Barfresh Food Group Inc (BRFH) 2021 Q2 法說會逐字稿

Good afternoon, everyone, and thank you for participating on today's Second Quarter 2021 Corporate Update Call for Barfresh Food Group. Joining us today is Barfresh Food Group's Founder and CEO, Riccardo Delle Coste. Following the prepared remarks, we will open the call up for your questions.

The discussion today will include forward-looking statements. Except for historical information herein, matters set forth 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, success of its strategic relationships and projections of 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, continue, could, may, predict and will and variations of such words and similar expressions are intended to identify such forward-looking statements. All statements, other than the statements of historical fact that address activities, events or developments that the company believes or anticipates, will or may occur in the future are forward-looking statements.

These statements are based on certain assumptions made based on experience, expected future developments and other factors that the company believes are appropriate under the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the company. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may differ materially from those indicated or anticipated by such forward-looking statements.

Accordingly, investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. The contents of this call should be considered in conjunction with the company's recent filings with the Securities and Exchange Commission, including its annual report on Form 10-K and the quarterly reports on Form 10-Q and current reports on Form -- excuse me, Form 8-K, including any warnings, risk factors and cautionary statements contained therein.

Furthermore, the company expressly disclaims any current intention to update publicly any forward-looking statements after this call, whether as a result of new information, future events, changes or assumptions or otherwise.

In order to aid in the understanding of the company's business performance, the company is also presenting certain non-GAAP measures, including adjusted EBITDA, which are reconciled in a table in the business update release to the most comparable GAAP measures. Management believes that adjusted EBITDA provides useful information to the investor because it is directly reflective of the cash flow of the company. The primary factors in reconciling these items are noncash costs, including stock compensation, stock issued for services and gain or loss on sale of derivatives.

Please note this event is being recorded. Now I will turn the call over to the CEO of Barfresh Food Group, Mr. Riccardo Delle Coste. Please go ahead, sir.

Thank you, and good afternoon, everyone. On the call today, I will review our second quarter 2021 results and discuss why I believe Barfresh is well positioned for continued strong revenue and operating cash flow improvement in the back half of this year.

Revenue for the second quarter of 2021 increased 157% to $1.3 million compared to $506,000 for the same period last year, and increased approximately 30% compared to $1 million in the first quarter of 2021. The increase in revenue is the result of increased orders for our Twist & Go products in the school channel as well as the gradual return in sales of our single-serve and bulk products compared to the COVID-19-affected quarter last year.

Gross margins for the second quarter of 2021 were 43% compared to 23% for the same period last year and compared to 34% in the first quarter of 2021. The increase in gross margins over the prior year was due to the start-up expenses we incurred last year for our Twist & Go and WHIRLZ 100% Juice Concentrates. The sequential increase is due to improving Twist & Go margins as well as the gradual return in sales of our higher-margin, single-serve and bulk products. We expect gross profit margins for the second half of 2021 to stay around 40%.

Our net loss for the second quarter of 2021 improved to $297,000 as compared to a net loss of $1.2 million in the second quarter of 2020 and compared to a net loss of approximately $600,000 in the second quarter of 2019. We continued to reduce core operating expenses, reducing total G&A expenses in the second quarter of 2021 by 6% compared with the prior year period.

As of June 30, 2021, we had approximately $7 million of cash and $1 million of inventory on our balance sheet as compared to $1.9 million of cash and 0.87 million of inventory as of December 31, 2020. On June 3, 2021, we announced the completion of a private placement of approximately $6 million of common stock with no warrant coverage. In addition, we also negotiated the conversion of approximately $700,000 and the retirement of approximately $800,000 of existing debt and interest. This transaction eliminated all prior convertible debt and related interests.

Additionally, our first paycheck protection program, PPP, loan of $568,000 was forgiven in the second quarter of 2021, and we expect our second PPP loan for an additional $568,000 to be forgiven in the second half of 2021. Once this second PPP loan is forgiven, we expect to be debt-free.

For the second quarter of 2021, our adjusted EBITDA decreased to a loss of $386,000 as compared to a loss of approximately $900,000 for the same period last year. We achieved this improvement despite the backdrop of COVID-19 and a minimal return of sales from our single-serve and bulk products. We expect a meaningful increase in sales of our Twist & Go product and a continued increase in our single-serve and bulk products in the back half of this year.

Now to give you an update on our expectations for the back half of this year. Despite the industry-wide supply shortages and COVID-19-affected customers, we expect continued revenue improvement in the second half of 2021 as schools slowly reopen and more of our single-serve and bulk customers start to come back online.

Since the start of the year, we have seen continued improvement in sales each month from our single-serve customers, which has helped offset the slower recovery of our bulk customers. These bulk customers, such as military, amusement and recreation locations, have been the most affected by the pandemic and the slowest to come back online. As an example, while our military customers are engaged with us, they still face limitations with per meal feedings and are reopening those areas serving our products at a much slower rate than the rest of our business.

