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spk02: Thank you for standing by. This is the conference operator. Welcome to the Avant Brands, Inc. Fourth Quarter 2022 Results Conference Call. As a reminder, all participants are in 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 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. I would now like to turn the conference over to Elisa Berry, Investor Relations. Please go ahead.
spk00: Thank you, operator, and good afternoon, everyone. Welcome and thank you for joining Avant Brand's Fiscal 2022 Results Conference Call. My name is Elisa Berry, Investor Relations for Avant Brands. Speaking on our call today is Avant's founder and CEO Norton Singhaven and Chief Financial Officer Matt Witt. Avant's Chief Operating Officer David Lin is also present and will be participating in our Q&A session. Our Q4 and fiscal 2022 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 our 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, Matt and Norton will keep their comments brief, and we will then transition to our Q&A session. With that, I will turn the discussion over to our CFO, Matt Witt, to share the company's financial results. Norton will provide a strategy update. Please go ahead, Matt.
spk05: Thank you, Alyssa, and good afternoon, everyone. Fiscal 2022 was all around a record year for Avant. We continued our trend of strong top-line growth, once again setting new quarterly sales records and achieving record-adjusted EBITDA for Q4 and for the full fiscal year. We are proud to report that we have achieved the largest fiscal year-over-year revenue growth amongst publicly traded LPs in Canada. Our press release issued yesterday summarizes key financial and operational highlights for the 12 months ended November 30th, 2022, compared to the same period last year, as well as a comparison of Q4 to Q3 of 2022 and Q4 of 2021. First, I'll touch on some of these points for the 12 months ended November 30th, 2022. We reported gross revenues of $22.6 million, representing a 105% increase over 2021. Net revenue after excise tax was $20.2 million, up 112% over 2021. Of this net revenue, recreational cannabis sales represented $14.4 million and export revenue was $5 million. Again, both records for both categories. Our overall gross margin of 32% was down slightly over 2021 due to a higher volume of export sales in 2022, which generally do have a lower margin. However, we did sell a total of 3,951 kilograms of cannabis in 2022, up almost 100% over the prior year. Our average selling price for recreational cannabis was $7.13 per gram in fiscal 22, down only 8 cents from fiscal 21, as we continue to withstand strong pricing pressures in the market. We also beat records with our cash flow from operations of 2.2 million and adjusted EBITDA of 1.9 million. Three of the four quarters in fiscal 22 were positive adjusted EBITDA and positive cash flow from operations. Our net loss from operations was 8.5 million this year compared to 5.4 million last year, and this increased loss is primarily due to non-cash items such as the fair value changes on biological assets, share-based compensation, and amortization. The fourth quarter built upon some positive momentum that we had generated in the first three quarters of this year. And some quick highlights for Q4 include selling a total of 1,456 kilos of cannabis in Q4. That's an increase of 124% over Q3, which does provide some context for the following. Q4 had record gross revenues of 8.9 million plus 88% over Q3. had record net revenue of $7.9 million, up 100% over Q3. Record recreational gross revenues of $5.1 million, or plus 37% over Q3. Record export revenue of $2.7 million, up 22% from Q3. Overall, our gross margin was 39%, up slightly over Q3. And we had record cash flow from operations of $1.9 million, or 127% increase over Q3. Record adjusted EBITDA of $1.6 million, again up 124% over Q3. In the fourth quarter, we also reported adjusted net loss of $0.3 million for the quarter and improvement of 41% over Q3. Adjusted net loss is something new that we've started reporting. Management has decided that adjusted net income or loss is a relevant industry measure as it's commonly used in the capital markets to approximate operating earnings. Primarily, this does remove the impact of fair value changes on biological assets when compared to net income. And again, fair value changes is a non-cash item. All told, this was an extremely strong year for Avant, which has set us up to make some significant investments for the future in FY23. Now I will pass this on to our founder and CEO, Norton Singhaven.
