Q1 2024 Charlotte's Web Holdings Inc Earnings Call

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Good morning, ladies and gentlemen, and welcome to the Charlotte's Web Holdings, Inc. 2024 first quarter conference call. At this time all lines are in listen only mode. Following the presentation. We will conduct a question and answer session. If at any time. During this call you quite immediate assistance. Please press star zero for the operator.

Operator: Good morning, ladies and gentlemen, and welcome to the Charlotte's Web Holdings Inc. 2024 first quarter conference call. At this time, our lines are in listen-only mode.

Operator: This call is being recorded on Wednesday may eight 2024.

Operator: Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, May 8th, 2024. I would now like to turn the conference over to Cory Pala, Head of Investor Relations. Please go ahead.

Speaker Change: I would now like to hand conference Richard Cory Pala head of Investor Relations. Please go ahead.

Cory Pala: Thank you and good morning, everyone. Thank you for joining us for our 2024 first quarter earnings Conference call for Charlotte's Web Holdings, Inc.

Cory Pala: Thank you and good morning everyone. Thank you for joining us for our 2024 first quarter earnings conference call for Charlotte's Web Holdings Inc. The earnings press release was issued this morning and posted on the investor relations section of our website along with our financial statements. Our 10-Q report for the quarter is also available and has been filed on CDARplus.com in Canada and in the U.S. with EDGAR and the SEC. CEO Bill Morachnick and CFO Jessica Saxton are leading our call this morning.

Cory Pala: Earnings Press release was issued this morning and posted on the Investor Relations section of our website along with our financial statements. Our 10-K report for the quarter is also available and has been filed on SEDAR plus dot com in Canada and in the U S with Edgar and the SEC.

Cory Pala: CEO Bill <unk> CFO gesture, Kazakhstan are leading our call. This morning on this morning's call will review the financial results of the quarter and provide some color around the business and our outlook, we will take questions from our analysts at the end of our prepared remarks.

Cory Pala: On this morning's call, we'll review the financial results of the quarter and provide some color around the business and our outlook. We'll take questions from our analysts at the end of our prepared remarks. A replay of this call will be available through the next week, accessible via the details provided in our earnings release. Additionally, a webcast replay of this call will be available for an extended period accessible through the Investor Relations section of our website at charlottesweb.com.

Cory Pala: A replay of this call will be available through the next week accessible via the details provided in our earnings release. Additionally, a webcast replay of this call will be available for an extended period accessible through the IR section of our website at Charlotte's web Dot com.

Cory Pala: As a reminder to our listeners, certain statements made on today's call, including answers we may provide to certain questions, may include content that is forward-looking in nature and, therefore, subject to risks and uncertainties and factors that could cause actual future results or company performance to differ materially from implied expectations. Such risks surrounding forward-looking statements are outlined in detail within the company's regulatory filing. In addition, during the call, we'll refer to supplemental non-GAAP accounting measures, including adjusted EBITDA, which does not have any standardized meaning prescribed by GAAP.

Cory Pala: As a reminder to our listeners certain statements made on today's call, including answers. We may provide to certain questions may include content that is forward looking in nature, and therefore subject to risks and uncertainties and factors, which could cause actual future results or company performance to differ materially from implied expectations.

Cory Pala: Such risks are rounding forward looking statements are outlined in detail within the company's regulatory filings. In addition, during the call we will refer to supplemental non-GAAP accounting measures, including adjusted EBITDA, which does not have any standardized meaning prescribed by GAAP. Please refer to the earnings release that we filed this morning for a description of adjusted EBITDA as well as a reconciliation of such measures.

Cory Pala: Please refer to the earnings release that we filed this morning for a description of adjusted EBITDA, as well as a reconciliation of such measures to the respective and most directly comparable GAAP financial measures. Now, I'll hand over the call to Charlotte's Web Chief Executive Officer Bill Morachnick.

William J. Morachnick: To their respective and most directly comparable GAAP financial measures.

William J. Morachnick: And now I'll hand over the call to Charlotte's Web Chief Executive Officer, Philip rationing.

William J. Morachnick: Thanks, Greg.

William J. Morachnick: Thanks, Cory. Good morning, everyone, and thank you for joining us today. So let's dive into our first quarter results and provide some insight into how we are moving forward with our company-wide turnaround initiative. We outlined our True North pillars and our year-end call in March, and as promised, we'll be updating you on each of those initiatives and where we stand. Just as a quick reminder, these initiatives include, one, transforming the consumer experience end-to-end, two, being the most trusted and valued partner among retailers and distributors, three, reinforcing and amplifying CW's influential voice, and lastly, continuing to identify costs and operating efficiency.

William J. Morachnick: Good morning, everyone and thank you for joining us today.

William J. Morachnick: So let's dive into our first quarter results.

William J. Morachnick: Some insight into how we're moving forward with our companywide turnaround initiatives.

William J. Morachnick: We outlined our true north pillars, and our year end call in March and as promised we will be updating you on each of those initiatives and where we stand.

William J. Morachnick: Just as a quick reminder, these initiatives include one transforming the consumer experience end to end.

William J. Morachnick: Two being the most trusted and valued partner among retailers and distributors three reinforcing it in amplifying cw's influential voice and lastly, continuing to identify cost and operating efficiencies.

William J. Morachnick: Despite making good progress on our True North initiatives, the first quarter of 2024 was not what we wanted from a revenue standpoint at all, marked by weak year-over-year sales, particularly in our e-commerce business. Now, there were a number of factors that contributed to our weak sales in Q1, and they basically fell into three main buckets. The first one is we pull down spend on our paid media in order to update the attribution of each program and evaluate the highest performing campaign.

William J. Morachnick: Despite making good progress on our <unk> initiatives.

William J. Morachnick: The first quarter of 2024 was not what we wanted from a revenue standpoint at all marked by weak year over year sales, particularly in our E Commerce business.

