Q1 2025 Sow Good Inc Earnings Call
Good morning, everyone and thank you for participating in today's conference call to discuss its always good financial results for first quarter ended March 31st 2025.
Brendan Fisher: Joining us today are so good co founder and CEO, Claudia Goldfarb and interim Chief Financial Officer, Brendan Fisher found.
Following their remarks, we will open the call for analyst questions. Before we go further I would like to turn the call over to Mr slot as he reads the company's safe Harbor statements within the meaning of private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward looking statements Cody. Please go ahead.
Brendan Fisher: Okay.
Speaker Change: Good morning, everyone and thank you for joining us in today's conference call to discuss so good financial results for the first quarter ended March 31 2025.
Speaker Change: Certain statements made during this call are forward looking statements, including those concerning our financial outlook, our competitive landscape market opportunities and the impact of the global economic environment on our business.
Speaker Change: These statements are based on currently available information and assumptions and we undertake no duty to update this information except as required by law. These statements are also subject to a number of risks and uncertainties, including those highlighted in today's earnings release, and our filings with the SEC additional information concerning these statements and the risks in them.
Speaker Change: Certainties associated with them is highlighted in today's earnings release and in our filings with the SEC.
Speaker Change: Copies are available on the Sec's website or on our Investor Relations website.
Speaker Change: Furthermore, we will discuss adjusted EBITDA and non.
Speaker Change: non-GAAP financial measure on today's call a reconciliation of adjusted EBITDA to net income or loss. The nearest comparable non-GAAP financial measure discussed on today's call is available in our earnings press release at our Investor Relations website.
Claudio: With that I will turn the call over to Claudio.
Claudio: Thank you Cody and good morning, everyone and thank you for joining us today.
Claudio: We're encouraged by the continued momentum in the first quarter of 2025 with a 79% increase in revenue from the fourth quarter of 2024.
Claudio: This tracks closely with the expectations, we laid out during our last call.
Claudio: While theres still work to be done Q1 delivered meaningful progress across key areas.
Claudio: Similarly in operational execution and retail expansion.
Claudio: The strategic actions we took.
Claudio: Last year to make the business more agile and efficient are paying off.
Claudio: We're seeing renewed consumer enthusiasm for our freeze dried candy line.
Claudio: That said, we continue to feel does to Axa global CPG Giants entering the category we pioneered.
Claudio: These companies have used their scale and spending power to secure shelf space often at the expense of smaller more innovative brands like ours.
Claudio: But we believe the initial novelty and market impact of these launches as worried at all.
Claudio: We gained momentum it's clear that consumers are returning to our brand for superior assortment unmatched crunch and ongoing innovation.
Claudio: Ill share more on the progress, we're making shortly but first I'll turn it over to Brendan to walk us through our Q1 financials Brendan.
Thank you Claudio jumping right into our financial performance.
Claudio: Revenue in the first quarter of 2025 was $2 5 million compared to $11 4 million for the same period in 2024.
Claudio: Decline was primarily driven by softening demand due in large part to increased competitive pressure.
Claudio: Gross profit for the first quarter of 2025 was $1 1 million compared to $4 6 million for the same period in 2024.
Claudio: Gross margin was 45% in the first quarter of 2025 compared to 41% and a year ago period.
Claudio: The decrease in gross profit was largely due to lower revenue, partially offset by lower cost of goods sold.
Claudio: The improvement in gross margin for the first quarter, primarily reflects the lower cost of goods sold in the period.
Claudio: Operating expenses in the first quarter of 2025, or $3 5 million compared to $3 7 million for the same period in 2024.
Claudio: The year over year reduction was largely the result of a decrease in bonus compensation and lower legal services expenses.
Claudio: Net loss in the first quarter of 2025 was $2 6 million or a loss of 23 cents per diluted share compared to net income of 511000 or six cents per diluted share for the same period in 2024.
Claudio: Klein reflects lower gross profit, partially offset by reduced operating expenses in Q1.
Adjusted EBITDA in the first quarter 2025 was negative <unk> 8 million compared to $2 5 million for the same period in 2024.
