Q3 2022 Agrify Corp Earnings Call
Yeah.
Greetings and welcome to the exercise first quarter 2022 earnings conference call.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
And he wants you to acquire approach her assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded it is not my pleasure to introduce your host Anna cakes. Sheila. Please go ahead.
Good morning, and welcome to occupy third quarter 2022 earnings call with US on today's call are Raymond Chang, Chief Executive Officer, and Timothy Oakes, Chief Financial Officer, Dave management, or highlights and financial results for the third quarter and provide a business and operational update following management's remarks, there'll be a question and answer that.
I'll remind you that today's conference call is being recorded and a replay will be available on our Investor Relations website at IR E arc five dot com.
Please note that we'll be referring to information that's contained within our earnings press release, which can be accessed on the investor relations website as well.
Before we begin we would like to remind everyone that managements 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 feature results performance or achievements to differ significantly from the results performance or achievements expressed or implied by such.
As far as looking statements important factors that could cause or contribute to such differences include the rest 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 or other statements herein, whether result of new information future events or otherwise I will now turn it over to Raymond.
Sure.
Thanks, Kate and thank you everyone for joining us on our call today.
I'm going to begin by providing an overview of our performance in Q3 as.
As well as some recent updates on our business.
And then our Chief Financial Officer, Tim Bulks.
Going to discuss our Q3 financial results in greater detail after that I'll go over our outlook for the remainder of 2022.
And then we will open up the call for questions.
For the third quarter, we ended up with $7 million in revenue.
It is very important that I explained a shortfall in our Q3 revenue in more detail.
As we have disclosed publicly.
Our customer button Mary defaulted on its construction loan facility.
And we serve them with a default notice on September 15th.
In response, but very solid baseless lawsuits and attempt to avoid having to repay the credit facility.
The lawsuit.
Tirelessly without merit.
And we are taking all necessary steps to pursue repayment from button marriage.
As a result of the pending lawsuit and based on the ASC 606 revenue recognition standard.
We elected not to recognize $5 3 million.
Designed and built revenue related to button Marys projection project in Q3.
I want to reiterate that we are confident that we are we have the legal rights and means necessary to recover the deferred revenue once the legal process runs its course.
But marriage construction loan is guaranteed by button, there is holding and David Morgan founder and CEO of button there he's personally.
You can be sure.
<unk> will continue to take every step necessary to pursue repayments from button berries and protect our shareholders' interests.
On top line Q3 revenue number was also obviously impacted us.
As a result of the tight quarterly cash spending limits imposed by our institutional lender.
In order to stay in full compliance we were forced to make some difficult decisions.
But necessary.
You ended up inhibiting our ability to maximize revenue in Q3.
Ideally, we would have liked to convert more of our backlog into revenue.
In total we estimate that the cash spending limits prevented us from realizing approximately $1.8 million in revenue that was otherwise within reach for Q3.
In total we estimate that there was about $7 1 million of the knee.
The impact to our Q3 top line.
Stemming from these two factors.
Again, $5 $3 million differ due to the nevertheless, putting various lawsuits.
And approximately $1.8 million of business pushed out to Q4 due to our cash spending limit.
Additionally, some of our customers also in counter.
Unforeseen construction and permitting delays not related to <unk>.
Which impacted their ability in Q3 to accept some of the products and solutions that they committed to purchase to atrophy.
This had a tangible impact on our Q3 result, as well to the tune of approximately $1 3 million.
But these orders are all expected to be shipped in Q4.
Despite the hindrances.
We generated over $11.2 million in new bookings during the third quarter.
It is worth noting that starting from this from Q3.
We have decided not to include the expected recurring revenue streams.
Streams, such as fast or production is assessing that.
The often span multiple years.
But do not commence until our customer facilities are fully permitted and operational.
Moving forward, we will only associate bookings with hardware sales that we expected to sell in the near term.
But SaaS and productions to SaaS revenues, we will provide the approximate number of you have to use currently under contract.
The duration of each recurring revenue.
Doing so I believe this would give everyone a clearer picture about near term revenue potential.
As well as our more exciting long term recurring revenue streams.
Again, the booking for Q3 without the SaaS and production successfully.
Was approximately $11.2 million as these are all hardware sales that we could.
Realize in the near term.
The additional bookings on SaaS and production fees ranges between five to 10 years.
With some production revenues attached to it.
It's the broader business environment continues to be very challenging one to navigate.
We have remained nimble by.
By continuing to adjust our operating approach.
Adapt to evolving customer needs.
And develop and deploy technology that is versatile and scalable.
We also continue to make progress without growing product portfolio.
I've seen very strong traction with our recent innovations and product offerings.
With regard to our operation operating approach.
We have talked in the past about cost reduction and cost efficiency measures, we have instituted to promote cash conservation, giving the industry downturn.
To ensure the health of our business, we continue to pursue cost saving initiatives that will better position our business over the long term to.
To capitalize when the industry returns to growth.
I want to be clear that many of the cost reduction and cost efficiency initiatives, we discussed last quarter.
Have already been implemented.
We are still in effect.
And we are actively evaluating other possibilities as well as we look to protect the company from the turbulence we have encountered in recent months.
Now some of the other developments.
We continue to see very strong traction.
Without rapid deployment program.
P. R D piece.
We recently announced three new RVP customers in Illinois, Massachusetts, and South Africa.
Yes, combined agreements with these three new customers have and expect to face value.
$7.5 million in cultivation and related hardware sales.
On top there also future recurring SaaS and production success fees.
As a reminder, the odd.
D P programs designed to lower the Berry barrier to entry.
An upfront investment needed for customers to access the best in class plug and play cultivation and extraction capabilities with an accelerated path to profitability.
Using the IBP programs each customers will have the potential to produce an estimated seven five pounds of premium quality flowers.
Gross cycle with approximately $5 two growth cycles expect it to be possible each year.
We are excited to see early customer success with the R&D piece.
And look forward to bringing the RVP program to even more customers throughout the world.
We intend to start taking orders for a greater volume of part D piece.
In the first quarter of 2020 and also in the upcoming MJ Biz.
We look also look forward to showcasing our latest development and advancement.
Our key programs.
At <unk> next week, and we will have more to share on that front in the coming days.
On the extraction side.
I'm pleased that we recently announced successful commercialization.
Of the PHP 10, hydrocarbon cannabis extract or that was that was initially built in August .
The pitch and it was simply installed at three customer facilities.
Including at a key customer site in Maryland belonging to Alkermes ventures.
Our progress with the PX 10 has demonstrated our ability to not only successfully charge a product vision into reality.
But also our capacity to work closely with a growing number of prominent customers, including multistate operators children any unable to.
You are cutting age cut cutting edge solution to grow their business.
I'm also happy to report that the development of our new three seven yes. He is now complete.
And we expect to start shipping these units to customers in the first quarter of 2023.
Regarding our TK projects the button Mary project is obviously on hold.
The customer sites Treehouse in Nevada, greenstone in Colorado in Hana in Washington are all.
Good luck with the mining construction and permitting task.
We expect that the initial phase of each of these projects will be completed in Q4.
Four.
At which time the customers are expected to begin to bring implants materials into their facilities.
Once the final licenses certification of occupancy are received which we expect to occur in quarter one.
We will be able to start generating the high margin recurring SaaS and production revenue.
Shortly thereafter.
We still believe that the teekay engagement with our customers across these three facilities, which serve as an excellent proof of concept for the underlying business model and.
And the attractive returns about ttk's programs.
Last but not least it was truly an honor for occupied to be recognized in September when we received the best cultivation technology doing the green market reports textron's.
The Green market report is whether that's.
Criminal sources, our financial business and economic news in the cannabis industry.
And its awards recognized companies in the cannabis industry for the creation of <unk>.
Beta product and services.
We are a clear leader in the indoor cultivation space.
And we have created <unk> has set a new standard for what is possible.
In summary, we remain determined to be highly successful over the long term. Despite the short term challenges that we are encountering in recent months.
We have conviction in the underlying health of our business for the following reasons.
Number one.
Interest and enthusiasm in our highly differentiated portfolio of cultivation extraction solutions remain strong.
As our pipeline of qualified sales opportunities currently stands at over $31 1 million for cultivation.
And over $45 9 million for extraction.
Our diversified mix of products and services gives us tremendous flexibility to adjust our approach to capitalize on whatever market opportunities are most attractive at any point in time and respond swiftly to challenges that arise in this dynamic operating environment.
