Q1 2024 Edible Garden AG Incorporated Earnings Call

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Operator: Good morning and welcome to Edible Garden's first quarter 2024 business update conference call. At this time, all participants are in a listen-only mode, and we will open for questions following the presentation. If anyone should require operator assistance during the conference, please press star zero on your phone. Please note this conference is being recorded. I will now turn the conference over to your host, Ted Ayvas, of Crescendo Communications. Ted, over to you.

Speaker Change: Good morning, and welcome to edible gardens first quarter 'twenty 'twenty four business update conference call. At this time, all participants are in a listen only mode and.

Speaker Change: We will open for questions. Following the presentation if anyone should require operator assistance during the conference. Please press star zero on your phone keypad. Please note. This conference is being recorded.

Speaker Change: I will now turn the conference over to your host Ted Eva Crescendo Communications Ted over to you.

Ted Ayvas: Thank you. Good morning.

Ted Ayvas: Thank you. Good morning. Thank you for joining edible gardens quarter ended March 31, 2024 conference call and business update.

Ted Ayvas: Thank you for joining Edible Garden's quarterly-ended March 31st, 2024 conference call and business update. On the call with us today are Jim Kras, Chief Executive Officer of Edible Garden, and Kostas Dafoulas, Interim Chief Financial Officer of Edible Garden. Earlier this morning, the company announced its operating results for the three months ended March 31st, 2024. The press release is posted on the company's website, www.ediblegarden.com, and ediblegardennag.com. In addition, the company has filed its 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.sec.gov. If you have any questions after the call or would like any additional information about the company, please contact Crescenda Communications at 212-671-1020.

Speaker Change: On the call with us today.

Jim <unk>, Chief Executive officer of vegetable Garden.

Speaker Change: That's the pool as interim Chief financial officer of vegetable Garden.

Speaker Change: Earlier this morning, the company announced its operating results for the three months ended March 31, 2020 for the press release is posted on the company's website www Dot edible garden Dot Com edible Garden AG dotcom and.

Speaker Change: In addition, the company has filed its 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 dot at SEC Gov.

Speaker Change: Do you have any questions. After the call would like any additional information about the company. Please contact crescendo communications at 2126711020.

Ted Ayvas: Before Mr. Kras reviews the company's operating results for the quarter ended March 31st, 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. 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.

Speaker Change: Before Mr. Kratz reviews, the Companys operating results for the quarter ended March 31, 2024, and provide the 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.

Ted Ayvas: 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, 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-K for the year ended December 31, 2023.

Ted Ayvas: Because of these risks, uncertainties, and assumptions, the forward-looking events and circumstances discussed in this conference call may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although the company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, level of activity, performance, or achievement. In addition, neither the company nor any person assumes responsibility for the accuracy and completeness of any of these forward-looking statements.

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

James E. Kras: Thanks, Ted. Good morning, and thank you to everyone for joining us today. We are excited about the significant 27.6% year-over-year increase in revenue the company achieved in the first quarter 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.

James E. Kras: It also reflects the positive impact of our move towards vertical integration. Over recent quarters, we've not only seen consistent revenue growth but an expansion in our profit, particularly since we've been decreasing our dependency on third-party growers during the latter half of 2023. 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%, and our gross margin expanded by 171 basis points from the same period the previous year. Our move away from third-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.

Future results of operations and financial position strategy and plans and our expectations for future operations are forward looking statements. The words anticipate believe could expect May plan project strategy will and the negative of such terms in other words in terms of similar expressions are.

James E. Kras: With all essential elements now in place, we believe that we are well-positioned to substantially enhance our margin. We continue to utilize our platform to enhance and expand our product range as well. In the first part, in the first quarter, we partnered with Uncle Giuseppe's Marketplace, part of our best produce, to distribute edible garden herbs across our locations in New York and New Jersey, thus broadening our footprint in the Northeastern U.S. Perhaps more significantly, in February, we entered into a three-year agreement, unprecedented in our history, with a prominent U.S. food retailer.

