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spk00: Greetings and welcome to the Unrivaled Brands 2021 Third Quarter Financial Results. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time, if you would like to register for a question, please press the 1 followed by the 4 on your telephone. If you require operator assistance at any time, please press star 0. As a reminder, this conference is being recorded online. Monday, November 15, 2021. It is now my pleasure to turn the conference over to Jason Assad, Investor Relations. Please go ahead, sir.
spk05: Thank you, operator. Good afternoon and welcome to Unrivaled Brands' third quarter 2021 financial results conference call. With us today are Unrivaled's Chief Executive Officer, Frank Nuttall, and Chief Financial Officer, Jeff Batliner. Before I turn the call over to management, please remember that this conference call contains forward-looking statements as defined within Section 27A of the Securities Act of 1933 as amended and Section 21E of the Security Exchange Act of 1934 as amended. These forward-looking statements and terms such as anticipate, expect, intend, may, will, should, or other comparable terms involve risks and uncertainties because they relate to events and depend on circumstances that will occur in the future. These statements include statements regarding the intent, belief, or current expectations of Unrivaled and members of its management, as well as assumptions on which the statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, including those described in Unrivaled's periodic reports filed with the SEC, and that actual results may differ materially from those contemplated by such forward-looking statements. Except as required by federal securities law, the company undertakes no obligation to to update or revise forward-looking statements to reflect change conditions. Finally, this conference call is being webcast. The webcast link is available in the investor relations section of our website at www.unrivaledbrands.com. With that, it's now my pleasure to turn the call over to Unrivaled Brands CEO, Frank Nuttall. Frank?
spk03: Thanks, Jason, and thank you, everyone, for joining us this afternoon to discuss Unrivaled Brands' third quarter operating results. As we have in the past, I'll provide an update on our three primary initiatives, and Jeff will provide details on our Q3 operating results. I'll start with a high-level review of our operations, proceed with updates on our asset sales and balance sheet, and finish with a summary of our strategic initiatives. To start with, I'm pleased to report the operating results for our first quarter after merging with Umbrella. which represents the first step towards our plan to become the dominant West Coast MSO, or multi-state operator. During the third quarter, we recorded 23.4 million in revenues, up 274% from 6.3 million in revenues during the second quarter of this year, and up 668% from 3.1 million in revenues during the third quarter of 2020. For the legacy TerraTech operations, which provides insight into the operations not including the effects of the umbrella merger, revenue for the third quarter was $6.3 million, up 1% over the second quarter of this year, and up 107% over the third quarter of 2020. While Jeff will provide more details shortly, I would also like to note that our non-GAAP loss, which reflects the elimination of non-cash or non-recurring items was down considerably from a year ago and down marginally from the second quarter of 2021. For the third quarter of 2021, our non-GAAP loss was 0.9 million, down 93% from the third quarter of 2020 when we had a non-GAAP loss of 12.7 million. This puts us on track for what we expect to be EBITDA positive in Q1 2022 as previously anticipated. A full non-GAAP reconciliation can be found in our 10Q filings. As a summary of our current operations, our business is comprised of five parts. Retail, which includes dispensaries and direct-to-consumer delivery, distribution, brands, cultivation, and bulk. While all these pieces are vital to the operation of the business, we believe the long-term value creation will come through the development of product and dispensary brands, both of which will be our primary areas of focus going forward. As part of our product brand development, we are supporting and growing our brands through access to dispensary shelves and delivery menus. Many iconic brands have been created in California, and as the largest market in the country, the brand winners in this state will, we believe, capture meaningful and broad customer appreciation over time. As part of providing as wide a consumer base for our brands as possible, We place our brands in our own dispensaries and our own delivery menus. As part of this, it's worthwhile noting that neither People's nor Silver Streak carried any of our brands prior to the acquisitions, which opened the door for strong cross-selling opportunities. By loading our brands into the People's dispensaries and Silver Streak delivery network, we expect to capture a greater portion of the margin available to us, generating greater cash flows. Also of significant importance to brand development is providing our brands into our distribution network. California and Oregon are fragmented markets, and having our own distribution, while a lower margin business than either product brands or dispensaries, provides us with control of the sales process, allowing greater influence over shelf placement, quicker response time for our dispensary partners, and a better understanding of our customers' needs. As a frame of reference, we sold into approximately 440 dispensaries in California over