Charlotte’s Web Holdings Reports Q3-2020 Results
A return to organic quarterly growth
BOULDER, Colo., Nov. 12, 2020 /CNW/ – (TSX: CWEB) (OTCQX: CWBHF), Charlotte’s Web Holdings, Inc. (“Charlotte’s Web” or the “Company”) the market share leader in full spectrum cannabidiol (CBD) hemp extract wellness products, today reported financial results for the third quarter ended September 30, 2020. All amounts are expressed in United States’ dollars unless otherwise noted. Certain metrics, including those expressed on an adjusted basis, are non-IFRS measures.
Q3-2020 Financial Highlights
- Consolidated revenue increased 0.4% to $25.2 million vs. Q3-2019 and increased 17% vs. Q2-2020, marking a return to consecutive quarter growth
- Direct-to-Consumer (“DTC”) eCommerce sales increased 27.5% year-over-year and contributed 66.3% of Q3 revenue
- Gross profit of $15.2 million, or 60.3% of consolidated revenue (prior to biological asset adjustments)
Adjusted EBITDA loss of $6.7 million - $65.9 million cash and $128.6 million working capital on September 30, 2020
Business Highlights
- Increased revenue vs prior quarter for both DTC +8% and B2B +39%
- B2B quarter on quarter growth led by natural retail +20% and healthcare practitioner (HCP) +101% channels following portfolio repricing and expanded product offering
- Increased doors by ~ 1000 for 22,000 total unique retail doors carrying our portfolio of brands including Charlotte’s Web™, CBD Medic, CBD Clinic, and Harmony Hemp
- Completed 100-day integration of Abacus Health Products acquisition contributing revenue of approximately $2.5 million to Q3-2020
- Completed $11.5M phase 2 investment in new 137,000 sq ft facility to build out production. Phase 3 extraction and R&D expansion planned to be in operational by the end of Q1 2021 ahead of anticipated growth
- Launched CBD liver health study with ValidCare, progressing for publication early 2021
- Advanced regulatory definition at the federal and state levels including acceptance of federal bill H.R. 8179 to legislate hemp derivative products as dietary supplements
- Achieved official B Corp certification on August 28 indicating excellence in ESG. Charlotte’s Web is the world’s largest and only publicly-traded CBD B Corp
- Strengthened the Company’s board with the additions of Jean Birch and Susan Vogt as new directors. John Held appointed Chairman of the Board
The strength of our leading ecommerce sales continued to offset slower B2B retail sales during the pandemic. Within our B2B business, we are seeing signs of improvement with a return to consecutive quarterly revenue growth of +36%, led by the natural channel +20%, and the health care practitioner channel +101% quarter-over-quarter.
Deanie Elsner, CEO of Charlotte’s Web
In addition, we continued to expand our footprint in terms of distribution in Q3 by adding nearly 1000 new doors to our retail footprint, including natural retailers, nearly 300 independent pet stores and approximately 500 new F/D/M retail doors.
Q3-2020 Financial Review
The following table sets forth selected financial information for the periods indicated.
The following information sets forth selected quarterly revenue information for the Company’s recent fiscal quarters.
Consolidated third quarter revenue increased to $25.2 million, as compared to $25.1 million in 2019. Lower B2B sales were offset by strong DTC sales as B2B sales were 29.2% lower year-over-year, accounting for 33.7% of total revenue in the quarter. DTC net sales grew by 27.5% year-over-year as online traffic and high conversion rates increased through ongoing marketing and social media programs. Year-over-year new consumer acquisitions increased 52% and conversion rates increased 98%. DTC net revenue accounted for 66.3% of total revenue in the third quarter compared to 52.2% for the same period in the prior year.
Gross margin (prior to biological asset adjustments) was 60.3%, compared to 71.3% last year.
Operating expenses were $28.3 million, a 44.4% year-over-year increase from $19.6 million. The increase reflects the Company’s investments in capacity expansion and transition to a consumer-packaged goods (“CPG”) operating company capable of supporting mass retail channel growth.
Lower than expected revenue due to the pandemic has resulted in an increase in operating expenses as a percent of revenue. In response, management has taken actions to better align operating expenses and initiated an expense optimization program targeting reductions of more than 10% of the consolidated expense run rate by the end of 2020.
