Auxly Cannabis Group Inc. (XLY) Earnings Call Transcript & Summary

Good morning, shareholders, and welcome to Auxly's Annual General and Special Meeting of Shareholders. Thank you all for joining us today. Before we move to the formal portion of the meeting, I want to take a few moments to review the progress we've made since this time last year and to share our outlook for the balance of 2026 and beyond. 2025 was a transformational year for Auxly. One week after last year's AGM, we closed the balance sheet restructuring transactions, whereby Auxly amended and extended our BMO-led credit facility and also settled all amounts owing to Imperial Brands. These transactions significantly alleviated balance sheet risk for investors and paved the way for Auxly to begin considering a much wider range of capital allocation alternatives. Back Forty exited 2024 as the #1 cannabis brand in Canada and remained Canada's #1 brand throughout 2025, deepening its leadership throughout the course of the year. Our high-quality and competitively priced SKUs continued to see high uptake with everyday consumers, and our recent innovations are performing exceptionally well. Innovative genetics and constantly improving quality of product coming out of Auxly Leamington also allowed us to launch a new brand, South Point, which gives us a strong competitor at a more premium price point. This success in producing quality products at scale at both our Leamington and Charlottetown facilities resulted in Auxly delivering 24% net revenue growth in 2025. And our organization-wide commitment to financial discipline resulted in significant operating leverage with adjusted EBITDA up 64%, reaching $42 million for the year. This EBITDA generated over $38 million in cash flow from operations before working capital changes. Our strong financial results and year-over-year gains have continued into 2026. In May, we posted Q1 2026 results with net revenue of $39.8 million, increasing 22% year-over-year, adjusted EBITDA of $12.3 million, increasing 65% and cash flow before working capital of $11.3 million, increasing 102% year-over-year. These were near record quarterly results in our seasonally slowest quarter. Auxly has now delivered trailing 12-month net revenue of $159 million, adjusted EBITDA of $49 million and cash flow before working capital of $44 million. We have built a strong foundation for future growth. The recent growth in net revenue and profitability has put Auxly in an excellent financial position. As of March 31, we had $43 million of cash in our balance sheet against $45 million of total debt. Our outlook is for continued growth in net revenue, adjusted EBITDA and conversion to cash flow, which means that we have cash to invest in the long term. Now we must build to last. Our first priority is to invest in the business. In 2026, consistent with prior years, we will invest in working capital to support the growth of our brand portfolio and to launch new innovations. We have also announced a capital program of $10 million to $12 million at Auxly Leamington to build world-class post-harvest capabilities that will enhance processing capacity, improve product quality and reduce costs. Ultimately, this will allow Auxly to increase yields and quality for the foreseeable future. After considering working capital and capital investments together, we expect that Auxly will have considerable free cash flow. As you know, we have implemented a normal course issuer bid and started repurchasing Auxly shares. The NCIB gives us the means to allocate capital to the repurchase of our shares when we believe it delivers a compelling return on invested capital. As we keep building cash in the coming quarters, we will continue to consider the full range of capital allocation alternatives to drive long-term shareholder value, including supporting future innovations, expanding our capital program, continuing the repurchase of shares and evaluating inorganic growth opportunities. We are truly just getting started. As shareholders will have seen in our Q1 shareholder letter, we are seeking your approval today to authorize the Board of Directors to amend the company's articles of incorporation to affect the consolidation of Auxly share capital at a ratio of up to 21 if and when the Board determines it to be in the best interest of shareholders. We have outlined the rationale for this proposal in detail in our shareholder letter and in the management information circular. We believe this is an important step in aligning our capital structure and market profile with the quality of business that we have built. Finally, before we move on to the formal agenda, I'd like to thank our teams in Leamington, Charlottetown and Toronto, whose commitment, passion and resilience are the driving force behind everything we have accomplished. On behalf of the entire Auxly team, we are very excited about the future and very grateful for your continued support. With that, we'll now conduct the formal part of the meeting. I'll begin the formal part of the meeting. The Annual General and Special Meeting of Shareholders of Auxly Cannabis Group Inc. will now come to order. I, Hugo Alves, will act as Chair of this meeting. We'd like to remind everyone on the call today that the meeting materials are available on the Investors section of the Auxly website at www.auxly.com. We'd also like to remind shareholders present that filming and audio recordings are not permitted during the meeting. Today's call is being recorded, and a copy of that recording will be available for playback on the Auxly's website. Thank you for your cooperation. Okay. Moving on to the appointment of secretary and scrutineers. I hereby appoint Ron Fichter, General Counsel and Corporate Secretary of Auxly, to act as the Secretary of Meeting; and Kate Stevens of Computershare Trust Company of Canada to act scrutineer. To cover all business within a reasonable period of time, we have prearranged for certain persons to move and second certain resolutions. Further, to make the meeting as efficient as possible, we will not be taking questions over the phone. I've received an affidavit from an official of Computershare that proper notice of this meeting has been given on May 26, 2026. All shareholders of record as of May 21, 2026, were mailed the package containing the notice calling this meeting and the form of proxy for use at this meeting. The declaration of mailing is available for inspection by any registered shareholder. I declare that service of notice has now been established and would ask that the secretary file with the minutes of this meeting copies of all such documents. If there are no objections, the reading of the notice of meeting will be dispensed with. Okay. Pursuant to the bylaws of Auxly, business may be transacted at this meeting if there are 2 persons present in person or by telephonic or electronic means and who are each entitled to vote at the meeting and holding or representing by proxy not less than 5% of the votes entitled to be cast at the meeting. The scrutineers report has been received and shows that notice of the meeting has been properly given and that the quorum is present. Accordingly, I declare that this meeting is regularly called and properly constituted for the transaction of business. All right. With respect to voting, only shareholders of record as at May 21, 2026, or their properly appointed proxy holders are entitled to speak and vote upon matters at the meeting. Each shareholder of the corporation is entitled to 1 vote for each share held. It is proposed that the voting today with respect to; one, the nomination and election of directors for the ensuing year; two, the appointment -- reappointment of the auditor for the ensuing year and the authorization of the directors to fix remuneration of the auditor; and three, the approval of the share consolidation special resolution will be conducted by ballot, but only by those registered shareholders attending the meeting in person who did not submit a proxy in advance. All other votes have already been submitted by proxy and will be counted towards each resolution. No live electronic or virtual voting will take place during the meeting. If no additional eligible ballots are submitted during the meeting, the outcome of each resolution will be determined based on the proxy votes received in advance, and the detailed voting results will be published shortly after the meeting and made available to all shareholders. Okay. Presentation of financial statements. I now place before the meeting the audited financial statements for the year ended December 31, 2025, together with the report of the auditor of the corporation thereon, a copy of which, which has been mailed to the shareholders who requested it. We'll now proceed with the next item of business being the election of directors. The nominees of management for the corporation identified in the management information circular mailed to shareholders are Hugo Alves; Genevieve Young; Troy Grant; Conrad Tate; and Vikram Bawa. I will now entertain a motion nominating those persons as directors.

