CanadaEarningsStock NewsAphria remains profitable amid murk of insolvency

The company reported steady growth over the latest fiscal period, but scaled back annual projections due to coronavirus concerns
Nick Laba Nick LabaApril 15, 20207 min

Mega-producer Aphria, Inc. (TSX: APHA and NYSE: APHA) is another Canadian company to post profits this week.

The company released its fiscal results late Tuesday for the quarter ended Feb. 29, 2020. The reported numbers show strong revenue gains and a continuing trend of profitability.

Valens was another company to shine through the murk of insolvency this week, reporting its own revenue growth and steady profitability over the most recent fiscal period.

Read more: Revenues grow while earnings slow for Valens

By publication time, Aphria’s stock rose around 5 per cent on the day to $5.36 on the Toronto Stock Exchange.

According to the report, net revenue rose to $144.4 million, a 20 per cent increase from $120.6 in the previous quarter. The surge was largely due to its steady growth of recreational weed sales, which climbed 54 per cent over the quarter to $44.7 million.

Aphria posted adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, of $5.7 million, a 200 per cent increase from $1.9 million in the last quarter.

The company also upped its liquidity, and now sits with a reported $515.1 million in cash and cash equivalents.

Capital considerations on call

In the following investor call, Jefferies analyst Owen Bennett asked how capital expenditures were being handled in light of the pandemic, and more specifically in terms of international investments.

Aphria’s executives said that while spending has been reigned in on several fronts, they’re not yet cutting key projects they see contributing to future growth.

“We are very focused on being ready for the German market as soon as possible and aren’t letting this delay impact that project,” CFO Carl Merton said. “But where we have opportunities to defer capex and the starting of new projects, we have.”

During the quarter, the company got its EU Good Manufacturing Practices certification, allowing it to supply medical cannabis to Europe.

But due to coronavirus-related uncertainties, Merton scaled back Aphria’s revenue projections for the year.

“We are suspending our previously announced guidance for revenue of $575 million to $625 million and adjusted EBITDA of $35 million to $42 million for fiscal 2020,” he said.

Read more: Aphria gains EU GMP certification to ship medical cannabis within Europe

In the report, Aphria also noted that its gross margins could have been $7.6 million higher if it had secured further licensing in time, allowing it to avoid a stop-gap measure of buying wholesale product from other producers to meet demand.

Bank of America analyst Christopher Carey asked why the company needed to buy weed from other producers while its report showed a strong harvest.

Merton responded by saying there’s almost always one quarter of delay between harvest and realistically having it out for sale.

“Last quarter, our harvest was not 31,000 kilograms and so we identified that there were opportunities on the demand side to fill if we had more product — we didn’t have it because Aphria Diamond’s licence was later than we had thought.” he said. “We knew harvests were ramping for us, that would be available to sell in Q4, but just weren’t available in Q3.”

And although the wholesale buy wasn’t the most profitable, CEO Irwin D. Simon said sometimes other priorities are at play.

“One of the biggest problems is just having products to sell, and now with Aphria Diamond coming on, we will have the ability to sell a lot more products,” he said. “But the biggest opportunity for us is we came out with good products, good pricing, good selection, good supply.”

Aphria is taking sales away from the illicit market, Simon says, which is key because in Canada the majority of sales are still illegal.

However, Twitter-based pot stocks commentator and industry tipster Betting Bruiser said bulls should pay attention to the company’s inventory levels.

Top image via Aphria

 

nick@mugglehead.com

@nick_laba

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