cbdMD, Inc.
Q1 2021 Earnings Call Transcript

Published: 9 Feb 2021

[Company Representatives:]

Marty Sumichrast - Chairman, Co-CEO Ronan Kennedy - Chief Financial Officer Ken Cohn - Chief Marketing Officer

[Operator:]

Good afternoon. Welcome to the cbdMD Inc. December 31, 2020, First Quarter Earnings Call and Update. This afternoon, the company issued a press release that provided an overview of its first quarter fiscal 2021 results, which followed the filing of its quarterly report Form 10-Q. 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 like to now turn the call over to, Ronan Kennedy, the company’s Chief Financial Officer. Ronan, please go ahead.

[Ronan Kennedy:]

Thank you, Paul, and thank you all for joining the cbdMD’s December 31, 2020, first quarter fiscal 2021 earnings call and update. On the call today we also have our Chairman and Co-CEO, Marty Sumichrast; as well as our Chief Marketing Officer, Ken Cohn.

[Marty Sumichrast:]

Ronan, thank you, and welcome to everyone who’s joining us this afternoon. On our last earnings call I said I believe cbdMD was one of the most powerful CBD companies in the world. I believe today's record results back up that statement. With approximately 80% of our net sales last quarter coming from e-commerce channel, I believe we can now add that we're one of CBD industry's most powerful e-commerce brands as well. Our brands online success has fueled our e-commerce business, which continues to drive our sales growth. Based on a recent report from SimilarWeb, cbdMD.com ranks at the top, as one of the most visited CBD websites in the world. As we push ahead into fiscal 2021, we believe our plan to expand our reach into a new product category such as the launch of cbdMD Botanicals, our beauty and skincare brand, will help continue to drive our sales, as well as diversify and expand our customer demographics. Despite the COVID-19 pandemic, we continued to show record net sales results, $12.3 million for the quarter ended December 31, 2020, which was the year-over-year quarterly net sales growth of 22%. At the same time we also reported record quarterly gross profit margins of 72%.

[Ken Cohn:]

Thank you, Marty, and welcome everyone. I said on our last earnings call that I believe 2020 was the year of separation within the CBD category. I believe that both of our brands cbdMD and Paw CBD continue to separate themselves and now are the leaders in both brand recognition and financial performance in the CBD industry. We continue to lean heavily on the accumulation and usage of data to make informed, strategic decisions, decisions that point us towards further accelerating our brands, driving consumer trust and capitalizing on our surging ecommerce traffic, while simultaneously educating, informing and converting both new and returning customers alike.

[Ronan Kennedy:]

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 first quarter hit another all-time high of $12.3 million or 22% increase, year-over-year increase and a 5% sequential quarterly increase. Our quarterly e-commerce sales also hit a record high of $9.7 million in the first quarter of fiscal 2021, a 41% year-over-year increase and 13% sequential quarterly gain. E-commerce now represents approximately 78% of our total revenue.

[Marty Sumichrast:]

Thank you, Ronan. With that, I'd like to open up the lines for any question-and-answers, Q&A.

[Operator:]

Certainly! And we do have a question coming from Scott Fortune. Scott your line is live, please announce your affiliation and pose your question.

[Scott Fortune:]

Good afternoon, guys. Thanks for taking the question. I kind of want to get a sense of the growth here kind of quarter-over-quarter, what you're seeing. The COVID impact for you, I know your e-com has been strong, but kind of a slowing quarter-over-quarter growth and then the $28 million in cash, kind of what were you deploying that to continue to drive growth going forward, whether its expanding doors or like you said, the marketing side of things. Can you provide a little color?

[Marty Sumichrast:]

Yes Scott, this is Marty. So we are seeing, you know continued strength on the direct-to-consumer business. On the brick and mortar side of the business, as you know the big retailers are still out of the game for the most part and our strategy of dealing with a lot of smaller retailers, has kept that business still relatively stable. I would say it's on its way back to where it was pre-COVID levels. You know my sense is we are going to probably be there towards the end of this quarter, early next quarter, so. And then we are talking – there is going to be a, I think and a more willingness from the big box folks as we get into the second half of calendar 2021. You know the whole situation with legislation around marijuana certainly helps CBD. We’ve been positioning ourselves as a leader in the branding space, and so we believe that when that time comes, we're going to be really well positioned to move into there. As far as utilizing the capital, look we've taken a business that was burning $5 million, $6 million a year ago down to you know pretty much near breakeven. Two quarters ago we were – our adjusted number was I think 180,000. We went a little bit deeper in September with about 1 million, now we're back to you know 523,000. So I think that's going to continue to improve sales. As sales continue to improve with our margins, we can reinvest those dollars. So we are not having to use the capital to kind of deficit spend to some extent. We're looking at opportunistic ways to utilize that capital. So we are going to be spending more money as Ronan said on television. That's been a really great return for us. Our podcast, that's been a really great return for us, and we've got some other exciting things on the horizon. So we think we're going to have a really great 2021 and you know we've now been at this for eight quarters since going – you know taking cbdMD public, besides one quarter which was the March quarter of last year when the pandemic hit. We’ve had seven out of eight straight increases and you know we anticipate that's going to continue again and again, you know. So we're excited about that and also our Paw brand is really also getting a tremendous amount of traction from retailers and the online space.

[Scott Fortune:]

Okay, I appreciate that. You are getting more competition from MarthaStewart coming on the Pet CBD, that’s all helped growing the overall market from that stand point, and you’ve done a great job of expanding products and innovations. Just kind of step me though, us through the Botanicals and the luxury side. That seems like a new channel or a new demographic that you are going after. Kind of how do you see that growing or the cadence of that growth throughout 2021 you know going forward.

[Marty Sumichrast:]

Yes, you know one of the things that we really wanted to do is expand the demographic into the female demographic, and you know try to hit that demographic, female over the age of 35. So we did a couple things. We started really marketing toward that demographic. If you go to our – if you go to cbdMD.com and go to our commercial that Ken mentioned Conquer the Day, you'll see that it was really focused towards that female demographic, and now the launch of the botanicals line really goes after that demographic. So we started it, selling it exclusively online and now as we push into this year, we were sort of getting a tremendous amount of interest from all of our retailers and for new retailers to carry that line. Ken, would you like to add anything to that to Scott.

[Ken Cohn:]

The only thing I would add is it’s a great entry point into the cbdMD family and once we get them into the family, I think it's an extra – it's an exceptional way for them to try other products that are part of our brand portfolio. Other than that Marty, I think you nailed it.

[Scott Fortune:]

Okay, I appreciate it. Thanks for the color and I’ll jump in the queue.

[Marty Sumichrast:]

Thanks Scott.

[Operator:]

Thank you. And with no further questions in the queue, that does conclude our conference call for today. Thank you so much for your participation.