Category: Finance

Aphria Records 63% Net Revenue Growth in Fiscal 2019 Second Quarter; Announces Executive Team Transition

— Net revenue of $21.7 million up 63% from prior quarter on initial sales
to Canadian adult-use market; adjusted gross profit of $10.2 million

— To accelerate the production ramp-up post-Health Canada approvals, yields
were lowered to build stockpiles for expanded facilities and to implement
highly automated cultivation and harvesting

— Licence applications submitted for facilities expansions; annualized
harvest expected to increase to 255,000 kilograms by the end of calendar
2019

— Successfully advanced international growth strategy with significant
strategic alliances and investments in Europe and Latin American

— Co-founder Cole Cacciavillani and CEO Vic Neufeld will transition out of
roles over the coming months, currently working with Aphria independent
Chair Irwin D. Simon and President Jakob Ripshtein to plan succession and
ensure orderly transition.

Three months ended Three months ended
November 30, November 30,
2018 2017
$21,668 Net revenue $8,504
$5,983 Gross profit $6,202
$10,157 Adjusted gross profit (1) $5,758
46.9% Adjusted gross margin (1) 67.7%
$54,774 Net income $6,455
$(9,530) Adjusted EBITDA (1) $1,569

Q2-2019 Q1-2019
Kilograms (or kilogram
3,408.9 equivalents) sold (1) 1,778.2
$21,668 Net revenue $13,292
Adjusted EBITDA from Canadian
$(6,073) Cannabis Operations (1) $(828)
Cash cost to produce dried
$1.76 cannabis / gram(1) $1.30
“All-in” cost of goods sold /
$2.60 gram(1) $1.83
Cash ands cash equivalents &
$184,821 marketable securities $313,982
$181,523 Working capital $363,245
$49,061 Investment in capital and $28,036
intangible assets
-wholly-owned
subsidiaries(1)

Key Operating Highlights
— 92% increase in kilogram equivalents1 sold, reflecting partial period
sales from the opening of the Canadian adult-use market, as well as
continued sales of medical cannabis to existing and new patients

— Adjusted gross margins of 47% of net revenue, compared to 64% in prior
quarter, as expected, due to lower effective selling prices in adult-use
market, as well as temporarily lowered yields and higher production costs
related to facilities expansion and implementation of automation

— Part IV and V expansions of Aphria One awaiting Health Canada approval;
application for cultivation licence at Aphria Diamond submitted and also
awaiting Health Canada pre-cultivation inspection

— Announced and closed subsequent to quarter-end of the acquisition of CC
Pharma, a leading distributor to pharmacies in Germany

— Closed acquisition of key operations and licenses in strategic Latin
America and Caribbean jurisdictions; subsequently established additional
strategic alliances in the region to expand the Company’s medical
cannabis operations and distribution

— Listed on the NYSE, providing shareholders greater liquidity

— Appointed new independent Chair of Board of Directors, Irwin D. Simon,
subsequent to quarter-end

— Ended quarter with strong balance sheet and liquidity, including $152.1
million of cash and $32.7 million of liquid marketable securities, to
fund announced Canadian and International growth and facilities expansion

Executive Transition
Aphria Chief Executive Officer Vic Neufeld, and Co-founder Cole Cacciavillani, are both nearing the end of their five-year journey with the Company and will transition out of their executive roles over the coming months but remain on the Board. Working closely with Irwin D. Simon, Aphria’s recently appointed independent Chair, and President Jakob Ripshtein, Mr. Neufeld and Mr. Cacciavillani intend to complete a smooth and responsible transition to a globally-minded executive leadership team for the long-term benefit of the Company’s patients, shareholders, customers, and employees.

Aphria Chair Irwin D. Simon commented, “Vic and Cole are consummate entrepreneurs. Thanks to their vision, energy and passion, Aphria has become a global player in an industry that didn’t even exist five years ago. On behalf of the entire Aphria team, I want to express my gratitude to both. I look forward to working with them to further build Aphria’s leadership team and continue driving long-term value for our patients, customers and employees into the future.”

“When the Canadian medical cannabis market opened up five years ago, Cole was growing millions of potted flowers in Leamington, and he understood that cannabis was a natural product extension for the founding team’s decades of experience as greenhouse growers in Leamington,” said Mr. Neufeld. “Now with legalization and globalization, including a huge market opportunity with positive developments in the U.S., Aphria’s next generation of leadership may take the reins. Building and leading a Company like Aphria, which exploded from an idea in late 2013 to our many successes to-date, has been an incredible journey, despite the toll it has taken on health, family and personal priorities.”

“Vic and I have worked tirelessly for decades, building great businesses, but now in our sixties, it is time for both of us to step back from the demands of leading a world-class organization. Endless meetings, travel, deadlines, talent search – the list of executive responsibilities will only continue to grow,” said Mr. Cacciavillani.

“Succession is the plan. Cole and I have informed the Board, and they have agreed, that we will begin the transition process immediately, and at the appropriate time, we will both step down from executive positions at Aphria. We continue to have the greatest pride in what Aphria has achieved, and its future has never looked brighter. From continued technology advancements, to continued support of scientific developments, to amazing adult-use brands, to globalization strategies, and most of all, the hundreds of dedicated passionate team members that have joined Aphria, we are well positioned to be a dominant player,” concluded Mr. Neufeld.

The Board has requested that, following the transition, Mr. Neufeld and Mr. Cacciavillani continue to apply their knowledge and expertise as special advisors to both the Chair and the President, ensuring a smooth transition of institutional experience and strategic advice until a new CEO is appointed.

Second Quarter Commentary
“In our second quarter, Aphria continued strengthening its position as a premier supplier of medical- and adult-use cannabis to the Canadian market, building long-term competitive advantage and developing key global opportunities,” said Mr. Neufeld.
“This is the first quarter to partially include adult-use sales, helping to drive 63% quarter-over-quarter net revenue growth, as did continued strength in sales to the medical-use market. As expected, gross margins declined, reflecting lower effective selling prices in the adult-use market, as well as temporarily lower yields and higher production costs in the quarter as we moved aggressively to build out production facilities and implement new automation processes.

“A top priority for Aphria is expanding production and automation to secure our long-term cost and scale advantages. The Part IV and V expansions of Aphria One are now complete and awaiting Health Canada approval, while an application for a cultivation licence at Aphria Diamond has been submitted and is awaiting pre-cultivation inspection. Based on this, we now expect to generate first sales from these new facilities later in the calendar year, pending Health Canada approvals, with our annualized harvest reaching 255,000 kilograms, compared to 35,000 kilograms currently, by the end of calendar 2019.

“In the second quarter we also positioned the Company for long-term growth in key global markets with strategic alliances, targeted investments and disciplined acquisitions. We’re excited to have just closed the previously announced acquisition of CC Pharma, based in Germany, which distributes pharmaceuticals and medical cannabis to over 13,000 pharmacies. This transaction positions Aphria to be a leading player in the European medical cannabis market. We’re equally optimistic about our recently announced alliances and acquisitions of highly strategic licenses and operations in Latin America and the Caribbean’s most attractive emerging cannabis markets, including Colombia, Argentina, Paraguay and Jamaica.