cbdMD, Inc.

Good afternoon and welcome to the CBDMD Inc. conference call to discuss results for their second quarter of fiscal 2025 period ending March 31st 2025. This afternoon the company issued a press release that provided an overview of its second quarter results which followed which followed the filing of its quarterly report on Form 10Q. Today's conference call will be recorded and will be available online along with the earnings press release covering financial results and non-GAAP presentation at CBDMD.com in accordance with CBDMD's retention policies. All participants have been joined to the call in listen-only mode and following the presentation there will be a question and answer session. To join the question queue you may press star then 1 on your telephone keypad. At this time I would like to turn the conference over to Brad Whitmore the company's Chief Accounting Officer. Brad please go ahead.

Thank you Galen and thank you all for joining CBDMD's March 31st 2025 second quarter of fiscal 2025 earnings call and update. On the call today we also have Ronan Kennedy our CEO and Chief Financial Officer. We'd like to remind everyone that various remarks about future expectations plans and prospects constitute forward-looking statements for purposes of safe harbor provisions under the Private Securities Litigation Reform Act of 1995. CBDMD cautions that these forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from those indicated including risks described in the company's annual report on form 10K for the fiscal or 10Q excuse me for the fiscal quarter ended March 31st 2025 and our other filings for the SEC all of which can be reviewed on the company's website at .cbdmd.com or on the SEC's website at .scc.gov. Any forward-looking statements made on this conference call speak only as of today's date Thursday May 15th 2025 and CBDMD does not intend to update any of these forward-looking statements to reflect events or circumstances that would occur after today's date except it may be required by federal security falls. With that I'd like to turn the call over to Renan.

Good afternoon everyone and thank you for joining us today. Over the past several quarters we set two clear goals. One drive revenue growth and achieve profitability and two resolve our capital structure and regain compliance with the NYS American Listing Standards. This quarterly update I'm pleased to report progress on both fronts. Our top priority for the second quarter and into Q3 was preparing for our annual meeting and securing shareholder approval on two mission critical proposals the conversion of our series A preferred stock and a reverse split. This is a complex undertaking involving multiple shareholder classes and two failed prior attempts over the last 18 months. I want to thank our shareholders for the strong vote of confidence. The successful approval of these measures represents a major milestone in CBDMD's reset and long-term positioning. With the series A conversion complete approximately 6.7 million in accrued dividends and our shares of series A preferred stock were converted into common stock raising our pro forma non-GAAP adjusted book value from approximately 670,000 to over 7 million as of March 31st 2025 well above the 4 million dollar threshold required by the NYC Americans. The exchange also eliminated legacy obligations including 4 million in annual dividends and over 50 million in preferred waterfall payouts and simplified our capital structure. After discussions with regulators our board determined conducting the reverse stock split was an important step to protect against the NYC Americans 10 cent delisting threshold. Between the preferred conversion and the reverse stock split we now have approximately 8.9 million shares of common stock outstanding no debt no warrant overhang and a clean cap table putting us in a position to fully regain compliance by the end of our fiscal year. After two years of heavy lifting CBD is now operating with a strong foundation and greater strategic flexibility. We're energized by what this unlocks for the future. On the operational side we continue to demonstrate meaningful year over year progress across the P&L even if Q2 performance was not as strong as Q1. We're executing against three revenue growth priorities. First growing our direct to consumer business. While our Q2 marketing performance fell short of expectations we acted swiftly making leadership changes in March and instilling a renewed urgency across the team. We'll laser focus on enhancing customer acquisition experience and retention. Second expanding our core wholesale business. Wholesale revenue is up 13 percent on the trailing 12 month basis. We've added new sales reps focused on high focusing on high quality partnerships and working to ensure CBD remains the preferred brand in our category. Finally scaling herbal Oasis our hemp derived THC Seltzer brand. I'm excited to officially call it award winning. All four flavors recently meddled at the 2025 High Spirits Award. We've added distribution partners in Alabama Florida and North Carolina. While some rollout momentum slowed in Q2 due to legislative activity we're ramping it up again and having new markets and have new markets and retail placements in the pipeline. We expect to announce additional wins this third quarter. The THC Seltzer category is building. According to Euro Monitor sales more than doubled in 2024 and projected to exceed 4 billion by 2028. As alcohol consumption declines we're seeing a clear sign that consumers are seeking functional social alternatives and Oasis is built for that future. We also know that the long term success of this category will depend on regulatory clarity. We are currently tracking active legislation in over 23 states and we strongly support smart regulation that ensures customer safety and trust. With our internal regulatory and legal experience we're confident in our ability to adapt quickly to an evolving landscape. All this strategic and operational progress is beginning to show up in our financial performance. Well we still have work ahead. The year over year trends across revenue margins even reflect a business that's becoming more efficient more disciplined and better positioned to scale. With that I'd like to turn it over to Brad to walk through the financial details of the quarter.

