Barfresh Food Group Inc (BRFH) 2021 Q1 法說會逐字稿

Good afternoon, and thank you for participating on today's First Quarter 2021 Corporate Update Call for Barfresh Group. Joining us today is Barfresh Group's Founder and CEO and Riccardo Delle Coste. (Operator Instructions) 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 vary 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 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 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 in 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 the 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 of the sale of derivatives.

Now I'll 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 first quarter 2021 results and accomplishments. Since our last earnings call was less than a month ago, I am going to provide a high-level review for accomplishments and spend more time on how we are performing in the second quarter.

Now to discuss our first quarter 2021, starting with our financials.

Revenue for the first quarter of 2021 increased 38% to $1 million compared to $733,000 for the same period last year, and a meaningful improvement compared to $835,000 for the first quarter of 2019. 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 bulk and single-serve products.

Gross margins for the first quarter of 2021 were 34% compared to 54% for the first quarter of 2020. The decline in gross margins was due to product mix as the company's lower-margin Twist & Go products made up a larger percent of sales in the first quarter of 2021 compared to the prior year period. The company expects gross profit margins for the remainder of 2021 will increase to approximately 40% due to higher concentration of sales from these products, strengthened by a gradual return of the higher-margin, bulk and single-serve products.

The net loss for the first quarter of 2021 improved to $600,000 as compared to a loss of $700,000 in the first quarter of 2020. The company continued to significantly reduce core operating expenses, reducing total G&A expenses in the first quarter of 2021 by 39% compared with the prior year period.

During the first quarter of 2021, net cash used in operating activities improved to $394,000 compared to $973,000 in the prior fiscal period. As of March 31, 2021, we had approximately $2.1 million of cash compared to $1.9 million as of December 31, 2020. In addition, we had approximately $0.76 million of inventory as of March 31 compared to $0.87 million as of December 31, 2020. The increased cash position highlights the improved expense management and the receipt of $568,000 PPP loan during the first quarter of 2021.

For the first quarter of 2021, our adjusted EBITDA losses decreased to a loss of $400,000 as compared to an adjusted EBITDA loss of $700,000 for the first quarter of 2020, compared to a loss of $1.3 million for the first quarter of 2019, and this is still with a backdrop of COVID and only a minimal return of sales for our bulk and single-serve products.

Now to give you an update on our results to date for our second quarter. Despite the industry-wide supply shortages and COVID-affected customers, we have already achieved over $1 million in revenue for the second quarter, which is already a 100% improvement compared to the full second quarter of 2020. In addition, we expect our gross margins to be approximately 40% for the second quarter due to increasing sales of Twist & Go and a slow but positive increase of our bulk and single-serve sales due to COVID and reselling into less than half of our available footprint in the education channel.

Almost all of our school channel is not serving our bulk items at this time. And our restaurant, business and industry and recreation and amusement channels are still operating at significantly reduced levels compared to pre-COVID. With our new Twist & Go product, combined with our deep channel of school customers, when schools reopen and resume normal operating conditions, we expect to more than double the number of school locations we are currently serving. We also expect continued improvement in our cash flow during the second quarter as we expand our top line compared to the first quarter and leverage our improved infrastructure.

Before I open the call to questions, I would like to provide a quick recap why we are so well-positioned to dramatically expand our top line as schools and other customers begin to reopen. Throughout 2020 and during the first months of 2021, we focused on building out our presence in the education channel with over 98,000 schools in the United States. We've always seen this channel as a very attractive market, but leaned in heavily during COVID as we were able to assist schools in every type of operating capacity, from limited openings to mobile feedings.

Our new product, Twist & Go, was an incredible product launch in 2020 and fit the need administrators had and still have for low-touch, healthy, ready-to-go items. This product has already seen great traction in its first year, a year when the customers we were marketing it to were not able to fully take advantage of it. And we look forward to our education partners resuming operations and being able to ramp up their orders with us.

And as I said moments ago, we believe we will more than double the number of school locations serving our product next fall. Keep in mind, that during the fall, we also expect larger schools to begin ordering our 1:1 bulk Easy Pour product, which is higher margin and very attractive for schools that need to feed a large number of students at one time, which was enhanced this past year with the introduction of WHIRLZ 100% juice concentrates. WHIRLS is a 5:1 juice concentrate at a more affordable price point than our 1:1 bulk Easy Pour product and is stored and delivered ambient. However, for smaller schools that don't have the need or the budget to bring in our beverage dispensing equipment, Twist & Go is now a perfect solution. Twist & Go greatly expands the possibilities for us as it shortens the implementation window and allows us to work with complete school districts instead of individual schools.

We believe Twist & Go will extend into other sales channels, especially on the heels of COVID, with increased consumer focus on health and wellness. However, we still have a lot of white space within the education channel, and that will be the near-term focus with this product. Regarding our other channels, several U.S. military bases and attraction centers are beginning to place orders once again as well as our regional restaurant customers.

