Q2 2021 Agrify Corp Earnings Call

[music].

Good afternoon, and welcome to <unk>.

Second quarter 2021 earnings call with US on today's call are Raymond James Chief Executive Officer, David Kessler, Chief Science Officer, and need a creek off Chief Financial Officer, Today's management, who will review the highlights and financial results for the second quarter as well as recent develop.

<unk> and provide a business and operational update following management's prepared remarks, there will be a question and answer session.

A reminder, that today's conference is being recorded before we begin we would like to remind everyone that prepared remarks contain forward looking statements and management may make additional forward looking statements in response to your questions.

Such statements involve a number of known and unknown risks and uncertainties many of which are outside the company's control that could cause its future results performance or achievements to differ significantly from the results performance or achievements expressed or implied by such forward looking statements important factors that could cause or contribute.

Such differences include risks detailed in our public filings with the Securities and Exchange Commission and those mentioned in the earnings release, except as required by law. We undertake no obligation to update any forward looking statements or other statements herein, whether as a result of new information future events or otherwise.

Now at this time it is my pleasure to turn the call over to Raymond James <unk> CEO. Please go ahead Raymond.

Thank you operator.

Before we get started today.

I would like to thank everyone.

Joining us on the call.

On our call today.

An update on the continued successful execution of our growth strategy.

And highlight some of the most recent company developments.

My Chief client Officer, David.

We'll share more about our recent customer successes.

And the continuous improvement in our <unk>.

Knowledge as well as our horticultural success.

Our CFO <unk> Kaul, who will follow with a detailed review of our financial performance.

To start.

I want to remind everyone that at the beginning of this year.

Set out to achieve $40 million in topline revenue.

Secure a partnership with the major Msos.

And launch our latest technology version three six of <unk>.

Our proprietary vertical farming units.

Yeah.

I am proud to report that today.

We have not only achieved.

But having to feed it.

Every single one of these goals.

We're pleased to share that the second quarter of 2021.

With yet another record quarter.

We saw revenue continued to grow to 11.8 million.

Our best quarter to date.

Up 203% year over year.

And at 69%.

Sequential growth from quarter one of 2021.

Okay.

Earlier this year.

We launched the <unk> total turnkey solution ttk solution.

This is indeed, a revolutionary offering.

Industries first total turnkey solution.

We signed our first partner button berries in the second quarter.

The TDK solution allows qualified strategic partners such as button Marys.

To gain access to capital.

That's been kind cultivation equipments.

And world class expertise and support they need to quickly establish cutting edge indoor cultivation facility.

The partnership with button.

Represent over.

The potential of $280 million of revenue over the course of the next 10 years.

We also launched our latest <unk> version three six.

And are now beginning to install this state of the art vertical farming units in multiple customer sites.

The $3 six introduces a number of key enhancements that have led to improved overall performance.

Significant advancements in micro climate control.

Airflow and future serviceability.

Our decision to invest in our customer success.

Has clearly begun to pay off.

As we have expanded our engagements.

With every single one of our existing customers.

Leading to an eight fold increase in the expected lifetime value of those relationships.

The hardware and software solutions are proving even more valuable to major players in the indirect space.

His focus on consistency and quality.

Becomes increasingly critical.

To maintaining and growing market share.

This quarter, we were very proud to be able to link our first MSR partnership with the industry, leading operator <unk>.

We firmly believe that the initial R&D partnership is only the beginning of many exciting and more expanded projects to come.

Financially.

Besides registering a record quarter of $11.8 million in revenue.

I am pleased to report that our bookings for Q2 of 2021 with 30 <unk>.

$7 million.

And our backlog at the end of quarter.

And with $101 million.

Up 23% from the previously reported $82 million.

The continued improvement in our financial results is primarily driven by the ongoing assist us and improvements we are seeing from our customers facilities.

Which has provided a magnified with healthy and growing partnerships as well as a robust pipeline of new business opportunities.

Yeah.

We were extremely pleased to announce yesterday that we have inked or second TDK partnership with true health cannabis based here in Haverhill, Massachusetts, located just 30 miles north of Boston.

The terms of our deal will include Hudson 60 via to use approximately 160 <unk> used to.

Can be installed into houses 22000 square foot facility.

This partnership.

<unk> to contribute approximately $45 million of revenue over the next 10 years.

The scope of the partnership includes fixed recurring SaaS revenue.

Approximately half a million dollars per year.

Production base revenue of approximately $3 million.

And the brands and licensing fees of roughly about three quarter of a $1 million per year.

Yes.

<unk> $45 million of revenue opportunity over the course next next 10 years.

True health plans to operate two dispensaries Haeberle MSU it.

True Health is also a qualified economic.

Economic empower applicants.

And we are extremely pleased to have an opportunity to partner and help promote social equity in the cannabis industry.

We are even more thrilled to see that upon signing the TK partnership with accuracy.

True health received investments from what like global.

Our successful family office space in Asia.

Currently with more than 1 billion RMB of assets under management.

I would now like to turn the line over to <unk>, Chief Science Officer, David Kessler, who will share new details on recent improvements in consistency in yield across our customer base and will provide an update on our R&D activities.

Yeah.

Thank you Raymond.

This past quarter was marked with progress in multiple successes.

Through key partnerships and internal initiatives.

Now pleased to report we have R&D centers operating in both Georgia and Massachusetts.

Additionally, we have recently launched <unk> University and immersive online hands on project based learning experience that.

That empowers <unk> customers by arming them with the knowledge and best practices to succeed.

Agrapha University utilizes our vast candidates research data set and.

<unk> innovations to provide a curriculum that we believe will support the long term growth of the industry and foster our clients' success.

Additionally, Agra by clients continue to see improvements in both consistency and yield using <unk>.

To date all of the top 10 largest VF new yield by our clients have been achieved since March of 2021.

Of the 10 largest yield it include nine different strain demonstrating the efficacy of <unk> technology on a wide variety of candidates cultivars.

Lastly, I'm very pleased to report that the greatest <unk> yeah.

And a single harvest was recently achieved pushed.

Pushing the past record by 15%.

Two a considerable 71 grams per square foot.

As our as our customers continued to grow and succeed Agrapha is steadfast and our support of their successes.

And with that I will now turn the call back to you.

Yeah.

Thank you David.

As we continue to improve and enhance the performance or via fees.

We remain confident in our ability to deliver on our core mission.

Providing the highest yield.

The highest consistency.

The highest quality.

At the lowest possible cost.

The mission is integral to our success as it is.

To the success of our customers.

Now I'll pass the call to.

<unk> need Creek cough, My CFO, who will review our financial results.

Okay.

Thank you Raymond and good afternoon, everyone.

Today I'll provide you with an overview of our second quarter 2021 financial results for.

For the quarter ended June 32021, total revenue increased by 200% to 3% to 11.8 million.

<unk> to $3.9 million for the same period in 2012.

Our second quarter revenue consistent the facility build out the revenue as well as hardware revenue from the delivery of new skus to our customers.

This revenue mix is consistent with our expectations for 2021.

This year has deliberately been about kicking off new projects and ensuring that our existing customers are successful with the expansion and growth.

This had led to a higher concentration of facility build out revenue in the short term, but we fully anticipate this will shift more towards hardware SaaS and other recurring revenue.

More and more facility come online.

Thanks, Greg.

Gross profit for the second quarter of 2021 was $527000 compared to a gross profit of $1 million for the same period in 2020, resulting in a gross profit margin of four 5% for second quarter 2021, compared to a gross profit margin of 26% in the same quarter of two.

<unk> thousand 20.

Margins continued to be impacted from the revenue mix of our strategic decision to accelerate the migration of a few production can match molding in order to meet the increasing demand and can move forward with the superior vision three six.

Margins were also impacted by our decision to further invest in customer success and Reengagement with our legacy customers to accelerate margin improvement for 2022.

In 2021, we remain focused on building our installed base and we expect to see a greater proportion of high margin recurring revenue stream coming gradually as we rollout ttk project and increase our installed base, resulting in margin improvements.

SG&A for the second quarter of 2021 was $5.2 million.

Up from $2.7 million both for the same period in 2020.

The higher figure was primarily due to the acceleration of hiring of additional senior executive and stuff.

<unk> demand and increase in stock based compensation expenses as well as additional legal expenses.

Require standardization of our TDK contract package to include a security and pledge agreement loan agreement and SaaS production and lease agreements.

