Q3 2024 cbdMD Inc Earnings Call
Speaker Change: . . . . .
Operator: Inc., June 30, 2024, third fiscal 2024 quarter earnings call and update. This afternoon, the company issued a press release that provided an overview of its third quarter results, which followed the filing of its quarterly report on Form 10-Q. Today's conference call is being recorded and will be available online, along with our earnings press release covering our financial results and non-GAAP presentation at cbdMD.com. In accordance with cbdMD's retention policy, Operates is spent on this call of being a lesson only mode.
Speaker Change: Good afternoon. Welcome to CBG&G.
Speaker Change: June 30, 2024 3rd Fiscal Year 2024 Quarter Earnings Call and Update. This afternoon, the company issued a press release that provided an overview of its third quarter results, which followed the filling of its quarterly report on Form 10-Q .
Speaker Change: 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.
Operator: The call will be followed by a question and answer session. 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.
Speaker Change: in accordance with cbdMD's retention policy.
Speaker Change: All participants on this call will be in a listen-only mode. The call will be followed by a question-and-answer session. At this time, I would now like to turn the conference over to Brad Whitford, the company's Chief Accounting Officer. Brad, please go ahead.
Brad Whitford: [inaudible] Thank you, Brenda, and thank you all for joining cbdMD's June 30, 2024, third quarter of fiscal 2024 earnings call and update. On the 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 securities litigation reform act of 1990, 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 quarterly report on Form 10-Q for the quarter ended June 30, 2024, 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.
Ronin Kennedy: Thank you, Brenda, and thank you all for joining cbdMD's June 30, 2024, third quarter of fiscal 2024 earnings call and update. On the call today, we also have Ronan Kennedy, our CEO and Chief Financial Officer.
Speaker Change: We'd like to remind everyone that various remarks about future expectations, plans, and prospects constitute forward-looking statements for purposes of safe harbor provisions under the Private Securities Litigation Reform Act of 1995.
Speaker Change: CbdMD. CbdMD.
Speaker Change: Cautions that these forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from those indicated.
Speaker Change: including risk described in the company's quarterly report on Form 10-Q for the quarter ended June 30, 2024.
Speaker Change: and our other filings for 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 Whitford: Any forward-looking statements made on this conference call speak only as of today's date, Wednesday, August 14th, 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 security standards. With that, I'd like to turn the call over to Ronan. Thank you, Brad. Good afternoon, everyone.
Speaker Change: Any forward-looking statements made on this conference call speak only as of today's date, Wednesday, August 14, 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 law.
Ronan Kennedy: On our last call, I discussed key initiatives designed to propel the company forward on our path to profit. Over the past few months, we've been fully focused on executing this plan and delivering measurable results. Well, year over year revenues were down, but nearly every other key financial metric improved. Gross margins increased, SGNA expenses decreased, and we saw improvements in operating income, net income, and even, Even sequentially, key metrics trended positively, These numbers reflect only a portion of the efficiencies we implemented since our last call, and I'm extremely proud of our team's resilience and hard work as we continue to undergo positive change.
Ronin Kennedy: With that, I'd like to turn the call over to Ronan.
Ronin Kennedy: Thank you, Brad. Good afternoon, everyone. On our last call, I discussed key initiatives designed to propel the company forward on our path to profitability. Over the past few months, we've been fully focused on executing this plan and delivering measurable results.
Speaker Change: While year-over-year revenues were down, nearly every other key financial metric improved significantly.
Speaker Change: Gross margins increased, SG&A expenses decreased, and we saw improvements in operating income, net income, and EBITDA. Even sequentially, our key metrics trended positively, including revenue growth.
Speaker Change: These numbers reflect only a portion of the efficiencies we implemented since our last call, and I'm extremely proud of our team's resilience and hard work as we continue to undergo positive change.
Ronan Kennedy: Our direct-to-consumer segment saw incremental gains during the quarter as we focused on enhancing the customer experience, refining our messaging, and ensuring we have the right resources in place to drive revenue growth. We recognize there's still work to be done in optimizing our customer acquisition funnel, and we plan to increase marketing spend in the current quarter to support it. Our wholesale business was buoyed by a number of new customer wins, in addition to consistent reorders from core customers. We are actively collaborating with our retail partners to better position our products in the market, both in terms of consumer appeal and economic viability.
Speaker Change: Our direct-to-consumer segment saw incremental gains during the quarter as we focused on enhancing customer experience, refining our messaging, and ensuring we have the right resources in place to drive revenue growth.
Speaker Change: We recognize there's still work to be done in optimizing our customer acquisition funnel, and we plan to increase marketing spend in the current quarter to support this.
Speaker Change: Our wholesale business was buoyed by a number of new customer wins in addition to consistent re-orders from core customers.
Speaker Change: We are actively collaborating with our retail partners to better position our products in the market, both in terms of consumer appeal and economic viability for retailers.
Ronan Kennedy: Our ATRX brand made some progress during the quarter. We are ramping up marketing efforts and working to drive further growth during the year. The CBD category remains challenging and dynamic. We've observed some consolidation in the industry and seen a number of participants. We remain vigilant, particularly regarding the regulatory environment, which continues to evolve rapidly at the state level. Our focus is on remaining agile and strategically investing in marketing dollars to ensure sustainable, profitable growth.
Speaker Change: Our ATRX brand made some progress during the quarter. We are ramping up marketing efforts and working to drive further growth during the quarter.
Speaker Change: The CBD category remains challenging and dynamic. We've observed some consolidation in the industry and seen a number of participants fail.
Speaker Change: We remain vigilant, particularly regarding the regulatory environment, which continues to evolve rapidly at the state level. Our focus is on remaining agile and strategically investing our marketing dollars to ensure sustainable, profitable growth.
Ronan Kennedy: One of cbdMD's value propositions is its brand built on a foundation of trust. It stands for Safe and Effective Products based on science and backed by clinical research to help you and your everyday life. During June, our human clinical trial was published in a leading peer-reviewed sports nutrition journal, supporting statements around pain reduction, improved mood, and reduced stress.
Speaker Change: One of CBMD's value propositions is its brand built on a foundation of trust. It stands for safe effective products based on science and backed by clinical research to help you in your everyday life.
Speaker Change: During June , our Human Clinical was published in a leading peer-reviewed sports nutrition journal supporting statements around pain reduction, improved mood, and reduced stress. We also received feedback on our UK FSA submission during the quarter.
Ronan Kennedy: We also received feedback on our UK FSA submission during the quarter. We answered all the questions and received positive feedback that our dossier is in final review to establish the approval serving side. The UK FSA is in the final stages of reviewing the safety levels outlined in our submission, and we are confident our data supports daily levels much higher than the arbitrary provisional accepted daily intake levels proposed at 10 milligrams per day.
Speaker Change: We've answered all the questions and received positive feedback that our dossier is in final review to establish the approval serving size.
Speaker Change: The UKFSA is in the final stages of reviewing the safety levels outlined in our submission. We are confident our data supports daily levels much higher than the arbitrary, provisional, accepted daily intake levels proposed at 10 milligrams per day.
Ronan Kennedy: In June, we received notice from the NYSE American that we fell below the minimum book value listing requirement of three and a half million. This did not come as a surprise and something we disclosed in a recent proxy statement. A share proposal to amend the series a preferred stock designation not received shareholder approval.
Speaker Change: In June , we received notice from the NYSE American that we fell below the minimum book value listing requirement of three and a half million.
Speaker Change: This did not come as a surprise and something we disclosed in a recent proxy statement should our proposal to amend the Series A preferred stock designation not receive shareholder approval.
Ronan Kennedy: A preferred dividend continues to cost $1 million dollars per quarter, which impacts equity and shifts it to a liability. One of the most straightforward paths to regaining compliance is addressing our preferred dividend. In early July, we submitted a plan to the NYSE outlining several parallel strategies we're pursuing to regain compliance with the NYSE American continued listing standards by the December 2025 deadline. We expect to hear back from the NYC American Bismarck.
Speaker Change: Our Preferred Dividend continues to accrue a million dollars per quarter, which impacts equity and shifts it to a liability. One of the most straightforward paths to regaining compliance is addressing our accrued Preferred Dividend.
Speaker Change: In early July, we submitted a plan to the NYSE outlining several parallel strategies we are pursuing to regain compliance with the NYSE American Continued Listing Standards by the December 2025 deadline.
Brad Whitford: Maintaining your listening on a major market is critical for preserving and enhancing shareholder value. With that, I'll turn things over to Brad to find more color on our finances. Thanks, Ronan.
Speaker Change: We expect to hear back from the NYC American this month. Maintaining a listing on a major market is critical for preserving and enhancing shareholder value.
Speaker Change: With that, I'll turn things over to Brad to define more color on our financials.
Brad Whitford: Total net sales for the third quarter of fiscal 2024 were 5.1 million. While this represented a 15% decrease from the prior year comparative quarter, totaling $6.1 million, sequential revenue was improved by 18%. Our quarterly e-commerce direct to consumer business generated sales of 3.9 million in the third quarter of fiscal 2024. This was a 25% year-over-year quarterly decrease but a 9% sequential increase. We believe the year-over-year decrease is primarily attributable to continued reduced marketing expenses, competitive categories, and microeconomic forces on consumers. eCommerce represented 76% of our total net sales for the third quarter of 2024 versus 82% in the prior year comparative quarter.
Brad Whitford: Thanks, Ronan. Total net sales for the third quarter of fiscal 2024 were $5.1 million. While this represented a 15% decrease from the prior year comparative quarter, total of $6.1 million, so sequential revenue has improved by 18%.
Speaker Change: Our quarterly e-commerce direct-to-consumer business generated sales of $3.9 million in the third quarter of fiscal 2024. This was a 25% year-over-year quarterly decrease, but 9% sequential increase.
Speaker Change: We believe the year-over-year decrease is primarily attributable to continued reduced marketing expenses, competitive category, and microeconomic forces on consumers.
Speaker Change: eCommerce represented 76% of our total net sales for the third quarter of 2024 versus 82% in the prior year comparative quarter.
Brad Whitford: Our wholesale business generated 1.2 million net sales for the third quarter of fiscal 24, up 10% as compared to 1.1 million for the comparative quarter and fiscal 23, The increase is primarily due to the growth of certain CBD accounts and new customer aqueduct. Our gross profit as a percentage of net sales increased to 65% for the third quarter of fiscal 2024 as compared to 63% in the prior year. This increase is driven by ongoing efforts to control product calls. Our SG&A expenses for the third quarter of fiscal 2024 totaled $3.8 million, compared to $5.7 million in the prior year comparative quarter.
