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
4Q20 and FY 20
OPERATOR
Good afternoon. Welcome to the cbdMD, Inc. fourth quarter and
fiscal year ended September 30, 2020 earnings call and update. This
afternoon, the company issued a press release that provided an
overview of its fourth quarter and fiscal year end results, which
followed the filing of its Annual Report on Form 10-K.
Today’s conference call 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 Ronan Kennedy, the company’s Chief
Financial Officer. Ronan, please go ahead.
Ronan Kennedy - INTRODUCTION
Thank you _________, and thank you all for joining the cbdMD fourth
quarter and fiscal year ended September 30, 2020 earnings call and
update. On the call today we also have our Chairman and co-CEO,
Marty Sumichrast, as well our Chief Marketing Officer, Ken
Cohn.
Following the safe harbor statement, Marty and Ken will provide an
overview of our business, then I’ll provide a summary of the
quarterly and fiscal year 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 year ended
September 30, 2020, 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, December 22, 2020, 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 cbdMD’s
Chairman and co-CEO, Marty Sumichrast.
SUMICHRAST – BACKGROUND AND HIGHLIGHTS
Ronan, thank you and welcome to everyone who is joining us this
afternoon.
We believe cbdMD is now one of the most successful CBD companies in
world, and cbdMD and Paw CBD have become two of the world’s
most recognizable and valuable CBD brands. cbdMD continues to
attract international attention from customers and investors alike.
Our brands’ social media dominance has fueled our online
business, which continues to drive our sales growth. In fact, based
upon a November 2020 Google Analytics Report, cbdMD.com ranks at
the top as one of the most visited CBD websites in the world. As we
look ahead into 2021, we believe our plan to expand our reach into
new product categories will not only drive sales, but will also
diversify and expand our customer demographics. As we continue to
attract world class partnerships, as we did with Bubba Watson,
Bellator MMA, Life Time Fitness and Barstool Sports, our brands
grow in status and recognition on the world stage. Here is another
example of how our brand attracts world class partners. Today, I am
proud to announce that cbdMD has become the exclusive CBD partner
of The Joe Rogan Experience podcast which plays exclusively on
Spotify and has over 200 million monthly downloads.
We believe that these achievements help our brands dominate in the
CBD industry, and also help us deliver on our financial goals as
well. Since taking the cbdMD brand public in December 2018, we have
grown quarterly sales over 900% in eight quarters. We have done
this by remaining focused on our core competency, which is our
direct-to-consumer engine. Despite the COVID-19 pandemic, we
continued to show remarkable growth throughout fiscal 2020. We have
maintained one of the strongest balance sheets in the CBD industry
and, in fact, recently more than doubled our liquidity, which now
stands today at approximately $30 million in cash, with virtually
no debt. To put this into context, we built two brands and operated
an US listed company for two years with less cash than we have in
the bank today. Furthermore, we dramatically reduced our non-GAAP
adjusted loss from operations from over $10 million in the first
half of fiscal 2020, to approximately $1.3 million in the second
half of fiscal 2020. Earlier
this year we set a goal of achieving positive adjusted operating
income during calendar year 2020, a non-GAAP financial measure. We
are presently confident we will reach this milestone in early
fiscal 2021. However, based upon marketing opportunities that may
arise during the year, achieving this goal may be extended later
into the fiscal year. We
believe we are positioned to take advantage of a unique
opportunity, which is to gain a meaningful amount of the $2 billion plus
total addressable global CBD market - a market which according to
several leading industry analytic firms, including leading
analytics firm the Brightfield Group, is expected to grow to over
$10 billion by 2025. We believe that we are demonstrating our
ability to gain significant market share by reporting
quarter-over-quarter net sales growth of 23% and year-over year net
sales growth of 77%, both resulting in record quarterly and annual
net sales of $11.7 million and $41.9 million, respectively, as of
September 30, 2020. While we have not committed to any financial
guidance, we do expect robust sales growth to continue in fiscal
2021.
Finally, with respect to the regulatory climate for CBD, with
continued attention on COVID-19 and the pending change in
Presidential Administrations, we do not expect any FDA regulatory
guidance for CBD in the near future. Therefore, we remained focused
on maintaining the highest manufacturing standards under GMP and
compliance with state regulations, as states take the regulatory
lead related to hemp derived cannabinoids products.
Now, it’s my pleasure to introduce Ken Cohn, our Chief
Marketing Officer, who will talk brand and marketing strategies.
Ken go ahead…
YCBD Earnings Call Script
4Q20 and FY 20
[Break To Ken Cohn]
Thanks Marty and welcome everyone.
I believe that 2020 is the “Year of Separation” within
the CBD category and for cbdMD, 2020 has offered a landscape of
opportunities to continue to drive and solidify both our cbdMD and
Paw CBD brands’ distinction.
We continue to lean heavily on making data-driven decisions, with
insights garnered each quarter. We faced a number of questions and
challenges coming into this most recent quarter. How do we continue
to accelerate the brand, drive our consumers’ trust and
capitalize on our surging e-commerce traffic, while at the same
time, educate, inform and convert our new and returning customers?
