Greenlane Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 15, 2023

There are 4 speakers on the call.

Operator

Afternoon, and welcome to today's conference call to discuss Greenlane Holdings First Quarter Financial Results. A press release detailing the financial results for the quarter ended March 31, 2023 was distributed today and is available on the Investor Relations section of Greenlane website at investor. Gnln.com. As a reminder, today's conference is being recorded. A replay of this call as well as a copy of the supplemental earnings slides will be archived on the company's website at investor.gnln .com.

Operator

On the call today are Craig Snyder, Chief Executive Officer and Lana Reeve, Chief Financial and Legal Officer. Before we begin, Green Millane would like to remind listeners that today's prepared remarks may contain forward looking statements and management may make additional forward looking statements in response to the questions received. These statements do not guarantee future performance and therefore undue reliance should not be placed upon them. These statements are based on current expectations of the company's management and involve the inherent risks and uncertainties and other factors discussed in today's press release. This call also contains time sensitive information that speaks only as of the date of this live broadcast, May 15, 2023.

Operator

Factors that could cause Greenlane's results to differ materially are set forth in today's press release and in Greenlane's Quarterly Report Form 10 Q filed with the SEC. Any forward looking statements made today on this call are based on assumptions as of today, and Greenlane assumes no obligation to update these statements as a result of new information or future events. During today's call, Greenlane Management may discuss non GAAP financial measures, including adjusted SG and A and adjusted EBITDA. Greenlane has included a reconciliation of these non GAAP measures in today's press release, which is available in the Investor Relations section of the company's website at investorgnln.com. I would now like to turn the call over to Mr.

Operator

Craig Snyder, Chief Executive Officer of Greenlane. Please go ahead, Craig.

Speaker 1

Hello, everyone, and thank you for attending our Q1 2023 earnings call. We've been busy here at Greenlane executing on our aggressive transformative strategy for our path to profitability. As I mentioned during our 2022 year end call, we continue to maintain 3 key areas of focus for Greenlane. Number 1, a relentless concentration on profitability. Number 2, enhancing and growing our leading possession as a product innovator and disruptor in our segment number 3, continued advancement and performance in developing our global and omni channel strategy.

Speaker 1

We have made tangible progress during our Q1 and are optimistic for the remainder of 2023. 1st, our path to profitability. We are pleased to announce that we have had sequential revenue growth from Q4 2022 to Q1 2023 of 9%. Both our Consumer and industrial segments showed growth over Q4 during this period. Consistent with this growth, we have reduced our total operating expenses from $22,000,000 in Q4 2022 to $15,000,000 in Q1 2023, a reduction of $7,000,000 or 32%.

Speaker 1

Gross margin showed a 5% improvement in Q1 2023 at 23% compared to full year 2022 margins of 18%. We showed a slight decline from 27% in Q4 2022 to 23% in Q1 2023 due to an aggressive inventory management. As I mentioned during our 2022 year end call, we restructured our Industrial segment to provide emphasis on our consumer business where our higher margin Greenlane brands reside. We believe this will improve our overall gross margin profile and accelerate our path to profitability. Year over year, we have significantly reduced our labor related expenses by 47% and have reduced general and administrative expenses by 34%.

Speaker 1

This has led to a reduction in total operating expenses by 38%. We have also seen a year over year improvement of 48% in our loss from operations. Revenue growth quarter over quarter and our continued focus and reducing expenses across the board has created a healthy trajectory on our path to profitability for the remainder of 2023. Let's move on to innovation next. In our product innovation, we are extremely pleased with our 16 Q1 product launches from 3 of our innovative house brands, Ice, DaVinci and our newest brand, Groove, which is aimed at offering quality products at a value price point.

Speaker 1

We have already seen positive impact in our revenue due to our innovative product launches. Q1 product launches include the ICE Polycarbonate grinder, the ICE Auriflex Shorty and Rig, are DaVinci Micro C, the Groove Ripster, Bolt, Spark, Hi Pop Opener, Acrylic Grinder Pivot and Glassline. Our new products continue to be well received by consumers and with additional product launches slated from these 3 brands in the 2nd quarter, including a new product from da Vinci, which will expand the brand's customer reach beyond the traditional market, we expect to see continued revenue growth from our consumer segment. We also had a successful collaboration between our house brand, Higher Standards And Banana Bros with the popular and reliable auto grinder released in a sleek and modern design. Greenlane has also reestablished our partnership with PACS to offer their sought after products through our global omnichannel platforms.

Speaker 1

On the global omnichannel strategy, I'll now touch on our updates and accomplishments to continue to advance our global strategy. We completed migrations and relaunched our EU B2B and B2C websites allowing customers to order 20 fourseven from anywhere worldwide redesigned and relaunched our vapor.com site for a more user friendly experience and integrated Shopify for davincivaporizers.com to improve management and efficiency. We also developed and launched an enhanced inventory management tool for allocation of product into higher margin channels and improved profitability. And lastly launched an enhanced performance marketing platform, which expanded our market penetration by 33%. Last year, we announced our expanded global reach with strategic market distribution partners spanning across South America, Canada, Mexico and Puerto Rico.

