This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk07: Hello and thank you for joining today's conference call to discuss Tilray Brand's financial results for the fourth quarter and fiscal year 2024 and the May 31st, 2024. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session for analysts and investment firms conducted via audio. I'll now turn the call over to Ms. Vera Narada, Tilray Brand's Chief Corporate Affairs and Communications Officer. Thank you. You may now begin.
spk11: Thank you, Operator, and good afternoon, everyone. By now you should have access to the earnings press release, which is available on the Investors section of the Tilray Brand website at tilray.com and has been filed with the SEC and CEDAR. Please note that during today's call, we will be referring to various non-GAAP financial measures that can provide useful information for investors. However, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. The earnings press release contains a reconciliation of each non-GAAP financial measure to the most comparable measure prepared in accordance with GAAP. In addition, we will be making numerous forward-looking statements during our remarks and in response to your questions. These statements are based on our current expectations and beliefs and involve known and unknown risks and uncertainties, which may prove to be incorrect. Actual results could differ materially from those described in the forward-looking statement. The text in our earnings press release includes many of the risks and uncertainties associated with such forward-looking statements. Today we will be hearing from key members of our senior leadership team, beginning with Irwin D. Simon, Chairman and Chief Executive Officer, who will provide opening remarks and commentary, followed by Carl Merton, Chief Financial Officer, who will review our financial results for fiscal year 2024 and fourth quarter. Also joining us for the question and answer segment are Denise Balchek, Chief Strategy Officer and Head of International, Blair McNeil, President of Tilray Canada, and Ty Gilmore, President of Tilray Beverages North America. And now I'd like to turn the call over to Tilray Brands Chairman and CEO, Irwin D. Simon.
spk04: Thank you, Baron, and good afternoon, everyone, and thank you for joining us today. Before diving into our fiscal 2024 results, I'd like to take a moment to reflect on the evolution of Tilray Brands. Back in 2019, Afria was a cannabis-focused Canadian LP with only $50 million in revenue and minimal cash reserves. Since then, we've taken a strategic approach to diversifying our operations and growing our global businesses. Through a combination of organic growth, strategic acquisitions, we have disrupted the CPG industry by expanding our footprint into new markets and adjacent business categories. Today, Tilray Brands is a leading global lifestyle company, spearheading the conversion of cannabis, beverages, and wellness products, and is elevating lives through moments of connection. We're operating in more than 20 countries across North America, Europe, Australia, and America, with five businesses in medical, adult-use cannabis, beverages, spirits, wellness products, and 44 consumer-connected lifestyle brands. As a vertically integrated company, we have 20 facilities that serve as our collective businesses, allowing us to produce approximately 90% of our products internally, ensuring the high quality of our products. This is a testament to our success in building a diversified global business that is dedicated to providing the best possible products for our consumers. We're incredibly proud of the progress we've made in this short time and are excited to continue driving innovation and growth in the years ahead. Fiscal 2024 marked a year of significant accomplishments for Tilray Brands, achieving our best financial results to date. We achieved 26% net revenue growth, with annual record net revenue of $789 million, record adjusted gross profit of $236 million, record adjusted EBITDA of $60.5 million, adjusted net income of $6.2 million, and positive adjusted free cash flow. We also strengthened our balance sheet by significantly reducing our net convertible debt by approximately $300 million, reducing our net debt EBITDA ratio to 1.73. We also exceeded our cost-saving synergy target by 31%, delivering $35 million of savings. Additionally, not only we met our revised annual guidance for adjusted EBITDA, but also generated adjusted free cash flow of approximately $7 million for the year. Our record financial results were achieved despite the challenges we faced in the fiscal year, absorbing approximately $10 million in cannabis price compression, paying approximately $100 million in excise tax and regulatory fees in Canada, and paying higher operating insurance rates of nearly $7 million because of our cannabis businesses, which together equate to approximately $120 million that directly hit our bottom line. Our ability to deliver record financial results while navigating these challenges is a testament to the resilience and dedication of our team who have worked tirelessly to ensure the success of our businesses. Over the past fiscal year, our strategic acquisitions have significantly benefited our financial results, which we expect will continue to benefit us well into the future. In June 2023, we acquired Hexo and Retican to expand our cannabis business, our productions and capability and grand growth in opportunities in Canada and internationally. Since then, we have broadened kill-raised cannabis product portfolio across multiple form factors, including an 85% -over-year increase in mainstream flower sales in adult used cannabis. The addition of Retican brand has further strengthened our category such as pre-rolls, oils, capsules. Today, Tilray is the number one player in the straight edge pre-roll category with a 46% market share and a top player in the oils and capsules category combined with a .5% market share in the adult used business in Canada. In August 2023, we acquired Trust Beverages, fortifying Tilray's leadership in the Canadian cannabis beverage market. This acquisition increased our market share in the beverage category by 400%, growing our market share in the THC beverage category to 41% at the end of fiscal year 2024. In September 2023, we acquired eight iconic beer and beverage brands from ABI, along with related breweries and brew pubs. As a result, we're now the fifth largest craft brewer in the U.S. with a .5% share of the craft beer market. Our growing beverage portfolio now includes craft beers, spirits, -to-drink cocktail, ciders and