Q3 2023 Clever Leaves Holdings Inc Earnings Call
Good day and welcome.
Third quarter of 2020 earnings conference call.
All participants will be in listen only mode.
Assistance. Please signal conference specialist by pressing the star key followed by zero.
After the presentation, there will be for 'twenty to ask questions. Please note that this event is being recorded.
I'd like to turn the call over to <unk>.
It's Jackie actor director of Investor Relations. Please go ahead.
Good afternoon, everyone and thank you for participating in today's conference call to discuss financial results for the third quarter ended September 30th owner in 'twenty three.
Joining us today are cleverly CEO I guess, the heart out and the company's CFO.
Before I introduce andress 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 I believe are forward looking statements and are covered by the safe Harbor disclaimers contained in today's press release and the company.
<unk> public filings with the SEC.
Actual outcomes and results may differ materially from what is expressed.
Or implied by these forward looking statements.
Specifically, please refer to the company's Form 10-Q for the quarter ended September 30th Slide 23, which was filed prior to this call as well as other filings made by club relief 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 adjusted gross profit and adjusted gross margin.
These are non-GAAP financial measures as defined by SEC regulation G.
Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures and a statement disclosing the reasons why company management believes that adjusted EBITDA adjusted gross profit and adjusted gross margin provides useful information to investors regarding the company's financial condition and results of operations are 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.
Third quarter, we continued to make progress on our strategic commercial production and capital efficiency initiatives.
We supported the ongoing demand strength for cannabinoid extracts continue refining our Columbia flower driving 100 of 35% year over year growth in our economy not revenues.
In our non kind of line of business, we have maintained our margin performance and delivered 6% year over year revenue growth.
Second we have continued to strengthen our relationship with the food drug mass channel up too much or go to market model for the specialty channel.
Our direct to consumer sales.
With further we first are leaner and more efficient cost and capital structure in Q3 benefiting from the sale of part or processing.
The cost reduction initiatives, we put in place over the past year.
Our performance through the first three quarters of 2023.
Testament to the strategic improvements we've made to strengthen our position in the global medical cannabis supply chain.
I will discuss each of our three key strategic areas of profitable growth are optimizing cash management, our focused commercial strategy and our low cost high quality production economy.
Starting with cash management, our quarter end balance represents a net gain relative to the end of last quarter.
Close to the third quarter with $6 five medium.
251 million at the end of Q2 of this year, demonstrating our success, reducing our quarter to quarter cash burn I'm, creating a leaner expense structure for the business.
In addition, our debt obligations have remained low since the second quarter of last year in which the company's debt was reduced from $22 6 million in Q1 2022 two.
$2 1 million in Q2, 2022 thereby yielding annual cash interest expense savings in future years.
Timber 30 of this year, our total debt was 1.3 major.
On an ongoing basis, we are seeing the savings generated by our work to right. So certain labor force.
Shneur production operations solely to Colombia.
Leverage our extensive I'm fully built up Colombian operation infrastructure and.
In fact, our progress on this front us helps us shouldn't take the policy adjustments, we have made to the full year Capex expectation for 2023, which we will discuss later in the call.
Yeah.
As a reminder, a significant contributor to our third quarter balance sheet improvement once did your life with the sale of our Portuguese post harvest assets, two Tera Verdi L. D. A.
A few of these holdings.
The transaction resulted in gross proceeds of $2 7 million.
Presenting both infusion of additional non dilutive capital and an important milestone in the wind down of our Portuguese operations.
The broader one don't process has been substantially completed positioning us to drive continued expense improvements through the remainder of Q4.
So it was 31 2023, we had a cash balance of $6 2 million.
I will describe in greater detail, we have since further enhanced our liquidity through the post Q3 sale of our remaining stake in terms of fever, which we just close on October 23rd.
One of our wholly owned subsidiaries North one Deutsche Bank Holdings.
The Greek to salvage for many types of fewer shares back to kind of a fever.
