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Sunniva Inc. (OTCQB:SNNVF) Q1 2019 Results Conference Call May 31, 2019 11:00 AM ET
Rob Knowles - Vice President, Corporate Development
Anthony Holler - Co-Founder, Chairman and Chief Executive Officer
David Negus - Chief Financial Officer
- Rob Knowles - 企业发展副总裁
- Anthony Holler - 联合创始人，董事长兼首席执行官
- David Negus - 首席财务官
Matt Bottomley - Canaccord Genuity
- Matt Bottomley - Canaccord Genuity
Thank you for standing by. This is the conference operator. Welcome to the Sunniva, Inc. First quarter 2019 Earnings 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 for analysts to ask questions [Operator Instructions].
I would now like to turn the conference over to Rob Knowles, Vice President, Corporate Development. Please go ahead, Mr. Knowles.
谢谢你的支持。 这是会议运营商。 欢迎来到Sunniva，Inc。2019年第一季度收益电话会议。 提醒一下，所有参与者都处于只听模式，正在录制会议。 演示结束后，分析师将有机会提出问题[操作员说明]。
我现在想把会议转交给企业发展副总裁Rob Knowles。 请继续，诺尔斯先生。
Thank you. And good morning to everyone joining us to discuss our results for the first quarter of 2019. Joining me today are Dr. Anthony Holler, our Co-Founder, Chairman and Chief Executive Officer and David Negus, our Chief Financial Officer.
We hope you've had an opportunity to review the news release, MD&A and financial statements we issued yesterday, May 30, 2019. We'll begin today's call with comments from Dr. Holler, who will provide an introduction, then provide an operational update, followed by David Negus, who will provide a financial overview. We will then open the lines to analysts for questions.
Before I begin, I want to note that some of the matters we'll discuss on this call, including our business outlook are forward-looking in nature. These matters are subject to both known and unknown risks and uncertainties including, but not limited to, those factors set forth in yesterday's news release, our MD&A and other public disclosure documents, which are available on the SEDAR website.
These risks and uncertainties could cause actual future results to differ materially from those expressed in this call, which are based on our current expectations. We assume no obligation to update the information presented on this conference call, except as specifically required by applicable securities laws.
I'll now turn the call over to Dr. Holler. Dr. Holler, please go ahead.
谢谢。大家早上和大家一起讨论我们2019年第一季度的业绩。今天加入我的是我们的联合创始人，董事长兼首席执行官Anthony Holler博士和我们的首席财务官David Negus。
Thank you, Rob. Good morning, everyone, and thanks for joining us today. It has only been a month since our last update, and we are happy to be able to share more progress with you today.
Before I go into the details, I would like to take a moment to address the departure of one of Sunniva's founders and directors, Leith Pedersen, who are now his resignation a couple of weeks ago. Leith and I co-founded Sunniva in 2014 as a medicinal cannabis company for this emerging industry. From this beginning, Sunniva stands today as an emerging player in the California market on the verge of being a fully integrated company due to the dedication of time and efforts that these contributed over these past years. As we move on to the next phase of Sunniva's evolution and with our focus shifting to California, we determined that it was time for him to step down. We wish him the best in all his future endeavors.
In addition, we announced early this morning that our CFO, David Negus, will also be stepping down and will be replaced by another David. Dave Wyle, who will come onboard next week. Dave joins us from a long history of public and private company experience. I won't go through all his credentials here, but direct you to the management page of our website, if you want to read more about his background.
As we concentrate our business in California, a logical step was to shift the company's corporate functions from Vancouver Bridge Colombia to our office in Carlsbad, California. David Negus has done a great job creating Sunniva's financial systems and operating structures from a private company to a public company, and we thank him for his contributions. David will continue to support the company as a consultant to ensure a smooth transition with no disruption to operations.
Now, on to the current quarterly results. We previously announced our Q1 revenue forecast of $14 million, reflecting a solid beginning to our sales of cannabis products in California. I will leave the full financial discussion for David, and will focus on our operational achievement focus on our operational achievements over the past month. Construction of the Cathedral City facility continues on-schedule with initial operations expected to commence late in the third quarter. At which time, we will be on-bordering the mothering plants into the facility and will begin the inaugural planting cycle, resulting in an initial harvest by year-end.
