Q4 2023 Barfresh Food Group Inc Earnings Call

Participants

Riccardo Coste; Chairman of the Board, President, Chief Executive Officer; Barfresh Food Group Inc

Lisa Roger; Chief Financial Officer; Barfresh Food Group Inc

Anthony Vendetti; Analyst; Maxim Group LLC

Presentation

Operator

Good IAfternoon, everyone, and thank you for participating participating on today's fourth quarter and full year 2023 Corporate Update Call for Barfresh Food Group. Joining us today as Partha Barfresh Food Group's Founder and CEO, Ricardo Telic, Foster. I'm Barfresh Food, Group CFO, Lisa Roger. Following prepared remarks, we will open the call for your questions.
The discussion today will include forward-looking statements except for historical information herein, matters set forth on this call are forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements about the Company's commercial project, success of its strategic relationships and projections of future financial performance. These forward-looking statements are identified by the use of words such as grow expand, anticipate, intend, estimate, believe, expect, plan, should, hypothetical, potential forecasts and predict continue, could may predict and will and variations of such words and similar expressions are intended to identify such forward-looking statements and all statements other than statements of historical facts that address activities, events or developments that the Company believes or anticipates will or may occur in the future are forward-looking statements. These statements are based on certain assumptions made based on experience, expected future developments and other factors the Company believes are appropriate under the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the Company, should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect actual results may vary materially from those indicated or anticipated by such forward-looking statements. And accordingly, investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. The contents of this call should be considered in conjunction with the Company's recent filings with the Securities and Exchange Commission, including its annual report on Form 10 K and the quarterly reports on Form 10 Q and current reports on Form eight K, including any warnings, risk factors and cautionary statements contained therein. Furthermore, the company expressly disclaims any current intention to update publicly any forward-looking statements after this call, whether as a result of new information, future events, changes in assumptions or otherwise in order to aid in the understanding of the Company's business performance. The company is also presenting certain non-GAAP measures, including adjusted EBITDA, which are reconciled in the table in the business update release to the most comparable GAAP measure for reconciling items are nonoperational or noncash costs, including stock compensation, stock issued for services and other non recurring costs, such as those associated with the project product withdrawal asset impairment and the company's NASDAQ uplist management believes that adjusted EBITDA provides useful information to the investor because it is directly reflective of the period-to-period performance of the Company's core business now I will turn the call over to CEO of Barfresh Food Group, Mr. Riccardo Delle Costa. Please go ahead, sir.

