Fluent Corp

Good afternoon, ladies and gentlemen, and welcome to consortium's third quarter 2021 conference call. Joining us today are the company's CEO, Robert Beasley, and the company's CFO, Patricia Fonseca. At this time, all participants are in a listen-only mode. After the company's prepared remarks, the management team will conduct a question and answer session, and conference call participants will be given instructions at that time. As a reminder, this conference call is being recorded and will be available for replay in the investor section of the company's website at www.getfluent.com. Please note that certain subjects discussed on this call, including answers the company may provide to questions, may include content that is forward-looking in nature and therefore is subject to risks and uncertainties and other factors which could cause actual future results or performance to differ materially from any implied expectations. Such risks surrounding forward-looking statements are all outlined in detail within the company's regulatory filings, which can be found on CDAR.com. The company does not undertake to update or revise any forward-looking statements except to the extent required by applicable securities laws in Canada. In addition, during this call, the company will refer to supplemental non-IFRS accounting measures, including adjusted gross profit and adjusted EBITDA, which do not have any standardized meaning prescribed by IFRS. These non-IFRS measures are defined in the company's press release as well as in the MDNA as filed on CDAR. As a final reminder on today's call, unless otherwise indicated, all dollar amounts are expressed in U.S. dollars. I would now like to turn the conference call over to Mr. Robert Beasley, the company's CEO. Sir, please go ahead.

Thank you, Cherise, and good afternoon, everyone. Q3 was another productive quarter as we worked to complete various cultivation expansion projects. while opening new retail doors in both Florida and Pennsylvania. We generated 9% year-over-year revenue growth to $15.6 million in Q3 and increased adjusted EBITDA by 34% to $4.9 million. In fact, this was our eighth consecutive quarter of increasing adjusted EBITDA on a year-over-year basis, which reflects how far we've come these past few years, and particularly through 2021 during our expansion. In Florida, we opened two new dispensaries during this quarter, Deerfield Beach and Fruitland Park. Both locations present excellent opportunities. Deerfield Beach store services high growth neighboring cities like Boca Raton and Palm Beach, while Fruitland Park location is strategically located 10 miles from the largest retirement community in the U.S. called The Villages. As mentioned on our last quarterly update, we have identified four additional retail locations in Florida. and have those locations under LOI at this time, anticipate those to be opened by mid next year, bringing our total Florida footprint to 31 stores by mid 2022 with a goal of 33 stores by the Q3 of 2022. Also during the quarter, we received approval from the Florida Department of Health to commence operation on all of the indoor rooms at Sweetwater facility and the remaining greenhouse bays. This makes the Sweetwater facility fully operational at this time. Products from these expansions hit the shelves earlier this month, and this is in line with the timeline that we provided on the last quarterly update. Now we continue to refine the grow process and environmental controls at the Sweetwater facility, and it continues to produce higher and higher product quality with significantly better yields. The yields at this date are double our initial projections. In Tampa, we've added an additional 5,000 square foot of indoor grow that will come online in early next year. I anticipate March of 2022. We've continued to see construction delays on this site, both with the grow portion and the production and processing production. But this additional grow space was not contemplated in our 2021 guidance. So there's no impact aside from having the additional capacity come online in 2022. Our focus point remains to be quality and it's now resonating with our patients. New patient capture rates have dramatically improved. We continue to take more and more of each new patients as they register, percentage wise, and we have revitalized our physician outreach program, which is reaping great success now. All said, between Tampa and Sweetwater, we continue to expect having the facilities all dialed in and running to maximum production by February 2022. I've actually given Valentine's Day as the goal date for that, as stated in our last quarterly update. I cannot emphasize the importance of having this new grow capacity enough in our company history. For the first time in company history, this company will be in a position of having a strong, robust inventory in all stores at all times and a continual flow of a full range of products going to the stores. We have set up logistic distribution centers to accommodate servicing all stores with equal and ample supply of material. This component, increased capacity, changes the dynamic for Fluent going forward. Quickly touching on the competitive dynamics we saw in Florida during this quarter, and it's been a much popular and talked about topic, which was the price competition among the several MSOs. From our perspective and our viewpoint, This was viewed as more of a liquidation event than an all-out price war. We had several mergers. The two mergers of the two large MSOs with local Florida companies caused a price disruption, causing that disruption as a result of liquidations that were forced by the regulatory transfer of the licenses. Prices now seem to have normalized, and we have returned to a normal scenario and normal competitive pricing, although competition is heating up. we no longer see the dramatic price discounting that we witnessed in late August and September. Looking at our other markets, in Pennsylvania, we recently opened our second dispensary in the state of Mechanicsburg. This has had a very well-received grand opening. Each of our two stores in the states are trending towards 9 to 10 million annual run rates, and we expect to have a third location opening soon in Anvil. Construction is underway in Anvil. We have completed the demolition and the plans are approved. We have green-lighted the contractor to begin and all permits are obtained. We anticipate completing the build-out in the end of Q1 2022. In Michigan, we sold 2,600 pounds of biomass from last season and our final 700 pounds of flour during the third quarter. The flower was sold to an entity, Green Standard, that's not yet consolidated into our books, so the revenue from the flower sale is not reflected on our revenue figures. However, the sale results in approximately $300,000 in adjusted EBITDA. This year in Michigan, we've turned out a great crop. We're presently in the harvest and bucking process. We are at about 1,900 kilograms harvested so far, with flower ranging from 14% to 25% THC levels. Overall, the crop will be much larger than last year. If you recall, we last year started about a month and a half late. This year we're on time with the crop and actually a little early for the market. We anticipate about 17,000 pounds total harvest over 5,400 plants. However, pricing continues to be volatile in Michigan. We are still continuing to face the type of price fluctuation that we witnessed last year, although a better understanding of the market allows us to be better prepared. In order to deal with the hold pattern that we found ourselves in to allow pricing to return that we found ourselves in last year unintentionally, we have intentionally prepared for that by preparing to have the adequate equipment to treat, process, and seal the product in order to strategically time sales throughout the year with anticipation of the market prices continuing to return as we get towards spring and summer as they did this year. Michigan pricing continues to be volatile as an outdoor harvest state and we continue to suffer from regulatory, really a lack of regulatory oversight in that state. As outlined in our press release earlier today, due to the lower flower sales in Florida, we're revising our 2021 revenue guidance for the year end. and expect now a total range between $63 million and $66 million. However, we're holding our adjusted EBITDA guidance and expect to come in at the low end of our original forecast between $18 million and $26 million. Despite lower sales in Q3 due to the competition issues we mentioned earlier in Florida and other issues with regard to production and construction delays, we still expect to exit the year with a strong run rate, with more flour and oil hitting the shelves this quarter than ever before, and the full production of our expanding cultivation hitting the shelves in February 2022. Particularly, I could say that our Thanksgiving was a phenomenal period of time. We reached record sales and experienced the full volume of the production ramp that has now graced our shelves with full product. With that, I'll pass the call to Patricia to walk through the details of the financial results, and then we'll open the call for Q&A. Patricia?

