ZeroStack Corp. Q4 FY2022 earnings call

Management Statement and Operational Highlights

• Revenue: Fiscal year 2022 had record revenue of $37.2M, with Q4 at $11.5M, the highest revenue-generating quarter and year to date.
• Strategic Goals: Deployed three-pillar strategy (House of Brands, Commercial Wholesale, Pharmaceutical), reduced operational expenses, and completed transformational M&A (JustCBD in Q1 2022 and FGH at end of 2022).
• Integration: House of Brands integrated, synergies identified. Commercial Wholesale: Colombia started exporting cannabis, FGH acquisition boosts European presence. Pharmaceutical: Lab 4 completed, preclinical work done for musculoskeletal pain study.

Segment Performance

• House of Brands: Drove the majority of revenue in 2022. JustCBD saw record-breaking sales in Q4, including a new vape line and expanded CBD plus line. Vessel partnered with Arbor Day Foundation, launched new dry-herb products, and had co-branded success with JustCBD. Mambe secured rights to sell juices into Juan Valdez coffee chain. Expected to contribute ~45% of 2023 revenue.
• Commercial Wholesale: Acquisition of Franchise Global Health (FGH) accelerated entry into European markets, especially Germany, with a network of 1,200 pharmacies. The acquired distribution business is expected to be a primary revenue driver, contributing up to 45% of total top line in 2023. Colombia started exporting cannabis, with product in Portugal for certification and distribution in key geographies.
• Pharmaceutical: Completed construction of Flora Lab 4 in Colombia, which completed preclinical work for a study on musculoskeletal pain using proprietary cannabinoid formulations. Awaits agency approvals. Expected to contribute up to 10% of 2023 revenue.

Guidance

• 2023 revenue guidance is $90M to $105M.
• House of Brands expected to contribute ~45%, Commercial Wholesale (FGH) up to 45%, Pharmaceutical up to 10%.
• Continued integration of FGH and assessment of new revenue streams, with more accurate guidance expected in 1Q 2023 results.

Risks

• Hostile business environment in the cannabis industry.
• Regulatory changes impacting exports and market access.
• Integration challenges of acquired companies (FGH) affecting EBITDA and margins.
• Delays in regulatory approvals for pharmaceutical clinical trials.

Question and Answer

• Q: Talk about EBITDA outlook and exports. A: EBITDA impacted by 4Q adjustments due to year-end sales campaigns and discounts; FGH integration ongoing, with lower margin gross profit from FGH partially offset by new revenue streams. Exports ongoing, but regulatory changes monitored.
• Q: Capital position and inventory. A: Cash at $9.5M, raised $5M in Dec 2022. Inventory built up for high-turn products like JustCBD's vape line and CBD plus line; CapEx not significant in 2023, with focus on inventory supporting high-demand products.
• Q: Vessel acquisition and Tonino Lamborghini partnership. A: Vessel integrated, showing organic growth; Tonino Lamborghini partnership ongoing, with surprises expected in the second half of 2023.
• Q: FGH acquisition details. A: Stock acquisition, issued ~43.5M shares, net asset value $9.8M (breakdown: $6.1M net identifiable assets, $3.7M goodwill). Team integrated, leveraging FGH's ERP system for synergies.
• Q: Pharmaceutical clinical trials. A: Awaiting NHS and MHRA approvals, with preclinical work done; regulatory approvals for clinical trials take time as government agencies process paperwork.