spk03: Thank you, Matt, and great job on getting our reporting done. Good afternoon, everyone. Fiscal 2022 was a record year for Avon as we continue to demonstrate our ability to scale, innovate, and deliver significant growth while many in the industry are contracting. Yesterday's news release outlines many of our corporate and sales marketing milestones for the year, but to summarize a few. We entered into a debtor in possession loan and stocking horse bid to acquire all the shares of Flower Group through a JV. The acquisition closed earlier this month and is expected to significantly enhance our cultivation capabilities with an increase in facility square footage to approximately 185,000 square feet, resulting in a 60% increase in our annual production capacity for the company. This will also make us one of the largest indoor ultra-premium producers in Canada. We ramped up 3PL Ventures, a 50% owned JV, which we've entered into an agreement with to acquire the remaining interest. Subsequent to the year end, we have closed this transaction. We completed nine export shipments of approximately 1,284 kilograms of cannabis to Israel and Australia, contributing approximately $5 million in sales. Launched direct to retail store sales in BC and completed approximately $100,000 in sales for the first two months of shipments. Our premium position in the market has been reinforced by compelling branding and marketing, most notably with our flagship brand, Black Market. Black Market was voted the number one cannabis brand of the year for 2022 with over 120,000 voters participating. It was the number one best seller for premium one Grand Prix rolls in Ontario with over 62% market share. It was also the number one seller of single gram blunts in Ontario with a 31% market share based on units sold. We launched Black Market in Israel through a licensing agreement with IMC. We stand out based on various financial metrics and ended the year in our strongest position ever. Overall, we are quite pleased with the results from fiscal 2022 and especially Q4 as it shows our path to profitability. Today, we see a unique opportunity to make our business even stronger and grow faster in 2023. Key strategic initiatives for the fiscal year include continue capturing synergies and cost savings at Flower while transitioning to Avant cultivars. We have generated over $1 million of annual savings within the first few weeks of closing the transaction. With the addition of flower facility, we anticipate that we'll be able to fulfill our domestic rec demand as we're not able to fulfill all domestic rec peels we received during Q4. Further expanding global markets by diversifying our clientele and exploring other countries which allow for the importation of dried cannabis from Canada. Complete the construction of a GT bio facility, which would be expected to increase our production by approximately 2000 kilos a year. Increase our capacity utilization rate as during the fiscal 2022 year, we had achieved only a 52% utilization rate with 46% at 3PL. Management believes that during the course of the fiscal 2023 year, that the utilization rate will increase, especially at a 3PL facility. which is expected to further drive our top line revenue while keeping our corporate overhead costs relatively flat. I know the Canadian cannabis capital markets hasn't performed as well as we all had hoped. However, it's worth mentioning that as of end of last week, Friday, Avant was the second best performing Canadian cannabis stock over the last 12 months, down 5.8% with the average being down 21%. And during our fiscal year, we also ended it as Avant being the second best performing Canadian cannabis stock. We hope that as we continue to execute increased revenues and profitability that the markets will reflect accordingly. Thank you to our shareholders for your support. Our drive and commitment for our business will continue for this fiscal year as we hope to deliver you all the returns that you all deserve. With that, we'll now open up for Q&A. Operator, please go ahead.
spk02: Certainly. We will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2. We will now pause for a moment as callers join the queue. The first question comes from Jordan Kaye from Impossible Stock News. Please go ahead.
spk07: Hey, Nord, how's it going? Hey, good, good. How are you? Hey, congratulations on an incredible quarter. So glad to be a shareholder of Avant.
spk03: Thank you. Happy to have you as a shareholder.
spk09: So I've got kind of a slew of questions, and I'll start with, can you share any visibility into Q1?
spk03: Again, we don't do forecast or guidance, so I can't share anything about that.
spk09: Okay. All right. I was just checking. Last quarter, we seemed to guide that the year was going to be incredible, but we'll just have to wait, because the quarter ends today, right? Q1. Okay.
spk03: I can say that for the fiscal year, we do expect growth.
spk09: For the fiscal year, we expect growth. That's good. So a couple of questions on the Flower joint venture. Is the joint venture just splitting the profits 50-50, but Avant really does the full lift except for the funding? Okay.
spk03: Yeah, essentially, but it is our intention that we hope to acquire the remaining 50% stake over the next little bit here. Okay, awesome.
spk09: Let's see. So Vonson is kind of an interesting position where I think you acquired about 1% of the 3PL joint venture during the quarter. which I think resulted in the revenue of that facility being reflected, but was, as their financial aspects of the joint venture reflected on Avant's report this quarter, like, for instance, the biological assets. Was all of that reported on Avant? I just wanted to be clear. I'm not an accountant, so I just needed some clarity.
