Tilray released fourth quarter fiscal 2020 earnings release February 17, 2021 and published documents on Sedar February 19, 2021.

USD unless stated otherwise.

Rant: Tilray has been forecasting +EBITDA for Q4 F2020 since early in C2020.  They have posted +USD 2.2 million for the Q.  The problem is they do not tie back their EBITDA calculation with all the line items or narrative in the financials.  They show in their Q4 EBITDA calculation an add back of USD 1.3 million in “severance costs” and USD 9.2 million in “Other expenses (income), net”.  The term “severance” appears six times in the MDA and four times in the financials with no Q4 figure attached.  Similarly, the term “other expenses (income)” appears four times in MDA and five times in financials with no Q4 figure. Interestingly, “Other expenses (income)” appears in the financials as a line item in the income statement in the earnings release for Q4 at USD 5.4 million, which does not equal the USD 9.2 million add back to EBITDA.

I did contact CEO Kennedy and he let me know that “the difference is acquisition costs (mostly related to Aphria) that are in SG&A.”

Notwithstanding the CEO providing this comment I have NOT allowed the Severance add back and I did not add back the USD 3.8 million difference as it does not appear anywhere in the published documents.

I have to give my head a shake about this.  They have been aiming at this flag plant for a year. To get this sloppy while patting themselves on the back for achieving +EBITDA that investors cannot trace back does not sit well with me. If you want investors to have faith in your ‘management controlled add backs’ then damn well line item them or provide narrative.

What we said last Q:

Pluses

• Sales increased 2% after excise and cannabis increased 4.5%
• GM slowly ridding itself of impairments and long-term supply contracts
• SGA improved again this Q by $4.6 million and has improved $31 million in the three Q’s in F2020
• EBITDA improved from CAD -$14 million to -$1.4 million and has improved $41 million in the three Q’s in F2020
• Cash at $155 million is reasonable with ATM access in the high +$100 million range left.

Minuses

• On a CAD basis revenue actually went backwards 1% but cannabis in Canada advanced 3.2%.  FX swinging from 1.39 to 1.32 CAD:USD caused same.
• GM is very low at 7% and without inventory valuation adjustments it is 33%
• Still had a $13 million inventory valuation adjustment

This Q:

Pluses

• 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.

Minuses

• 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.

Sales:

Sales Table

Total Revenue increase $3.5million +7.5% to $56.6 million. Excluding excise tax, it was $51 million an increase of $3.5 million.

• Adult use saw a +$5.4 million increase to $25 million an increase of +27% after an increase last Q of +2.3%.  Adult Use set a new record, previous was $21 million in March 2020 Q
• Canadian medical increased to $4.2 million an increase of $0.8 million or +24%.  This is also a record.
• International Medical increased to $11.7 million an increase of $3.6 million or +44%.  This is also a new record. 
• Bulk remained at $0  
• Hemp decreased to $15.3 million a decrease of $4.7 million or -23%  

Segmented by product:

• Dried cannabis increased $11 million +52% to $32 million.   
• Extracts decreased $1.0 million -10% to $9.2 million.
• Food products decreased $4.7 million to $15.3 million.   

USD all in cannabis selling price, excluding bulk, was USD 5.97/gram a -2.9% decrease from last Q at USD 6.15/gram.  

Kilograms sold was 6,901 kgs versus 5,107 KGs last Q.  The increase last Q was a result of the international shipments.  I note they had a harvest to sales delta of 573 KGs showing more balance in supply demand.

Recreational Cannabis Revenue: Peer and Trend

Tilray’s adult use trend line increased to $33 million inclusive of excise.  They are third highest in the peer group.

Tilray has engaged Kindred as a sales agent for the last three Q’s. Much along the lines of Aphria and Great Northern Distributors.  They seem to be improving traction.

No 2.0 sales data was provided in MDA or financials.   

Medical Cannabis Revenue: Peer and Trend

Medical increased as both Cdn medical and international medical improved in the Q.   Germany, Israel, and Australia were noted destinations.

Medical sales, especially international, have been a strong segment over period in review.

Wholesale Bulk Cannabis: Trend and Peer

And bulk wholesale is $0

Gross Margin:

Gross Margin Table:

Gross Margin Trend and Peer:

Gross Margin stayed a positive with 29% all in and Cannabis at 31% and Hemp at 37% net of excise.  Without the Cannabis inventory and hemp revaluation of $2.3 million and newly included SBC in CoGS of $1.3 million, all in GM% would be at 40%.

GM for the period was +$17 million, without revaluation it would have been +$20 million. 

They indicate they have increased yield at their facilities in Canada by +40% and all product is +20% THC.  It would be nice to see GM without a Q adjustment.

