Revenue decrease largely due to lower eCommerce traffic
14.4% reduction in Operating Expenses
Significant improvements in Operating Cash Flow
EBITDA (1) improved by $3.5 million
(TSX: CWEB) (OTCQX: CWBHF), Charlotte’s Web Holdings, Inc. (“Charlotte’s Web” or the “Company”), the market leader in full-spectrum hemp extract wellness products, today reported financial results for the first quarter ended March 31, 2022.
“While our e-commerce traffic was lower compared to prior periods, subscriptions more than doubled since Q1-2021. With e-commerce revenue down $3.0 million year-over-year, rebuilding traffic and conversions remain key priorities for us in e-commerce, which is our largest revenue channel,” said Jacques Tortoroli, Chief Executive Officer. “In our retail business, shipping was disrupted in January due to a two-week closure after a local wildfire in Boulder County. Despite the slow start, the overall business improved through the quarter with March being the largest revenue month of the quarter. The quarter did not benefit from our new retail sales organization which was put in place in April.”
Progress continued in key international markets. In the U.K., the Company achieved a milestone becoming one of the first companies to receive validation of its Novel Food applications from the UK Food Standards Agency (“FSA”) for full-spectrum hemp extracts in the United Kingdom. The milestone adds Charlotte’s Web to the FSA’s list of products allowed to be sold in the UK. The Company’s Novel Foods applications for the European Union were also validated during the quarter and are now proceeding through the safety evaluation process. In Canada, the Company is in discussions for extraction and distribution to bring to market Charlotte’s Web’s first international hemp harvest, which is anticipated for later this year. In Israel, the Company believes the regulatory environment for CBD sales in retail outlets continues to move forward. Charlotte’s Web expects to begin filing product registrations in the coming months through its Israeli partner, Intercure, with the Company’s first bulk product shipment anticipated in the second half of the year.
“Our December/January reorganization reduced complexity and reduced SG&A expenses by more than $20.0 million on an annualized basis,” said Lindsey Jensen, Chief Financial Offer. “This resulted in improved gross margin percentage, lower operating expenses, and improved EBITDA(1) for Q1-2022 compared to the same quarter of 2021. We used $4.7 million in operating cash in the quarter with the majority of this occurring in January. In the quarter we received $0.5 million against our $10.8 million IRS receivable that we started the year with, and an additional $2.7 million has been collected since March 31 through the date of this press release. We continue to steward the use of cash while furthering our product rationalization to lower complexity and costs across our operations.”
| 1 Certain metrics, including EBITDA and Adjusted EBITDA, are non-GAAP measures, see “Non-GAAP Measures” in the tables below for additional information and a reconciliation to GAAP for all Non-GAAP metrics. |
Q1-2022 Financial Review
For the three-month period ended March 31, 2022, consolidated net revenue was $19.4 million, a decrease of 17.3% versus $23.4 million in Q1-2021. The decrease was partly due to a temporary closure of the Company’s production and shipping terminal in January after a local wildfire in Boulder County.
Direct-to-consumer (“DTC”) eCommerce revenue was $13.1 million, a decrease of $3.0 million or 18.5% year-over-year. The decrease was attributable to lower traffic to the Company’s online store, wildfire shipping delays, and an industry-wide consumer shift to lower-priced CBD products; primarily gummies and topical products, where Charlotte’s Web is the market share leader. New DTC subscriptions increased 107% year-over-year and eCommerce conversion rates were strong at 14.2%. Charlotte’s Web maintains the largest e-commerce business in the CBD industry. DTC sales contributed 67.9% of the Company’s total net revenue in Q1-2022.
Business-to-business (“B2B”) revenue was $6.2 million, $1.1 million or 14.6% lower year-over-year with reduced shipments to some of the Company’s largest retail customers after the warehouse closure and some supply chain challenges on top-selling CBD Clinic SKUs. This was partially offset by new retail distribution in grocery, natural, and pet retail, following the passing of Assembly Bill 45 in California. Charlotte’s Web holds the number one market share position across major retail channels including total U.S. F/D/M, total U.S. natural specialty retail, and e-commerce, based on market share data from leading third-party analysts such as Nielsen, SPINS, and Brightfield Group, respectively. B2B sales contributed 32.1% of total net revenue in Q1-2022.
