YCBD - Earnings call transcript Q1 2020

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Operator

Good afternoon. Welcome to the cbdMD First Quarter Fiscal 2020 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 report on Form 10-Q. 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. Instructions] [Operator

I Elliott, to Officer. the go time, over the Mark, now ahead. Mark to company’s would this turn like conference please At Chief Financial

Mark Elliott

Fiscal for and cbdMD you Jess, Conference all Thanks, First thank Quarter XXXX Earnings Call. joining

have we Sumichrast. On and Chairman also call Co-CEO, our the today, Marty

overview summary Following quarterly of the an financial Safe then business, results. Marty statement, our Harbor the I’ll provide will of provide a

call Following for open that, the questions. up we’ll

the risks February speak statements or intend the other the on SEC’s on www.sec.com. of prospects the results uncertainties has at constitute from about Private as We’d call on date, the XXXX, would occur including XX, materially and like of future ended that these or Safe that company’s SEC, of today’s reviewed that not remarks subject remind circumstances may conference Securities cbdMD cautions cause on forward-looking in and September these and to forward-looking statements amended Act the date. indicated, www.cbdmd.com and Form XX-K Any statements to does annual expectations, to to year and XXXX company’s forward-looking be report to the with Harbor filings Thursday, everyone SEC, various for Reform website XXXX. of differ our under actual can our this filed of as website those which all made only purposes cbdMD with any events at statements update for XX, forward-looking reflect today’s plans provisions are described that after risks Litigation

Sumichrast. to like Chairman I’d to call that, turn and Co-CEO, over Marty Marty? With the

Marty Sumichrast

the our revenue initial listening afternoon. net was year all who with $XX in are expectations call pleased of million over sales, of in announce quarter reported another thanks of and sales, to growth well to in generated you, total which net calendar full XXXX, first cbdMD thank million. CBD that this In our over ahead $XX.XX Mark, million record I’m quarterly sales. those we $XX on of

strong Our margins remain gross profit at XX.X%.

expect fully last We and quarter XXXX. positive financed cash are in achieve to of the flow calendar monthly

to continue major and over programs. high-traffic e-commerce over of tactics, XXX,XXX partnerships digital quarter. through marketing We drive the We online subscribers, and an use league currently various last affiliate athlete XX% of have sales active since increase

side the grow of brick-and-mortar the who we stores the to retail On brands. amount continue business, currently carry of our

last doors, that XX announce now from increased presence our increase to also selling reach our international XX quarter, and to retail now X,XXX are of over pleased are doors international and X,XXX quarter. up We an customers is markets, we’ve since retail last over in wholesale markets currently

acquiring During of facilities. distribution, the we development, manufacturing, calendar assets infrastructure as invested brand full-scale XXXX, brand-building physical build-out our with heavily as warehousing and logistics well in

we meet in invest ISO-certified of to quality Every to goods safety of to testing finished our by all laboratories the continue R&D panel well and are our our ensure products. and claims as ensure batch potency. as with full We the tested ensure products of purity and to for testing label quality of

and long-term the we’ve infrastructure, critical is We extremely believe success out of to company. we something growing that we’ve in revenues brands, In believe set successful addition leading create to effort. this our our to also been

America, in two we’ve built we fact, of leading cbdMD CBD. and believe Paw the In CBD brands

firms CBD from analytics recognition have leading received some industry. the of in brands market Our the

skincare firms analytics named a July For of CBD topicals XXXX, and top for categories, market two booming domestic leading cbdMD industry, instance, the the research one XX and Group, in brand Brightfield and the beauty. predictive in

animal the unaided users, of as Brightfield the CBD overall any consumer highest well for as highest the of consist brands. one horses, X,XXX pet customer than CBD market. cats a by the side cbdMD line comprehensive in brands was business, of and more the Paw of top CBD products of the conducted satisfaction of five animal CBD as which Brightfield in health dogs, of In Group XX survey the ranked in top offerings, awareness XXXX November products recently CBD’s the of ranked In terms by

big-box rich long-standing pet Petco. retailers independent history, pet has sold opportunities pawcbd.com. in a premium CBD brand-building Paw is us and and Halo, a success brand operating Our such with XX-year pet venture PetSmart has presented channels distribution as at as our announced with a start exciting by joint plan natural new recently store large who such food many currently to online leader, holistic channels food

be goal Our year. by salons to this and the end stores, grooming retail X,XXX clinics of is over for PAW CBD veterinary

