Lftd Partners Inc

Q2 2024 Earnings Conference Call

8/15/2024

spk00: Welcome to Lifted Partners second quarter 2024 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 a question box on the left side of your screen, type in your question and hit submit. Teleconference participants, please hit star one 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.
spk02: Good morning, and welcome to Lifted Partners' earnings conference call to discuss the second quarter of 2024. Our earnings press release and financial statements for the second quarter 2024 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 quarter 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, 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. I'd like to highlight some of the factors that have been impacting our business, some for the better and some for the worse, over the past few months. An enormous amount of time, effort, and expense over the past seven months culminated in the very well-received relaunch of Lifted Maid's base business of intoxicating hemp-derived cannabinoid products under the Herb brand at Champs Vegas, the industry's biggest trade show, at the end of July. Later in this call, Nick will describe this relaunch as well as a major new direct-to-retailers push that has begun starting in Texas and the engagement of one of the cannabis industry's top marketing firms to help grow Lifted Maid's direct-to-consumer online marketing efforts. We are also committed to diversifying Lifted Maid's product offerings beyond hemp-derived products. During the past two months, Lifted Maid has launched two exciting new hemp-free brands, Mielos and Rebel Energy Gummy. Under Mielos, we've launched various health and wellness gummies, and Rebel Energy Gummy is designed to compete with energy drinks such as Red Bull. And both Mielos and Rebel Energy Gummy can be sold nationwide without legal restrictions. Nick will discuss these two new products and their rollout later in this call. We also want to diversify our business outside Lifted Made. We have been engaged in a number of discussions regarding potential acquisitions, both within and outside the hemp industry. These discussions are ongoing and at this point in time are including a discussion with a fund that has expressed an interest in potentially backing acquisitions by lifted partners. No assurance can be given that these discussions will be successfully concluded. Complicating these efforts to diversify our business is the fact that intoxicating hemp-derived 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 intoxicating hemp-derived products continues has been adopted or proposed in many states, such as Missouri, most recently. These regulatory and state regulatory challenges are material risks to Lifted Maid's business and are continuing to require us to expend substantial management time, effort, and money in regard to lobbying efforts. At this point in time, I will turn the presentation over to Nick Warrender, our Vice Chairman and Chief Operations Officer, and the founder and CEO of our wholly owned subsidiary, LiftedMade.
spk01: Thank you, Jerry, and good morning, everyone. I'd like to provide some information regarding some exciting developments and updates regarding Lifted. After seven months of work along with one of the top creative firms in the world at Champs-Pagas, biggest industry show, we launched the newest iteration of our best-selling brand, Herb, featuring a fly-high theme. This brand-new suite of products, formulations, technology, and branding for us has set a new benchmark in the cannabis industry. A leading industry blogger recently wrote, quote, the Herb booth at this year's CHAMP show was one of the most impressive installations, showcasing the brand's creativity and innovation. Their marketing and product teams deserve a huge shout out for their fantastic execution of the Fly High theme. Visitors received a boarding pass to enter their makeshift airplane, complete with a high mall catalog paying homage to the Sky Mall. Each product in the new line cleverly featured a takeoff time indicating when you can expect to feel the effects and a flight time for the duration of the experience. I'm excited to try these new products once they're available to the general public. ERB's attention to detail and unique approach made their booth the highlight of the show. We're using two major initiatives to intentionally push this relaunch for ERB in a way that is intended to significantly increase our direct-to-retailer and direct-to-consumer online sales. To increase our direct-to-retailer sales, we're building a 15-person team, boots on the ground. We'll be meeting face-to-face with hundreds of vape shops in an intensive city-by-city push, starting in Houston this month and then continuing on to other metro areas. And to increase our direct-to-consumer online sales, we're engaging what we believe is the country's best online cannabis marketing firm to accelerate ERB's already good SEO but other online marketing efforts. We are hopeful that these two marketing initiatives will significantly expand our sales volumes and profit margins and make us less reliant on just distributors. We also have high hopes for two new hemp-free brands, Milos and Rebel Energy Gummies. The popularity of health and wellness products have also soared nationally. Our Milos brand is focused around fitness, focus, sleep, and relaxation. Milos will be the first nutraceutical gummy brand leveraging the power of botanical terpenes with well-known other natural ingredients. There are an increasing number of scientific studies being conducted on the benefits of terpenes. Most recently, a federal-funded study suggested that terpenes could be potentially therapeutic for chronic neuropathic pain. Energy products like Red Bull, Monster, Five Hour Energy have become a massive sales category at grocery and convenience store chains. Red Bull Energy Gummy offers consumers equivalent energy boosts at a lower cost with only three grams of sugar and only 13 calories per serving or two gummies. Rebel gummies include caffeine, taurine, vitamin B3, 6, and 12. The Rebel gummies are sold in pouches containing eight gummies, which each pouch is containing the equivalent of four energy drinks. These two new non-hemp brands are very important for Lyfted because many large grocery and convenience store chains are not equipped or interested in handling products used that are illegal in some states. They want products that can be brought into their distribution centers and shipped all over the country without worrying about violating state and potential local laws. At this point, I will turn the presentation over to Jake Jacobs, our President and Chief Financial Officer.
