Fluent Corp

Good afternoon ladies and gentlemen and welcome to consortium's first quarter 2023 conference call. Joining us today are the company's CEO Robert Beasley and the company's CFO Jeff Batliner. At this time all participants are in 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 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 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 EBITDA, which do not have any standardized meaning prescribed by IFRS. As a final reminder on today's call, otherwise indicated, all dollar amounts are expressed in U.S. dollars. I would now like to turn the conference over to Mr. Robert Beasley, the company's CEO. Sir, please go ahead.

Thank you, Ariel. Good afternoon, everyone. We once again delivered double-digit revenue growth, adjusted EBITDA margin and expansion, and strong cash flow generation in Q1 2023, despite the challenging landscape for the cannabis industry. We are continuing to see meaningful operational improvement in Pennsylvania and Florida and now working to expand our capabilities in Texas. Turning to the first quarter operational highlights, in Florida we delivered 10% year-over-year revenue growth in Q1. As mentioned in my last conference call in May, we recently opened three new stores in Florida, which helped drive our revenue improvement and are still planning to open four more stores by the end of the year. We've continued to gain market share in the state, bucking the trend faced by many of our competitors in Florida. We're also now producing higher THC products on average, as our cultivation improvements and recovery from the hurricane are now starting to bear fruit. This is important because as the average THC increases, the harvests are now averaging 23% on average, with some harvests being well over 30%. Our overall ratio of high-quality flour is increasing. This enables us to sell more products at higher price points and stock our shelves with more A and B quality grade product. Further to our cultivation in Florida, I'm pleased to announce that we recently entered into a contract subject to financing to acquire a property that will become a new 70,000 square foot cultivation facility and a two and a half acre greenhouse. We look forward to providing updates on this project later as the year progresses. Finally, we just recently announced that we plan to move our headquarters from Miami to Tampa, Florida. a change which we expect to finalize in September. This move will see the company create more than 30 key corporate jobs in Tampa with an average salary of $100,000. In addition, we are taking out double the square footage of commercial office space for about $500 less per month. So getting more for less in the move to Tampa, it also consolidates our management team in the proximity of our cultivation center. Turning to Pennsylvania, We generated strong sales growth in the state without opening any additional stores. This really is a reflection of our optimization efforts with respect to new product introductions and inventory management. Earlier this year, we hired a new inventory specialist that has completely reorganized the inventory management in the state. This more targeted approach has led to organic sales growth along with improved gross margins and adjusted EBITDA. In Florida, we've also introduced chocolates and drink powder, which are showing early success. Finally, in Texas, two pieces of legislation recently failed that would have decriminalized cannabis and expanded the state's medical cannabis program. Although we are disappointed in the Texas Senate's failure to take action, we commend Texas Representative Joe Moody and Representative Stephanie Click and their representative authors and co-sponsors for their continued work to enact meaningful legislation on cannabis reform. We continue to believe that Texas has the potential to become a top cannabis market in the long term, and our first mover advantage remains as we are still one of only three license holders in the state. Our Texas business is now fully operational and we continue to gain ground. We're selling to other operators in the wholesale market and have a suite of products, existing patients, and ongoing retail sales. Despite the lack of regulatory or legislative movement, we believe the market is now starting to develop at a manageable pace. In the near term in Texas, we will continue to build out our operations in Houston, and expand our delivery capabilities to service patients in Austin and San Antonio, because we believe that all Americans, including Texans, deserve access to safe, tested medical cannabis. As we near the halfway point of 2023, we look forward to further driving growth and profitability in our existing markets through new store openings. We continue to improve cultivation and manufacturing and increase optimization in operating efficiencies. We're constantly evaluating opportunities in new markets, and we will remain optimistic with our M&A strategy. In the meantime, we're continuing to execute on our organic strategy and well on our way to delivering a year of strong growth in cash flow generation. I'll now hand it over to Jeff Batliner to walk through the financial highlights. Jeff?

Thank you, Robert. Good afternoon, everyone. As Robert mentioned, we're proud to report on another period of strong improvement across all key financial metrics. Please note all figures are in U.S. dollars and all variance commentary is on a year-over-year basis unless otherwise specified. Revenue increased 12% in Q1 to $22.1 million compared to $19.7 million in Q1 of 2022. The increase was largely driven by growth in Florida with three additional stores compared to the prior year, as well as a new store in Pennsylvania. The growth was also driven by improved store-level economics. Adjusted gross profit for the quarter increased 22% to $14.1 million or 63.9% of revenue, compared to $11.5 million or 58.6% of revenue, with the increase in adjusted gross profit due not only to higher revenues, but also to efficiency gains in our cultivation and production operations. Improved processes have lowered costs. Operating expenses in the first quarter decreased 3% to $8.4 million compared to $8.7 million. with the decrease primarily due to lower general and administrative expenses. As a percentage of revenue, operating expenses improved significantly to 38% compared to 44% of revenue last year. Adjusted EBITDA for the quarter increased 56% to $9.7 million compared to $6.2 million, with the increase primarily driven by revenue growth, gross margin expansion, and lower OPEX. Cash from operations improved 20% to $5.1 million compared to $4.3 million in Q1 of 2022. And at March 31, 2023, the company had approximately $9.5 million of cash and cash equivalents and $57.9 million of total debt, with approximately 296 million shares outstanding. That concludes our financial highlights. Operator, we'll now open the call for Q&A.