SLGWF - SLANG Worldwide Inc. (SLGWF) Q4 2022 Earnings Call Transcript

2023-04-30 04:53:03 ET

SLANG Worldwide Inc. (SLGWF)

Q4 2022 Earnings Conference Call

April 27, 2023, 10:00 AM ET

Company Participants

Phil Carlson - Investor Relations, KCSA Strategic Communications

John Moynan - Chief Executive Officer

Mikel Rutherford - Chief Financial Officer

Conference Call Participants

Presentation

Operator

Thank you for standing by. I would like to welcome you to the SLANG Worldwide Q4 2022 Earnings Conference Call. At this time, all lines have been placed on mute to prevent any background noise. [Operator Instructions] Thank you.

I'll hand over to Philip Carlson, KCSA to begin the presentation.

Phil Carlson

Thank you, operator, and good morning, everyone. Our speakers on today's call will be Mr. John Moynan, CEO of SLANG; and Mr. Mikel Rutherford, Chief Financial Officer. Before we begin, please let me remind you that during this conference call, SLANG's management may make forward-looking statements made within the meaning of applicable securities laws.

Forward-looking statements may include, but are not necessarily limited to financial projections or other statements of the company's plans, objectives, expectations or intentions. These forward-looking statements are based on current expectations that are subject to a number of risks and uncertainties that may cause actual results to differ materially from those expressed or implied in such statements.

Factors that could cause actual results to differ materially include, but are not limited to the risk factors contained in the company's filings with SEDAR. Please also note any forward-looking statements made here are as of today and to the extent required by law, the company assumes no obligation to update statements as circumstances change.

Now I'd like to turn the call over to Mr. John Moynan, CEO of SLANG. John, please go ahead.

John Moynan

Thank you, Phil. Good morning, everyone, and thank you for joining us on our fourth quarter and year end 2022 conference call to discuss our financial and operational results for the year ending December 31st, 2022.

In 2022, the SLANG team continued to execute on our growth strategy of leveraging a consolidated supply chain while achieving greater operational efficiencies to drive growth within our most profitable revenue channels. Now as we report our year-end results, I am pleased to say that our execution of this strategy has proven successful, and we are reporting our first quarter of positive operational cash flow.

More importantly, we believe that these results are sustainable, and we are also pleased to announce that we generated positive operational cash flow in Q1 2023 as well. This is a huge accomplishment as there are a very limited group of publicly traded cannabis operators that are operating with this financial strength.

SLANG has clearly differentiated itself from a competitive peer group that is yet to demonstrate the ability to produce sustainable top and bottom line growth. In 2022, we increased revenues in a period of restructuring and significantly increased our adjusted gross margins year-over-year, further demonstrating our ability to drive profitable revenue growth. We now see a continued opportunity to increase margins as we grow sales in each market that we are operating in more efficiently.

We have increased our EBITDA over the fourth quarter and fiscal year with an increase of $3.04 million and $8.78 million, respectively, reflecting the significant impact of our increased margin and reduction of operating costs. Our cash position remains strong with cash and cash equivalents of $11.9 million as of December 31st, 2022.

In one year, we have transformed SLANG and are operating in our strongest financial position to date. Now as we continue to advance in 2023, we are leveraging a streamlined infrastructure to capitalize on a number of key growth opportunities, which will further elevate our brand, expand our geographic footprint and continue to drive stronger financial results. We are in a position unlike any other comparable cannabis operator.

We have established brand, which continues to drive consumer demand and its industry awards. We have generated positive operating cash flow now in two consecutive quarters, and we are well funded for continued growth.

Our business model is flexible, scalable and unique due to our ability to participate in markets under a diverse array of structures. By leveraging our vertically integrated core market operations that support our capital-light national distribution and strategic partnerships, we can operate unlike a traditional MSO and drive brand performance in each of the country's most competitive cannabis landscape.

Before driving further into our fourth quarter and year-end results, I would like to specifically highlight the continued success we are seeing in our core markets of Vermont and Colorado. Since acquiring a vertically integrated infrastructure in Vermont, the state has become a key growth catalyst for SLANG.

