Greenlane (GNLN) 17 Nov 202020 Q3 Earnings call transcript

Good morning all. Welcome to today’s conference call to discuss Greenlane Holdings Third Quarter Financial Results. A press release detailing the financial results for the quarter was distributed this morning and is available on the Investor Relations section of the Greenlane website.

As a reminder, today’s conference is being recorded.

On the call today are Aaron LoCascio, Chief Executive Officer; and Bill Mote, Chief Financial Officer.

to would contain remind may forward-looking forward-looking in Greenlane prepared that make begin, statements may received. remarks statements response we like listeners to today’s additional Before questions the and management statements not placed should not undue be future and upon performance These therefore, do reliance them. guarantee Company’s and statements discussed other the expectations in are inherent involve today’s current on and These release. factors risks based press of management and uncertainties broadcast, time-sensitive contains date information that XX, as only the live also speaks of of this call November XXXX. This Factors results set that Greenlane’s differ forth XX-K Form to in on in SEC. on and report cause and XX-Q could Greenlane’s the materially filed quarterly reports today’s are press annual with Form release and made forward-looking to today as result these obligation on a statements statements of update on new events. Any today, future assumes information Greenlane or of are no call based this assumptions as

call, During today’s net EBITDA. and adjusted Greenlane discuss LoCascio. including these Relations measures the measures section may included of turn gnln.com. would Please at I adjusted today’s is of of non-GAAP available loss LoCascio, release, reconciliation ahead, which non-GAAP has website Executive our to management Greenlane. Greenlane financial a press go Mr. Investor Mr. Officer over like Chief to conference the Aaron on in

and you, today. Good us morning, thank everyone, joining for

Mote, our our Bill During turning Officer, the before activities transformation financial this to highlights, plan, Chief results. I and will Financial business development business detailed operating call call, a review third environments review quarter sales our for over of

related emphasis levels. and acted on extensive staffing senior to During initiatives the and of and review quarter, our leadership I team key category related business organizational go-forward our an new our structure third several completed

remain will lines, consumption our necessary cannabis products continue capitalize to exciting profitability the and platform shareholder on to new making foundation evolve opportunities maintain leading have develop. steps generate focused throughout new the strong The as products launching our positive markets deemphasize and for steps We value. anticipated as consumer and executing our improve now certain decisive to to high-margin We globally, position cost existing to our on changes vision, Greenlane’s invest reaffirm structure. organization taking strong additional return strategic in product and growth further are and fastest-growing sector taken the markets on we

Our pillars: first through approach on opportunities products our revenue our and focused is broader Greenlane on branded four the key focuses assortment. higher-margin increasing

The distribution second operational our further our platform is reduce by increasing streamlining efficiencies costs. optimizing and to

is our our we strategic carefully and is well approach our and that third expand also high-margin decisions to enhance combination drive In distribution are the expected end QX annualized completed new the by to X.X%. saw to well our And expense sales and our centralized transition to as opportunities. to growth initiatives to will platform reductions, we continue reduced quarter Subsequent M&A successfully the XXXX. transformation streamlined opportunities. as worldwide mix The refine diversification of customer through selected these by the model of with generate end, revenue savings headcount a fourth growth. are further as of other in continued that as implemented with our proof $X being We million development

or higher-margin focus approximately XXXX. XX.X in XX%to increased XX% channel long-term in QX compared X% XXXX XX% of compared XXXX. growth. to X.X million BXC mix million XXXX will QX opportunities us XX% in to This revenue. increased And on of QX to grew QX QX position appropriate and to S&P for for Notably, XXXX brands XX.X in XX% in to XX.X% XXXX. for grew Greenlane million revenue core compared QX our XXXX total Our sales QX

new online markets. opportunities South important to compared solutions customers remain expansion one in accessories Online is products pursuing and to shopping growing America, a continue We to we number QX for side, And for of of that exclusive committed most QX the many our due to pandemic of XXX% grew we Marley Central driven and XXXX, an right customers popular will see QX the XXXX the channel their XXX% our the retail brands, ends. we product these were Naturals utilizing demands. expand online online Europe. to as Marley as to pandemic to customers locations bring sales to obtained digital that the and remain we availability global strategy are and XXXX. component expansion extremely subsequent pleased anticipate shoppers high to the ongoing when Caribbean meet This Naturals’ to is On in quarter end, of specialty to compared

look create opportunities best-in-class to platform improve We customer for our and experience. digital global a to continue

