Good morning. My name is Morgan, and I will be your conference operator today. At this time, I would like to welcome everyone to the Decibel Cannabis fourth quarter investor conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. I would now like to introduce Stuart Boucher, CFO. Sir, the floor is yours.
Good morning, and thanks all for joining Decibel's fourth quarter 2025 financial results conference call. With me today is Ben Sze, our Chief Executive Officer, who will take questions following the prepared remarks. Our fourth quarter earnings press release was issued this morning with all materials available on our website and on SEDAR+ under the company profile. Today's discussion includes forward-looking statements and financial outlook information within the meaning of Canadian securities legislation. Such statements are based on our current expectations and information. These statements involve risks and uncertainties, many of which are beyond the company's control. Decibel disclaims any duty to update forward-looking statements except as required by law. Please review our disclaimers and risk factors in today's press release and in our MD&A for the period ending December 31st, 2025.
That contains additional information and a description of risks that may result in actual results differing materially from those contemplated by our forward-looking statements. We will present results on both a GAAP and non-GAAP basis. Non-GAAP measures like adjusted EBITDA and free cash flow and their GAAP reconciliations are detailed in our Q4 earnings release, and non-GAAP financial measures should not be used as a substitute for our results reported in accordance with GAAP. Attendees are similarly advised to review the disclaimers in our Q4 earnings release and Q4 MD&A relating to non-GAAP measures. Today's discussion will also include market data derived from third-party sources, which management believes to be accurate but has not independently verified. Attendees are cautioned not to place undue reliance on such information. With that, I'll turn it over to Ben.
Thanks, Stu. Good morning, everyone, and thank you for joining us today. 2025 was a banner year for Decibel, one that demonstrated the strength and resilience of the culture of this company. Revenue grew by 22% to CAD 113 million. International sales grew by nearly 5 x, and we generated meaningfully more cash flow than any prior year. As a result, we enter 2026 in a much-improved financial position with our refinanced balance sheet, a growing backlog of international business, and a meaningful product momentum across our domestic portfolio. Before going into the highlights, I'd like to thank our employees, retail and distribution partners, and our loyal customers both in Canada and internationally for their support, commitment, and belief in what we're building. Our results are a direct reflection of their efforts.
Here back home in Canada, we saw meaningful momentum in our domestic portfolio, accelerating into early 2026, where we are seeing market share growth offsetting some of the headwinds faced by the BC LDB strike in Q4. In the infused pre-roll category, we remain the top LP with over 20% market share, a position we've worked hard to earn, maintain, and one we will continue to defend. In Q4, we also saw strong traction in the ultra-high potency infused pre-rolls with market share gains that we expect to continue throughout 2026. Looking into vapes, there continues the strong consumer demand for our liquid diamond formulations, specifically our all-in-one disposable vapes. We expect this strong demand to also continue through 2026. Our new brand Standard Issue, launched in January, was to address a gap in our portfolio at the value end of the market.
Early sell-through data exceeded our initial forecast by 30% and has already grown to be a top 10 vape brand here in Canada. We refreshed our flower offering with four new strains released in Q4, all of which are available both here in Canada and internationally. We see Qwest as a key platform for growth in this area, with clear white space opportunities, such as standard pre-rolls here in Canada and abroad. Covering off the international, which was the defining story of 2025, this was anchored by our acquisition of AgMedica. In Q4 alone, we delivered CAD 7.6 million of revenue, over double that of the same period the year prior. Full-year growth was almost five times that of the previous year. This exceeded even our own optimistic expectations when we acquired AgMedica and provides us with essentially a one-year payback on that acquisition.
We now have executed supply agreements with 14 international customers and over 40 GACP cultivators onboarded onto a network that we continue to build upon every day. This is a value add that we bring as a platform for exporting Canadian cannabis and derivative products. AgMedica's EU GMP certification continues to be a critical competitive differentiator given we also have our extract certification, which as we've seen here in Canada, is a natural evolution of the industry.
Vapes and oil-based products are already being shipped to multiple countries out of AgMedica, and we continue to expect sales to grow. Current flower processing capacity at AgMedica is 60 tons per annum, and we ended Q4 at roughly 30% utilization. This ensures we have ample room to grow without significant CapEx requirements. Equally, our in-house microbial remediation capacity is being doubled, and this allows us to more efficiently process and ensures product makes its way to destination countries in a more reliable and consistent manner. As you can see, we've been really busy this year, and we look forward to keeping that momentum and energy throughout all of 2026. With that, I'll turn it over to Stu to cover off the quarter in more detail.
Turning to the financials, we reported our first full year of AgMedica contributions, in which the business generated CAD 7 million of EBITDA, well ahead of our original target of CAD 4 million, which implies one of the most attractive transaction multiples in the cannabis space to date. This year was marked by strong growth, driven by a surge in international demand, which was supported by the AgMedica acquisition, as well as stabilization in our Canadian recreational sales. For the full year, our consolidated net revenue was CAD 113 million, up 22% from the prior year. That was comprised of international sales of CAD 24 million, which grew nearly 500%. Canadian recreational sales of CAD 89 million, which were relatively flat with slight growth. These combined for adjusted EBITDA of CAD 23 million, which grew 29% year-over-year, and free cash flow of CAD 5.5 million, which grew by approximately 300%.
With that, we're excited to issue our new 2026 guidance with a net revenue range of CAD 130 million-CAD 135 million, which implied 18% growth to the midpoint of the range, and adjusted EBITDA of CAD 27 million-CAD 31 million, implying 26% growth to the midpoint. As Ben noted, we've made meaningful progress on our international business, and we believe that we're well-positioned for significantly high double-digit growth through 2026, which will support this outlook. That is, in turn, supported by an extremely deep list of customers and suppliers that are now fully onboarded, sufficient capacity with 60 tons per annum with low utilization, which can be further expanded as we see further opportunity and growth. We see EU GMP extract demand significantly outpacing flower growth, and certainly something that we'll look to scale this year.
We continue to bolster value-add services such that we're the preferred partner to reach international markets or as a supplier. On the domestic market, we've improved our competitive positioning with new offerings and believe that we'll drive high single-digit year-over-year growth in 2026. This is supported by a late Q4 launch of Standard Issue, our new brand, which was extremely well-received and has gotten very good quality feedback. Additionally, we've refreshed our vape portfolio, both with General Admission, filling gaps like disposable vapes, and diamonds, and then equally the launch of Standard Issue, in which it's now a top 10 brand. Furthermore, we've reinvested in flower and standard pre-roll options, increased our supply to the domestic market, and expect to see those investments pay off this year.
Overall, our fourth quarter is showing meaningful progress as we grow our international network and backlog while investing in our brands here in Canada. While the quarter was negatively impacted by two transitory events, the BC strike and the German import permit cap, the fact that we continue to grow by double digits is a testament to the unconstrained demand that we see internationally and the predictability and certainty that we have in our domestic market. For the fourth quarter highlights, we had consolidated net revenues of CAD 29 million, which were up 13% from the prior year. This included international sales of roughly CAD 7.5 million, up 116%, and domestic sales of CAD 21 million, which were down 3%, again from the BC strike. Adjusted EBITDA was CAD 6.2 million, up 19%, with free cash flow of CAD 3 million, which grew approximately 34%.
Getting into the highlights of each business, internationally, we continue to see immense demand for cannabis exports, particularly from German and U.K. markets. We see further early signs of markets coming online that may replicate the growth that we see in these two markets in future years, and we expect to enter an additional three markets this year. Turning to Germany, which is our largest market, the import permit cap was certainly disappointing as a headwind to the business. However, again, we highlight it's a testament to demand. This would imply that 2025 consumption was understated by nearly 50% for total imports required.
We expect that in future periods, the German government should likely accommodate this higher limit given learnings from 2025, and we patiently await to see an outcome. Given the demand that we continue to see, we remain highly focused on scaling our capacity, which has now reached 60 tons per annum. We note that we could, from here, further double our capacity as we see further demand. We are starting to see demand for extracts and equally will remain focused on scaling this side of the business in a thoughtful manner as we see markets open up for new extract products. We believe that with both of these segments, there's significant runway for growth beyond 2026. Domestically, our Canadian recreational sales were again impacted by the B.C. strike.
