Clever Leaves Holdings, Inc. ( NASDAQ: CLVR) Q3 2023 Incomes Teleconference November 9, 2023 5:00 PM ET
Business Individuals
Jackie Keshner – Director of Financier Relations
Andres Fajardo – President
Hank Hague – Chief Financial Officer
Teleconference Individuals
Bobby Burleson – Canaccord Genuity
Operator
Great day, and welcome Clever Leaves Third Quarter 2023 Incomes Teleconference. All individuals will remain in listen-only mode. [Operator Instructions] Please keep in mind that this occasion is being tape-recorded. I wish to turn the call over to Ms. Jackie Keshner, Director of Financier Relations. Please proceed.
Jackie Keshner
Great afternoon, everybody, and thank you for taking part in today’s teleconference to talk about Clever Leaves’ monetary outcomes for the 3rd quarter ended September 30, 2023. Joining us today are Clever Leaves’ CEO, Andres Fajardo; and the business’s CFO, Hank Hague.
Before I present Andres, I’ll advise you that throughout today’s call, consisting of the question-and-answer session, declarations that are not historic truths, consisting of any forecasts or assistance, declarations concerning future occasions or future monetary efficiency, or declarations of intent or belief are positive declarations and are covered by the Safe Harbor disclaimers consisted of in today’s news release and the business’s public filings with the SEC. Real results and outcomes might vary materially from what is revealed in or indicated by these positive declarations. Particularly, please describe the business’s Kind 10-Q for the quarter ended September 30, 2023, which was submitted prior to this call, in addition to other filings made by Clever Entrusts the SEC from time to time. These filings determine elements that might trigger outcomes to vary materially from those positive declarations.
Please likewise keep in mind that, throughout this call, management will be revealing changed EBITDA, changed gross earnings and changed gross margin. These are non-GAAP monetary procedures as specified by SEC Guideline G. Reconciliations of these non-GAAP monetary procedures to the most straight equivalent GAAP procedures and a declaration revealing the reasons business management thinks that changed EBITDA, changed gross earnings and changed gross margin offer helpful details to financiers concerning the business’s monetary condition and outcomes of operations, are consisted of in today’s news release that is published on the business’s site.
With that, I will turn the call over to Andres.
Andres Fajardo
Thank you, Jackie, and great afternoon, everybody. In the 3rd quarter, we continued to make development on our tactical industrial production and capital effectiveness efforts. We supported continuous need strength for our cannabinoid extract and continued refining our Colombian flower, driving 135% year-over-year development in our cannabinoid earnings. In our non-cannabinoid service, we have actually kept our margin efficiency and provided 6% year-over-year income development. Within this section, we have actually continued to enhance our relationship with the Food-Drug-Mass channel, enhance our go-to-market design for the specialized channel, and grow our direct-to-consumer sales.
We even more strengthened our leaner, more effective expense and capital structure in Q3, gaining from the sale of our Portuguese processing possession and the expense decrease efforts we have actually put in location over the previous year. Our efficiency through the very first 3 quarters of 2023 is a testimony to the tactical enhancements we have actually made to enhance our position in the international medical marijuana supply chain. I will talk about each of our 3 essential tactical locations of lucrative development, our enhanced money management, our focused industrial method and our low-cost, premium production in Colombia.
Beginning with money management. Our quarter-end balance represent a net gain relative to completion of last quarter. We closed the 3rd quarter with $6.5 million compared to $5.1 million at the end of Q2 of this year, showing our success in minimizing our quarter-to-quarter money burn and producing a leaner cost structure for business. In addition, our financial obligation responsibilities have actually stayed low because the 2nd quarter of in 2015, in which the business’s financial obligation was lowered from $22.6 million in Q1 2022 to $2.1 million in Q2 2022, consequently yielding yearly money interest cost cost savings in future years. At September 30 of this year, our overall financial obligation was $1.3 million.
On a continuous basis, we are seeing the enhanced cost savings created by our work to right-size our workforce, shift our production operations exclusively to Colombia and utilize our comprehensive and completely built-out Colombian operation facilities. In reality, our development on this front has actually assisted help with the favorable changes we have actually made to the full-year CapEx expectation for 2023, which we will talk about later on in the call.
