Aphria Inc. Announces Record Second Quarter Fiscal Year 2021 Results

Published: January 15, 2021

Aphria Inc. Announces Record Second Quarter Fiscal Year 2021 Results

Aphria Inc., a global cannabis-lifestyle consumer packaged goods company inspiring and empowering the worldwide community to live their very best life, today reported its financial results for the second quarter and six months ended November 30, 2020. All amounts are expressed in Canadian dollars, unless otherwise noted and except for per gram, kilogram, kilogram equivalents, and per share amounts.

“We are pleased with our second quarter results which reflect the strength of our diversified global cannabis and consumer packaged goods businesses,” said Irwin D. Simon, Chairman and Chief Executive Officer. “Our market leading adult-use cannabis brands and sales remained strong and our international medical cannabis sales are off to a solid start. We also advanced our long-term vision for building a global cannabis life-style consumer packaged foods company positioned for sustainable, profitable growth with the completion of our acquisition of SweetWater late in the second quarter. In addition to advancing our long-term vision and growth objectives, the addition of SweetWater is a cornerstone within our U.S. strategy and a strong complement to our existing Aphria business that we believe will return compelling financial benefits. We already hit the ground running by starting to build upon the strengths of each of our respective complementary cannabis lifestyle brands broadening our consumer reach and enhancing loyalty with existing consumers.”

Simon continued, “We remain excited about our recently announced definitive agreement with Tilray to combine to create the largest global cannabis company and are on-track to close the transaction in the second quarter of calendar year 2021. At Aphria, we continue to build on our strong foundation in Canada and internationally to capitalize on growth opportunities utilizing our best-in-class cultivation and manufacturing across a greater distribution footprint and enabling us to connect with an increasing number of consumers and patients with our industry-leading brands and diversified product offerings.  Looking forward, we are planning to execute on the significant strategic and financial opportunities provided by the addition of SweetWater and, upon the closing of the Tilray business combination, including our over $100 million anticipated pre-tax synergies, to generate significant value for our stakeholders.”

Key Operating Highlights – Second Quarter Fiscal 2021

  • Record gross revenue for adult-use cannabis of $72.1 million in the second quarter, an increase of 149% from prior year quarter, representing the seventh consecutive quarter of growth.
  • Net cannabis revenue of $67.9 million in the second quarter, an increase of 99% from prior year quarter and an increase of 7% from prior quarter.
  • Net revenue of $160.5 million in the second quarter, an increase of 33% from prior year quarter and an increase of 10% from prior quarter.
  • Cash cost to produce dried cannabis per gram1 of $0.79 in the second quarter, a decrease of 9% from the prior quarter, which represents the fifth consecutive quarter of decreasing cost.
  • Recorded seventh consecutive quarter with positive adjusted EBITDA1 and positive adjusted EBITDA from cannabis business1.
  • Adjusted EBITDA from cannabis business1 of $12.9 million in the second quarter, an increase of 24% from the prior quarter.
  • Adjusted EBITDA1 of $12.6 million in the second quarter, an increase of 26% from the prior quarter.
  • Ended second quarter with a strong balance sheet and liquidity, including $320.0 million of proforma cash1 to fund planned Canadian and international growth.
  • Free cash flow1 improved $70 million during the second quarter predominantly as a result of increased cash provided by operating activities, as the Company better managed its working capital.
  • Completed first EU-GMP shipment of dried cannabis and cannabis oil to Germany.
  • Received import permit for first EU-GMP shipment of cannabis oil for sale and distribution in Malta.
  • Completed first shipment of medical cannabis to Canndoc for distribution in Israel.
  • Executed supply agreement with ODI Pharma AB, expanding Aphria’s international presence into Poland.
  • Completed the accretive, strategic acquisition of SW Brewing Company, LLC, further diversifying the Aphria’s product offering, broadening its consumer reach, and enhancing loyalty with consumers.
  • Expanded 510 vape offerings across Aphria’s award-winning adult-use brand portfolio.