Research and development costs were $774000 for second quarter up from $743000 in the same period of 2020.

Total operating expenses for the quarter were $6 million compared to $3.5 million for the same period in 2020.

Net loss attributable to active flying.

For Q2, 2021 was $5.6 million.

Compared with $2.4 million in Q2.2020.

Adjusted EBITDA loss for Q2, 2021 was $4.5 million compared to adjusted EBITDA loss of $1.8 million in the same periods of 2020.

This concludes my remarks on financials and I'll return the call back to Raymond for closing remarks.

Thank you Leif.

During the second quarter of 2021.

We achieved several significant milestones as our growth strategy continues to take shape building on the strong momentum that begin in quarter one.

Moving to the second half of the year, we remain extremely confident.

That we would hit or even exceed the upper range of our revised $48 million to $50 million revenue targets.

The momentum around our business is stronger than ever.

In addition to the previously announced secure Curly partnership.

We are actively engaging.

With a number of other msos and.

And other potential ttk partners.

Since July we.

We have actually started to charge $15000 upfront engagement fee.

And even with that.

We're actively.

Engaging with 10, plus ttk candidates across eight states.

Amounting to several hundred million dollars of potential opportunities, which we expect to substantially convert to new business in due course.

In addition to our organic growth.

We are in advanced stages of negotiation and due diligence with several potential synergistic and accretive acquisition targets.

Which will further enhance our overall offering.

Even more comprehensive solutions to all of our existing and future customers.

In conclusion.

We remain super focused on.

Improving customer solutions through our product enhancements and comprehensive partnership offerings.

With our strong balance sheet.

Growing pipeline of opportunities.

We believe that our momentum and market traction.

Our accelerate through the rest of the 2021 and beyond.

We look forward to updating you and reporting our continued positive progress during the upcoming quarter three call.

This concludes my remark.

Now operator.

I would like to open this up for questions. Please.

Please go ahead.

To ask a question you will need to press star one on your telephone.

Your question press the pound key please standby, while we compile the Q&A roster.

Your first question comes from the line of Eric Dolores with Craig Hallum Capital.

Great. Thanks for taking my questions, everyone and congrats on the very strong momentum in the business here.

I guess just off the bat so great to see record bookings here.

Maybe a bit of an elementary question, but could you help us understand the difference between your backlog and bookings here.

Yeah.

Yes backlog is booking Eric.

So basically.

<unk> essentially.

<unk> further.

Order of up to $30 million.

Quarter three of 2021 quarter two of 2021, sorry on something ahead already.

Phil.

So basically the total backlog.

Increased from $82 million at the end of.

'twenty one.

Now over 100 plus million.

And so we're very excited about the progress that we're making on that front.

Okay great.

That's helpful here.

So I'd like to drill into.

Your the pipeline of 10, plus ttk candidates.

So you said several hundred million dollars in opportunity.

We have seen.

On one hand, with Bard and marries up too thank.

You guys mentioned $28 million in annual recurring revenue and then.

This newer customer about.

$3 million to $4 million in annual recurring revenue, if we kind of think of those as.

March the high to low end could you give us some sense of.

The size of these ttk candidates that you're looking at here.

Maybe any comment on your expected.

Time frame to be able to announce those customers.

Yes.

Eric So the true health, Canada is probably the smallest.

We would entertain.

The reason why we.

Sign ups. This partnership first of all because two houses literally 20 minutes.

From a headquarter.

And so that we could actually be very very intimately involved in the overall operations.

<unk>, obviously, we cannot be plant touching but we will be intimately working with the <unk> team to help them to ensure success. In addition to that one of the reasons why.

Julie.

Q2. This partnership is just to support and economic empowerment applicants and also be.

Participating in social equity in the.

This industry, which I believe is just super important.

But again, it's a.

A great facility that is 25 minutes literally 20 minutes 25 minutes away from our office and given the proximity we are going to be intimately involved with that with that.

The opportunity the other 10 opportunities.

They are in Arizona, California, Florida, Massachusetts, Michigan, New Jersey, Nevada and <unk>.

Oklahoma the size of those partnership ranges from average 302 as many as seven to 800.

<unk> per facility.

And.

I would say that.

Mary.

Probably.

On the larger sites, but.

But <unk> is definitely small.

I would say that an average.

TDK opportunities that we're looking at right now.

Somewhere in the 500 to 700.

Vips per facility.

And as I mentioned, there are 10.

<unk> that we have <unk>.

Qualified and we are in.

Advanced stage of negotiation I do not believe that we will entertain or 10.

But these are.

Opportunities that we have qualified and it will be.

We'll be moving forward in the further negotiations.

Okay. That's very helpful color I appreciate that.

Exciting to say that average size of 500 to 700 here.

So two more questions for me just kind of sticking with this theme here.

So I too sorry.

Certainly I'm a believer in need.

Necessity and importance of social equity in the industry here and obviously youre seeing in basically every state that legalized as they're setting aside a material amount of licenses specifically for social equity applicants here now I think New York at about 50% of the licenses are.

Dedicated for social equity here so.

Is this a.

This is a specific area that you guys will look to.

Continue going after I mean, just from my perspective, it seems like.

Pretty ideal.

PTK candidates here. So I would just would love your assessment on kind of that that outlook for CDK solution specifically.

Yes, it is definitely one of the criteria.

On our scorecard.

Obviously is not the only I think that we consider.

But I do believe that.

Being in the cannabis industry, especially kind of given the historical context.

We do really pay a lot of attention to just making sure that we provide the.

Job opportunities too.

The communities as well as just being a.

It's social.

Responsible partner in the industry.

So I'm very very proud to announce this partnership with Treehouse.

Very excited they're getting a lot of resources from the ton of Haverhill and Suez.

<unk>.

And also another thing I wanted to just two.

I will also emphasize its effect on and actually were seeing more and more of this.

A lot of the ttk opportunities.

Once they receive a term sheet from us.

Yeah actually further accelerates.

Their capital raising activities.

In the case of Treehouse candidates.

Immediately after we signed they actually got funded.

And in fact, some of the tent.

The candidates that we're talking to right now.

They can't wait for us to actually give them a term sheet and in fact, we have been on due diligence calls with a lot of their investors and I think what is very exciting for.

People, who are actually interested in investing in our partners.

Fact that unlike in the past.

They have almost zero of transparency as to what is going on inside of that facility post their investments.

By working with us.

We actually allow them to have full transparency.

Secondly.

With our support.

There is something.

Got it wrong.

Were there.

And in fact, we would detect those problems early on to make sure that it doesn't happen.

So the chance of success is much much higher versus traditional investments, where frankly speaking they have zero control of anything that is going on inside of that facility.

We're very excited about this and looking forward to cementing.

TDK opportunities.

In a very near future.

Yeah, absolutely here.

Certainly makes sense and very exciting from my perspective.

Last one for me.

So you mentioned you won't entertain all 10.

Can you just sort of expand on that is that.

Is that sort of a capacity issue and if so could you kind of help us understand where are the bottlenecks what kind of capacity that you guys have or maybe it's just that you're waiting for maybe bigger or better partners. There. So if you could just help us understand.

Why are you won't entertain all 10 or what the.

What the limiting factor is there.

Sort of how we should think about the pace of the growth in <unk> customers.

So Eric.

First of all.

So far we have set aside $50 million to the TDK projects and obviously, we're seeing much much higher demand.

And so.

We're actually also.

Trying to think of creative ways to finance.

Future Teekay projects.

Just to kind of give you. One example, we have actually.

Being reached by multiples.

And the reason why they are interested in partnering with us.

In the old days again.

When do you actually just providing construction loans.

And basically buildings.

They're probably making returns in the teens.

And again have zero control.

Of what's going on inside of that facility.

Almost kind of like implying that if something goes wrong frankly speaking a lot of these suites, probably don't have the expertise to actually help multi correctly.

By working with us.

Alright.

For transparency.

And on top of that.

It would also maybe potentially given that given them an opportunity.

To participate on the backend.

And all of sudden their returns on investment publicly just went from mid teens to the <unk> and <unk> right.

Alright.

And this has been really a great partnership because frankly speaking.

I would rather basically developed the.

The majority if not all of our capital resources.

W. A few fronts, if somebody else wants to come in and basically provide a construction loan.

More than happy for them to take it.

Right.

No.

We're basically talking in fact, a lot of the the 10 opportunities that we're currently contemplating.

