Tilray published first quarter fiscal 2021 financial statements and MDA documents today. No earnings release accompanies nor no conference call, which I am sure Brendan is pretty happy he does not have to come in and chat about this Q…. as it is not pretty.
It is kind of ironic that on the day the last standalone Q for Tilray shows a company whose operations are backing up that Trulieve acquires Harvest Health in the USA on the day Harvest announces quite positive Q1 F2021 results. The Harvest acquisition will cost around C$ 2.1 billion and combined the value will be north of C$ 7.4 billion. Tilray and Aphria combined merger was C$ 8.2 billion.
USD unless stated otherwise.
What we said last Q:
- Sales, net of excise tax, increased 7.5% after excise and cannabis increased 30%.
- Sales by cannabis segment increased by at least 23% during the Q. New records were set in Adult Use, Medical and International.
- GM slowly ridding itself of impairments and long-term supply contracts increases to 33%
- Selling expense improved again this Q by $3.6 million and has improved $15 million since Q4 F2019
- Cash at $190 million is reasonable and increased a further $80 million on warrant execution post Q end.
- Hemp sales from Manitoba Harvest fell -$4.7 million -23% as Costco went white label.
- G&A expenses increased $3.6 million QoQ. They moved around some expenses when doing the annual so I am not sure if the Annual less the 9 month is accurate, but there is a jump in professional fees that could account for the increase and they could be tied to Aphria transaction, confirming CEO Kennedy statement
- Still had a $2.3 million inventory valuation adjustment
The MDA is exclusively Year over Year versus QoQ.
Open up the fins and MDA and follow along.
Overview of the Quarter’s Income Statement Metrics:
USD unless stated otherwise.
Total Revenue decrease $8.5 million -15% to $48.0 million. Excluding excise tax, it was $43.4 million a decrease of $7.4 million.
- Adult use saw a -$5.9 million decrease to $19 million, giving back +100% of last Q gains.
- Canadian medical decreased to $3.2 million a decrease of $1.0 million or -24%. Medical gave back all of last Q’s gains too.
- International Medical decreased to $8.6 million a decrease of $3.1 million or -26%. They gave back all bot $0.5 million in last Q’s gains.
- Bulk increased by $0.1 million to $0.1 million
- Hemp reversed its last Q decrease, increasing to $16.6 million an increase of $1.3 million or +8.5%
Segmented by product:
- Dried cannabis decreased $11 million -34% to $21 million. So much for the trumpeting of their improved output at cultivation. Thye gave back 100% of last Q’s increase.
- Extracts increased $1.0 million +11% to $10.2 million a new record.
- Food products increased $1.3 million to $16.6 million.
USD all in cannabis selling price, excluding bulk, was USD 5.00/gram a -16% decrease from last Q at USD 5.97/gram.
Kilograms sold was 6,277 kgs versus 6,901 KGs last Q. The increase last Q was a result of the international shipments. I note they had a harvest to sales delta of 4,692 KGs. They may be stocking up for the eventual projected shutdown of their London cultivation facility.
Recreational Cannabis Revenue: Peer and Trend
Tilray’s adult use trend line decreased to $25 million inclusive of excise. They are fifth highest in the peer group falling behind Hexo and ACB in the Q.
No 2.0 sales data was provided in MDA or financials.
Medical Cannabis Revenue: Peer and Trend
Medical decreased as both Cdn medical and international medical retrenched in the Q.
Medical sales, especially international, have been a strong segment over period in review but did drop $3 million this Q.
Gross Margin Table:
Gross Margin Trend and Peer:
Gross Margin stayed a positive with 28% all in or 31% net of excise, and Cannabis at 35% and Hemp at 36% both net of excise. Cannabis GM improved QoQ from 31% while Hemp decreased from 37%.
Without the Cannabis inventory and hemp revaluation of $2.1 million, all in GM% would be at 36% down from 40% QoQ.
GM for the period was +$13.5 million down from $16.6 million last Q, without revaluation it would have been +$15.5 million.
Gross Margin -Larger Peer Base
Tilray is third best in the Cdn peer group.
SGA & SBC Trend:
NOTE: I have moved Impairment of assets, acquisition related expenses, legal settlement and Loss from equity investee to Other Income Expenses to maintain peer comparison.
Very nice trend line blows up this Q,
- Selling expense increased in both $’s and as a percentage of sales +$3.1 million to $9.7 million and 12% to 20%. Selling returns to same level as tow Q’s ago when they were not chasing +EBITDA flag plant.
