Good afternoon. And welcome to the cbdMD Second Quarter Fiscal 2020 Earnings Call and Update. Today, the company issued a press release that provided an overview of its second quarter results, which followed the filing of its report on Form 10-Q. Today’s conference is being recorded and will be available online at cbdmd.com in accordance with cbdMD’s retention policies. All participants on this call will be in a listen-only mode. [Operator Instructions] At this time, I would now like to turn the conference over to Mark Elliott, the company’s Chief Financial Officer. Mark, please go ahead.

Thanks, Christy, and thank you all for joining cbdMD Second Quarter Fiscal 2020 Earnings Conference Call. On the call today, we also have our Chairman and Co-CEO, Marty Sumichrast. Following the Safe Harbor statement, Marty will provide an overview of our business, and then I’ll provide a summary of the quarterly financial results. Following that, we’ll open up the call for questions. 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 10-K for the year ended September 30, 2019 as amended and has filed with the SEC, 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.com. Any forward-looking statements made on this conference call speak only as of today’s date, Monday, May 18, 2020, 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. With that, I’d like to turn the call over to Chairman and Co-CEO, Marty Sumichrast. Marty?

Mark, thank you. And thanks to all of those who are listening in on today's call this afternoon .Before we talk about our second quarter, let me update everyone on how Covid-19 pandemic has affected our business. In early March, we started to take measures at our company to help secure the health of our employees and vendors. When the stay at home order in North Carolina was implemented, we temporarily closed our corporate office, instituted remote workforce and altered work schedules at our manufacturing and warehouse facilities. We also took steps to increase production to build up our finished goods inventory, as well as purchase additional raw material inventory items thereby allowing us to maintain production, if supply chain interruptions were to happen which at this point I'm happy to say has not happened. In short, while we have had to make significant logistical changes during the past 60 days, our team has risen to the challenge and our business has remained fully open and operational. We are happy to report that as of today we are not aware of any of our employees who have tested positive Covid-19. Along with taking the necessary safety measures, we also immediately instituted a rigorous cost containment plan across all departments and shifted resources from our B2B retail brick-and-mortar sales to our direct-to-consumer online sales. The result has been quite remarkable. While we normally don't discuss results to mid-quarter, we are in an unprecedented time and therefore I've decided to talk about what our company's operations now look like in April, our first full post Covid impacted month. First of all, our overall sales in April were in line with monthly sales from our March ending quarter, effectively meaning our sales have not gone down. Second, we are seeing a significant shift…

Thank you, Marty. I'm going to start with a brief summary of our GAAP based results. On a GAAP basis, our total net sales for the second quarter of fiscal 2020 which ended March 31st were approximately $9.4 million. As Marty said this was a 67% increase for the period year-over-year. For the six months ended March 31st, our net sales were approximately $19.5million. Again this is a 220% increase over the same period year-over-year and a 111% increase based upon the pre acquisition and post acquisition net sales of the brand which we acquired in late December, 2018. Gross profit as a percentage of net sales came in at 70.9% for the second quarter of fiscal 2020. This is compared to 66% for the comparative prior year period. And for the six months ended March was 67% compared to 65.9% for the comparative prior year period. We did have an inventory adjustment in March 2020 and with that our gross profit for the three and six months ended would have been 67% and 65% still in line with our projections. During the balance of fiscal 2020, we expect to maintain our gross profit as a percentage of net sales between 63% and 68% very healthy margin. Our operating expenses for the March quarter were $12.2 million of which approximately $665,000 was non-cash expense. The result was a cash use of approximately $4.2 million for the quarter. Our year-to-date operating expenses were $24.8 million of which approximately $1.6 million is non-cash expense. This results in a cash use for approximately $9.1 million year-to-date. As discussed earlier, our operating costs were reduced by approximately 40% in April from our monthly average in the prior quarter, which has resulted in a dramatic reduction in our loss from operations as Marty indicated. Our…

