Organigram (US:OGI)2020-04-14 22:33Financial Data and Key Metrics Changes - Q2 2020 net revenue was $23.2 million, down from $26.9 million in the prior year quarter, primarily due to decreased adult-use recreational sales volumes and lower average net selling prices [51][52] - Adjusted EBITDA was negative $1.1 million in Q2, compared to positive adjusted EBITDA in Q1, driven by higher costs related to sales and marketing efforts [57] - The net loss for Q2 was $6.8 million or $0.041 per share, compared to a net loss of $6.4 million or $0.049 per share in Q2 2019 [57] Business Line Data and Key Metrics Changes - Adult-use recreational revenue increased by 16% sequentially, driven by the launch of Rec 2.0 products, while total revenue decreased due to lower wholesale revenue [11][51] - Rec 1.0 products accounted for approximately 52% of net revenue, while new 2.0 products, including chocolates and vapes, represented 13% [14] - Wholesale revenue from other large Canadian LPs was 24%, with Canadian medical sales at 10% and international sales at 1% [14] Market Data and Key Metrics Changes - The adult-use recreational market remains the core business and significant growth opportunity, with new strains being introduced across Canada [12] - The company has seen an uptick in sales in March, with strong online sales and click-and-collect options available [36][102] - The market is experiencing price compression for Rec 1.0 products, but the average net selling price remained above $5 per gram [18][80] Company Strategy and Development Direction - The company aims to diversify revenue streams and expand its product mix, focusing on Rec 2.0 products and maintaining strong relationships with suppliers and retailers [15][61] - The company is committed to disciplined capital allocation to generate sustainable value for shareholders [61] - The focus is on high-quality products and leveraging automation to meet demand while managing costs effectively [61][110] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating uncertain times due to COVID-19, emphasizing employee health and business continuity [22][30] - The company is monitoring consumer behavior changes and adapting to increased online demand and click-and-collect options [36][108] - Management believes that cannabis demand remains strong, even during economic downturns, as consumers shift spending from higher-ticket items [38][102] Other Important Information - The company ended the quarter with $41 million in cash and short-term investments, with $30 million undrawn on the term loan [45][46] - The company reported a one-time charge of approximately $0.6 million due to temporary layoffs [26] - The company has maintained an experienced workforce capable of adapting to production demands despite reduced staffing levels [27] Q&A Session Summary Question: Will the company re-hire temporarily laid-off workers after COVID-19? - Management intends to bring back employees as market conditions improve, but the timing will depend on market recovery [65] Question: Why were Rec 1.0 sales flat despite increased store counts in Ontario? - The company was still drawing down on inventory placed in Ontario in Q1, which affected sales [67] Question: How has the cost profile changed with workforce reduction and Phase 5 licensing? - The company is moving towards more automated systems, and while labor cost savings will be realized, the impact on production levels is still being assessed [72][73] Question: What is the outlook for gross margins moving forward? - The adjusted gross margin for Q2 was 32%, with expectations for potential improvements as the company scales production [78] Question: How is the company responding to pricing pressures in the market? - The company has maintained an average selling price above $5 and believes that current pricing pressures are not sustainable for competitors [80][82] Question: What are the current ordering patterns from provinces? - There has been a shift to more frequent orders, but demand remains strong, especially for leading strains and Rec 2.0 products [88] Question: What is the cash flow expectation moving forward? - The company has sufficient liquidity with $41 million in cash and plans to slow down capital expenditures, providing a stable cash position for the upcoming quarters [99][100]