Kaival Brands Provides Business Update in Letter to Shareholders
- Increased revenues to $13.1 million compared to $12.8 million in fiscal year 2022, driven by royalties from international distribution with PMPSA.
- Gross profit increased to $2.6 million from approximately $1.2 million in fiscal 2022, attributed to a decrease in cost of revenue.
- Operating expenses decreased to $13.2 million from $15.6 million, reflecting disciplined cost management.
- Net loss improved by 22.9% to $11.1 million, with basic and diluted net loss per share at $4.13 compared to $14.4 million and $7.60 respectively in fiscal 2022.
- Bidi Vapor is contesting FDA denial of 'Classic' tobacco-flavored ENDS and pursuing legal action against the decision.
- Kaival Brands acquired a patent portfolio for vaporization and inhalation technologies from GoFire, aiming to create innovative products and generate revenue through licensing and product development.
- The company is focusing on maximizing core business, improving financial management, and driving product innovation for growth and diversification.
- International distribution with PMPSA and operational improvements for scale and diversification are key focus areas for Kaival Brands.
- None.
Insights
The revenue growth reported by Kaival Brands Innovations Group, Inc. indicates a positive trajectory, albeit modest. The increase from $12.8 million to $13.1 million, primarily driven by international distribution royalties, suggests a strategic pivot towards leveraging global partnerships. However, the gross profit margin improvement from approximately 9.4% to 19.8% is significant and reflects effective cost reduction strategies. The reduction in operating expenses by $2.4 million, while maintaining revenue levels, points to disciplined cost management, which is crucial for improving the net loss position by 22.9%. This financial prudence is essential for a company in a highly regulated industry facing FDA challenges.
Despite these improvements, the reported net loss and the modest cash reserves of $0.5 million raise concerns about the company's financial health and its ability to sustain operations without additional capital infusion. Investors should monitor the company's capital planning and cost control measures closely, as these will be critical in achieving the positive cash flows and profitability outlined in their strategic goals.
The electronic nicotine delivery system (ENDS) market is highly competitive and subject to stringent regulatory scrutiny. Kaival Brands' focus on diversifying revenue streams and expanding distribution channels is a strategic move to mitigate risks associated with regulatory challenges. The company's partnership with Philip Morris Products S.A. and the pursuit of international markets under the 'VEEV Now' brand could be pivotal in offsetting domestic market volatility.
Moreover, the acquisition of a patent portfolio from GoFire Inc. opens avenues for innovation and potential revenue through licensing. The focus on data-driven product innovation and strategic expansion is aligned with industry trends towards personalized and controlled consumption experiences. However, the success of these initiatives hinges on the company's ability to navigate FDA regulations and capitalize on the acquired intellectual property effectively.
The legal challenges faced by Kaival Brands, particularly the FDA's marketing denial order (MDO) for Bidi Vapor's 'Classic' BIDI® Stick, underscore the regulatory hurdles in the ENDS industry. Bidi Vapor's proactive legal response and history of successful outcomes against previous MDOs reflect a resilient approach to regulatory pushback. However, the ongoing litigation and the potential for regulatory changes create an uncertain environment that could impact the company's ability to market certain products.
Investors should be aware that the outcome of these legal proceedings may have a substantial impact on the company's U.S. market presence and its ability to maintain sales of its flagship products. The company's commitment to compliance and its strategic focus on navigating regulatory challenges will be critical in determining its future market position and operational viability.
Senior leadership driving change by maximizing core opportunities, revamping internal processes, and pursuing platform diversification
GRANT-VALKARIA, Fla., Feb. 14, 2024 (GLOBE NEWSWIRE) -- Kaival Brands Innovations Group, Inc. (NASDAQ: KAVL) ("Kaival Brands" or the "Company,"), the exclusive U.S. distributor of all products manufactured by Bidi Vapor, LLC ("Bidi Vapor"), which are intended for adults 21 and over, today provided the following business update letter to shareholders from its Executive Chairman, Interim Chief Executive Officer and President, Barry M. Hopkins:
To Our Shareholders:
With our Annual Report on Form 10-K for our 2023 fiscal year now on file with the SEC, we wanted to provide some highlights of our results and lay out our vision going forward.
