Decibel Cannabis Company Inc. (OTCQB:DBCCF) (TSXV:DB) released its first quarter financial results for the three month period ending March 31, 2022, revealing revenue of CA$16.7 million ($13.01 million) with strong growth of 19% over Q4 2021 and 32% over Q1 2021.
Q1 2022 Financial Highlights
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Record Net Revenue: Net revenue growth was driven by the launch of Decibel's new infused pre-roll lines and continued growth in demand for flower, vape and concentrate products, despite Q1 historically being a seasonally weak period.
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Gross Margin Before Fair Value Adjustments: 35% in Q1 2022, compared to 26% in Q4 2021 and 39% in Q1 2021. The company has a number of initiatives and capital investments in progress and expects to be successful achieving the targeted 40 – 45% gross margin by the second half of 2022.
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Positive Adj. EBITDA: Record CA$2.5 million of adjusted EBITDA in Q1 2022, with strong growth of 70% over Q4 2021 and 21% over Q1 2021. This marks Decibel's seventh consecutive quarter of positive adjusted EBITDA.
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Cash Flow & Working Capital: Cash flow from operations was CA$3.0 million in Q1 2022, an improvement of CA$8 million over Q4 2021 and CA$6 million over Q1 2021. In Q4 2021, the company made significant investments in working capital to meet the growing demand for Decibel brands and products and mitigate against supply chain risks. The company anticipates reduced working capital needs in 2022 and is seeing improvements in its supply chain. The company has identified various initiatives and capital investments to accelerate cash flow generation and manage working capital levels that are expected to support Q2 2022 onward.
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Repayment of Convertible Debentures: On May 11, 2022, the company repaid its 9.5% convertible debentures with the draw-down of a fixed 4.75% CA$12 million term loan from its credit facilities. This extends the maturity date of Decibel's CA$12 million of debt by 4 years, removes approximately 6% of potential shareholder dilution, and results in CA$0.6 million of annual interest expense savings.
Capital Projects:
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The Plant: Completed Phase 1 of its processing hub expansion at The Plant and received its Health Canada license May 2, 2022. This area will include newly automated processing and packaging lines for dried flower, pre-roll, and infused products accompanied by reduced labor and logistics costs.
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Creston Facility: Completed its infrastructure optimization project which will have an immediate impact on all new harvests, further enhancing product quality and contributing to higher yields.
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Thunderchild Cultivation Facility: Accelerated its staged infrastructure optimization to better meet growing demand for Decibel products and enhance product quality and yields. Production volumes are expected to be partially impacted in starting in Q2 2022 and resuming full run-rate production by the start of Q4 2022.
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"Decibel remains on track to achieve its previously communicated targets, which is a testament to the focus on our strategic plan, and particularly our New, Unique and Innovative products and dedication to our customers", stated Paul Wilson, CEO of Decibel. "We see momentum growing in our core business, and at the same time are driving towards creating shareholder value by restructuring our balance sheet. This makes Decibel one of the few in the cannabis space to repay convertible debentures rather than accept shareholder dilution."
Photo: Courtesy of Richard T on Unsplash
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