Riccardo Coste

Good afternoon, everyone, and thank you for joining us for our fourth quarter and full year 2023 earnings call company generated its second highest fiscal year revenue in 2023 with $8.1 million despite a full year without our largest Twist & Go bottle manufacturer, who had previously accounted for over 50% of all our purchases. These sales results are a testament to the success of our newly cotton product, which we rolled out in the fourth quarter of 2022. And our growing sales team's ability to sell it into new and existing customers. We used the new cotton product to sign on new school accounts over the course of the year, including one of the top five largest school districts in the United States. As we've stated previously, the cotton format is aligned with the growing trend in schools to move toward more ecologically friendly products and has provided us an entry point into more of the higher volumes Coolick over the past year, we were laser focused on expanding both our cotton and bottle capacity since the launch of our new smoothie cotton product offering at the end of 2022, we have been working with our cotton Co. manufacturer to have engineering changes made to the manufacturing line to increase capacity to approximately 25 million to 30 million units per year. All the engineering changes were completed. And over the course of this year, we incrementally use additional cotton capacity that was made available. We did experience a slight setback with production beginning in December as an unforeseen national shortage of cartons played the beverage industry and continued into the early part of February. This shortage sent schools scrambling and got the attention of Congress, especially since schools are a large customer of the four ounce and eight ounce cartons for milk, both of which were in short supply. We were, however, able to weather the storm better than others in the industry due to our contract manufacturing relationship with a major player in the dairy industry. The issue has been resolved and we are back full cotton production as for the bottle capacity we worked with our existing bottle co-manufacturers to see there was a way to increase capacity, and we were successful towards the end of fiscal year 2023, and this increased capacity will now continue. We also look to bring on a new toy manufacturer to replace the loss of our largest one, and we're in the final stages of signing with a new co manufacturer this past quarter. However, they were ultimately unable to execute the contract. They are working to resolve the internal issues that prevented them from signing with us and we are hopeful they will be resolved soon and we can move forward again with them. However, we are also exploring other options in order to expedite the process of securing additional bottle capacity and expect this to be resolved before the beginning of the new school year in August of 2024.
In addition to working to expand capacity this past year, we also expanded our product offerings with the relaunch of our wells, 100% juice concentrates. This product is USDA reimbursable smart snack compliant schools in the United States. Good source of vitamin C contains no added sugars and comes in five great tasting flavors. And most importantly, it is stored and delivered ambient, which opens up many more opportunities for us. We had originally launched these wells, 100% juice concentrates as a complement to our existing one to one bulk Easy Pour products into the education channel in August of 2020. However, it ended up being more of a soft launch and was subsequently put on hold due to the extended closure of schools from the pandemic. As a result of the pandemic, schools experienced prolonged labor challenges, which impacted our wills 100% juice concentrates due to the need of personnel to operate the frozen dispensing equipment. We had been waiting for the prolonged labor challenges to resolve at schools as well as waiting for the selling cycle to recommence for new school menus before we relaunched the products, which we did this past quarter, we believe it was the right time to reintroduce the product. It allows our sales force to go out with a wider range of options at various price points. We are growing our sales team by expanding our sales broker coverage to an additional 13 states where we previously had no representation in the education market offers expects to have sales coverage across 49 out of the 50 states before the end of the first quarter of 2024. And for the first time, we plan to market to newly relaunched wells, 100% juice concentrates as well as the one to one bulk Easy Pour concentrates, THROUGH ourselves brokers to the general foodservice market and into the education channel.
And finally, as part of our expanded sales efforts, we also expect to sign a military broker contract with the national coverage of all U.S. military bases with Barfresh products in the United States this is a national agreement that provides both deep senior relationships as well as local people nationwide to visit and sell our products to all the local bases. This is a first for the Company and is expected to provide a robust lift in sales and further solidify our relationships with the military.
In summary, we believe there is a lot of white space left for us across our sales channels, especially in the education channel. We have increased capacity for both our cotton and bottles movie products, increased our sales network and increased our product offerings with the reintroduction of world's 100% juice concentrates, all of which we believe is setting us up for record first quarter revenue versus any other first quarter as we have already achieved over $2 million in sales and have another month remaining in the quarter. We believe we will be on a path to sustained top line growth once we have the necessary manufacturing capabilities for our bottled smoothie product fully online.
I'll now turn the call over to our CFO, Lisa Roger. Lisa?

