Tilray Brands, Inc. (TLRY) on Q3 2023 Results - Earnings Call Transcript
Operator: Good afternoon, everyone. Thank you for joining us to discuss Tilray Brands, Inc.'s Financial Results for the Full Year 2023 Third Quarter Ended February 28, 2023. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session for analysts and investment firms conducted via audio and participating retail shareholders conducted through the Say Technologies platform. Question submission and uploading through the Say Technologies platform has already concluded and the company will read aloud and answer the top questions. Ms. Noorata, you may now begin the conference. Berrin Noorata: Thank you, and good morning. By now, everyone should have access to the earning press release, which is available on the Investors section of the Tilray Brands website at tilray.com and has been filed with this SEC and SEDAR. On today's call, we will be referring to various non-GAAP financial measures, which can provide useful information for investors. However, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. The earnings press release contains a reconciliation of each non-GAAP financial measure to the most comparable measure prepared in accordance with GAAP. In addition, we will be making numerous forward-looking statements during our remarks and in response to your questions. These statements are based on our current expectations and beliefs and involve known and unknown risks and uncertainties, which may prove to be incorrect. Actual results could differ materially from those described in these forward-looking statements. The text in our press release issued today includes many of the risks and uncertainties associated with such forward-looking statements. Note, that we have also posted presentation on the HEXO transaction to the Investors section of the Tilray Brands website. Today, you will hear from key members of our senior leadership team. Irwin Simon, Chairman and Chief Executive Officer, Tilray Brands, Inc.; and Carl Merton, Chief Financial Officer, who will provide a quarterly financial review and update our annual guidance. Also joining us for the question-and-answer segment of this call is Denise Faltischek, Chief Strategy Officer and Head of International; Blair McNeill, President, Tilray Canada; and Ty Gilmore, President of our U.S. Beer Business. And now, I'd like to turn the call over to Tilray Brands' Chairman and CEO, Irwin Simon. Irwin Simon: Good afternoon, everyone. And thank you, Berrin. And hello, everyone. Thank you for joining us for our report on our Q3 financial results, as well as our exciting announcement that we reached an agreement to acquire 100% of the common shares of HEXO. Let me begin by stating the obvious, the global cannabis industry continues to be challenging with both industry specific and macro headwinds. The Tilray Brands team has demonstrated adaptability, strong execution skills and operation excellence throughout in response to diversify our business and build a strong durable balance sheet. This diversification, in particular, has been an absolute necessity given the ongoing delays in U.S. Federal cannabis legalization and the delayed SAFE Banking Act, as well as delays in adult use legalization in Germany. All of which have fundamentally impacted cannabis industry business models, built around the promise of legalization. These industry conditions have compelled us to challenge previous assumptions, adapt and execute. As a result, we built the most diversified global cannabis lifestyle and CPG company with a clear vision and a strategy to deliver sustainable long-term stockholder value and growth. Throughout it all, we have remained focused on the core business fundamentals such as maximizing our revenue growth and profitability, cost management and, of course, cash generation. And while due to the current macroeconomic climate, we do not believe the value of the opportunities we've created within our diversified business are fully reflected in our current stock price. We begin that these opportunities will generate significant stockholder value in the long-term, and that our efforts that we've delivered will suit these following accomplishments. We've repositioned Aphria, optimized operations and cost efficiencies and built the leading Canadian cannabis LP with the Tilray transaction and now with the HEXO transaction. Today, Tilray Brands continues to lead with the #1 cannabis market share across Canada, which we've accomplished as a low cost producer, while achieving $122 million in cost savings. We've strengthened and expanded our international cannabis business in over 20 countries and new markets and territories around the globe. And today, we have the leading medical cannabis market share across Europe. As an adaptation to delay in the U.S. Federal cannabis legalization, we built a strong and profitable U.S. beverage alcohol business including repositioning SweetWater into the #1 craft brewer in Georgia, the #2 craft brewer in the Southeast, and the 10th largest craft brewer in the U.S. We acquired Montauk Brewing Company and grew its points