Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Charlotte's Web Holdings Inc. fourth quarter Conference calls.
At this time all lines are in listen only mode.
After the speakers presentation will be a question and answer session to ask a question. During the session you need you press star one on your telephone if you require any further assistance. Please press star Zero I would now like to hand, the conference over to your speaker today, Cory Pallet director of Investor Relations. Please go ahead.
Good morning, everyone. Thank you for joining us for 2019 fourth quarter year in conference call. Charlotte's Web My name is Corey Pollard director of Investor Relations and leading the call. This morning, a Charlotte's web CEO Deanie elsner, along with CFO Russ Hammer will review the fourth quarter results in detail.
As has become the recent norm the three of US are all calling in from different remote locations as part of our efforts at social distancing to mitigate cobot 19 risk. So we cannot see each other and there can be modest latency delays and cellphone channels. So please bear with us should we trip over each other or have any disconnections your nicole but I am confident.
On today's call Deeni will share a high level comments on the quarter and the business Russell state share some color on the Q4 financial and we'll take your questions from our analyst at the end of the our prepared remarks, a replay of this call will be available through the next week accessible for the details provided in our earnings release and a webcast replay of the call will be available for an extended period of time accessible.
Through the IR section of our web site at Charlotte's Web Dot com.
Earnings Press release was issued this morning, RMBS Lincoln financial statements for the quarters can be found in the Investor Relations section of our website and they are also filed on SEDAR.
As always a reminder tour listeners that certain subjects discussed in the call, including some answers. We may provide certain questions may include content that is forward looking in nature, and therefore subject to risks and uncertainties, which could cause actual future results or performance differ materially from any implied expectations. Such risks are rounding forward looking statements are all outlined in detail within the company's regulatory filings.
Again, which can be found on seed or dot com [laughter]. In addition to the on this call will refer to supplemental non-GAAP accounting measures, including adjusted EBITDA, which you don't have any standardize meeting as prescribed by I've already adjusted EBITDA was therefore defined in our press release as well as our Mdna filed on SEDAR and finally yesterday morning, we announced that we have entered into an agreement to acquire up.
He has held on today's call. We're pleased to share some of our insights on the synergies and the strategic value of this transaction. However, we will not be providing any forward looking financial estimates or combined revenue projections about the combined business outside of what has already been disclosed in yesterday's press release. This remains in place until the transaction is closed which is anticipated to occur.
Near the end of the second quarter.
With that all now and over the called Charlotte's Web Chief Executive Officer Deanie Elsner.
Good morning, and thank you for joining us today I hope that everyone on the tallest healthy and Keepitsafe along with family friends and colleagues. During this unprecedented environment created by the Cobot 19 virus.
Health and wellness employees and customers is our top priority and we have implemented social distancing thrilled remote working policy with our offices and facilities open two essential step only.
To address the potential operational disruption from Kopec 19, we've taken constructive actions with our quality and warehouse teams to ensure continuity.
As a business that falls into the critical business definition by the Colorado Public health environment Order with cross trained our staff to create backup teams to keep our lines running smoothly our vertically integrated supply chain provide significant shelter from supplier risk and gives us confidence that we will be able to manage a b manufacture.
<unk> in shipping our products to meet customer demand.
Finally, we're closely monitoring the ever changing external environment and meeting twice a day to make decisions to both protect our employees and minimize business disruption.
I'll begin today's call with a summary of our intent to acquire advocates health products and then provide a review of our Q4 results and outlook Russ will follow and speak to the fourth quarter results in more detail.
Yesterday, we issued a press release announcing that we've entered into an agreement with an intent to acquire advocates helps products in all stock transaction valued at approximately $69 million enterprise value.
The transaction is expected to close late Q2, or the Q treat three of this year subject to customary closing conditions and the approval of the shareholders abacus.
The kids is a market leader in the over the counter topical products that combined active pharmacological ingredients with hemp extract this is a game changer for Charlotte's web as it greatly expands our portfolio of topical products.
Lets web is a leader in the CBD injectable products and advocacy is a leader in the CBD topical products combined we have a current market share of approximately 35% of the FDM channel. In addition to having an advantage cost position throughout vertically integrated supply chain.
According to the estimates by the Brightfield group. The topical segment is forecasted to become the fastest growing and largest segment within the CBD category growing to more than $4 billion like 2025.
Charlotte's web has the broadest distribution coverage of any CPG brand across the food drug mass retail channel. However, our portfolio was underdeveloped in the Topicals segment.
Because adds substantial portfolio depth in topical products with more than 50 unique skews, including F.D.A. Register topical medications that target specific paid or at least need states.
This dramatic expansion of our Topicals portfolio presents a significant value enhancement for Charlotte's web across all channels.
Charlotte's web total distribution exceeded 11000 doors. This month abacus has distribution of around 12000 doors together, the new company will have greater than 15000 doors of distribution.
In addition advocates has an established sales network, representing more than 16000 health care practitioners with their CBD clinic lineup topical.
Combined are complimentary products and distribution presents a significant cross selling opportunity.
