Q2 2023 Edible Garden AG Incorporated Earnings Call

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Greetings and welcome to the edible gardening 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.

If anyone should require operator assistance during the call. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to your host Ted Davis Investor Relations Ted you may begin.

Thanks, Tom Good morning, and thank you for joining edible gardens second quarter 2023 basically is update and conference call.

On the call with US today are Jim <unk>, Chief Executive Officer of vegetable Garden, and Mike James Chief Financial Officer available Garden.

Earlier this morning, the company announced its operating results for the three months ended June 32023 of the press release is posted on the company's website Www Dot edible Garden AG Dot Com. In addition, the company will file its quarterly report on Form 10-Q, with the U S Securities and Exchange Commission, which can be accessed.

Can also be accessed on the company's website as well as the SEC website at Www SEC Gov. If you have any questions. After the call would like any additional information about the company. Please contact crescendo communications at 2126711020.

Before we review the company's operating results for the quarter ended June 32023, 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 finance.

To position strategy and plans and our expectations for future operations are forward looking statements.

Words expect project plan believe May will would should could mission strategy potential seek stride and the negative such terms in other words in terms of similar expressions are intended to identify forward looking statements.

These forward looking statements are based largely on the Companys 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 certain risks uncertainties and assumptions.

Described in the company's most recent quarterly report on Form 10-Q filed with the U S Securities and Exchange Commission 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.

Forward looking statements.

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.

The 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.

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 <unk> Jim.

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 their trust and belief you placed in our vision and 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 second quarter of 2023.

Edible garden has always stood out for its consistently high level of execution and feature that sets our company apart from our competition, 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 gardening is regular.

If we execute at levels that surpass those of our competitors and our order fill 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 gardens position is strong and dependable supplier of sustainably produce and brought US. This superior performance is.

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 we tell customers view edible gardens, a reliable and trustworthy partner often looking to reinforce established distribution relationship with the company.

In the second quarter, the company initiated a deliberate strategy to concentrate our energies and we distributed resources towards more profitable customer and partner relationships. The impact of this strategy 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 law.

Edible got Heartland in April in 2023, we expect additional positive impacts in our margins. We attribute this expected improvement to increase in growing capacity offered by edible garden. Harlan. This expanded capacity allows us to reduce the company's reliance on third party providers and transition previously outsourced production the in house operations we.

Leave that these actions will positively impact the company's margin.

We also believe that that facility has potential to generate up to $20 million in annualized revenue provides us with the opportunity to vertically integrate our Midwest production capabilities further enhancing our operational efficiency.

Really the company is witnessing expansion across all segments of our business and platform, including leafy Greens floral floral products alternate probe.

Aten alternative proteins.

Pulps the flavor the comprehensive wine gourmet sources until he based products, which has begun scaling and building inventory for a near term retail introduction.

Furthermore, during the second quarter in response to grow to the growing demand of our pilot herbs and their sustainability for our customers' home gardens edible gardening expanded the distribution of our garden of Star Wars product all week from shop Rite retail locations across the northeast. This expansion came on the heels of introducing garden starters admire.

Calle locations in the Midwest just in time for mother's day.

The 35% of American horse household growth some of their own food edible gardening sustainably grown herbs and produce have become popular choices among consumers looking to enhance and flavors of their meals and placing our potters is same supermarket section as cutters and sustainably grown quoted that customers often purchase we have made it more accessible.

Convenient for those looking to incorporate edible garden predators 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 north east vocations and initiated distributions to the retail stores in the east South Central region of the U S. Walmart recognizes the world's largest retailer fresh quotas has consistently been one of our most significant customers and our partnership with them goes.

Simply it goes beyond simply supplying proteins edible gardening actively contributes to Walmart's project Gigaton, an ambitious initiatives launched in 2017 at an AMC AMC unite suppliers Ngos and various stakeholders in an effort to reduce or eliminate 1 billion metric tons of greenhouse gases from the global value change chain by 'twenty three.

