Cv Sciences Inc

Greetings and welcome to the CD Science's third quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session from the analyst community will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brendan Hawkins, Investor Relations. Thank you, sir. You may begin.

Thank you, and good morning, everyone. With us today with prepared remarks are CB Sciences Chief Executive Officer Joseph Dowling and Jorg Grasser, Chief Financial Officer. After the 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 risk 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 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 CVSciences 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 third quarter ended September 30, 2024. We continue to make progress as we move closer to profitability and generating free cash flow on a sustained basis. Significant financial highlights during Q3 included, we achieved revenue of 3.9 million consistent with our quarterly revenue total for the last several quarters. We continue to maintain a healthy gross margin and during Q3 achieved a gross margin of 46%, which compares favorably with prior quarters, and with Q3 of 2023. We have maintained our number one position in the natural product retail channel and have increased our market share in this important B2B channel as well. We launched Plus Health, an all-new line of cannabinoid-free supplements delivering targeted formulations for optimized health, improved performance, and increase vitality. Our initial launch of our Plus Health brand includes three new innovative supplements. Our first new product is Clarity, a cognitive enhancer. Our second is Peace, for help with occasional stress. And third, ReShape, for metabolism support. We are very excited about these new products. We continue to execute on our M&A strategy as well. Our recent acquisition of Elevated Softgels, a Colorado-based softgel and tincture manufacturer, is just one more step in our strategy to increase our capability, scale, and profitability. As communicated for the last couple years, we have actively reviewed numerous inbound and outbound M&A opportunities. We continue looking for opportunities to increase revenue with transactions that can leverage our key assets. One of our primary goals is to achieve greater scale and to do so profitably, which will help us achieve another major goal of positioning the company 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 11 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 their traditional European 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 rebranding, packaging, and product formulation for the U.S. market and expect to launch the first phase of our new plant-based protein products early in Q1 2025. Our recent acquisition of elevated soft gels provides us with operational flexibility in serving our brand owner customer base. We are able to produce at lower minimum order quantity production runs, which provides our customers with greater flexibility, increases their speed to market with new product development, and allows for more efficient use of capital. This acquisition creates an opportunity to further increase sales to current and new clients of Elevated We are also beginning the process of insourcing production of certain of our key plus CBD products, creating potential for significant cost efficiency and further improvement of our gross margin. On the revenue side, our goal is to increase the scale of our company through new product development, organic growth, and through our M&A strategy. Brand contraction continues to help us take market share in the B2B channel 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. Our customers are loyal to our brand because they know the quality and value of our products, which is a big reason We are the top-selling brand in the natural product retail channel. Our B2C sales channel continues to improve through targeted advertising, merchandising, and marketing efforts to optimize our return on ad spend. We are seeing good results in all critical B2C KPIs, including new visitors, increased subscription orders, and average order value. We believe further brand contraction along with consumer trust in our brand and company will help grow our B2C channel revenue. We are prepared to grow the channel and take market share as the category evolves. Product development is an important component of our growth strategy as new product sales generate a significant portion of total revenue each quarter. Consumers are more demanding, and not only do they want high-quality products like our CBD Plus CBD products, but they increasingly want products with formulations and ingredients that address their lifestyle and need states, including for pain, anxiety, and sleep disorders. Our product development efforts are addressing this trend, and we have several planned product launches in the first half of 2025 that we believe will provide incremental growth. Our product development efforts also include cannabinoid-free products, which are branded and marketed under our new Plus Health product line. Our initial product offering, which includes our Clarity, Peace, and Reshape products, have been well received by our retailers and customers. Our Plus Health products fill a growing demand for natural supplements that address today's key wellness challenges, offering consumers a cannabinoid-free alternative or complement to our best-selling CBD-based product line, PlusCBD. We have several new cannabinoid-free products in development to be marketed under our new Plus Health brand that we expect to launch in the first half of 2025. which we believe will be another source of incremental revenue for the company. All of our Plus Health product development efforts are rooted in rigorous science with clinically proven wellness ingredients. We are very excited about our new Plus Health product line and believe that strong science supports our product claims. We know we are winning the trust and loyalty of our existing and new customers. On the regulatory front, we are actively involved in shaping the regulatory environment 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 hemp and cannabis regulations. At the state level, we have had some success, but have work to do, including in California. In September 2024, California Governor Gavin Newsom signed an emergency order into law restricting the sale of hemp products intended for human use that contain detectable amounts of THC or certain other cannabinoids in California. The emergency order will remain in effect until March 25, 2025, unless extended in accordance with applicable law. We have certain products which fall under this category that we have historically sold in California. This emergency order negatively impacted our Q3 revenues. and enact sensible legislation that achieves public policy goals and allows for distribution of safe hemp-based products. However, we are not standing still and are mitigating current legislative headwinds with our cannabinoid-free product development efforts and M&A strategy and are confident that we can withstand these legislative setbacks, which we hope are temporary. We strongly believe that over time, a sensible regulatory framework will emerge that will help advance our industry and create an environment where quality companies and products can be trusted to grow the industry in a responsible way. Our industry has challenges, but we are positioning ourselves to compete in the current environment, including through new product development of cannabinoid-free products. We also continue to streamline our operations, 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 and key assets, including our employees, our products, the trust in our brands, 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 year, including cultured foods in December 2023 and elevated soft gels in Q2 of this year, 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, cost efficiency, and profitability. Let me pause now, and I will turn the call over to York.