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spk00: Welcome to Lifted Partners 3rd Quarter 2022 Earnings Conference Call. This call is being recorded. At this time, all participants are in a listen-only mode. If you have joined via the webcast and would like to ask a question during this presentation, please click on the Ask Question box on the left side of your screen. Type in your question and hit Submit. Teleconference participants, please hit star 1 on your telephone keypad to ask a question. I'll hand the conference over to Jerry Jacobs, the Chairman and CEO of Lifted Partners, Inc. Please go ahead.
spk03: Good morning, and welcome to Lifted Partners' third quarter 2022 earnings conference call. Our earnings press release and financial statements for the third quarter have been filed with the SEC, and links to both can be found on our website, www.lftdpartners.com. On today's call, we will share some comments on our quarterly performance and we will answer some questions at the end of the call. A replay of this call will be available for an extended period of time, accessible through the investor section of our website. Here's the safe harbor notice. Some of the statements that we will make today regarding our business operations and financial performance may be considered forward-looking and such statements involve a number of risks and uncertainties that could cause actual results to differ materially. For more information, please refer to the risk factors contained in our most recent Form 10-K filed with the SEC. We undertake no obligation to update these forward-looking statements. During the past few quarters, we have had conversations with members of the financial community in which concerns have been expressed regarding the regulatory landscape facing hemp-derived cannabinoid product manufacturers in the U.S., such as our industry subsidiary, Lifted Made, especially regarding any language relating to hemp-derived cannabinoids that might be contained in any bill that might federally legalize marijuana or that might be contained in the next farm bill. To address these concerns, we are committed to diversifying our company's revenues. We currently are working on a definitive acquisition agreement with the owners of a growing U.S. company outside of our industry that is currently pursuing a significant expansion strategy into Asia and the Middle East. We believe that this target company is involved in an essential business that should not be the subject of future pandemic lockdown orders. and that the potential worldwide market for the target company's consumer products is enormous. While we cannot guarantee that an acquisition agreement will be signed with the target company, we are working intensively on it, and so is the other side. If an acquisition agreement is signed, there will be various contingencies to the closing of a merger with the target company, including but not limited to an audit of the target company, approvals by Lifted Partners Board of Directors and Shareholders, completion of necessary securities filings, and the target company entering into a particular joint venture agreement, which is at the center of its international expansion strategy. If Lifted Partners signs an acquisition agreement with this target company, it likely will cause us to pursue the listing of Lifted Partners common stock on stock exchanges, first in the US or Canada, and then overseas. Obviously, it is our hope that such an exchange listing, combined with an equity capital raise, may help us to obtain analyst coverage of our stock, of our common stock, and an increase in the daily trading volume in our stock. At this point, I'll turn the presentation over to Nick Warner, our Vice Chairman and Chief Operations Officer and the founder and CEO of our wholly owned subsidiary, Lifted Made. Thanks, Jerry.
spk04: Lifted Made has been organically growing very rapidly since we went public by merging with Lifted partners. Lifted generated $5.3 million in sales in 2020, $31.6 million in sales in 2021, and we expect to achieve $60 million in sales in 2022. During the third quarter of 2022, we grew our sales 27% to 11.2 million, up from 8 million in Q3 2021, as we gained a lot of traction within the distribution and wholesale network based on our sales and marketing success. And that's translated to sales growth of 144% year-to-date to 46.1 million, up from 18.9 million during the first nine months of 2021. We took a significant inventory write-off during the third quarter of 2022. We still reported positive net income of approximately $423,000. We expect to have another profitable quarter this quarter, something that nearly all publicly traded cannabis companies in the industry have never come close to achieving. In Q3, inventory write-off related to clogging of some of our 2ML disposable vapes, which had a design that was very similar to our prior, highly successful half-ml and one-ml disposable devices. Unfortunately, these two-ml disposable vapes were exposed to some high temperatures this summer as we expanded into more facilities, which resulted in oil solidifying in the coils of these vapes when they were returned to room temperature. We stopped selling these devices and wrote off the remaining two-ml devices in our inventory as of September 30, 2022. The write-off totaled just over $2.3 million. Our new 3ml disposable vape designs include preheat and variable voltage settings, which we expect will minimize any future clogging issues. We started selling these new 3ml vapes in September and so far our distributor and customer feedback has been great. Following the temporary furlough of some of our lab and production workers from August 15th through September 2nd to allow for our supply chain to catch up, our employment has stabilized And as of September 30th, Lifted Made's employee and independent contractor headcount was about 117. We have moved past these issues, and our new product pipeline is very robust. We believe that our new products, combined with the insourcing of certain work that previously was performed for us by third parties, will have a positive impact on our financial results for this quarter and going into 2023. During the nine months ended September 30th, 2022, approximately 79% of our sales were to distributors, 13% of our sales were to wholesalers, 6% direct to consumer, and the remaining 2% were private label and raw material sales. We view our access to large distributors as still one of the biggest barriers to entry in our industry. At this point, I will turn the presentation over to Jake Jacobs, our president and CFO.
