CWEB.TO - Earnings call transcript Q3 2022 | Charlotte's Web Holdings, Inc.

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Operator

Good morning, ladies and gentlemen, and welcome to Charlotte's Web Holdings Inc.

Third Quarter Conference Call. [Operator Instructions] And I would now like to turn the conference over to Cory Pala, Investor Relations. Please go ahead, Corey.

Cory Pala

Thank you, Michelle. everyone. morning, Good joining Conference for our Third XXXX Thank for us Charlotte's Earnings Call Web Quarter you for Holdings, Inc.

press have the as in Our this on sedar.com our earnings release U.S. as statements filed financial QX well Canada were website morning and and Relations with been Investor on the in posted section of and issued the SEC.

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at may on therefore, and content including call, made the answers expectations. cause actual to within factors which future nature, some analysts and of the filings through a our include and uncertainties of surrounding section reminder be accessible statements week, regulatory in our period, from risks end Such implied charlottesweb.com.As a our accessible provided listeners, statements questions, differ at company certain remarks. forward-looking outlined replay through earnings questions take call performance to subject from may available results sec.gov. detail via that we will in and this extended the prepared a replay today's company's be And will our or available this forward-looking on materially are certain release next the details of our call website in to the an will risks webcast is provide and to of IR We could for sedar.com

call prescribed adjusted Form non-GAAP refer contained GAAP. the to the measures Tortoroli. call, release as in now by as a measures. such any reconciliation directly EBITDA, meaning comparable Please X-K GAAP during standardized Executive to most measures, including Web of financial filed a that addition, adjusted will to to refer Officer, of their earnings does Chief for not description over have the which respective EBITDA Charlotte's In morning I'll the supplemental well and this hand we accounting we Jacques

Jacques Tortoroli

Thanks Thank for our morning, everyone. call. Good you, joining Cory.

Cory he is Greg and in in As for are call. I Jared said, London, this Colorado

share Charlotte's call gross this want BAT. Before debenture on The handing morning's other Conversion the the cost per our for minutes TSX convertible to a shareholders. upon This by -- interest VWAP review to price few news. rate for proceeds carries a ownership a low Greg BAT our a capital. million, $XX.X this premium highlighting the about CBD regulation of quarter, We shares spend of X-year U.S. of XXX% of federal we of step announcement in than Web XX-day an into our recent believe debenture announced is X.X% X% relatively third morning, $X this for with a to is I a and is deal more down to to XX.X% outstanding

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Greg Gould

DXC In third micro net quarter, start revenues, the the at was million. was $XX.X down businesses. million quarter in was When year. last million with Jacques. our Revenue in This looking both and in revenue BXB you, from need quarter last the Thank retail $XX our headwinds. $XX.X we lower current to and e-commerce same

distribution XX% is because to with total drug products in points maintained velocity the with points space shelf previous XX% are the Charlotte's category Web has down headwind our natural have food total the year. than versus CBD retailers set approximately distribution the the reducing competitive year. highest shelf micro first mass space more versus down previous and XX% The

lower a revenue deal, which second on point X.X X.X U.S. price we promotions has market a seeing As unit year-over-year. a we versus In which of we achieved BXB negative climbed share headwind, a share for positive quarter, third done other natural significant all and to unit change across depth result, gain has despite percentage the brands. all total are be point frequency to revenues.The the of and continue leader led

second Web was the of of Charlotte's mass drug As market of this food September share week in retail XX.X%. year,

XX% to year. to lastly, represented continue the shift constraint an other X percentage last product points prior our And BXC revenues, gummies, in QX, as discussed traffic in the largest primarily his E-commerce headwind. consumers formats, remains the gummies of revenues, Charlotte's on Jacques versus Web's earlier. As of comments increase

has higher mix higher giving Finally, than relative our between the these dollar channel we with BXB as has generally and prices even BXC us But headwinds, hurt leadership. BXB BXC margins. absolute share declines gross maintain market and

the largest from BXB direct the we XX.X% shipments sales $X.X reflecting BXB route to transition was lower force well. side, revenue revenue of had to distributor-led customers, our factors or $X.X market million, net has reorganization earlier. and to as performance a noted decrease On a impacted million The year-over-year sales our year-over-year. of largely our

significant have We signing made in strides new distributors.

