Many investors are delighted that Aurora has beaten revenue estimates in the first quarter. However, there are three reasons why the company’s first quarter results were worse than you might think based on the immediate market reaction.
1. Only a tiny increase in income
Aurora posted total net income in the first quarter of C $ 67.8 million. This figure was higher than the company’s previous forecast of revenue between C $ 60 million and C $ 64 million. However, it’s important to note that this was only a tiny 0.4% increase from the previous quarter.
In addition, Aurora’s total revenue for the first quarter is nearly 10% lower than the revenue generated by the company in the prior year period. Of course, the company has divested some of its non-core businesses in the past 12 months. However, Aurora’s net cannabis revenue fell another 4% year over year. The company may have exceeded expectations in the first quarter, but those expectations were lower than they were in the past.
It would be one thing if Aurora’s best rivals felt the same unease, but they aren’t. Canopy growth (NYSE: CGC), for example, also released its latest quarterly results Monday morning. Aurora barely saw a quarter-over-quarter increase, but Canopy’s revenue jumped 23% from the previous quarter to C $ 135.3 million – a record for the company.
2. Losing ground in the Canadian recreational market
The most important market for Aurora Cannabis today is the Canadian recreational marijuana market. It represents about half of the company’s total turnover.
Unfortunately for Aurora, it is losing ground in this key market. The company reported net cannabis consumption revenue for the first quarter (most of which is generated in Canada) totaling C $ 34.3 million. This was 3% lower than Aurora’s net Canadian recreational marijuana sales in the previous quarter.
It could have been even worse. Aurora said its first-quarter cannabis use revenue was bolstered by C $ 1.1 million in sales of CBD in the United States, made possible by its acquisition of Reliva earlier this year. Meanwhile, Canopy Growth announced its growing market share in the Canadian recreational market.
3. Another big loss
We certainly cannot ignore the fact that Aurora once again recorded a big loss in the first quarter. The Company recorded a net loss from continuing operations of C $ 107.2 million. However, he focused more on the loss of adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in the first quarter of C $ 57.9 million – worse than the loss of Adjusted EBITDA of C $ 29.6 million. Canadian dollars in the previous quarter.
Admittedly, Aurora’s adjusted EBITDA deteriorated due to a legal settlement, contract termination fees and costs related to severance and benefits related to its downsizing. Without these expenses, the loss of the Company’s Adjusted EBITDA would have been C $ 10.5 million.
Yet Aurora’s path to achieving positive Adjusted EBITDA and positive cash flow depends more on cost reduction than on top line growth. It is not ideal.
What really matters now
Aurora still believes it will generate positive Adjusted EBITDA in the second quarter of fiscal 2021. The credibility of the company’s management team relies on Aurora to achieve this goal. More importantly, Aurora expects to generate positive cash flow in fiscal 2021. It is critical for the company to avoid having to issue more shares to raise cash, thereby diluting the value of existing shares.
While these targets are under Aurora’s control, there is another major story for the marijuana stockpile that is not. Aurora is desperate to expand into the US cannabis market. He can’t do that and keep his listing on a major US stock exchange until federal marijuana laws are changed. The best chance for that to happen would be with a Democratic majority in both houses of the US Congress and a Democrat in the White House.
Two of those three conditions should now be met, with Democrats retaining control of the US House of Representatives and Joe Biden, the expected winner of the presidential race. However, the fate of the Senate depends on two ballots in Georgia.