CALGARY, May 15, 2020 /PRNewswire/ - Sundial Growers Inc.
(Nasdaq: SNDL) ("Sundial" or the "Company") reported its financial
and operational results for first quarter 2020 ended March 31, 2020.
First quarter 2020 financial and operational
highlights
- Strategic shift away from "Heal, Help and Play" strategy to
concentrate on Canadian recreational cannabis with a focus on
inhalable products.
- Continued progress made on business optimization initiatives
with annualized net cost reductions of approximately $28 million in 2020.
- Net revenue of $23 million, an
increase of 7% over the prior quarter.
- Net cannabis revenue of $16.5
million, excluding provisions of $2.5
million, an 18% increase over the prior quarter
- Branded net cannabis sales increased to 54% of total net
cannabis sales in the first quarter of 2020 vs. 33% in the fourth
quarter of 2019.
- Overcame significant processing challenges and improved supply
chain capabilities during the quarter; recently, 'On Time In Full'
(OTIF) metrics have surpassed 90%.
- Inventory write-down of $14.4
million, on dried cannabis and cannabis extracts, primarily
driven by product price compression due to broader trends of
oversupply in the Canadian market.
- Since January 2020, the Company
has reduced its workforce by 51% to optimize its cost structure to
align with market conditions. Sundial currently has 420
employees.
"We have made significant progress in improving our cost
structure and liquidity in the past few months," said Zach George, Chief Executive Officer of Sundial.
"The agility of our "craft-at-scale" cultivation strategy also
became evident as we quickly aligned our operations with market
conditions, by temporarily curtailing cultivation activities to
adapt to current demand levels. We are pleased to have made
progress towards the sale of Bridge Farm and the subsequent
restructuring of our secured debt. These steps are critical in
order to improve Sundial's financial health."
"The COVID-19 pandemic has brought many challenges over the past
few months and our team has shown outstanding commitment and
courage, working tirelessly despite these new demands," added
George. "We truly appreciate their efforts and their health and
safety continues to be a priority for Sundial. As we move forward,
we remain focused on achieving sustainable profitability and will
continue to pursue opportunities to drive improved efficiency."
FINANCIAL AND OPERATING HIGHLIGHTS
|
Three months
ended
March 31
|
Three months
ended
December 31
|
Three months
ended
March 31
|
($000s, except as
indicated)
|
2020
|
2019
|
2019
|
Financial
|
|
|
|
Gross
revenue
|
25,621
|
23,069
|
1,691
|
Net
revenue
|
23,037
|
21,550
|
1,499
|
Gross margin before
fair value adjustments
|
(5,167)
|
1,437
|
721
|
Loss from
operations
|
(36,787)
|
(124,978)
|
(17,526)
|
Net loss
|
(43,983)
|
(145,086)
|
(16,702)
|
Per share, basic and
diluted
|
$
|
(0.41)
|
$
|
(1.36)
|
$
|
(0.24)
|
Adjusted EBITDA
(1)
|
(13,867)
|
(19,733)
|
(5,524)
|
|
|
|
|
Cash
Flows
|
|
|
|
Cash flow used in
operations
|
(13,595)
|
(55,881)
|
(18,802)
|
Cash flow used in
investing
|
(11,402)
|
(32,471)
|
(22,147)
|
Cash flow (used in)
from financing
|
(89)
|
(8,567)
|
39,833
|
|
|
|
|
Balance
Sheet
|
|
|
|
Cash and cash
equivalents
|
21,157
|
45,337
|
13,005
|
Biological
assets
|
13,808
|
14,309
|
6,222
|
Inventory
|
67,588
|
59,942
|
5,049
|
Property, plant and
equipment
|
278,891
|
281,984
|
118,960
|
Total
assets
|
479,391
|
510,036
|
172,900
|
|
|
|
|
Operational -
Cannabis
|
|
|
|
Kilograms
harvested
|
10,254
|
10,897
|
1,896
|
Kilogram equivalents
sold
|
4,437
|
4,285
|
323
|
Average gross selling
price per gram (2)
|
|
|
|
Branded
flower
|
$
|
4.76
|
$
|
6.15
|
$
|
6.59
|
Unbranded
flower
|
$
|
2.74
|
$
|
3.15
|
$
|
4.50
|
Average net selling
price per gram (3)
|
|
|
|
Branded
flower
|
$
|
3.40
|
$
|
4.54
|
$
|
4.89
|
Unbranded
flower
|
$
|
2.74
|
$
|
3.15
|
$
|
4.50
|
|
|
|
|
Financial -
Cannabis
|
|
|
|
Gross
revenue
|
16,590
|
16,262
|
1,691
|
Net
revenue
|
14,006
|
14,743
|
1,499
|
Sales to provincial
boards
|
10,200
|
6,327
|
745
|
Sales of medical
cannabis
|
16
|
9
|
1
|
Sales to licensed
producers
|
6,374
|
9,926
|
945
|
Gross margin before
fair value adjustments
|
(7,216)
|
(516)
|
721
|
|
|
(1)
|
These are non-IFRS
measures. Please refer to the "Non-IFRS Measures" sections
below.
|
(2)
|
Gross selling price
per gram net of marketing fees, salvage fees and early payment
discounts with respect to sales under Sundial's supply
agreements.
|
(3)
|
Average net selling
price per gram net of excise tax.
|
Operational Highlights:
- Average gross selling price per gram of branded flower of
$4.76 per gram in the first quarter
of 2020 compared to $6.15 per gram in
the prior quarter. The average gross selling price per gram
difference was due to price discounts and return provisions.
