Vext Science Inc

Thank you for standing by. This is the conference operator. Welcome to VEX Sciences first quarter 2023 financial results conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there'll be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, You may signal an operator by pressing star and zero. I would now like to turn the conference over to Jonathan Ross. Please go ahead.

Thanks, operator. Good morning, everyone, and thanks for joining us today. VEX first quarter 2023 financial results were released earlier this morning. The press release, financial statements, and MD&A are available on CDAR as well as on the VEX website at vexscience.com. We'd like to remind listeners the portions of today's discussion include forward-looking statements, and the forward-looking statements are included in today's press release. There can be no assurance that these forward-looking statements will prove to be accurate or that management's expectations or estimates of future developments, circumstances, or results contained therein will materialize. Risks and uncertainties that could affect future developments, circumstances, or results are detailed in the MD&A and VEX, other public filings that are made available on CDAR. and we encourage listeners to read those risk factors in conjunction with today's call. As a result of these risks and uncertainties, the developments, circumstances, or results predicted in forward-looking statements may differ materially from actual developments, circumstances, or results. This presentation also includes non-IFRS financial information, and such non-IFRS financial measures are subject to the disclosure and reconciliation included in our press release disseminated earlier today. Forward-looking statements made during this conference call are made as of the date of this call. Vext disclaims any intention or obligation to update or revise such information, except as required by applicable law. Vext's financial statements are presented in U.S. dollars, and the results discussed during this call are in U.S. dollars. I will now pass the call over to Eric Offenberger, Chief Executive Officer of Vext.

Thanks, John. Good morning, everybody, and thank you for joining our first quarter 2023 financial results conference call. I am joined on the call today by Stephen Van Gogh, CFO of VEX. I will start by providing a brief overview of our results before turning it over to Stephen for an update on our financial performance. As mentioned on our previous call, and as highlighted by the results being reported by retailers across the board, in the Q1 earnings season, consumer-facing companies continue to experience sales challenges as discretionary incomes remain under pressure. In Arizona, overall market sales declined by approximately 15% in the first two months of the year, according to state data, as compared to the same period last year. Sustained pressure on consumer wallets, overall economic conditions, and changes in consumer behavior related to trade down and the ongoing medical to recreational shift were some of the key contributors. Against this backdrop, our team was able to continue to execute on our strategy. For the first quarter of 2023, BEX generated a revenue of $9.1 million and adjusted EBITDA of $2.9 million, with an adjusted EBITDA margin coming in at 32%. Dext also continued to deliver profitability, reporting EBITDA of $1.6 million during quarter one, making us one of the few companies in the sector to be able to consistently generate positive EBITDA. During the first quarter, we continued to bring traffic into our stores, with customer count growing at a double-digit rate. Our team's expertise at leveraging targeted promotional activities to grow traffic was key to generating the top-line results we realized in the quarter. Despite average basket size moderating compared to last year, aligned with market trends, we are getting better every quarter at targeting existing customers and potential new customers using a growing data set and robust analytical tools, which also led to strong customer retention numbers during the first three months of the year. We maintained our efficiency at retail with our retail operations team handling more transactions and orders during the quarter with the same headcount as in quarter one, 2022. We remain well positioned to manage our cultivation footprint based upon market needs and conditions while prudently controlling expenses. On the cultivation front, we decided to idle the outdoor grow in Pescott Valley and we'll be bringing up the EOI grow as needed to support our own volume requirements. Wholesale continues to be oversupplied in vertical states such as Arizona, which is driving the price of wholesale flour lower consistent with last quarter. Wholesale flour prices have affected us minimally owing to our ability to absorb what we grow through our retail operations. As MSOs continue to focus on margins and cash flow, the wholesale market and our general wholesale business have seen an impact as retailers are reducing inventory, decreasing the number of brands they carry, and offering more of their own products to maximize profitability and margins. While we expect this trend to continue, we are starting to see some reduction in capacity and anticipate prices to stabilize by the second half of the year. Our vape and brand and best-in-class products continue to differentiate us. VEX is committed to continue developing innovative products, bringing them to market at the right price points, targeting new customers, and retaining our existing ones through data-backed marketing campaigns to drive revenue, maximize margins, and expand the customer base. While the current backdrop in Arizona is challenging, we expect a combination of higher sequential customer count and high customer retention rates to result in growth, tailwinded discretionary incomes rebound, and basket sizes improve. What's turned Ohio? As I've indicated on our past couple of calls, we see Ohio as our next key leg of growth. Our agreement to acquire our joint venture partner, Appalachian Farms Processing, including its subsidiaries and affiliated companies, is progressing well and is on track to close towards the end of the third quarter of 2023 based on state approvals. On closing, the acquisition will create a diversified, fully vertically integrated entity with up to 25,000 square feet of cultivation, built-out manufacturing facilities, and a strategic retail footprint across Ohio, 100% owned by Beck. While the cultivation is not yet consolidated, they made their first small sale in the quarter and are on track for full production beginning in quarter two. The results of this facility are exceeding our expectations already, and the staff is doing a tremendous job of bringing this facility online. On January 2nd, we closed the acquisition of our Jackson dispensary, which was included in our quarter one results. We are very pleased with the early performance of the store under our ownership, and given its rural location with limited competition in the surrounding area, we expect this to be a well-protected location over the long term as the market grows. I would also like to remind you that on closing the proposed Ohio acquisition, we will expand our retail footprint and gain ownership of another cannabis dispensary based in Columbus, Ohio. We intend to apply to the regulators for an ownership transfer shortly afterwards, strengthening our retail foothold in the state. While Ohio is not immune to discretionary spending pressures, the market structure suggests it will be strong versus many other states. Licensing in Ohio has market caps for the number of cultivations, processing, as well as the number of dispensaries and the concentration of dispensary ownership. This structure provides for a better matching of supply and demand. Overall, the pieces are in place for VEX to consolidate our vertical operations further and grow market share in Ohio. The key challenge here will be to support the initial growth while keeping an eye on expense control to drive positive cash flow. Overall, we expect cash flow to continue to grow as these operations come online. We also continue to monitor market developments in other areas of our JV portfolio. As I indicated last quarter, Kentucky is an interesting opportunity and towards the end of March, the state approved the use of medical cannabis. Our 50-50 partner there has an operating manufacturing facility located in a high traffic area not far from the borders of Tennessee and Illinois and are well positioned to benefit from this development once it takes effect in 2025. As a reminder, we have a right of first refusal to buy these operations just as we did with Ohio. While our current focus remains principally on our Arizona and Ohio operations, we are well positioned to continue executing on these opportunities as they arise. On the whole, during a challenging first quarter, our team continues to walk and tap on the derived results for shareholders. We remain focused on bringing customers into our stores with a broad selection of value-based products, and operating efficiently to drive profitability and cash flow. With the continued execution of our plans in Ohio and progressive improvement in the Arizona market anticipated in the second half of the year, we expect improved performance in the coming quarters. With that, I will now pass the call to Stephen for a quick review of the financials.