Excuse me and.
And probably the most exciting.
Our products have strong global appeal.
Given the quality control is absolutely imperative, especially in the us because there'd be incredibly high EU GMP standards, we are very confident that our offerings will become highly.
Adopted throughout the European market, which is eventually expected to become one of the worlds largest market for legal cannabis.
Overall, we're getting substantial interest you know a cultivation extraction solution.
A wide variety of international customers.
At this point I would like to turn the call over to Tim.
Talk about the financial results for the quarter.
Yeah.
Thank you Amy good morning, everyone and thank you for once again, joining us on today's earnings call.
We've done in prior quarters I'll take some time to speak to our third quarter 2022 financial results and then I'll pass the call back to Raymond for closing remarks.
Like last quarter last quarter, there's a lot to digest with respect to our third quarter financial performance.
He's going to take some time or some extra time to go through everything.
Starting with revenue revenue in the third quarter of 2022 totaled $7 million compared to revenue of $15 8 million in the third quarter of 2021.
This represents an $8 8 million or 55, 4% year over year decrease in comparative quarterly revenue.
The decrease in third quarter 2022 revenue is solely related to a comparative year over year decline in our lower margin design build revenue.
Designed to build revenue declined by $11 7 million in the comparative quarterly periods from $13 million in the third quarter of 2021 to $1 3 million in the third quarter of 2022.
It is important to note that third quarter 2020 to design and build revenue excludes approximately $5 3 million of revenue associated with our TK solution project with button Mers.
This revenue has been deferred as a direct result of button Mary's lawsuit, which challenges our ability to recognize the revenue on the work performed during the quarter as collectability of the amounts becomes uncertain.
And as Ramon mentioned in his script earlier, despite the accounting position taken by the company during the current quarter. The company intends to vigorously defend itself against the claims made by button Mary's and its lawsuit and believes that it has the document and support to prevail in this matter and the legal recourse necessary to recover the outstanding amounts due to the.
<unk> and its stockholders in this matter.
The company recognized approximately $5 7 million in extraction related revenue during the third quarter no extraction related revenue was recorded by the company in the third quarter of 2021, whereas the company had not entered that vertical yet.
It is worthwhile to note that the amount of extraction revenue during the third quarter was negatively impacted as a result of the company's debt modification agreement.
Which under which the company was unable to ship approximately $1 8 million of extraction equipment due to the quality of our quarterly cash spend limits imposed under the restructured debt agreements.
Bookings for the third quarter of 2022 were approximately $11 2 million of which $5 6 million was related to extraction products.
We entered the fourth quarter of fiscal 2022 with approximately 646 million in backlog.
A significant portion of our reported backlog amount is derived from huge future T. K related recurring revenue streams, which are associated with both our fats and production success fees and account for approximately 90% of the total backlog amount.
It is important to note that our current backlog has materially reduced from the reported backlog them out during our second quarter earnings call. The sole driver of this reduction is the removal of forward looking recurring SaaS and production fee revenue amounts due to our issuance of the default notice the button berries, yeah. They're subsequently filed lawsuit.
Total gross loss and the associated negative gross profit margin in the third quarter of 2022 was a negative $4 1 million or roughly 58, 6% of total revenue compared to a gross loss of 380000 or two 4% of total revenue in the third quarter of 2021.
The comparative change in year over year third quarter gross loss in gross margin primarily reflects the deferral of the previously discussed five 3 billion in third quarter 2020 to design and build revenue.
Offset by the incremental gross profit and gross profit margin contributions from our extraction related product sales extra.
Extraction related revenues achieved the gross profit margin of approximately 27% in the third quarter of 2022.
The company was not able to defer the construction costs with the deferred design and build revenue during the third quarter of 2022, which significantly impacted the company's overall gross profit and gross margin performance during the third quarter.
Moving on to operating expenses.
Third quarter, 2022, general and administrative expenses increased by $16 4 million or 213% to $24 1 million compared to $7 7 million in the third quarter of 2021.
The comparative increase in G&A expenses in 2022 is largely attributable to a $15 million increase in bad debt reserves, primarily associated with our decision to place a full reserve against all of the outstanding receivable balances under the button Mary's Ttk solution project.
