Q2 2024 cbdMD Inc Earnings Call

Good afternoon, welcome to the C. E D Inc. Second quarter fiscal 2024 results conference call.

Operator: This afternoon, the company issued a press release that provided an overview of the second quarter results, following the filing of its quarterly report on Form 10-Q. Today's conference call is being recorded and will be available online along with our earnings press release covering our financial results and non-GAAP presentation at cbdMD.com in accordance with cbdMD's 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.

This afternoon, the company issued a press release, providing an overview of our second quarter results.

Finally in its quarterly reports on Form 10-Q.

Today's conference call is being recorded and that won't be available online at all.

With our earnings press release, covering our financial results.

non-GAAP presentation at <unk> Dot com.

So TBD mb's retention policies.

Participants on this call are in listen only mode.

All of them before the question and answer session.

Operator: To join the question queue, you may press star then 1 on your telephone keypad. At this time, I would now like to turn the conference over to Brad Whitford, the company's Chief Accounting Officer. Brad, please go ahead, sir.

And the question you May Press Star then one on your telephone keypad.

Brad: At this time I would now like to turn the conference over to Brad.

Brad: The company's Chief Accounting officer.

Brad: Please go ahead Sir.

Bradley Whitford: Thank you, Carl, and thank you all for joining cbdMD's March 31st, 2024, second quarter fiscal 2024 earnings call-in. On our call today, we also have Ronan Kennedy, our CEO and Chief Financial Officer. 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 security litigation reform act of 1995, cbdMD 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 in the company's Form 10-K Annual Report for the fiscal year ended September 30, 2023, and our other filings with the SEC, all of which can be reviewed on the company's website at www.cbdMD.com or on the SEC's website at www.sec.gov.

Brad: Thank you Carl and thank you all for joining CBD in the March 31, 2024 second quarter fiscal 2024 earnings call and update.

Brad: On our call today, we also have run in Kennedy, our CEO and Chief Financial Officer.

Brad: We'd like to remind everyone that various remarks about future expectations plans and prospects constitute forward looking statements for purposes of the safe Harbor provision.

Brad: The private Securities Litigation Reform Act of 1995.

Brad: D V D. M D cautions that these forward looking statements are subject to risks and uncertainties.

That may cause our actual results to differ materially from those indicated.

Brad: Looting risks described in the company's Form 10-K annual report for the fiscal year ended September 30th 2023, and our other filings with the SEC all of which can be reviewed on the company's website at www Dot C. B D. M D dot com or on the Sec's website at Www Dot FCC Dot Gov.

Bradley Whitford: Any forward-looking statements made on this conference call speak only as of today's date, Wednesday, May 15, 2024, and cbdMD 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 Rona.

Brad: Any forward looking statements made on this conference call speak only as of today's date Wednesday May 15, 2024, and C. V. D. M. D does not intend to update any of these forward looking statements to reflect events or circumstances that would occur. After today's date, except as may be required by federal Securities law.

Ronan: With that I'd like to turn the call over to Ronan.

Brad: Yeah.

Ronan Kennedy: Thank you, Brad. Good afternoon, everyone.

Ronan: Thank you Brad good afternoon, everyone. We've come a long way in the last two years, although our results for the second quarter of fiscal two.

Ronan: 2024 did not meet our expectations. We are confident that the operational changes we have implemented will drive significant progress moving forward first we bolster our wholesale leadership as mentioned on our prior call our quality products regulatory resume getting a clinical and safety data along with the additional leadership that is having an impact and we are seeing.

Ronan Kennedy: We've come a long way in the last two years. Although our results for the second quarter of fiscal 2024 did not meet our expectations, we are confident that the operational changes we have implemented will drive significant progress moving forward. First, we bolster our wholesale leadership, as mentioned on a prior call; our quality products, regulatory resume, including our clinicals and safety data, along with the additional leadership depth is having an impact, and they're seeing our pipeline.

Ronan: Our pipeline increase.

Ronan Kennedy: Our direct-to-consumer business faced challenges last, Admittedly, we scaled back our marketing spam too much in our customer journey and messaging. The cbdMD brand, known for promoting an active lifestyle and addressing specific consumer needs, remains uniquely positioned to leverage our clinical studies and safety data to communicate the tangible benefits of our product.

Ronan: Our direct to consumer business faced challenges last quarter admittedly, we scaled back our marketing spend too much in our customer journey and messaging Mr. Mark The C. D. M D brand known for promoting an active lifestyle and addressing specific consumer needs remains uniquely positioned to leverage our clinical studies and safety data to communicate the tangible.

