RYM - NASDAQ

Thanks, Anna Kate. I just want to thank you all for joining us on the call today. I'm going to begin by highlighting our overall performance in Q1 and providing some recent updates on our business. And then our Chief Financial Officer, Tim Oakes, is going to discuss our Q1 financial results in greater detail. After that, I will go over our outlook for 2022, and then we will open up for questions. We are pleased to report our revenue for the first quarter of 2022 was slightly higher than our guidance of $25.5 million. Revenue for the quarter was $26 million, an increase of 271% from the prior period. We generated over $43 million in new bookings during the quarter, of which our extraction division had record quarterly bookings of $20 million. We currently have a total pipeline of over $375 million. As a reminder, when it comes to our bookings and pipeline numbers, Agrify reports the total value of our extraction solutions and non-TTK cash-based VFU purchases. But for our TTK engagements, we only include the first 3 years of the expected revenue. Even though the partnership is typically 10 years from a bookings and pipeline perspective, we only include the upfront facility construction costs and the first 2 years of the SaaS and estimated production success fees, which is based on the assumption that each of our VFUs will produce 35 pounds of dry flower per year. I would like to first share with you the significant progress we are making with our extraction division. In the last 7 months, we have strategically propelled ourselves to the top of the rapidly growing cannabis extraction industry, becoming the formidable leader in this space through the intentional acquisition of the 4 leading extraction brands. We have successfully integrated finance, legal, HR, IT and marketing. We have consolidated the sales team and established territories with targeted accounts. We have 19 employees that are part of our extraction division's sales team. The team is focused on upselling and cross-selling all of our high-quality extraction solution as well as our services related to lab design, installation and training. In addition, we're seeing our VFU customers buying extraction solutions and our extraction customer wanting to learn more about our VFUs. As mentioned in our prior call, once integrated, we plan to extend our TTK program into the extraction sites. Last week, our extraction division announced the launch of the PX5, the most advanced and scalable passive hydrocarbon extractor in the industry. The PX5's unique passive recovery design offers immediate economic benefits to cannabis operators of any size by increasing the daily production up to 33%, savings of up to 40% annually in energy costs and increasing hourly extracted production by over 200%. Yesterday, our extraction division announced a multimillion dollar sale to Boone Labs that will outfit a new production facility with a complete range of Agrify offerings, including 72 of our Vertical Farming Units, VFUs, solidness extraction, hydrocarbon extraction and ice-water hash solution. This is our cultivation and extraction coming together for a complete Agrify sales to a single customer. As mentioned earlier, our extraction division had a record quarterly new bookings in Q1 of $20 million. We continue to expect our extraction division to be accretive and produce revenue of between $62 million to $65 million for fiscal year 2022 with gross profit margin of 30% or greater. Now I will turn to the cultivation side of our business and, of course, our Total Turn-Key Solution. In April, we announced our first New Jersey TTK with Loud Wellness. Loud Wellness is one of the only 18 licensed cultivation and manufacturing operators in New Jersey. This 500 VFUs partnership is expected to generate approximately $18 million of high-margin production success and SaaS fees over the next 10 years. We estimate the commissioning of the VFUs for this project to be in Q2 of 2023, with the first harvest happening in Q3 of 2023. On the MSO front, we also were very excited to announce our second agreement with a prominent multistate operator, this time with Greenlight Cannabis. Greenlight is a rapidly growing MSO in the United States with 28 locations across 5 states. Under the agreement with Greenlight, we will be installing VFUs that will enable Greenlight to increase its growth cannabis in order to achieve rapid business growth and geographic expansion under one standard. Internationally, we are pleased that in April, we consummated our first VFU agreement with a European customer. BioCann Pharmaceutical, which is based in Portugal will be deploying 190 VFUs at its 25,000 square feet state-of-the-art cultivation facility. The engagement with BioCann will help Agrify begin to pave the path for success on a global scale. As we continue to put in place the ability to manufacture our VFUs locally and provide quality VFU installation and support for future European-based customers. As of today, Agrify has contractual commitments of 4,569 VFUs that will be powered by the Agrify Insights cultivation and production software. 