TPCO Holding Corp. (PNK:GRAMF) Q1 2023 Earnings Call Transcript May 15, 2023

TPCO Holding Corp. beats earnings expectations. Reported EPS is $-0.16, expectations were $-0.21.

Operator: Good afternoon, everyone and welcome to The Parent Company’s First Quarter 2023 Conference Call for the Three Month Period ending March 31, 2023. Listeners are reminded that certain matters discussed in today’s conference call are answers that may be given to questions asked, could constitute forward-looking statements that are subject to risk and uncertainties relating to The Parent Company’s future financial or business performance. Any such forward-looking information is based on certain assumptions and is subject to risk and uncertainties that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information, including the risk factors detailed in The Parent Company’s continuous disclosure filing that can be accessed via the US Securities and Exchange Commission website at www.scc.gov SEDAR at www.sedar.com.

Forward-looking information provided in this call speaks only as of the date of this call and is based on the plans, beliefs, estimates, projections, expectations, opinions and assumptions of management as of today’s date. There can be no assurance that forward-looking information will prove to be accurate, and you should not place undue reliance on forward-looking information. The Parent Company undertakes no obligation to update such forward-looking information, whether as a result of new information, future events or otherwise, except as expressly required by applicable law. In addition, during the course of this call, there may also be references to certain non-GAAP financial measures, including references to adjusted EBITDA, which do not have any standard meaning under GAAP and, therefore, may not be comparable to similar measures presented by other company.

For more information about forward-looking information and non-GAAP financial measures, including reconciliation of adjusted EBITDA to the most directly comparable GAAP measure, please refer to the company’s quarterly report on Form 10-Q, including management’s discussion and analysis available on the SEC’s website and SEDAR. I would like to remind everyone that this call is being recorded today, Monday, May 15, 2023. I’ll now hand the call over to Mr. Troy Datcher, Chief Executive Officer of The Parent Company. Please go ahead, Mr. Datcher.

Troy Datcher: Thank you, operator, and thanks everyone for joining the call today’s. During today’s call today, I’ll provide a high-level overview of some of our successes during the first quarter and then I’ll turn the call over to a newly appointed Chief Operating Officer, Rozlyn Lipsey. Let me say that again, our newly appointed Chief Operating Officer, Roz Lipsey, and provide a review of the progress we made over the curse of the quarter, our strategic goals, and the initiatives generated in partnership with Gold Flora. Then, Mike Batesole, our Chief Financial Officer will review our first quarter 2023 results in further detail. Following this, I’ll provide a brief overview of plans for 2023, and then I’ll turn the call over to our questions.

The best competes in our market and our position ourselves as a long-term leader in California, we chose to undertake a significant evolution in our business model. This included a movement way from high volume, but low margin wholesale businesses, and low value segments, which focus our energy and our efforts to establish ourselves as a premium brand builder and consumer focused companies. I am pleased to share today that we have done great work with our teams to accomplish some really great results. These results are starting to have a meaningful impact on our financial results. We actually saw initial signs of this success in our full year 2022 results. And now, in the first quarter of 2023, we achieved record growth margin. This would not be possible without the significant strategic shifts that we made, and I want to thank the teams sincerely for their great work.

Now, the work started when I arrived here, and I can tell you that I’ve been incredibly impressed with their efforts. I’m incredibly proud of what we’ve accomplished together and I want to be very clear here that work is not completed. It’s not finished, but we have built a really strong foundation, and now it is time to accelerate our pathway to possibilities. We can achieve this through our continued focus on building authentic brands, our premier retail experiences for consumers as well as optimizations of our operations through our transformational merger vehicles with Gold Flora. With this said, I’ll now turn the call over to Roz Lipsey, who will take us through those plans. Thank you, Roz.

Rozlyn Lipsey: Thanks, Troy. It’s great to be here with all of you today. As mentioned, we’re currently working on several exciting initiatives, and I’d like to walk you through some of our most recent developments. Our expert brand building and omni channel retail network remain a top priority for us. And to that end, we’re pleased to announce the extension of our partnership and licensing agreement with Maria by Santana. Maria is a top-selling celebrity influence brand in California, inspired by Carlos Santana’s Latin heritage and dedication to spiritual well-being. This brand collaboration perfectly aligns with our values, as it is developed by authentic industry leader, who is committed to providing premium products that connect with consumers.

Recently, our teams gathered to celebrate the launch of Maria’s new line of solventless 10 milligram Hash Rosin Gummies, made with all natural ingredients and available in flavors such as guava, prickly pear, and raspberry. The new gummies are now available at our retail stores across the state. We also recently launched a new brand called Cruisers, which combines our top-performing [indiscernible] brands into a single line that offers premium cannabis products at consumer-friendly price points. Cruisers will be the best price offering in every category of participates in, and following its launch is performed exceptionally well. In fact, in the three-week period following its launch, Cruisers became our top-performing brand by revenue across our entire retail network, and continues to remain our top-performing brand by revenue and units.

