SLANG Worldwide Inc.OTCQB:SLGWF) First Quarter 2024 Earnings Conference Call May 30, 2024 at 10:00 a.m. ET
Corporate Participants
Phil Karlsson – Managing Director
John Moynan – CEO
Mike Rutherford – CFO
operator
Thank you for standing by. My name is Joe and I will be your conference call operator today. I would now like to welcome everyone to the SLANG first quarter 2024 earnings conference call.
Now I would like to turn the conference over to our Managing Director, Phil Carlson, please begin.
Phil Carlson
Thank you, operator. Good morning, everyone. Welcome to SLANG Worldwide’s first quarter 2024 earnings conference call. Our speakers on today’s call are SLANG’s CEO, John Moynan, and Chief Financial Officer, Mike Rutherford.
Before we begin, we want to advise you that during this call, SLANG’s management may make forward-looking statements within the meaning of applicable securities laws, including, but not necessarily limited to, financial projections and other statements regarding the company’s plans, objectives, expectations and intentions.
These forward-looking statements are based on current expectations, but there are a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied by these statements. Factors that could cause actual results to differ materially include, but are not limited to, the risk factors set forth in the Company’s filings on SEDAR+. Please also note that the forward-looking statements made herein speak only as of the date hereof, and we undertake no obligation to update any statements to reflect changing circumstances, except as required by law.
Now I’d like to turn the call over to John Moynan, CEO of SLANG. John, please.
John Moynan
Thank you, Phil. Good morning, everyone. Thank you for joining us for our Q1 ’24 conference call. We discuss our financial and operating performance for the quarter ending March 31, 2024.
The company is leveraging its streamlined infrastructure to efficiently support a more diversified revenue profile and enters 2024 with a strong foundation for continued growth. First quarter financial results: While the market continues to soften in Colorado and saturation is increasing in Vermont, our brands remain strong and we continue to see success by identifying new growth opportunities across multiple product categories.
SLANG maintains an established leadership position in the cannabis industry and its ability to strategically manage overhead and expand its diversified businesses efficiently and flexibly positions it for long-term financial viability. Despite declining sales in its core market businesses, sales growth from new, higher margin revenue channels is strong and contributing increasingly to the Company’s total sales.
In the first quarter of 2024, revenues from our e-commerce business segment, a sales channel for THC-free, increased by approximately $260,000, or 45%, from the same period in 2023, demonstrating the strength of our Alchemy Naturals CBD gummies product line. Alchemy Naturals CBD gummies have been well received by a wide range of consumers, with e-commerce sales of $460,000 in the first quarter of 2024, compared to $300,000 in the fourth quarter of 2023, representing 53% growth sequentially. We believe that the quality, potency and flavor of these products have clearly established a leadership position in the THC-free market. Our business in emerging markets also performed well in the first quarter, increasing 43% year-over-year to approximately $736,000.
We have demonstrated the value of a disciplined growth strategy and lean operating structure, as evidenced by our quarterly results over the past two years. We remain committed to growing our business efficiently. These strategies should enable us to sustain above-industry growth rates and provide a clear path to profitability. We are pleased to report that our adjusted gross margins, defined as gross margins before fair value adjustments for biological assets, have remained above 50% and reached 52% in the first quarter, proving that this high gross margin is sustainable going forward.
Additionally, the Company continues to reduce its operating expenses year-over-year and quarter-over-quarter, further demonstrating its ability to operate lean and efficient. Total operating expenses for the first quarter of 2024 decreased 4% to $5.5 million compared to $5.8 million for the same period in 2023 and down 16% from the fourth quarter of 2023. The Company continues to find cost-saving measures to operate the Company as efficiently as possible, contributing to its long-term financial viability.
As we move forward into 2024, we believe several growth drivers will be key to driving both sales and profit performance: First, our Vermont wholesale distribution channel has opened up a strong stream of high margin growth: Year-over-year, wholesale sales increased approximately 417%, reaching $310,000 in Q1’24 compared to $60,000 in Q1’23.
Since entering this sector of the Vermont cannabis market in January 2023, we have quickly established ourselves as a leader and have experienced consistent growth quarter after quarter. In fact, our growth in this sector correlates with the overall growth of the Vermont cannabis market. As the number of retail licenses operating in the state continues to grow, we continue to acquire increasing wholesale business and meet additional product demand. As such, as retail sales in Vermont decline due to market saturation, we are well positioned to offset some of that decline.