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 start to pick back up. As you can see from our first quarter and expected second quarter results, the steps we made in 2020 have us very well positioned for strong growth as schools, restaurants and military and amusement parks begin to reopen.

We expect continued revenue improvement and margin improvement over the course of 2021 as more schools slowly reopen and other sales channels start to come back online. 2021 is shaping up to be a record year for Barfresh, and I look forward to speaking with you all again when we announce our second quarter results. Now with that, let us take your questions. Operator?

(Operator Instructions) Our first question is coming from the line of Anthony Vendetti with Maxim Group.

This is Jang Kim from Maxim Group. I'm speaking on behalf of Anthony Vendetti. I was just wondering if we can get a little bit more information on any new products in the pipeline? And what this pipeline looks like regarding the potential approvals from districts to add the Twist & Go onto their school menu?

Yes, sure. So in terms of new products, the Twist & Go products are really where we're focusing at the moment. We do have some flavor extensions. We've only rolled out 2 of the flavors at this time, the strawberry banana and the peach. And we will be releasing here very shortly, actually the mango pineapple SKU. In terms of new schools and districts approving the product, we have got an enormous amount of school districts that we've been working with that we actually haven't been selling to yet to date. But we've received an enormous amount of approvals from different school districts in preparation for the new school year, and that includes going through the bidding process for the schools. So whilst we have been making good traction with the school districts to date, even though it's on a limited basis, there's much more runway ahead of us based on already the customers that we've met with, presented to, tested, completed submissions for bids in preparation of being approved for the beginning of the new school year in the fall.

Okay. Wow, that sounds -- that actually sounds really great. So I guess a follow-up would be, outside from school districts, can we get more, I guess, an update on the progress of the Twist & Go going into retail, into the retail locations?

Yes. All I can say at this stage is that we're working on it. It's -- we do have the product. We are getting unbelievable feedback from our customers. We probably get an e-mail or a phone call if it's not every day, it's every other day from parents looking for where they can buy Twist & Go for their kids because their kids have had it at school and absolutely love it. So some of the educators and the teachers even let us know of individual stories with the kids where they absolutely love the product. So grocery is definitely on the cards. We're working on it. We don't have an exact timeline yet.

(Operator Instructions) The next question comes from the line of William Gregozeski with Greenridge Global.

Riccardo, are you guys seeing any kind of supply chain or shipping issues or anything of that nature?

Are we seeing them? It's a bit hard not to. It's a real issue at the moment. We did touch on that slightly in the call. We have been out of product for some of our SKUs as a result of supply shortages in the marketplace. And even being -- even with some of those shortages, we've still achieved the results that we've achieved.

So there's just an enormous amount of turbulence in the market at the moment as it relates to supply chain. So ingredient and -- on the procurement side, there are a number of ingredient shortages and supply chain issues. Freight is a particular challenge at the moment in the marketplace where we're seeing elevated prices for freight and availability as well. And that's not just us. That's a complete industry-wide situation that's going on at the moment. But it looks like we have -- we've corrected all those issues that we've had. And we're actually -- we've closed the gap on any shortages now as well.

So I think it's just more of a market reopening situation as it related to the supply shortages on ingredients, et cetera. In some instances, it even forced us to reformulate products due to not being able to get access to certain ingredients. So all that work is now being done, and we're back on the straight and narrow, so to speak.

Okay. And you touched on like amusement parks and restaurants starting to come back. Do you have a sense for what that return might be like and what the amount of orders might be into those channels?

Yes. Look, it's really -- it's all over the place, to be honest. It really depends on the category of customer, and then it depends on where they're located. Because even state by state, as you know, there's different regulations in different parts of the country. So even though we might be doing well in certain amusement parks, it's only in the amusement parks that are in states that have opened up more, right? So it really is all over the place.

We're probably still only at somewhere between 15% and 35% at that -- across the board for the single-serve and bulk products. So it's still really low in comparison to where we were. However, keeping in mind 2 things. One is a lot of our bulk products were going to schools, right, as well. And that will recommence in the fall in addition to our Twist & Go product because it won't be cannibalizing based on the daypart that it's sold in. And then secondly is we are seeing an increase back in our military business and our single-serve business as well.

So it's definitely coming back. And I feel that every month that goes on and, in actual fact, every week that goes on, it's actually getting stronger by the week. So it is definitely exciting for what's around the corner. It is definitely increasing. But there's still a long way to go.

Okay. And then with the education channel, you mentioned you'll start doing more of the bulk into the fall. Do you have a guess kind of at the end of this year where you think you'll be in terms of product mix into the education channel?

The Twist & Go is definitely going to dominate. Just by the approvals that we've already received from school districts, the bids that we have been requested to be put on by the school districts in addition to the schools that we're already servicing, that's pretty significant. So we are looking to ramp up very significantly in Q3.

(Operator Instructions) Thank you. At this time, we would like to thank everyone for their participation today, and this will conclude today's conference. You may disconnect your lines at this time. Have a wonderful day.