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In its fiscal third quarter, the Aurora and Tilray partner's bottom-line result edged down slightly year over year.
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EnWave (ENW +0.03%) (NWVCF 0.04%) reported third-quarter results for fiscal 2019 after the market close on Wednesday, Aug. 28.
Revenue jumped 49% year over year, which is a deceleration from year-over-year growth of 110% in the second quarter and 73% in the first quarter. The bottom line edged slightly lower, coming in at a net loss per share of 0.01 Canadian dollars, down from breakeven in the year-ago period as well as in the previous two quarters.
The Canada-based company makes all-natural dried cheese snacks, and it licenses, manufactures, and installs equipment for dehydrating organic materials, including food, pharmaceuticals, and cannabis -- both marijuana and hemp.
EnWave shares on Canada's TSX Venture Exchange (TSX) have gained 77.1% in 2019 through the regular trading session on Aug. 28, while shares traded over the counter (OTC) in the United States are up 74.6%. The S&P 500 has returned 16.8% over this period.
Here's how the third quarter worked out for EnWave and its investors.
All monetary figures are in Canadian dollars.
|
Metric |
Fiscal Q3 2019 |
Fiscal Q3 2018 |
Change |
|---|---|---|---|
|
Revenue | CA$10.08 million |
CA$6.78 million |
49% |
|
Net income (loss) |
(CA$1.32 million) |
(CA$104,000) | N/A. Loss widened by CA$1.22 million. |
|
Earnings per share |
(CA$0.01) |
CA$0.00 | N/A. |
Data source: EnWave. Results are for the period ended June 30 and are based on International Financial Reporting Standards (IFRS).
Gross margin came in at 28.4%, down from 43.2% in the year-ago period, and lower than last quarter's 35.6%. Gross margin will likely be lumpy for some time due to the timing of machine sales because the EnWave Canada segment sells relatively few machines. For the first nine months of this year, gross margin was 33.8%, down from 36.5% in the year-ago period.
Nearly half the quarter's loss was due to a restructuring charge of CA$612,000, which will be discussed further in a moment.
Management breaks out segment results on a fiscal year-to-date basis, rather than by the quarter, and that's the best way for investors to consider the results, given the lumpiness factor previously discussed.
|
Segment |
First Nine Months of Fiscal 2019 Revenue |
Year-Over-Year Change |
First Nine Months of Fiscal 2019 Segment Income |
Year-Over-Year Change |
|---|---|---|---|---|
|
NutraDried |
CA$18.09 million |
81% |
CA$2.56 million |
12% |
|
EnWave Canada (REV dehydration business) |
CA$8.56 million | 56% | (CA$4.08 million) | N/A. Loss widened from CA$2.83 million in year-ago period. |
|
Segment totals |
CA$26.65 million | 72% | (CA$1.52 million) | N/A. Loss widened from CA$547,000 million in the year-ago period. |
Data source: EnWave.
EnWave's wholly owned NutraDried Food subsidiary, in Washington State, produces Moon Cheese using EnWave Canada's Radiant Energy Vacuum (REV) dehydration technology. It distributes its products via retailers such as Costco in the U.S. and Canadian markets.
The company said in the management discussion part of its its earnings release that it "secured a significant number of equipment purchase orders at the end of Q2 2019 and early Q3 2019 that will continue to increase EnWave Canada's revenues for the remainder of fiscal year 2019."
The royalty-bearing license agreement gives Aurora the exclusive rights to EnWave's patented radiant energy vacuum (REV) drying technology for the production of cannabis materials in the European Union, excluding Portugal. "Aurora has also secured exclusive license options for both Australia and South America, excluding Peru, exercisable pursuant to minimum REV machine purchase order requirements," according to the press release. (Since then, Aurora has purchased a 60kW REV machine to be installed in South America in 2020.) "Additionally, Aurora has signed a nonexclusive sub-license to use REV technology in Canada." Canadian grower Tilray (TLRY +0.00%) has the exclusive right to use and sub-license EnWave's REV tech in Canada, so it also stands to financially benefit from Aurora's using REV in Canada.
Moreover, Aurora placed a purchase order for two of EnWave's 120kW REV dehydration systems for its Aurora Sky and Aurora Sun facilities in Canada, and intends to purchase a third 120kW system for its Aurora Nordic facility in Denmark within 60 days of the agreement. (The companies are currently
negotiating the scope of an EU-GMP certified machine.)
In July, EnWave signed a royalty-bearing license with Electric Farms, which will use the 10kW REV machine it purchased to rapidly dehydrate hemp flowers grown in both its indoor and outdoor facilities in Tennessee.
In August, the company installed the first 60kW REV machine at Tilray's Ontario facility. "The machine is expected to begin commercial operations in late Q4 2019 or early Q1 2020 and will represent the first commercial-scale machine installed for
cannabis processing in Canada," according to the management discussion release.
Management didn't provide a quote in the earnings release, nor did it hold a conference call. This isn't unusual for small companies.
While year-over-year revenue growth decelerated in the quarter, fiscal year-to-date revenue growth remains strong at 72%.
The company doesn't provide official guidance. As previously noted, however, management expects EnWave Canada's revenue to increase for the remainder of the fiscal year. As of Aug. 28, the segment's backlog consisted of 11 machines: