Entourage Health Corp. (ticker not provided) faced a challenging second quarter in 2024, with the cannabis industry experiencing heightened competition, pricing pressures, and an oversupply of products. Despite these obstacles, the company's year-to-date performance remained consistent with the previous year, demonstrating resilience and adaptability in a complex market.
The company's strategic initiatives have focused on distribution, product innovation, and operational efficiencies, aiming for sustainable growth and profitability. However, financial figures showed a decrease in net revenue, primarily due to softened demand in key markets and broader economic challenges in Canada.
Key Takeaways
- Entourage Health's net revenue declined by 9% to $9.3 million in Q2 2024 compared to the same quarter in 2023.
- Strategic initiatives included enhancing distribution, focusing on product launches, and forming strategic partnerships.
- The Dime Bag brand achieved over 90% distribution in Ontario, and new product launches were introduced across Alberta, Ontario, and B.C.
- Gross profit before changes in fair value decreased by 67% to $0.7 million for Q2 2024.
- The company's cash position weakened, with cash and cash equivalents at $2.7 million, down from December 2023.
Company Outlook
- Entourage Health remains on track with its strategic blueprint for 2024 and beyond, focusing on margin amplification, revenue growth, and product innovation.
- The company is committed to building a robust business model that can withstand market fluctuations and deliver long-term value to shareholders.
Bearish Highlights
- The adult-use channel experienced a revenue decrease of 29%, primarily due to lower pricing and reduced SKU velocity.
- The average selling price per gram after excise duty decreased by 35% to $1.52 per gram.
Bullish Highlights
- The company's Dime Bag brand achieved significant distribution milestones in Ontario.
- New product launches across key markets aimed to meet the diverse needs of cannabis consumers.
- Strategic partnerships and data-driven market insights were leveraged to guide product and distribution strategies.
Misses
- Total net revenue for the six months ended June 30, 2024, remained flat compared to the previous year.
- The company's balance sheet showed a reduction in cash and cash equivalents due to operating losses.
Q&A Highlights
- No questions were asked during the Q&A session, indicating potentially limited engagement from participants.
- Closing remarks emphasized the company's focus on determination, resilience, and value to navigate future challenges.
Entourage Health's second quarter of 2024 presented a mixed picture, with strategic successes in product and distribution countered by financial declines in a competitive and challenging market. The company's leadership remains focused on navigating the evolving cannabis landscape and positioning Entourage Health for future success.
InvestingPro Insights
Entourage Health Corp. has faced a number of financial and operational challenges, as highlighted in the recent quarterly report. To provide a deeper understanding of the company's position, let's look at some key metrics and insights from InvestingPro.
InvestingPro Data shows that Entourage Health Corp. has a market capitalization of $2.29 million, highlighting its status as a small-cap company within the cannabis industry. This size may impact its ability to scale and compete with larger players. The company's revenue for the last twelve months as of Q1 2024 stands at $30.7 million, with a growth of 3.17%, indicating a slight increase despite market challenges. However, the operating income margin for the same period is reported at -40.93%, suggesting significant operational costs relative to its income.
Two InvestingPro Tips that are particularly relevant to Entourage Health Corp.'s current situation are:
1. Analysts anticipate sales growth in the current year, which aligns with the company's strategic focus on distribution, product innovation, and operational efficiencies to drive revenue.
2. The company operates with a significant debt burden, which is a critical factor to consider given the decrease in net revenue and cash position.
It's worth noting that these insights are just a snapshot of the comprehensive analysis available on InvestingPro. For those interested in a deeper dive, there are 7 additional InvestingPro Tips that could provide further clarity on Entourage Health Corp.'s financial health and market position.
Stay informed on Entourage Health Corp.'s performance and potential investment opportunities with the full range of insights available at InvestingPro: https://www.investing.com/pro/ETRGF.
Full transcript - Entourage Health Corp (ETRGF) Q2 2024:
Operator: Good morning, everyone, and welcome to Entourage Health Corp.'s Second Quarter 2024 Earnings Results Conference Call. Currently all participants are in a listen-only mode. After the presentation there will be an opportunity to ask questions. As a reminder, this conference call is being recorded. A replay of this call will be available on the Entourage Health website later today and will remain posted for 30 days. I would now like to turn the conference over to Catherine Flaman, Senior Director and Corporate Affairs with Entourage Health for introductions. Please go ahead, Catherine.
Catherine Flaman: Thank you. Good morning, everyone. Welcome to Entourage Health Second Quarter 2024 Results Conference Call. Please note this call is being recorded. For copies of our press release and supporting documents filed or to retrieve a recording of this call, please visit the Investor Relations page of our website at entouragehealthcorp.com. A replay will be available later this afternoon. With us on today's call we have George Scorsis, Chief Executive Officer and Executive Chair of Entourage Health; Vaani Maharaj, our Chief Financial Officer. Today, we'll review the business highlights and financial results for the second quarter as well as discuss recent developments. Following formal remarks, we will open the floor for questions. I would like to remind everyone that during today's call, we will discuss our business outlook, which will contain forward-looking statements. Actual events or results could differ materially from those expressed or implied by such forward-looking statements due to several risks and uncertainties, including those mentioned in our most recent filings with SEDAR+. These comments are based on predictions and expectations of today. Now at this time, it is my pleasure to introduce George Scorsis, Entourage Health's CEO and Executive Chair. George, please go ahead.
