Edible Garden Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 13, 2023

There are 5 speakers on the call.

Operator

Greetings, and welcome to the Edible Garden Third Quarter 2023 Business Update Conference Call. At this time, all participants are in a listen only mode and a question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Ted Avis, Investor Relations. Ted, you may begin.

Speaker 1

Thanks, Tom. Good morning and thank you for joining Edible Garden's quarter ended June 30, 2023 conference call and business update. On the call with us today are Jim Kratz, Chief Executive ended September 30, 2023 June 30, 2023. The press release is posted on the company's website, www.ediblegarden.com. In addition, the company will file its quarterly report on Form 10 Q with the U.

Speaker 1

S. Securities and Exchange Commission, which can also be accessed on the company's website as well at www.sec.gov. If you have any questions after the call or would like any additional information Crest reviews the company's operating results for the quarter ended June 30, 2023 and provides a business update. We would like to remind everyone that this conference call may contain forward looking statements. All statements other than statements of historical facts contained in this conference call, including statements regarding our future results of operations and financial position, strategy and plans and our expectations for future operations are forward looking statements.

Speaker 1

The words expect, project, plan, believe, may, will, would, should, could, mission, strategy, potential, SEEK STRIVE and the negative of such terms and other words and terms of similar expressions are intended to identify forward looking statements. These forward looking statements are based largely on the company's current expectations and projections about future events and trends that it believes may affect its financial condition, results of operations strategy, short term and long term business operations and objectives and financial needs. These forward looking statements are subject to several risks, uncertainties and assumptions as described in the company's most recent quarterly report on Form 10 Q filed with the U. S. Securities and Exchange Commission.

Speaker 1

Because of these risks, uncertainties and assumptions, the forward looking statements and circumstances discussed in this conference call may not occur Actual results could differ materially and adversely from those anticipated or implied in the forward looking statements. You should not rely upon forward looking statements as predictions of future events. Although the company believes that the expectations reflected in the forward looking statements are reasonable, it cannot guarantee future results, level of activity, performance or achievements. In addition, neither the company nor any other person assumes responsibility for the accuracy and completeness of any of these forward looking statements. The company disclaims any duty to update these forward looking statements except as required by law.

Speaker 1

All forward looking statements attributable to the company are expressly qualified in their entirety by these cautionary statements as well as others made in this conference call. You should evaluate all forward looking statements made by the company in the context of these risks and uncertainties. With that, I would now like to turn the call over to Jim Kras. Jim?

Speaker 2

Thanks, Ted. Good morning and thank you to everyone for joining with us today. We continue to execute on our growth strategy as evidenced by the 19.4% increase in revenue for the Q3 of 2023. This growth reflects the expansion of our distribution channels as well as our growing brand recognition. We continue to be a leader in our industry, setting the standard in terms of both service, excellence and dependability.

Speaker 2

As a result, an increasing number of retailers are choosing Edible Garden to to fulfill their requirements for organic and sustainable products. Company is growing our distribution network by strengthening ties to current retailers as well as welcoming new retailers, thereby enhancing our reach. For instance, our collaboration with Woodman's Market has resulted in introducing edible garden produce and products across the 19 stores in Wisconsin and Illinois. Woodlands' addition to our retail distribution network boost our presence in the Midwest and allows us to leverage our Edible Garden Heartland facility in Grand Rapids, Michigan, which we launched in April 2023. Additionally, we are pleased to welcome Tops Friendly Markets as the latest major retailer to join our distribution network and carry the Edible Garden brand, offering our range of sustainably grown high quality herbs.

Speaker 2

The addition of tops friendly markets is significant as our products will now be available at all of their 149 stores across New York, Pennsylvania and Vermont. In July, as Previously reported the company expanded its relationship with Walmart to provide additional SKUs at Edible Gardens Sustainably Grown Produce in locations across the Northeast, as well as broadening our reach within Walmart's retail locations in the East South Central region of the United States. We've also continued with the rollout of our new Pulp Line's Sustainable Gourmet Sausage. All 16 Morton Williams retail locations across New York Metropolitan area have introduced the Pulp Line, representing the brand's initial venture into the substantial and influential New York City marketplace. Morgan Williams serves as an excellent partner for our pulp line, aligning with Their customers demand for flavorful, sustainable and organic fermented products, the content best expressed in the pulp tag line, Bland and Bold.