to to on months. on signing retail to the orders However, shelves takes stocking shipments timing

and goods be or So of points these This that focus X.X an was usually not of our distribution to in related at depending creating to lower result improved reported product and via to $X.X XX.X% Overall, we site, our our general MLB margin for of This discretionary where cost our mean fixed margin activate future Gummies best-in-class a variances revenue XX e-commerce are continued on XX.X% spending. revenue costs them the QX costs rates. million January percentage $XX.X as a line. on year-over-year audiences revenues $XX.X the sourced as our model is quarters.Turning taken in and expenses. we to bring actions wins for QX was they due and and period percentage yet.DTC bodes at rates benefiting our XX.X%. organizational above consumers continue our facility. lower are sales, site. while primarily tinctures QX to gross XXs traffic as are also lower quarterly high product in million, produced see primarily are of to the mix year-over-year skews XX.X% underabsorbed, as in on sold we to to us world reducing July convert our But conversion in brand XXXX. gross partnership. demonstrates from company down the if well are overhead in higher lower gross range continues administrative revenue $XX million, to $XX million our lower net e-commerce it The area margins is decrease we for we low to We net co-manufacturers, SG&A new This significant cost in-house encouraging from of million, with mix.

reflects quarter the also amended related which a this related $X.X However, credit to filed employee retention for an pandemic have return. we in the million taken credit tax

SG&A Excluding a still $XX.X the substantial were decrease expenses million, credit, XX% year-over-year.

our year savings have well compared fiscal more XXXX. million, a $XX million We year SG&A brought which below XXXX expenses is to annualized $XX fiscal than

forma XXXX. of control EBITDA in million result, adjusted cash in compares was the the $XX.X IRS negative of this of XXXX, despite year up X our the $XX.X COO, XXXX, will basis over third of revenues. debenture was Cash balance is quarter. December $X of of first million now management used operations the September over quarter $X.X was million $X.X This $XX.X first of to I million, of XX% With on sheet, now expense XX, million year-over-year operations used on was above million loss investment this $XXX of pro announcement million with cash of million of in to cash EBITDA a June compared million improvement refunds at used or X resulted was the is $X.X million strict the million, that, compared which to Jared XX, XXXX. $XX.X BAT and QX turn capital quarter million, With in of along as $XX first of months a our a is on XXXX. working collection our and Prudent Stanley. $XXX,XXX, today in for of improvement from the $X.X net net to XXXX the the As as during million. XX, $XX.X our call operating Co-Founder XXXX in $X.X an for positive and morning's lower Adjusted now months

Jared Stanley

Thank you, Greg.

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me brief give Let update IND. a on

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Jacques Tortoroli

Thanks, Jared.

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Operator

Thank come and the will first session. you, Instructions] question question-and-answer begin now will gentlemen, Cowen. Your from Vivas [Operator sir. we Ladies Harrison of

Harrison Vivas

the just for one Congrats me, First Great the on agreement. BATs financing on there.

specifics whether best on that curious the potential cash? if that for how for? it use sharing specifics have, additional more intend could Just it via any distribution is And beyond could just going use what you assets? are And use share be around overlap BATs potential [ you feed or strategic practices board ] the to secondly, to if there around any any restrictions of some you you to offer

Jacques Tortoroli

Harrison, Thanks the for it's Jacques. question.

their they're But appropriate no cash proceeds initiatives botanical one choicefully pursue broader cash from it's is. use the and aligned excited So time the first the It's growing in together a day strategic restrictions and the of intend continuing BAT. that over work the revenue, do that partnership outlined, to use it's see deal. with the are thoughtfully as and and we what to against invest But We all, the D.C. platform. about there we're where of future. wellness, could botanical right of we what going And around now, and we our wellness strategy and in day X. on

where so that's And stand we today.

