First positive quarterly earnings from
operations in the Company's history
CALGARY, AB, May 11, 2021 /PRNewswire/ - Sundial Growers
Inc. (NASDAQ: SNDL) ("Sundial" or the "Company") reported its
financial and operational results for the first quarter ended
March 31, 2021. All financial
information in this press release is reported in millions of
Canadian dollars and represents results from continuing operations,
unless otherwise indicated.
FIRST QUARTER 2021 FINANCIAL AND OPERATIONAL
HIGHLIGHTS
- Earnings from operations of $1.7
million compared to a loss from operations of $32.7 million in the prior quarter.
- Net loss of $134.4 million as a
result of $130.0 million of non-cash
amounts reflecting the impact of share price volatility on
accounting valuation of derivative warrants.
- Achieved first quarter of positive adjusted EBIDTA in Sundial's
history, at $3.3 million compared to
an adjusted EBIDTA loss of $5.6
million in the prior quarter.
- $969.5 million unrestricted cash,
marketable securities and long-term investments on hand at
March 31, 2021 and $1.08 billion at May 7,
2021 with no outstanding debt.
- Investment balance of $96.0
million at March 31, 2021 in
cannabis-related loans and marketable securities generated income
of $15.7 million for the quarter.
- Gross cannabis revenue was $11.7
million, a decrease of 30% from the prior quarter.
- Subsequent to the quarter end, announced an agreement to
acquire Inner Spirit Holdings and Spiritleaf retail cannabis
network.
"We are pleased to announce Sundial's first-ever quarter with
positive earnings from operations and adjusted EBITDA," said
Zach George, Chief Executive Officer
of Sundial. "This result reflects our continued efforts to build a
platform targeting attractive capital deployment opportunities
while we focus on the continued improvement of our cultivation
practices in an immature and rapidly changing industry. The
sustained decline in Canadian cannabis flower pricing has prompted
Sundial to liquidate certain inventory in the first quarter and we
are now limiting the offering of discount products in markets where
we view the economics as neither attractive nor sustainable. We do
not plan to pursue top line advancement without profitability nor
the maintenance of market share at any and all cost. We have made
progress in improving our cultivation outcomes and we continue to
focus on best practices to deliver great results in potency, yield
and terpenes, but our work is far from complete. Our brand promise
to consumers is fundamental to our strategy, and we refuse to
compromise on product quality and consumer expectations.
Operational improvements and capital deployment remain top
priorities. I am pleased with our investment track record, which
began with our internal program and is evolving to include
partnership with third party capital. Our strong financial
position, unique cultivation facility and focus on premium
inhalables have positioned us for improved performance in the
second half of 2021 and beyond."
"COVID-19 continues to significantly affect Canadians and
economies around the world as a third wave has impacted the way we
are conducting our lives and the way we operate our business,"
added Mr. George. "We continue to maintain our focus on keeping our
employees safe and adjusting to market demands. Sundial remains
confident that we have the right team, a strong balance sheet, and
a world-class facility that will allow us to get through the
pandemic, while focusing on growth and doing the right thing for
our employees and consumers."
FIRST QUARTER 2021 KEY FINANCIAL METRICS
|
Gross
Revenue
|
Net
Revenue
|
Gross
Margin (1)
|
Net
Loss
|
Adj.
EBITDA
|
Reported
|
11,748
|
9,891
|
(1,554)
|
(134,445)
|
3,327
|
% Change Q4
2020
|
-30%
|
-29%
|
-148%
|
-110%
|
159%
|
% Change Q1
2020
|
-29%
|
-29%
|
-411%
|
-254%
|
129%
|
(1) Gross margin
before inventory impairment and fair value adjustments
|
|
|
FIRST QUARTER 2021 BUSINESS & OPERATIONAL RESULTS
While the first quarter of 2021 was challenged by industry
dynamics and continued price compression, Sundial's ability to
consistently deliver high-quality inhalables will continue to be a
key component of the Company's strategy. Sundial remains focused
and committed to its cultivation and processing activities and the
improvement of its cultivation outcomes. Revenue declines in the
first quarter were the result of the continued growth of the
discount segment, inventory monetization strategies through
Sundial's Grasslands brand and slower industry sales driven
by seasonality and COVID-19 restrictions.
- Sundial continued to invest in its evolving library of strains,
utilization of data insights and continuous improvement in the Olds
facility to achieve higher potency and more consistent quality
metrics. Sundial received its first laboratory results for its new
extended library of genetics and will prioritize the strains with
higher THC potency results. The Company plans to commercialize
these new strains in Q4 2021.
