Hello, and thank you for joining today's conference call to discuss Tilray Brands' Financial Results for the Fourth Quarter and Fiscal Year 2024 ended May 31, 2024. [Operator Instructions] I'll now turn the call over to Ms. Berrin Noorata, Tilray Brands' Chief Corporate Affairs and Communications Officer. Thank you. You may now begin.

Thank you, operator, and good afternoon, everyone. By now, you should have access to the earnings press release, which is available on the Investors section of the Tilray Brands website at tilray.com and have been filed with the SEC and SEDAR. Please note that during today's call, we will be referring to various non-GAAP financial measures that 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 the forward-looking statements. The text in our earnings press release includes many of the risks and uncertainties associated with such forward-looking statements. Today, we will be hearing some key members of our senior leadership team, beginning with Irwin D. Simon, Chairman and Chief Executive Officer, who will provide opening remarks and commentary; followed by Carl Merton, Chief Financial Officer, who will review our financial results for fiscal year 2024 and fourth quarter. Also joining us for the question-and-answer segment are Denise Faltischek, Chief Strategy Officer and Head of International; Blair MacNeil, President of Tilray Canada; and Ty Gilmore, President of Tilray Beverages North America. And now I'd like to turn the call over to Tilray Brands' Chairman and CEO, Irwin D. Simon.

Thank you, Berrin, and good afternoon, everyone, and thank you for joining us today. Before diving into our fiscal 2024 results, I'd like to take a moment to reflect on the evolution of Tilray Brands. Back in 2019, Aphria was a cannabis-focused Canadian LP with only $50 million in revenue and minimal cash reserves. Since then, we've taken a strategic approach to diversifying our operations and growing our global businesses. Through a combination of organic growth, strategic acquisitions, we have disrupted the CPG industry by expanding our footprint into new markets and adjacent business categories. Today, Tilray Brands is a leading global lifestyle company, spearheading the conversion of cannabis, beverages and wellness products and is elevating lives through moments of connection. We are operating in more than 20 countries across North America, Europe, Australia and Latin America, with five businesses in medical adult-use cannabis, beverages, spirits, wellness products and 44 consumer connected lifestyle brands. As a vertically integrated company, we have 20 facilities that service our collective businesses allowing us to produce approximately 90% of our products internally, ensuring the high quality of our products. This is a testament to our success in building a diversified global business that is dedicated to providing the best possible products for our consumers. We're incredibly proud of the progress we've made in the short time and are excited to continue driving innovation and growth in the years ahead. Fiscal 2024 marked a year of significant accomplishments for Tilray Brands, achieving our best financial results to date. We achieved 26% net revenue growth with annual record net revenue of $789 million, record adjusted gross profit of $236 million, record adjusted EBITDA of $60.5 million, adjusted net income of $6.2 million and positive adjusted free cash flow. We also strengthened our balance sheet by significantly…

Thank you, Irwin. I'll begin with a brief overview of our annual results for fiscal 2024, before moving on to a more in-depth review of Q4. Note that we present our financials in accordance with U.S. GAAP and in U.S. dollars. Throughout our discussion, we will be referring to both GAAP and non-GAAP adjusted results, and we encourage you to review the reconciliation contained within our press release of our reported results under GAAP with the corresponding non-GAAP measures. Net revenue for fiscal 2024 grew 26% to $788.9 million, compared to the prior year at $627.1 million, which as Irwin stated, was a record outcome. By segment, beverage alcohol revenue increased 113%, largely attributed to the acquired brands. Cannabis net revenue rose 24% year-over-year, inclusive of $9.8 million due to price compression in Canada, of which nearly all represented a reduction in EBITDA. Distribution net revenue was flat, and wellness net revenue rose 5% for the year. From a segment perspective, 25% of our net revenue was generated by our beverage alcohol business, 35% was generated by our cannabis business, 33% by our distribution business, and 7% by our wellness business. This compares to 15% beverage alcohol, 35% cannabis, 41% distribution, and 9% wellness last fiscal year. The year-over-year variance is due to our acquisition of HEXO, the new craft brands, and the remainder of the Truss Beverage brands. Further, as we progress through a full year with the new beverage alcohol brands, we anticipate these ratios to converge around 30% beverage alcohol, 30% cannabis, 30% distribution, and 10% wellness. Gross profit for fiscal 2024 increased 52%, to $223.4 million, another record, compared to the prior year at $147 million. Gross margin increased 28% from 23% in the prior year. Adjusted gross profit increased 14% to $235.6 million from $206.4…

