CALGARY,
AB, Aug. 18, 2022 /CNW/ - Decibel Cannabis
Company Inc. (the "Company" or "Decibel") (TSX-V: DB) (OTCQB:
DBCCF), a premium cannabis producer, is pleased to announce its
second quarter financial results for the three and six month
periods ending June 30, 2022.
"Our second quarter results continue to demonstrate that Decibel
is on the path we projected in our 2022 operational outlook", said
Paul Wilson, Chief Executive Officer
of Decibel. "Our New Unique and Innovative product development and
revenue generating initiatives have once again produced
quarter-over-quarter record performance. This progress has been
compounded by our productivity initiatives and record gross profit,
now resulting in positive cash flow, putting us on track for
another projected milestone."
"With more highlights scheduled for the back half of 2022,
Decibel is delivering exactly what we've planned and forecasted to
the market, ourselves, and our shareholders."
Financial Highlights
- Record Net Revenue: $18.6
million of total net revenue in Q2, with strong sequential
growth of 11% over Q1 2022 and 49% over Q2 2021. Net revenue growth
was driven by expanded distribution particularly in the
Ontario market, the continued
launch of new General Admission and Qwest infused products in
various provinces and continued growth in demand for derivative
products. During the second quarter, net revenue would have been
$18.9 million, however $320 of discounts were provided related to
discontinued products.
- Record Gross Margin Before Fair Value Adjustments:
Significant sequential improvement to 41% in Q2, compared to 35% in
Q1 2022 and 41% in Q2 2021. The increase was driven by initiatives
realized midway through the second quarter, including operational
efficiencies, automation equipment commissioned, and sourcing of
more cost-effective components related to the manufacturing of
cannabis products. The cost engineering initiatives and capital
investments impacted the later part of the second quarter, with
additional equipment landed early August expected to drive
continued sequential margin expansion. The Company achieved its
previously stated target of 40 – 45% gross margin ahead of the
second half of 2022.
- Record Adjusted EBITDA: Record $3.2 million of adjusted EBITDA in Q2, with
strong growth of 31% over Q1 2022 and 49% over Q2 2021. This marks
Decibel's eighth quarter of consecutive quarterly positive adjusted
EBITDA.
- Derivative Sales: $13.0
million of net sales in Q2, with strong sequential growth of
25% over Q1 2022 and 128% over Q2 2021. The increase in sale of
wholesale extracts is primarily attributable to expanded
distribution, the launch of a new infused product line, and
continued growth in demand for vapes and concentrates. This demand
growth trend is continuing into Q3 2022 with record level demand
and distribution for Decibel derivative products.
- Flower Sales: $3.4 million
of net sales in Q2, a sequential decline of 19% over Q1 2022 and
10% over Q2 2021. During the period, sale of flower products was
driven by reduced volumes during planned infrastructure
optimization at the Thunderchild Facility.
- Record National Market Share3: Achieved 4.5%
market share in July 2022, growth of
70% year over year.
- Cash Flow from Operations: $1.8
million of cash flow from operations in Q2, a sequential
decrease of $1.2 million over Q1 2022
and an improvement of $4.8 million
over Q2 2021. This marks Decibel's second consecutive quarter of
positive cash flow from operations.
- Repayment Convertible Debentures: On May 11, 2022, the Company repaid its 9.5%
convertible debentures with the draw-down of a fixed 4.75%
$12 million term loan. This extends
the maturity date of $12 million of
debt by 4 years, avoids approximately 6% of potential shareholder
dilution, and results in $0.6 million
of annual interest expense savings.
Operating Highlights
New Unique and Innovative
The Company launched or expanded distribution of the following
products in the quarter:
- Total of 26 products launched in various provinces over the
course of Q2 2022
- 6 General Admission flower and pre-roll products
- 6 General Admission vape flavours in distillate and live resin
formats
- 9 General Admission and Qwest infused pre-rolls
- 5 Qwest flower and pre-roll products
Capital Projects
The Company made the following progress on its operational
initiatives:
- The Plant: Received its Health Canada license
May 2, 2022 for Phase 1 of its
processing hub expansion. In August
2022, the majority of the automation and other critical
equipment was received, which is expected to drive further margin
enhancement on Decibel products in the second half of 2022.
- Thunderchild: Completed its staged infrastructure
optimization to better meet growing demand for Decibel products and
enhance product quality and yields. Production volumes are expected
to resume full run-rate production by the first half of 2023.