As we considered these important questions, we focused on key
performance indicators, or KPI’s, such as: average order
value, retention rate and website traffic, to name just a few. We
utilize these non-GAAP measures in internally analyzing the
effectiveness of our advertising spend and marketing initiatives,
and believe these metrics are important to our investors in their
review of our financial performance. Our customer retention rate,
representing existing customers who purchased at least once during
the quarter, continued to increase throughout the year. In this
past quarter, returning customers spent more money per order
– reaching approximately $88 in average order value,
purchased more frequently - now a median of once every 39 days -
and bought more items, per order, as compared to the previous three
quarters. And, regarding our direct-to-consumer website traffic, in
the fourth quarter of fiscal 2020 our new website traffic increased
13% over the prior quarter, with the largest increase being via
organic traffic.
Data continued to aid us in amplifying the effectiveness of our
email marketing. While we sent less emails to our entire, growing
database, we focused on segmented, relevant content and
information. As such, our we have experienced continued growth in
our open and click thru rates.
This past quarter, we launched cbdMD’s first nationally
viewed TV advertising campaign. cbdMD’s 30-second
“Conquer the Day'' commercial was broadcast across multiple
national cable networks, with very promising metrics, followed by a
15-second version as well. You can view that commercial on the home
page of cbdMD.com. Average orders continue to strengthen since
launching in September 2020, which is bolstering our confidence in
this advertising medium as we look to expand our TV advertising
campaign in 2021.
Paw CBD showed excellent first full year net sales of approximately
$4.5 million for fiscal 2020, and the brand’s metrics continue to move in a
positive direction. We are seeing the direct-to-consumer power
of cbdMD.com
translate into significant growth
for PawCBD.com,
as Paw CBD’s direct-to-consumer sales account for over 70% of
the brand’s net sales during the 2020 fiscal year. We
continue to focus on cross-selling, customer retention and
education, and are planning to roll out Paw CBD’s
subscription and reward programs in fiscal 2021. As we seek to
mimic the expansion of cbdMD’s success, our goal is to make
the Paw CBD the
dominate brand in the CBD pet
market.
We also were very proud of the awards and accolades we received for
many of our products. The Brightfield Group named cbdMD a Top 10
domestic brand in two booming categories: Topicals and
Skincare/Beauty. cbdMD was also 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 a survey
conducted by Brightfield Group of more than 3,500 CBD users.
Brightfield Group also ranked cbdMD as the top brand for high
quality, innovative and reliable. Paw CBD has also won several
awards including Pet Innovation Award for Best Dog Calming Product
of 2020 and 2019’s Pet Business Magazine Industry Recognition
Award for Dog Calming Aid. During fiscal 2020, Paw CBD also
launched a category-first partnership with
TripAdvisor.
Our B2B brick and mortar business has seen numerous achievements as
well. First, our GNC partnership is both live on the GNC e-commerce
site as well as on shelves in 90 GNC franchise locations. Second,
several of our regional partners continue to expand distribution of
our products, such as Save Mart who increased their distribution
from 5 to 100 of their locations. Life Time is another example of
our retail expansion success story. After strong customer demand,
Life Time expanded their distribution from 23 to 124 locations.
Third, we are also excited to announce that Shop HQ launched with
us this month and we look forward to providing more updates in the
coming weeks. And fourth, we have solidified our expansion into the
lucrative c-store distribution channel and have secured
distribution for up to 3,000 new locations, with an expected launch
in January 2021.
With that, I’ll now turn the call over to our CFO Ronan
Kennedy to review our most recent financial results.
[BREAK TO Ronan Kennedy]
Ronan Kennedy – FINANCIAL HIGHLIGHTS
Thank you, Ken. I’m going to start with a brief summary
of our GAAP-based results.
On a GAAP basis, total net sales for the fourth quarter hit
another all-time high of $11.7 million, or a 23% year-over-year
increase and a 10% sequential quarterly gain. For the
fiscal year ended September 30, 2020, audited net sales were $41.9
million. This was a 77% increase over the fiscal 2019
results.
YCBD Earnings Call Script
4Q20 and FY 20
Our quarterly direct-to-consumer sales also hit a record high of
$8.6 million in the fourth quarter of fiscal 2020, a 58%
year-over-year increase. For fiscal 2020, direct-to-consumer sales
totaled $30.5 million and represented a 106% increase over fiscal
2019. Our marketing investments and emphasis on developing a direct
relationship with our customers paid off well during the year
resulting in our direct-to-consumer sales growing to 73% of our
total net sales in fiscal 2020, compared to 63% in the prior
year.
Our wholesale business genered $11.3 million of net sales for
fiscal 2020. Despite the challenges presented by COVID-19 during
fiscal 2020, this still represents a 29% year-over-year increase.
We did see a rebound during the fourth quarter in wholesale
business which generated a total of $3.1 million in net sales,
representing 29% sequential quarterly growth.
