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spk01: Good morning and welcome to the Farmers Edge live audio webcast for its first quarter 2023 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'll be an opportunity to ask questions. If you would like to ask a question during this time, simply press star and the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Individuals will be limited to two questions per person before being put back in 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.
spk02: 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 the prepared remarks contain forward-looking information, and additional forward-looking statements may be made in response to your questions during the Q&A 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 These statements do not guarantee future performance, and therefore, undue reliance should not be placed upon them. The company does not admit taking 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 security laws. Finally, we would like to remind listeners the company may report to certain non-guide measures and key performance indicators. or KPIs during the audio webcast. For these further details on non-GAAP measures and KPIs, including relevant definitions and certain reconciliations, see Farmer's Agile Filings with the Canadian Securities Administrators. We have also posted on our website a short presentation that you may want to follow along with our remarks. I now turn the call over to our Chairman, Bill McFarland, for opening remarks.
spk03: Thanks, Cindy, and thank you to everyone for joining the call today. We made progress in Q1 2023 with positive results from management's cost reduction program, delivering improvements in both free cash flow and EBITDA. We also had acre contraction in Q1, mainly from the PGP non-paying acres. Management also spent considerable effort in Q1 building a better sales team and foundation, which should lead to improved acre growth in the future. So overall, there was progress in Q1, and the next important step in the turnaround plan is to accelerate revenue and acre growth. I will now pass it over to Vibor Arora to provide some further details.
spk00: Vibor Arora Thank you, Bill. Good morning, everyone, and thank you for joining our Q1 2023 earnings call. I'm pleased to report that we've made progress in our turnaround plan. The free cash flow improvements, EBITDA improvements, and operating expense reductions in the first quarter of this year demonstrate that we are on the right track. In Q1, we continue to prioritize our inside-out strategy, focused on growing the top line, optimizing our operating model, and controlling our costs. As we have mentioned in our previous calls, driving profitable growth is a key priority for us. and we saw actions taken in the previous two quarters start translating into results. On a year-over-year basis in Q1, we saw 28 percent improvement in our free cash flow, 18 percent improvement in EBITDA, and a 23 percent reduction in our operating expenses. We saw a decline in our Q1 revenue, which was primarily driven by the acre contraction and loss of low-value acres on digital. The April PGP conversion rate was 17%, further validating our decision to end the program. Having said that, we are very aware of the need to grow the top line and are taking the necessary steps in that direction. We are now laying the groundwork to build the foundation of our sales organization and are taking steps designed to accelerate the adoption of our platform. At the same time, we are adopting a customer-centric approach to develop offerings and solutions that cater to the specific requirements of our customers. Our new sales approach focuses on the following key themes. Number one, building better understanding customer needs. We are building mechanisms to gain a comprehensive understanding of our customer needs and pinpoints to effectively offer products and services that meet those needs. Our view is that although there is a substantial opportunity for technology to play a significant role in AgTech, the initial step towards realizing that potential is to better understand customer needs. Number two, creating value and conveying our value proposition. Our technology platform FarmCommand provides an effective solution and delivers substantial value to our customers. Our growers are occupied managing their business, which is why we are taking steps to convey our value proposition in a very simple, effective, concise manner and eliminate the complexity that goes into adopting any new technology. Number three, effective communication and feedback. We strongly believe that effective communication is vital to building strong relationships with our customers. To achieve this, we have established formal mechanisms to capture feedback from our customers regularly. We capture feedback from multiple input sources, such as our field reps, agronomists, and direct feature requests, and review our customer service requests periodically. Our objective is to support our customers and their advisors throughout their journey on the platform as we strive to be partners with both our growers and enterprise customers. Number four, qualifying and prospecting process. We are leveraging our data-based decision-making approach to enhance our qualifying and prospecting process. By doing so, we aim to enable our sales team to maximize the return on their efforts in onboarding the right customers to our platform. This approach will not only reduce our customer acquisition costs, but also enable us to effectively cross-sell and up-sell higher value offerings as our customers progress up the technology adoption scale. And number five, adaptability to changing market conditions. I spoke about understanding customer needs This is similar to understanding market conditions and how they are changing. We are also taking steps to quickly adapt based on market feedback. As a result, we are making the necessary adjustments to our offerings both in the B2C and B2B segments to ensure that