Q4 2023 Edible Garden AG Inc Earnings Call

Participants

James Kras; Chief Executive Officer, Director; Edible Garden AG Inc

Kostas Dafoulas; Chief Financial Officer; Edible Garden AG Inc

Presentation

Operator

Greetings, and welcome to the Edible Garden fourth-quarter business update conference call. (Operator Instructions) Please note this conference is being recorded. I will now turn the conference over to your host, Mr. Ted Airbus of Investor Relations. Sir, you may begin.

Thanks, Ali. Good morning, and thank you for joining Edible Garden's quarter and year ended December 31, 2023 conference call and business update. On the call with us today are Jim Kras, Chief Executive Officer of Edible Garden, and Kostas Dafoulas, Interim Chief Financial Officer of Edible Garden.
Earlier this morning, the company announced its operating results for the three months and year ended December 31, 2023. The press release is posted on the company's website, www.ediblegardenag.com. In addition, the company has filed its annual report on Form 10-K with the US Securities and Exchange Commission, which can also be accessed on the company's website as well as the SEC's website at www.SEC.gov. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at 212 671 1020.
Before Mr. Kras reviews the company's operating results for the quarter and year ended December 31, 2023, and provide the business update, we would like to remind everyone that this conference call may contain forward looking statements. All statements, other than statements of historical facts contained in this conference call, including statements regarding our future results of operations and financial position, strategy and plans and our expectations for future operations are forward-looking statements. The words aim, anticipate, believe, could, expect, may, plan, project strategy will and the negative of such terms and other words and terms of similar expressions are intended to identify forward-looking statements. These forward-looking statements are based largely on the company's current expectations and projections about future events and trends that it believes may affect its financial condition. Results of operations, strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to several risks, uncertainties and assumptions as described in the company's filings with the SEC, including the company's annual report on Form 10-K for the year ended December 31, 2023. Because of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this conference call may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although the company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, level of activity, performance or achievements. In addition, neither the company nor any other person assumes responsibility for the accuracy and completeness of any of these forward looking statements. The company disclaims any duty to update any of the forward-looking statements, except as required by law. All forward-looking statements attributable to the Company are expressly qualified in their entirety by these cautionary statements as well as others made in this conference call. You should evaluate all forward-looking statements made by the Company in the context of these risks and uncertainties. Having said that, I will now turn the call over to Jim Chris, Chief Executive Officer of edible garden. Jim?

