Q3 revenue of $17.7 million on 57% year-over-year growth
Year-to-date revenue reaches $48.0 million with 34% Adjusted EBITDA
BOULDER, CO, Nov. 27, 2018 /PRNewswire/ – Charlotte's Web Holdings, Inc. ("Charlotte's Web" or the "Company") (CSE:CWEB, OTCQX:CWBHF), the market share leader in hemp-based CBD wellness products, today reported financial results for the third quarter and nine-months ended September 30, 2018. All amounts are expressed in United Statesdollars. Certain metrics, including those expressed on an adjusted basis, are non-IFRS measures.
Highlights of Third Quarter 2018 Results versus Third Quarter 2017 Results
- Organic revenue growth of 57% to $17.7 million
- Gross profit (before biological asset adjustments) increased 54% to $13.8 million, or 78% of consolidated revenue
- Adjusted EBITDA increased 23% to $5.4 million, or 31% of consolidated revenue
- Significant marketing investment made in brand relaunch to be leveraged throughout 2019
- Completed Initial Public Offering generating net proceeds of $71.5 million
Highlights of Nine-Months 2018 Results versus Nine-Months 2017 Results
- Organic revenue growth of 75% to $48.0 million
- Gross profit (before biological asset adjustments) increased 80% to $37.1 million, or 77% of consolidated revenue
- Adjusted EBITDA increased 71% to $16.2 million, or 34% of consolidated revenue
"During the third quarter we completed a successful initial public offering and private placement that generated significant capital for the Company that is being deployed to accelerate our growth in the hemp-derived CBD sector," said Hess Moallem, President and Chief Executive Officer. "This capital is being used primarily to expand the Company's cultivation and production capacities to meet the increasing demand for our industry leading Charlotte's Web products, both domestically and internationally. Charlotte's Web is the market leader in the rapidly expanding hemp-derived CBD wellness markets, and we are committed to the highest quality products and efficacy. Our future product expansion plans will continue to support the stringent demands and expectations of our valuable customers."
Mr. Moallem added, "a successful passing of the forthcoming 2018 Farm Bill by the US Congress will be a catalyst for the growth in our industry adding further momentum to the evolving market sector. We have contributed to and supported this important legislation from the beginning for the positive impact it will have on consumer access for both hemp-based CBD products and for our valuable farming communities throughout the country."
"Product portfolio sales increased year-over-year during the quarter with human nutrition products and animal nutrition products growing by 42% and 153%, respectively, with the pet line growing from a smaller base as it was just launched in February of last year," said Mr. Moallem. "In general, broader consumer awareness of the benefits of cannabinoids, namely cannabidiol (CBD), and whole plant hemp extract is driving increased uptake in both our retail channels and within our e-commerce platform."
Primarily available in natural health stores throughout the United States, the Company recently surpassed 3000 retail locations during the quarter after the first a major drug-store chain began carrying Charlotte's Web products in the northwest US. Consumer education is driving demand through ever larger retail chains illustrating the widening mainstream awareness and demand for Charlotte's Web products.
The Company continues to expand its market leading product line, adding two new products in September; a Maximum Strength Hemp Extract Oil and a CBD Isolate Oil. The Maximum Strength Hemp Extract product is a 100% CO2-extracted formulation containing the highest level of CBD in the Company's product line to support overall health and wellness. The Company's new CBD Isolate product, a formulation that contains no more than 13 parts per million tetrahydrocannabinol (THC), gives Charlotte's Web users the ability to add more CBD to their existing full spectrum routine without increasing intake of other cannabinoids, if desired. These products are just the beginning of the Company's expanding product portfolio as new products will continue to be introduced demonstrating the Company's leadership in the market. Additional products are under development where CBD can be incorporated into lifestyle products such as beverages, animal nutrition and other wellness related products.
Third Quarter and Year-to-Date 2018 Results
The following table sets forth selected financial information for the periods indicated.
