcomes and to making medical cannabis care accessible, where our trusted by patients and will strive to continue to earn that trust.
Speaker #3: Even with these successes, given our significant focus on bettering care, we have felt the impact of the reduced reimbursement rates for our product on better cannabis.
Speaker #1: This reflects our commitment to positive patient outcomes and to making medical cannabis care accessible. We are trusted by patients, and we will strive to continue to earn that trust.
Speaker #3: We have done our utmost mitigating the impacts of these changes on our patients and veterans, and continue to work to broaden our patient base to build on our leadership position.
Speaker #1: year. We're For energy by the energized by the tremendous opportunities in dramatic opportunities in Europe, and Europe and by our by our strengthening of strengthening ability to supply ability to supply the the market with quality market, with quality products products that meet growing that meet growing needs of needs of European cannabis European cannabis patients.
Speaker #3: Despite this headwind, we remain strongly committed to our medical patients in Canada. We continue to offer the best product assortment, consistent availability, and a best-in-class service experience for veterans and all patients alike.
Speaker #1: Even with these successes, given our significant focus on veteran care, we have felt the impact of the reduced reimbursement rates for our products on veteran affairs Canada.
Speaker #1: We have done our utmost to mitigate the impacts of these changes on our patients and veterans, and continue to work to broaden our patient base to build on our leadership position.
Speaker #3: We strongly believe staying true to our core values will enable us to continue to add new patients and ensure the ongoing expansion of the business.
Speaker #1: Q1 was 2026. Q1 was chosen because Thorsten Beckel's first full first quarter under quarter under the new leadership the new leadership team, which team, which has been implementing a has been implementing a focused 4-year go-to-market go-to-market strategy.
Speaker #1: Despite this headwind, we remain strongly committed to our medical patients in Canada. We continue to offer the best product assortment, consistent availability, and the best-in-class service experience for veterans and all patients alike.
Speaker #3: Our Canadian adult use net revenue of $29.7 million was up 10% from Q1 of last year, building on the impressive 20% growth rate we delivered in fiscal 2026.
Speaker #1: We're strategy. We're pleased to see pleased to see increased sales and increased sales and market outside the market outside the traditional strongholds of traditional strong poles of the US and the U.S.
Speaker #1: and Germany, Germany, clearly demonstrating that clearly demonstrating that toward the Thorsten Beckel is vehicle this diversifying diversifying his revenue stream and revenue stream and building a building on his position as a position as a number 1 number 1 global provider global provider of of medical medical vaporizers.
Speaker #1: We strongly believe that staying true to our core values will enable us to continue to add new patients and ensure the ongoing expansion of the business.
Speaker #3: Our recreational business has benefited from ongoing strengthening of our product portfolio including the addition of the popular MTL Cannabis brand. We plan to leverage Canopy's distribution capabilities to further expand the reach of the MTL brands across the country.
Speaker #1: While these results are encouraging, our While these results are encouraging, our strategy strategy remains anchored remains anchored on building upon on building upon our capabilities our capability to treat in 3 key key areas: world-class areas, plus cultivation, cultivation, optimizing our supply optimizing our supply chain network, chain network, and and fueling fueling international international supply.
Speaker #1: Our Canadian adult use net revenue of $29.7 million was up 10% from Q1 of last year, building on the impressive 20% growth rate we delivered in fiscal 2026.
Speaker #3: The most recent market share data shows that Canopy is now ranked at number 6 overall, up from number 8. We also moved into the top two position in premium flour and infused pre-rolls, and number 1 is Subgels.
Speaker #1: Our recreational business has benefited from ongoing strengthening of our product portfolio including the addition of the popular MTL cannabis brand. We plan to leverage Canopy's distribution capabilities to further expand the reach of the MTL brands across the country.
Speaker #1: supply. Elevating our cultivation Elevating our cultivation capabilities is now capability is now accompanied by accompanied by priority. It has priority: it has contributed to our contributed to our research recent success in more success and, more importantly, establishes a importantly, establishes a foundation for foundation for accelerated long-term accelerated long-term growth.
Speaker #3: We are confident this growth will continue if the other progress we are making in cultivation and the additional flour we plan to bring to market, as one as well as plan innovation around the Claybourne and Tweed brands.
Speaker #1: The most recent market share data shows that Canopy is now ranked number 6 overall, up from number 8. We also moved into the top 2 position in premium flower and infused pre-rolls, and number 1 in subgels.
Speaker #3: An international cannabis net revenue rose 10% year over year as we reset our operations and continue to lay out the end-to-end supply chain to grow in the European market.
Speaker #1: We are confident this growth will continue, given the other progress we are making in cultivation and the additional flower we plan to bring to market, as well as plant innovation around the Claybourne and Tweed brands.
Speaker #3: Europe remains a major catalyst for our growth, driven by particularly robust sales performance in Poland during Q1, where we are now a top 3 supplier.
Speaker #3: This was our first consecutive quarter of sequential growth in international, driven by solid execution and particular our ability to consistently supply high-quality flour. We also plan to begin shipment of flour to the UK imminently.
Speaker #1: International cannabis net revenue rose 10% year over year as we reset our operations and continue to lay out the end-to-end supply chain to grow in the European market.
Speaker #1: Europe remains a major catalyst for our growth, driven by particularly robust sales performance in Poland during Q1, where we are now a top-three supplier.
Speaker #3: With revenue contributions expected to start in the second half of the fiscal year. We're energized by the tremendous opportunities in Europe and by our strengthening of strengthening ability to supply the market with quality products that meet growing needs of European cannabis patients.
Speaker #1: This was our first consecutive quarter of sequential growth in international, driven by solid execution, in particular our ability to consistently supply high-quality flower. We also plan to begin shipment of flower to the UK imminently, with The revenue contribution expected future spec starts to start in the second half of the in the fiscal fiscal year.
Speaker #3: Stores and BICO returned to year-over-year growth in Q1, reporting a 6% net revenue increase to $16.1 million, as well as a very strong gross margin of 48% compared to 29% in Q1 of 2026.
Speaker #1: World, and we intend to be among the companies that lead it. Building it global, consumer-centric company, with a clear and uncompromising ambition to lead the world in bettering lives through cannabis.
Speaker #3: Q1 was stores and BICO's first full quarter under the new leadership team which has been implementing a focused go-to-market strategy. We're pleased to see increased sales and market outside the traditional strongholds of the US and Germany, clearly demonstrating that stores and BICO is diversifying its revenue stream and building on its position as the number one global provider of medical vaporizers.
Speaker #1: patients. Toward the Thorsten Beckel returned to vehicle, return to year-over-year growth in year-over-year growth in Q1, Q1, reporting a reporting a 6% net revenue 6% net revenue increase to increase to 16.1 $16.1 million, as well as a million.
Speaker #1: That's the company behind the results we've just shared with you, and it's the company you'll see reflected in our new identity. None of our progress outlined on today's call happens without our people.
Speaker #1: Thank you to our entire team for their relentless hard work and passion. We're just getting started. Operator, we will now take questions.
Speaker #1: As well as a very very strong gross margin strong gross margin of of 48% compared 48% compared to to 29% in 29% in Q1 of Q1 of 2026.
Speaker #2: Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star followed by the 1 on your touchdown phone.
Speaker #3: While these results are encouraging, our strategy remains anchored on building upon our capabilities in three key areas: world-class cultivation, optimizing our supply chain network, and fueling international supply.
Speaker #2: You will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by the 2.
Speaker #2: If you are using a speakerphone, please lift the handset before pressing any keys. We do ask that you limit yourself to one question. If you have additional questions, you may hit star 1 again.
Speaker #3: Elevating our cultivation capabilities is now a company-wide priority, and has contributed to our recent success in more importantly, establishes a foundation for accelerated long-term growth.
Speaker #2: First question comes from Erin Gray with Alliance Global Partners. Please go ahead.
Speaker #3: Hi, thank you very much for the questions here. I just want to talk a bit about International and some of your initiatives. With the added GMP certifications, can you talk about the broader landscape of International?
