2021-04-12 07:16 ET - News Release
Mr. Irwin Simon reports
APHRIA INC. ANNOUNCES THIRD QUARTER FISCAL YEAR 2021 RESULTS
Aphria Inc. has released its financial results for the third quarter and nine months ended Feb. 28, 2021.
Irwin D. Simon, chairman and chief executive officer, commented: "Our global team executed well in the very fluid, ongoing COVID-19 operating environment. We pro-actively managed our expenses and maintained our positive adjusted EBITDA for the third quarter of fiscal 2021. The duration and impact of lockdowns across many of the regions we operate in, particularly in Canada, were greater than we initially anticipated for the cannabis industry and our business; however, we believe Aphria remains well positioned with our leading brands and market share to experience a robust increase in our topline as the market improves. In the U.S., we had a solid first full quarter of contribution from SweetWater even with lower on-premise sales compared to the prior year quarter as many food service industry establishments were still operating with limited capacity. Going forward, we are excited about the strategic opportunities for incremental growth as we look to parlay our branded consumer products into additional complementary product offerings in Canada, the U.S. and internationally."
Mr. Simon continued: "We remain excited with the opportunities created for both Aphria shareholders and Tilray stockholders in completing our proposed business combination with Tilray, and believe that together, we will create one of the strongest global cannabis and consumer packaged goods companies in the world. We expect to have a tremendous runway for long-term sustainable growth as we build upon our existing foundation in Canada and internationally by increasing the scale of our global operations. We expect Aphria and Tilray's complementary cultures of innovation, brand development and cultivation to further set us apart from others in the industry along with the strength of our balance sheet and cash availability as we enhance value for all stakeholders."
Key operating highlights -- third quarter fiscal 2021:
- Reached a definitive agreement to combine with Tilray Inc. to create the world's largest global cannabis company based on pro forma revenue;
- Closed a $120-million (U.S.) financing with Bank of Montreal, providing a $20-million (U.S.) revolving facility and $100-million (U.S.) term debt facility;
- Maintained its No. 1 licensed producer status in Ontario and Alberta in terms of sales to the provincial boards, based on Headset data for the period December, 2020, to February, 2021, the same as its prior fiscal quarter;
- Improved its market share in Quebec, rising to No. 2 licensed producer in terms of sales to the provincial board, based on internal analyses;
- Recorded eighth consecutive quarter of positive adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) and positive adjusted EBITDA from cannabis business;
- Adjusted EBITDA from cannabis business of $7.9-million in the third quarter compared with $12.9-million in the prior quarter;
- Adjusted EBITDA increased to $12.7-million in the third quarter compared with $12.6-million in the prior quarter;
- Free cash flow improved $12.4-million during the third quarter predominantly as a result of increased cash provided by operating activities, as the company better managed its working capital;
- Third quarter revenues were impacted by lockdowns in the major Canadian provinces, particularly Ontario, which was in a lockdown for nearly the entire quarter, and in Germany;
- Gross revenue for adult-use cannabis of $59.6-million in the third quarter, an increase of 33.4 per cent from the prior-year quarter, and a decrease of 17.3 per cent from the prior quarter;
- Net cannabis revenue of $51.7-million in the third quarter, a decrease of 7.8 per cent from the prior-year quarter, and a decrease 23.8 per cent from the prior quarter;
- Net revenue of $153.6-million in the third quarter, an increase of 6.4 per cent from the prior-year quarter, and a decrease of 4.3 per cent from the prior quarter;
- Ended the third quarter with a strong balance sheet and liquidity, including $267.1-million of cash and cash equivalents to finance planned Canadian and international growth;
- Broken Coast expanded its premium cannabis offering with introduction of newly developed strain Pipe Dream;
- Launched SweetWater Brewing Company LLC beverages statewide in Colorado, the first U.S. state to legalize adult-use cannabis;
- Introduced the Solei brand topical, a high-potency topical available in the Canadian market.
