Full Year 2020 Highlighted Financial Results
- Consolidated net revenue increased 95% to
$59.3 million from$30.4 million in 2019; - Gross margin before fair value changes to biological assets and inventories was
$24.8 million or 41.8% of net revenue in 2020, compared to$13.7 million or 44.9% of net revenue in the prior year; - Consolidated Adjusted EBITDA for the year totaled
$3.5 million , compared to negative$38.7 million in 2019; - Loss from operations of
$2.3 million compared to$59.2 million in the prior year; - Consolidated net loss from continuing operations totaled
$54.9 million or$0.10 per share, fully diluted, compared to$72.6 million or$0.30 per share, fully diluted, in 2019; - Consolidated net loss for 2020 totaled
$70.5 million or$0.13 per share, fully diluted, compared to$127.0 million or$0.53 per share, fully diluted, in 2019; - Loans and borrowing decreased
$88.2 million from$153.9 million to$65.7 million ; - Net cash used in operations was
$17.5 million compared to$78.6 million in 2019.
The cost reduction actions undertaken in the first quarter of the year and the continued focus on operational efficiency and excellence resulted in a 51% decrease in operating expenses in 2020, excluding the impact of impairment losses recorded in 2019. Overall, the growth in revenue and the reduction in costs resulted in
The Company also completed a number of actions in 2020 to improve its balance sheet including the sale of non-core assets, notably
On
Selected Financial Data
Consolidated Statements of Net Loss | Three months ended | Year ended | ||||||||||||||||
Q4 | 2020 | Q4 | 2019 | Q4 | 2018 | 2020 | 2019 | 2018 (iii,iv) | |||||||||||||
Financial Results | ||||||||||||||||||
Gross revenue | $ | 21,486,058 | $ | 13,333,959 | $ | 3,841,445 | $ | 75,039,631 | $ | 36,432,960 | $ | 7,506,224 | ||||||
Net revenue (i) | 15,887,792 | 10,907,517 | 3,403,089 | 59,302,831 | 30,437,987 | 6,985,756 | ||||||||||||
Gross margin before fair value adjustments | 5,291,789 | 3,551,859 | 1,710,273 | 24,812,594 | 13,678,753 | 2,454,037 | ||||||||||||
Operating expenses | 7,993,318 | 43,980,163 | 12,664,651 | 36,141,539 | 95,745,489 | 23,417,310 | ||||||||||||
Operating income (loss) | 192,685 | (37,187,869) | (8,543,407) | (2,277,470) | (59,227,308) | (16,120,579) | ||||||||||||
Other expenses | (9,756,092) | (8,612,237) | (16,254,109) | (52,583,035) | (13,959,616) | (16,314,212) | ||||||||||||
Net loss from continuing operations | (9,919,216) | (46,210,335) | (24,884,485) | (54,874,435) | (72,570,382) | (32,521,760) | ||||||||||||
Adjusted EBITDA income (loss) from continuing operations (ii) | 672,108 | (11,231,553) | (5,947,942) | 3,515,341 | (38,731,598) | (13,758,227) | ||||||||||||
Loss from continuing operations per share, basic and diluted | $ | (0.01) | $ | (0.18) | $ | (0.16) | $ | (0.10) | $ | (0.30) | $ | (0.22) |
(i) | Net revenue represents our total gross revenue exclusive of excise taxes levied by the |
(ii) | Refer to the "Non-GAAP Financial Measures" section for reconciliation to the IFRS equivalent. |
(iii) | Due to the accounting presentation resulting from the RTO, no comparable information is presented for the Other segment. |
(iv) | No meaningful comparison can be drawn between the 2020 and 2019 periods and corresponding periods in 2018 due to the fundamental change in the nature of the Cannabis operations (moving from limited medical production to large scale commercial production for adult-use recreational and medical markets). |
Summary Full Year 2020 Financial Results
Consolidated net revenue in 2020 was
Gross margins before fair value adjustments were
Consolidated operating costs were
Consolidated loss from operations was
Fourth Quarter 2020 Highlighted Financial Results
- Consumer net revenue increased 10% to
