Decibel Announces First Quarter Results with Record Net Revenue and Adjusted EBITDA

Rhea-AI Summary

Decibel Cannabis Company Inc. reported strong first-quarter results for the period ending March 31, 2022, with record net revenue of $16.7 million, representing a 19% increase quarter-over-quarter and a 32% rise year-over-year. The company also achieved a record adjusted EBITDA of $2.5 million, marking a 70% growth from the previous quarter. Despite a seasonally weak quarter, Decibel saw increased demand for its new infused pre-rolls and other cannabis products. The company successfully repaid convertible debentures, thereby reducing potential shareholder dilution.

Positive

• Record net revenue of $16.7 million, a 19% increase from Q4 2021.
• Adjusted EBITDA of $2.5 million, up 70% from Q4 2021.
• Increased demand for new infused pre-rolls and concentrate products.
• Cash flow from operations improved by $8 million over Q4 2021.
• Successful repayment of convertible debentures, reducing shareholder dilution.

Negative

• Gross margin decreased to 35% from 39% in Q1 2021.
• Flower sales dropped by 8% compared to Q4 2021.

CALGARY, AB, May 25, 2022 /PRNewswire/ - Decibel Cannabis Company Inc. (the "Company" or "Decibel") (TSXV: DB) (OTCQB: DBCCF), a premium cannabis producer, is pleased to announce its first quarter financial results for the three month period ending March 31, 2022.

"Decibel remains on track to achieve its previously communicated targets, which is a testament to the focus on our strategic plan, and particularly our New, Unique and Innovative products and dedication to our customers", said Paul Wilson, CEO of Decibel. "We see momentum growing in our core business, and at the same time are driving towards creating shareholder value by restructuring our balance sheet. This makes Decibel one of the few in the cannabis space to repay convertible debentures rather than accept shareholder dilution."

Key Financial Highlights – First Quarter

• Record Net Revenue: $16.7 million of total net sales in Q1 2022, with strong growth of 19% over Q4 2021 and 32% over Q1 2021. Net revenue growth was driven by the launch of Decibel's new infused pre-roll lines and continued growth in demand for flower, vape and concentrate products, despite Q1 historically being a seasonally weak period.
  
  
• Gross Margin Before Fair Value Adjustments: 35% in Q1 2022, compared to 26% in Q4 2021 and 39% in Q1 2021. The Company has a number of initiatives and capital investments in progress and expects to be successful achieving the targeted 40 – 45% gross margin by the second half of 2022.
  
  
• Positive Adj. EBITDA: Record $2.5 million of adjusted EBITDA in Q1 2022, with strong growth of 70% over Q4 2021 and 21% over Q1 2021. This marks Decibel's seventh consecutive quarter of positive adjusted EBITDA.  
  
  
• Derivative Sales: $10.3 million of net sales in Q1 2022, with strong growth of 50% over Q4 2021 and 85% over Q1 2021. Sales growth was driven by increased demand for vape and concentrate products, as well as the launch of a new infused pre-roll line in late Q4 2021 and early Q1 2022.
  
  
• Flower Sales: $4.2 million of net sales in Q1 2022, with an 8% decline over Q4 2021 and 10% growth over Q1 2021. The Company anticipates that the infrastructure upgrades to its cultivation facilities focusing on enhanced quality, will reinvigorate growth within its flower sales. Sales growth over Q1 2021 was driven by increased volumes from the Thunderchild facility becoming operational.
  
  
• Record Market Share: 4.3% in April 2022, marking the sixth consecutive month of record market share.
  
  
• Cash Flow & Working Capital: Cash flow from operations was $3.0 million in Q1 2022, an improvement of $8 million over Q4 2021 and $6 million over Q1 2021. In Q4 2021, the Company made significant investments in working capital to meet the growing demand for Decibel brands and products and mitigate against supply chain risks. The Company anticipates reduced working capital needs in 2022 and is seeing improvements in its supply chain. The Company has identified various initiatives and capital investments to accelerate cash flow generation and manage working capital levels that are expected to support Q2 2022 onwards.
  
  
• Capital Projects: In Q1 2022, the Company made the following progress on its capital projects:
  
  
• The Plant: Completed Phase 1 of its processing hub expansion at The Plant and received its Health Canada license May 2, 2022. This area will include newly automated processing and packaging lines for dried flower, pre-roll, and infused products accompanied by reduced labour and logistics costs.
  
  
• Creston Facility: Completed its infrastructure optimization project which will have an immediate impact on all new harvests, further enhancing product quality and contributing to higher yields.
  
  
• Thunderchild Cultivation Facility: Accelerated its staged infrastructure optimization to better meet growing demand for Decibel products and enhance product quality and yields. Production volumes are expected to be partially impacted in starting in Q2 2022 and resuming full run-rate production by the start of Q4 2022.
  
  
• Repayment of 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 from its credit facilities. This extends the maturity date of Decibel's $12 million of debt by 4 years, removes approximately 6% of potential shareholder dilution, and results in $0.6 million of annual interest expense savings.
  
  
• New Product Launches: The Company continued its launch of new, unique and innovative products in 2022, including cultivar rotations, expanded infused products into new provinces, the entry of General Admission into the core flower segment, and additional vape line extensions:
  
  
• Introduced Qwest's new cultivars, with Frosted Cherry Cookies and Icicle launched in May, selling out in the first two weeks.
  
