Aphria Inc. (“Aphria” or the “Company“) (TSX: APHA and NYSE: APHA) today reported its results for the second quarter ended November 30, 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. The Company also announced that Irwin D. Simon, will officially remove “interim” from his title, effective today. In addition to his responsibilities as Aphria’s Chairman of the Board, Mr. Simon had been serving as Interim Chief Executive Officer since February 2019.

“We are very pleased with our strong growth and execution in Canada demonstrated by our increase in adult-use cannabis revenue and positive adjusted EBITDA as a result of our compelling brands and market positioning,” stated Irwin D. Simon, Chairman and Chief Executive Officer. “We are continuing to expand our capabilities internationally with solid progress during the quarter in Germany and South America and look to monetize non-core assets. We are confident in our market position and our ability to generate sustainable profit growth. I am honoured to continue to work closely with our tremendous team around the world to fuel growth and value for all of our stakeholders. Going forward, we believe our brands, cultivation expertise, cash position and balance sheet will continue to differentiate us in the cannabis industry, and we remain focused on the highest return opportunities for growth.”

Key Operating Highlights

• Revenue for adult-use cannabis of $29.0 million in the second quarter, an increase of 46% from prior quarter.
• Net cannabis revenue of $33.7 million in the second quarter, an increase of 9% from prior quarter.
• Net revenue of $120.6 million in the second quarter, an increase of 457% from prior year quarter and decrease of 4% from prior quarter.
• Net loss of $7.9 million, however reported positive adjusted EBITDA of $1.9 million in the second quarter.
• Adjusted EBITDA from cannabis operations of $3.4 million in the second quarter, an increase of 155% from the prior quarter.
• Ended quarter with a strong balance sheet and liquidity, including $497.7 million of cash and cash equivalents, to fund planned Canadian and International growth.
• Received cultivation license for its subsidiary Aphria Diamond, featuring 1.3 million square feet of greenhouse production.
• Recognized for seven awards at the 6^th Annual Canadian Cannabis Awards with all five of Aphria’s medical and recreational brands receiving awards, as well as Broken Coast’s Master Grower, Kevin Anderson, winning ‘Master Grower’ accolades and Aphria’s Solei’s CBN Renew oil ‘Innovation of the Year’.
• Elected Jodi Butts to the Board of Directors.
• Strengthened executive leadership team with key appointments and promotions.
• Secured an $80 million senior secured credit facility for Aphria Diamond, strengthening the balance sheet without being dilutive to shareholders.

Subsequent Events

• Received confirmation of compliance with the requirements of the European Union’s Commission Directive 2003/94/EC relating to the Good Manufacturing Practices in respect of medicinal products for human use and investigational medicinal products for human use, from the Malta Medicines Authority at the Company’s ARA – Avanti Rx Analytics.
• Company’s Jamaican subsidiary Marigold Projects Jamaica Limited (“Marigold”) received a Processing (Tier 1) Licence from Jamaica’s Cannabis Licensing Authority (“CLA”) which permits the processing of cannabis-based products for medical, therapeutic and scientific purposes.
• Marigold also received its second Retail (Herb House) licence from Jamaica’s CLA to open a store in Negril, Jamaica.

Key Financial Highlights

Net revenue for the three months ended November 30, 2019 was $120.6 million, an increase of 457% from $21.7 million in the same period last year.  Second quarter fiscal 2020 net revenues were lower when compared to the prior quarter net revenues of $126.1 million as a result of a decrease in distribution revenue from $95.3 million to $86.4 million associated with the change in the German government’s medical reimbursement model and seasonality in CC Pharma. The decrease in distribution revenue was partially offset by an increase in net cannabis revenue of $33.7 million from $30.8 million. Net revenue includes over 5,567 kilogram equivalents sold for the adult-use market and 1,237 kilogram equivalents for medical cannabis sales.

