Q2 2025 Aurora Cannabis Inc Earnings Call
Speaker Change: Greetings and welcome to the Aurora Cannabis Inc. 2nd quarter, 2025 Results Conference Call.
Speaker Change: All participants will be in a listen-only mode, and the question and answer session will follow the formal presentation. This conference call is being recorded today, Wednesday, November 6, 2024. I would now like to turn the conference over to your host, Kevin Niland, Director of Strategic Finance and Investor Relations. Please go ahead.
Kevin Niland: Hello everyone and thank you for joining us.
Speaker Change: and the I was Miguel Martin, Executive Chairman and CEO of the Zona King PSO. This morning we father financials to 1925.
Speaker Change: Brearyd ending September 3, 2024. They should in these ways continue our quarterly results.
Speaker Change: of Financial Statements, M. G. N. E. and the Sins released her available on our IR website and also be actually a CDR close to the ACARC.
Speaker Change: Today, conference call is a dramatic matter to constitute poor looking statements. I saw Dr. Ritz on a certain piece, uncertainties related to our future financial, or business performance. Actual results could be a humanitarian, if you know, anticipated and use poor looking statements.
Speaker Change: The rich actors that may affect actual zones are a detailed and annual information form another periodic following of registration statements. These doctrines may send in the access to the CDRs close to the net guard.
Speaker Change: and I'm calling for Barry Van Marks by Miguel and Simona. It will conduct a question on the session in my covering analyst. With that, I'll turn the call over to Miguel. Please go ahead.
Miguel Martin: Thank you, Kevin.
Miguel Martin: We have a strong Q2 and look forward to building on that momentum. Our prime positioning as a leader within nationally legal cannabis markets has set the foundation for top-line growth and higher profitability as we further penetrate existing markets such as Canada, Europe, and Australia, and enter new ones as they open.
Miguel Martin: In doing so, we will place more distance between ourselves and our peers by leaning into what sets Aurora apart, including, first, capitalizing on rapidly evolving global medical cannabis opportunities.
Miguel Martin: Second, leveraging our continued focus on operational excellence so that we can maintain our enviable margin profile in medical cannabis, the highest margin industry segment.
Miguel Martin: And third, maintaining and solidifying our balance sheet to maximize flexibility, while also continuously focusing on profitable growth as evidenced by our record adjusted EBITDA. With that, let me now briefly share some highlights related to our quarterly results.
Miguel Martin: Net revenue grew 29%, including record revenue from global medical cannabis, which itself represented 41% year-over-year growth. Within global medical cannabis, international revenue increased 93%.
Miguel Martin: The contribution from high-margin international revenue exceeded that of Canadian medical cannabis for the first time and amounted to 57% of total global medical cannabis revenue.
Miguel Martin: This shift demonstrates how we have successfully positioned ourselves to benefit from opportunities across the globe, which are balanced by the stability we see in the maturing Canadian market.
Miguel Martin: In addition, let me touch on Bebo's performance.
Miguel Martin: BBO already has a formidable presence within North America's controlled environment agricultural industry.
Miguel Martin: and is significantly increasing its production capacity to support higher demand through the conversion of the Aurora Sky and Aurora Sun facilities.
Miguel Martin: Even in its slower seasons, which correspond to our fiscal second and third quarters in Q2, we were able to increase revenue by a robust 21% through organic growth and increased product offerings, such as orchids, arising from greater capacity.
Miguel Martin: On profitability, we achieved record outcomes in adjusted gross profit and adjusted EBITDA, which is the result of our continued focus on the profitable global medical cannabis business segments.
Miguel Martin: Let's now discuss our business in greater detail.
Miguel Martin: Global Medical Cannabis is our flagship segment, serving the diverse needs of patients across multiple nationally regulated markets.
Miguel Martin: It grew 41% year over year and generated 76% of our total revenue and 98% of our adjusted gross profit.
Miguel Martin: The Canadian market remains a stable contributor to our overall medical business as we benefit from a combination of insurance covered and self-paying patients.
Miguel Martin: Over time, we believe there should be upside to unlocking the addressable usage market, which currently encompasses only 1% of the Canadian adult population.
Miguel Martin: Canadian patients appreciate and seek out our steady stream of next generation cultivars, along with other innovative products.
Miguel Martin: and to take advantage of increased interest in medical cannabis as part of health care options made available to them, we launched a newly developed CBD lozenge in collaboration with Victoria Ferdin Pharma.