Speaker #3: In addition to MTL Cannabis team, kicked off as sharing our best practices and expertise across the organization. We're implementing a wide range of improvements ranging from growing techniques to lightning lighting upgrades and environmental controls.
Speaker #3: We're hearing about countries getting tighter in terms of companies needing to adhere to GMP compliance. How does this potentially set up for you to be in and more advanced position that you referred to in your prepared remarks?
Speaker #3: The early results are positive, with promising improvements to yield, THC levels, and cost progress. We have begun growing popular MTL strain at Kincarden, on duty leadership of the MTL master growers, as well as cultivating new strains to enhance our genetic portfolio.
Speaker #3: And do you feel like you'll now have enough cultivation as well as processing through the GMP supply chain to ramp up those international sales through the rest of fiscal year 27 and beyond?
Speaker #3: Thank you.
Speaker #1: Yeah, thank you for your question. Good morning. Listen, we're taking all the right actions to really set up an extremely robust end-to-end supply chain to win for quarters to come in Europe.
Speaker #3: These initiatives promise to increase our supply of high-quality flour, our business has already benefited from more consistent supply, and I'm excited to see there is significant room significant room for further gains.
Speaker #1: controls. The early results The early results are are positive, with positive, with promising promising improvements to improvements to yield, yield, THC PhD level, and cost levels, and cost regression.
Speaker #1: You know what I mean? One thing I can say about Canopy is that we take cannabis extremely seriously. We've got the internal capabilities to really build integrity, reliability, and trust in the supply chain.
Speaker #1: progress. We have begun growing We are beyond growing partly popular MTL strain at MTL strain as Kincarden, on duty synthologists, although the leadership of the leadership of the MTL Master MTL master Growers, as well as grower as well as cultivating new cultivating new strains to enhance strains to enhance our our genetic ability for portfolio.
Speaker #3: As throughput increases, throughout the year, we expect to see a direct positive impact on revenue. Post-quarter end, we kicked off a comprehensive end-to-end supply chain initiative to streamline our processes, right-size our distribution footprint, and optimize labor.
Speaker #1: We've been working for quarters in really building the supply chain that meets and qualifies for EU GMP. So, as I said in my remarks, we're now end-to-end when it comes to flour, growing, and importing and distributing in Germany and across Europe.
Speaker #1: These storage. These initiatives promise to increase additions promise to increase our our supply of high-quality supply of high-quality flour, our flowers. I would be thankful business has already benefited from more to already benefited from more consistent consistent supply, and supply and am I'm excited to see there is excited to see there is significant significant growth, significant growth for room for further further gains.
Speaker #3: As we grow revenue, we're targeting significant improvements in growth margin beyond what we have already seen. Turning to international supply, Canopy has accompanied EU GMP flour supply chain starting with our EU GMP certified Kincarden facility and extending to our distribution facility in Germany.
Speaker #1: We take an additional step to make sure that we're Smith Falls facility qualifies as well, and we should get we should receive qualification approval during this fiscal year, which will allow us to have a complete range of product end-to-end to meet the market.
Speaker #1: As throughput gains. As throughput increases, throughout the increases, throughout the year, we year, we expect to see a expect to see a data direct positive impact on positive impact on revenue.
Speaker #1: So we're really building something that meets all the demands. And if there was even more stringent lack of a better word enforcement of the EU GMP, we're extremely well positioned to meet this.
Speaker #3: We have also already completed our EU GMP inspection for finished products and cannabis 2.0 products manufacturing in our Smithswald facility, for which we expect to receive certification during this fiscal year.
Speaker #1: And that's what gives us confidence that we will grow this continue to grow this business for quarters to come.
Speaker #3: That certification will make Canopy one of the only domestic companies with end-to-end EP EU GMP cultivation manufacturing and finished product processing and packaging of products intended for the international market.
Speaker #3: Thank you very much. I'll jump back in the queue.
Speaker #2: Can we tie with Canopy continuity? Please go ahead.
Speaker #4: Thank you. Good morning, Tom. One of the key themes throughout the prepared remarks was the discussion around margin and margin expansion—I think specifically, material expected margin expansion on some of the initiatives.
Speaker #3: This capability will be a core differentiator for Canopy and we see it as a competitive edge. As yields and manufacturing capacity increase throughout the year, we expect to see improved gross margin and we will be better positioned to compete and win in the competitive Canadian medical and recreational space, as well as winning in global market.
Speaker #4: Could you speak to what is the baseline you're working from? Obviously, we saw some 230-odd bits year on year in this quarter. When you speak to, and I'm thinking about your margin profile going forward, are we talking something bracketing that 30%, 30% plus level?
Speaker #1: That year. That certification will make certification will make Canopy Canopy one of the only one of the only domestic domestic companies with companies with end-to-end end-to-end EP EU GMP EU GMP cultivation cultivation manufacturing and finished manufacturing and finished product product processing and packaging of processing and packaging of products intended products intended for international for the international markets.
Speaker #4: Anything you could provide there to help us triangulate would be appreciated.
Speaker #3: This is what truly excites me most about the future of our company. I will now ask Tom to provide more details on our first quarter financial results.
Speaker #1: This market. This capability will be capability will be of core to of core differentiator for Canopy consider for Canopy, and we and we see it as a competitive see it as a competitive advantage edge that can spare us by transparent growth.
Speaker #2: Thank you, Luke, and good morning everyone. Canopy reported a solid first quarter showing good progress on both the top line and key profitability measures.
Speaker #2: We reported 81.2 million of net revenue in Q1, fiscal 2027, up 13% from the same period last year. Net revenue increased in our cannabis segment with growth across all channels as well as in the stores and BICO segment.
Speaker #1: This market. This is what is what truly excites me true exciting growth about most about the future of our the future of our company.
Speaker #1: I will now ask Tom company. I will now wrap up and provide to provide more details on our more detail on our first first quarter financial quarter financial results.
Speaker #2: Despite the veteran affairs reimbursement changes, Canada Medical Cannabis reported strong growth with net revenue increasing 22% year over year to 25.8 million. We are also taking steps to further mitigate the impact of the veteran affairs changes on margins and EBITDA.
Speaker #2: Thank you, Luke, and good
Speaker #2: morning everyone. Canopy
Speaker #2: We metrics. We reported reported 81.2 million of net revenue in 8.2 million net revenue in Q1 Q1, fiscal for 2025, up 2027, up 13% from the same period 13% from the same period last last year.
Speaker #2: These include saving costs by integrating functions like customer care with the MTL organization, renegotiating pricing with third-party suppliers and partners to share the impact, and adding more large pack formats which deliver greater value to patients by allowing them to buy more product upfront while reducing costs for the company.
Speaker #1: The addition growth. The addition of the MTL Cannabis of the MTL cannabis team team kicked off a sharing of kicked off the sharing of best best practices and expertise practices and expertise across the across the organization.
Speaker #2: Net revenue year. Net revenue increased in our increased in our cannabis segment, with growth Canopy segment, with growth across across all channels, as well as in the all tiers, as well as gross interim Thorsten Beckel segment.
Speaker #1: We're organization, where implementing a wide range implementing a wide range of of improvements ranging from improvements ranging from growing growing techniques to techniques to lighting upgrades lighting upgrades and in environmental environmental controls.
Speaker #2: We have consistently demonstrated our ability to grow patients and gain traction in Canada Medical despite broader market pressures. As we navigate the impact of the veteran affairs reimbursement changes, we remain focused on executing the same proven strategy that has driven our success today.
Speaker #2: Growing our patient base, increasing engagement with our patients, and operating the business to deliver our best-in-class customer service experience. Overall, our Q1 results are on track with the commentary we provided on our most recent investor call in June.
Speaker #2: We have consistently company. We have consistently demonstrated demonstrated our ability to grow patients our ability to grow patient and gain and gain traction in Canada customers in Canopy Medical despite Medical despite broader market product price pressures.
Speaker #2: At that time, we said we expect to report year over year revenue growth throughout fiscal 2027. We also expected transition period in the first half of the year as we integrate the MTL Cannabis operations and focus on our key priorities.