non-alcoholic beverages. The combination of our legacy businesses and these acquisitions resulted in our best fiscal year results. Let's now dive deeper into each of our business segments. Tilray Cannabis, global cannabis net revenue increased by 24% during fiscal 2024. In Canada, our quarter four marked the culmination of transformative year in Canadian cannabis. It was the highest revenue quarter of the year at $58.8 million, and it marked the completion of our Hexo and Trust Beverages integration, a significant operational overall resulting in extensive improvements in our facility utilization. We continue to lead Canadian cannabis market share by almost 200 bits over the next competitive and have consistently at the industry, for the past, top of the industry for the past three years. From a regional perspective, Tilray was number one across British Columbia, Alberta and Ontario, and Quebec provinces combined, which include over 80% of the Canadian population. And we've also led in all secondary markets. In Canadian cannabis volume, Tilray shipped approximately 60% more in kgs, reaching 140 metric tons. Our unit sales grew approximately 130% to almost 35 million units. In fiscal 2024, approximately 27% of our Canadian adult use cannabis net sales revenue came from new innovation, which is a testament to our successful ability to innovate and launch new products. Cannabis consumers have a unique attribute of being open to trying new products, and in fiscal 2024, we capitalize on this by launching over 150 new skews. Looking ahead to next year, we anticipate that innovation will continue to play a significant role in driving our net sales. Brands such as Broken Coast, Reticam, XMG, Molo and Good Supply will be launching their new products based on feedback from our consumers and our butt tenders. Our strategic acquisition of Hexone and Reticam aimed to integrate their sales plan into our infrastructure and expand our brand portfolio and product mix. In fiscal 2024, we almost doubled the Retican flower share with the In Ontario, animal runs became the number one and number three selling genetics for 14G and 3.5G packsides respectively. Spice Age Cake was number eight in the 14G flower segment, despite limited availability. In fiscal 2025, we expect these genetics will continue to be within the top 10 performing genetics in the mainstream flower. In 2024, we made significant steps to right size our operational footprint in Canada to balance supply and demand. We sold the Trust facility and transitioned all our cannabis beverage production to our London, Ontario drinks facility, pushing the London facility's utilization above 70% and improving our cannabis gross margins. These cannabis beverages are phenomenal. I wish we could sell them in the US today. We centralized all our Hexo brand packaging and logistics into Leamington, Ontario, lowering our labor cost per unit by 35% and delivering $35.4 million in synergies and exceeding our initial target of $27 million by 31%. We successfully transitioned our Broken Coast cultivation to our Nanaimo BC facility, increasing yields by 30% and lowering our cost per gram by 15%. We also paused the out there growing during the year at our Cayuga facility that will drive additional savings of $4.5 million on a manual basis. Finally, we transitioned a large portion of our Quebec cultivation facilities and vegetables, which we expect to contribute over $5 million annually to offset the cost of the facility, improving the marketability and the value of the facility and continue to grow cannabis in smaller portions of the facility to meet the needs we want for our Quebec consumers. All of these initiatives were designed to significantly lower the cost of grow to manufacture and package and ship our leading cannabis brands to market. These consumer and operational initiatives are entirely leverageable in markets around the world for years to come. In fact, early in fiscal 25, we shared significant learnings in cultivation and genetics with our teams in Europe. Turning to our international cannabis, we grew net revenue by 22% year over year to approximately $53 million and remain the number one market leader in medical cannabis across Europe. Our annual growth during the fiscal 2024 was driven by increased sales in Germany, Poland, the UK, Australia and New Zealand. In Germany, we believe we're best positioned to capture a majority of the expected incremental growth in the cannabis medical market, which is projected to be approximately $3 billion in the medium term. On April 1, the Cannabis Act became effective in Germany, which declassified cannabis to a non-narcotic expanding kill raise market opportunity in Germany. Since the Cannabis Act went into effect, we have already seen a 65% increase in sales. And we believe that our current positioning in Germany provides us with several unique competitive advantages. Our cultivation facilities in Germany and Portugal, combined with our kill raise pharma medical distribution network, provides kill raise with a critical vertical integration, allowing us to consistently supply the market with high quality and a reliable source of medical cannabis. A free Rx was the first facility in Germany to receive both its cannabis cultivation license and commercial distribution license for medical cannabis under the new regulations, allowing kill raise to cultivate, produce, distribute premium quality medical cannabis, increasing its production by five times. A free Rx can now fully utilize and maximize its growing capacity while also expanding its genetics to a total of 31 approved strains from the previously approved three strains. We believe that this coupled with the steps being taken by Germany to liberalize the reimbursement of medical cannabis significantly increases the opportunity in the German market. We believe that Germans declassifying cannabis as a non-narcotic will also have a far reaching impact on the drug policy throughout Europe. The European opportunity could represent a potential $45 billion medical market alone over the long term. And our president in Europe allows kill raise to grow our global brand portfolio to a base of 700 million people, which is twice the population in the US. Turning to another promising international market, this fiscal year we launched Broken Coast Medical cannabis products in Australia. Medical cannabis patients in Australia now have access to Broken Coast renowned cannabis strains cultivation from our facility in Canada. This launch came in response to the feedback we've received in Australia and leveraged our insights from our operations in Canada and Europe.
