Q4 2022 Flora Growth Corp. Earnings Call
Everyone and welcome to Fluor group's 2022 year end earnings results webcast I'm, Jessie Kazmer, Chief marketing officer for US before we begin I'd like to note that the webcast is being recorded and will be published for viewing shortly after the end of the webcast on.
On the call with me today are Luis merchant, Chief Executive Officer, and Chairman of the board as well as <unk> Chief Financial Officer today, we will be discussing the results of fiscal year 2022. Once we complete our prepared remarks, we'll begin the Q&A session. Please feel free to use the Q&A function within the webcast.
On Friday March 31, our audited financial statements and earnings release for the period ended December 31, 2022 were filed with the SEC under the cover of our Form 10-K copies of both can be found in the Investor Relations section of Flores website and on Edgar I'd like to remind you that during this webcast management's prepared remarks may.
Contain forward looking statements, which are subject to risks and uncertainties.
Looking statements do not guarantee future performance and therefore undue reliance should not be placed upon them for a detailed description of the factors that could cause our actual results or business to differ materially from any forward looking statements made please see our 10-K the company undertakes no obligation to publicly correct or update the forward looking statements made during.
The presentation to reflect future events or circumstances, except as may be required under applicable securities law.
In addition, today's call.
Further we will refer to certain non U S. GAAP financial measures such as adjusted EBITDA adjusted gross profit and adjusted gross margin, which do not have any standardized meaning prescribed by U S. GAAP. Please refer to our filings for the calculation of these measures and reconciliation to the most directly comparable measures calculated and <unk>.
In accordance with U S. GAAP. These non U S. GAAP financial measures should not be considered superior to as a substitute for or as an alternative to and should not be considered in conjunction with the U S. GAAP financial measures presented in our financial statements. We would also like to note that all previous filings were reported under Ifr.
And included non <unk> measures such as adjusted EBITDA, We may reference and compared to previously reported <unk> based results and with that I will hand, it over to chairman and CEO Luis merchant.
Thank you, Jeff before the intro and good morning, everyone. We appreciate the early day and the time you have taken to be with us today.
I'm proud to share the results from fiscal year, 2022, where we not only met our revenue guidance by delivering a record $37 $2 million in topline, but we also closed Q4 with $11 $5 million in revenue, making it the highest revenue generating quarter and year for the company to date.
This performance is the result of the effectiveness of our strategy the compelling value proposition of our products and our house of brands the completion and integration of our pivotal M&A transactions and the operational milestones we achieved throughout the year.
2022 was up transformational year for Florida that put us put in place the building blocks that will allow us to realize our mission and more than double our revenues in 2023.
It's incredible to look back just a 2019 were Florida was pre revenue now in 2023, we have the potential to become $100 million revenue generating company.
2022 was not without its challenges of course, it's important to note. All we have accomplished despite having to navigate one of the most hostile business environment to date specialty for the cannabis industry.
But in a nascent industry such as ours challenging years are critical in ensuring that company is built for the long haul those built with long term share holder value in mind or those that will rise to the top.
Ongoing pressures in the industry start to help us fine tune our operations streamline the business and allow us to take advantage of and involved in M&A market.
In 2022 in addition to prioritizing revenue achievement, we work towards three key goals. The first was the deployment of our strategy.
And our three pillar approach, which which we announced last year.
This continues to be our roadmap each pillar of our house of brands commercial wholesale in pharmaceutical development represents a critical area of growth for the industry.
Provides us with diversified revenue streams and allows us access to nearly every major global cannabis market as cannabis reform continues to proliferate.
This is also informed our reporting framework as we convert from a foreign private issuer to a U S. Domestic filer as you will see in our filings.
Now not only report performance at the company level, but by pillar as well, providing better transparency and clarity to the core of our operations.
In 2022, we also prioritize a reduction of operational expenses, especially as the industry weathered macro and microeconomic headwinds and while there is meaningful work left to be done on this front. We believe we have the plan needed to continue optimizing our cash outflows and streamlining our operations for better efficiencies.
And perhaps most importantly, we knew we needed transformational M&A activities to prepare us for the realization of our mission at the end of 2022, we completed the acquisition of franchise Global Health a multinational cannabis company with primary operations in Germany. We're now actively integrating the German operations to realize their value.
They're assisting network of 1200 pharmacies.
