cbdMD Q2 2023 Earnings Call Transcript

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Provided by Quartr
May 15, 2023

There are 6 speakers on the call.

Operator

Afternoon. Welcome to cbdmds, Inc. March 31, 2023 Q2 of fiscal 2023 earnings call and update. This afternoon, the company issued a press release that provided an overview of its Q1 results and subsequent filings 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 cbdmd.com in accordance with the CbdMD retention policies.

Operator

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.

Speaker 1

Thank you, Ariel. Thank you all for joining cbdMD's March 31, 2023, Q2 of fiscal 2023 earnings call and update. On the call today, we also have Ronan Kennedy, our Interim CEO and Chief Financial Officer and Doctor. Sybil 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.

Speaker 1

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 10Q 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 This call speaks 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 Ronen.

Speaker 2

Thank you, Brad. Good afternoon, everyone, and especially to our shareholders. Our results in the Q2 show that we are building The right strategic plan and the right team to deliver on results. Make no mistake, operating in our industry remains challenging 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.

Speaker 2

We moved to an asset light model shutting 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 unproductive contracts and repositioned our product portfolio to a higher strength offer. 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 Q2, we changed out our entire marketing team, our agency partners and revamped our marketing spend.

Speaker 2

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 and A spend by $6,000,000 for the March quarter or an annualized rate of $24,000,000 versus last year. Our SG and 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 had under $800,000 loss, resulting in an approximate $3,000,000 improvement over prior year and $1,800,000 improvement versus the December quarter.

Speaker 2

This represents one of the best net performing quarters we have had as a public brand on significantly lower revenues than prior better quarters. We are not satisfied or done and are moving with haste. We have a fantastic base platform and with just a little growth expect to have a positive EBITDA business. During the quarter, we successfully marketed on Meta after struggling during 2022. We continue to optimize our spend across channels and are carefully ramping based on performance.

Speaker 2

As our new team marked on a direct to consumer business and started to drive traffic, we saw a number of areas where we can improve our customer experience conversion rates and become more nimble. We are working to address these items and expect positive changes to our consumer experience with our online store in the coming months. We were excited to recently announce our launch on Amazon U. K. We were invited into their UK CV program and quickly reacted to comply with their onboarding process.

Speaker 2

There's a limited brand set in the CBD program in the U. K. And Amazon requires validated FSA product. While it did not have a significant impact in the second quarter, We believe we have partnered with experienced resources and expect meaningful growth out of the U. K.

Speaker 2

In the coming quarters. We believe that Amazon is a critical channel to ensure our products are part of the go to marketplace for consumers worldwide. As Subha will speak to more, we completed our PET clinical study and are excited about the credibility it brings to our products. While others may have small survey based clinicals, we designed ours with statistically significant participants with double blind placebo and we confirm our surveys with biological data. We continue to elevate the bar and believe these studies can support a structured function claim submission for a typical supplement.

Speaker 2

We are actively working to convert this investment into revenue dollars. Our team has also continued to expand our NSF for sport offering. Not only are we the 1st to commercialize NSF for sport product in our industry, we are the 1st brand to certify a gun. We now have 3 SKUs and higher strength products available under the certification. We continue to see significant and growing inbound interest from athletes and trainers across multiple professional leagues as they come to us to purchase NSF for sport product.

Speaker 2

We see this designation critical to consumers outside of professional athletes and believe the designation continues to enhance the credibility of the cbdMD brand. During the last 6 months, we focused on our business fundamentals and metrics. New product development has slowed. Our product development team has continued to work in the background on newer products that we believe will fill gaps meeting our customers' needs, but also add new and innovative products that we believe will expand our addressable market, opening both new customers and new channels. These should start in June and continue throughout the summer.

Speaker 2

Our goal is to work within our balance sheet and use the business improvements to provide enough liquidity for what the company needed. While you can see we made very strong strides to operate a much leaner and disciplined organization, the margin of error became too small. We worked to set up an equity line of credit to be able to provide extra liquidity as needed in a smart and judicious way. Unfortunately, our stock came Under strong pressure and needed to implement the reverse split to maintain compliance with the NYSE American. The post split pressure continued effectively limiting the capital cushion available under our equity line.