This is particularly valuable within the current environment of regulatory uncertainty that it's holding back ingestible sales can be FDM channel and immediate expansion of our topical portfolio enables us to accelerate growth into FDM. This effectively turns a headwind into a tailwind for Charlotte's web.
John looks weapon advocates have to other top management teams in CPG, leading the market with brands science and quality combined we become the deepest as broad as CBD company in the world fully integrated across all channels and all segments are complementary strengths and relative market share.
Our positions provides a powerful one plus one equal three formula we sought for an acquisition.
Post acquisition Apoquel shareholders will own approximately 15% of Charlotte's web in terms of size advocates is annualized annual run rate is about 15% to 20% of Charlotte's web on a pro forma basis that combined company sales in the third quarter 2019.
Were about $29 million for an annualized run rate of about $115 million.
Together, we aim to accelerate our growth and extend our market leading position. We look forward to updating you on our progress.
Now a review of this morning, as Q4 earnings and business outlook.
Since joining the company nearly a year ago, we've been working to build the management team and infrastructure necessary to move from the start up to a stand up CPG business.
I would slip already had the talent a strong brand proprietary genetics and the vertically integrated supply chain from there we built a leadership team for the future and began to establish the operational excellence required to achieve our long term ambitions in 29 team, we established the infrastructure necessary to.
Support our girls in five key areas first we invested in capacity expansion in preparation for the anticipated FDM retail growth.
Second.
We implemented since business systems and processes accounting controls liquidity tools and corporate governance, just yesterday, we announced a new baking relationship with JP Morgan for a senior credit facility and merging Bacon and merchant banking services.
As a tier one banking relationship we're very pleased to announce.
Third we evolved our DTC technical platform built new capabilities and expanded the team to accelerate growth.
Fourth we achieved multiple third party certifications to deliver against our quality and safety commitment. Examples of this include achieving the now the national Animal supplement Council certification. This was instrumental in us landing distribution at our first national pet.
Retailer this month.
Our manufacturing site recede NSF certification for dietary supplements, we achieved and publish our sell affirmed brass and we've made great progress towards our ambition of achieving 100% organic certification.
Importantly.
We brought the scientific legitimacy the CBD and connected categories with the recent launch of our CW Labs argue division located on the medical campus at the University of Buffalo CW Labs is it is integrated into the Sunni network of 64 universities and medical centers and we are working.
With leading institutions to deliver clinical data and breakthrough renovation.
So we've been checking the boxes filling the gaps and the company is getting into good shape.
Now turning to our 2019 full year sales performance.
Overall, Charlotte's web <unk>, 36% in 2019 to roughly $95 million in revenue.
Gross margins were 70% before taking actions to clean up 18 inventory associated with standing up the organization restful speak to this in more detail momentarily.
For the full year 2019, our BTB business grew 33% and our DTC ecommerce business. It was 39%. Our total 2019 revenue mix reflected a split a b to b, representing about 43% of our total sales and DTC representing about 50.
7% of our total sales.
And our BDP business the natural channels grew sales.
13% versus year ago, and FDM sales through 361%, we added over 6000 doors in 2019 and have commitments to add an additional 22000 doors.
2000 doors in the coming months.
In 2019, as a standalone, our DTC business was larger than any single competitor in the CBD retail category. The DTC business for US is a key strategy for growth going forward.
2019 revenue was at the low end of our expectations. This was almost entirely due to the lack of the anticipated regulatory direction in the back half of the here in November the FDA issued several warning letters to certain CPG companies, which caused our customers to pull back across all channels.
Negatively impacting the sector and our sales.
We're not going to look the lack of regulatory direction disrupt our growth ambitions. Instead, our plan is to adjust to the new operating landscape and find other path to grow.
Turning our focus to Q4 sales total revenue was roughly $23 million up 6% versus year ago, but down 9% versus Q3.
This sequential decline versus Q3 was due to a 26% decrease in our BTB revenue driven by two issues first the negative Q4 after <unk> comments and second.
Competitive oversaturation in the natural channel.
Q4, DTC revenue increased 14% versus year ago, and increased 4% versus Q3.
Our Q4 revenue mix was split 35% b to B and 65% DTC.
Despite the pull back from customers in our BTB channel, we delivered some solid wins, we increased distribution in Q4 and in the year with greater than 10000 stores, an increase of 6140 versus year ago.
We accelerated our innovation growth.
We launched in Q2 in Q3 today for example, our dummy sales in Q4 represented about 14% of our total sales for the year, our gummies represent about 7% of our total sales that's on a segment that didnt launch until about July of 2019.
Yeah.
We launched the trust the Earth marketing campaign, and our new earned media media model, we launched new DTC platform and capabilities, we transformed the model and we improved the online experience and finally after all of this Charlotte's web remain the number one brand in the category.
Our DTC channel with the Shining star of our business in Q4, posting our largest quarterly sales to date with revenue of about $15 million.
DTC is a critical channel for us for two reasons. It is the single largest channel today in the CBD category and it will remain the single largest channel in the CBD category growing to $8.8 billion by 2025.
Our forecast in Q4 was to increase.
Web traffic increased acquisition and increased conversion rate and I'm happy to report we succeeded in Q4, our DTC channel achieved the highest conversion rates in our history hitting double digits in key revenue weeks.
We also successfully acquired 38000, new consumers up 22% versus Q3 in addition to increasing our subscription rate.
In 2020 were increasing our focus and investment into DTC channel as we expect online sales to grow faster.
<unk> than retail in the first half the 2020.
DTC sales disproportionately benefited our gross margins in addition to providing consumers with a broader portfolio of products. We look forward to updating you on this channel going forward.
Finally, I want to provide a little context to the CBD category.
Sumer interests and the overall category growth momentum continue despite the regulatory headwinds and the explosion of competitors the potential of the CBD category to achieve $24 billion and sales remains intact.
Here are some consumer facts that support this.
Consumer awareness for CBD remained at 85%, while familiarity of CBD moved from 47% in 2018% to 70% in 2019.
For center consumers you be using CBD moved from 8% in 2018% to 15% in 29 team that it reflects a category with high awareness and low penetration that equals growth upside.
The three biggest reasons consumer support taking CBD.
Our anxiety pain and sleep. These are rising challenges in our society and macro trends, which will continue to lead the category in terms of girls going forward.
In 2019, Charlotte's web with the number one brand in consumer awareness and loyalty.
And as a fund side note Forbes magazine reported that searches for CBD, we're more popular than circus from Taylor Swift.
The M.B.A.
Beetles and cane West now we know we've succeeded as a category.
The CBD category remains as exciting as ever as the regulatory framework gets sorted out Charlotte's web.
Best positioned CBD company to wouldn't globally. This was the case before announcing our intent to acquire ships abacus and it's even more accurate as a combined company going forward I'll now turn the call over to Ross to provide some comments on the financials.
Thank you Danny and welcome everyone. We certainly appreciate your during that time with us.
The financial statements and the management discussion and analysis I've been filed on SEDAR.
Let's move on campuses do along with our press release and be me very thorough review of our revenue.
Well I will focus only on some key financial items for Bud transparency and understanding and then we'll we'll be happy to answer any questions Glamis after our prepared remarks.
I'll start by this doesn't mean inventory provisions I didn't mention earlier in the fourth quarter, we took in them and pulling them come and non cash reserve.
13.9 million.
This is its them some cost of sales, which reduces the gross margin.
Most of the on cash reserves against Ingestible oil inventory from 2017 2018 earmarked for the Ft I'm channel.
The anticipated the loading up the regulations and what does enable the sale of this inventory to the RPM channel shortened the remaining bothers expiration dates required for the channel with the ongoing regulatory timing I'm certain our aged inventory reached the end of its useful shelf life.
There was also old branded packaging a topical product. So we are replacing next month with new and improved formulations.
The result of this was reduced gross margin for the fourth quarter and the year.
For taking biological asset adjustments and increases in inventory reserves. Our Q4 gross profit was 12.2 million or 54% gross margin.
This compares to gross margin before biologic last adjustments of 72% in Q4 2018.
Operationally the lower start to gross margin percentage was much discounting programs are was implemented during the quarter as part of our competitive person promotions.
For modeling purposes going forward, we expect consolidated gross margin in the mid sixties range improving late in the back half the year.
Production cost improvements for our new.
Customer fulfillment center coming online.
Q4 gross margin after the biological asset adjustments and the 13.9 million non cash reserves was 99%.
This reduction effect to gross margin for the 2019 year as well.
2019 year, our gross margin before the impact of inventory reserves was 17% compared to 75% in 2018.
The lower gross margin in 2019 was influenced significantly by the Q4 as gross margin for the first nine months of 19 was 73%.
With our age doesn't expire in your inventory items cleaned up we entered 20 twond with another 7 million of current and new friends classic inventory in preparation for a new product launches in April.
The remaining inventory consists primarily of her biomass from our 2019 harvest.
We inventory at a minimum two years of him biomass, where extraction and manufacturing overtime. This provides consistent low cost raw material and guaranteed supply for projected sales.
Our vertical supply chain as one of our most valuable asset enabling full control of public.
Quality pretty stability and costs.
In 10 years to reduce our costs in the supply chain.
Our 2019 harvests at higher yields and potency, resulting in about 33% reduction in cost per milligram of seem to do.
Combined with significant cost savings through our new production center, we will be able to improve margins, while passing on savings to our customers.
Well some comments on our Q4 operating expenses Q4, 2019 offsets of 26.4 million for the quarter was high at 116% of revenue.
We guided for a portion of this increase in our Q3 call due to our expansion plans, but there was also approximately 6 million of onetime and timing issues in the quarter, which I will review in detail in a moment.
We're modeling for lower Opex dollar levels going forward and 2020 and prefer clarification, we expect opex to leverage.
Quintile improvement.
Quarter as a percent of sales.
Specifically, we experience and then Christmas United from Q3, the Q4 2019 driven by the following.
