Organigram Global Inc. (OGI) Q4 2025 Earnings Report, Transcript and Summary

Good morning. My name is Tiffany, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Organigram Global Fourth quarter Fiscal 2025 Earnings Conference Call. [Operator Instructions] I'll now turn the call over to Max Schwartz, Director of Investor Relations.

Thank you, Tiffany. Good morning, and thank you very much for joining us today. As a reminder, this call is being recorded, and a replay will be available on our website within 24 hours. Today's call will include forward-looking statements. Actual results could differ materially due to a number of risk factors outlined in our filings and the cautionary statements included in our Q4 fiscal 2025 press release and MD&A. We'll also reference certain non-IFRS measures such as adjusted EBITDA, adjusted gross margin and free cash flow. Definitions and reconciliations are available in our disclosure material. Unless otherwise noted, market share data is sourced from Hifyre, Weedcrawler, provincial boards and retailers and our own internal sales tracking. Discussing results today are Tim Emberg, President of Organigram Canada; and Greg Guyatt, Chief Financial Officer; and we're also joined by our Executive Chair, Peter Amirault for closing remarks. As a reminder, investor inquiries not addressed on today's call can be directed to investors at organogram.ca. With that, I'll now turn the call over to Tim.

Thanks, Max, and good morning, everyone. We are really excited to share our Q4 and full fiscal year '25 results with you. Fiscal '25 was a busy and redefining year for Organigram. We strengthened our Canadian market share leadership, achieving the #1 market share position. We advanced our operational capabilities and significantly accelerated our international business. In Q4, we delivered record quarterly gross and net revenue, along with our highest adjusted gross margin and adjusted EBITDA since the end of 2019. In fiscal '25, we achieved record gross and net revenue, adjusted EBITDA, adjusted gross profit and record international sales. A key driver of this growth was our acquisition of Motif Labs, which unlike many transactions in the sector did not result in market share dilution in fiscal '25. This was a really big win for us and a true reflection of a full team effort. With Motif, we added a centralized distribution hub in Ontario, along with advanced extraction and production facility for vapes and pre-rolls. Today, with our 5 facilities operated across the country, we have greater control over our supply chain and are well positioned to address evolving consumer needs in Canada and abroad. In fiscal '25, we materially increased our overall yields and annual capacity at our Moncton facility without expanding our physical footprint. We achieved this by implementing more advanced cultivation practices, improved plant care methods and seed-based cultivation. We also continued to advance research and cultivation programs that support better quality and lower cost. A good example of this is the identification of genetic markers for powdery mildew that is now being bred into certain cultivars. Our investments in cultivation and plant care allow us to deliver the largest capacity output in company history, and we expect to increase flower output further into fiscal '26. We are also grateful to Opportunities New Brunswick for supporting our facility enhancements with a recent $2 million grant and by extension, supporting the economy of New Brunswick, where we currently employ roughly 700 Organigram staff. If we look at the Canadian market, in Canada, we currently hold the #1 market position with 11.9% market share in fiscal '25. Nationally, 3 of our brands, SHRED, BOXHOT and Big Bag O'Buds were among the top 10 cannabis brands in fiscal '25 by retail sales. For the 3 months ending September 2025, we held strong share in Canada's 4 largest markets: Ontario, Quebec, British Columbia and Alberta. We are #1 in all these markets with the exception of Quebec, where we ranked fourth in fiscal '25, but to continue to grow. We saw even higher market share across almost every other province, notably 34.2% in New Brunswick, 23.7% in Newfoundland, 14.9% in Saskatchewan and 12.2% in Nova Scotia. Category performance varied throughout the year. We saw gains in whole flower, edibles, beverages, non-hash concentrates and infused pre-rolls, while competition increased in vapes, milled flower and overall pre-rolls. Looking ahead to fiscal '26, we have several opportunities to grow in Canada. In Quebec, we recently launched our vape portfolio with very positive indicators to date and are extremely excited about other opportunities in the province, such as expanding our infused pre-roll line offerings and launching beverages. In line with our consumer-centric approach and dedication to innovation, we also have several compelling products launching this year that we know consumers will absolutely love. We are preparing to launch a new family of coated infused