Speaker Change: Our wholesale business generated $1.2 million of net sales for the third quarter of fiscal 24, up 10% as compared to $1.1 million for the comparative quarter in fiscal 23. The increase is primarily due to the growth of certain CBD accounts and new customer acquisition.
Speaker Change: Our gross profit as a percentage of net sales increased to 65% for the third quarter of fiscal 2024 as compared to 63% in the prior year comparative quarter. This increase is driven by ongoing efforts to control product cost.
Speaker Change: Our SG&A expenses for the third quarter of fiscal 2024 totaled $3.8 million, compared to $5.7 million in the prior year comparative quarter. Our costs came down across the board as management continues to focus on efficiencies to drive profitability.
Brad Whitford: Our costs came down across the board as management continues to focus on efficiencies to drive profitability. Overall, this resulted in a loss from operations of approximately 400,000 for the third quarter of fiscal 2024 as compared to 1.8 million lost from the prior year.
Speaker Change: Overall, this resulted in a loss from operations of approximately $400,000 for the third quarter of fiscal 2024, as compared to $1.8 million lost from the prior year period.
Brad Whitford: Our non-GAAP adjustments to operating expenses for the third quarter of fiscal 2024 include $9,000 in non-cash employee stock expense. 287,000 in depreciation and amortization expense, resulting in a historic best non-gap adjusted operating loss of $87,000 for the third quarter of fiscal 2024 as compared to a 600,000 non-gap adjusted operating loss in the third quarter of fiscal. The decrease in non-GAAP adjusted operating loss over the prior year period is primarily attributed to management's focus on our cost structure and profitability.
Speaker Change: Our non-GAAP adjustments to operating expenses for the third quarter of fiscal 2024 include $9,000 in non-cash employee stock expense.
Speaker Change: $287,000 in depreciation and amortization expense, resulting in a historic best non-gap adjusted operating loss of $87,000 for the third quarter of fiscal 2024, as compared to a $600,000 non-gap adjusted operating loss in the third quarter of fiscal 2023.
Speaker Change: The decrease in non-GAAP-adjusted operating loss over the prior year period is primarily attributed to management's focus on our cost structure and profitability.
Brad Whitford: Another income expense on our consolidated income statement for the third quarter of 2024 included a non-cash contingent liability gain of 850,000 related to the change and fair value of our convertible debt. As a result of the contingent liability, the gap balance of the notes totaled $1.4 million at the end of the third quarter, despite only having a principal balance at June 30, 2024 of approximately $1.07 million.
Speaker Change: Other income expense on our consolidated income statement for the third quarter of 2024 include a non-cash contingent liability gain of $850,000 related to the change in fare value of our convertible debt.
Speaker Change: As a result of the contingent liability, the gap balance of the notes totaled $1.4 million at the end of the third quarter, despite only having a principal balance at June 30, 2024 of approximately $1.07 million.
Brad Whitford: During the quarter, we continued our focus on expenses, the balance sheet, and cash flow. This focus allowed us to generate approximately $200,000 of cash during the third quarter of fiscal 2020. We had cash and cash equivalents of approximately $2.3 million and negative working capital of approximately $567,000 on June 30, 2024, as our working capital was significantly negatively impacted by the $3.7 million of accrued dividends payable. At September 30, 2023, we had cash and cash equivalents of approximately 1.8 million and working capital of approximately 3.4 million. Our current assets as of June 30, 2024 decreased approximately 9.6% from September 30, 2023 to 7.3 million. A primary driver of the decrease in current assets was the usage of cash for operating.
Speaker Change: During the quarter, we continued our focus on expenses, balance sheet, and cash flow management.
Speaker Change: This focus allowed us to generate approximately $200,000 of cash during the third quarter of fiscal 2024.
Speaker Change: We had cash and cash equivalent of approximately 2.3 million, a negative working capital of approximately 567,000 on June 30th, 2024, as our working capital was significantly negatively impacted by the 3.7 million of accrued dividends table.
Speaker Change: At September 30, 2023, we had cash and cash equivalents of approximately $1.8 million and working capital of approximately $3.4 million.
Speaker Change: Our current assets as of June 30, 2024, decreased approximately 9.6% from September 30, 2023 to $7.3 million. A primary driver of the decrease in current assets was the usage of cash for operations.
Brad Whitford: As of June 30th, 2024, the company's total current liabilities were 7.8 million, of which approximately 1.2 million is accounts payable, 3.7 million is accrued dividend, 800,000 of accrued rent for our former executive offices, and 400,000 of other accrued expenses. We are currently negotiating with our former landlord for our executive offices on a resolution to the back. Achieving positive EBITDA remains our top priority, and with this quarter's record non-gap EBITDA loss of just $87,000, we are closer than ever to reaching that goal.
Speaker Change: As of June 30, 2024, the company's total current liabilities were $7.8 million.
Speaker Change: of which approximately $1.2 million is accounts payable, $3.7 million accrued dividend, $800,000 of accrued rent for our former executive offices, and $400,000 of other accrued expenses.
Speaker Change: We are currently negotiating with our former landlord for our executive offices on a resolution to the background.
Speaker Change: Achieving positive EBITDA remains our top priority, and with this quarter's record non-gap EBITDA loss of just $87,000, we are closer than ever to reaching that goal.
