Charlie's best-selling e-liquids remain in the select minority of PMTA submissions to the FDA - across the entire vapor products industry - that are still viable
COSTA MESA, CA / ACCESSWIRE / April 12, 2022 / Charlie's Holdings, Inc. (OTCQB:CHUC) ("Charlie's" or the "Company"), an industry leader in the premium, nicotine-based, e-cigarette space, today reported results for the fourth quarter and full year ended December 31, 2021, and provided an update on recent business highlights.
Key Financial Highlights for 2021 (compared with 2020)
- Revenue increased 29% to $21.5 million
- Gross profit increased 20% to $11.1 million
- Operating income improved by $7.3 million to $0.6 million
- Net income improved by $12.0 million to $4.8 million
Key Financial Highlights for Q4 2021 (compared with Q4 2020)
- Revenue increased 53% to $6.5 million
- Gross profit increased 47% to $3.1 million
- Operating income improved by $1.3 million to $0.6 million
- Net income decreased by $2.1 million to $2.1 million
Key Business Highlights During and Subsequent to 2021
- The Company appointed Edward Carmines, Ph.D., accomplished scientist and Premarket Tobacco Application ("PMTA") expert, to Charlie's Board of Directors
- Charlie's best-selling e-liquids remain in the select minority of PMTA submissions to the FDA that are still viable; the FDA has issued Marketing Denial Orders or "Refuse-to-File" letters to 99% of the PMTAs that were submitted by other companies
- The Company announced Board changes in preparation to apply for uplisting to a national securities exchange
- Charlie's successfully uplisted to OTCQB Venture Market
Results of Operations for the Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020
| For the years ended | ||||||||||||||
| December 31, | Change | |||||||||||||
| 2021 | 2020 | Amount | Percentage | |||||||||||
($ in thousands) | ||||||||||||||
Revenues: | ||||||||||||||
Product revenue, net | $ | 21,496 | $ | 16,692 | $ | 4,804 | 28.8 | % | ||||||
Total revenues | 21,496 | 16,692 | 4,804 | 28.8 | % | |||||||||
Operating costs and expense: | ||||||||||||||
Cost of goods sold - product revenue | 10,423 | 7,478 | 2,945 | 39.4 | % | |||||||||
General and administrative | 8,750 | 10,873 | (2,123 | ) | -19.5 | % | ||||||||
Sales and marketing | 1,734 | 1,733 | 1 | 0.1 | % | |||||||||
Research and development | 24 | 3,378 | (3,354 | ) | -99.3 | % | ||||||||
Total operating costs and expense | 20,931 | 23,462 | (2,531 | ) | -10.8 | % | ||||||||
Income (loss) from operations | 565 | (6,770 | ) | 7,335 | -108.3 | % | ||||||||
Other income (expense): | ||||||||||||||
Interest expense | (34 | ) | (134 | ) | 100 | -74.6 | % | |||||||
Change in fair value of derivative liabilities | 3,545 | (300 | ) | 3,845 | -1281.7 | % | ||||||||
Gain on debt extinguishment | 1,060 | - | 1,060 | 100 | % | |||||||||
Other income | 14 | 17 | (3 | ) | -17.6 | % | ||||||||
Total other income (loss) | 4,585 | (417 | ) | 5,002 | -1199.5 | % | ||||||||
Income (loss) before income taxes | 5,150 | (7,187 | ) | 12,337 | -171.7 | % | ||||||||
Income tax expense | (342 | ) | - | (342 | ) | 100 | % | |||||||
Net income (loss) | $ | 4,808 | $ | (7,187 | ) | $ | 11,995 | -166.9 | % | |||||
Management Commentary
"We finished 2021 on a strong note and overall had a very successful year, as we returned to near 30% revenue growth and operating profitability," reported Matt Montesano, Charlie's Holdings, Inc. Chief Financial Officer. "Our fourth quarter performance was even stronger with 53% revenue growth and operating income of $584,000. A major highlight of our financial progress and improved operating efficiency was the continued reduction of operating expense as a percentage of revenue, which was as low as 39% for the fourth quarter. We plan to continue this trajectory and improve our capital markets positioning so that the market price of Charlie's stock is more reflective of our business performance."
Ryan Stump, Charlie's Chief Operating Officer, commented, "We remain highly confident in our PMTA submissions, as our extraordinary efforts and investments over the past several years set Charlie's PMTA apart from those submitted by our peers and we believe these efforts have put us in the best possible position for success. At present, Charlie's PMTA is in the 'Substantive Review' phase with the FDA. Our commitment to providing Charlie's customers with a trusted product portfolio - in full regulatory compliance - remains steadfast."