pre-rolls, new all-in-one vape hardware and in beverages, consumers can expect new formats and flavors, including the exciting launch of SHRED Soda. To support our beverage business, our manufacturing line in Winnipeg is now ramping up and expected to begin production over the coming months. The key focal point for us really in the Canadian business this year is increasing the margin profile of our domestic product mix and continue to optimize our operational footprint for capacity, throughput and streamlined logistics, work that also directly supports our international growth objectives. It's worth noting though that in Q1 of this fiscal year, we experienced a temporary market share impact as a result of the 8-week BC General Employees' Union strike, which ended on October 26. During the strike, only small-scale local growers were able to ship products directly to retail stores into the province, which affected the market share of most large LPs. We are already seeing a strong rebound towards a historical share in the province though. From an international front perspective, earlier this year, we formalized an international business unit focused on expanding our global footprint. The team's focus in fiscal '25 was on accelerating our international wholesale business and exporting our brands -- expanding our brands into new markets. We achieved 3 major international milestones in fiscal '25. First, we delivered the highest international sales in the company's history, reaching $26.3 million, up 171% from $9.7 million in fiscal '24. This growth was supported by our partnership with Sanity Group in Germany, along with flower shipments to customers in the U.K. and Australia. Second, we commenced sales in the United States with hemp-derived THC beverages under our Collective Project and Fetch brands. These products are now available in multiple bricks-and-mortar locations in 12 states and online in 24 states through our DTC platform. Third, we expanded our U.S. portfolio with the launch of happly, a functional edibles lifestyle brand. These products combined cannabinoids of functional ingredients, leveraging our FAST technology for faster onset and predictable effects. Given the recent provision in the U.S. Federal Funding Act that would effectively ban hemp-derived THC by November 13, 2026, we are monitoring efforts to repeal, replace or delay the amendment though the outcome remains uncertain at this time. Our U.S. business does not currently represent a significant share of our revenue. If the provision stands, we do not expect a material adverse economic impact to Organigram. We are also monitoring recent media reports regarding cannabis rescheduling in the U.S. While no regulatory decisions have been finalized, Organigram is encouraged by the direction of these discussions and recognizes that meaningful federal reform could positively impact the operating and investment environment for the global cannabis sector by reducing regulatory friction and supporting more sustainable industry growth long term. As the global cannabis trend continues, we see strong growth potential for our flower, our brands and innovation products in international markets outside of the U.S. In the near term, investors can expect to see us launch branded vapes and gummies in Australia and expanded flower exports. Our pending EU-GMP application. In October 2025, we submitted additional clarifying information as requested by the regulator, and we await the determination on our application. Regarding our Jupiter fund, which currently has $59 million available for deployment, we have identified several compelling opportunities. The fund allows us to deploy capital strategically to leverage opportunities in markets outside of Canada. Overall, we believe Organigram is exceptionally well positioned to benefit from the continued global shift towards regulated cannabis markets. From an advocacy perspective, we've seen meaningful progress in our industry advocacy this year. Provinces like New Brunswick and Ontario have demonstrated a clear understanding of both the opportunities and the challenges in the sector. They have shown support for advancing discussions with the federal government on critical issues such as excise reform and strategies to strengthen the legal cannabis market. While there's still a lot of work ahead, this growing alignment is an encouraging sign of constructive dialogue and a shared commitment to finding practical forward-looking solutions. In closing, we've made some strong progress in fiscal '25 across cultivation, market execution and international expansion, which translated into record financial performance for Organigram. As we move into fiscal '26, we will continue to build off that success and focus our efforts on disciplined execution and fundamentals with a clear emphasis on sustainable growth, margin expansion and continued leadership in the markets where we operate. With that, I'll turn the call over to Greg to walk us through the financials in more detail. Greg?

