cbdMD, Inc. (NYSE:YCBD), a leader in the cannabidiol (CBD) industry, reported its third-quarter fiscal 2024 results, noting a 15% decrease in total net sales year-over-year to $5.1 million. Despite the sales decline, the company highlighted improvements in gross margins, reductions in selling, general and administrative (SG&A) expenses, and operational efficiencies.
The direct-to-consumer segment saw incremental gains, attributed to a revamped sales strategy and the hiring of new sales personnel. The company also reported growth in its wholesale business, driven by new customer acquisitions. cbdMD remains committed to executing its strategic plan and delivering shareholder value, with a focus on achieving positive EBITDA and addressing compliance with NYSE American listing requirements.
Key Takeaways
- Total net sales decreased by 15% to $5.1 million, with e-commerce accounting for 76% of total sales.
- Gross profit margin improved to 65%, and SG&A expenses decreased.
- The company reported a loss from operations of approximately $400,000 but generated about $200,000 in cash during the quarter.
- Cash and cash equivalents stood at $2.3 million.
- cbdMD is working on optimizing its customer acquisition funnel and plans to increase marketing spend.
- The ATRx brand showed progress, with ramped-up marketing efforts anticipated.
- The company is awaiting UK FSA approval for its submission on higher daily CBD levels than proposed.
- cbdMD submitted a plan to NYSE American to regain compliance with listing requirements.
Company Outlook
- cbdMD expects efficiencies in the September and December quarters to push the company into profitability.
- The company is focused on simplifying its equity structure and addressing shareholder concerns regarding cash burn and dilution.
- cbdMD is committed to resolving legacy issues and executing its strategic plan.
Bearish Highlights
- The CBD category faces challenges due to industry consolidation and a complex regulatory environment.
- Total net sales saw a significant decline compared to the previous year.
Bullish Highlights
- Incremental gains in the direct-to-consumer segment and growth in the wholesale business.
- Gross margins and operating income showed improvements.
- The company is confident in its strategic plan and its ability to operate at or above breakeven levels.
Misses
- Loss from operations was reported at approximately $400,000.
Q&A Highlights
- Ronan Kennedy, a company representative, acknowledged the contribution of the new sales team and strategy changes to the positive results in the quarter.
- The company plans to leverage recently published data in its sales approach, focusing on products with strong clinical support.
- Kennedy highlighted that all three claims in a recent study showed statistically significant data and that the company is seeking to strengthen its data further.
InvestingPro Insights
cbdMD, Inc. (YCBD), despite its strategic initiatives, faces significant financial challenges. Here are insights from InvestingPro that may be relevant for investors considering the company's performance and future prospects:
InvestingPro Data highlights a concerning decline in revenue, with the last twelve months as of Q2 2024 showing a -25.0% change. This is underscored by a quarterly revenue decline of -29.86% for Q2 2024. The company's market capitalization stands at a modest $1.83 million, reflecting the impact of these financial struggles on its valuation.
The gross profit margin appears relatively healthy at 62.7%, but the operating income margin is deeply negative at -33.93%, indicating that despite a good gross profit margin, the company's operating costs are eroding its potential profitability. The stock's price movements have been quite volatile, with a -10.19% one-week total return, and a significant -64.07% one-year price total return, which may signal investor concerns about the company's financial stability.
InvestingPro Tips for YCBD show that analysts are not optimistic about the company's profitability in the near term, with a significant debt burden and potential difficulties in making interest payments on that debt. Additionally, the stock is trading at a low revenue valuation multiple, and the valuation implies a poor free cash flow yield. These factors could be crucial for investors to consider, especially in light of the company's stated focus on achieving positive EBITDA.
For those interested in a deeper dive into cbdMD's financial health and future outlook, InvestingPro provides additional tips on its platform, with a total of 14 InvestingPro Tips available for YCBD at https://www.investing.com/pro/YCBD. These tips offer a comprehensive analysis of the company's financial metrics and market performance, which could be invaluable for making informed investment decisions.