spk05: Now
spk04: briefly on our CC Pharma, Tilray Pharma Distribution Business in Germany, which represents our medical cannabis business through its network of 13,000 pharmacies. CC Pharma revenue was nearly flat at $259 million both in fiscal 2024 and fiscal 2023. But our gross margin held at 11% during both periods, but may fluctuate with change in product mixes as we focus on higher margin sales
spk05: in future periods. Moving on to Tilray beverages, in
spk04: the US we operate the fifth largest craft brewery by sales with six manufacturing facilities over 500 distributors, 11 brew farms and one distillery restaurant and sales and marketing team across the country. Our Tilray beverage strategy focus on growing our portfolio of iconic craft brands, ensuring the product's excellence and innovation driving scale expanding distribution to increase market reach and consumer access. In our beverage segment we generated $200 million in fiscal 2024. On an annualized basis we'll quickly approach $300 million as we ramp up. Across our growing brands, Sweetwater remains the number one brand family in Georgia multi outlet, Montauk remains the number one brand family in Metro New York, having increased its distribution by 570 basis points over last year. Tilray is now the number one craft supplier year to date in the Northwest. Ten barrels increased by 640 basis points since Tilray took over the brand. And we're capitalizing on the success of ten barrels of beer brand extension with Pub Ice, Pubster Vessel line extensions. Both innovations have done extremely well in the market with 4200 new distribution points. Growing 18%, Pub Beer is now the 11th largest brand on the west coast with only half the distribution of top competitors due to its focus on the Pacific Northwest states. Since Tilray acquired Shock Top in 2023, we have made significant progress in turning the brand around. In just eight months we have cut total Shock Top declines in half and our top ten distributors have shown a remarkable 35% basis point improvement. As a result, Shock Top finished with .5% growth year over year since we acquired the brand. A testament to our team's hard work and a commitment to delivering outstanding results. We're excited to continue building on this momentum and driving growth for Shock Top in the years ahead. As we had mentioned before, our vision is far beyond our current reach. As we continue our focus to become a dominant leading beverage business by leveraging our portfolio of beloved local craft brands to win more hearts and occasions and bring these brands back to growth with innovation into new categories, including our non-alcoholic beers, flavored malt beverages, ready to drink cocktails, spirits and beyond alcohol as we expand further into water, energy drinks and other categories. We have the manufacturing facilities, the distribution and the sales and marketing infrastructure to drive growth in Tilray's beverage businesses. In the non-alcoholic segment, we launched a new brand, Runner's High Brewing Company. For those who love a great beer flavor without the buzz, this brand seeks to be the beer choice of runners and their community of social casual runners, not just elite athletes. There are currently three brews, Runner's High Golden, Wheat, Raspberry Wheat and Dark Chocolate with several expansion markets to follow. In April, we celebrated high honors and awards at the 2024 Craft Brewer Conference and the World Beer Cup. Ten Barrel Brewing won four Craft Beer Awards and ten Barrel Brew Master was recognized for innovation in craft brewing. Green Flash Brewing also took home honors for the world-class Hazy West Coast IPA. I'm incredibly proud of Tilray Beverage Team for these outstanding achievements. With over 500 beer and beverage distributors, Tilray is now a leading supplier in key regions across the U.S. with regional jewels in Northeast, Pacific Northwest, Colorado and southeast. Per VI shipments to retail, Tilray has increased its market share of total craft beer in seven states, including key markets such as Oregon, Washington, Florida, Colorado and Arizona when comparing share and after the acquisition of our eight craft brands. With each beverage acquisition we have made over the past few years, we have optimized their cost structure, operational efficiencies and we brought these back to our beloved brand of growth. As we compete, our integration process, we expect to get the margin of these eight craft brands through gross margins shared by Sweetwater and our other legacy businesses. We also relaunched high-volt energy drinks on Amazon and plan to launch new hemp-derived Delta 9 beverages strategically in markets including Texas and New Jersey where we can leverage our existing beverage distribution network. Our hemp-derived Delta 9 formulations are complete and we're actively developing a target launch strategy to ensure maximum impact. We look forward to sharing more updates on this exciting development soon. With our operational strength, Tilray is on a path to become a lightning rod for the beverage industry, rejuvenating growth into these brands. In Tilray's spirit Breckenridge distillery continues to win accolades as the best American whiskey two years in a row and now is one of the most awarded craft distilleries in the U.S. In addition to its awards in winning bourbon Breckenridge distillery also produces highly coveted gin and vodka. Finally, let's discuss Tilray wellness businesses focus on improving people's lives through the power of hemp. Tilray wellness is represented mainly by Manitoba Harvest, our leading hemp brand with over a 53% market share in branded hemp products, hoppy flour, CBD infused beverages, and high ball energy drinks. In quarter four our Tilray wellness business saw impressive growth with a 6% increase in revenue to 15.7 million. For fiscal 2024 the business generated 5% growth bringing in 55.3 million with stable improvements to gross margins of 30% from 29% last year. Tilray wellness strengthened its leading market share positions in both the U.S. and Canada over the past year with consumption increasing both in the natural and conventional channels. As Tilray brands has transformed expanded and completed numerous acquisitions to get to where we are today our mission has evolved to be a leading premium lifestyle company with a house of brand innovative products that inspire joy wellness and create memorable experience. With that I'll now turn the call over to Carl to discuss our financial results in greater detail.