spk05: Yeah, Jordan, this is Matt here. So just for clarity, yeah, it was June 1st, so actually it was the beginning of Q3 when we officially started consolidating 3PL funds. When we do consolidate, yes, it means we bring in – we treat it as if it's 100% owned, and then we basically reserve half of the profits for the non-controlling interest. So all revenue, all fair value changes on biological assets, all inventory, bioassets, full operations are 100% consolidated from basically Q3 and Q4 only.
spk09: Okay. That's really good to know. Um, what about the green tech facility? I saw a couple of numbers on there, uh, 2.5 million and a contingent share payment, and then a 4 million cost to complete. Are those two things incorporated in the 4 million or is it four and then another two and a half?
spk03: So the four would be cash based and a half would be share based. Um, that facility we're still, um, We slowed down on it a little bit, but I think this year, based on the demand that we're seeing, we think we're going to look to finish that facility.
spk09: So it's $6.5 million total. Who does the $2.5 million go to? Is that to the builder?
spk03: Actually, the milestones are actually for myself and some members of the senior management team. This was the asset that actually started this entire company. I know I'm probably going into a bit of a tangent here, which is why our company is called Green Tech. So originally, we vented this asset in. And as a result, we're supposed to get stock out of our milestone base. We reduced, I think, over half of those stocks back in 2019. But yeah, these are milestones for myself and a couple of the key guys.
spk09: No, you deserve it. I'll just say that. Okay. I've got a couple of last things here. Sorry, I don't want to take up the whole time. Can you tell us about the convertible debenture part of the 3PL 9.5 million? If Avant makes full payment of the 9.5, is there no conversion or is there some convertible part like on the choice of the 3PL joint venture? Sure.
spk03: So basically we got to give them just under 1.6 per quarter. As we pay that down, we take those conversion rates back on that amount. So assuming we paid everything back on our timeline and assuming the share price did not move significantly above 50 cents, therefore they don't convert, then yeah, that would not hit our cap table. I think it's also worth mentioning too, like when people see convertible debentures, they think like, oh my God, predatory financing. And for the most part, it usually is. But this is a bit of a unique scenario where we've taken a partner who now owns 22 million shares in Avant because of the transaction. And they're doing vendor slash seller financing, right? So it's not like some third party or a predatory hedge fund. These are our partners and large shareholders. And you know what? We feel that the terms are quite reasonable.
spk09: How many payments is it? Is it the 1.56 million or whatever it is times six, which gets you to the 9.5? Exactly. That's it? Yeah. Okay. So then there must not be any interest on that 9.5. There is. There is interest, yeah. The interest is 10% per year.
spk03: Okay. So the payments will actually be
spk09: more than uh than what was put on the on the release it'll be like 1.6 plus the interest rate no it's 1.5 plus interest so it's 1 million 583 and change something like that yeah that that's how we broke it down so that the payments are are inclusive of the interest is what i believe oh okay awesome um and just just a couple of you know one thing for wall street um Not that anybody from Wall Street is listening today, but maybe in the future. I see someone here. Oh, that's good. Wall Street loves recurring revenue, right? Anytime you see any of these high-flying companies in terms of their stock price, they love recurring revenue. I think one of the things that maybe Wall Street might not understand is export and whether or not that is essentially recurring revenue. And in terms of, like, How are you seeing turnover? What are the moats to somebody coming in and displacing a lot from those export deals that you're signing? Can you just talk a little bit about that?
spk03: Yeah, so one of the things about export that's actually interesting is that when we ship product to our clients, there's a lot of prep work behind the scenes on their end. So they have to launch SKUs. They have to get approval, especially in medical markets. They've got to work with the pharmacies and the GPs. So it actually works out in our favor where when we sell them product that they like and they have SKUs and medical client base that are established, they're somewhat committed to us because it's a lot of work for them to actually go and terminate those SKUs and start something else. But maybe I'll let David Lin touch on that a little bit more as he's been leading our export division.
