Mr. Terry Booth reports
AURORA CANNABIS ANNOUNCES FINANCIAL RESULTS FOR THE THIRD QUARTER OF FISCAL 2019
Aurora Cannabis Inc. has released its financial and operational results for the third quarter ended March 31, 2019.
Third quarter 2019 highlights
(unless otherwise stated, comparisons are made between fiscal third quarter 2019 and fiscal second quarter 2019 results)
Continued solid revenue growth averaged 20 per cent across all key markets, driven by the successful scale-up of the company's production and continued strong performance across the Canadian consumer, and Canadian and international medical cannabis markets:
Canadian consumer up 37 per cent;
- Canadian medical up 8 per cent;
- International medical up 40 per cent.
- The company's medical patient base grew by 5 per cent to 77,136. As at the date of this release, Aurora has 82,745 active registered patients, a further increase of 7 per cent, and continues to register new patients as product availability ramps up.
Cash cost to produce per gram declined 26 per cent to $1.42 per gram, as the initial impact of Aurora Sky's scale and efficiency began to be realized.
Production volume increased 99 per cent to 15,590 kilograms, up 1,200 per cent year over year. The increase in production accelerated through the quarter, with the majority of the harvested volume realized in the last half of the quarter.
SG&A (selling, general and administrative) expenses have stabilized with a modest increase of 1 per cent, reflecting Aurora's continuing commitment to disciplined cost management.
Average selling price per gram decreased marginally due to product mix effects (higher contribution from wholesale consumer), extraction capacity constraints (resulting in extract-based products comprising 18 per cent of net cannabis sales) and the first full quarter impact of excise tax on medical cannabis.
Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) loss improved by 20 per cent to $36.6-million as the company continues to track toward achieving EBITDA-positive results beginning in the fourth quarter of 2019 as operations continue to ramp up.
In January, 2019, Aurora completed a $345-million (U.S.) convertible notes offering, with the proceeds earmarked to continue the company's pace of growth in Canada and internationally. IFRS (international financial reporting standards) accounting standards require a mark-to-market adjustment at each period-end for the derivative portion of these notes. Due to the increase in Aurora's stock price since the issuance of the notes, the company recorded a $102-million non-cash fair value loss in the third quarter 2019 profit and loss statement.
"I'm exceptionally proud of our company and team as Aurora continues to deliver on our domestic and international growth strategy. We achieved solid revenue growth and strong operating results in a quarter proven challenging across the industry. We are laser-focused on building a long-term sustainable business," said Terry Booth, chief executive officer. "During the quarter, we formally welcomed Nelson Peltz a key strategic adviser. He has been incredibly engaged, collaborative and strategically focused on assisting our pursuit of growth in global markets and with mature companies in adjacent industries."
Glen Ibbott, chief financial officer, added: "Aurora is an extremely active and diversified company, leading the industry in cannabis research, product development, cultivation, global scale and revenue growth. With a solid Q3 on all fronts, it's time to move the yardsticks for the industry again. The company we have built with purpose through both organic growth and targeted acquisitions has provided a unique opportunity: continue to lead the industry in revenue growth while also progressing to positive operating earnings in the near term."
THIRD QUARTER 2019 KEY FINANCIAL AND OPERATIONAL METRICS
(in thousands of dollars, unless otherwise noted)
Q3 2019 Q2 2019 Q3 2018
Gross revenue $75,238 $62,000 $16,100
Net revenue (1) $65,145 $54,178 $16,100
Cannabis net revenue (1) $58,652 $47,577 $10,810
Medical cannabis net revenue $29,075 $25,994 $10,810
Consumer cannabis net revenue $29,577 $21,583 NA
Gross margin on cannabis net revenue (1) 55% 54% 59%
Selling, general and administration expense $67,104 $66,362 $15,727
Adjusted EBITDA (2) ($36,617) ($45,524) ($12,904)
(Loss) earnings attributable to common shareholders ($158,354) ($237,752) ($19,215)
Working capital $469,729 $274,629 $338,476
Cannabis inventory and biological assets (2) $118,023 $79,924 $28,478
Total assets $5,549,780 $4,875,884 $1,671,400
Operational results -- cannabis
Cash cost to produce per gram of dried sold (2) $1.42 $1.92 $1.53
Active registered patients 77,136 73,579 45,776
Average net selling price per gram (2) $6.40 $6.80 $7.99
Kilograms produced 15,590 7,822 1,206
Kilograms sold 9,160 6,999 1,353
(1) Net revenue represents total gross revenue exclusive of excise taxes levied by the Canada
Revenue Agency (CRA) on the sale of medical and recreational cannabis products effective Oct.
