Aurora Cannabis Inc.

Greetings and welcome to the Aurora Cannabis Incorporated Fiscal 2023 First Quarter Conference Call. All participants will be in a listen-only mode and a question and answer session will follow the formal presentation. This conference call is being recorded today, Thursday, November 10th of 2022. I would now like to turn the conference over to your host, Ananth Krishnan, Vice President, Strategic Finance. Thank you, sir. Please go ahead.

Thank you, John. We appreciate you all joining us this afternoon. With me today are CEO Miguel Martin and CFO Glenn Ibbitt. After the market closed, Aurora issued a news release announcing our fiscal 2023 first quarter financial results. This news release, accompanying financial statements and MD&A, are available on our IR website and can also be accessed via CDAR and EDGAR. In addition, you can 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 via CDAR and EDGAR. Lastly, I want to remind everyone that we will be holding our annual general and special meeting of shareholders on November 14th, and the meeting materials have been mailed out to shareholders or can be found on CDAR or on our IR website. We encourage you to review the meeting materials before voting your shares at the meeting and look forward to your participation in the virtual-only format. Following prepared remarks by Miguel and Glenn, we will conduct a question and answer session with our covering analysts. However, we ask that you limit yourselves to one question and then get back in the queue for follow-up. With that, I will turn the call over to Miguel. Please go ahead.

