AnalysisCanadaEarningsStock NewsAurora hopes new CEO can stop the bleeding

The once-promising producer previewed impairment charges of $1.8B, termination of UFC deal, while appointing Miguel Martin head boss
Nick Laba Nick LabaSeptember 8, 202010 min

As forest fires rage across the Pacific Northwest, licensed producer of previous promise Aurora Cannabis, Inc. (TSX and NYSE: ACB) is desperately fighting its own financial blaze.

In a set of statements Tuesday, the company reported $1.8 billion in impairment charges among a preview of its fourth-quarter earnings as well as the appointment of previous chief commercial officer Miguel Martin to the chief executive seat.

Aurora stock tumbled almost 11 per cent on the day to $9.92 on the Toronto Stock Exchange. The firm’s share price has dropped nearly 69 per cent from $31.56 on Jan. 2, 2020, and 94 per cent from $153.96 on March 15, 2019. Note that those prices are relative to a 12-for-1 reverse split Aurora executed in May to avoid being de-listed from the New York Stock Exchange, which means the company was valued at around $2.63 per share in January.

“I am excited to step into the role of CEO at this inflection point in Aurora’s business,” Martin said in the first statement.

He joined Aurora in May when it acquired CBD company Reliva, LLC — where Martin was CEO — for US$40 million in common shares. Those shares are now worth half of what they did at the time, when Aurora’s valuation rallied significantly following increased revenues in the third quarter.

Read more: Aurora’s stock rallies on rising revenues

But now revenues are set to fall. Previewing its fourth-quarter financials in a second statement, with full results due Sept. 22, the company expects total revenues of $70–72 million, down from $75.5 million in Q3. Cannabis net revenue is expected to be between $66–68 million, compared to $69.6 million previously.

CEO Martin ‘confident’ despite charges, delayed targets, ditched deals

As part of its previously announced restructuring plan that involved cutting spending and capital expenditures, Aurora says it “expects to record a number of balance sheet adjustments in Q4 2020 to recognize market realities and to position the company for future performance.”

Those adjustments include fixed asset impairment charges of up to $90 million due to production facility rationalization, and a charge of around $140 million on “predominantly trim” to align with near-term demand. Aurora reports that 40 per cent of its fair-value adjustment is related to inventory. It expects a non-cash write down of goodwill and intangible assets of $1.6–$1.8 billion.

The producer also pushed back a previously stated commitment to be EBITDA positive by first quarter 2021.

When analysts quizzed Aurora on projected profitability on its last earnings call, then interim CEO Michael Singer said the company’s new plan could grow to EBITDA profitability under multiple reasonable scenarios.

“We have an operating target and SG&A targets, but if we need to we can pull additional cost levers within the business,” he said. “We have committed to be EBITDA positive in Q1.”

Aurora vapes
Aurora’s incoming CEO brings years of experience as president of a large e-cigarette company in the U.S. Photo via Aurora

However, on Tuesday Aurora reduced adjusted EBITDA milestones for its credit facility required for the fiscal year ended June 30, to $20 million from $51 million, which includes delaying the requirement to generate positive adjusted EBITDA to Q2, “in line with management’s revised tactical commercial plan.”

Part of that plan involves terminating a highly publicized deal with the UFC. The firm says a one-time payment of US$30 million will avoid more than $150 million in fees, research costs and marketing expenses over the next five years.

“We thank our lending partners for their continued support to reach this agreement,” CFO Glen Ibbott said of the credit facility adjustments. As of June 30, Aurora said it had around $160 million cash on hand. As of Tuesday, it reported a total of around $275 million available under its existing at-the-market program.

New head boss Martin says he’s confident Aurora has the infrastructure and capabilities for long-term success in the global cannabinoid industry.

“Given my 25 years of executing against regulated product opportunities, including serving as president of one of the largest electronic cigarette companies, I believe we will be successful both with the current portfolio and emerging margin accretive formats,” he said.

Martin is referencing his time at Logic Technology Development LLC, a large e-cigarette manufacturer in the U.S., where he served as president and general manager. He’s also eyeing the slated high-potential for growth in Canada’s cannabis 2.0 market, which has been steadily increasing in size since its opening at the start of the year. As of July, vapes made up 15.96 per cent of total sales in Canada.

Aurora has closed five facilities and laid of hundreds of staff this year. It’s also facing several lawsuits from investors and previous business partners.

Read more: Vapes lead 2.0 market share in Canada, gummies set to rise: Headset

Read more: Aurora Cannabis to close 5 facilities, lay off 700 staff in search for profits

Read more: CTT Pharma sues Aurora for allegedly shirking successful deal

Top image: In June, Aurora said it was closing five facilities including its Aurora Mountain facility — pictured above — in Cremona, Alberta. Photo via Aurora

 

nick@mugglehead.com

@nick_laba

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