Earnings Call: Q2 2021

Aug 12, 2021

Good afternoon, and welcome to AgroPai's Second Quarter 2021 Earnings Call. With us on today's call are Raymond Chang, Chief Executive Officer David Kessler, Chief Science Officer and Niv Krikov, Chief Financial Officer. Today's management will review the highlights and financial results for the Q2 as well as recent developments 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 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 discrete results, performance or achievements to differ significantly from the results, performance or achievements expressed or 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 statements 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 Raymond Chaim, AgriLife's CEO. Chang. Thank you, operator. Before we get started today, I would like to thank everyone for joining us on the call. On our call today, I will provide an update On the continued successful execution of our growth strategy and highlight some of the most recent company developments. My Chief Science Officer, David, will share more about our recent customer successes and the continuous improvement in our technology as well as our horticultural success. Our CFO, Nith Krikov, will follow with a detailed review of our financial performance. To start, I want to remind everyone that at the beginning of this year, we set out to achieve $40,000,000 in top line revenue, Secure a partnership with a major MSO and launch our latest technology version 3.6 of our proprietary vertical farming unit or VFU. I am proud to report that today We have not only achieved, but have exceeded every single one of these goals. We're pleased to share that The Q2 2021 was yet another record quarter. We saw revenue continue to grow To 11,800,000 of best quarter to date, up 2 0 3% year over year and a 69% sequential growth from quarter 1 of 2021. Earlier this year, we launched the AquaPlyde total turnkey solution, TTK solution. This is indeed a revolutionary offering, industry's first total turnkey solution, and we signed our first partner, Baton Mary's in the Q2. The TGK solution allows qualified strategic partners such as Button Mary's to gain access to capital, best in kind cultivation equipment and world class expertise and support they need to quickly establish Cutting Edge Indoor Cultivation Facility. The partnership with Button Mary's represents over a potential of $280,000,000 of revenue over the course of next 10 years. We're also launched our latest VSU version 3.6 and are now beginning to install the state of the art Vertical Farming Units in Multiple Customer Sites. VSU 3.6 introduces a number of key enhancements that have led to improved overall performance and significant advancements in Microclimate Control, Airflow and Future Serviceability. ARPU's decision to invest in our customers' success has clearly begun to pay off as we have expanded our engagements With every single one of our existing customers, leading to an eightfold increase in the expected lifetime value of those relationships. The hardware and software solutions are proving even more valuable to major players in the indoor act space. As focus on consistency and quality becomes increasingly critical to maintaining and growing market share. This quarter, we are very proud to be able to link our first MSO partnership with the industry leading operator, Curaleaf. We firmly believe that the initial R and D partnership is Only the beginning of many exciting and more expanded projects to come. Financially, besides registering a record quarter of $11,800,000 in revenue, I am pleased to report That our bookings for Q2 of 2021 were 30,700,000 And our backlog at the end of quarter ended with $101,000,000 up 23% from the previously reported $82,000,000 The continued improvement in our financial results It's primarily driven by the ongoing persistence and improvements we are seeing from our customers' facilities, which has provided Agrofiz with healthy and growing partnerships as well as a robust pipeline of new business opportunities. We were extremely pleased to announce yesterday that we have inked our 2nd TTK partnership with True Health Cannabis based here in Hebron, Massachusetts, located just 30 miles north of Boston. The terms of our deal will include 160 VFUs, approximately 160 VFUs to be installed in TrueHouse's 22,000 Square Foot facility. This partnership is expected to contribute Approximately $45,000,000 of revenue over the next 10 years. The scope of the partnership includes a fixed recurring SaaS revenue of approximately $500,000 per year, production based revenue of approximately $3,000,000 and the brands and licensing fees of roughly about $0.75 per year. Again, dollars 45,000,000 of revenue opportunity Over the course of the next 10 years, TrueHouse plans to operate 2 dispensaries in Heathrow and Methuen. True Health is also a qualified economic empower applicant, and we are extremely pleased to have to partner and help promote social equity in the cannabis industry. We are even more thrilled to see that Upon signing the TTK partnership with AgriLife, TrueHouse received an investment from WedLife Global, a successful family office based in Asia, currently with more than RMB1 1,000,000,000 of assets under management. I would now like to turn the line over to my Chief Science Officer, David Kessler, who will share new details on recent improvements Inconsistency and yield across our customer base and will provide an update on our R and D activities. Thank you, Raymond. This past quarter was marked with progress and multiple successes Through key