Our fiscal year ended October 31, 2023 and since has been a time of significant transition for Kaival Brands as we put in place new management and board members and made important progress towards reigniting sales, expanding distribution, diversifying our revenue streams and working to institute cost controls and improved operational procedures. Market demand for Bidi Vapor’s BIDI® Stick electronic nicotine delivery system (ENDS) products was robust through the end of the fiscal year, and we believe the long-term investment thesis for our business is solid, despite continued regulatory challenges that we are working to overcome.
The following is a summary of our key results of operations for our fiscal year ended October 31, 2023:
- Revenues increased to
$13.1 million compared to$12.8 million in fiscal year 2022; primarily due to royalties received from our international distribution arrangement with Philip Morris Products S.A. (PMPSA).
- Gross profit increased to
$2.6 million compared to approximately$1.2 million for fiscal 2022; increase driven primarily by a decrease in cost of revenue.
- Operating Expenses decreased to
$13.2 million compared to$15.6 million , with the decrease driven primarily by disciplined cost management.
- Net Loss improved by
22.9% , to$11.1 million , or$4.13 b asic and diluted net loss per share, compared to$14.4 million , or$7.60 b asic and diluted net loss per share, for fiscal 2022.
- As of October 31, 2023, Kaival Brands had working capital of approximately
$1.9 million and total cash of approximately$0.5 million .
We delivered modest revenue growth in fiscal 2023 as the FDA regulatory landscape and FDA enforcement efforts have continued to evolve and created significant challenges for us, Bidi and other ENDS industry players. Importantly, we are continuing to navigate these challenges and are pursuing new revenue opportunities aimed at diversifying our business and establishing an efficient platform from which to develop and grow our business lines and revenues and, ultimately, positive cash flows, profitability and increased shareholder value. Through it all, we remain committed to steadfast compliance with established FDA requirements for our products and business as we have since our inception.
As we begin 2024, we are focused on accelerating revenue growth, further improving operational efficiencies, and executing well-defined strategic growth and diversification initiatives to drive improvement in our financial results. In terms of this strategic framework, there are three core areas of focus for our management team: maximizing our core business, effective financial management and capital planning, and data-driven product innovation and strategic expansion.
Maximizing our core business:
- Continuing the growth and management of strategic alliances with market leaders within dense, established e-cigarette markets;
- Development of internal national account sales team to drive new revenue opportunities and manage key strategic third-party vendor and broker alliances to maximize targeted market penetration;
- Search for high-caliber, experienced talent that create impact and add value to our organization quickly;
Effective financial management and capital planning:
- Establishing an efficient, scalable organizational infrastructure to support our expected growth and diversification;
- Improving overall business processes to deliver greater value to our customers;
Data-driven product innovation and strategic expansion:
- Investing in our core organizational capabilities to provide diversified, revenue generative opportunities both through our existing distribution network and beyond;
- Further development of internal data processes to drive growth and diversification efforts;
- Pursuing third-party licensing opportunities through our vaporization and inhalation-related intellectual property portfolio which we acquired from GoFire Inc. in May 2023.
Bidi Vapor to Contest FDA Denial of ‘Classic’ Tobacco-Flavored ENDS
As previously announced, on Monday, January 22, 2024, the FDA issued a marketing denial order (MDO) for Bidi Vapor’s “Classic” BIDI® Stick PMTA. Importantly, this decision did not involve the ten PMTAs for Bidi Vapor’s non-tobacco flavored devices which are still under the FDA’s scientific review. Those ten products remain available for sale through Kaival Brands, subject to FDA’s enforcement discretion.
In response to the MDO, on Friday, January 26, 2024, Bidi Vapor filed a petition requesting that the U.S. Court of Appeals for the Eleventh Circuit review the MDO, which Bidi Vapor believes was, among other things, arbitrary and capricious, in violation of the Administrative Procedure Act. Bidi Vapor is seeking a stay of the MDO pending the outcome of the litigation.
