Aurora Cannabis halts construction plans after miss in latest quarter – Yahoo Canada Finance

Aurora Cannabis halts construction plans after miss in latest quarter - Yahoo Canada Finance
Aurora becomes latest pot firm to miss estimates
The Edmonton-based licenced producer reported sales of $75.3 million in its fiscal first quarter of 2020. Adjusted EBITDA was negative $39.7 million for the period ended Sept. 30, compared to $26.6 in the fourth quarter of 2019. Sales into the Canadian recreational market dropped 33 per cent to $30 million.

Obviously, thats not the number we were hoping for, chief corporate officer Cam Battley told analysts on a Thursday night post-earnings conference call. The past few months have been challenging for the broader cannabis industry between issues of governance, evolving consumer demand and provincial retail bottlenecks. Theres been no shortage of negative news.

This news also release includes statements containing certain "forward-looking information" within the meaning of applicable securities law ("forward-looking statements"). Forward-looking statements are frequently characterized by words such as "plan", "continue", "expect", "project", "intend", "believe", "anticipate", "estimate", "may", "will", "potential", "proposed" and other similar words, or statements that certain events or conditions "may" or "will" occur and include, but are not limited to the settlement of the March Convertible Debentures,  reduction in capital investments, and the successful launch and replenishment strategy for Cannabis 2.0 . These statements are only predictions. Various assumptions were used in drawing the conclusions or making the projections contained in the forward-looking statements throughout this news release. Forward-looking statements are based on the opinions and estimates of management at the date the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. These risks include, but are not limited to, the ability to retain key personnel, the ability to continue investing in infrastructure to support growth, the ability to obtain financing on acceptable terms, the continued quality of our products, customer experience and retention, the development of third party government and non-government adult-use  sales channels, managements estimation of consumer demand in Canada and in jurisdictions where the Company exports, expectations of future results and expenses, the availability of additional capital to complete construction projects and facilities improvements, the risk of successful integration of acquired business and operations, the ability to expand and maintain distribution capabilities, the impact of competition, and the possibility for changes in laws, rules, and regulations in the industry. The Company is under no obligation, and expressly disclaims any intention or obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by applicable law.

New York-listed shares fell 13.64 per cent to $2.85 in pre-market trading on Friday, the lowest level since recreational legalization in Canada. 

Forward Looking Statements and Non-IFRS Industry MeasuresThis news release makes reference to certain non-IFRS measures, including certain industry metrics. These metrics and measures are not recognized measures under IFRS do not have meanings prescribed under IFRS and are as a result unlikely to be comparable to similar measures presented by other companies. These measures are provided as information complimentary to those IFRS measures by providing a further understanding of our operating results from the perspective of management. As such, these measures should not be considered in isolation or in lieu of review of our financial information reported under IFRS. This news release uses non-IFRS measures including "cannabis net revenue", "Adjusted EBITDA", "cannabis inventory and biological assets", "cash cost to produce per gram sold", "average net selling price", "production capacity", and "SG&A".  The foregoing are commonly used operating measures in the industry but may be calculated differently compared to other companies in the industry. These non-IFRS measures, including the industry measures, are used to provide investors with supplementary measures of our operating performance that may not otherwise be apparent when relying solely on IFRS metrics. Definitions of the non-IFRS measures can be found in our financial statements, MD&A and this news release.

Analysts had expected revenue of $90.6 million, and an adjusted EBITDA loss of $19.5 million, according to Bloomberg estimates.

