Aurora Cannabis Inc.

Greetings. Welcome to the Aurora Cannabis Inc. Fourth Quarter 2022 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. Please note this conference is being recorded. I'll now turn the conference over to your host, Anand Krishnan. You may begin.

Thank you, Operator. We appreciate you all joining us this afternoon. Today with me are Miguel Martin, CEO, and Glenn Ibbitt, CFO. After the market closed, Aurora issued a news release announcing our fiscal 2022 fourth quarter and full year financial results. This news release, accompanying financial statements and MD&A, will be available on our IR website and can also be accessed via CDAR and EDGAR. In addition, you will find the supplemental information deck on our IR website. Listeners are reminded that certain matters discussed on today's conference call could constitute forward-looking statements that are subject to risks and uncertainties related to our future financial or business performance. Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect actual results are detailed in our annual information form and other periodic filings and registration statements. These documents may similarly be accessed by ACIDAR and EDGAR. Following the prepared remarks by Miguel and Glenn, we will conduct a question and answer session for our covering analysts. We ask that you limit yourself to one question and then get back in the queue, please. With that, I will turn the call over to Miguel. Miguel, please go ahead. Thank you, Ananth.

Before discussing the business more broadly, let me begin with a brief discussion of our latest acquisition. A controlling interest in Bevo, one of the largest suppliers of propagated vegetables and ornamental plants in North America. This transaction, first and foremost, underscores a disciplined approach to capital allocation and, second, is consistent with both our immediate needs and our vision of becoming a leader in global cannabis. Bevel will be managed by its existing management team, who have over 85 years of agricultural experience and have consistently demonstrated growth in revenue and earnings over the past decade. Collectively, they retain a substantial equity ownership position as they embark on a robust growth plan. As part of the transaction, we have identified a profitable opportunity to repurpose the Aurora Sky Facility for orchid cultivation and vegetable propagation with minimal capital investment. This will greatly increase Bevo's production capability and extended shipping range in Canada and the United States. It will also enable us to generate incremental revenue and adjusted EBITDA while saving on previously announced wind-down and selling costs. The transaction is immediately accretive to Aurora, adding approximately $9 million of annual adjusted EBITDA, and importantly, is another tangible step towards our goal of adjusted EBITDA profitability on a run rate basis by December the 31st, 2022. We are pleased to have Bevo as our partner and expect our investment to drive significant shareholder value over the long run. Beyond the acquisition, we feel very good about our position in the market. Our optimism is based on the inherent strength of our global medical cannabis business where we remain the number one Canadian LP. Medical cannabis remains the best segment to invest in, as it is both defensive and stable in turbulent times, and commands enviable adjusted gross margins that consistently exceed 60%, two times that of consumer cannabis. And while our Canadian medical cannabis business is steady, our international business revenues increased by over 70% this fiscal year, with notable progress in Germany, Poland, the UK, and Australia. The second reason for our enthusiasm is we continue to excel at rationalizing the business to the current environment. As you know, our annualized cost savings of $150 to $170 million will be completed within the next two quarters. And once complete, we'll materially reduce our cash needs and get us closer to EBITDA break-evens. Our balance sheet is also a key differentiator and has enabled us to repurchase $155 million in convertible debt during Q4, which will result in considerable savings on cash interest costs. Additionally, we have approximately $370 million in cash as of yesterday, which makes Aurora one of only a handful of companies within the cannabis industry to have a net cash position. Finally, we feel great about our investment in science, which is beginning to pay off. Specifically, our breeding program has delivered nine new proprietary cultivars through our product pipeline since June of 2021, delivered meaningful improvement to yields, and is expected to generate incremental high-margin revenue through license agreements for these genetic innovations to other licensed producers. In fact, I'm excited to announce that we signed our first agreement to license genetics to a major Canadian LP during Q4, and we expect more to follow. So let's take a deeper dive into our global medical cannabis business. During Q4, international medical revenue was up 35% compared to last year, as our regulatory expertise, compliance protocols, testing, and science capabilities supported our leadership position. While revenue contributions for individual countries can certainly ebb and flow as these new markets develop due to various factors, including the timing of government approvals and