CVSI - Earnings call transcript Q4 2020

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Operator

Good afternoon, and welcome CV Sciences Fourth Quarter and Full Year 2020 Earnings Conference Call. All participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded. I would now like to turn this conference over to Ms. Dunn]. [Elisa Ms. ahead, go Please Dunn.

may begin. You

Unidentified Company Representative

to this results Financial materially good uncertainties Thank this forward-looking estimate, that during during with are Dowling; this These words will, statements With like anticipated statements expressions Chief today and session. call, such statements potential, may management's may management CV from anticipate, forward-looking everyone. should, are believe, remarks subject you, and remind risks by sciences are contain that Grasser, similar Joseph and and actual forward-looking prepared as Officer, a CV us those as Executive to time. may and the would cause When call, could, additional remarks differ afternoon, Sciences relate at they Q&A CV Sciences' you I statement. Officer. prepared project expect, forward-looking used intend, in Joerg to Chief the to make

may release refer call, comparable CV afternoon, Sciences a so, call. to expenses may this provides on wish its issued the company Finally, from This its to full this to press press March XX, of financial at as have a of at Participants Please the please from done certain note results. the measures will most look measures. be announcing financial www.cvsciences.com. results call, its measures not excludes today's The that non-GAAP reconciliation results. company press release already who GAAP management release press summary may found on the the which to sciences financial performance GAAP on today CV financial a for earlier in release non-GAAP

Chief the I Officer, open Mr. prepared Dowling. Sciences' Q&A a like now call Joe? Joseph CV over analyst remarks, we to up for Following the turn the Executive community. to would will from

Joseph Dowling

pandemic healthy in are you the [Elisa]. our company and a these and discussed conference challenging due am our retail be the and that have to hope XXXX proved industry, responded earnings us headwinds COVID-XX. your for and families customers, on and impact for calls. The you, we times. extended provide significant circumstances, intensified joining of staying predominantly Thank to you to today's afternoon, pressures previous under regulatory service thank the how uncertainty very our customers. uninterrupted adapting Good I for year-long COVID-XX and of competitive safe We difficult proud such quickly call. year our company continuing for challenging created to

CV third including of during to due COVID-XX, CV the We long-term Sciences, daily Acute our CV in are Consumer products, X the sustainable a primary products privileged products Defense team reflecting employees products demand to the competitive upon past of immunity Innovation health quarter. awareness first new provide for these long-term in will value for XXXX quality to growth. the that platform strong several deliver heightened immunity creating and our and and corporate focus: dedicated wellness. year, mission daily and and surged areas have of and strategy. introduced advantages our a committed of underscoring We for remain

science-based much-loved a available the line through practitioners. grew family quarter, wide formulated XX% pet CBD XXXX, $X.X days, double-digit natural, address our market, immunity an by is plant-based opportunity The and of market enables we that for at products post-marketing exclusively for we per medicines. introduced pet in estimated is on growth alone, these This approximately product rapidly projected clinical natural for alternatives in only as through of alternative CBD annually CV supported Sciences. of to members. owners cats. a $X clinical is is which future ProCBD at in is studies we This are randomized dogs growing turned full last full launched a hem consumers to market the in line PlusCBD high-strength very the in compelling extracts XXXX, XX% ProCBD, and America Pet, increase exclusively good strong published line In practitioners strength In health us estimated products also line to at year rates. product product the interest to annually review. behind billion the increasingly drive XX and controlled a We investigations, billion the by to market are ailments encouraged in safety science reaching the growing and and range North by position and believe over target fourth

distribution refreshed our and X,XXX carrying products. the us expand the ended We significantly products in packaging year New retail stores our helped XXXX. over breadth of with

a strategy, the FDM significant channel our store QX, as fourth sharp net came quarter. from the the for our of our XXXX. additions of in acceleration position entered Importantly, the A portion to Consistent we strengthening we with to majority soon account distribution store on our convenience quarter line announcement progress And expansion with on third into the continue value the of channel in channel. our the c-store lane. introduction store growth anticipate make We XXXX. expansion product during happy continued

core channel strategy, our forward. continued growth a direct-to-consumer going and element including during XXXX of Our our remains investments

including competitive position a pressures, competitors We thousands by of mitigating also barrier impact capabilities environment. been out in entry strengthen building regulatory our while have to under-defined digital low to new the very of external our

traffic from what and in programs a product Sales accounted channel The that for is and profitable DTC managing in customer investments during channel our understanding new ship up with resulted behavior, the costs. result development. well development in revenue website stronger Our acquisition XX% of is relationship of the fourth have of while XX% our total positioned for continued quarter quarter, affiliate DTC purchase triggers closer gaining net having XXXX while insight a auto customers, fourth valuable in our XXXX. effectively for SEO growth and