Henry Sicignano, Charlie's President, explained, "With a solid plan in place to address all of the FDA's new regulatory requirements, we are once again focusing on growth. In the last few months we doubled the size of our sales team, introduced to the market many dozens of new disposable vape SKU's and, with the passing of COVID-19 pandemic restrictions, rejuvenated our trade show initiatives in major cities around the world. Indeed, we believe Charlie's has already begun to gain market share; in 2022 we intend to increase sales substantially."
Charlie's Best-Selling E-Liquids are in the Select Remaining PMTA Submissions to the FDA that are Still Viable
During the quarter ended September 30, 2020, the FDA's Center for Tobacco Products informed the Company that Charlie's PMTA had received a valid submission tracking number, passed the FDA's filing review phase, and entered the "Substantive Review" phase. To date, Charlie's has invested more than $4.4 million for the Company's initial PMTA submission. Charlie's engaged a team of more than 200 professionals, including doctors, scientists, biostatisticians, data analysts, and numerous contract research organizations to create the Company's comprehensive PMTA submission. During the quarter ended September 30, 2021, the FDA began issuing Marketing Denial Orders for electronic nicotine delivery system products that lack evidence to demonstrate that permitting the marketing of such products would be appropriate for the protection of the public health. As of March 31, 2022, the Company has not received a Marketing Denial Order for any of its submissions. Management believes this news highlights Charlie's progress toward achieving full regulatory compliance and the Company's objective of providing customers with a trusted product portfolio.
Highlighted Growth Opportunities
As more fully described in Charlie's annual report on Form 10-K that was released today, the Company intends to focus on three primary vehicles for growth in the coming year. First, Charlie's plans to increase sales of the Company's hemp-derived products, including topicals, ingestibles and disposable vape devices. Charlie's believes there is a significant growth opportunity in the hemp-derived products space and has, therefore, already begun to shift focus to this burgeoning market for products containing compounds synthetically derived from hemp, including Delta-8-Tetrahydrocannabinol ("Delta-8-THC") and other synthetic tetrahydrocannabinol ("Synthetic THC") compounds. These product categories have grown rapidly, as they offer consumers a range of benefits across varying potencies and product formats. Charlie's has also recently allocated additional financial resources to increase e-commerce sales of hemp-derived products.
Second, Charlie's has recognized a significant opportunity for sales growth in international markets for the Company's e-liquid and other vapor products. Presently, approximately 15% of Charlie's vapor product sales come from international markets. Charlie's is well positioned to increase sales in the countries where the Company already has a presence and, leveraging its international distribution platform, in additional overseas markets as well. Specifically, the Company intends to launch proprietary new disposables, containing synthetically derived nicotine, that have been specially formulated for the European and Middle East markets. In partnership with the Company's international distributors, Charlie's intends to sell award-winning products in markets where more than 20% of the population already consumes nicotine in some format.
Most importantly, Charlie's believes that tobacco and synthetically derived nicotine vapor products will continue to provide a significant growth opportunity domestically. During the quarter ended March 31, 2021, the Company launched its synthetic nicotine (not derived from tobacco) PACHA product line. Since then, PACHA disposables have provided access to additional sales channels and have broadened significantly Charlie's customer base. The innovative disposable product format currently represents Charlie's most important, fastest-growing product category.
Simultaneous to launching a host of new disposable vape products, the Company is continuing with its plan to obtain marketing authorization for certain of Charlie's nicotine-based vapor products through the completion of a PMTA with the FDA. To this end, earlier this month, the Company announced the appointment of Edward Carmines, Ph.D., to Charlie's Board of Directors. Dr. Carmines is an accomplished scientist and regulatory affairs expert with extensive experience working with the Center for Tobacco Products at the FDA. Having successfully navigated the FDA's Substantial Equivalence, PMTA and MRTP regulatory pathways for hundreds of products, Ed Carmines is a world-renowned expert who will greatly benefit the Company in its PMTA initiatives.
Obtaining a marketing order from the FDA will, Charlie's believes, help to remediate any perceived health issues related to vaping, and will further strengthen the Company's position as a trusted, industry leader. The Company believes that a significant number of its competitors will not have the necessary resources and/or the expertise to complete the extensive and costly PMTA process. Accordingly, if its PMTA is authorized by the FDA, Charlie's believes it will benefit significantly from emerging as one of a select few companies able to continue operating in the flavored vapor products space.
Financial Results for the Twelve Months Ended December 31, 2021:
- Revenue: For the twelve months ended December 31, 2021, revenue was $21.5 million, an increase of $4.8 million, or 29%, compared with $16.7 million for the same period last year. The increase in revenue was primarily due to a $4.4 million increase in Charlie's nicotine-based product sales, and a $0.4 million increase in sales of the Company's hemp-derived products. The increase in the Company's nicotine-based vapor product sales is directly related to the launch of its PACHA Syn (formerly Pachamama Disposable) product line, which currently represents Charlie's most important, fastest-growing product category. PACHA Syn Disposables became Charlie's first-ever entrant into the rapidly expanding, disposable e-cigarette market and offer users a variety of premium flavors containing synthetic nicotine (not derived from tobacco) in a compact, discrete format.
