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spk06: Thank you for standing by. This is the conference operator. Welcome to the Avant Brands Inc. fourth quarter and year end 2021 results conference call. As a reminder, all participants are in a listen only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Alyssa Berry, Investor Relations. Please go ahead.
spk05: Thank you, operator, and good afternoon, everyone. Welcome and thank you for joining Avant Brand's fourth quarter and fiscal 2021 results conference call. My name is Alyssa Berry, Investor Relations for Avant Brand. Speaking on our call today is Avant's founder and CEO, Norton Singhaven. and Chief Financial Officer Matthew Witt. Avant's Chief Operating Officer David Lin is also present and will be participating in our Q&A session. Our fourth quarter and fiscal 2021 results were disseminated yesterday and are available on CDAR and on our website at www.avantbrands.ca. Before we get started, I wish to remind everyone that some statements made on today's call are forward-looking in nature and therefore subject to certain risks and uncertainties, which are all outlined in detail in a regulatory filings available on CDAR. On this call, we will refer to the company as Avant Brands or Avant. We recognize that most of you have already reviewed our results issued yesterday. So being mindful of your time, Norton and Matt will keep their comments brief and we will then transition to our Q&A session. As we enter a new year, We take a brief opportunity to look back on our accomplishments this past year and provide the basis for our strategy and direction for 2022 and beyond. With that, I will turn the discussion over to our CFO, Matt Witt, who recently joined us in January to share the company's financial highlights. Norton will then provide a strategy update. Please go ahead, Matt.
spk00: Thank you, Alyssa, and good afternoon, everybody. A special thank you to those of you on Eastern Time for sticking with us late on a Friday afternoon. It's a pleasure to meet everyone. This is my first quarter as CFO, and I want to let you know that I am available to discuss our year-end results, and I look forward to connecting with our shareholders and the broader investment community. Please feel free to reach me directly through email for a chat. Touching on the key highlights for the fiscal year ended November 30th, 2021. We achieved record gross margins of $11 million, up 25% from the prior year. Gross revenue, sorry. Record gross revenue of $11 million, up 25% from prior year. Of this, recreational cannabis sales were up 29% to $7.8 million, demonstrating the significant demand for our premium cannabis brands. Cash outflow from operating activities before working capital was $1 million, compared to cash inflow of $1.4 million last year. The decrease was a result of our investment in new product development, packaging, and other initiatives that we expect will generate positive operating cash flows going forward. Gross margin before fair value adjustments was $3.7 million, or 39%, compared to $4 million, or 50%, the decrease being partially a result of launching concentrate products through third-party manufacturers. We do expect to receive the necessary licensing soon to increase that gross margin on those products. Operating expenses from continuing operations increased by $1.8 million, or 46%. The increase in operating expenses in the current year is due to various one-time non-recurring expenses, such as fees related to the TSX graduation, multiple financings during the year, and associated professional fees. Net loss from operations was $5.4 million compared to net income from operations of $0.3 million last year. Comprehensive loss was $11.2 million compared to $10.2 million. The comprehensive loss for the current year includes the one-time non-recurring fees related to TSX graduation, financings, and associated legal fees, a $5.8 million write-down on intangibles and goodwill, and a $1 million loss on extinguishment related to the repayment of debt. Despite the net loss, we have maintained a strong capital position with approximately $14.3 million of cash, $23.8 million of working capital, and no debt as at November 30th, 2021. and we had an adjusted EBITDA loss of $1.6 million compared to $0.1 million last year. Overall, we are pleased with the results that we have achieved and our strong capital position with cash on hand, ample working capital, and no debt. This provides the flexibility to be both strategic and opportunistic as we continue to grow our business. On top of that, the base shelf prospectus that we filed last year for an aggregate offering of up to $50 million provides us with flexibility to capitalize on financing opportunities. during the 25-month period that it remains active. I'm just under 60 days into my role as CFO, and I have been impressed by the caliber and the dedication of the Avant team. Under Norton and David's leadership, we run very efficiently, and we are extremely tactical in our approach to opportunities, which I believe has contributed to Avant's success to date and will further propel our business. And finally, a big thank you to Norton and the team here, as well as the board, for their support during my transition. I will now pass it over to Norton for his remarks.
