Barfresh Food Group Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 1, 2025

There are 5 speakers on the call.

Operator

Good afternoon, everyone, and thank you for participating on today's first quarter twenty twenty five corporate update call for Barfresh Food Group. Joining us today is Barfresh Food Group's Founder and CEO, Ricardo Dele Coste and Barfresh Food Group's CFO, Lisa Roger. Following prepared remarks, we will open the call for your questions. The discussion today will include forward looking statements. Except for historical information, herein, matters set forth on this call are forward looking within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements about the company's commercial progress, success of its strategic relation and projections of future financial performance.

Operator

These forward looking statements are identified by the use of words such as grow, expand, anticipate, intend, estimate, believe, expect, plan, should, hypothetical, potential, forecast, and project, continue, could, may, predict, and will, and variations of such words and similar expressions are intended to identify such forward looking statements. All statements other than the statements of historical fact that address activities, events or developments that the company believes or anticipates will or may occur in the future are forward looking statements. These statements are based on certain assumptions made based on experience, expected future developments, and other factors that the company believes are appropriate under the circumstances. Such statements are subject to a number of assumptions, risks, and uncertainties, many of which are beyond the control of the company. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward looking statements.

Operator

Accordingly, investors are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date they are made. The contents of this call should be considered in conjunction with the company's recent filings with the Securities and Exchange Commission, including its annual report on Form 10 k and the quarterly report on Form 10 Q and current report on Form eight ks, including any warning, risk factors and cautionary statements contained therein. Furthermore, the company expressly disclaims any current intention to update publicly any forward looking statements after this call, whether as a result of new information, future events, changes in assumptions or otherwise. In order to aid in the understanding of the company's business performance, the company is also presenting certain non GAAP measures, including adjusted gross profit, EBITDA adjusted EBITDA, which I'll reconsulate in tables in the business update release to the most comparable GAAP measures and certain calculations based on results, including gross margin and adjusted gross margin. The reconciling items are nonoperational or noncash costs, including stock compensation and other nonrecurring costs, such as those associated with the product withdrawal, the related dispute, and certain manufacturing relocation costs.

Operator

Management believes that adjusted gross profit, EBITDA, and adjusted EBITDA prove proved useful information to the investor because they are directly reflective of the performance of the company. Now I will turn the call over to the CEO of Barfresh Food Group, Mr. Ricardo Delicoste. Please go ahead, sir.

Speaker 1

Good afternoon, everyone, and thank you for joining us for our first quarter twenty twenty five earnings call. We achieved our revenue and gross margin guidance for the first quarter and continued to sign new customers in the education channel as we continue to invest in our manufacturing operations to be well prepared for the upcoming 2025 school year. Based on the progress we are making towards additional manufacturing capacity and our first quarter results, we are reiterating our full year revenue guidance of 35 to 55% growth. Our revenue guidance accounts for continuing orders from existing customers and confirmed bids, while also considering estimated revenue from end user opportunities at later stages in our sales pipeline. I would like to now provide an update on our manufacturing capacity.

Speaker 1

During the fourth quarter of twenty twenty four, we began onboarding two new strategic partners. This entails important equipment investments by ourselves and our partners, which will continue into the second quarter. While this transition creates near term cost pressures on our first and second quarter bottom line results, we expect all of the investments and onboarding process to be complete by the end of Q2 twenty twenty five, bringing us to full manufacturing capacity in time for our high season selling in the education channel, which picks up with back to school demand in Q3. Once our new manufacturing partner for Twist and Go is fully online, we will increase our bottling capacity, enabling us to expand our revenue in the back half of this year. In addition, we expect our gross and operating margins to dramatically improve in the back half of twenty twenty five, enabling us to achieve positive adjusted EBITDA in the second half of the year.

Speaker 1

The costs associated with onboarding our new co manufacturers, including higher supply chain expenses from sourcing products from multiple locations and trial costs are expected to be completed by the end of the second quarter. Turning to our product portfolio. We launched a new Pop and Go 100% Juice Freeze Pops in our education channel during Q4, and it continues to gain traction as we enter the second quarter. While this new product contributed modest revenue in the first quarter, we're excited about its potential. Unlike our breakfast focused offerings, this product targets the lunch daypart, a market opportunity significantly larger than breakfast.

Speaker 1

On the sales front, our robust sales network is now covering 95% of The U. S. As a reminder, while we've had strong success in new customer acquisition in the education channel, we're still only at a 5% market penetration, representing significant runway for growth. And many of these new wins will not start contributing to our top line until the back half of twenty twenty five. During the second quarter, we will continue to make the appropriate investments in our manufacturing and supply chain, but we fully believe this will be completed by the end of the second quarter.

