Clever Leaves Reports First Quarter 2022 Results
BOCA RATON, Fla. – Clever Leaves Holdings Inc. (Nasdaq: CLVR, CLVRW), a multinational operator and licensed producer of pharmaceutical-grade cannabinoids, is reporting financial and operating results for the first quarter ended March 31, 2022. All financial information is provided in US dollars unless otherwise indicated.
First Quarter 2022 Summary vs. Same Year-Ago Quarter
- Revenue increased 50% to $5.2 million compared to $3.5 million. Cannabinoid revenue increased 195% to $2.0 million compared to $0.7 million, and non-cannabinoid revenue increased 15% to $3.2 million compared to $2.8 million.
- All-in cost per gram of dry flower increased to $0.35 compared to $0.16. The change in cost was attributed to the ramping of pre-commercial operating expenses ahead of expected revenue at the Company’s recently completed greenhouse expansion and post-harvest facility in Portugal.
- Gross profit was $2.0 million, which includes a $0.8 million inventory write-down, compared to $2.1 million, which includes a $0.2 million inventory write-down. Adjusted gross profit (a non-GAAP financial measure defined and reconciled herein), which excludes such inventory write-down, increased 25% to $2.9 million compared to $2.3 million.
- Gross margin, which includes such inventory write-down of $0.8 million, was 39.0% compared to 61.5%. Adjusted gross margin (a non-GAAP financial measure defined and reconciled herein), which excludes such inventory write-down, was 55.2% compared to 66.4%.
- Net loss in the first quarter of 2022 increased to $16.1 million compared to $13.8 million for the same period in 2021, driven primarily by a $4.0 million restructuring expense, offset by increase in loss due to $1.7 million of debt discount write off and loss on debt extinguishment of $2.3 million due to extinguishment of debt as offset by gain on remeasurement of warrant liability.
- Adjusted EBITDA (a non-GAAP financial measure defined and reconciled herein) was $(6.7) million compared to $(5.5) million predominantly due to increased cost of sales including an inventory write-down and nominally higher R&D expense related to positioning for Colombian dried flower export as well as sales and marketing expenses.
“Our first quarter performance reflects our strong execution on our redefined growth strategy,” said Andres Fajardo, CEO of Clever Leaves. “Our revenue increased 50% year-over-year to $5.2 million, reflecting robust growth in our cannabinoid revenues across our target markets, as well as continued performance strength in our nutraceuticals business. While our bottom line reflects the impacts of certain one-time restructuring charges, the ramp-up of our Portuguese operation, and margin pressure in our non-cannabinoid business, we believe our work to align our cost structure with our strategic priorities has improved our positioning for longer-term profitability. As we progress further into 2022, we remain committed to strengthening our operational efficiencies and enhancing the value we create for our stakeholders.
“After narrowing our 2022 commercial focus to a core group of key markets—comprising Australia, Germany, Brazil, Israel, and the U.S.—we have already made solid progress activating and expanding our existing agreements, as well as adding new partnerships and growth initiatives, in those markets. We generated particular momentum in Australia and Germany through strengthening our relationships with our current prominent pharmaceutical partners in each region. This positions us to continue leveraging regulatory tailwinds and growing our B2B client base within both markets. In addition, our experience with navigating complex quality and regulatory frameworks has allowed us to strengthen our market presence in Brazil and Israel, where we are working diligently to ramp our early-stage partnerships. Our deep understanding of our core markets and end consumers also helped fuel the first quarter launch of our Portugal-grown IQANNA flower products in Germany. Over the coming quarters, we will continue working to enhance our active partnerships and products, as well as to seek additional opportunities for growth.
“Subsequent to quarter’s end, we announced several strategic developments that enhance our market opportunities, positioning, and cost efficiency. In early April, the Colombian government announced the issuance of Joint Resolution 539, which completed the country’s required regulatory framework for dried flower exports. Following this resolution, as well as our months of preparation, we are on track to begin high-THC medical flower exports at the end of this year, with milled medical flower exports slated to begin as early as the third quarter. We also expanded our distribution pathways in the U.S. and Germany by forming a research-oriented partnership with Biom Therapeutics in the U.S. and becoming a fully-licensed medical cannabis distributor in Germany. Further, we took aggressive actions to improve our balance sheet and our underlying cost structure, which we expect will yield cash savings in excess of $4.0 million per year. These initiatives allow us to operate from a leaner foundation as we strengthen our distribution network and capabilities.
“Across our organization, we will continue working to drive enhanced operational efficiencies and identify additional commercial opportunities within our key markets. With our streamlined growth strategy in place, we are well-positioned to continue building upon our foundation as an emerging supplier of choice within the international cannabis industry.”