Speaker 2

We ultimately made the difficult decision to raise capital under existing shelf registration to bolster our balance sheet and provide comfort that we have capital to provide a long enough runway to profitability. The The capital markets are incredibly challenging at the moment, especially after the April banking crisis. And closing the all common deal was an important factor as we looked at the capital Maxim did a solid job in a very difficult market. We remain very focused on our capital structure and are exploring strategic options that we believe could have benefit to the company. On a final note before I turn it over to Sybil, I'm very encouraged by some of the industry activity we're seeing.

Speaker 2

While we believe the FDA continues to ignore safety and science available to them, we are seeing many conversations underway between our peers, Industry Organizations and Elected Officials on delivering a response to the FDA. We've seen the FDA's posture have real commercial impact And impede the growth of an industry that we believe provides real value to its customer base. Never have I been more encouraged about the resources coming together to put forward a strong response to the FDA statements earlier in the year. Many of our CBD industry peers operate legitimate businesses, Care about safety of consumers and understand that the industry is poised for significant growth with regulatory clarity. Like a tidal wave, Sometimes it can be hard to understand the inertia behind the wave until it gets to shore.

Speaker 2

We believe there is an industry swell building. And with that, I'd like to turn things over to Sibyl.

Speaker 3

Thank you, Ronen. My comments will be focused in 2 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.

Speaker 3

I will now update you on our 2 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 for 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.

Speaker 3

The clinical study at Colorado State University School of Veterinary Medicine explored 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 dog's typical activities or pain interference and pain severity as well as objective gait analysis in 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 of the outcome measures assessed using the client specific outcome measures and the CDPI as compared to baseline measures. Results of a trend for improvement in objective data analysis and accelerometry, both objective measures, which would not be impacted by caregivers' perception. In other words, the dog's behavior improved, activity increased and pain scores decreased when they consumed our broad spectrum hemp extract compared to baseline.

Speaker 3

That data supports what we have known for some time. Dogs with movement issues show improvement when they consume cbdMD's broad spectrum hemp extract. We will publish the data from this study later in 2023. The data generated from our clinical studies will be instrumental to guiding our product development roadmap. It confirms our products can help customers support their everyday health and wellness.

Speaker 3

We will use the data to guide future functional formulas in areas that matter most to our customers. After publishing the data in well respected peer reviewed journals, we will launch marketing campaigns focused on educating customers on the benefits of our core products, so they can better understand how our products can help them to achieve their goals. Our approach to developing compelling dietary supplements in a crowded field is to develop formulas which pair with our clinically proven cannabinoid ingredients with other clinically studied functional ingredients that have been proven to support areas that matter most to our customers, including sleep, mood and recovery. The data from our clinical studies has already informed our most recent launch of new flagship products for human consumers, including gummies, tinctures and softgels containing the same broad spectrum blends that was studied in the human clinical. The study's results will also guide future investigational studies executed by cbdMD's Therapeutics Division.

Speaker 3

On the regulatory front, I would like to update you on our recent efforts at both the state and federal levels. We have previously discussed our steps to address the lack of regulatory clarity and challenging the FDA's position and refusal to regulate. Filing our citizen's petition was a required step to follow the well established required regulatory pathway to challenge the agency. In January of this year, the FDA formally denied our petition and at the same time used a press release to state that they require new regulatory path for all hemp products. We strongly disagree with the basis for the denial and are considering all available options.

Speaker 3

Our products are dietary supplements and any responsible manufacturer of hemp derived supplements already complies with all applicable to federal regulations. I want to be very clear here as a former FDA official. It's been a decade since CBD was introduced as a dietary supplement choice and almost 5 years since the 2018 Farm Bill passed. In that time, FDA has been given over $5,000,000 to study CBD and has squandered that money on inappropriate and poorly designed studies. And after all of that, the FDA recently stated they do not have any path forward for hemp derived dietary supplements.