E <unk> or bring your own investment D. N V H R E P.
The sale resulted in proceeds of approximately one 9 million.
I think cause a fever E P for their partnership in the transaction and we look forward to leveraging the other strong pathways to the German market as we develop our commercial opportunities in the region.
Turning to our commercial strategy, we have maintained their focus on our core are good markets, which continued to be Australia, Germany, Brazil, Israel, the United Kingdom and Colombia in.
In July we announced that.
We expanded our agreement with Australia, natural scoop or a M. P. G to include our Columbia flower.
Flower products are now available to Australia medical patients through pharmacy outlets for the country.
A N D G 's mobile collects brand portfolio.
As a whole the stringent terms market has.
Robust growth through the first half of this year, we thought the rice prescriber medical cannabis approvals growing over 120% year over year. According to data from Australia's Madison Dearborn regulatory agency.
Europe with Boots administration.
We are proud of how we have built up on or flowers trucks in the Australian market and we continue to see positive reception from our most recent strange.
Our midstream is currently on track to launch in Australia during the fourth quarter.
Australia, and Brazil have continued to be the strongest markets for our extra thoughts there would be no problem.
Our our proof product shipments under our D. C 27 in Brazil on a growing base of supply partnerships.
It's.
It worked support our partners to mitigate any potential business impacts we are closely monitoring news surrounding the Israel I must war current conditions I suppose shipping transportation and released the logistic challenges in the region, but we are navigating with your partners in real time.
While our collective visibility remains limited we are working to stay flexible for our partners and ensure that patients receive the medicine. They need our thoughts are with everyone affected by the war.
We're also working diligently to grow our commercial footprint in the United Kingdom and Germany.
Similar to Australia, the U K.
He has seen strong growth in its medical cannabis market. This year with the government's home office reporting the medical cannabis imports have tripled in volume year over year.
Germany continues to be on Prem to cloud product and our existing BBB partnerships in the region as a key entry points for Colombian followership.
We are focused on positioning the product along these lines as we monitor further developments in the regulatory evolution other countries cannabis market.
To conclude my review of our Colombian production operations, we have continued to focus our harvest of Gucci, a THC flower for export well.
Planting some new CBD hemp crops to ensure we have the inventory to us.
Dress demand for extra products, we continue to keep our harvest skewed towards th flower keep over a lot more closely aligns with the met.
From a strain development perspective, we believe we remain on track to complete two additional strains by the end of this year and have made solid progress in our early coopervision worked with Praetorian global.
The strange new developed through this partnership are expected to benefit our market penetration strategy across our target markets.
More broadly do you expect to continue expanding our smaller portfolio throughout 2024, as we work to find phe levels Ori gon, let the characteristics another kaesava qualities like with patients.
With our mature production operations in Colombia, we have worked to build and sustain our industry reputation for high quality.
On the pharmaceutical grade production standards.
Many of the practices that maximize the quality and efficiency of our operations have also demonstrated our commitment to sustainability.
For example.
The environmental advantages from recent 12 hours, so natural sunlight and cultivating a high innovation I've met on the benefit of a production costs, but also allowed us to optimize energy and water usage as well as entirely eliminate the need for pesticides.
As evidence of our leadership on this front, we were awarded the international deterioration of carbon neutrality by the 100% carbon neutral program for Iraq, its commitment to environmental sustainability and climate change mitigation in late August.
To date, we believe we're one of the first known 30 integrated maybe there's no cannabis companies worldwide have achieved international certification for carbon neutrality.
In addition to leveraging our environmental advantages, we have implemented various measures to curb carbon emissions and preserve natural resources.
Two methods of harnessing solar energy on optimizing waste management practice.
In fact, we plan to repurpose, a recycled more than 50% of waste into productive process.
Our dedication to and track record in environmental sustainability demonstrates the high quality standards of our products and processes.
Producing medical grade products at scale for our global base of patients requires careful strategic matrix you.
