8-K
cbdMD, Inc. (YCBD)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 22, 2020
| cbdMD, Inc. | ||
|---|---|---|
| (Exact name of registrant as specified in its charter) | ||
| North Carolina | 001-38299 | 47-3414576 |
| --- | --- | --- |
| (State or other jurisdiction of incorporation or<br>organization) | (Commission File Number) | (I.R.S. Employer Identification No.) |
8845 Red Oak Blvd, Charlotte, NC 28217
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (704) 445-3060
| _______________________________________ |
|---|
| (Former name or former address, if changed since last<br>report) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| common | YCBD | NYSE<br>American |
| 8.0%<br>Series A Cumulative Convertible Preferred Stock | YCBDpA | NYSE<br>American |
Indicate by check mark whether the registrant is an emerging growth company as defined in in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
| Emerging<br>growth company ☑ |
|---|
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 7.01
Regulation FD Disclosure.
On December 22, 2020, cbdMD, Inc. issued a press release announcing its financial and operating results for its fourth quarter and fiscal year ended September 30, 2020. A copy of this press release is furnished as Exhibit 99.1 to this report. Also on December 22, 2020, cbdMD, Inc. hosted a conference call to discuss the financial and operating results of for its fourth quarter and fiscal year ended September 30, 2020. The script of management's presentation on the conference call is furnished as Exhibit 99.2 to this report.
Pursuant to General Instruction B.2 of Form 8-K, the information in this Item 7.01 of Form 8-K, including Exhibit 99.1 and Exhibit 99.2, is being furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise be subject to the liabilities of that section, nor is it incorporated by reference into any filing of cbdMD, Inc. under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Item 9.01
Financial Statements and Exhibits.
(d)
Exhibits.
| Incorporated by Reference | Filed or<br><br><br>Furnished<br><br><br>Herewith | ||||
|---|---|---|---|---|---|
| No. | Exhibit Description | Form | Date Filed | Number | |
| 99.1 | Press<br>release dated December 22, 2020 | Furnished | |||
| 99.2 | Earnings<br>call script December 22, 2020 | Furnished |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| cbdMD,<br>Inc. | ||
|---|---|---|
| Date:<br>December 22, 2020 | By: | /s/<br>Martin A. Sumichrast |
| Martin<br>A. Sumichrast, co- Chief Executive Officer |
ycbd_ex991
Exhibit 99.1
cbdMD Reports Fiscal September 30, 2020 Results
Fiscal Year Net Sales Increased 77% To Record $41.9 Million
e-Commerce Direct-to-Consumer Sales Jump 106% to $30.5 Million
CHARLOTTE, N.C. – December 22, 2020 - (BUSINESS WIRE) -- cbdMD, Inc. (NYSE American: YCBD, YCBDpA), one of the nation’s leading and most highly trusted and recognized cannabidiol (CBD) brands, today announced its financial results for the fourth quarter and fiscal year ended September 30, 2020.
Commenting on today results, Chairman and co-CEO Martin A. Sumichrast said, “We believe cbdMD is now one of the most successful CBD companies in world, with two of the most recognized and valuable CBD brands, cbdMD and Paw CBD. We are committed to continuing to deliver on our financial goals. We have grown quarterly sales over 900% in eight fiscal quarters. We have remained focused on our core competency, which is e-commerce direct-to-consumer sales, which increased to $30.5 million, or 73% of total net sales in fiscal 2020, a 106% increase from the prior year. We have also maintained one of the strongest balance sheets in the CBD industry and we believe we have more than ample enough capital to execute on our 2021 strategy. In fact, we have recently more than doubled our liquidity, which now stands today at approximately $30 million in cash, with virtually no debt. To put this into context, we built two brands in two years with less cash than we have in the bank today. In addition, we dramatically reduced our non-GAAP adjusted loss from operations from over $10 million in the first half of fiscal 2020 to approximately $1.3 million in the second half of fiscal 2020. Earlier this year we set a goal of achieving positive adjusted operating income during calendar year 2020, a non-GAAP financial measure. We are presently confident we will reach this milestone in early fiscal 2021. However, based upon marketing opportunities that may arise during the year, achieving this goal may be extended later into the fiscal year. While we have not committed to any financial guidance, we do expect continued robust sales growth in fiscal 2021.”
Financial Highlights:
Fiscal 2020:
●
Net sales increased by 77% year-over-year to a record of $41.9 million in fiscal 2020, from $23.6 million in fiscal 2019.
●
Our gross profit margin increased to 63% in fiscal 2020 from 61% in fiscal 2019. Our non-GAAP adjusted gross margin totaled 67.7% for fiscal 2020, after approximately $2.2 million in non-cash inventory adjustments for the year, as compared to 61% for fiscal 2019.
●
Our loss from operations was $17.6 million in fiscal 2020 as compared to $14.8 million in fiscal 2019, of which approximately $11.7 million, or 67%, was recorded in the first half of fiscal 2020 and approximately $5.8 million was recorded in the second half of the fiscal year.
