Decibel Announces Record Second Quarter Results with $30.9 Million of Net Revenue, $7.3 Million of Adjusted EBITDA, and Positive Free Cash Flow
Ryan Allway
August 17th, 2023
News, Top News, Top Story
Most profitable pure play public cannabis company in Canada1,2
CALGARY, AB, Aug. 17, 2023 /CNW/ – Decibel Cannabis Company Inc. (the “Company” or “Decibel”) (TSX-V: DB) (OTCQB: DBCCF), a market leader in premium cannabis and extract manufactured products, is pleased to announce its interim financial results for the three and six month periods ending June 30, 2023.
“Our strong second quarter sequential net revenue growth, driven by demand for our core products and international exports, continues to exceed our publicly-stated targets.” said Paul Wilson, CEO of Decibel. “We continue to highlight the success in our new, unique and innovative product strategy, demonstrated through clear consumer preference to our infused pre-roll strategy. In 2023, our industry leading brand, General Admission, has grown category share to 49%3 (+6% YTD3) in light of significant category competition through new competitive brands: +50 Brands3 (+56% YTD3) & New SKU’s: +156 SKU’s3 (+62% YTD3). Currently the infused pre-roll segment makes up ~34% of the Canadian pre-roll category3, in established US markets it makes up ~60% (California & Arizona YTD Sales ’233). We continue to see tailwinds for our core business that will further reinforce our Canadian market position and international presence.”
Second Quarter Highlights
- Record National Market Share(4) of 7.5% in Q2 2023 which placed Decibel as the 2nd largest licensed producer in Canada by market share.
- Record Net Revenue of $30.9 million in the second quarter of 2023, with sequential growth of 14% over the prior quarter, and year over year growth of 66%. Net revenue improvement was driven by net Canadian recreational sales through growth in demand for vapes and infused products, increased manufacturing capacity, international sales, and the launch of the Company’s new brand Vox and General Admission Edibles near the end of the quarter.
- Gross Margin Before Fair Value Adjustments was 42% in the second quarter of 2023, compared to 49% in the prior quarter and 41% in the first quarter of 2022. The second quarter was impacted by a $754 thousand write off of aged product and increased temporary labour of $0.9 million to meet market demand as the Company is in the process of expanding manufacturing capacity.
- Record Adjusted EBITDA(2) of $7.3 million in the second quarter of 2023, with sequential growth of 8% over the prior quarter and year over year growth of 126%.
- Positive Free Cash Flow(2) of $0.5 million in the second quarter of 2023, with sequential decline of 75% over the prior quarter and a year over year decline of 51%. During the quarter, the Company reduced accounts payable by $4.2 from the prior quarter, which negatively impacted Free Cash Flow.
- Record Adjusted Net Income(2) of $4.3 million in the second quarter of 2023, with sequential growth of 27% over the prior quarter and a year over year improvement of $4.2 million.
- Adjusted Earnings Per Share (“Adjusted EPS”)(5): of $0.01 Adjusted EPS in the second quarter, consistent with the prior quarter and a year over year improvement of $0.01.
Year to Date Highlights
- Net Revenue of $58.0 million, an increase of 65% over 2022.
- Adjusted EBITDA(2) of $14.1 million, an increase of 147% over 2022.
- Positive Free Cash Flow(2) of $2.3 million, a decrease of 14% over 2022 driven by a $3.7 million reduction in accounts payable.
- Adjusted EPS(4) of $0.02, an increase of $0.02 over 2022.
