Auxly Reports Q2 2021 Financial Results: Reports Record Revenues, Adjusted EBITDA and Canadian Recreational Market Share
TORONTO, Aug. 16, 2021 (GLOBE NEWSWIRE) — Auxly Cannabis Group Inc. (TSX.V – XLY) (OTCQX: CBWTF) (“Auxly” or the “Company“) today released its financial results for the three and six months ended June 30, 2021. These filings and additional information regarding Auxly are available for review on SEDAR at www.sedar.com. All amounts are Canadian dollars except common shares (“Shares”) and per Share amounts.
Q2 2021 Highlights and Subsequent Events
- Total net revenues from sale of adult use cannabis in Canada of $20.9 million for the three months ended June 30, 2021, more than doubling the same period in 2020 and Q1 2021
- Adjusted EBITDA improves to negative $3.3 million, an improvement of $7.2 million as compared to Q2 2020 and $3.4 million more than the previous quarter
- Continuing improvements in total market share to 4.9% in Q2 2021 (rising to 5.4% in July 2021) while maintaining the #1 LP position in Cannabis 2.0 product sales nationally, with approximately 15.4% market share1
- Further strengthened the Company’s balance sheet with financing transactions and the sale of non-core assets
Q2 Highlights
| For the three months ended: (000’s) |
June 30, 2021 | June 30, 2020 | Change | Percentage Change | |||||||
| Total revenues | $ | 20,852 | $ | 6,867 | $ | 13,985 | 204 | % | |||
| Net income/(loss)* | $ | 8,658 | $ | (27,917 | ) | $ | 36,575 | 131 | % | ||
| Net income/(loss) from continuing operations* | $ | (3,676 | ) | $ | (29,175 | ) | $ | 25,499 | 87 | % | |
| Adjusted EBITDA** | $ | (3,315 | ) | $ | (10,488 | ) | $ | 7,173 | 68 | % | |
| Weighted Average Shares outstanding | 762,652,783 | 627,821,967 | 134,830,816 | 21 | % | ||||||
| For the six months ended: (000’s) |
June 30, 2021 | June 30, 2020 | Change | Percentage Change | |||||||
| Total revenues | $ | 30,018 | $ | 15,875 | $ | 14,143 | 89 | % | |||
| Net income/(loss)* | $ | (1,836 | ) | $ | (40,661 | ) | $ | 38,825 | 95 | % | |
| Net income/(loss) from continuing operations* | $ | (13,992 | ) | $ | (40,488 | ) | $ | 26,496 | 65 | % | |
| Adjusted EBITDA** | $ | (9,996 | ) | $ | (17,896 | ) | $ | 7,900 | 44 | % | |
| Weighted Average Shares outstanding | 738,481,243 | 626,517,977 | 111,963,266 | 18 | % | ||||||
*Attributable to shareholders of the Company
**Adjusted EBITDA is a Non-IFRS financial measure. Refer to the Non-IFRS Financial and Performance Measures section in the MD&A for definitions
1) Headset Canada Insights
| As at: (000’s) |
June 30, 2021 | December 31, 2020 | Change | Percentage Change | ||||||
| Cash and equivalents | $ | 31,735 | $ | 21,214 | $ | 10,521 | 50 | % | ||
| Total assets | $ | 399,511 | $ | 378,963 | $ | 20,548 | 5 | % | ||
| Debt | $ | 104,622 | $ | 114,825 | $ | (10,203 | ) | -9 | % | |
Hugo Alves, CEO of Auxly, commented: “We are thrilled to report a record quarter for Auxly where we saw significant growth in our net revenue, adjusted EBITDA and our share of the recreational cannabis market. We continued to hold the #1 spot in Cannabis 2.0 Product sales nationally, through our leadership in the vapour segment and consumer-driven innovations in new product categories such as concentrates. Our strong momentum in retail sales and the increasing prevalence of our brands within the segments that they compete, are the result of our focused strategy and the investments we’ve made in the human resources, assets and capabilities that we believe are needed to win in the consumer market and which differentiate Auxly from its competitors. We look forward to launching new and exciting products for consumers to enjoy as we continue to execute against our objectives in 2021.”
