Earnings call transcript: cbdMD’s Q2 2025 revenue rises, net loss narrows

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Overview

The earnings call presents a mixed picture. Financial performance shows improvement with a revenue increase and reduced losses, but there are concerns like competitive pressures, supply chain issues, and a working capital deficit. The Q&A section reveals optimism about future growth, particularly with Herbal Oasis, and improved capital structure. However, management's vague responses on specific metrics and the working capital deficit pose risks. Considering these factors, the stock price is likely to remain neutral in the short term.

Key Financial Performance

Total Net Sales $4,700,000, representing an 8.6% increase from the prior year comparative quarter total and a 7.9% decrease from the first quarter.

E-commerce Sales $3,600,000, flat year over year, representing 77% of total net sales for Q2 2025 versus 83% in the prior year comparative quarter.

Wholesale Revenue $1,100,000, up 22% compared to $750,000 for the comparative quarter in fiscal 2024.

Gross Profit Margin 62%, with an increase in warehouse rent and one-time increases in CAM costs affecting the margin.

SG&A Expenses $3,500,000, down from $4,100,000 in the prior year comparative quarter, primarily due to reductions in payroll, professional fees, and the elimination of the headquarters lease.

Loss from Operations Approximately $485,000 for Q2 2025, compared to a $1,500,000 loss from the prior year period.

Net Loss $480,000, compared to a loss of $3,000,000 in Q2 2024.

Non-GAAP Adjusted EBITDA Loss $197,000 for Q2 2025, compared to a $680,000 loss in Q2 2024, attributed to management’s focus on cost structure and profitability.

Cash and Cash Equivalents Approximately $1,700,000, down from $2,400,000 on 09/30/2024.

Working Capital Approximately negative $3,700,000 as of 03/31/2025, compared to a deficit of approximately $2,200,000 on 09/30/2024, primarily due to $1,000,000 of accrued preferred dividends.

Inventory Investment Approximately $400,000 during the quarter to bolster key SKUs and support the rollout of Oasis.

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Operating Highlights

Herbal Oasis Expansion: The company is ramping up distribution for its hemp-derived THC seltzer brand, Herbal Oasis, which has recently won awards. Distribution partners have been added in Alabama, Florida, and North Carolina, with plans for further expansion despite some legislative slowdowns.

Market Positioning: The successful conversion of Series A preferred stock to common stock has improved CBDMD's capital structure, allowing for greater strategic flexibility and positioning for future growth opportunities, including potential M&A.

Operational Efficiency: SG&A expenses decreased from $4,100,000 to $3,500,000 year-over-year, reflecting cost-saving initiatives. The company is focused on improving operational efficiencies to return to positive income and EBITDA.

Strategic Shifts: The company aims to drive revenue growth and achieve profitability while resolving its capital structure. The successful approval of critical proposals marks a significant milestone in CBDMD's long-term positioning.

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Risk or Challenges

Regulatory Risks: The company is tracking active legislation in over 23 states, which could impact the long-term success of their THC seltzer brand, Herbal Oasis. Regulatory clarity is essential for the growth of this category.

Competitive Pressures: The company faces competitive pressures in the direct-to-consumer market, as evidenced by their Q2 marketing performance falling short of expectations, prompting leadership changes.

Supply Chain Challenges: The rollout of Herbal Oasis was slowed due to legislative activity, indicating potential supply chain challenges that could affect distribution and sales.

Financial Risks: The company reported a working capital deficit of approximately $3,700,000 as of March 31, 2025, which could impact liquidity and operational flexibility.

Market Risks: The company is exposed to market risks associated with the THC seltzer category, which is projected to grow significantly, but success depends on regulatory developments and consumer acceptance.

Operational Risks: Despite improvements in financial performance, the company still faces operational risks, including the need to enhance customer acquisition and retention in a competitive market.

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Guidance & Outlook

Revenue Growth Initiatives: Focus on three key areas: growing direct-to-consumer business, expanding core wholesale business, and scaling Herbal Oasis brand.

Capital Structure Improvement: Successful conversion of Series A preferred stock to common stock, eliminating $4,000,000 in annual dividends and simplifying capital structure.

