Earnings call transcript: IM Cannabis reports Q1 2025 earnings, stock tumbles

IM Cannabis Corp (IMCC) reported its Q1 2025 earnings, unveiling a mixed bag of financial results that prompted a notable market reaction. The company posted a net loss per share of $0.09, with revenues reaching $12.7 million. Despite a 4% increase in revenue from the previous year, the earnings fell short of expectations, leading to a 12.29% drop in the stock price during market hours. According to InvestingPro analysis, the stock appears undervalued based on its Fair Value calculations, though investors should note its beta of 2.07 indicates higher volatility than the market. Investors responded to both the earnings miss and the company’s strategic shift towards the German market.

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Key Takeaways

• IM Cannabis reported a net loss per share of $0.09, impacting investor sentiment.
• Revenues increased by 4% year-over-year, reaching $12.7 million.
• The stock price dropped by 12.29% following the earnings announcement.
• The German market now represents 62% of total revenue, showing significant growth.
• Operating expenses were reduced by 56%, enhancing operational efficiency.

Company Performance

IM Cannabis demonstrated an improvement in its financial health compared to Q1 2024. The company reported a net profit of $200,000, a significant turnaround from a $6 million loss in the same quarter last year. InvestingPro data shows a gross profit margin of 24.23% over the last twelve months, while the company’s Piotroski Score of 7 indicates strong financial strength. The gross profit surged by 94%, and adjusted EBITDA turned positive, indicating effective cost management and operational efficiency. The strategic focus on the German market paid off, with revenues in the region growing by 569%.

Financial Highlights

• Revenue: $12.7 million, up 4% year-over-year
• Net Profit: $200,000, compared to a $6 million loss in Q1 2024
• Adjusted EBITDA: $600,000 profit, versus a $2.2 million loss in Q1 2024
• Gross Profit: $3.4 million, a 94% increase from Q1 2024
• Operating Expenses: Reduced by 56% to $3.3 million

Earnings vs. Forecast

IM Cannabis reported a net loss per share of $0.09, which did not meet market expectations. The revenue of $12.7 million, while higher than last year, also fell short of projections. The earnings miss led to a negative market reaction, with the stock price falling by 12.29% during trading hours.

Market Reaction

The stock price of IM Cannabis experienced a sharp decline of 12.29% following the earnings release. The company’s stock had closed at $2.93 prior to the announcement and dropped to $2.57, reflecting investor concerns over the earnings miss. InvestingPro data reveals the stock has fallen significantly over the past five years, though it showed strong returns over the last three months. Despite the positive revenue growth and improved profitability, the market reacted to the shortfall in earnings per share. The company’s current market capitalization stands at $13.65 million, with a price-to-book ratio of 5.33.

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Outlook & Guidance

Looking ahead, IM Cannabis is focusing on executing its strategic initiatives, particularly in the German market. The company plans to finance its operations through existing capital and credit facilities while evaluating additional financing sources. With an InvestingPro Financial Health Overall Score of 2.39 (rated as "FAIR"), and a current ratio of 0.72, the company faces some challenges in meeting short-term obligations. Future guidance indicates a continued emphasis on resource allocation to areas with the highest return on investment.

Executive Commentary

Orin Schuster, CEO of IM Cannabis, emphasized the company’s profitability and strategic focus: "As of this quarter, we are profitable." He highlighted the impact of cost-cutting measures on financial results, stating, "We are seeing that the cost-cutting measures... are flowing through to the financial results."

Risks and Challenges

• Market Saturation: Increased competition in the cannabis industry could impact market share.
• Regulatory Changes: Potential changes in cannabis regulations could affect operations.
• Currency Fluctuations: Exchange rate volatility may impact financial results.
• Supply Chain Disruptions: Any disruptions could affect production and sales.
• Economic Conditions: Broader economic challenges could influence consumer spending.

Q&A

During the earnings call, analysts inquired about the regulatory and tax implications of acquiring a 25% ownership in the Focus company. Management provided detailed explanations of the corporate structure and tax considerations, addressing investor concerns regarding potential impacts on financial performance.

Full transcript - IM Cannabis Corp (IMCC) Q1 2025:

Conference Operator: Good morning, and welcome to I’m Cannabis’ First Quarter twenty twenty five Earnings Conference Call. Today’s conference call is being recorded. At this time, I would like to turn the conference over to Anna Taranko, Director of Investor and public relations. Anna?