Ronan: Benefits of our products.

Ronan Kennedy: In response, we have revitalized our marketing strategy. We strengthened our team by bringing on a seasoned performance marketer or streamlining our marketing vendors, refocusing our message on need-based functional solutions that enhance our customers' active life. These changes have already yielded an improvement in our meta engagement rates on Instagram from the second quarter, signaling more effective communication.

Ronan: In response, we have revitalized our marketing strategy, we strengthened our team by bringing on seasoned performance marketer or streamlining our marketing vendors.

Ronan: Refocusing our message on a need based functional solutions that enhance our customers' active lifestyles. These changes have already yielded an improvement in our meta engagement rates on Instagram from the second quarter signaling more effective communication. Our next goal is to convert these engagement gains and the tangible revenue increases.

Ronan Kennedy: Our next goal is to convert these engagement gains into tangible revenue. Despite a decline in overall direct-to-consumer revenue, our subscription base not only held firm, but maintaining customer retention is paramount. We are actively enhancing our subscription program and prioritizing the customer experience to support. During our last call, we discussed our strategy to divest and diversify into a non-cannabinoid, particularly through our functional mushroom brand, ATR. We're excited to report the launch of our ATRX Platinum line now available in 1500 GNC corporate stores.

Ronan: Despite a decline in overall direct to consumer revenue, our subscription base not only held firm, but expanded maintaining customer retention is paramount and we are actively enhancing our subscription program and prioritizing the customer experience to support this goal.

Ronan: During our last call, we discussed our strategy to divest the diversify into non cannabinoid markets, particularly through our functional mushroom brand a T. Rx labs. We're excited to report the launch of our E. T. S. E T. Rx Platinum line now available in 1500, GNC corporate stores nationwide.

Ronan Kennedy: We believe the significant retail presence boosts the brand's credibility and marks a confident step in the functional mushroom category, which faces fewer regulatory hurdles than CVS. As we continue to ramp up marketing for ATRX, we are optimistic about its potential in expanding natural products.

Ronan: We believe the significant retail presence theres, the brand's credibility and marks a confident step in the functional mushroom category, which faces fewer regulatory hurdles than CVD.

Ronan: As we continue to lap up marketing for <unk>, we are optimistic about its potential and the expanding natural products market.

Ronan Kennedy: We believe the best way to drive shareholder value is to run a profitable business and simplify our capital. Our team continues to make expense rationalizations a priority quarter after quarter. In March, we consolidated our executive offices and warehouse and entered into agreements with our current landlord on our historical executive offices. When the company fulfills its obligations in these agreements, including making payments through July, the headquarters lease will terminate at the end of July.

Ronan: We believe the best way to drive shareholder value is to run a profitable business and simplify our capital structure.

Ronan: Our team continues to make expense rationalizations of priority of quarter after quarter in.

Ronan: In March we consolidated our executive offices and warehouse and enter into agreements with our current landlord.

Ronan: Historical executive offices, when the company fulfills its obligations and these agreements, including making payments through July the headquarter lease will terminate at the end of July 2020 for the savings from the exiting this lease make up a good portion of the $2 4 million in annualized expense cuts. We have enacted we started realizing the benefit.

Ronan Kennedy: The savings from exiting this lease make up a good portion of the 2.4 million annualized expense cuts we have in, We started realizing the benefits in April and expect these savings to be fully realized by August with the lease termination. Although the recent proxy vote regarding the conversion of our Series A preferred did not go as hoped, we have deepened our engagement with shareholders and have taken their feedback. Clearly, there's more work to be done to present the right solution, communicate effectively with all shareholders, and secure the necessary, We remain convinced that converting the preferred shares is the optimal route for enhancing long-term shareholder value and should aid to increase share appreciation and, Adopting an all common capital structure will not only strengthen our book value of equity, but also improve our company's ability to attract and execute strategic opportunity, providing clear pathways for potential, The feedback from the vote has galvanized our commitment to reach short-term profit.

Ronan: In April and expect these savings to be fully realized by August with the lease termination.

Ronan: Although the recent proxy vote regarding the conversion of our series a preferred did not go as hoped we have deepened our engagement with shareholders and have taken their feedback seriously.

Ronan: Clearly, there's more work to be done to present, the right solution communicate effectively with all shareholders and secure the necessary support.

We remain convinced that converting the preferred shares as the optimal route for enhancing long term shareholder value and should aid to increase share appreciation and liquidity.

