Aphria Inc. downgraded its full-year outlook after it reported second-quarter revenue that came in below analyst expectations following a decline in sales from the company’s German pharmaceutical distribution business, while notching a slight improvement in the amount of cannabis sold in the Canadian recreational market.
The Leamington, Ont.-based cannabis producer reported a net loss of $7.9 million in the second quarter of fiscal 2020, compared to a gain of $54.8 million for the same period last year. Analysts polled by Bloomberg expected the company to report a net loss of $9.7 million.
Aphria reported net revenue of $120.6 million, an increase of 457 per cent from the same period last year, but a sequential decline from the $126.1 million it reported in the prior quarter. Analysts expected Aphria to report $130.4 million in revenue. Aphria also reported an adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of $1.9 million in the quarter, an improvement from the $9.5-million loss reported a year earlier.
The pot giant also reported $33.7 million in cannabis revenue in the quarter, selling 5,567 kilograms, up from $30.8 million but short of the 5,969 kilograms sold in the prior three-month period. Meanwhile, the company attributed $86.4 million of its sales to its German pharmaceutical distribution business, which was impacted by changes to its reimbursement model and seasonality.
Aphria also adjusted its forecast for fiscal 2020 with revenue projections now believed to be approximately $575 million to $625 million, down from the $650 million to $700 million the company previously forecast. The company said the decline in projected full-year revenue reflects “certain market dynamics,” including slower-than-expected retail openings in Ontario, a temporary ban on vape products in Alberta, and a decline in growth in its German pharmaceutical distribution business.
The company also forecasts approximately $35 million to $42 million in adjusted EBITDA, down from a prior forecast of $88 million to $95 million.
Jefferies Financial Group analyst Owen Bennett said in a report to clients Tuesday that Aphria continues to improve its Canadian recreational cannabis market share, highlighting how the company had to buy legal pot from other suppliers due to demand outstripping its existing supply.
“Despite revenue coming in lower than expectations driven by the distribution business, Aphria delivered positive adjusted EBITDA for the third quarter in a row, beating consensus expectations here once again,” Bennett said.
Bennett added the company’s revised outlook is largely due to the temporary ban on vaping products in Alberta and Quebec. The company highlighted that it plans to add 34 new vape products to its portfolio and hope to launch a new portfolio of cannabis-infused edibles within the next two quarters.
Aphria also announced on Tuesday that it would be removing “interim” from Irwin Simon’s title, making him the company’s permanent chief executive officer. Simon, who also serves as the company’s chairman, has been running Aphria on an interim basis since January 2019.
During a conference call with analysts Tuesday morning, Simon said the company is exploring “multiple opportunities” in the U.S., but didn’t provide specifics on when the company would announce plans to enter the world’s largest cannabis market.
“We’re not going to jump in [the U.S.] to an unknown situation,” Simon said. “I want Aphria to be a global packaged goods business that has a connection with the cannabis industry.”
Aphria’s Chief Financial Officer Carl Merton told analysts during the conference call that the company has $497.7 million in cash, part of what he described as an “industry-enviable balance sheet.” Of that cash, roughly $45 million is earmarked for its German business operations, another $50 million to build out its Colombian subsidiary, $10 million for domestic extraction purposes and around $50 million to complete the build-out for its Diamond greenhouse in Leamington.
The remaining $300 million to $350 million in cash the company has left on its balance sheet will be designated for “future strategic initiatives,” such as in the U.S. and for distressed Canadian assets, Merton said.
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