Speaker 3

This lack of FDA guidance has forced states to step in specifically to address the recent concerns of THC derivatives like Delta-eight, Delta-ten, THC O and HHC, none of which are legitimate hemp derived dietary supplements and all of which further confuse the objective of clear regulation of our products as dietary supplements. We have been and will continue to educate legislators at both the state and federal levels to ensure that customer access to legitimate hemp derived dietary supplements is preserved. In the States, we have been active as a company providing comments, Testimony in public hearings and working with trade groups and lobbyists to help craft positive regulation in states like Colorado, Florida and Virginia. Although there are still some hurdles to overcome with different regulatory requirements in different states that impact the sales of hemp derived CBD products, I can say that our efforts were successful and our products are able to be sold in those markets. We will continue to work directly and with trade groups and lobbyists to craft state regulatory policy and to amend existing regulations to ensure there's a robust market for our products.

Speaker 3

At the federal level, we've been speaking directly with legislators and committee staff for the past several years. And I'm encouraged by the recent level of engagement by both legislators and their staff. When the FDA denied our citizen's petition and simultaneously stated they needed Congress to provide a new path forward for all hemp products. We immediately contacted legislators the committee staffers who have been active in discussing hemp policy and provided them with our extensive safety and toxicology data, held face to face meetings and did follow-up phone calls, where we help to educate them on the science behind our safety studies. Notably, former HR 841 from last year's session was reintroduced in the House as HR 1629.

Speaker 3

This bill had significant bipartisan support in the last health session and shows the intent of Congress to regulate hemp derived cannabinoids as dietary supplements. We believe our efforts along with the efforts of our trade groups was instrumental in making this happen. And we are actively engaged with the bill sponsors to help further tailor the language so that it has a chance of passing in this session. Just last week, myself and a colleague were on the Hill directly lobbying members of the House Energy and Commerce Committee, where HR 1629 will undergo debate and markup before moving on. We spoke with the staffers in many offices, including Crenshaw, Villaracas, Duncan and Pence.

Speaker 3

We also spent significant time speaking directly to Representative Brett Guthrie, who is the Chair of the Health Committee that will be tasked with moving HR1629 forward. He was fully engaged and we feel that he understood our concerns. We also met with the lead staffer for FDA issues in the Energy and Commerce Committee and she also expressed a desire to get clarity and help get sensible hemp derived dietary supplement regulations on the books. There is much more work to do in a short time, but the groundwork has been laid and we will continue to be engaged. We also spoke with the Staff Council, Chief Oversight Council and the Staff Director for Congressman Jamie Comer, who recently sent a letter to the FDA demanding answers to questions related to the agency's failure to regulate CBD as a dietary supplement.

Speaker 3

As with everyone we spoke to on this recent lobbying trip, they appeared fully engaged and were asking questions to help them better understand and articulate the issues they will be seeking to answer in an upcoming oversight hearing. Our involvement with Representative Comer's office and their request for us to follow-up with them as they pursue oversight gives us hope that our issues will finally be addressed that there is a willingness in Congress to get something done this session. Lastly and certainly not least, we have the opportunity to spend time with North Carolina Senator Ted Budd and were able to discuss our issues and our suggested path forward. He is an avid consumer of dietary supplements and was very interested in hearing about our specific issues and educating himself on the topic. Given that Senator Bud represents the home state of cbdMD and is also the junior member on the Senate Health Committee, we believe that our efforts to inform and educate Senator Budd will pay dividends in the future if the bill is introduced in the Senate as all FDA related legislation must pass through help committee.

Speaker 3

Through our trade groups and the NPA PAC, a political action committee focused on supporting legislators who take action for sensible dietary supplement regulations. We will further our support for those congresspersons willing to hear our issues and take action. To further our efforts to educate both legislators and the public about the safety of hemp derived dietary supplements. We are working with other leading hemp derived supplement companies and a leading objective third party safety and toxicology firm to to bring the industry safety data together to recommend a safe daily use of CBD based on science. We are also working with other like minded hemp derived supplement companies who hold themselves to the highest standard to unite on a strategy to progress the dietary supplement path for CBD.

