SLANG Worldwide Inc. (OTCQB:SLGWF) Q2 2022 Earnings Conference Call August 25, 2022 10:00 AM ET
Company Participants
Phil Carlson – KCSA Strategic Communications, IR
Drew McManigle – Interim CEO and Chairman
Mike Rutherford – CFO
Conference Call Participants
Operator
Thank you for standing by. At this time, I would like to welcome everyone to the SLANG Worldwide Q2 2022 Earnings Conference Call.
All lines have been placed on mute to prevent any background noise. [Operator instructions] Thank you. Phil Carlson at KCSA, you may begin your conference.
Phil Carlson
Thank you, operator and good morning, everyone. Our speakers on today’s call will be Mr. Drew McManigle, Interim CEO and Chairman of SLANG; and Mr. Mike 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 security 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 except 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. Drew McManigle, Interim CEO and Chairman. Drew, please go ahead.
Drew McManigle
Thank you, Phil. Good morning, everyone. And thank you for joining us on our second quarter 2022 conference call to discuss our financial and operational results for the period ending June 30, 2022. I am pleased to report that we are continuing to deliver upon our realigned business model that we aggressively set in motion as we entered 2022 with the support of Macro Restructuring Group LLC.
In the second quarter, we continue to leverage a consolidated supply chain in streamlined infrastructure to produce sustained margin improvement and drive new opportunities for profitable revenue streams in our core markets of Vermont and Colorado and emerging markets across the country.
By undergoing skew rationalization, eliminating all non-performing assets and integrating all newly acquired Vermont assets, we have laid the foundation to effectively scale our operations and achieve stronger top and bottom line growth. Now with the addition of a newly appointed independent and diverse board of directors, which brings together many of today’s most distinguished and experienced cannabis and financial executives, we are prepared to reach this next stage of our development to further our position as one of today’s leading cannabis and CPG companies.
I would like to take a few minutes to highlight our newly elected board members who have been playing an integral part in SLANG’s evolution since joining our team this year. Kevin Albert; who many of you may have already been introduced to during our previous quarterly conference calls has continued to play a key role in advancing several of our M&A opportunities.
In fact, in this past quarter, we formally announced a creation of our M&A committee, which is being led by Kevin as he brings forth a unique knowledge base and experience in both the cannabis and financial industries with specific success in M&A work. Now that we have built a strong fundamental base for SLANG, we are working diligently to strategically advance a number of M&A opportunities that offer key opportunities to drive the company’s expansion across the US.
Other notable newly elected independent board members include Felicia Snyder, a founding executive of Tokyo Smoke; one of Canada’s most recognized cannabis brands. Sandra Levy, who brings over 25 years of human resources and legal experience. Ruth Chun, a lawyer with specific focus on advising businesses in the cannabis and CPG industries, Todd Boudreau, Attorney and Founding Partner at ACL Capital Partners and Adam Crocker, Founder and Chief Investment Officer of Logbook Investments.
At the Annual General Meeting, I was re-elected as Chairman of the Board while continuing my role as Interim CEO, which I expect to soon transition out of as we begin to take steps to bring our board a new CEO that will take the helm as we move forward to the next phase of our growth.
In addition to building upon our board, we have further strengthened our management team by recruiting and seeding a highly qualified COO in our Vermont subsidiary and a new sales manager in Colorado supporting our near term plans to advance our core operations in Colorado and Vermont. With the right people in place, we now have a unique opportunity to achieve profitable revenue streams now that these key operations are advancing in a more capital-efficient manner due to the success of our transformational growth strategy.
In addition, given the strength of our team and success of SLANG’s operational transformation, has begun to wind down of its involvement in our company as they believe we are solidly headed for the right direction.
Our core markets, Colorado and Vermont, are our primary avenues for reaching the marketplace with our rapidly growing portfolio of SLANG brands. In the second quarter, we started leveraging the significant growth opportunities that exist to build our business now that we are employing a successfully transformed business model in each market.
In Colorado, we focused on delivering organic revenue growth by increasing velocity in our stores as we expanded our product offering. Our bolstered sales team is effectively leveraging our distribution footprint in the state and driving heightened interest in our unique brands, which we believe will translate to steady sales growth in the months ahead.
We pride ourselves on our ability to successfully meet our consumer demand and consistently produce market-leading products. We look forward to sharing the continued success of our brands with a number of exciting promotional activities in the fall to celebrate 10 years of our highly successful open brand and newly launched natural edible brand, Alchemy Naturals.
As part of our growth strategy, we are continuously and carefully rebalancing our product portfolio to remove weaker selling products as we introduce new products in cannabis categories that are in high demand. This not only supports our overall brand that supports our continued margin improvement.
We continue to demonstrate the strength of our new business model and have reported our second consecutive quarter of reduced operating expenses. The combination of refining our product mix and operating a more efficient infrastructure is putting SLANG on a path for profitability in Colorado.
Now turning to Vermont. It has been a year since we acquired our vertically integrated cannabis operations from HiFi. And in that time, we have successfully evaluated cost synergies and streamlined our operations to begin taking advantage of several current and future growth catalysts. We generated higher margins from our direct-to-consumer sales in our 3 acquired retail locations, which is also driving new opportunities to produce healthy and consistent gross profit for SLANG going forward.
