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Aurora Cannabis Inc (2)
Symbol ACB
Shares Issued 198,018,343
Close 2021-05-13 C$ 8.93
Recent Sedar Documents

Aurora Cannabis has $164.65M continuing ops loss in Q3

2021-05-13 16:40 ET - News Release

Mr. Miguel Martin reports

AURORA CANNABIS ANNOUNCES FISCAL 2021 THIRD QUARTER RESULTS

Aurora Cannabis Inc. has released its financial and operational results for the third quarter of fiscal 2021 ended March 31, 2021.

"Consistent with many of our peers, the quarter presented challenges in the Canadian adult-use segment. This reinforces the importance of Aurora's broadly diversified business model that balances domestic medical, international medical and adult-use platforms," stated Miguel Martin, chief executive officer of Aurora Cannabis. "To that point, we delivered the strongest performance in domestic medical and the best results in international medical cannabis of any Canadian [licensed producer] during the period. This is critical, because we expect being No. 1 by revenue in Canada's medical market, the largest federally regulated medical market globally, should translate into global adult-use success in the future as medical regimes evolve to adult-use markets. In addition, being the No. 2 largest Canadian LP by global cannabis sales this quarter and a leader across multiple markets and segments gives Aurora the brand recognition and clout to pursue numerous incremental opportunities around the world.

"Aurora also announced today that our cost structure transformation continues, and we have identified further cost savings of $60-million to $80-million annually that are expected to be achieved within 18 months and are incremental to the approximately $300-million in annual savings already achieved. We anticipate that this initiative will not only allow us to meet our financial objectives while the Canadian adult-use market normalizes over the next several quarters, but will not have any effect on future revenue growth. We have recently added Alex Miller and Lori Schick to the team, two highly respected leaders in the areas of operations and human resources, respectively, to accelerate the execution of our corporate objectives. They each bring 20-plus years of transformative regulated industry experience and are already fully engaged. Lastly, our balance sheet remains strong with approximately $525-million in cash. This will allow us to support organic growth, as well as opportunistic [mergers and acquisitions], particularly in the [United States]."

Third quarter 2021 highlights (unless otherwise stated, comparisons are made between fiscal Q3 2021 and Q3 2020 results)

Q3 2021 total cannabis net revenue (1) before provisions was $58.4-million, a 19.5-per-cent decrease over Q3 2020 and a 17.0-per-cent sequential decline. After accounting for return and price provisions, Q3 2021 total cannabis net revenue was $55.2-million, a 20.8-per-cent decrease in cannabis net revenue (1) over fiscal Q3 of the prior year.

Reflecting the shift in mix toward the medical businesses, the Q3 2021 average net selling price per gram of dried cannabis (1) increased to $5 per gram from $4.64 in Q3 2020 and $4.45 in second quarter 2021. This excludes the impact of the Q3 2021 bulk wholesale of excess lower-potency cannabis flower at clearout pricing.

Adjusted gross margin before fair value adjustments on cannabis net revenue (1) was 44 per cent in Q3 2021, versus 43 per cent in Q3 2020. The increase in adjusted gross margin is due to a significant shift in revenue mix toward medical markets, which command much higher average net selling prices, partially offset by the purposeful reduction in production levels at Sky resulting in charges related to underutilization of capacity.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) (1) loss was $24.0-million in Q3 2021 ($16.7-million loss excluding restructuring charges and product swap provisions) compared with the prior-year adjusted EBITDA loss (1) of $49.6-million primarily driven by the substantial decrease in selling, general and administrative and research and development expenses, and continued healthy gross margins.

(1) These terms are non-generally accepted accounting principle measures.

