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spk02: Good morning, everyone, and welcome to the Entourage Health Corp First Quarter 2022 Results Conference Call. At this time, participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity for analysts and members of the media to ask questions. To join the question queue, you may press star, then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. A replay of this call will be available at the Entourage Health website later today and will remain posted for the next 90 days. I would now like to turn the conference over to Marianela de la Barrera, Senior Vice President, Communications and Corporate Affairs with Entourage Health. Please go ahead, Ms. de la Barrera.
spk03: Thank you, Cha, and good morning, everyone. Welcome to Entourage Health's first quarter 2022 results conference call. Please note this call is being recorded. For copies of our press releases and supporting documents filed on May 30, 2022, or to retrieve a recording of this call, please visit our investor relations page on our website at www.entouragehealthcorp.com. The replay will be available later this afternoon. With us on today's call, George Scorsese, Chief Executive Officer and Executive Chairman of Entourage Health, as well as Vani Maharaj, our Chief Financial Officer. Today, we will review the business highlights and financial results for the quarter 2022 as well as discuss recent developments. Following our formal remarks, we will open the floor for your questions. I would also like to remind everyone that during today's call, we will be discussing our business outlook and it could contain certain forward-looking statements. Actual events or results could differ materially from those expressed or implied by such forward-looking statements due to several risks and uncertainties, including those mentioned in our most recent filings with CDAR. These comments are made based on predictions and expectations as of today. Other than as required by applicable securities laws, the company does not assume any obligation to update or revise them to reflect new events or circumstances. Now at this time, it's my pleasure to introduce George Gorsuch, Entourage Health CEO. George, please go ahead.
spk04: Thanks, Marinella, and thank you to everyone for joining us this morning. It's my pleasure to be with you today. Before we begin, I would like to take a moment to welcome the newest member of our leadership team who recently joined Entourage as our Chief Financial Officer. Welcome, Vani Maharaj. Vani is a true professional who brings over 15 years of finance experience at top-tier organizations, including General Mills, Tartwell Retirement Residences, and BDO Canada. Needless to say, we're thrilled to have her on our team. A warm welcome to Vani. She'll be joining us shortly to go over our financial results. Before I get into our first quarter results, I wanted to briefly touch upon the full year 2021 performance we reported a few weeks ago. I'm happy to report that for the year, Entourage met and maintained our commercial and financial targets over the past five quarters. In fact, we did not miss a single target that we set for ourselves in 2021, and it's the same drive to execute that is fueling us for success in 2022. During 2021, we invested in our people, products, and production capabilities. With the transformation initiatives we undertook last year, we are now definitely seeing tangible benefits reflected in exponential results across the company. In short, we started off 2022 in a position of strength, With our cost structure improvements, I'm happy to share the company is on the path to financial stability. The success is due to a threefold targeted strategy. Firstly, drive revenue, then grow margin sustainability, and then manage SG&A. From a revenue point of view, I draw your attention to some great results. Similar to the fourth quarter of last year, in Q1, we continued to achieve strong sequential growth in both market share and sales. We saw increased consumer demand across all our product segments as we substantially increased our sales across all channels from previous year. All this resulted in another quarter of record revenue growth with $17.4 million of total revenue, our highest year to date. We are delivering on our customer promise by building premium brands, cultivating a culture of loyal customers, and emerging as a market leader. With over 80% of distribution across Canada, our color cannabis and Saturday cannabis products are now found in 2,000 stores coast to coast. During the first quarter, we