Bill discussion. Turning his gross XX% XX.X of numbers. was the Revenue the quarter with of XXXX, a while profit to million, will further X.X this increase address sales. QX for was compared in million or X% sequential net X. approximately

like impact in However, that excluding of of decisions recorded have the sales. net gross million to management adjustments, quarter, were would profit been inventory XX.X% or I otherwise which would certain X during the to strategic note response X.

to I always, team strategic goals challenging hard successfully a macro execute as dedicated to thanking by work As all we want our finish amid on for sincerely their environment. continue our

look run With and significant on quarter solidly Bill results made XXXX year to through and initiatives, our third will on financial over ending to XXXX I growth it further that, turn detail. we in entering to now the strong year-to-date progress our forward We transformational have footing.

Thanks, Aaron, everyone. and hello,

section be on this available and As website found results is the the Investor EDGAR at gnln.com. a on of earnings reminder, our reviewing you our Relations I can be will for that release morning

turns. of provide have company. business transformation to anticipate and third September pathway craft margins progress and to profitability you review pivot some XXXX. we last decisions of financials, want Since increase quarter, throughout we additional and improvements away on from in to the worked business quarter strategic with we August my substantial to We the made we business COO, begin President color to that new certain the inventory with I speaking are our lines a I the bring on and Before to CFO, made made velocity, making plan have our will

on inventory down profitable selling focused reinvest in our to more own health these and third-party to cash, swiftly lines us deemphasized also generate allowing We brands.

While profitability. had on and were QX for these decisions a future the impact right put revenue financial XXXX, actions company these course on negative to growth necessary the

sales and all $X of XXXX million direction will inventory these we the We transformation made compared underway. for third is of annualized As Net to of our in This the XX.X of focus per reduce low-margin X.X third the sales net XXXX. sales our staff million sales we are is This that sales. the the on result XXXX. of of by product is part in for X.X reduced QX to path of These million additional XXXX, now XX.X%. and financial we reductions was third the end reduced for an XX.X nicotine-related sales addition were save efforts a XX% year. to XXXX or sales quarter million products of to implementing decrease This nicotine margin-enhancing of million strategic the XXXX the October to X.X% of profile our QX between our believe and QX in X.X% with company, expense to the compared call. XX.X quarter initiatives, decisions in in an of along to well of reductions reduction worldwide With and the business impact our million savings for return QX adjusted profitability recent of $X to or quarter million year-over-year. our decrease net EBITDA XX% improve or discussed

XX.X our million in compared to XX% QX Greenlane’s lines, at net business specifically sales XXXX. core XX.X grew Looking core million to

quarter Canada decrease in products. the in same approximately to a This impact approximately XXXX, in XX Revenues We States X.X primarily XXXX XX.X QX approximately strategic to this excited in vision. X.X the the Revenues was X.X are million X.X period to of were for same compared in XXXX, a XX. extremely million to nicotine of million X%. or due million or in of COVID-XX. approximately see the in for were representing XX.X%, representing third due primarily our period decrease of decrease million million a compared United to

net was which sales On a XX.X QX. year in with profit Wholesale in last XX% XXXX, Conscious increased acquisition million to of Our XXXX. QX, net basis, from million X.X entered X.X% QX European of million in compared XXXX. QX X.X X.X million in QX QX net the approximately sequential sales XX.X% or sales we generated of segment, revenues In gross or of