partnerships and internal initiatives, we are now pleased to report We have R and D centers operating in both Georgia and Massachusetts. Additionally, we have recently launched Agri Fi University, an immersive online hands on project based learning experience that empowers Agri Fi customers by arming them With the knowledge and best practices to succeed. Agri Fi University utilizes our vast cannabis research datasets and Technological Innovations to provide a curriculum that we believe will support the long term growth of the industry and foster our clients' Success. Additionally, Agri Fi clients continue to see improvements in both consistency and yield using Agri Fi BFUs. To date, all of the top 10 largest VSU yields by a client have been achieved since March of 2021. Of these 10 largest yields, it includes 9 different strains, demonstrating the efficacy of AgriFyze technology on a wide variety of Chaney. Lastly, I'm very pleased to report that the greatest BFU yield in a single harvest Was recently achieved, pushing the past record by 15% to a considerable 71 grams per square foot. As our customers continue to grow and succeed, Agri Fi is steadfast in our Chang. And with that, I will now turn the call back to you, Mr. Patrick. Thank you, David. As we continue to improve and enhance the performance of our VFDs, we remain confident in our ability to deliver On our core mission of providing the highest yield, the highest consistency, the highest quality At the lowest possible cost. The mission is as integral to our success as it is to the success of our customers. Now I'll pass the call to Nick Krikhoff, my CFO, who will review our financial results. Thank you, Raymond, and good afternoon, everyone. Today, I'll provide you with an overview of our Q2 2021 financial results. For the quarter ended June 30, 2021, total revenue increased by 203% to $11,800,000 Compared to $3,900,000 for the same period in 2020. Our Q2 revenue consisted of facility build out revenue as well as hardware revenue from the delivery of new VFUs 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 facility come online. Gross profit for the Q2 of 2021 was $527,000 compared to a gross profit of $1,000,000 for the same period in 2020, resulting in a gross profit margin of 4.5% for Q2 2021 compared to a gross profit margin of 26% in the same quarter of 2020. Margins continue to be impacted from the revenue mix of our strategic decision to accelerate the migration of VFU Production to Match Molding in order to meet increasing demand and to move forward with the superior version 3.6 VFUs. Margins were also impacted by our decision to further invest in customer success and reengagement with our legacy customers to accelerate margin improvement for 2022. In 2021, we remain focused on building our installed base And we expect to see a greater proportion of high margin recurring revenue streams coming gradually as we roll out TTK project And increased our installed base, resulting in margin improvements. SG and A for the Q2 of 2021 was $5,200,000 up from $2,700,000 for the same period in 2020. The higher figure was primarily due to the acceleration of hiring of additional senior executive staff to meet demand and increase in stock based compensation expenses as well as additional legal expenses required for standardization of our TTK contract package To include a security and pledge agreement, loan agreement and SaaS production and lease agreement. Research and development costs were $774,000 for 2nd quarter, up from $743,000 in the same period of 2020. Total operating expenses for the quarter were $6,000,000 compared to $3,500,000 for the same period in 2020. Net loss attributable to Aglify for Q2 2021 was $5,600,000 compared with $2,400,000 in Q2 2020. Adjusted EBITDA loss for Q2 2021 was $4,500,000 compared to adjusted EBITDA loss of $1,800,000 in the same period of 2020. This concludes my remarks on financials. I'll return the call back to Raymond for closing remarks. Thank you, Niv. During the Q2 of 2021, we achieved several significant milestones as our growth strategy continues to take shape, building on the strong momentum that began in quarter 1. Moving to the second half of the year, we remain extremely confident That we will hit or even exceed the upper range of our revised $48,000,000 to $50,000,000 revenue target. The momentum around our business is stronger than ever. In addition to the previously announced CareLeaf partnership, we are actively engaging with a number of other MSOs and other potential TTK Partners. Since July, we have actually started Chang. And even with that, we're actively engaging with 10 plus TTK candidates across 8 states, amounting to several $100,000,000 of potential opportunities, which we expect to substantially convert to new business in due course. In addition to our organic growth, We are in advanced stages of negotiation and due diligence with several potential synergistic and accretive acquisition targets, which will further enhance our overall offerings, bringing even more comprehensive solutions to all of our existing future customers. In conclusion, we remain super focused on improving customer solutions through our product enhancements and comprehensive partnership offerings. With our strong balance sheet and a growing pipeline of opportunities. We believe that our momentum and market traction will accelerate through the rest of the 2021 and beyond. We look forward to updating you and reporting our continued positive progress during our upcoming quarter 3 call. This concludes my remarks. Now operator, I would like to open