Q2 2020 Earnings Call
Good afternoon, and welcome to the CBD M.D. <unk> second quarter fiscal 2020 earnings call an update.
Today the country. The company issued a press release that provided an overview of the second quarter results, which followed the filing of its report on form 10-Q. Today's conference is being recorded and will be available online at CBD and D. Dot com in accordance with CBD Mds retention.
Policies all participants on this call will be in a listen only mode. Nicole will be followed by a question and answer session. At this time I would now like to turn the conference over to Mark Elliot The company's Chief Financial Officer Mark. Please go ahead.
Thank you Christine. Thank you all for joining the CBD MD second quarter fiscal 2020 earnings conference call on the call. Today, We also have our chairman and co CEO Marty Supergrass.
Following the Safe Harbor statement, Marty will provide an overview of our business then I'll provide a summary of the quarterly financial results following that well open the call up for questions, we'd like to remind everyone. The various remarks about future expectations plans and prospects constitute forward looking statements for purposes of safe Harbor provisions under the private.
Securities Litigation Reform Act of 1995.
CBD MD cautions that these forward looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from those indicated.
Putting a risks described in the company's annual report on form 10-K for the year ended September Thirtyth 2019 as amended.
And as filed with the FCC and our other filings with the FCC.
All of which can be reviewed on the company's website at www Dot CBD M.D. dotcom, we're on the Fccs website at Www Dot FCC Dot Gov.
Any forward looking statements made on this conference call speak only as of today's date Monday May 18, 2020 in CBD M.D. does not intend to update any of these forward looking statements to reflect events or circumstances that would occur after today's date.
With that I'd like to bring the color would a German co CEO Marty Supergrass already Mark. Thank you and thanks to all of those who are listening in on todays call. So afternoon before we talk about our second quarter, Let me update everyone on how Cobiz 19 pandemic has it affected our business in early March we started.
Take measures that our company to help secure the health of our employees and vendors when the stay at home order in North Carolina was implemented we temporary closed our corporate office instituted a remote workforce and altered work schedules at our manufacturing and warehouse facilities. We also took steps to incur.
These production to build up our finished goods inventory as well as purchased additional raw material inventory items, thereby allowing us to maintain production its supply chain interruptions were to happen, which at this point I'm happy to say has not happened in short while we have had to make significant logistic.
Well changes during the past 60 days, our team has risen to the challenge and our business has remained fully open and operational.
We're happy to report that adds up today, we're not aware of any of our employees who have tested positive to covert 19.
Along with taking the necessary safety measures. We also immediately instituted a rigorous cost containment plan across all departments and shifted resources from our b to b retail brick and mortar sales to our direct to consumer online sales. The result has been quite remarkable.
Well, we normally don't discuss results and mid quarter. We're in an unprecedented time and therefore I decided to talk about what our company's operations now look like in April our first full posed co bid impacted month.
First of all our overall sales in April were in line with monthly sales from our Monday March ending quarter.
Actively meaning our sales have not gone down second we are seeing a significant shift in our overall sales blend. We're now our direct to consumer online sales are tracking at 80% up from 62% overall sales in fiscal two.
2019.
There's of course has helped us maintain a very healthy overall gross profit margin, which we believe we can maintain at 65% or higher going forward third and most dramatic our overall operating expenses have been reduced approximately 40% in April from our monthly.
Average in the prior quarter. Some of this operational cost reduction is the direct result of cancellation of certain spend but others such as travel and trade shows our direct effect from the changing environment brought on by Cobot 19 pandemic.
The net result of all these changes is that in April we are showing an approximate 85% decrease in our loss from operations from just a few months ago.
And we're also seeing this carry through as we crossed the midway point in May.
Well the uncertainty caused by the pandemic requires us to withdraw our fiscal 2020 financial guidance based on what we're experiencing we remain confident that we will achieve our target of a positive cash flow by the end of 2020 and perhaps sooner.
In addition, with approximately 14.8 million in cash on hand at March 31st 2020, and the dramatic improvement in our overall operating results. We believe we have more than enough financial cushion to get us to profitability absent of any unforeseen impact from covert 19.
Despite these truly horrific times, we're thankful that earlier this year, we made bold strategic decisions such as becoming fully capitalized in January 2020 paying for infrastructure. So we have almost no debt maintaining a strengthening our online direct to consumer bid.
This model, which has allowed us to pivot when needed and choosing to operate our business with a view towards variable cost initiatives instead of like many of our competitors who are locked in long term arrangements are now drowning in debt and have no way to generate sales because they embark on a bad at all big.
Box retailers strategy.
I am on the record last year, saying I believe 2020 was a year that the CBD industry would see an industry wide shake out.
I said that hundreds a smaller brands he jumped into space would simply not be able to survive competition and regulation.
Now that Kobin 19 pandemic is upon us this shake out in the CBD industry is now magnified in its intensity.
When we entered the public market as a pure play CBD company in December of 2018, our sales were a fraction of the leaders now in less than 18 months, we're not only one of the biggest CBD companies in America, but we also have two are the most recognizable CBD brands in America with.
That said I'm pleased to announce the CBD M.D. reported 9.4 million in quarterly net sales for the second quarter fiscal 2020. This is a 67% increase over the same quarter last year and our gross profit margins remained strong at 67% year to date our overall.
