Q3 Cannabinoid Revenue Increases 12% Year-Over-Year, with 100% Growth in the Segment Year-to-Date
Significant Continued Progress on Cost Reduction Initiatives Driving Sequential Improvements in Adjusted EBITDA
Continued Financial Discipline, Operational Improvements, Commercial Traction and Regulatory Shifts Strengthen Foundation for Long-Term Growth and Profitability
TOCANCIPÁ, Colombia, Nov. 09, 2022 — Clever Leaves Holdings Inc. (Nasdaq: CLVR, CLVRW) (“Clever Leaves” or the “Company”), a leading multinational operator and licensed producer of pharmaceutical-grade cannabinoids, is reporting financial and operating results for the third quarter ended September 30, 2022. All financial information is provided in U.S. dollars unless otherwise indicated.
“We worked diligently to continue progressing our growth strategy by improving the quality of our products and enhancing our commercial capabilities, while reducing operating costs across all our subsidiaries,” said Andres Fajardo, CEO of Clever Leaves. “We drove 12% year-over-year growth in our cannabinoid revenues as we worked to meet evolving product quality and regulatory requirements across our core markets, and we have driven 100% growth in the segment year-to-date. Within our non-cannabinoid segment, we experienced some one-time disruptions related to inventory reductions across multiple channels. However, we believe that the bulk of these inventory adjustments are now complete and expect a rebound in sell-through activities through expanding SKU counts and store expansion within our mass retail category. Though these dynamics across both business segments pressured our third quarter top-line performance, we have continued to strengthen our operational foundation by optimizing our flower product in Portugal, preparing for flower exports from Colombia, and further supporting our ongoing cost reductions and restructuring work. We believe our agility, strategic advancements, and commitment to pharmaceutical quality will allow us to further improve our leading positioning as a world-class multinational operator.”
Third Quarter 2022 Summary vs. Comparable Year-Ago Quarter
- Revenue was $3.3 million compared to $4.0 million. Cannabinoid revenue increased 12% to $1.0 million compared to $0.9 million, while non-cannabinoid revenue was $2.3 million compared to $3.2 million.
- Gross profit was $0.3 million, which included a $1.7 million inventory provision, compared to $1.9 million, which included a $0.7 million inventory provision. Adjusted gross profit (a non-GAAP financial measure defined and reconciled herein), which excludes such inventory provision, was $2.0 million compared to $2.6 million.
- Gross margin, which included such inventory provision of $1.7 million, was 8.5% compared to 47.9%, which included such inventory provision of $0.7 million. Adjusted gross margin (a non-GAAP financial measure defined and reconciled herein), which excludes such inventory provision, was 59.8% compared to 65.1%.
- All-in cost per gram of dry flower equivalent was $1.13 compared to $0.15. The increase was driven by working capital optimization initiatives that resulted in significantly reduced harvest levels and costs to process existing inventory in Colombia.
- Net loss was $20.2 million compared to a net income of $1.0 million. This was driven primarily by a $19.0 million intangible asset impairment charge recorded during the quarter, and partially offset by approximately $6.7 million in deferred tax liability. Net income in the prior year period includes a $9.1 million gain on remeasurement of warrant liability, a $3.4 million gain on debt extinguishment, and $0.5 million in interest and amortization of debt issuance cost.
- Adjusted EBITDA (a non-GAAP financial measure defined and reconciled herein) improved 10% to $(5.4) million compared to $(6.0) million.
Fajardo continued: “In both of our production geographies, we have adapted to our target markets’ stringent product requirements and streamlined our operations to support additional growth opportunities. In Portugal, we have received positive market feedback from our flower products targeted for export in the Australian market. We also began further refining the quality and characteristics of our Portuguese flower strains following the results of our most recent product launch in Israel. In addition, we changed our leadership team, increasing our talent with cannabis flower cultivation while continuing to reduce costs significantly. All these actions reduced our production output during the quarter, but we have implemented several significant operational improvements that will allow us to drive greater production efficiency as we focus on cultivating the most premium and commercially viable flower strains for 2023 and beyond. Having also recently received our EU-GMP certification for our post-harvest facility, we are well positioned to expand our commercial capabilities and benefit from improved economies of scale.
“In Colombia, we have focused on supporting our extracts business while ramping our preparations to complete our initial dried flower shipments. Several of our planned extract shipments during the quarter were delayed by 1-2 quarters due to regulatory and export certification delays, as well as the phasing of certain orders from Brazil and Australia. Although delays like these are outside of our control, we worked to further improve our managerial visibility through fully integrating our product and operations teams. We are also leveraging our valuable experience and insights from Portugal to optimize our harvests for premium dried flower exports. We have upgraded our genetics strategy, further enhanced our cultivation and post-harvest processes, and already achieved products with high THC levels and interesting organoleptic profiles. With the cost and environmental advantages of our Colombian operations, we have already received strong indications of demand for our new flower product from our existing customers. We currently expect to complete our first flower shipments from Colombia to Germany and Australia during the first quarter of 2023, and we believe our Colombian flower offering represents a significant avenue for growth in the year ahead.
“Our operational improvements support our ongoing work to transform our commercial capabilities, streamline our cost structure, and improve our capital efficiency. During the third quarter, we created a Chief Revenue Officer position and integrated our commercial functions—including sales, marketing, and sales operations—to improve pipeline management, conversion rates, and contract ramp times, as well as expand our customer base. Starting with our restructuring near the end of the first quarter, we have steadily right sized our personnel, new harvest output, production infrastructure, and organizational priorities to align more closely with our current market opportunities. In the second and third quarters combined, these actions have driven sequential reductions in our G&A, R&D, and sales and marketing expenses of approximately $2.8 million1. These cost improvements significantly contributed towards our reduced adjusted EBITDA loss, which has sequentially improved each quarter through Q3.
