Earnings call transcript: IM Cannabis sees strong growth in Q4 2024

IM Cannabis Corp (IMCC) reported a robust performance in its Q4 2024 earnings call, highlighting significant revenue growth and improved operational efficiency. The company saw a 25% increase in quarterly revenue compared to the same period last year, driven by strong market presence in Germany and operational cost reductions. Despite a net loss for the year, the company achieved positive adjusted EBITDA in Q4, signaling a turnaround in its financial health. With a current market capitalization of $5.52 million and trading near its 52-week low, InvestingPro analysis suggests the stock may be undervalued.

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Key Takeaways

• IM Cannabis reported a 25% increase in Q4 2024 revenue compared to Q4 2023.
• The company achieved positive adjusted EBITDA of €500,000 in Q4 2024.
• Operating expenses were reduced by 17% in 2024.
• The German market share increased significantly, contributing to 40% of total revenue in H2 2024.

Company Performance

IM Cannabis demonstrated strong performance in Q4 2024, with total revenue reaching €13.3 million, marking a 25% increase from the previous year. The company’s strategic focus on the German market paid off, as sales in the region surged by 183% in 2024. Meanwhile, the company’s efforts to streamline operations resulted in a 17% reduction in operating expenses, further enhancing its financial position. The company maintains a strong free cash flow yield, though InvestingPro data shows a high beta of 1.98, indicating significant stock price volatility.

Financial Highlights

• Revenue: €54 million for 2024, up 11% from 2023.
• Q4 2024 Revenue: €13.3 million, a 25% increase from Q4 2023.
• Adjusted EBITDA: Improved from -€8 million in 2023 to -€1.1 million in 2024.
• Q4 2024 Adjusted EBITDA: Positive €500,000, compared to -€4.3 million in Q4 2023.
• Net Loss: €11.8 million in 2024, compared to €10.2 million in 2023.

Outlook & Guidance

Looking forward, IM Cannabis plans to maintain its growth trajectory in the German market throughout 2025, with expectations of achieving the best sales quarter in Germany to date in Q1 2025. The company intends to continue optimizing its operational structure to support this growth. However, it does not anticipate significant growth in the Israeli market.

Executive Commentary

CEO Oren Schuster emphasized the company’s strong foundation and strategic positioning, stating, "Germany made up 40% of IMC total revenue in the second half of 2024 versus 11% in all of 2023." He further noted, "We now have a solid foundation, which is the right size to build on in 2025."

Risks and Challenges

• Supply Chain Challenges: The company faced supply chain issues in Q4, which could impact future performance if not addressed.
• Competitive Market Dynamics: The German market is highly competitive, with potential price compression that could affect margins.
• Market Saturation: The Israeli market shows no significant growth prospects, which could limit overall revenue expansion.
• Economic Pressures: Macroeconomic factors and regulatory changes in key markets could pose risks to the company’s operations.

Overall, IM Cannabis’s strategic focus on the German market and operational efficiencies have positioned it well for future growth, despite ongoing challenges in the industry.

Full transcript - IM Cannabis Corp (IMCC) Q4 2024:

Conference Operator: Good morning, and welcome to I’m Cannabis’ fourth quarter and full year twenty twenty four 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, IMC Cannabis: Good morning, and thank you, operator. Joining me for today’s call are IIM Cannabis, chief executive officer, Oren Schuster, and chief financial officer, Ulrich Borenberg. The earnings and press release that accompanies this call is available on the investor relations section of our website at investors.imkannabis.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 here of 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 SEDARplus at www.cedarplus.ca and edgarwww.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 and Canadian dollars unless otherwise stated. With that, it’s my pleasure to turn the call over to Arun Shuster, CEO of IIM Cannabis. Arun, please go ahead.

Oren Schuster, Chief Executive Officer, IMC Cannabis: Thank you, Anna. Good morning, everyone, and thank you for joining us today. As a medical cannabis company based in Germany and Israel, the April 2024 partial legalization in Germany was a game changer. Since then, the German market and our sales in Germany have experienced extraordinary growth at a tremendous velocity. But my personal 2024 highlights were the continuous improvements we made both strategically and operationally, building a solid, lean basis from which to drive sustainable growth in 2025.