Thank you. [Operator Instructions] Our first question is coming from Robert Moskow from TD Cowen. Your line is now live.

Hi, thanks for the question. I believe you normally give EBITDA guidance. I'm kind of new to the story. So can you tell me whether - what was the decision regarding EBITDA guidance for fiscal 2025?

I think - from anything drove it, but I think sales and as a growth company, it's based around revenue, but our cash flow, our free cash flow. And I think as we've outlaid where our goals are to get to margins, I think, Robert, you're a pretty smart analyst, I think EBITDA is something we can figure out. And I think as a growing company and things happen, but I think it all starts in the sales number and it all starts on the organic growth number. And the rest runs back through the P&L, that's why no other reason why.

While you used to give it, and now you've decided to - not provide that range going forward?

I think it's - we give the sales, we give our organic growth and we give expectations on where our margin is. I think, the rest can usually flow through the P&L.

Okay. Can you give us a little kind of step-by-step status on - for the next 12 months towards integrating your ABI brands and how the gross margins will improve, like what needs to happen next?

Well, I think number one, it starts with these brands starting to grow again. And some of the examples we showed is what was happening with Shock Top, what was happening with some of the 10 Barrel, so that's number one. We put a lot of innovation out there and getting that innovation out there, and we've seen some great results so far from that. As we look today at our manufacturing facility and heard what I said before, 90% of our products are made in our own facilities. So ABI was doing some of our manufacturing, and how do we bring more and more of that - more of that manufacturing into our facilities. Our prior gross margin at SweetWater was in the high 40s, low 50s, so how do we get some more efficiencies at a purchasing at some of the production standpoint? So that is number one. Number two is we have 500 distributors out there. And some excellent distributors that came along with the ABI, some excellent distributors. Is there some consolidation opportunities there? And all these distributors are looking for more and more business, so how do we grow with them? So that is the big thing. Also, we're looking at some international opportunities where we could grow our business internationally. So that's the big thing. And you come back and look at it today, where these margins, were when we bought them and where our legacy margins are? And that is a big focus. Last week was our strategic planning meetings and that's our big focus. If you can grow our gross margins by a few points, that's a lot of dollars dropping to the bottom line. And you heard Carl talk about giving guidance in regards to high to mid-single organic growth, plus the acquisition growth, that's pretty good growth out there where beer category is not growing at all. And if we can get a few points on the gross margin, there's a lot of money that drops to the bottom line here.

Okay. Thank you very much.

And the big thing is, when we went out and did our first acquisition of beer, we're selling 2.5 million cases. We're going to sell 12 million, 13 million cases of beer next year. So there's a lot there of costs that we can take out.

Thank you.

Thank you.

Thank you. Next question is coming from Andrew Carter from Stifel. Your line is now live.

Hi, thanks. Just want to get back to the EBITDA kind of thinking about you came in at seven, eight kind of EBITDA margin this year. Your growth for next year kind of putting you in incremental $162 million to $200 million. Could you - how should we think about incrementals? Does the EBITDA margin expand from here? Just anything directionally? And then I'll just - I'll tie this all into one question. As far as the free cash flow outlook goes, I don't know if you gave CapEx, could you give that? How should we think about working capital this year? And anything else that should the free cash flow grow from here? Thanks.