3,783 of these VFUs were committed to as part of the TTK program, which required customers to pay both production and SaaS fees for up to 10 years. And it also typically includes Agrify providing a variety of other value-added services. The remaining 786 VFUs were sold to customers through onetime equipment sales, but still require these customers to pay monthly SaaS fees on a per VFUs basis. Assuming 35 pounds of production per year per VFU, cumulatively, alter the VFUs under Agrify-TTK Solutions or the SaaS agreements will produce an estimated $923 million in total revenue over the course of the next 10 years, of which $674 million is an anticipated high-margin production success fees, $129 million in anticipated high-margin SaaS and approximately $95 million is in construction-related fees. It is important to reiterate once more that our TTK business assumes that each Agrify VFU produces 35 pounds of cannabis flowers per year. Or, on average, 7 pounds per harvest with 5 harvests per year. We are extremely pleased to share with you that one of our VFU customers in Nevada has consistently produced over 9 pounds per harvest over the last 2 months with certain strains hitting as high as 11 plus pounds and with THC concentration as high as 34% and a productivity rate of 5.2x per year. This customer is on track to produce close to 50 pounds of dry flowers per VFU on annual basis. This is a strong validation of the robust capabilities and the performance of our VFUs. I would also like to update you on our progress with various customer facilities. As this is tied to when our anticipated high-margin recurring revenue from our TTK customers and non-TTK VFU customers will begin to formalize. In the state of Nevada, we will begin to charge our non-TTK VFU customer, WhiteCloud, SaaS fees this quarter. Next week, we will begin VFU conventioning with our Las Vega-based TTK customer, Treehouse and will begin charging both SaaS and production success fees next quarter. In Washington and Colorado, we expect to go live with Hannah and Greenstone in early July and will begin to charge SaaS fees in the third quarter with anticipated production success fees coming in, in the fourth quarter of this year. Furthermore, we expect to begin commissioning our VFs for the Massachusetts base TTK partner, Bud & Mary's before the end of 2022 and charging SaaS and production fees in the first quarter of 2023. We have also moved ahead with the A&E and several plants with our Florida TTK customer Gold Leaf and our Arizona partner. I'm also pleased to inform you that El Mirage officially received their license through the social equity lottery on April 8 under the name of Woodstock One. El Mirage is our Arizona TTK partner. As you can see, we are making excellent headwind with our customer deployment schedules, and we expect to start generating high-margin recurring SaaS and production fees sooner than initially planned. Now let's spend a minute to talk about our future TTK financing. We plan to finance our future cultivation facility construction requirements with debt-based investment partners, which include REITs among other types of investors. We expect our debt-based investment partners to finance in average, 60% to 80% of the construction, while Agrify contributed the remaining capital. Today, we are pleased to announce that we have recently entered into a term sheet with our first debt-based construction financing partner, and we expect to finalize that partnership along with the new TTK project in the near future. The combination of our current balance sheet and this leverage financing structure should give Agrify the ability to scale significantly while maximizing shareholder value. In summary, we are very pleased with the accomplishments achieved for the first 4 months of the year, and we look forward to generating high-margin recurring revenues in the second half of 2022. Now I would like to turn the call over to Tim to talk about the results from the quarter.

