Edible Garden Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 10, 2023

There are 6 speakers on the call.

Operator

Greetings, and welcome to the Edible Garden Second 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 Q2 2023 business update and conference call.

Speaker 2

On the call

Speaker 1

with us today are Jim Kras, Chief Executive Officer of Edible Garden and Mike James, Chief Financial Officer of Edible Garden. Earlier this morning, the company announced its operating results for the 3 months ended June 30, 2023. The press release is posted on the company's website, www.ediblegardenag.com. In addition, the company will file its quarterly report on Form 10 Q with the U. S.

Speaker 1

Securities and Exchange Commission, which can be accessed off which can also be accessed on the company's website as well as the SEC's website at www.sec.gov. If you have any questions after the call and would like any additional information about the company, please contact Crescendo Communications at 212-671 one zero two zero. Before Mr. Curtis 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, in 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 events and circumstances Discussed in this conference call may not occur and 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 any of the 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 will now turn the call over to Jim Kratz. Jim?

Speaker 2

Thanks, Ted. Good morning and thank you to everyone for joining us today. I want to begin by extending our sincere thanks to our investors for the trust and belief you've placed in our vision. Our commitment to achieving our goals is unwavering as we continue to focus on generating lasting long term value for all shareholders. We are excited to report year over year revenue growth of 41.4% for The Q2 of 2023, Edible Garden has always stood out for its consistently high level of execution, a feature that sets the company apart from our competition.

Speaker 2

While others in our industry have struggled, often shrinking or even ceasing operations, Edible Garden continues to grow, successfully building its reputation and gaining a larger portion of market share. Edible Garden has regularly executed at levels that surpassed those of our competitors and our order flow rates across retail and distribution partners is a testament to the company's dedication to exceptional service. Our ability to continually surpass our retail partners' expectations Solidifies Edible Garden's position as a strong and dependable supplier of sustainably grown produce and products. This superior performance has furthered the expansion of our distribution to encompass some of the most prestigious names in retail nationwide. It is our belief that both existing and prospective retail customers View Edible Garden is a reliable and trustworthy partner, often looking to reinforce established distribution relationship with the company.

Speaker 2

In the Q2, the company initiated a deliberate strategy to concentrate our energies and redistribute resources towards more profitable customer and partner relationships. The impact of this strategy was evident almost immediately as we achieved a 168% increase in our gross profit compared to the same quarter in the previous year. Additionally, with the launch of Edible Garden Heartland in April in 2023, we expect additional positive impacts in our margins. We attribute this expected improvement to increased and growing capacity offered by Edible Garden Heartland. This expanded capacity allows us to reduce the company's reliance 3rd party providers and transition previously outsourced production to in house operations.

Speaker 2

We believe that these actions will positively impact the company's margin. We also believe that the facility's potential to generate up to $20,000,000 in annualized revenue provides us with the opportunity to vertically integrate our Midwest production capabilities, further enhancing our operational efficiency. Additionally, the company is witnessing expansion across all segments of our business and platform, including leafy greens, Floral Products, Alternative Proteins and Pulp Flavors, a comprehensive line of gourmet sauces and Chile based products, which has begun scaling and building inventory for a near term retail introduction. Furthermore, during the second quarter, to the growing demand of our potted herbs and their sustainability for our customers' home gardens, Edible Garden Expanded, the distribution of our garden starters product to all Wakefern ShopRite retail locations across the Northeast. This expansion came on the heels of introducing Garden Starters and Meyer retail locations in the Midwest just in time for Mother's Day.

Speaker 2

The 35% of American households grown some of their own food, Edible Gardens, sustainably grown Herbs and produce have become popular choices among consumers looking to enhance the flavors of their meals. By placing our potted herbs in the same supermarket section as cut herbs and sustainably grown produce that customers often purchase, we have made it more accessible and convenient for those looking to incorporate Edible Garden Potatoes into their home gardens. In addition, during the quarter, we enhanced our partnership with Walmart to provide a wider range of Edible Garden SKUs in their Northeast locations and initiated distribution to the retail stores in the East South Central region of the U. S. Walmart recognized the world's largest retailer Fresh Produce has consistently been one of our most significant customers, and our partnership with them goes beyond simply supplying produce.

