CALGARY,
AB, Nov. 15, 2022 /CNW/ - Decibel Cannabis
Company Inc. (the "Company" or "Decibel") (TSXV:DB) (OTCQB: DBCCF),
a premium cannabis producer, is pleased to announce its third
quarter financial results for the three and nine month periods
ending September 30, 2022.
"Our third quarter results coupled with another record market
share month to start the fourth quarter continue to demonstrate our
focus in achieving our 2022 operational outlook", said Paul Wilson, CEO of Decibel. "With highly
successful recent product launches, the demand we are experiencing
has been tremendous and provides opportunity for material growth
for Decibel. The continued progress by our productivity initiatives
alongside another period of record gross profit position us well to
deliver on this demand and drive further profitability, as we track
towards a strong fourth quarter to end 2022."
Financial Highlights
- Record National Market Share1: Achieved 5.3%
in October 2022 which places Decibel
as the 6th largest LP in Canada by market share.
-
- The Company anticipates sequential net revenue growth to resume
in the fourth quarter supported by continued growth in demand
(market share) and improved operational capacity to meet
demand.
- Record 5.3% recreational National Market Share in October
driven by gains in vape and pre-roll categories:
-
- #1 company in vape sales with a 14.5% market share
- #3 company in pre-roll sales with an 8.4% market share
- Net Revenue: $18.3 million
of total net sales in Q3, with a sequential decline of 1% over Q2
2022 and an increase of 37% over Q3 2021. The sequential net
revenue decline was driven by a higher proportion of derivative
sales which receive more punitive excise tax rates, whereas gross
sales grew sequentially by 9% over Q2 2022. Net revenue growth over
Q3 2021 was driven by expanded distribution, successful launches of
new infused products and continued growth in demand for derivative
products.
- Record Gross Margin Before Fair Value Adjustments:
Significant sequential improvement to 52% in Q3, compared to 41% in
Q2 2022 and 31% in Q3 2021. The increase was driven by investments
made during the summer, including operational efficiencies,
automation equipment commissioned, and sourcing of more
cost-effective components related to the manufacturing of cannabis
products. The Company anticipates there may be future volatility in
its gross margin related to price competition and continues to
target the upper end of the previously stated target of 40 – 45%
gross margin.
- Record Adjusted EBITDA: $4.3
million of Adjusted EBITDA in Q3, with strong growth of 32%
over Q2 2022 and 139% over Q3 2021. This marks Decibel's ninth
quarter of consecutive quarterly positive adjusted EBITDA.
- Record Adjusted Net Income: $2.9
million of Adjusted Net Income in Q3, an improvement of
$3.0 million over Q2 2022 and
$4.9 million over Q3 2021. This marks
Decibel's second quarter of positive Adjusted Net Income.
- Derivative Sales: $13.7
million of net sales in Q3, with strong sequential growth of
6% over Q2 2022 and 108% over Q3 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 Q4 2022 with record level demand,
market share, and distribution for Decibel derivative
products.
- Flower Sales: $2.3 million
of net sales in Q3, a sequential decline of 34% over Q2 2022 and
40% over Q3 2021. The decrease in sales of wholesale flower
products was driven by a material proportion of the Thunderchild
facility being upgraded during the period to enhance yields and
quality. Nearing the end of the quarter, the Company began
reserving inventory in preparation for international exports.
- Cash Flow & Working Capital: $3.6 million of cash flow from operations in Q3,
a sequential increase of $1.8 million
over Q2 2022 and an improvement of $9.5
million over Q3 2021. This marks Decibel's third consecutive
quarter of positive cash flow from operations.
- Leverage: At the end of Q3 2022, Decibel had a funded
debt to trailing twelve-month EBITDA of 3.9x.
