Attached files
| file | filename |
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| EX-99.1 - PRESS RELEASE - cbdMD, Inc. | ycbd_ex991.htm |
| 8-K - CURRENT REPORT - cbdMD, Inc. | ycbd_8k.htm |
Exhibit 99.2
YCBD Earnings
Call Script
4Q19 and Full
Fiscal 2019
OPERATOR
Good afternoon. Welcome to the
cbdMD Fourth Quarter and Fiscal 2019 Earnings Call and Update. This
afternoon, the Company issued a press release that provided an
overview of its fourth quarter and full fiscal year results, which
followed the filing of its annual report on Form 10-K.
Today’s conference is being recorded and will be available
online at cbdmd.com in accordance with cbdMD’s retention
policies. All participants on this call will be in a listen-only
mode. The call will be followed by a question-and-answer session.
At this time, I would now like to turn the conference over to Mark
Elliott, the Company’s Chief Financial Officer. Mark, please
go ahead.
MARK ELLIOTT - INTRODUCTION
Thank you _________, and thank you
all for joining the cbdMD fourth quarter and fiscal 2019 earnings
conference call. On the call today we also have our Chairman and
co-CEO, Martin Sumichrast.
Following the Safe Harbor
statement, Marty will provide an overview of our business, then
I’ll provide a summary of the quarterly and annual financial
results, Following that, we’ll open the call up for
questions.
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 Annual Report on
Form 10-K for the fiscal year ended September 30, 2019 as filed
with the SEC today 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.com.
Any forward-looking statements made
on this conference call speak only as of today’s date,
Wednesday, December 18, 2019, 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.
With that, I’d like to turn
the call over to Chairman and co-CEO, Marty Sumichrast.
Marty?
SUMICHRAST – BACKGROUND AND HIGHLIGHTS
Mark, thank you and thanks to all
of those who are listening in on the call this
afternoon.
Before I get into the results from
the last quarter and fiscal 2019, let me take a minute and review
our history so that the recent accomplishments can be put into some
perspective. In just one year, we have built two of the leading CBD
brands in America, cbdMD and Paw CBD. We have built an
infrastructure that is more advanced than most of our competitors
in the US CBD industry, with over 130 total SKU’s, 170
employees, 11 departments, full scale manufacturing, distribution
and warehousing facilities. Building this infrastructure now has
been an important part of our plan, since we envision significant
growth over the next several years. Now let’s talk about our
results.
Our overall e-commerce sales for
the September 2019 fiscal quarter were $5.1 million or 54% of our
total net sales and for the fiscal year ended September 2019,
e-commerce sales were $14.8 million or 63% of our total net sales.
We continue to
experience rapid growth and our
sales metrics continue to remain very strong as we continue to
drive online sales through the use of gorilla marketing, social
media, athletic sponsorships, and influencer affiliate programs. As
of November, 2019, we had over 200,000 active e-commerce
subscribers, our average repeat online order exceeded $130, and our
online customer re-order rate increased throughout the year. These
are very strong metrics.
On the brick and mortar side of our
business, we’re also
experiencing tremendous success in growing the amount of retail
stores who currently carry our
brands. Our wholesale and retail customer sales for the September
2019 fiscal quarter were $4.4 million or 46% and for the fiscal
year ended September 2019 were $8.9 million or 37%. This is very
impressive since almost all of our brick and mortar sales were
generated since February 2019, after the passage of the Farm Bill.
Our retail reach is now over 4,000 retail doors and climbing. We
have started to add national retailers as well as travel retailers.
Our wholesalers have experienced demand for our products in several
international markets. We’ve created a partnership with Ultra
Sports EU, who is providing key distribution in the United Kingdom,
Ireland, and other European nations and as of this month, our
wholesale customers are currently reselling our products in 10
international markets including the United Kingdom, Costa Rica, Bermuda, Guam, Peru,
South Africa, Ireland, Guatemala, Belize, and
Mexico.
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The sponsorship and influencer
partnerships we have built are first-in-class in the CBD industry
and include The BIG3, Life Time Fitness, The World Surf League,
Supercross, Nitro Circus, ARX (Rallycross) and Bellator (MMA). Our
social media reach is enhanced by our podcast relationships that
include some of the biggest names in podcast, including Barstool
Sports. Our Team cbdMD Athletes,
including PGA Golfer Bubba Watson, Olympians Kerri Walsh Jennings,
and Lolo Jones, MMA Champions Jorge Masvidal and Daniel Cormier,
Rally Cross superstars like Ken Block and professional skateboarder
Ryan Sheckler to name a few, continue to be tremendous ambassadors
for our brand. Now that we have assembled all of these assets, we
will be activating significant campaigns in 2020 with all our
partners and ambassadors. We believe this will help accelerate the
brand building momentum we have built in 2019, convert more
customers to cbdMD and Paw CBD, which will result in more market
share and ultimately additional growth of our
brands.