Following the harvesting, there is a five to six week period of drying and curing of the plants, testing and packaging in advance of sales. We anticipate first sales of our premium flower will be realized in early 2020. As with the commissioning of any new facility, we intend to bring each subsequent cultivation bay into production at a measured pace as we fine-tune the operating processes. As we approach the operational date we will provide further guidance on the expected ramp-up schedule, but currently anticipate having all eight cultivation based operational by the end of the first half of 2020.
在我详细介绍之前，我想花一点时间来解决一位Sunniva的创始人和董事Leith Pedersen的离职，他们几周前已经辞职了。 Leith和我在2014年共同创立了Sunniva，作为这个新兴产业的药用大麻公司。从一开始，Sunniva就成为加利福尼亚市场的新兴企业，由于过去几年所做出的时间和努力的奉献，它们正处于一个完全整合的公司的边缘。当我们进入下一阶段的Sunniva演变并且我们的焦点转移到加利福尼亚时，我们确定是时候让他下台了。我们祝愿他在未来的所有努力中一切顺利。
此外，我们今天凌晨宣布，我们的首席财务官David Negus也将辞职，并将被另一位大卫取代。 Dave Wyle，他将于下周登陆。戴夫从公共和私人公司的悠久历史经验中加入我们。我不会在这里查看他的所有凭据，但如果您想了解更多有关他的背景信息，请将您引导至我们网站的管理页面。
当我们将业务集中在加利福尼亚时，合乎逻辑的一步是将公司的公司职能从哥伦比亚温哥华桥转移到我们位于加利福尼亚州卡尔斯巴德的办公室。 David Negus在创建Sunniva的财务系统和运营结构方面做得非常出色，从私人公司到上市公司，我们感谢他的贡献。 David将继续作为顾问支持该公司，以确保平稳过渡，不会中断运营。
We continue to ramp-up our sales and distribution capabilities, which you saw in last month's acquisition of two licensed packaging and distribution sites located in Cotella, and with the hiring of additional sales personnel. We are currently upgrading the building for our packaging equipment and anticipate beginning operations in July, which will enable us to package and distribute the capacity of both the extraction facility and the Cathedral city facility.
We are also pleased to announce that we have recently received our provisional retail license for our Cathedral city retail location. This license allows the retail location to be fully operational, once construction is completed. As previously reported, our extraction facility and sales team performed very well in the first quarter, generating significant revenues from both the sale of newly manufactured concentrates and distillates and branded flower from our cultivation partners.
The initial extract and flower products were launched under two new brand names, Sun Fire and Kyndness, which we sold to select dispensaries. Capital limitations in the second quarter have tempered our ability to acquire biomass and reduced the production of concentrates from the extraction facility. As a result, we anticipate modest sales in Q2 and more meaningful growth as we move into Q3. This resulted in our decision to delay the launch of our third brand, Herbella, into the summer.
As we outlined for you in the last call, we are currently evaluating various strategic options for our Canadian assets and we will provide updates on that progress when there is something concrete to report. I am happy with the progress we have made on all front so for in 2019, and I am very confident that our execution today will allow us to maximize the opportunities presented when the Cathedral city facility becomes operational in the near-term. The existing management and the new additions to team will enable us to propel into the next stage of growth as the remainder of the year unfolds.
I will now turn the call over to David Negus, our CFO, to go through the details of first quarter and provide a current financial outlook. David?
Thanks Tony. Please note that all the figures I will mention are in Canadian dollars unless referred to as otherwise, and reflect the adoption of IFRS 16 accounting for leases. Revenue for Q1 came in at $14.2 million, of which $10 million was from sales of our cannabis products in California, $2.4 million from full-scale distributors and $1.8 million from natural health services. With the commencement of cannabis product sales in Q1, total revenue for the period is up significantly from $5.1 million during the same period last year and up from $5.4 million we reported in Q4 2018.
