Barfresh Food Group, Inc. (NASDAQ:BRFH) Q1 2024 Earnings Conference Call May 15, 2024 4:30 PM ET Company Participants Riccardo Delle Coste - Founder and CEO Lisa Roger - CFO Conference Call Participants Nicholas Sherwood - Maxim Group Operator Good afternoon, everyone, and thank you for participating on today's First Quarter, 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. Followin ...

Financial Performance - Revenue for Q1 2024 was $2,829,000, a 35.3% increase from $2,091,000 in Q1 2023[10] - Gross profit for Q1 2024 was $1,170,000, compared to $855,000 in Q1 2023, reflecting a gross margin improvement[10] - Net loss for Q1 2024 was $(449,000), significantly reduced from $(889,000) in Q1 2023, indicating improved operational efficiency[10] - Revenue increased by $738,000, or 35%, to $2,829,000 for the three months ended March 31, 2024, compared to $2,091,000 in 2023[89] - Gross profit for the same period was $1,170,000, representing a gross margin of 41.4%, up from $855,000 and 40.9% in 2023[90] - Net losses decreased to approximately $449,000 in Q1 2024 from $889,000 in Q1 2023, reflecting improved revenue and reduced operating expenses[94] Cash Flow and Liquidity - Cash and cash equivalents at the end of Q1 2024 were $1,167,000, down from $1,891,000 at the end of Q1 2023[25] - The company reported net cash used in operating activities of $1,224,000 for the three months ended March 31, 2024, unchanged from the same period in 2023[42] - Cash used for operations was $769,000 during the three months ended March 31, 2024, with ongoing challenges in achieving positive cash flow due to supply constraints[84] - The company has $1,167,000 in cash as of March 31, 2024, indicating liquidity needs will depend on sales ramp-up and expense control[107] Expenses and Cost Management - Total operating expenses for the three months ended March 31, 2024, were $1,744,000, down from $1,765,000 in the previous year, reflecting a decrease of approximately 1.2%[42] - Selling, marketing, and distribution expenses increased by $27,000 (4%) to $667,000, while sales and marketing expenses decreased by $26,000 (-7%) to $330,000[91] - Personnel costs decreased by approximately $227,000 (-46%) to $262,000, while stock-based compensation increased by approximately $94,000 (45%) to $303,000[92] - General and administrative expenses decreased by approximately $136,000 (14%) from $994,000 in 2023 to $858,000 in 2024[115] Assets and Liabilities - Total current liabilities decreased to $2,086,000 in Q1 2024 from $2,307,000 in Q1 2023[8] - The company’s total assets decreased to $4,748,000 in Q1 2024 from $4,810,000 in Q1 2023[25] - Working capital increased to $1,981,000 as of March 31, 2024, compared to $1,846,000 at December 31, 2023[118] Inventory and Production - The company’s inventory increased to $1,284,000 in Q1 2024 from $1,214,000 in Q1 2023, reflecting growth in production capacity[25] - Inventory as of March 31, 2024, totaled $1,284,000, an increase from $1,214,000 as of December 31, 2023, representing a growth of approximately 5.8%[58] Legal and Compliance - The company is currently involved in legal proceedings related to a contract manufacturer, with potential economic damages sought[46] - Legal, professional, and consulting fees increased by $42,000 (37%) due to legal expenses related to a claim against the Manufacturer[133] Stock and Compensation - The company reported stock-based compensation of $366,000 in Q1 2024, up from $268,000 in Q1 2023[29] - The company has $77,000 of total unrecognized share-based compensation expense expected to be recognized over a remaining weighted average period of 1.1 years[70] - The company granted approximately 445,000 PSUs under the 2024 PSU program, incurring $125,000 in expense for this program[105] - As of March 31, 2024, the company had 630,786 stock options outstanding with a weighted average exercise price of $6.15 per share[71] Supply Chain and Operational Challenges - The company experienced a supply disruption due to quality issues with a contract manufacturer, which has adversely impacted operations and cash flow[62] - The company has mitigated supply disruption impacts by introducing single-serve smoothie cartons, although acceptance has varied among customers[62] Future Outlook - The company expects expanded manufacturing capacity to become available in 2024, subject to risks associated with contracting and pre-production activities[89] - The estimated effective tax rate for 2024 was zero, with a valuation allowance placed on all deferred tax assets[82]