As a pointer, a substantial factor to our 3rd quarter balance sheet enhancement was the July 5 sale of our Portuguese post-harvest possession to Terra Verde Lda, an affiliate of Curaleaf Holdings. The deal led to gross earnings of $2.7 million, representing both an infusion of extra non-dilutive capital and a crucial turning point in the wind-down of our Portuguese operations. The more comprehensive wind-down procedure has actually been considerably finished, placing us to drive ongoing cost enhancements through the rest of Q4.
At October 31, 2023, we had a money balance of $6.2 million. As Hank will explain in higher information, we have actually because even more improved our liquidity through the post-Q3 sale of our staying stake in Cansativa, which we divulged on October 23. Among our completely owned subsidiaries, Northern Swan Deutschland Holdings, has actually consented to offer its staying Cansativa shares back to Cansativa and to EIP Entrepreneurial Investments GmbH for EIP. The sale led to earnings of roughly $1.9 million. We want to thank Cansativa and EIP for their collaboration in the deal, and we anticipate leveraging our other strong paths to the German market as we establish our industrial chances in the area.
Turning to our industrial method. We have actually kept our concentrate on our core target audience, which continue to be Australia, Germany, Brazil, Israel, the UK and Colombia. In July, we revealed that we broadened our contract with Australian Natural Rehabs Group, or ANTG, to include our Colombian flower. The flower items are now offered to Australian medical clients through drug store outlets throughout the nation under AMTG’s International Selects brand name portfolio.
As an entire, the Australian financial market has actually been robust development through the very first half of this year, with licensed prescriber medical marijuana approvals growing over 120% year-over-year according to information from Australia’s medication and restorative regulative company, the Restorative Product Administration. We take pride in how we have actually built on our flower structure in the Australian market, and we continue to get favorable reception for our newest stress. Our next pressure is presently on track to introduce in Australia throughout the 4th quarter.
Australia and Brazil have actually continued to be the greatest markets for our extract items, building on our authorized item deliveries under RDC-327 in Brazil and a growing base of supply collaborations in the other markets. In our work to support our partners and reduce any possible service effects, we are carefully keeping an eye on news surrounding the Israel-Hamas war. Existing conditions have both shipping, transport and associated logistic obstacles in the area that we are browsing with our partners in real-time. While our cumulative presence stays restricted, we are working to remain versatile for our partners and guarantee that clients get the medication they require. Our ideas are with everybody who is impacted by the war.
We are likewise working vigilantly to grow our industrial footprint in the UK and Germany. Comparable to Australia, the U.K. has actually seen strong development in its medical marijuana market this year, with the federal government’s Office reporting that medical marijuana imports have actually tripled in volume year-over-year. In Germany, we continue to see our top quality flower item and our existing B2B collaborations in the area as essential entry points for our Colombian flower delivery. We are concentrated on placing our item along these lines as we keep an eye on more advancements in the regulative advancement of the nation’s marijuana market.
To conclude by evaluating our Colombian production operations, we have actually continued to focus our harvest on cultivating THC flower for exports while planting some brand-new CBD hemp crops to guarantee we have the stock to attend to need for our extract items. We continue to keep our harvest manipulated towards THC flower and keep rollout more carefully lined up with need.
From a pressure advancement viewpoint, our company believe we stay on track to finish 2 extra stress by the end of this year and have actually made strong development in our early growing deal with Pretorian International. The stress we establish through this collaboration are anticipated to benefit our market penetration method throughout our target audience. More broadly, we anticipate to continue broadening our flower portfolio throughout 2024 as we work to improve THC levels, [indiscernible] qualities and other essential flower qualities in line with client requirements.
With our fully grown production operations in Colombia, we have actually worked to construct and sustain our market credibility for premium items and pharmaceutical-grade production requirements. Notably, a lot of the practices that take full advantage of the quality and effectiveness of our operations have actually likewise shown our dedication to sustainability. For instance, the ecological benefits from getting 12 hours of natural sunshine and cultivating at a high elevation have not just benefited production expenses, however likewise enabled us to enhance our energy and water use in addition to totally get rid of the requirement for pesticides.
