Aphria Stock Pops On Solid First Quarter Earnings

Aphria Inc. (TSX: APHA)(NYSE: APHA) stock jumped over 16% to trade at approximately $5.10 in early trading after the company reported that its revenue increased 849% to $126.1 million for the first quarter ending August 31, 2019, however sales declined 2% from the previous quarter. Adult-use cannabis accounted for $20 million in revenue for the first quarter, an 8% sequential increase.

The company delivered net income of $16.4 million in the first quarter. It also stated that it ended the quarter with a strong balance sheet and liquidity, including $464.3 million of cash, cash equivalents, and liquid marketable securities, to fund planned Canadian and International growth.

“We are pleased to report a second consecutive quarter of profitable growth with a strong contribution from our Canadian cannabis operations. Our success was also driven by our international business and the strength and growth of our brands, particularly Broken Coast, despite a small fire at our British Columbia facility at the end of the quarter. This solid start to the year keeps us on track to achieve our fiscal year 2020 financial outlook,” stated Irwin D. Simon. “Going forward, we remain focused on our highest-return priorities both in Canada and internationally as our team furthers the development of our medical and adult-use cannabis brands to drive growth through innovation and return value to shareholders.”

The good news from Aphria lifted the sector, which has been in a bear market for months. Several big names like Canopy Growth (CGC), Tilray (TLRY) and Aurora Cannabis (ACB) were moving higher in early trading by 2-3%. Aphria was also stung by news last week that Aleafia would no longer buy its cannabis saying the company couldn’t meet its supply agreements. So, this was a welcome relief for shareholders.

Revenue Mix

The sequential drop in revenue was attributed to “a decrease in distribution revenue from $99.2 million to $95.3 million associated with a change in business strategy at CC Pharma to maximize profitability after recent changes in the German government’s medical reimbursement model. The decrease in distribution revenue was partially offset by an increase in net cannabis revenue of $30.8 million from $28.6 million.” Aphria said it sold over 3,317-kilogram equivalents in the adult-use market and 1,354-kilogram equivalents for medical cannabis sales. The company also stated that the estimates for the impact on revenue from the small fire at Broken Coast would be approximately $1.5 million in the quarter; however, the majority of the lost quarterly revenue would be reported in the company’s second quarter.

The average retail selling price of medical cannabis fell to $7.56 per gram in the quarter versus $7.66 in the prior quarter, primarily related to a higher percentage of total medical sales coming from Aphria. The average selling price of adult-use cannabis, before excise tax, increased to $6.02 per gram in the quarter, compared to $5.73 per gram in the prior quarter.

Looking Ahead

Aphria is reaffirmed its guidance for fiscal year 2020 with net revenue of approximately $650 million to $700 million, with distribution revenue representing slightly more than half of the total net revenue. The company also forecasted adjusted EBITDA of approximately $88 million to $95 million.

Debra Borchardt

Debra BorchardtDebra Borchardt

Debra Borchardt is the CEO, Co-Founder, and Editor-In-Chief of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Masters degree in Business Journalism from New York University.


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