Operating Highlights
New Unique and
Innovative
The Company launched or expanded distribution of the following
products in the quarter:
- Total of 5 products launched in various provinces over the
course of Q3 2022
- 2 General Admission vape flavours in distillate and live resin
formats
- 3 General Admission and Qwest infused pre-rolls
Summary Highlights
Quarterly
Highlights
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|
|
|
|
|
|
Three months
ended
|
|
Nine months
ended
|
|
|
September 30
|
|
September 30
|
|
2022
|
2021
|
2022
|
2021
|
(thousands of
Canadian dollars, except where noted)
|
|
|
|
|
Gross sales of flower
2
|
$2,776
|
$4,269
|
$12,726
|
$13,220
|
Net sales of flower
2
|
$2,266
|
$3,760
|
$9,959
|
$11,198
|
|
|
|
|
|
Gross sales of extracts
2
|
$23,386
|
$9,701
|
$59,321
|
$25,547
|
Net sales of extracts
2
|
$13,706
|
$6,586
|
$37,014
|
$17,854
|
|
|
|
|
|
Number of retail
stores
|
6
|
6
|
6
|
6
|
Retail sales
2
|
$2,350
|
$3,023
|
$6,556
|
$9,383
|
|
|
|
|
|
Total
|
|
|
|
|
Gross
revenue
|
$28,512
|
$16,992
|
$78,603
|
$48,150
|
Net revenue
|
$18,322
|
$13,369
|
$53,529
|
$38,435
|
Gross profit before
fair value adjustments
|
$9,451
|
$4,101
|
$22,944
|
$14,174
|
Gross margin before
fair value adjustments
|
52 %
|
31 %
|
43 %
|
37 %
|
Adjusted EBITDA
3
|
$4,259
|
$1,784
|
$9,948
|
$5,966
|
Adjusted net income
3
|
$2,926
|
($1,948)
|
$1,345
|
($4,758)
|
Cash flow from
operations 4
|
$3,611
|
($5,906)
|
$8,372
|
($12,027)
|
Link to Decibel's Investor Presentation
Decibel's financial statements for the three and nine month
periods ending September 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 September
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.
Hybrid Financial Engagement
The Company is pleased to announce that it has retained Hybrid
Financial Ltd. ("Hybrid") to provide marketing services to the
Company. Hybrid has been engaged to heighten market and brand
awareness for Decibel and to broaden the Company's reach within the
investment community.
Hybrid has been engaged by the Company for an initial period of
six (6) months starting November 7th
(the "Initial Term") and then may be renewed for successive three
(3) month periods thereafter. Hybrid will be paid a monthly fee of
$15,000, plus applicable taxes,
during the Initial
Term.
Hybrid has agreed to comply with all applicable securities laws
and the policies of the TSX Venture Exchange (the "TSXV") in
providing the Services.
1 HiFyre
Retail Analytics, Licensed Producer Sales over Time Nationally,
October 1, 2022 – October 31, 2022.
|
2 In
the table above, wholesale inventory transferred to the retail
stores and subsequently sold of $48 and $462 for the three and nine
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.
|
3
Non-GAAP financial measure. Refer to "Cautionary Statement
Regarding Certain Non-GAAP Measures" for further
details.
|
4
Refer to "Cash Flows" in the MD&A for further
details.
|
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.
About Hybrid Financial Ltd.
Hybrid is a sales and distribution company that actively
connects issuers to the investment community across North America. Using a data driven approach,
Hybrid provides its clients with comprehensive coverage of both
American and Canadian markets. Hybrid Financial has offices in
Toronto and Montreal.
Neither the TSXV nor its Regulation Services Provider (as
that term is defined in the policies of the TSXV) accepts
responsibility for the adequacy or accuracy of this
release.
Cautionary Statements
Non-GAAP Measures
This news release contains the financial performance metrics
Adjusted EBITDA and Adjusted Net Income, measures that are not
recognized or defined under IFRS (a "Non-GAAP Measure"). As a
result, this data may not be comparable to data presented by other
cannabis companies. For an explanation and reconciliation of
Adjusted EBITDA and Adjusted Net Income to related comparable
financial information presented in the Financial Statements
prepared in accordance with IFRS, refer to the MD&A for the
three and nine months ended September 30,
2022. The Company believes that Adjusted EBITDA and Adjusted
Net Income are useful indicators of operational performance and are
specifically used by management to assess the financial and
operational performance of the Company.
The Company calculates Adjusted EBITDA as net loss and
comprehensive loss excluding unrealized gain on changes in fair
value of biological assets, change in fair value of biological
assets realized through inventory sold, depreciation and
amortization expense, share-based compensation, other income,
finance costs, foreign exchange loss, non-cash production costs and
severance payments. Non-cash production costs relate to
amortization expense allocations included in production costs.