Speaker 2

Building on this momentum, the company also brought Ebergh's market into its distribution network, introducing Pulp Gourmet Sauce Selection all 26 of its outlets in the Greater St. Louis Metropolitan area, as well as their location at Missouri's Lake of the Ozarks. In the Q3, Edible Garden launched EG Direct, a new division specifically focused on sourcing produce from partners and supplying these products to the company's retail distribution network. The company has consistently outperformed our competitors as evidenced by order fulfillment rates, which routinely exceed Industry averages. We view EG Direct with a strategic move to capitalize on the company's existing distribution network partners and its expensive network of over 5,000 retail locations, potentially opening up additional revenue streams by distributing essential high volume produce such as broccoli, carrots and potatoes among others.

Speaker 2

We believe that EG Direct could have substantial effect on both revenue and profits of Edible Garden by leveraging our established infrastructure. Edible Garden began shipping fall ornamentals from our new Edible Garden Heartland facility in Grand Rapids, Michigan just in time for the fall gardening season. These plants are now being shipped to prominent big box retailers across the company's distribution network. Following the acquisition of Edible Gardens Heartland last year, the company integrated cutting edge technologies like our proprietary and patented Green Thumb Greenhouse Management Systems to boost our supply chain efficiency, in addition to implementing our advanced growing techniques. These steps were in line with Edible Garden's philosophy of maximizing all available assets at our disposal.

Speaker 2

The company received a notice of allowance from the U. S. Patent and Trademark Office for our innovative self watering display, underscoring our dedication to innovation. The self watering display has proven to be a game changer, revolutionizing the way plant life is extended, maintaining optimal freshness and greatly reducing spoilage in retail settings. The implementation of this cutting edge technology allows retailers to showcase plants at their freshest, minimizing waste and delivering superior products to the consumer.

Speaker 2

Initially introduced at all Meyer locations, the success of these displays have led to a broader national deployment. The company also started distributing 2 new flavors of our Vitamin Li product line to Meijer stores across the Midwest. These innovative additions, ice cream, cake and Orange Creamsicle enhanced our flavor focused vitamin whey line, known for its advanced high performance formula that supports muscle recovery and overall well-being, while also offering great taste. The product features our proprietary multivitamin, whey protein and amino acid complex formulas. Vitamin Way stands out for its exceptional value, providing superior supplementation and recovery benefits at an affordable price.

Speaker 2

We believe these new flavors will reinforce Edible Garden's image as the flavor maker as we continue to develop innovative cutting edge flavors in collaboration with our partner, NutriCom. Given Vitamin Way's successful history at Meyer, we're optimistic that these new flavors will further enhance the brand's appeal. Our aim is to create the highest quality and most flavorful whey protein on the market, and we plan to launch a nationwide LaRolla product in the near future. Recently, the company was awarded a grant from the USDA Organic Certification Program managed by the Farm Service Agency to cover various expenses related to Organic Crop Certification at Belvieu, New Jersey facility. This support is valuable and appreciated as we continue to lead the controlled environment agriculture industry and prioritize local organic and sustainable produce.

Speaker 2

Additionally, falling grass from West Michigan Works and the Specialty Crop Block Program of the Michigan Department of Agriculture and Rural Development, our employees at Edible Garden Heartland facility will undergo additional leadership and food safety training. These grants not only demonstrate our dedication to food safety, but also complement our ongoing research collaborations. We are currently working with the New York Institute of Technology, the USDA and the EPA on how Nanobubble technology impacts food safety and processing of fresh produce. Moreover, our partnership with Auburn University's Department of Horticulture is focused on addressing food safety issues related to food produce fresh produce such as contamination from Listeria. These combined efforts reflect our commitment to maintaining the highest standards of food safety and quality in our products.

Speaker 2

In July, Edible Garden unveiled Green Thumb 2.0, the latest iteration of our sophisticated greenhouse management system, representing a major leap forward in automation technology. This upgraded system enhances our dynamic forecasting abilities utilizing real time data more efficiently. Our goal is to more accurately predict the requirements of our distribution partners and adapt our growing strategies accordingly. Overall, I'm encouraged by the outlook of the business given the growth in our retail network, that expansion of our product offering and careful management of our expenses. As a result, we expect to maintain strong organic revenue growth and remain laser focused on achieving our target of positive cash flow before year end.

