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spk09: Good morning and thank you for standing by. Welcome to the Columbia Cares second quarter 2023 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there will be a question and answer session. To ask a question during this session you'll need to press star 1 1 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lee Evans, Senior Vice President of Capital Markets. Please go ahead.
spk10: Thank you, Operator. Good morning, and thank you for joining ColumbiaCare's second quarter 2023 earnings conference call. With me today are Nicholas Vita, our Chief Executive Officer, David Hart, our President and Chief Operating Officer, Derek Watson, our Chief Financial Officer, and Jesse Shannon, our Chief Commercial Officer. Earlier this morning, we issued a press release reporting our second quarter 2023 results, which we will also file with applicable Canadian securities regulatory authorities on CDAR and the U.S. Securities and Exchange Commission on EDGAR. A copy of this release is available on the Investors section of our corporate website, where you will also be able to access a replay of this call for up to 30 days. Please note that the remarks we make today regarding future expectations, plans, and prospects for the company constitute forward-looking statements within the meaning of applicable Canadian and U.S. securities laws. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, which we disclose in more detail in the Risk Factors section of our annual Form 10-K for the year ended December 31, 2022, which has been filed with applicable regulatory authorities and also in subsequent securities filings. We remind you that any forward-looking statements represent our views as of today and should not be relied upon as representing our views as of any subsequent date. While we may update any such forward-looking statements in the future, we specifically disclaim any obligation to do so, except as otherwise required by applicable law. Also, please note that on today's call, we will refer to certain non-GAAP financial measures, such as EBITDA and adjusted EBITDA. These measures do not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other companies. ColumbiaCare considers certain non-GAAP measures to be meaningful indicators of the performance of its business in addition to, but not as a substitute for, our GAAP results. A reconciliation of such non-GAAP financial measures to their nearest comparable GAAP measure is included in our press release issued earlier today. With that, I will turn the call over to Nicholas Vita to get us started. Nick?
spk08: Thank you, Leigh, and good morning, everyone.
spk03: Thank you for joining our call today. We're excited to discuss the results of the second quarter and, more importantly, the exceptional growth and profitability opportunities we expect to capitalize on in the coming quarters and years. Let's start with Q2. As Derek will discuss in more detail, the results of the most recent quarter demonstrate the continued progress we are making in executing our strategic growth plan in the midst of ongoing headwinds. Simultaneously, we also continue to streamline our operations, drive efficiencies, and further solidify our unique geographic footprint in the best markets to drive profitability and cash flow. As a result, we recorded significant sequential improvements in gross margin, adjusted EBITDA, and adjusted EBITDA margin, achieving a 24% sequential increase in adjusted EBITDA and a 260 basis point increase in adjusted EBITDA margin over the first quarter. We are hyper-focused on achieving positive free cash flow, and we are implementing numerous steps to consistently improve both our income statement and balance sheet, which you will hear more about in a few moments. ColumbiaCare is uniquely positioned in the cannabis industry, and we are poised for significant growth, which I want to outline specifically. First, We are operating in an emerging $80 billion industry that remains fragmented, yet only a handful of companies are executing reasonably well in this space. There is significant opportunity ahead for those operators with a sound strategy and the ability to execute in the right markets, particularly those with adequate diversity of geography, retail distribution, wholesale reach, and a core competency for innovation. With the team, the assets, the capabilities in place to do so, we intend to lead the industry's next leg of development. Second, we are among the most diversified operators in terms of geography and asset base. We are also one of the most scaled in the markets that are still growing or poised to transition, namely on the East Coast. Importantly, we are scaled in markets that are driving the most value now. Not only do we have a presence in the top markets in the country, but also in many of the fastest growing markets, such as Maryland, New Jersey, and Virginia, as well as those markets that will transition from medical to adult use next, such as Delaware and New York. Third, we have an exceptional retail network supported by innovative technology, standardized operating systems, a strong brand and loyal customers. We fully intend to further expand the cannabis brand across our entire retail network over time. We've already invested the capital to build one of the best retail networks with 86 active locations across 16 markets. We expect low capital investment requirements going forward as we've nearly completed the capital investment cycle. Now we will sweat the assets. Fourth, We continue to improve our wholesale and manufacturing capabilities across our network. We manufacture the highest quality products and innovative form factors, and we build brands that consumers demand. Opportunities remain for us to further drive efficiency across our network and pursue partnerships to drive wholesale growth, which both David and Jesse will elaborate on shortly. Finally, as Derek will also touch upon, we are undertaking multiple initiatives to strengthen our balance sheet, reduce interest expense, and achieve and maintain positive cash flow and profitability. So relative to others in the industry, it is my expectation that we will show a higher growth rate, a vastly improved margin profile, and stronger execution as we've always relied upon technology, innovation, human capital, and frankly, hustle. Over the past year and a half, our management team has dissected every aspect of our business, laid out a clear course of action, implemented significant changes, and solidified our foundation for growth. We are at an inflection point now with a coiled screen in place to propel our growth and profitability. This team is committed in every way to the success of the organization, and we have realigned to ensure that we drive value for shareholders and bondholders while we continue providing the best products and services to our Columbia Care and Cannabis community. With that, I will now turn over the call to Derek to review our financial results and outlook in more detail. Derek?