In 2024, we started to shift our focus from the transition years in 2022 and 2023 towards delivery. At the same time, we continued fine tuning to maintain our efficiency and agility. This is an ongoing process. It is especially important in the dynamic cannabis market to ensure that we keep our competitive edge. As a company, we have two areas of focus in 2024.

One, full integration and active cost management to drive efficiencies and two, building a strong payment supply chain to support growth in 2025. On an operational level, we continue to lean into active cost management and full integration to drive efficiencies. We reduced our overall operating expenses by $4,000,000 or 17% to a total of $18,700,000 in 2024. This decrease builds on the 43% decrease we had in 2023, where we spent a total of 22,600,000.0, coming from 40,000,000 in 2022. Overall, we have managed to reduce our operating expenses by 53% since 2022.

The reduction in the operating expenses is mostly impactful in q four of twenty twenty four, where we are starting to see initial impact of the saving we initiated during this year. We fully integrated our marketing and supply teams with the goal of building the operational infrastructure and stable supply chain we need to drive growth in Germany in 2025. As a positive upside, we started to see the first results of our efforts in 2024. We imported a total of 11 new strains in Germany in the second half of twenty twenty four with our integrated supply chain for an outstanding sales of about 14% in Germany. In total, we added three new suppliers and launched 16 new strains in 2024.

When we look at the adjusted EBITDA after all these measures, our adjusted EBITDA in Q4 was a gain of 500,000.0 versus a loss of 4,300,000.0 in Q4 twenty twenty three, an improvement of almost 5,000,000. In Q4, we moved into positive adjusted EBITDA. When we look at the full year, we see a loss of 1,100,000.0 for 2024 versus a 8,000,000 loss in 2023, an improvement of almost 7,000,000. Moving on to the local level. In Germany, in addition to creating a stronger, fully integrated supply chain, we continue to develop the network of pharmacies we work with directly and worked on building a stronger sales team, consolidating our position as one of the top 10 medical cannabis brands in Israel.

Our sales increased by over 183% in 2024 versus 2023, reached 15,500,000.0, with supply being the limiting factor, especially in Q4. What I think best sums up the results in Germany is this. Germany made up 40% of IMC total revenue in the second half of twenty twenty four versus 11% in all of 2023. Looking at these results, it is clear that the strategic shift we made to concentrate our resources on the German market was the right one. In Israel, our team managed to mitigate the impact of the war on our business.

The decline in the number of medical cannabis patients, as well as the shift in focus and resources towards the German market. On an operational level in Israel, we launched or relaunched 27 strains across six beds in 2024, maintaining top line sales. In addition, we moved to a different production facility to reduce our production cost. We expect to see the full effect of this move in 2025. We took a good look at our distribution, outsourcing financing distribution network, and adding distribution partners, further reducing costs and improving service.

We spent the better part of 2024 clearing out slow moving non premium stock and all inventory for about three point nine million. The quality of this product was not one that we, as IMC, can stand behind. This impacted our cost of sales, gross margin, and gross profit. In Q4, we cleared out final $700,000 We do not anticipate a similar scale of write off in 2025. To sum up 2024, I’m delighted with the progress we made internally both strategically and operationally while delivering growth.

We now have a solid foundation, which is the right size to build on in 2025. You can clearly see the progress we made in 2024 yearly results. When we look towards 2025, we will be moving our focus from internal to external while working a strategic tightrope. While we need to invest to drive growth in Germany, on the other hand, we do not want to lose the efficiency and agility in our lean structure. I especially look forward to seeing the results for a new solid integrated supply chain in Q1, which is shaping up to be the best quarter in sales we have had to date in Germany.

I will now hand the call over to Uwe, who will review our fourth quarter and full year twenty twenty four financial results. Uwe?

Ulrich Borenberg, Chief Financial Officer, IMC Cannabis: One of these quarter milestones that Owen already mentioned. The adjusted EBITDA in Q4 twenty twenty four resulted in a profit of 500,000.0 compared to an EBITDA loss of 4,300,000.0 in q four twenty twenty three, which is an improvement of almost $5,000,000. Our q four results were mainly impacted by the following points. Our revenue in Q4 increased by 25% versus Q4 twenty twenty three. This growth was driven mainly by an increase of 280% in the German revenue.