increased our flower and pre-roll sales by close to 20% since last quarter, compared to many of our competitors who are reporting market share losses and lower revenues. In addition, our pre-rolls have been holding steady with 5% of the market share. That means one in every 20 pre-rolls sold across Canada is a colored cannabis product. Turning to medical, during the first quarter, we achieved over 20% patient growth sequentially, We are now not only expanding our base, but also increasing the offerings and solutions for patients on our platform. Our medical cannabis business is focused around a promising alternative to opiates for the treatment of chronic pain, which is the most common reason for its use. More importantly, cannabis is likely to spare patients the harmful side effects associated with opiate use. We also plan on introducing new products and services to our patients. First off, we're coming out with a chewing gum, one of a select few within the industry to launch a CBD gum for medical patients. We are listening to our patients and constantly innovating to address their needs. In addition to these milestones, in 2022, we're also seeing the results and benefits of the strong partnerships we built last year. We recently announced the Canadian debut of Boston Beer Company's new line of cannabis-infused iced tea beverages, Teapot. Teapot will be available in select Canadian provinces starting in July 2022, and will be exclusively sold and distributed into local retail markets by the Entourage team. From a gross margin point of view, our second lever, we strengthen our capabilities by acquiring Cantex, a leader in tissue culture and propagation. We're already seeing improvements with the enhancements of our THC outputs coming out in that plus 20% from our Stratford facility. It's also given us the capability to introduce new cultivars that are quickly becoming our best sellers. As an example, our newly released cultivar, Space Cake, is up to plus 24% in THC and provides a terpene profile that is garnering rave reviews, other notable milestones. We introduced automation with the capacity to deliver 2,000 pre-rolls per hour, a key factor in our expanding margins. With the addition of our Guelph microprop propagation and tissue culture site, we are housing intellectual property that will further increase our ability to offer genetic remediation services in-house and to other businesses as a profit center. This will go a long way in ensuring quality cannabis makes it out to the market. We are driving towards a more efficient and effective enterprise, focusing on improving gross margins, further cost savings. As I have said previously, gone are the days of just maximizing biomass production. At Entourage, we're only interested in producing terpene-rich cultivars with high cannabinoid counts. Our third lever is strong expense management, which Bonnie will review. Before I hand it over to Vani, I would like to recap how our strategy will generate further growth for us in 2022, as well as drive sustainable long-term profitability and success while building shareholder value. With our long-term outlook, We are seeing early signs that our strategy for developing higher potency, higher margin products is beginning to pay off. We are also dedicated to innovation with products that lead in market share, drawing on our consumer awareness in the sector and bringing legacy users to the legal market. We want to expand on our customer base by capturing new consumers who are focusing on health and wellness, a significant market expected to grow in 2022. Additionally, we will continue to increase automation and efficiencies aligned with lowering our costs to produce and achieving sustainable, profitable growth. And lastly, we expect to see full benefits of our partnerships we announced last year, specifically our Boston Beer Company collaboration as our cannabis-infused beverages teapot make their debut into the retail market. In closing, Our initiatives to drive sales growth, optimize efficiencies, drive cost discipline, and strengthen our balance sheet, including reducing our debt load, will be extremely important factors to our success in 2022. We continue to take market share for the larger industry players in all product categories, reflecting increased brand recognition, particularly with our colored cannabis and Saturday cannabis adult use brands. We fully expect to continue on this path and look forward to updating you on our progress. This concludes my opening remarks. I will now hand the call over to Vani, our CFO, who will review our financial results.
