Avant Brands Inc. (OTCQX:AVTBF) Q1 2022 Earnings Conference Call April 14, 2022 4:00 PM ET
Company Participants
Alyssa Barry – Investor Relations
Matt Whitt – Chief Financial Officer
Norton Singhavon – Founder & Chief Executive Officer
David Lynn – Chief Operating Officer
Conference Call Participants
Operator
Thank you for standing by. This is the conference operator. Welcome to the Avant Brands Inc. First 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. [Operator Instructions]
I would now like to turn the conference over to Alyssa Barry, Investor Relations. Please go ahead, Ms. Barry.
Alyssa Barry
Thank you, operator, and good afternoon, everyone. Welcome and thank you for joining Avant Brands first quarter 2022 results conference call. My name is Alyssa Barry, Investor Relations for Avant Brands. Speaking on our call today is Avant’s Founder and CEO, Norton Singhavon; and CFO, Matt; Avant COO, David Lynn, is also present and will be participating in our Q&A session.
Our first quarter 2022 results were disseminated yesterday and are available on SEDAR 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 are subject to certain risks and uncertainties, which are all outlined in detail in our regulatory filings available on SEDAR.
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 then we’ll transition to our Q&A session.
With that, I will turn the discussion over to our CFO, Matt Whitt, to share the Company’s financial highlights. Norton will then provide a strategy update. Please go ahead, Matt.
Matt Whitt
Thank you, Alyssa, and good afternoon, everyone. I’ll discuss a few key financial highlights for the quarter ended February 28, 2022, with comparison to Q4 2021. In our current quarter, we did achieve historical record gross revenues of $4.6 million compared to $2.8 million last quarter, an increase of $1.8 million or 67% and with net revenue of $4.2 million this quarter, also being a record high.
Included in this is recreational cannabis sales of $2.5 million, another record high compared to $2.0 million or a 25% increase, reflecting the continued demand for Avant’s premium cannabis brands.
Gross margin on recreational cannabis sales, excluding concentrates, improved to 52% compared to 43% and demonstrating the ability of Avant’s core brands to resist price and margin compression.
Gross margin before fair value adjustments was $1.0 million compared to $0.8 million, with overall weighted gross margin percentage of 23% compared to 34%. The decrease in gross margin percentage was due to a large bulk export sale and an increase in volume of our co-packing partnerships.
Operating expenses for the quarter were $1.3 million compared to $2.2 million, an improvement of $0.9 million or 40% as a result of normalized operations without many of the one-time professional fees that the company experienced during fiscal 2021.
Net loss from operations of $1.1 million compared to a net loss of operations of $2.7 million, an improvement of $1.6 million or 61%. Similarly, comprehensive loss of $0.5 million compared to $7.7 million, representing an improvement of $7.2 million or 94%.
In terms of cash flow, this quarter generated positive cash inflow from operating activities before changes in non-cash working capital of $0.1 million, compared to a cash outflow of $2.0 million, representing an improvement of $2.1 million or 104%. We also achieved positive EBITDA — adjusted EBITDA of $0.1 million, compared to an adjusted EBITDA loss of $1.2 million, an improvement of 1.3% or 107%.
Overall, we’re very pleased with the results that we’ve achieved this quarter and our ability to maintain a strong capital position. With $11.7 million in cash on hand, $22.8 million in working capital and no debt, we have maintained our flexibility to be both strategic and opportunistic as we continue to grow our business.
I will now pass this over to Norton for his remarks.
Norton Singhavon
Thank you, Matt, and good afternoon, everyone. Further to Matt’s comments, we believe that we are well-positioned to continue to grow our market share, while building upon our position as a leader in the premium category.
Since the beginning, we have stuck to our core business model, which is purpose-built facilities, unique cultivars and a dedicated process to produce some of the best cannabis in this country. This has led to another record quarter for Avant. This quarter did not have a lot of exciting news flow. However, it was our strongest quarter to date.
Some of the key highlights for this quarter include Black Market being the number one selling live rosin in the Province of Ontario with a 24% market share. We continued our global cannabis export shipments, totaling over 375 kg of dried cannabis during the quarter, including a large shipment to Israel. We continue to receive strong demand and interest from existing and potential new clients on the export side, and we are able to monetize our first harvest at 3PL and expect to be launching a roster of new cultivars into direct supply chain over the coming weeks.