William J. Morachnick: Now there's a number of factors that contributed to our weak sales in Q1, and they basically fell into three main buckets.

William J. Morachnick: First one is we pull down spend on our paid media in order to update the attribution of each program and evaluate the highest performing campaigns.

William J. Morachnick: Secondly, our legacy e-commerce platform limits our ability to move quickly. And third, we inadequately target the right products and offers to the right consumers. That said, we're laser focused on addressing these gaps, and I will share with you the progress we're making shortly. But, first, I fully understand the frustration that investors are feeling as we work through these challenges. But I do want to reassure you that we are already seeing positive indicators that are expected to be precursors to increased business results.

William J. Morachnick: Secondly, our legacy ecommerce platform limits, our ability to move quickly and.

William J. Morachnick: And third we inadequately targeted the right products and offers to the right consumers.

William J. Morachnick: That said, we're laser focused on addressing these gaps and I'll share with you the progress we were making shortly.

William J. Morachnick: But let me first say that I fully understand the frustration that investors are feeling as we work through these challenges, but I do want to reassure you that we are already seeing positive indicators that are expected to be the precursors to increased business results.

William J. Morachnick: For example, we've been actively laying the foundation to expand our offerings beyond CBD using the recently launched Stay Asleep CBN product as an integrated part of our sleep portfolio. It's just one instance, which I'll dive into more shortly. But first, I'd like to hand over the call to our Chief Financial Officer, Jessica Saxton, to review our Q1 financial results. Thank you, Bill.

William J. Morachnick: For example.

Jessica Saxton: We've been actively laying the foundation to expand our offerings beyond CBD.

Jessica Saxton: Using the recently launched stay asleep CPM product is an integrated part of our sleep portfolio is just one instance, which I will dive into more shortly.

Jessica Saxton: But first I'd like to hand over the call to our Chief Financial Officer, Jessica Sachs. Then to review our Q1 financial results.

Jessica Saxton: Thank you Bill.

Jessica Saxton: Thank you, Bill. We continue to find ways to deploy our cash better and increase our return on investment. However, with our Q1 revenue levels, stringent expense management is a top priority. We have quickly addressed and taken actions toward further right-sizing the business to better align with our current revenue levels. As an example, using a real-time example, we recently focused on redesigning our overall B2B business from both a strategic perspective and overall cash flow performance

Jessica Saxton: Continue to find ways to deploy our cash better and increase our return on investment however, with our Q1 revenue level stringent expense management is a top priority. We have quickly addressed and taken actions towards further right sizing the business to better align with our current revenue levels.

Jessica Saxton: Using a real time example, we recently focused on redesigning our overall <unk> business from both a strategic perspective, and overall cash flow performance.

Jessica Saxton: Historically, our B2B business was structured for a high-volume, federally-regulated market. We continue to work towards federal regulation, but in the interim, we need to have a more efficient structure in place for what is happening now, pre-regulation. Why are we changing this now?

Jessica Saxton: Historically, our b to B business was structured for a high volume federally regulated market.

Jessica Saxton: We continue to work towards federal regulation in the interim we need to have a more efficient structure in place for what is happening now pre regulation.

Jessica Saxton: Why are we changing this now the CVD peak from 2017 to 2020 was at a time, where there were more than 4000 brands and flooded the market with Charlotte's web at the top.

Jessica Saxton: The CBD peak from 2017 to 2020 was a time when there were more than 4,000 brands that flooded the market, with Charlotte's Web at the top. However, as quickly as the category rose, it struggled to recover the significant year-over-year growth previously experienced. We continue to see this trend through 2023 and have acted to be in line with revenue expectations moving forward. However, we face challenges to compile year-over-year numbers and find new avenues for revenue-generating partnerships. We saw that instead of building partnerships, Charlotte's Web had engaged in several transactional retailer relationships that were not always optimal for our business.

Jessica Saxton: As quickly as the category relevance it struggled to recover the significant year over year growth previously experienced.

Jessica Saxton: We continue to see this trend through 2023 and have acted to be in line with revenue expectations moving forward.

Jessica Saxton: We faced challenges to comp year over year numbers and find new avenues for revenue generating partnerships.

Jessica Saxton: We saw that instead of building partnerships Charlotte's web had engaged in several transactional retailer relationships that were not always optimal to our business.

Jessica Saxton: Utilizing historical and forward-looking data, we have reorganized, streamlined, and reduced our overall B2B business. These actions will modestly reduce our B2B revenue, but more importantly, aim to improve our overall annual cash flow position. Along with further right-sizing our business, we have also redesigned our targeted strategic pathway. Specifically, we are working closer with our largest retail partners, prioritizing those who are knowledgeable and comfortable with the existing safety data for CBD and hemp wellness.

Jessica Saxton: Utilizing historical and forward looking data, we have reorganized and streamlined and reduced our overall <unk> business.

Jessica Saxton: These actions will modestly reduce our BTB revenue, but more importantly aim to improve our overall annual cash flow position.

Jessica Saxton: Along with further right sizing our business, we have also redesigned our targeted strategic pathways.

Jessica Saxton: Specifically, we are working closer with our largest retail partners prioritizing those who are knowledgeable and comfortable with the existing safety data of CBD and hemp wellness.

Jessica Saxton: We're also prioritizing our focus on our highest-margin B2B partners and channels, including the Healthcare Practitioner Channel, which we also refer to as the Medical Channel. I want to give more context on the right sizing of our business relative to our Q1 performance, specific to our expenses. The finance team utilized historical data, as well as projected growth, to re-forecast our entire business, working closely with each department, including everything from net revenue through SG&A and cash flow. Working closely with Bill and our leadership team, these actions will reduce our expenses significantly versus last year. These costs are expected to be approximately $15 million on overall annual SG&A improvement versus last year.

Jessica Saxton: We're also prioritizing our focus on our highest margin VW partners and channels.

Jessica Saxton: The health care practitioner channel, which we also referred to as the medical channel.

Jessica Saxton: I wanted to give more context on the right sizing of our business relative to our Q1 performance specific to our expenses.

Jessica Saxton: The finance team utilized historical data as well as projected growth to re forecast iron entire business working closely with each department.

Jessica Saxton: Including everything from net revenue through SG&A and cash flow.

Jessica Saxton: Working closely with Bill and our leadership team. These actions will reduce our expenses significantly versus last year.

Jessica Saxton: These costs are expected to be approximately 15 million on overall annual SG&A improvement versus last year.

Jessica Saxton: This will bring down our SG&A as a percentage of net revenue to be more in line with the industry and also decrease our cash burn, illustrating our ability to maintain agility within the business. Now, let's turn to the specific financial results for the quarter. For the first quarter of 2024, net revenue was $12.1 million, down $4.9 million year-over-year. The decline was primarily driven by lower revenue in our e-commerce business, which saw a decrease of $3.5 million year-over-year to $7.8 million.

Jessica Saxton: This will break down our SG&A as a percentage of net revenue to be more in line with the industry and also decrease our cash burn illustrating our ability to maintain agility within the business.

Jessica Saxton: And now turning to the specific financial results for the quarter.

Jessica Saxton: For the first quarter of 2024, net revenue was $12 1 million down $4 9 million year over year.

Jessica Saxton: The decline was primarily driven by lower revenue in our E Commerce business, which saw a decrease of 3.5 million year over year to $7 8 million.

Jessica Saxton: Our e-commerce business continues to struggle with organic traffic and acquiring new consumers, partially due to competitive online discounting pressures, as well as prior consumer stocking during holiday promotions in the fourth quarter of 2023. The lower traffic and sales in the quarter were amplified by a recent transition of our digital marketing strategy. We had lower traffic as we pulled back on paid media programs to, one, evaluate ROI and, two, update our media attribution tool.

Jessica Saxton: Our E Commerce business continues to struggle with organic traffic and acquiring new consumers, partially due to competitive online discounting pressures as well as prior consumer stocking during holiday promotions in the fourth quarter of 2023.

Jessica Saxton: The lower traffic and sales in the quarter was amplified by a recent transitioning of our digital marketing strategy.

Jessica Saxton: We had lower traffic as we pulled back on paid media programs to one evaluate ROI and to update our media attribution tools.

Jessica Saxton: Despite underperformance in the e-commerce business during the period, these changes and upgrades are crucial for laying the groundwork to support our short and long-term goals aimed at revitalizing our business and steering us back to growth. Also, during the quarter, we implemented a price reduction across our oil tincture portfolio. However, the lag between the price recalibration and associated promotional consumer behavior was apparent.

Jessica Saxton: Despite underperformance in the e-commerce business during the period. These changes and upgrades are crucial for laying the groundwork to support our short and long term goals aimed at revitalizing our business and steering us back to growth.

Jessica Saxton: Also during the quarter, we implemented a price reduction across our oil picture portfolio.

Jessica Saxton: The lag between the price recalibration and associated promotional consumer behavior behavior was apparent how.

Jessica Saxton: However, we have already taken quick steps to reach our customers through new segments in marketing and associated promos, finding the right balance between discounting and everyday low prices. Now, turning to our B2B business, our B2B net revenue was $4 million versus $5.7 million last year. Year-over-year retail sales were down due to certain customers beginning to exit the CBD category or reducing total shelf space for CBD products between Q1 2023 and Q1 2024.

Jessica Saxton: However, we have already taken quick steps to reach our customers through new segmented marketing and associated from us finding the right balance between discounting and everyday low prices.

Jessica Saxton: Now turning to our B to B business, our B to B net revenue was 4 million versus $5 7 million last year.

Jessica Saxton: Year over year retail sales were down due to certain customers beginning to exit the CBD category or reducing total shelf space for CBD products between Q1 2023 in Q1 'twenty 'twenty four.

Jessica Saxton: As this occurred throughout the 2023 calendar year, the first quarter of 2024 had the highest year-over-year contrast. However, on a quarter-over-quarter basis, our B2B revenue decline was more modest. We are excited to share that B2B has secured 48 of our top 50 accounts to carry our new CBD Stay Asleep product, which will launch in stores in Q2.

Jessica Saxton: This occurred throughout the 2023 calendar year, the first quarter of 'twenty 'twenty four has the highest year over year contrast, however on a quarter over quarter basis, our BTB revenue declined was more modest.

Jessica Saxton: We are excited to share that ETP has secured 48 of our top 50 accounts to carry our new CVD stay asleep product.

Jessica Saxton: Which will launch in stores in Q2.

Jessica Saxton: In April, we launched Fresh Time in 70 locations spanning 10 states. Despite lower revenue, gross profit was $6.9 million, or 57% of revenue, as compared to gross profit of $9.9 million, or 58.3% of revenue, in the first quarter of 2023. We expect to maintain gross margin strength throughout 2024 as a result of improving operating efficiencies, including our transition to the in-house production of our topicals and gummies later this year. Turning to expenses, our first quarter SG&A decreased 12.8% year-over-year from $17.5 million in Q1 last year to $15.3 million in Q1 of this year as we continue to right-size the business, taking actions to reduce expenses to be more reflective of our current revenue position.

Jessica Saxton: In April we launched with fresh time in 70 locations spanning 10 states.

Jessica Saxton: Despite lower revenue gross profit was $6 9 million or 57% of revenue as compared to gross profit of $9 9 million or 58, 3% of revenue in the first quarter of 2023.

Jessica Saxton: We expect to maintain gross margin strength throughout 'twenty 'twenty four as a result of improving operating efficiencies, including our transition to the in house production of our topical and Gummies later this year.

Jessica Saxton: Turning to expenses, our first quarter SG&A decreased 12, 8% year over year from $17 5 million in Q1 last year to $15 3 million in Q1 of this year as we continue to rightsize the business taking actions to reduce expenses to be more reflective of our current.

Jessica Saxton: Revenue position.

Jessica Saxton: Additionally, we continue to eliminate inefficiencies such as unnecessary software subscriptions and contracts to better utilize our resources. With these changes, we have improved our SG&A as a percentage of net revenue, which will be reflected as we move forward in 2024 and beyond. As I stated earlier, these costs are expected to be approximately $15 million in overall annual SG&A improvement versus last year. As discussed in the last quarter, we are not just cutting costs; we are understanding the full implications and strategically optimizing our spending. Our focus continues to be on improving return on investment by reallocating funds towards higher-producing ROI activities. For better transparency, depreciation and amortization plus public company costs account for approximately 20% of our 2024 total SG&A costs.

Jessica Saxton: Additionally, we continued to eliminate inefficiencies such as unnecessary software subscriptions and contracts to better utilize our resources.

Jessica Saxton: With these changes we have improved our SG&A as a percentage of net revenue, which will be reflected as we move forward in 2024 and beyond.

Jessica Saxton: As I stated earlier these costs are expected to be approximately $15 million on overall annual SG&A improvement versus last year.

Jessica Saxton: As discussed in the last quarter, we are not just cutting costs, we are understanding the full implications and strategically optimizing our spending our focus.

Jessica Saxton: This continues to be unimproved return on investment are reallocating funds towards higher producing all ROI activities.

Jessica Saxton: Better transparency depreciation and amortization plus public company costs account for approximately 20% or 2024 total SG&A cost.

Jessica Saxton: Excluding these, our operating expenses were still too high relative to our net revenue, and we are bringing these down significantly to be more in line with sustainable business practices. Our Q1 operating loss of $8.4 million was modestly higher than the operating loss of $7.6 million in Q1 2023, primarily as a result of lower revenue. The net loss of the quarter was $9.7 million, or minus $0.06 per share, compared to a net loss of $2.9 million, or minus $0.02 per share, in Q1 of last year.

Jessica Saxton: Excluding these our operating expenses were still too high relative to our net revenue and we are bringing these down significantly to be more in line with sustainable business practices.

Jessica Saxton: Our Q1 operating loss of $8 4 million was modestly higher than the operating loss of $7 6 million in Q1, 2023 primarily as a result of lower revenue.

Jessica Saxton: Net loss for the quarter was $9 7 million or minus six cents per share compared to a net loss of $2 9 million or minus two cents per share in Q1 of last year.

Jessica Saxton: Q1 cash flow was negative $9 3 million of which $2 1 million with capex related mainly attributable to our production and sourcing and $2 5 million is related to the MLB licensing fees, which as a reminder, there will only be one other payment for this year for two point.

Jessica Saxton: Q1 cash flow was negative $9.3 million, of which $2.1 million was CapEx related, mainly attributable to our production and sourcing, and $2.5 million is related to the MLB licensing fees, which, as a reminder, there will only be one other payment for this year for $2.5 million in Q3. Excluding these items, our Q1 cash burn was $4.7 million, largely a result of our net revenue decline in the quarter, as well as anticipated inventory bills.

Jessica Saxton: 5 million in Q3.

Jessica Saxton: Excluding these items Q1 cash burn was $4 7 million largely a result of our net revenues declined in the quarter as well as anticipated inventory build.

Jessica Saxton: At the close of the first quarter, we had cash of $38.5 million, and our working capital was $48.6 million. With prudent cash management, we believe that we have sufficient capital to meet our near-term objectives and return to revenue growth. We are not happy with our Q1 revenue results. However, we are optimistic about the outcomes of our current initiatives. We have taken actions internally to ensure cash flow management, including the redesigning of B2B, along with a reduction in SG&A expenses. I remember once reading a quote that resonates with Charlotte's Web's current dynamic.

Jessica Saxton: At the close of the first quarter, we had cash of $38 5 million and our working capital was $48 6 million.

Jessica Saxton: With prudent cash management, we believe we have sufficient capital to meet our near term objectives and return to revenue growth.

Jessica Saxton: We are not happy with our Q1 revenue results. However, we are optimistic about the outcomes of our current initiatives. We have taken actions internally to ensure cash flow management, including the redesigning of me to be along with a reduction in SG&A expenses.

Jessica Saxton: I remember one screening a quote that resonates with Charlotte's web current dynamic.

William J. Morachnick: The CFO of HP once said, "If you save a dollar, you will drop a dollar on the bottom line. But if you save a dollar and you reinvest that back into the business in a disciplined way, a returns-based way, that dollar is actually worth a lot more in the future." And that's really what running a business is all about. So with that, we are investing earnings-based dollars back into the business to stabilize the present and ensure growth for the future. I will now turn the call back over to Bill.

Jessica Saxton: The CFO of HP, one said.

William J. Morachnick: If you save a dollar you will drop a dollar to the bottom line.

William J. Morachnick: But if you save a dollar and you reinvest that back into the business in a disciplined way a returns based way that dollar is actually worth a lot more in the future.

Bill: And that's really about running our business is all about.

Bill: With that we are investing returns based dollars back into the business to stabilize the president and ensure growth for the future.

William J. Morachnick: I will now turn the call back over to Bill.

Bill: Thanks Jessica.

William J. Morachnick: All right, so I'd like to focus the remainder of this call on the progress that we've been making. So let's start with our e-commerce. Our e-commerce platform migration to Shopify is progressing according to plan, and it's on track to launch by the end of Q2. This is the top priority for the country.

William J. Morachnick: Alright.

Bill: To focus the remainder of this call on the progress that we've been making.

William J. Morachnick: Let's start with our e-commerce business.

William J. Morachnick: Our ecommerce platform migration to Shopify is perfect is progressing according to plan.

William J. Morachnick: And it's on track for launch by the end of Q2.

William J. Morachnick: This is the top priority for the company.

William J. Morachnick: Simply put, it doesn't make a lot of sense to do a great job of attracting consumers to our website and then providing them with an amazing shopping experience. And this is where we're beginning, frankly, to see some of our competitors gain traction. With the transition to the new e-commerce platform, we can have a consistent, streamlined user experience, effective campaign performance, and be agile to increase markets. Now, despite these hurdles, we continue to drive increases to our conversion rates on our website through several strategic initiatives. And some of these examples include one, introducing new prospecting and retargeting approaches within our paid CTV channels.

William J. Morachnick: Simply put it doesn't make a lot of sense to do a great job of attracting consumers to our website.

William J. Morachnick: And then providing them with an amazing shopping experience.

William J. Morachnick: And this is where we're beginning frankly to say some of our competitors gained traction.

William J. Morachnick: With the transition to the new ecommerce platform. We can have a consistent streamlined user experience effective campaign performance and be agile to increase market speed.

William J. Morachnick: Now despite these hurdles we continue to drive increases to our conversion rates on our website through several strategic initiatives and some of these examples include one introducing new prospecting and retargeting approaches within our paid CTV channels too.

William J. Morachnick: Two, enhancing our digital marketing performance to drive increased engagement as well as transactions. And third, evolving our loyalty rewards program, which is already having an impact on our subscriber growth. We launched this upgraded loyalty program in Q1, and we've increased new subscribers by around 25% since then, while maintaining a retention rate over 90%. The second pillar we've been prioritizing is our B2B retail partner relationship. As Jessica mentioned earlier, we've redesigned B2B and refocused our strategy to address current market and regulatory conditions. And as part of this transformation, we have redirected part of our focus to the opportunities within healthcare, which has displayed resilience with a relatively modest equal.

William J. Morachnick: Two enhancing our digital marketing performance to drive increased engagement as well as transactions and <unk>.

William J. Morachnick: Third evolving our loyalty rewards program.

William J. Morachnick: Which is already having impact on our subscriber growth.

William J. Morachnick: We launched this upgraded loyalty program in Q1, and we've increased new subscribers by out by around 25%. Since then while maintaining a retention rate over 90%.

William J. Morachnick: Our second pillar, we've been prioritizing as our beat at the retail partner relationships as.

William J. Morachnick: As Jessica mentioned earlier, we've redesigned b to B and refocused our strategy to address current market and regulatory conditions.

William J. Morachnick: As part of this transformation, we have redirected part of our focus to the opportunities within the medical channel.

William J. Morachnick: Which has displayed resilience with a relatively modest decrease.

William J. Morachnick: This channel represents a promising area for strategic repositioning and stands out as one of our more lucrative BTB channels.

William J. Morachnick: This channel represents a promising area for strategic repositioning and stands out as one of our more lucrative B2B channels. All right, so let's dive into the Stay Asleep CBN Gummies launch as part of our next pillar, which is amplifying our leading voice in wellness. During the first quarter, we evolved our organic social and earned media strategy. Complementing the March launch of CBN, our new product innovation, Beyond CBN. For example, the Stay Asleep CBN campaign reignited our earned media presence, resulting in a reach of over 26 million in consumer-facing media and a reach of over 750,000 through earned social influencer posts. The response from media platforms and journalists eager to experience our product has been exceptionally positive, and these efforts are continuing to yield promising results. Let's turn to social media.

William J. Morachnick: Alright, so let's dive into the stay asleep CBA and gummies launch as part of our next pillar, which is amplifying, our leading voice and wellness.

William J. Morachnick: During the first quarter, we evolved our organic social and earn media strategies complemented by the March launch of C B and our new product innovation beyond CBD.

William J. Morachnick: We transformed our social media accounts with a new look and feel that better captures our brand voice. In Q1, our organic impressions are up 32%, while our reach per post is actually up 55%. And for having only launched Stay Asleep CBN in March, we are currently the top ranked on Google for CBN Sleep Gummy.

William J. Morachnick: For example, the stay asleep CBS campaign reignited, our earned media presence, resulting in a reach of over 26 million and consumer facing media and a reach of over 750000 through earned social Influencer posts.

William J. Morachnick: The response from media platforms and journalist eager to experience our product has been exceptionally positive and these efforts are continuing to yield promising results.

Speaker Change: Let's turn to social media.

William J. Morachnick: We transformed our social media accounts with a new look and feel that better captures our brand voice.

William J. Morachnick: Q1, our organic impressions are up 32%, while our reach proposed proposed is actually up 55%.

William J. Morachnick: And for having only launched stay asleep C B and in March we are currently the top ranked and Google for CBS sleep Gummies.

William J. Morachnick: Now, by integrating these marketing activities with tailored messaging that includes science-backed research, we have attracted new consumers into the marketing funnel, and this has allowed us to introduce them to the brand Beyond CBDase. The results of these efforts are a bump in new consumer acquisition and higher-than-average sell-through. In response to this rapid spike in demand, our operations team has moved up manufacturing timelines for Stay Asleep CBN, and this underscores the value and our prioritization to bring the production of gummies in-house from a flexibility and efficiency perspective. The last true North Pillar I'll speak about today is driving X.

William J. Morachnick: Now by integrating these marketing activities with tailored messaging that includes science backed research, we attracted new consumers into the marketing funnel.

William J. Morachnick: And this has allowed us to introduce them to the brand beyond CBD.

William J. Morachnick: The results of these efforts are a bump in new consumer acquisition and a higher than average sell through rate.

William J. Morachnick: In response to this rapid spike in demand our operations team has moved up manufacturing timelines for stay asleep C. B N and this underscores the value and our prioritization to bring the production of gummies in house from a flexibility and efficiency perspective.

William J. Morachnick: The last true North pillar I'll speak about today is driving access driving access represents pushing fourth regulatory progress and access for consumers.

William J. Morachnick: Driving access means pushing for regulatory progress and access for consumers, and it also means furthering science and innovation so that consumers can have meaningful and impactful health choices. Let me also give you an update about DeFloria. We're pleased with the progress of DeFloria since our last update in December. FLORIA LLC successfully completed all participant dosing for the Phase I program in March, and the trial data will be included in an IND submission to the FDA expected this year. Pending a positive outcome from the FDA, Phase 2 clinical trials are anticipated to commence shortly thereafter.

William J. Morachnick: And it also means furthering science and innovation, so that consumers can have meaningful and impactful health choices.

William J. Morachnick:

William J. Morachnick: Let me also give you an update about the floor you were pleased with the progression of the Florida since our last update in December the Florida LLC successfully completed all participants dosing for the phase one program in March and the trial data will be included in an IND submission to the FDA expected this year.

William J. Morachnick: Pending a positive outcome from the F. D. A phase two clinical trials are anticipated to commence shortly thereafter.

William J. Morachnick: So as to Florida continues to advance it remains deeply intertwined with the origins of the company.

William J. Morachnick: So as DeFloria continues to advance, it remains deeply intertwined with the origins of the company. And when you stop and think about it, Charlotte's Web started with a humble plan. A potential unknown, and a little girl on hospice who truly needed a mirror. It's been about a decade since Charlotte Spigey's extraordinary moonshot turned into a mission, uniting a global community in its wake. Rallying families, patients, and visionaries to join hands in a shared cause, inspiring millions, reshaping legislation, and propelling groundbreaking research that continues to change lives today.

William J. Morachnick: And when you stop and think about it Charlotte's web started with a humble plant.

William J. Morachnick: Its potential unknown and a little girl in hospice, who truly needed a miracle.

William J. Morachnick: It's been about a decade, and Charlotte's biggies extraordinary moonshot turned into a mission.

William J. Morachnick: In our global community its weight.

William J. Morachnick: Rallying families patients and visionaries to join hands in a shared cause inspiring millions reshaping legislation propelling groundbreaking research that continues to change lives today.

William J. Morachnick: In April we are in there, Charlie it's lasting impact or in Colorado State Charlotte figured out.

William J. Morachnick: In April, we honored Charlotte's lasting impact during Colorado State's Charlotte Figure. At our company home base, we gather to hear heartfelt and trailblazing health journeys from families, veterans, and advocates. They spoke about the ups and downs of searching for answers and the immense influence Charlotte had on bringing them hope and a solution. An early CW adopter for his daughter, Emily, and leading community advocate, Ray Mirzabizian, said of the event, "Being present to commemorate Charlotte's Figure Day was profoundly meaningful.

William J. Morachnick: At our company Homebase, we gathered to hear heartfelt and Trailblazing health journeys for families that trends and advocates.

William J. Morachnick: They spoke about the ups and downs of searching for answers and the immense influenced Charlotte had I'm, bringing them hope in a solution.

William J. Morachnick: And early CW adopter for his daughter, Emilie alluded community advocate raid MRSA vision set of the event.

William J. Morachnick: Being present to commemorate Charlotte's 50 day was profoundly meaningful.

William J. Morachnick: It was an emotional experience and a true privilege. It's both an honor and obligation to uphold Charlotte's legacy, ensuring her story continues to educate and raise awareness. While Charlotte's story has unfolded over the span of 10 years, its influence continues to shape lives, laws, and news science. So, let me just say in closing that as we navigate the journey ahead, we must always remember our roots and those who forged the path before us and fuel our goals for tomorrow. We'll now take questions from our audience.

William J. Morachnick: He was an emotional experience and a true privilege it.

William J. Morachnick: It's both an honor and obligation to uphold Charlotte's legacy ensuring her story continues to educate and raise awareness.

William J. Morachnick: While Charlotte story Hasnt folded over the span of 10 years. Its influence continues to shape lives laws and new science.

William J. Morachnick: So let me just say in closing that as we navigate the journey ahead, we must always remember routes and those who forged the path before us and fuel our goals for tomorrow.

Speaker Change: I'll now take questions from our analysts.

Speaker Change: Thank you, Sir ladies and gentlemen, we will now begin the question and answer session for analysts. So do you have a question. Please press star followed by one on your Touchtone phone, you'll hear three pancreatic models you can request and your question on people and they will go with you received should you wish to collapsing the bone presses spread stifle a bite you if youre using a speakerphone lift the hands.

Operator: Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session for analysts. If you have a question, please press star followed by 1 on your touchtone phone. You will hear a three-time Brown-McLarty request, and your question will be pulled in the order it is received. Should you wish to decline from the polling process, please press star followed by 2. If you are using a speakerphone, please lift the handset before pressing any key.

Operator: If a person any keys.

Operator: One moment, please, for your first question. Your first question comes from Scott Fortune on behalf of Roth MKN. Please go ahead.

Operator: One moment. Please for your first question. Your first question comes from Scott Fortune with Roth MKS. Please go ahead.

Operator: Yeah.

Nick: Hey, good morning. This is Nick. I'm on behalf of Scott.

Operator: Hey, Good morning. This is Nick on for Scott. Thanks for taking the questions first one for me just on the shelf opportunity and we're continuing to see reductions in shelf space allocated to the CBD category B to B retail new Dimensionalize wherever you are in terms of that kind of fully playing out here and how should we view yourself shrinkage for 2024 and its impact on B to B.

Nick: Thank you for taking the questions. First one for me, just on shelf opportunity, we're continuing to see reductions in shelf space allocated to the CBD category, just in B2B retail. New Dimensionalize where we are in terms of that kind of fully playing out here, and how should we view shelf shrinkage for 2024 and its impact on B2B, especially considering minimal legislative movement coming on board in the near term here? Thank you.

Nick: Especially considering minimal legislative movement coming on board in the near term here. Thank you.

