Q2 2021 cbdMD Inc Earnings Call
Good afternoon.
Welcome to the CBD M. D incorporated March 31st 2021, second quarter fiscal 'twenty, and 'twenty, one and earnings call and update.
This afternoon, the company issued a press release that provided an overview of our second quarter fiscal 2020, one and results, which followed the filing of its quarterly report on form 10-Q.
Today's conference call is being recorded and will be available online at C. B D. M D dotcom and accordance with CBD M DS retention policies.
All participants on this call will be in a listen only mode.
The call will be followed by a question and answer session.
At this time I would like to turn the conference over to run and Kennedy, The company's Chief Financial Officer, and Chief Operating Officer Ronen. Please go ahead.
Thank you Catherine and thank you all for joining the CB Mds March 31, 2021 second quarter of fiscal 'twenty, 'twenty, one and earnings call and update on the call. Today. We also have our chairman and co CEO, Marty zoom and crest falling and Safe Harbor, Marty will provide an overview of our business and then I'll provide a summary.
And this quarter 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 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 or actual results to differ materially from those indicated including risks described and the Companys quarterly report on form 10-Q for the quarter ending March 31, 2021 annual report on form 10-K for the year and.
On September 32020, and our other filings with the SEC all of which can be reviewed on the company's website at www Dot CBD MD dot com or on the SEC's website at Www Dot SEC Dot Gov. Any forward looking statements made on this conference call speak only as of today's date and when.
They may 12, 2021, and CBD MD 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 the call over to <unk> Chairman.
And co CEO Marty <unk>.
Thank you very much ronen and good afternoon, everyone. We appreciate you joining us today.
We're very excited about the long term vision to be the leading global CVD consumer brand and company.
Despite the impact to our business from the COVID-19, pandemic and the duration and magnitude of the Lockdowns that were greater than we initially anticipated we believe that our responsiveness and our ability to make adjustments to our business has allowed us to successfully deliver the largest fiscal Q2 net sales and <unk>.
History.
<unk> increased its year over year net sales in Q2 by 26% to $11 8 million, while virtually maintaining almost a 70% gross profit and margin.
This growth rate was exceptional considering our march quarter net sales have historically been impacted by seasonality I want to thank our team for their hard work and dedication to keeping the health and safety of our employees a top priority. While also delivering these results. We believe our business is at the precipice.
And of more significant growth, we believe substantial net sales growth is achievable in the near term based on anticipated launch of a variety of new products, new partnerships and sponsorships new channels of distribution and new international markets.
We're excited about the long term potential to grow our core U S business and increase our wholesale footprint as the SDM channel opens up to CBD products, particularly our adjustable line.
Based on this outlook, we are now providing net sales guidance of $15 5 million to $16. Two 5 million for the first quarter of fiscal 2022, ending December 31, 2021 and of this calendar year.
We entered calendar 2020, with a very healthy cash position of $28 3 million and Opportunistically deploy capital and our Q2 into new product development, New channel distribution, and our New Science Division, CVD, and <unk> therapeutics marketing and related infrastructure we.
We believe this investment has created a solid foundation for future top line growth.
We remain confident that we will continue to gain market share and the total addressable global CBD market, while at the same time delivering on positive non-GAAP adjusted operating income during this fiscal year.
We believe the strength of our balance sheet and access to capital will continue to be our key competitive strength and differentiator in the CBD industry, helping us to support our long term financial flexibility we.
We seek to continue to evolve our business to stay at the forefront of our industry. We remain focused on maximizing our growth and net sales achieving profitability and most importantly, our cost containment.
Our brands continue to lead the market and brand awareness and social media reach as our meltwater and score which measures editorial mentions reach tonality.
78 for fiscal Q2, which was eight points ahead of our nearest competitor.
We continue to strengthen our portfolio of strategic athletes and sponsorship programs. We recently extended our sponsorship with professional rally driver Megastar Ken block.
We signed an exclusive sponsorship agreement to be the official CBD partner of the noble Crossfit games.
And signed Masters champion and nine time, PGA Winter, Patrick Reed and we're thrilled to have on team CVD and <unk>.
