Barfresh Food Group Inc (BRFH) 2020 Q4 法說會逐字稿

Good afternoon, everyone, and thank you for participating in today's Full Year 2020 Corporate Update Call for Barfresh Food Group. Joining us today is Barfresh Food Group's Founder and CEO, Riccardo Delle Coste. Following prepared remarks, we will open the call 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 facts 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 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 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 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 the sale of derivatives.

Now I will turn the call over to the CEO of Barfresh Food Group, Mr. Riccardo Delle Coste. Please go ahead, sir.

Thank you. Good afternoon, everyone. On the call today, I will review our full year 2020 results and accomplishments, discuss our diverse sales channels and sales pipeline and detail the improvements we continue to make in our operating efficiencies.

Before I dive into our 2020 results, I'd first like to discuss the headway we have already made in 2021. I'm happy to share that we expect to achieve over $1 million in gross revenue for the first quarter of 2021. This is a 36% improvement over last year and an impressive 20% improvement over the first quarter of 2019, when we were operating in a normal environment.

Additionally, for the month of April, we have already booked over $400,000 in gross revenue, which is 80% of what we did for the entire second quarter last year.

These results are incredibly encouraging given we are not only posting increases over last year, but also over 2019 and doing so with a significant reduction still in effect for our bulk and single-serve sales due to COVID and also selling into less than half of our available footprint in the education channel.

Almost all of our school channel has temporarily paused 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.

Therefore, these results are a testament to the progress we made over the course of 2020 to expand our reach with new and existing school customers and the strong traction we are seeing with our new offering, Twist & Go.

We believe we will really get to see the full potential of that product in the fall, once schools have resumed normal operating conditions, and we expect to more than double the number of school locations we are currently serving.

Now to discuss our full year 2020, starting with our financials. Revenue for the full year 2020 was $2.6 million compared to $4.3 million for the full year of 2019. The decline in revenue was a result of the temporary closure of businesses from COVID that serve our single-serve and bulk products and was partially offset by initial and repeat orders for our 2 new product offerings within the education channel.

Gross margin for the full year of 2020 was 30% compared to 54% in the prior year. The decrease in gross margin was primarily due to expenses related to product mix and the start-up costs for the 2 new products the company launched in 2020 as well as some COVID-related product write-downs.

Gross profit margins for the fiscal year of 2021 are expected to dramatically improve over the prior year as we resume sales of our bulk and single-serve products and move past the start-up costs of Twist & Go and onetime COVID write-downs.

During the year, we continued to significantly reduce core operating expenses, reducing total general and administrative expenses by 36%, driven by improvement in personnel and marketing and selling expenses from lower headcount, and the renegotiation of certain sales commission agreements.

For the full year 2020, our operating loss improved by $1 million to $4.2 million as compared to $5.2 million for the full year of 2019. For the full year, our adjusted EBITDA losses decreased to a loss of $3.2 million as compared with a loss of $4 million for the full year of 2019.

Turning to the balance sheet. We ended the year in 2020 with approximately $2 million of cash and approximately $900,000 of inventory and as of March 31, 2021, we had approximately $2.2 million of cash.

We have been able to increase our cash position during the first quarter by meaningfully reducing our cash burn with restructured operating costs and increased sales and also due to a second round of PPP funding in the amount of $568,000.

Now to review the accomplishments we've made in 2020 and why we are so excited about the future growth opportunities.

Over the course of the year, 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 this year as we were able to assess 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.

In the first quarter of 2021, Twist & Go accounted for approximately 85% of the $1 million of revenue generated, further demonstrating both the opportunity for Twist & Go as we ramp up and also the profitability for the rest of the business, as our other products come back online post-COVID.

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. We are no longer constrained in the education channel by only being able to supply one type of product at one price point, and we can now offer a range of products to meet varying schools' needs and budgets.

Our 1:1 bulk Easy Pour product is attractive for schools that need to feed large number of students at one time, which was enhanced this past year with the introduction of our WHIRLZ 100% juice concentrates.

WHIRLZ is a 5:1 juice concentrate at a more affordable price point than our 1:1 bulk Easy Pour product and in stored and delivered ambient.

However, for smaller schools that don't have the need or 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.

The rollout of Twist & Go led to the announcement of many school wins over the course of the year, including Brevard Public Schools, the 49th largest school district in the U.S. and an expansion within Pasco County School District, a school district with close to 100 schools and 77,000 students. We are seeing strong traction with this product as more schools begin to come back online, and we expect Twist & Go will lead to big sales opportunities in the education channel this year.

We also announced in December a huge milestone for our company when we were approved by Los Angeles Unified School District, LAUSD, to have Twist & Go added as part of the school menu offerings. LAUSD is the largest school district in California and second largest school district in the country and a fantastic addition to our list of customers.

