Tilray Brands (TLRY 6.98%) reported its latest quarterly results last week. And the headlines around the performance centered on the company posting a surprise profit of $5.8 million. But focusing on just one number can leave investors with a skewed view of how the business did.
Using three charts, I'll look at just what drove those improved numbers and whether Tilray had a good quarter or not, and determine if it looks to be a better buy right now.
Sales were down from the previous quarter
Table by Author. Source: Company filings. Numbers in millions.
In the company's second-quarter results, for the period ending Nov. 30, 2021, Tilray reported net revenue of $155.2 million. And while that was a 20% increase year over year, it was down 8% from the first quarter, when sales topped $168 million. The chart above shows that the biggest drop came in the company's cannabis segment, where sales of $58.8 million declined 17% from the $70.4 million it reported in the first quarter.
This is a good example of where the company's diverse operations helped mitigate the drop. By having other segments of its business to rely on, Tilray's overall decline was more modest than if it relied solely on cannabis revenue in the Canadian market. Distribution revenue, which was the company's largest segment in Q2, comes primarily from CC Pharma, Tilray's German subsidiary, which imports and distributes pharmaceutical products in Europe.
Investors may be surprised, then, at how the company managed to improve its bottom line despite a drop in overall revenue.
How Tilray's net income climbed over the past quarter
Table by Author. Source: Company filings. Numbers in millions.
In Q1, Tilray's net loss was $34.6 million. The results could have been even worse in Q2 given the drop in sales and an increase in cost of goods. Tilray's gross profit this past quarter wasn't so positive beyond first glance. At just $32.8 million, it was 36% less than the $51 million it reported a quarter earlier.
Instead, it was improvements further down the income statement that led to Tilray's profit. This included a $14.2 million reduction in selling, general, and administrative costs plus a $17.5 million improvement in transaction costs (this includes acquisition-related expenses and integration costs). Positive changes in non-operating income (e.g. changes in fair value of equity investments)and taxes also helped the company land in positive territory for the quarter.
The positive takeaway from this is that Tilray is trimming some expenses since the Aphria merger (it closed in May 2021), which is as expected and a process that takes time. However, it may be a bit discouraging to investors to see that without a lower tax bill or a boost from non-operating income, Tilray wouldn't have posted a profit in Q2.
One of the most important metrics I consider for cannabis companies is their level of cash burn, which is what I have saved the last chart for.
Tilray is burning through less cash
Table by Author. Source: Company filings. Numbers in millions.
In Q2, Tilray's level of cash burn improved significantly. Although it used up $17.1 million from its day-to-day operations, that was down from $93.2 million in Q1. And the cashed used from investments in capital and intangible assets also declined from $16.3 million to just under $7 million this past quarter.
Cash burn is an important consideration; the danger is if it gets too high, stock offerings may be necessary to keep the business growing, which means dilution for existing shareholders. As of the end of Q2, Tilray's cash and cash equivalents balance totaled $331.8 million -- that could last more than three years at the current rate of cash burn. However, with the company likely needing to take on more acquisitions to reach its goal of hitting $4 billion in annual revenue by 2024, I doubt that will be the case.
Image source: Getty Images.
Do these results suggest Tilray is a better buy today?
Tilray's Q2 numbers were a bit mixed. While the company did make improvements in bringing down its expenses and reducing its cash burn, the drop in sales is a concern. And focusing on strengthening its market share could result in price compressions or spending money to acquire other cannabis companies. If that happens, its expenses, especially transaction costs, could rise and lead to future results resembling Q1 more than Q2.
The uncertainty ahead of what Tilray will do to try to win market share is why I'd remain on the fence on the stock for now. Its shares are down more than 50% in the past year, which is only slightly worse than the Horizons Marijuana Life Sciences ETF that's fallen by 46%. And while it may seem like a cheap buy given the decline, there could be more of a drop this year if the company can't generate stronger sales numbers or a more sustainable profit.