Thanks Renan. Total net sales for the first quarter of fiscal 2025 were 4.7 million representing an 8.6 percent increase from the prior year comparative quarter and a 7.9 percent decrease from the first quarter. As Renan mentioned we are focused on three key areas to improve our quarterly revenue numbers. Our quarterly e-commerce direct to consumer business was flat year over year and generated sales of 3.6 million in the second quarter of fiscal 2025. E-commerce represented 77 percent of our total net sales for the second quarter of 2025 versus 83 percent in the prior year comparative quarter. Our wholesale business generated 1.1 million of net sales for the second quarter of fiscal 2025. Up 22 percent as compared to 750 thousand for the comparative quarter in fiscal 2024. Our gross profit remained healthy at 62 percent for the second quarter of 2025. The increase in our warehouse rent flowed through in full this quarter including some one time increases in CAM costs. Despite this we continue to operate with some of the leading gross margins in the industry. Our SG&A expenses for the second quarter of fiscal 2025 totaled 3.5 million compared to 4.1 million in the prior year comparative quarter. The expense reduction was primarily due to reductions in payroll professional fees and the elimination of the headquarters lease in addition to other cost saving initiatives while slightly offset by an increase in marketing expense. For the six months ended March 31st 2025 SG&A's expenses were were down 1.8 million across the board and came in at 6.9 million. We are continuing to review operating costs across the board to ensure we remain efficient and help us return to positive income and EBITDA during the second half of the year. Overall this resulted in a loss from operations of approximately 485 thousand for the second quarter of fiscal 2025 as compared to a 1.5 million loss from the prior year period. After adjustment to the fair value of the notes and net loss totaled 480 thousand as compared to a loss of 3 million in the second quarter of fiscal 2024. Our non-GAAP adjustments to operating expenses for the second quarter of fiscal 2025 included two thousand dollars in non-cash employee stock expense and two hundred eighty six thousand in depreciation and amortization expense resulting in non-GAAP adjusted even the loss of one hundred ninety seven thousand for the second quarter of fiscal 2025 as compared to six hundred eighty thousand non-GAAP adjusted even the loss in the second quarter of fiscal 2024. The EBITDA improvement non-GAAP adjusted operating loss over the prior year period is primarily attributed to management's focus on our cost structure and profitability. We had cash and cash equivalents of approximately 1.7 million in working capital of approximately negative 3.7 million in March for March 31st 2025 as compared to 2.4 million in working capital of approximately 2.2 million on September 30th 2024. The main factor contributing to the reduction in our net working capital is the incremental one million of accrued preferred dividends that is a short term liability on our balance sheet. Excluding the respective 6.7 and 4.7 million of accrued dividends we had positive adjusted net working capital of 2.8 million as of March 25 and 2.4 million as of September 24. We invested approximately 400,000 in inventory during the quarter. We were running a little too lean at the start of the quarter and needed to bolster a few key skews. Additionally we invested in our OASIS inventory as we get began rolling out to distributors. We continue to focus on improving our working capital and managing our cash carefully. With that I'll turn the call back over to Ronan. Thank you