of distribution by 10% within the first four months of operating this business. Today, Montauk is the fastest selling craft brewer in New York. Our highly awarded bourbon brand, Breckenridge Distillery, was recently awarded the World's Best Blended Whiskey by Whiskey Magazine. You got to try this product. We've also stabilized Manitoba Harvest into a profitable business, creating the world's leading hemp food brand with over 50% of branded hemp market share in the U.S. and Canada. When Federal cannabis legalization does occur, we will leverage these U.S. businesses into beverage alcohol and wellness, including their distribution and marketing networks to capture new, expansive opportunities across the U.S. and throughout the [creation] (ph) of a broad set of cannabis-infused CPG brands. Now let's discuss our agreement to acquire HEXO Corp. Please refer to the Tilray and HEXO investor presentation available on our website www.tilray.com for greater details. We view this transaction as building on strength in that it takes the proven value proposition of the successful strategic partnership that we forged with the HEXO team last year, and this enables us to fully leverage the combined power of our businesses. Together, we have the assets and the operating expertise to build a stronger Canadian platform that takes advantage of clear opportunities to deliver stronger top-line growth and increase our market share, deliver an enhanced margin contribution, accelerating our drive to profitability through operating and cost synergies, and ultimately, enhancing value creation for our shareholders. To provide some further detail, we expect three immediate benefits: First, we expect the combination of our businesses to enable us to grow and strengthen our #1 share even further across all major Canadian cannabis markets, anticipate pro forma combined cannabis market share would rise 480 basis points to 12.9%, and pro forma net sales would rise to approximately US$250 million supported by leading low cost operations and complementary distribution across all Canadian geographies. Second, it will broaden our portfolio of high growth brands, expanding Canadian adult use opportunities with the addition of HEXO's top brands, including Redecan, the #7 brand in Canada and add new Canadian medical opportunities in HEXO's assortments, which would bring in new diversified group of consumers and patients in addition to adding capabilities across multiple product categories, while leveraging our robust supply chain. And third, we are confident it will enable us to take greater advantage of the complementary operational and cost synergies that exist between our businesses. Since we purchased the convertible notes in HEXO in July of last year, the HEXO team has made significant strides in reducing cost, improving profitability by making changes to their operations and participating in our joint cost savings effort. Upon completion of the next phase of this transaction, we intend to achieve additional cost savings and synergies in excess of $25 million on an annualized basis. The HEXO transaction, which we expect to be accretive to earnings upon achieving synergies and savings, is expected to close in June 2023 and will consist of a purchase price of approximately $56 million payable through the issuance of Tilray's common stock. Upon the expected closing in June of '23, we will integrate HEXO operations into Tilray's Canadian infrastructure across manufacturing, cultivation, operations, sales and marketing and corporate. We also expect to leverage Redecan state-of-the-art grow facility for our low cost production business. And we are evaluating the utilization and the optimization of Masson at Gatineau, Quebec for new opportunities, including a premium berry and vegetable business. Our management team has a proven track record optimizing operations and setting and achieving synergy targets. So our confidence in our ability to deliver the synergies we've identified in HEXO acquisition is very strong. Turning now to how we executed in the third quarter. Tilray Brands sustained and grew the top line while continuing to strengthen our balance sheet through cost cutting initiatives and related steps to optimizing the platform amid complicated market dynamics across Canada, Europe and the U.S. This work includes a very deliberate decision to accelerate our path to positive free cash flow driven by the following priorities: First, maximizing revenue and growth in our profitable core business, which entails maintaining our #1 leading position across Canada, and that has been since 2020. And continuing to expand and grow our cannabis market share across Canada, the largest federally legal cannabis market in the world. We anticipated the HEXO acquisition will continue to contribute substantially to this objective. Solidifying our leadership status and growing market share in medical cannabis across our international markets, establishing new market opportunities as medical legalization continues to take hold and setting our business up to capture the adult use market when legalization occurs. And