The company has also been honored about Walmart as a project.

Guru, reflecting our unwavering dedication to our zero waste inspired mission and our leadership in the controlled environment Agriculture E sector. We're confident this expanded distribution relationship with Walmart will positively impact our revenue and cash flow in 2023 in subsequent years in June the company received grants from wet from West Michigan works.

And especially crop crop block program with the Michigan Department of Agriculture, and rural development. The grants were specifically earmarked to compensate western Michigan employers, where the costs related to leadership in food safety training for their work force. These grants will enable employees, our edible garden heartland still participate in food safety training theories covered in there.

Training will include potent safety Alliance grow we're training training and hazard now 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 E. P. A focusing on on the effect of the nano bubble technology in fresh produce food safety and processing methods. They also align with our collaborative research study with Auburn University of Department of Horticulture investigate.

<unk> food safety stones tied to fresh foods contamination, such as lost theory in July edible garden introduced Greenfield to point out. The most current version of our advanced greenhouse management system, marking a substantial advancement in our automation technology. This improved version of the system significantly boosted our dynamic forecasting.

He's using real time data with increased efficiency aiming to anticipate.

To our distribution partners needs more precisely at the modifier, calling strategy that needed taking into account factors such as year over year pattern sales trends and seasonal fluctuations with.

A significant enhancement it means something to point out is the integration of a real time inventory system that tracks all raw materials work in progress and finished products. It's allowed the company to dissect our costs before every elements involved in the plant growth with an unparalleled degree of detail. We are we are confident that this level of detail.

Furnish essential information to aid us in managing our expenses. We've also expanded our distribution in both king calling in Iga retail locations across long Island, New York just in time for the 2023 summer season. This expansion comes in response to the increasing consumer demand for fresh produce and herbs that becomes synonymous with the edible got.

And Brad to accommodate this growing demand both king Collyn and Iga have doubled their shelf space allocated I'll get in their retail locations, where edible garden products.

The initiatives that the company had been working on since the beginning of 2023 and started to manifest in our financial results. The record revenue we achieved in the second 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 would be coming.

Cash flow positive on a quarterly basis before the year's end.

I'd like to turn the call over to Mike James Chief Financial Officer of edible gardening, who will review the financial results for the three period at three months period, ending June 32023, Mike.

Thanks, Tim and good morning, the company reported an all time record year over year revenue growth of 41, 4% to $4 2 million in the quarter ended June 30th 2023, compared to $3 million reported in the second quarter of 2022.

The Arabs produce some 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 or did by a customer across every store in their retail chain.

Cost of goods sold was $3 7 million for the three months ended June 32023, compared to $2 8 million for the three months ended June 30 of 2020 to the.

The increase is primarily due to the additional labor and materials needed to cultivate the products sold into the retail channel.

Selling general and administrative expenses were $2 $4 million for the three months ended June 30th 2023, compared to $2 7 million, but the three months ended June 32022.

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 $638000 or 24 cents per share for the three months ended June 30th 2023, compared to a net loss of $4 8 million or $20 44 per share for the three months ended June 30th 2022.

I would now like to open up the call for questions. Operator could you please assist us with that.

Certainly the floor is now open for questions. If you would like to join the queue to ask a question. At this time you May press star one on your telephone keypad to join the queue.

We do ask if listening on speaker phone this morning that you.

Pick up your handset to provide optimal sound quality. Once again, please press star one on your telephone keypad at this time, if you'd like to enter the queue to ask your question.

Hold a moment, while we poll for questions.

And our first question. This morning is coming from Nick Pincus from Forest investment.

Nick Your line is live please go ahead.

Good morning, guys, congratulations on a very strong quarter.

You mentioned the difficulty that your competitors in that space, maybe you could expand a little bit on the macro environment, what those challenges have been and as a follow up to that question, what's allowed edible gardening to buck that trend.

