RYM - NASDAQ

Good morning, and welcome to Agrify's Third Quarter 2021 Earnings Call. With us on today's call are Raymond Chang, Chief Executive Officer; David Kessler, Chief Science Officer; and Niv Krikov, our departing Chief Financial Officer. Today, management will review the highlights and financial results for the third quarter and provide a business and operational update. Following management's prepared remarks, there will be a question-and-answer session. A reminder that today's conference call is being recorded. Before we begin, we would like to remind everyone that prepared remarks contain forward-looking statements, and management may make additional forward-looking statements in response to your questions. Such statements involve a number of known and unknown risks and uncertainties, many of which are outside the company's control that could cause its future results, performance or achievements to differ significantly from the results, performance or achievements expressed mainly implied by such forward-looking statements. Important factors that could cause or contribute to such differences include risks detailed in our public filings with the Securities and Exchange Commission and those mentioned in the earnings release. Except as required by law, we undertake no obligation to update any forward-looking or other statements herein, whether as a result of new information, future events or otherwise. Now at this time, it is my pleasure to turn the call over to Mr. Raymond Chang, Agrify's CEO. Sir, you may begin.

Thank you, operator. Before we get started, I would like to thank everyone for joining us on the call today. During our prepared remarks, we will be referring to information that's contained within our press releases and are cost wise, which can be accessed on our Investor Relations website at ir.agrify.com. On this call today, I will provide you with an update on our continued successful execution of our growth strategy during Q3, including our key achievements from the quarter and I will highlight some recent company developments. My Chief Science Officer, David Kessler, will discuss some of our customers VFU enabled system. He will also walk you through the game changing improvements we are making to our technology. Niv Krikov, our departing CFO who has served Agrify with purpose and professionalism, sought our initial public offering and the subsequent public offering, as well as our recent acquisition will follow with a detailed review of all financial results for the third quarter. As announced this morning, Tim Oakes, who has been a valued member of our Board, and has served our audit committee will begin transitioning to the Chief Financial Officer role effective today. Niv will graciously stay on board for the next few months as an advisor to ensure that both Tim and Agrify are set up for success in 2022. We look forward to introducing Tim to many of you in the near future. For information on Tim and his impressive track record, please refer to the press release that we issued earlier this morning, highlighting the exciting changes and additions to our executive team to help us further accelerate our growth. Now, let's dive into our Q3 highlights. We are thrilled to share with you that the third quarter of 2021 was yet another strong and record quarter for Agrify. We saw revenue sort of to $15.8 million, our best record to-date with 460% year-over-year growth and up 33% -- sequentially from Q2 of 2021. Besides our revenue -- record revenue, I am pleased to report that we generated $32.2 million in new bookings and our backlog at the end of a quarter now stands $117.5 million up from $101 million at the end of Q2 2021. The improvement in our financial results continues to be driven by the healthy and growing partnerships we have cultivated with our existing customers and our robust pipeline of new business opportunities. Over the summer, we accomplish a wide range of business objectives. We moved our headquarter to Billerica, Massachusetts where we also opened Agrify University. This location now serves as a cultivation and production R&D facility, training centre, product showcase facility and corporate office. We also signed our second TTK partnership with True House Cannabis for the installation of now up to 214 VFUs. With the recently updated and increased VFU accounts, this partnership is now anticipated to generate more than $73 million in revenue over the next 10 years. In addition, we established a multi-year Vertical Farming R&D partnership with Curaleaf to study the impact of cultivation environment on plant health and harvest yield. And we expanded our existing partnership with WhiteCloud Botanicals shipping another 114 new 3.6 VFUs for Phase 2 of their facility expansion in Nevada. I would also like to acknowledge the dedication, character and results that our team displayed during Q3. While our financial and public announcements generally get most of the attention, we've worked incredibly hard behind the scenes in the third quarter to combat major global supply chains issues; to deliver on important customer promises; to mobilize for scale up manufacturing; and to push for discussions with MSOs the negotiations with potential TTK and cash customers; and to finalize our transformative and strategic acquisition of Precision Extraction and Cascade Sciences. Based on all these efforts, fourth quarter is already shaping up to be yet another record quarter for us, which I will elaborate a little bit more later on this -- in this call. Now at this point, I would like to turn the call over to David, my Chief Science Officer who will give an update on our customer success and horticulture initiatives as well as our new product enhancements. David?

