Aurora Cannabis Inc.

Greetings and welcome to the Aurora Cannabis Inc. Third Quarter 2021 Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your hosts, Anant Krishnan, Vice President, Corporate Development and Investor Relations. Please go ahead.

Thank you, Hector, and good afternoon, everyone. And thank you for joining us for the Aurora Cannabis third quarter fiscal 2021 conference call for the three months ended March 31st, 2021. This is being recorded today, Thursday, May 13th, 2021. With me today are Aurora's CEO, Miguel Martin, and CFO, Glenn Ibbitt. After the close of markets today, Aurora issued a news release announcing our financial results for the fiscal third quarter. This news release and the accompanying financial statements and MD&A are available on our website or on our CDAR and EDGAR profiles. In addition, you can find a Q3 supplemental information deck on our IR website. Listeners are reminded that certain matters discussed in today's conference call or answers that may be given to questions could constitute forward-looking statements that are subject to the risks and uncertainties related to the Aurora's future financial or business performance. Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect results are detailed in Aurora's annual information form and other periodic filings and registration statements. These documents may be accessed via the CDAR and EDGAR databases. Since we are conducting today's call from our respective remote locations, there may be brief delays, crosstalk, or other minor technical issues during this call. We thank you in advance for your patience and understanding. Following prepared remarks by Miguel and Glenn, we will conduct a question and answer session. To ensure we get to as many questions as possible, we ask the analysts to limit themselves to one question each. With that, I would like to turn the call over to Miguel. Please go ahead.