Summary Highlights
|
|
Three months
ended
|
|
Six months
ended
|
|
|
June 30
|
|
June 30
|
|
2022
|
2021
|
2022
|
2021
|
(thousands of
Canadian dollars, except where noted)
|
|
|
|
|
Gross sales of flower
1, 2
|
$4,471
|
$4,289
|
$9,950
|
$8,951
|
Net sales of flower
1, 2
|
$3,447
|
$3,577
|
$7,692
|
$7,437
|
|
|
|
|
|
Gross sales of extracts
1, 2
|
$19,634
|
$8,742
|
$35,935
|
$15,846
|
Net sales of extracts
1, 2
|
$12,962
|
$5,674
|
$23,308
|
$11,268
|
|
|
|
|
|
Number of retail
stores
|
6
|
6
|
6
|
6
|
Retail sales 1,
2
|
$2,147
|
$3,189
|
$4,206
|
$6,361
|
|
|
|
|
|
Total
|
|
|
|
|
Gross
revenue
|
$26,252
|
$16,220
|
$50,091
|
$31,158
|
Net revenue
|
$18,556
|
$12,440
|
$35,206
|
$25,066
|
Gross profit before
fair value adjustments
|
$7,689
|
$5,095
|
$13,494
|
$10,073
|
Gross margin before
fair value adjustments
|
41 %
|
41 %
|
38 %
|
40 %
|
Adjusted EBITDA
2
|
$3,230
|
$2,149
|
$5,689
|
$4,182
|
Cash flow from
operations 3
|
$1,777
|
($3,007)
|
$4,761
|
($6,121)
|
1
|
In the table above,
wholesale inventory transferred to the retail stores and
subsequently sold of $188 and $414 for the three and six months,
respectively, have been eliminated from retail sales and attributed
to wholesale sales of flower and extracts to provide a more
accurate depiction of business performance.
|
2
|
Non-GAAP financial
measure. Refer to "Cautionary Statement Regarding Certain
Non-GAAP Measures" for further details.
|
Link to Decibel's Investor Presentation
Decibel's financial statements for the three and six month
periods ending June 30, 2022
("Financial Statements") and related Management's Discussion
& Analysis ("MD&A"), are available under the Company's
profile at www.sedar.com. As of June 30,
2022, Decibel was in compliance with all of its financial
covenants and expects to remain in compliance for the remainder of
its twelve-month forecast period.
3
|
HiFyre Retail
Analytics, Licensed Producer Sales over Time Nationally, July 1,
2022 – July 31, 2022.
|
About Decibel
Decibel is uncompromising in the process and craftsmanship
needed to deliver the highest quality cannabis products and retail
experiences. Decibel has three operating production houses along
with its wholly owned retail business, Prairie Records. The Qwest
Estate in Creston, BC is a
licensed and operating 26,000 square foot cultivation space which
produces the widely championed, rare cultivar-focused brands Qwest
and Qwest Reserve, which are sold in six provinces across
Canada. Thunderchild Cultivation,
is a licensed and operating 80,000 square foot indoor cultivation
facility in Battleford, SK. The
Plant, Decibel's extraction facility, in Calgary, AB has 15,000 square feet of Health
Canada licensed extraction and product development space. This
production house will fuel the growth of our brands Qwest, Qwest
Reserve, Blendcraft, and General Admission, into new and innovative
product formats like concentrates, vapes, edibles and beyond.
www.decibelcc.com
Neither TSX Venture Exchange nor its Regulation Services
Provider (as that term is defined in the policies of the TSX
Venture Exchange) accepts responsibility for the adequacy or
accuracy of this release.
Cautionary Statement Regarding
Certain Non-GAAP Measures
This press release contains certain financial performance
measures that are not recognized or defined under IFRS (termed
"Non-GAAP Measures"). As a result, this data may not be comparable
to data presented by other licenced producers and cannabis
companies. For an explanation of these measures to related
comparable financial information presented in the Consolidated
Financial Statements prepared in accordance with IFRS, refer to the
discussion below. The Company believes that these Non-GAAP Measures
are useful indicators of operating performance and are specifically
used by management to assess the financial and operational
performance of the Company. Accordingly, these Non-GAAP Measures
are intended to provide additional information and should not be
considered in isolation or as a substitute for measures of
performance prepared in accordance with IFRS.