Some of them are brought to us.

Bye.

And others, we have actually hook them up with some of these risks and I believe that we will probably be cementing a deal with.

Large fleets.

In the very near future on this exciting ttk opportunities. So again, we're trying to basically find ways.

To access more capital.

You have more partners and to create a win win proposition not only with our cultivate partners, but also with other industry players as well.

Yes, very exciting clearly lots of growth levers on this.

Very exciting solution here, Congrats again, guys I'll hop in the queue.

Yeah.

Thank you Eric.

Your next question is from Scott Fortune with Roth Capital Partners.

Good afternoon, thanks for the question.

Real quickly can you provide a little color on the pipeline and I believe that's not including the key teekay and any guidance, but will also provide us color on the construction projects.

Any delays or claims there's obviously a pickup in construction costs and such and that certain material. How does that recognition of potential construction delays reflect income do you project builds or the pipeline is kind of a little bit color on that.

Scott.

You're absolutely correct.

We are definitely seeing.

A huge sort of.

Competition.

Around construction.

Right now actually we have expanded.

Our.

Not only <unk> partners architectural and engineering partners, but we have also started talking to other general contractors, so that they would give us.

Basically bigger coverage.

And yes, so essentially we are expanding our.

Construction partners architectural engineering partners, so that we can actually cover more deals.

Right.

And right now, we're still seeing the projects sort of pretty much on schedule.

And we will continue to manage that very tightly.

One of the key hires for example, this quarter is basically bringing on more project managers were essentially hiring ahead to make sure that we can take on more projects.

And also just to make sure that we have enough customer success resources, because obviously after the facility is built and it's even more important to make sure that all horticulture team is in the facility working with our partners Q2, two to make exciting things happen right. The other big thing.

As mentioned earlier.

This year, we took the key initiative basically.

Moving our production to a contract manufacturer.

Mac monthly.

And I am very pleased to say that that process is going well and we're expecting new be it used to be rolling out of their production lines very shortly.

So the launch of the three six especially with a contract manufacturer working with externally.

Should have plenty of capacity to scale.

So those are some of the things that we have worked on not only in quarter two but continuous.

This quarter as well.

So real quick just follow up on that so your backlog in the construction projects there.

Analyzing in the second half are still on time.

Like going forward here.

Yes.

Very.

Confident that we will again like I said.

And even potentially exceeding our.

<unk> $48 million to $50 million.

Our guidance.

So we believe that.

Got it.

We would have no problems in achieving that so everything so far is still pretty much on track.

Okay.

And then the second question.

That's on the R&D agreement with Charlie.

Out there kind of validates.

On your technology can you provide the color of timing of that being installed with potential for land has been getting data from that and look at opportunities and as clearly hooked to expand.

They've said publicly a lot more indoor grow in the east coast.

I'll turn the call it will be done in the West coast.

Talk about kind of the security opportunity potentially.

Yeah, so they have a very exciting.

Yes.

Research and development facility here in Newton mass.

And obviously, our BSD use is one of the.

Thick initiatives within that.

R&D facility.

And we believe that the completion of.

The construction.

Publicly.

Be done by the end of this year and will go into production and at that point they will.

Look at.

<unk> two cycles.

Results and but we're very confident that we won't be able to especially with the version three six of our vips They would see an immediate boost in yield.

Distances and quality.

The performance R. F. R E Q3 six.

Honestly as this study.

And I'm very confident that that we can deliver.

Results immediately.

Okay, and then just kind of additional msos similar.

Yes.

Getting the equipment in those handsets to test to see four.

Full cultivation production opportunity down the road or is that kind of discussions you're having or some of them are looking for actually.

Larger.

Till the build to add capacity.

Yes, I mean, some of these conversations are actually like.

Maybe even skipping the R&D.

Concept.

Obviously, we are.

We I don't want to jump ahead, and say that we're going to we see tomorrow, but in.

In fact, some of these other msos are not actually talking to us about R&D project Youre actually talking about implementing the VA accusing theyre.

Even.

And the facilities so.

But we're obviously still in those discussions.

As soon as we.

We will definitely let you know, but very exciting too too to be engaging with a number of the msos.

Thanks for the color and congrats on the application.

Yes.

Your next question is from Aaron Grey with Alliance Global partners.

Hi, good afternoon and welcome Mike.

Echo my congrats on the quarter.

So, let's dig a little bit different right here right. So obviously that would be if using different operators, you're working with you guys. One thing thats kind of key to meet with you guys as all of the data collection that you guys get.

The different way to grow different strains and otherwise. So those are additional commentary from you as you aggravate. This David the power that can come with that and how you can utilize that.

Future initiatives within the company. Thank you.

Sure David would you like to take a crack at this and I can also jump in as well.

I'd be happy to.

Essentially with the larger amounts of data that we're able to call what we're going to better be able to define the grow plans, a recipe, which will lead to the cultivation and success of our clients, but that said these larger datasets aren't just about how to grow more wow.

They are about how to maximize.

Cannabinoid production.

<unk> production specific metabolites that might be valuable in the extraction process. Additionally, through environmental manipulation and collection of these data points, we are able to provide clients operators essentially a giant leap forward in their operational success.

By giving them recipe proven for success. So not only are they able to start the race halfway down the track they were able to correlate their data more quickly shoes, the end product formulation and grow plans of recipes that are going to support them in that success.

And really deliver on accumulative data set that can then be parts as we learn more and more about this valuable agronomic crop. The challenge is unfortunately, we.

We do not have data on candidate going back 100 years because of the holistic nature, so with the ability to aggregate data more quickly we're going to bring the future of candidate to the present and as we do so our clients.

Right.

Yes, and in terms of monetization.

So Aaron obviously.

We are.

The data as Colm.

US and also our customers.

And so for example, if I have a particular operator single state operator.

Perfect. It for example, a particular grow recipe for it particularly the strength.

We went to basically work with them to potentially license that grow recipe to a non competing operator.

Another state.

And the reason why that would be willing to do so is because.

Wouldn't actually necessarily tarnished your brands because they know that.

It's grow out of the U S. EU under the same ROE recipe that most likely you will have the same consistent results.

Obviously this is just one of the idea that we can actually potentially to monetize that data and they are actually a lot more but.

This is something that that we can.

Very much be willing to.

Work with our.

Customers to think about ways to monetize those valuable data.

Okay. Thanks for that color that's really helpful.

Paul.

And then second question for me just as you look at additional partnerships any color you could potentially provide in terms of the mix between those who might you know.

By the <unk>.

Versus where you take on more of the Capex and you have more of a Rev share.

Depending on how those looking at how do you look to potentially have a mix between the two as you continue to rollout.

More than <unk>, especially if you might have some limitation.

Got.

Given the contract manufacturing otherwise thank you.

Yeah, Erin I mean, essentially the way I kind of theater really kind of three buckets right.

The first bucket.

Are the largest msos.

Balance sheets are.

So strong that frankly speaking.

That would be interested just to buy our <unk>.

And not take on any kind of financing partners and those are and Thats basically kind of what gives us the scale and volume.

And obviously as I mentioned earlier, we're having multiple of those discussions with the with the larger NSS.

And then just the other extreme which are the same smallest single state operators.

We're essentially offering this total turnkey solution and basically getting equity like return on the update on the production revenues on the SaaS revenue and it's a 10 year long term partnerships.

Yes, we're actually very pleased to see that there is actually kind of a middle ground.

Smaller msos.

That frankly speaking have access to some of the capital and what they basically said look we can take on on constructions or we can actually find one of our REIT to actually come in and basically do the construction.

And we're basically work with you on the V. A few points and honestly I would be very happy to do that because.

<unk>.

Allow us to basically deploy our capital even more effectively.

Building the installed user base right. So we're really kind of seeing.

Three buckets situation whereby.

Especially with the middle buckets.

There are other ways. For example, there are people that basically we said we were more than happy to come in as a financing partners, but by working with US first of all they get complete transparency.

What's going on inside of our facilities. They have a partner that could actually help them to go in and solve the problems if something goes wrong and firstly is that they could potentially participate in that equity like upfront right. So we're basically more than happy to share because at the end of the day our business.

Model is all about building the largest possible installed user base.

And that's basically how we're looking at this industry and how we actually going to grow in the future.

Alright, Thanks, Thats, great color on the flexibility of the model.

So that's it on the quarter and I'll jump back in the queue.

Thank you.

Your next question is from Anthony Vendetti with Maxim Group.