  
• Expanded distribution of infused pre-rolls:
  
  
• Kief-coated terpene infused pre-rolls into ON.
• Distillate infused pre-rolls into BC, SK, and ON.
• Diamond infused pre-rolls into BC, SK, and ON.
• Hash infused pre-rolls into AB and ON.
  
  
• Launched General Admission's first flower product offering with strong demand early on, representing $950k of net sales in Q1.
• Launched Orange Tingz (live resin), Peach Ringz (distillate), and Honeydew Boba (distillate) vapes.

Summary Highlights

					Three months ended
					March 31
				2022	2021
	(thousands of Canadian dollars, except where noted)
	Gross sales of flower 1, 2			$5,480	$4,662
	Net sales of flower 1, 2			$4,245	$3,862
	Gross sales of extracts 1, 2			$16,301	$7,104
	Net sales of extracts 1, 2			$10,347	$5,592
	Number of retail stores			6	6
	Retail sales 1,2			$2,058	$3,172
	Total
	Gross revenue			$23,839	$14,938
	Net revenue			$16,650	$12,626
	Gross profit before fair value adjustments			$5,805	$4,978
	Gross margin before fair value adjustments			35%	39%
	Adjusted EBITDA 2			$2,459	$2,033
	Cash flow from operations			$2,985	($3,114)

1 In the table above, wholesale inventory transferred to the retail stores and subsequently sold of $226 has been eliminated from retail sales and attributed to wholesale sales of flower and extracts to provide a more accurate depiction of business performance.

2 Adjusted EBITDA is a non-GAAP performance measure. Refer to "Cautionary Statement Regarding Certain Non-GAAP Performance Measures" for further details.

 

Link to Decibel's Investor Presentation

Decibel's financial statements for the three month period ending March 31, 2022 ("Financial Statements") and related Management's Discussion & Analysis ("MD&A"), are available under the Company's profile at www.sedar.com. As of March 31, 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.  

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.

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 Statements

Non-GAAP Measures

Cautionary Statement Regarding Certain Non-GAAP Measures

This MD&A 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. These Non-GAAP Measures include, but are not limited, to the following:

Non-GAAP Financial Measures

Adjusted EBITDA: Adjusted EBITDA is a measure of the Company's financial performance. It 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. Adjusted EBTIDA is not a recognized, defined, or standardized measure under IFRS. 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. Refer to "Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization" for a detailed calculation of this measure. The numbers that are input into this calculation can be found in the statement of financial position in the Company's Consolidated Financial Statements.

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.

Working Capital: Working Capital is an indicative measure of the Company's ability to service its short-term financial obligations with short-term assets. Management believes this measure provides useful information about the Company's current short-term liquidity. Refer to "Liquidity and Capital Resources" for a detailed calculation of this measure. The numbers that are input into this calculation can be found in the statement of financial position in the Company's Consolidated Financial Statements.

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.

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, anticipated growth in the Company's core business and the creation of shareholder value through restructuring the Company's balance sheet; the initiatives and capital investments the Company has in progress and the target gross margin to be derived therefrom; the Company's expectation that its infrastructure upgrades will lead to enhanced product quality and growth in its flower sales; the Company's anticipated working capital needs in 2022; the Company's expectations that its initiatives and capital investments will accelerate cash flow generation and manage working capital levels and the anticipated timing thereof; the anticipated timing of the receipt of licensing for The Plant and the anticipated benefits to be derived therefrom; the anticipated benefits to be derived from the Company's infrastructure optimization project at the Creston Cultivation Facility; the anticipated benefits to be derived from the Company's infrastructure optimization project at its Thunderchild Cultivation Facility and the anticipated timing thereof; 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 Decibel's 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; the risk that the Company may not remain in compliance with all of its financial covenants; general business, economic, competitive, political and social uncertainties; timing and completion of construction and expansion of the Company's production facilities and retail locations; 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: anticipated growth in the Company's core business and the creation of shareholder value through restructuring the Company's balance sheet; the initiatives and capital investments the Company has in progress and the target gross margin to be derived therefrom; the Company's anticipated working capital needs in 2022; the Company's expectations that its initiatives and capital investments will accelerate cash flow generation and manage working capital levels and the anticipated timing thereof; and that The Plant's newly automated processing and packaging lines will result in significantly reduced labour and logistics costs, 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.

FAQ

What were the financial results for Decibel Cannabis Company in Q1 2022?

Decibel Cannabis Company reported record net revenue of $16.7 million and an adjusted EBITDA of $2.5 million for Q1 2022.

How much did Decibel Cannabis Company grow its adjusted EBITDA in Q1 2022?

Decibel's adjusted EBITDA grew by 70% compared to Q4 2021, reaching $2.5 million.

What is Decibel Cannabis Company's approach to shareholder dilution?

Decibel repaid convertible debentures to avoid shareholder dilution, showcasing a commitment to restructuring its balance sheet.

What trends did Decibel Cannabis Company see in product sales during Q1 2022?

The company experienced strong demand for its new infused pre-rolls and concentrate products, with derivative sales increasing by 50% over Q4 2021.

How did Decibel Cannabis Company's flower sales perform in Q1 2022?

Flower sales decreased by 8% compared to Q4 2021, although they grew by 10% over Q1 2021.