Ronan: Adopting it all common capital structure will not only strengthen our book value of equity, but also improve our company's ability to attract and execute strategic opportunities providing clear pathways for potential transactions.

Ronan: Feedback from the vote has galvanized our commitment to reach short term profitability.

Ronan Kennedy: Based on the initiatives in place, we believe cbdMD is in a great position to make significant P&L improvements for the remainder of the year. With that, I'll turn the call back over to Brad to provide more detail on the quarter and our costs.

Brad: Based on the initiatives in place we believe <unk> is in a great position to make significant P&L improvements through the remainder of the fiscal year with that I'll turn the call back over to Brad to provide more detail on the quarter and our cost initiatives.

Bradley Whitford: Thanks, Renan. Total net sales for the second quarter of fiscal 2024 were $4.4 million or a 29% decrease from the prior year comparative quarter total of $6.2 million. Our quarterly ecommerce direct to consumer business generated sales of 3.6 million in the second quarter of fiscal 2024. This was a 25% year over year quarterly, We believe the quarter over quarter decrease is primarily attributable to the continued reduced to marketing expenses and microeconomic forces on consumers as well as our ecommerce represented 83% of our total net sales for the second quarter of 2024 versus 78% in the prior year compared to Our wholesale business generated $750,000 of net sales for the second quarter of fiscal 2020, down 44% as compared to 1.35 million for the comparative quarter in fiscal 23.

Brad: Thanks, Brennan, our total net sales for the second quarter of fiscal 'twenty, 'twenty, four or $4 4 million or 29% decrease from the prior year comparative quarter totaled $6 2 million a.

Bradley Whitford: This decrease is primarily attributable to the one-time credit of $440,000 issued to a wholesale customer related to expiring inventory from a March 2022 purchase. We continue to see shelf space for traditional CBD categories shrink at mass retail industry-wide. We worked with GNC for the last year to drive sales through and work to creatively leverage our relationship with GNC and our new ACRX brand to construct a win-win in a challenging situation.

Brad: Our quarterly e-commerce direct to consumer business generated sales of $3 6 million in the second quarter of fiscal 2024.

Brad: The 25% year over year quarterly decrease we believe the quarter over quarter decrease was primarily attributable to the continued to reduce the marketing expenses and microeconomic forces on consumers as well as our messaging.

Brad: E Commerce represented 83% of our total net sales for the second quarter of 2024 versus 78% in the prior year comparative quarter.

Brad: Our wholesale business generated $750000 net sales for the second quarter of fiscal 2024.

Brad: Down, 44% as compared to 1.35 million for the comparative quarter in fiscal 'twenty three.

Brad: This decrease is primarily attributable to the one time credit of 440000 issued to a wholesale customer related to expiring inventory from our March 2022 purchase.

Brad: We continue to see shelf space for traditional CBD category shrink at mass retail industrywide, we worked with GNC for the last year to drive sell through and worked to creatively leverage our relationship with PNC and our new a T. Rx brands you can strike a win win in a challenging situation.

Bradley Whitford: Excluding this credit, our non-gap wholesale revenue would have been approximately 1.2 million or 12% year over year. Our growth profit as a percentage of net sales came in at 59% for the second quarter of fiscal 24, as compared to 64% in the prior year comparative quarter. The wholesale credit that was issued was the main driver of the gross profit decline, and we expect this to normalize next quarter. Our FD&A expenses for the second quarter of fiscal 24 totaled $4.1 million, compared to $5.4 million in the prior year comparative quarter. Our costs came down across the board as management continues to focus on profitability.

Brad: Excluding this credit our non-GAAP wholesale revenue would've been approximately $1 2 million or 12% year over year decrease.

Brad: Our gross profit as a percentage of net sales came in at 59% for the second quarter of fiscal 'twenty, four as compared to 64% in the prior year comparative quarter.

Brad: Wholesale credit that was issued with the main driver of the gross profit decline and we expect that to normalize next quarter.

Brad: Our SG&A expenses for the second quarter of fiscal 'twenty, four totaled $4 1 million compared to $5 4 million in the prior year comparative quarter.

Brad: <unk> came down across the board as management continues to focus on profitability exclude.

