Decibel Announces Year End and Fourth Quarter Results with Record Fourth Quarter $25.8 Million Net Revenue and $7.1 Million Adjusted EBITDA

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Apr 24, 2023, 07:00 ET

CALGARY, AB, April 24, 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 audited financial results for the three and twelve month periods ending December 31, 2022.

"Our fourth quarter results capped off a year of strong financial performance with record results including market share, net revenue, adjusted EBITDA, and adjusted net income. This creates momentum heading into 2023 with demand continuing to grow and assets well positioned to deliver on this demand", said Paul Wilson, CEO of Decibel. "We have a number of 2023 catalysts that support an outlook where Decibel continues to build its market share and brand position in Canada and in turn leverage into international opportunities."

Fiscal Year 2022 Financial Highlights

Record Net Revenue of $79.3 million in 2022, an increase of 51% over 2021.
Record Adjusted EBITDA⁽¹⁾ of $17.0 million in 2022, an increase of 129% over 2021.
Record Adjusted Net Income⁽¹⁾ of $3.1 million in 2022, an increase of $11.7 million over 2021.
Record Adjusted Earnings per Share⁽²⁾ of $0.01, an increase of $0.03 over 2021.
First branded product sale to Israel as Decibel begins to expand internationally.

Notes:

¹ Non-GAAP financial measure. Refer to "Cautionary Statement Regarding Certain Non-GAAP Measures" for further details.

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

Fourth Quarter Highlights

Record National Market Share⁽¹⁾ of 6.0% in Q4 2022 and 6.6% in December 2022 which placed Decibel as the 4^th and 3^rd largest licensed producer in Canada by market share for the respective periods.

Fastest growing large licensed producer in 2022
As of March 2023, Decibel's market share was 6.8% which placed Decibel as the 2^nd largest licensed producer in Canada by market share.
The Company's preliminary results indicate sequential net revenue growth in the first quarter of 2023, driven by continued growth in demand and further improvements to operational capacity to meet demand.

Record Net Revenue was $25.8 million in the fourth quarter of 2022, with strong sequential growth of 41% over the prior quarter and year over year growth of 84%. The net revenue growth was driven by increased demand for the Company's derivative products and the Company's first two sales of branded dried flower product in Israel. Net revenue growth year over year was driven by expanded distribution, new infused products and continued growth in demand for derivative products.
Gross Margin Before Fair Value Adjustments was 43% in the fourth quarter of 2022, compared to 52% in the prior quarter and 26% in the fourth quarter of 2021. The fourth quarter was partially impacted by a provision and write off of cultivation and extraction inventory of approximately $3.2 million. The increase year over year was a result of significant cost savings realized 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. The Company anticipates that there may be future volatility in its gross margin related to price competition and continues to target the upper end of its previously stated target of 40 – 45% gross margin.
Record Adjusted EBITDA⁽²⁾ of $7.1 million in the fourth quarter of 2022, with strong sequential growth of 66% over the prior quarter and year over year growth of 387% over the fourth quarter of 2021. This marks Decibel's tenth quarter of consecutive quarterly positive adjusted EBITDA.
Adjusted Net Income⁽²⁾ of $1.8 million in the fourth quarter of 2022, with a sequential decline of 40% over the prior quarter and a year over year improvement of $5.6 million over the fourth quarter of 2021. The fourth quarter was partially impacted by a write off of cultivation and extraction inventory of approximately $3.2 million. This marks Decibel's third quarter of positive adjusted net income.
Leverage: At the end of the fourth quarter of 2022, Decibel had a funded debt to trailing twelve month EBITDA of 2.57x and a funded debt to annualized EBITDA of 1.55x.

Notes:

¹ HiFyre Retail Analytics, Licensed Producer Sales over Time Nationally, October 1, 2022 – March 31, 2023.

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

Operating Highlights

New Unique and Innovative Products

The Company launched a total of 13 new products in various provinces in the fourth quarter of 2022, including

5 General Admission SKU's in vape and infused pre-rolls in distillate and live resin formats; and
8 Qwest SKU's in dried flower, standard pre-rolls, and infused pre-rolls formats.

