Charlotte’s Web Reports 2022 Third Quarter Financial Results
Operating Expenses improved 38% Cash increase over Q2 of 2022
DENVER, Nov. 14, 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 third quarter ended September 30, 2022.
We’ve made significant progress this year realigning resources to strengthen Charlotte’s Web for long-term growth by executing on our strategic imperatives around innovation, expanding channels and distribution, growing our international presence, and furthering potential FDA pathways.
Jacques Tortoroli, Chief Executive Officer of Charlotte’s Web
Importantly, we have also restructured our sales organization and streamlined operations, which reduced expenses by 38%, now below $70 million on an annualized run rate. We believe this positions us for sustained improvement in topline growth and profitability as our key initiatives continue to gain traction.
Business highlights
Charlotte’s Web significantly expanded its U.S. coverage, adding several new distributors and entering new channels:
- SBM LLC: A new vertical and industry first for CBD, through this employer-sponsored benefit plan, US employers can now confidently provide employees and their pets with coverage and access to Charlotte’s Web products as an alternative health and wellness therapy.
- Cardinal Health: Wholesale distribution agreement covering thousands of pharmacies and retail chain customers.
- Hanson Faso Sales and Marketing: Leading brokers across the Central U.S. with thousands of retail customer locations across specialty, grocery, natural, specialty, food service, and alternate channels.
- Southern Glazer: CW product line added to America’s leading wine and spirits distribution company in 44 states.
- Stark Foods: A chief distributor of European specialty food and beauty products to grocery and retail in the US servicing almost 15,000 doors through its multi-broker network.
During the third quarter, Charlotte’s Web announced a new product line for the sports channel and in October, unveiled the first product “Charlotte’s Web Sport – Daily Edge™” broad spectrum oil tincture – the first and only broad spectrum CBD oil to be certified NSF for Sport®. The line provides athletes and consumers with safe, natural options to support recovery, help keep calm under pressure, and maintain healthy sleep cycles and focus.
Charlotte’s Web was named the “Official CBD of Major League Baseball” on October 12, 2022, which coincided with the launch of Daily Edge. This marked the first major professional sports league to form a strategic partnership agreement with a CBD company. Charlotte’s Web commends MLB’s recognition of the broad interest and value of CBD for supporting the daily health and wellness of its players and fans.
“The MLB partnership is a home run for Charlotte’s Web and CBD. We expect its well established and trusted profile to positively influence consumers, government regulators and Congressional leadership. The partnership has already paid significant dividends through the awareness and education enabled by the enormous exposure that MLB provides through its base of 180 million fans throughout the year. This partnership can be the first domino in a series of high profile moves within the CBD category among leading organizations,” added Mr. Tortoroli.
Executing on its asset-light model for international markets by partnering with leading local market partners, on November 2, 2022, Charlotte’s Web announced a strategic alliance with Tilray Brands for manufacturing and distribution in Canada. For the first time, Canadians will have the ease of nationwide availability of Charlotte’s Web full spectrum CBD products through Tilray’s distribution network. First availability is expected in early 2023 for hemp extract oil tinctures, followed by gummies and topicals.
Q3-2022 Financial Review
For the three-month period ended September 30, 2022, net revenue was $17.0 million, a decrease of 28.1% versus $23.7 million in Q3-2021. The decrease was primarily due to lower comparable customer shipments, ongoing consumer shifts from tinctures to lower-priced gummies and formats, and lower relative traffic to the Company’s e-commerce store.
Direct-to-consumer e-commerce net revenue was $11.8 million, a decrease of $3.4 million or 22.5% due to lower year-over-year traffic. 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% industry market share according to the Brightfield Group.
Business-to-business net revenue was $5.3 million, a decrease of $3.3 million, or 38.1%, lower year-over-year primarily due to lower comparable shipments to some of the Company’s largest retail customers. Several new distributors were added during the quarter as a result of a strategic transition from direct-sales to a distributor model, however, these take time to develop and did not materially impact sales in the quarter. Charlotte’s Web holds the number one share position across major retail channels including food/drug/mass retail, and natural grocery & vitamin retailers, 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 $8.9 million, or 52.5% of revenue versus $14.9 million and 62.9% of revenue respectively in Q3-2021. The decrease was primarily related to lower net revenue and sales mix with consumer trend shift from oil tinctures to lower-cost gummies.
