GlobeNewswire Inc | Aug 7, 2020 07:00AM EDT

August 07, 2020

BOCA RATON, Fla., Aug. 07, 2020 (GLOBE NEWSWIRE) -- Greenlane Holdings, Inc. (Greenlane or "the Company) (Nasdaq: GNLN), one of the largest global sellers of premium cannabis accessories and specialty vaporization products, today reported financial results for the second quarter ended June 30, 2020.

Second Quarter 2020 Highlights(Unless otherwise stated, comparisons are made between Q2 2020 and Q1 2020 results)

-- Revenue for the second quarter of 2020 was approximately $32.4 million; -- Vapor.com, Greenlane's flagship direct to consumer e-commerce platform, has seen a 74% increase in orders, jumping to approximately 16,000 orders in the second quarter of 2020; -- Gross profit was approximately $6.7 million, representing 21% of net sales; -- In June 2020, Greenlane launched its VIBES branded products into Canada and Europe, expanding product availability to over 2,000 Greenlane customer retail locations worldwide; -- Introduced Greenlane's consumer-facing product verification program, G-Verify, powered by Lucid Green's Lucid ID platform, which provides reliable product, safety, and educational information directly to consumers and retailers; -- Opened a new retail store in partnership with Cookies, located in Barcelona, Spain in May 2020; -- Sales of Greenlane Brands were approximately $4.9 million, representing 15.0% of total revenue;

Management Commentary

Despite the challenging economic conditions presented by the COVID-19 pandemic, we delivered solid Q2 top line revenue of $32.4 million and have continued to make progress towards improving our gross margin profile, said Aaron LoCascio, Greenlanes Chairman and Chief Executive Officer. We continue to strategically allocate resources towards higher margin revenue opportunities, including accelerating the development of our portfolio of Greenlane branded products."

LoCascio continued, "As we look ahead to the second half of 2020, I am confident that we are well positioned, both operationally and financially, to continue to execute our transformation plans and fuel our growth. I'd like to thank the Greenlane team for their ongoing commitment to driving our success."

Q2 2020 Financial Summary

Net sales were $32.4 million in the second quarter of 2020 ("Q2 2020"), compared to $53.0 million for the second quarter of 2019 ("Q2 2019"), a decrease of $20.6 million or 38.9%. The change in revenue is largely attributable to the FDA's restriction on the sale of certain products, primarily mint-flavored JUUL, and the execution of Greenlane's business transformation initiative, whereby the Company has deliberately moved away from low-margin JUUL sales, to focus on higher-margin products. JUUL sales decreased to approximately $2.3 million in Q2 2020, from approximately $25.6 million in Q2 2019. Net sales of Greenlane branded products grew to approximately $4.9 million, representing 15.0% of total revenue in the second quarter of 2020, as compared to approximately $3.2 million in the second quarter of 2019, or 6.1% of total revenue. The decrease in Q2 2020 net sales also reflects a full quarter of the impact that the COVID-19 pandemic placed on consumer purchasing behaviors and our operations.

In connection with the Company's business transformation initiative and ongoing efforts to optimize its distribution network, Greenlane continues to transition to a more streamlined and centralized model with fewer, but larger, highly automated distribution facilities. In the second quarter of 2020, the Company completed the closings of its Schenectady, NY and Delta, Canada distribution centers. In June 2020, the Company terminated the lease agreements for its Torrance, CA distribution center and Toronto, Canada office location, and plan to close its Jacksonville, FL and Visalia and Torrance, CA distribution centers in the third quarter of 2020.

Q2 2020, gross profit was $6.7 million, or 20.8% of net sales, compared to $9.2 million, or 17.3% of net sales in Q2 2019. The Company believes this increase in gross margin is indicative of the leverage that the Company can drive from its operating model as it continues to reduce the concentration of sales in lower-margin JUUL products and promote its higher margin Greenlane brands.

Salaries, benefits, and payroll taxes in Q2 2020 decreased approximately $0.9 million, or 12.9%, compared to Q2 2019, primarily due to a decrease in equity-based compensation expense of $0.8 million, as the Company recognized approximately $0.9 million of expense in Q2 2020, compared to approximately $1.7 million of expense in Q2 2019.

