Charlotte's Web Holdings Reports Q2-2020 Results

BOULDER, Colo., Sept. 14, 2020 /CNW/ – (TSX: CWEB) (OTCQX: CWBHF), Charlotte’s Web Holdings, Inc. (“Charlotte’s Web” or the “Company”) the market share leader in full spectrum cannabidiol (CBD) hemp extract products, today reported financial results for the second quarter ended June 30, 2020. All amounts are expressed in United States dollars unless otherwise noted. Certain metrics, including those expressed on an adjusted basis, are non-IFRS measures (see “Non-GAAP Measures” below).

TSX:CWEB – Charlotte’s Web is the market leader in hemp CBD extract products and is a Certified B Corp publicly traded company. (CNW Group/Charlotte’s Web Holdings, Inc.)

  • Consolidated revenue of $21.6 million vs. $25.0 million in Q2-2019
  • Adjusted gross profit of $14.0 million (excluding inventory provisions), or 64.8% of consolidated revenue
  • Adjusted EBITDA loss of $5.7 million
  • Direct-to-Consumer (“DTC”) eCommerce sales increased 33.6% year-over-year and contributed 71.8% of Q2 revenue
  • $99.8 million cash and $155.0 million working capital on June 30, 2020
  • Awarded utility patent protecting Charlotte’s Web proprietary varietal
  • Completed acquisition of Abacus Health Products, Inc.
  • Surpassed 21,000 unique retail doors
  • Commenced Abacus product cross-selling though Charlotte’s Web leading DTC channel
  • Commenced clinical study on CBD effect on liver health with ValidCare
  • Moved warehousing and fulfillment operations into new 137,000 sq ft facility
  • Awarded B Corp™ certification for excellence in ESG
  • Completed $54 million financing for expansion and working capital
  • June 11, 2020 Charlotte’s Web completed the acquisition of Abacus Health Products, Inc. (“Abacus”) in an all-stock transaction. Abacus is a leading provider of over-the-counter (“OTC”) topical products for pain relief and skincare containing CBD hemp extracts. The acquisition greatly extends Charlotte’s Web’s product offerings and reach and solidifies a commanding position in the U.S. hemp CBD topicals category. In the third quarter, Charlotte’s Web commenced implementing operating cost synergies with Abacus and will continue through the remainder of the year. Further cost synergies are targeted in 2021 through integration into the Company’s new production and fulfillment center.

    Deanie Elsner, CEO of Charlotte’s Web. “However, our DTC sales increased 33.6%, largely offsetting declines in B2B retail sales.  We made excellent progress building out our infrastructure and expanding our products portfolio with the closing of the Abacus acquisition.  Abacus CBD Medic™ products are now being sold through our online store and we look forward to realizing more cross-selling revenue synergies with Abacus through our FDM partners.”

    The following table sets forth selected financial information for the periods indicated.

    Three months ended

    Six months ended

    June 30,

    June 30,

    U.S. $ millions, except per share data

    2020

    2019

    2020

    2019

    Revenue

    $

    21.6

    $

    25.0

    $

    43.1

    $

    46.7

    Gross profit before biological assets adjustment

    11.5

    18.5

    26.5

    34.3

    Net impact, fair value of biological assets

    (0.4)

    (0.1)

    (0.5)

    Gross profit

    11.5

    18.8

    26.6

    34.8

    Operating expenses

    29.5

    16.2

    52.8

    29.5

    Other income, net

    (4.0)

    (7.0)

    (Loss) income before taxes

    (14.4)

    2.8

    (19.6)

    5.9

    Net (loss) income

    $

    (14.4)

    $

    2.2

    $

    (25.9)

    $

    4.5

    EPS basic

    $

    (0.13)

    $

    0.02

    $

    (0.23)

    $

    0.05

    EPS diluted

    $

    (0.13)

    $

    0.02

    $

    (0.23)