Speaker Change: 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 he believes may affect its financial condition results of operations strategy short term and long term business operation and objectives and financial needs. The forward looking.

Speaker Change: 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-K for the year ended December 31, 2023, because of these risks uncertainties and assumptions the forward looking events and circumstances discussed in this.

Speaker Change: Conference call may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward looking statements you.

Speaker Change: You should not rely upon forward looking statements as predictions of future events, although the company believes that the expectations reflected in the forward looking statements are reasonable it kind of like.

Speaker Change: Guarantee future results level of activity performance or achievements.

Speaker Change: 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.

Speaker Change: All forward looking statements attributable to the company are expressly qualified in their entirety by these cautionary statement 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 like to turn the call over to Mr. Jim <unk>, Chief Executive officer of vegetable Garden.

Speaker Change: Jim.

Jim: Thanks, Ted good morning, and thank you to everyone for joining US today, we are excited about the significant 27, 6% year over year increase in revenue the company achieved in the first quarter of 2024 period typically recognized at the slowest for the industry. This considerable growth showcases the dedication of the entire edible garden team at all.

Jim: Our ability to perform at a high level, resulting in high fill rates and outstanding reputation as a trusted supplier within the industry, but also reflects the positive impact of our move towards vertical integration.

Jim: Recent quarters, we've not only seen consistent revenue growth and expansion in our profit margins, particularly since we have been decreasing our dependency on third party growers. During the later half of 2023. The advantages of this strategic pivot became evident by the end of 2023 and continued in two quarters of 2024 gross profit margin.

Jim: Barton surged by 195.

Jim: 8% and our gross margin expanded by 171 basis points from the same period the previous year, our move away from third party growers have accelerated with edible garden now producing approximately 95% of our fresh products in company owned facilities.

Transition marks a critical milestone in our company's development with all central and that's now in place. We believe that we are well positioned to substantially enhance our margins will continue to utilize our platform to enhance or expand our product lines as well in the first part and the first in the first quarter, we partnered with uncle Japanese marketplace as part of our our best produce distribute edibles.

Jim: Across their locations in New York, and New Jersey. This brought on broadening our footprint in the north Eastern U S.

Jim: Perhaps more significantly in February winter than we entered into a three year agreement unprecedented unprecedented in our history with a prominent U S food retailer this agreement.

James E. Kras: This agreement, expected to generate between 18 and 20 million in revenue during its initial term, will support the expansion of our product range in their stores. More than just diversifying our lineup, this partnership will introduce innovative and engaging displays that aim to boost our brands visibility and impact within the retail environment. These initiatives underscore our commitment to building our relationships with our retail partners, aiming to better serve their needs and simplify the shopping experience for their customers.

Jim: Expected to generate between 18 and $20 million in revenue during its initial term will support the expansion of our product range and their stores more than just diversifying our lineup. This partnership once you introduce innovative and engaging displays the ink the booster brands visibility and impact within the retail environment.

Jim: These initiatives underscore our commitment to building our relationships with our retail partners aiming to better serve their needs and streamline the shopping experience with their customers.

James E. Kras: Our investment in Edible Garden Heartland has been fruitful, integrating cutting-edge technology like 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.

Our investment inevitable 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 and laid out April we started distributing garden started a display that features the companys positives and basal bolus embedded intended for home gardeners to vary.

Jim: Retail locations across the Midwest, starting with Myer Washington's way 23 in response to growing interest in our pilot herbs. These products cater well two home gardening enthusiasts during that 35% of American households growth some of their own food are sustainably proved produced herbs and vegetables are increasingly popular among consumers looking for enhance.

James E. Kras: 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 of the production, packaging, and distribution of these products. In April, the company began shipping spring ornamentals, also grown in its Edible Garden Heartland facility, to major big box retailers in the lead up to Mother's Day, one of the biggest days of the year in the floral industry.

Jim: Flavor on 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 its edible garden Heartland facility major big box retailers in the lead up to mother's day, one of the biggest days of the year in the floral industry.

