Charlie's Holdings Reports 58% Revenue Growth to $15.5 Million for First Half 2022

Rhea-AI Summary

Charlie's Holdings, Inc. (OTCQB:CHUC) reported a 58% increase in revenue to $15.5 million for the first half of 2022, driven by strong sales of nicotine-based vapor products. The company also noted a 36% revenue growth to $7.4 million for Q2 2022, although net loss reached $0.6 million compared to net income of $19.8 million in Q2 2021. Operating expenses decreased as a percentage of revenue from 56% to 43%. Charlie's PMTAs for its products are under review by the FDA, positioning the company in a favorable regulatory position.

Positive

• Revenue increased 58% to $15.5 million for the first half of 2022.
• Revenue up 36% to $7.4 million in Q2 2022.
• Operating expenses as a percentage of revenue decreased from 56% to 43%.

Negative

• Net loss of $0.6 million in Q2 2022, a significant decrease from net income of $19.8 million in Q2 2021.
• Gross margin decreased to 41.9% from 51.6% due to higher sales of lower-margin products.

Charlie's best-selling e-liquids are in Substantive Review with the FDA and remain in the select minority of 2020 PMTA submissions that are still viable; the Company submitted PMTAs for more than 700 additional products prior to the May 14, 2022 FDA deadline.

COSTA MESA, CA / ACCESSWIRE / August 15, 2022 / Charlie's Holdings, Inc. (OTCQB:CHUC) ("Charlie's" or the "Company"), an industry leader in the premium, nicotine-based, vapor products space, today reported results for the three and six months ended June 30, 2022, and provided an update on recent business highlights.

Key Financial Highlights for Q2 2022 (compared with Q2 2021)

• Revenue increased 36% to $7.4 million
• Gross profit increased 8% to $2.8 million
• Operating expenses, as a percentage of revenue, decreased from 52% to 46%
• Operating loss, including $0.7 million of PMTA-related research and development costs, increased by $0.4 million to $0.6 million
• Net loss was $0.6 million compared to net income of $19.8 million. (Q2 2021 net income included a gain in fair value of derivative liabilities of $19.3 million)

Key Financial Highlights for First Half 2022 (compared with First Half 2021)

• Revenue increased 58% to $15.5 million
• Gross profit increased 28% to $6.5 million
• Operating expenses, as a percentage of revenue, decreased from 56% to 43%
• Operating loss, including $0.8 million of PMTA-related research and development costs, decreased by $0.2 million to $0.2 million
• Net income was $0.1 million compared a net loss of $0.4 million

Results of Operations for the Quarter Ended June 30, 2022 Compared to the Quarter Ended June 30, 2021

		For the three months ended
		June 30,								Change
		2022				2021				Amount				Percentage
($ in thousands)
Revenues:
Product revenue, net		$	7,397			$	5,433			$	1,964				36.1	%
Total revenues			7,397				5,433				1,964				36.1	%
Operating costs and expenses:
Cost of goods sold - product revenue			4,558				2,794				1,764				63.1	%
General and administrative			1,870				2,457				(587	)			-23.9	%
Sales and marketing			787				350				437				124.9	%
Research and development			744				-				744				100	%
Total operating costs and expenses			7,959				5,601				2,358				42.1	%
Loss from operations			(562	)			(168	)			(394	)			234.5	%
Other income (expense):
Interest expense			(91	)			(3	)			(88	)			2933.3	%
Change in fair value of derivative liabilities			12				19,274				(19,262	)			-99.9	%
Gain on debt extinguishment			-				658				(658	)			-100.0	%
Other income			5				3				2				66.7	%
Total other income (loss)			(74	)			19,932				(20,006	)			-100.4	%
Net income (loss)		$	(636	)		$	19,764			$	(20,400	)			-103.2	%

Management Commentary

"Charlie's positive momentum continued in the second quarter and first half of 2022, highlighted by our 36% and 58% year-over-year revenue growth," reported Matt Montesano, Charlie's Holdings Chief Financial Officer. "We continued to diversify and expand Charlie's robust product line, as represented by our new 12ml Pacha Syn Disposable line and our refreshed Pacha Syn e-liquid line, both of which launched in the second quarter of 2022. At the same time, we continued to operate the business with tight fiscal controls, as demonstrated by our further reduction of operating expenses, as a percentage of revenue, to 46% during the second quarter."

Ryan Stump, Charlie's Chief Operating Officer, commented, "At this date, Charlie's 2020 Premarket Tobacco Application ("PMTA") remains among the select minority of applications submitted to the FDA that has not received a Marketing Denial Order ("MDO") or Refuse-to-File designation. What's more, by investing an additional $0.7 million in research and development during the second quarter for our 2022 PMTA submissions, we maintained our commitments to full regulatory compliance and to the Company's objective of providing customers with a trusted product portfolio. Prior to the FDA's May 14 deadline, we successfully filed new PMTAs for more than 700 SKUs of our synthetic nicotine Pacha Syn products. In sum, our extensive R&D investments and broad regulatory compliance efforts have set Charlie's PMTAs apart from those submitted by the vast majority of our peers… and, we believe, have put our Company in the best possible position for success."