spk16: Thank you, Nick, and good morning, everyone. I'll provide a summary of the key financial results for the second quarter, discuss key trends in our markets, and comment on the balance sheet management initiatives underway. For the second quarter, we achieved 129.2 million in revenue, representing 4% sequential growth over Q1, and flat versus the second quarter of 2022. Adjusted gross profit increased to 52.2 million, an increase of 9% sequentially over Q1, and a 5% decrease as compared to the same quarter in 2022. Adjusted gross margin of 40.4% was approximately a 2 percentage point improvement over Q1. Adjusted EBITDA was 20.3 million, up 24% sequentially over Q1, and 69% year over year. Our adjusted EBITDA margin was 15.7%, an improvement of 260 basis points over Q1. Also of note, our income statement will report a positive operating profit for the quarter. During the second quarter, we opened one additional retail location in Norfolk, Virginia, and have since opened an additional cannabis location in Suffolk, Virginia, bringing our store count to 86 as of today. In Q2, despite continued price compression in a number of our markets, our retail revenue increased 4.5% sequentially driven primarily by volume growth in Maryland, New Jersey, and Virginia. Wholesale activity across the industry remains challenged, and a wholesale revenue decreased slightly as compared with the first quarter to $15.2 million. Wholesale is similarly impacted by industry price compression, but also by higher levels of verticalization as industry participants focus on increasing the percentage of own brands in their own retail stores. As we've highlighted previously, Due to the rationalization of certain cultivation assets and temporarily taking canopy offline, our gross margin is impacted by unfavorable absorption at underutilized sites that require us to expense overhead costs rather than capitalizing them into inventory. In Q2, this reduced our adjusted gross margin by approximately 5 percentage points to the 40.4% we've reported. Our reduced canopy in certain markets will continue to generate net cash savings, However, it also has an unfavorable impact on gross margin until we turn Canopy back on and utilization rates improve. At the end of July, we announced some incremental cost reduction initiatives, primarily from completing the integration of our GLEAF acquisition. Together with previously announced initiatives to close or reduce cultivation operations, close unprofitable retail stores, and eliminate corporate positions, we are on track to generate a net $38 million in annualized savings. Onto our liquidity. We ended the second quarter with $37 million in cash, representing an overall cash burn of $3 million in the quarter. Gross capital expenditures were $1.7 million in the quarter, supporting new store openings and some growth capex. Cash flow from operations in the quarter was a negative $313,000 only. As profitability continues to improve both from higher revenue and reduced cost, We expect to generate positive cash flow from operations in Q4 of this year, regardless of other balance sheet or debt management initiatives we're implementing. In that regard, our next debt maturity is in December 2023, when $5.6 million of convertible notes become due, and which we expect to settle out of operating cash flow. On July 31st, we announced we've received commitments from a number of holders of the 13% notes due in May 2024 to exchange into our 9.5% notes due in 2026. We are still in ongoing conversations with additional holders and expect to close this limited exchange in the third quarter. We've taken additional measures to strengthen our balance sheet and are pleased to announce two new mortgages that closed in early August, grossing us $8 million. This is in addition to the divestitures of assets in downtown Los Angeles and the sale of our Missouri operations, both of which we've previously announced. Proceeds from these activities have been used to pay down approximately $10 million in debt, specifically seller notes, and will continue to target initiatives that delever our balance sheet and reduce interest expense. As you've heard on this call and in previous quarters, we've been taking a number of incremental steps to improve profitability, increase operating cash flow, and strengthen our balance sheet. For the balance of 2023, we continue to focus on cost discipline, optimizing our asset base, preserving cash, and deploying capital efficiently. With that, let me turn the call over to David Hart to share our operational achievement and his thoughts on our ongoing growth opportunities. David?
spk02: Thank you, Derek. I will now highlight important operational results and developments during the second quarter. On a revenue basis, our top five markets alphabetically were California, Colorado, New Jersey, Ohio, and Virginia. California replaced Pennsylvania in Q2. On an adjusted EBITDA basis, our top five markets also alphabetically were Maryland, New Jersey, Ohio, Pennsylvania, and Virginia, unchanged from Q1. New Jersey and Virginia remain top markets, which continues to demonstrate the strength of our emerging markets. During the quarter, we continue to realize the benefit from our cost-saving measures that we began implementing in Q2 of last year. Our business is operating efficiently, and I'm excited about the results we achieved during the quarter and the momentum we are carrying into the back half of the year. On to our top markets. California replaced Pennsylvania as one of our top markets by revenue in Q2. We are seeing price stabilization in both the wholesale and retail markets. Our retail strategy is taking hold, driven by our team's continued focus on finding ways to innovate and drive incremental wholesale in the market. In Colorado, we built off of our restructuring efforts that took place in Q1 and started to take market share. We continued to improve the quality of our flour and implemented opportunistic buying strategies, which helped improve our operational efficiencies in the state. Further, our efforts on revamping pricing in the concentrate business drove foot traffic into our dispensaries. In Maryland, we saw an increase in wholesale demand in the weeks leading up to adult use, which began on July 1st. We began adult use sales at our three retail locations on day one and have seen a steady increase in sales each week since then. Going forward, we will continue to execute on implementing operational improvements in our facilities, introducing new products and brands to the market, and optimizing our pricing strategies. We have one additional retail location in development to get to the market cap of four, We're also in the process of relocating one of our locations to a better suited location for adult use as the market grows. New Jersey continues to be a top performer for us in both revenue and adjusted EBITDA. Our wholesale business is growing and we continue to launch products to meet consumer demands in the market. We have one additional retail location in development. Ohio continues to represent a growth opportunity as 30 dispensaries are set to open from the 73 recently awarded. We've optimized our wholesale production and look forward to the growth of wholesale demand in Ohio as incremental stores come online. In Pennsylvania, we have been leveraging different pricing strategies to drive foot traffic into our retail locations. During the quarter, we introduced additional products from our national brand portfolio to the market and look forward to expanding that offering in the balance of the year. Turning to Virginia, which continues to be a top performer in both revenue and adjusted EBITDA. We saw an increase in wholesale and continue to expand our product offering in the market, which Jesse will discuss in a moment. As Derek mentioned, we opened three new dispensaries in Virginia this year, two in Q1 and one in Q2. We just opened another location in Suffolk this month, bringing us to a total of 10 in the state. We have two more in development, which we plan to open next year. Over the past 18 months, we have focused on improving the fundamentals and stability of our business that will allow us to operate more efficiently. We will be able to make real-time decisions at the hyperlocal level with subject matter experts across our supply chain. This will enable us to continue to produce strong genetics and an increase in our THC levels going forward. We have a solid foundation for these improvements, among others, and I'm excited for the benefits they'll provide. So far in Q3, we continue to drive operational efficiencies across all of our locations. We have a lot to look forward to as the company heads into the second half of 2023, and I believe we are well positioned to succeed in our growth markets and drive efficiencies in our mature markets. Thank you to the entire team for their continued execution. I will now turn the call over to Jesse, our Chief Commercial Officer, for additional commentary. Jesse?