Speaker 3

In closing, we firmly believe our products are not drug precluded, that our products are legitimate botanically derived dietary supplements within the definition set forth in DSHEA and that we are fully compliant with all applicable dietary supplement regulations. We are advocates for a science based approach to health and wellness with regulatory clarity and fair treatment for our industry domestically and internationally. We believe we are the leaders of the industry and will continue to fight while others choose to sit back and wait, while we pave the way for legal cannabinoid products. With that, I would like to turn it back over to Brad.

Speaker 1

Thank you, Sibyl. Total net sales for the Q2 of fiscal 2023 were 6,200,000 or a 35% decrease from the prior year comparative quarter. Our quarterly e commerce direct to consumer business generated sales $4,900,000 in the Q1 of fiscal 2023. 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.

Speaker 1

E commerce represented 78% of our total net sales for the Q2 of 2023 versus 72% in the prior year comparative quarter. Our wholesale business generated $1,400,000 of net sales for the Q2 of fiscal 2023, down 56% as compared to $3,000,000 for the comparative quarter in fiscal 2022. 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 Q2 of fiscal 2023. This compares to 67% for the comparative prior year period.

Speaker 1

We expect to maintain gross profit margins in the mid-sixty percent range when factoring in sales mix. Our operating expenses for the Q2 of fiscal 2023 totaled $5,400,000 which is down from $11,500,000 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 2022. Overall, this resulted in a loss of operations of approximately 1 $400,000 for the Q2 of fiscal 2023 as compared to $4,700,000 loss for the prior year period, meaning we reduced our loss by dollars 3,300,000 over prior year on a GAAP basis.

Speaker 1

Sequentially, operating loss improved $2,500,000 from the December 22 quarter. This is primarily attributable to our continued reductions in operating expenses during the Q2. Our non GAAP adjustments to operating expenses for the Q2 fiscal 2023 included a $118,000 in non cash employee stock expense, dollars 380,000 in depreciation and amortization expense and $108,000 associated with non cash AR credits related to our marketing agreement with A360, resulting in a non GAAP adjusted EBITDA loss of $795,000 for the Q2 of fiscal 2023 as compared to a $3,600,000 non GAAP adjusted EBITDA loss in the Q2 of fiscal 2022. The decrease in non GAAP adjusted EBITDA loss over the prior year period is primarily attributed to management's focus on our cost structure and profitability. Sequentially, our non GAAP adjusted EBITDA loss improved by $1,800,000 from the December 2022 quarter.

Speaker 1

Based on April's results and our current quarter run rate, we are anticipating a continued reduction in both GAAP and our non GAAP adjusted EBITDA loss for the 3rd quarter. We invested $137,000 on cbdMD Therapeutics R and D during the Q2 of fiscal 2023 as compared to 193,000 in 2022. Our large clinical studies have concluded and we continue to seek Opportunistic ways to enhance our science in a cost effective way. We continue to believe the results from our clinical studies and other science provide us with a unique differentiated position for both product efficacy and education in that category. Other income expense on our consolidated income statement for the Q2 of 2023 includes a non cash contingent liability gain of $48,000 Related to our December 2018 acquisition of Tourbase Development.

Speaker 1

The earn out from this liability is currently on our balance sheet for 167,000 we are now in the 4th marking period that runs through November 2023. During the 2nd fiscal quarter of 2023, we utilized approximately $1,700,000 of cash. The main components include our adjusted non GAAP EBITDA loss of $795,000 and paid dividends of 1,000,000 we had cash and cash equivalents of approximately $1,700,000 and working capital of approximately $5,500,000 On March 31, 23, as compared to cash and cash equivalents of approximately $6,700,000 and working capital $10,700,000 as of September 30, 2022. Our current assets as of March 31, 2023 decreased approximately 37% from December 30, 2022 to $10,100,000 A primary driver of the decrease in current assets was the uses of cash for operations The reduction of prepaid sponsorship by $1,200,000 mostly attributed to the termination of athlete sponsorship. As of March 31, 2023, the company's total current liabilities were $4,700,000 of which approximately $1,400,000 is accounts payable $2,100,000 of accrued expenses.

