(TSX: CWEB) (OTCQX: CWBHF), Charlotte’s Web Holdings, Inc. (“Charlotte’s Web” or the “Company”), the market share leader in full spectrum hemp extract wellness products, today reported financial results for the third quarter ended September 30, 2021. All amounts are expressed in United States’ dollars, unless otherwise noted. Certain metrics, including those expressed on an adjusted basis, are non-IFRS measures.
Q3-2021 Financial Highlights Vs. Q3-2020
- Net Revenue of $23.7M vs. $25.2M with increased unit sales offset by product and channel mix
- Gummy sales contributed 30% vs. 23%
- Tincture sales contributed 37% vs. 49%
- DTC eCommerce revenue was $15.2M vs. $16.7M with increased customers and unit sales
- B2B revenue increased to $8.5M vs. $8.4M with increased unit sales and new distribution
- Gross profit increased to $14.9M, expanding to 62.9% of consolidated revenue vs. 58.7%
- Operating expenses decreased 15.6% year-over-year, ahead of plan
- Adjusted EBITDA1 of ($2.8M), improved vs.($6.7M) and sequentially vs. ($3.9M)
- $21.1M cash (excluding $10.9M IRS tax refund) and $87.5M working capital at September 30, 2021
- $10M unused line of credit with JPMorgan; potential to extend to $20M
Business Highlights
- Expanded #1 market share position across every channel vs. competitive set
- Increased pet product retail distribution by 222 doors
- Launched 3 new gummy products: Daily Wellness, THC-Free and Immunity
- Achieved USDA organic certification on select products
- Entered multi-phase research on hemp extracts with Colorado State University
- Operationalized new 137,000 sq. ft. production and distribution facility
- Advancing extraction and R&D capabilities
Events Subsequent to Q3-2021
- California state Assembly Bill 45 passed into law legalizing hemp CBD in California
- Commenced the expansion of new distribution in Q4-2021 with retail partners in California
- Partnered to expand further bi-partisan sponsorship of Federal Bill H.R. 841 advancing US CBD regulatory framework
- Completed first international harvest of Charlotte’s Web (proprietary) patented hemp cultivars in Canada
- Readied plan for product launch in Israel in 2022
“As the category evolved from early adopters of higher priced CBD oil tinctures to lower priced gummies, topicals and pet products, we adjusted our portfolio offer and expanded presence across new channels. This increased our unit sales and market share across every channel, but reduced total net revenue versus Q3-2020,” said Deanie Elsner, CEO of Charlotte’s Web. “We’ve demonstrated an ability to anticipate where the consumer is going and launch advantaged innovation that wins in the market.”
Q3-2021 Financial Review
The following table sets forth selected financial information for the periods indicated.
| Three months ended September 30, | ||||||
| U.S. $ millions, except per share data | 2021 | 2020 | ||||
| Revenue | $ | 23.7 | $ | 25.2 | ||
| Gross profit before biological assets adjustment | 14.9 | 15.3 | ||||
| Net impact, fair value of biological assets | — | 0.5 | ||||
| Gross profit | 14.9 | 14.8 | ||||
| Operating expenses | 23.9 | 28.3 | ||||
| Operating loss | (9.0) | (13.6) | ||||
| Change in fair value of financial instruments and other expense (income), net | (8.4) | (7.4) | ||||
| Net loss and comprehensive loss | (0.9) | (6.5) | ||||
| Loss per share – basic | $ | (0.01) | $ | (0.05) | ||
| Loss per share – diluted | $ | (0.01) | $ | (0.05) | ||
| Adjusted EBITDA¹ | $ | (2.8) | $ | (6.7) | ||
| Assets: | September 30, 2021 | December 31, 2020 | ||||
| Cash and cash equivalents | $ | 21.1 | $ | 52.8 | ||
| Total assets | $ | 286.6 | $ | 310.9 | ||
| Liabilities: | ||||||
| Long-term liabilities | $ | 21.3 | $ | 27.7 | ||
| Total liabilities | $ | 44.9 | $ | 56.7 |
The following information sets forth selected quarterly revenue information for the Company’s recent fiscal quarters.
| U.S. $ millions | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | ||||||||
| 2021 | 2021 | 2021 | 2020 | 2020 | 2020 | 2020 | 2019 | |||||||||
| Revenue | $ | 23.7 | $ | 24.2 | $ | 23.4 | $ | 26.9 | $ | 25.2 | $ | 21.7 | $ | 21.5 | $ | 22.8 |
Consolidated revenue for the three months ended September 30, 2021 decreased (5.8)% year-over-year to $23.7 million, as higher unit sales volumes were offset by product mix and supply chain disruptions. Total sales volume increased year-over-year and Charlotte’s Web increased market share in all of its core channels. Operating metrics improvement were achieved in the quarter including increased gross margins, improved operating expenses and Adjusted EBITDA.