Brad Whitford: Last quarter, we identified approximately 200,000 in monthly efficiencies that we began implementing in April, including renegotiating vendor terms, eliminating contracts, securing facility savings, reducing headcount, and tightening nonessential spending. These measures have already had a significant impact contributing to our progress this quarter. However, due to the timing of implementation, only a portion of these efficiencies were realized in the June quarter.
Speaker Change: Last quarter, we identified approximately 200,000 in monthly efficiencies that we began implementing in April, including renegotiating vendor terms, eliminating contracts, securing facility savings, reducing headcount, and tightening nonessential spending.
Speaker Change: These measures have already had a significant impact contributing to our progress this quarter.
Speaker Change: However, due to the timing of implementation, only a portion of these efficiencies were realized in the June quarter.
Brad Whitford: We expect additional savings to be realized in the current quarter, particularly with the elimination of our headquarters facility rent, approximately $85,000 per month in August. These savings will position us as well to eliminate our operating cash burn in the coming quarters. We remain in the village at and controlling calls and are actively exploring other ways to enhance the strength in our balance sheet and cash. With that, I'll turn the call back over to right. Thanks, friends.
Speaker Change: We expect additional savings to be realized in the current quarter, particularly with the elimination of our headquarters facility rent, approximately $85,000 per month in August .
Speaker Change: These savings position us well to eliminate our operating cash burn in the coming quarters. We remain diligent in controlling costs and are actively exploring other ways to enhance and strengthen our balance sheet and cash position. With that, I'll turn the call back over to Raynald.
Ronan Kennedy: In our last call, we emphasize that the best path to creating shareholder value lies in two key areas, running a profitable business and streamlining our capital structure. We continue to make significant strides toward profitability with notable progress in the third fiscal core. Our industry-leading gross margins are testament to our efforts, and we remain committed to driving revenue growth. We'll maintain a lean and efficient operation Although we've seen progress this past quarter, we are particularly excited about the efficiencies expected to materialize in the September and December quarters, which we believe will help push us across the profitability structure.
Raynald: Thanks, Brad. In our last call, we emphasized that the best path to creating shareholder value lies in two key areas, running a profitable business and streamlining our capital structure.
Speaker Change: We continue to make significant strides toward profitability with notable progress in the third fiscal quarter. Our industry-leading gross margins are a testament to our efforts and we remain committed to driving revenue growth while maintaining a lean and efficient operation.
Speaker Change: Although we've seen progress this past quarter, we are particularly excited about the efficiencies expected to materialize in the September and December quarters, which we believe will help push us across the profitability threshold.
Ronan Kennedy: One of the key concerns raised by shareholders in the last proxy was our cash burn and our ability to manage within our balance sheet, particularly with concerns about dilution post conversion. We are optimistic that this quarter's results and positive trajectory will resonate with our shareholders, instilling confidence in our ability to operate at or above breakeven. We understand the importance of addressing our multi-class capital structure and certainly believe that simple, simple fine; our equity structure is essential alongside profitability to unlocking the full enterprise value.
Speaker Change: One of the key concerns raised by shareholders in the last proxy was our cash burn and our ability to manage within our balance sheet, particularly with concerns about dilution post-conversion.
Speaker Change: We are optimistic that this quarters results in positive trajectory will resonate with our shareholders, instilling confidence and our ability to operate at our both breaking even levels.
Speaker Change: We understand the importance of addressing our multi-class capital structure and firmly believe that simplifying our equity structure is essential alongside profitability to unlocking the full enterprise value of the company.
Ronan Kennedy: [inaudible] Over the coming months, we intend to reengage in discussion to find a viable solution that benefits all stakeholders. Our approach is to operate with the urgency of a 100 meter sprinter will maintain the endurance of an Ironman triathlete, making consistent and steady progress despite the challenge.
Speaker Change: Over the coming months, we intend to re-engage in discussions to find a viable solution that benefits all stakeholders.
Speaker Change: Our approach is to operate with the urgency of a 100-meter sprinter while maintaining the endurance of an Ironman triathlete, making consistent and steady progress despite the challenge we encounter.
Speaker Change: We made considerable headway in strengthening the business and resolving a number of legacy issues.
Speaker Change: cbdMD remains a strong brand that resonates with customers and backed by a dedicated and talented team.
Speaker Change: We are fully committed to executing on our strategic plan diligently in the months ahead and with the goal of delivering meaningful value to our shareholders. Thank you for your continued support, confidence, and our vision, and I now welcome your questions.
Ronan Kennedy: We make considerable headway in strengthening the business and resolving a number of legacy issues; cbdMD remains a strong brand that resonates with customers and is backed by dedicated and talented employees. We are fully committed to executing on our strategic plan diligently in the months ahead and with the goal of delivering meaningful value to our share. Thank you for your continued support, confidence, and our vision. And now, welcome to your We will now begin the question-and-answer session to join this question, QE. If you're using a speaker phone, please take out your hand tray before pressing any key.
Speaker Change: 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'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any key.
Ronan Kennedy: Show it, draw your questions, please press start and choose [inaudible]. We'll pause for a moment as callers join the queue. The first question comes from Dean Schafer with a private investor. Please go ahead. Hi, thank you.
Speaker Change: Do it during your questions, please press start in June.
Speaker Change: We'll pause for a moment as callers join the queue.
Speaker Change: . . . . .
Speaker Change: The first question comes from Jim Schaefer with a private investor. Please go ahead.