●
Our non-GAAP adjusted loss from operations in fiscal 2020 was approximately $11.5 million, of which $10.2 million, or 89%, was recorded in the first half of fiscal 2020, and approximately $1.3 million, or 11%, was recorded for the second half of the fiscal year. Our non-GAAP adjusted loss from operations in fiscal 2019 was approximately $11.5 million.
●
Net income attributable to common shareholders for fiscal 2020 was approximately $12.2 million, or $0.28 per share, as compared to a net loss for fiscal 2019 of approximately $50.4 million, or $2.82 per share. The increase in fiscal 2020 was principally attributable to a decrease of approximately $29.8 million in the non-cash contingent liability which is associated with earnout shares which may be issued under the terms of the December 2018 acquisition of Cure Based Development (which owned the cbdMD brand).
●
At September 30, 2020, we had working capital of approximately $16.0 million and cash on hand of approximately $14.8 million as compared to working capital of approximately $12 million and cash on hand of approximately $4.7 million at September 30, 2019. Our working capital position has been further bolstered subsequent to year end following our receipt of approximately $15.8 million in net proceeds from our December 2020 sale of shares of our 8.0% Series A Cumulative Convertible Preferred Stock in a firm commitment underwritten public offering. As a result, as of today we have approximately $30 million in cash on hand.
●
We reported record e-commerce, direct to consumer (DTC) net sales of $30.5 million, or 73% of total net sales in fiscal 2020, an increase of $15.6 million, or 106% increase from fiscal 2019.
●
Our CBD pet brand, Paw CBD, reported approximately $4.5 million in net sales in fiscal 2020, which was the brand’s first full fiscal year.
For the Quarter Ended September 30, 2020:
●
Our net sales for the fourth quarter of fiscal 2020 increased by 23% year-over-year to a record of $11.7 million from $9.5 million in the fourth quarter of fiscal 2019.
●
Our gross profit margin for the quarter decreased to 54% in the fourth quarter of fiscal 2020 from 57% in the fourth quarter of fiscal 2019, which was principally attributable to an approximate $1.66 million in non-cash inventory adjustment during the quarter. Our non-GAAP adjusted gross margin totaled 68% for the fourth quarter of fiscal 2020 as compared to approximately 57% in the fourth quarter of fiscal 2019.
●
Our loss from operations was approximately $4.5 million compared to $5.2 million from the prior year’s quarter.
●
Our non-GAAP adjusted operating loss was approximately $1.06 million, compared to a $4.1 million non-GAAP adjusted operating loss from the prior year’s quarter.
●
We reported record fourth quarter fiscal 2020 e-commerce, direct to consumer (DTC) net sales of $8.6 million, an increase of $3.2 million, or 58%, from the fourth quarter of fiscal 2019.
●
Our pet brand, Paw CBD, which was launched in the fourth quarter of fiscal 2019 reported approximately $1.67 million in net sales in the fourth quarter of fiscal 2020.
cbdMD, Inc. will host a conference call at 4:15 p.m., Eastern Time, on Tuesday, December 22, 2020, to discuss the company’s September 30, 2020 fourth quarter and fiscal year-end financial results and business progress.
CONFERENCE CALL DETAILS
| Tuesday, December<br>22, 2020, 4:15 p.m. Eastern Time | |
|---|---|
| Domestic: | 1-888-506-0062 |
| International: | 1-973-528-0011 |
| Replay dial in – Available through January 20,<br>2020 | |
| Domestic: | 1-877-481-4010 |
| International: | 1-919-882-2331 |
| Replay<br>Passcode: | 39191 |
| Webcast/Webcast Replay link- available through<br>December 23, 2020: | https://www.webcaster4.com/Webcast/Page/2206/39191 |
About cbdMD, Inc.
cbdMD, Inc. is one of the leading, most highly trusted, and most recognized cannabidiol (CBD) brands, whose current products include CBD tinctures, CBD capsules, CBD gummies, CBD topicals, CBD bath bombs and CBD pet products. cbdMD is also a proud partner of Bellator MMA and Life Time, Inc., and has one of the largest rosters of professional sports athletes who are part of “Team cbdMD.” To learn more about cbdMD and our comprehensive line of over 100 SKUs of U.S. produced, Non-THC1 CBD 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.
1 Non-THC is defined as below the level of detection using validated scientific analytical tools.
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 by the use of 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 and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. 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, 2020 as filed with the Securities and Exchange Commission (the "SEC") 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.
Non-GAAP Financial Measures
This press release includes certain financial measures that exclude the impact of certain items and therefore have not been calculated in accordance with U.S. generally accepted accounting principles (“GAAP”). cbdMD, Inc. has included adjusted income (loss) from operations and adjusted gross profit because management uses these measures 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 income (loss) from operations and the adjusted gross profit margin have not been prepared in accordance with GAAP. These non-GAAP financial measures should not be considered as alternatives to, or more meaningful than, net income (loss) from operations and gross profit as indicators of our operating performance. Further, these non-GAAP financial measures, 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 these non-GAAP financial measures to their most directly comparable GAAP financial measures.