Speaker 2

Edible Garden actively contributes to Walmart's Project Gigaton, an ambitious initiative launched in 2017 that aims to unite Suppliers, NGOs and various stakeholders in an effort to reduce or eliminate 1,000,000,000 of metric tons of greenhouse gases from the global value chain by 2,030. The company has also been honored by Walmart as a Project Gigaton Gigaguru, reflecting our unwavering dedication to our 0 waste inspired mission and our leadership in the controlled environment agriculture, CEA sector. We're confident this expanded distribution relationship with Walmart will positively impact our revenue and cash flow in 2023 and subsequent years. In June, the company received grants from West Michigan Works and the specialty the Crop Block Program of the Michigan Department of Agriculture and Rural Development. The grants were specifically earmarked to compensate Western Michigan employers for the costs related to leadership of food safety training for their workforce.

Speaker 2

These grants will enable employees at our Edible Garden Heartland facilities to participate in food safety training. The areas covered in the training will include produce safety alliance grower training, training in hazard analysis critical control points and good agricultural practices training. The grants reflect our commitment to food safety, while also complementing our research collaboration with the New Jersey Institute of Technology, The USDA and the EPA focusing on the effect of nanobubble technology in fresh produce, food safety and processing methods. They also align with our collaborative research study with Auburn University's Department of Horticulture, investigating food safety concerns tied to fresh produce contamination such as Listeria. In July, Edible Garden introduced GreenClub 2.0, the most current version of our advanced greenhouse management system, marking a substantial advancement in our automation technology.

Speaker 2

This improved version of the system significantly boosts our dynamic forecasting capabilities Using real time data with increased efficiency, aiming to anticipate our distribution partners' needs more precisely and to modify our growing strategies as needed, taking into account factors such as year over year patterns, sales trends and seasonal fluctuations. A significant enhancement in Greenfarms 2.0 is the integration of a real time inventory system that tracks all raw materials, work in progress and finished products. This allows the company to dissect our costs for every element involved in the plant growth with an unparalleled degree of detail. We are confident that this level of detail will furnish essential information to aid us in managing our expenses. We've also expanded our distribution at both King Colin and IGA retail locations across Long Island, New York, just in time for the 20 'twenty three summer season.

Speaker 2

This expansion comes in response to the increasing consumer demand for fresh produce and herbs that have become synonymous with the Edible Garden brand. To accommodate this growing demand, both King Kong and IGA have doubled their shelf space allocated in their retail locations for edible garden products. The initiatives that the company have been working on since the beginning of 2023 have started to manifest in our financial results. The record revenue we achieved in the 2nd quarter, coupled with the rise in both gross profit and profit margins, provides evidence that our strategic approach is working. We believe that the ongoing execution of our strategic plan will enable us to achieve our target of becoming cash flow positive on a quarterly basis before the year's end.

Speaker 2

I'd like to turn the call over to Mike James, Chief Financial Officer at Edible Garden, who will review the financial results for the 3 month period ending June 30, 2023. Mike?

Speaker 3

Thanks, Jim, and good morning. The company reported an all time record year over year revenue growth of 41 0.4% to $4,200,000 in the quarter ended June 30, 2023, compared to $3,000,000 reported in the Q2 of 22. The Herbs, Produce and Floral business saw a 41.7% increase, largely driven by the initiation of shipping from the Edible Garden Heartland facility at the start of the quarter. In addition, revenue from alternative Plant based supplements experienced a 39.3% rise, thanks to new flavor SKU ordered by a Cost of goods sold was $3,700,000 for the 3 months ended June 30, 2023, compared to $2,800,000 for the 3 months ended June 30, 2022. The increase was primarily due to the additional labor and materials needed to cultivate the products sold into the retail channel.

Speaker 3

Selling, general and administrative expenses were $2,400,000 for the 3 months ended June 30, 2023, compared to $2,700,000 for the 3 months ended June 30, 2022. The 12.9% decrease was primarily driven by a decrease in compensation and benefits expense, primarily offset by the cost incurred in the ramping up and operation of Edible Garden Heartland, which was acquired in August of 2022. Net loss was $638,000 or $0.24 per share for the 3 months ended June 30, 2023, compared to a net loss of $4,800,000 or $20.44 per share for the 3 months ended June 30, 2022. 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. On your telephone keypad to join the queue. We do ask if listening on speakerphone this morning that you And our first question this morning is coming from Nick Pincus from Forrest Investment. Nick, your line is live. Please go ahead.

