Business context and reporting period
Tilray Brands, Inc. filed this unaudited Form 10-Q for the three months ended August 31, 2023, its fiscal first quarter of 2024. Amounts below are in U.S. dollars; financial statement amounts are in thousands unless noted. Tilray reports cannabis, distribution, beverage alcohol and wellness segments.
The quarter included the June 22 acquisition of HEXO and the August 3 acquisition of the remaining interest in Truss. The Anheuser-Busch craft-beverage acquisition closed September 29, after quarter-end.
Financial performance and position
| Metric | Quarter ended Aug. 31, 2023 | Prior-year quarter / comparison |
|---|---|---|
| Net revenue | $176.9 million | $153.2 million; up 15% |
| Gross profit and margin | $44.2 million; 25% | $48.6 million; 32% |
| Adjusted gross profit and margin, excluding purchase-accounting step-up | $49.3 million; 28% | $49.7 million; 32% |
| Operating loss | $34.4 million | $21.2 million |
| Net loss | $55.9 million; $0.10 per share | $65.8 million; $0.13 per share |
| Net loss attributable to Tilray shareholders | $71.5 million | $73.5 million |
| Adjusted EBITDA | $11.4 million | $13.5 million |
| Cash used in operating activities | $15.8 million | $46.3 million |
| Cash and marketable securities, excluding restricted cash | $464.9 million | $490.6 million at Aug. 31, 2022 |
| Working capital | $292.0 million | $637.6 million at Aug. 31, 2022 |
At August 31, cash and cash equivalents were $177.5 million, marketable securities were $287.3 million, and restricted cash was $1.6 million. Total current assets were $829.3 million and current liabilities were $537.3 million.
Debt balances at quarter-end included $14.6 million of bank indebtedness, $165.9 million net carrying amount of long-term debt, and $372.5 million of convertible debentures. The company reported $251.6 million of convertible debentures as current, including the TLRY 23 notes due October 1, 2023. In subsequent events, Tilray said it repurchased $20 million principal of TLRY 23 notes for shares and cash in September, then repaid the remaining $107.3 million in cash on October 2. It also drew $20 million under a delayed-draw facility after quarter-end.
Changes versus the prior comparable period
- Revenue rose 15%, led by cannabis (+20% net), distribution (+14%) and beverage alcohol (+17%); wellness revenue was roughly flat. Acquisitions contributed to growth.
- Gross profit fell 9% despite higher revenue, and gross margin declined seven percentage points to 25%. Cannabis adjusted gross margin fell to 35% from 51%; management cited price compression, lower advisory-services revenue after HEXO’s acquisition and a wholesale transaction with a $2.7 million negative gross-profit impact.
- Operating expenses rose 13% to $78.6 million, including $8.5 million of transaction costs. Operating loss widened, while net loss narrowed partly because prior-year non-operating expense was higher.
- Operating cash outflow improved by $30.4 million year over year, which management attributed primarily to operating efficiencies and working-capital management. Investing outflow increased to $26.3 million, including purchases of marketable securities; financing inflow was $14.0 million versus $123.6 million, when an ATM equity raise had provided substantial cash.
- Shares outstanding increased to 723.3 million at quarter-end from 656.7 million at May 31, 2023, including shares issued for HEXO and settlement of the HTI convertible note. The cover reports 730.3 million shares outstanding as of October 2.
Outlook, commentary, risks and unusual items
- Management said existing cash, marketable securities, operating cash generation and access to external funding are expected to meet short- and long-term needs, while emphasizing a focus on positive operating cash flow and free cash flow. It may need additional debt or equity financing to support long-term ambitions. No specific consolidated revenue or earnings guidance was provided.
- Tilray expects more than $27 million of annualized pre-tax savings from HEXO synergies; it reported $17.1 million achieved on an annualized run-rate basis, of which $2.9 million represented savings during the quarter. Its existing cannabis cost plan had achieved $22 million of annualized run-rate savings, and the international cannabis plan had achieved $6.8 million against an $8 million target.
- Management said Canadian market share increased from 8.1% to 13.4% versus the immediately preceding quarter, driven in part by acquisitions. It cautioned that acquired-market contributions may fluctuate during integration. Canadian price compression reduced quarterly revenue by an estimated $3.1 million; facility optimization may also temporarily weigh on results.
- The $85 million Anheuser-Busch craft-beverage acquisition closed after quarter-end. Management described it as important to its beverage strategy, but warned that expected benefits, revenue growth and synergies may not be achieved and integration may require substantial resources.
- Other notable items included a $11.1 million gain from a fair-value decrease in contingent consideration, an $8.2 million loss from warrant remeasurement, and $8.5 million of transaction costs. These and other fair-value, foreign-exchange and acquisition effects influenced reported results.
- Litigation accruals were $35.1 million at quarter-end, including liabilities assumed with HEXO. The company described ongoing litigation, including a Canadian contractual claim seeking C$110 million plus C$20 million in aggravated damages, and stated that unfavorable resolutions could be material despite management’s view that reserves are appropriate.
- Key risks include regulatory uncertainty and delayed cannabis legalization, intense competition and price compression, acquisition integration and synergy execution, potential further asset impairments, litigation, and volatility or dilution from equity and convertible securities. The company also noted that internal-control assessments excluded the acquired Montauk, HEXO and Truss businesses.
Most important facts for investors to verify
- Whether operating cash flow can improve to positive free cash flow, and how cash and marketable securities change after the post-quarter debt repayment, delayed-draw borrowing and Anheuser-Busch acquisition.
- Actual debt maturities, refinancing or repayment plans, and the effect of the October 2 TLRY 23 repayment on liquidity.
- Whether cannabis margins stabilize as price compression, excise taxes, wholesale sales and integration costs affect profitability.
- Progress against the stated HEXO and other cost-saving targets, and whether reported run-rate savings translate into recurring realized savings.
- Final purchase accounting for HEXO and Truss, integration outcomes, and revenue, margin and synergy performance of the Anheuser-Busch brands.
- Share-count changes, dilution from acquisitions and convertible securities, and the terms and potential cash consequences of outstanding warrants.
- Developments in material litigation and the adequacy of related accruals; also review the filing’s stated control-assessment timing, which refers to May 31, 2023.