Barfresh Food Group Inc (BRFH) 2017 Q4 法說會逐字稿

Good afternoon, everyone, and thank you for participating on today's corporate update call for Barfresh Food Group. Joining us today is Barfresh Food Group's Founder and CEO, Riccardo Delle Coste; Joe Cugine, President; and Joe Tesoriero, Chief Financial Officer for Barfresh Food Group.

Following prepared remarks, we will open the call for your questions. The discussion today will include forward-looking statements except for the historical information herein. Matters discussed on this call are forward-looking within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements about the company's commercial progress and future financial performance. These forward-looking statements are identified by the use of words such as grow, expand, anticipate, intend, estimate, believe, expect, plan, should, hypothetical, potential, forecast and project, among others. All statements other than the statements of historical facts that address activities, events or developments that the company believed or anticipates will or may occur in the future are forward-looking statements. Such forward-looking statements are based on certain assumptions made based on experience, expected further developments and other factors that the company believes are appropriate under these circumstances.

These statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the company and may not materialize. Investors are cautioned that any such statements are not guarantees of future performance. The contents of this call should be considered in conjunction with the warnings, risk factors and cautionary statements contained in the company's recent filings with the Securities and Exchange Commission, including its annual report on Form 10-K, the quarterly reports on Form 10-Q. Furthermore, the company does not intend and is not obligated to update publicly any forward-looking statements except as required by law.

Now with that, I'd now like to turn the call over to the Founder and CEO of Barfresh Food Group, Mr. Riccardo Delle Coste. Please go ahead, sir.

Thank you. Good afternoon, everyone, and thanks for joining us. On our call today, we will review our 2017 accomplishments, discuss some of our recent major customer wins during the first quarter of 2018, review our growing sales channels and provide insight into our sales pipeline.

2017 proved to be an important transitional year for Barfresh. The infrastructure we put in place and the customer agreements and relationships that we fostered have been instrumental in our ability to start ramping up the business in the first quarter of 2018. In fact, our first quarter 2018 sales will be over $700,000, our highest quarter sales to date, which is more than double last year's first quarter. And keep in mind, this is seasonally one of our slowest quarters of the year. And most importantly, it doesn't reflect the contributions from the rollout of our first national account to 1,000 locations, which begins this month, nor our anticipated sales into the military as announced. We are extremely excited about the balance of 2018, and our President, Joe Cugine, will speak more to this in his remarks.

Let me take a few moments and review some of our accomplishments in 2017. First, we created our new Easy Pour bulk solution. The creation of this new innovative solution opened the door to a number of new opportunities that includes schools and military. We secured high-volume, high visibility accounts like Statue of Liberty, Ellis Island, Long Beach Aquarium, several other zoos and similar venues. We created a range of school products, specifically designed to meet the USDA national school lunch program requirements.

We secured and launched our first district -- our first school district of 30 schools, which became our pilot. We now have over 100 schools under contract with many more expected to come on board shortly.

Beyond our bulk Easy Pour activities, we increased our national and regional account testing portfolio and expanded within some of these accounts, which includes some of the largest accounts in the country. We extended existing agreements and added more third-party operators. We now have agreements that are approved with all the major third-party food-service operators in the country.

We extended our exclusive distribution agreement with Sysco for another 2 years and also added our bulk products on a nonexclusive basis, further solidifying our national distribution footprint. We opened up distribution in Canada with Sysco and a leading third-party operator as our first anchor customer in the market.

So now, turning to the first quarter of 2018 accomplishments. We finally secured our first 1,000-location national account with more locations expected to follow. We secured growth funding on very friendly terms for the company like we said we would.

We are beginning to see great nation-wide acceptance from schools, and this is a tremendous opportunity for us. We've been approved by the military, which could become one of our biggest customers. And with all that being said, we just had one of our biggest quarters ever for the company in a seasonally slow period, and it doesn't even include the national account rollout or any benefit from our recent military approval.

So overall, we are very excited about the momentum with which we entered 2018 and are prepared to build on these opportunities as our highest-volume season is now underway.

With that, let me turn the call over to our CFO, Joe Tesoriero, to walk through some of the financials for the fourth quarter and full year 2017, and then our President, Joe Cugine, will share some additional insights into the various sales channels and recent wins in the first quarter of 2018. Joe?