Disproportion amount about marketing was recorded in Q4.
Point 6 million, plus and your marketing campaign, which generated.
In in the 52 million impressions during the quarter.
We will continue generally value from this investment over future periods.
Our marketing spend will be stages more evenly across 2020 going forward.
We also had 0.6 million and crews and share based comp associated with some Q4, though.
And we had 1 million extraordinary consulting lobbyists and legal fees, which were onetime in nature.
Finally, our Q4, that's all such profile was modeled well Hollywood supposed to love them. They shouldn't have to split the launch of them, just and just more product somebody asking him channel.
We have responded with cost controls I don't know 20, Twond, we intend to leverage our topic about each quarter as a percent of sales beginning in the second quarter.
No to provide more transparency, we'd like to sure how we're managing our investments there.
We are carefully managing our expansion investment costs as we continue the potenza book to build out and invest ahead of revenue anticipation of up your guidance and the forecasted FDM channel growth.
Our new customer fulfillment center will come online in phases for sure.
Hi, being our competitive cost advantage as we have to 2021.
The new capabilities <unk> fulfillment center investment will enable Charlotte's web.
To be one of the only well position vertically integrated supply is able to provide high quality capabilities, including the eyes automated pick and pack inventories as punishment and on time delivery comps.
We plan to share with you, but you can see b to b.
And that's the M. capabilities about new customer fulfillment center with an Investor day later this year.
Q4, 2019, adjusted EBITDA loss was negative 10.2 million compared the positive 3.4 million last year.
The loss was primarily the result of lower than expected themselves against the higher up that says we strategically invest ahead of revenue.
We are modeling negative adjusted EBITDA in the first half of 2020 and positive adjusted EBITDA in the back half with double digit adjusted EBITDA in Q4 2020.
Our cash balances at the another quarter, where 68.6 million and working capital increased to 116.9 million.
Page views and operations during the quarter totaled 8.7 million. It was probably early years for me production and fulfillment capabilities and our new customer service.
Our top cabot's investment plans for 2020 or approximately 38 million.
We are executing on our capitalization strategy provides ample liquidity to meet anticipated growth and recently engaged a strategic banking relationship with JP Morgan as part of this process, where we can use a mix of debt and cash for prudent flexibility.
We're also completed our implementation of JP Morgan merchant services, which will drive additional cost reduction and card fees and our growing DTC business.
There's a new consoles come online late on the or we expect to harness cost savings to our vertically integrated chains to support meaningful increases in adjusted EBITDA leverage against higher revenue was $1.20 21 and 2022.
Now I'll turn to guide.
Well, we're optimistic about our strong DTC business and the abacus acquisition with the uncertainties around Corona virus and regulatory environment, We're revising down at 2020 growth expectations for Charlotte's web business.
10% to 20% year over year growth.
We expect to 120 20 revenue growth can be flat to slightly down year over year in the 20 million right.
As the same headwinds from the fourth quarter carryover and thrown a virus the structure a retail partners focus on teasing category Staples and stock during this crisis.
This completes a financial update for the quarter I'll now turn the call back over to David for questions.
Thanks Ross.
Now turning our attention to the FDA, we had a productive conversation with the FDA in January and we continue to believe they want to find ways. They want to find a way to build a regulatory framework for the CBD dietary supplements.
Recently at the FDA provided the Senate Appropriations Committee that required assessment on the CBD category.
In our opinion the remarks from the ft were much more constructive and positive from what we've heard in the past we heard three new themes emerge.
First there is a path to study regulatory guidance for CBD dietary supplements.
Second the dietary supplement category is you differently than the food and beverage categories and third full spectrum CBD is different from CBD isolated and may need to be addressed separately.
We were encouraged with this communication and remain committed to partnering with the FDA to provide data and studies to facilitate their progress.
In closing the global CBD opportunity remains intact, and we believe we are operationally well position to lead the category as the one CBD player that checks all the boxes in all the areas of critical criteria.
Our acquisition of advocates solidifies our market leadership and provides the foundation to scale going forward, making Charlotte's web a formidable competitor in the CP states with that operator, I'd be happy to answer any questions at this time.
At this time I'd like to remind everyone in order to ask a question. Please press star and the number one on your telephone keypad.
Your first question comes from the line of Derrick Dally from Canaccord. Your line is open.
Hi, Good morning, everyone I'm just wondering.
Good morning, just wondering on me in the natural health channel what were some of the main reason is that really that you saw that were causing the declines is it more new competitors entering the space is that lack of regulatory oversight combination in the June can you just give us some color there. Please.
Yeah, I would I'd be happy to do that there.
Okay, I'll give you some perspective Q4 versus year ago, the natural channel for US declined about 11%. If you look at Q4 versus Q3. The decline was closer to about 21% that was in large part because of the oversaturation of competitors coming into the category.
And then an aggressive reduction in prices, we had a number of market leading brands that were that perpetually had their products on sale at 50% or greater and so the category loss total average sales per unit that was sold despite the.