| Notes: | |
| 1 | Based on reported “Adjusted EBITDA”2 for the interim period ended June 30, 2023, as set forth in publicly available filings on SEDAR+ of pure play Canadian cannabis companies listed on the Toronto Stock Exchange or the TSX Venture Exchange. See “Cautionary Statements – Notes about Comparables“. |
| 2 | Non-GAAP financial measure. Refer to “Cautionary Statements – Non-GAAP Measures” for further details. |
| 3 | Data provided by Headset. |
| 4 | HiFyre Retail Analytics, Licensed Producer Sales over Time Nationally. |
| 5 | Non-GAAP ratio. Refer to “Cautionary Statements – Non-GAAP Measures” for further details. |
| Summary Highlights1 | ||||
| Three months ended | Six months ended | |||
| June 30 | June 30 | |||
| 2023 | 2022 | 2023 | 2022 | |
| (thousands of Canadian dollars, except where noted) | ||||
| Gross Canadian recreational sales 1,2 | $46 715 | $24 105 | $87 275 | $45 885 |
| Net Canadian recreational sales 1,2 | $28 148 | $16 409 | $53 128 | $31 000 |
| International sales 2 | $1 136 | – | $1 766 | – |
| Retail sales 1,2 | $1 610 | $2 147 | $3 141 | $4 206 |
| Number of retail stores | 6 | 6 | 6 | 6 |
| Total | ||||
| Gross revenue | $49 461 | $26 252 | $92 182 | $50 091 |
| Net revenue | $30 894 | $18 556 | $58 035 | $35 206 |
| Gross profit before fair value adjustments | $13 062 | $7 689 | $26 428 | $13 494 |
| Gross margin before fair value adjustments | 42 % | 41 % | 46 % | 38 % |
| Adjusted EBITDA 3 | $7 302 | $3 230 | $14 066 | $5 689 |
| Net (loss) and comprehensive (loss) | ($423) | ($2 112) | ($992) | ($6 484) |
| Adjusted net income 3 | $4 263 | $89 | $7 611 | ($1 581) |
| Cash flow from operations | $922 | $1 777 | $3 237 | $4 761 |
| Free cash flow 3 | $458 | $939 | $2 287 | $2 664 |
| Per Share Metrics | ||||
| Income (loss) per share | – | ($0,01) | – | ($0,02) |
| Adjusted EPS 4 | $0,01 | – | $0,02 | – |
| 1 | In the table above, wholesale inventory transferred to the retail stores and subsequently sold of $721 thousand and $1.4 million for the three and six month periods, has been eliminated from retail sales and attributed to Gross Canadian recreational sales and Net Canadian recreational sales to provide a more accurate depiction of business performance. |
| 2 | Supplementary financial measure. Refer to “Cautionary Statements – Non-GAAP Measures” for further details. |
| 3 | Non-GAAP financial measure. Refer to “Cautionary Statements – Non-GAAP Measures” for further details. |
| 4 | Non-GAAP ratio. Refer to “Cautionary Statements – Non-GAAP Measures” for further details. |
Link to Decibel’s Investor Presentation
Decibel’s interim financial statements for the three and six month periods ending June 30, 2023 (“Financial Statements”) and related Management’s Discussion & Analysis for three and six month periods ending June 30, 2023, are available under the Company’s profile at www.sedar.com.
As of June 30, 2023, Decibel was in compliance with all of its financial covenants under its credit facilities and expects to remain in compliance for the remainder of its twelve-month forecast period.
About Decibel
Decibel is a consumer-focused cannabis company focused on delivering products that delight customers through a commitment to robust innovation and product quality. Leading brands General Admission, Qwest, and Vox are among its portfolio sold both across Canada and beginning to extend towards new countries to create a global footprint. Decibel operates a processing and manufacturing facility in Calgary, Alberta, and two cultivation facilities in Creston, British Columbia, and Battleford, Saskatchewan.
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 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 licensed producers and cannabis companies. For an explanation of these measures to related comparable financial information presented in the 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 is a non-GAAP financial measure that is calculated 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. This non-GAAP financial measure 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 | Six months ended | ||||
| June 30 | June 30 | ||||
| 2023 | 2022 | 2023 | 2022 | ||
| (thousands of Canadian dollars) | |||||
| Net income (loss) | (423) | (2 112) | (992) | (6 484) | |
| Unrealized loss on changes in fair value of biological assets (gain) | (471) | (4 181) | (4 425) | (7 431) | |
| Change in fair value of biological assets realized through inventory sold | 5 157 | 6 382 | 13 028 | 12 334 | |
| Depreciation and amortization | 468 | 1 022 | 1 684 | 1 819 | |
| Share-based compensation | 173 | 862 | 571 | 2 093 | |
| Other (income) | (50) | (46) | (117) | (53) | |
| Transaction costs | – | (1) | – | 10 | |
| Finance costs | 742 | 808 | 1 439 | 1 828 | |
| Foreign exchange loss | 134 | 152 | 244 | 117 | |
| Non-cash cost of goods sold | 1 572 | 255 | 2 634 | 908 | |
| Other adjustments | – | 89 | – | 548 | |
| Adjusted EBITDA | 7 302 | 3 230 | 14 066 | 5 689 | |
Adjusted Net Income is a non-GAAP financial measure that is calculated 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. Adjusted EPS is a non-GAAP ratio that is calculated 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, divided by the weighted average common shares outstanding. These measures intended to provide a proxy for the Company’s net income and comprehensive income and is used to compare Decibel to its competitors and derive expectations of future financial performance of the Company and 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.2
| Adjusted EPS | |||||
| Three months ended | Six months ended | ||||
| June 30 | June 30 | ||||
| 2023 | 2022 | 2023 | 2022 | ||
| (thousands of Canadian dollars) | |||||
| Net (loss) and comprehensive (loss) | (423) | (2 112) | (992) | (6 484) | |
| Unrealized gain on changes in fair value of biological assets | (471) | (4 181) | (4 425) | (7 431) | |
| Change in fair value of biological assets realized through inventory sold | 5 157 | 6 382 | 13 028 | 12 334 | |
| Adjusted net income (loss) | 4 263 | 89 | 7 611 | (1 581) | |
| Weighted average number of shares outstanding | 408 984 777 | 404 054 387 | 408 984 777 | 404 053 519 | |
| Adjusted EPS | $0,01 | – | $0,02 | – | |
Free Cash Flow is a non-GAAP financial measure that is calculated as cash flow from operations less cash used in investing activities. This non-GAAP financial measure 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.