Our brands have also received
leading brand recognition in the CBD industry. In July, 2019, the
Brightfield Group, one of
the leading predictive analytics and market research firms for the
legal CBD industry, named cbdMD not only a Top 10 domestic
brand in two booming categories, Topicals and Skincare/Beauty, but
also named cbdMD the “Brand To Watch", in part saying, "Trend
followers should look to emulate cbdMD's efforts, using creativity
and strategy to move forward”. And in November, in a newly released survey conducted by
Brightfield of more than 3,500 CBD users, cbdMD ranked the highest
in terms of overall consumer satisfaction as well as the highest in
unaided consumer awareness of any of the top 20 CBD brands. In
addition, according to media intelligence and monitoring company
Meltwater, cbdMD had the highest “share of voice”
throughout the entire CBD Industry for the three months ended
September 30, 2019.
Our flagship pet line, Paw CBD, is
also growing strong. Paw CBD’s product offering consists of a
comprehensive line of CBD pet products for dogs, cats & horses
that includes 34 unique sku’s. The brand is currently sold
via independent pet store channels and online at www.cbdMD.com.,
with the goal of big box retail deployment in fiscal 2020, And
despite only being a few months to market, Paw CBD has already
received top honors, as Pet Business Magazine
named Paw CBD's Calming Turkey CBD Soft Chews the top CBD
product for pets in their dog calming aids category. Our
goal is for Paw CBD to be in over 1,000 retail stores, grooming
salons and veterinary clinics by the end of calendar
2020.
As I have noted, we believe
expanding our market share, growing our revenue base and continuing
to remain one of the top brands in the CBD industry are our most
important goals for fiscal 2020. We are extremely proud of that
fact that cbdMD is reporting another quarter of record revenue and
we believe that this trend will continue. While we have invested
significantly to achieve high growth we are focused on attaining
positive cash flow from operations, which we believe we can now
achieve by October 2020. We still anticipate a 250% increase in
sales from fiscal 2019 to fiscal 2020, but as we begin to focus on
cash flow, we are adjusting our net sales guidance to between $62
million and $70 million for the fiscal year ending September 30,
2020. This new revenue guidance is based on a trajectory of
approximately 55% e-commerce sales and 45% retail brick and mortar
sales. This guidance does not include the addition of any potential
significant mass retail relationships, many of which we are in the
process of developing.
And, before I
turn things over to Mark, let me provide a brief regulatory
update. We are spending a significant amount of our budget on
R&D and testing to ensure the safety and quality of our
products. We have established a secure supply chain with
dedicated, 2018 Farm Bill compliant hemp farms and extraction
facilities to ensure the highest quality and integrity of the raw
materials we use. Every batch of finished goods are
tested with a full panel by an ISO certified testing laboratory to
ensure the quality and purity, as well as to ensure we meet our
label claims for potency. All of our products are manufactured
pursuant to GMP standards, and we are scheduled for a GMP
third-party certification on an upgraded manufacturing facility
before the end of the year. We intend to conduct third party
GMP audits multiple times per year to ensure our continued
compliance and to seek NSF GMP and Product certifications in
2020. Safety testing is conducted on our formulations, and we
are currently exploring options with regards to both GRAS and NDI
applications with the FDA. In 2020 we will be conducting
further safety testing on new formulations and also plan to
initiate clinical trials in anticipation of submitting claims
substantiation to the FDA. We are also in the process of
obtaining our NASC certification, which many larger retailers in
the pet industry require for product placement.
Now let me turn the call over to
Mark to review our most recent financial
results.
[BREAK TO MARK]
MARK ELLIOTT – FINANCIAL HIGHLIGHTS
Thank you,
Marty.
Effective September 30, 2019, we
have now completely focused our business and efforts on our CBD
business as we ceased operations of our legacy business operations
and therefore have accounted for them as discontinued operations in
our financial statements included in the Form 10-K. With this being
the case, comparatives to last year are not reflective of what the
current business has accomplished as our involvement in the CBD
business began on December 20, 2019, following our acquisition of
Cure Based Development. I will, however, provide some comparatives
to indicate progress as appropriate.