Non-GAAP Financial
Measures
Adjusted EBITDA: Adjusted EBITDA is a non-GAAP financial
measure that is intended to provide a proxy for the Company's
operating cash flow and is widely used by industry analysts to
compare Decibel to its competitors and derive expectations of
future financial performance of the Company. Adjusted EBITDA
increases comparability between comparative companies by
eliminating variability resulting from differences in capital
structures, management decisions related to resource allocation,
and the impact of fair value adjustments on biological
assets, inventory, and financial instruments, which may be volatile
on a period to period basis. The composition of adjusted EBITDA is
as follows:
|
Adjusted
EBITDA
|
|
|
|
|
|
|
|
Three months
ended
|
|
Six months
ended
|
|
|
|
June 30
|
|
June 30
|
|
|
2022
|
2021
|
2022
|
2021
|
|
(thousands of
Canadian dollars)
|
|
|
|
|
|
Net income
(loss)
|
(2,112)
|
(620)
|
(6,484)
|
2,002
|
|
Unrealized loss on
changes in fair value of biological assets (gain)
|
(4,181)
|
(3,181)
|
(7,431)
|
(8,355)
|
|
Change in fair value of
biological assets realized through inventory sold
|
6,382
|
1,862
|
12,334
|
3,543
|
|
Depreciation and
amortization
|
1,022
|
907
|
1,819
|
1,816
|
|
Share-based
compensation
|
862
|
1,156
|
2,093
|
1,503
|
|
Other loss
(income)
|
(46)
|
(15)
|
(53)
|
(20)
|
|
Transaction
costs
|
(1)
|
-
|
10
|
-
|
|
Finance
costs
|
808
|
1,017
|
1,828
|
2,006
|
|
Foreign exchange loss
(gain)
|
152
|
36
|
117
|
81
|
|
Loss on disposal of
property, plant, and equipment (gain)
|
-
|
-
|
-
|
34
|
|
Non-cash cost of goods
sold1
|
255
|
231
|
908
|
431
|
|
Other
adjustments2
|
89
|
227
|
548
|
227
|
|
Other non-cash
costs3
|
-
|
529
|
-
|
914
|
|
Adjusted
EBITDA4
|
3,230
|
2,149
|
5,689
|
4,182
|
1
|
Relates to depreciation
and amortization included in cost of goods sold, write downs of
inventory to net realizable value, and abnormal waste. For the
three months ended June 30, 2022, non-cash cost of goods sold was
comprised of $255 of depreciation and amortization. For the six
months ended June 30, 2022, non-cash cost of goods sold was
comprised of $908 of depreciation and amortization.
|
2
|
Severance payments of
$89 are added back in the Company's Adjusted EBITDA calculation for
covenant reporting purposes. For the six months ended June 30,
2022, other adjustments included $303 of severance payments and
$245 of air freight charges related to supply chain issues. These
amounts are included in SG&A expenses and cost of goods sold in
the Company's consolidated statements of income (loss) and
comprehensive income (loss).
|
3
|
Other non-cash costs
relate primarily to the destruction of inventory at the three
processing facilities. These amounts are included in cost of good
sold in the Company's consolidated statements of income (loss) and
comprehensive income (loss).
|
4
|
Non-GAAP financial
measure. Refer to "Cautionary Statement Regarding Certain
Non-GAAP Measures" for further details.
|
Supplementary Financial
Measures
Retail Sales: Retail Sales is a measure intended to provide a
more accurate depiction of the revenue earned by the Company's
retail operations. Inventory transferred directly from the
Company's wholesale operations to the Company's retail operations
is removed from Retail Revenue as presented in the Company's
Consolidated Financial Statements.
Gross Sales of Flower: Gross Sales of Flower is a measure
intended to provide a more accurate depiction of gross revenue
earned by the Company's wholesale flower operations. Inventory
transferred directly from the Company's wholesale flower operations
to the Company's retail operations is added to Gross Wholesale
Revenue of Flower as found in the Company's Consolidated Financial
Statements to arrive at Gross Sales of Flower.
Net Sales of Flower: Net Sales of Flower is a measure
intended to provide a more accurate depiction of net revenue earned
by the Company's wholesale flower operations. Excise taxes
associated with flower sales are subtracted from Gross Sales of
Flower to arrive at Net Sales of Flower.
Gross Sales of Extracts: Gross Sales of Extracts is a measure
intended to provide a more accurate depiction of gross revenue
earned by the Company's wholesale extracts operations. Inventory
transferred directly from the Company's wholesale extracts
operations to the Company's retail operations is added to Gross
Wholesale Revenue of Extracts as found in the Company's
Consolidated Financial Statements to arrive at Gross Sales of
Extracts.
Net Sales of Extracts: Net Sales of Extracts is a measure
intended to provide a more accurate depiction of net revenue earned
by the Company's wholesale extracts operations. Excise taxes
associated with extracts sales are subtracted from Gross Sales of
Extracts to arrive at Net Sales of Extracts.
Forward Looking
Information
This news release contains "forward-looking information" and
"forward-looking statements" (collectively, "forward-looking
statements") within the meaning of the applicable Canadian
securities legislation. All statements, other than statements of
historical fact, are forward-looking statements and are based on
expectations, estimates and projections as at the date of this news
release. Any statement that involves discussions with respect to
predictions, expectations, beliefs, plans, projections, objectives,
assumptions, future events or performance (often but not always
using phrases such as "expects", or "does not expect", "is
expected", "anticipates" or "does not anticipate", "plans",
"budget", "scheduled", "forecasts", "estimates", "believes" or
"intends" or variations of such words and phrases or stating that
certain actions, events or results "may" or "could", "would",
"might" or "will" be taken to occur or be achieved) are not
statements of historical fact and may be forward-looking
statements.
