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spk02: Good day and welcome to today's conference call to discuss Green Lane 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 was distributed today and is available on the Investor Relations section of the Green Lane 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 slide, will be archived in the company's IR website at investor.gnln.com. On the call today are Craig Schneider, Chief Executive Officer, and Lana Reeve, Chief Financial and Legal Officer. Before we begin, Greenland would like to remind listeners that today's prepared remarks may contain forward-looking statements and management may take 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 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, April 3, 2023. Factors that could cause Green Lane's results to differ materially are set forth in yesterday's press release and in Green Lane's 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 Green Lane 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&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 investor.gnln.com. I would now like to turn the call over to Mr. Greg Snyder, Chief Executive Officer of GreenLane. Please go ahead, Greg.
spk03: Hello everyone. And thank you for attending our fourth quarter 2022 earnings call. And 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 and his 10 years of leadership between CushCo and GreenLane. 2022 proved to be a challenging year for our entire sector and GreenLane 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'll 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. Number two, enhancing and growing our leading position as a product innovator. and disruptor in our segment. And number three, continued advancement and performance in developing our global omnichannel strategy. 2022 was the year of realigning our fundamentals so that we can achieve our goal of profitability in 2023 with a more efficient model focused on scalable, leverageable, and durable revenue combined with 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 a strategic shift to a higher margin, higher value, less capital intensive business model that can be profitable and sustainable. This also includes improving our balance sheet, working capital, and free cash flow. Lastly, there is a continued focus on eliminating and lowering costs bring the company's cost structure in line with gross margins. In our goal toward profitability, Greenland has made several strategic decisions to restructure parts of our industrial business. Because segments of our industrial business are very capital intensive, this has made cash flow timing a consistent challenge. This is in contrast to our consumer business, which is much higher margin, especially when looking at Greenland branded products, which in turn have the highest values. With capital markets headwinds in mind, we've made strategic changes to our business to improve our ongoing working capital dynamics and convert 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 of inventory at any given time. By transitioning this business, we can monetize existing inventory to fund the investment into our higher margin segments of our business. This transition is underway. And as of today, we still have 7 million of quality packaging inventory that we expect to be converted back into cash over the next few quarters of operations. Secondly, our C-cell vape business has traditionally been very inventory intensive and suffered from cashflow timing, given the fact that all 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'll need to only carry 30% of the inventory levels we have today. We anticipate there will be $6 million plus of C-cell inventory that will be converted back into cash under this new structure over the next few quarters. Combined, both initials will bring in over $13 million of additional liquidity over the coming months. More importantly, when completed, we will have better working capital dynamics for the overall business. Although 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 green lane 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. Staying with the theme of improving working capital and strengthening our balance sheet, We are proud to announce non-diluted 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 decrease 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 Lane business had a series of events occur in 2021 that had lasting effects into 2022. Those would include the acquisition of ICE and DaVinci, the international acquisition of Aria Logistics, a major ERP transition, integration of a 3PL servicing the consumer business, and finally the merger of Greenland and Cushco. Any single one of these events would have been challenging. The confluence of these events produced tremendous strain on both the business operationally and financially. Our overall 2023 goal is to be more consistent in bringing expenses in line with gross margin. In 2022, we executed on numerous cost-cutting initiatives, which included IT expenses, professional fees, VAT, 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. We digested and aligned the acquisitions into our IT platforms, and while work still remains, much of the digestion is complete. We were able to complete the up-sea restructuring with all shares converting 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 headcount by 49% throughout 2022 from 308 employees at the beginning of the year to 157 employees as of December 31st, 22. Our cost of labor has dropped 50% since Q4 21, 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% in adjusted SG&A from Q4 2021 to Q4 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 2022 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 inflecting into profitability. Hopefully, that provides everyone a clear path on how we intend to strategically shift the business, with less focus on top-line revenue, but rather sustained higher margins and growth in core consumer brand areas, and how 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 completed or are well underway, and we feel very positive about our ability to execute on the remaining parts throughout 2023. With the 2023 plan outline, I'd like to take an opportunity to dive deeper in some of the most exciting parts of our new focus plan. Our innovative Green Lane-owned brands and how we bring them to market through a global omnichannel approach. In Q4 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. You can find these products at smokegroove.com. These products are being received very well in the marketplace with thousands of units sold and many customers having already reordered. For Greenlane, who has traditionally served the connoisseur of the marketplace, our product development team comprised of entrepreneurs from Pollen Gear, DaVinci, and ICE created the Groove brand to be simple, functional, and reliable. Groove targets a segment in the market looking for fundamental products to be used every day at a compelling price point. We believe Groove is perfectly positioned for sizable 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 DaVinci, 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 present 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 omnichannel strategy. We launched our new B2B websites in both the U.S. and Europe, which allow our 11,000-plus customers to order anytime and anywhere they prefer. In Q4, we kicked off the redesign of our direct consumer website, Vapor.com, in the U.S., and VapoShop in Europe, which launched this month. These enhancements will increase site speed and create a cleaner user experience. In Q4, we began projects through Amazon in both the U.S. and Europe. In the U.S., we initiated transparency with three of our Green Lane brands, Groove, Higher Standards, and Ice. Along with this program and A-plus 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, DaVinci, and Groove. 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 allows us to take advantage of the largest global online marketplace in a big way. With that, I'll turn it over to Lana to run through our financial results in further detail.