Subsequent events:
- Launched Aphria-Tilray Together website, for shareholders of Aphria and stockholders of Tilray to find up-to-date information about the proposed Aphria-Tilray business combination;
- Scheduled special meeting of Aphria shareholders on April 14, 2021, to approve the proposed Aphria-Tilray business combination;
- Received vote for recommendations from ISS and Glass Lewis for the Aphria-Tilray business combination. ISS and Glass Lewis are leading independent proxy advisory firms that provide voting recommendations to institutional shareholders.
KEY FINANCIAL HIGHLIGHTS
(in thousands of dollars)
Three months ended Three months ended
Feb. 28, 2021 Feb. 29, 2020
Net revenue $153,638 $144,424
Gross profit $31,689 $59,575
Adjusted cannabis gross profit $20,272 $23,744
Adjusted cannabis gross margin 39.2% 42.7%
Adjusted beverage alcohol gross profit $7,092 N/A
Adjusted beverage alcohol gross margin 47.9% N/A
Adjusted distribution gross profit $11,437 $11,397
Adjusted distribution gross margin 13.1% 12.9%
Net income (loss) ($360,996) $5,697
Adjusted net income (loss) ($47,924) ($9,844)
Adjusted EBITDA $12,651 $5,736
Q3 2021 Q2 2021
Distribution revenue $87,095 $91,740
Net cannabis revenue $51,735 $67,911
Net beverage alcohol revenue $14,808 $881
Net revenue $153,638 $160,532
Kilograms (or kilogram equivalents) sold 18,695 26,730
Cash cost to produce dried cannabis/gram $0.90 $0.79
All-in cost of goods sold/gram $1.54 $1.30
Adjusted EBITDA from cannabis business $7,858 $12,887
Adjusted EBITDA (loss) from businesses under development ($1,495) ($3,199)
Adjusted EBITDA from beverage alcohol business $5,002 $299
Adjusted EBITDA from distribution business $1,286 $2,585
Cash and cash equivalents and marketable securities $267,134 $187,997
Working capital $513,713 $399,161
Capital and intangible asset
expenditures -- wholly owned subsidiaries $4,984 $16,935
Capital and intangible asset
expenditures -- majority-owned subsidiaries $61 $2,791
Net revenue for the three months ended Feb. 28, 2021, was $153.6-million, an increase of 6.4 per cent from $144.4-million in the same period last year. Third quarter fiscal year 2021 net revenue decreased 4.3 per cent when compared with the prior-quarter net revenue of $160.5-million, due to a decrease in net cannabis and distribution revenue, partially offset by an increase in net beverage alcohol revenue from the acquisition of SweetWater.
As a result of the continuing effects of COVID-19, including provincial lockdowns and provincial boards taking measures to lower their inventory levels, which had previously included forecasted cannabis market growth, the company experienced what it believes is a transitory reduction in demand during the quarter. These provincial government measures resulted in decreased orders from provincial boards and product returns of approximately $5.0-million. The company mitigated a portion of the product return by finding alternative distribution channels for some of the products, but experienced a reduction in net cannabis revenue as a result of $4.1-million.
The average retail selling price of medical cannabis, before excise tax, decreased to $6.69 per gram in the quarter, compared with $6.96 per gram in the prior quarter. The decline was 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, decreased to $3.82 per gram in the quarter, compared with $4.29 per gram in the prior quarter, primarily due to consumer trends toward the purchase of large-format and price compression in the market.
Adjusted cannabis gross profit for the third quarter was $20.3-million, with an adjusted cannabis gross margin of 39.2 per cent, compared with $31.2-million and 45.9 per cent, respectively, in the prior quarter. The decrease in adjusted cannabis gross profit and adjusted cannabis gross margin was primarily due to lower yields that are typically experienced in the company's third quarter, due to less sunlight in December through February, and the impacts of the product returns described above. The remaining difference was due to the overall decrease in average selling price based on sales mix.