| Free cash flow | |||||
| Three months ended | Six months ended | ||||
| June 30 | June 30 | ||||
| 2023 | 2022 | 2023 | 2022 | ||
| (thousands of Canadian dollars) | |||||
| Cash provided by operating activities (used in) | 922 | 1 777 | 3 237 | 4 761 | |
| Cash provided by investing activities (used in) | (464) | (838) | (950) | (2 097) | |
| Free cash flow | 458 | 939 | 2 287 | 2 664 | |
Supplementary Financial Measures
Retail Sales is a supplementary financial measure that is 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 Financial Statements.
International Sales is a supplementary financial measure intended to provide a more accurate depiction of international sales earned by the Company’s wholesale operations.
Gross Canadian Recreational Sales is a supplementary financial measure intended to provide a more accurate depiction of gross revenue earned by the Company’s wholesale operations. Inventory transferred directly from the Company’s wholesale operations to the Company’s retail operations is added to Gross Canadian Recreational Sales as found in the Financial Statements to arrive at Gross Canadian Recreational Sales.
Net Canadian Recreational Sales is a supplementary financial measure intended to provide a more accurate depiction of net revenue earned by the Company’s wholesale operations. Inventory transferred directly from the Company’s wholesale operations to the Company’s retail operations is added to Net Canadian Recreational Sales as found in the Financial Statements to arrive at Net Canadian Recreational Sales.
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: that the Company has strong momentum heading into 2023; expectations that demand for Decibel’s products will grow; the Company’s expectations for continued growth and momentum in the second half of 2023, the Company’s expectations for additional catalysts late summer and early fall and the timing and results of the same; the Company’s expectation that it will remain in compliance with all of its financial covenants under its credit facilities for the remainder of its twelve-month forecast period 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. Except as required by law, 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, 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; the risk that the Company may not be able to meet consumer demand; the risk that the Company may not improve its operational capacity when anticipated, or at all; the risk that Decibel may not remain in compliance with 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.
With respect to forward-looking statements and FOFI contained in this press release, Decibel has made assumptions regarding, but not limited to: growth of the brand and recognition in Canada will lead to growth internationally; demand for Decibel‘s products; 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 revenue growth and Decibel’s expectations that it will remain in compliance with its financial covenants for the remainder of its twelve-month forecast period, 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.
Notes About Comparables
This news release outline’s the Company’s performance relative to third-party issuer metrics (the “Comparables“). The Comparables were considered to be an appropriate basis for comparison with Decibel as they are publicly provided by similar pure play issuers. The information relating to the Comparables has been obtained or derived from public sources, see “Market, Independent Third Party and Industry Data”. Comparables may be affected by, among other things, the size of the business, capital structure, principal market served, historical performance and growth expectations, which can vary significantly among Decibel and the issuers providing the Comparables. In addition certain Comparables may be calculated differently by other issuers, see “Non-GAAP Measures”. Accordingly, an investment decision should not be made in reliance on the Comparables.
Market, Independent Third Party and Industry Data
Certain market, independent third party and industry data contained in this news release is based upon information from government or other independent industry publications and reports or based on estimates derived from such publications and reports. Government and industry publications and reports generally indicate that they have obtained their information from sources believed to be reliable, but Decibel has not conducted its own independent verification of such information. This news release also includes certain data derived from independent third parties. While Decibel believes this data to be reliable, market and industry data is subject to variations and cannot be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any statistical survey. Decibel has not independently verified any of the data from independent third party sources referred to in this news release or ascertained the underlying assumptions relied upon by such sources.
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About Ryan Allway
Mr. Allway has over a decade of experience in the financial markets as both a private investor and financial journalist. He has been actively involved in the cannabis industry since its inception, covering public and private companies.
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