Aphria Inc. Announces Fourth Quarter and Fiscal Year 2020 Results

Aphria Inc. (TSX: APHA) (Nasdaq: APHA), is a leading global cannabis company. The company announces its financial results for the fourth quarter and fiscal year ended May 31, 2020. All amounts are expressed in Canadian dollars, unless otherwise noted and except for per gram, kilogram, kilogram equivalents, and per share amounts.

Aphria Inc. is a leading global cannabis company driven by an unrelenting commitment to the people, the planet, product quality and innovation. Headquartered in Leamington, Ontario – the greenhouse capital of Canada – Aphria Inc. has been setting the standard for the low-cost production of high-quality cannabis at scale, grown in the most natural conditions possible. Focusing on untapped opportunities and backed by the latest technologies, Aphria Inc. is committed to bringing breakthrough innovation to the global cannabis market. The Company’s portfolio of brands is grounded in expertly-researched consumer insights designed to meet the needs of every consumer segment. Rooted in company’s founders’ multi-generational expertise in commercial agriculture, Aphria Inc. drives sustainable long-term shareholder value through a diversified approach to innovation, strategic partnerships and global expansion.

“At Aphria, we are setting ourselves apart from the rest of the cannabis industry,” said Irwin D. Simon, Chairman and Chief Executive Officer. “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. We are grateful for the dedication of our employees for whom our commitment to protect their safety is unwavering and remains a founding principle of our company. Our strong finish to fiscal year 2020 demonstrates that this was a transformative year for Aphria, as our net revenue increased 129% from fiscal year 2019. We continue to focus on capturing strong market share in Canada by executing upon our strategic plan and positioning Aphria as a leader in category innovation. With exciting new product categories and line extensions launching in the very near future, we believe our award-winning adult-use portfolio remains unmatched in the industry. By building on this foundation, we remain focused on the highest return opportunities for growth and long-term value creation.”

Key Operating Highlights – Fourth Quarter Fiscal 2020

• Gross revenue for adult-use cannabis of $56.7 million in the fourth quarter, an increase of 27% from prior quarter and the fifth consecutive quarter of growth.
• Net cannabis revenue of $53.1 million in the fourth quarter, an increase of 81% from prior year quarter.
• Net revenue of $152.2 million in the fourth quarter, an increase of 18% from prior year quarter and increase of 5% from prior quarter.
• Cash cost to produce dried cannabis per gram of $0.88 in the fourth quarter, a decrease of 5% from prior quarter.
• Adjusted EBITDA of $8.6 million in the fourth quarter, an increase of 49% from the prior quarter.
• Adjusted EBITDA from cannabis operations of $9.3 million in the fourth quarter, an increase of 55% from the prior quarter.
• Ended fourth quarter with a strong balance sheet and liquidity, including $497.2 million of cash and cash equivalents to fund planned Canadian and International growth.
• Received its European Union Good Manufacturing Practices (“EU GMP”) certification from the Malta Medicines Authority (“MMA”) at the Company’s subsidiary, ASG Pharma Ltd., providing the Company with the ability to ship finished dried flower and finished oil for medicinal and research use in permitted jurisdictions throughout the European Union and strengthening the Company’s leadership in the region.
• Liquidated $39 million Promissory Note from GA Opportunities Corp. for proceeds of approximately $26 million.
• Reduced debt and eliminated $6.7 million in annual cash interest costs by repurchasing an aggregate of approximately $127.5 million convertible senior notes at a 25% discount to their face value, using shares issued at a 31% premium to Aphria’s closing market price as of May 7, 2020.
• Recorded a non-cash impairment of $64.0 million in the fourth quarter, which is largely attributable to measures taken with respect to certain of the Company’s international businesses in response to the COVID-19 pandemic.
• Recognized for Executive Gender Diversity by Globe and Mail’s inaugural Report on Business Women Lead Here list, an annual benchmark of executive gender diversity in corporate Canada.

Key Operating Highlights – Fiscal Year 2020

• Gross revenue for adult-use cannabis of $150.4 million in 2020, an increase of 307% from 2019.
• Gross cannabis revenue of $204.7 million in 2020, an increase of 129% from $89.4 million in 2019.
• Net revenue of $543.3 million in 2020, an increase of 129% from $237.1 million in 2019.
• Cash cost to produce dried cannabis per gram of $1.04 in 2020, a decrease of 24.1% from 2019.
• Positive Adjusted EBITDA of $17.2 million in 2020, compared to a loss of $27.7 million in 2019.
• Adjusted EBITDA from cannabis operations of $20.1 million in 2020, compared to a loss of $17.5 million in 2019.

Subsequent Events

• Aphria transferred its stock exchange listing from the New York Stock Exchange to The Nasdaq Global Select Market (“Nasdaq”) on June 8, 2020. This transition did not impact the Company’s primary listing on the Toronto Stock Exchange (TSX: APHA).
• Aphria, Emblem Cannabis Corporation (“Emblem”), and Aleafia Health Inc. (TSX: AH, OTC: ALEAF) amicably settled their outstanding dispute related to the termination of the parties’ wholesale cannabis supply agreement on June 25, 2020, ending any and all potential claims and litigation against and between Aphria, Emblem, and Aleafia Health relating to the supply agreement.
• Filed Prospectus supplement for $100 million (USD) At-the-Market program.