Fact that category distribution expanded so for US we increased distribution in Q4, but because there's so many players theres not great navigation and the pricing is getting aggressive as more competitors get more more desperate that's what happened to the category. So as we go forward.
We've reset our expectations for natural and we're finding other places in our portfolio to drive growth throughout the channels.
Okay. That's helpful. And then on the pricing have you seen any pricing pressure and in direct to consumer in FDM or is it just mostly held to natural at this point.
We're seeing the most aggressive pricing pressure in the natural channel and that's primarily because it's a channel but has the most broadly developed portfolio afraid to consumers. So the independent natural channel was basically the first channels should really carry all the total portfolio across all these different companies that's what we're seeing.
The most aggressive pricing.
Pricing I would say is is mildly aggressive in other channels in P.T.C., we have dialed up.
A very.
Precise and targeted pricing offer the brilliance of DTC is is we can do that in a in a very specific and in a very targeted way. So we're not over exposing our portfolio too.
Days and weeks on ended a certain price point, we can be in and out of price points within hours and that's exactly how they're playing the DTC channel. So one of things where most encouraged by in DTC is we per but we've got our broadest portfolio also and consumers have responding to that we're able to price and target that portfolio to can.
Tumors, very specifically by need states and were able to post our communication and news on an hourly basis with consumers and so these new capabilities and this new platform gives us great flexibility to really.
Play to win in DTC in a way that Weve never done before does that answer your question.
It really that's yeah, that's great just on West one for you I'm looking at the balance sheet here at the end of the quarter to me. It looks strong 69 million no question. Your baby Ellen Some working capital are you guys confident are comfortable in terms of your your balance sheet flexibility and your ability to complete your expansion plans not only this year that over the next two as you.
Bring on the larger processing facility in Boulder.
Yeah. Thanks, Doug you know, what we're very comfortable our capitalization strategy not only provides ample liquidity.
Operational strategic investments this year and our other strategic investments, but it also and you know corona buyers when on who knows what's going to happen here in the environment, we have liquidity to withstand that so we feel very confident going forward.
Okay, and then just the last one for me and I'll turn the line or you guys. Having any can you comment I guess on on any discussions with retailers that may lead you to Bobby.
They're getting closer to putting adjustables on the shelves, even without and incremental clarity from the FDA or is that really going to be the catalyst for the majority of your retail partners.
[noise] for sure I, especially as it pertains to FDM the catalyst for their broad based expansion across Injectables would be if gave regulatory getting land it but that said dairy because it's a great question because.
In fact coming off of the most recent FDA comments, we have had some encouraging conversations with our customers now I'm encouraging conversations versus commitments is is two different things, but the door I think they're watching the FDA as closely as as we are in the door.
I think is opening two conversations about the future that's encouraging.
Great. Thank you very much.
Thank you.
Your next question comes on the line of Michael Let Frank from Piper Sandler.
Nine or something.
Thank you good morning.
Good morning.
Good morning, Michael can you give us since you've mentioned the decline you expect in the first quarter, but the 10% to 20% growth on the year can you just give a sense of what your assumptions are that drive that and where the acceleration comes from.
Absolutely.
Probably three three key places we would anticipate the growth to come this year and the guidance that buses presented is a is what we believe we are confident we can deliver against.
The first is expanded distribution we launched.
New products and 2019 about halfway through the year.
On some of those products. It took a about August before they got on the shelf and so we're gonna have a run rate Michael on those products into 2020 odd that is incremental to our plan.
And we've just launched new innovation across our Topicals business. In addition to launching new formats that make our trial to entry more accessible. So we're getting to more accessible price points for consumers to come in and try our products as I as a brand that has the highest loyalty in the.
Category, we know that if we can bring consumers into try our products, we will keep them. So that's the first part of extended expanding our distribution second.
We've opened up the pet channel the pet channel for US in 2019 was below $1 million, it's going to significantly exceed that in 2020 as the launch as we launch a national pet retailer distribution that that order literally is going out this week and so that.
We'll be all incremental upside to what our plan was last year and then finally on them. We can't underestimate. The this enough DTC, we'll continue to be invested behind and we'll continue to grow our new capabilities, our new technical platform. This new team that we have in house for the for.
First time ever and our focus on usually using our data to guide on our communication and our deal structures is enabling us to target consumers in a very very very differently and so those three things give us confidence that we can grow above where we did last year now is there more ups.
Right on top of this I would hope so, but I don't think I would ever expected. The co bid 19 virus to put us where we are today as a country. So I don't know that we can lean any further into what.
Ross is provided in terms of guidance, but those are three areas that we feel the most comfortable about.
No that's helpful color and.
Assuring to know that it's not dependent on.
FDA Green light the that's necessarily this year well wall some of the.
Comments, and then color they've added.
Has somewhat encouraging notes to it.
Their timing is it still totally unpredictable and and we certainly have really never seen them move quickly. So can you just touch on what some of your planning assumptions or on that and how you think about that relative to your your resources and capabilities and managing the cost structure.