Medical cannabis:

  • Medical cannabis net revenue was $36.4-million, a 17-per-cent increase from the prior-year period. The increase was primarily attributable to a continued strong performance in both the international and Canadian medical businesses. International medical sales grew by 134 per cent over the prior-year comparative period.
  • Adjusted gross margin before fair value adjustments on medical cannabis net revenue was 59 per cent versus 60 per cent in the prior year, remaining strong despite the increase in cost of sales from the underutilized capacity at Aurora Sky and the continued ramp-up of the Aurora Nordic facility in Europe.

Consumer cannabis:

  • Consumer cannabis net revenue was $18.0-million ($21.3-million excluding provisions), a 53-per-cent decrease from the prior year. This was due primarily to COVID-19-related challenges across Canada in both provincial distributors and consumer access to in-store retail shopping. Also impacting the change in consumer cannabis net revenue in fiscal Q3 were Aurora's one-time transition to a new contract sales force, the load-in of 2.0 products and the daily special launch in the prior-year comparative period.
  • Adjusted gross margin before fair value adjustments on consumer cannabis net revenue was 21 per cent versus 28 per cent in the prior-year period, primarily driven by a $1.8-million increase in cost of sales due to underutilized capacity as a result of the scaling back of production at Aurora Sky (expected to partially reverse in future quarters) and a decrease in the average net selling price per gram of consumer cannabis as a result of price compression.

Selling, general and administrative (SG&A):

  • SG&A, including research and development (R&D), was $45.1-million ($41.9-million excluding restructuring costs), down $32.8-million or 42 per cent from the prior-year period as a result of the company's business transformation plan.

Additional financial information:

  • Cash balance at May 12, 2021, was approximately $525-million.
  • As previously announced on Dec. 15, 2020, Aurora has aligned production to current demand and reduced network complexity to improve its operational flexibility and cash flow. The company is currently operating Aurora Sky at 25-per-cent capacity, and in fiscal Q3 2021 produced 14,484 kilograms of cannabis and achieved net sales of 13,520 kilograms.

Fiscal Q3 2021 cash use

In Q3 2021, despite a decline in Canadian consumer revenue, the company managed cash flow tightly using $35.9-million in cash to finance operations, excluding working capital investments, restructuring costs and other costs of $5.4-million. Cash used to pay for capital expenditures, net of disposals, in Q3 2021, was $12.2-million versus $83.9-million in Q3 2020 and $8.8-million in second quarter 2021. Cash used in operations and for capital expenditures is a crucial metric in Aurora's drive toward generating sustainable positive free cash flow, and both have improved significantly over the past year. The company's continuing business transformation, with the additional cost-efficiency savings described earlier, is expected to move the operating cash flow metric in a positive direction over the coming quarters.

Net working capital used $25.0-million in the quarter, driven by a decrease in accounts payable and an increase in biological assets. Q3 2021 saw Aurora bring production levels into alignment with demand as 14,484 kilograms of cannabis were produced and 13,520 kilograms equivalents were sold, a marked improvement over prior quarters. The remaining government wage subsidy accrual of $19.7-million initially recorded in December, 2020, was collected in April, 2021. With the balancing of production with sales, had this wage subsidy accrual been collected in March, 2021, the company's net investment in working capital would have been approximately $5.3-million in the quarter.

Operational efficiency plan

Today, Aurora announced a plan to accelerate $60-million to $80-million in annualized cost-efficiencies, which are expected to be realized over the next 12 to 18 months. The efficiencies are expected to be $40-million to $60-million in costs of goods sold (COGS) and approximately $20-million in SG&A, and relate primarily to production costs, facility and logistic expenses, organizational efficiencies, insurance, and capital-market-related expenses. These efficiencies are incremental to the approximately $300-million of total annualized expense reductions achieved since the announcement of the company's business transformation plan in February, 2020.

Executive board transitions and recent executive leadership appointments

Aurora is pleased to announce that Ronald Funk, lead independent director, has assumed the role of chairman, effective immediately. Michael Singer has reverted from executive chairman to the board seat he has occupied since May, 2016. This transition reflects the strength of current management and the board's planned governance enhancements to include an independent chairman.