Thank you, Raymond, and good morning, everyone. And thank you for joining us on today's earnings call. Similar to our last earnings call, I'll speak to our first quarter 2022 financial results, and then I'll pass the call back to Raymond for closing remarks. Overall, our first quarter '22 financial performance is in line with our expectations. Revenue in the first quarter of 2022 was $26 million compared to revenue of $7 million in the first quarter of 2021. This represents a 271% year-over-year increase in comparative quarterly revenue. The comparative increase in our first quarter 2022 revenue is attributable to incremental revenue from our extraction division of approximately $12.4 million, combined with an increase in TTK related design and build work. Organically, excluding the extraction revenue contribution, which was not part of our revenue mix in the first quarter of 2021, first quarter cultivation-related revenue increased by 94%. Non-cannabis and related party revenues declined from $5.5 million or 79% of total revenue in the year ago first quarter period to $1.3 million or 4.9% of total revenue in the first quarter of 2022. Bookings in the first quarter of 2022 were approximately $43 million, of which, as Raymond mentioned, $20 million was related to extraction products. The bookings amount includes TTK related bookings, which consists of construction and recurring SaaS and production success fees as well as product bookings, including both cultivation and extraction equipment amounts. We enter the second quarter of fiscal 2022 with approximately $923 million in backlog compared to $82 million in backlog entering the second quarter of fiscal 2021. A significant portion of our reported backlog amount is derived from the future TTK related recurring revenue streams associated with both our SaaS and production success fees. Total gross profit and the associated gross profit margin in the first quarter of 2022 was $4.2 million or 16% of total revenue compared to a negative gross margin of $540,000 or 8% of total revenue in the year ago quarter. Gross profit and gross margin improvements in the comparative year-over-year quarterly period is solely related to the incremental profit and margin contributions provided by the company's extraction product sales. Extraction related revenues achieved a gross margin of approximately 33% in the first quarter of 2022, with cultivation associated revenue, including TTK related revenues, which in the current quarter consisted primarily of design and billed revenue, contributing a gross margin of approximately 1%. Moving on to operating expenses. First quarter 2022 general and administrative expenses increased by $5.3 million or 118% to $9.8 million compared to $4.5 million in the year ago quarter. The comparative increase in G&A expense in 2022 is related to overall growth in the scale of the business, including incremental G&A assumed in connection with our recent acquisitions, plus increases in depreciation, amortization expense associated with the intangible assets and onetime charges related to direct acquisition costs, investment banker termination fees and restructuring charges. These increases were offset by a decrease in stock-based compensation expense. The company recorded a significant amount of stock-based compensation during the first quarter of 2021 in connection with its initial public offering, which triggered the accelerated vesting of outstanding unvested stock options granted to employees. Sales and marketing expenses totaled $2.1 million in the first quarter of 2022 compared to $600,000 in the first quarter of 2021. The comparative increase is also related to the company increasing the scale of its business and strategically focusing on investments in sales and marketing activities, such as headcount, trade shows, marketing programs, et cetera, necessary to drive our rapid growth. Research and development expense in the first quarter of 2022 totaled $2.1 million compared to $900,000 in the year ago quarter. The increase in research and development expense is essentially reflective of the company's need to improve and upgrade the Agrify Insight SaaS software as well as the hardware features and functionality of its Vertical Farming Units. The company as of March 31, 2022, is currently monitoring 2 separate contingent earn-out consideration arrangements associated with the acquisitions of Pure Pressure and Labs society. Each of the arrangements contains 2 consecutive 12-month earn-out periods. The potential additional consideration that can be earned under each of the 2 earn-outs is capped at $1.5 million per year under the Pure Pressure earn-out arrangement and $1.75 million per year under the Lab Society earn-out arrangement. The company has made initial estimates with respect to the probability of achievement of the additional consideration and recorded it as part of our initial purchase price accounting associated with each acquisition. We will continue to evaluate on a routine periodic basis, future performance against our initial assumptions and estimates on a quarterly basis. Any identified changes to our original assumptions that generate a change to our initial fair value estimates of the probable earn-out achievement will result in either an increase to or a reduction to our future periodic operating expenses. Lightly touching upon other income and expenses, the company is reporting total other income of $662,000 for the first quarter of 2022 compared to total other expense of $32,000 in the first quarter of 2021. The increase in other income is directly related to the interest accrued on the outstanding loan receivable balances associated with our TTK related construction advances. During the first quarter of 2021, the company recognized a gain on the extinguishment of the convertible promissory notes in the amount of $2.7 million in connection with the de-recognition of the net carrying amount of the extinguished debt. As it relates to our reported income tax benefit, the benefit from income taxes in the first quarter '22 was primarily due to a discrete income tax benefit of $200,000 attributable to a nonrecurring partial release of the company's U.S. valuation allowance as a result of the Lab Society acquisition. No provision or benefit for income taxes was reported in the first quarter of 2021. We consolidate the results of operations of less than wholly owned entities in our consolidated results of operations, specifically Agrify-Valiant LLC, which is a joint venture limited liability company in which we are 60% majority owner and Valiant America LLC owns the remaining 40%. The reported net income or loss in each of the presented quarterly periods ended March 31, 2022 and 2021, represents a portion of the periodic income or loss attributable to the non-controlling parties. Finally, the net results of the previously discussed changes in revenue, gross margin and operating expenses resulted in a net loss of $8.9 million or $0.36 per diluted share during the first quarter of 2022 compared to a loss of $3.8 million or $0.33 per diluted share in the first quarter of 2021. Adjusted EBITDA amounted to a loss of $6.1 million during the first quarter of 2022 compared to an adjusted EBITDA loss of $4.2 million in the year ago quarter. Additional information regarding our use of non-GAAP measures, including a reconciliation to the most comparable GAAP measures can be found in the press release we issued earlier this morning, which is also available on the Investor Relations section of our website at ir.agrify.com. Finally, providing an update on our cash, restricted cash and marketable securities balances. We entered the second quarter of 2022 with a combined amount of cash, restricted cash and marketable securities of $93.4 million compared to a balance of $56.5 million as of December 31, 2021. The net increase in our cash related balances is largely due to the 2 capital raising activities completed by the company during the first quarter of 2022. As discussed during our Fourth Quarter Full Year 2021 Earnings Call, we noted that in January 22, we announced the closing of a $27.3 million private placement. And additionally, in March 2022, we announced the finalization of a debt facility arrangement, which enabled the company subject to certain performance requirements to access up to approximately $135 million in debt financing. Upon closing, the company made an initial draw of $65 million against the debt facility. Offsetting the increases in cash provided from our first 2 first quarter transactions were outflows of cash associated with our current quarter loss from operations, approximately $16.4 million in inventory build approximately $12.5 million in TTK related construction payments, $3.7 million in purchases of property and equipment, $3.5 million in purchase price consideration paid in connection with the Lab Society acquisition and approximately $2.7 million in debt issuance costs associated with the debt facility. With that, I'd now like to turn the call back to Raymond for final comments.

