Charlotte's Web Holdings Reports 2019 Q2 Earnings

News provided by

Aug 14, 2019, 06:07 ET

Q2 revenue increases 45% YoY to US$25.0 million

Adjusted EBITDA of $3.9 million and US$0.02 EPS

BOULDER, CO, Aug. 14, 2019 /PRNewswire/ - (TSX:CWEB, OTCQX:CWBHF), Charlotte's Web Holdings, Inc. ("Charlotte's Web" or the "Company") the market share leader in whole-plant CBD hemp extract products, today reported financial results for the second quarter ended June 30, 2019. All amounts are expressed in United States dollars. Certain metrics, including those expressed on an adjusted basis, are non-IFRS measures.

Second Quarter 2019 Financial Highlights

Organic consolidated year-over-year revenue growth of 45% to $25.0 million
75% gross margin produced gross profit of $18.8 million
Adjusted EBITDA of $3.9 million, 16% of consolidated revenue
Net income of $2.2 million, 9% of consolidated revenue
53% of revenue from retail outlets
Earnings per share of $0.02 basic and diluted

Second Quarter 2019 Business Highlights

Multiple national retailers commenced carrying Charlotte's Web products
Total retail locations carrying Charlotte's Web products increased by 1926 to 7871
Distribution and sales gains in both natural health and national mass retailers
New pet line launched with twelve new SKU's
New line of CBD gummies launched with three SKU's
Hemp acreage planted for 2019 increased by 187% from 2018 to 862 acres
FDA commits to working with hemp industry on hemp product regulations
Commenced trading on the Toronto Stock Exchange (TSX)

Subsequent to the close of the second quarter, Charlotte's Web filled top executive positions including Tony True as Chief Customer Officer to build and lead a CPG sales organization; Paul Lanham as Chief Information Officer, and most recently, Russ Hammer as the Company's Chief Financial Officer who brings substantial international as well as retail experience.

"We have been experiencing increased sales through both our e-commerce and retail sales channels," said Deanie Elsner, Charlotte's Web Chief Executive Officer. "Top tier mass retailers are entering the market as several national grocery and drugstore brands have announced their CBD plans. The majority of these are now carrying Charlotte's Web products. This is a significant development for the hemp CBD category. To effectively service projected growth, we have been building our executive leadership with experienced consumer-packaged goods (CPG) executives in sales, marketing, finance, data and operations. Similarly, we are expanding our capabilities in cultivation, R&D, production and distribution."

Q2-2019 Business Review

Retail uptake in the natural health channel increased during the second quarter, along with a marked entry of large national brand chains within the food, drug and mass (FDM) retail segment. Five leading national retailers such as CVS and Kroger are selling Charlotte's Web products, adding significantly to the Company's brick and mortar presence in the United States. There are well over 8,000 retail locations carrying Charlotte's Web products today.

To support the growing product portfolio and projected retailer demand, Charlotte's Web increased the total acres planted for 2019 to 862, an 187% increase from 300 acres planted in 2018. The hemp harvested from 300 acres in 2018 totalled 675,000 pounds.

During the quarter, Charlotte's Web introduced new products including new hemp extract infused CBD gummies in three flavors, and a new twelve SKU pet product line including functionally focused chews with synergistic ingredients to support specific health functions - Calming, Hips & Joints and Cognition. Subsequent to the second quarter, the Company signed two distribution partners for its pet line; Pacific Pet in California, one of the largest distributors of pet food and pet products on the west coast, servicing 1,000 independent pet stores in California, Arizona, Nevada, and Hawaii; and "Pet Food Experts", servicing over 4,000 retailers in 33 states out of five distribution centers located in Rhode Island, Pennsylvania, Illinois, Washington and Colorado.

"We are experiencing increased momentum with large retailers as consumer awareness and interest in CBD grows," said Deanie Elsner. "We believe we'll continue to see additional large retailers coming onboard and expect an increase in the number of states and locations with our existing retail partners throughout the year. Kroger is the most recent example as they added four new states to their distribution in July, including Texas, which is the latest state to approve hemp CBD products."

