Q4 2024 Better Choice Co Inc Earnings Call

Operator: Good afternoon and welcome to the Better Choice 2024 fourth quarter financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad.

Good afternoon, and welcome to the better choice 'twenty 'twenty four fourth quarter financial results Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad after today's presentation.

Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two.

Speaker Change: There will be an opportunity to ask questions to ask a question you made press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Valter Pinto managing director Casey S. A straw.

Operator: Please note this event is being recorded.

Valter Pinto: I would now like to turn the conference over to Valter Pinto, Managing Director, KCSA Strategic Communications. Please go ahead.

Speaker Change: T J communications. Please go ahead.

Valter Pinto: Thank you, Operator, and welcome, everyone, to the Better Choice Company's fourth quarter and full year 2024 financial results conference call. Joining me today are Kent Cunningham, Chief Executive Officer, and Nina Martinez, Chief Financial Officer.

Speaker Change: Thank you operator, and welcome everyone to the better choice company's fourth quarter and full year 2024 financial results Conference call.

Speaker Change: Joining me today are Ken Cunningham, Chief Executive Officer, Nino Martinez, Chief Financial Officer, The company's financial results press release has been posted to the Investor Relations section of the website and will be followed by a Form 10-K to be filed with the SEC on or before March 31.

Valter Pinto: The company's financial results press release has been posted to the investor relations section of the website and will be followed by a Form 10-K to be filed with the SEC on or before March 31st. Please note that remarks made today may include forward-looking statements subject to a variety of assumptions, risks, and uncertainties. The company's actual results may differ materially from those contemplated by such statements. For a more detailed discussion, please refer to the note regarding forward-looking statements in the company's earnings release and SEC filings.

Speaker Change: Note that remarks made today may include forward looking statements subject to a variety of assumptions risks and uncertainties.

Speaker Change: The company's actual results may differ materially from those contemplated by such statements for a more detailed discussion. Please refer to the note regarding forward looking statements in the company's earnings release and SEC filings.

Valter Pinto: Also during the call today, we will discuss certain non-GAAP financial measures. Reconciliations of these non-GAAP items to the most directly comparable GAAP financial measures will be provided by the company's financial results press release and made available on the investor section of the company's website.

Speaker Change: Also during the call today, we will discuss certain non-GAAP financial measures reconciliations of these non-GAAP items to the most directly comparable GAAP financial measures will be provided by the company's financial results press release and made available on the investors section of the company's website.

Kent Cunningham: I'd now like to turn the call over to Kent Cunningham, our Chief Executive Officer. Please go ahead, Kent. Thank you, Valter. And thank you, everyone, for joining us today to discuss our fourth quarter and full year 2024 financial and operating results. I'm joined on today's call by Nina Martinez, our Chief Financial Officer. I'll give a business review of 2024 and Nina will then cover our financials in more detail.

Speaker Change: Now I'd like to turn the call over to Ken Cunningham, Our Chief Executive Officer. Please go ahead Ken.

Ken Cunningham: Thank you Walter and thank you everyone for joining us today to discuss our fourth quarter and full year 2024 financial and operating results.

Speaker Change: I'm joined on today's call by Nida Martinez, our Chief Financial Officer.

Speaker Change: I'll give a business review of 'twenty 'twenty, four and Nino will then cover our financial in more detail.

Kent Cunningham: I'm pleased to report that our business delivered a strong performance in 2024 as we made significant progress in our turnaround strategy to improve profitability and lay the foundation for sustained profitable growth. For the full year, we deliver a gross profit margin of 37%, representing an increase of over 600 basis points, and our adjusted EBITDA loss of approximately $1.9 million improved 78% year-over-year on annual net revenues of $35 Despite growing consumer uncertainty surrounding geopolitical and potential tariff impacts on the cost of everyday goods, the pet food category continues to show resiliency as pet ownership continues to increase and consumer spending continues to rise with the macro trends of pet humanization, premiumization, and wellness underpinning industry growth.

