cbdMD Completes Third Full Year Results; Total Brands Sales of $118.7 Million Exceeds Initial Earn Out Target
ndustry Experienced Weakness in CBD Demand in 2021
Resulting In Company YOY Decline in Net Sales for the December 2021 Quarter
Company Anticipates Regulatory Action Against the FDA With Expected Filing of Citizens Petition
Feb. 10, 2022 4:10 pm
cbdMD, Inc. ( NYSE American: YCBD, YCBDpA) , one of the nation’s leading and most highly trusted and recognized CBD companies, and operator of three of the leading CBD brands -- its flagship brand cbdMD , its animal health brand Paw CBD and its beauty and skincare brand cbdMD Botanicals, -- today we announced our financial results for December 31, 2021, the first quarter of our fiscal year ended September 30, 2022 and the third full year of operations with our cbdMD brands, after completing the acquisition of Cure Based Development on December 21, 2018. In the three calendar years (2019-2021), we generated $118.7 million in net sales, which exceeds the initial contracted earn-out revenue target of $113.3 million for the 36-month period.
Despite our three-year growth, our most recent net sales for the first quarter of fiscal 2022 decreased by 26% year-over-year, from $12.3 million in the prior year to $9.3 million this quarter. We believe that this trend started in early 2021 as overall CBD consumer demand growth started to decline in the US. We believe that this pullback has stemmed from the lack of regulatory clarity created by the United States Food and Drug Administration “FDA”. This product uncertainty has prohibited leading CBD brands such as ours, access to mainstream retailers, wholesalers and sales and marketing platforms. We believe that properly manufactured CBD products such as ours, which adhere to the rigorous standards of the Food Drug & Cosmetic Act, are safe and should be allowed for sale in all these retail channels as well as product marketing on all platforms.
In the coming days, we will be filing, in conjunction with the Natural Products Association, a Citizens Petition which is a process provided by the FDA for individuals and community organizations to make requests to the FDA to amend changes in healthcare policies. Dr. Swift, our Vice President, Scientific & Regulatory Affairs, and formerly from the office within FDA that is responsible for reviewing the safety data, directed the safety studies performed on our proprietary patent pending broad spectrum cannabinoid blend. Our dossier is not a “shot in the dark” and we believe we know the process. The FDA says that they want good science, and this is it. The Agency has defaulted to “being confused” over the entirety of the marketplace for hemp and CBD. We are not asking them to review the safety of all CBD products on the market. We are calling on them to fulfill their mandate and review the safety data compiled for our product based upon our conditions of use. This data was successfully submitted to the UK and EU to support approval of our products as Novel Foods. The process of evaluating the safety of a dietary supplement is not unique to any soil.
We believe it is far past time for the FDA to stop hiding behind the improperly applied exclusion rule that they are using to deny Americans access to a robust marketplace of hemp derived products to help maintain their health in these trying times. We believe that consumers from all walks of life deserve access to consumer healthcare products, especially in these trying times. We have shipped millions of products in the past three years without any reported adverse events. Our science tells us that our products are not only safe, but that they help people. Numerous studies about the benefits of cannabinoids have been coming out over the past several years and we believe that the real harm to the consumer is the lack of clarity in our industry, which falls at the feet of the FDA. While leading brands such as cbdMD go to great expense to adhere to the existing rules applicable to all dietary supplement manufacturers and apply the highest standards of care, other smaller brands flood the market with substandard products and the FDA is directly to blame for this situation. The longer FDA continues its irresponsible absenteeism, the more space that will be occupied by the rogue players. This is evident in the introductions of competitive products such as Delta 8, which is now banned for sale in over 30 states and created a negative downward pressure on the CBD market.
In response to recent weaker sales, we have streamlined operations by rightsizing and up-skilling our team and reducing our marketing spend and other expenditures. Our goal is to reduce over $10 million in SG&A costs in calendar 2022. Despite a healthy cash balance of approximately $20 million on December 31, 2021, we are reviewing all necessary measures to conserve cash.
Our gross profit margin for the quarter decreased to 54.4% in the first quarter of fiscal 2022 from 72.1% in the first quarter of fiscal 2021, partly due to a $878,000 non-cash inventory charge as we rationalized several slower moving and expiring product lines. Without this charge, our non-GAAP Adjusted Gross Profit would have been 62.2% vs 72.1% in the prior year. This decline is based on lower manufacturing and operating leverage because of the year over year declines in sales as well as changes in our product mix.