Speaker 1

Our expanded manufacturing capacity, new product introductions and robust sales network give us confidence in our growth projection. More importantly, we expect to see meaningful margin improvement as we realize the benefits of our operational investments. Before I turn it over to Lisa for a detailed financial review, I want to thank our employees, partners and shareholders for their support during this transition period for our company. The investment we have made into our overall company during the past few quarters will enable us to achieve profitable growth in the back half of twenty twenty five, and we are very excited about our future. I'll now turn the call over to our CFO, Lisa Roger.

Speaker 1

Lisa?

Speaker 2

Thank you, Ricardo. As we guided during our last earnings call, our first quarter revenue remained consistent with Q4 levels as we continued to manage our supply chain through a transitional period. Revenue for the first quarter of twenty twenty five was $2,900,000 compared to $2,800,000 for the first quarter of twenty twenty four. The year over year increase in revenue is primarily driven by expanded bottle capacity at our existing bottle manufacturer, enabling higher sales volume compared to the prior year. Gross margin for the first quarter of twenty twenty five was 31% compared to 41% for the first quarter of twenty twenty four.

Speaker 2

Adjusted gross margin for the first quarter of twenty twenty five was 31% compared to 43% in the prior year period. Our adjusted gross margin for the first quarter of twenty twenty five was consistent with Q4 twenty twenty four adjusted gross margin of 30% as expected. The year over year decrease was due primarily to temporary production inefficiencies and higher supply chain expenses related to sourcing elements of our production process from multiple locations as we continue to enhance our supply chain capabilities. We expect our gross margin to normalize in the second half of twenty twenty five as new co manufacturers are operating at a higher capacity and capability, improving our supply and cost structure. Selling, marketing and distribution expense for the first quarter of twenty twenty five increased to 824,000 or 28% of revenue compared to 694,000 or 25% of revenue in the first quarter of twenty twenty four.

Speaker 2

The year over year increase is a result of higher personnel costs and broker commissions due to expansion of our broker network as well as an increase in sample expense due to the introduction of Pop and Go 100% Juice Freeze Pops. G and A expenses for the first quarter of twenty twenty five were $747,000 compared to $855,000 in the same period last year. The year over year decrease in G and A was driven by a reduction in legal, professional and consulting fees and lower stock based compensation as a result of lower expected attainment under our Performance Stock Unit Program, partially offset by an increase in personnel related expenses. Net loss for the first quarter of twenty twenty five was $761,000 compared to a net loss of $449,000 in the first quarter of twenty twenty four. The increase in net loss was primarily due to the reduction in gross margin as previously discussed.

Speaker 2

For the first quarter of twenty twenty five, our adjusted EBITDA was a loss of approximately $506,000 compared to a gain of approximately $53,000 in the same period last year. Adjusted EBITDA in the first quarter of twenty twenty five was impacted by costs associated with sourcing elements of the production process from multiple locations, while new co manufacturers complete equipment installations required to perform as full service partners. This resulted in higher logistics costs and less efficient production than in the first quarter of twenty twenty four. The equipment is expected to be delivered, installed and operational by the end of the second quarter, and we should return to our optimized production and distribution network in the back half of the year. Now moving on to our balance sheet.

Speaker 2

As of 03/31/2025, we had approximately $3,400,000 of cash and accounts receivable and approximately $1,100,000 of inventory on our balance sheet. The company has taken measures to reduce its liquidity requirements, including compensating its directors' employees with equity to reduce cash compensation requirements, obtaining nonrecourse litigation financing, and securing receivables financing. In February 2025, the company secured $3,000,000 in growth financing. This capital raise enhances our financial position and supports scaling of production capacity to meet growing customer demand, particularly in the education channel. Now I will turn the call back to Ricardo for closing remarks.

Speaker 1

Thank you, Lisa. For the full year of 2025, we continue to expect significant revenue growth of between 3555%, with margin expansion beginning in the second half as our manufacturing capabilities come online. We look forward to updating you on our progress in the quarters ahead. And with that, I would like to open up the line for questions. Operator?

Operator

The first question comes from the line of Anthony Vendetti from Maxim Group. Please go ahead.

Speaker 3

Yes, thank you. It sounds like the co manufacturing partners will be up and running by the end of second quarter twenty twenty five with all the equipment that you need to get everything ready to go. Is there anything that could slow that down, Riccardo? Or is everything on track?

Speaker 1

I mean, we don't know what we don't know. But we've done enormous amount of testing. In actual fact, we went live on some of the equipment last week, and we had our first production runs with the new change parts that are being installed. We do have a little bit more of, you know, just refinement of the process, but we expect that to be completed over the next couple of weeks. So definitely before the end of q two, we expect it to be up and running, and it's it's already started in part this week technically.

Speaker 1

So we feel very good about it.

Speaker 3

Okay, great. And then I know we still have to finish out the twenty twenty four, twenty twenty five school year. But has the bidding process started for the twenty five-twenty six school year? And what does that pipeline look like at this point?