spk03: Thank you, Nick. My comments will be based on quarter-over-quarter comparisons of Q2 2024 to Q2 2020. 2023, unless I state otherwise. Our consolidated nut sales were $9.4 million, down 24% due to a number of headwinds. Firstly, prohibition of or tighter regulation of intoxicating hemp-derived products has been adopted or proposed in many states that are significant markets for lifted, such as Missouri. There is also greater competition in the marketplace for branded hemp-derived and psychoactive products. More distributors are creating their own brands and selling their own branded products at low prices. There's increased competition for products containing more milligrams of cannabinoids or active ingredients per unit at a lower price point. and other competing brands are paying distributors and wholesalers for valuable shelf space, which is something that Lifted has never done. Our total cost of goods sold was $5.9 million, down 14%. Lifted's industry and customer preferences are constantly and quickly evolving. Consequently, Lifted finds it extremely difficult to predict future sales of its products, and to anticipate raw goods needed for future production. This exposes lifted to the risk that it will need to write off obsolete inventory, causing an increase in cost of goods sold. Written off inventory increased to $651,000 compared to $42,000. Written off inventory primarily consisted of obsolete packaging, of $434,000, other raw goods of $111,000, and finished goods of $105,000. Excluding the effect of written-off inventory, gross margin as a percentage of net sales was 44% compared to 45%. Operating expenses were $4.1 million, up 27%. The primary driver for this increase in operating expenses was $1.2 million of bad debt expense. The delay in Lifted's receipt of payments from certain customers, primarily distributors, has increasingly become an issue for Lifted. Certain customers have become slower to pay Lifted for purchased products, and these slow-paying customers disregard payment terms. Management speculates that some slow-paying customers may be slow-paying lifted because of their own sales collection issues, which may in part be caused by the regulatory uncertainty over our industry. The company has an accounting protocol which effectively causes the company to recognize an allowance for doubtful accounts for all invoices older than 90 days. Consequently, the delay in the lifted receipt of payments from certain customers has a direct impact on the company's net receivables, net income, and earnings per share. Operating loss was $582,000 compared to operating income of $2.3 million. Net other expenses were $75,000 compared to $24,000. Offsetting the loss was a benefit of $134,000 from income tax provision, bringing listed partners net loss to $523,000, or 4 cents per share, compared to net income of $1.6 million, or 11 cents per share. Basic and diluted weighted average shares outstanding for the quarter were 14.8 million shares. The company was cash flow positive for the six months ended June 30th, 2024. Net cash provided by operating activities was $244,000. At June 30th, 2024, we had total outstanding vested and exercisable options and warrants of 3.5 million with a weighted average exercise price of $3.97, which if all were exercised would generate proceeds of 13.7 million, ignoring any cashless exercise features. In regards to our June 30, 2024 balance sheet compared to our December 31, 2023 balance sheet, cash on hand decreased 17% to $3.6 million, down from $4.3 million. Inventory decreased 28% to $7.3 million, down from $10.1 million. Current assets decreased 25% to $16.3 million, down from $21.6 million. The current ratio increased to 3.1 from 2.49. Working capital decreased 15% to $11 million, down from $12.9 million. And notes payable to Surety Bank decreased 6% to $3.61 million, down from $3.85 million. We will now answer questions that have been submitted to us. If you would like to ask a question and are connected via teleconference, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, It may be necessary to pick up your handset before pressing start keys. Webcast participants, please click on the ask question box on the left side of your screen, type in your question, and hit submit. Okay, first question we have is from analyst Pablo Zuanek of Zuanek and Associates. Congratulations on the rebrand. It was great to see it all at the Champ Show in Vegas last month. Can you tell us what was the inspiration for the rebrand and what aspects of it are you most excited about?
spk04: Nick, do you want to take this one? Thank you.
