Continues trend of improving Adjusted Gross Margin and fifth consecutive quarter of positive Adjusted EBITDA
FINANCIAL HIGHLIGHTS
SALES AND OPERATIONAL HIGHLIGHTS
TORONTO / Apr 11, 2023 / Business Wire / Organigram Holdings Inc. (NASDAQ: OGI) (TSX: OGI), (the “Company” or “Organigram”), a leading licensed producer of cannabis, announced its results for the second quarter ended February 28, 2023 (“Q2 Fiscal 2023”). All financial information in this press release is expressed in thousands of Canadian dollars ("$"), except for references to $ millions.
“We are pleased with our results in a quarter with typical seasonality. Our market position remains competitive, supported by our leading brand portfolio, strong international sales and customer-focused innovation,” said Beena Goldenberg, Chief Executive Officer. “Just 12 months after adding hash to our portfolio with the acquisition of our Lac Supérieur facility, we gained the number one position in the hash sector and launched SHRED X Rip-Strip Hash, the first product of its kind in Canada.”
In the quarter, we continued to see aggressive pricing pressure in our markets, particularly in large format flower SKUs," added Goldenberg. "While this impacted revenue in the quarter, we are confident that our branding and marketing expertise, proven track record of innovation and operational efficiency will deliver long-term success and leadership in the cannabis industry. This is supported by our strong balance sheet which provides us the flexibility to continuously evaluate investment opportunities that increase our competitive advantage."
Select Key Financial Metrics | Q2-2023 | Q2-2022 | % Change |
Gross revenue | 52,898 | 43,934 | 20% |
Excise taxes | (13,405) | (12,098) | 11% |
Net revenue | 39,493 | 31,836 | 24% |
Cost of sales | 29,642 | 24,955 | 19% |
Gross margin before fair value changes to biological assets & inventories sold | 9,851 | 6,881 | 43% |
Realized fair value on inventories sold and other inventory charges | (14,170) | (5,314) | 167% |
Unrealized gain on changes in fair value of biological assets | 14,121 | 7,502 | 88% |
Gross margin | 9,802 | 9,069 | 8% |
Adjusted gross margin1 | 13,372 | 8,255 | 62% |
Adjusted gross margin %1 | 34% | 26% | 31% |
Selling (including marketing), general & administrative expenses2 | 16,071 | 13,998 | 15% |
Net loss | (7,488) | (4,047) | 85% |
Adjusted EBITDA1 | 5,648 | 1,556 | 263% |
Net cash used in operating activities before working capital changes | (2,450) | (2,239) | 9% |
Net cash used in operating activities after working capital changes | (19,711) | (803) | 2355% |
1 Adjusted gross margin, adjusted gross margin % and Adjusted EBITDA are non-IFRS financial measures not defined by and do not have any standardized meaning under IFRS; please refer to “Non-IFRS Financial Measures” in this press release for more information.
2 Excluding non-cash share-based compensation.
Select Balance Sheet Metrics (in $000s) | FEBRUARY 28, | AUGUST | % Change |
Cash & short-term investments (excluding restricted cash) | 71,970 | 98,607 | (27)% |
Biological assets & inventories | 88,654 | 68,282 | 30% |
Other current assets | 43,409 | 54,734 | (21)% |
Accounts payable & accrued liabilities | 19,624 | 40,864 | (52)% |
Current portion of long-term debt | 80 | 80 | —% |
Working capital | 172,623 | 166,338 | 4% |
Property, plant & equipment | 259,146 | 259,819 | —% |
Long-term debt | 118 | 155 | (24)% |
Total assets | 551,739 | 577,107 | (4)% |
Total liabilities | 42,638 | 69,049 | (38)% |
Shareholders’ equity | 509,101 | 508,058 | —% |
“Our results for the second quarter of Fiscal 2023, with increased net revenue, gross margin and positive Adjusted EBITDA, are aligned with our outlook for the full year,” added Derrick West, Chief Financial Officer. “We remain confident that based on this progress, we will achieve positive free cash flows by the end of calendar 20235.”