$X.X overall sales decreased to prior to $X.X $X.X our sales up in fiscal for million our December quarter Our sales, of our sales or brick-and-mortar increased quarter. quarter. million net XX% total in million prior $X.X of e-commerce the or Conversely, from our from our total XX% million

Supercross, are first class the industry BIGX, and as Bellator. such The League, partnerships Fitness, influencer and in and Circus World sponsorship Our in Nitro Time Surf include the brands CBD Life

relationships Our the names of reach podcasts biggest include enhanced social is in media such as Sports. by that our podcast Barstool some

assembled and XXXX cbdMD team’s we partners are of of course, significant continue activating we, with on control while our be advertising spend. for ambassadors, throughout our all all our campaigns tremendous brand. of to and these marketing Our And ambassadors overall focused we’ve athletes now assets,

for with I the industry. before CBD to brand it’s state outsourced to market. Scores distribution these passage Mark, CBD the of Now, turn top decrease. a the traffic CBD models. overall demand increasing product the signaled Bill matters of CBD, the make about CBD the XX time, Farm September comment buy rethink companies fact flooded CBD on started products. the the worse, accelerated it XXX% industry the same year, overall FDA started XXXX. growth, saturation the as important hyper new larger Despite in at few with of the the its to the these by to XXXX, statements negative segment chains, companies caused creation. the made was I point. the orders Very has retailer which on last focused were retailers, popularity In think that back of for online grew, Most in companies sites especially CBD of many of their at December online To This which

by reset, course, storm in perfect price. had overall profound approximately on market market This the December CBD our share market ours and, middle time, we of million the same companies. misforecast We the growth get with a shares end with and and at us, that market needed cannabis saw the into dislocated sellers was the cannabis we rise short and a the share. were the financed investors, of to companies other reaction. weather XXXX. of June and Short the end in thrown massive could companies and negative exasperated It side resulted CBD At THC collapse CBD clear share of storm the was mix interest into such piled a nearly to three which as fully prices. effect from shares of sector of for continued XXX,XXX events increased the so the the come us these out our to disappointed

our XXXX stock, at the our financing, financing our to We declined interest XX% ever trading in was We and straight January early common largest it and went complete by that able reported albeit price short more January. into price. the with a discounted was completed yesterday, market were to that than severely in

are of that significant for this we decline, saw many who consolation in a that to something competitors. said position, our a our is I price can’t While little believe existing stronger financial shareholders be

handful is pains they XXXX has as mature. like to go we are, CBD that executing focus that finally and the When on a and markets new higher now cbdMD and be growing business will those plan and of emerge shown brands. remain our We of industries command happens, two Our dominate through and usually Paw it’s for valuations. believe profitability. ultimately getting History brands

Now, recent review some most Mark financial our over to of to let the turn results. me call

Mark Elliott

GAAP and were was of sales XXX% our results. I’m December start fiscal $XX.X last a quarter, for XXXX, basis, our the net This we brand, and increase Marty. which you, XX, approximately in which of first net a summary September total the pre-acquisition to December sales the Thank X% brief GAAP-based On quarter post-acquisition year-over-year, ended XXXX. going our million. this upon ended a This late is for XXXX. from is of based period which also acquired of the XX, increase an with

at the XX, comparative of XX.X%. for XX.X% period net XX.X% to Gross quarter XXXX, and This fiscal is from for ending our was first a the last percentage as improvement were an quarter came prior sales profit compared year in September which of XXXX.

percentage a the gross we expect During between of of and sales our as XXXX, XX%. XX% to profit net maintain fiscal balance

$X.X XXXX and building quarter, sponsorship again, this believe of accomplished. follows: that of creating media, in This for million approximately key We building major fiscal we million, approximately in includes $X.X visibility. the million strategy in advertising. indicate which of were of We the brand strategy expense expenses the and operating wages shows, the Our been had direct part part events, as and expenses a has are trade the results all brand, $X.X of marketing had social for