Thank you, Anant. We will keep our remarks brief as our Q4 conference call was held recently, but I wanted to reiterate a few key items before I turn the call over to Glenn for an in-depth financial review. We are very close to achieving our primary objective of reaching positive adjusted EBITDA by the end of the calendar year. This will be an incredible achievement that we believe is also sustainable. In fact, the structural changes we have made over the past several quarters have resulted in long-term benefits for Aurora, and we look forward to demonstrating consistent financial performance in the coming quarters. Our enthusiasm is anchored by our position as the number one Canadian LP in global medical cannabis, And the underlying top-line trend is undeniable, upwards and to the right, with a loyal base of patients within existing medical markets and more developed countries poised to open up. Beyond revenue, medical cannabis also commands enviable adjusted gross margins that consistently exceed 60%, twice that of consumer cannabis. For these reasons, along with its defensive nature and volatile times, we believe medical is the best segment to invest behind. The second anchor of our enthusiasm has been our ability to rationalize the business to the current environment. The annualized cost savings of $150 to $170 million will be complete by the end of the calendar year, at which time we will have materially reduced our cash burn and become EBITDA positive, as I said a moment ago. A third anchor of success is our balance sheet, which is stronger than ever. It has enabled us to repurchase approximately $217 million in convertible debt since Q3 2022 and has resulted in considerable savings on cash interest costs, about $12 million annually. We are further benefiting from improved working capital and cash flow and are fortunate to be one of only a handful of companies within the cannabis interest that have a net cash position. In turbulent and uncertain times, this is imperative. Finally, our investments in science, breeding, and genetics are really beginning to pay off. Proprietary cultivars launched from our breeding program in the last 12 months were responsible for almost a third of our revenue in Canada during Q1, have driven meaningful improvements to yields, and are now generating incremental high-margin revenue through license agreements. We recently signed royalty-based agreements to license genetics to two of the largest Canadian LPs by cannabis revenue and expect more to follow. So with those key strengths as a backdrop, let's take a deeper dive into our global medical cannabis business. During Q1, international medical revenue fell compared to Q4 last year. This was largely due to timing of shipments to the Australian market, which resulted in lower sales in Q1, although we expect a solid delivery and recovery in Q2. As we have long said, international is somewhat unpredictable on a quarter-to-quarter basis, and revenue contributions from individual countries can ebb and flow as these new markets develop. This is why it is so important for us to be operating across many countries, nearly a dozen outside of Canada. Our broad reach affords us relative insulation to the economic climate and conditions in specific markets across Europe, Israel, and Australia, and means the overall trend is towards growth. And our regulatory expertise, compliance protocols, testing, and science capabilities support our leadership position. Now let's discuss developments in a few select countries. In Germany, the largest market in the EU, with 83 million citizens, with only about 100,000 to 120,000 medical cannabis patients, the health minister presented a cornerstone paper on planned rec legislation on October 26. The plan is designed to regulate the controlled distribution and consumption of cannabis for recreational purposes among adults, and he said it could become law in 2024. We believe Aurora's position as one of only three companies with a medical domestic production license and our current position with the number two LP in the dry flower segment will give us a significant advantage as the regulatory framework continues to be developed. In Poland, we are maintaining our leadership position by continuing to invest in marketing to support our flower and extract products despite new entrants. We completed two shipments during Q1 and submitted dossiers for three new products for regulator review. with a timeline to market of approximately one year. In France, a market that we believe could be as big as Germany, authorities have announced that the French medical cannabis pilot program is going to be extended by another year until March of 2024. After an internal assessment, as well as discussions with our distribution partner, we've decided to continue participating as the sole supplier of dry flower to the country to ensure Aurora's position for success following the French pilot. In the Czech Republic, beyond our continued success in the dry flower segment, regulators approved the import of new extract products, including THC-dominant and balanced extracts. We also hold leadership positions in other key markets, including the UK and Australia, and expect continued growth in these markets as the number of prescribers and patients steadily grow. And so the cannabis growth story continues to play out across international medical and recreational markets. and growing acceptance acting like a domino effect. The bottom line is this, as we've said many times, our success in medical cannabis provides us with a significant first mover advantage, and we believe our leadership will be portable to rec markets as they open up. Turning to the Canadian medical market, we saw some churn of non-insured patients, but we continue to improve the contribution of this business through finding efficiencies. Importantly, the absolute level of revenue from insured patients has not declined, and insured patients comprise 83% of all medical sales compared to 81% in Q4, while our leading market share is approximately 24%. We are very optimistic about the future of this segment as we continue to increase the number of patients in the insured category and have seen consistent increases in basket size and participation rates over the past few quarters as we continue to improve our offerings. Switching to Canadian adult rec, our Q1 revenue increased sequentially by 9%, compared to Q4, primarily because of our strength in product offerings made possible through our Thrive acquisition. In Q1, we benefited from an extra month of Thrive contributions versus the previous quarter. However, the Aurora business declined slightly due to the OCS cyber attack and the strike in BC. But thankfully, those issues are now fully resolved. In addition, margins were roughly flat quarter over quarter. Looking ahead to Q2, we will miss the shipping week due to the December holidays. As our Canadian rec business continues to evolve, despite a long and continuing period of macro challenges, our focus remains on maximizing profitability through low-cost production in high-margin categories. We continue to believe our investment in science innovation drives a significant competitive advantage, and this quarter debuted an unprecedented fall lineup of cannabis products across adult use and medical markets. These new products were developed from a deep understanding of consumer and patient interests and needs and contain all the critical components necessary to compete. Intense and exciting aromas, key visual and tactile attributes, and high-potency THC. In fact, beginning last month, Aurora patients were given access to the largest ever selection of products and formats on Aurora Medical. During Q1, we launched 24 SKUs in the medical channel, and we'll be launching another 78 in Q2. The products from our full portfolio of adult-use cannabis brands, including bean quick strips, graybeard premium flour, a wider selection of free rolls, new concentrates, and a new offering of minor cannabinoid oils. This online rollout was then followed by availability in Canadian adult-use retailers with select products available in certain regions. The synergies related to innovation and the leveraging of infrastructure in developing and launching medical, and adult products are clear, and our ability to be competitive in both provide us with inherent advantages. Turning to our scientific leadership in cannabis breeding and genetics, we think these attributes will provide us with a distinct advantage that drive value across all tiers of the consumer and medical categories, as our new product launches demonstrate. We continue to drive meaningful improvements in yield through new proprietary cultivars, while our breeding program enables us to produce top-quality flour at industry-leading margins. As an example, our farm gas cultivar delivers nearly double the yield of our traditional cultivars and does so on an average of 26.5% THC. We also remain committed to furthering medical cannabis clinical research in Canada, with the first shipment of product to a palliative care study occurring last August. Finally, let's discuss Bevo, which is one of the largest suppliers of propagated vegetables and ornamental plants in North America. Recall that we purchased a controlling interest in Bevo back in August and anticipate that it will drive significant shareholder value to us in the long run. As part of the transaction, we are repurposing the Aurora Sky facility for orchid and vegetable propagation with minimal capital investment. This will greatly increase Bevo's production capability and extended shipping range in Canada and the U.S. It will also enable us to generate incremental revenue and adjusted EBITDA while saving on previously announced wind down in selling costs. For the approximately five weeks that we controlled Babel in Q1, it contributed $3.3 million to our revenues and Achieve adjusted gross margins of 16%. When we announced the controlling investment in Babel, we highlighted the seasonal nature of their business. with the January to June period representing the majority of the revenue and EBITDA generation of the business. Bevo is performing to internal expectations and is expected to be a positive contributor to our path to positive adjusted EBITDA. And with that, I'd like to turn the call over to Glenn for our financial review.