- Following the cultivation restructuring efforts commenced in
mid-2020, potency and quality metrics have continued to be a focus
in 2021. In February 2021, Sundial
harvested its highest potency flower since the Olds facility's
inception with Top Leaf's LA Kush Cake initial lots producing
potency in excess of 28% THC. The product has seen strong velocity
in sales during the first quarter with some stores selling out in
two days. Sundial has seen higher potency, yields and terpenes
through the first quarter, increasing its average potency results
by approximately 15%, year over year.
- Sundial's commitment to premium products remains steadfast, and
the Company will become more selective and limit accessibility of
its discount segment products to select customers, where the
economics are attractive. The price dynamics of the discount
segment are not sustainable for Sundial's portfolio and assets. The
Company will focus on its most profitable and higher margin SKUs,
while continuing to further simplify its supply chain and
rationalize SKUs across all brands and formats to help better
position and optimize its products.
- Sundial continues to work on research and development and a
purposeful and robust innovation pipeline focused on inhalable
products. Sundial launched two concentrates SKUs in the first
quarter of 2021 and the Company implemented an approach targeted on
the most profitable segments of its portfolio including Sundial's
new partnerships with Simply Solventless Concentrates Ltd. and
Stigma Grow, in the development of additional concentrates
offerings.
- While continuing to focus on branded sales, Sundial has seen an
increased sales trend in the wholesale market due to its focus on
cultivation excellence and other licensed producers divesting from
cultivation practices.
- Sundial's cultivation and production costs were reduced to an
average of $4 million per month in
the first quarter 2021 from $10
million per month in the first quarter of 2020 through
efficiencies and cost reduction initiatives. Cultivation and
production costs have stabilized through the first quarter of
2021.
- Sundial's facility in Olds amended its licence for standard
processing authorizing the activity of sale for cannabis extract,
cannabis topical and edible cannabis products, in addition to the
previously granted licences for standard cultivation and for sale
for medical purposes.
GROSS MARGIN BEFORE FAIR VALUE ADJUSTMENTS
Adjusted
gross margin before inventory impairment and fair value adjustments
for the three months ended March 31,
2021 was negative $1.6
million, compared to $3.2
million for the previous quarter as a result of industry
wide price compression and increased operating costs of Sundial's
premium facility. The Company is focused on improvement of gross
margins through an emphasis on margin accretive strains and SKUs,
and better cultivation outcomes.
NET REVENUE
Net revenue from branded cannabis products
declined in the first quarter to $7.2
million from $11.4 million in
the previous quarter. Sales were impacted by provincial boards
reducing inventory levels, retail market conditions and continued
price compression across the industry and Sundial's portfolio.
These market dynamics impacted all of Sundial's formats and brands
in the first quarter. Revenue from licensed producer sales was
$2.7 million compared to $2.4 million in the previous quarter.
GROSS SELLING PRICE
Average gross selling price per
gram equivalent of branded products, net of provisions, was
$3.15 per gram in the first quarter
of 2021, compared to $4.14 per gram
in the prior quarter. The decrease in the average gross selling
price on branded products is a result of industry price
compression.
REVENUE BY FORMATS
In the first quarter of 2021 gross
revenue from Sundial's formats was:
- Vape Cartridges: Gross revenue from vape cartridge sales
was $1.4 million in the first quarter
of 2021 compared to $4.3 million in
the prior quarter.
- Dried Flower: Gross revenue from dried flower sales was
$9.7 million in the first quarter of
2021 compared to $11.9 million in the
prior quarter.
- Oil: Gross revenue from oil sales were $181 thousand compared to $317 thousand in the prior quarter.
- Concentrates: Gross revenue from concentrates sales was
$504 thousand in the first quarter of
2021 compared to $42 thousand in the
prior quarter, due to concentrates being launched towards the end
of the prior quarter.
REVENUE BY BRANDS
In the first quarter of 2021 gross
revenue from Sundial's brands was:
- Top Leaf: Gross revenue from Top Leaf
sales was $1.9 million in the first
quarter of 2021 compared to $4.1
million in the prior quarter.
- Sundial: Gross revenue from Sundial sales was
$2.9 million in the first quarter of
2021 compared to $4.2 million in the
prior quarter.
- Grasslands: Gross revenue from Grassland sales
was $3.5 million in the first quarter
of 2021 compared to $3.9 million in
the prior quarter.
