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Agriify Corporation (AGFY 8.87%) 2021 Third Quarter Earnings Conference Call, November 10, 2021, 8:00 AM Eastern Time
Good morning, and welcome to the Agriify 2021 third quarter earnings conference call. Joining us in today’s conference call are CEO Raymond Chang; David Kessler, Chief Scientific Officer; and Niv Krikov, our outgoing Chief Financial Officer. Today, management will review the highlights and financial performance of the third quarter and provide business and operational updates. After the comments prepared by the management, there will be a question and answer session.
Remind you that you are recording today's conference call. Before we begin, we would like to remind everyone that the prepared comments contain forward-looking statements, and management may make additional forward-looking statements in response to your issues. Such statements involve many known and unknown risks and uncertainties, many of which are not within the control of the company, which may lead to the existence of future results, performance or achievements that are incompatible with the results, performance or achievements mainly implied by such forward-looking statements Significant differences. Look at the statement. Important factors that may cause or contribute to such discrepancies include the risks detailed in our public documents filed with the US Securities and Exchange Commission and the risks mentioned in the earnings release.
Except as required by law, we have no obligation to update any forward-looking statements or other statements herein, whether due to new information, future events or other reasons. Now, I am happy to transfer the call to Mr. Raymond Chang, CEO of Agriify. Sir, you can start.
Raymond Chang - CEO
Thank you, operator. Before we start, I want to thank everyone for joining our conference call today. In our prepared comments, we will refer to the information contained in our press release, which is cost-wise and can be accessed on our investor relations website ir.agrify.com. In today’s conference call, I will brief you on our continued successful execution of our growth strategy in the third quarter, including our main achievements this quarter. I will focus on some of the company’s recent developments.
My Chief Scientific Officer, David Kessler, will discuss some of our customers' VFU-enabled systems. He will also take you through the game-changing improvements we have made to technology. Our outgoing chief financial officer, Niv Krikov, serves Agriify with purpose and professionalism, seeking our IPO and subsequent public offerings, as well as our recent acquisitions, followed by a detailed review of all financial results for the third quarter . As announced this morning, Tim Oakes, who has been an important member of our board of directors and serves our audit committee, will transition to the role of chief financial officer starting today.
Niv will stay generously with the company as a consultant in the next few months to ensure the success of Tim and Agriify in 2022. We look forward to introducing Tim to many of you in the near future. For information about Tim and his impressive track record, please refer to our press release issued earlier this morning, which highlights exciting changes and additions to our executive team to help us further accelerate growth. Now, let us dive into our third quarter highlights.
We are happy to share with you that the third quarter of 2021 is another strong and record-breaking quarter for Agriify. Our revenue reached $15.8 million, which is our best record so far, with a year-on-year increase of 460% and a 33% increase from the second quarter of 2021. In addition to our revenue-record revenue, I am happy to report that we have generated $32.2 million in new bookings, and our backlog at the end of the quarter has increased from $101 million at the end of the second quarter of 2021 to 117.5 million U.S. dollars. The improvement in our financial performance continues to be driven by the healthy and evolving partnerships we have established with our existing customers and our powerful new business opportunities channels.
Throughout the summer, we achieved a wide range of business goals. We moved our headquarters to Billerica, Massachusetts, and opened Agriify University there. The site is now used as a planting and production R&D facility, training center, product display facility, and company office. We also signed our second TTK partnership with True House Cannabis to install as many as 214 VFUs today.
With the recently updated and added VFU account, it is now expected that this partnership will generate more than $73 million in revenue over the next 10 years. In addition, we have established a vertical agriculture R&D partnership for many years with Curaleaf to study the impact of the planting environment on plant health and harvest yield. We expanded our existing partnership with WhiteCloud Botanicals and shipped another 114 new 3.6 VFUs for the second phase of their facility expansion in Nevada. I would also like to thank our team for their dedication, character and results in the third quarter.