Direct to consumer E Commerce sales for the March fiscal quarter was 6.8 million were 72% of our total net sales an increase of 2.5 million or 58% from the prior years quarter.
Our b to B brick and mortar sales were 2.6 million or 28% of our total net sales an increase of 1.2 million or 85% from the prior years quarters.
Direct to consumer ecommerce sales for the six months ending March were 13.6 million or 70% of our total net sales an increase of 8.9 million or 189% from the prior year period, our b to b brick and mortar sales were 5.9 million or 30% okay.
Total net sales an increase of 4.5 million or 321% from the prior year period.
As previously discussed we completed an $18.9 million equity offering in January and a few weeks ago, we received a $1.5 million alone from the paycheck protection program, which could be forgiven based on future criteria being met.
Coupled together and went to significant reduction or operating burn. We're confident we are fully financed to operate the profitability again with a significant cash cushion.
We will continue to drive online sales to the use of various digital marketing programs.
Currently we have over 250000 active E commerce subscribers, a number that continues to grow every month.
On the B to B brick and mortar side of our business. We continue to grow the amount of retail stores, who currently curry our carry our brands.
We're pleased to announce that our retail reach is now over 6300 retail doors, an increase of over a thousand doors since last quarter and we continue to see an increase in our international sales as we are now currently selling to wholesale customers in 16 international markets, while the co benign.
18 pandemic has affected our overall beat a b brick and mortar distribution channels. We're hopeful that during next to 12 to 18 months a vaccine will be discovered at which point, we believe that beat a b brick and mortar will quickly returned to pre coded levels.
During calendar 2019, we invested heavily in brand development acquiring brand building assets as well as our physical infrastructure with the build out of our 40000 square foot full scale manufacturing facility, our 80000 square foot logistics warehouse and distribution center and.
50000 square foot headquarters, we continue to invest in our Indian testing to ensure the highest safety and quality for all of our products. Our commitment to quality was recently awarded as we were honored in February.
Two of the best selling products, our CBD P.M. sleep aid and our CBD MD free topical voted the winner of the procedures 2020 product of the year award in the sleep aid and CBD topical categories respectively.
This is America's largest consumer voted award for product innovation as 40000 voters participated in online study organized by independent research from Cantor Meteor group.
We're also pleased to announce in March that we added.
NSF international dietary supplements, good manufacturing processes GMP registration.
We entered 2020 with a significant tailwinds in product and brand development, where our accolades saw the prestigious industry, leading predictive analytics and market research firm for the CBD industry. The Brightfield group names CBD MD, a top 10 domestic brand in two booming categories.
Topicals and skin care in beauty and in November 2019, CBD empty was ranked the highest in terms of overall consumer satisfaction as was the highest in unaided consumer awareness of any of the top 20 CBD brands in a survey conducted by Brightfield group of more than.
3500, CBD undue users.
Our CBD, our dynamic pet product offering which consists of a comprehensive line of CBD pet products for dogs cats. In horses was also ranked by bite brightfield as one of the top five brands in the animal CBD market. These achievements solidify that our CBD MD and cost CBD back.
Brands now sit on top the CBD industry as two of the most trusted CBD brand in the market today.
This brand building success has also presented us with new exciting opportunities such as our recently announced plan started joint venture with holistic pet foods leader Halo, a premium natural pet food brand with a rich 30 year operating history. It was a longstanding distribution channels in many law.
Large big box retailers, such as Petsmart and Petco cost CBD is currently sold by Independents Pet store channel and online at pause CBD Dot com. Our goal is for Pos CBD to being over a thousand retail stores brooming salons and veterinary clinics this year.
Our sponsorship and Influencer partnerships are first in class in the CBD industry and includes such multibillion dollar partners, such as lifetime fitness and Bella tour and I may a wholly owned subsidiary of Viacom.
We're pleased to announce that our agreement with lifetime, we're CB DMD as exclusive CBD partner of lifetime is expanding to include the sales of CBD products throughout both lifetime E Commerce and retail in club channels with approximately 2 million active members.
Lifetime provides an incredible opportunity to directly offer a robust line of THC free CBD products to this targeted base of consumers who are laser focused on the importance of health and wellbeing each and every day.
We feel confident that is our products are introduced online do their shop lifetime.
Site and in their 145, plus fitness facilities nationwide sales will be significant.
One indication of the potential demand among their membership is that research provided to us by lifetime indicated that CBB MD was the number one search term on the lifetime E Commerce website since our partnership began in October 2019.
We're excited to get our products in lifetime spas in cafes as well as in the hands of all their nutritionists and fitness coaches, serving their 2 million members.
CBD MD and our commitment to health and wellness represents a perfect fit with lifetime since our roster of teams CBD MD athlete include some of the biggest and most notable individuals in their respective sports our products are THC free and like lifetime CBD M.D. is a leading.
Trusted brand, which is consumer purchase data regarding CBD suggest is a dominant factor in decision making.
Finally, with respect to the regulatory climate for CBD prior to covert 19, who is our expectation that the FDA would announce regulatory guidance for CBD in the first half of 2021 now that the government is fast tracking business in America in an effort to restart our economy.
Me, we would hope that the FDA would release CBD guidance sooner hopefully by the end of 2020, possibly by enacting legislation like HR 50, 587, which is currently working its way through the house of Representatives.
Now, let me turn the call over to Mark to review, our most recent financial results.
Thank you Marty.
I'm going to start with a brief summary of our GAAP base result.
On a GAAP basis, our total net sales for the second quarter fiscal 2020, which ended March 30, Onest were approximately 9.4 million.
As Marty said this was a 67% increase for the period year over year.
For the six months ended March 30, Onest, our net sales were approximately 19.5 million.
Again this is a 220% increase over the same period year over year, and a 111% increase based upon the pre acquisition and post acquisition net sales of the brand, which we acquired in late December 2018.
Gross profit as a percentage of net sales came in at 70.9% for the second quarter fiscal 2020. This is compared to 66% for the comparative prior year period.
And for the six months ended March was 67% compared to 65.9% for the comparative prior year period.
We did have an ending inventory adjustment in March 2020.
And with that our gross profit for the three and six months ended would've been 67% and 65% still in line with our projections during the balance of fiscal 2020, we expect to maintain our gross profit as a percentage of net sales between 63 and 60% very healthy margin.
Our operating expenses for the March quarter were 12.2 million of which approximately 665000 noncash expense. The result was a cash use of approximately 4.2 million for the quarter.
Our year to date operating expenses were 24.8 million of which approximately 1.6 million is noncash expense.
This results in a cash used for approximately nine point million year to date.
As discussed earlier, our operating costs were reduced by approximately 40% in April from our monthly average in the prior quarter.
Which has resulted in a dramatic reduction in our loss from operations as Marty indicate.
Our major operating expenses for the period ending March 31st were as follows.
Wages of approximately 3.9 million for the quarter and 7.9 million fiscal year to date.
Expenses for direct marketing advertising, social media and events.
Of 3.4 million for the quarter and 5.8 million fiscal year to date, all of which are a key part of the strategy in building the brand in creating visibility.
Our sponsorship.
It wasn't approximately 1.4 million for the quarter and 3.6 million fiscal year to date.
As Marty mentioned previously with our brand Foundation established in 2019, we're now transitioning to activating and leveraging our marketing advertising and sponsorships and we're managing future expense and ongoing commitments in this area.
Affiliate commissions, a 385000 for the quarter and 929000 fiscal year to date.
We had merchant fees, which were 674000 for the quarter and one point fourmillion fiscal year to date as we process our sales transactions predominantly online.
But we're also now getting reduce processing fees as the industry has matured and this will be effective.
For us in April.
Our professional services of approximately 329000 for the quarter, an 842000 fiscal year to date as we use third party providers for specialty items, including information technology.
Mr Relations media and third party lab in warehouse certification process.
Our accounting legal services and business insurance of approximately 503000 for the quarter and 991000 fiscal year to date.
This includes legal and accounting fees related to all required of SEC filings and business insurance coverages to address risk exposure in the CBD industry and as a public company.
We had rent of approximately 394000 for the quarter and 744000 fiscal year to date for our corporate office warehouse laboratory facilities.
And finally, we had noncash stock compensation expense.
Related to stock in options of approximately 435000 for the quarter and 1.1 million fiscal year to date.
Our other income and expense includes a large noncash contingent liability change. This is related to the December 2018 acquisition of cure based development.
The contingent liabilities revalued at the end of each quarter during the second quarter fiscal 2020, we had a decline in value by approximately 21 million to 7.8 million.
This created another noncash income for this change in value.
The changes in the valuations contingent liability was primarily a result of the change in the market price of our common stock from period to period and the issuance of the first two enough shares for the merger.
In addition, our shareholder equity increased from 55 million at December 30, Onest 292 million at the end of March.
This change of more than 36 million and shareholder equity was primarily driven by net income for the period and two issuances one the issuance of shares related to the January underwritten offering into the issuance of going out shares for the first measurement period related to the cure based developed merger.
As the revenue target for calendar 2000, 2019 for this measurement period was exceeded by 69%.
We had cash and cash equivalents of approximately $14.8 million and working capital of approximately 19.1 million at March 31st 2020. This is compared to cash on hand of 4.7 million and working capital of 12 million as of September 32019.
Our current assets as of March 31st 2020 increased 58% from September 32019 to 24.8 million.
The primary driver the increase in current assets with increasing cash and our increase in inventory.
As of March 31st 2020, the company total current liabilities were 5.8 million of which approximately 3.5 million as accounts payable.
The company has a $205000 of long term debt, which is made up of a financing known on equipment from manufacturing facility.
As Martine indicated with cover 19, we've implemented several measures that we believe will allow us to adjust to the changing environment ensure sufficient liquidity to support the business for the next several months specific measures. Among other things include the following.
As we continue to navigate with uncertainty we have taken and continue to take all prudent steps to analyze expenditures reduce those we believe we can.
Without having a negative impact on the business and because of these reductions we anticipate that our operating expenses will be reduced significantly during the balance of fiscal 2020.
Addition to further bolster our working capital on April 27, 2020, we received alone in the principal amount of 1 million 456100 under the Paycheck protection program or the PPP.
Which was established under the recently enacted cares act administered by the Us BA.
The intent and purpose of the Ppps to support companies during the coven 19 pandemic by providing funds for certain specified business expenses with the focus on payroll.