Adjusted EBITDA for the quarter was negative $6.7 million, or (26.6)% of consolidated revenue, compared to positive EBITDA of $0.8 million, or 3.2% of revenue, for the third quarter of 2019. The Adjusted EBITDA ratio during the third quarter reflects the substantial personnel, R&D and infrastructure investments made to support expected future revenue growth from the F/D/M channel, contrasted with lower sales due to the COVID -19 impact on both bricks & mortar retail traffic and closed health practitioners.
Balance Sheet and Cash Flow
The Company used $21.5 million of cash in operations during the third quarter of 2020 compared to $9.6 million of cash used in operations during the third quarter of 2019, primarily due to the increase in changes in working capital. The Company’s cash and working capital at September 30, 2020 were $65.9 million and $128.6 million, respectively, compared to $68.6 million and $116.9 million at December 31, 2019.
Consolidated Financial Statements and Management’s Discussion and Analysis
The Company’s unaudited financial statements and accompanying notes for the periods ended September 30, 2020 and 2019 and related management’s discussion and analysis of financial condition and results of operations (“MD&A”) are available under the Company’s profile on SEDAR at www.sedar.com and 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 Company’s third quarter 2020 results at 8:30a.m. ET on Thursday, November 12, 2020. To participate in the call, please dial 1-647-427-7450 or 1-888-231-8191 approximately 10 minutes before the conference call and provide conference ID 2387838. A recording of the call will be available through November 19, 2020. To listen to the rebroadcast please dial 1-416-849-0833 and provide the same conference ID.
A webcast of the call can be accessed through the investor relations section of the Charlotte’s Web website.
About Charlotte’s Web Holdings, Inc.
Charlotte’s Web Holdings, Inc., a Certified B Corporation headquartered in Boulder, Colorado, is the market leader in the production and distribution of innovative hemp-derived cannabidiol (“CBD”) wellness products under a family of brands which includes Charlotte’s Web™, CBD Medic™, CBD Clinic™, and Harmony Hemp. The Company’s premium quality products start with proprietary hemp genetics that are 100-percent American farm grown and manufactured into whole-plant hemp extracts containing a full spectrum of naturally occurring phytocannabinoids including CBD, CBC, CBG, terpenes, flavonoids and other beneficial hemp compounds. Charlotte’s Web product categories include CBD oil tinctures (liquid products), CBD gummies (sleep, stress, inflammation recovery), CBD capsules,CBD topical creams and lotions, as well asCBD pet products for dogs. Charlotte’s Web is the number one CBD brand in the USA and distributed through more than 22,000 retail locations, select distributors and online through the Company’s website at www.CharlottesWeb.com.
Charlotte’s Web was founded by the 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 9, 2020 Charlotte’s Web had 104,789,199 Common Shares outstanding and 85,738.44 Proportional Voting Shares convertible at 400:1 into Common Shares, for an effective equivalent of 139,084,575 Common Shares outstanding.
1 Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) is not a recognized performance measure under International Financial Reporting Standards (“IFRS”). Adjusted EBITDA does not have a standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other issuers. Adjusted EBITDA does not have a standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other issues. The term EBITDA consists of net (loss) income and excludes interest (“financing costs”), taxes, depreciation and amortization. Adjusted EBITDA also excludes share-based compensation, impairment of assets, acquisition costs, legal settlement costs, restructuring charges, and adjustments for fair value of biological assets, warrant liabilities, and stock appreciation rights. Adjusted EBITDA is included as a supplemental disclosure because Management believes that such measurement provides a better assessment of the Company’s operations on a continuing basis by eliminating certain non-cash charges and charges or gains that are nonrecurring. The most directly comparable measure to Adjusted EBITDA calculated in accordance with IFRS is net (loss) income. See “Adjusted EBITDA” in the MD&A for a reconciliation of Adjusted EBITDA to net (loss) income.
For further information: subscribe to Charlotte’s Web news, or contact: Cory Pala, Director of Investor Relations, (720) 484-8930, Cory.Pala@CharlottesWeb.com
