Aphria Inc. Announces Third Quarter Fiscal Year 2021 Results

Obviously make sure you read in detail to understand where the losses lie..

 

Reports Eighth Consecutive Quarter of Positive Adjusted EBITDA and Positive Adjusted EBITDA from Cannabis Business

LEAMINGTON, ONApril 12, 2021 /PRNewswire/ – Aphria Inc. (“Aphria,” “we,” or the “Company“) (TSX: APHA) (NASDAQ: APHA), a leading 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 third quarter and nine months ended February 28, 2021. All amounts are expressed in Canadian dollars, unless otherwise noted and except for per gram, kilogram, kilogram equivalents, and per share amounts.

Irwin D. Simon, Chairman and Chief Executive Officer, commented, “Our global team executed well in the very fluid, ongoing COVID-19 operating environment. We proactively 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 top-line 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 foodservice 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. (“Tilray“) to create the world’s largest global cannabis company based on pro forma revenue1,
  • Closed a USD $120 million financing with BMO, providing a USD $20 million revolving facility and USD $100 million term debt facility;
  • Maintained its #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 #2 licensed producer in terms of sales to the provincial board, based on internal analyses;
  • Recorded eighth consecutive quarter of positive adjusted EBITDAand positive adjusted EBITDA from cannabis business2;
  • Adjusted EBITDA from cannabis business2 of $7.9 million in the third quarter compared to $12.9 million in the prior quarter;
  • Adjusted EBITDAincreased to $12.7 million in the third quarter compared to $12.6 million in the prior quarter;
  • Free cash flow2 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% from the prior year quarter, and a decrease of 17.3% from the prior quarter;
  • Net cannabis revenue of $51.7 million in the third quarter, a decrease of 7.8% from the prior year quarter, and a decrease 23.8% from the prior quarter;
  • Net revenue of $153.6 million in the third quarter, an increase of 6.4% from the prior year quarter, and a decrease of 4.3% 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 fund 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 (“SweetWater”) beverages statewide in Colorado, the first U.S. state to legalize adult-use cannabis; and,
  • Introduced the Solei brand topical, a high potency topical available in the Canadian market.

Subsequent Events

  • Launched www.aphriatilraytogether.com, 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; and,
  • 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 Canadian dollars)

Three months ended

Three months ended

February 28, 2021

February 29, 2020

Net revenue

$153,638

$144,424

Gross profit

$31,689

$59,575

Adjusted cannabis gross profit 1

$20,272

$23,744

Adjusted cannabis gross margin 1

39.2%

42.7%

Adjusted beverage alcohol gross profit 1

$7,092

N/A

Adjusted beverage alcohol gross margin 1

47.9%

N/A

Adjusted distribution gross profit 1

$11,437

$11,397

Adjusted distribution gross margin 1

13.1%

12.9%

Net income (loss)

($360,996)

$5,697

Adjusted net income (loss) 1

($47,924)

($9,844)

Adjusted EBITDA 1

$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 1

18,695

26,730

Cash cost to produce dried cannabis / gram1

$0.90

$0.79

“All-in” cost of goods sold / gram1

$1.54

$1.30

Adjusted EBITDA from cannabis business 1

$7,858

$12,887

Adjusted EBITDA from businesses under development 1

($1,495)

($3,199)

Adjusted EBITDA from beverage alcohol business 1

$5,002

$299

Adjusted EBITDA from distribution business 1

$1,286

$2,585

Cash and cash equivalents & marketable securities

$267,134

$187,997

Working capital

$513,713

$399,161

Capital and intangible asset expenditures – wholly-owned subsidiaries 1

$4,984

$16,935

Capital and intangible asset expenditures -majority-owned subsidiaries1

$61

$2,791

Net revenue for the three months ended February 28, 2021 was $153.6 million, an increase of 6.4% from $144.4 million in the same period last year. Third quarter fiscal year 2021 net revenue decreased 4.3% when compared to 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 ongoing 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 to $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 to $4.29 per gram in the prior quarter, primarily due to consumer trends towards 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%, compared to $31.2 million and 45.9%, respectively in the prior quarter. The decrease in adjusted cannabis gross profit and adjusted cannabis gross margin1 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%, compared to $12.1 million and 13.1% in the prior quarter. The decrease in adjusted distribution gross profit1 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% to 47.9%. The prior quarter’s gross margin included only 5 days of sales with a sales mix that more heavily skewed towards 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 to a net loss $120.6 million, or a loss of $0.42 per share in the prior quarter, and net income of $5.7 million, or earnings $0.02 per share in the third quarter last year. On an adjusted basis excluding the impacts of the items noted in the reconciliation table below, the Company recorded a net loss for the third quarter of fiscal year 2021 of $47.9 million, or a loss of $0.15 per share.

For the three months ended February 28,

For the nine months ended February 28,

2021

2020

2021

2020

Net (loss) income

$ (360,996)

$ 5,697

$ (486,689)

$ 14,209

Unrealized loss (gain) on convertible debentures

264,788

(23,145)

352,013

(86,430)

Share-based compensation

36,271

5,126

54,127

17,645

Transaction costs

12,013

2,478

37,637

3,904

Adjusted net income (loss)

$ (47,924)

$ (9,844)

$ (42,912)

$ (50,672)

Adjusted income (loss) per share – basic2

$ (0.15)

$ (0.04)

$ (0.14)

$ (0.20)

Adjusted EBITDA increased to $12.7 million for the third quarter compared to $12.6 million the prior quarter. Adjusted EBITDA from cannabis business for the third quarter was $7.9 million compared to $12.9 million in the prior quarter. Adjusted EBITDA loss from businesses under development for the third quarter was $1.5 million compared to 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 to $0.3 million 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 to $2.6 million in the prior quarter.

The Company continued to improve its free cash flow in the quarter, as the Company moved closer to its target of generating positive free cash flow.

 Q3 – 2021

 Q2 – 2021

Cash provided by (used in) operating activities:

$  1,150

$  3,404

Investment in capital and intangible assets

(5,045)

(19,726)

Free cash flow

$  (3,895)

$  (16,322)

Conference Call
Aphria will host a conference call to discuss these results today at 9:00 am Eastern Time. To listen to the live call, dial (888) 231-8191 from Canada and the U.S. or (647) 427-7450 from international locations and use the passcode 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 passcode 6497567.

There will also be a simultaneous, live webcast available on the Investors section of Aphria’s website at aphriainc.com. The webcast will be archived for 30 days.

Special Shareholders Meeting
The Meeting will take place via live audio webcast at www.virtualshareholdermeeting.com/APHA2021 on Wednesday, April 14, 2021 at 4:00 pm (Eastern time).

YOUR VOTE IS IMPORTANT – PLEASE VOTE TODAY
The proxy voting deadline is 4:00 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 www.proxyvote.com and enter the 16-digit control number printed on the form of proxy or voting instruction form or scan the QR 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
    P.O. Box 3700 STN Industrial Park
    Markham, ON 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 4:00 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 advisor 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.

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