Lifeist Wellness Reports Third 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 nine months ended August 31, 2022 (“Q3 2022”) compared to the same period last year (“Q3 2021”). All financial figures are in Canadian dollars unless otherwise indicated.
Third Quarter 2022 Highlights
Net revenue increased 27% to $6.8 million in Q3 2022 compared to $5.4 million in Q3 2021.
Gross profit before inventory adjustment increased 50% to $1.4 million compared to $0.9 million in Q3 2021, with margins expanding from 17% to 20%.
Adjusted EBITDA loss narrowed to $1.2 million compared to $5.0 million in Q3 2021.
Working capital position of $11.5 million at quarter end.
“Our strategic emphasis on high-margin opportunities is well underway and progress is clear in our improved profitability,” said Meni Morim, CEO of Lifeist. “This is most evident in our cannabis business, which is becoming one of the pre-eminent distributors of Cannabis 2.0 products across Canada and is successfully leveraging its sales license for its award winning in-house Roilty brand. Roilty revenue doubled from last quarter to $3.0 million to represent nearly 60% of CannMart revenue, which in turn drove continued gross margin expansion. We are increasingly bullish on CannMart’s prospects given the recent expansion of production capacity at CannMart Labs, and as well as ongoing distribution gains and the expansion of the Roilty product portfolio into new categories, which will soon include shatter and THCa diamonds. Roilty’s growing success has enabled CannMart to transition away from its historical dependency on the Phyto brand sooner than expected, which in turn should further benefit profitability.”
Morim continued, “Simultaneously, Mikra is becoming another growth engine for Lifeist, as we expected it to be. Mikra’s KPIs are all headed in the right direction, highlighted by active subscriptions for CELLF™ increasing 173% compared to last quarter. This early success gives us confidence to continue to fuel its growth with additional initiatives. We are investing in product innovation, deploying additional marketing dollars, expanding manufacturing capacity and lining up additional distribution.”
“With positive trends from CannMart and Mikra, and an improved business mix after a year of sunsetting of non-core divisions, Lifeist is well-positioned to drive increasingly toward profitability,” added Morim. “We expect the financial benefits of our strategic focusing to become even more apparent over the coming quarters. Lifeist has significant momentum, and I have never been more confident in the opportunities for long-term value creation.”
Cannabis: CannMart Inc. (“CannMart”) and CannMart Labs Inc. (“CannMart Labs”)
Recreational cannabis continues to be Lifeist’s largest driver of performance accounting for 74% of the Company’s net revenue in Q3 2022, with growing gross profit, effective inventory management, an expanded distribution network, and bringing an award-winning brand to market.
The cannabis business delivered strong financial results across the board in Q3 2022: revenue increased by $1.9 million, or 62%, to $5.1 million compared to $3.1 million in Q3 2021; gross profit before inventory adjustment increased to $0.9 million in Q3 2022, or 18% margin, compared to $0.5 million in Q3 2021, and Adjusted EBITDA improved to $1.2 million compared to ($2.7) million in Q3 2021. Results were driven by increased sales of higher-margin Roilty products, improved operating efficiencies, and a negotiated $1.9 million supplier discount on outstanding invoices. Excluding the favorable one-time supplier discount, Adjusted EBITDA would have been ($0.7) million.
Revenue for CannMart Labs’ award-winning in-house Roilty brand doubled to $3.0 million in Q3 2022 compared to $1.5 million in Q2 2022, driven by increased distribution and retail sell-through of an expanding portfolio of products in high demand by Canadian consumers. CannMart Labs expects to accelerate growth further in the coming quarters through increased production capacity and continued distribution and product innovation, including the introduction of edibles in Quebec, expanded sales in Ontario and Alberta, and the launch of shatter and THCa diamonds.
CannMart has continued to build upon its position as one of Canada’s largest provincial and retail recreational cannabis distribution networks, with potential access to over 2,600 retail cannabis stores across the country through its agreements with provincial bodies. Following the establishment of a supply agreement with Société Québécoise du Cannabis (“SQDC”) in March 2022, during Q3 2022 SQDC agreed to offer six edible products offered by CannMart, making CannMart one of the principal distributors of edibles in the province.
Roilty’s success is enabling CannMart to transition away from the Phyto brand sooner than expected, as evidenced by its agreement with Adastra Holdings Inc. in late August 2022 to an early termination of the brand licensing agreement between the two parties. CannMart expects a reduction in gross revenue from the discontinuation of Phyto-branded product sales beginning in October 2022, but also over $2 million in annualized operating expense savings associated with an approximate 30% headcount reduction program implemented over the past two months. After a short transition period, with its sharper focus on higher margin products, CannMart expects to deliver higher gross and operating margins, and increased Adjusted EBITDA. Additionally, per the early termination agreement, Adastra is expected to make a cash payment to CannMart in Q4 2022 representing all functional outstanding unfinished Phyto branded product and all functional Phyto branded packaging material held by CannMart as at September 30, 2022.