28 countries of distribution and to only academy supply chain from Colombia to Germany.
The acquisition of franchise.
Apples with the Q1 2022 acquisition of just CBD have fundamentally changed the makeup of our business, giving us expanded reach and diversifying our supply chain and distribution networks, both domestically and internationally.
Throughout last year. The team worked diligently to achieve these goals and realize our ambitious revenue guidance. Our house of brands continue to show incredible traction in domestic and international markets. We saw the first exports of candidates and derivatives from because it Jim was farming Bucaramanga, Colombia and.
We completed the construction of our compound prescription pharmaceutical lab in Cologne in Colombia, but without all of these milestones brings us to today, where we are poised to be a leader on the international stage.
With that I'd now like to pass it off to our Chief Financial Officer Al should variety of to discuss the financial performance for the year.
Thank you Louis I would like to begin by reiterating that Florida is no longer a foreign private issuer and we officially moved to U S. GAAP reporting standards as of most recent filings as such we look forward to providing you with updated growth and performance metrics that more clearly.
Aligned with our.
So our strategy turning to the full year 2022, we were able to generate close to seven $2 million in revenue, representing 314% increase year over year.
This was primarily driven by our our soft brand businesses.
When we examine in fourth quarter of 2022 revenue growth of 11 $5 million, representing 7% sequential increase from Q3 when approved bolstered primarily by organic growth gross profit.
Or 2022.
<unk> increased by 494% to $14 $4 million with continued to see significant expansion in our gross margin compared to the prior year, which increased from one 7% for certain 9% increase in gross margin was primarily due to say into.
Creation and revenue recognition of higher margin acquired businesses, our Aqua our operating expenses for a period were $6 to $7 7 million of which almost half were non cash charges, including impairment charges of $26 4 million.
Impairment was primarily.
Related to the household brand acquisition that was impacted by a recent decline in market conditions and companys share crop.
Other non cash items in our operating expenses, including.
Depreciation and amortization.
Depreciation and amortization purchase price allocation and share based compensation charges. Gross expenses include operational charges from our charts brands business unit, which was acquired in February .
And in 'twenty, two and M&A related transaction charges, notably operating expenses as a percentage of sales decreased when compared to last year company also disclose adjusted EBITDA non U S GAAP measure, which excludes certain noncash and other non recurring charges.
We believe adjusted EBITDA provides meaningful and useful financial information has been measured.
As a measure demonstrate business' operating performance for the period Roto reported adjusted EBITDA loss of $18 3 million.
An increase of 11% when compared with spending 21, it's important to note that this increase occurred while company simultaneously increased revenue, 314% year over year.
Adjusted EBITDA margin.
The 2022 experienced meaningful improvement as compared with 2021, while net loss for the period was <unk> 52.
$52 6 million compared to $21 4 million in 2021 net loss margin for full year 2022 improved to negative 141, 6% from negative 207 237 nine <unk>.
In fiscal year 2021.
Capex since a year decreased to one 3 million.
Decrease was primarily driven by completion of some larger projects in 2021, such as build outs of Casa chums cultivation facility.
While 2022 capital expenditures include the smallest scale projects focused on activating our cultivation facility and investments in Proto labs.
Turning to our balance sheet.
As of December 31st.
22, cash and cash equivalents were nine 5 million. This represents a decrease from our December .
So it took us 2021 cash position of <unk> seven points.
$6 million primarily.
Primarily attributed to roughly $260 million cash paid for the acquisition of just CBD as well as higher operating expenses related to sales and marketing.
Of acquired businesses, one off cash expenses and M&A related charges I will now hand, it over to our Chief marketing Officer, Jessica Kastner to cover our household brands update.
Thanks, Lasalle side too.
2022 is a standout year for the house of brands Division, having driven the majority of the company's revenue.
Turning to adjusted to the acquisition of that company proved to be exceptionally accretive as we look at the contribution and synergies realized across the roughly 10 months of our ownership in 2020.
And while many other players in the CBD space have seen contraction in their business just CBD continues at a healthy growth rate.
CBD achieved a record breaking sales during the Black Friday sales event in Q4, making it the most successful sales event and the brand fifth Street.
Due in part to the new all in one Dateline introduced in Q4, which has quickly become a customer favorite.