Speaker #2: On that basis, we continue to expect to report consistent improvement in our operations throughout the fiscal year. Consolidated gross margin was 31% in Q1 2027 on an adjusted basis.
Speaker #2: today. Growing our patient base and Growing our patient base, increasingly increasing engagement with our patients and gaining customer patients, and operating operating the business to deliver our businesses are over our best new budget best-in-class customer service customer service experience.
Speaker #1: revenue. Post-quarter Post-quarter end, we end, we kicked off a kicked off a comprehensive end-to-end comprehensive end-to-end supply chain supply chain initiative initiative to streamline to streamline our our processes, processes, right-size our distribution right-size our distribution footprint, and optimize footprint, and optimize labor.
Speaker #2: Overall, our Q1 experience. Overall, our Q1 results are on results are on track with the commentary we provided track to become where we provide our most on our most recent investor recent investor calls in June.
Speaker #2: Up from 25% a year ago and outpacing our full year adjusted gross margin performance in fiscal 2026. We delivered adjusted gross margin of 26% in the cannabis segment in Q1 2027, demonstrating meaningful year over year margin expansion and continued progress against our profitability objectives.
Speaker #2: call. At that time, we said we At that time, we said we expect to expect to report year-over-year revenue growth report year over year revenue growth throughout throughout fiscal 2027.
Speaker #1: labor. As we grow As we grew revenue, we're revenue, we're targeting targeting significant improvements significant improvements in in growth margin gross margin beyond beyond what we have already MTL already seen.
Speaker #2: On that basis, we continue to expect to report consistent continue to expect to report consistent improvements in improvement in our operations throughout the our operations throughout the fiscal fiscal year.
Speaker #2: Reported gross margin was 22%, reflecting a 2.6 million dollar non-cash inventory flow-through charge associated with the MTL acquisition. We expect cannabis margins to continue strengthening as we capture the benefits of the MTL integration and execute on our key priorities.
Speaker #1: hit. Turning Turning to international this international supply, supply, Canopy has Canopy has a complete EU accompanied EU GMP flour GMP flower supply supply chain starting with chain starting with our EU our EU GMP certified GMP certified concurrent Kincarden facility and facility and extending extending to our distribution our distribution facility in facility in Germany.
Speaker #2: Increased production from our existing cultivation facilities, combined with ongoing efficiency gains, should further reduce our cost per unit and support meaningful margin expansion over time.
Speaker #2: We 2027. We delivered gross delivered adjusted gross margin of 26% gross margin of 26% in Canopy in the cannabis segment in Q1, segment in Q1 and Q7, 2027, demonstrating meaningful demonstrating new full year over year margin year-over-year margin expansion and continued expansion and continued progress in progress against our profitability gross profitability objectives.
Speaker #1: We are Germany. We have also already also already completing our completed our EU GMP inspection EU GMP inspection for finished for finished products and products and Canopy cannabis 2.0 products 2.0 product manufacturing manufacturing in our Smithsville in our Smithvolt facility, for which we facility for which we expect to expect to receive certification receive certification during the during this fiscal fiscal year.
Speaker #2: Stores and BICO delivered an exceptional gross margin of 48% in Q1, up from 29% a year ago, demonstrating the significant progress the business has made in improving profitability.
Speaker #2: Reported gross margin was reception. Reported gross margin 22%, reflecting a 22%, reflecting 2.6 million 2.6 million dollar non-cash inventory dollars non-cash inventory gross in flow-through charge associated with the charge, associated with the MTL MTL transition.
Speaker #2: acquisition. We expect cannabis margins We expect Canopy's margins to to continue strengthening as we capture the continue to increase as the capital benefits of the benefits of the MTL integration and execute MTL transition expected on our key on our key priorities.
Speaker #2: The improvement was driven primarily by operational and cost efficiency initiatives executed over the past year, with an additional benefit from tariff refunds recognized during the quarter.
Speaker #2: Even excluding the tariff impact, margins were substantially ahead of the prior year. This performance demonstrates the success of the new stores and BICO leadership team in optimizing their business.
Speaker #2: time. Thorsten Beckel delivered an Storage vehicles delivered exceptional gross exceptional gross margin of 48% in margins of 48% in Q1, up Q1, up from 29% a year ago, 2.9% in year ago, demonstrating demonstrating the significant progress the significant progress in business.
Speaker #2: We would expect to see continued improvements across the remainder of fiscal 2027. Turning to operating expenses, SG&A increased by 2.1 million as compared to Q1 fiscal 2026, despite operating a significantly larger business following the MTL acquisition.
Speaker #1: growth. As As yields and manufacturing year, as much as we have increased capacity increase throughout the year, throughout the year, we expect we expect to see improved gross to improve gross margins, and we will be margins.
Speaker #1: And we will be better better positioned to positioned to complete this compete and win in the win in a competitive competitive Canadian medical and and international expectational recreational space, as well as winning space, as well as winning the global in global markets.
Speaker #2: Absorbing those operations while keeping costs tightly controlled is a direct result of our ongoing cost reduction efforts and the immediate synergies we are capturing from the MTL integration.
Speaker #2: This performance years. This performance demonstrates the success of the new demonstrates the success of the new storage vehicle Thorsten Beckel leadership team in optimizing their feature being an optimized system business.
Speaker #2: As a reminder, our target is 10 million dollars of synergies within 18 months of the March closing of the MTL transaction. We are now actively executing against 8 million of those synergies, up from the 6 million we reported last quarter.
Speaker #2: We would expect to see continued we would expect to see continue to improve improvements across the remainder of fiscal across the remainder of fiscal 2027.
Speaker #1: results. And good
Speaker #2: Turning to operating 2027. Turning to operating expenses, SG&A increased expenses, SG&A increased by by 2.1 million as compared to Q1, 2.19 compared to Q1 fiscal fiscal 2026, despite 2026, despite operating operating a significantly larger business following significantly larger costs than MTL the MTL acquisition.
Speaker #1: morning.
Speaker #2: Canopy reported a solid reported a solid first quarter, showing good first quarter, showing good projects for progress on both the top line and key top 3 key profitability profitability measures.
Speaker #2: On that basis, we believe there is upside potential to our initial target, both in terms of timing as well as in the total dollar amount.
Speaker #2: Improved margins and discipline on OPEX led to an adjusted EBITDA loss of 3.2 million in Q1 2027, representing a 59% improvement from the prior year.
Speaker #2: As a 3%. As early. reminder, our stated target is to reach a Our standing target is to reach a run rate of run rate of 10 million dollars of synergies 10 million dollars gross energy for an within 18 months of the March closing of 18-month gross margin close to the the MTL transaction.
Speaker #2: revenue. Despite the fact Despite the veteran affairs reimbursement that the tariffs may first be changed, changes, Canada Medical Cannabis Canopy also entered a quite reported strong growth, with net revenue strong.
Speaker #2: With the additional revenue growth opportunities Luke described and further integration efficiencies still to be realized, we remain on track to report positive adjusted EBITDA during fiscal 2027.
Speaker #2: We are MTL transaction. We are now expecting now actively executing against 8 million of ing to execute an 8 million gross those synergies, up from the 6 million we energy.
Speaker #2: With net revenue increased by increasing 22% year over year 22% year over year to to 25.8 25.85. We are million. We are also taking steps to further also taking steps to further mitigate mitigate the impact of the veteran affairs changes manufacturing threats in the tariffs changes.
Speaker #2: Turning to our financial position, we had 337 million of cash at June 30th, 2026. I will note that the 25 million of cash used in operating activities in the first quarter is higher than the run rate we expect to see over the course of fiscal 2027, as an increase in working capital is expected to balance out during the remainder of the year, and we would expect one-time transaction and restructuring costs to decline throughout the year.
Speaker #2: On on margins and market data. These EBITDA. These include saving costs by include same product packages on integrating functions like customer care with the 2+ customer care with the MTL MTL organization, certification, renegotiated renegotiating pricing with third-party suppliers and pricing of third-party suppliers and partners partners, or the to share the effects, and adding IMPACT, and adding more large product more and more to price targets, which formats, which deliver greater value to delivered great justification patients by letting them buy more by providing more product upfront products while reducing costs for the while reducing the cost for the company.