Q2 2020 general and administrative expenses increased by approximately $1.0 million to $6.4 million compared to $5.4 million in Q2 2019, primarily due to an increase of approximately $0.9 million in subcontractor fees, an increase of approximately $0.2 million for a fulfillment agreement entered into during May 2020 with Verst Group Logistics, Inc., a third party logistics provider that provides Greenlane with storage space and logistics services in their Kentucky warehouse, and an increase of approximately $0.2 million in the reserve for uncollectible accounts, offset by a decrease of approximately $0.3 million in legal fees.

Q2 2020 net loss was $6.4 million, compared to $3.2 million in the same period for the prior year. Adjusted net loss was $5.2 million in Q2 2020 compared to adjusted net loss of $1.2 million for Q2 2019. Adjusted EBITDA loss was $4.4 million in Q2 2020 compared to adjusted EBITDA loss of $1.2 million in Q2 2019.

Cash and cash equivalents were $41.8 million and total debt was $8.2 million as of June 30, 2020, compared to $47.8 million and $8.3 million, respectively, as of December 31, 2019.

Conference Call Information

Greenlane will host a conference call today, Friday, August 7, 2020, to discuss these results. Aaron LoCascio, Chief Executive Officer, will host the call starting at 8:30 a.m. Eastern time. A question and answer session will follow management's presentation.

Date: Friday, August 7, 2020Time: 8:30 a.m. Eastern TimeDial-In Number: (833) 519-1285Conference ID: 1982004Webcast: https://edge.media-server.com/mmc/p/5buxicvmReplay: (855) 859-2056 or (404) 537-3406 Available until 11:30 p.m. Eastern Time Thursday, August 21, 2020

About Greenlane Holdings, Inc.

Greenlane (NASDAQ: GNLN) is the leading global platform for the development and distribution of premium cannabis accessories and lifestyle products. The company operates as a powerful house of brands, third-party brand accelerator, and omni-channel distribution platform. Greenlane serves the global markets with an expansive customer base of more than 11,000 retail locations, including licensed cannabis businesses, smoke shops, and specialty retailers. As a pioneer in the cannabis space, Greenlane is the partner of choice for many of the industrys leading brands, including PAX Labs, Storz & Bickel (Canopy-owned), Cookies, Grenco Science, and DaVinci. Greenlane also proudly owns and operates a diverse brand portfolio including packaging innovator Pollen Gear, the K.Haring Glass Collection by Higher Standards, Marley Natural, and VIBES rolling papers. Higher Standards, Greenlanes flagship brand, offers both a high-end product line and immersive retail experience with groundbreaking stores in both New York Citys Chelsea Market and Malibu, California. Greenlane also owns and operates both Vapor.com and VapoShop.com, two industry-leading, direct-to-consumer e-commerce platforms in North America and Europe respectively. For additional information, please visit: https://gnln.com/.

Presentation of Financial Information

This press release includes historical consolidated results for the periods presented of Greenlane Holdings, LLC, the predecessor of Greenlane Holdings, Inc., for financial reporting purposes. Accordingly, the consolidated financial statements for periods prior to the completion of the IPO on April 23, 2019 have been adjusted to combine the previously separate entities for presentation purposes. Amounts for the period from January 1, 2019 through April 22, 2019 represent the historical operations of Greenlane Holdings, LLC. The amounts for the period from April 23, 2019 through June 30, 2019, and from January 1, 2020 through June 30, 2020 reflect the consolidated operations of Greenlane Holdings, Inc.

Use of Non-GAAP Financial Measures

Greenlane discloses Adjusted Net Loss and Adjusted EBITDA, which are non-GAAP financial measures, because management believes these metrics assist investors and analysts in assessing the Companys overall operating performance and evaluating how well Greenlane is executing its business strategies. You should not consider Adjusted Net Loss or Adjusted EBITDA as alternatives to net loss determined in accordance with GAAP as indicators of Greenlanes operating performance. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. Accordingly, you should not view Adjusted Net Loss or Adjusted EBITDA in isolation or as a substitute, or superior to, financial information prepared and presented in accordance with GAAP. Furthermore, these non-GAAP measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes.