Speaker 1

These partnerships allow us to reach consumers globally and have enabled us to continue to scale our brands worldwide. As we've announced, we made some strategic decisions to restructure parts of Industrial business to help us in our goal toward profitability. Because some of these operations in our Industrial business are very capital intensive, Cash flow timing has been a consistent challenge in contrast to our consumer business. We recently announced a strategic partnership with ANA Global Imports, better known as marijuana packaging.com, a leading provider of packaging solutions to the cannabis industry. M.

Speaker 1

J. Pac is now Greenlane's strategic partner to continue providing and enhancing packaging solutions for Greenlane and M. J. Pac customers. This partnership provides working capital to Greenlane that allows us to continue investing in our higher margin consumer products.

Speaker 1

During this quarter, we also completed a key warehouse consolidation and continued cost saving initiatives that we estimate will exceed savings of over $3,000,000 annually. I'll now turn it over to Lana to run through our financial results in further detail.

Speaker 2

Thanks, Craig, and hello, everyone. Thank you for joining us on the call today. As a reminder, the results I will be reviewing for you can be found in our earnings release that is available on EDGAR in the Investor Relations section of our website at investor.gnln.com. Starting with net sales, For the Q1 of 2023, total net sales were approximately $24,000,000 compared to approximately $22,000,000 for the 3 months ended December 31, 2022, representing an increase of $2,000,000 or 9%. The quarter over quarter increase was primarily driven by an increase in the Consumer Goods segment of $1,300,000 or 19.3 percent increase and an increase in the Industrial segment of $700,000 or a 4.6% increase.

Speaker 2

The increase in the Consumer Goods segment Revenue was driven by higher ice, Groove Storz and Bickel and PACS sales. This compares to the company's reported $46,500,000 and total net sales for the Q1 of 2022, representing a decrease of $22,600,000 were 48.5% year over year. The year over year decrease in net sales was due to our major restructuring efforts and our shift in strategy to focus on our in house brands that carry a higher margin profile, while rationalizing our 3rd party brand offerings, which generate top line revenue with lower margins. The company is focused on profitable revenue and as a result, top line revenue has significantly been reduced. Net sales were also affected by the sale of the company's minority interest in the VIBES brand during 2022 and the company's announcement of its intention to sell its Packaging business, which adversely affected sales.

Speaker 2

For the Q1 of 2023, gross profit was was $5,500,000 compared to $5,900,000 for the prior quarter, representing a decrease of $400,000 or 6.1%. Gross margin decreased by 3 point was 0.7% for the prior quarter. The decrease in margin is due to a negative impact to cost of goods sold due to inventory adjustments and scrap expense of $600,000 for Q1 2023 versus $0 for Q4 2022. Excluding the $600,000 negative impact recorded in Q1 2023, gross margin is 25 0.4% for Q1 2023 compared to 26.7% for Q4 2022. The company reported gross profit of $5,500,000 and gross margin of 23% for Q1 2023 compared to $6,000,000 and gross margin of 12.8 percent for Q1 2022.

Speaker 2

Excluding inventory write offs of damage and obsolete inventory for Q1 2022 of $5,800,000 compared to $0 for Q1 2023, Gross margins decreased 2.3 percent to 23% for Q1 2023 compared to 25.3% for the same period in 20 22. Total operating expenses decreased $7,100,000 or 32 percent for Q1 2023 to $15,000,000 compared to $22,200,000 for the prior quarter. Excluding intangibles impairment charges of $4,600,000 for Q4 2022, total operating expenses decreased $2,500,000 or 14 percent to $15,000,000 compared to $17,600,000 for the prior quarter. Is to reduce operating spend as a percentage of revenue. Total operating expenses decreased by approximately $9,100,000 or 37.8 percent to $15,000,000 for the 3 months ended March 31, 2023, compared to $24,200,000 for the same period in 2022.

Speaker 2

The decrease is related to a greater than 50% reduction in workforce and a major restructuring effort by the company to right size the business and focus on profitability. Net loss for Q1 2023 was $10,200,000 compared to a loss of $13,500,000 for the prior quarter, inclusive of a $4,600,000 intangible asset impairment charge, net loss attributable to Greenlane Holdings Inc. Was $10,200,000 or $0.64 per share basic and diluted compared to a loss of $13,300,000 or $1.02 per share basic and diluted for the prior quarter. This compares to the company's reported net loss of $18,700,000 and a net loss attributable to Greenlane Holdings Inc. Of $15,300,000 or $3.40 per basic and diluted share for the Q1 of 2022.

Speaker 2

The company's efforts to right size the business and focus on profitability has resulted in an $8,500,000 or 45.3 percent reduction in net loss for Q1 2023 compared to the same period in 2022. Adjusted EBITDA loss for Q1 2023 was $6,800,000 compared to a loss of 7.6 $1,000,000 for the prior quarter. The company reported a $5,300,000 adjusted EBITDA loss for the same comparable period in 2022. We ended the quarter with $5,900,000 in total cash and working capital of $25,700,000 compared to $41,000,000 as of December 31, 2022. The company continues to reduce the working capital cycle focused on operating more efficiently with lower inventory levels.

