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cbdMD (YCBD)

Participants
Ronan Kennedy CFO, COO, Secretary & Treasurer
Martin Sumichrast Chairman & Co-CEO
Call transcript
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Operator

Good afternoon. Welcome to the cbdMD, Inc. March 31, 2021, Second Quarter Fiscal 2021 Earnings Call and Update. This afternoon, the company issued a press release that provided an overview of its second quarter fiscal 2021 results, which followed the filing of its quarterly report on Form 10-Q. Today's conference call is being recorded and will be available online at cbdmd.com in accordance with cbdMD's retention policies. Instructions]. [Operator I the turn and company's Officer. time, to conference Chief like Kennedy, Ronan Chief would this the to over Operating At Financial Officer please Ronan, ahead. go

Ronan Kennedy

March all you, earnings XXXX update. joining Thank thank and second you and the of Catherine, call cbdMD's XX, fiscal XXXX quarter for

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

quarter our provide a I'll Following harbor, will Marty then the provide of business, financial the safe an overview of results. summary

actual remind described for Following forward-looking to from various that and or that, be these the indicated, everyone not report Act that, Marty for forward-looking that occur safe cbdMD's for and forward-looking XXXX, and at results cautions does ending website to over to update required are other events call or company's be the open the With on securities to circumstances the risks reviewed the We'd today's in filings the we'll cbdMD XX, website as Reform September would of plans statements on XX-K federal constitute only which Securities XX, subject speak Co-CEO, to XXXX. on I'd to May laws. SEC, forward-looking with under differ XXXX, to on date, of Private Wednesday, including of quarter our that all intend those SEC's cause call about and Form prospects any Chairman statements risks Any XX, at questions. can annual conference turn quarterly Sumichrast. Form these statements www.sec.gov. may as by on of uncertainties report after made www.cbdmd.com, the this date, company's today's expectations, call reflect the purposes March like except may future harbor XX-Q remarks provisions cbdMD of year ending Litigation materially like the up and XXXX, that for statements

Martin Sumichrast

and afternoon, you good joining Ronan, very you everyone. us appreciate today. much, Thank We

exceptional to of sales quarter product of XXXX, year. key addressable to to positive gain delivering and of seasonality. consumer their I market virtually guidance providing competitive first excited for has as to new and non-GAAP share ending for company. business this the year. outlook, XXXX $XX.XX of end capital is our the the same also adjusting CBD employees to this at profit evolve ingestible new $XX.X to the time, new long-term safety remain priority, is quarter in believe operating our the our We historically keeping sales to million of have this our line make us of to achievable of the partnerships million our greater new increased this We increase focused market, very wholesale and distribution We that we while net the work its are of QX to to to very CBD we CBD growth the our and our impacted We're the FDM our margin. products, health team cash to net adjustments to differentiator our at financial the Therapeutics, investment profitability, and foundation lockdowns sales and during impact up magnitude brand dedication support into and long-term channels top us industry, channel sales, access XXXX, new cost our anticipated, and maximizing responsiveness long-term will capital variety future about duration importantly, $XX.X We leading March thank cbdMD flexibility. the net a our successfully our stay global U.S. strength and and strength the distribution, growth. and to business will a on sales fiscal sponsorships, initially these our ability healthy term-based We at new a delivering to business line. to and potential We the balance be international with from launch our growth We and maintaining hard on anticipated substantial related entered business in solid fiscal footprint global the industry. we results. for deployed rate our sales by our our net of more are opens the We vision total were of of want net XX% Despite that has on calendar continue significant to believe CBD been that a new our channel opportunistically the QX believe in business core deliver created our growth. of fiscal We our on most now near than marketing remain helping about forefront income allowed almost science top believe COVID-XX believe sheet particularly markets. gross pandemic in and excited in seek million in grow December be achieving XX% confident precipice to while, products, development, a was continue infrastructure. calendar million, XX, continue This the position considering Based QX history. division, while cbdMD net $XX.X containment. year-over-year we by largest the in growth our

market mentions, XX X competitor. editorial brands QX, fiscal for reach which to M-Score, our tonality, reach, and Meltwater media points which Our awareness the measures lead our of was as in social nearest was a ahead continue brand

