Good morning. My name is Joanna, and I will be your conference operator today. I would like to welcome you to Canopy Growth's Third Quarter Fiscal 2025 Financial Results Conference Call. Currently, all participants are in a listen only mode. I will now turn the call over to Tyler Burns, Director, Investor Relations. Tyler, you may begin the conference call.

Good morning. And thank you for joining us. On our call today, we have Canopy Growth's Chief Executive Officer, Luc Mongeau; and Chief Financial Officer, Judy Hong. Before financial markets opened today, Canopy Growth issued a news release announcing the financial results for our third quarter fiscal year 2025 ended December 31, 2024. The news release and financial statements have been filed on EDGAR and SEDAR and will be available on our Web site under the Investors tab. Before we begin, I would like to remind you that our discussion during this call will include forward-looking statements that are based on management's current views and assumptions and that this discussion is qualified in its entirety by the cautionary note regarding forward-looking statements included at the end of the news release issued today. Please review today's earnings release and Canopy's reports filed with the SEC and on SEDAR for various factors that could cause actual results to differ materially from projections. In addition, reconciliations between any non-GAAP measures to their closest reported GAAP measures are included in our earnings release. Please note that all financial information is provided in Canadian dollars unless otherwise stated. Following remarks from Luc and Judy, we will conduct a question-and-answer session where we will take questions from analysts. With that, I will turn the call over to Luc.

Thank you, Tyler. Good morning, everyone. And thank you for joining our quarter three fiscal year 2025 earnings conference call. My name is Luc Mongeau, and I'm proud to join you for my first earnings call as CEO of Canopy Growth. I'm truly excited to lead the company forward as we start a new year and embark on a fresh chapter for Canopy. I would like to start by expressing my gratitude for the support that the Canopy Board of Directors and our entire team have given me as I begin in this new role. I will also like to thank David Klein for his leadership and support through the transition. For me, joining Canopy and stepping into the role of CEO to lead this Canadian and global organization is an honor and a privilege. And before we get into the results from Q3, which Judy will cover in greater depth, I'd like to share some details about my prior experience and why I've joined as CEO and speak at a high level about my view on the company, the sector and our path ahead. Over the last 25 years, I've had the privilege of leading and working within organizations across the consumer packaged goods industry. Companies like Weston Foods, Mars Petcare and Procter & Gamble. In all my roles, I've dedicated myself to identifying the most promising value creation opportunities, working to understand the needs and wants of consumers and customers while building greater organization that meets and exceeds demand with high quality innovative products. I have led product innovation in R&D, revamped complex supply chains, executed global marketing campaigns and developed fresh takes on commercial strategies how to power growth and profitability. This brings me to Canopy. When I first got involved with Canopy two years ago through…

Thank you very much, Luc. And good morning, everyone. I'll start by walking through our Q3 fiscal 2025 results, including performance by key business units. I'll then discuss progress on our balance sheet and cash flow, followed by a discussion on our priorities and outlook for the balance of fiscal 2025 and into fiscal 2026. Let's begin with our third quarter results. Q3 was a solid quarter marked by continued momentum in medical cannabis and Storz & Bickel as well as improvement in our adult use business in Canada. And combined with cost efficiencies, we significantly narrowed our adjusted EBITDA loss in the quarter. Canopy delivered consolidated net revenue of CAD75 million in Q3, a decrease of 5% or up 8% excluding the impact of divested businesses compared to Q3 of last year. Consolidated gross margin in Q3 was 32%, down compared to 36% a year ago but broadly in line with our target range. Q3 adjusted EBITDA was a loss of CAD3 million, an improvement of 61% versus last year. And free cash flow was an outflow of CAD28 million, an improvement of 17% compared to Q3 of fiscal '24 and a significant improvement relative to the first half run rate of the current fiscal year. I'd like to now review the results of our key businesses in more detail, starting with Canada. Q3 net revenue was CAD41 million, an increase of 1% compared to a year ago. Canada medical continued its momentum, marking another record revenue quarter and posting year-over-year revenue growth of 16%. We're gaining market share with a growing number of insured patients and we've expanded our product assortment to meet the needs of our medical consumers. The growth relative to Q2 was also driven by a return of Wana Gummies as well as contribution from…

[Operator Instructions] The first question comes from Aaron Grey at Alliance Global Partners.

Luc and Judy, just wanted to dig a bit deeper in terms of plans for international to capitalize on some of the growth there. I know you mentioned some additional supply agreements that were signed. But curious if you believe the asset light model will enable you to capture and maintain a healthy share of the growing international pie? And then would that preclude you from generating more robust margins compared to being vertical internationally? So any color in terms of the outlook that you have for international given the growth we're seeing from some of the competitors out there?

I'll start and Luc may have his view as well. So first of all, I do want to just call out that we did have a very strong international performance in the European markets in particular. If you look at our overall revenue of $12 million in international market segments, you have to really bifurcate the European performance versus the Australian performance. Just to give you a context, the European business, which includes key markets like Poland and Germany, account for roughly 60% of the international market segment. We have a strong position in the Polish market and we're seeing continued outsized growth in that market. And as I alluded to on the call, we've also had very strong growth in Germany from additional supply that we have secured. Overall, our European business in Q3 was up in excess of 70%. The Australian business, however, was down on a year-over-year basis. We did call out last quarter that we saw increased competition, particularly in the medical sales business for -- medical cannabis sales for Australia that part of the business also includes our S&B sales in Australia. And we're really trying to transition that business into Germany to ensure that the Australian team can really focus on improving the performance of the medical cannabis sales in that market. Now if we step back and think about the business going forward, number one, the market is growing. Based on the positive changes to regulation in Germany, the market is growing and we think that, that provides us the tailwind to benefit from the market growth. Secondly, as I said, we are partnering up with additional supply partners and we think that, that gives us opportunity to really supply the market in an asset light model. Keep in mind, we also have our Kincardine facility in Canada that is GMP certified and we are leveraging that facility, our low cost structure there to service the international market. So the combination of our Canadian supply as well as our third party partners in the European markets, we believe we have the right ingredients to really take advantage of the growth opportunities in that market.

Building a bit on that, I'm five weeks in right now. The medical market, both in Canada and internationally, has very strong fundamentals. We've got some solid elements in place. As I dig deep in the business and look at the strategy, the approach, the resource allocation, this is all things that I'm considering and I'll have more to share at the next call, but it is an extremely attractive category.

The next question comes from Bill Kirk at ROTH Capital Partners.

Luc, I wanted to keep going there on that kind of management and strategy philosophy conversation. Like it's been, I think, five weeks. But in what ways do you view the company and opportunities differently than your predecessor? And in what way so far that you've seen, do you agree with the path and strategy that was in place?

It's a bit too early for me to tell. What I can tell you in the five weeks that I have been in the business is that I am impressed with the quality of the talent overall, the quality of the processes, the quality of the supply chain. And for me, I'm working very closely with the team right now, doing the analysis, doing the validation, or proving wrong some of the hypotheses and the approaches that are there right now, and I'm extremely encouraged with what I see. More to come at the next call.

The next question comes from Matt Bottomley at Canaccord Genuity.

This question might be more for Judy. Just wondering, understanding some of the success that you guys have had on the cost cutting initiatives, you've had a number of quarters now where the free cash flow burn has come down. But if you look at that sort of the ATM line there, 250 some-odd million of raises this year for the first nine months, I'm just wondering where you see the cadence of that going just as you continue to progress towards breakeven? And obviously, the question we all get just given the fact that the equity valuations right now continue to be challenged in the sector overall.