We and and had Marty we future foundation to in expect commitments building As for we from sponsorships leveraging mentioned built XXXX, our advertising, our affiliate commissions this transitioning control of brand going as multiple consumers. now for our are reaching with expense forward. channels previously, established marketing, $XXX,XXX to

processed $XXX,XXX, again, our sales fees online. predominantly we were as Merchant transactions

as third-party certifications. areas, providers professional and $XXX,XXX, media services were technology, information Our specialty for we relations, investor third-party other approximately used including

to business business to and required includes the industry. Our Again, approximately CBD the and our related all had and accounting coverage address our travel for accounting risk accounting $XXX,XXX. and We filings legal insurance SEC legal about our in expenses were $XXX,XXX. this exposure insurance fees

Our our our Marty the office, approximately as for warehouse corporate our quarter facilities, covers mentioned. laboratory rent of $XXX,XXX and

$XXX,XXX. noncash expense had and to approximately compensation of related then stock And we stock options

XXXX income Cure the other change December liability expense is large each Based to a at contingent and Our liability related revalued the noncash This quarter. of Development. of includes acquisition end contingent

the fiscal a declined valuation in period. price liability result change first on the value change million of in This value. this market our approximately The of million. in primarily that common contingent noncash value to for this the income to XXXX, $XX.X our of from stock the a During was by $XX.X created balance approximately changes of period quarter sheet of another

had and is $XX capital This approximately hand We XXXX. million December equivalents and $X.X and of of million XX, approximately $X.X on as XX, capital cash million of million at September of working compared working cash to XXXX. cash $X.X of

and reserve, from in cash, decrease our drivers the was Our to partially current $XX.X million. increase receivable our XXXX, current was and our of accounts of September merchant decrease in primary XX, inventory. XXXX, X.X% XX, assets this December in as decreased assets a offset an by The

of has the payable. As manufacturing XX, This is current million, total on is of The long-term $X.X December for note facility. equipment XXXX, $XXX,XXX only up company’s accounts a company made of were debt. which approximately financing of million our $X.X liabilities

commitment January of firm in this our of gross from of offering $XX.X common in are after follow-on we XXXX, quarter first the net did close of The underwritten a mentioned, financial offering the public the proceeds Marty statements reflected proceeds offering for As end completed stock shares million. quarter. as our not

back turn like over I’d that, With to to call the now Marty.

Marty Sumichrast

thanks. Mark,

progress made and execute overall you we’ve our to see, plan. can tremendous As continue

up I’d that, for Q&A. to Jess? the line With like open

Operator

go Sutherland Instructions] Benchmark. [Operator We’ll to first Bill with

Bill Sutherland

Marty. Hey, thanks. Hey,

Marty Sumichrast

you? are How Hi.

Bill Sutherland

a just past little you’ve but lift to progression Good think as quarters. revenue in sequentially wanted obviously, seen big about I a bit. as the not quarter,

think So as talking you’re be that tell be be you by to but great. going kind as not whatever forward you’re can color, if the year-end, of about would we progression to sure I’m – about how think you far going should where us without

Marty Sumichrast

okay? good Yes, percent return, retail of look, return did remarks, end there in side continues. end our wholesale September base, brick-and-mortar overall, overall saw And is customers the growth as strong coming towards came last I my accounts. the downturn – of we But grow mean, year, seeing in in on and is think that retail October. us, big yes. in I and a the of comments We a a we’re made tried as the that that, saw tighten saw At and and our up the things year after the seeing gradual the we’re now seeing for interesting. we’re Internationally, seeing pretty FDA really a we online, Bill, are seeing growth say What thanks. that. couple we’re to pickup. entire of think, sort of from I industry we a we’re

ago, months came we’ve really kind way. that seven of us didn’t and markets to interest up opened we know, market, you in the an have necessarily XX and As six, much it of international

an made now Now, after go we’ve to internal international markets. choice

that with there’s So, of in markets big a retailers show think a right and we those out of couple there now. promise, couple markets large we’re dealing

very think So to, We market, of to, the coming in. they talk that the in. a of brick-and-mortar people for year, big think towards nervous very that continuing are interesting sort were the are come forward. is proposals end have we play obviously are out international They I us think, going last we but we to going box to wholesale, the that

online the we those The it’ll side to very We rapidly. quarter, can’t are as this tell they’re next on said, increase growing our should going dramatically on you of probably think but – help side, business. to is that come And quarter. I in brick-and-mortar start happen an

of search the we engines We’re allowing to the seeing good of of ad so really a some us larger a got as some words, trend think lot and we new line are going. buy developments

conviction So what was think we do we sticking can last think good in we this our still of it a to year. we’re quarter, and where are we quarter