We have had to be nimble in adapting to market specific requirements.
Precisely and implementing key capital optimization measures and comprehensive ramping our Colombian operations.
<unk> 16 extra momentum while building traction for our flower exports.
Work to strengthen this foundation has been gradual Jeff steady as.
As we move further into Q4 and prepare for the year ahead. We aim to continue building upon our growing base of international partnerships.
I lost the advantages for extensive Colombian production base and leaner corporate infrastructure.
I am proud of the progress we have made through the third quarter of this year. When we expect to continue leveraging our significantly improved capital efficiencies and growing commercial traction through the end of this year into the next.
I'd now like to turn the call over to our CFO hung cake.
He will discuss our third quarter financial performance Henk.
Thank you Andreas as a reminder, we have continued to account for Portugal as a discontinued operation in our financial results for the year ago period.
As a result, our condensed consolidated balance sheet, the condensed consolidated statement of operations.
And the notes to the consolidated financial statements have been restated for all periods presented to reflect the discontinuation of these operations in accordance with ASC 205.
This presentation will continue through the fourth quarter of this year and further exponential arenas are available in our third quarter 10-Q filing.
Please also note that on August 24th we implemented a one for 30 reverse split of our common shares which reduced the number of issued and outstanding common shares from approximately $45 7 million to approximately one 5 million.
The reverse split helped facilitate our compliance with the nasdaq's minimum bid price requirement, which we have regained as of September eight.
Moving into our quarterly results.
Our revenue in the third quarter of 2023 increased 33% to $3 8 million compared to $2 9 million in the year ago period.
The increase reflects growth in our cannabinoid segment revenues during the quarter generated from continued extract sales strength in Australia and Brazil.
On a sequential basis compared to the second quarter of this year, we had some variability in the timing of certain regulatory approvals into Brazil, which delayed some of our expected shipments.
However, we believe these are now on track to be delivered by the end of Q4.
Our non cannabinoid segment revenues increased 6% year over year as we work to mitigate the specialty channel softness that has pressured our top line growth.
The first half of the year. We have also continued to support traction with our online marketplace partners.
From late Q3 into early Q4, we began to generate some incremental channel improvements as customer buying patterns have been adjusted to current economic conditions.
Other support these patterns, we are working to optimize our product mixes across certain channels and invest in marketing efforts geared towards enhancing customer education. In particular, we are making packaging and marketing improvements around the relaunch of our premium herbal clean.
<unk> ultra eliminate axe with positive reception thus far.
Our all in cost per Gram of dry flower equivalent.
The third quarter of 2023 was 75 cents per gram compared to 52 cents per gram in the year ago period.
During the quarter 1210 kilograms were harvested.
Compared to 1211 kilograms in the year ago period.
We also made some meaningful changes in our cultivation techniques to improve the quality.
<unk> and properties of the flower as well as meet more stringent market and regulatory requirements.
We have continued to add new CBD hemp crops to our harvest cycle to replenish our inventory for previously sold extract products.
Mainly focusing our Colombian harvests and growing THC flower for export.
We expect to drive greater cost advantages over time, as we continue to optimize our harvest mix and scale, our Colombian flower operations.
With the aim of bringing our production cost per gram closer to their historical levels.
Our gross profit in the third quarter at 'twenty, two 'twenty three which included an inventory presented her vision of 0.3 million increased 49% to $1 9 million compared to $1 3 million in the year ago period, which included a zero point $6 million.
Inventory per visit.
Our adjusted gross profit, which excluded the inventory provisions increased 19% to $2 2 million in the third quarter at 2023 compared to $1 9 million in the year ago period. This reflects an adjusted gross margin of 57, 7%.
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The increase in our gross profit reflects the revenue growth we generated during the quarter.
With stabilized pricing for both raw materials, and labor and our non cannabinoid segment.
Operating expenses in the third quarter of 2023 improved to $5 3 million compared to $25 6 million in the year ago period.