import permits, We believe our exposure to nearly a dozen countries outside of Canada affords us relative insulation as it relates to the economic climate and conditions in specific countries across Europe, Israel, and Australia. In Poland, revenues nearly doubled year over year, and we maintained our number one market share position. We continue to invest in marketing efforts there to support our planned launch of new flour and extract products. In the UK, our revenues increased by 25% compared to Q4 last year, and we believe we're the market leader in the flower segment. The UK witnessed rapid growth in patient population over the last year, and we hope to see this continue as new clinics open up. Turning to Germany, we received EU GMP certification for our state-of-the-art domestic medical cannabis production facility in May and made our first shipment to German pharmacies that same month. Recall that we hold one of only three licenses in Germany and are number two in medical flower with a 17% volume share. Our market share is also growing steadily in the extract market thanks to new product innovation. During Q4, we also launched three sizes of dronabinol, making our first step into that category. While growth in patient numbers moderated during the year, Germany remains the largest market in the EU with 83 million citizens, but only about 100 to 120,000 medical cannabis patients. We are certainly well aware of some of the economic challenges that Germany is facing at the present time as it grapples with the war in Ukraine and the impact that is having on energy prices and inflation. Still, we are hopeful that growth will pick back up this fiscal year, even against this backdrop, driven by doctor education and a simplified reimbursement process. We expect to begin generating revenues in France in 2023, where we are currently the only supplier of dried flower in the pilot program. Finally, in Australia, our Q4 revenue rose 700% year over year, driven by a record number of patients. Let me reiterate that we believe that cannabis growth story will center on international medical and recreational over the next several years. Right now, we believe there are about 150,000 patients in Europe alone. And if the countries that have so far legalized medical cannabis were to reach similar adoption levels to Canada, 1% of the adult population, the patient pool could expand to 3.5 million people. This fiscal year, we expect a number of new medical markets to come online, and several governments have announced plans for recreational schemes, most notably Germany. So it's a massive opportunity. We believe our success in medical cannabis provides us with a significant first-mover advantage. and our leadership will be portable to rec markets as they open up. Turning to the Canadian medical market, our leading market share was over 24%, while insured patients comprised 81% of our domestic medical sales, up from 79% in Q3. Our net revenue per order and per participating patient had both significantly increased over the past year due to a shift towards higher-value insured patients, while our direct-to-consumer approach continues to drive industry-leading margins. Overall revenue was flat in Q4 compared to Q3, but we attribute our share gain to the best-in-class service we offer, along with new premium products and innovations. We note that acquiring, retaining, and moving the patient through the process requires significant resources and experience. And much of that same infrastructure and know-how with patients in Canada is directly applicable to our success in Europe. Switching to Canadian Adult Rec, our Q4 revenue increased by $2.3 million as compared to the prior quarter. The increase was primarily due to our strength in product offerings in certain categories, along with seven weeks of results from Thrive. Their premium consumer cannabis net revenue added about $1.4 million. While the environment at Canadian Rec has seen prolonged macro challenges, we are beginning to see signs of stabilizations. and we remain focused on maximizing profitability through low-cost production and by entering higher margin categories. The market also continues to highlight the importance of innovation and the SKU lifecycle, with a typical SKU generating 80% of its lifetime value in the six months following launch. Thirteen SKUs were launched across our REC and medical channels in June alone, and we have a stacked pipeline that should serve us well over the coming quarters. More broadly, we believe that our scientific leadership in cannabis breeding and genetics provides Aurora with a unique advantage that drives value in all tiers of the consumer and medical categories. Our breeding program has delivered nine new proprietary cultivars to our product pipeline since June of 2021. As well as bringing new products to consumers, they deliver meaningful improvements in yield, which will allow us to boost top-quality flower at industry-leading margins. For example, our new farm gas cultivar delivers nearly double the yield of our traditional staple cultivars and does so at an average of 26.5% THC. And with that, I would now like to turn the call over to Glenn for our financial review. But let me quickly say that we've made incredible strategic progress during the year. We are on track with our transformation plan, and we feel very optimistic about the future of the business.