Tilray Brands, Inc. Reports Record Fiscal Year 2022 Results

NEW YORK and LEAMINGTON, Ontario – Tilray Brands, Inc. (Nasdaq: TLRY; TSX: TLRY), a leading global cannabis-lifestyle and consumer packaged goods company inspiring and empowering the worldwide community to live their very best life, today reported financial results for the fourth quarter and full fiscal year ended May 31, 2022. All financial information in this press release is reported in U.S. dollars, unless otherwise indicated, and presented in accordance with accounting principles generally accepted in the U.S.

Irwin D. Simon, Tilray Brands’ Chairman and Chief Executive Officer, stated, “Over the past year, we have accelerated the optimization of our operations and sharpened execution against our most profitable core business opportunities in medical, adult-use, wellness, and beverage-alcohol across Canada, Europe, and the U.S. At the same time, we accelerated our growth potential through tactical execution and strategic initiatives that enable accelerated revenue growth through improved cultivation, brand building, and distribution. These actions should also contribute to bottom-line performance improvement through production efficiencies and cost reductions. The outcome of this work is that we have driven top line growth across our markets, significantly improved our operating performance, and strengthened our balance sheet.”

He continued, “We are confident that our proactive steps to plan for the evolution of the cannabis business in each of our markets has positioned Tilray Brands to be at the forefront of the industry on a global basis while delivering profitability and driving shareholder value.”

Financial Highlights – 2022 Fiscal Fourth Quarter¹

• Net revenue grew 8% to $153.3 million during the fourth quarter from $142.2 million in the prior year quarter. On a constant currency basis, net revenue increased 14.5%.
• Net loss of $457.8 million during the fourth quarter compared to net income of $33.6 million in the prior year quarter. Net loss in the fiscal 2022 fourth quarter includes a non-cash impairment of $395.0 million primarily impacting inventory, goodwill and other intangible assets. The impact was related to changes in market opportunities causing a shift in our strategic priorities, and market conditions inclusive of higher rates of borrowing and lower foreign exchange rates.
• Adjusted EBITDA of $11.5 million, marking the Company’s 13th consecutive quarter of positive Adjusted EBITDA.

Financial Highlights- 2022 Fiscal Year

• Net revenue increased 22% to $628.4 million during fiscal 2022 from $513.1 million in the prior fiscal year. The increase was driven by 17.9% growth in cannabis net revenue to $237.5 million, a 150.0% increase in beverage alcohol net revenue of $71.5 million, and a 928.8% increase in wellness net revenue to $59.6 million. On a constant currency basis, net revenue increased by 29%.
• Net loss of $434 million in fiscal 2022 includes the non-cash impairment of $395.0 million in the fourth quarter (discussed above).
• Adjusted EBITDA increased 17.8% to $48.0 million in fiscal year 2022 from $40.8 million in the prior fiscal year.
• Ended the year with a strong balance sheet and liquidity, including cash and cash equivalents of $415.9 million.

Cost-Saving Synergies and Strengthened Balance Sheet

Since the closing of the Tilray-Aphria transaction, the Company has delivered $85 million in cost synergies, exceeding its original target of delivering $80 million of cost savings by the end of fiscal year 2023. These synergies are due to consolidation in key areas of cultivation and production, cannabis and product purchasing, sales and marketing, and corporate expenses. The Company has subsequently identified an additional $20 million of savings, and now expects to deliver a total of $100 million in cost synergies from the transaction by the end of fiscal year 2023.

Further, with the benefit of an additional $80 million of shared cost savings, synergies and financial benefits over the next two years associated with the HEXO transaction, management expects that Tilray Brands will be free cash flow positive in its business units in fiscal year 2023.

Upside Potential of HEXO Transaction

Tilray Brands’ acquisition of HEXO Corp.’s senior secured convertible note, on highly favorable terms, closed on July 12, 2022, bringing immediate accretion to the Company and facilitating collaboration and the sharing of best practices that will help Tilray Brands to drive ongoing international expansion and take advantage of the opportunities expected to come with federal legalization in the U.S. In addition, due to significant operating efficiencies, the companies expect to deliver a total of $80 million of shared cost savings over the next two years.