Our goal has always been to maintain a gross profit margin between
63% to 70%. Our GAAP gross profit as a percentage of net sales
came in at 54.4% for the fourth quarter of fiscal 2020, compared to
56.7% for the comparative prior year period. For fiscal 2020 our
gross margin was 63.0% compared to 61.4% for fiscal 2019. The
fourth quarter GAAP gross profit margin was after accounting for a
non-cash inventory adjustment of $1.66 million. We generated a
fourth quarter non-GAAP adjusted gross profit margin of
68%. The $1.66 million non-cash adjustment is mostly due
to writing off old raw materials and a net realized value
adjustment of non-core inventory. Going forward we expect to
maintain our gross profit margins between 63% and 70% as we seek to
maintain strong direct-to-consumer revenue and take advantage of
increasing operating leverage.
We ended the year with $14.8 million in cash and cash equivalents
on hand. Coupled with the approximate $15.7 million in net proceeds
from our preferred stock offering completed earlier in December
2020, we believe we have a very strong cash position going into
calendar 2021, and more than ample capital to execute on our fiscal
2021 strategy. We believe this puts us in an enviable position in
our industry and allows us to utilize our balance sheet to make
further scientific and regulatory investments, continue to invest
in incremental strategic marketing efforts, including increasing
our TV spend, and support our efforts to expand our product
portfolio.
Our operating
expenses for the September 30, 2020 quarter were $10.8 million
which is an increase of 1.7% over the September 30, 2019
quarter. Overall, this resulted in a GAAP loss from
operations of approximately $4.5 million for the September 2020
quarter, a 14.2% reduction in loss from the prior year period. For
fiscal 2020, our operating expenses were approximately $43.9
million, resulting in a GAAP operating loss from operations of
$17.5 million, an 18.8% increase in loss from fiscal
2019.
The company spent considerable time in the third and fourth
quarters of fiscal 2020 focusing on reducing our cash expenses, and
during the fourth quarter we spent additional time focused on our
balance sheet. We believe the cost control measures made during
fiscal 2020 along with our September 30, 2020 balance sheet
position us well for fiscal 2021. Along with the $1.66 million
non-cash inventory expense previously mentioned, we incurred a
number of accruals and non-recurring or discretionary expenses
during fourth quarter. Our non-recurring operating expenses for the
fourth quarter included a $438,000 one-time accrued expense related
to severance, $102,000 write down of old receivables, $200,000 in a
discretionary bonus accrual and together with $760,000 in non-cash
stock expense resulted in a non-GAAP adjusted operating loss of $1
million for the fourth quarter of fiscal 2020 as compared to a $4.1
million non-GAAP adjusted operating loss in the fourth quarter of
fiscal 2019. The increase in non-GAAP adjusted operating loss over
the June 30, 2020 quarter was mainly attributed to
management’s decision to increase discretionary marketing and
affiliate expenses by $533,000 for the quarter and allocate
expenses toward IP related items. The 2020 full year non-GAAP
adjusted loss from operations totaled $11.5 million, similar to the
comparative prior year period. As previously mentioned,
approximately 89%, or over $10 million of this year’s
non-GAAP adjusted operating loss occurred in the first half of the
2020 fiscal year.
Other income / expense on our consolidated income statement
includes a non-cash contingent liability charge 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 of fiscal 2020 we had an increase in
value of $800,000 to approximately $16.2 million, which created a
corresponding other non-cash expense. For the fiscal year,
the total non-cash gain from the contingent liability was $29.8
million. The changes in the valuation of the contingent liability
was primarily a result of the change in the market price of our
common stock from period to period.
YCBD Earnings Call Script
4Q20 and FY 20
We had cash and cash equivalents of approximately $14.8
million and working capital of approximately $16.0 million on
September 30, 2020 compared to cash and cash equivalents of
approximately $4.7 million and working capital of approximately
$12.0 million as of September 30, 2019. Our current assets as of
September 30, 2020 increased 51% from prior year end to $23.7
million. A primary driver of the increase in current assets was the
increase in cash and prepaid sponsorship expenses which was offset
partially by decreases in accounts receivable, marketable and other
securities, merchant reserve, prepaid expenses, and assets from
discontinued operations. As of September 30, 2020, the
company’s total current liabilities were $7.6 million, of
which approximately $2.8 million is accounts payable and $2.9
million is accrued expenses. The company has approximately $224,000
of financing notes on equipment for our manufacturing facility as
well as a $1.45 million SBA loan from the Paycheck Protection
Program.
We consider fiscal 2020 to be a success in many ways beyond our
strong gains in revenue and second half adjusted earnings
improvement. Our operations team made significant strides this past
year too.
●
We
moved from a 5,000 square foot warehousing/fulfillment space to an
80,000 square foot facility;
●
We
expanded our lab space by 130% and upgraded environmental
parameters to meet NSF audit standards;
●
We
completed the audit and registrations for both GMP and NSF,
obtaining FDA registered facilities; and
●
We
introduced over 200 new SKUs to our portfolio.
All of these accomplishments have been completed while maintaining
budget levels and controlling payroll and while navigating through
COVID-19 this year. We are proud of our team’s success and
excited to see what they can accomplish in the coming year.
With that, I’d like to now turn the call back over to
Marty.
[BREAK TO MARTY]
Thanks Ronan.
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.