Charlotte’s Web Delivers Operating Improvements on Lower Revenue in Second Quarter of 2022
- Operating Expenses improved 31.5%
- Cash increase over Q1 of 2022
DENVER, Aug. 9, 2022 /PRNewswire/ – (TSX: CWEB) (OTCQX: CWBHF), Charlotte’s Web Holdings, Inc. (“Charlotte’s Web” or the “Company”), the market leader in full-spectrum hemp extract wellness products, today reported financial results for the second quarter ended June 30, 2022.
Net revenues for the second quarter of $18.9 million were $5.3 million lower year-over-year, reflecting lower comparable retail shipments and lower traffic to our e-commerce site, partially offset by modestly higher conversion rates.
Jacques Tortoroli, Chief Executive Officer
The quarter also included a $0.9 million returns reserve related to a specific customer. Before the impact of the returns reserve, total net revenues for the quarter were comparable to Q1 of this year.
“While we are disappointed with the second quarter revenue, we achieved significant distribution and customer wins consistent with our growth priorities to expand our coverage in existing channels and enter new verticals. Charlotte’s Web products are now available for employer wellness programs through our recent partnership with SBM Ltd.; and in significantly more pharmacies through a new national distributor, giving us increased availability in the industry’s largest channel after e-commerce. These new business wins did not contribute to our second quarter performance but will increasingly contribute to growth opportunities moving forward. At the same time, we continued building our international footprint by entering a distribution agreement with a strategic partner for Greater China,” added Mr. Tortoroli.
On the International regulatory front, Charlotte’s Web “Original Formula” CBD oil has been placed on the Foods Standards Agency list of products allowed to be sold in the U.K. Charlotte’s Web is the only substantially vertically integrated US company with a full-spectrum hemp extract to have passed the validation phase and advance to the safety assessment phase in the United Kingdom. Recently, regulatory progress was also made in Canada, where the Scientific Advisory Committee for Health Canada unanimously agreed CBD is “safe and tolerable for short-term use”, and recommended hemp CBD products should be considered for mainstream retail availability.
“We’re also focused on improving operating cash flow as we progress through the second half of the year. Operating expenses were down over 31.5% year-over-year in the second quarter. In July, we further lowered our staffing levels and administration expenses. In aggregate, our focus on right-sizing our business is bringing operating expenses below $70M on an annualized run rate,” added Mr. Tortoroli.
Q2-2022 Financial Review
For the three-month period ended June 30, 2022, net revenue was $18.9 million, a decrease of 21.8% versus $24.2 million in Q2-2021. The decrease was primarily due to lower comparable customer shipments, consumer shift to lower priced formats, a return reserve as well as lower comparable online traffic.
Direct-to-consumer (“DTC”) eCommerce net revenue was $13.3 million, a decrease of $2.4 million or 15.3% due to lower year-over-year traffic, partially offset by increased conversion rates which improved 1.9 percentage points to 15.6%. Charlotte’s Web maintains the largest e-commerce business in the CBD industry; and e-commerce represents the largest channel in the industry with an approximate 40% market share according to the Brightfield Group
Business-to-business (“B2B”) net revenue was $5.6 million after a $0.9 million returns reserves. This was $2.9 million, or 33.9%, lower year-over-year primarily due to lower comparable shipments to some of the Company’s largest retail customers. Charlotte’s Web holds the number one share position across major retail channels including food/drug/mass retail, natural grocery & vitamin retailers, and e-commerce, based on market share data from leading third-party analysts such as The Nielsen Company (total xAOC), SPINS (SPINS Total US), and Brightfield Group, respectively.
Gross profit was $9.3M, or 49.4% of revenue versus $15.8 million and 65.5% of revenue respectively in Q2-2021. The decrease was primarily related to lower net revenue including a $0.9 million customer return reserve, and $1.9 million of inventory provisions. Excluding the return reserve and inventory provisions, gross profit was 61.0% of revenue.
Total selling, general and administrative (“SG&A”) expenses of $17.3 million improved 31.5% year-over-year due to a $7.9 million reduction versus Q2-2021. The improvement reflects lower employee headcount and compensation, and increased operating efficiencies resulting from actions implemented year-to-date.
An operating loss of $7.9 million in the second quarter of 2022 was $1.9 million higher than Q2-2021. The increased loss was primarily attributable to lower net revenues, higher return reserves and increased inventory provisions, which were offset by significantly reduced operating expenses. The net loss for the quarter was $7.9 million, or ($0.05) per share on a basic and diluted basis, compared to a net loss of $5.9 million, or ($0.04) per share on a basic and diluted basis in Q2-2021.
Adjusted EBITDA1 loss for the second quarter of 2022 was $5.4 million as compared to an Adjusted EBITDA loss of $5.1 million in Q2-2021.
Balance Sheet and Cash Flow
Net cash used from operations for the six month period ended June 30, 2022 was $4.3 million as compared to $16.2 million for the same period in 2021. The Company’s cash and working capital as at June 30, 2022, were $14.8 million and $64.6 million, respectively, compared to $19.5 million and $75.6 million as at December 31, 2021.
Mr. Thomas Lardieri, former Senior Vice President of Finance at ViacomCBS, Inc., will be appointed to Charlotte’s Web Board of Directors, effective August 10, 2022. Mr. Lardieri will serve as the Audit Committee Chairperson and on the Corporate Governance Committee. He replaces outgoing Director, Tim Saunders, who has resigned from his position on the Board of Directors, effective August 10, 2022, to enter retirement and spend more time with family. The Charlotte’s Web family extends its gratitude to Mr. Saunders and welcomes Mr. Lardieri.
