© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, and welcome to the Farmers Edge live audio webcast for its third quarter 2023 financial results and business highlights. Please be advised that reproduction of this audio webcast in whole or in part is not permitted without written authorization from the company. [Operator Instructions] At this time, I would like to turn the call over to Jay Jung, VP, Finance for Farmers Edge. Please go ahead, Mr. Jung.
Thank you, operator, and good afternoon, everyone. Before we start, I would like to remind you that all amounts disclosed on this call are denominated in Canadian dollars, unless otherwise indicated. Please note that prepared remarks contain forward-looking information, and additional forward-looking statements may be made in response to your questions during the Q&A portion of the call. These statements reflect the company's current expectations regarding future events. Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond the company's control or could cause actual results and events to differ materially from those that are disclosed in or implied by such forward-looking information.
Listeners are urged to consider the assumptions, risks and uncertainties associated with such forward-looking information, including by referring to the assumptions, risks and uncertainties discussed in Farmers Edge's filings with the Canadian Securities Administrators. These statements do not guarantee future performance and therefore, undue reliance should not be placed upon them. The company does not undertake any obligation to update all the forward-looking information provided during this audio webcast, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
Finally, we would like to remind listeners that the company may refer to certain non-GAAP measures and key performance indicators or, KPIs, during the audio webcast. For further details on non-GAAP measures and KPIs, including relevant definitions and certain reconciliations, see Farmers Edge filings with the Canadian Securities Administrators. We have also posted on our website a short presentation that you may want to follow along with our remarks. I now turn the call over to our Chairman, Bill McFarland for opening remarks.
Thanks, Jay, and welcome, everyone. The results for Q3 and year-to-date 2023 had a cash flow deficit that was significantly lower than the comparable periods in the prior year. Management is aggressively implementing its turnaround plan, and we are seeing positive developments that will be reflected in stronger financial performance in the future. These include the effective implementation of management's cost reduction plan. Expenses are now approximately 50% lower compared to 2022 levels, and many other key building blocks have been put in place. Farmers Edge has a new, talented and energized management team, which is taking the steps necessary to grow and build sustainable long-term revenue streams.
Turnarounds are not easy and require the hard work and dedication of all of our employees. And I want to thank Vibhore, the new management team and all of the employees for their efforts. We have made good progress with lots more to do. The company is also fortunate to have the unwavering support of Fairfax, its major shareholder, who believes in the business and continues to provide the funding for management to execute its business plan. This support is critical to all of our stakeholders, including existing and new customers, employees and suppliers are confident in our future. Vibhore, I'll now pass the call over to you.
Thank you, Bill. Good morning, everyone, and thank you for joining us for our Q3 2023 earnings call. In Q3, we continued our steady progress in our turnaround plan, improved our adjusted EBITDA by 30% year-over-year and adjusted free cash flow deficiency by 12%. I continue to be pleased with the headway we are making in our cost reduction and turnaround plan. However, our acre growth has remained a challenge. Although many of the acres we lost in Q3 are low-value acres in Brazil and expired contracts, our team is acutely aware of the need to stabilize and expand our acre base. Driving top line growth by acquiring high-value profitable acres remains our top priority. We continue to strengthen the foundation of our sales team, both in B2B and B2C segments. We are seeing positive response on price per acre, which signifies that if we target the ideal customer base, they are willing to buy our premium solutions. This gives us the confidence that we are laying the necessary foundation to enhance our top line performance.
On the B2B segment, in our recent calls, I've discussed our enterprise pipeline and continue to see B2B as a key to company's growth. I'm pleased to report that we recently entered in a strategic partnership with Claro Embratel, one of Latin America's largest telecommunications provider. Our team has been working on this partnership for quite some time, and we are thrilled that this partnership will promote our digital tools with a goal of over 600,000 acres to be added in 2024.
On a related note, our team has been working hard at rebuilding our relationship with existing partners in North America, such as Richardson International and Hudson Insurance. These relationships were key drivers to our business when they were initiated but haven't been as active in the past [ stretch ]. We are looking forward to these relationships once again being central to our commitment to deliver value to growers and to expand our business. Our business development team continues to build our ag retail pipeline and work towards firming up and strengthening partnerships, such as those with Claro, Richardson and Hudson Insurance. I'm confident that the team we have in place, including a dedicated B2B partnership leads, will continue to generate partnerships that will drive acre growth.
On the B2C side, we continue to take measures to develop our sales program, including adding bench strength to -- with new sales hires. We are carefully and aggressively recruiting salespeople in North America who bring industry and sales experience as well as community relationships, continuing to work on our onboarding, in-house training and standardized components of a sales and retention approach, including customer touch points. During Q3, our sales VPs conducted field visits in U.S. and Canada. As part of the process, we gathered invaluable insights from our customers. We are actively integrating this feedback and implementing the required changes to ensure that we provide an exceptional customer experience.
e-commerce. We've seen progress in our e-commerce business as a result of our shift in strategy and transition to a non-asset-based third-party model. Our team is now working on forming strategic partnerships and has developed one with American Farm Financing to provide financial support to growers. We believe these strategic partnerships not only enhance our offering to growers but will also expand our business by increasing traffic to our CommoditAg website, strengthening our ability to expand our vendor base.