[Report Overview](index=1&type=section&id=Form%208-K%20Cover%20Page) This section details the company and filing information for the Form 8-K [Company and Filing Information](index=1&type=section&id=Company%20and%20Filing%20Information) Barfresh Food Group Inc. filed this Form 8-K on May 15, 2024, detailing its Delaware incorporation and Nasdaq stock listing under BRFH - Company Name: **Barfresh Food Group Inc.**[2](index=2&type=chunk) - Date of Report: **May 15, 2024**[2](index=2&type=chunk) - State of Incorporation: **Delaware**[4](index=4&type=chunk) - Stock Trading Symbol: **BRFH** on The Nasdaq Stock Market LLC[5](index=5&type=chunk) [Item 2.02 Results of Operations and Financial Condition](index=2&type=section&id=Item%202.02%20Results%20of%20Operations%20and%20Financial%20Condition) Barfresh Food Group, Inc. issued a business update on May 15, 2024, coinciding with its Form 10-Q filing for the quarter ended March 31, 2024 [Use of Non-GAAP Measures](index=2&type=section&id=Use%20of%20Non-GAAP%20Measures) The company uses non-GAAP measures like EBITDA and Adjusted EBITDA to enhance understanding of core business performance and for internal strategic planning - The company presents non-GAAP measures, including **EBITDA** and **Adjusted EBITDA**, to aid in understanding its business performance[8](index=8&type=chunk) - Management uses **Adjusted EBITDA** for internal budgeting, forecasting, strategic planning, and evaluating business strategy effectiveness[20](index=20&type=chunk) - Reconciling items from GAAP net loss to **Adjusted EBITDA** include non-operational or non-cash costs like stock compensation, product withdrawal costs, and manufacturing relocation costs[8](index=8&type=chunk) - The company cautions that **Adjusted EBITDA** should not be seen as an alternative to net loss and may not be comparable to similar measures used by other companies[9](index=9&type=chunk) [Item 7.01 Regulation FD Disclosures](index=2&type=section&id=Item%207.01%20Regulation%20FD%20Disclosures) Information regarding the company's results of operations and financial condition from Item 2.02 is incorporated by reference into this section [Incorporation by Reference](index=2&type=section&id=Incorporation%20by%20Reference) The disclosures provided in Item 2.02 are formally incorporated into Item 7.01 - The disclosures set forth in Item 2.02 are incorporated by reference into Item 7.01[15](index=15&type=chunk) [Item 9.01 Financial Statements and Exhibits](index=2&type=section&id=Item%209.01%20Financial%20Statements%20and%20Exhibits) This section lists the exhibits accompanying the Form 8-K, primarily the May 15, 2024 press release detailing business updates and financial results [List of Exhibits](index=2&type=section&id=List%20of%20Exhibits) The report includes two exhibits: the press release discussing the financial results and a Cover Page Interactive Data File Exhibit List | Exhibit No. | Description | | :--- | :--- | | 99.1 | Press Release of Barfresh Food Group, Inc. dated May 15, 2024 | | 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | [Forward-Looking Statements](index=2&type=section&id=Forward%20Looking%20Statements) The report includes a safe harbor statement cautioning that forward-looking statements about commercial progress and financial performance are subject to risks and uncertainties and are not guaranteed [Risk Disclosure](index=2&type=section&id=Risk%20Disclosure) The company identifies forward-looking statements, warning they are subject to numerous risks and uncertainties beyond its control, advising investors to review other SEC filings - Forward-looking statements concern the company's commercial progress and future financial performance[14](index=14&type=chunk) - These statements are based on assumptions and are subject to significant risks and uncertainties, many of which are beyond the company's control[14](index=14&type=chunk) - The company is not obligated to publicly update any forward-looking statements, except as required by law[14](index=14&type=chunk) [Signatures](index=3&type=section&id=SIGNATURES) The report is duly signed and authorized by the company's Chief Executive Officer, Riccardo Delle Coste, on May 15, 2024 [Authorization](index=3&type=section&id=Authorization) The Form 8-K was officially authorized and signed by CEO Riccardo Delle Coste on behalf of Barfresh Food Group Inc - The report was signed on **May 15, 2024**, by **Riccardo Delle Coste**, the company's CEO[18](index=18&type=chunk)

Company Bolsters Prescence in Southeast with Additional 82 New Broker Sales People Representing Barfresh's Entire Line of Smoothie Products Move Rapidly Scales Barfresh's Sales Footprint Amid Accelerating Customer Momentum, Driving Barfresh's Projected Record Fiscal Year 2024 Revenue and Year Over Year Margin Expansion LOS ANGELES, May 13, 2024 (GLOBE NEWSWIRE) -- Barfresh Food Group Inc. (the "Company" or "Barfresh") (NASDAQ:BRFH), a provider of frozen, ready-to-blend and ready-to-drink beverages, today an ...

