Executive Summary

Q2 2022 revenue was $19.3M, up 63.5% YoY, but down sequentially vs Q1 ($26.0M), with gross margin at 8.3% and a net loss of $(93.4)M driven by $69.9M non-cash impairment and sizable reserves; Adjusted EBITDA was $(19.4)M .
Management withdrew prior FY22 revenue guidance on Aug 8, then reset to $70–$75M on Aug 15, later reduced to $65–$70M in Q3; the change was tied to industry downturn, cash spend limits, shipment delays, and the Bud & Mary’s revenue deferral .
Strategic pivot away from capital-intensive Total Turn-Key (TTK) projects without a pre-committed construction loan partner; accelerated “Rapid Deployment Program” (RDP) to lower-entry hardware + SaaS offering and conserve cash .
Stock catalysts: credit facility restructuring after covenant default (Q2), full impairment of goodwill/intangibles, guidance reset, and shift to RDP model; bookings of ~$29M and backlog of ~$779M suggest long-term recurring revenue potential if projects commission on plan .

What Went Well and What Went Wrong

What Went Well

Revenue grew 63.5% YoY to $19.3M, with extraction contributing ~$10M and extraction margins ~23%; quarterly bookings were ~$29M .
Management launched/advanced products (CannaBeast 13, PX10) and initiated global wins (Ora Pharm, Portugal/New Zealand), reinforcing diversified growth avenues: “Our products continue to have global appeal… we are getting tons of interest… from international customers” .
Cost actions underway: headcount down ~7.5%, facility consolidation, insourcing marketing, and tighter customer credit to preserve cash; pivot to RDP reduces upfront investment and speeds adoption: “get them up and running in less than 30 days” .

What Went Wrong

Net loss expanded to $(93.4)M due to $69.9M goodwill/intangibles impairment, increased reserves (AR, loans, inventory, warranty), and higher OpEx; Adjusted EBITDA worsened to $(19.4)M .
Covenant default on debt facility after missing Q2 revenue/EBITDA targets; management entered a restructuring process and faced tight cash spend limits that hindered shipments .
Design/build margins negative (~−7%) and extraction shipments slowed by customer construction/permitting delays and macro constraints; gross margin impacted by inventory/warranty reserves (~570 bps) .

Financial Results

Metric	Q2 2021 (oldest)	Q1 2022	Q2 2022 (latest)
Revenue ($USD Millions)	$11.8	$26.0	$19.3
Gross Profit ($USD Millions)	$0.53	$4.2	$1.61
Gross Margin (%)	4.5%	16%	8.3%
Operating Expenses ($USD Millions)	$6.0	$14.0 (sum of G&A+S&M+R&D in Q1 narrative; directional only)	$93.1 (incl. $69.9M impairment)
Net Loss ($USD Millions)	$(5.64)	$(8.9)	$(93.40)
Diluted EPS ($)	$(0.28)	$(0.36)	$(3.51)
Adjusted EBITDA ($USD Millions)	$(4.53)	$(6.1)	$(19.38)

Segment revenue mix (Q2 2022):

Segment	Q2 2022 Revenue ($USD Millions)
Extraction	~$10.0
Design & Build + Standalone VFU	~$9.3

Key KPIs:

KPI	Q2 2022
Bookings ($USD Millions)	~$29.0
Backlog ($USD Millions)	~$779 (entering Q3; ~89% SaaS/production)
Pipeline ($USD Millions)	>$250
Extraction Gross Margin (%)	~23%
Cultivation/Design-Build Margin (%)	~−7%
Cash used in Operating Activities (Quarter) ($USD Millions)	$23.4
Cash+Restricted+Marketable Securities at Q2 End ($USD Millions)	~$59.9

Non-GAAP reconciliation (company):

Metric	Q2 2021	Q2 2022
Adjusted EBITDA ($USD Millions)	$(4.53)	$(19.38)

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue ($USD Millions)	FY 2022	$140–$142 (May 11)	Guidance withdrawn (Aug 8)	Withdrawn
Revenue ($USD Millions)	FY 2022	Guidance withdrawn	$70–$75 (Aug 15)	Lowered
Revenue ($USD Millions)	FY 2022	$70–$75	$65–$70 (Nov 9)	Lowered

Other guidance/context (earlier periods):