spk12: Thanks, David. I'm excited to be speaking to you today as the company's first Chief Commercial Officer, and I'm even more excited about the future of Columbia Care. In my newly expanded role, I am now overseeing retail, wholesale, marketing, communications, and technology for the company. I'm entirely focused on defining retail excellence and what that means for ColumbiaCare, providing that experience to our customers, identifying ways to optimize the supply chain, and using technology and data to develop products and services that complement our existing product portfolio and consumer experiences. As you know, earlier this year, we examined our organization as a whole and made changes that allow us to operate more efficiently. This means creating a structure in which constant, uninterrupted flow of information is exchanged between our front and back of house. This is critical for developing an environment where we can innovate informatively to meet the needs of our consumers. To achieve this, we need to continue to improve upon our technology, infrastructure, and in building brands that will propel ColumbiaCare as we embark on this next chapter. Until recently, those plans were on hold due to the transaction. With this sale lifted, we look forward to accelerating innovation across the organization, to change, enhance, and where needed, disrupt the way business is conducted in the cannabis industry. During the second quarter, we expanded our product portfolio and launched new SKUs in several of our key markets. As we continue to expand upon one of the most comprehensive and widely distributed houses of brands in the space, I'll quickly touch on a few examples of this innovation and SKU growth within some of our brands that occurred during Q-TIP. Feed & Strain, one of our lines of flour and flour-derived products, is currently available in 14 of our markets. During the quarter, we launched one-gram vape carts and flavored tinctures in New York, new vape varieties in Virginia, and we're gearing up to bring multi-pre-roll packs to New Jersey. Our award-winning Amber Concentrate line continued expansion with Shatter launched in Maryland during the quarter. And thanks to the introduction of a new extraction method in Illinois, we were able to expand our concentrate offerings and launch live resin batter and live resin vape carts in that market. In Arizona, our Amber Diamonds S won first place for best isolate at the 2023 Earl Cup. Our highly sought-after press tablets are now available in nine markets, with Florida being the newest market to launch. We introduced Press 2.0 in West Virginia, and our targeted effect oral dissolvable tablets Shine, Rally, and Doze in West Virginia and Illinois. We launched Heady, our fast-acting cannabis-infused gummies, across six markets late last year. We've continued to expand our offerings across the country, introducing new flavors in New Jersey and raspberry-infused chocolates in Virginia. Since the launch, we've expanded into three additional markets, bringing the total number of markets in which Hedy is available to nine. The past year has been a challenge for our team and company, but that hasn't kept us from envisioning a future where we've used the learning opportunities from interactions with our consumers, service providers, and peers to help evolve ColumbiaCare and ultimately the industry. We are ready to reignite the spirit of connectedness to bring us all back together and collaboratively redefine who we will be to our consumers and the communities we serve. We're no longer on pause and we've never lost sight of the bigger picture. For those of you who know me, you know how hard and fast we intend to run. In a sense, we've been given a second chance to continue the pursuit of something we passionately believe in and we fully intend to embrace the challenges ahead. I'm incredibly excited about the opportunities we have to grow and provide best-in-class experiences to our customers, business partners, and colleagues. We get to choose how we tell the story of our company, lean into what resonates, and evolve from what doesn't. I look forward to providing updates on our progress on future calls, and with that, I'll turn the call back over to Nick to take your questions.
spk15: Nick?
spk03: Thank you, Jesse. As you can tell, Columbia Care is exceptionally well-positioned for growth, and we are on a clear path to improving profitability, positive free cash flow, reduced debt and interest expense, and further increased market share in the best markets in the country. I am exceptionally proud of our entire team, who are all now poised to drive growth for the new Columbia Care program. I want to thank you all for your time today. And operator, let's open up the line for questions.
spk09: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.
spk01: Please stand by while we compile the Q&A roster. Our first question will come from Erin Gray with Alliance Global Partners.
spk09: Your line is open.
spk14: Hi, good morning and thank you for the questions. So first question for me, obviously been a lot of focus on the balance sheet and cash flow recently, particularly after canceling the acquisition. But in the spirit of cannabis, you know, remaining a growth industry, can you speak to your capabilities to capitalize on the growth opportunities amidst some of the CapEx pullback, or maybe your plans to invest in CapEx for future growth. Do you believe there is current capacity that's sufficient to drive the growth, receive the opportunities, or the focus on the balance sheet won't lead you to bypass on any attractive growth opportunities that you see? Thanks.
spk03: Sure. Let me start off, and then I'll turn it over to the group to sort of fill in the gaps. We have built out our entire manufacturing and cultivation infrastructure nationally, right? There are marginal changes we can make that will improve specific product offerings or add SKUs, but the most intensive component of any CapEx curve for a business in our industry is done for ColumbiaCare. What you see us doing going forward is really sort of, you know, is allocating any discretionary CapEx into the retail setting. And those are in markets that are exceptionally high growth. There is no doubt in any of our minds that we have the capacity to grow our supply chain, commensurate with the growth of our markets, and basically supply both the wholesale and retail demand that we see coming out of the next, let's call it, three to five years. The changes that we're making to the business that would require discretionary capex really relate to opportunities that are already sort of sitting in our lap. So, for example, a third dispensary in New Jersey, another dispensary in Maryland. These are markets where we simply haven't found the right location or we're actually developing a particular location. But that's not very capital-intensive. So I think unlike many of our peers, and you remember, I'm sure, Aaron, months and years ago and quarters ago, we actually had pretty significant capex for quite a long time. And that was to basically position us to where we are today, which is we have the scale in the markets where we want the scale. We have a scale in the markets where we need to scale. And we're, you know, positioned as one of the largest suppliers in the markets where we want to be the largest suppliers, both on the wholesale and retail side. So there's nothing about our existing portfolio or our CapEx plan. that wasn't done deliberately and that would limit our ability to actually capitalize on the opportunities we see going forward. And by the way, because we've already spent the money, I think what you'll see over time is that the efficiency of the way those assets are leveraged ought to be enhanced. And so let's go back to the statistic that Derek shared with you. When we went through the cost reductions to improve free cash flow, the tradeoff we made there was to basically consolidate manufacturing and cultivation into a handful or into fewer sort of let's call it square feet of utilization. There's 500 gross margin points, roughly, of underutilized capacity that if we began to use would effectively fall to the bottom line. So the way to think about ColumbiaCare isn't do we have enough infrastructure or capex to actually handle the growth. The way to think about ColumbiaCare is what happens to our income statement once we begin to reutilize that underutilized capacity and we gain back that 500 points of gross margin. Because that's where you see real scale, especially in the context of the changes that we've made to RSG&A over the past, call it, three quarters. Now, I'm not saying that that's going to happen overnight. That's part of the longer-term plan. But when I talk about sort of refocusing our efforts into improving gross margin. It has everything to do with finding a way to recapture that roughly 500 basis points of underutilized capacity that's, you know, from an absorption accounting perspective is really impacting our income statement. And by the way, that's, you know, you can see what happened to our EBITDA quarter over quarter. That's all incremental to what we've shown. So let me stop there for a second and see if Eric or David or Jesse have anything that they'd like to add?