Moving to the balance sheet, we ended the quarter with cash and cash equivalents of $1 6 million compared to $3 7 million as of December 31, 2024.
Claudio: Total debt, excluding operating losses was $2 7 million. However, subsequent to quarter end, we entered into exchange agreements with all of our outstanding note holders with notes payable this year.
Claudio: Under the exchange agreements existing notes were exchanged on a dollar for dollar basis for new notes maturing five years from the date of issuance.
Claudio: The new notes are convertible at the option of the holder in whole or in part into shares of common stock.
Claudio: On a price per share equal to the average closing price.
Claudio: Of our common stock during the five trading days immediately prior to the execution of an entry into the new notes.
Claudio: With such conversion prices ranging from 62.
Claudio: 263 cents.
Claudio: This concludes my prepared remarks, I'll now turn the call back to Claudia.
Claudio: Yes.
Claudia: Thank you Brendan.
Speaker Change: Focus on our three key strategies executing cost savings and cash conservation initiatives, expanding candy distribution and pursuing new category opportunities, where our team has deep expertise.
Speaker Change: First we continued to carefully manage operating expenses to drive meaningful savings, while maintaining our commitment to production innovation and quality.
Speaker Change: In the first quarter, we reduced overheads by approximately $400000 through targeted cuts related to our Mexico operations and labor reductions were.
We are targeting an additional $100000 in savings during the second quarter.
Speaker Change: We're also enhancing operational efficiency through smart automation.
Speaker Change: To support scalable growth without compromising quality.
Speaker Change: We implemented two custom designed automated packaging machines.
Speaker Change: These systems, partially replace our previously manual hand packaging process, reducing labor costs, and increasing speed and consistency, while being specifically engineered to handle the fragility of our freeze dried candy and preserve our product integrity.
Speaker Change: Furthermore, we are evaluating opportunities to optimize our manufacturing footprint to better align with our current operational needs.
Speaker Change: As part of this strategy, we have decided to delay the deployment of <unk> seven through 12 until production demand warrant their activation.
Speaker Change: This approach allows us to maintain maximum flexibility as we explore new category and geographic expansion opportunities.
Speaker Change: <unk>, given our current priorities and the need for greater visibility into long term demand, we have postponed the activation of our chew can be making machine.
Speaker Change: Second.
Speaker Change: Conserve cash and strengthen our balance sheet on March 31, 2025, we revised the annual compensation for me and our executive Chairman.
Speaker Change: Approximately 28, and 32% of our respective annual cash salaries will now be paid in company stock pursuant to the <unk> 2024 stock incentive plan rather than cash.
Speaker Change: Additionally, we've taken steps to bolster our short term cash position by entering into exchange agreements with existing note holders to push out upcoming maturities by five years, incorporating certain conversion and redemption features.
Speaker Change: These agreements reflect the strong confidence our management team and note holders have in our recovery plan long term strategy and future opportunities.
Speaker Change: Turning to sales expansion Q1 marked a period of meaningful re engagement and growing momentum through targeted retail promotions and key account wins.
Speaker Change: Albertsons grocery launched approximately 1500 displays as part of their summer set with Halloween shipments also scheduled for late May.
Speaker Change: <unk> received seasonal Easter items, continuing our presence in key seasonal effects.
Speaker Change: Ace hardware store soft 50 locations order full displays in Q1.
Speaker Change: Steady category expansion and encouraging early performance.
Laura Gill mirrored our progress our ace with positive initial demand and continued orders supporting our entry into the hardware retail channels.
Speaker Change: Hey, Hey, one of the largest U S distributors will officially launch so good EMEA to its new brands program.
Speaker Change: <unk> received initial shipments in Q1 and has already placed reorders, indicating a positive consumer response.
Speaker Change: <unk> launched our <unk> cotton candy tap in Q1, and thanks to both new product introductions and renewed velocity due to targeted retail promotions across our existing skus, we saw 124% increase in orders compared to Q4.
Speaker Change: Due to the strong performance. They have now added our caramel Crunch SKU, which we'll launch in June.
Speaker Change: Although we paused the launch of our in House <unk> protection, we have successfully advanced with in house production.