Bill Sutherland

per Marty, or the got process? base, start quarter, bit you’re you are past come I the revenue in a about this to you’ve store to Or talking and and was that expecting guess expanding off maybe now. back – So whole store

Marty Sumichrast

Yes.

market that into a year, coming as mean – year, say of my we We’re last into a the there tried seeing was such you really competition I back. of a that got other was as of that being amount thing in went to last came I ourselves, say I’ll lot lot the and there exploded. from remarks. there competitors But certain as

– lot got And of out. spread so out players. it spread amongst it got That a

competition simply seeing we’re away. is it going we’re a weekly what on the Now, and seeing is, basis,

quarters – coming to they two are talking We’re some or grow. – ago companies the seeing it They because business. to us in these stay three of were we that now can’t can’t

see we starting shakeout. we’re be continued think to a so that, going And and to there’s

that said, And market. that’s so over as the quarters, couple to of as to leave, ours are handful companies such going a of the next going I lead

Now, success. you have on of formula and you ability top a throw our I to strong think brand, for is it what very

think, We the we’re to lot unique that being our so and plan a have fully there’s don’t execute puts that very our over financed able in us $XX million and And position. no debt. I strong on level in of there being cash think financial at high had doing, I wherewithal. a companies out and

a that’s be in. to position pretty strong So

Bill Sutherland

where year-end, one right. Better the all be, a Right, do with as percent from you of Paw instance? Last Paw by revenue say, expansion, me, With Choice, for JV could think

Marty Sumichrast

a Paw CBD been think around any number they a now, don’t sales. have Well, X%, that We long because really X%, brand, great right running an is about interesting up. time, and with we do go maintain at the think Halo is or opportunity opportunity, will successful,

know do Now to obviously, how it. we

their great by with – potentially certainly in have, cbdMD, we along putting our so so what brand great be product. infrastructure a a we than farther and They could is here. powered new call the lot And channel have it distribution brand, our a brick-and-mortar, have together Halo

field players of well, development. a creating and whole interesting think, a some doesn’t our so be successful be really of I a could very puts could lot theirs very but drive of revenue. the that a of best And cost on JV and lot money sort as It

Bill Sutherland

I’ll Okay. up… follow And Got it.

Marty Sumichrast

of remain another And grow. creating that’s independent will CBD and Paw. brand. Paw It’s

Bill Sutherland

right. Right,

Marty. Thanks, Okay.

Marty Sumichrast

Bill. Thanks,

Operator

We’ll at next Joseph Gunnar. Scott Rothbaum to go

Scott Rothbaum

Marty. Hey, guys. Hey,

Marty Sumichrast

Scott. Hi,

Scott Rothbaum

relationship, is your stands partnership Life where relationship as Time far your Can forward? where the a moving expand little there as potential on you and bit

Marty Sumichrast

we mean, on York we that company. Exchange a That coup. a listed love Yes. it. I out Time – Stock that mean lot beat I huge that being we side, are signed other of fact a New deal. the best-in-class Life They players regulatory was We great. obviously the wanted was

it the a of on it just we into – in side of fit. Our with last some PR deal our October of was out We the Bellator, a our perfect all of to way sponsorships marketing and the athletic year with – all facilities. get athletes launched

you all into really everywhere you us facility, digital If name got the on see and go out. the the

will into products into actually think we which we we’re the the be putting that by of tremendous drive transitioning Now, going this facilities. a the into to shortly And different here loading amount very facilities, of sales. the hope end quarter we’re

of and Time. codes, great test we side and So, in a to what sales way whole the the spas, looking are Miami for. been see done coupon to tapped customers of did in Marathon. just the with us We’ve really the cafes, feel the Life Time going different they’ve hopefully even We lot a of to Life But the haven’t you’re nutritionists. in

on clip. the guys go ran that. a you got were lead If of We It We incredible. sponsor ton. media, just a was social minute we

well. getting company, just directly of is potential with And if We fantastic the around a them course, we because think places incredible. want are nice with Life us.” Time. good is say, Life now started seeing of that lot vertical product from for to for pickup the we’re our – and a Time, So, So, fitness opens we’re it it’s “Wow, probably it’s a up good carry that think country and as

Scott Rothbaum

clarifying. Thanks for

Marty Sumichrast

Thanks.

