Charlotte's Web Reports 2024 First Quarter Financial Results
"The first quarter of 2024 started slowly in terms of sales volume. This is being addressed with solid progress in our 'True North' turnaround initiatives," said
Business Review
Charlotte's Web has made steady progress on its previously disclosed 'True North' pillars and the Company will be providing updates quarterly.
Transforming the Consumer Experience End-to-End – The migration of the Company's e-commerce platform is on track for launch by the end of Q2 2024. This migration is designed to enhance the consumer journey and increase consumer engagement, acquisition, and subscriptions. This is being integrated with IT upgrades and Customer Relationship Management (CRM) tools for increased functionality and reduced costs. Improved loyalty programs and promotions introduced during the first quarter have increased new subscriber growth by approximately 25% quarter over quarter, with retention rates above 90%.
Be the Most Trusted and Valued Partner Among Retailers and Distributors – In the first quarter, the Company redesigned its business-to-business ("B2B") division from both an overall cash flow performance basis and a strategic perspective to better serve retailers within the current regulatory environment. As part of this evolution, the Company has redirected part of its focus to the opportunities within the Medical channel, which continues to show relative resilience. These actions modestly reduce revenue; but more importantly, aim to improve overall annual cash flow. New wellness products and formats are planned for 2024 following the successful Q1 launch of Charlotte's Web "Stay Asleep" Cannabinol (CBN) gummies. Since the launch, 48 of the Company's top 50 retail accounts have committed to carrying Stay Asleep, which is launching at retail across the country in Q2.
Reinforce and Amplify CW's Influential Voice – At the beginning of the year, Charlotte's Web evolved its organic social and earned media strategies, complemented by new product innovation beyond CBD. The Stay Asleep campaign reignited Charlotte's Web's earned media presence, resulting in a 26 million media reach through consumer-facing press and earned social media influencer posts. Organic social media impressions were up 32% in the first quarter, while reach per post was up 55%.
Continue to Identify Cost and Operating Efficiencies
– Several actions were taken in the quarter to optimize the Company's cost structures and reduce expenses to be more reflective of current revenue levels. In addition to redesigning the overall B2B channel, the new e-commerce platform and IT upgrades are eliminating inefficiencies, such as unnecessary software subscriptions and contracts. Through prudent expense reductions, management targets a reduction in SG&A of approximately
"Given our current revenue challenges, we continue to act with agility to further optimize cost structures across the company, streamline operations, and eliminate inefficiencies," said
In
Regulatory Update
Progress has been encouraging surrounding The Hemp Derived Consumer Protection and Market Stabilization Act of 2023, (H.R. 1629) which aims to regulate hemp extract products under the dietary supplement regulatory framework. Bill sponsors are updating their legislation to address issues raised during last year's Request for Information.
Financial Review – Q1 2024
The following table sets forth selected financial information for the periods indicated.
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Three Months Ended, |
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2024 |
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2023 |
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Revenue |
|
|
|
|
Cost of goods sold |
|
5.2 |
|
7.1 |
Gross profit |
|
6.9 |
|
9.9 |
|
|
|
|
|
Selling, general and administrative expenses |
|
15.3 |
|
17.5 |
Operating loss |
|
(8.4) |
|
(7.6) |
|
|
|
|
|
Other income (expense), net |
|
0.6 |
|
(0.7) |
Change in fair value of financial instruments and other |
|
(1.9) |
|
5.4 |
Income tax expense |
|
- |
|
- |
Net loss |
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|
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Net loss per common share, basic and diluted |
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|
Consolidated net revenue for the first quarter ended
Gross Profit was
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Three Months Ended |
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Segmented Net Revenue |
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2024 |
|
2023 |
|
% Decrease |
|
Direct-to-consumer ("DTC") net revenue |
|
|
|
|
|
(31.0) % |
Business-to-business ("B2B") net revenue |
|
|
|
|
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(29.6) % |
Direct-to-consumer net revenue through the Company's web store was
Business-to-business retail net revenue was
SG&A Expenses
Total selling, general, and administrative ("SG&A") expenses in the quarter were
Net Income and Adjusted EBITDA1
Charlotte's Web reported a net loss of
Adjusted EBITDA1 loss for the first quarter of 2024 was
Cash Flow and Balance Sheet
Net cash used for operations for the three months ended
"Excluding MLB and capex, our cash burn was approximately
The Company's cash and working capital as of
Consolidated Financial Statements and Management's Discussion and Analysis
The Company's unaudited consolidated financial statements and accompanying notes for the three months ended
Conference Call
Management will host a conference call to discuss the Company's 2024 first quarter at
There are three ways to join the call:
- Register and enter your phone number at https://emportal.ink/4atzXcE to receive an instant automated call back, or
- Dial 1-416-764-8659 or 1-888-664-6392 approximately 10 minutes before the conference call, or
- Listen to the live webcast online.
