Canopy Growth(CGC) - 2025 Q1 - Quarterly Results

Executive Summary & Highlights Canopy Growth reported significant Q1 FY2025 profitability improvements and balance sheet strengthening, with management expressing confidence in future growth Q1 FY2025 Financial Highlights Canopy Growth reported significant Q1 FY2025 profitability improvements, including a 67% gross profit increase and 77% Adjusted EBITDA loss reduction, while strengthening its balance sheet | Metric (CAD millions) | Q1 FY2025 | Q1 FY2024 | Change (%) | | :-------------------- | :-------- | :-------- | :--------- | | Gross profit | $23.0 | $13.8 | +67% | | Consolidated gross margin | 35% | 18% | +1,700 bps | | Operating loss from continuing operations | $(29.1) | $(54.7) | +47% (improvement) | | Consolidated Adjusted EBITDA loss | $(5.3) | $(23.0) | +77% (improvement) | | Net revenue | $66.2 | $76.3 | -13% | | SG&A expenses | $48.0 | $62.8 | -24% | | Free Cash Flow outflow | $(55.7) | $(108.2) | +49% (improvement) | - Cash and short-term investments balance was $195 million at June 30, 2024, compared to $203 million at March 31, 2024[1] - Term Loan Amendment offers significant deleveraging potential of up to US$200 million, with an option for an additional US$100 million paydown, potentially saving up to US$28 million in annual interest expenses[4] - The maturity date was extended by 9 months to December 18, 2026, with an option for further extension to September 18, 2027[4] CEO & CFO Commentary CEO highlighted strengthening business fundamentals and profitable revenue generation, while CFO emphasized improved margins and expected consolidated positive Adjusted EBITDA in H2 FY2025 - CEO David Klein stated, "The fundamentals of our business continue to strengthen, and our focus on profitable revenue generation is yielding clear results as we set the stage for growth in the second half of fiscal 2025"[1] - CFO Judy Hong noted significant improvements in Gross Margins and Adjusted EBITDA, along with reduced SG&A expenses, with all business units achieving positive Adjusted EBITDA in Q1 FY2025 and consolidated positive Adjusted EBITDA expected in H2 FY2025[1] Business Segment Performance The company's business segments showed mixed revenue performance, with Canada medical cannabis and Storz & Bickel growing, alongside strategic U.S. market expansion Canada Cannabis Canada cannabis net revenue declined 6% due to lower adult-use sales, partially offset by a record 20% increase in medical cannabis revenue, with future growth anticipated | Metric (CAD millions) | Q1 FY2025 | Q1 FY2024 | Change (%) | | :-------------------- | :-------- | :-------- | :--------- | | Canada cannabis net revenue | $37.7 | $39.9 | -6% | | Canada medical cannabis net revenue | $18.8 | $15.6 | +20% | | Canadian adult-use cannabis net revenue | $18.9 | $24.3 | -22% | - Record quarter for Canada medical cannabis, driven by strong demand for Spectrum Therapeutics products and a broader assortment on the online platform[5] - Expected increase in Canada adult-use top line in coming quarters due to higher flower yields from Kincardine facility upgrades, increased pre-rolled production capacity, additional third-party suppliers, targeted wholesale pricing actions, and increased distribution[5] International Markets Cannabis International cannabis net revenue declined 1% with a 36% gross margin, driven by mixed regional performance and strong market share in Germany | Metric (CAD millions) | Q1 FY2025 | Q1 FY2024 | Change (%) | | :-------------------- | :-------- | :-------- | :--------- | | International markets cannabis net revenue | $10.1 | $10.2 | -1% | - International markets cannabis gross margin was 36% in Q1 FY2025, up 200 bps compared to Q1 FY2024[6] - Maintained top 4 market share in the Germany medical cannabis market, with prescriptions and volume increasing by over 20% nationally post-legalization, and the Company is augmenting supply with EU-based sources[6] Storz & Bickel Storz & Bickel net revenue grew 2%, fueled by strong German sales and new products, with Australian regulatory changes creating new medical channel growth | Metric (CAD millions) | Q1 FY2025 | Q1 FY2024 | Change (%) | | :-------------------- | :-------- | :-------- | :--------- | | Storz & Bickel net revenue | $18.4 | $18.1 | +2% | - Strong growth in Germany, exceeding 100%, contributed to revenue increase, along with sales of the Venty portable vaporizer (launched Q3 FY2024) and Mighty vaporizer[6] - Following regulatory changes in Australia's non-medical vaporizer channel, Storz & Bickel vaporizers are the only