Thank you, Tim. I would like to turn to our guidance for fiscal year 2022. Given our strong performance to date, we are reiterating our revenue expectation of between $140 million and $142 million for 2022, reflecting an increase of approximately 134% when compared to the $59.9 million generated in the fiscal year of 2021. To give you a little more color on cadence for the year, we expect that more than 60% of our projected revenue for the year will be achieved in the second half. In summary, we are thrilled to carry our strong momentum into 2022. We have continued to make tremendous progress on the successful execution of our business and growth strategies in a number of ways. We have expanded our customer base across our cultivation and extraction divisions. We have entered new markets with our VFUs, including Europe, New Jersey, and we continue to sign agreements with prominent MSOs across both our cultivation and extraction divisions. We also continue to push forward on all of our TTK projects and further innovate and improve our product offerings. We are especially excited to have new customer facilities coming online this quarter. And more in the second half of 2022 and first half of 2023, which will be a crucial inflection point for our business model as more and more of our high-margin recurring revenue streams begin to flow in. I look forward to providing you with further exciting updates on our progress over the next several quarters. I would like to now open up the call to questions from our audience. Operator, Please go ahead.

[Operator Instructions] Our first question comes from Aaron Grey with Alliance Global Partners.

So first question for me. Just want to think a little bit longer term with the TTK program and the performance-based fees. More specifically, just on the floor pricing, I know you guys have announced for some of them, the $500 SaaS. In terms of certain markets where you might see more pricing pressure over time, particularly because Massachusetts is obviously a key market for you guys for TTK programs. How do you think about potentially adjusting that over the long term? Obviously, it's mostly margin for you guys. So not too big of an impact just less revenue, maybe dropping down, but just to make sure your partners are able to succeed over the long term. And maybe you could provide some color in terms of what you're doing in some of the more mature markets like Colorado and Washington. That could provide some line of sight in terms of how that could trend over time in other markets.