Nutraceuticals: Mikra Cellular Sciences Inc. (“Mikra”)
Mikra reported revenue of $0.3 million in Q3 2022, its first full quarter of financial results since launching sales of CELLF™, its first product, last quarter. Despite supply chain and stock outages which have now been rectified, Mikra achieved a 173% increase in active monthly subscriptions for CELLF™ in Q3 2022 compared to Q2 2022, and customer churn less than 20%.
Mikra delivered its best KPIs of the quarter in August, highlighted by lower customer acquisition cost (CAC), increased new and returning customers (i.e., lower churn), and higher recurring revenue, 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.
Mikra’s product pipeline includes CELLF™ v1.2 and a cellular therapeutic designed for athletes age 30+ in collaboration with Jose Bautista, both anticipated to launch during Q4 2022, advancing objectives to expand distribution, improve customer lifetime value, and increase profitability and revenue growth.
Australian Vaporizers Pty Ltd. (“Aus Vapes”)
Aus Vapes reported a 20% decline in revenue in Q3 2022 compared to a strong Q3 2021, and a $63,000 Adjusted EBITDA loss compared to a $200,000 gain last year, as the business continues to recover from the severe and unprecedented flooding that struck the region in the spring. Moving into Q4 2022, Aus Vapes has been fully restocked and ready for the holiday sales period.
Net revenue increased 21% to $6.8 million in Q3 2022 compared to $5.4 million in Q3 2021. The $1.4 million increase was driven by a $1.8 million, or 61%, increase in Canadian cannabis revenue and $0.3 million contribution from Mikra. This growth was partially offset by a $0.4 million decrease at Aus Vapes which continues to recover from the spring floods and $0.4 million from the planned wind-down of hardware sales in Europe through Lifeist Bahamas. Excluding Lifeist Bahamas, net revenue would have increased by $1.8 million compared to Q3 2021, or 37%.
Gross profit before inventory adjustment increased 50% to $1.4 million compared to $0.9 million in Q3 2021, with margins expanding from 17% to 20%. The gross profit in Q3 2022 was the second highest quarter in the company’s history, highlighting an improving trend over the last several quarters.
Adjusted EBITDA loss was $1.2 million in Q3 2022 compared to a loss of $5.0 million in Q3 2021. The $3.8 million improvement was driven by a $3.9 million improvement at CannMart and a $0.2 million reduction in Corporate & Other costs, which more than offset a $0.1 million decline at Aus Vapes and Mikra start-up costs. Excluding the favorable one-time supplier discount at CannMart, Adjusted EBITDA loss would have been ($3.1) million.
Net loss was $2.0 million, or ($0.0047) per diluted share, in Q3 2022 compared to a loss of $6.1 million, or ($0.02) per share, in Q3 2021, due to improved gross margins and lower operating expenses.
Balance Sheet and Cash Flow
Cash and cash equivalents were $3.6 million at August 31, 2022, compared to $12.7 million at November 30, 2021.
Inventories increased to $7.0 million at August 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 $15.5 million for the first nine months of fiscal 2022 compared to $13.2 million for the first nine months last year, due in part to investments in CannMart and Mikra. Operating cash flow is expected to improve over the comping quarters due to profitable growth in the overall business as well as the early termination of the Phyto brand licensing agreement with Adastra.
Share Issuance related to CannMart Labs Acquisition
The acquisition of CannMart Labs included a potential earn-out payment related to the achievement of certain performance criteria, which were achieved in Q3 2022 due to the strong financial performance. As a result, Lifeist intends to issue an aggregate of 11,096,306 common shares (issued at a deemed price of $0.0934, which is equal to the seven day volume weighted average), without a hold period, as payment of an earn-out and true-up, to the vendors under the share purchase agreement for the acquisition of CannMart Labs. The issuance is considered to be a shares for debt transaction under the policies of the TSX Venture Exchange and remains subject to their approval.
The Company’s complete financial statements and management’s discussion & analysis (“MD&A”) for Q3 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; 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:
Meni Morim, Lifeist Wellness Inc., CEO
Matt Chesler, CFA, FNK IR, Investor Relations
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 and further development efforts relating to its B2B recreational cannabis and nutraceuticals and its expectations from such businesses to increase revenue growth and profitability 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, including through increased sales of Roilty and anticipated sales of shatter and THCa diamonds, and to maintain momentum of expanding its nutraceutical business, including through the anticipated sales of CELLF™ v1.2 and other cellular therapeutics designed for athletes aged over 30, 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™ v1.2 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 or CELLF™ v1.2 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 which has 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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