Aurora Cannabis Inc. (ACB) Earnings Call Transcript & Summary

Greetings, and welcome to the Aurora Cannabis Inc. 2024 Annual General and Special Meeting. I will now turn the call over to Ron Funk, Aurora's Chairman. Please go ahead.

Ladies and gentlemen, my name is Ron Funk, and I am the Chairman of Aurora Cannabis Inc. I'd like to welcome you all to our Annual General and Special Meeting for the company's financial year ended March 31, 2024. I will act as Chairman of this meeting. Joining me today is Miguel Martin, Chief Executive Officer; and Nathalie Clark, General Counsel and Corporate Secretary at Aurora. I now call the meeting to order and will commence with the formal proceedings to appoint a Recording Secretary and a scrutineer for the meeting. I appoint Nathalie Clark to act as Recording Secretary for the meeting and Vanessa Lee of Computershare Trust Company of Canada as scrutineer for the meeting. This meeting is being held in a virtual-only format, which is being conducted via live audio webcast. In terms of formal procedures of today's meeting. As Chairman of this meeting, I will propose motions and in accordance with the articles of the company, no motion proposed by me need to be seconded. We will conduct the votes on the matters before us by a poll on the virtual platform. On a poll, every shareholder entitled to vote on the matter has 1 vote for each share entitled to be voted on the matter and held by that shareholder. The poll will be open for all resolutions at the same time. This will allow you to choose to vote on each resolution immediately or wait until the conclusion of discussion on each resolution prior to casting your vote. Due to the format, there will not be an opportunity to address the meeting in real time during the formal proceedings. However, registered shareholders or duly appointed proxy holders will be able to enter questions to be addressed during the Q&A session following conclusion of the formal portion of the meeting. As is the case with an in-person meeting, due to time constraints, we may not have time to address all questions through the platform and ask that you follow-up with our Investor Relations team if your question is not answered today. There is an online presentation that you will be able to view during the course of the meeting, and viewers are asked to please refer to the disclaimer with regards to forward-looking statements as set out in the presentation. In addition, certain matters discussed during this meeting that are not statements of historical fact could constitute forward-looking statements which are also subject to risks and uncertainties related to our future financial or business performance. Viewers and listeners are cautioned not to place undue reliance on these forward-looking statements. These forward-looking statements are based on certain assumptions that management considers to be reasonable. Material factors or assumptions involved in developing forward-looking statements include, without limitation, publicly available information from governmental sources, as well as from market research and industry analysis and on assumptions based on data and knowledge of this industry, which the company believes to be reasonable. Actual results could differ materially from these -- from those anticipated in these forward-looking statements. and the risk factors that may affect actual results are detailed in our annual information form and other periodic filings and registration statements. These documents can be accessed via SEDAR and EDGAR. I now declare the polls open on all resolutions. The notice calling this meeting and all proxy-related materials were delivered to shareholders by notice and access with the materials posted on the company's website. All registered and beneficial shareholders received a notice -- received a notice and access notification. I have a declaration as to the notice and access meeting mailing for this meeting, which is available for inspection by any shareholder. In view of this, I will dispense with calling for a reading of the notice, and I will ask the Recording Secretary to file the declaration of the notice and access meeting mailing with the minutes of this meeting. Does the Recording Secretary have the scrutineer's report on attendance?

Yes, I do, Mr. Chairman. The scrutineers' preliminary written report on attendance states as follows: 0 shareholders in person representing 0 shares; 189 shareholders by proxy representing 14,855,306 shares; 189 total shareholders holding 14,855,306 shares for total shares represented of 54,548,700 shares. The percentage of outstanding shares represented at the meeting is 27.23%. This attendance meets the quorum requirements for the meeting.

Thank you, Nathalie. The notice of the meeting having been given as required and a quorum being present, I declare this meeting to be duly called and constituted for the transaction of business. The minutes of the last Annual General Meeting of the company held on August 14, 2023, are filed in the company's record book. I now put forward a motion that the reading of the minutes of the last Annual General Meeting of the company be dispensed with and that the minutes be taken as read and approved. May I please have a motion that the minutes be taken as read, approved and adopted as tabled?

