Fluent Corp

Good afternoon, ladies and gentlemen, and welcome to Consortium's third 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 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 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, unless otherwise indicated, all dollar amounts are expressed in US 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, Gaylene, and good afternoon, everyone, and greetings from sunny Las Vegas. Well, we reached several key milestones in the third quarter, not only by generating record revenue and cash flow generation, but by posting our eighth consecutive quarter of positive cash flow from operations. These metrics underscore both the consistency of our business and the execution of our strategic initiatives as we lay the foundation for consortium's future growth. Jumping into our third quarter and recent highlights, in Florida, we grew revenue 17% in the state while continuing to ramp the four stores we opened in 2023. The additional headcount and marketing costs associated with these new stores has partially impacted our bottom line as they ramp. However, the investment in our team and overall infrastructure are necessary to support continued growth. We plan to open one additional store in Florida by the end of the year, and another one will follow in early February of 2024. On the cultivation side, we continue to realize the benefit of investments we made across 2023 with our flower quality seeing further and further improvement and our average THC percentage now being above 26% and a recent harvest of 36%, which will be on the stores soon this week. Third quarter generally presents a challenge in all of Florida due to both the heat of the summer impacting cultivation facilities, as well as many of our residents and cardholders leaving the state before returning in the winter, leading to lower seasonal demand at our dispensaries. That said, our improved product quality has enabled us to sustain higher pricing, which has helped offset some of the volume decline during the summer months. All things considered, the third quarter in 2023 held up relatively well compared to the second quarter, and we've seen pricing pressure in the market begin to stabilize. In Pennsylvania, we dedicated most of 2023 to fine tuning and optimizing inventory management. And I'm pleased to report that our current inventory reflects a sustainable and normalized rate. Operational improvements have now taken hold. And as I mentioned last quarter, we've established a normalized gross margin and EBITDA level for Pennsylvania. The next step in the Pennsylvania development is to continue our search for high quality partnership to grow our operation vertically and add depth in the state to supplement the three existing medical stores. Moving to Texas, while the state remains in its infancy, we are seeing a high rate of growth in the retail volume. Albeit small base numbers, the rate of growth is significant. This is a positive market signal ahead of our planned opening of our first brick and mortar location in Houston in the first half of 2024. This location will also serve as an education center and a telemedicine center for patients in the area. As a reminder of Texas, we are one of only three license holders in the state. We're actively working to grow our presence in what we view as a market with significant potential and an absence of competition. As we close out the year and look ahead to 2024, we'll continue to implement and execute the objectives laid out throughout the year to improve our operations and drive profitable growth across our footprint. We will remain opportunistic in our approach to expanding our footprint geographically and are poised to deliver another year of revenue growth and cashflow generation in 2023. I'll hand it over to Jeff Batliner to walk through the financial highlights. Jeff?

Thank you, Robert, and good afternoon, everyone. As Robert mentioned, we're proud to report another period of revenue growth and our eighth consecutive quarter of 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. Revenue increased 14% in the third quarter to $25.3 million, compared to 22.1 million in the year-ago quarter. The increase is primarily related to additional dispensaries opened in Florida and higher patient counts. Operating expenses in the third quarter were 11.7 million compared to 8.5 million, attributable primarily to higher salaries and wages, as well as increased sales and marketing costs related to our new stores in Florida. As a percentage of revenue, operating expenses were 46% compared to 38% last year. Adjusted gross profit for the quarter was 16.1 million or 63.9% of revenue compared to 16.7 million or 75.5% of revenue last year. The change in gross margin was primarily related to lower average tickets per transaction. Adjusted EBITDA for the quarter was 8.8 million compared to 11.7 million with the decrease primarily attributable to additional salaries and wages as well as lower average ticket per transaction. The additional salaries and wages were driven by two items, additional employees to support our store growth, and by a wage increase for our entry-level retail staff to aid recruitment and employer retention. These were partially offset by a positive impact of increased patient transactions. Cash from operations during the third quarter increased 32 percent to a record $7.1 million, compared to $5.4 million in the prior year period. At September 30, 2023, we had approximately $12.1 million of cash and cash equivalents, and $60.3 million of total debt, with approximately 298 million shares outstanding. This concludes our financial highlights. Operator, we'll now open the call for Q&A.