$13.2 million from$12.1 million in the prior quarter and 59% from$8.3 million in the fourth quarter of 2019; - Wholesale bulk revenue decreased 63% to
$2.5 million from$6.9 million in Q3 2020 as a result of regulatory changes in some of the Company's export markets with shipments to these markets expected to resume by Q3 2021, but increased 15% from$2.2 million in Q4 2019; - Consolidated net revenue decreased 16% to
$15.9 million from$19.0 million in Q3 2020 but increased 50% from$10.6 million in the fourth quarter of the prior year; - Gross margin before fair value changes to biological assets and inventories was
$5.3 million or 33.3% of net revenue in Q4 2020, compared to$8.9 million or 46.8% of net revenue in Q3 2020 and$3.4 million or 32.1% in Q4 2019; - Consolidated Adjusted EBITDA for the quarter totaled
$672 thousand , compared to$3.1 million last quarter and negative$11.2 million in Q4 2019, with the decrease from the prior quarter resulting from the lower revenue in the period together with the impact of the higher proportion of consumer net revenue. Consolidated Adjusted EBITDA was lower than the Company's guidance for the quarter, excluding the impact of the Bevo, as a result of lower than expected wholesale bulk revenue due to regulatory changes in certain, important export markets; - Consolidated net loss from continuing operations for Q4 2020 totaled
$11.4 million or$0.01 per share, fully diluted, compared to$16.6 million or$0.03 per share, fully diluted, in Q3 2020 and$45.8 million or$0.18 per share, fully diluted, in the fourth quarter of 2019; - Consolidated net loss for Q4 2020 totaled
$30.1 million or$0.05 per share, fully diluted, compared to$17.0 million or$0.08 per share, fully diluted, in Q3 2020 and$98.7 million or$0.34 per share, fully diluted, in Q4 2019. The consolidated net loss for Q4 2020 included a significant number of non-recurring and non-cash components, including:
Q4 | 2020 | Explanation | ||||||
One-time Charges | |||||||
Loss on sale of discontinued operations | $ | 18.2 million | Excess of net assets disposed of | ||||
Loss on sale of assets | $ | 1.2 million | Loss recognized on sale of | ||||
Loss on remeasurement of royalty liability | $ | 1.3 million | Remeasurement of royalty liability due to increase in long-term revenue projections | ||||
Non-Cash Components of Certain Expenses (Income) | |||||||
Net change in unrealized gain on changes in fair value of biological assets less fair value of inventory sold | $ | 3.0 million | Increase in value of biological assets in excess of fair value of biological assets sold | ||||
Non-cash component of interest expense | $ | 1.7 million | Implied interest assigned to prepaid supply agreements, Secured Debentures and other indebtedness (non-cash charge) | ||||
Loss on early conversion of debt | $ | 4.0 million | Conversion of convertible debt into equity |
Summary Fourth Quarter 2020 Financial Results
Consolidated net revenue was
Gross margin before fair value adjustments were
Consolidated operating income was
First Quarter 2021 Quarter Developments
- The Company entered into a credit agreement with a Canadian private debt fund, as agent on behalf of certain lenders, in respect of a committed revolving credit facility in a principal amount of up to
$60 million , subject to borrowing base requirements based on eligible receivables, inventory and real estate (the "Facility"). Advances made under the Facility will bear interest at a rate per annum equal to the greater of 10% or the Toronto Dominion Bank's prime rate, from time to time, plus 7.55%, calculated daily and payable monthly. - In