Miguel Martin: Notably, we were one of the first Canadian LPs to receive Good Manufacturing Practice certification.
Miguel Martin: from the Australian Regulatory Authority, TGA, for our two largest Canadian manufacturing facilities.
Miguel Martin: In fact, 90% of our annual production comes from these EU GMP and TGA GMP certified facilities.
Miguel Martin: In Q2, the following two factors drove our increased revenue and EBITDA contributions.
Miguel Martin: First, we benefited from a full quarter contribution from MedRelief Australia as all previously sold inventory has flowed through since we completed the purchase of the remaining interest in the subsidiary in February.
Miguel Martin: And second, we experienced increased sales due to a broadened product portfolio that includes pastels, live resin cartridges, and an expanded range of high-quality cultivars.
Miguel Martin: Most recently, we announced enhanced product range of premium medical cannabis oils in Australia, which include a variety of cannabinoid ratios to support personalized treatment options for patients.
Miguel Martin: Our mission with MedRelief Australia is to expand access to high-quality medical cannabis options for patients across the country.
Miguel Martin: And on a related note, our leadership there gives us an advantage in expanding sales into New Zealand, a smaller but important emerging market in its own right.
Miguel Martin: Turning to Europe and beginning with Germany, our operating history goes back more than six years and our credentials are virtually unmatched as we hold the number three market share for flour and the number two market share for insured patients.
Miguel Martin: It is clear that more patients will become registered, and pharmacies will expand to support the increase in prescription volumes. In fact, there is already a visible uptick in patients, including those that are self-paying.
Miguel Martin: Right now we are focused on maintaining consistent and reliable supply of our high-quality EU GMP manufactured products to our pharmacy partners so that we can continue to meet the growing needs of German patients.
Miguel Martin: and to that end we have a considerable capacity to support higher product volumes through both our EU GMP facilities in Canada as well as our facility in Lorna, Germany.
Miguel Martin: We recognize that changes in Germany are also likely to have a broader effect on the expanding acceptance of medical cannabis across Europe, and we will be ready for these opportunities.
Miguel Martin: Our agility and unique set of capabilities, including expertise in meeting high regulatory requirements and cultivating high quality products, will enable us to win as these markets develop.
Miguel Martin: With that in mind, let's discuss Poland, our second largest European market. After sales were impacted in Q1 due to the import permit process, they rebounded in Q2 because of increased permits and the continued strong demand from Polish patients for high quality medical cannabis.
Miguel Martin: In the UK, we are gaining traction with patience through our latest innovation and widened distribution channels, resulting in significant revenue growth, leading to a new record quarter for this market.
Miguel Martin: We saw an increase in demand for EU GMP manufactured flour which aligns well with 90% of our internal manufacturing capacity being EU and TGA GMP certified.
Miguel Martin: The expansion of our latest genetics offer higher yields and a lower cost per gram to produce which has given us the ability to significantly increase our output capacity.
Miguel Martin: especially as these new cultivars begin to establish themselves in key international markets.
Miguel Martin: Given the success we have made with our medical first cannabis strategy through the first half of the fiscal year, we think we are well positioned for a successful fiscal 2025.
Miguel Martin: Our optimism is anchored by our commitment to delivering continued profitable growth, positive cash flow in Q3, maintaining a strong balance sheet, and operational excellence.
Miguel Martin: These factors are the building blocks to being able to deliver ongoing and sustainable improvements to our financial performance.
Speaker Change: I would now like to turn the call over to Simona for a detailed financial overview.
Simona: Thank you, Miguel, and good morning, everyone. Q2's performance was underpinned by the following.
Simona: First, net revenue of $81.1 million represented 29% growth, supported by record net revenue of $61.3 million from our high-margin medical cannabis segment.
Simona: Second, quarterly profitability consisted of consolidated adjusted growth margin at 54%, 300 basis points higher than last year, resulting in a record adjusted growth profit of $42.6 million.
Miguel Martin: Third, Adjusted EBITDA grew 210% to $10.1 million, a new record for the company and our eighth consecutive quarter of positive Adjusted EBITDA.
Simona: And finally, we ended the quarter with approximately $152 million in cash and cash equivalents and no debt in our cannabis business.
Miguel Martin: It is these financial results that are a true validation of our efforts, and I am pleased to now review them in detail with you.
Miguel Martin: Medical cannabis net revenue rose by 41% to $61.3 million, which consisted of 3% growth in Canada and 93% growth internationally.
