CV Sciences, Inc. (CVSI) Earnings Call Transcript

Good day and welcome to the CV Sciences, Inc. Q3 2026 earnings conference call. [Operator Instructions] Please also note that today's event is being recorded. I'd now like to turn the conference over to Brendan Hawkins. Please go ahead.

Thank you and good afternoon everyone. With us today with prepared remarks are CV Sciences Chief Executive Officer Joseph Dowling and Joerg Grasser, Chief Financial Officer. After the prepared remarks, we will take questions from the analyst community. I'd like to remind you that management's prepared remarks may contain forward-looking statements. These forward-looking statements are, as such, 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, could, estimate, intend, expect, believe, potential, will, should, project, and similar expressions as they relate to CV Sciences are as such forward-looking statements. Finally, please note that in 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 this afternoon for a full reconciliation of its non-GAAP performance measures to the most comparable GAAP financial measures. As I just mentioned, this afternoon, 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. Press release may be found at cvsciences.com. I would like to now turn the call over to CV Sciences Chief Executive Officer, Mr. Joseph Dowling. Joe.

Good afternoon everyone. Thank you for joining our call. Earlier today, we issued a press release reporting results for our third quarter ended September 30, 2026. We are very happy with our performance this quarter and the progress we continue to make across our key priorities. This quarter, we increased sales, gross margin, operating performance, and adjusted EBITDA on a sequential basis. This was a great effort by our team in a very tough environment. We remain focused on building a stronger, more efficient business by maintaining solid margins, optimizing our cost structure, and advancing our path towards sustainable profitability and positive cash flow. Our third quarter results reflect the continued focus, discipline, and execution of our team, particularly in the face of a challenging market and regulatory environment. Importantly, we are not only strengthening the foundation of our existing business, but also making meaningful progress in our evolution toward becoming a global health and wellness company. During the quarter, we achieved several financial and operating results that demonstrate the momentum behind this strategy and position us to build on the progress we have made. While we recognize that challenges remain, we enter the next quarter encouraged by our performance, confident in our strategic direction, and focused on continuing to create long-term value for our shareholders. Some of the significant highlights during Q3 included, we generated revenue of $3 million, slightly up sequentially when compared to $3 million for the second quarter of 2026. Our consistent third quarter revenue demonstrates our resilience in a difficult, constrained revenue operating environment. We achieved a gross margin of 50% for the third quarter, a very nice improvement when compared to 48.6% for the second quarter of 2026, consistently demonstrating our ability to control cost of sales during an economic environment of rising expenses. We continue to lower operating expenses, which were reduced by 6.6% to $1.6 million compared to $1.7 million for the second quarter of 2026, reflecting our ongoing focus on cost discipline. We achieved an adjusted EBITDA of $32,000 for the third quarter of 2026, compared to the $132,000 loss for the second quarter of 2026. We continue to make adjusted EBITDA improvements from prior periods. We continue to expand our non-cannabinoid plus health supplement portfolio with additional formulations supporting cellular integrity, metabolism, cognitive health, cardiovascular wellness, and long-term mobility. And during the third quarter, we launched plushealth.com, a new direct-to-consumer destination dedicated exclusively to our growing Plus Health product line. Joerg will provide more details on our financials and operating metrics during his remarks. As I just mentioned, the launch of plushealth.com represents an important milestone for our long-term strategy to expand beyond cannabinoids and establish Plus Health as a leading brand focused on healthy aging, performance, and everyday health. This new site creates a distinct home for our Plus Health products, while pluscbdoil.com remains focused on the company's industry-leading hemp-derived CBD product line. plushealth.com creates a stronger connection with our customers for non-cannabinoid products, and as the brand grows, the site provides a platform to introduce new products, provide meaningful education, and create an experience that evolves alongside our customers. Looking ahead, we plan to launch multiple non-cannabinoid products throughout the next 12 to 24 months, expanding the Plus Health product line with new formulations and delivery formats designed to address evolving consumer needs. These products are expected to drive organic growth, leverage our existing infrastructure, and help offset revenue pressure from regulatory