Q4 2022 Greenlane Holdings Inc Earnings Call
Good day and welcome to today's conference call to discuss Greenland Holdings' fourth quarter and full year 2022 financial results.
A press release detailing the financial results for the quarter and full year ended December 31, 2022 with distributed today and is available on the Investor Relations section of the Green Lane website at Investor Dodge G N L in Dot com.
As a reminder, today's conference is being recorded.
A replay of this call as well as a copy of the supplemental earnings slide will be archived in the company's IR website at Investor <unk> G N L N dot com.
On the call today are Craig Snyder, Chief Executive Officer, and Lotteries, Chief Financial and Legal Officer.
Before we begin Greenlight, we 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 the current expectations of the company's management and involve inherent risks, 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, April 3rd, 2023.
Factors that could cause unknown results to differ materially are set forth in yesterday's press release and in the unknown Annual report on Form 10-K filed with the SEC.
Any forward-looking statements made on today's call are based upon assumptions as of today, and Greenland assumes no obligation to update these statements as a result of new information or future events.
During today's call Green Lane management May discuss non-GAAP financial measures included adjusted SG&A adjusted EBITDA.
Green Lane 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 Investor Dot G N L N dot com.
I would now like to turn the call over to Mr. Greg Snyder, Chief Executive Officer of Green Lane.
Please go ahead, Greg.
Hello, everyone, and thank you for attending our fourth-quarter 2022 earnings call.
My first earnings call since taking over as CEO on January 1st.
I would like to first thank Nick for everything he has done for the company, with 10 years of leadership between Kush, GUL, and Green Light.
2022 proved to be a challenging year for our entire sector and.
And Green Lane was not an exception; the business did not perform up to the expected standards and began an aggressive transformative strategy to actively put the business on a path to profitability.
On today's call, we will outline the steps we have taken and will continue to take to fulfill the three key areas of concentration we have set forth for the company.
Number one: an unwavering commitment to profitability.
To enhancing and growing our leading position as a product innovator and disruptor in our segment.
And number three: continued advancement in performance in developing our global omnichannel strategy.
2022 was the year of a light realignment of our fundamentals so that we can achieve our goal of profitability in 2023 with a more efficient model focused on scalable leverage, durable revenue, and consistent margins. We have made meaningful tangible progress and have a solid line of sight to profitability.
And long-term sustainability.
Tackling profitability first, we are engaged in strategic shifts to a higher-margin, higher-value, less capital-intensive business model that can be both profitable and sustainable.
Also includes improving our balance sheet, working capital, and free cash flow.
Lastly, there is a continued focus on eliminating and lowering costs, bringing the company's cost structure in line with gross margin.
In our goal towards profitability, Greenlandic made several strategic decisions to restructure parts of our industrial business. This is because segments of our industrial businesses are very capital-intensive, making cash flow timing a consistent challenge.
This is in contrast to our consumer business, which has much higher margins, especially when looking at Green Lane branded products, which in turn have the highest value.
With capital markets headwinds in mind, we've made strategic changes to our business to improve our ongoing working capital dynamics in Q Bert current inventory back into cash to help fund operations. Throughout 2023 first we are in the process of transitioning our packaging business via strategic partnership.
The packaging segment has historically required us to hold more than 10 million in inventory at any given time.
By transitioning this business, we can monetize existing inventory to fund investments into our higher-margin segments of our business. This transition is underway, and as of today, we still have $7 million worth of quality packaging inventory that we expect to convert back into cash over the next few quarters of operations.
Secondly, our seatbelt-based business has traditionally been very inventory-intensive and suffered from cash flow timing issues, given the fact that all of these goods come from China and are subject to 25% U.S. tariffs. We are currently in the process of restructuring that segment of our business to require far less investment in inventory.
We estimate that under the new structure, we will need to carry only 30% of the inventory levels we have today. We anticipate there will be over $6 billion worth of excess inventory that will be converted back into cash under this new structure over the next few quarters.
Both bind initiatives will bring over $13 billion of additional liquidity in the coming months. More importantly, when completed, we will have better working capital dynamics for the overall business.
Though we will lose some top-line revenue from our industrial segments converting from a gross to net revenue recognition, we will pick up some 100% gross margin commissions and royalty revenues, which will be accretive to our gross margins.
The restructuring of these industrial segments, combined with the overall shift in focus to our consumer business and, specifically, the higher margin Greenland brands.
Alongside higher-margin customer channels, such as direct-to-consumer, should substantially improve our overall gross margin profile.
and help accelerate our path to overall profitability and beyond.
Continuing with the theme of improving working capital and strengthening our balance sheet, we are proud to announce.