Full transcript - cbdMD Inc (YCBD) Q3 2024:
Operator: Good afternoon. Welcome to cbdMD's, Inc. June 30, 2024 Third Fiscal 2024 Quarter and Earnings Call and Update. This afternoon, the company issued a press release that provided an overview of its third 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 the cbdMD retention policies. All participants on this call are in 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 Brad Whitford, the company's Chief Accounting Officer. Brad, please go ahead.
Brad Whitford: Thank you, Brenda and thank you all for joining cbdMD's June 30th, 2024 third quarter of fiscal 2024 earnings call and update. On the call today, we also have Ronan Kennedy, our 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 the 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 June 30th, 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, Wednesday, August 14th, 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.
Ronan Kennedy: Thank you, Brad. Good afternoon everyone. On our last call, I discussed key initiatives designed to propel the company forward on our path to profitability. Over the past few months, we've been fully focused on executing this plan and delivering measurable results. While year-over-year revenues were down, nearly every other key financial metric improved significantly. Gross margins increased, SG&A expenses decreased, and we saw improvements in operating income, net income, and EBITDA. Even sequentially, our key metrics trended positively, including revenue growth. These numbers reflect only a portion of the efficiencies we implemented since our last call and I am extremely proud of our team's resilience and hard work as we continue to undergo a positive change. Our direct-to-consumer segment saw incremental gains during the quarter as we focused on enhancing customer experience, refining our messaging, and ensuring we have the right resources in place to drive revenue growth. We recognize there is still work to be done in optimizing our customer acquisition funnel and we plan to increase marketing spend in the current quarter to support this. Our wholesale business was buried by a number of new customer wins in addition to consistent reorders from core customers. We are actively collaborating with our retail partners to better position our products in the market, both in terms of consumer appeal and economic viability for retailers. Our ATRx brand made some progress during the quarter. We are ramping up marketing efforts and working to drive further growth during the quarter. The CBD category remains challenging on dynamics. We've observed some consolidation in the industry and seen a number of participants to. We remain vigilant, particularly regarding the regulatory environment, which continues to evolve rapidly at the state level. Our focus is on remaining agile and strategically investing in marketing dollars to ensure sustainable, profitable growth. One of cbdMD's value proposition is its brand built on a foundation of trust. It stands for safe, effective products based on science and backed by clinical research to help you in your everyday way. During June, our human clinical was published in a leading peer-reviewed Sports Nutrition Journal supporting statements around pain reduction, improved mood and reduced stress. We also received feedback on our UK FSA submission during the quarter. We've answered all the questions and receive positive feedback that our dossier is a final view to establish the approval serving size. The UK FSA is in the final stages of reviewing the safety levels outlined in our submission, and we are confident our data supports daily levels much higher than the arbitrary provisional accepted daily intake levels proposed at 10 milligrams per day. In June, we received notice from the NYSE American that we sell below the minimum book value listing requirement of $3.5 million. This did not come as a surprise and something we disclosed in our recent proxy statement should a proposal to amend the Series A preferred stock designation not received shareholder approval. Our preferred dividend continues to accrue $1 million per quarter, which impacts equity and shifted to a liability. One of the most straightforward path to regaining compliance is addressing our crude preferred dividend. In early July, we submitted a plan to the NYSE outlining several parallel strategies we are pursuing to regain compliance with the NYSE American continued listing standards by the December 2025 deadline. We expect to hear back from the NIC (NASDAQ:EGOV) American this month. Maintaining our listing on a major market is critical for preserving and enhancing shareholder value. With that, I'll turn things over to Brad to provide more color on our financials.