James Kras

Thanks, Ed. Good morning and thank you to everyone for joining us today. We are extremely pleased with the 21.6% increase in our annual revenue that we reported for 2023, along with an even more impressive 32.8% year-over-year increase in revenue for the fourth quarter. This robust growth underscores the effectiveness of our efforts over the past year to leverage our distribution network in order to drive revenue. Our strategy to further develop our distribution network is two-pronged, adding new retail partners and expanding our product offerings with existing partners in 2023, we achieved significant significant success in both areas, thanks to our growing industry market position, driven by our outstanding service and reliability as a result, Edible Garden has become a go-to partner for retailers seeking a trusted source for organic and sustainable products. Additionally, the company continues continually strive to identify additional opportunities to boost profit margins. Proven prudent management of operations is reflected in our financials by the increase in our gross profit margin by 270 basis points in 2023 to 5.9% of revenue, nearly double the 3.2 gross profit margin we achieved in 2022. And at the end, the 767 basis points improvement in our operating margin. Moreover, our gross profit increased to 6.9% of revenue in the fourth quarter. We believe that by continuing to add higher margin products to the edible garden product line, we will be able to further increase our gross profit margin in 2024 and in the future years to come. We have further leveraged our platform to enrich and broaden our wider a wider range of edible garden products. We recently partnered with Tops Friendly markets, introducing our sustainable ribs to 149 stores across New York, Pennsylvania and Vermont. Additionally, until just Sappi's marketplace, a division of our best practice is now carrying edible garden herbs in their 12 locations throughout New York and New Jersey. These new partnerships further enhance our footprint in the northeastern United States, marking a significant step forward in making our sustainable fresh produce more accessible to consumers in the region in February, we entered into a three-year agreement with a leading US retailer to broaden the range of edible garden products available in their stores. This expansion and competition has a diverse selection of our offerings, including parted and fresh-cut herbs, fresh-cut Basil, and we graph the partnership goes beyond merely increasing our product assortment. It introduces fresh and innovative displays designed to elevate our brand visibility and prominence on the retailers' shelves. These initial initiatives underscore our commitment to deepening our relationship, our retail partners, aiming to better satisfy their requirements and simplify the shopping experience for their customers.
In the fourth quarter of 2023, we expanded our offerings at Myer stores with two new flavors from our vitamin way collection notable notable for its blend of high quality whey protein amino acids while providing excellent nutritional value at affordable price. This addition is expected to bolster edible Gardens reputation as a flavor maker through our ongoing collaboration with NuComm for innovative flavors success environment, which supports our belief that these flavors will enhance our brand and facilitate nationwide expansion. Additionally, we enhanced our production capabilities on our greenhouse operations in New Jersey and Michigan, which has led to a decrease dependency on contract borrowers, allowing us greater control and flexibility in our operations while impacting potential profitability. Moreover, our investment in edible garden, Heartland has been rewarding incorporating advanced technologies such as our proprietary green, some greenhouse management system, which significantly improves the efficiency of our supply chain, allowing the company shipped tens of thousands of all our metals just in time for the fall gardening season, we anticipate an increased profit from the margins from the metal sector and are confident that this expanded line of business will have a positive effect on the company's overall profitability.
A major milestone for the company in 2023 was the introduction of pulp. Our cutting edge selection of sustainable gourmet sauces and Chile based products which follow which allowed edible gone to enter the global sauces and condiments sector, a sector is projected to go from $172 billion in 2021 to over 240 billion by 2028. Expanding into a new candidate product category was significant for the company as it provides us with higher margin products for longer shelf life. In addition, it provides the edible Garden brand with additional visibility as a product will be located in retailers' rich refrigerated sections, which are adjacent to our Pro products that are already that they already carrying in the produce section of their locations.
Within a short time, we've introduced talk to many new retailers and markets after initial launch at Whole Foods Market retail locations across their middle Atlantic and Southeastern divisions. In the summer of 2023, we rapidly added new retailers are now carrying multiple products. Pulp is now available at more volumes, 16 locations in New York metropolitan area Dearborn market, 26 locations in the greater St. Louis metropolitan area as well as women's market with 19 locations across Wisconsin and Illinois. Most recently target joined our growing list of retail partners carrying the top line in 2020 for the expansion to target Southeastern stores significantly expands our distribution network for all edible garden products, which now spans over 5,000 retail locations across the nation, including several major big-box retailers. Adobe Garden will support this launch by rolling out a robust marketing campaign that includes sampling, geo-targeting, influencer partnerships and promotional pricing. We are confident that once customers tires sustainable, USDA Organic blend of bold gourmet sauces. They will they will be eager to explore more offerings in the product line, given targets nationwide presence, we anticipate that this collaboration will significantly boost the growth and visibility of both our pulp product line and Edible Garden brand. Overall, in early March of this year, we announced that key distributors, the premier distributor of natural and organic specialty and fresh products is now carrying our pulp product line. Ked's expansive distribution network encompasses over 31,000 natural food stores chain and independent grocery stores, e-commerce for e-commerce retailers and other specialty product retailers across North America. In January 2024, we launched pulp the pulp e-commerce site enhancements, accessibility to our gourmet sauces by enabling online purchase directly. This move significantly broadens consumer apps towards distinctive flavors. The overwhelming positive reception of pulp has underscored our reputation as the flavor maker with our unique Pepper is turning south into the US into aficionados.
Thank you to our thanks to our e-commerce platform customers across country. We can now enjoy brandable flavors of pulp from their homes earlier this year, the US Patent Trademark Office awarded and have begun to Nipent. The first patent pertains to grant them a web based greenhouse management system and demanding system planning system that enabled the Company to enhance our supply chain, which has led to improved shipping and floors along side notable sales. This was the third distinct patent awarded for this advanced system.
The second patent highlights our commitment to innovation to our proprietary soft watering display technology. This technology has been a game changer for the company, extending plant plant shelf life and ensuring freshness and dramatically reducing spoilage at retailer outlets aligned with us aligned with our stated zero waste inspired mission itself, watering displays all retailers to showcase plants at their peak, minimizing waste and deliver superior products to customers. These patterns are testament to edible guys leading role in the ag tech industry, further demonstrating the Company's unwavering commitment to leading edge innovation through the deployment of advanced technologies such as these patents, we are driving official operational efficiency, enhancing expected profitability, highlighting edible Gardens commitment to sustainable development and its position as a leader in agricultural technology.
Recently, the Company was awarded several grants to cover various expenses related to the organic crops, certification and training costs of the greenhouse facilities in Belvedere, New Jersey and Grand Rapids, Michigan and Michigan. The company was granted funding by the government going Pro talent fund overseen by the Michigan Department of Labor and economic opportunity and facilitated by Michigan works. This support was designated to cover training costs for our staff at the edible garden Heartland facility in Grand Rapids, Michigan, focusing on essential skills like supply chain management, transportation and logistics. Additionally, we secured a grant from Michigan, our Occupational Safety and Health Administration, which will assist in creating a safer and healthier work environment, edible garden Heartland, thereby reducing the risk of workplace accidents and health issues among employees in New Jersey. The Company was awarded a grant by the United States Department of Agriculture organic certification program managed by the Hackett Towne Farm Service Agency. This grant provides financial assistance to organic producers and handlers offering reimbursement to help cover the expenses related to obtaining organic certification and processing and handling certifications. The grants we've received underscore our commitment to food safety and are a valuable addition to our research collaboration. We are also engaged in a project New York, New York Institute of Technology, USDA and the EPA to explore the impact of nanoparticle technology on the safety and processing of fresh products. Additionally, our collaboration with other universities department horticulture aims to tackle food safety challenges associated with fresh produce. These collaborations highlight our dedication to upholding the highest standards of food, safety and quality across our product lines.
I would like now to turn the call over to costs as follows who recently joined edible Garden as our Interim Chief Financial Officer will review the financial results for the three months and year ended December 31st, 2023 quarters.