Lisa Roger

Thank you, Ricardo. Revenue for the fourth quarter of 2023 was $1.9 million compared to $1.4 million for the fourth quarter of 2022. The increase in fourth quarter revenue is a result of improved supply due to increased capacity in our carton production this year over last year and the return of customers lost last year due to the loss of the Company's largest bottled manufacture. It was single partially offset by the industry-wide carton shortage. Ricardo mentioned that impacted sales in the quarter. Revenue for the full year of 2023 was $8.1 million compared to $9.2 million in the same period of 2022. Revenue in 2022 was negatively impacted by a $493,000 claim estimate resulting from the voluntary product withdrawal of Twist & Go excluding the refund claim estimate.
Revenue for the full year of 2022 was $9.7 million. The year-over-year decline is a result of limited supply and lost customers caused by the loss of our largest bottle manufacturer of Twist & Go as well as the shortage of cartons during the fourth quarter of 2023. As Ricardo said, the issue has since resolved itself. However, it will have a bearing on our first quarter of 2024 results as it impacted the first six weeks of sales. We do, however, expect revenue to grow sequentially in the first quarter as we have been able to recently increased capacity with our existing bottle manufacturer for Twist & Go.
Gross margin for the fourth quarter of 2023 was 33% compared to 36% for the fourth quarter of 2022. Gross margin for the full year of 2023 was 36% compared to 16% for the same period of 2022. Gross margin for the full year of 2022, adjusted for the product withdrawal was 30%. The year-over-year increase is due to a full year of sales of our higher-margin cartons and 2023 pricing actions and a slight improvement in the cost of supply chain components.
Our net loss for the fourth quarter of 2023 was $701,000 as compared to a net loss of $1.9 million in the fourth quarter of 2022. Net loss for the full year of 2023 was $2.8 million as compared to $6.1 million in the same period of 2022. Net loss for the full year of 2022 was impacted by $1.8 million in charges related to the product withdrawal and a $746,000 noncash asset impairment charge related to idle equipment resulting from overcapacity for our single-serve products and equipment held at the manufacturer.
Selling, marketing and distribution expense for the fourth quarter of 2023 was $624,000 compared to $625,000 in the fourth quarter of 2022.
Selling, marketing and distribution expense for the full year of 2023 decreased approximately 9% to $2.6 million compared to $2.9 million in the same period of 2022. The decrease is a result of decreased sales and marketing personnel costs and outbound freight as a result of decreased shipments.
G&a expenses for the fourth quarter of 2023 decreased 31% to $629,000 compared to $912,000 in the same period last year.
G&a expenses for the full year of 2023 decreased 24% to $2.7 million compared to $3.5 million in the same period of 2022. The decrease in G&A was driven by a decrease in personnel costs resulting primarily from a reduction in headcount and the conversion of potential cash bonuses to equity awards under the company's 2023 performance stock unit program, a reduction in legal, professional and consulting fees, and a reduction in research and development expense that was elevated in 2022 as we incurred preproduction expense related to the launch of our carton packaging format for the fourth quarter of 2023, our adjusted EBITDA was a loss of approximately $427,000, almost half of what it was in the same period of 2022. For the full year of 2023, our adjusted EBITDA loss was $1.7 million compared to a loss of $2.4 million in the prior year. Our plans to achieve adjusted EBITDA breakeven in the fourth quarter were temporarily delayed by the carton shortage. However, we are expecting sequential adjusted EBITDA improvement in the first quarter, driven by increased sales of Twist & Go due to the additional bottle capacity that came online and recovery of carton supply.
Now moving onto our balance sheet. As of December 31st, 2023, we had approximately $1.9 million in cash and approximately $1.2 million of inventory on our balance sheet compared to$ 3 million in cash and $1 million of inventory as of December 31st, 2022.
To now I will turn the call back to Ricardo for closing remarks.

Riccardo Coste

Thank you, Lisa. We are encouraged to have recorded our second highest fiscal year revenue in 2023 and are on track to have a record Q1 in 2024 versus any other Q1 and expect the positive momentum we have seen in this first quarter from our increased can and bottle capacity as well as our expanded sales network will continue throughout the year, setting us up to achieve a record fiscal year of revenue we expect to replace our lost bottle manufacturer shortly and believe once we have the right manufacturing partners onboard that provide us ample bottle capacity will be back on track to driving significant long-term profitable growth.
And with that, I would like to open up the line for questions. Operator?

Question and Answer Session

Operator

Thank you.
We will now be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two. If you'd like to remove your question from the queue For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please. While we poll for questions.
Our first question is from Anthony Vendetti with Maxim Group. Please proceed with your question.

Anthony Vendetti

Yes, thanks. So on the on a carton shortage, is that going to impact gross margins in any way and then move to the 24 school year beginning in August, September. And I know you said you expect to have a new packager on board can you maybe just talk through what what conversations you're having, how many you have replacements replacement companies? Are you looking at at this point? And in the meantime, is there anything that you think can fill the gap, whether it's the military channel or some other channel of while you're waiting for this replacement company?

