Lifeist Reports Second Quarter 2022 Financial Results
Lifeist Wellness Inc. (“Lifeist” or the “Company”) (TSXV: LFST) (FRANKFURT: M5B) (OTCMKTS: NXTTF), a health-tech company that leverages advancements in science and technology to build breakthrough companies that transform human wellness, today reported its financial results for the three and six months ended May 31, 2022 (“Q2 2022”) compared to the same period last year (“Q2 2021”). All financial figures are in Canadian dollars unless otherwise indicated.
Second Quarter 2022 Highlights
The $0.8 million decrease in net revenue in Q2 2022 was due entirely to two factors: a $1.0 million decrease in Australian Vaporizers hardware revenue caused by the flood-related operational shutdown in March and April and a $0.6 million decline from the planned wind down of hardware sales in Europe through Lifeist Bahamas. Excluding these items, Lifeist revenue would have increased. Canadian cannabis revenue increased by $0.8 million, or 29%, compared to Q2 2021.
Gross profit before inventory adjustment increased to $0.7 million compared to $0.4 million in Q2 2021, with margins expanding to 16% from 7%, despite the loss of two months of sales by Australian Vaporizers.
The $0.9 million improvement in Adjusted EBITDA loss in Q2 2022 was driven by a $2.0 million improvement at CannMart and a $0.8 million reduction in Corporate & Other costs, which more than offset a $1.1 million decline at Australian Vaporizers due to the one-time impact of the flood, $0.7 million at Mikra due to start-up costs, and $0.1 million decline at Lifeist Bahamas. Excluding the one-time impact of the flood, Adjusted EBITDA would have improved by $2.0 million.
Working capital position of $13.0 million at quarter end remains strong.
“The Australian floods dampened what was otherwise a solid quarter for Lifeist,” said Meni Morim, CEO of Lifeist. “While it’s been a difficult period for the broader cannabis industry, we’re generating measurable success and establishing a path to profitability for our recreational cannabis distribution platform. Meanwhile, while encountering industry-wide supply chain disruption challenges, our nutraceuticals business was still able to achieve the correct acquisition and retention metrics to enable profitable growth and I expect this execution in the coming quarters. As for Australian Vaporizers, following the effects of the devastating flood, the business re-opened its doors in May and generated sales operating metrics consistent with pre-shutdown levels, and that normally positive performance has continued into fiscal Q3 2022.”
Mr. Morim continued, “I’m especially proud of how our Australian colleagues executed in the wake of an unpresented flood which crippled the Brisbane region and Australian Vaporizers’ operations. In just 53 days after waking up to two feet of water in the warehouse, Australian Vaporizers re-launched sales from a new larger facility and has returned to its growth trajectory – an amazing accomplishment. The team is now focused on growth strategies to increase Australian Vaporizers’s contribution of revenue to Lifeist.”
Concluded Mr. Morim, “Additionally, we took further steps in our transition to a wellness-driven company by divesting Findify, securing a deal that gave Lifeist 100% cash upfront to solidify our balance sheet, and further focusing the business. This follows our previous exit from consumer-focused medical cannabis and formally ceasing operations of Lifeist Bahamas, which sold hardware in Europe through the everyonedoesit.uk ecommerce website. With these initiatives, we are more focused and better capitalized to fund our growth initiatives in our core areas of focus, B2B recreational cannabis and nutraceuticals, where we see significant value creation for our stakeholders.”
Operating Highlights
Cannabis (CannMart Inc. (“CannMart”) and CannMart Labs Inc. (“CannMart Labs”))
Recreational cannabis continues to be Lifeist’s largest driver of performance accounting for 86% of the Company’s net revenue in Q2 2022, with growing gross margins, effective inventory management, an expanded distribution network, and bringing an award-winning brand to market.
The cannabis B2B gross margin increased to $0.7 million in Q2 2022 as compared to a negative gross margin of $0.4 million in Q2 2021, continuing the positive trend, driven by sales of higher-margin Roilty products and improved overhead efficiencies.
