cbdMD Delivers on its Promise of Operating Improvement, adds Regulatory Depth to the Board

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Management delivers on operating improvements while investing in future growth. cbdMD board appoints Dr. Sibyl Swift to the Board of Directors to fill Vacancy.

Charlotte, North Carolina–(Newsfile Corp. – August 11, 2022) – cbdMD, Inc. (NYSE American: YCBD) (NYSE American: 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 announced our financial results for June 30, 2022. Excluding one-time Goodwill Impairment charges we cut our GAAP operating loss in half from the prior year quarter and made strong sequential gains.

“On our last investor call, we committed to deliver stronger earnings and realize $10 million in annual cost savings against our December 2021 quarter. Despite the many challenges faced this quarter – from the challenging macro environment for consumers including 30-year high inflation rates, to the retirement of Mr. Coffman, our brand founder and co-CEO, and the distraction of our former CEO’s separation from our company we were able to deliver on our commitments. While we incurred a GAAP loss from operations of $33.1 million, the loss was mostly attributed to a one-time goodwill impairment charge of $30.8 million. The impairment was triggered because of the strong downward movement in our stock price during June as we dealt with leadership separation noise. Excluding this goodwill charges, this is the third sequential quarter of improvement in our non-GAAP operating income and the fourth consecutive quarter of Net Adjusted Operating Income gains, improving $1 million compared to the quarter ending in March 2022. We are building momentum. No stone was left unturned, and ongoing efforts have identified further opportunities to improve our operations.

“We have developed and are executing a multi-channel strategy to deliver sustained profitable revenue growth. The new leadership team is focused on new product development, improved efficacy for our consumers, optimizing product assortment, business fundamentals and delivering results. The organization has coalesced around a plan based on product differentiation, capturing greater share of the online market, strategically entering new food, drug and mass channels, and growing market share. Our number one priority is to become profitable by the end of the calendar year and grow from a stable base,” said Ronan Kennedy, CFO and COO.

“While it was a major decision for me to step back this last quarter, as the Company’s largest shareholder and Board member, I am more excited about the Company’s strategy than I have been in years, and confident in leadership’s ability to execute and take cbdMD to the next level. I founded the cbdMD brand based on the powerful benefits cannabinoids can have for its users and take comfort in the efforts our team is making to substantiate these benefits. Appointing Dr. Swift to the Board shows our commitment to lead with science and regulatory rigor second-to-none in the industry,” said Scott Coffman, brand founder and board member.

Financial Highlights from our June 30, 2022 Quarter:

  • We reported that our net sales for the June 30, 2022, quarter were $8.6 million versus net sales of $9.6 million quarter ending March 31, 2022, a decrease of 11%. Our net sales for the quarter ended June 30 2022 were down 19% compared to the prior year quarter ended June 30, 2021.
  • We reported that our quarter ending June 30, 2022, direct to consumer (DTC) net sales were $6.5 million, versus $6.6 million for our quarter ending March 31, 2022, or a sequential decline of 1%. Our e-commerce net sales were down 17% compared to the prior year quarter ended June 30, 2021. We have made significant changes as well as reductions to our marketing investments over the last two quarters including a $1 million or 20% reduction sequentially and $1.9 million or 32% reduction year over year. Despite these reductions we began seeing strong website traffic gains starting in May with this trend continuing in June and July. We are acquiring more traffic at lower overall investments levels and are working to optimize our traffic and conversion rates.
  • We reported that our quarter ending June 30, 2022, wholesale sales (including brick and mortar retail customers) were $2.1 million, versus $3.0 million for quarter ending March 31, 2022, or sequential decrease of 32%. Some of the declines were associated with the benefits tied to pipeline fills that occurred during the March 2022 quarter. Wholesale net sales were down 24% compared to the prior year quarter ended June 30, 2021. We have added a number of specific food, drug, mass, and convenience channel focused resources during the quarter and anticipate building wholesale inertia as we execute our plan over the next 2 quarters and beyond.
  • We reported that our quarter ending June 30, 2022, gross profit margin was 69.0% versus 66.9% for the quarter ending March 31, 2022. Our gross profit margin was 68.1% in prior year quarter ended June 30, 2021. Significant action was taken to reduce our high-fixed overhead costs and make our cost of sale more variable and predictable.
  • We committed to $10 million in annual cost reductions and SG&A expense of $9.7 million on our call in May. For the quarter ending June 30, 2022, the Company achieved the cost savings goals and recorded SG&A Costs of $8.3 million for the quarter. Excluding a contra-expense of $1.5 million related to RSUs and stock options forfeited during the quarter, our SG&A is down $4.1 million or 30% compared to the prior year quarter ended June 30, 2021. We anticipate further reduction in SG&A during the fiscal fourth quarter tied to realization of a full quarter of benefits from adjustments made during the fiscal third quarter as well as additional cost saving initiatives. We anticipate SG&A expense to be approximately $8 million for the fiscal fourth quarter.
  • We reported a GAAP loss from operations of approximately $33.1 million which includes a one-time goodwill impairment of approximately $30.8 million in our quarter ending June 30, 2022. Excluding this impairment our non-GAAP loss from operations totaled $2.3 million. This compares to a $6.7 million GAAP loss from operations for our quarter ending June 30, 2021, a decrease of approximately 65% year over year. This decrease is primarily related to a $4.1 million reduction in operating expenses. Sequentially, our operating loss improved 54% from a $5.1 million loss.
  • We reported non-GAAP adjusted operating loss of approximately $2.7 million in our June 30, 2022 quarter, compared to $5.2 million for the June 30, 2021 quarter. This decrease was primarily related to management’s actions taken on our cost structure over the last 2 quarters. Additionally, we saw a sequential improvement of approximately $1.0 million over the quarter ending March 31, 2022, despite the decrease in revenue. We expect further reductions in the fourth quarter and are targeting positive non-GAAP adjusted operating income during the first quarter of fiscal 2023.
  • We reported that as of June 30, 2022, we had working capital of approximately $14.1 million and cash on hand of approximately $9.6 million. Cash on hand used during our quarter ending June 30, 2022 was approximately $2.7 million to fund operations (which was a 26% improvement from our quarter ending March 31, 2022) and $1.0 million to pay our Series A Preferred Dividend.

Notable Business Updates

  • The Company completed the sale of its manufacturing assets to Steady State, LLC, significantly reducing its fixed overhead costs, migrating to a more variable cost structure. Participating in Steady State’s Series C preferred equity round provides the Company a strategic position in a not only a great supply chain partner, it broadens our product development capabilities. We believe this investment has upside potential as Steady State executes their business plan.
  • The Company signed an agreement with Adara Acquisition, LLC to redeem our position subject to its transaction closing with Alliance Entertainment, Inc. This became a condition of Adara’s transaction with the target and subject to closing, locks in the return of our capital to strengthen our balance sheet and use in a manner more strategically aligned with our core business and avoids the 6-month lock-up where our investment is subject to ongoing market risks.
  • Company successfully launched a marketing campaign on its 2018 Farm Act compliant hemp extracted Delta 9 product assortment with the Joe Rogan Experience podcast and the Dan Lebatard Show with Stugotz in July and seeing strong sequential monthly category growth.
  • Earlier this year, the Company filed a citizen’s petition with the assistance of the National Products Association (NPA). The citizen’s petition response from FDA is due on August 22, 2022. We are prepared and have several administrative options that we are considering depending on their response.
  • Our Novel Food Applications were Validated and are now in the Risk Assessment phase in both the UK and EU. In the EU, EFSA put a clockstop hold on all applications preventing them from moving into the Risk Assessment phase. The Company presented EFSA with our data and demonstrated that our application was not deficient, like the other applications and now CBDMD is the only company with an application in the Risk Assessment phase. We believe this provides the Company with a significant lead on obtaining Novel Food approval in the EU for its core broad spectrum formulation and a wide range of products. We anticipate full Novel Foods approval after the Risk Assessment phase is completed in 9-12 months.
  • Our separate Human and Animal clinical trials are concluding this month and showing positive preliminary results for both studies. We anticipate publishing our findings during the first fiscal quarter of 2023 and using clinical results to launch marketing campaigns focused on our products’ proven benefits.

