Tilray Brands, Inc. (Nasdaq: TLRY) (TSX: TLRY) lost $1.1 billion this quarter because of higher interests and a decline in market capitalization but the company says the loss doesn’t impact its cash flows or liquidity.
The leading cannabis producer announced its financial results for the third fiscal quarter ended Feb. 28, 2023 and reported $145.6 million in net revenue compared to $144.1 million in the prior quarter. The company recorded non-cash $1.1 billion loss in net assets from interest rates and market capitalization.
On a constant currency basis, net revenue increased by 2 per cent to $154.2 million compared to the same quarter the previous year. Distribution revenue also saw an increase of 5 per cent to $65.4 million from the prior year quarter, and on a constant currency basis, distribution revenue increased by 12 per cent to $70.1 million.
Gross profit (loss) was reported at ($11.7) million, while adjusted gross profit was $44.3 million. Gross margin was negative 8 per cent, while adjusted gross margin saw a rise to 30 per cent from 26 per cent in the year-ago quarter. Adjusted cannabis gross profit increased to $22.2 million from $18.0 million in the prior year quarter, and adjusted gross margin percentage increased to 47 per cent from 33 per cent.
The company achieved $22 million in annualized run-rate savings and $12 million in actual cost savings as part of the $30 million cost optimization plan announced in Q4 of 2022. Total annualized cash cost-savings since the closing of the Tilray-Aphria transaction reached $122 million.
The company reported adjusted EBITDA of $14.0 million, marking its 16th consecutive quarter of positive adjusted EBITDA, and is currently expecting adjusted EBITDA in the range of $60 to $66 million, which is a greater than 30 per cent increase from the prior year.
The company remains in a strong financial position with $408.3 million in cash and marketable securities and has reiterated its expectation to deliver positive free cash flow from operating segments in fiscal 2023.
Tilray stock dropped by 9.12 per cent on Tuesday to$3.39 on the Toronto Stock Exchange.
The company also announced it is set to acquire HEXO Corp. (NASDAQ: HEXO; TSX: HEXO) for a total price of US$56 million (CAD $75 million). Tilray will issue 0.4352 of its common stock for each HEXO share outstanding to satisfy the acquisition.
This move comes after a successful strategic alliance between the two companies and is aimed at positioning Tilray for continued growth and market leadership in Canada.
The completion of the arrangement is subject to customary and negotiated closing conditions, which include HEXO shareholder approval and court approval, and is expected to take place in June 2023.
According to HEXO’s chairman Mark Attanasio, the company has been implementing a strict plan to reduce costs and optimize its balance sheet over the past year.
He explained that when HEXO began collaborating with Tilray last year, it became evident right away that the combination of their businesses could create significant value and enable them to compete more effectively while achieving profitable growth in the Canadian market, which is currently highly fragmented.
“With the recent headwinds in the cannabis industry, our Board determined that HEXO shareholders would benefit from being part of Tilray’s diversified business and from the strong plan in place they have to reinforce their industry leadership, continue to strengthen the top and bottom lines, and to drive value creation,” Attanasio said.
“With Irwin and his leadership team, we are confident that our brands will continue to grow and thrive as part of Tilray Brands.”
Hexo acquisition to strengthen Tilray’s position in Canada
The recent acquisition of HEXO’s high-growth brands is expected to further strengthen Tilray’s position in Canada by providing low-cost operations and complementary distribution across all Canadian regions.
The combined company is projected to have a 12.9 per cent pro-forma market share in Canada and maintain its leading position across all major markets and product categories. The anticipated pro-forma net sales are approximately USD$215 million, and the low-cost operations will have distribution across all Canadian regions.
Furthermore, with its robust cultivation and distribution operations in Portugal and Germany, Tilray aims to capitalize on its strong platform to expand its leadership in the medical cannabis market in the countries where it currently operates. The company’s experienced leadership team is focused on achieving an early-mover advantage in new countries as cannabis legalization continues to expand throughout Europe.
“During the quarter, we continued to focus on our highest priorities: sustaining and growing the top-line across core markets and geographies while optimizing the platform to achieve positive free cash flow on an accelerated timeline,” Tilray CEO Irwin D. Simon said.
“We are executing on both fronts and delivered revenue growth despite challenging market dynamics across Canada, Europe and the U.S., as well as our sixteenth consecutive quarter of positive adjusted EBITDA,” he added.