Tilray Brands Q3 Earnings: Mixed Results, Lowered Guidance, and a Strategic Mess
TLRY is on the SHORT bias List
While Tilray Brands demonstrated growth via acquisitions in some segments, the company's financial performance fell short of expectations. The lower-than-anticipated revenue, EPS, adjusted EBITDA, and revised guidance testify to how badly the company is run. Despite these challenges, "the company remains focused on its long-term growth strategy, which includes leveraging its market leadership in cannabis, expanding its presence in the beverage-alcohol and wellness segments, and positioning itself for potential opportunities in the U.S. cannabis market," which will never happen.
Financial Performance missed across the board:
- Revenue: $188.3 million, up 30% YoY but below the FactSet consensus estimate of $198.3 million
- EPS: ($0.12), missing the FactSet consensus estimate of ($0.05)
- Adjusted EBITDA: $10.2 million, falling short of the FactSet consensus estimate of $13.7 million
- Adjusted gross margin: 27.4%, lower than the FactSet estimate of 28.4%
They can't manage a Cannabis or Beverage business:
- Cannabis: 33% global revenue growth, with gross margin declining to 33% from 47% in the prior year
- Beverage-alcohol: 165% revenue growth, driven by acquisitions, with adjusted gross margin at 38% compared to 53% in the prior year
- Wellness: 12% revenue growth, with gross margin relatively stable at 30.3%
Strategic Propaganda:
- Expanded craft beer portfolio, becoming the 5th largest craft brewer in the U.S. with a 4.5% market share
- Maintained #1 cannabis market share in Canada and Germany (lol)
- Reduced outstanding convertible debt by $50.7 million during the quarter and an additional $41.9 million subsequently
- Achieved $27.5 million in annualized run-rate savings related to the HEXO acquisition
Updated Fiscal Year 2024 Guidance:
- Adjusted EBITDA: $60 million to $63 million, down from prior guidance of $68 million to $78 million
- No longer expects to generate positive adjusted free cash flow for FY24 due to delayed cash collection on asset sales
Turning Over a New Leaf: Gold Flora's Strategic Shift Leads to Improved Q4 Gross Margins and EBITDA Milestones
GRAM is on the LONG bias list.
In summary, the earnings & call conveyed a message of strategic refinement, operational efficiency, and cautious optimism for future growth. Despite a challenging external environment, the company's focus on profitability, brand development, and market positioning underscores its commitment to sustaining leadership and achieving positive cash flow in the competitive California cannabis market. We expect stronger financial performance as we move through the balance of 2024.
Overview and Strategic Moves:
- Strategic Adjustments: Gold Flora focused on improving profitability by eliminating non-performing assets, including closing underperforming dispensaries and distribution centers. This strategic pruning aims to boost long-term margins and profitability despite a short-term revenue hit.
- Operational Efficiency: The company emphasized its vertically integrated model, focusing on high-quality, profitable revenue streams. By streamlining operations and focusing on consumer-packaged goods (CPG) and owned retail brands, Gold Flora aims to insulate itself from the volatility experienced by other operators in the California cannabis market.
- Cultivation Expansion: Significant investments in cultivation at Desert Hot Springs and San Jose have expanded Gold Flora's active canopy footprint to approximately 107,000 square feet. This expansion is expected to drive future performance, with a projected annual flower production of over 40,000 pounds.
Financial Performance:
- Revenue: 4Q23 revenue was $28.4 million, a decrease from 3Q23, attributed to strategic closures. Retail revenue constituted the majority, with wholesale also contributing.
- Gross Profit: Q4 saw a gross profit of $13.2 million (46% gross margin) and an adjusted gross profit of $18.7 million (66% adjusted gross margin); this represents a significant improvement compared to the Q3 2023 gross margin of 35%. The increase can be attributed to strategic operational efficiencies and cost management practices that positively impacted the bottom line.
- FY 2023 Gross Margin: For FY 2023, the company reported a gross margin of 36%. This annual performance reflects the cumulative effect of operational strategies and adjustments made throughout the year, highlighting an efficient management of costs relative to revenues. For FY 2023, the adjusted gross margin was reported at 53%.
- EBITDA Margin Performance: Gold Flora achieved a positive adjusted EBITDA of $105,000 in Q4 2023. The full year 2023 saw a negative adjusted EBITDA of $(1.4) million. While the company faced challenges over the year, the positive adjusted EBITDA in Q4 reflects an improving operational stance and efficiency gains, hinting at a positive trajectory moving forward.
Forward Outlook:
- Brand Development: The launch of the new brand, Gramlin, targets high-volume consumers and is expected to drive revenue growth. Gold Flora aims to increase its store brand mix to over 30%, leveraging its indoor cultivation capabilities for competitive pricing and quality.
- Retail Expansion: With the strategic addition of retail stores in limited license jurisdictions, Gold Flora aims to strengthen its market presence and enhance direct consumer interaction.
- Market Positioning: Despite the overall market decline, Gold Flora's focus on quality, controlled costs, and vertical integration positions it well for future growth and profitability. The company aims for positive cash flow generation in 2024.
- Strategic Synergies: Post-merger integration efforts have realized significant cost savings, and the company expects to continue identifying operational efficiencies.
Q&A Highlights:
- Market Dynamics: Reducing cultivation licenses in CA has increased wholesale prices, benefiting Gold Flora's cultivation expansion into 2024.
- Operational Focus: Future growth will leverage increased cultivation capacity and expansion into more retail locations. Cost containment and operational efficiencies are ongoing priorities.
- M&A and Expansion: While primarily focused on strengthening its California operations, Gold Flora remains open to opportunistic M&A, especially in retail, and potentially exploring out-of-state expansion once it achieves its immediate financial goals.