Q2-2019 Financial Review

Second Quarter 2019 Results

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	2019		2018		2019		2018
Revenue	$	25.0	$	17.2	$	46.7	$	30.3
Gross profit before biological
assets adjustment	$	18.5	$	12.9	$	34.3	$	23.3
Net impact, fair value of
biological assets	$	0.3	$	0.3	$	0.5	$	0.5
Gross profit	$	18.8	$	13.2	$	34.8	$	23.7
Operating expenses	$	16.2	$	8.2	$	29.5	$	14.6
Income before taxes	$	2.8	$	5.0	$	5.9	$	9.1
Net income	$	2.2	$	3.7	$	4.5	$	6.8
EPS basic	$	0.02	$	0.05	$	0.05	$	0.09
EPS diluted	$	0.02	$	0.04	$	0.04	$	0.08
Adjusted EBITDA	$	3.9	$	6.1	$	8.5	$	10.7

Assets:	Jun 30, 2019		Mar 31, 2019		Dec 31, 2018
Cash and cash equivalents	$	51.4	$	69.1	$	73.4
Total assets	$	157.2	$	171.7	$	139.1
Liabilities:
Long-term liabilities	$	8.3	$	4.6	$	3.5
Total liabilities	$	22.3	$	20.1	$	17.6

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

	Q2		Q1		Q4		Q3		Q2		Q1		Q4		Q3		Q2
U.S. $ millions	2019		2019		2018		2018		2018		2018		2017		2017		2017
Total revenue	$	25.0	$	21.7	$	21.5	$	17.7	$	17.2	$	13.1	$	12.5	$	11.3	$	9.1

Second quarter revenue increased 45% year-over-year to $25.0 million as broader demand for CBD based products continues to drive increased usage in all product categories. Human nutrition products, topicals and animal nutrition products growing by 32%, 493% and 91%, respectively year-over-year. Retail channel growth increased as large mass retailers began carrying Charlotte's Web products. During the second quarter 2019, total retail channel revenue accounted for approximately 53% of total revenue.

Gross margin was 75.3%, compared to 76.7% for the same period in 2018. Gross margin prior to biological asset adjustments was 73.9% and 75.2% for the same period in 2018. Second quarter operating expenses increased 98% year-over-year to $16.2 million to support its expansion, including senior management additions to the leadership team. Employee headcount was 320 at June 30, 2019, a 41.6% increase from 226 at June 30, 2018.

Adjusted EBITDA for the second quarter was $3.9 million or 16% of consolidated revenue compared to $6.1 million and 35% of consolidated revenue for the same period in the previous year. The Adjusted EBITDA ratio during the second quarter reflects continued investment in infrastructure and personnel as the Company builds its internal capabilities to support expected revenue growth for the remainder of 2019 and beyond.

"We forecast revenue growing at a faster pace than operating expenses in the back half of the year," stated Rich Mohr, Chief Financial Officer of Charlotte's Web. "This supports our financial forecast for increases in adjusted EBITDA percentages in future periods. As product volumes shipped continue to increase on a quarterly basis, we're expecting continued top-line revenue growth during the last half of the year. Our previously communicated revenue guidance for 2019 of between $120 million and $170 million remains in place. Where we fall within this range will substantially be determined by future developments with the FDA, associated retailer response, and the timeline of these events."

Balance Sheet and Cash Flow

The Company used $15.2 million of cash in operations during the first six months of 2019 compared to $6.1 million of cash provided from operations during the same period in 2018. Cash used in operations during the first six months of 2019 primarily reflects the investment in inventory required to supply increasing retail and consumer demand. Cash was also used for the 2019 hemp crop that was increased to 862 acres from 300 acres planted in 2018. The Company's cash at June 30, 2019 was $51.4 million compared to $73.4 million on December 31, 2018. Working capital at June 30, 2019 grew to $97.0 million compared to $93.8 million at December 31, 2018.

	Six months ended June 30,
(in millions US $)	2019		2018		$ Change		% Change

Cash beginning of period	$	73.4	$	7.1	$	66.3	934%
Cash flows from (used in):
Operating activities	(15.2)		6.1		(21.3)		-349%
Investing activities	(6.2)		(1.1)		(5.1)		464%
Financing activities	(0.6)		(1.3)		0.7		-54%
Cash end of period	$	51.4	$	10.8	$	40.6	376%

Consolidated Financial Statements and Management's Discussion and Analysis

The Company's unaudited interim condensed financial statements and accompanying notes for the periods ended June 30, 2019 and 2018 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.

Conference Call

Management will host a conference call to discuss the Company's second quarter 2019 results at 10:00 am ET on Wednesday, August 14, 2019. 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 8685806. A recording of the call will be available through August 21, 2019. 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.

About Charlotte's Web Holdings, Inc.

Charlotte's Web Holdings, Inc. is the market leader in the production and distribution of innovative hemp-based cannabidiol ("CBD") wellness products. Founded by the Stanley Brothers, the Company's premium quality products start with proprietary hemp genetics that are responsibly manufactured into whole-plant hemp 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-based whole plant extracts are sold through select distributors, brick and mortar retailers, and online through the Company's website at www.CharlottesWeb.com. The rate the Company pays for agricultural products reflects a fair and sustainable rate driving higher quality yield, encouraging good farming practices, and supporting U.S. farming communities.