Our loss from operations increased to approximately $25.1 million compared to $1.75 million from the prior year’s quarter. A significant part of this loss was due to the fact that we performed an updated intangible valuation which resulted in a $4.285 million non-cash reduction to our trade name and a $13.848 million non-cash reduction to goodwill. Our non-GAAP adjusted operating loss was approximately $4.7 million, compared to a $523,840 non-GAAP adjusted operating loss from the prior year’s quarter. This increase in our non-GAAP adjusted operating loss mainly due to the decrease in sales and a large marketing spend. As noted above, we have taken steps to reduce our operating cost during the current fiscal quarter and have pulled back on our low performing marketing spends. We reported fourth quarter fiscal 2021 e-commerce, direct to consumer (DTC) net sales of $7.1 million, a 26% decrease from $9.7 million in the fourth quarter of fiscal 2020, but only a 2% sequential decline over the September 2021 quarter. Finally, we recorded a $5.95 million non-cash gain related to the quarter reduction of our contingent liability associated with the original acquisition of the cbdMD business.
We will host a conference call at 4:15 p.m., Eastern Time, on Thursday, February 10, 2022, to discuss our December 31, 2021, first quarter financial results and business progress.
CONFERENCE CALL DETAILS
|
Title: |
cbdMD First Quarter 2022 Earnings Call |
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|
Event Date: |
Thursday, February 10, 2022 - 4:15 PM Eastern Time |
|
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Event Link: |
Webcast URL |
|
|
Webcast Replay Expiration: |
Friday, February 10, 2023 |
|
|
Participant Numbers: |
Toll Free: 888-506-0062 |
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|
International: 973-528-0011 |
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|
Entry code (not required): 623328 |
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Replay Number: |
Toll Free: 877-481-4010 |
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International: 919-882-2331 |
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Replay Passcode: 44450 |
About cbdMD, Inc.
cbdMD, Inc. is one of the leading and most highly trusted and most recognized cannabidiol (CBD) brands with a comprehensive line of U.S. produced, THC-free 1 CBD products as well as our new Full Spectrum products. Our cbdMD brand currently includes over 130 SKUs of high-grade, premium CBD products including CBD tinctures, CBD gummies, CBD topicals, CBD capsules, CBD bath bombs, CBD bath salts, CBD sleep aids and CBD drink mixes. Our Paw CBD brand of pet products includes over 45 SKUs of veterinarian-formulated products including tinctures, chews, topicals products in varying strengths, and our CBD Botanicals brand of beauty and skincare products features 15 SKUs, including facial oil and serum, toners, moisturizers, clear skin, facial masks, exfoliants and body care. To learn more about cbdMD and their comprehensive line of U.S. grown, THC-free 1 CBD oil and Full Spectrum products, please visit www.cbdmd.com , follow cbdMD on Instagram and Facebook, or visit one of the 6,000 retail outlets that carry cbdMD products.
Forward-Looking Statements
This press release contains certain forward-looking statements that are based upon current expectations and involve certain risks and uncertainties within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements can be identified using words such as ''should,'' ''may,'' ''intends,'' ''anticipates,'' ''believes,'' ''estimates,'' ''projects,'' ''forecasts,'' ''expects,'' ''plans,'' and ''proposes.'' These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict. You are urged to carefully review and consider any cautionary statements and other disclosures, including the statements made under the heading "Risk Factors" in cbdMD, Inc.'s Annual Report on Form 10-K for the fiscal year ended September 30, 2021 as filed with the Securities and Exchange Commission (the "SEC") on December 17, 2021 and our other filings with the SEC. All forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, many of which are generally outside the control of cbdMD, Inc. and are difficult to predict. cbdMD, Inc. does not undertake any duty to update any forward-looking statements except as may be required by law. The information which appears on our websites and our social media platforms, including, but not limited to, Instagram and Facebook, is not part of this press release.