Key Financial Results for the Second Quarter 2023
The following table reconciles the Company's Adjusted EBITDA to net loss.
Adjusted EBITDA Reconciliation | Q2-2023 | Q2-2022 | ||||
Net (loss) income as reported | $ | (7,488 | ) | $ | (4,047 | ) |
Add/(Deduct): |
|
| ||||
Financing costs, net of investment income |
| (1,051 | ) |
| (217 | ) |
Income tax expense (recovery) |
| 1 |
|
| (97 | ) |
Depreciation, amortization, and (gain) loss on disposal of property, plant and equipment (per statement of cash flows) |
| 6,867 |
|
| 11,024 |
|
Impairment of property, plant and equipment |
| — |
|
| 2,000 |
|
Share of loss from investments in associates and impairment loss from loan receivable |
| 296 |
|
| 499 |
|
Unrealized (gain) loss on changes in fair value of contingent consideration |
| (24 | ) |
| 666 |
|
Realized fair value on inventories sold and other inventory charges |
| 14,170 |
|
| 5,314 |
|
Unrealized (gain) loss on change in fair value of biological assets |
| (14,121 | ) |
| (7,502 | ) |
Share-based compensation (per statement of cash flows) |
| 1,342 |
|
| 877 |
|
Share issuance costs allocated to derivative warrant liabilities and change in fair value of derivative liabilities |
| (2,433 | ) |
| (10,633 | ) |
Incremental fair value component of inventories sold from acquisitions |
| — |
|
| 663 |
|
ERP implementation costs |
| 1,377 |
|
| — |
|
Transaction costs |
| 27 |
|
| 1,148 |
|
Provisions (recoveries) and impairment of inventories and biological assets and provisions of inventory to net realizable value |
| 3,521 |
|
| 711 |
|
Research and development expenditures, net of depreciation |
| 3,239 |
|
| 1,150 |
|
Adjusted EBITDA | $ | 5,648 |
| $ | 1,556 |
|
The following table reconciles the Company's adjusted gross margin to gross margin before fair value changes to biological assets and inventories sold:
Adjusted Gross Margin Reconciliation | Q2-2023 | Q2-2022 | ||||
Net revenue | $ | 39,493 |
| $ | 31,836 |
|
Cost of sales before adjustments |
| 26,121 |
|
| 23,581 |
|
Adjusted gross margin |
| 13,372 |
|
| 8,255 |
|
Adjusted gross margin % |
| 34 | % |
| 26 | % |
Less: |
|
| ||||
Write-offs and impairment of inventories and biological assets |
| 1,256 |
|
| 686 |
|
Provisions to net realizable value |
| 2,265 |
|
| 25 |
|
Incremental fair value component on inventories sold from acquisitions |
| — |
|
| 663 |
|
Gross margin before fair value adjustments |
| 9,851 |
|
| 6,881 |
|
Gross margin % (before fair value adjustments) |
| 25 | % |
| 22 | % |
Add: |
|
| ||||
Realized fair value on inventories sold and other inventory charges |
| (14,170 | ) |
| (5,314 | ) |
Unrealized gain on changes in fair value of biological assets |
| 14,121 |
|
| 7,502 |
|
Gross margin |
| 9,802 |
|
| 9,069 |
|
Gross margin % |
| 25 | % |
| 28 | % |
Canadian Recreational Market Introductions
SHRED X Rip-Strip Hash
SHRED'ems Tropic Thunder Gummies
SHRED Tangerine Machine One Gram Pre-Rolls
Research and Product Development
Product Development Collaboration ("PDC") and Centre of Excellence ("CoE")
Plant Science, Breeding and Genomics R&D in Moncton
Strategic Investment in Greentank
International
Liquidity and Capital Resources
Capital Structure
in $000s | FEBRUARY 28, | AUGUST 31, |
Current and long-term debt | 198 | 235 |
Shareholders’ equity | 509,101 | 508,058 |
Total debt and shareholders’ equity | 509,299 | 508,293 |
in 000s |
|
|
Outstanding common shares | 313,939 | 313,816 |
Options | 11,974 | 11,051 |
Warrants | 16,944 | 16,944 |
Top-up rights | 8,372 | 7,590 |
Restricted share units | 3,730 | 2,346 |
Performance share units | 1,111 | 265 |
Total fully-diluted shares | 356,070 | 352,012 |
Outstanding basic and fully diluted share count as at April 11, 2023 is as follows:
in 000s | APRIL 11, 2023 |
Outstanding common shares | 314,012 |
Options | 11,762 |
Warrants | 16,944 |
Top-up rights | 8,292 |
Restricted share units | 3,648 |
Performance share units | 1,081 |
Total fully-diluted shares | 355,739 |
Outlook8
Net revenue
Adjusted gross margins9
Adjusted EBITDA
Cash flow
Second Quarter Fiscal 2023 Conference Call
The Company will host a conference call to discuss its results with details as follows:
Date: April 12, 2023
Time: 8:00 am Eastern Time
To register for the conference call, please use this link:
https://conferencingportals.com/event/RUyBPhzX
To ensure you are connected for the full call, we suggest registering a day in advance or at minimum 10 minutes before the start of the call. After registering, a confirmation will be sent through email, including dial in details and unique conference call codes for entry. Registration is open through the live call.
To access the webcast:
https://events.q4inc.com/attendee/650627570
A replay of the webcast will be available within 24 hours after the conclusion of the call at https://www.organigram.ca/investors and will be archived for a period of 90 days following the call.
Non-IFRS Financial Measures
This news release refers to certain financial performance measures (including adjusted gross margin, Adjusted EBITDA and free cash flow) that are not defined by and do not have a standardized meaning under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Non-IFRS financial measures are used by management to assess the financial and operational performance of the Company. The Company believes that these non-IFRS financial measures, in addition to conventional measures prepared in accordance with IFRS, enable investors to evaluate the Company’s operating results, underlying performance and prospects in a similar manner to the Company’s management. As there are no standardized methods of calculating these non-IFRS measures, the Company’s approaches may differ from those used by others, and accordingly, the use of these measures may not be directly comparable. Accordingly, these non-IFRS measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Adjusted EBITDA is a non-IFRS measure that the Company defines as net income (loss) before: financing costs, net of investment income; income tax expense (recovery); depreciation, amortization, reversal of/or impairment, (gain) loss on disposal of property, plant and equipment (per the statement of cash flows); share-based compensation (per the statement of cash flows); share of loss from investments in associates and impairment loss from loan receivable; change in fair value of contingent consideration; change in fair value of derivative liabilities; expenditures incurred in connection with research & development activities (net of depreciation); unrealized (gain) loss on changes in fair value of biological assets; realized fair value on inventories sold and other inventory charges; provisions and impairment of inventories and biological assets; provisions to net realizable value of inventories; COVID-19 related charges; government subsidies; legal provisions; incremental fair value component of inventories sold from acquisitions; transaction costs; and share issuance costs. Adjusted EBITDA is intended to provide a proxy for the Company’s operating cash flow and derive expectations of future financial performance for the Company, and excludes adjustments that are not reflective of current operating results.
Adjusted gross margin is a non-IFRS measure that the Company defines as net revenue less cost of sales, before the effects of (i) unrealized gain (loss) on changes in fair value of biological assets; (ii) realized fair value on inventories sold and other inventory charges; (iii) provisions and impairment of inventories and biological assets; (iv) provisions to net realizable value; (v) COVID-19 related charges; and (vi) unabsorbed overhead relating to underutilization of the production facility and equipment, most of which is related to non-cash depreciation expense. Management believes that this measure provide useful information to assess the profitability of our operations as it represents the normalized gross margin generated from operations and excludes the effects of non-cash fair value adjustments on inventories and biological assets, which are required by IFRS.
The most directly comparable measure to Adjusted EBITDA, calculated in accordance with IFRS is net income (loss) and beginning on page 4 of this press release is a reconciliation to such measure. The most directly comparable measure to adjusted gross margin calculated in accordance with IFRS is gross margin before fair value changes to biological assets and inventories sold and beginning on page 5 of this press release is a reconciliation to such measure.
