Good day, ladies and gentlemen. And welcome to Aurora Cannabis Inc. Second Quarter 2024 Results Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I will now turn the conference over to your host, Ananth Krishnan. Please go ahead.

Thank you, Chris. We appreciate you all joining us this afternoon. On the line with me today are CEO, Miguel Martin; and CFO, Glen Ibbott. After the market closed, Aurora issued a news release announcing our fiscal 2024 second quarter financial results. This news release, accompanying financial statements and MD&A are available on our IR website and can also be accessed via SEDAR and EDGAR. In addition, you will find the supplemental information deck on our IR website. Listeners are reminded that certain matters discussed on today’s conference call could constitute forward-looking statements that are subject to risks and uncertainties related to our future financial or business performance. Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect actual results are detailed in our annual information form and other periodic filings and registration statements. These documents may similarly be accessed via SEDAR and EDGAR. Following prepared remarks by Miguel and Glen, we will conduct a question-and-answer session with our covering analysts. We ask that you limit yourself to one question and then return to the queue. With that, I will turn the call over to Miguel. Please go ahead.

Thank you, Ananth. Glen and I are hosting this call today from the Sky facility in Edmonton, Alberta, the home province of Aurora and where our story began. We are very pleased to be here at this 800,000 square foot facility that is being repurposed by Bevo Farms for orchid cultivation as part of their expansion plans. More importantly, we’re here today to discuss our quarterly results, which demonstrate the strength of Aurora’s business model. This quarter, we achieved strong revenue growth, record positive adjusted EBITDA and maintained our leadership in key markets, all of which will help us achieve our target of positive free cash flow in calendar 2024. Starting with the topline, we grew total net revenue by 30% in Q2, but the real story was the 42% growth in our medical cannabis segment, which included 122% growth in medical cannabis outside of Canada. Adjusted gross margin was 51% and increased across three of our four business segments, while adjusted EBITDA grew to $3.4 million, a $9.6 million improvement year-over-year, and our highest result on record. Q2 also marked our fourth consecutive quarter generating positive adjusted EBITDA. Our balance sheet is similarly in great shape and one of the strongest of Canadian LPs, with a cash position of over $200 million. Our convertible senior notes are down to about US$5.3 million and will be settled at maturity in February 2024. Following this repayment, Aurora’s only remaining debt will be approximately $40 million of non-recourse financing at Bevo. This healthy balance sheet is going to allow us to play offense going forward, without the weight of a heavy debt load. It is truly an exciting time for Aurora, our shareholders and our employees. Let’s now take a deeper dive into our business. In Canada, where Aurora already has the…

Thank you, Miguel, and good afternoon, everyone. We’re obviously very pleased with our Q2 performance and gratified that the substantial progress we have made in executing our business transformation continues to yield tangible results for our company. Our mission to further improve our financial condition is well on track, as highlighted by our commitment to deliver $40 million in annualized savings by the end of this fiscal year. Today, our total cash balance sits at over $200 million in cash and equivalents, which is more than sufficient to reach positive free cash flow in calendar 2024. And I’ll also highlight our progress in cleaning out debt. During Q2, we repurchased approximately $41 million of our convertible senior notes through the issuance of approximately 54 million common shares. Subsequent to Q2, we repurchased a further approximately $23 million of our convertible senior notes and that was with cash. Before the end of fiscal Q4, we’ll pay off the final US$53 million of these convertible senior notes. This is a monumental improvement to our balance sheet, where we have reduced debt by approximately $531 million over the last three years. That’s an achievement that we are very proud of. Now, looking to our Q2 revenue line, we delivered growth of 30% over the comparable year ago period. Specifically, we generated a sharp increase in sales from our higher margin global medical cannabis segment, which coupled with a larger contribution from plant propagation more than offset a slight decrease in consumer cannabis. On profitability, consolidated adjusted gross margin held steady at 51% and adjusted EBITDA rose to $3.4 million, reflecting a $9.6 million improvement from last year and our highest quarterly result in adjusted EBITDA to-date. Let’s now go into our Q2 results in greater depth. Net revenue rose to $63.4 million, up…

Thanks, Glen. Looking back over the last three years, Aurora has delivered $400 million in cost efficiencies, executed on our key priority of positive adjusted EBITDA and withstood the challenges and headwinds that have faced our industry. Our world-class diversified company is on a stronger footing than ever before. We are on track to deliver positive free cash flow and we will build on this foundation over the coming quarters and year to come. Operator, please open the lines for questions.

