Lftd Partners Inc

Welcome to Lifted Partners Earnings Conference Call to discuss the third quarter of 2023. This call is being recorded. At this time, all participants are in a listen-only mode. If you've joined via the webcast and would like to ask a question during this presentation, please click on the Ask a 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 will now hand the conference over to Jerry Jacobs, the Chairman and CEO of Lifted Partners, Inc. Please go ahead.

Good morning, and welcome to Lifted Partners, Inc.' 's earnings conference call to discuss the third quarter of 2023. Our earnings press release and financial statements for the third quarter of 2023 have been filed with the SEC, and links to both can be found on our website, www.lftdpartners.com. Paul Cecala, 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. Paul Cecala, A replay of this call will be available for an extended period of time accessible through the investor section of our website. Paul Cecala, Here's the safe harbor notice some of the statements that we will make today regarding our business operations and financial performance. including words such as may, might, would, should, could, potentially, hope, believe, expect, project, and similar verbiage are forward-looking statements that involve a number of risks and uncertainties that could cause actual results to differ materially, so listeners should not place undue reliance upon such statements. For more information, please refer to the risk factors discussed in our most recent Form 10-K filed with the SEC. We undertake no obligation to update these forward-looking statements. Lifted Partners 2023 consolidated net revenues were solid at $13.1 million, up from $11.2 million last year, with 4 cents in basic earnings per share. So once again, Lifted Partners has continued its impressive profile as being one of the few, if not the only publicly traded company in the cannabis industry that has no debt and is profitable on a gap basis. In this call, I'm going to comment on four topics, collaborations, regulatory issues, financing, and product write-offs. First, regarding collaborations, Our subsidiary, Lifted Made, has already entered into product collaborations with marijuana companies Jeter and Xtrax New Mexico. During Q3 2023, Lifted Made has been approached by multiple other publicly traded and privately held marijuana companies regarding potential product collaborations. We are in intensive discussions in this regard. Second, regarding regulatory developments, The so-called federal farm bill is reauthorized every five years. The current farm bill expired on September 30th, 2023, and the US Congress is currently drafting a successor bill. The impact of this successor bill on the hemp industry remains to be seen. Our company is also potentially impacted by future rules and regulations that could be issued by the DEA or the FDA and by future state laws and regulations. We are actively supporting the education and lobbying efforts of the American Healthy Alternatives Association and the efforts of many other stakeholders in the multi-billion dollar US hemp industry. At the current time, it is unclear whether a successor farm bill can be finalized by the Congress until sometime after the end of the year. Third, regarding financing, Our company is continuing to devote a significant portion of our cash flow to raw materials, product design and packaging, personnel, equipment, inventory build, sales, and fulfillment to support Lifted Maid's ongoing efforts on behalf of our herb brand and our product collaborations with Cali Sweets, Diamond Supply Company, Jeter, and Extract New Mexico. and other collaborations and product extensions that are in our portfolio and pipeline. Our company would like to have additional working capital to support these efforts, and also we have contractually agreed to purchase Lifted's headquarters building in Kenosha for $1.375 million no later than the end of 2023. Our preference is to raise capital in the form of first land secured debt at a reasonable interest rate and without covenants that could interfere with our growth initiatives. We are currently optimistic that we can obtain loans from a commercial bank on terms that we view as attractive in the very near future. Finally, regarding product write-offs, prior to Q4 2022, Lifted Made was purchasing gummies from out-of-state third parties. This was not an optimal situation, both from a cost of production standpoint but also because Lifted Made believed that higher quality gummies could be more quickly formulated and manufactured in-house. Lifted Made purchased its first gummy manufacturing machine, and with the assistance of consultants, Lifted Made began manufacturing gummies in-house during Q4 2022. This initiative has been highly successful, and Lifted Made has purchased two additional and larger gummy manufacturing machines since. But as Jake will discuss in more detail later during Q3 2023, we made the decision to write off $489,000 worth of gummies that were being held in Lifted Maid's inventory, which had been manufactured by third parties prior to Lifted Maid entering the gummy manufacturing business. And which either did not have the same quality as the gummies currently being manufactured by Lifted Maid, and or which had formulations that were not favored by LiftedMaid's customer base. The result of this write-off was to decrease our Q3 2023 earnings per share by approximately two cents per share. At this point, I'll turn the presentation over to Nick Warnder, our vice president, vice chairman, and chief operating officer, and the founder and CEO of our wholly owned subsidiary, LiftedMaid.