Free cash flows is a non-IFRS financial performance measure that deducts capital expenditures from net cash provided by operating activities. The Company believes this to be a useful indicator of its ability to operate without reliance on additional borrowing or usage of existing cash.
Free cash flows is intended to provide additional information only and does not have any standardized definition under IFRS and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Free cash flows is not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate this measure differently.
About Organigram Holdings Inc.
Organigram Holdings Inc. is a NASDAQ Global Select Market and TSX listed company whose wholly-owned subsidiaries include Organigram Inc. and Laurentian Organic Inc. licensed producers of cannabis and cannabis-derived products in Canada, and The Edibles and Infusions Corporation, a licensed manufacturer of cannabis-infused edibles in Canada.
Organigram is focused on producing high-quality, indoor-grown cannabis for patients and adult recreational consumers in Canada, as well as developing international business partnerships to extend the Company’s global footprint. Organigram has also developed a portfolio of legal adult-use recreational cannabis brands, including Edison, Holy Mountain, Big Bag O’ Buds, SHRED, Monjour and Trailblazer. Organigram operates facilities in Moncton, New Brunswick and Lac-Supérieur, Québec, with a dedicated manufacturing facility in Winnipeg, Manitoba. The Company is regulated by the Cannabis Act and the Cannabis Regulations (Canada).
This news release contains forward-looking information. Forward-looking information, in general, can be identified by the use of forward-looking terminology such as “outlook”, “objective”, “may”, “will”, “could”, “would”, “might”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “plan”, “continue”, “budget”, “schedule” or “forecast” or similar expressions suggesting future outcomes or events. They include, but are not limited to, statements with respect to expectations, projections or other characterizations of future events or circumstances, and the Company’s objectives, goals, strategies, beliefs, intentions, plans, estimates, forecasts, projections and outlook, including statements relating to the Company’s future performance, the Company’s positioning to capture additional market share and sales including international sales, expectations for consumer demand, expected increase in SKUs, expected improvement to gross margins before fair value changes to biological assets and inventories, expectations regarding adjusted gross margins, Adjusted EBITDA and net revenue in Fiscal 2023 and beyond, the Company's ability to generate consistent free cash flow from operations, expectations regarding cultivation capacity, the Company’s plans and objectives including around the CoE and the Company's Bio Lab facility, availability and sources of any future financing, expectations regarding the impact of COVID-19, availability of cost efficiency opportunities, the increase in the number of retail stores, the ability of the Company to fulfill demand for its revitalized product portfolio with increased staffing, expectations relating to greater capacity to meet demand due to increased capacity at the Company’s facilities, expectations around lower product cultivation costs, the ability to achieve economies of scale and ramp up cultivation, expectations pertaining to the increase of automation and reduction in reliance on manual labour, expectations around the launch of higher margin dried flower strains, expectations around market and consumer demand and other patterns related to existing, new and planned product forms including by EIC and Laurentian; timing for launch of new product forms, ability of those new product forms to capture sales and market share, estimates around incremental sales and more generally estimates or predictions of actions of customers, suppliers, partners, distributors, competitors or regulatory authorities; continuation of shipments to Canndoc Ltd., Cannatrek Ltd. and Medcan; statements regarding the future of the Canadian and international cannabis markets and, statements regarding the Company’s future economic performance. These statements are not historical facts but instead represent management beliefs regarding future events, many of which, by their nature are inherently uncertain and beyond management control. Forward-looking information has been based on the Company’s current expectations about future events.
This news release contains information concerning our industry and the markets in which we operate, including our market position and market share, which is based on information from independent third-party sources. Although we believe these sources to be generally reliable, market and industry data is inherently imprecise, subject to interpretation and cannot be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process, and other limitations and uncertainties inherent in any statistical survey or data collection process. We have not independently verified any third-party information contained herein.