Greenlane existing and the strategic go-forward During lines. product made levels quarter, regarding decisions inventory specific

working million. X.X certain down resulted we one decisions, selling space inventory preserve transformation of decided which for a goals As By products, our slow of to sell of those in higher-margin capital we reducing warehouse result key and inventory inventory, initiative. adjustments items, our of the to

In X.X of their reserve a from reduction addition, also items, that adjustment XXX,XXX had obsolete or million made taken was a inventory lower notification certain while cost received for a to recorded wholesale permanent items. supplier related we of a a market they selling in price

recognized XX% increase for million additional increase million vision, XX.X remain its allowances asset along decrease QX increase our of expenses million million current million incurred in loss was compared in our QX of margin onetime reversal managing would in or With XX. The stock QX against of which initiatives million approximately these in period connection Also, of the cash the of we increase we to operator X.X uncollectible XXXX QX loss the as to compared also Salaries, our XXXX a I derive the positive to This is used to incurred to due transitioning XXX million, a primarily half Company in activities XXX compared margin cost benefits QX increased in as expect QX driven XX.X XX. in and equity-based have incurred fees, comp with remainder in G&A onetime in stock and to adjusted focus cash to X.X XXXX valuation approximately With for increase costs of X.X expenses distribution and in open million the a Canada. of last an in of September QX compared subcontractor with management’s a to quarter QX as approximately for related December it to expense in to This comp margin, net nine XXX,XXX consolidated at in with initiatives to asset. costs. X.X of X compared to of million XXXX. further mentioned, to on million our X we expense adjusted the tax improved during in been opportunities. of loss of balance I increase adjusted a recorded gross efficiently to to basis growth recorded This taxes of an results XX, to impact U.S. XXXX, gross was XXXX, logistics Adjusted a million of an cash to An a approximately XXXX, warehouses of levels amounted quarter to X.X inventory turn in basis centers million million a for and the adjusted XXXX. QX third as overall portion XXXX. XX.X% in strategic suggesting Aaron execute margin have with the sheet approximately compared payroll year. as XXXX. excluding related otherwise indemnification represented X.X will XXXX. EBITDA as We XX a to one points EBITDA overall deposits third-party adjustments, to our vendor improvement renewed XXXX. amount this approximately Year-to-date, million million million to in compensation stability points million inventory of of on improve of XXXX, core. well-funded deferred QX flexibility strategic in expand approximately have was net to potential net approximately XX on million due X.X expense QX turnover we five primarily to net of Net tax was XXX,XXX compared by The an in execute adjustment was XXXX Adjusted cash in million restructuring expense. XX, loss year. X.X M&A in As inefficiencies in to the operating while of improvement This increased X.X QX for as to our related provision to decreased X.X brands a prior XXXX. and cash million full that expense one EBITDA loss leverage in an opportunity. pursuing compared that, gross due for million QX XXXX compared XXXX an call from XX.X%. million EBITDA of primarily up related for back QX million is a loss utilization. Q&A. our QX X.X loss balance, current our income XXXX QX loss financial G&A loss as QX allowance compared X.X in was Greenlane

from Vivien of [Operator Instructions] question Cowen. first Our line the from comes Azer

is Your now line open.

with took that to inventory was the last quarter. adjustment it more and the talked sounds review. about issue, seems related morning. item inventory which in quarter. another like just Good have a It quarter We to strategic now start we like this guys our like you got onetime I last is

get what hoping to quarter please? more Thanks. clarity changed So into on

will Mote. turned we the is group. Vivien, take new several management quarter, this Bill members into Vivien, we, I obviously, question. in Actually, third that the

a good decisions what what a inventory should the entire spent we we do the management SKU made going from bit new team, should be, there, business inventory to And a of team, We, a different quality a turns strategy. items what reviewing of velocity As wanted be, about we XX-days be. what should had on certain of perspective the forward. as

of lot balance inventory faster conserve our to these actually the our wanted of is they aspects And key moving cash. items sheet. to than able strategy continue One some our to to on we were be of a move

get the velocity so we selling and items a up that strategic the cash the of certain to did could back Vivien, into reduce the make So decision, price we company.