Key Financial Highlights

• Net revenue for the three months ended May 31, 2020 was $152.2 million, an increase of 18% from $128.6 million in the same period last year. Fourth quarter fiscal year 2020 net revenue was 5% higher when compared to the prior quarter net revenue of $144.4 million, due to increases in net distribution revenue and net cannabis revenue. Net revenue included 10,831 kilogram equivalents sold for the adult-use market, 1,273 kilogram equivalents for medical cannabis sales and 453 kilogram equivalents sold in the wholesale market.
• The average retail selling price of medical cannabis (exclusive of wholesale), before excise tax, increased to $6.63 per gram in the quarter, compared to $6.41 in the prior quarter. The average selling price of adult-use cannabis, before excise tax, decreased to $5.23 per gram in the quarter, compared to $5.47 per gram in the prior quarter, primarily as a result of a change in sales mix and price reductions in key markets to solidify market share.
• Adjusted cannabis gross profit for the fourth quarter was $28.1 million, with an adjusted cannabis gross margin of 52.9%, compared to $23.7 million and 42.7% in the prior quarter. The increase in adjusted cannabis gross margin was primarily due to the increase in the higher margin adult-use sales to wholesale transaction ratio in the current quarter, and higher usage of the lower-cost cannabis produced by Aphria versus purchased cannabis.
• Adjusted distribution gross profit for the fourth quarter was $11.9 million, with an adjusted distribution gross margin of 12.1%, compared to $11.4 million and 12.9% in the prior quarter. The decrease in adjusted distribution gross margin was primarily related to the impacts of COVID-19 on sales mix.
• Selling, general, and administrative costs in the quarter increased to $116.6 million from $50.9 million in the prior quarter and $60.0 million in the prior year. The increase was mainly related to $64.0 million of impairment charges recorded in the fourth quarter, which is largely attributable to the COVID-19 pandemic measures taken with respect to certain of the Company’s international businesses in response to the COVID-19 pandemic, whereas none was recorded in the prior quarter or the same quarter of the prior year.
• Net loss for the fourth quarter of fiscal year 2020 was $98.8 million, or a loss of $0.39 per share, compared to net income of $5.7 million, or $0.02 per share in the prior quarter, and net income of $15.8 million, or $0.05 per share for the same period last year. The decrease in net income was a result of the non-cash impairment recognized in the fourth quarter as mentioned above as well as non-operating losses mainly driven by changes in fair value of long-term investments and convertible debentures, resulting from a decline in the trading prices of the securities of participants in the cannabis market.
• Adjusted EBITDA increased by $2.8 million to $8.6 million for the fourth quarter compared to $5.7 million in the prior quarter. Adjusted EBITDA from cannabis operations for the fourth quarter was $9.3 million compared to $6.0 million in the prior quarter. The adjusted EBITDA loss from businesses under development for the fourth quarter was $2.7 million compared to a loss of $2.9 million in the prior quarter. Adjusted EBITDA from distribution operations for the fourth quarter was $1.9 million, compared to $2.6 million the prior quarter.
• The Company ended the fourth quarter with a strong balance sheet, including $497.2 million of cash and cash equivalents.

ATM (“At-the-Market”) Program Established

The Company also announces that it has established an at-the-market equity program (the “ATM Program”) under which the Company may from time to time sell an aggregate of up to US$100,000,000 (or its Canadian dollar equivalent) of its common shares (“Common Shares”) through the Agents (as defined below). Any Common Shares sales under the ATM Program will be made through “at-the-market distributions” as defined in National Instrument 44-102 and sold through the Toronto Stock Exchange (the “TSX”), the NASDAQ Global Select Market (the “NASDAQ”) or any other marketplace on which the Common Shares are listed, quoted or otherwise traded, at the prevailing market price at the time of sale. Sales may also be made in privately negotiated transactions.

The ATM Program will be effective until the earlier of December 22, 2021 and the issuance and sale of all of the Common Shares issuable pursuant to the ATM Program, unless terminated prior to such date by the Company or the Agents. Aphria intends to use the net proceeds from the ATM Program, if any, to fund Canadian and international expansion, working capital and general corporate purposes or to repay indebtedness. As Common Shares distributed in the ATM Program will be issued and sold at the prevailing market price at the time of the sale, or in privately negotiated transactions, prices may vary among purchasers during the period of the distribution.

Distributions of the Common Shares through the ATM Program will be made pursuant to the terms of an equity distribution agreement dated July 29, 2020 among the Company, Jefferies LLC and Canaccord Genuity LLC, as U.S. agents and Canaccord Genuity Corp. and Jefferies Securities, Inc., as Canadian agents (collectively, the “Agents”).