Miguel Martin: Medical cannabis comprised 76% of total net revenue and 98% of total adjusted gross profit during the quarter.
Miguel Martin: This marked an increase from 69% of net revenue and 85% of adjusted gross profit from the year-ago period, the result of higher medical revenue and higher medical margins in the current year quarter.
Simona: The increase in Canadian medical revenue was due to increased sales to insurance covered patients with larger basket sizes.
Simona: The increase in international medical cannabis revenue was primarily due to higher sales in Australia, Germany, Poland, and the UK, driven by strong patient demand for our latest innovation and the significant overall growth in these markets.
Simona: Adjusted gross margin for medical cannabis was 68%, up from 63% in the year-ago period, which far exceeded our 60% target.
Simona: Several factors drove this increase, including, first, sustainable cost reductions, second, higher selling prices in Australia, and third, improved efficiency in our production operations with our shift to supplying the European markets from Canada.
Simona: Consumer Cannabis Net Revenue was $10.4 million, down from $12 million in the year-ago period.
Simona: The decline was the expected result of our decision to prioritize the supply of our GMP manufacturer products to our high-margin international business.
Simona: Adjusted gross margin in consumer cannabis was 14% compared to 27% due to sales of our higher margin products in the year-ago period.
Simona: In our plant propagation segment, net revenue increased to $8.6 million, up from $7.2 million in their year-ago period due to a combination of organic growth and increased product offerings.
Simona: Recall that Bebo historically delivers lower revenue in the summer and fall months, with about 25 to 35 percent of plant propagation revenue and up to 20 percent of EBITDA earned in the second half of the calendar year.
Simona: Plant propagation adjusted gross margin was 19% down from 22% in the year-ago period, reflecting modest fluctuations due to the seasonal timing of lower margin product revenue and ramp-up of the orchid business.
Simona: Our consolidated adjusted SG&A rose to $31.7 million up from $27.7 million in the year-ago period due to the incremental SG&A following the acquisition and full ownership of MedRelief Australia.
Simona: This additional expense is now being offset by increased revenue and EBITDA contributions.
Simona: Our balance sheet remains one of the strongest in the global cannabis industry.
Simona: We held approximately $152 million in cash and cash equivalents as of September 30th.
Simona: Our cannabis operations are completely debt-free, while our Bebo business holds $57.5 million in non-recourse debt that is secured by a significant fixed asset base held at Bebo.
Simona: The improvement was due to increased revenue, an improved contribution margin, and changes in working capital.
Simona: Let me now provide some thoughts on Q3.
Simona: We expect to see similar sequential net revenue and adjusted gross margins across our global medical cannabis business, supported by year-over-year growth in Europe and Australia.
Simona: We expect to see seasonally reduced revenues and gross profit for plant propagation in line with historical seasonal trends.
Simona: Positive Adjusted EBITDA is expected to continue, while our Q3 free cash flow is anticipated to be positive again, based upon the following.
Simona: First, continued increases in global medical cannabis, driven in part by the full recognition of revenue in Australia, and further growth in our key European markets.
Simona: To conclude, with two fiscal quarters now behind us, the foundation for a successful fiscal 2025 is well set and we will continue to focus on the execution of our stated plan.
Speaker Change: Thank you for your time. I will now turn the call back to Miguel.
Miguel Martin: Thanks, Simona. Let's wrap up with a few key takeaways.
Miguel Martin: We have established a track record of profitability that we are able to continue and expand upon.
Miguel Martin: And we have a strong balance sheet with a sizable cash balance and no cannabis debt that enables us to be opportunistic.
Simona: Our excitement and optimism are made possible by a high-performing team who are dedicated to operational excellence as we continue to grow and open the world to cannabis.
Simona: And with that, thank you for your interest in Aurora, and we can now take your questions.
Simona: Operator, please open the line.
Speaker Change: Thank you. We will now be conducting a question and answer session. Please limit yourselves to one question each. You may recue if you have more questions.
Speaker Change: If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Simona: One moment, please, while we poll for questions.
Speaker Change: The first question is from Federico Gomez from ATB Capital Markets. Please go ahead.
Federico Gomez: Good morning. Thanks for taking my questions. Congrats on the great quarter.
Federico Gomez: First question on the revenue growth that you saw in the global medical cannabis sales. So we know those sales are sometimes I guess, quite volatile, because of the timing of some of those shipments, etc. So
Federico Gomez: Would you say that, you know, the sales level is sort of representative of, you know, what you will be doing going forward and, you know, in terms, what sort of visibility you have on that and the growth sort of, you know, sustainable from these levels? Thank you.
