• Aurora Cannabis (NYSE: ACB) reported Q3 revenue for the quarter came in at Cdn$78.4 million versus the consensus estimate of Cdn$56.03 million.
• Net revenue of $78.4 million, excluding provisions of $2.9 million, an increase of 18% over prior quarter
• Consumer cannabis net revenue of $41.5 million, excluding provisions, a 24% increase over prior quarter
• Cash cost to produce per gram of dried cannabis sold at $0.85, down from $0.88 in Q2 2020
• Operational reset on track to deliver the Company's commitment to positive Adjusted EBITDA in Q1 2021 with significant improvement in SG&A run rate
• Improved cash position of $230.2 million; $154.6 million in Q3 cash use represents a 43% decrease over prior quarter

Michael Singer, Executive Chairman and Interim CEO of Aurora stated, "I am incredibly proud of the Aurora team for working through these challenging times in order to maintain uninterrupted operations at all of our production facilities and ensure we continue to meet the needs of our patients and consumers. I am also pleased that our third quarter 2020 financial results were in-line with our expectations, and that we remain firmly on track with the cost-savings and capex goals we detailed during our business transformation plan in February 2020."

Since announcing the Business Transformation Plan on February 6, 2020, Aurora has taken a number of concrete steps which place Aurora firmly on track to meet or exceed previously announced targets. These steps are designed to strengthen Aurora's balance sheet and reduce go-forward costs, as the Company works to achieve profitability and positive cash flow. Management considers the following metrics to be key to the success of the operational reset and future profitability of Aurora:

Net Revenue Growth; Maintains Market Share Leadership Position

Net revenue, excluding provisions, of $78.4 million in Q3 2020 was up 18% quarter over quarter. Cannabis net revenue, excluding provisions, was $72.6 million, up 15% over Q2 2020.

Consumer cannabis net revenue, excluding provisions, was up 24% from the prior quarter to $41.5 million, demonstrating the impact of the launch of Daily Special, Aurora's value brand, and a full quarter of Cannabis 2.0 products. Medical cannabis net revenue, both Canadian and international, showed healthy growth of 13.5% overall.

The variables associated with the COVID-19 pandemic and the still-developing Canadian consumer market, including consumer buying behaviour and new store rollout, have led Aurora to focus on market share for the near term, rather than revenue targets, to manage the business. Aurora has established leading market share in key consumer categories in Canada, leads the Canadian medical market in revenue, and has significant market share in Germany. As such, the Company's goal is to gain market share where it can and remain well positioned to capture more share of the revenue growth of the various cannabis markets over time.

Gross Margin Strength; Adjusted Gross Margin, before Fair Value Adjustments, on Cannabis Net Revenue at 54%1

Gross margin, before fair value adjustments, on cannabis net revenue was 44% in Q3 2020, unchanged compared to 44% in the prior quarter.

Adjusted gross margin, before fair value adjustments, on cannabis net revenue was 54% in Q3 2020, versus the 55% in the prior quarter. Management believes adjusted gross margin is a better gauge of the health of the Company, demonstrating the strength of Aurora's purpose-built business model and an important metric to manage as Aurora works to achieve positive adjusted EBITDA in a market that is experiencing price compression.

• Target: Greater than 50% (On track)The Company looks to maintain this metric at better than 50% over the long term. The majority of the operating costs in the Company's purpose-built facilities ramp in a step-function manner. Current facilities have the capacity to support additional revenue without adding significantly to the cost of production. Ongoing cost efficiency initiatives also contribute to the Company's margins, even as price competition increases.

Selling, General and Administrative (SG&A) Expense Reduction; Current Run-Rate of $55 million and Tracking to $40 million to $45 million

SG&A costs in Q3 2020 of $75.1 million, excluding one-time termination costs associated with the business transformation plan, were down $24.7 million from the prior quarter. For clarity, Aurora plans to include Research and Development (R&D) expenses within the SG&A reset plan target noted below.

• Target: $40 million to $45 million (On track)Reductions in SG&A began mid-quarter of Q3 and included cancellation of a number of information technology projects, professional fees, renegotiation of several key contracts related to marketing and R&D, reduction in certain marketing programs, elimination of headcount across the SG&A functions, and the divestiture of several non-core subsidiaries that had low gross margins and carried heavy SG&A burden.

Adjusted EBITDA Profitability; Tracking to Q1 2021 Stated Goal

Q3 SG&A was $75.1 million, and at this point, the current run rate is now approximately $55 million. Management has set, and confirms, its intention to reduce costs in the Company to an SG&A, including R&D, run rate of approximately $40 - $45 million exiting Q4 2020.

Adjusted EBITDA, excluding one-time termination costs associated with the business transformation plan, was a loss of $45.9 million in Q3, an improvement of $34.4 million from the prior quarter adjusted EBITDA of $80.3 million.

• Target: Positive EBITDA for Q1 2021 (On track)The Company has committed to being adjusted EBITDA positive in fiscal Q1 2021, the July to September 2020 quarter. The Company intends to meet this goal through cost reductions and efficiencies in COGS and SG&A, if necessary. As stated above, the Company acknowledges it is not feasible to predict near term revenues with an adequate degree of precision, but believes it has numerous cost levers at its disposal to meet the positive adjusted EBITDA goal.

Capital Expenditure Reductions; Tracking Below $25 million in Q4 2020

Capital Expenditures, which includes additions to intangible assets and excludes the impact of capitalized borrowing costs and share based compensation, were approximately $73.7 million in Q3 2020. This represents a significant decline from the previous quarter as management reviewed all capital spending with the parameters of generating near term returns, a focus on core businesses, and the preservation of financial resources. A number of projects wrapped up in Q3 or were cancelled. Continuing capital projects include: (i) the planned amalgamation of the Company's subsidiaries servicing medical patients and centralized distribution for the amalgamated entity, (ii) co-generation capabilities at Aurora's River facility, reducing risk at one of the Company's major facilities and reducing energy costs, with a $10.0 million offsetting grant expected over the next 12 months, (iii) completion of the joint venture arrangement to co-locate treatment of cannabis products within the Company's Polaris facility, thereby reducing treatment costs and release timelines for cannabis products, (iv) the completion of the first six rooms at Aurora Sun to produce high demand cultivars, and (v) continued development of the German production facility. All projects, except for the German production facility, are expected to be largely complete in Q4 2020.

• Target: Less than $100 million second half of fiscal 2020 (On Track)Management committed to reducing capital expenditures to below $100 million in the second half of fiscal 2020, and with $73.7 million in Q3 2020, is on track to meet this objective. Capital spending in Q1 2021 is planned to be well below Q3 and Q4 2020 levels.

Fiscal Q3 2020 Sources & Uses of Cash; Q3 2020 Cash Use Decreased 43% over Q2 2020

Cash use in Q3 2020 decreased by over $118 million from the prior quarter, and given the Company's adjusted gross margins before fair value adjustments on cannabis net revenue and reductions in SG&A expense and capital expenditures as described above, management expects cash use in Q4 2020 to further decrease.

For earnings history and earnings-related data on Aurora Cannabis (ACB) click here.