So just - and I'll turn it over to Carl, too. Just on the EBITDA margin, first of all, as you heard me say before, when we acquired these businesses, it was pretty low in regards to where the gross margin looks. They were not integrated and there's a lot of costs that we have taken out. And you heard what I said before on the HEXO business, we've taken out over $31 million, $32 million in regards to cost savings on HEXO. So today, as a company and as we gave sales guidance, between $950 million to $1 billion and as we add on to that top line organic growth plus acquisition growth, get those margins, there's a lot more that, Andrew, that drops to the bottom line there that goes into your EBITDA margin. And listen, I come back and you heard what I said in my script. We expect that there would be some relief in regards to excise tax it's not going - it's not happening. So between excise tax at $100 million, paying much higher cost for insurance because of our cannabis business, and much higher cost in regards to some of our legacy license that we have with IT. We're digesting well over $100 million just of cost and price compression, which over the last few years has been over $200 million. So, we're digesting a lot of these costs within our P&L, but we're taking a lot of costs out of our business, and we're also getting a lot of organic growth, to offset that. Carl?

Just on CapEx, we spent about $30 million this year on CapEx. We spent a little over $20 million a year before. CapEx for next year will be right in that range. As it relates to working capital, we don't see the need to grow the working capital from where we're at today over the next year.

So - and just on that, we spent between CapEx. We spent it on Masson in conversion there. We sell over $6.5 million in regards to our SweetWater facility. We spent some other CapEx in some of our other facilities. So with that, we got some pretty efficient facilities and pretty - a lot of CapEx that could expand. So, we don't expect to spend a lot of CapEx going into next year - into this year.

I guess just one more question on kind of the - you mentioned the $10 million headwind to EBITDA this year from price compression. If you had to kind of like straight-line pricing at this point, would - where would the headwind be to EBITDA next year from pricing. And as you mentioned the innovation, are you able to - is the innovation accretive from a pricing perspective, therefore, less excise tax or gross margin accretive, whatever you want to call it? Is it accretive to your cannabis growth? Thanks.

So, I hate to tell you, there's no relief on excise tax, just to be clear to everybody on this call, excise tax is a fixed amount where you're paying $1 a grant. If the prices keep coming down 20%, 30%, 40%, you're still paying excise tax. As a matter of fact, as a percentage, our excise tax as a percentage of sale keeps going up. So just remember, our price compression over the last couple of years has been about $200-plus million. If that never happened, that would just ultimately your cost of goods that drops to your bottom line. So with that, we feel good. And you heard what Carl said in regards to other LPs, not being able to pay excise tax in the Canadian government going after them and forcing them away. So number one, we feel good that pricing now basically has flattened out. And if anything, we're looking to get some price increase, and the question you asked some of the new innovation that we're coming out with, is unique to what Tilray can do. And hopefully, we can get higher prices for them. So hopefully, we're not going to see anywhere near the price compression we have seen over the last couple of years, Andrew.

Thanks. I'll pass it on.

Just to give some….

Go ahead, Carl.

Just to give some cadence on that through the year. We were looking at about $3 million a quarter, up until the fourth quarter. I mean we did not see any price compression in Q4.

Thank you. [Operator Instructions] Our next question is coming from Aaron Grey from Alliance Global Partners. Your line is now live.

Hi, good evening, and thank you for the question. So first question from me, I want to talk a bit about Germany since the law changed there. I believe you mentioned a 65% increase since April 1. So just wanted to clarify, was that specifically for increase in the quarter? Or will you see it today relative before the change? And then just any further commentary you can provide? I know you talked about your own production increases, buybacks domestically and you have Portugal as well. But anything you're seeing overall within the market in terms of scripts, are you seeing some bottlenecks that are maybe keeping the market from growing even faster, than it could. So just your overall sense in terms of, how you're seeing the market evolve there? Thank you.

Thank you. I'm going to let Denise answer that question.