As proof of our management on this front, we are granted the International Statement of Carbon Neutrality by the 100% carbon neutral program for our active dedication to ecological sustainability and environment modification mitigation in late August. To date, our company believe we are among the very first non-vertically incorporated medical marijuana business worldwide to have actually attained worldwide accreditation for carbon neutrality. In addition to leveraging our ecological benefits, we have actually carried out numerous procedures to suppress carbon emissions and maintain natural deposits, consisting of techniques of utilizing solar power and enhancing waste management practice. In reality, we presently repurpose or recycle more than 50% of waste into efficient procedures. Our devotion to and performance history in ecological sustainability shows the high quality requirements of our items and procedures.
Making medical-grade cannabinoid items at scale for an international base of clients needs a mindful tactical matrix. We have actually needed to be active in adjusting to market-specific requirements, definitive in carrying out essential capital optimization procedures, and detailed in ramping our Colombian operations to support extract momentum while developing traction for our flower exports.
The work to enhance this structure has actually been progressive yet consistent. As we move even more into Q4 and get ready for the year ahead, we intend to continue building on our growing base of worldwide collaborations in addition to the benefits of our comprehensive Colombian production base and leaner business facilities. I take pride in the development we have actually made through the 3rd quarter of this year, and we anticipate to continue leveraging our substantially enhanced capital effectiveness and growing industrial traction through completion of this year into the next.
I ‘d now like to turn the call over to our CFO, Hank Hague, who will discuss our 3rd quarter monetary efficiency. Hank?
Hank Hague
Thank you, Andres. As a pointer, we have actually continued to represent Portugal as a terminated operation in our monetary outcomes for the year-ago duration. As an outcome, our condensed combined balance sheet, the condensed combined declaration of operations, and the notes to the combined monetary declarations have actually been reiterated for all durations provided to show the discontinuation of these operations in accordance with ASC 205. This discussion will continue through the 4th quarter of this year, and even more explanatory notes are offered in our 3rd quarter 10-Q filing.
Please likewise keep in mind that, on August 24, we carried out a 1-for-30 reverse split of our typical shares, which lowered the variety of released and impressive typical shares from roughly $45.7 million to roughly $1.5 million. The reverse split assisted facilitate our compliance with the NASDAQ’s minimum quote rate requirement, which we have actually restored since September 8.
Moving into our quarterly outcomes. Our income in the 3rd quarter of 2023 increased 33% to $3.8 million compared to $2.9 million in the year-ago duration. The boost shows development in our cannabinoid section earnings throughout the quarter created from continued extract sales strength in Australia and Brazil. On a consecutive basis compared to the 2nd quarter of this year, we had some irregularity in the timing of specific regulative approvals in Brazil, which postponed a few of our anticipated deliveries. Nevertheless, our company believe these are now on track to be provided by the end of Q4.
Our non-cannabinoid section earnings increased 6% year-over-year as we worked to reduce the specialized channel softness that has actually pushed our leading line development through the very first half of the year. We have actually likewise continued to support traction with our online market partners. From late Q3 into early Q4, we started to produce some incremental channel enhancements as client purchasing patterns have actually gotten used to existing financial conditions. To even more support these patterns, we are working to enhance our item blends throughout specific channels and purchase marketing efforts tailored towards improving client education. In specific, we are making product packaging and marketing enhancements around the relaunch of our premium natural tidy item, Ultra Eliminex with favorable reception so far.
Our all-in expense per gram of dry flower equivalent in the 3rd quarter of 2023 was $0.75 per gram compared to $0.52 per gram in the year-ago duration. Throughout the quarter, 1,210 kgs were gathered compared to 1,211 kgs in the year ago duration. We likewise made some significant modifications in our growing strategies to enhance the quality and residential or commercial properties of the flower in addition to fulfill more rigid market and regulative requirements.
We have actually continued to include brand-new CBD hemp crops to our harvest cycle to renew our stock for formerly offered extract items while generally focusing our Colombian harvest on growing THC flower for export. We anticipate to drive higher expense benefits in time as we continue to enhance our harvest mix and scale our Colombian flower operations with the goal of bringing our production expense per gram more detailed to their historic levels. Our gross earnings in the 3rd quarter of 2023, that included a stock arrangement of $0.3 million, increased 49% to $1.9 million compared to $1.3 million in the year-ago duration, that included a $0.6 million stock arrangement.