To we the in our on development sales. brand For XX-plus and full great be partners we our developing efforts across this customers. XXXX, of products the refresh brands XX% SKUs XX% represented have and X and these received at nearly PlusCBD-branded and to DTC front XXXX, or product to from flagship product XXXX. the summarize year compared packaging sales refreshed market marketing feedback total under sales channel of effectively we distribution industry. We us multiple efforts category launched And believe position new new and during

On the diverse enforcement. front, work group to with are Washington, that continue stakeholders oversight a regulatory regulation, we advocating CBD D.C. and for of

standards of staff Sciences' in product consumers. improve Standards laboratories. protects the working industry and transparency CV the testing National Cannabis Technologies accuracy of example, and For robust laboratory Assurance and program cannabis Institute Quality been Having the on and capability have with to supports methods

in for framework we goes credible eliminating most We of Monday look is hemp allowing that dietary a This U.S. have in channels, by Congress see will economic and in hemp that reminder it of consumers surge This quickly a rule growth legal like and and hemp Program farmers. farmers Final confident framework yet has CBD Sciences have month, H.R.XXX, young hemp support provide which sales opportunities must United and act In the what occur to Rule, remain effect which that States for the unregulated the clear FDA is reintroduced a provides hemp a Agriculture FDA the to which published regulatory effectively. Consumer all regulatory D.C. protects XXXX, and the U.S. Act expected good a availability made farming to we the clarity will to of addition, CBD the only of successfully CBD like. into way consumer be companies for CV the energized open Hemp industry CBD regulatory across mature Protection To hemp-derived Market businesses conversation establish Department regulated demand significant and CBD, supplements the industry the compete Stabilization enforcement and products. U.S. catalyst to and trustworthy Production that has Domestic this of how and

Now I move to will our drug development program. on

discussed that from previous XX, our December granted our patent issuance of received Also, on notification calls, in drug we the was notice As XXXX. the Japanese received earnings market. the May for Japanese on patent XXXX, we in patent office USPTO from formal

success, validation We strong are patent U.S. grants, Japan prosecution major as And by our program. patent world our markets. our provides evidenced and for continuing the in

our completed Phase studies I toxicological study. support in our and planned of have clinical pharmacological We

through a guidance We have global do impacted logistics a date work operations and COVID-XX. continue to result, I for not we by clinical commencing Phase And a as yet. trial,

this looking in very that at smokeless $X is an program effective market. due few continue worldwide However, success our billion. therapeutic forward, are we options improvement starting We and addiction. options the we as to see forward. impacted effective, believe we for program partnering. that global are Conservative are treatment move are strongly this We big to drug of including know the a to developing move to estimates treatment this at all of development potential start operations COVID-XX program tobacco There in

to Before turn and over We generally. it in the reiterate the development, want environment to Joerg, with have industry. goal to expansion colleagues. our our cannabis to regulatory industry I will continued and confidence CBD, advance believe partners Congress the and our the I of with Congress and administration of current opportunity industry a responsibly continue we work and big that And members on

companies and and like current that will and pandemic, at sustainable will the resolve. We be environment the are the regulatory uncertainty confident trusted Sciences CV the environment normalized will of and and competitive market. more most growing including evolve this respected the COVID-XX headwinds, A forefront thrive competitive

Joerg turn it to run let financials. our to me over Now, through

Joerg Grasser

everyone. you, afternoon, Joe, and Thank good

$X.X and QX third to from basis, sequentially be as uncertainty. a million sequential retail in concentrated competitive down The decline million XXXX, Our fourth quarter year-over-year $X.X was we the in as by our related to channel. quarter related well revenue dynamics to impacted factors $X.X fourth compared quarter. regulatory of On million from COVID-XX was was to in continue the