As a qualifying business as defined by the FDA. We are using the proceeds from this loan to primarily helped maintain uphole payroll as we navigate our business for the focus on returning to fully normal operations.
With that I'd like now turn the call back over to Marty.
Thanks, Mark before we open the line for Q and I'd like to make a few final observations as we're all aware consumer health and overall wellbeing are more important now than ever to covert 19 pandemic has filled a saw with so much uncertainty and with the economic downturn comes a heightened sense of stress.
Across the country and the entire world we've been fortunate as a brand to maintain course and will be we've even had experienced growth during these challenging times.
With one of the industry's most dominant digital footprint, we've been able to capitalize on an increased online audience. As many are still confined to constraints of their homes and looking for alternative ways to enhance their everyday wellness armed with this powerful set of resources acquired over the past two years.
We've been able to push forward, while others are limited was subpar saturation and minimal brand recognition, although no one could anticipate anything of this magnitude prioritizing DTC E commerce and online sales over Matt Beeby wholesale distribution has proven.
Idle and the right decision, while many of our competitors have extended terms and offered consignment deals we've been able to conserve cash flow and collect on sale for all DTC online orders and the majority of our B to B wholesale deals given the foundation. We've built we're confident that we will wed.
The story and come out the other side, even stronger than before with that I'd like to open up the line for QNX.
Thank you Sir the floor is now open for questions. If you do have a question. Please press Star then one on your telephone keypad to join the queue.
If you using a speakerphone please pick up your handset to provide the best sound quality.
And we'll take our first question Scott Fortune with Roth Capital Partners. Please go ahead.
Good afternoon, congratulations guys and thanks for the question. Thanks Scott.
Real quick can you expand a little bit on the pad that Paul penetration I know, you're looking for our natural and national Pat.
And off from that standpoint, where are you in those discussions and kind of.
Where was that business going then trending from a percentage of overall revenues currently.
Well right now pause trending at about 5% to 6% of overall sales, we actually had a great month in.
In April one of our best months online and Paul we see a continuing to increase.
We.
We're really attacking the online marketplace.
As we are overall with the company.
We're looking to get a few certifications.
On the on the pet side and then we think we will be able to penetrate some of the bigger box stores, but.
Right now.
The online is really doing tremendous and we're pushing very heavily into that space.
Okay. Thanks for that kind of get to switch to the online side can you provide a little more.
Color CPI is on your online DTC business I know you acquired new users still kind of what's that growth.
Acquisition costs and you see.
If you're slowing down the marketing advertising spend kind of looking out here that repeatable business continuing from an online side of things how are you looking at that.
Yes, I mean look it's interesting we did cut back on some of the marketing spend we have but it was really more of a question of figuring out what was working for us.
What was.
Soared to maximize of the dollars we spent in some of the partnerships in their relationships that we've had.
You know two of the Big sponsorships, we are going ahead with his lifetime and Bella tour and with each one of these their multibillion dollar companies.
We've taken that and instead of being just strictly a PR relationship we've.
Talk to them about.
Going out and selling the product.
As part of the relationship and Thats really powerful when you talk about lifetime with 2 million active members now a lot of their facilities are just getting back up and running but you know the opportunity to lifetime is enormous and both in their ecommerce platform and in stores.
We think.
No as I said earlier, you know the number one search term.
In the lifetime ecommerce site with CBD Andy.
And so when you walk into a lifetime facility and you see all of the.
The digital ads in everything.
People want the product and now we're going to start loading the product in there. So we see the opportunity.
With lifetime is enormous same thing with Bella too I mean look belo towards owned by Viacom, which is CBS, we think the opportunity is.
True potential TV advertising.
And we're talking to them about that.
We've always been the first.
And we we believe we could be one of the first out of the gates on mainstream TV and we're working with our relationships.
To do that.
Our our podcast, which are been incredibly successful and even more so now.
People are listening to more podcast.
Recently, our return has been exceptional so we're investing more on our pod cash that we have great partners of Joe Rogan and of course Barstool and.
And we're really excited about the return on investment through through those different podcast.
Okay sounds good real lastly are you able to sell you a full portfolio of products to lifetime or is that kind of 11 skews.
Well, we're going to start with.
Topicals.
And we're going to be pushing into into the different skus.
But.
They're very excited about you know the opportunity the brands are are very.
Cohesive and.
You know there just a tremendous partner to work with and we couldn't be luckier.
Than to have the leadership.
They have at lifetime, it's really a wonderful opportunity for us.
Okay. Thank you guys deficits color thanks, Scott in the Q.
Our next question comes from Paul Coney Island, Joseph Garner. Please go ahead.
Hey, guys. Congratulations again on everything you're doing the lifetime thing, especially seems like it's to be home runs.
You touched a little bit about onto the.
The Belo tour relationship, but I was wondering if you could.
Just help me understand a little little more as far as how that could generate revenue if you guys.
Thanks, Paul you know.
First of all Abella tour and Scott Coker, the president Abella toward has been a tremendous supporter of ours.
Early on they.
They were our partner when when CVD was.
Something that was a little touchy.
There their parent company is Viacom, which is CBS and they went to bat for us and we became their exclusive CBD partner.
And that is really blossomed, we think now that the potential.
Over the next.
Year to is to work directly through Bella tore into Viacom into CBS and really make some.
Headway into the mass media.
Traditionally that's been a little difficult with CBD, but now we think theres a real potential in there and we're really.
Very.
Happy that.
That Scott and his team over abella tore.
Our our are helping us in that regard we think the opportunity.
It's pretty enormous to be one of the first companies.
Out in the space of math TV advertising. So we look forward to that and we look forward to.
Bella tour fights coming in I know, Paul you're a big fan and.
We're excited to see the next fights and get.
Get America sports back into action. We're excited about this weekend were excited to see Bubba playing again in June.
MPG ebay and.
So we're we're ready to go.
Thanks Marty.
Thanks Scott.
[music].
Yes.
Our next summer to Michael Lavery plan paper Sandmaxx. Please go ahead.
Good afternoon. Thank you.
Thank you just talk a little a little bit on the consumer and some of the marketing and I guess two things I would love to understand is just some of.
What you're finding to be the most effective to drive traffic through the web site and what some of the marketing levers are the seemed to be working with the consumer do you have a sense of how much some especially on your own site. How many of the so how much of the growth is from well new to the category or more.
And share.
Right well, we've been focusing on getting the repeat customer.
But but.
The market is really growing and so we've been able to hit different areas.
You know, it's it's been it's been pretty interesting to find different pockets to market too and so we continue to expand.
Our reach into different areas.
I would say that.
We've had a pretty steady consistent repeat customer business and.
And we continue to.
We continue to drive.
On that but but certainly you know as we look at whether it's the different athletic places that we go too.
And the different whether it's different podcast or whatever we're doing.
We're actively expanding our reach.
We think the CBD industry is.
Still in its infancy, we think the.
The big mass audience is is yet to be.
Really kept and so a wider audience is available and we continue to test every day every month new.
New marketing plans and we invest in knows that show. Good returns, we don't want to go into to everything but I can assure you that.
We're very conscious of.
Our ROI on the different spends and.
We're very adapt to a taken advantage of of those ones that are showing.
You know very high.
Return on investment.
That's great. Thank you very much.
Thank you.
And our next question comes from pop on slots with Cantor Fitzgerald. Please go ahead.
Good afternoon, everyone in flow Marty.
Hey, Bob.
One of those I wanted to ask a question or that category in general.
Hey, Colby that we've seen.
Grocery stores that opened two loading numbers go up.
See any commerce go up right I'm, just trying to understand how the CBD category is behaving here from my point of view is behaving as somewhat on indulgence category on Thats, a price me I see that because your ecommerce sales were flat quarter on quarter, which was what was compared to Charlotte's web don't five I think Cvs. So I was down nicely as volumes with only 20, but.
The assay growth there in order to whether consumers that the what do you sort of the over there so a significant ecommerce growth.
Okay.
And then on the need to be side.
Is that 20% decline really because when this traffic to a stores what do you suggest that the competition that we've talked about so many times before what do you see that the vehicles were close again because grocery items.
In the grocery chain, hoping up significant dividend. So I'm just trying to understand your view about the category and then maybe some color or given all the run the investments on their brand metrics, you've given us which of course are very good why are we seeing that the resulting does continue its a good sequential utopian ecommerce. Thanks.
Yes, I mean look I'll handle the brick and mortar sales first.
We chose to go the path of.
A lot a little.
Stores as opposed to the big brand the big.
Retailers, which I think has has paid off for us.
Now that being said when cove it hit a lot of the smaller stores have been closed. So we saw a significant downtick in in sales to to a lot of the smaller stores, we did see pockets of.
The increase whether it's the compound pharmacies are some of the other places that that remained open but but a lot of the.
The smaller retailers that we had simply we're we're unable to we're unable to stay open and so we saw a downtick in that on the on the online we saw a very nice uptick and.
And so to answer your first question, whether it's in indulgence I don't think that it is I think people remember CBD is something that you have to take consistently.
It's not something that you take once it's something that gets into year.
Into your system and works on a consistent basis, and so I think people.
When they couldn't go to their stores, we're going we're going online I think the other thing is I think people are looking for brands now in the CBD space, we've seen a lot of.
Some of our stores telling us that.
So a lot of these.
Sort of.
Smaller brands it really don't have any.
Any real presence, but are just CBD.
On a bottle.
Our not.
Being carried anymore and that the retailers are now starting to look.
Finally for National brands, because that's what the consumers are asking for and this is something that I've been saying now for quite awhile, which is you know a lot of these.
You sort of fly by night, CBD CBD brands that popped up last year, when when things were easy we're going to.
Go by the Wayside in 2020, and now with Covance, that's accelerated and so I think the combination of consumers now looking at CBD as as a true health and wellness product in looking at that they want they want to buy a health and wellness product in a brand they can believe in.
We are one of the top brands and most trusted brands in the country. So they're looking to.
Take carry us on their shelves and consumers are looking for us when they walk in the stores.
I think is is playing well too.
Yes, and I think it's just a matter of time before some of the stores start to open back up again, we expect the brick and mortar sales to come back.
It's going to take a little bit of time as you know for lot of these stores to open up but we expect that to come back in the Meanwhile, our our online business.
Really is humming and it's really increasing and we're seeing data.
And we're very very positive about it so were.
But we do think as I've said that brand matters, we have the brand and.
And I think ultimately that'll drive sales.
Of of the of CB DMD going forward.
Okay, and then just sounds good. Thank you for that just just two quick follow up Joe. So the guidance I know, there's no guidance for the full year, but they view as you get to positive cash flow positive EBITDA by end of the year.
Is that possible flat sales remained flat an unrelated to that and I go into what's in your miles, but you've talked on April being.
Flattish versus March which is good.
I guess, you're guiding flat sales for the second quarter.
You talked about ecommerce being 80% of sales compared to 72% right. So the way different that easily commerce in the June quarter, it's accelerating after the filing based on the numbers you gave us flat growth sequentially March versus December.
As we go much musto accelerated but on the other Sean.
The stores. If you can just give some color to locate and collectively as a single port that on what I said and then also if you're going to leave it on that positive cash flow guidance. We also remain flat from here. Thanks.
Thanks.
Yeah, I mean look we're trying to be conservative and say if we had.
Continue with our sales.
In Q1.
Very very modest growth.
We've been able to cut operating expenses.
Margins because of the online sales continue to trend in the right direction.
We don't think it's going to take much of a bump on our sales to to get to cash flow positive I mean, we we burned about call it $1.8 million a month in the first quarter, we reduced that by 85%. So now you're down to you know 250 Grand call. It a month and it's not going away.
Take much if we.
Our.
Consistent on our spend and hold tight to increase sales even marginally between now and the ended the year to to get to that cash flow.
Take even when you're talking about north of 65%.
Large and so it's really it's not a complicated formula.
And.
No we're trying to be conservative and talk about neutral sales, although I will say I'm I'm optimistic about a.
You know about.
An uptick as we as we continue and we're seeing a little that a little bit of that this quarter and as retail picks up.
We expect.
We expect a pickup as well so the key is cost containment and that's and that's what we've done and that's what we're going to continue to do.
Thanks.
Sure.
Over the remainder ladies and gentlemen, if you can have a question. Please press star one on your telephone keypad at any time to join the queue.
Our next summer to David I.
I think I'm sorry.
Hi, guys. Congratulations on an amazing quarter, it's exciting, especially for those of us who've been sticking around for the last year. So.
So looking forward to thank you even better days ahead.
Absolutely.
If I heard you correctly, you mentioned that you suspended most of your sponsorships and I'm curious to what extent you think that affected sales and if it didnt.
Why why you think it didnt and.
In general what kind of lessons there to be learn from.
From cutting off a major source of previous branding.
Yes, I mean look Thats a great question, you know when coded hit in the middle of March.
One of the first things that winter sports right and so having a.
Very large sports program, we went out to our out of our athletes and we said.
Everybody is on hold okay.
We didnt expect anybody to perform but we didnt expect to be compensating anybody and so for the month of April we held every body and that's pushed into May and then as we look forward. We said, Okay. You know who because we don't know what's going to happen in sports right you got like the PA.
It is a great example, they're going to start up again, but theyre not going to start up with fans you have.
No different.
Leads that we were dealing with and nobody really knows what it's going to look like so we've kind of taken the position that we like we see what we can do with lifetime, because we see their membership and we see.
You know the ROI that we can Paul we see the same thing with Bella tour and we have a handful of athletes that we believe.
You know can drive our brand.
But we're looking at you know how do we reengaged shows athletes.
As sports come back and because it's one thing to have an athlete.
Perform.
In front of.
50000 fans. It's another to have an athlete perform with no fan. So you got a really stop and say, okay. Let's let's look at this whole thing in its entirety and figure out what's in the best interest of of of the company.
And work out a deal and we found that most of our athletes understand I mean look they get it and so and so we've really gone through and.
And worked with all of our athletes to figure out what the future looks like.
In some cases, you know, we're basically saying we don't know what the future looks like so we're gonna we're going to hold for right now and.
So so we're very fortunate because we got great athletes.
You know it's not their fault none of this is their fault, it's not our fall either.
This is something that comes totally out of left field, but you have to deal with it.
And John So so we've we've really looked at it in the entirety and said.
How are we going to move ahead, how does this how does this work.
And until we know until we figure that out you know, where we're going to we're going to put a hold on on a lot of it and then re emerge.
So order with a new.
A new framework that is very.
ROI.
Centric, Okay, which you know we want athletes that not only promote the brand but also we can we can tie in ROI too.
Because I think last year, we spent a lot creating the brand and we've done that we have the brand now you now and so now it's a question of of of sales and now it's a question of return on investment and.
You know brand building in my opinion right now is best through sales.
And.
So that's what we're focusing on and our partners get that and so.
And so thats and so thats what were doing so the lessons to learn our we did a great job last year, we really did we went from a company that.
Was was in the back of the pack as I said too.
You know.
I think one of the leading brands if not the leading brand we have two leading brands in MOCVD MD and Paul.
Company with significant revenue significant financial.
Strength and.
And so we're very proud of what we did but now we have to focus on getting to profitability and and maximizing all of our relationships.
Two.
You know to generate bottom line dollars and.
And that's what we're doing so hope that answers your question.
Sure does I appreciate it every crisis has an opportunity so.
Good and prices brings clarity [laughter]. There you go thank you keep up the good work.
Thanks.
Our next well move to Bill Sutherland with benchmark. Please go ahead.
Thanks, Marty Mark Hi, Bill how are you guys.
Thank you.
What's what happened was international or whats.
Looking like.
Well you know it's interesting.
Obviously, the coded thing has.
As impacted international.
[music].
As you would expect.
With that being said.
We have because the brand is so strong.
We have some large distributors.
In Europe.
And in Asia that want to wrap the brand something that six months ago. We didnt, we didn't really even have on the agenda and so we're in the process of working that we've just kind of.
Picked up.
16, 13, or 16 different countries right now that were that we're selling too.
But we think.
We think international's got some legs.
And.
And so we're looking at it instead of being looking at it from a from a very cost expense and point of view of setting up operations and things like that I think it's a better thing for us to do is fine partners and distribute the brand.
Through those partners.
And.
And we're pretty confident.
The Kobin thing aside that.
There's a tremendous demand.
For for CB DMD internationally and.
We expect this year.
To get back on track.
On that so so stay tuned.
Okay.
So could you guys actually breakout How's revenues went in March and April relative to the first part of this quarter.
Well I think we did we didn't talk about.
Our first quarter.
Well, we did say April.
Trended very heavily towards online and I can send you. This mark consensus we get off offline Bill.
It was it was very dramatic as far as I mean look we we entered coded and in our first month post coded or in the middle of it our sales didn't go down which is shocking you would think that would be.
That would be the other way.
Margins stayed strong and even inched up.
Because of the you know the big shift to the to the online.
You couple that with such a huge dramatic reduction in operating expenses.
You know April was.
Bottom line, the best month, we've ever had and pretty darn close to getting to breakeven and so we are continuing to push that the trend looks good in may and our goal is to.
These two is to get to profitability as soon as possible and keep in margin up keeping costs down and having the right blend of business and also increasing that over the next quarter or too is going to get to Sir right. I'm. Just curious what the run rate kind of is at this point you've got.
You've moved too.
Well, we don't think we're going to be below what we did in the first quarter, let's put it that way, we feel pretty confident will.
Meet data or exceeded.
Well, it's impressive because I know you have bigger months in January February presume.
So yes, what we did we did that 9.4 million in March and.
We're certainly looking at that target.
Okay, if not more in June, but it's a mental in may and anything can happen.
But you know bill on our turtle Optimists, So you know.
As what's the status of lifetime as far as their centers.
They are they opening as we speak.
Yes, I mean look there.
They.
They furloughed 35000 people and close all 145.
Of their facilities and I just absolutely.
You know just it was it was.
I feel for I mean, that's that's got to be has got to be very difficult.
[music].
There are an incredible team the management is just.
Just phenomenal people.
Their whole team is dedicated to opening back up to getting you know like back to normal.
And.
And we're supporting that and we I know, they're opening in some states depending on what the different.
Opening laws are in.
I know there they are getting through it in.
You know I'm confident that they're going to.
You know come out the other side in India.
There are great partner to half.
Yes, just so I'm just curious how many.
Centers, they were getting open up some they're going to.
Moving quickly last one for me is on inventory I know you stocked up.
So going to be kind of back to a normal level of Bob and turns.
Going forward or how do you feel about supply chain at this point.
Yes, Bill this is mark yes, no obviously I think that the preparation was to see what was going to come with supply chain and we feel really good about there right now as we've worked with various aspects of that.
I do believe we're going to continue to watch our inventory and see what the turn is that's there and we see no reason to to keep that level of that we ramped up with two to prepare for what might happen. So I think we're in a good position there I expect us to continue on a normal manufacturing process at this time.
Unless again, there's there's something that changes as we continue to move forward, but there's nothing that indicates that right now.
The the balance right now as far as availability of growing extraction and other.
Materials that you guys work with what's that like right now what's the pricing like.
Well I mean.
When you say, what's the price, obviously, you're probably talking about our isolated which is obviously the largest ingredion most expensive, but certainly there is supply out there that prices come down significantly over the last six to nine month.
We have.
Maintained a nice supply as does come down we continue to to purchase so we have it.
So that we can fulfill and again, we will continue to do that will continue to watch what's happening with the price point on it.
Okay.
Thanks, guys appreciate it.
Thanks Bill.
Next we moved to Paul points scheme with Black Diamond. Please go ahead.
Yes, hi.
It's nice that.
Company as a good management team that cut expenses and licensed our focus on.
Now ramping up margins no low margin improvement from online, but my question is.
Trying to understand the competitiveness of the marketplace as lot of products out there you're building the good brand but.
Can we get price increases.
Hum.
Our.
Got it to stay in the current price level. Since you had sales on that and I'm trying to understand the consumer sensitivity the pricing for some of your products.
Well that's a great question look I think that last year, what we saw particularly in the second half of the year.
As a lot of the smaller brands came on the market and started struggling with their ability to stay relevant and sell.
A lot of them went into the brick and mortar channel and did a lot of price dumping.
As a as they really didn't have an online strategy.
So there was a lot of competition a lot of price dumping going in to the second half of the year.
And.
You saw that and then.
What's happened is as we got into the beginning of the year that started to wane unmanned Cove, it hit and auditing call. Our brand simply are unable to compete a lot of them I mean, we see it all the time lot of them going out of business.