Thanks.

Hey, Raymond how are you.

Great.

Good good.

I just wanted to follow up a little bit more on the on the I know we've talked about the teekay, but in the button marriage contract and I was wondering if in the <unk>.

In the true House one is it is there.

I know theres, an escalator in the.

But in Mary's one, whereas if depending on the on the yield.

It could even be more per year.

Can you talk a little bit about that is that built into all your ttk contracts or is it on a contract by contract basis.

Every single one.

Basically the this firm, which treehouse is essentially identical to that of.

Button Aries right. So we went essentially.

Basically be getting that.

Construction loan.

Interest on that and that would basically be expected to be paid back.

Over the course of 24.18 to 24 months period.

And then on top of that we would get the fixed recurring SaaS revenue.

And then <unk>.

Per pound based production.

Our revenue and that again is social yield based so that if it's over seven five pounds, we would get $700 less than they would get $600. I mean, we want it basically treat every single one of our key partners exactly the same right and they are also responsible for raising sufficient cap.

Little to support their working capital and we're very pleased that they were able to secure investments.

To make that happen so.

This is very exciting.

Okay, Great and then.

And then just.

As you look at.

Your M&A platform I know you mentioned you did mentioned about a week to help with the construction side of it.

Just in terms of other.

Potential partnerships.

M&A opportunity.

Can you can you provide a little bit more color on what you're looking at at this point.

Sure.

So Anthony I think that you know what.

We're looking at it.

It's basically how we can actually make our customers' facility.

Even more productive.

And with higher return on investments.

And to act.

As you know when you actually walk into any of our facilities today.

Maybe about 60% of the growth space is dedicated to cultivation.

Now I believe that we have the best solution to.

To make that 60% of the square footage.

No.

With the highest productivity.

High yield highest return on investments.

What I can also tell you is that I see significance.

Potential enhancements on that remaining 40%.

Square footage of any facilities.

So we were basically you'd like to work with.

Natus.

Companies.

Basically to be able to provide even more comprehensive end to end solutions to our customers and frankly speaking to gain a bigger portion of the overall wallet space.

And that's essentially what we're looking at.

In addition to that we're also looking at the upstream.

Some type of partnership with companies that are really involve under genetic site.

So again.

We're looking at not only just for the cultivation perspective, but how can we make.

Our customers' facility.

Square footage.

Even more productive and actually ultimately help them too.

Increase their return on the investments overall.

Okay.

That's great.

And then just lastly on.

On the.

Existing customers.

Yeah.

Your existing customers.

At least for my channel checks are very happy with the <unk> solution.

And then I could probably insights can you talk about the.

Recurrence.

Business, you get from existing customers.

How many of your existing customers have already.

Re upped or have signed up for another.

<unk>.

Contract.

Uh huh.

So Anthony I am very pleased to say that right now we have zero churn.

Right.

And not only do we have your churn.

As mentioned.

Actually increased a life lifetime value of these customers by as much as eight folks.

Eight folks.

Alright, so it's basically not only than actually buying more gear.

Some of them actually are saying look we may be we're looking through it quasi ttk model.

You actually get to share part of that.

We want to have complete interest alignment right.

So we're very excited.

Every single one of our customers has.

Repeat it their commitment with us and in fact, allowing us to essentially increase the lifetime value expected lifetime value of these customers as much as people.

Excellent.

Okay. Good I'll hop back in the queue. Thanks, very much I appreciate it.

And as a reminder, if you would like to ask a question at this time simply press Star then the number one on your telephone keypad.

Next question is from Gerald Pascarelli with Cowen.

Hi, good evening and thanks, very much for taking the questions.

Raymond I'd like to get.

Your outlook and thoughts on federal regulatory reform.

Specifically Interstate commerce.

Yes.

When maybe you would expect it to occur and then ultimately the impact that this maybe has on the business model I would assume that there is somewhat of a boat on this business as long as there is a demand for high quality indoor grown flower I'm not sure. If that's the right way to think about it but if you could entertain your question and provide.

Some high level thoughts I'd appreciate it thank you.

Yeah, Joe it's a pleasure.

And thank you for joining our call today.

Your first question is to win.

You said about deregulation would happen I think thats the million dollar question.

That would be we'd all love to know.

But.

<unk>.

I think the key here is that we're setting up our business model.

To essentially not only hedge against that.

But actually to be better prepared.

Income.

And let me explain to you why right. If you look at actual example, the beer industry.

When you have these big brands like Budweiser, the head of kind of the wells.

And similarly, the big Msos right.

Down the road I think what is important is.

That they need to essentially be able to produce the most consistent and done.

Hi.

Because their entire brand.

Behind it.

And <unk> will that actually allow them to do so.

And also in the post irregular environment, they may want to actually consolidate their.

Their production facility. So now I'll, maybe 2025 different locations down to only two or three.

Before right.

And the advantage of our view is that Theyre movable.

They are modular.

Right, so that when they actually decide to consolidate eventually consolidate everything into one facility.

Literally we can move this figure to use.

I want them back in.

And they have still have all the data in the system.

Standard operating procedures, and just flip it on and off you go.

Alright, so actually it's a.

Big Msos, not only we help them to deliver consistency and quality.

Is actually a huge hedge right against the <unk>.

When they decided to basically consolidate all of their facility into maybe one or two.

Now there are also the smaller guys and the same thing with the beer industry.

GAAP reverse right in order for them to compete right. They would even have to be even more focused.

On consistency and quality.

Right and this is where it actually data comes in right and this is actually where we can actually help them to stay differentiated right actually happened unique genetic.

Not really being able to produce them once in a lifetime, but actually to be able to repeat testing costs.

Time, so that they can stay even though smaller.

But still attracted very high premium.

For their products.

Alright. So this is actually what I believe will differentiate by working with <unk> is we have the ability to deliver highest quality highest consistency highest yield.

But.

So at the lowest possible cost.

Because of automation and because of the ease of the use of our solutions.

That's super helpful color. Thank you for that and just last one for me I thought the commentary was was very interesting.

I guess in your company.

Conversations with customers or prospective customers how much of a competitive advantage is offering these construction loans in particular.

Given me the capital constrained environment and.

And do you expect these AP, whose interest rates I think it was 18%, but I read in the in the press release do you expect these strong double digit rates to hold at least over the near to medium term just your high level thoughts.

Much appreciated thank you.

Yeah, I mean honestly.

That numbers will come down and Theres no question about it right.

Obviously, especially with Safe banking act and all that.

That construction.

Percentage is going to come down overtime.

But again I think.

What makes us interesting and what makes us.

<unk> not only to reach but the traditional even the traditional.

Ken its investors.

It's the fact that.

With the data.

We have much more transparency to what is going on inside that facility.

So like for example in the old days, where they would know that there is something wrong with their.

Basically partners only.

Not getting that check.

But in our case for example, if it's not trending correctly.

We would not right, they're not hitting their expected yields we would know if there is an environmental issue we.

We can actually go in there.

Justice problems on a real time basis, so it doesn't become true.

Right and the other thing is that book.

If he can have the highest yield per square foot.

And by the way David has mentioned earlier, we just basically hit a 770 grams per square foot.

And don't forget it.

The facility happens to have actually very high ceiling.

We can actually turned up one square foot to as much as <unk>.

<unk>, because we have the ability to triple stacks or vips.

Right and since each <unk> actually has two level of canopy growth space.

So all of a sudden you're looking at 686 X times 70 grams per square foot.

That's a lot of a lot of production.

Furthermore, we have demonstrated that on a per pound basis.

Of all of the automation and a lot of the improvements on the standard operating procedures, we have demonstrated that our customers can actually produce at a lowest possible costs.

Right. So this is actually really revolutionary high yield highest consistency highest quality.

The lowest possible cost.

Got it.

Again.

Very helpful color.

Thanks for taking the questions I'll pass it on.

Yeah.

And there are no further questions in queue at this time I'll turn the call back over to you Raymond for closing remarks.

Again, I want to thank everybody for joining the call today.

Obviously, we're very super excited about the progress that we're making and we will continue to execute and hope to report even better results in the upcoming call.

Thank you and feel free to reach out if anybody has any questions.

This does conclude today's conference call. Thank you for participating you may now disconnect.

[music].

Yes.

[music].

[music].