Ronan Kennedy: I was wondering if you could share the details of the plan you submitted to NYSE American to address the compliance issue. Bob, look, there are several paths that we have that we think can help us stabilize our book value of equity. There are things on our balance sheet we're working on. We believe there's going to be another proposal to our shareholders, and we're talking. We're looking at every sort of opportunity that we see as a viable solution to bolstering and stabilizing that book.
Jean Shaper: Hi, thank you. I was wondering if you can share the details of the plan you submitted to N.O.A.C. American to address the compliance issue.
Jean Shaper: Bob, look, there are several paths that we have that we think can help us stabilize our book value of equity.
Bob: You know, there's things on our balance sheet we're working on. We believe there's going to be another proposal to our shareholders.
Bob: and we're talking, we're looking at every sort of opportunity that we see as a viable solution to bolstering and stabilizing that book value of equity.
Unknown Speaker: Okay. Okay, Um, is the December 31 2025 date December 5 2025 a typo? I'm going to be 2024.
Speaker Change: Okay, is the December 31, 2025 date, December 5, 2025 date a typo?
Unknown Speaker: Sorry, I didn't hear all the questions broke up. Yeah. Um, you feel that you can fly it.
Speaker Change: I'm going to be 2024.
Speaker Change: Sorry, I didn't hear all the questions that broke up.
Speaker Change: Yeah.
Unknown Speaker: Yeah, yeah. Can you repeat the question, Jane? You'll regain compliance with the continued listing standards by December 5, 2025. Is that a typo?
Speaker Change: Um, you said it confided.
Speaker Change: Yeah. Yes. Can you repeat the question, Gene?
Speaker Change: You'll regain compliance with the continued listing standards by December 5th, 2025. Is that a typo? Should it be 2024? No, it's 20 what they ask us to do is present a plan to get back into compliance by December of 20, 2025.
Ronan Kennedy: Should it be 2024? No, it's 20. What they ask us to do is present a plan to get back into compliance by December of 2025. Okay. And it's, uh, it's mid-August now.
Speaker Change: okay and it's it's mid-august now have you heard a response
Ronan Kennedy: Have you heard a response? We have not received a response. Okay, thank you. Once again, if you have a question, please press star than one. The next question comes with Tom MacGolvin on the next single. Please go ahead.
Speaker Change: We have not received a response yet.
Speaker Change: Okay, thank you.
Speaker Change: . . . . .
Speaker Change: Once again if you have a question please press star then 1.
Speaker Change: The next question comes with Thomas Govan with Maxine Group. Please go ahead.
Ronan Kennedy: Hey guys, how's it going? Congratulations on the quarter. Yeah, so first question on, you know, sequential sales growth. So I'm just curious, you know, in the last quarter, you guys announced the hiring of some key sales personnel, as well as this revamp strategy that was, from my understanding, focusing more on the functionality of the products. So maybe you could walk me through first in the second quarter, you know, how much of the sequential improvement can be attributed to this new strategy and these new salespeople.
Thomas Bourbon: Hey guys, how's it going? Congrats on the quarter
Speaker Change: Yeah, so first question is on, you know, the sequential sales growth. I'm just curious, you know, the last quarter you guys announced the hiring of some key sales personnel as well as this revamp strategy that was...
Speaker Change: For my understanding, focusing more on the functionality of the products.
Speaker Change: So, maybe you could walk me through first in the second quarter, you know, how much of the sequential improvement can be attributed to this new strategy and these new salespeople. And then, you know, maybe if you want to start talking a little bit about the recently published data and how you guys kind of plan if you're planning to incorporate that into your sales approach.
Ronan Kennedy: And then, you know, maybe you want to start talking a little bit about the recently published data and how you guys kind of plan if you're planning to incorporate that into your sales approach, remarketing with others.
Ronan Kennedy: Sure, look, some of our key new customer wins came from some of the new new retained sales team. So it did contribute to the quarter, for sure, as well as some of the changes that we've been making on the direct to consumer side. Yes, I think some of the changes we made did have some positive benefits during the quarter. And then, historically, sort of the June quarter tends to be good for us from a seasonality standpoint, with respect to the published data. We are continuing to weave our messaging, and weaving the results of that indoor messaging.
Speaker Change: Remarketing Brothers
Speaker Change: Sure, look, some some of our key new customer wins came from some of the new new retained sales team.
Speaker Change: So it did contribute to the quarter for sure.
Speaker Change: As well as some of the changes that we've been making on the direct to consumer side, you know, I think some of the changes we made did have some positive benefits during the quarter. And then I think historically.
Speaker Change: sort of the June quarter tends to be good to us from a seasonality standpoint.
Ronan Kennedy: We have to be careful because it doesn't cover every [inaudible] So it's really just our broad spectrum of products that we've got the strongest claim around, that we can leverage from that, clinical study. Understand I appreciate that color Next question is actually on the study more specifically So I was just wondering if you could Maybe unpack for us a little bit on to a little bit more detail and what the actual result of the study was from My understanding I read the publication was that and the most significant Result was in pain reduction Or perceived pain between the test group and the control group Was this the only statistically significant difference in these groups or maybe if you just go into a little bit detail kind of You know what the researchers complete concluded from the study, they'd be appreciate, Sure, this is where I wish Sybil was on the line to help us.
Speaker Change: With respect to the published data, we are continuing to weave our messaging, weave the results of that into our messaging. We have to be careful because it doesn't cover every ...
Speaker Change: skew. So it's really just our broad spectrum of products that we've got the strongest claim around.