Speaker 2

I would like now to turn the call over to Mike James,

Speaker 3

Thanks, Jim, and good morning. The company reported year over year revenue growth of 19.4% to $3,300,000 in the quarter ended September 30, 2023 compared to $2,800,000 reported in the Q3 of 2022. The Herbs, Produce and Floral business saw a 22.8% increase primarily due to a net increase in orders received from our existing customer base and a slight increase in orders from for herbs received from new distribution partners. Cost of goods sold was $3,300,000 for the 3 months ended September 30, 2023 compared to $2,600,000 for the 3 months ended September 30, 2022. We continue to use contract growers to grow herbs for our customers as we ramped up production in Edible Garden Heartland, which resulted in higher cost of goods sold.

Speaker 3

Additional labor and material costs required to grow the products sold into the retail channel also contributed to the increase. Selling, general and administrative expenses were 2 point $4,000,000 for the 3 months ended September 30, 2023, an increase of $459,000 compared to $1,900,000 for the 3 months ended September 30, 2022. The increase was primarily driven by an increase in costs incurred as it relates to the ramping up of operations of Edible Garden Heartland facility, which was acquired in August of 2022, as well as an increase in depreciation costs due to the acquisition of the facility. We also increased production of cut herbs of Edible Garden Heartland and our Belvieu, New Jersey facility for which we purchased equipment intended to increase our efficiency. Net loss was $2,400,000 or $0.69 per share for the 3 months ended September 30, 2023, compared to a net loss of $2,100,000 or $7.13 per share for the 3 months ended September 30, 2022.

Speaker 3

Before turning back the call over to the operator for questions, I would like to take a moment to discuss the successful public offering we completed in September, which generated roughly $3,000,000 in gross proceeds. The capital raise was an important step that enabled us to obtain the essential financing required to expedite the company's growth strategy. I would now like to open up the call for questions. Operator, could you please assist us with that?

Operator

Certainly. The floor is now open for questions. We do ask if listening on speakerphone this morning that you pick up your handset while asking your question to provide optimal sound quality. And your first question this morning is coming from Anthony Vendetti from Maxim Group. Anthony, your line is live.

Operator

Please go ahead.

Speaker 4

Thank you. I was just wondering if you could just give us a little more color. You've signed up lots of new partners. Any highlights from the Walmart partnership or any of the other recent partnerships that you signed up? What do you think is giving you that the ability to get these new contracts?

Speaker 4

And then in terms of margins, As you roll out some of the higher margin products, should we start to see that materialize in higher gross margins in the following quarters? Thanks.

Speaker 2

Thanks, Anthony. Good morning. In regards to new distribution, the company has continued to build the momentum of its that we continue to help drive for our partners. Walmart, I think, has seen that as well as our performance as a top flight shipper, picker packer shipper, with great in stock rates and fill rates, which has allowed them obviously to gain share themselves in this category. So we were awarded additional Business, as I noted in the script today, at by bringing in more distribution centers, I think, Hopefully, we'll continue to see that type of commitment from Walmart as they look at us as a trusted partner considering our performance.

Speaker 2

Word gets out In this industry and people turn to us to supply their own needs, I think you see that, that's evident with tops. There's always the The challenge of someone having an existing supplier and long standing relationship. So, they when you're talking about the size of businesses that They are looking to move to, let's say, to an edible garden. That process is well thought out and evaluated before they do so. So it's a real credit to the company when We do pick up new accounts because usually you're dislodging a competitor and the buyers do not make moves that quickly.

Speaker 2

So I think just performance, in stock rates, fill rates, Commitment, support, customer service, and we continue to fire on all cylinders and execute. And I think that's why you see the type of growth that you see in The additional partnerships that we're bringing in from the retailers, I think, and I think that will continue. As far as the higher margin pulp sustainable products, sustainable sauces and products like that, you'll continue to see More offerings, new products are always the lifeblood of a consumer packaged goods company. I think you're going to see this evolution of Edible Garden go from Grower picker packer shipper grower to more of a integrated provider of not only living But more shelf stable products that we can help grow some of the ingredients and have high quality all with an eye on sustainability. So this idea or notion of just this EA informed next generation CPG company, which I think is the big vision for the company moving forward and we're already making strides towards that.