Thank you, Tim. We are pleased to once again report record results, and we're very excited to build upon our fiscal 2025 success in the coming year. In Q4, net revenue increased 79% to $80.1 million from $44.7 million in the same prior year period. Similarly, full year fiscal 2025 net revenue increased 62% to $259.2 million from $159.8 million in the prior year. These results were driven by contributions from our Motif and collective project acquisitions, which were completed on December 6, 2024, and April 1, 2025, respectively. We maintained our #1 position in Canada's growing market through broad portfolio coverage and coast-to-coast distribution and the scale-up of our international business, which in Q4 grew 31% sequentially over Q3 and 137% year-over-year to reach $9.7 million. For the full year fiscal 2025, international sales hit a record $26.3 million, a 171% increase versus the prior year. As Tim mentioned, we are anticipating continued growth in both our domestic and international businesses in fiscal 2026, supported by increasing distribution of vapes and pre-rolls, exciting renovations in our product portfolios and increasing international demand. Given the maturing dynamics in Canada and single-digit growth rate, we anticipate international sales to grow at a significantly higher rate in the coming year. Adjusted gross profit for the quarter increased 85% to $30.6 million versus $16.5 million in Q4 last year due to our significantly higher revenue base, international sales growth, incremental efficiency gains, partially offset by higher biomass costs. On a full year basis, adjusted gross margin was 35%, in line with our fiscal 2025 guidance and a 100 basis point increase from last year. This translated into record adjusted gross profit of $91 million versus $53.9 million last year. Adjusted gross margin in Q4 rose by 400 basis points over Q3 to 38%. While we are pleased with this progress, we see further margin improvement in fiscal 2026, driven by several key factors. First, we are realizing synergies from the Motif acquisition. In fiscal 2025, we achieved approximately $7.1 million in cost savings, which on an annualized basis reflects more than $15 million in savings, in line with our previously disclosed target. We did see some offsets during the year, including higher biomass costs, a temporary disruption to our OTIF performance related to the Motif ERP integration, which we discussed last quarter and higher benefits costs for legacy Motif employees. In addition, a portion of these savings relates to lower consumables and production costs, which will only flow through earnings as the associated inventory is sold. With the majority of the integration now complete, we expect operational leverage from the Motif acquisition to continue building through fiscal 2026. Second, we continue to optimize our cultivation methods to increase output per square foot in Moncton, benefit from our recent LED lighting upgrades and reduced labor costs associated with plant care. Third, we anticipate incremental margin lift from the continued international growth. These drivers support our expectation that adjusted gross margin will continue to improve in fiscal 2026 with full year margins higher than fiscal 2025, in line with previous guidance. In Q4, G&A costs were $17.6 million versus $9.5 million in the prior year period. The year-over-year increase in G&A of approximately $8.1 million was primarily associated with the consolidation of Motif's costs, incremental ERP and professional fees, partially offset by some cost savings initiatives. As a proportion of net revenue, G&A costs represented roughly 22% of net revenue in Q4, which was flat sequentially and up approximately 100 basis points from the same prior year period. In fiscal 2025, G&A costs of $59.5 million represented 23% of net revenue, down from 28% of net revenue last year. Selling costs for the quarter, including marketing, were $8.9 million versus [Technical Difficulty]. As a percentage of net revenue, selling and marketing expenses remained flat sequentially and year-over-year at approximately 12%. In fiscal 2025, these expenses of $31.1 million represented 12% of net revenue, approximately 400 basis points lower than in fiscal 2024. Overall, SG&A has declined year-over-year as a proportion of net revenue as we continue to scale the business and realize the benefits of greater operational leverage. Total operating expenses for the quarter increased 8.5% to $30.6 million from $28.3 million in the prior -- than the prior quarter, representing approximately 38% of net revenue, down approximately 200 basis points sequentially. Compared to the prior year period, total operating expenses as a percentage of net revenue were effectively flat. Adjusted EBITDA set a company record in fiscal 2025. In Q4, we reported adjusted EBITDA of $9.8 million, an increase of 72% sequentially and 69% year-over-year. In fiscal 2025, adjusted EBITDA was $21.9 million, up 160% from $8.4 million in 2024. We're very pleased with this performance, which we expect to build upon in the future. An interesting fact is that Q4 adjusted EBITDA exceeded the entire year of fiscal 2024. The increase in adjusted EBITDA, both in the quarter and for fiscal 2025 is attributable to our larger scale, increased international sales and proportionately lower operating expenses. Our net loss for the quarter was $38 million compared to a net loss of $5.4 million in the same prior year period. The increase in net loss of roughly $32.5 million year-over-year was primarily due to a higher noncash mark-to-market adjustments in the fair value of derivative liabilities, preferred shares and other financial assets. This change was partially offset by higher sales and improving gross margins in Q4 fiscal 2025, reflecting operational efficiencies, product mix optimization and ongoing cost management initiatives. For the fiscal 2025, net loss decreased 46% to $24.8 million from $45.4 million in the prior year period. The decrease in net loss from fiscal 2024 is primarily due to higher sales at higher adjusted gross margins and a deferred tax recovery that was reported in fiscal 2025. From a cash flow perspective, in Q4, cash provided by operating activities before working capital changes was $3.1 million compared to $1.2 million in the prior year period. In fiscal 2025, cash used by operating activities before working capital changes was $5.5 million compared to cash used of $11.1 million in the prior year period. This improvement in both periods was attributable to our higher adjusted EBITDA. We previously estimated free cash flow to be positive for Q4 fiscal of 2025. The company had free cash flow just shy of positive at negative $0.7 million in Q4 fiscal of 2025, which was lower than projected, primarily due to higher investment in working capital than previously planned. Finally, as of year-end, we had total cash and short-term investments of $84.4 million, of which $28.2 million was unrestricted. While we believe our near- to medium-term capital position is healthy, we regularly evaluate our capital structure to ensure we're maintaining appropriate long-term financial flexibility. We feel very confident in our outlook for fiscal 2026. This is supported by our record financial performance in fiscal 2025, our margin improvements and the continued expansion of our international business. We expect to deliver very strong year-over-year growth in Q1, while noting that consistent with prior years, we anticipate a seasonal sequential reduction versus our typically strong Q4 results. For fiscal 2026, we are projecting continued strong net revenue growth expected to exceed $300 million, along with further improvements in adjusted gross margin and adjusted EBITDA compared to fiscal 2025. We also expect to generate free cash flow in fiscal 2026 with capital expenditures expected to be less than $10 million. To conclude our prepared comments, I'd like to turn the call over to our Executive Chair, Peter Amirault. Peter, over to you.

