Tilray, Inc. Form 10-Q Summary
Period clarification: The supplied filing is for the unaudited quarter ended March 31, 2021, not 2020 Q3 as stated in the request metadata. Financial amounts below are in U.S. dollars; figures are rounded to millions unless noted.
Business context and reporting period
Tilray reported cannabis and hemp operations. Its cannabis business includes medical and adult-use products; its hemp segment sells food and wellness products. The Aphria combination had not closed by March 31, 2021, so it is not reflected in these financial statements. It closed on April 30, 2021.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $48.0 million | $52.1 million |
| Gross profit / margin | $13.5 million / 28% | $10.9 million / 21% |
| Operating loss | $73.3 million | $71.3 million |
| Net loss | $341.0 million; $2.01 per share | $184.1 million; $1.73 per share |
| Adjusted EBITDA (non-GAAP) | Loss of $6.3 million | Loss of $18.2 million |
| Cash used in operating activities | $13.0 million | $54.0 million |
Cannabis revenue rose 2% to $31.4 million, including international medical growth of 48%; hemp revenue fell 22% to $16.6 million. Cash and cash equivalents were $416.4 million at quarter-end, up from $189.7 million at December 31, 2020. Financing activities provided $234.1 million, principally from at-the-market share sales and warrant exercises; investing activities used $0.1 million.
At March 31, total liabilities were $627.6 million. Convertible notes had a $277.9 million face value and $259.4 million net carrying value. The Senior Facility had a $49.5 million net carrying value and was classified as current. Warrant liability was $122.8 million. The company reported covenant compliance on its convertible notes and Senior Facility.
Material changes versus the prior comparable period
- Revenue decreased 8%, primarily due to weaker hemp sales, delayed private-label transitions and reduced promotional activity. Management also attributed weaker Canadian adult-use and medical demand to COVID-related restrictions.
- Gross margin improved to 28% from 21%, reflecting lower costs and inventory write-downs. Cannabis gross margin rose to 30% from 10%; hemp margin declined to 25% from 37% as sales mix shifted toward lower-margin private-label products.
- Adjusted EBITDA loss narrowed by $11.9 million, which management attributed to cost reductions and operating leverage. Net loss widened substantially, mainly because the warrant-liability fair-value charge rose to $263.2 million and the quarter included a $45.0 million litigation settlement expense.
- Sales and marketing expense declined 47% to $9.7 million. General and administrative expense declined 6% to $25.6 million.
Outlook, commentary, risks and unusual items
- Management gave no specific numerical revenue or earnings guidance. It said current forecasts showed cash sufficient for working capital, debt payments and general liquidity needs, and that it did not see significant doubt about going concern for the next 12 months.
- Management expected growth in cannabis sales, particularly international medical, and further cost-per-gram improvement. It noted competitive pricing in adult-use cannabis and lower hemp selling prices from increased private-label sales.
- COVID-19 remained a source of uncertainty for customer access, demand, production, supply chains and Portugal construction. The filing also cites regulatory, foreign-exchange, customer-concentration and integration risks. A 10% Canadian-dollar exchange-rate movement was estimated to affect the carrying value of net assets by about $47.2 million.
- The $45.0 million settlement expense related to a cannabinoid supply dispute. On April 29, 2021, Tilray paid $20.0 million cash and $5.0 million in shares, with a further payment due within nine months of either $15.0 million in shares or $20.0 million cash, subject to specified adjustments. The settlement also eliminated $59.7 million of purchase commitments.
- After quarter-end, Tilray repaid the Senior Facility in full on May 4, 2021, paying $52.1 million of principal, accrued interest and fees, and a prepayment fee. The Aphria transaction closed April 30; Tilray issued shares in the exchange and paid a $9.2 million financial-adviser fee.
- Management concluded disclosure controls and procedures were ineffective as of March 31 because of previously reported material weaknesses in internal control. Remediation was ongoing.
- Legal proceedings include shareholder and securities litigation and a proposed Canadian cannabis product class action. The filing says management believes reserves are appropriate, but unfavorable resolutions could be material.
Important facts for investors to verify
- Confirm the correct reporting period: this filing covers Q1 2021, despite the request metadata identifying 2020 Q3.
- Assess underlying operating trends separately from the large noncash warrant-liability remeasurement and the one-time settlement; review the filing’s non-GAAP Adjusted EBITDA reconciliation.
- Track post-quarter cash uses, including Senior Facility repayment, settlement payments and Aphria transaction costs, alongside the merger’s integration costs and expected benefits.
- Review share dilution: the company raised about $159.2 million through its ATM program and received about $76.1 million from warrant exercises in the quarter. The filing reports 447.4 million shares outstanding as of May 7, 2021.
- Reconcile share-count disclosures: the balance sheet reports 179,118,980 shares at March 31, while the statement of stockholders’ equity reports 178,708,980.
- Monitor progress on internal-control remediation, significant litigation, customer concentration, COVID-related operating impacts and foreign-exchange exposure.