Canopy Growth(CGC) - 2025 Q3 - Quarterly Results

Q3 FY2025 Financial and Operational Overview This section provides a comprehensive summary of Canopy Growth's financial performance and key operational achievements for Q3 FY2025 Financial Highlights Canopy Growth reported a 5% net revenue decrease to $74.8 million, while significantly improving operating and Adjusted EBITDA losses by 61% | (in thousands of Canadian dollars) | Q3 FY2025 | vs. Q3 FY2024 | | :--- | :--- | :--- | | Net Revenue | $74,761 | (5%) | | Gross margin percentage | 32% | (400) bps | | Net loss from continuing operations | $(121,896) | 47% improvement | | Adjusted EBITDA | $(3,469) | 61% improvement | | Free cash flow | $(28,181) | 17% improvement | - Revenue Growth (Core Business): Excluding divested businesses, net revenue increased by 8% YoY, driven by growth in Canada medical, international markets, and Storz & Bickel[6] - Gross Margin Pressure: Gross margin declined by 400 bps to 32%, primarily due to costs associated with the Claybourne pre-roll launch and higher indirect costs for Storz & Bickel devices[6] - Improved Profitability: Operating loss improved by 61% YoY, and Adjusted EBITDA loss improved by 61% YoY, reflecting the success of the company's cost savings program[6] - Debt Reduction: Total debt was reduced from $554 million to $442 million during the quarter due to an early prepayment on a senior secured term loan[6] Management Commentary CEO Luc Mongeau emphasized sustainable profitability and value creation, while CFO Judy Hong highlighted record Adjusted EBITDA and strengthened financial position - CEO Focus: The new CEO is focused on achieving sustainable profitability and creating value in key markets[3] - CFO Perspective: The CFO highlighted the best Adjusted EBITDA to date, driven by revenue growth and cost discipline, which strengthens the company's financial position for future investments[3] Business Highlights This section details key operational achievements and market performance across Canopy Growth's various business segments Canada Cannabis Highlights Canada cannabis net revenue grew 1% to $41 million, driven by medical segment growth and successful Claybourne pre-roll launch - Canada Medical Growth: Net revenue from Canada medical cannabis increased 16% YoY, driven by larger average customer orders[9] - Canada Adult-Use Decline: Net revenue from Canada adult-use cannabis declined 10% YoY, though it increased 15% sequentially from Q2 FY2025[9] - Successful Product Launch: The newly launched Claybourne brand achieved 3 market share in the infused pre-roll category in British Columbia and Ontario within six weeks[2][9] International Markets Highlights International markets revenue increased 14% to $12 million, led by Poland and Germany, with gross margins improving to 41% - Revenue Growth: International markets net revenue grew 14% YoY, led by strong performance in Poland and Germany[9] - Margin Expansion: Gross margins for international cannabis increased by 100 bps to 41% compared to Q3 FY2024, primarily due to a sales mix shift to higher-margin Poland[9] Storz & Bickel Highlights Storz & Bickel vaporizer segment revenue grew 19% to $22 million, driven by strong holiday sales and direct-to-consumer performance - Strong Revenue Growth: Storz & Bickel net revenue increased 19% YoY to $22 million, driven by holiday sales, direct-to-consumer channels, and growth in Germany[2][9] Canopy USA Highlights Canopy USA completed the Acreage Holdings acquisition, integrating U.S. assets for synergies, and appointed Brooks Jorgensen as new President - Acreage Acquisition Completed: Canopy USA completed its acquisition of Acreage Holdings, Inc. on December 9, 2024[9] - Integration and Synergies: The company is proceeding with the full integration of its U.S. assets (Acreage, Wana, Jetty) to generate cost savings[9] - New Leadership: Brooks Jorgensen was appointed President of Canopy USA in January 2025[9] Detailed Financial Review This section offers an in-depth analysis of Canopy Growth's revenue and gross margin performance by segment Revenue by Segment Total net revenue decreased 5% to $74.8 million due to divestitures, with Storz & Bickel and International markets leading growth in continuing operations | (in millions of Canadian dollars) | Q3 FY2025 | Q3 FY2024 | Vs. Q3 FY2024 | | :--- | :--- | :--- | :--- | | Canada adult-use cannabis | $21.2 | $23.5 | (10%) | | Canada medical cannabis | $19.6 | $16.9 | 16% | | Total Canada cannabis | $40.8 | $40.4 | 1% | | International markets cannabis | $12.0 | $10.5 | 14% | | Storz & Bickel | $22.0 | $18.5 | 19% | | This Works | $- | $8.2 | (100%) | | Other | $- | $0.9 | (100%) | | Total Net revenue | $74.8 | $78.5 | (5%) | Segmented Gross Margin International markets and Storz & Bickel segments reported 41% gross margins, though Storz & Bickel's margin decreased from