Thanks Mark. Before we open the line for Q&A, I'd like to make a few final observations. As we are all aware consumer health and overall well-being are more important now than ever. The Covid-19 pandemic has filled us all with so much uncertainty and with the economic downturn comes a heightened sense of stress across the country and the entire world. We've been fortunate as a brand to maintain course and we've even experienced growth during these challenging times. With one of the industry's most dominant digital footprints, we've been able to capitalize on an increased online audience as many are still confined to constraints of their homes and looking for alternative ways to enhance their everyday wellness. Armed with this powerful set of resources acquired over the past two years, we've been able to push forward while others are limited with subpar saturation and minimal brand recognition. Although no one could anticipate anything of this magnitude prioritizing DTC e-commerce and online sales over mass B2B wholesale distribution has proven vital and the right decision. While many of our competitors have extended terms and offered consignment deals, we've been able to conserve cash flow and collect on sale for all DTC online orders and the majority of B2B wholesale deals. Given the foundation we've built, we're confident that we will weather the storm and come out the other side even stronger than before. With that I'd like to open up the line for Q&A.

[Operator Instructions] We'll take our first question from Scott Fortune with Roth Capital Partners. Please go ahead.

Good afternoon. Congratulations guys and thank you for the questions. Yes, real quick can you expand a little bit on the pet, the paw penetration? I know you're looking for national pet channel, from that standpoint where are you in those discussions and kind of where is that business going and trending from a percentage of overall revenues currently?

Well, right now Paw is trending at about 5% to 6% of overall sales. We actually had a great month in April; one of our best months online in Paw. We see it continuing to increase. We're really attacking the online marketplace as we are overall with the company. We're looking to get a few certifications on the pet side and then we think we will be able to penetrate some of the bigger box stores. But right now the online is really doing tremendous and we're pushing very heavily into that space.

Okay. Thanks for that comment. And just to switch to the online side. Can you provide a little more color on KPIs on your online CBD business? I know you acquired a new user so kind of what's that growth and acquisition cost? And do you see if you're slowing down the marketing and advertising spin kind of looking out here that repeatable business continuing from an online side of things? So how are you looking at that?

Yes. I mean look, it's interesting. We did cut back on some of the marketing spend we have but it was really more of a question of figuring out what was working for us, what was a sort of maximize of the dollars we spent in some of the partnerships and the relationships that we've had. Two of the big sponsorships were going ahead with is Lifetime and Bellator and with each one of these they're multi-billion companies, we've taken that and instead of being just a strictly a PR relationship, we've talked to them about going out and selling the product as part of the relationship. And that's really powerful when you talk about Lifetime with 2 million active members. Now a lot of their facilities are just getting back up and running but the opportunity to Lifetime is enormous and both on their e-commerce platform and in stores. We think as I said earlier, the number one search term in the lifetime ecommerce site with cbdMD and so when you walk into a Lifetime facility and you see all of the digital ads and everything people want the product and now we're going to start loading the product in there. So we see the opportunity with Lifetime is enormous. Same thing with Bellator, I mean look, Bellator is owned by Viacom which is CBS. We think the opportunity is through potential TV advertising and we're talking to them about that. We've always been the first and we believe we could be one of the first out of the gates on mainstream TV and we're working with our relationships to do that. Our podcasts which are been incredibly successful and even more so now as people are listening to more podcasts recently. Our return has been exceptional. We're investing more on our podcast. We have great partners of Joe Rogan and of course Barstool and we're really excited about the return on investment through those different podcasts.

Okay, sounds great. And then real last quick, are you able to sell your full portfolio of products to Lifetime or is that kind of little SKUs?

Well, we're going to start with topical and we're going to be pushing into the different SKUs, but they're very excited about the opportunity, the brands are very cohesive and there's just a tremendous partner to work with and we couldn't be luckier than to have the leadership that they have at Lifetime. It's really a wonderful opportunity for us.

Our next question comes from Paul Cooney with Joseph Gunnar. Please go ahead.

Hey, guys. Congratulations again on everything you're doing. The Lifetime thing especially seems like it's a --that could be a home run. You talks a little bit about on to the Bellator relationship and I was wondering if you could just help me understand a little a little more as far as how that could generate revenue for you guys?

