Indiva Limited

Thank you, operator. Welcome, everyone.

Thank you for joining us this morning to discuss Indiva's financial results for the fourth fiscal and year ended December 31, 2023. Matters discussed in this conference call include forward-looking statements.

Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Certain material factors and assumptions were considered and applied in making these forward-looking statements.

Additional information regarding these forward-looking statements, factors and assumptions is available in our earnings press release issued today as well as in the Risk Factors section of the annual MD&A and other public disclosure documents available on Indiva's Cedars+ profile. I'm pleased to announce the best quarterly and annual results in Indiva's history.

In our fourth quarter and for fiscal year 2023, we achieved record net revenue, gross margin percent and gross profit dollars, record EBITDA and record adjusted EBITDA and record positive operating income. Q4 results were driven by continued growth in Pearls gummies as well as the introduction of new products, including No Future Gummies and vapes.

On a year-over-year basis, we overcame adversity and constant currency produced record results. Specifically, the decline in net revenue contribution from moving to contract manufacturing of Wana combined with the loss of lozenges revenue due to Health Canada's regulatory ruling of lozenges cost $4.6 million of net revenue in the fourth quarter when compared to the same period last year.

This decline was more than offset by a $6.7 million incremental net revenue contribution from Pearl and No Future. I'm very proud of the resiliency of Indiva teams and our ability to overcome diversity, particularly driven by events out of our control.

For the fiscal year 2023, net revenue also increased to a record $37.6 million despite those cross currents. 35% of net revenue in Q4 2023 was derived from brands created and owned by Indiva, including Indiva 1432 chocolate, Indiva Blips, Indiva Doppio Sandwich Cookies and No Future gummies and vapes.

This is up from 20% of net revenue in Q1 2023, as we continue our approach towards more in-house development of brands and products and a declining a reliance on licensed brand as a percentage of our net revenue. Indiva achieved 27 new SKU listings in 2023, 24 of which are from in-house innovation.

And in 2024 to date, Indiva has received an additional 10 SKU listings, nine of which are from in-house innovation. At our production facility in London, Ontario, we continue to add further automation to our processing and packaging activities, further improving our low-cost producer status.

These improvements are evident in our adjusted gross margin to a record 38.5% in the quarter. The fourth quarter was a record for production as well with greater than 5 million units produced.

Turning to market share, data from Hifyre for the fourth quarter of 2023 shows strong sell-through of Indiva's edible products with 22.9% share of sales across BC, Alberta, Saskatchewan, Manitoba and Ontario, Indiva continues to hold the number one ranking in market share by sales and units in the animals category and this is driven by continued growth Pearls by Grön and No Future gummies. In Q4, our edibles market share in Ontario was 24.9%.

In Alberta, it was 22.2%. In British Columbia, we are number one with 28.2% market share.

Looking at gummies, Indiva's Pearls by Grön gummies ranked as number two edibles category based on sales with a 14.5% share and ranked number one with a 17.4% share based on units sold. Further, No Future gummies launched in late Q3 and already rank as number seven in the edibles category based on sales and number five based on units sold.

In chocolate, Indiva held the number one ranking in market share by sales and units sold with 32.6% total subcategory share, ranked number two on sales and rank number one on unit sold. Note that Bhang exited the Alberta market in 2023 through regulatory constraints and we regain much of that market share with Indiva's 1432 brand.

To make Indiva held number one ranking in market share by sales and units sold with 42% total subcategory share, driven by the success of Doppio Sandwich Cookies. Based on data from BC, Alberta, Ontario, Manitoba and Saskatchewan, the edibles category decreased by 0.4% Q4 to $63.1 million of retail sales from $63.4 million in Q3 2023 and decreased 2.2% versus $64.6 million in the same quarter last year.

In February 2024, market share by dollars improved to 25.2% in the edible category across British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, and Indiva maintained the number one ranking in market share by dollars a unit sold in the edibles category and ranked number two nationally overall in unit share across all categories with a 7.3% unit share. We sold more than 1 million units in February nationally.

Now turning to a review of some key operational highlights for the year ended December 31, 2023. Indiva completed the commissioning of several key pieces of automation used in the processing and packaging of its top-selling animal brands.