Speaker Change: I'm pleased to report that our business delivered a strong performance in 2024, as we made significant progress in our turnaround strategy to improve profitability and lay the foundation for sustained profitable growth.

Nino Martinez: For the full year, we delivered gross profit margin of 37%, representing an increase of over 600 basis points and our adjusted EBITDA loss of approximately 1.9 million improved 78% year over year on annual net revenues of 35 million.

Nino Martinez: Despite growing consumer uncertainty surrounding geopolitical and potential tariff impacts on the cost of everyday goods. The pet food category continues to show resiliency at tight ownership continues to increase and consumer spending continues to rise with the macro trends of pet Humanization premium innovation and wellness Thunder.

Nino Martinez: Indian industry growth.

Kent Cunningham: Halo continues to offer a unique brand position for the health-conscious consumer seeking the best nutrition for their pet. The brand's performance was highlighted by an impressive fourth quarter revenue growth of 26% year over year. Our growth in the quarter was driven by 32% growth across Amazon and Chewy, as we increased our focus and participation in Black Friday promotions across these platforms. This sales velocity is a key building block to revenue growth, but more importantly, long-term growth as we increased the number of new-to-brand or first-time consumers of Halo. As a result, we achieved our best quarter with Amazon since the first quarter of 2023.

Nino Martinez: Hello continues to offer a unique brand position for the health conscious consumer seeking the best nutrition for their pets.

The brand's performance was highlighted by an impressive fourth quarter revenue growth of 26% year over year.

Nino Martinez: Our growth in the quarter was driven by 32% growth across Amazon and chewy as we increased our focus and participation and black Friday promotions across these platforms.

Nino Martinez: The sales velocity as a key building block to revenue growth, but more importantly, long term growth as we increased the number of new to brand or first time consumers that halo.

Nino Martinez: As a result, we achieved our best quarter with Amazon since the first quarter of 2023.

Kent Cunningham: We also successfully launched Halo on Chewy Canada in November.

Nino Martinez: We also successfully launched Halo on chewy candidate in November.

Kent Cunningham: These results give us increased confidence that our strategic shifts are working and that we can continue to build consumer demand for the Halo brand domestically and abroad. As the pet consumer continues to shift to e-commerce channels, we've sharpened our strategy to ensure that we're top of mind when and where they're making their purchase decisions, offering the premium brand and benefits that highly engaged pet parents demand. We continued to improve adjusted EBITDA in 2024, reducing SP&A by 22% year over year. This was driven by consistent operational improvements throughout the year in our demand forecasting, resulting in an over 40% reduction in inventory while simultaneously improving service levels above 95% and a 4% improvement in direct cost per pound as we achieved operational leverage and scale through international volumes and worked with our manufacturing partners to achieve favorable supply.

Nino Martinez: These results give us increased confidence that our strategic shifts are working and that we can continue to build consumer demand for the halo brand domestically and abroad.

Nino Martinez: As the pet consumer continues to shift to e-commerce channels, we've sharpened our strategy to ensure that we're top of mind, when and where they're making their purchase decisions offering that premium brand to benefit that highly engaged pet parents demand.

Nino Martinez: We continued to improve adjusted EBITDA in 2024, reducing SG&A by 22% year over year. This was driven by consistent operational improvements throughout the year and our demand forecasting resulting in an over 40% reduction in inventory, while simultaneously improving service levels above 95%.

Nino Martinez: And a 4% improvement in direct cost per pound as we achieved operational leverage and scale through international volumes and worked with our manufacturing partners to achieve favorable supply terms.

Kent Cunningham: Additionally, we've made continued progress reducing our short-term obligations. This, along with the $6.2 million gain from extinguishing debt and accounts payable, has positioned us to enter 2025 with a healthier balance sheet, including a working capital position of $7.9 million. We expect our financial health to fuel our continued top line momentum as an increased emphasis on e-commerce platforms is expected to continue through 2025. The generational shift in consumer buying habits continues to migrate online and the overall expansion of e-commerce outpaces brick and mortar as pet parents increasingly turn to online retailers for convenience, selection, and value.