We continued with our expense reduction process, which resulted in a decrease in operating expenses of approximately 42% versus Q4 twenty twenty three. I will now take you through the overview of the Q4 twenty twenty four and 2024 full year financial results for the company’s operation. Revenues for 2024 and 2023 were €54,000,000 and €48,800,000 respectively, representing an increase of €5,200,000 or 11%. The increase is mainly attributed to the accelerated growth in Germany, with an increase in revenue of EUR 10,000,000 and decreased revenue in Israel of EUR 4,800,000.0 net. The decrease in Israel is attributed to the Ronindi cancellation, which resulted in a decrease in revenue of approximately $8,500,000 compared to 2023.

Excluding the Ronin revenue in 2023, we have an increase of revenue in Israel as well of approximately 3,700,000.0 or 12%. Revenue for the three months ended 12/31/2024 and 2023 were 13,300,000 and 10,700,000.0 respectively, representing an increase of 2,600,000.0 or 25%. The increase is mainly attributed to the accelerated growth in Germany with an increase in revenue of 3,700,000.0 and decreased revenue in Israel of 1,100,000. The decrease in Israel is that reported the Ronin deal cancellation, which resulted in decrease in revenue of NAND3.4 million compared to 2023. Excluding the Ronin revenue in Q4 twenty twenty three, we have an increase of revenue in Israel as well of approximately 2,300,000 or 39%.

For the twelve and three months ended 12/31/2024, Germany’s share of total revenue has significantly increased compared to the corresponding period in 2023. This increase has had a considerable impact reflected in higher average price due to the favorable market condition and growing demands. The cost of revenue for 2024 and 2023 were €45,600,000 and €38,000,000 respectively, representing an increase of €7,600,000 or 20%. This is mainly due to increasing material cost of approximately $8,100,000 of which clearing all raw materials of approximately $3,900,000 and increased inventory sales resulted in an increase of approximately €4,000,000 which is offset by a reduced in other cost net of approximately €500,000 The cost of revenue for the three months ended 12/31/2024 and 2023 were €10,700,000 and €9,600,000 respectively, representing an increase of €1,100,000 or 12%. This is mainly due to the increased material cost of approximately €1,000,000 including clearing all raw material of €700,000 Gross profit for 2024 and 2023 were €8,500,000 and €9,800,000 respectively, representing a decrease of 1,400,000 or 14%.

Gross profit for the three months ended 12/31/2024 and 2023 was €2,700,000 and €800,000 respectively, representing an increase of SEK1.8 million or 238%. Gross profit included losses for realized fair value adjustment on inventory sold off 0 and 1,000,000 for 2024 and 2023 respectively. Gross Margin after fair value adjustment for 2024 and 2023 respectively were 16% versus 2020% versus 8% for the three months ended December 2023. G and A expenses for 2024 and 2023 were 8,000,000 and 11,000,000 respectively, representing a decrease of €3,000,000 or 27%. G and A expenses for the three months ended 12/31/2024 ’20 ’20 ’3 were €1,200,000 and €3,300,000 respectively, representing a decrease of €2,100,000 or 64%.

The G and A expenses are comprised mainly from salaries to employees in the amount of €2,200,000 and 600,000.0 for the twelve and three months ended 12/31/2024, professional fees in the amount of 2,000,000 and minus 300,000.0 for the twelve and three months ended 12/31/2024, depreciation and amortization in the amount of 0.6 and 200,000.0 for the twelve and three months ended 12/31/2024 insurance costs in the amount of 1,300,000.0 and 300,000.0 for the twelve and three months ended 12/31/2024 and other expenses in the amount of 1,900,000.0 and 400,000.0 for the twelve and three months ended 12/31/2024. Selling and marketing expenses for 2024 and 2023 were 7,100,000.0 and 10,800,000.0 respectively, representing a decrease of 3,700,000.0 or 34%. Selling and marketing expenses for the three months ended December 2023 were 1,800,000.0 and 2,800,000.0 respectively, representing a decrease of 1,000,000 or 36%. The decrease in selling and marketing expenses for 2024 is mainly attributed to our new report agreement of approximately $2,100,000 and $700,000 respectively. In addition, a decrease of 1,600,000.0 and 300,000.0 respectively in selling and marketing expenses.

