CV Sciences, Inc. (PNK:CVSI) Q4 2023 Earnings Call Transcript

CV Sciences, Inc. (PNK:CVSI) Q4 2023 Earnings Call Transcript March 28, 2024

CV Sciences, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings. Welcome to CV Sciences’ Fourth Quarter and Year-End 2023 Conference. At this time, all participants are in listen-only mode. The question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. At this time, I’ll turn the call over to Brendan Hawkins. Mr. Hawkins, you may now begin your presentation.

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 the prepared remarks, we will take questions from the analyst community. I’d like to remind you that on today’s call, management’s prepared remarks may contain forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause the 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 the 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?

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Joseph Dowling: Good morning, everyone. Thank you for joining our call. This morning, we issued a press release reporting results for our fourth quarter and for the full year ended December 31, 2023. We are very pleased with our Q4 and full year results as we continue to drive revenue through product innovation and operating the business cost efficiently as we move closer to profitability and cash flow positive. We recently completed our acquisition of Cultured Foods, a plant-based food company located in Poland, which spearheaded our transition to a global health and wellness company. Also, we continue to evaluate and pursue additional M&A opportunities that will allow us to leverage our strengths and assets. Over the last several years, we have built an efficient and cost-effective consumer products platform.

Significant highlights during 2023 included. We generated revenue of $16 million for fiscal 2023 compared to $16.2 million for 2022, basically flat year-over-year revenue in a very challenging environment. Our gross margin of 44.3% for the fiscal year 2023 improved significantly from 34.2% for 2022. We further established our number one position as the top-selling hemp extract brand in the natural product retail sales channel with a market share of 25% according to SPINS, the leading provider of syndicated data and insights for the natural, organic and specialty products industry. Our strong product innovation efforts continued during 2023 with numerous product launches, including our reserve collection, extra gummies and softgels in Q1, our new daily balance line of THC-free gummies and softgels also in Q1.

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Q&A Session

Our reserve collection extra sleep gummies in Q3 and earlier this week, we announced our expanded pet offering with the launch of pet chews for hip and joint health and calming care chews. On the expense side, we continue to operate more efficiently as we reduced operating expenses to $9.9 million for fiscal 2023, a 20% reduction from 2022. And as we have discussed over the last several years, we believe that an M&A strategy is an important component of scaling our business, consolidating our industry and leveraging our assets and strengths. As announced in 2023, we are excited about our acquisition of Cultured Foods in Q4 of 2023. Cultured Foods is a leading manufacturer and distributor of alternative plant-based vegan foods, which provides us with a foothold in the European Union that will allow us to leverage our key strengths and competencies and represents a key milestone in our transition to a global health and wellness company.

Joerg will provide more detail on these financial highlights. Our industry has faced serious challenges since early 2020. And those challenges, including brand saturation, continued in action by FDA and Congress, and historically high inflation, continue to persist. Despite the challenging environment, we have made significant progress to position the company to achieve profitability and free cash flow. We continued our proactive steps during 2023 to address these challenges and some of the highlights are. We continued realignment to make sure we have the right personnel, the right partners and the resources to optimize our operational effectiveness. Personnel realignment during 2023 for our US-based operations continued. Our US headcount at the end of 2023 was 38 down five positions from the end of 2022.

We continuously evaluate every vendor relationship, including contract manufacturers, packaging suppliers, ingredient suppliers, every professional service provider, including legal, accounting and other consultants to ensure that we have the right partners and are receiving optimal value. Facility, transportation and shipping costs are significant components of our cost structure that we monitor constantly. Our facility costs were dramatically reduced during 2022 when we move from a 30,000 plus square foot facility to a facility that is approximately 6,000 square feet. This move alone has resulted in annual savings of approximately $1 million with zero decline in productivity. The timing of this move was ideal and coincided with a hybrid work model resulting from the pandemic that includes both remote and on-site work schedules.

Our transportation and shipping costs are an area where we are continuously implementing process change to improve cost efficiency. Over the last couple of years, we have implemented a 3PL warehouse fulfillment model that is constantly scrutinized for cost efficiency, while at the same time, improving shipping times and customer service. This is an ongoing effort and an area we believe further cost savings can be achieved. All of these initiatives fully embrace our long-standing commitment to an asset-light business model that can take advantage of an industry that is maturing, becoming more professional and trustworthy. However, we are evaluating strategic opportunities to in-source manufacturing for some of our product form factors that could help achieve further cost efficiencies.

We have realized a positive financial impact from these cost efficiency measures. But our commitment to continuous business improvement is constant and we expect further efficiency gains in 2024 and beyond. On the revenue side, our immediate goal is to increase sales. Revenue increases will come from several areas, including organic growth as the CBD category stabilizes from years of uncontrolled brand expansion and lack of regulation. Increase in market share in our core channels as the number of brands continues to contract, penetration into new markets such as pet, non-CBD supplements and plant-based food products. Product innovation will bring new customers to the category and invigorate our existing customer base. And last, strategic M&A acquisitions to add other CBD brands or non-CBD brands or services to our business platform.

Significant brand contraction continued during 2023. Retailers and consumers are sticking with brands they know and trust. In the natural product retail channel, we are the number one selling brand and we continue to see market share concentration of the top four brands in the 60% range. Customers are sticking with brands that they know and trust and our flagship +PlusCBD brand is at the top of the list in the natural channel. Our B2C sales channel continues to improve. Our B2C infrastructure is built for scale and can support nearly unlimited traffic and activity. We continuously improve our merchandising and marketing investment to optimize our B2C ROI. We are seeing results in our critical B2C KPIs, including site visitors, and we have made good progress in our subscription and loyalty programs.

Brand contraction, increased education and consumer awareness and trust will all help grow the B2C channel and we are prepared to grow the channel and take market share as the category evolves. Product development will continue to be important for our growth strategy. Consumers want high-quality brands like our +PlusCBD products, but they increasingly want multi-active ingredient products that carry a structure function claim that is backed by science and can be trusted. We continue to address this trend under our wellness line, including our sleep, calm and relief products and our over-the-counter topical line. We will continue to innovate and launch new products that are responsive to our customers and their specific need states, 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 numerous advocacy groups, including the US Hemp Roundtable to provide Congress, the FDA and other federal and state agencies with data and the information needed to advance sensible legislation for both the hemp and cannabis industries. While inaction by FDA and Congress is frustrating, we have seen incremental progress and remain optimistic regarding a regulatory framework. We were pleased with the 2023 announcement by the Department of Health and Human Services recommending cannabis be rescheduled to Schedule III. And we, along with everyone in our industry, are hopeful that the DEA will agree with and act on this recommendation.