spk02: Thank you, Nick. My comments will be based on year-over-year comparisons of the third quarter of 2022 to the third quarter of 2021, unless I state otherwise. Our consolidated revenues were $11,237,277, up 27% due to greater penetration within the distributor and wholesale landscape. The company recorded a sales allowance of $841,269 for estimated future discounts or refunds and product returns, primarily associated with the 2 milliliter clogged vapes. This sales allowance is a contra revenue account, meaning that it brought the Q3 sales figure down. Our total cost of goods sold was $10 million $423,533, up 121%. Primarily driving this increase was the write-off of $2,313,902 worth of two milliliter disposable vapes that were initially sitting in our inventory at September 30th and which were subsequently written off because of clogging issues. Operating expenses were $318,474, down 82%. The primary driver for this was that the company eliminated the company-wide bonus pool accrual of $2,121,532, which had been accrued through June 30, 2022. Moreover, no company-wide management bonus pool accrual was booked for the quarter ended September 30, Operating income was $495,270 down 79%. Operating margin was 4% down 22%. Other expenses were $47,758 down 42%. Net income was $423,486 down 81%. due primarily to our inventory write-offs in the quarter. We achieved quarterly GAAP-based basic earnings of $0.03 per share and diluted earnings of $0.03 per share. Basic and diluted weighted average shares outstanding for the three months ended September 30, 2022 were $14,102,578 and 15,884,776, respectively. Comparing the nine months ended September 30th, 2022 to the nine months ended September 30th, 2021, our consolidated revenues were $46,102,656, up 144%. Our total cost of goods sold was $29,241,016, up 209%. Operating expenses were $7,765,637, up 59%, primarily reflecting greater payroll, rent and other operating costs related to our growth. Operating income was $9,096,003, 101%. Operating margin was 20%, down 4%. Other income was $6,462 compared to other expenses of $84,702 in the prior year. Net income was $6,587,739, up 48%. We achieved gap-based basic earnings of 40 cents per share and diluted earnings of 41 cents per share. Basic and diluted average shares outstanding for the nine months ended September 30th, 2022 were 14,073,366 and 15,855,564 respectively. At September 30, 2022, we had total outstanding options and warrants of $3,627,198, with a weighted average exercise price of $3.85, which, if all were exercised, would generate proceeds of $13,968,899, ignoring any cashless exercise features. Of the options and warrants outstanding as of September 30, 2022, 2,882,198 of these options and warrants are vested and exercisable with a weighted average exercise price of $3.55. In regards to our September 30, 2022 balance sheet compared to our December 31, 2021 balance sheet, Cash on hand increased 171% $4,350,959 up from $1,602,731. Inventory increased 67% to $6,344,677 up from $3,809,944. Current assets increased 11% to $14,616,599, up from $13,152,696. Working capital increased 545% to $8,042,719, up from $1,246,426. Thank you.
spk03: We will now answer some questions that have been submitted to us. If you would like to ask a question and are connected via teleconference, please press asterisk 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. you may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Webcast participants, please click on the Ask Question box on the left side of your screen, type in your question, and hit Submit. So we have a question here. How will the Safe Banking Act impact your business if it passes? I'd respond to that by saying because we're not currently involved in marijuana, we are not currently subject to the banking issues that many marijuana companies face. The Safe Banking Act is a proposed bill that is intended to help marijuana businesses have easier, consistent access to depository institutions. So unless we get into the marijuana industry in the future, we do not believe that the SAFE Banking Act will have any impact on our business banking relationships. Second question we have here is, has inflation impacted your production costs, your product costs? Jake, you want to answer that?
spk02: Sure. I'd say that about 50% of our product costs have stayed consistent quarter over quarter and maybe about 10% of our product costs have actually gone down and probably the other 40% of our product costs have increased since the last quarter.
spk01: Okay, then I see a question.
spk03: Does LIFT, does lifted common stock still qualify as a section 1202 stock, qualified small business stock? I do not know that answer. You'd have to talk to your financial tax counsel to advise you on that. I'm not giving tax advice in this call. Unless Jake or Nick wants to comment on that.
spk02: I don't know the answer to that question. Happy to connect you with our securities attorney.
spk03: Okay. Then the next question we got was revenues seem to be decelerating over the last year. Is this due to industry trends? or something specific to the company. Nick, do you want to comment on that? Sure.
spk04: I mean, we did have a rough third quarter, but, you know, we're still up 144% year to date over 2021. And I think we're well over $80 million since we've closed the deal. almost three years ago. So we still have massive increase in business. As the industry has been a little bit slow over the summer months, we do expect them to really start ramping up over the fourth quarter and going into the new year, as well as a lot of the internal operations that we've built out that will diversify us, not only within the industry, but outside of the industry. So we still expect the best is yet to come from the team here over at Lifted.
spk03: Okay, those are the only questions I see that have come in.
spk02: There's one other question here about what is the expectation of CAVA in the grown market?
spk01: Nick, do you want to comment on CAVA? Sure.
spk04: We do have a skew in the marketplace of CAVA. It's doing well. It's not something that's extremely new, but we're definitely seeing these alternative natural ingredients increasing in our current distribution. And as we open up new distribution channels, which we are expecting those type of products to increase, we do have that product on Amazon and it has sold through multiple times. So we're definitely seeing traction for kava, kanna, and alternative functional and recreational mushrooms.
spk03: Okay, I don't see any other questions. So, this concludes today's conference and you may disconnect at this time. Thank you for your participation.
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