spk16: Great. This is Derek. Aaron, thanks for the question. And it's actually good we're talking about growth initiatives and investment rather than what, as you said, we've been talking about for our last few quarters, which is just balance sheet management. I echo Nick's comments. Our objective is to execute on capital deployment as efficiently as possible. We've got certainly debt capacity if we want it. We've got improving cash flow from operations. And we're a different company than how we've been operating in the last few years, where the investment has been to expand geographically. And as Nick said, the major investment in new markets is cultivation activity, which we've gotten in abundance to the point where we've turned some off. So there are opportunities we'll continue to look at. Capital we can deploy as we need to. And in the meantime, we'll continue to focus on the growth capex, the maintenance capex, and the new store openings that we have lined up.
spk02: Yeah, this is David. The only thing I would add, Ohio, Pennsylvania, New Jersey, New York, and Virginia all have extra excess capacity that we think can meet the market demand as it comes on, either with incremental medical program development or adult use. So that's literally just putting plants under lights that are already there. So that's significant incremental capacity and highlighted by the CapEx we spent last year, which was north of $70 million. So, we've spent in the markets we knew we were going to have growth opportunities. It's just a matter of timing and matching up the utilization with the growth trajectory. Jesse, do you have anything you'd like to add?
spk12: No, I think David covered it. Obviously, I think the exciting opportunity to continue to sort of expand organically in those markets that was highlighted is something that we're really looking forward to.
spk14: Okay, great. Thanks for that color. And looking at the West Coast markets, California and Colorado remain top two revenue markets, but not for EBITDA. At one point, Colorado was also a top EBITDA market about a year or so ago. How are you looking at those markets in terms of the near and long term? I know you made some cuts in both, but how do you feel like the current portfolio fits within your own given the focus on cash flow? Do you see those markets turning around in the near to medium term. So just your outlook on those two markets would be appreciated. Thank you.
spk03: Excuse me. So before I hand it over to David and Jesse, I think the way to think about the statistics we share, It's not that California and Colorado haven't sort of continued to show improvements over the past couple of quarters. It's that we've seen spectacular improvements in other markets, right? So, you know, when you have a market like Virginia that moves so quickly from sort of, you know, outside of the top five to the top five or New Jersey, right, you're always – it's not about the margin profile. It's about the actual – the aggregate dollars. And, you know, California and Colorado are large markets for us. So, I wouldn't read – I understand how you might sort of ask the question about what California and Colorado look like relative to other markets. Those are mature markets, so they're not growing as quickly, but they're certainly getting better. I mean, I'm sure you saw the stats we highlighted on the – on the shift we made in the asset base out in California and the impact that will have to overall profitability. We've made a lot of changes in Colorado that reflect similar kinds of changes and similar trend lines. I think the most important thing, though, to remember is that every market we're in on the West Coast, let's say west of the Mississippi, you've seen a proliferation of assets, and the maturation of those markets typically requires some type of consolidation, and that's either through consolidation through M&A or consolidation in terms of rationalization of the actual marketplace. I think in Colorado, we've started to see some of that take place. California is a different animal altogether, but for different reasons, both of them, I think, are stable to improving. Let me turn it over to David, and he can share his thoughts, and then we can turn it over to Jessi.
spk02: Thanks, Nick. Both of those markets, there's been a ton of activity operationally behind the scenes that probably doesn't get the recognition it deserves from the local teams. We've exited assets that didn't make financial or strategic sense, as Nick mentioned. We have seen price stability in the California market. We have seen some stability in the Colorado market, particularly in our retail stores. We've changed the way we are buying third-party products in Colorado, similar to the way we do it now in Arizona and California. And so that does help from a margin perspective. But we have done a lot behind the scenes to reposition those assets to be prepared for the long haul. If you look at a state like Colorado, there are a significant number of cultivation licenses that are either dormant or have been turned off and not renewed. And we think that's going to continue. And so if you look at the lack of outdoor grow that's taking place this year, which typically has a disproportionate downside impact on pricing for the balance of the area into Q1, all of these look like if you aggregate them up into a more opportunistic landscape for us on a go-forward basis. So there's still more we need to do at the hyperlocal level operationally to make sure we continue to compete and improve the business. But I think what you're seeing is a more streamlined, rationalized asset base for a changing competitive dynamic with hopefully some improved pricing stability on a go-forward basis. But Jesse, maybe you want to speak to Just in Colorado in particular, some of the things the team's been doing at the retail level to help from a pricing perspective and foot traffic perspective.
spk12: Yeah, thanks, David. I think in Colorado is a great example of where the improvements that we've seen from a back of house point of view with regards to quality of flour, introduction of some new brand architectures and product SKUs, things like that have really helped to reinvigorate some of the opportunities for customer acquisition to be able to speak to the customer base and bring people back into the store. I think the emergence of our owned applications like Loyalty, the Stash Cash application, some improvements that we've seen in customer engagement through the high delivery rates of things like push notification on mobile and a number of other strategies have also helped to create better sort of awareness and communication between the customer base in Colorado, which is obviously a mature, very well-informed customer base, and what it is that we're doing at the retail level to provide sort of that better selection and higher quality product set at incredibly competitive pricing. So I think all of those things combined have led to a stabilization, but also a growth opportunity from the retail front. And again, in California, we continue to see an excellent execution on the retail side in that market that's provided those opportunities. So we're excited about Colorado now that we've sort of seen some of those early indicators of opportunities for continued success in the market. And we have a number of new initiatives coming up over the coming quarters to engage with that retail platform and bring it in line with some of the best practices that we have across the country with the cannabis platform. So that's something that we're looking forward to.
spk14: Okay, great. Thanks for that color. And just one quick one, if I could, before I jump back into the Yeah, I know you guys had mentioned the Senior Exchange, you know, post the CRESCO termination. Just any update on that? I know it wasn't mentioned in the prepared remarks, so any update on the potential U.S. Senior Exchange would be appreciated. Thanks.
