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Aphria Inc. (APHA) Announces 158% Increase in Adult Use Sales and Profitable Fourth Quarter

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Aphria Inc. Announces 158% Increase in Adult Use Sales and Profitable Fourth Quarter



 Aphria Inc. (“Aphria” or the “Company“) (TSX: APHA and NYSE: APHA) today reported its results for the fourth quarter and fiscal year ended May 31, 2019 . All amounts are expressed in thousands of Canadian dollars, unless otherwise noted and except for per gram, kilogram, kilogram equivalents, and per share amounts.
“It’s a new day at Aphria. Our team’s solid execution across key areas of our business resulted in strong adult-use revenue growth and a profitable fourth quarter,” stated Irwin D. Simon . “Over the last six months, our organization identified immediate priorities to help generate substantial progress near-term and long-term. We built upon existing business fundamentals and capabilities, streamlined processes, strengthened governance, and focused on building brand awareness. Together, we have nurtured an entrepreneurial culture of accountability through data-driven decision-making for value creation in the global medical and adult-use cannabis industry.  Today’s Aphria has a stronger foundation for long-term growth and success.”
Key Operating Highlights
  • Net revenue of $128.6 million in the fourth quarter, an increase of 75% from prior quarter and 969% from prior year.
  • Revenue for adult-use cannabis of $18.5 million in the fourth quarter, up 158% from prior quarter.
  • Net income of $15.8 million and adjusted EBITDA of $0.2 million in the fourth quarter.
  • Adjusted EBITDA from cannabis operations of $1.9 million in the fourth quarter.
  • Closed a 5.25% convertible senior notes offering for net proceeds of over US $335 million .
  • Ended quarter with a strong balance sheet and liquidity, including $571 million of cash, cash equivalents and liquid marketable securities, to fund planned Canadian and International growth.
  • Settlement of Green Growth Brands takeover bid resulting in $50 million cash received and an additional $39 million to be received in November.
  • Planted more than 200,000 plants in the new expanded area of Aphria One cultivation.
  • On-track for annual production capacity of 255,000 kilograms when all facilities are fully licensed.
  • Granted the maximum amount of lots within the German tender process, a total of five, and is the only licensed producer in Germany with the permission to grow all three strains of medical cannabis approved by the German Federal Institute for Drugs and Medical Devices.
  • Introduced a CBD-based nutraceutical product line for the German market.
  • Enhanced the executive team with appointment of several key positions.
Subsequent Events 
  • Signed on as a PAX Era brand partner for the PAX Era device and platform.
  • Aphria’s subsidiary Marigold Projects Jamaica Limited received a retail Herb House license from Jamaica’s Cannabis Licensing Authority to open its first store at the Peter Tosh Square, Unit #51, Pulse Center, 38a Trafalgar Road, overlooking the Peter Tosh Museum in New Kingston, Jamaica .
Key Financial Highlights
Three months ended
Three months ended
Twelve months ended
Twelve months ended
May 31, 2019
May 31, 2018
May 31, 2019
May 31, 2018
Net revenue
$128,568
$12,026
$237,110
$36,917
Gross profit
$36,007
$18,212
$75,421
$40,887
Adjusted cannabis gross profit 1
$15,165
$9,468
$40,596
$27,912
Adjusted cannabis gross margin 1
53.0%
78.7%
53.3%
75.6%
Adjusted distribution gross profit 1
$12,274
$0
$19,805
$0
Adjusted distribution gross margin 1
12.4%
0%
12.5%
0%
Net income (loss)
$15,760
($4,992)
($16,499)
$29,448
Adjusted EBITDA 1
$209
($1,162)
($27,720)
$4,341
Q4-2019
Q3-2019
Distribution revenue
$99,186
$57,599
Net cannabis revenue
$28,608
$15,438
Net revenue
$128,568
$73,582
Kilograms (or kilogram equivalents) sold 1
5,574.0
2,636.5
Cash cost to produce dried cannabis / gram 1
$1.35
$1.48
“All-in” cost of goods sold / gram 1
$2.35
$2.86
Adjusted EBITDA from cannabis operations 1
$1,851
($12,694)
Adjusted EBITDA from businesses under development 1
($5,514)
($3,990)
Adjusted EBITDA from distribution operations 1
$3,872
$2,249
Cash and cash equivalents & marketable securities
$570,996
$134,736
Working capital
$642,284
$131,278
Capital and intangible asset expenditures – wholly-owned subsidiaries 1
$26,828
$29,016
Net revenue for the three months ended May 31, 2019 was $128.6 million , compared to $73.6 million in the prior quarter and $12.0 million in the same period last year. Higher revenue in the quarter was driven by $99.2 million of distribution revenue from CC Pharma and other distribution companies and $33.5 million of revenue from cannabis produced. Net revenue includes over 3,228 kilogram equivalents sold for the adult-use market and 1,417 kilogram equivalents for medical cannabis sales.
