Aphria sees $99M loss in Q4, sales and profit hot streak continues

A worker at Aphria's Broken Coast subsidiary holds a cannabis bud. (Aphria/YouTube)
A worker at Aphria's Broken Coast subsidiary holds a cannabis bud. (Aphria/YouTube)

Aphria (APHA.TO)(APHA) continues to distance itself from the Canadian cannabis pack, delivering its sixth-straight period of rising sales and another profitable quarter on Wednesday.

However, the Leamington, Ont.-based pot producer swung to a $98.8 million loss in the period ended May 31, due in large part to charges related to the company’s response to the COVID-19 pandemic in international markets. The company reported net income of $5.7 million in the prior quarter, and $15.8 million in the same quarter last year.

Toronto-listed shares fell more than 16 per cent to $6.71 at 12:32 p.m. ET.

Aphria reported $152.2 million in net revenue for the three month period, topping the expectations of analysts polled by Bloomberg of $146.7 million. Net revenue increased five per cent from the prior quarter, and 18 per cent year-over-year.

“Aphria maintains its number one net revenue positioning, widening the gap from our next closest competitor,” chief executive officer Irwin Simon told analysts on a post-earnings conference call. “We have no significant deficiencies, [and] no material weaknesses in what we’ve been able to do.”

Cannabis industry giant Canopy Growth (WEED.TO)(CGC) will report its latest financial results next month. The Smith Falls, Ont.-based company booked $123.8 million in net revenue in its fiscal third quarter, while reporting an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) loss of $91.7 million.

Aphria topped profit expectations measured by adjusted EBITDA in its fourth quarter, reporting $8.6 million in the fourth quarter, up 49 per cent from the prior quarter. Bloomberg analysts expected $8.5 million. This is Aphria’s fifth consecutive profitable quarter by that measure.

Aphria said it took a $63.9 million impairment charge as the pandemic impacted international production in Jamaica, Lesotho, Colombia, and Argentina. The company also repriced some of its cannabis inventory, resulting in a $28.3 million charge.

Chief financial officer Carl Merton said Jamaica is “first and foremost a tourist market,” and the $19 million in non-cash charges there relate to the long-term impact of COVID-19 on travel. He said the company’s Lesotho facility has been unreachable by senior management and partners due to the South African country’s decision to close its borders during the pandemic. Merton said the $40 million in charges related to Colombia and Argentina were based on reduced cash flow expectations due to COVID-19.

At home in Canada, Aphria said it’s capturing a bigger slice of the recreational market. The company said it has the leading share in Ontario at 16.1 per cent, versus 13 per cent in the prior quarter. In Alberta, the company said it commands a top-tier spot with 12 per cent of that market.

Aphria also rebuffed persistent concerns of a cannabis oversupply in Canada, pointing to a lack of differentiation amongst most competitive offerings in categories such as vapes.

“I think it is just way too simplistic to say that there is flat oversupply. There are lots of pockets of undersupply,” Simon said on the call. “The issue in the market has nothing to do with salable flower. It has to do with an abundance of extraction grade material. People that have too much of that on their balance sheet are going to suffer.”

The company also announced a a US$100 million at-the-market equity offering on Wednesday, raising concerns about share dilution.

“While this is typically done from a position of weakness across the space in recent months, this is not the case for Aphria. Monies are to be used to either pay down debt or fund attractive M&A, including U.S. expansion. It therefore looks strategically astute in our view,” Jefferies analyst Owen Bennett wrote in a research note.

As at quarter end, the company had $497.2 million in cash and equivalents.

Aphria’s stock has outperformed a number of cannabis rivals, up almost 60 per cent in the past three months. Aurora Cannabis and Canopy Growth are up 25 per cent and 11 per cent, respectively, over the same period.

“We are setting ourselves apart from the rest of the cannabis industry,” Simon said in the company’s news release on Wedensday. “We have generated some of the strongest sales growth, we have one of the strongest balance sheets and cash positions, compelling consumer brands, and a well-diversified global business.”

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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