Q4 2022 Clever Leaves Holdings Inc Earnings Call
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Good afternoon, and welcome to the Clipper leave Q4, and full year 2022 earnings call. All participants will be in a listen only my chicken D. N S C.
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I would like to turn the conference Ultrashape Ms. Jackie caching direct of Investor Relations. Please go ahead.
Good afternoon, everyone and thank you for participating in today's conference call to discuss <unk> financial results for the fourth quarter and full year ended December 31st 2022.
Joining us today are cleverly CEO Andre the hurdle and the company's CFO .
Before I introduce Andre I'll remind you that during today's call, including the question and answer session statements that are not historical facts, including any projections or guidance statements regarding future events or future financial performance or statements of intent or belief are forward looking statements and are covered by the safe Harbor disclaimers contained in today's press release.
And the company's public filings with the SEC.
Actual outcomes and results may differ materially from what is expressed in or implied by these forward looking statements.
Specifically, please refer to the company's Form 10-K for the year ended December 31st twice me too, which was filed prior to this call as well as other filings made by cooperating with the SEC from time to time.
These filings identify factors that could cause results to differ materially from those forward looking statements.
Please also note that during this call management will be disclosing adjusted EBITDA.
The gross profit and adjusted gross margin.
These are non-GAAP financial measures as defined by SEC regulation G.
Reconciliations of these non-GAAP financial measure to the most directly comparable GAAP measures.
Statement disclosing the reasons why company management believes that adjusted EBITDA growth.
Gross profit and adjusted gross margin provide useful information to investors regarding the company's financial condition and results of operations.
Included in today's press release that is posted on the company's website.
With that I will turn the call over to Andre.
Thank you Jackie and good afternoon, everyone.
Our fourth quarter and full year results reflect the strategic progress we have made across our target markets as well as the development of a leaner more efficient operational foundation for our business.
Of course, our key metrics our full year performance came in line with our revised 2022 financial outlook.
The 90% year over year growth that we generated within our kind of business for the year allowed us to exceed or we buy public guidance targets, even as we continued to experience revenue headwinds stemming from broader macroeconomic pressures in our non kind of a nice business.
From a cost perspective, we expect that the steady expense reduction and restructuring initiatives, we implemented throughout the year will allow us to operate with greater operational and capital efficiency.
We continue to progress our strategy, we remain focused on further optimizing our foundation in 2020.
At the outset of 2022, we announced a refined strategic focus for cleverness in this.
The approach we outlined our commercial efforts on the next set of international markets with near term catalysts, and we work diligently to optimize our cost structure and balance sheet to best support these pricing opportunities.
I am proud to say that we made progress on these fronts during the year on.
On the commercial side, you announced several new partnerships for our extra flower products.
We activate it ramped and expanded some of our key commercial pathway across our target markets, Australia, Brazil, Germany and Israel.
In addition, we welcomed the completion of Colombia's regulatory framework for dry flower exports and continued our preparations for launching our own commercial flower shipments out of Colombia.
One significant recent strategic step we announced earlier this year is the wind down of all of our operations in Portugal, and transitioning our operational focus solely to Colombia.
In line with our ongoing restructuring initiatives, we've worked to have or Portuguese, Florida cultivation, and post harvest processing and manufacturing activity in full by the end of the first quarter 2023.
Currently we're exclusively cultivating our flower strengthening Colombian greenhouses, but we expect to leverage our expensive mature environmentally sustainable and cost effective production infrastructure.
With over one 8 million square feet of fully built out cultivation capacity and the GMP certification for the production of both cannabis extracts and dry flower.
Have significant capacity to meet consumer demand and reach our key international markets.
In addition alumnus lowered cost structure and agricultural climate continues to give us a critical competitive advantage, allowing us to drive greater production and cost efficiency.
Yeah.
With our existing production infrastructure, we believe we are well positioned to ramp quickly in Colombia to serve our global customer base, while maintaining our focus on growing premium on commercially viable strange.
As we have previously shared we expect Columbia flower sales to be a significant avenue of growth for us this year as well.
We work diligently to improve the quality and T. Corrector ticks off of flowers that just yet she come to Turkey profile, but size and density.
Our Colombian operations How's the genetic discovery and development platform comprising.
Strange from major academies brands in each household products and we expect that successful outcome from the program will expand as we accelerate our dry flower production and continue making keep product market fit improvements where our core geographies.
We're currently on track to computer first commercial flower shouldn't from Colombia to Australia by early in the second quarter. We have completed some really test shipments with a focus on scaling our shipping process. Once their initial commercial shipping is complete.