the last 90 days and approximately 330 dispensaries in Oregon over the last 90 days. One additional attribute of our distribution operation is that we distribute complementary third-party brands, which fill out our product portfolio and also allow us to amortize our distribution network across a larger revenue base. Notwithstanding the operational benefits we experience, which I previously discussed this afternoon, from distributing our own brands, our market analysis suggests we do so at a lower cost than if we outsource this service. With that said, there are always areas for further improvement. As part of the full integration of Umbrella, we closely reviewed each business vertical and determined that we needed to take a reserve against older inventory in the approximate amount of $4 million. This one-time integration event has the effect of reducing our gross and operating profits and margins for the quarter. We believe this change addresses old product in the bulk and distribution components of the business, and that this will allow us to more effectively manage distribution and bulk inventory against our sales levels going forward. With that said, the bulk market is one of the more challenging components of the industry, and we're keeping a close eye on wholesale pricing and volume. Turning to asset sales and balance sheet items, of note, as a reminder, we have a note receivable and puttable equity in the approximate amount of $12.5 million associated with the sale of two dispensaries in Nevada in early 2020. The note receivable in the amount of $4.2 million is due in late December of this year, and the puttable equity in the amount of $8.3 million can be sold if the buyer starts trading were redeemed by the buyer in numerous tranches starting in January 2022. In addition, we exercised our option to purchase approximately 20% of Edible Gardens for the sum of $2. We received this option as part of the sale of Edible Gardens in March 2020, and with Edible Gardens filing of an S-1 to go public, we felt now was an appropriate time to exercise our option. While there are many variables in terms of understanding the value and the outcome of that filing, we believe there could be additional upside to unrivaled brands if we're able to monetize that investment. As per my comments last quarter, we remain committed to building our footprint on the West Coast, both organically and strategically. Addressing the latter item first, as previously mentioned or reported, we closed on the merger with Umbrella on July 1st, and the acquisition of Silver Street on October 1st, and entered into a definitive agreement to acquire People's. Following the close of Silver Streak about six weeks ago, we have made substantial progress in the operational integration of the company. As part of this, we have augmented their existing technology stack, updated the branding and website, and launched an electronic payment platform. In addition, we are developing a phone-based ordering app that we expect to roll out in 30 to 45 days. On top of the operational integration improvements, we have expanded the SilverStreet platform to our San Leandro facility in early November, sharing customer database facilities and inventory. We're in the process of launching our marketing campaign, and while it is early yet, we believe that this could add meaningfully to our San Leandro revenues. We're strong believers in marrying retail and delivery, and believe there are good synergies between the two, allowing for greater amortization of facilities and inventory and greater margin than either would have on a standalone basis. As part of this, we'll continue to roll out the delivery platform to additional dispensary locations in the future. The People's Acquisition continues to move towards closing. We had hoped and expected to have it completed by now, but regulatory approvals and the normal process has taken a little longer than expected. With that said, we're substantially through the process and expect it to be completed soon. In the meantime, we're operating the existing dispensary under a management services agreement, under which we have full control of the operations and receive all the financial benefits of the dispensary sales. In addition, there are some operational improvements we expect to roll out in the coming months. Including in this is the launch of a customer loyalty program, which has been very effective for us in our other dispensaries, launch of electronic payment modalities, as the dispensary is currently cash only, and the addition of our brands in the shelves in each of the three announced people's dispensaries. The first of which is in Orange County, which is opened and operating as previously discussed. With respect to the other two announced dispensaries pursuant to the acquisition, Downtown LA and Riverside, we're making good progress on the openings. As previously indicated, we expect to have both dispensaries open in Q1 2022. I'm happy to report the opening of the downtown LA location will come in ahead of schedule, and we now expect a soft opening in about three weeks and a grand opening about a week or two thereafter. We have developed a robust marketing plan encompassing multiple different online and on-the-ground channels and believe that our dispensary, one of the few with dedicated parking in downtown LA, will grow nicely in the coming months. With respect to the Riverside dispensary, we remain on target for an opening in Q1 2022. It has prominent highway frontage on the 215 with easy highway access and believe that the Riverside dispensary will also be a strong performer once it is open. We have no specific update with respect to