Summary Highlights

		Three months ended		Year ended
		December 31		December 31
	2022	2021	2022	2021
(thousands of Canadian dollars, except where noted)
Gross sales of flower ^{1, 2}	$4,659	$5,500	$17,385	$18,720
Net sales of flower ^{1, 2}	$3,414	$4,605	$13,373	$15,804

Gross sales of extracts ^{1, 2}	$33,374	$11,722	$92,695	$37,270
Net sales of extracts ^{1, 2}	$20,065	$6,893	$57,079	$24,747

Number of retail stores	6	6	6	6
Retail sales ^1,2	$2,318	$2,520	$8,874	$11,902

Total
Gross revenue	$40,351	$19,742	$118,954	$67,892
Net revenue	$25,797	$14,018	$79,326	$52,453
Gross profit before fair value adjustments	$11,082	$3,689	$34,026	$17,863
Gross margin before fair value adjustments	43 %	26 %	43 %	34 %
Adjusted EBITDA ²	$7,061	$1,450	$17,010	$7,417
Net income and comprehensive income (loss)	($3,147)	$654	($4,462)	$1,743
Adjusted net income ²	$1,788	($3,809)	$3,134	($8,567)
Cash flow from operations ³	($114)	($5,119)	$8,258	($17,160)

Per Share Metrics
Income (loss) per share	($0.01)	-	($0.01)	$0.01
Adjusted earnings per share ²	-	($0.01)	$0.01	($0.02)

Notes:

¹In the table above, wholesale inventory transferred to the retail stores and subsequently sold of $39 and $501 for the three and twelve months, respectively, have been eliminated from retail sales and attributed to wholesale sales of flower and extracts to provide a more accurate depiction of business performance.

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

³Refer to "Cash Flows" in the MD&A (as defined herein) for further details.

⁴Non-GAAP financial measure. Refer to "Cautionary Statement Regarding Certain Non-GAAP Measures" for further details.

⁵Non-GAAP ratio. Refer to "Cautionary Statement Regarding Certain Non-GAAP Measures" for further details.

Link to Decibel's Investor Presentation

Decibel's audited financial statements for the year ending December 31, 2022 ("Financial Statements") and related three and twelve month periods ending December 31, 2022 Management's Discussion & Analysis ("MD&A"), are available under the Company's profile at www.sedar.com. As of December 31, 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.

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		Year ended
		December 31		December 31
	2022	2021	2022	2021
(thousands of Canadian dollars)
Net income (loss)	(3,147)	654	(4,462)	1,743
Unrealized loss on changes in fair value of biological assets (gain)	(5,550)	(9,660)	(18,406)	(25,199)
Change in fair value of biological assets realized through inventory sold	10,485	5,197	26,002	14,889
Depreciation and amortization	955	967	3,669	3,737
Share-based compensation	459	806	1,814	2,426
Other loss (income)	(35)	(32)	(150)	(66)
Transaction costs	-	-	10	-
Finance costs	694	1,046	3,158	4,090
Foreign exchange loss (gain)	433	34	649	167
Loss on disposal of property, plant, and equipment (gain)	-	-	81	34
Non-cash cost of goods sold ¹	2,721	1,260	4,005	1,996
Other adjustments ²	46	807	640	1,152
Other non-cash costs ³	-	371	-	2,448
Adjusted EBITDA ⁴	7,061	1,450	17,010	7,417

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 Earnings per Share 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		Year ended
		December 31		December 31
	2022	2021	2022	2021
(thousands of Canadian dollars)
Net income and comprehensive income (loss)	(3,147)	654	(4,462)	1,743
Unrealized gain on changes in fair value of biological assets	(5,550)	(9,660)	(18,406)	(25,199)
Change in fair value of biological assets realized through inventory sold	10,485	5,197	26,002	14,889
Adjusted net income (loss) ¹	1,788	(3,809)	3,134	(8,567)
Weighted average number of shares outstanding	404,154	403,909	404,154	365,778
Adjusted net income (loss) per share ¹	-	($0.01)	$0.01	($0.02)

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.

Preliminary Financial Information

The Company's expectations for its Q1 2023 results, including net revenue growth in the quarter, are based on, among other things, the Company's anticipated financial results for the three month period ended March 31, 2023. 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.

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.