Building Essential Foundations to Lead Farming for the Future: Q4 and Fiscal 2020 Letter to Shareholders from CubicFarms CEO
VANCOUVER, BC, OCTOBER 28, 2020 – CubicFarm® Systems Corp. (TSXV:CUB) (“CubicFarms” or the “Company”) is pleased to provide the following message from Dave Dinesen, Chief Executive Officer.
Dear Valued Shareholders and Friends,
I want to thank you for your support and commitment to CubicFarms, from our earliest founding investors who saw the opportunity and potential in our small private company, to our new shareholders who have joined us after our public listing in July 2019.
Your support has helped us make significant strides since our founders Jack and Leo Benne started developing the first prototype a decade ago of what has become our patented, automated growing system for fresh produce. Today, I want to provide you with a more thorough understanding of our vision for the path ahead, what we have recently accomplished and the foundation we are laying to lead farming for the future.
The Covid-19 pandemic that dominated much of life in 2020 has greatly impacted food systems all over the world. The health crisis upended intricate food supply chains that were already inefficient. The food service industry was decimated while retail demand and food prices shot up. Transportation and distribution lines were disrupted, and border closures prevented foreign farm workers from toiling the land. Covid-19 underscored the critical need for technology to localize food production and shorten supply chains to provide more predictable and reliable food supply for our communities.
Against this backdrop, our systems continue to sell. Our customers acknowledge the value our systems bring to their operations through savings in land, labour, water and energy. Growing indoors and maximizing crop yield per cubic foot enable farmers to grow anywhere on earth, 365 days a year.
- In March 2020, we announced our largest ever sale of 100 CubicFarms machines to be installed in Surrey, British Columbia.
- In July 2020, we announced another large sale of 16 CubicFarms machines to be installed in the Okanagan region of BC.
- We reported C$5,167,488 in revenue this fiscal year from the following orders:
- 23 CubicFarms machines being installed in Calgary, Alberta.
- Three control rooms each delivered to Terramera and a BC-based field farmer.
- A HydroGreen livestock feed system delivered to our new reseller in Tokyo, Japan.
- Approximately C$517,000 is attributed to recurring revenues from monthly customer support subscriptions, and sales of consumables such as seeds, nutrients and parts.
- Sales orders under contract and deposit, that are pending installation, total approximately USD$18 million, representing 138 machines. Revenue from machines is dependent on the completion of the sales and delivery process – consisting of the signing of the purchase agreement, deposit payments, manufacture of machines, customer’s site preparation, shipping and installation.
Machine installation is progressing well at our customer’s site in Calgary. The project is scheduled for completion in November.
Reflecting on a pivotal foundational year that positions CubicFarms for growth
Since our listing on the TSX Venture Exchange last July, we learned many lessons on how to be a public company, particularly the only Canadian public company in the vertical farming, controlled-environment agriculture space. We ramped up outreach to retail and institutional investors to tell our unique story, and it has resonated especially well with ESG-focused investors who are increasingly seeking to invest in companies that positively impact food security, sustainability and the environment.
We have strategically augmented our capitalization table with leading ag-tech investor Ospraie Ag Science and dairy entrepreneur Harry DeWit, who are equally as passionate about our technology and provide enormous value to our company through their industry expertise and network.
A company is only as extraordinary as its people, so we’ve taken steps to invest in our culture and talent. In January 2020, we welcomed Jeff Booth as Chairman of our board. Jeff is a tech visionary and thought leader who has helped drive culture from the day he got involved in the company. He leads our corporate strategic meetings every quarter, in addition to sitting on the board’s audit committee, and helps us set and achieve our goals. Chris Papouras from Ospraie Ag Science joined us last month as our newest board member. We look forward to his well-rounded expertise in manufacturing operations, finance, technology and automation as we scale the business.
We also bolstered our management team and their respective departments with appointments in key roles, including Leo Benne as Chief Product Officer, Jo-Ann Ostermann as Chief Customer Officer, Tim Fernback as Chief Financial Officer, Sandy Gerber as Head of Marketing, and Dan Schmidt as Senior Vice President of Global Sales. We’re proud to have assembled a high-calibre management team at the intersection of experience in engineering, cultivation, manufacturing, sales and marketing, to drive growth at an international level.
In January 2020, we closed our first acquisition via an all-share transaction at an implied value of C$1.50 per CubicFarms common share. The acquisition of HydroGreen, Inc. opened a new business vertical for CubicFarms, enabling us to offer a fully-automated indoor system for growing nutritious livestock feed to a new customer segment – beef, dairy, equine, sheep, goats, poultry and swine producers. Feeding animals highly digestible live, green feed produced by the HydroGreen system not only accrues animal health benefits, but also provides farmers with local, on-demand availability of fresh feed all year round, unaffected by drought, snow or rain. With the world’s population nearing 10 billion people by 2050, and with grazing and arable lands under pressure and often beyond capacity, the timing is ideal to bring HydroGreen to market.
Industrial-size HydroGreen system that is being tested at our newly upgraded South Dakota manufacturing facility. This system is a significant upgrade from the largest HydroGreen system currently for sale, and will enable us to serve even larger, industrial customers in the livestock production space.
Innovation remains at the heart of our company. We continue to innovate both our machines and crops to further drive system sales. We are busy researching ways to refine our grow protocols to grow more crop varieties, as well as improve crop health and quality. We are also looking for ways to make our machines more efficient, from both a hardware and software standpoint. At the request of our customers, we developed and launched our Control Room in June 2020, which enables growers to have complete control over the growing environment that is so crucial for high yields and quality – a capability especially well suited for R&D. Inside our Control Room, the temperature, humidity, lighting and air flow can be properly calibrated to suit crop requirements. In collaboration with Terramera – another Ospraie Ag Science portfolio company – we are developing farming artificial intelligence (AI) by integrating multiple data sources, and applying machine learning and data science techniques to optimize crop yields inside our system. Look out for more updates on our R&D progress and breakthroughs soon.