Obviously, we understand very clearly that our success hinges on our customers' success, right? So I think it's very -- we always encourage our customers to basically go beyond just per pound fee. They really need to look at basically the overall return on investment out of that -- the facility that they operate. And with Agrify Solution, we have the ability to help them to basically have the maximum yield and more importantly, is to have the lowest cost of production. And also be able to produce premium flower so they can basically sell it with premium pricing in any market that they operate in, right? And which in return, they will get the highest return on investments, right? So with that in mind, first of all, we do get much better, higher yields. If you actually triple stack, then you get as much as 90 to 100 grams per square foot. And then on top of it, basically the per pound fee on the operating costs, our customers are seeing somewhere in the low 3s versus the industry at $400 to $500 per pound, right? So it's basically convincing them that working with us, they'll have the highest return on investment to be able to protect themselves to be able to have the most -- be able to compete in any market that they operate in. That's basically how they're going to win in the long run. Obviously, we will look at our per pound fee on a market-by-market basis. And right now, the new TTK programs are only being rolled out in selective markets where the premium flower pricing is still relatively high. The Colorado, Washington and Nevada projects are basically our legacy projects that we converted them over to TTK and they are benefiting by enjoying our lower production fees, slightly lower production fees to basically help them to be able to compete in those markets. But for now, we are only offering the new TTK programs to selective new markets where the premium pricing is still high. But we understand that overall, at the end of the day, we need to basically help our customers to be the most competitive -- cost-competitive operator in each of the markets they operate in. And also to be able to enjoy the highest revenue because the premium quality of flowers that they produce. I mean, right now, for example, the customer that we mentioned in Nevada, WhiteCloud because they're consistently producing very high THC products, I mean as high as 34%. They're products are completely sold out, right? And still be able to command the premium pricing in that market. And I think that's basically where the market is going. It's really bifurcating. It's either you go for really, really dirt cheap or you have to basically go for the premium.

So second question for me. Last month, you guys announced the VFU rapid deployment pack. I know still very early days, but I just want to talk about maybe how the conversations are going, especially with some of the larger MSOs because now it's a little bit less capital intensive for them to drive VFUs not if it changed the infrastructure of their own facilities, now more of a plug and play, if you will. So I just want to know in terms of that initiative and how it's kind of spurred maybe more R&D-type initiatives with some of the larger players?

Yes, Aaron, we understand that we have to listen to our customers, right? And in the early conversation with the MSOs, everybody was interested in trying our VFUs. Because obviously, why wouldn't you want to look at a new technology that could help you to improve yield consistency and be able to operate at a lower cost. But obviously, having to go in and retrofit and have to go through renovation and all kinds of biosecurity risk. That was a major turnoff for a lot of the MSOs. So it wasn't -- the interest wasn't there. It was basically people not wanting to bother with all these retrofitting issues. So basically, we had to kind of be there at the right time and only looking at new facilities and even then, the question whether or not our units will perform in, et cetera. So it was a difficult sale. But we developed this rapid deployment program. And I can tell you, as a result of that, the conversations have just basically gone out the roof. We have basically have so many MSO interests. And we will be announcing several more additional rapid deployment programs with MSOs in the very near future.

Our next question comes from Scott Fortune with ROTH Capital Partners.

Can you provide a little more color on addressing the build-out timings on the TTK facilities in light of we've seen inflation headwinds here, cost and labor issues and delays in licensing with Massachusetts and some of the other states within the industry. But just provide an update on the TTK deals in the pipeline or that you sign in the timing to generate cash flow and make sure that's still on track here for the second half.

Sure, Scott. So let me start with Treehouse in Nevada. As I mentioned earlier, Treehouse, we are beginning commissioning of our VFUs actually as early as next week. So we can expect both SaaS and production revenues coming out of that facility next quarter. Our 2 TTK projects, Washington and Colorado, so Hannah and Greenstone. We are also -- will begin commissioning the VFUs before the end of this quarter, and we are also expecting both production and SaaS revenue coming out of both of those facilities in Q3. Bud & Mary's which is obviously the larger TTK project in Massachusetts, we will begin commissioning of our VFUs before the end of this year with expected SaaS and production revenues in the first quarter of 2023. And lastly, the 2 big ones, El Mirage in Florida, Gold Leaf, those 2 projects, we have kicked off the architectural and engineering design plan with those guys. And we are expecting that both of these projects probably will have commissioning of VFUs sometimes towards the end of Q2 or beginning of Q3 of 2023 with expected production and SaaS fees coming in, in Q4 of 2023.

So overall, those projects that you're building out are remaining on track and despite some of the challenges, going forward everything [indiscernible].