And the retailers who are carrying them.
I don't want them and are returning them.
Because.
No there, they're fearful of having a brand that.
Isn't around anymore, so right.
As far as we're concerned we're not we're not seeing really any price compression.
What we're seeing is really.
You know on the online.
We know a very robust business in the brick and mortar side.
Really a shrinking competition.
And.
Which bodes well if you have a national brand, which is what we've built so.
Yes, Paul and I would just add from that perspective is we're going out there to continue to keep the product visible. It's the as we said earlier, it's leveraging what we did prior.
So the brand that's been built or is that visibility now we're doing things that make it easier to one acquire the product so things like we rolled out autoship capabilities on our online site. The other things that we've done would be really content focused campaigns, because there's still a big aspect of education.
The consumer wants they want to understand about the product what's in them.
Obviously, the quality aspects that we take that we continue to promote on those things that we believe definitely sets us apart and then just helping them understand what they should be looking at when when they're looking at various.
Competitors and product. So I think those are big things that we're doing that are really targeted towards the consumers under helped driving.
Yeah, well it seems like the name brand.
Gives you a little edge since you've worked on that and built it up because there's a real lot of products out there for the consumer worth to digest so.
You there you've got through the off the narrow door and your inside now so you should be a leverage and some more.
Absolutely plus now so thats.
Ticket your sales coincidence, even more so.
That's why you get cash flow positive at the end the year, maybe before pending on sales results.
And you got a major expenses out of Hawaii.
Okay. Thank you.
Thank you. Thank you.
And next we'll move to crank it creates a private investor.
Thank you.
Gentlemen, as lifetime comes on stream I would assume that when you ship something to them directly that's a retail sale how about if they sell something through their ecommerce site is your facility use and say fulfillment center for their ecommerce site.
Yes.
Okay, Thats all I needed to know thank you. Thank you.
I'm not so much kid catty career Smis Spartan capital.
Hi, guys, Hi, John Hi, guys everything.
You hear me.
Yep Okay.
Good.
Love It at the amazing value right Tom.
To me, it's about 7005 cents an increase in sales.
The real Big story, I know everyone. Just looking at the net income of 35 million of law.
And 33 million of trailing 12 month.
That's a huge growth.
In practice that 7000 per cent is what I'm looking at.
Keep thinking about one half I understand.
Thank you.
And our last question comes from Steve how much then with Pemex than any sense.
Please go ahead.
Congratulations on.
Surviving the virus and.
Bringing strikes the strength.
How much of a fair market, leading internet sales are repeat customers.
And perhaps how long does the average customer.
Stay a customer.
And this is correct.
How much cost due to.
Tim markets, our to bring on new customer.
Hi, Steve well, Thank you know as as as you know.
You know the situation with us in our repeat customers is that sometimes people law again.
As guests in our in our.
And our website as opposed to have an account so it's a little bit difficult sometimes to to figure out the accurate repeat customer account.
But.
But what we what we are seeing it where we can track I think is very healthy and although of course, we're certainly working on a on improving that as far as.
Our marketing spend.
You know that again is getting change as we sort to enter this new area. We're obviously spending you know a lot more last year to acquire new customers.
Now that we've built the brand now that Weve.
Found channels.
That we can.
You know market and advertise to that we're seeing you know proven returns.
Some of these podcast for instance are doing just tremendous for US we continue to.
To push on on those channels that are.
Proven success strategies for us so I.
I don't I don't want to give you a hard number right now because we're in the middle of.
Of making that turn but I will tell you that the.
The overall marketing budget that we are working with while it's still remains very healthy.
Has been.
We've managed to.
Cut that back and realign that sort of with.
With a goal towards where where the revenue is.
And how we have to get too you know cash flow.
Breakeven and I think I think we've done that in just six weeks.
And you know as one of the earlier caller says crisis Springs clarity so.
We really taken a.
Look at it and.
You know, we're happy to say that you know, even though we've had a significant reductions in a lot of the operating costs and as I said some of those operating cost reductions are are directly cove. It impacted like we're not traveling we're not doing trade shows those kind of things. Some of them are are you know.
[music].
Choices that we're making in.
In the marketing sponsorship fields, and but we are what we're happy to look and see that our revenue continues to.
You know to maintain I mean, I've I was sitting here in the middle of March in you'd asked me if I thought we would be flat.
The next month I would probably tell you I Didnt think so so I'm very happy that April was.
A.
Consistent month as we as we looked from from the first quarter I think that in itself was an incredible achievement.
Now we're looking at May in and May looks a little bit stronger and and we are hopeful that June.
We'll continue to show strength so.
Yeah, that's that's where we're at and John.
Well I feel really good about about the decisions we've made and.
We'll really positive.
That you know we have enough capital.
We have over 14 million and then we got to the million a half dollars from.
PPP, so we're really in a good spot.
And.
With no debt.
In a variable cost structure. So the most part on the marketing side that we're able to.
You know to to be able to be flexible to get too.
Get to the.
For stability I think in the short term.
Excellent. Thank you.
Thanks, Steve.
No further questions in the queue that does conclude our conference call for today. Thank you. So much for your participation have a wonderful Dan you may now disconnect.
Okay.
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