Agrify Corporation

Greetings and welcome to the Agri-Fi third quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Anna Kate Hiller. Please go ahead.

Good morning and welcome to Agrify's third quarter 2022 earnings call. With us on today's call are Raymond Cheng, Chief Executive Officer, and Timothy Oates, Chief Financial Officer. Today, management will review the highlights and financial results for the third quarter and provide a business and operational update. Following management's remarks, there will be a question and answer session. A reminder that today's conference call is being recorded and a replay will be available on Agrify's investor relations website at ir.agrify.com. Please note that we will be referring to information that's contained within our earnings press release, which can be accessed on the investor relations website as well. Before we begin, we would like to remind everyone that management's remarks contain forward-looking statements, and management may make additional forward-looking statements in response to your questions. Such statements involve a number of known and unknown risks and uncertainties, many of which are outside the company's control that could cause its future results, performance, or achievements to differ significantly from the results, performance, or achievements expressed or implied by such forward-looking statements. Important factors that could cause or contribute to such differences include the risks detailed in our public filings with the Securities and Exchange Commission and those mentioned in the earnings release. Except as required by law, we undertake no obligation to update any forward-looking or other statements therein, whether a result of new information, future events, or otherwise. I will now turn it over to Raymond.

Thanks, Anna-Kate, and thank you, everyone, for joining us on the call today. I'm going to begin by providing an overview of our performance in Q3, as well as some recent updates on our business. And then our Chief Financial Officer, Tim Oakes, is going to discuss our Q3 financial results in greater detail. After that, I will go over our outlook for the remainder of 2022, and then we will open up the call for questions. For the third quarter, we ended up with $7 million in revenue. It is very important that I explain the shortfall in our Q3 revenue in more detail. As we have disclosed publicly, our customer, Button Marys, defaulted on its construction loan facility, and we served them with a default notice on September 15th. In response, Button Marys filed a baseless lawsuit in attempt to avoid having to repay the credit facility. The lawsuit is entirely without merit and we are taking all necessary steps to pursue repayment from Button Mary's. As a result of the pending lawsuits and based on the ASC 606 Revenue Recognition Standard, we elected not to recognize $5.3 million of design and built revenue related to Button Mary's project in Q3. I want to reiterate that we are confident that we have the legal rights and means necessary to recover the deferred revenue once the legal process runs its course. Button Mary's construction loan is guaranteed by Button Mary's Holding and David Morgan, founder and CEO of Button Mary's personally. You can be assured that Agrify will continue to take every step necessary to pursue repayment from Button Mary's and protect all our shareholders' interests. On top line, Q3 revenue number was also adversely impacted as a result of the tight quarterly cash spending limits imposed by our institutional lender. In order to stay in full compliance, we were forced to make some difficult decisions, but necessary, to end up inhibiting our ability to maximize revenue in Q3. Ideally, we would have liked to convert more of our backlog into revenue. In total, we estimate that the cash spending limit prevented us from realizing approximately $1.8 million in revenue that was otherwise within reach for Q3. In total, we estimate that there was about $7.1 million of the negative impact to our Q3 top line stemming from these two factors. Again, $5.3 million defer due to the Marylis-Button-Marys lawsuits and approximately $1.8 million of business push out to Q4 due to our cash spending limit. Additionally, some of our customers also encounter some unforeseen construction and permitting delays not related to Agrify, which impacted their ability in Q3 to accept some of the products and solutions that they committed to purchase. through Agri-Fight. This had a tangible impact on our Q3 result as well, to the tune of approximately $1.3 million, but these orders are all expected to be shipped in Q4. Despite these hindrances, we generated over $11.2 million in new booking during the third quarter. It is worth noting that starting from Q3, we have decided not to include the expected recurring revenue streams, such as SaaS or production success fee, that often spend multiple years, but do not commence until our customer facilities are fully permitted and operational. Moving forward, we will only associate bookings with hardware sales that we expect to sell in the near term. For SaaS and production success revenues, we will provide the approximate number of VFUs currently under contract and the duration of each recurring revenue. By doing so, I believe this will give everyone a clearer picture of our near-term revenue potential as well as our more exciting long-term recurring revenue streams. Again, the booking for Q3 without the SAS and production success fee was approximately $11.2 million as these are all hardware sales that we could realize in the near term. The additional bookings on SaaS and production fees ranges between five to 10 years with some production revenues attached to it. As the broader business environment continues to be a very challenging one to navigate, we have remained nimble by continuing to adjust our operating