Adjusted distribution gross profit for the third quarter was $11.4-million, with an adjusted distribution gross margin of 13.1 per cent, compared with $12.1-million and 13.1 per cent in the prior quarter. The decrease in adjusted distribution gross profit was a result of a decrease in distribution revenue at Aphria's CC Pharma subsidiary in Germany driven by COVID-19 restrictions, which negatively impacted pharmacy revenue and the importation of inventory from other countries.
During the quarter, the company's adjusted gross margin on beverage alcohol decreased from 60.5 per cent to 47.9 per cent. The prior quarter's gross margin included only five days of sales with a sales mix that more heavily skewed toward on-premises consumption in the prior quarter.
Operating expenses in the quarter increased to $100.0-million from $82.7-million in the prior quarter and increased from $50.9-million from the third quarter of the prior year. The increase from the prior quarter was primarily driven by the impacts of the growth in the company's share price in the quarter on non-cash share-based compensation expense and the addition of a full quarter of operating expenses from SweetWater, including the amortization charges on its assets. The remaining increase is from transaction costs associated with the acquisition of SweetWater, the proposed business combination with Tilray, other potential acquisitions and one-time litigation costs. During the quarter, management identified that COVID-19 and the provincial lockdowns were going to be more impactful than initially expected. In response, management implemented several cost savings initiatives in the quarter, protecting the company's profitability and adjusted EBITDA.
Net loss for the third quarter of fiscal year 2021 was $361.0-million, or a loss of $1.14 per share, compared with a net loss $120.6-million, or a loss of 42 cents per share in the prior quarter, and net income of $5.7-million, or earnings of two cents per share in the third quarter last year. On an adjusted basis excluding the impacts of the items noted in the reconciliation table on the company's website, the company recorded a net loss for the third quarter of fiscal year 2021 of $47.9-million, or a loss of 15 cents per share.
Adjusted EBITDA increased to $12.7-million for the third quarter compared with $12.6-million the prior quarter. Adjusted EBITDA from cannabis business for the third quarter was $7.9-million compared with $12.9-million in the prior quarter. Adjusted EBITDA loss from businesses under development for the third quarter was $1.5-million compared with adjusted EBITDA loss of $3.2-million in the prior quarter. Adjusted EBITDA from the beverage alcohol business was $5.0-million for the third quarter compared with $300,000 for the prior quarter with the third quarter of fiscal 2021 representing the first full quarter contribution of SweetWater's operations in the company's results. Adjusted EBITDA from distribution business for the third quarter was $1.3-million, compared with $2.6-million in the prior quarter.
Conference call
Aphria will host a conference call to discuss these results today at 9 a.m. Eastern Time. To listen to the live call, dial 888-231-8191 from Canada and the United States or 647-427-7450 from international locations and use the pass code 6497567. A telephone replay will be available approximately two hours after the call concludes through May 12, 2021. To access the recording, dial 855-859-2056 and use the pass code 6497567.
There will also be a simultaneous, live webcast available on the investors section of Aphria's website. The webcast will be archived for 30 days.
Special shareholders meeting
The meeting will take place via live audio webcast on Wednesday, April 14, 2021, at 4 p.m. Eastern Time. Your vote is important -- please vote today.
The proxy voting deadline is 4 p.m. Eastern Time on Monday April 12, 2021.
The Aphria board unanimously recommends that shareholders vote for the Aphria resolution.
Your vote is important
Whether or not you plan to virtually attend the meeting, please vote as soon as possible by one of the methods described in the proxy materials to ensure that your shares are represented and voted at the meeting.
How to vote
Your vote is important regardless of the number of shares you own. Registered and beneficial shareholders may vote using the following methods:
- Internet: Go to the ProxyVote website and enter the 16-digit control number printed on the form of proxy or voting instruction form or scan the QR (quick response) code on the Aphria form of proxy to access the website and follow the instructions on the screen.
- Telephone: Call the toll-free telephone number provided on the form of proxy or voting instruction form and follow the prompted voting instructions. You will need to enter the 16-digit control number.