spk04: Thanks, Craig, 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 that is available on edgar.com. and the investor relations section of our website at investor.gnln.com. Let's get to the fiscal 2022 numbers. For the year ending December 31st, 2022, total net sales were approximately $137.1 million compared to approximately $166.1 million for the year ending December 31st, 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 56.3% decrease offset by an increase in the industrial segment of 33 million or 59% due to the net sales contributed by our merger with CushCo that was completed on August 31st, 2021. The decline in the consumer goods segment revenue was due to a major restructuring effort during fiscal year 2022 to increase profitability by focusing on in-house brands that have a higher margin profile and rationalizing third-party brand offerings that carry a lower margin profile while reducing operating costs as a percent of revenue, selling our interest in the Vibes brand, terminating or restructuring several third-party agreements, and rebalancing overall inventory levels. The company also experienced some operational issues impacting revenue during the first half of the year related to the new ERP, CRM, and B2B 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 profits is a result of declining revenue. Gross margin decreased by 2.1% to 18.2% for the year ended December 31st, 2022, compared to gross margin of 20.4% for the same period in 2021. The decrease in margin is due to the increased weight on margin from the industrial segment that has a lower margin profile and represented 64.9% of total revenue for fiscal year 2022 versus only representing 33.7% of total revenue for fiscal year 2021. The company reported gross profit of 5.9 million and gross margin of 26.7% for the three months ending December 31, 2022. Sales general and administrative SG&A expenses increased 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 fiscal year 2022, SG&A expenses decreased 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 reduction in workforce of 50% 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 GreenLane Holdings Inc. was $115.8 million, or $15.37 per share, basic and diluted, inclusive of a $71.4 million intangible asset impairment charge, compared to a loss of $30.6 million, or $0.79 per share, basic and diluted. The company reported a net loss of $13.5 million, and a net loss attributable to Green Lane Holdings Inc. of $13.3 million or $1.02 per basic and diluted share for the three months ending December 31, 2022. Adjusted EBITDA for fiscal year 2022 was a loss of $31.8 million compared to $22.3 million for the prior fiscal year. The company reported a 7.6 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, focused 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 4.8 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.
spk03: Thank you, Lana. Shifting from the rear view 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 22 are beginning to make substantial positive impact on our 2023 financial results. In fact, We are already seeing signs in Q1. Here are some of the reasons to believe GreenLane's future is 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. Two, 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 23. Three, we have established new relationships globally in over 14 countries. Four, we have launched our B2B websites in both the U.S. and Europe with over 11,000 customers in our U.S. system and are seeing exponential growth month over month. Five, We have significantly lowered our liabilities throughout the year, and we're going to continue to do so in Q1. And six, we are pleased with the progress we continue to make against 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.
spk02: Certainly. At this time, we'll be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing 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 1 on your phone. Please hold while I poll for questions. Your first question is coming from Aaron Gray from Alliance Global Partners. Your line is live.
spk01: Hi, good evening, and thank you for the questions. So, great to see some of the inventory, you know, Polanchi doing to bring on some cash. You guys also mentioned some additional SG&A, you know, cuts you'll be taking with a target of getting EBITDA positive by 4Q 2023. Just would like to know in terms of, you know, the gross margin expectations you expect to have to reach that 4Q 2023 EBITDA 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 targets you have embedded in back within that, that'd be helpful. Thanks.
spk03: Thanks, Aaron. This is Craig. You know, as we discussed a little bit about some of the inventories going from a gross to a net recognition, we're expecting the gross margins to grow throughout the year. So Q1, we expect margins at 24.5. Q2, 28.7. Q3, 32.9. Q4, 34.3. Aggregate for the year at about 30.1%. Okay, great.
spk01: That's really helpful there. And then in terms of the CPG side, obviously a lot of initiatives that you guys have, you know, with ICE and otherwise, Groove as well, but Can you talk about which brand you're looking to be the primary driver to the growth? Groove, obviously, 13 products now, additional 20 by the end of the year. Are you looking for that to be the primary brand to build off of and drive growth within CPG for the year?
spk03: I think the three brands and those 20-plus products will really occur across four brands. We've launched 13 products to date with Groove, and they have a few more coming. But you'll see newer products coming from ICE, DaVinci Group, and higher standards as well. And I think you'll still see us work with the top providers on the third-party side as well. But you'll see new products from Groove, ICE, DaVinci, and higher standards throughout the year.
spk01: Okay, great. Thanks. And then in terms of distribution and new channels, can you talk about maybe expanded channel distribution targets that you have, you know, 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 mix to shift between your different distribution channels. Thank you.
spk03: Right. I think one of the big things we tried to do is, you know, integrate the business so that we talk to everyone from the smallest smoke shop to the largest MSO. They obviously have different needs and, What we're seeing from the MSOs is they've begun to complete their digestion of all their acquisitions, and some are now looking at national brands. This is good for us because they're turning their eye on the business toward how they generate more revenue per square foot, attachment rates, and what I'd call the more normal retail metrics. And we play a bigger and bigger role in that and that we supply a lot of those ancillary products to those stores. So with those, those relationships and those conversations continue to deepen and grow as we're going. And we feel very good there. We've also increased our focus back in all kind of the mid tiers, what I'd call single state operators. what I call small dispensary groups and smoke shops alike, and are aligning our resources to focus across all those groups. And their kind of needs are a little bit differently, but we see them growing in 2023, and we're seeing positive results in the first part of the year already.
spk00: Okay, great. Thank you very much for the detail, and I'll jump back in the queue.
spk02: Thank you. Once again, everyone, if you have any questions or comments, please press star then 1 on your phone. Please hold while we poll for questions.
spk00: Thank you.
spk02: That concludes our Q&A session. I will now hand the conference back to management for closing remarks. Please go ahead. Thanks, Matt.
spk03: And we know there is much to be done, but we're highly encouraged by the early momentum in 2023. Thank you again for joining GreenLake's conference call today. We look forward to updating you on our continued progress on the next earning call.
spk02: 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.
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