Share prices for Organigram Holdings Inc. (Nasdaq: OGI) (TSX: OGI) were up nearly 8% in early Thursday trading after results illustrated the company’s financial discipline, as it trimmed losses and posted revenues that beat expectations for the first quarter ending November 30, 2022.
The Canadian cannabis company reported net revenue of $43.3 million, up 43% from $30.4 million in the same time period last year. This beat Yahoo Finance’s average analysts’ $30.37 million estimate by more than $10 million. Organigram attributed the rise to an “increase in adult-use recreational and international revenue, partly offset by a decrease in medical sales.”
Organigram posted a net income of $6.1 million in the first quarter, versus a net loss of $1.3 million in the same time frame last year. The company said that the transition to positive net income is mainly due to higher gross margin from higher revenues, lower per-unit production costs, decreased inventory provisions, and unabsorbed overheads.
“Our first quarter of fiscal 2023 demonstrates the success of our expansion at Moncton and continuing productivity improvements in fiscal 2022,” CEO Beena Goldenberg said in a statement. “In the quarter, we achieved a record harvest and the lowest cost of cultivation in the history of the company. We maintained our market position and are confident our disciplined approach to operations and innovation will drive further success in the rest of the year.”
The company posted an adjusted gross margin of $12.8 million in the first quarter – 30% of net revenue – which was up from $5.5 million (18% of revenue) in the same time period last year.
Selling, general & administrative (SG&A) in the first quarter rose to $15.7 million from $12.6 million in the same quarter last year.
Adjusted EBITDA income was $5.6 million versus a loss of $1.9 million in the first quarter last year, pointing to the increase in adjusted gross margins due to the higher volume of products sold and lower cultivation and post-harvest costs.
Stifel analysts said in a report this morning, “We are encouraged with today’s results which provide a glimpse into the potential for OGI’s platform as the company leans into its expanded Moncton facility and benefits from the doubling of its Laurentian (hash) facility towards the end of FY23. As a result, we expect shares to outperform today.”
Organigram said it believes its capital position is healthy and that sufficient liquidity is available for the near to medium term. The company had unrestricted cash and short-term investments worth around $95 million, versus $99 million as of August 31, 2022. The decrease is primarily a result of capital expenditures of $8.4 million, “which was partly offset by cash generated in operating activities of $3.5 million.”
Outlook for 2023
Organigram expects this year’s revenue to be higher than that of fiscal 2022.
The expectation, it wrote in a press release, is largely due to “ongoing sales momentum, stronger forecasted market growth, the company’s expanded product line in multiple segments, greater capacity to meet demand at the Moncton Campus, increased throughput at the Winnipeg facility and contributions from the Lac-Supérieur facility.”
Additionally, business with Canndoc in Israel as well as Cannatrek and Medcan in Australia is expected to generate higher sequential revenue this year versus last year. Organigram said that it is better equipped to fulfill demand this year with larger harvests expected versus last, supported by a new multi-year agreement with Canndoc that contemplates shipping up to 20,000 kilograms of dried flower.
Organigram generated positive cash flows from operating activities during the first quarter, “which was achieved primarily due to positive adjusted EBITDA and a reduction to receivables.” And while the company expects to continue to generate positive adjusted EBITDA, periods when it achieves significant increases in sales will result in increases in receivables and this will negatively impact cash from operating activities.
Organigram has a $29 million capex budget, and if completed as planned during the fiscal year, the company expects to generate positive free cash flows by the end of calendar 2023.