That is correct. In fact, based on the timing that I share, as you can see, the production and SaaS fees is actually going to start kicking in, in Q3 of this year, which is earlier than expected. And in fact, this quarter, we will start to collect SaaS fees from our customer WhiteCloud in Nevada. As you know that's a non-TTK customer, but the SaaS fee will begin to kick in actually this quarter.

Our next question comes from Eric Des Lauriers with Craig-Hallum.

So first question on the REIT or kind of debt partnership that you touched on in your prepared remarks. I just wanted to clarify if this was for one or more specific projects or if this is an enterprise-level partnership?

So it's very similar to kind of my TTK approach, right? We want to make sure that our -- we set a nice template of how we want to work with REITs. And so this first deal that I talked about today, it's only at the enterprise level. But we want to make sure that the terms are reasonable and also that, obviously, the market will react favorably and it also gives us the maximum leverage to be able to scale that over time. However, we are continuing to have conversations with multiple REITs beyond just kind of at the enterprise level, but we want to basically kick off with this particular one, just to kind of set the framework and set the expectation and just to make sure that we structure everything correctly. So we don't want to basically jump the gun and we credit over time. So we're doing this very carefully because we know that our shareholders desire us to be able to maximize their values, and we want to make sure that we're bringing the right partner under the right terms.

Okay. So I suppose just to clarify here, it sounds like that it is sort of for one or more specific projects at first and then kind of proceeding from there?

Yes. The term sheet that we signed is for one project, they do have capacity to go beyond one, but we want to start with one. And then while at the same time, we are also having conversations with bigger REITs that basically talks about multiple projects. And but again, we want to do it carefully just to make sure we have all the terms and then structure the deal correctly.

Second question here. So there was a big inventory investment in the quarter. I mean, obviously, there's supply chain stuff going on. So certainly could be reasonable here. Could you just kind of flesh that out a bit more, what kind of inventories were involved there? Is this kind of extraction or on the VFU side of things? And then overall, any kind of indication on how to think of working capital flows for the rest of '22 would be really helpful? And maybe you can remind us how I would think of the construction loans and how those impact working capital?

Tim, would you like to take this, please?

Yes. I will Raymond. Eric, so first question related to inventory. Inventory, the build in inventory of $16.4 million is really related to the investment in the VFU production, right? As Raymond talked about, right? We have a lot of deliveries on the VFU in terms of commissioning. They're going to start to come up in the back half of the year and the early part of 2023. So that investment right now is investment in sort of the longer lead items, as you mentioned, to defeat supply chain issues. As well as we've got about $2.5 million in inventory prepayment in connection with our trying to bring online 2 additional contract manufacturers in order to offset and give us better leverage. Not only from a manufacturing capacity point of view, but also from a price point of view as opposed to relying on a single source CM. So that really accounts for the drive in inventory. In terms of addressing the second part of your question, I think, is really working capital needs. We have heavily invested at this point in time, obviously, in the inventory. We have invested heavily in acquisitions, and we have also heavily invested in the TTK on the construction piece, right, that upfront cost in terms of the outlay of the financing. As we move through the rest of the year, a lot of those legacy -- initial legacy contracts, as Raymond mentioned, are coming to conclusion. That will start to lessen a bit on the construction revenue side on the construction financing side. So you will start to see sort of -- or would expect to see sort of a reduced outlay of capital on the TTK construction front until the newer engagements that we've recently announced start to complete their design build in their A&E studies. We will then towards the back half of the year, start to recycle on construction. So the capital needs for the company really are going to be in the inventory production side. You will see that manifest in the increase in inventory as we move through time. And then ultimately, you will see that inventory flip into a fixed asset because of the SaaS -- excuse me, because of the lease-based model on the VFUs contributed to those TTK arrangements. So that would -- you would expect to see that. And you would expect to see, as we have shown in the recent past quarters, continued investment in sort of what we described on the balance sheet as loans receivable. In terms of when does the construction start to flip as these construction start to come to completion, those outstanding finance amounts will start to pay down over a 12 to 24-month period, and you would start to see a reduction in the loan receivable amount and an increase in cash from the repayments of principal and interest on those outstanding finance balances.

Our next question comes from Anthony Vendetti with Maxim Group.

