Charlotte';s Web Reports 2023 Fourth Quarter and Year-End Financial Results
- Charlotte's Web focuses on a comprehensive turnaround initiative called True North to enhance the consumer journey and drive growth.
- The company is transforming the eCommerce platform to increase consumer traffic, engagement, and loyalty.
- Charlotte's Web is developing new innovations and marketing integrations to support retail expansion and introduce new wellness products.
- The company launched Connected TV commercials to target consumer segments across the country, driving increased website traffic and sales.
- Charlotte's Web aims to maintain gross profit margins, reduce cash burn, and safeguard its financial position through cost and operating efficiencies.
- The company expanded its wellness offerings beyond CBD to include CBN gummies for improved sleep solutions.
- Charlotte's Web reduced prices on CBD oils to enhance consumer accessibility and attract new consumers.
- The company consolidated its brands under a unified Charlotte's Web brand architecture to leverage brand equity and penetrate new markets.
- Financially, Charlotte's Web reported a net loss for Q4 2023 but maintained healthy gross margins and improved operational efficiencies.
- The company showed improvements in gross profit margins and SG&A expenses, despite a decrease in revenue.
- Consolidated net revenue for Q4 2023 decreased compared to Q4 2022 due to lower retail and eCommerce revenues.
- CBD product sales remained below expectations due to regulatory ambiguities, consumer confusion, and pricing pressures.
- Despite a decrease in revenue, Charlotte's Web maintained healthy gross margins and improved operational efficiencies.
- The company reported a net loss for Q4 2023, although there were improvements in gross profit margins and SG&A expenses.
Transforming the consumer journey through eCommerce platform optimizations, brand consolidation, and price recalibrations;
While reducing expenses and maintaining gross margins
"Since I joined the company last September, we have been executing a company-wide turnaround initiative we call True North," said Bill Morachnick, the CEO of Charlotte's Web. "True North's objective is to enhance the overall consumer journey and drive sustainable growth. It combines an operational and data-driven emphasis with the integration of marketing, sales, innovation, technology, and education, all centered around our consumer and valued retail partners."
True North Pillars
True North represents a comprehensive turnaround initiative fueled by four strategic pillars with a clear destination for long-term growth. Going forward, the company will continue updating the shareholders on the progress of these initiatives.
- Transform the Consumer Experience End-to-end – Steady progress has been underway on the migration of the Company's eCommerce platform, focused on enhancing the consumer journey. This migration is designed to increase consumer traffic, engagement, acquisition, loyalty, and subscriptions. This includes the integration of a new state-of-the-art Customer Relationship Management (CRM) platform enabling tailored content for specific demographic and psychographic profiles, including educational and lifestyle content that is designed to resonate deeply within consumer segments.
- Be the Most Trusted and Valued Partner Among Our Retailers and Distributors – Strong distribution and retail relationships are a foundation of Charlotte's Web's market share leadership. To further support these critical relationships, Charlotte's Web is developing new innovations and marketing integrations tailored to the unique needs of the largest retailers. These efforts intend to enable new opportunities for retail expansion with new wellness products and formats. This is exemplified by the recent launch of the Charlotte's Web "Stay Asleep" CBN gummy. This dietary supplement features the minor cannabinoid Cannabinol (CBN).
- Reinforce and Amplify CW's Influential Voice – This year, Charlotte's Web launched Connected TV (CTV) commercials targeting consumer segments across the country on top broadcast and cable streaming platforms, including NBC, ESPN, TBS and many more. Charlotte's Web commercials have been driving increased website traffic and sales, for an attractive return on CTV advertising spend.
- Continue to Identify Cost and Operating Efficiencies – Prudent financial oversight with stringent expense management and optimized cost structures to ensure expenditures align with strategic objectives, thereby enhancing operational efficiency and cash flow.
"We continue to take multiple actions to maintain gross profit margins, reduce cash burn, and safeguard our financial position," said Jessica Saxton, Chief Financial Officer. "On the costs side, we have introduced zero-based budgeting in 2024 as part of a comprehensive 3-year financial plan to manage resources and optimize cost structures relative to our revenue position. Additional cash flow improvements are expected to result from efficiency gains, including production insourcing, IT upgrades, marketing optimization, and operational integrations within eCommerce and logistics."