Bradley Whitford: Excluding depreciation, amortization, and stock expense, cash SG&A expenses came down by 1.1 million euros. Overall, this resulted in a loss from operations of approximately 1.5 million for the second quarter of fiscal 24, as compared to a 1.4 million loss for the prior year. Our non-GAAP adjustments to operating expenses for the second quarter of fiscal 24 include $440,000 related to the Wholesale Credit Issue. 12,000 in non-cash employee stock. 291,000 in depreciation and amortization, 58,000 associated with potential mergers and acquisition transactions and proxy, and 72,000 associated with non-cash accelerated amortization of expenses related to terminated IT contracts, resulting in a non-GAAP-adjusted operating loss of $680,000 for the second quarter of fiscal 24, as compared to a $790,000 non-GAAP-adjusted operating loss in the second quarter of The decrease in non-gap-adjusted operating loss over the prior year period is primarily attributed to management's focus on our cost structure and profitability.

Excluding depreciation amortization and stock expense and SG&A expenses came down $1 1 million year over year.

Brad: Overall this resulted in a loss from operations of approximately $1 5 million for the second quarter of fiscal 'twenty, four as compared to a $1 4 million loss from the prior year period.

Brad: Our non-GAAP adjustments to operating expenses for the second quarter of fiscal 'twenty four.

Brad: 440000 related to the wholesale credit issued 12000 of noncash employee stock expense 291000 in depreciation and amortization expense 50.

Brad: 58000 associated with potential mergers and acquisition transactions and proxy expenses and 72000 associated with noncash accelerated amortization.

Brad: As related to terminated contracts.

Brad: Resulting in a non-GAAP adjusted operating loss.

Brad: 680000 for the second quarter of fiscal 'twenty, four as compared to 790000 non-GAAP adjusted operating loss in the second quarter of fiscal 'twenty three.

Brad: The decrease in non-GAAP adjusted operating loss over the prior year period was primarily attributed to management's focus on our cost structure and profitability.

Bradley Whitford: Other income expense on our consolidated income statements for the second quarter of 24 includes a non-cash contingent liability expense of 1.4 million related to the change in fair value of the convertible notes issued during. As a result of the contingent liability, the balance of the notes totaled $2.7 million at the end of the second quarter, despite only having a principal balance at March 31, 2024 of approximately $1.54 million. Since the end of quarter end, approximately one third of the principal balance has been converted to.

Brad: Other income expense on our consolidated income statement for the second quarter of 24 includes a noncash contingent liability expense of $1 4 million related to the change in fair value of the convertible notes issued during the quarter.

Brad: As a result of the contingent liability of the balance of the notes totaled $2 7 million at the end of the second quarter. Despite only having a principal balance at March 31, 2024 of approximately 1.54 million.

Brad: Since the end of quarter end approximately one third of the principal balance had been converted to equity.

Brad: Excluding the proceeds from the convertible notes during the second fiscal quarter of 'twenty four we utilized approximately 600000 of cash or non-GAAP adjusted operating loss totaled approximately 680000, and we were able to generate approximately 100000 to offset this loss through our networking capital.

Bradley Whitford: Excluding the proceeds from the convertible notes, during the second fiscal quarter of twenty four, we utilized approximately $680,000 of cash. Our non-GATT-adjusted operating loss totaled approximately $680,000, and we were able to generate approximately $100,000 to offset this loss through our networking capacity.

Brad: Al.

Bradley Whitford: We had cash and cash equivalents of approximately 2.1 million and working capital of approximately 3.2 million, excluding the 2.7 million of dividends on March 31st, 2024. As compared to cash and cash equivalents of approximately 1.8 million and working capital of approximately 4.1 million as of September 30th, 2020. Our current assets as of March 31, 2024 decreased approximately 8.1% from September 30, 23 to 7.4 million. A primary driver of the decrease in current assets was the usage of cash for operations. As of March 31, 2024, the company's total current liabilities were 7 million, of which approximately 1.3 million is accounts payable. 2.7 million is accrued dividends, 560,000 of accrued rent, and 700,000 of other accrued expenses.

Brad: We had cash and cash equivalents of approximately $2 1 million in working capital of approximately $3 2 million, excluding the $2 7 million of dividend on March 31 2024.

Brad: Compared to cash and cash equivalents of approximately $1 8 million and working capital of approximately $4 1 million as of September 30th 2023.

Brad: Our current assets as of March 31, 'twenty 'twenty four decreased approximately eight 1% from September 30th 23 to $7 4 million.

Brad: The primary driver of the decrease in current assets was a usage of cash for operations.

Brad: As of March 31, 'twenty 'twenty four of the company's total current liabilities were 7 million of which approximately $1 3 million as accounts payable $2 7 million and accrued dividends 560000 of accrued rent and 700000 of other accrued expenses.

Brad: We continue to manage cash and our liquidity carefully achieving positive EBITDA is our number one goal is running alluded to earlier, we enacted numerous initiatives that are projected to eliminate significant cost out of our operation starting in April.

Bradley Whitford: We continue to manage cash and our liquidity carefully; achieving positive EBITDA is our number one goal. As Ronan alluded to earlier, we enacted numerous initiatives that are projected to eliminate significant costs from our operations starting in April. We renegotiated pricing in terms of vendors, lowered some of our product unit costs that are starting to flow through our COGS, re-assessed any expiring contracts, cut non-essential expenses, sublet out additional space available in our warehouse, and more recently, reduced our non-essential headcount.

Brad: We renegotiated pricing in terms of the vendors lowered some of our product unit costs that are starting to flow through our <unk> or Cogs.

Brad: Reassessed any expiring contracts cut nonessential expenses.

Brad: Let out additional space available in our warehouse and more recently reduced our nonessential head counts.

Bradley Whitford: Together with the elimination of the headquarters facility, comprising 85,000 in rent and over 20,000 in facility costs per month, these savings are impactful, especially as compared to our current non-gap adjusted EBITDA run rate of 680,000 for the second quarter. We anticipate realizing savings of $110,000 per month by June and ultimately expect over $200,000 a month by August from the headquarters lease. We have other projects identified and are working to further drive efficiencies and lock these into our. These savings put us in a strong position to eliminate our operating cash burn by the end of. With that, I'll turn the call back over to you.

Brad: Together with the elimination of the headquarters facility comprising comprising 85000 in rent and over 20000 in facility cost per month. These savings are impactful, especially as compared to our current non-GAAP adjusted EBITDA run rate of 680000 for the second quarter.

Brad: We anticipate realizing savings of 110000 per month by June and ultimately expect over 200000, a month by August when the headquarter leases eliminated.

Brad: We have other projects identified and are working to further drive efficiencies and and lock these into our plan.

Brad: These savings put us in a strong position to eliminate our operating cash burn it by the end of the year.

Ron: With that I'll turn the call back over to Ron.

Ronan Kennedy: Thanks, Brad. We've made significant strides in addressing our infrastructure costs, moving away from previous inefficiencies and shutting things down from the past. However, revenue generation has proven to be our main challenge, offsetting many of the operational improvements we've implemented in recent. While it might be tempting to attribute revenue declines to broader industry trends within the CBD sector, we at cbdMD do not accept this as an Our goal is clear to stabilize our revenue base and return to a path of, transformation and turnarounds are seldom straightforward.

Ron: Thanks, Brad we've made significant strides in addressing our infrastructure costs moving away from previous inefficiencies and shutting things from past management.

Speaker Change: However revenue generation is proven to be our main challenge offsetting many of the operational improvements we've implemented in recent quarters well it might be tempting to attributed revenue declines to broader industry trends within the <unk> sector. We at C. V. D. M D do not accept this as an excuse but our goal is clear to stabilize our revenue base and returned to a path of mom.

Speaker Change: This growth.

Speaker Change: Transformation in turnarounds are seldom straightforward, we acknowledged that the past few quarters have been tough for our shareholders, but our team remains optimistic about the current state of our business.

Ronan Kennedy: We acknowledge that the past few quarters have been tough for our shareholders, but our team remains optimistic about the current state of our company. Halfway into the quarter, we are seeing signs of revenue stabilizing, and our wholesale pipeline We are on track to significantly reduce expenses by August, and at the brink of eliminating future lives. With a dedicated team bolstered by some great new talent, an exciting new brand that just launched nationwide in retail, ongoing strategic interest in the company, and improving operating cash burn, we are well positioned for the future. We recognize that the true measure of our success will be reflected in. We're committed to executing our strategic plan diligently over the coming months and delivering value to our shareholders. Thank you for your continued support and belief in our vision. I now invite your questions to further discuss the business. We will now begin the question and answer session.

Speaker Change: Halfway into the quarter, we are seeing signs of revenue stabilizing and our wholesale pipeline increasing we are on track to significantly reduce expenses by August and at the break of eliminating future liabilities with a dedicated team bolstered by some great new talent and exciting new brand that just launched nationwide retail ongoing strategic interest in the <unk>.

Speaker Change: And improving operating cash burn, we are well positioned for the future.

Speaker Change: We recognize that the true measure of our success will be reflected in our results. We are committed to executing our strategic plan diligently over the coming months and delivering value to our shareholders. Thank.