Gross margin for the quarter was 37%, which is significantly lower than the 41% reported last year, mostly as a result of lower margins from the extraction facility as it is in the process of ramping up to full capacity. Gross margins for FSD and NHS were 15% and 66% respectively, which is consistent with how they performed throughout last year. The net loss for the quarter was $3.5 million, which decreased almost $3 million from the same period last year, and decreased $7.6 million from the previous quarter.
Loss from our operations was $3.1 million, which is a notable improvement over the $6.3 million operating loss in the same period last year, and $9.6 million operating loss last quarter. The reduced losses were largely due to the significant revenue contribution from our branded product sales. The ramp-up of operations in the U.S. has led to an increase in the number of employees, offset by the application of new accounting rules.
Total corporate G&A decreased to $8.3 million from $10.4 million in Q4 2018. As we consolidate our corporate functions in Carlsbad, California, we anticipate that the corporate G&A expense will continue to decrease throughout 2019. We are very pleased with the leverage of cash G&A against revenue on an annual basis, decreasing from 108% in Q1 2018 to 43% in Q1 2019.
Additions to PP&E for the quarter ended were $11.9 million, primarily related to our California operations. As mentioned on our previous call, all current development plans for the Sunniva Canada campus in Okanogan Falls, British Columbia remain suspended at this time. We continue to be very pleased with our progress at NHS under the leadership of Dr. Mark Kemens. The reorganization of the operating structure has NHS well-placed to execute on a number of partnership opportunities to expand the patient base. We have been prudent managing our limited capital this past quarter as we balance investments in working capital with the capital obligations on the Cathedral City facility.
Accounts receivable at the end of Q1 of approximately $10 million reflect the commencement of cannabis sales to dispensaries in California. At this time, we are maintaining our previous 2019 guidance range for cannabis product revenue at $55 million to $60 million.
With that, I'll turn the call back over to the operator to open it up for Q&A.
Thank you. We will now begin the question-and-answer session for analysts [Operator Instructions]. Our first question is from Matt Bottomley with Canaccord Genuity. Please go ahead.
谢谢。 我们现在开始分析员的问答环节[操作员说明]。 我们的第一个问题来自Matt Bottomley和Canaccord Genuity。 请继续。
Just wanted to touch base on the guided revenue for 2019 you just mentioned, keeping it the same. Maybe, Anthony, just on some of your commentary with respect to next quarter's revenue being modest, I just wanted to clarify if that was a particular line, or if that was a whole California branded product sales line you were speaking about.
We're primarily referring to the California cannabis sales being a little modest. We believe that the upside in Q3 and Q4, as we get all the engines rolling will be sufficient to hit our revenue targets.
The other thing to bear in mind is we're expanding our capabilities in terms of packaging and distribution, and that facility will be open beginning of July. So that offers some very large opportunities for us to expand sales. And you understands that -- if the goal at the end of the rainbow is getting our facility running and selling products out of that facility. But to do that, we need the infrastructure in place now and that's why you are seeing some of the things we're doing, because we have to expand our sales force, we have to expand our distribution capabilities, we have to expand our packaging abilities. We just acquired a brand-new high volume packing piece of equipment. All these things have to be done in anticipation of the beginning of next year when we are going to be selling a large volume of cannabis products, both dry flower and distillates.
另外要记住的是，我们正在扩大我们在包装和分销方面的能力，该设施将于7月初开放。 这为我们扩大销售提供了一些非常大的机会。 而且您了解这一点 - 如果彩虹尽头的目标是让我们的设施运行并从该设施中销售产品。 但要做到这一点，我们现在需要基础设施，这就是为什么你看到我们正在做的一些事情，因为我们必须扩大我们的销售队伍，我们必须扩大我们的分销能力，我们必须扩大我们的包装 能力。 我们刚收购了一台全新的大批量包装设备。 所有这些事情都必须在明年初开始时进行，届时我们将出售大量的大麻产品，包括干花和馏分油。
So is it fair or is it too conservative to assume that next quarter's revenue will be predominantly FSD and NHS derived?
