Tilray, Inc. Reports First Quarter 2020 Financial Results

INNO

Quarterly Revenue Increased 126% to $52.1 Million (C$70.7 Million) Compared to the First Quarter of 2019 and 11% Sequentially from the Fourth Quarter of 2019

International Medical Cannabis Sales Exceeded Canada Medical Sales by 43% in the Quarter

Implemented Cost Reductions Designed to Achieve Approximately $40 Million Annualized Savings

Reduced Net Loss by $35 Million, or 16%, Compared to the Fourth Quarter of 2019

Implemented COVID-19 Related Protocols to Ensure the Health of Our Global Workforce and Satisfy Patient and Consumer Needs

Focused on Achieving Positive Adjusted EBITDA by End of the Fourth Quarter of 2020May 11, 2020 04:05 PM Eastern Daylight Time

NANAIMO, British Columbia–(BUSINESS WIRE)–Tilray, Inc. (“Tilray” or the “Company”) (Nasdaq: TLRY), a global pioneer in cannabis research, cultivation, production and distribution, reports financial results for the first quarter ended March 31, 2020. All financial information in this press release is reported in U.S. dollars, unless otherwise indicated.

“We are pleased to report strong sequential quarterly revenue growth across each of our core business segments for the first quarter of 2020”Tweet this

“We are pleased to report strong sequential quarterly revenue growth across each of our core business segments for the first quarter of 2020,” says Brendan Kennedy, Tilray’s Chief Executive Officer. “We remain focused on executing on our long-term growth opportunities and our goal of generating positive Adjusted EBITDA by the end of the fourth quarter. As evidenced by our International Medical sales in the quarter, we expect this segment to demonstrate continued growth and positively impact margins. During and since the first quarter, we took significant steps to drive efficiencies across our business, enabling us to realize annualized cost savings of approximately $40 million compared to fourth quarter 2019 run rates. While the positive impact of these actions are not fully reflected in this quarter’s results, they will become more clearly evident over the course of this year.”

First Quarter 2020 Financial Highlights

  • Revenue increased 126.2% to $52.1 million (C$70.7 million), compared to the first quarter of last year. Growth was driven by cannabis sales, which experienced meaningful increases across all channels with the exception of bulk, and the inclusion of the Manitoba Harvest acquisition for a full quarter in 2020 compared to a partial quarter in the prior year.
  • Revenue increased 11.0% compared to the fourth quarter of 2019. Growth was driven by a 23.0% increase in adult-use sales and a 14.3% increase in hemp product sales, partially offset by a decline in bulk sales.
 
(in thousands of United States dollars)
  Three months ended March 31,
  2020 2019 $ Change% Change
Cannabis            
Adult-use $20,919 $7,880 $13,039 165%
Canada – medical  4,051  2,998  1,053 35%
International – medical  5,806  1,811  3,995 221%
Bulk    4,767  (4,767)(100)%
Total Cannabis revenue  30,776  17,456  13,320 76%
Hemp  21,326  5,582  15,744 282%
Total $52,102 $23,038 $29,064 126%
Excise duties included in revenue $4,972 $1,559 $3,413 219%
 
  • Total cannabis kilogram equivalents sold increased 92.4% to 5,794 kilograms from 3,012 kilograms in the first quarter of 2019. This growth resulted from increases in adult-use cannabis flower sales and the launch of Cannabis 2.0 products.
  • Average cannabis net selling price per gram decreased to $5.28 (C$7.16) compared to $5.60 (C$7.54) in the first quarter of 2019. The decrease was due to a shift in product and channel mix. The average net selling price excluding excise duties for adult-use was $3.49 (C$4.73) per gram for the first quarter of 2020.
  • Gross margin for the quarter was 21%, a 200 basis point decrease compared to the first quarter of 2019 and a significant positive change over the negative margins recorded in the fourth quarter of 2019. Gross margin, excluding inventory valuation adjustments, increased to 29% from 28% compared to the first quarter of 2019 and 24% in the fourth quarter of 2019. Gross margin for cannabis, excluding inventory valuation adjustments, decreased to 20% from 23% compared to the first quarter of 2019 while gross margin for hemp, excluding inventory valuation adjustments, decreased to 41% from 44% compared to the first quarter of 2019.
  • Net loss was $184.1 million, or $1.73 per share, compared to a loss of $29.4 million, or $0.31 per share, for the first quarter of 2019. The increase in net loss was primarily due to the change in the fair value of the warrant liability of $72.0 million related to the Company’s registered offering of common stock and warrants, impairment of assets of $29.8 million, weakening of the Canadian dollar resulting in a foreign currency translation loss of $28.1 million, increased operating expenses related to growth initiatives in the Company’s cannabis sector and severance costs of $1.9 million related to headcount reductions.
  • Net loss was reduced by $35.0 million, or 16%, compared to the fourth quarter of 2019. The reduction in net loss from $219.1 million, or $2.14 per share, in the fourth quarter of 2019 was largely due to improvements in gross margin in the first quarter of 2020 and the significant impairments recorded in the fourth quarter of 2019.
  • Adjusted EBITDA was a loss of $19.7 million compared to a loss of $15.3 million in the first quarter of 2019. The moderate increase in Adjusted EBITDA loss was largely the result of increased costs in general and administrative expenses related to commercial growth initiatives and increased operating costs related to our cultivation efforts.
  • Adjusted EBITDA loss of $19.7 million was a 44% improvement over the $35.3 loss during fourth quarter of 2019. The improvement was generally due to cost reductions and operating efficiencies.
  • The Company ended the first quarter of 2020 with $174.0 million in cash.