Thank you, Robert. Thank you. Good afternoon, everyone. Please note that all figures are in U.S. dollars and all variance commentaries on a year-over-year basis, unless otherwise specified. So I'll go into results. Third quarter revenue increased 9% to $15.6 million compared to $14.3 million. The increase was largely driven by increased retail footprint in Florida, which went from 20 stores last year to 27 this year in the third quarter, as well as improved throughput as we continue to see better production needs. This led to a 4% increase in Florida revenue to $13.1 million compared to $12.6 million, with the growth partially offset by the market dynamics that Robert just mentioned in the call. Adjusted gross profit in Q3 increased to 9.8 million, or 62.7% of revenue, which compares to 9.5 in 2020, or 66.6% of revenue, with the variances there driven mostly by the market price in Florida. Third quarter operating expenses totaled 8.5 million compared to 9.7 million, reflecting a 12% reduction as a percentage of revenue, OPEX decreased significantly to 54.6% compared to 67.6%, with improvements driven by more efficient G&A expanded lower stock-based comp. Third quarter net income totaled $7.4 million, or $0.02 per share, compared to a net loss of 8.7% or 4% per share in the year-ago quarter. Adjusted EBITDA increased 34% in the third quarter, to 4.9 million, or 31.4% of revenue, compared to 3.6 million, or 25.5 of revenue in 2020, with an increase resulting from our continued focus on profitability and diligent cost management. Starting from the balance sheet at September 30, 2021, we had 13.8 million in cash and unchanged total debt of 71 million. From a capex perspective, we continue to anticipate total capex of approximately 20 to 25 median between 2021 and 2022. And through September 2021, we deployed approximately 50 median of that 20 to 25 median, which leaves us about 4 to 9 median headings in 2022. And as Robin mentioned, we have adjusted our whole year revenue guidance for 2021. And now we expect revenues to range between and 66 million, with the good news being we didn't change our EBITDA range of 18 to 26 million. We're going to come in the lower range there, but still within the range, disrespecting margin improvements mentioned earlier. Growth of approximately 23% and 114% for revenue and adjusted EBITDA at the middle point. So good progress there on the adjusted EBITDA, as mentioned by Robert. Operator will now open the call for Q&A.