Earnings Transcript for CNTMF - Q2 Fiscal Year 2024

Operator: Good afternoon, ladies and gentlemen, and welcome to the Cansortium's Second Quarter 2024 Conference Call. Joining us today is the company's CEO, Robert Beasley; and the company's CFO, Patricia Fonseca. At this time, all participants are in a listen-only mode. After the company’s prepared remarks, the management team will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference call is being recorded and will be available for replay in the Investors section of the company's website at www.getfluent.com. Please note that certain subjects discussed on this call, including answers the company may provide to questions, may include content that is forward-looking in nature, and therefore, subject to risks and uncertainties and other factors, which could cause actual future results or performance to differ materially from any implied expectations. Such risks surrounding forward-looking statements are outlined in detail within the company's regulatory filings, which can be found on sedar.com. The company does not undertake to update or revise any forward-looking statements, except to the extent required by applicable securities laws in Canada. In addition, during this call, the company will refer to supplemental non-IFRS accounting measures, including adjusted EBITDA, which do not have any standardized meaning prescribed by the IFRS. As a final reminder on today's call, unless otherwise indicated, all dollar amounts are expressed in U.S. dollars. I would now like to turn the conference call over to Mr. Robert Beasley, the company's CEO. Sir, please go ahead.

Robert Beasley: Thank you, Nick, and good afternoon to everyone. We continued an upward trend in the second quarter, posting record quarterly earnings and our 11th consecutive quarter of positive cash flow from operations. These metrics continue to emphasize the consistency of our business and the execution of our strategic incentives as we lay the foundation for Cansortium's future growth. Jumping into our second quarter and recent highlights. In Florida we grew revenue 15% in the state and continue to ramp the two dispensaries we opened during 2024 while focusing on optimizing operational efficiencies. We anticipate opening 4 additional retail stores by Q2 2025, bringing the total to 39 dispensaries in the state. We're thoughtfully positioning our development of future facilities and retail locations with an eye on the potential for adult use market transition in Florida. On the cultivation side, we continue to maintain higher -- high-quality flower [indiscernible] with THC percentage now consistently landing in the high 20% to the mid 30%. We have focused on enhancing manufacturing efficiencies and cultivation yields, which has resulted in both an improvement of product quality and a lowering of the cost of goods sold. Cost of goods sold has decreased by approximately 44% in our top selling categories over the past 18 months. This has allowed us to retain high profit margins while price competition continues to heat up. In addition to product output, we've been steadily increasing various retail data points, such as the monthly returning patients and overall number of transactions. In the Pennsylvania market, we continued expanding preferential partnerships with our wholesale suppliers, which allows us to remain price competitive without compressing margin. The Hanover dispensary renovation expansion is now complete and operational, which includes a double vault space -- double space in both vault and patient access area. This increases our ability to process patients more efficiently and provides an improved customer experience. At the market level, price trends in Pennsylvania have remained generally stable. Growth within the Pennsylvania market is largely coming from expanded product offerings, enhanced dispensary facilities, and additional wholesale partnerships. Moving on to Texas, we continue to see patient growth and increased product sales, albeit on a small scale. Plans are underway for our brick-and-mortar delivery center in Houston, which will provide ease of access to patients as well as serve as an education center. We currently expect this center to be open by early 2025. We continue to be one of only three license holders in the state of Texas and are now actively working to grow our presence in what we view as a market with significant potential, although it remains an immature market today. As we remain focused on growth and increasing production capacity, the new facilities we are bringing online are coming along nicely. The Ruskin facility is now fully operational and hosted its first full harvest in July, adding to our portfolio of high-quality whole flower offerings. At Rosa, we are in the final construction phase of Phase 1 of this high-quality flower facility, and this is adjacent to our Tampa facility. We expect the first harvest in Q1 2025 from the Rosa facility. We're currently under contract in pursuing due diligence in Williston, Florida for that facility. We've received all necessary zoning approvals and now are conducting extensive due diligence on mechanical and engineering, and we're set to close on this property sometime around January 2025. This facility represents a longer term strategy that we've timed in anticipation in supporting our product ramp necessary to support adult-use sales should that measure pass in November. Understanding that the Florida adult use vote could occur in November and pass that measure, we anticipate legislative and regulatory process to take some time and we'll be able to implement our plans to scale up production and retail as that process plays out. We look forward to our upcoming business combination with RIV Capital and the integration activities are already underway. We're leaning in on a handful of areas such as streamlining processes, providing standard operating procedures, improving operational efficiencies, broadening product and brand portfolios, enhancing the customer experience and integrating corporate functions for the efficiency gains necessary to take that company into the future. AGM shareholder votes to approve the transaction of both Consortium and RIV Capital are scheduled this Tuesday, 8/27, and the closing is anticipated to close before the year-end. We're also currently in the process of refinancing our debt, which terms in May of 2025, and are very pleased with the high-level of interest and excitement we are getting from the lenders. I'll now hand it over to Patricia Fonseca, our CFO, to walk through the financial highlights. Patricia?

Patricia Fonseca: Thank you, Robert, and good afternoon, everyone. As Robert mentioned, we're proud to report another period of revenue growth and another quarter of positive cash flow from operations. Please note that all figures are in U.S dollars and all variance commentary is on a year-over-year basis unless otherwise indicated. Revenue increased 12% in the second quarter to a record $27.3 million compared to $24.4 million in the year-ago quarter. The increase is primarily related to increased production in additional dispensaries opened in Florida as well as a very successful 4/20 marketing and sales campaign. Florida revenue increased 15% to $23.1 million compared to $20.1 million in the same period last year. Adjusted gross profit for the quarter was $12.3 million or 48.6% of revenue compared to $10.2 million or 46.4% of revenue. The increase in gross margin was primarily related to increasing sales while promoting efficiency in our cultivation facilities. Adjusted EBITDA for the quarter was $7.7 million compared to $6.8 million, with the increase primarily attributed to higher revenues combined with improving margins. Cash from operations during the second quarter was $2.8 million compared to $4.8 million in the prior period. The decrease is primarily due to settlement of tax payments that have been carried over from previous periods. On June 30, 2024, we had approximately $8.5 million in cash and $67.5 million of total debt with approximately 300 million shares outstanding. This concludes our financial highlights. Nick, we're now open for the call -- open for a call for Q&A.