Charlotte's Web Holdings, Inc.

Good morning, ladies and gentlemen, and welcome to the Charlotte's Web Holdings, Inc. fourth quarter 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 Wednesday, March 19, 2025. And I would now like to turn the conference over to Mr. Corey Paula, Director of Investor Relations. Please go ahead.

Thank you, Ina, and good morning, everyone. Thank you for joining us for our 2024 fourth quarter and year-end 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. Our 10-K filing is also available on cdrplus.ca in Canada and EDGAR in the U.S. CEO Bill Marachnik and CFO Erica Lind are leading our call this morning. We'll review the financial results and provide some color around the business and the outlook. Afterwards, we'll answer some questions submitted by our analysts, and 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 of our website at charlottesweb.com. Please note that some statements made during today's discussion include responses to questions containing forward-looking information based on current expectations and assumptions. Actual results may differ materially due to risks and uncertainty, many of which are detailed in our latest SEC filings, including our most recent Form 10-K report. We encourage you to review these filings, work to comprehensively discuss the risk factors and other important considerations that may impact our future performance. We reserve the right to update these statements as conditions change. During the call, we will also refer to supplemental non-GAAP accounting measures, including adjusted EBITDA, which do not have standardized meetings prescribed by GAAP. Please refer to these earnings press release for descriptions of these measures and reconciliations to their most directly comparable GAAP financial measures. And now I'll hand over the call to Charlotte's Web Chief Executive Officer, Bill Marachny. Good morning, everyone, and thank you for joining us today. So 2024 marked a pivotal year for Charlotte's Web as it was highlighted by achieving a return to consecutive quarterly revenue growth throughout the year. While the growth was modest, it is encouraging. We have not seen consistent quarter-on-quarter improvement in several years. Having said that, we also acknowledge that we were still down significantly year-over-year, and this is not the level of revenue we find acceptable, nor that shareholders had expected. It does seem to indicate, however, that the revenue decline has bottomed, and this is the first step in the process of returning to growth. While I won't go into detailed financials, as Erica will cover that shortly, I do want to highlight that the improved quarter-on-quarter revenue and operating performance reflect the synergy between our upgraded e-commerce platform, high-impact omnichannel strategy, discipline cost management, and operational efficiencies implemented throughout the year. This foundation positions us well for growth in 2025 and beyond. Our fourth quarter, which is traditionally our strongest period due to holiday shopping, was indeed our best quarter this year. While regulations in some states impacted our retail performance, our e-commerce channel delivered excellent results during the Black Friday, Cyber Monday period and throughout the holiday season. Since launching our new e-commerce platform in June, we've seen a 20% reduction in shopping cart abandonment, which has had a real impact on our conversion rates. One of the core benefits of our new platform is the unprecedented clarity it provides into the effectiveness of the consumer journey and related transactional insights. This enhanced visibility has enabled us to optimize individualized transactions and maximize consumer value through tailored bundles and targeted promotions. The platform has revealed purchasing behaviors that we really just couldn't see or act upon in our old legacy system. The insights and adjustments we can make now are a total game changer. We're also seeing a notable lift in first-time customer ordering at Q1 this year, which seasonally has been our softest quarter. Okay, let's turn to our omnichannel approach. This continues to support growth by broadening consumer access through seamless integration of e-commerce, traditional retail, healthcare channels, and a multitude of digital shopping platforms. A retail partnership with Walmart has our CBD isolate topicals available in more than 800 physical stores and with extended availability now on Walmart.com. We're also encouraged by the initial sales we are seeing with our strategic partnership with Chewy.com, the largest online pet retailer. This has strengthened our pet product sales through targeted promotions and consumer outreach. Let's talk about our expanding product offerings. The successful introduction of our functional mushroom gummies last fall represents a strategic expansion into the rapidly growing mushroom wellness market. This innovative product line, featuring focus, stress support, and energy support formulations, has gained significant traction across hundreds of retail locations, including Walmart.com, with additional sales channels through other third-party platforms. I'm also pleased to announce our further expansion into the functional mushroom market with two new innovative gummies unveiled earlier this month at Expo West. The first one is Vital Defense, and that's a proprietary blend of five mushrooms for immune support. And the second one is Muscle Restore, featuring chaga mushrooms for athletic recovery. These new gummy offerings further extend our botanical wellness portfolio. The functional mushroom market is valued at more than 200 million per year, These new products allow us to leverage our reputation for science-backed solutions to capture market share while also creating natural cross-selling opportunities with our existing consumers. As mentioned in this morning's earnings press release, I am especially pleased to announce that our functional mushroom gummies will soon be selling at Amazon.com. This represents our first meaningful presence on this critical e-commerce platform, introducing our brand to millions of potential new customers. I also want to touch on our improvements in operations. Our focus on operational efficiencies has yielded gains. We've made significant strides in reducing SG&A expenses and aligning our cost structure with revenue levels. These actions, combined with our ongoing transition to in-house gummy and topical production, are establishing the foundation for improved margins in 2025. To review our Q4 results and financial positions further, I'll now hand over the call to our CFO, Erica Lynn.