Yeah. It's a it's a good question [laughter] into Q3 earnings call, we reset guidance and we literally unhinged our guidance from the F.D.A. in terms of forward looking and that's primarily because as a management team. We've made the decision to focus on.
The things, we can control and not the things we can't control.
We have dialed up of regulatory group inside our company and are actively talking to state and federal government around regulating dietary supplements, but for us that remains an unknown and not something I'm willing to built into our forecast and so as we're looking at the F.D.A.
We're anticipating an environment, where ft. A regulatory is not set until mid 2021, we were literally building a plan and stance. It says if that happens how do we continue to grow how do we continue to accelerate that growth and how do we continue to control our costs.
So that we can stay at the front end of the CBD category and that's what we're doing now.
The FDA lands a regulatory environment for died elements in front of that 20 at 2021 mid year timing that we're expecting that would be upside to our plan, but we can't plan on that.
Sam I know that's helpful and.
Yeah, sorry go ahead.
I just wanted there did this a little more color there. So the way I think about it brings a perspective the growth that we're looking have we expanded distribution the dimension.
Isn't the topical space, mostly in those at the channels that you were talking about it does not have.
Assuming after the Green lights on then we get to that volume to get the tend to 20% just to be clear.
Gotcha Yep, that's helpful and just one last one on the EBITDA progression that you touched on.
The color that you gave there does that include advocates or is that separate and maybe related no. When you talk about accretion from Africa. What are some of the drivers, but you know what are some of the way what are some of your assumptions on what drives that.
Sure well give 'em. So all of our guidance is just Charlotte's web because we have not close the skill you know that can be 60, 90 days out so all the guidance and discussion. We're doing today is is just charlotte's web ongoing business as normal.
And on the second part of the question Michael on the synergies. So there's obviously public cost synergies, but as Denise mentioned earlier in our prepared remarks.
We see significant door expansion that is your need I think the the month number. She mentioned was about 15000 on the retail side and we also see significant opportunity in the cross selling.
Between our two channels of both of our businesses.
In addition to that there are other operating leverage is and cost advantages of all vertical supplied from and so for example, we plan to supplier to abacus for a long time.
We took partner our cost advantages in our vertical supply chain on our cost of seem to be that I mentioned earlier, our significantly advance to the industry and so we will be of leveraging their cost down as we pulled them into our vertical supply chain.
Okay. That's helpful.
Yes very helpful. Thank you very much.
Your next question comes from the line Scott for 10 from Roth Capital. Your line is open [laughter].
Good morning, and thanks for the call congratulations [laughter] position.
It's a real quick just one follow up on the 20 million Guy and it's for first quarter and where are you see I know you've mentioned a little bit of that but where are you seeing it come from.
And going forward do we expect could DTC to remain elevated at 65% of revenues [laughter]. So the first quarter shows continues kind of a falloff from the natural channel and then where does the F. T M fit in there as far as new store growth going forward.
Yes, it's a it's a great question Scott because we got a lot of moving pieces. So while it's true that the DTC channel will continue to grow and frankly outpaced the growth of our FDM channel until it will have some balancing out because we've introduced new products like gum.
He said in in Q4 represented 14% of our portfolio and so there's there's going to be a little bit of massage and of the numbers, but in general.
We're looking at Ti DTC to be above.
2019 in terms of percentage of our total sales in Q4 that that number leaned closer to <unk> I picked up about four percentage points versus the prior three quarters and we would expect that to carry forward in in 2020 I'm. So that's that's what's happened in the DTC.
In terms of our portfolio we're seeing.
Our our Injectables in total come down a little bit, but gummies, which is also an adjustable increase and so there's a little bit of sheer swapping between our segments, but in in general our total Injectables will remain at about 90% of our portfolio and that's that's pre abacus acquisition.
Okay. So since then so I trust that got them so to us I'm just wanting to.
Maybe to give a little more floating color on the first quarters. You mentioned you know we only have a week left so we know that pretty well and the DTC does continue to be the significant portion of the business. The natural channel, we still see the weakness as we mentioned earlier in our prepared remarks and then after young.
Just starting to expand as we picked up some more.
Doors, but that's not on the it's on the topical side.
And then the pet channels. The other piece of the first quarter that didn't you just mentioned is Ah shipping this weekend as a matter of fact.
Okay, and then just to expand into pass you mentioned your data analytics, it you're bringing on and thought you might have a little more color from a learning here and in the first quarter and then kind of leveraging your did in analytics versus the science side that you're getting more into CW labs.
And now they have the kids acquisition and their science behind that what is the d. that kind of total you as we move forward in innovation and new products and looking at the different cannabinoid. So we're going forward for your future products here [noise].
[music].
Oh, it's a great question, Scott and I think this is whats so exciting about the construct the Charlotte's web company today are our horticulture and genetics division is busy looking that genetics that over developed different cannabinoids like CPG CB and CJ.
Okay, and so we know we have access to different cannabinoid that upgrade a little differently in the in an extract and that's encouraging. We can then translate that those kinda habits into innovation, whether it's in Ingestible sport in Topicals until we feel like we've got a an IND.