Thanks Paul. First of all, Bellator and Scott Coker, the President of Bellator has been a tremendous supporter of ours; early on they were our partner when CBD was something that was a little touchy. Their parent company is Viacom which is CBS and they went to bat for us and we became their exclusive CBD partner and that is really blossomed. We think now that the potential over the next year or two is to work directly through Bellator into Viacom into CBS. And really make some headway into the mass media. Traditionally that's been a little difficult with CBD but now we think there's a real potential in there. And we're really very happy that Scott and his team over at Bellator are helping us in that regard. We think the opportunity is pretty enormous to be one of the first companies out in the space of mass TV advertising. So we look forward to that and we look forward to Bellator fights coming in. I know Paul you're a big fan and we're excited to see the next fight and get America sports back into action. We're excited about this weekend. We're excited see Bubba playing again in June in PAG and so we're ready to go/

Next we'll move to Michael Lavery with Piper Sandler. Please go ahead.

Good afternoon and thank you. Can you just touched a little bit on the consumer and some of the marketing? And I guess but the two things I'd love to understand is just some of what you're finding to be the most effective to drive traffic to the website. And what some of the marketing levers are that seemed to be working and with the consumer do you have a sense of how much especially on your own site how many of -- how much of the growth is from the new to the category or more just gaining share?

Right. Well, we've been focusing on getting a repeat customer, but the market is really growing and so we've been able to hit different areas. It's been pretty interesting to find different pockets to market to and so we continue to expand our reach into different areas. I would say that we've had a pretty steady consistent repeat customer business. And we continue to drive on that but certainly as we look at whether it's the different athletic places that we go to and the different -- whether it's different podcasts or whatever we're doing we're actively expanding our reach. We think that CBD industry is still in its infancy. We think the big mass audience is yet to be really tapped and so a wider audience is available and we continue to test every day every month new marketing plans. And we invest in those that show good returns. We don't want to go into too everything but I can assure you that we're very conscious of our ROI on the different spends. And we're very adept to take an advantage of those ones that are showing a very high return on investment.

Our next question comes from Pablo Zuanic with Cantor Fitzgerald. Please go ahead.

Good afternoon, everyone and hello Marty. I want to ask a question over the category in general. During Covid, we've seen grocery stores; a lot of punch, reloading numbers goes up. We've seen e-commerce go up right. I'm just trying to understand how the CBD category is behaving here. From my point of view is behaving as somewhat of an indulgence category and that surprised me. And I say that because your e-commerce sales were flat quarter-on-quarter which was good compared to Charlotte's Web down five I think CVS was down, actually [Indiscernible] was down like 20, but DNC grows there and a lot of other consumer categories are -- they are so significant e-commerce growth during Covid. And then on the B2B side, is that 20% declined really because of less traffic to stores or is it just the competition that we've talked about so many times before? Or is it at the vape shops were closed again because grocery items in the grocery chain have been up significant during Covid. So I'm just trying to understand your view about the category and then maybe some color given all the brand investments and the brand metrics you've given us which of course are very good. Why aren't we seeing that the result in terms of continuous sequential growth in e-commerce? Thank you.

Yes. I mean look, I'll handle the brick-and-mortar sales first. We chose to go the path of a lot of little stores opposed to the big brand -- the big retailers which I think has paid off for us. Now that being said when Covid hit, a lot of the smaller stores have been closed. So we saw a significant downtick in sales to a lot of the smaller stores. We did see pockets of increase whether it's the compound pharmacies or some of the other places that remained open. But a lot of the smaller retailers that we had simply were unable to stay open and so we saw a downtick in that. On the online we saw a very nice uptick and so to answer your first question whether it's an indulgence, I don't think that it is. I think people, remember CBD is something that you have to take consistently. It's not something that you take once, is something that gets into your into your system and works on a consistent basis. And so I think people when they couldn't go to their stores were going online. I think the other thing is, I think people are looking for brands now in the CBD space. We've seen a lot of our stores telling us that a lot of these sort of smaller brands that really don't have any real presence, but are just CBD in a bottle are not being carried anymore. And that the retailers are now starting to look finally for national brands because that's what the consumers are asking for. And this is something that I've been saying now for quite a while which is a lot of these sort of fly-by-night CBD brands that popped up last year when things were easy we're…

