Medipharm Labs Corp

TSX:LABS

Thank you for standing by, and welcome to the MediPharm Labs conference call to discuss its first quarter 2025 results.

Our speakers on today's call are David Pidduck, President and Chief Executive Officer; and Greg Hunter, Chief Financial Officer.

[Operator Instructions]

The conference is being recorded.

[Operator Instructions]

The information contained in this presentation should be considered together with the more detailed information, disclosure of financial data and statements available on the company's website and on SEDAR+ profile.

As seen on Slide 2 and 3, I would like to note that this earnings call contains forward-looking information that is based on the company's current expectations, estimates and beliefs as of today's date. And we'll also use terms that are non-IFRS financial measures. Please review the company's most recent disclosure materials for the risks associated with the use of forward-looking information and the use of non-IFRS financial measures in this presentation.

Please note that all dollar amounts mentioned on today's call are in Canadian dollars unless otherwise noted.

And now I would like to turn the call over to Mr. David Pidduck.

Good morning, everyone, and thank you for joining us today. We will focus on the strategic progress and momentum in our business that has driven our improved results. Later in the call, I will discuss the evolving situation involving a dissident shareholder.

Since becoming CEO in 2022, the MediPharm team and I have worked tirelessly to implement a strategic plan that focused on growing and diversifying revenues, improving margins, lowering operating costs, strengthening our balance sheet and building out our international medical business, where we believe we have a clear competitive advantage. As part of this strategy, we acquired VIVO in 2023 with the objective of combining 2 leaders in the medical wellness cannabis industry with complementary strengths and the ability to deliver a diversified revenue stream in multiple markets.

Most notably, VIVO provided us with an expanded international platform via the established Australian and German medical cannabis brand, Beacon Medical. Today, the VIVO business has been fully integrated into MediPharm, and I can say it has been a transformational transaction and a genuine success story in the cannabis industry. The positive Q1 results we'll discuss today and the broader improvements across our business is evidence of the success of this acquisition and the overall strategy endorsed by our Board.

For shareholders, we believe we have the platform and a strong financial base to deliver further growth, both organic and inorganic. That, in turn, will position the company to deliver long-term shareholder value. We had a successful first quarter of 2025, continuing the steady improvement since I joined the company in 2022 across all our key financial metrics. Two key indicators that we believe measure our performance and demonstrate improvement across our business are gross profit and adjusted EBITDA.

As seen on Slide 5, our gross profit in Q1 2025 of $4.2 million or 38.7% of sales was our highest gross margin we've achieved in many years.

And as seen on Slide 6, this chart demonstrates the consistent progress we've made. When I joined the company 3 years ago, we had a negative gross margin, meaning we were losing money on every sale we were making. Adjusted EBITDA was negative $6 million per quarter when I joined in 2022. Clearly, this was not sustainable. And if we did not change course, we would have ended up bankrupt like many other cannabis companies have over the past few years. Instead, we generated a new plan that would get us to profitability. Through hard work and commitment by the team, we undertook many initiatives over the past several years to grow revenues, increase gross profit and reduce operating expenses. The positive trends in gross margin and adjusted EBITDA are proof that our plan is working.

As I mentioned a moment ago, several peers in the cannabis sector have excessive debt, insufficient cash, negative working capital and are generally in a very weak financial position. Many sell products below cost, some don't pay excise taxes and many have stretched accounts payables and lose money. Several have entered CCAA protection and/or gone bankrupt and have wiped out shareholders' investments.

As a result of our improved financial performance in recent quarters, MediPharm now enjoys a strong balance sheet, a favorable cash position, positive working capital. We're able to invest in working capital and virtually no debt. We also own all our facilities outright, and we are very proud to be up-to-date on excise taxes and accounts payable, unlike many others in the sector. All of this is a testament to our focus on strategic execution and creating long-term sustainable value.

Given our financial strength, MediPharm stands out as an attractive international distribution partner, and we are able to invest quickly in emerging growth opportunities globally. As an example, you will see that we have now begun to deploy some of our cash to support our international growth through investments in working capital, specifically in inventory and accounts receivable. These investments are driving our strong international revenues.

Being well-run, financially stable and a proven reliable partner has enabled us to secure many B2B partnership opportunities in both Canada and abroad. We actually pay our bills, which is not always a given by others in our industry. Our strong cash position also gives us flexibility to consider various M&A opportunities in a quickly consolidating market, which cannot be understated.

