Tilray Brands, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended February 28, 2022. Amounts are in U.S. dollars; financial statement amounts are in thousands unless stated otherwise.
Business context and comparability
Tilray is a global cannabis, beverage alcohol, pharmaceutical distribution and wellness products company. The quarter includes the acquired Aphria business and, from December 2021, Breckenridge Distillery. Because Tilray’s April 2021 combination with Aphria was accounted for as a reverse acquisition, prior-year results largely reflect Aphria alone; year-over-year comparisons are therefore not fully comparable.
Financial performance and position
| Metric | Three months ended Feb. 28, 2022 | Prior-year quarter | Nine months ended Feb. 28, 2022 | Prior-year nine months |
|---|---|---|---|---|
| Net revenue | $151.9 million | $123.9 million | $475.0 million | $370.8 million |
| Gross profit | $39.8 million | $30.5 million | $123.6 million | $100.7 million |
| Gross margin | 26% | 25% | 26% | 27% |
| Operating loss | $19.8 million | $24.1 million | $143.0 million | $58.5 million |
| Net income (loss) | $52.5 million | $(258.6) million | $23.7 million | $(369.6) million |
| Adjusted EBITDA (non-GAAP) | $10.1 million | $9.4 million | $36.5 million | $27.6 million |
Quarterly revenue rose 23%; nine-month revenue rose 28%. Quarterly net income chiefly reflected $72.7 million of non-operating income, including fair-value gains on convertible debentures and warrants, rather than operating profitability. Nine-month operating losses widened as expenses, including acquired-asset amortization and transaction costs, grew. Adjusted net loss was $32.7 million for the quarter and $115.6 million for the nine months, versus $28.5 million and $20.4 million, respectively, in the comparable periods.
Segments: Quarterly net cannabis revenue was $55.0 million, beverage alcohol $19.6 million, distribution $62.5 million and wellness $14.7 million. Cannabis gross margin fell to 33% from 39%; distribution margin fell to 8% from 13%. Beverage alcohol margin improved to 59% from 41%. Management cited price competition and a low-margin aged-cannabis sale as factors in cannabis margin pressure; distribution faced higher costs, discounts and returns.
Cash flow and liquidity: Operating cash use was $46.4 million in the quarter and $156.7 million for nine months, compared with $53.0 million for the prior-year nine months. Nine-month investing cash use was $16.6 million and financing cash use was $33.6 million. Cash declined $209.3 million from May 31, 2021, to $279.2 million at February 28, 2022. Working capital was $413.4 million. Non-GAAP free cash flow was negative $47.7 million for the quarter and negative $173.7 million for nine months; adjusted free cash flow was negative $35.6 million and negative $105.0 million, respectively.
Debt: At February 28, 2022, long-term debt had a net carrying value of $191.4 million, including $70.2 million current; convertible debentures totaled $501.1 million; bank indebtedness was $17.5 million. Management reported compliance with debt covenants. Cash and cash equivalents were $279.2 million.
Material changes, outlook and risks
- Management said it was on track to achieve the original $80 million Aphria integration synergy target five months earlier than planned. It reported $76 million in run-rate cost savings and $42 million in realized cash savings, and identified another $20 million, targeting $100 million of total synergies by fiscal year-end May 2023.
- Management cited a long-term objective of reaching $4 billion in revenue by fiscal 2024; this is an ambition, not a quantified near-term forecast in this filing.
- Canadian adult-use cannabis market share declined to 10.2% in the quarter from 12.8% in the prior quarter. Tilray shifted toward more competitive pricing, particularly for vapes and pre-rolls. Management highlighted intense competition, price sensitivity and uncertainty around pandemic effects.
- On March 3, 2022, Tilray announced a proposed HEXO strategic alliance and potential acquisition of up to $211 million of HEXO convertible notes. The proposal remained subject to due diligence, definitive agreements and closing conditions.
- After quarter-end, Tilray established a $400 million at-the-market equity program. By April 6, 2022, it had sold shares for approximately $88 million in net proceeds; approximately $310 million of capacity remained. Further issuance may dilute shareholders. Tilray also agreed to sell its Nanaimo facility for CAD $18.25 million, with closing targeted for June 2022 subject to conditions.
- Other identified risks include regulatory dependence, integration execution, supply-chain and input-cost pressures, international operations and foreign exchange, litigation, and stock-price volatility. The filing describes Docklight litigation and continuing shareholder litigation; management stated it did not expect ordinary-course legal matters to have a material adverse effect.
Key facts investors should verify
- How much reported earnings depends on non-cash fair-value changes, and whether operating performance and adjusted EBITDA improve.
- Whether cannabis and distribution margins stabilize amid price competition, and whether the reported market-share decline reverses.
- Cash burn, working-capital needs, debt maturities and the availability and cost of ATM proceeds.
- Actual realization and timing of the $100 million synergy target, and progress on the conditional HEXO proposal.
- Potential share dilution from the ATM program and the final closing and proceeds of the Nanaimo facility sale.