winning in the U.S. through our leading and profitable portfolio of craft beverage, alcohol, and wellness consumer products brands, which resonates powerfully with consumers and are ideally positioned in key markets. When Federal cannabis legalization does occur, we will leverage these U.S. businesses and their distribution and marketing networks to capture new expansive opportunities across the U.S. and through the creation of a broad set of cannabis-infused CPG brands. Second, we are diligently optimizing the efficiencies of our global operations and driving the disciplines and accountability that ensure we remain a low cost producer in the cannabis business and our other businesses. This includes realizing substantial cost savings and synergies in our business, discontinuing certain partnerships and exiting certain unprofitable businesses in order to focus our resources on the businesses that are driving profitability and cash flow. These aren't easy decisions, but we made them early and they're unquestionably the right ones to make. And third, we are strengthening our industry-leading balance sheet and cash position, which enables us to pursue target opportunities for growth and expansion within the context of economically uncertain environment. This balance sheet strength is a distinct competitive advantage in this environment, and should enable us to achieve the kind of scale and superior competitive positioning that we believe will deliver profitability and stockholder returns in the long-term. Now to review our performance in Canada over the past quarter. In Canada most notable challenge is price compression, which impacted us by approximately $28 million year-to-date, almost all which drops to the bottom line and negatively impacted EBITDA by approximately $26 million for the nine months. Because of price compression, excise tax has become a larger percentage of each sale and is exaggerating the cost of excise which is calculated largely as a fixed price per gram versus a percentage of purchase price. Tilray has paid approximately $120 million Canadian in excise tax and corporate income tax in the last 12 months of the Canadian government, with the majority coming off the top line sales and impacting the bottom line. No question that Canadian government has been the most profitable cannabis business in our industry. In order to rectify this imbalance, we continue to work with the government to reduce inequitable taxes between the legal and the illicit cannabis industry. In short, the difficult operating conditions in Canada that we described in recent quarters persist including ongoing price compression, strained retailer cash flows, and exorbitant excise taxes. There also continues to be almost 1,000 LPs, up 300 since we started reporting numbers last year in the market. But we are starting to see some consolidation at both the LPs and the retail store levels as well as some inventory levels normalization across the retail market. Against this backdrop, the strength of our brands has enabled us to maintain our #1 market share position. In Q3, which was 73 basis points ahead of the #2 LP. Our adult use recreational brand Good Supply continues to be the #1 brand in Canada, with 6% of the market. In Q3, excluding Quebec, our share across Canada was up 43 basis points in Q3 versus Q2 with solid improvements in Ontario and British Columbia and we're seeing this trend continue as we've entered Q4. To provide some further insight in performance of Canada, volume delivered was flat in Q3 versus Q2, reflecting continued price compression in the marketplace. Taken together, we saw $3 million of price compression in Q3 results. This has slowed significantly from Q2, where there was a $12 million of price compression. We do believe we're starting to see the floor on price compression in the marketplace. From a category standpoint, dried flower continues to be a standout, up almost 7% from Q2, and double the industry performance. However, we're not resting on this achievement. Our beta program continues to provide us with a pipeline of new strains and we have recently made changes to our post harvesting processes, which will ensure our Good Supply brand continues to provide consumers strong value at competitive price points. In our international businesses, we're focused on three strategic priorities: solidifying our leadership position and growing market share in medical cannabis in the countries around the world in which we participate today, achieving early mover advantage in new countries as medical legalization continues to take hold, and of course ensuring strong positioning to capture the adult use market upon adult use cannabis legalization. As we do this, we're optimizing our international platform, including working to remove approximately $8 million of costs from our European businesses, of which we've already achieved $2.6 million to date. In order to achieve long-term profitable growth, in the event that only medical cannabis legalization continues to proliferate, we believe that we're well positioned for success driven, by the following competitive