Speaker Change: that we can leverage from clinical studies.
Speaker Change: Understand, I appreciate that color. Next question is actually on the study more specifically. So I was just wondering if you could maybe unpack for us a little bit, go into a little bit more detail on what the actual results of the study was. From my understanding, I read the publication was that the most significant results was in pain reduction or perceived pain between the test group and the control group. Was this the only statistically significant difference in these groups? Or maybe if you can just go into a little bit detail kind of, you know, what the researchers concluded from the study, that'd be appreciated.
Speaker Change: sure this is where I wish civil was on the line to help us but I think
Ronan Kennedy: But I think Look, I think statistically, we were pleased with the results in general. We felt like all three claims gave us statistically significant data. We're continuing to look around and assess what other opportunities there are to strengthen that data and leverage our claims around our products. But that said, I think, you know, what we don't want to do is try to over-index just on the value of that study.
Speaker Change: Look, I think statistically, uh,
Speaker Change: We were pleased with the results in general. We felt like
Speaker Change: All three claims gave us statistically significant data.
Speaker Change: We're continuing to look around and assess what other opportunities there are to strengthen that data and
Speaker Change: Cleans your underproducts.
Speaker Change: But that said, I think, you know, what we don't want to do is try to over index just on the value of that study. We've got to get out and deliver messaging. That's compelling, engaging and interesting to consumers across sort of all our product categories.
Ronan Kennedy: We've got to get out and deliver messaging that's compelling, engaging, and interesting to consumers across sort of all our product categories. And this sort of covers only sort of a handful of our SKUs in our product portfolio. Understood. I appreciate you taking the time to answer my question. This concludes the question and answer session. I would like to turn the conference back over to Roman Kennedy for any closing remarks. Thank you again for your ongoing support and look forward to our upcoming call in December. Thank you. This brings you up close to today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
Speaker Change: And this sort of covers only sort of a handful of our SKUs in our product portfolio.
Speaker Change: Understood. I appreciate you taking the time to answer my questions.
Speaker Change: i
Unknown Executive: June 30, 2024, third fiscal 2024, quarter and earnings call an update. This afternoon, the company issued a press release that provided an overview of its third quarter results which followed the fill-in of its quarterly report on firm 10Q. Today's conference call is being recorded and will be available online along with our earnings press release covering our financial results and non-gap presentation at cbdMD.com.
Speaker Change: This concludes the question and answer session. I would like to turn the conference back over to Ron and Kennedy for any closing remarks.
Speaker Change: Thank you again for your ongoing support, and we look forward to our upcoming call in December . Thank you.
Speaker Change: . . . . .
Speaker Change: This brings to a close today's conference call. You may disconnect your lines.
Unknown Executive: 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.
Bradley Whitford: 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. Thank you, Brenda, and thank you all for joining cbdMD June 30, 2024, third quarter of fiscal 2024 earnings call and update.
Ronan Kennedy: On the 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's litigation reform act of 1995, cbdMD, options 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 quarterly report on firm 10Q for the quarter end of June 30, 2024, and our other filings for 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.scc.gov.
Unknown Executive: Any forward-looking statements made on this conference call speak only as of today's date Wednesday, August 14, 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 this may be required by federal security's law.
Ronan Kennedy: With that, I'd like to turn the call over to running. Thank you, Brad.
Ronan Kennedy: Good afternoon, everyone. On our last call, I discuss key issues designed to pal the company forward on our path to profitability. Over the past few months, we've been fully focused on executing this plan and delivering measurable results. A year-over-year revenues were down, nearly every other key financial metric improved significantly. Gross margins increased. SGNA expenses decreased, and we saw improvements in operating income, net income, and EBITDA. Even sequentially, our key metrics trended positively, including revenue growth.
Ronan Kennedy: These numbers reflect only a portion of the efficiencies we implemented since our last call, and I'm extremely proud of our change's resilience and hard work as we continue to undergo positive change. Our direct-to-consumer segments that incremental gains during the quarter as we focus on enhancing customer experience, refining our messaging, and ensuring we have the right resources in place to drive revenue growth. We recognize there's still work to be done in optimizing our customer acquisition funnel, and we plan to increase marketing spend in the current quarter to support this.
Ronan Kennedy: Our wholesale business was buoyed by a number of new customer wins in addition to consistent re-orders from Korka. We are actively collaborating with our retail partners to better position our products in the market, both in terms of consumer appeal and economic viability for retailers. Our ATX brand made some progress during the quarter. We were ramping up marketing efforts and working to drive further growth during the quarter. The cbd category remains challenging and dynamic.
Ronan Kennedy: We've observed some consolidation in the industry and seen a number of participants fail. We remain vigilant, particularly regarding the regulatory environment, which continues to evolve rapidly at the state level. Our focus is on remaining agile and strategically investing on marketing dollars to ensure sustainable, profitable growth. One of cbmd's value propositions is its brand built on a foundation of trust. It stands for safe, effective products based on science and backed by clinical research to help you in your everyday life.
Ronan Kennedy: During June, our human clinical was published in a leading peer review sports nutrition journal supporting statements around pain reduction, improved mood, and reduced stress. We also received feedback on our UK FSA submission during the quarter. We've answered all the questions and received positive feedback that our dossier is in final review to establish the approval serving size. The UK FSA is in the final stages of reviewing the safety levels outlined in our submission and we are confident our data supports daily levels much higher than the arbitrary, provisional, accepted daily intake levels proposed at 10 milligrams per day.