With our first commercial shipment targeted for Australia, we've been named to ramp shipments to Germany. The U K a nice rule by the end of the second half of this year.
We believe our robust and efficient foundation in Colombia will allow us to optimally lunch, our flower exports, while supporting the continued growth of our extra business.
Have continued to focus exclusively on THC flower product development, while using our existing inventory for extra sales week.
Have significantly reduced our Colombian harvest year over year minus theme and to rebuild that and focus on the right strengths and these decreasing new harvests are ongoing extraction and processing costs and the forthcoming incremental cost contributions related to harvest and post harvest processes for dry flower will.
Pressure, our all in cost per Gram in the near term.
However, we believe that right sizing our inventory levels will allow us to be efficient with our cash spending.
Having some reduction in cost to produce or kind of like products as we do not have the higher expenses related to our Portugal operations going forward.
The operational footprint optimization, which resulted in the wind down of our Portuguese operations was part of a broader effort. We have been working on to optimize for cashews in March we went through a leadership change that resulted in a profound restructuring of the company's executive team at the top level organization, which was in line with our focus.
D for profitable growth.
Similarly, we reduced and right type head count across all of our operations up to my spending across all our functions and reassess all capex projects, resulting in an 82% capex reduction as compared to 2021.
From a balance sheet perspective, we paid off two of our largest for many pieces of debt in sum we implemented restructuring activities that we believe will allow us to drive greater cost and cash savings in 2020.
Finally in our non kilometer segment, we experienced some headwinds across certain channels as retailers reduced inventory levels at the warehouse level.
During the fourth quarter. This primarily occurred across our smoke shop and alternative channels are nearly all of our channels saw reduced volumes as a result of broader macroeconomic pressures on consumer spending.
To help mitigate these effects with implemented select pricing increases and we're closely monitoring how macroeconomic conditions evolve over the coming months.
That said, we believe that the depth and breadth of our retailer and distribution relationships to help us navigate further variability in this segment.
With the significant improvements we've made toward cost structure and the minimal capex required by our Colombian operations. We have built a leaner operational framework for this business one that I believe will allow us to make great progress towards cash flow positivity.
From a commercial standpoint, do you expect to concentrate our efforts on the core targeted markets keep announced for this year, Australia, Brazil, Israel, Germany, the United Kingdom.
We built upon the market path, which we have developed and position ourselves for additional near and long term catalysts in these markets going forward.
I will describe our opportunity set objectives in these markets in greater detail later in the call, but first I'd like to turn the call over to our CFO and he will discuss our fourth quarter and full year financial performance in greater detail.
Okay.
Thank you Andreas starting with our quarterly results our revenue in the fourth quarter of 'twenty 'twenty to increase 10% to $4 6 million compared to $4 2 million in the year ago period.
Our cannabinoid segment revenues grew 71%.
Year over year, as we continued to ramp commercial pathways across our core markets.
In particular, we have continued to gain traction in Brazil, as we increase sales of our approved products. We have also generated momentum in Australia and had solid contributions from sales of our API and Israel.
As Andres mentioned, we continued to experience softness in our non cannabinoid segment revenues as a result of inventory reductions across most of our channels as.
As well as the timing of inventory orders.
Our distributors this primarily reflected broader macro economic headwinds and we are working closely with our partners to mitigate these pressures through select pricing increases.
Marketing measures and other initiatives.
As these conditions persist we are working to improve our visibility on how sell through dynamics may evolve within our distributor network.
Our all in cost per Gram of dry flower equivalent in the fourth quarter of 2022 was $3.46 per gram compared to 47 cents per gram in the year ago period, the year over year increase was driven by our significantly reduced harvest in Colombia.
As well as the costs we have incurred.
Related to processing, our existing inventory for extracts sales are.
Our fourth quarter cost per Gram also reflects higher expenses related to our Portugal operations, which we are in the process of winding down.
In Colombia, we have continued to focus on right sizing, our harvest and preparing for smokable dry flower exports. This includes focusing exclusively on th C harvests, rather than hemp, and CBD and thereby continuing to use our existing hemp and CBD inventory.
For extraction.
We believe that our costs will ultimately moderate to more advantageous levels as we ramp dry flower production to meet customer demand.
We also expect our flower products to eventually comprise a greater share of our product portfolio and that our extra costs will remain at similar or lower levels to what we've driven historically.
Following the announcement of our wind down in Portugal, we expect to leverage the cost advantages, we've been able to drive in Colombia.
