Aurora Cannabis Inc (TSE:ACB | NYSE:ACB) Positive EBITDA in Q2 2019

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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

Aurora Cannabis Inc (TSE:ACB) (NYSE:ACB) (FRA:21P) CCO Cam Battley is delighted by the company’s projected revenue for Aurora’s fiscal Q2 2019. The company released a Guidance report, in which it projected revenue between $50 and $55 million for the period ending December 31, 2018. In addition, Aurora anticipates being EBITDA positive by the end of the second quarter of the current calendar year. Battley emphasizes that this report illustrates that Aurora is shifting from a period of substantial growth to one of execution and profitability. He anticipates several 2019 catalysts for Aurora, including the company’s increased focus on international markets like Germany and Latin America and Aurora’s launch of new product forms that will be legal in Canada in Q4 2019.

Transcript:

James West:   Welcome back, Cam, happy new year.

Cam Battley:  How are you doing?

James West:   I’m fantastic, how are you doing?

Cam Battley:  Excellent.

James West:   Looking good?

Cam Battley:  Oh, the suit? Well, I wanted to look pretty for you.

James West:   Oh, thank you! I feel so under-dressed.

Cam Battley:  No, I’m speaking at Alta Corp; their conference in in Toronto later today, so I’ll be over there later today.

James West:   The institutional energy, cannabis and –

Cam Battley:  Yeah, it’s energy, cannabis and life sciences, I think.

James West:   Well, how appropriate.

Cam Battley:  Yes.

James West:   All three things in one little box. Excellent. Cam, you guys put out a great press release that really sort of changes the conversation about Aurora and really the sector in general in that you’re projecting, you’ve actually given guidance, and you’re projecting revenue between $50 million and $55 million with positive EBITDA, in Q2, 2019.

Cam Battley:  Yeah.

James West:   Now, that’s the period ending December 31st, 2018, on the calendar, is that?

Cam Battley:  So we’re providing guidance on our revenues for the period ended December 31sr 2018, but we’re also looking forward and this is critical: we’re looking forward to, by the end f the second calendar quarter of 2019, we are not projecting positive EBITA, and that’s a major, major shift. It’s a big deal for us, it’s a big deal for the sector, it’s what the institutions are looking for, and it signals something important for us.

We have been in a powerful growth phase; we have been growing organically, obviously, we have been very, very busy with M&A, and now what we’re signalling is that we’ve achieves substantially what we need to in terms of creating this global integrated cannabis company – although there’ll be some more moves into additional international markets.

Now we get to shift gears and focus on disciplined execution on and cost management because we’re going to be moving into the year of profitability, and that’s a huge deal.

James West:   Interesting. So this is not necessarily a surprise to you, management, or to investors or who have been following the story closely; this more ore less delivering on what you said you were going to deliver on, and a little bit ahead of schedule!

Cam Battley:  That’s exactly it, and if you take a look at what we’ve achieve in the last year it’s enormous. A year ago, in January 2018, we had production capacity of about 5,000 kilograms per year; twelve months later we have 20 x that production on an annual run rate basis. So a lot has happened in the last year and it has been according to plan.

So one of the reasons we wanted to provide guidance the first time around, it’s the first time we’ve done it, well, a couple of things: one, in the last earnings season, it was a crowded earnings season, and we delivered a very, very strong quarter, and it was followed by some other companies that reported not such strong quarters, let’s just say, and we felt that we maybe got a bit lost in the shuffle.

So we wanted to do that, among other things; we wanted to separate us out from the pack, because we’re very, very pleased and very proud at the way we’re executing.

In addition, it’s been I think a little bit challenging, particularly in the last couple of quarters, for analysts to produce estimates, to project forward-going revenue and EBIDTA. And so we wanted to provide them the basis for clarity on that, and that’s exactly what we’ve done here. And if you take a look at the release that we put out today, not only does it indicate of a range of revenue that we anticipate on reporting on February 11th between 50 and 55 million, net of excises taxes, I might add; if we had included the excise taxes, it would have been several million higher.

But we also wanted to make it very, very clear that we’ve managed to get a real strong handle on our costs and a good idea as to what they’re going to be going forward, and revenues are going to be rising significantly faster than costs, and that’s what gives us a high degree of confidence, that we can project positive EBITDA in the second calendar quarter.