Speaker Change: And Fred, thanks for the question.
Speaker Change: Let me start and then I'll let Simona give some points here. The answer to your last part first, yes, we do think these are sustainable. And as you mentioned, the shipments sometimes are lumpy.
Speaker Change: are always connected. But if you look at the breadth of our model, which allows us to have, I think, more consistency, you know, having significant sales in UK, Germany, Poland.
Speaker Change: Australia, New Zealand, you see these things smooth out. So we think the baseline is there and we think it can grow. Importantly, we think the margins are also solid in this business, which is important, and we're also seeing new markets come on with a pretty, you know, consistent pattern. So we're very bullish on international cannabis. It's hard, as we've mentioned. The regulatory hurdles are significant. The products have to be EU GMP or TGA GMP, which is, you know, creates a barrier, which we think is an advantage for us. But overall, we think these levels are not only sustainable, but are going to grow. Anything Simona you would add?
Simona: And nothing really except to point out that this is the first quarter that we're able to record the full revenue for our Australian business post acquisition. So that's contributed to the growth as well.
Speaker Change: Perfect. Thanks for that.
Speaker Change: Second question, I'm curious about your RACC business in Canada, it's obviously much smaller than the medical platform And I guess most of your profits are coming from medical. So how do you think about that RACC platform? Do you see any chances of growing that? Does it make sense to keep it, you know?
Speaker Change: given that you're medically focused right now. So how do we think about recreational going forward?
Speaker Change: Sure, yeah, it's a great question. So obviously right now you only have two countries...
Speaker Change: So we quite a bit, you know, almost three years ago made the decision to focus
Speaker Change: on Medical Cannabis, which is the highest margin for us growing a piece. And I think if you look at our earnings this quarter, you'll see that that decision, you know, was a good one.
Speaker Change: Now we continue to keep a small position in Canadian REC, we have less than a two share, and we think that's important. First, we gain a lot of consumer insights.
Speaker Change: about, you know, products, preferences, pricing, and a variety of different things.
Speaker Change: Secondly, we do see interaction between recreational sales and medical sales and so as you know internationally at some point, obviously not today, you would see environments go from medical to rec. We think that would give us an advantage.
Speaker Change: It colors a lot of what we do, but no one should lose sight of the fact that our primary focus is the high margin growing medical business where we're dominant in Canada and we're leaders across the world.
Federico Gomez: Thank you for that Miguel. And if I can ask just one more question here. About capital allocation, you're now close to your free cash low goal, I guess, for next quarter.
Speaker Change: and you know, you have lots of cash in the balance sheet that's free. So how do you plan to allocate that capital and examinate something that you would be more, I guess, actively considering now that you are perpetual positive?
Speaker Change: Do you plan to invest organically in the business? Just capital allocation options and how you're looking at them.
Speaker Change: Unknown Speaker I think, you know, from our standpoint, we look at capital allocation in three ways. First is you're right, we took a lot of time and a lot of hard work in order to clean up the balance sheet. And we're proud to have one of the strongest cash positions with no debt on our cannabis business. And so that, you know, was an important piece for us.
Speaker Change: Second, we do continue to invest in our own business, whether that's enhancements to our EUGMP and TGAGMP facilities, or the world-class genetics or the science and innovation, those are internal investments that we see return on right away. And then third, we like to have that balance sheet in order to be opportunistic, and if something were to come available, particularly as valuations have become more reasonable, we think we'd be in a strong position. [inaudible]
Speaker Change: Simona, anything you'd like to add to that?
Simona: No, I think you covered it, Miguel. All right. Thank you. Thank you, Fred.
Fred: Thank you.
Speaker Change: As a reminder, to ask a question, please press star 1.
Speaker Change: The next question is from Pablo Zuanich from Zuanich and Associates. Please go ahead.
Pablo Zuanich: Thank you Miguel, I have a few questions, but first can I ask by asking you
Pablo Zuanich: You know, your impressions following the results of the U.S. election, how does that impact Aurora, if in any way? And what would you say to those cannabis investors that were so vested in Florida going rag or, you know, the reform process in the U.S. that are so focused on MSO stocks? What would you say from your perspective?
Speaker Change: Aurora, for a long time, has said a couple of things.
Speaker Change: First is that medical cannabis, conservative global medical cannabis, is the most consistent, highest margin, and predictable part of the overall segment.