Although our financial and public announcements usually receive the most attention, we made incredible efforts behind the scenes in the third quarter to deal with major global supply chain issues; fulfill important customer commitments; mobilize to expand production scale; and promote Discuss negotiations with potential TTK and cash customers with MSO; and complete our transformative and strategic acquisitions of Precision Extraction and Cascade Sciences. Based on all these efforts, the fourth quarter has become another record quarter for us, and I will elaborate on this later in this conference call. Now, I want to transfer the call to my Chief Scientific Officer, David, who will introduce the latest status of our customer success and gardening plans, as well as our new product improvements. David?
David Kessler-Chief Science Officer
Thank you, Raymond. In the third quarter, our customers continued to see yield improvement and consistency, using our VFU to achieve new potential customers and cultivation performance. This quarter, one of our customers recorded a maximum production of 99 grams of cannabis per square foot, an incredible 50% increase from the second-highest production in the past three quarters. In a more realistic scenario, if three VFUs were stacked in a configuration, the potential yield per square foot of facility footprint would be 594 grams per crop cycle, or 2,970 grams per square foot of facility allocated per year.
In the five harvest batches in the first three months, Agrify customers continued to see excellent cannabinoid consistency in the flowers grown by Agrify VFU. One of the Agriify customers found that the cannabinoid concentration of all five batches did not change 0.94%. This level of consistency is driving the industry to develop branded products that provide reproducible consumer and patient experiences. This quarter, we also launched Agrify University, a project-based immersive online and face-to-face learning experience that provides Agriify customers with the knowledge and best practices they need to succeed. Utilizing our huge data set and technological innovation, the Agricultural University provides courses designed to support the long-term development of the industry.
To improve efficiency, Agriify integrates a plug-and-play system to automatically collect and harvest waste data, effectively eliminating the need to manually input data into indicators or other compliance software, reducing human error and promoting faster and more accurate data input and collection . Our VFU technology has also made exciting progress, which led to the recent introduction of an improved VFU Generation 3.7 with enhanced features to increase efficiency and higher quality output, including industry-leading performance, dielectric, conductivity and The lighting sensing capabilities of water, and the integration of smart camera technology. Developed in cooperation with our contract manufacturer Mack Molding, the new features of the 3.7th generation VFU include durable, adjustable spectral lights that can be precisely customized to meet the specific needs of different cannabis varieties. After lenses and losses, the light output of the new lamp has increased by approximately 40%, with a top-notch power efficiency of 3.0 micromoles per joule.
The camera system integrated with Agrify Insights can perform continuous image analysis to proactively identify problems before they are visible to the naked eye, and monitor growing media through humidity and conductivity sensing. Realize the fine control and optimization of irrigation and fertilization events based on environmental feedback, thereby minimizing potential risks caused by facility abnormalities, nutrient deficiency, and improper irrigation and fertilization plans. In order to promote biosafety, the 3.7th generation VFU has adopted a thermal sanitation model, which automatically disinfects our VFU between crop cycles, helping to eliminate one of the worst performing and most important tasks in any facility. We expect to start delivering the 3.7th generation VFU in the first quarter of 2022.
We look forward to seeing these latest developments bring real-world improvements to our customers. With this, I will turn the call back to Raymond.
Raymond Chang - CEO
Thank you, David. We will-we are confident that we will start shipping our 3.7 VFU in the first quarter of next year. Most of our event solutions today are expected to promote our good development in 2022 and beyond. We have noticed a significant increase in the interest of major operators in indoor applications, and we expect this interest to intensify.
While we are constantly striving to improve our VFU to improve performance, we have always focused on our core mission, which is to provide the highest yield, the highest consistency, and the highest quality at the lowest possible cost. As Dave said before, this mission is an integral part of our success-the success of our customers. With this, I want to forward this to Niv, who will review the financial results.
Niv Krikov - Chief Financial Officer
Thank you, Raymond, and good morning everyone. Today, I will give you an overview of our financial results for the third quarter of 2021. Before we begin, I want to welcome Tim Oakes again as the new chief financial officer. When I look back at my time at Agriify, I am extremely proud of all the achievements I have achieved during my tenure at the company.