medically-certified whole flower vaporizers available for sale, expected to drive growth in the Australian medical channel[6] Canopy USA Canopy USA expanded its U.S. cannabis presence by closing Jetty and Wana acquisitions, launching new products, and exercising the option to acquire Acreage Holdings - Canopy USA closed acquisitions of approximately 75% of Jetty and two of three Wana entities (Wana Wellness, LLC and The CIMA Group, LLC), with the full acquisition of Wana expected by end of summer[7] - Wana Brands edibles launched in Connecticut and New York State, and the first three hemp-derived edibles were launched via partnership with Happi[7] - Jetty expanded its solventless vape product offering in California and launched high-THC infused pre-rolls in New York, maintaining its 1 share of the national solventless vape market[7] - The option to acquire Acreage Holdings Inc. was exercised, with Canopy USA expecting to close its acquisition in the first half of calendar year 2025, and Acreage commenced non-medical cannabis sales in Ohio[7] Financial Review Canopy Growth's Q1 FY2025 financial review shows improved gross margin and reduced operating loss despite lower net revenue, with a strengthened balance sheet Consolidated Statements of Operations Q1 FY2025 saw a 13.1% net revenue decrease, yet gross margin improved 67.3% and operating loss narrowed 46.7%, though net loss significantly deteriorated | Metric (CAD thousands) | Q1 FY2025 | Q1 FY2024 | Change (%) | | :------------------------------------------------ | :-------- | :-------- | :--------- | | Revenue | 75,783 | 88,644 | -14.5% | | Excise taxes | 9,571 | 12,386 | -22.7% | | Net revenue | 66,212 | 76,258 | -13.1% | | Cost of goods sold | 43,181 | 62,496 | -30.9% | | Gross margin | 23,031 | 13,762 | +67.3% | | Operating loss from continuing operations | (29,108) | (54,652) | +46.7% (improvement) | | Other income (expense), net | (93,889) | 46,101 | Shift from income to expense | | Net loss from continuing operations | (129,191) | (10,569) | -1122% (deterioration) | | Net loss attributable to Canopy Growth Corporation | (127,138) | (38,121) | -233.5% (deterioration) | | Basic and diluted loss per share (continuing operations) | (1.63) | (0.19) | -757.9% (deterioration) | Consolidated Balance Sheets As of June 30, 2024, total assets slightly decreased, total liabilities significantly reduced by 5.8% due to lower current debt, and shareholders' equity increased | Metric (CAD thousands) | June 30, 2024 | March 31, 2024 | Change (%) | | :--------------------- | :------------ | :------------- | :--------- | | Cash and cash equivalents | 192,156 | 170,300 | +12.8% | | Short-term investments | 2,766 | 33,161 | -91.7% | | Total current assets | 357,793 | 371,180 | -3.6% | | Total assets | 1,286,228 | 1,300,330 | -1.1% | | Current portion of long-term debt | 2,457 | 103,935 | -97.6% | | Total current liabilities | 166,599 | 234,715 | -29.0% | | Long-term debt | 558,489 | 493,294 | +13.2% | | Total liabilities | 753,305 | 799,823 | -5.8% | | Canopy Growth Corporation shareholders' equity | 532,923 | 500,507 | +6.5% | Consolidated Statements of Cash Flows Q1 FY2025 saw a 51.2% improvement in operating cash outflow, a shift to investing cash outflow, and a substantial financing cash inflow from share issuance and debt | Metric (CAD thousands) | Q1 FY2025 | Q1 FY2024 | Change | | :------------------------------------------------ | :-------- | :-------- | :----- | | Net cash used in operating activities - continuing operations | (51,780) | (106,219) | +51.2% (improvement) | | Net cash (used in) provided by investing activities - continuing operations | (43,186) | 142,385 | Shift from inflow to outflow | | Investment in other financial assets | (95,335) | (472) | -20100% | | Net cash provided by (used in) financing activities | 105,775 | (133,110) | Shift from outflow to inflow | | Proceeds from issuance of common shares and warrants | 53,854 | - | N/A | | Issuance of long-term debt and convertible debentures | 68,255 | - | N/A | | Net increase (decrease) in cash and cash equivalents | 21,856 | (143,741) | Shift from decrease to increase | | Cash and cash equivalents, end of period | 192,156 | 533,266 | -63.9% | Non-GAAP Measures Reconciliation This section reconciles key non-GAAP financial measures, highlighting significant improvements in adjusted gross margin, adjusted EBITDA, and free cash flow Adjusted Gross Margin Reconciliation Adjusted gross margin percentage significantly improved to 35% in Q1 FY2025 from 18% in Q1 FY2024, aligning with reported gross margin | Metric (CAD thousands) | Q1 FY2025 | Q1 FY2024 | Change | | :--------------------- | :-------- | :-------- | :----- | | Net revenue | 66,212 | 76,258 | -13.1% | | Gross margin, as reported | 23,031 | 13,762 | +67.3% | | Adjusted gross margin | 23,031 | 13,762 | +67.3% | | Adjusted gross margin percentage | 35% | 18% | +1700 bps | Adjusted EBITDA Reconciliation Adjusted EBITDA loss significantly narrowed by 77% to $(5.3) million in Q1 FY2025, reflecting effective cost reduction and improved gross profit | Metric (CAD thousands) | Q1 FY2025 | Q1 FY2024 | Change | | :--------------------- | :-------- | :-------- | :----- | | Net loss from continuing operations | (129,191) | (10,569) | -1122% | | Adjusted EBITDA | (5,280) | (22,986) | +77.0% (improvement) | Free Cash Flow Reconciliation Free cash flow outflow from continuing operations improved by 48.5% to $(55.7) million in Q1 FY2025, driven by reduced net cash used in operating activities | Metric (CAD thousands) | Q1 FY2025 | Q1 FY2024 | Change | | :------------------------------------------------ | :-------- | :-------- | :----- | | Net cash used in operating activities - continuing operations | (51,780) | (106,219) | +51.2% (improvement) | | Purchases of and deposits on property, plant and equipment - continuing operations | (3,920) | (1,946) | -101.4% | | Free cash flow - continuing operations | (55,700) | (108,165) | +48.5% (improvement) | Segmented Gross Margin and Adjusted Gross Margin Reconciliation Canada cannabis gross margin significantly improved to 32%, international markets maintained 36%, and Storz & Bickel saw a slight decrease to 40% | Segment (CAD thousands) | Q1 FY2025 Net Revenue | Q1 FY2025 Gross Margin % | Q1 FY2024 Net Revenue | Q1 FY2024 Gross Margin % | | :---------------------- | :-------------------- | :----------------------- | :-------------------- | :----------------------- | | Canada cannabis | 37,678 | 32% | 39,893 | (1%) | | International markets cannabis | 10,082 | 36% | 10,162 | 34% | | Storz & Bickel | 18,452 | 40% | 18,073 | 43% | | This Works | - | 0% | 6,017 | 48% | | Other | - | 0% | 2,113 | (3%) | Company Information & Forward-Looking Statements This section provides webcast and contact details, an overview of Canopy Growth's business and U.S. strategy, and a comprehensive disclaimer regarding forward-looking statements and associated risks Webcast and Contact Information This section provides details for the Q1 FY2025 conference call and audio webcast, including access links and contact information - A conference call and audio webcast with CEO David Klein and CFO Judy Hong was scheduled for August 9, 2024, at 10:00 AM Eastern Time[10] - Live audio webcast available at: https://app.webinar.net/Lm5q6QW1Apv, with a replay accessible until November 7, 2024[10] - Contact information provided for Nik Schwenker (VP Communications) and Tyler Burns (Director, Investor Relations)[10] About Canopy Growth Canopy Growth is a global cannabis leader focused on innovative products, premium brands, Storz & Bickel technology, and building a U.S. THC market ecosystem - Canopy Growth is a world-leading cannabis company dedicated to improving lives through innovative products and premium/mainstream cannabis brands including Doja, 7ACRES, Tweed, and Deep Space[10] - The company features category-defining vaporizer technology made in Germany by Storz & Bickel[10] - Canopy Growth has established Canopy USA to capitalize on U.S. THC market opportunities, holding unconsolidated, non-controlling interests in Jetty Extracts, Wana Brands, and Acreage Holdings[10][11] Notice Regarding Forward-Looking Statements This disclaimer highlights that the press release contains forward-looking statements subject to inherent risks and uncertainties, cautioning against undue reliance - The press release contains "forward-looking statements" that predict or describe future operations, business plans, strategies, and investment performance, identified by terms such as "intend," "expect," "will," and "should"[12] - Readers are cautioned not to place undue reliance on these statements, as actual results or outcomes may differ materially due to inherent risks and uncertainties, many of which are beyond the company's control[12][16][18] - Key risks include, but are not limited to, changes in laws and regulations, impairment losses, debt refinancing, the impacts of the Canopy USA strategy, timing and outcome of acquisitions (e.g., Acreage, Wana), ability to maintain effective internal control, competitive conditions, and various operational and market-related factors[13][14][15][16][18]