the other two license applications that are part of the people's acquisition in designated locations in Southern California. Other than to say the process is moving forward. We will provide updates in these two locations when further information becomes available. With respect to our organic growth initiative, we formally opened our Hagenberger cultivation facility in Oakland and we have plants in three of the four rooms at this time. We expect the first harvest will be in early December and the strains have been carefully selected for our Korova brand. As previously stated, the Hagenberger facility is approximately twice the size of our existing cultivation facility in Oakland. and we expect it will provide high-quality, regular source of flour to drive the growth in the Korova brand. I would also like to give an update on our Dyer Road location, which is the other unfinished facility we have discussed in the past. Following the acquisition of Peoples, market developments, particularly for flour and other strategic discussions we are having, we are evaluating how it fits into our overall growth plan. Of particular consideration, we are reviewing whether or not the capital to open the facility might be better spent on other strategic initiatives. While we have not completed our analysis, we expect to have further updates in the coming weeks and will provide such information when available. Overall, we are pleased with the progress we have made, but we are never satisfied. While we have a great deal more work to achieve, our goal of being the dominant West Coast and there are certainly operational, merchandising, and other improvements we are reviewing, we are pleased that we consider very meaningful and material strides during the last 10 months. With the expanded footprint, both that which is already open and that which is opening in the coming months, we'd like to take this opportunity to affirm our revenue guidance for 2022 in excess of $130 million for the year, notwithstanding any new relationships, partnerships, or acquisitions we may make. Further, following the transformational mergers and acquisitions we have entered into this year, we intend to become more focused on operating margins and a return on invested dollar for both organic projects as well as acquisitions. Finally, I'd like to thank every member of the Unrivaled team for making this happen. Their incredible diligence, dedication, and hard work is very valuable to us in managing the business. It has truly been a team effort and one for which I am very proud. That concludes my prepared remarks. With that, I would like to now turn the call over to Jeff, our CFO, for a detailed look of our third quarter 2021 financial results. Jeff?
spk07: Thanks, Frank, and good afternoon, everyone. For the quarter ended September 30th, 2021, we generated revenues from continuing operations of approximately $23.4 million. compared to approximately $3.1 million for the quarter ended September 30th, 2020, an increase of 20.3 million or 668%. Revenue dramatically increased as a result of the company's successful merger with Umbrella Inc., as well as the management services agreement signed at the beginning of September with Peoples California to operate one of the leading retail locations in the state of California. The umbrella merger has provided the company a distribution network in California and Oregon that generated over $13 million for the three months ending September 30th, 2021. It also provided an additional retail location which operates as the spot, but generated over $2.3 million in revenue in the third quarter of 2021. The people's management agreement provided a retail location that contributed considerable revenue in the first month under our management. Viewed another way, the $23.4 million in the third quarter revenue breaks down as follows. $7.2 million in retail revenue, $14.6 million in distribution revenue, and $1.6 million in cultivation revenue. The company generated $2.3 million in gross profit for the quarter ended September 30, 2021, compared to approximately $1.4 million for the quarter ended September 30, 2020. This was an increase of approximately $850,000, or 59%. Now, the growth in gross profit didn't quite keep pace with the revenue growth. However, we did take a $4 million inventory reserve that hit cost of sales and negatively impacted our gross margins for the quarter. The merger with Umbrella and the management services agreement with Peoples has led to a larger organization with more operations, with additional facilities, employees, and the cost to support them. So our selling general administrative expenses for the three months ended September 30th, 2021 were 13.5 million compared to 5.6 million for the three months ended September 30th, 2020. An increase of $7.9 million or 142%. Now keep in mind while we experienced an absolute dollar amount increase year over year due to a larger organization, on a percentage of revenue basis, we've seen significant decrease year over year. Our third quarter of 2021 saw SG&A expenses at 57% of revenue compared to 183% of revenue for the third quarter of last year. Some of the key drivers include employee-related expenses increased by $1.6 million, or 69%, in the third quarter of 2021 as compared to third quarter prior year, as we now have 286 employees compared to 60 from last year. Facilities and related expenses, such as rent, utilities, repairs and maintenance, security, insurance, increased by $1.2 million in Q3 of 2021 over Q3 of 2020, as we added three distribution centers and two retail stores this quarter. Services expenses, which include advertising, accounting fees, tech support, and