spk01: Thank you, George, and thank you to everyone joining us on this call this morning. As George was walking through everything that his team has accomplished through 2021 as well as Q1 2022, it got me to thinking about the surgical precision required from the team to drive value from the levers he highlighted. And the great news is that these actions have translated into improved financial performance as evidenced by our Q1 results. Please note that for the course of my financial discussion today, all financial information is prepared in accordance with international financial reporting standards and is in Canadian dollars unless otherwise stipulated. The first lever mentioned was revenue. Our strong sales momentum continued into 2022, and as a result, we are pleased to report first quarter 2022 gross revenue of $17 million, which represents about 37% growth on a year-over-year basis and an increase of 28% sequentially compared to the fourth quarter of 2021. This growth was largely driven by volume and to a smaller extent mix. Revenue mix played a small role with our average selling price per gram, which is before excise taxes and discounts, increasing from 203 in March 2021 to 251 in March 2022 as a result of geographic distribution of our products. In reality, volume growth resulted in record sales as we expanded our market share across all sales channels, as evidenced by a 28% growth in kilograms sold. Market share capture is also largely driven by the introduction of customized product innovations by region. Overall, we offered 30 new SKUs in Q1 2022, which were not offered in Q1 2021, which contributed an incremental $3.4 million of gross revenue. As consumer preferences continue to change, our ability to be nimble and react will support our revenue growth going forward. There continues to be general price compression throughout the cannabis industry. For the three months ended March 31st, 2022, average selling price per gram for medical and adult use products decreased by 26 and 27% respectively, while bulk increased by 6% compared to the same period in 2021. We will continue to monitor our average selling price on an aggregate basis to remain stable or improve over time as we introduce more premium innovation and formats. From a cost of goods sold point of view, efficiencies and automation introduced have resulted in savings and consequently our gross profit before changes in fair value as a percentage of net revenue has grown by 20% compared to the same period in the prior year. In addition to efficiencies from continuous improvement initiatives, improvement is the result of lower impairment charges in the current quarter. And finally, turning to the final lever mentioned by George, SG&A, expenses increased by 649,000 compared to the same period in 2021 and decreased sequentially by 1.2 million or 15% compared to Q4 2021. The year-over-year increase was mainly driven by increased investment in sales and marketing to drive market share, as well as some one-time costs related to the post-Cantex acquisition activities, while the sequential reduction was driven by reduction in consulting fees, lower impairment of receivables, research and development, and office administration expenses. The net loss for the quarter ended March 31, 2022. was 8.8 million or 3 cent loss per share compared to a loss of 7 million or 3 cents per share in 2021. Adjusted EBITDA improved by 612,000 to 556,000 in Q1 2022 compared to negative 55,000 at the end of Q4 2021. This was also driven by strategic transformation initiatives to lower costs and partly due to generating higher margin revenue and lower selling general and administrative expenses. Turning now to our balance sheet, we ended the quarter with cash and cash equivalents of $9.9 million compared to $21.5 at the end of 2021. Cash used in operating activities in Q1 was 7.4 million compared to 14.8 million in Q1 of last year. Our lower cash burn during the quarter is the culmination of our cost-saving initiatives highlighted earlier in the call, as well as active margin management. Improving our liquidity position continues to be a key strategic priority to ensure financial flexibility to continue executing on our growth plans and innovation initiative. Key to improving our liquidity are two initiatives we've announced in our press releases. The first is that we recently entered into voting support agreements with certain holders of the 8.5% unsecured convertible debentures as we look to enhance our capital structure. We are engaged in positive discussions with our debenture holders and we'll be taking it to a vote in late June. We upsized our credit facility with our strategic partner and investor, La Una Pension Fund, for an additional $15 million in non-dilutive financing. This credit facility will be used for general working capital purposes as Entourage continues to focus on sustainable, profitable growth while driving commercial expansion. The credit facility, coupled with our senior secured debt rates priced at market, gives us increased liquidity and additional working capital to drive sales and support our continued growth and financial objectives. We're also continuing to engage in positive discussions with our senior secured lender, BMO, and we expect to be able to update the market later today. We remain resolute in our intentions and actions in creating long-term sustainable growth. In closing, our first quarter 2022 financial results demonstrate the results of our team's laser focus on driving shareholder value by delivering on consumer preferences and managing costs closely. And with that, I'll turn it back over to George for closing remarks.
spk04: Thank you, Bonnie. So in summary, our first quarter results capped off a strong period of sales and record revenue growth, lower costs, and increased brand recognition. Throughout 2022, expect to hear more about our commercial growth alongside key strategic partners, and new products brought into the fold. In addition to our commercial success, we will also continue to implement our business transformation initiatives to improve productivity and realize additional cost savings. Simultaneously, we expect to see further improvements to our balance sheet and liquidity resources. Combined, we believe all this will provide Entourage with a firm foundation to continue our growth trajectory in 2022. I sincerely want to thank our shareholders for their continued confidence and support, and we look forward to sharing our progress with you as we grow and evolve further into 2022. Now, I'll turn it over to Marinella.