Business Review
With an increased commitment to innovation, Charlotte's Web has refreshed its mission to "Unearth the Science of Nature to Revolutionize Wellness," and is evolving its wellness offerings beyond CBD to include a broader range of botanical wellness solutions, including minor cannabinoids. A testament to this expansion is the launch of Charlotte's Web Stay Asleep Cannabinol (CBN) gummies. Similar to Cannabidiol (CBD), CBN is a non-intoxicating cannabinoid found in the hemp plant. At the forefront of innovative natural sleep solutions, these new melatonin-free gummies could offer distinct benefits for the approximately
During the first quarter of 2024, Charlotte's Web unveiled a significant competitive price reduction of its leading CBD oils, without sacrificing its proprietary formulation or quality. This was accomplished by flowing through improved operational efficiencies to consumers, with modest gross margin reduction expected to be offset with additional volume. More affordable pricing improves consumer accessibility, and broadens the total addressable consumer segments, attracting new consumers.
Since the beginning of 2024, significant progress has been made in transitioning to in-house manufacturing of topical and gummy products. Initial equipment has been installed, and commercial runs are anticipated to begin in Q4 while maintaining co-manufacturing relationships for dual-source capability to mitigate supply chain risks. On-site manufacturing can accelerate the innovation process, leading to quicker introduction of new products to the market, while enhancing profit margins.
The Charlotte's Web brand ranks first in key CBD category brand metrics, including consideration and loyalty, according to the most recent consumer survey by The Brightfield Group. To better leverage this leading brand equity, the Company is consolidating its CBD Medic and CBD Clinic brands under a unified Charlotte's Web brand architecture. Additionally, the ReCreate brand has been absorbed under the recognized Charlotte's Web brand to better penetrate the lifestyles category. Charlotte's Web NSF Certified for Sport® will benefit from the Company's valuable professional sports partnerships, including the Angel City Football Club,
Financial Review – Q4 2023
The following table sets forth selected financial information for the periods indicated.
Three Months Ended, December 31, | ||||
2023 | 2022 | |||
Revenue | ||||
Cost of goods sold | 7.0 | 29.4 | ||
Gross profit | 8.9 | (10.5) | ||
Selling, general and administrative expenses | 18.6 | 21.4 | ||
Goodwill and asset impairments | 0.6 | 0.1 | ||
Operating loss | (10.3) | (32.0) | ||
Other income, net | (1.4) | 0.5 | ||
Change in fair value of financial instruments and other | 3.7 | (3.6) | ||
Income tax expense | (0.5) | (0.1) | ||
Net loss | ||||
Net loss per common share, basic and diluted | ||||
Consolidated net revenue for the fourth quarter ended December 31, 2023, was
Gross Profit was
Maintaining healthy gross margins despite lower revenue was primarily driven by supply chain efficiencies within the quarter.
Three Months Ended | |||||
December 31, | |||||
2023 | 2022 | ||||
Total Revenue - | |||||
Direct-to-consumer ("DTC") | |||||
Business-to-business ("B2B") | |||||
Direct-to-consumer ("DTC") net revenue through the Company's web store was
Business-to-business ("B2B") retail net revenue was
SG&A Expenses
Total selling, general, and administrative ("SG&A") expenses in the quarter were
Net Income and Adjusted EBITDA1
Charlotte's Web reported a net loss of
Adjusted EBITDA1 loss for the fourth quarter of 2023 was
Financial Review – FY 2023
On a year-over-year basis, consolidated net revenue for the twelve months ended December 31, 2023, was
Gross profit for the year ended December 31, 2023, was
Total SG&A expense for 2023 was
An operating loss of
Adjusted EBITDA1 loss for 2023 was
Cash Flow and Balance Sheet
Net cash used for operations, for the three months ended December 31, 2023, was
"Excluding MLB sponsorship-related fees and our capex for insourcing, our cash burn was approximately
Net cash used for operations in the year ended December 31, 2023, was
The Company's cash and working capital as of December 31, 2023, were
Consolidated Financial Statements and Management's Discussion and Analysis
The Company's audited consolidated financial statements and accompanying notes for the three and twelve-month periods ended December 31, 2023, and 2022, and related management's discussion and analysis of financial condition and results of operations ("MD&A"), are reported in the Company's 10-K filing on the Securities and Exchange Commission website at www.sec.gov and on SEDAR+ at www.sedarplus.ca and will be available 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 2023 fourth quarter and year-end at 11:00 A.M. ET on March 21, 2024.
There are three ways to join the call:
- Register and enter your phone number at https://emportal.ink/48ppb6e to receive an instant automated call back, or
- Dial 1-416-764-8659 or 1-888-664-6392 approximately 10 minutes before the conference call, or
- Listen to the live webcast online.
