Organigram Reports First Quarter Fiscal 2020 Results  Posted by On

MONCTON, New Brunswick–()–Organigram Holdings Inc. (NASDAQ: OGI) (TSX: OGI), the parent company of Organigram Inc. (the “Company” or “Organigram”), a leading licensed producer of cannabis, is pleased to announce its results for the first quarter ended November 30, 2019 (“Q1” or “Q1 2020”).

(in 000s)

Q1-2020

Q1-2019

% Change

Select Key Financial Metrics

 

 

 

Gross revenue

28,448

14,479

96%

Excise taxes

(3,295)

(2,040)

62%

Net revenue

25,153

12,439

102%

Cost of sales

15,811

3,618

337%

Gross Margin (GM) before fair value changes to biological assets & inventories

9,342

8,821

6%

Fair value changes to biological assets & inventories

1,852

42,925

(96%)

Gross margin

11,194

51,746

(78%)

Sales & marketing and general & administrative (SG&A)

9,418

4,528

108%

Net income (loss) from continuing ops

(863)

29,517

(103%)

GM before fair value changes to biological assets & inventories as % of net revenue

37%

71%

(34%)

SG&A as a % of net revenue

37%

36%

1%

 

 

 

 

Adjusted EBITDA2

4,867

6,839

(29%)

Adjusted EBITDA as a % of net revenue2

19%

55%

(36%)

Select Balance Sheet Metrics (in 000s)

November 30, 2019

August 31, 2019

% Change

Cash & Short-Term Investments

34,132

47,935

(29%)

Biological Assets & Inventories

125,206

113,796

10%

Other Current Assets

32,427

34,550

(6%)

A/P and Other Current Liabilities

48,972

43,864

12%

Working Capital

142,793

152,417

(6%)

Property, Plant & Equipment

261,083

218,470

20%

Long-Term Debt

78,418

46,067

70%

Total Assets

469,484

428,525

10%

Total Liabilities

140, 663

101,519

39%

Shareholders’ Equity

328,821

327,006

1%

“Despite ongoing industry challenges, we are pleased with solid Q1 2020 results and our return to positive adjusted EBITDA during the quarter, said Greg Engel, CEO. Our team was also successful in shipping the first of our Rec 2.0 products as planned and on schedule in December of 2019. We also look forward to the launch of the remainder of our vape pen portfolio followed soon after by our premium cannabis-infused chocolate products. In addition to an exciting line-up of 2.0 products, we are rolling out a couple of new core strains, such as our high THC Edison Limelight, across the country following their success as limited-time-offers in smaller markets.”

Key Financial Results for the First Quarter Fiscal 2020

  • Net Revenue:

    • Q1 2020 net revenue grew 102% to $25.2 million from $12.4 million in Q1 2019 wherein Q1 2019 adult-use recreational cannabis was only legalized on October 17, 2018
  • Gross Margin before fair value changes to biological assets and inventories sold:

    • Q1 2020 gross margin before fair value changes to biological assets and inventories of $9.3 million or 37% of net revenue compared to $8.8 million in Q1 2019 or 71% of net revenue
    • Higher absolute gross margin in Q1 2020 was due to higher net revenue. Lower Q1 2020 gross margin as a percentage of net revenue was largely due to higher cost of sales from increased staffing for more cultivation and post-harvest capacity without experiencing the benefit of full economies of scale as the Company believes consumer demand continues to be impacted by an inadequate retail store network in Canada
  • Gross Margin:

    • Q1 2020 gross margin of $11.2 million compared to Q1 2019 gross margin of $51.7 million, largely due to a net non-cash fair value gain on biological assets and inventories sold of

      $1.9 million in the current quarter versus $42.9 million in Q1 2019
  • Adjusted EBITDA3:

    • Q1 2020 adjusted EBITDA of $4.9 million compared to Q1 2019 adjusted EBITDA of $6.8 million
    • Q1 2020 adjusted EBITDA was impacted by higher SG&A compared to Q1 2019 as the Company increased staffing and sales and marketing efforts in response to the first year of legalized adult-use recreational cannabis including edibles and derivative products
  • Sales and Marketing and General and Administrative Expenses (“SG&A”):

    • Q1 2020 SG&A of $9.4 million compared to $4.5 million in Q1 2019 as the Company had scaled up staffing and marketing activities for legalization of adult-use recreational cannabis sales
    • Q1 2020 SG&A represented 37% of net revenue compared to 36% in Q1 2019, which reflected higher net revenue in Q1 2020 and management’s disciplined approach to spending despite being in a high growth period
  • Net Income (Loss) from Continuing Operations:

    • Q1 2020 net loss of $0.9 million or $(0.006) per share on a diluted basis compared to Q1 2019 net income of $29.5 million or $0.195 per share largely due to non-cash fair value changes to biological assets and inventories sold

Key Commentary on Q1 2020 Results vs Q4 2019

  • Q1 2020 net revenue of $25.2 million was largely comprised of about $16.7 million of sales to the adult-use recreational and medical markets and about $9.5 million to the wholesale and international markets with the negligible balance coming from other sources, partly offset by about $1.1 million in a provision for product returns and price adjustments. This compared to Q4 2019 net revenue of $16.3 million comprised of about $20.0 million of sales and about $3.7 million in a provision for product returns and pricing adjustments. The majority of the Q1 2020 provision was related to THC oils which have seen less than anticipated demand in the adult-use recreational market. The majority of the Q4 2019 provision was related to two slower selling stock-keeping units (“SKUs”) sold to the Ontario Cannabis Store (OCS), comprised of a bespoke order of lower THC dried flower intended to fulfill a supply gap in the market earlier in calendar 2019 and THC oils.
  • Q1 2020 cash and “all-in” costs of cultivation of $0.61 and $0.87 per gram of dried flower harvested4, respectively, decreased from $0.66 and $0.94 per gram in Q4 2019 as yield per plant increased from 148 grams in Q4 2019 to 152 grams in Q1 2020.
  • Q1 2020 cost of sales remained relatively stable at $15.8 million from $15.5 million in Q4 2019. Q1 2020 cost of sales benefited from lower inventory write-offs than in Q4 2019 and lower post harvest costs for product sales to another LP for which product is packaged in bulk without any specific labeling and excise stamps.
  • Q1 2020 gross margin before fair value changes to biological assets and inventory increased to $9.3 million or 37% of net revenue from Q4 2019 gross margin before fair value changes to biological assets and inventories of $0.7 million or 5% largely due to higher net revenue and relatively stable cost of sales and indirect production costs as described above.
  • Q1 2020 gross margin of $11.2 million compared to Q4 2019 gross margin of negative $11.1 million, largely due to negative non-cash fair value changes in biological assets and inventories in the prior year quarter.
  • Q1 2020 positive adjusted EBITDA5 of $4.9 million compared to Q4 2019 negative adjusted EBITDA of $7.9 million. Q4 2019 negative adjusted EBITDA was impacted by lower gross margin before fair value changes to biological assets and inventories (described above) and higher SG&A compared to Q1 2020.
  • Q1 2020 SG&A of $9.4 million decreased 32% from $13.9 million in Q4 2019. As expected, Q1 2020 SG&A as a percentage of net revenue decreased to 37% from 85% in Q4 2019 as the Company had previously indicated Q4 2019 was an anomaly.

Adult-Use Recreational Launch 2.0 (“Rec 2.0”) – Derivative and Edible Products

  • The Company has chosen to initially focus on the two most popular product forms based on US state sales data: vaporizer pens and edible products6.
  • To date, Organigram has submitted new product notifications to Health Canada in October 2019 for a comprehensive vape pen portfolio and cannabis infused chocolates.
  • As planned, the Company began shipping the first of its 2.0 products, Trailblazer Torch vape cartridges, on December 17, 2019. The cartridges are custom engineered with borosilicate glass and stainless-steel components, designed to accommodate a standard 510-thead battery.
  • Launches of Edison + Feather ready-to-go distillate pens and Edison + PAX ERA® distillate cartridges are expected in January 2020 and Q2 calendar 2020, respectively.
  • The Company’s next-generation product portfolio includes high-quality cannabis infused chocolate and a dissolvable powder product, designed using nanotechnology for faster absorption of cannabinoids (when compared to traditional edible products). Planned launches of Organigram’s chocolate and dissolvable powder products are anticipated in Q1 and Q2 calendar 2020, respectively.
  • As expected, the Company took delivery of its high speed, high capacity, fully automated chocolate production line in October 2019. Installation of the production line has been completed, licensing approval for the chocolate operations area has been received and the Company expects commissioning in time for initial sales in Q1 calendar 2020.
  • As previously announced, Organigram has developed a proprietary nano-emulsification technology that is anticipated to provide an initial absorption of cannabinoids within 10 to 15 minutes. The emulsion process developed by the Organigram team generates micro-particles that are very small and uniform, which it expects will translate to an absorption and onset of effect that is rapid, reliable and controlled. The Company anticipates the nano-emulsion technology will have stability to temperature variations, mechanical disturbance, salinity, pH and sweeteners. The Company’s researchers have also recently developed a way to transform this emulsification into a solid form, turning it into a…

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