Thank you, Riccardo. Today, I'll be providing an update on our operations after I first summarize some of our financial highlights for the fourth quarter and full year ended December 31, 2017. Our net revenue for U.S. GAAP reporting for the fourth quarter of 2017 was $376,000, an increase of 161% as compared to $144,000 for the comparable prior period, reflecting the increased traction in our new sales channels and more diversified customer base during what has traditionally been our seasonally slowest period.

A significant factor in the increase in revenue is the rollout of our new bulk Easy Pour product, which began during the first quarter of 2017 and gained momentum throughout the balance of the year. In particular, bulk sales during the fourth quarter were driven by new accounts in the school channel. Overall, our product continues to be distributed through all 72 of Sysco's U.S. mainland distribution centers and in several Sysco OpCos in Canada as well as through new customers beyond the Sysco distribution network.

Our gross profit margin for the fourth quarter was 30%, below the 38% margin we realized in a year-ago period. During the current quarter for accounting purposes, we reclassified certain 2017 scrapped inventory to cost of goods sold. This inventory was associated with certain discontinued skews and with certain ongoing product development projects.

Excluding this activity, which affected our fourth quarter 2017 COGS for accounting purposes, our adjusted gross margin for the quarter would have been 54%. This adjusted figure better demonstrates the potential for margin expansion that we believe is inherent in the business as our mix of product offering continues to expand and as we achieve savings in raw materials sourcing due to our growing scale.

During the fourth quarter, we realized a net reduction of $279,000 in our general and administrative expenses, a reduction of 20% with the improvement primarily driven by our initiatives to effectively realign our sales force. Despite the headwinds in our cost of goods sold for the quarter, we were able to generate a reduction of approximately $300,000 in our operating loss for the quarter versus the year-ago quarter. For the full year 2017, our net revenue for U.S. GAAP reporting was $2 million compared with $1.5 million in 2016, an increase of 37%. Reported gross profit margin for full year 2017 was 46% as compared to 47% in 2016. Again, excluding the scrapped inventory adjustment to cost of goods sold, which we recorded in the fourth quarter of 2017, adjusted gross margin for the full year would have been 50%, which implies nearly 300 basis points of margin expansion for the year.

Reported operating loss for full year 2017 improved to $8.9 million as compared with $9.9 million in 2016, representing an improvement of $1 million. In addition to increasing sales and gross margin, we have taken about $1.5 million of personnel-related expense out of the business in 2017, resulting in a net decrease of G&A expense of about $900,000 for the year.

We ended the year with $1.4 million of inventory, almost 5x the amount of inventory at the end of 2016 and about double the level of inventory we had at the end of Q3 2017. The significant investment in working capital was driven by our strategic initiative to prepare for the first national account rollout of 1,000 locations, which was mentioned by Riccardo and which Joe will expand upon.

In addition, we have added multiple skews to our product offerings with the introduction of our Easy Pour bulk format, which also drives the inventory level increase. Higher levels of inventory have resulted in higher spend for shipping and storage of product. You will recall from prior calls, we have established forward warehousing partners in order to improve service to our customers through our third-party distributors.

Our shipping and storage expense includes the cost of moving products from our 2 factories to the forward warehouses, the cost of storing product at those forward warehouses and any cost we incur to deliver the product from the forward warehouse to our customer. We anticipate that shipping and storage expenses as a percentage of sales will reduce as our business continues to grow and as realization of the opportunities in our sales pipeline catch up with our current and ongoing inventory build.

CapEx for 2017 was about $535,000 with about half of that investment going to manufacturing equipment and about half going to customer equipment. We expect CapEx for 2018 to increase with the largest part of that increase being invested in equipment loan to our customers, including blenders and bulk equipment and the balance going to expansion of manufacturing capacity.

Turning to our balance sheet. We ended the year with $1.3 million in cash and no debt. In February of 2018, we entered into definitive agreements with several of the company's large shareholders and management led by Unibel, Barfresh's strategic investor, for private placement of convertible notes for gross proceeds of $4.1 million.