we are staying ahead of the competition. I'd like to provide some highlights and examples to validate our new approach to sales. New product offering. During our discussions with customers regarding TGP renewals, we identify the need for a low-cost technology offering. As a response, we recently launched a new product that allows customers to try our basic solution at a low entry point, with the flexibility to add on additional services based on their specific requirements. This new offering has gained traction since its launch. It's important to note that this is different from the old PGP program, as the entry-level price covers the low acquisition cost, and there is no capex spend associated with our hardware. Our lead offering remains our smart VR, which is a premium product. This offering is designed to attract new customers and eliminate any barriers to entry. Our sales team has reported positive traction in terms of price per acre and is selling at list prices. In addition to our B2C strategy, we have made progress in our B2B strategy and are pleased with our enterprise pipeline. Our B2B target segment comprises of ag retail partners and large enterprise customers. We are in discussions with customers in both these segments and making progress in delivering customized solutions that meet their needs. Based on the feedback from the market, we are building a clear understanding of our product market fit across all of our offerings. We have also made progress in our technology strategy with smart investments in our digital platform and data analytics capabilities. We are leveraging our technology to deliver more value to our customers and improve our operational efficiency. In summary, we are following a consistent approach across all of our segments, which is to understand the customer needs and the market and pivot fast to meet those needs. In Q1, we brought on board a new VP sales for Canada, and we are currently in the process of finalizing the hiring of a VP sales and a director of strategic partnerships both in the U.S. As we have previously mentioned, We are maintaining a flat organization structure and hiring new leaders with the aim of fulfilling specific business needs. In this case, our focus is on driving top-line growth, which is our main priority. I'll quickly touch upon sustainability and our cost optimization efforts. We continue to see a mixed trend within the carbon markets. On one hand, we are seeing softness with regard to Canadian carbon offsets within the voluntary markets. And on the other hand, we are seeing some positive traction and interest in carbon insetting, traceability, and the carbon footprint. We are continuing to work hard to sell the offsets, including engaging third parties to assist us in sales, but market conditions continue to be uncertain. Having said that, we are having encouraging discussions with large enterprise customers on carbon intensity solutions and are engaged in some exciting pilots with large players. Cost savings. We successfully implemented the initial cost savings plan of $20 million in annualized savings. We are continuing to look for other opportunities to optimize our operating model and are taking a deeper look at other opportunities to reduce our OPEX spend. We expect to further reduce our costs to drive higher operational efficiencies. Looking ahead, we remain focused on executing on our turnaround plan and driving revenue growth. We will continue to prioritize our inside-out strategy to deliver sustainable cost savings and improve our execution. At the same time, we will continue to focus on our outside-in strategy and adopt a more customer-centric approach to deliver customized solutions that meet the needs of our customers. In conclusion, we remain confident in our ability to execute our turnaround plan. I'd like to thank our shareholders, employees, our executive team, our growers, our retail and enterprise partners, our suppliers, and our board for their support in this journey. We look forward to updating you on our progress in the coming quarters. Thank you very much, and I'll now pass it on to Cindy.
spk02: Thank you, Waipo, and hello, everyone. My comments will focus on the first quarter's business key metrics. This quarter, we continued to improve, adjust EBITDA and free cash flow as a result of a cost reduction initiative and a capex fund control. Q1 2023, operating expenses decreased $6.6 million, or 23% on a year-on-year basis. Our core expenses, which include cost-good sold of carbon and e-commerce sales, and the nine recurring items went down approximately $5.2 million, or 21%, on a year-on-year basis in a high inflationary environment. Those cost reductions came from operations, sales and marketing, as well as G&A, reflecting our ongoing efforts to optimize our cost structure. Our annual core expenses runway is expected to be in the range of $17 million at a current level. As a result, the adjusted EBITDA loss and the free cash flow deficit were reduced by 18% and 28%, respectively, in Q1 2023, compared to a year-ago quarter. While this is a big improvement, we continue to be area-focused as we continue to work towards reaching break-even cash flow. Moving on to the next slide. Digital agronomy and fertility solutions revenue for Q1 2023. were $1 million lower compared to the prior year due to lower digital economy acres. Q1 also tend to be our lowest revenue of the quarter of the year due to seasonality. We have little fertility revenue in Q1 2023 as most of the work was performed in Q4 2022. The revenue decline in 2023 was limited due to better pricing and the fact that a significant number of acres in Q1 2022 were non-paying PGP and low-value discontinued acres. Annual recurring revenue, ARR, was $27.9 million, a decline from quarter floor, primarily due to lower digital economy acres compared to the prior quarter. We expect to see a positive impact to our ARR as we sell enterprise partners and build a B2C acre pipeline. With that, I now turn the call back to the operator for questions.