Let's take a more detailed look at our international business, which has quickly become the most exciting segment for us. On Slide 8, you can see the evidence of our international success with the upward trend in our international revenues since 2022. International sales now represent more than 50% of our total revenues in each of the past 2 quarters and is the fastest-growing segment of our business.

Many Canadian licensed producers or LPs have been approached by international customers regarding possible supply of their cannabis products, including flower, in some cases, for premium prices. For most of these producers who are new to the international market, the complexity and unique challenges of the international cannabis supply chain are significant. These complexities include regulatory issues, export and import permit management, logistics, changing quality testing requirements and cash flow and other commercial and operational challenges. Many LPs have found that the allure of premium prices are offset by difficulties in navigating the complexities in these international markets.

MediPharm has solved these challenges while developing and earning the trust of our partners. We have several years of experience in selling into markets in the U.K., Germany, Australia, Brazil and other European countries. We also have a competitive advantage by possessing a robust suite of licenses, including good manufacturing process, GMP and our drug establishment license, the DEL that are required in the pharmaceutical industry. We benefit from long-standing global relationships and partnerships, established regulatory and supply chain pathways and commercial agreements and operational processes to smoothly facilitate international sales.

As a result, we have a growing reputation as a reliable supplier. This position of strength enables MediPharm to work with several existing and new international partners to significantly increase revenues. We have already begun to serve as a partner in bringing together high-quality cannabis products from Canadian LPs, including flower and then facilitating the smooth and efficient supply of these products to international markets. The VIVO acquisition accelerated our international growth, led by the Beacon brand, which is very strong in Australia and inroads in Germany and elsewhere.

A couple of other quick highlights before I turn it over to Greg. More information on some of these can be found in our investor deck. In Brazil, Teuto has now received their controlled substance import authorization quota, a key step to the coming 2025 product launch. We have signed 5 new international distribution partners. Our clinical trial investments continue to progress through their respective milestones. Our inhaler technology for Remodose is being launched in various countries. And our Hope facility sale to Rubicon for $4.5 million is on track to close in Q2, thus allowing us to monetize a dormant noncore assets.

Clearly, as you can see, there is momentum across our business. This is being driven by the implementation of our strategy, which is focused on leveraging our key operational and product advantages to drive growth, both internationally and domestically. We're excited about the future.

At this point, I'll ask Greg to review our Q1 financial results in greater detail.

Thanks, Dave, and good morning, everyone. MediPharm management has been focused on growing our revenue base through both organic and inorganic initiatives while reducing expenses and cash burn with the goal of becoming a profitable and cash flow positive organization. The results of these efforts can be seen in our Q1 results, highlighted by the major milestone of becoming EBITDA positive.

Revenue for the first quarter of $10.8 million increased $1 million or 10.6% versus the same quarter a year ago, driven by the expansion of our international business. International medical cannabis revenue increased $2.8 million or 87% versus prior year to $5.9 million. The growth was broad-based across our German, Australian and United Kingdom customers and across our flower, oil and dronabinol product portfolio. The international medical business represented approximately 55% of total revenue in the quarter versus 33% in the prior year.

Canadian medical cannabis revenue for the quarter was $3.2 million and increased 3.7% sequentially from Q4 2024. Canadian adult-use and wellness revenue of $1.3 million in the quarter declined versus prior year and sequentially as we have chosen to prioritize profitability over volume in this highly competitive market. It is common knowledge that many cannabis companies sell products at a loss or at very low margins to achieve market share goals. MediPharm is not willing to sacrifice profitability for the sake of market share, and that has been a major factor in our margin expansion.

Gross profit for the quarter was $4.2 million or 38.7% of revenue and improved significantly versus Q1 2024 gross profit of $2.7 million or 27.4%. This was MediPharm's highest gross profit and gross profit margin in many years. As you can see on the slide, gross profit margin has steadily improved over the past 3 years, driven by product mix, production efficiencies and cost reductions. Management continues to focus on efficiencies to drive gross profit. General and administrative expenses for the quarter of $3 million decreased $1.2 million or 29% versus prior year.

In addition, G&A decreased $0.7 million or 19% sequentially from Q4 2024. Marketing and selling expense of $1.2 million for the quarter was consistent with prior year and prior quarter. Total operating expenses, which includes G&A, marketing and selling and R&D expense was $4.4 million for the quarter and decreased $1.3 million or 23% versus prior year and decreased $0.8 million or 15% sequentially versus Q4 2024. Management continues to focus on further expense reduction opportunities.