Nino Martinez: Additionally, we've made continued progress reducing our short term obligations. This along with the $6 2 million gain from extinguishment of debt and accounts payable has positioned us to enter 2025 with a healthier balance sheet, including our working capital position of $7 9 million.

Nino Martinez: We expect our financial help to fuel our continued top line momentum as an increased emphasis on E. Commerce platforms is expected to continue through 2025 and beyond.

Nino Martinez: The generational shift in consumer buying habits continues to migrate online and the overall expansion of ecommerce outpaces brick and mortar as pet parents increasingly turned to online retailers for convenience selection and value.

Kent Cunningham: As a 30-year pioneer in premium natural pet nutrition, the Halo brand has become globally recognized and has got a strong consumer following, especially in the fast-growing Asia market.

Nino Martinez: As a 30 year pioneer in premium natural pet nutrition. The Halo brand has become globally recognized and has built a strong consumer following especially in the fast growing Asia market there.

Kent Cunningham: Therefore, subsequent to year-end, we signed several important transactions to provide future value for our shareholders. First, we signed a definitive agreement to sell Halo Asia for $8.1 million in total gross proceeds. which includes $6.5 million in cash at closing. along with a 3% royalty on sales over the next five years. guaranteed by a minimum royalty payment of $330,000 per year or $1.65 million in total. We also agreed in principle to a 5.5% royalty agreement in Asia with our existing partner on all sales of the Halo Elevate brand. When we close, which is expected to occur by the end of April, we'll retain ownership of North American and rest of world ex-Asia operations.

Nino Martinez: Therefore, subsequent to yearend, we signed several important transactions to provide future value for our shareholders.

Nino Martinez: First we signed a definitive agreement to sell Halo Asia for $8 1 million in total gross proceeds which includes $6 5 million in cash at closing.

Nino Martinez: Along with a 3% royalty on sales over the next five years guaranteed by a minimum royalty payment of $330000 per year or 1.65 million in total.

Nino Martinez: We also agreed in principle to a five 5% royalty agreement in Asia with our existing partner on all sales of the Halo elevate grant.

Nino Martinez: When we close which is expected to occur by the end of April we will retain ownership of North American and rest of World Ex Asia operations.

Kent Cunningham: In addition, the Board of Directors has approved a royalty distribution plan of up to 55% of the annual royalties generated by the Halo brand to be distributed annually to stockholders of record as of December 31st of the given year. These unique transactions underscore our commitment to delivering long term value to our shareholders from our Halo brand. These plans will provide a consistent return to shareholders and reward those who have invested and believe in our vision. Our momentum and optimism remains high as we enter 2020. We will continue to further explore opportunities to provide shareholder value, and we are confident in our ability to drive long-term profitable growth.

Nino Martinez: In addition, the board of Directors has approved a royalty distribution plan of up to 55% of the annual royalties generated by the Halo brand can be distributed annually stockholders of record as of December 31st at the given year.

Nino Martinez: These unique transactions underscore our commitment to delivering long term value to our shareholders from our Halo brand.

Nino Martinez: These plans will provide a consistent return to shareholders and reward those who are invested and believe in our vision.

Nino Martinez: Our momentum and optimism remains high as we enter 2025.

Nino Martinez: We will continue to further explore opportunities to provide shareholder value and we are confident in our ability to drive long term profitable growth.

Nina Martinez: Now let me turn it over to Nina to take you through our financials in more detail. Thanks, Kent, and good afternoon, everyone. I'll begin by noting that our annual net revenues of $35 million are down 9% as we knowingly and strategically exited non-core sales channels to improve profitability and create operating leverage in the business. In the first half of the year, we continued to exit draining brick-and-mortar accounts and other distribution avenues, as well as closing an unprofitable direct-to-consumer business by the second quarter. Despite the expected consolidated revenues down slightly due to these strategic pivots, annual net revenue within our key digital platforms increased 8% year over year as we rebalanced our brand building investment from the unprofitable DTC business to our largest and growing e-commerce customers, Chewy and Amazon.

