Aphria Inc. (TSX: APHA) (Nasdaq: APHA) reported its financial results for the second quarter and six months ended November 30, 2020, with all amounts are expressed in Canadian dollars. The stock was moving higher by over 7% in early trading as the earnings per share beat expectations.
Net revenue for Aphria increased 33% to $160.5 million from $120.6 million in the same period last year. Second-quarter net revenue increased 10% sequentially from $145.7 million. The company attributed this to an increase in distribution revenue at CC Pharma in Germany and an increase in net cannabis revenue as well as five days of contribution from net beverage alcohol revenue from the acquisition of SweetWater. The increase in distribution revenue is a result of a return to normalized levels from the prior quarter.
Still, the company delivered a net loss for the second quarter of the fiscal year 2021 of $120.6 million, or a loss of $0.42 per share versus a net loss of $7.9 million, or a loss of $0.03 per share for the same period last year, Sequentially, the fiscal first-quarter net loss was $5.1 million or a loss of $0.02 per share. On an adjusted basis excluding the impacts of the items noted in the reconciliation table below, the company recorded net income for the second quarter of the fiscal year 2021 of $3.2 million, or earnings of $0.01 per share.
The Q2 Non-GAAP EPS of C$0.01 beat expectations by C$0.04, however the GAAP EPS of -C$0.42 missed by C$0.39. The revenue of C$160.53M also topped expectations by C$6.78M.
Irwin D. Simon, Chairman, and Chief Executive Officer said in a company statement, “We remain excited about our recently announced definitive agreement with Tilray to combine to create the largest global cannabis company and are on track to close the transaction in the second quarter of the calendar year 2021. Looking forward, we are planning to execute on the significant strategic and financial opportunities provided by the addition of SweetWater and, upon the closing of the Tilray business combination, including our over $100 million anticipated pre-tax synergies, to generate significant value for our stakeholders.” The company expects the merger to be completed in the second quarter of 2021.
Average Selling Price Drops
Aphria reported that the average retail selling price of medical cannabis, before excise tax dropped to $6.96 per gram in the quarter versus $7.38 in the prior quarter. The company said that the decline was the 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, increased to $4.29 per gram in the quarter, compared to $4.15 per gram in the prior quarter, primarily related to sales mix.
The operating expenses in the quarter jumped to $82.7 million from $54.5 million in the previous quarter and increased from $49.2 million in the prior year. The company blamed the increase on the transaction costs of $22.6 million associated with the acquisition of SweetWater during the quarter and increased share-based compensation largely driven by the increase in the company’s share price.
Aphria noted that it ended the quarter with $320.0 million of proforma cash. Yet, the real cash and cash equivalents were $187 million, which dropped considerably from last year’s $400 million for the same time period. The working capital was $399 million, a steep decline from last year’s $725 million for the same time period. The company closed a USD $120 million financing with BMO, providing a USD $20 million revolving facility and a USD $100 million term debt facility.
On a positive note, Aphria’s efforts to improve its free cash flow were successful in the quarter, as it moved closer to its target of generating positive free cash flow. During the quarter, the Company improved its free cash flow by more than $70 million.