The funds become available upon our achievement of certain milestones establishing significant sales to national accounts, the first of which was satisfied by our March announcement of a rollout to 1,000 locations, whereby 60% of the funds or $2.5 million was released. The second milestone releases the balance of the funds upon entering into an agreement with a national account for the sale of its products into approximately 2,500 additional locations.

Overall, we feel we are in a strong financial position to pursue and realize the opportunities that we have.

Now let me turn the call over to our President, Joe Cugine. Joe?

Thank you, Joe. Riccardo opened the call today by speaking about 2017 being an important transitional year for Barfresh. And how those efforts have positioned us to start executing some large contract wins and expand to new channels in 2018. These.

Truly are exciting times at Barfresh, and it's particularly satisfying to see the years of foundational work begin to bear fruit. Specifically, we narrowed our focus within customers and channels, they drive the best market share and growth opportunities. Our focus includes, but not limited to, national and regional chains, education, recreation and amusement, convenience and the military channel.

First, I'll start with some additional thoughts on our first large national account rollout. This is a major milestone for Barfresh. We've been testing with many national chains during the past several years, and this national rollout is especially satisfying given the customer is one of the largest in food service and the largest in their channel. We expect to accelerate our footprint with this national customer throughout 2018 as we move into other lines of their business.

Barfresh has the resources in place to begin executing against this acceleration. We've established an efficient business organization, including our sales force, brokerage network, contract manufacturing partners, logistical and distribution network. With these top customers, our key benefit really is our single serve or traditional package. It offers a high-quality efficient product with no waste. We're also seeing high-volume national account customers being early adopters for our bulk solution.

Now as you build on this momentum, we can capitalize on the thousands of locations looking for similar solutions. And with our ability to offer both single serve and bulk, we are poised to win. In our national account restaurant channel, our strategy of focusing on both national and regional chain has evolved and so have the opportunities in that pipeline.

I discussed last quarter, we continue to work with and target large restaurant chains and have expanded test in both regional and national chain. We are adding more accounts of various size to our regional testing program. We are currently in test with many regional accounts, each consisting of between 30 to several hundred locations. Single serve is the predominant package with these regional customers, but our new bulk package has allowed new inroads into this arena as well, especially in the school and military channel.

Second, speaking of schools. As discussed last quarter, we are developing a platform for K-12 schools throughout North America. And I am very proud to say that not only have we built the foundation with an outstanding tasting product, but we've also launched ahead of schedule.

The positive customer feedback demonstrates that we have developed a platform to ensure that we are effectively targeting the country's nearly 55 million students in 14,000 public school districts, which represent over 98,000 schools. To support this process, we launched our program nationally, covering 50 states and are now part of most of the schools' bids.

Barfresh is an ideal position to solve the issue of complexity and waste for the school food-service operators, while also offering its student body an on-trend healthy beverage solution that meets the nutritional needs of the administrators. Clearly, our ability to meet school guidelines and provide a healthy great-tasting smoothie to these children makes us very optimistic about our rate to succeed in this channel.

To expand further, why we have a right to win in this channel, we recently launched a line of beverages, featuring real fruit, no sugar added, no artificial colors, flavors or preservatives, and USDA Smart Snack qualified.

The K-12 government state, city and/or county requirements provide nutrition directors and food-service personnel challenging guidelines to adhere. We, therefore, met with nutritional experts, directors of school districts and key decision makers to help assess and direct our current offering. Not only did we meet their nutritional guidelines, but we were able to provide a great tasting and quality product.

And all of this has led to early success. We now have over 100 schools pouring Barfresh since we launched. Our first win consisted of 30 schools in Pasco County, Florida, with a student body of approximately 40,000 students. They offer 2 meals a day and Barfresh is now on the school cafeteria menus and available throughout the day for any à la carte purchases during breaks. We expect to build on this momentum and to sign additional hundreds of schools and begin selling in Q3.

Third, one of the most exciting recent development is with United States military. Following a year-long approval process with United States Defense Logistics Agency, our smoothie products are now approved for sale into all branches of the U.S. Armed Forces. You've heard us speak about the opportunity within the military channel previously, but this week's announcement represents the formal establishment of this large new sales channel for us, and we could not be more energized.

