Full Press Release Details
Sundial Delivers Quarterly Net Revenue
of $33.5 Million Representing 74% Sequential Growth
Third Quarter Financial
and Operating Results Set the Stage for 2020 Growth
CALGARY, Nov. 13, 2019 /CNW/ - Sundial
Growers Inc. (Nasdaq: SNDL) ("Sundial" or the "Company") reported its financial and operating results for the
third quarter ended September 30, 2019, as well as provided an update on its business.
"The increasing scale of our Canadian
and new UK operations enabled us to significantly grow production and sales this quarter," said Torsten Kuenzlen, Chief Executive
Officer of Sundial. "Our focused and phased growth strategy remains on track - scaling and optimizing our Canadian business
to gain profitable market share by deepening our branded product portfolio, expanding our geographic footprint and leveraging our
differentiated CPG approach in the rapidly growing global cannabis industry.
"Our financial and operating results this
quarter are the outcome of executing against the clear goals we set for our business this year," continued Mr. Kuenzlen.
"Increasing our harvests from 1,896 kilograms in the first quarter of 2019 to approximately 11,700 kilograms of premium cannabis
in our third quarter, demonstrates our ability to rapidly scale our operation to the level of other leading Canadian LPs. Importantly,
we step-changed production quantities while improving quality and growing a much larger variety of desirable premium cannabis strains.
At the same time, we advanced operationally for effectiveness and efficiency and carefully managed our inventory levels.
Production expansion went hand-in-hand with geographic expansion, as we increased coverage to additional Provincial boards and
stores across Canada. This progress, combined with our focus on building out our brand story, not only delivered strong results
this quarter, but also sets the stage for the profitable expansion of our business in 2020 and beyond."
All information in this press release
is in Canadian dollars unless otherwise indicated
THIRD QUARTER HIGHLIGHTS
Delivered net revenue of $33.5 million, a 74% sequential
quarterly increase, driven by a 41% growth in Canadian sales and the expansion into the UK, with the acquisition of Bridge Farm
Group ("Bridge Farm").
Sold 7,944 kilograms of cannabis in Canada, increasing
almost 70% from the second quarter of 2019.
Average selling price per gram ("ASP") for branded
cannabis products for the quarter was $6.34, broadly consistent with ASP in the second quarter of $6.53. ASP for unbranded flower
sales was $4.03, declining slightly from $4.46 in the second quarter.
Sundial's net loss for the third quarter was $97.5 million,
driven by the acquisition and the termination of a royalty obligation.
Consolidated Adjusted EBITDA1 loss was $7.9
million. This was impacted by the scaling of operations, costs related to becoming a publicly traded company, acquisition
and construction related expenses, and the impact from Sundial's decision to manage inventory levels by wholesaling lower margin
Deepened our branded product portfolio by growing and beginning
to commercialize 19 premium strains. This included Sundial's Lemon Riot, a high-quality premium strain which has consistently
sold out at retail as soon as it becomes available.
Expanded international footprint with the acquisition of
leading UK-based agricultural indoor producer Bridge Farm in early July to secure low-cost production at scale and valuable commercial
relationships in the UK, Europe and internationally.
Completed its IPO on Nasdaq on August 6th, raising
approximately USD $143 million of gross proceeds.
Secured financing of up to $140 million in corporate credit
facilities consisting of an initial $90 million senior secured term credit facility and the right to an additional facility to
a maximum of $50 million. This financing, combined with the proceeds from its IPO, provides the capital to complete the Company's
expansion in Canada and the UK, as well as fund its business operations through to self-funding.
Remained focused on positioning Sundial as a leader in
the global cannabis industry for 2020 and beyond with its branded product portfolio in the Heal, Help, and Play markets.
Subsequent to quarter end
Granted licence by Health Canada to produce and sell cannabis
oil products which enable new Cannabis 2.0 formats to be sold in the near future.
Entered into strategic partnerships to broaden and enhance
the Heal and Help product portfolios.
Launched Palmetto, a new brand in Sundial's Play brand
portfolio. Palmetto is synonymous with high-quality and convenient cannabis, offering pre-rolls and vape pens for an effortless
and exceptional consumer experience.
"We are firmly focused on profitable growth,"
said Mr. Kuenzlen. "Going forward we will benefit significantly from the foundation we are laying. Optimizing
our substantially complete, state-of-the-art flagship facility in Olds, will drive operational improvements, which translate into
reduced cost of sales and enhanced profitability. We will also continue to be disciplined in our capital spending and cost
structure. We expect to consistently grow our business and remain agile in the rapidly evolving and dynamic global cannabis
industry. While short-term fluctuations are a challenge for the entire industry, our belief in the immense overall market
opportunity remains unchanged.
1 Adjusted EBITDA does not have a standardized
meaning prescribed by IFRS and therefore may not be comparable to similar measures used by other companies. Refer to "Reconciliation
of IFRS Performance Measures to Non-IFRS Performance Measures".
