Edited Transcript of CVSI earnings conference call or presentation 8-May-19 8:30pm GMT

With that let me take a minute to run through highlights of the quarter and then I will let Joerg run through our financials. I will finish off our prepared remarks with comments on our business developments before opening the line for Q&A.

The first quarter was a milestone for CV Sciences as we shipped our first order to the national drug retailer CVS, marking the beginning of what we believe will be broad expansion of CBD products across national food, drug and mass merchandiser accounts. We initially did not disclose the name of this large new account under agreement with the customer, but have since been given permission to discuss publicly.

Currently our PlusCBD balm is available in stores across about a half a dozen states. In total we added over 1,000 new retail doors during the first quarter alone and generated 85% revenue growth to a record $14.9 million with good gross margin performance and positive cash flow. Our PlusCBD brand continues to be the number one selling hemp-based CBD product line in the natural products retail channel according to the data aggregator spend SPINS.

In addition, we are currently conducting pilot programs with several other large FDM retailers and look forward to providing an update on these partnerships at an appropriate time.

The first-quarter growth, both year-over-year and sequentially, was achieved despite the anticipated short-term disruption in three or four states that we discussed last quarter. On our 2018 earnings call, we communicated on pressure placed on retailers from state-level public health departments who have issued cautionary comments or policy statements on hemp-based CBD accessibility. These state-by-state differences are the result of being in a period of state-level oversight with differing CBD regulation as the industry awaits the regulatory process to play out at the FDA.

California has been a particularly difficult state due to aggressive action by the Department of Public health. However, there is some very positive state legislative efforts, including in California, that will be extremely beneficial and provide clarity to the hemp industry.

An example of this is assembly Bill 228 in California. This legislation has passed through two legislative committees with unanimous support and is widely expected to pass as early as July 1. The Bill would allow the inclusion of industrial hemp or cannabinoid extracts and derivatives in food, beverages or cosmetics.

California is an extremely important market with a population of 40 million people and this legislation is timely and critical as we expand our industry and this product category. We know that Governor Newsom is a true forward thinker who championed cannabis legislation in California and we look forward to working with his administration, just as we have done in other states, to allow the hemp industry and hemp-based CBD products to continue to prosper.

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

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Joerg Grasser, CV Sciences, Inc. - CFO [3]

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Thank you, Joe, and good afternoon, everyone. I'm honored to speak with you today. I'm very excited about my new role and look forward to starting a dialogue with all of you in the future.

During the first quarter we generated 85% revenue growth to $14.9 million compared to $8.1 million in Q1 2018. This growth was driven by rising consumer interest in and demand for hemp-based CBD, new product launches and the further expansion of our retail distribution footprint.

We entered the first quarter with PlusCBD Oil branded product sold in 3,308 retail stores nationwide, a 45% increase from the end of the fourth quarter of 2018. Rising consumer demand and growth across each of our distribution channels contributed to our strong revenue growth during the first quarter. However, please note that initial shipments to our largest new account came near the end of the quarter and did not contribute significantly to our first-quarter net revenue.

Our strong year-over-year revenue growth translated into a 90% increase in gross profit and a 190 basis point increase in gross margin to 70.8% of net revenue in Q1 2019 compared to 68.9% in Q1 2018.

In the first quarter we generated adjusted EBITDA of $1.7 million compared to $1.8 million in the first quarter of 2018. The modest decline reflects investments we have made in additional management resources and business systems to support our continued growth.

On a GAAP basis, for the first quarter of 2019 we reported a net loss of $9.4 million or $0.10 per share compared to net income of $0.6 million or $0.01 per fully diluted share in the first quarter of 2018. The net loss in the current period included $7.9 million of non-cash stock compensation expense and $0.9 million of payroll expense, both associated with the retirement of our founder, as well as $2.1 million of additional non-cash stock compensation expense.

Adjusted net income for the first quarter of 2019, excluded (sic - excluding) these expenses I mentioned, was $1.5 million or $0.01 per fully diluted share. This compares to adjusted net income in the prior period of $1.7 million or $0.02 per fully diluted share.

Our operations and organic growth have continued to strengthen our balance sheet. As we ended the first quarter of 2019 with $13.6 million of cash. We generated $0.8 million of cash from operations during the first quarter of 2019 and increased our cash balance by $1 million. Inventory at the end of the first quarter amounted to $8.7 million, slightly up from $8.6 million at year-end. Inventories are continuing to be scaled up to meet market demand.

Now I will turn the call back over to Joe to discuss business development.

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Joseph Dowling, CV Sciences, Inc. - CEO [4]

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Thank you, Joerg. Our business development activities remain robust. As we noted last quarter, the passage of the 2018 Farm Bill has significantly expanded retailer interest across the channels of distribution which materialized into new distribution in the first quarter. We are currently in conversations with multiple additional national retailers and in some cases in pilot programs with retailers. We expect to see addition to distribution wins over the coming months.

Our history in the category, our production capabilities, product quality and science are resonating with retailers. We are also developing new products to support our retail growth including additional topicals as we have seen the greatest near-term retailer acceptance of topical products.

Our balm is already our second best selling SKU and we see opportunities to expand this area of our portfolio. For example, we are currently testing a roll-on product and it has received favorable response from retailers.

To support for growth we are making progress on our 2019 initiatives, including the implementation and deployment of efficiency and automation resources including sales force, to enhance all of our sales and marketing initiatives and support our e-commerce expansion. In addition, we are also well into the planning phase for an expansion of our manufacturing and fulfillment capabilities to support our growth needs beyond 2019.

With the passage of the 2018 Farm Bill we have also worked diligently to secure domestic sources is in support of planned growth in 2019 and beyond. Our goal is to position the Company to be the industry leader and these investments are in support of opening new larger retail markets.

Let me also note that we are proud and committed to providing our PlusCBD products to researchers for use in clinical studies. One recent small study published in the Journal of Alternative and Complementary Medicine in April, examine the clinical benefit of CBD for patients with post-traumatic stress disorder. With the evolving regulatory environment for hemp-based CBD we believe additional research is an invaluable component of long-term market growth.

Now a brief update on our drug development operating segment. Our preclinical program for our lead drug candidate, CVSI-007 combining cannabidiol and nicotine in treatment of smokeless tobacco use and addiction, continues to make progress. We believe strongly in the potential of our drug development program and the multi-billion-dollar opportunity of addressing the huge unmet need of treating smokeless tobacco use and addiction.

We anticipate that we will be presenting in Q3 and Q4 of 2019 both initial results from our preclinical studies and discussion on our clinical strategy. We will keep you posted on the timing of those announcements.