Ignoring for this transitory item, we believe our domestic business grew by single -digits and will continue to grow by single -digits. Our domestic business remains core to our ability to support broader organizational growth and strong cash flow generation with margin stability. It's far more predictable and stable relative to prior years, and we believe much of the volatility and irrational decisions by competition are behind this business. We have seen strong traction with new products, including increasing our supply of flower, launching new vapes, infused pre-rolls, and seeing renewed success with our disposable vape line, which has resulted in market share gains in Q1 of 2026. Turning to our gross margin, our fourth quarter was 49%, consistent with the prior year. This reflects stability within our domestic gross margins and the continued view that near-term international will have lower gross margins.
However, we believe long-term international markets will present an opportunity for higher margin as we see legalization continue to occur, supply chains normalize, and extracts become a more dominant consumption method, similar to what we see here in Canada. Turning to our SG&A, it grew by 2% year-over-year, much slower than our net revenue growth. We continue to invest in sales and marketing, with Q4 noting promotional and brand-building activities, which resulted in sales and marketing growing at a far faster pace. We expect moving into Q1 a more normalized level in this expenditure, and these are primarily related to the Canadian recreational market. However, it remains a strategic objective of ours to invest in our brands and grow our distribution, and in doing so, we focus on other savings opportunities that we've identified elsewhere and continue to remain cost-disciplined such that we grow faster than our overhead.
Turning to our balance sheet, we ended the quarter with a much-improved financial and cash position, affording us the optionality to invest in future growth and optimization initiatives. We de-leveraged our balance sheet with good-standing accounts receivable up nearly CAD 7 million from growth, cash increasing from the prior year, and payables down CAD 4 million from the prior year. Our near-term funding outlook remains unchanged. We generated over CAD 3 million of free cash flow in the quarter, have minimal capital expenditures to deliver further growth, and as such, we believe we're fully funded to execute our strategic plan.
Subsequent to the quarter, we further improved our financial position with two key announcements. The first, the closing of a new CAD 61 million credit facility that extends Decibel's debt maturities out to 2030, reduces 2026 payment obligations by CAD 5 million, and provides additional capital in the form of a revolver and term debt.
With the introduction of this new credit facility, we continue to target below 2.5 x debt to adjusted EBITDA and remain comfortable with the company's leverage position. We expect the CAD 12 million term debt to assist with working capital, and we plan for the CAD 10 million revolver to remain undrawn until we identify highly attractive investment opportunities that can't immediately be acted upon with standalone cash flow. The second announcement was a conditional agreement for the sale of our Creston facility for CAD 2.5 million, of which the proceeds will go to immediately repaying debt. This decision is a reflection of the company's long-term view that we require economies of scale to effectively compete in the cannabis space, both domestically and internationally, and this facility was subscale to that long-term view.
This move will further optimize our asset profile, and we expect to save roughly CAD 4 million annually from this sale. Overall, we continue to believe that strengthening our balance sheet is critical to navigate very quickly and volatile moving international markets such that we can capitalize on opportunities as they come up. With these decisions and the progress that we've made in the quarter, we believe that the company is positioned far better today than it ever has been. With that, I'll turn the call over to Ben for closing remarks.
Thanks, Stu. As we enter spring, I am very excited by where Decibel is positioned. Our Canadian business historically has been the strongest in the upcoming quarters, and this year we continue to grow with new brands, reinvigorated product lines, and a proven ability to defend our leadership position. You add on that an international platform that is scaling rapidly, growing backlog, and an expanding diverse customer base. With excess infrastructure that gives us meaningful capacity to grow, we're in a very good spot. We believe Decibel is one of the best-positioned companies to satisfy the growing international demand for Canadian cannabis. We're going to continue to stay focused, disciplined in operating our business while actively facilitating that demand and looking for more opportunities like AgMedica to grow our business. With that, I'll turn the call back over to the operator for Q&A.
Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star then the number one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. Your first question comes from Neal Gilmer with Haywood. Your line is open.
Yeah, thanks very much. Good morning, guys. I'm wondering what you might be comfortable sharing with respect to Q1, given where we are. Historically, I know on the Canadian side, we always see a seasonal dip down, because demand sort of trails off a little bit. Wondering your view on that, given the fact that you had an impact in Q4 from BC. On the international side, you don't have too much of a track record there. Do you still sort of see a little bit of a seasonal dip down in demand in Q1? I'm just trying to think of that relative to your guidance for the full year.
Thanks for the question, Neal. Yeah, what we can say is that given the dip in Q4 related to the German import ceiling being hit, we would expect a resumption in sequential growth that we were showing in the prior quarters. We're quite confident in that. With respect to the domestic business, certainly there is going to be a seasonal dip as we usually see in Q1. That being said, given we're guiding towards kind of single-digit growth year-over-year, I think you can expect that within our Q1 results. At the same time, we've seen a good uptick in market share, which leads us to believe that it's sustainable throughout the rest of the year.
Thanks. Appreciate that. What are you seeing in Germany with respect to the pricing? Are you seeing any sort of changes there? I was just at the ICBC conference earlier this week, and there was a little bit of conversation with that in some of the panel sessions, but just curious to sort of see what you guys are seeing or experiencing.
Yeah, I think price compression is starting to happen. I don't know if it's necessarily compression to the extent what we experience here in Canada or much more like normalization. Despite prices moving, the demand continues to grow, and we continue to add to our roster of suppliers looking to get product over to Germany. The beauty of AgMedica is such that we are able to use that to export our own grown product. We're able to use the facility to export other GACP-cultivated product. We're a critical piece of the supply chain, irrespective of pricing, in exporting Canadian-grown product to Germany.
Okay. Thanks. I appreciate that, Ben. I'll pass the line.
Thanks, Neal.
Your next question comes from Pablo Zuanic with Zuanic & Associates. Your line is open.
Hi, good morning, everyone. This is Milton on for Pablo. I have two questions. Congratulations also on the successful integration of AgMedica. Can you discuss the improvements and any expansion made at AgMedica facilities since you acquired it? Your original guidance suggested or implied 13% EBITDA margins for that business, but it seems you were closer to 30%.
Good morning, and thanks for the question. Yeah. We made a number of meaningful steps with the AgMedica facility, and I think the original guidance for the facility reflected uncertainties with how aggressive we could be with cost-saving opportunities. First off, we made material changes in the organizational structure for staffing. We invested in automation and technologies that allow for us to internalize some process steps, for example, like in-house microbial reduction technology. Equally, we were able to improve the yields out of the cultivation facility and garner further higher pricing that allows for us to expand our margins. When we look at the slate of opportunities for further margin expansion, we still think that there's a lot left on the table, although all of the low-hanging fruit was captured within this year.
We think further investments in automation, we think increasing the scale of our processing capacity and extraction methodologies are kind of the items on the list for this year.
That's great color. Just for my second question, could you discuss your potential to expand extract sales in key overseas markets in 2026?
Yeah. As I mentioned in my remarks, we have the extract certification already in hand, and so as a result, we are exporting derivative products such as vapes, oils, to the U.K. and Germany. We expect that those markets will continue to ramp up as consumers start to adapt to different form factors of cannabis and the derivative products.
Thank you for your time. Thanks, operator.
Thanks.
Your next question comes from Frederico Gomes with ATB Cormark Capital Markets. Your line is open.
Good morning. Thanks for taking my questions. First question, just want to follow up on the comment about extracts and exploring the international markets. I think you mentioned you expect that extracts are going to outpace growth in flower this year. Just curious, is that specifically to Decibel or do you mean for the entire market? Second, is this something that you are already seeing so far this year, with extracts maybe gaining share from flower? Thanks.
