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spk00: Good morning, ladies and gentlemen. My name is Joelle and I will be your conference operator today. Welcome to BZAM LTD's fourth quarter full year 2022 conference call. To ensure an enjoyable experience for all participants, all lines have been placed on mute. Following the presentation, we will open the call for questions. If you would like to ask a question, simply press star then the number one. If you would like to withdraw your question, Press star, then two. This call is being recorded on Monday, May 1st, 2023. I would now like to turn the conference over to Matt Millich, Chief Executive Officer. Please go ahead.
spk07: Thank you, Joelle. Good morning, and thank you all for joining us for our Q1 2023 conference call. Joining me on the call this morning is Sean Bovingdon, our Chief Financial Officer. We had a busy start to the year and there's plenty to talk about, but first just wanted to note this call is being recorded and the audio recording will be available on the company website at bazaam.com. Also, today's discussion includes forward-looking statements. We caution that such statements are based on management's assumptions and beliefs and are subject to uncertainties and other factors that could cause actual results to differ materially. I refer you to our news release, and MD&A for more information on these assumptions and factors. With that, let's get started. 2023 is off to a strong start with Q1 delivering record quarterly gross revenues, increasing 41% quarter over quarter. This growth reflects the full impact of our November merger and the company's organic sales growth. We are very pleased with these results as they continue to prove out the investment thesis underpinning the merger. We have seen growth across nearly every product segment and have become the sixth largest producer in Canada. As we continue to execute on our plans to improve margin and reduce SG&A, we maintain a positive outlook on our march toward positive cash flow and EBITDA in the back half of this year. During the quarter, the company progressed the sales of the Poos Lynch and Maple Ridge facilities. Sales of these facilities are expected to be completed within the next 12 months. And following quarter end, we took steps to further streamline headcount. The impact of this will be discussed in the outlook section. We continue to leverage our industry-leading lab and innovation folks with the launch of over 20 new products across Canada in the next six months. And we continue to build momentum in the export market, having received our EU GMP certification earlier this month. This certification permits the company to export certain medicinal cannabis products to numerous global markets. We are executing on our distribution agreements in Germany and the UK, with branded products expected to land in the UK market by Q4 this year. We believe that we are well equipped to fulfill the international and domestic demand for our products in the year ahead. With that, I will now hand the call over to Sean to take you through the Q1 financial results. Following this, we will give a brief update on the outlook before taking questions.
spk08: Thank you, Matt, and good morning, everyone.
spk01: So our gross revenue for the three months ended March the 31st, 2023 was $34.97 million, an increase of 41% quarter over quarter. This is a record high for the company. And the growth was driven by the dramatic expansion of the company's brand and product portfolio as a result of the merger in November, 2022. And in addition, revenues increasing for our legacy products for the expanded distribution network and the support of our in-house sales team. We are beginning to see the financial results of the company's cost containment initiatives and the synergies resulting from the merger. Our adjusted SG&A as a percentage of sales was 43% in Q1 2023, which is a strong improvement from the 59% in Q4 of 2020-22. We expect this to decrease further through 2023 with the cost reduction initiatives Matt mentioned earlier and we'll talk about in a minute. The company continues to streamline operations, improve efficiencies, and renegotiate service agreements in an effort to improve profitability. Prudent cost control paired with increasing revenues is serving to improve our cost absorption and therefore increase profitability. If we look at the overall gross margin for Q1, it was 12%, which reflects an increase in the gross profit of 141% from Q4 2022. The increase from this prior quarter was driven by this improved cost absorption, as well as reduced inventory provisions in the quarter. If we adjust for those inventory provisions in Q1, the adjusted gross margin was 29% in Q1 2023. After the quarter end, I think it's important to note, on May the 29th, the company did receive a waiver with respect to the EBITDA financial covenant, requiring the achievement of positive EBITDA under the Fourth Amendment for a revolver loan with our lender. Under the waiver, the effective date of the requirement to achieve positive EBITDA on a monthly basis has been moved from April the 30th, 2023 to July 31st, 2023. And we continue to work towards that.