Neil: Now, let me turn it over to Neil to take you through our financials in more detail.

Neil: Thanks, Kent and good afternoon, everyone.

Neil: I'll begin by noting that our annual net revenues of $35 million are down 9% as we knowingly and strategically exited noncore sales channel to improve profitability and create operating leverage in the business.

Neil: In the first half of the year, we continued to exit training brick and mortar accounts and other distribution Avenue as well as closing unprofitable direct to consumer business by the second quarter.

Neil: Despite the expected consolidated revenues down slightly due to the strategic pivot annual net revenue within our key digital platforms increased 8% year over year as we rebalance our brand building investment from the unprofitable DTC business to our largest and growing e-commerce customers Kelly and Amazon.

Nina Martinez: We also continue to drive increased consumer demand for the Halo brand globally, noted by 18% growth internationally. As Kent highlighted earlier, the momentum we realized in the fourth quarter with 26% net revenue growth year over year to 7.2 million was notably driven by a 32% growth across our key digital platforms and more than doubling our Asia Pacific volume. In the fourth quarter, we also realized significant improvement in our gross margin to 36 percent driven by volume discounts. Full-year gross margin increased over 650 basis points year-over-year to 37 percent. This demonstrates our ability to scale efficiently and manage trade spend and costs effectively, particularly as we continue to invest in profitable core areas of our business and optimize our operations.

Neil: Also continue to drive increased consumer demand for the Halo brand globally noted by 18% growth internationally.

Neil: As Ken highlighted earlier the momentum we realized in the fourth quarter with 26% net revenue growth year over year to seven 2 million with notably driven by a 32% growth across our key digital platforms and more than doubling our Asia Pacific volume.

Neil: In the fourth quarter, we also realized significant improvement in our gross margin to 36% driven by volume discount.

Neil: Full year gross margin increased over 650 basis point year over year to 37%.

Neil: This demonstrates our ability to scale efficiently and manage trade spend and cost effectively, particularly as we continue to invest in profitable core areas of our business and optimize our operations.

Nina Martinez: We achieve scale in our current portfolio domestically through our halo holistic plant-based diet as a leading brand in the vegan pet food sector and as well through our international volume. We significantly reduced operating expenses in 2024, with an overall ST&A reduction of 22%. This is a result of our ability to effectuate strategic cost-saving initiatives to support our focus of sustainable growth. Our e-commerce efforts are dedicated to our key accounts, where we achieve higher and more effective returns in our marketing investment dollars, which provides significant operating leverage as compared to our historical direct-to-consumer business. Our asset-light business model and the ability to utilize our outsource manufacturing capabilities in a fully wholesale business provides us with the scale and leverage needed to satisfy consumer demands in a profitable way.

Neil: We achieved scale in our craft portfolio domestically there a halo holistic plant based diet as a leading brand in the feed and pet food sector and as well through our international volumes.

Neil: We significantly reduced operating expenses in 2024 with an overall SG&A reduction of 22%. This is a result of our ability to effectuate strategic cost saving initiatives to support our focus on sustainable growth.

Neil: Our e-commerce efforts are dedicated to our key accounts, where we achieve higher and more effective returns on our marketing investment dollars, which provides significant operating leverage as compared to our historical direct to consumer business.

Neil: Our asset light business model and the ability to utilize our outsource manufacturing capabilities and a fully wholesale business provides us with the scale and leverage needed to satisfy consumer demands in a profitable way.