Speaker Change: Thank you for your continued support and belief in our vision and now invite your questions to further discuss the business.

Speaker Change: [laughter] people now begin the question answer session concerning the question.

Operator: We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear it when acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We'll pause for a moment as other callers join the queue. The first question comes from Anthony Vendetti of Maxim Group. Please go ahead.

Speaker Change: 100 telephone keypad.

Speaker Change: Here, it's more of a generic question excuse using a speakerphone please pick up.

Speaker Change: And the key cause of drawing a question. Please press star.

Speaker Change: More than two.

Speaker Change: Austrian woman, that's called as shown in the queue.

Speaker Change: The first question.

Speaker Change: Comes from Anthony Vendetti with Maxim Group. Please go ahead.

Thomas Mcgovern: Hey guys, this is Thomas McGovern on for Anthony. So yes, the first question is on what you discussed regarding a revised marketing approach, you know, obviously, e-commerce sales down this quarter. So first of all, I wanted to see if you could provide a little bit more color on what that meant, you know, how you guys can continue to drive these high engagements on platforms like Meta and then, you know, your strategy to convert those into sales.

Thomas: Hey, guys. This is Thomas will govern on for Anthony.

Speaker Change: First question as long as you discussed you know our revised marketing approach you know, obviously e-commerce sales down this quarter.

Speaker Change: First of all I wanted to see if you could provide a little bit more color on what that man you know how you guys can continue to.

Speaker Change: Drive these high engagements on platforms like meta and then you know how does your strategy to convert those into sales and then the second question off of that as well.

Thomas Mcgovern: And the second question off of that is, you know, were any of the insights that, you know, maybe informed this revised strategy were those brought on in part or you know, in whole from the transition to the Shopify platform? Kind of trying to look for an update on how that that transition is going and maybe what insights you guys have gained. Sure. Look, so we

Speaker Change: Were any of the insight that you know maybe informed this revised strategy well those brought on in part or in whole from the transition to shopify platform kind of tried to look for an update on a on how that that transition is going and maybe what insights you guys have gained since the transition that's sure.

Ronan Kennedy: Sure, look, so we manage our KPIs pretty closely, and pretty early on, we saw, sort of at the start of the quarter, that it was not trending in the right direction.

Speaker Change: Look so so we manage our kpis pretty closely and pretty early on we're seeing sort of at the start of the quarter, saying that it was not trending in the right direction, we did a pretty deep.

Ronan Kennedy: We did a pretty deep dive review of a lot of our spend and performance. And, you know, I think as we as a team looked at it and realized we were not hitting the mark on our messaging and our funnels for our customers. So we've been evaluating every piece of activity that we do. We're working on putting much stronger messaging and customer funnels in place, designing our campaigns in a much tighter way, and really putting a much tighter performance marketing strategy in place across the board.

Speaker Change: Dive review, a whole lot of sort of our spend in and performance and yeah. I think as we as a team looked at it and you realized we were not hitting the mark on our messaging and our and the funnels for our customers. So we've been evaluating every piece of of activity that we're doing we're working on putting much straw.

Speaker Change: Longer messaging and customer falls in place designing or campaigns in a much tighter way and really putting a putting a much tighter performance marketing strategy in place across the board we've changed up some of our organization we've changed up some of our Hum agencies.

Ronan Kennedy: You know, we've changed up some of our organization, we've changed some of our agencies, because what we were doing wasn't working. So we're committed to making sure that we do what's needed to, you know, stabilize our revenue and make strong gains at the business level. With respect to Shopify, I think, you know, having Shopify has allowed us to remain nimble. But, you know, as far as sort of the implementation is concerned, we're fully implemented. And, you know, we're constantly looking at, you know, AV testing and benchmarking what we're doing relative to our market as well as our other leading direct-to-consumer brands.

Speaker Change: Because what we were doing wasn't working so we're committed to making sure that we do what's needed to stabilize.

Speaker Change: Stabilize our revenue and and and May make strong gains for that.

Speaker Change: At the business level with respect to shopify. Thank you know having shopify has has allowed us to remain nimble, but you know as far as the implementation I mean, we're fully implemented and you know we're constantly looking at a b testing and benchmarking what we're doing relative to you know our.

Speaker Change: Our market as well as sort of other other leading direct to consumer brands.

Ronan Kennedy: I appreciate that caller. And then last question before I hop back into queue: can you guys comment at all on the performance you guys are seeing abroad, maybe specifically with what's going on with sales trends on amazon.uk? And then if you guys have any, you know, near-term plans for some additional international sales?