- Mail: Enter voting instructions, sign and date the form of proxy or voting instruction form, and return your completed form of proxy or voting instruction form in the postage paid envelope provided with your proxy materials to: Data Processing Centre, PO box 3700, STN Industrial Park, Markham, Ont,. L3R 9Z9.
If you hold your shares through an intermediary, please follow the instructions on the voting instruction form provided by such intermediary to ensure that your vote is counted at the meeting.
Deadline for receipt of proxies
To be counted at the meeting, a shareholder's voting instructions must be received by 4 p.m. Eastern Time on Monday, April 12, 2021, or if the meeting is postponed or adjourned, at least 48 hours (excluding non-business days) prior to the date of the postponed or adjourned meeting).
Aphria shareholder questions
Aphria and Tilray are committed to keeping shareholders of both companies up to date with developments and significant milestones.
If you have questions or need more information about the proposed transaction, please contact Aphria's shareholder communications adviser and proxy solicitation agent, Laurel Hill Advisory Group, by telephone at 877-452-7184 toll-free in Canada, 416-304-0211 for international calls or by e-mail at assistance@laurelhill.com.
About Aphria Inc.
Aphria is a leading global cannabis-lifestyle consumer-packaged-goods company with operations in Canada, United States, Europe and Latin America that is changing people's lives for the better -- one person at a time -- by inspiring and empowering the worldwide community to live their very best life by providing them with products that meet the needs of their mind, body and soul and invoke a sense of well-being. Aphria's mission is to be the trusted partner for its patients and consumers by providing them with a cultivated experience and health and well-being through high-quality, differentiated brands and innovative products. Headquartered in Leamington, Ont., Aphria cultivates, processes, markets and sells medical and adult-use cannabis, cannabis-derived extracts and derivative cannabis products in Canada under the provisions of the Cannabis Act and globally pursuant to applicable international regulations. Aphria also manufactures, markets and sells alcoholic beverages in the United States.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(in thousands of dollars, except per-share amounts)
For the three months For the nine months
ended Feb. 28 ended Feb. 28
2021 2020 2021 2020
Net revenue $153,638 $144,424 $459,859 $391,136
Cost of goods sold 115,872 108,733 335,008 297,403
Gross profit before fair
value adjustments 37,766 35,691 124,851 93,733
Fair value adjustment on
sale of inventory 45,044 16,383 102,600 36,060
Fair value adjustment (loss) on
growth of biological assets (38,967) (40,267) (124,209) (86,912)
Gross profit 31,689 59,575 146,460 144,585
Operating expenses
General and administrative 26,095 27,920 82,239 72,301
Share-based compensation 36,271 5,126 54,127 17,645
Selling 7,632 5,089 22,383 12,731
Amortization 13,792 5,352 24,848 16,256
Marketing and promotion 4,041 4,185 15,421 16,611
Research and development 158 710 586 1,992
Transaction costs 12,013 2,478 37,637 3,904
100,002 50,860 237,241 141,440
Operating (loss) (68,313) 8,715 (90,781) 3,145
Finance income (expense), net (10,025) (7,352) (23,302) (17,615)
Non-operating income (expense), net (276,507) 9,848 (383,626) 34,719
(Loss) income before income taxes (354,845) 11,211 (497,709) 20,249
Income taxes (recovery) 6,151 5,514 (11,020) 6,040
Net (loss) income (360,996) 5,697 (486,689) 14,209
Other comprehensive (loss) income
Other comprehensive (loss) income (5,836) (734) (4,778) (2,729)
Comprehensive (loss) income (366,832) 4,963 (491,467) 11,480
Total comprehensive income
(loss) attributable to
shareholders of Aphria (385,279) 5,893 (538,745) 12,944
Total comprehensive income
(loss) attributable to
non-controlling interests 18,447 (930) 47,278 (1,464)
(366,832) 4,963 (491,467) 11,480
(Loss) income per share -- basic (1.14) 0.02 (1.63) 0.06
(Loss) income per share -- diluted (1.14) 0.02 (1.63) 0.06
We seek Safe Harbor.