cbdMD Inc (YCBD) 2024 Q1 法說會逐字稿

Good afternoon. Welcome to the cbdMD Inc's December 31, 2023 first fiscal 2024 quarter earnings call and update. This afternoon, the company issued a press release that provided an overview of its first 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 retention policies.

All participants on this call will be in listen only mode. The call will be followed by a question and answer session (Operator Instructions)

At this time. I would like to turn the conference over to Brad Whitford, the company's VP of Finance. Brad, please go ahead.

Thank you, Asia, and thank you all for joining cbdMD December 31, 2023 first quarter of fiscal 2024 earnings call and update. On the call today, we also have Ronan Kennedy, our Interim 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 1995.

cbdMD cautions that these forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from those indicated, including risks described in the company's quarterly report on Form 10-Q for the quarter ended December 31, 2023 and our other filings with the SEC.

All of which can be reviewed on the company's website at www.cbdmd.com or on the SEC's website at www.sec.gov.

Any forward-looking statements made on this conference call speak only as of today's date, Tuesday, February 13, 2024, and cbdMD does not intend to update any of these forward-looking statements to reflect events or circumstances that would occur after today's date, except as may be required by federal securities laws.

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

Thank you, Brad. Good afternoon, everyone. It has only been a short, busy few weeks since our year end call. We continue to make progress on our expenses and year-over-year gains and net income and non-GAAP adjusted EBITDA. We remain disciplined about our cost controls but ultimately missed our goals of sequentially growing revenue for the quarter.

We did not hit this goal for December. Significant resources were allocated to a number of larger strategic initiatives that are helping pave the way for growth in 2024 and beyond. This included launching two new brands, HempMD, our functional Mushroom Line. ATRxLabs revenue remains a top priority. We know that we must grow revenues to deliver positive cash flow and are committed to growth.

We are constantly assessing our team and vendor base to ensure we believe we have the organization needed for growing revenues and delivering profits. In January, we added Joe Packaging to our team to head up our wholesale efforts. We're excited for his energy and passion. He brings our company.

The CBD industry, his knowledge and contact base helps expand our reach, and we plan to get more aggressive with opportunities internationally as well as here in the USA. Furthermore, we are taking steps to ensure we win on e-commerce and get back to growth.

On our last call, we just announced our Sprouts launch, and we are pleased with the velocity out of the gates and initial reorders similarly. To the day call, we launched our initial ATRx product, the ultimate mushroom daily gummy on Amazon, in the few short weeks, we just started ramping up sales and are getting great feedback and reviews from customers. Outside of Amazon ATRx showing encouraging signs just a few weeks into our launch.

We received orders from a national retailer to rollout for new ATRx functional products. These products were recently nominated in the 2024 and Natural Choice Awards by Wholefoods Magazine, a testament to our innovation and market potential. We are actively building interest with other retailers and look forward to announcing further placements.

Last week, we announced the closing of the gross proceeds of $1.25 million from a handful of institutional investors. We believe the funding was necessary to assess what the working capital needed to expand ATRx and provide working capital to support our ongoing operations. Capital availability is challenging at the moment and given our preferred structure and pending proxy, it created additional challenges to the financing.

I continue to reviewing multiple strategic opportunities that are presented the complexity and procedural challenges stemming from our multi-class equity structure continue to be problematic to advance strategic transactions. We recently filed our preliminary proxy statement in connection with our annual meeting and have included an additional proposal to convert our outstanding preferred stock.

We continue to believe an all common capital structure should unlock additional enterprise value for the company and open up additional strategic opportunities. The accrued preferred dividends continues to pose a risk to all shareholders, as it reduces our equity value by $1 million a quarter, putting the company on a path in the near term to fall below the minimum $6 million net book value requirement under the NYSE American rules. It's very important for shareholders to confirm as they review the forthcoming definitive proxy statement.

With that, I'll turn the call over Brad.

Thanks, Ronan. Total net sales for the first quarter of fiscal 2024 was $5.4 million or 12% decrease from the prior year comparative quarter total of $6.1 million. Our quarterly e-commerce direct to consumer business generated sales of $4.4 million in the first quarter of fiscal 2024. This was a 10% year over year quarterly decrease.

We believe the quarter-over-quarter decrease is primarily attributable to continued reduced marketing expenses and micro economic forces on consumer. E-commerce represented 82% of our total net sales for the first quarter of 2024 versus 80% in the prior year comparative quarter. Our wholesale business generated $1 million of net sales for the first quarter of fiscal '24, down 19% as compared to $1.2 million for the comparative quarter in fiscal 2023.

This decrease is primarily attributable to changes in state regulatory rules on certain CBD products. Our GAAP gross profit as a percentage of net sales came in at 66% for the first quarter of fiscal 2024 as compared to 59% in the prior year comparative quarter. Our team's focus on cost controls helped improve gross margins for the quarter.