Thank you, sir. [Operator Instructions] Our first question is from Vivien Azer of TD Cowen. Please go ahead.

Hi. Thank you. Good evening.

Good evening, Vivien.

So, Miguel, since you and Glen are at the Sky facility, I figured it’d be appropriate to ask a Bevo question. Good to hear you reiterate the target to double revenue and cash flow from that business. Last quarter, you said two years to three years, given that you are on site and the conversion is clearly underway. Any opportunity to kind of refine that timing or talk about kind of the cadence to get to that aspiration of a double? Thank you.

Yeah. Well, thank you. I think we’re not going to give any forward looking guidance on this, but having been here and having seen this planned conversion and where it’s at for this 800,000 square foot facility, we definitely think that Bevo can expand that. Early conversations with customers and large bid box customers that you’re well familiar with have been encouraging and the market size and pricing is also encouraging. And the percentage of orchids that this facility could put online and the pricing that we’re seeing in North America versus traditional Southeast Asia all give us a lot of confidence. What I’d like to do is have a couple more months of the early read of these products in the market and see what those early selling is. Once we have that, I think we’ll provide some more guidance. I don’t want to get over my skis in terms of what this may mean, but we’re very booked on it. And if you look at other outcomes for the Sky facility particularly, this is really a good one. So, I’d ask you to wait a little bit as we try not to overpromise on what this is. But once we have clarity on it, we definitely will provide it.

Thank you. The next question is from Michael Lavery of Piper Sandler. Please go ahead.

Thank you. Good evening.

Good evening, Michael.

Just wanted to unpack the Tasty’s launch a little bit more and I forget the exact wording, but you characterized it as I think a value to the consumer. It’s clearly medical is your focus, the higher margin and some of the other attractive elements of that. But can you explain how this fits strategically just a little bit more of why the launch and kind of what you expect going forward?

Yeah. I mean, it’s a great question. As a company that is innately focused on medical and unapologetically is what we’re leaning into, we are seeing a lot of benefits of having both systems be healthy. And in my prepared remarks I talked about our focus on EU GMP flower, which is an incredibly important resource if you look globally, whether that’s product going into Europe or going to Australia. So, the question then becomes on rec, where we have roughly about a 1.7 share, what assets do we have that can not only help with the fixed cost of the medical system, but also give us insight and be relevant to the consumer and be able to find spots where we can make some money. So, instead of focusing on premium GMP flower in the very challenged margins of the rec business, we focused on high potency infused pre-rolls that leverage our genetics, our science, our execution and our extraction capabilities and allow us to put a product in the market that doesn’t take any resources away from those significantly higher margin businesses. The other aspect of Tasty’s is on the vape side, which obviously we have a lot of experience with and we have found what we believe to be a nice niche on vapor. And again, the resources to make those products and to achieve those margins doesn’t take anything away from what we’re doing. So, we’re trying to learn how to maximize all the fixed infrastructure that we have and produce the best company-wide margins, while allowing products to live between both segments, which is really where we maximize our overall profitability. So, we haven’t given up on rec. I mean, rec is a challenge in Canada right now, particularly in certain geographies, but there definitely are spots and pre-rolls are the fastest growing segment once again, second behind only flower at this point. And so, where we can find those spots, we will. And in a lot of cases, as those rec consumers see value in it, we can also bring some of those products to the medical channel as well.

Thank you. The next question is from John Zamparo of CIBC. Please go ahead.

Thanks. Good evening. I wonder if you could go across the Atlantic and I wonder what brought about the exit in the Netherlands and can you give us an update on the France market, please?