This is an important milestone for the company as it allows them to even to scale innovation and continue to drive unit costs lower. Indiva began shipping -- supplying rather, Tilray's medical platform within deeper products, including Pearls by Grön, Bhang Chocolate as well as Doppio Sandwich Cookies.

We signed a non-exclusive agreement with Valiant Distribution Cannabis as a subsidiary of Canna Cabana Inc. for the distribution of products in the province of Saskatchewan.

In March 2023, Health Canada requested that Indiva seized production of lozenges and we immediately comply with this order. Initial deliveries of Pearls by Grön were made to the province of Alberta in May of 2023.

Four SKUs were initially were initially delivered and a SKU count is since grown to 10 SKUs, including 325 count packs focused on minor cannabis including CBD, CBG and CBN. We will also introduce three new chocolates in the Alberta market under the Indiva 1432 brand.

In May of 2023, Indiva and Canopy Growth entered into contract manufacturing agreement under which Canopy received to control all distribution marketing and sales of Wana brand products in Canada. Indiva received the exclusive right manufacture and supply Wana branded products in Canada and Canopy for a period of five years, with the ability to renew for an additional five year term on mutual agreement of the parties.

As consideration, Indiva completed an unbroken private placement offering of common shares of Indiva, whereby Canopy subscribed for an aggregate purchase price of $2.1 million. The balance of the consideration, which is just shy of $700,000 will be paid by Canopy to Indiva on May 30, 2024.

In August 2023, Indiva launched a new value-focused brand called No Future, including gummies and vape. The company shipped product at B.C.

and Alberta in August and completed initial shipments to Ontario at late September. Looking specifically No Future gummies, since their introduction in 2023, Indiva has sold more than 3.6 million units, ranking number two in market share by dollars in BC, number four in Alberta and number six in Ontario Gummies SKU count has since grown to seven.

Aggregate weekly depletions for No Future gummies continue to robust rise as the brand and it value proposition gain awareness with consumers and bund tenders across the country. In Q3, Indiva amended the terms of its existing non-revolving term loan facility with SDL and has also entered into a supply agreement whereby SDL will supply the company with certain distillate products on an exclusive basis.

Turning to event subsequent to year-end. Indiva announced the closing of a previously announced private placement offering pursuant to a listed issuer financing redemption.

The company issued just over 9 million units for aggregate proceeds of $906,000. Trading product introduction since year-end, for Pearls, we launched Pearls Lemon Dream CBN, a 25 pack offering, which follows on the success of the Marriott Berry CBG 25 pack and the Peach mango CBD 25 pack.

For No Future, Indiva launched four additional No Future 1.2 gram 510 vapes, including Gape Vape, Peach Punch, Tropical Island Haze and Ping Graper Kush, bringing total No Future vape SKUs in market to seven. Additionally, the company launched two new No Future gummies flavors, the Red One and the Pink one, bringing total No Future gummy SKUs to market to seven.

Additionally, the company launched No Future Fatty Patty an innovative chocolate-covered choco cookie dough edible with 10 milligrams of THC per pack. Blips, Indiva launched a 55 pack to complement existing 25 of these innovative adjustable extracts.

The 55 pack a Blips is available in Alberta and DC, with the Ontario launch slated for June of 2024. Subsequent to quarter end, Indiva announced a further loan amendment with SMDL.

Indiva repaid tilted principal about outstanding pursuant to the pro note and shall work to reduce other current liabilities in the near-term. Consideration for the repayment of the $2 million amending agreement removed the company's covenant or the prom note to ensure a $2 billion minimum unrestricted cash balance at all times.

Maturity date of the promise I know continues to be February 24, 2026. The company has also retained SSC advisers as its financial adviser to assist the company and evaluation of potential strategic alternatives intended to maximize shareholder value, including financing alternatives or merger, amalgamation, plan arrangement, consolidation, reorganization or other similar transactions.

SNDL and Indiva continue to act as commercial partners and SNDL remain supportive of Indiva in this process. Please note, we will not be providing any further detailed information on this process at this time.

We will provide further updates when appropriate. Finally, I'd like to thank all of Indiva's employees, including our dedicated staff at our facility in London, Ontario for their continued hard work as we ramp production of new products and brands.

And also our sales and marketing staff who have worked tirelessly to support the launch of new Indiva brands and products across Canada. Thank you, and I'm sure cannabis enthusiast everywhere in Canada, thank you too.