After establishing a supply agreement with the Société Québécoise du Cannabis (“SQDC”) in March 2022, CannMart is now approved for the sale of cannabis and cannabis-derived products from provincial and territorial bodies in Ontario, Alberta, British Columbia, Quebec, Manitoba, New Brunswick, Saskatchewan, Yukon, Nunavut and the Northwest Territories, which provides it with access to 95% of Canada’s population. CannMart is currently processing purchase orders for the country’s largest provinces.
At CannMart Labs, the proprietary Roilty brand shipped to Ontario last week and is also now listed in British Columbia where it has been shipped and selling within the province. With the expansion of distribution to these two additional provinces, Roilty is now available in six Canadian provinces and territories, Alberta, Saskatchewan, Manitoba, Yukon, Nunavut, and Northwest Territories, four of which are being fed products produced at Labs’ facility in Etobicoke, Ontario. To meet increasing demand, CannMart Labs continues to add capacity, processing flash frozen and dried biomass through its extraction units.
In total, there are now 10 Roilty SKUs in the market, with Roilty vapes performing particularly well, as are Roilty live resin products such as Priest Punch, Kings Kush and Lemon Haze. Having seen solid traction for co-manufactured shatter, Labs has begun commercial scale runs of Labs-produced shatter which it expects to be in market by fiscal Q3 2022.
Nutraceuticals (Mikra)
Mikra had a milestone quarter in Q2 2022. Its first product, CELLF™, a novel cellular therapeutic targeting systemic fatigue, began pre-sales in March, followed by the first shipments in April. Mikra spent the bulk of these months testing messaging and channels for scaling marketing effectively in the coming quarters while simultaneously undergoing product development and margin-increasing R&D for its flagship product, CELLF™.
Mikra encountered unanticipated supply chain disruption challenges due to the war in Ukraine, resulting in increased costs and lead times for Glycerin, Sunflower Oil, and MCT Oil. These unforeseen circumstances required Mikra to identify new vendors and undergo complete re-testing, pushing scale-up manufacturing behind schedule and rendering nearly 30% of Q2 2022 out-of-stock and 50% to date. Mikra has surmounted these challenges and has now officially received Batch #3 and expecting Batch #4, #5, and #6 in the coming weeks to continue to meet current consumer demand and scale revenues.
Mikra was able to test multiple marketing channels and demonstrate a strong product-market-fit with key metrics despite considerable delays in the supply chain. To date, the average 30-day churn on U.S. subscriptions has maintained below 20%, and customer acquisition cost has reduced by 61% since March. These two critical metrics and stable supply chain efforts will enable Mikra to scale more heavily in the coming quarters.
Mikra anticipates accelerating sales of CELLF™ as it ramps up marketing activities and expands distribution channels. CELLF™ is currently available for purchase on WeAreMikra.com.
Australian Vaporizers
Due to a severe and unprecedented storm flooding in Queensland and New South Wales, Australian Vaporizers’ solid year-to-date performance and growth was put on hold during March and April 2022.
This regional natural disaster was leveraged by management to implement a plan to overhaul Australian Vaporizers’ operations to enable accelerated business growth. This included a five-year lease on a larger, more efficient layout—including a delivery bay for increased receiving and shipping efficiency necessary for order scale.
In May, Australian Vaporizers’ first full operational month of back-to-normal operations, the business delivered metrics consistent with pre-shutdown levels, demonstrating its resiliency, loyal customer base, and market opportunity. May was characterized by strong website traffic, conversion rates and average order values (AOVs).
In Q2 2022, Australian Vaporizers revenue decreased by $1.0 million or 68%, as compared to the same period last year, due to the operational shut down for March and April 2022, following the flooding event in the area. In addition, Australian Vaporizers recorded a write-down of inventory of $0.6 million, as a result of the flood damage, impacting its Q2 2022 Adjusted EBITDA and EBITDA.