the of of NOBULL Reed, partner thrilled athletes PGA agreement team recently We and We extended CrossFit an professional continue we signed megastar cbdMD. who winter programs. have driver Games, to Master rally Ken X Patrick to strengthen are on We and official sponsorship exclusive to our portfolio and time our strategic signed the with sponsorship Block. be sponsorship CBD Champion

both in We and XXXX the with earn we with years, in awards, winners, ever CBD line, year of back-to-back company our year's category. product announce product CBD serving brand continue our named product the the introduced since were to of product CBD prestigious the serving innovative as were the CBD was ingestibles proud most in category CBD, Gummies as of award product Paw year cbdMD pet the CBD the to the to line along product cbdMD's the achieve and first first win XXXX, are this CBD CBD to

product in the a powered CBD award year dogs honors are the pet XXXX brand product pet-friendly of the of the In addition, category, Paw cbdMD. CBD Hard year Chews for for by in first

of brand goal development. innovation is a to culture Our foster and robust

are We our meet an the through in needs preferences evaluating earlier the consumer this cbdMD can demographic, to of propositions with options compelling brand delivering and To connect cbdMD our our that year. Botanicals further launched continuously ever-evolving compelling successfully expand marketplace. so consumers innovation we

we'll X personal new one one be launching cider month, flavor. sleep, cbdMD my for for Gummies, Next vinegar apple favorite, recovery our and,

our be in and our be recovery month, mixes, flavors. we're presence Today, In countries. products expanding new as will over our which also drink we'll sold in energy well. we've available XX cbdMD launching basic, addition, Internationally, next

European With success for Kingdom Food Safety made submission Kingdom's the Authority The filed Union, simultaneously Agency. submission across allow XXX and application the scientific was our U.S. all assessment. leveraging markets. Food United more includes the officially data million than similar the our we've United requisite the and we to opportunities Standard food market are We application to European ensure the internationally. the in people significant with as thorough for to novel compliance validated A European find

been Our mid-XXXX. for have U.K. offered since in products the sale

requirements required undergoing America product, process, which our its intake as hemp other will the consumption of although and a includes precursor this of underlying for for we quality related characterization, blend the Our data its and cannabinoid application product testing various assurances stability end research cbdMD Australian analysis NDIN preparation regulatory Latin be believes proprietary completed extraction step in labeling, XXXX, be no believe TGA of safe application controls, toxicological FDA world. by line. made. ingredient is to that is in a the detailed This tool this and of ingredients other regulatory review of currently and sourcing, of can with We submissions, application the valuable submissions provides pre-clinical completion the cbdMD around submissions, believe throughout the approvals sanitary world. regulations our support cbdMD to important extensive a

good, importance brand of the selling and and equity cbdMD safe team products. quality Our at understands

to novel future the with the and of development, options suffer to formed disorders. with safety trials clinical isolate therapeutic one related investments to the potential toxicity and in a therapies. support consumer the explore through As cannabinoids order novel other CBD we ongoing position lesser-known CBD and perform the of cbdMD and to world, leading In brands cannabinoids quantify the to in its to of in unique to scientific as is demonstrate existing company's studies science believe advancement XXXX, insomnia such and bring replace to opioids wholly owned activities as pain provide March fibromyalgia, pain, for mission In killers therapeutic people research therapies other anxiety osteoarthritis, sleeplessness from and for market cbdMD subsidiary. including and LLC, we therapeutic conditions Therapeutics the applications where and inflammation, new a and products, our customers to anxiety, or prescription

administration acceptance Sibyl These Dr. cbdMD for officials in former we health values, preeminent Vice and current therapeutic you investing and believe through with lives by wellness embarking Regulatory U.S. With serve in people's committed thrilled for necessary may the are the Therapeutics of partnerships therapies companies and as take signals dietary people of to mission. I'll We cbdMD our we leading also resources by our Therapeutics and the expand over of most We ensure our our lead on in. the Scientific and to and world better Ronan, our to the the to to success Board through the the we difficult of products, are that financial we are identified contribution live first take upon to proud the the of Swift, to President cbdMD to go our at develop world, at as our science be market. new envision marketplace will to work the some pandemic. brand our We novel significant as that committed the their to I in launch cbdMD's of supplement will to Food research cbdMD from COVID-XX and the entrants competitors, use cbdMD's that science brand's worldwide. am Drug universities this lead further the of cbdMD the the not and is the will core providing appointed Co-Chair to Therapeutics distance We a further our new new especially well have Affairs. vision, any expect all further ahead. our and the results. great will now build employees turn that, brands, of call advancing also strong during pride with who in only a Ronan, but consumers that