Over the past year, I have worked closely with Tim, and I am very happy to see what the future holds for Agriify as Tim takes on more responsibilities. I look forward to continuing to work closely with Tim and the team to ensure a seamless transition so that Agriify can continue its momentum in the strong fourth quarter and bright 2022. For the quarter ended September 30, 2021, total revenue increased by 460% to US$15.8 million, compared to US$2.8 million in the same period in 2020. Our revenue for the third quarter of 2021 includes revenue from facility construction and hardware revenue from delivering new VFUs to customers.
This income mix is in line with our expectations for 2021, as we intend to launch new projects this year and ensure that our existing customers successfully meet their expansion and growth needs. This has led to a more concentrated revenue from facility expansion in the short term, but we fully expect that as more facilities go online in the second half of fiscal year 2022, this will shift more toward hardware, SaaS, and other recurring revenues. The third quarter was US$380,000, and the gross loss for the same period in 2020 was US$200,000, resulting in a negative 2.4% gross margin in the third quarter of 2021 and a negative gross margin of 7.1% in the third quarter of 2020. In the third quarter, our commodity costs and gross profit margin were mainly affected by continued global supply chain disruption. Unfortunately, this increased the cost of our production materials and delayed the receipt of materials.
We have made great efforts and significantly increased short-term costs, including production labor costs, to ensure timely delivery of our VFU customers. We understand the importance of getting our customer facilities up and running as quickly as possible, because our business model is not driven by short-term hardware sales, but by the future recurring SaaS and production costs that our customers successfully generate. Looking ahead, we will actively take measures to ensure all currently required VFU production materials in the fourth quarter of 2021 and the first quarter of 2022. In addition, as we begin to shift production from the current 3.6 VFU model to a 3.7 VFU model, we not only expect to improve performance, but also expect that the cost of LED lights per VFU will be reduced by up to $2,000, or roughly accounting for the total cost. 10%.
We expect that we will see the benefits of this expected cost reduction at the end of the first quarter of 2022. The SG&A for the third quarter of 2021 was US$8.6 million, higher than the US$1.9 million in the same period in 2020. The increase in SG&A expenses is mainly attributable to the $2.4 million break-up fee associated with the cancellation of matching products, the right of first refusal for future stock issuances, and the increase in salary costs associated with accelerating the recruitment of additional senior executives and the employees needed to support the company’s significant growth Additional additions include stock-based compensation costs, insurance costs directly related to listed companies, and legal and other professional services related to due diligence and completion of the Precision and Cascade acquisitions.
Research and development costs in the third quarter of 2021 were US$827,000, higher than the US$449,000 in the third quarter of 2020. Total operating expenses for the quarter were US$9.4 million, compared with US$2.4 million in the same period in 2012. The net loss attributable to Agriify in the third quarter of 2021 was US$9.8 million, and the third quarter of 2020 was US$2.7 million. The adjusted EBITDA loss for the third quarter of 2021 was US$5.6 million, while the adjusted EBITDA loss for the same period in 2020 was US$2.1 million.
Due to the positive contributions of Precision and Cascade, we expect-we expect our EBITDA to improve significantly in the fourth quarter of 2021. This concludes my comment on finance. Thanks again everyone. I will now turn the call back to Raymond’s closing speech.
Raymond Chang - CEO
Thank you, Neve. In the third quarter of 2021, we achieved several important milestones. As we continue to move forward for the rest of this year, we expect bookings for the fourth quarter to exceed $100 million. Past revenue was approximately US$26 to 28 million, equivalent to an annual revenue of US$104 to US$212 million. The annual revenue was US$60 to US$62 million, which was higher than our previous guidance of US$48 to 50 million.
We further expect our EBITDA margin to increase significantly as we continue to see the positive synergy and contribution of our newly acquired extraction division. So far, in the fourth quarter, we have increased the production capacity between the Georgia factory and Mack Molding to approximately 220 to 240 VFU per month, and we believe that the output of VFU will continue to increase to support our accelerated growth. We also secured a 10-year TTK partnership announced with KIEF USA earlier this week, including the installation of 485 VFU at their Massachusetts factory. Earlier this month, we also received 400 VFU orders from El Mirage, which was our first transaction in the very attractive Arizona market.
