Auxly Cannabis Group Inc.

Good morning, everyone. My name is Kelsey, and I will be your conference operator today. At this time, I would like to welcome everyone to the Oxley Cannabis Group Q1 2022 earnings results call. All lines have been placed on mute to prevent any background noise. And after the speaker's remarks, there will be a question and answer session from the company's financial analyst. If you'd like to ask a question during this time, simply press star and then the number one on your telephone keypad. If you would like to withdraw your question, simply press star 2. Thank you. Ms. Cannon, you may now begin your conference.

Thank you, operator, and good morning, everyone. Thank you for joining us for OxyCannabis Group's first quarter 2022 financial results conference call. A replay of this call will be archived on the investor relations section of Oxy's website. We will start the call with a presentation and corporate update by our CEO, Hugo Ells, followed by a recap of our year and financial results by our CFO, Brian Schmidt. before opening the floor to questions from our financial analysts. Joining us for the question portion of the call will be our president, Michael Lickfer. I encourage you to follow along with the presentation slides, which are posted on our website under the investor section under presentation. Before I turn the call over to Hugo, I'd like to remind everyone that our discussion today includes forward-looking statements that are based on assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from the views expressed today. Management can give no assurance that any forward-looking statement will prove to be correct. Forward-looking statements during this call speak only as the original date of this call, and we undertake no obligation to provide or revise any of these statements except as required by applicable law. Management refers you to the cautionary statement and risk factors included in Oxley's disclosures. And note that all references on this call are to Canadian dollars unless otherwise stated. And with that, I'll turn the call over to our CEO, Hugo Alves.

