Item 9 Labs Corp.

For fiscal Q3 2022, revenue was $4.9 million, down $1.8 million or 26% from $6.7 million a year ago. Gross profit was $1.6 million, down $1.3 million or 45% from $2.9 million, and gross margin was 32% versus 43% in the prior-year quarter. Operating expenses were $5.4 million, up 73% from $3.1 million, producing an operating loss of $3.8 million versus $0.2 million last year. Adjusted EBITDA was a loss of $1.8 million versus a profit of $0.2 million, and net loss attributable to the company was $5.5 million, or $0.06 per share, versus a loss of $0.8 million, or $0.01 per share. Cash and cash equivalents were $0.4 million, with $8.6 million in escrow deposits reserved for expansion projects. Management did not provide formal next-quarter or full-year financial guidance; instead, it said the Arizona expansion should be completed by the end of calendar 2022, the initial Arizona phase is expected in spring 2023, the Nevada facility is expected to be operational by year-end, and Sessions Canada is anticipated to close by the end of summer.

Andrew Bowden framed the quarter around execution on growth initiatives rather than near-term financial pressure. He highlighted Unity Road expansion, a growing franchise pipeline, and the pending Sessions Canada acquisition as transformative for footprint and scale, while also stressing product strength in Arizona and the move toward lower-cost in-house supply. His tone was optimistic and confident, repeatedly emphasizing momentum, shareholder value creation, and the company’s ability to execute.

Bobby Mikkelson focused on the quarter’s financial compression and the reasons behind it. He cited $4.9 million in revenue, $1.6 million in gross profit, 32% gross margin, $5.4 million in operating expenses, a $3.8 million operating loss, $1.8 million adjusted EBITDA loss, and $5.5 million net loss, noting that supply chain delays, Arizona pricing pressure, and higher competition weighed on results. He also pointed out that $1.6 million of operating expenses were non-cash, $0.6 million of interest expense was non-cash amortization of debt discounts, $480,000 was one-time legal and acquisition-related costs, and that the company had $8.6 million in escrow deposits to support expansion.

Analysts asked about the timing and financing of acquisitions, especially Herbal Cure and Sessions Canada, and management said it was in active discussions with multiple financing parties and hoped to disclose a definitive agreement as soon as possible. On Unity Road scale, management said there were 4 stores open, another couple expected in the next 9 to 12 months, and that Sessions could bring the footprint to nearly 50 locations across North America this year. Questions about non-cash charges were answered with specifics on depreciation, amortization, stock-based compensation, debt discount amortization, and $480,000 of one-time acquisition-related fees. On capital needs for Arizona, management said the company was set with the $8.6 million in escrow deposits from construction loan proceeds.