(2) Non-GAAP (generally accepted accounting principles) measures.
The Aurora Sky and Bradford facilities are now operating at full capacity. With this, the company's annualized production run rate across its operational facilities is in excess of 150,000 kilograms per year, based on planted rooms.
Aurora reiterates its target for the fourth quarter with production available for sale in excess of 25,000 kilograms. Management intends to allocate a portion of this capacity to its inventory for manufacturing new products. Aurora remains focused on having vapes and certain edibles ready for launch under new regulations in the Canadian consumer market which are expected toward the end of the calendar year.
With production ramping up, the company continues to scale up manufacturing capacity, with innovation and technologies aimed at reducing time from harvest to market. The company anticipates that increased processing, packaging and delivery efficiencies in the fourth quarter and beyond will accelerate availability of product.
Supply to Europe and other international markets is expected to increase as more of Aurora's production facilities receive European Union GMP (good manufacturing practice) certification. The Bradford facility has recently undergone an audit to obtain EU GMP certification. In the third quarter, the company began exports of full-spectrum cannabis extracts in Germany. Management anticipates that these sales will contribute to growth given the higher margins in extracts.
Oil extraction capacity has been a constraint during the second and third fiscal quarters of 2019. Subsequent to quarter-end, Aurora expanded its internal extraction capacity to almost 7,000 kilograms per quarter currently, and will reach almost 16,000 kilograms per quarter in the fiscal first quarter. As well, the company's extraction partner, Radient Technologies, is scaling up commercial production at its Edmonton facility. Consequently, Aurora anticipates production of extract-based products to increase, with the full impact starting to materialize toward the end of the fiscal fourth quarter. This increase in internal and external extraction capacity will enhance Aurora's ability to produce derivative products at scale, which management expects will have a positive impact on both revenues and gross margin.
With Aurora Sky now operating at full capacity, the company anticipates continued reduction in production and manufacturing costs, allowing cash costs per gram to continue to trend lower. Management reiterates its expectation that the average cash cost to produce per gram at its Sky Class facilities will be below $1.
With disciplined cost management, the company expects SG&A costs to grow modestly over the remainder of the fiscal year. Consequently, management anticipates that with sustained revenue growth and lower cash costs per gram, Aurora is well positioned to achieve positive EBITDA beginning in the fiscal fourth quarter of 2019 (the calendar second quarter of 2019).
Third quarter 2019 facility and production update
- Aurora defines production rate as the capacity of all planted rooms that have been approved by the regulator for sales, using anticipated annualized harvests at maturity based on a historical yield per plant. These targeted yields have been met or exceeded at all of Aurora's current operating facilities. Construction at Aurora Sky is complete, and all grow rooms have been licensed by Health Canada. Fully planted, Aurora Sky is operating at its full design capacity of over 100,000 kilograms per year.
All rooms at Bradford are licensed by Health Canada and the facility has been fully planted. The facility has received no major observations during its audit to obtain EU GMP certification. Obtaining this certificate will substantially increase the company's capacity to ship product to the European market.
The first saleable harvest at Aurora Nordic 1 is expected by the end of the fiscal fourth quarter of 2019, with product sales anticipated in December, 2019, or as soon as regulatory approvals are provided. Initial harvests for testing and licensing purposes have been completed successfully.