Regulatory Adaptation: Tracking active legislation in over 23 states to ensure compliance and customer safety.

M&A Opportunities: Positioned for potential mergers and acquisitions to expand into new categories and customer segments.

Future Revenue Expectations: Expect to see contributions from Herbal Oasis brand in the back half of 2025.

Liquidity Outlook: Guidance remains sufficient through at least the end of fiscal 2026.

Profitability Commitment: Firm commitment to delivering profitable growth in 2025.

Cash Burn: Current cash burn is low, with a focus on improving working capital.

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Shareholder Return Plan

Accrued Dividends: Approximately $6,700,000 in accrued dividends were converted into common stock.

Annual Dividends Eliminated: The conversion eliminated $4,000,000 in annual dividends.

Share Count Post Conversion: Approximately 8,900,000 shares of common stock outstanding after conversion.

Debt Status: The company has no debt and no warrant overhang.

Preferred Stock Conversion: Conversion of Series A preferred stock simplified the capital structure.

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Key Q&A

Q:Can you give us more color on the expansion of the Herbal Oasis brand and any specific distribution channels or markets you are targeting?

A:We started discussions with distributors back in December and began getting commitments in March. Some regulatory issues slowed shipments, but we are actively working with key distribution networks and expanding beyond the Southeast.

Q:Should we expect Herbal Oasis to be a key driver of growth in 2026, or can we see some impact in the back half of this year?

A:We should start seeing some good contribution from the brand toward the back end of this year.

Q:How does the conversion of preferred stock to common equity impact your strategy moving forward?

A:The conversion improves our position to maintain our listing and allows us to use our stock for strategic deals, making it easier to understand our capital structure.

Q:Are you comfortable with your liquidity outlook through the end of fiscal 2026?

A:Yes, we are comfortable with our working capital and liquidity outlook.

Q:What types of strategic activity are you considering moving forward?

A:We are looking for opportunities that provide cost synergies, open new channels, or acquire new customers, both within and outside the cannabinoid space.

Q:Can you provide financial and operating performance metrics for Herbal Oasis this quarter?

A:The revenue impact came at the end of March, and we expect to see an increase moving through the third quarter. The gross margins are not quite the same as our core business.

Q:Review of Unclear Management Responses

A:Management appeared to avoid giving a direct answer when asked for specific financial and operating performance metrics for Herbal Oasis, indicating that the revenue impact was minimal this quarter and that more disclosure would come as they reach materiality thresholds.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

YCBD Transcript

cbdMD, Inc. (YCBD) Q4 2025 Earnings Call Transcript

Unknown12-19

The earnings call presents a mixed picture: improved operating results and gross margin are positive, but declining e-commerce sales and marketing inefficiencies are concerning. The Q&A section reveals cautious optimism about regulatory developments but lacks clarity on strategic plans. While the elimination of preferred dividend obligations and growth in wholesale sales are positives, the company's reliance on equity financing and potential dilution remain concerns. Overall, the sentiment is neutral due to balanced positive and negative aspects, with no clear catalyst for a strong stock price movement in either direction.

cbdMD, Inc. (AMEX:YCBD) Q2 2025 Earnings Call Transcript

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The earnings call reveals mixed signals: a slight revenue increase and improved cost structure are positive, but regulatory challenges and liquidity risks temper optimism. The new product expansion and capital structure improvements could yield future benefits, yet current financial constraints and market competition pose challenges. Analysts' cautious sentiment in the Q&A further supports a neutral outlook.

Earnings call transcript: cbdMD’s Q2 2025 revenue rises, net loss narrows

Unknown5-15

cbdMD, Inc. (YCBD) Q2 2025 Earnings Call Transcript

Unknown5-15

The earnings call reveals mixed signals: revenue growth, debt-free status, and improved profitability are positive. However, the flat e-commerce sales, competitive pressures, and financial risks temper this optimism. The Q&A section highlights potential growth from Herbal Oasis, but regulatory issues and unclear guidance on financial metrics raise concerns. The conversion of preferred stock aids capital structure, but the impact of accrued dividends and liquidity remains uncertain. Overall, the sentiment is neutral, with no strong catalysts to drive significant stock price movement in the short term.

YCBD Report

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