So moved.

Thanks, Miguel. Motion carried. I will now table the financial statements for the company's financial year ended March 31, 2024. The report of the auditor, KPMG LLP, and the related management's discussion and analysis thereon. These financial statements have been filed by the company on SEDAR. I would like to propose that we dispense with reading the financial statements. Please note that there will be a Q&A session after the formal portion of this meeting to discuss the company's financial situation and prospects. May I please have a motion that we dispense with reading the financial statements?

So moved.

Thanks again, Miguel. Motion carried. Accordingly, I confirm that the financial statements of the company for the financial year ended March 31, 2024, the report of the auditor and related management's discussion and analysis thereon have been submitted and shall be included by the Recording Secretary as part of the formal records of this meeting. The next item of business is to fix the number of directors for the ensuing year. Management proposes to fix the number of directors to be elected to the Board at 7. I move that the number of directors for the ensuing year be fixed at 7. I now call for a vote on the motion before the meeting. If you are a shareholder or voting delicate, who is using the virtual platform to vote on this matter, you may do so now. If you have previously voted on this matter and do not wish to change your vote, no further action is required. Would all voting delegates please enter your votes in the system? [Voting]

The next item of business is the election of directors for the ensuing year. Management proposes to nominate 7 persons for election to the Board. These persons are all described in the proxy materials, and all of the nominees have agreed to stand for election. The company's articles include advanced notice provisions, which provide for advanced notice to the company in circumstances where nominations of persons for election to the Board are made by shareholders of the company. The company has not received notice of any nominations and as such, any nominations other than the nominations disclosed in the proxy materials for this meeting may be disregarded. Therefore, I nominate the following 7 persons as directors for the ensuing year: Miguel Martin, Chitwant Kohli, Theresa Firestone, Norma Beauchamp, Michael Singer, Rajesh Uttamchandani, and myself, Ron Funk. The 7 persons nominated are management's nominees for election, as was stated in the information circular for this meeting. I move that the nominations be closed. I now call for a vote on the motion before the meeting. If you are a shareholder or a voting delegate, who is using the virtual platform to vote on this matter, you may do so now. If you have previously voted on this matter and do not wish to change your vote, no further action is required. Would all voting delegates please enter your votes in the system? [Voting]

The next item of business is the appointment of the auditor for the ensuing year. The company proposes that Ernst & Young LLP be appointed as auditor of the company for the ensuing year. I now ask for a vote on the motion of Ernst & Young LLP, chartered professional accountants with offices at Suite 1900, 1133 Melville Street, Vancouver, British Columbia, be appointed as auditor of the company. I now call for a vote on the motion before the meeting. If you are a shareholder or a voting delegate, who is using the virtual platform to vote on this matter, you may do so now. If you have previously voted on this matter and do not wish to change your vote, no further action is required. Would all voting delegates please enter your votes in the system? [Voting]

The next item of business to consider -- to consider is an amendment to the company's restricted share unit plan as described in the information circular. In the past, the resolution must be greater than a 50% majority of the votes cast by shareholders voting in person or by proxy here at the meeting. I now call for a vote on the motion before the meeting. If you are a shareholder or a voting delegate who is using the virtual platform to vote on this matter, you may do so now. If you have previously voted on this matter, and do not wish to change your vote, no further action is required. Would all voting delegates please enter your votes in the system? [Voting]

The next item of business to consider is an amendment to the company's performance share unit plan as described in the information circular. To pass, the resolution must be greater than a 50% majority of votes cast by shareholders voting in person or by proxy here at the meeting. I now call for a vote on the motion before the meeting. If you are a shareholder or a voting delegate who is using the virtual platform to vote on this matter, you may do so now. If you have previously voted on this matter and do not wish to change your vote, no further action is required. Would all voting delegates please enter your votes into the system? [Voting]