Financial Summary
Net revenue decreased 15% to $4.1 million in Q2 2022 compared to $4.9 million in Q2 2021. The $0.8 million decrease was driven by a decline of $1.0 million in Australian Vaporizers hardware revenue due to the flood-related operational shutdown in March and April and a $0.6 million decline due to the planned wind down of hardware sales in Europe through Lifeist Bahamas, which more than offset an $0.8 million increase in Canadian recreational cannabis and the initial contribution of Mikra and CannMart Labs revenue.
Gross margin was $0.7 million (16% of net revenue) in Q2 2022 compared to $0.4 million (7%) in Q2 2021, and $1.5 million (17%) in Q2 2022YTD compared to $0.5 million (5%) in Q2 2021YTD, representing a significant increase over the same period last year in both dollars and %. The increase in Gross Profit in Q2 2022 represents the Company’s fourth highest quarterly Gross Profit, despite the loss of two months of sales by Australian Vaporizers.
Adjusted EBITDA loss was $4.5 million in Q2 2022 compared to a loss of $5.4 million in Q2 2021. The $0.9 million improvement, or 17%, was driven by a $2.0 million improvement at CannMart and a $0.8 million reduction in Corporate & Other costs, which more than offset a $1.1 million decline at Australian Vaporizers due to the impact of the flood, $0.7 million at Mikra due to start-up costs, and $0.2 million decline at Lifeist Bahamas.
Net loss was $3.9 million in Q2 2022 compared to $6.4 million in Q2 2021, due to improved gross margins, lower operating expenses, and a gain on sale of $0.9 million in the quarter from the disposition of the Company’s subsidiary Findify AB on May 25, 2022.
Balance Sheet and Cash Flow
Cash and cash equivalents were $6.6 million as of May 31, 2022, compared to $12.6 million as of November 30, 2021.
Inventories increased to $6.5 million at May 31, 2022 compared to $5.4 million at November 30, 2021, mainly due to new inventory purchased for CannMart Labs and Mikra, both which started their own production in Q1 2022.
Net cash used in operations was $7.1 million in Q2 2022 compared to $6.3 million in Q2 2021. The increase was due the business interruption at Australian Vaporizers during Q2 2022 and investments in emerging businesses including CannMart Labs and Mikra.
Additional Information
The Company’s complete financial statements and management’s discussion & analysis (“MD&A”) for Q2 2022 are available on Lifeist’s website (www.lifeist.com) and SEDAR (www.sedar.com).
About Lifeist Wellness Inc.
Sitting at the forefront of the post-pandemic wellness revolution, Lifeist leverages advancements in science and technology to build breakthrough companies that transform human wellness. Portfolio business units include: CannMart, which operates a B2B wholesale distribution business facilitating recreational cannabis sales to Canadian provincial government control boards; CannMart Labs, a BHO extraction facility for the production of high margin cannabis 2.0 products; the CannMart.com marketplace, which provides U.S. customers with access to hemp-derived CBD and smoking accessories; Australian Vapes, Australia’s largest online retailer of vaporizers and accessories; and Mikra, a biosciences and consumer wellness company seeking to develop innovative therapies for cellular health.
Information on Lifeist and its businesses can be accessed through the links below:
www.lifeist.com
www.cannmart.com
www.australianvaporizers.com.au
www.wearemikra.com
Contacts
Lifeist Wellness Inc.
Meni Morim, CEO
Matt Chesler, CFA, Investor Relations
Ph: 647-362-0390
Email: ir@lifeist.com
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release or has in any way approved or disapproved of the contents of this press release.
Non-IFRS Financial Measures
Management evaluates the Company’s performance using a variety of measures, including “Net loss before income tax, depreciation and amortization” and “Adjusted EBITDA”. The non-IFRS measures discussed below should not be considered as an alternative to or to be more meaningful than revenue or net loss. These measures do not have a standardized meaning prescribed by IFRS and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with IFRS.
The Company believes these non-IFRS financial measures provide useful information to both management and investors in measuring the financial performance and financial condition of the Company.
