Verano Hldgs Corp

Good morning and welcome to the Verana Holdings Corp first quarter 2023 earnings conference call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. At this time, I would like to turn the conference over to Juliana Patera, Vice President of Investor Relations. Please go ahead.

Thank you and good morning, everyone. Welcome to Verano's first quarter 2023 earnings conference call. I am joined today by George Arcos, Chief Executive Officer and Founder, Brett Semerer, Chief Financial Officer, Darren Weiss, Chief Operating Officer, and Aaron Miles, Chief Investment Officer. During this call, we will discuss our business outlook and make forward-looking statements within the meaning of applicable U.S. and Canadian securities laws, which are based on management's current assumptions and expectations. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the actual results, performance, and achievements of the business or developments in the company's industry to differ materially from those implied by such forward-looking statements. Actual events or results could differ considerably due to risks and uncertainties mentioned in our filings on EDGAR and CDAR, including our financial statements for the quarter ended March 31, 2023. In addition, throughout today's discussion, we will refer to non-GAAP financial measures that do not have any standardized meaning prescribed by GAAP, such as EBITDA, Adjust EBITDA, and free cash flow. Management believes non-GAAP results are useful to enhance the understanding of the company's ongoing performance, but these are supplemental to and should not be considered in isolation from or as a substitute for GAAP financial measures. These non-GAAP financial measures are defined in our earnings press release and available on our website at investors.morano.com, which also includes the reconciliation of these measures to the most comparable GAAP financial measures. Lastly, all currency is in U.S. dollars unless otherwise noted. I will now turn the call over to George. George, please go ahead.

Good morning, everyone. I am pleased to report results for another strong quarter, which were in line with our internal expectations. This morning, I will cover the first quarter in more detail and provide an update on our progress towards our free cash flow guidance. I'll then pass it to Brett for a detailed financial review before I conclude with an outlook for the remainder of the year. First quarter 2023 revenue was $227 million, representing 12% year-over-year growth and slight sequential growth. Adjusted EBITDA margin came in at 31%, and notably, we generated positive free cash flow for the quarter. In an industry that uniquely faces a multitude of challenges, we remain very optimistic, especially given this quarter's performance. Top line came in a bit higher than we anticipated as the first quarter is usually softer than the fourth quarter due to seasonality. We've seen steady performance from our portfolio and anticipate seeing upside from new adult use markets, along with the opportunity for deeper penetration and increased market share in existing markets. Near term, we maintain our excitement about the Connecticut market as a leading producer in our adult use program and look forward to adult use sales commencing in Maryland in July. On that note, we were extremely pleased to see Governor Moore of Maryland officially sign adult use legislation into law. We have been preparing for this moment since entering the market in 2017, including optimizing our footprint and expanding our suite of offerings to meet a variety of consumer tastes and preferences. Our efforts have been worthwhile, as sequentially we grew net wholesale revenue by 11% in the first quarter in Maryland. Verano is no stranger to the introduction of an adult use program to an existing medical market. And after being through this many times before, most recently in Connecticut just months ago, we are ready and excited for what we expect to be a robust program launch. We continue to lead the way with a CPG brand performance in Connecticut and are pleased to see steady and robust demand several months after W sales commenced. Retail sales remain strong with sales trending modestly upwards since legalization in January. At the moment, we have one adult use location as our second medical-only location is awaiting zoning approval. Additionally, we anticipate opening our six social equity joint venture dispensaries over the course of the second half of 2023, including our first store within the next 60 days. This expanded footprint will provide the opportunity to increase vertical mix in the state while also supporting social equity efforts in Connecticut. In Florida, we recently took the number two spot in the state in terms of ounces of smokable products sold, while also preserving the pricing integrity of our catalog, a reflection of our higher quality, all-indoor grown flour. We now have 66 move dispensaries across the state, and with a few more planned openings for the year, we anticipate continuing to strengthen our foothold in this medical market in advance of a potential adult use ballot initiative. We are hopeful the current adult use initiative will make the 2024 ballot as we believe that Florida offers the largest opportunity of the state's contemplating adult use legalization. Lastly, in Illinois, as we discussed on the last call, we are optimizing canopy and production in order to appropriately meet demand. This decision is driven in large part by the slower than anticipated pace of new dysmentery openings. Despite these delays, we continue our efforts to streamline operations, increase yields, and introduce new brands and products. For example, in the first quarter, we increased our yields by 23%, along with increasing finished dry grams per employee by 40% versus the prior year. And on the retail side, although sales were roughly flat versus the prior year, we increased dollars per labor hour by nearly 40%, even in a depressed pricing environment. Separately, as none of our retail locations are near the Missouri border, our stores have been largely unaffected by Missouri's recently launched adult use program. As previously discussed, we are tireless in our pursuit of operational excellence. In the first quarter, we increased the sale of Verano products at the retail level by 150% year-over-year and increased dollars per terminal by 63% year-over-year. We are proud of the progress we continue to make and look forward to further improvements that better enable us to serve our markets. Turning to cash flow, we are reiterating our 50 to 75 million free cash flow guidance range, as well as tightening the range of our CapEx guidance to 35 to 50 million. With over 8 million in free cash flow for the quarter, we anticipate free cash flow to accelerate over the course of the year. We feel our operations are stronger than ever with a 17 million in cash flow generated from operations. after slightly decreasing our taxes payable balance while also servicing other cash obligations. As we mentioned in the fourth quarter call, we continue to evaluate production and inventory levels to ensure we are appropriately supplying our markets. As a result, we expect fluctuations in our gross margins throughout the year. Ultimately, we view inventory rightsizing as a positive for the business as it aligns with our goal of appropriately deploying cash. Though this will also impact adjusted EBITDA margins in the short term, this is the right move to build cash reserves and focus on free cash flow generation. I will now pass it to Brett to review our results in further detail before I provide commentary regarding my outlook for the year.