We continue to achieve product awards, and we are proud to announce the bulk of our CBD product line and our CBD pet product line Paw, CBD, where 2021 product of the year winners with CBD and serving as the first CBD brand to ever earned the prestigious award and.
And back to back years, along with serving as the first CBD company and a wind product of the year since the CBD category and was introduced in 2020. This year CBD and CBD Gummies were named the most innovative product and the CVD adjustables category.
In addition, Paul CBD hard shoes for dogs and earned 2021 product of the year honors and the CBD pet category a product of the year Award first for the pet friendly print brand powered by <unk>.
Our goal is to foster a robust culture of innovation and brand development, we are continuously evaluating options to connect with consumers through our compelling brand propositions and delivering compelling innovation.
And that CVD MD can meet the needs of and ever evolving consumer preferences and the marketplace to further expand our demographic we successfully launched our CBD and deep Botanicals earlier. This year next month, we will be launching three new CV DMD gummies and one for <unk>.
Leap one for recovery and my personal favorite our Apple cider vinegar flavor.
In addition next month, we will also be launching our new CVD and drink mixes, which will be available and basic energy and recovery flavors into.
Internationally, we're expanding our presence as well today, we have sold.
Our products and over 31 countries, we are leveraging our success and the U S market as we find significant opportunities internationally.
Yeah.
With more than 500 million people across the United Kingdom and the European Union, We've officially filed our novel food application with the United Kingdom's Food Standard agency.
And the application includes all requisite data to allow for the validated submission and thorough scientific success assessment.
Similar submission with simultaneously made to the European food safety authority to ensure compliance for the European markets. Our products have been offered for sale and the UK since mid 2019. Our application is currently under growth going a review process, which we will believe will be complete.
And by the end of 2021, although no assurances can be made.
This application includes detailed analysis of ingredient characterization quality and stability of our product hemp sourcing extraction controls labeling testing requirements and the underlying intake and toxicology toxic <unk> data related to say.
Consumption of.
The proprietary cannabinoid blend ingredients and our CBD product line.
CVD and believes this debt is important as a precursor for its preparation of its FDA MDI and submissions.
Australia, and PGA submissions, various sanitary regulations, and Latin America, and other regulatory submissions throughout the world.
We believe the completion of this extensive pre clinical research required to support the application provides <unk> with a valuable tool for other regulatory approvals around the world.
Our team and CVD and understands the importance of brand equity and selling good quality and safe products.
One of the leading consumer CBD brands in the World. We believe CVD MD is in a unique position to explore the therapeutic potential of CBD and the other less and lesser known cannabinoids to support scientific advancement through clinical trials and to perform tasks.
<unk> studies to demonstrate the safety of cannabinoids as novel therapies.
In order to isolate and quantify the company's ongoing investments and science related to its existing and future products, including research and development activities for therapeutic applications and with the mission to provide our customers with therapeutic options to replace opioids and other prescription pain <unk>.
<unk> and bring to market and novel therapies for conditions, where people suffer from pain and inflammation sleeplessness for anxiety such as osteoarthritis.
Pfizer and my Alger insomnia, and anxiety disorders in March 2021, we form CVD and <unk> Therapeutics LLC, a new wholly owned subsidiary.
We're also thrilled to have appointed Dr. Civil Swift, a former U S food and drug administration officials to serve as our co chair of CVD and <unk> therapeutics as well as our new Vice President for scientific and regulatory affairs.
These new novel therapies will be the first identified through the core of CBD and these current dietary supplement science and research to further expand our brands use and acceptance by consumers worldwide.
We believe that the launch of the CVD MD therapeutics signals to the marketplace and CVD and is committed to providing the necessary resources to ensure the success of this mission.
We envision that the work we are embarking upon and CVD and <unk> Therapeutics may lead to partnerships with some of the most preeminent companies and universities in the world and that the science, we expect to develop at CVD and <unk> Therapeutics will not only further distance our brand from our competitors, but we will.
Also build a significant lead on any new entrants and the market.
I am proud of all of our employees and our board for their contribution to further CBD and these vision, especially during the difficult COVID-19 pandemic, we take great pride and leading with strong values. We are committed to advancing the health and wellness of People's lives to the better by investing in our <unk>.