The fourth quarter also saw the expansion of our already popular CBD product line with new flavors potencies quickly, becoming a top five best seller since its original launch in Q2 of 2022.
Your line of products was developed to reacquire, a large an undervalued audience segment as nearly 20 million potential customers, who had previously reported that their experience with CBD from a myriad of brands didn't meet their expectations with new research in CBD its mechanism of action as well as innovation and extraction and formulation phase.
Production the team developed a new offering set up more actionable dosage is designed to leverage the entourage effect, a full spectrum hemp and deliver a better experience for our customers.
Looking at vessel the team delivered on their ongoing commitment to supporting our communities by partnering with the Arbor Day Foundation, therefore committed to planting 5000 trees in just three months by a by one plant one program and we're proud to say that the vessel community help exceed that goal in the fourth quarter that will also launched new products in the <unk>.
<unk> category, which leverages vessels patent pending <unk> technology. The launch of these products help drive category had an all time revenue high in the fourth quarter.
Also pleased to report that the synergies between just CBD and vessel brands continued to bear fruit in the fourth quarter with the launch of our co branded line of products.
His limited edition battery collection featured two top selling vessel form factors and jazz CBD signature color ways and branding. The collaboration resulted in the most successful co branded product launch and therefore history and one of the staff to sell through Timeframes for any one product franchise.
And the food and beverage category Monday, our line of natural fruit juices can food servicing Latin America secured the rights to sell non cannabinoid juices into the one belt as coffee chain.
The agreement finalized in December provides access to the most well known coffee brand to come out of Colombia, and which goes to over 300 outlets across the country.
Reflecting on 2022, our priorities were to integrate just CBD and vessel into the broader organization identify synergies, including expanded distribution opportunities leveraging our new network of doors and to streamline operations and logistics across all brands. We are pleased with the progress made on on all of our key initiatives and the overall performance of this.
Critical pillar as we look ahead to 2023, we expect this pillar to contribute approximately 45% of our overall revenue target and for our brands to continue their organic trajectory I'll now pass it back to Luis to elaborate on our cultivation and commercial wholesale business.
Okay.
Okay.
Okay.
As we look at our commercial and wholesale operations through the lens of our cultivation 2022 was punctuated by three key moments. The first one was April 1st when the Colombian government allowed licensed producers to begin planting high THC flower for exports.
Okay.
The second one was late August when plants began coming out of the ground for testing on processing and the third one was October when they first product began leaving Colombia for other licensed geographies product harvested and processed in Q4 is now in our partner facility in Portugal going through E&P, Mr realization of stabilization.
<unk> and with follow on product shipments on their way and earmark for distribution in critical geographies like Australia, and Germany as.
As we look at wholesale distribution our acquisition of F. G. H has meaningfully accelerated our path to the Germany European markets with one of the first cannabis distribution licenses ever given on a network of 200 pharmacies, Florida is now better positioned than ever to capitalize on the opportunity presented in Europe , we have.
Spec that the acquired distribution business will be the primary revenue driver and of this pillar this year contributing up to 45% of our total top line as.
As a leading global cannabis organization, we have gained a comprehensive understanding of the complexities and significant barriers of entry into the international kind of a supply chain. The movement of candidates from point a to B is highly intricate and very few players across the globe persistent knowledge and relationships with the <unk>.
Regulatory agencies required for successful navigation.
However, our organization has built strong relationships and gain valuable insights, allowing us to effectively navigate this complex landscape.
Now back to Jesse for a review of our pharmaceutical pillar.
Thank you Luis.
Looking at our pharmaceutical pillar of the team continued to make progress in 2020 share with our global research and development efforts as well as the completion of our Florida lab for facility in Colombia.
The team is led by Dr. Ana Belmond La Morgan and completed all preclinical work for the study being conducted in conjunction with the University of Manchester in the UK. The study will explore the use of proprietary cannabinoid formulation in patients suffering from muscular skeletal pain, and we're leveraging novel measurable pain data collection techniques with the help.
EEG readings currently the study awaits agency approvals in order to progress and.
In addition to the work we've initiated in the research.
<unk> also completed the construction of floor lab for which is a 2300 square foot state of the art facility in Bogota.
Specializing in custom formulations and the compounding of candidates prescription medications.