Bidi Vapor has a history of successful outcomes when contesting adverse FDA decisions, having received a favorable Eleventh Circuit ruling in August 2022 that set aside the original MDOs received for its ten non-tobacco flavored products. That ruling put the ten PMTAs back into scientific review and allowed those flavors to remain available for sale pursuant to the FDA’s compliance policy for deemed tobacco products. During this evaluation period, the ten non-tobacco flavored products are still under FDA enforcement discretion.
Extending our Product Offerings and Opportunities
An important goal for our company in 2024 and beyond is to leverage our existing presence with our sales channels to establish an efficient platform from which to create shareholder value by developing and growing current and potentially new business lines, revenues and, ultimately, positive cash flows and profitability.
In May 2023, we acquired (through our subsidiary Kaival Labs) a patent portfolio of 19 existing and 47 pending patents with novel technologies related to vaporization and inhalation technologies from GoFire. The portfolio includes novel technologies across extrusion dose control, product preservation, tracking and tracing usage, multiple modalities (i.e., different methods of vaporizing) and child safety. The patents and patent applications cover territories including the United States, Australia, Canada, China, the EPO (European Patent Organization), Israel, Japan, Mexico, New Zealand and South Korea. The portfolio also includes a proprietary mobile device software application that is used in conjunction with certain patents in the portfolio.
We have been pursuing third-party licensing and development opportunities related to our GoFire assets in the cannabis, hemp/CBD, nicotine, nutraceutical and pharmaceutical markets, and we hope to generate revenue from this acquired intellectual property via licensing and other product development activities. We recently engaged with a third-party manufacturer to explore the development of a product utilizing several of our patents.
Longer term, we believe we can utilize the acquired patents to create innovative and market-disruptive products for its growing base of adult consumers, including patent protected vaporizer devices and related hardware and software applications.
International Distribution with PMPSA
While our current revenue-generative focus remains on the U.S. distribution of the BIDI® Sticks, from an international perspective, through our wholly-owned subsidiary, Kaival Brands International, LLC, alongside our manufacturing partner, Bidi Vapor, the maker of the BIDI® Stick, we are continuing to work with PMPSA to accelerate the international distribution of ENDS products using Bidi Vapor technology, which PMPSA markets under the brand name “VEEV Now”, as part of our joint goal of delivering a smoke-free future to adult consumers of proper age in their respective countries.
Operational Improvements for Scale & Diversification
Improving operational efficiencies is a perpetual endeavor at Kaival Brands to ensure we are managing our costs while also providing the highest level of service for our customers. In the near-term, we remain focused on improving inventory management to reduce aging product risk and optimize our use of working capital. By prioritizing our best-selling SKUs and refining our ordering procedures, this will ensure an optimal customer experience. Throughout our operational processes, we are capturing valuable data that can provide insights into our future pipeline and sales projections through our newly installed internal data management system.
Thank you for your continued support, and we look forward to providing you with further updates as the year unfolds.
Kind regards,
Barry Hopkins
Executive Chairman, Interim Chief Executive Officer and President
Additional information regarding the Company’s results of operations for the fiscal year ended October 31, 2023 and other important disclosures are available in the Company’s Annual Report on Form 10-K for such reporting period, which has been filed with the Securities and Exchange Commission.
ABOUT KAIVAL BRANDS
Based in Grant-Valkaria, Florida, Kaival Brands is a company focused on incubating and commercializing innovative products into mature and dominant brands, with a current focus on the distribution of electronic nicotine delivery systems (ENDS) also known as “e-cigarettes” for use by customers 21 years and older. Our business plan is to seek to diversify into distributing other nicotine and non-nicotine delivery system products (including those related to hemp-derived cannabidiol (known as CBD) products). Kaival Brands and Philip Morris Products S.A. (via sublicense from Kaival Brands) are the exclusive global distributors of all products manufactured by Bidi Vapor LLC. Based in Melbourne, Florida, Bidi Vapor maintains a commitment to responsible, adult-focused marketing, supporting age-verification standards and sustainability through its BIDI® Cares recycling program. Bidi Vapor's premier device, the BIDI® Stick, which is distributed exclusively by Kaival Brands, is a premium product made with high-quality components, a UL-certified battery and technology designed to deliver a consistent vaping experience for adult smokers 21 and over. Nirajkumar Patel, the Company’s Chief Science and Regulatory Officer and director, owns and controls Bidi Vapor. As a result, Bidi Vapor is considered a related party of the Company.
