Barfresh Food Group, Inc. (NASDAQ:BRFH) Q4 2024 Earnings Conference Call March 27, 2025 4:30 PM ET

Company Participants

Riccardo Delle Coste - Founder & Chief Executive Officer
Lisa Roger - Chief Financial Officer

Conference Call Participants

Nicholas Sherwood - Maxim Group

Operator

Good afternoon everyone and thank you for participating on today's Fourth Quarter and Full Year 2024 Corporate Update Call for Barfresh Food Group. Joining us today is Barfresh Food Group's Founder and CEO, Riccardo Delle Coste; and Barfresh Food Group's CFO, Lisa Roger. 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 the projections of future financial performance. These forward-looking statements are identified by the use of the 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 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, current reports on Form 8-K, including any warnings, risk factors, and cautionary statements contained therein.

Furthermore, the company expressingly 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 gross profit, EBITDA, adjusted EBITDA, which are reconciled in tables in the business update released to the most comparable GAAP measures and certain calculations based on the results, including gross margin and adjusted gross margin. The reconciling items are non-operational or non-cash costs, including stock compensation and other non-recurring costs, that are those associated with the project withdrawal, the related dispute and certain manufacturing relocation costs.

Management believes that adjusted gross profit, EBITDA and adjusted EBITDA provides useful information to the investors, because they are directly reflective of the performance of the company. Now, I would like to turn the call over to the CEO of Barfresh Group, Mr. . Riccardo Delle Coste.

Please go ahead, sir.

Riccardo Delle Coste

Good afternoon, everyone, and thank you for joining us for our fourth quarter and full year 2024 earnings call. 2024 was a transformative year for our company, one where we made significant strategic investments and operational enhancements that have positioned us for sustained growth. I'm pleased to report that these efforts delivered record full year revenue, and we expect this momentum to continue with another year of record revenue expected in 2025, and with growth guidance between 35% and 55%.

Our revenue guidance accounts for continuing orders from existing customers and confirmed bids, while also considering estimate revenue from end-user opportunities at later stages in our sales pipeline, including two of the top 10 largest school districts in the United States. Let me highlight our key accomplishments. First, we successfully addressed our manufacturing capabilities, after losing our largest co-manufacturing in 2022 and we secured and began onboarding two new strategic partners.

While this transition created some near-term cost pressures in Q4, we expect the onboarding to be complete by the end of Q2 2025 and bringing us to full manufacturing capacity in time for our high season selling in the education channel, which picks up with back-to-school demand in Q3. Second, we expanded our product portfolio with the significant launch of Pop & Go, 100% Juice Freeze Pops in our education channel during Q4. While this new product contributed modest revenue in its first quarter, we're excited about its potential.

Unlike our breakfast focus offerings, this product targets the lunch daypart our market opportunity significantly larger than breakfast. With manufacturing ramping to full capacity by the end of Q2, we expect material revenue contribution from this product in 2025. Third, we secured our financial foundation through non-dilutive financing, including non-recourse litigation financing and a $1.5% million line of credit.

Additionally, we raised $3 million through the sale of common stock, providing us with the resources to execute our growth strategy. On the sales front, we've built a robust sales network with 95% coverage across the U.S. While we've had strong success in new customer acquisition in the education channel, we're still only at a 5% market penetration, representing significant runway for growth. Now, let me address our performance.

While we achieved record revenue for fiscal year 2024, our results in the fourth quarter were impacted by two temporary factors, costs associated with installing production equipment, while onboarding our new co-manufacturers and higher supply chain expenses from sourcing products from multiple locations while we wait for more equipment to arrive that needs to be commissioned. Both pressures will be resolved when we reach full manufacturing capacity by the end of Q2 2025. Looking ahead, we're entering 2025 with strong momentum.

Our expanded manufacturing capacity, new product introductions and robust sales network give us confidence in our growth projection. More importantly, we expect to see meaningful margin improvement as we realize the benefits of our operational investments. Before I turn it over to Lisa for a detailed financial review, I want to thank our employees partners and shareholders for their support during this pivotal year.

