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Entourage Health reports third quarter 2023 financial results and posts $12.2 million in total revenue

(Globe Newswire) Toronto — Entourage Health Corp., a Canadian producer and distributor of award-winning cannabis products, announced today its financial results for the three and nine months ended September 30, 2023. The company will host a conference call to discuss its financial and business highlights on November 28, 2023, at 10 a.m. Eastern Time.

“I am proud to announce the strategic initiatives we’ve undertaken to drive cost reduction, enhance profitability, and strengthen our balance sheet over the past year. Through the consolidation of operations and the integration of advanced automation, we have not only achieved heightened efficiency but also experienced improvement in our overall financial performance. In the face of challenges within the Canadian cannabis sector, our Q3 performance reinforces our strategy, marking a pivotal moment in the ongoing narrative of Entourage’s success.” — George Scorsis, CEO and chair, Entourage

Summary of results

*Net revenue (less Excise Tax) and Adjusted EBITDA are not recognized measurements under International Financial Reporting Standards (“IFRS”) and this data may not be comparable to data presented by other companies. Net revenue is defined as revenue (i.e., gross revenue less discounts and customer incentives but inclusive of freight) less excise taxes. Management defines Adjusted EBITDA as EBITDA adjusted to exclude interest, tax, and depreciation, stock compensation, fair value changes and other non-cash items, and non-recurring items. This data is furnished to provide additional information and does not have any standardized meaning prescribed by IFRS. The company uses these non-IFRS measures to provide shareholders and others with supplemental measures of its operating performance. The company also believes that securities analysts, investors, and other interested parties, frequently use these non-IFRS measures in the evaluation of companies, many of which present similar metrics when reporting their results. As other companies may calculate Adjusted EBITDA differently than the Company, this metric may not be comparable to similarly titled measures reported by other companies. We caution readers that Adjusted EBITDA should not be substituted for determining net loss as an indicator of operating results, or as a substitute for cash flows from operating and investing activities. See the company’s management’s discussion and analysis for the three and nine months ended September 30, 2023 (the “Q3 2023 MD&A”) for a detailed reconciliation of Adjusted EBITDA to Net Income / (Loss). The Company’s financial statements for the three and nine months ended September 30, 2023, and the Q3 2023 MD&A are available on SEDAR+ at www.sedarplus.ca.

Sales and revenue highlights

Revenue highlights

“Throughout the year, we’ve been proactive in our approach, implementing strategic measures such as the realignment of our product portfolio. By consistently evaluating performance, market demand, and product pricing, we are demonstrating agility in the industry. Although this quarter saw a revenue decline in adult-use the measures we have implemented are instrumental in fortifying our financial resilience and positioning us for sustained growth.” — Vaani Maharaj, CFO, Entourage

Third quarter 2023 financial highlights

• For the quarter that ended September 30, 2023, Entourage recorded total revenue of $12.2 million compared to $13.4 million for the same quarter ended September 30, 2022, representing an 8.8 per cent decrease year-over-year.
• Gross profit before changes in fair value was $2.4 million for Q3 2023, representing an increase of $7.3 million compared to Q2 2022. This growth can be attributed to a strategic focus on operational efficiencies bolstered by reduced inventory write-downs in Q3 2023.
• In Q3 2023, gross margins rose to 27 per cent, a significant improvement from the (49 per cent) recorded in Q3 2022. This enhancement is primarily due to increased automation in producing finished and semi-finished goods, which lowered direct labour costs and contributed to improved margins compared to the same period last year.
• Total cost of goods sold (COGS) decreased by $8.6 million or 58 per cent to $6.4 million for the three months ending September 30, 2023, compared to Q3 2022. This reduction was achieved by continued efforts to optimize our operational platform and further automation initiatives.
• Selling, general, and administrative (SG&A) expenses declined 11.6 per cent to $6.05 million. This change was primarily related to the company’s focus on reducing departmental inefficiencies and reducing headcount.
• Adjusted EBITDA declined by $1.6 million to ($4.5 million) in Q3 2023, compared with $(2.9 million) in Q3 2022.