<unk>, our brands our people and the World we live in.
With that I'll now turn the call over to Rone, and who will take you through the financial results Ronen go ahead. Thank.
Thank you Marty and welcome everybody on a GAAP basis total net sales for the second quarter of fiscal 2021 hit another all time high of $11 8 million or 26% year over year increase and a seasonal sequential debt, but 4% for.
For the six months ending March 2021, where we reported total sales of $24 1 million, a 24% increase compared to $19 5 million and the same period of last fiscal year, our quarterly E. Commerce business generated sales of $8 4 million and the second quarter of fiscal 2021.
A 23% year over year increase e-commerce for the quarter represented approximately 71% of our total net sales for the six months ending March 31, 2021 E. Commerce generated $18 1 million of net sales compared to $13 7 million for the comparative prior fiscal year period Rep.
Presenting 75% of our total net sales we remain focused on our non-GAAP operating kpis associated with our direct to consumer business and saw an average order value retention rates and web traffic strengthened towards the end of the quarter and into April.
Our wholesale business generated $3 4 million of net sales for the second quarter of fiscal 2021, as compared to $2 6 million for the comparative quarter and fiscal 2020 for.
And for the six months ending March 31, 2021, and 2020, our wholesale business generated $6 1 million and $5 $9 million, respectively of net sales. We are starting to see an uptick of account activity and are cautiously optimistic about wholesale prospects over the coming quarters as action vaccination rates increase.
And we see relief from governmental restrictions and people slowly return to pre COVID-19 normalcy.
During the quarter demand for our past CBD was strong and our initial release of CBD MD Botanicals was well received we look to continue to capitalize on this and coming quarters. In addition, we onboard and a new distributor and the U K and expect to see growth and this market with further clarity on our FSA registration.
Our GAAP gross profit remains strong as a percent of net sales came in at 69% for the second quarter of fiscal 2021 compared to 71% for the comparative prior year.
Period for the six months ending March 31, 2021, and 2020 gross profit was 71% and 67% respectively as a percentage of total net sales.
Based on our category sales mix ongoing operational leverage and our asset light model, we expect to maintain our gross profit margins between 65% and 70%.
Our operating expenses for the March 31, 2021 quarter totaled $12 3 million, which is flat compared to the March 31 2020 quarter.
Operational expenses were up 15, 6% over the December 31, 2020 quarter, mostly due to a $1 1 million increase and discretionary marketing as well as 560000 increase and non cash stock expense for the six months ending March 31, 2021 operational expense.
<unk> dropped to $22 9 million from $24 8 million and the comparative fiscal period in 2020.
Overall this resulted in a GAAP loss from operations of approximately $4 1 million for the March 31, 2021 quarter, and one 5 million improvement from the $5 6 million loss and the prior year period. The reduction in operating income of $2 $4 million over the December 2020 quarter is mainly attributed to the $1 $1 million and.
And marketing spend 560000, and noncash stock comp and $700000 drop and gross profit for the six months any March 31, 2021, and 2020, our GAAP loss from operations totaled $5 9 million and $11 $7 million, respectively. The improvement stems from an.
For <unk> <unk>.
Zero million increase and gross profit dollars as a result of increased revenue as well as $1 9 million reduction and operating expenses.
Our non reoccurring operating expenses for the second quarter of fiscal 2021, and could a 300000 onetime accrued expense related to severance.
860000, and non cash stock expense and depreciation expense of 240000, resulting in a non-GAAP adjusted operating loss of $2 7 million and the second quarter of fiscal 2021 as compared to four.
And four 9 million of non-GAAP, adjusted operating loss and the second quarter of fiscal 2020.
The decrease and non-GAAP adjusted operating loss over the prior year period was mainly attributed to cost tightening and increase in gross profit dollars, resulting from improvements in both revenue and gross margin.
We continue to pursue several objectives to drive operational efficiency and lower our cost structure more recently, we added additional merchant processing relationships. During the current fiscal third quarter. This is not only provides redundancy, but based on our current volumes, we anticipate cost savings and the range of 125 to 175000.
Per quarter.
