cbdMD, Inc. (YCBD)·Q3 2020 Earnings Summary

Executive Summary

• Record net sales of $10.64M (+33% year over year; +13% sequential), with Direct-to-Consumer (DTC) revenue at $8.2M (77%+ of total), and adjusted gross margin at 67.7%; GAAP loss from operations improved ~80% YoY to $(1.34)M; non-GAAP adjusted loss from operations narrowed to $(0.19)M .
• EPS swung to $(0.18) on a GAAP basis, driven primarily by a non-cash ~$7.58M increase in contingent liability from the 2018 acquisition earnout; underlying operating metrics improved (gross margin, OpEx reduction, DTC mix) .
• Management expects to reach positive adjusted operating income during calendar 2020 and to maintain gross margins in the 63%–70% range; cash on hand of ~$15M and working capital ~$19.7M support the plan .
• Catalysts: Paw CBD accelerated to $1.23M (+64% q/q) and >$7M run-rate, plus GNC online and 80-store pilot announced on the call, indicating expanding retail validation and potential distribution leverage .

What Went Well and What Went Wrong

• What Went Well

  • DTC momentum: DTC sales reached $8.2M (+77% YoY; +21% q/q), comprising 77%+ of total; “E-commerce has always been our core competency…this resulted in our quarterly direct-to-consumer sales accounting for 77% of our total net sales” .
  • Margin execution and cost control: GAAP gross margin 64.7% and adjusted 67.7%; operating expenses reduced ~30% YoY; “we were able to significantly improve our cash expenditures…effectively eliminated our non-GAAP adjusted loss” .
  • Paw CBD growth and brand strength: Paw CBD net sales rose ~64% q/q to $1.229M; run-rate >$7M; “Paw CBD was launched less than one year ago, and now it is one of America’s leading CBD pet brands” .

• What Went Wrong

  • Wholesale channel softness: “As expected due to the COVID-19 pandemic, wholesale sales dipped in the quarter by 28%, although we are seeing a rebound since early June” .
  • EPS volatility from non-cash earnout revaluation: Net loss of $(9.05)M and $(0.18) EPS largely due to ~$7.58M increase in contingent liability; valuation driven by stock price and earnout math rather than operations .
  • Regulatory uncertainty persists: FDA timing remains unclear; management continues to prepare for NDI filings and adheres to GMP, but category rules are still evolving .

Financial Results

Notes:

• Q1/Q2 GAAP net income and EPS benefited from large non-cash decreases in contingent liability; Q3 GAAP loss reflects a non-cash increase in the same liability .

Segment/Channel Mix

KPIs and Balance Sheet

Estimates vs Actuals

S&P Global consensus estimates were unavailable due to access limits; therefore, estimate comparisons could not be performed.

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “cbdMD reported its single biggest quarterly net sales in its history…we have separated ourselves from our competitors and demonstrated that we can grow market share and be fiscally responsible…With $15 million in cash on hand…we believe we have more than enough financial strength” — Martin Sumichrast, Chairman & Co-CEO .
• “Our GAAP gross profit margin…was 64.7%, and…non-GAAP cash adjusted gross profit margin of 67.7%…we reduced our overall operating expenses by 30%” — Martin Sumichrast .
• “Our email programs generated 23% more revenue…affiliate…21%…podcasts…45% uptick…we’re added to NSF International’s dietary supplements GMP registration” — Ken Cohn, CMO .
• “We had an increase in the [earnout] contingent liability of approximately $7.6 million…primarily a result of the change in market price of our common stock” — Mark Elliott, CFO .

Q&A Highlights

• Regulatory path: Company adheres to GMP, validates supply chain, prepares to submit NDI if required; operations compliant with state-level rules .
• DTC KPIs: Unique visitors +12%, returning customer retention +10%, AOV +6%; positive dynamics mid-COVID .
• Paw CBD customer dynamics: Cross-sell from human CBD; ~70% of human CBD consumers have pets; strong DTC focus .
• Media/TV strategy: Leveraging Bellator/Viacom relationships; TV seen as scale channel complementing digital funnel .
• Margins and input costs: DTC mix supports higher margins; isolate prices stable-to-down; efficiencies ramping in Paw production .

Estimates Context

• S&P Global consensus estimates for Q3 2020 revenue and EPS were unavailable due to access limits; as a result, we cannot quantify beats/misses versus Wall Street consensus. Future revisions likely focus on rising DTC mix, sustained high-60s adjusted gross margins, and Paw CBD acceleration .

Key Takeaways for Investors

• DTC engine is the growth and margin driver (77%+ mix; strong KPI momentum), supporting sustained adjusted gross margins ~67% and improved cash use .
• Paw CBD is scaling rapidly with a >$7M run-rate and strong DTC leverage, offering a second growth pillar .
• GAAP EPS will remain volatile due to non-cash contingent liability revaluation; focus on adjusted operating metrics for underlying performance .
• Liquidity (~$15M cash; ~$19.7M working capital) provides runway to reach positive adjusted operating income in 2020 as guided .
• Wholesale softness should ease as reopening continues; GNC online/80-store pilot is a noteworthy validation and potential expansion path .
• Regulatory clarity (FDA or Congressional action) remains a medium-term catalyst; company’s GMP posture and NDI readiness reduce execution risk .
• Near-term trading: watch DTC momentum and margin print; medium-term thesis: brand leadership in CBD and pet CBD, omni-channel expansion, and operating leverage as marketing ROI improves .