First Quarter 2020 Business Highlights

  • Tilray made several additions to its executive leadership team:
    • Jon Levin, formerly of Revlon, joined the Company as Chief Operating Officer.
    • Michael Kruteck, formerly of Molson Coors and Pharmaca, joined the Company as Chief Financial Officer.
  • In January 2020, the Company signed a 2.5 tonne strategic partnership agreement with Canndoc (an Israeli Medical Cannabis Agency) to export medical cannabis from Tilray’s European Union facility in Portugal to Israel. The successful export addresses growing demand for medical cannabis products in the Israeli market.
  • On February 28, 2020, the Company closed a $59.6 million senior credit facility that bears interest at Canadian prime plus 8% and has a two year term.
  • On March 17, 2020, the Company closed an underwritten registered offering of common stock, pre-funded warrants and warrants. Net proceeds from this offering were approximately $85.3 million after deducting underwriting discounts and offering expenses.
  • On March 25, 2020, Tilray’s Board of Directors unanimously approved the pro rata release of 11 million shares of Class 2 common stock held by the former stockholders of Privateer Holdings, Inc. The released shares are part of the previously announced release of Tilray stock over a two-year period.

Update Related to COVID-19

During the COVID-19 pandemic, the Company’s priority remains the health, safety and well-being of its global workforce, patients, customers and communities where it operates. Over the course of several weeks, the Company enacted response protocols and contingency plans to prepare for events in relation to the global pandemic. The Company has implemented remote work arrangements for all office personnel and restricted business travel as of mid-March. The Company’s operational sites remain open, but with enhanced measures to protect the safety of its workforce including rotating shifts of self-quarantined staff, reducing the sites to business-critical personnel only, physical distancing incorporated into manufacturing lines and cultivations sites, sanitation protocols and other enhanced safety measures. These protocols are being evaluated and adapted in accordance with government and health authority recommendations on a daily basis.

Currently, the Company is focused on establishing a safe recovery plan for returning to more normal business conditions and returning staff to corporate offices and operational sites when appropriate.

To date, the Company has not experienced any material COVID-19 impacts related to its ability to serve patients and consumers around the world with medical cannabis products, adult-use cannabis products in Canada, and Manitoba Harvest hemp products. For more information on COVID-19 and associated risks to our business, see Item 1A, “Risk Factors” in our Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission on May 11, 2020.

Conference Call

The Company will host a conference call today, May 11, 2020, to discuss these results at 5:00 p.m. ET. Investors interested in participating in the live call can dial 877-489-6528 from the U.S. and 629-228-0736 internationally. A telephone replay will be available approximately two hours after the call concludes through Tuesday, May 26, 2020, by dialing 855-859-2056 from the U.S., or 404-537-3406 from international locations, and entering confirmation code 7890876.

There will also be a simultaneous, live webcast available on the Investors section of the Company’s website at www.tilray.com. The webcast will be archived for 30 days.

About Tilray®

Tilray (Nasdaq: TLRY) is a global pioneer in the research, cultivation, production and distribution of cannabis and cannabinoids currently serving tens of thousands of patients and consumers in 15 countries spanning five continents.