Speaker #2: Improved margins and developments. Improved margins in fiscal discipline on OPEX led 2027 led to an to an adjusted EBITDA loss of adjusted Q1 of 3.29 3.2 million in Q1, for Q1 fiscal 2027, representing a 2027, representing a 59% improvement from 59% improvement from the prior year.
Speaker #2: With prior year. With the additional the additional revenue growth opportunities Luke revenue growth that was produced for fiscal 2027 described and further integration efficiencies and further integration efficiencies built in still to be realized, we remain on April, we remain on track to track to report positive adjusted EBITDA during report positive adjustments during fiscal fiscal 2027.
Speaker #2: We remain confident in the strength of our balance sheet following the recapitalization completed during fiscal 2026. Our strong cash position underpins our financial capacity to support strategic growth opportunities that may arise.
Speaker #2: Turning to our financial 2027. Turning to our financial position, we position, we had 337 million of had 337 million in cash in cash at June 30th, June 30, 2026.
Speaker #2: As we pressures. As we navigate the IMPACT of the veteran navigate manufacturing and customer care affairs reimbursement changes, we remain reimbursement changes, we remain focused focused on executing the same proven on executing the same growth strategy strategy that has driven our success as previously discussed today.
Speaker #2: Before handing the call back to Luke, I will remind shareholders we are holding our annual general and special meeting on September 25th. We are filing proxy materials today with information on how to vote, and we urge all shareholders to cast a vote.
Speaker #2: I will now turn the call back to Luke for closing remarks.
Speaker #1: Thank you very much,
Speaker #2: We remain confident in months. We remain confident in terms of the strength of our balance sheet following the our downstream economy recapitalization recapitalization completed during fiscal related to the start of fiscal 2026.
Speaker #3: Tom. Starting fiscal 2027 with broad-based growth across all our business line and improved margins sets a strong tone for the year. We're confident. We're energized.
Speaker #2: fiscal 2027. We also We also described our transition period in the expect transition periods to first half of the first half of the year as we integrate the year as we integrate MTL campus MTL Cannabis operations and focus on our operations and focus on our key key priorities.
Speaker #2: Our strong cash 2027. Our strong cash position position underpins our financial capacity to understands our financial capacity to support support strategic growth opportunities that strategic growth opportunities, expecting may growth.
Speaker #2: arise. Before handing the call back to Luke, I Before taking a callback, I would request will remind shareholders we are holding our annual your help to pursue our whole-year annual general general and special meeting on September discussion meeting on September 27, 25th.
Speaker #3: And everyone is pulling in the same direction with pace and with common purpose to build a global cannabis company. Don't get me wrong. While first quarter results are definitely a step in the right direction, we're not satisfied yet.
Speaker #2: We are filing proxy materials where final product materials today and today with information on how to vote, and we urge information on how to go from a year 12 to year all shareholders to cast a 1 for state market growth.
Speaker #2: Consolidated year. Consolidated gross margin was gross margins of 31% in 31% in Q1, 2027, on an Q1 and Q7 under adjusted adjusted basis, up from.
Speaker #2: basis, up 25% in year ago, % a year ago, and outpacing our full year and outpaced our full year of gross adjusted gross margin performance in fiscal margin performance in fiscal 2026.
Speaker #1: Thank
Speaker #1: you very much,
Speaker #3: We're taking tangible action towards increasing yield and cultivation, accelerating supply efficiencies, and strengthening our global supply chain to drive growth and improve margins for quarters to come.
Speaker #3: 2027 with broad-based growth
Speaker #3: across all our business line and improved
Speaker #3: margins sets a strong
Speaker #3: tone for the
Speaker #3: year. We're
Speaker #3: confident, we're energized, and
Speaker #3: everyone is pulling in the same direction
Speaker #3: with pace and with common
Speaker #3: purpose to build a global
Speaker #3: We're becoming focused and disciplined operators relentless and execution strategic prioritization and financial performance. Today, we unveiled a new corporate visual identity to match our growing ambition and reinvigorated organization.
Speaker #3: cannabis company.
Speaker #3: Don't get me wrong,
Speaker #3: while first quarter results are definitely a step in the
Speaker #3: right direction, we're
Speaker #2: partnerships. Increased Increased production from our existing cultivation gross margins in cultivation facilities, facilities, combined with ongoing combined with ongoing efficiency gains, should further reduce our cost gains, should further increase our cost of unit, per unit and support meaningful margin which scored meaningful margin expansion expansion over over time.
Speaker #3: not satisfied
Speaker #3: yet. We're taking tangible
Speaker #3: action towards increasing yield and
Speaker #3: cultivation,
Speaker #3: accelerating supply chain
Speaker #3: efficiencies, and straightening
Speaker #3: This identity reflects who we are and what we're building. A company that believes in the power of cannabis as a catalyst for elevating human potential.
Speaker #3: our global supply
Speaker #3: Margins for quarters to come; we're becoming focused.
Speaker #2: May business has made in improving improving profitability. profitability. The improvement was driven primarily The improvements driven primarily by by operational and cost efficiency operational gross margins in the industry initiatives executed over the past year, expected to bear over the past year, with an with an additional benefit from tariff refunds additional benefit from care for recognized during the quarter.
Speaker #3: We believe cannabis is a global economic force one that will rival the largest consumer categories in the world, and we intend to be among the companies that lead it.
Speaker #2: construction during the quarter. Even Even excluding the tariff IMPACT, margins excluding the care of contractors, margins were were substantially ahead of the prior substantially attached to prior year.
Speaker #3: Building a global consumer-centric company with a clear and uncompromising ambition to lead the world in bettering lives through cannabis. That's the company behind the results we've just shared with you.
Speaker #3: It is the company you'll see reflected in our new identity. None of our progress outlined on today's call happens without our people. Thank you to our entire team for their relentless hard work and passion.
Speaker #2: expectations. Observing those Absorbing those operations while keeping operations while keeping costs under costs tightly controlled is a direct result of our control is a direct result of our ongoing gross ongoing cost reduction efforts and the revenue efforts and the immediate energy immediate synergies we are capturing from the MTL impact of the MTL integration.
Speaker #3: We're just getting started. Operator, we will now take questions.
Speaker #4: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchdown phone.
Speaker #4: You will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by the two.
Speaker #2: Up from 6 million we reported last reported last quarter. On that quarter. On that basis, we basis, we believe there is upside potential to our will encourage upside potential growth in the initial target, both in terms of timing quarter, both in terms of timely as well as well as in the total dollar as predictable amount.
Speaker #4: If you are using a speakerphone, please let the handset before pressing any keys. We do ask that you limit yourself to one question. If you have additional questions, you may hit star one again.
Speaker #4: First question comes from Erin Gray with Alliance Global Partners. Please go ahead.
Speaker #5: Hi. Thank you very much for the questions here. I just want to talk a bit about international and some of your initiatives. With added GMP certifications, just can you talk about the broader landscape of international?
Speaker #5: We're hearing about countries getting tighter in terms of companies needing to adhere to GMP compliance. How does this potentially set up for you to be in and more advanced position that you referred to in your prepared remarks?
Speaker #2: I 2026. I will note that the 25 million of will note that the 25 million in cash we cash used in operating activities in the first acknowledged in the first quarter is quarter is higher than the run rate we expect to tied to the run rate increase expected to see over the see over the course of fiscal course of fiscal 2027, as the 2027, as an increase in working capital is increase in cash is expected to expected to balance out during the remainder of the balance out during the remainder of the year, and year, and we would expect one-time we would expect more cash transactions on transaction and restructuring costs to decline throughout the disruptive costs in the coming 12 year.
Speaker #5: And do you now have enough cultivation as well as processing through the GMP supply chain to ramp up those international sales through the rest of fiscal year 27 and beyond?
Speaker #5: Thank you.
