This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk02: Please note this conference is being recorded. I will now turn the conference over to your host, Valter Pinto, Managing Director of KCSA Strategic Communications. You may begin.
spk01: Thank you, Operator. Good afternoon, everyone. I'm joined today by Mr. Steve Hubbard, Chief Financial Officer and Interim CEO of Stem Holdings. Following our prepared remarks, we'll host a brief question and answer session. The company's Form 10-K for the period ended September 30, 2021, was filed with the U.S. Securities and Exchange Commission today, January 13, 2022. Today's call will refer to various non-GAAP financial measures. Today's discussion will include actual historical information as well as forward-looking statements that are based on assumptions which are subject to risks and uncertainties that could cause actual results to differ materially from those in these forward-looking statements. Management can give no assurance that any forward-looking statements will prove to be correct. Forward-looking statements discussed in this call are relevant as of the date of this call, and the company undertakes no obligation to update or revise any of these statements, except as required by applicable law. Management refers you to the cautionary statements and risk factors included in the company's MD&A, of which any forward-looking statements made are qualified in their entirety. All information is in U.S. dollars unless otherwise specified. I'd now like to turn the call over to Steve. Steve, please go ahead. Thank you, Walter.
spk00: Good afternoon, everyone. Thank you for joining us today for our 2021 fiscal year-end conference call. As newly appointed interim CEO and CFO and member of the Board of Directors for STEM since its inception in 2016, I'm pleased to be speaking with everyone this afternoon and look forward to communicating with you all going forward. Today, I will briefly review our financial results for the year ended September 30, 2021, but more importantly, provide more detail as it relates to our strategy going forward. Revenue for the fiscal year 2021 totaled $41.8 million. This includes $17.5 million from driven deliveries that has been subsequently divested. Revenue from continuing operations, not including driven, was $24.4 million, an increase of 48.8% as compared to $16.4 million for the prior fiscal year. Net revenue from continued operations after discounts and returns totaled $20.9 million, which was an increase of 49.3% as compared to $14 million for the prior fiscal year. At the end of fiscal year 2021, the company reported non-cash impairment expenses associated with the driven deliveries divestiture that totaled $52.5 million, predominantly related to the intangible assets and related party receivables of driven deliveries. Adjusted EBITDA loss for the fiscal year of 2021 totaled $5.8 million as compared to $5.5 million in the prior period. The net loss for the fiscal year of 2021 totaling $64.6 million, which was predominantly attributable to the $52.5 million non-cash impairment charge related to driven deliveries. In December of last year, we announced our divestiture of driven deliveries, its subsidiaries, its assets, and liabilities. After careful consideration with our board, we made the strategic decision to divest this asset, which will return 11.5 million shares to the Treasury and immediately improve our balance sheet and cost structure. Our total liabilities will be reduced by $7.1 million, working capital will increase by $4.1 million, and total expenses will be reduced by $9.6 million annually. Immediately, STEM is in a much healthier financial position, allowing us to focus our resources on high growth, high margin, vertically integrated cultivation and processing, and retail operations predominantly in Oregon and California. Our number one priority is operations and to achieve operational profitability in calendar year 2022. To do so, we must get back to our roots and regain our best-in-class reputation. We were founded with a vision for world-class cultivation and we followed with a family of brands and retail locations. We now have a core cultivation capability and a retail footprint to allow for significant growth that will enhance enterprise and shareholder value. In Oregon, we have four cultivation locations. 42nd Street, premier indoor facility just outside of Eugene, with 28,000 square feet and 22 grow rooms. Hillsboro, a state-of-the-art indoor grow room with 10,000 square feet. Milano Farms, sitting on about 14 acres with 12 commercial-grade greenhouses. and Applegate Farms on 40 acres in the foothills of the Siskiyou Mountains of Southern Oregon, currently with two large licensed greenhouses. We are keenly focused on improving yields at each location while also increasing quality. Today, we are producing at less than 50% of our capability. As we increase yield and harvest new high-quality products, we expect significantly increased sell-through from both our retail stores and through our wholesale distribution. Today, we have five retail locations under the TJ's brand. We have stores in Portland, Salem, Three in Eugene, TJ's Garden, and Eugene, period. TJ's Gardens and Yerba Buena will continue to be our leading consumer product flower brands. Yerba Buena is an organically grown cannabis brand known both for its variety of THC and CBD cultivars. Our TJ's Gardens brand is known in Oregon for its unique flower cultivars and terpene profiles and is poised for a renaissance. as our new cultivation leadership recaptures its position as leader in this premium segment of the market. We also have strong brands of products in edibles and extractions that can grow dramatically as we introduce new and exciting products from extracts of our premium marijuana plants. While our primary focus will be in Oregon, we are pleased to announce Foothill Health and Wellness Store in Sacramento, California previously a medical sales-only store, just received approval for recreational adult use sales. We acquired the medical license for this location in 2020, and that has been one of our best performing locations. In 2021, this location did approximately 5.5 million in medical revenues. With our adult use license, we believe we can significantly increase revenue at this location. As we conclude our prepared remarks, As I mentioned earlier, our number one focus is operations and the path to profitability. For our non-core assets outside of Oregon and California, we will be opportunistic in the best interests of our shareholders. Thank you for joining us today. I would now like to turn the call over to the operator for questions.
spk02: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question is from Joe Gomez with Noble Capital. Please proceed with your question.
spk04: Good afternoon. Thanks for taking my question. Hi, Joe.
spk03: I was wondering, Steve, could you talk a little bit on what remains on the non-core businesses and what your initial thoughts on some of them are in terms of keeping, looking to exit? Any insight there would be greatly appreciated.
