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spk02: Good morning and welcome to the Farmers Edge live audio webcast for its fourth quarter 2022 results call. Please be advised that reproduction of this audio webcast in whole or in part is not permitted without written authorization from the company. All lines have been placed on mute to prevent any background noise and after the speaker's remarks there will be a question and answer session. If you would like to ask a question during this time, Simply press star and 1 on your telephone keypad. If you'd like to withdraw your question, please press star then 2. Individuals will be limited to two questions per person before being put back into the queue. At this time, I would like to turn the call over to Cindy Yuan, Chief Financial Officer of Farmer's Edge. Please go ahead.
spk00: Thank you, Operator, and good morning, everyone. Before we start, I would like to remind you that all amounts disclosed on this call are denominated in Canadian dollars, unless otherwise indicated. Please note that prepared remarks contain forward-looking information, and additional forward-looking statements may be made in response to your questions during the QA portion of the call. These statements reflect the company's current expectations regarding future events. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties. many of which are beyond the company's control or could cause actual results and events to differ materially from those that are disclosed in or implied by such forward-looking information. Listeners are urged to consider assumptions, risks, and uncertainties associated with such forward-looking information, including by referring to the assumptions, risks, and uncertainties discussed in the Pharmacology Filings with Canadian Securities Administrators. These statements do not guarantee future performance and therefore undue reliance should not be placed upon them. The company does not undertake any obligation to update forward-looking information provided during this audio webcast, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws. Finally, we would like to remind listeners that companies may refer to certain non-GAAP measures and key performance indicators, or KPIs, during the audio webcast, for further details on non-GAAP measures and KPIs, including relevant definitions and certain reconciliations. See Farmers Edge Filings with Canadian Securities Administrators. We also post on our website a short presentation that you may want to follow along with our remarks. I will now turn the call over to our Chairman, Bill McFarland, for opening remarks.
spk03: Thank you, Cindy, and welcome, everyone. The past few months have been an important time in the evolution of Farmers Edge. Bivor and the team executed on the first steps of the turnaround plan by stabilizing operations, significantly reducing the cash burn rate, adding new talent, and energizing the entire employee group around the new strategy and vision for the company. This included having numerous positive conversations with potential enterprise partners. Bivor will speak to our progress in his comments. The 2023 focus and our number one priority of the team is around future revenue growth. With the financial support of Fairfax, Farmer's Edge's major shareholder, management has the opportunity to execute this next leg of the turnaround plan and create a company that delivers strong results, is sustainable over the longer term, while building shareholder and customer confidence. I will now pass things over to Vivore.
spk01: Thank you, Bill. Welcome, everyone. Q4 2022 was an important quarter for me and the company for several reasons. By the start of Q4 2022, we had finalized our turnaround plan and committed to delivering annualized savings of $20 million. We had adopted a flattered organization structure and hired new leaders to our leadership team. We were commencing discussions with our key suppliers and also reviewing our operating model and building the foundation for future revenue growth. Taking an organization through a turnaround is never easy as you have to align the entire ecosystem to deliver to that plan. Although we were confident in our plan, we still had to execute the first step of that plan. And Q4 was a critical test for this new leadership team and also the entire Farmers Edge team. As you would have seen in the financial statements and MD&A, we successfully implemented the first phase of our Q3 2022 plan. As a result, we saw an over 50% reduction in adjusted free cash flow on a year-on-year basis in Q4, and also a 36% reduction in our core expenses for the same period. These results were primarily achieved through successful supplier renegotiations, optimizing our operating model, and technology outsourcing efforts. At the same time, we made changes to our internal policies to control our discretionary spend. We continue to look for additional opportunities to right-size our costs, but the next phase of our plan is revenue growth. These results were achieved through setting clear expectations and a top-down direction, strong teamwork, taking rapid action, and making database decisions. Along with these elements, we as a team had to practice relentless and effective prioritization and balance of both the near-term actions and our long-term strategy. And they will continue to be the key ingredients of future phases of our turnaround plan. I'd like to thank our employees, our executive team, our growers, our retail and enterprise partners, our suppliers, and our board for their incredible support during the last