Item 9 Labs Corp

This is Jason Assad with Investor Relations with Item 9 Labs. Good morning and welcome to Item 9 Labs Fiscal Q3 2022 Results Conference Call for the three months ended June 30th, 2022. Joining me on the call today are Chief Executive Officer Andrew Bowden and our Chief Financial Officer Bobby Mikkelsen. Shortly before this call, we filed our Form 10-Q, a copy of which are available on the company's website at item9labscorp.com. I'll start 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 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. Although we believe the expectations and assumptions reflected in these forward-looking statements are reasonable, we can make no assurances 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 a discussion of such risks and uncertainties that could cause actual results to differ from those expressed or implied in the forward-looking statements, Police see risk factors detailed in our annual report on Form 10-K, those containing the subsequently filed quarterly reports on Form 10-Q, as well as other reports we file from time to time with the Securities and Exchange Commission. Any forward-looking statements included in this earnings call are made only as of the date of this call. We do not undertake any obligation to update, supplement any forward-looking statements to reflect subsequent knowledge events or circumstances. Lastly, please note that we'll 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 have provided a reconciliation to the most directly comparable GAAP financial measures in our earnings press release. With that, I'd now like to introduce Item 9 LabCorp's Chief Executive Officer, Andrew Bowden.

Thank you, Jason, and good morning, everyone. Thank you for joining us today for our fiscal Q3 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. Our team has made great strides in rolling out our retail franchise into additional markets as exemplified by our recent openings in North Denver and South Dakota, as well as our pending acquisition in Canada. To maintain our growth momentum and continue gaining market share, we are focused on setting the bar for premium high quality products across our four categories. Our Orion has done exceptionally well in the market and is a favorite among dispensary team members throughout Arizona. As we seek opportunities to expand our products nationwide, we anticipate this foundational success will prove well in our target growth markets. At this point, I'd like to turn it over to CFO Bobby Michaelson for a summary of our fiscal Q3 2022 financial results, following which I will provide additional details around our retail and product growth.

Thank you, Andrew. Despite industry headwinds, we've shown strong year-to-date revenue growth of $17.8 million, continuing to demonstrate the scalability of our business through the first nine months of fiscal 2022. For the three months ended June 30, 2022, revenue was 4.9 million, a decrease of 1.8 million, or 26%, compared with 6.7 million for the three months ended June 30, 2021. The decline was primarily due to supply chain delays. For the three months ended June 30, 2022, gross profit was 1.6 million, a decrease of 0.5 million, or 45%, compared with 2.9 million for the three months ended June 30, 2021. For the three months ended June 30, 2022, gross profit was 1.6 million, a decrease of 1.3 million or 45% compared with 2.9 million for the three months ended June 30, 2021. The resulting gross margin was 32% compared with 43% for the three months ended June 30, 2021. The company experienced lower gross profit margins in the third quarter of 2022 due to price reductions as competition continues to rise in Arizona. Item 9 Labs products remain as one of the top brands in the state. Additionally, to deepen the market penetration of Item 9 Labs products, the companies source plant and extract materials from third parties. 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 June 30, 2022, total operating expenses were $5.4 million, an increase of $2.3 million, or 73%, compared with $3.1 million for the three months ended June 30, 2021. We 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 positions. Of note, $1.6 million of our operating expenses for the three months ended June 30, 2022 were non-cash expenses, including depreciation, amortization, and stock-based compensation. Also of note, $0.6 million of interest expense for the three months ended June 30, 2022 was non-cash amortization of debt discounts. For the 3 months ended June 30, 2022 operating loss was 3.8M, an increase of 3.6M compared with an operating loss of 0.2M for the 3 months ended June 30, 2021. After adding back non-cash operating expenses, depreciation and amortization, interest, income tax expense, acquisition-related costs, and stock-based compensation, adjusted EBITDA for the three months ended June 30, 2022 was a loss of $1.8 million as compared with an adjusted EBITDA profit of $0.2 million for the three months ended June 30, 2021. It's important to note that approximately 2.4 million change from the 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 June 30, 2022, net loss attributable to the company was 5.5 million, or a net loss of 6 cents per share, compared with a net loss of 0.8 million, or one cent per share, for the three months ended June 30, 2021. cash and cash equivalents total 0.4 million as of june 30 2022 in addition to cash and cash equivalents the company has escrow deposits totaling 8.6 million reserved for its expansion projects i'd now like to turn the call back over to you andrew now i'd like to provide an update on our growth initiatives which are focused on unity road openings and footprint expansion as well as our cultivation production