Tilray(US:TLRY)2023-04-11 02:40Financial Data and Key Metrics Changes - For Q3 2023, net revenue increased slightly to $145.6 million from $144.1 million in the prior quarter, with a constant currency basis net revenue rise to $154.2 million from $151.9 million year-over-year [32][33] - Reported negative gross profit for Q3 was $11.7 million compared to a gross profit of $39.8 million in the year-ago quarter, while adjusted gross profit was $44.3 million, up 11% from last year [32][33] - Net loss was $1.2 million compared to a net loss of $61.6 million in the prior quarter and net income of $52.5 million in the year-ago quarter [34] - Adjusted EBITDA was $14 million, marking the 16th consecutive quarter of adjusted positive EBITDA, a significant increase of almost 40% from Q3 last year [34] Business Line Data and Key Metrics Changes - Gross cannabis revenue comprised $6 million in Canadian medical cannabis revenue, $45.3 million in Canadian adult use revenue, and $9.7 million in international cannabis revenue, offset by $13.6 million of excise taxes [36] - Net cannabis revenue was $47.5 million, representing a 14% decline from the year-ago period, primarily due to a reduction in international cannabis revenue [36][37] - Beverage alcohol segment generated $20.6 million in net revenue, slightly higher than the prior year quarter of $19.6 million, primarily due to the acquisition of Montauk [40] - Wellness segment revenue decreased 18% to $12 million from $14.7 million in Q3 last year, attributed to reduced customer inventory levels [41] Market Data and Key Metrics Changes - In Canada, price compression impacted the company by approximately $28 million year-to-date, negatively affecting EBITDA by approximately $26 million [16] - The company maintained a 1 market share position in Canada, with its adult use recreational brand Good Supply being the 1 brand in Canada, holding 6% of the market [18] - Internationally, the company is focused on solidifying its leadership position in medical cannabis and achieving early mover advantage in new countries as medical legalization continues [20] Company Strategy and Development Direction - The company aims to build a diversified global cannabis lifestyle and consumer packaged goods company, focusing on maximizing revenue growth, profitability, cost management, and cash generation [6][12] - The acquisition of HEXO is seen as a strategic move to strengthen the Canadian platform, enhance market share, and achieve cost synergies [9][10] - The company is committed to optimizing operational efficiencies and driving accountability to remain a low-cost producer in the cannabis business [14][15] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenging global cannabis industry, citing delays in U.S. Federal cannabis legalization and ongoing price compression in Canada as significant headwinds [5][6] - The company believes that the current market conditions do not fully reflect the value of the opportunities created within its diversified business [6] - Management expressed confidence in achieving positive free cash flow and reiterated guidance for fiscal 2023, despite current challenges [35][42] Other Important Information - The company reported a noncash $1.1 billion impairment charge due to higher interest rates and a decline in market cap, which does not affect its long-term growth outlook [27][29] - The HEXO acquisition is expected to close in June 2023, with a purchase price of approximately $56 million payable through the issuance of common stock [11] Q&A Session Summary Question: Why is the HEXO deal happening now? - Management indicated that the Canadian market needs consolidation due to price compression and a fragmented market with over 1,000 licensed producers, making the acquisition timely for growth and cost savings [44][46] Question: Is the HEXO acquisition more top-line or cost-cutting motivated? - Management stated that the acquisition is driven by both top-line growth opportunities and significant cost savings, with expectations of $25 million to $30 million in annual savings [45][46] Question: How does the company view the MedMen-Superhero venture? - Management remains bullish on MedMen, emphasizing its strong brand recognition and potential for growth upon legalization [53] Question: How will the company handle SKU overlap post-HEXO acquisition? - Management acknowledged the need for simplification of the SKU count and emphasized the complementary strengths of HEXO's and Tilray's product offerings [56]