Earnings Call Replay
A recording of the call will be available through
Subscribe to Charlotte's Web investor news.
About
© Major |
Forward-Looking Information
Certain information provided herein constitutes forward-looking statements or information (collectively, "forward-looking statements") within the meaning of applicable securities laws. Forward-looking statements are typically identified by words such as "may", "will", "should", "could", "anticipate", "expect", "project", "estimate", "forecast", "plan", "intend", "target", "believe" and similar words suggesting future outcomes or statements regarding an outlook. Forward-looking statements are not guarantees of future performance and readers are cautioned against placing undue reliance on forward-looking statements. By their nature, these statements involve a variety of assumptions, known and unknown risks and uncertainties, and other factors which may cause actual results, levels of activity, and achievements to differ materially from those expressed or implied by such statements. The forward-looking statements contained in this press release are based on certain assumptions and analysis by management of the Company in light of its experience and perception of historical trends, current conditions and expected future development and other factors that it believes are appropriate and reasonable.
Specifically, this press release contains forward-looking statements relating to, but not limited to: organizational changes, marketing plans and operational platform upgrades, and the impact of these initiatives, operational efficiencies, cash flow, revenue and e-commerce monetization; expectations relating to IT upgrades, marketing optimization and operational integrations; product expansion activities and the corresponding results thereof; sales volume and gross margin expectations; anticipated timing for, and business impact of, in-house manufacturing of topical and gummy products; the impact of the Company's product innovations on product development; regulatory developments and the impact of developments on both consumer action and the Company's opportunities and operations; activities relating to, and sponsorship of, legislation to advance regulatory framework; the impact of insourcing on operating margins, capital expenditures and R&D; anticipated consumer trends and corresponding product innovation; anticipated future financial results, including expectations regarding targeted reduction in SG&A costs ; improvements in cash flow; sufficient working capital; the impact of the Company's partnership with the MLB on the Company's exposure and sales; the Company's ability to increase online traffic and demographic exposure through new products and marketing; and the impact of certain activities on the Company's business and financial condition and anticipated trajectory.
The material factors and assumptions used to develop the forward-looking statements herein include, but are not limited to: regulatory regime changes; anticipated product development and sales; the success of sales and marketing activities; product development and production expectations; outcomes from R&D activities; the Company's ability to deal with adverse growing conditions in a timely and cost-effective manner; the availability of qualified and cost-effective human resources; compliance with contractual and regulatory obligations and requirements; availability of adequate liquidity and capital to support operations and business plans; and expectations around consumer product demand. In addition, the forward-looking statements are subject to risks and uncertainties pertaining to, among other things: supply and distribution chains; the market for the Company's products; revenue fluctuations; regulatory changes; loss of customers and retail partners; retention and availability of talent; competing products; share price volatility; loss of proprietary information; product acceptance; internet and system infrastructure functionality; information technology security; available capital to fund operations and business plans; crop risk; economic and political considerations; and including but not limited to those risks and uncertainties discussed under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for the year ending
Any forward-looking statement in this press release is based only on information currently available to the Company and speaks only as of the date on which it is made. Except as required by applicable law, the Company assumes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise. All forward-looking statements, whether written or oral, attributable to the Company or persons acting on the Company's behalf, are expressly qualified in their entirety by these cautionary statements.