Initially, Barfresh will be selling its smoothies into 6 initial bases. The company's Easy Pour bulk smoothies will be available to troops on the bases' dining halls. The bulk Easy Pour format offering is the perfect solution to feed large numbers of enlisted personnel in a short period for breakfast, lunch and dinner 7 days a week, 52 weeks a year.

Our successful implementation into the DLA system allows us access to the various branches and bases with an endorsed product, enabling our sales team to target incremental opportunities in a much more efficient manner. The DLA is actively seeking healthier food and beverage alternatives to keep the men and women serving U.S. Military at their best.

The initial response from the initial bases provide us great confidence in the potential of this new channel, and we are actively pursuing engagement with many more U.S. Military installations and expect to gain significantly greater penetration across the United States and internationally, pursuing 940 bases, serving approximately 1.3 million active troops.

We believe the opportunity for the military channel is as large as a national account, if not greater. We are focused on the appropriated fund side of their business, whereby the military offers product to the troops as part of the military food-service program supporting installation dining facilities.

In summary, we've been laying the groundwork to create a stable and consistent base of revenue to build on going forward. Our expansion across multiple channels will mitigate the effects of seasonality and fluctuation caused by any single account. In these first few months of 2018, I believe we are finally able to demonstrate how this strategy will come to life and begin driving revenues in a material way going forward.

And with that, I will turn it back to Riccardo.

Thanks, Joe. As you can see, we're pretty excited about our progress and feel as though we finally turned the corner. I'm very proud about our team's accomplishments thus far in 2018, and I want to recognize everyone for their hard work in 2017 that has put us in a position to win this year and really start scaling up the business. Our addressable market has expanded materially, and we are beginning to win in a meaningful way as we start to see the beginning stages of a material ramp in revenues.

It is also important to remember this has created very diversified revenue channels, and all of these channels represent strong repeat revenue flow. It has taken us a little longer than we all expected to land some of the bigger opportunities we just announced, but we are finally in a great position to dramatically build upon this great recent success and expect further significant material developments to continue to occur.

As we look towards the balance of 2018, we are poised to continue the sales momentum through executing against the pipeline towards incredible opportunities that we have already begun to win, and we can see much more coming our way. Our company is very well positioned for rapid and sustained growth, and we look forward to updating you throughout 2018 as these developments come to life.

Now with that, let me open up the call for questions. Operator?

(Operator Instructions) Our first question comes from Justin Borus, Ibex Investors.

I just had some questions on the national accounts. On the first one, the 1,000-location rollout, it sounds like you're going to have more locations throughout the course of the year. I know you've mentioned $4 million in revenues for these initial 1,000. But can you give us a sense for what, when these customers were fully deployed, what the total revenue opportunity might look like?

Yes. Look, obviously, we've given some broad guidance as it relates to this one account. There's quite a number of additional locations left for us to tap into with this particular location or this particular national account. Yes, these accounts are based on 5 trading days for us to be able to get sales from their dining facilities. So whilst there is significant upside. We're not giving further guidance because the timing of which is still undetermined. Maybe, Joe, do you want to add some more color?

Yes, I will just there is -- it's -- there's multiple opportunities within this customer base and various channels of business. We're wildly optimistic that this test is going to go very well, and we're already getting a lot of inquiries from the other lines of business that are very, very excited. And we've already moved into some of those lines of business as we speak, so I don't know what the number will ultimately be but it'll be far in excess of what we currently have.

And just for modeling purposes, is it unreasonable to plug in for this upcoming June quarter over $1 million or so from this account? Is that, I mean, just taking $4 million dividing it by 4? Is that a reasonable...

No. We don't believe that's unreasonable at all.

And then just going back because I noticed you didn't mentioned it, right, in cash, the remarks. In the financing press release, you mentioned the 2,500 locations that triggers the second part of the financing. Can you give us any update on that national account? And if we land it, what kind of revenue opportunity that might mean for Barfresh?