    $

    0.04

    Adjusted EBITDA

    $

    (5.7)

    $

    3.8

    $

    (11.4)

    $

    8.0

    Assets:

    June 30, 2020

    March 31, 2020

    December 31, 2019

    Cash and cash equivalents

    $

    99.8

    $

    53.0

    $

    68.6

    Total assets

    $

    357.6

    $

    190.2

    $

    222.9

    Liabilities:

    Long-term liabilities

    $

    40.8

    $

    32.9

    $

    39.8

    Total liabilities

    $

    86.7

    $

    62.5

    $

    69.2

    The following information sets forth selected quarterly revenue information for the Company’s recent fiscal quarters.

    U.S. $ millions

    Q2
    2020

    Q1
    2020

    Q4
    2019

    Q3
    2019

    Q2
    2019

    Q1
    2019

    Q4
    2018

    Q3
    2018

    Revenue

    $

    21.6

    $

    21.5

    $

    22.8

    $

    25.1

    $

    25.0

    $

    21.7

    $

    21.5

    $

    17.7

    $21.6 million, as compared to $25.0 million in 2019 partly due to COVID-19 reduced foot traffic for retailers and temporary closures. Strong DTC sales largely offset a 54.5% decrease in B2B retail sales which accounted for 28.2% of total revenue in the quarter. DTC net sales grew by 33.6% year-over-year as online traffic and high conversion rates increased through ongoing marketing and social media programs. Year-over-year new consumer acquisitions increased 25% and conversion rates increased 77%. DTC net revenue accounted for 71.8% of total revenue in the second quarter compared to 46.4% for the same period in the prior year.

    Three months ended

    Year-over-year

    Six months ended

    Year-over-year

    June 30,

    % Increase (Decrease)

    June 30,

    % Increase (Decrease)

    2020

    2019

    2020

    2019

    Revenue – U.S. $ millions

    $

    21.6

    $

    25.0

    (13.6)

    %

    $

    43.1

    $

    46.7

    (7.7)

    %

    Direct-to-consumer (“DTC”)

    $

    15.5

    $

    11.6

    33.6

    %

    $

    29.6

    $

    22.5

    31.6

    %

    Business-to-business (“B2B”)

    $

    6.1

    $

    13.4

    (54.5)

    %

    $

    13.5

    $

    24.2

    (44.2)

    %

    1Percentages for the three and six months ended June 30, 2019 were recategorized to conform with 2020 categorization.

    Adjusted gross margin (prior to biological asset adjustments and inventory provisions) was 64.8%, compared to 74.0% last year and 69.8% in the first quarter of 2020. After adjustments gross margin was 53.2% of net revenue, compared to 75.2% for the second quarter of 2019 and 70.2% in Q1-2020.

    $29.5 million, increasing 82.1% year-over-year from $16.2 million. The increase reflects the Company’s investments in capacity expansion and transition to a consumer-packaged goods (“CPG”) operating company capable of supporting mass retail channel growth. The increase includes approximately $6 million of extraordinary expenses related to the Abacus acquisition and legal fees associated with brand and intellectual property protection. Subsequent to Q2-2019, operating expenses increased as the Company relocated into larger office facilities in Boulder, Colorado and added senior CPG management to the leadership team along with related personnel.

    Lower than expected revenue has resulted in an increase in operating expenses as a percent of revenue. Management is initiating an expense optimization program targeting a 10 percent reduction in consolidated expense run rate by the end of 2020.

    $5.7 million, compared to positive EBITDA of $3.8 million for the second quarter of 2019. The Adjusted EBITDA ratio during the second quarter reflects lower sales and the substantial investments to support expected future revenue growth from the F/D/M channel.