differentiators: Our high quality medical cannabis brands which are trusted by patients, healthcare professionals and government officials around the world. Our unrivaled platform of assets resourced through our cultivation facilities in both Portugal and Germany, and our medical distribution network led by our integrated CC Pharma and medical cannabis teams with relationships across 13,000 pharmacies. Based on these trends to date, we built upon momentum in Poland with a rapid and substantial increase in our sales of medical cannabis. Received market authorization for two additional medical cannabis extracts in Italy, which will distribute through our wholly-owned subsidiary, FL Group, one of the only five companies in Italy that is authorized by the Italian Ministry of Health to import and distribute medical cannabis. And we have expanded our European footprint across the Czech Republic through a new export and distribution partnership. In the event of adult use cannabis legalization, we believe we are strongly positioned to seize on the opportunity based on our differentiators and the industry-leading expertise we have had as a market leader in Canada and through the deep CPG experience in our management team. Turning now to the U.S. and our CPG portfolio. In the U.S. participation in the adult use cannabis markets is integral to our long-term strategy. However, as we have said in the past, we will not engage businesses that touch cannabis plants, if cannabis remains federally illegal in the U.S. In the meantime, we are optimizing the value of our existing high potential U.S. businesses, which consists of five craft beverage alcohol brands and wellness brands. The largest of our beverage brand is SweetWater headquartered in Atlanta, Georgia with a nationwide infrastructure spanning 44 states, an innovation-driven culture. SweetWater is now growing into a true national leading craft beer brand. Building on innovation, earlier this year, the brand launched a new consumer focused brewers, including a new Crisp Lager; Gone Trippin' a West Coast style IPA, both of which are now available across SweetWater's national footprint. We're also excited to continue our largest music event in the Southeast, SweetWater 420 Fest, which will be held at our flagship brew in Atlanta this year on April 22nd and April 23rd. Come visit. In addition, to growing SweetWater, we are extremely proud to expand our two iconic Southern California brands, Alpine Beer, which just opened a stadium anchoring taproom at Petco Park and Green Flash. We vastly expanded distribution of both throughout our partnerships with Reyes, the largest beer distributor in the U.S. and we are confident by their position for on growing growth. And Montauk Brewing Company, which we acquired last year, is the fastest selling craft beer brand and the #1 craft brewer in New York. We were recently able to expand its distribution by approximately 10% in the first 4 months since our acquisition. It is now available in over 3,500 retail locations across the Northeast, including expanded distribution across New York, New Jersey, entrance into Connecticut and Rhode Island. We are confident that Montauk Brewing has the potential to grow in true national brand, which will accomplish by leveraging SweetWater's infrastructure to significantly expand Montauk Brewing, including entering into markets outside of its existing footprint. Finally, our bourbon spirits brand Breckenridge Distillery continues to firmly establish its position as a category leader, winning key influential awards, including Best American Blended Whiskey, Best American Blended Limited Release, Best American Blended Malt, and most recently, World's Best Blended Whiskey in Whiskey Magazine's 2023 World Whisky Awards. Today, Breckenridge Distillery is distributed in all 50 states and aligned nationally with RNDC with a distribution contract, guaranteeing nearly 30% sales growth annually. Breckinridge Distillery continues to build momentum for continued strong performance. Turning now to our Wellness segment. Focusing on Manitoba Harvest branded hemp business, the brand continues to expand in the U.S. and Canada leading market share positions, including a better than 50% dollar share within branded hemp seed, strong dollar growth in the MULO and natural channels. And in the latest 12 weeks reporting period, it also continues to deliver dollar growth of each of its top eight measured U.S. retailers, including Sprouts, Walmart, Kroger, and its market share in Canada remains at nearly 80%. The drivers of growth include distribution expansion, a strong innovation pipeline, and new pricing actions to offset cost inflation, coupled with an ever increasing consumer interest in hemp products, given the key role they can play in plant based low carb and keto diets, which are very popular today. In Q3, Tilray Wellness also introduced a new CBD wellness beverage Happy Flower during the Dry January. Via our direct-to-consumer e-commerce platform, Happy Flower offers non-alcoholic cocktails infused with CBD that meets the needs of Gen Z and Millennial consumers. We