Subsequent Events

  • Reached a definitive agreement to combine with Tilray, Inc. to create the world’s largest global cannabis company based on proforma revenue.
  • Closed a USD $120 million financing with BMO, providing a USD $20 million revolving facility and a USD $100 million term debt facility.
  • Broken Coast expanded its premium cannabis offering with the introduction of a newly developed strain “Pipe Dream.”
  • Received a total of six awards, the most awards given to one licensed producer, including four adult-use brands being recognized by the 2020 kind Awards.

Key Financial Highlights (In thousands of Canadian dollars)

Three months ended

Three months ended 

November 30, 2020

November 30, 2019

Net revenue

$160,532

$120,600

Gross profit

$39,492

$39,589

Adjusted cannabis gross profit 1

$31,167

$19,079

Adjusted cannabis gross margin 1

45.9%

56.6%

Adjusted beverage alcohol gross profit 1

$533

N/A

Adjusted beverage alcohol gross margin 1

60.5%

N/A

Adjusted distribution gross profit 1

$12,053

$10,959

Adjusted distribution gross margin 1

13.1%

12.7%

Net income (loss)

($120,598)

($7,929)

Adjusted net income (loss) 1

$3,219

($48,753)

Adjusted EBITDA 1

$12,572

$1,903

Q2-2021

Q1-2021

Distribution revenue

$91,740

$82,198

Net cannabis revenue

$67,911

$63,491

Net beverage alcohol revenue

$881

$0

Net revenue

$160,532

$145,689

Kilograms (or kilogram equivalents) sold 1

26,730

20,882

Cash cost to produce dried cannabis / gram1

$0.79

$0.87

“All-in” cost of goods sold / gram1

$1.30

$1.41

Adjusted EBITDA from cannabis business 1

$12,887

$10,399

Adjusted EBITDA from businesses under development 1

($3,199)

($2,820)

Adjusted EBITDA from beverage alcohol business 1

$299

$0

Adjusted EBITDA from distribution business 1

$2,585

$2,427

Cash and cash equivalents & marketable securities

$187,997

$400,019

Proforma cash 1

$319,997

$400,019

Working capital

$399,161

$725,512

Capital and intangible asset expenditures – wholly-owned subsidiaries 

$16,935

$15,808

Capital and intangible asset expenditures -majority-owned subsidiaries1 

$2,791

$1,496

  Source: Aphria Inc. November 30, 2020 MD&A11

___________________________

1 In this press release, reference is made to proforma cash, adjusted cannabis gross profit, adjusted cannabis gross margin, adjusted beverage alcohol gross profit, adjusted beverage alcohol gross margin, adjusted distribution gross profit, adjusted distribution gross margin, adjusted net income (loss), adjusted EBITDA, adjusted EBITDA from cannabis business, adjusted EBITDA from distribution business, adjusted EBITDA from businesses under development, adjusted EBITDA from beverage alcohol business, free cash flow, gram equivalents, cash costs to produce dried cannabis per gram, “all-in” cost of sales of dried cannabis per gram, capital and intangible asset expenditures – wholly-owned subsidiaries, and capital and intangible asset expenditures – majority-owned subsidiaries which are not measures of financial performance under International Financial Reporting Standards (IFRS). These metrics and measures are not recognized measures under IFRS, do not have meanings prescribed under IFRS and as a result are unlikely to be comparable to similar measures presented by other companies. These measures are provided as information complementary to those IFRS measures by providing a further understanding of our operating results from the perspective of management. As such, these measures should not be considered in isolation or in lieu of review of our financial information reported under IFRS. Definitions and reconciliations for all terms above can be found in the Company’s Management’s Discussion and Analysis for the three months ended November 30, 2020, filed on SEDAR and EDGAR.

Net revenue for the three months ended November 30, 2020 was $160.5 million, an increase of 33% from $120.6 million in the same period last year. Second quarter fiscal year 2021 net revenue increased 10% when compared to the prior quarter net revenue of $145.7 million, as a result of an increase in distribution revenue at CC Pharma in Germany and an increase in net cannabis revenue as well as five days of contribution from net beverage alcohol revenue from the acquisition of SweetWater.  The increase in distribution revenue is a result of a return to normalized levels from the prior quarter.

