Cannabis producer Aurora Cannabis (NASDAQ: ACB) released its fourth quarter results in September. While the numbers aren’t that surprising – sales have been mediocre and the business remains unprofitable – the one thing that stood out was the company’s claim that it is once again on track to display a profit.
Investors have heard this claim before, only for the company to eventually fail and lower its expectations. Should investors believe the company this time around?
Adjusted EBITDA improved in the fourth quarter
When cannabis companies talk about profitability, they usually mean adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). This is what remains after the company makes adjustments to EBITDA for non-cash expenses or integration-related costs that are not recurring. It’s discretionary, and it’s also not a standard position (in accordance with generally accepted accounting standards), so there is room for subjectivity.
And it is on this adjusted EBITDA figure that Aurora says it will eventually become profitable. In the fourth quarter (period ending June 30), its Adjusted EBITDA loss was C $ 19.3 million, an improvement from the loss of C $ 33.3 million reported a year ago. This is largely due to the significant cost reductions the company has achieved over the past year, including laying off workers and reducing operations.
The reason the company is optimistic about achieving profitability from Adjusted EBITDA is because Aurora says it is “on track” to achieve annual cost savings of C $ 60 million to $ 80 million. million CAD, half of which is expected to be realized in fiscal 2022.
Aurora Cannabis was “on the right track” before
The problem with putting too much stock in Aurora’s projections or targets is that investors have been here before; Continually disappointing numbers are one of the main reasons its shares have fallen 94% in the past three years (the Horizons Marijuana Life Sciences ETF crashed as well, but at 68% its losses were not as great).
The most comical example of Aurora’s failures came in September 2019, when the company posted quarterly revenue of C $ 98.9 million (for the period ending June 30, 2019). Despite being a 52% growth rate from the previous year, Aurora missed its own revenue projections a month earlier. In August 2019, it provided an update and indications that its revenue would be between C $ 100 million and C $ 107 million for the quarter. During the same update, Aurora said that it “continues to track positive Adjusted EBITDA”.
Two years later, the company is still striving to achieve profitability from Adjusted EBITDA. Last year, when it released its year-end results for fiscal 2020, the company predicted it would be profitable by the second quarter of fiscal 2021. In all fairness to the new CEO Miguel Martin, he only took on the leadership role a year ago.
The business will likely show a profit. But is it too little, too late?
During the company’s fourth quarter earnings call, Martin said he expects to achieve adjusted EBITDA profitability in the first half of fiscal 2022. He claims that even without revenue growth (fourth quarter sales were almost identical to those of the previous period), the company could achieve adjusted EBITDA profitability again this year.
Aurora is close enough to the profitability of Adjusted EBITDA that it seems inevitable that this will happen – it’s more a question of when. But at this point I would say it doesn’t even matter. Even the stock of cannabis memes Producers of sundials already achieved this. And many multistate operators do this easily on a quarterly basis. Meanwhile, there is a risk that Aurora will fall behind in terms of revenue for Village Farms International, a cannabis and products company that is increasing its production of marijuana and is already consistently profitable.
While Aurora has shown progress on Adjusted EBITDA, it will need to do a lot more to prove to investors that this is a good company to invest in, as many of its rivals are overtaking it in market share and there are much better buys. the low.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.Source link