Edible Garden Q4 2023 Earnings Call Transcript

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April 1, 2024

There are 6 speakers on the call.

Operator

Greetings, and welcome to the Edible Garden 4th Quarter Business Update Conference Call. At this time, all participants are on 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, Mr. Ted Avis of Investor Relations.

Operator

Sir, you may begin.

Speaker 1

Thanks, Ali. Good morning and thank you for joining Edible Garden's quarter year end December 31, 2023 conference call and business update.

Speaker 2

On the

Speaker 1

call with us today are Jim Krast, Chief Executive Officer of Edible Garden and Costa Stavoulis, Interim Chief Financial Officer of Edible Garden. Earlier this morning, the company announced its operating results for the 3 months year ended December 31, 2023. The press release is posted on the company's website, www.ediblegardenag.com. In addition, the company has filed its annual report on Form 10 ks with the U. S.

Speaker 1

Securities and Exchange Commission, 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 or would like any additional information about the company, please contact Crescendo Communications at 212-671-1020. Before Mr. Kress reviews the company's operating results for the quarter year ended December 31, 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 aim, anticipate, believe, could, expect, may, plan, project, strategy, will and the negative of such terms and other words in 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 filings with the SEC, including the company's Annual Report on Form 10 ks for the year ended December 31, 2023. Because of these risks, uncertainties and assumptions, forward looking events and circumstances discussed in the 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.

Speaker 1

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. 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.

Speaker 1

Having said that, I will now turn the call over to Jim Kress, Chief Executive Officer of Edible Garden. Jim?

Speaker 2

Thanks, Ted. Good morning and thank you to everyone for joining us today. We are extremely pleased with the $21,600,000 increase in our annual revenue that we reported for 2023, along with an even more impressive 32.8% year over year increase in revenue for the Q4. This robust growth underscores the effectiveness of our efforts over the past year to leverage our distribution network in order to drive revenue. Our strategy to further develop our distribution network is 2 pronged, adding new retail partners and expanding our product offerings with existing partners.

Speaker 2

In 2023, we achieved significant success in both areas, thanks to our growing industry market position, driven by our outstanding service and reliability. As a result, Edible Garden has become a go to partner for retailers seeking a trusted source for organic and sustainable products. Additionally, the company continues continually strives to identify additional opportunities to boost profit margins. The prudent management of our operations is reflected in our financials by the increase in our gross profit margin by 2 70 basis points in 2023 to 5.9 percent of revenue, nearly double the 3.2 gross profit margin we achieved in 2022 and the 767 basis points improvement in our operating margin. Moreover, our gross profit increased to 6.9 percent of revenue in the 4th quarter.

Speaker 2

We believe that by continuing to add higher margin products to the Edible Garden product line, we will be able to further increase our gross profit margin in 2024 and in the future years to come. We have further leveraged our platform to enrich and broaden our wider range of edible garden products. We recently partnered with tops friendly markets, introducing our sustainable herbs to 149 stores across New York, Pennsylvania and Vermont. Additionally, Uncle Giuseppe's Marketplace, a division of Our Best Produce, is now carrying edible garden herbs in their 12 locations throughout New York and New Jersey. These new partnerships further enhance our footprint in the Northeastern United States, marking a significant step forward in making our sustainable fresh produce more accessible to consumers in the region.

Speaker 2

In February, we entered into a 3 year agreement with a leading U. S. Food retailer to broaden the range of Edible Garden products available in their stores. This expansion encompasses a diverse selection of our offerings, including potted and fresh cut herbs, fresh cut basil and wheatgrass. The partnership goes beyond merely increasing our product assortment.

Speaker 2

It introduces fresh and innovative displays designed to elevate our brand's visibility and prominence on the retailer shelf. These initiatives underscore our commitment to deepening our relationship with our retail partners aiming to better satisfy the requirements and simplify the shopping experience for their customers. In the Q4 of 2023, we expanded our offerings at Meijer stores with 2 new flavors from our Vitamin Whey Collection, notable for its blend of high quality whey protein, amino acids, while providing excellent nutritional value at an affordable price. This addition is expected to bolster Edible Garden's reputation as a flavor maker through our ongoing collaboration with NutriCom for innovative flavors. This success of Vitamin Way supports our belief that these flavors will enhance our brand and facilitate nationwide expansion.