Thank you, Jerry, and good morning, everyone. Lyft has grown rapidly since we went public by merging with Lyft partners. Despite the pandemic and numerous regulatory challenges that have been put in our way, we generated 5.3 million of sales in 2020, 31.6 million in sales in 2021, and achieved 57.4 million in sales in 2022. Our headcount has grown from less than 10 employees to about 220 today. Our operations have grown from 3,500 square feet in Zion, Illinois, to a total of over 45,000 square feet in five locations in Kenosha, Wisconsin, one location in Chicago, Illinois, and one location in Aztec, New Mexico. Our profitability on a gap-based earnings per share basis during 12 of the past 13 quarters is something that few other publicly traded companies in the cannabis industry have come close to achieving. We have carefully deployed our limited capital to pay off all of our debt and to significantly expand our raw materials, equipment, processing capabilities, and finished inventory. During Q3 2023 and this quarter, we have rolled out many new product SKUs, including as part of our collaborations with Cali Suites, Diamond Supply Company, and Jeter. We're very excited about our most recently signed agreement with Extracts New Mexico which is the first time that Listed is collaborating with a marijuana company. That will be manufacturing herb-branded licensed marijuana products. During the past week, Extracts New Mexico has began selling herb-branded marijuana disposable vapes and cartridges to affiliated and unaffiliated marijuana dispensaries in New Mexico, with revenues to be split equally between Listed and Extracts. So far, the published reviews of these new products have been fantastic, and we are very optimistic about their sales and profit potential. And if these products sell as expected, then we plan to explore similar deals in other states which have legalized marijuana. In addition to exploring additional product collaborations with several other publicly traded and privately held marijuana companies, we are focused on trying to increase production for third parties using our existing gummy machines that have production capacity of around 25 million gummies per month. We also still plan to obtain the necessary CGMP and NSF certifications and approvals that would allow Lifted to begin manufacturing gummies in Kenosha that do not contain any THC or cannabinoids that can be sold into general health and wellness industries. And we're very excited about the potential opportunity for that. Finally, we're exploring the possibility of expanding our operations into Colorado, which would allow Lifted to participate in the Burgoyne THCA products business, which would currently be illegal for Lifted to pursue in Wisconsin or New Mexico. All of these collaborations and initiatives make us excited and very optimistic about our company's future. At this point, I will turn the presentation over to Jake Jacobs, our president and chief financial officer.

