Vext Sciences Inc. (VEXT) has released its financial results for the second quarter of 2024, revealing revenues of $8.4 million and adjusted EBITDA of $1.1 million. The company saw a strong initial demand in Ohio following the commencement of adult-use cannabis sales but faced challenges in Arizona with decreased sales due to margin compression and weaker consumer spending. Despite the mixed performance, Vext Sciences remains optimistic about the second half of 2024, anticipating an improvement in revenue and cash flow as the Ohio market grows.
Key Takeaways
- Vext Sciences reported Q2 2024 revenue of $8.4 million and adjusted EBITDA of $1.1 million.
- The company experienced strong initial demand in Ohio but faced decreased sales in Arizona.
- Vext plans to reach the maximum of eight dispensaries in Ohio by Q1 2026.
- In Arizona, higher yields and lower costs are expected to positively impact future results.
- The company is looking to enter the Kentucky cannabis market and resolve the Big Perm acquisition by year-end.
- Vext's balance sheet remains robust, with Arizona operations generating positive cash flow.
Company Outlook
- Vext Sciences aims to be a leading player in Ohio, expecting to reach the state dispensary license cap.
- Own brand penetration in Ohio is projected to exceed 50% once the dispensary cap is reached.
- The company is optimistic about the expansion of the adult-use market in Ohio and its positive impact on future revenue and cash flow.
Bearish Highlights
- Sales in Arizona have decreased year-over-year due to margin compression and weakened consumer spending.
- In Ohio, increased expenses and inventory buildup have led to cash burn, though this is expected to reverse as adult-use revenue begins to flow.
Bullish Highlights
- Vext Sciences anticipates improved margins in the latter half of 2024 due to increased yields and reduced costs in Arizona.
- The company's strategic shift to focus on its own production over third-party wholesale activities is expected to enhance profitability.
Misses
- The company has not determined an exact target for own brand penetration in Ohio.
- Despite positive cash flow in Arizona, it has not been sufficient to offset the investment in Ohio's growth.
Q&A Highlights
- Vext Sciences discussed the attractiveness of asset bundling for sellers and the reasonable multiple for cash bids.
- The company clarified that the expected increase in expenses would be variable in nature, supporting the growth opportunity in Ohio without significant infrastructure spending.
In summary, Vext Sciences is navigating a period of growth and investment, particularly in the Ohio market. While there are challenges, such as margin pressures and increased expenses, the company's strategic moves and market expansion plans suggest a positive outlook for the latter half of 2024. With a strong balance sheet and a clear focus on operational efficiency and market penetration, Vext Sciences is positioning itself for future success in the evolving cannabis industry.
Full transcript - None (VEXTF) Q2 2024:
Operator: Thank you for standing by. This is the conference operator. Welcome to Vext Sciences' Second Quarter 2024 Financial Results and Conference Call. As a reminder, all participants are in a listen-only mode. And the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Priam Chakraborty. Please go ahead.
Unidentified Company Representative: Thanks, operator. Good morning, everyone, and thank you for joining us today. Vext Second Quarter 2024 Financial Results were released earlier this morning. The press release, financial statements and MD&A are available on SEDAR+, as well as on the Vext website at vextscience.com. We would like to remind listeners that portions of today's discussion include forward-looking statements, and that forward-looking statements are included in today's filings. There can be no assurance that these forward-looking statements will prove to be accurate or that management's expectations or estimates of future developments, circumstances or results contained therein will materialize. Risks and uncertainties that could affect future developments, circumstances or results are detailed in the MD&A and Vext's other public filings that are made available on SEDAR+ and we encourage listeners to read those risk factors in conjunction with today's call. As a result of these risks and uncertainties, the developments, circumstances or results predicted in forward-looking statements made this a material release from actual developments, circumstances or results. This call also includes non-IFRS financial information and such non-IFRS financial measures are subject to the disclosure and reconciliation included in our press release disseminated earlier today. Forward-looking statements made during this conference call are made as of the date of this call. Vext disclaims any intention or obligation to update or revise such information, except as required by applicable law. Vext financial statements are presented in U.S. dollars and the results discussed during this call are in U.S. dollars. I will now pass the call over to Eric Offenberger, Chief Executive Officer of Vext.