Non-GAAP Measures should be considered together with other
financial information prepared in accordance with IFRS to enable
investors to evaluate the Decibel's operating results, underlying
performance and prospects in a manner similar to Decibel's
management.
Adjusted
EBITDA
|
|
|
|
|
|
|
Three months
ended
|
|
Nine months
ended
|
|
|
September 30
|
|
September 30
|
|
2022
|
2021
|
2022
|
2021
|
(thousands of
Canadian dollars)
|
|
|
|
|
Net income
(loss)
|
5,169
|
(913)
|
(1,315)
|
1,089
|
Unrealized loss on
changes in fair value of biological assets (gain)
|
(5,425)
|
(7,184)
|
(12,856)
|
(15,539)
|
Change in fair value of
biological assets realized through inventory sold
|
3,182
|
6,149
|
15,516
|
9,692
|
Depreciation and
amortization
|
895
|
954
|
2,714
|
2,770
|
Share-based
compensation
|
(738)
|
117
|
1,355
|
1,620
|
Other loss
(income)
|
(63)
|
(14)
|
(115)
|
(34)
|
Transaction
costs
|
-
|
-
|
10
|
-
|
Finance
costs
|
637
|
1,038
|
2,464
|
3,044
|
Foreign exchange loss
(gain)
|
99
|
52
|
216
|
133
|
Loss on disposal of
property, plant, and equipment (gain)
|
81
|
-
|
81
|
34
|
Non-cash cost of goods
sold1
|
376
|
305
|
1,284
|
736
|
Other
adjustments2
|
46
|
117
|
594
|
344
|
Other non-cash
costs3
|
-
|
1,163
|
-
|
2,077
|
Adjusted
EBITDA4
|
4,259
|
1,784
|
9,948
|
5,966
|
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 September 30, 2022, non-cash cost of goods sold
was comprised of $376 of depreciation and amortization. For the
nine months ended September 30, 2022, non-cash cost of goods sold
was comprised of $1,284 of depreciation and
amortization.
|
2 Severance payments of $46 are added
back in the Company's Adjusted EBITDA calculation for covenant
reporting purposes. For the nine months ended September 30, 2022,
other adjustments included $349 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.
|
The Company calculates Adjusted Net Income as net loss and
comprehensive loss excluding unrealized gain on changes in fair
value of biological assets and change in fair value of biological
assets realized through inventory sold. Non-GAAP Measures should be
considered together with other financial information prepared in
accordance with IFRS to enable investors to evaluate the Decibel's
operating results, underlying performance and prospects in a manner
similar to Decibel's management.
Adjusted Net
Income
|
|
|
|
|
|
|
Three months
ended
|
|
Nine months
ended
|
|
|
September 30
|
|
September 30
|
|
2022
|
2021
|
2022
|
2021
|
(thousands of
Canadian dollars)
|
|
|
|
|
Net income and
comprehensive income (loss)
|
5,169
|
(913)
|
(1,315)
|
1,089
|
Unrealized gain on
changes in fair value of biological assets
|
(5,425)
|
(7,184)
|
(12,856)
|
(15,539)
|
Change in fair value of
biological assets realized through inventory sold
|
3,182
|
6,149
|
15,516
|
9,692
|
Adjusted net income
(loss)1
|
2,926
|
(1,948)
|
1,345
|
(4,758)
|
1 Non-GAAP financial measure. Refer
to "Cautionary Statement Regarding Certain Non-GAAP Measures" for
further details.
|
Accordingly, these Non-GAAP Measures is 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.
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, Decibel's 2022 operational outlook; the
opportunity to Decibel for material growth; Decibel's expected
fourth quarter results; our anticipated gross margin; the
anticipated continued growth in demand for vapes and concentrates;
Decibel's expectations regarding its compliance with financial
covenants; 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.
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 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 TSXV, as
applicable. Many of these risks and uncertainties and additional
risk factors are described in the Company'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 the Company is ahead of its previously stated
target to achieve 40-45% gross margin and Decibel's expected fourth
quarter results, 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. These forward-looking statements are
made as of the date of this press release and the Company disclaims
any intent or obligation to update any forward-looking statements,
whether as a result of new information, future events or results or
otherwise, other than as required by applicable securities
laws.
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SOURCE Decibel Cannabis Company Inc.