James E. Kras: Implementing proprietary technologies, including Green Thumb, 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. In 2023, we introduce 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 172.79 billion in 2020 to $240.7 billion by 2028, according to research and markets. In a relatively brief period of time, pulp has become available at Whole Foods Market, Moreland Williams, Dearborn Markets, and Woodman's.

Jim: Implementing proprietary technologies, including Green thumb 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 ornamental deferrals are typically higher margin products.

Jim: In 2023, we introduced pulp or freshen fermented lineup sustainable gourmet sauces in Chile based products entering into the global sauces, and condiments market a market expected to grow from a hot $172 79 billion in 2020.

Jim: $1 billion to $247 billion by 2028, According to research and markets and a relatively brief time pulp it's become available at whole foods market Board Williams Gilberg markets in women's in January 2024 target joined a growing list of retail partners carrying the pulp line.

James E. Kras: In January 2024, Target joined our growing list of retail partners carrying the pulp line. The expansion to 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 out a robust marketing campaign, including influencer partnerships and promotional pricing, given its 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.

Speaker Change: The expansion to target south eastern stores significantly expands our distribution network of all edible garden products, which now spans over 5000 retail locations across the country, including several major big box retailers that olive garden supported this launch by rolling out a robust marketing campaign, including Influencer partnerships and promotional pricing given target.

Speaker Change: Nash 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.

James E. Kras: 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 the set. This strategic placement not only boosts our brand presence but also complements our current offer.

Speaker Change: Diversifying into new product category categories marks a significant development for the company as we were introducing products with higher margins and more shelf stability. Additionally, this expansion enhances the visibility of edible gardens brand by placing the new products in the refrigerated sections of retailers right next to our existing products, where they are already carrying put us in the search.

Speaker Change: This strategic placement not only Gustaf brand presence, but also complements our current offerings.

James E. Kras: In early March 2024, we further broadened our distribution through Kahe Distributors, the premier distributor of natural, organic, specialty, and fresh products, which is now carrying our pulp line. Kahe's expansive distribution network encompasses 31,000 natural food stores, chain and independent stores, e-commerce retailers, and other specialty retailers located across North America. In April, we added unified distributors, one of North America's top grocery wholesalers of health and specialty foods, serving over 30,000 kids, including super stores, independent retailers, supermarket chains, e-commerce platforms, and food service providers.

Speaker Change: In early March 'twenty 'twenty four we further broadened our distribution through K. He distributors the premier distributor of natural organic specialty and fresh products, which is now carrying our pulp line.

Speaker Change: <unk> expansive distribution network.

Speaker Change: Okay.

Speaker Change: Encompass is 31000 natural food stores chain and independent stores e-commerce retailers and other specialty products.

Speaker Change: Products retailers across cross located across North America.

Speaker Change: In April we added UNFI distributors, one of North America's top grocery wholesalers health and specialty foods, serving over 30000 locations, including superstores independent retailers supermarket chains and e-commerce platforms and food foodservice providers.

James E. Kras: The inclusion of these two major distributors significantly expands the availability of our Bland and Bold 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 enthusiasts for its unique peppers and the distinctive bland, bold taste they bring to any dish.

Speaker Change: The inclusion of these two major distributors significantly expand it significantly expands the availability of our blend of bold pulp product lines.

Speaker Change: Following closely on the heels of our watch over pulp ecommerce platform in early January this platform enables consumers to directly by our unique and flavorful products in a light bulb line was received overwhelming positive feedback quickly, earning the admiration of sauce enthusiastic sports unique peppers and distinctive blend bold taste, they bring to any dish the success.

James E. Kras: This success has helped cement Edible Garden's 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.

Speaker Change: This helps cement edible gardens status as the flavor maker.

Speaker Change: Earlier this month, we formed a product development partnership with Harman Pickle company, a leading brand in refrigerated kosher Dill Pickles, South Dakota, other fermented foods, which have long been fixtures at Delhi and family dinner tables nationwide, our joint effort will harness the strength of both companies to explore and develop scalable commercial opportunities. This collaboration will focus on the production.

