Aurora Cannabis Announces Fiscal 2021 Second Quarter Results

Published: February 15, 2021

Aurora Cannabis Announces Fiscal 2021 Second Quarter Results

Aurora Cannabis Inc., the Canadian company defining the future of cannabinoids worldwide, announced its financial and operational results for the second quarter of fiscal 2021 ended December 31, 2020.

“Aurora had an excellent second quarter, and I’m pleased that we’re advancing nicely against the plan we laid out in September of 2020,” stated Miguel Martin, Chief Executive Officer of Aurora Cannabis. “For the period, our core revenue strength in medical and consumer was complemented by initial rollouts in vape products and concentrates. Combined, these elements are part of the proven, regulated CPG strategy we’ve adopted.  Adjusted EBITDA for the quarter, while vastly improved year over year, was impacted by several decisions that we believe will clear a path for our premium product focus and more variable cost model. We are confident that this will give Aurora maximum flexibility and position the organization to drive significant cashflow in the coming quarters.”

“To further support this strategy, we have also focused on improving our cash burn, margins and overall financial flexibility.  To that point, our year over year cash use has decreased by 74% to $70.5 million, our normalized margins remain solid particularly in medical, and our recently amended credit facility gives Aurora much improved optionality as opportunities arise.  Combined with $565 million in cash on our balance sheet today, Aurora will continue to be a long-term player in the global cannabinoid market and increasingly positioned to deliver for shareholders over the long run.”

Second Quarter 2021 Highlights
(Unless otherwise stated, comparisons are made between fiscal Q2 2021 and Q2 2020 results and are in Canadian dollars)

Q2 2021 total and cannabis net revenue1 before provisions was $70.3 million, an 11% increase over Q2 2020 and 2.5% sequentially. After accounting for return and price provisions, Q2 2021 total cannabis net revenue was $67.7 million, a 28% increase in cannabis net revenue1 over fiscal Q2 of the prior year.

Adjusted gross margin before fair value adjustments on cannabis net revenue1 was 42% in Q2 2021, versus 48% in Q2 2020. The decrease is due to the purposeful reduction in production levels at Aurora Sky resulting in an increase in cash cost of sales due to the under-utilization of capacity. Also impacting adjusted gross margin was a $1.8 million increase in actual net returns, price adjustments and provisions primarily relating to company-initiated product returns meant to open channels to newer, higher-potency flower that Aurora is now producing.  Normalizing for these impacts, adjusted gross margin was 52%.

_____________________

1 These terms are non-GAAP measures, see “Non-GAAP Measures” below.

Adjusted EBITDA1 loss was $16.8 million in Q2 2021, which includes termination and restructuring costs of $2.9 million. Excluding restructuring costs and product return provisions, the Company’s Adjusted EBITDA loss is $12.1 million.

Consumer cannabis:

  • Consumer cannabis net revenue1 was $28.6 million ($31.1 million excluding provisions), a 25% increase from the prior year. Additionally, Aurora’s consumer cannabis derivative products net revenue increased by $1.7 million sequentially, driven by product launches in vapes, edibles and concentrates.
  • Adjusted gross margin before fair value adjustments on consumer cannabis net revenue1 was 27% in Q2 2021 versus 33% in the prior year period, primarily driven by a $3.3 million increase in cost of sales due to under-utilized capacity as a result of the scaling back production at Aurora Sky, which is expected to partially reverse in subsequent quarters and sales of our lower margin Daily Special value brand which was not present in the prior comparative period.

Medical cannabis:

  • Medical cannabis net revenue1 was $38.9 million ($39 million excluding provisions), a 42% 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 562% over the prior year comparative period.
  • Adjusted gross margin before fair value adjustments on medical cannabis net revenue1 was 56% in Q2 2021 versus 59% in the prior year and prior quarter, primarily driven by the increase in cost of sales due to the under-utilized capacity as a result of the scaling back production at Aurora Sky.

Selling, General and Administrative (“SG&A”) and Adjusted EBITDA:

  • SG&A, including Research and Development (“R&D”), was $44.4 million in Q2 2021, down $49.7 million or 53% from the prior year period as a result of the Company’s Business Transformation Plan. Included in SG&A and R&D in Q2 2021 is $2.1 million of costs related to restructuring charges, and severance and benefit costs associated with the Business Transformation Plan. Excluding these impacts, Q2 2021 SG&A and R&D was $42.3 million.
  • Adjusted EBITDA1 in Q2 2021 was a loss of $16.8 million ($12.1 million loss excluding the increase in revenue provisions and restructuring costs), compared to the prior year Adjusted EBITDA loss of $69.9 million primarily driven by the substantial decrease in SG&A and R&D expenses.

