CV Sciences, Inc.
Q2 2023 Earnings Call Transcript

Published: 14 Aug 2023

[Operator:]

Hello, and welcome to the CV Sciences, Inc. Second Quarter 2023 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Brendan Hawkins. Please go ahead.

[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 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 risks 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 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.cvsciences.com. I would like to now turn the call over to CV Sciences' Chief Executive Officer, Mr. Joseph Dowling. Joe?

[Joseph Dowling:]

Thank you, Brendan. 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, 2023. We are pleased with our continued progress as we move closer to profitability and generating free cash flow on a sustained basis. Significant highlights during Q2 included

[Joerg Grasser:]

Thank you, Joe, and also good morning to everyone. We continue to see a positive financial impact of our cost efficiency measures across all functional areas of the company. Over the last several years, we have significantly reduced our cost structure without significant productivity losses, and we are well positioned for operating leverage as we increase revenue. Our second quarter revenue was $4.0 million, slightly down compared to $4.1 million in the second quarter of 2022 and the first quarter of 2023. The year-over-year decline is mostly due to lower sales volume, partially offset by higher sales prices per unit. The overall CBD market continues to be fragmented and very competitive but we see further consolidation and contraction. Our direct-to-consumer business continues to perform well with modest digital marketing spend and associated sales represented 42.3% of total revenue in the second quarter compared to 44.6% a year earlier and 41.2% in the first quarter of 2023. We made solid improvements to our main digital KPIs. We were able to increase our visits to our website on a sequential basis despite lower digital marketing spend. Our conversion rate and AOV declined slightly compared to Q1 2023. And as Joe mentioned, we also made good improvements during the quarter with our subscription and loyalty programs. Gross margin for the second quarter of 2023 was 43.3% compared to 30.7% in the second quarter of 2022 and 43.0% in the first quarter of 2023. The improvement in the gross margin compared to the prior year is mostly due to reduced shipping and fulfillment costs as well as higher average sales prices, partially offset by lower volumes. We are working on further cost efficiencies in order to continue to improve our gross margin. SG&A expense for the second quarter was $2.8 million, significantly down from $3.5 million a year ago. These improvements are the direct result of our ongoing efforts to reduce our overall cost structure. We have taken costs out from all areas of our business and continue to do so in order to generate positive cash flow. For the second quarter 2023, we generated an operating loss of $1.1 million compared to an operating loss of $2.3 million a year ago. Our adjusted EBITDA loss for the second quarter was $1 million compared to $1.8 million in the second quarter of 2022. The improved operating performance and adjusted EBITDA loss as a result of our asset-light business model, which allowed us to implement cost savings throughout the organization to minimize our cash outflow. On a GAAP basis, we reported a second quarter 2023 loss of $1.3 million or $0.01 per share compared to a net loss of $2.7 million or $0.03 per share in the second quarter of 2022. Now let me turn to our balance sheet. We continue to manage our cash position very carefully and ended the second quarter of 2023 with $1.7 million of cash compared to $0.6 million at the end of fiscal 2022. Cash generated by operations during the first six months of 2023 was $2.4 million, a significant improvement from the same period a year ago, which had cash usage of $1.5 million. The improvement in our operating cash are mostly due to the receipt of our ERC funds of $2.5 million and lower cost of operations. We continue to aggressively manage our overall cash position with improved cash collections on our outstanding AR and daily management of our inventory and vendor payables. We continue to adjust our cost structure to be in line with our expected revenue with the overarching goal to generate positive operating cash on a continuous basis. Our inventory was $5.8 million at the end of the quarter compared to $6.6 million at year-end as we continue to focus on efficient cash management and convert our raw materials into cash. Our raw materials mostly consist of hemp oil, which we previously purchased and continue to convert into finished products. Our raw material balance has decreased from $3.6 million at year-end to $3.2 million as of June 30, 2023. Also in April 2023, we extinguished our note payables level and are now essentially debt-free. In addition, we have working capital of $2.8 million. With our improved balance sheet and our reduced cost structure in place, we have the financial flexibility to continue executing our plan and look forward to improving trends as the year unfolds. Now I will turn the call back over to Joe.

[Joseph Dowling:]

Thank you, Joerg. As Joerg and I have discussed this morning, we continue to position the company to achieve profitability and free cash flow in the near term. Our Q2 results show continued progress in achieving profitability and free cash flow. The contraction and consolidation of our industry is also a positive trend as the number of brands and products on shelf and online are both declining significantly allowing us to increase market share in both B2B and B2C channels. We are continuing to evaluate both inbound and outbound M&A opportunities and have seen a significant increase in acquisition opportunities. We will be selective, but adding revenue by acquisition is a viable strategy for us. We are also looking at other new domestic opportunities and selected international opportunities that will allow us to leverage our brand, infrastructure, trust in our company and the strength of our employees. As I mentioned in my earlier remarks, we are doing everything possible to advance sensible regulations at both the state and federal level. We are working closely with our industry peers to bring a unified voice to Congress and FDA. We remain optimistic about the short and long-term opportunity for our company and industry. We are making continuous improvement to ensure that we are scaled properly, operating efficiently and are focused on adding long-term shareholder value. We will continue to focus on our customers, retail partners, new product development and market development as we continue to position the company for long-term success. Thank you very much for listening this morning. I will now turn the call back over to the operator for any calls from the analyst community.

[Operator:]

[Joseph Dowling:]

Thank you, Kevin. I would like to thank everyone this morning for being a supporter of CV Sciences and our great products. We look forward to speaking again soon. Thank you.

[Operator:]

Thank you. That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.