Yeah, I think it's the stage where the cycle is beginning. I'll speak specifically to Decibel. We expect the rate of growth to exceed flower this year because it's in its early stages in infancy. What we're already seeing is, in the markets where we're getting these types of products, such as the U.K., that the follow-up reorders are significantly bigger and growing. We expect that same behavior to exist in Germany. Last week, we got our first extracted vapor order exported. In the fullness of time, as that trend behaves like all other new nascent markets in cannabis, we fully expect that growth to be strong.
Great. Thank you. I guess the second question, just on your flower processing capacity, which I think you mentioned was at 30% utilization rate in Q4. There's plenty of additional capacity to use there. Where do you think you're going to exit this year in terms of that utilization, just based on your guidance? How should we think about the operating leverage that you may get from that as you scale that to 100%? Thanks.
It's a good question. I think we have to assess the markets in Germany as well as potential regulatory change, so I'm hesitant to provide you with an ending utilization. What I can provide you, though, is our book continues to grow, and we will grow with it. In the event we hit 100% utilization, we're able to double that to 120 tons with minimal CapEx as well. We'll focus right now on hitting to 60, but I'm not fussed that we reach a peak and it caps out our growth.
Thank you very much.
Your next question comes from Derek Lessard with TD Cowen. Your line is open.
Good afternoon, Ben, Stu, and congrats on a strong year. First question is on the EBITDA margin expansion. Clearly very strong there. Just curious how we should be thinking about the level of EBITDA margin going forward, just in terms of the baseline.
Yeah. With our 2026 outlook, we expect our EBITDA margin to be between 21%-23%. We think there's marginal margin expansion within the domestic market with some of our input costs coming down year-over-year, and some further automation having a full year's contribution in this year. Internationally, we remain a bit more cautious in terms of what margin could look like. We believe that we're well-defended for much of our revenue streams, just given the nature of the business that we're in, as Ben kind of alluded to. We expect that to be lower and dragging down, relative to domestic. We don't see immediate pressure, but we do think that there isn't as much opportunity to expand our margin on that front. As a result, it leads us to see kind of marginal improvement for EBITDA margin, relative to this year.
Okay. That's helpful. Just remind us, too, on the timing of the Creston sale and how we should be thinking about the timeline for realizing the anticipated CAD 4 million in cost savings.
Sure. We expect the sale to close in Q2. We're just going through the conditional requirements as we speak. In terms of the CAD 4 million of savings, Q2 will be somewhat marred by the fact that we have kind of wind down costs and probably a month's worth of savings. We expect in the quarter there's little to no impact. Q3 onwards, we'd expect to see those savings be immediately apparent.
Okay. Are there any other additional, I guess, consolidation or efficiency initiatives or levers that you can pull?
Yeah. The immediate one that ties concurrent to the sale of the Creston facility is us continuing to ramp up our Thunderchild facility to 100% utilization. That's certainly the most immediate one. More broadly than that, we just believe that there's further opportunity for automation and getting economies of scale through growing our international business in particular. There's some marginal opportunities on the domestic front, albeit, we believe are harder to come by than they once were when we were, call it three years ago.
Right. Maybe one last one for me. I think you did mention in your prepared remarks about capabilities. Just maybe.
Sorry, Derek, do you mind repeating the question? You just cut out there.
Oh, yeah. Sorry about that. In your prepared remarks too, you talked about scaling the EU GMP capabilities. Just maybe if you could talk a little bit more about your plans around that and the opportunity that you see.
Yeah. We've already focused our, I guess, our processes to support our customers. Getting ourselves to 60 tons of processing capabilities was step one. We identified that we needed to support that with an approved and in-house microbial remediation, to which we are also doubling that capacity immediately. With that, we will be assessing the utilization, and as it creeps up, we'll figure out how we scale, if we scale, to Fred's question, additional capacity. Right. That's just on the flower processing. On the extract side, we believe that that growth is going to be meaningful this year as the markets and consumer taste preferences evolve. With that, we've also built in support for expanding the ability to continue to support extracted products in international markets.
Okay. Thank you both, and good luck.
Thanks.
That concludes our question and answer session and today's call. Thank you for attending. You may now disconnect and have a wonderful rest of your day.