Results of Operations
| Three months | Three months | Six months | Six months | |||||||||
| (000’s) | Ended June 30, | Ended June 30, | Ended June 30, | Ended June 30, | ||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||
| Revenue | ||||||||||||
| Revenue from sales of cannabis products | $ | 29,551 | $ | 8,320 | $ | 41,703 | $ | 18,787 | ||||
| Other Revenue | – | 66 | – | 70 | ||||||||
| Excise taxes | (8,699 | ) | (1,519 | ) | (11,685 | ) | (2,982 | ) | ||||
| Total Net Revenue | 20,852 | 6,867 | 30,018 | 15,875 | ||||||||
| Cost of Sales | ||||||||||||
| Costs of finished cannabis inventory sold | 13,061 | 5,029 | 19,909 | 10,120 | ||||||||
| Inventory (gain)/impairment | 124 | 668 | 354 | 1,942 | ||||||||
| Gross profit excluding fair value items | 7,667 | 1,170 | 9,755 | 3,813 | ||||||||
| Unrealized fair value gain/(loss) on biological transformation | 315 | 201 | 570 | 150 | ||||||||
| Realized fair value gain/(loss) on inventory | (1 | ) | (15 | ) | – | (195 | ) | |||||
| Gross Profit | 7,981 | 1,356 | 10,325 | 3,768 | ||||||||
| Expenses | ||||||||||||
| Selling, general, and administrative expenses | 12,006 | 13,608 | 21,271 | 26,350 | ||||||||
| Depreciation and amortization | 2,174 | 2,688 | 4,606 | 4,577 | ||||||||
| Interest expense | 4,787 | 3,339 | 9,388 | 5,519 | ||||||||
| Total expenses | 19,027 | 19,635 | 35,265 | 36,446 | ||||||||
| Other income/(loss) | ||||||||||||
| Fair value gain/(loss) of financial instruments accounted under FVTPL | 75 | (4,521 | ) | 191 | (4,636 | ) | ||||||
| Interest and other income | 431 | 345 | 847 | 406 | ||||||||
| Impairment of long-term assets | (11,366 | ) | (4,506 | ) | (11,366 | ) | (4,506 | ) | ||||
| Gain/(loss) on settlement of assets and liabilities and other expenses | 16,995 | (2,020 | ) | 21,063 | (186 | ) | ||||||
| Share of gain/(loss) on investment in joint venture | (2,494 | ) | (996 | ) | (2,953 | ) | (1,781 | ) | ||||
| Foreign exchange gain/(loss) | (571 | ) | (1,056 | ) | (1,179 | ) | 588 | |||||
| Total other income/(loss) | 3,070 | (12,754 | ) | 6,603 | (10,115 | ) | ||||||
| Net Loss before income tax | (7,976 | ) | (31,033 | ) | (18,337 | ) | (42,793 | ) | ||||
| Income tax recovery | 4,291 | 567 | 4,330 | 567 | ||||||||
| Net loss from continuing operations | $ | (3,685 | ) | $ | (30,466 | ) | $ | (14,007 | ) | $ | (42,226 | ) |
| Net income/(loss) from discontinued operations | 12,334 | 1,258 | 12,156 | (173 | ) | |||||||
| Net income/(loss) | $ | 8,649 | $ | (29,208 | ) | $ | (1,851 | ) | $ | (42,399 | ) | |
| Net Income/(loss) attributable to shareholders of the Company | $ | 8,658 | $ | (27,917 | ) | $ | (1,836 | ) | $ | (40,661 | ) | |
| Net loss attributable to non-controlling interest | $ | (9 | ) | $ | (1,291 | ) | $ | (15 | ) | $ | (1,738 | ) |
| Adjusted EBITDA | $ | (3,315 | ) | $ | (10,488 | ) | $ | (9,996 | ) | $ | (17,896 | ) |
| From continuing operations | $ | (0.00 | ) | $ | (0.05 | ) | $ | (0.02 | ) | $ | (0.06 | ) |
| From discontinued operations | 0.02 | 0.00 | 0.02 | 0.00 | ||||||||
| Net income/(loss) per common share (basic and diluted) | $ | 0.01 | $ | (0.04 | ) | $ | (0.00 | ) | $ | (0.06 | ) | |
| Weighted average shares outstanding (basic and diluted) | 762,652,783 | 627,821,967 | 738,481,243 | 626,517,977 | ||||||||
Revenue
For the three months ended June 30, 2021, net revenues were $20.9 million as compared to $6.9 million during the same period in 2020 and were comprised of approximately 75% Cannabis 2.0 Products sales, with the remainder from Cannabis 1.0 Product sales. Net revenues improved during the second quarter of 2021 by $14.0 million over the same period of 2020 and by $11.7 million over the first quarter of 2021 primarily due to the Company’s increased retail cannabis sales nationally and improvements in the Company’s provincial customers’ inventory purchases following the prior quarter pull back. Net revenues year to date were $30.0 million, an improvement of $14.1 million over the same period of 2020 primarily as a result of the second quarter improvements. Consistent with prior periods, as the Company does not participate in the Quebec market, approximately 85% of cannabis sales during the second quarter of 2021 originated from sales to British Columbia, Alberta and Ontario.