We have always believed that the second half of this year will be a meaningful reshaping of our company in a profound way. We believe that our performance in the third and fourth quarters shows that we are correct. We continue to have in-depth discussions with more than 20 MSOs, especially after the success of MJBizCon in Las Vegas. In the opportunities and partnerships we have actively explored and established, we have served more than 15 potential cash TTK customers across the state.
In terms of attractions, we are very excited about the recent value-added acquisitions of Precision Extraction and Cascade Sciences, both of which are leading brands in the cannabis extraction industry. Since the completion of the acquisition on October 1, we have been implementing a very thoughtful and meaningful M&A integration plan. This acquisition is another important milestone in our goal of becoming a vertically integrated solution provider for the cannabis and cannabis industry in the world. Agrify has seized multiple cross-selling and up-selling opportunities.
We believe that there are huge opportunities for organic growth in 2022 and beyond. We are still very focused on ending strongly in 2021 and being able to achieve sustained growth in the market, whether organically or through strategic and smart asset appreciation acquisitions. We look forward to keeping you updated on these developments and reporting on our continued positive progress and launching our 2022 guidance at the end of the fourth quarter. This concludes my speech.
Now, I want to open up questions from the audience. Operator, please continue.
[Operation Instructions] Your first question comes from Aaron Gray from Alliance Global. Your line is now open.
Aaron Gray - Alliance Global Partners - Analyst
Hi. Good morning, congratulations on the strong quarter and the seemingly strong fourth quarter.
Raymond Chang - CEO
Thank you, Aaron. thank you very much.
Aaron Gray - Alliance Global Partners - Analyst
Absolutely. So my first question is only about bookings for the fourth quarter. I believe you said that 100 million is just to make sure that I correctly understand the recent acquisitions of Precision and Cascade. Is that 100 million? Can you split it into the traditional Agriify business, or some of it is also attributed to the new attractions business with 100 million Q4 bookings? thanks.
Raymond Chang - CEO
Yes. We estimate that 80% to 85% will come from Agrify's core business, and the rest will come from Precision and Cascade, so Agrify's core business will continue to be the main contributor. But we are also very pleased to see an increase in Cascade's position. Aaron, I just want to reiterate that the recent [inaudible] attendance was a super positive attendance for Agriify as a whole.
In fact, for precision and cascade, we actually select orders on the spot. We just saw positive synergies and sales opportunities. I believe that our display of the latest 3.7 VSU technology may also be one of the highlights of this year.
Aaron Gray - Alliance Global Partners - Analyst
Thank you, this is really helpful color, the organic booking growth there is very strong. Secondly, don't comment on MJ, I'm glad to hear the strong demand and interest there. So, you talked about conversations-incident conversations with 20 MSOs, and the other 15 cancelled TTK partnerships. Just one thing, your guy now has his own bandwidth, you are expanding, you are getting more production for the VSU budget, as you think, which ones tend to bear, how do we view your manpower and the sharing of lions At the end of the year, in terms of the high demand in the next few quarters, how much you will be able to afford, especially between MSO and TTK. It seems that TTK may need more manpower to help improve those because they may not have the training expertise there. .
Therefore, any useful color will be appreciated? Thank you.
Raymond Chang - CEO
Yes. Aaron, you are absolutely correct. We may have more imbalances now, and then you know what we can handle now, which is obviously a-this is a big problem. So internally, as I-as we announced earlier this morning, I am very, very happy to be able to truly bring world-class operators, new CFOs, and other high-quality new executives to the team, which will have That helped us expand our business in amazing ways, right? So, internally, we are preparing for another very strong year 2022 that I think will be.
Externally, we are obviously involved in all these discussions, and we want to stay focused. I believe that 50% of our resources will continue to be developed for MSO, and the remaining 50% will be used for these TTK opportunities. Now-around TTK opportunities, we will not accept anything below Q3 100 units. Most TTK opportunities are actually getting bigger and bigger, which is actually a good thing.
This really shows scalability, and the event is actually the modular and scalable VSU design we have. We believe we may have mastered Massachusetts. As you know, we now have three TTK partnerships. And I believe that if we add one or two more, we will get a lot of production in the Massachusetts market.
