Greenlane Holdings, Inc. Q1 FY2023 earnings call

• Relentless concentration on profitability: Sequential revenue growth, reduced total operating expenses from $22 million in Q4 2022 to $15 million in Q1 2023, and improvement in gross margin. - Product innovation: 16 first quarter product launches from Eyce, DaVinci, and Groove brands, with additional launches planned for Q2. Successful collaboration between Higher Standards and Banana Bros., and reestablished partnership with PAX. - Global omnichannel strategy: Completed migrations and relaunched EU B2B and B2C websites, redesigned and relaunched Vapor.com, integrated Shopify with DaVinci vaporizers.com, developed enhanced inventory management tool and performance marketing platform, and expanded global reach with strategic market distribution partners. - Business restructuring: Restructured industrial segment, formed strategic partnership with A&A Global Imports, completed warehouse consolidation and cost-saving initiatives exceeding $3 million annually.

For the first quarter of 2023, total net sales were approximately $24 million, a 9% sequential increase from Q4 2022. The consumer goods segment saw a 19.3% increase in revenue, driven by higher Eyce through Storz & Bickel and PAX sales. The industrial segment had a 4.6% increase in revenue. Gross margin was 23% in Q1 2023, a 5% improvement from full year 2022 but a slight decline from Q4 2022 due to aggressive inventory management. Year-over-year, labor-related expenses were reduced by 47%, general and administrative expenses by 34%, leading to a 38% reduction in total operating expenses. Net loss for Q1 2023 was $10.2 million, a decrease from the prior quarter's $13.5 million loss.

• Asset-light models for CCELL and packaging business: Margin benefits will largely affect Q3 and Q4 as they work through existing inventory. The transition from products on balance sheet to off balance sheet will start in mid-Q3 and run through Q4, expected to lead to revenue decline in line with net recognition but higher gross margin percentages. - Consumer goods segment: Expect continued revenue growth from consumer segment with additional product launches in Q2, particularly from DaVinci's new product expanding customer reach, and emphasis on more affordable segments like Groove due to consumer wallet constraints.

• Cash flow timing challenges: Some operations in industrial business are capital intensive, causing cash flow timing challenges compared to consumer business. - Inventory management impact: Aggressive inventory management affected gross margin in Q1 2023.

Q: Can you speak about the progress made in asset-light models for CCELL and packaging business and when to expect margin benefits?

A: They are on track as expected, largely affecting Q3 and Q4 as they work through current inventory. Cash flow timing was challenging with cash tied up for months, but the structures allow quicker movement and capital coming back, with margin benefits starting in mid-Q3 and running through Q4.

Q: Expectations for 2Q regarding inventory transition and CPG business impact from consumer wallet constraints?

A: Q2 is off to a strong start, but the transition from products on balance sheet to off balance sheet will start in the back half of Q2. In CPG business, Groove was launched for approachable and affordable products, seeing growth in more affordable segments due to consumer wallet constraints, with heavy strength in disposable and rechargeable segments