Charlotte's Web Holdings, Inc. ("Charlotte's Web" or the "Company"), the market leader in full-spectrum hemp extract wellness products, today reported financial results for the second quarter ended June 30, 2022.
"Net revenues for the second quarter of $18.9 million were $5.3 million lower year-over-year, reflecting lower comparable retail shipments and lower traffic to our e-commerce site, partially offset by modestly higher conversion rates," said Jacques Tortoroli, Chief Executive Officer. "The quarter also included a $0.9 million returns reserve related to a specific customer. Before the impact of the returns reserve, total net revenues for the quarter were comparable to Q1 of this year.''
"While we are disappointed with the second quarter revenue, we achieved significant distribution and customer wins consistent with our growth priorities to expand our coverage in existing channels and enter new verticals. Charlotte's Web products are now available for employer wellness programs through our recent partnership with SBM Ltd.; and in significantly more pharmacies through a new national distributor, giving us increased availability in the industry's largest channel after e-commerce. These new business wins did not contribute to our second quarter performance but will increasingly contribute to growth opportunities moving forward. At the same time, we continued building our international footprint by entering a distribution agreement with a strategic partner for Greater China," added Mr. Tortoroli.
On the International regulatory front, Charlotte's Web "Original Formula" CBD oil has been placed on the Foods Standards Agency list of products allowed to be sold in the U.K. Charlotte's Web is the only substantially vertically integrated US company with a full-spectrum hemp extract to have passed the validation phase and advance to the safety assessment phase in the United Kingdom. Recently, regulatory progress was also made in Canada, where the Scientific Advisory Committee for Health Canada unanimously agreed CBD is "safe and tolerable for short-term use", and recommended hemp CBD products should be considered for mainstream retail availability.
"We're also focused on improving operating cash flow as we progress through the second half of the year. Operating expenses were down over 31.5% year-over-year in the second quarter. In July, we further lowered our staffing levels and administration expenses. In aggregate, our focus on right-sizing our business is bringing operating expenses below $70M on an annualized run rate," added Mr. Tortoroli. Q2-2022 Financial Review
For the three-month period ended June 30, 2022, net revenue was $18.9 million, a decrease of 21.8% versus $24.2 million in Q2-2021. The decrease was primarily due to lower comparable customer shipments, consumer shift to lower priced formats, a return reserve as well as lower comparable online traffic.
Direct-to-consumer ("DTC") eCommerce net revenue was $13.3 million, a decrease of $2.4 million or 15.3% due to lower year-over-year traffic, partially offset by increased conversion rates which improved 1.9 percentage points to 15.6%. Charlotte's Web maintains the largest e-commerce business in the CBD industry; and e-commerce represents the largest channel in the industry with an approximate 40% market share according to the Brightfield Group
Business-to-business ("B2B") net revenue was $5.6 million after a $0.9 million returns reserves. This was $2.9 million, or 33.9%, lower year-over-year primarily due to lower comparable shipments to some of the Company's largest retail customers. Charlotte's Web holds the number one share position across major retail channels including food/drug/mass retail, natural grocery & vitamin retailers, and e-commerce, based on market share data from leading third-party analysts such as The Nielsen Company (total xAOC), SPINS (SPINS Total US), and Brightfield Group, respectively.
Gross profit was $9.3M, or 49.4% of revenue versus $15.8 million and 65.5% of revenue respectively in Q2-2021. The decrease was primarily related to lower net revenue including a $0.9 million customer return reserve, and $1.9 million of inventory provisions. Excluding the return reserve and inventory provisions, gross profit was 61.0% of revenue.
Total selling, general and administrative ("SG&A") expenses of $17.3 million improved 31.5% year-over-year due to a $7.9 million reduction versus Q2-2021. The improvement reflects lower employee headcount and compensation, and increased operating efficiencies resulting from actions implemented year-to-date.
An operating loss of $7.9 million in the second quarter of 2022 was $1.9 million higher than Q2-2021. The increased loss was primarily attributable to lower net revenues, higher return reserves and increased inventory provisions, which were offset by significantly reduced operating expenses. The net loss for the quarter was $7.9 million, or ($0.05) per share on a basic and diluted basis, compared to a net loss of $5.9 million, or ($0.04) per share on a basic and diluted basis in Q2-2021.
Adjusted EBITDA1 loss for the second quarter of 2022 was $5.4 million as compared to an Adjusted EBITDA loss of $5.1 million in Q2-2021.