Approximately $1 1 million in severance related charges as the company has begun to streamline operations in response to the current industry headwinds and a comparative 500000 increase in quarterly stock based compensation as a result of equity awards issued to employees during the third quarter of 2022.
Sales and marketing expenses totaled $2 2 million in the third quarter of 2022 compared to 890000 in the third quarter of 2021.
With prior quarters, the comparative increase in third quarter 2022 sales and marketing expenses is directly related to the company increasing the scale of its business, while strategically focusing on investments in sales and marketing activities, such as headcount tradeshows marketing programs et cetera necessary to support our drive for topline.
<unk> growth.
Research and development expenses in the third quarter of 2022 totaled $1 7 billion.
Year to 827000 in the third quarter of 2021 the.
The increase in comparative quarterly research and development expense reflects the company's continued development efforts focused upon improving and upgrading our Agra fight and fight that software as well as the hardware features and functionality of our vertical farming units.
<unk> third quarter 2022 increases in R&D expenses are related to the current quarter addition of extraction Division R&D teams third party consulting payroll and related expenses as well as material costs.
The company as of September 30th.
'twenty two is currently monitoring two separate contingent earn out consideration arrangements associated with the acquisitions of peer pressure in lab Society.
Each of the arrangements contains two consecutive 12 month earn out periods.
The potential additional consideration that can be earned on to each of the two earn outs is capped at $1.5 million per year under the peer pressure earn out arrangement and $1 $75 million per year under the lab society earn out arrangement.
The company made initial estimates with respect to the probability of achievement of the additional consideration to be earned under each respective earn out period and recorded as part of our initial purchase price accounting associated with each acquisition.
Operating expenses in the third quarter of 'twenty 'twenty. Two also includes a 602000 reduction in operating expenses, which is primarily attributable to the change in our fair value estimates of contingent consideration associated with the currently active pure pressure or not.
During our periodic review of fair value estimates, we noted that pure precious actual revenue performance related to its first earn out period trails are initially projected revenue estimates accordingly, we revised our estimated probabilities the burnt out achievement, which resulted in a reduction in the original estimated earn out achievement of approximately 602000 and this chain.
And contingent consideration as required by GAAP was recorded as a current period reduction to operating expenses.
We will continue to evaluate on a routine periodic basis future performance against our initial assumptions and estimates on a quarterly basis.
Any identified changes to our original assumptions that generate a change in our initial fair value estimates are probable earn out achievement will result in either an increase or reduction to our future periodic operating expenses.
Moving on to other income and expenses.
The company is reporting total other expense of $14 7 million in the third quarter of 'twenty two 2022 excuse me. This compares to other income of 30000 in the year ago quarter.
There are several items during the year over year change in other income as we tried to break them down into digestible section.
Yeah.
Starting with net interest expense net interest expense totaled $4 million during the third quarter of 2022, our third quarter interest expense is comprised of both normal interest expense associated with the outstanding principal balance of our existing debt facility.
Plus an incremental prepayment penalty interest expense of $2 2 million, which was incurred in connection with the modification of our debt facility in the third quarter of 2022.
Other income the company is reporting $1 5 million of other income during the current quarter in connection with the Finalization and true up of previously estimated acquisition related net working capital amounts.
The finalization of the estimated miles resulted in a favorable adjustment to the initial purchase price paid by the company at the close of our acquisitions as.
As we fully impaired our goodwill assets as of June 32022. These adjustments cannot be recorded against the existing goodwill balance which resulted in them being recorded as as favorable other favorable other income item in our third quarter statement of operations.
We are reporting a loss on extinguishment of debt as previously mentioned in August 2022, the company entered into an agreement to restructure its March 2022 debt facility with its institutional lender.
The company reviewed the terms of the modification and determined that the modification resulted in an extinguishment of the existing debt arrangement and not a modification the company recognized a loss on debt extinguishment of approximately $17 9 million during the third quarter of 2022.
Loss was comprised of a write off of unamortized warrants talk.
I didn't even have issuance costs default penalty charges and incremental charges associated with the fair value of the modified warrants.
We are also reporting a change in the fair value of warrants.
As part of the debt restructuring agreement the company agreed to modify the strike price of the warrants issued under the original debt facility as well as to issue new warrants under the new facility the company and its review of the accounting treatment to be applied to the new and existing warrants determined that the warrants qualify for treatment as the liability instrument as opposed to being treat.
