CV Sciences, Inc. (PNK:CVSI) Q3 2023 Earnings Call Transcript

CV Sciences, Inc. (PNK:CVSI) Q3 2023 Earnings Call Transcript November 14, 2023

Operator: Good day, and welcome to the CV Sciences, Inc. Third Quarter 2023 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to CV Sciences. Please go ahead.

Brendan Hawkins: Thank you, and good morning, everyone. With us today with prepared remarks are CV Sciences’ Chief Executive Officer, Joseph Dowling; and Joerg Grasser, Chief Financial Officer. After prepared remarks, we will take questions from the analyst community. I would like to remind you that during this call, management’s prepared remarks may contain forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those anticipated by CV Sciences at this time. When used in this call, the words anticipate, should, could, estimate, intend, expect, believe, potential, will, project and similar expressions as they relate to CV Sciences are as such forward-looking statements.

Finally, please note that on today’s call, management will refer to non-GAAP financial measures in which CV Sciences excludes certain expenses from its GAAP financial results. Please refer to CV Sciences’ press release from earlier today for a full reconciliation of its non-GAAP performance measures to the most comparable GAAP financial measures. This morning, the company issued a press release announcing its financial results. Participants on this call who may not have already done so, may wish to look at the press release as the company provides a summary of the results on this call. The press release may be found at cvsciences.com. I’d like to now turn the call over to CV Sciences’ Chief Executive Officer, Mr. Joseph Dowling. Joe?

Joseph Dowling: Good morning, everyone. Thank you for joining our call. This morning, we issued a press release reporting results for our third quarter ended September 30, 2023. We are very pleased with our Q3 results as we continue to move towards a profitable and positive cash flow operation. Significant financial highlights during Q3 included: we increased our revenue to $4.1 million for the third quarter 2023, which is both a sequential and year-over-year increase in a very competitive environment where many of our competitors are experiencing significant revenue declines. We achieved a gross margin of 45.1% in the third quarter, which is again both a sequential and year-over-year increase. For the 9 months ended — of 2023 — for the first 9 months of 2023, we generated cash flow from operations of $2.4 million, which included the collection of $2.5 million of governmental tax credits.

Nevertheless, it is a huge improvement when compared to cash used in operations of $2.1 million for the first 9 months of 2022. We continue to have a balanced mix of B2B and B2C revenue, and maintained our number one position in the natural products retail channel. We are increasing our market share in the natural product retail channel while brand contraction and consolidation continue to weed out weaker brands. We are aggressively managing working capital to ensure timely conversion of our receivables and inventory to cash. And our cost efficiency efforts continue to result in a lower overall company cost structure with efficiency gains and cash savings in several areas, including SG&A. Joerg will provide details on each of these areas during his remarks.

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Q&A Session

Our Q3 financial highlights illustrate the tremendous progress that we have made to achieve profitability and positive cash flow. We have strengthened our operations and positioned the company to pursue and leverage both organic and M&A growth opportunities. Our asset-light business model is well-positioned to take advantage of an industry that is contracting and maturing requiring greater professional capability and trustworthiness. Q3 was a continuation of the diligent work of our team as we continue to see the positive financial impact of several years of hard work in properly scaling the company, putting us in a position to leverage the strength of our assets, including our B2B and B2C distribution, our flagship PlusCBD brand and the quality of our employees.

On the revenue side, our short-term goal continues to be to get the company back to a $5 million plus third quarter revenue run rate and much higher. During Q3, we continue to make progress in overcoming the supply chain issues we experienced during 2022. Brand contraction in all B2B sales channel is continuing as retailers are working through old inventory and removing slow-moving brands. As I mentioned, we are the number one selling brand in the natural product retail channel, and we continue to see market gains for CV Sciences and our flagship brand, PlusCBD. Customers are loyal to brands they trust, and we continue to see movement to our PlusCBD brand, which continues to be at the top of the list in the important natural product retail channel.

Our B2C sales channel continues to improve. Our B2C infrastructure is scalable and can support nearly unlimited traffic and activity. On a daily basis, our team works to optimize our merchandising and marketing efforts to optimize our ROI and to ensure that we are achieving our return on ad spend targets. We are seeing results in all critical B2C KPIs, including visitors despite much lower digital marketing spend. Brand contraction, increased education and consumer trust will all help grow the B2C channel, and we are prepared to grow the channel and take market share as the category contracts and evolves. We believe our B2B and B2C channels work closely together as our customers often learn about or even try our products from a B2B retailer and then over time, transition to a B2C customer.

The strength of our combined B2B and B2C distribution is a key asset and strategic consideration in our M&A strategy, which I will discuss in a few minutes. Product development will continue to be important for our growth strategy. We know that consumers are looking for high-quality and trusted brands like ours PlusCBD product that can address specific need states. We continue to address this trend and plan to launch new products similar to our wellness line, including our Sleep, Calm and Relief products, and our over-the-counter topical line. Earlier this year, we launched our innovative Reserve line to extremely favorable customer reviews and demand. We will continue to innovate and launch new products that are responsive to our customers and their specific needs, including for anxiety, pain and sleep disorders.

We believe that strong science supports our product claims and will win the trust and loyalty of our existing and new customers. On regulatory matters, we remain active with the U.S. Hemp Roundtable and other advocacy groups to provide Congress and the FDA with data and the information needed to advance sensible legislation for the hemp industry. As discussed during our Q2 2023 earnings call, a recent subcommittee hearing of the House Oversight Committee included strong testimony regarding CBD safety along with regulatory recommendations from industry experts to advocate for FDA and Congress to regulate CBD as a dietary supplement and food and beverage additive. We strongly agree with this recommendation and believe that current regulations governing dietary supplements are the starting point to establish a regulatory framework for the CBD industry.

The absence of federal regulation continues to be a challenge. This void has led many states to enact regulations that are extremely challenging and costly for companies to comply with. This has led to confusion for both retailers and consumers. Inaction by FDA and Congress is frustrating, but we will continue our active involvement at both the federal and state level, and will remain persistent in pushing Congress and FDA to make progress. We all know that a sensible regulatory framework will significantly benefit our industry and consumers and will create an environment where quality companies and products can be trusted to grow the category responsibly. Before I turn the call over to Joerg to discuss our financials, I want to briefly discuss our M&A strategy to help grow the company and increase shareholder value.