This new consolidated brand has also allowed us to reduce our overall SKU count by 30%, increase our gross margins and reduce our cost of goods sold. We are very pleased with the Cruisers’ launch, which remains ahead of our original forecast. Brand-building will remain a key area focus for our team, and we look forward to sharing additional developments throughout the year. During 2022, we significantly optimize our operations to reduce costs and improve profitability. This enabled us to create a platform that was focused on our areas of expertise and our best valued assets. With our announced combination with Gold Flora, we have an opportunity to bring together two operators with significantly complementary strengths to further accelerate our growth.

As shared in our announcement on February 22, 2023, it is expected that our combined company can achieve between $20 million and $25 million of annualized cost savings, thanks to it’s comprehensive vertical integration. Our initial integration work has begun, and we are leveraging the enhanced scale and supply chain optimization to further drive efficiencies. We’ve already begun to capitalize on benefits of Gold Flora’s vertical integration, including initiatives such as sourcing specific strains, for more genetic directional brands, to deliver enhanced consistency and predictability to consumers. We’ve also moved [indiscernible] in certain pre-roll productions of Gold Flora’s production lines for cost containment and margin improvement. Furthermore, we’ve shifted product to R&D and innovation to Gold Flora’s platform to accelerate our capabilities and improve timeframes for the development of brands.

Through the implementation of recent measures, we’ve yielded approximately $21 million in annualized payroll cost savings from the beginning of 2022 to date. We’re off to a strong start, and I look forward to providing further updates on the next call. Thank you, everyone, for taking the time to join us today. Now I’d like to turn the call over to Mike, who will discuss the financial results of the quarter. Mike?

Michael Batesole: Thanks, Roz and good afternoon, everyone. As a reminder, the results I’ll be going over today can be found in our financial statements n MD&A, contained in our quarterly report from 10-Q. All figures are in US dollars. It should be noted that we are a US resident with the SEC, and as such, our financial statements are prepared in accordance with US GAAP. Q1, 2023 net sales were $18.1 million, compared with $22.4 million in Q1 2022. As we have previously shared, we expected top line revenue to be somewhat impacted as we execute on our goal to improve profitability and optimize our operations. Q1 2023 gross profit improved by 15.8% to $7.8 million, resulting in record gross margin of 43%, compared to $6.7 million, or gross margin of 30%, in Q1 2022.

Significant improvement in both gross profit and gross margin was a result of our strategically led business transformation in 2022. To that end, sequential gross profit improved by 17% from $6.7 million in Q4 2022 and gross margin improved by 30% from Q4 2022. Q1 2023 total operating expenses were $22.1 million and decreased by 43% from $38.9 million in Q1 2022. Q1 2023 adjusted gross EBITDA loss was $9.3 million, a 57% improvement from the loss of $27.1 million in Q1 2022, as well as a 35% sequential improvement compared to the adjusted EBITDA loss of $14.4 million in Q4 2022. We ended the quarter with cash and cash equivalents of $76.1 million, as of March 31, 2023. Overall, I am pleased with the strategically led work that the team has accomplished and with the improvement in our quarterly results.

With that, I will turn the call back over to Troy.

Troy Datcher: Thank you, Mike. Before we open the line for questions, I would like to just take a moment to discuss our plans for 2023. Our focus continues to be on improving gross margins and profitability. With the industry evolving and California maturing, we have a unique transformational opportunity, available through our merger with Gold Flora. Together, we can leverage Gold Flora’s premium indoor cultivation, their proprietary genetics, their supply chain management, combined with our proven brand building expertise and our Omni channel retail platform to really drive scale to become the top operator in the state. Now we strongly believe this merger will be the best-drive value for our shoulders, better serve our consumers, and position ourselves for long-term success. We are incredibly excited for everything that has to store for 2023. With that said, I would like to open the call for questions. I will turn it over to your operator. Thank you.

Q&A Session

Operator: Thank you. Ladies and gentlemen, we will now conduct the question-and-answer session. [Operator instructions] Your first question comes from the line of Eric Des Lauriers from Craig-Hallum Capital. Your line is now open. Eric, your line is now open.

Operator: There are no further questions at this time. I will now hand over to Mr. Datcher for closing remarks.

Troy Datcher: Thanks operator and I want to thank all of the members of The Parent Company for all of their great work. Not just this quarter, but over the course of the year, can’t really since I started my tenure. Thank you for everything you’ve done. I’m sincerely proud of everything that we achieved together during this time and we cannot have done that without you. So thanks to everyone who joined us today on the call. We’re looking forward to sharing our Q2 results and progressing against our strategic initiatives. Thank you for joining us today and have a great day.

Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.