Speaker 2

Additionally, we enhanced our production capabilities at our greenhouse operations in New Jersey and Michigan, which has led to a decreased dependency on contract growers, allowing us greater control and flexibility in our operations, while impacting potential profitability. Moreover, our investment in Edible Garden Heartland has been rewarding incorporating advanced technologies such as our proprietary Green Thumb Greenhouse Management System, which significantly improves the efficiency of our supply chain, allowing the company to ship tens of thousands of fall ornamentals just in time for the fall gardening season. We anticipate increased profit from the margins from the ornamental sector and are confident that this expanded line of business will have a positive effect on the company's overall profitability. The major milestone for the company in 2023 was the introduction of pulp, our cutting edge selection of sustainable gourmet sauces and chili based products, which allowed Edible Garden to enter the global sauces and condiments sector, a sector that is projected to go from $172,000,000,000 in 2021 to over $240,000,000,000 by 20 28. Expanding into a new product category was significant for the company as it provides us with higher margin products with longer shelf life.

Speaker 2

In addition, it provides the Edible Garden brand with additional visibility as the product will be located in retailers' refrigerated sections, which are adjacent to our products that they are already carrying in the produce section of their locations. Within a short time, we have introduced pulp to many new retailers and markets. After initial launch at Whole Foods Market retail locations across their Mid Atlantic and Southeastern divisions in the summer of 2023, we rapidly added new retailers that are now trying pulp products. Pulp is now available at more than Williams, 16 locations in New York Metropolitan area Dierberg's market, 26 locations in the Greater St. Louis Metropolitan area as well as Woodman's market with 19 locations across Wisconsin and Illinois.

Speaker 2

Most recently, Target joined our growing list of retail partners carrying the pulp line in 2024. The expansion to the Target's Southeastern stores significantly expands our distribution network for all Edible Garden products, which now expands over 5,000 retail locations across the nation, including several major big box retailers. EdovoGarden will support this launch by rolling out a robust marketing campaign that includes sampling, geo targeting, influencer partnerships and promotional pricing. We are confident that once customers try our sustainable USDA organic blend of bold gourmet sauces, they will be eager to explore more offerings in the product line. Given Target's nationwide presence, we anticipate that this collaboration will significantly boost the growth and visibility of both our pulp product line and Edible Garden brand overall.

Speaker 2

In early March of this year, we announced that CAHI Distributors, the premier distributor of naphtha and organic specialty and fresh products is now carrying our pulp product line. KHE's expansive distribution network encompasses over 31,000 national food stores, chain and independent grocery stores, e commerce retailers and other specialty product retailers across North America. In January 2024, we launched the pulp e commerce site enhancing accessibility to our gourmet sauces by enabling online purchase directly. This move significantly broadens consumer access to our distinctive flavors. The overwhelming positive reception of pulp has underscored our reputation as the flavor maker, with our unique peppers turning sauce and enthusiasts into aficionados.

Speaker 2

Thanks to our e commerce platform, customers across the country can now enjoy blendable flavors of pulp from their homes. Earlier this year, the U. S. Patent and Trademark Office awarded Edible Garden 2 new patents. The first patent pertains to Green Thumb, a web based greenhouse management system and demanding planning system that enables the company to enhance our supply chain, which has led to improved shipping and fill rates alongside notable sales book.

Speaker 2

This was the 3rd distinct patent awarded for this advanced system. The second patent highlights our commitment to innovation through our proprietary self watering display technology. This technology has been a game changer for the company, extending plant shelf life, ensuring freshness and dramatically reducing spoilage at retailer outlets. Aligned with our 0 waste inspired mission, these self watering displays all retailers to showcase plants at their peak, minimizing waste and delivering superior products to customers. These patents are testament to Edible Garden's leading role in the agtech industry, further demonstrating the company's unwavering commitment to leading edge innovation.

Speaker 2

Through the deployment of advanced technologies such as these patents, we are driving operational efficiency and enhancing expected profitability, highlighting Edible Garden's commitment to sustainable development and its position as a leader in agricultural technology. Recently, the company was awarded several grants to cover various expenses related to the organic crop certification and training costs of our greenhouse facilities in Belvedere, New Jersey and Grand Rapids, Michigan. In Michigan, the company was granted funding by the Going Pro Talent Fund overseen by the Michigan Department of Labor and Economic Opportunity and facilitated by Michigan Works. This support is designated to cover training costs for our staff at the Edible Garden Heartland facility in Grand Rapids, Michigan, focusing on essential skills like supply chain management, transportation and logistics. Additionally, we secured a grant from Michigan Occupational Safety and Health Administration, which will assist in creating a safer and healthier work environment at Edible Garden Heartland, thereby reducing the risk of workplace accidents and health issues among employees.