“Temporary supply chain disruptions affected some product availability, dampening revenue growth for the quarter. We substantially resolved these issues in October and are back on our growth trajectory with the holiday buying season in the fourth quarter,” explained Wes Booysen, Charlotte’s Web Chief Financial Officer. “In parallel, we are streamlining operations and reducing expenses to position the business for positive Adjusted EBITDA in 2022.”
Consolidated business-to-business (“B2B”) revenue increased 1.3% year-over-year on higher unit sales volume with new pet, topicals, and gummies distribution. Direct-to-consumer (“DTC”) ecommerce experienced increased customers and unit sales, however net revenue was 9.3% lower year-over-year due to product mix and higher discounting in a more competitive DTC market. Year-over-year new subscriptions increased 47% and conversion rates increased 21%. DTC accounted for 64% of total revenue in the third quarter of 2021 versus 67% for the same period in 2020.
Charlotte’s Web brand leadership drove ongoing number one market share gains at retail across its core retail channels, including total US Food/Drug/Mass retail and total US natural specialty retail.
| Three months ended | Year-over-year | ||||||||
| September 30, | % Increase/(decrease) | ||||||||
| 2021 | 2020 | ||||||||
| Revenue – U.S. $ millions | $ | 23.7 | $ | 25.2 | (5.8) | % | |||
| Direct-to-consumer (“DTC”) | $ | 15.2 | $ | 16.7 | (9.3) | % | |||
| Business-to-business (“B2B”) | $ | 8.5 | $ | 8.4 | 1.3 | % |
Gross profit was $14.9 million versus $14.8 million in the prior year. Gross margin increased to 62.9% of revenue versus 58.7% in Q3-2020 primarily due to higher unit sales volume, partially offset by product mix, third quarter supply chain disruptions and higher discounting.
Operating expenses were $23.9 million, a 15.6% year-over-year improvement from $28.3 million due to expense reductions, cost controls, Abacus acquisition synergies, and supply chain optimization.
Adjusted EBITDA for the quarter was negative $2.8 million, or (11.7)% of consolidated revenue, a 58.3% improvement from negative Adjusted EBITDA of $6.7 million, or (26.4)% of consolidated revenue, for the third quarter of 2020.
For Q3-2021, Charlotte’s Web reported a net loss of $0.9 million for the quarter, compared to a net loss of $6.5 million for the same quarter a year ago, for an improvement of $5.6 million, or 86%.
Balance Sheet and Cash Flow
The Company used $20.6 million of cash in operations during the nine months ended September 30, 2021 compared to $43.5 million of cash used in operations during the nine months ended September 30, 2020. The Company’s cash and working capital at September 30, 2021 were $21.1 million and $87.5 million, respectively, compared to $52.8 million and $113.6 million at December 31, 2020. Charlotte’s Web has a near-term IRS tax refund of $10.9 million and maintains an unused $10 million line of credit with JPMorgan, with potential to extend to $20 million.
| Nine months ended | |||||||||||
| September 30 | |||||||||||
| U.S. $ millions | 2021 | 2020 | $ Change | % Change | |||||||
| Cash beginning of period | $ | 52.8 | $ | 68.6 | $ | (15.8) | (23.0) | % | |||
| Cash flows from (used in): | |||||||||||
| Operating activities | (20.6) | (43.5) | 22.9 | (52.6) | % | ||||||
| Investing activities | (11.1) | (11.9) | 0.8 | (6.7) | % | ||||||
| Financing activities | — | 52.7 | (52.7) | (100.0) | % | ||||||
| Cash, end of period | $ | 21.1 | $ | 65.9 | $ | (44.8) | (68.0) | % |
Nine-Month Financial Review
For the nine-month period ended September 30, 2021, Charlotte’s Web reported a net revenue increase of 4.3% to $71.3 million, with B2B revenue increasing 10.6% and DTC revenue increasing 1.4% versus the same period in 2020. Gross profit increased 7.5% to $44.4 million on gross margin of 62.3%, an improvement from 60.5% for the same period in 2020. Expenses decreased by 10.1% to $72.9 million and Adjusted EBITDA loss of $11.4 million was an improvement of $6.7 million. The nine-month net loss of $20.2 million was a $12.2 million improvement versus the prior period.
Consolidated Financial Statements and Management’s Discussion and Analysis
The Company’s unaudited financial statements and accompanying notes for the periods ended September 30, 2021 and 2020 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 third quarter 2021 results at 4:30 p.m. ET on November 15, 2021. To participate in the call, please dial 1-416-764-8659 or 1-888-664-6392 approximately 10 minutes before the conference call. A recording of the call will be available through November 22, 2021. To listen to the rebroadcast please dial 1-416-764-8677 and provide conference ID 407437. A webcast of the call can be accessed through the investor relations section of the Charlotte’s Web website.
