Edible Garden AG Inc Q1 FY2025 Earnings Call

Good morning everyone and welcome to the Edible Garden AG Incorporated 2025 First Quarter Business Update Conference. At this time, all participants are in a listen-only mode, and the floor will be open for questions following the presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Ted Ayvas, Investor Relations at Crescendo Communications. Ted, the floor is yours.

Thanks, Jenny. Good morning and thank you for joining Edible Garden's first quarter 2025 earnings 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 3 months ended March 31, 2025. The press release is posted on the company's website. In addition, the company will file its Quarterly Report on Form 10-Q with the U.S. Securities and Exchange Commission which will also be accessible on the company's website as well as the SEC's website. If you have any questions after the call, or would like any additional information about the company, please contact Crescendo Communications. Before Mr. Kras reviews the company's operating results for the quarter ended March 31, 2025 and provides a 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 in 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. 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 these 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 on 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 would now like to turn the call over to Mr. Jim Kras, Chief Executive Officer of Edible Garden. Jim?

Thanks, Ted. Good morning and thank you to everyone for joining us today. We're pleased to report that Q1 2025 marked a strong start to the year, reflecting the continued momentum behind our strategic transformation. Our realignment towards higher-margin, shelf-stable products such as Kick. Sport Nutrition, Pickle Party, Squeezables, Pulp, and Vitamin Way is gaining traction and the results are becoming increasingly visible across our business. We also made meaningful progress expanding our national retail presence. During the quarter, we launched or strengthened our relationships with several major retailers including Walmart, Stop & Shop, Wakefern, ShopRite, and Berkot's Super Foods. These relationships are driving growth across both our fresh and non-perishable categories while also leveraging our patented in-store merchandising solutions such as our self-watering displays and reinforcing our omnichannel strategy. Total revenue declined $414,000 to $2.7 million in the first quarter. This decline was primarily attributed to our strategic decision to exit lower-margin floral and lettuce categories. Cut herbs sales rose 13% on a seasonal basis, highlighting sustained consumer demand for freshness and convenience. This deliberate shift in our product mix is already contributing to margin expansion and setting the stage for scalable, profitable growth, highlighting the traction in our non-perishable portfolio where revenue rose 15% year-over-year. Each of our non-perishable shelf-stable brands has contributed to this performance. Kick. Sport Nutrition achieved a milestone with new brick-and-mortar placement at a major Midwest big-box retailer. The brand includes clean-labeled whey and plant-based protein powders, with planned expansion into pre- and post-workout formulas and hydration products. These offerings support performance, recovery, and overall wellness for today's health-conscious consumers. Pickle Party, created in partnership with Hermann Pickle Company, is the world's first functional pickle, fermented, refrigerated, and gut health-focused. Featuring kosher and non-GMO ingredients, it's launching across all Berkot's Super Foods stores and has secured pre-orders at Foodtown and Lincoln Market ahead of the summer season. Squeezables, our shelf-stable, stir-in paste line has successfully completed its pilot and is moving into full-scale production. Pulp, our line of organic fermented gourmet hot sauces and chili-based condiments continues to gain momentum in the premium condiments category and resonates with consumers seeking healthy elevated alternatives to traditional sauces. Vitamin Way and Vitamin Whey offer a growing portfolio of whey and plant-based protein powders, designed to support recovery, overall wellness and daily nutritional needs. The brand continues to combine advanced supplementation with consumer-friendly taste and value. Following a successfully established retail presence, we launched a dedicated e-commerce platform at vitaminwhey.com to broaden access and accelerate brand growth. Gross profit increased 283% year-over-year, nearly quadrupling from Q1 2024, while gross margin improved to 3.2% from 0.7%. This improvement reflects stronger cost control and improved SKU mix. One of the most transforming milestones of the year announced just yesterday was our $15.5 million acquisition from NaturalShrimp Farms. Funded through a mix of preferred equity and institutional investment, this deal strengthens our balance sheet without increasing debt and further extends our vertically integrated model. The acquisition includes a fully operational aquaculture facility in Fort Dodge, Iowa and two patented water treatment technologies. These patented innovations will be integrated into our greenhouse operations to enhance water efficiency and reduce environmental impact, complementing our ongoing nanobubble irrigation trials with BRISEA, New Jersey Institute of Technology, the EPA, and the USDA which have already shown up to a 55% increase in yield and a 30% reduction in harvest cycle time. In addition, the Iowa facility offers valuable infrastructure for expanded R&D warehousing and potential nutraceutical development, supporting our goals around vertical integration, sustainability and long-term innovation. Our commitment to sustainability remains central to our identity. Through initiatives like Walmart's Project Gigaton, we helped avoid nearly 11,800 metric tons of virgin plastic in 2024, conserved over 28,000 gallons of diesel, and diverted 103 tons of food through donation programs. We're proud to be recognized in the FoodTech 500 as a Top 50 company and continue to lead the way in our controlled environment agriculture with a real measurable impact. With a focused strategy, brand momentum, and an even stronger operational foundation, we believe Edible Garden is well positioned to deliver long-term value for our customers, partners, and shareholders. I would now like to turn the call over to Kostas Dafoulas, our Interim CFO, who will review the financial results for the quarter ended March 31, 2025. Kostas?

