Kalera Public Limited Company

Good morning, and thank you for joining us today to discuss Calera's financial results for the third quarter of 2022. Yesterday evening, we issued our earnings release, which is available in the investor relations section of our website at investors.calera.com. With me on today's call are Jim Layton, President and Chief Executive Officer, and Fernando Corneo, Chief Financial Officer. We will begin with prepared remarks and then take your questions. Before we begin, I would like to remind you that today's comments will include forward-looking statements as defined under federal securities laws. Forward-looking statements are identified by words such as believe, expect, intend, estimate, project, anticipate, will, plan, design, may, should, or other comparable words and phrases. Statements other than statements related to historical facts, such as statements regarding future results of operations and financial position, our business strategy and plans, and our objectives for operations are also forward-looking statements. Our actual results or performance could differ materially from those contemplated by such forward-looking statements. A discussion of the risk factors that could cause a material difference in our results compared to these forward-looking statements are contained in our SEC filings, including our report on Form 10-Q. Calera assumes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after today. With that, I will now turn the call over to Jim Layton.

Thank you, Julie, and good morning, everyone. We appreciate you joining us today on our third quarter 2022 earnings call. And for your interest in Calera, The last several months have been transitional for Calera. The long-term outlook for regenerative food systems, controlled environmental agriculture, vertical farming, and Calera remains extremely bright. And my optimism for the future of these new forms of agriculture has never been stronger. However, what has undeniably changed over the past six months are the capital markets and the availability of capital for micro-cap companies like Calera. The volatility in markets and interest rates this year have been at times unprecedented and require us to remain flexible and maintain optionality. As I shared with you last quarter and at our analyst event in September, my number one priority since taking the helm as CEO earlier this year is to achieve profitability in our working U.S. farms and in the company as a whole as quickly as possible. We're making great progress on this goal, and I'll provide more details in a moment. Let me first share with you what we must do to achieve our number one priority. There are three, and I repeat, three imperatives to achieving our profitability goals. Number one, materially reducing our cash burn in operating expenses, capital expenditures, and general and administrative expenses. Two, complete the necessary enhancements to our U.S. farms to expand capabilities to produce a wide range of products, allowing us to sell more volume and thus increase the utilization of our farms. And three, solve our capital needs and liquidity challenges. Now let me turn to how we're going to achieve these three imperatives. As we outlined last quarter, We halted capital investments on our international farms and non-operating U.S. farms, with the exception of St. Paul. We made the decision to divest our international assets, thereby eliminating capital and operating the G&A expenses from our monthly cash burn. We are also well into the process of seeking a buyer for Vendara. This will both reduce our cash burn and potentially bring unnecessary capital into the business. In both of these cases, we believe that we will still benefit from the technology and the market potential of these businesses while not carrying the burden of monthly cash outflows of businesses in their startup and cash burning phases. We intend to retain upside in the international business if we want to re-engage at a later date. Calera and many of our customers will still benefit from our great relationship with Indara in areas of efficiency, quality, and innovation. The sale of these businesses will result in a significant reduction in capital, operational, and G&A expenses, allowing us to achieve cash flow break even much quicker than if we continued supporting these businesses financially. This is in the best interest of all of our shareholders as we reduce our monthly cash burn by approximately 50% in the areas of capital and G&A. Next, we are aligning our organizational structure to support the execution of our strategy by reducing G&A to better reflect the size of our current business. The majority of these savings will come from the divesting of our international assets. Optimizing our corporate structure to fit the new size of our business will reduce corporate G&A expenses by approximately 50% annually. These actions to reduce our G&A and capital expenditures will be fully executed and in place early in 2023. To be successful, we'll require continued investment in our U.S. farms. To this end, the public stock offering we completed last month allows us to continue these investments as well as provide the necessary liquidity to run our business. I want to be clear that the most recent public offering did not solve all of our investment and liquidity needs, but it did provide us some runway continue making significant strides in achieving our financial objectives. At our analyst event in September, we told you we needed to invest $50 million in the business to reach profitability at the farm level by the end of 2023. By divesting international assets in Vendara, we estimate to reduce that need by approximately 22%. We expect to reduce the gap further through various strategic options we're investigating to properly capitalize Calera. Fernando will discuss in more detail the potential sources and use of these funds. Our vision and new strategy for Calera is already realizing its benefits and it's on track to deliver profitability at the farm level in 2023. To demonstrate the improvements we're seeing in our business, I want to take just a few moments to highlight some of our third quarter results before Fernando reviews those results in more detail. Our revenue more than doubled compared to Q3 last year as we benefited from growing customer relationships, higher volume, and improved product mix as we executed our strategy to better balance our mix of volume between food service and retail channels. In fact, we added 165 additional retail stores in the quarter for a total of nearly 1,500 at the end of Q3. Polaris products are in demand, and the value proposition for our customers and consumers is clear. On the bottom line, we saw real and sustainable progress in our operational metrics. We are consistently hitting our yield targets. On both the top and bottom line, we are meeting or exceeding our goals, and we continue to push forward to reach profitability in 2023. I'll now turn the call over to Fernando for the financials.