Barfresh Secures 443 New School Customer Locations Across Multiple States, Serving Barfresh Products to Over 360,000 Students Customer Growth Acceleration Fuels Company's Projected Record Fiscal Year 2024 Revenue and Year Over Year Margin Expansion LOS ANGELES, May 07, 2024 (GLOBE NEWSWIRE) -- Barfresh Food Group Inc. (the "Company" or "Barfresh") (NASDAQ:BRFH), a provider of frozen, ready-to-blend and ready-to-drink beverages, reinforced its education channel sales momentum today by announcing new multi-st ...

Seasoned Executive Brings Decades of Expertise and Industry Partnerships to Optimize Supply Chain Operations Strategic Hire to Amplify Management's Efforts Towards Significant Sales Uplift Expected in Fiscal Year 2024 LOS ANGELES, May 01, 2024 (GLOBE NEWSWIRE) -- Barfresh Food Group Inc. (the "Company" or "Barfresh") (NASDAQ:BRFH), a provider of frozen, ready-to-blend and ready-to-drink beverages, today announced the appointment of Marko Matla as Vice President of Supply Chain & Co-Manufacturing. In his rol ...

Company Secures Seven Co-Operatives to Serve Barfresh Twist & Go Smoothies on the Breakfast Menu in Over 2,200 New Schools to Approximately 1.5 Million Students for Fall Company Projects to Achieve Highest Annual Revenue in Fiscal Year 2024 and Year-over-Year Margin Improvement Amid Bottling Recovery Efforts, Propelled by Accelerated Customer Wins Company Expects Confirmation from Many Additional New School Bids Expected to be Won in the Next Few Months to Begin this Fall LOS ANGELES, April 26, 2024 (GLOBE ...

Revenue and Profitability - Revenue for Barfresh was $8,127,000 in 2023, a decrease of $1,035,000 or 11% compared to $9,162,000 in 2022[133] - Gross profit increased to $2,884,000 (36%) in 2023 from $1,440,000 (16%) in 2022, reflecting improved margins[135] - Net loss improved to approximately $2,824,000 in 2023 from $6,134,000 in 2022, a decrease of approximately $3,296,000[148] Cost Management - Cost of revenue decreased by $2,479,000 or 32% from $7,722,000 in 2022 to $5,243,000 in 2023[134] - Selling, marketing, and distribution expenses decreased by approximately $247,000 or 9% from $2,861,000 in 2022 to $2,614,000 in 2023[141] - General and administrative expenses decreased by approximately $855,000 or 24% from $3,549,000 in 2022 to $2,694,000 in 2023[143] - Research and development expenses decreased by approximately $267,000 or 70% from $382,000 in 2022 to $115,000 in 2023[139] Financial Position and Liquidity - Working capital as of December 31, 2023, was $1,846,000, compared to $1,801,000 at December 31, 2022[150] - Liquidity needs will depend on the ability to profitably ramp up sales and control variable operating expenses[151] - Operations have been financed through the sale of securities, convertible debt, and short-term debt, including related party advances[152] - If sufficient cash flow from operations is not generated, additional funds will need to be raised either through equity or debt[152] - There are no off-balance sheet arrangements that materially affect the financial condition or results of operations[153] - The company is classified as a smaller reporting company, thus quantitative and qualitative disclosures about market risk are not applicable[154] Business Developments - The company drew down $1,390,000 in convertible debt on October 23, 2023, and converted $1,207,000 of principal into 820,160 shares of common stock[149] - The company is actively working to develop additional smoothie bottle manufacturing capacity, with expectations for expansion in 2024[133] - Recent business developments with the Manufacturer are expected to negatively impact financial position, results of operations, and cash flow[151]