Speaker Change: Alright, I appreciate the color and then a last question before I hop back into queue can you guys comment at all on the performance you guys are seeing abroad, you know, maybe specifically with what's going on in sales trends on Amazon U K and then if you guys have any near term plan.

Speaker Change: For some additional international expansion. Thanks, sure look our U K business has been reasonably steady over the last few months I think what we are excited about is there's some movement on the FSA.

Ronan Kennedy: Sure. Look, our UK business has been reasonably steady over the last few months. I think what we're excited about is there's some movement on the FSA in the UK. We think over the summer, there might be some news back, and I think that will afford us some exciting news and differentiation in the marketplace and allow us to sort of invest a little bit heavier in that market. We do see, I think, especially in certain international markets, we are seeing growing interest.

Speaker Change: In the U K, we think over the summer there might be some news back in I think that would afford us some.

Speaker Change: Exciting.

Speaker Change: News and differentiation in the marketplace and allow us to sort of in basketball it.

Speaker Change: We are in that market.

Speaker Change: We do see I think especially in certain international markets. We are seeing growing interest as you know I think as I referenced and.

Ronan Kennedy: I think, as I referenced earlier in the call, it's really the regulatory resume and the science and clinicals that are making a difference as we see opportunities and opportunities coming our way. So, we do see international markets strengthening right now for us on the wholesale side. Great.

Speaker Change: And earlier on the call Yeah, it's it's really a regulatory resume.

Speaker Change: And the science and clinical is that you are making a difference as we see opportunities and opportunities are coming our way. So we do see.

Speaker Change: International market is strengthening right now for us on the wholesale side.

Speaker Change: Great I appreciate you guys, taking my question I'll hop back in queue.

Thomas Mcgovern: Great, I appreciate you guys taking my question. I'll hop back in queue. Thanks. Once again, if you have any questions, please feel free to reach out to us.

Speaker Change: Sounds.

Operator: Once again, if you have a question, please press star 1. Please press star then 1 now. We'll pause for a moment as callers join the queue. The next question comes from Anthony Vendetti of Maxim Group. Please go ahead.

Speaker Change: Once again, if you have a question.

Star one.

Speaker Change: Star then one we'll pause for a moment as callers trying to cure.

Speaker Change: Yeah.

Speaker Change: The next question comes from Anthony Vendetti of Maxim Group. Please go ahead.

Thomas Mcgovern: Yeah, it's Tom again. I just wanted to see if I could finish our follow-up with one last question, you know, just looking at brick and mortar retail expansion, you talked about GNC. In the past couple calls, you talked about sprouts markets. I know that, I think that, the last time we spoke, there were about 175 locations. Just wondering, you know, if there's been any expansion within the sprouts network or, you know, conversations surrounding that, and then maybe just more broadly kind of zoomed out, you know, how do you guys look at retail expansions, particularly with this, the ATRX labs brand? I know that you guys are probably going to have an easier time at least ramping up retail or brick and mortar availability of these products as they're facing, you Thanks. Sure, sure.

Tom: Yeah, It's Tom again, I, just wanted to see if I could hop vintages.

Speaker Change: Then as a follow up with one last question you know just looking at a brick and mortar retail expansion. You know you talked about GNC are.

Speaker Change: In the past couple of calls you've talked about sprouts market I know that I think that's the last time. We spoke it was about 175 locations. Just wondering you know if there's been any expansion within the sprouts network or you know conversations surrounding that and then maybe just more broadly kind of zoomed out you know how how do you guys look at retail it's particularly.

Speaker Change: As a D. ATR X labs brand I know that you guys are probably going to have an easier time it leaves ramping.

Speaker Change: Retailer brick and mortar availability of these products as they're facing you know less regulatory backlash or now I.

Speaker Change: I guess hurdles if you will so any comments on that would be helpful. As well. Thanks sure sure. So so look I would say at mass with specifically with sprouts. We've not you know further penetrated the sprouts a footprint.

Ronan Kennedy: Sure, sure. So, look, I would say, at mass, specifically with sprouts. We've not, you know, further penetrated the sprout footprint or continue to work with them to optimize, you know, sell through. As we look at the broader landscape, I think in mass retail, I think we do see CBD as a category as a, you know, a challenging category for a lot of these mass retailers. I think there are a few niches that you are seeing some growth in, and in certain beverage-type products.

Speaker Change: We're continuing to work with them to optimize our sell through.

Speaker Change: As we look at the broader landscape I think.