approach adapt to evolving customer needs, and develop and deploy technology that is versatile and scalable. We also continue to make progress with our growing product portfolio and are seeing very strong traction with our recent innovations and product offerings. With regard to our operating approach, we have talked in the past about cost reduction and cost efficiency measures we have instituted to promote cash conservation during the industry downturn. To ensure the health of our business, we continue to pursue cost-saving initiatives that will better position our business over the long term to capitalize when the industry returns to growth. I want to be clear that many of the cost reduction and cost efficiency initiatives we discussed last quarter have already been implemented and are still in effect and we are actively evaluating other possibilities as well as we look to protect the company from the turbulence we have encountered in recent months. Now, some of the other developments. We continue to see very strong traction with our rapid deployment program, the RDPs. We recently announced three new RDP customers in Illinois, Massachusetts, and South Africa. The combined agreements for these three new customers have an expected base value of $7.5 million in cultivation-related hardware sales. On top, there are also future recurring SAS and production success fees. As a reminder, the RDP program was designed to lower the barrier to entry and upfront investment needed for customers to access the best-in-class pluck-and-play cultivation and extraction capability with an accelerated path to profitability. Using the RDP programs, each customer will have the potential to produce an estimated 7.5 pounds of premium-quality flowers per VFU per growth cycle, with approximately 5.2 growth cycles expected to be possible each year. We are excited to see early customer success with the RDPs. and look forward to bringing the RDP program to even more customers throughout the world. We intend to start taking orders for a greater volume of RDPs starting in the first quarter of 2023 and also in the upcoming MJBiz. We also look forward to showcasing our latest development and advancement in the RDP programs at MJBiz next week. and we will have more to share on that front in the coming days. On the extraction side, I am pleased that we recently announced successful commercialization of the PX10 hydrocarbon cannabis extractor that was initially unveiled in August. The PX10 will soon be installed at three customer facilities, including at a key customer site in Maryland belonging to Alchemist Ventures. Our progress with the PX10 has demonstrated our ability to not only successfully turn a product vision into reality, but also our capacity to work closely with a growing number of prominent customers, including multi-state operators to enable them to our cutting edge solution to grow their business. I'm also happy to report that the development of our new 3.7 VFUs is now complete. and we expect to start shipping these units to customers in the first quarter of 2023. Regarding our TTK projects, the Button Mary project is obviously on hold. The other three customer sites, Treehouse in Nevada, Greenstone in Colorado, and Hannah in Washington, are all left with some mining construction and permitting tasks. We expect that the initial phase of each of these projects will be completed in Q4, at which time the customers are expected to begin to bring in plant materials into their facilities. Once the final license and certification of occupancy are received, which we expect to occur in quarter one, we will be able to start generating the high margin recurring SAS and production revenue shortly thereafter. We still believe that the TTK engagement with our customers across these three facilities will serve as an excellent proof of concept for the underlying business model and the attractive returns of our TTK programs. Last but not least, it was truly an honor for Agrify to be recognized in September when we received the best cultivation technology during the Green Market Report's Tech Summit. The Green Market Report is one of the permanent sources of financial, business, and economic news in the cannabis industry, and its awards recognize companies in the cannabis industry for the creation of innovative products and services. We are a clear leader in the indoor cultivation space, and we have created Agri-Fi has set a new standard for what is possible. In summary, we remain determined to be highly successful over the long term, despite the short-term challenges that we are encountering in recent months. We have conviction in the underlying health of our business for the following reasons. Number one, interest and enthusiasm in our highly differentiated portfolio of cultivation extraction solutions remain strong. As our pipeline of qualified sales opportunities currently stands, and over $31.1 million for cultivation and over $45.9 million for extraction. Our diversified mix of products and services gives us tremendous flexibility to adjust our approach to capitalize on whatever market opportunities are most attractive at any point in time and respond swiftly to challenges that arise in this dynamic operating environment. and probably the most exciting, our products have strong global appeal. And given the quality control is absolutely imperative, especially in the EUs, because of the incredibly high EU GMP standards, we are very confident that our offering will become highly adopted throughout the European market, which is eventually expected to become one of the world's largest market for legal cannabis. Overall, we're getting substantial interest in our cultivation extraction solution from a wide variety of international customers. At this point, I would like to turn the call over to Tim to talk about the financial results for the quarter.