George Scorsis: Good morning, everyone. Thank you for joining us today. It's a pleasure to be here with you once again. As we all know, the one that’s constant in the cannabis industry is change. Regulations, market sentiment, technology and business practices continue to evolve each year. This quarter has been notably challenging, but it has provided us with valuable insights and demonstrated the resilience of both our business model and the cannabis industry as a whole. I want to share a high-level market update for mid-year. The initial months of this year have been marked by a number of obstacles. Our sector, like the broader external landscape has faced heightened competition, pricing pressures and an oversupply of products. This has led to more consolidated market with only the strongest competitors remaining. Despite these hurdles, Entourage remains a strong contender in the Canadian cannabis industry. As we move into the second half of the year, our resilience continues in our market filled with complexities and challenges. Our year-to-date performance and targets are on track, reflecting our ability to adapt and thrive. Now, I'd like to briefly highlight some of our financial achievements. In just a moment, Vaani will walk us through the financials and outline our next steps to achieve these goals. We experienced declines in net revenue over the last quarter, primarily due to softened demand in key markets, such as Alberta, B.C. and Quebec, and broader economic challenges in Canada. However, our performance over the first six months of the year remained consistent with the same period last year. While I'm pleased with how the business has performed, I believe we are only at the beginning of what Entourage can achieve. We have strategically implemented numerous initiatives to make our organization more fiscally disciplined internally while becoming more consumer and patient-centric externally. Having streamlined our internal operations, we are now positioned to refine our product strategy and capitalize on both operational efficiencies and market opportunities. Let me delve more deeply into this in the next few seconds. Strategic focus, distribution and growth in the cannabis market is the first area I'd like to discuss. Our strategic focus has increasingly shifted towards enhancing distribution and driving sustainable growth. As I alluded to earlier, change is constant and market dynamics continuously shifting in regulatory, consumer preferences and economic pressures. To thrive in this environment, this approach aligns with our long-term goals of market leadership and profitability. Secondly, expanding distribution channels. Our strategy begins with the expansion of our distribution channels across Canada, recognizing that accessibility is key to market penetration. This involves not only increasing the number of retail outlets that carry our products, but also ensuring that our products are widely available across all major provinces. In Q2, our Dime Bag brand achieved over 90% distribution in Ontario, a milestone that highlights our commitment to saturating key markets. By focusing on high-visibility locations and partnering with leading retailers, we are ensuring that our products are readily accessible to a larger segment of consumers. In B.C., four new SKUs launched, including the expansion of Color Cannabis Live Resin pre-rolls and two new Color Cannabis, 10-packs available in over 50% of B.C.'s retail outlets. New launches at B.C. are available in nearly two-thirds of retail stores demonstrating the effectiveness of our distribution efforts. Targeting product launches is also key. Our distribution strategy is closely tied to our product portfolio to meet the diverse needs of cannabis consumers. This is evident in our recent product launches across Alberta, Ontario and B.C. where we introduced a mix of innovative products such as infused pre-rolls, large format flower and Live Resin pre-rolls. We're positioning ourselves as a go-to brand for novice and experienced cannabis users. Moreover, our ability to rapidly scale the distribution of these products across multiple top revenue-generating provinces ensures that we can quickly capitalize emerging trends and consumer demand. In addition to these launches, our medical portfolio of Starseed launched two new cultivars representing our top selling products with over 20% of the revenue of Medical being attributed to these cultivars. These additions have diversified our product portfolio and our ability to meet the varied preferences of our patient base. Our strategic partnerships. Another key element is our growth strategy is forming our strategic partnerships with third-party suppliers and retailers. By collaborating with suppliers to share commitment to quality, we can ensure a consistent supply premium products that meet the high standards expected by our customers and never deviating from the standards. Additionally, data-driven market insights, understanding consumer behaviors at the heart of our distribution strategy. We are leveraging advanced data analytics to gain deeper insights into consumer preferences, purchasing patterns and market trends. This data-driven approach allows us to make informed decisions about product development, distribution and marketing strategies. This insight has guided our decision focus on these segments, resulting in significant increase in pre-roll sales, which now account for 67% of our adult-use revenue. Looking at this, we are also producing over 2 million pre-rolls per month. And lastly, sustainable growth and profitability. This has always been our commitment. We are not just focused on short-term gains, our goal is to build a robust business model that can withstand market fluctuations and deliver long-term value to our shareholders. By expanding our distribution channels, launching targeted products, forming strategic partnerships and leveraging data-driven insights, we are laying the foundation for sustainable growth in a highly competitive cannabis market. Before I hand it over to Vaani for a more detailed financial overview, I'd like to briefly recap where we stand. Entourage's growth journey remains steady with the strategic blueprint for 2024 and beyond and focuses on margin amplification, revenue growth and product innovation. As we move forward, we'll continue to refine and adapt our strategy to ensure we remain at the forefront of the industry in an environment of constant change, we continue to navigate the challenges and opportunities in the cannabis market.
