Q3 2024 Edible Garden AG Inc Earnings Call

Good morning and welcome to the Edible Garden AG Incorporated's 2024 third quarter business update.

Speaker Change: At this time, all participants have been placed on a listen-only mode, and we will open for questions following the presentation. If anyone should require operator assistance during this conference, please press star zero on your telephone keypad.

Speaker Change: Please note this conference is being recorded. I will now turn the conference over to your host Ted Ayvas of Crescendo Communications Ted the floor is yours

Ted Ayvas: Thanks, Jenny. Good morning and thank you for joining Edible Garden's quarter-ended September 30, 2024 conference call and business update.

Ted Ayvas: 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.

Ted Ayvas: Earlier this morning, the company announced its operating results for the three months ended September 30, 2024.

The press release is posted on the company's website www.ediblegardenag.com

Ted Ayvas: If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at 212-671-1020.

Ted Ayvas: Before Mr. Kras reviews the company's operating results for the quarter ended September 30th, 2024, and provides a business update, we would like to remind everyone that this conference call may contain forward-looking statements.

Ted Ayvas: All statements other than statements of historical facts contained in this conference call, including statements regarding our future results of operations and financial position, are subject

Ted Ayvas: strategy and plans, and our expectations for future operations, our forward-looking statements.

Ted Ayvas: The words aim, anticipate, believe, could, expect, may, plan, project, strategy, will, and the negative of such terms, and other words in terms of similar expressions are intended to identify forward-looking statements.

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, result of operations, strategy, short-term and long-term business operations and objectives, and financial needs.

Ted Ayvas: These forward-looking statements are subject to several risks, uncertainties, and assumptions, as described in the company's filings with the SEC, including the company's annual report on Form 10-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.

Ted Ayvas: 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 achievements.

Ted Ayvas: 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.

Speaker Change: You should evaluate all forward-looking statements made by the company in the context of these risks and uncertainties. Having said that, I would now like to turn the call over to Jim Kras, Chief Executive Officer of Edible Garden. Jim?

Jim Kras: Thanks, Ted. Good morning and thank you to everyone for joining us today.

Jim Kras: We are pleased to report another strong quarter, highlighted by an increase of $687,000 in gross profit for Q3 2024, compared to the same period last year.

Jim Kras: Our gross profit margin experienced significant growth, reaching 27.1% this quarter.

Jim Kras: This significant improvement reflects the consistent margin growth that has fueled our progress in recent quarters, while marginally impacting our revenue growth in the second and third quarters.

Jim Kras: Furthermore, our gross profit for the first nine months of 2024 surged by $1.7 million, an impressive 324% increase over prior year.

Jim Kras: Our core business and fundamentals are stronger than ever, as demonstrated by a 55% increase in sales of cut herbs for the first nine months of 2024 compared to 2023.

Jim Kras: Revenue for the first nine months ended September 30th, 2024, showed a slight year-over-year increase.

Third quarter revenue for 2024 was down.

Jim Kras: from the same period last year driven by a strategic decision to phase out of lower margin products and categories. For example, in connection with phasing out our legacy floral business,

Jim Kras: At the Edible Garden Heartland Facility in Grand Rapids, we have installed new production lines to expand our capacity to drive the growth of our higher-margin products.

Jim Kras: We believe these initiatives will help accelerate achieving our goal of sustainable cash flow and profitability.

Jim Kras: We also strengthened our balance sheet with our September S-1 offering, raising approximately 5.65 million dollars in gross proceeds.

Jim Kras: Part of these funds went towards paying down $3.2 million in debt due to 2025, helping to reduce our leverage and move us closer to achieving positive free cash flow.

Jim Kras: Additionally, we invested in working capital ahead of the fourth quarter holiday season, putting us in a strong position to meet customer demand and peak season sales.

Jim Kras: Our partnership with Walmart continues to evolve in meaningful ways, including the debut of our sustainably grown Hydro Basil, featured in a custom-designed basil station that fits seamlessly into Walmart's produce sections without disrupting current planet grams.

Jim Kras: Additionally, we launched Edible Gardens' Vitamin Whey lines of whey and plant-based protein powders on Walmart Marketplace. This not only enhances accessibility for our Vitamin Whey products, but also lays the groundwork to expand our offerings on the platform with new products.

Jim Kras: We are confident our innovative products will resonate with the evolving taste of an expanding consumer audience. We believe this deepening collaboration with Walmart positions Edible Garden revenue growth in 2024 and beyond.

Jim Kras: For our Pump Flavor line of USDA organic fermented and sustainable line of gourmet sauces experienced sales growth in the third quarter of 2024 as we continue to add to our existing distribution network, which includes prominent retailers such as Target, Whole Foods, Meijer, Morton-Williams, Dearbrook.

Dearbrooks, Woodman's, and distributors like Kehi and UNFI and more.

Jim Kras: According to research and markets, the global sauces and condiments market is projected to grow from $173 billion in 2021 to $240 billion in 2028, and Pulp is poised to meet the rising demand for bold, unique flavors that take meals from bland to bold.

Jim Kras: We also introduced our innovative KICK Sports Nutrition Line, a premium range of performance products designed for today's health-conscious athletes.

Jim Kras: Kick addresses the evolving needs of athletes who prioritize the quality impact of their nutritional intake.

Jim Kras: According to IMARC Group, the sports nutrition market is expected to grow from $55 billion in 2023 to $103 billion by 2032.

Jim Kras: fueled by an increasing demand for clean labels, personalized products that enhance performance, cater to dietary preferences, and offer convenient on-the-go options.

Speaker Change: With over 25 years of experience in the sports nutrition and a track record of successful brand launches like Body Fortress, Pure Protein, and Metrix, I'm confident that Kicks Sports Nutrition is more than just a new product line.

Speaker Change: It's going to set a standard in the industry. Our vision is to redefine the category by delivering innovative, purpose-driven solutions that are better for you, that truly address the evolving needs of athletes, is more important than ever.

Speaker Change: Edible Garden also received grants from the USDA Organic Certification Program, providing financial key support to help offset the costs of organic certification, processing, and handling certifications.

Speaker Change: These funds will not only reduce expenses associated with maintaining our organic certification at our Belvidere and New Jersey and Grand Rapids facilities, but also support research and development for new product innovation.

Speaker Change: As leaders in controlled environment agriculture, we are deeply committed to producing local, organic and sustainable products, making organic certification a valuable asset for the business.

Speaker Change: These grants further strengthen our partnership with the USDA and align seamlessly with the company's zero-waste inspired mission.

Speaker Change: By utilizing these funds to drive R&D for new organic offerings, we look forward to exploring new opportunities to work together and to continue to lead the way in sustainable agriculture, ensuring that we make a lasting positive contribution to the industry and the communities we serve.

Speaker Change: I would now like to turn the call over to Kostas Dafoulas, our Interim Chief Financial Officer, who will review the financial results for the three months ended September 30, 2024. Kostas?

Kostas Dafoulas: Thanks, Jim, and good morning everyone. Turning to our third quarter results, revenue totaled $2.6 million compared to $3 million for the three months ended September 30, 2023. The decrease was primarily driven by our strategic shift away from the sale of lower margin products and impact from weather events.

Kostas Dafoulas: Specifically, our strategic decision to eliminate the lettuce and floral categories accounted for a decrease of $597,000 in revenue. The impact of Hurricane Helene on our nutraceutical products resulted in the shift of $215,000 of revenue from the third to the fourth quarter.

Kostas Dafoulas: Cost of goods sold totaled $1.9 million for the 3 months ended September 30, 2024, compared to $3.3 million for the 3 months ended September 30, 2023.

Kostas Dafoulas: We saw continued strength in our gross profit margin as a result of this strategic decision.

Kostas Dafoulas: to move away from low margin categories. We deliver a gross profit margin for Q3 2024 of 27%, our second straight quarter positive double-digit margin.

Kostas Dafoulas: Selling general and administrative expenses were $2.2 million for the three months ended September 30th, 2024, compared to $2.4 million for the three months ended September 30th, 2023.

Kostas Dafoulas: The decrease was primarily due to reduction in labor costs and professional fees as we continue to find efficiencies in our cost structure.

Kostas Dafoulas: Net loss was $2.1 million, or $0.65 per share, for the three months ended September 30, 2024, compared to a net loss of $2.4 million, or $13.83 per share, for the three months ended September 30, 2023.

Kostas Dafoulas: Improvement of net loss was primarily driven by the gross profit margin expansion and lower SG&A offset by other expenses.

Kostas Dafoulas: In closing, we are proud of the hard work our team has put into improving our growth margin and the strong execution we experienced this quarter. Our Q3 results demonstrate that our strategic shift in product mix and reduced reliance on third-party growers is paying off, and we remain committed to a disciplined financial approach.

With that, Operator, please open the line for questions.