Yes. So look, we obviously put it in. We structured our deal for a reason, the way we did it. I think something to remember as we talk about the business and where we're at, the national accounts are now becoming real. We've been talking about them for a number of years now. Things are finally starting to come to light. Whereas the first 1,000 national account is based on 5-day run rate of sales, the additional national accounts that we're talking about are really based on 7-day run rate in terms of sales and more retail-type outlets. So we expect larger numbers on a per-location basis. And they're starting to finally come to life. That's pretty much it. I think the one thing, Justin, that we don't really get much opportunity to really talk about the bigger picture sometimes and that is these other accounts such as school and military are as big, if not bigger, than some of the national accounts that we're talking about. And we're not talking about the smaller ones, we're talking about our bigger ones. So by no means, have we diverted from the national accounts that we've been working on. We're still full speed ahead working on and working with the national accounts and regional accounts at that. And we've purely added now and expanded the breadth of the opportunities with these other sections. So national accounts are still full steam ahead as are the regional accounts within restaurant and business dining and third-party operator channel. And we've really just added these additional locations or channels. I'm sorry, go ahead, Justin. I was just trying to amplify that but go ahead.

Just on the specific 2,500 national accounts, just because of its significant ties to the financing or the second portion, is that something that you have confidence could hit in Q2? Or we're just are on a need-to-know basis only, and if you just have no idea how to predict these things because we're at the whims of these much larger company?

Look, we've structured it, and we've put the financing together for a specific purpose. We obviously had great confidence in putting them in, in the first place, which is why we did the 1,000 locations, and we delivered on that, and we've drawn down on that. So we -- as I mentioned earlier, we're starting to get a lot more visibility on timing. And finally, accounts that we've been in testing with are finally coming to the forefront and starting to move into rollouts. So we'll definitely update everybody as they get closer to actually happening. Just, look, I've been claiming the monkey a lot. The monkey's off our back, so to speak. We've got our first national account out there, and it feels like the floodgates have just opened for us, which is why we are extremely excited.

So is it too early to tell whether landing this initial national account has made it easier with the pipeline? I guess no one wants to be the first one. But maybe once you have a customer, it makes it easier to land some of these other customers. Or do you feel like there are -- their decision making is quite independent of one another?

I feel I can...

I can take a crack at that. I think they are somewhat independent of each other because they're all kind of doing their own thing for their own consumers, and the consumer demographics are different for many of these customers. But I'll tell you that when we have these badge-name customers that we're in business with, that absolutely helps enhance our credibility. That is already in effect and working in our favor.

Great, great. Well, good luck, guys. It sounds like Q2 is going to be exciting, and I hope we get some of these over the finish line and put up a big revenue quarter.

Thank you, Justin. If I can just amplify one thing that Riccardo mentioned -- really for everyone who's listening, the school business that Riccardo mentioned, he says it's bigger than national account. I mean, that is an understatement. I think you saw in the comments that there's 14,000 school districts in the U.S., 98,000 individual schools. Each school -- we have over 100 schools today, each school does between $10,000 and $20,000 annually. So you have -- you could just figure out, what -- how many schools could we get? And we're partnered with PepsiCo, who's probably the biggest purveyor of schools in the United States. They have the best school business because they Naked juice and Tropicana and Quaker, all these Smart Snack approved items for schools. And they sell a lot of Frito-Lay products as well. So we've got this great partnership with PepsiCo, enhancing our ability to get in front of these school directors and nutritionists and get into the bid cycle. So I mean, you can do the math, we have -- can we get 1,000 accounts, which is only 1% of all the schools? I mean, you can do the math based on $10,000 and $20,000 per school, and we're seeing that. We're seeing that real. We've got lots of data or 6 months of data to look into. But we are extremely bullish in our ability to win here because there's really not a competing product that meets the same needs that the nutritionists are trying to have met. So the team's done a great job of creating these products, that we feel like, in the next couple of calls, you're going to hear an amazing story regarding schools.

Our next question comes from Eric Guzman with Baron Capital.

Guys, on the military approval, can you flesh out a little bit more of what that approval actually includes? And maybe specifically -- or is the bulk product included in some kind of a meal plan that they have? Or do they have to pay for it out of pocket in addition to whatever they're consuming?

