Fluent Corp

Good afternoon, ladies and gentlemen, and welcome to Consortium's second 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 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 involved. 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 law 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, unless otherwise indicated, all dollar amounts are expressed in US dollars. I would now like to turn the conference over to Mr. Robert Beasley, the company's CEO. Sir, please go ahead.

Thank you and good afternoon, everyone. We continue to generate strong revenue growth in the second quarter, stemming from both new store openings in Florida and organic growth, while generating positive cash flow for the seventh consecutive quarter. We also recorded our first revenue contributions from our early efforts in Texas, marking a key milestone as we work to establish a strong foundation in this high potential market. Looking at our second quarter and operational highlights, In Florida, we delivered another consecutive quarter of double-digit year-over-year revenue growth, with revenue in the state improving 11%. This was driven primarily by the six new store openings compared to the prior year. However, a majority of these stores are still ramping up and are yet to reach their full run rate potential. Last week, we opened our 33rd dispensary in Jacksonville, and we plan to open another one to two new stores by the end of this year as we seek to gain additional market share in this state. We continue to see improvement in our cultivation in Florida as we focus our efforts on producing more high quality, high THC products to include concentration, which should be rolling out by October. On average, THC percentage is now over 24%, which enables us to stock our shelves with products that command higher prices. Fluent is gaining a reputation for high quality flour in Florida. Although we are seeing some price compression in the market, our improvement in flower quality and mix has led to an increase in store traffic and the transaction counts, as well as an increase in flower and market share over the second quarter. We just completed a move of our headquarters from Miami to Tampa. We expect this move will create 30 new corporate jobs with an average salary of $100,000 and are excited to join the city's expanding business ecosystem. As many of you know, our manufacturing and production facilities are in Tampa, And this provides for a consolidation of our executive and top-level management. Moving to Pennsylvania, we once again generated meaningful and organic growth in this state due to our inventory optimization efforts and expanded product assortment. Our efforts are now fully embedded into our Pennsylvania operations and have helped establish a new baseline for gross margins and adjusted EBITDA in the state. These initiatives have helped insulate our business from the ongoing price compression impacting operators in Pennsylvania. We're currently exploring several partnership options to expand our market footprint in Pennsylvania at this time. In Texas, our efforts have began to bear fruit. As we've recorded our first B2B sale during the second quarter, we're in the early operations of ramping up in the state. We continue to believe that Texas has the potential to become a top cannabis market in the long term and are pleased to see this progress validate our position as a first mover. Despite the lack of regulatory progress, we remain optimistic about the prospects for positive market developments. In the meantime, we are working on getting our first brick and mortar delivery center in Houston open. We expect this to open by the end of 23. This location will be instrumental in serving patients in the Houston area and provide as an education center. And we've now begun delivery progress in San Antonio and Austin. Subsequent to the quarter end, we appointed John Mazarrakis to our board of directors in July. John brings over 25 years of entrepreneurial and operational and managerial experience to the company, and we look forward to leveraging his diverse background as we grow our footprint. As we progress through the second half of 2023, we'll continue to drive profitable growth in our existing markets and open new stores, improve our cultivation and manufacturing operations, and advance our ongoing inventory optimization. We'll remain optimistic in our approach to M&A and will continue to evaluate new market opportunities. Although the broader landscape of the cannabis industry remains challenging, we are well positioned to deliver another year of revenue growth and cash flow generation as we continue to execute on our objectives. I'll now hand it over to Jeff to go through our financial highlights.

Thank you, Robert, and good afternoon, everyone. As Robert mentioned, we're proud to report another period of revenue growth and our seventh consecutive quarter generating positive cash flow from operations. Please note, all figures are in U.S. dollars, and all variance commentary is on a year-over-year basis, unless otherwise indicated. In Q2, revenue increased 9% to $24.4 million, compared to $22.4 million in the second quarter of prior year. The increase was largely driven by organic growth in Pennsylvania and new stores across our Florida operations. Gross profit before a fair value adjustment for the quarter increased 5% to $15.8 million or 64.6% of revenue, compared to $15 million or 67% of revenue. Operating expenses in the second quarter were $11.3 million compared to $8.2 million, attributable primarily to higher sales and marketing costs for new store openings, as well as higher depreciation and amortization expenses arising from capital expenditures for our cultivation and manufacturing facilities, as well as for our new store openings. As a percentage of revenue, operating expenses were 46% compared to 37% last year. We expect operating margins to improve as our new stores ramp in the coming months. Adjusted EBITDA for the quarter was $8.6 million compared to $10.2 million with a decrease primarily attributable to increased SG&A related to the new store openings that are still ramping. Cash generated from operations during the second quarter was $4.8 million, and at June 30, 2023, we had approximately $8.8 million of cash and cash equivalents and $59.3 million of total debt, with approximately 298 million shares outstanding. This concludes our financial highlights. Operator will now open the call for Q&A.