spk06: Yeah, thanks, Norton. Yeah, I was just building on what Norton said. We have... tremendous demand on the export side. We touched on the fact that we couldn't keep up with the purchase orders on the REC side of the business. The same situation existed on the export side, both in Israel and Australia. And largely driven by the quality of our product, we have tremendous loyalty amongst our customer base. I think Norton also mentioned the trademark licensing agreement for black market in Israel, which means that our client is building their business around our brand. And of course, they can only sell product produced by us under that brand. So we're very bullish about export going forward. We know there's a lot of competition for those sales, but There's not a lot of companies that are putting out the quality of product that we offer to our clients.
spk09: Do the contracts tend to be multi-year?
spk06: The contracts typically have no fixed end date.
spk09: So they're just evergreen and in order to come in. I remember when you originally scheduled the first one, it was like you were going to do something like 500 during the year or maybe it was 1,000 during the year. Is that kind of what's happening? Are they giving you rough numbers of what you need to produce during the year or hard purchase orders so that you guys can prep?
spk06: We do share projections with our clients, but generally in the agreements, they're open-ended agreements, and we don't get into fixed quantity commitments by either side because that's problematic when you start to explore kind of take or pay agreements. type arrangements. So typically they're open-ended contracts, but I can tell you that generally speaking, our product's been extremely well received both in Israel and Australia, and we've struggled to keep up with the demand. And again, that's part of the catalyst for the flower acquisition is to catch up to demand both on the REC and the export side of the business.
spk09: Awesome. Really, really good to know. I guess I'll leave you with one last question on utilization rate. Utilization rate seems to be low because you guys are working on three additions right now, right? 3TL, Flower, and then the Green Tech facility, all while the utilization rate at some of the facilities is under 50%. So what's the value of opening a new facility versus And by new facility, I mean acquiring joint ventures or, you know, adding flour or building out a green tech rather than ramping up utilization that you've got going already. Is there a cost difference or is this just a plan for the future?
spk03: No, that's actually a fantastic question. So, first of all, they're not mutually exclusive, right? We can continue to ramp up utilization at our existing facilities while wrapping up flour, while completing GTPILE. The funny thing is GT Bio is down the street from Flower, literally down the street. So what happened? So 3PL got licensed end of August of 2021. So we spent most of 2022 ramping up production there. Now, when I say ramping up, it wasn't like we had to get the rooms fired up. It was that when we brought in genetics, when we brought in our moms, we could only cut so many clones to fill the rooms. So we had rooms that should have been producing, call it 80 kilos, but we only had enough plants to do half that, right? just because our mums weren't big enough to cut that many clones. So it was a gradual ramp-up process. Our average overall has been brought down significantly by 3PL because obviously 3PL is our largest facility, right? 3PL alone I think is two times larger than the other three facilities combined or give or take, right? So that's why it's brought down. Also, I would say our capacity utilization at our other facilities did decrease slightly from the previous fiscal year. And that's more so just the market getting more finicky. So the genetics that we're producing for 2022 year didn't yield as much as the genetics that we produced in the 2021 year. Again, the market's getting finicky, picky. They want gas, they want exotic cultivars. So we have to produce what the REC market wants, right? So I think that sums up your question, unless I missed anything there.
spk09: No, and, Nort, that's incredible. You spent way too much time with me already. I just want to say, you know, I'm so happy that you're healthy and you're doing okay after your accident, and wishing you all the best, and thank you so much for all of your hard work.
spk03: Sorry, where am I? Who is this? I'm kidding, I'm kidding.
spk02: Once again, if you have a question, please press star then one on your telephone keypad. The next question comes from Nicholas Williams, private investor. Please go ahead.
spk08: Hey, guys. Nicholas here. First off, great call. Thank you so much. I'm super impressed with the progress you guys are making. And a huge congrats on the fourth quarter, strong fourth quarter in your fiscal 2022 results. So amazing work. Keep it up. Just have a couple of quick questions. We all know the cannabis industry is rapidly evolving and what kind of things are you doing or adapting? And what kind of new trends or innovations do you see on the horizon? And then the second part of the question really just has to do with competitors. What are the company's primary differentiators to really set yourself apart and above your competitors?