Good afternoon, and welcome to aggregate second quarter 2021 earnings call with US on today's call are Raymond James Chief Executive Officer, David Kessler, Chief Science Officer, and need Creek off Chief Financial Officer, Today's management, who will review the highlights and financial.

Results for <unk>.

[music].

[music].

[music].

Good afternoon, and welcome to accurate guidance second quarter 2021 earnings call with US on today's call are Raymond James Chief Executive Officer.

Kessler, Chief Science Officer, and Neil Creek off Chief Financial Officer.

Management will review the highlights and financial results for the second quarter as well as recent developments and provide a business and operational update following management's prepared remarks, there will be a question and answer session a.

A reminder, that today's conference is being recorded before we begin we would like to remind everyone that prepared remarks contain forward looking statements and management may make additional forward looking statements in response to your questions.

Such statements involve a number of known and unknown risks and uncertainties many of which are outside the company's control that kind of causes future results performance or achievements to differ significantly from the results performance or achievements expressed or implied by such forward looking statements important factors that could cause or contribute.

Such differences include risks detailed in our public filings with the Securities and Exchange Commission and those mentioned in the earnings release, except as required by law. We undertake no obligation to update any forward looking statements or other statements herein, whether as a result of new information future events or otherwise.

Now at this time it is my pleasure to turn the call over to Raymond James <unk> CEO. Please go ahead Raymond.

[laughter].

Thank you operator.

Before we get started today.

I would like to thank everyone for joining us on the call.

On our call today I will provide an update on the continued successful execution of our growth strategy.

And highlight some of the most recent company developments.

My Chief client Officer, David <unk>.

Share more about our recent customer successes.

And the continuous improvement in our tech.

<unk> as well as a whole the cultural success.

Our CFO <unk> Kaul, who will follow with a detailed review of our financial performance.

To start.

I want to remind everyone that at the beginning of this year.

We set out to achieve $40 million in topline revenue.

Secure.

Partnership with a major msos.

And launch our latest technology version 3.6 of our proprietary vertical farming units or <unk>.

I am proud to report that today.

We have not only achieved.

But having to feed it.

Every single one of these calls.

We're pleased to share that the second quarter of 2021.

It was yet another record quarter.

We saw revenue continue to grow to 11.8 million.

Quarter to date.

203% year over year.

And at 69% sequential growth from quarter one of 2021.

Earlier this year.

We launched the occupied total turnkey solution ttk solution.

This is indeed, a revolutionary offering.

Industries first total turnkey solution.

And we signed our first partner button married in the second quarter.

But TDK solution allows qualified strategic partners such as button berries.

Gain access to capital.

That's behind cultivation equipments.

And world class expertise and support they need to quickly establish cutting edge indoor cultivation facilities.

The partnership with button areas.

Represent over it.

A potential of $208 million of revenue over the course of the next 10 years.

We also launched our latest version 3.6.

And are now beginning to install the state of the art vertical farming units in multiple customer sites.

The $3 six introduces a number of key enhancements that have led to improved overall performance.

Significant advancement in micro climate control.

Airflow and future serviceability.

Our decision to invest in our customer success.

Has clearly begun to pay off.

As we have expanded our engagements.

With every single one of our existing customers.

Leading to an eight fold increase in the expected lifetime value of those relationships.

The hardware and software solution.

Moving even more valuable to major players in the indoor activity.

Let's focus on consistency and quality.

Increasingly critical.

To maintaining and growing market share.

This quarter, we were very pleased to be able to link our first MSR partnership with the industry, leading operator shirley's.

We firmly believe that the initial R&D partnership is only the beginning of many exciting and more expanded projects to come.

Financially.

Besides registering a record quarter of $11.8 million in revenue.

I am pleased to report that our.

Bookings for Q2 of 2021 were $37 million.

And our backlog at the end of quarter.

And with $101 million.

Up 23% from the previously reported $82 million.

The continued improvement in our financial results is primarily driven by the ongoing assist us and improvements we are seeing from our customers facilities.

Which has provided magnified with healthy and growing partnerships as well as a robust pipeline of new business opportunities.

Yeah.

We were extremely pleased to announce yesterday that we.

We have inked or second TDK partnership, which should help candidates based here in Haeberle, Massachusetts, located just 30 miles north of Boston.

The terms of our deal what includes Hudson 60 via to use approximately 160 <unk>.

To be installed in two houses 22000 square foot facility.

This partnership.

<unk> to contribute approximately $45 million of revenue over the next 10 years.

The scope of the partnership includes fixed recurring SaaS revenue.

Approximately half a million dollars per year.

Production base revenue of approximately $3 million.

And the brands and licensing fees of roughly about three quarter of a $1 million per year.

Again.

$45 million of revenue opportunity over the course next next 10 years.

True health plans to operate two dispensary behavioral and Mr. Wood.

True health is.

Also a qualified economic.

Economic empower applicants.

And we are extremely pleased to have an opportunity to partner and help promote social equity in the cannabis industry.

We are even more thrilled to see that upon signing the ttk partnership with agriculture.

Treehouse receive any investments from what like global.

A successful family office space in Asia.

Currently with more than 1 billion RMB of assets under management.

I would now like to turn the line over to <unk>, Chief Science Officer, David Kessler, who will share new details on recent improvements in consistency in yield across our customer base and will provide an update on our R&D activities.

David.

Thank you Raymond.

This past quarter was marked with Agra multiple.

<unk> success it.

Through key partnerships and internal initiatives.

We are now pleased to report we have R&D centers operating in both Georgia and Massachusetts.

Additionally, we have recently launched Agra file University and immersive online hands on project based learning experience.

That empowers agra by customers by arming them with the knowledge and best practices to succeed.

Agrapha University utilizes our vast candidates research datasets and technological innovations to provide a curriculum that we believe will support the long term growth of the industry and foster our clients' success.

Additionally, Agra Fi clients continue to see improvements in both consistency and yield using <unk>.

To date all of the top 10 largest new yield by our clients have been achieved since March of 2021.

Of these 10 largest yield it include nine different strain demonstrating the efficacy of agro five technology on a wide variety of candidate cultivars.

Lastly.

I'm very pleased to report that the greatest yield.

Yield and a single harvest was recently achieved.

Pushing the past record by 15%.

Through a considerable 71 grams per square foot.

As our as our customers continue to grow and succeed Agra Phi is steadfast and our support of their successes.

And with that I will now turn the call back to you.

Thank you David.

As we continue to improve and enhance the performance of our Vips.

We remain confident in our ability to deliver on our core mission.

Providing the highest yield.

Highest consistency.

The highest quality at the lowest possible cost.

The mission is integral to our success.

As to the success of our customers.

Now I'll pass the call.

Too Nicole My CFO, who will review our financial results.

Okay.

Thank you Raymond and good afternoon, everyone.

Today I'll provide you with an overview of our second quarter 2021 financial results.

For the quarter ended June 32021, total revenue increased by 200% to 3% to 11.8 million.

<unk> to $3.9 million for the same period in 2012.

Our second quarter revenue consistent the facility build out that revenue as well as hardware revenue from the delivery of new skus to our customers.

This revenue mix is consistent with our expectation for 2021.

This year has deliberately about kicking off new projects and ensuring that our existing customers are successful with the expansion and growth.

This had led to a higher concentration of facility build out revenue in the short term, but we fully anticipate this will shift more towards hardware SaaS and other recurring revenue as more and more facility come on line.

Gross profit for the second quarter of 2021 was $527000 compared to a gross profit of $1 million for the same period in 2020, resulting in a gross profit margin of four 5% for second quarter 2021, compared to a gross profit margin of 26% in the.

Same quarter of 2020.

Margins continued to be impacted from the revenue mix of our strategic decision to accelerate the migration of <unk> production to match molding.

To meet increasing demand and can move forward with the superior version three six.

Margins were also impacted by our decision to further invest in customer success and Reengagement with our legacy customers to accelerate margin improvement for 2022.

In 2021, we remain focused on building, our install base and we expect to see a greater proportion of high margin recurring revenue streams coming gradually as we rollout TDK project and increase our installed base, resulting in margin improvements.

SG&A for the second quarter of 2021 was $5.2 million.

Up from $2.7 million for the same period in 2020.

The higher figure was primarily due to the acceleration of the hiring of additional senior executive and stuff.

Meet demand.

An increase in stock based compensation expenses as well as additional legal expenses.

Require corresponding inflation or TK contract package.

Food security and pledge agreement loan agreement and SaaS production and lease agreements.