    Russ Hammer, Chief Financial Officer of Charlotte’s Web. “We are seeing improvements and a stronger back half in our DTC channel, but without a meaningful opening up of the economy and health practitioner channel we expect only flat to modest consolidated net revenue growth for 2020. Our long view market opportunity remains intact and we continue to add new customers, doors, and products. Our Q3 revenues are trending ahead of Q2 sales levels and we anticipate reopening of retail locations in the U.S. will support a positive growth trend. As we see resolutions in COVID-19 and hemp CBD regulations or legislation we can see the category build towards its full potential.” See the advisories contained under “Forward-Looking Information” below.

    $7.1 million of cash in operations during the second quarter of 2020 compared to $11.5 million of cash used in operations during the second quarter of 2019, primarily due to the increase in changes in working capital. The overall increase in cash flows during the second quarter of 2020 is primarily driven by proceeds from the Company’s public offering completed in June 2020. The Company’s cash and working capital at June 30, 2020 were $99.8 million and $155.0 million, respectively, compared to $68.6 million and $116.9 million at December 31, 2019.

    Three months ended

    June 30

    2020

    2019

    $ Change

    % Change

    Cash beginning of period

    $

    53.0

    $

    69.1

    $

    (16.1)

    (23.3)

    %

    Cash flows from (used in):

    Operating activities

    (7.1)

    (11.5)

    4.4

    (38.3)

    %

    Investing activities

    0.8

    (5.5)

    6.3

    (114.5)

    %

    Financing activities

    53.1

    (0.7)

    53.8

    (7,685.7)

    %

    Cash, end of period

    $

    99.8

    $

    51.4

    $

    48.4

    94.2

    %

    www.sedar.com and on the Investor Relations section of the Company’s website at https://investors.charlottesweb.com.” data-reactid=”76″>Consolidated Financial Statements and Management’s Discussion and Analysis
    The Company’s unaudited financial statements and accompanying notes for the periods ended June 30, 2020 and 2019 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.

    8:30a.m. ET on Monday, September 14, 2020. To participate in the call, please dial 1-647-427-7450 or 1-888-231-8191 approximately 10 minutes before the conference call and provide conference ID 4570749. A recording of the call will be available through September 24, 2020. To listen to the rebroadcast please dial 1-416-849-0833 and provide the same conference ID.

    A webcast of the call can be accessed through the investor relations section of the Charlotte’s Web website.

    www.CharlottesWeb.com.” data-reactid=”79″>About Charlotte’s Web Holdings, Inc.
    Charlotte’s Web Holdings, Inc., headquartered in Boulder, Colo., is the market leader in the production and distribution of innovative hemp-derived cannabidiol (“CBD”) wellness products. The Company was founded by the Stanley Brothers with a mission to unleash the healing powers of botanicals with compassion and science, benefitting the planet and all who live upon it. The Company’s premium quality products start with proprietary hemp genetics that are 100-percent American farm grown and responsibly manufactured into hemp-derived CBD extracts naturally containing a full spectrum of phytocannabinoids, including CBD, terpenes, flavonoids and other beneficial hemp compounds.  Charlotte’s Web product categories include CBD Oil tinctures (liquid products), CBD capsules, CBD topicals, as well as CBD pet products.  Charlotte’s Web hemp-derived CBD extracts are sold through select distributors, more than 21,000 brick and mortar retailers, and online through the Company’s website at www.CharlottesWeb.com.

    Harmony Hemp. The Company’s management believes that its socially oriented actions have a positive impact on the Company, its employees and its shareholders. 

    the United States on the OTCQX under the symbol “CWBHF”. As of September 11, 2020, Charlotte’s Web had 104,672,925 Common Shares outstanding and 85,738.458 Proportional Voting Shares convertible at 400:1 into Common Shares, for an effective equivalent of 138,968,308 Common Shares outstanding.

    Canada, and, therefore, are considered non-GAAP measures. Since non-GAAP measures are unlikely to be comparable to similar measures presented by other companies, securities regulations require that non-GAAP measures be clearly defined, qualified and reconciled to their nearest GAAP measure. Except as otherwise indicated, these non-GAAP measures are calculated and disclosed by Charlotte’s Web on a consistent basis from period to period. Specific adjusting items may only be relevant in certain periods.