James E. Kras: 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 Pickle's team, utilizing their esteemed legacy as a benchmark in this category to create a contemporary line of fermented products. Earlier this year, the U.S. Patent and Trademark Office granted Edible Garden several new patents. The first recognized are Green Thumb, a 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. This is the third patent for the state-of-the-art system.

Speaker Change: <unk> and distributions from at the plant based products and non GMO consumer packaged foods.

Speaker Change: Collaborate collaborate with with pickles team utilizing their steam legacy as a benchmark in this category to create a contemporary line for Magic box earlier this year U S patent and trademark office granted Appel garden, several new pads.

James E. Kras: 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 Garden's 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 has awarded several grants to cover various expenses related to organic crop certification and training costs at our greenhouse facilities in Belvedere, New Jersey, and Grand Rapids, Michigan.

Speaker Change: 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.

Speaker Change: The third patent for the state of the art system. The second patent was awarded for our proprietary self ordering display technology, a key innovation that extends plant shelf life maintains freshness and significantly reduces spoilage at retail outlets. These patents affirmed edible gardens and leadership in the AG tech sector, showcasing our commitment to advanced technology and sustainable.

Speaker Change: Development through these innovations, we are driving operational efficiencies enhancing profitability and returns.

Speaker Change: Reinforcing our role as a player a pioneer in the agriculture and agriculture technology recently the company was awarded several grants to cover various expenses related to the organic crops certification and training costs are greenhouse facilities in Belleville, New Jersey in Grand Rapids, Michigan.

James E. Kras: 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. This funding will cover training expenses for our staff at the Edible Garden Heartland Facility, focusing on crucial skills in 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 and health issues among our employees.

Speaker Change: And Michigan edible gardening steep funding from the from the going Pro talent Fund managed by the Michigan Department of Labor and economic opportunity workforce development and facilitated by Michigan works. This funding will cover training expenses for staff at the eligible guard the heartland facility, focusing on crucial skills and supply chain management transportation and logistics.

Speaker Change: Additionally, we secured a grant from the Michigan Occupational safety and health administration to enhanced work workplace safety and health edible gardening.

Speaker Change: Heartland aiming to minimize what cause accidents and health issues among our employees.

James E. Kras: In New Jersey, the company received a grant from the United States Department of Agriculture's 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 certification. The grants further underscore our commitment to food safety and greatly enrich our research partnerships. These include our project with the New Jersey Institute of Technology, the USDA, and the EPA, where we are investigating the effects of nanobubble technology on the safety and processing of fresh produce.

Speaker Change: 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.

Speaker Change: The grant further underscore our commitment to food safety and greatly enrich our research partnership partnerships. These these include our project with the New York with the New Jersey Institute of Technology. The U S. D E and the a P. A well we are investigating the effects of nano bubble technology on the safety and processing of fresh products. Additionally, our collaboration with Albany unit.

James E. Kras: 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 line. I would now like to turn the call over to Kostas Dafoulas, our Interim Chief Financial Officer, who will review the financials and results for the three months ended March 31st, 2024. Kostas?

Speaker Change: Of course these department in 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.

Speaker Change: I would like I would now like to turn the call over to cost as the poorest our interim chief financial.

Speaker Change: Officer, who will review the financials and results for the three months ended March 31st 2024.

Kostas Dafoulas: Thanks, Jim, and good morning, everyone. I'm excited about our start to 2024. The company reported first-quarter 2024 revenue of $3.1 million, compared to $2.5 million 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 the continued expansion of our product base. Cost of goods sold was $3.1 million for the three months ended March 31, 2024, compared to $2.5 million in last year's comparable quarter.

Jim: Thanks, Jim and good morning, everyone I am excited about our start to 'twenty 'twenty four.

Kostas Dafoulas: 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 third-party growers to in-house production, selling general and administrative expenses were $3.9 million for the three months ended March 31, 2024, compared to $2.7 million 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.