Our SG&A expenses for the first quarter of fiscal 2024 totaled $4.6 million compared to $7.6 million in the prior year comparative quarter.

Our calls came down across the board and management continues to focus on profitability, excluding depreciation, amortization and stock expense, cash SG&A expenses came down $1.9 million from $6.2 million last year to $4.3 million in the current quarter.

Overall, this resulted in a loss from operations of approximately $1.1 million for the first quarter of fiscal 2024, compared to $4.1 million loss from the prior year period. Our non-GAAP adjustments to operating expenses for the first quarter of fiscal 2024 four included $17,000 in non-cash employee stock expense, $284,000 in depreciation and amortization expense.

And $68,000 associated with mergers and acquisition transaction expenses as well as proxy expenses, resulting in a non-GAAP adjusted operating loss of $698,000 for the first quarter of fiscal 2024, as compared to $2.6 million non-GAAP adjusted operating loss in the first quarter of fiscal 2023.

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.

Other income expense on our consolidated income statement for the first quarter of 2024 includes a non-cash contingent liability gain of $70,000 related to our December 2018 acquisition of cure Based development. The final marketing period ended in November, and we completed the final earn-out distribution in January of 2024.

We had cash and cash equivalents of approximately $1.5 million and working capital of approximately $1.4 million on December 31, 2023, as compared to cash and cash equivalents of approximately $1.8 million and working capital of approximately $3.4 million as of September 30, 2023. Our current assets as of December 31, 2023, decreased by approximately 8.7% from September 30, 2023 to $7.4 million.

A primary driver of the decrease in current assets was the usage of cash for operations. As of December 31, 2023, the company's total current liabilities were six points over $6 million, of which approximately $1.6 million is accounts payable and $3.1 million of accrued expenses. We are committed to prudently managing our cash and liquidity position while rebuilding our revenue and optimizing our cash SG&A expenses.

We recently closed on new financing that provides additional working capital and bolsters our balance sheet. This added approximately $1.2 million after fees to our balance sheet and our cash position today is approximately $2.5 million. In addition, we continue to reassess every expense line on our P&L and are working to streamline costs out of our infrastructure while focusing on thoughtfully targeted marketing spend to generate positive ROI and revenue growth.

With that, I'll turn it back over to Ronan.

Thanks, Brad. At the heart of cbdMD lies unwavering dedication to offering our customers natural wellness solutions that significantly enhance their daily lives. cbdMD remains a brand with very strong, loyal customer base with tremendous potential. We are encouraged by the strong rapid adoption of our new functional motion brand ATRx.

The next few months are critical as we look to continue to build momentum and over-deliver on ATRx retail launch and prepare for any our commitment to responsibly managing our brand and maximizing shareholder value remains steadfast as we continue to navigate the complexities of our turnaround plan. Thank you. For your continued support and belief in our vision.

And now I'll invite your questions to further discuss that.

We will now begin the question-and-answer session. (Operator Instructions) Anthony Vendetti, Maxim Group.

Thank you, yeah, Ronan I was just wondering if you could talk a little bit more about on the relationship with Sprouts Farmers Market, how many products are available and how many locations? And then is that the new mushroom ATRx product, is that is that going to be available there is a available at different locations?

Hi, Anthony of So we launched in the 160 Sprouts stores. We're pretty happy with the with two SKUs on two of our gummy SKUs, and we're pretty happy with the velocity of those out of the gates. We continue to sort of show work with them to deepen the relationship and figure out what other opportunities we have to gain shelf space.

One of the things we have on, we are looking or would love to sort of continue to expand is of our functional gummy product through ATRx with Sprouts. But we're still working through our relationship and on opportunities to expand with that.

And then, Ronan, you had mentioned on the last call that we at that time you had some issues with the Facebook, your Facebook account. Have you regained access to your Facebook account and have any of the issues around advertising been resolved? Everything back up running there?

Yeah. As of sort of midway through the first quarter, we did have it's sort of full access, and we're continuing to work to improve and optimize our return through that channel.

Okay. And then just in terms of the mushroom SKU that you're talking about, where is that currently being launched? How many M&A locations? And can you elaborate a little bit more on the opportunity there?

Yeah. So we are not able to say what retailer. I think we made the sort of the decision a little earlier to announce that just because we went out and found some additional financing and spend needed to sort of leverage and bolster our balance sheet to support some of the working capital build.

It is within National retail. We are first finalizing on you how expansive that launch will be on. And at this point, the four SKU for new SKU's that the launch is part of. So we're pretty excited about getting that placement and building the inertia four for this new brand.

Okay. And then on the integration onto the Shopify platform, how is that going are all your e-commerce sites now on the Shopify platform?

Yes, for all sites having converted over and we're continuing to sort of leverage the certified network and to optimize that to our benefits.

Okay, great. Thanks very much. I'll -- back in the queue.

Thanks.

(Operator Instructions) Jim Schaeffer, private investor.