this up for questions. Please go ahead. Chang. Your first question comes from the line of Eric Dolores with Craig Hallum Capital. Great. Thanks for taking my questions, everyone, and congrats on the very strong momentum in the business here. I guess just off the bat, so great to see record bookings here. Maybe a bit of an elementary question, but could you Help us understand the difference between the backlog and bookings here. Yes, backlog is booking, Eric. So basically, we essentially received further order of up to $30 plus 1,000,000 in quarterly Of 2021 of quarter 2 year of 2021. Sorry, I'm jumping ahead already. So basically, the total backlog Increase from $82,000,000 at the end of Q1 to now over 100 plus 1,000,000 And so we're very excited about the progress that we're making on that front. Okay, great. That's helpful here. So I'd like to drill into your the pipeline of 10 plus TTK candidates, 8 states, you said several $100,000,000 in opportunity. We've seen on one hand with Bud and Mary's up to I think you guys mentioned $28,000,000 in annual recurring revenue and then this newer customer about $3,000,000 to $4,000,000 in annual recurring revenue. If we kind of think of those as benchmarks on the high to low end, Could you give us some sense of the size of these TTK candidates that you're looking at here? And maybe any comment on Your expected timeframe to be able to announce those customers? Yes. So Eric, So the TrueHouse Cannabis is probably the smallest that we would entertain. The reason why we Sign up for this partnership, 1st of all, because TrueHouse is literally 20 minutes from our headquarter. And so that we could actually be very, very intimately involved in the overall operations of TrueHouse. Obviously, we cannot be planned touching, but we will be intimately working with the TrueHouse team to help them to ensure success. In addition to that, one of the reasons why that drew me to this partnership is just To support, an economic empowerment applicants and also be participating in social equity In the cannabis industry, which I believe is just super important. But again, it's a great facility that is 25 minutes, literally 20 minutes, 25 minutes away from our office. And given the proximity, we are going to be intimately involved with that. The opportunities the other ten opportunities, they're in Arizona, California, Florida, Massachusetts, Michigan, New Jersey, Nevada and Oklahoma. The size of those partnership ranges from in average 300 To as many as 700, 800, of EFUs per facility. And I would say that You know, Bud and Mary is probably on the larger side, but TrueHouse is definitely small. I would say that in average, the TTK opportunities that we're looking at right now would probably be somewhere in the 500 to 700 VFDs per facility. And as I mentioned, there are 10 opportunities that we have qualified We are in advanced stage of negotiation. I do not believe that we will entertain all 10, But these are opportunities that we have qualified and we'll be moving forward in the further negotiations. Okay. That's very helpful color. I appreciate that. And exciting to see that average be a few size of 500 to 700 So two more questions from me, I guess, kind of sticking with this theme here. So I, Chang. Certainly, I'm a believer in the necessity and importance of social equity in the industry here. And obviously, you're seeing in basically every state that legalizes, they're setting Chang. I had a material amount of licenses, specifically for social equity applicants here. I think New York had about 50% of the licenses are Dedicated for social equity here. So, is this a specific area that you guys will look to Continue going after. I mean, just from my perspective, it seems like pretty ideal CTK candidate So we just would love to hear assessment on kind of that outlook for the TTK solution specifically. Yes. It is definitely one of the criteria that on our scorecard, obviously, is not the only thing that we consider. But I do believe that being in the cannabis industry, especially kind of given this historical context, we do really pay a lot of attention Chang. Just making sure that we provide the job opportunities to the communities As well as just being a sociable, responsible partner in the industry. So I'm very, very proud to announce this partnership with TrueHouse. I'm very excited. They're getting a lot of resources from the town of Heybro and Methuen. And also, another thing I wanted to just to also emphasize is the fact and then actually we're seeing more and more of this. A lot of the TTK opportunities, in fact, once they receive a term sheet from us, It actually further accelerates their capital raising activities. So in the case of TrueHouse Cannabis, Immediately after we signed, they actually got funded. And in fact, some of the 10 candidates that we're talking to right now, They can't wait for us to actually give them a term sheet. And in fact, we have been on due diligence calls with a lot of their investors. And I think what is very exciting for people who are actually interested in investing in our partners is the fact that unlike in the past where they have almost zero transparency as to what is going on inside of that facility post their investments. By working with us, we actually allow them to have full transparency. Secondly, With our support, if there's something is about to go wrong, we're there. And in fact, we will detect those problems early on To make sure that it doesn't happen. So the chance of success is much, much higher versus In a traditional investment, we're frankly speaking to