Okay. Can I just ask, thank you for that. Just two quick follow-up. So the guidance, I know there's no guidance for the full year but the idea that you get to positive cash flow or positive EBITDA by the end of the year. Is that possible flat, if sales remain flat? And related to that and I don't want to put words in your mouth, but you've talked about April being flattish versus March which is good. I guess your guiding for flat sales for the second quarter but you talked about e-commerce being 80% of sales compared to 72% right. So the way interpret that is e-commerce in the June quarter is accelerating after apparent based on the numbers you gave us flat growth sequentially March versus December. Obviously, e-commerce must have accelerated, but on the other hand need to be continues to worsen. If you can just give some color or cadence and characterize a second quarter on what I said. And then also if you can deliver on that positive cash flow guidance if sales remain flat from here to the end of a year. Thanks.

Yes. I mean, look, we're trying to be conservative and say if we had continued with our sales in Q1 with very, very modest growth, we've been able to cut operating expenses margins because of the online sales continue to trend in the right direction. We don't think it's going to take much of a bump on our sales to get to cash flow positive. I mean we burned about call it $18 million a month in the first quarter. We reduce that by 85%. So now you're down to $250,000 call it a month and it's not going to take much if we are consistent on our spend and hold tight to increase sales even marginally between now and the end of the year to get to that cash flow breakeven when you're talking about north of 65% margin. So it's really -- it's not a complicated formula. And we're trying to be conservative and talk about neutral sales although I will say I'm optimistic about an uptick as we continue and we're seeing a little bit of that this quarter. And as retail picks up, we expect pick up as well. So the key is cost containment and that's what we've done and that's what we're going to continue to do.

Next we'll move to David Shale, Private Investor.

Hi, guys. Congratulations on an amazing quarter. It's exciting especially for those of us who have been sticking around for the last year or so. So looking forward to even better days ahead. Absolutely, if I heard you correctly you mentioned that you suspended most of your sponsorships and I'm curious to what extent you think that affected sales. And if it didn't, why you think it didn't? And in general what kind of lessons are to be learned from cutting off a major source of previous branding.

Yes. I mean, look, that's a great question. When Covid hit in the middle of March, one of the first things that we are in sports right, and so having a very large sports program we went out to our all of our athletes and we said everybody's on hold, okay. We didn't expect anybody to perform but we didn't expect to be compensating anybody and so for the month of April we held everybody and that's pushed in to May and then as we look forward we said, okay, who -- because we don't know what's going to happen in sports right. You got like the PAG which is a great example. They're going to start up again but they're not going to start up with fans. You have different leagues that we were dealing with and nobody really knows what it's going to look like. So we've kind of taken the position that we like we see what we can do with Lifetime because we see their membership and we see the ROI that we can pull. We see the same thing with Bellator and we have a handful of athletes that we believe can drive our brand. But we're looking at how do we re engage those athletes as sports come back and because it's one thing to have an athlete perform in front of 50,000 fans; it's another to have an athlete perform with no fans. So you've got to really stop and say, okay, let's look at this whole thing in its entirety and figure out what's in the best interest of the company and work out a deal. And we found that most of our athletes understand. I mean, look, they get it. And so we've really gone through and worked with all of…

Sure, it does. I appreciate it. Every crisis is an opportunity so good answer.

Crisis brings clarity.

Next we'll move to Bill Sutherland with Benchmark. Please go ahead.

Thanks Marty. Mark, hi. What happened with international and what's that looking like?

Well, it's interesting; obviously, the Covid thing has impacted international as you would expect. With that being said, we have because the brand is so strong. We have some large distributors in Europe and in Asia that want to rep the brand something that six months ago we didn't really even have on the agenda. And so we're in the process of working that we've just kind of picked up 16, 13 or 16 different countries right now that were that we're selling to, but we think internationals got some legs and so we're looking at it instead of being looking at it from a very cost expensive point of view of setting up operations and things like that. I think it's a better thing so us to do is finding partners and distribute the brand through those partners. And we're pretty confident the Covid thing aside that there's a tremendous demand for cbdMD internationally. And we expect this year to get back on track on that so stay tuned.

