Good afternoon. Welcome to cbdMD's, Inc. March 31, 2023, Second Quarter of Fiscal '23 Earnings Call and Update. This afternoon, the company issued a press release that provided an overview of its first (sic) second quarter results and subsequent filing of its quarterly report on Form 10-Q. Today's conference call is being recorded and will be available online along with our earnings press release covering our financial results and non-GAAP presentation at cbmd.com in accordance with the CBDMD retention policies. All participants on this call are in listen-only mode. The call will be followed by a question-and-answer session. At this time, I would like to turn the conference over to Brad Whitford, the company's VP of Finance. Brad, please go ahead.

Thank you, Ariel, and thank you all for joining cbdMD's March 31, 2023, second quarter of fiscal 2023 earnings call and update. On the call today, we also have Ronan Kennedy, our Interim CEO and Chief Financial Officer; and Dr. Sibyl Swift, our Chief Science Officer. We'd like to remind everyone that various remarks about future expectations, plans and prospects constitute forward-looking statements for purposes of the 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 quarterly report on Form 10-Q for the quarter ended March 31, 2023, and our other filings with the SEC, all of which can be reviewed on the company's website at www.cbdmd.com or on the SEC's website at www.sec.gov. Any forward-looking statements made on this conference call speak only as of today's date, Monday, May 15, 2023, 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 as may be required by federal securities laws. With that, I'd like to turn the call over to Ronan.

Thank you, Brad. Good afternoon, everyone, and especially to our shareholders. Our results in the second quarter show that we are building the right strategic plans and the right team to deliver on results. Make no mistake, operating in our industry remains challenging, and we continue to have work left in order to deliver acceptable results, but we have proven that we are consistently delivering improvements and getting ever so close to a profitable quarter. 2022 was a busy year of change for the company. We moved to an asset-light model shedding our manufacturing overhead. We made hard decisions to say goodbye to many of our colleagues and friends and significantly reduced our staff. We made leadership changes, shed up productive contracts and reposition our product portfolio to a higher strength offering. In 2023, we continue to operate with conviction to implement further cost controls and are now operating with a sense of urgency across the entire business. During the second quarter, we changed out our entire marketing team, our agency partners and revamped our marketing spend. As a result, we stabilized our direct-to-consumer revenue on significantly lower spend. While year-over-year results were down, we generated positive sequential revenue growth for the quarter despite significant changes to our organization and spend levels. Year-over-year, we reduced SG&A spend by $6 million for the March quarter or an annualized rate of $24 million versus last year. Our SG&A costs are the lowest they've been since cbdMD was acquired by the public company. As Brad will explain, our adjusted EBITDA for the quarter was just a tad under $800,000 loss, resulting in an approximate $3 million improvement over prior year and $1.8 million improvement versus the December quarter. This represents one of the best net performing quarters we have had as a public…

Thank you, Ronan. My comments will be focused in two areas. First, I will update you on the science behind our dietary supplement products. And second, I will update on our current efforts to obtain fair and sensible regulations at both the state and federal levels. In the past, we have discussed our approach to science and laid the foundation for cbdMD to deliver superior everyday wellness products that are formulated to specifically address the needs of our customers. I will now update you on our two recently completed clinical studies. The data from our clinical study performed at the University of South Carolina to assess the efficacy of our core broad-spectrum blend and healthy human subjects is still on track for publication. Based on the preliminary findings of that study, we know that CBD really does improve our customers' health and wellness in some key areas, and we're excited to share that data and our messaging to our customers. Of note, among other encouraging results, our core broad spectrum blend indicated positive outcomes from mood improvement, pain reduction and reduction of inflammation in healthy adults. This information will serve as a foundation for our focus on educating our customer base about the benefits of CBD. The clinical study at Colorado State University School of Veterinary Medicine, export our core broad-spectrum hemp extract benefits on dogs mobility and quality of life. That study provided data from the Canine Brief Pain Inventory survey, which utilizes a series of clinical questions to determine how pain interferes with the dogs typical activities or pain interference and pain severity, as well as objective gate analysis and clinical owner-oriented outcomes as they more than accurately assess the dog's quality of life. I'm pleased to inform you that our broad spectrum hemp extract positively impacted most…

Thank you, Sibyl. Total net sales for the second quarter of fiscal '23 were $6.2 million or a 35% decrease from the prior year comparative quarter. Our quarterly e-commerce direct-to-consumer business generated sales of $4.9 million in the first quarter of fiscal '23. This was a 26% year-over-year quarterly decrease. We believe sales were impacted during the quarter by pantry loading prior to our new high-strength product launch, a pullback in marketing spend and microeconomic forces on consumers. E-commerce represented 78% of our total net sales for the second quarter of '23 versus 72% in the prior year comparative quarter. Our wholesale business generated $1.4 million of net sales for the second quarter of fiscal '23, down 56% as compared to $3 million for the comparative quarter in fiscal '22. Revenues were impacted as we transitioned to the new SKU offering with lower wholesale price points as compared to the prior year. Our gross profit as a percentage of net sales came in at 64% for the second quarter of fiscal '23. This compares to 67% for the comparative prior year period. We expect to maintain gross profit margins in the mid-60% range when factoring in sales mix. Our operating expenses for the second quarter of fiscal '23 totaled $5.4 million, which is down from $11.5 million in the prior year comparative quarter. Excluding accounting and other professional expenses, costs came down across the board as management continues to focus on profitability. This decrease is mainly due to reductions across all areas of our operating expenses and was partially offset by $277,000 non-cash intangible expense as we began amortizing intangibles starting in January '22. Overall, this resulted in a loss of operations of approximately $1.4 million for the second quarter of fiscal '23 as compared to $4.7 million loss for…

Thanks, Brad. We have a passionate and committed team here at cbdMD. This team believes in the power of cbdMD products, cannabinoids and the opportunity to do something special with the cbdMD platform. We have great award-winning products. We believe our science is second to none, and we have a strong voice in Washington. We have stabilized our revenue and our business fundamentals continue to improve. We are committed to move with the sense of urgency to create value for all our shareholders. And with that, I'd like to now open up the call for some questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Anthony Vendetti of Maxim Group. Please go ahead.