have zero control of anything that is going on inside of that facility. So we're very excited about this and looking forward to cementing more TTK opportunities Yes, absolutely here. That Certainly makes sense and very excited from my perspective. Last one for me. So you mentioned you won't entertain all 10. Can you just sort of expand on that? Is that sort of a capacity issue? And if so, could you kind of help us understand Chang. Where are the bottlenecks? What kind of capacity do you guys have? Or maybe it's just that you're waiting for maybe bigger or better Chang. So if you could just help us understand why you won't entertain all 10 or what the limiting factor is there And just sort of how we should think about the pace of the growth in PBK customers. Thanks. So Eric, first of all, So far, we have set aside $50,000,000 to the TTK projects and obviously we're seeing much, much higher And so we're actually also trying to think of creative ways Chang. Just to kind of give you one example, we have actually been reached by multiple REITs. And the reason why they are interested in partnering with us Chang. In the old days, again, where they're actually just providing construction loans and basically buildings, They're probably making returns in the teams. And again, have zero control of what's going on Chang. It's almost kind of like a blind bit. And if something goes wrong, frankly speaking, a lot of these REITs Probably don't have the expertise to actually help to correct them. By working with us, right, they get full Chang. Full transparency and on top of that, it would also maybe potentially given that giving them an opportunity to participate on the back end and all of a sudden, their returns on investment probably just went from Mid teens to the 20s 30s, right? And this has been really a great partnership because frankly speaking, I would rather Chang. We devote the majority, if not all of our capital resources on the VFU front. If somebody else wants to come in and Basically provide that construction loan. More than happy for them to take it, right? So we're Basically talking, in fact, a lot of the 10 opportunities that we're currently contemplating, some of them were brought to us by other REITs and others, we have actually hooked them up with some of these REITs and I believe that we will probably be Chang. Cementing a deal with a large REIT in the very near future on this exciting TTK opportunities. So again, we're trying to Chang. To access more capital, to have more partners and to create a win win proposition, not only with our Cultivated partners, but also with other industry players as well. Very exciting. Clearly, lots of growth levers on this very exciting solution here. Congrats again, guys. I'll hop in the queue. Thank you, Eric. Your next question is from Scott Fortune with Roth Capital Partners. Good afternoon. Thanks for the question. Real quickly, can you provide a little color on the pipeline? I believe that's not including the TTK And any guidance there, but also provide us color on the construction projects and if there's any delays or There's obviously pickup in construction costs and such and outside of the material. How does that recognition of Potential construction delays reflect in kind of your project builds or the pipeline. Just kind of a little bit color on that. Scott, you're absolutely correct. We are definitely seeing Chang. A huge sort of competition around constructions. Right now, actually, we have Spandits are not only A and E partners, architectural and engineering partners, But we have also started talking to other general contractors so that it would give us basically bigger coverage. And, yes, so essentially, we are expanding our construction partners, architectural engineering partners, So that we can actually cover more deals nationwide. And right now, we're still seeing the projects sort of pretty much on Chang. And we will continue to manage that very tightly. One of the key hires, for example, this Chang. We're essentially hiring ahead to make sure that we can take on more projects And also just to make sure that we have enough customer success resources because obviously after the facility is built, It is even more important to make sure that our horticulture team is in the facility working with our partners to make exciting things happen, Right. The other big thing, as Niamh has mentioned earlier, this year we took the key initiative of basically moving our production to a contract manufacturer, Mac Mobile. And I'm very pleased to say that that process is Going well and we're expecting new VFUs to be rolling out of their production lines very shortly. So the launch of the 36, Especially with a contract manufacturer working with externally, we should have plenty of capacity to scale. So those are some of the things that we have worked on, not only in quarter 2, but continue in this quarter as well. So this guy, real quick, just follow-up on that. So your backlog and the construction projects that are kind of finalizing in the Chang. Yes. We're very Confident that we will, again, like I said, meet and even potentially exceeding our Revised $48,000,000 to $50,000,000 guidance. So we believe that Yes. We would have no problems in achieving that. So everything so far is still pretty much on track. Perfect. And then second question is congrats on the R and D agreement with CheerLease, our MSO out there who kind of validates Your technology, can you provide color of timing of that being installed, the potential for them testing Getting data from that and the potential opportunities as Curaleaf