X.X% historically. believe, needs less inventory that than at this management time, as Our point X%. than in team, higher be are turns a And we to

do So either items But to that no inventory there. motion we step rapid the there a is forward that longer a for with. lot first are work deemphasized going are setting in of or sale is

process So to that further. the was crux decision of reduce inventory the

and That to follow-up see XXXX. Certainly, positive XXXX. is thank get nice the quarter that really leverage run savings EBITDA XXXX, and line, positive, helpful, Thanks. $X my positive top reductions headcount that Certainly, dimensionalize target I adjusted it EBITDA to your sequential for base color. other And to the to then can of cost a understand get to in EBITDA in generate revenue to appropriate But nice Bill is back is need on XQ to of kind you from you of please? rate help the see first operating just quarter what in efficiencies. your million a adjusted you actually outlook, in it improvement

XXs, be it Vivien. is low in to think the going I

need basis to to achieve - low the to basis, XXs quarter in be on to going need be annualized a are We that. on an

you very much. Understood. Thank

Thank you.

question next line Scott the of ROTH from Capital Our Partners. from comes Fortune

now Your is line open.

normalize the or little here. Good provide and And on side you maybe normalizing during ordering up here. level in here? place. DTC of opening after and as post-COVID guys thanks pickup from the color Can morning you here expect the for economy kind bit growth meaningful pattern saw third questions We the a DTC the segment the what has the shelter quarter that kind the on the a of we

speak to great well. question, Yes, Nice you to as Scott.

even a saw indications, tremendous late a saw go-forward a QX, down sustained, sequential quarters. on on are through kind as us early of mentioned, DTC. QX. of very have a DTC into know, has interesting COVID impacts as levels cases, be aware basis, believe closely. very drive as we I it the and But basis, different bit to international to uplift the has come a a sustained and we a will we have we COVID tremendous relatively obviously, previous all described remains That where really well countries great watching QX on lift as it basis, had but we of that revenue have in these continue little brick-and-mortar sales some see of is in do lockdowns are we what to seeing again, reopened. obviously, We increase in go-forward in an Omni-distribution may will the So It increased that largely and But obviously, channels on see from. channel we year-over-year basis. in

COVID watch an how it of see expect forward. direct-to-consumer we increased Overall, to level do will sustained So we may that. impact closely go

we before, percentage and a continue as of anticipate do total mentioned we minimum. the a at As to teens low we trends in are revenue, that

Great of for strategic of on at higher And your potential European the of continue at kind in expansion the thanks in guys a want initiatives here then grow. well-positioned where global million cash. how your is rollout potentially looking guys of follow-up as you opportunity are are kind store from are growth Kind stores, It and to as looking you side? with from kind the what then you color. that side XX that you that a to seems far And M&A Europe. brick-and-mortar own standard is

Sure.

In with or expand tremendous as life and stores. the I environment, go will brick-and-mortar continue negative our cautious reopen but COVID did stores back We So our will have part. the are Again, July we physical the many near in do we to brick-and-mortar through COVID footprint. question stores. been to brick-and-mortar environment, the plans pandemic. to the stores, will to the for a right impact start pandemic normalize or about the analyze there around we around But now, world very future, begins any being very, midterm during not you, to we near expand stores Obviously, in footprint. the brick-and-mortar tell I brick-and-mortar has continue during especially, no we as that to of midterm especially have most plans

what things, at were impacts On generally of to have of we we And more the of let well. height no side one robust the will true knew I capital continue as we to Bill went speak the into that of pandemic, speaking, M&A a But mode. as very be. cautious would COVID opportunities really pipeline preservation very the potential

Now a number have that, better M&A potential that reengaged of we and reinvigorated a have sense and of we opportunities conversations.