Speaker 2

In New Jersey, the company was awarded a grant by the United States Department of Agriculture Organic Certification Program managed by the Hackettstown Town Farm Service Agency. This grant provides financial assistance to organic producers and handlers offering reimbursement to help cover the expenses related to obtaining organic certification and processing and handling certifications. The grants we've received underscore our commitment to food safety and are a valuable addition to our research collaborations. We are also engaged in a project with New York Institute of Technology, the USDA and the EPA to explore the impact of nanopubble technology on the safety and processing of fresh produce. Additionally, our collaboration with Auburn University's Department of Horticulture aims to tackle food safety challenges associated with fresh produce.

Speaker 2

These collaborations highlight our dedication to upholding the highest standards of food safety and quality across our product range. I would like now to turn the call over to Christoph Dulles, who recently joined Edible Garden as their Interim Chief Financial Officer, who will review the financial results for the 3 months year ended December 31, 2023. Klostas?

Speaker 3

Thanks, Jim, and good morning, everyone. Starting with the Q4 of 2023 results, the company reported revenue of $4,100,000 an increase of 32.8% compared to $3,100,000 dollars for the Q4 of 2022. This increase was driven by higher demand from the existing customer base, expansion of our product lines and the expansion of our product footprint in key retail partner stores. Cost of goods sold was $3,800,000 for the 3 months ended December 31, 2023 compared to $3,000,000 for the 2022 comparable quarter. The increase was the result of costs related to the build out and staffing of our Heartland facility, increases in rates charged by our suppliers, higher packaging costs due to inflation and higher labor costs.

Speaker 3

Despite the increase in COGS, we expanded margin by 4.5% year over year. Selling, general and administrative expenses were $2,600,000 for the 3 months ended December 31, 2023, compared to $3,100,000 for the same quarter in 2022. The decrease was primarily driven by reduction in professional services expenses related to our IPO along with costs associated with the build out of our Heartland facility. Net loss was $3,100,000 or $0.54 per share for the 3 months ended December 31, 2023 compared to a net loss of $3,000,000 or $9.13 a share for the quarter ended December 31, 2022. The net loss for the 3 months ended December 31 also included a one time non cash impairment charge of $700,000 related to the write down of legacy assets acquired from our predecessor company.

Speaker 3

Now turning to the full year 2023 results. Revenue totaled $14,000,000 an increase of $2,500,000 or 21.6 percent compared to $11,600,000 in 2022. The $2,200,000 revenue increase was attributed to sales of our herb, produce and floral product, driven by a mix of organic growth and new customers. Additionally, sales of our vitamins and supplements increased $324,000 during the year ended December 31, 2023, driven by consumer demand. Cost of goods sold was $13,200,000 for the year ended December 31, 2023 compared to $11,200,000 for the year ended December 31, 2022.

Speaker 3

The increase was primarily due to $2,600,000 of higher costs for operating the Edible Garden Heartland facility, which transitioned to growing our herbs and lettuce products during 2023. These increases were offset by a $377,000 decrease in freight and shipping costs and a decline of $264,000 in costs for supplies and raw materials for our Edible Garden flagship facility. Gross profit increased 126 percent or $458,000 to $822,000 for the year compared to $364,000 last year. Gross profit margin increased by 270 basis points to 5.85 percent of revenue in 2023 compared to 3.15 percent of revenue in 2022. The improvement in margins was primarily attributed to less reliance on contract goers in 2023 versus 2022.

Speaker 3

Selling, general and administrative expenses were $10,000,000 for the year ended December 31, 2023 compared to $9,400,000 for the year ended December 31, 2022. The increase was primarily driven by additional costs incurred to operate the Edible Garden Heartland facility. Net loss was $10,200,000 or $3.08 per share for the year ended December 31, 2023 compared to a net loss of $12,500,000 or $48.68 per share last year. Please note per share amounts have been adjusted to reflect all stock split. Net loss for the 12 months ended December 31, 2023 also included a onetime non cash impairment expense of $700,000 related to legacy assets acquired from our predecessor company.