Earnings Call Replay
A recording of the call will be available through March 28, 2024. To listen to a replay of the earnings call please dial 1-416-764-8677 or 1-888-390-0541 and provide conference replay ID 481810#. A webcast of the call will also be accessible through the investor relations section of the Company's website for an extended period of time.
About Charlotte's Web Holdings, Inc.
Charlotte's Web Holdings, Inc., a Certified B Corporation headquartered in
Shares of Charlotte's Web trade on the Toronto Stock Exchange (TSX) under the symbol "CWEB" and are quoted in
Subscribe to Charlotte's Web investor news.
© Major League Baseball trademarks and copyrights are used with permission of Major League Baseball. Visit MLB.com. |
Forward-Looking Information
Certain information provided herein constitutes forward-looking statements or information (collectively, "forward-looking statements") within the meaning of applicable securities laws. 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. Forward-looking 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 statements contained in this press release are 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 and reasonable.
Specifically, this press release contains forward-looking statements relating to, but not limited to: organizational changes, marketing plans and operational platform upgrades, and the impact of these initiatives on retail expansion, operational efficiencies, cash flow, revenue and eCommerce monetization; expectations relating to IT upgrades, marketing optimization and operational integrations; product expansion activities and the corresponding results thereof; sales volume ad gross margin expectations; anticipated timing for, and business impact of, in-house manufacturing of topical and gummy products; the impact of the Company's product innovations on product development; regulatory developments and the impact of developments on both consumer action and the Company's opportunities and operations; activities relating to, and sponsorship of, legislation to advance regulatory framework; the impact of insourcing on operating margins, capital expenditures and R&D; anticipated consumer trends and corresponding product innovation; anticipated future financial results; the impact of the Company's partnership with the MLB and PLL on the Company's exposure and sales; the Company's ability to increase online traffic and demographic exposure through new products and marketing; and the impact of certain activities on the Company's business and financial condition and anticipated trajectory.
The material factors and assumptions used to develop the forward-looking statements herein include, but are not limited to: regulatory regime changes; anticipated product development and sales; the success of sales and marketing activities; product development and production expectations; outcomes from R&D activities; the Company's ability to deal with adverse growing conditions in a timely and cost-effective manner; the availability of qualified and cost-effective human resources; compliance with contractual and regulatory obligations and requirements; availability of adequate liquidity and capital to support operations and business plans; and expectations around consumer product demand. In addition, the forward-looking statements are subject to risks and uncertainties pertaining to, among other things: supply and distribution chains; the market for the Company's products; revenue fluctuations; regulatory changes; loss of customers and retail partners; retention and availability of talent; competing products; share price volatility; loss of proprietary information; product acceptance; internet and system infrastructure functionality; information technology security; available capital to fund operations and business plans; crop risk; economic and political considerations; and including but not limited to those risks and uncertainties discussed under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for the year ending December 31, 2023, and other risk factors contained in other filings with the Securities and Exchange Commission available on www.sec.gov and filings with Canadian securities regulatory authorities available on www.sedarplus.ca. 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.
Any forward-looking statement in this press release is based only on information currently available to the Company and speaks only as of the date on which it is made. Except as required by applicable law, the Company assumes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise. All 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.
(1) Non-GAAP Measures: The press release contains non-GAAP measures, including Adjusted Gross Profit, EBITDA and Adjusted EBITDA. Please refer to the section in the tables captioned "Non-GAAP Measures" below for additional information and a reconciliation to GAAP for all Non-GAAP metrics.