First, by leveraging our two acquired medical marijuana licenses, we immediately secured a more profitable revenue stream as we incorporated a direct-to-consumer sales through our three medical retail locations beginning in August 2021.

Our stronger annual results reflect a full year of achieving high margin revenue from our unique position in Vermont's medical cannabis market. In addition, our ability to build upon our leadership position in this market with our evolving product portfolio continues to drive healthy and consistent gross profit for the company as a whole.

In September 2022, we significantly strengthened our already established position in Vermont by obtaining a recreational retail license and opened the state's first actuation Canada store in Burlington, Vermont. As an early entrant to this high-growth market with our centrally located 1,500 square foot series collaborative dispensary supported by our established operational infrastructure, we are now leading the next stage of growth in Vermont cannabis market.

As a result of opening the Burlington retail location, Vermont sales exceeded CAD5.38 million in Q4, significantly outpacing our forecasted growth for the year and driving our full year Vermont sales to CAD10.96 million. We are strategically leveraging our new cultivation and production capabilities and supporting our main on main retail location to efficiently meet demand, drive more profitable growth and lead the Vermont market as it continues to expand.

Our operational structure in Vermont has proven successful and present a continued opportunity to increase our product offering and brand penetration. We are now leveraging our first-mover advantage to produce similar results in the wholesale channel, and we expect this to be another avenue to drive growth in what has become a very important market for us.

In Colorado, the impact of long-term supply chain consolidation and the strengthening of key partnerships has provided us with significant cost savings, which have also positively impacted our gross margins over the past year. By spinning off our extraction operations and leveraging attractive market prices, we have reduced one of our most substantial input costs.

Distillate and extraction-based products are the largest segment of our total sales in Colorado and the opportunity to grow this high-margin revenue stream brings us another avenue for sustainable profitability. We operated from a position of strength in Colorado, utilizing our experience and leadership as we aim to capitalize on organic revenue growth by increasing velocity per store and expanding points of distribution. With reduced expenses and increased marketing support from key account partnerships, our Colorado operations will continue to thrive.

Finally, in 2022, we truly demonstrated the strength of the line brand and the success of our efforts to introduce new products that meet today's consumer demand. In October, we celebrated 10 years of success of our market-leading VAPE cartridge O.pen, and achieved record sales as key accounts in Colorado delivered a 229% increase in sales from August to September as consumers increasingly purchased O.pen over competitive brands.

This success prompted a new strategic approach heading into 2023, focused on structured, brand-driven promotions during key sales periods throughout the year. And our first two O.pen promotions in Q1 2023, we've seen our top five highest volume accounts delivering 30% to 66% year-over-year sales lift.

We believe this strategy will continue to prove effective as we look to further deliver sales at our highest volume retails. O.pen has remained the top selling VAPE cartridge product in Colorado for eight straight years, outpacing the competition by a wide margin despite challenging market conditions.

We pride ourselves on the success of this brand and continue to leverage our competitive edge through the introduction of products and high demand categories that we have already achieved success with and can provide another key avenue for high-margin revenue.

Now I'd like to hand it off to our CFO, Mike Ratherford to discuss our financial results in more detail. Mike?

Mikel Rutherford

Thank you, John. For the fourth quarter of 2022, revenue from continuing operations was $11.78 million compared to revenue of $8.84 million in the fourth quarter of 2021, representing a 33% increase.

The primary drivers of the increase were an increase in our core market sales of $0.46 million in Colorado and $3.37 million in Vermont, offset by a decrease in our emerging market sales of $0.86 million.

For the full fiscal year 2022, revenue from continuing operations increased to $38.19 million from $37.78 million in fiscal 2021. The primary driver of our year-over-year revenue growth was the recognition of a full year of revenue from the acquisition of HiFi in Vermont, offset by a reduction in revenue resulting from shifting Oregon from a core market to an emerging market which was completed in Q4 2021 as well as a reduction in our emerging market revenue.