Ronan Kennedy: In June, we received notice from the NYSE American that we sell below the minimum book value listing requirement of 3.5 million. This did not come as a surprise in something we disclosed in a recent proxy statement. Sure, proposal to amend the Series A preferred stock designation not received shareholder approval. Our preferred dividend continues to accrue million dollars per quarter which impacts equity and shifts it to liability. One of the most straightforward paths to regaining compliance is addressing our crew preferred dividend.
Ronan Kennedy: In early July, we submitted a plan to the NYSE outlining several parallel strategies we're pursuing to regain compliance with the NYSE American continued listing standards by the December 2025 deadline. We expect to hear back from the NYSE American this month. Maintaining our listing on a major market is critical for preserving and enhancing shareholder value.
Brennan: With that, I'll turn things over to Brennan to design more color on our signatures. Thanks, Ronan. Total net sales for the third quarter of fiscal 2024 or 5.1 million.
Brennan: While this represented a 15 percent decrease from the prior year comparative quarter, total of 6.1 million sequential revenues improved by 18 percent. Our quarterly e-commerce erected consumer business generated sales of 3.9 million in the third quarter of fiscal 2024. This was a 25 percent year-over-year quarterly decrease, but 9 percent sequential increase. We believe the year-over-year decrease is primarily attributable to continued reduced marketing expenses, competitive category, and microeconomic forces on consumers. E-commerce represented 76 percent of our total net sales for the third quarter of 2024 versus 82 percent in the prior year comparative quarter.
Brennan: Our wholesale business generated 1.2 million net sales for the third quarter of fiscal 24, up 10 percent as compared to 1.1 million for the comparative quarter in fiscal 23. The increase is primarily due to the growth of certain cbd account and new customer acquisition. Our gross profit as a percentage of net sales increased to 65% for the third quarter of fiscal 2024 as compared to 63% in the prior year comparative quarter.
Brennan: This increase is driven by ongoing efforts to control product call. Our SGNA expenses for the third quarter of fiscal 2024 total $3.8 million, compared to 5.7 million in the prior year comparative quarter. Our cost came down across the board as management continues to focus on efficiencies to drop profitability.
Brennan: Overall, this resulted in a loss from operations of approximately 400,000 for the third quarter of fiscal 2024 as compared to 1.8 million loss from the prior year period. Our non-gap adjustments to operating expenses for the third quarter of fiscal 2024 include 9,000 in non-cash employees stock expense, 287,000 in depreciation and amortization expense, resulting in a historic best non-gap adjusted operating loss of $87,000 for the third quarter of fiscal 2024 as compared to a 600,000 non-gap adjusted operating loss in the third quarter of fiscal 2023.
Brennan: The decrease in non-gap adjusted operating loss over the prior year period is primarily attributed to management focus on our cost structure and profitability. Other income expense on our consolidated income statement for the third quarter of 2024 include a non-cash contingent liability gain of 850,000 related to the change in fair value of our convertible debt. As a result of the contingent liability, the gap balance of the notes totaled $1.4 million at the end of the third quarter, despite only having a principal balance at June 30, 2024 of approximately 1.07 million.
Brennan: During the quarter, we continued our focus on expenses, balance sheet and cash flow management. This focus allowed us to generate approximately 200,000 of cash during the third quarter of fiscal 2024. We had cash and cash equivalents of approximately 2.3 million and negative work in capital of approximately 567,000 on June 30, 2024. As our working capital was significantly negatively impacted by the 3.7 million of accrued dividends table.
Brennan: At September 30, 2023, we had cash and cash equivalents of approximately 1.8 million and working capital of approximately 3.4 million. Our current asset says that the June 30, 2024 decreased approximately 9.6% from September 30, 2023 to 7.3 million. A primary driver of the decrease in current assets was the usage of cash for operations. As of June 30, 2024, the company's total current liabilities were 7.8 million, of which approximately 1.2 million is accounts payable, 3.7 million accrued dividend, 800,000 of accrued rent for our former executive offices, and 400,000 of other accrued expenses. We are currently negotiating with our former landlords for our executive offices on a resolution to the background.
Brennan: Achieving positive EBITDA remains our top priority, and with this quarter's record non-gap EBITDA loss of just 87,000, we are closer to ever to reaching that goal. Last quarter, we identified approximately 200,000 in monthly efficiencies that we began implementing in April, including renegotiating vendor terms, eliminating contracts, securing facility savings, reducing headcount, and tightening non-essential spending. These measures have already had a significant impact contributing to our progress with Porter. However, due to the timing of implementation, only a portion of these efficiencies were realized in the June quarter.
Brennan: We expect additional savings to be realized in the current quarter, particularly with the elimination of our headquarters facility rent, approximately 85,000 per month, in August. These savings position as well to eliminate our operating cash burn in the coming quarters. We remain village at and controlling calls and are actively exploring other ways to enhance the strength in our balance sheet and cash position.
Ronan Kennedy: With that, I'll turn the call back over to Raining. Thanks for that.
Ronan Kennedy: In our last call, we emphasize that the best path to creating shareholder value lies in two key areas, running a profitable business and streamlining our capital structure. We continue to make significant strides toward profitability with notable progress in the third fiscal quarter. Our industry leading gross margins are testament to our efforts and we remain committed to driving revenue growth, will maintaining a lean inefficient operation. Although we've seen progress this past quarter, we are particularly excited about the efficiencies expected to materialize in the September and December quarters, which we believe will help push us across the profitability threshold.