CHARLOTTE'S WEB HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS | |||
December 31, | |||
2023 | 2022 | ||
ASSETS | |||
Current assets: | |||
Cash and cash equivalents | $ 47,820 | $ 66,963 | |
Accounts receivable, net | 1,950 | 1,847 | |
Inventories, net | 21,538 | 26,953 | |
Prepaid expenses and other current assets | 6,864 | 7,998 | |
Total current assets | 78,172 | 103,761 | |
Property and equipment, net | 27,513 | 29,330 | |
License and media rights | 17,070 | 26,871 | |
Operating lease right-of-use assets, net | 14,601 | 16,519 | |
Investment in unconsolidated entity | 11,000 | — | |
SBH purchase option and other derivative assets | 2,602 | 3,620 | |
Intangible assets, net | 887 | 1,771 | |
Other long-term assets | 703 | 5,770 | |
Total assets | $ 152,548 | $ 187,642 | |
LIABILITIES AND SHAREHOLDERS' EQUITY | |||
Current liabilities: | |||
Accounts payable | $ 2,860 | $ 4,018 | |
Accrued and other current liabilities | 8,682 | 7,344 | |
Lease obligations – current | 2,252 | 2,306 | |
License and media rights payable - current | 9,852 | 7,759 | |
Total current liabilities | 23,646 | 21,427 | |
Convertible debenture | 42,528 | 37,421 | |
Lease obligations | 15,655 | 17,905 | |
License and media rights payable | 11,338 | 20,383 | |
Derivative and other long-term liabilities | 3,823 | 13,001 | |
Total liabilities | 96,990 | 110,137 | |
Commitments and contingencies | |||
Shareholders' equity: | |||
Common shares, nil par value; unlimited shares authorized; 154,332,366 and | 1 | 1 | |
Additional paid-in capital | 327,280 | 325,431 | |
Accumulated deficit | (271,723) | (247,927) | |
Total shareholders' equity | 55,558 | 77,505 | |
Total liabilities and shareholders' equity | $ 152,548 | $ 187,642 | |
CHARLOTTE'S WEB HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS | |||
Year Ended December 31, | |||
2023 | 2022 | ||
Revenue | $ 63,155 | $ 74,139 | |
Cost of goods sold | 27,589 | 54,728 | |
Gross profit | 35,566 | 19,411 | |
Selling, general and administrative expenses | 75,630 | 70,060 | |
Asset impairment | 548 | 1,837 | |
Operating loss | (40,612) | (52,486) | |
Gain on initial investment in unconsolidated entity | 10,700 | — | |
Change in fair value of financial instruments | 9,339 | (7,480) | |
Other income (expense), net | (2,694) | 744 | |
Loss before provision for income taxes | $ (23,267) | $ (59,222) | |
Income tax expense | (529) | (91) | |
Net loss | $ (23,796) | $ (59,313) | |
Per common share amounts | |||
Net loss per common share, basic and diluted | $ (0.16) | $ (0.40) | |
CHARLOTTE'S WEB HOLDINGS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY | |||||||||
Common Shares | Additional |
Accumulated |
Total | ||||||
Shares | Amount | ||||||||
Balance—December 31, 2021 | 144,659,964 | $ 1 | $ 319,059 | $ (188,614) | $ 130,446 | ||||
Common shares issued upon vesting of restricted share units, | 947,396 | — | (190) | — | (190) | ||||
Harmony Hemp contingent equity compensation | 169,045 | — | 164 | — | 164 | ||||
Common share issuance license and media agreement | 6,119,121 | — | 3,060 | — | 3,060 | ||||
ATM Program, net of share issuance costs | 239,500 | — | (65) | — | (65) | ||||
Share-based compensation | — | — | 3,403 | — | 3,403 | ||||
Net loss | — | — | — | (59,313) | (59,313) | ||||
Balance—December 31, 2022 | 152,135,026 | $ 1 | $ 325,431 | $ (247,927) | $ 77,505 | ||||
Common shares issued upon vesting of restricted share units, | 2,197,340 | — | (251) | — | (251) | ||||
Share-based compensation | — | — | 2,100 | — | 2,100 | ||||
Net loss | — | — | — | (23,796) | (23,796) | ||||
Balance—December 31, 2023 | 154,332,366 | $ 1 | $ 327,280 | $ (271,723) | $ 55,558 | ||||
CHARLOTTE'S WEB HOLDINGS, INC. | |||
Year Ended December 31, | |||
2023 | 2022 | ||
Cash flows from operating activities: | |||
Net loss | $ (23,796) | $ (59,313) | |
Adjustments to reconcile net loss to net cash used in operating activities: | |||
Depreciation and amortization | 15,160 | 8,968 | |
Change in fair value of financial instruments | (9,339) | 7,480 | |
Gain on initial investment in unconsolidated entity | (10,700) | — | |
Convertible debenture and other accrued interest | 3,857 | — | |
Share-based compensation | 2,100 | 3,403 | |
Changes in right-of-use assets | 1,918 | 2,146 | |