First Quarter 2022 Financial Results
Revenue in the first quarter of 2022 increased 50% to $5.2 million compared to $3.5 million for the same period in 2021. This was driven by accelerating growth within the cannabinoid segment of 195%, primarily in Brazil, Israel and Australia, and continued solid growth within our non-cannabinoid segment of 15%.
All-in cost per gram of dry flower in the first quarter of 2022 was $0.35 compared to $0.16 per gram for the same period in 2021. The increase was primarily attributed to higher production costs related to ramping operations in Portugal, partially offset by sustained cost efficiencies in the Company’s Colombian production operations.
Gross profit, including a $0.8 million inventory write-down, was $2.0 million compared to $2.1 million, including a $0.2 million inventory write-down, for the same period of 2021, with a gross margin of 39.0% compared to 61.5% for the same period of 2021. Adjusted gross profit, which excludes such inventory write-down, increased 25% to $2.9 million compared to $2.3 million for the same period of 2021, with an adjusted gross margin of 55.2% compared to 66.4% for the same period of 2021. The increase in adjusted gross profit was primarily driven by the aforementioned revenue growth across both business segments, partially offset by continued labor and supply chain-related cost impacts within the non-cannabinoid segment.
Operating expenses in the first quarter of 2022 were $13.9 million compared to $9.9 million in the year-ago period, with the main driver being a one-time $4.0 million restructuring expense related to write-offs of certain excess extraction equipment for the Company’s Colombian operations, as well as employee severance costs.
Net loss in the first quarter of 2022 increased to $16.1 million compared to $13.8 million for the same period in 2021, driven primarily by a $4.0 million restructuring expense. This was offset by increased loss due to $1.7 million of debt discount write-off and loss on debt extinguishment of $2.3 million due to extinguishment of debt as offset by gain on remeasurement of warrant liability.
Adjusted EBITDA in the first quarter of 2022 was $(6.7) million compared to $(5.5) million for the same period in 2021. The decrease was mainly due to increased cost of sales, including an inventory write-down, R&D expenses for Colombian dried flower, and additional sales and marketing activities.
Cash, cash equivalents and restricted cash increased to $44.8 million at March 31, 2022 compared to $37.7 million at December 31, 2021. The increase was attributable to net proceeds raised from the Company’s at-the-market stock offering during the quarter.
Reiterated 2022 Outlook and Strategic Growth Objectives
Based on current commercial momentum across its target markets, Clever Leaves reaffirms full year 2022 revenue to be within the range of $20 million and $25 million, with adjusted gross margin expected to range between 50% and 55%. The Company also expects adjusted EBITDA to range between $(23) million and $(20) million. In addition, Clever Leaves expects approximately $2 million to $3 million of annual capital expenditures.
Significant Actions to Improve the Balance Sheet and Cost Structure
While the Company remains committed to accelerating revenue growth and leveraging its low-cost unit economics, it is simultaneously focused on improving its balance sheet while driving down operating expenses and capital intensity. Subsequent to the quarter end, the Company used the cash proceeds derived from its at-the-market-offering of common stock to fully settle its secured convertible note, as well as the Herbal Brands debt. As a result, the Company’s debt has been reduced from $22.6 million to $2.1 million, thereby yielding annual cash interest expense savings of $0.8 million through the end of 2022.
Subsequent to the quarter end, Clever Leaves also completed a global work-force reduction. This reduction is expected to generate cash savings of $2.0 million in 2022 and $4.0 million in subsequent years.
“Although measures like this are never desirable and we profoundly value each one of our dedicated team members, they were necessary to closely align our expense base with our current revenue profile. As a result, we fully expect to achieve the operating leverage previously anticipated in our business strategy over time,” said Andres Fajardo.
Non-GAAP Financial Measures
In this press release, Clever Leaves refers to certain non-GAAP financial measures including Adjusted EBITDA, Adjusted Gross Profit and Adjusted Gross Margin. Adjusted EBITDA, Adjusted Gross Profit and Adjusted Gross Margin do not have standardized meanings prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. Adjusted EBITDA is defined as income/loss from continuing operations before interest, taxes, depreciation, amortization, share-based compensation expense, gains/losses on foreign currency fluctuations, gains/losses on the early extinguishment of debt, gain/loss on remeasurement of warrant liability, and miscellaneous expenses. Adjusted Gross Profit (and the related Adjusted Gross Margin measure) is defined as gross profit excluding inventory write-down. Adjusted EBITDA, Adjusted Gross Profit and Adjusted Gross Margin also exclude the impact of certain non-recurring items that are not directly attributable to the underlying operating performance. Clever Leaves considers Adjusted EBITDA, Adjusted Gross Profit and Adjusted Gross Margin to be meaningful indicators of the performance of its core business. Adjusted EBITDA, Adjusted Gross Profit and Adjusted Gross Margin should neither be considered in isolation nor as a substitute for the financial measures prepared in accordance with U.S. GAAP. For reconciliations of Adjusted EBITDA, Adjusted Gross Profit and Adjusted Gross Margin to the most directly comparable U.S. GAAP measures, see the relevant schedules provided with this press release. We have not provided or reconciled the non-GAAP forward-looking information to their corresponding GAAP measures because the exact amounts for these items are not currently determinable without unreasonable efforts but may be significant.