spk00: Well, you know, We've got confidentiality agreements and other things like that. I don't know that I can talk about them in the semi-public format. But I can speak generically. In the case of assets where we are less than 100% owner, I am interested in either becoming 100% owner or divesting of the asset. I believe we need to manage our assets. So being a minority holder, even a majority holder, but less than 100%, reduces our ability to control the asset, in my view. So that's a partial answer to your question. Either divest it or own it all.
spk04: Okay.
spk03: Now... just trying to get a better handle on exactly what are some of these assets. Now, earlier in the year, you had in 2021, you know, they had an agreement to open in Michigan. Is that still on the table, or is that one of these assets, or has that expired? You know, they had an agreement to move forward in Colorado same thing is that still move forward or is that you know expired I know we have the Massachusetts ownership and I think one in Maryland also but both of those I would assume would be under the 100% are divest type of there were two deals that I'm aware of in Colorado one is dead
spk00: The other is still on the table, primarily because it relates to an exceptional grower that we might want to have as part of our team. But there's no definitive agreement there. Massachusetts is one. that falls in the category of what I spoke about first.
spk04: I'm not, what was the other state you mentioned? Maryland. I'm honestly not familiar with the Maryland deal. So I can't comment on that. Okay. And Michigan. Likewise with Michigan.
spk00: I mean, I've been here about, two weeks. So I've been kind of focusing on the big, the giant issues, which there are several, but I will look at every one of them. You can call me directly. We can refresh on any of those and see, see where we're going.
spk03: Okay. And I haven't had the opportunity yet to, pardon me, look at, you know, four quarter numbers, but are you guys, I was just wondering, scanning through the 10K just before the call, what can you tell us about the fourth quarter in terms of, you know, the sales through the existing retail locations? You know, were you satisfied with them? Were you looking for more? I mean, where were we standing on those? And I apologize if you talked about this already. I joined the call late.
spk00: No, I didn't talk quarter by quarter at all. No, absolutely not satisfied with the fourth quarter. We had softness across the board in retail, and it seems to be consistent in the industry, but we're going to try to fix that. We have two locations in particular that are underperforming. I don't think that's related to softness. as much as lack of attention. We've got to get those two under control. In the grow operations, I couldn't be more pleased with the direction the grow operations are going right now. They were in rather difficult shape, I'd say, six months ago. We've got a new grow manager who's doing a phenomenal job. and we're going to see some great stuff out of our grow operations.
spk03: Okay.
spk00: It takes a while to grow. It takes a good three months on a good day to make a change and actually see it in revenues. So it'll take a little bit of time, but I can tell you that from personal observation right now, things are moving in the right direction.
spk03: Okay, that's great. Ben? Just, I guess, kind of a big picture item here, you were named the interim CEO. Where does that stand? Is management and the board still out looking for a full-time permanent CEO? Is that something that is of interest to you? Can you tell us where that search is going?
spk00: We haven't initiated a formal search yet. Um, we need to have a board meeting and discuss strategically the right thing to do. Um, I have no intention of being the CEO. Let's just pick a time two years from now. So maybe even a year from now. So we are going to make changes that result in me not being the CEO, but, um, we haven't, we haven't started to search yet.
spk04: Okay.
spk03: And maybe kind of one follow-up, you know, obviously the announcement came out about the sale of driven deliveries. Maybe you could just kind of expand a little bit more what you can and what you can say as to, you know, how did you guys come to that conclusion? You know, how did you come to, you know, kind of the agreement in terms of compensation? the giving up of returning of shares and the movement of debt from you guys over to the Driven. I know maybe you could talk, whatever you can, a little bit more about that whole situation.
spk00: Well, we took on Driven about, and please don't hold me to the dates because it's not a particular deal I was intimately involved in, but let's say a year ago. We tried our best to manage a very bad situation there. They were losing lots of money. Came to the conclusion we were unable to change the culture and direction of that company. And after lots of deliberation at the board level, operationally, whatever, concluded that the best thing for our shareholders, as sad as the whole situation turned out to be, but the best thing was to divest. And we did it in a way where we got back some shares, not as much as we would have liked because they were already pretty much dispersed. So we got back some shares. We got rid of the liabilities. We got rid of the potential legal liabilities related to it. It was just an unfortunate deal. And the other thing that happened during that time is that as we got deeper and deeper into the understanding of the deliveries market in California, it became, I think, clear to us from an operational point of view that it may not ever turn out to be profitable business. Delivery is big. Delivery is important. But in California, the landscape changed a bit and shifted to a point where We took a long, hard look and said, we don't know if we can ever make it profitable. Given that, and given that the management of Driven wanted to have it back, we said, all right, let's make a deal and divest it. You heard during my comments of the various improvements that are being made to our balance sheet or cash flow and whatever, but I firmly believe that was the very best possible decision we could make.
spk03: Okay. And what percent of fiscal 21 revenues did sales through the delivery system account for overall sales?
spk00: Yeah. In 2021, we had $41.8 million of sales that was including Driven. Driven accounted for $17.5 million of that. And So without that, we had $24.4 million in sales, which was up from $16.4 million in sales. So we increased sales on our own by almost 50%. It's actually quite a good year in that regard.
spk03: Right. And we'll hopefully get rid of the losses that were coming through that. Hopefully that turns the whole income statement around when some of the other improvements you're talking about making. That's great. I will step aside and let someone else ask some questions. Thank you.
spk04: Thank you. Bye, Joe.
spk02: We have reached the end of the question and answer session, and I will now turn the call over to Steve Hubbard for closing remarks.
spk00: Well, thank you very much, everyone, for attending. I don't know how many of you are out there. I suspect not too many. But thank you, Joe, for coming and asking some questions. And I look forward to speaking with everyone in the near future.
spk02: This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.
Disclaimer