several months. And I'm particularly conscious of our employees who have gone through some significant change management as part of the process. I'd also like to share brief insights on how we went about aligning the team. We made changes internally to align the organization and came up with a set of six simple but effective values. This value system consists of taking rapid action, teamwork, fostering mutual trust, delivery of strong results, prioritizing effectively, and taking database decisions. This is a new way of thinking, and we call it One Farmer's Edge. These elements form the core of our Farmer's Edge values and our new guiding principles and will continue to strengthen our approach towards building a long-term sustainable business. Q4 was also a quarter where we had some learnings. achievements, and validation about the strength of our technology. We believe this is a strong start to laying a solid foundation for future growth. These results also act as positive feedback loop and give the entire Farmer's Edge team the much needed confidence that we are on the right track. With our approach of balancing the near-term actions and building capabilities for the long term, We feel confident that we will be able to turn the company around and get on a path to break even cash flow. I'll explain our forward-looking approach in a bit more detail. When I joined nine months ago, our high-level strategy consisted of two approaches, inside out or outside in. And just for clarity, inside out strategies based on developing strengths and internal capabilities to move the business forward. The outside-in strategy observes the market, gets to know the customers first, and then thinks of offering what customers really need. While it was evident that our strategy had to consist of both the approaches, after the end-to-end assessment of our operating model, it became extremely clear that we had to prioritize the inside-out strategy to reduce our cash burn and improve our execution. We needed to deliver results on that and then quickly pivot to outside-in. We understand that cost savings alone will not get us to break even, and we are in the process of making that important pivot and doubling down on our outside-in strategy now. Key elements of our outside-in strategy consist of adopting a customer-centric approach and working backwards to build the solutions which fit the needs of our growers and our enterprise partners. In a sense, we are actually inverting the approach and are going to put the customer first. We believe that there are some clear pathways to revenue expansion. Number one, a B2C business. We continue to strengthen our sales team, which is focused on working directly with growers. We've recently hired a new VP sales to focus on our Canadian business. And sourcing for VP sales for our US business is underway. In the interim, we have built some strong mechanisms to support and monitor progress of our sales team. These steps will help us prioritize our direct-to-consumer digital sales. Our sales team is also focused on improving our capability to prospect the market and target the ideal customers for us, which will help retention and reduce the cost of acquiring new acres. If you recall, we paused the PGP program back in July 22. While our conversions were 22% for October PGP, growers who renewed with us renewed at 3x the price. This provided useful insights about our customer profile and validated elements of our ideal customer profiling. Although we expect contraction in our acre footprint in the near term due to PGP April 23 conversions, we feel confident that we are on the right track and we will be able to deliver more to the smaller and sales-focused team to increase our business to consumer digital sales. Having said that, there is still work to be done and the team is already taking the necessary steps primarily to improve prospecting, and reduce our customer acquisition costs. Number two, enterprise. At the same time, we are taking a thoughtful and a structured approach with our enterprise partners. We see there are two sub-segments in the enterprise segments for us. First is the large enterprise partners, and second is the retailer and co-ops who are looking to adopt a digital approach to improving their business. During the last quarter, I personally met with many potential enterprise customers, and we are in progressive discussions with them. While the lead time to close such deals is longer, we believe we are making good progress here. To provide some additional insights, we are not just focusing, positioning our farm commands solution to them, We are talking to them about a new direction and offering to build tailored, customized solutions that fit their needs. As we have a number of offerings in the digital space, like Smart Reporting, Smart Carbon, and our e-commerce platform, Commodidag, whose new website was launched this month, we are a perfect one-stop shop for these enterprise customers. Our goal is to finalize some new substantive partnerships by mid-year that will provide strong revenue growth for future years. Number three, brand positioning. We are taking steps to improve our brand positioning within the market. Growers are always at the center of what we do. We have refined a marketing plan, are in the process of getting in front of growers, potential enterprise customers, and ag retailers in a much more effective way, and we are looking to tailor our products to customer needs, provide insights from the data we have collected, respond faster to feedback, and work within the agriculture ecosystem in a collaborative