Thank you, Greg, and thank you, everyone, for joining us today. Look, I just want to close by acknowledging a couple of things. First of all, I want to talk about the strong momentum that Organigram has built this year. We delivered record revenue. We delivered our highest gross margin and adjusted EBITDA since 2019, and we continue to be the #1 position in the Canadian marketplace, while accelerating our international growth and shipments. I'd also like to talk just quickly about the Motif Labs acquisition. As many of you know, M&A transactions are difficult. Data would suggest that up to 75% of these transactions never achieve their financial targets. Well, Motif has been a clear outlier. The integration strengthened our capabilities, contributed meaningfully to our financial performance and importantly, we did so without losing any market share. So as we look ahead, we also expect continued growth as Greg has said, supported by a stronger platform, expanding international opportunities and the operational discipline that has driven our recent success will help drive our margin. And one other point, we'll also be fairly focused on our SG&A expense as well. Before closing, I want to do 2 things. I want to extend our sincere thanks to Beena Goldenberg, Beena and her leadership and steady hand through a dynamic period for both Organigram and the industry. Her contributions have positioned us very well for the next phase. Finally, we're also very pleased to welcome our new CEO, James Yamanaka, who will be coming in early January. James brings a wealth of experience. He has a deep global strategy experience with BAT and a proven record of scaling international businesses, and we believe his leadership is timely and will be invaluable as we advance our domestic priorities and clearly look to work to expand our global footprint. With that, I'll now open the call for questions.

[Operator Instructions] Your first question comes from the line of Aaron Grey with Alliance Global Partners.

Congrats on the strong quarter to finish the fiscal year. First question for me, I want to talk about international. Strong quarter here. I want to talk about how good of a base this might be to build off of. I know you talked about significant growth in fiscal year 2026. How much -- and then also more color in terms of how much of that enhanced cultivation, I believe you said 14,000 kilograms last quarter. Have you started to realize that? Or is that still to come? Because I know that was pegged for international. So any commentary on international growth expectations you expect going forward and then maybe some of the supply-demand dynamics you're seeing within those markets?

Yes. Maybe -- thanks for the question, Aaron. Maybe I'll kick that off. So yes, we're starting to realize this increased capacity already. We recently increased -- we're looking at about a 14,000 kilograms annual capacity increase with the changes that we just made. That includes our LED light switchover to high-density LED lights turnover time lines on our rooms and some nutrient programs that we've been rolling out along with our seed-based growth. So we have 14,000. We expect to grow further capacity in fiscal '26. I think from a supply and demand perspective, we're well positioned for fiscal '26. Obviously, Germany is growing exponentially right now. We feel very comfortable in our supply growth that we have right now to be able to shift that into Germany and other international markets. And we are seeing more capacity come online even from a competitive landscape. So we are seeing more volume that's going into these markets and more capacity that's coming online from a competitive perspective. But overall, we are taking a disciplined approach to capacity expansion, and we do believe that our planned increase in fiscal '26 is appropriate in the near term. We are evaluating other options to expand flower capacity further though. So if we need it, we will move as the market continues to grow.

Tim, is it also fair to add that we've also got some derivative products that will be shipped internationally in fiscal '26?

Yes. That's a whole other -- we are looking at other categories to expand out as well. Australia, for example, like Germany is really flower right now in oil. So -- but with countries like Australia and other international markets, they're opening different categories up. Vapes, for example, and gummies. So we are -- we've lined up with very strong strategic partners in Australia, and we will be launching branded vapes into the Australian market along with gummies into the Australian market in the coming months. So we're excited about that as well. So it's not just flower as more categories open up, that also gives us other opportunities to grow the business internationally.

