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Aurora Cannabis Inc
Symbol ACB
Shares Issued 1,168,189,723
Close 2020-02-13 C$ 1.96
Market Cap C$ 2,289,651,857
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Aurora Cannabis omits Q2 2020 P&L from NR

2020-02-13 08:19 ET - News Release

Mr. Michael Singer reports

AURORA CANNABIS ANNOUNCES SECOND QUARTER 2020 RESULTS

Aurora Cannabis Inc. has released its financial and operational results for the second quarter of fiscal 2020 ended Dec. 31, 2019.

"Despite delivering modest growth in our core medical and consumer business in Q2, we took immediate and deliberate actions to align our company to current market conditions," said Michael Singer, executive chairman and interim chief executive officer, Aurora Cannabis. "As announced last week, being a profitable cannabis company for our investors is the singular near-term focus for Aurora and we have begun to implement a business transformation plan where we intend to manage the business with a high degree of fiscal discipline."

Second quarter 2020 highlights (unless otherwise stated, comparisons are made between fiscal Q2 2020 and Q1 2020 results):

  • Cannabis net revenue of $63.2-million, excluding provisions, in Q2 2020 compared with $70.8-million in Q1 2020:
    • Canadian and international medical cannabis net revenue of $27.4-million, with Canadian medical net revenue sequentially flat at $25.6-million, and international medical net revenue down from $5.0-million to $1.8-million due to a temporary sales interruption;
    • Consumer cannabis net revenue, excluding provisions, of $33.5-million was an increase of 11 per cent from $30.0-million in the previous quarter. Including the $10.6-million provision for returns and price adjustments for prior quarter sales, reported consumer cannabis net revenues were $22.9-million. Also affecting Q2 consumer cannabis net revenue was slower provincial ordering during the quarter, a shift in the market to value brands (Aurora launched Daily Special in early February, 2020), and the industry-wide impact from the slow pace of retail store licensing;
    • Wholesale bulk cannabis net revenues of $2.4-million, a decline from $10.3-million in the previous quarter, due to overall volume declines and the wholesale of lower potency (priced) product.
  • Production volume in fiscal Q2 was 30,691 kilograms, in line with previous expectations as Aurora realigned its cultivation strategy to produce a greater amount of higher value and higher potency strains;
  • Cash cost to produce per gram sold remained relatively consistent at 88 cents per gram versus 85 cents per gram last quarter -- Aurora intends to maintain this metric below $1 per gram;
  • Aurora's medical patient base remained relatively consistent at 90,307;
  • Successfully launched cannabis 2.0 products with sales to provincial distributors commencing on Dec. 17, 2019.

Subsequent events and business transformation plan

Subsequent to the quarter-end, the company made several decisions designed to strategically transform its operations and provide financial flexibility in response to a changing market and regulatory environment, while supporting its long-term growth:

  • Announced chief executive officer succession plan and expansion of the board of directors;
  • Executive chairman Michael Singer appointed interim CEO, effective Feb. 6, 2020; search for permanent successor under way;
  • Two new independent directors joined the board for a total of 10 directors, including seven independents;
  • Announced comprehensive transformation plan to significantly reduce the company's expense base, rationalize capital expenditures and better align its balance sheet with current market conditions;
  • Secured credit facility amendments that remove earnings before interest, taxes, depreciation and amortization ratio covenants and provided additional financial flexibility as Aurora executes transformation plan.

"The transformational actions we announced last week have already positively impacted SG&A expense and we are confident that our run rate will be approximately $40-million to $45-million as we exit the fiscal fourth quarter of 2020. This is a very important step toward EBITDA profitability," said Glen Ibbott, chief financial officer. "In addition, our credit facility was amended to provide greater flexibility to Aurora. More specifically, Aurora chose to downsize the facility by $96.5-million with the elimination of undrawn term loan capacity, and further used $45-million of restricted cash to repay a portion of the drawn term loan balance for the purpose of reducing leverage and cash required for debt service."

Following these facility changes, Aurora's current credit facility and other debt outstanding includes:

  • $50-million revolving facility, of which $2-million was drawn as of Dec. 31, 2019;
  • $162-million of fully drawn senior secured term loans;
  • $345-million (U.S.) of senior unsecured convertible debentures due February, 2024.

