Aurora Cannabis (ACB.TO)(ACB) has announced plans to shore up its balance sheet that include halting construction plans at facilities in Alberta and Denmark, and settling a convertible debenture due in March.
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, that’s 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. There's been no shortage of negative news.”
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.
Analysts had expected revenue of $90.6 million, and an adjusted EBITDA loss of $19.5 million, according to Bloomberg estimates.
In a dramatic shift from the industry-wide race to grow production capacity, Aurora announced it will scale back development of its cultivation footprint.
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.
“With the work completed to date, the company will be well positioned to advance these capital projects as global demand or as Aurora's 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.”
Battley touted a number of bright spots in the quarter, including the company’s 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.
Ibbott said it’s tough to overstate the importance of Aurora’s production efficiencies.
“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.
“Let's 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, let's say, a 30 per cent gross margin, would need almost $270 million in revenue to break even.”