This press release includes certain statements that are not historical facts but are forward-looking statements for purposes of the safe harbor provisions under the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements generally are accompanied by words such as “aim,” “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “evolve,” “expect,” “forecast,” “future,” “guidance,” “intend,” “may,” “opportunity,” “outlook,” “pipeline,” “plan,” “predict,” “potential,” “projected,” “seek,” “seem,” “should,” “will,” “would” and similar expressions (or the negative versions of such words or expressions) that predict or indicate future events or trends or that are not statements of historical matters. Such forward-looking statements as well as our outlook for 2022 are subject to risks and uncertainties, which could cause actual results to differ from the forward-looking statements. Important factors that may affect actual results or the achievability of the Company’s expectations include, but are not limited to: (i) expectations with respect to future operating and financial performance and growth, including if or when Clever Leaves will become profitable; (ii) Clever Leaves’ ability to execute its business plans and strategy and to receive regulatory approvals (including its goals in its five key markets); (iii) Clever Leaves’ ability to capitalize on expected market opportunities, including the timing and extent to which cannabis is legalized in various jurisdictions; (iv) global economic and business conditions, including recent economic sanctions against Russia and their effects on the global economy; (v) geopolitical events (including the ongoing military conflict between Russia and Ukraine), natural disasters, acts of God and pandemics, including the economic and operational disruptions and other effects of COVID-19 such as the global supply chain crisis, travel restrictions, delays or disruptions to physical shipments (including outright bans on imported products), delays in issuing licenses and permits, delays in hiring necessary personnel to carry out sales, cultivation and other tasks, and financial pressures upon Clever Leaves and its customers; (vi) regulatory developments in key markets for the Company’s products, including international regulatory agency coordination and increased quality standards imposed by certain health regulatory agencies, and failure to otherwise comply with laws and regulations; (vii) uncertainty with respect to the requirements applicable to certain cannabis products as well as the permissibility of sample shipments, and other risks and uncertainties; (viii) consumer, legislative, and regulatory sentiment or perception regarding Clever Leaves’ products; (ix) lack of regulatory approval and market acceptance of Clever Leaves’ new products which may impede its ability to successfully commercialize its CBD brand in the United States; (x) the extent to which Clever Leaves’ is able to monetize its existing THC market quota within Colombia; (xi) demand for Clever Leaves’ products and Clever Leaves’ ability to meet demand for its products and negotiate agreements with existing and new customers, including the sales agreements identified as a part of the Company’s 2022 strategic growth objectives; (xii) developing product enhancements and formulations with commercial value and appeal; (xiii) product liability claims exposure; (xiv) lack of a history and experience operating a business on a large scale and across multiple jurisdictions; (xv) limited experience operating as a public company; (xvi) changes in currency exchange rates and interest rates; (xvii) weather and agricultural conditions and their impact on the Company’s cultivation and construction plans, (xviii) Clever Leaves’ ability to hire and retain skilled personnel in the jurisdictions where it operates; (xix) Clever Leaves’ rapid growth, including growth in personnel; (xx) Clever Leaves’ ability to remediate a material weakness in its internal control cover financial reporting and to develop and maintain effective internal and disclosure controls; (xxi) potential litigation; (xxiii) access to additional financing; and (xxiv) completion of our construction initiatives on time and on budget. The foregoing list of factors is not exclusive. Additional information concerning certain of these and other risk factors is contained in Clever Leaves’ most recent filings with the SEC. All subsequent written and oral forward-looking statements concerning Clever Leaves and attributable to Clever Leaves or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements above. Readers are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made. Clever Leaves expressly disclaims any obligations or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in its expectations with respect thereto or any change in events, conditions or circumstances on which any statement is based.
(This information is primarily sourced from Clever Leaves. Highly Capitalized has neither approved nor disapproved the contents of this news release. Read our Disclaimer here).
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