Release Date: May 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- cbdMD Inc has strengthened its wholesale leadership and improved its product pipeline, potentially increasing market reach and customer base.
- The company has revitalized its marketing strategy, leading to improved meta engagement rates on Instagram, which signals more effective communication.
- cbdMD Inc has launched its ATRx platinum line in 1,500 GNC corporate stores nationwide, enhancing its retail presence and credibility in the functional mushroom market.
- Significant cost-cutting measures have been implemented, including consolidating offices and renegotiating vendor terms, which are expected to save $2.4 million annually.
- The company is making strides towards stabilizing revenue and has a clear focus on returning to profitability, with several initiatives in place to reduce operational costs and improve financial performance.
Negative Points
- The second quarter fiscal 2024 results did not meet the company's expectations, indicating potential challenges in operational execution or market conditions.
- Direct-to-consumer revenue declined by 25% year-over-year, primarily due to reduced marketing expenses and broader macroeconomic impacts.
- Wholesale business revenue decreased by 44% compared to the previous year, partly due to a one-time credit issued to a customer for expiring inventory.
- Gross profit margin decreased from 64% to 59% year-over-year, impacted by the wholesale credit issued.
- The company experienced a non-cash contingent liability expense of $1.4 million related to the change in fair value of convertible notes, adding complexity to its financial situation.
Q & A Highlights
Q: Can you provide more details on your revised marketing approach and how you plan to convert high engagements on platforms like Meta into sales?
A: Bradley Whitford, Chief Accounting Officer, explained that the company closely monitors key performance indicators and realized early in the quarter that their messaging and customer funnels were not effective. They have since redesigned their campaigns, tightened their performance marketing strategy, and changed some organizational aspects and agency partnerships to stabilize revenue and achieve business growth. The transition to Shopify has allowed them to remain nimble, continuously test, and benchmark their strategies against the market.
Q: How is the performance abroad, particularly on Amazon UK, and what are your plans for international expansion?
A: T. Ronan Kennedy, Interim CEO and CFO, noted that the UK business has been steady and highlighted potential regulatory advancements that could create opportunities in the UK market. He mentioned that the company sees strengthening interest in international markets, especially in wholesale, driven by regulatory resonance and clinical data.
Q: Can you comment on the performance and expansion plans for brick-and-mortar retail, particularly with the ATRx labs brand?
A: T. Ronan Kennedy discussed the challenges in the CBD category at mass retail and the strategic creation of the ATRx line to navigate these challenges. He emphasized the focus on the successful launch at GNC and ongoing discussions with other retailers to expand ATRx's presence, noting that the brand faces fewer regulatory hurdles and allows for broader marketing strategies.
Q: Has the outlook for the ATRx line impacting the company's top line changed given its reception in the market?
A: T. Ronan Kennedy acknowledged that ATRx has significant potential and ambitious goals. He emphasized the importance of stabilizing revenue as a precursor to growth, with ATRx playing a key role in this strategy.
Q: What are the main drivers behind the decrease in net sales and gross profit in the second quarter?
A: Bradley Whitford attributed the decrease in net sales primarily to reduced marketing expenses and macroeconomic pressures on consumers. The decline in gross profit was mainly due to a one-time credit issued to a wholesale customer for expiring inventory.
Q: What cost-saving measures has cbdMD implemented, and what are the expected financial impacts?
A: Bradley Whitford detailed several cost rationalizations, including renegotiating vendor terms, reducing product unit costs, and cutting non-essential expenses. The company anticipates significant monthly savings from these measures, particularly from the termination of the headquarters lease, which is expected to contribute to a reduction in operating cash burn by the end of the year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