Speaker 1

Yes. It most definitely has started. It started a couple of months ago. So that's really how we're providing the guidance based on our existing customers' expectations of repeat orders as well as a portion of what we have in our pipeline already. And then, you know, and there's been some more kind of customers being added, and we'll continue to be added to that pipeline as we, you know, move through the bidding process.

Speaker 1

We should start to be notified of the the bids up until the June, really. We still get notifications of them being awarded. We've completed a lot of them. The awards haven't necessarily all come back yet. But over the next couple of months, we expect those to come back.

Speaker 3

Okay. And this year in particular, whether it's from some of your existing customers or some of the new potential schools and school districts, are they bidding are they interested in both the Twist and Go and the Pop and Go? Or is it more the Twist and Go and then the Pop and Go is sort of an add on for some, but not all.

Speaker 1

I mean, I wouldn't say that's for everyone's adding it to their bids, but we are definitely completing quite a number of bids with the Pop! And Go on them.

Speaker 3

Okay, great. Great. And you have with these new co packers and co manufacturing partners, you have all the inventory you need to meet that demand for the twenty twenty five, twenty twenty six school year?

Speaker 1

Correct. As it stands right now. Keep in mind that over the last few months, we've been doing an enormous amount of testing on the POPs in the customers, taste testing with the students, with the administrators. So there's been a lot of work that's been happening in the background.

Speaker 3

Okay. And are you currently staffed appropriately? Do you need to add any additional salespeople or other senior execs to make sure all this logistics work out? And I'm just curious, where do you feel like you stand?

Speaker 1

No. We feel like we've got the right amount of staff for where we are and what we need to achieve.

Speaker 3

Okay, great. All right, great. Thanks. I'll hop back in the queue. Appreciate it.

Speaker 1

Thanks.

Operator

Thank you. The next question comes from the line of Ankur Sagar, an investor. Please go ahead.

Speaker 4

Hey, good afternoon, Ricardo and Lisa. Thank you for taking my questions. Just have a couple. You have been bottlenecked with this co manufacturing and you expect to have this completed by Q2. Anything you can share in terms of, you know, what sort of manufacturing capacity will this provide to you in terms of the revenue, even if it's a range?

Speaker 4

You know, could there be an upside to even the guidance that you have provided if you have if you're able to, you know, fulfill more? I assume you probably have the, you know, customer base and the orders to fulfill that as well.

Speaker 1

Yeah. It really depends on product mix. Right? Because we have a significant amount of capacity in the in the pop and go, also in the in the cartons, and we're now just opening up that capacity with the with the bottles as well. You know, anywhere from five to 10 in a quarter is probably quite doable where we are in that in that range.

Speaker 1

Again, it depends on the it depends on the product mix.

Speaker 4

Okay. Okay. And and, you know, you know, I think you probably mentioned it in the prepared remarks, but just to clarify, I mean, with these core manufacturing is coming up online, you expect the gross margin to trend back to normally about 40s. Is that fair to say?

Speaker 1

It's about it's at about the at about 40 is what we're expecting. You know, we have been spending, you know, a lot of money just trying to get the the commands up and running, whether it's testing, getting product out that we've had to double handle, trial costs, you name it. There's been an enormous amount of money being spent. So now that the changes have been made at the plant, we expect the margins to get back to where they, you know, should have been. And, you know, hopefully, we'll see some upside in that as well.

Speaker 4

Okay. Okay. Alright. Thank you.

Speaker 1

Thanks.

Operator

Thank you. Once again, a reminder, ladies and gentlemen, if you wish to ask a question, please press and one. As there are no further questions, I would now hand the conference over to Ricardo Dele Costa for his closing comments.

Speaker 1

Thanks, everyone. We look forward to updating you on our progress and upcoming development shortly. Thanks.

Operator

Thank you. Ladies and gentlemen, the conference of Bar Fresh Food Group has now concluded. Thank you for your participation. You may now disconnect your lines.

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Key Takeaways

  • First‐quarter 2025 revenue of $2.9 million met guidance despite a 31% gross margin drag from temporary production inefficiencies, and management reiterated a 35–55% full-year revenue growth outlook.
  • The company is onboarding two new strategic co-manufacturing partners, with all equipment installations expected to complete by end of Q2 2025 to reach full capacity for the Q3 back-to-school season.
  • Barfresh expects a dramatic margin expansion and to achieve positive adjusted EBITDA in the second half of 2025 once new manufacturing operations stabilize.
  • A new Pop & Go 100% Juice Freeze Pops line was launched in Q4 and, while modest in Q1 revenue, targets the larger lunch daypart opportunity beyond the company’s traditional breakfast offerings.
  • With its sales network covering 95% of U.S. schools but only 5% market penetration in the education channel, Barfresh highlights significant runway for growth as new districts begin contributing later in the fiscal year.
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Earnings Conference Call
Barfresh Food Group Q1 2025
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