Eric Offenberger: Thanks, Priam. Good morning, everybody, and thank you for joining our second quarter 2024 financial results conference call. I am joined today by Trevor Smith, Vext's CFO. Overall, the second quarter of 2024 remained a challenging period for consumer-facing companies across sectors. Against this backdrop, our team's strength has consistently set us apart. We generated revenue of $8.4 million and adjusted EBITDA of $1.1 million in the quarter. While we continue to face the impact of the tough consumer environment, we steadily drove traffic to our stores through innovative programs and our own brands to meet customer demand. On today's call, I will focus my remarks primarily on Ohio, where the launch of adult-use cannabis sales following the close of the quarter marked a major milestone for Vext. After over two years of serving medical consumers and preparing for this transition, our Jackson and Columbus dispensary began offering adult use cannabis on August 6. In the first two weeks of the adult-use sales in Ohio, we've seen good initial demand. Our dispensers are experiencing solid increases in traffic as expected, and our brands are resonating well with consumers. We are pleased with these initial results, which validate our strategic positioning and set a strong foundation for performance in the months ahead. Diving deeper into Ohio, we also saw increased demand from third-party wholesale customers in quarter two, 2024 as reseller statewide increased inventory in preparation for the launch of adult-use sales. On the retail side we fully integrated our Columbus dispensary resulting in a 45% increase in consolidated retail sales. Excluding Columbus, sales were down temporarily as consumers delayed purchases in anticipation of the adult-use launch. We see this as a short-term adjustment ahead of the transition and anticipate a significant uptick in customer volume in the coming quarters. As I've highlighted on previous conference calls, we are fully vertically integrated in Ohio. Our network currently includes a Tier 1 cultivation facility, a manufacturing facility and two operating retail dispensaries. Upon closing of our previously announced acquisitions and completion of additional licensing under state law for the Tier 1 cultivation facility, we anticipate reaching the state dispensary license cap in 2024 and anticipate all will be operational by the first quarter 2026. This will position us with one of the largest vertically integrated footprint in the Ohio market among publicly traded peers. We see Ohio as another potential multibillion-dollar market in the Mid-West with the launch of adult-use sales, we're well prepared and strategically positioned to capture significant market share in the state. Turning to Arizona, continued downward pressure on wholesale prices and muted consumer discretionary spending created margin compression causing significant sales headwind. This led to a decrease in total sales compared to the second quarter of 2023 across both our dispensaries. This is consistent with the state reported averages per store. I am pleased that we're consistently outperformed published state averages in Arizona. We view Arizona as a strong market with a significant population growth, a skilled labor force with record levels and investments, particularly in the semiconductor industry. When the market turns are fully vertically integrated and modular footprint will position us to capitalize on its potential. While our current focus remains primarily on our Arizona and Ohio operations, we continue to monitor market developments in other areas of our joint venture portfolio. With recent medical legislation in Kentucky, we see an opportunity to participate in the medical licensing process to potentially transition our existing CBD joint venture into a medical cannabis operation. In closing, I would like to reiterate that I am pleased by our team's performance during this challenging period for consumer-facing companies. Looking to the back half of the year, we anticipate steadily improving performance through our focus on executing our plans in Ohio and further optimizing our vertical presence in Arizona. Before I turn the call to Trevor, I would like to take a moment to recognize and thank Thai for his leadership, friendship, vision and commitment during his tenure as Chairman of the Board. His contributions have been invaluable, and we are pleased that he will continue to provide his expertise as a director. I'm also pleased to share that Mark Opzoomer, who is a valuable member of our Board has been appointed as non-executive Chairman. With his deep understanding of our business and dedication to our strategic goals, I am confident that Mark's leadership will be instrumental as well as we embark on our next phase of growth. With that, over to Trevor for a quick review of our financials. Trevor?