Forward-looking information involves known and unknown risks, uncertainties and other factors that may cause actual events to differ materially from current expectations. These risks, uncertainties and factors include: the heightened uncertainty as a result of COVID-19, including any continued impact on production or operations, impact on demand for products, effect on third party suppliers, service providers or lenders; general economic factors; receipt of regulatory approvals or consents and any conditions imposed upon same and the timing thereof; the Company's ability to meet regulatory criteria which may be subject to change; change in regulation including restrictions on sale of new product forms; change in stock exchange listing practices; the Company's ability to manage costs, timing and conditions to receiving any required testing results and certifications; results of final testing of new products; timing of new retail store openings being inconsistent with preliminary expectations; changes in governmental plans including those related to methods of distribution and timing and launch of retail stores; timing and nature of sales and product returns; customer buying patterns and consumer preferences not being as predicted given this is a new and emerging market; material weaknesses identified in the Company’s internal controls over financial reporting; the completion of regulatory processes and registrations including for new products and forms; market demand and acceptance of new products and forms; unforeseen construction or delivery delays including of equipment and commissioning; increases to expected costs; competitive and industry conditions; change in customer buying patterns; and changes in crop yields. These and other risk factors are disclosed in the Company's documents filed from time to time under the Company’s issuer profile on the Canadian Securities Administrators’ System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com and reports and other information filed with or furnished to the United States Securities and Exchange Commission (“SEC”) from time to time on the SEC’s Electronic Document Gathering and Retrieval System (“EDGAR”) at www.sec.gov, including the Company’s most recent MD&A and AIF. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this news release. The Company disclaims any intention or obligation, except to the extent required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Forward looking information is subject to risks and uncertainties that are addressed in the “Risk Factors” section of the MD&A dated April 11, 2023 and there can be no assurance whatsoever that these events will occur.
1 Adjusted Gross Margin and Adjusted EBITDA are non-IFRS financial measures not defined by and do not have any standardized meaning under IFRS; please refer to “Non-IFRS Financial Measures” in this press release for more information.
2 Multiple sources (Hifyre, Weedcrawler, OCS wholesale sales and e-commerce orders, shipped sales data and provincial boards data)
3 For six months ended February 28, 2023, Hifyre data extract from March 28, 2023
4 OCS wholesale sales and e-commerce orders shipped data: Q2 FY 23 and Provincial Boards Data: CNB, NSLC, PEILCC, Q2 FY ‘23
5 Free cash flows is a non-IFRS financial measure not defined by and does not have any standardized meaning under IFRS; please refer to “Non-IFRS Financial Measures” in this press release for more information.
6 Adjusted gross margin is a non-IFRS financial measure not defined by and does not have any standardized meaning under IFRS; please refer to “Non-IFRS Financial Measures” in this press release for more information.
7 Adjusted EBITDA is a non-IFRS financial measure not defined by and does not have any standardized meaning under IFRS; please refer to “Non-IFRS Financial Measures” in this press release for more information.
8 The disclosure in this section is subject to the risk factors referenced in the “Risk Factors” section of the Company’s Q2 Fiscal 2023 MD&A, which is available on SEDAR under the Company's profile at www.sedar.com, and has been furnished to the United States Securities and Exchange Commission on Form 6-K and is available on EDGAR on www.sec.gov. Without limiting the generality of the foregoing, the expectations concerning revenue, adjusted gross margins and SG&A are based on the following general assumptions: consistency of revenue experience with indications of fourth quarter performance to date, consistency of ordering and return patterns or other factors with prior periods and no material change in legal regulation, market factors or general economic conditions. The Company disclaims any obligation to update any of the forward-looking information except as required by applicable law. See cautionary statement in the “Introduction” section at the beginning of the Company’s Q2 Fiscal 2023 MD&A.
9 Adjusted gross margin is a non-IFRS financial measure not defined by and does not have any standardized meaning under IFRS; please refer to “Non-IFRS Financial Measures” in this press release for more information.
Last Trade: | US$1.56 |
Daily Change: | 0.10 6.85 |
Daily Volume: | 1,102,674 |
Market Cap: | US$196.810M |
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