Speaker Change: Thank you very much. At this time we will be conducting our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad now.

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Please wait a moment whilst we poll for questions.

Speaker Change: Thank you very much. Your first question is coming from Anthony Vendetti of the Maxim Group. Anthony, your line is live.

Thank you. Good morning.

You've reduced significantly contract growers, which obviously...

Speaker Change: improves your gross margin significantly. So we're glad to see, we're glad to see that. But as you move into this quarter that we're in right now,

This is your busy season. Are you...

Speaker Change: able to handle the demand this season with fewer contract growers than last season or do you have to rely on them to meet the demand?

So, hey, Anthony, good morning.

So the answer is

Service to Our Demand, the book we focused on infrastructure.

Speaker Change: GP improvement and the fundamentals of the business in the last two quarters and it shows in sequential quarter-to-quarter GP improvement and dramatic improvement at that.

that's that that's a result of bringing

Speaker Change: the facilities, and adding more capacity. So, you know, we did, you know, this was, I believe, in the press release in my opening script.

Speaker Change: We put in, you know, another production line, state-of-the-art, made that investment there in Grand Rapids.

Speaker Change: You know, I think what you see now is a strong signal to our retail partners that not only can we handle what we currently have, we can take on a lot more and we can push out a lot more in the way of units. So our capacity is only sort of, you know,

Speaker Change: He's only limited by our ability to process and putting in, you know, more and more lines as we continue to grow the business and right now we've got significant capacity.

Q4 is shaping up to be...

Potentially our best quarter ever

Speaker Change: as a function of having that ability to do so. And now the platform is set, the fundamentals are set, and we can take on more herbs, more new products, even more warehousing and cross-stocking that once again, adds to that top line. So, by trying to move out of

Speaker Change: these other products that are, you know, that were sort of, you know, legacies.

Speaker Change: products that just really didn't give us what we needed from a from a GP standpoint we now can focus and build that core business. So we're ready we're ready to run and we're pretty excited about it and you know it was a lot of hard work excuse me this past quarter to get into a position in order to you know get set for for you know for the volume that's coming.

Okay, great. And then, can you just further quantify...

the impact from the hurricanes in Florida.

How much of that revenue in total?

has moved from the third quarter to the fourth quarter.

Speaker Change: Well, it was $215,000 approximately. That was driven by a relationship that we have with a major big box, PriceSmart. We supply a nutraceutical line for them. That business has been growing considerably over the last six months as they've been, you know...

Speaker Change: watching what we're doing and I've had a relationship with them for decades so they understand the investment we're making in that segment of the business.

and so they ship out of the Port of Miami.

So unfortunately...

Speaker Change: We had a hurricane right at the end of the quarter and they closed the ports While people were evacuating and they weren't bringing in any trucks. And so once again, you know, you know You know 200,000 plus that gets pushed into the the Q4 that we didn't benefit from so and you know in the Q4 You know, there's obviously additional additional orders

Speaker Change: that are, you know, teed up and that'll ship by the end of the year as well, on top of that, you know, $200 per price mark. So, that's kind of, unfortunately, impacted it. You know, trust me, I wanted the trucks to roll and, you know, I can't control weather.

Sure, of course. So...

As we look to 2025,

Speaker Change: What kind of growth can we expect from the sports nutrition line?

Speaker Change: Well, you know, as I had mentioned, you know, earlier, look, this is this is a great category. I grew up in the category. I've worked at, you know, some big businesses, you know, Nature's Bounty being one of them.

Speaker Change: where I ran that part of the business for them and re-launched Metrix, Devolpt.

from Concept Body Fortress, which is a $150 million line.

Speaker Change: and also relaunched Pure Protein, which is probably another $100 million line.

Speaker Change: point being, and they're still around 15 years later, you know, the trends are towards better for you. We have the right formulas. We have a fantastic partner, Nutracom, that we're just continuing to deepen our relationship with. They were the originators of what are some of the

Speaker Change: Some of the products like the Metrix white box, which started the industry 25, 30 years ago. With that said, we're

commitments.

for a kick and we haven't even gone full-scale production.

You know, we're driving a partnership.

with Amazon, to look to potentially...

Speaker Change: coincide the launch with them. It was just with them last week.

And so, for us, we're expecting some significant growth.