Research and development costs were $774000 for second quarter up from $743000 in the same period of 2020.

Total operating expenses for the quarter were $6 million compared to $3.5 million for the same period in 2020.

Net loss attributable to active flying.

For Q2, 2021 was $5.6 million compared with $2.4 million in Q2 of 2020.

Adjusted EBITDA loss for Q2, 2021 was $4.5 million compared to adjusted EBITDA loss of $1.8 million in the same periods of 2020.

This concludes my remarks on financials and I'll return the call back to Raymond for closing remarks.

Yes.

Thank you Leif.

During the second quarter of 2021.

We achieved several significant milestones as our growth strategy continues to take shape building on the strong momentum that begin in quarter one.

Moving to the second half of the year, we remain extremely confident.

We will hit or even exceed the upper range of our revised $48 million to $50 million revenue targets.

The momentum around our business is stronger than ever.

In addition to the previously announced <unk> partnership.

We are actively engaging.

With a number of other msos and other potential ttk partners.

Since July we.

We've actually started to charge $15000 upfront engagement Steve.

And even with that we are.

Actively.

Engaging with 10, plus ttk candidates across eight states.

Amounting to several hundred million dollars of potential opportunities.

Which we expect to substantially convert to new business in due course.

In addition to our organic growth.

We are in advanced stages of negotiation and due diligence with several potential synergistic and accretive acquisition targets.

Which will further enhance our overall offering.

Even more comprehensive solutions to all of our existing and future customers.

In conclusion.

We remain super focused.

On improving customer solutions through our product enhancement and comprehensive partnership offerings.

With our strong balance sheet.

A growing pipeline of opportunities.

We believe that our momentum and market traction will accelerate through the rest of the 2021 and beyond.

We look forward to updating you.

And reporting our continued positive progress during the upcoming quarter three call.

This concludes my remark.

Operator.

I would like to open this up for questions.

Please go ahead.

To ask a question you will need to press star one on your telephone.

Your question press the pound key.

Standby, while we compile the Q&A roster.

Your first question comes from the line of Eric Dolores with Craig Hallum Capital.

Great. Thanks for taking my questions everyone.

<unk> on the very strong momentum in the business here.

I guess just off the bat so great to see record bookings here.

Maybe a bit of an elementary question, but could you help us understand the difference between your backlog and bookings here.

Yes backlog is booking Eric.

So basically we essentially receive further.

Order of up to 30 plus million equaling the.

2021.

Well the two of 2021, sorry, I am jumping ahead already.

So.

So basically the total backlog.

The increase from $82 million at the end of.

'twenty one.

One to now over 100 plus million.

And so we're very excited about the progress that we're making on that front.

Okay great.

It's helpful here.

So I'd like to drill into.

Your the pipeline of 10, plus ttk candidates eight states you said several hundred million dollars in opportunity.

We have seen.

On one hand, with Bard and marries up to I think you guys mentioned $28 million in annual recurring revenue and then.

This newer customer about three.

$3 million to $4 million in annual recurring revenue, if we kind of think of those as benchmarks. The high to low end could you give us some sense of.

The size of these ttk candidates that you're looking at here.

Maybe any comment on your expected.

Timeframe to be able to announce those customers.

Yeah. So.

So Eric so the true health care events is probably the smallest.

Yes.

Would entertain.

The reason why we.

Sign ups. This partnership first of all because treehouses literally 20 minutes.

From a headquarter.

And so that we could actually be very very intimately involved in the overall operations.

Obviously, we cannot be planned touching but we will be intimately working with the treehouse team to help them to ensure success. In addition should add one of the reasons why that.

Jimmy.

Q2. This partnership is just to support and economic empowerment applicants and also be.

Participating in social equity in the cannabis industry, which I believe is just as important.

But again.

A great facility that is 25 minutes literally 20 minutes 25 minutes away from my office and given the proximity we are going to be intimately involved with that with that the.

The opportunity the other 10 opportunities.

They are in Arizona, California, Florida, Massachusetts, Michigan, New Jersey, Nevada.

Homer the size of those partnership ranges.

Average 302, as many as seven to 800.

<unk> per facility.

And.

I would say that.

Mary.

Probably.

On the largest light.

But it's definitely small I.

I would say that an average.

TDK opportunities that we're looking at right now.

Somewhere in the 500 to 700.

<unk> per facility.

And as I mentioned, there are 10 opportunities that we have qualified and we are in.

Advanced stage of negotiation I do not believe that we will entertain or 10.

But these are.

Opportunities that we have qualified.

It will be.

We will be moving forward in the further negotiations.

Okay. That's very helpful color I appreciate that.

Exciting to say that the average size of 500 to 700 here.

So two more questions for me just kind of sticking with this theme here.

So I too.

Certainly I'm a believer in the.

Necessity and importance of social equity in the industry here and obviously youre seeing in basically every state that legalize as they're setting aside a material amount of licenses specifically for social equity applicants here now I think New York at about 50% of the licenses are.

Dedicated for social equity here so.

Is this a is.

This is a specific area that you guys will look to.

Continue going after I mean, just from my perspective, it seems like.

Pretty ideal.

Teekay candidates here. So I would just would love to hear your assessment on kind of that that outlook for TK surgery specifically.

Yes, it is definitely one of the criteria.

On our scorecards.

Obviously, it's not the only thing that we consider but.

But I do believe that.

Being in the cannabis industry, especially kind of given the historical context.

We do really pay a lot of attention to just making sure that we provide the.

Job opportunities too.

The communities as well as just being a.

A social.

Responsible partner in the industry.

So I'm very very proud of Q2.

<unk> announced this partnership with Treehouse I'm very excited Theyre getting a lot of resources from the ton of Haverhill and Suez.

<unk>.

And also another thing I wanted to just two.

I will also emphasize its effect and then actually we're seeing more and more of this.

A lot of it ttk opportunities.

Act once they receive a term sheet from us.

Yeah actually further accelerates.

Their capital raising activities.

In the case of Treehouse candidates immediately after we signed they actually got funded.

And in fact, some of the 10-K.

Candidates that were talking to you right now.

They can't wait for us to actually give them a term sheet and in fact, we have been on due diligence calls with a lot of their investors and I think what is very exciting for.

People, who are actually interested in investing in our partners is the fact that unlike in the past where they have almost zero of transparency as to what is going on inside of that facility post their investments.

By working with us.

We actually allow them to have full transparency.

Secondly.

With our support.

There is something.

Got it wrong.

Were there.

And in fact, we would detect those problems early on to make sure that it doesn't happen.

So the chance of success is much much higher versus traditional investments, where frankly speaking behalf zero control of anything that is going on inside of that facility.

So we're very excited about this and looking forward to.

<unk>.

More ttk opportunities.

In a very near future.

Yes, absolutely.

Moving here.

Certainly makes sense and very exciting from my perspective.

Last one for me.

So you mentioned you won't entertain all 10.

Can you just sort of expand on that is that.

Is that sort of a capacity issue and if so could you kind of help us understand where are the bottlenecks what kind of capacity do you guys have or maybe it's just that you're waiting for maybe bigger or better partners. There. So if you can just help us understand.

Yes.

Why you won't entertain all 10 or what the what the limiting factor is there just sort of how we should think about the pace of the growth in <unk> customers.

So Eric.

First of all.

So far we have set aside a $50 million to the TDK projects and obviously, we're seeing much much higher demand.

And so.

We're actually also.

Trying to think of creative ways to finance.

Future Teekay projects.

Just to kind of give you. One example, we have actually.

Being reached by multiples.

And the reason why they are interested in partnering with us.

In the old days again.

When do you actually just providing construction loan.

And basically buildings.

They're probably making returns in the teens.

And again have zero control.

Of what's going on inside of that facility.

It's almost kind of like implying that and if something goes wrong frankly speaking a lot of these suites, probably don't have the expertise to actually help LT correct.

By working with us.

Right.

For transparency.

And on top of that.

It would also maybe potentially given that given them an opportunity.

To participate on the backend.

And all of sudden their returns on investment publicly just went from mid teens to the <unk> and <unk> right.

Alright.

And this has been really a great partnership because frankly speaking.

I would rather basically developed the.

The majority if not all of our capital resources.

Yeah, a few fronts.

Body else wants to come in and basically provide a construction loan.

On that happy for them to take it.

Right.

So.

Basically talking in fact, a lot of the the 10 opportunities that.

That we're currently contemplating.

