Aphria’s Adult-Use Cannabis Sales Jumped 46% But APHA Still Lowered its Fiscal 2020 Earnings Guidance
Despite Today’s Selloff, APHA’s Stock Chart Remains Bullish and Could Follow Canopy’s Lead and Break Out Soon
Aphria (TSX: APHA) (NYSE: APHA) (FRA: 10E) announced earnings this morning for the second quarter ended November 30, 2019, with the company recording its third straight quarter of positive Adjusted EBITDA. On a quarter over quarter basis, Adjusted EBITDA increased 155%. In addition to reporting its Q2 earnings, Aphria announced that its current interim CEO and Chairman of the Board Irwin D. Simon will assume the role as the company’s permanent CEO effective immediately.
“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. 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.”
APHA Q2 Financial and Operational Highlights
- Fiscal Q2 2020 Net Revenue was $120.6 million, up 457% from the $21.7 million reported in last year’s second quarter. Quarter over quarter Net Revenue dropped 4.36% compared to the $126.1 million recorded in Q1.
- The slight drop in Net Revenue was attributed to a decrease in Distribution Revenue from $95.3 million to $86.4 million caused by a change in the German government’s medical reimbursement model and seasonality in CC Pharma.
- Net Cannabis Revenue increased 9% from $30.8 million last quarter to $33.7 million in Q2.
- Q2 Adult-Use Cannabis Revenue was $29 million, up 46% over last quarter.
- The company’s total adult-use and medical cannabis Kilograms Sold amounted to 5,567 kgs and 1,237 kgs, respectively.
- Aphria’s average retail Selling Price Per Gram of medical cannabis (before excise tax) increased to from $7.56 last quarter to $8.16.
- Aphria’s average retail Selling Price Per Gram of recreational cannabis (before excise tax) decreased from $6.02 last quarter to $5.22.
- Q2 Adjusted Cannabis Gross Profit was $19.1 million, compared to $15.3 million last quarter.
- Q2 Adjusted Cannabis Gross Margin was 56.6%, compared to 49.8% in the prior quarter.
- Q2 Adjusted Distribution Gross Profit was $11.0 million, compared to $12.2 million in the previous quarter.
- Q2 Adjusted Distribution Gross Margin was 12.7%, compared to 12.8% last quarter.
- Second-quarter SG&A Costs increased to $49.2 million from $41.4 million last quarter and $27.5 million in last year’s Q2.
- Net Loss for fiscal Q2 2020 was $7.9 million. Q2 Net Loss Per Share was $0.03. Last quarter Aphria posted net income of $16.4 million, or $0.07 per share. Last year’s Q2 net income was $54.8 million, or $0.22 per share.
- Q2 Adjusted EBITDA increased to $1.9 million, compared to $1 million last quarter.
- Q2 Adjusted EBITDA from Cannabis Operations was $3.4 million, up 155% from the $1.3 million recorded in the previous quarter.
- Aphria’s Cash and Cash Equivalents at the end of the second quarter was $497.7 million. A strong cash position will fund the company’s Canadian and International growth initiatives.
- The company obtained its Cultivation License for 1.3 million square feet of greenhouse space at Aphria Diamond.
- Aphria was recognized for 7 awards at the 6th Annual Canadian Cannabis Awards.
- Aphria secured an $80 million senior secured Credit Facility for Aphria Diamond, further strengthening the company’s balance sheet without diluting APHA shareholders.
- Aphria received the European Union’s Good Manufacturing Practices (GMP) confirmation of compliance for medicinal products for human use and investigational medicinal products for human use, from the Malta Medicines Authority at its ARA – Avanti Rx Analytics.
- The company’s Jamaican Marigold subsidiary secured a Tier 1 Processing Licence from Jamaica’s Cannabis Licensing Authority allowing Aphria to process cannabis-based products for medical purposes.
- Jamaica-based Marigold also obtained a Retail Licence to open a store in Negril, Jamaica.
Fiscal 2020 Financial Guidance
Due to changes in market conditions, Aphria announced that it has made adjustments to the company’s previously reported FY Fiscal 2020 financial guidance. The company cited the following reasons for lowering its fiscal 2020 financial outlook.
- Ontario‘s poor retail rollout.
- Alberta’s temporary ban on vape products.
- Higher costs of third-party supply due to the time it took to receive the Aphria Diamond license.
- CC Pharma’s slowing growth caused by the recent changes to Germany’s medical reimbursement model.
- Net Revenue in the range of $575 million to $625 million. Distribution Revenue making up slightly more than half of the company’s total Net Revenue.
- Adjusted EBITDA in the range of $35 million to $42 million.
“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,” stated Aphria CFO Carl Merton.
Aphria Q2 2020 Earnings Call
- Click here for the full transcript of this morning’s Q2 earnings call.
APHA Stock Price Action & Chart
Shares of Aphria’s TSX listed stock closed trading today at $6.49, down 8.59% on the day. In the United States, the company’s NYSE listed APHA stock closed today’s trading session down 8.44% at $4.99 per share. On Frankfurt Exchange, shares of Aphria’s German listed stock closed the day at $4.56, down 2.62%. Today’s slightly weaker than anticipated earnings and decreased 2020 guidance from Aphria should not have come as a big surprise to anyone familiar with the cannabis sector. All factors considered, the stock held up just fine and will likely pick back up where it left off in the coming days. Aphria is considered by many the top pick of the Canadian licensed producers (LPs) and even with today’s little dip, the company’s future still looks very bright.
On a technical level, APHA stock has been trading in nearly the same Inverse Head and Shoulders bottom pattern that Canopy Growth (TSX: WEED) (NYSE: CGC) (FRA: 11L1) just broke out of yesterday. This type of pattern, when completed successfully, signals that a stock has reversed its downtrend and begun a new uptrend. Canopy usually leads the way as the sector bellwether (leading indicator) with the rest of the quality cannabis stocks following closely behind it. Canopy’s successful breakout and trend reversal yesterday (see 2nd chart below) will likely lead to a similar breakout in shares of Aphria soon. The stock will have to work off this little earnings selloff first but in our opinion, today’s drop created an excellent buying opportunity for investors, especially the ones that missed Canopy’s breakout yesterday. Since an APHA breakout isn’t likely imminent anymore, we should have some time to do a follow-up article on APHA’s chart and potential price target later this week. If you don’t want to wait, go ahead and calculate APHA’s price target for yourself using the simple formula in our previous article.
Disclosure: The Cannabis Investor does not hold a position in any of the stocks mentioned in this article.