Yes. Eric, great question. This is -- this new channel pretty much echoes what Joe just said about the schools, probably on steroids. And we've just been approved across the board for all the branches, the product is going to be basically put in the dining halls where the troops are fed. So the troops don't have to pay for it out of their own pocket. It is included as part of the meal plans and meal service plans at each of the installation's own bases. There are approximately 940 bases, but what's really important to understand here is that on every base, they may have multiple dining halls. So a base might have 1 dining hall or it might have 8 or 10 dining halls. So just from our limited experience that we have so far, where a dining hall feeds about 400 to 500 people per sitting, so say 400 for breakfast, 400 for lunch, 400 for dinner, that's 1,200 people. We expect about 50,000 to 80,000 smoothies will be consumed on an annualized basis in that 1 dining hall. So that gives you some food for thought as to what our expectations are as we roll out across different installations. So does that answer your question?

Yes.

And it's extremely -- we cannot amplify enough the significance of these 2 channels and, in particular, the military. The military will probably be our largest account by far, by a long shot. This is the equivalent of landing the biggest national account that we could have ever got, just to put it in perspective. So whilst we only advised the market of the first 6 installations, I can tell you there's many more coming.

Our next question comes from Anthony Vendetti, Maxim Group.

Just a follow-up on the military and then on the national account. So the dining halls, there's 940 bases. Does each base have to agree to go ahead and implement it in their dining hall? Or now that you have the contract with them, it's just a matter of setting up the rollout strategy?

It's a bit of a mixed bag. So without giving too much away, there are some that we already have a broader approval to install, and it's based on the timing. And others more based on needing to taste the product first and see the product first. So it really is a mix bag. And it also depends on the base and specific set up of the base. But I can tell you that we're getting a lot of interest, both domestically and internationally.

Is it -- Riccardo, is it about half-and-half, some of the bases are already set to go and others have to still test it and decide?

It's not really a testing process. There's no real testing process in terms of actually having the product to test it for a period of time, it's more just about the decision makers seeing the product firsthand. We put equipment into some of those locations. So they need to have the right power on the line to -- and right amount of space to fit the equipment on the line. So it really is -- there is a few varying factors that going into the decision-making process. But we really have created some great tasting products with great nutritional benefits that really tick all the boxes. And so what's come out of the school -- the school product range that we created is that we found that there were other channels that the product met a need for, including the military. So we'll continue to work on products that solve a problem, right? Because that's really what's key here. And that's really I think something that we've haven't really touched on in a great deal of detail. And that is both for the schools and the military, we feel as though we've solved a challenge in that smoothies are difficult to make and making them meet certain nutritional benefits as well as being great tasting and affordable and having a distribution capability is really what we've solved for.

Okay. And then on the national accounts of 1,000 locations, how long do you think it'll take to ramp into all 1,000 locations?

No, that's going to happen next month -- or this month, we're already in April. That starts -- like, that starts now. We're virtually -- we got -- the wheels are already in motion.

Okay, so by the end of the month...

You'll start seeing that this quarter. It will [be] evident this quarter.

Okay, and then...

Sorry, that's really kind of part of the excitement, right? Because we posted a decent first quarter, but it doesn't include any of these new things that we've just signed.

Right, right. This will be, as you mentioned, should be -- this account alone should be over $1 million in revenues in 2Q, '18, correct?

Approximately, yes.

Approximately, okay. And then how many of your smoothies, like how many skews are in this 1,000 locations at national accounts?

Joe, I think it's 4, right?

Yes, 4. Four more smoothies.

Okay. And just to -- as 4 of our standard skews, right? So it's in general distribution. And this is where all the planning and the investment and the time really comes to fruition. Because without having the distribution setup and without having the team out there to support the branches to make sure the products are out there, we never would've got this account. So it really has taken time and investment to get us to where we are, that's enabled us to actually close the account.

So this...

Sysco's -- I have to say, Sysco has been amazing, an amazing partner for us, and we couldn't have done it without them. Them having inventory in all those locations, all the OpCos, really facilitated this launch.

Okay, great. And then the $4 million in annual revenues for this account. Is that in 2018 number? And should that number be higher in 2019? Or is that the run rate you anticipate?

It's an annualized number. So not necessarily this year. But having said that, we expect more locations to be added this year. So it really just depends on the rate at which additional locations get added. What's important to remember is that there are multiples of those locations available to us as we look to roll out additional locations. So it really depends on -- in various channels. So it really depends on the rate at which they come on board. But that's what we've got right now, which is what we're communicating.