spk03: With that, I'll pass it over to Matt to discuss the outlook.
spk08: Thanks, Sean.
spk07: We are constantly reviewing operations for opportunities to increase efficiency. This month, we took steps to further rationalize headcount and implemented additional cost savings measures, which we expect to generate about $2.5 million in aggregate annual savings across both COGS and SG&A. We feel that we are in a comfortable capital position to execute on our objectives and have support of key shareholders, as demonstrated by the $5 million non-brokered private placement with our chairman that is slated to close next week. Our team is driving toward our key objectives of positive cash flow and EBITDA. We are pleased to see some of our efforts at thoughtful growth and cost efficiency reflected in our Q1 results. We look forward to continuing to execute on our plans and deliver remarkable cannabis products to consumers in the year ahead. Thank our shareholders for their continued support, and we thank our team for all their efforts.
spk08: With that, Joelle, we are ready to take questions.
spk00: Thank you, ladies and gentlemen. We will now begin the question and answer session. If you have a question, please press star, followed by the one on your touchtone phone. You will hear a three-tone prompt acknowledging your request, and your questions are pulled in the order they are received. If you are at a speakerphone, please lift the handset before pressing any keys. And your first question comes from Noel Atkinson with Clarus Securities. Please go ahead.
spk02: Hi, Matt and Sean. Good morning. Thanks for taking our questions. Well done in Q1. Nice to see revenues of record levels there. So first off, Can you give us a little bit more detail on, so you announced another $2.5 million of further savings, so I presume that's on top of the $10 million. Can you talk a little bit about timeline and what you're able to kind of pull out now?
spk08: Timeline in terms of? Timeline of how it will roll into the income statement. I'll let Sean handle that question.
spk01: Yeah, so the initial $10 million of synergies, if you've noticed, those are part of the provisions we did in Q4 and a little bit here in Q1 as well for the original ones. There's additional $2.5 million on an annualized basis that's being enacted immediately. There will be some severance costs, obviously, that will be reflected in Q2. But there's not a lot of longer-term items in that regard. So you'll really see the full benefit of it, of that extra $2.5 million being shown in the reduced SG&A in Q3 going forward, noting that Q2's SG&A should be lower than Q1's. Sorry, Q2's SENA should be lower than Q1's because of the synergy cuts that we've already done that were part of that 10 million originally.
spk02: Okay, great. Then secondly, maybe you could talk about just sort of geographic regions where you're seeing strength.
spk07: Well, in fact, I think it's pretty strong across the board. I mean, with the merger, as we were hoping, we were going to introduce, you know, some brands, some additional products into Quebec. So that actually was borne out. You know, we expected to strengthen some sales of the highly Dutch and T-God brand products in Western Canada, and that bore out. So really now it's across Canada.
spk02: And then you guys, in the filings you reported really nice growth of TGOD, the highly dutch and the organics. It looks like you've consolidated, you're not really giving much detail about TGOD versus Bazam product lines anymore, but can you just give us a sense of how you're feeling about the Bazam product lines overall?
spk08: Um, overall, great.
spk07: I mean, the, the, we're seeing, you know, it's really balanced that we went into a pretty balanced and it, and it remains. So I think we saw a great uplift, uh, in some of the T God and highly Dutch as they moved into the portfolio of the in-house Salesforce. Um, so that was a great sort of synergy, uh, to the upside. Um, and then, you know, one of the things, one of the strengths, uh, that both sides have and that we have together now is innovation. So we're seeing a lot of really interesting new products launching this in the next six months. And we're making a big push into infused pre-rolls. And that's going very well.