Okay. So did you guys actually break out how the revenues went in March and April relative to the first part of the quarter?

Well, I think we did talk about our first quarter. We did say April trended very heavily towards online. And I can send you this, Mark can send you this when we get off line, Bill, it was very dramatic as far as, I mean look we entered Covid and in our first month post Covid or in the middle of it, our sales didn't go down, which is shocking and you would think that would be the other way. Margins stayed strong and even inched up because of the big shift to the online. You couple that with such a huge dramatic reduction in operating expenses, April was bottom line the best month we've ever had and pretty got in close to getting to breakeven. And so we are continuing to push that. The trend looks good in May and our goal is to get to profitability as soon as possible and keep in marching up, keeping costs down and having the right blend of business and also increasing that over the next quarter or two is going to get us there.

Right. I was just curious what the run rate kind of is at this point that you've got that you've moved to.

Well, we don't think we're going to be below what we did in the first quarter. Let's put it that way. We feel pretty confident we'll meet that or exceed it.

That's impressive because I know you have bigger months in January, February I presume so --

Yes. What we did that $9.4 million in March and we're certainly looking at that target because it's not more in June but it's the middle of May and anything can happen. But, Bill, I'm an eternal optimist so --

Is -- what's the status of Lifetime as far as their centers? Are they opening as we speak?

Yes. I mean look they're -- they furloughed 35,000 people and close all 145 of their facilities. And I just absolutely, just it was -- I feel for them. That's got to be very difficult. They're an incredible team. The management is just phenomenal people. Their whole team is dedicated to opening back up, to getting life back to normal and we're supporting that. And we, I know they're opening in some states depending on what the different open laws are. I know they're getting through it and I'm confident that they're going to come out the other side and they're a great partner to have.

Yes. I was just curious how many spenders they were getting open. I assume they're going to be moving quickly. Last one for me is on inventory. I know you stocked up, is it going to be kind of back to a normal level of and turns going forward or how do you feel about the supply chain at this point?

Yes, Bill, it's Mark. Yes, no, obviously, I think that the preparation was to see what was going to happen with supply chain. And we feel really good about that right now as we've worked with the various aspects of that. I do believe we're going to continue to watch our inventory and see what the turn is that's there. And we see no reason to keep that level of that we ramped up with to prepare for what might happen. So I think we're in a good position there. I expect us to continue in a normal manufacturing process at this time unless again they're something that changes as we continue to move forward. But there's nothing that indicates that right now.

The balance right now as far as their ability of raw extract and other materials that you guys work with. What's that life rate now? What's the pricing like?

Well, I mean when you say what's the pricing right obviously I mean you're probably talking about our isolate which is obviously the largest ingredient most expensive, but certainly their supply out there that price has come down significantly over the last six to nine months. We have maintained a nice supply as that has come down we have continued to purchase. So we have it. So that we can fulfill and again we'll continue to do that and we'll continue to watch what's happening with the price point on it.

Next we move to Paul Bornstein with Black Diamond. Please go ahead.

Yes. Hi, it's nice that the company has a good management team that cut expenses and nice and start focus on ramping up margins, low margin improvement from online. But my question is trying to understand the competitiveness of the marketplace. There are a lot of products out there. You're building a good brand but can you get price increases out any of them or you kind of just stay in the current price levels that you had sales on that. And I'm trying to understand the consumer sensitivity to pricing for some of your products.

Well, it's a great question. Look, I think that last year what we saw particularly in the second half of the year as a lot of these smaller brands came on the market, and started struggling with their ability to stay relevant and sell a lot of them went into the brick and mortar channel. And did a lot of price dumping as they really didn't have an online strategy. And so there was a lot of competition, a lot of price dumping going in to the second half of the year. And you saw that and then what's happened is as we got into the beginning of the year that started to wane and then Covid hit and a lot of these smaller brands simply are unable to compete. A lot of them, I mean we see it all the time, a lot of them going out of business and the retailers who are carrying them don't want them and are returning them because they're fearful of a brand that isn't around anymore. So as far as we're concerned we're not seeing really any price compression. What we're seeing is really on the online a very robust business in the brick-and-mortar side really a shrinking competition and which bodes well if you have a national brand which is what we built so.

