VEXT.CN - Earnings call transcript Q3 2022

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Operator

Good morning, everyone. Welcome to Vext Science’s Third Quarter 2022 Financial Results Conference Call.

As a reminder, this call is being recorded on November 17, 2022. [Operator Instructions] I would now like to turn the call over to Jonathan Ross. Please go ahead.

Jonathan Ross

operator. Thanks, and us everyone for thanks morning, today. joining Good results this morning. third quarter released financial XXXX Vext’s were The financial website as well press on as available release, on statements and the Vext at are vextscience.com. MD&A SEDAR forward-looking release. to remind are portions discussion forward-looking We would statements today’s listeners the press like and in of that today’s include included statements future be that management’s materialize. expectations There can these that therein or assurance or forward-looking statements contained estimates accurate of developments, be no will circumstances results prove to or will future affect in those could we circumstances or Vext’s that public today’s detailed uncertainties and to are risk and developments, results are conjunction with on call. the other read Risks in encourage listeners SEDAR and MD&A factors made filings that available

or actual in materially non-IFRS disclosure As financial may included are differ circumstances results developments, financial statements non-IFRS measures a presentation to yesterday. disseminated of developments, subject predicted information risks result forward-looking also from these results. and or in release the This uncertainties, such our includes press reconciliation and circumstances and the

are the pass Vext’s results I dollars. Officer presented Vext. to are law. Executive dollars any information, during date Vext call. Forward-looking of statements to call in this this of Eric call financial over by conference statements disclaims now U.S. in the discussed are the and of made U.S. or required during applicable as or will this revise as Offenberger, except update obligation such intention made call Chief

Eric Offenberger

turning financial Vext. an to everybody provide over results for by on brief update morning, today I you Good the quarter financial joined of results Stephan on of conference Bankosz, our a John. Thanks, am XXXX joining will CFO our before overview Stephan and I performance. it thank for our call. three call

quarter challenging our school. is our quarter, kids same due consumer-facing for slowest most compared year to very weather, quarter two Quarter Revenue environment back the against and three and historically vacation During XXXX. a of to to to team was continued the down last timing, compared backdrop companies. execute of the to third quarter getting

rapid sales and our points to sequential products, drop context, innovation inflation consumer, goes was quarter by value-focused to highest Within industries. gross record rate build to in there margin the of this through drove mix generate the basket consumer us adjusted a across the which country, high the of targeted and beyond XX% continuing in continues basis on pressure an spending However, team context promotions on to with impact a back inflation in the maintaining XXXX. as emphasis economic consumer record in enabled behavior and in market. the shift the seasonal averaging In weakness XX% to Phoenix traffic, on Arizona, sustained September

in continued Additionally, facing of the challenges record million market the state shrink. that sales a $XX.X reaching while had Arizona medical in high environment. the isn’t to the since reported plateaued recreational April, only state

in retailers can’t accept on You is buy an side their on cash have COVID, consumers The discretionary start the operators own sword as mounting debt business where to to alone. with had service credit a test. in borrowing and faced reached and to by double-edged has other look for through increased Consumer margins. The gets they the more competitive quarter well third X.X% remember sector short-term well putting focus with market of the as heights the been as that record can’t has lowered phased the in down of just drop steep cannabis more This industry wholesale was increased spending and cannabis but a our product consumer very credit. costs. are consumers

points versus margins continue efficiencies. than produced quarter of last for XX.X of flat two year. and year EBITDA we operators, Adjusted two. quarter look percentage for this in We experienced As lower to XX%, came down

extremely the Given positioned today’s promote market. record excellence recognize that ability in our to track locations consistently Vext to perspective, will From a of loyalty. company innovate of the see offer and our is consistent has and activities. the economy. We operational targeted well tiers execution macro their Vext’s effectively to acceptable positioned a points. despite price bring crap we that customer at solid in and quarter quality quarter, culture that proven strategic portfolio customers Companies being tough want and as exactly the three can market. Vext’s value slowest selection pricing brought market in into given promotional sales This this performance. we foster important are context the in short-term historically and how products proven backdrop, enduring of the selection is stores,

quarter During consumers. an edibles released all-new we that range and by dessert Halloween THC-infused toppings well were style three, of received

basket also are and size. operations. perspective, We our marketing facility cultivation items From our a emphasizing of continue by as on to as we focus innovative been The well expansion development our through Prescott vertical impulse purchase current in product has in-store the absorbed well below positioned. totally promotions

flower certificate occupancy of retail additional comes into the at capacity this live have We cultivation market rely play, on our to we awaiting current go the Once are to Eloy. for base. any of currently purchases won’t X with material Phase

deals, track. plans do end receive been of expansion to the footprints meantime, we retail the manufacturing of able The on remain processing occupancy contract our have of some to creative some our do the capacity and manufacturing. We year. leveraging expect certificate before In to