other professional fees increased by $980,000 in the third quarter of 2021 compared to the third quarter of 2020. Options expense and director's compensation increased by $820,000 with the additional employees and with the addition of two more independent board members here in 2021. Taxes, licensing, and permitting fees increased by $740,000 compared to Q3 of prior year. The company realized an operating loss of $11.2 million for the three months ended September 30th, 2021, compared to an operating loss of $13.9 million for the three months ended September 30th, 2020, an improvement of $2.7 million or 20%. Other expense for the third quarter of 2021 was $550,000 compared to approximately $160,000 in the third quarter of 2020. an increase of $393,000. This increase was attributed to additional interest expense this year and lower other income compared with Q3 of last year. In discontinued operations, we realized a net gain of $6.3 million for the third quarter of 2021 compared with a net loss of $4.2 million for the same timeframe last year. This was an improvement of $10.5 million over the three months ended September 30th, 2020, primarily resulting from the completion of the sale of our Bloom Decatur assets in Nevada. As a reminder, this sale was agreed to in the second quarter of 2019 and took over two years to receive Nevada state and local governmental approvals. We incurred a net loss of $5.35 million or one cent per share for the three months ended September 30th, 2021. So it was an improvement of $0.08 per share compared to the net loss of $18.2 million or $0.09 per share for the three months ended September 30th, 2020. The improvement in net loss was attributable to both management's continued focus on efficiency, as well as integrating the legacy Terratech operations, the legacy Umbrella operations, and the legacy People's operations together. The newly combined company had sales general administrative expenses increased by 145% to $13.5 million in the third quarter of 2021 compared to the third quarter of 2020. However, the business also saw revenue expand by $20.4 million or 668% over the same timeframe. As we integrate our mergers and acquisitions together, we will most likely incur legacy-related one-time hits. that have significance in their impact to our financial statements. We feel that the schedule showing non-GAAP measurements continues to provide clarity into our performance. In this quarter, when we eliminate such items as the $1.6 million in stock comp expense, the $2.2 million in amortization and depreciation, the $185,000 on loss from extinguishment of debt, our non-GAAP loss is $880,000 for the quarter. This is slightly more than a $200,000 improvement compared to last quarter. I would like to reiterate, management intends to continue to invest in further expanding our operations and comprehensive marketing activities with the goal of accelerating the education of potential clients and promoting our name and our products. Management intends to continue its efforts to increase revenue and improve the efficiency of operating expenses. Given that most of the operating expenses are fixed or have a quasi-fixed character, management expects that as revenue increases, those expenses as a percentage of revenue will decrease. And we started to see that in the third quarter. I would like to thank everyone on the Unrivaled Brands team involved in getting this filing to the finish line. And thank you to you, our audience, for your attention today to this financial Q3 summary. Operator, you may now open the call for questions.
spk00: Thank you. If you would like to register a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw, please press the one and the three. Once again, to register, please press the one followed by the four. Our first question is from the line of Micah Victory, private investor. Please go ahead.
spk09: Yes, thank you. I'd like to get a little feedback on what your thoughts are with the Safe Banking Act coming up and the latest bill introduced today by the Republicans.
spk03: Sure. So I'm happy to chat about that. And, you know, there's a number of legislative initiatives in Congress, anywhere from things as – relatively straightforward as the Safe Banking Act, which you asked about, to the Schumer and Booker bill, which is much more expansive in its scope. Given the dynamic in Congress and the relative split between parties and everything else, I think the more expansive bill is going to be difficult, but there certainly seems to be support generating and growing for something along the lines of the Safe Banking Act. So, you know, in that the, you know, it hasn't really made it out of committee yet, and we haven't seen what the final bills look like, I am more comfortable that we will see a safe banking-like act in the next four to six months than I have recently. So I think it's likely that we'll see something, and for banking and that sort of thing. And the more expansive legislation will just frankly take longer.
spk09: Thank you very much. Appreciate your input.
spk00: And once again, as a reminder to register for questions, please press the one followed by the four. Our next question is from Mike Tedesco, private investor. Please go ahead.
spk06: Yes, thank you. I just had a question about the Unrivaled brand share price. I was just wondering if you guys have any plans on how far or how long it might take to get it back to over a dollar. I believe it's right now sitting at around 40 cents a share. If you have any thoughts on that and if you're going to go more institutional buying for us or how we might be able to increase that share price in the short and long term. Thank you.