Just a couple of questions on the backlog. So backlog increased by $77 million. What's the total backlog now? And do you expect most of that backlog to be recognized over what time frame?

Tim, would you like to take that?

Yes, certainly. So Anthony, right now, as we enter the quarter, we're looking at a backlog of about $923 million. That, obviously, I think as Raymond went through in his comments, plays out over time because the larger chunk of that is related to the future SaaS software fees as well as the production fees. So that backlog converts to revenue in our world comfortably over a 6 to 8-year period.

6 to 8 years. Okay. And I know some of it's over 10 years, but most of it over 6 to 8. Okay, and…

Sorry, let me interrupt. You just need to also consider that some of that front-loaded piece is construction related. And as we talked about our legacy contracts, those legacy construction pieces are starting to come to conclusion. So Raymond highlighted that as we look at towards the end of the second quarter of this year and into the third and fourth quarter, we will start to recognize the leading edge of that pent-up backlog related to the SaaS fees and the production fees.

Yes, so Anthony, if I may, out of that $900-plus million good 80% plus is really production and SaaS fees. And most of that will be over a 10-year period, right? But as you know, we do get involved with the construction side of things, and that's basically kind of a book and burn over 12 months period. So kind of the 6 to 7 is sort of like what the average, if you kind of look at that entire $900 million. But the high-margin SaaS and production fees typically are 10 years, and they all kind of come on the back end of that revenue streams.

Sure, understood. And then the rapid VFUs which are attractive to the MSOs. You said you're having some, I guess, multiple conversations with MSOs about that. Can you give us an update on Curaleaf? I know that was one that was sort of -- that signed up for like a test run and just give us an update on where that project is and what the opportunity is with Curaleaf at this point.

Sure. I'm happy to. So they have officially submitted to the [indiscernible], that's where the R&D facility is, basically the application for construction. So everything is up. We are proceeding forward. A&E plan is now done, and they are moving forward with the construction. This is one of the reasons why we basically develop the RDP, the Rapid Deployment Program because what we realize is that it is really, really a hassle, right? Basically for them to have to basically go back in and retrofit and apply for construction permits and all that stuff, right? And it was a big lesson learned, right? It took us -- it did take us a long time to kind of get this up. They're moving forward. So we're very excited about that. But at the same time, it also reminded us that we really do need to have this RDP program so that basically, they can have 10 units, they can have 20 units and it's a plug and play, and this will help them to accelerate and be able to put our equipment to test. Now one of the other things that, Anthony, I want -- I really want to reiterate is I am most excited about the fact that what is happening at our customer sites today, right? As you guys all know, we estimate 35 pounds of VFU production per VFU on an annual basis. I just shared with you guys this morning, WhiteCloud is hitting somewhere close to 50 pounds production. That is an extremely exciting right development. It really validates our business, and we expect that number to continue to grow up. And it's not only on the yield side, which obviously, people only talk about that by hitting as high as 34% THC. So this is a very strong validation and I would say probable it's one of the more important piece of the information I shared today. And we expect to continue to see progress on the advantage of our technologies, and we're super excited about that.

Our next question comes from Harrison Vivas with Cowen.

Just wanted to double back on REIT partnerships. So I understand it's still early days and you're establishing a framework for how you're structuring deals. But what's your do sort of kind of established repeatable framework? Does this accelerate your ability to execute against your existing pipeline? Or does it sort of expand your pipeline to kind of discuss the opportunity set once you've established a repeatable deal structure with REITs?

Here's the thing industry headwinds and people seeing slowdown, et cetera, et cetera. But I can tell you that the interest -- the amount of people wanting to engage with us. We're continuously turning away deals because we're just way too busy. And right now, we're being super selective as to the partners that we want to team up with. And obviously, one of the challenges is how we're going to finance all these TTK projects, right? Because obviously, we don't want to do it just completely 100% from our own balance sheet. So sitting to frame the right framework for REIT partnership will allow us to be able to incredibly scale up that business, right? But at the same time, even though we're in multiple engagement that basically like term seats from people. But I want to make sure that we structured this correctly because you only -- really only -- you allow it -- one has to do it right. And we want to make sure the first deal was done right so that it sets the expectation. It sets a template and basically, we can be -- we can scale from there, right? But once we can put a REIT partnership in place, then I see tremendous leverage out of our business because Harrison, right now for every TTK deal that we do, about 60% of the upfront cost is related to construction, right? And the 40% is basically related to the additional equipment that we have to put in. So if we can actually have a REIT partnership to take away 50% of their upfront, then we only have to worry about financing the 40%. And I believe, once we start showing these recurring revenues, which we will begin to do starting from next quarter, then we will be able to find maybe some partners on the equipment financing side for our VFUs. Then under that scenario, then this model becomes extremely scalable. So that's kind of what we're putting in place.