The next item of business to consider is an amendment to the company's deferred share unit plan as described in the information circular. To pass, the resolution must be greater than a 50% majority of the votes cast by shareholders voting in person or by proxy here at the meeting. I now call for a vote on the motion before the meeting. If you are a shareholder or a voting delegate who is using the virtual platform to vote on this matter, you may do so now. If you have previously voted on this matter and do not wish to change your vote, no further action is required. Would all voting delegates please enter your votes in the system? [Voting]

The next item of business to consider is an amendment to the company's share option plan as described in the information circular. To pass, the resolution must be greater than a 50% majority of the votes cast by shareholders voting in person or by proxy here at the meeting. I now call for a vote on the motion before the meeting. If you are a shareholder or a voting delegate who is using the virtual platform to vote on this matter, you may do so now. If you have previously voted on this matter and do not wish to change your vote, no further action is required. Would all voting delegates please enter your votes in the system? [Voting]

The next item of business to consider is the renewal of the company's shareholders' rights plan as described in the information circular. To pass, the resolution must be greater than a 50% majority of the votes cast by shareholders voting in person or by proxy here at the meeting. I now call for a vote on the motion before the meeting. If you are a shareholder or a voting delegate who is using the virtual platform to vote on this matter, again, you may do so now. If you have previously voted on this matter and do not wish to change your vote, no further action is required. Would all voting delegates please enter your votes in the system? [Voting]

The next item of business to consider is the nonbinding advisory vote on executive compensation, also known as say-on-pay, as described in the information circular. To pass, the resolution must be greater than a 50% majority of votes cast by shareholders voting in person or by proxy here at the meeting. I now call for a vote on the motion before the meeting. If you are a shareholder or a voting delegate who is using the virtual platform to vote on the matter, you may do so now. If you have previously voted on this matter and do not wish to change your vote, no further action is required. Would all voting delegates please enter your votes in the system? [Voting]

I'll pause briefly and ask that all shareholders and voting delegates finish voting on all items presented as we will be closing voting shortly. [Voting]

Thank you. I confirm that voting has been closed. I will pause briefly again to allow our scrutineer to advise if sufficient votes have been cast in favor of the items that were presented today. I have received confirmation from the scrutineer that the company has received sufficient votes in favor of each item of business to carry each motion. Accordingly, I hereby confirm that all motions were carried. Full voting results will be available on SEDAR after the meeting. As the business for the meeting has been concluded, I declare this meeting terminated. Thank you very much for attending. We will now move to the informal part of the meeting, and I'd like to turn it over to our CEO, Miguel Martin, to say a few words.