<unk> completed its <unk> inspection and approval process and no doctors around Colombia can prescribe eight proprietary candidates based formulations that are fully covered by the Colombian sponsored health care system, we expect to see revenues from this lab beginning in Q2 of this year.
We expect this pillar to contribute up to 10% of the total revenue in fiscal year 2023.
While we know the future of the industry lies in the transformation of candidates into mainstream medications our investment in this pillar will continue to be commensurate with the revenue it generates.
That completes our operational updates from our core business units I'll pass it back to release for closing remarks.
Yeah.
Okay.
I want to thank all of you again or attending today's.
Webinar about 2022 was a transformative year for our company was marked by acquisition.
Acquisitions by improved growth metrics and diversified revenue streams, our strategy has proven to be a roadmap for success, providing florida with access to nearly every major market in the cannabis industry. Our brands continue to show impressive traction in both domestic and international markets are expanding reach and diversified supply chain.
<unk> positions us well to become one of the top global cannabis company.
Companies today, I remain more confident than ever in Florida opportunity to not only be one of the largest players in the international cannabis industry, but to change the global landscape of candidates as we connect consumers with world class products distributors with medical grade cannabis and patients with the medicines that they need with record setting.
Revenue in the fourth quarter and the year, we have established a strong foundation and the necessary momentum to achieve our revenue guidance of 90 million to $105 million in 2023.
As always I'd like to close by offering our sincere. Thank you to our customers our shareholders our board of directors and the entire Florida team and with that I'm going to pass it over to Jesse So we can open up the Q&A.
Thank you Luis and thank you else had felt this completes our prepared remarks on the performance of Florida in 2022, and we will begin our Q&A session. So let's begin with Aaron Grey from AGP I'll go ahead and.
And by air into the call.
Okay.
Hi, Erin.
Hi, Good morning can you guys hear me okay.
Can.
Alright fantastic.
Thanks for the questions today.
So first question for me and I see the revenue increase here just wanted to talk a little bit more about the EBITDA. So you guys spoke towards EBITDA for the year I just wanted to speak a bit more towards EBITDA for the quarter just based on my math and I wasn't reported for Q1 of them down.
Down a little bit so I just wanted to talk about the EBIT outlook that you guys have what it would've been for <unk> and then how we think about <unk> EBITDA by close at the end of last year and that will be included in 2023. So just really expectations for EBIT to be included within the revenue guidance that you guys have provided.
Okay, I'm going to give that question to <unk>.
Okay.
Oh, hi, good morning.
We are in terms of EBITDA.
For the quarter adjusted EBITDA, we definitely will.
<unk>, if we didn't publish quarterly results because we.
We are publishing full year and our full year comparisons are provided but if we did based on a mathematical difference.
Based on previously provided <unk> results and full year results, we definitely seen.
A reduction in the gross profit in <unk>, which was impacted by year end adjustments as well.
The year end sales campaigns and discounts, which <unk>.
Narrowly driven by.
Our soft brands division, which resulted in a lower adjusted EBITDA compared to <unk>.
For full year.
In terms of.
Upon the projections for next year, we're still in a process of integrating.
<unk> improved our operational.
Same group as we go through as well as <unk>.
Trying to fully ascertain the impact of higher margin new revenue streams related to the Canada sales as we continue assessing those impacts would believes that it's a lower margin.
<unk>.
Gross profit coming from F. T H will be partially offset by those new revenue streams and as we go through next year.
We will be providing.
More accurate guideline when we publish our <unk> results.
Yes.
Alright, great thanks for that.
For me I, just wanted to talk about some of the expectations for exports just wanted to see how youre looking at the international landscape. Today, obviously, there's been some reports last Friday in terms of how Germany might change its rollout. It's now been more phase with an initial pilot.
I know initial expectations were already that you weren't going to potentially have the ability to export from Colombia to Germany.
Okay.
You've cut off slightly.
Our own but I think we have we have the most important components of that question. So I'm going to start and then I'll allow any of my team members to to complement.
I would say that first and foremost our revenue guidance is based on the regulations. The regulation framework that exists today around the globe.
We have been very very careful to ensure that we're conservative in terms of what is expected from a regulatory standpoint that has been.
A key component of our budgeting and forecasting because we know if we if we are planning on the economy in terms of regulatory we have been laid down number of times already over the years, so with that being said.
