Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Rubicon Organics Inc (ROMJF, Financial) achieved a historic high in net revenue for Q2 2024, totaling $12.1 million.
- The company returned to positive adjusted EBITDA and operating cash flow following a subdued Q1.
- Rubicon Organics Inc (ROMJF) maintained its number-one premium market position in Canada across all categories.
- The company captured 30% of the premium edibles market within a year of launch.
- Rubicon Organics Inc (ROMJF) achieved 40% national distribution for its vapes in just two months since launch.
Negative Points
- Gross margin decreased to 30% in Q2 2024 due to market trends such as price compression and a shift towards lower-priced larger formats.
- The ERP implementation project has depressed adjusted EBITDA for both quarters in 2024.
- 1964 brand faced tough market conditions and pricing pressures, leading to mixed performance.
- Investments in ERP and other projects have impacted cash flow and profitability in the short term.
- The company is facing ongoing price pressures and adverse product mix shifts towards lower-margin categories.
Q & A Highlights
Q: You're looking at a little over 30% growth in revenue lines quarter-over-quarter. Is there any sort of product format or a province where you felt sort of helped tag an outsized contribution to that sequential growth?
A: Thanks, Neal. Actually, it was pretty consistent across the mark. And as Janis remarked in terms of the -- what actually happened within our brands, 1964 wasn't as strong as we expected, but Simply Bare has really rebounded. We've got the right genetics and had a really good impact. It was largely consistent across the country in terms of our growth. Particularly happy with our strength in BC and Ontario, I would say, our home province and then the largest consumption province.
Q: You've commented in the past couple of quarters, you've been impacted on the EBITDA line from your ERP implementation. Any way to quantify how much that impacted Q2? And can you remind us when the ERP implementation will be complete?
A: Yes, absolutely. Thanks, Neal. So in quarter one, we spent about $270,000. And in quarter two, it was a further $200,000. So just shy of $500,000 for the year-to-date. This is actually slightly behind our expectations. We have decided to slow down our project a little bit and make sure -- with all ERP projects, you learn as you go. And we want to make sure that we do it right. So we have decided to slow it down a little bit and are now looking more for go live at early 2025. So our guidance remains the same that we expect to spend about $1 million across 2024. That's now just with some different phasing than we originally expected.
Q: Can you provide more details on the performance of your new vape products and their market reception?
A: Outperforming our launch expectations and are among the highest distributed SKUs from the Rubicon portfolio, we've already achieved over 40% national distribution in just two months since launch despite only launching in BC, Alberta and Ontario. And we have high expectations for the future. Rubicon has debuted our baseline that are best-selling in consumer-led cultivars, Comatose and Blue Dream, and as of last week, our third strain GLTO number one 41 began shipments. By the end of '24, we plan to have five (inaudible) market, all utilizing strains that our customers know and love. And we estimate that in 2025, this could generate growth over 20% on our '23 net revenue.
Q: How is Rubicon Organics positioned in the Canadian market, and what are your expectations for the future?
A: Rubicon Organics remains the number-one premium license producer in Canada. We have national brand distribution across all key provinces, where we cover 97% of the addressable Canadian cannabis market and are regularly receiving calls for demand for our products internationally. We are starting to see supply dynamics tightening from indebted operators going out of business and large operators shutting facilities and going asset light. In the coming quarters, we anticipate ongoing pressure on companies to settle excise payments. Some may navigate through receivership and reemerge while others may cease operations permanently. We've already observed a decline in the total number of LPs in market over the year.
Q: What are the financial highlights for Q2 2024?
A: We achieved a record high net revenue for a single quarter, totaling $12.1 million, and the second highest consecutive six months net revenue of $21 million. Our gross profit for the quarter stands at $3.6 million with a gross margin of 30%. Cash flows for Q2 improved, resulting in $1.1 million operating cash flow for the three months compared to $900,000 cash out in Q1 2024, bringing year-to-date cash flow to $0.2 million. Q2 2024 free cash flow came in at $740,000. We remain confident in our outlook for continued net revenue growth, an increase in adjusted EBITDA compared to 2023, when you exclude the ERP investments, and positive operating cash flow for the year, as evidenced by our Q2 results.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