Thank you, Jim. I will begin our discussion with a summary of the third quarter results. On slide six, total revenue increased to 1.7 million, a 109% increase over third quarter last year, and a 30% increase compared to the second quarter this year. The increase in revenue reflects sales increases at all operating facilities, plus the Denver facility that opened in Q2 2022. The increase reflects overall growth from whole head products and also the launch of loose leaf products at the end of Q3, which supports our 2023 profitability strategy. Cost of goods sold was $5.9 million compared to $2.1 million in the prior year period. This includes all operating costs for Orlando, Atlanta, Houston, Denver, and Kuwait farms. SG&A expenses totaled $10.8 million compared to $7.4 million in the third quarter last year and $24.6 million in Q2 of this year. The year-over-year increase was primarily due to increases in additional resources to manage five farms in 2022 compared to three farms in 2021, as well as additional expenses associated with being an asset-listed company. Operating loss for the third quarter was $20.7 million compared to a loss of $11.1 million for the third quarter last year. The operating loss included a one-time non-cash expense of $2.3 million for assets impairment related to the Hawaii and Columbus facilities. Adjusted EBITDA loss was $14 million. We recorded two changes in fair market value during the third quarter. These are non-cash items. One was a gain of $13.3 million that was recorded for the change in fair market value of the earn-out liability compared to zero last year. Also, a net gain of $6.5 million was recorded for the change in fair market value of the private warrant liability compared to zero of last year. Turning on to slide seven, we saw sales growth in both retail and food service in the third quarter for a total of 109% growth over Q3 of last year, with more growth shifting to higher margin retail products. For the nine months comparison, we saw sales growth of 173% increase over last year. We had several non-cash items during the third quarter, as noted on slide eight, including a $19.8 million change in fair market value for contingent value rights in connection to the earn out of Calera SA shareholders and change in fair market value for warrants in connection to the private placement. The total impact for all non-cash items was $17 million for the quarter. Moving on to cash flow on the balance sheet on slide nine. For the first nine months of 2022, cash used in operating activities was $49.4 million compared to $10.3 million for the same period last year. The use of cash was mainly driven by expenses from new facilities that opened in the second half of 2021 and during 2022, and the expenses related to the closing of the Agrico business combination on June this year. Cash used in investing activities during the first nine months of 2022 was 23.4 million and was primarily concentrated on investments in the Denver, Seattle, and St. Paul farming production facilities. That compared to 110.1 million that was invested in Atlanta, Houston, Denver, and Seattle farming production facilities In addition to the acquisition of Vindhara in the same period last year, cash from financing activities was $57.4 million in the first nine months of 2022, compared to $63.2 million in the same period of last year. This resulted in cash and cash equivalents of $2.3 million as of September 30, 2022. Turning on to slide 10, we took important steps to increase our liquidity and strengthen our balance sheet. First, we added approximately 6 million from farm credit, and we also added up to 4 million in financing from the convertible loan. Also, and as mentioned on our last quarter's call, we executed a private placement in the amount of 10 million during the third quarter. Subsequent to the close of the quarter, we also raised $8.8 million before fees and expenses through a public offering. In short-term liquidity, we have up to $6 million under the existing $20 million convertible loan program. In addition, on October 18, we announced our plans to divest our subsidiary, Vindara, and the assets of our international business. We expect these divestitures will address our strategy to bring our farms to cash flow positive much faster than anticipated while reducing capital requirements for all Calera holdings. And now, I will turn the call back to Jim.