Speaker 4

Good morning, guys. Congratulations on a very strong quarter. You mentioned some difficulty that your competitors

Speaker 2

have faced. Maybe you could expand a

Speaker 4

little bit on the macro environment, What those challenges have been? And as a follow-up to that question, what's allowed Edible Garden to buck that trend?

Speaker 2

Thanks for the question, Nick. The competitive environment has been we've been able to benefit Being uniquely positioned with strong retail partnerships that have allowed us to go deeper with the likes of Walmart and Meijer and Wake And these major players, having a platform that has an increasing store count well over 4,000 currently allows us to continue to leverage that relationship to put in more products, even more importantly, more shelf stable products like pulp that allow us to expand the assortment within produce and then expand to other parts of the store. And we're getting a lot of requests to leverage our relationships, to be able to take advantage of our strong relationships and trust that we've built with these retailers to be a distribution partner for even more types of products that we both grow and that we develop. As far as the I think what else has made us unique is just we continue to innovate Our Green Thumb platform, which has just come out with 2.0 version, it allows us to really increase our operational efficiency. And I think we just continue to get stronger and stronger as a partner, as a picker, packer shipper and that focus It's starting to really pay out in efficiency, profit margin and increased revenue and struggle relationships.

Speaker 2

That's great. And you've stated that your the goal is

Speaker 4

to become cash flow positive in the near term, which would

Speaker 2

be Tremendous milestone, maybe I know you've talked about this a little bit, but maybe you could just expand on the steps

Speaker 4

that we're taking in scalability of the business and some of the enhancements for operating efficiency. Yes, thank you.

Speaker 2

Yes, thank you. Yes, I mean the goal here is to become cash flow positive by year's end As stated in our release and in our script today, we are really focused on profitability as As we continue to ramp the business, and I think that being able to have not only The technology that we've developed, which is proprietary, that's specific to this business and to this platform, but also we continue to refine Personnel as well as our focus, I think, has allowed us to continue to get stronger, Grow the revenue, we have quite a bit on the horizon as it relates to the new introductions and new opportunities. So I think the level of confidence here is high that we will get to cash flow positive pretty simple.

Speaker 4

Again, congratulations and keep up the good work.

Speaker 2

Thank you, Nick. Thank

Operator

And we do have a question from Anthony Vendetti from Maxim Group. Anthony, your line is live. Please go ahead.

Speaker 5

Thank you. Yes, I'll echo the sentiments of the last caller. Across the Board, B, in terms of revenues, margin significantly smaller or narrower loss. So it seems like you said on the call, kind of everything's coming together this quarter. Can you talk about the Heartland facility opportunity?

Speaker 5

I know that You started shipping from there, but can you talk about the what's the total opportunity there and the timeline for the ramp to get to full capacity?

Speaker 2

So, thanks, Anthony. Hope you're doing well. Part of it right now as we sort of Aramark has got the same capacity to produce about, call it, dollars 20,000,000 in revenue. We started shipping in April. We really didn't get a full month of It was just timing on when we could start to cut over.

Speaker 2

That's been a huge impact on the business because it's allowed us to vertically integrate, Get margin expansion where we needed it, get out from under some third party growers and producers that We just weren't making the type of money we needed to make working with them. It's also allowed us to expand the assortment capabilities from a distribution standpoint, the facility is impressive. Not only is it located near one of our biggest customers, Meijer, what it's allowed us to do is really open up that part of the country to service accounts and to drive distribution well beyond Meijer into other regionals as well as local stores. And we've allowed and it allows us to do that with not only the produce that is being grown there and Much more profitably because it's grown in house, but also with items like pulp where we can house it, store it, Ship it and then push it out of that facility, which is centrally located, which gives us some pretty wide reach beyond sort of shipping from the East Coast. So the central location is strategic.

Speaker 2

It happens in line with the biggest one of our Customers, it's allowed us to open up a major metro in Chicago and Chicagoland, as well as Detroit and then even St. Louis and some of these other areas that we're expanding into right now. So I like the land grab, I like the strategic location, I like the efficiency, I like the control, Like the vertical integration, love the margin expansion and then obviously the top line opportunity is significant and I think is We've seen potentially beyond the $20,000,000 that we've put out there as we deepen the assortment of items that we offer. And I think as time It goes by, you'll see some strategic moves on our end to even to maximize that key location where it is. And the Cost of doing business there is lower than, let's say, New York.