R&D team members working on developing a light-sensor diagnosis tool to analyze data and simulated tests from crop trials to accelerate R&D discoveries.
This year, our Customer Experience team worked to streamline the sales process and remove customer pain points. We launched CubicFarms Garden, a consulting service for potential customers to help guide them on the economics of CubicFarms systems, including:
- Financial plan: ROI calculation based on cost of inputs, financing type, exchange rate, etc.
- Market assessment: Research outlining our customers’ agriculture market opportunities, size, scope, potential distributors and constraints.
- Executive summary: A detailed, strategic pitch deck tailored to help customers secure financing for a CubicFarms system.
As a sales incentive, CubicFarms Garden customers can opt to apply the costs of our consulting services toward a future system purchase.
Our Customer Experience team also formalized our Farm School training program, a detailed curriculum to prepare our customers and their staff with all they need to know to correctly operate their CubicFarms system. They are trained on the machinery to assist with preventative maintenance and troubleshooting activities, machine operations, farm management, setting up quality management systems, and growing practices. Farm School also covers food safety and compliance with the tools of Good Agricultural Practices. We are excited to build out these services to support our customers in each step of their journey to commercial production.
Our Calgary customers Marc Schulz and Joy Peacock attended our Farm School in July, where they learned how to operate a CubicFarms system safely and efficiently once it is fully installed at their site.
A look ahead
We will continue to strategically build and promote our brand by differentiating our unique technology solutions that help our customers to grow sustainably and profitably. We will execute our global sales strategy of developing relationships with our distributors and dealers and tapping into their existing customer network, in addition to building our in-house sales teams.
Our dedicated R&D team is focused on expanding our unique product offerings to capture additional total addressable market share. We plan to grow our recurring revenue base by rolling out an increasing array of value-added services, such as CubicFarms Garden consulting, as discussed above. Additionally, rigorous margin expansion is an ongoing focus, by pursuing supply chain efficiencies through improved sourcing methods, and improving procurement power and reduced manufacturing per unit costs through enhancing scale.
Finally, the successful acquisition and integration of HydroGreen keeps us on the look out for other complementary businesses that have potential as strategic acquisition targets, or synergistic partnerships that could arise with other companies in the industry or Ospraie’s portfolio.
In the coming year, we expect increasingly smoother sales cycles to help provide for the capital needs to pursue our growth objectives. We diligently laid the groundwork in the past year to position our company for success. We want to continue working hard to ensure all our efforts up to this point are worthwhile.
Thank you for being on this journey with us.
CubicFarms files fourth quarter and year-end financial results
The Q4 and year-end financial statements and management’s discussion and analysis are available under the CubicFarm Systems profile on SEDAR at www.sedar.com, or on the CubicFarms website at https://cubicfarms.com/investors/.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
About CubicFarm® Systems Corp.
CubicFarm Systems Corp. (“CubicFarms”) is a technology company developing and deploying technology to feed a changing world. Its proprietary technologies enable growers around the world to produce high quality, predictable crop yields. CubicFarms has two distinct technologies that address two distinct markets. The first technology is its CubicFarms™ system, which contains patented technology for growing leafy greens and other crops indoors, all year round. Using its unique, undulating-path growing system, the Company addresses the main challenges within the indoor farming industry by significantly reducing the need for physical labour and energy, and maximizing yield per cubic foot. CubicFarms leverages its patented technology by operating its own R&D facility in Pitt Meadows, British Columbia, selling the system to growers, licensing its technology and providing vertical farming expertise to its customers.
The second technology is CubicFarms’ HydroGreen system for growing nutritious livestock feed. This system utilizes a unique process to sprout grains, such as barley and wheat, in a controlled environment with minimal use of land, labour and water. The HydroGreen system is fully automated and performs all growing functions including seeding, watering, lighting, harvesting, and re-seeding – all with the push of a button – to deliver nutritious livestock feed without the typical investment in fertilizer, chemicals, fuel, field equipment and transportation. The HydroGreen system not only provides superior nutritious feed to benefit the animal, but also enables significant environmental benefits to the farm.
Cautionary statement on forward-looking information
Certain statements in this release constitute “forward-looking statements” or “forward-looking information” within the meaning of applicable securities laws, including, without limitation, statements with respect to financial position, business strategy, growth strategies, budgets, operations, financial results, plans, objectives and other information that is not historical fact. Such statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of CubicFarm Systems Corp., or industry results, to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements or information including the Company obtaining the approval of the Offering from the TSX Venture Exchange. Such statements can be identified by the use of words such as “may”, “would”, “could”, “will”, “intend”, “expect”, “believe”, “plan”, “anticipate”, “estimate”, “scheduled”, “forecast”, “predict”, and other similar terminology, or state that certain actions, events, or results “may”, “could”, “would”, “might”, or “will” be taken, occur, or be achieved. Forward-looking statements are based on the opinions and estimates of management as of the date such statements are made and they are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking statements or forward-looking information. See “Cautionary Note Regarding Forward-Looking Information” and “Risk Factors” in the Company’s Annual Information Form which is available on www.sedar.com for a discussion of the uncertainties, risks and assumptions associated with these statements. We caution that the list of risk factors and uncertainties is not exhaustive and other factors could also adversely affect our results. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements and forward-looking information. Except as required by securities disclosure laws and regulations applicable to the Company, the Company undertakes no obligation to update these forward-looking statements if the Company’s expectations regarding future events, performance, or results change.