Another growth driver is the increased opportunity in our e-commerce sales channel. We are increasingly leveraging this business segment as a means to increase flexibility and profitability for our THC-free product line. Through this effort, we are able to offer our evolving THC-free product line to a broader range of consumers and establish a consistent, high-margin sales avenue.
As discussed in our last quarterly conference call, we are exploring strategic initiatives to maximize shareholder value. Since retaining (PGP) Capital Advisors in November 2023 to assist us in exploring strategic options, we have identified several interesting opportunities, including, but not limited to, a business combination, sale, divestiture, acquisition or merger, restructuring, recapitalization, refinancing or other strategic transaction that could involve all or a portion of our business or assets. We continue to evaluate these opportunities to explore synergies that could reduce the overhead associated with going public, rapidly expand our scale and market share, and provide a path to expand SLANG’s overall product offering and footprint.
Before I hand the call over to Mike to discuss our performance, I want to address the April 30th announcement that the U.S. Drug Enforcement Administration (DEA) issued proposed rules to move cannabis from a Schedule I drug to Schedule III, pursuant to the U.S. Department of Health and Human Services’ August 2023 recommendation. Reclassifying cannabis as a Schedule III drug would have a significant positive impact on legal cannabis businesses across the United States, including the repeal of the burdensome 280E tax. As the DEA continues to consider its recommendation, we look forward to the day when cannabis becomes a Schedule III drug and believe that this will have a positive impact not only on SLANG but on the industry as a whole.
Now I’d like to turn the call over to our CFO, Mike Rutherford, to discuss our financial performance in more detail. Mike, how about you?
Mike Rutherford
Thanks, John. Revenue from continuing operations for the first quarter of 2024 was $7.03 million, representing a year-over-year decrease of 35% compared to revenue of $10.82 million in the first quarter of 2023. The decrease was primarily due to a $4.0 million decrease in Core Markets sales and a $250,000 decrease in distribution sales, partially offset by an increase in e-commerce sales of $260,000 and an increase in Emerging Markets sales of $(2) million. Within the Core Markets segment, sales in Colorado and Vermont decreased by $2.61 million and $1.39 million, respectively.
Gross profit for the first quarter of 2024 was $3.36 million, with a gross profit margin of 48%, compared to $5.72 million, with a gross profit margin of 53%, in the first quarter of 2023, representing a 41% decrease in gross profit and a 5% decrease in gross profit year over year. Adjusted gross profit, defined as gross profit before fair value adjustments for biological assets, was $3.65 million, with an adjusted gross profit margin of 52%, in the first quarter of 2024, compared to $5.68 million, with an adjusted gross profit margin of 52%, in the first quarter of 2023, representing a 36% decrease in adjusted gross profit but maintaining a stable adjusted gross profit margin of 52% year over year.
Total operating expenses for the first quarter of 2024 were $5.54 million, compared to $5.78 million in the first quarter of 2023, a decrease of 4% year-over-year and a decrease of 16% sequentially. The year-over-year decrease was primarily due to decreases in salaries and wages, consulting and subcontractors, general and administrative expenses and insurance. The sequential decrease was primarily due to decreases in stock-based payments, general and administrative expenses, salaries and wages, professional fees and depreciation.
“Our continued ability to reduce operating expenses quarter-over-quarter and year-over-year is a true testament to our focus on cost management to achieve profitability. Given our success in right-sizing our business to operate efficiently, we continue to focus on strategic cost reductions in the near term to support long-term growth.”
Adjusted EBITDA loss for the first quarter of 2024 was $1.06 million, a decrease compared to Adjusted EBITDA profit of $740,000 for the first quarter of 2023. The decrease in Adjusted EBITDA was primarily due to a $2.07 million decrease in adjusted gross profit excluding depreciation and amortization offset by a $270,000 decrease in operating expenses excluding depreciation and amortization, expected credit losses and share-based payments.
The Company’s balance sheet remains strong with cash and restricted cash of $8.32 million as of March 31, 2024 compared to $9.04 million as of December 31, 2023.
Finally, I want to turn the conversation back to John. John?
John Moynan
Thank you, Mike. We efficiently navigated a weak first quarter, which we believe will position us to achieve stronger results in the coming months. We are rapidly advancing key business channels that are proven to drive both sales and profits. As we expand across the country through our e-commerce operations and strategic partners, we will strengthen our market position and build leadership positions in new and important cannabis product categories. We continue to lead in Colorado and Vermont, and the operational efficiencies we have maintained position us to succeed. We are strategically moving forward in each of our business segments, and I look forward to reporting on our continued progress on our next quarterly conference call. Thank you.
Q&A session
operator