Thank you. So Ronan, you obviously have done a significant amount of work to reduce SG&A by $24 million annually. Some of that, I guess, as you mentioned, termination of some athletes, some of the athletes that promote. How much more can you trim or is this sort of - this is the - where you're at right now and you'll reassess?

Anthony, thanks for the question. Look, we've got, I think, a little bit more lapsed as you look at some of the changes we made in the March quarter that under a full quarter here for the June quarter, we should see a little bit lower level. We have some multiple brokers engaged to help us with our corporate facility. So there's a good sort of $1 million in savings that we are chasing trying to find the right sublet or building sale. And then there is some more structural costs associated with our e-commerce platform that we think there is some incremental sort of system infrastructure costs that we're working to reduce as well. But I think we're getting sort of near that bottom infrastructure cost and are really focusing on growing the top line.

Okay. Great. So yes, so the top line came down, but your losses came down significantly. So it looks like a focus on more of the higher-margin products, reducing expenses. On the DTC side, what would you attribute the reduction in revenues? And do you feel like you have a plan in place, like you said, to start to turn that around in terms of top line growth?

Yes. Look, I think if you looked at the product mix that - or sort of if you looked at the revenue mix of the products that we're no longer selling, we had a significant amount of revenue coming from low-ticket items, and we were spending a significant amount to acquire those customers and the economics of sort of the – good CAC versus LTV did that up. So by reducing and pulling back some of that spend and driving the consumers into higher-value, higher-end products, we're seeing stronger retention and improved LTV rates. So as a result, we've been able to reduce - revenues come down some, but as a result, sort of our profitability has gone up. I think with a lot of the changes that we've put in place, our team sort of got started and it was just starting to ramp things up in March. So we've learned a lot through March and April, continue to be nimble on pivoting how we're spending. We're making some changes, as I mentioned, to sort of our consumer experience that should go live in June. I think that's going to help us continue to accelerate our DTC revenue and the conversion and return on metrics that comes from our marketing spend.

Okay. And then lastly, on some of the newer products that you launched, just wondering initial commercial traction is one of them, I guess, is high-strength CBD product and some of the hemp products, I know there was obviously a lot of discussion about that from Carol [ph] But just more generally how these new products are doing so far with the initial traction so far?

Yes. So the products we launched last year have been doing tremendously well for us. We've seen a huge shift up in the milligram strength of what our consumers are buying. With [indiscernible] that launch happened the end of last fiscal year, which is sort of right around that end of September range. And we've seen really strong adoption of that, and they're seeing great retention. We've been a little slow launching over the last quarter, some new stuff, but we've been working behind the scenes and have sort of some exciting products coming to market here starting in June and should roll out here towards the end of the year.

Okay. Great. Thank you so much. I appreciate the color. I'll hope back in the queue.

[Operator Instructions] Our next question comes from Peter Merkel [ph] of Megas Management. Please go ahead.

Thanks for taking my question. Could you give a little color on the U.K. launch and how that's going? And then also the relationship with A360 Media, where do you have them specifically trying to focus? And what kind of results have you seen with them so far?

Thanks for the question. From the U.K., look, we launched right toward the end of the quarter. We are seeing traction. We're seeing reorders through Amazon. We've just sort of onboarded some incremental resources that have a really strong track record. So we're confident in our ability to continue to grow and scale that into a more meaningful number here over the next quarter or two. And then with respect to A360, I think one of the things we're excited about is the opportunity to get in front of millions of consumers every day through a lot of their periodicals, I think we tend to focus a little bit more of that marketing on more of a female demographic. So far, we started that toward the end of - believe the end of March, that's been ramping up. We are seeing some nice exposure coming from that. And I think as we - we're working to sort of make some changes to our e-commerce site over the next 30 days. We're going to continue to ramp that up to really focus on driving traffic to our site and being able to identify and drive conversion from a lot of media allocation with A360.

Okay. And then can you also talk about what the Wegman reorders are looking like and if they're happy with that relationship so far? And then the final question on - with the recent capital raise, do you have the ability to try to buy back some of the preferred shares at discount and conserve kind of future cash outflows?

So with Wegmans, Wegmans we are seeing a healthy reorders coming from them. We don't get comparative data versus other brands, but we are seeing some acceleration here over since January, some of the sell-through. We - as we learned, we are not in every single one of their locations. But from what we've been told in the data, we are in every location that they sell CBD and the relationship there seems to be going pretty well. Your question about the preferred, I think we are looking at every sort of option available to us and - but making sure that we have the liquidity available to continue to operate and make improvements to the business and get to a sustainable cash flow position. So I think there's a balancing act of could we buy out some preferred use the cash now, how much of that does that really save us over the next 12 months? And is it better to preserve the cash at the moment. So we have a lot of conversations around how to best handle that.

Thanks. I'll jump back.

This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Kennedy for any closing remarks.

Thank you, everyone, for your questions and interest, and we look forward to speaking again on our third fiscal quarter call in the next few months.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.