Thanks for the question next.

The competitive environment has been we've been able to benefit from being uniquely positioned.

With strong retail partnerships that have allowed us to go deeper with the likes of Walmart buyer and wait for in these major players having a platform that has an increase in store count well over 4000 currently allows us to continue to leverage that relationship to put in more.

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 you know to leverage our relationships to to.

Being able to take advantage of our strong relationships and trust that we've built with these retailers to be a distribution partner for for even more types of products that we both grow and that we develop as far as hum.

The what what else has made US unique is just you know when we continue to innovate.

Our green thumb platform, which has just come out with 2.0 version allows us to really increase our operational efficiency.

And I think we just continue to get stronger and stronger as a partner as a pick or packer.

Shipper that focus.

I think it really pay out an inefficiency profit margin and increased revenue and stronger relationships.

That's great.

Stated that your the goal is to become cash flow positive in the near term which would be.

Tremendous milestone maybe you could just I know you've talked about this a little bit, but maybe you could just expand on the steps that we're taking the scalability of the business and some of the enhancements for operating efficiency.

Yes. Thank you, yes, I mean, the goal here is to become cash flow positive by year's end as stated in <unk>.

Our release and in our script today.

We are really focused on you know on profitability as we continue to ramp the business and I think that being able to have not only the.

The technology that we've developed which is proprietary that is specific to this business and to this platform, but also we continue to refine.

Personnel as well as our focus I think is the law.

All of us to continue to get stronger and grow the revenue we have quite a bit on the horizon as it relates to the new new introductions of new opportunity. So.

That's at the level of confidence is high that we will get to cash flow positive pretty soon.

Well again, congratulations and keep up the good work.

Thank you Nick.

Thank you once again, if you'd like to join the queue. At this time to ask a question you May press star one on your telephone keypad.

Once again, ladies and gentlemen, that'll be star one at this time, if you'd like to join the queue to ask a question. Please hold the moment, while we poll for questions.

Okay.

And we do have a question from Anthony Vendetti from Maxim Group.

Anthony Your line is live please go ahead.

Thank you yeah ill echo.

The sediments at the last call color.

Across the board B.

In terms of revenues margin.

Significantly.

Smaller or narrower loss. So it seems like like you said on the call kind of everything's coming together this quarter.

Uh huh.

Can you talk about the the heartland facility opportunity.

I know that you know.

You started shipping from there, but can you talk about.

What's the what's the total opportunity there.

And.

The timeline for the ramp to get to full capacity.

So.

Thanks, Anthony Hope you're doing well.

Heartland right now as we sort of earmarked.

Is that the same capacity to produce about call it $20 million in revenue.

We started shipping in April we really didn't get a full month of shipping. It was just timing on when we could start cutover.

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 that 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 facilities.

In process not only is it located near one of our biggest customers Meyer 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 buyer into other regionals as well as local stores and we've allowed and it allows us to do that with not only.

The produce is being grown there are growing they're much more profitably because it's grown in house, but also with items like pulp where a weekend how is it store it ship it.

And push it out of out of our out of that facility, which is centrally located which gives us some pretty wide.

Reach.

And sort of shifting from the east coast Central location is strategic.

That's a line where the biggest.

One of our biggest customers it's allowed us to open up a major metro in Chicago and Chicago land as.

As well as Detroit and St. Louis and some of these other areas that we're expanding into right now so I like the I like the land grab I like the strategic location I like the efficiency I liked the control like the vertical integration loved the margin expansion and then obviously the top line.

<unk> opportunity is significant and I think as you know is even potentially beyond the 29 that we've put out there as we deepen the assortment of items that it is that we offer and I think you know as time.

Goes by you'll see some strategic moves in Iran to even to maximize that that key location.

Where it is and and and and the cost of doing business. There is.

<unk> is lower than than let's say, a new York.

So that's one of the nice things about about.

