Decibel Announces Material Positive Adjustments to Q2 2022 Net Revenue and Adjusted EBITDA Growth

Rhea-AI Summary

Decibel Cannabis Company Inc. (DBCCF) announced a strong preliminary outlook for Q2 2022, projecting net revenues between $18.5 million and $19.5 million and Adjusted EBITDA of $3.0 million to $3.5 million. This marks the eighth consecutive quarter of positive Adjusted EBITDA. Growth is driven by strong demand across all product categories, particularly newly launched infused products and vape cartridges. The company also reported significant gross margin improvement due to automation and cost engineering initiatives. Q2 2022 results will be released on August 18, 2022.

Positive

• Projected net revenues of $18.5 to $19.5 million for Q2 2022.
• Anticipated Adjusted EBITDA of $3.0 to $3.5 million, up from $2.5 million in Q1 2022.
• Eighth consecutive quarter of positive Adjusted EBITDA.
• Year-over-year revenue growth of 49% to 57% compared to Q2 2021.
• Market share growth of 41% in the first half of 2022.

Negative

• None.

CALGARY, AB, July 13, 2022 /PRNewswire/ - Decibel Cannabis Company Inc. (the "Company" or "Decibel") (TSX-V: DB) (OTCQB: DBCCF), a premium cannabis producer, is pleased to provide a preliminary outlook for net revenue and Adjusted EBITDA¹ for the second quarter, ending June 31, 2022.

"In the second quarter Decibel continued to match and exceed revenue projections, and significantly exceed EBITDA projections. Performance was driven by exceptional continued growth in demand for our popular brands and new products. This, coupled with prioritizing certain key capital initiatives, generated gross margin and EBITDA significantly beyond our forecast," said Paul Wilson, CEO of Decibel. "We expect revenue in the quarter to be in the $18.5 - $19.5 range and corresponding Adjusted EBITDA in the $3.0 - $3.5M range. Margins and profitability expanded with our automation, infrastructure and cost engineering improvements coming online earlier than planned. These improvements have been in the pipeline and impacted the end of Q2, with the full impact unfolding in the third and fourth quarter. The impact of these projects appears to be well beyond our projections for gross margin expansion."

Q2 2022 Outlook

• Demonstrated positive cash flow from operations in first two quarters of 2022
• Anticipated Adjusted EBITDA of $3.0 to $3.5 million ($2.5 million Q1 2022)
• Resulting primarily from strong net revenue growth and margin expansion outpacing SG&A.
• Eighth consecutive quarter of positive Adjusted EBITDA.
• Anticipated Net Revenue of $18.5 to $19.5 million
• Implies year over year growth of 49% to 57% compared to Q2 2021
• Driven by strong demand growth in all categories led by newly launched infused products and vape cartridges. Additionally, Decibel saw demand growth for its Qwest flower products.
• Canadian cannabis market continued to grow at a rate of 22% in for the first half of 2022 compared to the first half of 2021.
• Decibel market share grew at a rate of 41% in the first half of 2022.
• Decibel posts another record market share month in June at 4.4%.
• Anticipating significant ongoing gross margin and profitability increases
• Significant amount of cost engineering and automation infrastructure investments realized in late Q2 and early Q3, with potential for Decibel to exceed previously stated targeted gross margin of 40 – 45%.

The Company will release its second quarter financial results and related management discussion and analysis for the period ended June 30, 2022, on August 18, 2022, before markets open.

1 Adjusted EBITDA is not a standardized financial measure under IFRS and might not be comparable to similar financial measures disclosed by other issuers.

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

This news release contains the financial performance metric of Adjusted EBITDA, a measure that is 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 to related comparable financial information presented in the Financial Statements prepared in accordance with IFRS, refer to the Company's MD&A for the three and twelve months ended March 31, 2022. The Company believes that Adjusted EBITDA is a useful indicator of operational performance and is 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.

Accordingly, this Non-GAAP Measure 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, anticipated gross margin,  revenue for Q2  in the $18.5 - $19.5 range and corresponding EBITDA in the $3.0 - $3.5M range; cash flow from operations; strong net revenue growth and margin expansion outpacing SG&A; the expectation that the full impact of certain improvements will be realized in the third and fourth quarter of 2022 and that such projects will be well beyond the Company's projections for gross margin expansion; anticipated significant gross margin and profitability increases; the anticipated release date of the Company's second quarter financials;  and 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; 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 Company's Annual Information Form for the year ended December 31, 2020 and Management's Discussion and Analysis for the year ended December 31, 2021, which are available at www.sedar.com. 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.

[NTD: Decibel to confirm assumptions] 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 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 gross margin, revenue for Q2  in the $18.5- $19.5 range and corresponding adjusted EBITDA in the $3.0 - $3.5M range; the expectation that the full impact of certain improvements will be realized in the third and fourth quarter of 2022 and that such projects will be well beyond the Company's projections for gross margin expansion; anticipated significant gross margin and profitability increases, 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.

PRELIMINARY FINANCIAL INFORMATION

The Company's expectations for its gross margin, cash flow from operations, net revenue and adjusted EBITDA (see "Non-GAAP Measures") are based on, among other things, the Company's anticipated financial results for the three and six month period ended June 30, 2022. The Company's anticipated financial results are unaudited and preliminary estimates that: (i) represent the most current information available to management as of the date of hereof; (ii) are subject to completion of interim review procedures that could result in significant changes to the estimated amounts; and (iii) do not present all information necessary for an understanding of the Company's financial condition as of, and the Company's results of operations for, such periods. The anticipated financial results are subject to the same limitations and risks as discussed under "Forward Looking Statements" above. Accordingly, the Company's anticipated financial results for such periods may change upon the completion and approval of the financial statements for such periods and the changes could be material.

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SOURCE Decibel Cannabis Company Inc.

FAQ

What are Decibel's preliminary revenue projections for Q2 2022?

Decibel Cannabis Company projects net revenues between $18.5 million and $19.5 million for Q2 2022.

What is the expected Adjusted EBITDA for Decibel in Q2 2022?

The anticipated Adjusted EBITDA for Decibel in Q2 2022 is between $3.0 million and $3.5 million.

When will Decibel release its Q2 2022 financial results?

Decibel will release its second quarter financial results on August 18, 2022.

How has Decibel's market share changed in 2022?

Decibel's market share grew by 41% in the first half of 2022, with a record share of 4.4% in June.

What drove Decibel's revenue growth in Q2 2022?

Revenue growth was driven by strong demand for infused products and vape cartridges, along with Qwest flower products.