spk10: Hey, Aaron, it's Leigh. At present, no additional update on timing. I think, you know, you've seen some of the measures we've taken. We've delisted from the CSC, so nothing much that we can add at this point, but we look forward to updating when we can.
spk03: Yeah, I mean, you know, one thing that you can imagine that for those bondholders that weren't interested in being restricted, they wanted to wait until our earnings came out to get the sort of latest, greatest financial. So, I think that we'll be able to show more progress once, now that these numbers are finally out.
spk14: Okay, great. Thanks. I'll jump back in the queue.
spk01: Thank you. One moment for our next question. We have a question from Frederico Gomes from ATB Capital Markets.
spk09: Your line is open.
spk15: Hi, good morning. Thank you for taking my questions. Just first one here on Maryland, the biggest contributor to adjusted EBITDA, and just thinking about the margin profile in that state. As we continue to see LLE sales ramping there, how much more, I guess, operating leverage could you get in that business and that good potentially benefit your margins in the second half of this year. Thank you.
spk03: So let me be clear. I don't think we said that Maryland was the single biggest contributor to adjusted EBITDA. It was a contributor. But there were several pretty significant contributors to the improvements in adjusted EBITDA. But David, maybe you can talk a little bit about the sort of what we've seen in Maryland and how our infrastructure has been able to scale into sort of the market opportunity.
spk02: Sure. So we obviously saw a fair amount of buying activity from a wholesale perspective into the first day of adult use sales. We've continued to see a strong, steady, robust opportunity in the wholesale side. Given the asset base that we have in Maryland, we continue to review and analyze to make sure we can optimize both the revenue and the profitability profile of that state. So optimizing where we're allocating biomass and finished goods across both our three retail doors and the wholesale market. We recently moved into a larger manufacturing facility that's essentially co-located with our cultivation facility in Maryland, which has been tremendously helpful. Thinking about adult use, incremental throughput is obviously needed for us. So we continue to be optimistic about the balance of the year for Maryland. And depending on what lever you'd like to pull, you can optimize revenue and or profitability, but we're trying to do both. And so the window for wholesale is obviously pretty strong right now. We're also mindful of the fact that putting our own product on our own shelf results in the highest gross margin opportunity for us in the near term. So it's a good problem to have for us in the state of Maryland, but we continue to be eyes wide open to make sure we're being balanced in terms of building brand recognition, not only in our doors, but also in the wholesale market.
spk03: The only thing I would add to that before I ask Jesse to wane in with some thoughts, as David mentioned, we have one other dispensary in Maryland that's basically in development in PG County, which is one of the highest density and wealthiest counties in the state of Maryland. It would actually be sort of a very unique asset in a very, very attractive marketplace. And, you know, so that's in process. The other is that we're moving one of our existing dispensaries to a larger location to accommodate the increased volume. And so I think the reason why those two data points are important is that, you know, as David mentioned, we've seen a significant increase in demand from the wholesale side, especially amongst our sort of let's call it our concentrate products and our branded products. But just as important, by having more doors in Maryland, it makes us a very, very credible sort of fully integrated partner that will allow us to, I think, drive margins more effectively and be a better counterparty in the wholesale market. So it basically is an echo chamber of, I think, benefits that we can basically sort of be one of the better partners, both from a consumer perspective and from a business perspective. Let me turn it over to Jesse and see if he has anything to add.
spk12: Thanks, Nick. The only thing that I would add coming off the comments from you and David is obviously the sort of focus on wholesale, both organizationally and strategically that we've launched over the past few weeks coming out of the transaction. We have dedicated sort of team members that are being built across the country. And Maryland was one where with the integration of the team from GLEAF, we already had a good sort of foundation of both strategic leadership and individual contributors who were able to participate in that program and sort of pick up the velocity from where we were. And I think we're already starting to see some of the benefits, obviously, of that structure and that focus. So as we continue to invest in systems and in team members to be able to sort of pursue that strategy, Maryland, I think, does become a bit of a leading indicator for what we believe we'll see as continued productivity across the country. So I think that wholesale sort of velocity that we're seeing in the market will be indicative of what we see across the country as we continue to build out that program.
spk15: Thank you for the call there. And then just on Virginia, about the market dynamics there, can you comment on that, what you're seeing there? I guess in terms of price and the supply demand there and also growth opportunities. Thank you.
spk02: This is David. So Virginia continues to be a top contributor for us. It's an expanding medical program. I think if you asked any of the operators in the state of Virginia, what they'd probably say is just increased patient access is the opportunity to grow that market. Every time a new door opens, there's an opportunity for patient growth to take place, and that presents an opportunity not only if you own the door to put more of your own product on the shelf, but I think putting third-party products on the shelf as well. So a more diversified portfolio in all the doors is also something I think everybody's trying to move forward with for the balance of the year. So I think it's a great market from a patient perspective. I don't think it gets any easier now to register and become a patient in the state of Virginia. And so for us, all we're trying to do is accelerate the remaining doors. And as Nick mentioned earlier in the call, we're just being opportunistic and making sure we're finding ideal locations that we can use, you know, not only for a medical program but for the adult use. So two more doors for us to open. But we continue to remain excited about the state of Virginia. There is tremendous growth in the marketplace as a medical program. And price has been stable for us. I think we continue to look at innovation, Jesse and team, with the local team, If we are spending any incremental capex, it's for new technologies, for new manufacturing methodologies to introduce the new products into the marketplace on a post-harvest basis on the concentrate side. So that's an opportunity for us in Virginia. But very excited about the state of Virginia and continue to see growth for the balance of the year.
spk07: Thank you. Back with you. Thanks.
spk01: Thank you. We have a question.
spk09: From Matt Bottomley from Canaccord Genuity, your line is open.
spk04: Yeah, thanks, everyone. I appreciate the commentary just now on Virginia. And I just wanted to circle back to two of the other key markets that drove growth in the quarter of Maryland and New Jersey. So I know you talked a little bit on the operational front in Maryland, but I'm wondering if you can speak at all with respect to the ability to – look at what the market has done in Maryland, which I think has gone 2x over, at least in the first month, over what it did in the prior month and how that might have sorted out with respect to how your operations have done. And then in New Jersey, just if you think any new store openings are going to be in the cards for the second half of the year.