                           Q2 2020 KEY FINANCIAL AND OPERATIONAL METRICS
                             (in thousands, except operational results)   
  
                                                                                 Q2 2020      Q1 2020
Financial results
Total net revenue                                                                $56,027      $75,245
Cannabis net revenue                                                             $52,676      $70,776
Canadian and international medical cannabis net revenue                          $27,386      $30,450
Consumer cannabis net revenue                                                    $22,906      $30,022
Wholesale bulk cannabis net revenue                                               $2,384      $10,304
Gross margin before FV adjustments on cannabis net revenue                           44%          58%
Gross margin before FV adjustments on medical cannabis net revenue                   54%          63%
Gross margin before FV adjustments on consumer cannabis net revenue                  32%          53%
Gross margin before FV adjustments on wholesale bulk cannabis net revenue            45%          58%
Adjusted gross margin before FV adjustments on cannabis net revenue                  55%          67%
Selling, general and administration expense                                      $99,882      $81,132
Balance sheet
Working capital                                                                 $415,936     $123,750
Cannabis inventory and biological assets                                        $216,735     $178,748
Total assets                                                                  $4,671,912   $5,606,799
Operational results -- cannabis
Cash cost to produce per gram sold                                                 $0.88        $0.85
Active registered patients                                                        90,307       91,116
Average net selling price of medical cannabis                                      $7.99        $8.00
Average net selling price of consumer cannabis                                     $4.76        $5.28
Average net selling price of wholesale bulk cannabis                               $1.90        $3.46
Kilograms produced                                                                30,691       41,436
Kilograms sold                                                                     9,501       12,463

Consolidated net revenue, excluding provisions, was $66.6-million in Q2 2020 as compared with $75.2-million in the prior quarter. Medical cannabis net revenues decreased to $27.4-million in Q2 2020, down 10 per cent over the prior quarter due to a short-term permit issue in Germany (since resolved). Consumer cannabis revenues were $33.5-million ($22.9-million net of provisions) in Q2 2020. The provisions included in cannabis net revenues comprise $6.1-million of actual returns and price adjustments and a $4.5-million provision for future returns and price adjustments.

Average net selling price of cannabis, including provisions, decreased to $5.54 per gram over the prior quarter of $5.68. This decrease is attributable to the previously mentioned provision for returns and price adjustments impacting Q2 2020 which did not affect Q1 2020, lower kilograms sold in Q2 versus Q1, and lower wholesale bulk volume and pricing.

Gross margin before fair value adjustments on cannabis net revenue, excluding provisions was 48 per cent in Q2 2020, compared with 58 per cent in the prior quarter. Including the impact of the return and price adjustment provisions, gross margin before fair value adjustments on cannabis net revenue was 44 per cent.

During Q2 2020, Aurora produced 30,691 kilograms of cannabis as compared with 41,436 kilograms in the prior quarter. The 26-per-cent decrease in production output was primarily due to previously announced changes to cultivation strategies, including a pivot to high-value, high-potency strains which are lower yielding. With continued refinement of its cultivation techniques, the company expects to achieve quarterly harvest volumes leading to an average of 150,000 kilograms annually or better.

Q2 2020 SG&A increased by 23 per cent to $99.9-million from the prior quarter. The increase was primarily driven by a rise in salaries and benefits due to targeted growth in corporate head count and annual merit increases, investments in educational marketing campaigns related to the launch of cannabis 2.0 products, and marketing initiatives related to the launch of the Aurora Drift brand. On Feb. 6, 2020, Aurora announced decisive action effective immediately to reduce SG&A expenses from the Q2 2020 levels and expects to manage the business with an SG&A expense run rate of between $40-million to $45-million per quarter exiting Q4 2020 (June 30, 2020).

Adjusted EBITDA loss was $80.2-million in Q2 2020 compared with $39.7-million in Q1 2020. The decline in adjusted EBITDA loss is primarily due to the quarter over quarter decrease in revenue (including provisions), an increase in production costs relating to the ramp-up for the legalization of cannabis 2.0, and the increase in SG&A expenses. Developing a profitable cannabis company in the near term is extremely important to Aurora. While the company strongly believes the global market opportunity for cannabis is robust, there is uncertainty in the timing of revenue ramp-up in the company's core markets. Therefore, the company has taken action to materially reduce SG&A expenses focused on achieving positive adjusted EBITDA.

Outlook

Consistent with Aurora's release dated Feb. 6, 2020, the company is bullish on the long-term potential for the global cannabis opportunity. However, due to several short-term factors, there is likely to be a slower than previously expected rate of industry growth in the near term. The company has outlined a number of fiscally responsible steps it has already taken to realign its business operations to this expected industry growth rate. Aurora reiterates its outlook for fiscal third quarter that cannabis revenue will be impacted by previously mentioned industry headwinds and as such will likely show modest to no growth relative to fiscal Q2's cannabis revenue, excluding provisions, of approximately $65-million.

Conference call

Aurora will host a conference call today, Feb. 13, 2020, to discuss these results. Mr. Singer and Mr. Ibbott will host the call starting at 8 a.m. ET. A question-and-answer session will follow management's presentation.

Date:  Thursday, Feb. 13, 2020

Time:  8 a.m. ET/6 a.m. MT

Webcast:  available on-line

Replay:  844-512-2921 or 412-317-6671, available until 11:59 p.m. ET, Thursday, Feb. 27, 2020

PIN No.:  13699134

Date:  Thursday, Feb. 13, 2020

About Aurora Cannabis Inc.

Aurora is a global leader in the cannabis industry serving both the medical and consumer markets.

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