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Aurora Cannabis Missed Analysts’ Expectations in Q2

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Yesterday, Aurora Cannabis (NYSE:ACB) reported its earnings for the second quarter of fiscal 2020 after the market closed. For the quarter, the company reported net revenues of 56.0 million Canadian dollars, which fell short of analysts’ expectations of 65.43 million Canadian dollars. Also, the company’s adjusted EBITDA for the quarter was negative 80.25 million Canadian dollars compared to analysts’ expectation of a negative EBITDA of 56.52 million Canadian dollars. Despite the weak performance, Aurora Cannabis was trading 1% higher in today’s pre-market trading hours. Investors expected the company’s second-quarter earnings to be much worse. So, they were relieved by the company’s performance.

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Aurora’s revenue fell sequentially

Compared to 70.8 million Canadian dollars in the first quarter, Aurora Cannabis’s second-quarter revenue fell 25.6%. The company witnessed a decline in all three of its segments. For the quarter, the company’s medical cannabis revenue, which includes Canadian and international markets, was 27.4 million Canadian dollars. The medical cannabis revenue fell by 10.1% from 30.5 million Canadian dollars in the first quarter. The company’s medical cannabis sales in Canada were flat sequentially at 25.6 million Canadian dollars. However, Aurora Cannabis’s international medical sales fell from 5.0 million Canadian dollars to 1.8 million Canadian dollars. The temporary restriction on European sales due to permits led to a fall in the segment’s revenue.

Aurora Cannabis’s revenue from the consumer cannabis segment was 33.5 million Canadian dollars. The revenue included 10.6 million Canadian dollars of provisions for returns and price adjustments. Meanwhile, the company’s net revenue from the segment was 22.9 million Canadian dollars, which represents a fall of 23.7% from the previous quarter. Lower provincial orders, consumer preferences for value brands, and a slower opening of new retail cannabis stores caused the segment’s revenue to fall.

During the quarter, Aurora Cannabis’s wholesale bulk cannabis segment reported revenues of 2.4 million Canadian dollars. The revenue fell by 76.9% from 10.3 million Canadian dollars in the previous quarter. The lower volume and price caused the segment’s revenue to fall.

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Lower volume and price

During the quarter, Aurora Cannabis produced 30,691 kilograms of cannabis. The amount was lower than 41,436 kilograms of cannabis produced in the previous quarter. The company’s decision to prioritize the production of higher potency cannabis, which had a slightly lower yield, led to a decline in the company’s production. During the quarter, the company’s average net selling price was 5.54 Canadian dollars. The average net selling price fell by 2.5% from 5.68 Canadian dollars in the previous quarter. The company’s management blamed returns and price adjustments, a lower sales volume, and pricing pressure for the lower net selling price. However, during the quarter, the cash cost to produce cannabis increased from 0.85 Canadian dollars per gram in the last quarter to 0.88 Canadian dollars.

Aurora’s EBITDA fell

For the quarter, Aurora Cannabis reported a negative EBITDA of 80.2 million Canadian dollars. The EBITDA fell from a negative EBITDA of 39.7 million Canadian dollars in the previous quarter. The company’s adjusted EBITDA fell due to the lower revenue, lower gross margin, and higher SG&A expenses.

For the quarter, the company’s gross margin, excluding provisions, was 48% compared to 58% in the previous quarter. However, if we consider the impact of the return and price adjustments, the company’s gross margin was 44%. Also, during the quarter, the company’s SG&A expenses rose 23% to 99.9 million Canadian dollars. The company’s SG&A expenses rose following increased salaries due to a higher headcount and increased investments in marketing campaigns to launch Cannabis 2.0 products and the Aurora Drift brand.

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Outlook

As reported on February 6, Aurora Cannabis expects near-term sales growth across the industry to be slower. So, the company took several initiatives to align its operations with the slowing growth. To learn more, read ACB Announces Q2 Preliminary Results, CEO Retires. For the third quarter, management expects its revenue, including the provisions, to be approximately 65 million Canadian dollars. The company’s management is also working to lower its SG&A expenses to 40 million–45 million Canadian dollars by the fourth quarter of this fiscal year. With customers preferring value products, the company launched “Daily Special” earlier this month.

Stock performance

After falling 58.9% last year, Aurora Cannabis was trading 29.7% lower this year as of Thursday. The stock has underperformed its peers this year. Canopy Growth (NYSE:CGC), Aphria (NYSE:APHA), and Cronos Group (NASDAQ:CRON) have fallen by 5.2%, 19.2%, and 8.5% YTD, respectively.

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