Thank you, Raymond. In Q3, our clients continue to see improvements and consistency in yield, achieving new leads and cultivation performance using our VFUs. This quarter, the highest yield, one of our customers recorded was 99 grams per square foot of cannabis, an incredible 50% increase over the next highest yield from the past three quarters. In more practical terms, if three VFUs are stacked in configuration, then the potential yield per square foot of facility floor space would be 594 grams per crop cycle, or 2,970 grams per year for each square foot – of foot of facility allocated. Agrify customers continue to see exceptional cannabinoid consistency of Agrify VFU grown flower as well across five harvest batches in the prior three months one of Agrify’s customers saw less than 0.94% variation in the cannabinoid concentration across all five batches. This level of consistency is propelling the industry towards branded products that deliver reproducible consumer and patient experiences. This quarter we also launched Agrify University, an immersive online and in-person project-based learning experience that empowers Agrify customers with the knowledge and best practices to succeed. Utilizing our vast data sets and technological innovations, Agrify University offers a curriculum designed to support the long-term growth of the industry. To improve the efficiency, Agrify has incorporated a plug and play system for automated harvest waste data capture, which effectively eliminates the need to manually enter data into metric or other compliance software, reducing human error and fostering faster, more accurate data input and collection. We've made exciting advancements to our VFU technology as well, leading to our recent launch of the improved VFU Generation 3.7 with enhanced features for increased efficiency and higher quality yield, including lighting with industry-leading performance, media, electrical conductivity and water sensing capability as well as integration of intelligent camera technology. Developed with our contract manufacturer Mack Molding, the new features of the generation 3.7 VFU include durable, adjustable spectrum lights that can be precisely tailored to serve the specific needs of different cannabis varieties. The new lights deliver approximately a 40% increase in light output with best-in-class power efficiency of 3.0 micro-moles per Joule after lensing and loss. A camera system integrated with Agrify Insights enabling ongoing image analysis to proactively identify issues before they can be seen with the naked eye, as well as growing media monitoring via moisture and electrical conductivity sensing. Enabling granular control over the fertigation events and optimizations based on environmental feedback which minimize potential risks from facility anomalies, nutrient deficiencies and improper irrigation fertigation schedules. To foster biosecurity, 3.7 Generation VFUs have incorporated a heat sanitation mode to automatically sanitize our VFUs in between crop cycles, helping to eliminate one of the most underperformed and important tasks in any facility. We expect to begin delivery of the Generation 3.7 VFUs during the first quarter of 2022. And we look forward to seeing the real world improvements that these latest advancements will bring to our clients. With that, I will turn the call back to Raymond.

Thank you, David. We will -- we are confident that we will begin shipments of our 3.7 VFU in first quarter of next year. Our most events solution today are expected to drive our grow well through 2022 and beyond. And we are already noticing a marked increase in interest for major operators in the indoor app space and we expect that interest to intensify. As we continually strive to improve our VFUs for enhanced performance, we remain laser focus on our core mission of providing the highest yields, the highest consistency, the highest quality at the lowest possible cost. At Dave stated before, this mission is an integral to our success -- to the success of our customers. With that, I'd like to pass this over to Niv who will review the financial results.