We will host a conference call at 4:30 p.m., Eastern Time, on Thursday, August 11, 2022, to discuss our June 30, 2022, second quarter financial results and business progress.

CONFERENCE CALL DETAILS

Thursday August 11, 2022, 4:30 p.m. Eastern Time
USA/Canada: 800-319-4610
International: 604-638-5340
   
   
Teleconference Replay dial in:
USA/Canada: 855-669-9658
International: 412-317-0088
Replay Passcode: 8972
Webcast/Webcast Replay link- available through August 11, 2023: https://www.gowebcasting.com/11834

 
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-free1 CBD products as well as our new Full Spectrum products. Our cbdMD brand currently includes high-grade, premium CBD products including CBD tinctures, CBD gummies, CBD topicals, CBD capsules, CBD bath bombs, CBD sleep aids and CBD drink mixes and an array of Farm Act compliant Delta 9 products. Our Paw CBD brand of pet products includes veterinarian-formulated products including tinctures, chews, topicals products in varying strengths, and our CBD Botanicals brand of beauty and skincare products including facial oil and serum, toners, moisturizers, clear skin, facial masks, exfoliants and body care. To learn more about cbdMD and our comprehensive line of U.S. grown, THC-free1 CBD oil and Full Spectrum products, please visit www.cbdmd.com, follow cbdMD on Instagram and Facebook, or visit one of the thousands of retail outlets that carry cbdMD’s 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, including but not limited to expectations on cost reductions, investment in Steady State, future profitability, results from clinical studies 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
JUNE 30, 2022 AND SEPTEMBER 30, 2021
             
      (Unaudited)      
      June 30,     September 30,
      2022     2021
Assets            
             
             
Cash and cash equivalents    $   9,553,670    $     26,411,424
Accounts receivable      1,630,233         1,113,372
Accounts receivable – discontinued operations             1,375             10,967
Marketable securities                    -               33,351
Investment other securities          1,000,000       1,000,000
Inventory        4,318,204      5,021,867
Inventory prepaid       548,580      551,519
Prepaid sponsorship        1,749,083      1,212,682
Prepaid expenses and other current assets  1,057,183  1,147,178
Total current assets      19,858,328      36,502,360
             
Other assets:            
Property and equipment, net      775,477      2,561,574
Operating lease assets       4,751,192    5,614,960
Deposits for facilities      244,606      529,583
Intangible assets, net       18,111,903    23,003,929
Goodwill        11,996,249       56,670,970
       1,400,000             –
Total other assets  37,279,427  88,381,016
             
Total assets    $  57,137,755 $  124,883,376
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2021 AND SEPTEMBER 30, 2021
(continued)
             
      (Unaudited)      
      June 30,     September 30,
      2022     2021
Liabilities and shareholders’ equity            
             
Current liabilities:            
Accounts payable    $    2,310,244    $  2,978,914
Deferred revenue      2,250,549      2,727,612
Accrued expenses      1,155,020    1,151,150
Note payable       9,461          59,470
Total current liabilities      5,725,274      6,917,146
             
Long term liabilities:            
Long term liabilities            127,949        108,985
Operating leases – long term portion       3,982,532        4,859,058
Contingent liability      702,000      9,856,000
Total long term liabilities      4,812,481      14,824,043
             
Total liabilities      10,537,755        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, 59,946,110 and 57,783,340 shares issued and outstanding, respectively   59,946      57,783
Additional paid in capital      178,326,685      176,417,269
Accumulated deficit      (131,791,631)    (73,337,865)
Total shareholders’ equity      46,600,000      103,142,187
             
