Fluent Corp

Product quality has enabled us to sustain higher pricing across virtually all product categories, including flour and vape cartridges. During 2023, we also released our first line of concentrates. Cured sugar was the product of our first choice in our first rollout. And in 2024, we're looking forward to releasing additional concentrate lines and dab-able products. We've also made considerable improvements to our delivery devices, our product components, and packaging that will help improve the patient experience. We saw some strength in the average basket size during Q4, which is partially driven by the higher average pricing, and encouraging signs we move into 2024. It does appear that the pricing decline has arrested and is now starting to incline. I want to acknowledge the recent Supreme Court ruling, which allows the possibility of adult use on the ballot in the fall. We remain focused on operating our business under the current regulatory framework, and we look forward to doing our part to help this measure pass the referendum. In the Pennsylvania market, we are rapidly expanding our preferential partnerships with wholesale suppliers, which has helped us remain price competitive in this market. During 2024, we look forward to expanding these relationships to further increase our local dispensary market share. We'll also expand our flagship dispensary at Hanover, which should go to its final inspection this week. This expansion will more than double the patient access area, the point-of-sale calendars, and the storage space, while improving the overall customer experience. At the market level, price trends in Pennsylvania have remained generally stable. Growth within the Pennsylvania market is largely coming from expanded profit rate product offerings, enhanced dispensary facilities, and these additional wholesale partnerships previously described. Moving on to Texas, while this state remains in its infancy, we are continuing to see patient growth and increasing retail volume, albeit over a small base. This is a positive market signal ahead of our planned opening of the Brick and Mortar Center here in Houston, which will also serve as an education center for doctors and patients in the area. We currently expect this education center to open by the first quarter of 2025. As a reminder, we are one of only three license holders in the state of Texas, and we're actively working to grow our presence in what we view as a market with significant potential, although a small nascent market today. In 2024, we continue to implement and execute the objectives laid out in 2023 to improve our operations and drive profitable growth across our footprint. We will remain opportunistic in our approach to expanding our footprint and are poised to deliver another year of revenue growth and cash flow generation. On that front, our Ruskin facility in Florida is in full production with the first harvest expected in July. The new Rosa facility is under construction of what will be a high-quality flower facility. This is adjacent to our existing Tampa facility, and we expect the first harvest to come in Q4 from Rosa facilities. I'll now hand it over to the CFO, Jeff, to walk through the financial highlights. Jeff, back to you.

Thank you, Robert, and good afternoon, everyone. As Robert mentioned, we're proud to report another period of revenue growth and our ninth 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 9% in the fourth quarter to $25.5 million compared to $23.4 million in the original quarter. The increase is primarily related to additional dispensaries opened in Florida and higher patient counts. Operating expenses in the fourth quarter were $9.3 million compared to $7.8 million. This was attributable primarily to higher salaries and wages as well as increased sales and marketing costs related to our new dispensaries in Florida. As a percentage of revenue, operating expenses were 37 percent in the fourth quarter compared to 33 percent last year. Adjusted gross profit for the quarter was 12.6 million or 49.4 percent of revenue compared to 0.7 million or 3.1 percent of revenue. The change in gross margin was primarily related to the IAS 41 addendum adjustment made in 22, as well as operational efficiencies in cultivation and production in the fourth quarter of 2023. Adjusted EBITDA for the quarter was $6.9 million compared to $7.9 million, with the decrease primarily attributable to additional salaries and wages. The additional salaries and wages were driven by additional employees to support our dispensary growth. Cash from operations during the fourth quarter was $1.4 million compared to $3.6 million in the prior period. For the full year, revenue increased 11% to $97.3 million compared to $87.7 million in 2022. The increase is primarily related to additional dispensaries opened in Florida and higher patient counts. Operating expenses for 2023 were $38.3 million compared to $33.1 million, with the increase primarily attributable to increased headcount to support our new store growth. Adjusted gross profit for the full year was $49.5 million or 50.9% of revenue compared to $44 million or 50.1% of revenue in the prior year. The increase in gross margin was primarily related to improved cultivation and production efficiencies as the company increases output. Adjusted EBITDA for 2023 was $27.2 million compared to $25 million with the increase primarily attributable to higher revenue on increased customer transactions, slightly offset by higher SG&A due to the additional dispensary locations. Cash from operations during 2023 was $18.5 million compared to $19.1 million in the prior year. On December 31st of 2023, we had approximately $10.5 million of cash and cash equivalents, 61.4 million of total debt, with approximately 300 million shares outstanding. We also announced today that our year-end audit revealed the need for us to make adjustments to our earnings, and the magnitude of those adjustments were such that required the restatement to spread the impact across the first three quarters of 2023. These items are broken down in the following three buckets. The first is related to our biological asset model, where we found process errors around beginning balances, which resulted in a misclassification of expenses between COGS and realized fair value of inventory. This does not impact net income, but it does impact adjusted EBITDA. The total impact is $6.7 million, and the quarters impacted are the first three quarters of 2023. The second item is a misclassification of depreciation which resulted in $2.4 million of depreciation booked to SG&A rather than to COGS during the second and third quarters of 2023. There is no impact in net income or adjusted EBITDA for this item. The last item is related to our ERTC claim, and this is generally unrelated to the classification of the transaction where we previously monetized our outstanding ERTC claim with a third party. However, given the uncertainty around the ERTC program in general and what the actions of the IRS ultimately will be regarding this program, we have removed $3.4 million of income for the third quarter. This impacts our net income, but not our adjusted EBITDA, as this was a non-recurring item that was excluded from the adjusted EBITDA calculation. This concludes our financial highlights. Operator, we will now open the call for Q&A.

Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. The first question comes from Russell Stanley of Beacon Securities. Please go ahead.