Note that our opex in the third quarter of 2022 included a $19 million intangible asset impairment charge related to our Colombian cannabis licenses.
Excluding the year ago, and impairment charge, our operating expenses decreased 20% year over year, reflecting increased savings as we benefit from our cost reduction and restructuring initiatives. We have previously implemented.
Net loss in the third quarter of 2023 was $5 1 million compared to a net loss of $20 2 million in the year ago period net loss in the year ago quarter reflects the impact of the 19 million asset impairment charge I just mentioned.
Net loss in the third quarter of this year includes a $3 7 million investment impairment related to the sale of our remaining stake in constant Tivo subs.
Subsequent to the quarter, our wholly owned subsidiary entered into a first share purchase and transfer agreement with concert fever and E T. As Andres mentioned earlier.
The agreement comes with Tivo and EAP purchased our remaining 3648 shares for a total purchase price of approximately one 9 million.
While the constitute the investment does not have a readily determinable fair value. We have determined that the sale price of the investment represents a discounted price as compared to the value of the investment.
The historical costs shown in the box.
When comparing the subsequent transaction value of the shares sold with a carrying value we recorded a $3 7 million impairment loss provision during the third quarter.
Adjusted EBITDA in the third quarter at 2023 improved to negative $2 6 million compared to negative $3 7 million in the year ago period. This was mainly due to the benefits of the cost reduction and restructuring activities. We have previously implemented.
Yeah.
At September 30th 2023, cash cash equivalents and restricted cash were $6 5 million.
Third to $12 9 million at December 31st 'twenty 'twenty. Two the decrease was primarily attributable to continued operating losses and working capital needs. Our third quarter cash balance reflects the $2 7 million in proceeds from the sale of our Portuguese post harvest Apple.
Along with the approximate 0.8 million in net proceeds we raised from our aftermarket stock offering during the third quarter.
This program remains available for us to leverage where applicable and we will continue to evaluate other potential pathways for additional capital.
With our improved revenue performance and increased cost savings, we have continued to drive significant improvements in our cash burn the wind down of our Portuguese operations has given us an even leaner go forward operational foundation.
We are still working towards selling our remaining agricultural assets by the end of Q1 'twenty 'twenty four.
Ali we have received the approximate $1 9 million in net proceeds from the sale of the constant team of shares which is not included in the $6 $2 million of cash balance.
Corded at October 31, 2023.
As noted in our public filings, including our 10-Q for the third quarter of 2023, there continues to be substantial doubt about our ability to continue as a going concern.
Our operational execution continues to be dependent on our ability to obtain additional funding which could include several initiatives such as raising capital, reducing working capital and monetizing noncore assets. We aim to continue enhancing our liquidity position by rich.
Do you see working capital investments and driving additional efficiencies in our overall cost structure.
With the phasing and mix of our revenues across both business segments, along with the improvements we have made in our cost and capital structure. We have adjusted our full year 2023 financial forecast across all metrics.
On the top line, we now expect our full year 2023 revenue to be within the range of 17 million to $18 million.
Paired to the prior range of 19 million to $22 million.
We also expect our adjusted gross margin to range between 55% to 57% compared to our prior expectation of 58% to 63%.
The revisions primarily reflect timing variability across our cannabinoid markets, mainly Brazil as a result of the timing and the issuance of internal quotas and Israel as a result of the recent geopolitical complexity it states in the nation.
In our non cannabinoid business, which is our higher margin segment. The revisions also reflect the softness in our specialty channel during the first half of the year.
Pressured our segment level top line performance.
For full year adjusted EBITDA, we have reduced the law and narrowed our expected range, which is now between minus 11 million and minus $10 million.
<unk> to our prior range of minus $13 6 million to minus $10 6 million.
This adjustment reflects the strong cost reductions we have driven throughout the year.