will look to officially launch and expand the brand in key markets throughout the remainder of 2023 focusing on states with CBD permissibility and establish CBD sales. And as announced last week, we're expanding our distribution with Whole Foods Market with the launch of the brand's first regenerative organic certified Hemp Hearts. We believe our wellness platform continues to be an important part of our U.S. strategy, providing us with deep connection to our consumers and our customers. We look forward to building even a greater scale of our wellness business in the near and long-term. Now before I turn the call over to our CFO, Carl Merton, I want to provide some context around the reduction in our net assets reported in Q3, which includes a noncash $1.1 billion impairment charge, resulting from higher interest rates and a decline in our market cap in recent quarters. This noncash accounting charge does not at all change our strong conviction in our ability to accelerate our path to pause the free cash flow positions our company for profitable growth across the markets we serve and delivers on our foremost priority generating value for our shareholders. The market is challenging right now. But we have the right strategy in place to preserve the strong position we are in across our markets, as well as our financial flexibility that we're executing on. With that, I now will turn the call over to Carl to discuss the financials in greater detail. Carl? Carl Merton : Thank you, Irwin. Given the challenging environment affecting the economy as a whole and our industry in particular, we are staying focused on what we can control. Namely: improving our operating efficiencies and realizing cost savings within our business model, reevaluating partnerships in markets that no longer meet our criteria, strengthening our balance sheet and working towards generating positive free cash flow; even if it inhibited, generating additional adjusted EBITDA in the near-term. For our financial review, we present our results in accordance with U.S. GAAP and in U.S. dollars, and will reference both GAAP and non-GAAP adjusted results throughout our discussion. Our earnings press release contains a reconciliation of our reported results under GAAP to the non-GAAP measures identified during our remarks. Let's begin with a significant noncash reduction in our net assets we took during the quarter, a situation that has become very common in the CPG and cannabis industries over the last 12 months. Importantly, the review of our net assets and the calculation of the noncash reduction was not a function of our belief in our business plan or changes in our view as to the future of our business and units. As noted by Irwin, this noncash accounting charge was almost entirely led by changes in our market cap. To explain further. Due to the decline in our market cap between the last day of our fiscal Q2 and the last day of our fiscal Q3, together with the rising interest rate environment, particularly in risk-free interest rates, the accounting test for indicators of impairment was triggered. The first step in this process required us to update our forecast based on current expectations of the business. This reassessment had a negligible impact on the impairment calculation itself. But we then had to reassess the discount rate applied to this forecast due to the sharp increase in risk-free interest rates over the last nine months. This increase in interest rates led to $100 million of the noncash asset write-down during the quarter. Next, we had to assess the carrying value of our assets, including intangibles and goodwill against our current market cap. And with reduction in our market cap, it led us to record an additional $1.1 billion noncash reduction in our net assets. This noncash reduction was allocated as $55 million to inventory, $54.8 million to the HEXO convertible note, $104 million to capital assets, $38.7 million to other assets, $205 million to intangible assets and $618.5 million to goodwill. Overall, the allocation resulted in non-cash asset reductions of $15 million in the Wellness segment and the remainder of the noncash reductions in the Cannabis segment. The noncash reduction to inventory was also recorded in contemplation of our acquisition of HEXO to align our inventories to meet the future demands we see in the market. It is notable here that between the time we first announced the Tilray-Aphria transaction in December 2020 and when we closed on the transaction in May 2021, the share price of Aphria rose dramatically due to investor enthusiasm over U.S. Federal legalization. This surge in Aphria share price directly led to an increase of $1.4 billion in the purchase price of Tilray which itself led to an increase of $1.4 billion of intangible assets. A value that is higher than the noncash reduction we announced today. Again, we do not believe these noncash asset reductions are indicative of the significant long term market opportunity that still exists for the federally legal cannabis market. We are therefore working hard every day to see that our vision in creating