Unrivaled Brands, Inc.
Q3 2021 Earnings Call Transcript

Published: 15 Nov 2021

[Operator:]

Greetings, and welcome to the Unrivaled Brands 2021 Third Quarter financial results. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, . As a reminder this conference is being recorded, Monday, November 15, 2021. It is now my pleasure to turn the conference over to Jason Assad, Investor Relations. Please go-ahead sir.

[Jason Assad:]

Thank you, operator. Good afternoon and welcome to Unrivaled Brands ' Third Quarter 2021 financial results conference call. With us today are Unrivaled Chief Executive Officer Frank Knuettel, and Chief Financial Officer Jeff Batliner. the call over to management, please remember that this conference call contains forward-looking statements as defined within the Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements and terms such as "anticipate, " "expect, " "intend, " "may, " "will, " "should" or other comparable terms involve risks and uncertainties because they relate to events and depend on circumstances that will occur in the future. These statements include statements regarding the intent belief or current expectations of Unrivaled, and members of its management, as well as assumptions on which the statements are based. Perspective investors are cautioned that any such forward-looking statements are not guarantees of future performance, and involve risks and uncertainties including those described in Unrival's periodic reports filed with the SEC. And that actual results may differ materially from those contemplated by such forward-looking statements. Except as required by federal securities law, the Company undertakes no obligation to update or revise forward-looking statements to reflect changed conditions. Finally, this conference call is being webcast. The webcast link is available on the Investor Relations section of our website at www.unrivaledbrands.com. With that, it's now my pleasure to turn the call over to Unrivaled Brands CEO, Frank Knuettel. Frank.

[Frank Knuettel:]

Thanks, Jason. And thank you everyone for joining us this afternoon to discuss Unrivaled Brands ' third quarter operating results. As we have in the past, I'll provide an update on our three primary initiatives, and Jeff will provide details on our Q3 operating results. I'll start with the high-level review of our operations, proceed with updates on our assets, sales and balance sheet and finish with a summary of our strategic initiatives. To start with, I'm pleased to report the operating results for our first quarter after merging with umbrella, which represents the first step towards our plan to become the dominant West Coast MSO, or multi-state operator. During the third quarter, we recorded $23.4 million in revenues, up 274% from $6.3 million in revenues during the second quarter of this year, and up 668% from $3.1 million in revenues for the third quarter of 2020. For the legacy Terra Tech operations, which provides insight in the operations, not including the effects of the umbrella merger, revenue for the third quarter was $6.3 million, up 1% over the second quarter of this year, and up 107% over the third quarter of 2020. While Jeff will provide more detail shortly, I would also like to note that our non-GAAP loss which reflects the elimination of non-cash or non-recurring items was down considerably from a year ago and down marginally from the second quarter of 2021. For the third quarter of 2021, our non-GAAP loss was $0.9 million, down 93% for the third quarter of 2020 when we had a non-GAAP loss of $12.7 million. This puts us on track where we expect to be EBITDA positive in Q1 2022, as previously anticipated. A full non-GAAP reconciliation can be found on our 10-Q filing. As a summary of our current operations, our business is comprised of five-parts

[Jeff Batliner:]