And I would just to amplify that and just say, we'd be very disappointed if next year's run rate is the same $4 million, given what we think is going to happen with this customer.

Right. And then there's the addition potentially to expand to other skews? Or they probably -- some of them probably don't want more than 4 flavors just because it just becomes too cumbersome. Or is there an opportunity there as well?

It's really new outlets. Honestly, 4 is probably the maximum number. You can have 5 or 6, you probably won't sell anymore. You'll just give consumer -- the customers a greater choice. So 4 probably is the perfect amount of skews to maximize the volume. For this customer, in particular, the growth will come from new outlets.

And looking at the education channels, it sounds very large obviously. There's 98,000 schools, if that's right? How difficult is it to sell into each school? Is it -- how does that process go? As you have a national account, you get that account, okay, you start to roll out into 1,000 or 2,500 locations. How do you go about trying to accelerate the rollout into more schools?

Anthony, I've personally been out to these schools and part of the originating process, including testing with the schools. I don't -- they undergo a very similar process between all the schools. And that is, once they see all our product and product attributes, and again, the problem that we solve for them and that is enabling a product that is able to be a part of a reimbursable meal program. They had a process where the school kids need to actually taste the product, and they have to have more than a 75% acceptance of the kids. I can't begin to tell you the satisfaction you get when you're actually on the canteen line, and they're testing the product, and you have 300, 400, 500 kids coming past. And they all take a sample. And they've got a -- they put a ticket in either the yes bucket or the no bucket. It's basically been 100% of the kids have absolutely just loved the product. And the cafeteria operators and the administrators they rave about it because not only does it solve a problem for them, but the issue that they have is having products that meet the regulations but also taste good that the kids love. And we've done both. So as we look forward, the Pasco County was really a pilot for us. And it wasn't until the end of last year or the beginning of this year that we really started to make inroads with the process, all the documentation that we need to do, what's the selling cycle, how do we sign them up. And we may have glossed over it a little bit, but we have 100 schools signed up on contracts, okay? Most of these contracts are 3-year agreements with a minimum sales commitment to us, which we haven't really spoken about. That minimum sales commitment is typically between 10,000 and 20,000 per school. Okay? There's 98,000 schools in the country. We've kind of alluded to the fact that we expect many more schools to come on board. It doesn't take long for you to do the numbers that shows this is an enormous opportunity that is happening now. We're rolling schools out now. And we expect to bring many more schools to everyone's attention shortly. So in terms of the sales cycle, it's something that is happening now. And it's going to make a material difference to everything that we're doing. And we hadn't even accounted for these things last year. These weren't even on our radar. Military and schools weren't even on our radar. We've basically just gone and multiplied our sales opportunities I don't even know how many times, but it's a lot.

Our next question comes from Marc Nuccitelli, Dillon Hill Capital.

Yes. Well done, really, it's taken a long time to get to this point, but the building blocks are there. It's nice to see the momentum. A lot of my questions I think were asked from prior comments. But just to kind of build on a couple of those questions to try to give us a framework. You're talking about military and school being potentially bigger or way bigger than some of these QSRs you've talked about in the past. Can I just kind of create some framework? Maybe we can start to understand how you're building the revenue up over the next kind of year or 2 with that projection. You did about a little over $700,000 for the quarter in your base business. Is it safe to say, based on your existing business, you should be running kind of $1 million plus and growing over the next 4 quarters?

Yes, that's definitely...

Yes. The market, Joe T, here, really the rollout of the 1,000 as Riccardo, I think, and Joe, both have alluded to not really in -- even in the first quarter. That's basically, I would call it, the base business with some school business built into it. And then moving forward, we would, obviously, expect that to continue, but then these other areas that we have talked about on this call to grow and start to grow really meaningfully.

Okay, so you have -- so you got $4 million-plus base business you have, you've talked about at least $4 million minimum on the national account, and it sounds like that can grow much greater than that. And then when you look into -- you've talked about school and military, easy being multiples of your national...

You already have 100 schools that we've got that -- we're signed for, and that's $10,000 to $20,000 per school there alone.