Vaani Maharaj: Good morning. Thank you, George, and thank you to everyone joining us on our call this morning. Please note that for the course of my financial discussion today, all financial information is prepared in accordance with International Financial Reporting Standards and is in Canadian dollars unless otherwise stipulated. To start, our second quarter total revenue decreased by $1.1 million or 9% to $12.2 million compared to the same quarter in 2023. Net revenue, which is revenue less excise duty, decreased by $0.9 million or 9% to $9.3 million compared to the same quarter in 2023. On a consecutive basis, total revenue decreased by $3.4 million or 26% compared to Q1 2024, reflecting seasonality in the medical market and general softness in the adult-use sector. Our year-over-year net revenue decline was largely driven by the adult-use channel decreasing by $1.7 million or 29%, slightly offset by bulk sale contributions of $0.8 million or 351%. Lower adult-use revenue was largely driven by lower pricing across the industry as well as a significant decrease in revenue in our British Columbia distribution channels where there is a more pronounced negative elasticity on our pricing initiatives, which were implemented late in 2022. As well, some B.C. retailers chose to carry fewer SKUs with average SKUs carried decreasing from an average of six SKUs to four. Our Ontario portfolio outperformed compared to the same period last year, largely due to the launch of our value brand, Dime Bag. Overall, adult-use revenue is lower as SKU velocity has slowed. For the six months ended June 30, 2024, our total net revenue was flat. For the six months ended June 30, 2024, our average selling price per gram after excise duty was $1.52 per gram, reflecting a decrease of $0.81 or 35%. This is largely due to the bulk sales, which took place during the quarter. Whereas we've previously maintained a belief in the stability of our selling price per gram general market price compression due to inflation and other factors indicating a continued decrease in selling prices in the adult-use market. Defensive actions to maintain stable revenue levels have been assessed and include introducing formats conducive to the mid-potency market of a consistent quality. Gross profit before changes in fair value was $0.7 million for the three months ended June 30, 2024, compared to gross profit of $2.2 million for the same period in 2023, which is a decrease of 67% or $1.4 million; whereas the same metric for the six months ended June 30, 2024, reflected growth of $1.4 million or 26%. This increase in cost of goods sold of $0.5 million or 6% for the three months ended June 30 is due to the cost of biomass increasing by $0.17. The higher cost of biomass is expected to continue through the back of the year in the short term. From an SG&A perspective, Q2 2024 total SG&A was lower than Q2 2023 by $2.1 million or 31% and $4.6 million or 31% for the six months ended June 30, 2024. The reduction was largely due to restructuring initiatives undertaken in the third and fourth quarters of 2023, which included headcount reduction, reduction in marketing expenses and reducing external agency fees. Turning to our balance sheet. We ended the second quarter with cash and cash equivalents of $2.7 million, a reduction of $8.6 million compared to December 2023, due to operating losses. With respect to our capital structure, we continue to work with our lender to negotiate a resolution to the current forbearance letter in place. The current agreement expires on October 8, 2024, and management maintains its results in simplifying our capital structure. All in all, the financial results of the quarter reflect market conditions, which are forcing sales prices down and biomass cost prices up. Our focus on cash preservation, operational efficiency and consumer needs continue as we weather market conditions. And with that, I'll turn the call back over to George for closing.
George Scorsis: Thank you, Vaani. Before we transition into our Q&A session, I'd like to leave you with some final thoughts. The year ahead will be a crucible for companies, separating those who exit the industry from those who rise. Those who survive will operate with determination, resilience and resolute focus on value. This is exactly what we are focused on. We have an exceptional team that is dedicated seizing the opportunities ahead. We appreciate the continued support of our shareholders and believe that the steps we are taking now will lead to a stronger, more resilient company in the future. With that sentiment, I pass it over to Catherine to guide us to the Q&A session. Thank you.
Catherine Flaman: Thank you, George and Vaani. This concludes our opening remarks. And we're now ready for the question-and-answer period. Operator, please continue with the instructions.
Operator: Certainly. [Operator Instructions] At this time, I'm showing no questions in the queue. I would like to turn the call back over to Mr. George Scorsis, Entourage Health's CEO, for closing remarks.
George Scorsis: Thank you all again for joining us on today's call. We look forward to sharing our progress with you in Q3 as we grow and evolve further in 2024. If you have further questions, please reach out to Catherine and our Investor Relations team. Thank you, and have a great day.
Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for participating. You may now disconnect, and have a good day.
End of Q&A:
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