Average gross selling prices for unbranded flower in the first
quarter was $2.74 per gram down from
$3.15 per gram in the previous
quarter due to competitive pressures in wholesale market as a
result of industry-wide increased inventory levels.
- The Company's focus remains on delivering industry-leading,
best-in-class products with a focus on inhalable products,
including flower, pre-rolls and vape cartridges. Gross revenue from
vape cartridge sales were $4.4
million in Q1 representing 26% of the cannabis sales mix and
an increase of $3.9 million over Q4
2019. Sundial continues to build strong consumer adoption with its
vape portfolio with several new launches in Q1 2020 and a strong
innovation pipeline planned for the balance of year.
- The Company harvested 10,254 kilograms of cannabis in the first
quarter of 2020 which was about flat compared to the kilograms of
cannabis for the three months ended December
31, 2019.
- The Company has seen continued commercial success in
April 2020 with more than
$9 million in net branded sales to
provincial boards, which can be attributed to its strong
recreational launch in the Province of Quebec, supply chain optimizations and
continued market share penetration within the inhalable products
segment nationally.
- Cost of sales per gram sold for the three months ended
March 31, 2020 were $3.04 compared to $2.41 for the three months ended March 31, 2019. The increase of $0.63 was due to lower production cost of bulk
flower, offset by an increase in production cost of vape
products.
- Net loss from cannabis operations for the three months ended
March 31, 2020 was $36.4 million compared to a net loss of
$16.7 million for three months ended
March 31, 2019. The increased loss of
$19.7 million was primarily due to
non-recurring inventory valuation provisions ($14.4 million), restructuring costs ($2.7 million) and asset impairment ($5.7 million), partially offset by increases in
revenue, foreign exchange gain and lower share-based compensation
expense.
- Adjusted EBITDA from cannabis operations was a loss of
$11.3 million for the three months
ended March 31, 2020 compared to a
loss of $5.5 million for the three
months ended March 31, 2019. The
increase loss was due to the following:
-
- Increase in cost of sales due to an increase in kilogram
equivalents sold
- Increase in general and administrative expenses due to
increases in salary and wages, office and general and professional
fees
- Increase in sales and marketing expense due to general
marketing expenses
- In addition, the loss was partially offset by the
following:
-
- Increase in gross revenue due to the Company expanding its
provincial distribution network and launching additional brands and
product formats
Refinancing Initiatives
On May 14, 2020, the Company
obtained amended and restated waivers and agreements from its
senior lenders for all events of default and cross default. Under
the terms of the waivers and agreements, the Company agreed that on
or before June 1, 2020 it will (i)
execute an amended and restated credit agreement under its
Syndicated Facility, (ii) execute a refinancing transaction under
its Term Debt Facility, (iii) execute an intercreditor agreement,
and (iv) close the sale of Bridge Farm. Failure to execute any of
these transactions will constitute an event of default.
These requirements, combined with the accumulated losses to
date, indicate the existence of a material uncertainty that casts
substantial doubt on the Company's ability to continue as a going
concern. The Company continues to be in active dialogue with its
lenders to finalize these amendments to its loan agreements. Any
failure or delay in completing these amendments would have a
significant negative impact on the Company's liquidity and further
impact the Company's ability to operate as a going concern. In such
a case, the Company would look to alternative sources of financing,
delay capital expenditures and/or evaluate potential asset sales,
and potentially could be forced to curtail or cease operations or
seek relief under the applicable bankruptcy or insolvency laws
Sundial Receives Nasdaq Letter Regarding Non-Compliance with
Minimum Bid Price Requirement
Sundial was notified on May 12,
2020 by the Listing Qualifications Department of The Nasdaq
Stock Market ("Nasdaq") that the closing bid price of the Company's
common stock for the last 30 consecutive business days from
March 30, 2020 to May 11, 2020 did not meet the minimum bid price
of $1.00 per share (the "Minimum Bid
Requirement"). The notice has no immediate effect on the
trading of the Company's common shares on Nasdaq and the Company
has until December 28, 2020 to regain
compliance with the Minimum Bid Requirement.
Sundial will actively monitor its closing bid price during the
compliance period and intends to take appropriate measures to
remedy the deficiency and regain compliance with the Minimum Bid
Requirement.
COVID-19 Update
The Company is monitoring daily developments in the COVID-19
pandemic and actions taken by the government authorities. In
accordance with the guidance of provincial and federal health
officials to limit the risk and transmission of COVID-19, Sundial
has implemented 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. Sundial did not experience a material
impact to sales in the first quarter from COVID-19.
Non-IFRS Measures
Certain financial measures in this
news release, including adjusted EBITDA, working capital 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 as 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, 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.
Adjusted EBITDA table
|
Three months ended
March 31, 2020
|
($000s)
|
Cannabis
|
Ornamental
Flowers
|
Corporate
|
Consolidated
|
Net loss
|
(36,362)
|
(5,593)
|
(2,028)
|
(43,983)
|
Adjustments
|
|
|
|
|
Finance
costs
|
5,982
|
192
|
—
|
6,174
|
Depreciation and
amortization
|
657
|
1,590
|
—
|
2,247
|
Income tax
recovery
|
—
|
(230)
|
—
|
(230)
|
Change in fair value
of biological assets
|
(6,415)
|
(668)
|
—
|
(7,083)
|
Change in fair value
realized through inventory
|
9,692
|
—
|
—
|
9,692
|
Unrealized foreign
exchange (gain) loss
|
(1,769)
|
1,724
|
—
|
(45)
|
Share-based
compensation
|
681
|
—
|
555
|
1,236
|
Asset
impairment
|
5,659
|
—
|
—
|
5,659
|
Loss on disposition of
PP&E
|
(610)
|
—
|
—
|
(610)
|
Cost of sales non-cash
component (1)
|
780
|
—
|
—
|
780
|
Loss on contingent
consideration
|
—
|
761
|
—
|
761
|
Inventory and
obsolescence provision
|
7,715
|
—
|
—
|
7,715
|
Restructuring
costs
|
2,719
|
—
|
—
|
2,719
|
Transaction costs
(2)
|
—
|
—
|
1,101
|
1,101
|
Adjusted
EBITDA
|
(11,271)
|
(2,224)
|
(372)
|
(13,867)
|
(1)
|
Cost of sales
non-cash component is comprised of depreciation expense.
|
|
(2)
|
Transaction costs are
non-recurring costs related to the IPO and the acquisition of
Bridge Farm.
|
|
|
Three months ended
March 31, 2019
|
($000s)
|
Cannabis
|
Ornamental
Flowers
|
Corporate
|
Consolidated
|
Net loss
|
(16,702)
|
—
|
—
|
(16,702)
|
Adjustments
|
|
|
|
|
Finance
costs
|
2,785
|
—
|
—
|
2,785
|
Depreciation and
amortization
|
120
|
—
|
—
|
120
|
Income tax
recovery
|
(3,609)
|
—
|
—
|
(3,609)
|
Change in fair value
of biological assets
|
(692)
|
—
|
—
|
(692)
|
Change in fair value
realized through inventory
|
(80)
|
—
|
—
|
(80)
|
Unrealized foreign
exchange (gain) loss
|
(133)
|
—
|
—
|
(133)
|
Share-based
compensation
|
12,625
|
—
|
—
|
12,625
|
Asset
impairment
|
162
|
—
|
—
|
162
|
Adjusted
EBITDA
|
(5,524)
|
—
|
—
|
(5,524)
|
CONFERENCE CALL
Sundial will host a conference call and webcast at 10:30 a.m.
EDT (8:30 a.m. MDT) on
Friday, May 15, 2020.  
CONFERENCE CALL ACCESS 
Callers may access the conference call via the following phone
numbers: 
Canada/USA Toll Free: 1-800-319-4610 
International Toll: +1-604-638-5340 
UK Toll Free: 0808-101-2791 
Callers should dial in 5-10 minutes prior to the scheduled start
time. 
WEBCAST 
To access the live conference call webcast, please visit the
following link:  
http://services.choruscall.ca/links/sundialgrowers20200515.html 
A replay will be available for three months following the
conference call.  
CONFERENCE CALL REPLAY
Canada/USA Toll Free: 1-800-319-6413 
International Toll: +1-604-638-9010
Replay Access Code: 4538
About Sundial Growers Inc.
Sundial is a public company with Common Shares traded on Nasdaq
under the symbol "SNDL". Sundial is 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 master growers set us apart.
Our Canadian operations cultivate small-batch cannabis using an
individualized "room" approach, with 470,000 square feet of total
space.
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.
We are proudly Albertan, headquartered in Calgary, AB, with operations in Olds, AB, and Rocky View County, AB.
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,
the Company's ability to obtain new financing and covenant relief,
operational goals, demand for the Company's products, the Company's
ability to achieve profitability, the Company's ability to
consummate the Bridge Farm transaction, the ability to receive
waivers from its lenders with respect to defaults under its credit
facilities, the development of the legal cannabis market, future
financings and the maintenance of production levels. In particular,
any failure or delay in obtaining new financing and covenant relief
would have a material adverse effect on our liquidity and impair
our ability to operate as a going concern. In such a case,
the Company would look to delay investments or capital expenditures
and evaluate potential asset sales, but it could be forced to
curtail operations or seek relief under bankruptcy or insolvency
laws. In addition, depending on the development of the
cannabis market and the Company's ability to capture any growth
opportunities, future liquidity issues may continue to arise, which
could have a material adverse effect on our business, results of
operations and financial condition. 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 on March 30, 2020, 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.