looks to expand. They've said publicly A lot more indoor grow in the East Coast and also the growth will be done in the West Coast. Kind of talk about kind of the key opportunities potentially. Yes. So they have a very exciting research and development facility here in New Emac. And obviously, our VFDs is one of the big initiatives within that R and D facility. And we believe that the completion of the construction will probably be done by the end of this year. And we know we will go into production and at that point, they will look at 1 to 2 cycles of the results. And we're very confident that we will be able to especially with the version 3.6 of our DFUs, They will see an immediate boost in yield, consistency and quality because the performance of our Chang. Honestly, it's just a study and we will I'm very confident That we can deliver results immediately. Okay. And then just kind of additional MSOs, Similar kind of test getting the equipment in the MSO's hands to test to see for Full cultivation production opportunities down the road. Is that kind of discussions you're having or some of them are looking for actually Larger facility builds to add capacity. Yes. I mean, some of these conversations are actually like Maybe even skipping the R and D concept. Obviously, we're I don't want to jump ahead and say that we're going to see PO tomorrow, but in fact, some of these other MSOs I'm not actually talking to us about R and D project, you're actually talking about implementing the VFUs in their new and expanded Chaney. So we're obviously still in those discussions. And as soon as we have them in, we will definitely let Chaney. Very exciting to be engaging with a number of the MSOs. Thanks for the color and congrats on the execution. Your next question is from Aaron Grey with Alliance Global Partners. Hi, good afternoon and I'll echo my congrats on the quarter. So I want to take a little bit different route here, right? Obviously, with all the VFUs and different operators you're working with, you guys one thing that's kind of key to me with you guys is all the data collection that you guys get, I think the different way to grow different strains and otherwise. So I'd love to get additional commentary from As you aggregate this data, the power that can come with that and how you can utilize that for future initiatives within Chang. Sure. David, would you like to maybe take a crack at this? And I can also jump in as well. I'd be Happy to. Essentially, with the larger amounts of data that we're able to coalesce, we're going to better be able Chang. To define the grow plans or recipes, which will lead to the cultivation success of our clients. With that said, these larger data sets aren't just Chang. Chang. Specific metabolite that might be valuable in the extraction process. Additionally, through Chang, Chang. A giant leap forward in their operational success by giving them recipes proven for success. So not only are they able to start the race halfway down the track, they're able to collate their data more Chaney. Shoes the end product formulation and grow plans or recipes that are going to support them in that success and really Deliver on a cumulative data set that can then be parsed as we learn more and more about this valuable agronomic The challenge is unfortunately, we do not have data on cannabis going Chang. So with the ability to aggregate data more quickly, we're going to bring the Chang. Yes. And In terms of monetization, right, so Aaron, obviously, we're the data is combed by Operator, a single state operator that has perfected, for example, a particular grow recipe for a particular string. Chang. We would basically work with them to potentially license that Grow Recipe to a non competing operator Chang, another state. And the reason why they would be willing to do so is because it wouldn't actually Chang. Because they know that if it's grow out of the EFEU under the same grow recipe, then most Chang. Obviously, this is just one of the ideas that we can actually potentially to monetize Chane. And there are actually a lot more, but basically this is something that we will very much We will be willing to work with our customers to think about ways to monetize those valuable Okay. Thanks for that color. That's really helpful. And then second question for me. Just as you look at additional partnerships, any color you could And provide in terms of the mix between those who might buy the VFUs versus where you take Chang. More of the CapEx and you have more of the rev share of the TANU and how those looking and how do you look to potentially have a mix between the 2 as you continue to roll out More of the VFUs, especially if you might have some limitation, given the contract manufacturing Thank you. Yes. Erin, I mean, essentially, the way I kind of see it, there are really kind of 3 buckets, right? The Chang. These are the largest MSOs with balance sheets that are so strong that frankly speaking, Chang. They would be interested just to buy our DFUs and not take on any kind of financing burdens, right. And those are and that's basically Chang. Kind of what gives us the scale and volume. And as I mentioned earlier, we're having multiple of those discussions with the Chang. And then there's the other extreme, which are the smallest single state operators that we're essentially offering this total turnkey Chang. And basically getting equity like return on the upside, on the production revenues, on the SaaS Chang. We're actually very pleased to see that there's actually kind of a middle ground, Chang. All our MSOs that, frankly