It's important to highlight that we are already exporting candidates, both derivatives and flour out of Colombia into geographies, where we're able to do so across the globe as I mentioned in my in my remarks, we have some product that is already being transformative GMP in Portugal that will have a landing spot.
In Australia in Germany, and we're excited about the opportunity to to activate those markets and increase and increase exponentially our exports as the quality of standardization of our product in Colombia continues to normalize.
With that being said, we are very carefully evaluating what's happening on the regulatory landscape. We know there is a meaningful regulatory change in Colombia, Colombia is very close to legalizing cannabis for recreational purposes, which would immediately open up a market where would we would become the leader or one of the top three companies inside the Colombian market.
Is massive in its own and we're also evaluating geographies like digest. Many of course since we have a tremendous interest in that part of the world.
Thanks Luis.
It looks like we lost Erin.
We appreciate those questions Aaron.
I'm going to move to Steve silver of Rguest.
Okay.
Good morning, Steve.
And thanks for taking the questions.
My main question just surrounds the Companys view now that we're a couple months into 2023 just.
Just your thoughts about the company's capital position I know that you guys mentioned late in 2022 that the company had built up inventory with the expectation that it was going to be sold through the coming months.
Just hoping that there was any color you can provide in terms of where the company stands on that.
Other that will be more of a.
And across 2023.
<unk> or just any any color you can you can provide about the company's overall views on the capital position. Thanks, so much.
Yeah, I'm going to I'm going to provide a couple of commentary and then I'll give it to our shot to complement so Steve good morning, and thank you. So much for that question I would say.
There's a couple of elements here in terms of capital usage of course.
There was the outflows of cash in 2022 that were related to the to the acquisition of <unk> that was the most meaningful one we also had about one to $1 $5 million worth of Capex investments at.
That were deployed to ensure that we completed the infrastructure.
The infrastructure for not only North America, and North America, but also Colombia.
And then there was an increase in inventory position from one year to the next and that increase in inventory position is.
As for a number of reasons.
The biggest one is that we acquired these companies and they have a.
Higher working capital needs in terms of inventory from a positive standpoint to have high inventory turn as well. So we need to ensure that we have that inventory in place to ensure that we can meet our revenue our revenue goals.
And then from a cash perspective, we closed the year at around $9 $5 million in cash.
That was.
And a question that was completed with with for a number of regions of course, the deployment of the cash that I mentioned that usage of working capital for inventory and Capex, but also we had a race in the beginning of December of $5 million.
And we expect that there will be not not significant outflows on capex. This year, but we're going to continue to invest from an EBIT working capital standpoint inventory that we know is turning incredibly fast like the one that Jesse mentioned in our house of brands product like the our Plas line that is working really well our baseline that is working really well.
Accessories, and some of our core accessories and vessel are performing at an exceptional level of we're going to continue to invest dollars in inventory that is turning on its providing us with high margins.
Elsewhere or anything else.
I want to highlight.
Even we didn't as I noted we did in our Formula published <unk> results, but we experienced a strong quarter.
It relates to the inventory few highlights notable increase enrollment supplies indicate investments in more inventory in support of increase in sales in revenue. So it was effectively a buildup in preparation for 2023 gross.
Hardware for 10 implies production capacity and efficiency and candidates Cocreation base improved in 'twenty, two contributing to a more robust inventory position.
Sure.
Our position also indicates.
Remarkable change in inventory after a substantial increase in finished goods gross also indicative of higher demand for our products as well as strategic decision to maintain a larger inventory too.
To quickly.
Our customer data customer orders as well as capitalize on market opportunities.
Closing, we feel very confident that we have the ability to fill in.
Inventory needs for both our existing as well as new acquired businesses ultimately positions us to support our customer base as we are able.
To meet that demand.
Okay. Thanks, so much and best of luck in the full year 2023.
Yeah.
Thank you Steve.
Yeah.
Okay.
So I wanted to listen to some of the questions that have come through.
From our attendees here. So Luis can you can you give us your outlook on how you look at the results of the vessel acquisition that was completed in November of 2021.
Yes.
You for that question I would say it's important to once again reinforce why we acquired vessels in the first place.
The company had an incredible talent base.
It ends by our own Jesse customer here today. They also are in accessories and hardware company and we firmly believe that as kind of has moved to the mainstream the adoption of cannabis will be directly related to how consumers are going to experience the product and vessel is a step ahead of any other company out there.