Ronan Kennedy: One of the key concerns raised by shareholders in the last proxy was our cash burn and our ability to manage within our balance sheet, particularly with concerns about a delusion post conversion. We are optimistic that this quarter's results in positive trajectory will resonate with our shareholders in still incompetence and our ability to operate at or above break even levels.
Ronan Kennedy: We understand the importance of addressing our multi-class capital structure and firmly believe that simple, simple fine, our equity structure is essential alongside profitability to unlocking the full enterprise value of the company. Over the coming months, we intend to re-engage in discussions to find a viable solution that benefits all stakeholders. Our approach is to operate with the urgency of a 100-metre sprinter will maintain the endurance of an Iron Man triathlete making consistent and steady progress despite the challenge we encounter.
Ronan Kennedy: We may considerable headway in strengthening the business and resolving a number of legacy issues. StBDMD remains a strong brand that resonates with customers and backed by dedicated and talented team. We are fully committed to executing on our strategic plan diligently in the months ahead and with the goal of delivering meaningful value to our shareholders.
Ronan Kennedy: Thank you for your continued support and confidence in our vision, and I now welcome your questions.
Unknown Executive: We will now begin the question and answer session to join this question. QE may press stars and one on your telephone keypad. You hear a tone and knowledge in your request.
Unknown Executive: If you're using a speaker phone, please set up your handset before pressing any key. To withdraw your questions, please press start and choose. We'll pause for a moment as the caller joins the queue.
Jim Schafer: The first question comes from Jim Schafer with a private investor. Please go ahead. Hi, thank you. I was wondering if you can share the details of the plan you submitted to NWSC American to address the compliance issue. Well, look, there's several paths that we have that we think can help us stabilize our book value of equity. You know, there's things on our balance sheet we're working on. We believe there's going to be another proposal to our shareholders and we're talking we're looking at every sort of opportunity that we see as viable solution to bolstering and stabilizing that book value of equity.
Jim Schafer: Okay. Is the December 31, 2025 date, December 5, 2025 date, a typo? I'm sorry, I didn't hear all the questions broke up. Yeah. You said that compliance. Yeah. Can you repeat the question, Jane? You'll regain compliance with the continued listing standards by December 5, 2025. Is that a typo? Should it be 2024? No, it's 20, what they ask us to do is present the plan to get back into compliance by December of 2025. Okay. And it's it's mid August now. Have you heard of response? We have not received your response yet. Okay. Thank you. Yeah. Once again, if you have a question, please first start then one.
Tom McClaven: The next question comes with Tom McClaven with next group. Please go ahead. Thank you guys. That's a good one. Congrats on the quarter. Yeah. So first questions on, you know, sequential sales, where I was just curious, you know, the last quarter, you guys announced the hiring of some key sales personnel, as well as this revamped strategy that was, you know, for my understanding, focusing more on the functionality of the products.
Ronan Kennedy: So maybe you can walk me through first in the second quarter, you know, how much of the sequential improvements can be attributed to this new strategy and these new sales people. And then, you know, maybe you want to start talking a little bit about the recently published data and how you guys kind of plan if you're planning to incorporate that into your sales approach. Remarketing rather. Sure. Look, some some of our key new customer wins came from some of the new new retained sales team.
Ronan Kennedy: So it did contribute to the quarter for sure, as well as some of the changes that we've been making on the direct to consumer side. You know, I think some of the changes we made did have some positive benefits during the quarter. And then I think historically sort of the June quarter tends to be good to us in this from a seasonality standpoint. With respect to the published data, we are continuing to weave our messaging with the results of that indoor messaging.
Ronan Kennedy: We have to be careful because it doesn't cover every skew. So it's really just our broad spectrum of products that we've got the strongest claim around, that we can leverage from clinical studies. I understand, I appreciate that color.
Unknown Executive: Next question is actually on the study more specifically.
Ronan Kennedy: So I was wondering if you could maybe unpack for us a little bit. I learned a little bit more detail in what the actual result of the study was. From my understanding, I read the publication was that in the most significant result was in pain reduction or perceived pain between the test group and the control group. But this is the only statistically significant difference in these groups, or maybe if you've just gone into a little bit detail kind of, you know, what the researchers concluded from the study that they'd be appreciated.
Ronan Kennedy: Sure, this is where I wish that civil was on the line to help us. But I think, look, I think statistically, we were pleased with the results in general. We felt like all three claims gave us specifically significant data. We're continuing to look around and assess what other opportunities there are to strengthen that data and leverage our claims around our products. But that said, I think, you know, what we don't want to do is try to over index just on the value of that study.
Ronan Kennedy: We've got to get out and deliver messaging that's compelling, engaging, and interesting to consumers across sort of all our product categories. And this sort of covers only sort of a handful of of all our skews in our product portfolio.
Unknown Executive: Understood. I appreciate you taking the time to answer my questions. Thanks.
Unknown Executive: This concludes the question and answer session.
Ronan Kennedy: I would like to turn the conference back over to Ronan Kennedy for any closing remarks. Thank you again for your ongoing support and look forward to our upcoming call in December. Thank you. This brings you up close to today's conference call. You may disconnect your lines.
Unknown Executive: Thank you for participating and have a pleasant day. .