We announced that we will enter Arizona. So, we are also focusing on Florida, New York, New Jersey, Illinois and Michigan. The focus will continue to be on limited license states with very attractive hype and hosting wholesale pricing. We will basically focus on these attractive and strong markets.
But again, as I said, about 50% of the resources are used for TTK progress, and 50% of them may be dedicated to MSO.
Aaron Gray - Alliance Global Partners - Analyst
Very useful colors, congratulations on this quarter and continued success. I will jump back into the queue.
Your next question comes from Eric Des Lauriers of Craig-Hallum Capital. Sir, your line is now open.
Eric Des Lauriers - Craig-Hallum Capital Group - Analyst
great. Thank you for asking my question and congratulations. Follow up on your opportunities with MSO. Can you help us learn more about where these discussions are currently? Is it more like verifying the solution at this point? Should we really think of these as similar to the kind of R&D partnerships Curaleaf has announced at this stage?
Raymond Chang - CEO
OK. Very good question. Because-we basically have more than 20 discussions, so opportunities appear at different stages, right? Obviously, a large part of them are very similar to the R&D opportunities of 10 or 20 units. But I can also tell you that there are more discussions.
Many operators are now fully convinced. They are ready and do not need to carry out similar R&D activities. So we have the opportunity—similarly, in the early discussions about 20-10, 20 unit R&D, but we also have real discussions, and I will launch it in full. So it is a bit beyond the map at this point.
Eric Des Lauriers - Craig-Hallum Capital Group - Analyst
OK. OK. I am very happy to hear the news. So is each of these agreements a declarable agreement? If they do establish R&D partnerships with you, do you think-are there these MSOs and discussions that you want to keep confidential?
Raymond Chang - CEO
Yes, I think it is a combination of the two. Obviously, many MSOs want to start this kind of relationship, but not in such a public way. But obviously, those may not be fully rolled out. These may be something we will definitely announce.
But, I think, Eric, as you know, our business model is all about the installed user base, right? So we want to discuss with as many people as possible. I do believe, and I am very confident that once they switch to our VFU, it will be difficult to look back. So all this is to get as many partnerships as possible to make VFU appear there, because we believe that once they start using it, this will definitely become the default setting in the future.
Eric Des Lauriers - Craig-Hallum Capital Group - Analyst
OK. It sounds pretty good. And then the last one for me, about cascading and precise integration updates, any kind of tie, I know, it’s still too early, but how should we consider how you layer target those hardware sensors at any time, let We arrive at a place where you can start charging recurring income for extraction solutions, and any type of timeline would be great. thanks.
Raymond Chang - CEO
Of course, Eric. I am happy to say that our upcoming chief operating officer, president and chief operating officer Thomas Massie will also assume the role of temporary extraction, department and general manager. So his first task is really to focus on ensuring that the integration will go smoothly. He has done a great job so far.
I think there are basically a few key milestones, right? First, we have seen many low-hanging fruit. We are helping them to fundamentally improve the sales process, basically, not just as an entity that accepts orders, but now becoming more aggressive and looking for opportunities there, just to give you an example, right? They have never done this before, and they have never said it. People always regard this as a trade show. But as far as we are concerned, this year, literally, our sales staff are taking orders. right? Then, this is-I believe that in itself there will be significant organic growth.
We are now also beginning to think about the potential integration of the mass supply chain, and our software team, in fact, has sat down with the Precision and Cascade teams. In fact, we have formulated the entire development plan. I believe that by the second quarter-the end of the second quarter and the third quarter of 2022, we will have some prototypes that can be demonstrated. Obviously, we want to test the model, turn these hardware into smart hardware in nature, and basically have very good recurring SaaS revenue and related production revenue.
I believe that by the end of the second and third quarters, we will start trials and we will start to be able to promote it to some of our customers.
Eric Des Lauriers - Craig-Hallum Capital Group - Analyst
Glad to hear it. Congratulations again, everyone.
Your next question comes from Scott Fortune and ROTH Capital Partners. Your line is now open.
Scott Fortune - ROTH Capital Partners - Analyst
Good morning, congratulations to the court. Thank you for your question. Just follow up Precision and Cascade, downstream extraction, you have added the entire integrated solution. Can you provide a little backlog or run rate from it, but more importantly, can you provide some color on the potential of other value-added solutions in the facility and the valuation you see in the fragmented market to continue adding solutions as Your partner is coming forward?
