- Q4 results a complete disaster.
- Financial picture getting ugly quick.
- Single digits seem extremely likely now.
When I covered Canadian cannabis firm Tilray (NASDAQ:TLRY) a few weeks ago, I stated at the end that shares could find the single digits if there was not significant improvement in the business soon. The company's results had continued to lag expectations, and large losses were leading to massive cash burn and significant dilution. After the bell on Monday, Tilray reported its Q4 results, which confirmed that the situation is quite dire at the moment.
The highlight of the fourth quarter results from the company was that revenues surged more than 200% to nearly $47 million. This growth seems impressive, AND it also included more than $4 million in reserves for discount and returns. However, the street was looking for more than $55 million going into Monday's report, and back in August 2019, revenue expectations for this Q4 period were above $62 million.
The rest of the income statement is where things get extremely messy and quite ugly. The company wrote down more than $112 million in assets and recorded more than $68 million in inventory valuation adjustments. On a non-GAAP basis, the net loss was nearly $64 million, up from $26.5 million in the year ago period. Non-GAAP EPS came in at a loss of $0.62, missing street estimates by more than twenty cents a share, and this number was aided by ongoing dilution from multiple fronts. On a GAAP basis, the company lost more than $219 million in the period. The chart below shows just how badly this name has performed against bottom line expectations for 2019.
(Source: Q4 results and Yahoo! Finance analyst estimates page)
As I've continued to detail in past articles, Tilray's balance sheet and financing situation is where things are even worse. During Q4, the cash and investments balance dropped from $122 million to $97 million. This was despite the outstanding share count rising by roughly 2.5 million shares in the period, likely as a result of the ongoing equity sales program. More than 43% of the balance sheet's assets are in intangible assets and goodwill, which provide very little financial flexibility. In the earnings press release, management also stated the following about its recent financing efforts:
The Company closed a $60 million senior credit facility on February 28, 2020 that bears interest at prime plus 8% and has a two year term.
The current Canadian prime rate is 3.95%. This means that interest would be charged at a roughly 12% rate. That seems crazy for a $60 million facility on a name that was worth more than $1.5 billion going into the earnings report, but it shows you how much risk there is right now. With $430 million in convertible notes already on the balance sheet, investors likely will need to brace for even more dilution in the coming years than I was previously thinking about. According to the 10-K filing, the company sold more than 4 million shares of equity in Q4 2019 alone, not even averaging $19 per share.
Tilray shares were down about 10% in the after hours right after this report, but those losses could easily accelerate from here. To show how bad things are, even after adjusting nearly half of its yearly losses away, the 2019 non-GAAP loss was more than the year's revenue total. The balance sheet is extremely inflexible and each capital raise is getting more and more painful. The Q4 report from Tilray continues to prove that investors who were buying this stock up to $300 a share were hoping on a future that quite simply does not exist. I now think it is just a matter of time before we see this name in the single digits.
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