Aurora Cannabis Inc. (NYSE: ACB) gave an update on its business in which the company said it would take a $1.8 billion charge as it released unaudited preliminary fiscal fourth-quarter 2020 results. Revenues also fell sequentially. As an aside, the company also named a new CEO Miguel Martin.
Fourth Quarter Revenue Drops
Aurora reported that its 2020 fourth-quarter net revenue was expected to be in the range of $70 million and $72 million, versus $75.5 million in the third quarter. The company said that cannabis net revenue is expected to be between $66 million and $68 million, a sequential drop from the third quarter net revenue of $69.6 million. The company said in a statement, “We expect adjusted gross margin before fair value adjustments on cannabis net revenue to be within a range of 46%-50%, with lower gross margins expected from non-cannabis business segments.”
Billion Dollar Charge
Aurora also warned investors that there will be a number of balance sheet adjustments to recognize market realities that will range between $1.6 and $1.8 billion. “These adjustments include previously announced fixed asset impairment charges, now expected to be up to $90 million, due to production facility rationalization, and a charge of approximately $140 million in the carrying value of certain inventory, predominantly trim, in order to align inventory on hand with near term expectations for demand.” The comapny said that almost 40% of the inventory is going through a fair value adjustment.
“With the difficult actions we have taken since February to right-size our team and our production footprint now behind us, these amendments to our credit facility provide us with greater flexibility over the next few quarters as we focus intensively on top line opportunities,” stated Glen Ibbott, Aurora’s Chief Financial Officer. “We thank our lending partners for their continued support to reach this agreement. At June 30, 2020, Aurora had approximately $160 million cash on hand. Today, we also have approximately $275 million (US$220 million) available under our existing at-the-market (“ATM”) program which provides us with additional balance sheet support if required as we drive toward achieving Adjusted EBITDA profitability in the near term.”
Right Sizing The Company
As the company adjusts to a new normal, it has embarked on a process of rightsizing its expenses and retooling its debt. The sales, marketing and administrative costs in the second half of fiscal 2020 have been cut from over $100 million in the second quarter down to an expected range of $60 to $65 million in thr fourth quarter. This excludes approximately $3 million of non-recurring costs related to the business reset and $2 million of costs associated with divested businesses.
The company worked with its bankers to get the following adjustments to its debt load.
- Adjustment of the total funded debt-to-equity covenant to 0.28:1 for Q4 2020 and Q1 2021, and 0.25:1 thereafter, allowing for room to take the balance sheet adjustments noted above
- Reduction in the Adjusted EBITDA milestones required for the trailing twelve-month period ending June 30, 2021 from $51 million to $20 million, including delaying the requirement to generate positive Adjusted EBITDA to Q2, in line with management’s revised tactical commercial plan
- Reduction in the size of the revolving facility from $43 million to $15 million to better align with the Company’s average receivables balance and to reduce unnecessary standby fees
Separateley, the company announced that Michael Singer, who has served as Interim CEO since February 2020, has stepped down from his temporary role but will remain Executive Chairman. Miguel Martin was named CEO. He is a 25-year consumer packaged goods industry veteran who joined Aurora from Reliva where he served as Chief Executive Officer. He assumed the role of Chief Commercial Officer of Aurora in July 2020. Prior to Reliva, Mr. Martin was the President of Logic Technology, one of the largest manufacturers of electronic cigarettes. He also held the position of Senior Vice President and General Manager of Altria Sales & Distribution.
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