Nina Martinez: A focus on continuing to improve effective marketing and brand investments with our largest e-commerce partners, coupled with proper management of an efficient and optimized portfolio of products, are the key success factors we attribute to winning as a pet food industry. Our year-to-date GAAP net loss improved by 99 percent year-over-year to almost break even at a mere $168,000 loss compared to a $23 million net loss in 2023. This positive trajectory was driven by a 10 percent increase in gross profit dollars and a 43 percent decrease in total operating expenses. Additionally, we successfully extinguished our senior term loan debt and cleaned up supplier obligations as a result of a successful litigation settlement, driving $6.2 million gained on extinguishment of debt and accounts payable.

Neil: Our focus on continuing to improve effective marketing and brand investment with our largest e-commerce partners, coupled with proper management of an efficient and optimized portfolio of products are the key success factors do you attribute to winning as a digital native brand and the competitive landscape of the pet food industry.

Neil: Our year to date GAAP net loss improved by 99% year over year.

Neil: This breakeven at or near $168000 loss compared to a $23 million net loss in 2023.

Neil: This positive trajectory was driven by a 10% increase in gross profit dollars and a 43% decrease in total operating expenses.

Neil: Additionally, we successfully extinguished our senior term loan debt and cleaned up supplier obligation as a result of a successful litigation settlement driving $6 2 million gain on extinguishment of debt and accounts payable.

Nina Martinez: not only has this significant event driven positive EPS trajectory but has also strengthened our balance sheet and enhanced our financial flexibility. Our annual performance ultimately resulted in EPS totaling 11 cents of loss per share, a significant improvement from the $32 of loss per share in 2023. Furthermore, in Q4 alone, our adjusted EBITDA loss improved by 80% year-over-year to an approximately $700,000 loss, a testament to HALO's vastly positive turnaround. These improvements highlight our focus on driving operational leverage and positioning Better Choice for profitability in the coming quarter. The full-year Adjusted EBITDA loss improved 78% year-over-year to a $1.9 million loss compared to $8.4 million of Adjusted EBITDA loss in 2023.

Neil: Not only has this significant event driven positive EPS trajectory, but has also strengthened our balance sheet and enhanced our financial flexibility. Our annual performance ultimately resulted in EPS totaling 11 status with loss per share a significant improvement from the $32 <unk> per share in 2023.

Neil: Furthermore, in Q4 alone our adjusted EBITDA loss improved by 80% year over year to approximately $700000 law, a testament to Halo vastly positive turnaround. These improvements highlight our focus on driving operational leverage and positioning better choice for profitability in the coming quarters.

Neil: Full year adjusted EBITDA law.

Neil: Improved 78% year over year to a $1 9 million dollar loss compared to $8 4 million of adjusted EBITDA loss in 2023.

Nina Martinez: A table reconciling GAAP net loss to Adjusted EBITDA loss can be found in our earnings release and our 10-K to be filed on or before March 31st with the SEC. As for liquidity and capital resources, our cash and cash equivalents as of December 31, 2024 were $3 million, with $2.4 million of borrowing capacity under our credit facility. Our net working capital position increased over 200% from $2.5 million in 2023 to $7.9 million in 2024. Net cash used in operations totaled $4.4 million, driven by the paydown of our supplier obligations and non-cash gain on extinguishment of debt, offset by the reduction of our inventory balance.

Neil: Table reconciling GAAP net loss to adjusted EBITDA loss can be found in our earnings release, and our 10-K to be filed on or before March 31 with the SEC.

Neil: As for liquidity and capital resources, our cash and cash equivalents as of December 31, 2024 were $3 million with $2 4 million of borrowing capacity under our credit facility, our net working capital position increased over 200% from $2 5 million in 2023.

Neil: The $7 9 million in 2024.

Neil: Net cash used in operations totaled $4 $4 million driven by the pay down of our supplier obligations and non cash gain on extinguishment of debt offset by the reduction of our inventory balances.

Nina Martinez: Net cash used in investing activities was $2.3 million as we made investments into SRX Health Solutions prior to the anticipated merger in 2025. Net cash provided by financing activities was $5.5 million, driven by $4.7 million in net proceeds from an equity offering in the third quarter, as well as net draws from our credit facilities. Our improved liquidity and working capital position is a direct reflection of our continued focus on stabilizing the business and right-sizing the balance sheet to lay the foundation for a successful turnaround. Showcasing our third consecutive quarter of net loss and EPS growth and four consecutive quarters of gross margin expansion proves the strength and capabilities of our collaborative management team and our strategic pivots we've made to create this operational leverage in the business has far exceeded our expectations.

