Charlotte's Web Holdings Reports Q1-2020 Results
Thursday, May 14, 2020 6:05:00 AM ET
BOULDER, CO, May 14, 2020 /CNW/ - (TSX:CWEB, OTCQX:CWBHF), Charlotte's Web Holdings, Inc. ("Charlotte's Web" or the "Company") the market share leader in full spectrum cannabidiol (CBD) hemp extract products , today reported financial results for the first quarter ended March 31, 2020. All amounts are expressed in United States' dollars unless otherwise noted. Certain metrics, including those expressed on an adjusted basis, are non-IFRS measures.
- Organic consolidated revenue of $21.5 million vs. $21.7 million in Q1-2019
- Gross profit of $15.0 million, 69.8% of consolidated revenue
- Adjusted EBITDA loss of $5.7 million
- Direct-to-Consumer ("DTC") eCommerce sales grew 29.4% year-over-year and contributed 65.6% of Q1 revenue
- $53.0 million cash and $114.9 million working capital on March 31, 2020
- David Panter joins the Company as Chief Operating Officer from Estée Lauder Company
- Announced intent to acquire Abacus Health to cement leadership in both CBD topical and ingestible product segments
- Launched CW Labs R&D Sciences Division, part of SUNY network of 64 universities and medical centers
- Achieved self-affirmed GRAS (generally recognized as safe) status for full spectrum hemp extract
- Achieved NSF International's dietary supplements Good Manufacturing Practice (GMP) registration
- Received NASC certification received for Charlotte's Web pet products
- Signed and commenced shipping to first national mass pet products retail partner
- Surpassed 11,000 retail doors selling Charlotte's Web products
- J.P. Morgan engaged for commercial banking services and $10 million line of credit (extendable to $20M)
Acquisition of Abacus Health
On March 22, 2020 Charlotte's Web entered into an arrangement to acquire Abacus Health Products, Inc. ("Abacus") (CSE:ABCS, OTCQB:ABAHF) in an all stock transaction. The transaction is expected to close in late Q2 or early Q3 of this year subject to customary closing conditions, certain regulatory approvals and approval of the shareholders of Abacus, after which Abacus shareholders would own approximately 15% of Charlotte's Web effective outstanding common shares.
Abacus is a leading provider of over-the-counter ("OTC") topical products for pain relief and skincare containing CBD hemp extracts. Abacus distributes the industry's widest portfolio of topical CBD SKUs through more than 12,000 doors including the three largest U.S. pharmacy chains, and also reaches 16,500 health care practitioners. Combined, the companies currently represent approximately 34.7%1 market share of the food/drug/mass ("F/D/M") retail segment. The acquisition greatly extends Charlotte's Web's product offerings and reach and solidifies a commanding position in the U.S. hemp CBD topicals category which is forecasted to become fastest growing and largest CBD segment by 2021.2
"First quarter revenue was ahead of expectations driven by our strong DTC Ecommerce sales enabled by our new technical platform and capabilities. Operationally we have not had any business disruptions from COVID-19 and have adapted well to the remote working environment," said Deanie Elsner, CEO of Charlotte's Web. "Strategically we implemented several strategies during the quarter to address the F/D/M channel, with new topical products, new pricing and the announcement of our intent to acquire Abacus Health. We also launched CW Labs to drive break-through Innovation and to support the need for more science and data. These moves have been well received by our customers across all channels and we continue to execute on our plan for 2020."
Q1-2020 Business Review
Charlotte's Web has expanded its physical brick and mortar retail reach past 11,000 doors as the first quarter concluded with signing the Company's first national mass pet retail partner. The Company is in discussions with other national pet retailers as interest grows in the Company's line of pet products which includes functionally focused chews with synergistic ingredients to target specific health functions including: Calming, Hips & Joints and Cognition. The CBD pet market is forecast to grow rapidly at a Compound Annual Growth Rate (CAGR) of 151% between 2018-2022 to a market size of US$1.16B according to market research firm, Brightfield Group.
As of May 14, 2020, Charlotte's Web was shipping product through more than 11,000 national retailer store locations and expects continued expansion through 2020.
In April Charlotte's Web launched seven new topical products, including a cooling gel, a balm stick and aromatherapy roll-ons, all to positive reviews. The new topical products are particularly important for the Company's partners in the F/D/M retail channel which continues to carry primarily topical CBD products as it awaits regulatory guidelines from the Food and Drug Administration ("FDA") for the sale of ingestible CBD products.
During the first quarter Charlotte's Web's well-established Web presence delivered strong sales through its DTC platform. "The DTC business remains an important area for growth particularly as we await broad regulatory policies to land for the retail channels, and we expect online sales to grow faster than retail in the first half of 2020," explained Ms. Elsner. "Our webstore provides our customers with our broadest product portfolio offering. We have increased resources into our DTC channel, increased capabilities, and improved the online experience. The result has been double-digit conversion rates that helped support a 29.4% year-over-year increase in online revenue for the quarter."