Anna Taranko, Director of Investor and Public Relations, I’m Cannabis: Good morning, and thank you, operator. Joining me for today’s call are I’m Kanabis, chief executive officer, Orin Schuster, and chief financial officer, Uri Borgenberg. The earnings and press release that accompanies this call is available on the Investor Relations section of our website at investors.iamcannabis.com. Today’s call will include estimates and other forward looking information and statements, including statements concerning future results of operations, economic conditions and anticipated courses of action and are based on assumptions, expectations, estimates and projections as the date hereof. This information may involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially from those expressed or implied by such statements.

Factors that could cause or contribute to such differences are described in detail in the company’s most recent filings available on Cedar Plus at www.cedarplus.ca and edgar@ww.sick.gov. Furthermore, certain non IFRS measures will be referred to during this call. The term non IFRS adjusted EBITDA loss or non IFRS adjusted EBITDA will hereafter be referred to as adjusted EBITDA loss or adjusted EBITDA as applicable. Any estimates or forward looking information or statements provided are accurate only as of the date of this call, and the company undertakes no obligation to publicly update any forward looking information or statements or supply new information regarding the circumstances after the date of this call. Please also note that all references on this call reflect currency in Canadian dollars unless otherwise stated.

With that, it’s my pleasure to turn the call over to Orin Schuster, CEO of IAM Canabis. Orin, please go ahead.

Orin Schuster, Chief Executive Officer, I’m Cannabis: Thank you, Amo. Good morning, everyone, and thank you for joining us today. While presenting the 2024 full year results in March, I focused on the progress we made internally, both strategically and operationally. The efficiencies and integration to build a solid right self foundation to deliver on in 2025. In q one twenty twenty five, we can see in the group’s financial results that we have hit our target.

In q one, IMC reached net profit with an 87% improvement in our gross margin versus q one twenty twenty four. Our focus continues to be on execution, shifting our resources to where we see the biggest ROI and leaning into our integrated structure. In q one, with our integrated supply chain, we launched a total of 12 new strains in Germany, driving about €3,000,000 or 39% of our cannabis flower sales in Germany. To put this into perspective, in the second half of twenty twenty four, we imported a total of 11 new strains to Germany for an upside in sales of about 14% in Germany. In q one of twenty twenty five alone, we have already exceeded the last six months of 2024.

Needless to say, I’m very proud of the work the entire team, both in Israel and in Germany, put in to deliver these results. Moving on to Israel, we see that the shifting focus and resources towards the German market and supply delays impacted our Israeli business. While the Israeli revenue declined by 66% versus q one twenty twenty four, our German business grew 569% versus q one twenty twenty four, offsetting the revenue decline in Israel. In addition, we are seeing that the cost cutting measures produced by shifting our production facility in Israel in 2024 are flowing through to the financial results, leading to the increase in gross margin of 87% and an increase in gross profit of 94%. To sum up the first quarter of twenty twenty five, I’m delighted to see how the efficiencies and integration of the past two years is starting to be visible in our financial results.

Our goal was for the group to be positive, which we achieved this quarter. Our target now is to continue to execute our strategy. I will now hand the call over to Uri, who will review our first quarter twenty twenty five financial results. Uri? Thank you, Owen.

Before reviewing our q one results, I would like to emphasize one

Uri Borgenberg, Chief Financial Officer, I’m Cannabis: of this quarter’s milestones. The adjusted EBITDA in Q1 twenty twenty five resulted in a profit of $600,000 compared to an adjusted EBITDA loss of $2,200,000 in Q1 twenty twenty four, which is an improvement of almost $3,000,000 The company achieved a net profit of approximately $200,000 Our Q1 results were mainly impacted by the following points: The German region revenue in Q1 increased by 569% versus Q1 twenty twenty four, and we continued with our expense reduction process, which resulted in a decrease in operating expenses of approximately 56% versus Q1 twenty twenty four. I will now take you through the overview of the Q1 twenty twenty five financial results for the company’s operations. Revenues for Q1 twenty twenty five were $12,500,000 compared to $12,100,000 in Q1 twenty twenty four, an increase of $400,000 or 4%. The increase is mainly attributed to the accelerated growth in Germany, with an increase in revenue of $6,600,000 and decreased revenue in Israel of $6,100,000 net.

The decrease is attributed to the Orenin deal cancellation, which resulted in a decrease in revenue of approximately $3,500,000 compared to Q1 twenty twenty four. Germany’s share of total revenue in Q1 twenty twenty five has significantly increased compared to the corresponding period in 2024 to 62%. This increase has had a considerable impact reflected in a higher average price due to favorable market conditions and growing demand. The cost of revenue for Q1 twenty twenty five were $9,100,000 compared to $10,300,000 in Q1 twenty twenty four, a decrease of $1,200,000 or 12%. This is mainly due to the $600,000 slow inventory clearing in Q1 twenty twenty four and other expenses decreased in Q1 twenty twenty five of about $600,000 net.

