Full Press Release Details
Sundial Reports Third Quarter 2020 Financial
CALGARY, AB, Nov. 11, 2020 /CNW/ - Sundial
Growers Inc. (NASDAQ: SNDL) ("Sundial" or the "Company") reported its financial and operational results for
the third quarter ended September 30, 2020. All financial information in this press release is reported in millions of Canadian
dollars, unless otherwise indicated.
THIRD QUARTER 2020 FINANCIAL AND OPERATIONAL
Branded net cannabis
sales increased to 77% of total cannabis sales from 69% in the previous quarter as Sundial continues to transition from reliance
on wholesale to branded retail sales
Net cannabis revenue
for the third quarter of 2020 was $12.9 million, a decrease of 36% over the second quarter of 2020 due primarily to focus on branded
Branded product average
gross selling price for the quarter remained relatively stable at $5.53 per gram equivalent from $5.67 per gram equivalent in the
Principal amount of debt
outstanding decreased by $23 million during the third quarter. A total of $100 million of debt has been eliminated year to date
and current cash on hand stands at $60 million
Cash used from operations
decreased by 63% to $5.3 million for the quarter, not including the change in non-cash working capital, financing and investing
activities, from $14.3 million during the previous quarter
Dried bulk cost per gram
sold was $1.18, a decrease of 12% from the previous three months ended June 30, 2020. Management is working towards a target cash
cost of $0.69 per gram
General and administrative
costs were reduced by 7% from $7.7 million to $7.2 million in the third quarter of 2020 when compared to the previous three months
Capital raises provided
gross proceeds of $26.4 million during the quarter and $48.1 million subsequent to the end of the quarter
A total of $4.1 million
was received under the Canada Emergency Wage Subsidy (CEWS)
Net loss was $71.4 million
in the third quarter; adjusted EBITDA loss increased by 13% over the previous quarter to $4.4 million from $3.9 million
A property, plant, and equipment impairment provision of
$60 million was recorded on the Olds facility and an inventory impairment provision of $19.9 million was recorded on dried cannabis
and cannabis extracts
"While our third quarter revenue decreased,
we are pleased with the demonstrated improvement in operating discipline, successful cost optimization initiatives and a material
reduction of our debt," said Zach George, Sundial's CEO. "Following the announcement of our financial restructuring in
June of this year, we have accelerated improvements in our operating practices targeting a sustainable cost structure and a simplified
business model that will better enable us to focus on delighting consumers."
"Having entered 2020 with a challenged
capital structure, and a disparate business model, our team has moved aggressively to focus our operations and product portfolio
to get the very best from our high-quality people and assets," added Mr. George. "We faced some challenges with our cultivation
processes this past quarter, but the modular nature of our indoor facility enabled Sundial to quickly adapt to rapidly evolving
market conditions and consumer preferences in today's Canadian cannabis market. We firmly believe that the changes we've made to
the business these past four months will position Sundial for future success."
THIRD QUARTER 2020 KEY FINANCIAL METRICS
| Gross Revenue | Net Revenue | Gross Margin (1) | Net Loss | Adj. EBITDA | |
| Reported | 15,525 | 12,865 | 2,606 | (71,397) | (4,409) |
| % Change Q2 2020 | -36% | -36% | -9% | -117% | -13% |
| % Change Q3 2019 | -46% | -54% | -66% | 16% | 29% |
| (1) Gross margin before inventory impairment and fair value adjustments |
THIRD QUARTER 2020 BUSINESS & OPERATIONAL
The decrease in net revenue in the third
quarter of 2020 can be attributed to:
Changes to the Company's processes as it continues to adapt
its cultivars to meet consumers' expectations, including high THC potency
The Company's decision to prioritize larger pack formats
in flower during the early stages of COVID-19, resulted in a slower than expected ramp-up in pre-roll production. Demand for Sundial's
pre-roll products remains strong and capacity constraints have been removed, which should benefit product mix in subsequent quarters
Many provincial boards have adjusted their inventory stocking
and re-ordering practices in response to short-term market demand and inventory management
Sundial underestimated on-hand inventory on certain SKUs
at select customers, which resulted in smaller re-orders in the quarter as the Company continues to move through its inventory
In response to these factors, Sundial is implementing
critical changes that have enhanced the Company's cultivation results:
The modular room design of Sundial's facility has rapidly
created a broad set of cultivation statistics. Since inception the company has completed over 600 harvests, including 243 in 2020
and 52 in the third quarter. Sundial has leveraged its data analytics capability to focus on key improvement areas within cultivation.