Harrison Vivas

like ago. into stabilizing. seeing And seemed you to it do to sure do been not helpful. expect guess in the gummies? a next of GDC gummies of I'm change That's like out will your getting had if for see business be or that? I I'm where It cheaper factors -- couple months, And It you transition guess, Okay. Or you this be that quarters seems expect interesting like those a but the consumer right, are one transition of if there me. goes. form e-com kind in be, percentage business I look XX how you to what to maybe XX Is the your that? of

Jacques Tortoroli

me I you data. some give mean let just Yes.

whereas So saw for decline up are QX, volume in BXB, tincture about gummy X%. XX%, we volumes

subscription really loyal looked sort And have and as at of on in portfolio, sizes that, Harrison, what price we in is focus we consumers e-commerce platform BXB. looked our so come then consumer entry whether to we're we service And those BXB to to and be what as well. clear see do, the really our lower e-commerce. poised and or we transition point see -- on to formats into both continue our that into formats them we've that on and brand world, want consumers shift formats as price upsize into they're them It's and our SKU at us to is and in pretty

and perfect inflation consumers don't big in price playing we'd in to points more shift. line opportunities the have think we're believe brand I that continue think come that particularly some I innovation, is us that part in have. different continuing tinctures been. back. come I enter a well. they've choice But world, for world You will more aren't sports of to will give little the in we back at into And this to think as format to that a the a where bit But as see as

Operator

Your comes from Partners. Capital ROTH Scott next of question Fortune

Scott Fortune

model start. timing regaining can large here. you bit start be know will the your that top the develop. with kind to try and inflect? really it to here, mind the distributor expectations negative sense expansion, quarters. of just distribution really color 'XX, near-term the of some And to the a And take the you said of in for few is your opportunity but But on to [indiscernible] mean, can of transition and new to I a channels I little have line direct in But timing kind all it's priority time in in top remarks, alone. last said place, the growth? sales on you the U.S. from obviously, strategic the kind But sequentially Congrats of grow provide of in now line the direct what initiative to to

Jacques Tortoroli

to it's time product actually these will of pipe. into with is, into we're we condense before take potential Yes, customer if these been we can to where and certainly actually beyond. to QX respect signing done. the new sure. I months, X Look, new other not a strategy. industry And able modestly, Scott. verticals the impact through distribution route-to-market or haven't as their said as Particularly participated and see channels not sometimes that these new continuing thinking didn't partners great typically, sales QX to see distributor you retail benefit a anything as -- in The question, -- travel. you're seeing and really route-to-market, they're and shift shift start 'XX longer, -- like led We've of line the hospitality, get a well. we It discussions We're host direct in for partners like from new our that reality in earlier, distribute about really with shelf yet distribution distribution

beyond. opening benefit 'XX and NSF that the So the is for new we'll verticals certification from doors up and us in new see

Scott Fortune

kind did spend growth help $XX spend in going can investment drive announcement you're how help. to kind that on priorities just will really forward. marketing look And and sales sales lot at of of a color. drive your putting how the marketing a I dollar I or a your new deal partnerships top to Obviously, Jacques. marketing of that, and probably you're that of appreciate at here the do But you with the that know just dollar. support? of support growth these follow-on kind line to MLB, million bringing we all kind look you of But

Jacques Tortoroli

the Well, that to really money it the said marketing mentioned we podcasting, that to on, the leveraging platforms spend fees, announcement and we I I shifting that efficiently the remarks, last from brand. gives very not MLB, the think, with it and I a their in into partnering rights talked, that them arguably time our around very this activations microphone putting around in MLB, we but what when spend effectively advantage said not and to we're as much we games, through radio, have only support of we my with a local take or dual content activations, as plan MLB us events but local our then on participate right a media throughout had

So focus. that's the

make those for put shelf, showing us customer feet us right that does distribution in if they we're BXB way. cabinets. improved New that that, friction consumer on -- I'm is we have bring a products. be showing and removed to you what we've do in a products partnerships partners products don't we sure we'll these be find one out terms product street need or workforce, when with more doesn't do consumers with marketing to to products end-of-aisle stores key give our past dollars direct prominently marketing customers also it to doing and that displays, that way and to were our for activations, the shelf.In confident more is lock is they on in our able the velocities on pay in on And that problem but on of distributor literally is the that put day-to-day front from POP of of call street doing the looks make been to -- to go that behind don't addition really to we're up sure in were test our up the And you POS, the on the because that's and great restocked do will, to material merchandise what have big to support to And basis feet from able buying a that, accounts. we'll be

our the in line of benefit by year And financial over and of encouraged so we not this. our It's that yet. we're up showing next And our P&L beyond, then in seeing top just be all should and the performance. overall