- Palmetto: Gross revenue from Palmetto sales was
$750 thousand in the first quarter of
2021 compared to $1.9 million in the
prior quarter.
KILOGRAMS SOLD
The Company sold 3,989 kilogram
equivalents of cannabis in the first quarter of 2021, a 45%
decrease over the previous quarter sales of 7,247 kilogram
equivalents. The fourth quarter 2020 included wholesale discounted
sales of 3,758 kilograms primarily related to a single transaction
related to inventory monetization. Sundial shipped a record number
of kilograms in March 2021, with more
than 1,500 kilograms.
INVESTMENT REVENUE
The first quarter of 2021 was a
transitional period for Sundial and the Company has re-aligned its
business into two segments for operational and reporting purposes:
one being Cannabis Operations and the other being Investments. The
Company realized $2.8 million of
interest and fee revenue from long term loans to third parties, and
$12.9 million in realized and
unrealized gains from investments in marketable securities. This
income has been classified as income from operations as Sundial
intends to continue to deploy significant capital targeting a
portfolio of asymmetrically enhanced risk-return opportunities in
the cannabis industry to provide exposure to a portfolio of
attractive debt, equity and hybrid investments.
SALES, MARKETING AND GENERAL AND ADMINISTRATIVE
EXPENSES
SMG&A costs decreased by 9% from $8.8 million to $8.0
million in the first quarter of 2021 when compared to the
prior quarter. In addition, SMG&A costs were reduced by 35% in
the first quarter of 2021 compared to the first quarter of 2020.
Sundial is fully committed to investing in its brands, and as a
result, Sundial has increased its investment in its sales team
across Canada in order to
accelerate distribution and customer acquisition.
NET LOSS
Net loss for the three months ended
March 31, 2021 was $134.4 million compared to a net loss of
$64.1 million in the previous
quarter. Net earnings were positively impacted by $15.7 million in investment gains and income,
which are subject to quarterly variability dependent on the
Company's investment activities, deployment of capital and market
conditions. The net loss was negatively impacted by fair value
adjustments of $129.9 million under
IFRS on the warrant component attached to the units issued during
the quarter in registered direct offerings. The fair value
adjustment on derivative warrants results from the exercise prices
of the warrants being denominated in $US whereas Sundial's
functional and reporting currency is the Canadian dollar. There was
no cash impact on net loss resulting from these valuation
adjustments and there will be no cash payments on the derivative
warrants reported on Sundial's balance sheet.
For clarity, Management estimates that as of May 10, 2021 the fair value of the outstanding
derivative warrants would decrease by approximately $34 million due to market conditions resulting in
a non-cash gain of the same amount.
ADJUSTED EBITDA
Adjusted EBITDA from continuing
operations was $3.3 million for the
three months ended March 31, 2021
compared to a loss of $5.6 million
from the in the prior quarter. The significant increase was mainly
due to realized investment gains and income from the Company's
strategic cannabis-related portfolio investments and these will be
a core part of Sundial's operations moving forward.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 2021, Sundial issued 857 million
common shares pursuant to at-the-market equity programs, registered
direct offerings, and warrant exercises for total cash proceeds of
$854.4 million. Subsequent to the
quarter end, the Company issued 85 million shares through an
at-the-market equity program for total proceeds of $97.7 million.
At the end of the first quarter of 2021, the Company had
deployed a portion of the capital raised into several
cannabis-related investments totaling $96.0
million. These investments generated $15.7 million in interest income and fees as well
as realized and unrealized gains on marketable securities in the
first quarter of 2021 and an additional $3.3
million of realized interest and gains on marketable
securities in the second quarter up to May
7, 2021. Further unrealized gains will be marked to market
at the next period end. The Company remained debt free during and
subsequent to the first quarter of 2021.
Asset value per share at March 31,
2021, including cash, loans, marketable securities and the
Olds facility at net book value was approximately $1.08 billion or $0.61 per share.
As of May 7, 2021, the Company had
an unrestricted cash balance of approximately $752.7 million and total common shares
outstanding of 1.86 billion.
Sundial continues to strategically deploy its capital with a
focus on maximizing cash flows and shareholder value.
- On February 22, Sundial invested
$22 million in Indiva Ltd. debt and
equity.
- On April 23, 2021, the Company
invested $188 million in SunStream
Opportunities LP.
- On May 4, 2021, Sundial announced
it had acquired 10.1% of the issued outstanding common shares of
The Valens Company Inc.
