Decibel Announces First Quarter Results with Record $27.1 Million of Net Revenue, $6.8 Million of Adjusted EBITDA, and $0.01 of Adjusted EPS

News provided by

May 29, 2023, 08:00 ET

CALGARY, AB, May 29, 2023 /PRNewswire/ - Decibel Cannabis Company Inc. (the "Company" or "Decibel") (TSXV: DB) (OTCQB: DBCCF), a market leader in premium cannabis and extract manufactured products, is pleased to announce its interim financial results for the three month period ending March 31, 2023.

"We've started the year off with another strong quarter that represents both significant year over year acceleration as well as sequential growth." said Paul Wilson, CEO of Decibel. "Our New, Unique and Innovative products, assortments and formats continue to resonate with both new and existing customers. This provides ample momentum as we approach a number of material and additional catalysts this summer, when we expect to build market share and brand position in Canada, and in turn continue to leverage our business internationally".

First Quarter Highlights

Record National Market Share⁽¹⁾ of 6.7% in Q1 2023 which placed Decibel as the 3^rd largest licensed producer in Canada by market share.

As of April 2023, Decibel's market share was 7.1% which placed Decibel as the 2^nd largest licensed producer in Canada by market share.

Record Net Revenue was $27.1 million in the first quarter of 2023, with sequential growth of 5% over the prior quarter, despite seasonal weakness, and year over year growth of 63%. Net revenue improvement was driven by continued growth in demand for derivative products, expanded operational capacity, and expanded distribution.
Gross Margin Before Fair Value Adjustments was 49% in the first quarter of 2023, compared to 43% in the prior quarter and 35% in the first quarter of 2022. The increase year over year was the result of significant cost savings which began in the third quarter of 2022 from initiatives including operational efficiencies, automation equipment commissioned, and sourcing of more cost-effective components related to the manufacturing of cannabis products.
Adjusted EBITDA⁽²⁾ of $6.8 million in the first quarter of 2023, with a sequential decline of 4% over the prior quarter and year over year growth of 175%. This marks Decibel's eleventh quarter of consecutive quarterly positive adjusted EBITDA.
Record Adjusted Net Income⁽²⁾ of $3.3 million in the first quarter of 2023, with sequential growth of 87% over the prior quarter and a year over year improvement of $5.0 million.
Record Adjusted Earnings Per Share ("Adjusted EPS")⁽³⁾: of $0.01 Adjusted EPS in the first quarter, with a sequential improvement of $0.01 over the prior quarter and a year over year improvement of $0.01.

Notes:

¹ HiFyre Retail Analytics, Licensed Producer Sales over Time Nationally

² Non-GAAP financial measure. Refer to "Cautionary Statement Regarding Certain Non-GAAP Measures" for further details.

³ Non-GAAP ratio. Refer to "Cautionary Statement Regarding Certain Non-GAAP Measures" for further details.

Summary Highlights

		Three months ended
		March 31
	2023	2022
(thousands of Canadian dollars, except where noted)
Gross sales of flower ^{1, 2}	$2,962	$5,479
Net sales of flower ^{1, 2}	$2,355	$4,244

Gross sales of extracts ^{1, 2}	$38,341	$16,301
Net sales of extracts ^{1, 2}	$23,368	$10,347

Number of retail stores	6	6
Retail sales ^1,2	$1,418	$2,059

Total
Gross revenue	$42,721	$23,839
Net revenue	$27,141	$16,650
Gross profit before fair value adjustments	$13,366	$5,805
Gross margin before fair value adjustments	49 %	35 %
Adjusted EBITDA ²	$6,765	$2,459
Net income and comprehensive income (loss)	($569)	($4,372)
Adjusted net income ²	$3,349	($1,670)
Cash flow from operations ³	$2,315	$2,985

Per Share Metrics
Income (loss) per share	-	($0.01)
Adjusted EPS ²	$0.01	-

Notes:

¹In the table above, wholesale inventory transferred to the retail stores and subsequently sold of $668 for the three months, has been eliminated from retail sales and attributed to wholesale sales of flower and extracts to provide a more accurate depiction of business performance.

²Non-GAAP financial measure. Refer to "Cautionary Statement Regarding Certain Non-GAAP Measures" for further details.

³Refer to "Cash Flows" for further details.

Link to Decibel's Investor Presentation

Decibel's interim financial statements for the three month period ending March 31, 2023 ("Financial Statements") and related Management's Discussion & Analysis for three month periods ending March 31, 2023, are available under the Company's profile at www.sedar.com.

As of March 31, 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 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, Saskatchewan. The Plant, Decibel's extraction facility, in Calgary, Alberta, 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 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.

		Three months ended
		March 31
	2023	2022
(thousands of Canadian dollars)
Net income (loss)	(569)	(4,372)
Unrealized loss on changes in fair value of biological assets (gain)	(3,954)	(3,250)
Change in fair value of biological assets realized through inventory sold	7,872	5,952
Depreciation and amortization	1,216	796
Share-based compensation	398	1,231
Other loss (income)	(68)	(5)
Transaction costs	-	11
Finance costs	697	1,019
Foreign exchange loss (gain)	111	(35)
Loss on disposal of property, plant, and equipment (gain)	-	-
Non-cash cost of goods sold	1,062	653
Other adjustments	-	459
Adjusted EBITDA	6,765	2,459

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 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, divided by the weighted average common shares outstanding. This non-GAAP financial 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.

		Three months ended
		March 31
	2023	2022
(thousands of Canadian dollars)
Net income and comprehensive income (loss)	(569)	(4,372)
Unrealized gain on changes in fair value of biological assets	(3,954)	(3,250)
Change in fair value of biological assets realized through inventory sold	7,872	5,952
Adjusted net income (loss)	3,349	(1,670)
Weighted average number of shares outstanding	406,754	404,054
Adjusted EPS	$0.01	-

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 Company's Financial Statements.

Gross Sales of Flower is a supplementary financial 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 Financial Statements to arrive at Gross Sales of Flower.

Net Sales of Flower is a supplementary financial 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 is a supplementary financial 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 Financial Statements to arrive at Gross Sales of Extracts.

Net Sales of Extracts is a supplementary financial 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.

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 ability to meet consumer demand; Decibel's expectations that it will build its position in Canada and turn leverage into international opportunities; anticipated growth in Decibel's net revenue, growth in demand for Decibel's products, and improvements made to Decibel's operational capacity in the first quarter of 2023; anticipated future volatility in gross margin related to price competition; Decibel's targeted gross margin; Decibel's expectations that it will remain in compliance with its financial covenants for the remainder of its twelve-month forecast period; 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. 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; timing and completion of construction and expansion of the Company's production facilities and retail locations; 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 realize operational efficiencies and effect certain cost saving measures (including in the impact thereof); 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 future volatility in gross margin; Decibel's targeted gross margin; 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.

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.

SOURCE Decibel Cannabis Company Inc.