Speaker Change: Our caramel products in both traditional and pre strike format. These.
Speaker Change: These are hand crafted using a limited selection of high quality ingredients completely free from dies artificial colors artificial flavors.
Speaker Change: This initiative reflects our commitment to meeting the evolving expectations of today's consumers, who are increasingly seeking clean label better for you alternatives without sacrificing taste.
Speaker Change: The demand for transparency simplicity and ingredient integrity continues to shape purchasing decisions across the confectionery category.
Speaker Change: Prioritizing cleaner formulations, we are not only differentiating our brand, but also positioning ourselves to lead within this growing segment.
Speaker Change: We see this shift as a long term opportunity to build trust strengthen brand loyalty and future proof our product portfolio and the <unk>.
Speaker Change: And if all of the marketplace.
Speaker Change: Looking ahead, we are excited to continue innovating with cleaner ingredients, while expanding our assortment ensuring so good remain synonymous with quality transparency and innovation.
Speaker Change: Internationally, we're excited to share that we launched our products in the middle East during the first week of May through our partnership with explore investments a leading distributor in the middle East.
Speaker Change: While it's still early initial orders exceeded expectations, and we anticipate having clear visibility into performance by early July.
Speaker Change: This expansion represents a significant growth opportunity.
Speaker Change: The middle East <unk> market is still in its infancy with limited competition from high quality brands and ample space for a market leader to emerge.
Speaker Change: In Europe, while we have not yet launched as we continue to navigate regulatory requirements.
Speaker Change: Optimistic about the long term potential of the market.
Our strong reception that southern Germany earlier this year, we affirm the growing interest in premium pre strike products within this emerging and relatively untapped category.
Speaker Change: We will continue to pursue opportunities to open this market and we will keep you updated as progress is made.
Speaker Change: Given the volatility of the emerging pre strike Candy category. Our management team has remained focused on identifying opportunities to further leverage our manufacturing expertise and proprietary freeze drying technology.
Speaker Change: As a result, we are planning to enter two high potential categories, where we have deep expertise.
Speaker Change: Beef jerky and freeze dried yogurt snacks.
Speaker Change: First product extensions will emphasize clean label better for you ingredients aligning with consumer demand for simple high quality formulations and supporting our long term commitment to health conscious in the base.
Speaker Change: As previously shared initial samples were met with very positive feedback from customers.
Speaker Change: <unk> our confidence in these extensions.
Speaker Change: Building on the early enthusiasm.
Speaker Change: Advanced R&D and remain on track to potentially launch both categories in the second half of the year.
Speaker Change: Currently we're planning for yogurt milk to debut under the <unk> brand, while beef jerky will launch under a new brand currently in development.
Speaker Change: Sure.
Speaker Change: Despite the growth potential of these new categories represent and encouraged by the strong early response.
Speaker Change: We look forward to keeping you updated as these initiatives progress.
Speaker Change: We're executing on multiple fronts, expanding domestically with new retail partnerships.
Speaker Change: Strengthening our distributor network and entering high growth international markets with.
Speaker Change: With a good pipeline and continued emphasis on innovation quality and cost discipline, we are confident in our ability to deliver sustainable long term growth.
Speaker Change: While visibility into our revenue path is improving it remains dynamic.
Speaker Change: Typical an emerging product category.
Speaker Change: As previously shared we expect Q2 to show modest improvement over Q1, as new partnerships begin to take hold.
Speaker Change: These early steps are laying the foundation for more meaningful growth in the second half of the year.
Speaker Change: We remain focused on building a scalable sustainable business with disciplined cost management and a fast moving environment.
While challenges still persist we believe we are positioning ourselves to emerge stronger more agile and ready to reassert our leadership through continued manufacturing excellence innovation and thoughtful category expansion.
Speaker Change: Operator, we'll now open the call for Q&A.
Speaker Change: Okay. Thank you ma'am at this time, we will conduct a question and answer session. As a reminder is ask a question you will need to press star one on your telephone and wait for your name to be announced.
Speaker Change: To withdraw your question. Please press star one again, please standby will compile the Q&A roster.
Speaker Change: Okay.