William J. Morachnick: Yeah, thanks, Nick. You know, it's it's hard to project. You identify it there at the end where regulations will finally fall. We've been waiting on this for a long time. I think for the time being, we've seen the shakeout on the shelf.

Speaker Change: Yeah. Thanks, Nick.

William J. Morachnick: So.

William J. Morachnick: It's it's hard to project you you've identified it there at the end where regulatory will finally Paul.

William J. Morachnick: We've been waiting on this for a long time I think for the time being we.

William J. Morachnick: We've seen this shake out on the shelf, we don't anticipate a lot more further contraction on that.

William J. Morachnick: We don't anticipate a lot more further contraction on that. But, I think for us, more importantly, and where we're really putting our energy and our focus, is we've got a lot of existing doors, as I'd refer to them, outlets, where we've got significant opportunity to drive greater velocity. Um, the other thing I'll add to that, and this is part of a B2B revisioning that we did earlier this year, is that there is...

William J. Morachnick: I think for us more importantly, and where were really putting our energy and our focus is we've got a lot of existing doors as I refer to them in outlets, where we've got significant opportunity to drive greater velocity.

William J. Morachnick: The other thing I'll add to that and this is part of a a or b to b revisions that we did earlier this year.

William J. Morachnick: Is there are.

William J. Morachnick: Channels where we believe we're under-indexed relative to the opportunity, and the one we keep emphasizing here is on the medical side. We believe that we've got a much stronger right to win there. We've got the right portfolio. We've got the right resources. We're modifying our tools and platforms to address that channel much more effectively. And it also happens to be a very high-margin opportunity for us as well. So, we're actually very bullish about what we can do to continue to enhance our whole B2B go-to-market strategy.

William J. Morachnick: Channels, where we.

William J. Morachnick: We believe we're under indexed relative to the opportunity and the one we keep emphasizing here is on the medical side.

William J. Morachnick:

William J. Morachnick: We believe that we've got a much stronger right to win there we've got the right portfolio, we've got the right resources.

William J. Morachnick: We're modifying our tools and platforms to address that channel much more effectively and it also happens to be a very high margin opportunity for us as well.

William J. Morachnick: So we're actually very bullish about what we can do to continue to enhance our whole go to market strategy.

Speaker Change: Thank you I appreciate that and then second one for me just on the cost side as far as expense reductions and the inefficiencies are that that $15 million in reductions already in place to limit the cash burn and just your sense of the balance of 'twenty 'twenty. Four are you expecting additional cuts or reductions to be implemented.

Nick: Thank you. I appreciate that.

Nick: Just your take on the Opex moving forward here would be helpful.

Nick: And the second one for me, just on the cost side, as far as expense reductions and efficiencies are concerned, is that $15 million in reductions already in place to limit the cash burn? And just your sense of the balance of 2024, are you expecting additional cuts or reductions to be implemented? Just your take on OPEX moving forward here would be helpful.

Nick: Hey, I'm happy to take that its Jessica So I can say these reductions are already in place throughout the business. However relative to the timing throughout the year, we've only experienced a little over 2 million of those savings thus far in Q1. The remaining the remaining is expected to be fairly evenly distribute distributed throughout the remainder of 2024 to get to the.

Nick: 15, a these are specific to SG&A and don't have anything to do with Capex just to make that clear on shopify and interesting of Popsicles and gummies happening live at the lower our revenue has made cash more challenging, but we continue to be prudent with that expense and cash management. We are not anticipating additional costs at this time outside of the <unk>.

Nick: $15 million, but what I can say is we always continue to evaluate the business with the objective always being to operate within our means and right. Now we do believe we have sufficient cash cash and working capital for the foreseeable future.

Nick: Moving forward.

Speaker Change: Great. That's it for me I appreciate the color.

Speaker Change: Thanks, Nick.

Jessica Saxton: Hey, I'm happy to take that. It's Jessica.

Nick: Thank you. Your next question comes from Luke Hannan with Canaccord Genuity. Please go ahead.

Jessica Saxton: So I can say these reductions are already in place throughout the business. However, relative to timing throughout the year, we've only experienced a little over $2 million of those savings thus far in Q1. The remaining amount is expected to be fairly evenly distributed throughout the remainder of 2024 to get to the 15. These are specific to SG&A and don't have anything to do with CapEx, just to make that clear. Both Shopify and the insourcing of Poppicles and gummies are happening live.

Jessica Saxton: Thanks, and good morning, everyone I, just wanted to get a better sense of overall.

Jessica Saxton: The lower revenue has made cash more challenging, but we continue to be prudent with that expense and cash management. We are not anticipating additional costs at this time outside of the 15 million. But what I can say is we always continue to evaluate the business with the objective always being to operate within our means. And right now, we do believe we have sufficient cash and working capital for the foreseeable future.

Jessica Saxton: In response to the price cut are you where expectations sales expectations in line as far as the Elasticities go is it in line with what you were expecting and then how does that help you figure out you know.

Jessica Saxton: Future product introduction in specific specifically the pricing that's gonna be attached to new innovation going forward.

Nick: Great, that's it for me. I appreciate the color.

Jessica Saxton: Yeah, Hey look this is bill.

Nick: So.

Nick: Yeah.

Operator: Thank you. Your next crochet project comes from Luke Hannan with Kanaka Genuity. Please go ahead.

Nick: In terms of elasticity.

Luke Hannan: So as you know we took the price reduction on the oils.

Luke Hannan: It was too recent to get a really clear read on it.

Luke Hannan: As you May recall, we came down by about a on an average of 25% relative to where we were.

Luke Hannan: Thanks and good morning everyone. I just want to get a better sense of overall, in response to the price cut, are your expectations, sales expectations, in line as far as elasticities go? Is it in line with what you were expecting? And then how does that help you figure out, you know, future product introductions and specifically the pricing that's going to be attached to new innovation going forward?