Gross profit for the fourth quarter of 2022 was $4.7 million with a gross margin of 40% compared to $4.10 million with a gross margin of 46% in the fourth quarter of 2021. On a sequential basis, gross profit increased 30.5% from $3.6 million in the third quarter of 2022.

Gross profit for the fiscal year 2022 was $16.45 million, with a 43% gross margin compared to $15.13 million and a 40% gross margin in fiscal year 2021, representing a 9% increase year-over-year. Adjusted gross profit, which we define as gross profit before fair value adjustments of biological assets was $5.7 million for the fourth quarter of 2022 with a 48% adjusted gross margin compared to $3.34 million with a 38% adjusted gross margin in the fourth quarter of 2021, representing a 71% increase year-over-year.

The adjusted gross profit in fiscal 2022 was $17.62 million with a 46% adjusted gross margin compared with a $14.47 million with a 38% adjusted gross margin in fiscal 2021, representing a 22% increase year-over-year. The company was able to significantly increase its adjusted gross profit and margin both in the fourth quarter as well as the year, mainly due to two factors, the addition of recreational sales in Vermont and a reduction of input costs in Colorado.

Total operating expenses for the fourth quarter of 2022 were $8.17 million compared to $11.05 million in the fourth quarter of 2021 and $8.59 million in the third quarter of 2022. For the full year of 2022, total operating expenses were $31.33 million compared to $40.46 million in 2021. The company was able to successfully reduce its operating expenses in both the fourth quarter and the year when compared to 2021 despite supporting a new operating segment with the addition of the Vermont market in August 2021.

Fourth quarter 2022 adjusted EBITDA loss was $56,000 compared to an adjusted EBITDA loss of $2.9 million in the prior year period and an adjusted EBITDA loss of $1.24 million in the third quarter of 2022. The improvement in adjusted EBITDA is primarily attributable to the $2.36 million increase in adjusted gross profit and decreases in consulting and subcontractor operating expenses.

EBITDA loss in the fourth quarter of 2022 was $1.82 million compared to an EBITDA loss of $4.87 million in the fourth quarter of 2021. The improvement in EBITDA is primarily attributable to an increase in gross profit of $0.6 million and decreases in operating expenditures consisting mainly of consulting and subcontractors, share-based payments and expected credit losses.

The company reported an adjusted EBITDA loss of $3.65 million in fiscal 2022 compared to an adjusted EBITDA loss of $5.63 million in fiscal 2021. The improvement in adjusted EBITDA is primarily attributable to a $3.16 million increase in gross profit before fair value adjustments on biological assets, offset by an increase in operating expenditures related to HiFi, which also is not presented in the comparative period before August 11, 2021.

EBITDA loss in fiscal 2022 was $8.71 million compared with $17.49 million in fiscal 2021. The improvement in EBITDA is primarily attributable to a decrease in operating expenditures, excluding depreciation and amortization of $7.41 million and an increase in gross profit of $1.32 million.

Our balance sheet remains strong with $11.9 million in combined restricted and unrestricted cash as of December 31st, 2022, compared to $20.83 million on December 31st, 2021, and $12.23 million at September 30th, 2022.

As John mentioned, we generated positive operating cash flow in Q4 2022 and again in Q1 2023, and we look to continue this success going forward.

I'd like to turn the call back to John for some concluding remarks.

John Moynan

Thanks, Mike. We believe our success in 2022 is a powerful indicator of SLANG's future potential. The SLANG business model has always been one of the strongest in cannabis. We pride ourselves on our ability to expand our product portfolio to consistently meet today's consumer demand, becoming brand leaders in today's fastest-growing cannabis market.

We continue to demonstrate what it means to be a flexible, lean operator in cannabis, producing differentiated financial results and thriving in the most competitive cannabis market. The continued implementation of a carefully structured business strategy will guide the next step of our successful operational and financial growth. We look forward to updating you on our progress in 2023 as we continue to execute on this plan.

Question-and-Answer Session

End of Q&A

This now concludes today's conference call. Enjoy the rest of your day. You may now disconnect.

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