Raymond Chang - CEO
certainly. Scott, I think as we mentioned in the pilot press release, we expect Precision and Cascade to receive the equivalent of US$14 billion in 2021. Obviously, this is on the basis of preparation, because the acquisition will not end until October 1. So this is the top line.
Now, if, as I mentioned before, we have seen a very, very positive recovery in Precision and Cascade. Our sales in MJBiz are very strong, and we look forward to updating you. I believe that the fourth quarter results of the precision extraction department will be very, very attractive results. Now, so far, I believe that the combination of Precision and Cascade does provide us with approximately 60% to 70% of the product portfolio. We are definitely the most vertically integrated solution provider in the industry.
However, there are still about 20% or 30% opportunities for us to potentially cooperate or acquire to complete the provision of the entire solution. We are actively working on this. But I like what I said, I think the combination of Precision and Cascade already has 60% to 70% of everything we eat. But the other 20% or 30% products are currently being discussed.
It will be done through partnerships, distribution partnerships or acquisitions, and we look forward to completing our entire portfolio suite in the near future.
Scott Fortune - ROTH Capital Partners - Analyst
great. I admire this color. Then back to the opportunity of TTK. I know you said that it will eventually reach 15 million. Can you provide the color of the timetable or plan in terms of financing, because this seems to be a potential bottleneck for more TTK transactions-in terms of size? Congratulations on your increase in scale. They need the additional partnerships you are looking for to promote or help finance these additional business opportunities? One thing will be great.
Raymond Chang - CEO
Yes, Scott. We will continue to have many discussions with REITs and other alternative financing entities. They are very interested in becoming our partners to further expand the TTK program. In fact, most of the conversations are not just this one-time financing, basically everyone wants to basically provide us with credit facilities.
Of course, there are millions of arrangements, so we don’t have to stand still because of the need to raise additional funds on a project-by-project basis. We have multiple decisions. As you know, for most of these TTK projects, 50% to 60% of the upfront cost of REIT is related to construction. You know, it would be huge for real estate investment trusts and other financing companies to accept this kind of support.
Now, in addition, right? For example, if you can view our latest deal announced in Arizona, our partners are actually dealing with real estate and construction. That particular project does not actually require construction loans. They are actually stepping up to obtain cheaper financing, construction financing loans, and they will actually handle it themselves, which is good. It seems the key US, the Massachusetts deal we just announced. Our partners are stepping up to provide 20% construction loans and hardware loans.
Therefore, people are now looking for alternative financing methods, which we welcome very much. So I think it will be a combination of multiple efforts. The first is that we may enter into deals with REITs or other financing companies to arrange this very strong line of credit. This way we can truly provide it to our partners, but at the same time we also see that our partners are also stepping up to use your own funds.
So this is a very, very positive development.
Scott Fortune - ROTH Capital Partners - Analyst
thanks. If I can quickly add a question when you see that the industry is hit by supply chain problems, remind you of the manufacturing process in this field. You mentioned that you can produce 220 to 240 VFUs per month through contracts and pipelines. What do you think of future manufacturing demand and output?
Raymond Chang - CEO
Of course, Scott. So, for the third quarter, in fact, for the fourth quarter, we have actually shipped all the key components and we have stored them in our warehouse. Unexpectedly, for example, truck transportation, all the way to Nevada, we did not expect, for example, aluminum extrusion will become a problem, we did not expect that small things like PVC pipes will become a problem. And, obviously, if there is no built-in We cannot ship these components.
So in the third quarter, we were affected by the global supply chain, and a lot of materials actually came in-non-critical component materials came late. As a result, we had to work overtime to complete these units because we promised our customers, We hope to deliver these equipment to them by the end of the third quarter. Basically, I am committed to ensuring that we deliver on our promises. The good news is that the 114 devices that we shipped to WhiteCloud have not only been shipped, but also have been installed and fully commissioned at this time. Looking to the future, we actually learned from it that we are actually getting smarter and smarter in supply chain management.