Ronan Kennedy: But I think some of the more traditional CBD products have had a tougher time at mass retail, really gaining strong traction. Yeah, that was one of the reasons why we, you know, created the ATRX line. It's a new category. It's, again, a functional category. It doesn't have some of the same challenges and state level regulatory So we are continuing to engage in discussions with other retailers with ATRX, and, you know, but first and foremost, our focus is around this launch at GNC and, you know, making sure that we build upon the success that we've had launching into that channel.

Speaker Change: In mass retail I think we do see CBD as a category.

Speaker Change: As you know a challenging category for a lot of these mass retailers.

Speaker Change: I think there's a few niches that you are seeing some growth in certain beverage type products.

Speaker Change: But I think some of the more traditional CBD.

Speaker Change: CBD products have had a tougher time at mass retail that really gained strong traction yeah that was one of the reasons why we created the ATR X line.

Speaker Change: It's a new category. It's a again, it's a functional category that doesn't have that some of the same challenges and state level regulatory.

Speaker Change: Your framework, so I think you know.

Speaker Change: Create challenges for a lot of these larger brands that have footprints across multi state territories.

Speaker Change: Easy for their groups to to sort of wrap their heads around it and it's easier for us to market that we can market it through.

Speaker Change: Different channels broader channels more traditional channels than than a lot of the CBD category.

Speaker Change: So we are continuing to engage in discussions with other retailers with with a T Rx and but first and foremost focus as you know.

Speaker Change: Is around this launch of GNC and making sure that we build upon that.

Speaker Change: The success that we've had launching into that into that channel.

Ronan Kennedy: Gotcha, if I can just one kind of follow up on that, you know, when you guys first launched ATRX and HentMD back in the fourth quarter, the fiscal fourth quarter, that is, you mentioned that you didn't really see these two new product lines, while they showed a lot of promise materially impacting the top line in 2024. Given that, you know, now six months or so have passed, and we're starting to see, you know, a lot of interest, at least from my seat, it seems that there's a lot of interest being well received in the market, with this launch at GNC. Has your outlook on that changed at all? Could you see ATRX kind of getting to the point where it is materially impacting the top line, if not in 2024, at least in 2025?

Speaker Change: Got you and if I can just just one kind of follow up on that you know when you guys first launched our ACL racks in Hinton D back in the fourth quarter the fiscal fourth quarter that is a as you.

Speaker Change: You mentioned that you didn't really see these two new product lives. While they showed a lot of promise materially impacting top line in 2024, given that you know now six months or so has passed and we're starting to see you know a lot of interest as you know at least from IC to it seems that theres a lot of interests, what it's being well received in the market you know with this launch of GNC.

Speaker Change: Is your outlook on that changed at all could you see E T Rx kind of getting to the point, where it is materially impacting topline if not in 2024 at least in 2025.

Ronan Kennedy: Um, look, I think ATRX certainly has a lot more legs and opportunity with it. We do have some ambitious goals. I think, you know, first and foremost, I think we have, you know, I think we are looking at it with pretty sober eyes that, you know, our first goal is to shore up our revenue, stabilize our revenue, and then be able to grow from there. Part of that strategy is ATRX continuing to build upon what we've put in place here over the first few months with the brand.

Speaker Change: Look I think <unk> certainly has a lot more legs.

Speaker Change: And opportunity with it and we do have some ambitious goals I think you know first and foremost I think yeah. We have yeah. I think are looking at it with a pretty silver is that you know our first goal is to shore up our revenue stabilize our revenue and then be able to grow from there.

Speaker Change: Part of that strategy is as a T Rex continue to build upon.

Speaker Change: You know what we've put in place here over the first the first few months with the brand.

Speaker Change: Got it I appreciate that detail guys. Thanks for taking all my questions.

Ronan Kennedy: Got it. Appreciate that detail, guys. Thanks for taking all my questions.

Speaker Change: Thanks Al.

Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Matt Ronan Kennedy for any closing remarks.

Operator: This concludes the question and answer session. I would like to turn the conference back over to Ronan Kennedy for any closing remarks. Thank you, everyone.

Ronan Kennedy: Thank you everyone for attending the call and for your ongoing support, and we look forward to our upcoming call in August.

Speaker Change: Thank you everyone for attending the call and your ongoing support and we look forward to our upcoming call in August.

Speaker Change: Sounds good.

Operator: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.

Speaker Change: This brings to a close today's conference call. You may disconnect. Your lines. Thank you for participating and have a pleasant day.

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