is organic conserving reason are sure acquisitions And that of plenty Yes. dry to execute help on we our primarily revenue and margins. the we make augment that cash our those to powder have to

you. jump in appreciate. I Thank Okay. back I will queue. the

you. Thank

comes Glenn Mattson next from Our line the of Thalmann. Ladenburg question from

line now open. Your is

for questions. thanks taking Hi the

So in-house you or all color the year-ago higher we us us color can remind and should margin they of year more maybe gross if helping the mid-XXs like give couple were a quarters have brand segments from a ago us is sense then so. lot Can just or a number of that up margins. color little the for where some what factors driving new curious, time, have is would that the be in-house margin And kind are more do a be products on is you packaging, holding supply all around more great. coming still product out the direct-to-consumer, growth are some gross growing margins over a brands, or a on new feel should introductions, that of think pipe next it And you you you? how about give right for of of

Yes.

in are as warehouse call that inefficiencies of and margins had into related also the points noise warehouses Canadian centralized transitioned warehouse. XXX call what would the we margin And about XX. on we the had multiple gross to we the I So adjusted X%. the one mentioned basis U.S.

expectation plus as Obviously, in you points, So And close level things for plus the that take another XX, XX.X% to convert to continue get Greenlane call, those basis to future. is to our will see two near we said increase. as revenue, our XX on Greenlane which we of together, we we exist in very or XX%. XXX convert the core more margin continue products, brands, that to growth our XX% of the

to short while brand confident future basis, which to we plus - are a be will don’t So or just year-over-year be guidance, margins, give or confirming feel our of margin that and definitely term, Related lot guidance nice XX where quarter-over-quarter area in reaffirming we Greenlane on we strong. about. continue the a is we the they

for area lines, come product a we profile. of out into we revenues but some terms has product created growth strong is also and mentioned in development the in being released that there. already VIBES, strong new year the you feel of that before will have from VIBES And from we to going continue products that that is year. see as very do And have We next mentioned next margin

with Yes. we so brands. existing Bill’s And comments are follow-on our Greenlane there, to seeing the is in This brands. growth tremendous

that of continued have in are near quarter-over-quarter quarter-over-quarter a growth. as growth. like already Year-to-date, we robust brands just growth seeing launching Marley XXX% We we lot examples products a the Natural, the VIBES, additional growth up the we example. we And of So XXX%, mid-term. called the brands of growth XXX% definitely, an couple launched. and VIBES out But of are pipeline the be seeing is of far thus Greenlane a overall in would themselves. is products we have that do

Greenlane growth supplement and we brands. existing with of trajectory are additional we that And are numbers tremendous excited about. So products very growth in new our launch that we seeing will

would compared time. I growth actually Greenlane was in Greenlane It XX% to brands the was at brands say last year same XX%.

in continued growth see, a amount So as trajectory. you can considerable is it of

guess. QX, in of stuff revenue of a all seasonal a holiday from JUUL around bump everything. there years, But that product in like noise of there the of a last is the in the because the related, lot season? Kind couple is effect like Alright. you But I do and quarters see

increase to positive well. generally seasonally of overall QX that as months particular, year, the the adjusted tied, holidays a cooler see is into of see But in we the trend speaking in that oftentimes, do we continue Historically, revenues XXXX.

anticipate lift So we revenues. a to do seasonal

me. you for it some of Just one us of me. outlook packaging for for of just on there. color is Can on kind is going last And give And the Thanks. more the dynamics Great. business? that what what

business, The the made steady a with level, and what this were of packaging. products to at in did changes for Bill the certain had senior We before decided, that business launch. packaging senior reemphasize We we the of conjunction legacy on on at and leadership similar trajectory again, mentioned a the and the to and to that supply products again, we continue lot of we packaging in deemphasize lines Yes. made have leadership somewhat do some changes that we new anticipate growth that leadership hotter refocus the division. packaging innovative business. We point some

are beyond that let’s what really on. we into steady all and in, So I growth XXXX say is focused would consider