Thanks, Irwin, thanks for the question. So in terms your first question in terms of the 65% growth, given that we're reporting on the end of the fiscal year as of May 31, this is a number that reflects basically our Q4 growth from the April 1 adoption, of the new regulations. And then second, in terms of like your question in terms of what bottlenecks and potential challenges we're seeing in the marketplace. One of the things we are seeing is, in fact, the German government is becoming overwhelmed with the import and export permits, the import permits into Germany. We've been hearing basically given some of the increased demand on medical cannabis in terms of increasing patients, increasing number of prescriptions, we have, in fact, seen the permit timing going from two weeks to six weeks. The other thing that we're seeing also is in terms of the ability to fill prescriptions very quickly given the increased demand. So those are the two bottlenecks that we see. And I think both are more short-term. As in fact, both sort of aspects of the supply chain when we import from Germany government, and then fulfillment of prescription start to level out as more and more resources - against those. So, I do see them as temporary measures in terms of restrictions on growth.

Okay. Great. Thank you very much for that color there And then second quick one from me, just on the hemp-derived Delta-9 beverages that you mentioned again on this call. Formulations are complete. You mentioned some - you to do it state-by-state. I believe you mentioned Texas and New Jersey as two of the states. So just any commentary on how many states you believe right now you'd be able to sell into? And then how the conversations you're having with some of your distributors, both larger and smaller in terms of the desire for these hemp-derived beverages. Have you seen the desire increase, especially their ability to participate with someone, which is an existing player like you guys with alcohol beverages? So how are you seeing the overall demand for the Delta-9 beverages? And how many markets you think you're going to build into within the current environment? Thanks.

So number one, you heard me say before, and I wouldn't put a dollar value on it, but if we could sell our THC beverages that we produce in Canada today in the U.S. It would be a large-sized business for us, if we could ever do that. With that, we can't - as we can't sell anything that are THC-infused products. We're looking, and you heard me mention the states we're looking at, and I will tell you this year. There is a lot of our beer distributors that have reached out to us and want the product right away, because they have seen in markets where it is how well the sales are doing. So, we'll look at rolling it out online in some markets. And the markets we feel that we can do it and we can do it legally, we do it right. There's about three or four markets that we would do right away. We do have the products - we do have the product that has been developed. We have the formulations. We don't have products out there today, but we do have the formulations. We do have the product ultimately ready to go once we can - get the go ahead and we know what our plans are and which markets.

Okay. Great. Thanks for the color and I'll jump back into the queue.

Thank you.

Thank you. Our next question today is coming from Owen Bennett from Jefferies. Your line is now live.

Afternoon guys, hope all well. And I just had a couple of questions on beverages. The first one, on energy drinks, obviously, a very attractive category, but also very competitive. I was just wondering how you're thinking about what you think you need to do to be successful in that category? And will the focus be on HiBall? Or are you planning to launch additional brands as well? That's the first one? Thanks.

So I think - and again, to cross a little broken up, well, the focus is beyond our beverages, was that what you're asking and what beverages, what brands within our beverage business.

No, no, sorry, you didn't hear me. It was on the energy drinks specifically.

On the energy drink…

Yes, very attractive but very competitive. What do you think you need to be successful in that category? Will it just be HiBall or additional brands beyond HiBall?

Okay. Okay. Okay. I got you, Owen. Sorry about that. So Owen, I got to tell you, in my career, I've got lots of requests from consumers. I've never had so many requests for consumers on HiBall when ABI discontinued the product. So there will be a big focus on our HiBall product. We come out with a water product called Liquid Love. We tested in the marketplace with some very, very high results and good results on that. Our non-alcoholic beers, if I was to put that in a glass and even you, who know beer, ultimately, I'm not sure you know the difference between that a regular beer in the non-alc. So we've come out with some good energy drinks. We've come out with some great non-alc beers. We've come out with some water drinks with Liquid Love, both in sparkling and still in multiple flavors. And so far, the demand from our distributors in that and our consumers has been strong. But we'll continue to push out the innovation that we have put forth in regards to some of the stuff that we've come out with Montauk, some of the SweetWater, some of the 10 Barrels, some of the new flavors that we've come out with Shock Top, or some of the exciting things. So, we see tremendous growth and tremendous growth in some of the brands that we acquired, returning to growth where they were declining.

