Vext Science Inc

Thank you for standing by. This is the conference operator. Welcome to the VEX Science First Quarter 2025 Financial Results Conference Call. As a reminder, all participants are in a listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, You may signal an operator by pressing star, then zero. I would now like to turn the conference over to Priyam Chakraborty. Please go ahead.

Thanks, operator. Good morning, everyone, and thank you for joining us today. VEXED's first quarter 2025 financial results were released earlier this morning. The press release financial statements in MD&A are available on CDAR+, as well as on the VEXED website at vexedscience.com. We would like to remind listeners that portions of today's discussion include forward-looking statements and that forward-looking statements are included in today's filings. There can be no assurance that these forward-looking statements will prove to be accurate or that management's expectations or estimates of future development circumstances or results contained therein will materialize. Risks and uncertainties that could affect future development 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 development circumstances or results predicted in forward-looking statements may differ materially from actual development circumstances or results. This call 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, as well as the MD&A. Forward-looking statements made during this conference call are made as of the date of this call. VEX disclaims any intention or obligation to update or revise such information, except as required by applicable law. VEX 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, CEO of VEX.

Thanks, Brion. Good morning, everybody, and thank you for joining our first quarter of 2025 Financial Results Conference Club. I'm joined today by Trevor Smith, VEX CFO. I am pleased with VEX's performance in the first quarter of 2025. Our results validate the strategy we've been executing over the past several quarters, one that prioritizes operational discipline, capital efficiency, and a focus on free cash flow generation. During our Q4 update, we indicated that the business had reached a turning point. Our Q1 results confirm that shift with momentum building in Ohio and translating into stronger financial performance. We generated exceptional growth in quarter one, with revenue increasing to $11.6 million, thanks to our continued strength in the Ohio market. Even more importantly, we generated robust operating cash flow of $3.1 million, a significant achievement that nearly matches our entire operating cash flow for 2024 as our momentum picked up in the fourth quarter. Our cash flow margin exceeded 26%, placing us among the top cash flow producers across U.S. public, multi-state cannabis operators, including several significantly larger companies based on all reported financial metrics we've analyzed. Cash flow margin is a key operating metric for VEX and one we expect to continue to be a leader in amongst U.S. cannabis operators for the foreseeable future. Many MSOs are vertically integrated. That alone is not a point of differentiation. However, VEX model is designed from the ground up with retail at the forefront with upstream cultivation and manufacturing optimized to get products onto our own shelves efficiently. This ensures we are not exposed long-term to volatile wholesale markets and gives us far greater control over scaling and margins. Turning first to Ohio. Ohio continues to be a high potential market for us and one where we are executing well. In Q1, the state reported $256 million in adult use sales, up 7% sequentially. While Ohio demand remains strong, the adult use market is experiencing pricing compression similar to trends observed in more mature markets like Arizona. With consumers increasingly price sensitive, operators must remain disciplined on margins and optimize product mix. This is exactly as we've outlined to the investment community over several quarters. It happens in every market. It's economics 101, and it's why we see wholesale as only a very short-term opportunity at market entry as retail has scaled. Our discipline of retail first strategy is resonating with consumers and producing strong unit economics. VEX consolidated retail sales in Ohio grew by 7% in the first quarter of 2025 compared to the fourth quarter of 2024, underpinned by continued momentum at existing locations and the successful relocation of our Jackson dispensary in February. This new centrally located facility doubled our retail and inventory capacity and introduced a drive-through feature, enhancing both customer experience and throughput. These results reflect more than just market tailwinds. They are a result of operational execution and strategic investment. I am very proud of the team's efforts, which have led to our stores increasingly meeting or exceeding the state average. Third-party wholesale in Ohio increased by 92% in Q1 2025 compared to Q4 2024. As I have previously outlined, while wholesale is not a core focus, Ohio's regulations for manufacturing and cultivation create short-term opportunities, and we are positioned to benefit from that growth. To restate, our strategy remains centered on retail. In Arizona, approximately 90% of revenue is generated through our retail operations, and we expect Ohio to follow a similar trajectory with retail bringing the dominant revenue driver potentially as early as 2026. Shortly after the quarter ended, we completed the acquisition of two dispensaries from Big Firm, adding retail locations in Athens and Jeffersonville. Sales at these locations grew 18% sequentially in quarter one even before consolidation and we expect to consolidate them starting in quarter two. With these additions our Ohio retail footprint has doubled to four locations and construction is underway on the fifth store in Portsmouth expected to open in the second quarter. Our capital right model allows us to build out efficiently both in terms of cost and enabling us to bring stores online quickly and begin generating cash flow almost immediately. This approach drives attractive returns on capital and gives us a meaningful advantage as we scale. With full vertical integration and a clear path to expanding our retail presence to the state maximum of eight stores, we expect Ohio to remain a key growth engine for VEX, driving revenue, margin, expansion, and cash flow over the long term as we continue to drive same-store economics and efficiencies across our platform, just as we have done in Arizona. Turning to Arizona performance now, the Arizona market remains pressured, with total first quarter 2025 sales down 13% over the prior year, according to state data. Against this backdrop, VEX to Arizona sales only declined 8.5% over the prior year, leading to further market share gains. Our strategy in Arizona has been to drive traffic to our two dispensaries through targeted marketing campaigns, while maintaining strict cost controls across retail, manufacturing, and cultivation operations. This was supported by continued improvements at our Eloy cultivation facility, where average yield and potency now exceed industry averages. While we continue to see the Arizona market returning to stability, consistent growth over the long term, and would like to expand our retail footprint further, this isn't a near-term priority. Pricing expectations remain misaligned with current market realities. We expect more creative opportunities to emerge as weaker operators exit the market, and we'll evaluate them as they arise. In closing, BEX is operating from a position of strength. We've built a stable, scalable platform in two key markets, each with different growth profiles with solid fundamentals. With a solid capital structure, consistent cash flow, and clear visibility into near-term growth, we're positioned to expand in Ohio while systematically reducing debt. Rather than chasing brands or overbuilding infrastructure, we are executing a focused retail strategy to deliver strong unit economics and sustainable returns. Establishing VEX is one of the most operationally efficient and strategically disciplined operators in the industry, even when compared to others who are significantly larger in size. For the remainder of our year, our priorities are clear. We expect to begin consolidated reporting of the two big-term locations in Q2. In Ohio, we are focused on accelerating growth by expanding our retail footprint and serving both medical and adult use customers. In Arizona, we will continue to optimize operations to preserve margin and drive efficiency. Across the business, we remain committed to generating free cash flow, strengthening the balance sheet, and creating long-term value for our shareholders. In recent years, the U.S. cannabis industry has been driven more by narrative than by performance, with many operators pursuing rapid growth through expensive, unsustainable finance. However, in the long run, it will be disciplined execution, prudent capital allocation, and cash flow that will ultimately distinguish the winners from the rest. With that, over to Trevor for a quick review of the financials. Trevor?