Thank you, Ron. The past year has been a landmark one for Aurora as we solidified our position as a leading player in the global medical cannabis industry and reached new financial milestones. We achieved positive adjusted EBITDA on an annualized basis in fiscal 2024 and reached positive free cash flow in our most recent quarter, supported by record revenues in Canadian medical cannabis, international medical cannabis and plant propagation. These results remain possible through our ongoing commitment to operational excellence, our science and innovation expertise and our focus on maintaining a strong balance sheet, which allowed us to take advantage of strategic opportunities. Over the next year, we plan to build on our successes, cementing our leadership in the rapidly expanding global medical cannabis industry and targeting the achievement of positive free cash flow again in Q3. But let me start by highlighting some of Aurora's successes in fiscal 2024. First, net revenue rose 21% on a trailing 12-month basis; second, adjusted gross margin was 49% for the full year; third, we had adjusted positive -- positive adjusted EBITDA in each of our 4 fiscal quarters, marking the first time in Aurora's history that we reported positive adjusted EBITDA on an annual basis, and we ended the year with a very sound balance sheet, characterized by about $180 million in cash on hand and no debt in our cannabis business. With this momentum, we are in a strong position as we head into fiscal year 2025. In Canada, our home market, we proudly maintained our leadership position in medical cannabis. Our broad and attractive product assortment, combined with our best-in-class service has allowed us to grow revenue in a typically stable segment. We see further upside potential in this market, which currently only encompasses approximately 1% of the Canadian adult population. Our international business has demonstrated impressive growth with net revenue increasing nearly 25% year-over-year in the most recent quarter. Our execution in key markets of Germany, Australia, the U.K. and Poland was complemented by our ability to take advantage of new opportunities in emerging markets such as Switzerland and New Zealand. In Australia, where revenue grew 67% in our most recent quarter, our expansion was supported by our acquisition earlier this year of MedReleaf Australia, the #2 player in the country's medical cannabis market. MedReleaf Australia has driven growth in Australia's rapidly expanding medical cannabis market by leveraging Aurora's innovative product portfolio and network of GMP-certified manufacturing facilities. Aurora is one of the first Canadian LPs to receive good manufacturing practice certification from the Australian regulatory authority as well as one of the first to offer pastilles and live resin vape products to Australian patients. Our ability to meet high regulatory standards and overcome significant barriers to entry provide a distinct advantage for Aurora. In Europe, Germany remains a cornerstone of our strategy as recent regulatory changes are expected to have a broader effect on the expanding acceptance of medical cannabis and future modern frameworks across Europe. Aurora is well positioned to benefit from the expansion of medical cannabis fueled by descheduling in Germany, particularly in the self-payer patient channel, where we are already the market leader. We were also pleased to announce recently that our local Leuna facility in Germany was granted an expanded cultivation and unique research license under the country's new Medical Cannabis Act. We are one of the few select companies to receive enhanced licenses, which we review as a result of our commitment to high-quality manufacturing practices and a testament to our long-established regulatory expertise and unparalleled commitment to compliance in Europe. Aurora's global medical business consistently achieved adjusted gross margins above 60%, reaching a record 69% in our most recent quarter. As we expand and deepen our presence in medical cannabis worldwide, we will not only benefit from an increase in our top line, but also from the high-margin contribution which results in long-term EBITDA and free cash flow growth for the benefit of our shareholders. Our strategic focus on maintaining a strong balance sheet and practicing fiscal discipline is essential to our long-term success. Over the past year, we fully repaid our convertible debt, representing nearly $540 million in debt repayments over the last 3 years, leaving our cannabis business debt-free and positioning us with the flexibility to pursue new profitable growth opportunities. Our state-of-the-art breeding and genetics facility in Comox, British Columbia plays a critical role in our long-term success, allowing us to produce high-quality next-generation cultivars that support our dominant medical market presence in Canada and meet the growing patient needs across the globe. Our commitment to advancing science and technology has kept us ahead of the curve and allowed us to continue to deliver groundbreaking products. This commitment is evident in our diverse and innovative product portfolio that is available to patients in key markets such as Canada, Europe and Australia. Aurora is firmly in growth mode, ready and able to capitalize on the opportunity for global medical cannabis, the most attractive segment of our industry as patient access is increasing at a rate like never before. The openings provided by evolving regulatory environments in key international markets positions just a few companies like Aurora to take advantage of this once in a generation opportunity. We appreciate your time and your continued support in Aurora, and now I would be happy to move to our Q&A session. In addition to responding to questions that have been submitted through the platform, we would also like to address the most common questions we are receiving through our Investor Relations mailbox. We have now concluded our -- sorry, go head. Kevin?

Thank you, Miguel. I'm going to start with the most common questions received from our shareholders. I may also select the questions we received through our virtual platform during today's call. The first question we'd like to start with is, earlier this week, you reported positive free cash flow in our Q1 earnings. Should we expect the company to continue to generate positive free cash flow moving forward?

Kevin, thank you for that question. When we first announced our free cash flow target last year, the target date of December 31, 2024, was intended to ensure that Aurora maintained the flexibility to pursue profitable opportunities as they arrive. And as an example, the acquisition of MedReleaf Australia. And it's important as global -- as a global cannabis company that we differentiate ourselves from our peers, and we do not want to pass off near short-term opportunities in pursuit of this target. The last few quarters have been very encouraging for Aurora given our continued strong revenue growth in our global medical business, coupled with our industry-leading adjusted gross margins. And it's this growth and continued focus of disciplined cash use that has driven the significant improvements in our operating cash use of close to $20 million this quarter versus a year ago. As we start looking beyond Q1, it's important to consider the following factors: First, we expect to see some significant annual and onetime payments to impact our cash flow in Q2. This impact would be similar to what we see -- we saw in Q2 last year. Second, we expect to see continued improvement in our operating cash use moving forward but do note that there may be some seasonalities quarter-over-quarter aspects driven by the nature of the cannabis and plant propagation businesses. And third, looking to Q3, we are still targeting positive free cash flow, supported by the growth in our global medical business and continued discipline in our cash use.