1 THC-free is defined as below the level of detection using validated scientific analytical methods.
Non-GAAP Financial Measures
This press release includes a financial measure that excludes the impact of certain items and therefore has not been calculated in accordance with U.S. generally accepted accounting principles ("GAAP"). cbdMD, Inc. has included adjusted loss from operations because management uses this measure to assess operating performance in order to highlight trends in our business that may not otherwise be apparent when relying on financial measures calculated in accordance with GAAP. The adjusted operating loss has not been prepared in accordance with GAAP. This non-GAAP financial measure should not be considered as an alternative to, or more meaningful than, net loss from operations as an indicator of our operating performance. Further, this non-GAAP financial measure, as presented by cbdMD, Inc., may not be comparable to similarly titled measures reported by other companies. cbdMD, Inc. has attached to this press release a reconciliation of this non-GAAP financial measure to its most directly comparable GAAP financial measure.
| cbdMD, INC. | ||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
| DECEMBER 31, 2021 AND SEPTEMBER 30, 2021 | ||||||||
|
(Unaudited) |
||||||||
|
December 31, |
September 30, |
|||||||
|
2021 |
2021 |
|||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents |
$ |
19,696,919 |
$ |
26,411,424 |
||||
| Accounts receivable |
1,108,818 |
1,113,372 |
||||||
| Accounts receivable – discontinued operations |
2,625 |
10,967 |
||||||
| Marketable securities |
- |
33,351 |
||||||
| Investment other securities |
1,000,000 |
1,000,000 |
||||||
| Inventory |
4,867,208 |
5,021,867 |
||||||
| Inventory prepaid |
559,708 |
551,519 |
||||||
| Prepaid sponsorship |
895,070 |
1,212,682 |
||||||
| Prepaid expenses and other current assets |
1,548,181 |
1,147,178 |
||||||
| Total current assets |
29,678,529 |
36,502,360 |
||||||
| Other assets: | ||||||||
| Property and equipment, net |
2,504,220 |
2,561,574 |
||||||
| Operating lease assets |
5,296,943 |
5,614,960 |
||||||
| Deposits for facilities |
407,708 |
529,583 |
||||||
| Intangible assets, net |
18,666,612 |
23,003,929 |
||||||
| Goodwill |
42,772,685 |
56,670,970 |
||||||
| Total other assets |
69,648,168 |
88,490,016 |
||||||
| Total assets |
$ |
99,326,697 |
$ |
124,992,376 |
||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
| DECEMBER 31, 2021 AND SEPTEMBER 30, 2021 | ||||||||
| (continued) | ||||||||
|
(Unaudited) |
||||||||
|
December 31, |
September 30, |
|||||||
|
2021 |
2021 |
|||||||
| Liabilities and shareholders' equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable |
$ |
3,673,855 |
$ |
2,978,914 |
||||
| Deferred revenue |
1,909,139 |
2,727,612 |
||||||
| Accrued expenses |
1,117,236 |
1,151,150 |
||||||
| Note payable |
60,468 |
59,470 |
||||||
| Total current liabilities |
6,760,698 |
6,917,146 |
||||||
| Long term liabilities: | ||||||||
| Long term liabilities |
93,489 |
108,985 |
||||||
| Operating leases - long term portion |
4,571,510 |
4,859,058 |
||||||
| Contingent liability |
3,501,000 |
9,856,000 |
||||||
| Deferred tax liability |
- |
- |
||||||
| Total long term liabilities |
8,165,999 |
14,824,043 |
||||||
| Total liabilities |
14,926,697 |
21,741,189 |
||||||
| shareholders' equity: | ||||||||
| Preferred stock, authorized 50,000,000 shares, $0.001 | ||||||||
| par value, 5,000,000 and 500,000 shares issued and outstanding, respectively |
5,000 |
5,000 |
||||||
| Common stock, authorized 150,000,000 shares, $0.001 | ||||||||
| par value, 58,277,970 and 57,783,340 shares issued and outstanding, respectively |
58,278 |
57,783 |
||||||
| Additional paid in capital |