Greediest pipeline that's exclusive that's affordable this advantage and can be translated into unique advantage innovation and in product. Our our focus on CW labs is built on the clinical front and on the on the development front and so a couple of the areas that we will be looking for.
Side expansion into his his topical specifically and getting into.
Some some exciting new need states that we currently are not in potentially getting into the sports landscape area as well is getting to some interesting new form of CBD. So we think the combination of our genetics with our innovation in her.
House with our linked to science and now our availability across every segment.
Ample run room to launch new products and really create competitive advantage in the marketplace.
Yes, Scott I'm, just wondering to what do you know I think the the new product innovation that she just oh.
Alluded to you'll see significant tie into the needs based.
In our new product innovation, that's coming out so we'll give you more color amount in the coming quarters, that's pretty exciting.
Okay and last question for me regarding international potential expansion and how does that because sit from an international standpoint are you still to this evaluating in looking at the timing on that.
[noise] not evaluate it we've got pull intention of of becoming a formidable international brand and so the the intention to acquire epic as health products supports that that ambition to grow into.
Nationally today Abacus already has distribution in to a number of international markets I'm, they've got it was there topical products.
Again, that's a great vessel for us to expand our portfolio and create the portfolio Dept with the portfolio that we have and so we see a number of growth avenues thrust to get to a global leadership of the CBD category across.
All segments across all countries, where cbds federally regulated.
Thanks, that's it for me.
Thank you.
Your next question comes from the line of Pablo Zuanic from Cantor Fitzgerald. Your line is open.
Good morning, everyone look two housekeeping questions first in the press release, it says that human Injectables went up 26% year on year. So I'm guessing consumables were down to can you explain the difference there what's exciting definition, what we sell but what was down a notion gives a housekeeping.
I think you gave the numbers, but as you're going to certify them into fourth quarter industrial B to B, obviously feels decline, but I'd be dealing with happening if the M. Industrial sales on specialty, particularly related to if the whether any of their listings are skews God. This resale deliver the a comment thank you.
Sure and so Pablo.
The first question you asked was and Q4 our injectables.
Our total Injectables grew year on year, 26% and so I'm sorry that was.
It is 26% that's correct.
And so on on the year, we saw really healthy growth in our Injectables portfolio.
And so we feel like Injectables continues to be a growth area that will be unlocked as we gain distribution in F. T. M. One of the biggest drivers in this category in terms of adoption for consumers is availability of distribution and so our ingestible as we'll continue to grow behind our DTC business.
And outlets, where we have that available today, we will continue to evolve that offer so that the format of our injectables by channel will be appropriate to bring consumers in at accessible price points. We have a number of plans that will launch in April of this year as well as August.
Of the back half of this year, they get to be more specific about the formats, we bring consumers and then the accessible price points by channel. So that we matched the consumer shopping in the channel in terms of public the second half of your question was pertaining to.
One more time what was that.
You know your name, but I'd be before we go to it was one of them, but if I may <unk>.
Maybe I should also be so flying but sales year on year were up 6% into fourth quarter right. And then you broke up to three products for US you said, a injectables went up 26% Toby Gold was up 29 bid was up 33. So I'm just wondering what was down right I mean depressed yep.
Pablo I'm, sorry, sorry, I apologize I I've given you the wrong numbers I was looking at our contribution versus our sales growth. So let me try this who are time since your apologies.
And in Q4 hour.
Our total business versus Q3.
<unk> was up.
Right and I'm, telling you I I think I've confuse the numbers here.
Well maybe to make it easier Denise if you go in from the press release, it seems that I had not realizing there was a different as before but from the press release it sounds like human Injectables human question, what was sort of different.
All these or something.
No problem.
Problem. It's just it's it's semantics is the same thing so art art art, our change in our PDP business. In total business. You are right was down in Q4, 6%, our our ingestible business for Q4.
[noise] I've got is is up 26%, but Russ I might have been wrong number in front me.
Yeah, I'm checking myself right now so I don't I mean, we don't yet, but I can that be something.
I guess I'll move on and I think those who have a hub I mean did the big picture you said obviously.
Something was down right into performance, but yes. So infringe on one that I can tell you I can tell you where are our numbers were down and it is it's a little bit of change Pablo in terms of our.
In terms of our portfolio mix. So our volumes were down in terms of total contribution. Our topicals is our total portfolio contribution was down slightly that is because we introduced new pet products and we introduced new gummies and so so there was a mixing of our CFO.
Contribution between segments, but in terms of injectables versus a non ingestible our mix for the year of that was of Ingestible <unk>, 87% of our portfolio in Q4, our adjustments was at 90%.
And that remains relatively constant.
Okay, and then Justin does what channel, obviously, you've talked about I guess, it really simple questioning the fourth quarter B to B was down but can you break that out between the natural specialty channel and if the M. channel. Maybe you gave the number whether you bumped up you know what are important change both of those channels.
And regarding if you don't specifically.