- Gross Profit: For the twelve months ended December 31, 2021, gross profit was $11.1 million, an increase of $1.9 million, or 20%, compared with $9.2 million for the same period last year. The resulting gross margin was 51.5%, compared with 55.2% for the same period last year. The decrease in gross margin is primarily due to an evolving sales mix that includes a greater percentage of the Company's PACHA Syn Disposable product line, which carries a lower margin per unit relative to the Company's other vapor products. Cost of revenue was also negatively affected by a larger than normal provision for inventory obsolescence during the period related to certain of the Company's hemp-derived wellness products, as well as higher per unit shipping costs due to implications of the Prevent All Cigarette Tracking Act ("Pact Act").
- Total Operating Expense: For the twelve months ended December 31, 2021, total operating expense, including general and administrative, sales and marketing and research and development costs, were $10.5 million, a decrease of $5.5 million, or 34%, compared with $16.0 million for the year ended December 31, 2020. Operating expense as a percentage of revenue decreased to 49% from 96% for the periods compared. This was primarily due to costs incurred during 2020 associated with the Company's PMTA submissions to the FDA as well as comparably higher non-cash stock-based compensation and salary expense.
- Operating Income/Loss: For the twelve months ended December 31, 2021, operating income was $0.6 million, an improvement of $7.3 million, compared with an operating loss of $6.8 million for the year ended December 31, 2020.
- Income Tax Expense: The Company's income tax expense was $342,000, or 6.6% of income before income taxes, for the year ended December 31, 2021. The Company did not incur any income tax expense for the year ended December 31, 2020.
- Net Income: For the twelve months ended December 31, 2021, net income was $4.8 million, compared with a net loss of $7.2 million for the twelve months ended December 31, 2020. Of note, net income for the twelve months ended December 31, 2021 included a $3.5 million gain in fair value of derivative liabilities and a $1.1 million gain on debt extinguishment.
- EPS: For the twelve months ended December 31, 2021, diluted earnings per share were $0.01, compared with a net loss per share of ($0.04), for the twelve months ended December 31, 2020.
About Charlie's Holdings, Inc.
Charlie's Holdings, Inc. (OTCQB:CHUC) is an industry leader in the premium, nicotine-based, vapor products space. The Company's products are sold around the world to select distributors, specialty retailers, and third-party online resellers through subsidiary companies Charlie's Chalk Dust, LLC and Don Polly, LLC. Charlie's Chalk Dust, LLC has developed an extensive portfolio of brand styles, flavor profiles, and innovative product formats. Don Polly, LLC creates innovative hemp-derived products and brands.
For additional information, please visit Charlie's corporate website at: CharliesHoldings.com and the Company's branded online websites: CharliesChalkDust.com, PachamamaCBD.com, and Pacha.co.
Safe Harbor Statement
This press release contains "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements regarding the Company's overall business, existing and anticipated markets and expectations regarding future sales and expenses. Words such as "expect," "anticipate," "should," "believe," "target," "project," "goals," "estimate," "potential," "predict," "may," "will," "could," "intend," variations of these terms or the negative of these terms, and similar expressions, are intended to identify these forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond the Company's control. The Company's actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to: the Company's ongoing ability to quote its shares on the OTCQB; whether the Company will meet the requirements to uplist to a national securities exchange in the future; the Company's ability to successfully increase sales and enter new markets; whether the Company's PMTA's will be approved by the FDA, and the FDA's decisions with respect to the Company's future PMTA's; the Company's ability to manufacture and produce products for its customers; the Company's ability to formulate new products; the acceptance of existing and future products; the complexity, expense and time associated with compliance with government rules and regulations affecting nicotine, synthetic nicotine, and products containing cannabidiol; litigation risks from the use of the Company's products; risks of government regulations, including recent regulation of synthetic nicotine; the impact of competitive products; and the Company's ability to maintain and enhance its brand, as well as other risk factors included in the Company's most recent quarterly report on Form 10-Q, annual report on Form 10-K, and other SEC filings. These forward-looking statements are made as of the date of this press release and were based on current expectations, estimates, forecasts and projections as well as the beliefs and assumptions of management. Except as required by law, the Company undertakes no duty or obligation to update any forward-looking statements contained in this release as a result of new information, future events or changes in its expectations.
Investors Contact:
IR@charliesholdings.com
Phone: 949-570-0691
SOURCE: Charlie's Holdings, Inc.
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