Ladies and gentlemen, thank you for standing-by and welcome to
Exactus Inc.’s First Quarter 2020 Earnings Conference Call.
My name is _________ and I will be the conference operator today.
At this time, all participants are in a listen-only mode and as a
reminder this conference call is being recorded.
On June 30th, Exactus issued a
news release announcing the company’s financial results for
the first quarter 2020 and filed their Form 10-Q. If you have not
reviewed this information, both are available within the Investor
Relations section of Exactus’s website at www.exactushemp.com
and the Form 10-Q is also available on the SEC’s
I would now like to turn the conference call over to Andrew
Johnson, Chief Strategy Officer. Please go ahead sir.
Andrew Johnson - Intro and Legalities
Thank you, _____, good afternoon and welcome to Exactus
Inc.’s first quarter 2020 results conference call. With us
today are Exactus’s Interim Chief Executive Officer, Emiliano
Aloi, President, Derek Du Chesne, and Chief Financial Officer,
Today's conference call may include forward-looking statements,
including statements related to Exactus’s farming operations,
the timing of future harvests, the number of Exactus brands that
the company will supply in the future, the expansion of the sale of
Exactus products in new markets, plans to add to the management
team, future financial results, business development opportunities,
future cash needs, Exactus’s operating performance in the
future, future investor interest and analyst coverage of Exactus,
the timing and certainty of the closing of a private placement
financing, and whether potential proceeds from the financing will
drive farming and distribution expansion, that are subject to risks
and uncertainties relating to Exactus’s future business
prospects and opportunities as well as anticipated results of
operations. Forward-looking statements represent only the
Company’s estimates on the date of this conference call and
are not intended to give any assurance as to actual future
Because forward-looking statements relate to matters that have not
yet occurred, these statements are inherently subject to risks and
uncertainties. Many factors could cause Exactus’s actual
activities or results to differ materially from the activities and
results anticipated in forward-looking statements. These risk
factors include those contained in Exactus’s Annual Report on
Form 10-K and Form 10-Q most recently filed with the SEC. Please
note that the Company assumes no obligation to update any
forward-looking statements after the date of this conference call
to conform with the forward-looking statements actual results or to
changes in its expectations.
Finally, this conference call is being recorded via webcast. The
webcast will be available at the Investor Relations section of our
website at www.exactushemp.com.
With that, it's now my pleasure to introduce our Interim CEO,
Emi—Introduction and Roadmap Update
Thank you, Andrew. Good afternoon everyone and thank you for
joining our first quarter 2020 conference call.
I will provide some highlights of our first quarter as well as a
general outlook on our future. Q1 has been a unique period for our
company and the world to say the least. The beginning of the year
found us already undergoing our transition into a leaner company
with a broader supply chain and customer base, and shifting our
orientation into forging the customer relationships and building
out our sales and marketing team. In February, the COVID-19 crisis
erupted and created a very challenging environment for all, but in
the end it both accelerated and in many ways helped that shift as
it made us turn our focus on generating rapid revenue in our
ingredient sales, as well as the development of our genetics
platform and white label division.
At a board level, we are honored to have attracted Julian Pittam as
our new Executive Chairman and board member, as well as Larry Wert
and Justin Viles to the board. With their additions, we now have a
board that has deep relationships in the capital markets, a broad
media reach, and great technology and innovation
More importantly, we have also implemented some special action
committees with a group of incredibly involved and dynamic board
members that will help us further define our company culture and
forge our identity as an industry leading player and innovator in
the space, marked by a very aggressive growth campaign through
M&A and digital transformation in the years to
With the hemp industry rapidly evolving and now having a myriad of
new resources to standardize and fiscalize products, pricing and
testing, and the sales process in general has been streamlined
allowing for less physical verification of products by sales
agents. At a commercial and operations level, we have continued to
build out our IT structure, and now have full CRM, project
management, focusing on campaign management systems that are now in
place, soon to be followed by inventory and product pipeline
integration. This will allow us to recruit, train, and capitalize
on new additions to our growing sales team without the challenges
of needing so much in person interaction. We have been actively
engaging some of the top performers in the industry, and are
looking forward to attracting some more key players to our team in
the near future.
On the supply side, we have taken many initiatives that broaden our
product offerings into specialty cannabinoids and many new finished
products to accelerate our growth into white label solutions for
leading brands. We have entered into a supply agreement with
Hemptown Organics that marks a turning point into a more integrated
approach of both companies to service the, and that gives us direct
access to one of the largest supplies of Cannabigerol or CBG, as
well as the ability to utilize their manufacturing platform to
offer a higher quality of traceability and testing as a competitive
advantage for private label clients.