Sure. I’d be happy to. So, the Netherlands, as many of these markets are, you have to make some early bets on what is the regulatory framework going to be. I think one of the most important developments that we’ve seen is consistently international markets are allowing to import EU GMP flower. Now, it’s very challenging in many times because you test in their labs, you have to have a lot of precision. But first and foremost, from a production standpoint, when you compare the production costs and the leverage and efficiencies we have in ramping up Canadian production versus production in that marketplace, it just didn’t make sense from a production standpoint. Secondarily, the evolution of what was going to be this pilot test in that market really has not transpired. And so, given the incredible strength that we’re seeing in other markets, not only ones we talk a lot about, say, Germany and Poland, but also Australia and the U.K., with limited resources, it made sense to focus there. In terms of France, it’s a very topical question. We’ve just recently learned a little bit more about their pilot. So, we’ve been in it from the beginning. There were nine tenders, so to speak, of different products. Three of them were flower. We had all of those. And recently, what they’ve announced, importantly, is an extension of that system for about five years and we expect that that’s going to dovetail into the medical cannabis regime. They have said no inhalables, as they define as both flower and vape. And so, the other formats will take the lead. We have pivoted off of flower. We’ll be doing extracts there. Now, listen, as with all regs, things evolve and that doesn’t mean forever no on inhalables. But that’s the current situation. But it’s a big market with a lot of adjacent population. It’s obviously very close to great markets, such as the U.K. and Germany. So, we’ll see how it evolves. But right now, that’s sort of the latest on it, John.

Thank you. The next question is from Doug Miehm of RBC Capital Markets. Please go ahead.

Hey. Good evening. My question has to do with the international side of things as well. One of the things that you mentioned, Miguel, is just that, you anticipated outside of the U.S. that Australia could become the largest medical cannabis market. Could you maybe add a little bit of detail as to why you think that’s going to be the case, especially given the size of the German population relative to Australia?

Yeah. It’s a great question. So, first and foremost, syndicated data and the modelling of these markets is in its infancy. And so, I would tell you, the caveat to much of this is based on the data that we have and nothing that we see today in cannabis, possible exception of some aspects of Canada, will replicate the modelling that you would see in, say, Nielsen or IRI or the other data systems that you’re used to. So, as it pertains to Australia, that market is very nascent. There is a data set there called NostraData. And NostraData works with pharmacies that have signed up and it’s a retail takeaway data. And they model the dollar size of that market and market share. They do it both from a total standpoint and an SKU and you can get directionally what that looks like. Secondarily, the lead regulatory agency in that market, which is the TGA, has a market size projection based on the number of prescriptions and prescribers, and we’d be happy to provide that if anyone wants to take a look on it. That is public from the TGA. It looks like directionally that Australia is roughly, you know, around C$400 million and C$450 million a year and growing rapidly and what that percentage is, I wouldn’t say. And that is at or a little bit bigger than the Canadian medical system and is bigger than the German system. Now, just the other sort of points of how you triangulate that given the size of the German population, we believe that the percentage of adults in the German medical system is 0.1% and in Canada, it’s 1%. Now, I don’t have those percentage usage numbers for Australia. But that, I think, directionally is a good way to get to how do you get the size of market?

Thank you. The next question is from Tamy Chen of BMO Capital Markets. Please go ahead.

Hi. Good evening. This is Emily for Tami. So just sticking with the German market, there seems to be some progress in the German parliament towards rec legalization. So how are you thinking about their medical program platform and the rec opportunity over there at this point?

