Charlotte’s Web Holdings Reports Q4-2020 Results
Quarterly growth and market share gains
BOULDER, Colo., March 25, 2021 /PRNewswire/ – (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 and a certified B Corp, today reported financial results for the fourth quarter and year ended December 31, 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, see “Non-IFRS Measures” below.
2020 12-Month Financial Highlights
- Total net revenue increased to $95.2 million vs. $94.6 million in 2019
- Direct-to-Consumer (“DTC”) eCommerce sales grew 27.6% in 2020 contributing 67.0% of total revenue, substantially offsetting a decline of 29.5% in B2B sales impacted by the COVID-19 pandemic
- Gross profit, excluding the impact attributable to the inventory provision, of $60.3 million was 63.3% of consolidated revenue
- Adjusted EBITDA loss was $20.2 million
- $52.8 million cash and $113.6 million working capital at December 31, 2020
2020 12-Month Business Highlights
- Completed acquisition of Abacus Health to become the market share leader in CBD topicals1
- Invested $28.3 million capex including new facilities to expand capacity for production, extraction, R&D, and distribution
- Launched CW Labs R&D division to advance hemp science and clinical studies
- Secured 3 U.S. Patents for the Company’s proprietary hemp cultivars bringing total patents to 5 in 2021
- Increased distribution from 10,000 doors to more than 22,000 unique retail doors
- Sponsored a third-party liver health study to address FDA need for quantitative data
- Drove federal and state legislative actions to help develop comprehensive regulatory framework
- Earned B Corp certification
Q4-2020 Financial Highlights
- Revenue increased 17.9% to $26.9 million vs. Q4-2019 and increased 7.0% vs. Q3-2020
- DTC sales increased 21.2% year-over-year, contributing $17.4 million or 64.8% of Q4 revenue
- Net revenue increased quarter-over-quarter for both DTC 4.2% and B2B 12.7%
- Gross profit, excluding the impact attributable to a Q4 inventory provision, was $16.8 million, or 62.2% of consolidated revenue
- Adjusted EBITDA loss of $2.1 million vs. loss of $6.7 million in Q3-2020
Q4-2020 Business Highlights
- Increased DTC eCommerce transactions, conversion rates, subscriptions and unit volume
- Commenced Phase III extraction infrastructure and R&D expansion in new 137,000 sq ft facility to build out production capacity ahead of anticipated growth. Related Q4 capex of $5.9 million.
- Secured 5-year exclusive distribution partnership with Intercare/Canndoc in Israel as first step in international expansion strategy
- Exited 2020 as market share leader in total food/drug/mass retail (“F/D/M”), US natural specialty retail, and DTC channel
“We turned a challenging start to 2020 into a strong finish, taking multiple actions and outperforming much of the competitive set to extend our brand and market share leadership,” said Deanie Elsner, CEO of Charlotte’s Web. “We filled product and channel gaps with competitive offerings and advanced the science of hemp CBD through CW Labs and collaborative studies with top tier institutions. We have now protected our intellectual property with 5 patents awarded for our proprietary cultivars and have defended our trademarked Charlotte’s Web™ brand though a recent judgement.”
In 2021 we are positioning for long-term growth and shareholder value creation as we evolve towards establishing Charlotte’s Web as a leading global botanicals wellness company by expanding into cannabis wellness where federally permissible.
Deanie Elsner, CEO of Charlotte’s Web
To support our international growth we have an exclusive agreement with one of Israel’s largest medical cannabis producers, and in the U.S. we secured future optionality through a strategic option to acquire Stanley Brothers cannabis business pending US federal legalization of cannabis.
Q4-2020 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 fourth quarter revenue increased to $26.9 million, as compared to $22.8 million in 2019, an increase of 17.9% compared to the same period in 2019, and 7.0% compared to the prior three months ended September 30, 2020. During 2020 the Company implemented a competitive pricing realignment strategy across its product portfolio resulting in increased unit sales and expanded market share in the second half offsetting some of the headwinds created by COVID-19. B2B net sales increased 12.4% year-over-year supported by expanded topical product offerings. DTC net sales grew by 21.2% year-over-year supported by the pricing realignment and higher conversion rates 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 64.8% of total revenue in the fourth quarter compared to 63.0% for the same period in the prior year.
Gross profit for the fourth quarter was 40.6% compared to (9.0)% last year. Gross profit, excluding the impact attributable to an inventory provision, was 62.2% compared to 52.0% last year.
Operating expenses were $23.6 million, a 10.4% year-over-year decrease from $26.4 million. High operating expenses reflect the Company’s investments in capacity expansion and transition to a consumer-packaged goods (“CPG”) operating company capable of supporting mass retail channel growth. In response to lower B2B retail sales growth during the pandemic, in Q4-2020 management took actions to better align operating expenses through an expense optimization program successfully achieving reductions of more than 10% of the consolidated expense run rate by the end of 2020. This was achieved despite the addition of the CW Labs R&D division and the Abacus acquisition during the year. As a percent of revenue operating expenses improved from 136%, to 113% and 88% for Q2, Q3 and Q4, respectively in 2020.
Adjusted EBITDA for the quarter was negative $2.1 million, or (7.7)% of consolidated revenue, compared to Adjusted EBITDA of negative $10.1 million, or (44.4)% of revenue, for the fourth quarter of 2019. The improved Adjusted EBITDA ratio reflects higher revenue combined with the expense optimization program.
Balance Sheet and Cash Flow
The Company used $5.1 million of cash in operations during the fourth quarter of 2020 compared to $8.6 million of cash used in operations during the fourth quarter of 2019. The Company’s cash and working capital at December 31, 2020 were $52.8 million and $113.6 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 audited consolidated financial statements and accompanying notes for the periods ended December 31, 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 fourth quarter 2020 results at 8:30a.m. ET on Thursday, March 25, 2021. 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 7397494. A recording of the call will be available through April 1, 2021. 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 as CBD pet products for dogs. Charlotte’s Web is the number one CBD brand in the USA and is 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 its 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.
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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 March 22, 2021 Charlotte’s Web had 108,912,326 Common Shares outstanding and 77,243.34 Proportional Voting Shares convertible at 400:1 into Common Shares, for an effective equivalent totaling 139,809,661 Common Shares outstanding.
Non-IFRS Measures
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 therefore may not be comparable to similar measures presented by other issuers. The term EBITDA consists of net loss 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. See “Adjusted EBITDA” in the MD&A for a reconciliation of Adjusted EBITDA to net loss.