Adjusted Net Loss and Adjusted EBITDA have limitations as an analytical tool. Some of these limitations are:

-- Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future and adjusted EBITDA does not reflect capital expenditure requirements for such replacements or for new capital expenditures; -- Adjusted EBITDA does not include interest expense, which has been a necessary element of the Company's costs; -- Adjusted EBITDA does not reflect income tax payments we may be required to make; -- Adjusted EBITDA and Adjusted Net Loss do not reflect equity-based compensation; -- Adjusted EBITDA and Adjusted Net Loss do not reflect transaction and other costs which are generally incremental costs that result from an actual or planned transaction; -- Other companies, including companies in Greenlane's industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

For more information on Greenlane's non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial measures, please see the "Reconciliation of GAAP to Non-GAAP Financial Measures" table in this press release.

Forward Looking Statements

Certain matters within this press release are discussed using forward-looking language as specified in the Private Securities Litigation Reform Act of 1995, and, as such, may involve known and unknown risks, uncertainties and other factors that may cause the actual results or performance to differ from those projected in the forward-looking statements. These forward-looking statements include, among others: comments relating to the current and future performance of the Companys business; the impact of the ongoing COVID-19 pandemic on the Company's business; growth in demand for the Companys products; growth in the market for cannabis and nicotine; the Companys marketing and commercialization efforts; and the Companys financial outlook and expectations. For a description of factors that may cause the Companys actual results or performance to differ from its forward-looking statements, please review the information under the heading Risk Factors included in the Company's most recent Annual Report on Form 10-K for the year ended December 31, 2019 and the Company's other filings with the SEC, which are accessible on the SECs website at www.sec.gov. Additional information will also be set forth in Greenlane's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020. Undue reliance should not be placed on the forward-looking statements in this press release, which are based on information available to Greenlane on the date hereof. Greenlane undertakes no duty to update this information unless required by law.

Media Contact MATTIO CommunicationsGreenlane@mattio.com

Investor Contact:Rob KellyInvestor Relations, MATTIO CommunicationsGreenlane@mattio.com1-416-992-4539

GREENLANE HOLDINGS, INC.CONDENSED CONSOLIDATED BALANCE SHEETS(in thousands, except par value per share amounts)

June 30, December 31, 2020 2019ASSETS (Unaudited) Current assets Cash $ 41,831 $ 47,773 Accounts receivable, net of allowance of $1,123and $936 at June 30, 2020 and December 31, 2019, 6,402 8,091 respectivelyInventories, net 38,654 43,060 Vendor deposits 11,186 11,120 Other current assets 2,430 4,924 Total current assets 100,503 114,968 Property and equipment, net 13,765 13,165 Intangible assets, net 5,801 6,301 Goodwill 2,974 11,982 Operating lease right-of-use assets 3,714 4,695 Other assets 2,065 2,091 Total assets $ 128,822 $ 153,202 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 11,554 $ 11,310 Accrued expenses and other current liabilities 7,236 10,600 Customer deposits 3,044 3,152 Current portion of operating leases 792 1,084 Current portion of finance leases 110 116 Total current liabilities 22,736 26,262 Notes payable, less current portion and debt 7,926 8,018 issuance costs, netOperating leases, less current portion 3,206 3,844 Finance leases, less current portion 126 194 Other liabilities 1,064 620 Total long-term liabilities 12,322 12,676 Total liabilities 35,058 38,938 Commitments and contingencies Stockholders? Equity Preferred stock, $0.0001 par value, 10,000 shares ? ? authorized, none issued and outstandingClass A common stock, $0.01 par value per share,125,000 shares authorized; 12,603 shares issuedand outstanding as of June 30, 2020; 9,999 shares 126 98 issued and 9,812 shares outstanding as ofDecember 31, 2019Class B common stock, $0.0001 par value pershare, 10,000 shares authorized; 3,724 and 5,975 1 1 shares issued and outstanding as of June 30, 2020and December 31, 2019, respectivelyClass C Common stock, $0.0001 par value pershare, 100,000 shares authorized; 77,791 shares 8 8 issued and outstanding as of June 30, 2020 andDecember 31, 2019, respectivelyAdditional paid-in capital 38,501 32,108 Accumulated deficit (16,261 ) (9,727 ) Accumulated other comprehensive loss (240 ) (72 ) Total stockholders? equity attributable to 22,135 22,416 Greenlane Holdings, Inc.Non-controlling interest 71,629 91,848 Total stockholders? equity 93,764 114,264 Total liabilities and stockholders? equity $ 128,822 $ 153,202