Brad. Operationally we transform this business. Our mandate is profitable growth and remain firmly committed to delivering a profitable 2025. The successful capital restructuring not only improves our balance sheet but also opens the door for future strategic opportunities including M&A. The right transaction could be truly transformational creating opportunities to expand into new categories reach broader customer segments open additional sales channels and realize meaningful operational synergies. Our capital structure is now clear our stock is more investable and we're seeing increased inbound interest since the annual meeting. We are evaluating these opportunities with discipline and clear focus on long term value creation. We consider this our great reset a clean slate to create long term value. We're no longer weighed down by the past. We're now powered by a lean organization loyal customer base and category expanding brands. Our cash fund remains low. We believe we have the working capital to execute our growth plan. We believe we're in a stronger position than many of our public peers with stronger gross margins substantially debt free with approximately a million seven in cash and no material liabilities beyond normal working capital and lease liabilities. Our battle tested team has showed time and again that we can evolve adapt and deliver. We're grateful for the shareholder support shown in April and we're more focused than ever on driving the results in the quarters to come. Thank you. And let's open up for questions.

To join the question queue you may press star then one on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speakerphone please pick up your handset before pressing any keys. To withdraw your question please press star then two. Our first question is from Adam Waldo with Lizmore oh sorry he disappeared. Our first question is from Tom McGovern with Maxim Groups. Please go ahead.

Hey guys thanks for taking my question. Yeah so just want to start first with the Herbal Oasis brand. You know obviously announced that you were launching it back in November. Now you've had some time to you know actually commercially roll it out. You mentioned those distributors and plans to really fuel the growth now that you kind of work through some of the capital structure concerns. That were a priority in prior quarters. So just maybe could you give us a little bit more color on that kind of how does that expansion look from your perspective. Just you know what are some maybe milestones we should look out for kind of targets. You know if there are any specific distribution channels you're looking to get into with the brand or specific markets you're looking to expand into. Any details on that would be helpful. Thank you.

Sure Thomas. Look we we had started discussions back in the December quarter with a number of distributors and started getting commitments during during the March quarter. In March we you know some of those discussions took a little longer than we liked. And we started seeing some legislation pop up toward the end of end of March which kind of slowed some of the shipments into those distributors. We did ship at the end of March sent to one. We shipped in April we had some shipments and then I think we recently announced in May we started shipping into Charlotte. So I think it was a little frustrating that you know I think some of the regulatory stuff that has been sort of resolved itself slowed down our progress a little bit. But you know we've got feet on the street and in some of our core markets and closing doors on a daily basis. So for us I think you know we're we're trying to work with key distribution networks in various states some states it's easier to get full state coverage others it's broken up into more kind of county based systems. I think you know we're out there talking to distributors every day working to secure opportunities for our brand and continue to march and build our distribution footprint beyond sort of the southeast where we're at

today. Understood I appreciate that Collin just follow up on that. So you know can we be looking at 25 as kind of a development or commercial ramp period and then maybe start to expect Herbal Oasis to be more of a key driver of growth or a material driver of growth in 26. Or you know should we start to expect that maybe once it starts hitting the distribution channel there should be some relatively rapid uptick and we could start to see Oasis materially impacting top line in the back half of this year.

I think we should start being able to see you know toward the back end of this year some some good contribution from the brand.

Appreciate that clarity. And then last question for me you know since this post converse you know the conversion of preferred into common equity obviously increases financial flexibility for you guys. Just maybe walk me through high level how you expect it to impact your strategy moving forward. I know that now you'll have access to some shelf registration that was locked up due to the cap structure. So just curious you know does this alter your expectations for growth or give you any more clarity on what we should be expecting for 2025 in terms of growth initiatives.

Yes Thomas I think for the shelf to come back into play we have to complete our next audit. So it's realistically that doesn't come into back into play until December sometime. I think for us it sort of gives us I would say a couple of things are critical here. One you know we're now in a really great position to to maintain our listing right. We were we were on a path with the NYC so that by the end of the year we potentially were delisted. So from a preservation of value for shareholders and giving not only customers shareholders employees alike the fact that we now you know you know we're in a great position on a go for basis to to main CBD and D as a listed company on the NYC American. I think you know strategically we've

had

to turn all you know we've had numerous discussions with various parties over the last few years and I think you know people really didn't see you know they saw the YCB stock and the price and sort of looked at it and then as they sort of you know ended up sort of doing research later down and understood the preferred I think you know there wasn't much value or credence in sort of the value of our stock and that's either for strategic investment that's for doing M&A that's for trying to find sort of the right influencers and allow them to sort of participate. So I think that now it's very easy to understand our capital structure and really understand the value of our stock given that it's just a clean you know common stock structure. It allows us to use that currency for the right deals where we believe they're sort of strong alignment and creating value in the future for our shareholders.