Scott Fortune

follow-up. quick last one And Okay.

the You of mentioned consumer your you're of kind of more a on. now? heard right, How consumer the mean, little is seeing a softness the from inflationary of executing transition, transition tied prices. little in said term. the right what's versus near provide challenge I I to the side But of softness is comments, going color bit much maybe things you've kind

Jacques Tortoroli

And strategy issue to for some XXXX down me, I go can't a hurting the revenue point been able formats. depressing revenues beyond last and in that as of question, Yes. from mentioned and just the is at to our get a format, the where There we shift don't Look, price in forward. shift and in I the product be a of price, into mix your consumer tincture resetting there price affordable the to clearly more has -- at right, a organization, for grow really and the to think the point. in I consumer. execution I -- we've that's re-laid is our this more because in regard. of P&L wait mix to high things the a our this it's really foundation is about But we're year is company the across up which

Operator

Your next Genuity. question Canaccord of Dlay comes from Derek

Derek Dley

challenges on price Congrats on side, I towards was this consumer morning. to the can't the go smaller the competitors more just wondering given they some away guess start just probably the value -- in are that the but least at of compression pricing or of investment those handle well, all products, end the them. given they're I of starting smaller, shift you some the the to space see

Jacques Tortoroli

drug in remarks, remarks, that of mass we question, and facings -- natural think customers shrinkage off products Yes. in the channels. food, channel, that the shelf turn don't those I in on those in some Greg's Well, and in and Derek. that's taking And But our store in is of right. about in shelf, talked great the

-- -- that what in when times, than to shelf you space a are. my to rate competitive losing is flock product quality. set premium-priced right, tend another we've be We to we the to in certification, MLB NSF that's the it's as we And in as our experience much helpful that quality, well, go interesting right? Why So believe And consumers us, we higher through of at really through category. the is going relationship, the the forward. deserve to stamp be only

stations. and the So ever gas there. the a market in is single is That's Web market, And contraction not in and be, we we're when at look vape where biggest you of will be. shops quite Charlotte's to And competitors. going do increase play expect frankly, should never the

away. quality total of which happens, earlier, regulation as that's behind alluding okay market goes goes all The amplification for when and was the wellness, is forward. what to Jared may true the behind awareness away. we'll bigger a we of share that marketplace That have us so all that but And contract, behind MLB CBD because gives go just

the future. about So I'm excited super

smart, there's going to time portfolio provide financial that's as top additional well. to again, it markets, a in But line will over way, and efficient and one Charlotte's out our international that this deserves next shake of growth out, think as all some will, I stand, build hopefully year. And we brand Web. really that's

So answers I that your question. hope

Derek Dley

on a higher tinctures Yes. and there to as line towards see a No, do revenue? looks product that it does. you it to to continue on going bigger then seen that be drive anything And like your gummies, margin can of within you've portion just it's continue the gummy bigger shift to and is

Jacques Tortoroli

a Yes. moment, gummies, little on there. fill of have I but mean, clearly, Co-mans in Jared at can you bit we color the

Jared Stanley

We've XXXX up in the the mind in currently has Yes. keep organic gums gummy Charlotte's And early flow COGS, those Web's portfolio. the lower mid-XXXX. sorry, we're identified call Calm alone, our through -- Look, gross What co-man expect a Sleep, Recovery, certified lion's gummy current in COGS gummies transitioning Calm also Sleep to to them, make legacy it's the to legacy of these is Recovery. revenue that and we great question. higher share or margin a on a we actually, and focusing

Derek Dley

where be this a would ever Got look would co-man, there scenario And you do to in-house? you it. instead of using

Jared Stanley

to certainly Setting of adds complexities. of Yes. expensive, up Look, a is lot good question, and manufacturing mean, right interest I the It equipment. that's it's a gummy very us.

our that in years. -- the infrastructure have do it weigh we'll to coming the over have option We to and

Jacques Tortoroli

Yes.