Other income expenses on our consolidated operating.
Net income statement, including noncash contingent liability charge related to the December.
2018 acquisition of cure based development.
And March.
2021, 334 8 million earn out shares were issued corresponding to the second earn out period at the time of issuance, we booked a $3 1 million contingent liability expense and a value of $11 3 million was subsequently reclassified from the contingent liability to additional.
Paid in capital on our consolidated balance sheet. The remaining contingent liabilities shares were revalued at the end of the quarter, resulting in a total noncash contingent liability expense of $8 $8 7 million for the quarter.
The changes and valuation of the contingent liability was primarily a result of the increase and market price of our common stock during the period from $2 95 to $4 14 per share.
Any increase and our common stock price increases the contingent liability and creates an increase and the <unk>.
Contingent liability impacting net income.
Over the last two years, the contingent liability had a volatile and impact on our financial statements. While shares are earned based on revenue historically, they've remained part of the liability calculation for multiple quarters. After earned until the end of the corresponding marketing periods and this creates an overhang impact disease earn shares remain and each quarterly values.
<unk> and.
In March we entered into a denim number one to the merger agreement, which amended the measurement periods within the third marking period and allows for quarterly revenue measurement and share issuance beginning with the quarter ending March 31 2021.
For each of the next six quarters there'll be revenue revenue measurement and and earn out calculation along with a corresponding share issuance and removing earn shares from future quarterly valuation updates as a result of this change the earn shares will no longer create.
Multi quarter overhang and the valuation calculation, we believe over time. This has the potential to reduce the volatile impact the contingent liability has on the Companys net income there is no change and the earn out calculation and this change did not impact the valuation at March 31 2021.
During the quarter, we utilized approximately $5 million of cash. The main components include an adjusted non-GAAP operating loss of $2 $7 million $560000 of dividends paid working capital increase of approximately 900000, and a 750000 increase and our investment and a Dara acquisition.
And NYSE listed special purpose acquisition company or stack. This investment remains held at cost and our balance sheet equates to roughly 634000 shares and a 1 million warrants we.
We had cash and cash equivalents of approximately 2.3.
$93 7 million and working capital of approximately $27 9 million.
On March 31, 2021, compared to cash and cash equivalents of approximately $14 8 million and working capital of approximately $16 million as of September 32.
20 <unk>.
Our current assets as of March 31, 2021 increased approximately 47% from September 32020 to $34 7 million a primary driver of the increase and current assets was the approximate $15.
$8 million and net proceeds from our series a preferred stock in December of 2020.
As of March 31, the company total current liabilities were $6 8 million of which $2 8 million is and accounts payable and $1 7 million as accrued expenses.
The company had approximately 197000 and financing notes on equipment for our manufacturing facility as well as at 145 million SBA loan from the Paycheck Protection program, we have submitted our application for 100% forgiveness on the Triple Pilon and are in the middle of the forgiveness process.
And in effort to continue to drive operational excellence, our team implement and net suites as our new ERP. This past quarter. Our goal is to improve the richness of the information and have access to critical real time data to drive better business decisions. We are already seeing a positive impact and the visibility of our supply chain and believe we will only continue.
And to drive efficiency into our operation as we continue to fine tune and optimize our new system.
And <unk> products are a key part of our strategy, our quality and operations team underwent several quality audits during the quarter, including the renewal of our NSF certification and recently announced U S Hemp authority.
<unk> is committed to providing high quality trustworthy products, we are and the middle of pursuing additional certifications, which we expect to be able to announce through the balance of the year.
Our balance sheet remains strong we continue to focus on operational excellence and quality products, we have great new marketing partnerships, we are and the process of activating we're cautiously.
Optimistic on and uptick in our wholesale business and we have a robust pipeline of new products that we'll launch over the coming months.
All in all we continue to be confident and our ability to execute on our 2021 plan.
And our remain focused on building long term shareholder value.
And with that I'd like to now turn the call back over to Marty.
Well, thank you Ronan and with that I'd like to open up the line for any Q&A Kathryn.
Ladies and gentlemen, the floor is now open for questions.
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With no questions in the queue. This does conclude our conference call for today. Thank you so much for your participation.