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cbdMD (YCBD)

Participants
Ronan Kennedy CFO and COO
Marty Sumichrast Chairman and Co-CEO
Sibyl Swift VP, Scientific & Regulatory Affairs
Call transcript
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Operator

Good afternoon, and welcome to cbdMD, Inc.'s March 31, 2022, Second Quarter of Fiscal 2022 Earnings Call and Update. This afternoon, the company issued a press release that provided an overview of its second quarter of fiscal year 2022 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, along with its earnings press release covering our financial results and non-GAAP presentation at cbdmd.com, in accordance with cbdMD's retention policies [Operator Instructions]. At this time, I would now like to turn the conference over to Ronan Kennedy, the company's Chief Financial Officer and Chief Operating Officer. Ronan, please go ahead.

Ronan Kennedy

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

the our Vice Chairman of Scientific have as On Affairs. as President we Regulatory Marty well Swift, Co-CEO, Sumichrast; our Sibyl Dr. and today, call and also

as statement, our will climate an will on Therapeutics current regulatory overview an the finally, a provide our business. Following I'll update from Marty quarterly summary Safe of CBD an as division. And of well for Harbor cbdMD financial Swift provide update Then Dr. provide results. the the

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

Marty Sumichrast

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

the revenue at industry of just experienced XXXX, we negative four CBD had And its here calendar decline. sales first experienced As net entered cbdMD, we quarters too growth.

goal our trend positive. the to We're and accomplished for turn this to decline was and report into the reverse to net sales sales So back that coming pleased the sequential XXXX we calendar goal quarter. rebounded

to We also reduced structure. our members. our regarding quarter, of significantly many team the lot choices during had hard We made part a payroll which meant cost with we

existing We always team ways a to find new hard to at largest that customer revenue our We to to expenditure. better our at ago. few take can furthermore, been which also longer. a us challenged quarters to overall Operationally, look that rates marketing cost we And an cost-effective gets retain manner. has customers on experience customers had marketing breakeven embarked savings find more so in we our program achieved flow cash we our spend, our ways a reach to only

first breakeven is built those that in accomplished time, what be channel that's sales. to cbdMD diversified explain past let calendar may over about To goal a cash the sales generated $XXX you take We've of achieve years. minutes learning flow million for the to Our three few me a during over XXXX. we've net

our industry. quarter, just We products in And distribution to added we And over list. largest stores GNC last engines in the have of the outlets. CBD our over one we in X,XXX direct-to-consumer XXX retail, placed have

our for the have inception, product million one have customer filled of products. and ratings We since customer awards several the orders of satisfaction leading service multiple X.X and have industry's over of received year

which have expanded of Farm process separate development recently Federal highly lineup fully further growth infrastructure, competition. full R&D We our pipeline developed we from with which We diversified spectrum brands a fuels valuable Act. operate studies, And and our and one departments developed will with fully have research our XXXX has comply believe capacity. of have and significant we industry's a We SKU maintained product novel which a products innovation. rationalization that built leading the

We have such strongest partnerships Bubba Cormier. industry, in Johnson the one Jimmie Watson, of and including influencers high-profile catalogs affiliated our Daniel athletes of as and

and provide with clarity and over international accessible of We have are health develops. distribution the some most the most in regulatory wellness growth CBD And expanded we to industry. positioned we finally to as the our countries, XX customers we significant experience and unique and choices believe importantly,

our sales trajectory that and we and through in believe we calendar continue up we firmed As into are speak optimistic we XXXX. as sales trends have upward today, an XXXX

strategies been and promise. brands competitive have customer are price and premium that believe provide Our new a we We only implemented showing compelling but not results near-term marketing point. sales do at experience, so our

into expansion markets Our new promise. categories and show

future. our Our market to strong, share we are and continues optimistic about remain

quarter, had and climate we believe result past achievements mainstream regulatory development brand's the research which our as We regulatory acceptance have this numerous in codifies. will

Dr. and We Scientific ahead. turn resources Therapeutics Regulatory and our will Affairs go at providing cbdMD at the call over Swift, the are to one and division please to to that, the ensure now Vice necessary committed Swift, at I its of Directors Therapeutics the cbdMD Managing Dr. cbdMD. progress our President, Sibyl success. With

Sibyl Swift

reply priorities. drug state And to approximately the which the FDA We expect we CBD well-founded be including provide need other our we to to to delay before to decision of a Petition on CBD response it's petition should arguments why due additional XX, we everyone to a send do not XXXX. able Drug We time reply substantive we February the precluded. not or August believe to Instead, on In line, a was them XXX-day XXXX. about they have expect Preclusion to time XX, claim be List. is agency call, with Marty. several last Thank our FDA. That removing talk from types today. Citizen's you, relief it, call spoke mailed the pleasure requested On

We will time. our steps at next that determine

they Our phase, This are been by assessment to will XX six the risk the we products the Costa and MINSA, In final in an emerge novel novel additional months risk seeking now approval. pulled administrative a process legally we Rican In and is assessment are opportunities anticipate the the the our our phase. during can full governments X UK, until expected of approved of foods the dossiers. products which have Ministry. food during UK are means to take to the completion processes. for be EU, take after can Health the which assessment, our as approval the Approximately validated may be entire We risk in applications EU, months. XX now analyzing up