While 2024 required significant investment and presented some challenges, it was a central groundwork that has positioned us for strong profitable growth in 2025 and beyond. I'll now turn the call over to our CFO, Lisa Roger. Lisa.

Lisa Roger

Thank you, Riccardo. Revenue for the fourth quarter of 2024 was $2.8% million compared to $1.9% million for the fourth quarter of 2023. Revenue for the full year of 2024 was a record $10.7% million compared to $8.1% million in the same period of 2023.

The increase in quarterly and full year revenue is primarily due to expanded bottle production capacity year-over-year, enabling higher sales volumes, complemented by improvements in smoothie carton and bulk sales. Gross margin for the fourth quarter of 2024 was 26% compared to 33% for the fourth quarter of 2023. Adjusted gross margin for the fourth quarter of 2024 was 30% and compared to 33% in the prior year period. Gross margin for the full year of 2024 was 34% compared to 35% for the same period of 2023. Adjusted gross margin for the full year of 2024 was 37% compared to 35% for the full year of 2023.

The year-over-year improvement in full year adjusted gross margin is a result of favorable product mix, pricing actions, and a slight improvement in the cost of supply chain components, partially offset by the temporary production inefficiencies and increased logistic costs experienced in the fourth quarter of 2024. Selling, marketing and distribution expense for the fourth quarter of 2024 increased to $872,000 or 31% of revenue compared to $624,000 or 32% of revenue in the fourth quarter of 2023. Selling, marketing and distribution expense for the full year of 2024 increased to $3.1% million or 29% of revenue compared to $2.6% million or 32% of revenue in the same period of 2023.

The year-over-year dollar increase in quarterly and full year is a result of increased sales and marketing personnel costs, broker commissions and outbound freight as a result of increased shipments. G&A expenses for the fourth quarter of 2024 were $620,000 compared to $624,000 in the same period last year. G&A expenses for the full year of 2024 were $3 million compared to $2.7% million in the same period of 2023.

The year-over-year increase in full year G&A was driven by an increase in management headcount, an increase in stock-based composition resulting from the increased headcount and the extension of options previously issued to our Board of Directors and the non-recurrence of recognizing employee retention tax credit benefits in 2023. As a result of the above noted changes in gross margin and operating expenses, our net loss for the fourth quarter of 2024 was $852,000 as compared to a net loss of $701,000 in the fourth quarter of 2023. Net loss for the full year of 2024 was comparable to the full year of 2023 at $2.8% million. For the fourth quarter of 2024, our adjusted EBITDA was a loss of approximately $561,000 compared to a loss of approximately $427,000 in the same period last year. For the full year of 2024, our adjusted EBITDA loss was $1.3% million compared to a loss of $1.7% million in the prior year.

Our plans to achieve positive adjusted EBITDA in the fourth quarter were impacted as Riccardo discussed by the start-up costs of onboarding our new co-manufacturers as well as certain manufacturing equipment being in transit which caused us to have to source product from multiple locations to meet customer demand. This resulted in higher logistics costs and less efficient production allocation than our target operating model. The equipment is expected to be installed and operational by the end of the second quarter, and we should return to our optimized production and distribution network.

Now moving on to our balance sheet. As of December 31, 2024, we had approximately $1.1% million in cash and accounts receivable and approximately $1.5% million of inventory on our balance sheet. In the first half of the year, the company deployed a significant amount of cash to build up inventory in preparation for a seasonally high third quarter. The inventory build allowed the company to achieve its highest fiscal year revenue in company history for fiscal year 2024.

The company brought on expanded capacity in the fourth quarter of 2024. Additionally, the company has taken other measures to reduce its liquidity requirements, including compensating its directors and employees with equity to reduce cash compensation requirements, obtaining non-recourse litigation financing and securing receivables financing. In February 2025, the company secured $3 million in gross financing.