"Looking forward to 2020, there are a
number of factors that will drive revenue and EBITDA growth for Sundial," stated Mr. Kuenzlen. "In Canada, aligning
production capacity with demand, a flexible approach to cultivation, and increased efficiency and cost management, will be key
bottom line drivers. At the same time, higher branded sales through more Provincial boards and additional retail outlets
and a strong profitable brand/product mix including the new Cannabis 2.0 products, commercialized efficiently, will drive the topline
revenue. This, combined with the plans for our new UK operations to continue to grow our existing plant business and develop
our new cannabis opportunities, will advance our international leadership position," concluded Mr. Kuenzlen.
FINANCIAL HIGHLIGHTS
| ($000s, except per share and Operational metrics) | Three months ended September 30 | Nine months ended September 30 | ||||
| 2019 | 2018 | 2019 | 2018 | |||
| Financial | ||||||
| Gross revenue | 34,181 | - | 56,156 | - | ||
| Net revenue | 33,512 | - | 54,310 | - | ||
| Gross margin before fair value adjustments (1) | 8,690 | - | 18,276 | - | ||
| Income (loss) from operations | (12,435) | (6,346) | (34,243) | (19,245) | ||
| Net loss | (97,491) | (13,155) | (126,543) | (26,130) | ||
| Per share, basic and diluted | (1.06) | (0.18) | (1.61) | (0.40) | ||
| Adjusted EBITDA (1) | (7,897) | (4,685) | (13,021) | (11,668) | ||
| Balance Sheet (end of period) | ||||||
| Cash - unrestricted | 141,805 | 6,490 | ||||
| Working capital (1) | 25,841 | (20,995) | ||||
| Biological assets | 14,539 | 15 | ||||
| Inventory | 28,420 | 441 | ||||
| Property, plant and equipment | 254,097 | 67,095 | ||||
| Total assets | 632,057 | 78,834 | ||||
| Operational | ||||||
| Kilogram equivalents sold | 7,944 | - | 13,008 | - | ||
| Average gross selling price per gram (2) | ||||||
| Branded flower | $ | 6.34 | - | $ | 6.45 | - |
| Unbranded flower | $ | 4.03 | - | $ | 4.48 | - |
| Average net selling price per gram (3) | ||||||
| Branded flower | $ | 4.89 | - | $ | 4.76 | - |
| Unbranded flower | $ | 4.03 | - | $ | 4.48 | - |
| Average net selling price per milligram | ||||||
| Extracted oil | $ | 0.03 | - | $ | 0.03 | - |
| Kilograms harvested | 11,668 | 21 | 23,115 | 21 |
| (1) | Adjusted EBITDA gross margin before fair value adjustments and working capital do not have standardized meanings prescribed by IFRS and therefore may not be comparable to similar measures used by other companies. The non-IFRS measure of Adjusted EBITDA is reconciled to net loss in accordance with IFRS in the "NON-IFRS MEASURES" section of this news release and discussed further in the "ADVISORY" section of this news release. |
| (2) | Net of marketing fees, salvage fees and early payment discounts with respect to sales under our supply agreements with Canadian provincial regulatory authorities. |
| (3) | Gross selling price net of excise tax. |
Consolidated net revenue increased 74% sequentially to $33.5 million. The Cannabis segment delivered a 41% increase in
revenue to $28.0 million for the quarter, including $2.3 million in branded flower, $17.5 million in unbranded flower, and $8.2
million in winterized oil. The increase in cannabis flower sales was the result of the expansion of Sundial's Canadian capacity
and broadening geographical diversification. Sundial expanded its Canadian cannabis sales markets from Alberta into Ontario, British
Columbia, Saskatchewan, Manitoba, and Nova Scotia. Subsequent to quarter end, the Company entered Prince Edward Island, and intends
to be in all Canadian provinces. Sundial also recorded $5.5 million in revenue from its Bridge Farm acquisition from
its existing plant and herb business.
Average selling price (ASP)
Sundial's average gross selling price per gram for branded cannabis products was marginally lower at $6.34 compared to $6.53
in the second quarter. As part of Sundial's growth strategy, it will pivot its focus from unbranded products to branded products
through 2020, and expects branded product sales to grow materially during that time. Sundial's unbranded flower average sales
price was $4.03 in the third quarter compared to $4.46 in the second quarter of this year. Our average sales price
for wintered oil in the third quarter was $0.03/mg.
Overall cost of sales for the Cannabis segment was $20.3 million compared to $10.5 million in the second quarter of 2019.
Dried cannabis cost of sales per gram were 13% lower at $1.91 compared to $2.20 in the prior quarter. Sundial's dried cannabis
cost of sales per gram benefited from increased efficiency of production which was offset by the impact of third-party extraction
costs incurred to produce winterized oil as part of the Company's focus on managing inventory levels, and the destruction of about
500,000 grams of control samples from inventory in the third quarter.
Sundial achieved strong gross margin performance for sales of cannabis flower. Gross margin for branded flower was 55%
compared to 46% in the second quarter. Unbranded flower gross margin was 53% compared to 51% in the prior quarter. The Company
produced winterized oil from flower inventory to proactively manage inventory, and as a result, incurred third-party extraction