Edible Garden Q1 2024 Earnings Call Transcript

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May 15, 2024

There are 5 speakers on the call.

Operator

Please note this conference is being recorded. I will now turn the conference over to your host, Ted Avis, Crescendo Communications. Ted, over to you.

Speaker 1

Thank you. Good morning. Thank you for joining Edible Garden's quarter ended March 31, 2024 conference call and business update. On the call with us today are Jim Kratz, Chief Executive Officer of Edible Garden and Kosta Stafoulas, Interim Chief Financial Officer of Edible Garden. Earlier this morning, the company announced its operating results for the 3 months ended March 31, 2024.

Speaker 1

The press release is posted on the company's website, www.ediblegarden.com. Ediblegardenag.com. In addition, the company has filed quarterly report on Form 10 Q with the U. S. Securities and Exchange Commission, which can also be accessed on the company's website as well as the SEC's website at www.

Speaker 1

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. Grass reviews the company's operating results for the quarter ended March 31, 2024 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, 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. The 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, 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.

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 person assumes responsibility for the accuracy and completeness of any of these forward looking statements. The company disclaims any duty to update any of these 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

With that, I would now like to turn the call over to Mr. Jim Kras, Chief Executive Officer of Edible Garden. Jim?

Speaker 2

Thanks, Ted. Good morning and thank you to everyone for joining us today. We are excited about the significant 27.6 percent year over year increase in revenue the company achieved in the Q1 of 2024, the period typically recognized as the slowest for the industry. This considerable growth showcases the dedication of the entire Edible Garden team and our ability to perform at a high level, resulting in high sell rates and an outstanding reputation as a trusted supplier within the industry. It also reflects the positive impact of our move towards vertical integration.

Speaker 2

Over recent quarters, we've not only seen consistent revenue growth, but an expansion in our profit margins, particularly since we've been decreasing our dependency on 3rd party growers during the later half of twenty twenty three. The advantages of this strategic pivot became evident by the end of 2023 and continued into the quarter of 2024, where our gross profit margins surged by 195.8 percent and our gross margin expanded by 171 basis points from the same period the previous year. Our move away from 3rd party growers has accelerated with Edible Garden now producing approximately 95% of our fresh products in company owned facilities. This transition marks a critical milestone in our company's development. With all essential elements now in place, we believe that we are well positioned to substantially enhance our margins.

Speaker 2

We continue to utilize our platform to enhance our and expand our product range as well. In the Q1, we partnered with Uncle Giuseppe's Marketplace, part of our best produce to Perhaps more significantly, in February Perhaps more significantly, in February, we entered into a 3 year agreement unprecedented in our history with a prominent U. S. Food retailer. This agreement expected to generate between $18,000,000 $20,000,000 in revenue during its initial term will support the expansion of our product range in their stores.

Speaker 2

More than just diversifying our lineup, this partnership will introduce innovative and engaging displays that aim to boost our brand visibility and impact within the retail environment. These initiatives underscore our commitment to building our relationships to our retail partners aiming to better serve their needs and streamline the shopping experience for their customers. Our investment in Edible Garden Heartland has been fruitful, integrating cutting edge technology with our proprietary patented Green Thumb Greenhouse Management System, which has enhanced our supply chain efficiency. In late April, we started distributing Garden Starters, a display that features the company's potted herbs and basil bowls intended for home gardeners to various retail locations across the Midwest, starting with Meijer. Launched in 2023 in response to growing interest in our potted herbs, these products cater well to home gardening enthusiasts.

Speaker 2

Considering that 35% of American households grow some of their own food, our sustainably produced herbs and vegetables are increasingly popular among consumers looking for enhanced flavor in their meals. Located in Grand Rapids, Michigan, our Edible Garden Heartland facility now fully manages all the production packaging and distribution of these products. In April, the company began shipping spring ornamentals also grown in its Edible Garden Heartland facility in major big box retailers in the lead up to Mother's Day, one of the biggest days of the years in the floral industry. Implementing proprietary technologies, including Rheenthome has been instrumental in expanding our ornamental and floral business from this facility. We believe that the expansion of this segment of our business will positively impact the company's margins and overall profitability as ornamentals and florals are typically higher margin products.