Quarter end revenues for Q1 have increased significantly to
$836,000, showing that our new approach to the market is rendering
results, and it’s showing that we are on a healthy growth
path towards profitability. As we scale up, bring forth finished
product sales, and roll in our inventory into the sales channels,
we will have the necessary pieces in place to be profitable. So far
our sales have been mainly driven by bulk ingredients sourced from
third parties in anticipation of our own produce, so profitability
will increase largely as our own product rolls into the sales
channels, while we maintain our relationships with our customers by
satisfying their needs by way of outsourcing supply. In addition,
our newly formed white label division will provide us with a sales
platform defined by its higher profit margins and customer loyalty,
albeit the sales process is longer than that of ingredient
In essence, Q1 marks the moment in which Exactus leaned up and
started the accelerated buildout of its world class commercial
infrastructure. We will continue to attract talent as we solidify
our presence in the market as a solutions provider and quality
supplier, and are now ready for the most critical stage of growth
of our company through mergers, acquisitions, and consolidation of
brands and other assets in the hemp supply chain.
It is now with great pleasure that I would like to introduce you to
Derek, who will walk you through some of recent commercial
successes, as well as give you an outlook of what’s to come
in our growth strategy.
Derek - Restructuring and growth strategy
Thank you, Emi, we are pleased to report Q1 revenue of $836,000 as
we have been working diligently restructuring the business with a
focus on generating revenue while cutting costs.
During the first quarter we began building the new Exactus product
portfolio, notable product development, created an entirely new
website, launched the ingredients division, developed the Genetics
and White-Label divisions, gained significant media attention,
created new marketing collateral, and built out internal processes
and systems designed to scale. This framework also includes a full CRM
integration throughout the sales and supply chain
Sustainable business growth
starts by putting your customer at the heart of your organization.
The CRM that we've been implementing unifies sales, marketing, and
support teams to help Exactus deliver a consistent, relevant
experience, across every stage of the customer journey. We
will continue to add on to our team, expand our customer base and
product portfolio, while optimizing our digital footprint, increase
overall visibility on the Company while simultaneously educating
our clients on the products and services we provide.
Our white label division is almost complete and will be launching
shortly. This platform will not only provide an additional revenue
stream, but give us the opportunity to develop a network of
acquisition targets. Our acquisition strategy will be based on
identifying emerging growth consumer brands that have a strong
leadership team with existing distribution channels that the
company will be able to leverage our supply chain and digital
Public relations has also played an essential part of our strategy
as we continue to gain media attention through mainstream and trade
publications reporting on our progress including the products and
services that we offer. By positioning Exactus as the thought
leader in the space, we are providing a more thoughtful and
education-based approach to provide our customers with real value
in addition to premium products.
We are confident that we have all of the pieces in place to start
scaling up as we have made
significant progress in this short time and while there is still a
lot more work to be done, we are very excited about the future of
I would now like to turn the call over to Ken, who will review our
Ken - Financial Results
Thank you, Derek and good afternoon everyone.
As mentioned in our last call, we expect to see revenues picking up
substantially in calendar year 2020. Despite the market pressures
Emiliano mentioned earlier and the effects of COVID 19 felt around
the world, we remain optimistic about a substantial growth in
For the quarter ended March 31, 2020, Exactus reported net sales of
$836,000 versus $15,980 in Q1 of 2019.
For the three months ended March 31, 2020, Exactus reported cost of
sales of $1.4 million versus $12,600 in Q1 of 2019. This due,
primarily, to increased product sales over Q1 of 2019 and an
impairment expense on damaged hemp flower inventory of $553,440
during the quarter.
Operating expenses for the first quarter decreased by $406,467 to
$2,192,767 as compared to the first quarter of 2019 of $2,599,234.
We have significantly decreased compensation costs thus far in
calendar year 2020 and we continue to build on sales infrastructure
and position ourselves for revenue growth.
Other income, net of other expense, decreased for the three months
ended March 31, 2020 by $1.4 million to a net expense of 188,480 as
compared to a net income of $1.2 million for Q1 2019. This net
decrease to other income is due primarily to a gain on the
settlement of debt in Q1 of 2019 and a reduction of derivative loss
in Q1 of 2020.
Net loss available to common shareholders in the first quarter
increased by $1.5 million to $2.9 million as compared to the first
quarter of 2019 of $1.4 million.
Our inventory decreased by $25,721 to $397,098 in the first
quarter, down from $422,819 in the first quarter of
Shareholders’ equity decreased by $1.1 million to $1.5
million in the first quarter, down from $2.6 million in the
first quarter 2019.
Since we are in an aggressive growth stage, margins and EBITDA are
not yet metrics that we are reporting but may do so in the
We ended first quarter 2020 with $9,541 in cash and cash
On May 22, 2020, the Company received federal funding in the amount
of $236,410 dollars through the Paycheck Protection
On May 28, 2020, the Company received a Secured Disaster Loan from
the Small Business Administration in the amount of
As reported in our recently filed 10-Q, we currently have
49,564,420 shares of common stock issued and
We want to thank everyone for dialing in this afternoon and look
forward to keeping you updated on our progress.
With that I would like to pass the call off to the operator for