Gross profit for Q1 twenty twenty five was $3,400,000 compared to $1,800,000 in Q1 twenty twenty four, an increase of $1,600,000 or 94%. G and A expenses for Q1 twenty twenty five were $2,000,000 compared to $2,300,000 in Q1 twenty twenty four, a decrease of $300,000 or 14%. Selling and marketing expenses for Q1 twenty twenty five were $1,300,000 compared to $2,300,000 in Q1 twenty twenty four, a decrease of $1,000,000 or 44%. The decrease is mainly attributed to our NIM revoked agreement of approximately 800,000.0 Total operating expenses for Q1 twenty twenty five were $3,300,000 compared to $7,400,000 in Q1 twenty twenty four, a decrease of $4,100,000 or 56%. Operating expenses ratio for Q1 twenty twenty five was 26% versus 77%, excluding the onetime expense outcome of our NMD cancellation for Q1 twenty twenty four, representing an increased efficiency of about 66%.

The efficiency ratio improvement results from decreased operational cost and increased revenue. EBITDA for Q1 twenty twenty five were $600,000 profit compared to loss of $5,000,000 in Q1 twenty twenty four, an increase of 5,600,000 Net profit for Q1 twenty twenty five was $200,000 compared to loss of $6,000,000 in Q1 twenty twenty four, an increase of $6,200,000 Diluted income per share for Q1 twenty twenty five was 0.09 compared to a loss of $2.52 per share in Q1 twenty twenty four. As of the balance sheet, cash and cash equivalents as of 03/31/2025, were $1,400,000 compared to $900,000 on 12/31/2024. Total assets as of 03/31/2025, were $44,934 compared to $39,188 as of 12/31/2024, representing an increase of 5,746 or 15%. The increase is mainly due to increase of 2,850 in trade receivables, 2,218 in inventory, 1,031 in advance to suppliers.

Total liabilities as of 03/31/2025, were 41,761 compared to 36,042 as of 12/31/2024, representing an increase of 5,719 or 16%. The company plans to finance its operation from its existing and future working capital resources as well as from its available credit facilities and we’ll continue to evaluate additional sources of capital and financing as needed. I would now like to turn the call back to you, Oren, for closing remarks. Oren?

Orin Schuster, Chief Executive Officer, I’m Cannabis: Thank you, To sum up q one twenty twenty five, I’m delighted to see that the progress we have made internally, both strategically and operationally, is starting to impact the group’s financial results directly. As of this quarter, we are profitable. I will now hand the call over to the operator to begin our question and answer session. Operator?

Conference Operator: Thank you. We have our first question from Oscar.

Oscar, Analyst/Investor: Yes. Hello?

Orin Schuster, Chief Executive Officer, I’m Cannabis: Hi.

Oscar, Analyst/Investor: Hi. My question is, why is it important to how do I say this? For the upcoming meeting of accepting the 25% of the new company. Why is that important given the the given time of straight capital?

: Why is that, yeah, why is

Oscar, Analyst/Investor: that important? The upcoming meeting and being approved of us approving the 25% ownership of Focus? Yeah. Why is that important at the moment right now? Thank you.

: It’s something that we are working on quite some time on the regulatory side, and it just happened now, but it’s a long process. And the also, Uwe, I don’t know if you want to, relate to that.

Uwe: Yeah. I I will I will take it. So, basically, since, we are we have a structure of companies, there are all kind of balances that we want to clear between companies and to move them from, let’s call it, long term loan to investment as equity. And according to tax regulations, in order to do it in a in our country, you’re supposed to hold 100 of the at least for the for the focus company. So based on advice we received, the best way of doing it without getting into troubles of concerning it as as revenue for tax purposes and those kind of act from the tax authorities, we must hold 100 of the Focus shares.

So we had to make some kind of a deal in and use external valuation for the value of the of the Focus for the rest of the 26% so we’d be able to acquire it and to to be able to protect the company from a tax perspective.

Anna Taranko, Director of Investor and Public Relations, I’m Cannabis: Okay.

Oscar, Analyst/Investor: Thank you.

Orin Schuster, Chief Executive Officer, I’m Cannabis: Thank you.

Conference Operator: To ask question, please raise your hand using your mobile or desktop application and wait for your name to be announced. There are no further questions.

: Thank you, operator, and thank you all for joining our call today.

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