On a GAAP basis, our total net
sales for the 4th quarter ended
September 30th were approximately $9.5 million which was up
approximately 18% from our 3rd quarter ended June
30, 2019. For the year ended September 30, 2019 we had net sales of
approximately $23.7 million, which is reflective of just over 9
months of CBD sales. While we don’t include in our financials
Cure Based Developments sales prior to our December 2018
acquisition in accordance with GAAP, based on the unaudited
financials of Cure Based Development which we have reviewed, the
cbdMD brand generated approximately $1.7 million in comparative
sales from the quarter ended September 30th 2018, and $3.9 million
in sales for the year ended September 30th 2018. This would
reflect increases for the cbdMD brand year over year of 462% for
the 4th
quarter and 507% for the year.
Total gross sales for the fourth
quarter were $9.9 million with approximately $364,000 of
allowances/discounts. Total gross sales for the year were
approximately $28.1 million with $4.4 million of
allowances/discounts.
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Gross profit as a percentage of net
sales came in at 56.7% for the fourth quarter and 61.3% for the
year. The slight decrease in the 4th quarter is
primarily related to a relabeling process as well as an increase in
our wholesale sales. We expect to maintain our gross profit as a
percentage of net sales of between 60% and 65% going
forward.
Our major operating expenses were
as follows:
●
Wages
of approximately $9.0 million as we staffed up all departments and
grew from under 60 people to now 170 employees in our sales,
marketing, warehouse, laboratory, technology, customer service and
accounting areas
●
Expenses of $5.2 million for
Marketing and advertising, including but not limited to social
media, events, tradeshows, all a key part of the strategy in fiscal
2019 in building the brand and creating
visibility
●
Affiliate commissions of $1.7
million as we built multiple channels for reaching
consumers.
●
Merchant fees were $1.6 million as
we processed our sales transactions predominantly
online
●
Professional services of
approximately $1.5 million as we used many third party providers as
we built our internal infrastructure while growing and expanding
our CBD operations
●
Accounting, legal services and
business insurance of approximately $1.4 million – which
includes legal and accounting fees relating to the merger of Cure
Based Development and related SEC filings and increased additional
insurance coverages for our growth and risk exposure in the CBD
industry.
●
Travel accounted for about
$750,000
●
Rent
of approximately $700,000 as we moved into a new corporate office
to support our staff growth as well as upgraded our warehouse and
laboratory facilities to address the increase in
manufacturing
●
Non-cash stock compensation expense
– related to stock options of approximately $2.7
million
Other income / expense includes a
large non-cash contingent liability change, related to the December
2018 acquisition of Cure Based Development. The contingent
liability is revalued at the end of each quarter and during the
fourth quarter the value declined by $20 million which created
other income for that amount. . For the fiscal year ended September
30, 2019 the increase in the contingent liability created $32.4
million of other expense. The changes in the valuation of the
contingent liability, which created tis non-cash charge was
primarily a result of the change in the market price of our common
stock from period to period.
We also recorded a $5.9 million
loss in fiscal 2019, attributed to the discontinued operations,
accounting for impairments, write downs, and loss in those
businesses.
We had cash and cash equivalents of
approximately $4.7 million and working capital of approximately
$12.0 million at September 30, 2019 compared to cash on hand of
$4.3 million and working capital of $10.6 million as of September
30, 2018. Our current assets as of September 30, 2019 increased
33.5% from September 30, 2018, to $15.7 million. A primary driver
of the increase in current assets was the growth in inventory for
the year of $5.2 million as we invested in the growth of the
business during the year. In October 2019, we completed an initial
offering of our 8% Series A Cumulative Convertible Preferred Stock
for gross proceeds of $5 million, which is not reflected in our
year end financials. As of September 30, 2019, the Company’s
total current liabilities were $3.7 million, of which approximately
$3.0 million is accounts payable. The Company has $364,000 of long
term debt, which is made up of deferred rent and financing on
equipment for our manufacturing facility.
With that, I’d like to now
turn the call back over to Marty.
[BREAK TO Marty]
Thanks Mark.
As you can see, we have made
tremendous progress in one year. We are excited about the quarter
we are in now and what we can deliver to our shareholders in 2020
and beyond. With that, I'd like to open up the line for
Q&A.
[Q&A SESSION]
OPERATOR
With no further questions in the
queue, that does conclude our conference call for today. Thank you
so much for your participation. Have a wonderful day, and you may
now disconnect.
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