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Entourage Health Stock Slightly Up On Earnings And Supply Agreement With HEXO

Benzinga · 11/15/2022 10:43

Entourage Health Corp. (OTCQX:ETRGF) (TSXV:ENTG) (FSE:4WE) Q3 2022 net revenue was $10.1 million, a decrease of 7.0% year-over-year from $10.7 million in Q3 2021.

Q3 2022 Financial Highlights

  • Gross loss was $6 million compared to a loss of $10.2 million in Q3 2021.

  • Adjusted EBITDA loss was $2.9 million compared to a loss of $4.1 million in Q3 2021, an improvement of $1.2 million primarily driven by transformation initiatives targeted at reducing expenses and creating operational efficiencies.

  • Loss and comprehensive loss was $17.4 million compared to $17.5 million in Q3 2021.

Supply Agreement with HEXO Corp.

Entourage executed a long-term cannabis supply agreement with HEXO Corp. (NASDAQ:HEXO) (TSX:HEXO) Under the agreement, HEXO will provide bulk biomass and soft gel capsules to be marketed to patients and consumers under Entourage’s family of brands. This will also ensure the company’s proprietary genetics and cultivars are consistently available, and provides a back-up to previous product shortfalls experienced.

The supply agreement provides for minimum annual purchase commitments by Entourage, with year-over-year increases. The prices of all products supplied under the supply agreement are fixed but subject to limited and periodical adjustments depending on prevailing production costs and market pricing. It includes exclusivity for HEXO in supplying the specified products, subject to certain exceptions including Entourage’s right to supply itself with such products. The supply agreement has a three-year term, which can be renewed for an additional three years at Entourage’s election on the same terms and conditions, subject to increased minimum annual purchase commitments over the renewed term.

Phasing Out Strathroy and Guelph Cultivation Facilities

Following an in-depth strategic review and analysis of its business operations, and after careful consideration, the company has made the difficult decision to exit from cultivation as it outsources it to HEXO. A transition plan will be enacted over a five-month period as Entourage winds-down its greenhouse and tissue culture operations. The progressive exit is expected to impact about 35% of the company’s current workforce, primarily cultivation staff based in Strathroy and Guelph, Ontario.

Commencing in the first quarter of 2023, Entourage’s cultivation is expected to be fully outsourced and fulfilled by the supply agreement. Entourage’s finished goods will continue to be processed and shipped from its processing and distribution hub in Aylmer, Ontario.

Cost Structure Improvement, Sales and Revenue Highlights & Capital Structure Alignment

The company made strides to improve its capital structure, debt and liquidity position during the third quarter as it settled the repayment of its unsecured convertible debentures and obtained extensions to its secured credit facilities’ maturity dates for increased financial flexibility. Additionally, with the recent $30 million in additional funding capacity from an affiliate of the LiUNA Pension Fund of Central and Eastern Canada, the company is well positioned and funded for future growth.

Price Action

Entourage Health shares were trading 5.26% higher at $0.03 per share at the time of writing Tuesday morning.

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Photo: Benzinga; Sources: courtesy of geralt, lindsayfox via Pixabay

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