Thank you, Raymond, and good morning, everyone. Today, I'll provide you with an overview of our third quarter 2021 financial results. Before I begin, I would like to welcome Tim Oakes to the team again, in his new role as incoming Chief Financial Officer. As I reflect on my time at Agrify, I'm immensely proud of all the things we've accomplished during my tenure with the company. I've worked with Tim very closely over the past year, and I'm excited to see what the future holds for Agrify with Tim taking an extended responsibilities. I look forward to continuing to work closely alongside Tim and the team to ensure seamless transition, so that Agrify can continue its momentum through a strong Q4 and into a bright 2022. For the quarter ended September 30, 2021, total revenue increased by 460% to $15.8 million, compared to $2.8 million for the same period in 2020. Our Q3 2021 revenue consisted of facility buildup revenue, as well as hardware revenue from the delivery of new VFU to our customers. This revenue mix is consistent with our expectation for 2021, as this year has deliberately been about kicking off new projects and ensuring that our existing customers are successful with their expansion and growth needs. This has led to a higher concentration of facility buildout revenue in the short term, but we fully anticipate this will shift more towards hardware, SaaS and other recurring revenue as more and more facilities come online in the second half of fiscal 2022. Gross loss for the third quarter was $380,000 compared to a gross loss of $200,000 for the same period in 2020, resulting in a negative gross profit margin of 2.4% for Q3 2021, compared to a negative gross profit margin of 7.1% in Q3 2020. In Q3, our cost of goods and gross margins were mainly impacted by continued global supply chain disruption, which are unfortunately increasing the cost of our production materials, and also delaying receipt of the materials. We took extraordinary effort and increase significant short-term cost, including production labor costs to ensure the timely delivery of our VFU customers. We understand how important it is to get our customers facility up and running as quickly as possible, as our business model is not driven by short term hardware sales, but by the future recurring SaaS and production fees resulting from our customer success. Looking ahead, we're proactively taking steps to secure all the currently required VFU production materials for the fourth quarter of 2021 and the first quarter of 2022. Further, as we begin to shift our production from the current 3.6 to the 3.7 VFU model, we are anticipating not only improved performance, but the additional benefit of a cost reduction on LED lights of up to $2,000 per VFU, or roughly 10% of the overall cost. We anticipated that we will see the benefit from this expected cost reduction in late Q1 2022. SG&A for the third quarter of 2021 was $8.6 million, up from $1.9 million -- up $1.9 million for the same period in 2020. The increase in SG&A expenses was primarily attributed to the $2.4 million breakup fee associated with the cancellation of matching goods, right of first refusal on future stock offering, and an increase in payroll costs associated with the accelerated hiring of additional senior executives and staff necessary to support the company's significant growth. Additional increases also include stock-based compensation expenses, insurance costs directly related to being a public-traded company and legal and other professional services in connection with the due diligence and closing of the Precision and Cascade acquisition. Research and development costs were $827,000 in Q3 2021, up from $449,000 in Q3 2020. Total operating expenses for the quarter was $9.4 million compared to $2.4 million for the same period in 2012. Net loss attributable to Agrify for Q3 2021 was $9.8 million compared to $2.7 million in Q3 2020. Adjusted EBITDA loss for Q3 2021 was $5.6 million compared to an adjusted EBITDA loss of $2.1 million in the same period of 2020. With a positive contribution from Precision and Cascade, we anticipated -- we anticipate our EBITDA will significantly improve in the fourth quarter of 2021. This concludes my remarks on the financials. Thank you all again. I will now turn the call back to Raymond for his closing statement.