Q1-2020 Financial Review
The following table sets forth selected financial information for the periods indicated.
The following information sets forth selected quarterly revenue information for the Company's recent fiscal quarters.
First quarter revenue was $21.5 million, as compared to $21.7 million in 2019. Lower business-to-business ("B2B") sales were offset by increased DTC sales. B2B sales were 31.5% lower year-over-year, accounting for 34.4% of total revenue in the quarter as the natural retail channel struggled with overcrowding due to increased competition, while a lack of FDA regulatory guidelines for the F/D/M channel held back the adoption of ingestible products.
DTC net sales grew by 29.4% year-over-year as online traffic and high conversion rates continued to increase through ongoing marketing and social media programs. Year-over-year new consumer acquisitions increased 25% and conversion rates increased 77%. DTC net revenue accounted for 65.6% of total revenue in the first quarter compared to 50.2% for the same period in the prior year.
Gross product sales (before channel discounting) from human ingestible products, topicals and pet products grew by 9.9%, -27.3% and 162.5%, respectively, year-over-year. On a gross revenue basis, the Company's human ingestible products, topicals and pet products accounted for approximately 85.7%, 6.2% and 8.1%, respectively, of total sales compared to 87.1%, 9.5% and 3.4%, respectively of total sales for the first quarter of 2019.
Gross margin (prior to biological asset adjustments) was 69.8%, compared to 72.8% for the first quarter of 2019. Operating expenses were $23.3 million, a 76.5% year-over-year increase from $13.2 million. The increase reflects the Company's investments in capacity expansion and transition to a consumer-packaged goods ("CPG") operating company capable of supporting mass retail channel growth. In 2019, the Company relocated into larger office facilities in Boulder, Colorado and added senior CPG management to the leadership team along with related personnel.
Adjusted EBITDA for the quarter was negative $5.7 million or -26.5% of consolidated revenue compared to positive EBITDA of $4.5 million and 20.7% of consolidated revenue for the first quarter of 2019. The Adjusted EBITDA ratio during the first quarter reflects the substantial investments to support expected future revenue growth from the F/D/M channel.
"We are modelling for revenue growth of 10% to 20% in 2020 and a return to positive adjusted EBITDA by the end of the year," explained Russ Hammer, Chief Financial Officer of Charlotte's Web. "As our new facilities come online later in the year, we expect to harness cost savings through our vertically integrated supply chain to support meaningful increases in adjusted EBITDA, and then continue to leverage against higher revenue as we enter 2021 and 2022." See the advisories contained under "Forward-Looking Information" below.
Balance Sheet and Cash Flow
The Company used $14.9 million of cash in operations during Q1-2020 compared to $3.7 million of cash used in operations during Q1-2019. The reduction in cash flows primarily reflects the investment in construction of the Company's new 137,000 sq. ft. production and fulfillment centre to support anticipated growth. The Company's cash and working capital at March 31, 2020 were $53.0 million and $114.9 million, respectively, compared to $68.6 million and $116.9 million at December 31, 2019.
Consolidated Financial Statements and Management's Discussion and Analysis
The Company's unaudited interim condensed financial statements and accompanying notes for the periods ended March 31, 2020 and 2019 and related management's discussion and analysis of financial condition and results of operations ("MD&A") are available under the Company's profile on SEDAR at www.sedar.com and on the Investor Relations section of the Company's website at https://investors.charlottesweb.com .
Management will host a conference call to discuss the Company's first quarter 2020 results at 8:30a.m. ET on Thursday, May 14, 2020. To participate in the call, please dial 1-647-427-7450 or 1-888-231-8191 approximately 10 minutes before the conference call and provide conference ID 3393025. A recording of the call will be available through May 24, 2020. To listen to the rebroadcast please dial 1-416-849-0833 and provide the same conference ID.
A webcast of the call can be accessed through the investor relations section of the Charlotte's Web website.
About Charlotte's Web Holdings, Inc.
Charlotte's Web Holdings, Inc. is a market leader in the production and distribution of innovative hemp-based cannabidiol ("CBD") wellness products. Founded by the Stanley Brothers, the Company's premium quality products start with proprietary hemp genetics that are responsibly manufactured into hemp-derived CBD extracts naturally containing a full spectrum of phytocannabinoids, including CBD, terpenes, flavonoids and other minor but valuable hemp compounds. Charlotte's Web product categories include CBD oil tinctures (liquid products), CBD capsules, CBD topicals, as well as CBD pet products. Charlotte's Web hemp-based CBD extracts are sold through its e-commerce ADA compliant website at www.CharlottesWeb.com , third-party e-commerce websites, select distributors, and a variety of brick and mortar retailers.
Charlotte's Web is a socially conscious company committed to using business as a force for good and a catalyst for innovation. The Company weighs sound business decisions with consideration for how its efforts affect its employees, customers, the environment, and the communities where its employees live and where it does business, while maximizing profits and strengthening its brands. The Company's management believes that socially oriented actions have a positive impact on the Company, its employees and its shareholders. Charlotte's Web donates a portion of its pre-tax earnings to charitable organizations.