Our adjusted gross earnings, which left out the stock arrangements, increased 19% to $2.2 million in the 3rd quarter of 2023 compared to $1.9 million in the year-ago duration. This shows an adjusted gross margin of 57.7% compared to 64.7% in the year-ago duration. The boost in our gross earnings shows the income development we created throughout the quarter together with supported rates for both basic materials and labor in our non-cannabinoid section.
Business expenses in the 3rd quarter of 2023 enhanced to $5.3 million compared to $25.6 million in the year-ago duration. Keep in mind that our OpEx in the 3rd quarter of 2022 consisted of a $19 million intangible possession problems charge connected to our Colombian marijuana licenses. Omitting the year-ago problems charge, our operating costs reduced 20% year-over-year, showing increased cost savings as we gain from the expense decrease and restructuring efforts we have actually formerly carried out.
Bottom line in the 3rd quarter of 2023 was $5.1 million compared to a bottom line of $20.2 million in the year-ago duration. Bottom line in the year ago quarter shows the effect of the $19 million possession problems charge I simply pointed out. Bottom line in the 3rd quarter of this year consists of a $3.7 million financial investment problems associated to the sale of our staying stake in Cansativa. Subsequent to the quarter, our wholly-owned subsidiary participated in a very first share purchase and transfer contract with Cansativa and EIP, as Andres pointed out previously. Per the contract, Cansativa and EIP acquired our staying 3,648 shares for an overall purchase rate of roughly $1.9 million.
While the Cansativa financial investment does not have an easily determinable reasonable worth, we have actually figured out that the price of the financial investment represents an affordable rate as compared to the worth of the financial investment at the historic expenses displayed in the books. Upon comparing the subsequent deal worth of the shares offered to the bring worth, we tape-recorded a $3.7 million problems loss arrangement throughout the 3rd quarter.
Changed EBITDA in the 3rd quarter of 2023 enhanced to unfavorable $2.6 million compared to unfavorable $3.7 million in the year-ago duration. This was generally due to the advantages of the expense decrease and restructuring activities we have actually formerly carried out. At September 30, 2023, money, money equivalents and limited money were $6.5 million compared to $12.9 million at December 31, 2022. The reduction was mainly attributable to ongoing operating losses and working capital requirements.
Our 3rd quarter money balance shows the $2.7 million in earnings from the sale of our Portuguese post-harvest properties together with the approximate $0.8 million in net earnings we raised from our at-the-market stock offering throughout the 3rd quarter. This program stays offered for us to utilize where relevant, and we will continue to assess other possible paths for extra capital.
With our enhanced income efficiency and increased expense savings, we have actually continued to drive considerable enhancements in our money burn. The wind-down of our Portuguese operations has actually offered us an even leaner go-forward functional structure, and we are still working towards offering our staying farming properties by the end of Q1 2024. Furthermore, we have actually gotten the approximate $1.9 million in net earnings from the sale of the Cansativa shares, which is not consisted of in the $6.2 million money balance we tape-recorded at October 31, 2023.
As kept in mind in our public filings, including our 10-Q for the 3rd quarter of 2023, there continues to be significant doubt about our capability to continue as a going issue. Our functional execution continues to depend on our capability to get extra financing, which might consist of numerous efforts such as raising capital, minimizing operating capital and generating income from non-core properties. We intend to continue improving our liquidity position by minimizing working capital expense and driving extra effectiveness in our general expense structure.
With the phasing and mix of our earnings throughout both service sectors, together with the enhancements we have actually made in our expense and capital structure, we have actually changed our full-year 2023 monetary projection throughout all metrics. On the leading line, we now anticipate our full-year 2023 income to be within the variety of $17 million to $18 million compared to the previous variety of $19 million to $22 million. We likewise anticipate our adjusted gross margin to variety in between 55% to 57% compared to our previous expectation of 58% to 63%. The modifications mainly show timing irregularity throughout our cannabinoid markets, generally Brazil as an outcome of the timing and the issuance of internal quotas and Israel as an outcome of the current geopolitical intricacies dealing with the country.