Thank you, Niv. During the third quarter of 2021, we achieved several significant milestones. As we continue to forge ahead through the rest of the year, we anticipate our Q4 bookings to exceed $100 million. Revenue used to be approximately $26 million to $28 million, a pace that is equivalent to $104 million to $212 million annual run rates and a full year revenue of $60 million to $62 million, up from our previous guidance of $48 million to $50 million. We further anticipate our EBITDA margins to improve significantly as we continue to see positive synergies and contributions from our newly acquired Extraction division. So far, during Q4, we have increased our production capacity between our Georgia facility and Mack Molding to roughly 220 to 240 VFU production per month and we are confident that the VFU production will continue to ramp up to support our accelerated growth. We also secured a 10-year TTK partnership that we announced earlier this week with KIEF USA, including the installation of 485 VFU at their Massachusetts facility. We also secured an order earlier this month for 400 VFUs from El Mirage, which is our first deal in the attractive Arizona markets. We've always accepted that the second half of this year will be a meaningful reshape of our company in profound ways. And we believe our performance in Q3 and so far in Q4 shows that we are right on the mark. We continue to have advanced discussions with now over 20 MSOs, particularly following successful MJBizCon in Las Vegas. In our actively exploring built opportunities and partnerships with for more than 15 potential cash TTK customers across the states. On the attraction sites, we are very excited about the recent accretive acquisition of Precision Extraction and Cascade Sciences, both leading brands in the cannabis extraction industry. Since the completion of the acquisition on October 1st, we have been executing a very thoughtful and meaningful merger integration plan. This acquisition is yet another major milestone for our goal of becoming the world's most vertically integrated solution provider in the cannabis and hemp industry. Agrify's already embracing multiple cross-selling and up-selling opportunities. And we believe there are significant organic growth opportunities that lie ahead in 2022 and beyond. We remain very much focused on finishing 2021 strong, with a foothold on the market for continued growth, both organically and through strategic and smart asset accretive acquisitions. We look forward to updating you on these developments and reporting on our continued positive progress, as well as initiating our 2022 guidance in our fourth quarter in end call. This concludes my remark. Now, I would like to open up for questions from audience. Operator, please go ahead.

[Operator Instructions] Your first question comes from Aaron Grey of Alliance Global. Your line is now open.

Hi, good morning, and congrats on the strong quarter and what looks to be a strong 4Q as well.

Thank you, Aaron. Very much appreciate it.

Absolutely. So first question for me just on the 4Q bookings, I believe you said about, 100 million just want to make sure I understood it correctly just given the recent Precision and Cascade acquisitions. Is that 100 million? Is that could you break it up between the legacy Agrify business or if some of that's also attributed to the new attraction businesses with 100 million 4Q bookings? Thanks.

Yeah. We're expecting somewhere between 80% to 85% coming from Agrify's core business, and the remainder coming in from – Precision and Cascade, so Agrify core business will continue to be the main contributor. But we are very excited to see an uptick from a position in Cascade as well. And Aaron, I want to just to reiterate that the most recent [indiscernible] attendance was a super positive one for Agrify as a whole. And in fact, precision and cascades we're literally picking orders on the floor and we're just seeing positive synergies plus selling opportunities and I believe that our showcase for the latest 3.7 VSU Technology was probably also one of the highlights this year.

Thanks for that and that's really helpful color and really strong growth in the organic bookings there. So second, going off your commentary on MJ, good to hear the strong demand and interest there. So, you talked about conversations -- event conversations with 20 MSOs another 15 cancel TTK partnership. Just one thing about, your guy's own bandwidth right now, you're expanding, you're getting more production to VSUs budgets as you think about in that, which ones tend to take on, how do we think about your manpower and the lionshare on yearend, in terms of how many you'll be able to take on over the next few quarters with this high demand, particularly between the MSOs and TTK, it seems like the TTK might take more manpower on your side to help ramp those up, because they might not have the cultivation expertise on there. And so, any kind of helpful color there would be appreciated? Thank you.