Where our harvest production costs have remained low due to optimal environmental conditions and the maturity of our operations.
Consistent with what we have announced in January our flower cultivation in Portugal has now fully ceased and we are solely cultivating our flower products in Colombia.
Okay.
Our gross profit in the fourth quarter of 2022, which included an inventory provision of 0.9 million improved two 0.7 million compared to negative zero point $3 million in the year ago period, which included a 3 million dollar inventory provision.
Our adjusted gross profit, which excluded the inventory provisions was $1 6 million in the fourth quarter of 2022 compared to 2.7 million in the year ago period.
This reflects an adjusted gross margin of 35, 2% compared to 64, 1% in the year ago period.
The increase in our gross profit reflects our revenue growth and lower inventory provision compared to the year ago quarter, while the margin impacts reflect the continued revenue headwinds we've experienced within our non cannabinoid business.
Within that segment. We have also continued to mitigate margin pressures from wage inflation.
Rising transportation costs, and both labor and material availability.
We will continue monitoring these impacts and the broader status of labor and supply chain conditions as we progressed further into 'twenty twenty-three Inc.
In conjunction with our restructuring plan, we recorded a total restructuring charge of $26 9 million in 2022.
Which included $23 1 million in restructuring charges during the fourth quarter.
This charge is primarily related to the Portugal wind down inclusive of expenses related to severance and employee benefits certain cash expenditures provision for inventory that will not be sold real estate and equipment costs, which comprise of lease impairment.
Along with property and equipment abandonment charges.
Within the wind down process itself, we've completed the bulk of our staff exits. This month, we expect restructuring cash expenditures to persist through the first half of 2023 we expect to start seeing cost savings by the second quarter and we believe we will be at a lower cash.
The true run rate starting in the third quarter taken.
Taken together with this timeline in mind, we expect our operational transition to Colombia, and workforce reduction in Portugal to meaningfully reduce our cash burn going forward.
Operating expenses in the fourth quarter of 2022 were $29 5 million compared to $29 9 million in the year ago period. The operating expenses during the fourth quarter were driven by the $23 $1 million restructuring charge primarily related.
To the wind down of our Portugal operations.
Note that operating expenses in the fourth quarter of 'twenty 'twenty. One include the impact of an $18 5 million dollar noncash goodwill impairment charge, we recorded that quarter related to the acquisition of our Colombian operations November 2019.
Net loss in the fourth quarter of 2022 was $28 8 million compared to a net loss of $24 million in the year ago period.
This was driven primarily by the $23 $1 million restructuring charge, we recorded during the quarter.
Net loss in the year ago quarter included the impact of <unk>, 18, and a half million noncash goodwill impairment charge.
You need to higher noncash share based compensation expense inventory provision and noncash interest expense recognized in connection with the conversion feature related to our 2024 convertible notes with Catalina L. P. Net.
Net loss in the year ago quarter was partially offset by the gain on remeasurement of warrant liability.
And continued cost cutting measures adjusted EBITDA in the fourth quarter of 2022 was negative $5 2 million compared to negative $6 6 million in the year ago period.
This was mainly due to our ongoing cost reduction measures.
The cost improvements we implemented throughout 2022 have contributed towards our reduced adjusted EBITDA loss.
Yeah.
At December 31st 2022, our cash balance was $12 9 million compared to 37.7 million at December 31st 2021.
The decrease was primarily attributable to operating losses, working capital needs and the repayment of $23 1 million in debt obligations during the past year.
This was partially offset by net proceeds of $26 3 million raised in our aftermarket stock offering during 2022.
As well as by 2.5 million in proceeds related to the partial sale of our equity investment in cancer Tivo.
Note that we did not have any new stock issuances under our at the market offering during the fourth quarter.
As noted in our public filings, including our 2022 10-K, there is substantial doubt about our ability to continue as a going concern.
Our ability to execute our operating plans through 2023 and beyond depends on our ability to obtain additional funding.
Which may include several initiatives, such as raising capital reducing working capital.
And monetizing noncore assets.
Throughout 2023 our goal is to further improve our liquidity position through reducing our expenses and investment in working capital as.
As we work to complete the wind down process for our Portugal operations. We are also preparing for the sale process of these assets.
Our goal is to complete the sale of the remaining assets in Portugal. During this calendar year, which we expect to provide some additional non dilutive capital to the business.
We will provide further updates on the wind down and sell process as it moves forward in the coming quarters.
Now briefly turning to our full year results.
