Entourage Health's Revenue Slips as Losses Mount

Late after the markets closed on Monday, Entourage Health Corp. (TSX-V: ENTG) (OTCQX: ETRGF) announced its financial results in Canadian dollars for the fiscal year ended Dec. 31, 2022. Revenue in the fourth quarter fell sequentially to $12 million from the third quarter revenue of $13 million.

It was also slightly lower than last year’s fourth quarter revenue of $13 million. The loss in the fourth quarter was $78 million versus last year’s loss of $44 million for the same time period.

Full-year revenue at Entourage fell slightly to $54 million for the year from last year’s $55 million. The net loss for the year was $123 million versus last year’s net loss of $78 million. The loss per share was ($0.40) versus last year’s net loss per share of ($0.32).

Shaky Grounds

The cash and cash equivalents fell from $21 million at the end of 2021 to $9 million at the end of 2022. The company also has an eye-popping accumulated deficit of $319 million. Entourage has a working capital deficiency of $(101,793,647).

“The Company anticipates it has sufficient cash on hand to service its liabilities and fund operating costs for the immediate future with the additional sources of funding actually received in February 2023, as well as additional funding expected during 2023. However, there is uncertainty as to how long these funds will last,” the company wrote in its annual report.

“Attaining success in the cannabis market requires a two-fold approach, which involves producing high-quality products that foster customer loyalty while also implementing sound financial management practices that enable sustainable business growth,” said George Scorsis, CEO and executive chairman.

“By adopting an asset-light model, we are focusing on investing in strategic partnerships and executing a strong business plan that prioritizes enhanced efficiency and cost accountability. This approach will enable the company to focus on its core competencies, establishing a strong brand presence within the constantly evolving cannabis industry.”

Cost Cutting

In November 2022, Entourage announced the planned closure of its Strathroy facility, which will be effective in early 2023, and the execution of a long-term cannabis supply agreement with Hexo Corp.

“These two strategic initiatives were done in an effort to attain profitability and positive cash flow from operations; however, the timing of when this will occur is subject to material uncertainty,” the filing stated.

While the company obtained a waiver for its credit facility with Liuna Pension Fund, Entourage is also seeking “additional financing from its strategic investor and lender to settle any amounts arising from the shortfall between the expected sales proceeds related to the Strathroy Facility and the outstanding credit facilities with BMO.”

Instead of growing its own cannabis, Entourage said it will outsource cultivation to a third-party supplier. It said the decision will help it reach profitability targets, improve productivity, and reduce fixed costs. The company said it could sell the Strathroy facility to a third party for $9.4 million.

“Despite encountering revenue stagnation in 2022 because of a product shortfall last spring, initial indications imply that the partnership with HEXO, our third-party supplier, is positively impacting overall operations,” stated Vaani Maharaj, CFO of Entourage Health. “Additionally, we have implemented several measures to review and optimize our cost structure, focusing on disciplined cash and inventory management and greater operational cost improvements. We anticipate these efforts will result in approximately $12.0 million in annualized cost savings.

“The infusion of $30.0 million in financing from LPF and deferred debt payments has strengthened our Company’s liquidity and provided additional support for our operations and growth initiatives,” Maharaj continued. “This financial boost positions us to pursue new projects, expand our market presence, and implement other growth strategies to create shareholder value and strengthen our balance sheet in 2023.”

The company said it will defer the earnings call for the fourth quarter and fiscal year 2022 to align with the first quarter 2023 earnings results on or before May 30, 2023.