Our they X,XXX the the current operations discussions are our of in feet feet City Phoenix to of to manufacturing our to city. another Central dispensary with expand square and Phoenix square ongoing add X,XXX

support timing well economy. and as use of products both upon the partner permit growth based owned wholly once brands. Vapen currently awaiting these in our to as third-party are of improvements builds is complete, our permitting initiatives as We well as the these will The

state growth. has of see better as Turning many Ohio, other supply big of than potential couple our markets, including past dynamics our have I it emphasized demand the to and as have exhibited we Arizona. Ohio next calls, the on noted of leg

in square Given to since in mark the going active of with patients our medical out initial number transition we the Ohio’s cultivation into highly have XX,XXX up active X partner, and projections. for This data. to and month, the and makes expand increase attractive received of development, venture stage recommendations past area association very billion the state XX months its during vertical to we build funded registrations XX,XXX market. in with all XXXX the according XX% potential up to of joint effect this are to necessary future cannabis and The structure structure an that exceeding saw potential it a surpassed state feet. state’s adult-use over XXXX, sales announced with to in approvals Earlier feet, square addition fully growth regulated to

of first first The of harvest facility by achieved this quarter XXXX. expected the is to be

also the manufacturing Ohio over a the brands to we operating As shelves dispensary stocking state. in granted of of JV, an are through XX% Vapen continues which ownership facility reminder, on in of Jackson, support the

We also retail our a are Ohio. with progressing plans establish foothold to in

XXXX. that We transfer for after Board are in to it Ohio the Pharmacy dispensary we by the in receiving anticipate State of previously, first noted immediately process a for approval. a Columbus, will of of cannabis the JV licensed to the a quarter applying setup of end be As

market of expand reiterate retail our Vapen to in will attractive opportunities track value-priced closing, footprint one range broad remain the products other our Ohio. for brands. to lookout I while the We be on Vext share innovating environment subsequently overall continue made of constantly that challenging operators, their has market many and top for In will the in of record offering a Arizona’s

in We on cash expanding also Vext offerings I delivering and profitability call and an value. and Ohio key flow, grow to to has forward environment review foundation in look an to the Stephan to quick focus a with our state. a the continue driving of eye that will growth the for Stephan? unwavering With that, now view this With as opportunity financials. to shareholder returns pass

Stephan Bankosz

Eric. Thanks,

more XXXX that compared for-profit quarter challenging to the during a reminder, as in prior the shift lap the XX% is year we until was direct to million model XXXX. comparison event quarter Revenue prior in XXXX. one last of quarter As three in year as quarter two. up XX% a million a quarter one period makes to EBITDA decrease period gross XX.X% gross year compared three compared QX and assets, quarter quarter expenses and biological impact quarter quarter as adjusted $X.X three profit, was This Adjusted were profit compares in the before in compared $X.X of of in lower was in million $X.X in XX% XX% two versus million Gross quarter in the quarter a margin of the XX.X% in XXXX. three. million, to quarter to were XXXX in of XXXX the versus Operating and for margins $X.X and three gross to of profit $X.X two. two. Adjusted quarter of quarter

However, in I’d for our a reasons continue $X.X of results attractive the at Earlier subordinated this three sales capital. flow $X.X of quarter XX, company’s room to and the that three. for with coming cost environment. principal operator ended at end being to operating means call. debenture for We turn questions. in driving here. effective debentures like execute share cost, down an cash Eric asset recording XX% on additional million your during and in $XX Biological that we us I stripping to to two, primary September amount joining non-convertible note December refinancing conference due as XXXX out are will of maturing reduction non-cash actually month, in gave of drivers are quarter million of this compared existing efficiencies business to the at growth a core us negative quarter we announced maturity million $XX.XX in plans. financial interest in from outlined quarter This XXXX the now per our still were the expenses cash were December adequate in for it which Thanks we execute the plans items non-convertible XXXX. even business the operations Cash over came everyone the front our refinancing at secured