Trevor Smith: Thanks very much, Eric. In the second quarter of 2024, Vext generated revenue of $8.4 million, flat compared to the previous quarter and down from $9.2 million in the second quarter of 2023. The year-over-year decline can be attributed to continued weakening in Arizona revenue, offset by the inclusion of consolidated Ohio cultivation and processing as well as the Columbus dispensary. Vext recorded $1.1 million in adjusted EBITDA for the second quarter, flat year-over-year and a decrease compared to the $1.9 million in the first quarter of this year. Adjusted EBITDA margins were 12.9%. Operating expenses were higher compared to second quarter of 2023, driven by higher costs in Ohio ahead of the adult-use launch despite a decrease in controllable expenses in Arizona. In the third quarter of 2024, we plan to further reduce operating expenses in Arizona, while maintaining and enhancing our customer service levels. Overall, while we expect total operating expenses to increase in the third quarter of 2024, which is attributed to our increased scale of operations in Ohio, we anticipate a decrease in operating expenses as a percentage of revenue as the Ohio adult-use market expands. Cash flow from operations was negative $0.6 million during the second quarter. Aligned with our previous commentary, we expect revenue and cash flow from operations to improve during the latter half of 2024 as Ohio commences adult-use sales. As of June 30, 2024, Vext ended the quarter with $3.4 million in cash. As a result of Ohio implementing adult-use sales, our expectation is that cash flow from operations will trend upward for the remainder of the year, providing us with plenty of liquidity to fund our current operations. Thank you, everyone, for joining us for our second quarter 2024 financial results conference call. We look forward to our next update, where we expect to discuss the impact of Ohio's adult-use program, along with our other ongoing initiatives. I'll now turn it over to the operator for your questions.
Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Ty Collin with Eight Capital. Please go ahead.
Ty Collin: Hey, good morning, gentlemen. Thanks for the question this morning. I just start on Ohio, obviously, really excited to see things get going there with all the hard work you put in ahead of that. Eric, just following up on your comments earlier in the call, could you maybe just kind of outline what the pathway is to getting to that license cap of eight in Ohio by year-end? And maybe just speak about the cadence of actually getting those remaining four dispensaries open. I know you said you expect that by 1Q 2026, but any more granular detail on timing there would be useful.
Eric Offenberger: Thanks, Ty. The stores in Ohio, the way we get to eight, part of it is predicated on the state authorization and our assumption that we'll get approved by the state, but part of it is controlled by that based on the LOI. So that's really how you get there. That's two. And then there's a 10(B) that would be associated with one of those acquisitions that we think will come along with it too. So with our existing and then the Tier 1s, if you add it up and do the math, that gets you to the eight. So within the first round, we received -- we were lottery number nine. So we stuck a pin into a location in Columbus, and we're actively working on that site right now to get everything ready. We don't anticipate the state really doing anything with those until the middle of September to give you your documents that you need that you can be doing preliminary work such as architectural type of stuff. So we think that store will get going. We think another store potentially could get going relatively quick. So our plan really is to get two of these things opened in the first half of 2025. After that, we're into the second stage of the lottery for the other two 10(B) licenses, and we haven't seen anything on that, but we do have a very early pick in that. So we think that will be opportunistic. The way we understand it, the state will pick region and say, these are the places you can get a store. And then based upon your pick, you can pick a region where you want to go and go try to secure property. So we'll start working on that as soon as we have a little bit more definition for that period. As I mentioned earlier, we brought on some in-house council that's got a background in this type of area, and it's been very successful and very helpful doing that. That's also helped us with as we've been looking at Kentucky to be able to try to get some insights and some traction on trying to participate in that program that we talked about a little bit in the comments.
Ty Collin: Okay. That's really helpful detail. And what level of own brand penetration are you targeting in Ohio once you do get up to that store cap, I guess, given where your capacity is going to be at?
Eric Offenberger: That's so hard to say. My instinct is it's probably going to be north of 50%, and that's going to be dependent really on the pricing pressures and the margin. The issue with Ohio opening up is that, you do have consumers under a lot of pressure for disposable dollars and you see that with Home Depot (NYSE:HD) earnings and Lowe's (NYSE:LOW) earnings and Walmart (NYSE:WMT)'s earnings are fantastic because everybody is trading down. So that disposable income amount that the customer has is really under pressure in Ohio and Arizona. So your transaction counts are better than they were previously, but your average ticket or your unit pricing is impacted. So that makes you focus on your internal stuff because you can obviously control your input cost on that a lot better than you can on the wholesale market and watching that trigger out. So I would guess north of 50%, but to tell you a specific. I don't think we've formulated that yet. I don't know, Trevor, you got anything you'd add on that?
Trevor Smith: No. I’d just add, we would likely exit any third-party wholesale activity to make sure we're 100% of our own production going through all of our retail distribution and our current footprint, probably also look at expanding the footprint to match demand as it comes.
Ty Collin: Right. Okay. Okay. Great. And then if I could just sneak one more in. Switching to Arizona. So congrats on getting those first batches out of Eloy there. It sounds like it's going well so far. But I'm curious to hear, I guess, how that new growth is performing compared to where your expectations were at? And was that higher yield output reflected in the Q2 results? Or is that really going to be more of an impact in the back half of the year?