I'll now turn it over to Indiva's Chief Financial Officer, Jennifer Welsh to review the financial results in greater detail.

Thank you, Niel. I'll review Indiva's financial performance for fiscal Q4 and the year ended December 31, 2023.

Gross revenue in the fourth quarter increased 22% year-over-year and 16% sequentially to a record $12.6 million. For fiscal year 2023, gross revenue increased 11% year-over-year to a record $41.9 million.

Net revenue increased 17% year-over-year and increased 11% sequentially to a record $10.9 million in the quarter, driven mainly by strength in Pearls gummies and No Future gummies and date. For the year, net revenue increased 9% year-over-year to a record $37.6 million despite significant declines in revenue versus 2022 from Wana and from discontinued products, including lozenges.

Overall, edibles accounted for 88% of net value in Q4 and 87% on a year-to-date basis. In Q4 '23, Indiva sold products containing a record 218 million milligrams of distilate nicely, which represents a 44% increase when compared to the 152 million milligrams and products sold in Q3 2023 and a 166% increase compared to 82 million milligrams full in Q4 2022.

For fiscal 2023, Indiva sold products containing 564 million milligrams of cannabinoids, which represents a 138% increase when compared to 237 million milligrams and products sold in 2022. Gross profit before impairments and one-time items was a record $4.2 million, up 53% versus last year and up 15% versus Q3 2023.

Gross margin improved to a record 38.5% of net revenue versus 37.1% in Q3 '23 and 29.3% in Q4 2022. Improvement in gross margin was due to higher sales, improved operating efficiencies and a positive mix shift towards higher-margin products.

In 2023, gross profit before impairments improved by 26.9% to a record $13.2 million or 35.1% of net revenue versus $10.4 million or 30.2% of net revenue for the year ended December 31, 2022. Operating expenses in the quarter decreased 19% year-over-year to $3.1 million, a record low of 28.9% of net revenue versus 31% in Q3 2023 and 42% in Q4 2022.

Operating expenses declined year-over-year due to lower general and administrative costs, lower marketing costs and lower R&D and share-based compensation. For the year, operating expenses decreased by 11% to $12.6 million versus $14.3 million for the year ended 2022, primarily due to lower marketing and sales expenses, lower R&D expenses and lower share-based compensation.

As a percentage of net revenue, operating expenses decreased to 33.7% for 2023 versus 41.4% in 2022. EBITDA was a record positive $900,000 or 8.1% of net revenue in the quarter.

Adjusted EBITDA increased sequentially in Q4 '23 to a record profit of $1.5 million or 13.9% of net revenue versus a profit of $1 million in Q3 2023 at a loss of $600,000 in Q4 2022. For the year, EBITDA was a record positive $1.6 million or 4.2% of net revenue in 2023 versus a loss of $4.8 million in 2022.

Adjusted EBITDA improved to a profit of $2.4 million versus a loss of $1.5 million last year. Income from operations was $500,000 versus $13,000 in Q3 2024 and a loss of $1.7 million in Q4 2022.

The significant improvement in income from operations was driven by higher sales of core brands, improved margins and lower operating expenses. Comprehensive net loss included one-time expenses and non-cash charges, including inventory impairments totaling $500,000 in Q4 2023 and $400,000 in Q4 2022.

Excluding these charges, our operations of loss declined to $200,000 for 2023 or earnings per share of zero versus a loss of $2.3 million in Q4 2022 or earnings per share of negative $0.01. The cash balance at year-end was $2.2 million.

Looking forward, the company expects that Q1 2024 net revenue will be flat on a sequential basis, primarily due to seasonality. However, based on purchase orders and deliveries, the month of April is on track for record net revenue greater than $4 million.

Margins are expected to be lower sequentially in Q4 2024 due to lower sales offset by positive mix shift and the benefit of the implementation of automation and the production and packaging of edible products. For fiscal year 2024, the company expects to generate record net revenue and record EBITDA, driven by continued strength in its core brands bolstered by new product introductions and continued efficiency gains at the production facility from automation and process improvements.

Thank you, Jen. Operator, I think with that, we'll open it up to questions.

Okay. Well, thank you, everyone for attending the call.

We're going to get back to work and look forward to speaking to you all again in late May when we release our first quarter 2024 results. Thanks, everyone.