Operator

Thank [Operator come first Please will ahead. from Instructions] Securities. of Your question Stanley sir. go you, Russell Beacon

Russell Stanley

the visibility business. color The revenue you manufacturing I say – Arizona, first forward. to wanted on just a for this quarter you maybe the taking morning manufacturing Maybe thank levels, as question. source Good better my relative more to just extent how and a you and have contract, little the to on understanding and in contribution made QX what on going much to

Eric Offenberger

Russ. morning, Thanks. Good

does it how And issue sales line. like a material not dollars the the is line contributed top and were know to we isn’t it’s amount, don’t it that, what it. it, much of as on kind the it stuff quantify what far we As really bottom the like on really

So efficiency allowed expenses since margin return to component, it’s and a the it us. basically has and it labor also us into great some drive always for more helps a cover great fixed a operation. the But of

So to we and we it’s continue. think think going it’s still beneficial

it consider a to people they The as other into aspect of people be their marketplace. thoughts. the enter come their want would requirement I lot into special find you what with into of And is the cannabis we still say the to lot or of have market licensing a that brand,

just not So of take manufacturing commercial from don’t that and we’re the why it. if our responsibility, have perspective, advantage

to continue think it’s grow. going we So to

job team some does with the last to months. going for people a next XX, XX longer good the have supply term that commitments really And are performing. We

we a see major the that to a driver. helps a business, segment So the with it necessarily becomes, margin. definitely But as not it enhancement

Russell Stanley

Got it. Thanks.

as at Ohio, dispensary in how So Columbus you now moving but you sure to say can noted this, on maybe supply being not comment where you demand is there dynamics the And performing. guess I can to the stronger Thank would basket have what customer you when guess see against still the the a given and medical I that store, and we you. two you in would stores Ohio characterize – size Arizona? at

Eric Offenberger

along month-over-month. what – Yes, is It well. makeup performing basket store in the own time. the those grow in do this at top on continues or don’t the have lines. We exact every its to size, customer put line, that any any anything month, cash. at don’t to infusion have cash insight, It’s I or But towards obviously, it know to generates I all it point

it’ll are those positives, So, throw cash. off all

the see Ohio, So I excited have really we’re ground what in extremely in in excited really we and that that, plants we’re the cultivation.

So second there, we planted capacity we plan year. be in full out should rooms actually to quarter by have – we’re next early

that markets, will a developed margin the there’s store. in so December happy of tougher anticipating calls harvest markets. you’re we’re As very a see we’ve the about be in month it, better very of think pressures quarter continue more excited little bit in our so is of same thing case talked that far sometime to that’s the to see indicated is strong think the first I their tries everybody the or a most Arizona, as seen Seasonality, or of that year-end we heat. year this, fourth basket have first I summer any out call than Ohio, every far, in in pricing demand February, about, sometime continue size a move the the the to that Arizona, do in quarter, in But average coming mature going strong into inventories. in rebound we’ve cycle earnings everybody, so seeing like in we the to And about all we this

continue So we to that case. be the anticipate to

Russell Stanley

maybe could wondering whether provide one mentioned more retail existing you sneak if in how is on your about for of queue, or a get preference retail can in Great. that? say extent you you or mix I and thinking both just undeveloped more you’re color licenses I any Ohio, for into looking mean, can back the stores,

Eric Offenberger

group. existing don’t out accumulated been I that a there already haven’t stores lot a there’s of into think

So if a you there. out is look lot at them the there existing, not of

Ohio that to how you’re shocked, they don’t system is supply. there’s probably to your capping people a online. license, then one do new them realize at the there’s and to not up it’s And do way the what And getting about or a they the lot won’t vertical are Ohio. now have have of structured, a the So end licenses in you know license, worry looking cannabis they of being then within coming

So some already the are cap. people at maximum

So provide they’ll opportunities.