Revenue for the quarter ended September 30, 2018 (Q3-2018) totaled $17.7 million, compared to $11.3 million for the same period in 2017, representing a 57% increase. On a year-over-year basis for Q3-2018, e-commerce revenue grew by 37% and wholesale, distributor and retail revenue grew by 118%. Revenue from human nutrition products and animal nutrition products grew by 42% and 153%, respectively (the Company's canine products were introduced in February of 2017).
Revenue for the year-to-date period ended September 30, 2018 (YTD-2018) totaled $48.0 million, compared to $27.5 million for the same period in 2017, representing a 75% increase. On a year-over-year basis for YTD-2018, e-commerce revenue grew by 48% and WDR revenue grew by 156%. On a year-over-year basis for YTD-2018, revenue from human nutrition products and canine products grew by 76% and 199%, respectively. The Company's topical products accounted for approximately 2% of total revenue during YTD-2018.
Gross profit totaled $12.3 million for the quarter ended September 30, 2018, compared to $8.2 million for the same period in 2017, a year-over-year increase of 50%. As a percent of total revenue, gross profit in Q3-2018 was 69%, compared to 73% for the same period in 2017. Gross profit prior to biological asset adjustments as a percentage of revenue for both the Q3-2018 and Q3-2017 periods was 78% and 79%, respectively.
Gross profit totaled $36.0 million for the year-to-date period ended September 30, 2018, compared to $20.0 million for the same period in 2017, a year-over-year increase of 80%. As a percent of total revenue, gross profit for YTD-2018 was 75% compared to 73% for the same period in 2017. Gross profit prior to the biological asset adjustment as a percentage of revenue for YTD-2018 was 77%, compared to 75% for the same period in 2017.
For the quarters ended September 30, 2018 and 2017, advertising, promotions and selling costs were $2.8 million and $0.6 million, respectively (year-to-date $4.7 million and $2.1 million, respectively). As a percent of revenue, advertising, promotions and selling costs for the quarters ending September 30, 2018 and 2017 were 15.8% and 5.3%, respectively.
Certain marketing expenditures during Q3-2018 were higher than prior quarters due to a brand relaunch and associated media spend. Significant costs were incurred for production of marketing assets (video, photography and creative) that will be leveraged throughout 2019 within packaging, website, social, print, PR and additional brand awareness, customer acquisition and retention efforts. Additionally, onetime programming and development fees were incurred for the Company's website relaunch to further drive an improved user experience, product education, e-commerce sales and support, and improved customer conversion rates.
Operating Income decreased slightly during Q3-2018 to $2.5 million (year-to-date $11.7 million) from $3.3 million (year-to-date $8.1 million) during the same period in 2017. Excluding IPO related costs of $0.5 million in Q3-2018 (year-to-date $1.3 million), operating income was $3.0 million (year-to-date $13.0 million) and reflects a significant investment in marketing related activities during the quarter and $1.5 million of adjustments for biological assets.
Balance Sheet and Cash Flow
The Company used $4.6 million of cash in operations during the third quarter 2018 compared to $2.5 million of cash provided from operations during the third quarter of 2017. The reduction in cash flows from operations primarily reflects the investment in inventory associated with the 2018 hemp crop and other raw materials used in the production process in anticipation of materially increasing revenue opportunities. The Company's cash at September 30, 2018 was $79.4 million compared to $7.1 million on September 30, 2017. Working capital at September 30, 2018 was $90.2 million.
Consolidated Financial Statements and Management's Discussion and Analysis
The Company's unaudited condensed consolidated interim financial statements and accompanying notes as at and for the three and nine months ended September 30, 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.comand on the Investor Relations section of the Company's website at https://investors.cwhemp.com.
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. Industrial hemp products are non-intoxicating. Charlotte's Web current product categories include tinctures (liquid products), capsules, topical, as well as 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.cwhemp.com. The rate the Company pays for agricultural products reflects a fair and sustainable rate driving higher quality yield, encouraging food 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 Canadian Securities Exchange under the symbol "CWEB" and in the United States on the OTCQX under the symbol "CWBHF". Charlotte's Web has 17,247,246 Common Shares outstanding and 188,816.57 Proportionate Voting Shares convertible at 400:1, for an effective equivalent of 92,773,474 Common Shares outstanding.
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.
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