So if you w ant to track where we’re going to do, its pretty simple, you know: it’s met watching our production rise over the course of 2019 and then 2020; applying the gross margins and the EBITDA that you anticipate we’re going to be able to achieve and we’re going to be very transparent about that; and that should give you a really good idea as to where we’re going to be in terms of revenue and EBIDTA throughout the subsequent quarters throughout 2019 and into 2020. It should make it a little bit simpler for analysts. And I mean, the real starving example how difficult it’s been for analysts was, I think, maybe Canopy in the last quarter, where the range of analysts’ estimates went from 31 million to 83 million.  That’s a heck of a range. So we’re trying to make things a little bit easier, a little bit clearer.

James West:   Okay, so that, you know, that’s very positive, but it does beg the question, and as a shareholder in Aurora, I really want to know: that’s great Positive EBITDA is fantastic and a step in the right direction, but at what point do we see actual profitability?

Cam Battley:  You’re looking for positive cash flow. I think we’re looking at the third calendar quarter of this year, so it would be our Q1, 2020. So in the third calendar quarter of the year positive EBITDA; the subsequent quarter after that, positive cash flow.

James West:   Wow. So that means profitability is just on the horizon.

Cam Battley:  Yeah, it really is. And it’s been, it’s been, like for us, on the inside, it’s been an exciting period, but it’s been a long road, and yet at the same time, we only started to sell product three years ago today, so in January of 2016. That’s when we actually started to sell product; that was the beginning of our commercial operations.

James West:   Okay, so you know, a lot of this is obviously predication the obvious successful deployment of resources as personified in the Aurora Sky facility.

Cam Battley:  Yes.

James West:   And so you also in this press release released some video of that Aurora Sky facility.

Cam Battley:  Of Aurora Sky and a number of our other facilities that are now up and running from Aurora V to Aurora O in Lachute, Quebec, to the Bradford MedReleaf facility. And ICC Labs as well, in Uruguay.

James West:   Oh, really. Okay, so, what we’re looking at here in the background –

Cam Battley:  Aurora Sky!

James West:   And that facility is over a million square feet?

Cam Battley:  It’s 800,000 square feet, 100,00-plus kilograms of cannabis production per year, premium quality cannabis. And that is working smashingly. So all the automation is working, the technology is working, we’re getting the yields anticipated, and that, right off the bat, with the very first harvest, that’s an exceedingly good piece of news, because we’re very confident that we’re going to be able to increase our yields and our productivity per square foot from there.

So we’re already producing yields that will give us that 100,000 kilograms per annum production, but we think that we can actually go north from there so it’s a very, very good sign.

James West:   Wow. That is so exciting. Um, okay, so what other sort of international nuggets are you going to deliver for us in this 2019?

Cam Battley:  A ton. A ton of different international nuggets, and a ton of additional catalysts all in the short term to, I guess we’re talking about the next couple of quarters. SO ICC Labs, we’re going to be hearing news from them. We expect to get to the definitive agreement with respect to Farmacias Magistrales in Mexico –

James West:   Very well said!

Cam Battley:  And I am brushing up on my Spanish now that we have a significant commitment to Latin America.

And then also in this quarter. In the January to march quarter, we anticipate being able to sell our oils, our cannabis oils, in Germany, and that’s going to be a big deal, as well. There’s significant demand for oils in Germany; that demand is not being satisfied. We think that we can move in in a big way, and we’ve got some very attractive products that we can’t wait to get into the German market.

James West:   Wow. Fantastic. So 2019 is just going to be a stellar year for Aurora.

Cam Battley:  Yeah, and then beyond that, the whole sector, the whole industry, is looking forward to the coming into force of the new Canadian regulations that will allow us to bring into the consumer market the concentrates and edibles. So all of these product forms that we’ve all been looking forward to ranging from vape pens to cannabis-infused beverages but also concentrates, including kief and even hashish, things like that, these are things that we couldn’t imagine talking about a couple of years ago, but here we are, talking about them today.

James West:   You bet. Well, that’s great, Cam; congratulations on all that, we’ll come back to you soon. Thanks for joining me today.

Cam Battley:  You bet.

Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

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