Operator

to We’ll Barry move Rubin. Private next Investor,

Barry Rubin

shareholder stock, I fantastic for nice happy. I very and Yes, a great of future. became a another thank you’ve quarter amount you. you a I’m and in I and bought wanted to got thank January

time who credit spent to Weston, My a the… I Investor question, me, a person, organization. to nice I business on my is your wanted ask your great he’s question of amount and Mr. with Relations Before very thank

Marty Sumichrast

nice hear. to Thank you. That’s

Barry Rubin

of more in and you enough and business was spent fast? market, Asia? it for to the I you grower the where than a to coming Europe? again. find question, which business words be – but be you so much market international be me reason lot that your you’d – No, put mentioned he do mouth, the should very time you Yes. wherever what is, particular is kind, Is in he if tell My future, don’t growing good thank it anymore. see it a the you And And gracious, for that from? it so want don’t one Is

Marty Sumichrast

thank Yes. you.

America. Latin seeing We’re

Pacific out to sent Britain, We’re regions, exciting very in we seeing a in Great in those And Japan, just a we team that’s Asian there. area, then the the Ireland, opportunities think big for hub us. in

the and in now – tremendous relationship we have So who’s seeing a distributor UK a with right success.

So to those tuned, Knock relationships start we’re front going I decent-sized think. markets. some open have to the stay really on on up wholesale wood, announced

Barry Rubin

you. Thank

Marty Sumichrast

you. thank

Operator

We’ll go [indiscernible]. next to

Unidentified Analyst

Hi, good afternoon.

Marty Sumichrast

Hi.

Unidentified Analyst

know Thanks. sales gotten you I a that in quickly guys. sales? you sort major to like somebody talking a Serena like quickly that as and Life to I Have online-driven like you just guys like what were far – with I tennis bit a want anything or nature? would of athlete, your relationship about star, Like a Fitness. wanted any Williams little ask direction of ask with international as Time do

Marty Sumichrast

Yes.

go probably see the say, cbdmd.com biggest athletes cannabis our, our Investor has We’ve We go any CBD to the incredible first company, world. in we any, go the name. and roster for deepest in company the Bubba of you were certainly, We golf. Watson would Bubba and – I of if been us. to have is team probably So, got cbdMD. and you call it, tab, you can

international Jones. is And athlete; who top probably, have just as fighters. one probably to they’re of Jennings, recognize announce watch some hope run we’re McGregor, Olympic our successful And bring ambassadors And a only to codes, got name. you well. direct – big the one shortly has markets looking MMA for on brand. a here got an massive athletes, athletes in Conor is Kerri ROI – We’ve the when Walsh particular very besides well, and not the great athletes. to if we but with of one our pretty Masvidal, We provide name Lolo Jorge that of coupon MMA, your international We point, these been we

CBD said, years where international internationally market that’s I we look it’s huge a really didn’t we markets was ago. this, – kind and really now the like becoming So, market U.S. launched did of that, at potential. as we is two apparent the but we when The

So it’s really open.

good And so position we of with care branding take really a and machine of our marketing, it. our are in to

Unidentified Analyst

secondly, get or any you fourth Okay. know – basically and until guys flow go are quarter. additional help? funded in positive to the how fully cash guys can And said then for you you support I Are you looking you’re

Marty Sumichrast

No.

Unidentified Analyst

last going Okay. you $X of And a said as lastly, cost as as did sort I as you far the then to where of rate know the – guys guys where services. go that share, at as top guys far are do see, I you you years? at based next growth your three, on But line four looking projections, far as revenue over it’s guess,

Marty Sumichrast

number out with I’m this made would we fiscal we’ve about a in expect put on do so growth, said ends that’s this we come guidance obviously $XX current point. going which we’ve year, in not only Well, at out further it far. the and to September, given – guidance We where but million have we

Unidentified Analyst

Okay. that’s All right, all.

Marty Sumichrast

Thank you.

Operator

you our open [Operator Eric, line – for Eric much Bartolotta. today. call Instructions] Well, conference and participation. you time, All thank want wonderful to conclude button. disconnect. and your the this your may queue. now Investor, have a your at other check next you no right. mute We we Have We’ll if move that so Private is in will day, With for questions

cbdMD (YCBD) 13 Feb 202020 Q1 Earnings call transcript