Contact:
PR:
cbdMD, Inc.
Lauren Greene
Communications Specialist
(843) 743-9999
Investors:
cbdMD, Inc.
John Weston
Director of Investor Relations
(704) 249-9515
CBDMD, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2020 AND 2019
| 2020 | 2019 | |
|---|---|---|
| Assets | ||
| Current<br>assets: | ||
| Cash<br>and cash equivalents | $14,824,644 | $4,689,966 |
| Accounts<br>receivable | 911,482 | 1,425,697 |
| Accounts<br>receivable other | - | 160,137 |
| Accounts<br>receivable – discontinued operations | 447,134 | 1,080,000 |
| Marketable<br>securities | 26,472 | 198,538 |
| Investment<br>other securities | 250,000 | 600,000 |
| Deposits | 40,198 | 6,850 |
| Merchant<br>reserve | - | 519,569 |
| Inventory | 4,603,360 | 4,301,586 |
| Inventory<br>prepaid | 288,178 | 903,458 |
| Deferred<br>issuance costs | - | 93,954 |
| Prepaid<br>software | 174,308 | 206,587 |
| Prepaid<br>equipment deposits | 40,197 | 868,589 |
| Prepaid<br>sponsorship expense | 1,203,300 | - |
| Prepaid<br>expenses and other current assets | 902,979 | 688,104 |
| Total<br>current assets | 23,712,252 | 15,743,035 |
| Other<br>assets: | ||
| Property<br>and equipment, net | 3,183,487 | 1,715,557 |
| Operating<br>lease right-of-use assets | 6,851,357 | - |
| Deposits<br>for facilities | 790,708 | 754,533 |
| Intangible<br>assets, net | 21,635,000 | 21,635,000 |
| Goodwill | 54,669,997 | 54,669,997 |
| Total<br>other assets | 87,130,549 | 78,775,087 |
| Total<br>assets | $110,842,801 | $94,518,122 |
CBDMD, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2020 AND 2019
(continued)
| 2019 | |
|---|---|
| Liabilities<br>and shareholders' equity | |
| Current<br>liabilities: | |
| Accounts<br>payable | $3,021,271 |
| Deferred<br>revenue | - |
| Accrued<br>expenses | 681,269 |
| Operating<br>leases – short term liabilities | - |
| Paycheck<br>Protection Program Loan | - |
| Note<br>payable | - |
| Customer<br>deposit – related party | 7,339 |
| Total<br>current liabilities | 3,709,878 |
| Long term<br>liabilities | |
| Long<br>term liabilities | 363,960 |
| Paycheck<br>Protection Program loan | - |
| Operating<br>leases – long term liabilities | - |
| Contingent<br>liability | 50,600,000 |
| Deferred<br>tax liability | 2,240,300 |
| Total long-term<br>liabilities | 53,204,260 |
| Total<br>liabilities | 56,914,138 |
| cbdMD, Inc.<br>shareholders' equity: | |
| Preferred stock,<br>authorized 50,000,000 shares, 0.001 par value, 500,000 and 0<br>shares issued and outstanding, respectively | - |
| Common stock,<br>authorized 150,000,000 shares, 0.001 par value, | |
| 52,130,870<br>and 27,720,356 shares issued and outstanding,<br>respectively | 27,720 |
| Additional paid in<br>capital | 97,186,524 |
| Accumulated<br>deficit | (59,610,260) |
| Total<br>cbdMD, Inc. shareholders' equity | 37,603,984 |
| Total<br>liabilities and shareholders' equity | $94,518,122 |
All values are in US Dollars.
