Q1 2021 cbdMD Inc Earnings Call
Okay.
Yeah.
Good afternoon, welcome to the C. B D. M D. Inc's December 31, 'twenty and 'twenty first quarter earnings call and update.
This afternoon the company issued a press release that provided an overview of its first quarter fiscal 2021 results, which followed the filing of its quarterly report form 10-Q.
Today's conference call is being recorded and will be available online at the C. B D. M D dotcom and accordance with CBD empties retention policies.
All participants on this call will be in a listen only mode.
<unk> will be followed by a question and answer session at this time.
I'd now like to turn the conference over to rule on Kennedy The Companys Chief Financial Officer Ronen. Please go ahead.
Thank you Paul and thank you all for joining the CBD MD is December 31, 2021st quarter of fiscal 'twenty and 'twenty, one earnings call and update on the call. Today. We also have our chairman and co CEO, Marty <unk> crest, as well as our Chief marketing Officer, Ken Cowan.
Following the Safe Harbor statements, Marty and Ken will provide an overview of our business and I'll provide a summary of the quarterly financial results. Following that we'll open up the call for questions, we'd like to remind everyone that various remarks about future expectations plans and prospects constitute forward looking statements for purposes of safe Harbor for provisions.
Under the private Securities Litigation Reform Act of 1995, <unk> cautions that these forward looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from those indicated including risks described and the Companys quarterly report on form 10-Q for the quarter ending December 30 <unk>.
2020 annual report on form 10-K for the second for the year ending September 32020.
And our other filings with the SEC all of which can be viewed on the company's website at CVD <unk> dot com or on the SEC website at Www Dot SEC Dot Gov.
Any forward looking statements made on this conference call speak only as of today's date Tuesday February nine 2021, and <unk> does not intend to update any of these forward looking statements to reflect events or circumstances that would occur. After today's date, except as may be required by federal securities laws with that I'd like to turn on.
And the call over to <unk>, Chairman and co CEO Marty <unk>.
Rone and thank you and welcome to everyone who is joining us this afternoon.
On our last earnings call I said, I believe CVD and <unk> was one of the most powerful CBD companies and the World I believe today's record results back up that statement with approximately 80% of our net sales last quarter coming from E. Commerce Channel I believe we can now add that we're one of CBD industry's most powerful.
E Commerce brands as well.
Our brands online success is fueled our E commerce business, which continues to drive our sales growth base.
Based on a recent report from similar web CBD and Dot com ranks at the top is one of the most visited CBD websites and the world.
As we push ahead into fiscal 2021, we believe our plan to expand our reach and to a new product categories, such as the launch of CBD and deep botanical and our beauty and skincare brand.
Help continue to drive our sales as well as diversify and expand our customer demographics.
Despite the COVID-19 pandemic, we continued to show record net sales results $12 3 million for the quarter ended December 31 2020.
Which was a year over year quarterly net sales growth of 22% at.
At the same time, we also reported record quarterly gross profit margins of 72%.
We remain focused on our core competency, which is our direct to consumer ecommerce engine, which increased 41% year over year and 13% sequentially on a quarterly basis.
We have one of the strongest balance sheets and the CBD industry for $28 8 million and cash at the end of last quarter and virtually no debt.
We reduced our year over year quarterly operating loss by 71% and our non-GAAP adjusted quarterly operating loss by 90%.
We continue to find efficiencies and our operations, we decreased our total quarterly operating expenses by 15% year over year, and 2% sequentially, while at the same time, making significant investments and regulatory and R&D initiatives.
We remain confident that we will continue to gain share market share of total addressable global CBD market, while at the same time delivering on a positive non-GAAP adjusted operating income during this fiscal year.
With respect to regulatory matters CBD and continues to show leadership and the industry. This commitment was evidenced by our recent announcement that we've retained former FDA official Dr. Civil Swift as a regulatory consultant to oversee our upcoming GMP audits and prepare the company for its products for certain for future.
And our certifications.
The addition of doctors would demonstrate to our customers and our continued commitment to the quality and safety of our products. Dr. Swiss involvement also demonstrates to the FDA and other global regulatory authorities and CVD <unk> commitment to achieving the highest regulatory standards and assai.
And based approach will be instrumental and strengthening our position and CBD industry's leader and regulatory and GMP compliance.
And finally, we're pleased to announce that Dara acquisition Corp, a newly formed blank check company or spak priced its initial public offering of $100 million yesterday today. The units commenced trading on the NYSE American stock exchange under ticker symbol a D R.
Got you.
CBD and as an investor and a dara sponsor LLC the primary sponsor of a day or acquisition Corp.
Now, it's my pleasure to introduce Ken Cowan, our Chief Marketing Officer, who will talk about our brands and marketing strategies can go ahead.
Thank you Marty and welcome everyone.
I said on our last earnings call.
And I believe 2020 was the year of separation within the CBD category.
I believe that both of our brands CVD AMD and Paw CBD.
Continue to separate themselves and now are the leaders.
And both brand recognition and financial performance and the CBD industry.
We continue to lean heavily on the accumulation and usage of data to make informed strategic decisions decisions mid point us towards further accelerating our brands.
Driving consumer trust and capitalizing on our surging E commerce traffic, while simultaneously educating and informing and converting both new and returning customers alike.
We focused on key performance indicators or kpis.
<unk> average order value retention rate and website traffic.
We utilize these non-GAAP measures and internally analyzing the effectiveness of our advertising spend.
And marketing initiatives and believe these metrics are important to our investors and their review of our financial performance.
Our customer retention rate, representing existing customers, who purchased at least once during the quarter continued to increase over the prior quarter.
Due to our heavy focus on keeping.
And re engaging existing customers in particular over the holiday season.
Average order value continued declines of just over $90 with larger holiday.
As we focused on getting customers to purchase multiple times in particular during cyber months with a median frequency at 39 days.
And regarding our direct to consumer website traffic, our new website traffic increased 7% over the prior quarter.
And with several contributing factors, including traffic via paid social and native advertising among others. Coincidentally, we were number one and the CBD category for web traffic in the month of December 2020, According to similar web.
In terms of specific advertising sub department and highlights let's start with our continued focus on podcasts, which have proven historically to be strong traffic and conversion drivers for CVD M D.
Since they provided CBD and being with our best overall quarter in terms of return on advertising spend.
Moving forward, we continue to explore additional opportunities with high profile podcasts.
Oliver deep quality strategic audiences.
Second with a continued focus on education promotions cross selling upselling and segmentation, our email open rates and associated purchases continue to increase.
Moving to us that E mail remains one of the most cost effective tools and customer engagement and conversion.
We also launched our first ever SMS campaign with very promising initial results.
As I discussed during our last call.
CBD and these first nationally.
First nationally viewed TV advertising campaign entitled talked for the day.
Was broadcast and both 15 and second and third second commercial formats across multiple national cable networks.
Our campaign delivered very promising metrics, including strong average order values and very encouraging direct to consumer website sales.
As such we are expanding our TV advertising campaign in 2021 with an eye on launching our next campaign soon.
Paw CBD showed excellent first year results and the brand's metrics continue to move and a positive direction.
We are seeing the direct to consumer power of CBD MD dot com translate into significant growth for paw CBD Dot com.
Concurrent with a large focus on new customer acquisition.
We recently updated the paw CBD Dot com website, as we look to deliver on industry, leading experience online for all customers with an eye on increasing policy. These dominance in the CBD market.
In terms of a few additional highlights for the past CBD brand. We are excited to launch our advertising partnership with Tripadvisor as well as Pos CVD. Its first national TV campaign, which occurred this past weekend during the Puppy Bowl on animal planet and discovery plus.
We remain proud of the awards and accolades we have received for many of our products over the past two years CBD and he was named a top 10 domestic brand and the topical and skincare slashed beauty categories.
Bright-field group.
Who also after conducting a survey of more than 3500, CBD users ranked CVD and <unk> number one in terms of overall consumer satisfaction.
Number one and unaided consumer awareness and number one and high quality innovative and reliable CBD product.
Plus CBD has also won several awards, including Pet Innovation Award for Best Dog Calming product, It's 2020, and 2019 <unk> Pet business magazine industry recognition award for dog Calming AIDS.
We were also pleased to announce recently that CBD MD officially entered the global beauty and skincare market with its launch of CBD MD Botanicals and naturally derived skincare line featuring 15 luxury products.
EBIT MD Botanicals offers consumers luxury botanical skincare, while at the same time being cost conscious and the beauty and skin care market and with our proven track record of providing our customers with some of the best selling products across multiple categories, we believe that CBD and <unk>.
<unk> will be well received and the growing multibillion dollar global beauty and skincare market.
Our wholesale distribution channel has also made significant strides domestically and.
And internationally.
We are seeing a significant increase and international expansion with strategic partnerships throughout the Caribbean market and in Mexico, where we have added two distributors.
So due to the trending success of our pet brand Pos CBD has been added to the CB.
And as well as featured live on the Bulldog shopping network.
We're also seeing our customer average order amounts increase on a month to month basis as this channel recovers from the pandemic with that I'll now turn the call over to our CFO Roni and Kennedy to review our most recent financial results.
Thank you can I am going to start with a brief summary of our GAAP based results on a GAAP basis total net sales for the first quarter hit another all time high of $12 3 million or a 22% increase year over year increase and a 5% sequential quarterly increase our quarterly E com.
Sales also hit a record high of $9 7 million and the first quarter of fiscal 2021, a 41% year over year increase and 13% sequential quarterly gain.
Ecommerce now represents approximately 78% of our total revenue.
Our wholesale business generated $2 6 million of net sales for the first quarter of fiscal 'twenty and 'twenty, one as compared to $3 2 million for the comparative quarter and fiscal 2020.
The first quarter of fiscal 2020 was the last quarter prior to COVID-19, and we believe the year over year performance is primarily a result of the broader impact experienced by brick and mortar retailers nationwide over the last 12 months.
Our GAAP gross profit as a percentage of net sales came in at 72% for the first quarter of fiscal 2021 compared to 64% for the comparative prior year period, the strength of our E commerce sales and improvement and our operations helped drive these positive results.
Going forward, we expect to maintain our gross profit margins between 65% and 70% provided we maintain similar E commerce revenues as a percent of our total revenue.
Our operating experience expenses for December 31, 2020 quarter were $10 7 million, which was a decrease of 15% over the December 31, 2019 quarter and a decrease of 2% from the quarter ending September 32020.
Overall this resulted in a GAAP loss from operations of approximately one $706 million for the December 31, 2020 quarter B.
And for $35 million improvement from the $6, one 1 million loss from the prior year period, and a $2 8 million dollar improvement over the quarter ending September 32020.
Our non recurring operating expenses for the first quarter of fiscal 2021 included a 403000 onetime accrued expense related to severance and together with 300000 and discretionary bonus accrual and 300000 noncash stock expenses and depreciation expenses of 233000 resulted.
And a non-GAAP adjusted operating loss of 523000 and for the first quarter of fiscal 2021 as compared to a $5 million non-GAAP adjusted operating loss and the first quarter of fiscal 2020.
And the decrease and non-GAAP adjusted operating loss over the December 31, 2020 quarter was mainly attributed to cost tightening and an increase in gross profit dollars, resulting from improvements in both revenues and gross margin risk.
And we spent $304000 on regulatory and R&D this past quarter, and we ramped up our as we ramped up our regulatory efforts and increased our quarterly sequential marketing and sponsorship expenses over $290000. We continue to pursue several objectives to drive operational efficiency and lower cost.
Structure.
Other income expenses on our consolidated income statement includes a noncash contingent liability charge related to the December 2018 acquisition of cure based development. The contingent liability is revalued at the end of each quarter and during the first quarter of fiscal 2021, we had and.
<unk> and value of $8 5 million, which created a corresponding other noncash increase and contingent liability related to the earn out shares the change and valuation of the contingent liability liability was primarily a result of the increase and the market price for our common stock during the period from $2 to $2 95.
Sure.
Any increase and our common stock price increases the contingent liability and creates an increase and contingent liability impacting net income.
In addition, the other income expenses included a $540000 realized gain from the sale of investments and marketable and other securities.
We had cash and cash equivalents of approximately $28 8 million and working capital of approximately $30 6 million on December 31, 2020, compared to cash and cash equivalents of approximately $14 8 million and working capital of approximately $16 million as of September 32020.
And our current assets as of December.
31, 2020 increased approximately 37% from September 32020 to 37 4 million.
A primary driver of the increase in current assets was the approximate $15 8 million and net proceeds from our preferred offering in December of 2020.
As of December 31, 2020, and the company's total current liabilities were $6 7 million of which approximately $2 1 million as accounts payable and $2 3 million accrued expenses.
The company has approximately 209000 and financing notes on equipment for our manufacturing facility is a one as well as a one for 5 million SBA loans from the Paycheck protection program.
As mentioned, we ended the quarter with $28 8 million and cash and cash equivalents and coupled with our non-GAAP adjusted operating loss trend, we remain confident and executing on our 2021 plan.
Our plan remains to utilize our strong balance sheet to make further scientific and regulatory investments.
Direct incremental strategic marketing efforts, including increasing our TV spend and grow our recently launched U K business and support our efforts to expand our product portfolio with that I'd like to now turn the call back over to Marty.
Thank you, Ron and with that I'd like to open up the line for any questions and answers.
Q&A certainly.
Ladies and gentlemen on the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time, we ask the low posing your question you. Please pickup your handset is listening on speaker phone to provide optimum sound quality.
Please hold for the call for questions.
And once again, ladies and gentlemen, if you do have any questions. Please press star one on your phone at this time.
And we do have a question coming from Scott Fortune Scott. Your line is live please announce your affiliation and pose your question.
Good afternoon, guys. Thanks for taking the questions.
Kind of wanted to get a sense of.
The growth here kind of on a quarter over quarter, what youre seeing.
The Covid impact for you I know E com and strong, but kind of a swing quarter over quarter growth and then.
The $28 million and cash kind of deploying that to continue to drive growth going forward, where they're at.
Expanding doors or like you said and the marketing side of things.
Provides little color.
Yes, Scott this is Marty.
So.
We're seeing continued.
And strength.
On the direct to consumer business.
On the on the brick and mortar side of the business as you know the big retailers are still out of the game for the most part.
And our strategy of.
And dealing with a lot of smaller retailers.
Kept that business.
Still relatively stable.
I would say it is it's on its way back to where it was pre COVID-19 levels.
My sense is we're going to probably be there.
Towards the end of this this quarter early next quarter.
And so and then we are talking there is going to be a.
I think and more willingness from from the Big box folks as we get into the second half of calendar 2021.
The whole situation with legislation around marijuana certainly helps.
We've been positioning ourselves.
As a leader and the brand the ing space.
And so we believe that when that time comes.
We're going to be really well positioned.
And to move into there as far as utilizing the capital look we've taken a business that was burning $5 $6 million a year ago down to pretty much near breakeven.
Two quarters ago, we were our adjusted number was I think a 180 Grand we went a little bit deeper in September with about 1 million and now we're back to <unk>.
<unk> 23, so I think thats going to continue to improve sales and sales continues to improve with with our margins we can reinvest those dollars.
And so we're not having to.
To use the capital.
To kind of deficit spend to some extent, we're looking at opportunistic ways to utilize that capital. So we're going to be spending more money.
And set on on TV, that's been a really great return for us our podcast that's been a really great returns for us and.
And.
And we've got some other exciting things on the horizon. So we think we're going to have a really great 2021.
And we've now been at this for eight quarters since going you've taken and CVD and D public Besides one quarter.
Which was the March quarter of last year, where the pandemic hit.
We've had seven out of eight straight increases and.
And we anticipate that's going to continue.
And again and again.
And so we're excited about that and also our <unk> brand is really also getting a tremendous amount of traction.
And from from retailers and the online space.
Okay I appreciate day, yes.
And you get more competition from Martha Stewart coming on the pet CBD, that's all help growing the overall market from that standpoint.
And then you've done a great job is and expanding products and innovations. This kind of step me through this through the bolt pinnacle's kind of the luxury side it seems like a new.
Channel a new demographic day, you're going after kind of kind of how do you see that.
Growing or the cadence of that.
Throughout 2021 and going forward.
Yes.
The things that we really wanted to do is expand the demographic into the female demographic.
And.
Try to hit that demographic.
Female over the age of 35. So we we did a couple of things we started really marketing towards that demographic. If you go to our if you go to CBD and Dot Com and go to our commercial that Ken mentioned conquered the day you will see that.
It was really focused towards that female demographic and.
Now the launch of the Botanicals line really goes after that demographic. So we started it selling it exclusively online.
And now as we push into this year.
Getting a tremendous amount of interest from all of our retailers and from new retailers to carry that line.
Ken would you like to add anything to that too.
Scott.
The only thing I would add is it's a great entry point into the <unk> family and once we once we get them into the family I think its an extra.
Exceptional way for them to try.
Other products that are part of our brand portfolio other than that Marty I think you nailed it.
Okay and I appreciate it thanks for the color on jumped on the Q.
Thanks Scott.
Thank you and with no further questions and the queue that does conclude our conference call for today and thank you so much for your participation.
Okay.