cbdMD, Inc. — Form 10-Q Summary
Reporting period: The filing covers the quarter and nine months ended June 30, 2023, the third quarter of fiscal 2023, and was filed August 10, 2023. This differs from the request metadata (“2022 Q3”). The interim financial statements are unaudited. cbdMD sells CBD products through its cbdMD, Paw CBD and cbdMD Botanicals brands and operates a CBD marketplace.
Financial performance and position
- Revenue: Third-quarter net sales were $6.12 million, down 28.8% from $8.59 million a year earlier. Nine-month sales were $18.44 million, down 33.0% from $27.54 million. E-commerce accounted for 81.7% of quarterly sales; wholesale accounted for 18.3%.
- Profit and margins: Third-quarter gross profit was $3.85 million, with a 62.8% gross margin versus 69.0%. Operating loss was $1.82 million and net loss was $1.77 million; after $1.00 million of preferred dividends, net loss attributable to common shareholders was $2.77 million, or $1.16 per share. For nine months, gross margin was 62.0% versus 63.1%; net loss was $7.06 million and common-shareholder loss was $10.06 million, or $4.26 per share.
- Adjusted EBITDA: The company reported a non-GAAP loss of $608,000 for the quarter and $3.92 million for nine months. The filing’s reconciliation includes substantial adjustments, including non-cash compensation and an a360 advertising credit.
- Cash flow and liquidity: Operating cash use was $4.04 million for nine months, compared with $13.04 million in the prior-year period. Cash fell to $2.85 million from $6.72 million at September 30, 2022. The company reported working capital of $5.7 million, versus $10.7 million. Current assets were $10.09 million and current liabilities $4.38 million at June 30.
- Debt and obligations: Note payable was $4,135; operating lease liabilities totaled approximately $3.98 million. Total liabilities were $7.24 million. The company also has cumulative 8% Series A preferred dividends; it paid $3.00 million during the nine-month period.
- Capital and shares: A May 2023 underwritten offering produced approximately $2.5 million of net proceeds. Common shares outstanding were 2,855,230 at June 30, compared with 1,348,125 at September 30, 2022; figures reflect the April 2023 1-for-45 reverse split. A separate Keystone agreement permits further share sales and potential dilution.
Changes versus the prior comparable period
- Sales declined in both channels: quarterly e-commerce sales fell about $1.51 million and wholesale sales about $960,000 year over year. Management attributed the e-commerce decline partly to reduced marketing spend; wholesale sales were also affected by lower pricing.
- Operating expenses fell 31.6% in the quarter and 41.0% for nine months, excluding goodwill and intangible impairment, reflecting cost reductions—especially in staffing and marketing. The company said quarterly revenue was flat sequentially; e-commerce rose about 2.3% from the prior quarter while wholesale fell about 17%.
- The prior-year comparisons include unusually large impairment charges: $30.78 million in the June 2022 quarter and $48.96 million for the prior nine-month period. The much smaller reported losses in 2023 therefore do not, by themselves, establish a comparable improvement in underlying profitability.
- Gross margin decreased year over year. Management cited product mix and the effect of the prior-year closure of the lab and manufacturing facility on cost allocation.
Outlook, risks and unusual items
- Going concern: Management concluded that substantial doubt exists about the company’s ability to continue as a going concern for the next 12 months. It expects continued losses and says capital resources, including the Keystone equity facility, may not be sufficient. Management believes cash should fund operations through fiscal year-end, but says additional capital, reduced operations or accruing preferred dividends may be necessary.
- Outlook: No numerical revenue or earnings guidance is provided. Management is cautiously optimistic about revenue growth in coming quarters, expects cash consumption to improve, and is focused on cost control and reaching profitability. It reports beginning to see growth from Amazon UK in the fourth quarter, after the reporting period.
- Operating and market risks: Management said changes to Meta’s CBD marketing rules disrupted advertising access in June and July, while an e-commerce platform migration temporarily affected operations. It also cited inflationary pressure on consumer and wholesale spending. Broader risks include CBD regulation, customer-acquisition economics, dependence on digital channels and third-party suppliers.
- Financing and preferred stock: The company had proposed an amendment for shareholder consideration at a September 22, 2023 special meeting to convert each Series A preferred share into three common shares. Approval by both preferred and common shareholders was required. Management warned that financial condition may restrict preferred dividend payments under North Carolina law; unpaid dividends could accrue.
- Unusual items and commitments: The company recorded an approximately $885,000 non-cash expense related to previously unexpensed stock compensation after terminating a contractual obligation. It also reported $778,703 of quarterly non-cash a360 trade-credit expense in its Adjusted EBITDA reconciliation. The fourth merger earnout period runs through November 2023; up to 87,307 shares could be issued, subject to revenue targets.
Key facts for investors to verify
- Cash runway, subsequent cash use, and whether additional equity funding or operating cuts are required.
- Whether sales recover after the Meta advertising disruption and e-commerce platform migration, and whether marketing can generate profitable customer acquisition.
- Progress in e-commerce and wholesale revenue, gross margins, and the stated cost-reduction and profitability goals.
- Outcome of the proposed preferred-stock conversion, the ability to pay or accrue preferred dividends, and the resulting share dilution.
- Actual share issuance under the Keystone agreement, outstanding warrants and other potential dilution, and any earnout shares issued.
- Regulatory developments affecting CBD products and the company’s stated international and Amazon UK growth opportunities.