spk03: Sure. So, you know, I really can't comment on when and if, because frankly, I don't know the answers, nor do I have any control over that. You know, my long-term feeling is that if you build a good company and provide investors with information and transparency and that the stock price will follow. So our goal is to, frankly, build a good company, do what we say we intend to do, and that is to continue to build out our footprint in the West Coast, start generating cash flow from operations, and continue building out our base. And at some point, by way of our efforts through earnings calls and investor conferences and non-deal roadshows, one-on-one conversations with folks. We hope to continue to get the message out. Certainly, with respect to the last caller, if something along the lines of the Safe Banking Act does go through, I would think that that would have a positive impact. But again, Our goal is generally to build a good company, and the share price will do what it's going to do, and it should presumably follow if we build a good company.
spk02: Okay, great. Thank you.
spk00: Our next question is from Mike McBride, a private investor. Please go ahead.
spk01: Hey there. I had a quick question. You referenced the edible garden still having potential ownership. If I recall correctly, they're based in New Jersey. Are they applying for a marijuana growing license? Now, that's a legal state. Or do you have any additional insight into that situation?
spk03: I do not have any insight as to whether or not they're filing for that.
spk02: So I'm sorry I can't answer or provide any more information on that question. Okay.
spk00: Our next question is from Jim Hansen, private investor. Please go ahead.
spk08: Hi, thank you for taking my question. If my math is right, your gross margin is running about 27%. If you add back the impairment for your inventory expense this quarter, how does that compare to the industry benchmark, and what are your plans to seeing that get higher?
spk03: So it's... The industry is still an early enough stage, and there's a lot of variability. So it's tough to say that there's an industry benchmark. Our organization also is a little bit unique with respect to the fact that we have a broad footprint in brands, distribution, and retail. And as I chatted about earlier in my prepared comments, distribution has generally a lower margin, is generally a lower margin business, but we feel is really valuable to the support of our brands and the growth therein. So I think we anticipate as more of our dispensaries open, that our normalized gross margins will continue to increase. But I think the industry is still in a bit of its early stages to really have a good benchmark.
spk02: Thank you.
spk00: Our next question is from Neil Gallagher with Unrivaled Brands. Please go ahead.
spk04: Yeah, I was just curious. Is there any kind of expansion going on in the Las Vegas area now or things have gone down or for the whole Nevada state? Are you going to expand in that state, or what's your plans there?
spk03: We have such an unbelievably large opportunity in Oregon and California and believe that our ability to execute from an operational perspective in those states, given the market size, is potentially a better place to invest the company's dollars than in Nevada. So we have our joint venture to our cultivation and manufacturing joint venture in Nevada, but there's no immediate expectation of expanding in Nevada because I think the opportunities are so large in California and Oregon.
spk04: So just as a follow-up, you don't see... Las Vegas as a good opportunity place, just due to the fact of the number of people going there for vacations and so on and so forth?
spk03: I think it's certainly a good opportunity. I mean, we consider a number of issues beyond just the total market size, one of which is the cost of entry, another of which is its geographic location away from California. We saw during COVID that when tourism went down that a lot of revenue in Nevada fell quite a bit as well. And then the whole Nevada market does seem to be softening a little bit. So we're certainly keeping very aware of it, but there's a lot of considerations that go into whether or not we decide to enter the market, one of which is return on our investment. So I think at this time, we're gonna continue to monitor it and see how it plays out. But in the meantime, we have such significant opportunities where we are operating fully that we're gonna focus primarily on those two states.
spk02: Thank you, appreciate that.
spk00: And Mr. Nuttall, it appears we have no further questions at this time. I'll turn the call back to you. You may continue with your presentation or closing remarks.
spk03: Thank you very much. So on behalf of the company and all our employees, I want to thank everyone for your continued support, for getting our update today, and I look forward to continuing to grow and build the company in a focused manner, as we've previously discussed, and we'll endeavor to as much as possible to provide transparency to all of you. Thank you again for attending, and I appreciate your support.
spk00: And that does conclude the conference call for today. We thank you all for your participation and kindly ask that you please disconnect your lines. Have a great day, everyone.
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