Forward Looking Statements

This press release contains “forward-looking statements”, which may be identified by the use of words such as, “may”, “would”, “could”, “will”, “likely”, “expect”, “anticipate”, “believe, “intend”, “plan”, “forecast”, “project”, “estimate”, “outlook” and other similar expressions, including statements regarding our growth potential, the sustainability of growth, our ability to become Adjusted EBITDA positive, demand for our products and the medical and adult-use cannabis markets, anticipated plans for strategic partnerships and acquisitions, and future sales of our common stock. Forward-looking statements are not a guarantee of future performance and are based upon a number of estimates and assumptions of management in light of management’s experience and perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable in the circumstances, including assumptions in respect of current and future market conditions. Actual results, performance or achievement could differ materially from that expressed in, or implied by, any forward-looking statements in this press release, and, accordingly, you should not place undue reliance on any such forward-looking statements and they are not guarantees of future results. Forward-looking statements involve significant risks, assumptions, uncertainties and other factors that may cause actual future results or anticipated events to differ materially from those expressed or implied in any forward-looking statements. Please see the heading “Risk Factors” in Tilray’s Quarterly Report on Form 10-Q, which was filed with the Securities and Exchange Commission on May 11, 2020, for a discussion of the material risk factors that could cause actual results to differ materially from the forward-looking information. Tilray does not undertake to update any forward-looking statements that are included herein, except in accordance with applicable securities laws.

Use of Non-U.S. GAAP Financial Measures

To supplement its financial statements, the Company provides investors with information related to Adjusted EBITDA and Gross margin, excluding inventory valuation adjustments, which are financial measures which are not calculated in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”).

Adjusted EBITDA is calculated as net income(loss) before inventory valuation adjustments; interest expenses, net; other expenses (income), net; deferred income tax (recoveries) expenses, current income tax expenses (benefit); foreign exchange gain (loss), net; depreciation and amortization expenses; stock-based compensation expenses; other stock-based compensation related expenses; loss from equity method investments; finance income from ABG; loss on disposal of property and equipment; acquisition-related (income) expense; amortization of inventory step-up; severance costs; impairment of assets; and change in fair value of warrant liability. A reconciliation of Adjusted EBITDA to net loss, the most directly comparable GAAP measure, has been provided in the financial statement tables included below in this press release. Gross margin, excluding inventory valuation adjustments, is calculated as revenue less cost of sales adjusted to add back inventory valuation adjustments and amortization of inventory step-up, divided by revenue. A reconciliation of Gross margin, excluding inventory valuation adjustments, to gross margin, the most directly comparable GAAP measure, has been provided in the financial statement tables included below in this press release.

The Company believes these non-GAAP financial measures provide useful information to management and investors regarding certain financial and business trends relating to the Company’s financial condition and results of operations. Management uses these non-GAAP financial measures to compare the Company’s performance to that of prior periods for trend analyses and planning purposes. These non-GAAP financial measures are also presented to the Company’s Board of Directors.

Non-U.S. GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with U.S. GAAP. Non-U.S. GAAP measures exclude significant expenses that are required by U.S. GAAP to be recorded in the Company’s financial statements and are subject to inherent limitations.

 
TILRAY, INC.Condensed Consolidated Statements of Net Loss and Comprehensive Loss(in thousands of United States dollars, except for share and per share data, unaudited)
        
  Three months ended March 31,
  20202019
Revenue (inclusive of excise duties of $4,972 and $1,559, respectively) $52,102 $23,038 
Cost of sales       
Product costs  37,188  17,329 
Inventory valuation adjustments  4,044  324 
Gross profit  10,870  5,385 
General and administrative expenses  17,776  12,934 
Sales and marketing expenses  17,876  7,821 
Research and development expenses  1,258  1,048 
Stock-based compensation expenses  7,677  5,736 
Depreciation and amortization expenses  3,591  1,865 
Impairment of assets  29,839   
Acquisition-related expenses, net  2,355  4,424 
Loss from equity method investments  1,748   
Operating loss  (71,250) (28,443)
Foreign exchange loss, net  28,069  179 
Change in fair value of warrant liability  71,978   
Interest expenses, net  9,146  8,744 
Finance income from ABG    (135)
Other expense (income), net  4,651  (3,845)
Loss before income taxes  (185,094) (33,386)
Deferred income tax recoveries  (1,272) (3,777)
Current income tax expenses (benefit)  301  (240)
Net loss $(184,123)$(29,369)
Net loss per share – basic and diluted  (1.73) (0.31)
Weighted average shares used in computation of net loss per share – basic and diluted  106,463,352  94,875,351 
Net loss $(184,123)$(29,369)
Foreign currency translation loss, net  (16,633) (475)
Unrealized (loss) gain on available-for-sale debt securities  (74) 19 
Other comprehensive loss  (16,707) (456)
Comprehensive loss $(200,830)$(29,825)
 

In the fourth quarter of 2019, the Company adopted ASU 2016-01, ASC 842, ASC 606 and ASU 2018-07. The first quarter of 2019 has been recast to reflect the effects of this adoption.