spk02: Thank you matt and good afternoon everyone further than matt's comments, we believe we are well positioned to continue growing our market share, while building upon our strategy to be an industry leader within the premium category of cannabis. 2021 was a transformational year for us, we graduated from the TSX venture to Canada's most premier exchange at Toronto Stock Exchange, we graduated from the OTCQB onto the OTCQX. completed a full corporate rebrand of G-Tech Holdings to Avant Brands to better align with our objective of being an innovative leader in the premium cannabis category. We strengthened our board of directors with three new appointments, including appointing an independent director, sorry, independent chairman, Juergen Schreiber. Our 3PL facility, which is a 60,000 square foot JV facility, was licensed, which is expected to deliver revenue growth over this current year. We conducted one of the largest bought deal financings within our peer group by raising $23 million at a unit price of $0.80. And we eliminated all of our debt, which is approximately $8 million. On the sales side, our production was up by 13%, which doesn't include any product harvested from our 3PL facility, which commenced post-year end. We sold a total of just over 2,000 kilos of cannabis, which is a 58% increase in volume compared to last year. Black Market continued to be a top-selling premium brand in all Canadian provinces that we are in, and our One Grand Prix rolls rapidly emerged as a top-selling pre-roll in BC and Ontario. Our core channel strategy of REC cannabis sales accounted for 80% of all sales compared to 79%, which demonstrates the significant demand for our REC products. We expanded our sales team to increase engagement with provincial liquor boards, wholesale distributors, national chains and retail stores to enhance our sales relationships. We entered into the global cannabis export market with shipments overseas that totaled over 200 kilos and we've signed three more export agreements with customers in Israel and Australia. New product innovations are the theme for 2021 and will continue to be a focus for us. Looking ahead, we anticipate that fiscal 2022 will be a pivotal year for us as we begin to realize the benefits of our investments in our facilities, licensing, innovation, and marketing. We anticipate that these benefits will directly result in unprecedented growth for 2022. Some of the key initiatives that will drive the business forward for the current fiscal year include 3PL going into full production, which is expected to significantly increase our revenues. Further develop innovation to expand our product offerings within the concentrate segment. Secure Health Canada license amendments to facilitate direct sales of concentrate products to provincial liquid boards with the aim to enhance gross margins on these products. Continue to operate in a fiscally responsible and disciplined manner while exploring opportunities to deploy our capital internally, which may include expansion, operational efficiencies, or new product innovation, or externally, which may include partnerships, investments, and acquisitions. We'll continue evaluating all operational costs and budgets with a goal to be profitable in the near future. We also seek to expand our global expert client base in our existing markets and enter into new markets as well. And also, finally, further build on initial success of Treehugger and Cognoscenti brand activations. With the recent licensing of our new 3PL facility, our new cultivars, multiple global export deals signed, we believe we are well positioned for growth over the coming quarters. With that, now we'll open up for Q&A.
spk06: Certainly. We will now begin the question and answer session. To join the question queue, you may press star, then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press a star and two. The first question comes from Frederico Gomez with ATB Capital Markets. Please go ahead.
spk03: Hey, good afternoon, Norton team. Congrats on the results. Could you talk about what you're seeing in terms of pricing in the premium RAC market here in Canada? How do you think that will evolve in 2022? Will we see any margin compression or inflation? Any trends that you could point out to there? Thanks.
spk02: Thanks, Fred. I think historically over the last few years, we've definitely seen margin compression. I think the premium category, we're seeing it a little bit less versus I would call it the middle ground or the value products. Do I think that prices will continue to drop? I think the industry is getting competitive. There's more and more smaller producers coming online. But at the same token, I think I'm very confident in us being able to maintain still a very competitive selling price. We always price in line with our peers. And in terms of inflation, I don't really know if that's going to affect us too much, but I don't have a crystal ball either. So we'll have to see.
