Cv Sciences Inc

Greetings, and welcome to CV Science's second quarter 2024 conference call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. It is now my pleasure to introduce your host, Brendan Hawkins, and the rest of your relations. Thank you. You may begin.

Thank you, and good morning, everyone. With us today with prepared remarks are CB Sciences' Chief Executive Officer, Joseph Dowling, and York Grasser, Chief Financial Officer. After prepared remarks, we will take questions from the analyst community. We'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 actual results to differ materially from those anticipated by CB 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 in this call. The press release may be found at cbsciences.com. I would 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 second quarter ended June 30, 2024. We are pleased with our continued progress as we move closer to profitability and generating free cash flow on a sustained basis. Significant financial highlights during Q2 included We achieved revenue of $4 million, consistent with our $4 million revenue total for the second quarter of 2023 and the first quarter of 2024. Our Q2 gross margin of 47% represents sequential improvement from 46.3% for the first quarter in 2024 and is our highest gross margin in the last 13 quarters. We continue to maintain our number one position in the natural product retail channel, and we continue to increase our market share in this important B2B channel as well. We continue to execute on our M&A strategy as demonstrated by our recent acquisition of Elevated Softgels, a Colorado-based softgel 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 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. One of our top goals is to achieve greater scale and do so profitably. Another major goal is to position the company for an opportunity to list on a major stock exchange. For this to occur, we must have greater scale and be profitable. We are making great progress on this front. Over the last eight months, we have completed two strategic M&A transactions that are components to increasing revenue and scale profitably. The cultured foods acquisition completed in December 2023 continues to make progress in the EU marketplace as well as other non-EU markets. We are also making progress in preparing cultured foods products for launch in the U.S. market. We have worked on branding, packaging, regulatory compliance, messaging, and product formulation for the U.S. market. We expect to launch the first phase of plant-based protein products during the second half of this year. Our most recent transaction of elevated soft gels provides us with operational flexibility in serving our brand owner customer base. we are able to produce that low to large minimum order quantity production runs, which provides our brand owner customers greater flexibility, increases their speed to market of new product development, and with more efficient use of capital. Elevated Softgels is a GMP certified and FDA registered facility. This acquisition creates an opportunity to further increase sales to current and new clients have elevated. We are also actively moving toward insourcing production of certain of our key plus CBD products, creating potential for significant cost efficiency and further improvement of our gross margin. Also, during Q2, we continue to achieve other operational objectives, including Our new product development efforts continue during Q2 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 bus CBD brand, as well as other non-CBD products. Recent product launches include our pet chews for hip and joint health and calming care chews. 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 gross margin in Q2 of 47% improved again, demonstrating 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 loyal to brands that 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 evaluate our advertising, merchandising, and marketing spend to optimize our B2C return on investment. We are seeing good results in all critical B2C KPIs, including new investors, increased subscription orders, and average order value. We believe that further brand contraction, increased education, emerging cannabinoid science, and consumer trust in our company and 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 continues to be important for our growth strategy as new product sales generate a significant portion of total revenue each quarter. Consumers are demanding high-quality brands like our Plus CBD products, but they increasingly want multi-active ingredients that carry a structure function claim that can be trusted. We are addressing 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 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, and metabolic disorders. We believe that strong science supports our product claims, and we will win the trust and loyalty of our existing and new customers. The regulatory environment continues to be a challenge at both the federal and state level. We have seen progress in certain states, while other states need further attention. At the federal level, 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 three 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. Our drug development program in treatment of smokeless tobacco use and addiction remains a valuable company 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 by streamlining our operations and increasing our cost efficiency to align the company for growth and profitability. We have made great progress in building a lean, cost-efficient organization that is positioned to leverage our company's strengths. 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 three quarters, including cultured foods in December 2023 and just recently elevated soft gels, 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. Let me pause now, and I will turn the call over to Jörg.