Speaker 4

Okay, great. And then, so Jim, just on the hot sauce, you mentioned that. When you're selling that into your customer base, is that a different Shelf space than your produce and herbs or how does the negotiation go When you're dealing with hot sauce versus some of the fresh produce?

Speaker 2

Sure. Great question. The strategy here was to continue to we always focus Mike and I really focus on leveraging the existing assets that we have to get the most out of that. And this is a great example of that where we developed this line of sauces, scaled it up. We made that investment this last quarter in inventory and sales calls.

Speaker 2

But that product and the buyer that we call on is the same buyer that buys produce. And so the strategy with this is to have this in the refrigerated salad dressings part of the produce section and the buyer is usually the same buyer that's already buying our herbs. So it's a new product. It's an extension from where we're at. Obviously, peppers are sold in produce.

Speaker 2

So It's a natural fit. And so for us to the barriers of entry to that buyer are kind of wiped away because we're already So not only we picked up not only is it proven to be a door opener with the likes of Dierbergs and some of these other areas of the country where It's totally new and they may not necessarily be taking our produce in, but with Metro New York and Eastern Mississippi where we're POWERHOUSE, we're able to go in there and present it. And like I said, the barriers of entry are pretty much eliminated. So and it's a unique New item that's gotten some pretty good traction. So, we're pretty excited about the future and we're already making some pretty great strides on So, some new activity.

Speaker 4

Okay, great. Thanks. And lastly, Jim or Mike, feel free to answer this question. So, In terms of pricing, a number of our companies have taken price increases in this obviously inflationary environment. Have you been able to do that at this point?

Speaker 4

Are you planning on doing that? Or Do you have to sort of wait until the reset? How does that work for you in terms of taking price increases?

Speaker 2

Do you want me to answer that or did you want Mike? I can answer that. And Mike feel free to chime in. Look, I think we've worked hard this past year Take price increases, we've held our prices. You go back and you look at some of our releases, we've worked hard to hold prices through the pandemic prior to the IPO, and then we help prices through kind of the integration of Being a public company as well as providing that value to our retailers, we started to take price increases really this year And that was accepted because I think we I know we were a great partner to our retailers.

Speaker 2

So they were obviously willing to help us out And it makes put us in a position to continue to grow. I think that food is still It still suffers a little bit from inflation, it's come down quite a bit, but I think strategically, we're warranted and I As we become more prominent with the brand, we'll look to try to do what we can on the price increase part. I think we provide I know we provide exceptional service And that should I think the profits from what we do to help the retailers sell our product, we should share in some of that. So I think on an account by account basis where we know that we can Certain items can get a little bit more pricing power. Obviously, we have volume discounts in place for the bigger players, but We continue to push to try to get our fair share based on our performance relationship and what the market can shoulder.

Speaker 2

Mike, do you want to add anything to that?

Speaker 3

No. No, I think that kind of sums it up. I mean, some of the price increases started to go into effect at the In Q2 and continued into Q3. So where the grocery chain will And pass it on to the consumer. Obviously, we want to see it.

Speaker 3

I mean, we've had increases in plastic and corrugated and fuel and health insurance, Wages, so we've suffered as well as everybody else out in the industry and the retailer does realize that they have to

Speaker 2

give us a price increase. So it's a It's an ongoing negotiation. And I think what's nice Look, I think Mike is pretty good on the company, staying focused on making sure that we're striving towards Profitability and it's important for us to once again get what I think we've earned as a partner. It's an ongoing negotiation. We have fantastic relationships So our key retailers probably unlike our competitors in the industry.

Speaker 2

And so those conversations continue to go on and It's a constant negotiation, but we pushed to get what should be fair. And I think the retailer understands that. But obviously, They always want to be best priced and they always it's competitive environment for them. But I think once again, I think we have a good open which is kind of rare.

Speaker 4

Okay, great. Thanks very much. I'll hop back in the queue. Appreciate it.

Speaker 2

All right. Thank you. Thank you, Anthony.