Charlotte's Web is a socially conscious company and is committed to using business as a force for good and a catalyst for innovation. The Company weighs sound business decisions with consideration for how its efforts affect its employees, customers, the environment, and the communities where its employees live and where it does business, while maximizing profits and strengthening its brands. The Company's management believes that socially oriented actions have a positive impact on the Company, its employees and its shareholders. Charlotte's Web donates a portion of its pre-tax earnings to charitable organizations.

Shares of Charlotte's Web trade on the Toronto Stock Exchange (TSX) under the symbol "CWEB" and are quoted in U.S. Dollars in the United States on the OTCQX under the symbol "CWBHF". As at August 12, 2019 Charlotte's Web had 49,253,934 Common Shares outstanding and 120,529.07 Proportional Voting Shares convertible at 400:1, for an effective equivalent of 97,565,562 Common Shares outstanding.

^1.

Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) is not a recognized performance measure under IFRS. The term EBITDA consists of net income (loss) and excludes interest (financing costs), taxes and depreciation. Adjusted EBITDA also excludes share-based compensation, IPO related costs, impairment of assets and adjustments for fair valuing of biological assets. Adjusted EBITDA is included as a supplemental disclosure because Management believes that such measurement provides a better assessment of the Company's operations on a continuing basis by eliminating certain non-cash charges and charges or gains that are nonrecurring. The most directly comparable measure to adjusted EBITDA calculated in accordance with IFRS is net income (loss). The following is a reconciliation of the Company's net income (loss) to Adjusted EBITDA.

Forward-Looking Information

This press release may contain forward-looking information within the meaning of applicable securities legislation. In the interest of providing the shareholders and potential investors of Charlotte's Web Holdings, Inc. with information about the Company and its subsidiaries, including management's assessment of the Company and its subsidiaries' future plans and operations, certain information provided in this press release constitutes forward-looking statements or information (collectively, "forward-looking statements"). Forward-looking statements are typically identified by words such as "may", "will", "should", "could", "anticipate", "expect", "project", "estimate", "forecast", "plan", "intend", "target", "believe" and similar words suggesting future outcomes or statements regarding an outlook. Although these forward-looking statements are based on assumptions the Company considers to be reasonable based on the information available on the date such statements are made, such statements are not guarantees of future performance and readers are cautioned against placing undue reliance on forward-looking statements. By their nature, these statements involve a variety of assumptions, known and unknown risks and uncertainties, and other factors which may cause actual results, levels of activity, and achievements to differ materially from those expressed or implied by such statements. The forward-looking information contained in this press release is based on certain assumptions and analysis by management of the Company in light of its experience and perception of historical trends, current conditions and expected future development and other factors that it believes are appropriate.

The Company's forward-looking statements are subject to risks and uncertainties pertaining to, among other things, revenue fluctuations, nature of government regulations, economic conditions, loss of key customers, 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, availability of capital and, international and political considerations, including but not limited to those risks and uncertainties discussed under the heading "Risk Factors" in the MD&A and the Company's other filings with securities regulators. The impact of any one risk, uncertainty, or factor on a particular forward-looking statement is not determinable with certainty as these are interdependent, and the Company's future course of action depends on Management's assessment of all information available at the relevant time. Except to the extent required by law, the Company assumes no obligation to publicly update or revise any forward-looking statements made in this press release, whether as a result of new information, future events, or otherwise. All subsequent forward-looking statements, whether written or oral, attributable to the Company or persons acting on the Company's behalf, are expressly qualified in their entirety by these cautionary statements.

CHARLOTTE'S WEB HOLDINGS, INC
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands of United States dollars)


	June 30,		December 31,
	2019		2018
ASSETS
Current assets:
Cash	$	51,431	$	73,404
Trade and other receivables	7,430		4,874
Note receivable	1,400		-
Inventories	34,534		23,969
Prepaid expenses and other current assets	9,528		3,917
Income taxes receivable	6,642		1,787
	110,965		107,951
Non-current assets:
Property and equipment, net	18,264		6,806
Intangibles	665		619
Deferred tax assets	26,221		23,449
Loan due from related parties	114		128
Other long-term assets	993		181
	$	157,222	$	139,134

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	2,077	$	3,379
Accrued liabilities	9,108		10,014
Deferred revenue	638		467
Income taxes payable	-		-
Current portion of notes payable	9		9
Current portion of lease obligations	2,161		283
	13,993		14,152
Non-current liabilities:
Long-term note payable	7		12
Long-term lease obligations	6,495		113
Deferred rent	-		73
Other long-term liabilities	1,819		3,286
	22,314		17,636
Shareholders' equity:
Share capital	111,411		101,175
Contributed surplus	1,147		2,498
Retained earnings	22,350		17,825
	134,908		121,498
	$	157,222	$	139,134