177,835,993 |
176,417,269 |
||||||
| Accumulated deficit |
(93,499,271 |
) |
(73,228,865 |
) |
||||
| Total shareholders' equity |
84,400,000 |
103,251,187 |
||||||
| Total liabilities and shareholders' equity |
$ |
99,326,697 |
$ |
124,992,376 |
||||
| cbdMD, INC. | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
| FOR THE THREE MONTHS ENDED DECEMBER 31, 2021 and 2020 | ||||||||
|
December 31, |
December 31, |
|||||||
|
2021 |
2020 |
|||||||
| Gross Sales |
$ |
9,856,767 |
$ |
13,131,946 |
||||
| Allowances |
(534,945 |
) |
(803,643 |
) |
||||
| Total Net Sales |
9,321,822 |
12,328,303 |
||||||
| Cost of sales |
4,328,310 |
3,430,274 |
||||||
| Gross Profit |
4,993,512 |
8,898,028 |
||||||
| Operating expenses |
11,955,284 |
10,657,973 |
||||||
| Impairment of Goodwill and other intangible assets |
18,183,285 |
- |
||||||
| (Loss) from operations |
(25,145,057 |
) |
(1,759,945 |
) |
||||
| Realized and Unrealized gain (loss) on marketable and other securities, including impairments |
(33,350 |
) |
542,710 |
|||||
| Decrease (increase) of contingent liability |
5,950,000 |
(8,500,000 |
) |
|||||
| Other income (expense) |
70,737 |
- |
||||||
| Interest (expense) income |
(3,234 |
) |
(10,386 |
) |
||||
| Loss (income) before provision for income taxes |
(19,160,904 |
) |
(9,727,621 |
) |
||||
| Benefit for income taxes |
- |
332,000 |
||||||
| Net (Loss) Income from continuing operations |
(19,160,904 |
) |
(9,395,621 |
) |
||||
| Net (Loss) Income |
(19,160,904 |
) |
(9,395,621 |
) |
||||
| Preferred dividends |
1,000,502 |
100,050 |
||||||
| Net (Loss) Income attributable to cbdMD, Inc. common shareholders |
$ |
(20,161,406 |
) |
$ |
(9,495,671 |
) |
||
| Net (Loss) Income per share: | ||||||||
| Basic earnings per share |
(0.35 |
) |
(0.18 |
) |
||||
| Diluted earnings per share |
(0.35 |
) |
(0.18 |
) |
||||
| Weighted average number of shares Basic: |
57,825,367 |
52,130,870 |
||||||
| Weighted average number of shares Diluted: |
57,825,367 |
52,130,870 |
||||||
| cbdMD, INC. | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | ||||||||
| FOR THE THREE MONTHS ENDED DECEMBER 31, 2021 and 2020 | ||||||||
|
December 31, |
December 31, |
|||||||
|
2021 |
2020 |
|||||||
| Net (Loss) Income |
$ |
(19,160,904 |
) |
$ |
(9,395,621 |
) |
||
| Comprehensive (Loss) Income |
(19,160,904 |
) |
(9,395,621 |
) |
||||
| Preferred dividends |
(1,000,502 |
) |
(100,050 |
) |
||||
| Comprehensive (Loss) Income attributable to cbdMD, inc. common shareholders |
$ |
(20,161,406 |
) |
$ |
(9,495,671 |
) |
||
| cbdMD, INC. | ||||||||
| CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS | ||||||||
| FOR THE THREE MONTHS ENDED DECEMBER 31, 2021 and 2020 | ||||||||
|
December 31, |
December 31, |
|||||||
|
2021 |
2020 |
|||||||
| Cash flows from operating activities: | ||||||||
| Net (Loss) Income |
$ |
(19,160,904 |
) |
$ |
(9,395,621 |
) |
||
| Adjustments to reconcile net (income) loss to net | ||||||||
| cash used by operating activities: | ||||||||
| Stock based compensation |
505,466 |
248,894 |
||||||
| Restricted stock expense |
508,754 |
15,279 |
||||||
| Marketing stock amortization |
220,000 |
- |
||||||
| Issuance of stock / warrants for service |
- |
35,712 |
||||||
| Inventory and materials impairment |
878,142 |
- |
||||||
| Depreciation and amortization |
340,701 |
232,658 |
||||||
| Impairment of Goodwill and other intangible assets |
18,183,285 |
- |
||||||
| Increase/(Decrease) in contingent liability |
(5,950,000 |
) |
8,500,000 |
|||||
| Realized and unrealized loss of Marketable and other securities |
33,350 |
(542,709 |
) |
|||||
| Termination benefit |
- |
305,326 |
||||||
| Amortization of operating lease asset |
318,017 |
304,080 |
||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable |
4,554 |
(110,072 |
) |
|||||
| Deposits |
121,875 |
24,000 |
||||||
| Inventory |
(723,483 |
) |
219,859 |
|||||
| Prepaid inventory |
(8,189 |
) |
(48,184 |
) |
||||
| Prepaid expenses and other current assets |
(303,391 |
) |
(310,268 |
) |
||||
| Accounts payable and accrued expenses |
(127,254 |
) |
(1,500,755 |
) |
||||
| Operating lease liability |
(321,462 |
) |
(237,952 |
) |
||||
| Deferred revenue / customer deposits |
3,723 |
(22,701 |
) |
|||||
| Collection on discontinued operations accounts receivable |
8,342 |
422,417 |
||||||
| Deferred tax liability |
- |
(332,000 |
) |
|||||
| Cash used by operating activities |
(5,468,475 |
) |
(2,192,038 |
) |
||||
| Cash flows from investing activities: | ||||||||
| Proceeds from sale of other investment securities |
- |
540,000 |
||||||
| Purchase of property and equipment |
(231,030 |
) |
(93,294 |
) |
||||
| Cash provided (used) by investing activities |
(231,030 |
) |
446,706 |
|||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of preferred stock |
- |
15,798,115 |
||||||
| Note payable |
(14,498 |
) |
(13,564 |
) |
||||
| Preferred dividend distribution |
(1,000,502 |
) |
(100,050 |
) |
||||
| Deferred issuance costs |
- |
- |
||||||
| Cash provided by financing activities |
(1,015,000 |
) |
15,684,500 |
|||||
| Net increase (decrease) in cash |
(6,714,505 |
) |
13,939,168 |
|||||
| Cash and cash equivalents, beginning of period |
26,411,424 |
14,824,644 |
||||||
| Cash and cash equivalents, end of period |
$ |
19,696,919 |
$ |
28,763,812 |
||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
|
2021 |
2021 |
|||||||
| Cash Payments for: | ||||||||
| Interest expense |
$ |
3,234 |
$ |
3,672 |
||||
| Non-cash financial activities: | ||||||||
| Issuance of Contingent earnout shares: |
$ |
405,000 |
$ |
- |
||||
| Warrants issued to representative |
$ |
- |
$ |
254,950 |
||||
| cbdMD, Inc. | ||||||||
| SUPPLEMENTAL FINANCIAL INFORMATION | ||||||||
| RECONCILIATION OF NON-GAAP ADJUSTED INCOME (LOSS) FROM OPERATIONS | ||||||||
|
Three Months |
Three Months |
|||||||
|
Ended |
Ended |
|||||||
|
December 31, |
December 31, |
|||||||
|
2021 |
2020 |
|||||||
| GAAP (loss) from operations |
$ |
(25,145,057 |
) |
$ |
(1,759,945 |
) |
||
| Adjustments: | ||||||||
| Depreciation |
340,701 |
232,806 |
||||||
| Employee and director stock compensation (1) |
1,014,220 |
264,174 |
||||||
| Other non-cash stock compensation for services (2) |
- |
35,713 |
||||||
| Inventory adjustment (3) |
878,142 |
- |
||||||
| Write down of legacy accounts receivable (4) |
- |
- |
||||||
| Impairment of Goodwill and other intangible assets (5) |
18,183,285 |
- |
||||||
| Accrual for severance |
- |
403,412 |
||||||
| Accrual / expenses for discretionary bonus |
150,000 |
300,000 |
||||||
| Non-GAAP adjusted (loss) from operations |
$ |
(4,728,709 |
) |
$ |
(523,840 |
) |
||
| (1) Represents non-cash expense related to options, warrants, restricted stock expenses that have been amortized during the period. |
| (2) Represents non-cash expense related to options, warrants, restricted stock expenses that have been amortized during the period. |
| (3) Represents an operating expense related to inventory loss related to regulatory changes impacting labels and packaging and obsolete/expired inventory. |
| (4) Write down of legacy accounts receivable. |
| (5) Represents non-cash goodwill impairment of $13,898,285 and impairment of the cbdMD trademark of $4,285,000. |
View source version on businesswire.com: https://www.businesswire.com/news/home/20220210005813/en/
PR:
cbdMD, Inc.
Robert Pettway
Director of Paid Media
rpettway@cbdmd.com
(423) 503-5225
Investors:
cbdMD, Inc.
John Weston
Director of Investor Relations
john.weston@cbdmd.com
(704) 249-9515