Speaker #3: Yeah. Thank you for your question. Good morning. Listen, we're taking all the right actions and to really set up an extremely robust end-to-end supply chain to win for quarters to come in Europe.
Speaker #3: You know what I mean? One thing I can say about canopy is that we take cannabis extremely seriously. We've got the internal internal capabilities to really build integrity, reliability, and trust in the supply chain.
Speaker #2: I will vote. I will now turn the call back to Luke for now, to take a callback group for post-year closing remarks.
Speaker #2: audit. Thank you very
Speaker #2: much.
Speaker #3: So. Tom. Starting fiscal
Speaker #2: Joining fiscal 2027
Speaker #2: with growth-based growth across all
Speaker #2: of our business line is two
Speaker #3: We've been working for quarters in really building the supply chain that meets and qualifies for EU GMP. So as I said in my remark, we're now end-to-end when it comes to flower growing and importing and distributing in Germany and across Europe.
Speaker #2: important set of strong strengths for
Speaker #2: the year. We're
Speaker #2: confident,
Speaker #2: we're energized, and everyone
Speaker #2: is pulling the same direction with
Speaker #2: pace and with common purpose to
Speaker #2: build a durable, strategist
Speaker #2: company. Don't get me
Speaker #2: wrong. Our first
Speaker #2: quarter results are definitely a step in the right
Speaker #2: direction. We're not
Speaker #3: We take an additional step to make sure that with Smith Falls facility qualifies as well, and we should get we should receive qualification approval during this fiscal year, which will allow us to have a complete range of product end-to-end to meet the market.
Speaker #2: satisfied yet.
Speaker #2: We're getting sensible options
Speaker #2: for increasing gross and
Speaker #2: cultivation by
Speaker #2: accelerating supply chain
Speaker #2: efficiency, and strengthening our
Speaker #2: durable supply chain to
Speaker #2: drive growth and improve margins for quarters to come. We're currently focused. chain to drive growth and improve
Speaker #3: So we're really building something that meets all the demands. And if there was even more stringent lack of a better word enforcement of the EU GMP, we're extremely well positioned to meet this.
Speaker #3: And that's what gives us confidence that we will grow this continue to grow this business for quarters to come.
Speaker #5: Thank you very much. I'll jump back in the queue.
Speaker #4: Can we tie with Canada Country Duty? Please go ahead.
Speaker #5: Thank you. Good morning. Tom, one of the key themes throughout the prepared remarks was the discussion around margin and margin expansion. I think specifically material expected margin expansion on some of the initiatives.
Speaker #5: Could you speak to your work from the resource from 230-odd odd bits year on year in this quarter? When you speak to and I'm thinking about your margin profile going forward, are we talking something bracketing that 30%, 30% plus level?
Speaker #5: Anything you could provide there to help us better triangulate would be appreciated. Yeah. Good morning, Carrick. I mean, obviously long term, we're trying to get that margin up closer to some of our competitive set, like closer to the 50% margin.
Speaker #5: We know that's going to be a long way in the future. I would say for kind of baseline, we're looking at this quarter on an adjusted basis.
Speaker #5: We were 31%. So I would say kind of in the near term, we're targeting to get up to the mid-30s. And hopefully on the higher end, as we're exiting this year.
Speaker #5: But as Luke laid out, a lot of the initiatives we're talking about improving the amount of output that we have from a yield standpoint, improving quality, all of that will fuel our margin improvement.
Speaker #3: Yeah, good morning, Carrick. I mean, obviously long term, we're trying to get that margin up closer to some of our competitive set, like closer to the 50% margin.
Speaker #5: As well as the integration activities with MTL, as we really become one organization with one set of assets that we're leveraging for the full portfolio.
Speaker #3: We know that's going to be a long way in the future. I would say, for a kind of baseline, we're looking at this quarter on an adjusted basis.
Speaker #5: So definitely I would say in the near term, we're targeting mid-30s. Hopefully exit in a bit higher rate as we go into this year.
Speaker #3: We were 31%. So I would say kind of in the near term, we're targeting to get up to the mid-30s and hopefully on the higher end as we're exiting this year.
Speaker #5: Luke, anything?
Speaker #3: Yeah. For me, listen, those are not pie in the sky. Dream. As you can imagine, we spend a lot of time last year really working on fixing the foundations of the business.
Speaker #3: But as Luke laid out, a lot of the initiatives we're talking about—improving the amount of output that we have from a yield standpoint, improving quality—all of that will fuel our margin improvement.
Speaker #3: We took an approach where we want to measure twice and cut once. So we're we've had a lot of times last year really ensuring that what we were aiming for, we have the plans for.
Speaker #3: As well as the integration activities with MTL, as we really become one organization with one set of assets that we're leveraging for the full portfolio.
Speaker #3: So definitely I would say in the near term, we're targeting mid-30s. Hopefully exit in a bit higher rate as we go into this year.
Speaker #3: And as I said in my remarks, post-quarter end, we press the button, the work as started. And as I said, the teams are working in one direction with pace, which gives us really a high level of confidence that we will see that margin continue to inch upwards for quarters to come.
Speaker #3: Luke, anything?
Speaker #1: Yeah, for me, listen, those are not pie in the sky dreams. As you can imagine, we spend a lot of time last year really working on fixing the foundations of the business.
Speaker #1: We took an approach where we want to measure twice and cut once. So, you know what I mean, we spent a lot of time last year really ensuring that what we were aiming for, we have the plans for.
Speaker #5: Great. Thank you. I'll get back in queue.
Speaker #4: Federico Gomez with ATP Core Mark, please go ahead.
Speaker #1: And as I said in my remarks, post-quarter end, we press the button, the work has started. And as I said, the teams are working in one direction with pace, which gives us really a high level of confidence that we will see that margin continue to inch upwards for quarters to come.
Speaker #5: Thank you. Good morning. I want to ask about cultivation. It seems like it's cultivation efficiency is a big part of your plan to expand margins and with EMDL integration as well.
Speaker #5: So how far along are you in that journey of getting cultivation where it needs to be? I imagine that it's going to take some time to trickle through financials, but how much of that margin expansion just comes from cultivation efficiency and how far along are you in that?
Speaker #4: Great, thank you. I'll get back in the queue.
Speaker #2: Federico Gomez with ATP CoreMark, please go ahead.
Speaker #5: Thank you.
Speaker #4: Thank you. Good morning. I want to ask about cultivation. It seems like it's cultivation efficiency is a big part of your plan to expand margins and with EMDL integration as well.
Speaker #3: Yes. Thank you for your question. Listen, we're passionate about flower and we have intentions to be a trusted global leader. So for us, it starts with flower.
Speaker #4: So how far along are you in that journey of getting cultivation where it needs to be? I imagine that it's going to take some time to trickle through financials, but how much of that margin expansion just comes from cultivation efficiency and how far along are you in that?
Speaker #3: It started with the acquisition of MTL. We've been very vocal about that. We brought in the expertise, the passion the know-how to grow great flower to achieve great level of THC.
Speaker #3: Yield and decent cost per grab. As you can imagine, that was one of the priorities as soon as we started integrated integrating the business.
Speaker #4: Thank you.
Speaker #1: Yes, thank you for your question. Listen, we're passionate about flower, and we have intentions to be a trusted global leader. So for us, it starts with flower.
Speaker #3: As I said earlier, we've been measuring twice and hoping to cut once. So the last few quarters have really been spent working with the master growers of MTL to ensure that we understand our strength.
Speaker #1: It started with the acquisition of MTL. We've been very vocal about that. We brought in the expertise, the passion the know-how to grow great flour, to achieve great level of THC, yield, and decent cost per gram.
Speaker #3: We've been working on defining the capex program, making sure the new processes are really well defined. As you can understand, with cultivation, it takes an amount of time while you put in scenes of the ground and you can harvest.
Speaker #1: As you can imagine, that was one of the priorities as soon as we started integrated integrating the business. As I said earlier, we've been measuring twice and hoping to cut once.
Speaker #1: So, the last few quarters have really been spent working with the master growers of MTL to ensure that we understand our strain and the capabilities of our facilities.