the leading and most diversified cannabis lifestyle and consumer packaged goods company in the world across adult use and medical cannabis, beverage alcohol and wellness consumer products is achieved. Now with that, I will discuss our results for the quarter. For the quarter, net revenue increased slightly to $145.6 million from the prior quarter of $144.1 million. On a constant currency basis, net revenue rose to $154.2 million from $151.9 million in the prior year period. Reported negative gross profit for Q3 was $11.7 million compared to gross profit of $39.8 million in the year ago quarter. Included in this quarter's result was a non-cash reduction in inventory related to the previously discussed reduction in non-cash carrying value of our net assets. However, adjusted gross profit for Q3 was $44.3 million, up 11% from last year. Adjusted gross margin rose to 30% from 26% in the prior year quarter. This was made possible by our success in implementing numerous cost saving programs, including offsetting part of our allocated overhead from intentionally reducing cannabis production. From the $30 million cost optimization plan that we first announced in Q4 of last year, we achieved $22 million on an annualized run rate basis, of which $12 million represented actual cost savings during Q3. Net loss was [$1.2 million] compared to a net loss of $61.6 million in the prior quarter and net income of $52.5 million in the year ago quarter. Net loss for the quarter is tied to our quarterly goodwill impairment review. From an adjusted net loss perspective, our loss was $0.04 per share. Adjusted EBITDA was $14 million, marking our 16th consecutive quarter of adjusted positive EBITDA and a significant increase from Q3 last year of almost 40% despite the decline in revenue. Operating cash flow for the quarter improved to a loss of $18.6 million from a loss of $46.4 million in the prior year period, a substantial improvement. The decrease in cash used was primarily related to improved operating efficiencies realized through our synergy programs, and management of our working capital requirements. From a free cash flow perspective, we reported a $19.5 million use of free cash flow, primarily as a result of working capital changes. More specifically, during the quarter, we used $0.8 million of cash on CapEx. We used $1.4 million on operating our businesses and we used $17.3 million on managing working capital. The cash used in operating our businesses of $1.4 million is the lowest level reported since we first brought Aphria and Tilray together. And demonstrates the steps we continue to take to remove costs and better balance revenue and costs across all our business units. Cash used in or provided by working capital changes is expected to fluctuate on a quarter-by-quarter basis. Today, we are also reiterating our guidance with respect to reporting positive free cash flow from our operating segments for fiscal 2023. While we are not currently a positive free cash flow for the year, our fourth quarter is expected to make significant ground in this measure. Turning to our business segments. Gross cannabis revenue comprised $6 million in Canadian medical cannabis revenue, $45.3 million in Canadian adult use revenue and $9.7 million in international cannabis revenue. These were collectively offset by $13.6 million of excise taxes. Excise taxes continued to significantly impact our gross revenue. Tilray paid almost CAD120 million in the last 12 months to the Canadian government in excise and corporate taxes. This substantial tax burden adds to the challenges facing the cannabis industry today. More importantly, Tilray is one of the few licensed producers in Canada that pays taxes when due and is not using the Canadian government as a de facto financing arm. Net cannabis revenue was $47.5 million, representing a 14% decline from the year ago period. The variance was mostly related to a reduction in international cannabis revenue, and to a lesser extent, lower wholesale cannabis revenue and Canadian medical cannabis revenue. On a constant currency basis, net cannabis revenue declined by 7% as the decline in the Canadian dollar and euro resulted in a $3.5 million decrease compared to the prior year quarter. Price compression, while slowing continued to have a marked impact on our results. For the fiscal year-to-date, our revenues are down $28 million directly as a result of price compression in Canada, of which virtually all also represented a reduction in EBITDA. In the quarter, our Canadian cannabis wholesale team met with a significant number of licensed producers about becoming their B2B outsource partner. Even though the results of those conversations did not lead to wholesale sales this quarter, we have secured multiple outsource partners and continue to work with many more. Adjusted cannabis gross profit increased to $22.2 million from $18 million in the prior year quarter, while the gross margin percentage increased to 47% from 33%. Excluding the HEXO advisory fee revenue, adjusted cannabis gross margin would have been 35%, up slightly from the year ago period. The margin