So as you said, we certainly did make significant progress on our balance sheet and our cash flow has improved significantly on a year-over-year basis and over the last few years. We do expect further improvement in FY2026 from a cash flow perspective. Certainly, the expectations for improved operations and improved profitability across our businesses will be a contributor. We're also looking at, on a year-over-year basis, improvement in cash interest expenses following the paydown of our term loan that we made in October. We also have an option to pay down additional $100 million in the coming months as well. So when you unpack our cash flow for next year, really a significant portion of the outflow is expected to be in the interest expenses line. We expect relatively modest CapEx investments in the year. And there's some additional cash costs related to the legacy facilities that we're still incurring, but we've made significant progress also in reducing some of those cash costs as well. So we think that the combination of the cash balance that we have, continued actions that we're taking to improve our cash flow and reduce our leverage will really provide us an ample flexibility to reinvest into the business as well to continue to fuel growth opportunities in our portfolio.

[Operator Instructions] The next question comes from Frederico Gomes at ATB Capital Markets.

Just a question on Poland. I think, Judy, you mentioned that you saw outsized growth in that market. So could you talk a little bit more about that market specifically? What's the size right now, how fast it is growing, how the competitive environment in Poland looks like in terms of market share that you have in that market? Any further color about the Poland market?

So within our European business, as you called out, Poland has really been one of the strongest contributors to that growth in Europe. If you look at the marketplace itself, it is more insulated from some of the competitive pressure just because the government actually issues import permits and we've been able to secure those imports by really providing consistent supply and quality of the products that the patients are demanding. And so right now, we're effectively fulfilling all of the import registrations that we have. Demand is exceeding supply. It has been -- demand has been exceeding supply over the last couple of years. We understand that there may be some market dynamics and regulations that could evolve over time. But at this point, we're very excited about the market dynamics and our leadership position in that market and our ability to really fulfill all of the import permits that we have secured in that market.

The next question comes from Pablo Zuanic at Zuanic & Associates.

Luc, first, I want to ask regarding Constellation Brands. And maybe just a reminder for the audience, compared to three, four years ago, how involved is Constellation Brands in the Board, in the direction of Canopy Growth? And can you leverage the distribution assets of Constellation Brands in the US as Wana begins to roll out their derivative products? That's one question. And the second one, if I may ask right now, I mean, of course, congratulations on the 60% growth in Europe, very impressive number. Maybe Judy, just a reminder for us in terms of the strength of your route-to-market capabilities there, distribution capabilities. We're beginning to realize that one thing is exporting from Canada and other things being able to distribute the product there. So just remind us whether that -- those assets were impacted by cost cuts in the past or whether they are strong or do you need to rebuild them a bit?

So why don't I start with the second part of the question, and then we'll address your first part of your question as well. So our international infrastructure is primarily we have supply coming in from Canada as well as a third party, partners in those markets. And we have distribution partners. So we've worked closely with our partners both in Germany and in some instances, even in the UK to make sure that we have collaboration across those markets to have distribution channels available to us in those markets. I would say, if you take a step back in international markets, the biggest constraint over the last couple of years has really been about supply. I think as you know, we've gone through a big improvement in terms of our flower quality and supply continuity in the Canadian market. And that is also helping our international business with improved flower quality, more consistent supply and higher THC going into those markets. So I don't think there is expected to be a big step change in terms of really the investments required to change our business in that market. I think it's really leveraging what we have from a product perspective, our partnership with distributors' perspective and taking advantage of the market growth. From -- your question on Constellation, I mean I think, as you know, they remain our largest shareholder. They are now more of a passive shareholder given the exchangeable share ownership that they have in Canopy. We still have relationship with them in the context of just sharing best practices or just changing ideas. But I think from their perspective, it's really about investments as an investor in Canopy, less about operational exchanges in that sense.

This concludes Canopy Growth's third quarter fiscal 2025 financial results conference call. A replay of this conference call will be available until May 8, 2025 and can be accessed following the instructions provided in the company's press release issued earlier today. Canopy Growth's Investor Relations team will be available to answer additional questions. Thank you for attending today's call.