Lftd Partners Inc

Welcome to Lifted Partners' fourth quarter 2023 earnings conference call. This call is being recorded. At this time, all participants are in a listen-only mode. If you have joined via 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 answer the question. I will now hand the conference over to Gerry Jacobs, the Chairman and CEO of Lifted Partners, Inc. Please go ahead.

Good morning, and welcome to Lifted Partners' fourth quarter 2023 earnings conference call. Our earnings press release and financial statements for the fourth quarter and full year 2023 have been filed with the SEC, and links to both can be found on our website, www.lftdpartners.com. On today's call, we'll share some comments on our quarterly and annual 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, 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. Unlike the vast majority of publicly traded companies in the cannabis industry, which were unprofitable during Q4 2023 and for calendar year 2023, LFTD partners had another profitable quarter in Q4 2023 and another profitable year in 2023. This profitability allowed us to shatter the narrative being pushed at us by nearly all the many potential lenders we met with over the past two years. which was that debt financing would only be available to our company at interest rates in the neighborhood of 16% or even more with a two- or three-year term. Instead, in December, Lifted Partners and Lifted Made entered into two five-year loan agreements with Surety Bank, a $3 million working capital loan at 9.5% interest and a $910,000 building purchase loan at 10% interest. In addition to allowing lifted made to purchase its main operations building in Kenosha, these loans have provided us with several million dollars of additional working capital. Last week we received approvals from surety bank and from our board of directors to use up to $300,000 of our working capital to conduct a private off the market stock buyback of up to 178,571 shares of our common stock. at $1.68 per share or less. Such stock buyback will be from certain of LiftedMaid's earliest employees who are obligated to pay income taxes on the deferred contingent stock that they acquired in February 2023 on the 30th anniversary of our acquisition of LiftedMaid pursuant to an employee retention agreement negotiated by Nick that reduced his merger consideration by the same number of shares. We expect to start such a stock buyback this week. Notwithstanding this progress and other positive developments that Nick is going to discuss later in this call, we are very aware that hemp-derived cannabinoid-infused products continue to be under regulatory attack at both the federal and state levels. A reauthorization of the so-called Farm Bill is currently being discussed in Washington, D.C., and it is uncertain what language will be included in the final legislation. In addition, prohibition of or tighter regulation of hemp-derived cannabinoid-infused products has been adopted or proposed in many states that are significant markets for lifted, including Florida. These federal and state regulatory challenges are material risks to lifted maize business and are continuing to require us to expend substantial management time, effort, and money in regard to lobbying efforts. Another challenge that Lifted made faces is that hemp-derived cannabinoid-infused products industry continues to evolve rapidly And like most companies in the industry, LiftedMaid continues to find it difficult to predict which product formulations will be embraced by consumers. Consequently, LiftedMaid sometimes finds itself with slow-moving inventory of certain product SKUs that need to be written off. And this issue materially adversely affected our Q4 2023 financial results. Jake will provide more detail on this write-off later. Finally, during the past few months, a certain lawyer has filed a number of lawsuits around the country against many of the major players in our industry, including brands, distributors, stores, testing labs, and raw goods suppliers, and many of the individuals who run these businesses. Along with these other companies and individuals, Lifted has been sued in Wisconsin and in Texas by the same lawyer whose plaintiffs allege that certain of Lifted's LiftedMaid's products did not contain the exact doses of particular cannabinoids that are indicated by their labels and by the certificates of analysis that have been received by Lifted from third-party testing labs. While we consider these lawsuits to be meritless and we intend to vigorously defend against them, these lawsuits have required us and are continuing to require us to expend substantial management time, effort, and legal fees. 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 Mate.

Thank you, Jerry, and good morning, everyone. Lifted Mate has been organically growing very rapidly since we went public by merging with Lifted Partners. Despite the pandemic, despite the numerous regulatory challenges that have been put in our way, despite our industry's arms race to produce hemp-derived products, at a reduced price per milligram of cannabinoids with more milligrams per unit and despite additional manufacturers continually emerging due to easy access to raw materials with recipes to produce knockoff brands, our revenue has still grown from $5 million in 2020 up to $51.6 million in 2023. Our headcount has grown from less than 10 employees to about 170 today. And we have been profitable on a gap-based earnings per share basis for 13 of the last 14 quarters, something that few or no other publicly traded companies in the cannabis industry have ever come close to achieving. And we have some exciting developments to tell you about today. First, Lift Tomatoes launched an exciting hemp-derived cannabinoid product collaboration with a large publicly traded multi-state cannabis company. bringing one of the most popular and award-winning cannabis brands into national distribution. Second, to diversify our operations, Lifted is planning to soon launch a new brand of non-hemp products called Milos. Milos is focused on the health and wellness market with products focused around fitness, sleep, focus, and relaxation. Milos will be the first nutraceutical gummy brand leveraging the power of botanical terpenes with other well-known natural ingredients. Third, at the end of March, Lifted Made came to an agreement with its landlord in Kenosha to cancel, without penalty, two of its existing leases and to expand the area of another existing lease by an additional 23,000 square feet of lease space in Kenosha. We expect this reconfigured lease space to improve Lifted's operational efficiencies meaningfully. Fourth, Lifted is in the process of moving a temp-derived flower division from Aztec, New Mexico, to larger space in Durango, Colorado. This move will give Lifted's hemp flower division additional space while also allowing the hemp flower division to expand into THCA industry, which is legal under Colorado law. Our company's greatest strength continues to be its well-known, high-quality, and extremely popular herb brand. We have spent months working on the next generation of products and are exhilarated to bring new technologies and next-level marketing with herb to the market. Consequently, we are continuing to focus on direct-to-store and direct-to-consumer sales channels, as we believe those sales channels often exhibit a higher brand loyalty. At this point, I will turn over the presentation to Jake Jacobs, our President and Chief Financial Officer.