Highlights of Strategic Growth Actions in Fiscal 2022

United States:

• August ’21 – Tilray Acquires Majority Position in Amended MedMen Convertible Notes
• November ’21 – Tilray’s SweetWater Brand Enters Spirits Category Through New Ready-To-Drink Cocktail Now Available in the United States
• December ’21 – Tilray Strengthens Strategic Position in the U.S. with Acquisition of Breckenridge Distillery
• December ’21 – SweetWater Brewing announced the acquisition of Alpine Beer Company and Green Flash Brewing Company
• January ’22 – Manitoba Harvest Launches 2022 Wellness Boost Campaign
• February ’22 – SweetWater Brewing Company Expands Distribution Across California
• February ’22 – SweetWater Brewing Company Continues Rapid Expansion with Distribution Rollout Across Washington & Oregon
• April ’22 – SweetWater Brewing Company celebrated 25^th anniversary and hosted 420 music Festival in Atlanta, Georgia with 75 thousand festival goers
• April ’22 – Manitoba Harvest Enters Exclusive Partnership with Whole Foods Market
• April ’22 – Breckenridge Distillery Takes Home Two Double Gold and One Gold Medal at the 2022 San Francisco World Spirits Competition
• April ’22 – Breckenridge Distillery Launches New Collectors Art Series with Denver Artist Alexandrea Pangburn

Canada:

• June ’21 – Tilray Launches New Medical Cannabis Brand, Symbios
• June ’21 – Tilray Launches Canadian Craft Cannabis Brand, Broken Coast, in the U.S. with Broken Coast Lager
• August ’21 – Tilray Medical Launches New Medical Cannabis Edibles in Canada
• October ’21 – Tilray Strengthens Leadership Position in Canada with new addition of Blair MacNeil, President of Canada
• October ’21 – Tilray Expands Distribution across Canada with Great North Distributors
• December ’21 – Launch of Tilray’s Fast-Acting Oral Strips Highlights Commitment to Medical Cannabis Innovation and Patient Care
• March ’22 – Good Supply Brand Expands Its Award-Winning Cannabis Portfolio with Hash Bats™; A New ‘Hard-Hitting’ Infused Pre-Roll
• March ’22 – Solei Brand Launches New Wellness Product for Nighttime Use
• April ’22 – Solei Brand Launches the First Cannabis Edible Available in Quebec
• April ’22 – Tilray Brands hosts sold-out ‘Holy Smokes’ 420 Budtender event in Toronto
• May ’22 – Good Supply Brand Expands High-Potency Cannabis Portfolio with Launch of Liquid Wax Vapes and New Exclusive Strains

Europe and International:

• July ’21 – Tilray’s Aphria RX GmbH Completes First Harvest and Delivery of Medical Cannabis Grown in Germany
• October ’21 – Tilray Launches Medical Cannabis in Luxembourg
• November ’21 – Tilray Expands Medical Cannabis Footprint in Malta
• January ’22 – Tilray Expands Medical Cannabis Product Offering in Australia
• February ‘22 – Tilray Brands Consolidates its Global Medical Offering into Tilray Medical, a Comprehensive Portfolio of Brands and Products
• February ’22 – Tilray Launches Medical Cannabis Products in Malta
• March ’22 – Tilray Medical Expands Offering in Malta and Launches First Medical Cannabis Oil Products in Market
• May ’22 – Announced the launch of CBD lifestyle brand, POLLEN, on Amazon UK

Cautionary Statement Concerning Forward-Looking Statements

Certain statements in this press release constitute forward-looking information or forward-looking statements (together, “forward-looking statements”) under Canadian securities laws and within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are intended to be subject to the “safe harbor” created by those sections and other applicable laws. Forward-looking statements can be identified by words such as “forecast,” “future,” “should,” “could,” “enable,” “potential,” “contemplate,” “believe,” “anticipate,” “estimate,” “plan,” “expect,” “intend,” “may,” “project,” “will,” “would” and the negative of these terms or similar expressions, although not all forward-looking statements contain these identifying words. Certain material factors, estimates, goals, projections or assumptions were used in drawing the conclusions contained in the forward-looking statements throughout this communication.