spk03: Okay, thank you. And then maybe some color on what's your current capacity here in Canada right now? How much of that are you currently using? And then you mentioned you're maybe, you know, pursuing some acquisitions, you know, acquiring other facilities. So what's the target size that you're looking for in terms of those facilities? Thank you.
spk02: Yeah, so prior to 3PL, we were about 4,000 kilos a year of capacity. With 3PL now, that number is expected to be closer to 10,000. We see significant demand. We're turning away export clients every day. I don't really know what the magic number would be, but I think for us, we have the ability to probably increase our capacity up to anywhere from 14,000 to 16,000. And I think that'd be a comfortable short-term goal based on what we're seeing in today's market. And in terms of strategic acquisitions, you know, we're looking at everything. There's a lot of companies out there that are struggling. I think there's also a lot of companies out there that are lean and mean and nicely profitable businesses. So, you know, we're a growth company and we're always evaluating opportunities.
spk03: Okay. And maybe just one last question. So it seems like you're seeing demand coming from Israel and Australia, but you also have a limited supply of product relative to your capacity right now, or so it seems. So how do you decide between exporting product or shipping it to producing it in Canada for the domestic market or exporting product to other international markets?
spk01: I'm going to hand that one over to David Lynn. I think the short answer to that is that the Canadian business is our first priority. That's primarily the rec business in Canada, so supplying the liquor boards. We also have a medical business which is growing, but that's relatively small. So we supply our rec customers first, and to the extent that we've got additional product that's available for sale, we offer that to the export clients. Okay. Okay.
spk03: That's helpful. Okay. Thank you. I'll be back in a few.
spk06: Once again, if you have a question, please press star 21. Next question comes from Evan Lehmann with KPM. Please go ahead.
spk04: Good afternoon and thank you for taking my questions. Congratulations on a record-breaking revenue year. I was curious, with nearly 1,000 kilograms of cannabis produced but not sold this year, is overproduction at all a concern?
spk02: Not at all. I'm going to let David Lynn take this one. It's a very simple answer.
spk01: Yeah, I think what you see is sometimes there's product that takes a little longer to work through the supply chain. So there's various examples of that. There's product that ends up making its way into pre-rolls, for example. So smaller flour might sit in inventory for a period of time and then be converted to pre-rolls. We have similar issues with export. There's a lot of work that goes into each export shipment, often many weeks and even months of consolidating different lots to create some critical mass for export. Most importantly, we have robust demand for our products, so any inventory that you see is short-term in nature.
spk04: Okay, wonderful. Thank you for the color on that. I was also curious how seriously you guys are looking at these acquisitions and what's driving this need for the 16,000 square feet?
spk02: You mean 16,000 kilos? Yes, yes. I apologize. Yeah, I'm sorry. What was the first part of your question again?
spk04: How seriously are you guys looking at these acquisitions? Do you have any particularly in mind, or is this just the beginning phase?
spk02: We've been looking at acquisitions, I think, since probably about a year now, since we finished our bought deal, because originally people started approaching us, Are we actively and aggressively seeking? I wouldn't say aggressively, but we're always keeping our minds open because we see a tremendous opportunity in putting our genetics into another facility and putting that product into our REC brands or expert clients. There are a lot of facilities out there, a lot of producers who don't have the operational excellence that we do or the genetics that we do. You know, it's something that we're constantly evaluating. And being a public company with a strong balance sheet like us, we get approached, and sometimes we're approaching others too. But nothing that I can really disclose or nothing that, yeah, I guess.
spk04: Absolutely. Understandable. You guys certainly have the balance sheet to do so. Thank you for taking my questions. I appreciate it.
spk02: You're welcome.
spk06: Once again, if you have a question, please press star one now. As there are no further questions from the phone lines, This concludes the question and answer session. I would like to turn the conference back over to Norton for any closing remarks.
spk02: Thank you again everyone for joining us. As things begin to open up again, we're hoping to host an in-person investor day here in Kelowna with an opportunity to tour the 3PL facility and meet our team. We'll share more details of this as things firm up and hopefully many of you will be there. Thank you everyone once again and have a great weekend.
spk06: This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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