Kostas Dafoulas

Thanks, Jim, and good morning, everyone. Starting with the fourth quarter of 2023 results, the Company reported revenue of $4.1 million, an increase of 32.8% compared to 3.1 million for the fourth quarter of 2022. This increase was driven by higher demand from the existing customer base, expansion of our product lines and the expansion of our products footprint in key retail partner stores. Cost of goods sold was $3.8 million for the three months ended December 31st, 2023, compared to 3 million for the 2022 comparable quarter. The increase was the result of costs related to the build-out and staffing of our Heartland facility, increases in rates charged by our suppliers, higher packaging costs due to inflation and higher labor costs. Despite the increase in COGS, we expanded margin by 4.5% year over year.
Selling, general and administrative expenses were 2.6 million for the three months ended December 31st, 2023, compared to 3.1 million for the same quarter in 2022. The decrease was primarily driven by reduction in professional services expenses related to our IPO, along with costs associated with the build-out of our Heartland facility. Net loss was $3.1 million or $0.54 per share for the three months ended December 31st, 2023, compared to a net loss of $3 million or $9.13 a share for the quarter ended December 31st, 2022. Net loss for the three months ended December 31st, also included a one-time non-cash impairment charge of 700,000 related to the write-down of legacy assets acquired from our predecessor company.
Now turning to the full year 2023 results. Revenue totaled $14 million, an increase of 2.5 million or 21.6% compared to $11.6 million in 2022. A $2.2 million revenue increase was attributed to sales of our Carter's and floral products, driven by a mix of organic growth and new customers. Additionally, sales of our vitamins and supplements increased 324,000 during the year ended December 31st, 2023 driven by consumer demand.
Cost of goods sold was $13.2 million for the year ended December 31st, 2023, compared to $11.2 million for year ended December 31st, 2022. The increase was primarily due to 2.6 million of higher costs for operating the edible garden Heartland facility, which transitioned to growing our herbs and latest products during 2023. These increases were offset by a 377,000 decrease in freight and shipping costs and the decline of $264,000 in costs for supplies and raw materials for our edible garden flagship facilities, gross profit increased 126% or 458,000 to 800, $22,000 for the for the year compared to 364,000 last year. Gross profit margin increased by 270 basis points to 5.85% of revenue in 2023 compared to 3.15% of revenue in 2022. Improvement in margins was primarily attributed to less reliance on contract doors in 2023 versus 2022.
Selling, general and administrative expenses were 10 million for the year ended December 31st, 2023 compared to 9.4 million for the year ended December 31st, 2022. The increase was primarily driven by additional costs incurred to operate the edible garden Heartland facility net loss was 10.2 million or $3.8 per share for the year ended December 31st, 2023, compared to net loss of 12.5 million at $48.68 per share last year. Please note per-share amounts have been adjusted to reflect all stock split net loss for the 12 months ended December 31st, 2023 also included a onetime noncash impairment expense of $700,000 related to legacy assets acquired from our predecessor company.
In conclusion, we continue to focus on providing outstanding products and value to our customers while improving the financial performance of the Company. We've demonstrated in 2023 that we're focused on growth while improving profitability, and I'm excited for what's to come in 2024. Operator, please open the call for questions.