spk06: Carl
spk04: thank you
spk06: Erwin. I'll begin with a brief overview of our annual results for fiscal 2024 before moving on to a more in-depth review of Q4. Note that we present our financials in accordance with U.S. GAAP and in U.S. dollars. Throughout our discussion we are referring to both GAAP and non-GAAP adjusted results and we encourage you to review the reconciliation contained within our release of our reported results under GAAP with the corresponding non-GAAP measures. Net revenue for fiscal 2024 grew 26% to $788.9 million compared to the prior year at $627.1 million which as Erwin stated was a record outcome. By segment beverage alcohol revenue increased 113% largely attributed to the acquired brands. Cannabis net revenue rose 24% year over year inclusive of $9.8 million due to price compression in Canada of which nearly all represented a reduction in EBITDA. Distribution net revenue was flat and wellness net revenue rose 5% for the year. From a segment perspective 25% of our net revenue was generated by our alcohol business. 35% was generated by our cannabis business. 33% by our distribution business and 7% by our wellness business. This compares to 15% beverage alcohol, 35% cannabis, 41% distribution and 9% wellness last fiscal year. The year over year variance is due to our acquisition of Hexo, the new craft brands and the remainder of the trust beverage brands. Further as we progress through a full year with the new beverage alcohol brands we anticipate these ratios to converge around 30% beverage alcohol, 30% cannabis, 30% distribution and 10% wellness. Gross profit for fiscal 2024 increased 52% to $223.4 million on another record compared to the prior year at $147 million. Gross margin increased 28% from 23% in the prior year. Adjusted gross profit increased 14% to $235.6 million from $206.4 million in the prior year. While adjusted gross margin declined by 300 basis points to 30% primarily reflecting the the removal of the Hexo advisory service revenue in the prior year with their initially lowered margins and the impact from the recently acquired craft brands. By segment beverage alcohol gross margin was 44% compared to 49% in the prior year due to lower margin contributions from the craft acquisitions which is the result of temporary excess capacity that we are in the process of optimizing and enhancing. Beverage alcohol adjusted gross margin was 46% compared to 53%. This was offset by a $2.5 million volume commitment reimbursement in our spirits business with no associated costs. For greater context adjusted gross margin for our legacy beverage business was 58% compared to the prior year of 53. Primarily as a result of an agreement with the spirits business and more volume falling through the facilities as we ramped up production in March and April to meet seasonally strong April and May sales. Adjusted gross margin for the newly acquired craft brands was 33%. The improvement of gross margins in beverage alcohol primarily in the beer portion of our business as Erwin said earlier is a major focus of ours and we should begin to straight improvements in Q1 of fiscal 2025. As of the end of our fiscal year we successfully integrated production of all the acquired brands into our production facilities and exited their related co-manufacturing agreements with the exception of Shock Top. As a result of this production integration we will no longer separate the gross margins between legacy products and the We also experienced a change in sales mix with a higher percentage of sales coming from wholesale compounded by the price compression in the Canadian adult use market as I will explain in further detail shortly. Distribution gross margin helped study at 11% although it was expected to improve with changes in product mix as we focus on higher margin sales in future periods. And wellness adjusted gross margin was up slightly at 30% compared to 29% driven by lower material cost and overhead optimization. Net loss for fiscal 2024 improved to $222.4 million or 33 cents per share compared to $1.4 billion in the prior year or $2.35 per share with the latter tied to non-cash goodwill impairment in the prior year. From an adjusted perspective we are reporting adjusted net income of $6.1 million or one cent per share compared to 0.4 million or zero cents per share in the prior year. Under the current year's adjusted EBITDA definition fiscal 2024 improved to a record $60.5 million up 3% from $58.7 million in the prior year. Under the prior year's definition we would have reported adjusted EBITDA of $65.1 million in the current year while reporting $61.5 million in the prior year. We have now generated positive adjusted EBITDA for five consecutive years. Cash flow used in operations was $30.9 million compared to $7.9 million of cash generated by operations in the prior year. Adjusted free cash flow was $6.6 million for the year which we view as a very positive outcome considering that just last quarter we had communicated that we did not believe we would achieve our goal of reaching positive free cash flow in fiscal 2024. What we had still expected is a very strong Q4 that proved to be stronger than we had anticipated. Over this past year we have reduced our convertible debt by almost $300 million decreasing our net debt to approximately $61.3 million and leaving us with a net debt to EBITDA ratio of $1.73 million. Our intention is to continue lowering our indebtedness, optimize our capital structure and enhance our financial flexibility. The net reduction in our convertible debt will decrease our annual interest expense by $14.4 million which flows directly to net income and free cash flow. Let's now review our quarterly performance. Q4 total net revenue rose by $45.7 million to $229.9 million compared to the prior year quarter of $184.2 million representing almost 25% growth. The diversification of our business through our adjacency model really came into play during Q2. For the first time our beverage alcohol segment exceeded the size of our cannabis segment in Q4 representing 33% of our total revenue mix compared to only 18% in Q4 during the previous fiscal year. In Q4 compared to the prior year period net beverage alcohol revenues rose 137% to $76.7 million. Net cannabis revenue rose 12% to $71.9 million. Distribution revenue decreased 10% to $65.6 million and finally wellness revenue rose 6% to $15.7 million. We are disappointed that the Canadian government did not resolve the issue of cannabis excise taxes during their last budget and maintain our view that reform is essential to long-term viability of the Canadian cannabis industry. The current fixed price tax structure is inherently unfair as it has allowed taxes as a percentage of revenue to spike even as the price of cannabis has declined by more than 50% since legalization. Still as everyone mentioned as a result of this we paid over $100 million in excise taxes last year and will continue to do so every year in the future until it is changed. We are encouraged that CRA is beginning to crack down on delinquent LPs asserting cash flow pressures on our less financially strong competitors potentially forcing an industry needed LP rationalization. We incurred $22.1 million in Canadian cannabis excise taxes during Q4 which are a reduction to revenue compared to $16.4 million last year but due to a change in our revenue mix to higher excise tax products and without the advisory fee which is not taxed excise tax amounted to 33% of gross Canadian cannabis revenue excluding wholesale in Q4 compared to 25% in the same quarter