Additional Financial Information:

  • Cash balance as of February 10, 2021 was approximately $565 million.
  • Aurora continues to increase its operational flexibility to improve its cashflow and better address consumer needs by reducing production and complexity. Of the four cultivation facilities set to close, three are now fully shuttered. Effective December 15, 2020, the Company also shuttered operations at the Aurora Sun facility and reduced production at its Aurora Sky facility by 75%, where it is testing new processes and methodologies proven successful at other premium cultivation sites.

Fiscal Q2 2021 Cash Use: Significant Improvement in Cash Used in Operations

Total cash use in Q2 2021 showed significant improvement relative to both Q2 2020 and Q1 2021.

In Q2 2021, the Company used $22.7 million in cash to fund operations, excluding working capital investments.  This use included $2.1 million in restructuring/termination payments. Cash used to pay for capital expenditures, net of disposals, in Q2 2021 was $8.8 million versus $15.0 million in the prior quarter, as many long-lead projects are now complete. Cash used in operations and for capital expenditures are crucial metrics in Aurora’s drive toward generating sustainable positive free cash flow, and both have improved significantly and consistently over the past several quarters.

Increased net working capital used $30.4 million in the quarter, driven by a $23.9 million decrease in accounts payable and a $11.7 million increase in prepaids, offset by a $16.4 million decrease in accounts receivable. Within working capital, inventory and biological assets used $10.0 million, a marked improvement from the $25.1 million in Q1 2021 demonstrating the Company’s progress to more closely align production levels with demand.

Given Aurora’s continued strong gross margins, reduced level of SG&A expense and capital expenditures, and ongoing improvements in working capital investment, management expects the Company to continue its progress toward positive cash flow.

The main components of cash source and use in Q2 2021 were as follows:

($ thousands)

Q2 2021

Q2 2020(3)

Q1 2021

Cash Flow

Cash, Opening

$133,678

$152,526

$162,179

Cash used in operations

($22,709)

($84,766)

($72,580)

Working capital change

($30,433)

($54,238)

($37,012)

Capital expenditures

($8,837)

($128,405)

($14,980)

Debt and interest payments

($8,559)

($5,579)

($18,212)

Cash use

($70,538)

($272,988)

($142,784)

Proceeds raised from sale of marketable securities and investments in associates

$6,135

Proceeds raised through debt

$14,394

Proceeds raised through equity financing (1)

$365,111

$262,402

$114,283

Cash raised

$371,246

$276,796

$114,283

Cash, Ending (2)

$434,386

$156,334

$133,678

(1)

Includes impact of FX on USD cash raised from financing

(2)

Ending cash balance above includes $50.0M restricted cash as required under the amended BMO Credit Facility. The $50.0M restricted cash can be used to repay, at any time at the Company’s discretion the outstanding principal on its term loan on a 1:1 basis with a corresponding reduction in the restricted cash balance requirement.

(3)

Previous reported amounts have been restated to adjust for the change in accounting policy for inventory costing relating to by-products and the allocation of production management staff salaries. Refer to Note 2(e) of the unaudited Condensed Consolidated Interim Financial Statements for a reconciliation on the change in accounting policy.

Refer to “Condensed Consolidated Interim Statement of Cash Flows” in the “Condensed Consolidated Interim Financial Statements (unaudited)” for our cash flow statements prepared in accordance with IAS 7 – Statement of Cash Flows.

Q2 2021 Key Financial and Operational Metrics

($ thousands, except Operational Results)

Q2 2021

Q1 2021

$ Change

% Change

Q2 2020

$ Change

% Change

Financial Results

Total net revenue (1)

$67,673

$67,812

($139)

0

%

$55,138

$12,535

23

%

Cannabis net revenue (1)(2)(3a)

$67,673

$67,812

($139)

0

%

$52,676

$14,997

28

%

Medical cannabis net revenue (2)(3a)

$38,856

$33,474

$5,382

16

%

$27,386

$11,470

42

%

Consumer cannabis net revenue (1)(2)(3a)

$28,573

$34,338

($5,765)

(17)

%

$22,906

$5,667

25

%

Wholesale bulk cannabis net revenue (2)(3a)

$244

$-

$244

N/A

$2,384

($2,140)

(90)

