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Earnings Transcript for ETRGF - Q3 Fiscal Year 2024

Operator: Good morning, everyone, and welcome to the Entourage Health Corp Third Quarter 2024 Results Conference Call. At this time, all 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. [Operator Instructions] A replay of this call will be available on 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 Catherine Flaman, Director of Communications with Entourage Health. Please go ahead, Catherine.
Catherine Flaman: Thank you, Gaylene, and good morning. For copies of our press releases and supporting documents filed or to retrieve a recording of this call, please visit the Investor Relations page of our website. The replay will be available later this afternoon. Today, we will review the third quarter's business highlights and financial results and discuss recent developments. Following the formal remarks, we'll open the floor for questions. During today's call, we will discuss our business outlook, which contains 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 SEDAR. 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. I'm pleased to introduce George Scorsis, Entourage Health's CEO and Executive Chair. George, please go ahead.
George Scorsis: Good morning, everyone. Thank you for joining us today to discuss Entourage's financial results and operational highlights for the third quarter of 2024. I'd like to begin by expressing my gratitude to our shareholders, employees, partners, patients and consumers for their continued support. This quarter, we achieved a total revenue of $13.6 million, reflecting an 11% year-over-year increase. This growth, which is a significant achievement in the current market conditions, directed results from our team's focus on delivering value to our customers and executing our strategic initiatives, particularly our expansion into alternative sales channels. This was part of our diversification strategy and contributed to our top line alongside our adult use and medical segments. Vaani will discuss our notable achievements and provide a detailed walk through of the financials in just a moment. First, I'd like to briefly highlight some of our accomplishments to date. We're pleased with our progress in improving EBITDA, which increased 70% this quarter and 65% year-over-year. This reflects our relentless efforts to manage costs, streamline operations and enhance margins. SG&A expenses decreased by 32% year-over-year, representing significant savings. These were driven by advancements in pre-roll automation, optimizing our product mix and enhancing production processes. For example, we now produce over 2 million pre-rolls monthly, an operational achievement that positions us to capitalize on growing consumer demand in this product category. These operational enhancements strengthen margins and enhance us to scale production more effectively. Our distribution strategy is designed to adapt to evolving super preferences, driving both market leadership and profitability. This alignment is reflected in our recent product launches in Alberta, Ontario and British Columbia, where we unveiled a diverse range of innovative cannabis products tailored to meet consumer needs. This year, we've expanded our portfolio significantly with 23 new SKUs across our core brands, Color Cannabis, Dime Bag, and Saturday. These launches include new cultivars such as Luminous Lime, Jazzberry, and Almond Cloud and innovative formats like infused pre-rolls and value focused offerings under our newly launched Dime Bag brand. The response has been overwhelmingly positive with Dime Bag leading our adult use portfolio growth, delivering 2.5 million in incremental revenue year-over-year and securing 2,000 new retail placements. Our strategy begins with the expansion of our distribution channels across Canada, recognizing that accessibility is critical to market penetration. Looking ahead, we're excited about our 2025 pipeline. We plan to launch a number of new products and formats including Chromatica, Sour Grapefruit Haze Live Resin infused pre-rolls and our new 20 by 0.5 gram Mega Packs. Entourage is strategically positioned to lead Canada's medical cannabis market as well, introducing innovative patient-centric product formats to our growing portfolio. With proven expertise in insurance coverage and service extending to over 15 locals nationwide, we are well equipped to drive patient conversion. By leveraging strong partnerships, we are expanding access across new platforms tailored to veterans and aging populations. Through a focus on innovation in medical and wellness oriented products, Entourage is aligned to capitalize on the projected growth of Canada's medical cannabis sector, expecting to surpass 1 billion by 2029. While we are proud of our commercial and operation accomplishments, we are also acutely aware of the financial challenges facing the industry and our company. We have been working closely with LiUNA, our key financial partner. Our partnership with LiUNA is built on shared values, trust, collaboration and a commitment to sustainable growth. Over the years, LiUNA has consistently demonstrated confidence in our vision and operations, providing the support we need to adapt to the market shifts and remain resilient. We are laying the foundation for a stronger, more stable future. Before I hand it over to Vaani, I want to note that despite these challenges, our financial performance continues to trend positively. Over the past nine months, we have demonstrated our ability to reduce costs while improving margins, enabling us to compete more effectively in an increasingly competitive market. Every step forward from our solid production capabilities to launch innovative products has been made possible by the diligent efforts and resilience of our team. I want to thank our team for their contributions, which has positioned Entourage as leader in the Canadian cannabis industry. Looking to the future, our focus is clear. We aim to close this year strongly delivering results reinforcing our commitment to growth and profitability. With the cannabis market stabilizing, we can lead the industry, provide value to our stakeholders and achieve sustainable development. I will now pass it over to Vaani.