GREENLANE HOLDINGS, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS(Unaudited)(in thousands, except per share amounts)

Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019Net sales $ 32,400 $ 52,986 $ 66,268 $ 102,884 Cost of sales 25,656 43,835 52,195 84,746 Gross profit 6,744 9,151 14,073 18,138 Operating expenses: Salaries, benefits 6,121 7,029 12,735 15,111 and payroll taxesGeneral and 6,426 5,413 15,085 10,797 administrativeGoodwill impairment ? ? 8,996 ? chargeDepreciation and 650 645 1,360 1,330 amortizationTotal operating 13,197 13,087 38,176 27,238 expensesLoss from operations (6,453 ) (3,936 ) (24,103 ) (9,100 ) Other income (expense), net:Change in fair value ? ? ? (12,063 ) of convertible notesInterest expense (110 ) (140 ) (220 ) (742 ) Other income, net 186 748 1,126 924 Total other income 76 608 906 (11,881 ) (expense), netLoss before income (6,377 ) (3,328 ) (23,197 ) (20,981 ) taxesProvision for(benefit from) 8 (108 ) (73 ) (97 ) income taxesNet loss (6,385 ) (3,220 ) (23,124 ) (20,884 ) Less: Net lossattributable to (4,312 ) (1,453 ) (16,590 ) (1,453 ) non-controllinginterestNet lossattributable to $ (2,073 ) $ (1,767 ) $ (6,534 ) $ (19,431 ) Greenlane Holdings,Inc. Net lossattributable toClass A common stock $ (0.18 ) $ (0.03 ) $ (0.60 ) $ (0.03 ) per share - basicand dilutedWeighted-averageshares of Class Acommon stock 11,380 9,998 10,921 9,998 outstanding - basicand diluted Other comprehensive (loss) income:Foreign currencytranslation 471 23 (156 ) 51 adjustmentsUnrealized loss onderivative (66 ) ? (559 ) ? instrumentComprehensive loss (5,980 ) (3,197 ) (23,839 ) (20,833 ) Less:Comprehensive lossattributable to (4,006 ) (1,429 ) (17,137 ) (1,429 ) non-controllinginterestComprehensive lossattributable to $ (1,974 ) $ (1,768 ) $ (6,702 ) $ (19,404 ) Greenlane Holdings,Inc.

GREENLANE HOLDINGS, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)(in thousands) Six Months Ended June 30, 2020 2019Cash flows from operating activities: Net loss (including amounts attributable to $ (23,124 ) $ (20,884 ) non-controlling interest)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization 1,360 1,330 Debt issuance costs on convertible notes ? 422 Equity-based compensation expense 1,161 4,575 Goodwill impairment charge 8,996 ? Change in fair value of contingent consideration (644 ) ? Change in fair value of convertible notes ? 12,063 Change in provision for doubtful accounts 343 637 Change in provision for slow moving or obsolete 177 (137 ) inventoryOther (15 ) (98 ) Changes in operating assets and liabilities, net of the effects of acquisitions:Accounts receivable 1,346 (3,786 ) Inventories 4,228 (18,466 ) Vendor deposits 131 2,410 Deferred offering costs ? 2,284 Other current assets 2,442 (1,490 ) Accounts payable 244 5,218 Accrued expenses 1,161 (2,358 ) Customer deposits (219 ) (491 ) Net cash used in operating activities (2,413 ) (18,771 ) Cash flows from investing activities: (Purchase consideration paid for) cash acquired (1,841 ) 91 from acquisitionsPurchases of property and equipment, net (1,247 ) (754 ) Purchase of intangible assets ? (65 ) Investment in equity securities ? (500 ) Net cash used in investing activities (3,088 ) (1,228 ) Cash flows from financing activities: Proceeds from issuance of convertible notes ? 8,050 Proceeds from issuance of Class A common stocksold in initial public offering, net of ? 83,003 underwriting costsPayment of debt issuance costs - convertible ? (1,734 ) notesDeferred offering costs paid ? (3,456 ) Redemption of Class A and Class B units of ? (3,019 ) Greenlane Holdings, LLCOther (254 ) (1,022 ) Net cash (used in) provided by financing (254 ) 81,822 activitiesEffects of exchange rate changes on cash (187 ) 171 Net (decrease) increase in cash (5,942 ) 61,994 Cash, as of beginning of the period 47,773 7,341 Cash, as of end of the period $ 41,831 $ 69,335 Supplemental disclosures of cash flow information Cash paid for amounts included in the measurement of lease liabilities:Operating cash flows from operating leases $ 824 $ 363 Lease liabilities arising from obtaining $ 331 $ 2,562 operating lease right-of-use assetsNon-cash investing activities and financing activities:Conversion of convertible debt to Class A common $ ? $ 60,313 stockRedeemable Class B Units issued for acquisition $ ? $ 6,514 of a subsidiary, net of issuance costsShares of Class A common stock issued for $ 1,988 $ ? acquisition of Conscious WholesaleExchanges of non-controlling interest for Class A $ (3,917 ) $ ? common stock