Thank you.

the line comes next from Securities. from Mike Our of Grondahl question Northland

Your line open. is now

. guys morning good and Thanks Yes.

restructuring In terms fix or anything have on of still highlight? you guys the there that or want significant up through, you to that you working is that clean need to been going

sure that to the we that make to Well, logistics. big look That have done over was our chunk we work and distribution and efficiently. U.S., are the doing to in world that overall on continue we of at all

have we continue global any October. which announced including that X.X% reduced to mechanisms in other we head reduce that already for on We our work done look we the some count, to expenses, of

we focus areas the that focused historically on. are to have those and on So continue

have we there, with has in ultimately of will I we at out improve some all And an addition, in XXX% the done area, warehouses. of overall the we increase are margin cost caused lined In temporarily said, to that which and the the as warehousing new diminish efficiency. work get as logistics operating

the So of we anything we efficient or more those continue that the can do less expensive, to focused and kind on always will areas we do things make so. to entire P&L, are are

and executive lot senior in the amount effort team energy new overall, spent But an QX. tremendous a a of team. have Again, as leadership we of to

QX. So a of in amount heightened activity

yes, of to and continue operational to activity QX. amount But our in always sales. our high will profile margin ways We increase efficiency and look unusually to improve an

While of we not type see continue to forward. going do make activity expect incremental that we to improvement,

sounds hump It like the there. over it. are Got you

of So, you guys that saw about How effect a COVID and think lot that was of a did in you push do sort growth hard e-commerce, going we just or whatnot. of natural forward? there

of customer I sites. is was obviously, new existing of that and of in of a envelope constantly pushing consumer combination and customers a purchasing the both. definitely, our we It to behaviors. and positive mean, customers patterns e-commerce have terms dedicated the driving is experience team experts in COVID a But windfall terms

So two. frankly, it is the combination those of

other additional online digital As do in forward. going e-commerce behavior strategic level of our anticipate we sustained making are an even to which and said before, assets we increased purchasing continue post pandemic is investments we why

remain then maybe XXXX? just going you modeling do for away? into about And lastly. that Or does that How a low sales, it. should we Got while? think Nicotine that single-digit see

Another great question.

want meeting component characterize eliminating that. really product our continue evaluate customers go-forward job a that to fashion we to of of lines. So it to Well, anticipate that. as represent of potentially our I would make just our basis. do nicotine frankly, an do a But sure we on that products continuously again, here, say the that today, terms best we customers’ And are in in needs. single-digit important way is

driven while concentration overall deemphasis the to nicotine So anticipate products, continue we those historical down. to has again, products. But carry on our do

to overall a which is of to concentration the also in number. that But for down, maintain pricing will product We or the lines number contributing market had pressures revenue future. there driven continue foreseeable a the lot those has been also a prices lower

selling our important a But a mentioned, we in all potential maintain reducing portfolio opportunity meeting QX, things of for part to do will prices short to needs. those broader of just the customers is only future lower percentage we foreseeable the and to as term, customers’ revenue. the anticipate there it inventory caveat an The So kind portfolio had maybe on it our considered, our as items. remain certain product that of is that of

does include of that Some nicotine products.

So items that can basis. that the we process a some have we selling down of we so increase those are in go-forward overall of inventory inventory turns on our

So onetime maybe a go-forward QX. in mid-single-digit but uplift basis,

Thank it. Got you.

Thank questions. closing showing over call like I no Aaron back you. I’m to the this to time, further for At turn LoCascio would remarks.

just in Investor call has Greenlane’s conference call in for today. you website available day. this section. a everyone joining want will approximately I I everyone hope Relations thank the Greenlane’s replay again to be Yes. on say The wonderful two for conference for hours

Thank you.

Ladies today’s Thank for and this conference call. gentlemen, you participating. concludes

You disconnect. may now