Rapid theyre very manufacturing.

And growing friendly so it's a great spot, we're very happy we're happy with the people that you know that we have working with US there. So it's worked out great.

So it sounds like there's a lot of advantages to <unk>.

To that facility in Michigan. So can you can can you tell us kind of where it's at in terms of the capacity you said $20 million is the you know in the past and 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 it is.

What capacity right now and when do you think you can get close to that $40 million in revenue.

So yeah, and I know and I know you asked that question and I think even neck did as well and I apologize I wasn't much to to steer away from it.

You know right now our capacity you know it's it's.

Okay I'll step back for a second look at it you know there's two there's call it almost four aspects of the business. There's the the processing asks aspect, which is as you know.

There's not really a limiting factor other than time and staffing on that and as we bring in more business. We can continue to push more units out there and that currently is up and running and servicing couple key players in that part of the country, obviously higher than another one that's a major retailer that has brought on some business near term.

Or just how she loves it.

Within the last few months and then and then we have the floral business, which is an existing midstream.

Mr. <unk> was an existing asset that we've been able to leverage and we continue to ship those products out and I think you'll see us continue to.

Service the customers that we have that our wholesalers and then I think we're going to we're going to look to strategically place that business probably in the area.

With with maybe some other additional capacity when they have to bring on in the future.

The the produce business that's B believe he Greens, that's already in production and shipping with more business coming online in Q3.

I would think capacity that's again kind of how you define capacity growing capacity I would think we will have that place fall by either a years and definitely by the end of Q1.

Next year, but.

That would be the production aspect of it.

With the processing that there isn't really a major gating factor that that will allow us to go past what we currently are doing and what we think we have projected so.

I think the $20 million fairly conservative there's different things that go in there and then the fourth piece of that would be obviously some of the products that we look to.

Distribute that whether.

Whether it's commodities.

We're getting asked to put into the platform or potentially even importing some other types of products are shelf stable that we're looking at right now so.

You know that that once you get that $20 million number with civil you put out there based on a conservative outlook of what we thought we could do with the facility, but as we continue to invest.

Continue to as we continue to drive business with just getting more and more opportunities from these major retailers that they're very happy with how we execute.

Just lastly on the.

On the gross margin I know you mentioned you had some client base.

Same thing supplements, which has higher margins our gross margin came in significantly.

Greater than we expected.

Is that sustainable or is that that one time like I'm not saying, it's a one time order, but that order helped this quarter and it and and.

Gross margin may tick down a little bit.

As we move forward or.

Is this sort of Oh, there's much better gross margin a new run rate.

You know look I think that that's in there is you know where that business is kind of always been in the background and we are continuing to optimize that business, but the margins that we really are seeing the expansion on our our Roes are stuff that we're growing as a function of.

Bringing it in house.

We continue to be the key driver.

Laurel as in is it was it was a nice add on.

It's not as production heavy.

And while technology sort of.

Maybe I guess as maybe some of the leasing gains and the other thing that you know we continue to invest in.

The <unk> aspect of the business.

You'll see more things out of the supplement business as we push into 2024.

<unk> really just tried to focus on you know what our core businesses. Our core business is picking packing shipping I think that's what's allowed us to separate ourselves from some of these other companies. It's a major players in that are in this space and gone out of business and you know called bankruptcy just in the last $90 20 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.

You know 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 it helps 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 two I think it's going to continue to see margin improvement.

What's the.

Like I said, the fifth Greens, because it's in the floral so.

We're pretty excited and that's it.

To answer your question Yeah, It will be sustainable moving forward I think you'll always see improvement.

Improvement.

Excellent alright, thanks, so much I'll hop back in the queue I appreciate it thanks Anthony.

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.

Yeah.

Thank you.

Okay. Thanks.

You again for joining US today, we're pleased we're pleased with our progress of edible gardening. 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 months. Thank you again.

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.

Thank you.