Operator

Frankie, at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two. If you'd like to remove your question from the queue of participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please while we poll for questions, banQi?

Question and Answer Session

Operator

Nick Herbert, Maxim Group.

Thank you. Good morning and congrats on the quarter. And the year. Can you provide us an update on the build-out and integration of the Heartland facility?

James Kras

I guess Paul high net of time.
Nick, it's Jim Kraus.

Kostas Dafoulas

Are you and are you?

I'm good on the status right now is that the the facility we've made a significant investment is currently shipping on myAir, which is one of our largest customers on significant volume we've deployed not only argument but technology to help us run the operations. We have a fully operating operating state of the art packed house, which we just and put in some new machinery in the last 30 to 60 days to help lower our manpower cost while increasing increasingly the ability to ship more units in in April, we'll be bringing in a considerable amount of our four-inch pilot, um, um, higher margin product that's currently already being grown in the greenhouse. We have five acres there that will convert into being vertically integrated in April, and we'll start to see some of the benefits of that in May. So we'll be 100% fully operational come come in the next few weeks with us handling all of our product that's in the Midwest flowing through our facilities. So once again, five acres fully operational, full processing 100% deployed as well as in our software overlay Quintum being deployed.

Awesome. Thank you for that color. And then kind of switching gears, you mentioned that the protein powder being sold at the Myer locations. This is kind of one of the first times it's been mentioned in and during these earnings releases recently, what is the near term and medium term plan is are you is this more just stay and opportunistic where you're working with Myer and you're increasing your SKUs?

Or is this the beginning of maybe a more substantial kind of accelerated rollout plan, your other retail partners that you well, the company now with the completion of of the Heartland facility, we are looking to push out and focus on leveraging our distribution platform. We've been in 5,000 plus stores being in business with the likes of Meyer and Walmart and Target and whatnot allows us the opportunity to put more product through those doors. We've had this kind of legacy brand and vitamin way at Myer. It's been a high performer for quite some time, and we see ourselves about accelerating that business and then leveraging from there to go into some of these other retail partners that we have. We've already started that national rollout presentation process. We're working on a new a new line as well on that. Will that will sort of augment vitamin way, which is really a price-value, great tasting performance product. We're looking at something that potentially cleaner labels and more contemporary that has a wider, a wider audience and we've got some we're one of the benefits we have here is we have very strong relationship with NuCom on the on their expertise in flavoring these products as well as developing state of the art formulas. So partnering with them in order to drive and higher margin better for you products is something that's going to be a big initiative going into the second half of this year. And with that with us leveraging the relationships as well as the more contemporary assortment and better margins.

Understood.

And then my final question is, can you provide us a more extensive details on introduction of EG. direct and the sourcing and supplier.

Our new G. two MEREG. Direct continues to be developed on the thrust of EZ directors really to start to leverage once again, the relationships that we have. We have really good relationships with our retailers based on our performance, and we're looking at that for not only a national a national but international opportunity to really use that as sort of the arm of the business that help source products ideally a higher margin, potentially third party things that we don't necessarily grow or things that we end up manufacturing and want to bring into into the platform. So we continue to work on that we've already started utilizing the relationship there to start to bring in some product from overseas that at a higher margin.

Operator

Understood.

Thank you again for answering of my questions and congrats on the quarter and I'll return to the queue.

Thanks.

Operator

(Operator Instructions) Nicole Kaufman, who is an investor. Your line is line.

Good morning, gentlemen, and thanks for taking my questions and congrats on the fourth quarter results and 2023 results. So in the past, you guys have talked about getting the Company cash flow positive. Can you guys discuss what you're doing to drive efficiencies there and get the Company cash flow positive?

James Kras

Sure. Thanks. I'll take this first.