of thing, as growth, continually that other our drive that arrangements renew alternative Derek, we looking as I'd return The we return co-man COGS. growth, just when can but give down price quality us for will the and say to leverage we is to compromise incremental don't options

Operator

Your next Fitzgerald. question Zuanic comes from Cantor Pablo of

Pablo Zuanic

bipartisan go in H.R.XXX session? include future lame-duck talked [ talk the how it? have questions of side, make -- People with not under Plus they Congratulations all any but there, key the about about much around to H.R.XXX is for components any the farm McConnell Look, radar it? ] at Is there comments Senator senators the ever on as opinion. talking few So a in Jacques. political on potential for the safe H.R.XXX, around just H.R.XX, the it right? made And wait announcements, of Can the example, you not my you much in to about revision. about some of how in build is or as terms Safe

I So if but lot H.R.XXX? of Jacques, know just a there's questions you can expand here, on

Jacques Tortoroli

to let it, Jared Pablo. closest answer he's I'll Yes.

Jared Stanley

you let me Pablo, give some color.

-- -- -- the this We to -- have has now. really going right we bring Republican conflict. Safe a were the cannabis some with we've congress announcements the probably opposition, First still of It been has that forward. divided have very Democrats have opposition. in could would the a split been we House we think XXX, saw the a to push with all, just awesome side. just push no that make very Republicans But looks on there's Plus, It push thought worked. a And all it's have doesn't voters specifically it through the the Congress split on I like it and election the Senate, and results, that both take

cannabis the opposition. it as CBD, has believe just still better standalone believe as duck, that we coming the in it's a lame and we had with better. So cannabis opposed go it's through opposition into Could to possibly. we the But haven't having

Pablo Zuanic

example, you but I can senators, publicly don't McConnell aware, of mean talk supporting know And I that? you Senator have for can talk is I'm Right. in if If H.R.XXX. it, terms senators about -- supported can can. mention you not that you

Jared Stanley

the H.R.XXX I is of question. drafting won't actively names, for next companion we Senate, step. which good our be to the with any but their Yes, working Senators say are bill

out it's an be too coming progress, names. awesome to their but that's So with been early

Pablo Zuanic

if And on Okay. the Jacques, then you front, expand. can distribution

in to mean, down in you pretty You of of sale, you've FDM, things, channels What are type major or it and more -- league Costco terms if of all of about specific? much? announcements Walmart can generalized, about? XX%. Web do points talked all they when Charlotte's you going for down I see can think those be the to XX% come natural, made, -- talking only we are is terms through? or then is other Or going And wait H.R.XXX we

Jacques Tortoroli

about. to you've Yes. be Great, talked kind going Pablo. the having retailers of Look, we've before. on meetings with X reasons. this the touched We're

haven't sports, CBD, take MLB you that big opens if will, retailers. up NSF products, including us, said, heretofore up opens and to only certification the for verticals other not but right, in we the adjacencies As wanted box for sports industry

you. products MLB, enough it stock wouldn't be our why on your enough So good simply, for should for it's if position is And good you our shelves.

getting why the you We're right, those here, sort conversations into happening. the through not and FDA are but to be year, be will of early holidays but having, for want next not now, exactly approval. which conversations those So is wait

us we terms of [Audio facings losing those said, in for it's to the of the the of and It's an for away gives So line channel. to as the the brands There therefore, other longer good is sports that launch product of we'll set. sports we are And And we Gap]And determine news is year nobody facings, it no in the that these period is customers of going FDM by opportunity middle on the the next the value, going we talk sports beauty see.In shelf the that some we portfolio. us. when stocking, no the take forward. with that incremental our share stores are of us we and of a and it's advantage take And line that, time. us monopoly size, if compete we with for competitive can determine existing side have to you like, with as side put shelf

Pablo Zuanic

the know are follow-up. quick experiences not question, this that can Why different? the I you end mean I answer I that is forum. that have maybe of know comparable. UFC the much. to received and And public the a Just to investors think didn't I I But Aurora one deal from share was in this but amount the questions in

Jacques Tortoroli

Yes.