In our non-cannabinoid service, which is our higher-margin section, the modifications likewise show the softness in our specialized channel throughout the very first half of the year, which pushed our segment-level leading line efficiency. For full-year adjusted EBITDA, we have actually lowered the loss and narrowed our anticipated variety, which is now in between minus $11 million and minus $10 million compared to our previous variety of minus $13.6 million to minus $10.6 million. This modification shows the strong expense decreases we have actually driven throughout the year. We likewise even more lowered our anticipated 2023 capital investment to a series of $0.2 million to $0.3 million compared to our previous variety of $0.5 million to $0.7 million. This arised from the very little CapEx requirements of our fully grown Colombian production operations, and the brand-new variety represents an almost 80% decrease relative to our full-year 2022 CapEx.
This concludes my ready remarks, and I will now turn the call back over to Andres.
Andres Fajardo
Thank you, Hank. Through completion of the 3rd quarter, we have actually made verifiable strides on all 3 of our essential tactical fronts. By considerably minimizing our money burn relative to historic levels and working to enhance our items and procedures to fulfill progressing industrial characteristics throughout our core markets, our company believe we have actually enhanced our positioning and effectiveness as an international medical marijuana operator.
Focusing our industrial efforts on a focused set of core markets, which we have actually done because early in 2015, has actually enabled us to deepen and ramp our existing sale contracts better while placing us to attend to brand-new chances as numerous markets establish even more worldwide. Our work to speed up cannabinoid sales momentum has actually been supported by enhancing our balance sheet and leveraging our affordable system economics in Colombia.
Taken together, our company believe we are nearing an inflection point for our service in 2024, gaining from our income and success optimization efforts and the premium credibility we have actually integrated in the worldwide marijuana supply chain. We want to thank our investors for their assistance as we make extra development on our development trajectory.
We’ll now open the call for Q&A.
Question-and-Answer Session
Operator
Thank you. We will now start the question-and-answer session. [Operator Instructions] Thank you. Our very first concern will be from Bobby Burleson of Canaccord. Please proceed.
Bobby Burleson
Hi guys, regrettably, I’m going to need to drop off this call rapidly since I have another call overlapping with it, however I wished to squeeze a concern in here. So simply curious, in regards to how you focus on things, offered what’s taking place in Israel, what can you do sort of mid-strokes, midstream here to make changes where possible in regards to backfilling need or backfilling programs that were underway and devoting those resources somewhere else, if at all possible? Thanks.
Andres Fajardo
Hi, Bobby, thank you quite for the concern and for remaining in the call. And definitely, that’s a subject we have actually been keeping an eye on really carefully, firstly, since we have a series of customers and partners there. So we have actually remained in ongoing discussions with them. I would state that, after a couple of weeks have actually passed, we are now in fact beginning to continue with possibly reinitiating a few of the prepared deliveries and sales we had into the nation. There is still some logistic obstacles as flights are exceptionally restricted for items to arrive. However there are some indications that, most likely in the very first weeks of December, that’s going to be fixed to some degree, and a few of the item can be streaming there. So we have actually been concentrating on, firstly, ensuring that the clients in Israel have access to the items and in some way discover methods to fill those orders from our customers there.
Beyond that, as we have actually constantly stated, we have a really particular set of nations we’re concentrating on. So essentially, as a few of the item is not streaming into Israel or is postponed at some degree, we’re essentially discovering homes for it in other locations. For instance, for the APIs, we’re moving a few of that volume to Australia, where need has actually been increasing rather substantially. We’re positioning a bit more effort in the launch of our flowers in Australia and Germany and the U.K. and reinforcing our work, naturally, in Brazil.
So we keep concentrating on the core markets. And as I stated, we keep ensuring that the Israeli clients have access to the items. And our company believe that the logistics are going to be resolved and the supply can begin ideally as quickly as this quarter, however if not, ideally early Q1 of next year.
Bobby Burleson
Great, thank you. I need to hop off the call. However thank you a lot for that color and eagerly anticipating speaking to you quickly.
Andres Fajardo
Thank you, Bobby.
Operator
Thank you. That concludes our question-and-answer session. I’ll turn the call back over to Andres Fajardo for closing remarks.
Andres Fajardo
Well, thank you, Nick, and thanks all of our investors and others in the call. I wish to now thank everybody who participated in the call today, and we anticipate talking to our financiers and experts when we report our 4th quarter and full-year lead to March.
Operator
Thank you. This conference has actually now concluded. Thank you for participating in today’s discussion. You might now detach.