Yes. Paul, and I would just add that from that perspective as we're going out there to continue to keep the product visible, it's the, as we said earlier, it's leveraging what we did prior so the brand that's been built or that visibility now we're doing things that make it easier to one acquire the product so things like we rolled out auto-ship capabilities on our online site. The other things that we've done would be really content focused campaigns because there's still a big aspect of education that the consumer wants. They want to understand about the product. What's in them? Obviously, the quality aspects that we take that we continue to promote on those things that we believe definitely sets us apart. And then just helping them understand what they should be looking at when they're looking at various competitors and products. So I think those are big things that we're doing that are really targeted towards the consumers and are helping driving the direct-to-consumer online sales that we're having.

Yes. Well, it seems like the name-brand gives you a little edge since you've worked on that and built it up because there's a real lot of products out therefore the consumer to digest. So you've got through the narrow door and you're inside now. So it should be all leverage some more -- so that's should your sales going even more so and that's why you get cash flow positive at the end of the year or maybe before depending on the sales results. And you got major expenses out of the way. Okay, thank you.

And next we'll move to Greg Graves, A Private Investor.

Thank you. Gentlemen as Lifetime comes on stream, I would assume that when you ship something to them directly that's a retail sale. How about if they sell something through their e-commerce site. Is your facility used as a fulfillment center for their e-commerce site?

Yes.

And next we'll move to Daby Carreras with Spartan Capital.

Hello. How're you guys? Hi, John. Hi guys, how is everything? Hope, can you hear me? Good. I'm loving it. It's amazing. I'm very, very pumped. To me, it's about 7,000 % an increase in sales is the real big story. I know it was just looking at the net income of $35 million of loss and $33 million of trailing 12-months but that huge growth is very impressive that 7,000% is what I'm looking at. Keeps it going, one has to understand.

And our last question comes from Steve Emerson with Emerson Investments. Please go ahead.

Congratulations on surviving the virus and bringing strength to strength. How much of your monthly internet sales are repeat customers? And perhaps how long does the average customer stay a customer? And if you could, how much does it cost you to market or to bring on a new customer?

Steve, well, thanks. As you know, the situation with us and our repeat customers is that sometimes people log in as guests in our website as opposed to have an account. So it's a little bit difficult sometimes to figure out the accurate repeat customer account, but what we are seeing and what we can track, I think is very healthy and but of course we're certainly working on improving that. As far as, our marketing spends, that again is getting changed as we sort of enter this new area. We were obviously spending a lot more last year to acquire new customers now that we built the brand; now that we've found channels that we can market and advertise to that we're seeing proven returns. Some of these podcasts for instance are doing just tremendous for us. We continue to push on those channels that are proven success strategies for us. So I don't want to give you a hard number right now because we're in the middle of making that turn. But I will tell you that the overall marketing budget that we are working with while it still remains very healthy has been, we've managed to cut that back and realign that sort of with the goal towards where the revenue is and how we have to get to cash flow breakeven. And I think we've done that in just six weeks and as one of the earlier caller says crisis brings clarity. So we've really taken a look at it and we're happy to say that even though we've had significant reductions in a lot of the operating cost and as I said some of those operating cost reductions are directly Covid impacted like we're not traveling. We're not doing trade shows. Those kinds of things. Some of them are choices that we are making in the marketing sponsorship fields, and but we're happy to look and see that our revenue continues to maintain. I mean I was sitting here in the middle of March and you had would to ask me, if I thought we would be flat the next month, I would probably tell you I didn't think. So I'm very happy that April was a consistent month as we look from the first quarter. I think that in itself was an incredible achievement. I mean now we are looking at May and May looks little bit stronger and we are hopeful that June will continue to show strength. So that's where we are at and I feel really good about the decisions we've made and feel really positive that we have enough capital. We have over $14 million and then we got $1.5 million from PPP. So we are really in a good spot and with no debt and a variable cost structure for the most part on the marketing side we are able to be able to be flexible to get the profitability, I think in the short term.

And with no further questions in the queue, that does conclude our conference call for today. Thank you so much for your participation. Have a wonderful day. And you may now disconnect.