Gross Profit/Loss
Auxly realized a gross profit of $8.0 million resulting in a 38% margin during the three months ended June 30, 2021, compared to $1.4 million (19%) during the same period in 2020. Gross profits for the current period were primarily the result of Cannabis 2.0 Products sales with nominal contributions from Cannabis 1.0 Products. Gross profits on a year to date basis improved by approximately $6.6 million to $10.3 million as compared to the same period in 2020, resulting in a 34% margin, primarily as a result of the second quarter performance.
Inventory impairment was $0.1 million for the second quarter and $0.4 million year to date 2021. In 2020, impairment of inventory was higher during the same periods due to additional charges associated with Inverell’s operations.
Total Expenses
Selling, general and administrative expenses (“SG&A”) are comprised of wages and benefits, office and administrative, professional fees, business developments, share-based payments, and selling expenses. SG&A expenses were $12.1 million during the second quarter and $21.3 million year to date 2021, a decrease of $1.5 million and $5.1 million as compared to the same periods in 2020.
Wages and benefits were $4.7 million and $8.9 million for the second quarter and year to date of 2021 respectively, decreases of $2.3 million and $3.8 million, over the same periods in 2020. The decrease for the second quarter of $2.3 million was primarily driven by workforce reductions at Inverell of approximately $0.7 million and in savings and absorption changes in the remaining operations of approximately $1.6 million. Year to date decreases of $3.8 million primarily related to workforce reductions at Inverell of approximately $1.2 million with the remainder of the savings coming from headcount reductions and absorption changes in the rest of the Company.
Office and administrative expenses of $3.6 million for the current period and $6.7 million year to date in 2021 increased by $Nil and $0.5 million compared to same periods in 2020. Expenditures during the second quarter of 2021 included TSX listing fees and increased product testing, supplies and waste resulting from increased innovation and product development activities, Dosecann rent and Health Canada fees as a percentage of sales, partially offset by reduced expenditures of $0.2 million at Inverell and a number of other reductions throughout the Company. Year to date increased expenditures of $0.5 million primarily relate to increased operating costs associated with the development and sale of Cannabis Products, TSX listing fees, Dosecann rent, partially offset by approximately $0.5 million of reduced expenditures at Inverell.
Auxly’s professional fees for the three months ended June 30, 2021 were $0.7 million, higher by $0.2 million as compared to 2020 primarily due to increased legal expenditures associated with certain corporate activities. Year to date expenditures of $1.1 million were lower by $0.7 million as compared to 2020 primarily as a result of greater consulting expenditures in 2020 related to the development of the Company’s ERP system. Professional fees incurred during the periods primarily related to accounting fees, regulatory matters, reporting issuer fees, and legal fees associated with certain corporate activities. Professional fees can vary significantly based upon transactional activities from period to period.
Business development expenses were $Nil for the three and six months ended June 30, 2021, as compared to $Nil and $0.4 million during the same periods in 2020. The decreases are primarily due to a reduction in acquisition, development and travel related expenses primarily a result of the on-going COVID-19 pandemic.
Selling expenses for the period ended June 30, 2021, were $2.0 million and $3.4 million year to date, an increase of approximately $0.9 million over the same periods in 2020, as a result of cannabis sales activities comprised of brokerage fees earned by Kindred Partners and marketing initiatives for Cannabis Products.
For the three months ended June 30, 2021, share-based compensation was $1.0 million and $1.2 million primarily as a result of option grants completed during the second quarter of 2021. The year to date reduction in expense of $1.5 million as compared to 2020, reflects the impact of lower share prices and aging outstanding options.
Depreciation and amortization expenses were $2.2 million for the three months ended June 30, 2021, and $4.6 million year to date, $0.5 million lower and $Nil as compared to the same periods of 2020. The reduction in expenditures during the current period is primarily the result of greater expenditures related to Inverell in the prior year, partially offset by subsequent additional capital expenditures.
Interest expenses were $4.8 million and $9.4 million for the second quarter and year to date of 2021 respectively, increases of $1.4 million and $3.9 million over the same periods in 2020. Interest expenses in 2021 were primarily the result of interest expense and accretion on the $123 million Imperial Brands Debenture and changes related to the Amendments thereof, 7.5% on the convertible debentures issued in 2020, the non-cash accretion of placement and other related fees being recognized over the terms of the respective debentures, leases and short-term financing. Interest expenses in 2020 were primarily driven by the Imperial Brands Debenture, 7.5% on the convertible debentures issued in 2020 to date, and by leases.