Riccardo Coste

We are short of Chris' question that I'll tackle them one at a time. So with regards to the <unk>, the National Cotton shortage, I'm sure a lot of you would have seen that in the media schools will without milk cartons period due to the national shortage. We did weather that storm a lot better due to our significant manufacturing partner relationships who have some of the largest in the dairy industry. So we were impacted all yes, December in the fourth quarter and then also in the first six weeks, thereabouts in January in the first quarter, a little bit of February as a result of that, we were also fortunate that we were able to get some increased capacity from our bottle manufacturer, which closed that gap because we probably would have been a little bit worse off. But because of the increase bottle capacity from our existing manufacturer, we're able to close that gap a little bit as a result of the higher skew between the bottles and cartons. There was a little bit more of a compression on the margin, and we'll see a little bit more of that in the first quarter. However, the cotton supply issue has been fully rectified now and we're back to full production and serviceability on those lines. So as it relates to the bottle manufacturing capacity and getting the extra bottle manufacturer onboard. We've done a lot of work on that last year. And as you probably remember, I did give some updates on that. And we will literally we were supposed to have it signed in Q4 in actual fact that the contract was fully negotiated and out for signatures. And unfortunately, the M. the partner was going through some management changes and they were just unable to sign the contract due to some internal things that they were working on and we were to revisit in a few months. It just so happens that that revisit is occurring right now and We've reconnected and it's back on the table. So we are expecting to still have something close here very shortly. However, in the meantime, we haven't just been sitting on our hand. We have been out there looking at other opportunities and we do have a number of other opportunities that are on the table for us right now as well. So, you know, as we think about what our bottle capacity looks like, we're extremely confident that we will still get it resolved and get it resolved very quickly. In actual fact, we now have more options on the table than what we did previously. So that should also help our negotiating power. And I think that there are some other opportunities that may come out of it as well as we kind of get deeper into confirming what our manufacturing relationships look like. So I think there's going to be more to come on that that are going to be very beneficial to the Company going forward.

Anthony Vendetti

Okay. So even if the one that you're revisiting doesn't come through, it sounds like you have other options. That's why you're confident that within the next couple of months, you'll have something so that you're all set up for the for the beginning of the 24-school year.

Riccardo Coste

Correct. Yes.

Anthony Vendetti

Okay. Okay. And then and then maybe just an update, a little more of a if you can elaborate more on the military channel and then and then any of any other updates on other opportunities outside of the school channel?

Riccardo Coste

Yes, sure. So we did mention it briefly in the in the private in the script that we spoke about before in the update post COVID, it's been quite challenging getting back into the market with different products in certain channels, particularly with bulk, the bulk products and the one to one and the Easy Pour as well as the new 521 that we had launched in 2020. They both require the beverage dispensing equipment.
That's what we have in the military, and that's what we have in the schools as well as recreation and Amazon locations. And as a result of COVID, there was a lot of changes that happened and then post COVID, there was a lot of prolonged labor challenges within these establishments, particularly in particularly in the education channel. So fast forward now a good year out of out of that. There's been a lot of reshuffling and a lot of rehiring in a lot of these places. And we just haven't been able to up until now to get those products, yes, front and center and get the attention of the operators to be able to put it back on the menu to have the patent in place to be able to service them. And we've now started to see that and we've relaunched the 521, 100% juice concentrates. We've actually got done really well with the initial customers that we've seeded them in some as a result of that, we have I've taken a different approach with our sales growth strategy. And previously it was only a limited sales team that we're really selling the bulk products being the 521 and the one to one product. And now what we've what we're in the process of doing have already started doing and will be increasing significantly. That is including I'm a broker network to go out there and sell both those products not only to the education channel, but we are also getting a dedicated military channel team. That's both senior relationships as well as boots on the ground nationally that can go out to Asian locations, which is going to be very significant for us as well as boots on the ground in 49 out of the 50 states on and having multiple salespeople within each state and sometimes up to 10 people. I'm going out there and selling the product both in the education channel as well as general food service.
Now when you take into account locations like the Statue of Liberty, which we've been in for so many years now and Long Beach Aquarium and such high volume accounts, you know, someone like the Statue of Liberty where the number one product sold on site. So there's a lot of other types of recreation and amusement locations across the country that will now be able to access with a local team on the ground that we just haven't been able to get access to because we don't have the depth and the sales team to get the coverage. So by signing these agreements and getting the teams on board, which we have now focused on getting set up for the Company. It should generate some serious some lift in sales for the Company across all the channels now.

Anthony Vendetti

Okay. Okay. And then just maybe comment and just looking at the mix that you have right now, what is what do you think is a reasonable normalized go-forward gross margins for the business?

Lisa Roger

We're projecting high 30s, low 40s for 2024. It'll it'll build over time. Q1 is going to be a little bit lower just because of the carton issue. And then beyond that, we expect to see low 40s.

Anthony Vendetti

Okay, great.
Thanks.
I'll hop back in the queue.

Riccardo Coste

Thanks.

Operator

As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question queue again. As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. Thank you.
There are no further questions at this time. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.