Hi, everyone, and thanks for taking my call. First, regarding the annual meeting, preliminary proxy have identified at least two clerical errors and have e-mailed the details to ir@cbdmd.com. So you got that from I --

Yes, G&A expenses. Okay. deal laid out for converting the Series A preferred stock to common stock isn't any better than the August 2023 deal. The offering is twice as much of a pie that's half the size as it was in August. So what gives you confidence that the proposal will pass that two-thirds majority shareholders Series A. shareholders vote?

Yeah, look, I think we've tried to do is take some feedback that we received around sort of where people were looking from an ownership standpoint. And understanding that sort of the preferreds were felt they needed a greater ownership stake. At the same time, we have to balance sort of the requirement of making sure we believe we can get the common, to vote for the proposal or without the common on sort of any proposal isn't going to work.

So it's sort of challenge to navigate sort of the and balance sort of the demands of both shareholder questions. But knowing that ultimately, if no, neither class votes in favor, then I think yes, but the listing at risk for everybody. So and yes, we're trying to sort of ensure that the preferred end up with the significant now of a materially increased amount of ownership over where the proposal was last year on year.

We've tried to add some incremental cash to the balance sheet and will position us for the companies that come in through this year. We have working capital in the unit and can hopefully unlock some additional value for shareholders cleaning up the cleanup service dual-class structure.

Okay, thanks.

[Bob Berlacher], Private Investor.

Hey Ronan, the gentleman just before me asked similar question, but by my back of the envelope, again depending on the convert that you just did financing the common stock, if it is lucky enough to hold at these levels, I would. Assume that once those converts are converted, the stock will come under some kind of pressure and the preferred based on your even [61] are going to.

Own less of a percentage as the gentleman before me said then. The offer that you made months ago. So like him, I'm and preferred holder, I don't understand how you think you're going to potentially get two-third of the vote and yet we'll spend money on this proxy solicitation.

And I just I want to know what calculation management of the board did to come up with the six for one, but also with the financing that was just done the dilution if you throw that into the common count, you're we're going to get 80% or less of the company as preferred holders, and I'd just like to know what your comments are on that please.

Sure, Bob. Look, I think our goal is to be able to pay off the, the, the financing over the 18 months and minimize the diluted impacts on that. And then fundamentally we were trying to take some of the feedback around ensuring we had. Additional capital and the balance sheet and 90%-plus ownership of the preferred, I think giving the markets and given our capital structure.

Well, if you. I'm sorry. Go ahead. I interrupt. Go ahead.

Additionally given where the book value of equity trends were, I think we would have liked to have had some additional runway before we proxy this and what we saw was some concern about. Where the book value of equity was ending up in the coming months and self it prudent to try to move to get ahead of that and you minimize incremental expenses tied to proxy including in the in the annual meeting.

How would you expect to pay back the debt? on whether the preferreds convert or not, where is the cash flow that the company is going to potentially generate profits that are going to potentially be able to retire $1 million on top of the fact of $1.5 million really on top of the fact that.

There's nothing to prevent the convert holders from converting in advance of that 18 month maturity and now selling stock, which is fine. But again, increasing the common share count. And therefore, not only diluting the common holders, but diluting the preferred holders in the event that we might convert.

I mean, look, our goal is to continue improve the well financially and get to the positive EBITDA and generate earnings so that we can, fund this business and create a sustainable business pump.

Okay. all right. Thank you for answering my questions. I appreciate it.

Thomas McGovern, Maxim Group.

Hey, guys. Yes, I just wanted to hop on a first as a follow-up on Anthony's question. About Sprouts Farmers Markets. I mean, so you sold 150 locations, which was the figure that was given at the end of the fiscal year 2023. However, in your press release dated January 18, 2024, as you mentioned, there was 175 locations. I just wanted to clarify that. Is it 150 locations or about 175 locations?

Tom, I think it was closer to the 175 locations.

Okay. I appreciate the clarity and then finally, just real quick, just wanted to see if there's any notable updates on your efforts to pursue a FDA regulation of CBD products? And if so, what are they? And if not maybe do you have any expectations on when we could expect some developments in upfront, whether there are some upcoming events or dates that we should be looking out for that could serve as a catalyst for achieving FDA regulations?

Yeah. Look, we're staying close to on sort of what is happening and trying to make sure that we have a voice on, I guess, given where the political climate is today and forthcoming election, we don't really see a and in material movement at the national level here for 2024. We are seeing an increase in activity at the state level.

So we're staying as is on top of that as much as we can. To ensure that sort of, we're aware of what's happening, we can voice and we can reach out to appropriate States and educate them about our product and category and all the benefits and hopefully improve or sort of minimize any changes to the State level legislation?

Well, I appreciate you taking the time to answer your questions.

This concludes the question-and-answer session. I would now like to turn the conference back over to Ronan Kennedy for any closing remarks. Please go ahead.

Thank you again for your ongoing support, and I look forward to our upcoming shareholder meeting at the end of March. Thank you.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.