(1) Non-GAAP Measures: The press release contains non-GAAP measures, including EBITDA and Adjusted EBITDA. Please refer to the section in the tables captioned "Non-GAAP Measures" below for additional information and a reconciliation to GAAP for all Non-GAAP metrics. |
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2024 (unaudited) |
|
2023 |
ASSETS |
|
|
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Current assets: |
|
|
|
Cash and cash equivalents |
|
|
|
Accounts receivable, net |
1,725 |
|
1,950 |
Inventories, net |
22,487 |
|
21,538 |
Prepaid expenses and other current assets |
5,535 |
|
6,864 |
Total current assets |
68,257 |
|
78,172 |
Property and equipment, net |
28,255 |
|
27,513 |
License and media rights |
17,614 |
|
17,070 |
Operating lease right-of-use assets, net |
14,206 |
|
14,601 |
Investment in unconsolidated entity |
10,200 |
|
11,000 |
SBH purchase option and other derivative assets |
1,579 |
|
2,602 |
Intangible assets, net |
1,051 |
|
887 |
Other long-term assets |
616 |
|
703 |
Total assets |
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|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
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Current liabilities: |
|
|
|
Accounts payable |
|
|
|
Accrued and other current liabilities |
8,230 |
|
8,682 |
Lease obligations – current |
2,339 |
|
2,252 |
License and media rights payable - current |
5,072 |
|
9,852 |
Total current liabilities |
19,632 |
|
23,646 |
Convertible debenture |
42,736 |
|
42,528 |
Lease obligations |
15,063 |
|
15,655 |
License and media rights payable |
13,899 |
|
11,338 |
Derivative and other long-term liabilities |
3,780 |
|
3,823 |
Total liabilities |
95,110 |
|
96,990 |
Commitments and contingencies |
|
|
|
Shareholders' equity: |
|
|
|
Common shares, nil par value; unlimited shares authorized; 157,227,855 and |
1 |
|
1 |
Additional paid-in capital |
328,024 |
|
327,280 |
Accumulated deficit |
(281,357) |
|
(271,723) |
Total shareholders' equity |
46,668 |
|
55,558 |
Total liabilities and shareholders' equity |
|
|
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|||
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|
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Three Months Ended |
||
|
2024 |
|
2023 |
Revenue |
$ 12,124 |
|
$ 17,010 |
Cost of goods sold |
5,213 |
|
7,093 |
Gross profit |
6,911 |
|
9,917 |
|
|
|
|
Selling, general, and administrative expenses |
15,280 |
|
17,513 |
Operating loss |
(8,369) |
|
(7,596) |
|
|
|
|
Change in fair value of financial instruments |
(1,860) |
|
5,382 |
Other income (expense), net |
611 |
|
(698) |
Loss before provision for income taxes |
$ (9,618) |
|
$ (2,912) |
Income tax expense |
(16) |
|
— |
Net loss |
$ (9,634) |
|
$ (2,912) |
|
|
|
|
Per common share amounts |
|
|
|
Net loss per common share, basic and diluted |
$ (0.06) |
|
$ (0.02) |
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
|
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Common Shares |
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Additional |
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Accumulated |
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Total |
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Shares |
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Amount |
|
|
|
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Balance—December 31, 2023 |
154,332,366 |
|
$ 1 |
|
$ 327,280 |
|
$ (271,723) |
|
$ 55,558 |
Common shares issued upon vesting of restricted share units, |
2,895,489 |
|
— |
|
(98) |
|
— |
|
(98) |
Share-based compensation |
— |
|
— |
|
842 |
|
— |
|
842 |
Net loss |
|
|
— |
|
|
|
(9,634) |
|