CBDMD, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 2020 AND 2019
| 2020 | 2019 | |
|---|---|---|
| Sales | $43,172,778 | $28,023,848 |
| Sales<br>related party | - | 55,596 |
| Total<br>Gross Sales | 43,172,778 | 28,079,444 |
| Allowances | (1,289,044) | (4,427,893) |
| Net<br>sales | 41,883,734 | 23,595,955 |
| Net<br>sales related party | - | 55,596 |
| Total Net Sales | 41,883,734 | 23,651,551 |
| Costs<br>of sales | 15,514,727 | 9,136,677 |
| Gross profit | 26,369,006 | 14,514,873 |
| Operating<br>expenses excluding impairment losses | 43,950,862 | 28,875,186 |
| Impairment<br>of intangible assets | - | 436,578 |
| Operating<br>expenses | 43,950,862 | 29,311,764 |
| Income (loss) from<br>operations | (17,581,856) | (14,796,891) |
| Realized<br>and unrealized gain (loss) on marketable securities | (172,066) | (102,716) |
| Impairment<br>on investment other securities | (760,000) | (502,560) |
| (Increase)<br>decrease of contingent liability | 29,780,000 | (32,461,680) |
| Interest<br>income | 39,877 | 75,071 |
| Income (loss) before provision<br>for income taxes | 11,305,955 | (47,788,776) |
| Benefit<br>from (provision for) income taxes | 1,345,300 | 2,359,000 |
| Net Income (loss) from<br>continuing operations | 12,651,255 | (45,429,776) |
| Net<br>Income (loss) from discontinued operations, net of<br>tax<br><br><br>(Note 16) | (48,983) | (5,927,773) |
| Net Income (loss) | $12,602,272 | $(51,357,549) |
| Net Income (loss) attributable to non-controlling interest from<br>discontinued operations (Note 16) | - | (929,323) |
| Preferred dividends | 366,850 | - |
| Net Income (loss) attributable to common shareholders | $12,235,422 | $(50,428,226) |
| Net Income (Loss) per share | ||
| Basic<br>earnings (loss) per share | $0.28 | $(2.82) |
| Diluted<br>earnings (loss) per share | $0.28 | $- |
| Weighted<br>average number of shares basic | 44,140,360 | 17,887,247 |
| Weighted<br>average number of shares diluted | 45,171,674 | - |
CBDMD, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED SEPTEMBER 30, 2020 AND 2019
| 2020 | 2019 | |
|---|---|---|
| Net<br>Income (Loss) | $12,602,272 | $(51,357,549) |
| Comprehensive Income (Loss) | 12,602,272 | (51,357,549) |
| Comprehensive<br>Income (loss) attributable to non-controlling interest | - | (929,323) |
| Preferred<br>dividends | (366,850) | |
| Comprehensive Income (Loss) attributable to cbdMD, Inc. common<br>shareholders | $12,235,422 | $(50,428,226) |
CBDMD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2020 AND 2019
| 2020 | 2019 | |
|---|---|---|
| Cash<br>flows from operating activities: | ||
| Net income<br>(loss) | $12,602,272 | $(51,357,549) |
| Adjustments<br>to reconcile net loss to net | ||
| cash<br>used by operating activities: | ||
| Stock<br>based compensation | 1,900,194 | 2,458,530 |
| Restricted<br>stock expense | 138,000 | 230,000 |
| Depreciation<br>and amortization | 720,755 | 289,574 |
| Issuance<br>of stock / warrants for services | 338,400 | 289,750 |
| Realized<br>and unrealized (gain)/loss on marketable securities | 172,066 | 2,439,996 |
| Impairment<br>on investment other securities | 760,000 | 502,560 |
| Inventory<br>impairment | 233,372 | - |
| Impairment<br>on discontinued operations asset | 45,783 | 3,398,438 |
| Payment<br>in-kind interest | - | (30,000) |
| Loss on<br>sale of property and equipment -discontinued<br>operations | - | 39,013 |
| Severance<br>agreement | 489,381 | - |
| Increase/(decrease)<br>in contingent liability | (29,780,000) | 32,461,680 |
| Intangible<br>impairment | - | 436,578 |
| Non-cash<br>consideration received for services provided | 132,657 | (470,000) |
| Non-cash<br>lease expense | 1,180,213 | - |
| Changes<br>in operating assets and liabilities: | ||
| Accounts<br>receivable | 514,352 | 60,155 |
| Accounts<br>receivable - related party | - | (462,137) |
| Other<br>accounts receivable | - | 2,737 |
| Inventory | (535,146) | (3,123,437) |
| Note<br>receivable – related party | - | 156,147 |
| Deposits | (938,112) | (761,383) |
| Merchant<br>reserve | 386,912 | (93,316) |
| Prepaid<br>inventory | 615,280 | (903,458) |
| Proceeds<br>from sale of securities | - | 410,094 |
| Prepaid<br>rent | - | 180,000 |
| Prepaid<br>expenses and other current assets | 645,796 | (963,044) |
| Accounts<br>payable and accrued expenses | 1,479,189 | 2,280,726 |
| Accounts<br>payable and accrued expenses – related party | - | (7,502) |
| Operating<br>lease liability | (1,045,285) | - |
| Deferred<br>Revenue/customer deposits | 37,802 | (416,619) |
| Collection<br>on discontinued operations accounts receivable | 587,083 | - |
| Deferred<br>tax liability | (1,345,300) | (2,425,000) |
| Cash<br>used by operating activities | (10,664,336) | (15,377,467) |
| Cash<br>flows from investing activities: | ||
| Net<br>cash used for merger | - | (916,555) |
| Purchase of other investment<br>securities | (250,000) | - |
| Purchase<br>of intangible assets | - | (50,000) |
| Purchase<br>of property and equipment | (1,320,095) | (1,198,618) |
| Cash used by<br>investing activities | (1,570,095) | (2,133,850) |
CBDMD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2020 AND 2019
(continued)
| Cash<br>flows from financing activities: | ||
|---|---|---|
| Proceeds<br>from issuance of common stock | 16,766,106 | 19,009,897 |
| Proceeds<br>from issuance of preferred stock | 4,421,928 | - |
| Proceeds<br>from Paycheck Protection Program loan | 1,456,100 | - |
| Preferred<br>dividend distribution | (366,850) | - |
| Proceeds<br>from Note payable | 29,629 | - |
| Payments<br>on Note payable – related party | - | (764,300) |
| Deferred<br>issuance costs | 62,197 | (326,868) |
| Cash provided by<br>financing activities | 22,369,110 | 17,918,729 |
| Net increase in<br>cash | 10,134,678 | 407,413 |
| Cash and cash<br>equivalents, beginning of year | 4,689,966 | 4,282,553 |
| Cash<br>and cash equivalents, end of year | $14,824,644 | $4,689,966 |
cbdMD, Inc.