Mr. Chair, I nominate for election as directors of the corporation for the ensuing year the 5 persons you have just presented.

Mr. Chair, I second the motion.

I now put the motion to the meeting. And as I outlined in the voting instructions, ballots are only being issued to eligible in-person attendees, that is those that did not submit a proxy and indicated their intention to attend in person. If you are eligible and have not yet received a ballot, please raise your hand now. Okay. Thank you. All eligible ballots have now been submitted. I can confirm that this motion has carried and that Hugo Alves, Genevieve Young, Troy Grant, Conrad Tate; and Vikram Bawa are elected directors of the corporation to serve until the close of the next Annual General Meeting of the shareholders or until their successors have been elected or appointed. Reappointment of the auditor. The next item of business is the reappointment of the auditor and the authorization of the directors to fix the auditor's remuneration.

Mr. Chair, I move that Ernst & Young LLP be reappointed as the auditor of the corporation until the next Annual Meeting of the Shareholders or until its successor is appointed and that the directors of the corporation be authorized to fix the remuneration of such auditor.

Mr. Chair, I second the motion.

Okay. Now I'll put the motion to the meeting. Again, as outlined in the voting instructions, ballots only be issued to eligible persons. Anyone need a ballot? Okay. No additional ballots have been requested, and I can confirm that this motion has been carried. Okay. Approval of the share consolidation resolution. The next item of business is the approval of the special resolution authorizing and approving an amendment to the articles of the corporation to affect the consolidation of the issued and outstanding common shares on the basis of a consolidation ratio to be selected by the Board of Directors of the corporation of up to 20 pre-consolidation common shares for 1 post-consolidation common shares and authorizing the Board to determine the final consolidation ratio in its sole discretion. Details with respect to this matter and the proposed resolution are set out in the management information circular of the corporation. An affirmative vote of 2/3 of the votes cast in respect of this motion is required in order to approve this matter. I will now entertain a motion on this matter.

Mr. Chair, I move that the share consolidation special resolution be and is hereby approved.

Mr. Chair, I second the motion.

I now put the motion to the meeting. Again, as outlined in the voting instructions, ballots will only be issued to eligible in-person attendees. Ballots? Okay. No additional ballots have been requested, and I can confirm that this motion is carried. Unless there are any further business to come before the meeting, would someone please move to conclude this meeting?

Mr. Chair, I move that this meeting be concluded.

Mr. Chair, I second the motion.

Okay. I hereby declare the formal part of this meeting concluded. Thank you for joining our call today. If there are any questions from shareholders on the line, please send them to our Investor Relations team, and they will get back to you as quickly as possible. Thank you.