Operator

Thank you. At any time. And your next question today is coming from Nick Pincus from Forest Capital. Nick, your line is live. Please go ahead.

Speaker 2

Thanks for taking my call. Congrats on another very strong quarter. I know you've touched on this, but you've clearly built a very robust distribution network and now you've started introducing pulp, which appears to be very high margin shelf stable product. Are you planning to introduce any other new products, either your own or third party products through the distribution channel? Thank you for the question, Nick.

Speaker 2

Yes. So right now, it's really we've used The produce business to continue to drive the distribution platform, we continue to increase our door count For our store count over 5,000 currently and growing, not only have we been opening new accounts, we've been expanding within The existing accounts that we have, so what you'll see is, you'll see an introduction of new products. We have a pipeline, a very compelling pipeline, all of which is sort of tie back to who we are as a company, Whether it's a living good or something that is sustainably grown or packaged, We are really focused on being this leader in this kind of next gen space of Better products for you with an eye on the environment. And there's really no one else better to do this in my humble opinion. Of course, I'm biased than Edible Garden since we are a grower, picker packer chipper, we are USDA Organic Certified.

Speaker 2

We are a leader of the CEA space. So again, you're going to see an interesting slate leveraging not only the current relationships, the new relationships, we've also set up something called EG Direct, which is going to be sourcing commodity items. So when you're a Company like Edible Garden and you continue to deploy your resources in order to develop patented software and you have an eye on your fill rates and you achieved some of the industry's highest fill rates in a very tough Perishable Industry, you leverage those relationships to work with the buyers to supply them with some of these commodities since I have field growers and other type of growers who come to us all the time We may not have the relationship that want to work with us to help bring in some of these commodity products. So it's really based on trust and performance to move some of this product. And so we've just we've been working on Our 20,000 square foot pack house in Belvidere, New Jersey, we just Sort of laying down asphalt and finishing some of the finishing touches on that part of the facility, Having that type of storage processing and cross dock will allow us to leverage that facility to its fullest.

Speaker 2

And so I'm thrilled about that because I think we can really take on quite a bit of business and we have the relationships and the appetite from our customers in order to do so. So you'll see a whole To recap, a whole new slate of products, I'm not going to say the full spectrum. I think they will be focused on what we're good at as well as some of this commodity items that we know that we can move pretty quickly through the distribution platform. But the big asset at Edible Garden is the distribution and the name and the relationships. And I think we're going to you're going to see a lot coming from us moving forward as it relates to leveraging that sticking with the strategy Mike and I have always deployed, which is really working with what we have.

Speaker 2

Thanks. That's definitely helpful. And To follow-up on that, can you elaborate specifically on the Walmart relationship and how you intend to expand on that? Yes. Thank you.

Speaker 2

The Walmart relationship continues to grow quite nicely. We put a significant investment in both facilities this past quarter in order to increase our capacity for processing. And we started in, I believe it was in July, we started to Ship additional cut herbs into more DCs based on an award that we got from them. We have a very active relationship with the buyer There they continue to turn to us for more. They've already started to increase some of their orders over the holidays from their forecast.

Speaker 2

And it's a nice relationship and we work hard to hit their target. I mean, you're talking about A 98% fill rate in a perishable multi SKU business that could that always has its challenges, Just considering how fickle produce can be at times, but we continue to strive forward. The company has been laser focused servicing Walmart knowing that they are they're a potential game changer account for the business And we treat them as such and they've been a good partner, frankly. And so, onward and upward. We're excited about what we're doing with them.

Speaker 2

I only expect if we continue to execute that they will return the favor as they always have because they work on numbers and performance and that's what we're focused on. So Once again, nice relationship and fingers crossed and win the heat of the battle right now with our peak season, but I think we should come out in pretty good shape. Thanks. Keep up the good work. Appreciate it, Nick.

Operator

Thank you. And there are no further questions in queue at this time. I would now like to turn the floor back to management for closing remarks.

Speaker 2

Thank you again for joining us today. We are encouraged by the progress we have made at Edible Garden and are enthusiastic about the prospects for the business. We remain committed to maintaining and accelerating our organic revenue growth as well as turning the corner to

Operator

Thank you. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.

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Edible Garden Q3 2023
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