Eric Offenberger: I'll let Trevor cover that one.
Trevor Smith: Frankly, we're thrilled. We had a couple of first test harvest that can't say, at historical levels. And then once the new rooms actually got up with some of the new genetics, we're significantly outperforming the old locations. So very, very happy with those. The impact of the higher yields will result in a lower per unit cost. You'll see that impact, maybe a little bit in Q3, but certainly in Q4 and beyond.
Ty Collin: Okay, great. Thanks. I’ll pass the line.
Operator: The next question comes from Pablo Zuanic with Zuanic & Associates. Please go ahead.
Pablo Zuanic: Good morning. Look, two questions regarding Ohio. There's a lot of talk in the market that everyone is talking about a nonmedical market, not necessarily a regular adult-use market. So when do you expect the new rules to be out for what would be an AU market? And should we be making a distinction between the two? Or you're already seeing enough of a lift that we shouldn't expect so much of a change when we actually get the regular adult use growth. Let's start with that and I've a follow-up. Thanks.
Eric Offenberger: Pablo, that's a good question. We know that by 9/7, that's kind of the legislative vote date. So we would anticipate seeing something. What it looks like, it's just the gossip in the market of what you can do or not do. We do think that, that will provide some opportunity because you'll be able to advertise a little bit more and reach out to the customer base. So we think that's going to help. And yes, I would agree, right now, when you look at the marketplace of what's happening, you're operating under the medical rule and why your customer count is increasing and stuff like that, it's not quite the multiple that you would have seen if it would have been full rules, but we're very glad that the state did it the way they did it, because you're able to kick your system and your processes through this before you've got the whole increase. So I do think that's good. I still think the biggest challenge to the industry or to anything right now is that the macroeconomic conditions of that consumer base of just the disposable incomes down, you read it in every publication or everything that's coming out. So you're facing that headwind. But the nice thing about Ohio is that, customer base is going to increase. And once you get to that adult use rule, we'll have different ways to market and target getting that customer base in. I think with the vertical footprint that we have, the store locations, the team, I think that we're going to have some advantage there as far as being able to compete along candidly on a pricing level. So that's still the main driver to this customer is the price of the product.
Pablo Zuanic: Yes, of course. And then just to be clear, in the prepared remarks, did you -- the 45% growth number you may reference to was for the reported 2Q numbers in Ohio or were you talking about the first two weeks of a nonmedical. And if it was not about that, if you can just give any type of -- if you can try to quantify the lift you've seen over these first two weeks.
Eric Offenberger: Trevor, I'll let you take that one.
Trevor Smith: The 45% was consolidated on consolidated. The remarks were intending to say Q2 was down on a pro forma basis, but because of the timing issue with the CannAscend Columbus acquisition, on a consolidated basis, it was actually up.
Pablo Zuanic: Right. Okay. So that was about 2Q. But can you give any comments in terms of the type of lift you've seen in the first two weeks of nonmedical? And again, keeping in mind, of course, what everything just said that is not really adult-use yet.
Trevor Smith: Sure. Certain -- go ahead.
Eric Offenberger: Go ahead, Trevor, I'm sorry.
Trevor Smith: Certain locations are performing better than others. I think we see some significant competition in some of the more urban areas. All the stores have had lift. And frankly, I hate to dodge but we really have our eyes on August 30. That will be a Friday, three paydays plus first of the month gets paid. So I think we'll have a better idea of actual lift once the whole market kind of has some cash in hand and is ready to participate.
Eric Offenberger: I'd add a little to that. Yes, I'd add a little to that. Seeing a lot of influence of customers coming in, Pablo, to that and our -- the state has had some reported stuff and you've seen some headlines and stuff like that. I think that's consistent with what we're seeing. There's nothing that we've seen that's unique one way or the other. It pretty much follows what's been disclosed up to this point in public market.
Pablo Zuanic: Understood. And then just one more. Based on the recent press release, you were able to renegotiate or bring down the price of the assets in Ohio that are yet to close, right? And from my perspective, maybe you can give some context, because from my perspective, that bid was announced and negotiated before the ballot last year, right? And you will think that once the ballot passed and adult and nonmedical sales were about to begin, that pricing in the market would have gone up, right? But you were able to bring down the price. If you can just give some context there that would help.