spk02: Hey, Matt. This is David. So I think the local teams did great in the state of Maryland. Two of the stores were legacy GLEAF stores. One was Columbia Care. And I think the team did a great job coming together to pregame, if you will, the incremental throughput that was going to hit those stores. We've obviously seen it in a number of markets that have transitioned to adult use. So we knew what was coming. And we tried our best to leverage the footprint that we have in balancing technology. to really get the lines moving. I think we did a great job from a pricing perspective. We were disciplined. We knew people were going to come in, and the team was excited to see that, to your point, significant increase in foot traffic at our doors. So I think we saw what we expected in the market in Maryland. We've seen this in other markets as well. So nothing out of the ordinary for us other than just execution for us. And as Nick mentioned, getting the fourth door open and getting that third one relocated would be ideal for us.
spk03: I mean, I think, Matt, it's safe to say that we saw, you know, we saw consistent growth with what the market saw, if not a little bit better. Okay, great.
spk02: Sorry. Matt, on New Jersey, I think we do continue to expect to see doors opening in the state. We've got a dedicated wholesale team in the marketplace, which is unique for us as we build out wholesale. And, you know, I think it's going to continue into next year as well. We obviously have another door we'd like to open sometime in the first half of next year. Nothing takes place quickly in the state of New Jersey. But we're in front of all the new doors that are opening. We're monitoring our new sales, you know, first, second, third orders for all these new doors that are opening and trying to do our best to provide the customer service levels that I think that they're looking for in the state. So we remain opportunistic when we can see the new doors opening. We're getting in front of them before they actually open their doors to try to win the businesses.
spk04: Scott, I appreciate that. And then just one other question for me, just on the balance sheet, so you gave some good color in some of the prepared remarks, but I'm wondering if there's any other low-hanging fruit. You know, you had the subsequent raise of about $8 million after the quarter. Obviously, some cash inflow from acquisitions or from dispositions. Just wondering if there's anything else, just in terms of category, that might be something in the relatively near term that you guys would have access to if needed.
spk03: Yeah, I mean, look, I think that aside from the sort of the natural restructuring that you're going to see us go through to sort of de-lever across the board on the sort of the traditional senior debt that we have outstanding and really pushing back those 13s and then moving on to the 6s and then moving on to the 9.5s, we have inherited a couple of pretty sort of punitive sale leasebacks from acquisitions, and those are not at market rates. And I think that, you know, Derek, correct me if I'm wrong, but, you know, our best guess is that those sale leasebacks are somewhere north of, you know, 300 to 500 basis points ahead of where we would be paying if we had just traditional debt structures in place. And so that's for us, you know, we consider that low-hanging fruit, and we've had conversations with IIPR about those. And I can tell you right now, we're not the only ones that are having those conversations. You know, what we're hearing through the marketplace is that there are a lot of people that are very unhappy with the way those instruments are structured. And so we've already reached out to them to sort of see how we can find a collaborative pathway forward. and actually find a more market rate sort of structure that would make sense for us to sort of continue those relationships.
spk07: Okay. Thanks so much for all that.
spk01: Thank you. And one moment for our next question.
spk09: Our next question comes from Andrew Semple with Eklon Capital Markets. Your line is open.
spk05: Hi there, good morning, and thanks for taking my question. And congrats on the Q2 results. Just want to go back to the comments and the prepared remarks about underutilized corporation assets being dragged on margins. Could you maybe just give us a sense on timing on when you would expect some of those impacts to wane? When should we be incorporating this headwind kind of unwinding in our models?
spk03: So before I turn it over to Derek and David and Jesse, I think that any time you sort of make the decision to reduce capacity and really focus on cash flow, that is going to continue to be our focus. So our goal is to drive cash flow from operations and to drive profitability. We've taken a hit on EBITDA, and we made that decision a couple of quarters ago. At this point, the way we're thinking about rebuilding that demand profile is over time. And so I wouldn't expect any structural changes, any massive changes in gross margin. But any changes that do happen to gross margin have a disproportionate benefit as it flows through the income statement. And the reason why I say that is we're not looking for quick fix. I said this two quarters ago. I said it last quarter. I'm going to say it again. The way we are running the business right now is about singles. We're not looking for home runs. We're not looking for sort of overnight wins. We're looking for very long-term solutions, permanent solutions to make sure that we have a sustainable, predictable platform that drives basically profitability. The growth is going to come as a byproduct of the markets we're in and as a byproduct of the capital investment we've already made. And so, like, we're not worried about that. What we really want to make sure is that the headwinds that people continue to talk about throughout the industry, which is pricing headwinds, we find an intelligent way to address that. And we take advantage of the fact that we do have a lot of embedded upside built into the infrastructure that's already paid for and built out, you know, and it's basically just waiting to be used. So, you know, when I talk about the gross margin improvement at 500 basis points, we're looking at a, you know, at a two-year cycle, right? We're not looking at, like, a two-quarter cycle. And if it takes longer, it takes longer. But, you know, we feel very confident we can do this. And we're actually very excited about it because every incremental dollar gross margin goes literally right to the bottom line. So let me turn it over to Derek and David and Jesse, and they can talk a little bit about that. Because I think that's an important strategic aspect of the way we think about the next eight quarters.
spk16: Right. And this is Derek. I'll just jump in on the markets where we have turned Canopy down. So a number of them are pre-adult use markets. So as adult use switches in some of these locations, we've got the capacity there. We will turn it back on. We've already got the overhead investing. So that will come as soon as those markets turn. We've also got the wholesale initiative that Jesse mentioned already, where as we increase the wholesale opportunities in some of these markets and also some of the verticalization that we've been improving as well of our own brand, there's capacity already there to support that. So it's really a question of when markets turn and how quickly we can execute on those initiatives, and that five percentage point overhang on gross margin will gradually whittle away in those markets.
spk03: Jesse, anything to add about the way we intend to sort of address some of the utilization capacity?
spk12: No, I think we're looking at a couple of – we're engaged in conversations with a couple of strategic opportunities that I think we'll look forward to updating as those come to fruition.
spk05: Excellent. Appreciate the color there. That's helpful for setting expectations. And then I just want to maybe dig into Florida, which we haven't spoke to too much today, and I'm just wondering what the – kind of the update on the growth plans in that state are, you know, since the transaction, you know, has unraveled here. Are you turning any attention to that state or is the focus on some of the other markets that we've been spending time on?