Vaani Maharaj: Thank you, George, and thank you to everyone joining our call this morning. 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. To start, our third quarter total revenue increased by $1.4 million or a 11% to $13.6 million compared to the same quarter in 2023. Net revenue, which is revenue less excise duty, increased by $0.8 million or 9% to $9.5 million compared to the same quarter in 2023. On a consecutive basis, total revenue increased by $1.4 million or 11.5% compared to Q2 2024, reflecting a pickup in the adult use channel due to a new product offerings as well as partial recovery in our BC sales channel. Our year-over-year net revenue growth was largely driven by growth in the bulk use channel of $1.1 million slightly offset by a decrease in medical revenue of $0.2 million or 7%, while adult use was flat. Lower medical revenue was driven by lower patient renewal rates and reduced basket sizes. For the nine months ended September 30, 2024, our total net revenue grew 2% or $0.8 million due to higher bulk sales of $2.3 million, offset by decreases in the adult use portfolio of $1.1 million and the medical channel of $0.5 million. Decreases in the adult use segment reflect softness experienced in the first six months of the year due to lower order quantities from the Western provinces as well as lower pricing in our newly launched value brand, Dime Bag. For the nine months ended September 30, 2024, our average selling price per gram after excise duty was $1.73 per gram, reflecting a decrease of $0.81 or 32%, largely due to the bulk sales, which took place during the quarter. Whereas we've previously maintained a belief in the eventual stabilization of selling price per gram, general market price compression due to inflation and other factors indicate a continued decrease in selling price in the adult use market. Defensive actions to maintain stable revenue levels have been assessed and include introducing formats conducive to the mid-potency market of a consistent quality. As well, our new value brand Dime Bag continues to grow and our average selling price will be impacted. Gross profit before changes in fair value was $2.9 million for the three months ended September 30, 2024, compared to a gross profit of $2.4 million for the same period in 2023. This is an increase of 20% or $0.5 million, whereas the same metric for the nine months ended September 30, 2024 reflected growth of $1.8 million or 24%. Cost of goods sold increased by $0.5 million or 20% for the three months ended September 30, 2024, compared to the same period in the prior year as the cost of biomass grew. Higher cost of biomass is expected to continue in the short-term. From an SG&A perspective, Q3 2024 total SG&A was lower than Q3 2023 by $2 million or 32% and $6.5 million or 31% for the nine months ended September 30, 2024. The reduction was largely due to restructuring initiatives undertaken in the third and fourth quarters of 2023, which included headcount reduction, reduction in marketing expenses and reducing our external agency fees. Turning to our balance sheet. We ended the third quarter with cash and cash equivalents of $3.5 million, a reduction of $7.6 million compared to December 2023 due to operating losses. The company's cash burn continues to decrease with each quarter due to disciplined cost management and opportunities sought to grow margins. With respect to our capital structure, we continue to work with our largest lender to negotiate a resolution to the current forbearance letter in place. The current agreement expires on January 15, 2025, and management maintains its results in simplifying our structure. All-in-all, the financial results of the quarter reflect market conditions, which are forcing sales prices down and biomass costs up. Our focus on cash preservation, operational efficiency, and consumer needs continue as we weather market conditions. With that, I'll turn the call back over to George for closing.
George Scorsis: Thank you, Vaani. The steps we are taking today position us to adapt to the changes ahead and create a more resilient and efficient organization. With a clear vision and a dedicated team, we are confident in our ability to drive progress and achieve sustainable success. With that sentiment, I pass it to Catherine to guide us through the Q&A session.
Catherine Flaman: Thank you, George and Vaani. This concludes our opening remarks and we are now ready for the question-and-answer period. Gaylene, please proceed with instructions to call in.
Operator: Certainly. [Operator Instructions] As there are no questions, I'd like to turn the conference back over to Mr. George Scorsis, CEO of Entourage Health, for closing remarks.
George Scorsis: Thank you all again for joining us on today's call. If you have no further questions, please reach out to Catherine and our Investor Relations team. With that being said, I want to wish you a safe and happy holiday season. Thank you very much.
Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.