SUPPLEMENTAL FINANCIAL INFORMATION
RECONCILIATION OF NON-GAAP ADJUSTED INCOME (LOSS) FROM OPERATIONS
(Unaudited)
| Fiscal Year Ended<br>September 30 | Three Months Ended<br>September 30 | |||
|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | |
| GAAP (loss) from<br>operations | $(17,581,856) | $(14,796,891) | $(4,531,073) | $(5,286,154) |
| Adjustments: | ||||
| Depreciation | 720,754 | 289,574 | 221,360 | 17,453 |
| Employee and<br>director stock compensation (1) | 1,985,803 | 2,688,529 | 537,943 | 1,136,158 |
| Other non-cash<br>stock compensation for services (2) | 338,400 | 289,750 | 253,950 | - |
| Non-cash inventory<br>adjustment (3) | 2,207,000 | - | 1,663,000 | - |
| Write down of<br>legacy accounts receivables (4) | 102,000 | - | 102,000 | - |
| Accrual for<br>severance | 489,381 | - | 489,381 | - |
| Accrual / expenses<br>for discretionary bonus | 200,000 | - | 200,000 | - |
| Non-GAAP adjusted<br>(loss) from operations | $(11,583,516) | $(11,529,036) | $(1,063,439) | $(4,132,543) |
(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)
Amount represents an operating expense related to inventory loss related to issues tied to physical inventory issues, regulatory changes impacting labels and packaging, write-off of raw materials and a net realized valuation adjustment on non-core finished goods.
(4)
Write down of legacy accounts receivable.
cbdMD, Inc.
SUPPLEMENTAL FINANCIAL INFORMATION
RECONCILIATION OF NON-GAAP ADJUSTED GROSS PROFIT MARGIN
(Unaudited)
| Fiscal Year Ended<br>September 30 | Three Months Ended<br>September 30 | |||
|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | |
| Total net<br>sales | $41,883,734 | $23,651,551 | $11,699,917 | $9,544,137 |
| Cost of<br>sales | 15,514,728 | 9,136,677 | 5,334,090 | 4,127,491 |
| Gross<br>profit | $26,369,006 | $14,514,873 | $6,366,359 | $5,416,646 |
| Gross profit<br>margin | 63.0% | 61.4% | 54.4% | 56.8% |
| Adjustments: | ||||
| Non-cash inventory<br>adjustment (1) | 1,974,000 | - | 1,663,000 | - |
| Non-GAAP adjusted<br>gross profit | $28,343,539 | $14,514,873 | $8,029,359 | $5,416,646 - |
| Non-GAAP adjusted<br>gross profit margin | 67.7% | 61.4% | 68.6% | 56.8% |
(1)
Amount represents an operating expense related to inventory loss related to issues tied to physical inventory issues, write-off of scrap material and a net realized valuation adjustment on non-core finished goods.
ycbd_ex992
Exhibit 99.2
YCBD Earnings Call Script
4Q20 and FY 20
OPERATOR
Good afternoon. Welcome to the cbdMD, Inc. fourth quarter and fiscal year ended September 30, 2020 earnings call and update. This afternoon, the company issued a press release that provided an overview of its fourth quarter and fiscal year end results, which followed the filing of its Annual Report on Form 10-K. Today’s conference call is being recorded and will be available online at cbdmd.com in accordance with cbdMD’s retention policies. All participants on this call will be in a listen-only mode. The call will be followed by a question-and-answer session. At this time, I would now like to turn the conference over to Ronan Kennedy, the company’s Chief Financial Officer. Ronan, please go ahead.
Ronan Kennedy - INTRODUCTION
Thank you _________, and thank you all for joining the cbdMD fourth quarter and fiscal year ended September 30, 2020 earnings call and update. On the call today we also have our Chairman and co-CEO, Marty Sumichrast, as well our Chief Marketing Officer, Ken Cohn.
Following the safe harbor statement, Marty and Ken will provide an overview of our business, then I’ll provide a summary of the quarterly and fiscal year financial results. Following that, we’ll open the call up for questions.