Total Other Incomes and Losses
Fair value changes on financial instruments arise on changes in value of promissory notes and level two securities held. For the three and six months ended June 30, 2021, the Company reported a fair value gain of $0.1 million and $0.2 million respectively, approximately $4.6 million lower than the same periods in 2020 primarily as a result of more significant valuation reductions and a larger securities portfolio during 2020.
The Company recorded interest and other incomes of $0.4 million and $0.8 million for the three and six months ended June 30, 2021, with increases over the same periods of 2020 primarily due to changes in interest accretion on the promissory note from the Company’s Sunens joint venture.
Impairment of long-term assets of $11.4 million in 2021 relate to the recently announced sale of Curative where the carrying value exceeded the proceeds of sale. During 2020, the Company recognized an impairment loss on long-term assets of $4.5 million related to Inverell.
Gains and losses on settlement of assets and liabilities and other expenses was a gain of $17.0 million during the second quarter of 2021 as compared to a loss of $2.0 million during the same period of 2020. The improvement of $19.0 million for the period was primarily related to a $16.6 million gain associated with the Imperial Brands Debenture Amendments and a $2.4 million loss associated with accrued legal settlements and a credit loss provision in 2020. The year to date gain of $21.1 million in 2021 includes a $4.2 million first quarter gain on the settlement of a $5.8 million liability associated with a non-monetary product exchange with another licensed producer.
The share of loss on investment in joint venture of $2.5 million for the three months ended June 30, 2021 and $3.0 million year to date reflect the Company’s proportionate share of Sunens’ earnings. Sunens received its cultivation licence in June 2020 and has scaled up operations and made product available for sale to licenced producers, including Auxly beginning in the first quarter of 2021.
Auxly is exposed to foreign exchange fluctuations from the U.S. dollar to CAD dollar exchange rate primarily related to inventory and capital purchases and Inverell net assets. During the quarter ended June 30, 2021, the Company reported a foreign exchange loss of $0.6 million and a loss of $1.2 million year to date as compared to a loss of $1.1 million and a gain of $0.6 million during the same periods of 2020.
Net Income and Loss
Net income attributable to shareholders of the Company was $8.7 million for the three months ended June 30, 2021, representing a net income of $0.01 per share on a basic and diluted basis. Net loss attributable to shareholders of the Company was $1.8 million for the six months ended June 30, 2021, representing a net loss of $0.00 per share on a basic and diluted basis. The improvement in net income and loss positions was a result of net income of $12.3 million related to the sale of KGK, recognition of a gain from the Imperial Brands Debenture Amendments, improvements in continuing operating gross profits and income tax recoveries, partially offset by an impairment charge related to the Curative sale.
Adjusted EBITDA
Adjusted EBITDA of negative $3.3 million during the second quarter of 2021 improved by approximately $7.2 million or 68% over the same period in 2020 primarily driven by greater gross profits. Year to date Adjusted EBITDA of negative $10.0 million in 2021 also reflects improvements in gross profit and lower SG&A as compared to $17.9 million recorded during the same period of 2020.
Outlook
In 2021, Auxly is focused on building upon its success as a market leader in Cannabis 2.0 Products, while continuing to advance the Company’s focused expansion of its dried flower, pre-roll, oil and capsule product offerings. The Company’s overall objectives for 2021, which may be impacted by the COVID-19 pandemic (see further discussion in the MD&A under “COVID-19 Pandemic”), are as follows:
- Continued leadership and strength in the Cannabis 2.0 Products market;
- Focused expansion of Cannabis 1.0 Products;
- Become a top 5 licenced producer in Canada by total market share in adult recreational cannabis sales;
- Continue to take measures to improve cash flows, and finance the business;
- Become Adjusted EBITDA positive by the end of the calendar year;
- Leverage the Sunens facility to establish a secure supply of cannabis and reduce reliance on open market purchasing; and
- Explore possible cannabis market entry strategies in regulated international markets, on an asset light basis.
Auxly will continue to evaluate opportunities to bring new and exciting products to consumers as it continues to realize its vision of becoming a global leader in branded cannabis products that deliver on the consumer promise of quality, safety and efficacy.
Conference Call
Auxly’s management team will host a conference call today, Monday August 16, 2021, at 10:00 a.m. EST to discuss its financial results. Participants can access the conference call by telephone by dialing: 888-664-6383.