improvement was related to continued cost optimization, offset by impacts of price compression, as well as a decrease in the utilization of our cannabis facilities to manage demand requirements. Distribution revenue, which is derived predominantly through CC Pharma, increased 5% to $65.4 million from $62.5 million in the prior year quarter, despite the strengthening of the U.S. dollar relative to the euro. On a constant currency basis, revenue would have actually increased 12% to $70.1 million for an additional $4.7 million of revenue. Distribution gross profit increased 49% to $7.4 million from $5 million in the prior year quarter, while distribution gross margin increased to 11% from 8%. These increases were the result of a positive change in product mix and our focus on higher margin sales, including the decision to exit the medical device reprocessing line. Looking ahead, we think we can continue to drive larger business profit margins despite not increasing revenue as we approach full utilization of our facility. Turning to our Beverage Alcohol segment, we generated $20.6 million in net revenue, which was slightly higher than the prior year quarter of $19.6 million. The delta was primarily due to our acquisition of Montauk in November 2022. We remain bullish on expanding this segment over time as we leverage our increased distribution, regain brand acceptance with Green Flash and Alpine, faster brand acceptance for SweetWater in California, build out an extensive innovation pipeline, and of course, potentially pursue other acquisitions. Adjusted beverage alcohol gross profit was $11 million, compared to $11.5 million in the prior year quarter, while adjusted gross margin was 53%, a slight decline from 59% as a result of the Montauk acquisition that was not completed in the prior period comparison and operates at a slightly lower margin with SweetWater. Also SweetWater's operations in Colorado in the current period had a negative impact on the margin as it is still in the startup phase. Finally, on our Wellness segment. Revenue decreased 18% to $12 million from $14.7 million in Q3 last year. The decrease in revenue was due to a reduction in customer inventory levels at warehouse locations across North America. And a pullback on margin-dilutive non-branded sales that led to top line declines in the quarter versus the prior year. Adjusted wellness gross profit was $3.7 million, down from $5.4 million in the prior year quarter, while gross margin decreased to 31% from 36% through the impacts of higher input costs of seed ingredients as a result of inflation. However, the increase in prices during Q2 to combat the inflation impacts resulted in a consistent margin from the immediately preceding quarter. Our cash, cash equivalents and marketable securities balance as of February 28th was $408.3 million, up $129 million from the $279.2 million in the year ago period. Given our quarterly and fiscal year performance to date against the backdrop of macroeconomic challenging near-term market conditions, we are lowering our expectation of adjusted EBITDA generation to between $60 million and $66 million, an increase of over 30% from last year. However, as I already indicated, we are still projecting being free cash flow positive across all business segments for the year. To conclude, while the quarter was challenging in many respects, largely due to market interest rates and our market cap, we are committed to ensuring that our cost structure is consistent with our revenue expectations, minimizing CapEx, improving our industry-leading balance sheet, reducing debt and driving free cash flow. With that, I will conclude our prepared remarks and open the lines for questions from our covering analysts. Afterwards, we will take a few questions from our shareholders through the Say platform. Operator, what's the first question? Operator: [Operator Instructions] And our first question is from Vivien Azer with TD Cowen. Operator: Our next question is from Andrew Carter with Stifel. Operator: And our next question is from Aaron Grey with Alliance Global Partners. Operator: And our next question is from Tamy Chen with BMO Capital Markets. Please proceed with your question. Operator: And our next question is from Frederico Gomes with ATB Capital Markets. Operator: Our next question is from John Zamparo with CIBC. Operator: Thank you. Our next question is from Michael Lavery with Piper Sandler. Please proceed with your question. Operator: Our next question is from Matt Bottomley with Canaccord. Operator: Thank you. That concludes our analyst questions. We will now proceed with questions submitted by stockholders on the Say Technologies platform. Berrin, I will pass it over to you. Irwin Simon : With that, I want to thank you all for joining us today, Monday, April 10th. There was a lot of news coming out of here. As I always say, there were some great things that happened. There's some good things and we recognize the challenges out there. And we recognize the challenges in today's environment. I go to tell you, I've been doing this for a long time. Absolutely the cannabis