Total operating expenses for 2024 and 2023 were 18,700,000.0 and 22,600,000.0. In Q4 twenty twenty four the total operating expenses were €3,500,000 compared to €6,000,000 in Q4 twenty twenty three, a decrease of €2,500,000 or 42%. Operating expense ratio for 2024 was 30%, excluding the one time expense outcome of a running deal cancellation versus 46% for 2023, representing an increased efficiency of about 36%. Operating expenses ratio for the three months ended 12/31/2024, excluding the one time expense outcome of our in deal cancellation, was 22% versus 56% for the three months ended 12/31/2023, representing an increased efficiency of about 60%. The efficiency ratio improvement is resulting from decreased operational cost and increased revenue.

Adjusted EBITDA loss for 2024 and 2023 was £1,100,000 compared with £8,000,000 representing a decrease of 87%. Adjusted EBITDA profit in Q4 twenty twenty four was SEK0.5 million compared to an EBITDA loss of SEK4.3 million in Q4 twenty twenty three. Net loss for 2024 was 11,800,000.0 compared to 10,200,000.0 for 2023. Net loss in Q4 twenty twenty four was 1,200,000.0 compared to 3,500,000.0 in Q4 twenty twenty three. Diluted loss per share for 2024 was 4.51 compared to a loss of 4.45 per share in the same period for year 2023.

Diluted loss per share for Q4 twenty twenty four was 0.32 compared to a loss of 1.47 per share in Q4 twenty twenty three. As of the balance sheet, cash and cash equivalent as of 12/31/2024 were £900,000 compared to £1,800,000 on 12/31/2023. Total assets as of 12/31/2024 were 39,200,000.0 compared to 48,800,000.0 on 12/31/2023, a decrease of 9,600,000.0 or 19.7%. The decrease is mainly attributed to the Roanem agreement cancellation of 9,500,000.0, of which mainly attributed to goodwill 3,500,000.0 intangible asset CHF 1,400,000.0 inventory CHF 800,000.0 trade receivables CHF 1,300,000.0 property, plant and equipment CHF 800,000.0 and reduction of cash and cash equivalent of CHF $300,000 In addition to the Ronin Revocation Agreement effect, there is a total asset decrease of $100,000 mainly due to the increase of $7,500,000 in trade receivable offset by £5,900,000 reduction in inventory and the reduction of £1,100,000 in intangible assets. Total liabilities as of 12/31/2024 were £36,000,000 compared to 35,100,000.0 on 12/31/2023, an increase of 900,000 or 3%.

The anemic payment cancellation effect is a decrease of 6,800,000.0 of which mainly attributed to put option liability $2,000,000 purchase consideration payable $2,200,000 trade payables $1,600,000 lease liabilities $400,000 and a decrease of $300,000 in deferred tax liability. In addition to the Enigma vocation agreement effect, there is a total liability increase of SEK 7,700,000.0, mainly due to increase of SEK 3,500,000.0 in trade payables and an increase of SEK 3,300,000.0 in warrants and convertible debt. The company is planning to finance its operation from its existing and future working capital resources as well as from available credit facilities and will continue to evaluate additional sources of capital and financing as needed. I would like now to turn the call back to Oren for closing remarks. Oren?

Oren Schuster, Chief Executive Officer, IMC Cannabis: Thank you, Oren. To sum up 2024, while I’m very proud of the growth IMC delivered in Germany, I’m delighted with the progress we made internally both strategically and operationally. In q four, with our positive adjusted EBITDA, we are starting to see the initial impact of the saving we initiated during 2024 through our active cost management and full integration. This gives us a very strong foundation leading into 2025, where we already see that q one is shaping up to be the best quarter in sales we have had it to date in Germany. I will now hand the call over to the operator to begin our question and answer session.

Operator?

Conference Operator: Thank you. In order to ask a question, please raise your hand and use your mobile or desktop application and wait for your name to be announced. I repeat, in order to ask a question, please raise your hand using your mobile or desktop application and wait for your name to be announced. Aaron Gray, please go ahead.