The average retail selling price of medical cannabis (exclusive of wholesale), before excise tax, decreased to $7.66 per gram in the quarter, compared to $8.03 in the prior quarter, primarily related to a higher percentage of total medical sales coming from Aphria. The average selling price of adult-use cannabis, before excise tax, increased to $5.73 per gram in the quarter, compared to $5.14 per gram in the prior quarter.
Adjusted cannabis gross profit for the fourth quarter was $15.2 million , with an adjusted cannabis gross margin of 53.0%, compared to $7.6 million with an adjusted gross margin of 49.5% in the prior quarter. The increase in adjusted gross margin was primarily due to the increase in average selling price per gram in the quarter.
Adjusted distribution gross profit for the fourth quarter was $12.3 million , with an adjusted gross margin of 12.4%, compared to $7.8 million with an adjusted gross margin of 13.6% in the prior quarter.
Selling, general, and administrative costs in the quarter decreased to $62.4 million , from $106.6 million in the prior quarter and increased from $22.6 million in the prior year. The decrease from the prior quarter is mainly related to the decrease of $58 million in impairment expense and $11 million in share-based compensation, partially offset by $20 million in transaction costs primarily associated with the issuance of the senior convertible debenture.
Net income for the fourth quarter of 2019 was $15.8 million or $0.05 per share, compared to net loss of $108.2 million or $0.43 per share in the prior quarter, and net loss of $5.0 million or $0.04 per share for the same period last year. Excluding the non-cash impairment charges in the third quarter, adjusted net loss was $50.2 million , or $0.02 per share. The increase in net income was primarily due to the increase in sales and the net fair value adjustment for biological assets, and decrease in the impairment expense, offset by increase in SG&A related to G&A and transaction costs.
Adjusted EBITDA from cannabis operations for the fourth quarter was $1.9 million compared to a loss of $12.7 million in the prior quarter. The adjusted EBITDA loss from businesses under development for the fourth quarter was $5.5 million compared to a loss of $3.9 million in the prior quarter. Adjusted EBITDA from distribution operations for the fourth quarter was $3.9 million compared to $2.2 million in the prior quarter.  The increased adjusted EBITDA is primarily attributable to the increase in gross profit as explained above.
1 – In this press release, reference is made to adjusted cannabis gross profit, adjusted cannabis gross margin, adjusted distribution gross profit, adjusted distribution gross margin, adjusted net loss, adjusted EBITDA from cannabis operations, adjusted EBITDA from businesses under development, adjusted EBITDA from distribution operations, kilogram (or kilogram equivalents) sold, cash costs to produce dried cannabis per gram, “all-in” costs to produce dried cannabis per gram and investments in capital and intangible assets – wholly-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 are as a result unlikely to be comparable to similar measures presented by other companies. These measures are provided as information complimentary 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 May 31, 2019 Management’s Discussion and Analysis, filed on SEDAR and EDGAR.
Outlook
For fiscal year 2020, the Company expects:
  • Net revenue of approximately $650 million to $700 million , with distribution revenue representing slightly more than half of the total net revenue
  • Adjusted EBITDA of approximately $88 million to $95 million
Conference Call
Aphria executives will host a conference call to discuss these results today at 5:00 pm ET . 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 5081017. A telephone replay will be available approximately two hours after the call concludes through August 15, 2019 . To access the recording dial (855) 859-2056 and use the passcode 5081017.
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.