spk03: Well, I think for us, we have a lot of high growth markets that we're focused on. Florida has, I think, you know, and David can speak to this, If you look at our competitors, the vast majority of the dispensaries that people are building on are in Florida right now. So from our perspective, when we look at just a population analysis, forget about a transition to adult use. It's our view that it's an enormously competitive market. And you have two incumbents that are very, very sort of aggressively going after one another that have significant scale. So for us, the Florida opportunity is interesting, but we have to be more of a niche player. We have to be more of a sort of a targeted player. And I think we'd have to play a different game than we would play in, say, a Virginia or, say, a Colorado. Just the sheer velocity of new doors opening amongst licensed operators is something we haven't seen in any other market before. And I think part of the reason for that is that it's an unregulated market for all intents and purposes. You can open as many doors as you want. And at some point, you're going to just run out of sort of incremental demand. So for us, Florida is a market that we've turned our attention to, but it's really been much more focused on cost containment and basically developing the right products that we can really differentiate ourselves with rather than trying to play kind of the Walmart game, which is dominated by a couple of players that have basically made the decision for that to be their home market. If you ask me, what is our answer to that? Our answer to that is Virginia. Our answer to that is New York. Our answer to that is Colorado, right? So we have other markets where we have leadership positions in significant scale. Florida is not one of them. It's not to say that we won't be growing in Florida, but I think there are other markets that we would prioritize ahead based on the limited license nature of some of the markets we're in, and that creates sort of a more favorable advantage for operators in that type of environment. But let me turn it over to David. Maybe you can add some stats, and Derek and Jesse, you can add some color as well. This is David.
spk02: I would just say that we're comfortable with the asset base we have right now. We've got three grows. We're actually just scaling up into our third, and we're seeing an improvement in THC levels and total TAC, which is important in the state of Florida. So as Nick mentioned, we have taken costs out of the business on the retail side. We've been very thoughtful about expense management down there. We're happy with the door count that we have relative to our back-of-house asset base, and so The next point, if we're going to spend an incremental dollar of CapEx, it's going to be into the other markets where we're either a top player or a top player and have an opportunity to take incremental market share. But we're happy with the assets we have in the state of Florida right now. It's just not a top priority from a new capital deployment perspective. Derek, does anything go?
spk16: Nothing that comes up.
spk05: Jesse?
spk08: Nope. Great, and that's all for me. Congrats again on the Q2 results. I'll get back into Q. Thank you.
spk01: Thank you. And our next question will come from Scott Fortune from Roth.
spk09: Your line is open.
spk11: Hey, good morning. This is Nick on for Scott. First question for me, just on the overall mix. You mentioned owning about 70 high-potency strains. Can you just comment on the mix on the quarter between the premium, mainstream, and value just within the flower category here? And has there been any kind of discernible shifts in consumer behavior on that side over the past six months? Thanks.
spk08: Yes, you want to take that?
spk12: Sure. I think without getting into too much granularity and detail, obviously because of some of the shifts that we've seen in the quality coming out of cultivation, we have continued to index higher into what I would say is sort of upper mids and premium flower coming out of the facilities. And a number of states sort of continue to set really high benchmarks with regards to what that percentage looks like. I think Colorado is a great example of where we mentioned earlier on the call that we've put in place some more strategic procurement initiatives that have allowed us to bring in a really advantageous third-party product. A lot of that is in the lower-priced categories of flour to sort of supplement the necessary merchandising that we need in that retail strategy as we've continued to see an uptick in the production in Colorado with regards to the flour that's coming out of our own facility. So these are all, you know, these are all great problems to have. I think from a consumer behavior point of view, we've definitely seen an uptick in sort of those in that climbing that ladder on good, better, best strategy with regards to consumers, you know, moving out of value selections into more of the mids and even in some cases, the premium. Premium flour is still something as an industry, we know that when you have great flour and it hits the shelf, it's going to be sold with good velocity and you're going to get good pricing for it. So I think the strengthening of the middle has been a promising sign in a number of markets as we see that increased stability from a consumer spending point of view. And I think the other thing that's been exciting is we've continued to sort of experiment with different bulk and packaging sizes across the spectrum of that flower. So not necessarily into the super high premium, but in brands like Classics and Seed & Strain for us, which are in that better category, we've seen some larger format that has done very well from a sales point of view. So without sort of going into every individual market and speaking to the allocation, I think the overall theme here is continue to see an increase in testing and quality coming out of cultivation nationally, thanks to the team and those SOPs that have been implemented in a number of facilities. And that's ultimately led to our own first-party brands seeing a higher concentration of mids and premium with regards to the flour that we're putting on the shelf.
spk11: No, I appreciate that, Clark. Thank you. And then second for me, just on Ohio, you mentioned enhancing capacity there. Just Kind of looking for an update on the supply-demand environment and maybe just the – maybe potential timing for adult use coming online in that state.
spk08: Thanks.
spk03: So why don't we turn it over to the ops first, then I can comment on the sort of adult use conversation.
spk02: Yeah, so I think everybody's talked about the pricing dynamics in Ohio have been challenging. I think people have been expecting doors to open, and it's been a slow ramp, but we do expect doors to open. any potential pressure you might see on the retail side for incumbents, I think you should see an opportunity on the wholesale side. There's obviously a number of non-vertically integrated players in the state of Ohio as well. And so I think you continue to see people that are vertically integrated finding ways to be thoughtful about the new door opening opportunities in the state. So I think the pricing compression and the challenges people have seen, we obviously have seen the same, but I think we've been able to weather the storm again, really focus on expense management in the state of Ohio. We've now integrated the fifth location, which was a GLEAF location as of the end of July. So the teams are actually going through that process right now. And we do have incremental capacity. So Ohio is one of the states where we did take down plant count when we had canopy reduction. So we've got an opportunity to lean back into that. And it's one of the states where we've brought in a few new products to develop. And there's probably some small CapEx that we might make in that state on the post-harvest side as well to bring in some new products. So There's a lot for us to do operationally there, and I think, you know, as Jesse just mentioned, having the right mix of high-quality flour and in-demand concentrates goes a long way to driving not only foot traffic in your doors, but creating wholesale opportunities.