Adjusted EBITDA for the quarter was positive $141,000 and improved $1.1 million from prior year's $949,000 loss. This improvement in adjusted EBITDA was driven by continued revenue growth, margin expansion and the reduction of expenses. While we don't provide guidance, we are very encouraged by the EBITDA trend and expect it to continue to move in a positive direction, although there may be variability from quarter-to-quarter as international markets develop.

Moving to a few notable items on the balance sheet. Our cash balance at the end of Q1 was $8.4 million and declined versus the prior quarter as we invested in inventory to support our international expansion and growth. We plan to maintain this level of working capital to be able to remain nimble so we can quickly respond to growth opportunities as they arise.

Trade and other receivable balance at Q1 is $7.8 million and 89% of trade accounts receivable is aged 60 days or less. Trade and other payable balance at Q1 is $8.5 million. And unlike many other cannabis companies, we are up to date on cannabis excise duties, sales taxes and trade payable obligations. The company has virtually no debt and full ownership of 3 production facilities with an appraised value greater than $20 million. As Dave mentioned, we expect to see a further strengthening of our balance sheet when the $4.5 million sale of the Hope facility closes during the current quarter.

Although we still have work ahead of us to enhance our profitability profile and become cash flow positive, Q1 was a significant step in the right direction. International medical cannabis revenue increased 87% versus prior year and represented 55% of total revenues in the quarter. Gross profit margin for the quarter was 38.7% and was the highest in over 5 years. Adjusted EBITDA was positive for the first time in over 5 years.

And finally, as previously discussed, we have a strong balance sheet relative to our peers. As a result of our strong balance sheet and significantly improved financial performance, we are well positioned to continue to invest in organic and inorganic growth opportunities as the industry continues to mature.

With that, I'll turn it back to Dave to discuss our upcoming AGM.

Thanks, Greg. I now want to address the activist shareholder, Apollo Technology Capital Corp., led by Mr. Regan McGee. As many of you already know, Apollo filed a dissident proxy circular nominating 6 alternative candidates for the MediPharm Board of Directors at our upcoming AGM on June 16. Some of you may have even been contacted directly by representatives of Apollo. The Board has serious concerns about Apollo and its nominees, most notably with Mr. McGee.

Let me take a few moments to provide you some of our reasons for concern. Mr. McGee believes he is qualified to run MediPharm despite having limited public company director experience and no cannabis nor pharmaceutical experience. In fact, he has many challenges involving his own company, Nobul Technologies, which I'll outline in greater detail shortly. Mr. McGee has also so far failed to present an alternative vision for the company for us to consider.

But first, let me be clear, myself and the Board tried to engage Mr. McGee in a constructive manner when he first approached us. We are always willing to engage with our shareholders, and we extended the same courtesy to Mr. McGee. However, our efforts were quickly derailed when he attempted to pressure myself and another director into selling him our shares at a premium to market, but disturbingly, on terms not being offered to other shareholders. When that tactic failed, he then insisted that the company provide to him a dilutive private placement for more than $3 million to help him gain control of the Board.

The Board did in good faith, carefully consider the unsolicited offer. But given that Mr. McGee threatened that MediPharm should take Apollo's money versus selling the dormant Hope facility or else he would accuse the Board of neglect of its fiduciary duties, the Board concluded that such transaction with Apollo would not be in the best interest of shareholders and flatly refused the offer. From there, the discussions quickly devolved into threats made by Mr. McGee against several directors, including myself and our Chair, Chris Taves.

And Mr. McGee went even further than that by also threatening our family members. He also spread untrue and defamatory information to associates of ours with no relationship to MediPharm. At one point, Mr. McGee showed up at our manufacturing facility, demanding entry and harassed and threatened an employee.

Mr. McGee is Chairman and CEO of Nobul Technologies, Inc., a private company involved for the past 2 years in a $100 million lawsuit against several of its former directors who resigned en masse over an allegedly toxic atmosphere and alleged misrepresentation about how the business generated revenue. In its filings related to that same case, a well-known Toronto-based institutional investor, K2 & Associates, accused Mr. McGee of siphoning money from Nobul through exorbitant compensation and non-arm's length transactions for his own personal use. That case is still progressing through the course.