Speaker 2

In 2023, we introduced Pulp, our fresh and fermented line of sustainable gourmet sauces and chili based products, venturing into the global sauces and condiments market, a market expected to grow from $172,790,000,000 in 2020 1 to $240,700,000,000 by 2028 according to Research and Markets. In a relatively brief time, pulpits become available at Whole Foods with Market, Moore and Williams, Gheerberg Markets and Woodlands. In January 2024, Target joined our growing list of retail partners carrying the Pulp line. The expansion into Target's Southeastern stores significantly expands our distribution network of all Edible Garden products, which now spans over 5,000 retail locations across the country, including several major big box retailers. Edible Garden supported this launch by rolling a robust marketing campaign, including influencer partnerships and promotional pricing.

Speaker 2

Given Target's nationwide presence, we anticipate that this collaboration will significantly boost the growth and visibility of our pulp product line and the Edible Garden brand overall. Diversifying into new product categories marks a significant development for the company as we are introducing products with higher margins and more shelf stability. Additionally, this expansion enhances the visibility of Edible Garden's brand by placing the new products in the refrigerated sections of retailers right next to our existing products where they are already carrying produce in this section. This strategic placement not only boosts our brand presence, but also complements our current offerings. In early March 2024, we further broadened our distribution through CAHI distributors, the premier distributor of natural, organic, specialty and fresh products, which is now carrying our pulp line.

Speaker 2

KAE's expansive distribution network encompasses 31,000 natural food stores, chain and independent stores, e commerce retailers and other specialty products retailers across the located across North America. In April, we added UNFI Distributors, one of North America's top grocery wholesalers of health and specialty foods, serving over 30,000 locations, including superstores, independent retailers, supermarket chains, and e commerce platforms and food service providers. The inclusion of these 2 major distributors significantly expands the availability of our blended Pulp product line, following closely on the heels of our launch of our pulp e commerce platform in early January. This platform enables consumers to directly buy our unique and flavorful products online. The pulp line has received overwhelming positive feedback quickly earning the admiration of sauce enthusiast for its unique peppers and the distinctive blend bold taste they bring to any dish.

Speaker 2

This success has helped cement Edible Garden status as a flavor maker. Earlier this month, we formed a product development partnership with Herman Pickle Company, the leading brand in refrigerated kosher dill pickles, sauerkraut and other fermented foods, which have long been fixtures at delis and family dinner tables nationwide. Our joint effort will harness the strengths of both companies to explore and develop scalable commercial opportunities. This collaboration will focus on the production, marketing and distribution of fermented plant based products and non GMO consumer packaged foods. We're eager to collaborate with Herman Pickles team, utilizing their esteemed legacy as a benchmark in this category to create a contemporary line of fermented bonds.

Speaker 2

Earlier this year, the U. S. Patent and Trademark Office granted Obelgarden several new patents. This is the first recognized our Green Thumb web based greenhouse management and demand planning system, which enhances supply chain efficiency and has led to better shipping and fill rates as well as notable sales growth. This is the 3rd patent for the state of the art system.

Speaker 2

The second patent was awarded for our proprietary self watering display technology, a key innovation that extends plant shelf life, maintains freshness and significantly reduces spoilage at retail outlets. These patents affirm Edible Gardens leadership in the ag tech sector, showcasing our commitment to advanced technology and sustainable development. Through these innovations, we are driving operational efficiencies, enhancing profitability and reinforcing our role as a pioneer in agriculture technology. Recently, the company was awarded several grants to cover various expenses related to the organic crop certification and training costs at our greenhouse facilities in Belvidere, New Jersey and Grand Rapids, Michigan. In Michigan, Edible Garden received funding from the Going Pro Talent Fund managed by the Michigan Department of Labor and Economic Opportunity, Workforce Development and facilitated by Michigan Works.

Speaker 2

This funding will cover training expenses for our staff at the Elmore Garden Heartland facility, focusing on crucial skills and supply chain management, transportation and logistics. Additionally, we secured a grant from the Michigan Occupational Safety and Health Administration to enhance workplace safety and health at Edible Garden, Heartland, aiming to minimize workplace accidents health issues among our employees. In New Jersey, the company received a grant from the United States Department of Agriculture Organic Certification Program, which is administered by the Hackettstown Farm Service Agency. This grant offered financial support to organic producers and handlers by providing reimbursements to help offset the costs associated with obtaining organic certification processing and handling certifications. The grants further underscore our commitment to food safety and greatly enrich our research partnerships.

Speaker 2

These include our project with the New York with the New Jersey Institute of Technology, USDA and the EPA, where we are investigating the effects of nanobubble technology on the safety and processing of fresh produce. Additionally, our collaboration with Auburn University's Department of Horticulture is focused on addressing food safety issues related to fresh produce. These initiatives emphasize our dedication to maintaining the highest standards of food safety and quality throughout the product lineup. I would now like to turn the call over to Costas De Furas, our Interim Chief Financial Officer, who will review the financials and results for the 3 months ended March 31, 2024. Kostas?