Management uses these and other non-IFRS financial measures to exclude the impact of certain expenses and income that must be recognized under IFRS when analyzing consolidated underlying operating performance, as the excluded items are not necessarily reflective of the Company’s underlying operating performance and make comparisons of underlying financial performance between periods difficult. From time to time, the Company may exclude additional items if it believes doing so would result in a more effective analysis of underlying operating performance. The exclusion of certain items does not imply that they are non-recurring.
(i) Current and deferred income taxes, depreciation and amortization, and share-based compensation were excluded from the Adjusted EBITDA calculation as they do not represent cash expenditures.
(ii) Other income consisting of gain on disposal of subsidiary, interest income, realized gain on disposition of AFS investments, unrealized gain on derivatives and other miscellaneous non-recurring income were excluded from Adjusted EBITDA calculation.
(iii) Non-recurring costs related to restructuring and legacy issues were excluded from Adjusted EBITDA calculation.
(iv) Impairment loss relating to goodwill, customer list, domains and brand names were excluded from Adjusted EBITDA calculation.
(v) Impairment loss relating to receivable is a provision for expected credit loss to an associate and was excluded from Adjusted EBITDA calculation.
(vi) Share of associates loss, net of tax, is excluded due to lack of control.
Forward Looking Information
This news release contains “forward-looking information” within the meaning of applicable securities laws. All statements contained herein that are not historical in nature contain forward-looking information. Forward-looking information can be identified by words or phrases such as “may”, “expect”, “likely”, “should”, “would”, “plan”, “anticipate”, “intend”, “potential”, “proposed”, “estimate”, “believe” or the negative of these terms, or other similar words, expressions and grammatical variations thereof, or statements that certain events or conditions “may” or “will” happen.
The forward-looking information contained herein, including, without limitation, statements related to: the Company’s continuing focus on B2B recreational cannabis and nutraceuticals and its expectations from such businesses to deliver sustained and tangible shareholder value are made as of the date of this press release and is based on assumptions management believed to be reasonable at the time such statements were made, including, without limitation, Lifeist’s ability to continue to increase revenue through its B2B recreational cannabis business and to maintain momentum of expanding its nutraceutical business, its ability to broaden its total addressable market and to evolve into a recognized wellness company, the Company’s expectation that the nutraceutical and wellness market will develop as currently anticipated, the nutraceutical market will continue to be a multi-billion dollar high-margin market, the introduction of new products and brands will generate additional revenue, expectations that CELLF and other cellular health products and accessories to be developed by the Company will gain market acceptance along with the expansion of the market for nutraceutical products, as well as other considerations that are believed to be appropriate in the circumstances. While we consider these assumptions to be reasonable based on information currently available to management, there is no assurance that such expectations will prove to be correct. By its nature, forward-looking information is subject to inherent risks and uncertainties that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct and that objectives, strategic goals and priorities will not be achieved. A variety of factors, including known and unknown risks, many of which are beyond our control, could cause actual results to differ materially from the forward-looking information in this press release. Such factors include, without limitation: the inability of the Company to develop its business as anticipated and to increase revenues and/or its profitable margin on such revenues, unanticipated changes to current regulations that would adversely impact the Company’s businesses, the unanticipated decline in demand for cannabis products, competition from others, unforeseen developments that would impede Mikra’s ability to sell CELLF and any other developed nutraceutical products as anticipated and in a timely manner, the risk that pre-clinical trials relating to CELLF are not as successful as anticipated and do not demonstrate the expected therapeutic benefits and/or fail to strengthen the Company’s patent claim, the risk that the expected demand for nutraceutical products in general and those of Mikra in particular does not develop as anticipated, the failure to maintain the churn rate of subscription sales of CELLF at anticipated levels, regulatory risk, risks relating to the Company’s ability to execute its business strategy and the benefits realizable therefrom and risks specifically related to the Company’s operations. Additional risk factors can also be found in the Company’s current MD&A and annual information form, both of which have been filed under the Company’s SEDAR profile at www.sedar.com. Readers are cautioned not to put undue reliance on forward-looking information. The Company undertakes no obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by applicable law. Forward-looking statements contained in this news release are expressly qualified by this cautionary statement.
Source: Lifeist Wellness Inc.
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