“The combination of our product improvements, our revamped commercial capabilities and our leaner structure will position us for significant growth in 2023, which we see as a year of inflection in our growth and profitability trajectory. In addition, the operational improvements we have implemented across Colombia and Portugal are allowing us to fine-tune our production strategy and create a leaner foundation from which to drive additional cost savings and capital efficiency. We look forward to making further strategic progress as we continue solving the critical needs of our customers by providing outstanding product at compelling price points across all of our target markets.”
Third Quarter 2022 Financial Results
Revenue in the third quarter of 2022 was $3.3 million compared to $4.0 million for the same period in 2021. Revenues in the Company’s non-cannabinoid segment were impacted by inventory reductions across most channels, as well as the timing of inventory orders among distributors during the quarter. Cannabinoid segment revenues increased 12% year-over-year but were partially offset by variability in the timing of certain flower and extract shipments.
All-in cost per gram of dry flower equivalent in the third quarter of 2022 was $1.13 compared to $0.15 per gram for the same period in 2021. During the third quarter, the Company reduced its total harvest by 89% as part of its ongoing work to optimize inventory levels and improve working capital. In Colombia, the Company incurred processing costs on its existing inventory to facilitate extract and isolate sales. The Company also continued to incur higher costs associated with its early-stage Portugal operations, including scaling cultivation capacity and expenses related to its post-harvest facility ahead of completing the EU GMP licensing process. Taken together, these short-term factors drove the year-over-year increase in the Company’s all-in cost per gram.
Gross profit in the third quarter of 2022, including a $1.7 million inventory provision, was $0.3 million. This compares with $1.9 million—including a $0.7 million inventory provision—for the same period of 2021. Gross margin was 8.5% in the third quarter of 2022 compared to 47.9% for the same period of 2021. Adjusted gross profit, which excludes the above inventory provisions, was $2.0 million compared to $2.6 million for the same period of 2021. Adjusted gross margin was 59.8% in the third quarter of 2022 compared with 65.1% for the same period of 2021. The decreases were primarily driven by the aforementioned revenue headwinds across both business segments during the quarter, as well as by increased inventory provision related to aged, obsolete, or unusable inventory.
Operating expenses in the third quarter of 2022 were $26.5 million compared to $11.6 million for the same period in 2021. As a result of the previously mentioned revenue headwinds and adverse conditions in the broader cannabis market, the Company performed an interim impairment assessment on its indefinite-lived intangible assets and recognized a total impairment charge of $19.0 million on its cannabis-related licenses in Colombia during the third quarter, which was the primary driver of the year-over-year increase in operating expenses.
Net loss in the third quarter of 2022 was $20.2 million compared to a net income of $1.0 million for the same period in 2021. Net loss in the current period was primarily driven by the aforementioned $19.0 million impairment charge, which was partially offset by the $6.7 million deferred tax liability. Net income in the prior year period includes a $9.1 million gain on remeasurement of warrant liability, a $3.4 million gain on debt extinguishment, and $0.5 million in interest and amortization of debt issuance cost.
Adjusted EBITDA in the third quarter of 2022 improved to $(5.4) million compared to $(6.0) million for the same period in 2021. This was mainly attributable to continued cost reductions during the quarter, partially offset by higher inventory provision and increased sales and marketing expense.
Cash, cash equivalents and restricted cash were $17.6 million as of September 30, 2022 as compared with $37.7 million as of December 31, 2021. The decrease was primarily attributable to operating losses, as well as the full repayment of $22.9 million in debt obligations earlier in the year. This decrease was partially offset by $26.3 million in net proceeds raised from the Company’s at-the-market stock offering year-to-date through the third quarter, as well as by $2.5 million in proceeds from the Company’s partial sale of non-core equity investments. The Company has largely eliminated its debt, reducing outstanding debt levels by approximately 93% since the beginning of the year.
2022 Outlook Update
Due to the impact of sales cycle disruptions across both segments of the business during the third quarter, Clever Leaves has revised its full year 2022 revenue outlook. The Company now expects its 2022 revenue to be within the range of $17.0 million to $17.7 million, compared to its prior forecast of between $20 million and $25 million.
The Company is reiterating its previously stated full year adjusted gross margin outlook, which is expected to range between 50% and 55%. Clever Leaves has also narrowed its expected range for full year adjusted EBITDA to between $(23) million and $(22) million, compared with its previously stated range of between $(23) million and $(20) million. As Clever Leaves continues to make progress on improving capital efficiency, the Company now expects its 2022 capital expenditures to be approximately $1.5 million, compared to its previously stated range of between $2 million to $3 million.
The conference call will be available for replay here.
About Clever Leaves Holdings Inc.
Clever Leaves is a leading multinational operator and licensed producer of pharmaceutical-grade cannabinoids. Its operations in Colombia and Portugal produce cannabinoid active pharmaceutical ingredients (API) and finished products in flower and extract form to a growing base of B2B customers around the globe. Clever Leaves aims to disrupt the traditional cannabis production industry by leveraging environmentally sustainable, ESG-friendly, industrial-scale and low-cost production methods, with the world’s most stringent pharmaceutical quality certifications. We announce material information to the public through a variety of means, including filings with the SEC, press releases, public conference calls, and our website (https://cleverleaves.com). We use these channels, as well as social media, including our Twitter account (@clever_leaves), and our LinkedIn page (https://www.linkedin.com/company/clever-leaves), to communicate with investors and the public about our Company, our products, and other matters. Therefore, we encourage investors, the media, and others interested in our Company to review the information we make public in these locations, as such information could be deemed to be material information. Information on or that can be accessed through our websites or these social media channels is not part of this release, and references to our website addresses and social media channels are inactive textual references only.