The average retail selling price of medical cannabis, before excise tax, decreased to $6.96 per gram in the quarter, compared to $7.38 in the prior quarter. The decline is a result of specific pricing programs offered to assist patients in need who have been negatively impacted by the COVID-19 pandemic, along with other promotional programs.

The average selling price of adult-use cannabis, before excise tax, increased to $4.29 per gram in the quarter, compared to $4.15 per gram in the prior quarter, primarily related to sales mix.

Adjusted cannabis gross profit1 for the second quarter was $31.2 million, with an adjusted cannabis gross margin1 of 45.9%, compared to $31.5 million and 49.7% in the prior quarter. The decrease in adjusted cannabis gross profit1 and adjusted cannabis gross margin1 was primarily due to supply and demand and inventory that was liquidated below cost. During the quarter, the Company liquidated older inventory below cost resulting in a gross loss of approximately $1.5 million and the Company incurred under-absorbed overhead of approximately $1.0 million as a result of the Company’s planned reduction in operating capacity.

Adjusted distribution gross profit1 for the second quarter was $12.0 million, with an adjusted distribution gross margin1 of 13.1%, compared to $11.8 million and 14.4% in the prior quarter. The increase in adjusted distribution gross profit1 was a result of an increase in distribution revenue at CC Pharma in Germany. The decrease in the gross margin was a function of product sales mix at CC Pharma in the quarter.

Operating expenses in the quarter increased to $82.7 million from $54.5 million in the prior quarter and increased from $49.2 million in the prior year. The increase from the prior quarter was primarily due to transaction costs of $22.6 million associated with the acquisition of SweetWater during the quarter and increased share-based compensation largely driven by the increase in the Company’s share price. The increase from the prior year was largely consistent with the changes from the prior quarter.

Net loss for the second quarter of fiscal year 2021 was $120.6 million, or a loss of $0.42 per share, compared to net loss of $5.1 million, or a loss of $0.02 per share in the prior quarter, and a net loss of $7.9 million, or a loss of $0.03 per share for the same period last year. On an adjusted basis excluding the impacts of the items noted in the reconciliation table below, the Company recorded net income for the second quarter of fiscal year 2021 of $3.2 million, or earnings of $0.01 per share.

Adjusted EBITDA1 increased $2.6 million to $12.6 million for the second quarter compared to $10.0 million in the prior quarter. Adjusted EBITDA from cannabis business1 for the second quarter was $12.9 million compared to $10.4 million in the prior quarter. The adjusted EBITDA loss from businesses under development1 for the second quarter was $3.2 million compared to a loss of $2.8 million in the prior quarter. Adjusted EBITDA from the beverage alcohol business1 was $0.3 million based on a five-day contribution in the second quarter of fiscal 2021. Adjusted EBITDA from distribution business1 for the second quarter was $2.6 million, compared to $2.4 million in the prior quarter.

___________________

2 Adjusted loss per share calculated based on the weighted average number of common shares – basic as disclosed in the Company’s financial statements.

For the three months
ended November 30,

For the six months ended
November 30,

2020

2019

2020

2019

Net income (loss)

$  (120,598)

$  (7,929)

$  (125,693)

$  8,512

Unrealized loss (gain) on convertible debentures

87,646

(49,078)

87,225

(63,285)

Share-based compensation

13,595

7,563

17,856

12,519

Transaction costs

22,576

691

25,624

1,426

Adjusted net income (loss)

$  3,219

$  (48,753)

$  5,012

$  (40,828)

Adjusted income (loss) per share – basic2

$  0.01

$  (0.19)

$  0.02

$  (0.16)

The Company ended the second quarter with a strong balance sheet, including $320.0 million of proforma cash1. Further, the Company’s efforts to improve its free cash flow1 were successful in the quarter, as the Company moved closer to its target of generating positive free cash flow1.  During the quarter, the Company improved its free cash flow1 by more than $70 million.

 Q2 – 2021 

 Q1 – 2021 

Cash provided by (used in) operating activities:

$  3,404

$  (69,337)

Investment in capital and intangible assets

(19,726)

(17,304)

Free cash flow

$  (16,322)

$  (86,641)

 

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