Entourage Health Corp. (ENTG) Earnings Call Transcript & Summary

I move that MNP LLP be reappointed as auditors of the corporation for the current year and that the directors be authorized to fix their remuneration in terms of their engagement.

I second that motion.

Registered shareholders and duly appointed proxy holders have been provided with ample time to register their votes. Accordingly, the polls will be closing in 20 seconds. Once voting is closed, registered shareholders and duly appointed proxy holders will no longer be able to submit a vote. [Voting]

The polls are now closed. I would ask the scrutineer compile the report of close the voting on all business matters. I've been advised by the scrutineer that the ballots and proxies deposited have been voted in favor of appointing MNP LLP as the auditors of the corporation for the current year and that George Scorsis, Gail Paech, Bruce Croxon, and Jason Alexander have been elected to the Board of Directors. Therefore, I declare all the resolutions to have been carried. I direct that the results of the ballot be annexed to the minutes of the meeting. Is there any further business? As there is no further business to come before the meeting, I move and second that the formal portion of this meeting now terminate. As the formal business of the meeting has now concluded, we would like to offer some remarks about the corporation and our business. An opportunity for registered shareholders to ask questions will follow the presentation. Again, thank you, and good morning, everyone. I welcome and thank our Board members, shareholders and guests for joining. Over a year ago, we embarked on a journey with a clear vision and ambitious goals. I am pleased to invite you to review the significant progress and achievements we've made over the past 12 months. First and foremost, I want to acknowledge our employees. Their dedication and hard work have been instrumental in navigating the complexities of the cannabis industry. I'm grateful for the efforts to tackle challenges, seize opportunities and drive our ongoing success. It's important to touch on the cannabis industry in general for several reasons. First, we have demonstrated the ability to adapt the volatile sector, not just surviving, but emerging with a solid foundation. We are all aware of the fluctuations in the cannabis market. The sector has faced financial hurdles with many companies struggling to remain operational, with low pricing and high taxes. In 2023, 12% of cannabis companies filed for bankruptcies following a year in which nearly 1/3 of all companies have filed in Canada or in the cannabis industry. Given the trends that we decided to respond swiftly and strategically, and our approach allowed us to navigate these tough times successfully. The industry has also been seeing a significant shift in product mix. In 2023, pre-rolls captured 31% of total sales, a notable increase of 19% over the previous year. This shift brings the pre-roll category to near parity lower, making it 1 of the most popular product categories in Canada. In response to this, we have made investments to align the demand successfully for the [indiscernible] achieved online, producing over 2.2 million units per month. Notably, more than 65% of our revenue in the adult use sector in Q1 2024 came from pre-rolls. With this, we intend to be a dominant force within the market. With that being said, we've experienced a remarkable turnaround. In the past year, we've successfully achieved our intended results. We knew we had to act decisively, and we did. Our pivot resulted in positive EBITDA and margins well above industry standards among the largest cannabis companies in Canada by focusing on capital management and making really tough decisions. We've worked stronger. Vaani will get into our financial highlights in just a moment. In 2023, we achieved annualized cost savings of $14.8 million by scrutinizing every single aspect of this business from the supply contract to marketing budgets. Our decision to move away from the cultivation is aligned more closely with the market demands. Our business model has freed up capital, reducing operating costs and allowed us to manage inventory levels better alleviating the risk of overproduction. This has led to higher margins positioning us well for future growth. We recently introduced Dime Bag, a brand addressing the needs of value-driven consumers. The market of Dime Bag has gained considerable traction making it the third fastest-growing brand in Ontario. Diversifying our product lines to food value brands allows us to cater to different consumer segments, emphasize differentiation and premiumization as we continuously introduce new products and expand our SKU portfolio. Not to mention, we have strategically established leading brands. Color has captured nationwide market share ranging 12th among pre-roll brands and secured a top 2 spot in BC. We are also actively growing our presence in the medical sector. Our portfolio expansion, including innovative medical products, including new offerings such as chewing gum, CBD, soft gels, inhalers among other products. In addition highlight our commitment to improving patient care and expanding treatment options within the medical cannabis community. While client registration in Canada have dropped dramatically, cannabis benchmarks now that industry expenditures for medical-use cannabis dropped 13%, while Entourage's Starseed Medicinal channel, has seen steady growth in patient registration, 80% of our medical revenue comes from our insured patients. Growth, our primary focus is driving product growth, leading to increased revenue and market share. We aim to achieve this by consistently delivering high-quality products that resonate with consumers to meet evolving needs. We have strong brands that deliver a segment in the market with new opportunities arising from falling competition. Secondly, market expansion. We are committed to growing our market share through a robust portfolio of strong brands. We have captured a broader customer base by offering products at various price points to maintaining our commitment to delivering consistent [indiscernible] lower. And lastly, but most importantly is our operational excellence. We prioritized operational efficiency by managing our cost structure and outwinding our infrastructure. By being prudent stewards of capital, we will achieve cost savings and reduced SG&A expenses. We have reached our goal of obtaining high-margin positive EBITDA, but there is still work to be done to continue to strengthen our financial position and lay a solid foundation for sustained success. I would like to invite Vaani to provide us the financial overview. Vaani?

Thank you, George. As George mentioned in his remarks, our Q1 figures reflected the culmination of our timely and strategic decisions along with resolute discipline on execution and capital management. Overall, we delivered positive EBITDA of $0.5 million, which represented a 114% increase year-over-year improvement. This was achieved by focusing on our operating model, while maintaining our market share. Our ability to retain our market share in the dynamic adult-use market has provided a solid foundation for our business. The pre-rolled category continues to be a strong performer for us, comprising 65% of our adult-use portfolio and reflecting a 56% CAGR from 2021. We continue to strategically review our distribution agreements, products offered and markets targeted to drive our revenue growth. The second prong of our revenue story is the medical business, which continues to provide a strong pipeline for growth bolstered by our patient-centric approach and product innovation. So what does this revenue story mean for profitability? By optimizing our platform, we've been able to generate a gross margin in Q1 2024 of 45%, which is a significant improvement compared to prior fiscal periods. In addition to the cost of goods sold harmonization, we undertook an initiative in 2023 to reduce our SG&A. As a result, our operating expenses as a percentage of net revenue has declined to 43% at the end of Q1 2024 compared to 68% in 2021 and 73% in 2022. All in all, our focus on assessing costs and optimizing our systems have yielded significant positive results and our path to continued growth is clear. I'll now pass it back to George.

Thanks, Vaani. Excellent recap. As the cannabis industry evolves and regulatory frameworks mature, we are highly optimistic about the abundant opportunities. Projections indicate the [indiscernible] will expand to $8.8 billion in Canada alone over the next 5 years. Our initiatives to increase revenue, while continuing to optimize efficiencies and drive cost discipline including reducing our debt load will all be principal factors in our success for 2024 as we continue to expand our top line and are on track to achieve even greater financial objectives. Looking ahead, in 2024, we are well positioned to achieve increased revenues and future profitability. That concludes my formal remarks. Once again, if any of our registered shareholders or proxy holders wish to submit a question, please do so via the chat forum on the webcast. As there are no further questions, I'd like to conclude the meeting. Again, on behalf of Entourage team and our Board of Directors, thank you to all our employees, shareholders, customers and patients for your ongoing support. We look forward to briefing the market at our Q2 financial results conference call expected to be held in late August. Thank you.

Thank you, ladies and gentlemen, for joining the Entourage Health Corp. Annual General Meeting. You may now disconnect.