Speaker Change: And our first question comes from the line of George Kelly of Roth Capital. Please proceed.
George Kelly: Hey, everyone. Thanks for taking my questions.
Speaker Change: Maybe one for you just to start you talked about in your prepared remarks seeing renewed consumer enthusiasm.
Speaker Change: So I guess the question is could you share what you're seeing just in.
Speaker Change: And weekly or monthly velocities.
Speaker Change: Yeah.
Speaker Change: And how has that trended maybe over the last.
I don't know six weeks or for longer.
Speaker Change: And then <unk>.
Speaker Change: Secondarily.
Speaker Change: How is that.
Speaker Change: Retail inventory position right now.
Speaker Change: Are you still kind of working through excess.
Speaker Change: Retail inventory with certain of your large partners.
George Kelly: Hi, George Yeah, no great questions. So what we're seeing is a slow increase in <unk>.
Speaker Change: Sell through data.
George Kelly: Retailers.
We were kind of at about 12 13 units per door over the last few weeks. We've increased to 14. This past week, we increased to 16 units per door.
George Kelly: So.
George Kelly: Just like our revenue recovery, which has been slow and steady we're seeing that same.
George Kelly: Kind of trend in retail environments.
George Kelly: What we're sharing is that.
George Kelly: Customers were really excited about the large CPG launches and they wanted to try that.
George Kelly: They've tried them.
George Kelly: The novelty has worn off and they are returning to our brand because of our superior assortment and the quality of our products.
George Kelly: Week over week, we're starting to see that improvement in zircon of data.
George Kelly: I'll give you great anecdotes.
George Kelly: By below when we did the cotton candy was supposed to be a one and done order.
Ron: Was a limited edition Ron.
Ron: And it performed so well that they just placed a reorder for an additional 46000 bags.
Ron: And we're seeing that throughout retailers.
Speaker Change: Ace or Gil.
Ron: It was just going to be limited displays.
Ron: Are now placing reorders for additional displays so that's what we're seeing on the retailer side.
Ron: In regards to.
Ron: Retailer access inventory.
Ron: Below was working through quite a bit of inventory that has slowly gotten way we did.
Ron: Targeted promotions.
Ron: Below at HEB to get rid of the excess inventory those were successful and soon we're now returning to a normal reorder cadence with.
Ron: With those customers.
Ron: <unk>.
Ron: We're excited.
Ron: There are still challenges.
We're still working through.
Ron: Opening doors.
Ron: In our existing retailers with our existing customers, we're seeing a return to.
Ron: Normal reorder cadences and excitement for the brand, especially our Relaunches and then probably giving you more information than you want.
Ron: But like the caramel crunch going into buy below and other retailers.
Ron: Our innovation, our new product launches are being.
Ron: Except did incredibly well and I think that part of that is a process as one of the pioneers in the category. So a lot more coming out with these new products.
Ron: They understand that it's coming in but really quality.
Ron:
Ron: Three strained process and we're really focused on cleaner ingredients, which has also been received incredibly well.
Ron: Like our caramel Crunch, it's got six ingredients completely free of artificial dyes and flavors and I do think that that is going to be a really strong important component of our go forward strategy.
Ron: That's all that's all helpful information.
Ron: And a few questions for you how many doors are you in currently.
Ron: So that is changing especially right now we're just at the Winn Dixie launch.
Ron: Good.
Ron: We're increasing in Oracle and <unk>, so that's a very dynamic number.
Ron: Yeah.
Ron: But maybe.
Ron: At quarter end would be the better question.
Ron: Yeah, so somewhere around 1900.
Ron: Somewhere between 1900 2000 doors.
Ron: Okay.
Ron: And then separate topic.
Ron: Your inventory grew again.
Ron: Sequentially.
Ron: And so.
Speaker Change: A how do you feel about the quality of that inventory.
Ron: Is any of it heat affected or.
Ron: Or just generally.
Ron: Thoughts there and then what are your expectations for the next couple of quarters, how quickly can you work inventory down.
Ron: So in regards to heat affected inventory, that's really contained to two skus, the sweet worms, and some of the Peach perfect.