Speaker 2

So that's one of the nice things about Grand Rapids, they're very manufacturing and growing friendly. So it's a great spot. We're very happy. We're happy to people that we have working with us there. So it's worked out great.

Speaker 3

Yes, it sounds like there's a lot of advantages

Speaker 5

To that facility in Michigan. So can you tell us kind of where it's at in terms of the capacity? Is that 20,000,000 is the Capacity, maybe it's a little bit more than that now, but in terms of the opportunity, but are you at right now 50% capacity and approximately what capacity you're at now and when do you think you can get close to that $20,000,000 in 'ninety five.

Speaker 2

So yes, and I know you asked that question and I think you were nicked it as well. I apologize. I wasn't To steer away from it. Right now, our capacity, it's to get us to back for a second and look at it, there's Almost four aspects of the business. There's the processing aspect, which is There's not really a limiting factor other than time and staffing on that.

Speaker 2

And as we bring in more business, We continue to push more units out there and that currently is up and running and servicing a couple of key players in that part of the country, obviously, Meyer and then another one That's a major retailer that brought on some business near term or just had within the last few months. And then we have for the floral business, which is an existing asset that we've been able to leverage We continue to ship those products out and I think you'll see us continue to service the customers that we have that are wholesalers and then I think we're going to Strategically place that business probably in the area with maybe some other additional capacity we may have to bring on in the future. The produce business, that's the Vallevi Greens, that's already in production and shipping With more business coming online in Q3, I would think capacity, which again, it's kind of how you define capacity, growing Capacity, I would think we will have that place full by either year's end or definitely by end of Q1 next year. But the production aspect of it With the processing, there isn't really a major gating factor that won't allow us to go past what we Currently you're doing and what we think we have projected.

Speaker 2

So, I think the $20,000,000 is fairly conservative. There's different things that go in there. And then the 4th Piece of that would be obviously some of the products that we look to distribute that, whether it's commodities that we're getting asked to put into the entire platform or potentially even importing some other types of products that are shelf stable that we're right now. So, once again, that $20,000,000 number was simply put out there based on a conservative outlook What we thought we could do with the facility, but as we continue to invest, we continue to and as we continue to drive business, we're Getting more and more opportunity from these major retailers that they're very happy with how we execute.

Speaker 5

Just lastly on the gross margin, I know you mentioned you had some plant based supplements, which is higher margins. Your gross margin came in significantly Greater than we expected. Is that sustainable or is that one I'm not saying it's a one time order, but that order helped this quarter and the gross margin may tick down a little bit as we move forward or is this sort of a this much better gross margin and new run rate?

Speaker 2

I look, I think that's in there is that business has kind of always been in the background and we're Continuing to optimize that business, but the margins that we really are seeing the expansion on are really the stuff that we're growing as Function of bringing it in house, that's going to continue to be the key driver. Floral was a nice add on. It's not as production heavy, technology sort of Meaty, I guess, is maybe some of the always agreeing and some of the other things that we've continued to invest in the CEA aspect of the business, I think you'll see more things out of the supplement business as we push into 2024, we've really just tried to focus on what our core business is and our core business is picking, pack and shipping. I think that's what's allowed us to separate ourselves from some of these other companies, some major players that are in the CEs, they've gone out of business and We've seen just in the last 90 to 120 days, and I think that's just keeping our heads down and driving product, driving margin, Focusing on the core business and then adding on when we know we can take it on, I think has worked out well.

Speaker 2

It takes a little longer than maybe people would like, but We're starting to see the fruits of our labor. So, the supplement business, once again, I think, helped us a little bit on the margin, but I don't think it's going to be The driving factor moving forward, at least in the next quarter or 2, I think you're going to continue to see margin improvement Like I said, the basic greenscretes and the floral. So, we're pretty excited and I think To answer your question, yes, it will be sustainable moving forward as you all see improvement.

Speaker 5

Excellent. All right. Thanks so much. I'll hop back

Speaker 2

in the queue. Appreciate it. Thanks, Anthony.

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 comments. Tate?

Speaker 2

Thank you again for joining us today. We are pleased with our progress at Edible Garden, and we're excited about the opportunities that lie ahead. We will continue to execute our strategy and look forward to updating you on our progress in coming Thank you again.

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.

Powered by Quartr
Earnings Conference Call
Edible Garden Q2 2023
00:00 / 00:00