Recently improved cultivation processes have led to Sundial's highest average potency results since inception. Sundial expects
to realize benefits from those products in early 2021
Sundial's commitment to data and science-based decisions
has also been supported by the restructuring of our cultivation teams. These changes will be vital to accelerate the momentum of
improvements in quality, potency, and cost
Sundial acquired an expanded library of genetics to better
serve evolving consumer preferences and cultivate higher potency products
Gross margin before inventory impairment and fair value adjustments for the three months ended September 30, 2020 was 20% compared
to 14% for the three months ended June 30, 2020. The increase in the gross margin percentage of 6% was mainly due to efficiency
gains realized through decreased cost of goods sold and one large LP order.
Average gross selling price per gram equivalent of branded products was $5.53 per gram in the third quarter of 2020, including
net provisions, compared to $5.67 per gram in the prior quarter. Average gross selling price on branded products held firm
despite price compression seen in the market and a decrease in vape sales. Average gross selling price for unbranded flower in
the third quarter was $0.84 per gram down from $2.22 per gram. The decrease was due to the monetization of winterized oil,
trim and shake inventory at a discounted price.
Sundial remains focused on delivering premium products with an emphasis on inhalable formats, including flower, pre-rolls and
vape cartridges. Gross revenue from vape cartridge sales was $3.6 million in the third quarter of 2020 representing a 43%
decrease from the previous quarter. The decrease in vape sales was due in part by Sundial's SKU increase in the segment along with
significant price compressions. Gross revenue from dried flower sales was $11.6 million in the third quarter of 2020 representing
a 28% decrease from the previous quarter. Gross revenue from oil sales was $319,000 in the third quarter of 2020 representing an
84% decrease from the previous quarter. The decrease in oil sales was due to a one-time bulk sale to a licensed producer. Sundial
was under indexed in the pre-roll format and will increase production in the fourth quarter and into 2021 to meet consumer demand.
Sundial is currently undertaking a proactive SKU optimization initiative to ensure top selling SKUs replace less popular products.
The Company continues to diversify its product mix with plans for the addition of solventless extracts by the end of the fourth
quarter of this year.
The Company sold 5,819 kilogram equivalents of cannabis in the third quarter of 2020, a 3% decrease over the previous quarter
sales of 5,997 kilogram equivalents.
The Company continues to focus on increasing its sales to Provincial Boards through continued brand portfolio penetration coast-to-coast,
the addition of new formats and supply chain optimization. Branded net cannabis sales in the third quarter of 2020 were $9.9 million
compared to $14.0 million in the second quarter of 2020, a decrease of 29%.
COST OF GOODS SOLD PER GRAM EQUIVALENT
Cultivation costs per gram of bulk dried cannabis were $1.18 in the third quarter, compared to $1.34 in the previous quarter.
Total cost of goods sold per gram including packaging, shipment and fulfillment costs for the three months ended September 30,
2020 was $1.76 compared to $2.89 for the previous quarter. The decrease of $1.13 per gram was mainly due to
a bulk sale to an LP that had a low per gram cost.
SALES, MARKETING AND GENERAL AND ADMINISTRATIVE
General and administrative costs were further reduced by 7% from $7.7 million to $7.2 million in the third quarter of 2020