In addition to the Companys rapid organic growth and strong execution on strategic M&A, which to date includes 17 wholly owned subsidiary companies – MedReleaf, CanvasRX, Peloton Pharmaceutical, Aurora Deutschland, H2 Biopharma, BC Northern Lights, Larssen Greenhouses, CanniMed Therapeutics, Anandia, HotHouse Consulting, MED Colombia, Agropro, Borela, ICC Labs, Whistler, Chemi Pharmaceutical, and Hempco – Aurora is distinguished by its reputation as a partner and employer of choice in the global cannabis sector, having invested in and established strategic partnerships with a range of leading innovators, including: Radient Technologies Inc. (TSXV: RTI), Cann Group Ltd. (ASX: CAN), Micron Waste Technologies Inc. (CSE: MWM), Choom Holdings Inc. (CSE: CHOO), CTT Pharmaceuticals (OTCC: CTTH), Alcanna Inc. (TSX: CLIQ), High Tide Inc. (CSE: HITI), EnWave Corporation (TSXV: ENW), Capcium Inc. (private), Evio Beauty Group (private), and Wagner Dimas (private).

In a dramatic shift from the industry-wide race to grow production capacity, Aurora announced it will scale back development of its cultivation footprint.

Highly differentiated from its peers, Aurora has established a uniquely advanced, consistent and efficient production strategy, based on purpose-built facilities that integrate leading-edge technologies across all processes, defined by extensive automation and customization, resulting in the massive scale production of high-quality consistent product. Designed to be replicable and scalable globally, our production facilities are designed to produce cannabis at significant scale, with high quality, industry-leading yields, and low-per gram production costs. Each of Auroras facilities is built to meet European Union Good Manufacturing Practices ("EU GMP") standards. Certification has been granted to Auroras first production facility in Mountain View County, the MedReleaf Markham facility, and its wholly owned European medical cannabis distributor Aurora Deutschland. All Aurora facilities are designed and built to the EU GMP standard.

Under the plan, the company will immediately cease construction activity at its Aurora Nordic 2 facility in Denmark, which is expected to save approximately $80 million over the next year. The company has also decided to defer construction activity at its Aurora Sun facility in Medicine Hat, Alta., for the foreseeable future to conserve about $110 million in cash.

These adjustments will result in a significant decrease in our ongoing quarterly level of capital investment and are expected to conserve approximately $190 million of cash over the next few quarters as compared to our previous build-out plan, chief financial officer Glen Ibbott said on the call. 

Mr. Booth added, "In order to capitalize on this global market, we recognize the need to be nimble and proactive. To enhance our financial flexibility and position us to take maximum advantage of future growth opportunities, we have also taken decisive steps to immediately strengthen our balance sheet. Specifically, these steps include: (1) the announcement of a formal plan to settle our 5.0% convertible debentures due March 2020, (2) a reduction in our capital investments over the next several quarters by over $190 million to better match near-term capacity expansion with anticipated demand, while maintaining our long-term demand outlook, and (3) raising over US$124 million in gross equity proceeds since the start of fiscal 2020 through our at-the-market ("ATM") financing program."

With the work completed to date, the company will be well positioned to advance these capital projects as global demand or as Auroras market share grow.

Other steps include, the announcement of a formal plan to settle our five per cent convertible debentures due March 2020… and raising over US$124 million in gross equity proceeds since the start of fiscal 2020 through our at-the-market financing program.

Effective October 17, 2019, new regulations under the Cannabis Act came into effect which will allow for the sale of higher value, in-demand products such as vape pens, edibles, and other derivatives in the consumer market ("Cannabis 2.0"). The implementation of Cannabis 2.0 remains the most important market opportunity for the Company in Canada. Aurora is extremely well positioned and has prioritized its resources to prepare for a successful initial launch and supported an ongoing replenishment strategy to ensure consumers across Canada will have access to a diverse portfolio of high-quality derivative products they want to buy. Aurora expects to begin shipping these new product formats to provincial regulators starting late December 2019.

Battley touted a number of bright spots in the quarter, including the companys steady 58 per cent gross margin, reducing cash cost to produce 25 per cent to $0.85 per gram, and a three per cent gain on net selling price to consumers to $5.28 per gram.