spk01: My apologies. Thanks for the question, Pablo. The inspiration for the Fly High theme was really to create a brand identity that stands apart from the industry. We've worked to bring the best consumer experience by also bringing familiarity when it comes to flying. A lot of people can associate with the minor details throughout the branding and marketing. For us, we've always been known as a great brander of the industry. However, I feel like the industry to a degree has kind of caught up. We felt that this theme would create really tight guidelines to separate us from the rest of the industry, but also to create amazing marketing just beyond product marketing. So we're really excited to continue to showcase what we've been working on over the last many months. These are things that you'll see starting to roll out on social media, as well as programmatic advertising that's in the pipeline, in-store activations, in-distribution activations. So please feel free to follow us, our Instagram, new Instagram account, at fly.herb, and see a lot of the new exciting visuals, content, and products that are just starting to come to market now.
spk04: Thank you, Nick.
spk03: All right, we have another question from Analyst Pablo Zwanek of Zwanek & Associates. Given the regulatory uncertainty, how are your customers, whether distributors, wholesalers, and retailers, reacting? Did they stop buying cut inventories? Nick, do you mind taking that one?
spk01: Sure. Another great question. Certainly, there's no hiding it, whether legislation is just proposed or actually passed, or if some government official decides to make a public comment attacking our industry or bad press. It can spook our wholesalers and distributors, causing them to buy less or slow pay us. This is why we're diversifying into other hemp-free products under our two new brands, Milos and Rebel. and why we're actively involved in lobbying for our industry through the American Healthy Alternatives Association.
spk04: All right.
spk03: Thank you, Nick. Another question from analyst Pablo Zuanek of Zuanek & Associates. There have been other publicly traded marijuana companies that have publicly announced that they are launching or have launched hemp products. Do you expect this to continue? Gary, do you mind taking this one? Sure.
spk02: Well, I mean, as we've said previously, we think that whether anybody likes it or not, there is going to be a gradual merging of the marijuana and hemp industries. And, you know, we are seeing that occur as publicly traded companies like Cure Relief have entered the hemp industry. This does create you know, greater competition in the marketplace for branded hemp-derived and psychoactive products, and it definitely impacts our sales.
spk03: Okay. Another question we received, how are your collaborations doing? How does that deal with Extracts New Mexico doing? Okay, I can take this one. The aggregate sales from Cali Sweet Diamond Supply Co. and the collab with the of the publicly traded marijuana company that we're working with totaled $1.5 million in revenue for the first six months of the year. Sales were lower than we would have liked, but I mean, the same challenges we face selling herb are present with the Collab products. And regarding Extracts New Mexico, for those who might not know about that deal, Extracts is a licensed marijuana products manufacturer in New Mexico, and we've got an exclusive arrangement with Extracts whereby we sell raw goods to Extracts, and they, in turn, make base and cartridges and sell those to dispensaries in New Mexico. And Extracts collects the money from the sales, and then we split that revenue with Extracts. 50-50 on a monthly basis. And so any revenue we receive related to the sale of the finished goods made with the raw goods that we originally invoiced extracts for above the amount we invoiced extracts is accounted for as licensing fees. Looking at my notes, the first invoice we sent to extracts, it was in mid-December 2023. And then since then, through June this year, we've invoiced extracts for $461,000 worth of raw goods. And we earned licensing fees of $160,000. And we had accounts receivable of $254,000, which includes $41,000 related to licensing fees. I think the sales were slower in Q2 than we expected, but X-TRAX is also not finished producing all the goods that are covered by, that should be made out of the raw goods that we sold to X-TRAX. So, that's where that relationship stands. Another question we have, can you provide color regarding bed debt? I can take this one also. As I mentioned on the call, our company has an accounting protocol which basically causes the company to recognize an allowance for doctoral accounts for all invoices that live in 90 days. So any delay in our receipt of payments from these customers that take more than 90 days has a direct impact on our net receivables, net income, and EPS. When we do collect the receivables, we recognize the benefit on our financials, but there's an adverse effect on our financials if it's older than 90 days until the point it's been collected. But looking at our ability to collect historically, you know, our write-offs have been relatively small. I mean, the average annual write-offs between 2021 and 2023 was just $148,000. So, even though I can't guarantee that we're going to be able to collect 100% of the bad debt. Historically, we have collected, even if it's taken longer than anyone would have liked, but we have collected and we plan to take whatever steps are necessary, including our lawyers and legal action to collect. All right, and now we got a number of questions from one of our shareholders what do you budget for cash burn rate for third and fourth quarter what to what do you expect sales for third and fourth quarter you know we've uh never provided guidance i cannot provide guidance on those two top questions uh when do you expect the company to be cash flow positive uh we well we are cash flow positive this quarter we uh and last quarter, but this quarter we did $244,945 cash provided by operating activities. Then, what are the most exciting developments looking forward? Well, Nick, Jerry, do you guys want to comment on that?