             
Total liabilities and shareholders’ equity    $  57,137,755    $  124,883,376
                 

 

cbdMD, INC.    
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS    
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2022 AND 2021    
     
      Three Months     Three Months Nine Months Nine Months
      Ended     Ended Ended Ended
      June 30,     June 30, June 30, June 30,
      2022     2021 2022 2021
                 
Gross Sales    $         8,868,093    $        11,352,585 $ 28,673,718 $ 36,941,917
Allowances                  (275,200 )                (792,062) (1,130,117 ) (2,254,481 )
Total Net Sales                 8,592,893               10,560,523 27,543,601 34,687,436
Cost of sales                 2,660,185                 3,370,952 10,176,085 10,444,353
                 
Gross Profit                 5,932,708                 7,189,571 17,367,516 24,243,083
                 
Operating expenses                 8,282,931               13,865,191 31,690,915 36,846,371
Impairment of Goodwill and other intangible assets               30,776,436                               – 48,959,721
Loss from operations             (33,126,659)             (6,675,620) (63,283,120 ) (12,603,288 )
Realized and Unrealized gain (loss) on marketable and other securities, including impairments                               –                    (18,623) (33,352 ) 526,940
Gain (loss) on extinguishment of debt                               –                 1,466,113 1,466,113
Decrease (increase) of contingent liability                 1,943,000                 6,871,000 8,246,000 (10,500,000 )
Gain (loss) on sale of assets                      88,769                               – 88,769
Restructuring expense                  (602,092)                               – (602,092 )
Other income                      64,390                               – 137,377
Interest (expense) income                      (1,551                    (2,582) (6,871 ) (23,573 )
Loss before provision for income taxes             (31,634,143 )               1,640,288 (55,453,289 ) (21,133,808 )
                 
Benefit for income taxes                               –                  (103,000) 765,000
Net (Loss) Income             (31,634,143               1,537,288 (55,453,289 ) (20,368,808 )
                 
Preferred dividends                 1,000,501                    560,281 3,001,503 1,220,610
                 
Net Loss attributable to cbdMD, Inc. common shareholders    $   (32,634,644             977,007 $ (58,454,792 ) $ (21,589,418 )
                 
Net Loss per share:                
Basic earnings per share                        (0.55                        0.02 (0.99 ) (0.40 )
Diluted earnings per share                        (0.55                        0.02 (0.99 ) (0.40 )
Weighted average number of shares Basic:               59,316,762               56,676,326 59,229,208 54,089,263
Weighted average number of shares Diluted:               59,316,762               61,431,643 59,229,208 54,089,263
     

 

cbdMD, INC.    
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS    
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2022 AND 2021    
                 
                 
      Three Months     Three Months Nine Months Nine Months
      Ended     Ended Ended Ended
      June 30,     June 30, June 30, June 30,
      2022     2021 2022 2021
                 
Net (Loss) Income    $  (31,634,143)    $           1,537,288 $ (55,453,289 ) $ (20,368,808 )
Comprehensive (Loss) Income             (31,634,143)                 1,537,288 (55,453,289 ) (20,368,808 )
                 
Preferred dividends               (1,000,501)                  (560,281) (3,001,503 ) (1,220,610 )
Comprehensive (Loss) Income attributable to cbdMD, inc. common shareholders   $   (32,634,644)    $         977,007 $ (58,454,792 ) $ (21,589,418 )
                 

 

cbdMD, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 2022 and 2021
    Nine Months     Nine Months  
    Ended     Ended  
    June 30,     June 30,  
    2022     2021  
             