We have for an MINSA approval. submitted additional approximately XX products

the our distributors obtain sanitary Latin countries. laws to two process several And in authorized are We ourselves. Mexico American change actively with registrations are currently us working we one enter other to to in before terms of on engaged allow deal register the to

dogs that given to Colorado next on greater Our The combination gait efficacy. clinical aspirin proprietary with stiffness, performed our had few osteoarthritic on State with were determine patent-pending in joint will in potentiation efficacy of dogs study to months. indicate early our improved CBD plus when study explores results unofficial discomfort complete and the The blends’ the product. osteoarthritic aspirin moves were this mobility University population if determine and also

it is Mississippi a cannabinoid Products test of cannabinoid available approval for Our produce successfully this for is methodology and the to or to positive study. the is novel before but of toxicity how method developed has quantity step applying use FDA We and production a with University formulations, protected identified ready and in for Center The cannabinoid novel toxicity pending next the believe projects results cannabinoid at scale Research. the be Natural this as in a by National IP, a studies. we to new can new synthetic believe testable there pathway for up we it

formulation us spoken University and to University and to between included informed are ingredients about ramp Mississippi, work the several Mississippi of six botanical ingredients and ingredients the effects months. the we can enhanced this have of in The conclude testing at leads formulas. quickly already of believe and functional our in of cannabinoids. identified we within validation Inclusion dietary potentiation up these has We

high competitive products any of that that any the confidence formulas clinical market. than future well will the greater as level prove have studies have as efficacy ingredients on functional a supplements We containing those

on traditional We are more ingredient competing dietary our such have activity and trusted that space. supplement suppliers both products will to discussed partnership with to participants is CBD mood efficacy including of to cost while yield required. prove Partnerships improved effective South and these assess complete that products as randomized, University Carolina proprietary The cannabinoid studies products impact the a in have studies over formulations the project of cannabidiols sharing pain, immunity, cbdMD's healthy placebo-controlled, sleep. double-blind in adult study the the inflammation, of endpoints,

safety toxicity the in study assessing are We also participants. and

would report They as the -- We their funds is to available. level on that It to addiction us several will opioid We become division Kennedy. ahead. including results a drug all for to therapeutics and to please interim turn Ronan pain believe as anticipate be UCLA for third Ronan, to invited quality I our has prestige we initial and have clinical of be participants With study of this to abuse speaks sponsor program work. us sponsor. like as studies. the over Chief Officer, visit. projects, have be interesting, THCV invited in product available Operating sponsor soon The to benefits drug Chief to be Financial alcohol that, to completed will disorder. our we products longer-term believe go it and

Ronan Kennedy

the $X.X GAAP the $X.X you, million XXXX, for Total were of December Sibyl, net net fiscal everyone. versus XX, and ending sales or welcome, quarter a second growth sequential of XXXX X.X%. for of quarter sales million Thank

down the year Our to the quarter XX% net March sales were quarter. compared comparative XXXX for XX, prior

XX, $X.X e-commerce quarterly versus for of $X.X generated X.X%. ending quarter million of sales December our million a XXXX, business decline or sequential direct-to-consumer Our

quarter compared Our down XXXX. XX% a of e-commerce our the ago. represented total the XX% of year net second during quarter E-commerce sales were fiscal to sales

$X.X including or compared was ago XX, down brick-and-mortar sequential sales $X million a XX.X%. versus Our net XXXX. Wholesale were ending quarter year the March for XX.X% million the to business, increase XX, XXXX, December of retail wholesale quarter customers, of

from and implemented fiscal in XX% XX% Our quarter the the initiatives quarter. primarily profit leverage sales. GAAP of We've expect of XXXX improve in decline This second fiscal quarter realize these of the to because manufacturing gross third to and margins in XXXX. decline and margin lower gross cost-saving based to on decreased the year-over-year numerous is operating profit second in offset

XXXX quarter led fees, Our million, totaled down prior noncash year expenses were the in operating amortization million expense in processing of $XXX,XXX merchant by $XX.X the $XX.X professional drop depreciation, second expenses. regulatory expenses, payroll, expenses a stock and of reduction as in from an for was increase and and This fiscal fees, down well marketing intangibles offset by other R&D as sequentially.