Shares of Charlotte's Web trade on the Toronto Stock Exchange (TSX) under the symbol "CWEB" and are quoted in U.S. Dollars in the United States on the OTCQX under the symbol "CWBHF". As of May 13, 2020, Charlotte's Web had 71,945,914 Common Shares outstanding and 92,455.575 Proportional Voting Shares convertible at 400:1 into Common Shares, for an effective equivalent of 108,928,144 Common Shares outstanding.
Certain information in this news release constitutes forward-looking statements and forward-looking information (collectively, "forward-looking information"). In some cases, but not necessarily in all cases, forward looking information can be identified by the use of forward-looking terminology such as "plans", "targets", "expects" or "does not expect", "is expected", "an opportunity exists", "is positioned", "estimates", "intends", "assumes", "anticipates" or "does not anticipate" or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might", "will" or "will be taken", "occur" or "be achieved". In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances contain forward-looking information. Examples of forward-looking information include, among others, statements the Company makes regarding guidance relating to fiscal 2020 revenue and adjusted EBITDA; closing of the acquisition of Abacus; the impact of the acquisition of Abacus on the Company's business and financial condition; customer acceptance of the Company's products; expansion of the Company's products; anticipated product category growth; retail expansion; online sales growth; and the Company's anticipated growth.
Statements containing forward-looking information are not historical facts but instead represent management's expectations, estimates and projections regarding the future of our business, future plans, strategies, projections, anticipated events and trends, the economy and other future conditions.
Forward-looking information is necessarily based on a number of opinions, assumptions and estimates that, while considered reasonable by the Company as of the date of this news release, are subject to known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, level of activity, performance or achievements to be materially different from those expressed or implied by such forward-looking information. Material assumptions used to develop the forward-looking statements herein include, but ?are not limited to, the following: (i) the impact of the COVID-19 pandemic (ii) the regulatory climate in ?which the Company operates; (iii) the continued sales success of the Company's products; (iv) the ?continued success of sales and marketing activities; (v) the Company's ability to complete the conversion ?or buildout of its facilities on time and on budget; (vi) there will be no significant delays in the development ?and commercialization of the Company's products; (vii) the Company will continue to maintain sufficient ?and effective production and research and development capabilities to compete on the attributes and cost ?of its products; (viii) the Company's ability to deal with adverse growing conditions (due to pests, disease, ?fungus, climate or other factors) in a timely and cost-effective manner; (ix) there will be no significant ?reduction in the availability of qualified and cost-effective human resources; * new products will continue ?to be added to the Company's portfolio; (xi) demand for hemp-based wellness products will continue to ?grow in the foreseeable future; (xii) there will be no significant barriers to the acceptance of the ?Company's products in the market; (xiii) the Company will be able to maintain compliance with applicable ?contractual and regulatory obligations and requirements; (xiv) there will be adequate liquidity available to ?the Company to carry out its operations; and (xv) products do not develop that would render the ?Company's current and future product offerings undesirable and the Company is otherwise able to ?minimize the impact of competition and keep pace with changing consumer preferences; and (xvi) the ?Company will be able to successfully manage and integrate acquisitions.?
The Company's actual results and financial condition may differ materially from those indicated in the forward-looking information. Therefore, you should not rely on any of the forward-looking information contained in this news release. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking information include, among others, the following :the adverse impact of the COVID-19 pandemic to the Company's operations, supply chain, distribution chain, ?and to the broader market for and customers of the Company's products; revenue fluctuations; the impact of global conditions and unemployment rates on the Company's stakeholders; nature of government regulations (both ?domestic and foreign); general economic and financial conditions; loss of key customers or suppliers; retention and availability of executive ?talent; competing products; common share price volatility; loss of proprietary information; product ?acceptance; internet and system infrastructure functionality; information technology security; cash ?available to fund operations; crop risk; availability of capital; international and political considerations; completion of the acquisition of Abacus; the successful integration of acquired businesses; changes in customer demand; and the risk factors described in greater detail in the Company's annual information form dated March 27, 2020, management's discussion and analysis filed in respect to the interim period ending March 31, 2020, and other public documents of the Company available at www.sedar.com . These factors are not intended to represent a complete list of the factors that could affect the Company and the forward-looking information; however, these factors should be considered carefully. There can be no assurance that such expectations, estimates, projections and assumptions will prove to be correct, and the forward-looking information contained in this news release should not be unduly relied upon. the forward-looking statements and information contained in this news release are made as of the date of this news release and speaks only as of the date on which it is made. The Company expressly disclaims any obligation to update or alter statements containing any forward-looking information, or the factors or assumptions underlying them, whether as a result of new information, future events or otherwise, except as required by applicable law.
SOURCE Charlotte's Web Holdings, Inc.