Some of them are brought to us.

By other regions.

And others, we have actually hook them up with some of these risks and I believe that we will probably be cementing a deal with <unk>.

Large fleets.

In the very near future on this exciting ttk opportunities. So again, we're trying to basically find ways.

To access more capital.

You have more partners and to create a win win proposition not only with our cultivate partners, but also with other industry players as well.

Yes, very exciting clearly lots of growth levers on this.

Very exciting solution here, Congrats again, guys I'll hop in the queue.

Yeah.

Thank you Eric.

Your next question is from Scott Fortune with Roth Capital Partners.

Good afternoon, and thanks for the question.

Real quickly can you provide a little color on the pipeline I believe that's not including the key teekay and any guidance, but also provide us color on the construction projects.

Any delays or claims there's obviously a pickup in construction costs and such in that size material. How does that recognition of potential construction delays reflect income do you project builds or the pipeline just kind of a little bit color on that.

Scott.

You're absolutely correct.

We are.

Definitely seeing.

A huge sort of.

Competition.

Around construction.

Right now actually we have expanded.

Our.

Not only <unk> partners architectural engineering partners, but we have also started talking to us.

Other general contractors, so that they would give us.

Basically bigger coverage.

And yes, so essentially we are expanding our.

Construction partners architectural engineering partners, so that we can actually cover more deals.

Right.

And right now, we're still seeing the projects sort of pretty much on schedule.

And we will continue to manage that very tightly.

The key hires for example, this quarter is basically bring on more project managers were essentially hiring ahead to make sure that we can take on more projects.

And also just to make sure that we have and the customer success resources because obviously after the facility is built and is even more important to make sure that all horticulture team is in the facility working with our partners to web two <unk> should make exciting things happen right.

Other big thing.

As mentioned earlier.

This year, we took the key initiatives basically.

Moving our production to a contract manufacturer.

Max Mosley.

And I'm very pleased to say that that process is going well and we're expecting new DSD used to be rolling out of their production lines very shortly.

The launch of the three six, especially with a contract manufacturer working with externally.

Should have plenty of capacity to scale.

So those are some of the things that we have worked on not only in quarter two but continuous.

This quarter as well.

So real quick just follow up on that so your backlog in the construction projects, they're finalizing in the second half are still on time.

Going forward here.

Yes, where we are.

Gary.

Confident that we will again like I said.

Meat and.

Even potentially exceeding our.

Revised $48 million to $50 million.

Our guidance.

So we believe that.

Yes.

We would have no problems in.

<unk>, that's so everything so far is still pretty much on track.

Okay.

And then the second question.

Congrats on the R&D agreement with <unk>.

Out there kind of validates.

Your technology.

The color of timing of GAAP being installed so far.

For NAND testing getting data from that and look at opportunities and as clearly hooks to expand.

They have said publicly a lot more indoor grow in the east coast.

I'll turn the calls will be guidance in the west coast.

Talk about kind of like fairly comprehensive.

Yeah, so they have been very exciting.

Research and development facility here in Newton mass.

And obviously <unk> is one of the.

Take initiatives within that.

R&D facility.

And we believe that the completion.

The construction.

Publicly.

Be done by the end of this year and will go into production and at that point, then we'll look at.

One two cycles.

Result, and but we're very confident that we won't be able to do especially with the version three six of our <unk>. They would see an immediate boost in yield consistency and quality.

The performance of our $3 six.

Honestly, it's just you have studied.

And we will I am very confident that that we can deliver.

Results immediately.

Okay, and then just kind of additional Msos Tim.

Similar.

Test getting the equipment in those handsets to test the seafloor.

Full cultivation production opportunity down the road or is that kind of the discussions you're having or some of them are looking for actually.

Larger.

Will they build to add capacity.

Yes, I mean, some of these conversations are actually you'd like.

Maybe even skipping.

R&D.

Concept.

Obviously, we are.

We I don't want to jump ahead, and say that we're going to we see tomorrow, but in.

In fact, some of these other msos are not actually talking to us about R&D project Youre actually talking about implementing they're using there.

<unk>.

Expanded facilities so.

No.

We're obviously still in those discussions.

As soon as we are.

Thanks.

I'll, let you know, but very exciting Q2 to be engaging with a number of the msos.

Thanks for the color and congrats on the application.

Yeah.

Your next question is from Aaron Grey with Alliance Global partners.

Hi, good afternoon and welcome back.

I'll Echo my congrats on the quarter.

So, let's take a little bit different right here right. So obviously with all of that would be using different operators, you're working with you guys. One thing that is kind of key to meet with you guys or is all the data collection that you guys get.

The different way to grow different strains and otherwise so those are additional commentary from you as you aggravate This David.

That can come with that and how you can utilize that.

For future initiatives going on within the company. Thank you.

Okay.

Sure David would you like to maybe take a crack at that.

I can also jump in as well.

I'd be happy to.

Essentially with the larger amounts of data that we're able to coalesce, we're going to better be able to define the grow plans, a recipe, which will lead to the cultivate success of our clients.

That said these larger datasets aren't just about how to grow more wow. They are about how to maximize.

Cannabinoid production.

<unk> production specific metabolites that might be valuable in the extraction process. Additionally, through environmental manipulation and collection of these data points, we are able to provide clients operators essentially a giant leap forward in their operational success.

By giving them recipe proven for success. So not only are they able to start the rate halfway down the track they were able to correlate their data more quickly shoes. The end product formulation and grow plans of recipes that are going to support them in that success.

Really deliver on a cumulative data set that can then be parts as we learn more and more about this valuable agronomic crop.

Challenges Unfortunately.

We do not have data on candidate going back 100 years because of the holistic nature, so with the ability to aggregate data more quickly we're going to bring the future of candidate to the present and as we do so our clients.

The benefit.

Yes, and in terms of monetization right.

So Aaron obviously.

We are.

This data is calm.

US and also our customers.

And so for example, if I have a particular operator single state operator that has perfect. It for example, a particular grow recipe for a particular strength.

We would have basically worked with them to potentially to license that grow recipe to a noncompete operator.

As another state.

And the reason why they would be willing to do so is because.

You wouldn't actually necessarily tarnish your brands because they know that.

It's grow out of that.

<unk> under the same ROE recipe that most likely you will have the same consistent results.

Obviously this is just one of the idea that we can actually potentially to monetize that data and they are actually a lot more but.

This is something that that we can.

Very much you are willing to.

Work with our.

Customers to think about ways to monetize those valuable data.

Okay. Thanks for that color, that's really helpful basketball.

And then second question for me just as you look at additional partnerships any color you could potentially provide in terms of the mix between those who might.

By the <unk>.

Versus where you take on more of the Capex and you have more of a Rev share.

The timing and how those looking at how do you look to potentially have a mix between the two as you continue to rollout.

More than <unk>, especially if you might have some limitation.

Okay.

Given the contract manufacturing and otherwise thank you.

Yeah, Erin I mean, essentially the way I kind of theater really kind of three buckets.

Right.

The first bucket these are the largest msos.

Balance sheets are.

So strong that frankly speaking.

They would be interested just to buy our <unk>.

And not take on any kind of financing partners.

Those are and Thats basically kind of what gives us the scale and volume.

And obviously as I mentioned earlier, we're having multiple of those discussions with the with the larger NSS and.

And then just the other extreme which are smaller.

Smaller single state operators that.

<unk> essentially offerings as a total turnkey solution and basically getting equity like return on the update on the production revenues on the SaaS revenue and there is a 10 year long term partnerships.

Yes, we're actually very pleased to see that there is actually kind of a middle ground.

Smaller msos.

That frankly speaking have access to some of the capital and what they basically said look we can take on the on construction or we can actually find one of our REIT to actually come in and basically do the construction.

And we're basically work with you on the a few points.

Honestly I would be very happy to do that because.

<unk>.

Allow us to basically deploy our capital even more effectively.

Building the installed user base right. So we're really kind of seeing.

Three buckets situation whereby.

Especially with the middle buckets.

Are there other ways. For example, there are people that basically said, we're more than happy to come in as you'll financing partners, but by working with US first of all they get complete transparency too.

What's going on inside of our facilities. They have a partner that could actually help them to go in and solve the problem. If something goes wrong and thirdly is that they could potentially participate in that equity like upsides right. So we're basically more than happy to share because at the end of the day our business.

Model is all about building the largest possible installed user base.