It is an equity instrument the.
The company recognized a favorable charge in its third quarter 2022 statement of operations in connection with the periodic fear about fair market value revaluation of the warrants totaling $5 7 million.
It is important to note that the company will continue to perform a review of the changes in the fair value of the warrants on a periodic basis, which will result in future gains and losses in our statement of operations.
A quick comment on income taxes pumping he didn't recognize any income tax expense or benefit in the third quarter 'twenty two or 'twenty 'twenty. One. This is solely the result of the company, having a full valuation allowance against the carrying value of its deferred tax attributes.
We consolidate the results of operations of western wholly owned entities into our consolidated results of operations.
Oh, five Valeant LLC, a joint venture a limited liability company and which we are the 60% majority owner and Valeant America LLC owns the remaining 40%.
The net income or loss in each of the presented quarterly periods ended September 30th 2022 and 'twenty 'twenty. One represents the portion of periodic income or loss attributable to the noncontrolling parties.
Finally, the net result of the previously discussed changes in revenue gross margin and operating expenses resulted in a reported net loss of $46 3 million or $17.33 per diluted share during the third quarter of 2022 compared to a loss of $9 8 million or $4 68 per.
Diluted share in the year ago quarter.
It is also important to note that the company with stockholder approval completed a one for 10 reverse stock split on October 18th 2022.
Accordingly, the company has retroactively adjusted all current period and historical equity and share based information included in our third quarter 2022 financial statements and disclosures to reflect this one for 10 reverse stock split.
Adjusted EBITDA amounted to a loss of $28 8 million during the third quarter of 2022 compared to an adjusted EBITDA loss of $5 6 million in the year ago quarter.
Additional information regarding our use of non-GAAP measures, including a reconciliation to the most comparable GAAP measures can be found in the press release, we issued earlier. This morning, which is also available on the Investor Relations section of our website at Www Dot aggregates dot com.
Finally, a few quick comments on on some other financial items. We ended the third quarter of 2022 with the combined amount of cash restricted cash and marketable securities of $12 5 million compared to a balance of $56 6 million as of December 31 2021.
Subsequent to the end of the third quarter of 2022. The company began issuing shares of its common stock under our previously announced at the market equity program.
As of November seven 2022, the company has sold a total of $6 million 132565 shares of common stock under the ATM program for aggregate gross proceeds of approximately $15 6 million in net proceeds after deducting commissions of approximately $15 1 million.
As of November seven 2022, the company had $34 4 million of remaining availability for future issuances of common stock under the ATM program.
As of September 30th 2022, the company is in compliance with the financial debt covenants associated with its restructured $35 million senior security senior secured promissory note.
That concludes the prepared financial comments and with that I will now turn the call back to Raymond for final comments.
Thank you Tim.
I'd now like to turn to our guidance for the remainder of fiscal year 2022.
Since we are deferring the $5 3 million a button there is revenue for the reasons stated above.
We are reducing our guidance down to 65 to 70 million.
Versus the original guidance of $70 million to $75 million.
In other words, if it wasn't for the five points three deferred revenue.
Would have been on track to deliver our previously guided forecasts.
I would now like to open up the call to questions. Operator. Please go ahead.
Thank you.
We will now be conducting a question and answer session.
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For participants using speaker equipment, it may be necessary to pick up the handset people before they seem to stall case, one moment. Please while we poll for questions.
Yeah.
Our first question is from Aaron Grey of Alliance Global Partners. Please go ahead.
Hi, Good morning. This is Remy Smith on for Aaron Grey like you for the questions you touched on this kind of a little bit in your opening remarks, but was there anything kind of more.
Our market share of retail sales data in the markets, where partners are selling products hopefully and it was then.
Do you have to use in those legacy states.
Just wanted to get a little bit more color on that so the data points demonstrate.
Hum flowing to retail sales thank.
Thank you.
Yes, so our.
Our customers.
In Nevada White clouds continue to sell through.
<unk>.
They had to do a restart because of.
There's some licensing issue, but they are basically coming back on track and so far the.
Flowers that they have been able to sell through the retail.
Have been deem as.