Extraction division expected $62–$65M FY22 with ≥30% gross margin (Q1/Q4 calls); not reiterated post-withdrawal .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 2021, Q1 2022)	Current Period (Q2 2022)	Trend
TTK strategy	Aggressive TTK build, REIT financing framework; >3,700 VFUs under contract; recurring revenue targeted to start in H2 2022	Pause new TTK unless pre-committed construction loan; finalize existing Nevada/Washington/MA; shift to RDP to lower entry/cash needs	Pivot away from capital-intensive TTK to faster RDP
Macro/cannabis pricing	Robust pipeline/backlog; MSO engagement; strong extraction bookings	“Cannabis prices plummeting… capital constraints… delays… supply chains continue to be an issue”	Deterioration, tighter capital
Supply chain/permits	LED cost improvements; inventory build to address lead times; licensing delays (IL)	Longer lead times; customer facility readiness delaying shipments; permitting issues cited	Headwinds persist (moderating later per Q3 remarks)
Credit facility / covenants	Access to $135M debt announced Mar ‘22	Default on covenants; restructure in principle; monthly spend caps	Financial flexibility constrained, being reworked
Impairment/Reserves	Earnout adjustments, contingent considerations	$69.9M goodwill/intangibles impairment; bad debt (e.g., Greenstone ~$7.1M), inventory/warranty reserves	Significant non-cash charges and reserves
Product innovation	PX5 launch; integrated extraction portfolio	PX10 launch; CannaBeast 13; VFU v3.7 development complete	Continued innovation
International	First EU VFU deal (Portugal)	New Zealand Ora Pharm deal; strong EU-GMP positioning	Growing international focus

Management Commentary

“The second quarter was challenging for the entire cannabis industry… we are actively taking steps to adapt to the new market realities… restructuring our credit facility and reducing our operating expenses to strengthen our cash position” — CEO Raymond Chang .
“We have decided not to pursue any additional TTK opportunities without a pre-committed construction loan partner… [and] focusing… on [RDP]… get them up and running in less than 30 days” — CEO Raymond Chang .
“The increase in… G&A… largely attributable to… bad debt reserves… [including] approximately $7.1 million… related to Greenstone Holdings… [and] legal dispute settlement” — CFO Tim Oakes .
“As of June 30, 2022, the company is in default of certain financial debt covenants… [we] reached a tentative agreement… to amend… [with] reduced principal… no amortization… flexibility of early repayment” — CFO Tim Oakes .

Q&A Highlights

Revenue mix: Of $19.3M, ~$10M extraction; ~$9.3M design/build and some standalone VFU .
RDP specifics: Minimum 8 VFUs per kit; <$1.0M for cultivation-only; $1.5–$1.6M with small extraction lab; deployable in <30 days; designed for weekly harvest cadence .
VFUs under contract: ~3,500–4,569 commitments across TTK and standalone; early recurring SaaS/production expected as sites commission .
Pricing/fees: $600/lb production fee viable in high-price limited-license states (e.g., MA ~$2,200/lb wholesale); lower fee used in CO; RDP economics differ (hardware margin + SaaS + lower production fee) .
Backlog/pipeline: Pipeline narrowed from ~$375M to ~$250M as TTK opportunities excluded without financing; backlog ~$779M (~89% SaaS/production) entering Q3 .

Estimates Context

Wall Street consensus EPS and revenue estimates via S&P Global were unavailable for AGFY (missing mapping when retrieving Q2 2022), so estimate comparisons cannot be provided at this time [SpgiEstimatesError].
Implication: Use company-reported actuals and management’s guidance resets for expectation context .

Key Takeaways for Investors

Revenue quality skewed to extraction hardware with mid-20% margins, while design/build has negative margin; pivoting to RDP should improve mix and cash conversion, reducing working capital strain .
Significant one-time/non-cash items (impairment, reserves) masked underlying gross margin trajectory; watch subsequent quarters for normalized margins and recurring SaaS/production revenue commencement .
Balance sheet/cash constraints (covenant default and spend caps) are material; execution on debt restructuring and disciplined RDP rollout are near-term risk mitigants .
Guidance reset to $70–$75M (then $65–$70M) reflects macro/capex pullback and revenue deferrals; traders should monitor shipment timing, legal resolution (Bud & Mary’s), and credit amendment finalization as catalysts .
International and MSO traction plus product innovation (PX10, VFU v3.7) broaden optionality; however, capital intensity, permitting timelines, and wholesale price volatility in key states remain critical variables .
The narrative has shifted from scale-at-all-costs (TTK) to capital-efficient deployment (RDP); this should reduce cash burn and potentially accelerate recurring revenue onboarding if customer facilities are ready .
Absent consensus estimates, price reaction likely hinges on guidance updates, debt terms, and visible recurring revenue ramp; position sizing should reflect financing/legal execution risk and industry cycle.

Sources: Q2 2022 8‑K and press release ; Q2 2022 call transcript ; Aug 8 preliminary/Reschedule 8‑K ; Q1 2022 call ; Q4 2021 call ; Q3 2022 call for guidance evolution .

Agrify Corp (AGFY)·Q2 2022 Earnings Summary