our prior As the XX-Q, mentioned current we our started in with intangibles amortizing quarter. beginning

costs depreciation, to year amortization, last million our as expense, $XX noncash million Excluding as adjusted dropped from $XX.X our XXXX. well stock operating for

does a the initiatives implemented While capture we quarter. cost-saving all this marked improvement the not during

other we rate further of the During the reductions run during expect cost lowering expenses, third our timing of and implementation, quarter. the payroll, operating marketing

totaled six March from expenses for XXXX prior XXXX, $XX months year. $XX.X the million Our in operating million, ended up XX, fiscal

in down, was increase amortization noncash a in expenses depreciation, While cash compensation. by of $XXX,XXX the areas of of $XXX,XXX were driven all stock $XXX,XXX and intangibles increase increase $XXX,XXX almost

and operating $XX.X million. depreciation from our stock million amortization to $XX.X Excluding compensation noncash dropped cash and adjusted costs expenses,

attributed million year initiatives loss gross GAAP costs. As period. second our decline Overall, mentioned partially mainly a the $X.X from quarter have second the compared of in for loss in XXXX $X.X the run from to increase operating by reduced implemented further going offset rate the before, as operations the cost loss revenue, $X our dollars quarter year-over-year million totaled in forward. in to million to during of prior reductions due drop is which operating fiscal was The our profit

first as because million is ended primarily month loss a GAAP million well loss lower The sales. gross goodwill $XX.X difference as intangibles noncash operations six a as due $X.X million $XX.X XX, million Our in the to of and year. from in $X.X of compared to the impairment prior of during XXXX, drop profit quarter March totaled

XXXX in in the The fiscal non-GAAP Our $X.X quarter increase non-GAAP million second second million compared non-GAAP of adjusted XXXX noncash to to expense quarter XXXX. adjusted expense, XXXX operating primarily income second and in Development. to amortization the operating lower a the resulting fiscal fiscal income gross operating of drop stock for and is Sequentially, $XXX,XXX, $XXX,XXX loss $XXX,XXX includes adjusted adjustments gain operating quarter $XXX,XXX of quarter. revenue from of liability Cure our Based expenses. in operating operating of depreciation for non-GAAP offset expenses expenses of as a adjusted loss reduced attributed the by and related $X.X non-GAAP December corresponding loss we Other of profit, loss period December over noncash prior including by our the to of consolidated on contingent our XXXX statement, acquisition year

of issued additional for XXX,XXX booked in sheet. The quarter, balance of liability the of to liability we contingent to earn-out the the a capital per a decrease reclassified quarter. December, amount and $X.XX terms under remaining a we end a market to are During the shares the were price primarily time of noncash the valuation $XXX,XXX decrease the contingent valuation acquisition. our the $XX,XXX during of in period revalued contingent XXX,XXX earn-out of consolidated of subsequently common liability corresponding a the third stock on gain $X.XX the from in from of result period At paying at changes shares The resulting share. issuance,

cash lower fiscal million $X.X we to and $X bring our During We accounts from an cash. laser-focused XX, the on projecting of XXXX, equivalents working with of $XXX,XXX. as of and million The million cash of March $X $XX.X cash September the restructuring approximately $XX.X during $XX.X million receivables cash million, approximately and are approximately and well quarter in of cost approximately XXXX. our the dividends, burn rate reduction remain paid as of in payable used and as of April. capital to of utilized increase of down non-GAAP our million approximately of cash the generation XX, quarter on completed cash main approximately loss components the We $X.X second adjusted XXXX, operations much because had operating million million last equivalents working compared of include $XX.X of of capital and

XX, is approximately decrease flow driver of operations. million. assets XXXX, primary March in $XX.X XX% to for our current XXXX, as September cash the Our decreased from XX, from The cash

five fiscal million, began to and XXXX, growing conference organization the company's of $X.X upgrading costs. believe time have the reduction areas, We this realigned which We approximately and and recruiting is costs while current achieved during million payable annualized of did and area in and changes, talent will our quarter. accounts XX, March reduction our expenses. model the this marketing more last headcount quarters. run of will shipping in quarterly As of $XX call, operating for compensation $X.X reduced our million costs see XX $X.X which last flesh we this, our payroll, several quarter first the result our the and a million top We in total migrating almost performance million $XX third during liabilities and were committed we in line we a to expenses, distribution accretive is and second the lowered in rate out implementing every next March. believe over you We lowered months. On

equipment production in for a unabsorbed expenses further other to acquire cash our of transaction suppliers take of of entering to Additionally, our highly reduce our consideration took April, our simplify products. operations one we into and with step manufacturing by vetted our a and and over overhead certain

of anticipate Going margins. forward, GAAP gain and strategically cash provide from equipment impact assets regulatory paid on R&D as our the proceeds We the a slight equity, with an well will this the have positive we into upstream believe on sale down a note and access reinvest further as us in to to the resources. We aligning current quarter. our partner negotiated gross

second more we current savings intend the of fiscal identified, implement have cost which to We during our these half year.

our cost we focused critical, discipline reductions track. back and revenue are on While getting remain on

customer our drive is and and to place for simplify rationalization executing performed strategic revenue. are consumers. to strategies we the allowing The us We in initiatives have on SKU several channel-specific messaging

to spend. customer in making marketing We and investing changes are model real-time our attribution our

to claims. in product Additionally, continue function on carefully we development scientific-based and focused invest new

As With the that, to are of over about to XXXX optimistic call Marty. like the earlier, we back year. Marty I'd to now turn alluded balance the calendar

Marty Sumichrast

like open with And Ronan. line Thanks, Q&A. that, to the I'd for

Operator

your questions the you. have Instructions] in no our call your queue, With pleasant so Thank conference you day. [Operator Thank much today. does of that for rest and a conclude for participation,