    Three months ended

    Six months ended

    June 30,

    June 30,

    U.S. $ millions

    2020

    2019

    2020

    2019

    Net (loss) income

    $

    (14.4)

    $

    2.2

    $

    (25.9)

    $

    4.5

    Depreciation of property and equipment

    $

    2.1

    0.5

    $

    3.9

    1.4

    Financing costs

    0.3

    0.1

    0.5

    0.1

    Interest income

    (0.3)

    (0.1)

    (0.6)

    Income taxes

    0.6

    6.3

    1.3

    EBITDA

    $

    (12.0)

    $

    3.1

    (15.3)

    6.7

    Mark-to-market fair value of warrants and stock appreciation rights

    (3.9)

    (6.9)

    Fair value changes of biological assets, net

    (0.4)

    (0.1)

    (0.5)

    Share-based compensation

    2.0

    0.3

    2.3

    0.6

    Impairment of assets

    2.5

    0.6

    2.5

    1.0

    Acquisition costs

    3.1

    3.5

    Legal settlement

    2.1

    2.1

    Restructuring charges

    0.5

    0.2

    0.5

    0.2

    Adjusted EBITDA

    $

    (5.7)

    $

    3.8

    $

    (11.4)

    $

    8.0

    www.sedar.com. These factors are not intended to represent a complete list of the factors that could affect the Company and the forward-looking information; however, these factors should be considered carefully. There can be no assurance that such expectations, estimates, projections and assumptions will prove to be correct, and the forward-looking information contained in this news release should not be unduly relied upon. the forward-looking statements and information contained in this news release are made as of the date of this news release and speaks only as of the date on which it is made. The Company expressly disclaims any obligation to update or alter statements containing any forward-looking information, or the factors or assumptions underlying them, whether as a result of new information, future events or otherwise, except as required by applicable law.” data-reactid=”92″>The Company’s actual results and financial condition may differ materially from those indicated in the forward-looking information. Therefore, you should not rely on any of the forward-looking information contained in this news release. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking information include, among others, the following: the adverse impact of the COVID-19 pandemic to the Company’s operations, supply chain, distribution chain, ‎and to the broader market for and customers of the Company’s products; revenue fluctuations; the impact of global conditions and unemployment rates on the Company’s stakeholders; nature of government regulations (both ‎domestic and foreign); general economic and financial conditions; loss of key customers or suppliers; retention and availability of executive ‎talent; competing products; common share price volatility; loss of proprietary information; product ‎acceptance; internet and system infrastructure functionality; information technology security; cash ‎available to fund operations; crop risk; availability of capital; international and political considerations; the successful integration of acquired businesses; changes in customer demand; and the risk factors described in greater detail in the Company’s annual information form dated March 27, 2020, management’s discussion and analysis filed in respect to the interim period ending June 30, 2020, and other public documents of the Company available at www.sedar.com. These factors are not intended to represent a complete list of the factors that could affect the Company and the forward-looking information; however, these factors should be considered carefully. There can be no assurance that such expectations, estimates, projections and assumptions will prove to be correct, and the forward-looking information contained in this news release should not be unduly relied upon. the forward-looking statements and information contained in this news release are made as of the date of this news release and speaks only as of the date on which it is made. The Company expressly disclaims any obligation to update or alter statements containing any forward-looking information, or the factors or assumptions underlying them, whether as a result of new information, future events or otherwise, except as required by applicable law.

     

    CHARLOTTE’S WEB HOLDINGS, INC.

    UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

    (In thousands of United States dollars)

    June 30, 2020

    December 31, 2019

    ASSETS

    Current assets:

    Cash

    $

    99,820

    $

    68,553

    Trade and other receivables, net

    12,488

    5,462

    Note receivable

    2,366

    1,421

    Inventories

    67,130

    64,054

    Prepaid expenses and other current assets

    7,742

    3,592

    Income taxes receivable

    11,342

    3,273

    200,888

    146,355

    Non-current assets:

    Property and equipment, net

    50,347

    42,949

    Intangible assets, net

    25,703

    1,596

    Goodwill

    76,688

    Deferred tax assets

    22

    30,417

    Other long-term assets

    3,949

    1,625

    $

    357,597

    $

    222,942

    LIABILITIES AND SHAREHOLDERS’ EQUITY

    Current liabilities:

    Accounts payable

    $

    15,542

    $

    8,798

    Accrued liabilities

    14,806

    7,323

    Deferred revenue

    415

    550

    Current cultivation liabilities

    11,497

    10,803

    Current notes payable

    1,329

    9

    Current lease obligations

    2,342

    1,945

    45,931

    29,428

    Non-current liabilities:

    Long-term cultivation liabilities

    10,034

    14,289

    Long-term notes payable

    312

    3

    Long-term lease obligations

    21,448

    22,116

    Warrant liabilities

    8,766

    3,408

    Stock appreciation rights liabilities

    207

    86,698

    69,244

    Shareholders’ equity:

    Share capital

    275,985

    123,927

    Contributed surplus

    18,585

    27,513

    (Accumulated deficit) Retained earnings

    (23,671)

    2,258

    270,899

    153,698

    $

    357,597

    $

    222,942

     

    CHARLOTTE’S WEB HOLDINGS, INC.

    UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND OTHER COMPREHENSIVE (LOSS) INCOME

     

    (In thousands of United States dollars, except per share amounts)

    Three months ended June 30,

    Six months ended June 30,

    2020

    2019

    2020

    2019

    Revenue

    $

    21,680

    $

    25,020

    $

    43,143

    $

    46,720

    Cost of sales

    10,209

    6,526

    16,675

    12,431

    Gross profit before (gain) on fair value of biological assets

    11,471

    18,494

    26,468

    34,289

    Realized fair value (gain) included in inventory sold

    (4)

    (354)

    (86)

    (496)

    Unrealized fair value loss on growth of biological assets

    Gross profit

    11,475

    18,848

    26,554

    34,785

    Expenses:

    General and administrative

    21,108

    9,060

    37,139

    17,519

    Sales and marketing

    6,835

    6,527

    13,367

    11,087

    Research and development

    1,533

    654

    2,299

    845

    Operating expenses

    29,476

    16,241

    52,805

    29,451

    Operating (loss) income

    (18,001)

    2,607

    (26,251)

    5,334

    Financing costs

    364

    77

    534

    134

    Interest income

    (26)

    (310)

    (155)

    (666)

    Other (income) expense, net

    (3,929)

    4

    (7,008)

    7

    (Loss) income before taxes

    (14,410)

    2,836

    (19,622)

    5,859

    Income tax expense

    20

    648

    6,307

    1,334

    Net (loss) income and comprehensive (loss) income

    $

    (14,430)

    $

    2,188

    $

    (25,929)

    $

    4,525

    Weighted average number of common shares – basic

    114,206,250

    94,986,784

    110,821,523

    94,105,280

    Weighted average number of common shares – diluted

    114,206,250

    106,272,945

    110,821,523

    106,245,283

    (Loss) earnings per share – basic

    $

    (0.13)

    $

    0.02

    $

    (0.23)

    $

    0.05

    (Loss) earnings per share – diluted

    $

    (0.13)

    $

    0.02

    $

    (0.23)

    $

    0.04

     

    CHARLOTTE’S WEB HOLDINGS, INC.

    UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

    (In thousands of United States dollars)

    Six months ended June 30, 2019

    Share
    capital

    Contributed
    surplus

    Retained
    earnings

    Total

    Balance – December 31, 2018

    $

    78,316

    $

    25,357

    $

    17,825

    $

    121,498

    Exercise of common stock options

    1,663

    (1,266)

    397

    Exercise of broker stock warrants

    1,295

    (834)

    461

    Accumulated effect of income tax from stock options

    7,278

    7,278

    Share-based compensation expense

    749

    749

    Net income

    4,525

    4,525

    Balance – June 30, 2019

    $

    81,274

    $

    31,284

    $

    22,350

    $

    134,908

    Six months ended June 30, 2020

    Share
    capital

    Contributed
    surplus

    Accumulated
    deficit

    Total

    Balance – December 31, 2019

    $

    123,927

    $

    27,513

    $

    2,258

    $

    153,698

    Exercise of common stock options

    2,006

    (558)

    1,448

    Accumulated effect of income tax from stock options

    (16,087)

    (16,087)

    Share-based compensation expense

    2,310

    2,310

    2020 Share Offering

    47,959

    47,959

    Share issuance costs

    (3,368)

    (3,368)

    Abacus acquisition

    105,461

    5,407

    110,868

    Net loss

    (25,929)

    (25,929)

    Balance – June 30, 2020

    $

    275,985

    $

    18,585

    $

    (23,671)

    $

    270,899

     

    CHARLOTTE’S WEB HOLDINGS, INC.

    UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

    (In thousands of United States dollars)

    Six months ended June 30,

    2020

    2019

    Cash flows from operating activities:

    Net (loss) income

    $

    (25,929)

    $

    4,525

    Items not involving cash:

    Depreciation and amortization

    3,931

    1,406

    Change in fair value of biological assets

    (86)

    (496)

    Change in fair value of warrant liabilities

    (6,705)

    Change in fair value of stock appreciation rights

    (195)

    Expected credit losses

    (9)

    136

    Inventory provision, net

    2,523

    953

    Share-based compensation

    2,310

    749

    Loss/(gain) on disposal of assets

    7

    8

    Deferred income taxes

    14,330

    (182)

    Changes in working capital:

    Trade and other receivables, net

    (3,095)

    (2,693)

    Inventories

    584

    (10,296)

    Prepaid expenses and other current assets

    (2,739)

    (5,611)

    Accounts payable

    2,058

    (1,302)

    Accrued liabilities

    2,288

    (1,336)

    Income taxes

    (8,034)

    (166)

    Cultivation liabilities

    (3,596)

    (1,037)

    Other operating assets and liabilities, net

    379

    98

    (21,978)

    (15,244)

    Cash flows from investing activities:

    Cash acquired in business combinations

    11,181

    Funding of notes receivable

    (936)

    (1,400)

    Purchases of property and equipment and intangible assets

    (10,187)

    (4,059)

    Proceeds from sale of assets

    41

    53

    Proceeds from loans due from related parties

    14

    Other investing activities

    (895)

    (812)

    (796)

    (6,204)

    Cash flows from financing activities:

    Proceeds from public offering

    57,165

    Proceeds from common stock option exercises

    1,448

    397

    Proceeds from stock warrant exercises

    461

    Payments on notes payable

    (5)

    (5)

    Payments on lease obligations

    (1,199)

    (1,378)

    Share issuance costs

    (3,368)

    54,041

    (525)

    Increase (decrease) in cash

    31,267

    (21,973)

    Cash, beginning of year

    68,553

    73,404

    Cash, end of period

    $

    99,820

    $

    51,431

    Supplemental disclosures of cash flows from operating activities:

    Cash paid for interest

    $

    (48)

    $

    (57)

    Cash paid for interest on lease obligations

    (486)

    (281)

    Cash received from interest

    155

    666

    Cash paid for taxes

    (42)

    (23)

    Non-cash purchases of property and equipment and intangible assets

    (3,649)

     

    SOURCE Charlotte’s Web Holdings, Inc.

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