And that's basically how we're looking at this industry and how are we actually going to grow in the future.

Alright, Thanks, Thats, great color on the flexibility of the model.

That's around the corner and I'll jump back in the queue.

Thank you.

Your next question is from Anthony Vendetti with Maxim Group.

Thanks.

Hey, Raymond how are you.

Great.

Good good.

I just wanted to follow up a little bit more on the on the I know we've talked about the ttk, but.

But marriage contract and I was wondering if in the <unk>.

In the true has one.

Is there.

I know theres, an escalator in the button marries one, whereas if depending on the on the yield.

It could even be more per year.

Can you talk a little bit about that is that built into all your TK contract or is that on a contract by contract basis.

Yes.

Oh one.

So basically the this firm.

House is essentially identical to that of.

Button Marys right so essentially.

Basically be getting that construction loan.

Interest on that and that will basically be expect it to be payback.

Over the course of 24.18 to 24 months period.

And then on top of that.

The fixed recurring SaaS revenue.

And then.

Per pound based production.

Our revenue and that again is also yield based so that if it's over seven pounds, we would get $700 less than they would get $600.

It basically treat every single one of our key Teekay partners exactly the same alright, and they are also responsible for raising it.

Fishing capital to support their working capital and we're very pleased that they were able to secure investments.

To make that happen so yes.

It's very exciting.

Okay, Great and then.

And then just.

As you look at.

Your M&A platform I know you mentioned you did mentioned about.

To help with the construction side of it.

But just in terms of other.

Potential partnerships.

For M&A opportunity.

Can you can you provide a little bit more color on what you are looking at at this point.

Okay.

Sure.

So Anthony I think that what we're looking at.

It's basically how we can actually make our customers' facility.

Even more productive.

And with higher return on the investments.

And to act.

As you know when you actually walk into any of the facilities today.

Maybe about 60% of the growth space is dedicated to cultivation.

Now I believe that we have the best solution to.

To make that 60% of the square footage.

No.

With the highest productivity.

High yield highest return on investments.

What I can also tell you is that I see significant.

The potential enhancements on that remaining 40%.

We're footage any facilities.

So we are basically you'd like to work with.

Natus.

Companies.

Basically to be able to provide even more comprehensive end to end solutions to our customers and frankly speaking to gain a bigger portion of the AUM.

<unk> wallet space.

And that's essentially what we're looking at.

In addition to that we're also looking at the upstream.

Some type of partnership with companies that are really involve genetic site.

So again.

We're looking at not only just from the cultivation process.

But how can we make.

Our customers' facilities.

Square footage.

Even more productive and actually ultimately help them too.

The increase the return on the investments.

Okay, Yes.

That's great.

And then just lastly on.

Okay.

Existing customers.

Your existing customers.

At least.

Final checks are very happy with the <unk> solution.

I could probably insights.

Can you talk about the.

Recurrent.

Our business you get from existing customers.

How many of your existing customers have already.

We asked or have signed up for another.

Agra fly.

Contract.

So sorry, Anthony I'm very pleased to say that right now we have <unk>.

Sure.

Okay.

Not only do we have your churn we have.

As mentioned.

Actually increased like lifetime value of these customers by as much as equal.

Eight votes.

Alright.

It's basically not only than actually buying more gear.

Some of them actually are saying look we maybe would look into it quasi ttk model. So that you actually get to share part of that.

We want to have complete interest alignment right. So we're very excited.

Every single one of our customers has.

Repeat at their commitment with us and in fact, allowing us to essentially increase the lifetime value expected lifetime value of these customers as much as people.

Excellent.

Okay. Good I'll hop back in the queue. Thanks very much appreciate it.

And as a reminder, if you would like to ask a question at this time simply press Star then the number one on your telephone keypad.

Your next question is from Gerald Pascarelli with Cowen.

Hi, good evening and thanks, very much for taking the questions.

Raymond I'd like to get.

Your outlook and thoughts on federal regulatory reform.

Specifically Interstate commerce.

When maybe you would expect it to occur and then ultimately the impact that this maybe has on the business model I would assume that there is somewhat of a boat on this business as long as there is demand for high quality indoor grown flower I'm not sure. If that's the right way to think about it but if you could entertain your question and provide.

Some high level thoughts that I appreciate it thank you.

Yes.

It's a pleasure to us and thank you for joining our call today.

Your first question is to win.

You said about deregulation would happen I think thats.

Two questions.

We would all love to know.

But.

<unk>.

I think the key here is that we're setting up our business model.

Q essentially not only hedge against that.

But actually to prepare.

Income.

And let me explain to you why right. If you look at actual example, the beer industry.

When you have big brands like Budweiser, the head of kind of the wells.

And similarly, the big Msos right.

Down the road I think what is important to us.

That they need to essentially be able to produce the most consistent and the.

Hi, This is Kelly.

Because their entire brand.

Behind it.

<unk> for that actually allow them to do so.

And also in the post deregulate environment, they may want to actually consolidate their.

Their production facility. So now maybe 2025 different locations down to only two or three.

Before right.

And the advantage of our <unk>.

Theyre movable.

They are modular.

Alright, so that when they actually decide to consolidate eventually consolidate everything into one facility.

Literally we can move this via cheese.

Plus I'm back in.

And they have still have all the data and the same standard operating procedures and just flip it on.

<unk>.

Alright, so actually it's a for the SEC msos not only help them to deliver consistency and quality. It is actually a huge hedge against the future when they decided to basically consolidate order facility issue, maybe one or two.

Now there are also the smaller guys and the same thing with the beer industry the craft Brewers right.

In order for them to compete right. They would even have to be even more focused on.

On consistency and quality.

Right and this is where it actually data comes in right and this is actually what we can actually help them to stay differentiated right to actually happened unique genetic.

Now, let me being able to produce them once in a lifetime, but actually.

That same process.

Time, so that they can stay even though smaller.

Youll attracted very high premium.

For their products.

Alright so.

This is actually what I believe will differentiate by working with <unk>.

We have the ability to deliver highest quality highest consistency highest yield.

But.

So at the lowest possible cost.

Because of our automation and because of the ease of the use of our solutions.

That's super.

Super helpful color. Thank you for that just last one for me I thought the commentary was very interesting.

I guess in your in your conversations with customers or prospective customers how much of a competitive advantage is offering. These construction loans in particular, given me the capital constrained environment.

And do you expect these AP. These interest rates I think it was 18%, but I read in the in the press release.

Do you expect these strong double digit rates to hold at least over the near to medium term just your high level thoughts would be much appreciated. Thank you.

Yeah, I mean honestly.

That numbers will come down.

No question about it.

Obviously, especially with say thinking acts and all of that.

That construction.

Percentage is going to come down overtime right.

But again I think.

What makes us interesting and what makes us.

<unk> not only to reach but the traditional even the traditional.

Ken its investors.

It's the fact that.

With the data.

We have much more transparency to what is going on inside of that.

So like for example in the old days, where they would narrow that there's something wrong with their.

Basically partners only.

We're not getting that checks.

But in our case for example, if it's not trending correctly.

We would now right.

Hitting their expected yields.

Now if there's an environmental issue we can actually go in there and address those problems on a real time basis. So it doesn't become too big.

Right and the other thing is that look.

If you can have the highest yield per square foot.

And by the way David has mentioned earlier, we just basically hit a seven.

770 grams per square foot.

And don't forget.

The facility happens to have actually very high ceiling.

We can actually turn that one square foot to as much as six.

<unk> X because we have the ability to triple stacks or vips.

Alright, and since each <unk> actually has two level of canopy growth space. So all of a sudden you're looking at six to eight six X times 70 grams per square foot.

That's a lot a lot of production.

Furthermore, we have demonstrated that on a per pound basis, because of all the automation and a lot of the improvements on the standard operating procedures, we have demonstrated that our customers can actually produce at a lowest possible cost.

Alright. So this is actually really revolutionary highest yield highest consistency highest quality at the lowest possible cost.

Got it thanks again.

Very helpful color.

Thanks for taking the questions I'll pass it on.

And there are no further questions in queue at this time I will turn the call back over to you Raymond for closing remarks.

Okay.

Again, I want to thank everybody for joining the call today.

Obviously, we're very super excited about the progress that we're making.

And we will continue to execute and hope to report even better results in the upcoming call.

Thank you and feel free to reach out if anybody has any questions.

This does conclude today's conference call. Thank you for participating you may now disconnect.