Yeah. And Aaron, you're absolutely correct. We now have probably more imbalance then you know what we can handle at this point, which obviously is a -- it's a great problem to have. So internally, as I -- as we announced earlier this morning, I am very, very pleased to actually bring on world-class operators, new CFO, as well as other high caliber new executive to the team that is going to help us to be able to scale our business in a tremendous, tremendous way, right? So internally, we're getting ready for what is I believe yet to be another very strong 2022. Externally, we obviously have in all these discussions and we want to stay focused. I believe 50% of our resources will continue to develop to the MSOs and the remainder 50% will be for these TTK opportunities. Now the -- around TTK opportunities, we are not going to entertain anything less than maybe Q3 100 units. Most of the TTK opportunities are actually getting bigger in size, which is actually a good thing. That really kind of shows the scalability and the event is actually of the modular and scalable VSU design that we have. We believe we have probably Massachusetts very much under our belts. As you know, we now have 3 TTK partnerships. And I believe with maybe one or two more, we would have a significant production volume into the Massachusetts markets. We announced that we are getting into Arizona. So, we're also looking at Florida, New York, New Jersey, Illinois and Michigan. The focus will continue to be in limited license states with very attractive hype, hosted wholesales pricing. And we're going to basically stay focused on these attractive and robust markets. But again, like I said, there's probably going to be 50% to be sources dedicated to the MSOs in about 50% to the TTK progress.

Very helpful color there, and congratulations on the quarter and continued success. I'll jump back in the queue.

Your next question comes from Eric Des Lauriers of Craig-Hallum Capital. Sir, your line is now open.

Great. Thanks for taking my questions and offer my congrats as well. Following up on the -- on your opportunities with the MSOs. Can you help us understand a bit more sort of what stage those discussions are in right now? Is it more so kind of validating the solution still at this point? Should we think of these really as kind of R&D partnerships similar to the one announced by Curaleaf at this stage?

Okay. Great question. Since the -- that we're basically having more than 20 plus discussions, so the opportunities come in various stages, right? Obviously, a good chunk of them are very similar to kind of the 10, 20 units R&D opportunities. But I can also tell you that there are other discussions that are far more events. And a lot of the operators are now fully convinced. And they are ready to go and not having to go to the similar R&D exercise. So we have opportunities -- again, in the early sort of discussions around 20 – 10, 20 units R&D, but we also have real discussion about, I'll have full rollout. So it's sort of over the map at this point.

Okay. All right. That's great to hear. And then would each of these be announcable agreements? Do you think -- are there -- are some of these MSOs and discussions with looking to sort of keep this under wraps, if they do go forward with an R&D partnership with you guys?

Yes, I think it's a combination of. Obviously, a lot of the MSOs they'd like to start the relationship, but not in such a public way. But obviously, the ones that are probably won't be full rollouts. Those are the ones that probably we're going to definitely announce. But again, I think, Eric, as you know, our business model is all about the installed user base, right? So we want to have discussions with as many as possible. And I do believe, and I'm very confident that once they switch over to our VFUs, it's very hard to turn back. So it's all about getting as many partnerships as possible, getting the VFUs out there, because we're confident that once they start using it, this is definitely going to be the default on a going forward basis.

Okay. That's good to hear. And then just last one for me, an update on the Cascade and Precision Integration, any kind of tie, I know, it's still very early days here, but any kind of timing goals for how we should think about you guys layering in some of those hardware sensors and getting us up to a place where you can start to charge recurring revenue on the extraction solutions as well as any kind of timeline would be great. Thanks.

Sure, Eric. So very pleased to say that Thomas Massie, our incoming Chief Operating Officer, President and COO, he's also taking on the interim extraction, division, GM role as well. So his first assignment is really kind of focus on making sure that the integration will go very smoothly. And thus far, he's doing a fantastic job. I think there are basically several, sort of, key milestones, right? Number one, we see a lot of low hanging fruits. We're helping them to essentially improve the sales processes, basically, instead of just being a order-taking entity, to now becoming more aggressive yet and out there hunt for opportunities, just to kind of give you an example, right? They've never done this and say this, people have always kind of looked at this as kind of just a tradeshow. But in our case, this year, literally, our sales people were taking orders. Right? And then, so that's a -- that's itself, I believe, will see a significant organic growth. We're also now beginning to look at -- to potentially integration of bulk supply chain, as well as our software team has already actually sat down with the Precision and Cascade team. And in fact, we have the entire development program already mapped out. I believe that by, I would say, Q2 -- end of Q2, Q3 of 2022, we will have some demonstratable prototyping. Obviously, we want to test out the model, turning, essentially these hardware to intelligent hardware, and basically have nice recurring SaaS revenue, as well as production revenue attached to it. I believe, by the end of Q2 and Q3, we will begin to experiment and we'll begin to be able to roll this out to some of our customers.