Ronan Kennedy

On net sequential quarter and GAAP another a all-time basis, of seasonal XXXX everybody. XX% fiscal you, increase Thank welcome, million total X%. hit a the of or for a second dip $XX.X of Marty, sales year-over-year and high

of the months same a year. in of reported total million, March For compared XXXX, X to last increase $XX.X period XX% ending we million $XX.X sales the fiscal

of of $X.X XX% e-commerce our increase. the fiscal represented XX% quarter net generated for second sales. quarter the in sales year-over-year of quarterly total business E-commerce a approximately XXXX, Our million

saw retention and average X non-GAAP the million for March sales on net $XX.X sales. and remain April. an traffic toward We XX, representing the year total associated to our our web end with $XX.X XX% value, strengthened compared rates million our KPIs e-commerce period, the prior quarter ending net fiscal operating the order direct-to-consumer For comparative focused of of and of generated XXXX, into business months

for Our generated of for fiscal net $X.X the million second comparative XXXX. wholesale compared sales fiscal to of $X.X XXXX as quarter the business million in quarter

business XXXX million generated ending wholesale net and $X.X of For XX, $X.X million, March the XXXX, and our months sales. respectively, X

normalcy. of uptick rates vaccination we as optimistic account prospects restrictions coming are people and quarters, about are to return starting cautiously over and slowly the We relief from activity an see COVID-XX to wholesale pre governmental see increase,

quarter, continue quarters. capitalize look received. the our for and coming our CBD in to well this initial Paw cbdMD of was During strong, was Botanicals to We demand on release

further a clarity onboarded U.K. and in FSA the we registration. distributor with this growth addition, in see to our In market expect new on

period. Our a of in fiscal GAAP the gross sales, came the net compared second XX% prior to profit year percent at remained strong comparative quarter for XX% as for XXXX of

was profit leverage we net total between and a model, gross X and XXXX, XX, Based XX% operational on the category XX%. of maintain and ending mix, our months expect XXXX ongoing our and our For to percentage sales gross XX%, March margins asset-light respectively, as XX% profit sales.

March XXXX, in XXXX, is the well a XX, increase increase quarter, quarter. for expenses expense. March December XX, totaled marketing quarter, Operational operating $XXX,XXX noncash XX, million XXXX up to compared in were Our expenses discretionary mostly the stock as $X.X which $XX.X the to due million, XX.X% as flat over

increase from million March a noncash million X is quarter million from dropped in XXXX, operational in reduction marketing For $X.X attributed in improvement comparative operating loss in months Overall, gross comp from the million $XX.X approximately the $XXX,XXX in of $X.X March XX, period. spend, the XXXX, in income the The profit. million fiscal to $X.X the operations and a in ending $X.X stock $XX.X the expenses over $X.X million million this XXXX period prior to quarter, of GAAP loss $XXX,XXX the December XXXX. mainly year for in resulted XX, drop

X XXXX gross the months as from $X.X For in as GAAP an increase expenses. result loss dollars $XX.X well revenue, improvement reduction profit our totaled ending a $X.X from and The of increased approximate million March respectively. in stems and million, XXXX, operations million operating million $X.X as XX,

XXXX. loss tightening increase and of include of the to noncash $X.X expenses gross in operating cost fiscal operating related as in loss non-GAAP improvements operating decrease stock quarter fiscal $XXX,XXX XXXX a resulting quarter adjusted revenue of dollars non-GAAP year in profit adjusted in second million and prior the of of second of non-GAAP The margin. XXXX expense $XXX,XXX, and was period the in in for depreciation onetime operating expense both compared a in fiscal nonrecurring an million accrued Our expense to loss quarter resulting adjusted $X.X the attributed gross second over to $XXX,XXX from mainly severance,