last year. Gross profit was $82.4 million compared to $67.2 million in the prior year quarter. Gross margin remained consistent at 36% while adjusted gross margin decreased 100 basis points to 36% compared to the prior year quarter. Most of the variance was related to cannabis which included significantly higher axle advisory fees in the prior year along with higher sales from wholesale and price compression in the Canadian adult use market in the current year. Net loss improved to $15.4 million compared to a net loss of $119.8 million in the prior year quarter. On a per share basis this amounted to a net loss of $0.04 per share versus $0.15 per share in the prior year quarter. Adjusted net income in the quarter was $35.1 million which when calculated on a per share basis resulted in an adjusted EPS of $0.04 for the quarter. A $0.06 improvement from prior year quarter. Adjusted EBITDA was $29.5 million up 37% from $21.5 million in the prior year quarter representing a new record level of quarterly adjusted EBITDA. On synergies and cost reductions recall that our revised HECSO synergy plan targeted between $30 and $35 million in savings. We exceeded that by achieving $35.4 million of savings on an annualized run rate basis of which $26.2 million represented actual cost savings during the year. Operating cash flow was $30.7 million compared to $43.6 million in the prior year quarter. This decrease in operating cash flow is primarily a function of restructuring in HECSO exit costs as we complete the integration of HECSO's operations into our operations. Adjusted free cash flow was $30.6 million compared to $48.3 million in the prior year quarter consistent with the changes in operating cash flow. Turning now to our four business segments. Perverage alcohol revenue was $76.7 million up 137% from $32.4 million in the prior year quarter. The positive delta was due to contributions from the craft brands which were purchased last fall. A strong beer business leading up to the summer which is a historically busy season. And new innovations across the portfolio launched as part of the spring reset. Perverage alcohol gross profit increased to $40.8 million compared to $16.6 million. And adjusted gross profit increased to $41 million compared to $17.8 million. While beverage alcohol gross margin increased to 53% compared to 51%. And adjusted gross margin decreased to 53% from 55% in the prior year quarter. Gross cannabis revenue of $94 million was comprised of $61.5 million in Canadian adult use revenue. $13.1 million in international cannabis revenue. $6.4 million in Canadian medical cannabis revenue. And $13 million in wholesale revenue. Net cannabis revenue which excludes $22.1 million in excise taxes. $71.9 million representing a 12% increase from the year ago period. The positive variance is related to increased organic growth excluding the Hexo advisory fee. Combined with contributions from the acquisition of Hexo and Trust. Offsetting the increase in net cannabis revenue was the elimination of advisory services revenue. Totaling $16.1 million from the prior year quarter due to the Hexo acquisition which terminated the previous strategic arrangement that was in place. Revenue from Canadian medical cannabis grew 6%. Despite the category being impacted by competition from the adult use market and its related price compression. Wholesale revenue increased to $13 million from $0.8 million last year. The Canadian cannabis industry is currently experiencing an interesting previously unexperienced phenomenon that we took advantage of in the current quarter. As many in the industry move to asset-like business models, a significant portion of previous production capacity in the industry has disappeared. This in turn has resulted in previous excess inventory levels in the industry dissipating. With lower inventory levels, securing supply appears to have become more difficult and pricing in the wholesale market is increasing. As much as 5X in some product categories. Against this new backdrop, we took advantage of advantageous pricing in the quarter resulting in the significant increase in our wholesale revenue. While opportunities related to wholesale product demand from asset-like Canadian LPs is expected to remain in the short term, we do not anticipate this level of quarterly wholesale revenues to be the new norm. International cannabis net revenue was $13.1 million in the quarter compared to $15.7 million in the prior year due to timing differences of shipments in the international markets to various countries. Cannabis gross profit was $28.8 million and cannabis gross margin was 40% compared to $39.5 million and 61% in the prior year quarter. Distribution revenue derived predominantly through Tilroy Pharma decreased to $65.6 million from $72.6 million in the prior year quarter. Distribution gross profit increased to $7.8 million compared to $6.7 million in the prior year quarter driven by our increased focus on margin. Wellness revenue grew 6% to $15.7 million from $14.8 million in the prior year quarter. Wellness gross profit was $4.9 million up from $4.4 million in the prior year quarter and gross margin rose to 31% compared to 30%. Our cash and marketable securities balance as of May 31st was $260.5 million, down from $448.5 million in the year ago period. The majority of the variance was related to the repayment of the Tilroy 23s, the cash purchase price of our acquisition of the Kraft brands, and settling assumed liabilities and EXA costs from Hexa, including the unpaid excise tax we inherited as part of the transaction, as well as legacy litigation settlements. Fiscal 2024 was a year marked by major acquisitions in both the beverage alcohol and cannabis segments. In addition to revenue increases we enjoyed from these acquisitions, we also made significant progress in integrating those acquisitions into our existing infrastructure. For the cannabis segment, this integration is largely complete, with redundant assets available for sale, the largest pieces remaining in our integration plan. For the beverage alcohol segment, there is still work to be done on the integration. As I said previously, all brands except for ShopCop have exited their co-manufacturing agreements and are now being produced in our facilities. Our integration work will continue to ensure we are maximizing low-cost production footprints and their related utilizations, fully integrating purchasing decisions across all brands to take advantage of pricing commensurate with our status as the fifth largest Kraft producer in the U.S. and fine-tweaking all our production activities, all to bring our consolidated beverage alcohol margins back up above 40%. Finally, we are pleased to provide the following guidance for fiscal 2025. We anticipate net revenues to be between $950 million and $1 billion, with mid-single digits of organic growth. Let me now conclude our prepared remarks and open the lines for questions from our covering analysts. Operator, what's the first question?
spk07: Thank you. Without conducting a question and answer session, if you'd like to be placed in queue, please press star 1 on your telephone keypad. You may press star 2 if you'd like to remove your question from the queue. Once again, that's star 1 to be placed in the question queue. Our first question is coming from Robert Moskow from KD Cowen. Your line is now live.
spk08: Hi, thanks for the question. I believe you normally give EBITDA guidance. I'm kind of new to the story. Can you tell me what was the decision regarding EBITDA guidance for fiscal 2025?