spk02: Well, personally, I think that this movement into non-hemp products such as rubble, energy gummies, and meal-less wellness products is a huge boost for us. It's not visible from our public filings, but an enormous amount of time has been spent over the past two years evangelizing Herb and our products to huge grocery store chains, convenience store chains, and other large potential buyers of products. And these companies, they're just extremely gun-shy of products that have been declared illegal in any of the U.S. states. And from an operational standpoint, they just simply are not set up with their distribution channels and their distribution facilities to accommodate products that have to have, you know, stop orders put on them so that they cannot be sold in particular states or particular counties or particular municipalities. It's that granular. And while they have, you know, expressed an inability and an and a lack of interest and an inability functionally to handle products that have illegal illegality in certain States or certain municipalities. They have been enthusiastic about, uh, the brand and, uh, you know, basically have said to us, you know, Hey, bring us products that we can sell everywhere. And, uh, that, uh, you know, has provoked, you know, Nick and his team, they spent a tremendous amount of time and effort coming up with formulations. I think that for these two channels, energy gummies and wellness products, Nick, I don't know whether you want to comment on the exciting, I think it's very exciting how terpenes have been, are being used in these products.
spk01: Yeah, this is a new development. Typically, terpenes are the first portion of components that are burned off through a gummy making process. We worked with the top terpene company in the world to develop what we're calling a thermal protected terpene flavoring that we've tested through third-party labs to ensure that they're making their way through the process. This is a big difference maker. People are looking for you know, natural alternatives. We're using a lot of ingredients that people are familiar with, but we're also, it was very important for us to find a differentiator. We're also vertically integrated when it comes to manufacturing, and that gives us great advantage to a lot of competitive products, particularly in these categories that typically rely on third-party co-packers. So, You know, our goal is that that will build in more margin for us, give us the ability to be aggressive. And, look, I realize that the wellness industry and the energy industry are massive industries to penetrate, but, you know, so is the hemp industry. I think there's an argument to be made that the hemp industry is the hardest industry in the country, at least from my perspective. And, you know, to add on to that, you know, this rebrand with Herb, in my opinion, is not to be taken lightly. I think we've created something that is so different than what's been done in the entire cannabis industry. And we're really focusing on states that have solidified regulations, particularly looking at Florida, right? Florida has publicly come out to state that they want to protect small businesses. They want to protect the hemp industry. They want to be you know, the ones that the nation looks at as to how to regulate the industry. So we're working closely with our association to implement further regulations in not only Florida but other states to further legitimize the hemp industry and to bring products that for us will be looked at as kind of the golden child and the one setting the example of what professional hemp products can look like. So we're not discounting the hemp industry. We realize that it's very tough times. Part of that is from regulations, legislation, and uncertainties. Part of that is also kind of self-inflicted via the industry. But, you know, we've always gone against the grain. I think this is another example of us going against the grain. But we know this industry very well, and I think that navigating it with a new strategy such as the one that we're putting forth now has taken a lot of time, but it's the right move. So our motto has always been do the right thing. And we know that if we continue to do the right things, the money always comes. So we're finally getting to that starting line. It's taken a lot of time. It's taken a lot of money. But to Jake's point, we've continued to stay cash flow positive through these really hard times. and we've invested greatly in areas that we know will pay off in the near future and for us to create more of a sustainable future for the long term. Just to add some more color to Jerry's points, I think these three initiatives are very strategical. These weren't things that we just threw together last minute. These have been months and months and months in the making, and now we're finally to the position of sales and marketing and execution. I think we've got a phenomenal team to do that. We've brought on a new marketing director that has worked in the wellness industry, that came from the cannabis industry, worked at some of the top companies, both private and publicly traded. So, you know, the confidence I have in myself to navigate these waters, but also the team that we've put together and the agencies that we've brought on board are truly world class. So we think we have the best people in the country that are working on all these problems. and helping to navigate through these hard times of the hemp industry. But I do think that this is going to be a long-term industry. I think they're trying to figure out what exactly it will look like. But I personally believe that, you know, we're setting ourselves up for long-term sustainability rather than just short-term games. So, yeah, that's, in my opinion, further clarity on, you know, everything that we've been working on. And I think that you know, we're finally getting to a position where it is going to showcase in the public eye.
spk03: Thank you, Nick. Okay, looks like there are no more questions. This concludes today's conference, and you may disconnect at this time. Thank you for your participation.
Disclaimer

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