What a difference one quarter can make. Just three months ago, OrganiGram Holdings (OGI 1.54%) thoroughly disappointed investors with its fiscal 2019 fourth-quarter results. In November, the Canadian cannabis producer reported lower-than-expected revenue and a hefty net loss.
But Organigram provided much better news for investors with its fiscal 2020 first-quarter results announced after the market closed on Tuesday. Shares soared in after-hours trading, with the company delivering better-than-expected numbers. Here are three reasons Organigram hit a home run with its Q1 results.
1. Strong quarter-over-quarter revenue growth
Organigram posted net revenue in Q1 of $25.2 million Canadian. That reflected an increase of nearly 55% over the company's prior-quarter revenue and was well above the average analysts' estimate of CA$16.3 million.
The company made CA$16.7 million from sales to the Canadian adult-use recreational and medical marijuana markets. Another CDA$9.5 million stemmed from sales to the wholesale and international markets. These sales were partially offset by around $1.1 million related to a provision for product returns and price adjustments.
One big difference in Organigram's 2020 Q1 results and its 2019 Q4 results was that the company didn't have as big of a problem with product returns. In the previous quarter, Organigram booked CA$3.7 million for product returns and pricing adjustments, most of which related to THC oils that have experienced lower demand than anticipated.
2. A return to positive EBITDA
Investors were especially disappointed in Q4 with Organigram's negative earnings before interest, taxes, depreciation, and amortization (EBITDA) of CA$7.9 million. The company had been on a nice streak of reporting positive EBITDA in previous quarters.
Organigram returned to positive EBITDA in the first quarter, though, reporting adjusted EBITDA of CA$4.9 million. The company's stronger revenue was one key factor. However, Organigram also had other good news that boosted its EBITDA.
The company's yield per plant increased in Q1, resulting in lower cash and "all in" costs of cultivation. Organigram also had lower inventory write-offs than in the previous quarter as well as lower after-harvest costs for product sales to another licensed producer.
3. No need for more cash right now
Wall Street analysts and investors, in general, are focusing more heavily on the cash positions for Canadian cannabis producers than in the past. After a tumultuous year for marijuana stocks in 2019, there's a lot of anxiety about the prospects for companies that could have to raise additional capital and dilute the value of existing shares in the process.
But Organigram's cash position appears to be in pretty good shape. The company reported CA$34.1 million in cash and short-term investments as of Nov. 30, 2019. In addition, Organigram can draw on CA$30 million on a term loan that it already has in place.
Organigram stated that it "believes it has enough capital to fund its operations and capital expenditure plans." That's music to the ears of shareholders. If the company does need more capital, though, it still has another CA$32.1 million available under its at-the-market equity program.
The company thinks that the opening of additional retail stores in Ontario and Quebec will position it for solid growth. Organigram has already begun to ship vape cartridges in the Cannabis 2.0 market and will launch chocolate and dissolvable powder products in the first half of the year. With these tailwinds, the company's strong Q1 results could set the stage for Organigram to really bounce back in the rest of 2020.