Derek Lessard

Derek Lessard with TD Cowen inquired about the performance of key direct delivery KPIs, including OTIF and customer net adds, exiting the quarter, and whether the 2026 sales guidance of 0% to 1% should be viewed as conservative given the company's historical financial algorithm.

Answer

CEO Eric Foss reported dramatic improvements in supply chain KPIs, with most in the high nineties, though On-Time In-Full (OTIF) still needs to reach above 90%. Customer calls decreased to pre-merger levels, and customer quits were lower with increased customer net adds by year-end. Foss expressed encouragement but noted ongoing work. Regarding guidance, he emphasized the priority of returning the business to growth after a 1% decline in 2025, acknowledging tougher first-half comparisons, and remains optimistic about achieving the business's full potential through multiple growth vectors.

Derek Lessard asked about key performance indicators (KPIs) for the Customer Direct business, specifically OTIF (On-Time In-Full) and customer net adds, exiting Q4 2025. He also inquired about the conservatism of the 2026 sales guidance and the timeline for returning to the historical financial algorithm.

Answer

Eric Foss, Chairman and CEO, expressed encouragement regarding Customer Direct's Q4 performance, noting dramatic improvements in supply chain KPIs like accurate forecasting, product production, and warehouse out-of-stocks. He highlighted sequential improvement in OTIF, reduced customer calls to pre-merger levels, lower customer quits, and increased customer nets exiting the year. Foss stated the 2026 guide focuses on achieving growth, acknowledging more difficult comparisons in the first half, and reiterated the ultimate goal of reaching the business's full potential.

Derek Lessard of TD Cowen asked about the low point for service levels during the quarter and requested an update on the year-to-date synergy capture and the primary sources of synergies expected in the second half of the year.

Answer

CEO Robbert Rietbroek stated that service levels temporarily dropped below 80% in May but have since recovered to over 92%. CFO David Hass reported that the company has realized $60 million in synergies year-to-date ($20 million in Q1 and $40 million in Q2) and is on pace for $140 million in annualized savings from actions taken so far. The remaining activities are primarily technology transitions.

Derek Lessard asked for more detail on the expected ramp-up in net sales throughout the year and questioned why guidance was maintained despite accelerating sales and the base business performing ahead of plan.

Answer

CEO Robbert Rietbroek cited the Easter timing shift and over 5% in new distribution points as drivers for the sales ramp. CFO David Hass explained that guidance was held flat to account for macro uncertainty and potential investments in promotional activities for the tariff-impacted dispenser business to support retail partners and drive related water sales.

Inquired about how M&A is factored into the top-line guidance and asked about the potential for efficiencies from route optimization and network overlap.

Answer

The 3-5% top-line guidance is purely organic and does not include any M&A, although the company will continue to pursue tuck-in acquisitions. Route optimization is a top priority and a primary driver of the increased synergy target, with significant efficiencies expected from route engineering and branch consolidation.

Derek Lessard inquired about the role of M&A in the 2025 outlook, for both retail brands and HOD tuck-ins, and asked about the potential for further efficiencies from route optimization.

Answer

CEO Robbert Rietbroek confirmed that HOD tuck-in acquisitions will continue but the primary focus for year one is merger execution and synergy delivery. CFO David Hass clarified the 3-5% growth guidance is purely organic and that route optimization is a top priority and a major driver of the increased synergy target.

Derek Lessard inquired about the role of M&A in the 2025 guidance and the company's acquisition strategy, as well as the potential for efficiencies from route optimization.

Answer

CEO Robbert Rietbroek confirmed the company will continue to pursue tuck-in acquisitions for its HOD business but will focus on merger execution before considering larger retail brand acquisitions. CFO David Hass clarified that the 3-5% growth guidance is purely organic and does not include M&A. Hass also noted that route engineering and branch consolidation are top priorities and key drivers of the increased synergy target.