The average retail selling price of medical cannabis (exclusive of wholesale), before excise tax, increased to $8.16 per gram in the quarter, compared to $7.56 in the prior quarter, primarily related to a higher percentage of total medical sales coming from Broken Coast in the prior quarter. The average selling price of adult-use cannabis, before excise tax, decreased to $5.22 per gram in the quarter, compared to $6.02 per gram in the prior quarter, primarily as a result of a change in sales mix. Customer demand exceeded the Company’s supply capabilities in the second quarter as a result of the timing of Aphria Diamond’s license receipt and as a short-term measure the Company purchased wholesale product from other Licensed Producers to supplement its near-term supply capabilities. Wholesale product purchases resulted in a higher cost and less margin opportunity for those sales.

Adjusted cannabis gross profit for the second quarter was $19.1 million, with an adjusted cannabis gross margin of 56.6%, compared to $15.3 million with an adjusted gross margin of 49.8% in the prior quarter. The increase in adjusted gross margin was primarily due to lower wholesale sales to other licensed producers which carry lower selling prices, as well as reduced cultivation costs in the quarter.

Adjusted distribution gross profit for the second quarter was $11.0 million, with an adjusted gross margin of 12.7%, compared to $12.2 million with an adjusted gross margin of 12.8% in the prior quarter.

Selling, general, and administrative costs in the quarter increased to $49.2 million from $41.4 million in the prior quarter, and increased from $27.5 million in the prior year. The increase from the prior quarter is mainly related to a $2.6 million increase in share-based compensation and a $4.4 million increase in selling, marketing and promotion primarily associated with increased sales.

Net loss for the second quarter of fiscal 2020 was $7.9 million, or a loss of $0.03 per share, compared to net income of $16.4 million, or $0.07 per share in the prior quarter, and net income of $54.8 million, or $0.22 per share for the same period last year. The decrease in net income was primarily due to provisions associated with the Company’s Tier 3 passive investment portfolio.

Adjusted EBITDA increased $0.9 million to $1.9 million for the second quarter compared to $1.0 million in the prior quarter. Adjusted EBITDA from cannabis operations for the second quarter was $3.4 million compared to $1.3 million in the prior quarter. The adjusted EBITDA loss from businesses under development for the second quarter was $3.5 million compared to a loss of $4.2 million in the prior quarter. Adjusted EBITDA from distribution operations for the second quarter was $2.1 million, compared to $3.9 million the prior quarter. The increase in adjusted EBITDA is primarily attributable to increased sales in the Company’s cannabis business.

Outlook

Carl Merton, Aphria’s Chief Financial Officer commented, “We are updating our annual outlook with a little over four months left in our fiscal year to reflect certain market dynamics that have evolved relative to our initial expectations.  We look forward to generating an acceleration in our revenue and profit growth in the second half of the fiscal year and continue to believe the Canadian and international cannabis industry outlook remains robust. Aphria is well positioned for long-term sustainable growth as we continue to manage the controllable aspects of our business.”

For fiscal year 2020, the Company is updating its guidance to primarily reflect certain market dynamics including a slower than expected retail location rollout in Ontario with more than 40 store openings still pending, the temporary banning of vape products in the Province of Alberta while it studies the impact of vape products, the higher costs of third-party supply as a result of the timing of the receipt of Aphria Diamond’s license, and a slowing in CC Pharma’s growth arising from recent changes in the German government’s medical reimbursement model.  The Company expects the following for fiscal year 2020:

• Net revenue of approximately $575 million to $625 million, with distribution revenue representing slightly more than half of the total net revenue
• Adjusted EBITDA of approximately $35 million to $42 million

Conference Call

Aphria executives will host a conference call to discuss these results today at 8:00 am 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 1575423. A telephone replay will be available approximately two hours after the call concludes through January 28, 2020. To access the recording dial (855) 859-2056 and use the passcode 1575423.

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

SOURCE Aphria Inc.