We’d like to remind everyone that various remarks about future expectations, plans, and prospects constitute forward-looking statements for purposes of safe harbor provisions under the Private Securities Litigation Reform Act of 1995. cbdMD cautions that these forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from those indicated, including risks described in the company’s Annual Report on Form 10-K for the year ended September 30, 2020, and our other filings with the SEC, all of which can be reviewed on the company’s website at www.cbdmd.com or on the SEC’s website at www.sec.gov.
Any forward-looking statements made on this conference call speak only as of today’s date, Tuesday, December 22, 2020, and cbdMD does not intend to update any of these forward-looking statements to reflect events or circumstances that would occur after today’s date except as may be required by Federal securities laws.
With that, I’d like to turn the call over to cbdMD’s Chairman and co-CEO, Marty Sumichrast.
SUMICHRAST – BACKGROUND AND HIGHLIGHTS
Ronan, thank you and welcome to everyone who is joining us this afternoon.
We believe cbdMD is now one of the most successful CBD companies in world, and cbdMD and Paw CBD have become two of the world’s most recognizable and valuable CBD brands. cbdMD continues to attract international attention from customers and investors alike. Our brands’ social media dominance has fueled our online business, which continues to drive our sales growth. In fact, based upon a November 2020 Google Analytics Report, cbdMD.com ranks at the top as one of the most visited CBD websites in the world. As we look ahead into 2021, we believe our plan to expand our reach into new product categories will not only drive sales, but will also diversify and expand our customer demographics. As we continue to attract world class partnerships, as we did with Bubba Watson, Bellator MMA, Life Time Fitness and Barstool Sports, our brands grow in status and recognition on the world stage. Here is another example of how our brand attracts world class partners. Today, I am proud to announce that cbdMD has become the exclusive CBD partner of The Joe Rogan Experience podcast which plays exclusively on Spotify and has over 200 million monthly downloads.
We believe that these achievements help our brands dominate in the CBD industry, and also help us deliver on our financial goals as well. Since taking the cbdMD brand public in December 2018, we have grown quarterly sales over 900% in eight quarters. We have done this by remaining focused on our core competency, which is our direct-to-consumer engine. Despite the COVID-19 pandemic, we continued to show remarkable growth throughout fiscal 2020. We have maintained one of the strongest balance sheets in the CBD industry and, in fact, recently more than doubled our liquidity, which now stands today at approximately $30 million in cash, with virtually no debt. To put this into context, we built two brands and operated an US listed company for two years with less cash than we have in the bank today. Furthermore, we dramatically reduced our non-GAAP adjusted loss from operations from over $10 million in the first half of fiscal 2020, to approximately $1.3 million in the second half of fiscal 2020. Earlier this year we set a goal of achieving positive adjusted operating income during calendar year 2020, a non-GAAP financial measure. We are presently confident we will reach this milestone in early fiscal 2021. However, based upon marketing opportunities that may arise during the year, achieving this goal may be extended later into the fiscal year. We believe we are positioned to take advantage of a unique opportunity, which is to gain a meaningful amount of the $2 billion plus total addressable global CBD market - a market which according to several leading industry analytic firms, including leading analytics firm the Brightfield Group, is expected to grow to over $10 billion by 2025. We believe that we are demonstrating our ability to gain significant market share by reporting quarter-over-quarter net sales growth of 23% and year-over year net sales growth of 77%, both resulting in record quarterly and annual net sales of $11.7 million and $41.9 million, respectively, as of September 30, 2020. While we have not committed to any financial guidance, we do expect robust sales growth to continue in fiscal 2021.
Finally, with respect to the regulatory climate for CBD, with continued attention on COVID-19 and the pending change in Presidential Administrations, we do not expect any FDA regulatory guidance for CBD in the near future. Therefore, we remained focused on maintaining the highest manufacturing standards under GMP and compliance with state regulations, as states take the regulatory lead related to hemp derived cannabinoids products.
Now, it’s my pleasure to introduce Ken Cohn, our Chief Marketing Officer, who will talk brand and marketing strategies. Ken go ahead…
YCBD Earnings Call Script
4Q20 and FY 20
[Break To Ken Cohn]
Thanks Marty and welcome everyone.
I believe that 2020 is the “Year of Separation” within the CBD category and for cbdMD, 2020 has offered a landscape of opportunities to continue to drive and solidify both our cbdMD and Paw CBD brands’ distinction.
We continue to lean heavily on making data-driven decisions, with insights garnered each quarter. We faced a number of questions and challenges coming into this most recent quarter. How do we continue to accelerate the brand, drive our consumers’ trust and capitalize on our surging e-commerce traffic, while at the same time, educate, inform and convert our new and returning customers? As we considered these important questions, we focused on key performance indicators, or KPI’s, such as: average order value, retention rate and website traffic, to name just a few. We utilize these non-GAAP measures in internally analyzing the effectiveness of our advertising spend and marketing initiatives, and believe these metrics are important to our investors in their review of our financial performance. Our customer retention rate, representing existing customers who purchased at least once during the quarter, continued to increase throughout the year. In this past quarter, returning customers spent more money per order – reaching approximately $88 in average order value, purchased more frequently - now a median of once every 39 days - and bought more items, per order, as compared to the previous three quarters. And, regarding our direct-to-consumer website traffic, in the fourth quarter of fiscal 2020 our new website traffic increased 13% over the prior quarter, with the largest increase being via organic traffic.