spk03: In terms of the political environment, I would break it into two different categories. There's what we know and what we don't know. What we know is that the new dispensaries that are coming online will be a net add to access for patients or for consumers to and those are going to be very, very helpful from a wholesale perspective. You're basically almost doubling the size of the dispensary count, which is great news. From a legalization perspective, an adult use perspective, everyone believes that the passage of the, let's call it the voter referendum, is something that will certainly provoke a response from the legislature, but Ohio is an environment where the legislature can do a whole range of things, including effectively disregard or change the voter referendum so that it's almost irrelevant. Will that happen? Probably not. Will it happen in the same way that people are hoping? Probably not. Will it be somewhere in the middle? Probably. And so how the legislature ultimately decides to sort of transition a voter referendum into something more tangible is going to take time. It's not going to be overnight. And that's why I want to focus everybody on what we know today and what's happening today. Because the increase of the market size today is meaningful. And the access, you know, the ability to access that market on the wholesale and the retail front is meaningful. Now, what does that portend for the future? It means you've got a definitive pathway for a growing market. And does that mean the market goes up, you know, like it did in Maryland, you know, 100% overnight? Or does it mean it looks like something more like, you know, Illinois or Massachusetts where it went up by multiples? probably the latter, but that doesn't happen, you know, this calendar year. It probably happens sometime, you know, in the first half of next year. But that's going to be a very long politicized process that we'll all have insight into. But I wouldn't bank on it today because, you know, there are enough things to keep everybody busy and keep everybody excited about Ohio in the meantime.
spk08: Great. That's it for me. I appreciate the call. Thank you.
spk01: Thank you. One moment for our next question. We have a question from Ty Collin with 8 Capital.
spk09: Your line is open.
spk13: Hey, good morning, guys. Thanks for the question. Mindful of the time here, I'll limit myself to one. I'm just wondering if you could provide a little more color on the operating cash flow this quarter as we're waiting for the full queue to hit, specifically looking for the contribution from working capital and tax payables here. And then maybe you could also comment on how those two items are going to impact cash flow for the balance of 23. That'd be great. Thanks.
spk16: Yeah, this is Derek. I'll cover that. So the operating cash flow, as you'll see in the queue when we file later today, that was a $313,000 outflow. So essentially neutral. The contributors to that are from the adjusted EBITDA improvement quarter over quarter. And from a working capital perspective, We did have a reduction quarter over quarter, so we're starting to see some of the benefits we've talked about in previous quarters with reducing inventory and that being a contributor to working capital. We've been paying taxes in the quarter. We've deferred a small amount in the quarter. We're continuing to be a taxpayer and not using that as a major source. We still have that as one of our levers. But it's really the operating results improvement that's driving that essentially flat operating cash at quarter over quarter, and we'll continue to drive towards that positive operating cash flow in Q4 as we stage as our target.
spk13: Great. Thanks for that, Kyler and Derek.
spk01: Thank you. We have a question from Glenn.
spk09: One second. I'm sorry. We have a question from Glenn Matheson with Ladenburg Thalman. Your line is open.
spk06: Hi. Thanks for the question. Just one for me, Nick. We've hit on most of the markets that you're in today so far, except maybe the two that might have the biggest potential change and potential impact should something happen there, and that's like New York and Pennsylvania. So maybe over the next – I realize they're – You know, there's a lot going on there, but maybe could you just give us an update quickly on how those two markets are developing and, you know, those two markets seem like two that could make you – make people more excited about the company over the next, say, 24 months or something. So maybe just some color on those would be great.
spk03: Well, I'm pretty excited about the company without those two markets. With those two markets, you know, I think I get frothy. So let me take the easy one first. Ironically, it's Pennsylvania. We have arguably the most scaled manufacturing and cultivation infrastructure in Pennsylvania. And obviously, why that matters to us is not because we have a huge retail network in Pennsylvania, but because we have a huge retail network outside of Pennsylvania and outside of Florida. And so we become a very, very valuable partner nationally for the larger players. And as we all know, Pennsylvania really has over-indexed the MSO footprint. And so that becomes a very important strategic tool for us, especially as adult use comes. And I think that, you know, how it comes, when it comes, it's probably first half next year. It looks like it's going to be legislatively driven and it looks like it's going to be bipartisan. So I think that that's a net positive for us. And by the way, that is one of the facilities that we reduced canopy in more so than any other market. So if you ask me, like, what single facility would have the biggest single impact on our financial performance if we could get it right it's going to be that manufacturing cultivation facility in saxon pennsylvania and so that's why that becomes so important for us new york um you know new york is a fun one to talk about you know i think if you you probably go into management team offices around the industry um and around albany and and frank around law enforcement I think that the New York regulators probably have their face on almost every single dartboard that you could find. And that's because they haven't really done a great job of rolling out a program, creating a program that works, and really enforcing their own regulations. And it's perplexing because it's a billion-dollar tax revenue opportunity for the state over the next several years. And it doesn't seem to be getting the attention that it deserves, especially in an environment where The city, the state, whatever municipality you look at in New York, everybody is struggling to generate tax revenue. And ultimately, I think that's our saving grace, which is you have a market that really is open but isn't functioning. And it's, you know, the only beneficiaries have really been the illicit market operators. And I know that everyone loves to use legacy as a euphemism, but, you know, not every legacy operator is, you know, sort of is an angel, just like not every sort of regulated operator is perfect. And so I think that the opportunity in New York is to work with the regulators to do our very best to explain to the policymakers what a profound impact a properly regulated New York market would actually do for New York State and actually translate that to something that's functioning. We obviously have invested an enormous amount of money into New York. We have great locations. We have a team that's very motivated. We continue to sort of improve and increase the offering And we're excited to work with New York State. We're just looking for that open door to have a conversation that actually culminates in something that's constructive, that isn't based in, let's call it, policymaking that is deaf to the realities of the industry and hasn't really addressed some of the real problems of the underlying opportunity that New York is missing out on. So, you know, that's a work in progress. I think that you see, you know, the way the... The way everything is heading right now, we're looking for a fourth quarter rollout to include the ROs in the program, but it's New York. So are we building that into our forecast? We are not. Should that be a 2024 impact? It should. But we're not in a place where we have any visibility into what New York is thinking. And so we're ready to take advantage of that, and we're just grateful that we have a diversified portfolio where this becomes a real growth opportunity for us long term. rather than something that we're relying on for us to actually show improvement in the near term or midterm.
spk06: Yeah, great. Thanks, Nick. That's great, Kelly.
spk09: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
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