We Have A Good Thing Growing
About Aphria
Aphria Inc. is a leading global cannabis company driven by an unrelenting commitment to our people, the planet, product quality and innovation. Headquartered in Leamington, Ontario – the greenhouse capital of Canada – Aphria Inc. has been a leader in low-cost production of high-quality cannabis at scale, grown in natural conditions. Focusing on untapped opportunities and backed by the latest technologies, Aphria Inc. is committed to bringing breakthrough innovation to the global cannabis market. The Company’s portfolio of brands is grounded in expertly-researched consumer insights designed to meet the needs of every consumer segment. Aphria Inc. drives sustainable long-term shareholder value through a diversified approach to innovation, strategic partnerships and global expansion, with a presence in more than 10 countries across 5 continents.
For more information, visit: aphriainc.com
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS: Certain information in this news release constitutes forward-looking statements under applicable securities laws and are expressly qualified by this cautionary statement. Any statements that are contained in this news release that are not statements of historical fact may be deemed to be forward-looking statements. Forward looking statements are often identified by terms such as “may”, “should”, “anticipate”, “expect”, “potential”, “believe”, “intend” or the negative of these terms and similar expressions. Forward-looking statements in this news release include, but are not limited to, statements with respect to revenue and Adjusted EBITDA guidance, internal expectations, estimated margins, expectations with respect to actual production volumes, expectations for future growing capacity and costs, the completion of any capital project or expansions, and expectations with respect to future production costs. Various assumptions were used in drawing the conclusions or making the projections contained in the forward-looking statements throughout this news release. Forward-looking statements are based on the opinions and estimates of management at the date the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. Forward-looking statements necessarily involve known and unknown risks, including, without limitation, risks associated with general economic conditions; adverse industry events; marketing costs; loss of markets; future legislative and regulatory developments involving cannabis; inability to access sufficient capital from internal and external sources, and/or inability to access sufficient capital on favorable terms; the cannabis industry in Canada generally, income tax and regulatory matters; the ability of Aphria to meet its liquidity requirements to fund ongoing operations; the ability of Aphria to implement its business strategies; competition; crop failure; currency and interest rate fluctuations.
Readers are cautioned that the foregoing list is not exhaustive and should consider as other factors discussed under the heading “Risk Factors” in Aphria’s most recent Annual Information Form and MD&A for the financial year ended May 31, 2019 filed on SEDAR at www.sedar.com and in the United States on Edgar under Form 40-F at www.sec.gov.  Readers are further cautioned not to place undue reliance on forward-looking statements as there can be no assurance that the plans, intentions or expectations upon which they are placed will occur. Such information, although considered reasonable by management at the time of preparation, may prove to be incorrect and actual results may differ materially from those anticipated.
The forward-looking statements included in this news release are made as of the date of this news release and the Company does not undertake an obligation to publicly update such forward-looking statements to reflect new information, subsequent events or otherwise unless required by applicable securities laws.  Neither TSX nor its Regulation Services Provider (as that term is defined in the policies of Toronto Stock Exchange) accepts responsibility for the adequacy or accuracy of this release.
Below schedule is an excerpt of Aphria Inc.’s financial statements prepared on a basis consistent with IFRS for the financial year ended May 31, 2019 filed on SEDAR at www.sedar.com and in the United States on Edgar under Form 40-F at www.sec.gov. This schedule does not contain all the information in Aphria Inc.’s annual report and Form 40-F that is important to you. You should read the financial statements and Form 40-F carefully to obtain a comprehensive understanding of Aphria Inc.’s financial statements under IFRS and related information.
Aphria Inc.
Consolidated Statements of Income and Comprehensive Income
(In thousands of Canadian dollars, except share and per share amounts)
For the year ended
May 31, 
Note
2019
2018
Revenue from cannabis produced
$  86,348
$  36,917
Distribution revenue
157,931
Other revenue
3,035
Excise taxes
(10,204)
Net revenue
237,110
36,917
Production costs
6
35,548
8,692
Cost of goods purchased
138,126
Other costs of sales
898
313
Gross profit before fair value adjustments
62,538
27,912
Fair value adjustment on sale of inventory
6
27,724
10,327
Fair value adjustment on growth of biological assets
7
(40,607)
(23,302)
Gross profit
75,421
40,887
Operating expenses:
General and administrative
25
69,752
13,901
Share-based compensation
26
26,080
17,874
Selling, marketing and promotion
27,971
11,873
Amortization
14,084
3,985
Research and development
1,391
490
Impairment
11
58,039
Transaction costs
23,259
5,192
220,576
53,315
Operating loss 
(145,155)
(12,428)
Non-operating income
27
129,510
48,284
Income (loss) before income taxes
(15,645)
35,856
Income taxes
16
854
6,408
Net income (loss)
(16,499)
29,448
Other comprehensive loss
Other comprehensive loss
(119)
(801)
Net comprehensive income (loss)
$  (16,618)
$  28,647
Total comprehensive income (loss) is attributable to:
Shareholders of Aphria Inc.