Thank you, Nick. My comments will be based on year-over-year comparisons of the third quarter of 2023 to the third quarter of 2022 unless I state otherwise. Net sales were $13.1 million, up 17%. We view this level of net sales as being solid in light of the intense competition and price compression going on within our industry today. Our total cost of goods sold was $8.7 million, down 17%. During the quarter ended September 30th, 2023, $597,000 of obsolete and spoiled inventory, primarily consisting of $489,000 worth of expired HHC infused gummies, was written off. Nearly all of these expired gummies were manufactured by third-party suppliers prior to the commencement of lifted in-house gummy manufacturing operations in Kenosha, Wisconsin. Management believes that these expired gummies were manufactured pursuant to formulations and manufacturing protocols that were of lower quality than lifted in-house gummy products and sold more slowly due to the relative lack of consumer excitement or HHC-infused gummies. This $489,000 charge reduced our net income per share for the three- and nine-month periods ended September 30, 2023, by approximately two cents. Commission and royalty expense related to the Cali Sweets Diamond Supply Co. and Jeter Collaborations totaled $847,000. Operating income was $659,000, up 33%. Our net income for the quarter was $617,000 compared to net income of $423,000. Our company had Q3 2023 basic and fully diluted earnings per share of 4 cents. Basic and diluted weighted average shares outstanding were $14.6 million and $15.4 million, respectively. Comparing the nine months ended September 30, 2023 to the nine months ended September 30, 2022, our consolidated revenues were $38 million, down 17%. We believe that reasons for the decline include greater competition in the marketplace, certain distributors creating their own brands and really only pushing their own brands, and certain other competing brands paying distributors and wholesalers for valuable shelf space. These and other competitive headwinds are expected to be challenges for us in the future. In addition, comments from regulatory agencies and law enforcement sometimes trigger confusion or fear among distributors, retailers, and consumers, which can result and decreased sales or returns or exchanges of our products. Our total cost of goods sold was $22 million, down 23%. Operating expenses were $12.8 million, up 65%, primarily driven by one-time non-cash deferred contingent stock expense of $2.1 million, an 88% increase in professional fees, commission and royalty expense related to the collaborations with Cali Sweets, Diamond Supply Co., and Jeter of $846,000, and increased payroll and operating costs. Operating income was $2.9 million, down 68%. Other expenses were $114,000 compared to other income of $6,000. Net income was $2.1 million, down 68%. 68%. We achieved gap based basic earnings of 15 cents per share and diluted earnings of 14 cents per share. Basic and diluted weighted average shares outstanding for the nine months ended September 30th, 2023 were 14.5 million and 15.2 million respectively. At September 30th, 2023, we had total outstanding and exercisable options and warrants of $3.6 million with a weighted average exercise price of $3.85, which, if all were exercised, would generate proceeds of $13.8 million, ignoring any cashless exercise features. Regarding our September 30, 2023 balance sheet, compared to our December 31, 2022 balance sheet, Cash on hand decreased 13% to $3 million, down from $3.5 million. Inventory increased 64% to $9.8 million, up from $6 million. Earned assets increased 36% to $18.8 million, up from $13.8 million. Current ratio increased 3% to 2.3 from 2.23. Working capital increased 40% to $10.6 million, up from $7.6 million. And there was no outstanding debt as of September 30th, 2023. Thank you.

We will now answer some of the questions that have been submitted to us. If you would like to ask a question and are connected via teleconference, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 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 button on the left side of your screen and type in your question and hit submit. So the first question, do you plan to apply to NASDAQ? I'd respond to that. We would like to apply for listing of our common stock on the NASDAQ, but only if and when we think we meet NASDAQ's initial listing requirements. Most notably, the bid price of our common stock would need to be $4 or more for us to apply for a NASDAQ listing. A second question that we have, do you have any questions on how Lifted's collaborations are doing? Nick, do you want to take that?

Sure. We've done a great job penetrating national distribution channels with all of our collaborations, particularly over the last few months since they've launched. Some are newer than than others Currently we're working on new marketing campaigns to increase the sell-through of these brands not only through Distribution but through retailers were really optimistic about these new products and these new collaborations that have launched and are also in the pipeline Okay

And the next question, is Lyfted currently selling any products outside the U.S.? Nick, do you want to answer that also?

Yeah, I can handle that. We have seen a continual increase in our distribution channels, particularly in South America, Columbia, Uruguay, Paraguay, St. Tropez. We do have some orders that have gone out to the European markets, and we're continuing to build the relationships for those distribution channels overseas. We believe that we'll be seeing markets open up in Thailand and other parts of Asia towards the end of this year and early next year.

Excellent. Okay, and then we have one more question. Are you aware of any of the publicly traded marijuana companies taking a position in Lifted Partners Common Stock or trying to take a position in Lifted Partners Common Stock? Jake, do you want to answer that?

Yeah. So in response to this question, we are aware there was one large publicly traded marijuana company that spoke to one or more of our shareholders about potentially buying some of their shares of LIFD off market, but I'm not aware or we're not aware of any of those purchases have actually occurred or been completed at this point.

Okay, there are no more questions. So that concludes today's conference call. You may disconnect at this time. Thank you for your participation.