Gross profit was $11.7M, or 60.5% of consolidated revenue versus $13.6 million and 58.3% respectively in Q1-2021.
Total selling, general and administrative (“SG&A”) of $20.4 million were reduced by 14.4% year-over-year. The $3.4 reduction versus Q1-2021 was primarily the result of actions taken in late 2021 and early 2022 to bring expenses in line with current revenue levels to support a return to positive cash flow.
An operating loss of $8.6 million recorded for the first quarter of 2022 was a $1.5 million, or 14.8%, an improvement from an operating loss of $10.1 million in Q1-2021. The net loss and comprehensive loss for the quarter was $8.6 million, or ($0.06) per share on a basic and diluted basis, a $4.1 million, or 32.5%, improvement compared to a net loss and comprehensive loss of $12.8 million, or ($0.09) per share on a basic and diluted basis in Q1-2021.
Adjusted EBITDA1 loss for the first quarter of 2022 was $5.3 million as compared to an Adjusted EBITDA loss of $6.2 million in the prior-year period, an improvement of 15.0%.
Balance Sheet and Cash Flow
Net cash use for the first quarter of 2022 was $5.0 million with the majority of the cash being used in January. Cash used for operations in February and March was significantly lower than January due to increased revenue and reduced expenses. The Company still believes it will be cash flow neutral for fiscal 2022.
The Company’s cash and working capital at March 31, 2022, were $14.5 million and $69.9 million, respectively, compared to $19.5 million and $75.6 million at December 31, 2021. In the first quarter, the Company collected $0.5 million in IRS refunds of the $10.8 million outstanding at December 31, 2021. An additional $2.7 million was collected in April and the remaining balance of $7.6 million is expected to be collected in 2022.
Consolidated Financial Statements and Management’s Discussion and Analysis
The Company’s unaudited condensed consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 and the unaudited condensed consolidated Statements of Operations and Comprehensive Loss, Shareholders’ Equity, and Cash Flows and accompanying notes for the first quarter ended March 31, 2022 and 2021 and related management’s discussion and analysis of financial condition and results of operations (“MD&A”) are reported in the Company’s 10Q filing on the Securities and Exchange Commission website at www.sec.gov and on SEDAR at www.sedar.com, and will be available 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 2022 first-quarter results at 11:00 a.m. ET on May 17, 2022. A recording of the call will be available through May 23, 2022. To listen to a replay of the earnings call please dial 1-416-764-8677 or 1-888-390-0541 and provide conference ID 55137632. 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 Denver, is the market leader in innovative hemp extract wellness products under a family of brands which includes Charlotte’s Web™, CBD Medic™, CBD Clinic™, and Harmony Hemp™. Charlotte’s Web branded premium quality products start with proprietary hemp genetics that are 100-percent American farm-grown and manufactured into hemp extracts containing naturally occurring phytocannabinoids including cannabidiol (“CBD”), CBC, CBG, terpenes, flavonoids, and other beneficial hemp compounds. The Company’s CW Labs R&D division, advances hemp science at two centers of excellence in Louisville, Colorado, and the Hauptmann Woodward Research Institute at the University at Buffalo, part of the State University of New York (SUNY) network. Charlotte’s Web product categories include full-spectrum hemp CBD oil tinctures (liquid products), CBD gummies (sleep, stress, exercise recovery), CBD capsules, CBD topical creams and lotions, as well as CBD pet products for dogs. Through its vertically integrated business model, Charlotte’s Web maintains stringent control over product quality and consistency. Charlotte’s Web products are distributed to more than 15,000 retail, over 8,000 health care practitioners, and online through the Company’s website at www.CharlottesWeb.com.
Charlotte’s Web was founded by the seven 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 May 13, 2022, Charlotte’s Web had 145,150,852 Common Shares outstanding.