Speaker Change: This election and what happened in those four states
Speaker Change: I think continue to reinforce that the position that we took is right. You had four states look at it, Florida was obviously the big one, they needed 60%, they came in at 55. The only state in the U.S. of the four that passed was Nebraska, and it was a medical provision that went through.
Speaker Change: And so I think it reinforces the position we take in our investments and with our focus around the world. I think secondly, you know, both candidates and obviously now with the Trump administration have talked about medical cannabis.
Speaker Change: as you know sort of a piece there and so what I would say to you know investors is it's a big world out there and I understand the interest in the US and I understand the amount of you know focus there was on Florida but investors into cannabis companies that want to look for sustainability and profitability
Speaker Change: should be aware that there are large growing markets as you well know in Australia and Germany and Poland and UK with more coming on.
Speaker Change: All the time and those are more consistent and more predictable and the companies that are being successful in those markets
Speaker Change: are the same ones time and time again, like Aurora. And so while I'm sure there's disappointment for what happened, particularly in Florida, there's a lot of bright news and a lot of optimism that investors should have about what's happening in Europe and Australia and other parts of the world on cannabis.
Speaker Change: I think the U.S. will get there at some point.
Speaker Change: Today is not
Speaker Change: The FDA will be involved in the regulation of it, and that Aurora, as the largest medical cannabis company in Canada, with a strong relationship between Health Canada and the FDA, and everything we do around the world, will be well, well positioned for the US when they get there.
Speaker Change: Thank you. Look, I'm just moving on to just comparing your Australian and German operation. I mean, obviously, from the acquisition you made in Australia, you have more control of the overall business and that's leading to growth apparently based on what you described.
Speaker Change: Is that an opportunity in Germany or you're pretty much fully integrated there at least from a sales and distribution perspective there? I'm just trying to understand, even in Poland, if there's room to do what you did in Australia to do in Germany and Poland or you were already there?
Speaker Change: First and foremost, the point of differentiation is we have a production facility in Germany. We're one of only three.
Speaker Change: So that's different than, say, Poland or Australia. Secondly, you know,
Speaker Change: As we've talked about Germany is expanding quite rapidly. But we've got, you know, not only all the infrastructure and the people and, you know, the trade relationships that we need in Germany, but I think we're also expanding into some of the, you know, different aspects of the German growth. You know, Australia was about getting that infrastructure, I think, to be honest, and catching up.
Speaker Change: in a way to where we were with Germany. MedRelief Australia is the number two player in Australia and so we wanted to have, you know, full control over that entity. I was down there.
Speaker Change: a bit ago. And, you know, it's a great market, a fast growing market. And we think one that's really going to reward, you know, companies with high quality innovative products. The other thing that's different about Australia than Germany is you can sell a broader breadth of products. So whether it's ingestibles,
Speaker Change: are different aspects of a full medical portfolio. There's greater opportunity with that, which I think better takes advantage of the full portfolio of medical products that we have produced in Canada and shipped to Australia.
Speaker Change: Okay, one last one if I can. You know, we're starting to hear about some cities in Germany doing these pilot programs, I guess, for a quasi-rec program. You know, could have an impact on medical sales or on the way the medical market develops in Germany.
Speaker Change: and I guess part B of that question, just remind us in terms of what do you see as underlying growth in the German market right now and whether you are running at a rate or slightly below or slightly above?
Speaker Change: We've not seen, particularly in markets that have reimbursed provisions, like say in Canada, that impact. So we're not worried about that in its early days. I will say, you know, the regulators in Germany and others that regulate that industry, these sort of early days there, but there is a significant amount of growth in patient growth, particularly in the self-payer market, where we're number one in Germany. So we don't see any sort of impact from any of those provisions.
Speaker Change: I think in terms of the percentage growth, it's hard to give you a specific number because there isn't syndicated data that would give you an exact number. I think overall, we would be comfortable in saying we're seeing pretty significant growth in Germany, and we need a little bit more time in order to quantify exactly what that looks like, say, quarter over quarter.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: This concludes the question and answer session. I'd like to turn the floor back over to Miguel Martin for closing comments.
Miguel Martin: Listen, you know, we appreciate everybody's interest in Aurora. It was a tremendous quarter and we think the future is incredibly bright for medical cannabis and and also particularly for Aurora as we take advantage of it. Thank everybody for your time and we look forward to your continued interest in Aurora cannabis.
Speaker Change: This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.