Right, right. And then the military -- again, now talking about the military. You're talking about there's multiple dining halls per base, you're talking about 3 meals a day versus a school, which is 1 meal a day, 5 days a week, this is 7 days a week, 3 meal periods per day. Can you give us a little bit of framework to work off like you did on the educational and what you expect?

I mean, on the military side, it's not only 3 meals a day, but it's provided to the troops so -- as part of their meal plan. For them to consume as much as they like, so -- at each meal service period. So again, that's also a significant difference. Look, the military on an individual basis as I -- we place the equipment in each of the dining halls. So the easy way for us to look at it is, each dining facility where they serve 300 to 500 troops per meal service, we expect 50,000 to 80,000 unit consumption on an annualized basis. So there's 1.3 million active troops between these 940 bases. We're not even going to put that number out there because it is off the charts. And we really don't know what the extent of the number of bases is that we're going to end up getting. So what we can say is that we're getting a pretty good response rate so far.

Okay, that's put a little bit more of a bracket around it. So just to underscore, so I understand -- your -- I mean, it's very impressive to me that you've been able to penetrate DLA and certainly the department of education on nutritional need of our students. Just to underscore, what I'm understanding that -- what are you offering that hasn't been accomplished by other competitors out there? You said the ability to deliver natural ingredients, the taste, the customizable formulas to adapt to each whether it's military or whether it's a student.

I think it's a little bit of all of that, but I think one of things that has helped us the most is being able to do all of that and having a great tasting product. One of the things that's helped us get there is our distribution chain, believe it or not, because the way the products are processed has a big impact on the end product profile. And freezing the product is a natural preservative by way of extending shelf life, which makes creating the product and selling it at a reasonable price actually achievable. So it's all the things that you said as well as having the infrastructure and the distribution channels that we have available to us.

Okay. I appreciate that. All right. And this -- I know you've got a lot of new customers starting up, simultaneously. Is there any concern on strain on your capacity? I know each have different needs whether it's single serve or Easy Pour, different geography locations, working capital. How do you -- are you concerned about the near-term ramp of some of these very large accounts?

That's a good -- that's actually a good question and something, again, we haven't really touched on. But the bulk product capacity is completely separate to our single-serve capacity. So whilst we've mentioned the 100-plus million in single-serve capacity that remains the same. We actually have excess capacity as it relates to the bulk Easy Pour product that is in addition to the 100 million. So we feel as though we are pretty well positioned, and we already have some backup volume capacity options on the bulk side that we've worked on. So we feel as though we're in a pretty good position.

And we've also invested quite a bit into working capital coming into the end of the year. So you'll see when you get to see the -- have a chance to look at the 10-K. We ended the year with $1.4 million of inventory, which is about 5x what it was at the end of 2016. So we're kind of poised to put that to work very quickly, Marc.

Okay. When do you think you'll be in a better position to start giving a little bit better brackets around each one of these opportunities?

Yes. Look, once they start rolling out and we have some better consistency and transparency and visibility on the sales coming out of the accounts, I think we'll be in a better position. I think it's -- I think we're pretty close. We're pretty close to beginning that process but just not yet.

So what you think could derail the rollout of either your military progress, your education progress or even the QSRs?

Well, the national accounts is already starting. So that's literally happening as we speak. And the schools, this is something that we've been working on for some time now. I mean, these have been a close to 2-year process for the school, 1.5 years, in terms of working on the product and then the market and then bringing it to life. Again, not disclosing too much on the call, we have pretty some exciting stuff around the corner as it relates to the schools. So things are already in play and the military

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there's government. So there is propensity

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to take a little bit longer sometimes. There are some hurdles that we need to overcome from timing just to make sure that the dining halls have the right power on site or do they need to have additional plugs or power point installed? Do they have the right amount of space depending on which equipment goes on this? There's a little bit of surveying to take place in terms of each of the locations. So other than the timing, we think we're not really expecting many hurdles, many issues.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Riccardo Delle Coste for closing remarks.

Great, thanks, everyone. I just want to thank everybody for joining and glad we're finally able to share these exciting developments and finally turning the corner. So we really look forward to updating everybody as these new developments unfold. Thanks very much.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.