Speaker 3

Thanks, Jim, and good morning, everyone. I'm excited about our start to 2024. The company reported Q1 2024 revenue of $3,100,000 compared to $2,500,000 in Q1 of 2023, an increase of 27.6% year over year. The revenue growth was driven by an increase in customer demand for our cut herbs and potted herb products and continued expansion of our product base. Cost of goods sold was $3,100,000 for the 3 months ended March 31, 2024 compared to $2,500,000 dollars in last year's comparable quarter.

Speaker 3

The increase was consistent with the company's increase in revenue for the same period. The company achieved 171 basis points of gross profit margin expansion, primarily driven by our shift away from 3rd party growers to in house production. Selling, general and administrative expenses were $3,900,000 for the 3 months ended March 31, 2024 compared to $2,700,000 for the 2023 comparable quarter. This increase was primarily driven by a one time $600,000 charge related to the departure of our previous CFO. Excluding these one time charges, SG and A expenses were $3,300,000 representing a 4 76 basis point expansion of the company's operating margin.

Speaker 3

Net loss was $4,000,000 or $13.65 a share for the 3 months ended March 31, 2024, compared to a net loss of $2,900,000 or $44.19 per share for the quarter ended March 31, 2023. Higher SG and A expenses and approximately $600,000 non recurring expenses attributed to the increase in the net loss. We are continuing to identify and execute on opportunities to reduce the company's SG and A expenses and improve operating efficiency. In conclusion, I feel great about our business and excited about the prospects for 2024. Operator, please open the line for questions.

Operator

Thank you very much. We are now opening the floor for questions. Thank you. Your first question is coming from Anthony Vendetti of Maxim Group. Anthony, your line is live.

Speaker 4

Thank you. Good morning. So just want to jump into the Heartland facility capacity. Where is that capacity at? How much do you have left there?

Speaker 4

And with the new distribution partners, particularly UNFI, do you feel like you could get that up to as close to 100% capacity as possible now

Speaker 2

with the distributors assigned as

Speaker 4

well as this large customer that has the potential to get to $18,000,000 to $20,000,000 in annual revenue? And then I'll have one more follow-up. Thank you.

Speaker 2

So, Anthony, this is Jim. Thanks for the question. Heartland right now, I would put us at around 65% to 70% of capacity fluctuates somewhat based on time of year and the needs that we have. Obviously, spring is heavy for us and fall is more is heavy, but also more processing driven. Our capacity on the processing side where we've seen quite a bit of growth, especially during this last quarter with the likes of Walmart and Meijer.

Speaker 2

We have almost unlimited capacity there to continue to process those products. As far as the growing space goes, once again, I'd say we're at probably 65% to 70%. I don't foresee any issues being able to service UNFI or any of the other accounts that we're looking to bring in over the next quarter. So what's great now is where we're fully operational and everything that's coming we're selling in the Midwest is coming out of that facility and we're growing it or processing it there. So exciting times for us and that all took place really in April on schedule as the guidance that we had put out.

Speaker 2

So we're on track and we're looking forward to benefiting from the vertical integration and think the margin expansion you'll start to see.

Speaker 4

Okay, great. And then can you talk about the ramp up in orders from the customer, the recent customer signing that could eventually count for $18,000,000 to $20,000,000 in annual revenue?

Speaker 2

Well, that's begun. We've had a strong season and it's been it's going to continue to ramp up and I would think that number is fairly conservative. I think we're fortunate to be where we're located and have the relationships that we have with the more consumer demand as it relates to people cooking more at home, especially because of inflation and the inability to really want to go out to eat and spend more than it may cost to make your own meal. We also benefited from people coming off of the pandemic and cooking more at home. So more consumer demand and the retailers are doing what they need to do to be positioned to capture those sales by putting in displays that we've helped design, expanding the offering, starting to really market herbs and lettuces and to give people direction on how to use them versus just sort of buying a clamshell of rosemary.

Speaker 2

So really marketing how to use herbs, how to improve your dishes. So for us, kind of sky is the limit here and we continue to see real nice growth not only organically, but with I think just a huge consumer shift into just cooking more at home and whatnot.

Speaker 4

Okay. And then the impact from contract growers, what was the impact this quarter? And any progress on reducing the reliance on the contract growers?