spk04: I think from anything, I think sales and as a growth company, it's based around revenue, but our cash flow, our free cash flow, and I think as we've outlaid where our goals are to get to margins, I think, Robert, you're a pretty smart analyst, I think EBITDA is something we can figure out. And I think as a growing company and things happen, I think it starts on the sales number and all starts on the organic growth number and the rest runs back through the P&L. That's why. No other reason why.
spk08: You used to give it and now you've decided to not provide that range going forward?
spk04: You know, I think we give the sales, we give our organic growth, and we give expectations on where our margin is. I think the rest can usually flow through the P&L.
spk08: Okay. Can you give us a little kind of -by-step status on, for the next 12 months, towards integrating your ABI brands and how the gross margins will improve? Like what needs to happen next?
spk04: Well, I think number one, it starts with these brands starting to grow again. And some of the examples we showed is what was happening, shocked off, what was innovation out there and getting that innovation out there. And we've seen some great results so far from that. You know, as we look today at our manufacturing facility and heard what I said before, 90% of our products are made in our own facilities. So, you know, ABI was doing some of our manufacturing and how do we bring more and more of that manufacturing into our facilities? You know, our prior gross margin at Sweetwater was in the high 40s, low 50s. So how do we get some more efficiencies at a purchasing, at some of the production standpoint? So that is number one. Number two is we have 500 distributors out there and some excellent distributors that came along with the ABI, some excellent distributors. Is there some consolidation opportunities there? And all these distributors are looking for more and more business. So how do we grow with them? So that is the big thing. Also, you know, we're looking at some international opportunities where we can grow our business internationally. So that's the big thing. And you come back and look at it today where these margins were when we bought them and where our legacy, you know, margins are. And that is a big focus. You know, last week was our strategic planning meetings and that's our big focus. You know, if you can grow our gross margins by a few points, that's a lot of dollars dropping to the bottom line. And, you know, you heard Carl talk about giving guidance in regards to, you know, high to mid single, you know, organic growth plus the acquisition growth. That's pretty good growth out there where beer category is not growing at all. And if we can get a few points on the gross margin, there's a lot of money that drops to the bottom line here. Okay. Thank you very much. And the big thing is, you know, when we went out and did our first acquisition of beer, we were selling two and a half million cases. You know, we're going to sell 12, 13 million cases of beer next year. So there's a lot there
spk05: of cost that we can take out. Thank you. Thank you.
spk07: Thank
spk05: you. Next
spk07: question is coming from Andrew Carter from Steeple. Your line is now live.
spk01: Hey, thanks. I just want to get back to the EBITDA, kind of thinking about you came in at a seven, eight kind of EBITDA margin this year. Your growth for next year kind of putting you in incremental 162 to 200. Could you – how should we think about incrementals? Does the EBITDA margin expand from here? Just any kind – anything directionally? And then I'll just – I'll tie this all into one question. As far as the free cash flow outlook goes, I don't know if you gave CAPEX. Could you give that? How should we think about working capital this year and anything else that should the free cash flow grow from here? Thanks.
spk04: So just – and I'll turn it over to Carl too. You know, just on the EBITDA margin, first of all, you know, as you heard me say before, you know, when we acquired these businesses, you know, it was pretty low in regards to where the gross margin was. They were not integrated, and there's a lot of costs that we have taken out. And you heard what I said before on the EBITDA margin. We've taken out over $31, $32 million in regards to cost savings on Hexo. So today, as a company, and as we gave sales guidance between $950 to a billion dollars, and as we, you know, add onto that top line organic growth plus acquisition growth, you know, get those margins a lot more that – that drops to the bottom line there that goes into EBITDA margin. And listen, I come back, and you heard what I said in my script. You know, we expect that there would be some relief in regards to excise tax. It's not going – it's not happening. So between excise tax at $100 million, paying much higher costs for insurance because of our cannabis business, and much higher costs in regards to some of our legacy license that we have with IT, you know, we're digesting well over $100 million just of cost and price compression, which over the last few years has been over $200 million. So we're digesting a lot of these costs within our P&L, but we're taking a lot of costs out of our business, and we're also getting a lot of organic growth, you know, to offset that. Carl?
spk06: Just on capex, we spent about $30 million this year on capex. We spent a little over $20 million year before capex for next year. We'll be right in that range as it relates to working capital. We don't see the need to grow the working capital from where we're at today over the next
spk04: year. So – and just on that, we spent, you know, between capex, you know, we spent it on Mason in conversion there. We spent over $6.5 million in regards to our sweet water facility. We spent some other capex in several other facilities. So, you know, with that, we got some efficient facilities and pretty – you know, a lot of capex that could expand. So we don't expect to spend a lot of capex going into next year, into this year.
spk01: I guess just one more question on kind of the – you mentioned the $10 million headwind to EBITDA this year from price compression. If you had to kind of like straight line pricing at this point, would – where would the headwind be to EBITDA next year from pricing? And as you mentioned, the innovation, are you able to – is innovation accretive from a pricing perspective, therefore less excise tax or gross margin accretive, whatever you want to call it? Is it accretive to your cannabis growth? Thanks.
spk04: So I hate to tell you, there's no relief on excise tax. And just to be clear to everybody on this call, excise tax is a fixed amount where you're paying a dollar a gram. If the prices keep coming down 20%, 30%, 40%, you're still paying excise tax. So a matter of fact, as a percentage, our excise tax and the percentage sale keeps going up. So just remember, our price compression over the last couple years has been about $200-plus million. If that never happened, that would just ultimately your cost of goods. That drops to your bottom line. So with that, we feel good. And you heard Carl said in regards to other LPs not being able to pay excise tax and the Canadian government going after them and forcing them away. So number one, we feel good that pricing now basically has flattened out. And if anything, we're looking to get some price increase. And the question you asked, some of the new innovation that we're coming out with is unique to what Tilray can do. And hopefully we can get higher prices for them. So hopefully, we're not going to see anywhere near the price compression we have seen over the last couple years, Andrew.