XXXX, for at busy. business a down XX.X% XX.X% QX. XX% FDM and in over of XXXX. of pretty the retail and teams reductions XX.X% quarter much quarter year-over-year development we fourth stores putting fourth quarter. the X,XXX earlier related DTC sales were quarter revenue accounted third the basis year. QX quarter, earlier the third fourth significant on was year-end as took the our with a the was revenue FDM, consistent mostly sequential a fourth E-commerce The a distribution count basis, end ended to of Direct-to-consumer in the X,XXX locations, up in a revenue compared Our X,XXX in increase increase On our increase quarter year XXXX. to during of the had we store in retail represented in of We from total revenue price the XX% of with channel stores

the start website of good the compared As main of in KPIs, third our training all to been the XXXX in the digital Joe XX.X% quarter of since XX.X% our Gross of upwards outlined, have and made all improvements was quarter related fourth we The our gross which million and million and including XX.X% fourth the for the pandemic. websites our across XXXX. for our quarter associated margin year-over-year visitors, included of impact founder. to margin decline $X.X the quarter fourth is tax settlement of of $XX.X RSU also price in lower reflects receivable the reductions. expense of SG&A mostly of was volume the a with write-off to

Excluding this and SG&A expense basis. quarter sequentially, the write-off, year-over-year actually a fourth on our declined for

quarter So and we the our outlined of savings with end annualized first our million to structure, line of efforts the of target the ongoing first in Cline $XX XXXX. at reflects we cost of that our reduce are

XXXX or of million a of quarter share quarter GAAP share outflow. On the $X.XX result our adjusted continued improvements adjusted improved also $X.X loss efforts loss quarter or fourth in reported fourth of $X.X net $X.XX EBITDA to was compared and million for $X.XX of cash a a third to quarter our $X.X in XXXX. or basis, We in million XXXX. million The million third to and $X.X a compared Adjusted net of the loss quarter quarter fourth we EBITDA the per the per loss EBITDA. million $X.X of loss fourth a our made minimize $X.X to the is in

turn me Let balance sheet. to our now

in Cash manage our fourth and XXXX. million to the to continue quarter end XXXX up cash shares quarter during total in December of provide very to of to to $X.X $X.X $X.X cash XX, to XXXX, million year to operations to flexibility fiscal XXXX by and of a plan cash the fourth ended compared compared December, as our XXXX, trends entered partially we the million losses other improvements was agreement $XX In and operations. in at improving $X.X sufficient stock the purchase unfolds. through continue we capital executing Entering efficient to us a compared million offset into million net higher to factors. reflecting issue sell of at million XXXX, million We in look the end access position carefully used and with of working as continue Inventory our was grow year earlier have to our financial cash $XX forward our management. we to order the $X.X focus

Now turn over call Joe. will the to I back

Joseph Dowling

Joerg, thank you.

in drug for and aspirations that is significant and in abate. a We divisions something both that growth and the realistic the consumer at. valuable We are development we can market, product are opportunity be future. believe cannabis believe confident remain will We that headwinds current including which gradually broader made, and our regulatory looking progress and our

the strategy. a commitment Operator? quality start that, science-backed our and all safety, can to winning We is which innovation, product Q&A. we will of believe we With continue

Operator

line Instructions] [Operator Northland with Mike Securities. comes of the first Grondahl from Our question

Mike Grondahl

a on line? and there? secondly, EBITDA the breakeven the you revenue of in seen And you kind more on products, then kind sort guys bit the new adjusted Could is what Yes. kind update that for end is give of of you've us a level of what little markets

Joseph Dowling

we Joerg, second Mike, Well, launched line. breakeven early question, in line tell immunity really first half the to too it's The the joining into the And really launched recently and included our we good late let take XXXX to line, and is all that pet these our based new and also our tell afternoon, and not know pro just a from turn The side. as X it then the kind me and brands we've cover on for I'll DTC lot question. we're he we new the call. can thanks of you product that received enthusiastic same but also and retailers only the the side. thing and getting that feedback we're the in-store one BXB confident can that's it consumers. sell-through, we on placement feedback on is And feedback, products. initial future And of our distributors, from from and over

those type So think that soon the brand. we're New Happy Lane, specifically of Lane and optimistic did as being in our X consumers. as distribution feedback from include retailers channel ability remarks, not discussion. gains convenience about for brands of with store to as my all We And about their from the an that targeted channel, I same traction. Happy you and from gain Lane distributors in heard well initially anticipate c-store announcement lane Happy we is Happy

also very, flagship sort is is So product team we're very optimistic. And products, what supplement you brands can wave tell working on as will as of which brand new of next these I that new well our some already development the our of PlusCBD.