Consolidated Financial Statements and Management’s Discussion and Analysis
The Company’s unaudited condensed consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 and the unaudited condensed consolidated Statements of Operations, Shareholders’ Equity, and Cash Flows and accompanying notes for the second quarter ended June 30, 2022 and 2021 and related management’s discussion and analysis of financial condition and results of operations (“MD&A”) are reported in the Company’s 10Q filing on the Securities and Exchange Commission website at www.sec.gov and on SEDAR at www.sedar.com, and will be available on the Investor Relations section of the Company’s website at https://investors.charlottesweb.com.
Management will host a conference call to discuss the Company’s 2022 second quarter results at 10:00 a.m. ET on August 9, 2022. To participate in the call, please dial 1-416-764-8659 or 1-888-664-6392 approximately 10 minutes before the conference call and provide confirmation number 48399638 or listen to the live webcast online.
A recording of the call will be available through August 16, 2022. To listen to a replay of the earnings call please dial 1-416-764-8677 or 1-888-390-0541 and provide conference replay ID 399638. A webcast of the call will also be accessible through the investor relations section of the Company’s website for an extended period of time.
About Charlotte’s Web Holdings, Inc.
Charlotte’s Web Holdings, Inc., a Certified B Corporation headquartered in Denver, is the market leader in innovative hemp extract wellness products under a family of brands which includes Charlotte’s Web™, CBD Medic™, CBD Clinic™, and Harmony Hemp™. Charlotte’s Web branded premium quality products start with proprietary hemp genetics that are American farm -grown using organic and regenerative cultivation practices. The Company’s hemp extracts have naturally occurring botanical compounds including cannabidiol (“CBD”), CBC, CBG, terpenes, flavonoids, and other beneficial compounds. The Company’s CW Labs R&D division advances hemp science at two centers of excellence in Louisville, Colorado, and the Hauptmann Woodward Research Institute at the University at Buffalo, part of the State University of New York (SUNY) network. Web product categories include full-spectrum hemp CBD oil tinctures (liquid products), CBD gummies (sleep, stress, exercise recovery), CBD capsules, CBD topical creams and lotions, as well as CBD pet products for dogs. Through its vertically integrated business model, Charlotte’s Web maintains stringent control over product quality and consistency with 20+ product lot testing for quality assurance. Charlotte’s Web products are distributed to more than 15,000 retail, over 8,000 health care practitioners, and online through the Company’s website at https://www.charlottesweb.com/.
Charlotte’s Web was founded by the seven Stanley Brothers with a mission to unleash the healing powers of botanicals through compassion and science, benefiting the planet and all who live upon it. Charlotte’s Web is a socially and environmentally conscious company and is committed to using business as a force for good and a catalyst for innovation. The Company weighs sound business decisions with consideration for how its efforts affect employees, customers, the environment, and diverse communities. The rate the Company pays for agricultural products reflects a fair and sustainable rate driving higher quality yield, encouraging regenerative farming practices, and supporting U.S. farming communities. Management believes that its socially oriented and environmentally responsible actions have a positive impact on its customers, suppliers, employees and stakeholders. Charlotte’s Web donates a portion of its pre-tax earnings to charitable organizations.
Shares of Charlotte’s Web trade on the Toronto Stock Exchange (TSX) under the symbol “CWEB” and are quoted in U.S. Dollars in the United States on the OTCQX under the symbol “CWBHF”. As of August 5, 2022, Charlotte’s Web had 145,453,442 Common Shares outstanding.
(1) Non-GAAP Measures
Earnings before interest, taxes, depreciation, and amortization (“EBITDA”) is not a recognized performance measure under U.S. GAAP. The term EBITDA consists of net loss and excludes interest, taxes, depreciation, and amortization. Adjusted EBITDA also excludes other non-cash items such as changes in fair value of financial instruments (Mark-to-Market), Share-based compensation, and impairment of assets. These non-GAAP financial measures should be considered supplemental to, and not a substitute for, our reported financial results prepared in accordance with GAAP. The non-GAAP financials measures do not have a standardized meaning prescribed under U.S. GAAP and therefore may not be comparable to similar measures presented by other issuers. The primary purpose of using non-GAAP financial measures is to provide supplemental information that we believe may be useful to investors and to enable investors to evaluate our results in the same way we do. We also present the non-GAAP financial measures because we believe they assist investors in comparing our performance across reporting periods on a consistent basis, as well as comparing our results against the results of other companies, by excluding items that we do not believe are indicative of our core operating performance. Specifically, we use these non-GAAP measures as measures of operating performance; to prepare our annual operating budget; to allocate resources to enhance the financial performance of our business; to evaluate the effectiveness of our business strategies; to provide consistency and comparability with past financial performance; to facilitate a comparison of our results with those of other companies, many of which use similar non-GAAP financial measures to supplement their GAAP results; and in communications with our board of directors concerning our financial performance. Investors should be aware, however, that not all companies define these non-GAAP measures consistently.
*Certain prior year amounts in the table above have been conformed to the current year presentation in accordance
with how the Company is defining the EBITDA and Adjusted EBITDA calculation as of June 30, 2022.