As we we've continued to invest in technology as well, as I mentioned it to Nick on higher speed. Our more efficient production lines are with our cutter herbs. I think the from integration of our contract grower business right now that we don't benefit from from the margin contribution of that. That's a considerable part of the business that's on the Midwest that will be coming in that will help our cash flow dramatically as well as help us drive towards profitability. I think what you saw last year was us continuing to invest in the business and to continue to iron out a lot of the issues we had with just trying to get things up to scale and run well. And I think just with some of the tweaks that we've made with, like I said, better more efficient lines reduction in manpower because of the lines running better and being more automated, I think you'll just see an overall optimization across the whole supply chain, which I think will lead towards us being cash flow positive at some point in the future.

Thanks, Amit. That's helpful. And then regarding your gross profit margin, which almost doubled in 2023, and what do you attribute that success to and moving forward, how would you further increase your growth profit margins closes?

James Kras

Do you want to take that one?

Kostas Dafoulas

You've got involved with AutoStar and then you can add to it on the call.
Thanks for the question, Phil. One of the things you mentioned earlier in the call is less reliance on contractors and that's that's going to continue to manifest itself this year and beyond with the online of our Heartland facility. So that's going to reduce our kind of rock rock costs of the materials and supplies and seeds, et cetera that we purchased for the business and less reliance on those contract growers gives us much more control over our cost structure and profitability essentially. So as we continue to kind of online and and drive more product through the through our internal facilities rather than rely on those contract growers. And we should expect the margin to continue to grow somewhat And furthermore, you know to what Jim was saying, we're looking to add to our product mix and drive the products that are higher margin through the business, more shelf-stable. So we're less reliant on the seasonality and sort of potential product issues with with plants in general.

And I think those three things as they continue to kind of manifest themselves through our financial results will continue to drive gross profit from Jim, feel free to add to that, not that that was I mean that sums it up and say, you know, it's a combination of factors, but it's widening the base and the assortment of products so that we have not only what we're great at, which is the produce and floral business, but also bring in these higher margin, as you know, more shelf-stable products. And we see that with pulp, you see that with the vitamins and I think you'll see a nice mix which will dramatically impact the margins as we move forward as we widen the base and deepen our relationships with more items that it has been a better margin.

Thank you, both. That makes sense and thanks for the additional color on that. And so to touch on pulp for a minute on with the new entry into this new product category, are you exploring any other product categories that you would be looking to enter?

James Kras

Yes. Once again, I mean, sticking with the zero waste inspired theme and our brand brand promise of doing more with less we are looking at products that fit that, that kind of brand persona.

And with that, we're going to be introducing new products this year that are within this condiment category on that we're looking to lead and drive with the relationships that we have. And we've being known as a purveyor of fresh and being so prominent. And so many of these big-box retailers in their produce section gives us permission to develop products that sort of link what we're known for. And you're going to see that type of product introduction and information and that we're known for as a company, we will kind of go from being fresh into more bottled, more self shelf-stable, more good for you and more on sustainable type of products.
So yes, would be the answer, and that is underway. And I think you'll see some of the exciting stuff over the next quarter as we as we get ramped up on that part of the business for things, Jim, I'm looking forward to that. And then my last question is, can you provide any additional color on how that sales of pulp are going I obviously can't get into specifics, but what I can tell you is that and this is in our press release as well as the script that I mean that I had mentioned in the script, we continue to drive penetration with with the retailers coming on board on KG. is a notable one just in the last 30 to 60 days and with access to 31,000 doors, we're continuing to drive that relationship and we continue to see a very positive response to the product line.

James Kras

And so I think we've got some.

We've got the we've got we're bullish on how we think this product line is going to do and where it's going to go.

Well, great. Thank you for answering all my questions and congratulations again on the results.

James Kras

Thank you very much.

Operator

Thank you.
As we have no further questions on the line at this time, I will hand it back management for any closing.

James Kras

Thank you again for joining us today. I continue to be optimistic about our business's future, thanks to our growing retail networks, diverse product line and strict expense control. We believe these elements are key to our continued success and are paving the way for sustained revenue growth. Our focus on financial discipline and operational efficiency is crucial to our strategy as we aim to become cash flow positive, and we look forward to providing updates on our progress progress in the coming months.

Operator

Thank you, Frankie. This does conclude today's conference call. You may disconnect your lines at this time and have a wonderful day, and we thank you for your participation.