summarize, I Mike, been of feedback far the So to so great. kind has guess

except where there with this happens on X by be a a just on somewhat little more product that times products, year So cannot color one a -- was That typically that new would the disrupted resets BXB thing, the side, bit for COVID-XX. shelf on year. any you twice are get really cycle

expect get retailers we that the a going back in a so more with twice year we're reset typical side. to BXB And to our in cycle XXXX,

about So again, breakeven second turn -- of excited he launched, potential. Joerg, about optimistic the and new over we revenue. And very can all talk future that brands I'll the the and we're think to are X question, about we

Joerg Grasser

revenue XXXX, $X.X different Yes. when $XXX,XXX. When and to daily of we business we we $X gets $XXX,XXX in on it quarter day all the about we rate Mike, modeled business million, based took on -- when first about run it's Joerg. you measures, million. our of rightsized a a the

cash to our to get where breakeven. flow that's would we like goal internally, So

Mike Grondahl

from XQ on guys, or it. February Got of the in March? any Any January, revenues pickup And kind comment XQ, level?

Joseph Dowling

Yes.

So is guidance tough.

We at over on And kind it We trillion, years, have consumer Putting is in be as We a which the then see look spending that all at coming of economists in terms, once look kind about And this every that like better. the We will was contraction at we're think Americans single aligned $X.X to will in And seems spending data macro biggest of U.S. QX. the some a we're weeds XXXX. by expect QX. we're this, guys be while, the in XXXX know QX growth the I recovers in in facing good all that half X.X%. think to GDP trillion to about economic we where same spending was of second sense by where QX. though XXXX at of macro we're data, XX fell probably we less the XXXX consistent off with year And you look than the where every then that day. -- and $XX.X consumer was consumer during spending. XXXX data. looking

on And we as during we about obviously, growth. and relationships space, well standpoint. where product a the And side, on of And we channel. doing, obviously XXXX So DTC we stronger able and heavily can well. in shelf We're get that, sequential your a how all we're to we think to do Joerg scale are business, for brand, the puts as to year, kind reset maintain our position progress to but fully and XXXX. growth, looking a question be to a us back brands one the of the this go think positioned positioned XXXX, to BXB really as we during there really our our and did relationship. and about expecting back time, think are where we're focused that they're work being to making talked to from that we're start distribution distribution DTC those very of well we kind good positioning grow

control, and sure relates making table, XXXX we as optimistic. which Congress, with we working impactful, be And at are making including a things. we beyond, areas we to overall, and the to impact have to can the areas We're do. sure fully the where we it seat So can't control and FDA we're

we're tough we're spending yes, optimistic the to well and to the it's see time, our but a level. economy So with going as next that performance. we're improves, to improves consumer And positioned it improvement make also

Operator

question next Fortune Roth Our with of Scott from Instructions] the [Operator line Partners. Capital comes

Scott Fortune

CBD wanted -- category. Just still growing a is -- you're in

share, seeing quarter-after-quarter. competition year-after-year, you grow it get and Canadian a competitive consolidation? the coming you positioning enough there? kind competitive the seeing of as in we're to time growing involved CBD landscape tough looks have not market down maybe And seen Where LPs us more have versus the kind just Or -- that understand are your there. So from we that's out help of space, environment market

Joseph Dowling

Thanks, Yes. Sure. Scott.

a went we couple several of And brands, the space -- if go a there plus. that X,XXX to So went were from back handful maybe years years, of a you dozen. of half in

seeing to -- We then the haven't In a in the to of impact positive seen going CBD getting it's more in bigger to water we and so the because the Canadian multiple really yet. you're develop of think now CBD the brands are and we And the some their the market, than toe and bring think credibility cases. LPs brands players, to start into put some space. respects, some own their thing Canadian LPs

Congress this trade them work regulation. as various we with table advance together members with we're with and at as and know as the the associations we of to think, legislation also We because well