We are now ready to harvest our first crop at our cultivation facility in Milton, Vermont. Our ability to advance cultivation Vermont in conjunction to running production lab and retail operations, offers SLANG a unique near-term opportunity to increase our existing product offerings in the state and offers another avenue to drive higher-margin sales.
We expect to receive our recreational license in the fourth quarter of 2022 and believe we will be in a strong position to play a leadership role in Vermont’s emerging adult-use cannabis market once our dispensary in Burlington opens in the fourth quarter.
Finally, in New Jersey, which we anticipate becoming a key core market for SLANG, we continue to make strong progress in advancing our operations in the state as we now hold the rights to a medical cannabis license in trend, we anticipate beginning sales in the near future.
We continue to support our emerging market partners to advance our operational footprint as they present significant opportunities for our ongoing financial growth. Through our strategic partnership model, we are expanding in today’s largest cannabis markets in the most capital-efficient manner and working together with our partners, supports our leadership position in these rapidly developing areas.
Finally, before moving to our financial results, I would like to discuss some further detail on our recent milestone achievement in elevating our brand portfolio to enhance our position as a leading cannabis CPG company. As I noted earlier, on August 1 in Colorado, we launched our all-new natural CBD and PAC edible brand, Alchemy Naturals. This product line includes sleep, relief, destress, intimacy and daily CBD and THC gummies available in a variety of new flavors.
With the Colorado edibles market now estimated by DSA to have reached $371 million and SLANG’s established operational footprint and well-recognized brand leadership position in this market, launching Alchemy Naturals in Colorado first was a perfect entry point as we plan alchemy’s expansion across the U.S., utilizing our strategic partnership model. So as you can see, we are delivering upon all of our stated goals of our initial transformation strategy that began at the close of 2021.
Today, we are competitively positioned to advance our cannabis CPG product line in the core and emerging markets that are driving the cannabis industry’s growth. Our secure operational foundation, marked by a stellar management team, experienced board, strong balance sheet and streamlined growth strategy, are guiding our path as we successfully develop our core and emerging market operations while expanding our scalable brand portfolio.
I am pleased to report that we are now in a position to build upon our achieved success over the past 6 months to now begin generating stronger sales growth and continued margin improvement.
I would now like to turn the call over to Mike Rutherford, CFO of SLANG, to discuss our second quarter 2022 financial results. Mike, please go ahead.
Mike Rutherford
Thanks, Drew. We are beginning to see the positive effects of our transformational growth strategy that is now enabling SLANG to produce much stronger margins than we had a year ago. We believe that as we continue to scale our operations, utilizing a more efficient and streamlined business model as we expand and build our position in new cannabis markets, we will see greater opportunities for both top and bottom line growth. .
For the second quarter of 2022, revenue from continuing operations was $9.87 million compared to $10.5 million in the second quarter of 2021 due to a reduction in core and emerging market sales, offset by an increase in Firefly 2+ sales and an increase in revenue from the acquisition of HiFi. However, looking at sales from quarter-to-quarter, the company reported growth of 18%, demonstrating the continued impact of its operational transformation.
Gross profit for the second quarter of 2022 was $4.5 million or 46% gross margin compared to $3.67 million or 35% gross margin in the comparable period of 2021. Despite the decrease in revenue year-over-year, gross profits increased due to a lower cost of raw cannabis inputs in Colorado, higher margins associated with HiFi’s retail operations and two previously completed strategic initiatives being the elimination of low-margin Oregon sales and the elimination of low-margin products from our SKU rationalization process.
Total operating expenses from continuing operations for the second quarter of 2022 were a recovery of $1.66 million compared to $8.63 million in the second quarter of 2021. Excluding an $8.71 million recovery of previous credit losses, the company reduced operating expenses by $0.43 million or 6% from the prior year period.
Once again, this marks our second consecutive quarter of operating expense reduction, which is a direct result of our cost-cutting and restructuring initiatives that were implemented in the fourth quarter of 2021 and first quarter of 2022.
Second quarter 2022 adjusted EBITDA was $7.66 million compared to an adjusted EBITDA loss of $3.16 million in the second quarter of 2021. The improvement in adjusted EBITDA is primarily attributable to the $8.72 million recovery of previous credit losses, a reduction of $1.3 million in share-based payments and an increase of $0.82 million in gross profit.
Our results are in line with our operational turnaround, and we are building upon the new SLANG operational platform that is now operating in each market we serve to see ongoing financial growth. Our balance sheet remains strong with $15.72 million in combined restricted and unrestricted cash as of June 30, 2022, compared to $20.83 million on December 31, 2021, and $16.56 million at March 31, 2022.
Our focus remains on our growth initiatives, specifically Vermont recreational sales in our retail opportunity in New Jersey, advancing strategic M&A opportunities, partnership activities in our emerging markets and development of new products to further build our brand.
I’d like to turn the call back to Drew for some concluding remarks.
Drew McManigle
Thanks, Mike. To conclude today’s call, we are extremely pleased with where we are as a business today compared to the end of 2021. As continues to wind down its involvement in SLANG, we are confident that the current Board and management team, SLANG is well positioned to expand its footprint across its core and emerging markets. We are rapidly advancing on all fronts and look forward to updating you on our continued success during our third quarter conference call in November. Thank you.
Operator
This concludes today’s conference call. Thank you for your participation. You may now disconnect.
Question-and-Answer Session
End of Q&A
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