speaking, have access to some of the capitals. And what they basically Chang. We can take on our own constructions or we can actually find one of the REITs to actually come in and basically do the constructions. And we'll basically Chang. And honestly, I would be very happy to do that because it would allow Chang. To basically deploy our capital even more effectively, building the installed user base, right? So we're really kind of Chang. A 3 bucket situation whereby especially with the middle buckets, there are other ways. For example, there are people that basically Chang. We were more than happy to come in as your financing partners, right. But by working with us, first of all, they get complete transparency Chang. They have a partner that could actually help them to go in and solve the Chang, if something goes wrong. And thirdly, is that they could potentially participate in that equity Chang. So we're basically more than happy to share because at the end of the day, our business model is all about building the largest possible installed user base. And that's basically how we're looking at this industry and how we're actually Chang. All right. Thanks. That's great color on the flexibility of the model. And congrats on the quarter, and I'll Chang. Your next question is from Anthony Vendetti with Maxim from Good, good. And so I just wanted to follow-up a little bit more on the I know we've talked about the TTK, but In the Budd and Mary's contract, and I was wondering if in the TrueHouse 1 is, is there I know there's an escalator in the Budd and Mary's one where it's depending on the yield, It could even be more per year. Can you talk a little bit about that? Is that built into all your TTK contracts? Or is it on a Yes, every single one. So basically, the terms with TrueHouse is essentially identical To that of, Barton Mary's, right. So we would essentially basically be getting that construction loan interest on that, And that would basically be expected to be paid back over the course of 18 to 24 months period. And then on top of that, we would get the fixed recurring SaaS revenue and then a per pound based production Revenue and that's again, it's also yield based. So that if it's over £7.5 we would get $700 and then if it's less, then we would get $600 I mean, we want to basically treat every single one of our TPK partners exactly the same, right. And They're also responsible for raising insufficient capital to support their working capital and we're very pleased that they were able to secure Investments to make that happen. So yes, it's very exciting. Okay, great. And then just as you look at your M and A platform, I know you mentioned You did mention about a REIT to help with the construction side of it. But just in terms of other Potential partnerships or M and A opportunity, can you provide a little bit more color On what you're looking at, at this point. Sure. So Anthony, I think that what we're looking at It's basically how we can actually make our customers' facility even more productive and with higher return on investments end to end. As you know, when you actually walk into any of the facilities today, maybe about 60% of the growth space is dedicated to cultivation. Now I believe that we have the best solution to make that 60% of the square footage With the highest productivity, highest yield, highest return on investments. What I can also tell you is that I see significant potential enhancements on that remaining 40% square footage of any facility. So we would basically like to work with Innovative companies, basically to be able to provide an even more comprehensive end to end solutions to our customers and frankly speaking to gain a bigger Chang. And that's essentially what we're looking at. In addition to that, we're also looking at The upstream, some type of partnership with companies that are really involved on the genetic side. So again, we're looking at not only just from the cultivation perspective, but how can we make Our customers' facility, every square footage, even more productive and actually ultimately Help them to increase their return on investments overall. Okay. Yes, no, that's great. And then just lastly on the existing customers. Your existing customers, at least from my channel checks, are very happy with the Agri Fi solution and Agrofit Insights. Can you talk about the recurrence of business you get from Existing customers. How many of your existing customers have already re upped Or have signed up for another Agri Fi contract. So Anthony, I'm very pleased to say that right now we have 0 churn, right. And not only do we have 0 Chang. Chang. So it's basically not only them Actually buying more via fuse. In fact, some of them actually are saying, look, maybe we'll look into a quasi TTK model So that you actually get to share part of that upside. We want to have complete interest alignment, right? So we're very excited Chang. That's every single one of our customers has repeated their commitment with us and in fact, Chang, allowing us to essentially increase the lifetime value, the expected lifetime value of these customers as much as people. Your next question is from Gerald Pasquale with Cowen. Hi, good evening and thanks very much for taking the questions. Raymond, I'd like to get your outlook and thoughts on federal Chang. Regulatory reform, specifically interstate commerce, when maybe you would expect this to occur? And then ultimately the impact that this maybe has on the business model. I would assume that there's somewhat of a moat on this Business as long as there is demand for high quality indoor