spk03: Yeah, so, you know, our thought on innovation is, you know, we like to launch, obviously, launch new products entering into the concentrates markets, which you saw we did last year. What we're finding is, you know, dried flower, premium dried flower is still king. No matter what market we're in, even mature U.S. markets, premium dried flower is always top seller and then pre-rolls and then vapes. So we don't want to throw a tremendous amount of resources at something that could potentially be a distraction from our core business. I think we're pretty disciplined in that sense. We'll continue to monitor the market to see what products might be a fit for some of our brands and what might make sense for us to launch. To sum that up, I would say it's something we're always looking at. We want to be innovative with our dried flower and our genetics and our product offering, but also, again, we don't want to distract from our flagship business. Perfect. And then the second part, remind me, your question about the competitors again?
spk08: Yeah, it has to do with competitors. Are there any primary differentiators that you plan on strategizing about to set yourself apart and above your competitors?
spk03: Yeah, so it's interesting because I feel like we don't have a tremendous amount of competition. We have some competitors who I won't name, but one is priced very similar to us, but they're organic and grown in a greenhouse. There's a market in demand for that, but that's not the segment we're after. There are other competitors that, interesting enough, they're starting to contract growth. So what we like, especially in the domestic rec market, is that we can kind of play off of this, that we have our own genetics that nobody else in the country has. We grow our own product, and we get that to market. So a lot of our competitors, which I won't name, are starting to do contract growth because, A, they can't figure it out themselves, or, B, they're just finding that their costs are too high or the facilities are located in remote areas that are hard to staff. We are looking at contract grow only for export. Sorry, not looking. We do have one contract grow in place, but it is for export. So I think that's what really sets us apart. Again, our genetics, you know, from cuttings to jar, it's all us. Obviously, our unique branding and marketing. And that's a testament to us winning the AdCan Award of being the number one cannabis brand in the country. And it wasn't just on a craft brand, right? It's all LPs. We are seeing some micros and mom and pops produce quality products that are comparable to ours. But again, a micro can produce about 600 kilos a year. So it's really hard to get scale at that level and really dominate the rec market and filling the POs that you're going to get from Ontario.
spk08: That's great. No, thank you so much. Makes sense.
spk01: Thank you.
spk02: Once again, if you have a question, please press star then one on your telephone keypad. The next question comes from Joe Rice from KW. Please go ahead. Hey, Norton. How are you?
spk03: Hi, Joe. I'm good. How are you?
spk04: Oh, hanging in there. Loving this call. But, yeah, the quick question is I noticed – reading the printout that you're going to finish your final, you're finishing a GTEC facility that says it's going to raise capacity or production capacity to 18,600 and you produced 5,700 this year. So, I mean, it looks like there's almost a three and a half times capacity growth you're going to have by the end of the year. My question is how, like in these particular facilities, And I'm not much of a consumer of the product, so I'm a little unsure how the production process goes. But in each of these facilities, let's say that you notice a trend that you're getting a lot more export deals than you normally would, or let's say recreational flower gets really popular, black market does, how easy is it to actually convert The actual facilities are growing itself to meet the level of demand that may change in one segment or the other. You understand what I'm asking?
spk03: Yeah, it's exactly the same. Export product is shipped in wholesale one kilo bags. The product that goes into the export is the exact same strains and cultivars that goes into our domestic rec market.
spk04: Oh, okay. So if you notice a big pickup and say recreation, you wouldn't have to adjust the manufacturing process. It would just be a smooth transition.
spk03: Exactly. So I'll give an example. Let's say we had a 100-cage lot that was destined for Ontario, right? And it finished, the test came in, and we're about to package. And Ontario said, you know what? We changed our mind. We don't want it. We hypothetically could pick up the phone that day, call our export client, and potentially get a PO for it. Or vice versa. Got you.
spk04: Got you. Okay. Yeah, well, that's great. Thanks, Nora. That's amazing. You're going to increase 3.5% production capacity, and you grew 100% this year. That's awesome. All right, man. Thank you.
spk07: Thank you.
spk02: Once again, if you have a question, please press star then 1 on your telephone keypad. There are no more questions on the queue. This concludes the question and answer session. I would like to turn the conference back over to Norton Singhaven for any closing remarks.
spk03: Thank you again, everyone, for joining us today, and we appreciate your continued support. Enjoy the rest of your week. Thank you.
spk02: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
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