CHARLOTTE'S WEB HOLDINGS, INC
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
(In thousands of United States dollars, except per share amounts)


	Three months ended June 30,				Six months ended June 30,
	2019		2018		2019		2018

Revenue	$	25,020	$	17,217	$	46,720	$	30,309
Cost of sales	6,526		4,277		12,431		7,021
Gross profit before loss on fair value of biological assets	18,494		12,940		34,289		23,288
Realized fair value amounts included in inventory sold	(354)		(264)		(496)		(453)
Unrealized fair value loss on growth of biological assets	-		-		-		-
Gross profit	18,848		13,204		34,785		23,741

Expenses:
General and administrative	9,060		4,915		17,519		8,981
Sales and marketing	6,527		2,411		11,087		4,474
Research and development	654		129		845		255
Initial public offering related costs	-		752		-		859
	16,241		8,207		29,451		14,569
Operating income	2,607		4,997		5,334		9,172
Financing costs	(77)		(66)		(134)		(130)
Interest income	310		33		666		54
Other income	(4)		-		(7)		-
Income before taxes	2,836		4,964		5,859		9,096
Income taxes	(648)		(1,234)		(1,334)		(2,263)
Net income and comprehensive income	$	2,188	$	3,730	$	4,525	$	6,833

Weighted average number of common shares - basic	94,986,784		79,307,281		94,105,280		79,430,438
Weighted average number of common shares - diluted	106,272,945		84,495,194		106,245,283		84,618,351

Earnings per share - basic	$	0.02	$	0.05	$	0.05	$	0.09
Earnings per share - diluted	$	0.02	$	0.04	$	0.04	$	0.08

CHARLOTTE'S WEB HOLDINGS, INC
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands of United States dollars)

			Contributed		Retained
Six months ended June 30, 2018	Share capital		surplus		earnings		Total

Balance - December 31, 2017	$	5,835	$	787	$	6,017	$	12,639

Exercise of common stock options	42		-		-		42

Share-based compensation expense	-		421		-		421

Share issuance costs	(104)		-		-		(104)

Net income	-		-		6,833		6,833

Balance - June 30, 2018	$	5,773	$	1,208	$	12,850	$	19,831

			Contributed		Retained
Six months ended June 30, 2019	Share capital		surplus		earnings		Total

Balance - December 31, 2018	$	101,175	$	2,498	$	17,825	$	121,498

Exercise of common stock options	1,663		(1,266)		-		397

Exercise of broker stock warrants	1,295		(834)		-		461

Income tax benefit from stock options	7,278		-		-		7,278

Share-based compensation expense	-		749		-		749

Net income	-		-		4,525		4,525

Balance - June 30, 2019	$	111,411	$	1,147	$	22,350	$	134,908

CHARLOTTE'S WEB HOLDINGS, INC
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of United States dollars)


	Six months ended June 30,
	2019		2018
Cash flows from operating activities:
Net income	$	4,525	$	6,833

Items not involving cash:
Depreciation and amortization	1,406		576
Change in fair value of biological assets	(496)		(453)
Accretion on convertible note	-		71
Change in fair value of convertible note	-		(66)
Allowance for doubtful accounts	136		152
Inventory reserve	953		115
Deferred rent	(73)		(11)
Share-based compensation	749		421
(Gain)/Loss on disposal of fixed assets	8		(28)
Deferred income taxes	(182)		(184)

Changes in working capital:
Trade and other receivables	(2,693)		(827)
Inventories	(10,296)		(1,118)
Prepaid expenses and other current assets	(5,611)		(829)
Accounts payable	(1,302)		465
Accrued liabilities	(2,373)		1,909
Income taxes	(166)		(844)
Deferred revenue	171		(87)
	(15,244)		6,095

Cash flows from investing activities:
Funding of note receivable	(1,400)		-
Purchases of property and equipment and intangibles	(4,059)		(1,324)
Proceeds from sale of assets	53		38
Proceeds from related party	14		-
Other long-term assets	(812)		197
	(6,204)		(1,089)

Cash flows from financing activities:
Proceeds from common stock option exercise	397		42
Proceeds from stock warrant exercise	461		-
Payments on notes payable	(5)		(18)
Payments on lease obligations	(1,378)		(153)
	(525)		(1,278)

Increase (decrease) in cash	(21,973)		3,728
Cash, beginning of year	73,404		7,056
Cash, end of period	$	51,431	$	10,784

Supplemental disclosures of cash flow information:
Cash paid for interest	$	134	$	130