spk01: Yeah, I can just echo that, as Matt said, it is pretty balanced between the brands. If you look at them sell, the revenue split is almost 50-50. you know flower still being 60 percent of our of our sales but vapes being 22 and then pre-rolls is an increasing segment that's uh ending up now close to high high uh single digits and uh getting close to being double digit percentage of our overall sales because of the growth in the in the pre-roll categories and infused pre-rolls that we have okay great
spk02: And then lastly, you mentioned that you put your Midway BC farms, the outdoor grow up for sale. Can you talk a little bit about why you think this is sort of a non-core asset and what else you can do to sort of offset what I presume it's sort of biomass that you're getting there for processed products?
spk07: That's a great question. I would say this was another sort of upside benefit of the merger. So once we came together and got going and realized the sort of trim that was going to be available coming out of the Ancaster facility, and you start looking at the benefit of that, the Midway farm became less core to producing the biomass necessary for the 2.0 side of the business. So, it was just another benefit, gave us the opportunity to monetize that asset and also reduce the cost of it, the fixed sort of COGS element of it. Okay, great.
spk02: All right, that's it for me.
spk03: Thanks very much.
spk00: Ladies and gentlemen, as a reminder, should you have a question, please press star followed by the one. Your next question comes from Justin Dittrich with Wooskope Corporation. Go ahead. Please go ahead. Hello.
spk03: First question is the covenant got... Hello? I'm sorry. The line was cut off. Ladies and gentlemen, as a reminder, should you have a question, please press star followed by the one.
spk00: Your next question comes from Gabriel Pop with BMO. Please go ahead.
spk05: Yes, hi. I think you guys already touched upon this, but I'm just more curious on how do you see the margin performing over the next several quarters? Are we seeing some margin expansion, compression? Thank you.
spk07: We're looking at constantly improving the margin, but I'll let Sean get into details there.
spk01: As I said, we did a lot of work in consolidating the inventories and getting everything in order at year end and a little bit more cleanup and some fair value adjustments on imagery provisions, particularly on the trim side and the biomass for extraction. As Matt kind of alluded to in doing the midway sale, there's been a lot more kind of biomass available for extraction and trim on the market that has reduced the fair value of that. So that's the main part of the kind of imagery provision this quarter. We did utilize a lot more of our flour from year end to now, which is the biggest drop in our inventory from March 31st. As we go forward with the biomass and the margin, we're now starting to see that you won't have as many of those one-time adjustments in the quarters going ahead. The utilization of the facilities that we've managed to do in right-sizing that and, again, removing some of the production and administrative overhead that was a part of the COGS costs. That's all leading to improving our actual gross margin going forward as we know we're looking to be north of 30% for the balance of the year.
spk03: Great, thank you.
spk00: Your next question comes from Justin Dittrich with WooCorp. Please go ahead.
spk06: Hey, guys, can you hear me? Sorry, my line cut off before. Yes, you should. Okay, I have three questions. The first is the covenant that got moved to July 31st. Is it looking like you guys are going to hit that and cool if so, but if not, Is the lender willing to push it back more?
spk01: Yeah, based on the projections of where we're at, that is certainly the target. And that's why July was agreed to as the next stepping stone for that. The lender has been extremely supportive. I mean, there's been, you know, there's no warrants or fee or anything for the lender. moving of that and they've been very supportive of the progress we've made and the continued progress we make in moving the right direction. They've been working with us all along and I fully expect them to continue to do so.
spk06: Great, great. My next question is there were plans a couple years ago to expand to the U.S. I know that was kind of tabled for a while. But are there any new horizons there or possibilities? I've noticed living soil operations, you know, popping up in Massachusetts and California, but nothing to your scale, I don't think. Might there be an acquisition or some sort of business possibility in the U.S.?
spk07: I mean, we're always looking at opportunities and we're always monitoring sort of developments in the regulations. Being a straightforward just at this minute. Unless the regulations are, you know, evolved at the moment based on our current requirements with our lender, we wouldn't be doing anything directly in the U.S.
spk08: until something changes.
spk06: Got it. Got it.
spk03: All right. Thank you. There are no further questions at this time. Please proceed. Okay.
spk08: Well, thank you, everybody, for joining us. And that's all for today.
spk00: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Thank you.
spk04: The conference is no longer being recorded.
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