strategic product. why They is great reached in and they of talked talked the it a co-branded up deal. shareholder opened we've I have mean about CBD on they have it's absolute alignment products MLB is rights threshold is pure-play about I've So question, lot. our a a right certain and after the a do this revenues are on not what products. to participate and they've This and The deal a in to our a partnership. company,

create Web MLB the that And see believe a the don't for partnership going do. saw and as rights a a active when time of deal. is in the you they wanted check baseball. to those, unlike this And more deal I that renew. other upside not deal it's type I'm They will shareholder. They this This and players do is way from benefit -- deal. for that investment. return to And this the that so up with could their we we a they believe rights the Charlotte's where of and any do to And down a importantly, don't is is a value an and agreed. cut X together them ranks and now participation and we it's years not on and professional

by very a I it's I'm partnership. and the So deals of excited this that that of it's strategic only types deal, of a nature. type And it. deal very do it's And the different

Pablo Zuanic

That's may one, I ask. one great. last And if

with -- not stake? discussions XX.X% Organigram. I a BAT, stake was equity obviously, took BAT considered? the that of mean terms I why In in an mean,

on understand you Here near convertible trying debenture. why term, besides that other be can share the a you And route. I'm I you in overseas to can there what the U.S., research, the know that? about opportunities the working in went inflow, Is it's BAT? don't or touched going expand they if partly much with a it how but that, cash are benefits on to of distribution

Jacques Tortoroli

clearly, is to interesting touch little this and as I'll wellness interest a on clearly, strategy terms Jared is botanical And don't transforming speak in an BAT. Well, bit. they tomorrow better say, But clearly, their a Yes. they let us. to their articulated. science in they've in of But for Clearly, interest and that the Charlotte's for distribution want believe integral I have a different over can why part think, they remember over because again, countries, of and time, we world. I XXX done I mean, they've time, correctly. regulations as around Over transaction innovation of see. if Web we'll because and why drive our this they're open the in IP in up jurisdictions in of that I

spend I we're company the right we're them, and our in this in newfound forward. to be again, in And really see we're us, -- the and we commercial for as they go to that chosen to which and in be felt and liquidity, now, terms we'll don't excited opportunities. to best going get back want the selective vehicle But prudent against this So speak excited to to about we're stewards what invest structure, excited with invest cash be that really we against of growth but of was about it's continue -- they've company.

Operator

comes Your Chris from next BCMI question of Damas Research.

Chris Damas

to of for can't it. the product, your But [indiscernible] BioSteel, it. use to kind [ question these sake, MLB if you I use right? want use can batters argument's force covered Pablo's say just most ] mean you of

it deal? kind it. have Or So symbolic of kind of is this to does any a attachments

Jacques Tortoroli

understand where are the aware Well, MLB the one team the players deal the teams the informed the with but no, and physicians themselves. I is don't obviously, and ownership question, trainers, clearly

teams mean, and Charlotte's the by Web I yes, is the I see idea forward. we go as you will So by that players used think

around own regular season the being own activating the then events So it's interest the games rights the and the locally rights MLB with not in during owns why symbolic. But in events, of to That the symbolic. different stadiums, to their us. we're inventory and the in participating to said, cities MLB not it's the that JeweL teams Jewel that's are what health can for need they're their I with the you in wellness the give the committed highest to said, won't they we degree which believe mean comfort doing for of of that options that that. is players be banned that them balance a test committed you They're in fail they and health drug substances. to balance to mind physically, of

Jared Stanley

NSF chose teams to the -- process. still bit while which MLB, certification A that through of color can go to the has

CBD have have and the we So products teams exclusive of product, official League that Baseball. happen to any those Major

a put advantage does start. certainly head competitive certainly us it So to a and strong

Operator

that would for Ladies Pala all for this like closing have remarks. conference to I any back the time Cory and now is gentlemen, to morning. turn questions the we

Cory Pala

Thank in you innings but we've had for joining time. We've XXXX, Appreciate everybody. some reasons. us a was call. That long very tough your also had some

and in eye we're a our ball. we're the to looking home run XXXX hoping we've on for all for you, hit So -- got

Operator

this all please conclude to you conference Ladies this does you thank morning. and and for your like ask for that disconnect call would gentlemen, lines. We your participating

Charlotte's Web (CWBHF) 15 Nov 222022 Q3 Earnings call transcript