Mr. Funk has 30-plus years in senior executive roles managing profitable regulated CPG (consumer packaged goods) brands. He brings unique skills and experiences that will assist the company in the pursuit of global growth. He has served on the board for three years and has proved himself to be an effective leader as the company has grown and evolved. Mr. Singer served as interim chief executive officer from February to September, 2020, during which time he managed the company's business transformation toward profitability and transitioning management, including the hiring of Mr. Martin.

Aurora has also announced the appointment of Mr. Miller to the role of executive vice-president, supply chain, and Ms. Schick to the role of executive vice-president, human resources. Mr. Miller brings 25-plus years of experience in food, CPG and pharmaceutical industry experience in operations and supply chain leadership positions, most recently as vice-president, operations, at MAV Beauty Brands Inc. Ms. Schick brings 20-plus years of global human resource leadership experience leading organizational transformation and building high performance teams. Most recently, she was senior vice-president and head of people at Holt, Renfrew & Co.

Stock exchange listing transfer to Nasdaq from New York Stock Exchange

Aurora also announced that it will transfer its U.S. stock exchange listing from the New York Stock Exchange to the Nasdaq Global Select Market, effective May 24, 2021, after the market close. The last day of trading of the company's common stock on NYSE is expected to be May 24, 2021. The company expects its common stock will begin trading as a Nasdaq-listed security at market open on May 25, 2021, and will continue to be listed under the ticker symbol ACB. The transfer is automatic, and shareholders are not required to take any action. This transition will not impact the company's primary listing on the Toronto Stock Exchange (TSX: ACB).

"Nasdaq represents a good fit for Aurora, and this listing transfer will enable us to realize cost-efficiencies as part of our efforts to deliver long-term value to shareholders," concluded Mr. Martin.

Filing of prospectus supplement

Aurora intends to file a new prospectus supplement for a $300-million (U.S.) at-the-market offering program (ATM). This is a routine filing which Aurora believes will provide maximum flexibility to pursue select acquisitions going forward, including within the United States. Given the strength of Aurora's current cash position, it is not expected to need to access the ATM facility without an accretive use of proceeds.

Conference call

Aurora will host a conference call on May 13, 2021, to discuss these results. Mr. Martin, and Glen Ibbott, chief financial officer, will host the call starting at 5 p.m. Eastern Time/3 p.m. Mountain Time. A question-and-answer session will follow management's presentation.

Conference call details

Date:  May 13, 2021

Time:  5 p.m. Eastern Time or 3 p.m. Mountain Time

About Aurora Cannabis Inc.

Aurora is a global leader in the cannabis industry, serving both the medical and consumer markets. Headquartered in Edmonton, Alta., Aurora is a pioneer in global cannabis dedicated to helping people improve their lives. The company's brand portfolio includes Aurora, Aurora Drift, San Rafael '71, Daily Special, AltaVie, MedReleaf, CanniMed, Whistler and Reliva CBD. Providing customers with innovative, high-quality cannabis products, Aurora's brands continue to break through as industry leaders in the medical, performance, wellness and recreational markets wherever they are launched.

Aurora's common shares trade on the TSX and NYSE under the symbol ACB, and is a constituent of the S&P/TSX Composite Index.

                                          NET REVENUE
                                         ($ thousands)
  
                                                               Three months ended                               
                                          March 31, 2021        March 31, 2020 (1)      Dec. 31, 2020

Medical cannabis net revenue                     $36,378                  $31,086             $38,856
Consumer cannabis net revenue                     18,023                   38,551              28,573
Wholesale bulk cannabis net revenue                  760                        -                 244
                                                --------                 --------            -------- 
Total cannabis net revenue                        55,161                   69,637              67,673
                                                --------                 --------            --------
Total net revenue                                 55,161                   73,541              67,673
                                                --------                 --------            --------

(1) As a result of the company's divestment of its wholly owned subsidiaries ALPS and AHE, the 
operations of ALPS and AHE have been presented as discontinued operations, and the company's 
results have been retroactively restated, as required. Refer to Note 11(b) of the financial 
statements for information about the divestitures.