It's great to hear. Congrats again, guys.

Your next question comes from Scott Fortune with ROTH Capital Partners. Your line is now open.

Good morning, congrats on the court. And thanks for the question. Just kind of following up on the Precision and Cascade, the downstream extraction, you've added that whole integrated solution. Can you provide your backlog or run rate a little bit from that, but more importantly, can you provide a little color on the potential of other value-add solutions into facilities and the valuations you see in that fragmented market kind of continuing to add solutions for your partners come forward?

Sure. Scott, I think as mentioned in our pilot press release, we are expecting an equivalent of $14 billion from Precision and Cascade for 2021. And obviously, that's on a pro forma, basis because the acquisition do not close until October 1. So that's the top line. Now, what if, as I mentioned earlier, we are already seeing very, very positive pickup in the -- in both the Precision and Cascade businesses. We had a very strong sell-in in MJBiz and we look forward to updating you on the, I believe, it's going to be very, very attractive results for Q4 from the Precision Extraction division. Now, so far, I believe the combination of Precision and Cascade really gives us maybe about 60% to 70% of the product portfolio. We are already definitely the most vertically integrated solution provider in the industry. However, there are still about 20% or 30% of the opportunities that we would like to potentially either partner up or acquire, to complete the entire solution offers. And we are aggressively in – working on that. But I like I said, I think the combination of Precision and Cascade, already has about 60% to 70% of everything we eat. But there will be additional 20% or 30% products that were currently under discussion. It will be either through a partnership, distribution partnerships, or acquisition, and we look forward to completing our entire portfolio suites in a very near-term.

Great. And I appreciate that color. And then kind of circling back on the TTK opportunity, I know you said, end up 15 million for that, can you provide color on the schedule or initiatives on the financing side as that seems to be the bottleneck potentially for more TTK deals in the – in size? Congrats on moving up then that size wise, they need additional partnerships that you're looking at to see drive or help finance with these additional business opportunities? A little there would great.

Yes, Scott. We're continuing to have multiple discussions with REIT and other alternative financing entities. They are very interested in becoming our partner to further expand that TTK program. And in fact, most of the conversations are not just this kind of one-off financing essentially everyone is looking to basically provide us with a credit facility. And of course, million types of arrangements, so that we don't have to be, hold back because of the need to raise additional capital on a project-by-project basis. We have multiple decisions. And as you know, for most of these TTK projects since the REIT 50% to 60% of the upfront is construction related. Having you know, REIT and other financing companies to kind of take on that support would be tremendous. Now, in addition, right? So for example, if you can look at the most recent deals that we announced in Arizona in fact, our partner is actually handling both the real estate and construction. There's actually no construction loan required for that particular project, they're actually stepping up the obtain cheaper financing, construction financing loans, and they will actually be taking care of that themselves, which is great. It seems that the key USA, the Massachusetts deal that we just announced. Our partner is stepping up with 20% of not only construction loan, but also hardware. So people are now beginning to find other alternative financing to bring to the table and we very much welcomed that. So I think it's going to be a combination of efforts. Number one is us getting a deal done with maybe a REIT or, other financing company to line up this very strong line of credit. So that we could actually offer that to our partners, but simultaneously we are also seeing our partners stepping up with your own capital as well. So it's very, very positive developments.

Thanks. If I can add one more question real quick when you'll be seeing the industry hit with supply chain issues, the reminders kind of manufacturing process you have in the space right now. And you mentioned you can produce 220 to 240 VFUs per month with the contracts and pipelines, how do you view your manufacturing needs and outputs going forward?