More recently, Nobul announced a merger in March 2024 with Check-Cap Limited, a NASDAQ-listed company. Despite this merger not closing, it appears that Nobul has still managed to somehow have millions of dollars of cash transferred to its accounts from Check-Cap. Interestingly, the Chairman of Check-Cap, who played a part in authorizing the cash transfer to Nobul is David Lontini, who is now being included on the Apollo list of nominees for MediPharm's Board. Prior to Check-Cap, we do not believe Mr. Lontini had any experience as a Board member for a public company.

Last week, Chris Taves, our Board Chair, and myself, along with the company's legal counsel, were sued for a total of $100 million by none other than Mr. McGee. We are the latest names added to a growing list of more than 10 active litigation files involving the highly litigious and dispute-prone Regan McGee. This disturbing history suggests that Mr. McGee puts his own interests above those of shareholders and should be excluded from your consideration as a director. We are also concerned that only 2 of the 6 nominees Mr. McGee has put forward have any cannabis experience and all such cannabis experience has been primarily in the recreational space, which is very different from the medical space where MediPharm's focus lies.

The nominees are also interlocked in multiple ways, meaning they have business relationships outside of MediPharm that could impair their ability to make independent decisions.

Let's move on now to take a look at Apollo's alleged holdings in MediPharm, which they claim represents about 3% of MediPharm shares. This is a small stake in our company acquired only in the last few months, yet Apollo is now seeking full control of your company without offering a single penny of premium to the rest of our shareholders. This is a brazen attempt to seize power through the back door bypassing any fair value transaction. Make no mistake, anyone demanding control of a public company's Board with such a small newly acquired position must meet an exceptionally high bar. They owe shareholders a detailed credible plan for value creation.

Apollo has presented nothing of the sort, no strategy, no vision, no road map, leaving shareholders with only vague assertions and no concrete alternatives to consider. And we have no assurances an alternative strategy is forthcoming.

Lastly, it's interesting to consider whether Apollo genuinely has concerns regarding MediPharm's performance and the competence of its management and Board. If so, one may ask why it aggressively purchased its entire 3% block of MediPharm shares in the open market in the last 2.5 months, forcefully engaged management to participate in a dilutive private placement and implemented a pressure-filled campaign to purchase MediPharm shares from insiders directly.

Next, let me address Apollo's comments about our share price performance against the S&P/TSX Composite Index, which reflects Apollo's inexperience in the cannabis industry. It also misses entirely how MediPharm has performed against its peers since I became CEO, as outlined in the chart on Slide 13. As you can see, for the time period from the end of 2022, when our plan started to reap rewards to now, our share price has outperformed the largest cannabis companies in Canada and the leading Global Marijuana Life Sciences Index.

Let me conclude with a summary of our company, which supports why you should vote to protect your investment using the green proxy. Our business is more diversified than ever. We are seeing meaningful growth in the international markets. We have distinct competitive advantages that will drive our continued success. Our financial strength is improving every quarter, and we have a proven ability to complete successful acquisitions. The future has never looked brighter, assuming we have a chance to continue to execute our strategy. This is not the time to change course.

I truly believe that the foundations have been laid for a re-rating opportunity based on our improved financial metrics, strong balance sheet and growth prospects. We believe the strategy and team currently in place is the best way to create sustainable value. We need you now to stand up for your company. Our annual meeting is on June 16, and our shareholders will be receiving our proxy materials shortly. We urge you to review the materials and to vote with the green proxy.

Now I'll turn it over to the operator for questions.

[Operator Instructions]

Our first online question, do you expect the international business to keep growing?

Thank you, operator. This is Dave. Our international business is doing very well, actually. Many cannabis companies are seeking to grow their international business now. And you see many making announcements about their intent to get into the market. So we expect to see growth probably like on 3 fronts: selling more products through existing channels, and we've been in many of these markets for a long time; selling into new markets, New Zealand, France, other European countries; selling to new customers in our existing markets.

I think we expect our international business, yes, to continue to grow, and we recently signed 5 new international distribution partners. We've launched the new inhaler product, and we expect to see more positive development. As we've said in the call, international now represents a large portion of our revenues and is seeing significant growth. It's important, our international business is a medical market. So it's really complex in terms of regulations and other challenges. And we're experienced in navigating those complexities. And I think we're well positioned based on our licenses, our relationships, our reputation and our history. There's lots of learnings over years.