The company reported first quarter 'twenty four 'twenty 'twenty four revenue of $3 1 million compared to $2 5 million in Q1 of 'twenty three an increase of 27, 6% year over year revenue growth was driven by an increase in customer demand for herbs and part of their products and the continued expansion of our product base.

Jim: Cost of goods sold was $3 1 million for three months ended March 31, 2024, compared to $2 5 million.

Jim: Last years comparable quarter, the increase was consistent with the company's increase in revenue for the same period.

Jim: The company achieved a 171 basis points of gross profit margin expansion, primarily driven by our shift away from third party growers to in house production.

Jim: Selling general and administrative expenses were $3 9 million for the three months ended March 31, 2024, compared to $2 7 million for the 2023 comparable quarter. This increase was primarily driven by a onetime $600000 charge related to the departure of our previous CFO exclude.

Kostas Dafoulas: Excluding these one-time charges, SG&A expenses were $3.3 million, representing a $476 basis point expansion of the company's operating margin. The net loss was $4,000,000, or $13.65 a share, for the three months ended March 31st, 2024, compared to a net loss of $2.9 million or $44.19 per share for the quarter ended March 31st, 2023. Higher SG&A expenses and approximately 0.6 million non-recurring expenses contributed to the increase in the net loss. We are continuing to identify and execute on opportunities to reduce the company's SG&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.

Jim: Excluding these onetime charges SG&A expenses were $3 3 million, representing a 476 basis point expansion of the company's operating margin.

Jim: Net loss was $4 million or $13 65, a share or.

Jim: Three months ended March 31, 2024, compared to a net loss of $2 9 million or $44 19 per share for the quarter ended March 31 2023.

Jim: Our SG&A expenses and approximately <unk> 6 million nonrecurring expenses.

Jim: <unk> to the increase in the net loss, we are continuing to identify and execute on opportunities to reduce the company's SG&A expenses and improve operating efficiency.

Jim: <unk> I feel great about our business and excited about the prospects for 2024.

Speaker Change: Operator, please open the line for questions.

Operator: Thank you very much. We are now opening the floor for questions. If you have any questions, you may press star 1 on your phone keypad now. A confirmation tone will indicate that your line is in the queue. You may press star 2 if you would like to remove your question from the queue. For anyone using speaker equipment, it may be necessary to pick up your handset before you press the key.

Speaker Change: Thank you very much we are now opening the floor for questions. If you have any questions. You May press star one on your phone keep out now a confirmation tone will indicate that your line is and the key you May press star two if you would like to remove your question from Nicky So anyone using speaker equipment, it may be necessary to pick up.

Speaker Change: <unk> said before you press the keys, please wait a moment, whilst we poll for questions.

Operator: Please wait a moment while we poll for questions. Thank you. Your first question is coming from Anthony Vendetti of Maxim Group. Anthony, your line is live.

Speaker Change: Thank you. Your first question is coming from Anthony Vendetti of Maxim Great. Anthony Your line is live.

Anthony V. Vendetti: Thank you.

Anthony V. Vendetti: Good morning. So I just want to jump into the Heartland facility capacity. Where is that capacity at? How much do you have left? 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? with the distributors assigned, as well as this large customer that has the potential to generate $18 to $20 million in annual revenue. And then I'll have one more follow-up. Thank you.

Anthony V. Vendetti: Hi, good morning, So just wanted to jump into the Heartland facility.

Anthony V. Vendetti: Capacity.

Anthony V. Vendetti: Where is that capacity add how much how much do you have left there and with the new distribution partners.

Particularly UNFI do you feel like you could get that up to as close to a 100% capacity as possible now.

Anthony V. Vendetti: With the distributors have signed as well as this this large customer that.

Speaker Change: Has the potential to get to $18 million to $20 million in annual revenue and then I'll have one more follow up thank you.