We also further reduced our expected 2023 capital expenditures to a range of 0.2 million to zero point $3 million compared to our prior range of 0.5 million 0.79.
This resulted from the minimal capex needs of our mature Colombian production operations and the new range represents a nearly 80% reduction relative to our full year 2022 capex.
This concludes my prepared remarks.
I'll turn the call back over to Andreas.
Thank you Henk.
At the end of the third quarter, we have made demonstrable strides on all three of our key strategic funds.
By substantially reducing our cash burn relative to historical levels and working to optimize our products and processes.
Meet evolving commercial dynamics across our core markets. We believe we have strengthened our precision and efficiency is a global medical cannabis operator.
Focusing our commercial efforts on a concentrated set of core markets, which we have done since early last year.
Allowed us to deepen and ramp our existing sale agreements more affected.
All positioning us to address new opportunities are several nascent markets develop further around the world.
Our work to accelerate sales momentum has been supported by improving our balance sheet and leveraging our low cost unit economics in Colombia.
Taken together, we believe we are nearing an inflection point for our business in 2024.
Benefiting from our revenue unpredictability optimization initiatives.
High quality reputation we have built in the international cannabis supply chain.
I would like to thank our shareholders for their support as we make additional progress on our growth trajectory.
Well now open up the call for Q&A.
Thank you well now begin the question and answer session to ask a question. Please press Star then one on the Touchtone phone.
Using a speakerphone please pick up your handset before pressing the keys.
Your question. Please press Star then two.
I will pause momentarily to assemble the roster.
Thank you.
The question will be from Bobby Burleson with Canaccord. Please go ahead.
Hi, guys.
Fortunately I mean, that's the drop off this call quickly because I have another call overlapping with it but I wanted to squeeze the questioning here.
So just curious like in terms of how you prioritize things given what's happening in Israel.
Can you do kind of mid stroke, so midstream here too to make adjustments.
Where possible in terms of.
Back filling demand or back filling.
Programs that were underway.
And you gotta hitting those resources elsewhere, if at all possible.
Thanks.
Hello, Bobby Oh, no. Thank you very much for the question look we're being in the call and I'll.
Certainly that's a topic we have been monitoring very closely first and foremost because all we have a series of clients and partners where they are so so we have been and continued our conversations with them.
I would tell you that you know after after a few weeks of past we are now actually.
Turning to move ahead with the patient.
Re initiating some of the other planned shipments.
Shipments in sales we had into the country. There is still you know some logistic challenges as flights are extremely limited offer.
For products to get there are you know, but there are some signs of probably in the first weeks of December that's gonna be.
We saw to some extent on some of the product can be flowing there. So we have been focusing on first and foremost making sure that the patients in Israel have access to the products and somehow find ways to feel those those orders from our former clients over there beyond.
Beyond that as we've always said we have a very specific set of countries, we're focusing on so basically.
Some of the product is not flowing into into Israel or was delayed at some degree we're basically finding.
Homes for it in any other geographies for example for the Api's, we're shifting some of that volume to Australia.
Where demand has been increasing quite significantly we're placing a little bit more effort in our in our the launch of our flowers in Australia, Germany, and the U K.
You know on strengthening our our work of course in Brazil. So so so we keep we keep focusing on the core markets.
As I said, we keep making sure that our that the Israeli patients have access to the products and we believe that the logistics are going to be sold in the supply can start.
Hopefully as soon as this quarter, but if not hopefully early Q1 of next year.
Great. Thank you I'll hop off the call, but thank you so much for that color and.
Looking forward to talking to you soon.
Thank you Bob.
Thank you that concludes our question and answer session I'll turn the call back over to Harald.
Oh for closing remarks.
Well, thank you make and thanks all of our shareholders.
And others in the call I'd like to know thank everyone, who attended the call today and we look forward to speaking with our investors and analysts when we report our fourth quarter and full year results in March.
<unk> Conference is now concluded. Thank you for attending today's presentation you may now disconnect.