Revenue in 2022 increased 16% to $17 8 million compared to $15 4 million in 'twenty 'twenty. One the increase was driven by increased sales in our cannabinoid segment.
In part offset by a slight decrease in our non cannabinoid segment.
The growth in our cannabinoid segment sales reflects continued expansion of sales activity and selling more products, which have higher margins.
The decreased sales in our non cannabinoid segment were driven by current economic challenges.
By mass retailers and.
And especially distributors during the year ended December 31st 2022.
All in cost of dry flower in 2022 was 87 cents per gram compared to 22 program in 2020 one.
The increase was primarily driven by our significantly reduced agricultural output in Columbia and continued extraction processing costs on current inventory in Colombia.
During the year cost per Gram also reflected higher expenses associated with our Portugal facilities, which we are in the process of winding down.
Gross profit, which included an inventory provision of $4 7 million was $4 3 million compared to $6 8 million in 2021 which included an inventory provision of 3 million.
Including these inventory provisions our 2022 gross margin was 24, 3% compared to 44, 3% in 2021.
The decrease in gross profit is attributable to higher inventory provision as well as the revenue headwinds and labor and supply chain related cost impacts within the non cannabinoid segment.
Adjusted gross profit was $9 1 million compared to $9 8 million in 2021.
Selecting a 59% adjusted gross margin compared to 63, 7% in the year ago period.
Operating expenses in 'twenty, 'twenty, two or $79 4 million compared to $64 million in 'twenty 'twenty. One the increase was attributable to the $26 9 million restructuring expense that was primarily related to the Portugal wind down.
As well as the $19 million noncash intangible asset impairment charge, we recorded in relation to our Colombian cannabis related licenses in the third quarter of 2022.
This was partially offset by the cost reductions we drove during the year as our combined G&A and sales and marketing expenses decreased 30% year over year.
As a note for the prior year operating expenses in 'twenty 'twenty. One included the impact of the $18 5 million goodwill impairment charge, we recorded during the fourth quarter of 2021 related to the acquisition of our Colombian operations.
Net loss in 2022 was $66 2 million compared to a net loss of $45 7 million in 2020 one.
The increase was driven primarily by the $26 9 million restructuring charge, we incurred in 2022, along with the $19 million intangible asset impairment charge related to our Colombian cannabis licenses in the third quarter of 2022.
Net loss in 2021 included the impact of the $18 $5 million goodwill impairment charge I just mentioned for the fourth quarter of 2021.
In addition to higher noncash share based compensation expense, the aforementioned inventory provision and a noncash interest expense recognized in connection with the conversion feature related to the 'twenty 'twenty four convertible notes, partially offset by a gain on remeasurement of warrant liability.
And continued cost cutting measures.
Adjusted EBITDA in 2022 was negative $23 1 million compared to negative $23 7 million in 2021 the.
The improvement was mainly driven by sustained cost reductions we drove throughout 2022.
As we progressed into 2023, our execution on our refined growth strategy has positioned us to further support our commercial momentum and operate with greater operational efficiency.
Our sixth strategic growth objectives, and key regions of focus will support these full year 2023 targets, we expect our full year 2023 revenue to range between 19 million and $22 million.
With an expected adjusted gross margin of approximately 58% to 63%.
In addition, we expect our 2023 adjusted EBITDA to be within the range of negative $13 6 million to negative $10 6 million.
As we continue to focus on driving capital efficiency and expense reduction, we expect to incur approximately 0.5 million to 0.7 million in capital expenditures for the year.
Which represents an approximately 50% reduction compared to our 2022 capex.
This concludes my prepared remarks, and now I'll turn the call back over to Andreas to review, our 2023 market opportunities in greater depth on dress.
Thank you Henk.
Before we open the call to questions I'd like to provide a quick overview of our strategic objectives in 2023.
Our three main strategic priorities. This year are our focused commercial strategy, our low cost high quality production in Colombia, and a continued work towards optimizing cashman.
Starting with our focused commercial strategy, we will continue to align our commercial efforts towards a concentrated set of international markets as I mentioned earlier in the call. These markets are Australia, Brazil, Germany, Israel, the United Kingdom and Columbia.
In Australia, our flower has historically been successfully in this market due to its high THC constant chirping profile and baptize having.
Having originally cultivated these strengths in Portugal, we've leveraged our learnings from this group duration in our dry flower preparations in Colombia.
The strong product market fit we've already achieved has allowed us to continue shipping much of our remaining Portuguese flower to our street and it has also helped made the country a priority market for our initial commercial flower shipment from Colombia.
We are underway with final lesson about preparations for a ship and we are.