Data continued to aid us in amplifying the effectiveness of our email marketing. While we sent less emails to our entire, growing database, we focused on segmented, relevant content and information. As such, our we have experienced continued growth in our open and click thru rates.
This past quarter, we launched cbdMD’s first nationally viewed TV advertising campaign. cbdMD’s 30-second “Conquer the Day'' commercial was broadcast across multiple national cable networks, with very promising metrics, followed by a 15-second version as well. You can view that commercial on the home page of cbdMD.com. Average orders continue to strengthen since launching in September 2020, which is bolstering our confidence in this advertising medium as we look to expand our TV advertising campaign in 2021.
Paw CBD showed excellent first full year net sales of approximately $4.5 million for fiscal 2020, and the brand’s metrics continue to move in a positive direction. We are seeing the direct-to-consumer power of cbdMD.com translate into significant growth for PawCBD.com, as Paw CBD’s direct-to-consumer sales account for over 70% of the brand’s net sales during the 2020 fiscal year. We continue to focus on cross-selling, customer retention and education, and are planning to roll out Paw CBD’s subscription and reward programs in fiscal 2021. As we seek to mimic the expansion of cbdMD’s success, our goal is to make the Paw CBD the dominate brand in the CBD pet market.
We also were very proud of the awards and accolades we received for many of our products. The Brightfield Group named cbdMD a Top 10 domestic brand in two booming categories: Topicals and Skincare/Beauty. cbdMD was also ranked the highest in terms of overall consumer satisfaction as well as the highest in unaided consumer awareness of any of the top 20 CBD brands in a survey conducted by Brightfield Group of more than 3,500 CBD users. Brightfield Group also ranked cbdMD as the top brand for high quality, innovative and reliable. Paw CBD has also won several awards including Pet Innovation Award for Best Dog Calming Product of 2020 and 2019’s Pet Business Magazine Industry Recognition Award for Dog Calming Aid. During fiscal 2020, Paw CBD also launched a category-first partnership with TripAdvisor.
Our B2B brick and mortar business has seen numerous achievements as well. First, our GNC partnership is both live on the GNC e-commerce site as well as on shelves in 90 GNC franchise locations. Second, several of our regional partners continue to expand distribution of our products, such as Save Mart who increased their distribution from 5 to 100 of their locations. Life Time is another example of our retail expansion success story. After strong customer demand, Life Time expanded their distribution from 23 to 124 locations. Third, we are also excited to announce that Shop HQ launched with us this month and we look forward to providing more updates in the coming weeks. And fourth, we have solidified our expansion into the lucrative c-store distribution channel and have secured distribution for up to 3,000 new locations, with an expected launch in January 2021.
With that, I’ll now turn the call over to our CFO Ronan Kennedy to review our most recent financial results.
[BREAK TO Ronan Kennedy]
Ronan Kennedy – FINANCIAL HIGHLIGHTS
Thank you, Ken. I’m going to start with a brief summary of our GAAP-based results.
On a GAAP basis, total net sales for the fourth quarter hit another all-time high of $11.7 million, or a 23% year-over-year increase and a 10% sequential quarterly gain. For the fiscal year ended September 30, 2020, audited net sales were $41.9 million. This was a 77% increase over the fiscal 2019 results.
YCBD Earnings Call Script
4Q20 and FY 20
Our quarterly direct-to-consumer sales also hit a record high of $8.6 million in the fourth quarter of fiscal 2020, a 58% year-over-year increase. For fiscal 2020, direct-to-consumer sales totaled $30.5 million and represented a 106% increase over fiscal 2019. Our marketing investments and emphasis on developing a direct relationship with our customers paid off well during the year resulting in our direct-to-consumer sales growing to 73% of our total net sales in fiscal 2020, compared to 63% in the prior year.
Our wholesale business genered $11.3 million of net sales for fiscal 2020. Despite the challenges presented by COVID-19 during fiscal 2020, this still represents a 29% year-over-year increase. We did see a rebound during the fourth quarter in wholesale business which generated a total of $3.1 million in net sales, representing 29% sequential quarterly growth.
Our goal has always been to maintain a gross profit margin between 63% to 70%. Our GAAP gross profit as a percentage of net sales came in at 54.4% for the fourth quarter of fiscal 2020, compared to 56.7% for the comparative prior year period. For fiscal 2020 our gross margin was 63.0% compared to 61.4% for fiscal 2019. The fourth quarter GAAP gross profit margin was after accounting for a non-cash inventory adjustment of $1.66 million. We generated a fourth quarter non-GAAP adjusted gross profit margin of 68%. The $1.66 million non-cash adjustment is mostly due to writing off old raw materials and a net realized value adjustment of non-core inventory. Going forward we expect to maintain our gross profit margins between 63% and 70% as we seek to maintain strong direct-to-consumer revenue and take advantage of increasing operating leverage.
