Charlotte's Web Holdings, Inc.

Good morning, ladies and gentlemen, and welcome to the Charlotte's Web Holdings conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, August 8, 2024. I would now like to turn the conference over to Corey Palla, Head of Investor Relations. Please go ahead.

Thank you. Good morning, everyone. Thank you for joining us for our 2024 second quarter earnings conference call for Charlotte's Web Holdings, Inc. Our earnings press release was issued this morning and posted on the investor relations section of our website, along with our financial statements. And our 10-Q report for the quarter is also available and has been filed on cdarplus.ca in Canada and on EDGAR with the SEC. CEO Bill Marachnik and CFO Erica Linder leading our call this morning. On this morning's call, we'll review the financial results for the quarter and provide some color around the business and the outlook. Afterwards, we'll answer some questions submitted by our analysts. A replay of this call will be available through the next week, accessible via the details provided on our earnings press release. Additionally, a webcast replay of this call will be available for an extended period, accessible through the IR section at our website at charlottesweb.com. As a reminder to our listeners, certain statements made on today's call, including answers we may provide to certain questions, may include content that is forward-looking in nature and therefore subject to risks and uncertainties, and factors which could cause actual future results or company performance to differ materially from implied expectations. Such risks surrounding forward-looking statements are all outlined in detail within the company's regulatory filings. In addition, during the call, we will refer to supplemental non-GAAP accounting measures, including adjusted EBITDA and adjusted gross margin, which do not have any standardized meaning prescribed by GAAP. Please refer to the earnings press release that we filed this morning for description of these measures, as well as a reconciliation to the respective and most directly comparable GAAP financial measures. And now I will hand over the call to Charlotte's Web Chief Executive Officer, Bill Marashnik.

Good morning, and thank you for joining us today. So let me first summarize our second quarter results issued this morning. Q2 revenues were lower year over year, but increased slightly over Q1, as e-commerce and retail sales both grew quarter over quarter. Our B2B retail business segment has been improving, up 8.8% over Q1, supported by increased distribution, new products, retail partners, and a more simplified, integrated, and focused approach we've been taking with our retail partners and channels. In our direct-to-consumer or D2C business, pleaded the important migration to our new e-commerce platform in June. It's important for me to note that during the migration, we had to temporarily pause online promotions during periods in June to better facilitate the transition. And this resulted in softer sales and overall revenue growth for June. However, I'm pleased to report that the new platform has been performing well and is already delivering encouraging results in July. In general, the ongoing headwinds in the CBD market remain for 2024, and it's hindered by a lack of federal regulatory action and the related emergence of inconsistent competitive alternatives, which creates ongoing consumer confusion. Perhaps more prominent this year have been the inflationary impacts on consumer discretionary spending. As the premium price CBD brand, we believe that Charlotte's web sales have been impacted more than some of our competitors in the first half of the year. As you may recall, we took price action against inflation during the first quarter of this year with a permanent 25% reduction across our leading hemp CBD extract oils to help consumers maintain access to these products. As you can imagine, it takes some time for the price reduction impacts to filter through, but we continue to see volume increases with these products that can eventually offset the price decreases and result in overall margin growth. Now regarding gross margin, as we approach the completion of our in-source manufacturing capabilities in Q4, this is going to allow us to better address pricing around gummies, which is our largest revenue product segment. I want to also note that in Q2, we introduced more affordably priced CBD isolate topical products, which we launched in over 800 Walmart stores across several states. Sales of these products are performing well, and we're very excited about the significant growth potential they represent. One final comment to summarize the quarter is on the actions that we've taken regarding operating expenses. With the impact of external headwinds on our growth, we've been proactively reducing our operating costs to better align with revenue levels. Following actions that we took in the first quarter to reduce 2024 SG&A we took further expense reductions after the close of Q2. These actions reduced cash burn to provide us with the runway we need to execute on our return to long-term growth. The full impact of these actions will continue to decrease our SG&A throughout the second half of this year and beyond. We're extremely encouraged that with our newly refined cost structure, we can see a clear path to cash flow break even. This will allow us to preserve our well-funded cash on hand so we can take advantage of several different growth catalysts on the horizon. These include ongoing optimization of our D2C and B2B platforms, strategic expansion of our product portfolio, and the continued achievements happening with Defloria, which I'll touch on later. So to review our Q2 results and financial position further, I'll now hand over the call to our CFO, Erica Lind.