challenges. We will continue to innovate and launch new cannabinoid-focused products under our PlusCBD brand, aligning these efforts with the unfolding regulatory environment. One example of these efforts includes a new proprietary broad spectrum CBD oil that will comply with the strictest market standards that may be part of a new regulatory framework. We expect to have more to say on this development over the next 30 days. We continue to believe in the long-term strength and viability of the CBD market and are actively preparing to effectively compete under any regulatory framework. We also plan to expand into select international markets through our European subsidiary, Cultured Foods. Cultured Foods remains a key component of our innovation strategy in achieving [indiscernible]. In addition to being a manufacturer, brand owner, and distributor, it provides us with in-region production and distribution capabilities for European and global markets. Cultured Foods will play an increasing role in new product launches and future revenue growth. Next, I want to discuss regulatory matters that we are currently facing at the federal level. The hemp industry continues to navigate a challenging and evolving federal regulatory following the enactment of legislation in 2025 that significantly changes the federal definition of hemp and could materially restrict the sale and distribution of certain hemp-derived cannabinoid products. Subsequent congressional action extended the implementation date for most of these changes from November 12, 2026 to December 11, 2026. This additional period provides an opportunity for continued legislative consideration of the potential impact of the new restrictions and possible modifications to the regulatory framework. Several legislative proposals have been introduced that seek to further delay implementation, modify the statutory definition of hemp, or establish alternative regulatory approaches. While the ultimate outcome of these efforts remain uncertain, we continue to work with advocacy groups to affect change and monitor developments closely. We recognize that these regulatory developments present meaningful challenges for companies participating in the hemp-derived cannabinoid marketplace. However, our company has taken steps to broaden its business beyond cannabinoid products through the development and distribution of non-cannabinoid consumer products, specifically through our Plus Health product line. This diversification is an important component of our long-term strategy and provides additional flexibility as we navigate changes in the regulatory environment. Importantly, our diversification should not be interpreted as a departure from the hemp industry. We remain committed to the hemp marketplace and intend to continue participating in the category, subject to applicable laws and regulations. We believe hemp will continue to offer meaningful consumer and commercial opportunities, although the composition of the marketplace and the regulatory requirements governing individual product categories may evolve. Our management team is continuously evaluating multiple regulatory scenarios and their potential implications for our product offerings, operations, and strategic priorities. Our established manufacturing and distribution capabilities, our nationwide relationships with retail and e-commerce customers, and expanding product portfolio provide a foundation from which to adapt to changing market conditions. While we remain realistic about the near-term regulatory challenges, we believe our diversified business model provides greater flexibility as the industry transitions to a new regulatory environment. Our objective is to protect and strengthen our existing business, pursue opportunities in non-cannabinoid consumer products, and maintain our ability to participate in the hemp category as the regulatory landscape develops. We believe the hemp industry is at an important crossroads. While the path forward remains uncertain, we see the current period as one of transition, rather than a definitive conclusion to the industry's development. Our focus remains on navigating the near-term challenges, adapting to the evolving regulatory environment, positioning the company to participate in the industry's long-term opportunities. Before I turn the call over to Joerg, I want to make a few remarks on our current market valuation. We recognize that our shares are currently trading at a meaningful discount to comparable public companies. We believe that some of this pressure on our stock price has been caused by the selling of converted shares by our convertible note holder, rather than a fundamental change in the underlying performance or prospects of our business. While we cannot control the timing or volume of shareholder transactions, we recognize that these near-term transactions can influence share price performance. We believe long-term valuation should ultimately be driven by the strength of the business and the consistency of our financial results. We remain confident in the fundamentals of our business, our strategic positioning, and our long-term growth opportunities. I will now turn the call over to Joerg.