Allowance for credit losses | 1,240 | 1,226 | |
Inventory provision | 1,039 | 23,394 | |
Asset impairment | 548 | 1,837 | |
Other | 4,456 | 774 | |
Changes in operating assets and liabilities: | |||
Accounts receivable, net | (809) | 2,946 | |
Inventories, net | 4,376 | 1,730 | |
Prepaid expenses and other current assets | 85 | 3,781 | |
Operating lease obligations | (2,304) | (2,012) | |
Accounts payable, accrued and other liabilities | 151 | (3,577) | |
License and media rights payable | (8,000) | (500) | |
Income tax and other receivable | 4,261 | 10,764 | |
Cultivation liabilities | (249) | (4,000) | |
Other operating assets and liabilities, net | 620 | (4,362) | |
Net cash used in operating activities | (15,386) | (5,315) | |
Cash flows from investing activities: | |||
Purchases of property and equipment and intangible assets | (3,691) | (265) | |
Proceeds from sale of assets | 185 | 660 | |
Net cash provided by (used in) investing activities | (3,506) | 395 | |
Cash flows from financing activities: | |||
Other financing activities | (251) | 52,389 | |
Net cash provided by financing activities | (251) | 52,389 | |
Net increase (decrease) in cash and cash equivalents | (19,143) | 47,469 | |
Cash and cash equivalents —beginning of year | 66,963 | 19,494 | |
Cash and cash equivalents —end of year | $ 47,820 | $ 66,963 | |
Non-cash activities: | |||
Non-cash purchase of license and media rights assets | — | (31,399) | |
Non-cash share issuance for license and media rights agreement | — | (3,060) | |
Non-cash issuance of note receivable | (170) | ||
Non-cash purchases of property and equipment and intangibles | (233) | — | |
(1) Non-GAAP Measures – Adjusted Gross Profit, EBITDA and Adjusted EBITDA
Earnings before interest, taxes, depreciation, and amortization ("EBITDA") is not a recognized performance measure under
(1) Adjusted Gross Profit, EBITDA and Adjusted EBITDA are non-GAAP financial measures with reconciliations provided in the tables below.
Adjusted gross profit for the three and twelve months ended December 31, 2023, and 2022 is as follows:
Charlotte's Web Holdings, Inc. | ||||||
Statement of Adjusted Gross Profit | ||||||
(In Thousands) | ||||||
Three Months Ended | Year Ended | |||||
December 31, | December 31, | |||||
(unaudited) | (audited) | |||||
2023 | 2022 | 2023 | 2022 | |||
Total revenue | ||||||
Cost of goods sold | 7,043 | 29,436 | ||||
Gross profit before inventory provision | 8,802 | (10,569) | 35,566 | 19,411 | ||
Inventory provision, net | 309 | 21,537 | 1,039 | 23,394 | ||
Adjusted gross profit | ||||||
Adjusted gross margin % | 57.9 % | 58.1 % | 58.0 % | 57.7 % | ||
Adjusted EBITDA for the three and twelve months ended December 31, 2023, and 2022 is as follows:
Charlotte's Web Holdings, Inc. | |||||||
Statement of Adjusted EBITDA | |||||||
(In Thousands) | |||||||
Three Months Ended | Year Ended | ||||||
December 31, | December 31, | ||||||
(unaudited) | (audited) | ||||||
2023 | 2022 | 2023 | 2022 | ||||
Net loss | $ (8,589) | $ (35,229) | $ (23,796) | $ (59,313) | |||
Depreciation of property and equipment | 3,650 | 3,206 | 15,160 | 8,968 | |||
Interest (income) expense | 350 | 649 | 1,786 | 580 | |||
Income tax expense | 529 | 91 | 529 | 91 | |||
EBITDA | (4,060) | (31,283) | (6,321) | (49,674) | |||
Stock Comp | 454 | 882 | 2,100 | 3,567 | |||
Mark-to-market financial instruments | (3,752) | 3,580 | (9,339) | 7,480 | |||
Impairment | 548 | 16 | 548 | 1,837 | |||
Inventory Provision | 309 | 21,537 | 1,039 | 23,394 | |||
Initial gain on investment in DeFloria | - | - | (10,700) | - | |||
Adjusted EBITDA | $ (6,501) | $ (5,268) | $ (22,673) | $ (13,396) | |||
View original content to download multimedia:https://www.prnewswire.com/news-releases/charlottes-web-reports-2023-fourth-quarter-and-year-end-financial-results-302095600.html
SOURCE Charlotte's Web Holdings, Inc.
FAQ
What is the main focus of Charlotte's Web's True North initiative?
What new product did Charlotte's Web launch for improved sleep solutions?
How did Charlotte's Web reduce prices to enhance consumer accessibility?
What financial improvements did Charlotte's Web show despite a net loss in Q4 2023?
What were the reasons for the decrease in revenue for Charlotte's Web in Q4 2023?