Thanks, Julie. Hello and good morning, everyone, and welcome to our Q1 2022 earnings call. I'm going to start the presentation on slide five of our deck. And as I mentioned on our last earnings call back in March, our main goal this year is to improve revenues and gross margins and achieve adjusted EBITDA profitability. Brian is going to present the financial results later in the presentation, but at a macro level, we continue to advance towards that goal. We grew revenues 147% relative to Q1 last year, thanks to strong consumer demand for our products. We also improved adjusted EBITDA by 14% year over year. And we continue to get tighter on costs. This was the first quarter that we picked up a full quarter of Oxley-Leamington expenses on our statements, and we still managed to decrease SG&A slightly quarter over quarter. And we ramped up production at our Leamington facility to now 75% full utilization, and we'll start to see the impact of that extra yield on our revenues here in Q2. And, of course, it's winning with our consumers by providing them quality products under brands they can trust and love that is going to drive Oxley to profitability. While aggressive price investments by some of our peers and a few operational and supply chain hiccups did impact our share in some product formats, we remain the number one company in the 2.0 market segment, and we maintained our top five position total market. We also increased our distribution footprint to 93.6% in the quarter. That's up from 92% last year. And our brands continue to resonate with consumers, with Back 40 in particular now the number one brand in vape and the number four brand in flour nationally. And our leading innovation platform was hard at work. launching 10 new products during the quarter, including another first to market with our collab live rosin shoe and our entry into minor cannabinoid rich vapes with our 4A blueberry gelato cartridge. On slide six, we have a few Q1 highlights, and I've already covered most of these highlights, and I don't want to cover too much of Brian's presentation, but I will just call out two points here. First, While we grew revenue 147% year over year, we did see a 23% decline in revenue quarter over quarter. And that decrease was attributable to recurring Q1 seasonality, where we have seen Q1 sales generally lag Q4 sales in our industry. Now that said, we were able to manage this dynamic better this year than last with revenues down 23% quarter over quarter. compared to last year where they were down 47% over the same period. And we did experience some operational and supply chain challenges, which I'll discuss throughout the presentation. Secondly, I'll call out the 16% blended gross margin noted on the page. Brian will elaborate, but I note that absent impairments primarily related to the shutdown of our Oxley Annapolis facilities, our gross margin would be about 3% higher than our Q4 margin. Turning to slide seven, as already stated, Oxley remained the number one LP in the 2.0 market segment and the number five LP total market. And like last quarter, where you would have seen this slide before, there remains a sizable gap between Oxley and the number two producer in the 2.0 segment, and it is an increasingly tight race for the number one spot overall total market. Now, while our position relative to our peers and gaps in market shares between us remained relatively consistent, we did lose market share relative to Q4 of last year, which was primarily driven by aggressive price investments by some of our peers, especially in vapes, which we chose not to follow in the quarter, and some operational supply chain hiccups, which are largely behind us, but which did result in significant availability constraints during the quarter in vapor, concentrate, and dried flower formats. On slide eight, we can double-click into our market share performance on a product category basis. And I'll focus here on the categories that saw decline. So starting with vape, While vape continued to get more competitive quarter over quarter with 51 new SKUs and 10 new brands entering the category, the loss of vape share was primarily driven by aggressive price investments by some of our peers. We also suffered a material shipping delay of hardware during the quarter due to lockdowns in China. This resulted in us being out of production on some of our most popular back 40 vape carts for close to a month during the quarter. But I would note, that even with our competitors taking unsustainable price drops to try and win share, and with Oxley hampered by lack of hardware, we still managed to capture 20% of the vape market during the quarter and remain the number one vape company in the country. In concentrates, we saw a marked increase in competition, primarily as a result of the explosion of infused pre-rolls, which fall into this category. We also encountered supply chain issues with third party manufacturers and packaging suppliers, which resulted in a severe under supply of our most popular SKUs during the quarter. We did take steps to fix this during the quarter and I'm happy to say that our supply constraints have eased and we've already seen the concentrate share rebound in April. In dried flower formats, as you can see, We managed to increase share slightly in dried flour, but lost a little share in pre-rolls. Overall, I think these results are encouraging as we did experience some temporary operational issues at Oxley-Leamington, which impacted our yields quarter over quarter. We experienced an approximate 25% drop in our yields during the quarter. And given the lower yields, we prioritized the dried flour format to pre-rolls, but we still experienced constrained availability in both formats. Overall, I think we managed the situation well, and we were able to protect our flower and pre-roll shares, but we do feel that we left share on the table in both of these categories. Brian will talk about Oxley-Leamington later in the presentation, but I'm happy to say that the yield issue is behind us. Thanks to a mix of ramping facility utilization and process improvements, we are now seeing record yields and all-time highs from a quality perspective which consumers of our latest drops of wedding pie and mandarin cookies have noted and applauded. On that note, I want to move us to slide nine. While seasonality, aggressive pricing and vape, and temporary operational and supply chain challenges impacted our quarter, we remain confident in our ability to win with consumers, continue growing, and achieve our strategic goals. So how are we going to do that? First, as already mentioned, our supply chain and operational challenges are largely behind us and our production constraints have eased. That's the most important step, getting our products into distribution, because when our products are in market, they are undeniable. We will continue to receive additional automation equipment throughout the course of the year and continuously improve processes to drive further efficiencies, but flour yield and vape hardware issues are behind us. Secondly, we will continue to give our consumers the new and exciting products that they crave. Newness continues to be a key purchase driver in our industry. So while our competitors fight to capture share through price investments, we'll continue to delight our consumers by redefining categories with fresh new products. We released 10 new SKUs in Q1 and plan to introduce 20 more in Q2 as we target 60 new SKUs during the course of 2022. And notably, We are focusing our innovation on product categories, which best advance our strategic goals. For example, in vape, we will expand our back 40 vape family by launching new unique strains like the recently released strawberry cough. We continue to premiumize our CoLab vapes with the highest quality inputs, such as the recently launched CoLab live rosin cartridge. And with the launch of 4A's blueberry gelato cart, we have expanded 4A's vapor offering to include formulations rich in minor cannabinoids. In dried flour and pre-rolls, our back 40 consumers have been asking us for a sativa strain, and we have delivered with our mandarin cookies strain in both dried flour and pre-rolls, which we launched this month to great success. And on slide 10, We're going to continue building our brands to win consumer awareness, trust, and loyalty. We're very encouraged by the progress that Back 40 continues to make with a relatively small portfolio of products. It is the number one vape brand, has grown to the number four flower brand, and we continue to see Back 40 innovations get incredible traction in market. We believe that Back 40 can be a top three brand total market by end of this year. We also continue to see great traction for our CoLab and 4A brands. With CoLab, we will continue to focus on higher potencies and true-to-plant experiences that our CoLab consumers demand. Most recently, we launched a series of solventless extract products in edible, vapor, and concentrate formats. And with 4A, we're focusing on product attributes and differentiation with our novice consumer in mind by introducing fast-acting formulations and products rich in minor cannabinoids. Finally, while the wellness segment of the market has been slower to develop, we are continuing to see growth in our dose can products and will introduce a new topical and new high-potency oil products throughout the year. I'm going to stop here and now turn over the presentation to our CFO, Brian Schmidt, to walk you through the financial results. Brian?