Charlotte’s Web Holdings, Inc. (OTCQX:CWBHF) reported slipping first-quarter revenue for the period ending March 31, 2020. Charlotte’s Web delivered revenue of $21.5 million, slightly below last year’s revenue of $21.7 million for the same time period in 2019. However, this beat the Yahoo! Finance average analyst estimate of $20.78 million.

The earnings per share were reported at a negative $0.11 per share. This missed the analyst estimate for a negative $0.06 per share. The company attributed the drop to lower business-to-business (B2B) sales, but also noted that direct-to-consumer (DTC) sales increased.

The company also reported a net loss of $11.5 million versus last year’s net income of $2.3 million for the same time period. Charlotte’s Web also said that the adjusted EBITDA for the quarter was a negative $5.7 million or -26.5% of consolidated revenue compared to positive EBITDA of $4.5 million and 20.7% of consolidated revenue for the first quarter of 2019. The company said this reflected the substantial investments to support expected future revenue growth from the F/D/M channel.

“First quarter revenue was ahead of expectations driven by our strong DTC e-commerce sales enabled by our new technical platform and capabilities.  Operationally we have not had any business disruptions from COVID-19 and have adapted well to the remote working environment,” said Deanie Elsner , CEO of Charlotte’s Web.  “Strategically we implemented several strategies during the quarter to address the F/D/M channel, with new topical products, new pricing, and the announcement of our intent to acquire Abacus Health. We also launched CW Labs to drive break-through Innovation and to support the need for more science and data. These moves have been well received by our customers across all channels and we continue to execute on our plan for 2020.”

Too Much Competition

Despite owning a third of the CBD market, increased competition weighed on Charlotte’s Web. The company said that B2B sales were 31.5% lower year-over-year as the natural retail channel struggled with overcrowding due to increased competition. The company also stated that a lack of FDA regulatory guidelines for the F/D/M channel held back the adoption of ingestible products.

Customers though managed to find the Charlotte’s Web products online as DTC net sales grew by 29.4% through ongoing marketing and social media programs. The company said that year-over-year new consumer acquisitions increased 25% and conversion rates increased 77%. DTC net revenue accounted for 65.6% of total revenue in the first quarter compared to 50.2% for the same period in the prior year.

Cash Burn

The company used $14.9 million of cash in operations during the quarter versus the $3.7 million of cash that was used in the first quarter of 2019. The company said this was due to the construction of its new 137,000 sq. ft. production and fulfillment center to support anticipated growth. Still, the company is in great shape as its cash and working capital at the end of the quarter stood at $53 million and $114.9 million, respectively.

Looking Ahead

“We are modeling for revenue growth of 10% to 20% in 2020 and a return to positive adjusted EBITDA by the end of the year,” explained Russ Hammer, Chief Financial Officer of Charlotte’s Web. “As our new facilities come online later in the year, we expect to harness cost savings through our vertically integrated supply chain to support meaningful increases in adjusted EBITDA, and then continue to leverage against higher revenue as we enter 2021 and 2022.”

Canaccord Genuity analyst Derek Dley wrote in a research note dated May 13, 2020, “The company’s CPG focused management team is well-positioned to lead the company into newer markets as the FDA allows the FDM channels to sell ingestible products over time, in our view.”