Financial Data and Key Metrics Changes - The company generated its second-highest fiscal year revenue in 2023 with $8.1 million, despite a full year without its largest Twist & Go bottle manufacturer, which previously accounted for over 50% of purchases [19][37] - Gross margin for the full year of 2023 was 36%, compared to 16% for the same period in 2022, attributed to higher-margin carton sales and pricing actions [24] - Net loss for the fourth quarter of 2023 was $701,000, an improvement from a net loss of $1.9 million in the fourth quarter of 2022 [24][52] - Adjusted EBITDA loss for the fourth quarter of 2023 was approximately $427,000, nearly half of the loss in the same period of 2022 [53] Business Line Data and Key Metrics Changes - The company experienced a slight setback in production due to a national carton shortage that began in December and affected sales into early February [20][51] - Selling, marketing, and distribution expenses for the fourth quarter of 2023 were $624,000, nearly unchanged from $625,000 in the fourth quarter of 2022 [38] - The company expanded its product offerings with the relaunch of its 100% juice concentrates, which are USDA reimbursable and compliant for schools [21] Market Data and Key Metrics Changes - The company expects to have sales coverage across 49 out of 50 states by the end of the first quarter of 2024, enhancing its market presence [22] - The revenue for the fourth quarter of 2023 was $1.9 million, an increase from $1.4 million in the fourth quarter of 2022, driven by improved supply and increased capacity [51] Company Strategy and Development Direction - The company is focused on expanding both carton and bottle capacity, with engineering changes made to increase carton capacity to approximately 25 million to 30 million units per year [1] - The company plans to market its newly relaunched WHIRLZ 100% Juice Concentrates through sales brokers to the general food service market and education channel [22] - The company is also exploring options to expedite securing additional bottle capacity, expecting resolution before the new school year in August 2024 [2] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving record first-quarter revenue for 2024, having already achieved over $2 million in sales with a month remaining in the quarter [36] - The company believes there is significant growth potential in the education channel and is optimistic about future sales due to increased capacity and expanded sales networks [36][60] - Management noted that the carton supply issue has been fully resolved, allowing for a return to full production [56] Other Important Information - The company is in the final stages of signing with a new co-manufacturer to replace the loss of its largest one, which was unable to execute the contract due to internal issues [34] - The company is also working on a national agreement to provide coverage for all U.S. Military bases, which is expected to significantly boost sales [50] Q&A Session Summary Question: Impact of carton shortage on gross margins and future plans - Management indicated that the carton supply issue has been resolved and they are back to full production, although there may be some compression on margins in the first quarter due to higher SKU counts [55][56] Question: Update on bottle manufacturing capacity and other opportunities - Management confirmed they are exploring multiple options for bottle manufacturing and are confident in resolving capacity issues quickly, with several opportunities on the table [44][58] Question: Military channel and other opportunities outside of schools - Management highlighted ongoing efforts to establish a dedicated military channel team and emphasized the importance of high-volume accounts in recreation and amusement locations [45][50]