For those unable to participate in the conference call at the scheduled time, it will be available for replay on the Company’s website within 24 hours after the conclusion of the call.
ON BEHALF OF THE BOARD
“Hugo Alves” CEO
About Auxly Cannabis Group Inc. (TSX.V: XLY)
Auxly is an international cannabis company dedicated to bringing innovative, effective, and high-quality cannabis products to the medical, wellness and adult-use markets. Auxly’s experienced team of industry first-movers and enterprising visionaries have secured a diversified supply of raw cannabis, strong clinical, scientific and operating capabilities and leading research and development infrastructure in order to create trusted products and brands in an expanding global market.
Learn more at www.auxly.com and stay up to date at Twitter: @AuxlyGroup; Instagram: @auxlygroup; Facebook: @auxlygroup; LinkedIn: company/auxlygroup/.
Investor Relations:
For investor enquiries please contact our Investor Relations Team:
Email: IR@auxly.com
Phone: 1.833.695.2414
Media Enquiries (only):
For media enquiries or to set up an interview please contact:
Email: press@auxly.com
Notice Regarding Forward Looking Information:
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities law. Forward-looking information is frequently characterized by words such as “plan”, “continue”, “expect”, “project”, “intend”, “believe”, “anticipate”, “estimate”, “may”, “will”, “potential”, “proposed” and other similar words, or information that certain events or conditions “may” or “will” occur. This information is only a prediction. Various assumptions were used in drawing the conclusions or making the projections contained in the forward-looking information throughout this news release. Forward-looking information includes, but is not limited to: the proposed operation of Auxly, its subsidiaries and partners; the intention to grow the business, operations and existing and potential activities of Auxly; the Company’s response to the COVID-19 pandemic; the impact of the COVID-19 pandemic on the Company’s current and future operations; the Company’s execution of its innovative product development, commercialization strategy and expansion plans; the anticipated benefits of the Company’s partnerships, joint ventures, research and development initiatives and other commercial arrangements; the expectation and timing of future revenues; expectations regarding the Company’s expansion of operations and investment into foreign jurisdictions; future legislative and regulatory developments involving cannabis and cannabis products; the timing and outcomes of regulatory or intellectual property decisions; the relevance of Auxly’s subsidiaries’ and partners’ current and proposed products; consumer preferences; political change; competition and other risks affecting the Company in particular and the cannabis industry generally.
A number of factors could cause actual results to differ materially from a conclusion, forecast or projection contained in the forward-looking information in this release including, but not limited to, whether: the Company will be able to execute on its business strategy; Auxly’s subsidiaries and partners are able to obtain and maintain the necessary governmental and regulatory authorizations to conduct business; the Company is able to successfully manage the integration of its various business units with its own; there are not materially more closures or lockdowns related to the COVID‐19 pandemic; the Company’s subsidiaries and partners obtain and maintain all necessary governmental and regulatory permits and approvals for the operation of their facilities and the development of cannabis products, and whether such permits and approvals can be obtained in a timely manner; the Company will be able to successfully launch new product formats and enter into new markets; there is acceptance and demand for current and future Company products by consumers and provincial purchasers; and general economic, financial market, legislative, regulatory, competitive and political conditions in which the Company and its subsidiaries and partners operate will remain the same. Additional risk factors are disclosed in the annual information form of the Company for the financial year ended December 31, 2020 dated April 23, 2021.
New factors emerge from time to time, and it is not possible for management to predict all of those factors or to assess in advance the impact of each such factor on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking information. The forward-looking information in this release is based on information currently available and what management believes are reasonable assumptions. Forward-looking information speaks only to such assumptions as of the date of this release. In addition, this release may contain forward-looking information attributed to third party industry sources, the accuracy of which has not been verified by the Company. The forward-looking information is being provided for the purposes of assisting the reader in understanding the Company’s financial performance, financial position and cash flows as at and for periods ended on certain dates and to present information about management’s current expectations and plans relating to the future, and the reader is cautioned that such forward-looking information may not be appropriate for any other purpose. Readers should not place undue reliance on forward-looking information contained in this release.
The forward-looking information contained in this release is expressly qualified by the foregoing cautionary statements and is made as of the date of this release. Except as may be required by applicable securities laws, the Company does not undertake any obligation to publicly update or revise any forward-looking information to reflect events or circumstances after the date of this release or to reflect the occurrence of unanticipated events, whether as a result of new information, future events or results, or otherwise.
Neither Toronto Stock Exchange nor its Regulation Services Provider (as that term is defined in the policies of the Toronto Stock Exchange) accepts responsibility for the adequacy or accuracy of this release.