way. Our digital marketing strategy is also focused on improving the return on investment on our marketing spend and using technology and marketplace solutions to reduce our customer acquisition costs. To our growers on the call, you will always be at the center of everything that we do. We are committed to delivering an exceptional customer experience to you. To our enterprise partners on the call, we are committed to building solutions which are tailored to your needs and will help you to enhance your business. Number four, sustainability. We are continuing to work towards securing buyers for our offsets to get our growers paid a market price for their share of the sale. Our pipeline and funnel of buyers has improved, and we are working with consultants to sell these offsets. At the same time, we are also evolving our approach within sustainability We believe carbon insetting and CI score monitoring are the key areas of focus for us within agri-food, agri-fuel, and agri-protein markets for the future. We're conducting some pilots with some key customers on CI scores. While they won't create big revenue in 2023, but we have the opportunity creating a significant revenue stream for the future. Our platform not only can measure scores, but can also influence improvement of these scores, which makes our suite of solutions an extremely compelling one. Number five, new segments. We've established a new business unit to unlock value from our rich data sets A new VP data monetization has been recruited to lead that initiative. As part of our data solutions, we have also completed a smart reporting upgrade and are in discussions with our core partner in Brazil. Simultaneously, there are other smart reporting pilots which are underway. I'd like to thank Fairfax for their incredible support to Pharma's Edge and for their continued belief in our technology. Farmer's Edge, Fairfax and our board have been in frequent discussions on the new direction. Collectively, we are taking a thoughtful, objective approach and balancing our near-term actions without compromising on our long-term potential. As a CEO, I greatly value this collaboration and view this as an effective way for us to engage. We are putting the foundational elements in place to grow our revenue in 23 and beyond. We expect to have much lower free cash flow drain than we did in 2022. In summary, I'd say that we are pleased with our progress on the cost turnaround plan, but we know that there is a lot more to do. I can speak for myself and my team in saying that we are highly committed and determined to deliver enhanced customer experience and strong results in the future. I'll now turn it over to Cindy for her remarks on the financials.
spk00: Thank you, Raibor. My comments will be brief with a focus on business key metrics for the fourth quarter. I'll be happy to take questions at the end of the presentation. Starting slide six, there were two highlights for the quarter. One is a sizeable adjusted EBITDA improvement, mainly due to cost reduction initiatives. The second is a corresponding significant cash deficit reduction as a result of a better working capital management, reduced capex spend, and cost reduction initiatives. Q4 2022, operating expense decreased $7.6 million on a year-on-year basis. Our core expenses, which include the cost good sold of carbon and e-commerce sales, as well as non-recurring items, went down approximately $10 million of 36% on a year-on-year basis in a high inflation environment. All category of expenses was reduced as a result of our efficiency efforts, and as Webber noted, we are actively managing costs. As a result, the adjusted EBITDA loss and adjusted free cash flow deficit was significantly reduced in Q4 by 50% and 56% respectively. a great start to phase one of the turnaround plan. The cash flow deficit in the second half of the year was also reduced by $21.2 million, or 50%, compared to the first half of the year. Moving on to the next slide. Digital ground and fertility solution revenue for Q4 2022 were similar to the prior year, despite a decline in subscriber acres. The key takeaway is that the revenue per acre is higher when the right customer is identified. Annual recurring revenue, ARR, was $34.4 million. The decrease from previous quarter was mostly due to 2 million less digital agronomy acres, which were primarily PGP-free acres not converted, and other lower-value acres discontinued. In addition, smart reporting acres under the other acre category decreased by half a million due to the challenging insurance market in Brazil. which is expected to rebound in 2023. Our ARR does not include e-commerce revenues. We expect to see a positive impact to ARR as we sell enterprise partners in the future. What this shows is that we need to modern double our revenues to reach break-even cash flow in the future. We also expect our acre to bottom out once the final change to PGP of 1.7 million acres is converted on April 1st, 2023. This will leave us with a stronger echo foundation to build upon. With that, I will now turn the call back to the operator for questions.
spk02: Thank you. We will now begin the question and answer session. To join the question queue, please press star, then 1 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 star, then two. Once again, to join the question queue, please press star, then one now. Once again, to join the question queue, please press star, then one. This concludes the question and answer session as well as today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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