February 2021 , the Company filed a petition with theSupreme Court of British Columbia for a determination of the amount required to repay and terminate the Senior Debt and to obtain discharges of the Senior Debt and related security. The purpose of the petition is to seek determination of the correct calculation of the amount required to exercise an option to buy out the amended royalty provided for in the Senior Debt, whether the royalty is secured by the same security charging the Senior Debt as well as related security, and whether certain prepayment amounts and default fees are payable under the Senior Debt. The Company intends to use the funds from the Facility to repay and discharge the Senior Debt. - In
February 2021 , the Company announced that it has entered into a definitive arrangement under which "Hexo" (Hexo Corp.) will acquire all ofZenabis' common shares at an approximate value of$235 million under whichZenabis shareholders will receive 0.01772 of a Hexo common share in exchange for eachZenabis common share. The transaction was unanimously approved by the board of directors of each HEXO andZenabis , and the board recommends that the shareholders vote in favour of the transaction. The shareholders vote will take place inMay 2021 . - The Company has established an at-the-market equity program that allows the Company to issue up to
$15,000,000 of common shares from treasury to the public from time to time, at the Company's discretion. Subsequent toDecember 31, 2020 , the Company has issued from treasury to the public 36,956,000 common shares for aggregate gross proceeds of$6,304,487 . Zenabis announced that its wholly-owned subsidiaryZenabis Ltd. has entered into a Settlement Agreement and Release with a customer (the "Settlement Agreement"), pursuant to which the parties have agreed to withdraw from the arbitration proceedings between the parties, and release the other party from all past, present and future claims of the parties arising out of the pre-paid supply agreement relating to subsequent deliveries of cannabis product. Pursuant to the Settlement Agreement, the Company has paid$12,500,000 to settle customer deposit liabilities of$25,428,780 .
Outlook
During 2020, the Company took multiple steps to reduce the overall debt load of the company through debt conversions, early repayments and the divestiture of non-core assets. From
Financial outlook
Over the course of 2020, the Company has reduced total debt outstanding by
Debt Component | Principal Outstanding | Maturity Date | Interest Rate / Quarterly Interest | ||||||
Secured Debentures | 51.9 | 14.0% / | |||||||
RDC Mortgage | 2.0 | 6.0% / | |||||||
Unsecured Convertible Debentures | 3.8 | 6.0% / | |||||||
Secured Convertible Note | 0.1 | 11.0% / | |||||||
Unsecured Convertible Note | 7.8 | 6.0% / | |||||||
Total | 65.6 | ||||||||
Non-GAAP Financial Measures
ADJUSTED EBITDA
Adjusted EBITDA is not a recognized, defined, or standardized measure under IFRS and may not be compared to similar measures presented by other issuers. Adjusted EBITDA is a metric used by management, calculated as net loss before fair value adjustment to inventory and biological assets; impairment of inventory; write-off of materials and supplies inventory; restructuring costs; share-based compensation; depreciation and amortization; impairment of assets held for sale; ZenPharm pre-commercialization costs; loss on revaluation of embedded derivative asset; loss (gain) on revaluation of derivative liabilities; finance and investment (income) expense; interest expense; (gain) loss on sale of property, plant and equipment; loss due to an event; insurance proceeds; loss on deconsolidation of subsidiary; government subsidies; loss on early conversion of debt; loss on extinguishment of debt; loss on remeasurement of royalty liability; other expense; current income tax expense; and deferred income tax (recovery) expense. Management believes adjusted EBITDA is a useful financial metric to assess the Company's operating performance before the impact of non-cash items and acquisition related activities. The following is a reconciliation of adjusted EBITDA to net loss, being the closest GAAP financial measure, for the periods outlined:
Three months ended | Year ended | |||||||||||||||||||||
Q4 | 2020 | Q4 | 2019 | Q4 | 2018 | 2020 | 2019 | 2018 | |||||||||||||||||
Net loss from continuing operations | $ | (11,381,181) | $ | (46,210,335) | $ | (24,884,485) | $ | (54,874,435) | $ | (72,941,610) | $ | (32,521,760) | ||||||||||
Changes in fair value of inventory sold and other charges | 15,805,636 | 16,077,006 | 1,734,445 | 59,098,554 | 29,684,453 | 2,483,021 | ||||||||||||||||
Unrealized gain on changes in fair value of biological assets | (18,699,850) | (19,317,441) | (4,145,416) | (68,150,029) | (52,523,881) | (7,325,715) | ||||||||||||||||
Impairment of inventory | 1,146,230 | 874,734 | — | 1,905,303 | 874,734 | — | ||||||||||||||||
Write-off of materials and supplies inventory (i) | — | — | — | 1,851,536 | — | — | ||||||||||||||||
Acquisition costs | — | — | 74,900 | — | 4,398,646 | 74,900 | ||||||||||||||||
Restructuring costs | — | — | — | 1,542,342 | — | — | ||||||||||||||||
Share-based compensation | 1,093,347 | 5,995,345 | 4,600,719 | 3,715,089 | 12,220,958 | 6,003,105 | ||||||||||||||||
Depreciation and amortization | 516,145 | 1,095,189 | 330,817 | 2,520,624 | 4,609,317 | 1,127,041 | ||||||||||||||||
Impairment of assets held for sale | — | — | — | 1,571,026 | — | — | ||||||||||||||||
Impairment of property, plant and equipment | — | 21,231,483 | — | — | 21,231,483 | — | ||||||||||||||||
ZenPharm pre-commercialization costs (ii) | 617,915 | — | — | 1,738,366 | — | — | ||||||||||||||||
Loss on revaluation of embedded derivative asset | — | — | — | 2,164,449 | — | — | ||||||||||||||||
(Gain) loss on revaluation of derivative liabilities | — | (22,993) | 13,131,068 | — | (3,860,426) | 12,942,773 | ||||||||||||||||
Finance and investment expense (income) | 501,866 | 42,749 | 1,924,319 | 490,185 | (638,307) | 1,625,959 | ||||||||||||||||
Interest expense (recovery) | 4,900,994 | (894,873) | 1,193,367 | 23,802,642 | 9,017,047 | 1,742,975 | ||||||||||||||||
Loss on sale of assets | 1,245,336 | 218,456 | 5,355 | 1,186,264 | 213,599 | 2,505 | ||||||||||||||||
Loss from loss of control of a former subsidiary | — | — | — | 668,562 | — | — | ||||||||||||||||
Government subsidies | (315,860) | — | — | (4,924,973) | — | — | ||||||||||||||||
Loss on early conversion of debt | 3,967,788 | — | — | 13,924,271 | — | — | ||||||||||||||||
(Gain) loss on modification and extinguishment of debt | (222,807) | — | — | 10,430,349 | — | — | ||||||||||||||||
Loss on remeasurement of royalty liability | 1,307,007 | — | — | 4,747,875 | — | — | ||||||||||||||||
Other (income) expense | (47,441) | 63,840 | — | 93,411 | 22,645 | — | ||||||||||||||||
Impairment of intangible assets and goodwill | — | 9,205,058 | — | — | 9,205,058 | — | ||||||||||||||||
Current income tax expense | (16,760) | 571,704 | 86,969 | 16,034 | 798,750 | 86,969 | ||||||||||||||||
Deferred income tax recovery | 253,743 | (161,475) | — | (2,104) | (1,044,064) | — | ||||||||||||||||
Adjusted EBITDA income (loss) | $ | 672,108 | $ | (11,231,553) | $ | (5,947,942) | $ | 3,515,341 | $ | (38,731,598) | $ | (13,758,227) |
(i) | Amounts are included within the 'General and administrative' expense line item on the Consolidated Statements of Loss and Comprehensive Loss for the Cannabis segment. |
Amounts are included within the 'General and administrative' and 'Salaries and benefits' expense line items on the Consolidated Statements of Loss and Comprehensive Loss for the Other segment. |
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