Speaker Change: Obviously, you know, we're going to have to make product and a lot of that you'll see rolling out towards the tail end of

Speaker Change: of Q1. I think you'll see a launch at a major big box that we have a we have a deep relationship with on traditional retail and like I said I think it will coincide with

Speaker Change: with Amazon on that and then roll out with the likes of Pricemart internationally. So I couldn't be more excited about it. Like I said, you know, I think putting behind us fixing the core business

Speaker Change: and getting the greenhouses where they can operate and operate like manufacturing, we're there.

Speaker Change: So now we'll start focusing on a lot of these new products. We've got a line of paste herbs that we're launching in Q1 as well.

Speaker Change: So, you know, next year, you know, I'm pushing my sales team to say, look, let's.

Speaker Change: Let's, you know, let's start looking at not only Q1 and with these launches, but what are we doing to drive the business? You know second half of next year and and so I couldn't be more excited about where we are I feel like it's been a pretty real pretty tough

Speaker Change: journey to get here. But you know we solved a lot of problems that you know our others couldn't and we were watching a lot of our competition on the CEA side.

Speaker Change: sort of, you know, crap out. And, you know, we're positioned for more and more and more. You know, the calls have been coming in on all the businesses to, you know, to ship. And so, like I said, it's been tough, but I'm excited. I mean, it truly is. I mean, so.

Speaker Change: I hope that answers that question, but I'm sorry, go ahead.

Yeah, last question on the gross margin side.

Speaker Change: It sounds like you, you know, particularly lettuce, but maybe there were other low-margin products you've exited. Was that leveraged from...

Speaker Change: exiting the low-margin products such as lettuce fully reflected in the third quarter or is there additional leverage or ability to increase the gross margin from from the level that you're at right now?

Speaker Change: Well, I think look I think you're that mean for us, you know, it's all about you know Improving our margins the efficiencies that we're driving currently across the whole supply chain leveraging, you know Every tool that we have in the toolbox

Speaker Change: is coming down to bear and so the answer your question is you'll you should see that gross profit continue to expand as we get you know stronger and yeah I mean between you know look we're not fully out of the lettuce business we're just not in the low or no margin lettuce business that we sort of had to serve as some of the customers when we first started the business.

Speaker Change: You know, the floral business for us, look, it's an interesting business, but it's just not our core business. And you know, by just, you know, kind of pushing that aside and kind of eliminating it and focusing on the food business, which is what we're in.

Speaker Change: Once again, nothing against florals and flowers, I like them, but at the end of the day, that really wasn't our core business. We adhered to our commitment to the distributors that we...

Speaker Change: that we took on when we bought the facility in Grand Rapids.

Speaker Change: and you know we executed well and everybody moved on and I'm sure if I wanted to floor down the road I could always pick up the phone and call them but not our core business it was a drag I don't like the competing crops in the greenhouse for a multitude of reasons now we've cleared the deck I got super capacity place looks gorgeous

Speaker Change: I just had Meyer down there shooting it the other day for social media. Um, you know, we're ready to run, um, and I don't have to worry about that, that business anymore. And it's, you know, impacted the margin because it was just labor intensive.

Speaker Change: for what it was moving pots and it was just an old business that you know has never really been sort of automated and it's seasonal and it's just it's just not not what we wanted to do and what I want to do it's all about

core business.

Speaker Change: Fundamentals, new products, leveraging the $5,000 an hour and to put more in the trucks that are running on produce, getting more on those trucks.

improving the logistics.

Speaker Change: And like I said, you see it where we are right now, and we just got started in the last quarter or two. I mean, and frankly, we've been able to get some real strong players to come in and help us really refine this. So I couldn't be more excited about it.

Jim Kras: Excellent. All right. Thanks for all that, Kostas. Jim, I'll hop back in. All right. Appreciate it. All right. Thank you, Anthony. Take care.

Speaker Change: Thank you very much. Just a reminder there if anyone has any questions you can join the queue by pressing star 1 on your phone keypad now.

Speaker Change: We don't appear to have anyone else waiting for questions. Just hang a second in case someone else does jump in.

Speaker Change: Okay, I don't think we have any further questions. I will now hand back over to the management team for closing comments.

Speaker Change: Well, thank you for joining us today. We believe we have successfully streamlined our business.

Speaker Change: Removing elements that previously constrained revenue growth. Core operations and fundamentals are now healthy and performing well. Based on current trends, we are confident that the fourth quarter of 2024 will display significant growth in both margin and revenue, potentially marking one of the strongest quarters in our company's history.

Speaker Change: With a solid foundation and a robust infrastructure in place, we are well positioned not only to achieve strong results in the coming quarters, but to also drive sustained growth and long-term value for our shareholders.