Okay. Sounds fair. And then just one quick follow-up on Aaron's question on THC. Are you planning to sell this by e-commerce as well so you can get international?

Sorry, Owen, it sounds like you're talking into like a cut. Can you just repeat the question?

I think the question was on Delta-9.

Yes. Are you planning to sell up by e-commerce as well?

Yes. Like I said before, on Delta-9, it's something that we're going to focus on, and we will sell it in e-commerce, but we will sell it into retail through beer distributors that everybody, is in agreement that can take it and in retail markets that we can sell it. And so far, we've had a great response from our distributors and retailers that are interested in this product.

Great, thanks, guys. Apologies for the bad line.

No, no, no problem. Thank you, Owen.

Thank you. Next question is coming from Frederico Gomes from ATB Capital Markets. Your line is now live.

Hi, thanks for the question. Just a follow-up on Germany. Given the increased demand that you mentioned there, can you just comment on what you're seeing on the supply side? Is there enough product there to serve that market as demand grows? And in terms of pricing, are you seeing any sort of increase there? Thanks.

So, no problem. Basically, what we're seeing in terms of supply, so in essence, product seems to be selling as soon as it comes into the market. Not only - what I'm hearing, not only on our product, but also in terms of product from other competitors into the market. It does not feel as if the market is saturated at all at this point. And so in essence, I think there's still definitely room for additional supply on medical cannabis into the market. And when I say that, I mean mostly on whole flower. The extract market is growing at a slower pace, whereas the patient-led whole flower side of the market is growing at more a faster pace. And so, what we see is the market will probably enter into a segmented approach in terms of looking at premium mainstream products and value products. And you'll start to see more, I think, segmentation come through the market as there's more proliferation in terms of product quality. And we will look to participate in all the various different parts of that segment in market. So we're pretty excited about it.

Thanks for that. And then my second question, is just on your organic growth guidance. Could you just maybe provided a bit more color in terms of your segments? Is there any specific segment that you expect will be responsible for most of that organic growth? Thanks.

And just in that organic growth number, a big part of our business, there's no organic growth that we're kind of looking from in our CC Pharma. If anything, what we're looking there is margin growth and cash flow. But it's just a smaller business in regards to our wellness growth we're looking for same growth last year. But we're looking at double-digit growth coming out of both our cannabis and our beer business - our beverage businesses, and that's where the big growth is. Low to mid-single growth on wellness, no growth really coming from our CC Pharma - our medical distribution business.

Thank you very much.

Thank you.

Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over to Irwin for any further or closing comments.

Well, thank you, everybody, for joining us on this summer day. Listen, we've had a lot of good stuff report today, a record sales. And if I look back to 2019, at being a $50 million business and this year, we have guidance out there between $950 million to $1 billion. And that is without anything happening in the U.S. So in terms of this guidance includes anything in regards to rescheduling in the U.S., anything that happen in the U. S. And over the last five years, everybody kept asking me, what's happening in the U.S., what's happening in the U.S., a lot of things would change within Tilray. If something happened in the U.S. We're excited about the opportunities in Germany in regards to even the change in selling more and more, infused drinks in the U.S. could change dramatically. We've had to deal with the higher excise tax in Canada. We've had to deal with higher costs, because of cannabis issues in regard to insurance and IT costs and protecting ourselves, but this is a team that's made sure we could overcome that in other ways. So one of the things as companies look today is leverage. And as we sit today with 1.7 times leverage, and that we're able to pay $300 million of our subordinate debt last year between our cash our cash flow and just using equity is something to be very, very proud of. So over the last 5 years, we have built something that's pretty exciting, a lifestyle company that's focused on cannabis, which is cannibalizing alcohol, of course. We have a real exciting craft beer business, and we think there's a lot of growth in the crack beer business. We think there's a lot of growth in the beverage business. We…

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.