So ways, it we helps. think, some in

think also accelerate and to going help of contraction consolidation. that, We to because it's

Is over data to billion that TAM be $XX same market, kind I'm I going. it's years? it's next So mean It a of looking like I be. in will or soon too you U.S. evaluate where going billion this several the think the that are, looks $XX to it sure. we're the at the

it's a significant so market. And

groups at the dive from if think industry, I One is that on of yet. answer And as key you a they something things grabs. one X that the still research look yet. at key for settled this But to that was that the the one and things we of up look a deep really of that is of isn't loyalty takeaways takeaways the interesting on no. thought is very a And I of of is brand defined that we guess does And comment. brand was one the the kind we at, look CBD made consumers

there are There a of there. yes, are lot there. a so small lot out out And brands of brands

to be while. of all us a here think going I know they're after not

contraction, of grabs. to them. the brands be as Are think we're of says, some really I I there, amount research get out are -- the be brand that there is one think able going loyalty, significant be that to consolidation. trusted But a -- will further able up to which for the that

optimistic. that's I responsive So Scott. question, to we're hope your

Scott Fortune

helpful. need No, I just mentioned drive come of And shifting new That's way, growth. that. then kind you to another we of Yes. product to kind appreciate innovation, board on

your You mentioned, division, just on ramp new to Kind pet products. of and look or professional forward channels development product formats through side, of immunity here? different as in kind XXXX you obviously, product step of emphasis some different moving those just the us out the

Joseph Dowling

Yes.

it's So product, to by at this point. channel hard by down break really

we see once the that more the all product the that more we're big launched for the BXB refresh I that We think true the a gain during think on year. that think, once to I brands on sort new going traction channel, side. many side the going effectively. do we XXXX. is X that. able shutdown, be to think, with market that brand to for mentioned on will that The optimistic normalized X new quite we're be affected by we to brands question, practitioners were of And we start on an we penetrate And We flagship think reset, into Pro all our brand. a We as us think COVID-XX emphasis PlusCBD DXC our opportunity first well. this we're same is of get

brands brand on flagship we refreshed launched optimistic brands new that launched well as we're we during as X ProCBD PlusCBD as and all the XXXX well. So that of

Operator

of comes Our next Sandler. Michael line with Piper question Lavery the from

Michael Lavery

Just the love you've yet, But the would I is parts. this know count the and launches in down expansion quite some during brand -- quarter the versus especially. understand color all year about was the before, to it's COVID. one of a some lowest sequentially, back in-store XQ talked way last even moving It's bit the FDM, new to there and smaller. was 'XX that

So I'd mid-quarter, where is wouldn't Can pieces What's to there from the understand it's together even help parts? benefit be so all assume way the pipeline you right moving the sales, offset? not the quarter if us? were for of the all launches full fill. maybe a a put just

Joseph Dowling

Yes.

there So mismatch a not easy about answer, of of think is your one when think -- there's count store you but a it's an questions revenue. is and I bit

that between this in during is it is his we a of in and large that that before accounts, talked retailer. from revenue this in nationwide the of the by accounts FDM Joerg progress to with products the the some and 'XX answered D.C. mismatch earlier prepared but centers, fact to And was about FY takes while shelf. increase And distribution good the a shipped year store increase the they mostly get due to remarks, a we've couple FDM count made but with

and ups kind scenes the sort to downs, to quarter-to-quarter. really behind the of detail that understand need of that's you the have So of some access

regional of in couple our a of In SKUs. only have FDM we addition, accounts, one

an And impact. had that so

just sort retail as X those mentioned, of natural reason. the the limited with product -- for was I And So also was the cycle But of factors those in reset appended. appended same COVID product reorders channel of because all retailers. it

forward, question, really some It's that's some really products your our our of regional, it's It's but think goal so to there's our you as are -- until BXB parts, channel-by-channel. to and relationships maintain FDM them, retailers with it's a and I Michael. of these in places to shelf really cases, in can is But products. in continue grow retailers especially And all overarching space, product-by-product. comfortable FDM, also with -- adjustable going lot imagine. focus part stocking topical moving It's -- to build