Sure, Scott. So for Q3, and in fact, for Q4, we've actually have shipped all the key components, we have them already in our warehouse. What was not expected was, for example, trucking delivery, all the way out to Nevada, we did not expect for example, aluminum extrusion to be a problem, we did not expect something as small as PVC pipe to be to be a problem. And, obviously, we cannot ship the units without having these components already built in as well. So in Q3, we were impacted by the global supply chain, and a lot of the materials actually came in -- non-key component materials came in late, and as a result, we have to pay overtime to complete those units, because we promised our customers that we want to get the units to them by the end of Q3. And essentially, I was committed to making sure that we live up to the promise. And the good news is that the 114 units that we shipped to WhiteCloud, not only are they shipped, they are all installed and thoroughly under commission at this point. Going forward, we have actually learned from that we're actually getting smarter in terms of supply chain management. And we believe that we now have all of the materials necessary for Q4 as well as Q1 production needs. Furthermore, as I mentioned, in my script earlier, we're seeing the version 3.7 of VFU, which is our next-generation of VFU. It's going to have roughly about $2,000 cost reduction. And that's roughly about 10% of the overall bump costs. Again better light, right, 3 micro-moles per Joule. And yet, we're going to see a $2,000 cost reduction. So we have supply chain under control, and we will continue to move and see if we can actually reduce the hardware cost going forward basis.

Thanks. I will jump back in the queue.

Thank you, Scott.

Your next question comes from Anthony Vendetti of Maxim Group. Your line is now open.

Thank you. I was wondering if you -- Raymond, if you could talk a little bit more about the TTK program. I note that originally approved $50 million in funding through your balance sheet. I know you've talked about alternative sources and working with other financing options, but has the Board decided to increase your capability of using additional tabs, or at this point, you're looking to just source additional capital outside of Agrify?

That discussion is currently underway internally. Personally, I'm working very hard to source alternative financing and as I mentioned earlier, talking to these -- talking to other financing companies and we're actually making very good progress on that front. So obviously, the goal is to bring on cheaper and alternative financing sources to help us to continue to grow. However, at the same time, we are also seeing such a great progress on the TTK fronts. And again, our business model is all about getting the largest customer base. So, the discussion is also underway internally to potentially increase the allocation to the TTK program. So, it's going to be a combination of two.

Okay, excellent. And then can you talk about -- I know you were in -- you've been in discussions with MSOs, it looks like that the number that you're in advanced discussions with has ramped significantly in the last quarter. Would you attribute that to either Curaleaf announced deal, or a combination of that, plus your expanded portfolio, particularly on the extraction side with Precision and Cascade? I was just wondering if you could talk about how those discussions have increased and the number has increased?

Yes. Anthony it's really the combination of all of that, right? It's basically us having successful customer deployments, right. Our customers, as David alluded earlier, are seeing amazing results on consistency and our yield, right, and it's very hard to argue against these numbers. And also for just continuous invalid interests and as well as hosteling, with Precision, right. For example, this last -- MJBiz attendance, I was actually meeting just nonstop from seven to 11, three days. And just having conversations after conversation after conversations, our booth was probably one of the most visited. And there's a lot of people now -- maybe started out with relationship on the stressful fronts and we basically tell him that look, in order for you to actually have better consistent results, you need to actually have better biomass production, right? How about using the VFUs and vice versa, right? So, we're seeing a lot of crop synergies already happening between the cultivation division as well as the extraction division.

And then just one last question, because it's obviously impacting a number of industries. You did mention a little bit about the supply chain concerns and you're trying to get ahead of that. Can you talk a little bit more about when I guess the potential for any issues or do you think you're at this point sufficiently ahead of that and have plans in place?