I think there'll be more than that, Matt. I just don't think you'll see the number that we have in Q1.
And then just speaking again to your guided range of 55 to 60. So those, I understand are just the California branded product sales, given the fact that it's going to be into 2020 as you continue to ramp-up your Cathedral City location. What’s your upside or moderate case scenario for what operating margins and gross margins you can get out of that business model? I think this quarter, there are out about 37%. So how much more upside is to that? And is it possible in your view to break profitability before you actually have your own vertically integrated sales model?
然后再谈谈你的导航范围55到60.所以我明白这些只是加利福尼亚品牌的产品销售，因为它将在2020年继续增加你的大教堂城的位置。 对于您可以从该业务模式中获得的运营利润率和毛利率，您的上行或中等情况是什么？ 我觉得本季度大约有37％。 那么这有多大的好处呢？ 您是否有可能在实际拥有自己的垂直整合销售模式之前打破盈利？
We see long-term margins in that business north of the 50s into the 60 plus range. I think that cash flow breakeven is obtainable in the near-term. The challenge we have right now is obviously we're making significant investments in working capital. You can see our investments into inventory, into AR. There's a lot of cash floating in working capital right now as we build-up our operations and we go from -- we really went from a standstill to a lot of revenue in Q1. And as we tempered through this working capital and the engine starts turning over, I think you'll see near-term cash flow breakeven.
我们看到50年代以来该业务的长期利润率达到60 范围。 我认为现金流盈亏平衡可以在短期内获得。 我们现在面临的挑战显然是我们正在对营运资金进行大量投资。 您可以看到我们对库存的投资，进入AR。 我们现在正在筹集运营资金，现在有很多现金流入营运资金 - 我们真的从第四季度停滞不前到很多收入。 当我们通过这个营运资本进行调整并且引擎开始翻身时，我认为您会看到近期现金流量的盈亏平衡。
And just last one for me on the capital side. So as I think I hear it in your release, May 30th $1.5 million of cash, but the working capital you referenced, particularly the AR at 10, that $11.5 million. What type of runway do you think that gives you considering all the activities you currently have in your hand?
在资本方面，对我来说只是最后一个。 因此，我认为我在你的发布中听到了5月30日的150万美元现金，但你引用的营运资金，特别是10美元的AR，即1150万美元。 你认为什么类型的跑道让你考虑到你手中的所有活动？
We do have an additional $10 million. We need to contribute towards the Cathedral City Greenhouse facility. We talked about that in our last call a month ago. So I think, obviously, we will require some additional capital to complete our activities, but we feel confident that we've got a good plan in place and will be sufficiently funded to get through.
我们还有1000万美元。 我们需要为大教堂城温室设施做出贡献。 我们在一个月前的最后一次电话会议上讨论了这个问题。 所以我认为，显然，我们将需要一些额外的资金来完成我们的活动，但我们相信我们已经制定了一个好的计划并且有足够的资金来完成。
Matt, you'll recall that in terms of our Canadian assets, we anticipate the sale of those assets. So I think in the near-term, we will report back to you on that.
[Operator Instructions] There appear to be no further questions. This concludes the question-and-answer session. I'll now turn the conference back over to Dr. Anthony Holler for any closing remarks.
[操作员说明]似乎没有其他问题。 问答环节结束了。 现在，我将把会议转回到Anthony Holler博士的任何结束语中。
Thank you. As always, I'd like to acknowledge my appreciation of the dedication and hard work of the entire Sunniva team, and look forward to the next several months when we see the completion of the Cathedral City facility and the next step in Sunniva's evolution.
Thank you again for joining us this morning and each of your questions. And I will remind you that we are holding our AGM on June 12, 2019 in Vancouver for those able to attend. Details can be found on our website. Thank you very much.
再次感谢您今天早上加入我们以及您的每一个问题。 我将提醒您，我们将于2019年6月12日在温哥华举行股东大会，以便有能力参加。 详情可在我们的网站上找到。 非常感谢你。
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
今天的电话会议结束了。 你可以断开你的线路。 感谢您的参与，祝您度过愉快的一天。
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