Speaker 1

We remain very focused on managing our cash position and liquidity. After our recent common stock offering, we had over $4,000,000 in cash and are continuing to explore strategic ways to enhance our balance sheet. We continue to focus on our cash SG and A expenses and have some projects in the works to continue to optimize our costs and fine tune our margins. We remain focused on driving business KPIs, attracting new customers and delivering for all of our stakeholders. With that, I'll turn it back over to Ronan.

Speaker 2

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.

Speaker 2

We have stabilized our revenue and our business fundamentals continue to improve. We are committed to move with a 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.

Operator

Thank you. We will now begin the question and answer session. 1st. If you are using the speakerphone, please pick up your handset before pressing any 2. We will pause for a moment as callers join the queue.

Operator

Our first question comes from Anthony Vendetti of Maxim Group. Please go ahead.

Speaker 4

Thank you. So Ronen, You obviously have done a significant amount of work to reduce SG and A by $24,000,000 annually. Some of that I guess is 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 You know the where you're at right now and you'll reassess.

Speaker 2

Anthony, thanks for the question. Look, we've got Take a little bit more left 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 $1,000,000 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.

Speaker 2

But I think we're getting sort of near that bottom Infrastructure costs and are really focusing on growing the top line.

Speaker 4

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, 1, 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?

Speaker 2

Yes. Look, I think if you looked at the product mix that are sort of if you looked at the revenue mix The products that we're no longer selling, we had 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 CAC versus LTV didn't add up. So by reducing and pulling back some of that spend and driving the consumers into Our higher value, higher end products, we're seeing stronger retention and improved LTV rates. So as a result, sort of 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 put in place, our team sort of got started and was just starting to ramp things up in March.

Speaker 2

So we've learned a lot from March 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 conversion And return metrics that comes from our marketing spend.

Speaker 4

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 products and Some of the hemp products, I know there was obviously a lot of discussion about that from Carol, but just more generally how these new products Are doing so far? What's the initial traction so far?

Speaker 2

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. It's been a little slow that launch happened the end of last fiscal year, which is sort of right around that Then the 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 toward the end of the year.

Speaker 4

Okay, great. Thank you so much. Appreciate the color. I'll hop back in the

Speaker 2

queue. Thanks.

Operator

Our next question comes from Peter Merkel of Meditech Management. Please go ahead.

Speaker 5

Hi. Thanks for taking the questions. Could you give a little color on the U. K. Launch and how that's going?

Speaker 5

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?

Speaker 2

Peter, 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.

Speaker 2

We've just sort of onboarded some incremental resources That has 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 Quarter or 2. 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 I believe it was end of March that's been ramping up.

Speaker 2

We are seeing some nice exposure coming from that. And I think as 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 and to really focus on driving traffic to our site and being able to identify and drive Conversion from a lot of media's allocation through A360.

Speaker 5

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

Speaker 2

So with Wegmans, Wegmans we are seeing healthy reorders coming from them. We don't get comparative data versus other brands, but we are seeing some acceleration here over since January On some of the sell through. We as we've learned, we are not in every single one of their locations, but from what we have 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 you a sustainable cash flow position. So I think there is a balancing act of could we buy out some preferred Use the cash now, how much does that really save us over the next 12 months?

Speaker 2

And is it better to Reserve the cash at the moment. So we're having a lot of conversations around how to best handle that.

Operator

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

Speaker 2

Thank you everyone for your questions and interest and we look forward to speaking again on our 3rd fiscal quarter call in the next few months.

Operator

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

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