Non dilutive capital of $4 8 million received in Q1 from the sale of our ERC credits, we used a portion of these funds to pay down our existing senior debt, thereby reducing the total amount of debt. The company has by 40% from 15 million to $8 $5 million.
This infusion was important to increase working capital and decreased liabilities through the course of the year. We also reduced our structured payments related to previous acquisitions by more than 50% in 2022.
We paid off the $8 million bridge loan as well as the $8 million mortgage from the sale of our building.
Lastly, let's discuss how we are reducing our SG&A.
Looking in the rearview mirror for a moment, the green-linked business experienced a series of events in 2021 that had lasting effects into 2022.
Those would include the acquisition of ice and Da Vinci.
The international acquisition of Arc Logistics.
A major ERP transition integration of the three PLs servicing the consumer business, and finally, the merger of Green Lane into Costco.
Any single one of these events would have been challenging.
Once, these events produced tremendous strain on Bulks, the business, operationally and financially.
Our overall 2023 goals to be more consistent in bringing expenses in line with gross margin.
In 2022, we executed numerous cost-cutting initiatives, which included expenses, professional fees, labor, and the exit of facilities and office locations.
I'd like to go into a little bit more detail on what we did here.
Digest and align the acquisitions into our IT platforms, and while work still remains, much of the digestion is complete.
We were able to complete the upc restructuring with all shares converted to class A.
The majority of legacy VAT tax liabilities have been settled, and the legal and accounting expenses related to those previous activities are expected to drop dramatically.
We have reduced head count by 49% throughout 2022.
From 308 employees at the beginning of the year to 157 employees as of December 31, 2022.
Our cost of labor has dropped 50% since Q4, 'twenty-one, and we have closed over 10 facilities to date and expect to close three more facilities in 2023, alongside general reductions in spend across nearly all areas of the business.
These efforts led to a decrease of 29% and adjusted SG&A from Q4, 2021 Q4 dollars 22.
Down nearly $22 million to just over $15 million, respectively.
We expect full realization of these efforts will not show up until 2023, and combined with additional efficiency initiatives, we plan to reduce adjusted SG&A significantly further in 2023.
Our plans are to reduce SG&A by another 40% from Q4 2020 to Q4 2023 through continued cost-cutting reductions and potential realizations. The estimated $13 million in working capital improvements this year should allow the company to go much further by reducing the overall burn rate.
And in selecting for profitability.
Hopefully, that provides everyone a clear path on how we intend to strategically shift the business with less focus on top-line revenue.
Rather, sustained higher margins and growth in core consumer brand areas.
We intend to fund the working capital demands while lowering the operating expenses until we reach profitability.
Obviously, this will require hard work from our collective team and will not happen overnight, but many of the initiatives in this plan have been completed or are well underway. We feel very positive about our ability to execute the remaining parts throughout 2023.
With 2023 plan outlined I'd like taken opportunity to dive deeper in some of the most exciting parts of our new focus plan.
In our innovative Green Lane owned brands and how we bring them to market through a global Omnichannel approach, in Q4 of last year, we announced the launch of our brand - Groove - aimed at offering quality products at an affordable price. We are pleased to provide an update: in February, we launched 12 new products that are now active within our brand portfolio.
Yes.
Can find these products at Smoke Groove dot com. These.
These products are being received very well in the marketplace, with thousands of units sold and many customers already reordering, where Green Lane has traditionally served the contour of the marketplace. Our product development team, comprised of entrepreneurs from Pollen Gear, Da Vinci, and ICE, created the Groove brand to be simple.
<Unk> and reliable.
Groove targets a market segment looking for fundamental products to be used every day at a compelling price point. We believe Groove is perfectly positioned for sizeable growth, as demand for core staples at an attractive price point should only continue to expand.
In addition to the group products that launched in February, we also announced product launches for da Vinci ice and hired standards.
All of these launches have been very successful, and we expect their contributions to meaningfully impact our Q1 and broader 2023 numbers.
Lastly, we continue to carefully curate our third-party brand portfolio that we offer to our customers to provide a comprehensive one-stop shopping experience.
Let's discuss how we are bringing these to market.
Through our global omnichannel strategy.
In 2022, we took multiple steps in building out a global omni-channel strategy. We launched our new web sites in both the US and Europe, which allows our 11,000-plus customers to order anytime and anywhere they prefer.
In Q4, we kicked off.
We have redesigned our direct-to-consumer website <unk> com in the US and the depot shop in Europe, which launched this month. These enhancements will increase the site's speed and create a cleaner user experience. In Q4, we began projects through Amazon in both the US and Europe.
In the US, we initiated transparency with three of our Green Lane brands: Groove, Higher Standards, and ICE. Along with this program and A+ content, we were able to own the buy box section on Amazon and combat counterfeits in the marketplace.