Very high quality and they continue to produce and Youll continue to go up and we expect.
Once the restarts.
Hmm come to fruition.
Yeah, but again sell at a very high premium in the Nevada market.
Great and then my second question regarding the extraction business you have a strong line of sight in terms of the pipeline, particularly as we were seeing a number of operators pull back on Capex is there any other factors.
Outside the macro might be impacting the extraction business, such as competing products and pricing.
We still continue to see very strong.
The pipeline as well as our momentum behind our extraction business.
As mentioned earlier.
The pipeline for our extraction business stands at over.
40 plus million dollars.
And we're seeing a very very strong rebounds.
In the fourth quarter.
Extraction Division and as mentioned also in Q3, Unfortunately, because of the tight cash covenants.
And also some customer.
Uh huh.
I wouldn't call it seven.
Delays on the completion of the facility construction.
Roughly about $3 million of business was kind of pushed into Q4, which we expect to ship this quarter.
So yeah. So we continue to see very strong momentum behind our positive momentum behind our <unk>.
Extraction division is definitely a rebound from that from quarter three.
And as I also mentioned earlier.
We continue to innovate with new products at the lunch. The PX 10, it's one and we will be also introducing additional new products.
Coming to the MJ biz as well.
Yeah.
Great. Thank you.
Our next question is from deliveries of Craig Hallum. Please go ahead.
Great. Thank you for taking my questions.
I was wondering if you could comment a bit on the extraction businesses.
The overall sort of demand that youre seeing for those products and then if are these sort of.
Taking those extraction products and really implementing the a control and visibility.
And to those and essentially creating.
A similar like T T K type offering.
For extraction, just wondering if that is still on me on the sort of near term strategy last year and just overall comments about the extraction business would be great. Thank you.
Yeah Eric.
Definitely.
We're seeing a rebound of the momentum.
Like I said for quarter four.
I think what's happening now is yes, obviously due to the macro.
Market condition.
In quarter three there were some hold back on the spending but.
But I think we're seeing a reversal of that trend.
Yes, even starting from from October timeframe, and like I said I think this quarter, we're seeing a very very positive reversal of that trend.
What is also actually very encouraging for us is that our partners.
And part sales and also e-commerce.
Our recording.
Probably some of the strongest.
Numbers that we have seen.
I think whats happening now is probably you know some people are just kind of.
Maybe making new purchases.
We're trying to basically retrofit some of their existing products.
And so we're seeing a very very strong parts and ecommerce sales.
All of our extraction division.
And we also see adoption of our new technology.
As I mentioned, we launched T X 10.
The latest technology innovation on the hydrocarbon side and.
Already we have three customers using this.
Using this solution and we're also seeing very very strong interest towards some of the other.
New product innovation that we're introducing into the market.
As to basically the.
Consistency in quality issue that you mentioned.
Absolutely that is something that we continue to work on.
And in fact, the ERP argue P program that we are rolling out as of today.
Actually gives customers the option to.
Q basically buy.
A an equivalent.
[noise] solution.
Beyond just cultivation, so they could actually buy complementary extraction total turnkey solution that we go for example, they purchased 56 via fused then we would basically do some calculation with them and depending on the type of products that they want you to produce we would then design.
And extraction lab that provides them with a complete solution. So that he could actually offer more products into the markets and I think that combination of cultivation and extraction are becoming extremely extremely attractive.
In fact, a lot of the RVP programs.
The customers are actually adopting or subscribing to this.
<unk> optional upgrades to take on both the extraction as well as the cultivation solutions.
We are not yet ready to basically launched PTK around extra around extraction, yes, most of the IGT programs that we're selling right now is still basically based on.
Basically just upfront cash sales, we still need to do a bit of work to be able to.
Trendy existing extraction equipment to be able to control remotely through cloud and once that is completed then we would be able to offer that U can K program because as you know very much similar to kind of the piece, we want to be able to remotely control.
It's always monitor the performance of the extraction equipment before we offer the TK program and that's something that we continue to work on.
Yeah.
Thank you.
Our next question is from Anthony Vendetti of Maxim Group. Please go ahead.
Thanks.
Just wanted to go over a couple of the the numbers are so quality. The did you say in qualified pipeline has about $31 1 million in cultivation and 45 point.
$9 million in extraction.