spk01: Thanks. I'll pass it on. Just to give
spk06: some, just to give some taste on that through the year, we were looking at about $3 million a quarter up until the fourth quarter, we did not see any price compression.
spk07: Thank you. As a reminder, that's star one to be placed in the question queue. Our next question is coming from Aaron Gray from Alliance Global Partners.
spk03: Hi, good evening and thank you for the question. So first question for me, I want to talk a bit about Germany since the law change there. I believe you mentioned a 65% increase since April 1st. So I just want to clarify, was that specifically for increases on the quarter or where you see it today relative before the change? And then just any further commentary you can provide. And I know you talk about your own production increases, 5X domestically and you have Portugal as well. But anything you're seeing overall within the market in terms of scripts, are you seeing some bottlenecks that are maybe, you know, keeping the market from growing even faster than it could? So just your overall sense in terms of how you're seeing the market evolve there. Thank you.
spk04: Thank you. I'm going to let Denise answer that question.
spk10: Thanks, Aaron. And thanks for the question. So in terms of your first question in terms of the 65% growth, given that we're reporting on the end of the fiscal year as of May 31st, this is a number that reflects basically our Q4 growth from the April 1st adoption of the new regulations. And then second, in terms of like your question in terms of what bottlenecks and seeing is in fact the German government becoming overwhelmed with the import and export permits, the import permits into Germany. We've been hearing basically given some of the increased demand on medical cannabis in terms of increasing patients, increasing number of restrictions, we have in fact seen the permit timing going from two weeks to six weeks. The other thing that we're seeing also is in terms of the ability to fill prescriptions very quickly, given the in-sales demand. So those are the two bottlenecks that we've seen. And I think both are more short-term as in fact, you know, both sort of aspects of the supply chain, one the import permits in the German government and then fulfillment of prescription start to allow it as more and more resources that could again, so I do see them as temporary measures in terms of restrictions on growth.
spk03: Okay, great. Thank you very much for that call there. And then second quick one for me just on the hemp drive Delta 9 beverages that you mentioned again on this call, formulations are complete. You mentioned some, you know, do it state by state. I believe you mentioned Texas and New Jersey as two of the states. So just any commentary of happening states you believe right now you'd be able to, you know, sell into and then how the conversations you're having with some of your distributors, both larger and smaller, in terms of the desire for these hemp derived beverages. Have you seen the desire, you know, increase especially their ability to participate with someone which is an existing player like you guys with alcohol beverages? So how are you seeing the overall demand for these Delta 9 beverages and how many markets you think you're going to build into within the current environment? Thanks.
spk04: So number one, you heard me say before and I wouldn't put a dollar value on it, but if we could sell our THC beverages that we produce in Canada today in the U.S., it would be a large size business for us if we could ever do that. With that we can't, as we can't sell anything, you know, that are THC infused products. You know, we're looking, and you heard me mention the states we're looking at, and I will tell you this here, there is a lot of our beer distributors that have reached out to us and want the product right away because they have seen in markets where it is how well the sales are doing. So, you know, we'll look at rolling it out online in some markets and the markets we feel that we can do it and we can do it right. There's about three or four markets that we would do right away. We do have the product that has been developed. We have the formulations. We don't have products, you know, out there today, but we do have the formulations. We do have the product ultimately ready to go once we can, you know, get to go ahead and we know what our plans are and which markets.
spk05: Okay, great. Thanks for the call and I'll jump back into the queue. Thank you. Thank you. Our next
spk07: question today is coming from Owen Bennett from Jefferies. Your line is now live.
spk09: Afternoon guys. Hope all well. I just had a couple of questions on beverages. The first one on energy drinks, obviously a very attractive category but also very competitive. I was just wondering how you're thinking about what you think you need to do to be successful in that category and will the focus be on eyeball or are you planning to launch additional brands as well?
spk05: So, I think and again,
spk04: you're too cross a little broken up. Will the focuses be on our beverages? Was that what you're asking and what beverages what brands within our beverage business?
spk09: No, no, sorry. We didn't hear me. We're going on the energy drinks specifically. The energy drinks. Yeah, very attractive but very competitive. What you think you need to be successful in that category and will it just be eyeball or additional brands beyond eyeball?
spk04: Oh, okay. Okay. Okay. I got that one. Sorry about that. So, you know, Owen, I got to tell you in my career, I've got lots of requests from consumers. I've never had so many requests for consumers on highball when ABI discontinued the product. So, there will be a big focus on our highball product. We come out with a water product called Liquid Love. We test it in the marketplace. It's a very, high, you know, results and good results on that. Our non-alcoholic beers, if I was to put that in a glass and even you who knows beer, ultimately, I'm not sure you'll know the difference between that, a regular beer and a non-out. So, we've come out with some good energy drinks. We've come out with some great non-out beers. We've come out with some water drinks with Liquid Love both in sparkling and still in multiple flavors. And so far, you know, the demand from our distributors and that and our consumers has been strong. You know, but we'll continue to push out the innovation that we have put forth in regards to some of the stuff that we come out with Montauk, some of the sweet water, some of the 10-barrel, some of the new flavors that we come out with Shock Top, are some of the exciting things. So, we see tremendous growth and tremendous growth in some of the brands that we acquire, you know, returning to growth where they were declining.
spk09: Okay, thanks, Erwin. And then just one quick follow-up on Aaron's question on MTHC. Are you planning to sell this by e-commerce as well so you can get the brand national?