In Europe , we kicked off brand enhancement with higher standards da Vinci and group.
Lastly, we have strategically partnered with distributors throughout key international markets in the following countries: Guatemala, Costa Rica, Panama, Colombia, Peru, Chile, Uruguay, Brazil, Argentina, Mexico, Australia, New Zealand, Thailand, and Puerto Rico. This along.
How can we take advantage of the largest global online marketplace in a big way?
With that, I'll turn it over to Laura to run through our financial results in further detail.
Thanks, Greg, and hello, everyone. Thank you for joining us on the call today. As a reminder, the results I will be reviewing with you this morning can be found in our earnings release, which is available on Edgar.
And the Investor Relations section of our website at Investor <unk> L N Dot com.
For the year ending December 31, 2022, total net sales were approximately $137.1 million.
Compared to approximately $166 million for the year ending December 31, 2021.
Representing a decrease of 29 million or 17.4%.
The overall year-to-year decrease was primarily driven by a decrease in the consumer goods segment of $62 million.
Or a 56.3% decrease offset by an increase in the industrial segment.
At $33 million or 59% due to the net sales contributed by our merger with <unk> that was completed on August 31, 2021.
The decline in revenue for the consumer goods segment was due to a major restructuring effort during fiscal year 2022 to increase profitability by focusing on in-house brands with higher margin profiles and rationalizing third-party brand offerings.
A lower margin profile, while reducing operating cost as a percent of revenue, selling our interest in the vibes. Brad terminates our restructuring several third-party agreements.
And rebalancing overall inventory levels.
Company also experienced some operational issues impacting revenue during the first half of the year related to the new ERP CRM and <unk> systems.
The company reported $22 million in net sales for the three months ending December 31, 2022.
For the year ending December 31, 2022.
Gross profit was $24.9 million compared to $33.8 million for the prior year, representing a decrease of $8.8 million or 26.1%. The decrease in gross profit was a result of the declining revenue.
Gross margin decreased by two 1% to 18, 2% for the year ended December 31 2022.
Compared to a gross margin of 24% for the same period in 2021.
The decrease in margin is due to the increased weight on margin from the industrial segment, which has a lower margin profile and represented 64.9% of total revenue for fiscal year 2022, compared to only representing 33.7% of total revenue for fiscal year 2021.
The company reported a gross profit of $59 million and a gross margin of 26.7% for the three months ending December 31, 2022.
Sales, general, and administrative (SG&A) expenses increased by $66.2 million, or 76.5%, for the fiscal year 2022, to $152.7 million compared to $86.5 million for the prior fiscal year.
Excluding goodwill and indefinite-lived intangibles impairment charge of $71.4 million for the fiscal year 2022, SG&A expenses decreased by $5.2 million or 6% to $81.3 million compared to $86.5 million for the prior year.
The decrease is a result of cost reduction throughout the year, related to a 50% reduction in workforce and the ongoing corporate imperative to reduce SG&A spend as a percentage of revenue.
The company reported SG&A of $22.2 million, inclusive of $4.6 million of indefinite-lived intangibles impairment charges for the three months ended December 31, 2022.
Net loss for fiscal year 2022 was $125.9 million, inclusive of a $71.4 million intangible asset impairment charge, compared to a loss of $53.4 million for the prior year.
Net loss attributable to Green Lane Holdings, Inc. was $115.8 million or $15.37 per share, basic and diluted.
<unk> of $71.4 million intangible asset impairment charge compared to a loss of $30.6 million or <unk> .79 per share, basic and diluted.
The company reported a net loss of $13 5 million and.
And a net loss attributable to <unk> Holdings, Inc. of $13.3 million.
Or $1 <unk> per basic and diluted share for the three months ending December 31 2022.
Adjusted EBITDA for the fiscal year 2022 was a loss of $31.8 million, compared to $22.3 million for the prior fiscal year.
The company reported a $76 million adjusted EBITDA loss for the three months ending December 31, 2022.
We ended the year with $12.2 million in total cash, with $5.7 million restricted working capital of $41 million compared to $53.8 million as of December 31, 2021.
The company continues to reduce the working capital cycle, focusing on operating more efficiently with lower inventory levels.
We ended the year with $40.6 million in net inventories versus $67 million as of December 31, 2021.
The company entered a new loan facility for $15 million during the year to support our working capital needs and recently reduced this debt in February of this year by 40% to $8.5 million.
While also receiving $48 million from the sale of its employee retention credit, the company will continue to focus on improving cash flow from operations and managing existing debt. With that, I'll now turn it back over to you, Craig.
Thank you Walter.
Shifting from the rearview of 2022 to the windshield of 2023, our expectations are much higher and our outlook is extremely positive. We do believe the transformative efforts throughout 2022 are beginning to make a substantial positive impact on our 2023 financial results. In fact, we.