The global medical cannabis and hemp derived cannabinoids markets represent a significant opportunity for Aurora. To support the Companys prospects in these markets, Aurora continues to make necessary investments that will build long-term value for its shareholders while balancing growth with prudent financial management and capital allocation. This focus includes aligning Auroras planned cultivation assets and capital expenditures with global cannabis demand. With the Companys operating cultivation assets outperforming nameplate capacity, Aurora is positioned to the meet near term global market demand and to pursue long term white label and contract manufacturing agreements with distribution partners in the Canadian and international markets.

We have a suite of production assets that deliver very high-quality cannabis on a consistent basis and with the lowest production costs among those of our peers that are operating at scale, Ibbott said. 

Consolidated net revenue was $75.2 million in Q1 2020 as compared to $98.9 million in the prior quarter. Medical cannabis net revenues increased to $30.5 million in Q1 2020, up 3% over the prior quarter. Consumer cannabis revenues were $30.0 million in Q1 2020, a decline of 33% from the prior quarter and contributed 40% to total consolidated net revenue. The decline in cannabis net revenues is primarily attributable to previously identified constraints in Canadian consumer retail and distribution infrastructure coupled with a decline in wholesale revenues. The Canadian wholesale market is rapidly evolving and remains an important long-term opportunity for Aurora.

Lets consider two comparable companies, each with $80 million of quarterly SG&A. Aurora would need to generate about $130 million of revenue to flip to profitability. A comparable company, lets say, a 30 per cent gross margin, would need almost $270 million in revenue to break even. 

During Q1 2020, Aurora produced 41,436 kilograms of cannabis as compared to 29,034 kilograms in the prior quarter. The 42.7% increase in production output was primarily due to continuing production scale up at the Companys Aurora Sky facility. While Aurora Sky has delivered well above expectations from a capacity perspective, in responding to shifting consumer preferences the Company is likely to plant higher potency, lower yielding strains which are in higher demand in the recreational market. As such we do not expect near term production to reach levels achieved in Q1 2020, and the Company continues to operate at a 150,000 kg annual production capacity.

22h ago Aurora latest pot firm to disappoint as recreational sales plunge 33% Kristine Owram, Bloomberg News

Headquartered in Edmonton, Alberta, Canada with funded capacity in excess of 625,000 kg per annum and sales and operations in 25 countries across five continents, Aurora is one of the worlds 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.

Aurora Cannabis Inc. shares fell 9 per cent in post-market trading as it became the latest pot company to miss estimates.

Aurora reported quarterly net revenue of $75.2 million (US$56.8 million), below the average analyst estimate of $90.6 million. Sales into the Canadian recreational market tumbled 33 per cent to $30 million.

Average net selling price of cannabis increased by $0.36 per gram over the prior quarter from $5.32 in Q4 2019 to $5.68 in Q1 2020. This increase is primarily attributable to an increase in the average net selling price of consumer cannabis coupled with a decrease in sales volumes to the bulk wholesale markets which yield lower average net selling prices as compared to the consumer and medical markets.

The companys adjusted loss before interest, taxes, depreciation and amortization was $39.7 million, wider than the expected $20.8 million. It also appeared to walk back its statement last quarter that it continues to track toward positive adjusted Ebitda, citing near-term challenges to achieving positive adjusted Ebitda.

The other near-term focus and market opportunity for the Company is expanding its operating footprint in the United States. To ensure a successful entry, Aurora is evaluating a number of potential accretive alternatives with a focus on adding operating cash flows. The Company is committed to engage only in activities which are permissible under both state and federal laws.

Aurora said it has ceased construction at its Aurora Nordic 2 facility in Denmark, which will save approximately $80 million over the next year. The company also reached an agreement with investors holding about $155 million of its March 2020 convertible debentures to convert early at a lower price.

Earlier Thursday, Canopy Growth Corp. reported revenue that missed the lowest analyst estimate amid a large restructuring charge, sending its shares to the lowest since 2017. Investors are growing increasingly impatient with cannabis companies that dont show a clear path to profitability.