Unidentified Participant: Hi.

Aaron Gray, Analyst: Thanks very much for the questions today. So first question for me, just wanted to touch on Germany. So great to hear that 1Q is off to a great start. So just if we just touch back on 4Q, and again, this is specifically on Germany. It does look like it was a little bit softer.

Obviously, you’ve had tremendous growth in 2Q and 3Q for Germany. Looks like some of that growth stopped and still hit about 5,000,000 from what I’m seeing here. But you talked about whether dynamics specifically, you know, in the quarter that slows some of that growth that seems to have come back in 1Q or just some of the dynamics that’s going on, within the German market there that might have led some

Unidentified Speaker, Management Representative, IMC Cannabis: I don’t Okay. Thank you for the question, Aaron. So, like you said, we started with a very strong growth in q two and q three. In q four, we had some delays, and, but, we we, I think that I said that that, it was just a delay, and the q one looks very good. And, it’s not something that is part of the ongoing.

I think that it’s part of building the supply chain. It’s a long process, and I think that the target was to be very stable with the supply in ’25. And, we are going into ’25 with the much stronger supply chain. And, I believe that we will see it also in the the quantities and, in ’25.

Aaron Gray, Analyst: Okay. Thanks. And then can you comment on any changes you’re seeing in the competitive dynamic for Germany? Obviously, there’s a lot of operators internationally that are putting a lot of focus on the German market. So changing competition, whether it be pricing or otherwise, that you’re starting to

Unidentified Speaker, Management Representative, IMC Cannabis: see? The the German market is very dynamic. I think that what we see is the the market is changing from week to week. There is definitely a competition in the market. It’s still, we see more or less the same leading competitors.

And, so this is what we feel right now. The German market value products are very successful in the German market, and, it’s very clear. So I don’t foresee very big change. The market will be competitive. It’s part of our plans.

I believe that there will be a price compression. There is a price compression, and it’s part of what we took in our plan from the beginning.

Aaron Gray, Analyst: Okay. I appreciate that color. And then just kind of picking back off of that. With the price compression, how should we think about the margin profile? So we still had 20% gross margin for the quarter, that EBITDA positive there.

So how should we think about the margin progression for the year as we think about potential growth but also some pricing pressure?

Unidentified Speaker, Management Representative, IMC Cannabis: So it’s difficult it’s very difficult to to know how the market will develop because, also the there have been some political changes in Germany. But, I think that, we we don’t think that, we will go down with the margins, in our estimates. We even think that, it might be better than, than it is now.

Unidentified Participant: If I may add, you cannot take year ’24 as a reference for future expectations regarding gross margin simply because of the one time event related to inventory over the year. So we cleaned all our old inventory, and, we are set for new inventory to sell and there is a big demand in Germany, also in Israel. So I’m expecting it to be better than what you see in 2024 for sure. You could say exactly how much, it’s a little bit complicated, but 20% that you mentioned is not the levels that we’ve It’s Louis Bernberg, the CFO.

Aaron Gray, Analyst: Okay. That’s helpful. Last question for me just on Israel, seems to have stabilized a bit there. You know, I had seen a little bit of softness. So are are you feeling comfortable with that market now?

I know there’s been a lot of shakeout, between competitors, you know, fewer products coming from Canadian LP. So just comment in quickly on the broader, you know, Israeli market and how you’re expecting for that to evolve in 2025?

Unidentified Speaker, Management Representative, IMC Cannabis: So as of now, we we don’t foresee any significant growth in the in the Israeli market. And so we think that it will be more or less stable unless we will see some regulations change. And the focus on growth for us is mainly in Germany.

Aaron Gray, Analyst: Okay. Alright. Thanks very much. I’ll jump back into the queue.

Unidentified Speaker, Management Representative, IMC Cannabis: Okay. Thank you. Thank you very much, everyone.

Conference Operator: Thank you. In order to ask a question, please raise your hand using your mobile or desktop application and wait for your name to be announced. Are there any further questions?

Unidentified Speaker, Management Representative, IMC Cannabis: Okay. Thank you, operator, and thank you all for joining

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