Understood well congrats on working through that congrats on the quarter and you know looks like you're positioning yourself nicely for 25. I appreciate again you taking the time to answer my questions I'll hop out of here thanks.

Thanks Thomas.

Once again if you have a question please press star our next question is from Adam Waldo with Lismore Partners. Please go ahead.

Good day Ronan and Brad I hope you can hear me OK. Yes Adam how are you. I'm well Ronan and you.

I'm great thank you.

Well congrats on the conversion. I wonder if we can talk about the working capital situation going forward and how that respectively translates into cash burn or cash generation. So over the last three fiscal quarters you've averaged a cash burn of about two hundred seventy five thousand a quarter. You did better than that obviously here in the last quarter around two hundred. Are you still comfortable based on what you're seeing in terms of the working capital requirements particularly of the herbal oasis tonics new products that the company's liquidity runway remains sufficient through the end of fiscal 20 20 26 as you had indicated was your outlook on the fiscal fourth quarter 2024 results call on December 18th.

You know Adam I think we we we understand sort of what happened this quarter. We're working to tighten that up and make sure that sort of we get back to a scenario where you know we're in a much better positive even cash generation situation. So I think we're still feeling comfortable as of today with where we're at and and the working capital that we have on a go forward basis.

OK. And so am I right to correct to infer that you're still comfortable with that guidance that you issued on December 18th that you thought liquidity outlook was sufficient through at least the end of fiscal 20 26 in other words another six quarters from here.

That that is what we have modeled out.

OK terrific. And then switching gears you know you made a number of comments on today's call and in the recent press release around the successful conversion of the preferred to comment about the company being well positioned going forward for strategic activity and that was obviously a key key criterion for for for the conversion in the first place. So as as you look forward what types of strategic activity do you think board and management would find most attractive. Can you comment on that at all.

Look I think you know as I as I sort of spoke about in some of my closing statements I think we're looking at opportunities where we think you know there's a really good either

you know

cost synergies to to shrink out of a business open up new channels and or sort of acquire new customers where we think there's sort of a great customer overlap and are able to sort of look at it as one and one equals equals three. I think that's that's both inside the cannabinoid space and outside the cannabinoid space.

OK that's very helpful and I guess the final question I actually let me go back to the last part of what you said. Outside the cannabinoid space. Could you could you question that out anymore or or

after that. Yeah I don't I don't think it needs to be a CBD company. OK. We certainly think there's plenty of opportunity. I think you've seen the number of companies in the space shrink over the last few years. We think there's still plenty of plenty of opportunity and plenty of we'll call it overhead in the space. So for the rights for the right brand and the right structure I think we're interested where we think you know one and one is is going to be greater than two.

Understood. And I guess the final thing is following up on something on Thomas's line of questioning around herbal oasis. What what kind of sort of financial and operating performance metrics on that new product set. Can you offer us this quarter if any or should we look for more disclosure to come as you'll reach the material the threshold that you seem to be signaling you would expect to see sometime before the end of this fiscal year.

So what I'll say is there was really the the revenue impact came at the very end of the March quarter. And we're starting to see that pick up here moving through the third quarter here. So I think we're not

you

know we have I think stated before that you know the gross margins on this product are not quite the same as our core business. But from our standpoint we view it as increments incremental contribution dollars and are looking at a sort of volume play because it is a different business than shipping you know gummies and and pills majority direct to consumer.

Very good. Thank you so much. And best wishes for our upcoming quarters. Adam thank you very much. I appreciate it.

This concludes the question and answer session. I'd like to turn the conference back over to Ronan Kennedy for any closing remarks.

Thank you again to our shareholders for your support and everyone for attending today's call. We look forward to our next earnings call in August. Have a great afternoon.

This brings to a close today's conference call. You may disconnect your line. Thank you for participating and have a pleasant day.