This capital raise enhances our financial position and support scaling of production capacity to meet growing customer demand, particularly in the education channel. Now I will turn the call back to Riccardo for closing remarks.

Riccardo Delle Coste

Thank you, Lisa. Before we open up the lines for questions, let me emphasize that while 2024 was a year of strategic investment and transformation, we enter 2025 with expanded product portfolio, robust sales coverage and operational improvements underway. As we continue our co-manufacturer ramp through Q2, we expect revenues and margins for Q1 to be consistent with Q4 levels.

And for the full year of 2025, we expect significant revenue growth of between 35% and 55%, with margin expansion beginning in the second half as our manufacturing capabilities come online. The temporary costs we absorbed in Q4 were necessary investments to build a stronger foundation. We've been waiting for some time for additional bottle capacity to come online, and it's finally started.

And it will be here in a meaningful way very shortly. We have a great pipeline of business, we're confident these actions will drive both top line growth and margin expansion, as we've outlined, making 2025 another record year. We look forward to updating you on our progress in the quarters ahead.

And with that, I would like to open up the line for questions. Operator.

Operator

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Nicholas Sherwood with Maxim Group.

Please proceed.

Nicholas Sherwood

Hi, good evening. My first question is related to the new Pop & Go, Freeze Pops. You talked about how you expect them to contribute meaningfully in the second half of the year.

Can you give us your expectations on how that specific product line is going to help you achieve the revenue guidance you gave for 2025.

Riccardo Delle Coste

Yeah. So it's still pretty early days. We launched the product late in Q4, we launched it in Q4.

So we've started to get it out to customers and trials and testing. So we've had very good feedback in terms of acceptability for the product. We do have bids that are in process now.

So we're right in the middle of bid season. So we do have some customers that have already started to add it on the bids. So we are waiting to see the total effect of all the testing that we've done, and that's really part of the range and potential further upside depending on how well the Pops get into the market in this bid cycle.

Nicholas Sherwood

Understood. And then can you just talk about just how you're working with -- or how is your relationships with your customers been during this -- during some of these production issues that you've had in the fourth quarter.

Riccardo Delle Coste

Yeah. So that's a good question. It's definitely tested some relationships in the sense of having availability of products for some of those customers, because we were tested with supply, and that was a challenge still because even though we turned on some of the bottles that still outstrip the capacity that we had at the time.

Even though we've incrementally added bottle supply, we just haven't had enough because we've been waiting for additional upgrades and change parts to arrive for equipment. Like we discussed on the call, those change parts expected to be here and installed and commissioned before the end of Q2, paving the way for a very, very solid back half of the year with additional supply more than what we need to do our plans. So whilst relationships has been an uncomfortable discussion for some customers in terms of supply.

They really stand there waiting for the product, and they love the product so much. So hopefully, once we've got everything back on track, it will be back in the kids' hands in those schools.

Nicholas Sherwood

Understood. And my final question is, have you heard anything from your customers sort of related to funding the Department of Education as kind of being whipped up for cuts. Are there any -- have you heard anything from them about any worries for budgetary constraints related to your product.

Riccardo Delle Coste

Yes. We haven't really got any direct negative feedback. Obviously, we see what's in the press, and we see some of the programs that are being cut.

Some of those programs that are being cut may actually help us in the long run because they're actually subsidizing other programs that could be offering substitute products than our products that maybe the kids don't like as much, but they have more of a financial incentive to offer them. So there could be out of all the changes so far today, a net positive effect on our products in schools. But again, there's a lot of moving pieces that are going on.

Nothing negative.

Nicholas Sherwood

Understood. Well, yes, thank you for taking the time to answer my questions, and I'll return to the queue.

Riccardo Delle Coste

Thank you.

Operator

Thank you. [Operator Instructions] There are no further questions. This concludes today's teleconference.

You may disconnect your lines at this time. Thank you for your participation.