3 Things You Need to Know About Tilray's Q2 Results

Tilray (NASDAQ: TLRY) really has announced a lot of good news so far in 2019. It jumped into the U.S. hemp market with a big splash. It's signed a key deal with major consumer packaged-goods company Authentic Brands Group (ABG). The company reached an agreement with its largest shareholder to extend the lock-up period for two years. Despite all of this good news, Tilray's share price has plunged more than 35% year to date.

The Canadian cannabis producer added more good news with its second-quarter results announced after the market closed on Tuesday. But Tilray just can't seem to catch a break: Its stock slid 6% in after-hours trading. Here are three things you need to know about Tilray's Q2 results.

Magnifying glass on top of a cannabis leaf

Image source: Getty Images.

1. Sizzling revenue growth

Let's start with the really good news. Tilray reported that its revenue in the second quarter skyrocketed 371% year over year to $45.9 million. This total nearly doubled the company's revenue in the first quarter of 2019.

Keep in mind, though, that Tilray's revenue figure includes Canadian excise taxes on adult-use recreational marijuana. Adjusting for these taxes, the company's net revenue in Q2 was $42 million. But that's still nearly twice the net revenue Tilray posted in the first quarter. It was also higher than the consensus analysts' revenue estimate of $41.1 million.

Canadian adult-use recreational marijuana sales jumped 90% from the previous quarter to a little over $15 million. Tilray's medical cannabis sales in Canada soared 117% from Q1 to nearly $9.1 million. International medical cannabis sales more than doubled quarter over quarter to nearly $1.9 million.

In addition to its organic growth, Tilray's acquisition of hemp foods maker Manitoba Harvest made a big difference in the second quarter. Manitoba Harvest's sales totaled $19.9 million, roughly 43% of Tilray's total revenue. 

2. Worse-than-expected net loss

Now for the bad news. Tilray again posted a big net loss in the second quarter. The company said it lost $35.1 million, or $0.36 per share. That was significantly worse than the loss of $12.8 million, or $0.17 per share, in the prior-year period. 

Tilray's adjusted net loss of $0.32 per share looked a little better, thanks to positive adjustments related to acquisition and integration expenses and amortization of increased valuation in inventory. However, the company's bottom line even with these adjustments still didn't meet analysts' expectations. The average analysts' estimate projected that Tilray would report a net loss in the second quarter of $0.25 per share. 

Why is Tilray's bottom line headed in the wrong direction? You can blame a lot of it on debt. The company's interest expense soared from less than $500,000 in the prior-year period to nearly $8.6 million in the second quarter. Tilray is also spending a lot more than it has in the past, with operating expenses skyrocketing 257% year over year.

3. A rapidly dwindling cash stockpile

Tilray might not talk a lot about its cash stockpile, but it's something investors should watch closely. The company reported cash, cash equivalents, and short-term investments totaling $220.9 million as of June 30, 2019. That's down from $325.4 million on hand at the end of the first quarter.

The company can't continue to burn through more than $100 million in cash each quarter for very much longer. I don't expect that will happen. However, Tilray could still face a need for more cash in the not-too-distant future. At its Q2 operating loss of $32.5 million, the company might be looking at the need to borrow more or issue new shares next year unless its bottom line improves significantly.

Looking ahead

Tilray's bottom line theoretically should improve as its sales ramp up. The company's added production capacity, combined with the expansion of the Canadian adult-use market and international medical cannabis markets, should enable Tilray to generate much higher sales in the future. The big question, though, is how much Tilray's spending will increase.

CEO Brendan Kennedy has expressed reluctance in the past about taking on an equity partner. But Tilray could have to boost its spending to keep up with competitors that have deeper pockets thanks to large equity partners. Also, sooner or later Tilray's largest shareholder will sell some of its shares. Although Tilray just might keep on announcing good news, the uncertainties for the company could keep the stock from gaining traction.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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