the prior year | Segment | Q3 FY2025 Gross Margin % | Q3 FY2024 Gross Margin % | | :--- | :--- | :--- | | Canada cannabis | 25% | 28% | | International markets cannabis | 41% | 40% | | Storz & Bickel | 41% | 51% | Consolidated Financial Statements (Unaudited) This section presents the unaudited consolidated balance sheets, statements of operations, and cash flows for the reporting period Consolidated Balance Sheets As of December 31, 2024, total assets were $1.16 billion, total liabilities $572.7 million, with a significant reduction in long-term debt | (in thousands of CAD) | Dec 31, 2024 | Mar 31, 2024 | | :--- | :--- | :--- | | Total current assets | $341,085 | $371,180 | | Total assets | $1,164,219 | $1,300,330 | | Total current liabilities | $97,016 | $234,715 | | Total liabilities | $572,744 | $799,823 | | Total shareholders' equity | $591,475 | $500,507 | Consolidated Statements of Operations Q3 FY2025 saw net revenue of $74.8 million, with operating loss improving to $23.8 million and net loss to $121.9 million | (in thousands of CAD, except per share) | Three months ended Dec 31, 2024 | Three months ended Dec 31, 2023 | | :--- | :--- | :--- | | Net revenue | $74,761 | $78,505 | | Gross margin | $24,098 | $28,226 | | Operating loss from continuing operations | $(23,822) | $(60,316) | | Net loss from continuing operations | $(121,896) | $(230,276) | | Basic and diluted loss per share (Continuing) | $(1.11) | $(2.78) | Consolidated Statements of Cash Flows Net cash used in operating activities improved to $132.6 million for the nine months, with $161.9 million in cash and cash equivalents | (in thousands of CAD) | Nine months ended Dec 31, 2024 | Nine months ended Dec 31, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(132,598) | $(259,891) | | Net cash (used in) provided by investing activities | $(46,787) | $202,106 | | Net cash provided by (used in) financing activities | $164,618 | $(473,524) | | Cash and cash equivalents, end of period | $161,909 | $142,745 | Non-GAAP Financial Measures and Reconciliations This section explains and reconciles non-GAAP financial measures used to provide additional insights into the company's performance Explanation of Non-GAAP Measures The company uses non-GAAP measures like Adjusted EBITDA and Free Cash Flow to provide additional insight into operating performance and liquidity - Adjusted EBITDA: Calculated from net loss, excluding taxes, other income/expense, share-based compensation, depreciation & amortization, and restructuring costs to show operating performance[14] - Free Cash Flow: Calculated as net cash from operating activities less capital expenditures, representing cash available to maintain and expand the business[15] - Adjusted Gross Margin: Calculated by excluding restructuring charges and other specific items from the cost of goods sold to provide a clearer view of gross margin performance[16] Adjusted EBITDA Reconciliation Adjusted EBITDA loss improved 61% to $3.5 million, reconciled from net loss by adding back non-cash and non-operating items | (in thousands of CAD) | Three months ended Dec 31, 2024 | Three months ended Dec 31, 2023 | | :--- | :--- | :--- | | Net loss from continuing operations | $(121,896) | $(230,276) | | Other (income) expense, net | $97,758 | $171,037 | | Share-based compensation | $5,159 | $3,693 | | Depreciation and amortization | $10,314 | $12,240 | | Loss on asset impairment and restructuring | $1,285 | $30,413 | | Other adjustments | $3,911 | $3,904 | | Adjusted EBITDA | $(3,469) | $(8,989) | Free Cash Flow Reconciliation Free cash flow outflow improved 17% to $28.2 million, calculated from operating activities and capital expenditures | (in thousands of CAD) | Three months ended Dec 31, 2024 | Three months ended Dec 31, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities - continuing | $(26,966) | $(33,348) | | Purchases of and deposits on property, plant and equipment | $(1,215) | $(564) | | Free cash flow - continuing operations | $(28,181) | $(33,912) | Forward-Looking Statements This section outlines the inherent risks and uncertainties associated with the company's forward-looking statements and future prospects Risks and Uncertainties Forward-looking statements are subject to risks including regulatory changes, debt refinancing, Canopy USA integration, and going concern ability - The company cautions investors that actual results may differ materially from projections due to various factors[23] - Key areas of uncertainty include[24][28][31] - Changes in laws and regulations, particularly in the U.S. cannabis market[24][28][31] - The impact and integration of the Canopy USA strategy[24][28][31] - The ability to refinance debt and comply with covenants[24][28][31] - The potential for future asset impairment losses[24][28][31] - The company's ability to continue as a going concern[24][28][31]