Thank you, Bill. Our approach now reflects a true omni-channel model, where sales through third-party platforms are integrated into our total revenue reporting. This strategy offers a more holistic view of our performance. In terms of the financial results for the quarter, net revenue was $12.7 million. which, while down 20% from the prior year, was up modestly compared to the prior quarter. This outcome aligns with the trends we've observed throughout 2024, indicative of the broader category headwinds. Our growth over the previous quarter demonstrates the initial impact of our comprehensive omnichannel approach and validates the traction we're gaining with our product initiatives and strategic retail partnerships. where we have generally outperformed the category in retail. In 2024, we achieved our initial objective of establishing a solid foundation from which to build. As Bill mentioned earlier, this stabilization of quarterly revenue levels marked the first critical step in reversing our previously declining revenue trends, illustrated by delivering consecutive quarter-over-quarter growth. Our strategic focus now shifts to achieving year-over-year growth in 2025, leveraging the operational improvements implemented throughout 2024. Q4 gross profit was $5.1 million, down $3.8 million or 42.7% compared to the prior year. The margin as a percent of net revenue was 40.2%, down 15.8 basis points compared to Q4 of 2023. This temporary reduction in gross margin primarily reflected holiday promotional investments, some shipping inefficiencies, and compression of fixed cost absorption on lower-than-expected revenue. Looking ahead, we anticipate incremental margin improvements in 2025 as we execute our manufacturing strategy, bringing a higher percentage of gummy and topical production in-house. This transition will further enhance our cost structure and strengthen our quality control, production flexibility, and speed-to-market capabilities. We have recently implemented carrier diversification, shipping threshold adjustments, and production enhancements to drive gross margins toward historical ranges as these measures take effect. Expense management was a strategic priority in 2024, and I'm pleased to report substantial progress in this area. In the fourth quarter alone, we achieved an $8 million year-over-year reduction in total SG&A expenses, representing a 43.3% decrease. This brought our Q4 SG&A down to $10.6 million from $18.6 million in the same period of last year. These significant cost reductions stem from our disciplined approach to cost optimization, including contract renegotiations, eliminating discretionary expenditures, and leveraging efficiencies gained through our new e-commerce platform. These reductions were strategically implemented to preserve our core capabilities and growth initiatives. We reported a Q4 net loss of $3.4 million, or two cents per share. marking a meaningful reduction of $5.1 million or $0.04 per share compared to the fourth quarter of 2023. To provide greater visibility into our operational performance, our fourth quarter of 2024 adjusted EBITDA was positive $0.3 million, representing a $6.2 million improvement over the fourth quarter of last year. This substantial progress represents our successful operational efficiency initiatives and stringent expense management. The strategic actions implemented throughout 2024 materially reduced our cash burn to $1.8 million in the fourth quarter. We concluded 2024 with $22.6 million in cash reserves. We are confident that our current cash position is sufficient to support our path to positive cash flow as we further optimize operations and maintain a disciplined spending posture. Turning to our full year results, total revenue was $49.7 million, representing a decrease of 21.4% from the prior year. While retail sales continued to face headwinds despite important new partnerships, our e-commerce performance showed encouraging trends. Notably, despite declines in the overall CBD category, Charlotte's Web continued to outperform the category at retail for the year, according to data from Spins LLC. And we hold the leading brand position in trust and loyalty, according to the latest surveys by the Brightfield Group. Gross profits. Profit before inventory provision for the full year was $25.4 million, or 51.1% of net revenue. And we anticipate improvement in 2025 as we bring more production in-house, particularly for our high-volume gummy and topical product lines. We substantially reduced SG&A expenses for the full year by $22.4 million, or 29.6%. a reduction rate that significantly outpaced our revenue decline. This demonstrates our commitment to operational efficiency while increasing quality as we look to bring manufacturing in-house. Net loss for 2024 was $29.8 million or $0.19 per share, compared to a net loss of $23.8 million or $0.16 per share in the prior year. It is important to note that 2024 included a non-cash inventory provision of $4.2 million, while 2023 included a non-cash net gain of $20 million from fair value adjustments related to the debt derivative and the investment into Floria. For more transparency on operating results, the adjusted EBITDA loss for 2024 was $12.6 million, compared to an adjusted EBITDA loss of $22.7 million for 2023. This $10.1 million improvement demonstrates our substantial progress in financial discipline, and we are committed to maintaining that stewardship in 2025 as we enter a critical growth phase. Concluding our financial overview, I will now hand the call back over to Bill.