Construction of Aurora Sun is progressing well, with the facility anticipated to be ready for planting by mid-calendar-2020. Aurora Sun will measure 1.62 million square feet, reflecting a 33-per-cent increase from its originally planned size:
Erection of the steel structure is well under way and anticipated for completion in late June, 2019.
- Construction of the glass roof has commenced and is anticipated for completion shortly after installation of the steel structure.
Whistler Alpha Lake is currently operating at its designed capacity of 480 kilograms per year of organic certified cannabis, using four grow rooms.
Construction of Whistler Pemberton remains on track for completion in the calendar fourth quarter of 2019:
Four rooms are fully operational with an annual capacity of 1,200 kilograms of organic certified cannabis.
- Eleven additional rooms are expected to come on-line beginning in November, 2019.
Upon completion, Pemberton is expected to produce 4,500 kilograms per year of organic certified cannabis.
- The Pemberton facility will incorporate a public lounge to educate visitors about Whistler Medical Marijuana Corp. (Whistler) and its history as cultivation pioneers of organic certified cannabis.
During the most recent grow season in Europe, Agropro harvested a combined 3,950 acres of hemp across Lithuania, Latvia and Estonia. For the coming grow season, beginning in May, 2019, Agropro plans to contract 8,150 acres of hemp for harvest, which is expected to begin in August.
Third quarter 2019 and subsequent corporate highlights
Acquisition of Whistler Medical Marijuana Corp.:
On March 1, 2019, Aurora acquired Whistler, an iconic Canadian organic cannabis brand that commands a significant premium for its products in both the Canadian medical and consumer markets. The company is currently scaling up Whistler's operations and anticipates an increase in products available for sale for the remainder of the calendar year.
Acquisition of Hempco Food and Fiber Inc.:
On April 16, 2019, the company entered a binding letter agreement with Hempco to acquire all of the issued and outstanding shares of Hempco. The acquisition will strengthen the company's industrial hemp and CBD-(cannabidiol)-from-hemp infrastructure.
Acquisition of Chemi Pharmaceuticals Inc.:
On April 24, 2019, the company acquired Chemi, an Ontario-based laboratory specializing in high-quality analytics services for the pharmaceutical and cannabis industries. The acquisition is intended to expand the company's analytical services for derivative products.
Appointment of Nelson Peltz:
On March 13, 2019, the company appointed Mr. Peltz as a strategic adviser to work collaboratively with Aurora on exploring global expansion and partnership opportunities. Management believes the company is well positioned to pursue partnerships across a number of industry verticals and is working with Mr. Peltz and his team to assess opportunities.
On Feb. 12, 2019, the company announced the construction of Aurora Polaris, a 300,000-square-foot international logistics hub and facility for the industrial-scale production of derivative cannabis products. Construction is on schedule and the company anticipates completion toward the end of the calendar year. In anticipation of new regulations, the company is in the process of installing interim production lines in licensed space across its production infrastructure in Canada to ensure that a full complement of products will be available for sale in substantial quantities when permitted.
German cannabis production tender:
On April 5, 2019, the company was selected by the German Federal Institute for Drugs and Medical Devices as one of three winners in a public tender to cultivate and distribute medical cannabis in Germany. Aurora scored highest across 11 of 13 tender lots and was allotted the maximum number given to any LP of five. Aurora has commenced work on the construction of a facility in Germany and anticipated product to reach the German market in October, 2020. Management expects that becoming a local producer will strengthen brand awareness and market development in a large and important market.
Exports of medical cannabis to the United Kingdom:
On Feb. 11, 2019, the company completed its first commercial export of cannabis oil to the United Kingdom. Under the new U.K. framework, specialist doctors can legally issue prescriptions for cannabis-based medicines when they agree that their patients could benefit from this treatment.
Expansion into Portugal:
On Feb. 26, 2019, the company created Aurora Portugal Lda. through an agreement to acquire a 51-per-cent ownership interest in Gaia Pharm Lda. Construction of an EU GMP-compliant production cannabis facility is now under way in Portugal.
Exports of cannabis oil to Germany:
On March 11, 2019, the company commenced sales of cannabis oils to German pharmacies. Aurora's full-spectrum extract is differentiated in a market predominantly serviced with synthetic cannabinoids. With this, management believes the company has a significant competitive advantage to establish early-mover leadership, brand awareness and sales growth in this higher-margin segment.
Offering of convertible notes:
On Jan. 24, 2019, the company closed an offering of convertible notes for gross proceeds of $345-million (U.S.) to fuel Canadian and international expansion initiatives, for future acquisitions, and for general corporate purposes, including working capital requirements to continue the company's accelerated growth.
Filing of final base shelf prospectus and prospectus supplement for at-the-market offering:
On May 10, 2019, the company filed a final short-form base shelf prospectus with the securities commissions in each of the provinces of Canada, except Quebec, and a corresponding shelf registration statement with the U.S. Securities and Exchange Commission (SEC) on Form F-10. These filings allow the company to qualify the distribution under a prospectus in Canada and the United States of up to $750-million (U.S.) of common shares, warrants, subscription receipts, debt securities or any combination of such securities during the 25-month period in which the final short-form base shelf prospectus remains effective. The specific terms of any future offerings under the shelf prospectus will be established in a prospectus supplement. Any prospectus supplement will be filed with the applicable securities regulatory authorities in connection with such offering.
On May 14, 2019, the company filed a prospectus supplement to the shelf prospectus. In connection with the prospectus supplement, Aurora entered into a sales agreement dated May 14, 2019, with Cowen and Co. LLC and BMO Capital Markets, which will act as the selling agents for the sale of common shares of Aurora by way of at-the-market distributions on the New York Stock Exchange in the United States. Subject to the terms of the sales agreement and applicable regulatory requirements, common shares in the aggregate amount of up to $400-million (U.S.) may be issued and sold from time to time at the discretion of Aurora over a period of up to 25 months. The common shares will be distributed at market prices prevailing at the time of the sale of such common shares and, as a result, prices may vary as between purchasers and during the period of distribution. The net proceeds of such sales, if any, will be used for general corporate purposes, including: (i) working capital; (ii) potential future acquisitions; (iii) debt repayments; and (iv) capital expenditures. The volume and the timing of sales, if any, of common shares are at the discretion of Aurora.
Aurora expects to use the net proceeds from the prospectus to support its expansion initiatives and global partnership strategy and to continue the company's accelerated growth.
The shelf prospectus and prospectus supplement have been filed on SEDAR, and the U.S. version of the shelf prospectus and the prospectus supplement have been filed on the SEC's website.
The company granted a total of 383,000 options to purchase common shares of Aurora to directors and officers of the company. The options vest annually over 36 months and have a weighted average exercise price of $9.35 per common share.
Aurora will host a conference call tomorrow, May 15, 2019, to discuss these results. Terry Booth, CEO, Glen Ibbott, chief financial officer, Cam Battley, chief corporate officer, and Michael Singer, executive chairman, will host the call starting at 10:30 a.m. ET. A question-and-answer session will follow management's presentation.
Date: Wednesday, May 15, 2019
Time: 10:30 a.m. ET/8:30 a.m. MT
Replay: 416-849-0833 or 855-859-2056
until 12 a.m. ET on Wednesday, May 22, 2019
Reference code: 1103129
About Aurora Cannabis Inc.
Headquartered in Edmonton, Alta., with financed capacity in excess of 625,000 kilograms per year and sales and operations in 24 countries across five continents, Aurora is one of the world's largest and leading cannabis companies. Aurora is vertically integrated and horizontally diversified across every key segment of the value chain, from facility engineering and design to cannabis breeding and genetics research, cannabis and hemp production, derivatives, high value-add product development, home cultivation, wholesale, and retail distribution.
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