As a reminder on the opportunities here. Prior to COVID, we had been working with large restaurant chains and QSRs and had a robust pipeline in different stages of development and rollout. We are still engaging with these customers, and we expect to make progress with our national accounts as those businesses begin to reintroduce new products.

We have stayed in contact with all of our customers over the past year. And expect, as restrictions ease and businesses start to pick back up, we will see a gradual return in not only our single serve, but also our bulk products this year.

Offsetting the slower recovery from these channels has been our steady ramp-up in the education channel. It is our continued expectation to being double the number of school locations this coming year. Our deeper presence in this channel is supported by our diverse product offerings, including the recently introduced Twist & Go and WHIRLZ products, our strategic distribution relationships and changes brought on by COVID, such as an increased need for school administrators for low-touch, healthy food options and policy changes with the adoption of universal free school meals.

California and Maine have been the first states to permanently adopt free school meals for all K-12 students, and we expect additional states to follow their lead. We are uniquely equipped to provide schools with a full suite of healthy, nutritious and delicious beverage offerings that are compliant with USDA reimbursable meal programs. We have an established presence in California and are very well positioned across the nation to help support school administrators as they work to ensure all children are provided a healthy breakfast and lunch each day. As I said moments ago, we believe we will more than double the number of school locations serving our products this fall.

In closing, we have made real changes within our business that have set us up for record revenue growth. And with over $1 million worth of orders already received for Q3, and we're just starting to go into the school selling season, this, combined with our significantly improved cost structure, we have a clear path to improve profitability this fiscal year.

In addition, we have a very strong balance sheet with approximately $7 million in cash and only a PPP loan outstanding that is expected to be forgiven in the coming months, resulting in the company being debt-free. Part of the reason we did the capital raise and cleaned up the debt structure was to increase the stockholders' equity in order to meet the listing requirements for a national exchange. As a result of our strong balance sheet, we now meet those requirements and have submitted our application commencing the necessary steps in achieving the uplisting.

As a result of our revenue increases, cost reductions and margin improvements, we have significantly reduced our cash burn and are able to preserve our cash. We have dramatically improved our expenses, our liquidity and our customer base in order to drive growth and capture a larger share of the market.

I look forward to speaking with you all again when we announce our third quarter results in November. Now with that, we will take your questions. Operator?

(Operator Instructions) Our first question comes from William Gregozeski with Greenridge Capital.

Riccardo, great update. With regards to the changes with California and Maine and presumably other ones coming down the line, but with those 2 states so far, have you seen any kind of noticeable change in demand or willingness from the schools to get your products in there?

Yes, we actually have. So with the different schools, they all have different budgets. And whilst different schools have different offerings for the students, and they don't have the same available funds to spend. So what we have noticed is that with the change in the regulation, particularly here in California, we've had some schools that have increased the frequency as a result of the new regulations changes. And we've had some that had a lower budget available previously. And then when the new regulations got changed, they actually came back to us and decided to include it on the menu. So it has definitely made an impact for us, we believe, and it's going to be quite meaningful as it, we believe, gets adopted across the country.

Great. Great. And then with the Twist & Go, can you give an update on how the -- you've talked before about trying to get that into grocery. Is there any updates you can provide on that?

No update other than we're working on it at its very early stages, but it is definitely something that's on our radar.

The next question is from Jeremy Pearlman with Maxim Group.

I'm on the line for Anthony Vendetti actually. Just 2 quick questions. One is, do you have a total number of schools your current Twist & Go and WHIRLZ products are currently in? Because I know you keep saying you want to -- you expect to be double that this school year? Is there a specific number that you have?

Yes, not really a number of school locations. The benefit that we have now from Twist & Go is that we're now looking at school districts. That's something that we can update on the next call. We do have quite a number of school districts. And the districts can have anywhere from 1 or 2 schools in the district to literally 1,000 schools in the district. So that's something we can update on the next call.

Okay. And then just as a follow-up for that, the budgets that you mentioned earlier, is that per district or is it per school?

It trickles down to the per school level, but it ends up being at the district level that we're dealing with. So the change in the regulation is state based at the moment. So for example, in California and Maine, they've adopted free meals for all students, K-12. So that would go through to each individual school location.

Okay. Understood. And then just switching to QSR. I know you mentioned that briefly that you still remain in contact. Is there anything closed in the pipeline? Or really COVID has really put a delay in that?

Look, it's put a delay in it, but things are in the pipeline. There are conversations that are going on right now.

But do you want -- you wouldn’t be able to provide any time frame when you think that could actually…

Not yet.

(Operator Instructions) I'm showing no further questions. This concludes our question-and-answer session, and the conference is also now concluded. Thank you for attending today's presentation. You may now disconnect.