James E. Kras: So, Jim, thanks for the question. Heartland right now, I would put us at around 65 to 70% of capacity, but it fluctuates somewhat, you know, based on time of year and the needs that we have. Obviously, spring is heavy for us, you know, and fall is more, you know, is heavy, but also more processes, you know, processing driven, you know, our capacity on the processing side, where we've seen quite a bit of growth, especially during this last quarter.

Jim: So Andrea from Jim. Thanks for the question Hartland right now I would put us at around 65% to 70% of capacity fluctuate somewhat based on time of year and the needs that we have obviously springs heavy for US you know and fall is more.

Jim: Because heavy but also more processes processing driven.

Jim: Our capacity on the processing side, where we've seen quite a bit of growth, especially during this last quarter.

James E. Kras: With the likes of Walmart and Meijer, we have, you know, almost unlimited capacity there to continue to process those products. As far as 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 a UNFI or any of the other accounts that we're looking to bring in, you know, over the next, you know, quarter. So, what's great now is that we're fully operational, and everything that's coming, everything that we, everything that we're selling in the Midwest is coming out of that facility, and we're growing it or processing it there.

Jim: With the likes of Walmart admire we have almost unlimited capacity.

Jim: Capacity there to continue to process those those products as far as the growing space goes look again, I'd say, we're probably 65% to 70%.

Jim: I don't see any issues being able to service a UNFI or any of the other accounts that we're looking to bring in.

Jim: You know over the next you know quarter. So what's great now is where were fully operational.

Jim: And everything that's coming you know everything that.

Jim: Everything that 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 audio on schedule. As you know is the guidance that we had put out. So we are on track and you know where we're looking forward to benefiting from the vertical integration I think the margin expansion you'll start to see.

James E. Kras: So, exciting times for us, and that all took place really in April on schedule, you know, as the guys that we had put out. So, we're on track and, you know, we're looking forward to benefiting from the vertical integration, and I think the margin expansion, you'll certainly see.

James E. Kras: 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 to 20 million in annual revenue?

Speaker Change: Okay, Great and then.

Speaker Change: Can you talk about the ramp up in and.

Speaker Change: Orders from the customer the recent customer signing that could.

Speaker Change: Eventually account for $18 million to $20 million in annual revenue.

James E. Kras: Well, that's, you know, that's begun. We've had a strong season, you know, and it's been, it's going to continue to ramp up. And I would think that, you know, that that number is fairly conservative.

Speaker Change: Well, that's you know that's begun we've had a strong season.

Speaker Change: And it's been.

Speaker Change: It's going to continue to ramp up and I would think that you know that 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 key retailers here in the Midwest.

Speaker Change: So they are coming not only are we seeing more consumer demand as it relates to people cooking more at home, especially because of inflation.

Speaker Change: And the inability to really want to go out to eat it's been more than than it may cost a make your own meal. We also benefited from people coming off of the pandemic and cooking more at home.

James E. Kras: I think we're fortunate to be where we are and have the relationships that we have with the key retailers here in the Midwest. And so they're coming, you know, not only are we seeing 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 the flu and cooking more at home.

Speaker Change: More consumer demand and the retailers are doing what they need to do to be positioned to capture those sales by.

Speaker Change: Putting in displays that we've helped design.

Speaker Change: Expanding the offering starting to really market.

Speaker Change: Herbs and lettuce as you know.

Speaker Change: Give people direction on how to use them versus just sort of buying you know in our claims to all of you know Rosemary you know so you've really marketing you know how to use herbs, how they improve your dishes so for us.

James E. Kras: So more consumer demand, and 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, you know, starting to really market herbs and lettuces, you know, and give people direction on how to use them versus just sort of buying a clamshell of, you know, rosemary, you know, so you're really marketing, you know, how to use herbs, how to So for us, you know, the sky's the limit here. And we continue to see real nice growth, not only organically, but also, I think, just, you know, a huge consumer shift into just cooking more at home and, and then whatnot.

Speaker Change: Kind of Sky's the limit here and we continue to see real nice growth not only organically, but you know with I think just.