Emily, thanks for the question. So, I would tell you, we have a quite a bit of infrastructure and people in the German market. As I mentioned, we have one of three production facilities. We have an office in Berlin. We have what we believe to be a really strong GRGA organization there. So our read on Germany we think is quite strong and we are optimistic about the plan legislation to de-schedule cannabis in Germany and that will have a significant impact on patients, clinicians, and importantly, pharmacies accessing medical cannabis. And we’ve seen significant changes in markets when that de-scheduling happens and you’ve seen that in other places. We’re monitoring it closely. There are some important votes coming up in the legislature in December and January. And I think importantly, we believe this will expand the overall medical component of it. Now, as I mentioned, that 0.1% of the adult population in the system versus 1% of Canada, there’s a lot of upside. The other part that, maybe gets lost a little bit is, how difficult it is to be successful in Germany and how few companies are doing that. You have less than 10 companies in Germany that account for roughly 90% of medical sales. If you were to look at Canada, say just rec as an example, you’d have to get probably the 90 companies to get to the same percentage. Now, as it pertains to your question on rec, we believe this is further off and I know there was a lot of optimism about what that may look like, but the reality is that that has to work through the EU system and that’s going to take a little bit longer. There’s been some discussion about initial steps about social clubs, homegrowing, possession limits that would sort of expand it. But I would tell you that it’s our belief that most of the progress that you’ll see in Germany will be on the medical side. The other part of Germany is it has a lot of influence on Poland, which is very quickly becoming a significant market on that. We’re comforted by the fact that, while not every country is going to have the same regulations, there is a coalescing around commonalities in testing, labeling, manufacturing standards. And as I mentioned before, on the medical side, there’s been no prohibition of importing EU GMP products out of Canada as an example. I know you can have EU GMP in other countries, but that creates a lot of efficiencies and really makes the list of winners in a market like Germany be a short one. We won’t be the only one, but we’ll definitely be one of them.

Thank you, sir. [Operator Instructions] Our next question is from Eric Livshits of ATB Capital Markets. Please go ahead.

Hi. This is Eric Livshits for Frederico Gomes. So I’m just wondering, you’ve seen quite a nice improvement in gross margins this quarter. Is that largely a function of just the higher medical mix or are there kind of other efficiencies at play here? Thank you.

Yeah. Thanks for the question. So I’ll take that up and then Miguel can add if needed. We’ve got kind of all the levers of our company moving in the right direction. We have invested significantly in centralization and efficiencies in the production assets in Canada. As you know, over the last two years, three years, we’ve gone through a significant transformation, but a big part of that was to gain the efficiencies to scale in production and really focus on those, on driving costs out of the systems, unit costs in particular. Same time, we’ve been realizing the benefits of the investment in science and genetics and so the yields coming out of the system right now on the flower side, continue to impress at producing quality flower with desirable attributes, whether it’s high potency or interesting terpene profiles and doing that with the yields increasing at point 60% or better over some of our legacy cultivars means we get much more out of a facility and a unit cost again going down. So that fundamentally underpins an improvement in our margins. Of course, you’re right. As we get more and more into medical sales and become a bigger and bigger part of our business, they will definitely -- the high average selling prices definitely contribute to the increasing margin. So we do expect to see that continue to move in that right direction. As we said, we finished the Nordic closure and that’s a big piece of bringing that production back to Canada and supplying Europe from Canada. We think we’ll see our margins in Europe continue to improve over the next while as well. Miguel?

Yeah. I guess the other thing is, we focus on the margins, and so, as we’ve stated, our goal is to be free cash flow positive and then continue to grow that. You can’t do that just on the topline growth. We’ve seen that be attempted. You really have to make money in what you do. So we walk away from unprofitable categories, we walk away from unprofitable geographies and we focus on those geographies where we can make money. The other aspect of medical cannabis is those margins are, no pun intended, are very sticky. Because the taxes and the economics for the wholesaler and the pharmacy come off that wholesale list price and much of this business is in a reimbursed model, there is not the compression that you would see, say, in traditional rec businesses. And so we’ve seen very steady margins throughout that overall system and if you look at traditional pharmaceutical businesses, while we like a 62% or 65% margin, that’s quite low there. So I think it takes a lot of work. It’s somewhere we’re focused on. And we think it’s a key cornerstone that differentiates Aurora from our competitors is that focus on profitable high margin business.

Thank you, sir. Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Miguel Martin for closing remarks.

Well, I want to thank everybody for their time and their interest in Aurora. This has been an incredible three years to get us where we are. We’re nowhere near where we think we can get. And so we’re proud of what we’ve done this quarter, we know it’s just one of many quarters to go and we look forward to sharing that story with all of you. Hope everybody has a safe and good evening. Thanks a lot.

Thank you very much, sir. Ladies and gentlemen, that concludes today’s conference. You may disconnect your lines at this time and thank you for your participation.