Release Date: August 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Successfully rehabilitated several key accounts, improving financial health.
- Expanded sales force in various territories throughout California to drive revenue growth.
- Onboarded three new distribution brands, contributing to revenue generation.
- Edibles category saw substantial growth with a 21.8% increase in revenue.
- Implemented cost reduction initiatives, leading to a decrease in operating expenses.
Negative Points
- Net revenue decreased by 27% sequentially and 35% year over year.
- CPG revenue declined 15% sequentially and 21% year over year.
- Gross margin was negative 15.7%, reflecting operational inefficiencies.
- Operating loss for the second quarter was $2.2 million.
- Adjusted EBITDA was negative $1.9 million, indicating ongoing financial challenges.
Q & A Highlights
Q: Can you provide more details on the restructuring efforts and their impact on the financials?
A: Mark Ainsworth, CEO: Approximately $470,000 in cash was allocated to cover restructuring efforts related to expenses from the prior period. Most of these expenses are now behind us, allowing us to focus on revenue generation and account rehabilitation.
Q: What strategies are you implementing to improve account receivables and credit health?
A: Mark Ainsworth, CEO: We are prioritizing sales to customers who consistently pay their bills. This approach has helped us rehabilitate several accounts and maintain healthy relationships with key retail partners.
Q: How has the exit from the cultivation operations affected your business?
A: Mark Ainsworth, CEO: Exiting cultivation has allowed us to focus on higher-margin CPG products. We have ceased selling bulk biomass, which was often done at cost or a loss, aligning with our strategy to maximize value and profitability.
Q: Can you elaborate on the performance of different product categories?
A: Mark Ainsworth, CEO: Pre-rolls revenue decreased by 13.3% due to a critical machine failure. Packaged flower revenue dropped by 22%. Concentrates saw a decline of 17.6%, while edibles and vase categories experienced growth of 21.8% and 83%, respectively.
Q: What are your plans for expanding the distribution footprint?
A: Mark Ainsworth, CEO: We have onboarded three new distribution brands and are actively engaging with several others. These partnerships will help us utilize underutilized assets more effectively and contribute to reducing operational expenses.
Q: How is the co-manufacturing segment performing?
A: Mark Ainsworth, CEO: Co-manufacturing generated approximately $100,000 in revenue in the first period, covering the majority of hard costs associated with our manufacturing facility. We see significant potential in this area and plan to grow this segment.
Q: What are the financial highlights for Q2 2024?
A: Mark Ainsworth, CEO: Net revenue was $3.5 million, down 27% sequentially and 35% year over year. CPG revenue decreased 15% sequentially. Gross margin was negative 15.7%, and operating expenses were $1.6 million or 46% of sales.
Q: How are you managing operational efficiencies and cost reductions?
A: Mark Ainsworth, CEO: We have focused on operational efficiencies and downsizing overhead costs, which improved margins on our core manufacturing products. We expect these efficiencies to carry forward in the second half of the year.
Q: What is the outlook for the upcoming quarters?
A: Mark Ainsworth, CEO: We expect increased utilization of our facilities by third-party clients in Q3 and Q4, which are considered high season. This strategy will help us manage resources better and drive growth in the more active periods of the year.
Q: Can you provide an update on the balance sheet?
A: Mark Ainsworth, CEO: Working capital was $0.9 million at the end of the quarter, with $0.6 million in cash. We are focused on maintaining financial stability while pursuing growth opportunities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