Cash flows from operating activities:            
Net Loss $ (55,453,289 ) $ (20,368,808 )
Adjustments to reconcile net (income) loss to net            
cash used by operating activities:            
Stock based compensation   424,455     807,523  
Restricted stock expense   504,650     1,137,583  
Marketing stock amortization   717,174     660,232  
Issuance of stock / warrants for service       98,605  
Inventory and materials impairment   878,142      
Intangibles amortization   607,025      
Depreciation   770,335     719,856  
Impairment of Goodwill and other intangible assets   48,959,721      
Increase/(Decrease) in contingent liability   (8,246,000 )   10,500,000  
Realized and unrealized loss of Marketable and other securities   33,350     (526,939 )
Termination benefit       495,568  
Extinguishment of Paycheck Protection Program Loan       (1,466,113 )
Amortization of operating lease asset   863,768     922,057  
Changes in operating assets and liabilities:            
Accounts receivable   (116,861 )   (556,116 )
Deposits   284,977     261,125  
Inventory   (174,479 )   (135,058 )
Prepaid inventory   2,939     (385,410 )
Prepaid expenses and other current assets   (1,088,579 )   (141,393 )
Accounts payable and accrued expenses   (1,149,456 )   (603,216 )
Operating lease liability   (872,656 )   (846,914 )
Deferred revenue / customer deposits   3,723     4,478  
Collection on discontinued operations accounts receivable   9,592     428,667  
Deferred tax liability       (765,000 )
Cash used by operating activities   (13,041,469 )   (9,759,273 )
             
Cash flows from investing activities:            
Proceeds from sale of other investment securities       540,000  
Purchase of other investment securities       (750,000 )
Proceeds from sale of assets   (322,017 )    
Purchase of property and equipment   (462,221 )   (311,572 )
Cash provided (used) by investing activities   (784,238 )   (521,572 )
             
Cash flows from financing activities:            
Proceeds from issuance of preferred stock       15,798,115  
Note payable   (31,044 )   (137,292 )
Preferred dividend distribution   (3,001,003 )   (1,220,610 )
Cash provided by financing activities   (3,032,047 )   14,440,213  
Net increase (decrease) in cash   (16,857,754 )   4,159,367  
Cash and cash equivalents, beginning of period   26,411,424     14,824,644  
Cash and cash equivalents, end of period $ 9,553,670   $ 18,984,012  
             
             
             
Supplemental Disclosures of Cash Flow Information:            
    2022     2021  
             
Cash Payments for:            
Interest expense $ 6,817   $ 23,573  
             
Non-cash financial activities:            
Issuance of Contingent earnout shares: $ 908,000   $ 12,596,089  
Warrants issued to representative $   $ 254,950  
             

 

cbdMD, Inc.              
SUPPLEMENTAL FINANCIAL INFORMATION              
RECONCILIATION OF NON-GAAP ADJUSTED INCOME (LOSS) FROM OPERATIONS              
                           
      Three Months     Three Months     Nine Months      Nine Months   
      Ended     Ended     Ended     Ended  
      June 30,     June 30,     June 30,     June 30,  
      2022     2021     2022     2021  
                           
GAAP (loss) from operations    $     (33,126,659)   $      (6,675,620)    $ (63,283,120)    $       (12,603,288)  
Adjustments:                          
Depreciation & Amortization                    435,910                    246,533            1,377,361                    719,856  
Employee and director stock compensation (1)                  (938,285)                    959,319               851,517                 2,049,326  
Other non-cash stock compensation for services (2)                               –                      28,650                           –                      97,721  
Inventory adjustment (3)                               –                      50,000               878,142                      50,000  
Write down of legacy accounts receivable (4)                               –                               –                           –                                –  
Impairment of goodwill and other intangible assets (5)               30,776,436                               –          48,805,436                                –  
Accrual for severance                    107,261                               –               129,761                    703,022  
Accrual / expenses for discretionary bonus                               –                    150,000               150,000                    450,000  
Non-GAAP adjusted (loss) from operations   $        (2,745,337)   $      (5,241,118)    $  (11,090,903)    $      (8,533,363)  
                           

 
(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 $44,520,436 and impairment of the cbdMD trademark of $4,285,000.

Contacts:

Investors:
cbdMD, Inc.
John Weston
Director of Investor Relations
[email protected]
(704) 249-9515

To view the source version of this press release, please visit https://www.newsfilecorp.com/release/133543

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