industry is a tough industry, but there's no easy industry. But we recognize the challenges out there. In the meantime, considering where Aphria was back in 2019 and where Aphria-Tilray and now HEXO will be is a tremendous accomplishment for us, as that low cost producer is that company that has the brands, that has the infrastructure in place to sell in market and grow. And the industry is changing dramatically. But stepping back and looking at Tilray today, we were upfront to diversify. We knew we couldn't come into the U.S. and touch a plant. But we have a very successful CPG business with our beer business, with our bourbon business and our wellness food businesses. We have a very strong business in Europe with our CC Pharma, which originally we wondered why we own it. But, hey, it sells into 13,000 drugstore. It's very much EBITDA positive. It's a good business. And with Europe changing dramatically and challenges in the European market, whether it's Israel, what the team has really done over there is taking costs out and has gone into new markets like Poland, Czech Republic and really have expanded its distribution. And Europe will legalize one day or there will be more countries that will sell cannabis ultimately that can convert it to the recreational market. So with that, I'm excited about of the opportunities that we have in front of us, the businesses that we have in front of us, the diversified businesses. We have a strong balance sheet with over $400 million plus of cash. As Carl talked about, we expect to be free cash flow positive this year. And trust me, we have been out and front of ensuring that we are cutting costs and you don't hear me announcing today that we are doing all these layoffs and cutbacks, as we have been focused on cost containment throughout the last couple of years within the Tilray businesses. We want to reward our shareholders. Our shareholders are the key and I want to thank you for the support. As we went out there to get more shares, I want to thank you for sticking with us. I want to thank you for being there. When the stock goes down, it's not fun, but I know as shareholders every day we wake up, we want to reward our shareholders and hopefully you will see that one day. And to our consumers that buy our products, I can rest assure you, whether it's our beer or bourbon or food or our cannabis, quality, quality, quality, and that's built around our brands to ensure that we are putting good safe products out there for the consumer to enjoy. And that's something that's the utmost importance within Tilray. As I said, we are four years old, we have done a lot. And we are a brand that's well known. We are businesses with well-known brands and there is a lot more to come. With HEXO, I am really excited about the opportunities with HEXO. Got to know the team over the last nine months, got to work with them. We got to see the inner workings of HEXO. And I want to welcome all the HEXO employees to Tilray once this deal closes. And I got to tell you, it's going to be exciting as HEXO, Tilray and Aphria come together. A lot of work went into this and a lot of work we needed to make it happen. First, I want to thank my fellow Tilray employees that worked around the clock. Whether it's Easter Passover weekend or whenever to make sure this deal happened and happened right and the diligence and everything that goes into it. I want to thank our Board of Directors for all their support to ensure that we were doing the right things, ask the right questions, go through the right governance. I want to thank the HEXO Board that spent endless hours to ensure the HEXO shareholders were rewarded. Mark Attanasio, the Chairman, thank you. And I sound like I'm at the Globes thanking people but -- and Charlie Bowman, their CEO and many, many other HEXO employees that made sure this happened. So with that, hopefully the next time I talk to you, the HEXO deal has closed and we move forward. With that, hopefully everybody has a great evening, have a great Easter vacation. And look forward to speaking to you soon. And again, thank you very much for your support. Good night. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.TLRY Ratings Summary
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Tilray Brands’ Review Following Q1 Results
Oppenheimer provided their views on Tilray Brands, Inc. (NASDAQ:TLRY) following the company’s reported Q1 results last week. Quarterly EPS came in at ($0.13), worse than the Street estimate of ($0.07). Revenue was $153.2 million (down 9% year-over-year), compared to the Street estimate of $157 million.
Adjusted EBITDA was $13.5 million, ahead of the Street estimate of $12.9 million. The company reiterated its full 2022-year adjusted EBITDA guidance of $70–80 million.
The analysts continue to look favorably upon the company’s ability to generate positive adjusted EBITDA and implement cost reductions. However, they remain cautious on the company and other covered cannabis names amidst severe competitive pressures and prospects for muted profitability. The analysts remain sidelined, reiterating their Perform rating.
