Cv Sciences Inc

Greetings. Welcome to CVScience's first quarter 2024 conference call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone today should require operator assistance during the conference, please press star zero from your telephone keypad. Please note this conference is being recorded. At this time, I'll turn the conference over to Brendan Hawkins with Investor Relations. Brendan, you may now begin your presentation.

Thank you, and good morning, everyone. With us today with prepared remarks are CD Science's Chief Executive Officer, Joseph Dowling, and Jorg Grasser, Chief Financial Officer. After the prepared remarks, we will take questions from the analyst community. We'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 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, 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 GAAP expenses from its GAAP financial results. Please refer to CVScience's 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 have not already done so may wish to look at the press release as the company provides a summary of results on this call. The press release may be found at CVSciences.com. I'd like to now turn the call over to CB Sciences Chief Executive Officer, Mr. Joseph Dowling. Joe?

Thank you, Brendan. Good morning, everyone. Thank you for joining our call. This morning, we issued a press release reporting results for our first quarter ended March 31, 2024. We are pleased with our continued progress as we move closer to profitability and generating free cash flow on a sustained basis. Some of the significant financial highlights during Q1 included, we achieved revenue of $4 million, a sequential improvement from $3.8 million for the fourth quarter of 2023. Our Q1 gross margin of 46.3% represents our best gross margin in the last 12 quarters. We continue to maintain our number one position in the natural product retail channel, and we have also increased our market share in this important sales channel as well. We continue to execute on our M&A strategy. And just yesterday, we disclosed in a press release our acquisition of Elevated Softgels, a Colorado-based soft gel and tincture manufacturer. Before I continue, a few comments on the execution and implementation of our M&A strategy. As we have communicated for the last couple of years, we have actively reviewed numerous inbound and outbound M&A opportunities. We are looking for opportunities to increase revenue profitably and increase cost efficiency with transactions that can leverage our assets, including our brands, our people, and process, and our distribution. We know it is important to investors to achieve greater scale profitably. The same is true for CV Sciences to have an opportunity to list on a major stock exchange. We must have greater scale and be profitable. We are making progress. Over the last six months, we have now completed two strategic M&A transactions that are both components to increasing revenue and scale profitably. During Q1, we made progress in preparing cultured foods products for launch in the U.S. market. We have worked on branding, packaging, messaging, and product formulation for the U.S. market. We expect to launch the first phase of products sometime during Q3 of this year. We are also supporting our EU team in expanding sales in the EU and other non-US markets. Our most recent transaction of elevated soft gels provides us with operational flexibility, allowing low to large minimum order quantity production runs. allowing for efficient use of capital and the ability to increase speed to market of new product development for our customers. Elevated Softgels is a GMP certified and FDA registered facility. This acquisition creates opportunity to further increase sales to current and new clients of Elevated. We also intend to in-source production of certain of our key products creating potential for significant cost efficiency. Now, moving on, during Q1, we also achieved numerous other operational objectives, including our new product development efforts continued during Q1 as we are planning to launch several new products throughout the balance of 2024 that we anticipate will contribute to the organic growth of our flagship plus CBD brand, as well as other non-CBD products. And our cost efficiency efforts continue to result in a lower overall company cost structure with efficiency gains and cash savings in numerous areas, including SG&A. Our improved gross margin of 46.3% in Q1, again, our best margin in the last 12 quarters, demonstrates our commitment to continuous improvement in operating a cost efficient company. On the revenue side, our goal is to increase the scale of our company through organic growth and through our M&A strategy. Brand contraction continues to help us take market share in B2B channels as retailers continue to remove slow moving brands. In the natural product retail channel, we are the number one selling brand and continue to see market share concentration of the top four brands in the 60% range. Customers are sticking with or changing to brands they know and trust, and we are at the top of the list in the natural product retail channel. Our B2C sales channel continues to improve. We continuously invest in advertising, merchandising and marketing to optimize our B2C return on investment. We are seeing good results in all critical B2C KPIs, including new visitors, increased subscription orders and average order value. We believe that further brand contraction, increased education and consumer trust in our company and our strong brand will all help grow the B2C channel. 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 as new product sales generate a significant portion of total revenues each quarter. Consumers are demanding high-quality brands like our PlusCBD products but they increasingly want multi-active ingredient products that carry a structure function claim that can be trusted. We continue to proactively address this trend and have several planned product launches during 2024 to complement products under our wellness line, including our sleep, calm, and relief products and our over-the-counter topical lines. 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, there continues to be a lot of activity. We have seen progress at the state level and remain optimistic regarding further progress. Inaction by FDA and Congress is frustrating, but we continue to be actively involved in pushing Congress to make progress on a hemp and cannabis regulatory framework, including the possible rescheduling of cannabis to Schedule III status. Incremental legislative progress helps advance our industry and creates an environment where quality companies and products can be trusted to grow the industry in a responsible way. We believe our drug development program and treatment of smokeless tobacco use and addiction continues to be an undervalued asset. This technology, which is patent protected in 10 countries, covers methods of treating smokeless tobacco addiction by administering pharmaceutical formulations containing CBD and nicotine. We believe this drug development program has significant value, and even though we have paused development of this program internally, we continue to seek collaboration partners on this program. Our industry has challenges, but we are positioning ourselves to compete in the current environment. We are doing this in numerous ways. including by streamlining our operations and increasing our cost efficiency to align the company for growth and profitability. We have made great progress in structuring a lean, cost-efficient organization that is positioned to leverage our company's strengths, our employees, our products, the trust in our brand, and the strength of our distribution. Our strong operating platform has allowed us to utilize an M&A strategy to acquire assets that add revenue, increase our scale, and provide operational efficiency. Our acquisitions over the last two quarters, including Cultured Foods in December 2023 and just recently, Elevated Softgels, will add revenue to the top line and promote cost efficiency as we move toward profitability. We will continue to evaluate inbound and outbound M&A opportunities that support our strategic plan of increasing revenues and cost efficiency. Our immediate goal is to achieve profitability and cash flow positive as we continue to make progress toward that goal. Let me pause now, and I will turn the call over to Jorg.