Neil: Net cash used in investing activities was $2 3 million as we made investment into <unk> health solution prior to the anticipated merger in 2025.

Neil: Net cash provided by financing activities was $5 $5 million driven by $4 7 million in net proceeds from an equity offering in the third quarter.

Neil: As well as net draws from our credit facility.

Neil: Our improved liquidity and working capital position is a direct reflection of our continued focus on stabilizing the business and right sizing the balance sheet to lay the foundation for a successful turnaround.

Neil: Showcasing our third consecutive quarter of net loss and EPS growth and four consecutive quarters of gross margin expansion proves the strength and capabilities of our collaborative management team and our strategic pivot we've made to create this operational leverage in the business has far exceeded our expectation.

Nina Martinez: In summary, we're pleased with the strong results for the year and in particularly the recent quarter as we enter 2025 with growing momentum. With enhanced operation, a focused approach to key global markets and a strengthened brand portfolio, we are well positioned to capitalize on emerging markets within the pet health and specialty healthcare segments. Our focus will remain on driving profitable revenue growth, expanding margin and continuing to strengthen our working capital position to fuel growth. We remain committed to delivering strong shareholder returns by executing our disciplined growth strategy and driving lasting value.

Neil: In summary, we're pleased with our strong results for the year and in particularly the recent quarter as you enter 2025 with growing momentum with enhance operation a focused approach to key global markets and a strengthened brand portfolio, we are well positioned to capitalize on emerging markets within the pet health and specialty health care segment.

Neil: Our focus will remain on driving profitable revenue growth expanding margins and continuing to strengthen our working capital position to fuel growth. We remain committed to delivering strong shareholder returns by executing our disciplined growth strategy and driving lasting value.

Kent Cunningham: With that, I'll now turn it back over to Kent for closing remarks. Thanks, Dana. As many of you know, we're in the process of completing our acquisition of SRX Health. Both the Better Choice and SRX Health shareholders unanimously approved the transaction, which we expect to close on Friday.

Ken Cunningham: I'll now turn it back over to Ken for closing remarks.

Okay.

Speaker Change: Thanks Dana.

Speaker Change: As many of you know we're in the process of completing our acquisition of bats are X helps both the better choice and Srs helps shareholders unanimously approved the transaction, which we expect to close in April.

Kent Cunningham: Upon closing, Better Choice will emerge as a leading global health and wellness company, providing better products and solutions for pets, people, and families. The combination of the two companies is expected to yield operational efficiencies and synergies while providing near and long-term growth opportunities that will drive sustainable organic growth for each respective business. We look forward to updating everyone on further details on our strategic plans after the closing of SRI.

Speaker Change: Upon closing better choice will emerge as a leading global health and wellness company, providing better products and solutions for pets people and families.

Speaker Change: The combination of the two companies is expected to yield operational efficiencies and synergies, while providing near and long term growth opportunities that will drive sustainable organic growth for each respective business.

Speaker Change: Look forward to updating everyone on further details on our strategic plans after the closing of <unk>.

Operator: I'd now like to open the call for questions. Operator? We will now begin the question and answer session. To ask a question, you may press star, then 1, on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2.

Speaker Change: I'd now like to open the call for questions operator.

Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.

Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

Operator: At this time, we will pause momentarily to assemble our roster.

Speaker Change: At this time, we will pause momentarily to assemble our roster.

Operator: This concludes our question and answer session and the Better Choice 2024 fourth quarter financial results conference call. Thank you for attending today's presentation. You may now disconnect. and on the

Speaker Change: This concludes our question and answer session and the better choice 2020 for fourth quarter financial results Conference call. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: [music].