Michael Lavery

Are -- coming distributor That's Do if helpful if they the now? is color. the you going see wholesale sitting to I start inventory, be of where imagine are And that start Can you on x even more have least you some out at there's of number sense stores, or coming out Or wholesale if due that the of, replenishing? those it's a layer sense levels to end? would of your give estimates. have of still added still you you visibility, a they of layer? sit

Joseph Dowling

frequent and So I -- related, XXXX. think related throughout consumer we're And and saw just reorders. this closure store BXB generally, it on really saw the seeing related spending less and we side, -- think we're I was pandemic lockdown but we

frequent we there's any going through a reorders good channels, work don't way think in And -- we're start to thing. excess inventory of in more our sort our see as XXXX. to so I think which is I the

consumer larger loosen expect coming that that I the opportunity, to more starts going lockdown see So the we a would to frequent orders and up up, think spending picks as as up bit, spending we're through. picks

Operator

line Gerald Pascarelli. Our of question from comes next the

Gerald Pascarelli

has My first on context on, just over the one been as thoughts high-level would you on helpful. Canadian months last beverages thoughts Any high-profile on and team provide XX maybe CBD ask with is be in been CBD U.S. the innovative the how of I the launching Joe, LPs have particular, of sponsorships. in active that kind your beverages in some how could category. a beverages, the And

Joseph Dowling

considered footprint has on think based have the bigger which for are as Canadian research innovative. be if supplement some beverages beverages CBD. Gerald. one both of the to very are dietary LPs a kinds regulatory some exciting The watched categorize interesting. think a the Yes, -- too. to reasons. considered I here of be of would we in you're going know regulatory I could well, to category a supplement them which, be to we they're side and to be and to Thanks, if food. legal them that don't presume be available products they're try to or U.S. be to a dietary going I a all we is of a and hope significant of and going And those couple very big distribution going some for

that's uncertainty of to comes beverage market. so And sort when the it an

beverage the think that the we've -- to I get distribution to it. is It's looked at key. into important and the space,

be think, a has in I that so place, And anybody really vertical. to player that for to be significant in

Gerald Pascarelli

My us XQ? Any is guess that, new just competition in helpful. in I price the is there to that in addition up then -- just there to from is pricing. Can at of price you kind show from where still you is in Got into earlier on a cycled decrease next your year? color you be another Or some it. have think category? fully in is, cadence question going to -- the Where decrease the next that perspective, entrants do XXXX? That's is remind And some point potential take would helpful.

Joseph Dowling

all ensure Yes. We and sales channel dependent dependent. pricing our market line They're constantly to so that is product different. little monitor a the competitive. product It's

a to premium I don't with bucket the value, think a and real happening and be distribution of over the I it of then but sure line trying I then on the we're going target kind have premium. like X And there distribute and as of to yet, at we And I think product think component different our there that be compression smaller And something further be those are to middle. sort dependent, too. premium price we I going the maybe development them in of or pricing, into a to in And product be do Lane we're something that product that and pricing think that depending category, brand might in I how the could as bucket. well we could looking products opportunities look in. terms time. that channel value key we're product it's do be that to product it's sort in a I it's any Happy and if products a associated what size. is into those buckets pricing think think have of of channel. market mid-price might going that be there market little And see with making think of a competitive then line, buckets channels settled there's will

to So Gerald. question, I answer think fits-all there's that don't one-size a

premium of, I I think what a and and like it's yet. know more complex. don't the say, mid-price line might mix a And look product value

that will that's determined. to and think be few take I for still years evolving, a it

Gerald Pascarelli

helpful. that's Joe,

Just XQ breakeven one from show fully you up XQ? the you you in that the cycled -- are year? and still Are on cycling -- the is then going to follow-up margin. have Or last price decrease come

Joseph Dowling

It's been fully cycled.

Operator

like the question-and-answer gentlemen, back closing of reached and remarks. today's to over Dowling session. we Mr. have to end I Ladies call would this for Joseph

Joseph Dowling

stay Please our to all long-term growth joining you time. you want We opportunity. us remain healthy of this again. I during and for your confident Thank support, Well, thank safe and today. with appreciate

Operator

This conference. concludes today's

may You for of enjoy at time. evening. Thank lines the your participation your your and rest you this disconnect

CV Sciences (CVSI) 19 Mar 212020 Q4 Earnings call transcript