CanadaCOVID-19EarningsStocksAurora’s stock rallies on rising revenue

The mega-producer's valuation rose almost 70% on the day but is still a far-cry from where many bought in
Nick Laba Nick LabaMay 15, 20208 min

Finally, some good news for bagholders of Aurora Cannabis Inc. (NYSE and TSX: ACB).

Shares in the struggling weed titan rose over 65 per cent on Friday, following a positive earnings report for the fiscal third quarter ended March 31.

Excluding provisions, Aurora reported total revenue of $78.4 million in Q3, up 18 per cent from the previous sequential quarter. Net revenue from cannabis operations, excluding provisions, was $72.6 million, up 15 per cent over the quarter.

Read more: Aurora Cannabis reports Q2 revenue drop, massive writedown

Read more: Aurora Cannabis stock falls 13% on reverse stock split

Further broken down into sales from the consumer cannabis segment, revenues were up 24 per cent quarter-over-quarter to $41.5 million. Aurora said the boost demonstrates the impact of Daily Special, its new value brand that launched in March, and a full quarter of cannabis 2.0 products.

The medical segment also showed steady growth of 13.5 per cent, accounting for Canadian and international net revenue.

Among its highlights, Aurora reported a significant reduction selling, general and administrative expenses. SG&A costs were down 25 per cent to $75.1 million in the quarter and the company says it’s on track to meet a target of $40 — $45 million.

But long-term investors might want to save some of the high-fiving for a later date. Aurora still isn’t turning a profit.

The company reported adjusted earnings before interest, taxes, depreciation and amortization — excluding one-time termination costs associated with its “business transformation plan” — at a loss of $45.9 million in Q3. However, the loss was an improvement from $80.3 million in the previous quarter.

Aurora says it’s on track for positive EBITDA for the first quarter 2021.

The company reported a cash position of $230.2 million.

Singer sings praises of Aurora’s new focus

Interim CEO Michael Singer kicked off the company conference call Thursday afternoon by reminding his audience of Aurora’s plan to shift priorities to meet the current realities of Canada’s market.

“Success here will allow us to conserve resources and still position Aurora to build a sustainable growth platform longer-term,” he said.

A large part of that plan involves slashing spending, which involves the aforementioned cuts to SG&A costs. It also involves capital expenditures.

“We committed to reduce spending to below $100 million for the second half of fiscal 2020. We are pleased to report that we are on track to achieve that goal,” Singer said. “This significant reduction in cash outlay really highlights the focus of our team in terms of achieving our goals and underscores the fact that we are viewing all capital spending through the filter of generating near-term revenues and preserving financial flexibility.”

Finance chief Glen Ibbott noted the uncertainties presented by the COVID-19 pandemic have further focused the company’s growth strategy on short-term targets.

“As a result, we are not providing for quarterly guidance at this time,” he said.

But how can Aurora maintain confidence in its profitability targets, Cowen analyst Steve Schneiderman asked, without a clearer view of its revenue development?

Singer replied by saying that his company’s new plan is such that it can track growth to EBITDA profitability under multiple reasonable scenarios.

“We have an operating target and SG&A targets, but if we need to we can pull additional cost levers within the business,” he said. “We have committed to be EBITDA positive in Q1.”

Aurora revenue - Daily Special
Seven grams of Aurora’s new value brand sells for $40.80 at the Ontario Cannabis Store. Photo via OCS

Schneiderman also asked if the success of Aurora’s value brand has resulted in the cannibalization of other market segments.

While the new core segment is the value segment, Singer said, they’ve seen more of a narrowing in the middle of the market rather than at the high end. The CEO said Daily Special was taking up 9 per cent of the market share in Ontario over the quarter, and has since risen to 13 per cent more recently.

Because Aurora’s other main focus is the still-intact premium market, featuring products like its San Rafael brand, he said the value segment hadn’t been eating into it.

Singer also said that plans to secure a long-term chief executive for the company are on track.

Top image of Aurora’s Sun facility in Medicine Hat, Alberta. Press photo

 

nick@mugglehead.com

@nick_laba

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