is the have our you have quite make just continuing of structure. look simple. and think and most really to the perspective, which what those sense. we what focus at on in From build to ones front I do So done We see we us, getting

sold you is So able build That becomes whatever strategy within you or that the state company all of lists the social stuff will decline. on funding wanting medical philosophies licenses. that in then said, now. you it sell seeing lot I the I grow ran medical got really, are people going that present the do the are licenses need be the you’ll are and to to it’s well Arizona, market yesterday to was to continues the like, see new company itself and the to and that two out and be that, and to don’t a yesterday, they price to of I the presented. which And them at the supported round that big time a they on think seeing existing make that get equity opportunities a are have like trying came think bottom yet. licenses

is of there are types original is not the in those dual going anymore and this there licenses valuable to think license more point I at time. because be have, the they of We and

So more make and saying to on you are Arizona’s that continues got population continuing to difficult enough continues municipalities to it permitting permitting, and grow. they have cap see

So that’s I thing with and think – great I same Ohio.

the are world really for in it has plant build look the you in also us, announced they largest semiconductor at do to that going If Intel Columbus.

as moving West and types and from population are Coast and continue look build future. move to to you the at in that relocate those look and Arizona, those economic to into capital for build us East of right states the It’s the things two good in going that states. Coast drivers have you if think people So markets put I now those at the

us. So that bodes well for

Russell Stanley

That’s queue. Thanks. I back will color. great into Eric. get Thanks,

Operator

Your Capital next Please question comes ahead. Markets. Echelon from go Andrew Semple of

Andrew Semple

Thanks morning. questions Good here. for taking my

Eric Offenberger

morning. Good

Andrew Semple

inflationary you pressures I me, minute far that’s so your whether what that to consumer to trying pressures, relief one how before we in decline the get with in are seeing larger? need easing to am a to we the I to or First ask happens? see any sensitive is guess perspective need consumer larger at inflationary you in to do modest inflation something sensitive want on just or I see spending moves on QX, is think

Eric Offenberger

the a dollar have about than Yes. stores I that’s quite specialty because a stores follow bit this, and Andrew, question, million view lot more Well, retail the operations. cannabis talked nothing I specialty retail I retail as –

out Bath is watch Beyond I & what’s So Bed today. Kohl’s really like doing?

that. really I watched So

that’s the I’ve some on a in using is the has consumers of And a our really have think starting it we the to debt kind been comments for a little the not still bit taken patterns going And impact thing lot make little see to cautious have The I you in tight and focusing covered inflation. consumer credit. me opening tougher. revolving So can reporting. XXXX, they more of yet that be spending been it consumer bit and numbers are

the rates that is this not With that up I think are points continuing Fed they up, paying card. year basis move credit X so moving the far interest to off and

So going that’s a put revolving. continue tremendous demand. on And pressure that’s their more to to

to consumer. I it’s So challenging for think the said, going that that be

the the before, there, So going going to going to to that on be stores, going the think that environment, and drive rising stuff, see. is in input still the think do think have a to a stores biggest costs you’re when which impact, see be was prices, price consumer average in consumer is and basic wholesale quarter, That’s the to isn’t that going talked the point. buying you’re seeing retail and basket talk down but what size you’re challenge more bad, In the that’s down I XX%. that we I third I in doing, think pressure market why to wholesale I we what’s to is have on down a to you’re same been about about some the X% how continue you’re challenging count the really this couple means calls

So, you’ve going dichotomy on. got that

basic going in you moved. and there’s think this you creative it. to get all price stuff, be I get about don’t be better still still do in management, it’s how to fall they’re it’s with So your point in, going love it pressure, inventory come sold, That’s it business,

Andrew Semple

and been just comments towards have best maybe out felt guess, increase to I really differentiate to and update market Do good, differentiation brand there’s there Eric, last Vext Vext’s to their anything within or to portfolio. launch There’s think between product market room kind tiers that, increase get its changing the needs guess, peers moving for brand to brand of better more number offering that focus a a the try Appreciate and you its product have helpful. I That’s under being moving, of to get of better kind kind creative, the your the a conditions? Great. the brand brand that portfolio in about And with of, formats. do more you more value, maybe portfolios across best model. its portfolios, and been

Eric Offenberger

Yes.