spk01: 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're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. The first question comes from Steve Hansen with Raymond James. Please go ahead.
spk04: Good morning, everyone. Thank you for your time. um is it possible to provide a little more detail on the new low-cost solution that you've launched it sounds like it's getting some traction and it's interesting in the sense that it's covering the cost of the customer acquisition but i'm just curious exactly what that that initial low-cost solution is and what the pipeline looks like it sounds like it's only launched recently but just a little extra context would be helpful thanks yeah sure steve uh thank you for joining uh so the low-cost solution was basically created out of the
spk00: you know, feedback that we were getting from the market, especially when we were discussing the solutions with our PGP customers. And this low cost solution is basically just a technology subscription solution, which does not involve any hardware, you know, spend or OPEX spend. So technically, if any customer would have liked to just test the solution, the technology solution that we had, this is an offering which caters to that segment. And why that is important is we would have lost this set of customers if there was not an offering of this kind. So we quickly came up with this offering when we were in discussions on the PGP renewals. In terms of traction, we've seen some, you know, good tractions because the cost of entry are low, you know, because we want to really remove the barriers to entry for the customers. The overall kind of long-term view that we have with this new offering is we will be able to, you know, get the customers through the adoption scale and based on their requirements, really offer specific, you know, add-ons on the weather side, on nutrient side, or, you know, just get them up to the premium products. So this is really a customer-oriented solution, you know, so that's basically where we're at with this essential offering.
spk04: That's helpful. And if I think about the opportunities for the B2B segment, it sounds like AgRetail, Larch Enterprise is the focus. You're in discussions now and trying to understand, do you have sort of a timeline on product launch there in terms of when you'll expect some initial deals?
spk00: Yes. So in terms of the specific product for ag retail and specific product for enterprise customers, you know, our product is actually ready to be launched in the market. We are actually in active discussions with, you know, several enterprise partners and several ag retail partners as well. The timeline is hard to kind of really comment, but typically you see about six to 12 months lead time, you know, with these large deals. But we are trying to really push hard and be assertive in terms of our approach. So we expect to see some positive outcomes in the next quarter or so.
spk04: Okay, great. And then just one last one on the carbon side. I understand the uncertainty and some of the weakness in the carbon market specifically, but it sounds like insets have been a bit of a focus. And I think you referenced some new pilot projects. Are those Maybe it's any context you could provide around the efforts there and what you think the outcome might be.
spk00: Yeah. Insets actually are gaining more traction versus the offsets because voluntary markets have been kind of been choppy so far. While the effort is underway, the inset piece with the enterprise customers is especially carbon intensity solutions or traceability solutions, you know, are really being kind of discussed at this point. We are really in a strong position to not just influence the carbon intensity scores, but actually improve them with our technology. Because our clear differentiation that the technology that we have offers is, you know, input data sources from like multiple different sources. Like we have weather data, imagery data, satellite data. We have soil sampling data, telematic data. So in essence, our AI and machine learning model offers a much better output, and the benefits it can offer at scale of, let's say, millions of acres, you know, it's quite substantial. So the enterprise partners are actually seeing that opportunity, and we are doing a good job in terms of conveying that value proposition, you know, as clearly as we can. So, you know, so we have an, I think, initial... discussions with some of them. So expect, again, some positive outcomes fairly soon.
spk04: Okay, very helpful. Thank you for your time.
spk00: Thank you, Steve.
spk01: Once again, if you have a question, please press star, then 1. This concludes the question and answer session and today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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