Last Q: It will be interesting to see if they get to +EBITDA next Q WITH or WITHOUT more adjustments to valuation.  

This Q… they needed inventory write offs added back of $2.3 million to get to their figure of +$2.2 million adj EBITDA.

Gross Margin -Larger Peer Base

Tilray is third best in the Cdn peer group.

Operating Expenses:

SGA & SBC Trend:

NOTE: I have moved Impairment of assets, acquisition related expenses and Loss from equity investee to Other Income Expenses to maintain peer comparison.

Very nice trend line, save for the burp this Q in G&A.

• Selling expense decreased in both $’s and as a percentage of sales -$3.4 million to $6.6 million and 20% to 12%,
• G&A expense increased in both $’s and as a percentage of sales $3.6 million to $16.3 million and 25% to 29%. Professional fees (Note these are true up figures as no Q4 schedule has been provided) increased $5.4 million and Other increased $8.6 million
• SBC decreased -$1.8 million to $6.3 million last Q. Expect this to increase next Q as stock price has soared.

I am impressed that they can keep cutting these expenses.  For the full F2020 they reduced G&A by $26  million and selling by $6.3 million.

R&D was stable at $0.9 million.

All in OPEX was 59% of sales at $33.5 million versus 68% of sales or $35.1 million last Q.   

SGA & SBC Peer:

Aggregate SGA for Tilray is 2nd lowest in the above peer group.

Other Income totaled $29 million last Q whereas this Q Income is $12 million, a swing of $17 million:

• Loss from Equity Investee $1.5 million versus $1.4 million last Q.
• $19 million f/x gain as CAD strengthened versus $9 million last Q
• Last Q $31 million positive change in Fair Value on warrants issued in connection with the equity raise in the previous Q, which swung to a $49 million loss as warrants in the money grew larger.
• $9.1 million in interest expense (versus $10.4 million last Q) from their convertible debentures and new Sr Debt facility drawn in the Q.

Taxes were a net credit of $5.53 million bringing Net income to negative $2.9 million versus negative $2.3 million last Q.

Breakeven Q Sales to +NOP divided by Current Q Sales:

With current GM% and Opex$’s, Tilray needs 101% increase in Q sales to reach breakeven.   

Adjusted EBITDA: Trend and Peer

Tilray’s EBITDA slid to negative CAD 5.06 million (USD 3.9 million) from negative CAD 1.4 million (USD 1.0 million) last Q. 

As per preamble rant, I did not add back the severance and the unexplained increase in Other Expenses that was not traceable.

Breakeven Q Sales to +EBITDA divided by Current Q Sales:

With current GM% and Opex$’s, Tilray needs 23% increase in Q sales to reach breakeven.   

OPEX Burn: Trend

Opex burn improved to negative $5.4 million from negative $11.4 million last Q. The improved GM$’s is the driver.   

OPEX Burn: Peer

Balance Sheet Items of note:

Cash vs Debt Service

• Cash increased by $34 million to $190 million as a result of debt conversions and warrant conversions
  • 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.

“Gas in the Tank” Trend

Tilray has sufficient of inventory on hand, and they wrote down $2.3 million this Q and +$69 million over 4 Q’s. FG increased QoQ minimally by $2.3 million.  

“Waterfall” Trend

Harvest decreased -1,429 KGs to 7,474 KGs.    Not inventorying cannabis trim is a reason for the decline over this fiscal.

Sold KGs increased to 6,901 KGs from 5,107 KGs. The shipment to international markets was the reason for increase. 

Harvest vs Sold and CoGS versus Inventory

• Inventory versus CoGS, adjusted for inventory writedown, yields 3.4 quarters of inventory, which is in good order and down from 3.7 last Q.
• PPE increased $6 million with construction in progress in Portugal driving the increase.

• Warrant Liability increased $49 million to $121 million as stock price escalated.

• Convertible Debt reduced by $180 million to $258 million with debt converted to shares.

• Share capital saw a net $185 million increase in the Q.

Last Q I said:

I often say you cannot cut your way to profitability.  With Tilray improving EBITDA $41 million this fiscal on the backs of $31 million in SGA decreases I might have to rethink that.  Sales have increased only $4 million over the same period.  The extra $10 million difference is writing off less inventory.

At a 35% GM they need $17 million in incremental sales to cover their SGA and R&D, which would get them to +EBITDA.   They could well reach +EBITDA next Q, BUT the Q will be are they still writing down inventory??  After they get to +EBITDA they have a $10 million interest expense to scale.

This Q:

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.

That’s all I got.

GoBlue

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.