What corporate earnings say about your business
Corporate earnings reports might not seem like the most thrilling reading – especially in a dynamic industry like cannabis.
Even so, Wall Street earnings releases are worth your time – both for what they can tell you about our industry and how they can help you craft better financial communiques.
Quebec-based marijuana company Hexo recently reported results for its third fiscal quarter ended April 30. Its news release was a 3,500-word lesson in what not to do.
It only needed about 10 words: Hexo lost $146.7 million on $63.6 million in revenue.That was the story. Those were the numbers.
Here’s what the news release led with instead: “Hexo is committed to streamlining our operations across all functions, allowing our top-selling brands to remain competitive in the marketplace whilst aligning to our long-term financial objectives of becoming cash flow positive and driving growth,” Hexo CEO Charlie Bowman said. “As we move forward, we remain keenly focused on our financial objectives and taking the necessary steps to achieve them, including maintaining a lean organization and concentrating on operational excellence.”
Huh?
Not to be too hard on Hexo – it has enough on its plate without anyone else piling on – but does that mean anything to you? Does it mean anything to anybody?
Straight Talking
Lesson one: ?Always lead with a clear statement of the news. Don’t hide, don’t hedge, don’t spin. Give the news, good or bad. Then own it.
There’s no better model for this then Bill Self, the head basketball coach at the University of Kansas. If you want a master class in how to give a financial presentation, watch Self give a post-game interview.
No matter how spectacularly his team performs, Self never focuses on what the team did well. He ignores the whole highlight reel. Instead, Self finds and focuses on the opportunities he missed, the strategies he could refine, the players he could redirect. The guy could win a national championship and come out saying next time his team will do better.
Lesson two: Lead with clear comparison using standard metrics.
Instead of starting its news release with standard revenue figures, Hexo gave a bullet point about its efforts to restructure some debt. That’s clearly information shareholders must have, so it had to be included. But it did not have to lead the news release, and choosing to lead with something secondary seemed like deliberate opacity.
Straight revenue and earnings might not always be the whole story, but it’s always the best starting place.
Hexo dumped an entire spreadsheet into its news release. They could have done better.
Financial documents should always include the complete version at the end but simplify and declutter the data as much as possible.
Here’s how Hexo could have presented the same information (all dollar figures in Canadian millions):
Takeaway: If you run the numbers, readers are less likely to. Decide what the secondary points of the release should be and put other material disclosures at the end.
Lesson three: If the financials show a significant variance, explain it. If revenue was flat but selling, general and administrative expenses shot up, say why.
In this release, we see major year-over-year changes, all of which should be clearly spelled out. Why did the cost of goods sold rise at twice the pace of revenue?
When companies and news outlets include these details, it does more than tell you about one company. It gives you the basis for a series of comparisons. In other words, the numbers tell you how Hexo did relative to its last reporting period. But you can also discern how well Hexo did relative to rival companies.
Comparing your business to Hexo might not tell you much. But keeping an eye on earnings in the cannabis space will tell you a lot – especially if you take the time to compare public companies’ number to your own.
Andy Obermueller,
editorial@mjbiz.com