Going forward, some of the key initiatives for the current fiscal year include begin — continue to monetize the revenue from 3PL once it reaches full production, securing Health Canada license amendments to facilitate the direct sales of concentrates to the provincial liquor boards, which ultimately will enhance our gross margins on these products, continue to operate in a fiscally responsible and disciplined manner while exploring opportunities to deploy our capital internally, which may include expansion, operational efficiencies, new product innovation or externally, which may include partnerships, investments or acquisitions, continuing to evaluate all operational costs and budgets for the goal to be profitable in the near future, continue expanding our global export client base and other international markets, further building on the initial success of Treehugger and Cognoscente and further expand on the success we have had with concentrates.
We remain bullish on the premium indoor flower category, and we are in an excellent position as we have one of the strongest balance sheets in this sector. We have a great team that is extremely disciplined and diligent, we will continue to drive our business forward, focusing on quality and innovation, while also keeping shareholder value creation on top of mind.
With that, now we’ll open it up for Q&A.
Question-and-Answer Session
Operator
We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Jamie Gutierrez [ph], a Private Investor.
Unidentified Analyst
Hi. Good morning. I want to know what your thoughts are for the quarters in the near future as you mentioned. Maybe you restate your thoughts on how long brands being profitable in the next two quarters?
Norton Singhavon
Yes. So I mean, there’s no exact guarantee, I think with the results that we put out this quarter, $4.6 million seems to be a decent base where I think we can continue the trend, increasing our revenue which hopefully will be profitable in the near future, but I can’t guarantee anything.
In terms of our revenue growth, I would say that this quarter captured some production from 3PL, but does not capture the full production run rate that we could produce out of there. Producing the product is one thing, but also being able to sell it. So, I do expect some growth in this coming year. But again, I can’t give too much forward guidance.
Unidentified Analyst
Fair enough. Thank you for your answer.
Operator
[Operator Instructions] This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Singhavon for any closing remarks.
Norton Singhavon
Operator, I feel like you cut that off a little bit too quick. I’d like to maybe give another 10, 15 seconds for questions.
Operator
Sure. We have a next question that comes from Matt Johnson, a Private Investor. Please go ahead. Thank you.
Unidentified Analyst
Yes. Just a couple of quick questions pertaining to 3PL. When can the market expect to see all the new cultivars that you spoke about coming into 3PL?
Norton Singhavon
Yes. So, we submitted everything, I believe, for the April product call. So, that should be Ontario late April, early May. I’ll let David Lynn touch on that a little bit more.
David Lynn
Yes, it does depend on the market because the timing could vary by provincial market. As you know, there’s a formal product called process at the OCS, which Norton has alluded to, but we also sell in British Columbia, Manitoba, Saskatchewan, Yukon, PEI, New Brunswick, and we export. So, all of the — or not all, but a large number of new cultivars have been successfully cultivated and harvested at the facility. I think you’ll see them hitting the market in the months ahead, but the timing will depend on the cultivar and the specific provincial marketplace, definitely hitting though spring and summer of this year.
Unidentified Analyst
Okay. Thanks. Just a couple of others to follow-up. So how would you say that production is coming along at 3PL in general?
Norton Singhavon
Yes, 3PL is producing some of the nicest products we’ve seen coming out of our facilities. Again, this is built from the ground-up purpose-built, it took us a couple of years. And it is by far our nicest and most sophisticated facility. And what we’re seeing is quite impressive as coming out there. Some sort of — some streams — or sorry, some cultures are testing at record highs. We’ve never seen before in some of our other facilities — and yields, of course, are good.
Unidentified Analyst
And how much of this quarter’s revenue was generated by 3PL?
Matt Whitt
So, that’s tough to say because we do actually consolidate all of our — all of the batches and it runs through certain entities.
Norton Singhavon
I would say just anecdotally though, in Q1, very little out of 3PL. Don’t forget 3PL was — the first harvest at 3PL was December of last year. And then, of course, you’ve got the phases that come after that, the drying, trimming curing and so on. So we were introducing the new cultivars at 3PL. We started harvesting in late December. There’s about a month delay after the harvest, so you could actually conceivably sell that crop. So there wasn’t much impact in the quarter, just finished ending at the end of February, much greater impact in the current quarter that we’re in Q2 and the quarters that follow.
Keep in mind that that 3PL more than doubles our total capacity. And as Norton said, not only are we really excited about the volumes, but the quality of the product in terms of parameters such as PHC, terpenes and bag appeals been outstanding. So we’re really, really excited about what that facility can do for the company going forward.
Unidentified Analyst
Okay. Thank you.
Operator
There are no more questions on queue. All right. There are no more questions on queue. I would now like to turn…
Matt Whitt
Thank you, operator.
Operator
Thank you. I would now like to turn the conference back over to Mr. Singhavon for any closing remarks.
Norton Singhavon
Thank you again, everyone for joining us. And have a great long weekend.
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