Eric Offenberger: Yes, I'll try to give you the best context I can. So the real issue we came within the state, and you saw a lot of people trying to sell these 10(B) licenses, the paper license 10(B), and the state came out and said, really, we don't have a lot of clearance on this and what people are doing and how it works and everything. So within the way the structure worked, under those LOIs and stuff along those lines. There was a potential that we would end up with more assets than you could actually participate within the marketplace. That made it so that as we looked at the transaction and what the transaction contemplated, we felt that we needed to do some clarity around that transaction do not have any ambiguity or something that would trigger an issue within the state's authorization. So we revisited that transaction with the seller and thought that it was best to clarify how everything was specific within that LOI.
Pablo Zuanic: Understood. Thank you for that. And the last one, regarding Kentucky, I'm hearing different things, but what can you -- according to what you know, when will the states announce the companies and the names of the companies that won the licenses? And do you know how many licenses are up for grabs and are these like vertically integrated licenses, any color you can give would help. Or is it that we just don't know. We don't know what the licenses are going to look like, how many of that will be and when this will be announced. Thanks.
Eric Offenberger: Well, there is some color on it as far as what the licenses will be, you'll be capped at four retail locations, and you really can't do -- your ownership has to be a little bit structured differently than that. They've got the territories in the zones. But you have until the end of the month to get your applications in, show your proof of funds, do your fees, all that -- all of those necessary things. We're not sure if there's going to be some merit based upon the cultivation and the manufacturing, we think there might be, but we're not sure. So it's a toss-up. Now we do know that the states publicly said they would like to try to get this done so that they actually had some type of plan by the end of the year. I don't -- that's doable, but we certainly could give it a shot. If we were awarded something. We do have existing operation there, as we talked about in our thing, and our partners are very good, and they have -- we have resources and facilities available to us. So we think we can get gone quick, but that would be the issue.
Pablo Zuanic: Right. And you said there's going to be a gap of four stores per licensee, but do you know how many licenses will be issued or we don't know that yet.
Eric Offenberger: I don't off the top of my head. Trevor, let's circle back and ask Scott, I think Scott has that number. I don't have it off the top of my head.
Pablo Zuanic: All right. Okay, thank you very much.
Operator: [Operator Instructions] The next question comes from Matt Bottomley with Canaccord Genuity (TSX:CF). Please go ahead.
Matt Bottomley: Yes. Good morning, everyone. Just wanted to touch on the balance sheet a little bit and the cash flow profile considering some of the comments that were made on a back half improvement here in 2024. So I know historically for several years, Arizona itself, before you're in Ohio was sort of stand-alone breakeven to even cash flow positive and clearly the dynamic has changed a little bit here. So again, notwithstanding the expectation of improvement, just the three some-odd million dollars on the balance sheet, lined up with still an incremental slight cash burn here. I'm just curious where we should look at the cash being three, six months out and what sort of its most notably earmarked for and your ability to fund growth in Ohio, all that type of stuff would be helpful.
Eric Offenberger: Trevor, why don't you take that, and then I'll add a little color.
Trevor Smith: Sure thing. Arizona is positive cash from operations, even with the decline. Eric and the operations team have done an amazing job cutting expenses in advance of revenue declines. We expect some lift in Arizona revenue and cash in the back half as a result of the Eloy production, specifically how well they're doing with yields and potency. Turning to Ohio, that's where almost all of the cash burn came from in Q2. As we kind of indicated on prior calls, we increased our expenses, tries to raise our inventory, really get prepared for the adult-use launch. As that adult-use revenue comes in, Ohio should be cash flow positive as well?
Eric Offenberger: Matt, color -- if I can, I'll just add a little color to this for you. But -- so as Trevor alluded to, Arizona continues to generate cash flow from ops, and we don't see that. We believe the team knows how to do that, and they'll stay focused on it. the issue gets into is as the last 18 months of economic pressure or whatever is done in Arizona is adjusted as you guys well are aware because you cover the space, it just cannot generate enough cash to overcome the growth you're trying to do and the investment you were making in Ohio. So that's really what has impacted the cash. So we see with the advent of adult use in Ohio and the increased customer base, et cetera, et cetera, and those assets started to become productive, that we go back into a cash flow situation. And as we've disclosed previously, with the LOI and everything, our balance sheet, our need for cash, we only have really one issue that's outstanding on the cash, and that's the LOI switch or the acquisition of Big Perm. There's a balance to on that by 12/31. And that's what Pablo alluded to a little bit earlier with the readjustment there. So we feel confident that we're fine on cash. But we're like everybody else, we'd like to have more. That said, that we can also fund the growth of the property because of the way we structured it. We've done it similar where we've got potential to acquire the property and the valuations, and we've worked with traditional mortgage companies that we think that the liquidity on that not like an equity type of situation. So we think we can do all that, too, and we have the runway for it.