Speaker 2

We ended the quarter with $37,000,000 in net inventories versus $40,600,000 as of December 31, 2022. The company recently reduced the $15,000,000 loan facility in February of this year by over 40% to $8,500,000 while also receiving $4,800,000 from the sale of its employee retention credit. The company will continue focusing on improving cash flow from operations and managing existing debt. With that, I'll now turn it back over to Craig.

Speaker 1

Thank you, Anna. In summary, Greenlane delivered improved financial performance during the quarter, achieving quarter over quarter revenue growth of 9%, improved profitability with a quarter over quarter reduction in G and A of 23% and 16 new innovative product launches. The company's strategic initiatives focused on innovation and effective cost management strategies continue to improve position it well for future growth. We maintain a positive market outlook and a roadmap for profitability. Greenlane remains confident in its ability to generate value for its shareholders and maintain its leadership position in the industry.

Speaker 1

Thank you for your time today. We look forward to your questions. I'll now turn it back over to the operator to begin Q and A. Certainly.

Operator

The floor is now open for questions. Your first question is coming from Aaron Grey with Alliance Global Partners. Please pose your question. Your line is live.

Speaker 3

Hi, this is Remy Smith on for Aaron Grey. Thank you for the questions. So my first one is in regards, can you Speak about the progress you've made in your asset light models for your C Cell and your packaging business. Have both those partnerships been coming together as expected? And then when do you expect To realize the margin benefits for those.

Speaker 1

Yes. Thanks for the question, Remi. And yes, They continue to be on track with where we expect. It will largely affect the 3rd Q4 of the year as we will work through the inventory that's currently on our balance sheet in Q1 and Q2. And the reason for those structures is pretty clear.

Speaker 1

1, when we Are doing those investments in those products, the cash flow timing becomes challenging as that cash is tied up sometimes in excess of 6 to 7 months from manufacturer to sale to invoice to receipt of payment. So this allows us To move a lot quicker and not have cash tied up for that significant period of time. Meanwhile, that Inventory that's already been paid for will act as a funding event for the business, as we won't have to refill that inventory, Just to ask as capital coming back into the business. And as I mentioned, I think the timing on most of that benefit where we'll see The revenue go from a gross basis to a net basis will really start in Q3, probably the middle of Q3 and run through Q4, where we expect Revenues did decline in line with the net recognition, but also you'll expect to see gross margin percentages rise.

Speaker 3

Great. And that was more so in the 3Q. So I guess for 2Q, do you expect a little bit more fluctuation as you continue to work through that inventory. Is that kind of sounding right?

Speaker 1

Yes. I think that the timing on is a little different. What we see some of the large MSOs that are our main customers in that industrial segment do pull forward A lot of inventory in Q1 and Q2. So to be determined in Q2, Q1 was a strong quarter industrial wise For us, as we indicated, Q2 is off to a strong start as well. I think the back half of Q2 is where you'll start to see that transition from our products that are on our balance sheet to products that are off balance sheet and that we recognize now.

Speaker 3

Great. And then my last question kind of in regards to your CPG business, what are your expectations for that and over the rest of the year. I know you spoke a little bit about new product launches in 1Q and a little bit in 2Q. And then are you seeing any impact From a constrained consumer wallet on any of those high ticket items? And then how's your sales mix between the high and low ticket items?

Speaker 1

Sure. I think there so first, that is the reason we launched Groove is we wanted to have A brand that was much more approachable for the new user or the average user. And We say on that product, it's approachable and affordable. The other side of the house is really the connoisseur side where you're You're dealing with vaporizers that may be in excess of $300 We do see a little bit of a barbell type in the space for those that are Very experienced users and want to continue to get premium products, but where I would see we're seeing more growth is in that in the more affordable segment, and therefore, Groove has had a nice start for us really just starting in Q4 and Q1, and we expect to see, a lot more in that marketplace. We are seeing heavy strength in the disposable marketplace And the rechargeable marketplace, those are two segments where Groove will play well, and we're kind of seeing that across the board.

Speaker 1

So There still is a blend, but I would say more of the emphasis or more of the pull through in the marketplace has been The more modest end of the spectrum and that's a reflection I think of 2 things, more new users coming online And a reflection, as you mentioned, in Consumer Wallet.

Speaker 3

Great. Thank you. I'll hop back in the queue.

Operator

There appear to be no further questions in queue at this time. I would now like to turn the floor back over to Craig Snyder for any closing remarks.

Speaker 1

Thanks everyone. Appreciate your time today and for joining the Greenlane call. We continue to make progress against our plan and look forward to keeping you updated as we make that progress. Appreciate everyone's time today. Thank you.

Operator

Thank you. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for

Remove Ads
Powered by Quartr
Earnings Conference Call
Greenlane Q1 2023
00:00 / 00:00
Remove Ads