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Water Tower Research

Research from Water Tower Research

Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

Equity Research Firm

Thematic (Sector/Industry)

<ul><li>Despite relatively strong earnings, the US cannabis MSOS ETF fell 3.52%, while the global YOLO ETF dropped 2.21%.</li><li>With four of the five Tier 1 MSOs reporting, on average they have beaten revenue consensus by 2.27% and adjusted EBITDA consensus by 9.15%. See page two for more details on Tier 1 earnings results.</li><li>Verano (NEO: VRNO, OTCQX: VRNOF) reported better-than-expected results last week and Co- Founder, Chairman, and CEO George Archos joined us on Higher Exchanges. </li></ul>

Despite relatively strong earnings, the US cannabis MSOS ETF fell 3.52%, while the global YOLO ETF dropped 2.21%.With four of the five Tier 1 MSOs reporting, on average they have beaten revenue consensus by 2.27% and adjusted EBITDA consensus by 9.15%. See page two for more details on Tier 1 earnings results.Verano (NEO: VRNO, OTCQX: VRNOF) reported better-than-expected results last week and Co- Founder, Chairman, and CEO George Archos joined us on Higher Exchanges. 

The Highlights - Cannabis News for the Week Ending May 10, 2024

<ul><li>Furniture and furnishing stocks performed well last week. All three of the WTR indexes outperformed the broader market, led by Residential Manufacturers &amp; Suppliers (+3.3%), Commercial/Contract Furniture (+3.2%) and Home Goods Retailers (+2.7%), which outperformed the broader markets (- 0.1% to +0.8%) and the Mass Retailers Index (+0.1%).</li><li>Mattress demand remains weak. Tempur Sealy International (TPX) CEO Scott Thompson noted in his 1Q24 remarks, “You’d have to say the bedding industry is in a depression and has been in one for a number of quarters” , with demand down an estimated 15% industry-wide in the first three months of the year.</li><li>For TPX, <span style="font-size: var(--content-font-size);">sequentially, demand was weakest in January and improved </span>(though erratically) through April, where it was ‘flattish’. Higher- end price points were a bright spot.</li></ul>

Furniture and furnishing stocks performed well last week. All three of the WTR indexes outperformed the broader market, led by Residential Manufacturers &amp; Suppliers (+3.3%), Commercial/Contract Furniture (+3.2%) and Home Goods Retailers (+2.7%), which outperformed the broader markets (- 0.1% to +0.8%) and the Mass Retailers Index (+0.1%).Mattress demand remains weak. Tempur Sealy International (TPX) CEO Scott Thompson noted in his 1Q24 remarks, “You’d have to say the bedding industry is in a depression and has been in one for a number of quarters” , with demand down an estimated 15% industry-wide in the first three months of the year.For TPX, sequentially, demand was weakest in January and improved (though erratically) through April, where it was ‘flattish’. Higher- end price points were a bright spot.

Furniture/Furnishings Weekly - May 13, 2024

Equity Bottom-Up

Vitesse Energy, Inc. is an investment company. The Company focuses on returning capital to stockholders through owning financial interests as a non-operator in oil and gas wells drilled. Vitesse Energy operates in the United States.

<ul><li>Vitesse increased its 2Q24 quarterly dividend 5% to $0.525, reflecting a strong production outlook driven by the execution of management’s strategy to grow the asset base with near-term development acquisitions and organic growth projects that surpass its economic hurdle rates. The current yield is 8.7%.</li><li>Vitesse’s business philosophy is built on the premise of compounding cash invested in oil-oriented producing assets in the Bakken play to sustain and grow the asset base in a fiscally conservative manner to support a fixed dividend.</li><li>Management’s capital allocation framework revolves around returning cash to shareholders through the dividend policy.</li></ul>

Vitesse increased its 2Q24 quarterly dividend 5% to $0.525, reflecting a strong production outlook driven by the execution of management’s strategy to grow the asset base with near-term development acquisitions and organic growth projects that surpass its economic hurdle rates. The current yield is 8.7%.Vitesse’s business philosophy is built on the premise of compounding cash invested in oil-oriented producing assets in the Bakken play to sustain and grow the asset base in a fiscally conservative manner to support a fixed dividend.Management’s capital allocation framework revolves around returning cash to shareholders through the dividend policy.

Vitesse Energy, Inc. - Execution Drives 5% Dividend Boost

Jushi Holdings Inc. operates as a holding company. The Company, through its subsidiaries, focuses on building a diverse portfolio of high-quality cannabis and hemp products. Jushi Holdings serves customers in the United States.

<ul><li>Jushi reported 1Q24 revenue of $65.5 million, which was just below consensus of $65.9 million.</li><li>This represents a decline of 3.4% sequentially and 6.3% Y/Y.</li><li>The Q/Q revenue decline was driven by fewer days in February, a drop in post-holiday spending, and weather-related closures.</li></ul>

Jushi reported 1Q24 revenue of $65.5 million, which was just below consensus of $65.9 million.This represents a decline of 3.4% sequentially and 6.3% Y/Y.The Q/Q revenue decline was driven by fewer days in February, a drop in post-holiday spending, and weather-related closures.

Jushi Holdings Inc. - Margins Improvements Drive AEBITDA Gains

Lifevantage Corporation is a health and nutrition company that develops dietary supplements. The Company produces nutritional products that are intended to combat oxidative stress to support brain, eye, and joint function, as well as skin canine products.

<ul><li>3QFY24 EPS was $0.21 versus a depressed $0.08 in 3QFY23 and above our $0.16 estimate.</li><li>3QFY24 EBITDA of $5.1 million beat our $4.6 million estimate and was up sharply from $3.3 million a year ago.</li><li>EBITDA margin of 10.5% exceeded our 8.7% estimate, driven primarily by lower commissions and incentives as a percentage of sales than we expected (210 bps), as well as lower SG&amp;A (70 bps).</li></ul>

3QFY24 EPS was $0.21 versus a depressed $0.08 in 3QFY23 and above our $0.16 estimate.3QFY24 EBITDA of $5.1 million beat our $4.6 million estimate and was up sharply from $3.3 million a year ago.EBITDA margin of 10.5% exceeded our 8.7% estimate, driven primarily by lower commissions and incentives as a percentage of sales than we expected (210 bps), as well as lower SG&amp;A (70 bps).

LifeVantage Corporation - 3QFY24 Profit Upside on Modest Sales Shortfall