GREENLANE HOLDINGS, INC.RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES(Unaudited)

The reconciliation of our Net Loss to Adjusted Net Loss for each of the periods indicated is as follows:

Three Months Ended June 30, Six Months Ended June 30,(in thousands) 2020 2019 2020 2019Net loss $ (6,385 ) $ (3,220 ) $ (23,124 ) $ (20,884 ) Debt placementcosts for ? ? ? 422 convertible notes[(1)]Transition to beinga public company[ ? 333 ? 1,183 (2)]Equity-based 891 1,724 1,161 4,575 compensationInitial consultingcosts related toERP system 44 ? 108 ? implementation[(3)]Restructuring 256 ? 364 ? expenses [(4)]Due diligence costsrelated to ? ? 903 ? acquisition targetGoodwill impairment ? ? 8,996 ? chargeChange in fairvalue of ? ? ? 12,063 convertible notesAdjusted net loss $ (5,194 ) $ (1,163 ) $ (11,592 ) $ (2,641 )

(1) Debt placement costs related to the issuance of convertible notes in January 2019.(2) Includes certain non-recurring fees and expenses primarily attributable to consulting fees and incremental audit and legal fees incurred in connection with our IPO.(3) Includes non-recurring expenses related to the initial project design for our planned ERP system implementation.(4) Includes primarily severance payments for employees terminated as part of our transformation plan.

The reconciliation of our Net Loss to Adjusted EBITDA for each of the periods indicated is as follows:

Three Months Ended June 30, Six Months Ended June 30,(in thousands) 2020 2019 2020 2019Net loss $ (6,385 ) $ (3,220 ) $ (23,124 ) $ (20,884 ) Other income, net (186 ) (748 ) (1,126 ) (924 ) [(1)]Transition to beinga public company ? 333 ? 1,183 [(2)]Interest expense 110 140 220 742 Provision for(benefit from) 8 (108 ) (73 ) (97 ) income taxesDepreciation and 650 645 1,360 1,330 amortizationEquity-basedcompensation 891 1,724 1,161 4,575 expenseInitial consultingcosts related toERP system 44 ? 108 ? implementation[(3)]Restructuring 256 ? 364 ? expenses [(4)]Due diligence costsrelated to ? ? 903 ? acquisition targetOne-time earlytermination fee onoperating lease inconnection with 262 ? 262 ? moving to acentralizeddistribution centermodelGoodwill impairment ? ? 8,996 ? chargeChange in fairvalue of ? ? ? 12,063 convertible notesAdjusted EBITDA $ (4,350 ) $ (1,234 ) $ (10,949 ) $ (2,012 )

(1) Includes rental and interest income, changes in the fair value of contingent consideration, and other miscellaneous income.(2) Includes certain non-recurring fees and expenses primarily attributable to consulting fees and incremental audit and legal fees incurred in connection with our IPO.(3) Includes non-recurring expenses related to the initial project design for our planned ERP system implementation.(4) Includes primarily severance payments for employees terminated as part of our transformation plan.