Speaker #3: We should really start seeing impact at the end of Q2, beginning of Q3, when we start realizing gradual realizing the benefits of improved yield and improved quality.
Speaker #1: We've been working on defining the CAPEX program, making sure the new processes are really well defined. As you can understand, with cultivation, it takes an amount of time while you put in seeds in the ground and you can harvest.
Speaker #5: Thank you very much.
Speaker #4: Bill Kirkworth Capital, please go ahead.
Speaker #6: Hey, good morning, everyone. So my question is on capital spending. Your capital spending amounts are below some of your peers. To make some progress on gross margin and international growth.
Speaker #1: We should really start seeing impact at the end of Q2, beginning of Q3, when we start realizing gradual realizing the benefits of improved yield and improved quality.
Speaker #6: So I guess my question is, do you need to increase capital spending in any meaningful way to improve those yields that unlock gross margin or need to increase capital spend to develop those international assets to unlock more growth there?
Speaker #4: Thank you very much.
Speaker #2: Bill Carthwell, Capital, please go ahead.
Speaker #5: Hey, good morning, everyone. So my question is on capital spending. Your capital spending amounts are below some of your peers. And so are those areas where you're trying to make some progress on gross margin and international growth.
Speaker #5: I don't great question. So I think from our standpoint, there will be some modest capex. Right now, we do think the operational assets we have in place are sufficient.
Speaker #5: So we're not talking greenfield type facility builds, but in terms of investing in the facilities, that is something we will be doing. But I would preface it with just a modest amount of capital.
Speaker #5: So I guess my question is, do you need to increase capital spending in any meaningful way to improve those yields that unlock gross margin?
Speaker #5: But yeah, we are probably underspending historically on the capex side. And this is an area where we see kind of the investment and the kind of the near-term return there.
Speaker #5: Or need to increase capital spend to develop those international assets to unlock more growth there?
Speaker #3: I have a great question. So I think from our standpoint, there will be some modest CAPEX. Right now, we do think the operational assets we have in place are sufficient.
Speaker #5: As we get improved kind of cultivation and really helping with the yield. But overall, I think it's I think we have the right assets in place.
Speaker #5: Now it's using those assets to their full potential. That might include a little bit of capex to get it going.
Speaker #3: So we're not talking greenfield-type facility builds. But in terms of investing in the facilities, that is something we will be doing. But I would preface it with just a modest amount of capital.
Speaker #6: Okay. And if I could sneak a housekeeping in on the Canadian medical, I didn't see it in the queue, but maybe I missed it.
Speaker #6: What was the MTL contribution to that segment in the quarter? And I'm basically asking to try to get a sense for how large the reimbursement change headwind was in the period.
Speaker #3: But yeah, we are probably underspending historically on the CAPEX side. And this is an area where we see kind of the investment and kind of the near-term return there.
Speaker #3: As we get improved kind of cultivation, and really helping with the yield. But overall, I think it's I think we have the right assets in place.
Speaker #5: MTL medical separate bill because we manage it all as one business, both across kind of the cannabis segment and then even within our revenue channel.
Speaker #3: Now it's using those assets to their full potential. That might include a little bit of CAPEX to get it going.
Speaker #5: Okay. And if I could sneak a housekeeping in on the Canadian medical, I didn't see it in the queue, but maybe I missed it.
Speaker #5: So that's not disclosed separately, but obviously the headline reimbursement reduction was 29% that we had. And I would say we weathered that storm better than probably some of our competitors in the quarter.
Speaker #5: What was the MTL contribution to that segment in the quarter? And I'm basically asking to try to get a sense for how large the reimbursement change headwind was in the period.
Speaker #6: Okay. Thank you.
Speaker #3: If I can just add color, I mean, building on what Tom said, I think we weathered the storm with this change. We now have a new basis upon which we really mean to grow.
Speaker #3: Yeah, so we don't disclose MTL medical separate bill because we manage it all as one business, both across kind of the cannabis segment and then even within our revenue channel.
Speaker #3: So even though these changes happen, as in our remarks, we were able to continue to improve patient count and order number of orders, which is really are the main drivers of your revenues.
Speaker #3: So that's not disclosed separately. But obviously, the headline reimbursement reduction was 29% that we had. And I would say we weathered that storm better than probably some of our competitors in the quarter.
Speaker #5: Okay, thank you.
Speaker #3: And we were able, as well, as Tom mentioned, to take the right action to mitigate the impact on our margins. So for us, it is a business that we strongly believe in.
Speaker #1: If I can just add color, I mean, building on what Tom said, I think we weathered the storm with this change. And we now have a new basis upon which we really mean to grow.
Speaker #3: We believe in providing the right care for patients and veterans. And we will continue to deploy efforts to expand this business going forward.
Speaker #1: So even though these changes happen, as in our remarks, we were able to continue to improve patient count and order number of orders, which is really our main drivers of your revenues.
Speaker #6: Thank you, Luke. Thank you, Tom.
Speaker #4: Ladies and gentlemen, as a reminder, if you have any questions, please press star one. Pablo Swanick, Swanick and Associates, please go ahead.
Speaker #1: And we were able, as well, as Tom mentioned, to take the right action to mitigate the impact on our margins. So for us, it is a business that we strongly believe in.
Speaker #3: Thank you and good morning, everyone. Just following up on the domestic medical question, look, I mean, the industry has done a great job in terms of increasing penetration with veterans.
Speaker #1: We believe in providing the right care for patients and veterans. And we will continue to deploy efforts to expand this business going forward.
Speaker #3: I think it was 4% back in '21, 8% now. Where do you see that going? I mean, is the 15% penetration level three, four years down the road reasonable?
Speaker #5: Thank you, Luke. Thank you, Tom.
Speaker #2: Ladies and gentlemen, as a reminder, if you have any questions, please press star one. Pablo Swanek, Swanek and Associates, please go ahead.
Speaker #3: How do you think about that? And then related to that, any further commentary you can make about how these patients, the reimbursed patients, have any changes in consumer behavior, if we can use that term here, or it's all been pretty much absorbed by the companies in terms of the pricing.
Speaker #1: Thank you and good morning, everyone. Just following up on the domestic medical question, look, I mean, the industry has done a great job in terms of increasing penetration with veterans.
Speaker #3: Thank you.
Speaker #1: I think it was 4% back in '21, 8% now. Where do you see that going? I mean, is the 15% penetration level three, four years down the road reasonable?
Speaker #5: Yeah. So I'll start, Pablo, and good morning. So in terms of penetration, I think 15% is probably fairly high. I mean, we do see continued growth in the Canadian cannabis market with veterans.
Speaker #1: How do you think about that? And then related to that, any further commentary you can make about how these patients, the reimbursed patients, have any changes in consumer behavior, if we can use that term here?
Speaker #5: We demonstrated the medical space as well over the past few years. In terms of buying patterns, I would say we are seeing we are adding new patients.
Speaker #5: Obviously, order values are going down as a result of the reimbursement, but our focus is really new patient acquisition, new veteran acquisitions. It's still one of the most profitable markets in the globe.
Speaker #1: Or it's all been pretty much absorbed by the companies in terms of the pricing. Thank you.
Speaker #3: Yeah, so I'll start, Pablo, and good morning. So in terms of penetration, I think 15% is probably fairly high. I mean, we do see continued growth in the Canadian cannabis market with veterans.
Speaker #5: So Canadian medical clearly is continuing to be a point of focus for us. But I think it'll be 15% is probably a bit high from market penetration standpoint.
Speaker #3: We've demonstrated that we can grow in a declining market in the medical space as well over the past few years. In terms of buying patterns, I would say we are seeing we are adding new patients.
Speaker #5: But for us, it's really Q1, as Luke said, was a bit of a reset in terms of our baseline. And I would expect that we continue to have steady growth over the past as we've demonstrated in prior years.
Speaker #3: Obviously, order values are going down as a result of the reimbursement. But our focus is really new patient acquisition, new veteran acquisitions. It's still one of the most profitable markets in the globe.