Matt Bottomley: Okay. Got it. I appreciate the split out there. And then just one other question for me. Just on Arizona, more specifically, when it comes to what we're seeing out of the half and the half not with respect to some of these dispensaries, I know yours have outperformed market trends for some time. We did sort of have a small transaction in the space for one of your peers, so they publicly disclosed about a $15 million transaction for a couple of stores, a little bit of production. Just wondering if you're seeing trends in the market with respect to some of the better stores and whether you can talk to multiples or anything like that, not anything to do with you guys necessarily looking to do anything more or less in Arizona, but just as a proxy for when people look at sort of the sum of the parts, given that you have lock the exposure now into Ohio, which is a pretty big growth market going forward. Just trying to carve out what Arizona might be worth in some of these transactions that we've seen.
Eric Offenberger: I think the key to Arizona's works and stuff is how well you utilize your assets and whether you have retail that can consume the vast majority of your cultivation and you haven't outgrown it. I think that still gives the value in Arizona and the location and how well you execute like any other business. That said, that multiple you're talking about, I think it was probably a -- we would have considered that a reasonable acquisition that was cash-based and stuff like that. I think that the other assets that were part of that bundle made it more attractive to the seller that you took all of them, and it wasn't just like you isolated for this one asset you took out some other pieces to it. So we think that, that multiple is pretty reasonable. We think those are cash bids. And you might be able to do something in that neighborhood with cash. But most people don't have the cash to do that or the desire to do that. So we think that's going to continue to develop. And again, you have to look at the cultivation asset too. As Trevor mentioned earlier, we feel really good about our cultivation asset. We've got it maxed our matched up to really what we think we can move through the market, and we think we've got some pricing cost advantage there with yields, as Trevor had mentioned, and stuff like that. So we think market-wise, we're in good shape.
Matt Bottomley: Okay. Appreciate all that, Eric. Thanks.
Operator: The next question comes from Andrew Semple with Ventum Financial. Please go ahead.
Andrew Semple: Yes. Good morning. First question here would just be on the margins that we saw in the past 2 quarters have been quite a bit compressed compared to Vext more historic norm. I just wanted to dig into that a bit more wondering whether there was anything else impacting margins in the second quarter and not just some of the macro factors that were already discussed in the prepared remarks.
Eric Offenberger: Trevor?
Trevor Smith: Nothing jumps down. Pricing pressure and then increased expense exposure in Ohio. So we expect those margins to improve in the back half of the year, as we've discussed. Ohio can going to have a top line lift. Arizona is going to benefit from the new cultivation as well as the higher yield, which will have a lower cost, which will improve margins. But you might get a little bit of acquisition noise relative to the CannAscend acquisition, but I don't think it's much. I really just think it's kind of the macro factors that have been discussed.
Andrew Semple: Got it. Okay. That's helpful. And then just there's another comment in the prepared remarks about expenses continuing to grow in the second half. Obviously, that's likely to support the growth opportunity in Ohio, but I'm just curious where you see the need to add additional operating infrastructure as you ramp up in that state?
Eric Offenberger: I don't think it's [indiscernible] structure, Andrew. I think it's more of what Trevor is talking about is the variable expense. So remember, within the LOI and couple on those lines, we're funding the cash flow, right, for those two dispensers, even though you can't consolidate and that's part of your agreement within the LOIs. So you're going to have -- if you're doing more transactions, you're going to have more labor hours, you're going to have more inventory to support it. And obviously, you want a mix in your store. So I think that's what Trevor is talking about that. As far as like infrastructure, capital spend, no, we don't have that. We have just traditional variable expense. If you look at a balance or a P&L and go fix versus variable destocking on the variable expense based on the demand and the activity.
Andrew Semple: Got it. That’s helpful. Thanks for taking my question. I’ll get back into queue.
Operator: This concludes the question-and-answer session and today's conference call. You may now disconnect your lines. Thank you for participating, and have a pleasant day.
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