Speaker 3

In conclusion, we continue to focus on providing outstanding products and value to our customers, while improving the financial performance of the company. We've demonstrated in 2023 that we're focused on growth, while improving profitability and I'm excited for what's to come in 2024. Operator, please open the call for questions.

Operator

Thank you. At this time, we will be conducting a question and answer session. Thank you. Our first question is coming from Nick Sherwood with Maxim Group. Your line is live.

Speaker 4

Thank you. Good morning and congrats on the quarter and the year. Can you provide us an update on the build out and the integration of the Heartland facility?

Speaker 2

Hi, Nick. It's Jim Kratz. How are you?

Speaker 4

Good. How are you?

Speaker 2

I'm good. The status right now is that the facility we've made a significant investment. It's currently shipping, Meyer, which is one of our largest customers, with significant volume. We've deployed not only our clean top technology to help us run the operations. We have a fully operating state of the art pack house, which we just put in some new machinery in the last 30 to 60 days to help lower our manpower costs while increasing the ability to ship more units.

Speaker 2

In April, we'll be bringing in a considerable amount of our 4 inches potted higher margin product that's currently already being grown in the greenhouse. We have 5 acres there. That will convert into being vertically integrated in April, and we'll start to see some of the benefits of that in May. So we'll be 100% fully operational come the next few weeks with us handling all of our product that's in the Midwest flowing through our facility. So once again, 5 acres fully operational, full processing, 100% deployed as well as our software overlay, green thumb being deployed.

Speaker 4

Awesome. Thank you for that color. And then kind of switching gears, you mentioned the protein powder being sold at the Meyer locations. This is kind of one of the first times it's been mentioned in during these earnings releases recently. What is the near term and medium term plan?

Speaker 4

Is this more of just an opportunistic where you're working with Meijer and you're increasing your SKUs? Or is this the beginning of maybe a more substantial kind of accelerated rollout to your other retail partners? Thank you.

Speaker 2

Well, now with the completion of the Heartland facility, we are looking to push out and focus on leveraging our distribution platform. Being in 5,000 plus stores, being in business with the likes of Meijer and Walmart and Target and whatnot allows us the opportunity to push more product through those doors. We've had this kind of legacy brand in Vitamin Way Atmire. It's been a high performer for quite some time. And we see ourselves accelerating that business and then leveraging from there to go into some of these other retail partners that we have.

Speaker 2

We've already started that national rollout presentation process. We're working on a new line as well, that will sort of augment Vitamin Way, which is really a price value, great taste being performance product. We're looking at something that's potentially cleaner labeled and more contemporary that has a wider audience. We've got one of the benefits we have here is we have a very strong relationship with NutriCom. They are experts in flavoring these products as well as developing state of the art formulas.

Speaker 2

So partnering with them in order to drive in higher margin, better for you products is something that's going to be a big initiative going into the second half of this year, with us leveraging the relationship as well as the more contemporary assortment and better margins.

Speaker 4

Understood. And then my final question is, can you provide us any more extensive details on the introduction of EG Direct and the sourcing and supplier?

Speaker 2

Yes, EG Direct continues to be developed. The thrust of EG Direct is really to start to leverage once again the relationships that we have. We have really good relationships with our retailers based on our performance. We're looking at that for not only national, but international opportunities. So you really use that as sort of the arm of the business that helps source products, ideally, higher margin, potentially third party things that we don't necessarily grow or things that we end up manufacturing and want to bring into the platform.

Speaker 2

So we continue to work on that. We've already started utilizing the relationships there to start to bring in some product from overseas at a higher margin.

Speaker 4

Understood. Well, thank you again for answering all of my questions. Congrats on the quarter and I'll return to the queue.

Speaker 2

Thanks, Nick.

Operator

Thank you. Our next question is coming from Nicole Kauffman, who is an investor. Ma'am, your line is live.

Speaker 5

Good morning, gentlemen, and thanks for taking my questions. Congrats on the 4th quarter results and 2023 results. So in the past, you guys have talked about getting the company cash flow positive. Can you guys discuss what you're doing to drive efficiencies there and get the company cash flow positive?