Speaker #5: On the medical side. I don't know, Luke, if you want to.
Speaker #3: Thank you. Look, I mean, can I ask just to follow up? And obviously, congratulations on all the progress the company is making on domestic reg, domestic medical, international, the MTL deal.
Speaker #3: So Canadian medical clearly is continuing to be a point of focus for us. But I think 15% is probably a bit high from a market penetration standpoint.
Speaker #3: So if I maybe, it's not fair for us analysts to ask you about the US, right? But there's so much focus on the US from the investor side, given all the changes that are taking place there.
Speaker #3: But for us, it's really Q1, as Luke said, was a bit of a reset in terms of our baseline. And I would expect that we continue to have steady growth over the past as we've demonstrated in prior years.
Speaker #3: And historically, we thought of canopy growth as having the best beach head, if I can use that term, with acreage, wanna, and jetty there.
Speaker #3: On the medical side. I don't know, Luke, if you want to.
Speaker #3: But how should we think about that now going forward? Obviously, it doesn't seem as big a priority as it was in the past for canopy growth.
Speaker #1: Thank you. Look, I mean, can I ask just to follow up? And obviously, congratulations on all the progress the company is making on domestic reg, domestic medical, international, the MTL deal.
Speaker #3: Any color would help. Thank you.
Speaker #2: Yes, thank you for the question. Listen, we continue to monitor the position, the situation of the market in the US very, very closely. And you heard me, we've been consistent about fixing the foundation.
Speaker #1: Define maybe it's not fair for us analysts to ask you about the US, right? But there's so much focus on the US, on the investor side, given all the changes that are taking place there.
Speaker #1: And historically, we thought of cannabis growth as having the best beachhead, if I can use that term, with acreage, guana, and jetty there. But how should we think about that now going forward?
Speaker #2: It's ensuring that we build a core canopy growth organization in that is positive, that provides positive EBITDA. That's where we continue to focus the bulk of our bulk of our efforts.
Speaker #1: Obviously, it doesn't seem as big a priority as it was in the past for cannabis growth. Any color would help. Thank you.
Speaker #4: Yes, thank you for the question. Listen, we continue to monitor the position, the situation of the market in the US very, very closely. You heard me, we've been consistent about fixing the foundation.
Speaker #2: And it is paying it is paying off. As I said, we continue to monitor our position in the US. We're happy with what Jetty is the performance of Jetty in the US.
Speaker #4: It's ensuring that we build a core canopy growth organization, Canadian and in internationally that is positive, that provides positive EBITDA. That's where we continue to focus the bulk of our efforts.
Speaker #2: We have a position with Terrascent. You saw the release of results earlier this morning or yesterday. They're doing really well. But the focus remains on really accelerating our growth internationally.
Speaker #4: And it is paying. It is paying off. As I said, we continue to monitor our position in the US. We're happy with what Jetty is, the performance of Jetty in the US.
Speaker #2: And domestically in Canada.
Speaker #3: Thank you.
Speaker #4: Thank you. This concludes Canopy Growth's first quarter 2027 financial results conference call. I'll replay of this conference call will be available until November 5th, 2026.
Speaker #4: We have a position with Terrascent. You saw the release of results earlier this morning or yesterday. They're doing really well. But the focus remains on really accelerating our growth internationally.
Speaker #4: And it can be accessed following the instructions provided in the company's press release issued earlier today. Canopy Growth's investor relations team will be available to answer additional questions.
Speaker #4: And domestically in Canada.
Speaker #1: Okay. Thank you.
Speaker #2: Thank you. This concludes Canopy Growth's first quarter 2027 of this conference call will be available until November 5th, 2026. And can be accessed following the instructions provided in the company's press release issued earlier today.
Speaker #1: Growing the business and returning capital to shareholders. With this balanced approach, we expect share repurchases to be $20 to $40 million in 2026, aligned with our previous guide.
Speaker #1: Looking forward, we intend to allocate surplus cash toward paying down growth debt. This will position us for investing in future growth opportunities. Now let's turn to our four pillar growth strategy.
Speaker #1: Our first pillar is to grow share in first bit. We continue to win with the winners by growing our long-term partnership with leading global and regional OEMs across a broad range of applications.
Speaker #1: We are leaders in filtration science with our latest generation NanoNet N3 filtration media and advanced testing capabilities strategically located around the world. This allows us to expand our first bit customer reach across a broad range of applications and provide advanced filtration solutions for OEMs.
Speaker #1: Our second pillar is focused on accelerating profitable growth in the aftermarket. Our global aftermarket consists of thousands of customers across many applications. We have dedicated teams located where our customers need us.
Speaker #1: We have developed a robust pipeline of opportunities and are working every day to bring our industry-leading Fleetguard and Cook filter products to current and new customers.
Speaker #1: Our third pillar is focused on transforming our supply chain. We have launched Lean, the Atmos way. Our Lean-based production system. The programming includes implementation of standardized management systems and Lean operating practices.
Speaker #1: Which improves productivity and supports sustainable margin expansion. I want to recognize our team in Mexico for becoming the first Atmos site to achieve certification in Lean, the Atmos way.
Speaker #1: In addition, our focus on relentless improvement has allowed us to continue raising our delivery and on-shelf availability metrics to all-time highs through the Atmos-controlled distribution network.
Speaker #1: We have the right products for our customers, when and where they need us. Our fourth pillar is to expand into the industrial filtration market. Following the acquisition of Cook Filter, we continue to review a robust pipeline of opportunities with a focus on industrial air, to build a platform of scale by leveraging Cook Filter and creating value through targeted bolt-on acquisitions.
Speaker #1: While our primary focus is industrial air, we remain opportunistic in evaluating industrial water and liquid filtration assets with the goal of identifying and anchoring investments that can serve as the foundation as we build out our broader industrial platform over time.
Speaker #1: We are focused on delivering long-term shareholder value through the discipline development and execution of industrial filtration opportunities. Now let's discuss our second quarter financial results.
Speaker #1: Sales were a record 528 million compared to 454 million during the same period last year. An increase of 16.4%. Driven by the acquisition of Cook Filter and strong performance in Power Solutions.
Speaker #1: Adjusted EBITDA was $109 million, or 20.7%, compared to $95 million, or 21%, last year. Adjusted earnings per share were $0.82 in the second quarter of 2026, and adjusted free cash flow was $67 million.
Speaker #1: Also during the second quarter, we returned 18 million dollars of cash to shareholders through share buybacks and dividends. Now let's turn to our outlook for the Power Solutions segment.
Speaker #1: In the aftermarket, we are starting to see signs of health in the overall freight market, including higher spot rates and increasing optimism for improved freight activity.
Speaker #1: However, we have yet to see a significant inflection and therefore continue to expect the market to be relatively flat year over year. In our first bit market, the US EPA has provided the industry with some regulatory clarity surrounding the implementation of 2027 emissions standards.
Speaker #1: The agency has proposed allowing current engines to be sold into 2027 with a non-conformance penalty. While this is expected to ease some pre-buy pressure, customers have indicated a stronger second half driven by improved market conditions and a cyclical recovery.
Speaker #1: We are already seeing the benefits of this cyclical recovery in our 2Q results and have good visibility through the end of the year. We also expect continued market share gains in both aftermarket and first bit through our multi-channel distribution strategy improved on shelf availability and winning with new and existing customers.
Speaker #1: For Power Solutions, overall, we expect volume growth in a range of approximately flat to 2%. Inclusive of global markets and share gains. Additionally, pricing is expected to add approximately 1.5% and foreign exchange is expected to be a tailwind of approximately 2%.
Speaker #1: In total, we expect Power Solutions revenue to be in a range of 1.82 to 1.865 billion. Which represents growth of approximately 4.5% at the midpoint.
Speaker #1: In our industrial solutions segment, we expect favorable market conditions and strong performance to continue. With total revenue to be in a range of 155 to 165 million.
Speaker #1: Taken together, we expect total company revenue to be in a range of 1.975 to 2.03 billion. An increase of approximately 13.5% at the midpoint.