Yes, I think for Q4 and most of the Q1, we have all the materials in place. Obviously, we wouldn't -- I'm going to continue to monitor and just make sure that the global supply chain issue becomes worse, instead of basically planning for, you know, three, six months, lead time, we have to do nice call, right. So, you know, we have our procurement team, as well as our manufacturing team is staying on top of things and making sure that looking at the sales forecast and make sure that we can deliver all the VFUs on time. Being able to deliver the VFUs on time is one of our top priorities, right. And we'll do everything we can to fulfill the customer promise, because we know, every day cost is money for our customers, right? So if we actually have given a little bit of on the hardware margin, you know, our business model is not hinged on short-term hardware modules. It's all about the recurring revenue from SaaS and production fees. And one day, if we can actually just help our customers to, you know, a breeder facility up and running one day sooner, both sides will benefit. And that's really been our number one mission, which is to get the VFU installed as quickly as possible.

Excellent, thank you. I'll hop back in the queue.

Your next question comes from Gerald Pascarelli of Cowen. Your line is now open.

Hi, good morning, and thanks very much for taking the questions. I'd like to go back to the yield per square foot and ultimately try to tie back to the drivers behind that 50% increase. Is it – is it simply due to stacking your VFUs or are there other factors and drivers to be mindful of given the notable increase? Thank you.

I think David, going to be a better person to answer that but the short answer is no. It's not because of the stacking. It’s the actual square footage increase. And now basically hitting close to 90 plus grams per square foot. But David, can you chime in here please.

I'd be happy to. Gerald, thank you for the question. When it comes to the 99 grams per square foot achieved by the client, the increase is really related to optimizations based on iterative cultivation cycles. So because Agrify Insights, that software program that controls our hardware, the VFU records over 1.5 million data points, our clients are seeing things like planting density versus biomass yield per square foot calculations that are automatically calculated. So the yield that increased to 99 grams per square foot, which is a market trend across the entire facility is really related to a couple of things; Optimizations and plant density, an understanding of the genetic performance tracking different recipes of cultivation across multiple cycles. They realize that a lot of the biomass was bulking up or increasing in weight in the final week, and they decided to go a little bit longer after looking at the data, which increase the overall harvest weight on many of the strains. On top of that, the cultivation team is now looking at water content data and being able to really optimize the fertigation and environment to steer the crop effectively. So what you're seeing is actually the proliferation of data, and then the application of that data towards a goal. And I'm very happy to report that it's being well received. And they're being able to use that data actionably to make these improvements.

Yeah, Gerald, just if I may add to that, you know, as David mentioned, on this particular genetic strain, what we realized is that, basically the last week, the flowers really, really bulked up, right? So instead of planting, for example, 64, you might actually just reduce it down to 46. But allowing more room to really kind of expand during the last week of the harvest period. Now on the other hand, you might have a completely different genetic that actually doesn't have that, sort of last week effects. And under that scenario the plant count should be at 64. Right? So again, it's been able to collect these insights, that allows us to get smarter on genetic by genetic basis and to continuously iterate optimization, right, that we're allowing our customers to do by giving them data, giving them insights, that is really the game changer.

Got it. That is that's super helpful color. Thanks very much. Last one for me is just on your relative price caps. Obviously, your last five batches, incredibly consistent in terms of variance. Randy, can you just provide some color on how your relative price gaps for premium indoor grown flour are maybe holding up relative to competition in the wholesale market in the current environment? Thank you.

David, can you provide us more color on that, please?

I'd be happy to. In terms of the price caps, I think that you are seeing some compression in maturing markets. The mature markets are not compressing it quickly, I think as they've already experienced that. In terms of our customers ability to hold price, it's really just driven on quality, consistency and brands, so they're doing exceptionally well. The consistency, the flour produced and then the flour quality is allowing them to introduce more branded products into their market and ultimately retain that higher price point.

Perfect.

Yeah, just to kind of --we iterate on that, for example, our customer in Nevada, this is white clouds they're consistently doubling above the, average hosted selling price for premium flours in Nevada. Nevada, I believe is around 2700, 2800. But they are selling their flours at 3200 to 3300. Right. So again, it's a better consistency of better quality that allows them to actually sell at a premium even to the rest of the market.

Got it. Thank you. Thanks very much for the color and I will pass it on.