Thank you, Nick. My comments will be based on year-over-year comparisons of 2023 to 2022, unless I state otherwise. Our consolidated net sales were $51.6 million, down 10% due to a number of headwinds, greater competition in the marketplace for hemp-derived and psychoactive products, more distributors creating their own brands and selling their own branded products at low prices, increased competition for products containing more milligrams of cannabinoids per unit at a lower price point, and other competing brands paying distributors and wholesalers for valuable shelf space. Partially offsetting these headwinds, the manufacturing sales and marketing agreements we entered into in 2023 with Cali Suites, Diamond Supply Zone, and Jeter contributed approximately $5.7 million to net sales. Our total cost of goods sold was $31.9 million, down 12%. Written-off inventory decreased to $2 million in 2023 compared to $4.4 million in 2022. Excluding written-off inventory, our cost of goods sold decreased 7%. Cost of goods sold excluding written-off inventory represents 58% of nut sales in 2023 and 56% of nut sales in 2022. Our cost of goods sold rose faster than our nut sales in 2023, primarily due to our investment in production labor to support the third-party manufacturing sales and marketing agreements. Operating expenses were $17.3 million. up 55%. The increase in operating expenses in 2023 was primarily driven by deferred contingent stock expense of $2.1 million and $1.7 million of commission and royalty expenses related to the third party manufacturing, sales, and marketing agreements we entered into in 2023. Payroll and independent contractor expenses increased by approximately $1.1 million, or 16%, as a result of the cost of absorbing staff that previously worked for Oculus DRS, the assets of which listed acquired in April 2023, and as a result, increased labor costs. During the last few months, we have right-sized our organization and are currently stabilized at approximately 170 employees, and bad debt increased by approximately $274,000, or 350%. Operating income was $2.4 million, down 75%. Operating margin was 5%, down 17%. Other income in 2023 was $346,000, compared to other income in 2022 of $181,000. Other income in 2023 includes $506,000 of income recognized related to litigation settlements, which is offset primarily by interest expense of $111,000 and debt financing expenses of $61,000. Net income was $2.1 million, down 20%. We achieved annual gap-based basic earnings of 15 cents per share and diluted earnings of 13 cents per share. Excluding the deferred contingent stock expense of $2.1 million, our net income and basic earnings per share for the full year would have been greater by $1.7 million and 11 cents respectively. Basic and diluted weighted average shares outstanding for the year 2023 were 14.6 million and 16.4 million respectively. EBITDA for the year was $3 million, down 70%. Comparing the quarter ended December 31st, 2023 to the quarter ended December 31st, 2022, our consolidated revenues were $13.5 million, up 19%. Our total cost of goods sold was $9.5 million, up 33%. Operating expenses were $4.5 million, up 32%. We had an operating loss of $517,000 compared to operating income of $716,000 in 2022. Operating margin was negative 4% compared to 6% in 2022. Other income was $460,000 compared to other income of $174,000 in 2022. Net income was $23,000, down 96%. we achieved gap-based basic and diluted earnings of $0 per share. Basic and diluted weighted average shares outstanding for Q4 2023 were $14.8 million and $16.7 million, respectively. EBITDA for Q4 2023 was $16,000, down 98%. At December 31, 2023, we had total outstanding earnings vested 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. In regards to our December 31, 2023 balance sheet compared to our December 31, 2022 balance sheet, cash on hand increased 23% to $4.3 million, up from $3.5 million. Inventory increased 59% to $10.1 million, up from $6 million. Current assets increased 56% to $21.6 million, up from $13.8 million. Current ratio increased 12% to 2.4 from 2.2. Working capital increased some 70% to $12.9 million up from $7.6 million. And there were outstanding notes payable to Surety Bank of $3.9 million compared to no outstanding debt at December 31st, 2022.

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 box on the left side of your screen, type in your question and hit submit.

Well, I guess we have no questions today.

We greatly appreciate everybody who got up early to participate in this call. This concludes today's conference and you may disconnect at this time. Thank you for your participation.