Ron: I feel like we've identified and got.
Ron: Scott embrace of most of that inventory there might be some stragglers here and there.
Ron: In regards to the quality of the inventory or the cell ability of the inventory that we have remaining.
Ron: We've got a two year shelf life on most of our products. So we've got time to work through it.
Ron: One of the things that we're trying to be really strategic about is.
Ron: Like the suite worms, the pitch perfect.
Ron: We want to work through at a quicker.
Ron: <unk>.
Ron: Looking for opportunities that we can do that overseas.
And focusing on new inventory that we bring in.
Ron: And those better for you ingredients cleaner ingredient.
Ron: And kind of restocking with those products.
Ron: Your lines.
Ron: So thats, where we are on the inventory, it's going to take us a little bit of time to work through.
Ron: Specifically, the sweet worms, some of the ph product.
Ron: Those things, but we're actively working on it.
Ron: Okay, Okay and then.
Speaker Change: One last question for me is just about the competitive dynamics.
Ron: Has.
Ron: Any of the big guys that entered the space.
Speaker Change: Do you feel that they are committed and have you seen them pull back and then the retailers or is that the industry, perhaps just not big enough for them to kind of stay interested or anything you've observed there and then.
Speaker Change: Also the smaller competitors that have been around for longer have you seen any of those exit this space.
Speaker Change: And Thats all I had thank you.
Speaker Change: No. Thank you.
Speaker Change: Yeah, a lot of the small guys have exited the space none of them are real competitors.
Speaker Change: And.
Speaker Change: We've seen.
Speaker Change: Huge.
Speaker Change: Inundation.
Speaker Change: <unk>, China product, and especially like discount retailers and and some of.
Speaker Change: Kind of the lower price point retailers, which has affected trial quite a bit.
Speaker Change: But I think that consumers are smart they are savvy and they're recognizing that the reason there is so much prada.
Speaker Change: Product and some of those retailers is because it's cheap product and are returning to five below an HEB in these other places and purchasing good quality product.
Speaker Change: In regards to some of the larger sorry.
Speaker Change: One of the other smaller retailers that we've been kind of neck and neck.
Speaker Change: Retailers brand that we've been neck and neck with.
Speaker Change: Looking through the sarcoma data they've been affected by the large.
Speaker Change: CPG companies entering this space much more so than we have and they arent seeing the recovery that we are.
Speaker Change: So.
Speaker Change: Again, I think that that speaks to our assortment our quality. The fact that we actually freeze dry.
Speaker Change: Our products ourselves.
You May remember, we were co manufacturing overseas last year as it is.
Speaker Change: Late.
Speaker Change: Last year, we no longer do that everything is now once again in our Irvine facility and you see that that quality really speaking.
Speaker Change: Coming through our product line.
Speaker Change: In regards to the large cpg's.
Speaker Change: I haven't heard anything from them or from retailers.
Speaker Change: Based on what Im hearing from buyers consumers and what I'm seeing in the data.
Speaker Change: I'm surprised that theyre not performing better.
I would have expected a stronger performance from them.
Speaker Change: And we're seeing.
Speaker Change: What we would consider.
Some pretty substantial declines in and their sell through rate.
Speaker Change: And again I think that that has to do with the fact that.
Speaker Change: Who you choose to freeze dry your product really matters.
Speaker Change: Freeze dry how you package.
Speaker Change: Really matters and so.
Speaker Change: I don't know if theyre going to evaluate who their co manufacturers are I don't know if they're happy with what their performance is.
Speaker Change: But.
Speaker Change: I think that there is definitely room for improvement.
Speaker Change: The quality of the product that's out there by some of those larger CPG companies.
Speaker Change: Alright.
Thank you for our next question.
Speaker Change: As a reminder to ask a question you will need to press star one on your telephone.
Speaker Change: Yeah.
Speaker Change: And our next question comes from the line of Avon aggressive layers capital. Your line is now open.
Speaker Change: Hello, and thank you for taking my question.
Speaker Change: I think a couple of questions already been asked Rick.
So happy to hear that.
Speaker Change: One of the questions I remember Claudia you mentioned.
Speaker Change: That.