Speaker 2

Well, the progress has been significant and we really just started to benefit from some of that in Q4 last year as we started to ramp up and the processing part of Harland and then being able to start to grow and we just launched our garden starters from Harlan, that's a massive program that just launched a few weeks ago. So really we started to see the real impact of what was being grown in the greenhouse and shipped out in the tail end of April. We just completed a contract with our key contract grower in April, I think it's April 26. So we're really going to see that impact this coming quarter. We've seen some of it as certain items that we brought in house as we started to integrate the business and convert it over.

Speaker 2

But you're really going to see that now that we're kind of, like I said, fully operational and probably around 95% of all fresh goods coming from us. And I think we're going to keep it there for quite some time. I think the contract growers, they're good partners and they helped us get where we are to help scale the business. And now with the capabilities and the money that we raised, we're able to really drive the growth and do it with vertical integration. So we don't have to necessarily pay any type of upcharge from a contract or I think that's where we'll stay for the foreseeable future.

Speaker 2

We still have a lot of runway in both these facilities. And I think as we start to grow the business, then we can start to figure out kind of what our next move is. And the contract growers, they serve purpose. And once again, they were good partners. And we'll see what happens in the future, but I have no plans on any having any reliance on 3rd party for right now.

Speaker 4

Okay, great. And then just to be clear that the impact that you're talking about from less reliance on the contract rose would be an improved gross margin correction? Absolutely. Absolutely.

Speaker 2

Yes, I mean, this has been the plan and I appreciate our various partners sticking with us to to where we are. But yes, we haven't really fully realized that margin expansion from being vertically integrated in Q1. A little bit a touch, but it's really going to impact us moving forward now that we're shipping everything out of our own facilities.

Speaker 4

Excellent. And then just any update on the nutraceutical business and then I'll hop back in the queue. Thank you.

Speaker 2

Sure. Nutraceutical business, few cool things are happening. We have a new line that we're working on. I think you'll see an interesting Q4 from us with us really going out into the marketplace and putting some eyes on that. We've got some needed innovations.

Speaker 2

We continue to have the benefit of a strong brand name and really great relationships with the likes of Walmart and Meijer and Wakeford and ShopRite and Ajo Delahaye. And I think what you'll see from us is being able to leverage the distribution platform that continue to put in products like the nutraceuticals that are much more shelf stable. I think we'll be able to drive our own form of innovation there in a category that doesn't have a lot of innovation. And I think you're going to see some really interesting happenings there. Q1 was a little soft, but Q2, I think things have kind of shifted.

Speaker 2

A lot of it, I think, was just a lot of things going on in the marketplace with the retailers. But I think that business is starting to pick up overall across the board. And I think we're going to at some point, we'll be a significant player in

Speaker 4

it. Thank you for all the color, Jim. I'll hop back in the queue.

Speaker 2

All right. Thanks, Anthony. Take care.

Operator

Thank you very much. Thank you. Your next question is coming from William Jordan, who is a private investor. William, your line is live.

Speaker 1

Thank you. Good morning, guys. Congratulations on a strong quarter. Could you provide a little bit more color on what your key growth drivers are right now?

Speaker 2

Yes. Thank you, William. Yes, right now, where we're seeing especially in Q1, the growth for us is really around our cut herbs and our potted business, which is really starting to really take hold. We've brought in some significant business with the likes of Walmart and Meijer on some of these lines. That's really helped drive the growth.

Speaker 2

We continue to, I think, see nice demand. And I think we've done a good job. The team has done a great job of executing operationally to drive nice fill rates, especially on those two product lines. But the cutters are high volume and the potted is a nice product with a high ring the higher ring than some other products that we offer. And so I think we'll continue to see growth in that in those segments as I think Edible Garden is known for those items and we do them really well.

Speaker 2

But that's where the growth is coming from right now. Thanks. Appreciate the color. Thanks.

Operator

Thank you very much. Well, we appear to have no further questions in the queue. So I will now hand back over to the management team for any closing comments.

Speaker 2

Thank you for joining us today. I remain optimistic about the company's future driven by our growing retail network, diverse product offerings and stringent cost management. With all these With all these critical elements in place, we are poised to improve our margins in the upcoming quarters and to accelerate our journey towards generating positive cash flow in 2024. Our dedication to financial prudence and operational efficiency is the cornerstone of our strategy and we look forward to sharing updates on our progress in the upcoming months. Thank you.

Operator

Thank you very much everyone. This does conclude today's conference. You may now

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