Indiva Limited (NDVAF)

[FUNMAN]

INDIVA REPORTS SECOND QUARTER 2022 RESULTS
INDIVA LAUNCHES PEARLS BY GRÖN GUMMIES AND REMAINS THE NATIONAL MARKET SHARE LEADER IN THE EDIBLES CATEGORY

LONDON, Ontario – August 16, 2022: Indiva Limited (the “Company” or “Indiva”) (TSXV:NDVA) (OTCQX:NDVAF), the leading Canadian producer of cannabis edibles and other cannabis products, is pleased to announce its financial and operating results for the second fiscal quarter ended June 30, 2022. All figures are reported in Canadian dollars ($), unless otherwise indicated. Indiva’s financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”). For a more comprehensive overview of the corporate and financial highlights presented in this news release, please refer to Indiva’s Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Three and Six Months Ended June 30, 2022, and the Company’s Condensed Consolidated Interim Financial Statements for the Three and Six Months Ended June 30, 2022 and 2021, to be filed on SEDAR and made available on the Company’s website, www.indiva.com.
“We are very pleased to report record net revenue and gross profit on a year-to-date basis, and expect to see further revenue growth in the second half of 2022, driven by the introduction of more than 25 new SKUs across Canada,” said Niel Marotta, President and Chief Executive Officer of Indiva. “The second quarter was extremely busy operationally, as we began manufacturing new products, including our first commercial batches of Pearls gummies, which were delivered to the OCS subsequent to quarter end. We expect to ship Pearls, and many other new products, to additional provinces in the coming weeks. We are pleased to see improvement in gross margins in the quarter, however as per our June 27, 2022, press release, delays in new product deliveries and lack of provincial delivery appointments in certain provinces in late June caused approximately $1 million of sales to slip into Q3 2022, resulting in declining net revenue on a year-over-year basis. We are very excited for the launch of Pearls by Grön, Indiva Life cookies, lozenges and chocolates, and Dime Vapes. The feedback from key accounts, provincial wholesalers and budtenders across the country has been very positive, and we look forward to continuing to delight of-age Canadian cannabis enthusiasts with the quality and innovation that Indiva products are known for.”

HIGHLIGHTS
Quarterly Performance
• Gross revenue in Q2 2022 was $8.9 million, representing an 8.3% sequential decrease from Q1 2022, and a 9.9% decrease year-over-year from Q2 2021. Year-to-date, gross revenue increased 11.0% year over year to a record $18.6 million.
• Net revenue in Q2 2022 was $8.1 million, representing an 8.5% sequential decrease from Q1 2022, and a 9.7% decrease year-over-year from Q2 2021, due to difficult comparisons versus the introduction of Wana Quick in Q2 2021, and delays in provincial deliveries of new and existing products, causing revenue to slip into the third quarter. Revenue continues to be driven primarily by higher sales of category leading edibles including Wana Sour Gummies and Bhang Chocolate. Year-to-date, net revenue increased 12.1% year over year to a record $17.0 million.
• Net revenue from edible products in the quarter was $7.2 million, down 14.8% from $8.5 million in Q1 2022 and down 13.9% from $8.4 million in the prior year period. Edible product sales represent 89.1% of net revenue in Q2 2022. Year-to-date net revenue from edible products increased 13.0% year-over-year to a record $15.7 million or 92.6% of net revenue.
• Gross profit before fair value adjustments, impairments and one-time items declined year-over-year, but increased sequentially, to $2.7 million, or 33.1% of net revenue, versus 29.6% in Q1 2022 and 30.1% in Q2 2021. The improvement in gross margin was due to lower material costs on certain inputs, improved production efficiencies and lower returns and impairments to inventory, offset by lower revenues and lower overhead absorption on goods sold in the quarter. Year-to-date, gross profit before fair value adjustments, impairments and one-time items increased to a record $5.3 million, or 31.3% of net revenue, versus $4.2 million or 27.6% of net revenue in the corresponding period last year.
• In Q2 2022, Indiva sold products containing 44.2 million milligrams of distillate, the active ingredient in edible products, which represents a 19% decrease when compared to the 54.5 million milligrams in products sold in Q1 2022, and a 16% decrease compared to 52.5 million milligrams sold in Q2 2021.
• Impairment charges in the quarter totaled $0.52 million. This impairment includes a write off of aged finished goods and bulk cannabis flower, and to a lesser extent, certain packaging for obsolete products, offset by a recovery on oil-based products. The Company will continue to work to monetize any impaired inventory which remains saleable. The Company expects lower inventory impairments going forward as most of the bulk flower inventory originating from terminated contract manufacturing has either been sold or written down.
• Operating expenses in the quarter decreased 0.4% sequentially, representing 42.9% of net revenue, versus 39.4% in Q1 2022 and 34.4% in Q2 2021. Operating expenses declined due to lower general and administrative costs, which were down 18.8% year-over-year and down 6.1% sequentially, offset by higher marketing costs and sales commissions. Year-to-date, operating expenses increased by 31.2% to $7.0 million due entirely to higher marketing costs and sales commissions.
• Adjusted EBITDA improved sequentially in Q2 2022 to a loss of $0.15 million, versus a loss of $0.38 million in Q1 2022, and declined versus a profit of $0.49 million in Q2 2021, due to lower revenue and higher marketing expenses, offset by lower cost of goods. Year-to-date, adjusted EBITDA was a loss of $0.53 million versus a loss of $0.01 million in the corresponding period last year. See “Non-IFRS Measures” below.
• Comprehensive net loss of $2.5 million included one-time expenses and non-cash charges for impairment of inventory and property, plant and equipment totaling $0.5 million. Excluding these charges, comprehensive loss declined to $2.0 million versus an adjusted loss of $2.02 million in Q1 2022 and $0.72 million in Q2 2021.