Henry Sicignano III, Charlie's President, explained, "With a renewed focus on the Company's product development initiatives, sales team, marketing programs, and strategic partners, Charlie's is growing. Aggressively! In coming months, we plan to launch a whole new line of alternative cannabinoid disposable vapes… as well as new, innovative cannabinoid product formats that will be proprietary to Charlie's.As a result of all these efforts, I am pleased to report: we are on a trajectory to have our best year in Company history."

Charlie's Best-Selling E-Liquids are in the Select Remaining PMTA Submissions to the FDA that are Still Viable

During the quarter ended September 30, 2020, the FDA's Center for Tobacco Products informed us that our PMTA received a valid submission tracking number, passed the FDA's filing review phase, and entered the "substantive review" phase. To date, the Company has invested more than $4.4 million for our initial PMTA submission. We engaged a team of more than 200 professionals, including doctors, scientists, biostatisticians, data analysts, and numerous contract research organizations to create our comprehensive PMTA submission. During the quarter ended September 30, 2021, the FDA began issuing MDOs for electronic nicotine delivery system ("ENDS") products that lack evidence to demonstrate that permitting the marketing of such products would be appropriate for the protection of the public health.

On March 15, 2022, a new rider to the Federal Food, Drug and Cosmetic Act was passed granting the FDA authority over synthetic nicotine products. The new regulations made synthetic nicotine products subject to the same FDA rules as tobacco-derived nicotine products. Accordingly, the Company was required to file a PMTA - by May 14, 2022 - for its existing synthetic nicotine products marketed under the Pacha Syn brand. Consequently, on May 13, 2022, the Company filed new PMTAs for its synthetic Pacha Syn products.

As of June 30, 2022, Charlie's 2020 PMTA remains among the select minority of applications submitted to the FDA that has not received an MDO or Refuse-to-File designation and is, therefore, still viable. This fact highlights our progress toward achieving full regulatory compliance and demonstrates the emphasis our Company places on providing customers with a trusted product portfolio.

Highlighted Revenue Growth

The increase in the Company's nicotine-based vapor product sales was driven by (i) incremental market penetration of our existing Pacha Syn Disposable products, (ii) Charlie's new

12ml Pacha Syn Disposable line, and (iii) the Company's refreshed Pacha Syn e-liquid line. Pacha Syn Disposables were Charlie's first-ever entrant into the rapidly expanding, disposable e-cigarette market and offer users a variety of premium flavors containing synthetic nicotine (not derived from tobacco) in a compact, discrete format. However, regulatory challenges including the recently announced requirement for synthetic nicotine products to obtain PMTA marketing orders from the FDA, as well as continued uncertainty surrounding the FDA's issuance of MDO's and Refuse-to-File designations, tempered buying patterns in the domestic market throughout the second quarter of 2022 as customers scrutinized their inventories of related products.

Financial Results for the Three Months Ended June 30, 2022:

• Revenue: For the three months ended June 30, 2022, revenue was $7.4 million, an increase of $2.0 million, or 36%, compared with $5.4 million for the same period last year. The increase in revenue was primarily due to a $2.0 million increase in sales of Charlie's nicotine-based vapor products.
• Gross Profit: For the three months ended June 30, 2022, gross profit was $2.8 million, an increase of $0.2 million, or 8%, compared with $2.6 million for the same period last year. The resulting gross margin was 38.4%, compared with 48.6% for the same period last year. The decrease in gross margin is primarily due to (i) Charlie's Pacha Syn Disposable product line, which carries a lower unit margin relative to the Company's other products, representing a higher proportion of sales than last year, and (ii) comparatively higher freight and delivery expenses and inventory value adjustments.
• Total Operating Expenses: For the three months ended June 30, 2022, total operating expense, including general and administrative, sales and marketing expense and research and development costs, were $3.4 million, an increase of $0.6 million, or 21%, compared with $2.8 million for the three months ended June 30, 2021. The increase in operating expenses was primarily attributable to sales and marketing costs related to enhanced trade-show activity during the quarter in furtherance of our plan to grow market share across the nicotine and hemp-derived product categories and $0.7 million in research and development costs associated with our 2022 PMTA submissions. Operating expenses as a percentage of revenue decreased to 46%, from 52%, for the periods compared.
• Operating Loss: For the three months ended June 30, 2022, operating loss was $0.6 million, an increase of $0.4 million, or 235%, compared with an operating loss of $0.2 million for the three months ended June 30, 2021.
• Net Loss: For the three months ended June 30, 2022, net loss was $0.6 million, compared with net income of $19.8 million for the three months ended June 30, 2021. Of note, net income for the three months ended June 30, 2021 included a $19.3 million gain in fair value of derivative liabilities.