We are already seeing signs in Q1.
Here are some of the reasons to believe Greenleaf Future's bright.
One in Q1, we expect 5% to 10% growth in revenue versus Q4.
In the $23 million to $24 million range, with strength coming from our consumer goods segment, which saw an increase greater than 10% versus the prior quarter. We have launched a total of 13 products with our new brand Groove. Early performance has been extremely solid, with an additional 20-plus products.
Scheduled for the remainder of twenty-three.
Three.
We have established new relationships globally in over 14 countries.
We have launched our four <unk> websites in both the U.S. and Europe.
With over 11,000 customers in our U.S. system, we are seeing exponential growth month over month.
But we have significantly lowered our liabilities throughout the year and we're going to continue to do so in Q1 and.
We are pleased with the progress we continue to make towards our cost reduction goals, and fully expect that progress to continue into 2023.
I will now turn it back over to the operator to begin Q&A.
Certainly, at this time, we will be conducting a question and answer session.
If you have any questions or comments, please press star one on your phone at this time.
We do ask that you pose your question. Please pick up your handset if you're listening on speakerphone to provide optimum sound quality.
Once again, if you have any questions or comments, please press star one on your phone.
Please hold while we poll for questions.
Your first question is coming from Aaron Gray from Alliance Global Partners. Your line is live.
Hi, good evening, and thank you for the questions.
So.
Great to see some inventory build that you're doing to bring in some cash, and you guys also mentioned some additional SG&A cuts you'll be taking with a target of getting EBITDA positive by <unk> 2023.
Just would like to know in terms of the gross margin expectations, you expect to have to reset for Q 'twenty three EBIT target. I know you're going to be shifting some of those higher margin CPG products. So if you could help out and kind of talk about some of the gross margin top targets you have embedded within that impact, that'd be helpful. Thanks.
Thanks Aaron.
This is Craig.
As we discussed a little bit about <unk>.
Some of the inventories are going from gross to net recognition.
We're expecting the gross margins to grow throughout the year. So Q1, we expect margins at $24. Five Q2, 'twenty eight seven Q3, 32.9, Q4 dollars $34 three aggregate for the year at about 31%.
Okay, great! That's really helpful. There.
And then, in terms of the CPG side, obviously, there are a lot of initiatives that you guys have with ice and otherwise, groove as well. But can you talk about which brands you're looking to be the primary driver for growth?
Groove, obviously 13 products now additional 20 by end of year are you looking for that to be the primary brand to build off of and drive growth within CPG for a year.
I think the three brands in those 20, plus products will really occur across four brands.
Launched 13 products to date with Groove, and they have a few more coming, but you'll see newer products coming from Ice DaVinci.
And higher standards, as well. I think you'll still see us.
Work with the top providers on the third-party side as well, but you will see new products from them.
<unk> Ice Da Vinci and higher standards throughout the year.
Okay, great. Thanks, and then in terms of distribution and new chance you could talk about maybe expanded channel distribution targets that you have initiatives you have to get into more msos and how that's gone so far in terms of dispensaries outside of Msos, but also within that and then also within head shops.
And how you look for the <unk>.
Our mix of shifts among your different distribution channels. Thank you.
Right, I think one of the big things we tried to do is integrate the business. So, we talk to everyone from the small smoke shop to the largest MSL.
You obviously have different needs.
What we're seeing from the MSOs as they've begun to complete their digestion of all the acquisitions, and some are now looking at national brands. This is good for us because they're turning their eye on the business.
Towards how they generate more revenue per square foot, attachment rates.
And what I would call the more normal retail metrics, we play a bigger and bigger role in that, and we supply a lot of those ancillary products.
To those stores so with those those.
<unk> chips, and those conversations continue to deepen and grow.
As we're going, and we.
We feel very good that we've also increased our focus back on all kinds of mid-tiers.
I'd call single state operators, what I'd call small district, dispensary groups and smoke shops alike and are aligning our reese's resources the focus across all of those groups and their needs are a little bit differently.
But we see them growing in 2023, and we're already seeing positive results in the first part of the year.
Okay, great. Thanks so much for the detail, and I'll jump back in the queue.
Thank you once again, everyone. If you have any questions or comments, please press star then one on your phone.
These hold while we poll for questions.
Thank you. That concludes our Q&A session. I will now hand the conference back to management for closing remarks. Please go ahead.
Thanks, Matt.
We know there is much to be done, but we're highly encouraged by the early momentum in 2023.
Thank you again for joining Greenlight's conference call today. We look forward to updating you on our continued progress on the next earnings call. Thank you.
Thank you, everyone. This concludes today's event. You may disconnect at this time and have a wonderful day.
Thank you for your participation.