Charlotte's Web Delivers Operating Improvements On Lower Revenue In First Quarter 2022

Charlotte's Web Holdings, Inc. CWEB CWBHF reported financial results for the first quarter ended March 31, 2022.

"While our e-commerce traffic was lower compared to prior periods, subscriptions more than doubled since Q1-2021. With e-commerce revenue down $3.0 million year-over-year, rebuilding traffic and conversions remain key priorities for us in e-commerce, which is our largest revenue channel," said Jacques Tortoroli, CEO.  "In our retail business, shipping was disrupted in January due to a two-week closure after a local wildfire in Boulder County. Despite the slow start, the overall business improved through the quarter with March being the largest revenue month of the quarter. The quarter did not benefit from our new retail sales organization which was put in place in April."

Progress Continued In Key International Markets. 

In the U.K., the Company achieved a milestone becoming one of the first companies to receive validation of its Novel Food applications from the UK Food Standards Agency for full-spectrum hemp extracts in the United Kingdom.

In Canada, the Company is in discussions for extraction and distribution to bring to market Charlotte's Web's first international hemp harvest.

"Our December/January reorganization reduced complexity and reduced SG&A expenses by more than $20.0 million on an annualized basis," said Lindsey Jensen, CFO. "This resulted in improved gross margin percentage, lower operating expenses, and improved EBITDA for Q1-2022 compared to the same quarter of 2021. We used $4.7 million in operating cash in the quarter with the majority of this occurring in January. In the quarter we received $0.5 million against our $10.8 million IRS receivable that we started the year with, and an additional $2.7 million has been collected since March 31 through the date of this press release. We continue to steward the use of cash while furthering our product rationalization to lower complexity and costs across our operations."

Q1-2022 Financial Review

For the three-month period ended March 31, 2022, consolidated net revenue was $19.4 million, a decrease of 17.3% versus $23.4 million in Q1-2021. 

Direct-to-consumer eCommerce revenue was $13.1 million, a decrease of $3.0 million or 18.5% year-over-year. New DTC subscriptions increased 107% year-over-year. DTC sales contributed 67.9% of the Company's total net revenue in Q1-2022.

Business-to-business revenue was $6.2 million, $1.1 million or 14.6% lower year-over-year with reduced shipments to some of the Company's largest retail customers after the warehouse closure and some supply chain challenges on top-selling CBD Clinic SKUs. This was partially offset by new retail distribution in grocery, natural, and pet retail, following the passing of Assembly Bill 45 in California. 

Gross profit was $11.7 million, or 60.5% of consolidated revenue versus $13.6 million and 58.3% respectively in Q1-2021. 

Total selling, general and administrative of $20.4 million were reduced by 14.4% year-over-year. The $3.4 reduction versus Q1-2021 was primarily the result of actions taken in late 2021 and early 2022 to bring expenses in line with current revenue levels to support a return to positive cash flow.

An operating loss of $8.6 million recorded for the first quarter of 2022 was a $1.5 million, or 14.8%, an improvement from an operating loss of $10.1 million in Q1-2021. The net loss and comprehensive loss for the quarter was $8.6 million, or ($0.06) per share on a basic and diluted basis, a $4.1 million, or 32.5%, improvement compared to a net loss and comprehensive loss of $12.8 million, or ($0.09) per share on a basic and diluted basis in Q1-2021.

Balance Sheet and Cash Flow    

Net cash use for the first quarter of 2022 was $5 million with the majority of the cash being used in January. Cash used for operations in February and March was significantly lower than January due to increased revenue and reduced expenses. The Company still believes it will be cash flow neutral for fiscal 2022.

The Company's cash and working capital at March 31, 2022, were $14.5 million and $69.9 million, respectively, compared to $19.5 million and $75.6 million at December 31, 2021.