spk05: So, sorry, it sounds
spk09: like you're talking into like a clock.
spk05: Can you just repeat
spk04: the question? I think the question was on Delta 9.
spk09: Yeah, are you planning to sell that by e-commerce as well? Yeah,
spk04: yeah. You know, like I said before, on Delta 9, it's something that we're gonna, you know, focus on. And we will sell it in e-commerce, but we will sell it into retail through beer distributors that everybody is in agreement that can take it and in retail markets that we can sell it. And so far, we've had a great response from our distributors and retailers that are interested in this product.
spk09: Yeah, thanks, guys. Apologies for the bad line.
spk04: No, no, no problem. Thank you, Erwin.
spk07: Thank you. Next question is coming from Federico Gomez from ATB Capital Market and he's from Al-Azhar.
spk02: Hi, thanks for the question. Just to follow up on Germany, you know, given the increased demand that you mentioned there, could you just comment on what you're seeing on the supply side? You know, is there enough product there to serve that market, you know, as demand grows? And in terms of pricing, are you seeing any sort of increase there? Thanks.
spk10: Yeah, no problem. Basically, what we're seeing in terms of supply, so in essence, products seem to be selling as soon as it comes into the market. Not only, it's what I'm hearing, not only on our product, but also in terms of product from other competitors into the market. It does not feel as if the market is saturated at all at this point. And so in essence, I think there's still definitely room for additional supply on medical cannabis into the market. And when I say that, I mean mostly on whole flower. The extract market is growing at a slower pace, whereas the patient-led whole flower side of the market is growing at more, a faster pace. And so what we see is the market will probably enter into a segmented approach in terms of looking at premium, mid-stream products and value products. And you'll start to see more, I think, segmentation come through the market as there's more proliferation in terms of product quality. And we will look to participate in all the various different parts of that segmented market. So we're pretty excited about it.
spk02: Thanks for that. And then my second question is just on your organic growth guidance. Could you just maybe provide a bit more color in terms of your segments? Is there any specific segment that you expect will be responsible for most of that organic growth?
spk04: Thanks. It just is that organic growth number, a big part of our business. There's no organic growth that we're kind of looking from in our CC farm. If anything, what we're looking there is margin growth and cash flow. But it's just a smaller business in regards to our wellness growth. We're looking for same growth last year. But we're looking at double-digit growth coming out of both our cannabis and our beer business, our beverage businesses. And that's where the big growth is. No low to mid-single growth on wellness, no growth really coming from our CC pharma, our medical distribution business.
spk02: Thank you very much.
spk05: Thank you.
spk07: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to Erwin for any further closing comments.
spk04: Well, thank you everybody for joining us on this summer day. Listen, we've had a lot of good stuff in the report today, record sales. And if I look back to 2019, that being a $50 million business, and this year, we have guidance out there between $950 to a billion dollars. And that is without anything happening in the US. So none of this guidance includes anything in regards to rescheduling in the US, anything that happened in the US. And over the last five years, everybody kept asking me, what's happening in the US, what's happening in the US. A lot of things would change within kill rate. If something happened in the US, we're excited about the opportunities in Germany in regards to even the change in selling more and more infused drinks in the US could change dramatically. We've had to deal with the higher excise tax in Canada. We've had to deal with higher costs because of cannabis issues in regards to insurance and IT costs and protecting ourselves. But this is a team that's made sure we can overcome that in other ways. One of the things as companies look today is leverage. And as we sit today with 1.7 times leverage, and that we're able to pay $300 million off of our subordinate debt last year between our cash, our cash flow, and just using equity is something to be very, very proud of. So over the last five years, we have built something that's pretty exciting, a lifestyle company that's focused on cannabis, which cannibalizing alcohol, of course. We have a real exciting craft beer business, and we think there's a lot of growth in the craft beer business. We think there's a lot of growth in the beverage business. We think there's a lot of growth in the spirits business and our wellness business. I think Europe is just beginning, and we're well positioned with two facilities, one in Germany, and now for the first time, we can supply the whole market of the Germany facility where before we only could supply the German government. We have an incredible facility that's working with our Canadian facility in regards to growth. And with that, you're going to see a lot of opportunities where there's going to be growth in a lot of other countries within Europe. You heard me talk about genetics and regards to us looking at our genetics and bank of genetics and equality. The thing is, the cannabis user today is becoming more and more educated about the potency, the genetics, and what they're using. The cannabis consumer today is just not the Gen Z and millennials. It's an older generation that's looking at cannabis for pain, for sleep, for anxiety, cancer patients, and treating epilepsy and other things. So cannabis is just not a relaxation or a product to get high on. It's a product for a lot of medical reasons. It's a product for relaxation. And as we talk about bringing people together in exciting times, Tilray will continue to evolve into a lifestyle company. And as we look at growing this business and I'm sure what's going to happen in the US, as we look at other categories and what we should expand into as we go through our strategic plans, we've identified what is that lifestyle, what is that lifestyle, you know, opportunity for us to bring within the Tilray brand. As you said, as I said before, over 40 brands within this company, and that is since 2019, we produce over 90% of our products. We have over 2,500 dedicated employees that are really dedicated and very lucky to work with this team. We have a great board of governance that is focused on our ESG, focused on good governance. And last but not least, I want to thank every shareholder out there for being loyal shareholders and being patient with us. With that, enjoy the rest of your summer. Thank you very much for joining us and enjoy one of our great products. Thank you.
spk07: Thank you. That does conclude today's teleconference. Let me just connect your line at this time and have a wonderful day. We thank you for your participation today.
Disclaimer