Thank you, Joe, and good afternoon, everyone. During the third quarter of 2026, we made meaningful progress across several key financial and operating metrics. We increased revenue sequentially, expanded gross margin to 50%, significantly improved our operating performance, generated positive adjusted EBITDA, and generated positive operating cash flow, both during the quarter and year to date. Revenue for the quarter was $3 million, an increase of 1.4% sequentially. Revenue was down 7% compared to the third quarter of 2025. We believe the sequential growth, combined with the improvement in profitability and cash flow, demonstrates continued progress towards building a more efficient and sustainable business. The increase in sequential revenue was driven primarily by a 4% increase in unit sales, largely offset by lower average selling prices. The increase in unit sales was driven largely by additional placements of non-cannabinoid products with our retail partners. Our direct-to-consumer channel represented 45.6% of total revenue in the third quarter, with revenue in the channel also increasing slightly on a sequential basis. We continue to see improvements across key digital performance metrics and remain focused on improving the efficiency and profitability of our direct-to-consumer business. We believe this channel represents an important long-term opportunity for the company. Gross margin was 50% in the third quarter compared to 48.5% in the prior year period. The improvement was driven primarily by increased contract manufacturing revenue, product cost reductions, and changes in product and channel mix. We remain focused on the areas within our control, managing expenses, improving operating efficiency, strengthening cash flow, and selectively investing in opportunities that can drive long-term growth. One of the more significant areas of progress this quarter was our continued reduction in operating expenses. SG&A expense was $1.6 million in the third quarter compared to $1.8 million in the prior year period, representing a reduction of 11.6%. The decrease was driven primarily by lower legal and professional fees, reduced marketing spend, and broader administrative efficiencies. Importantly, we believe a meaningful portion of these reductions is structural in nature. Over the past several years, we have worked to reduce our operating cost base and build a more disciplined and scalable organization. These efforts are helping us better align our expense structure with current revenue levels and should provide greater operating leverage as revenue recovers. As a result of the improvement in gross margin, our continued discipline around operating expenses, and a gain from a legal settlement from our prior legal counsel, we generated an operating income of $0.4 million in the third quarter, a significant improvement from an operating loss of $0.3 million in the prior year period. Our operating performance also nicely improved, even without the legal settlement. As a result, we generated positive adjusted EBITDA of $32,000 compared to negative adjusted EBITDA of $118,000 in the prior year period. On a GAAP basis, net loss for the quarter was $0.1 million compared to $0.4 million in the prior year period. Importantly, we also generated positive operating cash flow of approximately $64,000 during the third quarter and approximately $0.2 million year to date. We view this as an important milestone and reflection of the cost reductions and working capital discipline we have implemented. Taken together, we believe these results demonstrate meaningful progress toward a more sustainable operating model. While the revenue environment remains challenging, as Joe has outlined, we are becoming a leaner and more efficient organization with improving margins, a lower operating cost base, positive adjusted EBITDA, and positive operating cash flow. We continue to actively manage liquidity through improved collections of accounts receivable, disciplined inventory management, and close oversight of our vendor payables. Aligning our operating cost structure with current revenue levels remains a key priority as we work towards generating consistently positive operating cash flow. Now turning to the balance sheet. We ended the third quarter with approximately $0.3 million of cash, an improvement of $30,000 from our cash balance at the end of the year. We were able to achieve this result as we continued to focus on working capital management and strengthening our balance sheet. Working capital significantly improved to $0.7 million as of September 30, 2026, compared to $0.1 million at year-end. The improvement was driven by the conversion of our outstanding note payable to a convertible note in the first quarter of 2020 and subsequent conversions, as well as the settlement of our legal action against our former long-term legal counsel during the third quarter. During the quarter, conversions under our amended note payable and convertible note structure reduced our outstanding convertible note balance by approximately $0.7 million. The fair value of the outstanding convertible note was also $0.7 million as of September 30, 2026. Inventory at the end of the third quarter was approximately $4 million compared to $4.1 million at year-end, reflecting our continued focus on inventory optimization and efficient use of working capital. As we continue to optimize the integration of Cultured Foods and elevated softgels into our operating platform, we see additional opportunities to improve manufacturing efficiency, reduce costs, and better leverage our existing infrastructure. Looking ahead, our priorities remain clear. We are focused on managing our cost structure, improving margins, strengthening cash flow, and maintaining disciplined working capital management while continuing to invest selectively in areas of the business that can drive long-term growth. One of our key focuses is increasing sales of our Plus Health products. The CBD market remains fragmented, highly competitive, and rapidly evolving, and we expect those conditions to continue. At the same time, we are seeing continued market contraction and consolidation, which we believe may create opportunities for stronger operators to gain market share over time. While the near-term revenue environment remains challenging, we believe CV Sciences is becoming a leaner and more efficient organization with a lower operating cost base and a clearer path to a sustainable positive operating cash flow. We remain focused on disciplined execution and positioning the company to capitalize on opportunities as the market evolves. With that, I'll turn the call back over to Joe.