CV Sciences, Inc. (CVSI)·Q3 2018 Earnings Summary

Executive Summary

• Record Q3 revenue of $13.6M (+10% q/q; +143% y/y) and gross margin 73.1%, with adjusted EBITDA rising to $4.1M and GAAP net income of $3.3M for the third consecutive profitable quarter .
• Sequential growth driven by organic expansion across wholesale, direct-to-consumer, and natural product retail; PlusCBD remains the #1 hemp CBD brand in the natural products channel per SPINS scan data, per management .
• Balance sheet strengthened: total cash and restricted cash reached $11.0M; the company repaid remaining debt and exited Q3 debt-free; operating cash flow for the first nine months totaled $9.93M .
• Regulatory/legal backdrop is a key narrative: self-affirmed GRAS for the Gold Formula and progress toward the 2018 Farm Bill are positioned as catalysts; management reiterated optimism and noted potential quarter-to-quarter lumpiness due to state alignment with FDA positions .
• Wall Street consensus estimates via S&P Global were unavailable; estimate comparisons are not provided (S&P Global data unavailable).

What Went Well and What Went Wrong

What Went Well

• Record financials: “third straight quarter” of record revenue, gross profit, cash flow, adjusted EBITDA, and net income, with 10% sequential revenue growth to $13.6M and 73% gross margin in Q3 .
• Brand leadership and product innovation: PlusCBD remained #1 in natural products retail; launch of PlusCBD Oil Gummies (Cherry Mango, Citrus Punch) broadened portfolio; achieved industry’s first self-affirmed GRAS for the Gold Formula .
• Capital discipline and de-leveraging: increased cash by $3.8M in Q3; repaid all remaining debt ($850K), exiting quarter debt-free; expanded oil processing capacity and raw material procurement to support forecast demand .

What Went Wrong

• Operating expense growth: SG&A rose y/y with investments in headcount, commissions, and scaling functions (Q3 SG&A $5.89M vs $4.31M y/y), though operating leverage remained favorable .
• Regulatory uncertainty: management cautioned growth could be “lumpy” due to states aligning with FDA positions on hemp CBD, potentially impacting quarterly cadence despite longer-term optimism .
• Retail footprint disclosure inconsistency: Q3 press release referenced 2,093 stores “as of June 30, 2018,” while prior Q2 materials reported 1,968 stores “as of June 30, 2018”; transcript cited “293 stores” at 9/30, suggesting a possible reporting error—investors should verify store count trajectory directly with IR .

Financial Results

Notes: Adjusted EBITDA is a non-GAAP measure; reconciliation and definition provided by the company .

Segment performance (operating view):

Key KPIs and cash metrics:

Guidance Changes

Notes: Management did not issue quantitative revenue/margin guidance; qualitative commentary provided (see Management Commentary) .

Earnings Call Themes & Trends

Management Commentary

• “We delivered another strong quarter, including our third consecutive quarter of profitability… triple-digit year-over-year revenue growth and double-digit sales growth on a sequential quarterly comparison… earned the industry’s first self-affirmed GRAS status for our Gold Formula… introduction of our new PlusCBD Oil™ Gummies… driving revenue” — Joseph Dowling, CEO .
• “We fully repaid all remaining debt totaling $850,000 and our balance sheet is now debt free… invested significantly in CBD oil raw material and expanded our oil processing capacity… growth will be lumpy in certain quarters due to the regulatory environment” .
• “The most significant legislative matter… is the 2018 Farm Bill… would expand and clarify the legal framework… We will continue our strong leadership role in working toward passing this important legislation” .
• “Our drug development program… CVSI-007… we continue to make progress with our pre-clinical program, anticipating filing an Investigational New Drug application in 2019” .

Q&A Highlights

• The Q3 transcript concluded prepared remarks and indicated online questions, but did not capture detailed Q&A content in the published transcript; no additional clarifications were recorded beyond prepared themes (regulatory, supply chain scaling, NASDAQ, CVSI-007) .

Estimates Context

• Wall Street consensus estimates via S&P Global were unavailable; estimate comparisons (revenue, EPS) are therefore not provided (S&P Global data unavailable).
• Given the absence of published consensus, current quarter performance should be assessed versus prior periods and company commentary on trajectory .

Key Takeaways for Investors

• Profitability durability: three consecutive profitable quarters with Q3 diluted EPS of $0.03 and adjusted EBITDA of $4.1M, supported by 73.1% gross margins .
• Strengthening balance sheet: Q3 total cash and restricted cash reached $11.0M; company exited quarter debt-free after repaying remaining unsecured note; YTD operating cash flow $9.93M .
• Brand leadership and GRAS milestone: PlusCBD’s #1 position in natural channel and Gold Formula GRAS status enhance credibility with retailers/consumers; new gummies broaden category presence .
• Scaling for demand: investments in raw materials and processing capacity indicate readiness for industry growth and potential Farm Bill tailwinds; expect some quarterly lumpiness due to regulatory dynamics .
• Segment mix: consumer products drive operating income; specialty pharma remains an investment area (Q3 specialty operating loss ~$0.38M) with anticipated IND filing in 2019 .
• Uplisting optionality: ongoing NASDAQ application/comment cycle may broaden investor base if successful; monitor process updates .
• Validation via regulated CBD precedents: management references FDA context (e.g., Epidiolex) supporting the scientific/regulatory pathway for CVSI-007 over time .