we have And like brands XXXX. because time we that in bit doing target we the distillate the think excellent in if looked in actually kind I where to a points do distillate back thoughtful to consistent. identified But brand it’s it, it about We Vapen through at for was brand, the Arizona things have Andrew. are me. because consumer do the you takes it Vapen more always good Vapen market starting again, of us have quality, certain would, as do first price the to the be always it. how and been want to we way little

the trusted, of have quality label, the and store So, it’s standards or stuff. and have going a this it’s you consumers everyday our consumer label, price and buying grocery we brand point, quite quality, that doing like to, have for label. while it’s testing the as can it’s store go and good identified brand into good the And that we a been high always

we it or big category is for are the we viewed calling connoisseur recently always the brand, Then way. Black the one are or been where have that connoisseur we a Vapen have a we introducing that moderate of Black, quality price. Vapen So, positioning what that’s

Black it’s price doing don’t much in are that tier. that market enough strong, really really going what into that we is you So, really products. live are it we gain high – differentiate that, moving to I is see where resin doing the I believe from just it. us that’s a Vapen don’t What that or the

terpenes stuff that. We are like and cannabis doing, derived

we that making are So, differential.

like need little are and we makes rebrand the change make bit to actively the from on to big one the in brand brand working edibles edible away So, right Vapen we it brand. take now that a different. is the That

have within We edibles. the doing – been development the in some different

Science So, And chemists it’s background the again marketing. part ASU. of to you that Science ASU Vapen of with patent remember for filed that people recently a tagline some on on have a conjunction need type staff. staff with that just isn’t Vext and We science in actually have or we with organic use with

motion are edible. working the on different make the they experience technologies somebody in for on to ways So, a

the people different to I And cannabis. and to you x a seven that’s to base the to going get I It’s I It’s into those products in not right think how So, things. continue population, are new try quarter, on have get look and really of to amount what to quarter same at really people the trying at trying different cannabis now. five you population us for because Ohio, if use marketing of Because approach come and energized. see really new. a expand do second to we or some the how of that’s you we the base. more you emphasis are are that’s to with keep going do that uses think expand do first look up how But that slice

Andrew Semple

the queue. back and Eric there, color the Appreciate I into will great. get That’s

Eric Offenberger

Andrew. Thanks

Operator

go from George next ahead. come of Please Instructions] Securities. Haywood Colin Your [Operator will question

Colin George

Good How going? it is morning Eric.

Eric Offenberger

Good. Good morning, Colin.

Colin George

so questions I of a bunch more have answered into bit into the seen of dive that kind kind a of want to far seasonality you there. what You just Arizona already. and

started based some You to Is Arizona. as people as or that sizes come increasing these of the their traveled winter guess and inflation? some up increases, these of it kind just homes, impacted purely are maybe in basket QX by ticks down of snowbirds population transaction I less these

Eric Offenberger

Yes.

– can re-emphasis. for it I still basket that’s think is we has all when the see And talked the focused are other do the think think do that and the increasing, really the used valley. increasing the traveler. an the population But call It’s on impact. sell you I how are I it’s it. ago you it winter to is, also is of in you It’s about How be, because market. above. we on sizes thing not years the impact that XX

retail. So, one I a that earlier of specialty the we things we it have have recently approach done the is as comment made

one the somebody the out went Bed hired operations. I and of to we team, run with Bath So, retail Beyond from &

demographic. to & So, that and do particular start how I what’s thing, manager sorry. you on in thinking merchandising in-store within you doing you Bath – the the of merchandising how am that and approach store, do in Body and Works, type how And you it specials how going are for about

that’s awareness think and is being there of up-selling. I So, helping,

idea the the have guys or anything it’s So, don’t are to scrambling. have want to I product, have for this really because economy that. the cannabis, years, had and seen mindset, yes, oh, changes, retail People the have going like And now good it. or practices good is and everybody been people practices business you you following

faced we that. So, with are

probably or price the of over lowering when source. of that a your the of are it you lot to aware pricing all have driving but and somebody lowering there. conversation customers, billboards It’s see a You product your lot with here price be drives you not

Colin George

are Okay. in you just might question. anything me, crystal be Thanks. hearing bit or helpful. your thoughts just one it maybe terms a some of market. That’s Maybe But the ball for of guys of a Ohio more

legislature is is did getting is possibility Ohio. the mid-term you have it there to about consider think from that legalization. attached I going the likely municipalities safe, here, hope on that Do the Republican initiative the and in to that it all that’s state passed of which was way a legalization five a there the the being or maybe ballot. a is bill, rumors to there think come At XXXX to a that be would in Senate Illinois going to Joyce’s