So we're now investing in working capital. As Greg mentioned, we're deploying some of our cash to invest in working capital, specifically to support our international growth. So the short answer is, yes, we expect the international business to keep growing in a meaningful way.

Your next question, you've been promising better returns for years, yet the share price stays flat.

Yes. I think as we mentioned -- so thanks for the question. As I mentioned, I joined the company in 2022. I often say that's after the significant crash in the market. So the graph that we show, and I think we can put the graph maybe back up on the slide here, if we could, shows from essentially when I started to our performance now. I would say the cannabis industry, as everyone knows, has been challenging for most companies in the space. All share prices have suffered. Capital has exited the market. The market is overcrowded and requires consolidation, and we think we have a role to play in that process, but it takes time.

We're in it for the long run. We believe we will see returns in due course because we're financially stable, we're diversified. We're experienced. We have an international presence. We have pharmaceutical investments. Some companies, they ended up in CCAA. They saw their share price go to 0 and investors wiped out. So we're proud to be part of a team that's on a different trajectory. Many companies are going concern in their financial reports.

I think the share price graph we showed shows that we've actually outperformed all of the major cannabis companies since December of 2022 as well as the Global X Marijuana Life Sciences Index. In the long term, we believe that companies with stable financials and a growing business will be rewarded with share price appreciation. We intend to be in that group. We obviously are going to be one of the survivors. But today, we're very proud to have shared positive EBITDA results, as well as a number of strategies and areas of focus that we believe are going to continue to make the company stronger, which will, in turn, get reflected in a stronger share price.

Your next question, what is the status of the sale of Napanee.

I think that the Napanee is our facility that we've announced is -- sorry, the Napanee facility, we have announced that a deal that we prior had fell through. The facility was actually never for sale. We were approached unsolicited to sell and they had offered a reasonable price. The potential acquirer actually was unable to come through with the funds that they had. And in the time between signing and close, our international business, as we mentioned, some of which is supported from our Napanee business exploded.

So the interesting thing is it's probably a bit of a blessing that we didn't sell the Napanee facility, even though we had an agreement that they were going to continue to supply us to help and support our international business. So the Napanee facility is no longer for sale. We're actually investing in the Napanee facility. We're actually putting more business through the Napanee facility. We're actually growing more product at the Napanee facility. And related facility question, just if someone else has the question, how are we doing with the sale process for our Hope facility, that is on track to be sold to Rubicon, and that should close in Q2, and everything looks positive for that to come together. So that's a facilities update for both.

Your next question, why should investors be worried about Apollo? What are your biggest concerns with them?

This is a question we get from many shareholders as we speak to them. I think you need to look at the litigious history of this dissident. He had a history of lawsuits against his own directors and investors. He's been accused of siphoning off cash from other companies he controls. We believe he intends to do the same thing with your cash for purposes not aligned with shareholder interest, and we intend to stop him from doing that.

I would direct your attention to our AGM website at www.medipharmlabsagm.com, and we'll be communicating more detail and background. I've personally had dealings with Mr. McGee and how -- it's hard to imagine his approach, and it's a very aggressive approach. It's hard to imagine his approach working with our international partners, with our pharmaceutical partners who value stable leadership and cooperative relationships. As a shareholder, I'd be very worried about the competence and intentions of any team he has put forward and what that would do to your business. We have a strong cash position. We have a strong asset base. The goal of many activists is to try and get control of those assets in cash to deploy as they see fit. So looking at the history of this dissident, it doesn't inspire confidence.

[Operator Instructions]

And that concludes our Q&A session. I will now turn the call back over to David Pidduck for closing remarks.

Thank you, operator, and thanks to everyone who participated. If you have any additional questions, please contact us through the details shown on this slide. For all the latest development and materials related to the Annual and Special Meeting of Shareholders, visit medipharmlabsagm.com regularly. Remember, vote with the green proxy.

Just one comment. There's going to be a lot of misinformation and even some statements that are patently false coming from the dissident group. We are always open to discuss any issues with shareholders. We're going to try and keep shareholders posted on the medipharmlabsagm.com website. And as we see things come up in press releases, we will address them to provide the best information for shareholders to make their decision. So thank you, everyone, for taking the time today. Everyone, have a great day.

Thank you for joining. You may now disconnect.