Brad Whitford: Thanks, Ronan. Total net sales for the third quarter of fiscal 2024 were $5.1 million. While this represented a 15% decrease from the prior year comparative quarter total of $6.1 million, sequential revenues improved by 18%. Our quarterly e-commerce direct-to-consumer business generated sales of $3.9 million in the third quarter of fiscal 2024. This was a 25% year-over-year quarterly decrease but 9% sequential increase. We believe the year-over-year decrease is primarily attributable to continued reduced marketing expenses, competitive category and macroeconomic forces on consumers. E-commerce represented 76% of our total net sales for the third quarter of 2024 versus 82% in the prior year comparative quarter. Our wholesale business generated $1.2 million of net sales for the third quarter of fiscal 2024, up 10% as compared to $1.1 million for the comparative quarter in fiscal 2023. The increase is primarily due to the growth of certain CBD accounts and new customer acquisition. Our gross profit as a percentage of net sales increased to 65% for the third quarter of fiscal 2024 as compared to 63% in the prior year comparative quarter. This increase is driven by ongoing efforts to control product call. Our SG&A expenses for the third quarter of fiscal 2024 totaled $3.8 million compared to $5.7 million in the prior year comparative quarter. Our costs came down across the board as management continues to focus on efficiencies to drive profitability. Overall, this resulted in a loss term operations of approximately $400,000 for the third quarter of fiscal 2024 as compared to $1.8 million loss from the prior year period. Our non-GAAP adjustments to operating expenses for the third quarter of fiscal 2024 include $9,000 and non-cash employee stock expense $287,000 in depreciation and amortization expense, resulting in a historic set to non-GAAP adjusted operating loss of $87,000 for the third quarter of fiscal 2024, as compared to a $600,000 non-GAAP adjusted operating loss in the third 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 third quarter of 2024 include a non-cash contingent liability gain of $850,000 related to the change in fair value of our convertible debt. As a result of the contingent liability, the GAAP balance of the notes totaled $1.4 million at the end of the third quarter, despite only having a principal balance at June 30, 2024, of approximately $1.07 million. During the quarter, we continued our focus on expenses, balance sheet and cash flow management. This focus allowed us to generate approximately $200,000 of cash during the third quarter of fiscal 2024. We had cash and cash equivalents of approximately $2.3 million and negative working capital of approximately $567,000 on June 30, 2024, as our working capital was significantly negatively impacted by the $3.7 million of accrued dividend payable. At September 30, 2023, we had cash and cash equivalents of approximately $1.8 million and working capital of approximately $3.4 million. Our current assets as of June 30, 2024, decreased approximately 9.6% from September 30, 2023, to $7.3 million. A primary driver of the decrease in current assets was the usage of cash for operations. As of June 30, 2024, the company's total current liabilities were $7.8 million, of which approximately $1.2 million is accounts payable, $3.7 million accrued dividends, $800,000 of accrued rent for our former executive offices and $400,000 of other accrued expenses. We are currently negotiated with – negotiating with our former landlords for our executive officers on a resolution to the background. Achieving positive EBITDA remains our top priority. And with this quarter's record non-GAAP EBITDA loss of just $87,000, we are closer to ever – than ever to reaching that goal. Last quarter, we identified approximately $200,000 in monthly efficiencies that we began implementing in April, including renegotiating vendor terms, eliminating contracts, securing facility savings, reducing headcount and tightening non-essential spending. These measures have already had a significant impact, contributing to our progress this quarter. However, due to the timing of implementation, only a portion of these efficiencies were realized in the June quarter. We expect additional savings to be realized in the current quarter, particularly with the elimination of our headquarters facility rent, approximately $85,000 per month in August. These savings position us well to eliminate our operating cash burn in the coming quarters. We remain diligent in controlling costs and are actively exploring other ways to enhance and strengthen our balance sheet and cash position. With that, I'll turn the call back over to Ronan.
Ronan Kennedy: Thanks, Brad. In our last call, we emphasized that the best path to creating shareholder value lies in two key areas: running a profitable business and streamlining our capital structure. We continue to make significant strides toward profitability with notable progress in the third fiscal quarter. Our industry-leading gross margins are a testament to our efforts and we remain committed to driving revenue growth, while maintaining a lean and efficient operation. Although, we've seen progress this past quarter, we are particularly excited about the efficiencies expected to materialize in the September and December quarters, which we believe will help push us across the profitability threshold. One of the key concerns raised by shareholders in the last proxy was our cash burn and our ability to manage within our balance sheet, particularly with concerns about dilution post conversion. We are optimistic that this quarter's results and positive trajectory will resonate with our shareholders and feeling confident in our ability to operate at or above breakeven levels. We understand the importance of addressing our multi-class capital structure and firmly believe that simplifying our equity structure is essential alongside profitability to unlocking the full enterprise value of the company. Over the coming months, we intend to reengage in discussions to find a viable solution that benefits all stakeholders. Our approach is to operate with the urgency of 100-meter sprinter, while maintaining the endurance of an Ironman triathlete, making consistent and steady progress despite the challenge we encountered. We made considerable headway in strengthening the business and resolving a number of legacy issues. cbdMD remains a strong brand that resonates with customers and backed by a dedicated and talented team. We are fully committed to executing on our strategic plan diligently in the months ahead and with the goal of delivering meaningful value to our shareholders. Thank you for your continued support and confidence and our vision. I now welcome your questions.
Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Gene Schaefer with a private investor. Please go ahead.
Unidentified Analyst: Hi, thank you. I was wondering if you can share the details of the plan you submitted to NYSE American to address the compliance issue?
Ronan Kennedy: Well, look, there are several paths that we have that we think can help us stabilize our book value of equity. There's things on our balance sheet we are working on. We believe there's going to be another proposal to our shareholders. And we're talking -- we're looking at every sort of opportunity that we see as a viable solution to bolstering and stabilizing that book value of equity.
Unidentified Analyst: Okay. Is the December 31, 2025 date -- December 5, 2025 date of typo? Under the 2024.
Ronan Kennedy: Sorry, I didn't hear all the questions broke up.
Unidentified Analyst: Yes. You saw that compliance...
Ronan Kennedy: Yes. Can you repeat the question, Gene?
Unidentified Analyst: Regain compliance with the continued listing standards by December 5, 2025. Is that a typo? Should it be 2024?
Ronan Kennedy: No, it's 20 -- what they asked us to do is present the plan to get back into compliance by December of 2025.
Unidentified Analyst: Okay. And it's mid-August now? Have you heard a response?
Ronan Kennedy: We have not received a response yet.
Unidentified Analyst: Okay. Thank you.
Ronan Kennedy: You’re welcome.
Operator: [Operator Instructions] The next question comes with Thomas McGovern with Maxim Group. Please go ahead.
Thomas McGovern: Hey, guys. How's it going? Congrats on the quarter. Yes. So, first question is on sequential sales growth. I'm just curious, last quarter, you guys announced the hiring of some key sales personnel, as well as this revamped strategy that was from my understanding focusing more on the functionality of the products. So maybe you can walk me through first in the second quarter, how much of the sequential improvement can be attributed to this new strategy, these new salespeople? And then maybe if you want to start talking a little bit about the recently published data and how you guys plan if you're planning to incorporate that into your sales approach for marketing?
Ronan Kennedy: Sure. Look, some of our key new customer wins came from some of the new retained sales team. So it did contribute to the quarter, for sure, as well as some of the changes that we've been making on the direct-to-consumer side. I think some of the changes we made did have some positive benefits during the quarter. And then I think historically, the June quarter tends to be good to us from a seasonality standpoint. With respect to the published data, we are continuing to leave our messaging with the results of that into our messaging. We have to be careful because it doesn't cover every SKUs. So it's really just our broad spectrum of products that we've got the strongest claim around that we can leverage from the clinical studies.
Thomas McGovern: I understand. I appreciate that color. Next question is actually on the study more specifically. So I was just wondering if you could maybe unpack for us a little bit -- into a little bit more detail on what the actual results of the study was. From my understanding, I read the publication was that the most significant result was in pain reduction or perceived pain between the test group and the control group. Was this the only statistically significant difference in these groups? Or maybe if you could just go into a little bit detail what the researchers concluded from the study that'd be appreciated.
Ronan Kennedy: Sure. This is where I wish -- Civil [ph] was on the line to help us. But I think look, I think statistically, we were pleased with the results in general. We felt like all three claims gave us statistically significant data. We're continuing to look around and assess what are the other opportunities there are to strengthen the data and leverage our claims around their products. But that said, I think what we don't want to do is try to over-index just on the value of that study. We've got to get out and deliver messaging that's compelling, engaging and interesting to consumers across all our product categories, and this covers only a handful of our SKUs in our product portfolio.
Thomas McGovern: Understood. I appreciate you taking the time to answer my questions.
Ronan Kennedy: Thanks.
Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Ronan Kennedy for any closing remarks.
Ronan Kennedy: Thank you again for your ongoing support, and we look forward to our upcoming call in December. Thank you.
Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
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