 
TILRAY, INC.Condensed Consolidated Balance Sheets(in thousands of United States dollars, except for share and par value data, unaudited)
         
  March 31, 2020 December 31, 2019
Assets        
Current assets        
Cash and cash equivalents $173,990  $96,791 
Accounts receivable, net of allowance for credit losses of $595 and provision for sales returns of $1,138 (December 31, 2019 – $615 and $1,400, respectively)  38,324   36,202 
Inventory  95,586   87,861 
Prepayments and other current assets  31,066   38,173 
Total current assets  338,966   259,027 
Property and equipment, net  186,970   184,217 
Operating lease, right-of-use assets  18,654   17,514 
Intangible assets, net  187,892   228,828 
Goodwill  150,870   163,251 
Equity method investments  8,827   11,448 
Other investments  21,250   24,184 
Other assets  2,135   7,861 
Total assets $915,564  $896,330 
Liabilities        
Current liabilities        
Accounts payable  23,907   39,125 
Accrued expenses and other current liabilities  47,032   50,829 
Accrued lease obligations  3,370   2,473 
Senior Facility – current  4,723    
Warrant liability  92,339    
Total current liabilities  171,371   92,427 
Accrued lease obligations  28,538   29,407 
Deferred tax liability  48,019   53,363 
Convertible notes, net of issuance costs  432,807   430,210 
Senior Facility, net of transaction costs  39,106    
Other liabilities  5,415   5,652 
Total liabilities $725,256  $611,059 
Commitments and contingencies        
Stockholders’ equity        
Class 1 common stock ($0.0001 par value, 250,000,000 shares authorized; 16,666,665 shares issued and outstanding)  2   2 
Class 2 common stock ($0.0001 par value; 500,000,000 shares authorized; 107,976,818 and 86,114,560 shares issued and outstanding, respectively  11   9 
Additional paid-in capital  840,436   705,671 
Accumulated other comprehensive (loss) income  (6,988)  9,719 
Accumulated deficit  (643,153)  (430,130)
Total stockholders’ equity  190,308   285,271 
Total liabilities and stockholders’ equity $915,564  $896,330 
 
 
(in thousands of United States dollars)
  Three months ended March 31,
  2020 2019
Adjusted EBITDA reconciliation:        
Net loss $(184,123) $(29,369)
Inventory valuation adjustments  4,044   324 
Severance costs  1,861    
Depreciation and amortization expenses  3,591   1,865 
Stock-based compensation expenses  7,677   5,736 
Impairment of assets  29,839    
Acquisition-related expenses, net  2,355   4,424 
Loss from equity method investments  1,748    
Foreign exchange loss, net  28,069   179 
Change in fair value of warrant liability  71,978    
Interest expenses, net  9,146   8,744 
Finance income from ABG     (135)
Loss from disposal of property and equipment  457   111 
Other expense (income), net  4,651   (3,845)
Amortization of inventory step-up     681 
Deferred income tax recoveries  (1,272)  (3,777)
Current income tax expenses (benefit)  301   (240)
Adjusted EBITDA $(19,678) $(15,302)
 
(in thousands of United States dollars, except percentages)
  Three months ended March 31,
  2020 2019 2020 2019 2020 2019
Gross margin, excluding inventory valuation adjustments reconciliation: Cannabis Hemp Total
Revenue $30,776  $17,456  $21,326  $5,582  $52,102  $23,038 
Cost of sales                        
Product costs  24,603   13,511   12,585   3,818   37,188   17,329 
Inventory valuation adjustments  3,247   324   797      4,044   324 
Gross profit  2,926   3,621   7,944   1,764   10,870   5,385 
Inventory valuation adjustments  3,247   324   797      4,044   324 
Amortization of inventory step-up           681      681 
Gross profit, excluding inventory valuation adjustments $6,173  $3,945  $8,741  $2,445  $14,914  $6,390 
Gross margin, excluding inventory valuation adjustments  20%  23%  41%  44%  29%  28%
 

In the fourth quarter of 2019, the Company adopted ASU 2016-01, ASC 842, ASC 606 and ASU 2018-07. The first quarter of 2019 has been recast to reflect the effects of this adoption.

SOURCE BUSINESSWIRE

 

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