Thank you, Miguel. The second question we have is, in February, you announced the acquisition of the remaining 90% of MedReleaf Australia. Why did you wait until 2024 to complete this transaction? And what benefits are you seeing post close?

We first partnered with MedReleaf Australia back in 2017. And since then, both parties have benefited as we work together to establish a leading position in this rapidly growing market. In terms of the timing, for us, it's important to consider the stability of the regulatory environment and have the confidence in the market opportunity before making significant investments. This is the strategy we use to our benefit in Germany, the U.K. and Poland. With the growth in the Australian market and the high barriers to entry, we decided that it was the right time to take a more active role in this important Australian market. Since the acquisition, we've become one of the first companies in Australia to offer live resin cartridges and pastilles or otherwise known as gummies. We've also relaunched the Aurora brand and have extended the flower offerings under our Kraft plant brand. By expanding our product portfolio, Aurora is better positioned to meet the diverse and growing needs of the Australian patient base. And from a financial perspective, we also saw this transaction as being accretive to our EBITDA and cash flow objectives. Since February, we've seen a significant increase in our revenue and EBITDA contributions with the full benefit expected in Q2 and onwards.

Our third question is, as a shareholder, why should I be excited about the future of the company?

Well, firstly, Aurora is firmly in growth mode, ready and able to capitalize on the opportunity for global medical cannabis, which is the most attractive segment of our industry as patient access is increasing at a rate like never before. Second, we've demonstrated our ability to identify and importantly, deliver on key milestones, whether it is our focus on our balance sheet strength, that now has our cannabis business debt-free with close to $182 million of cash on hand; our ability to deliver 7 consecutive quarters of positive adjusted EBITDA; or more recently, our significant improvements in cash used that resulted in positive free cash flow in our most recent quarter. In addition to our financial discipline, we have a consistent supply of innovative products that is a direct result of our continued investment in science and innovation. This investment in breeding and genetics successfully positions us to be able to maintain our dominant position in our home market and frankly, other global markets, too.

Thank you. And our final question, which is along the similar theme is, which are some international markets do you view as the most important for the business?

Yes. I think Aurora is uniquely positioned to benefit from a number of exciting international opportunities. First, Germany. Germany is in the early stages of cannabis descheduling, and we do not know with certainty how quickly the market will grow. What we can say is that descheduling will continue to fuel the expansion of medical cannabis for some time, and then we expect these changes to benefit in the self-payer segment the most as it is the fastest growing and is the channel that we're leaders in. Secondly, Australia. During Q1, we generated a little over $9 million in revenue in Australia, up 67% from the year ago period as we benefited from a full quarter contribution from our MedReleaf Australia subsidiary, the #2 player in that market. Australia's clinician-led product distribution model and high regulatory standards are significant barriers to entry, providing a distinctive advantage for Aurora. And as patients number -- patient numbers continue to grow, Aurora is well positioned to benefit from the increased market size. Moving on to Poland. Poland has high barriers to entry, and Aurora is a leading share in this rapidly growing market. In the U.K., this critical market has been showing increased demands, and we see -- expect to see further contributions from this market as we continue to grow our distribution and product offerings. And lastly, new emerging markets like Switzerland, New Zealand and France, will allow us to leverage our past experience to become leaders in these new and exciting markets.

Thank you, Miguel. There are no further questions.

We have now concluded our question-and-answer session, and thank you for attending and participating at the meeting. If you have any additional questions or would like to follow up on any questions presented to the meeting, which were not addressed, please e-mail our Investor Relations team at [email protected]. Thank you very much. We wish all of you a great day.