Forward-looking statements include statements regarding our intentions, beliefs, projections, outlook, analyses or current expectations concerning, among other things: the Company’s ability to become the world’s leading cannabis-focused consumer branded company and achieve $4B in revenue by the end of fiscal 2024; the Company’s ability to generate $70-$80 million of Adjusted EBITDA and expectation to be free-cash flow positive in its operating business units in FY 2023; the Company’s ability to achieve operational scale, market share, distribution, profitability and revenue growth in particular markets, including in Canada, the U.S. and the EU; and the Company’s ability to successfully achieve the expected production efficiencies, synergies and cost savings relating to the HEXO transactions and agreed commercial arrangements; and the Company’s anticipated investments, including in organic and strategic growth, partnership efforts, product offerings and other initiatives.

Many factors could cause actual results, performance or achievement to be materially different from any forward-looking statements, and other risks and uncertainties not presently known to the Company or that the Company deems immaterial could also cause actual results or events to differ materially from those expressed in the forward-looking statements contained herein. For a more detailed discussion of these risks and other factors, see the most recently filed annual information form of the Company and the Annual Report on Form 10-K (and other periodic reports filed with the SEC) of the Company made with the SEC and available on EDGAR. The forward-looking statements included in this communication are made as of the date of this communication and the Company does not undertake any obligation to publicly update such forward-looking statements to reflect new information, subsequent events or otherwise unless required by applicable securities laws.

Use of Non-U.S. GAAP Financial Measures

This press release and the accompanying tables include non-GAAP financial measures, including adjusted gross margin, Adjusted EBITDA and free cash flow. Management believes that the non-GAAP financial measures presented provide useful additional information to investors about current trends in the Company’s operations and are useful for period-over-period comparisons of operations. These non-GAAP financial measures should not be considered in isolation or as a substitute for the comparable GAAP measures. In addition, these non-GAAP measures may not be the same as similar measures provided by other companies due to potential differences in methods of calculation and items being excluded. They should be read only in connection with the Company’s Consolidated Statements of Operations and Cash Flows presented in accordance with GAAP.

Certain forward-looking non-GAAP financial measures included in this press release are not reconciled to the comparable forward-looking GAAP financial measures. The Company is not able to reconcile these forward-looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures without unreasonable efforts because the Company is unable to predict with a reasonable degree of certainty the type and extent of certain items that would be expected to impact GAAP measures but would not impact the non-GAAP measures. Such items may include litigation and related expenses, transaction costs, impairments, foreign exchange movements and other items. The unavailable information could have a significant impact on the Company’s GAAP financial results.

The Company believes presenting net sales at constant currency provides useful information to investors because it provides transparency to underlying performance in the Company’s consolidated net sales by excluding the effect that foreign currency exchange rate fluctuations have on period-to-period comparability given the volatility in foreign currency exchange markets. To present this information for historical periods, current period net sales for entities reporting in currencies other than the U.S. dollar are translated into U.S. dollars at the average monthly exchange rates in effect during the corresponding period of the prior fiscal year, rather than at the actual average monthly exchange rate in effect during the current period of the current fiscal year. As a result, the foreign currency impact is equal to the current year results in local currencies multiplied by the change in average foreign currency exchange rate between the current fiscal period and the corresponding period of the prior fiscal year.

Adjusted EBITDA is calculated as net income (loss) before inventory valuation adjustments; interest expenses, net; other expenses (income), net; deferred income tax (recoveries) expenses, current income tax expenses (benefit); foreign exchange gain (loss), net; depreciation and amortization expenses; stock-based compensation expenses; loss from equity method investments; loss on disposal of property and equipment; amortization of inventory step-up; severance costs; impairment of assets; and change in fair value of warrant liability. A reconciliation of Adjusted EBITDA to net loss, the most directly comparable GAAP measure, has been provided in the financial statement tables included below in this press release. Gross margin, excluding inventory valuation adjustments, is calculated as revenue less cost of sales adjusted to add back inventory valuation adjustments and amortization of inventory step-up, divided by revenue. A reconciliation of Gross margin, excluding inventory valuation adjustments, to gross margin, the most directly comparable GAAP measure, has been provided in the financial statement tables included below in this press release. Free cash flow is comprised of two GAAP measures deducted from each other which are net cash flow provided by (used in) operating activities less investments in capital and intangible assets. A reconciliation of net cash flow provided by (used in) operating activities to free cash flow, the most directly comparable GAAP measure, has been provided in the financial statement tables included below in this press release.

(This information is primarily sourced from Tilray Brands, Inc.  Highly Capitalized has neither approved nor disapproved the contents of this news release. Read our Disclaimer here).