                                               Adjusted EBITDA
                                                ($ thousands) 
  
                                                               Three months ended                 Nine months ended 
                                                    March 31,       March 31,     Dec. 31,     March 31,      March 31,
                                                        2021     2020 (1) (2)        2020       2021 (2)   2020 (1) (2)

Net (loss) income from continuing operations       ($164,650)      ($133,528)   ($292,788)    ($564,598)   ($1,424,466)
Finance costs                                         16,990           6,655       18,872        50,553         48,364
Interest (income) expense                             (1,467)         (1,998)      (1,865)       (4,599)        (4,884)
Income tax expense (recovery)                           (129)        (12,441)       3,167         3,649        (18,873)
Depreciation and amortization                         15,570          22,538       24,883        62,897         73,090
                                                  ----------      ----------   ----------    ----------     ----------
EBITDA                                              (133,686)       (118,774)    (247,731)     (452,098)    (1,326,769)
Changes in fair value of inventory sold               29,583          14,144        5,942        38,829         48,672
Unrealized gain on changes in fair value of
biological assets                                    (16,506)        (10,904)      (6,262)      (28,175)       (44,735)
Share-based compensation                               5,233           8,904        5,987        18,081         53,155
Acquisition costs                                          -           1,300            -         1,104          4,323
Foreign exchange loss (gain)                           7,035          12,280          527           135         16,181
Share of loss from investment in associates                9           4,611          117           499          8,933
Government grant income                               (4,692)              -      (23,678)      (28,370)             -
Losses (gains) on financial instruments (3)           (2,566)         (6,416)      17,309        22,109         30,413
Loss on loss of control of subsidiary                      -            (500)           -             -           (500)
Losses (gains) on deemed disposal of significant
influence investment                                    (204)              -            -         1,239              -
Gains (losses) on disposal of assets held for sale
and property, plant and equipment                     (1,595)              -       (3,317)       (3,990)             -
Restructuring charges                                    801               -            -         1,011              -
Onerous contract provision                                 -               -        2,000         2,000              -
Impairment of deposit, inventory, investment in
associate, property, plant and equipment,
intangibles, and goodwill                             92,568          45,776      232,304       328,913      1,057,825
                                                  ----------      ----------   ----------    ----------     ----------
Adjusted EBITDA (4)                                  (24,020)        (49,579)     (16,802)      (98,713)      (152,002)
                                                  ==========      ==========   ==========    ==========     ==========

(1) Amounts have been retroactively restated for the change in accounting policy for inventory costing relating 
to byproducts and the allocation of production management staff salaries. Refer to the "Change in Accounting 
Policies" in Note 2(e) of the financial statements.      
(2) As a result of the company's divestment of its wholly owned subsidiaries ALPS and AHE, the operations of 
ALPS and AHE have been presented as discontinued operations and the company's operational results have been 
retroactively restated, as required. Refer to Note 11(b) of the financial statements for more information about 
the divestiture. Including the results of ALPS and AHE, adjusted EBITDA loss would have been $52.3-million for 
the three months ended March 31, 2020, and $99.2-million and $162.3-million for the nine months ended March 31, 
2021 and 2020, respectively.
(3) Includes fair value changes on derivative investments, derivative liabilities, contingent consideration, 
loss on induced conversion of debentures and (gain) loss on the modification of debt. Refer to Note 21 of the 
financial statements.
(4) Adjusted EBITDA is a non-generally accepted accounting principle financial measure and is not a recognized, 
defined or standardized measure under international financial reporting standards. Refer to "Cautionary 
Statement Regarding Certain Non-GAAP Performance Measures" section of management's discussion and analysis.

We seek Safe Harbor.

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