Derek Lessard inquired about the strategic rationale behind divesting the plant propagation business (Bevo) and the expected timeline for the transaction's close. He also asked Simona King about the anticipated EBITDA contribution from plant propagation for the full fiscal year and Q4. Additionally, Mr. Lessard questioned how Aurora Cannabis has been navigating regulatory pressures in Poland, particularly regarding changes in online consultation restrictions.

Answer

Miguel Martin, Executive Chairman and CEO, stated that the divestiture of Bevo aligns with Aurora's focus on global medical cannabis for profitability and growth, allowing for better allocation of resources. Simona King, CFO, clarified that Bevo's financial results will no longer be consolidated post-divestiture and will be treated as discontinued operations, advising analysts to focus on the global medical cannabis business for Q4 and future modeling. Mr. Martin explained that Aurora successfully navigated Poland's regulatory changes by leveraging strong product development, distribution, and clinic connections, demonstrating agility in evolving frameworks.

Derek Lessard inquired about the strategic rationale and expected timing for the divestiture of Aurora Cannabis's plant propagation business (Bevo). He also asked Simona King about Bevo's expected EBITDA contribution for the full fiscal year and Q4, and how Aurora is navigating regulatory pressures in Poland, particularly regarding the shift from telehealth to clinics.

Answer

Miguel Martin, Executive Chairman and CEO, emphasized that divesting Bevo aligns with Aurora's focus on global medical cannabis, where profitability and growth are highest, allowing for better allocation of resources. Simona King, CFO, clarified that Bevo's financial results would no longer be consolidated and would be treated as discontinued operations, directing focus to the global medical cannabis business for future modeling. Mr. Martin added that Aurora successfully navigated Poland's regulatory changes by leveraging strong product development, distribution, and clinic connections, demonstrating agility and strong relationships with regulators.

Derek Lessard of TD Cowen inquired about the drivers behind the higher SG&A expenses in the quarter and asked for an outlook on European market competition and margin evolution.

Answer

CEO Miguel Martin explained that increased SG&A was tied to variable costs like freight from higher revenue, plus integration costs from the MedRelief Australia (MRA) acquisition. CFO Simona King added that the current SG&A level is appropriate for the company's growth trajectory. Regarding Europe, Martin detailed that high barriers to entry in key markets like Poland, the UK, and Germany (requiring local infrastructure to maximize margins) protect Aurora's position despite rising competition.

Derek Lessard of TD Cowen sought more detail on the record 74% medical gross margin and its sustainability, as well as the drivers behind the growth in the Bevo plant propagation business.

Answer

CEO Miguel Martin and CFO Simona King addressed the questions. Martin noted that medical cannabis margins are structurally more stable than recreational ones due to the pharmaceutical pricing model in Europe. King added that the margin strength comes from a revenue mix shift towards higher-margin international markets and operational efficiencies, and she expects these favorable margins to be sustainable. For the Bevo segment, King attributed the growth and improved margins to increased production capacity.

Asked for details on the Mountain Valley brand's performance, supply/demand dynamics, future potential, and long-term revenue targets. Also asked a follow-up question about the specifics of the ARO 2.0 initiative and its contribution to route efficiency.

Answer

Robbert Rietbroek stated that Mountain Valley saw 57% retail growth and that market demand still outruns supply. To address this, they have quadrupled spring water availability and are adding bottling capacity. They have high ambitions for the brand but do not provide specific revenue guidance. In response to the follow-up, David Hass explained that ARO 2.0 is largely driven by incorporating associate feedback to refine routing, such as correcting customer locations and optimizing paths, rather than a massive technological change.

Asked for details on the free cash flow guidance, an update on the customer base and the Costco initiative, and clarification on the Q4 North American EBITDA margin decline.

Answer

The strong 2024 free cash flow guidance is driven by operational performance and scale, with some offsets from taxes and CapEx. The Costco program is fully ramping up in 2024, and the customer base is healthy across all channels. The Q4 margin dip was a temporary effect of absorbing corporate overhead after the international business sale, with strong margin expansion guided for Q1 2024.