(9,634) |
Balance—March 31, 2024 |
157,227,855 |
|
$ 1 |
|
$ 328,024 |
|
$ (281,357) |
|
$ 46,668 |
|
|
|
|
|
|
|
|
|
|
Balance—December 31, 2022 |
152,135,026 |
|
$ 1 |
|
$ 325,431 |
|
$ (247,927) |
|
$ 77,505 |
Common shares issued upon vesting of restricted share units, |
297,888 |
|
— |
|
(69) |
|
— |
|
(69) |
Share-based compensation |
— |
|
— |
|
375 |
|
— |
|
375 |
Net loss |
— |
|
— |
|
— |
|
(2,912) |
|
(2,912) |
Balance—March 31, 2023 |
152,432,914 |
|
$ 1 |
|
$ 325,737 |
|
$ (250,839) |
|
$ 74,899 |
|
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|
||
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Three Months Ended |
||
|
2024 |
|
2023 |
Cash flows from operating activities: |
|
|
|
Net loss |
$ (9,634) |
|
$ (2,912) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
Depreciation and amortization |
2,493 |
|
3,792 |
Change in fair value of financial instruments |
1,860 |
|
(5,351) |
Convertible debenture and other accrued interest |
1,015 |
|
697 |
Share-based compensation |
842 |
|
375 |
Changes in right-of-use assets |
443 |
|
493 |
Other |
(956) |
|
768 |
Changes in operating assets and liabilities: |
|
|
|
Accounts receivable, net |
98 |
|
(1,212) |
Inventories, net |
(1,026) |
|
1,187 |
Prepaid expenses and other current assets |
150 |
|
480 |
License and media rights |
(2,500) |
|
(2,000) |
Operating lease obligations |
(551) |
|
(925) |
Accounts payable, accrued and other liabilities |
663 |
|
(1,098) |
Other operating assets and liabilities, net |
(76) |
|
(367) |
Net cash used in operating activities |
(7,179) |
|
(6,073) |
Cash flows from investing activities: |
|
|
|
Purchases of property and equipment and intangible assets |
(2,060) |
|
(70) |
Proceeds from sale of assets |
27 |
|
30 |
Net cash used in investing activities |
(2,033) |
|
(40) |
Cash flows from financing activities: |
|
|
|
Other financing activities |
(98) |
|
(69) |
Net cash used in financing activities |
(98) |
|
(69) |
Net decrease in cash and cash equivalents |
(9,310) |
|
(6,182) |
Cash and cash equivalents —beginning of period |
47,820 |
|
66,963 |
Cash and cash equivalents —end of period |
$ 38,510 |
|
$ 60,781 |
|
|
|
|
Non-cash activities: |
|
|
|
Non-cash purchase of property and equipment and intangible assets |
$ (374) |
|
$ — |
(1) Non-GAAP Measures – EBITDA and Adjusted EBITDA
Earnings before interest, taxes, depreciation, and amortization ("EBITDA") is not a recognized performance measure under
(1) |
EBITDA and Adjusted EBITDA are non-GAAP financial measures with reconciliations provided in the tables below. |
Adjusted EBITDA for the three months ended
|
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Statement of Adjusted EBITDA |
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(In Thousands) |
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Three Months Ended |
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(unaudited) |
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2024 |
2023 |
|||
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|
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|
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Net loss |
|
$ (9,618) |
$ (2,912) |
|||
Depreciation of property and equipment |
|
2,493 |
3,792 |
|||
Interest expense |
|
487 |
799 |
|||
Income tax expense |
|
16 |
- |
|||
EBITDA |
|
(6,622) |
1,679 |
|||
|
|
|
|
|||
Stock Comp |
|
842 |
375 |
|||
Mark-to-market financial instruments |
|
1,860 |
(5,382) |
|||
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|
|
|
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Adjusted EBITDA |
|
$ (3,920) |
$ (3,328) |
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