Learn more about Kaival Brands at https://ir.kaivalbrands.com/overview/default.aspx.
ABOUT KAIVAL LABS
Based in Grant-Valkaria, Florida, Kaival Labs is a wholly-owned subsidiary of Kaival Brands focused on developing new branded and white-label products and services in the vaporizer and inhalation technology sectors. Kaival Labs’ current patent portfolio consists of 12 existing and 46 pending with novel technologies across extrusion dose control, product preservation, tracking and tracing usage, multiple modalities and child safety. The patents and patent applications cover territories including the United States, Australia, Canada, China, the European Patent Organisation, Israel, Japan, Mexico, New Zealand and South Korea. The portfolio also includes a fully-functional proprietary mobile device software application that is used in conjunction with certain patents in the portfolio.
Learn more about Kaival Labs at https://kaivallabs.com.
Cautionary Note Regarding Forward-Looking Statements
This press release and the statements of the Company’s management and partners included herein and related to the subject matter herein includes statements that constitute “forward-looking statements” (as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended), which are statements other than historical facts. You can identify forward-looking statements by words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “position,” “should,” “strategy,” “target,” “will,” and similar words. All forward-looking statements speak only as of the date of this press release. Although we believe that the plans, intentions, and expectations reflected in or suggested by the forward-looking statements are reasonable, there is no assurance that these plans, intentions, or expectations will be achieved. Therefore, actual outcomes and results could materially and adversely differ from what is expressed, implied, or forecasted in such statements. Our business may be influenced by many factors that are difficult to predict, involve uncertainties that may materially affect results, and are often beyond our control. Factors that could cause or contribute to such differences include, but are not limited to: (i) actions taken by Bidi Vapor in response to the FDA’s January 2024 MDO on its Classic Bidi Stick, (ii) future actions by the FDA relating to the PMTAs for Bidi Vapor’s 10 other flavors that could adversely impact our business and prospects, including the outcome of FDA’s scientific review of Bidi Vapor’s pending PMTAs, (iii) the results of international marketing and sales efforts by Philip Morris International, the Company’s international distribution partner, (iv) how quickly domestic and international markets adopt our products, (v) the scope of future FDA enforcement of regulations in the ENDS industry, (vi) the FDA’s approach to the regulation of synthetic nicotine and its impact on our business, (vii) potential federal and state flavor bans and other restrictions on ENDS products, (viii) general economic uncertainty in key global markets and a worsening of geopolitical and economic conditions, including low levels of economic growth, (ix) the effects of steps that we are taking to raise capital, reduce operating costs and diversity our product offerings, (x) our inability to generate and sustain profitable sales growth, including sales growth in U.S. and international markets, (xi) circumstances or developments that may make us unable to implement or realize anticipated benefits, or that may increase the costs, of our current and planned business initiatives, (xii) significant changes in our relationships with our distributors or sub-distributors and (xiii) other factors detailed by us in our public filings with the Securities and Exchange Commission, including the disclosures under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended October 31, 2023, filed with the Securities and Exchange Commission on February 14, 2024 and accessible at www.sec.gov. All forward-looking statements included in this press release are expressly qualified in their entirety by such cautionary statements. Except as required under the federal securities laws and the Securities and Exchange Commission’s rules and regulations, we do not have any intention or obligation to update any forward-looking statements publicly, whether as a result of new information, future events, or otherwise.
All Press Inquiries and Kaival Brands Investor Relations:
Brett Maas, Managing Partner
Hayden IR
(646) 536-7331
brett@haydenir.com
FAQ
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