That's correct 31.1 and $45 nine.
Okay.
And usually or sometimes you give a backlog number.
I'm sure the signed contracts what was the what was the backlog number at the end of the third quarter.
Tim can you are.
You have the most accurate number Tim can you provide that please yeah, yeah, yeah, Anthony we actually did I gave that number as part of my script. So the backlog number as reported in my script was 646000.
As of the end of the third quarter, obviously, the majority of that being SaaS related fees and production based feed and that amount of that backlog number that represents about 90% of the total backlog number.
640000 million.
640 million, Yeah, I got it sorry I apologize.
Oh, Okay yeah.
And typically just reminds us Tim.
That's that's.
Over a 10 year period.
Typically how that gets recognized.
Yeah, but that's in production fees are predominantly over a 10 year period based upon the initial ttk engagements.
As we look at things like Raymond talks about the Rd program, a while those are point in time equipment sale. They also do come with some limited periods SaaS and production fee revenue, so that would be on a shorter string or a shorter timeline, but the majority of that SaaS and production is spread over 10 years.
Okay and then.
With the bloody Marys lawsuit can.
Can you can you talk about.
Where where that's currently at and.
You know I I know you'd probably don't have an exact timeline of how this is expected to relax these things could take sometimes years, but but have.
Have you had any settlement talks with them.
Could you maybe just give us an update on where you are without merit.
[laughter] Anthony as much as I would love to you no I don't think we are allowed to basically get into the details while the legal.
It is underway.
But what I can tell you is that we are.
Very very confident.
With that we will be able to recover.
100% of.
You know basically everything that we invested into this project.
And we have both the resources as well as the legal means to to go after this and as I mentioned earlier also that the project does come with both corporate as well as personal care and tea.
David Morgan, the founder and CEO of button bearings.
And.
The well unfortunately, while the depending lawsuit is still ongoing.
He was advised that we're not allowed to discuss too much of it but it is moving into right direction.
And we have all the resources as well as the legal means to recover.
Okay. So so.
So David Morgan founded primary suite, so it's not just the.
Commercial assets put but his personal assets that were part of the.
Of the agreement and you have the right in the contract.
True recovery.
Lost revenue or revenue that is due under that contract.
Through.
Mary's as well as his his personal assets.
That is correct. So the corporate guarantees we have both the corporate as well as personal guarantees.
On the corporate side.
They own.
The dispensary license.
Have a home delivery license.
As well as a two multiple cultivation licenses and product manufacturing license.
And as I mentioned earlier this is actually guarantee by not only corporate.
David Morgan.
The founder CEO personally.
Okay.
In terms of new business in terms of building a pipeline.
Uh huh.
And how has this lawsuit impact D.
Future business.
Oh, just take closed is it taking a little bit longer to close new business.
Hum.
Maybe customers are wondering what the issues are.
Or.
Have you seen a change at this point.
Okay.
So Anthony I think as we have kind of emphasize.
Given that kind of change in the market condition.
We have decided to.
It did not.
Invest further.
Into the Ttk project future Teekay projects at this moment, obviously the ones that we are committed to every single one of them. We have the resources to basically bring them to fruition right and Thats basically the.
The three that I talked about earlier, we have resources dedicated for a button berries and also we have other ttk projects such as Coca Cola leaf that we have allocated a few equipment towards.
So all of those projects, we will we are fully committed to basically bring to fruition.
Now.
Simultaneously, what is really picking up steam.
Is the rapid deployment program right.
Past Teekay as you know, it's basically enlarge long term investments that require substantial capital outlay.
From the company upfront.
And given the kind of the market condition today I don't believe that the market no longer has that sort of appetite.
The RTP program, it's really what is selling out there.
People can get started with $2 million to $3 million investments and in fact, if they.
They could get.
With even less capital they could just basically purchased eight of our V F.
And that's what they would have.
Sufficient biomass to maybe support one dispensary. So it really kind of gives the customers the flexibility to be able to scale over time and also not having to wait 12, 15 months large capital outlay to get projects going.
So this rapid deployment program is really what's picking up steam and unlikely ttk program, where it requires aggravated putting all the capital upfront and invest.
Our risk we are basically selling right all of the hardware with margin plus there's also recurring SaaS and production fees attached to it and I think this this new model, it's really what's resonating and even with very little marketing, we actually impact initially did not plan to you really.
