Cv Sciences Inc

Greetings, and welcome to the CV Sciences' fourth quarter and year-end 2022 conference call. At this time, all participants are in listen-only mode, and this conference is being recorded. I would now like to turn the call over to CV Sciences for an introduction. Please go ahead.

Thank you, and good morning, everyone. With us today with prepared remarks are CV Sciences' Chief Executive Officer, Joseph Dowling, and York Grasser, Chief Financial Officer. After the prepared remarks, we will take questions from the analyst community. I'd like to remind you that during this call, management's prepared remarks may contain forward-looking statements. These forward-looking statements are subject to risk 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, could, estimate, intend, expect, believe, potential, will, should, project, and similar expressions as they relate to CV Sciences are, as such, a forward-looking statement. Finally, please note that on today's call, management will refer to non-GAAP financial measures in which CB Sciences excludes certain expenses from its GAAP financial results. Please refer to CB 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 www.cbsciences.com. I'd like to now turn the call over to CV Sciences Chief Executive Officer, Mr. Joseph Dowling. Joe?

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, 2022. Before I turn the call over to your to comment on our Q4 and full year financial results, I will provide an overview on our accomplishments during 2022, the continuing challenges we face and the steps we have taken and continue to take to remain a competitive force in our industry. Our industry has faced serious challenges since early 2020, and those challenges, including brand saturation and continued inaction by FDA and Congress, persisted in 2022. Despite the challenging environment, we have made significant progress to position the company to achieve profitability and free cash flow in the near term. Over the last several quarters, we have discussed the challenging external environment on our industry and company. Our proactive steps during 2022 to address these challenges were significant and included. Continued realignment to make sure we have the right personnel, the right partners, and the resources to optimize our operational effectiveness. Personnel realignment during 2022 continued. Our headcount at the end of 2022 was 44, down 27 positions from the end of 2021. Three, we have evaluated 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. We have optimized our facility costs. During 2022, we moved from a 30,000 plus square foot facility to a facility that is approximately 6,000 square feet. This move alone 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 online work schedules. We completed the outsource of our warehouse fulfillment operations with an established 3PL operator that has enabled our warehousing and fulfillment to become more cost efficient while at the same time improving shipping times and customer service to both B2B and B2C customers in all geographic regions. The original business model of CV Sciences was to solely be a distributor of hemp biomass, primarily CBD oil. We exited that business several years ago, but are still working through CBD oil inventory. Up until 2022, we process nearly 100% of our CBD oil needs. In 2022, we fully exited the oil processing phase of the supply chain and are now working with manufacturing partners at a much lower cost to process our CBD oil inventory and needs and at the same high value of quality our customers expect. 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. We are now starting to realize the positive impact of these cost-efficiency measures. Jorg will discuss the specifics of this positive financial impact during his comments. On the revenue side, Our immediate goal is to get the company back to a $5 million plus per quarter revenue run rate and higher. We know this revenue goal is in near-term sight. We are overcoming the supply chain issues we experienced during 2022. We are starting to see brand contraction in B2B as retailers are working through old inventory and removing slow-moving brands. In the natural product retail channel, we are the number one selling brand and we continue to see market share concentration of the top three brands in the 50% range. Customers are sticking with brands that they know and trust and we are 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 return on investment. We are seeing results in all critical B2C KPIs, including new visitors, increased subscription orders and revenue, and ALV. 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 evolves. We know from our long commitment to the B2B channel how important product quality, safety, and customer trust is to growing the category. Customers can often learn about or even try our products from a B2B retailer and then transition to a B2C customer over time. This is one reason why both B2B and B2C channels are important and work synergistically. Product development will continue to be important for our growth strategy. 36% of our fiscal year 2022 revenue was from new products launched since May of 2021. Consumers are not only looking for high-quality products like our Plus CBD products, but they increasingly want multi-active ingredient products that carry a structure function claim that can be trusted. We are proactively addressing this trend and during 2022 launched several new products under our wellness line, including our sleep, calm, and relief products and our over-the-counter topical line. Also during 2022, 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 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 optimistic, but know that patience will be required. We have seen progress at the state level and remain optimistic regarding further progress. While inaction by FDA and Congress is frustrating, we continue to be actively involved at the federal level in pushing Congress to make progress on a hemp and cannabis regulatory framework. Incremental legislative progress creates a reality that hemp and cannabis are constructively legal at the federal level already. This helps advance our industry and create an environment where quality companies and products can be trusted to grow the category responsibly. I also want to comment on our drug development program in treatment of smokeless tobacco use and addiction. We recently issued a press release announcing that the company received its formal certificate of grant from the Japan Patent Office for its patent application 7216697 for our drug development asset. The patent covers methods of treating smokeless tobacco addiction by administering pharmaceutical formulations containing CBD and nicotine. TV Sciences has also filed corresponding patent applications that provide similar patent protection in additional key commercial markets with patents already granted in the United States, Canada, Australia, Germany, Great Britain, France, Spain, Netherlands, and Italy. We believe this program and asset have significant value. While we have positive element of this program internally, we are seeking collaboration partners on this program. The challenges in our industry continue, but we are positioning ourselves to compete in the current environment. During 2022, we continue to streamline our operations, increase our cost efficiency, and realign the company for growth and profitability. We have made great progress in structuring a very lean, cost-efficient organization that is now repositioned to leverage our company's strengths, which includes our employees, the quality of our products, the trust in our brand, and the strength of our distribution. We will be able to achieve profitability and cash flow positive at a much lower revenue number than many of our competitors because of the tough decisions that we have made and our much lower business model cost. Let me pause now and I will turn the call over to Jorg.