Speaker #1: We are narrowing our full-year adjusted EBITDA guidance and now expect to be in a range of 19.75% to 20.25%. Lastly, adjusted EPS is expected to be in a range of $2.85 to $3.
Speaker #1: In summary, our team continues to successfully execute our four pillar growth strategy and provide the protection our customers need and value most. I want to thank all Atmosonians for their strong performance in the first half.
Speaker #1: I remain confident in the ability of our team to continue to deliver for all our stakeholders. Now I will turn the call over to Jack.
Speaker #2: Thank you, Seth, and good morning everyone. I also want to recognize our global team for delivering another quarter of strong financial performance, all while successfully navigating challenging market conditions.
Speaker #2: Sales in the second quarter were a record 528 million compared to 454 million during the same period last year, an increase of 16.4%. Power Solutions delivered sales of 486 million compared to 454 million in the prior year, an increase of 7%.
Speaker #2: The increase was primarily due to higher pricing of 3%, higher volumes of 2%, and favorable foreign exchange of 2%. Industrial Solutions sales were 42 million, resulting from the acquisition of Cook Filter.
Speaker #2: Gross margin for the second quarter was $154 million, or 29.2%, compared to $131 million, or 28.9%, in the second quarter of 2025. The increase was primarily due to favorable pricing, incremental margin from the acquisition of Cook Filter, favorable foreign exchange, higher volumes, and the cessation of one-time separation costs.
Speaker #2: This was partially offset by higher materials and manufacturing costs. Selling, administrative, and research expenses for the second quarter were $62 million, compared to $57 million in the prior year.
Speaker #2: The increase was primarily due to people-related expenses and information technology consulting. Joint venture income was 8 million in the second quarter, flat compared to in China offset weaker markets in India, which has been impacted by the Middle East conflict.
Speaker #2: Other income expense was unfavorable by 1 million, compared to favorable by 4 million in the second quarter of 2025. The increase in expense was primarily due to foreign exchange losses, and a non-operating gain that did not repeat.
Speaker #2: Excluded from the adjusted results are one-time costs related to the integration of Cook Filter, which for the full year is expected to be in the range of 3 to 6 million.
Speaker #2: We also exclude intangible asset amortization, resulting from the Cook Filter acquisition, which is expected to be in a range of 11 to 13 million for 2026.
Speaker #2: Total enterprise adjusted EBITDA in the second quarter was 109 million, or 20.7%. Compared to 95 million, or 21% in the prior period. Segment adjusted EBITDA for Power Solutions was 101 million, or 20.8%, compared to 95 million, or 21%, last year.
Speaker #2: Industrial Solutions segment adjusted EBITDA was 8 million, or 18.9%. Adjusted earnings per share was 82 cents, compared to 75 cents last year. Adjusted free cash flow was 67 million this quarter, compared to 36 million in the prior year.
Speaker #2: Now let's turn to our capital deployment strategy. The combination of strong cash flow and continued robust adjusted EBITDA performance has resulted in an estimated net debt to adjusted EBITDA ratio of 1.9 times the trailing 12 months ended June 30th.
Speaker #2: We also invested 13 million dollars in capital expenditures for continued growth, and we returned 18 million dollars to shareholders consisting of 13 million in share repurchases and 5 million of dividends.
Speaker #2: As Seth highlighted, we will continue to strategically deploy capital through investment in growth and paying down debt to provide balance sheet flexibility. Our cash flow allows us to take this balanced approach for both growth opportunities and returning capital to shareholders.
Speaker #2: In closing, I want to thank and applaud all of our teams around the world for all of your hard work and dedication in delivering a strong first half of 2026.
Speaker #2: Now we will take your questions.
Speaker #1: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand.
Speaker #1: To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.
Speaker #1: If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. The first question comes from the line of Quinn Frederickson with Baird.
Speaker #1: Your line is now open.
Speaker #3: morning.
Speaker #4: Good morning, Quinn.
Speaker #3: Could you guys discuss Seth maybe how aftermarket and first-fit revenues performed in the quarter and also give us an estimate for how much share gains contributed in Power Solutions and whether any change to the year for your assumption there?
Speaker #4: Thanks, Quinn. Great question. And let me start with, I guess, as I was saying in my prepared marks, remarks. Our team delivered a really strong quarter.
Speaker #4: In the Power Solutions segment overall, record revenues of 16.4% on the same period last year. And in the Power Solutions segment, delivered revenue growth of 7.1%.
Speaker #4: And as Jack highlighted, that really was broken down between 3% price, 2% volume, and 2% FX. So if I take that volume growth year on year and break that down, as requested, into aftermarket and first-fit performance, what we saw in aftermarket, I would say, is still flattish conditions.
Speaker #4: So if I give you a view of aftermarket around the world and reminder that aftermarket is 85% of our revenues within the Power Solutions segment.
Speaker #4: And within that, about 50% of those revenues in the US. And so we are seeing stronger sentiment in the US and in Mexico, but as I look around the rest of the world from an aftermarket perspective, I would say Europe and the Middle East and Asia-Pacific outside China we're still seeing subdued conditions.
Speaker #4: And so, that balance really gives us a flat aftermarket outlook, and also flat aftermarket through the quarter. We continue to deliver strong gains with our customers, and I continue to see us within the range of 1% to 2% for our share gains outlook.
Speaker #4: If I turn to first-fit markets, we did start to see the cyclical recovery in first-fit markets that we had been anticipating and was previously incorporated in our guidance.
Speaker #4: We started to see that uptick in our business in the second quarter. And just as an education for you, we do see that uptick in our business ahead of the vehicle OEMs.
Speaker #4: The APT data that we often refer to with vehicle builds is about 4 to 6 weeks we're about 4 to 6 weeks ahead of that in terms of the supply chain cycle.
Speaker #4: And so we started to see the cyclical upturn in first-fit markets here at the end of the second quarter. I would say it was a balanced performance in first-fit between market improvement and share gains, through our ongoing strategy of winning with the winners.
Speaker #3: Thank you. Seth, Jack, could we get an updated view on price cost expectations for the year and I think you said maybe 2% price.
Speaker #3: Is that the right way to think about for the full year? So it sounds like you would have taken some pricing actions in July?
Speaker #3: Could you just clarify that?
Speaker #2: Yeah, absolutely. So from a pricing perspective, obviously we continuously assess our pricing and make strategic adjustments where necessary, both in terms of gross pricing as well as rebates and rebates can drive some of the timing nuances.
Speaker #2: We saw good price realization through the first half, just over 2%. Our full-year guide is 1.5%, and that reflects a mix of carryover from the prior year as well as some new pricing. Obviously, it anticipates a moderating price realization environment as I think about the year-over-year comparison in the third quarter and the fourth quarter.
Speaker #2: As I think about that comparison as well, obviously there's some rollback of certain years that we've continued to implement or remove as policies change.
Speaker #2: As always, we'll take a balanced approach to pricing and share gains and are certainly doing that over the balance of the year. As I think about some of the cost dynamics in the second half, we continue to see some elevation in our cost base associated with some commodities.
Speaker #2: And a lot of that's driven by the ongoing conflict in the Middle East. That's probably the biggest kind of headwind that's embedded in our second half.
Speaker #2: And as you look at the first half, year-to-date margin compared to the second half is one of the contributors leading to the implied softening second half compared to first half.
Speaker #2: The other dynamic I would just call out as you think about that margin walk is, not only are we experiencing some commodity price increases associated with the conflict in the Middle East, that's also contributing to weaker overall conditions in India.
Speaker #2: And therefore, this is leading to a lower joint venture income outlook than we originally anticipated for the full year. So, I think the combination of those factors will hopefully help you bridge the first half–second half dynamic and get a better sense of price-cost dynamics as we move through the year.
Speaker #1: The next question comes from the line of David Ridley Lane with Bank of America. Your line is now open.
Speaker #3: Sure. Thank you very much. On for Andrew Open. Just really quickly, on the Middle East, since you mentioned that, did you catch up on any of the loss.