Kind of sell this or market this until MJ biz, but as I mentioned earlier, we're already seeing tremendous traction in with MJ biz coming up.
I think it's just going to pick up even more steam so it's a pivot of our business model, which I think it's the right thing to do given the current market condition.
And people see that is completely different from the old TK model that.
Basically what it was kind of focused on.
Last year in first half of this year.
Okay and then last question is Tim you mentioned about some severance and and and.
The Dutch cost reductions cash.
Cash flow used in the quarter.
From operating activities was $8 5 million.
What's the cash with the cost reductions.
Are in place now what is the new expected.
Our cash flow use.
Tim have you modeled.
That would be or what you expect it to be a range for the fourth quarter.
Yeah.
Yeah. It's a good question, but I'm going to I don't we don't give cash flow guidance right, where we're not going to guide cash flow, you know where where.
Happy and pleased that cash flow from ops was only $8 5 million relative to what the historical track record and track record in Q1 and Q2 were.
But I will tell you you have to think about the question you asked as it relates to or in conjunction with.
The restructured debt agreement.
The terms of that debt agreement a state that the company is limited from a net cash spend point of view of $4 million in net cash flow spend per month and $8 million per quarter in aggregate.
So that is that is sort of the guide rails that we we have to operate on or under as we move forward through Q4 into 2023.
So given that I, just think relational eight to where we are right now.
What the parameters are of that restructured debt agreement.
You would expect that cash flow from ops number to be either consistent where it was in Q3 or.
Or lower as we move through Q4.
Okay. Thanks, I'll hop back in the queue.
Sure.
Our next question is from Scott Fortune Roth Capital Partners. Please go ahead.
Hey, Good morning. This is Nick on for Scott just looking for some color on your recent harvest metrics with the RT piece, such a rollout here I'm just wondering if you've seen any improvements you want to call out on the yield or the potency side and just kind of how youre looking at further improving the V. A few product moving forward here in this environment. Thank you.
Okay.
Yeah. So.
And next so basically the RVP program.
As I mentioned, we are just now taking orders so they have actually not been shipped we are expecting to shift some of the.
Existing orders in the coming quarter so.
So we don't not we do not yet have the operating metrics, but those are the Chi program, just yet, but they were using our traditional three six use so I would say that you can expect to pretty much get the same sort of results from the from the three six.
I've also mentioned earlier.
New $3 70, a few development is now complete and we can actually begin to ship. The three seven units in the first quarter of next year.
And we.
We believe that you could expect to have even better yields and results from.
From the new three seven.
Which we will also be.
Featuring and showcasing at the upcoming MJ Biz.
Okay. Thanks for that color and then just looking for an update on the status of your supply chain and whether or not you've seen those headwinds kind of begin to abate here.
Just if you could unpack the changes you've seen within your supply chain in this environment, but that'd be helpful too. Thank you.
Yeah, I think on the cultivation site we.
We have sufficient inventory.
To to.
To basically fulfill.
Our most immediate customer orders.
No.
From that perspective, I think supply chain is not going to necessarily affect our ability to ship things.
Yes.
I think construction delays are still maybe happening, but we're seeing that pressure.
Subside or basically do you see.
So we do expect that on the cultivation fronts.
Supply chain is quite not gonna be.
Too big of an issue.
On the extraction fronts, yes, we do see all kind of work with our vendors suppliers.
You know obviously in Q3.
Probably not so much of the supply chain issue, but you know obviously because of the cash.
Fendt Covenant, we weren't able to fulfill some of that orders, but I think that is something that we still have some public flights during quarter, four but but I think it seems like both.
Both internally and externally supply chain pressure is probably getting.
Getting resolved, but it's not completely but we definitely see some improvements around that.
Great. That's it for me I appreciate the color.
We have reached the end of the question and answer session.
I'd now like to turn the call back over to Amy Chang for any closing comments. Please go ahead Sir.
Thank you everyone for joining the call today and look forward to speaking next quarter.
Call them.
Again, I appreciate and look forward to.
Having giving everybody an update as we continue to.
Our focus on our execution and deliver results.
Thank you.
That concludes today's conference. Thank you for joining US you may now disconnect your lines.
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