Appreciate that color. That's helpful. Second question for me, just on the gross margin. I know you talked about the expectation for it to be better than 2025, 35%. So just want to get some more color given the strong 4Q of 38%. Were there some one-offs in 4Q that could moderate during 2026? Or is it fair to say that there might be some conservatism maybe within the gross margin improvements going forward? And I just want to clarify that does not include any further enhancement once you receive the EU-GMP.

Thanks, Aaron. Yes, the 38% that we had in Q4 was obviously something we're very happy with. It is a 100 basis point improvement over the same period last year. So going into fiscal 2026, we're expecting that to continue improving. I would say Q1 is traditionally not our strongest quarter from a seasonality perspective. So we expect less scale to benefit from in Q1. But over the course of the year, we expect a positive trend in gross margin, really driven by the operational improvements that Tim talked about. We've been able to pretty significantly increase our capacity without making major capital investments and physical changes to the facility. And all of that is really bringing down our cost per gram, which is driving those margin improvements. Also, we mentioned the Motif acquisition. We're starting to realize the synergies from that. That's a further improvement to adjusted gross margin. And then finally, when we do eventually get our EU-GMP, which we're waiting on patiently, that's going to have another positive as well because that will drive further margin on our international business. So overall, I think last year or last quarter, I guided towards margins approaching the 40% range, and that still holds. We're expecting margins to continue to grow over the course of the next year.

And just one quick comment. It's Peter. I would say the 38%, we're happy with, but we're not satisfied. We think there's more.

Yes. Another lever that we have is from the commercial side of the business. Obviously, we're looking at SKU rationalization and emphasizing more on our high-margin categories, which is a big focus for us, but also taking price when earned. We took 2 different price points -- price increases in fiscal '25, and we just took another one early fiscal '26. Now if you look at the overall category from a pricing perspective, price compression is only really impacting AIOs or all-in-one vapes over the past year. We've seen an increase in the ASP pricing on flower over the past year as there's this balance between supply and demand in the Canadian market and LPs have taken price, and we're one of them. So I think that definitely helps to drive margins as well.

Okay. That's great to hear. I appreciate the color. I'll go and get back in the queue.

Your next question comes from the line of Brenna Cunnington with ATB Capital Markets.

Congrats on the quarter. Just continuing on the line of thought with the Motif synergies materializing and approaching 40% margins next year, roughly how much of this margin improvement do you think would be from further synergies from Motif versus cultivation improvements and other improvements in just general fundamentals?

Yes. I think when you look at the scale of our Moncton facility and the cultivation, that's going to drive the majority of the margin improvement that we're seeing. I mean, look, we've already recognized a fairly significant amount of Motif synergies in the back half of last year. We do expect it to continue. But I'd say more of the synergies are going to come from operational improvements in Moncton independent from the acquisition. Just the cost per gram itself is coming down, and that just drives a significant amount of margin improvement.

Got you. And then, yes, we also noticed that the yield per plant improved in the last quarter as well. So that's good to see. And then our second question is just regarding CapEx plans. You're sitting on a decent amount of cash, specifically with the restricted cash that's preserved for investment. Could you just run us through again some of the plans for investments in the next year?

Yes. So last year, we spent -- invested a pretty significant amount into the business of around $17 million. For fiscal 2026, we expect that to be significantly lower, less than $10 million. We're obviously always evaluating new opportunities for investment in the facilities. But right [Technical Difficulty] foundation of what we have today, along with just sort of sustaining capital expenditures to keep advancing the business. Last year, we did look at doing an expansion in Moncton. We ultimately put that on hold because we were able to achieve those objectives through process improvement and through the LED light project. So I'd say CapEx plans are modest for the next year, but it's something we'll continue to evaluate as opportunities come up.

Okay. Perfect. Those are my questions. I'll hand it back.

That concludes our question-and-answer session. I will now turn the call back over to Tim Emberg for closing remarks.

Thank you. Well, listen, I just want to thank everybody for your time today. Obviously, we're extremely excited of the quarter that we just had in the year we just had. We're pumped for fiscal '26 as we feel we're going to continue to take that momentum to drive growth, both from a domestic side and the international side. I'd like to take a moment to wish you all a very happy holiday season as we're getting close to the holidays now. And we look forward to relooping in February for our Q1 results. So thank you.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.