First quarter revenue growth of 20.8%; gross
margin improvement to 21.4%; and Adjusted EBITDA growth of 127% to
$3.2 million
EDMONTON, AB, May 10, 2023
/CNW/ - Nova Cannabis Inc. (the "Company" or
"Nova") (TSX: NOVC) today released unaudited condensed
interim consolidated financial statements (the "interim
financial statements") and management's discussion and analysis
("MD&A") for the three months ended March 31, 2023. 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 2023 marked a strong start to the year as we are
seeing steady progress across all key financial operating metrics –
revenue growth, gross margin improvement and Adjusted EBITDA
growth," said Marcie Kiziak, CEO of
Nova. "With the successful launch and growth of our private
label products, proprietary data licensing program, and the recent
introduction of Firesale Cannabis, we are proud to bring innovative
products and solutions to market that are clearly resonating with
consumers and delivering value to our partners. We've got a proven
model, and with the anticipated completion of the Nova
Reorganization (defined below) we look to further capitalize on the
exciting opportunities ahead by greatly expanding our footprint
across Canada."
The transaction between Nova and SNDL Inc. ("SNDL") to
implement a strategic partnership in the cannabis industry (the
"Nova Reorganization") was approved by Nova's minority
shareholders who are not related parties on May 5, 2023. Completion of the Nova
Reorganization remains subject to certain other customary closing
conditions, including the receipt of certain regulatory approvals
required under applicable provincial cannabis legislation and from
the Toronto Stock Exchange ("TSX"). Subject to the
satisfaction or waiver of all closing conditions, the Nova
Reorganization is expected to be completed prior to June 30, 2023.
FINANCIAL AND OPERATING HIGHLIGHTS
- Revenue of $60.2 million, a 20.8%
increase from the first quarter of 2022.
- $1.5 million of revenue related
to proprietary data licensing arrangements compared to $1.2 million in the first quarter of 2022.
- Gross margin of $12.9 million
(21.4% of revenue), a 37.4% increase from $9.4 million for the first quarter of 2022 (18.8%
of revenue). Gross margin improvement was driven by the execution
of Nova's disciplined pricing strategy, private label initiatives
and growth in proprietary data licensing arrangements.
- Net loss of $0.5 million in the
first quarter of 2023 compared to a net loss of $3.5 million in the first quarter of 2022.
- Adjusted EBITDA for the first quarter of 2023 of $3.2 million compared to $1.4 million for the first quarter of 2022.
- Nova's management estimates that its market share was
approximately 20.7% in Alberta and
3.4% in Ontario for the months of
January and February, 2023, based on available industry
data1.
- 92 stores operating as of May 10,
2023, a net increase of one store since March 31, 2023, and four stores since the
beginning of 2023.
- In April 2023, the Company
launched Firesale Cannabis, a new deep discount retail banner that
combats industry waste and provides a unique experience for
value-conscious shoppers.
- Value Buds private label sales, sourced from SNDL, represented
approximately 8.1% of total 28-gram sales and 36.3% of 14-gram
sales in Alberta Value Buds stores for the period ended
March 31, 2023. Private label margins
are approximately 5% higher than margins on comparable competitor
products.
- Value Buds' 28-gram offerings launched in the Ontario market in late February 2023, and the 14-gram format is expected
to launch later in 2023.
- For the first quarter of 2023, cash used in operating
activities of $1.4 million, a
$4.5 million decrease from the
$5.9 million cash used in operating
activities for the first quarter 2022. The decrease in cash used is
primarily related to increased sales and gross margin for the
period.
- Liquidity, including cash and availability under the Revolving
Credit Facility (defined below), of $8.0
million as at March 31,
2023.
SPECIFIED FINANCIAL MEASURES
Certain specified financial measures in this earnings release,
including Adjusted EBITDA, are non-IFRS measures and may not be
comparable to similar measures reported by other companies. This
non-IFRS financial measure should not be considered in isolation or
as an alternative for measures of performance prepared in
accordance with IFRS.
__________________________
|
1 Source:
Statistics Canada: Retail trade sales by province and
territory
|
Adjusted EBITDA
Adjusted EBITDA is a non-IFRS financial 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 Management. Adjusted EBITDA is defined as loss
and comprehensive loss before finance costs; gains and losses on
fair value adjustments; depreciation; impairments, lease
remeasurements and other costs; and certain one-time transaction
costs and restructuring costs, as determined by Management.
The following table reconciles Adjusted EBITDA to net loss and
comprehensive loss for the periods noted:
|
Three months
ended March
31
|
(expressed in
thousands)
|
2023
|
2022
|
Loss and comprehensive
loss
|
(544)
|
(3,533)
|
Adjustments:
|
|
|
Finance
costs
|
1,096
|
881
|
Net gain on fair value
adjustments
|
(243)
|
(154)
|
Depreciation
|
2,761
|
2,632
|
Impairment, lease
remeasurements, and other costs
|
4
|
-
|
Transaction costs
(1)
|
-
|
1,583
|
Restructuring costs
(2)
|
121
|
-
|
Adjusted
EBITDA
|
3,195
|
1,409
|
|
|
|
|
|
(1)
|
Transaction costs
include expenses incurred as a result of SNDL's acquisition of
Alcanna Inc., Nova's former majority shareholder.
|
(2)
|
Restructuring costs
include expenses incurred as a result of the Nova
Reorganization.
|
LIQUIDITY AND CAPITAL RESOURCES
Summary of Consolidated Cash Flows
|
|
Three months
ended
|
Cash provided by
(used in)
|
|
March
31
|
(expressed in
thousands)
|
|
|
2023
|
2022
|
Operating
activities
|
|
|
(1,370)
|
(5,913)
|
Investing
activities
|
|
|
(498)
|
(2,859)
|
Financing
activities
|
|
|
794
|
3,162
|
Net decrease in
cash
|
|
|
(1,074)
|
(5,610)
|
Revolving Credit Facility
Nova has an uncommitted revolving credit facility with SNDL in
an aggregate principal amount not to exceed $15.0 million (the "Revolving Credit
Facility"). On April 28, 2023,
the term of the Revolving Credit Facility was extended to
June 30, 2023.
As at May 10, 2023, $12.3 million in principal and accrued but unpaid
interest is outstanding on the Revolving Credit Facility.
STRATEGIC OUTLOOK
Nova's objective is to be one of the largest and fastest-growing
cannabis retailers in Canada. Its
goal is to disrupt and solidify the cannabis retail market by
promoting a wide range of cannabis products at everyday best-value
prices, while encouraging greater migration from the illicit
cannabis market. The Company's strategy is rooted in the quality of
its store footprint and locations, the sales efficiency of Nova
stores, and the appeal of the Value Buds brand. Nova remains
disciplined and customer focused by choosing the best real estate
to execute its strategy – whether through acquiring stores or
building its own.
- Through its partnership with SNDL, Value Buds' private label
strategy has been successfully launched in Alberta and Ontario. The private label strategy enables
Nova to develop higher gross margin offerings, build customer
loyalty and create long-term brand awareness. The private label
strategy focuses on keystone segments, specifically large format,
uniquely curated for the Value Buds consumer, and drives meaningful
differentiation through the retail network.
- The Company continues its aggressive pricing strategy to
capture further market share. Nova has begun adjusting pricing
across all categories in Alberta
to test elasticity and understand consumer buying trends. This
contributed to the sequential gross margin improvement from the
first quarter of 2022 to the first quarter of 2023 from 18.8% to
21.4%.
- Nova has opened or acquired four additional stores in 2023, two
in Alberta and two in Ontario. Pending completion of the Nova
Reorganization, announced by the Company on December 20, 2022, and amended on April 3, 2023, the Company will acquire
approximately 32 additional stores located in Alberta, British
Columbia, Saskatchewan,
Manitoba and Ontario from SNDL's retail network, increasing
the Company's store footprint by more than 33%.
- The completion of the Nova Reorganization is expected to create
a well-capitalized cannabis retail platform through a vertical
integration model leveraging SNDL's upstream and midstream
capabilities. The Nova Reorganization will enable Nova to continue
to evolve in a still immature sector by becoming a trusted partner
to the Canadian cannabis ecosystem.
CONFERENCE CALL
Nova will host a conference call and webcast at 10:30 a.m. EDT (8:30 a.m.
MDT) on Wednesday, May 11,
2023.
Call Access
Canada: 1-800-319-4610
International: +1-604-638-5340
Webcast Access
To access the live webcast of the call, please visit the
following link:
https://services.choruscall.ca/links/novacannabis2023q1.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: 0162#
For further information, refer to the Company's interim
financial statements and MD&A for the three months ended
March 31, 2023, which are available
from the Company's profile on SEDAR, at www.sedar.com, or on the
Company's website at www.novacannabis.ca.
FORWARD-LOOKING STATEMENTS
This news release contains forward-looking statements or
information (collectively "forward-looking statements")
within the meaning of applicable securities legislation.
Forward-looking statements are typically identified by words such
as "continue", "anticipate", "will", "believes", "should", "plan",
"intention", and similar words suggesting future events or future
performance. All statements and information other than statements
of historical fact contained in this news release are
forward-looking statements. In particular, this news release
contains forward-looking statements pertaining to: the Company's
expectations regarding its growth and business strategies; Nova's
private label strategy; and the Company's ability to successfully
launch additional private label offerings; Nova's ability to become
one of the largest cannabis retailers in Canada; the Company's ability to increase its
market share; the Company's expansion in Alberta, Ontario, Saskatchewan, Manitoba, and other jurisdictions in
Canada where it believes there is
business efficacy to operate; the satisfaction or waiver of
conditions precedent, including key regulatory approvals from
applicable provincial regulators and the TSX, required in
connection with the Nova Reorganization; the anticipated timing and
completion of the Nova Reorganization, including the Company's
acquisition of additional cannabis retail stores; and the expected
benefits resulting from the Nova Reorganization.
With respect to forward-looking statements contained in this
news release, the Company has made assumptions regarding, among
other things: the Company's ability to identify locations for,
construct and open new stores and the costs related thereto; the
availability of hardware and equipment for those stores; government
regulation and applicable laws will not change in a manner adverse
to the Company; receipt of necessary regulatory approvals to open
new stores; the Company's ability to obtain leases for new sites
and attract the necessary personnel to operate new stores; demand
for the products the Company sells; other factors that will drive
sales growth in the Value Buds banner, including Nova's private
label strategy; availability of acquisition opportunities;
sustainability of competitors' businesses and competition in the
retail cannabis industry, including from the illicit cannabis
market; consumer demands; and factors that influence consumer
behavior.
Although the Company believes that the expectations reflected in
the forward-looking statements, and the assumptions on which such
forward-looking statements are made, are reasonable, there can be
no assurance that such expectations and assumptions will prove to
be correct. Readers should not place undue reliance on
forward-looking statements included in this news release.
Forward-looking statements are not guarantees of future performance
and involve a number of risks and uncertainties that may cause
actual performance and financial results to differ materially from
any estimates, forecasts or projections. These risks and
uncertainties include, among other things, the risk that Nova will
be unable to execute its strategic plan and growth strategy, as
planned without significant adverse impacts from various factors
beyond its control; business decisions and strategies of SNDL,
Nova's direct majority shareholder; dependence on suppliers;
potential delays or changes in plans with respect to capital
expenditures and the availability of capital on acceptable terms;
risks inherent in the retail cannabis industry; competition for,
among other things, customers, supply, capital and skilled
personnel; changes in labour costs and markets; incorrect
assessments of the value of acquisitions; general economic and
political conditions in Canada
(including Alberta, Ontario and Saskatchewan), and globally; industry
conditions, including changes in government regulations;
fluctuations in foreign exchange or interest rates; unanticipated
operating events; failure to obtain regulatory and third–party
consents and approvals when required; changes in tax and other laws
that affect Nova and its shareholders; the Company's ability to
complete the Nova Reorganization and to realize the projected
benefits; the potential failure of counterparties to honour their
contractual obligations; stock market volatility; and the other
factors described in the Company's public filings available at
www.sedar.com. Readers are cautioned that this list of risk factors
should not be construed as exhaustive.
The forward-looking statements contained in this news release
are made as of the date hereof. Except as expressly required by
applicable securities legislation, Nova does not undertake any
obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise. The forward-looking statements contained in this news
release are expressly qualified by this cautionary statement.
SOURCE Nova Cannabis Inc.