William J. Morachnick: Hey, Luke. It's Bill.

William J. Morachnick: So, yeah. In terms of elasticity, as you know, we took the price reduction on the oils. It was too recent to get a really clear read on it. As you may recall, we came down by about, on average, 25 percent relative to where we were. We're going to monitor that very closely. You know, this is a very challenging space sometimes to measure elasticity because of the various formats and the amount of active ingredients that are in the range of products.

Bill: We're going to monitor that very closely I think.

William J. Morachnick: This is a very challenging space, sometimes to measure elasticity because of the various formats.

William J. Morachnick: And the amount of active ingredient that's in.

William J. Morachnick: The range of products.

William J. Morachnick: What we want to do moving forward is be very strategic and measured in how we go to market, with pricing being one component. What I mean by that is, what you see in the category is a tremendous amount of discounting. And we want to continue to make sure that we're balancing our pricing to be attractive to the consumer, along with the levels of discounting where we have to remain competitive. With new product launches, you know; stay tuned. I think that we've got it thought through really well. And we've got a really, you know, interesting portfolio lined up that I think will be extremely competitive as we move forward.

William J. Morachnick: What we want to do moving forward.

William J. Morachnick: Is the very strategic and measured in how we go to market.

William J. Morachnick: With pricing being one component what I mean by that is what you see in the category is a tremendous amount of discounting.

William J. Morachnick: And we want to continue to make sure that we're balancing our pricing.

William J. Morachnick: To be attractive to the consumer along with the levels of discounting where we have to remain competitive.

William J. Morachnick:

William J. Morachnick: With new product launches.

William J. Morachnick: Stay tuned I think that we've got it thought through really well.

William J. Morachnick: And we've got a really interesting portfolio queued up that I think will.

William J. Morachnick: We'll be extremely competitive as we move forward.

Luke Hannan: Okay, thanks. And then for my follow-up here, the new Sleep gummy launch, I'm curious to know how that compares to past product launches in terms of either initial penetration on the shelf or the number of those top 50 accounts, or even beyond that, that are involved with any new product that you guys are developing.

Speaker Change: Okay. Thanks, and then for my follow up here, the the new sleep Gummy launch I'm curious to know how does that compare to past product launches in terms of either.

Luke Hannan: Penetration on the shelf for the number of those top 50 accounts or even beyond that that are involved with with any new product that you guys are introduced.

Speaker Change: Yeah. So we.

William J. Morachnick: Yeah, so we launched that in our D2C channel. Again, it's pretty new. So that was mid-March, and we'll be coming into retail in Q2. So stay tuned for that.

William J. Morachnick: We launched that in our D to C channel again it was it's pretty recent so that was mid March.

William J. Morachnick: And we will be coming into retail in Q2.

William J. Morachnick: So so stay tuned for that.

Speaker Change: Let me just start with something anecdotal for you. So I was at Expo West when we.

William J. Morachnick: Let me just start with something anecdotal for you. So I was at Expo West when we debuted that, and it was pretty incredible. We went through our samples. That's like a three-day event.

William J. Morachnick: We debuted that.

William J. Morachnick: And it was it was pretty incredible we went through our samples that's like a three day event, we went through our samples like the first half day.

William J. Morachnick: We went through our samples for the first half day. And what was fascinating for me was the next morning, I showed up at the booth, and we had many, many people coming back and describing what an incredible night's sleep they had the night before, and they were looking for more samples for themselves and friends. So I knew we had something really special there. When you can see it live, that's very validating.

William J. Morachnick: And what was fascinating for me was the next morning show back up at the Booth and we had many many people coming back and describing what an incredible I sleep. They had the night before and we're looking for more samples for themselves and friends.

William J. Morachnick: So I knew we had something really special there when you can see it live.

William J. Morachnick: It's very validating.

William J. Morachnick: Within the D2C channel, keeping in mind we just launched that in around the middle of March, about the 9th or the 8th, we had around 12% of the orders that were placed in D2C contained a CBN product. That number increased by about 50% in April. So we're seeing a really beautiful trend line there. Uh, You know, I think I'm not spiking the ball here, but it's really demonstrating that when we get it right, it resonates.

William J. Morachnick: Within the D C channel keeping in mind, we just launched that.

William J. Morachnick: In and around the middle of March.

William J. Morachnick: <unk> nine or <unk>.

William J. Morachnick: We had around.

William J. Morachnick: 12% of the orders that were placed in D. C contained C band product.

William J. Morachnick: That number increased by about 50% in April so we're seeing a really beautiful trend line there.

William J. Morachnick: You know I think my I'm not spiking the ball here.

William J. Morachnick: But it's really demonstrating that.

William J. Morachnick: That when.

William J. Morachnick: When we get it right it resonates.

William J. Morachnick: It bodes well for our future portfolio.

William J. Morachnick: It bodes well for our future portfolio, and I think we've also got a ton of learning to do about going to market with innovative and compelling products. So that gets me very excited about the balance this year.

William J. Morachnick: And I think we've also got a ton of learning how to go to market with innovative and compelling products.

Operator: Thank you. There are no further questions on the line. I will turn the call back to Cory for closing.

Cory Pala: So that gets me very excited for the for the balance of this year.

Cory Pala: That's great. Thank you very much.

Cory Pala: Thank you there are no further questions on the line I will turn the call back to Corey for closing.

Cory Pala: Okay, well I'd like to thank everybody, we'd like to thank everybody for participating in today's call and your continued support and we'll look forward to communicating with you again on our second quarter earnings call in August. Thank you.

Cory Pala: Okay, well, I'd like to thank everybody. We'd like to thank everybody for participating in today's call and your continued support. And we'll look forward to communicating with you again on our second quarter earnings call in August.

Speaker Change: Ladies and gentlemen, this concludes your conference call for today, we thank you participating and ask that you. Please disconnect. Your line have great day.

Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.