Speaker Change: Huge consumer shift into just cooking more at home and.

Speaker Change: And then and whatnot.

James E. Kras: Okay, and then the impact from contract growers was:

Speaker Change: Okay, and then the impact from contract growers.

Speaker Change: <unk>.

Speaker Change: What was the impact this quarter.

Speaker Change: And any progress on reducing the.

Speaker Change: Reliance on the contract growers, while the progress has been has been significant and we really just started the benefit from some of that in the Q4 last year as we started to ramp up our and the processing part of of our Heartland and and then.

James E. Kras: 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 the processing part of Harlan and then 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, you know, really, we started to see the real impact of what was being grown in the greenhouse and shipped out at the tail end of April. We just completed a contract with our key contract grower in April. I think it's April twenty-six.

Speaker Change: And then being able to start to grow and we just launched their garden starters from Harlan that's a massive program that just launched a few weeks ago. So.

Speaker Change: 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 a key contract grower.

Speaker Change: In April I think was April 26, So you know, we're really going to see that impact this coming quarter. We have seen some of it as you know certain items that we brought in house as we started to integrate the business.

James E. Kras: So we're really going to see that impact this coming quarter. We've seen some of it in certain items that we brought in house as we started to integrate the business and convert it over. But you're really going to see that now that we're, like I said, fully operational, and probably around ninety five percent of all fresh goods coming from us. And I think we're going to keep it that way for quite some time. I think the contract growers. Unknown Attendee, James Kras, Michael James, Theodore Ayvas, Nicholas Sherwood, Kostas Dafoulas, Edible Garden

Speaker Change: <unk> converted over but you're really going to see that now that we're kind of like I said fully operational and Rodney you know probably around 95% of all fresh goods coming from Austin.

Speaker Change: We're going to keep it there for quite some time.

Speaker Change: The contract growers.

Speaker Change: Yeah, they're good partners and they helped us get where we are to itself the scale of the business now with the capabilities and.

Speaker Change: The money that we raised were able to really drive the growth and do it.

Speaker Change: With vertical integration. So we're you know we don't have to necessarily pay any couple of upcharge from a from a contract or and I think that's where it will stay for the foreseeable future. We got we still have a lot of runway in both of these facilities.

Thank you know as we start to grow the business and then we can start to figure out kind of what our next move is in the contract growers. They serve a purpose and and once again they were good partners in.

Speaker Change: We will see what happens in the future, but I have no plans on.

Speaker Change: Any.

Speaker Change: Having any reliance on third party for right now.

James E. Kras: Okay, great. And then just to be clear, the impact that you're talking about from less reliance on the contract growth would be an improved gross margin, correct? Absolutely. Absolutely. Yeah. I mean, this has been the plan, and I appreciate our various partners sticking with us to get to where we are, but yeah, we haven't really fully realized that margin expansion from being vertically integrated in Q1. A little bit of a touch, but it's really going to impact us moving forward now that we're shipping everything out of our own facilities. Excellent, and then just any update on the nutraceutical business, and then I'll hop back in the queue. Thank you

Speaker Change: Okay, Great and then just to be clear that the impact that you're talking about.

Speaker Change: Less reliance on the contract growers would be an improved gross margin.

Speaker Change: Absolutely absolutely yeah. I mean this has been this has been the plan and you know I appreciate you know.

Speaker Change: The various part is sticking with us to get to where we are but yeah. We we we havent really fully realize that margin expansion from being vertically integrated in Q1.

Speaker Change: A little bit a touch, but it's really going to its really going to impact us moving forward now that we're at.

Speaker Change: We're shipping everything out of our own facilities.

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

James E. Kras: New Nutraceutical business, a few cool things are happening. We have a new line that we're working on. I think, you know, 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 neat innovations, you know; 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 Choprite and Ajo De La Hayes.

Speaker Change: Sort of a new nutraceutical business feel cool things are happening we have a new line that we're working on.

Speaker Change: And 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 neat innovations. We continue to have the benefit of a strong brand name and really great relationships with the likes of Walmart.