We fully integrated the vessel operation into our just brands operation in Fort Lauderdale.
The brand is experiencing meaningful organic growth today, we feel confident about the future of the brand where the team is going in terms of product innovation as Jesse mentioned, we launched.
Dry Irvine, and theres going to be more incredibly exciting products.
For consumers that are going to be launched in the upcoming weeks and months and we feel confident that vessel will be a key unlock to expanding that.
The total aggregate the market that.
The cannabis industry will present in the upcoming years.
Okay.
Great. Thanks Luis.
Can you give a quick update on be turning a lamborghini partnership.
Yes.
We take very seriously the two new Lamborghini project. This is a this is a.
A project that we're very passionate about but the Italian houses very passionate about as well and we have ensured that we have taken our time to bring a product that will be in line with the expectations of the of the two new Lamborghini, Brian and for that reason, we have evaluated not only the coffee launch, but also the product.
<unk> that we believe are most suited for consumers that are aligned with that breadth.
We're going to continue to iterate and we believe that we're going to have some incredibles for prices for our consumers.
In the second half of 2023.
Great. Thank you.
And then can you Louisa NL chat as well.
Just give us give us a little bit more of a deep dive on the acquisition and integration of franchise Global health. It was completed at the very end of 2022, I think around the 23rd of December .
So obviously as we're reporting up to the 31 of last year and it's early days, but a little bit more information recapture of perhaps the total purchase price and just a bit of an update would be really helpful.
Yes, I will provide some strategic update and then I'll allow <unk> to provide the mechanics on the financials, but youre absolutely right. We completed that acquisition in the latter part of December and the integration is still ongoing of course, we feel strongly about not only what the company brings in terms of our ability to the <unk>.
<unk> cannabis into into Germany, and the European market, but as well as the distribution that network that he has set up.
In 28 countries across the globe. They have a top pharmaceutical team distribution team that has that has done this for a number of decades and have.
Knowhow and experience to move candidates across the supply chain.
Their founder and CEO of course is now president of Florida. His name is Clifford Stark she joined our board of directors and he has been instrumental in the integration of of of the company and she is also supporting our commercial wholesale operation now to ensure that we can move kind of risk across the supply chain internationally.
I believe this acquisition is a meaningful loan growth for us and we're going to see the results of it in the upcoming months employers.
Got it.
Sure.
I want to compliment and maybe a quick reminder, in terms of.
This was a stock acquisition paid.
Paid by our Florida stock.
It should close to $43 million and 525951 shares.
Exactly.
And in terms of what that come through in terms of purchase price allocation was seven 5 million.
Discounts for market stability.
<unk> recorded net asset value in books, nine 8 million $98 million represents breakdown between $6 1 million net identifiable assets, which was booked.
In our balance sheet as well as $3 7 million goodwill.
As Lou said it said.
8% to seven days operation, but I am very happy that from day, one that team.
Fully integrated into our operations for example, one of my senior Deputies, Daniel Raymond stepped in into our finance organization.
As well as the leadership of our German based operation has been part of our operating and support network, we actively booking integrating and ICANN was F. G. H and also applying best practices like.
We believe they have a more robust ERP system, which we are elaborating so has been.
Process ongoing as we go through new year, and we'll look forward.
Capitalizing on those synergies.
Thanks for your thanks I'll Chad.
A little bit over on time, but we did get a question from Marla Marin.
Adoption I just wanted to quickly answer that so she asked about the timeline around some of the clinical trials and research that we're doing.
So just an update there as I had mentioned any pharmaceutical pillar update we are just awaiting approval from the NHS as well as the NHRA.
And so all of our required paperwork and then all of the preclinical work has been done as.
As many of you might be aware the NHS is not only be a governing body that would approve a clinical trial, but they also.
Administer all health care within the country and so these things as government agencies tend to happen to take a little bit of time. So we'll continue to update I would remind everybody that we are moving to quarterly reporting and so we'll be able to provide more updates on our pillar by pillar basis.
And give everybody a little bit more transparency as Chad mentioned with our new filings.
And structure so.
That again like I said, we are a little bit over on time, so that draws to a close our earnings call for the full year 2022, and we appreciate everybody for attending thank you Louise Thank you Chad.
Good day everyone.
The recording has stopped.