Speaker 2

Sure. Thanks. I'll take this one, Klostis. We've continued to invest in technology as well as and I mentioned it to Nick, higher speed, more fishing production lines on our with our cut herbs. I think the integration of our contract grower business right now that we don't benefit from the margin contribution of that.

Speaker 2

That's a considerable part of the business that's out in the Midwest that will be coming in. That will help cash flow dramatically as well as help us strive towards profitability. I think what you saw last year was us continuing to invest in the business and to continue to iron out a lot of the issues we had with just trying to get things up to scale and run well. And I think just with some of the tweaks that we've made with, like I said, better, more efficient lines, reduction in manpower because of the lines running better and being more automated, I think you'll just see an overall optimization across the whole supply chain, which I think will lead towards us being cash flow positive at some point in the future.

Speaker 5

Thanks, Jen. That's helpful. And then regarding your gross profit margin, which almost doubled in 2023, What do you attribute that success to? And moving forward, how would you further increase your gross profit margin?

Speaker 2

Khosdis, do you want to take that one?

Speaker 3

Yes. I can start on that and you can add to it. Nicole, thanks for the question. One of the things we mentioned earlier in the call is less reliance on contract growers and that's going to continue to manifest itself this year and beyond with the onlining of our Heartland facility. So that's going to reduce our kind of raw costs of the materials and supplies and seeds, etcetera, that we purchase for the business and less reliance on those contract growers gives us much more control over our cost structure and profitability essentially.

Speaker 3

So as we continue to kind of online and drive more product through our internal facilities rather than rely on those contract growers, we should expect that margin to continue to grow somewhat. Furthermore, to what Jim was saying, we're looking to add to our product mix and drive products that are higher margin through the business more shelf stable. So we're less reliant on the seasonality and sort of potential product issues with plants in general. I think those two things as they continue to kind of manifest themselves through our financial results will continue to drive gross profit. Jim, feel free to add to that.

Speaker 2

No, I thought that was I mean that sums it up. It's a combination of factors, but it's widening the base and the assortment of products so that we have not only what we're great at, which is the produce and floral business, but also bring in these higher margin, more shelf stable products and we see that with pulp, we see that with the vitamins and I think you'll see a nice mix, which will dramatically impact the margins as we move forward as we widen the base and deepen our relationships with more items that have better margin.

Speaker 5

Thank you both. That makes sense and thanks for the additional color on that. And so to touch on pulp for a minute, with the new entry into this new product category, are you exploring any other product categories that you would be looking to enter?

Speaker 2

Yes. Once again, I mean sticking with the 0 waste inspired theme and our brand promise of doing more with less, we are looking at products that fit that kind of brand persona. And with that, we are going to be introducing new products this year that are within this condiment category that we're looking to lead and drive with the relationships that we have. I mean, being known as a purveyor of fresh and being so prominent in so many of these big box retailers in their produce section gives us permission to develop products that sort of link to what we're known for. And you're going to see that type of product introduction and innovation that we're known for as a company, kind of go from being fresh into more bottled, more shelf stable, more good for you and more sustainable type of products.

Speaker 2

So, yes, would be the answer and that is underway and I think you'll see some of the exciting stuff over the next quarter as we get ramped up on that part of the business.

Speaker 5

Thanks, Jim. I'm looking forward to that. And my last question is, can you provide any additional color on how the sales of pulp are going?

Speaker 2

I obviously can't get into specifics, but what I can tell you is and this is in our press release as well as the script that I had mentioned in the script. We 30 to 60 days, with access to 31,000 doors. We're continuing to drive that relationship. And we continue to see a very positive response to the product line. And so I think we've got we're bullish on how we think this product line is going to do and where it's going to go.

Speaker 5

Well, great. Thank you for answering all my questions and congratulations again on the results.

Speaker 2

Thank you very much.

Operator

Thank you. As we have no further questions on the line at this time, I will hand it back to management for any closing remarks.

Speaker 2

Thank you again for joining us today. I continue to be optimistic about our business' future. Thanks to our growing retail network, diverse product line strict expense control. We believe these elements are key to our continued success and are paving the way for sustained revenue growth. Our focus on financial discipline and operational efficiency is crucial to our strategy as we aim to become cash flow positive.

Speaker 2

We look forward to providing updates on our progress in the coming months. Thank you.

Operator

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

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Edible Garden Q4 2023
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