"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
Financial Highlights
- Record National Market Share1: Achieved 5.3% in
October 2022 which places Decibel as the 6th largest LP inCanada 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 | ||||
Three months ended | Nine months ended | |||
2022 | 2021 | 2022 | 2021 | |
(thousands of Canadian dollars, except where noted) | ||||
Gross sales of flower 2 | ||||
Net sales of flower 2 | ||||
Gross sales of extracts 2 | ||||
Net sales of extracts 2 | ||||
Number of retail stores | 6 | 6 | 6 | 6 |
Retail sales 2 | ||||
Total | ||||
Gross revenue | ||||
Net revenue | ||||
Gross profit before fair value adjustments | ||||
Gross margin before fair value adjustments | 52 % | 31 % | 43 % | 37 % |
Adjusted EBITDA 3 | ||||
Adjusted net income 3 | ( | ( | ||
Cash flow from operations 4 | ( | ( |
Link to Decibel's Investor Presentation
Decibel's financial statements for the three and nine month periods ending
Hybrid Financial Engagement
The Company is pleased to announce that it has retained
Hybrid has been engaged by the Company for an initial period of six (6) months starting
Hybrid has agreed to comply with all applicable securities laws and the policies of the
1 HiFyre Retail Analytics, Licensed Producer Sales over Time Nationally, |
2 In the table above, wholesale inventory transferred to the retail stores and subsequently sold of |
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.
About
Hybrid is a sales and distribution company that actively connects issuers to the investment community across
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
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 | |||
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 |
2 Severance payments of |
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 | |||
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
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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