Moving on to costs. As a reminder, I confirmed last quarter that we have fully implemented our cost reduction plan of $20 million. We continue to see progress on reducing cost and efficiency, and optimization has become an exercise that we practice regularly and will continue to be part of our business [ goals ] moving forward. We continue to expect to have a free cash flow deficit significantly reduced at the end of 2024 and expect to have the most significant revenue expansion through enterprise deals. A noteworthy decision made in Q3 was to refine our operating model in Brazil similar to the consolidation and transition to a virtual service model in certain regions which we did in North America last quarter. Key regions will continue to receive in-field support. This transition improves our efficiency, enables us to deliver a consistent and improved customer experience and also has led to headcount reduction. The impact on digital revenue with this change was nominal.
To restate what I said earlier, our team's top priority is growth: revenue growth, acre growth and growth from new initiatives. I understand that all of our actions have not yet translated into revenue growth, but we needed to lay this foundation for future growth and I believe we are positioned now to deliver it. We have worked hard over the past 12 months to create and execute a cost reduction strategy, which has helped us to reduce our annual cash burn in half, from $110 million to around under [ $50 million ] by end of 2024.
We adopted an optimization-centric approach, and we have meticulously assessed and implemented strategic changes across every facet of our business, from our core digital agronomy solutions to insurance and to e-commerce. We have pulled out from Australia, developed and pivoted to a virtual model in other geographies and strengthened our delivery model in our key geographies. We've actively sought and embraced feedback from our valued customers and partners, strengthening our overall customer experience. We have made significant additions to our team while concurrently reducing our headcount. We have built a strong enterprise pipeline and rekindled crucial relationships.
We appreciate the patience we have received from our key partners, including Fairfax, while we undertook this process. I believe with all the changes we made in the last 12 months, we are now well positioned to deliver the top line growth. I'll now hand it over to Jay to discuss the financial details.
Thank you, Vibhore. Regarding financial performance, the enhancement in free cash flow and EBITDA with notable reductions in operating expenses during the third quarter of this year confirm the effectiveness of our ongoing cost reduction initiatives. As Vibhore noted, in the third quarter, the adjusted EBITDA improved by $4.8 million or 30%, and the adjusted free cash flow deficiency improved by $1.8 million or 12% on a year-over-year basis. Also, the company's Q3 2023 operating expenses decreased by $6.7 million or 27% on a year-over-year basis. These results highlight our ongoing commitment to enhancing operational efficiencies while upholding the high standards of our service quality. We have achieved this by carefully planning the initiatives and rigorously implementing a range of tangible measures aimed at achieving sustainable cost reductions. As a result, we will start 2024 with a much lower cash burn rate, including reduced lease and capital expenditures.
The revenue generated from Digital Agronomy and Fertility solutions during the third quarter experienced a decrease of $0.5 million compared to the previous year. Annual recurring revenue, ARR, was $19.4 million, a decline from the last quarter resulting from weakness in new acres in North America and discontinued low-value acres in Brazil. However, the price per acre has resulted in [ 16% ] improvement on a year-over-year basis and increased by 6% since last quarter, which demonstrates the conscious efforts of our sales team in augmenting acre profitability. With that, I will now turn the call back to the operator for questions.
[Operator Instructions] The first question comes from Steve Hansen with Raymond James.
Look, congrats on the new strategic partnership with Claro. Could you maybe just give us a sense for what that means for the organization? I understand that they'll be promoting the tools. But is it a material revenue source over time? How does the structure work? Just give us some broader context around the partnership and what it means.
Steve, yes, we are very excited with this partnership with Claro, and they're really focused on digitizing the ecosystem within the agriculture rural communities in Brazil. We expect to see a ramp-up from the first year onwards. And next year, we are aiming at about 600,000 acres primarily focused on the digital solutions. But as the customers kind of ramp up and get through the adoption scale, we look at kind of selling them our more premium solutions as well. So we are excited with the investment that they're making, and we look forward to kind of having more such deals in the future. But this is a telecom provider coming into agriculture but really excited about our solutions. So we feel pretty good about it, yes.
That's helpful. And just if I'm thinking back to your comments on rebuilding the relationships with Richardson, and you also described gathering insights from your key customers to deliver improvements to the services, I mean, what are the changes that you're making to sort of the core platform -- or the home base platform maybe is the right word? Are those changes material? What are you doing to augment the service or rekindle the relationships?
Yes. So we are really listening to our customers right now. And we are taking a customer-centric approach, which is we listen to what kind of solutions -- or what are the problems that they are facing and what value our solutions can provide. So that's kind of the general approach in terms of really understanding their needs and creating a value map. And how that translates into enhancement in our solutions, we are looking at significantly upgrading the user experience and the front-facing platform, which is FarmCommand. And our technology team has been really focused on capturing the feedback from the customers and translating that into kind of digital enhancements.
And we are looking at a new mobile version, which is going to be launched by the end of the year, which will really simplify the user experience and hence, kind of drive engagement on the platform and also open up a significant number of opportunities for us to cross-sell, upsell our various services. But I think the guiding principle that we have right now is listen to the customers, understand what they need and then kind of build the platform versus building a platform and then trying to sell it to the customer.
Okay. Helpful. And then just one last one, if I may, just around the balance sheet. You've got -- you've drawn down another tranche of the available credit facility, but you are running into sort of the limits there. I mean do you feel like you've got comfort from your partners to continue through the balance of the year?
Oh, absolutely. I mean you heard Bill in his opening remarks with regards to support from Fairfax. And yes, they remain -- Fairfax remains committed, and we're excited about their continued support. So we don't expect any kind of concern there. I feel pretty good about our relationship with the CEO as well, [ with Prem ].
This concludes the question-and-answer session and today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.