Thanks, Frank. And good afternoon everyone. For the quarter ended September 30th, 2021, we generated revenues from continuing operations of approximately $23.4 million compared to approximately $3.1 million for the quarter -ended September 30th, 2020, an increase of $20.3 million or 668%. Revenue dramatically increased as a result of the Company's successful merger with UMBRLA Inc. as well as the management services agreement signed at the beginning of September with P people’s California to operate one of the leading retail locations in the state of California. The UMBRLA merger has provided the Company a distribution network in California and Oregon that generated over $13 million for the three months ending September 30th, 2021. It also provided an additional retail location which operates at The Spot that generated over $2.3 million in revenue in the third quarter of 2021. The People's management agreement provided a retail location that contributed considerable revenue in the first month under our management. Viewed another way, the $23.4 million in the third quarter revenue breaks down as follows; $7.2 million in retail revenue, $14.6 million in distribution revenue, and $1.6 million in cultivation revenue. The Company generated $2.3 million in gross profit for the quarter ended September 30, 2021, compared to approximately $1.4 million for the quarter ended September 30, 2020. This was an increase of approximately $850,000 or 59%. And the growth and gross profit didn't quite keep pace with the revenue growth. However, we did take a $4 million inventory reserve that hit cost of sales and negatively impacted our gross margins for the quarter. The merger with UMBRLA and the management services agreement with People's has led to a larger organization with more operations, with additional facilities, employees, and the cost to support them our selling general administrative expenses for the 3 months ended September 30th, 2021, were $13.5 million compared to $5.6 million for the 3 months ended September 30th, 2020, an increase of $7.9 million or a 142%. Now, keep in mind while we experienced an absolute dollar amount increase year-over-year due to the larger organization, on a percentage of revenue basis, we've seen significant decrease year-over-year. Our third quarter of 2021 saw SG&A expenses at 57% of revenue compared to 183% of revenue for the third quarter of last year. Some of the key drivers include employee-related expenses increased by $1.6 million or 69% in the third quarter of 2021 as compared to third quarter prior year, as we now have 286 employees compared to 60 from last year. Our facilities and related expenses such as rent, utilities, repairs, and maintenance, security insurance increased by $1.2 million in Q3 of 2021 over Q3 of 2020, as we added 3 distribution centers and 2 retail stores this quarter. So these is expenses which include advertising, accounting fees, tech support and other professional fees increased by $980,000 in the third quarter of 2021, compared to the third quarter of 2020. Options expense and directors’ compensation increased by $820,000 with the addition of employees and with the addition of two more independent board members here in 2021. Taxes, licensing, and permitting fees increased by $740,000 compared to Q3 of prior year. The Company realized an operating loss of $11.2 million for the three months ended September 30th, 2021, compared to an operating loss of $13.9 million for the three months ended September 30th, 2020, an improvement of $2.7 million or 20%. Other expense for the third quarter of 2021 was $550,000 compared to approximately a $160,000 in the third quarter of 2020, an increase of $393,000. This increase was attributed to additional interest expense this year and lower other income compared with Q3 of last year. In discontinued operations, we realized a net gain of $6.3 million for the third quarter of 2021, compared with a net loss of $4.2 million for the same time frame last year. This was an improvement of $10.5 million over the 3 months ended September For 30, 2020, primarily resulting from the completion of the sale of our Blum Decatur assets in Nevada. As a reminder, this sale was agreed to in the second quarter of 2019, and took over two years to receive Nevada state and local governmental approvals. We incurred a net loss of $5.35 million or $0.01 per share for the three months ended September 30, 2021. It was an improvement of $0.08 per share compared to the net loss of $18.2 million or $0.09 per share for the 3 months ended September 30, 2020. The improvement in net loss was attributable to both management's continued focus on efficiency, as well as integrating the legacy Terra Tech operations, the legacy UMBRLA operations, and the legacy People's operations together. The newly combined Company had sales, general and administrative expenses increased by a 145% to $13.5 million in the third quarter of 2021 compared to the third quarter of 2020. However, the business also saw revenue expand by $20.4 million or 668% over the same time frame. As we integrate our mergers and acquisitions together, we will most likely incur legacy-related one-time hits that have significance and their impact to our financial statements. We feel that the schedule showing non-GAAP measurements continues to provide clarity into our performance. In this quarter, when we eliminate such items as the $1.6 million in stock comp expense, the $2.2 million in amortization and depreciation, the $185,000 on loss from extinguishment of debt, our non-GAAP loss is $880,000 for the quarter. This is slightly more than a $200,000 improvement compared to last quarter. I would like to reiterate management intends to continue to invest and further expanding our operations in comprehensive marketing activities with the goal of accelerating the education of potential clients and promoting our name and our products. Management intends to continue its efforts to increase revenue and improve the efficiency of operating expenses. Given that most of the operating expenses are fixed or have a quasi-fixed character, management expects that as revenue increases, those expenses as a percentage of revenue will decrease. And we started to see that in the third quarter. I would like to thank everyone on the Unrivaled Brands team involved in getting this filing to the finish line and thank you to you our audience for your attention today to this financial Q3 summary. Operator, you may now open the call for questions.

[Operator:]

Thank you. Our first question is from the line of Mica Victory, Private Investor. Please go ahead.

[Mica Victory:]

Yes. Thank you. I'd like to get a little feedback on what your thoughts are with the SAFE Banking Act coming up in the latest bill introduced today by the Republicans.

[Frank Knuettel:]

Sure. So it's -- happy to chat about that. And there's a number of legislative initiatives in Congress, anywhere from things as relatively straightforward as the SAFE Banking Act, which you asked about to the Schumer and Booker Bill which is much more expansive in its scope. Given the dynamic in congress and the relative split between parties and everything else, I think the more expansive bill is going to be difficult but there's certainly seems to be support generating and growing for something along the lines as the SAFE Banking Act. that the -- you know it hasn't really made out a committee yet. And we haven't seen what the final bills look like and more comfortable that we will see a Safe Banking like act in the next 4 to 6 months and I have recently. So I think it's likely that we'll see something and for banking and that sort of thing and the more expenses legislation will just frankly take longer.

[Mica Victory:]

Thank you very much. Appreciate your input.

[Operator:]

Our next question is from Mike Tedesco, Priceline investor. Please go ahead.

