Aurora Cannabis Announces Fiscal 2021 Third Quarter Results

Domestic Medical Net Revenue Steady at $26.9 Million

· Strong International Medical Net Revenue of $9.4 Million

· Total Cannabis Net Revenue, Excluding Provisions, of $58.4 Million

· Business Transformation Plan Continues, Management Expects to Deliver Incremental Cost-Saving Measures of $60 Million to $80 Million Annually

· Balance Sheet Remains Strong with ~$525 Million of Cash on Hand at May 12, 2021

· Lead Independent Director Ronald Funk Appointed as Chairman, Michael Singer to Remain Board Member
Aurora Cannabis Inc. (the “Company” or “Aurora”) (NYSE | TSX: ACB), the Canadian company defining the future of cannabinoids worldwide, today announced 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 LP during the period. This is critical, because we expect being #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 #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 eighteen months and are incremental to the ~$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 M&A, particularly in the U.S.”

Third Quarter 2021 Highlights
(Unless otherwise stated, comparisons are made between fiscal Q3 2021 and Q3 2020 results and are in Canadian dollars)

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

Reflecting the shift in mix toward our medical businesses, the Q3 2021 average net selling price per gram of dried cannabis[1]increased to $5.00 per gram from $4.64 in Q3 2020 and $4.45 in Q2 2021. This excludes the impact of the Q3 2021 bulk wholesale of excess lower-potency cannabis flower at clear-out pricing.

Adjusted gross margin before fair value adjustments on cannabis net revenue[1] was 44% in Q3 2021, versus 43% in Q3 2020. The increase in adjusted gross margin is due to a significant shift in revenue mix towards our 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 under-utilization of capacity.

Adjusted EBITDA¹ loss was $24.0 million in Q3 2021 ($16.7 million loss excluding restructuring charges and product swap provisions) compared to the prior year Adjusted EBITDA loss¹ of $49.6 million primarily driven by the substantial decrease in SG&A and R&D expenses and continued healthy gross margins.

Medical cannabis:

Medical cannabis net revenue[1] was $36.4 million, a 17% 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% over the prior year comparative period.
Adjusted gross margin before fair value adjustments on medical cannabis net revenue[1] was 59% versus 60% in the prior year, remaining strong despite the increase in cost of sales from the under-utilized capacity at Aurora Sky and the continued ramp up of the Aurora Nordic facility in Europe.

Consumer cannabis:

Consumer cannabis net revenue[1] was $18.0 million ($21.3 million excluding provisions), a 53% 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 our new contract sales force, and 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[1] was 21% versus 28% in the prior year period, primarily driven by a $1.8 million increase in cost of sales due to under-utilized capacity as a result of the scaling back 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% 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 December 15, 2020, Aurora has aligned production to current demand and reduced network complexity in order to improve its operational flexibility and cashflow. The Company is currently operating Aurora Sky at 25% 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 fund operations, excluding working capital investments and 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 Q2 2021. 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 over the past year. The Company’s ongoing 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.

The main components of cash source and use in Q3 2021 were as follows:

Includes impact of foreign exchange rates on USD cash raised from financing
Includes restricted cash of $45.0M for Q3 2020 held as cash collateral under the BMO Credit Facility.
Ending cash balance above includes restricted cash of $50.0M for Q3 and Q2 2021, as required under the amended BMO Credit Facility. The 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.
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.

Includes the impact of actual and expected product returns and price adjustments (Q3 2021 – $3.2 million; Q2 2021 – $2.7 million; Q3 2020 – $2.9 million).
These terms are defined in the “Cautionary Statement Regarding Certain Non-GAAP Performance Measures” of the MD&A.
Refer to the following sections for reconciliation of non-GAAP measures to the IFRS equivalent measure:
1. Refer to the “Revenue” section for a reconciliation of cannabis net revenue to the IFRS equivalent.
2. Refer to the “Cost of Sales and Gross Margin” section for reconciliation to the IFRS equivalent.
3. Refer to the “Adjusted EBITDA” section for reconciliation to the IFRS equivalent.
Represents total biological assets and cannabis inventory, exclusive of merchandise, accessories, supplies and consumables.
The kilograms sold is offset by the grams returned during the period.
As a result of the Company’s divestment of its wholly owned subsidiaries, Aurora Larssen Projects (“ALPS”) and Aurora Hemp Europe (“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 divestitures.
Amounts have been retroactively restated for the change in accounting policy for inventory costing relating to by-products and the allocation of production management staff salaries. Refer to the “Change in Accounting Policies” section in Note 2(e) of the Financial Statements.

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 12-18 months. The efficiencies are expected to be $40 million – $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 markets 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 Mr. Ronald Funk, lead independent Director, has assumed the role of Chairman, effective immediately. Mr. 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+ years in senior executive roles managing profitable regulated CPG 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 proven himself to be an effective leader as the Company has grown and evolved. Mr. Singer has served as Interim CEO from February to September 2020, during which time he managed the Company’s business transformation towards profitability and transitioning management, including the hiring of CEO Miguel Martin.

Aurora has also announced the appointment of Mr. Alex Miller to the role of Executive Vice President, Supply Chain and Ms. Lori Schick to the role of Executive Vice President, Human Resources. Alex Miller brings 25+ 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. Lori Schick brings 20+ years of global human resources leadership experience leading organizational transformation and building high performance teams. Most recently Lori was Senior Vice President and Head of People at Holt, Renfrew & Co.

Stock Exchange Listing Transfer to NASDAQ from NYSE

Aurora also announced that it will transfer its U.S. stock exchange listing from the New York Stock Exchange (“NYSE”) to The Nasdaq Global Select Market (“Nasdaq”), 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 Martin.

Filing of Prospectus Supplement

Aurora intends to file a new prospectus supplement for a U.S. $300 million 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 U.S. 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 today, May 13, 2021, to discuss these results. Miguel Martin, Chief Executive Officer, and Glen Ibbott, Chief Financial Officer, will host the call starting at 5:00 p.m. Eastern time / 3:00 p.m. Mountain Time. A question and answer session will follow management’s presentation.

Conference Call Details