We ended the year with $14.8 million in cash and cash equivalents on hand. Coupled with the approximate $15.7 million in net proceeds from our preferred stock offering completed earlier in December 2020, we believe we have a very strong cash position going into calendar 2021, and more than ample capital to execute on our fiscal 2021 strategy. We believe this puts us in an enviable position in our industry and allows us to utilize our balance sheet to make further scientific and regulatory investments, continue to invest in incremental strategic marketing efforts, including increasing our TV spend, and support our efforts to expand our product portfolio.
Our operating expenses for the September 30, 2020 quarter were $10.8 million which is an increase of 1.7% over the September 30, 2019 quarter. Overall, this resulted in a GAAP loss from operations of approximately $4.5 million for the September 2020 quarter, a 14.2% reduction in loss from the prior year period. For fiscal 2020, our operating expenses were approximately $43.9 million, resulting in a GAAP operating loss from operations of $17.5 million, an 18.8% increase in loss from fiscal 2019.
The company spent considerable time in the third and fourth quarters of fiscal 2020 focusing on reducing our cash expenses, and during the fourth quarter we spent additional time focused on our balance sheet. We believe the cost control measures made during fiscal 2020 along with our September 30, 2020 balance sheet position us well for fiscal 2021. Along with the $1.66 million non-cash inventory expense previously mentioned, we incurred a number of accruals and non-recurring or discretionary expenses during fourth quarter. Our non-recurring operating expenses for the fourth quarter included a $438,000 one-time accrued expense related to severance, $102,000 write down of old receivables, $200,000 in a discretionary bonus accrual and together with $760,000 in non-cash stock expense resulted in a non-GAAP adjusted operating loss of $1 million for the fourth quarter of fiscal 2020 as compared to a $4.1 million non-GAAP adjusted operating loss in the fourth quarter of fiscal 2019. The increase in non-GAAP adjusted operating loss over the June 30, 2020 quarter was mainly attributed to management’s decision to increase discretionary marketing and affiliate expenses by $533,000 for the quarter and allocate expenses toward IP related items. The 2020 full year non-GAAP adjusted loss from operations totaled $11.5 million, similar to the comparative prior year period. As previously mentioned, approximately 89%, or over $10 million of this year’s non-GAAP adjusted operating loss occurred in the first half of the 2020 fiscal year.
Other income / expense on our consolidated income statement includes a non-cash contingent liability charge related to the December 2018 acquisition of Cure Based Development. The contingent liability is revalued at the end of each quarter and during the fourth quarter of fiscal 2020 we had an increase in value of $800,000 to approximately $16.2 million, which created a corresponding other non-cash expense. For the fiscal year, the total non-cash gain from the contingent liability was $29.8 million. The changes in the valuation of the contingent liability was primarily a result of the change in the market price of our common stock from period to period.
YCBD Earnings Call Script
4Q20 and FY 20
We had cash and cash equivalents of approximately $14.8 million and working capital of approximately $16.0 million on September 30, 2020 compared to cash and cash equivalents of approximately $4.7 million and working capital of approximately $12.0 million as of September 30, 2019. Our current assets as of September 30, 2020 increased 51% from prior year end to $23.7 million. A primary driver of the increase in current assets was the increase in cash and prepaid sponsorship expenses which was offset partially by decreases in accounts receivable, marketable and other securities, merchant reserve, prepaid expenses, and assets from discontinued operations. As of September 30, 2020, the company’s total current liabilities were $7.6 million, of which approximately $2.8 million is accounts payable and $2.9 million is accrued expenses. The company has approximately $224,000 of financing notes on equipment for our manufacturing facility as well as a $1.45 million SBA loan from the Paycheck Protection Program.
We consider fiscal 2020 to be a success in many ways beyond our strong gains in revenue and second half adjusted earnings improvement. Our operations team made significant strides this past year too.
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We moved from a 5,000 square foot warehousing/fulfillment space to an 80,000 square foot facility;
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We expanded our lab space by 130% and upgraded environmental parameters to meet NSF audit standards;
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We completed the audit and registrations for both GMP and NSF, obtaining FDA registered facilities; and
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We introduced over 200 new SKUs to our portfolio.
All of these accomplishments have been completed while maintaining budget levels and controlling payroll and while navigating through COVID-19 this year. We are proud of our team’s success and excited to see what they can accomplish in the coming year.
With that, I’d like to now turn the call back over to Marty.
[BREAK TO MARTY]
Thanks Ronan.
With that, I'd like to open up the line for Q&A.
[Q&A SESSION]
OPERATOR
With no further questions in the queue, that does conclude our conference call for today. Thank you so much for your participation.