In this news release, forward-looking statements relate to,
among other things, the Company's expectations that it is on track
with another projected milestone and that more highlights are
planned for the back half of 2023; that additional equipment landed
early August will drive continued sequential margin expansion; that
the Company is ahead of its previously stated target to achieve
40-45% gross margin by the second half of 2022; that the growth in
demand for vapes and concentrates will continue into Q3 2022 with
record level of demand and distribution for Decibel derivative
products; the anticipated benefits to be derived from the staged
infrastructure optimization at the Thunderchild Facility; Decibel's
expectations that production volumes at the Thunderchild Facility
will resume full run-rate production by the first half of 2023; the
Company's expectations that it will remain in compliance with all
of its financial covenants for the remainder of its twelve-month
forecast period; the Company's ability to grow Qwest, Qwest Reserve
and Blendcraft brands into new and innovative product formats,
variations; and its other business plans and expectations. There
can be no assurance that such statements will prove to be accurate,
as actual results and future events could differ materially from
those anticipated in such statements. Accordingly, readers should
not place undue reliance on the forward-looking statements and
information contained in this news release. The Company assumes no
obligation to update the forward-looking statements of beliefs,
opinions, projections, or other factors, should they change, except
as required by law.
Forward-looking statements and FOFI (as defined herein) are
necessarily based upon a number of estimates and assumptions that,
while considered reasonable, are subject to known and unknown
risks, uncertainties, and other factors which may cause the actual
results and future events to differ materially from those expressed
or implied by such forward-looking statements. Such factors
include, but are not limited to: risks relating to delays;
regulatory changes and impacts; capital requirements; construction
impacts; displacement requirements and unforeseen requirements
resulting from the COVID-19 pandemic; the ability to obtain and
maintain licences to retail cannabis products; review of the
Company's production facilities by Health Canada and maintenance of
licences (including any amendments thereto) from Health Canada in
respect thereof; future legislative and regulatory developments
involving cannabis; inability to access sufficient capital from
internal and external sources, and/or inability to access
sufficient capital on favourable terms; the labour market generally
and the ability to access, hire and retain employees; general
business, economic, competitive, political and social
uncertainties; timing and completion of construction and expansion
of the Company's production facilities and retail locations; the
risk that additional equipment landed early August may not drive
continued sequential margin expansion; the risk that the Company
may not remain in compliance with all of its financial covenants
for the remainder of its twelve-month forecast period; and the
delay or failure to receive board, regulatory or other approvals,
including any approvals of the TSX Venture Exchange, as applicable.
Many of these risks and uncertainties and additional risk factors
are described in the Corporation's Annual Information Form and
Management's Discussion and Analysis for the year ended
December 31, 2021, which are
available at www.sedar.com.
With respect to forward-looking statements and FOFI contained
in this press release, Decibel has made assumptions regarding, but
not limited to: Decibel's ability to enter new markets and industry
verticals; Decibel's ability to attract, develop and retain key
personnel; Decibel's ability to raise additional capital and to
execute on its expansion plans; the timelines for new product
launches, Decibel's ability to continue investing in infrastructure
and implement scalable controls, systems and processes to support
its growth; the impact of competition; the changes and trends in
Decibel's industry or the global economy; the Company's ability to
generate sufficient cash flow from operations and obtain financing,
if needed, on acceptable terms or at all; the general economic,
financial market, regulatory and political conditions in which the
Company operates; the ability of the Company to ship its products
and maintain supply chain stability; consumer interest in the
Company's products; anticipated and unanticipated costs; government
regulation of the Company's activities and products; the timely
receipt of any required regulatory approvals; the Company's ability
to conduct operations in a safe, efficient and effective manner;
the Company's construction plans and timeframe for completion of
such plans; and the changes in laws, rules, regulations, and global
standards.
Any financial outlook or future oriented financial
information (in each case "FOFI") contained in this news release
regarding prospective financial position, including, but not
limited to: that additional equipment landed in early August will
drive continued sequential margin expansion; and that the Company
is ahead of its previously stated target to achieve 40-45% gross
margin by the second half of 2022, is based on reasonable
assumptions about future events, including those described above,
based on an assessment by management of the relevant information
that is currently available. The actual results will likely vary
from the amounts set forth herein and such variations may be
material.
Readers are cautioned that the foregoing list of assumptions
and risk factors is not exhaustive. The forward-looking statements
and FOFI contained herein are expressly qualified in their entirety
by this cautionary statement. The forward-looking statements and
FOFI included in this news release are made as of the date hereof
and Decibel does not undertake any obligation to publicly update
such forward-looking statements and FOFI to reflect new
information, subsequent events or otherwise unless so required by
applicable securities laws.
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SOURCE Decibel Cannabis Company Inc.