Total selling, general and administrative (“SG&A”) expenses were $11.0 million, including an Employee Retention Credit (“ERC”) tax benefit of $4.1 million, due from the U.S. Internal Revenue Service, recorded in the third quarter of 2022. Excluding the ERC, SG&A expenses were $15.1 million, a 37.7% year-over-year reduction as compared to SG&A expense of $24.3 million in Q3-2021. The net improvement reflects restructuring activities earlier this year lowering personnel costs, a decrease in media marketing spend, and increased operating efficiencies resulting from actions implemented year-to-date. The recently signed MLB sponsorship agreement did not impact SG&A during the third quarter and will not have a significant impact on a full-year basis.
An operating loss of $3.9 million in the third quarter of 2022 improved by $5.5 million, or 58.3%, as compared to an operating loss of $9.4 million in Q3-2021. The improvement, despite lower revenue, was primarily attributable to reduced operating expenses and the ERC. The net loss for the quarter was $7.6 million, or ($0.05) per share on a basic and diluted basis, compared to a net loss of $0.8 million, or ($0.01) per share, on a basic and diluted basis, in Q3-2021. Q3-2022 included a negative change in the fair value of the Company’s SBH Purchase Option of $4.0 million, versus a positive change of $5.7 million in Q3-2021, for a non-cash net difference of $9.7 million year-over-year for the period. In addition, the Company’s warrant liabilities were revalued in Q3-2021 resulting in a non-cash gain of $2.6 million.
Adjusted EBITDA1 for the third quarter of 2022 was positive $0.6 million, an improvement of $5.5 million as compared to Adjusted EBITDA of negative $4.8 million in Q3-2021.
Balance Sheet and Cash Flow
Net cash used from operations for the nine-month period ended September 30, 2022, was $2.6 million as compared to $23.3 million for the same period in 2021. The Company’s cash and working capital at September 30, 2022, were $16.5 million and $61.0 million, respectively, compared to $19.5 million and $75.6 million at December 31, 2021, and $14.8 million and $64.6 million at June 30, 2022.
Consolidated Financial Statements and Management’s Discussion and Analysis
The Company’s unaudited condensed consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 and the unaudited condensed consolidated Statements of Operations, Shareholders’ Equity, and Cash Flows and accompanying notes for the three and nine months ended September 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.
Conference Call
Management will host a conference call to discuss the results on November 15, 2022, at 10:00 a.m. Eastern Standard Time. 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 24797121 or listen to the live webcast online.
A recording of the call will be available through November 22, 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 797121. 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 that includes Charlotte’s Web™, CBD Medic™, and CBD Clinic™. Charlotte’s Web whole-plant CBD extracts come in full-spectrum and broad-spectrum (THC-free) options, including the world’s only broad-spectrum CBD certified NSF for Sport®, which is the official CBD of Major League Baseball©. Founded by the seven Stanley Brothers, ignited the CBD industry when they came to global prominence with the coverage of a young girl’s astounding reaction to their hemp extract. Their advocacy changed laws, public perception, and research around the vast health potential of plant-based solutions. The Stanleys built their business with the mission to bring safe, botanical options to health seekers worldwide. 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 a center of excellence in Louisville, Colorado. Charlotte’s Web product categories include 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 retailers, over 8,000 health care practitioners, and online through the Company’s website at 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 November 10, 2022, Charlotte’s Web had 151,628,652 Common Shares outstanding.
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(1) Non-GAAP Measures
The press release contains non-GAAP measures, including EBITDA and Adjusted EBITDA. Please refer to the section in the tables captioned “Non-GAAP Measures” below for additional information and a reconciliation to GAAP for all Non-GAAP metrics.
(1) Non-GAAP Measures– Adjusted EBITDA
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.
(1) EBITDA and Adjusted EBITDA are non-GAAP financial measures with reconciliations provided in the table below.