Expect to continue ramping the new <unk>.
Australia and partnerships, we had four extra and flowers throughout 2020.
In Brazil, we expect to continue ramping export shipments, which grew nicely in Q4 and I expect it to be a strong driver for us this year.
We have continued to complete additional sales under our D. C 327, our products have been available for sale among babies proceeding pharmacy and since the middle of last year.
After several though for products were approved for the market entry of their countries stringent regulatory framework.
We seek to expand our foothold in this market as we support momentum in our current agreements and pursue additional product approvals.
Moving to Germany part of our Colombian flower preparation in both refining or flower, we're using our kind of breath. After previously cultivating flowers for the brand out Unfortunately.
After initially supplying CBD dominant products to Germany, we've secured partnerships to supply flower strengths with high THC.
On the distribution level, we build relationships with prescribing physicians as we grow our absolute sell through virus pharmacists and generates decision to met.
We've discussed throughout 2022.
We have multiple pathways students prominent European market.
Young developing via kind of brand, we secured our status as a licensed medical cannabis distributors and as a valued partner to buyers see some pharmaceutical operators and distributors in the country.
We currently expect to launch Colombian flowers sales in Germany. During the second half of this year, leveraging our I cannot breath on our BTB partnerships in the meantime, we will continue to support additional product sales recruiting extra b to b partnerships.
In Israel, our partnership with inter careful field, one of our key strategic objectives for this market in 2022.
Securing a commercial scale flower ingredients.
We have worked to adapt to this market's evolving product requirements to ensure we fulfill the pharmaceutical grade specifications required.
As we prepared to launch Colombian flower sales in this market by the second half of this year and work to maintain sales momentum for our extra and epi.
We also continue to see opportunities for helping Israel domiciled cannabis companies internationally.
Both from a distribution and production stuff.
Our large production capacity and deep market knowledge allows us to be a nimble partner and provide optimal product quote.
One new target market for us in 2023 is the United Kingdom.
As we disclosed last quarter with sports some ready commercially routine this martin.
According to a recent report from the Peterborough Telegraph prescriptions of medical cannabis by doctors across England have grown 56% over the past year.
This increased demand presents a promising opportunity for us with our proven ability to produce at pharmaceutical grade while at the levels and develop strong pharmacy oriented distribution networks, we expect to be flower exports to the U K by the second half of this year and look forward to providing additional updates on the opportunities that arise in Bismarck.
Yeah.
Finally, we expect to propel further growth from the deep and extensive boots with built in Colombia.
The country itself, we believe the domestic canopies market presents a growing opportunity for us and it has become one of our focused markets for 2020 three.
As of January 1st 2023, Colombia, So universal coverage health care system, it's medical cannabis and prescribed medical cannabis derivatives, I say reimbursable therapy, and we aim to sell product into a local market as we leverage these new regulations.
The Colombian saying it also approved a nationwide Marty one of them the compensation Bill in December after the Bill had previously received initial approval in the chamber of Representatives.
We welcome these regulatory developments closely monitoring further progress and we believe our mature operations in Colombia give us a strong position in the market as it expense.
Staying with Columbia, as we move to our second growth objectives.
We'll leverage the low cost high quality production infrastructure, we've built in Colombia to support our commercial efforts as we are concentrating our operations in Colombia. Our focus is to continue expanding our already successful electric portfolio and commercially launched of high THC flower.
Producing in Colombia.
With our advantageous scale operating experience and factory cost in Colombia, we seek to drive improvements in our margins during 2020.
As for our third growth objective optimizing cash management.
We're focused on improving our balance sheet as we work to accelerate revenue growth and leverage our low cost unit economics in Colombia.
As Hank mentioned, we have multiple potential pathway towards seeking additional funding.
And we are making these evaluations alongside our continued work to reduce our operating expenses and capital intensity.
You're seeing a robust production infrastructure in Colombia are more streamlined cost structure and the various international markets patents. We have activated we are continuing to develop a strong runway for long term growth.
I am proud of the progress we have made and we aim to continue ramping our commercial opportunities and driving towards greater cost and capital efficiency in 2023.
We will now open up the call for Q&A.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
We are using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press star.
We will now pause briefly for.
For questions to be registered.
Yeah no questions registered at this time I'll now hand back to Mr. <unk> for closing remarks.
Oh, Thank you very much I'd like to thank everyone that attended the call today and look forward to speaking with our investors and analysts when we report our first quarter results in May.
That does conclude our conference for today. Thank you for participating you may now disconnect.
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