Decibel Announces Second Quarter Results with Another Period of Record Net Revenue and Adjusted EBITDA
CALGARY, AB, Aug. 18, 2022 /PRNewswire/ – Decibel Cannabis Company Inc. (the “Company” or “Decibel”) (TSX-V: DB) (OTCQB: DBCCF), a premium cannabis producer, is pleased to announce its second quarter financial results for the three and six month periods ending June 30, 2022.
Our second quarter results continue to demonstrate that Decibel is on the path we projected in our 2022 operational outlook. Our New Unique and Innovative product development and revenue generating initiatives have once again produced quarter-over-quarter record performance.
Paul Wilson, Chief Executive Officer of Decibel
This progress has been compounded by our productivity initiatives and record gross profit, now resulting in positive cash flow, putting us on track for another projected milestone.
“With more highlights scheduled for the back half of 2022, Decibel is delivering exactly what we’ve planned and forecasted to the market, ourselves, and our shareholders.”
- Record Net Revenue: $18.6 million of total net revenue in Q2, with strong sequential growth of 11% over Q1 2022 and 49% over Q2 2021. Net revenue growth was driven by expanded distribution particularly in the Ontario market, the continued launch of new General Admission and Qwest infused products in various provinces and continued growth in demand for derivative products. During the second quarter, net revenue would have been $18.9 million, however $320 of discounts were provided related to discontinued products.
- Record Gross Margin Before Fair Value Adjustments: Significant sequential improvement to 41% in Q2, compared to 35% in Q1 2022 and 41% in Q2 2021. The increase was driven by initiatives realized midway through the second quarter, including operational efficiencies, automation equipment commissioned, and sourcing of more cost-effective components related to the manufacturing of cannabis products. The cost engineering initiatives and capital investments impacted the later part of the second quarter, with additional equipment landed early August expected to drive continued sequential margin expansion. The Company achieved its previously stated target of 40 – 45% gross margin ahead of the second half of 2022.
- Record Adjusted EBITDA: Record $3.2 million of adjusted EBITDA in Q2, with strong growth of 31% over Q1 2022 and 49% over Q2 2021. This marks Decibel’s eighth quarter of consecutive quarterly positive adjusted EBITDA.
- Derivative Sales: $13.0 million of net sales in Q2, with strong sequential growth of 25% over Q1 2022 and 128% over Q2 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 Q3 2022 with record level demand and distribution for Decibel derivative products.
- Flower Sales: $3.4 million of net sales in Q2, a sequential decline of 19% over Q1 2022 and 10% over Q2 2021. During the period, sale of flower products was driven by reduced volumes during planned infrastructure optimization at the Thunderchild Facility.
- Record National Market Share3: Achieved 4.5% market share in July 2022, growth of 70% year over year.
Cash Flow from Operations: $1.8 million of cash flow from operations in Q2, a sequential decrease of $1.2 million over Q1 2022 and an improvement of $4.8 million over Q2 2021. This marks Decibel’s second consecutive quarter of positive cash flow from operations.
- Repayment 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. This extends the maturity date of $12 million of debt by 4 years, avoids approximately 6% of potential shareholder dilution, and results in $0.6 million of annual interest expense savings.
New Unique and Innovative
The Company launched or expanded distribution of the following products in the quarter:
- Total of 26 products launched in various provinces over the course of Q2 2022
- 6 General Admission flower and pre-roll products
- 6 General Admission vape flavours in distillate and live resin formats
- 9 General Admission and Qwest infused pre-rolls
- 5 Qwest flower and pre-roll products
The Company made the following progress on its operational initiatives:
- The Plant: Received its Health Canada license May 2, 2022 for Phase 1 of its processing hub expansion. In August 2022, the majority of the automation and other critical equipment was received, which is expected to drive further margin enhancement on Decibel products in the second half of 2022.
- Thunderchild: Completed its staged infrastructure optimization to better meet growing demand for Decibel products and enhance product quality and yields. Production volumes are expected to resume full run-rate production by the first half of 2023.
Decibel’s financial statements for the three and six month periods ending June 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 June 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.
3HiFyre Retail Analytics, Licensed Producer Sales over Time Nationally, July 1, 2022 – July 31, 2022.
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 Statement Regarding Certain 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 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. 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: Adjusted EBITDA is a non-GAAP financial measure that 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. The composition of adjusted EBITDA is as follows:
Supplementary Financial Measures
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.