Speaker Change: On the previous call that the Q1, they will not be much it really battery cost of sales of Q4. However, we could say that it was much orderly batterer. So revenue have recovered somewhat by $9 million. So what's there and a lot of sales right. After the call did you ship a lot of product. After they are at the very end of <unk>.
Speaker Change: March so I'm just curious if something has changed in that respect.
Hi, great.
Speaker Change: Great question and yes, we saw.
Speaker Change: Much quicker.
Speaker Change: Capri right after that call.
Speaker Change: And so.
George Kelly: Reiterating what I said to George and on this call.
George Kelly: A lot of consumers, we're really excited about trying some of the new launches on the market.
George Kelly: And as those.
George Kelly: Yeah.
George Kelly: As those trials kind of happened they said you know what.
We're going back to <unk>, because we love their assortment, we'd love their quality and we saw that.
George Kelly: In the last half of that quarter, and we're seeing that this quarter.
George Kelly: Recovery is still going to be slow we recovered a little bit more than we anticipated in the first quarter.
George Kelly: Second quarter is still going to be marginally better than the first quarter third quarter is still going to be marginally better than the second.
George Kelly: But it's happening and we're excited to see it happening and right now we're incredibly focused on how do we sustain that momentum through.
George Kelly: Targeted partnerships with our strong retailers and with really thoughtful methodical product launches that are speaking to consumers and what they're looking for at this time.
George Kelly: Okay. Thank you.
Speaker Change: A question on this I think it's fair to say that you have six units and you have a significant spare capacity until youll sales recover.
Speaker Change: What are your plans for the spare capacity cannot be utilized in doing some private label or subletting it to somebody or what are your thoughts on that.
Speaker Change: Yeah no.
Speaker Change: Definitely.
Speaker Change: I hate having our machines idle.
Speaker Change: We want them to be operating in we want to.
Speaker Change: Keep our workforce at full force and.
Speaker Change: <unk>.
Manny: So we're analyzing and looking for opportunities in all of the areas you just mentioned Manny.
Speaker Change: Manufacturing private labeling.
Speaker Change: We're excited about bringing yogurt melts into our product assortment both on the branded side.
Speaker Change: Private label side, because again, that's something that will help keep.
The machines.
Fully utilized and so.
Speaker Change: Nothing is off the table in regards to how to bring our utilization rates back up.
Speaker Change: Okay.
Speaker Change: My final question and I know, it's a sort of a difficult question.
Speaker Change: So obviously your cash position.
Speaker Change: Has improved somewhat by converting.
Speaker Change: Some of the compensation into equity and I'm happy to see that given the circumstances, but it's still a little bit tenures.
Speaker Change: Do you have any discussion to improve your cash position what are your thoughts for the next couple of quarters. What are you planning to do.
Speaker Change: Yes, definitely you know management team.
Speaker Change: Cash is an important conversation that we're having on a very regular basis.
Speaker Change: Converting some of our salaries from cash to stock.
Speaker Change: Talking to our note holders to push those notes out.
Speaker Change: And we're going to keep evaluating.
Speaker Change: Free strategy, we can on how to improve our cash position.
Speaker Change: What are our primary focus at this time is is a.
Speaker Change: Being really thoughtful and methodical about evaluating what our expenses are.
Speaker Change: And converting our inventory to cash because that is the easiest way for us to improve our cash position.
Speaker Change: Have plenty of inventory sitting in our warehouse that we need to work through and convert to cash because thats going to be the most meaningful way for us to.
Speaker Change: To improve the cash position.
Speaker Change: Okay.
Speaker Change: So March and.
Speaker Change: Glad to see some green shoots in this quarter, so hopefully be able to see more credentials on next quarter.
Speaker Change: So that's all the questions I have thank you Claudia.
Speaker Change: Thank you and I'm looking forward for more grain as well.
Speaker Change: Everyone. Thank you very much I greatly appreciate you being on this call and being on this journey with us.
Speaker Change: We still have challenges ahead, but we're excited as we see our recovery strategy is taking hold so have a great day, everyone and again much appreciated.
Speaker Change: Ladies and gentlemen. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.
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