(14,667)
28,867
Non-controlling interest
24
(1,951)
(220)
$  (16,618)
$  28,647
Weighted average number of common shares – basic
242,763,558
161,026,463
Weighted average number of common shares – diluted
242,763,558
165,914,000
Earnings (loss) per share – basic
29
$  (0.07)
$  0.18
Earnings (loss) per share – diluted
29
$  (0.07)
$  0.18
Aphria Inc.
Consolidated Statements of Financial Position
(In thousands of Canadian dollars)
Note
May 31,
2019
May 31,
2018
Assets
Current assets
Cash and cash equivalents
$  550,797
$  59,737
Marketable securities
4
20,199
45,062
Accounts receivable
25,488
3,386
Prepaids and other current assets
5
23,391
14,384
Inventory
6
91,529
22,150
Biological assets
7
18,725
7,331
Assets held for sale
40,620
Promissory notes receivable
15
39,200
Current portion of convertible notes receivable
12
11,500
1,942
780,829
194,612
Capital assets
9
503,898
303,151
Intangible assets
10
392,056
226,444
Convertible notes receivable
12
20,730
16,129
Interest in equity investees
13
9,311
4,966
Long-term investments
14
64,922
46,028
Goodwill
11
669,846
522,762
$  2,441,592
$  1,314,092
Liabilities
Current liabilities
Accounts payable and accrued liabilities
$  105,813
$  31,517
Income taxes payable
2,722
3,584
Deferred revenue
23,678
2,607
Current portion of promissory note payable
18
610
Current portion of long-term debt
19
6,332
2,140
Current portion of derivative liability
3,396
138,545
43,854
Long-term liabilities
Long-term debt
19
60,895
28,337
Convertible debentures
20
421,366
Derivative liability
9,055
Deferred tax liability
16
87,633
59,253
708,439
140,499
Shareholders’ equity
Share capital
21
1,655,273
1,113,981
Warrants
22
1,336
1,375
Share-based payment reserve
36,151
22,006
Accumulated other comprehensive loss
(119)
(801)
Non-controlling interest
24
28,409
9,580
Retained earnings
12,103
27,452
1,733,153
1,173,593
2,441,592
$  1,314,092
Three months ended
May 31,
For the year ended
May 31,
2019
2018
2019
2018
Net income (loss)
$  15,760
$  (4,992)
$  (16,499)
$  29,448
Income taxes (recovery)
453
(1,731)
854
6,408
Non-operating (income) loss
(40,206)
2,351
(129,510)
(48,284)
Amortization
8,611
3,809
22,940
6,678
Share-based compensation
3,084
7,206
26,080
17,874
Fair value adjustment on sale of inventory
9,649
3,077
27,724
10,327
Fair value adjustment on growth of biological assets
(17,471)
(11,821)
(40,607)
(23,302)
Impairment
58,039
Transaction costs
20,329
939
23,259
5,192
Adjusted EBITDA from businesses under
development
5,514
2,834
16,240
2,834
Adjusted EBITDA from distribution operations
(3,872)
(6,036)
Adjusted EBITDA from cannabis
operations
$  1,851
$  1,672
$  (17,516)
$  7,175
Three months ended
May 31,
For the year ended
May 31,
2019
2018
2019
2018
Adjusted EBITDA from cannabis operations
$  1,851
$  1,672
$  (17,516)
$  7,175
Adjusted EBITDA from businesses under development
(5,514)
(2,834)
(16,240)
(2,834)
Adjusted EBITDA from distribution operations
3,872
6,036
Adjusted EBITDA

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