grown flower. I'm not sure if that's the right way to think about it, but if you could entertain the question and provide Some high level thoughts, I'd appreciate it. Thank you. Yes. Gerald, it's a pleasure to and thank you for joining our call today. Your first question as to when the federal deregulation would happen, I think that's the $1,000,000 question that we would all love to know. But I think the key here is that we're setting up our business model to essentially not only hedge against that, but actually to be better prepared when that thing comes. And let me explain to you why, right. If you look at actual example, the beer industry, what you have are these big brands like the Budweiser, the Hannequin of the world. And similarly the big MSOs, right. Down the road, I think what is important Is that they need to essentially be able to produce the most consistent and the highest in quality product because their entire brand is behind it. And our DFEs will actually allow them to do so. And also in the post irregular environment, they may want to actually consolidate, right, Their production facility, so now maybe 20, 25 different locations, down to only 2 or 3 4, right? And the advantage of our VFDs is that they're movable. They're modular, right, so that when they actually decide to consolidate eventually, right, consolidate everything into one facility, Literally, we can move these VFUs, plug them back in and they still have all the data and it's the same standard operating Chang. So actually, it's For the big MSOs, not only we help them to deliver consistency and quality, it's actually a huge hedge, Right, against the future when they decided to basically consolidate all of the facility into maybe 1 or 2. Now they're also the smaller guys and the same thing with the beer industry, like the craft growers, right? In order for them to compete, right. They would even have to be even more focused on consistency and quality, right. And this is where actually data comes in, Right. And this is actually where we can actually help them to stay differentiated, right, to actually have a unique genetic, but Not only being able to produce them once in a lifetime, but actually to be able to repeat the same process every single time So that they can stay even though smaller, but still attract a very high premium for their products, right. So this is actually what I believe would differentiate by working with AgriFly is We have the ability to deliver highest quality, highest consistency, highest yield, But also at the lowest possible cost because of our automation and because of the ease of the use of our solutions. That's super helpful color. Thank you for that. Just last one from me. I thought the REIT commentary was very interesting. I guess in your conversations With customers or prospective customers, how much of a competitive advantage is offering these construction loans in particular, Given the capital constrained environment, and do you expect these AP these interest rates, I think it was 18% that I read in the press release, Do you expect these strong double digit rates to hold at least over the near to medium term? Just your high level thoughts would be much appreciated. Thank you. Yes. I mean, honestly, that numbers will come down. There's no question about it, right? Chang. Obviously, especially with State Banking Act and all that, that construction loan percentage is going Come down over time, right? But again, I think what makes us interesting and what makes us attractive to not only the REITs, Chang. Even the traditional candidates, investors. It's the fact that With the data, we have much more transparency to what is going on inside that facility. So unlike, for example, in the old days where they would know that there's something wrong with their Basically, partners, only they not getting that check. But in our case, For example, if it's not trending correctly, we would know, right? If they're not hitting their expected yields, we would know. If there's an environmental issue, right, we can actually go in there and address those problems on a real time basis, So it doesn't become too late, right? And the other thing is that, look, Chang. If you can have the highest yield per square foot and by the way, David has mentioned earlier, we just basically hit a 0 point 70 grams per square foot. And don't forget, if the facility happens to have actually very high ceiling. We can actually turn that 1 square foot to as much as 6x Because we have the ability to triple stack our VFUs, right? And since each VFU actually has two level of Canopy growth space, So all of a sudden, you're looking at 6.8, 6x times 70 grams per square foot. That's a lot, a lot of production. Furthermore, right, we have demonstrated that on a per pound basis, Because of all the automation and a lot of the improvements on the standard operating procedures, we have demonstrated That our customers can actually produce at the lowest possible costs, right? So this is actually really revolutionary, highest yield, highest consistency, highest quality at the lowest possible cost. Got it. Again, very helpful color. Thanks for taking the questions. I'll pass it on. And there are no further questions in queue at this I'll turn the call back over to you, Raymond, for closing remarks. Again, I want to thank everybody for joining the call today. Obviously, we're very super excited about the progress that we're making and we will continue to execute and hope to report even better results in the upcoming call. Thank you and feel free to reach out if anybody has any questions.