spk03: Thank you, George and Bonnie. This concludes our opening remarks, and we are now ready for the question and answer period. Cha, please proceed with instructions to call in.
spk02: Certainly. Analysts and members of the media who wishes to ask a question may press star, then 1 on their touchtone phone. You will hear a tone to indicate you are in the queue. If you are using a speakerphone, please pick up your handset before pressing any keys. If you wish to remove yourself from the question queue, please press star, then 2. One moment, please, while we poll for questions. Our first question is from Sean Meir with Canaccord. Please go ahead.
spk00: Hi, and thank you for taking my questions and congrats on the quarter. My first one's just around your medical business. So there's quite a bit of fluctuation in that line quarter over quarter. So I'm just trying to figure out how should we be thinking about this moving forward? Can we expect kind of that six million mark to be a sort of baseline? Or typically there's a bit of seasonality, I know, built into this in Q1 as, you know, your partner company insurance plans reset. So should we be expecting a typical slowdown in Q2 onwards? Just anything you can provide on the run rate of this segment going forward.
spk04: Hey, Sean. Good morning. George here. Thanks for the question. Thanks for taking the time. So in terms of your question with regards to medical, there's a few variables that come into play. There is a slight bit of seasonality, as you indicated, in terms of the plans and how the usage of their insurance takes place. But I wouldn't see $6 million as the baseline based on us consistently acquiring more patients. I think you saw in our results we were plus 20 on this quarter. We continue to aggregate more patients and we're bringing on more locals. So you'll see continued growth period over period in terms of the revenue that we generate within this channel. We're also doubling down on this channel. We think, as you've seen, it's an accretive channel for us and it's one that is unique to us at Entourage. so our aggregation of patients is going to continue to accelerate over the next few quarters. But I would agree with your first statement. There is a slight bit of seasonality in terms of the usage of the plants.
spk00: Okay. Thank you. And then just touching on the Boston Beer Partnership, so congratulations on getting the first products out there. Could you provide us some sort of – I know there's a few other products expected in the pipeline, so could you just provide us some sort of timeline – for when those products are expected to go to market, and then maybe just anything you could provide on how the economics work for Entourage on that product suite, just given that, you know, you're the distribution partner there.
spk04: Yeah, so we've obviously, we've released the, we've released to the market that Entourage that we're starting with our first product, which is Teapot, which is an iced tea formulation, and that's going to be released into the market in select markets in July and continue to expand on that. We are also working on other formulations for next year to continue to expand that portfolio. For us, Sean, it's great to have a partner like Boston Beer, which obviously is great in terms of innovation throughout the U.S. and really have them as a partner. But we do have other products that are going to be available in the market early next year and later next year that we do have basically in our back pocket. But you will see products hitting the market in July with this product specifically.
spk00: Okay, and if I could just sneak one more in there, and this is more housekeeping in nature, just going through kind of the address to be a bit direct, there's a $1.8 million adjustment for a one-time sales expense. Could you provide any more color around that?
spk01: So we had some new products that we launched in Q1, and I believe a big part of that is related to launching those products and to the standees related to promoting our products at the retail sites. Okay, thank you. So those expenses that we're incurring Q1 will continue for the year.
spk00: Okay, perfect. Thank you, and I'll pass it along. Thank you, Sean.
spk02: This concludes the question and answer session. I would like to turn the conference back over to Mr. George Scorsese, CEO of Entourage Health, for closing remarks.
spk04: Thank you all again for joining us on today's call and for your continued interest in Entourage Health. We look forward to having follow-up conversations with many of you and to updating you on our continued progress. Please note, we'll be hosting our AGM on June 10th. Check out our website events page for details. If you have further questions, please reach out to Marinella and or our investor relations team. Please stay healthy and safe, everyone. Thank you and have a great day.
spk02: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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