ZeroStack Corp. Q4 FY2021 earnings call

Management Statement and Operational Highlights

• 2021 Achievements: IPO in May 2021, completion of critical infrastructure projects, strengthened balance sheet, and deployment of M&A strategy.
• Financial Performance: 2021 revenues ~$9M (up from ~$100k in 2020), gross profit $2.4M (27% margin), operating expenses $21.3M (operating loss $19M), net loss $22.5M, cash balance $37.6M as of Dec 31, 2021.
• Operational Milestones: Commercial cannabis cultivation in Colombia, completion of Flora Lab 1, strategic partnership with Hoshi International, acquisition of Vessel and JustCBD, establishment of Life Sciences pillar with clinical study.
• House of Brands Progress: Growth of brands like Stardog Loungewear, Mind Naturals; licensing with Tonino Lamborghini; acquisition synergies between JustCBD and Vessel.
• Life Sciences Initiatives: Clinical study with University of Manchester on fibromyalgia, progress in pre-clinical work, patent pending formulations, and educational curriculum with edX.

Segment Performance

• House of Brands: In 2021, revenues were approximately $9 million, up from ~$100,000 in 2020. The second half of 2021 saw a >329% increase over the first half, and Q4 2021 was up 229% over Q3. Q1 2022 revenue was up ~450% y-o-y, with April 2022 delivering the highest monthly revenue growth since inception. It contributed mostly to the overall growth.
• Commercial and Wholesale: Included a licensed 249-acre all-outdoor cultivation facility in Colombia with low production costs and manufacturing facilities. Revenues contributed to growth as regulations in Colombia activated Wholesale and Life Sciences pillars.
• Life Sciences: Focused on R&D of pharmaceutical-grade products. In 2021, a clinical study partnership with the University of Manchester on fibromyalgia patients was established, with progress in pre-clinical work and patent pending formulations.

Guidance

• 2022 revenue guidance $35M to $45M, ~288% to 400% growth y-o-y.
• Q1 2022 revenue up ~450% y-o-y, April 2022 had highest monthly revenue growth since inception.
• House of Brands expected to contribute 60%-70% of 2022 revenues.
• Plan to invest $3M in CapEx in 2022 for increasing capacity of JustCBD and Vessel.

Risks

• Regulatory changes in cannabis markets could impact operations.
• Dependence on successful integration of acquisitions (JustCBD, Vessel) and Life Sciences initiatives.
• Potential impact of political changes (Colombian election) on business operations.

Question and Answer

• Q: Update on revenue guidance split across divisions including JustCBD acquisition A: Luis Merchan - House of Brands to contribute 60%-70% of revenues, Wholesale and Commercial to contribute remaining, Life Sciences to activate before end of 2022.
• Q: Progress on finding partners for THC flower sales A: Jason Warnock - High-THC strains to be harvested in Q3/Q4, already have LOIs from multiple countries, expect to execute purchase orders soon.
• Q: JustCBD growth opportunity and synergies with Vessel A: Luis Merchan - JustCBD has 13 product categories, 300 SKUs, strong in European and Latin American markets; synergies in distribution, supply chain efficiencies, cross-brand product lines.
• Q: Outdoor production and extraction capacity A: Jason Warnock - Current CBD production ~600 kilos/week, 65% of resources now on high-THC strains for Q3/Q4 harvest, extraction facility can be ramped up.
• Q: Status of preclinical and clinical trials with University of Manchester A: Annabelle Morgan - Pre-clinical work completed in under 6 months, in review with NHS for patient trials, expect trials to begin before end of 2022.
• Q: Impact of Colombian election on business A: Luis Merchan - Both presidential candidates support cannabis as economic growth driver, confident Colombian government will support Flora Growth.
• Q: Outlook for gross margins in 2022 A: Luis Merchan - Expect margins to improve as House of Brands contributes more, JustCBD and Mind Naturals have high margins, Commercial brand to contribute in second half with large margins.