Charlotte's Web Holdings Reports 2019 Q1 Earnings

To support the growing product portfolio and retailer demand, Charlotte's Web is more than doubling the number of acres planted for 2019 to over 700 acres. The Company planted 300 acres of hemp in 2018 and harvested 675,000 pounds of raw hemp compared to 63,000 pounds in 2017.

"With the passing of the 2018 Farm Bill, we experienced a rapid increase in the major retail category as hemp became federally legal," said Deanie Elsner , President and Chief Executive Officer.  "This momentum is continuing as consumer awareness and retailer interest surrounding hemp and CBD increases. We believe we'll continue to see expansion in this area with additional retailers coming onboard and we expect continued roll-out to new states from existing retail customers throughout the year. Some retailers may wait for further clarity from the Food and Drug Administration (FDA) before including ingestible products, while others have been moving forward and expanding the number of stores that carry Charlotte's Web products."

The FDA will hold a public hearing on regulating hemp-derived CBD on May 31, 2019 to explore pathways for dietary supplements and/or conventional foods containing CBD and how it might regulate manufacturing, marketing and labeling. Charlotte's Web has significant interest in effective industry regulation and is coordinating its efforts through its membership with the U.S. Hemp Roundtable to submit verbal and written comments to the FDA.

Charlotte's Web also supports self-regulation of the hemp industry through its membership in the U.S. Hemp Authorityâ„¢. The U.S. Hemp Authority Certification Program is a new initiative to provide high standards, best practices and self-regulation for the hemp industry.  The certification requires meeting or exceeding stringent self-regulatory standards for Current Good Manufacturing Practices (cGMP) and passing an annual third-party audit. The certification is designed to increase consumer and law enforcement confidence in hemp products being sold in the market today by designating them as safe and legal.  Charlotte's Web has received certification from the U.S. Hemp Authority.

Q1-2019 Financial Review

First Quarter 2019 Results

The following table sets forth selected financial information for the periods indicated.

The following information sets forth selected quarterly revenue information for the Company's recent fiscal quarters. 

First quarter revenue increased 66% year-over-year to $21.7 million as broader consumer awareness of CBD based products continues to drive increased usage in all product categories. Human nutrition products, topicals and animal nutrition products growing by 67%, 455% and 79%, respectively. Retail channel growth is increasing as the large mass retailers begin carrying Charlotte's Web products. During the first quarter 2019, retail channel revenue accounted for approximately 51% of total revenue compared to 47% for the same period in the prior year.Gross profit totaled $15.9 million for Q1-2019, compared to $10.5 million for the first quarter of 2018, a year-over-year increase of 51.4%. As a percent of total revenue, gross profit in Q1-2019 was 73.4%, compared to 80.5% for the same period in 2018. Gross profit prior to biological asset adjustments as a percentage of revenue for Q1-2019 and 2018 was 72.8% and 79.0%, respectively.

Adjusted EBITDA for the quarter was $4.5 million or 21% of consolidated revenue compared to $4.6 million and 35% of consolidated revenue for the same period in the previous year. The Adjusted EBITDA ratio during the first quarter reflects continued investment in infrastructure and personnel as the Company builds its internal capabilities to support expected revenue growth for the remainder of 2019 and beyond.

"We are forecasting revenue to grow at a faster pace than operating expenses, particularly in the back half of the year," stated Rich Mohr , Chief Financial Officer of Charlotte's Web. "This supports our adjusted EBITDA guidance in the 30%-35% range on an annualized basis, in line with our historical norms. Our sales volumes continue to increase on a quarterly basis and we're expecting continued top-line growth during the second quarter and during the last half of the year. We reiterate our revenue guidance for 2019 of between $120 million and $170 million ."

The following table sets forth Adjusted EBITDA1 as a percentage of revenue for recent fiscal quarters.

Balance Sheet and Cash Flow

The Company used $3.7 million of cash in operations during Q1-2019 compared to $4.1 million of cash provided from operations during Q1-2018. The reduction in cash flows from operations primarily reflects the investment in inventory associated with the growth required to supply new retail outlets and the planting of the 2019 hemp crop which will more than double in size over the previous year.