Thank you, Ananth, and good afternoon. I would like to start with some brief thoughts on the quarter, including a discussion of our domestic and international medical businesses, and then I'll address our plans for the near-term challenges in the Canadian adult use business. Afterwards, Glenn will provide his financial review. Finally, I'll talk more broadly about strategy and why we believe that Aurora, as the largest Canadian pure play cannabis LP in the market, has an incredible opportunity within the global cannabis space. I think it is clear from our results that Aurora benefits greatly from having built a diversified business across domestic medical, international medical, and adult use recreational markets. This provides us with both stability and growth, no matter how the global cannabinoids industry evolves. First, let me say by talking about our domestic medical cannabis business, which is on very solid ground. We're number one by revenue in Canada's medical market, which, as you know, is the largest federally regulated medical market in the world. And our estimated market share is nearly double that of our next largest competitor. Notably, our international medical business also thrived during the period. demonstrating sequential growth even as many of our peers experience declines. It should be mentioned that both of these units exhibit approximately 60% gross margins. The domestic medical business is unique as it represents a direct-to-patient distribution model that is powered by sophisticated technology infrastructure, allowing for an end-to-end patient experience. This infrastructure covers patient querying, onboarding, medical consultation, straight through to prescription fulfillment. We are extremely proud of the investment in technology and infrastructure we've made to service the medical patient base, and it provides a tangible barrier to entry to the medical channel. In an adult-use environment with low barriers to entry and provincial middlemen adding a layer of cost and complexity, the Canadian Medical Channel's direct-to-patient model is a welcome, sustainable, high-margin diversification piece to Aurora's business. We believe we offer the most expansive product selection and a carefully curated portfolio to ensure wide coverage of patient conditions at a variety of price points. Under my leadership, Aurora will maintain its focus on providing unparalleled professional counseling and guidance to patients looking for assistance in navigating medical cannabis alternative treatments. This high touch approach to the medical channel is unique and is not easily replicated in the adult use retail experience. Further, we continue to exhibit success leveraging these core capabilities from Canadian medical into our growing international medical platform. We sold medical cannabis in 12 countries during this quarter, and the number of countries exploring medical cannabis continues to grow. We've shown that we can take the expertise we gained in Canadian medical and export that internationally. And we continue to believe that this expertise represents a key success factor for Aurora as new countries look at launching medical cannabis regimes. Companies with success operating in federally regulated medical systems like those governed by Health Canada or the German Health Ministry are going to be advantaged when new markets open up to federal regulations, typically first for medical, then for recreational adult use. It should not be overlooked by anyone that on April 20th, in response to a question from the journalist, the White House press secretary publicly confirmed that President Biden supports legalizing medical cannabis. In a country like the United States, under a federally regulated system, we would fully expect the FDA to have significant influence in the federal medical cannabis program. And we think Aurora is uniquely advantaged when that happens. We view our enviable positioning in medical cannabis as a tailwind that over time will translate into success on a global scale. Taking this point one step further, as of March 31st, Aurora was the second largest Canadian LP in terms of global cannabis sales, and a leader across multiple markets and segments. We have earned the credibility to pursue incremental M&A opportunities in Canada, the United States and around the world in support of shareholder value creation. Still, consistent with our peers, the Canadian consumer business presented challenges during the quarter. In our view, these challenges were twofold. First, COVID-related lockdowns in key provinces made it more difficult for consumers to access products at retail. despite curbside pickup and online ordering for delivery as available options. Additionally, COVID slowed construction and opening of newly licensed stores, which had been expected. Second, due to the volatile environment, all of the provincial distributors have become more attuned to managing their inventory, to limit returns, rationalizing their SKUs, and focusing on profitability per SKU. However, it's undeniable that there exists great retailer interest in having a more premium-focused assortment and they are therefore taking a more accretive approach to margin as it pertains to 2.0 products versus just low-cost flour. This of course plays well into our strategy, even if it will take more time than we initially thought. As we have seen in more mature markets, a strategy which centers on product quality, innovation and manufacturing excellence is the best path forward for our adult use business. Our ability to build traction will be more achievable once the current COVID-related lockdowns ease, and provincial retail inventories are better aligned with product demand. Still, we are not simply waiting the process out in anticipation of normalization, followed by an eventual rebound. Instead, we are determined to continue pulling the levers that we can to reduce our cost structure and extract further efficiencies from our operations, and in doing so, position ourselves for sustainable cash flow generation. More specifically, we have identified an additional $60 million to $80 million in annualized savings that are targeted primarily at our production costs, facility, and logistic expenses, and to a lesser extent, SG&A. These efficiencies are expected to be realized over the next 18 months, and I'd like to remind you that our previous efficiency initiatives were delivered on time and provided more savings than originally expected. These identified efficiencies are incremental to the approximately $300 million in annual savings already realized and will enable us to meet our financial objectives while the Canadian adult use market normalizes, which may take a few quarters still. We anticipate that these expense reductions will not inhibit any of our strategic growth plans across our businesses or our current revenue opportunity, but they will help to reduce our cash burn, solidify our margins, and enhance our overall financial flexibility. To assist in the execution of our corporate plan, we have also hired two highly skilled individuals in the areas of operations and HR. Alex Miller, and Lori Schick to our team as we announced this afternoon in our press release. I'm not going to read their respective bios, but I think it is clear that we believe Lori and Alex will have the requisite experiences and skill sets to positively impact all of our business segments. So to sum things up, our Canadian and international medical businesses are performing well, and we maintain our confidence in the margin of creative initiatives we laid out on previous calls. Ultimately, we have both the plan and ability to pursue profitable growth opportunities and create a unique economic model that strikes the balance between where the industry is today and where it's going. This optimism is, of course, anchored by a healthy balance sheet that supports organic growth as well as M&A on an opportunistic basis. Both will position Aurora for long-term shareholder value creation. Before I turn the call over to Glenn, I want to address one more item. As many of you know, when Aurora's founders stepped down in February of 2020, Michael Singer stepped up and took over the reins as interim CEO in addition to his continuing role as executive chairman. We all owe Michael a huge debt of gratitude for his leadership during that time. Ron Funk was the lead independent director over that period and has proven to be a consistent and reliable voice in the boardroom for years. Michael would transition back to a more traditional board role and Ron would move to independent chairman effective immediately. We look forward to oversight from both of these directors as well as the broader board. as Aurora continues to grow and expand. With that, I'll turn it over to Glenn.