Speaker Change: And Meyer.

Speaker Change: And wait for a job right.

Speaker Change: And our whole delhaize.

James E. Kras: And I think, you know, what you'll see from us is, you know, being able to, you know, leverage the distribution platform to continue to put in products like 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; Q2, you know, I think things have, you know, kind of shifted.

Speaker Change: I think what Youll see from us is being able to leverage the distribution platform to continue to put in you know products like the nutraceuticals that are much more shelf stable.

Speaker Change: We will be able to driver of our own our own our own form of innovation there in a category that doesn't have a lot of innovation.

Speaker Change: And I think you're going to see some really interesting.

Speaker Change: Happenings there Q1 was a little soft Q2.

Speaker Change: I think things have kind of shifted a lot of it I think it 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 you know I think we're going to at some point will be a significant player in it.

James E. Kras: 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, you know, I think we're going to, at some point, be a significant player in that.

James E. Kras: Thank you for all the calls, Jim. I'll hop back into the queue. All right. Thanks, Anthony. Take care.

Speaker Change: Thank you for all the color jump I'll hop back in the queue alright, Thanks, Anthony take care.

Operator: Thank you very much. Just a reminder, if you have any questions, you can press star 1 on your phone keypad now to join the queue. Your next question is coming from William Jordan, who is a private investor. William, your line is live. Thank you.

Speaker Change: Thank you very much just to remind you that if you have any questions. You can press star one on your phone keypad now to join Nikki. Thank you.

Speaker Change: Your next question is coming from William Jordan, who is a private investor William Your line is life.

William Jordan: 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?

William Jordan: 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.

James E. Kras: Thank you, William. Yeah, right now, where we're seeing, you know, especially in Q1, the growth for us is really around our cut herbs and our potted business, which is really starting to take hold. We've, you know, brought in some significant business with the likes of Walmart and Meijer on some of these lines, and that's really helped drive growth. We continue to see, I think, nice demand. And I think we've done a good job, the team's done a great job of executing, you know, operationally to drive nice fill rates, especially on those two product lines.

Speaker Change: Yeah. Thank you William Yeah, right now, where we're seeing a you know, especially in Q1 the growth, whereas it was really around our cut herbs.

Speaker Change: And our pilot Biz.

Speaker Change: Business, which is really starting to really take hold.

Speaker Change: We've brought in some significant business with.

Speaker Change: With the likes of Walmart and admire on some of these lines and that's really helped drive the growth.

Speaker Change: We continue to do I think <unk> seen nice demand, then and I think we've done a good job. The team has done a great job of executing.

Speaker Change: Operationally to drive nice fill rates, especially on those two product lines, but you know the cut herbs are high volume and departed.

James E. Kras: But, you know, the cutters are high volume, and the potted herbs are a nice product with a higher ring than some other products that we offer. And so I think we'll continue to see growth in those segments. I think Edible Garden's known for those items, and we do them really well, but that's where the growth is coming from right now.

Speaker Change: As you know is a nice.

Speaker Change: Product with a hiring hiring than some other products that we offer and so I think we'll continue to see growth in that in those segments, because I think the edible gardens known for those items and we do them really well, but that's where the growth is coming from right now.

William Jordan: Thanks. I appreciate the call. Thanks.

Speaker Change: Thanks appreciate the color.

Speaker Change: Yes.

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

Speaker Change: Thank you very much well they appear to have no further questions in the key.

Speaker Change: Hand back over to the management team for any closing comments.

James E. Kras: 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 critical elements in place, we are poised to improve our margins in the upcoming quarters and 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 coming months.

Speaker Change: Thank you for joining us today I remain optimistic about the company's future driven by or driven by our growing retail networks diverse product offerings and stringent cost management.

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 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 disconnect your phone lines and have a wonderful day. Thank you for your participation.

Speaker Change: Thank you very much everyone. This does conclude today's conference you may now disconnect your phone lines and have a wonderful day. Thank you for your participation.