Operational Highlights for the Second Quarter 2022
• Dime Industries (“Dime”): Indiva signed an exclusive licensing and manufacturing agreement with Dime. The agreement has a five year term which automatically renews for three additional five year terms. Indiva intends to launch Dime’s proprietary and innovative vape products, including disposable vapes, 510-thread carts and custom batteries beginning in Q3 2022, marking Indiva’s first entrance into the vape category.
• Awards: Artisan Batch was awarded Best in Grow from Cannabis NB for best Indica flower, namely Sour Glue, produced by Purplefarm Genetics.
• Indiva launched additional SKUs including Artisan Batch Mimosa Live Rosin. Wana Passion Fruit, Wana Lemon Iced Tea, and Wana Quick Rise and Shine Clementine, with CBG.
• Indiva introduced its new consumer brand Indiva Life at the 2022 Lift&Co conference. The initial cannabis products to be launched under the Indiva Life brand will include edibles and extracts. All of the Indiva Life SKUs are now actively being ordered by provincial wholesalers.

Events Subsequent to Quarter End
• Indiva was awarded 25 additional SKU listings by the Ontario Cannabis Store (OCS), including five SKUs which will participate in the “Flow-Through” program. These additional listings bring Indiva’s OCS listings to a total of 60 SKUs, up from the current level of 35 SKUs. The newly accepted SKUs are across six brands: Indiva Life (including lozenges, cookies and chocolates), Artisan Batch, Pearls by Grön, including three SKUs in addition to the initial four Pearls SKUs delivered in July, Pips by Grön, Dime Vapes and Bhang Chocolate. All SKUs are expected to launch in Ontario in October 2022, with deliveries to additional provinces beginning in September 2022.
• Indiva completed an agreement with Kronic Relief, of Toronto, Ontario, to bring its premium craft flower to market under the Artisan Batch brand. The OCS has accepted this cultivar, and 3.5 gram jars of Kronic Relief flower are expected to hit shelves in Ontario in Q4 2022.
• Indiva shipped its initial deliveries of Pearls by Grön to the OCS. The company expects the product to be available for sell-in to Ontario licensed retailers as of August 23rd.

Market Share
• Data from Hifyre Inc. for the second quarter of 2022 shows strong sell-through of Indiva edible products. With 31.6% share of sales, Indiva continues to lead in the #1 market share position in the edibles category:
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o Ontario: #1 with 30.2% market share.
o Alberta: #1 with 30.0% market share.
o British Columbia: #1 with 38.1% market share.
o Saskatchewan: #1 with 21.5% market share.
o Manitoba: #1 with 34.6% market share.
o Wana™ Sour Gummies led the edibles category, with 26.0% category share, and 34.1% sub-category share, and Bhang® continued to lead the chocolate category with 37.6% sub-category share.
o Product ranking in Q2 2022 showed 6 of the top 10 edible SKUs are from Indiva.
o Based on data from British Columbia, Alberta, Ontario, Manitoba and Saskatchewan, the edibles category increased by 9% in Q2 2022 to $56.3 million in retail sales from $51.8 million in Q1 2022.

Correction of Prior Period Financial Statements
The Company identified an error in the calculation of excise taxes related to additional duty charged by certain provinces and determined an adjustment is required to excise taxes payable on sales for the period of January 1, 2020 to March 31, 2022. As a result, prior years amounts on the consolidated statements of loss and comprehensive loss with respect to excise taxes, cost of sales, and marketing and sales were corrected to reflect the corrected excise tax payable on sales in those periods, as well as royalty and sales commissions which are recoverable as a result of decreased net revenues for those prior period sales. Management assessed the materiality of the correction described above on prior period financial statements and concluded that these corrections were not material to any prior annual or interim periods. Accordingly, amounts related to the three and six ended June 30, 2021, and as at June 30, 2021, and December 31, 2021, have been re-presented after correction of such immaterial adjustments solely for comparability purposes.

Outlook
• The Company expects Q3 2022 and 2H 2022 net revenue to be higher sequentially and year-over-year driven primarily by new product introduction including Pearls gummies, Dime Industries vape products, as well as new Indiva Life branded products, resulting from in-house innovation, namely Double-Stuffed Vanilla Cookies and Double Stuffed Fudge Cookies, as well as Wild Cherry THC Lozenges and Lemon THC Lozenges.
• Margins are expected to benefit in the second half of 2022 due to the implementation of automation in the production and packaging of edible products. The Company expects to deliver on its commitments for existing or new listings of products, despite some delays in receiving equipment due to global COVID-19-related lockdowns.

Operating and Financial Results for the Three and Six Months ended June 30, 2022 and 2021

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https://www.indiva.com/press-releases/releases-2022/indiva-reports-second-quarter-2022-results/