Financial Results for the Six Months Ended June 30, 2022:

• Revenue: For the six months ended June 30, 2022, revenue was $15.5 million, an increase of $5.7 million, or 58%, compared with $9.8 million for the same period last year. The increase in revenue was primarily due to a $4.8 million increase in sales of our nicotine-based vapor products and a $0.9 million increase in sales of our hemp derived products. The increase in our nicotine-based vapor product sales was driven by sales of our new 8ml Pacha Syn Disposable line, which launched in December 2021, as well as our 12ml Pacha Syn Disposable and refreshed Pacha Syn e-liquid lines, both of which launched in the second quarter of 2022.
• Gross Profit: For the six months ended June 30, 2022, gross profit was $6.5 million, an increase of $1.4 million, or 28%, compared with $5.1 million for the same period last year. The resulting gross margin was 41.9%, compared with 51.6% for the same period in 2021. The decrease in gross margin is primarily due to an increased percentage of our sales coming from Charlie's Pacha Syn Disposable product line, which carries a lower unit margin relative to the Company's other products, as well as comparatively higher freight and delivery expenses and a larger reserve for inventory obsolescence related to certain of our retired hemp-derived wellness products.
• Total Operating Expenses: For the six months ended June 30, 2022, total operating expense, including general and administrative, sales and marketing expense and research and development costs, were $6.7 million, an increase of $1.2 million, or 22%, compared with $5.5 million for the six months ended June 30, 2021. The increase in operating expenses was primarily attributable to sales and marketing costs related to enhanced trade-show activity during the quarter in furtherance of our plan to grow market share across the nicotine and hemp-derived product categories and $0.8 million in research and development costs associated with our 2022 PMTA submissions. Operating expenses as a percentage of revenue decreased to 43%, from 56%, for the periods compared.
• Operating Loss: For the six months ended June 30, 2022, operating loss was $0.2 million, a decrease of $0.2 million, or 51%, compared with an operating loss of $0.4 million for the six months ended June 30, 2021.
• Net Income/Loss: For the six months ended June 30, 2022, net income was $0.1 million, compared with a net loss of $0.4 million for the six months ended June 30, 2021.

About Charlie's Holdings, Inc.

Charlie's Holdings, Inc. (OTCQB:CHUC) is an industry leader in the premium, nicotine-based, vapor products space. The Company's products are sold around the world to select distributors, specialty retailers, and third-party online resellers through subsidiary companies Charlie's Chalk Dust, LLC and Don Polly, LLC. Charlie's Chalk Dust, LLC has developed an extensive portfolio of brand styles, flavor profiles, and innovative product formats. Don Polly, LLC creates innovative hemp-derived products and brands.

For additional information, please visit Charlie's corporate website at: CharliesHoldings.com and the Company's branded online websites: CharliesChalkDust.com, PachamamaCBD.com, and Pacha.co.

Safe Harbor Statement

This press release contains "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements regarding the Company's overall business, existing and anticipated markets and expectations regarding future sales and expenses. Words such as "expect," "anticipate," "should," "believe," "target," "project," "goals," "estimate," "potential," "predict," "may," "will," "could," "intend," variations of these terms or the negative of these terms, and similar expressions, are intended to identify these forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond the Company's control. The Company's actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to: the Company's ongoing ability to quote its shares on the OTCQB; whether the Company will meet the requirements to uplist to a national securities exchange in the future; the Company's ability to successfully increase sales and enter new markets; whether the Company's PMTA's will be granted marketing orders by the FDA, and the FDA's decisions with respect to the Company's future PMTA submissions; the Company's ability to manufacture and produce products for its customers; the Company's ability to formulate new products; the acceptance of existing and future products; the complexity, expense and time associated with compliance with government rules and regulations affecting nicotine, synthetic nicotine, and products containing cannabidiol; litigation risks from the use of the Company's products; risks of government regulations, including recent regulation of synthetic nicotine; the impact of competitive products; and the Company's ability to maintain and enhance its brands, as well as other risk factors included in the Company's most recent quarterly report on Form 10-Q, annual report on Form 10-K, and other SEC filings. These forward-looking statements are made as of the date of this press release and were based on current expectations, estimates, forecasts and projections as well as the beliefs and assumptions of management. Except as required by law, the Company undertakes no duty or obligation to update any forward-looking statements contained in this release as a result of new information, future events or changes in its expectations.

Investors Contact:
IR@charliesholdings.com
Phone: 949-570-0691

SOURCE: Charlie's Holdings, Inc.

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FAQ

What were Charlie's Holdings' revenue results for Q2 2022?

Charlie's Holdings reported a revenue increase of 36% to $7.4 million for Q2 2022.

What is the net loss reported by Charlie's Holdings for Q2 2022?

The net loss for Q2 2022 was $0.6 million compared to a net income of $19.8 million in Q2 2021.

How did Charlie's Holdings perform in the first half of 2022?

For the first half of 2022, Charlie's Holdings achieved a revenue growth of 58%, totaling $15.5 million.

What are the key factors affecting Charlie's Holdings' gross margin?

The gross margin decreased primarily due to increased sales of lower-margin Pacha Syn Disposable products.

What is the status of Charlie's PMTAs with the FDA?

Charlie's PMTAs are currently under substantive review by the FDA and have not received Marketing Denial Orders.