Corporate highlights during and subsequent to third quarter 2023

Business milestones

• Entourage amended its supply agreement with HEXO Corp., which was assumed by Aphria Inc., Tilray Brands, Inc.’s operating subsidiary, after Tilray acquired HEXO. This strategic move ensures a continuous and high-quality partnership for contract growth, addressing the escalating product demand.
• The company was in breach of certain financial covenants and obligations under its senior secured credit facilities with an affiliate of the LiUNA Pension Fund of Central and Eastern Canada. The company has received a forbearance letter from the Senior Lender noting the company in default of the credit facilities and temporarily waiving the company’s breaches until December 8, 2023, subject to the satisfaction or waiver of certain conditions. The company is collaboratively working with its senior lender to reach an agreement on a new forbearance, emphasizing our commitment to open communication and a mutually beneficial resolution.
• The company also announced that at the end of Q3 2023, in accordance with the provisions of its omnibus equity incentive compensation plan, the company authorized the issuance of an aggregate of 1,600,000 deferred share units (DSUs) to non-management members of the board of directors of the company as part of the quarterly compensation for their services. The DSUs will vest on September 30, 2024, and are granted in lieu of certain cash compensation for services rendered during the third quarter of 2023. Further details regarding the omnibus plan are available in the company’s management information circular dated May 8, 2022, available on SEDAR+.
• Entourage significantly enhanced its pre-roll manufacturing capabilities, producing over 1.5 million pre-rolls per month. This milestone reflects Entourage’s commitment to meeting the growing demand for products in the popular category.

Commercial highlights

• Color Cannabis achieved sales growth in the pre-roll segment, the industry’s fastest-growing category. In Q3, it maintained a top ten position, holding the #6 spot.¹ The success can be directly linked to the proactive efforts of the sales team, who have expanded product distribution in retail outlets as well as the focus on larger format pre-roll packs.
• Color and Saturday Cannabis brands have unveiled enticing new product cultivars to the market, driven by consumer insights, including the launch of a new Color cultivar, Phantom Sunset, available in two product formats: a 3.5g whole flower and 2 x 0.35g pre-roll across Ontario. Notably, Saturday infused pre-rolls entered the market in Night Mango Diesel, a 3 x .05g recently launched in Alberta.
• Dimebag™ made a significant impact with the Ontario launch of the Pocket Puffs, a 4 x 0.5g pre-roll, swiftly becoming a top seller within the company’s portfolio. Dimebag’s accessible premium cannabis is resonating with consumers, driving popularity and demand across over 250 retailers in Ontario.
• The company’s retail distribution remains strong despite the influx of competitor SKUs, especially in larger markets including Ontario, Alberta, and British Columbia, maintaining a sizeable presence, covering over 80% of the retail market.
• Starseed achieved a patient renewal rate of 87 per cent for Q3 2023, demonstrating customer loyalty and commitment to providing valuable patient healthcare solutions.
• Additionally, Starseed introduced Remidose Micro Inhalers, revolutionary heat-free products offering a classic inhaler format for rapid onset. Both 1:1 and THC-dominant formulations were made available providing diverse options for patients.

Company outlook through cost restructuring

Entourage is amid a successful and ongoing financial turnaround, marked by strategic decision-making and adaptive measures. Building on a comprehensive analysis of our business operations throughout the past year, the company executed a progressive exit from cultivation. This pivotal move has streamlined operations and yielded significant annualized cost savings. A disciplined approach to inventory management and portfolio repositioning around select market segments have aligned the company with the distribution of quality products and strong brands.

Through these initiatives, Entourage anticipates realizing larger savings, improved cost structures and accretive margins, prioritizing improved profitability. These advancements are poised to positively impact the company’s performance, signalling a promising outlook in 2024.

Entourage continues to work towards the achievement of the full-year plan. The company’s success is driven by the dedication of our exceptional team members, combined with the ever-growing demand for our products, positioning us as leaders in the cannabis industry.

Conference call details:

A conference call will be hosted by Mr. Scorsis and Ms. Maharaj, with management available for questions following opening remarks as follows: