Sundial Reports Third Quarter 2021 Financial and Operational Results

Canada NewsWire

CALGARY, AB, Nov. 11, 2021

CALGARY, AB, Nov. 11, 2021 /CNW/ - Sundial Growers Inc. (NASDAQ: SNDL) ("Sundial" or the "Company") reported its financial and operational results for the third quarter ended September 30, 2021. All financial information in this press release is reported in millions of Canadian dollars and represents results from continuing operations, unless otherwise indicated.

The Company will hold a conference call and webcast at 10:30 a.m. EST (8:30 a.m. MST) on Friday, November 12, 2021. Please see the dial-in details within the release, as well as additional details on Sundial's website at www.sndlgroup.com.

THIRD QUARTER 2021 OPERATIONAL AND INVESTMENT HIGHLIGHTS

   -- Net earnings of $11.3 million for the third quarter of 2021 compared to 
      $71.4 million loss in the third quarter of the prior year. 
   -- Adjusted EBITDA of $10.5 million for the third quarter of 2021, compared 
      to an adjusted EBITDA loss of $4.4 million in the third quarter of 2020. 
   -- Net revenue from Cannabis segments of $14.4 million for the third quarter 
      of 2021, an increase of 57% over the second quarter of 2021 and an 
      increase of 12% over the third quarter of 2020. 
   -- Cannabis Cultivation and Production: Net revenue for the cultivation and 
      production of cannabis was $8.2 million compared to $9.2 million in the 
      previous quarter, a decline of 11%. 
   -- Cannabis Retail: Net revenue for cannabis retail was $6.1 million 
      following the acquisition of Inner Spirit Holdings Inc. ("Inner Spirit") 
      and the Spiritleaf retail network ("Spiritleaf") during the third 
      quarter. 
   -- Gross margin from Cannabis segments was $1.8 million, including a loss of 
      $1.9 million from cannabis cultivation and production compared to a loss 
      of $19.5 million from that segment in the third quarter of 2020. 
   -- Investment and fee revenue of $3.3 million, realized gains on marketable 
      securities of $6.0 million and Sundial's share of profit from equity 
      accounted investees of $9.9 million for the third quarter of 2021 
      compared to Nil in the third quarter of the prior year, which preceded 
      the start of these activities. 
   -- $1.1 billion of cash, marketable securities and long-term investments at 
      September 30, 2021, and $1.2 billion at November 9, 2021, with $571 
      million of unrestricted cash and no outstanding debt. 
   -- Acquired Inner Spirit on July 20, 2021 and entered into an agreement to 
      acquire Alcanna Inc. ("Alcanna'), Canada's largest private liquor 
      retailer, operating 171 locations, on October 7, 2021, subsequent to the 
      end of the third quarter. 

"Our third quarter results reflect the initial impact of the business transformation led by Sundial's team over the last 10 months," said Zach George, Chief Executive Officer of Sundial. "We remain focused on sustainable profitability and continued improvement in all aspects of our operations. Despite the ongoing challenges facing industry participants, our financial condition has never been stronger. Sundial is uniquely positioned relative to its peers as we seek to delight consumers and become a trusted industry partner. Our balance sheet strength enables our team to avoid short term pressures while working to improve the quality of our decision making. We expect that the achievement of our objectives will result in an aggregate base business that generates free cash flow in 2022."

THIRD QUARTER 2021 KEY FINANCIAL METRICS

OPERATING           ---------Cannabis--------- 
SEGMENTS 
($000s)             Cultivation    Retail         Investment  Corporate  Total 
                     and 
                     Production 
As at September 
30, 2021 
Total assets              174,578        166,955   1,109,840      2,998  1,454,371 
Nine months ended 
September 30, 
2021 
Net revenue                27,269          6,140       6,756         --     40,165 
Gross margin              (8,149)          3,658       6,756         --      2,265 
Share of profit of 
 equity-accounted 
 investees                     --             --      13,642         --     13,642 
Depreciation and 
 amortization               2,442          1,463          --        469      4,374 
Earnings (loss) 
 before tax              (94,800)          (476)      17,339  (107,542)  (185,479) 
Three months 
ended September 
30, 2021 
Net revenue                 8,227          6,140    (14,699)         --      (332) 
Gross margin              (1,876)          3,658    (14,699)         --   (12,917) 
Share of profit of 
 equity-accounted 
 investees                     --             --       9,918         --      9,918 
Depreciation and 
 amortization                 660          1,463          --        262      2,385 
Earnings (loss) 
 before tax              (10,177)          (476)     (6,012)     17,918      1,253 

Sundial reports three operating segments including two Cannabis segments: Cultivation and production, and retail, which was added with the acquisition of Inner Spirit. The third segment is Investments. For the three and nine months ended September 30, 2020, Cannabis was the only reportable segment, and therefore no comparative segment information is available for the Investment or retail segments.

   -- Asset value per share at September 30, 2021, including cash, loans, 
      marketable securities and the Olds facility at net book value was 
      approximately $1.4 billion or $0.70 per share (US$1.1 billion or US$0.55 
      per share). 
   -- As of September 30, 2021 and November 9, 2021, the Company had an 
      unrestricted cash balance of approximately $629 million and $571 million, 
      respectively, and total common shares outstanding of 2.1 billion and 2.1 
      billion, respectively. 

ALCANNA ACQUISITION

On October 7, 2021, the Company announced that it had entered into an arrangement agreement with Alcanna pursuant to which the Company will acquire all of the issued and outstanding common shares of Alcanna by way of a statutory plan of arrangement for total consideration of 387.3 million common shares of Sundial, with a value of approximately $346 million (the "Alcanna Acquisition"). The Alcanna Acquisition is expected to close in the fourth quarter of 2021, subject to customary closing conditions. Alcanna's longstanding liquor business provides Sundial with stable cash generation through a mature and proven business model with trailing twelve months free cash flow of $16.4 million on a built-out retail platform.

Alcanna is a Canadian liquor retailer, operating predominantly in Alberta under its three retail brands, "Wine and Beyond", "Liquor Depot" and "Ace Liquor". Alcanna also holds an approximate 63% equity interest in Nova Cannabis Inc., a Canadian cannabis retailer operating stores across Alberta, Saskatchewan, and Ontario.

THIRD QUARTER 2021 RESULTS

CANNABIS RESULTS

The Company's Cannabis operations are comprised of two segments: cannabis cultivation and production and, with the acquisition of Inner Spirit, cannabis retail.

CANNABIS CULTIVATION AND PRODUCTION

Sundial remains focused and committed to optimization of its cultivation and processing activities.

   -- Sundial's ongoing investments in innovation and cultivation practices 
      generated continued crop yield stability in the third quarter of 2021 
      with results at 51 grams per square foot versus 49 grams per square foot 
      in third quarter of 2020. 
   -- Sundial continues to achieve higher weighted average THC potency reaching 
      its highest percentage results in the third quarter of 2021, validating 
      the Company's efforts and improvements in cultivation. 
   -- Sundial launched its newest product innovation, Caviar Cones, in the 
      third quarter of 2021 under the award-winning Top Leaf brand. This launch, 
      the first of its kind in Canada, reinforces Sundial's focused innovation 
      pipeline of premium inhalables in the Canadian cannabis market. In the 
      first four weeks after launch, the Top Leaf Forbidden Lemon Caviar Cone 
      was the top-selling Pre-Roll SKU in all Spiritleaf stores in Alberta, 
       Saskatchewan, and Manitoba (initial launch provinces). 
   -- Sundial's premium portfolio remains well positioned to focus on the 
      higher margin inhalables segment.  The Company grew share of premium 
      flower despite a purposeful portfolio rationalization reducing its 
      assortment by almost 80% and focusing on higher potency and quality 
      flower in the third quarter of 2021 under Top Leaf. 

GROSS MARGIN BEFORE FAIR VALUE ADJUSTMENTS

Gross margin before fair value adjustments from cannabis cultivation and production for the three months ended September 30, 2021 was negative $4.9 million compared to negative $17.3 million for the three months ended September 30, 2020. The increase of $12.4 million was due to a lower inventory obsolescence provision compared to the prior period as well as Sundial's ongoing focus on cost optimization, reduction of harvest inventory subject to impairment and offering the most competitive and profitable strains and brands to its customers against the backdrop of industry-wide price compression and high relative operating costs at our premium facility.

NET REVENUE FROM CULTIVATION AND PRODUCTION

Net revenue from cultivation and production operations in the third quarter of 2021 was $8.2 million compared to $12.9 million in the third quarter of 2020, reflecting the Company's continuing shift to branded sales from wholesales.

GROSS SELLING PRICE