[Mike Tedesco:]

Yes. Thank you. I just have a question about the Unrivaled Brands share price. So I was just wondering if you guys have any plans on how far or how long it might take to get it back to over a dollar. I believe it's rank now is sitting at around $0.40 a share, if you have any thoughts on that. And if you're going to go more institutional buying for us, or how we might be able to increase the share price in the short and long-term? Thank you.

[Frank Knuettel:]

Sure. I really can't comment on when and if because frankly, I don't know the answers nor do I have any control over that. My long-term feeling is that if you build a good Company and provide investors with information and transparency that the stock price will follow. Our goal is to frankly build a good Company, do what we say we intend to do and that is to continue to build out our footprint and the West Coast, start generating cash flow from operations, and continue building out our base. And at some point, by way of our efforts through earnings calls and investor conferences and non-deal roadshows, one-on-one conversations with folks, we hope to continue to get the message out. Certainly, with respect to the last caller, if something along the lines of the Safe Banking Act does go through, I would think that that would have a positive impact, but again, our goal is generally to build a good Company and the share price will do what is going to do and it should presumably follow as we build a good Company.

[Mike Tedesco:]

Okay. Great. Thank you.

[Operator:]

Our next question is from Mike McBride, Private Investor. Please go ahead.

[Mike Mcbride:]

Hi, there. I have a quick question. You referenced the edible garden still having potential ownership. If I recall it correctly, they're based in New Jersey. Are they applying for marijuana growing license, now that it's a legal state or do you have any additional insight into that situation?

[Frank Knuettel:]

I do not have any insight as to whether or not they are filing for that. I'm sorry. I can't answer or provide any more information on that question.

[Mike Mcbride:]

Okay.

[Operator:]

Our next question is from Jim Hansen, Private Investor. Please go ahead.

[Jim Hansen:]

Hi. Thank you for taking my question. If you -- if my math is right, your gross margin is running about 27%, if you add back the impairment for your inventory expense this quarter. How does that compare to the industry benchmark and what are your plans to seeing that get higher?

[Frank Knuettel:]

So it's the industry is still an early enough stage and there's a lot of variability, so it's tough to say that there is an industry benchmark. Our organization also is a little bit unique, respect the fact that we have broad footprint in brands, distribution, and retail. And as I chatted about earlier in my prepared comments, distribution has generally a lower margin -- is generally lower margin business, but we feel is really valuable to the support of our brands and the growth therein. So I think we anticipate as more of our dispenser result and that our normalized gross margins will continue to increase. But I think the industry is still in a bit of its early stages to really have a good benchmark.

[Jim Hansen:]

Thank you.

[Operator:]

Our next question is from Neil Gallagher with Unrivaled Brands. Please go ahead.

[Neil Gallagher:]

I was just curious. Is there any kind of expansion going on in the Las Vegas area now or things gone down or are there -- for the whole Nevada state, are you going to expand in that state or what's your plans there?

[Frank Knuettel:]

So we don't -- you know, we have such an unbelievably large opportunity in Oregon and California. And I believe that our ability to execute from an operational perspective in those states, given the market size, is potentially a better place to invest the Company's dollars than in Nevada. So we have our joint venture -- if -- to our cultivation and manufacturing joint venture in Nevada but there is no immediate expectation and expanding in Nevada because I think the opportunities are so large in California and Oregon.

[Neil Gallagher:]

Just as a follow-up, you don't see Las Vegas as a good opportunity place, just due to the fact of the number of people going there for vacations and don't want to settle for that?

[Frank Knuettel:]

I think it's certainly good opportunity. We consider a number of issues beyond just the total market size one of which is the cost of entry another one which is its geographic location away from California. We saw during COVID that when tourism went down, that a lot of the of revenue in Nevada fell quite a bit as well. And then the whole Nevada market does seem to be softening a little bit. So we're certainly keeping very aware of it, but there's a lot of considerations that go into whether or not we decide to enter the market, one of which is return on our investment. So I think at this time, we're going to continue to monitor it and see how it plays out. But in the meantime, we have such significant opportunities where we are operating fully that we're going to focus primarily on those two states.

[Neil Gallagher:]

Thank you. Appreciate that.

[Operator:]

Mr. Knuettel, it appears we have no further questions at this time. I'll turn the call back to you. You may continue with your presentation or closing remarks.

[Frank Knuettel:]

Thank you very much. So, on behalf of the Company and all our employees, I want to thank everyone for your continued support for getting our update today. And I look forward to continuing to grow and build the Company in a focused manner as we've previously discussed and we'll endeavor as much as possible to provide transparency to all of you. Thank you again for attending and I appreciate your support.

[Operator:]

And that does conclude the conference call for today. We thank you all for your participation and kindly ask that you please disconnect your lines. Have a great day everyone.