Item 9 Labs Corp

Hello, this is Jason Assad, Investor Relations with Item 9 Labs. Good afternoon and welcome to Item 9 Labs Fiscal Q2 2022 Results Conference Call for the three months ended March 31st, 2022. Joining me on today's call is our Chief Executive Officer, Andrew Bowden, and our Chief Financial Officer, Bobby Michelson. Shortly before this call, we filed our Form 10-Q, a copy of which is available on the company's website at item9labscorp.com. That's item the number nine labs or dot com. I'll start our call today by reading the safe harbor statement. The statement is made pursuant to the safe harbor for forward looking statements described in the Private Securities Litigation Reform Act of 1995. All statements made in this call, with the exception of historic facts, may be considered forward looking statements within the meaning of Section 27 A of the Securities Act of 1933 and Section 21 E of the Securities Act of 1934. Although we believe expectations and assumptions reflected in these forward-looking statements are reasonable, we can make no assurance that such expectations will prove to be correct. Actual results may differ materially from those expressed or implied in forward-looking statements due to various risks and uncertainties. For discussion of such risks and uncertainties that can cause actual results to differ from those expressed or implied in the forward-looking statements, please see risk factors detailed in our annual report on Form 10-K, those contained in subsequently filed quarterly reports on Form 10-Q, as well as other reports we file from time to time with Securities and Exchange Commission. Any forward-looking statements, including this earnings call, are made only as of the date of this call, and we do not undertake any obligation to update or supplement any forward-looking statements to reflect subsequent knowledge, events, or circumstances. Lastly, please know that we will refer to certain non-GAAP measures that, when used in combination with GAAP results, provides us with additional analytical tools to understand our operations. We provided reconciliations to the most directly comparable GAAP financial measures in our earnings press release. With that, I'd now like to introduce Item 9 Lab's Forbes Chief Executive Officer, Andrew Bowden.

Andrew. Thank you, Jason, and good afternoon, everyone. Thank you for joining us today for our fiscal Q2 2022 earnings conference call. On today's call, I will highlight recent operational momentum, as well as provide an update on our expansion progress on our Arizona and Nevada cultivation sites and the latest national development of our cannabis dispensary franchise, Unity Road. Following my remarks, our CFO Bobby Michelson will provide an overview of our financial results. Last year, our team invested heavily and focused on strengthening our position for future growth, both locally in Arizona and nationally across the United States. The momentum we've achieved over the past quarter demonstrates the power of this foundation and gives a glimpse into what's ahead for our national growth and product excellence. Focusing on execution sums up our plan for 2022 as we continue our mission to keep the door to cannabis entrepreneurship open for the everyday entrepreneur and bringing more high quality alternative medicine to consumers nationwide. As large equity holders, our goal remains aligned with our shareholders in creating long-term value and brands that are built to last. At this point, I'd like to turn it over to our CFO, Bobby Michelson, for a summary of our fiscal quarter to 2022 financial results, following which I will provide additional details about our growth strategy going forward.

Bobby. Thank you, Andrew. With our 40% growth in year-to-date revenue to $12.8 million, we've continued to demonstrate the scalability of our business through the first half of 2022. For the three months ended March 31, 2022, revenue was $6.6 million, an increase of $0.5 million, or 9%, compared with $6.1 million for the three months ended March 31, 2021. This growth was primarily driven by our investment into increased production capacity to better meet the market demand for Item 9 Labs products. For the three months ended March 31, 2022, gross profit was $2.7 million, a decrease of $0.3 million, or 10%, compared with $3 million for the three months ended March 31, 2021. The resulting gross margin was 40%, compared with 49% for the three months ended March 31, 2021. The company experienced lower gross profit margins in the second quarter of 2022 due to price reductions as competition continues to rise in Arizona. Even with the increased competition, we sold 9% more units this quarter compared to last quarter. Additionally, to deepen market penetration of Item 9 Labs products, the company's sourced plant material and extract material from third parties, the effect of which is higher gross profit but lower gross margin. Our Arizona expansion, which we anticipate completing by the end of this calendar year, will reduce our reliance on third-party materials, thus increasing profitability long-term. For the three months ended March 31, 2022, total operating expenses were $5.5 million, an increase of $3 million, or 120%, compared with $2.5 million for the three months ended March 31, 2021. We have invested heavily into fiscal 2021 and 2022 to meet growing demand in Arizona, as well as funding the build-out of our cultivation and lab site within the state. We strongly believe this expansion will improve earnings and future cash position. Operating expenses as a percentage of revenue increased to 78% from 47%, reflecting our focus on increasing revenue and scaling our platform more efficiently. We believe this ratio will decrease going forward as we scale the business. Of note, 1.8 million of our operating expenses for the three months ended March 31, 2022 were non-cash expenses, including depreciation, amortization, and stock-based compensation. Also of note, $0.7 million of interest expense for the three months ended March 31, 2022 was non-cash amortization of debt discounts. For the three months ended March 31, 2022, operating loss was $2.8 million, an increase of $3.3 million or 636% compared with an operating income of $0.5 million for the three months ended March 31, 2021. After adding back non-cash operating expenses, depreciation and amortization, interest income tax, acquisition-related costs, and stock-based compensation, adjusted EBITDA for the three months ended March 31, 2022 was a loss of $0.9 million, as compared with an adjusted EBITDA profit of $1 million for the three months ended March 31, 2021. It's important to note that approximately $1.9 million change from prior year is due to the addition of the franchise business, as well as significant investments in human capital and infrastructure to prepare for anticipated growth. For the three months ended March 31st, 2022, net loss attributable to the company was $3.9 million, or a net loss of $0.04 per share, compared with a net income of $0.05 million, or zero cents per share for the three months ended March 31st, 2021. Cash and cash equivalents totaled 0.1 million as of March 31st, 2022. I'd now like to turn the call back over to Andrew.