I can understand that maybe into sort of quarter, you benefited from pipeline feel and getting to fourth quarter. This due to process of the trade adjusting those inventories, but but but wasn't something about not repeat purchase as she goes it will schuman with scared away by the FDA Coleman's or where do the listings from the retailers as what we saw those comments just more color industry would happen.
In the fourth quarter news and if the I'm going to hold up what tends to use expectation for more of those to be are they doing different things.
Yeah. So attack your second question first and then I'll come back on the channels. So second question first is the consumer scared away given the Ftn <unk> channels. The FDA comments. The answer is no. The consumer is not spooked by the FDA comments, we're seeing our ingestible business remains.
Strong and our DTC, specifically ingestible business remained very strong so its not the consumer it's a lack of available distribution and availability that that distribution in terms of the segments and where we saw the gross although our beat it be channel in Q4 was down 6%.
That was primarily driven by in Q4 that was primarily driven by our natural channel that was down 11% and our FDM channel that was up 68% and so that's that's the mix that created the BDP being down 6% on the quarter DTC in that quarter as you.
No was up 14% to soak DTC continued to drive strong growth.
But it's really the independent natural channel, that's that's happening the greatest impact in our Q4 numbers and that's really due to an oversaturation and the FDA.
Comments now did that risk result in customers just Dick discontinuing our business absolutely not what we did see his customers pulling back on previously committed expansion and that in large part what impacted our.
Businesses, we had anticipated commitments and sales and new shipments going out in Q4. The F.D.A. comments resulted in our retailers pulling back on those expansion plans. Those are the discussion on that Derrick asked me about and those are discussions that are getting reestablished.
In the context of the new Ftn communication.
Thank you it's very helpful. In just one last one regarding Alban cousin of course, what are the nation sort of deal.
I guess to wish is what I'm surprised that youre guiding for the deal to close we it's important to like in doing so monthly just overlaps and maybe longer but correct me if I'm wrong.
In more important than that.
Based on their market share numbers, you gave yesterday or for lithium channel under the French who can food and drug.
So the what a lot more successful than Charlotte's web in entering the drug channel. We have told we got broad support such as something all your Brian, but but I'm surprised about that given the cloud. The Charles we were supposed to have on even we're doing so willing to drug channel I know, it's a wish him well for them why would anyone for so right now thanks.
[laughter] Danielle.
Question, Yes thing.
So regarding the timing you know you're right Pablo with those HSR.
It could take on the longer and about out to the 90 days or.
We are working with our.
The attorneys and the Canadian regulatory to see if we will have to have that.
If we don't but they will move fast enough to really be dependent on the regulatory review.
[noise] in terms the drug channel you're right Abacus was slightly more developed in the drug channel. Let me give you some perspective and I said this in my opening comments abacus today has over 50 unique skews.
Charlotte's web today in Topicals has Q.
And so from a development standpoint, topicals and our portfolio only represents about 9% of our business where today. It is entirely the total advocates business. The other thing thats very attractive about an app because health products is that they are going after F.D.A. approved pharmacologic.
Cool need states and so they've been able to gain distribution in non CPD categories going up against category Adjacencies in store in a number of the stores, where abacus and Charlotte's web occupy together, we're in different sections of the store and so took inquiries original point.
In terms of B the business opportunity here. It truly is a one plus one equals three Charlotte's web brings the canal paranoid insight that genetics and the cultivation the vertically integrated supply chain to low cost producer and the brand and the knowledge of Injectables while.
Abacus brings forward the enormous development in Topicals and so as you bring these two companies together you truly create.
An advantage CPD player in the market space.
The reason why advocates would be interesting and partner with US is all of the pieces I talk to you bought cultivation genetics vertically integrated supply chain and then frankly, the scientific and innovation background. In addition to the management team operational excellence focus and so between our DTC our.
But its supply chain, our innovation pipeline and our cultivation, we are providing access to post the portfolio that that abacus cannot yet to today, which will greatly enhance and accelerate innovation opportunities for the both of us going forward.
Hello. This is for if I can just if I can just had one thing on the on the market share. According to latest Nielsen <unk> Nielsen data on the mass drug store channel Charlotte's Web does have the number one share at a 29% and CBD metric, which is a and b advocates product is.
As third place market share so combined we're still had.
But we do have some injectables in some states. So it's not apples to apples there, but just to clarify that Charlotte's web has the dominant Sharon and food drug mass.
Got it kinda can I just wouldn't squeezing one last one so the thereabout goes beyond sponsorship deal, we'd rather than Grosky and a under beauty brand, we're buying infill CBD that he announced in February that's the that's what affected by these stone section right, but you buying public was I suppose.
That's.
Correct.
Part of the deal includes whatever legal obligations they have under the old. So for example, if someone had a change of control is a marketing.
Representative for the company that that was conditional so we're all clear there.
Right. Thank.
There no further questions at this time I turn the call back over to your presenters.
Okay, well. Thank you everyone for a for participating in this extended a call today, we will look forward to reporting on our Q1 results in mid May [laughter]. Thank you for attending.
This concludes today's conference call you may now disconnect.
[music].