Sundial Growers (SNDL) Stock Climbs On Positive EBITDA

Sundial Growers Inc (NASDAQ: SNDL) is headed for the top in the market this morning, and for good reason. The company posted its financial results after the bell yesterday, reporting positive adjusted EBITDA. Here’s what’s happening:

SNDL Stock Gains On Financial Results

In the press release, Sundial Growers reported its financial results for the first quarter, offering up exciting data that seems to have the investing community buzzing. Here’s what we saw:

  • Revenue. Revenue came in at C$11.7 million. While that number was down 29% and 30% year over year and quarter over quarter, respectively, it beat analyst expectations. In fact, analysts expected the company would generate revenue in the amount of C$11.5 million. Moreover, net revenue in the first quarter came in at C$7.2 million. 
  • Losses. During the first quarter, the company generated a loss of C$134.4 million. Unfortunately, that number is substantially higher than the net loss of C$64.1 million generated in the fourth quarter of 2020. 
  • EBITDA. The silver lining here is the company’s adjusted earnings before interest, taxes, depreciation, and amortization, or EBITDA, which came in at C$3.3 million for the first quarter. In the fourth quarter, EBITDA came in with a negative C$5.6 million, showing exceptional growth in this figure during the quarter. 

While revenue was down and losses were up, the strong shift from negative EBITDA to positive suggests the company is on the right track. 

Going A Bit Further

Ultimately, Sundial Growers is delivering on its promises in a big way with it reporting positive adjusted EBITDA for the first time in its history. The improvement was largely driven by the company’s investments, but there’s also quite a bit to be excited about when it comes to its core cannabis business. 

Recently, SNDL harvested its highest potency flower yet, with more than 28% THC levels. Of course, this higher potency product realized exceptional demand in the first quarter of 2021. In fact, some stores even sold out of the product in just two days. 

The company is also making strides when it comes to the reduction of cost. In fact, cultivation production costs fell to $4 million per month in the first quarter. These costs were as high as $10 million per month just one year ago. 

While COVID-19 remained a factor in the first quarter, things are expected to get better. With vaccines making their ways to consumers and those consumers venturing out of their homes, demand for cannabis in Canada is expected to climb substantially in Q2 and moving forward, and considering the company’s recent work, it is poised to take advantage of that demand increase. 

Management Commentary

In a statement, Zach George, CEO at SNDL, had the following to offer:

We are pleased to announce Sundial’s first-ever quarter with positive earnings from operations and adjusted EBITDA. This result reflects our continued efforts to build a platform targeting attractive capital deployment opportunities while we focus on the continued improvement of our cultivation practices in an immature and rapidly changing industry. 

The sustained decline in Canadian cannabis flower pricing has prompted Sundial to liquidate certain inventory in the first quarter and we are now limiting the offering of discount products in markets where we view the economics as neither attractive nor sustainable. We do not plan to pursue top line advancement without profitability nor the maintenance of market share at any and all cost. We have made progress in improving our cultivation outcomes and we continue to focus on best practices to deliver great results in potency, yield and terpenes, but our work is far from complete. Our brand promise to consumers is fundamental to our strategy, and we refuse to compromise on product quality and consumer expectations. 

Operational improvements and capital deployment remain top priorities. I am pleased with our investment track record, which began with our internal program and is evolving to include partnership with third party capital. Our strong financial position, unique cultivation facility and focus on premium inhalables have positioned us for improved performance in the second half of 2021 and beyond.

COVID-19 continues to significantly affect Canadians and economies around the world as a third wave has impacted the way we are conducting our lives and the way we operate our business. We continue to maintain our focus on keeping our employees safe and adjusting to market demands. Sundial remains confident that we have the right team, a strong balance sheet, and a world-class facility that will allow us to get through the pandemic, while focusing on growth and doing the right thing for our employees and consumers.

The Bottom Line

The bottom line here is that Sundial Growers is firing on all cylinders. The company’s newest product to hit the market is being met with high demand while its work to reduce costs is paying dividends and adjusted EBITDA moved into positive territory. All in all, SNDL stock is one to keep on your watchlist. 

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