We believe that we now have all the materials needed for production in the fourth quarter and the first quarter. In addition, as I mentioned before, in my previous script, we saw version 3.7 of VFU, which is our next generation VFU. It will reduce costs by approximately US$2,000. This is about 10% of the overall collision cost.
Get better light again, yes, 3 micromoles per joule. However, we will see a cost reduction of $2,000. So we control the supply chain, and we will continue to move forward to see if we can really reduce future hardware costs.
Scott Fortune - ROTH Capital Partners - Analyst
thanks. I will jump back into the queue.
Raymond Chang - CEO
Your next question comes from Anthony Vendetti of Maxim Group. Your line is now open.
Anthony Vendetti - Maxim Group - Analyst
Thank you. I want to know if you—Raymond, can you talk more about the TTK plan. I noticed that $50 million in funding was initially approved through your balance sheet. I know you have discussed alternative sources and working with other financing options, but has the board decided to improve your ability to use other tabs, or at this time you just want to find additional funding outside of Agriify?
Raymond Chang - CEO
The discussion is currently ongoing internally. Personally, I am trying to find alternative financing. As I mentioned before, talking to these companies-talking to other financing companies, we have actually made good progress in this regard. Obviously, our goal is to bring cheaper alternative sources of financing to help us continue to grow. However, at the same time, we have also seen tremendous progress in TTK.
Again, our business model is to obtain the largest customer base. Therefore, internal discussions are also about the possibility of increasing the allocation of the TTK plan. So, this will be a combination of the two.
Anthony Vendetti - Maxim Group - Analyst
OK. excellent. Then can you talk about-I know you are-you have been discussing with MSO, and it seems that the number of your participation in high-level discussions has increased significantly in the last quarter. Would you attribute this to the transaction announced by Curaleaf, or a combination of the two, and your expanded portfolio, especially in terms of the withdrawal of Precision and Cascade? I just want to know if you can talk about how these discussions have increased and the volume has increased?
Raymond Chang - CEO
Yes. Anthony, this is really a combination of all of these, right? Basically, we have successful customer deployments, yes. As David mentioned before, our customers have seen amazing results in terms of consistency and our output, yes, and it is difficult to dispute these numbers. Also for continuous invalid benefit and entertainment, precise, right.
For example, the last time-MJBiz attended, I actually had a three-day non-stop meeting from seven to eleven. Our booth may be one of the most visited booths. There are a lot of people now-probably from a stressful relationship, and we basically told him that in order for you to really get better consistent results, you actually need better biomass production, right? How about using VFU and vice versa, right? Therefore, we have seen a lot of crop synergy between the planting department and the extraction department.
Anthony Vendetti - Maxim Group - Analyst
Then there is the last question, because it obviously affects many industries. You did mention something about supply chain issues, and you are working hard to go beyond that. Can you talk more about the possibility of me guessing any problems, or do you think you are ahead enough on this point and have a plan?
Raymond Chang - CEO
Yes. I think for most of the fourth quarter and the first quarter, we have all the materials ready. Obviously, we will not-I will continue to monitor and make sure that the global supply chain problems get worse, instead of basically planning, you know, three months, six months, delivery time, we have to make a good call, right Bar. So, you know, our purchasing team as well as our manufacturing team are always in a leading position and make sure to check the sales forecast and make sure that we can deliver all VFUs on time.
Being able to deliver VFU on time is one of our top priorities, right. We will do everything we can to fulfill our customers' promises, because we know that for our customers, the daily cost is money, right? Therefore, if we really pay a little bit on hardware profit, you know, our business model does not depend on short-term hardware modules. This is all about the recurring income of SaaS and production costs. One day, if we can really help our customers, you know that if the breeding facility is up and running one day in advance, both parties will benefit.
This is indeed our top priority, which is to install VFU as soon as possible.
Anthony Vendetti - Maxim Group - Analyst
excellent. Thank you. I will jump back into the queue.
Your next question is from Gerald Pascarelli from Cowen. Your line is now open.