earn-out third operational the pursue our but current subsequently to added range common efficiency anticipate liability million contingent on we common objectives liability several balance fiscal More relationships additional an the contingent increase drive contingent This capital only the cost the not the to expense quarter. of to to during cost liability to of $XXX,XXX based paid-in redundancy, continue we recently, and savings market for We net volumes, in and merchant The a per a provides $XXX,XXX result value from processing in in income of of quarter. Other At structure. increases our were current $XX.X of from In period booked to contingent resulting million lower changes shares share. of contingent the the of income reclassified issued XXXX, of X.XXX noncash of in expenses our consolidated including in impacting liability end operating was a contingent creates $X.XX on $X.X total the at price valuation the our second liability in were quarter, sheet. remaining the was income. contingent $X.XX of the price time shares related liability acquisition million Cure we consolidated a our noncash December primarily corresponding the increase our the March statement, revalued XXXX the charge on Development. additional period. increase Based million issuance, to contingent stock $X.XX The during quarter. liability stock liability Any per and expense earn-out

contingent the had liability financial on years, statements. X last the Over impact volatile a our

creates the remain the No. are amended March, of earned which the as corresponding quarters periods earned to they market measurement earned X XX, liability remained In for March in agreement, merger period end period. the these third of revenue valuation. on each after shares overhang into Addendum shares quarter the impact within historically, based While have the This an with calculation revenue, for multiple quarterly until we XXXX. the beginning allows issuance, marking and measurement share quarterly ending entered and part

a revenue removing share quarters, X with updates. future will there issuance, calculation in the from earn-out of quarterly earned corresponding shares an a next each be For along measurement valuation

valuation overhang net the not this valuation to in calculation, contingent a time, impact the We no of liability XXXX. the volatile impact change, shares this has earn-out create believe, at reduce the longer in the change income. is There the will result a multi-quarter this XX, on the company's calculation. no As and March potential change earned the has over did

During sheet We million the capital This approximately equivalents approximately working cash of $XX.X equivalents compared roughly of held million dividends XXX,XXX quarter, of on we non-GAAP shares Corp., had to acquisition include The of million, our approximately SPAC. a investment XX, of to $XXX,XXX March cost $XX.X of million $X.X of operating increase at of our an cash company, ADRA and million $XXX,XXX $XX.X cash utilized and warrants. cash. investment equates approximately $X NYSE-listed $XX loss XX, or on million $XXX,XXX capital but main September XXXX. million as in in Acquisition and components cash approximately balance special working our XXXX, paid, and remains purpose approximately X increase working and capital and adjusted of

current XX, of current A Our assets as XXXX. XX% assets Series proceeds from in was increase net our increased from $XX.X December of XXXX, of million. XX, the driver March to stock in million primary A $XX.X approximate preferred September the XXXX, approximately in

The of for financing As accounts $X.X a which $X.X in facility $X.XX notes loan Paycheck company Program. as Protection the is current approximately well SBA of million the had our from XX, million is March $X.X and expenses. total equipment on liabilities million company's payable $XXX,XXX of as were manufacturing million, accrued

and loan drive an operational team ERP are our forgiveness We quarter. effort In to for past this our of have forgiveness the as NetSuite excellence, on the new submitted in to implemented process. PPP application middle continue the our XXX%

is to information Our to of have the improve to critical access real-time business better data goal decisions. the and drive richness

of are only and products believe part seeing system. and Quality new our our operation of we strategy. continue will positive a optimize We already key to supply on the as a visibility continue chain, impact into we efficiency are fine-tune to our drive our

Our including announced quality is trustworthy team NSF to products. and during U.S. high-quality, operations providing quarter, our Authority. Hemp and audits of certification quality committed underwent the cbdMD recently renewal the several

year. expect of are additional certifications, which through we the We the in of able the to be middle announce pursuing to balance

balance Our remains sheet strong.

operational excellence focus continue on We quality to and products.

have of are in partnerships great activating. we marketing the We process new

optimistic confident an in business, pipeline have wholesale we cautiously products are on our turn in building our uptick on execute now focused back remaining launch in the continue are with that we'll long-term our ability on new to months. the we And We I'd plan shareholder and All robust Marty. value. all, to call that, XXXX be of to to a and like coming over over

Martin Sumichrast

for Well, like open I'd Q&A. Ronan. any that, thank line up Catherine? you, With the to

Operator

the no your Instructions].With Thank [Operator does questions today. queue, call conference you in conclude participation. so for our this for much