- On May 5, 2021, Sundial announced
that it entered into an arrangement agreement pursuant to which the
Company will acquire all of the issued and outstanding common
shares of Inner Spirit Holdings and Spiritleaf retail cannabis
network for total consideration of approximately $131 million, subject to regulatory
approvals.
STRATEGIC AND ORGANIZATIONAL UPDATE
Sundial remains focused on building long-term shareholder value
through the accretive deployment of cash resources and on
sustainable profitability based on its streamlined and right-sized
operating structure, and its enhanced offering of high-quality
brands.
CULTIVATION
- The Company continues to develop new high potency strains that
provide consistent quality metrics. Sundial will evaluate research
and development opportunities for economic and effective programs
to ramp production at the Olds facility.
- Sundial added resources to its cultivation team with a new
Director of Cultivation.
- Sundial remains focused on cost containment, driving
efficiencies and is fully funded to execute on all planned
initiatives.
- Subsequent to quarter end, Sundial's facility in Olds received
a Good Agricultural and Collection Practices (GACP) certification,
furthering the Company's commitment to cultivation excellence.
SALES AND MARKETING
- Sundial has promoted its Chief Experience Officer to Chief
Strategy Officer reporting directly to the CEO. In addition,
Sundial continued to add new members to the sales and marketing
teams, including a Vice President of Marketing and increased the
Company's commercial coverage across key markets.
- Sundial continues to focus on the development of inhalable
formats through new and unique strains, differentiated product
formats and improved efficiencies in manufacturing methods.
COVID-19 UPDATE
The Company continues to monitor daily developments in the
COVID-19 pandemic and actions taken by government authorities. In
accordance with the guidance of provincial and federal health
officials to limit the risk and transmission of
COVID-19, Sundial continues to implement mandatory
self-quarantine policies, travel restrictions, enhanced cleaning
and sanitation processes and frequency, and social distancing
measures. Sundial believes that it can maintain safe
operations with these pandemic-related procedures and protocols in
place. The Company has not experienced a material impact
on its production and processing activities to date related to
COVID-19.
NON-IFRS MEASURES
Certain financial measures in this news release, including
adjusted EBITDA from continuing operations, and gross margin before
fair value adjustments are non-IFRS measures. These terms are not
defined by IFRS and, therefore, may not be comparable to similar
measures provided by other companies. These non-IFRS financial
measures should not be considered in isolation or as an alternative
for measures of performance prepared in accordance with IFRS.
ADJUSTED EBITDA
Adjusted EBITDA is a non-IFRS measure
which the Company uses to evaluate its operating performance.
Adjusted EBITDA provides information to investors,
analysts and others to aid in understanding and
evaluating the Company's operating results in a
similar manner to its management team. Adjusted EBITDA is
defined as net income (loss) before finance costs, depreciation and
amortization, accretion expense, income tax recovery and excluding
change in fair value of biological assets, change in fair value
realized through inventory, unrealized foreign exchange gains or
losses, unrealized gains or losses on marketable securities, change
in fair value of derivative warrants, share-based
compensation expense, asset impairment, gain or loss on disposal of
property, plant and equipment and certain one-time non-operating
expenses, as determined by management.
|
Q1
2021
|
Q4
2020
|
%
Change
|
Q1
2020
|
%
Change
|
Net loss from
continuing operations
|
(134,445)
|
(64,144)
|
-110%
|
(37,949)
|
-254%
|
Adjustments
|
|
|
|
|
|
Finance
costs
|
51
|
4,974
|
-99%
|
5,982
|
-99%
|
Change in fair value
of derivative warrants
|
129,944
|
23,464
|
454%
|
—
|
100%
|
Loss on cancellation
of contracts
|
—
|
2,471
|
-100%
|
—
|
0%
|
Depreciation and
amortization
|
1,058
|
1,297
|
-18%
|
657
|
61%
|
Change in fair value
of biological assets
|
94
|
(579)
|
116%
|
(6,415)
|
101%
|
Change in fair value
realized through inventory
|
50
|
214
|
-77%
|
9,692
|
-99%
|
Unrealized foreign
exchange (gain) loss
|
1,905
|
672
|
183%
|
(1,769)
|
208%
|
Unrealized gain on
marketable securities
|
(4,881)
|
—
|
100%
|
—
|
100%
|
Share-based
compensation
|
3,456
|
1,501
|
130%
|
795
|
335%
|
Asset
impairment
|
—
|
13,532
|
-100%
|
5,659
|
-100%
|
Loss on disposition of
PP&E
|
117
|
—
|
100%
|
(610)
|
119%
|
Cost of sales non-cash
component (1)
|
826
|
1,632
|
-49%
|
780
|
6%
|
Inventory
obsolescence
|
1,754
|
8,275
|
-79%
|
7,715
|
-77%
|
Restructuring
costs
|
—
|
280
|
-100%
|
2,719
|
-100%
|
Transaction costs
(2)
|
3,648
|
825
|
342%
|
1,101
|
231%
|
Government
subsidies
|
(2,180)
|
(47)
|
-4538%
|
—
|
100%
|
Other
expenses
|
1,930
|
—
|
100%
|
—
|
100%
|
Adjusted EBITDA
from continuing operations
|
3,327
|
(5,633)
|
159%
|
(11,643)
|
129%
|
(1) Cost of sales
non-cash component is comprised of depreciation expense
|
(2) Transaction costs
relate to financing activities
|
GROSS MARGIN BEFORE FAIR VALUE ADJUSTMENTS
Gross
margin before fair value adjustments is a non-IFRS measure which
the Company uses to evaluate its operating performance. Gross
margin before fair value adjustments is defined as gross margin
less the non-cash changes in the fair value adjustments on the sale
of inventory and the growth of biological assets. Gross margin
before fair value adjustments is comprised of net revenue less cost
of sales, inventory obsolescence and impairment.