%

Adjusted gross margin before FV
adjustments on cannabis net revenue (2)(3b)

42

%

48

%

N/A

(6)

%

48

%

N/A

(6)

%

Adjusted gross margin before FV
adjustments on medical cannabis
net revenue (2)(3b)

56

%

59

%

N/A

(3)

%

59

%

N/A

(3)

%

Adjusted gross margin before FV
adjustments on consumer cannabis
net revenue (2)(3b)

27

%

38

%

N/A

(11)

%

33

%

N/A

(6)

%

Adjusted gross margin before FV
adjustments on wholesale bulk c
annabis net revenue (2)(3b)

(305)

%

N/A

N/A

N/A

61

%

N/A

(366)

%

SG&A expense

$41,972

$44,324

($2,352)

(5)

%

$87,301

($45,329)

(52)

%

R&D expense

$2,432

$2,584

($152)

(6)

%

$6,775

($4,343)

(64)

%

Adjusted EBITDA (2) (3c)

($16,802)

($57,891)

$41,089

(71)

%

($69,857)

$53,055

(76)

%

Balance Sheet

Working capital (6)

$592,746

$201,425

$391,321

194

%

$400,070

$192,676

48

%

Cannabis inventory and biological assets (2)(4)

$179,502

$166,178

$13,324

8

%

$200,868

($21,366)

(11)

%

Total assets (6)

$2,830,190

$2,757,272

$72,918

3

%

$4,656,046

($1,825,856)

(39)

%

Operational Results – Cannabis

Average net selling price of dried cannabis (2)

$4.00

$3.72

$0.28

8

%

$4.69

($0.69)

(15)

%

Kilograms sold (5)

15,253

16,139

(886)

(5)

%

9,501

5,752

61

%

(1) 

Includes the impact of actual and expected product returns and price adjustments (three months ended December 31, 2020 – $2.7 million; three months ended September 30, 2020 – $0.8 million).

(2) 

These terms are defined in the “Cautionary Statement Regarding Certain Non-GAAP Performance Measures” section of the MD&A.  Excluding product return provisions and restructuring charges, Adjusted EBITDA is $12.1 million.

(3) 

Refer to the following MD&A sections for reconciliation of non-GAAP measures to the IFRS equivalent measure:

a.

Refer to the “Revenue” section for a reconciliation of cannabis net revenue to the IFRS equivalent.

b.

Refer to the “Cost of Sales and Gross Margin” section for reconciliation to the IFRS equivalent.

c.

Refer to the “Adjusted EBITDA” section for reconciliation to the IFRS equivalent.

(4) 

Represents total biological assets and cannabis inventory, exclusive of merchandise, accessories, supplies and consumables.

(5) 

The kilograms sold is offset by the grams returned during the period.

(6) 

In accordance with IFRS 3 – Business Combinations, acquisition date fair values assigned to the Reliva purchase price allocation and goodwill have been adjusted, within the applicable measurement period, where new information is obtained about facts and circumstances that existed at the acquisition date. Refer to Note 12 of the Financial Statements.

Events Subsequent to Q2 2021 Quarter End

  • On January 14, 2021, Aurora entered into an agreement with Great North Distributors Inc., Canada’s first national sales broker for legalized adult-use cannabis, to be the exclusive representative for Aurora’s Canadian cannabis retail brands. Great North has reach across every province in Canada, including established relationships and expertise in working with provincially-owned and operated retailers and private retailers in Canada’s cannabis industry. The agreement was designed to significantly bolster Aurora’s market position in Canada.

  • On January 26, 2021, Aurora closed its bought deal public offering (the “Offering”) of units of the Company for total gross proceeds of US$137.9 million. The Company sold 13,200,000 Units at a price of US$10.45 per Unit, including 1,200,000 Units sold pursuant to the exercise in full of the underwriters’ over-allotment option. BMO Capital Markets and ATB Capital Markets acted as the bookrunners for the Offering. The Company believes that this opportunistic financing fits with its broader strategy to have a strong balance sheet while maintaining maximum flexibility to invest and build towards being a leader in global cannabinoids.

  • Additionally, Allan Cleiren, Chief Operating Officer, has decided to retire from the Company effective March 31, 2021. The Company would like to thank Allan for his years of dedicated service and wish him well in his future endeavours.

Aurora is a global leader in the cannabis industry serving both the medical and consumer markets. Headquartered in Edmonton, Alberta, 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. For more information, please visit our website at www.auroramj.com.

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