They are respected throughout the country as a trend setter and have the potential to facilitate our conversations with other major school districts nationwide. We believe Twist & Go can extend into other sales channels, especially on the heels of COVID, with the increased consumer focus on health and wellness.

However, we still have a lot of white space within the education channel, and that will be our immediate focus with this product. While we heavily shifted our focus to the education channel this past year, we continue to stay engaged with our other sales channels. And we are starting to see some of those channels come back online with several U.S. military bases and attraction centers beginning to place orders once again, although it is still early days.

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 start to pick back up.

As for the military opportunity, there are roughly 800 bases in the U.S., serving 1.3 million active troops. So this is another channel that has a lot of runway for growth and could become a steady revenue stream once at scale.

This past year was a difficult one due to COVID for many companies, especially those who like Barfresh operate in foodservice. However, despite these challenges, we grew our customer base in the education channel, expedited and successfully rolled out 2 new products, maintain gross margins at or above 30%, continue to reduce our core operating expenses and reduced our cash burn. We expect continued revenue improvement and margin improvement over the course of 2021 as more schools slowly reopen and our other sales channels start to come back online.

We also have additional channels reopening that will further expand our marketing and selling opportunities. While it is still early, 2021 is shaping up to be a record year for Barfresh and I look forward to speaking with you all again in a few weeks to recap the first quarter results and share with you an updated outlook on the year. Now with that, let's take your questions. Operator?

(Operator Instructions)

Our first question is from Anthony Vendetti of Maxim Group.

Riccardo, I just wanted to focus on Twist & Go and WHIRLZ. I think that seems to be a product that's going to resonate well with the schools. Do you see opportunities for the Twist & Go product outside of the schools?

And could that help build your bulk business as well as customers, students, try this product. What do you see as the opportunity to expand this significantly across other platforms? And then maybe just touch on military.

Yes, sure. So Anthony, we're getting great feedback on the Twist & Go product. Probably every other day, we receive some kind of correspondence or e-mail requesting where parents can purchase the product because their kids have tried it and they love the product and they're looking for it in grocery.

So to answer the question directly, we absolutely think there is additional channel, and that was really one of the points that I was alluding to earlier. And that's one of the paths that we will be looking towards the future.

Having said that, we really do have an incredible amount of white space in front of us. We haven't even reached the tip of the iceberg with Twist & Go in the education channel.

This fall is going to be an incredibly exciting time for the company, not just because of Twist & Go, but also because of the rest of the business coming back online. So we are starting to see the other channels come back. It is slow, but it is definitely coming back. So we're very excited about that.

Okay. And then like you mentioned that maybe some customers may be starting to look for this in retail, and I know you're not in retail. Is that something that's being contemplated? Or is that still a couple of years away, maybe?

No, we're doing work on it. Put it that way. We're actively doing work on it.

Actively looking at that. Okay. And then in terms of the opportunity with some of the QSRs, how does that pipeline look? And if you had to just give a broad -- just discussion about the opportunities here in '21 as the vaccine rollout continues to progress, and you're getting a reopening of schools and restaurants.

Yes, sure. So I can tell you that we are actively engaged with the QSR channel, and that we are expecting developments. The timing of those are not confirmed yet, but there's definitely been an increase in activity and engagement since things have started to reopen. So we're going to look forward to that coming to life as well.

We've done a lot of work over the years to put us in the position that we're in now, whether it's with the various products, various channels and particularly the national account national account market channel. So I think once that actually comes to fruition, it's going to be great for the company.

Okay. And then just lastly, on the financial side. It looks like there were a number of charges here in the fourth quarter that impacted the gross margin. Do you feel like that those charges are behind you, any spillover here in the first quarter in terms of cost of goods sold?

I don't really -- I mean, we had a little bit of pressure on the cost of goods, particularly because of COVID and some cleanup for last year. We feel that that's really -- it's going to be behind us for the most part.

We do see some margin improvement taking place over the course of the year, particularly also because we've made some manufacturing improvements. That will also contribute towards that.

So we're feeling as though the margin is definitely going to improve. And on the cash front, we kind of made a point of it, and I think this is really important because not only did we have nearly a 50% reduction in sales, we still managed to improve our adjusted EBITDA in the face of all of that and a lot of the changes that we made are going -- they're going to stick, right?

So the cash position and the cash burn of the company has come significantly down. We gave a snapshot of what that looks like for first quarter, just with -- you're looking at about a net change of about $350,000, $360,000 in the cash for Q1.

And that -- this is going to be the worst quarter of the year. So it's going to be significantly improved from here on out in every other quarter. So without saying that we're really excited about how the cash position of the company is going and the margin contribution and obviously, the sales trajectory, what's really important is that our other business is probably tracking at about 15%.

So when that starts to come back on, it's going to be an incredible contribution to the bottom line with the sales. So from a cash perspective as well.

(Operator Instructions)

We have reached the end of the question-and-answer session. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.