CONFERENCE CALL
Sundial will host a conference call and webcast at 10:30 a.m.
EDT (8:30 a.m. MDT) on Wednesday, May 12, 2021. A current investor
presentation will be available on
http://sndlgroup.com/investors.
WEBCAST ACCESS
To access the live webcast of the call,
please visit the following link:
http://services.choruscall.ca/links/sundialgrowers20210512.html
REPLAY
The webcast archive will be available for three
months via the link provided above.
A telephone replay will be available for one month. To access the
replay dial:
Canada/USA Toll Free: 1-800-319-6413 or International
Toll: +1-604-638-9010
When prompted, enter Replay Access Code: 6605#
ABOUT SUNDIAL GROWERS INC.
Sundial is a public company with Common Shares traded on Nasdaq
under the symbol "SNDL".
Our business is reported and analyzed under two operating
segments: one being Cannabis and the other being Investments. Our
cannabis operations centered in Canada cultivate small-batch cannabis using an
individualized "room" approach, with 448,000 square feet of total
available space. As a licensed producer that crafts cannabis using
state-of-the-art indoor facilities, our 'craft-at-scale' modular
growing approach, award-winning genetics and experienced growers
set us apart.
Sundial's brand portfolio includes Top
Leaf, Sundial
Cannabis, Palmetto and Grasslands. Our
consumer-packaged goods experience enables us to not just
grow quality cannabis, but also to create exceptional consumer
and customer experiences.
Our investment operations seek to deploy strategic capital
through direct and indirect investments and partnerships throughout
the global cannabis industry.
We are proudly Albertan, headquartered in Calgary, AB, with operations in Olds and
Rocky View County, Alberta,
Canada.
Forward-Looking Information Cautionary Statement
This
news release includes statements containing certain
"forward-looking information" within the meaning of applicable
securities law ("forward-looking statements"), including, but not
limited to, statements regarding the Company's cost-cutting
initiatives, the cost savings expected to be achieved, operational
goals, demand for the Company's products, the Company's ability to
achieve profitability, the development of the legal cannabis
market, performance of the Company's investments and the
maintenance of production levels, including during the COVID-19
pandemic. Forward-looking statements are frequently characterized
by words such as "plan", "continue", "expect", "project", "intend",
"believe", "anticipate", "estimate", "likely", "outlook",
"forecast", "may", "will", "potential", "proposed" and other
similar words, or statements that certain events or conditions
"may" or "will" occur. These statements are only predictions.
Various assumptions were used in drawing the conclusions or making
the projections contained in the forward-looking statements
throughout this news release. Forward-looking statements are based
on the opinions and estimates of management at the date the
statements are made and are subject to a variety of risks and
uncertainties and other factors that could cause actual events or
results to differ materially from those projected in the
forward-looking statements. Please see "Item 3D Risk Factors"
in the Company's Annual Report on Form 20-F, which was filed with
the Securities and Exchange Commission ("SEC") on March 17, 2021, and the risk factors included in
our other SEC filings for a discussion of the material risk
factors that could cause actual results to differ materially from
the forward-looking information. The Company is under no
obligation, and expressly disclaims any intention or obligation, to
update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise, except
as expressly required by applicable law.
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SOURCE Sundial Growers Inc.