Eric Offenberger

either or will at see the Jon’s me pretty in going screen to look one I for senses my straightforward. two look But the mirror or reflection. which are the to mine give head is bald

I think you relatively just vets its saw votes, in approach. stay Ohio going to conservative who still have so it’s

top. that look is right legislation sets Ohio So, to my to have in trying the some guess have it, is nothing is that there pharmacy that over at regulates pending move, now you commerce you and

think that medical to make a give expand. would then for people to it market. – try one some is to the within you bit ability have give marketing it unit, or program little And more advertising would do make there legislation I the which it it easier to

that will go boat industry as like and continues I long will potentially, it. and pass they But in way it to ‘XX, there the legs might do in to think operate market, in boat. little think go has be I And a ‘XX, it’s more. as seems then recreational doing to bit I that it towards first, think a a they well

agriculture. probably farm going in Illinois, sense. going and keeping year of don’t little up the a crops, think said, were, it sit you And the then corn happen. every it job of type I remember good I that I have subsidy, in that that like And best and the colonists. They silos And of worked I to soybeans to That plant think a and recall, grew And Federal yes, bit grain can And to and I of how it’s similar land, done stuff. all the either would aside, have bins overabundance thing. of that’s grew kind everybody was the and cultivation for way it’s I was stuff. it setting communities really farmland. Midwest or whole rural that’s have would I describe an think a but when I So, get go going go up. that the and to you to in

are I will do a of what of they where crop it going going stuff. not you be vertical grow they through that’s these you what And watch fits store it’s damned. so you price grow populations with this are it. same cannabis, It’s challenge, really now become and are bunch all it. And everybody, right. if Arizona, I to this abundant thing, Well, why everything. And you to because over it and high, best when vertical, a lot and down crop is your the if wholesale states run so of the Now, have allowed that do this and like drives does to And produce, of a can well, you go. have that really mile abundance

mistake. state’s will good going Ohio has Illinois to think keep too that done in job base regard continue that is far pretty tax to make don’t And think I I that that up. So, a so

always cultivation transactional and up benefit of based control of these abundance, think remember, I side, the that states. end that pricing actually it’s silver the the raw in really piece material for to revenue. them it’s which or tax upon the they most price their drops input So, in on that the so sales Because don’t in their state

that and you impact their that seeing they that. it’s are are doesn’t bad are when on yes, taxes they an it’s a in taking in state model a do So,

comfortable am I Ohio mistake. that make to not going that So, is

Colin George

of would the little bit, not license dispensaries I roll to incremental next more kind down the…? that the initial the is just and in of with some that way they out Okay. steps I yes, as they are a cultivation before XX,XXX slower, makes but double wave can set it looking road. of guess move But you up the sense maybe that an guess

Eric Offenberger

up lines, along our partnership Tier double out is enough the the do to I advantages of it our But give that’s have advantage to Colin which grow off facility know without continue that going some should probably Ohio, aspects ever because an the tied stuff. to anything probably don’t think to having us the without could Now, of really with I call, to to safety am color getting facility people that big I about like of that we of on be having up, able that, on we license been physical is support do we a it in to that of and or this. one ground. is large those a to stacking that, this to and XXX,XXX you the That’s talking X fan much address. not do

So, the okay, XX. it’s I like not outgrow

I building that find will Campbell’s growth a the years to a originally try it would and everything. manufacturing. another of rebuild type for support and pattern. I acres was And plant Now, mushroom am years stuff. my that It’s facility ago in a ton, supports and XXX

agriculture. agriculture, for indoor geared really controlled and it’s So,

JV. have that couldn’t facility. to this a we was and in That we into thing perfect been big when it’s years us X building happier really ago about went So, that

Colin George

despite all And seasonality strong Nice the it answers Okay. you questions that holding I That’s see to think guys. in I Thanks quarter the the on market. will my here. margins the pretty from and Eric. pass helpful. straightforward to

Eric Offenberger

Thank Okay. you.

Operator

there lines. We for conference may your your for from the phone conclude like And would disconnect Ladies this and lines. everybody are gentlemen, this participating and thank you now no will to questions morning. further

Vext Science (VEXTF) 17 Nov 222022 Q3 Earnings call transcript