- G&A expense increased in both $’s and as a percentage of sales $2.1 million to $18.4 million and 29% to 38%. Likely some acquisition expenses buried in there over each of last two Q’s.
- SBC increased $0.9 million to $7.2 million last Q
Tough for an investor to see the operating expenses reduce over four Q’s only to reverse after the EBITDA Flag plant was “achieved” (I had them missing it).
R&D was stable at $1.2 million.
All in OPEX was 83% of sales at $40 million versus 59% of sales or $34 million last Q.
SGA & SBC Peer:
Aggregate SGA for Tilray is 4th lowest in the above peer group.
Other Income(Expenses) totaled +$12 million last Q whereas this Q Expenses was – $314 million, a swing of $326 million:
- Legal settlement of $45 million on a supply agreement. At least they ate it before Aphria consolidates.
- Loss from Equity Investee $1.7 million versus $1.5 million last Q.
- $0.7 million f/x gain versus $18 million last Q as CAD continued to strengthen versus USD
- $263 million loss on warrant liability versus a loss of $49 million the previous Q. the stock price increase being the reason.
- $6.91 million in interest expense (versus $9.0 million last Q) from their convertible debentures and new Sr Debt facility drawn in the Q. They paid out the Sr debt facility post-merger.
- Other Income of $1.5 million but there is no table breaking down the figure.
Taxes were a net credit of $0.3 million bringing Net income to negative $341 million versus negative $2.9 million last Q.
Breakeven Q Sales to +NOP divided by Current Q Sales:
With current GM% and Opex$’s, Tilray needs 196% increase in Q sales to reach breakeven.
Adjusted EBITDA: Trend and Peer
Tilray’s EBITDA slid to negative CAD 15 million (USD 11.8 million) from negative CAD 5.1 million (USD 3.9 million) last Q.
Their adjusted EBITDA was – $6.3 million. They added back USD 2.7 million in restructuring charge and Other Expenses of USD 3.5 million where I backed out other income of USD 1.5 million. Both of their add backs were not segmented anywhere but the Adj EBITDA calculation so I did not adjust.
Breakeven Q Sales to +EBITDA divided by Current Q Sales:
With current GM% and Opex$’s, Tilray needs 88% increase in Q sales to reach breakeven.
OPEX Burn: Trend
Opex burn slid hard to negative $61 million from negative $5.5 million last Q. The legal settlement is $45 million of the change. They pick up some of that improvement on contingent liabilities decreasing, thus the source of funds in working capital.
OPEX Burn: Peer
Balance Sheet Items of note:
Cash vs Debt Service
- Cash increased by $226 million to $416 million as a result of smacking the ATM for $156 million and $76 in warrants
- The $48 million Sr Debt facility is secured by all North American assets and matures in 2022 a year before the $258 million in converts mature. The senior debt was paid out post-merger.
“Gas in the Tank” Trend
Tilray has sufficient of inventory on hand, and they wrote down $2.2 million this Q and +$71 million over 5 Q’s. FG increased QoQ by $4.9 million.
Harvest increased +3,495 KGs to 10,969 KGs.
Sold KGs decreased to 6,277 KGs from 6,901 KGs. The lower shipment to international markets was the reason for decrease.
Harvest vs Sold and CoGS versus Inventory
- Inventory versus CoGS, adjusted for inventory writedown, yields 4.0 quarters of inventory, they could have bumped cultivation to handle the projected shutdown at London
- PPE decreased $2 million with construction in progress in Portugal still at $50 million under construction.
- A/P and accrued liabilities increased $51 million to $108 million. Could be a combo of transaction expenses being carried through merger and construction in Portugal.
- $50 million in LT Debt migrated to current debt and then was paid out post-merger.
- Share capital saw a net $503 million increase in the Q from ATM and warrants $76 million.
Last Q I said:
Good progress across cannabis sales and GM, while hemp stepped back quite substantially on Costco using their own white label brand. The conference call did not indicate if this was entrenched for the entire Q.
Notionally, if you include my conversation with CEO Kennedy where transaction fees were the reason from this Q bump, their SGA for operations also improved.
Post Q they had $80 million in new money come in on warrant execution.
Pretty ugly Q.
Sales slide in cannabis in adult, medical and international. A small improvement in hemp but the 3rd worst sales level in the eight periods under review, coupled with its worst gross margin.
SGA increased, Adj EBITDA slid.
The work really begins on the merger. Execution and $81 million in costs savings over two years was the plan.
That’s all I got.
The preceding is the opinion of the author and is in no way intended to be a recommendation to buy or sell any security or derivative. The writer does not have a position in Tilray and will not be entering one in the next five days.