Diamond Estates breaks even in fiscal Q2

Executive Summary

• Diamond Estates Wines & Spirits Inc. reported its financial results for the six months ended September 30, 2025 (Q2 2026), showing significant improvements in gross margin and adjusted EBITDA despite a decrease in net income due to non-operational items.
• Revenue increased to $8.5 million from $7.7 million in the prior year, driven by a $900,000 increase in the Winery division, partially offset by a decrease in the agency division.
• The company disclosed several corporate actions, including the issuance of shares for contingent consideration related to the Perigon Beverage Group acquisition, deferred share unit settlements, stock option grants, and amendments to security-based compensation plans.

Key Details

• Revenue: $8.5 million for Q2 2026, an increase of $800,000 (approx. 10.4%) from $7.7 million in Q2 2025.
  • Winery division sales increased by $900,000, driven by grocery/big-box stores and VQA support program changes.
  • Agency division sales decreased by $100,000, primarily due to the sale of Western Canada operations to Renaissance, partly offset by the acquisition of Perigon Beverage Group.
• Gross Margin: $5.9 million for Q2 2026, an increase of $1.7 million from $4.2 million in Q2 2025.
  • Gross margin percentage increased to 69.8% from 53.8% in the prior year.
  • Improvement attributed to increased sales volumes in grocery/convenience channels and VQA/wine sector support program enhancements.
• Adjusted EBITDA: Increased by $1.3 million to $1.8 million in Q2 2026, compared to $500,000 in Q2 2025.
  • Driven by improving gross margins in the winery division, offset by a $400,000 increase in SG&A expenses.
• EBITDA: Decreased by $100,000 to $900,000 in Q2 2026 from $1.0 million in Q2 2025.
  • Variance attributed to non-operational items in the prior year (gain on sale of Western Canada agency to Renaissance, lower share-based compensation) and one-time costs in the current year (regulatory compliance, severance).
• Net Income: Decreased from $200,000 in Q2 2025 to nil in Q2 2026, due to the same non-operational and one-time items impacting EBITDA.
• Contingent Consideration (Perigon Acquisition): On July 22, 2025, the company issued 764,917 common shares at $0.21 per share as contingent consideration based on achieving gross margin targets.
• Deferred Share Units (DSUs): Issued 248,683 DSUs in October 2025 to settle $47,250 of previously accrued deferred directors compensation.
• Stock Option Grant: Granted 1.25 million options in October 2025 at a strike price of $0.19 per option to an officer.
  • Exercisable for one common share each, valid for up to five years.
  • Vesting schedule: 25% on each anniversary of the issuance date.
• Security-Based Compensation Plan Amendments: Approved at the AGM on Oct 30, 2025.
  • Plans converted to fixed up to 20% plans under TSX-V Policy 4.4.
  • Maximum shares issuable under all security-based compensation arrangements capped at 13,376,703 common shares.
  • DSU plan amended to allow automatic crediting of deferred share units reflecting directors' quarterly retainers on the last day of each fiscal quarter.
• BMO SARCA Amendments: Agreement reached on Nov 7, 2025, for the seventh amendment to the credit agreement with Bank of Montreal.
  • Maturity date extended to March 27, 2026.
  • Temporary bulge in revolving line of credit of $3.6 million, due no later than maturity.
  • Interest rate increased to prime plus 2.65% (from prime plus 2.40%) during the temporary bulge period.
• Debentures Payable: Company obtained a 60-day forbearance on most convertible debentures and accrued coupon interest due Nov 9, 2025.
  • Management expects majority of debenture holders to agree to a rollover under updated terms.
  • Obligations to remaining holders (approx. $100,000) to be settled in cash and/or shares.
• Other Matters: Issued 270,270 common shares to principals of 2RL Capital on June 20, 2025, at a deemed price of $0.185 per share for services related to the Perigon acquisition. This disclosure was noted as a late inclusion.

Notable Quotes

• "Q2 marks another very strong quarter. The company's performance reflects the success of our turnaround initiatives and investment decisions, with rapidly improving financial results that demonstrate real progress and momentum. The results are particularly encouraging given we are lapping a very strong Q2 a year ago where the LCBO strike and retail expansion contributed to 50-per-cent revenue growth. We see continued opportunity through our strengthened portfolio, our strategic investment in the retail sales team, broad growth in our agency brands and our continued focus to deliver significant growth of our VQA products -- which receive the highest levels of government support and deliver meaningful benefits to the local economy. Our industry is also benefitting from a strong 'buy local' movement, a trend we expect to persist over the long term," said Andrew Howard, president and chief executive officer.