[Executive Summary](index=1&type=section&id=Executive%20Summary) Barfresh achieved **$8.1 million** in FY2023 revenue with **36%** gross margins, overcoming supply chain issues and projecting record Q1 2024 - Achieved the second-highest fiscal year revenue in company history at **$8.1 million**, despite supply chain disruptions[2](index=2&type=chunk) - Fourth-quarter results were negatively impacted by an industry-wide carton shortage, which has since been resolved but affected the first six weeks of fiscal 2024 sales[3](index=3&type=chunk) - The company is focused on securing a new bottle manufacturing partner before the new school year begins in August 2024 to support long-term growth plans[3](index=3&type=chunk) - Barfresh is projected to generate record revenue in the first quarter of 2024 compared to any prior first quarter[2](index=2&type=chunk) [Financial Performance](index=1&type=section&id=Financial%20Performance) Barfresh's 2023 financial performance showed mixed results, with full-year revenue declining to **$8.1 million** but gross margins improving to **36%**, and net losses narrowing [Fourth Quarter 2023 Financial Results](index=1&type=section&id=Fourth%20Quarter%20of%202023%20Financial%20Results) Q4 2023 revenue increased to **$1.9 million** with **33%** gross margin, while net loss significantly narrowed to **$701,000** due to reduced G&A expenses Q4 2023 vs Q4 2022 Financials | Metric | Q4 2023 | Q4 2022 | Change | | :--- | :--- | :--- | :--- | | Revenue | $1.9 million | $1.4 million | +35.7% | | Gross Margin | 33% | 36% | -3 p.p. | | Net Loss | $(701,000) | $(1,900,000) | +63.1% | | G&A Expenses | $629,000 | $912,000 | -31.0% | - The increase in revenue was attributed to improved supply from increased carton production capacity and the return of customers lost due to the previous year's bottle manufacturer issue[3](index=3&type=chunk) [Fiscal Year 2023 Financial Results](index=1&type=section&id=Fiscal%20Year%202023%20Financial%20Results) FY2023 revenue was **$8.1 million**, down from **$9.2 million** in 2022, but gross margin improved to **36%**, and net loss significantly reduced to **$2.8 million** FY 2023 vs FY 2022 Financials | Metric | FY 2023 | FY 2022 | Change | | :--- | :--- | :--- | :--- | | Revenue | $8.1 million | $9.2 million | -12.0% | | Gross Margin | 36% | 16% | +20 p.p. | | Net Loss | $(2.8 million) | $(6.1 million) | +54.1% | | G&A Expenses | $2.7 million | $3.5 million | -24.0% | - The decline in annual revenue was a result of limited supply and lost customers from the loss of its largest bottle manufacturer, compounded by a carton shortage late in the year[10](index=10&type=chunk) - The 2022 net loss was impacted by **$1.8 million** in charges related to a product withdrawal and a **$746,000** non-cash asset impairment charge[5](index=5&type=chunk) [Non-GAAP Financial Measures](index=2&type=section&id=Non-GAAP%20Financial%20Measures) Adjusted EBITDA loss narrowed for both FY2023 to **$1.7 million** from **$2.4 million**, and for Q4 to **$427,000** from **$833,000** Adjusted EBITDA Reconciliation Summary | Period | Net Loss | Adjusted EBITDA | Year-over-Year Improvement | | :--- | :--- | :--- | :--- | | **Q4 2023** | $(701,000) | $(427,000) | 48.7% | | **Q4 2022** | $(1,858,000) | $(833,000) | - | | **FY 2023** | $(2,824,000) | $(1,674,000) | 31.5% | | **FY 2022** | $(6,134,000) | $(2,445,000) | - | [Balance Sheet](index=4&type=section&id=Balance%20Sheet) As of December 31, 2023, Barfresh maintained a cash position of approximately **$1.9 million** and held about **$1.2 million** in inventory Key Balance Sheet Items (as of Dec 31, 2023) | Account | Value | | :--- | :--- | | Cash | $1.9 million | | Inventory | $1.2 million | [Business Updates and Outlook](index=1&type=section&id=Business%20Updates%20and%20Outlook) Barfresh is addressing manufacturing and supply chain challenges, pursuing a new bottle manufacturer, managing a legal dispute, and forecasts record revenue with high **30s** gross margins for 2024 [Operational Update](index=1&type=section&id=Operational%20Update) Barfresh increased capacity with existing manufacturers, with carton production reaching **25-30 million** units annually, and is actively seeking a new bottle partner by August 2024 - Carton manufacturer has increased annual capacity to approximately **25 million to 30 million units**[3](index=3&type=chunk) - The company is actively seeking a new bottle manufacturing partner with the goal of having one in place before the new school year in August 2024[3](index=3&type=chunk) [Supplier Dispute](index=4&type=section&id=Supplier%20Dispute) Barfresh is engaged in an ongoing legal dispute with a former manufacturer over Q3 2022 textural consistency issues, having re-filed a complaint in California State Court in August 2023 - The dispute stems from customer complaints in Q3 2022 about the textural consistency of the Twist & Go™ product from one manufacturer, leading to a product withdrawal[17](index=17&type=chunk) - After initial legal filings and attempts at resolution, Barfresh re-filed a complaint in California State Court in August 2023, and the case is progressing[17](index=17&type=chunk) [2024 Outlook](index=4&type=section&id=Commentary%20and%20Outlook%20for%202024) Barfresh has a positive outlook for fiscal year 2024, expecting to achieve record annual revenue and gross profit margins in the high **30s** - Expects to achieve record fiscal year revenue for fiscal year 2024[16](index=16&type=chunk) - Gross profit margins for 2024 are expected to be in the high **30s**[16](index=16&type=chunk) [Conference Call Information](index=4&type=section&id=Conference%20Call) The company scheduled a conference call and webcast for February 29, 2024, at 4:30 pm Eastern Time to discuss the financial results - A conference call to discuss the results was held on Thursday, February 29, 2024, at 1:30 pm Pacific Time (4:30 pm Eastern Time)[18](index=18&type=chunk)