And then kind of just a clarifier in response to an earlier question, you talked about prioritizing markets where premium prices for flower were holding in the most. Can you kind of specify what markets you're referencing and kind of how you see your state mix evolving over the next several years?

Yes. So obviously, the new TTK markets that we are focusing on are primarily all limited license states, East Coast. So for example, we're heavily investing here in Massachusetts, and that's our backyard, and we have to own our backyard for sure. Florida, that's also a limited license state and the premium pricing still holding up very nicely there. We're obviously entering into New Jersey. It's -- obviously, that's a very exciting market predicted to be probably New York, New Jersey, the second largest market outside of California, I know that it's going to be difficult there, but I think initially, there may be a supply demand sort of imbalance because people are just trying to figure out how to bring supply into that market. But I think the premium market might still be able to hold nicely there. So and then there are other smaller states that actually, again, limit the license primarily for medicinal use that we're looking at right now. But we're being very selective and looking and only at kind of the high premium pricing market for the moment.

Our next question comes from Pablo

Hi, this is Matthew Baker for Pablo. Can you talk about the balance sheet cash burn and your funding needs over the next 12 months?

Tim, please take that.

Yes, absolutely. So at the end of the quarter, we end with cash and cash equivalents, ballpark, $93 million. We've got $30 million of that restricted as part of the debt agreement we entered into in the latter part of March. So that gives us ballpark $64 million of cash as we look at moving through the year. Right now, where we sit, as Raymond talked about signing the term sheet with a potential investor or financer for some of our other TTK arrangements, we feel that we have enough to get through the rest of this year. It will be tight getting through the year. As we have done in the past, we will always look to find ways to sort of strengthen the balance sheet as we move through time, giving us, again, continued leverage on that balance sheet to continue to look at the expansion of investment in the growth of our top line.

Just for our second question from like a value proposition point of view. What's the average cost per pound that your vertical farm units produced compared to the average cost of indoor cultivation? And then also on how does this compare in terms of potency?

Yes. Great question. So right now, our customer is seeing an average around $320 OpEx per pound. And that's basically comparison to roughly 450 to 500 industry average. So as you can see, it's significantly lower. And I believe that number, in fact, will go even further down with scale. The $320 number that I kind of referenced earlier is for a 200-plus VFU facility, and it actually does have tremendous sort of scalability. So you can expect that number to go even lower with higher volume of production. So that's the first question. In terms of the second question, as I mentioned earlier today, our customers are seeing as high as 34% THC in one of their strains, right? 34%, and it's not just the THC, it's the other cannabinoids and also Turn-Key. And it's also not just the other cannabinoid and Turn-Key being higher, but it's also the consistency, right? I mean the best thing about our solution is once you figure out the optimal growth recipe, you just continue to use that operate at a current down, completely controlled environment and you have the ability to repeat the same process over and over and over. And that's really what gives us the maximum advantage is not only being able to push something out once, but it's the ability to basically repeat that process over and over. And that's really what sets us apart.

I'm showing no further questions in queue at this time. I'd like to turn the call back to Raymond Chang for closing remarks.

Gentlemen, I really want to thank you all for joining the call today. And one of the other things as a closing remark, I want -- I do want to say is just based on our backlog, with 4,569 VFUs currently under contract. Starting from 2023 and onwards, once we commissioned all of these VFUs, you would be expecting to generate $84 million of high recurring revenue on an annual basis. That's really the power of the business model that we have. And we're executing against that, and we're very happy to see a lot of our facilities coming into fruition, and the team is 100% focused and we will look forward to updating you with more positive developments in the quarters to come. Again, thank you for joining the call today and look forward to updating you all in the next quarter. Thank you.