The big day is nearly here for marijuana stock investors. Following the closing bell on Thursday, May 14, the most popular marijuana stock, Aurora Cannabis (NYSE:ACB), will release its fiscal third-quarter operating results (ended March 31, 2020).
Expectations from Wall Street currently call for $66.2 million Canadian in revenue -- this is consistent with Aurora's management team calling for a modest increase in sequential quarterly sales – and a CA$0.06 per share loss, which would be an improvement over the CA$0.16 loss reported in the year-ago period. For what it's worth, Wall Street really hasn't come close to pegging Aurora's bottom-line results, with the Street missing wildly to the upside and downside over the past four quarters.
What we do know is that when Aurora delivers its Q3 2020 results, it'll have more than 1.3 billion shares outstanding, it should have completed its 1-for-12 reverse split to remain compliant with New York Stock Exchange listing standards, and it'll have approximately CA$205 million in cash and cash equivalents, at least according to an April 13 press release.
However, there are a number of figures in Aurora's third-quarter operating results that I urge investors to focus on. Sure, revenue and bottom-line profit/loss are important, but there are other figures that are going to tell the tale of Aurora's financial health. Here are the seven numbers you'll want to know after the closing bell this coming Thursday.
1. What was Q3 2020 EBITDA?
Maybe the most important number to come out of the third-quarter report will be Aurora's earnings before interest, taxes, depreciation, and amortization (EBITDA). The reason? Aurora reworked its debt covenants back in early February, including the removal of EBITDA ratio covenants that were previous in place. Under the new covenant, the company is required to achieve positive EBITDA beginning in the first quarter of fiscal 2021 (ended Sept. 30, 2020). That's not a lot of time from now, so Wall Street will be looking for meaningful improvement on the EBITDA front.
2. How much does Aurora now have in inventory?
Secondly, pay very close attention to Aurora Cannabis' inventory. As of its fiscal second-quarter report, the company had CA$205.5 million in inventory (in dollar terms), up from CA$113.6 million at the end of June 2019. While having some backlog of product is prudent, we've seen an escalation of inventory across the board for Canadian licensed producers. Without an adequate retail network, a glut of inventory could force Aurora to write down or destroy some of its product.
3. What percentage of sales were derived from bulk/wholesale purchases?
Somewhat building on the previous point, take note of how much revenue Aurora Cannabis generates from wholesale or bulk cannabis in the fiscal third quarter. Aurora's management team appeared to make it clear that it wanted to seek out higher-margin opportunities in the retail marijuana space rather than sell lower-margin pot on a wholesale or bulk basis. But if inventory levels continue to build at an extraordinary rate, the company may have no choice but to accept menial margins just to get product out of inventory.
4. How much did international sales total in the most recent quarter?
A fourth figure you'll want to hone in on is international revenue. To date, overseas sales have been unbelievably disappointing, especially considering that Aurora went through the trouble of establishing a production, export, research, or partnership presence in 24 markets outside of Canada. The international market is critical to Aurora's long-term success, particularly with regard to exports. Ideally, this figure comes in well above CA$5 million, up from CA$1.8 million in Q2 2020, but I'm not holding my breath.
5. What percentage of sales did derivative pot products account for?
Aside from EBITDA, perhaps the next most-intriguing data point will be in discerning just how much revenue was generated from higher-margin derivatives. Derivatives being alternative consumption options such as edibles, concentrates, and vapes. These products officially began hitting dispensary shelves in Canada in mid-December, and this marks the first full quarter where we'll get an idea of how that derivative launch is going for licensed producers. There have obviously been some supply bottlenecks and shortages in key provinces, but investors will still be looking for pockets of strength and improved margins from this launch.
6. How significant were the SG&A reductions?
Sixth, make note of how effective Aurora Cannabis was at reducing its sales, general, and administrative (SG&A) costs. Back in February, at the same time the company outlined its new debt covenants, management announced its intention to reduce SG&A expenses to between CA$40 million and CA$45 million on a quarterly basis. For context, SG&A in the fiscal second quarter (ended Dec. 31, 2019) totaled CA$99.9 million.
For what it's worth, Aurora Cannabis has shed 500 jobs, halted construction on two its largest project, and is attempting to sell the Exeter greenhouse, which was acquired in the July 2018 MedReleaf purchase. But how much these actions reduced ongoing expenses remains to be seen.
7. Is there any change in goodwill from the previous quarter?
Last, but not last, investors should be particularly interested to see if the company has made any adjustments to the CA$2.41 billion in goodwill that it ended with in Q2 2020. Even after writing down CA$762.2 million last quarter, goodwill still accounts for 52% of total assets. I've made the case why a writedown of at least $1 billion (that's U.S.) tied the MedReleaf acquisition likely awaits, but it'll be interesting to see how (or if) management addresses a still-hideous balance sheet.