Gerald Pascarelli - Cowen and Company - Analyst
Hi. Good morning, thank you very much for your question. I want to go back to the rate of return per square foot and finally try to connect with the driving factors behind 50% growth. Is it just because of stacking VFU or because of a significant increase, are there other factors and driving factors that need to be paid attention to? Thank you.
Raymond Chang - CEO
I think David will become a better person to answer this question, but the short answer is no. This is not because of stacking. This is the actual square footage increase. Now it basically reaches more than 90 grams per square foot.
But David, please intervene.
David Kessler-Chief Science Officer
I am glad to. Gerrard, thank you for your question. When it comes to the 99 grams per square foot achieved by the customer, the increase is indeed related to optimization based on an iterative training cycle. Therefore, thanks to Agriify Insights, the software program that controls our hardware, VFU records more than 1.5 million data points, and our customers are seeing automatic calculations such as the calculation of planting density and biomass yield per square foot.
Therefore, the yield increased to 99 grams per square foot, which is a market trend for the entire facility, which is actually related to several things; optimization and plant density, understanding the genetic performance of tracking different cultivation recipes over multiple cycles. They realized that many biomass swelled or gained weight in the last week, and after looking at the data, they decided to extend the time a bit, which increased the overall harvest weight of many strains. Most importantly, the planting team is now looking at the water content data and can truly optimize the fertilization and environment to effectively guide the crop. So what you are seeing is actually a surge in data, and then applying this data to a target.
I am happy to report that it was well received. They can use this data in an actionable way to make these improvements.
Raymond Chang - CEO
Yes, Gerald, if I can add, you know, as David mentioned, on this particular genetic strain, we realized that basically last week, the flowers really, really swelled, right Bar? So instead of planting, for example, 64, you might actually just reduce it to 46. But allow more room to really expand during the last week of the harvest period. Now, on the other hand, you may have a completely different gene, which actually doesn't have that kind of influence last week. In this case, the number of plants should be 64.
right? Once again, it is able to collect these insights, which allows us to become genetically smarter through genetic basis, and iteratively optimize. Yes, we allow our customers to do this by providing them with data and insights. , Which really changes the rules of the game.
Gerald Pascarelli - Cowen and Company - Analyst
understood. That is a super useful color. thank you very much. For me, the last one is just about your relative price ceiling.
Obviously, your last five batches are very consistent in terms of variance. Randy, can you provide some color on the relative price gap of your high-quality indoor-grown flour compared with the competition in the wholesale market under the current environment? Thank you.
Raymond Chang - CEO
David, can you provide us with more colors?
David Kessler-Chief Science Officer
I am glad to. In terms of price caps, I think you have seen some compression in mature markets. Mature markets have not compressed it quickly, I think they have already experienced this. As far as our customers’ ability to maintain prices is concerned, it’s really just driven by quality, consistency, and branding, so they do it very well.
The consistency, the flour produced and the quality of the flour allowed them to introduce more branded products to the market and ultimately maintain a higher price point.
Gerald Pascarelli - Cowen and Company - Analyst
Raymond Chang - CEO
Yes. Just for-we iterate, for example, our customers in Nevada, this is Baiyun, they have been double the average managed sales price of high-quality flour in Nevada. Nevada, I believe it is about 2700, 2800. But their flour sells for between 3,200 and 3,300.
right. Again, it has better quality and better consistency, so that they can actually be sold to other markets at a higher price.
Gerald Pascarelli - Cowen and Company - Analyst
understood. Thank you. Thank you very much for the color, I will pass it on.
Raymond Chang - CEO
Operator, any questions? If not, I would like to thank you all for joining the conference call today and your interest in Agriify. We look forward to keeping you informed of our continued progress. Thank you all, and have a nice day. operator? OK.
That concludes our appeal this morning. Thank you again for your participation. goodbye.
Raymond Chang - CEO
David Kessler-Chief Science Officer
Niv Krikov - Chief Financial Officer
Aaron Gray - Alliance Global Partners - Analyst
Eric Des Lauriers - Craig-Hallum Capital Group - Analyst
Scott Fortune - ROTH Capital Partners - Analyst
Anthony Vendetti - Maxim Group - Analyst
Gerald Pascarelli - Cowen and Company - Analyst
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