Thanks, Jim and good morning, everyone. For the quarter ended March 31, 2025, revenue totaled $2.7 million, a decrease of 13.2% compared to $3.1 million for the 3 months ended March 31, 2024. This decline was primarily driven by the company's strategic exit from the lower-margin floral and lettuce products. Non-perishable revenue, however, grew 15% year-over-year in the quarter, a clear indication that our innovative shelf-stable brands like Kick. Sport Nutrition, Pickle Party, Squeezables, and Pulp and Vitamin Way are resonating with customers. Cost of goods sold was $2.6 million for the first quarter of 2025 compared to $3.1 million for the same period in 2024. The decrease reflects the decreased revenue in the quarter as we've seen previously in Q1. Gross profit increased to $88,000 compared to $23,000 in the prior year period, representing an increase of approximately 283% year-over-year. Gross margin improved to 3.2%, up from 0.7% in 2024, reflecting early returns from the company's shift to higher-margin, shelf-stable product lines. Selling, general and administrative expenses were $3.3 million for the quarter, down from $3.9 million in the prior year period. The reduction was primarily attributable to lower personnel costs as we continue to optimize our cost structure and the roll-off of severance expenses incurred in the first quarter of 2024 related to executive transitions. Net loss was $3.3 million for the first 3 months ended March 31, 2025, compared to a net loss of $4 million for the first 3 months ended March 31, 2024. The year-over-year improvement in net loss was primarily driven by cost reductions, along with increased contribution from higher-margin non-perishable product sales. With that, operator, please open the line for questions.

Your first question is coming from Anthony Vendetti of the Maxim Group.

I was just wondering, this acquisition of Natural Shrimp, it was completed. Can you talk about what your initial plans are for Natural Shrimp and talk about what synergies are available to you immediately? And then down the road, what the cross-selling synergies could be?

Yes. To address your question, there are three primary initiatives that we will implement right away at the facility. First, this location is crucial for us as we build our relationships with major retailers in the area, such as Target, Walmart, and Meijer. The facility has ample warehousing space, which we need since Grand Rapids is becoming crowded. As we transition to more shelf-stable products, some of which will require refrigeration, this facility already has those capabilities. I'm excited about this. Its location will enable us to expand further west and strengthen our presence in the Midwest, allowing us to run effective programs, especially as we move into the second half of the year. The refrigerated products can be stored and transported easily due to the facility's central location in the country, which is advantageous. I'm particularly enthusiastic about the R&D potential. Shrimp has numerous health benefits and tastes great, so there are two significant aspects to consider. We will continue to innovate to produce healthier, cleaner shrimp, addressing concerns about tariffs, and developing sustainable practices aligns perfectly with our vision of being zero waste inspired. Overall, it's really exciting. Additionally, we can apply what we've learned about shrimp farming, and there are existing patents that will support us in greenhouse operations, water treatment, and our growing nutraceutical business. As I have shared before, I have a background in that industry, having started with Twinlab and then spent years at Nature's Bounty before it was sold to Carlyle. I’m eager to develop new innovative ingredients using shrimp, as we know shellfish is beneficial for joint care and other expanding market areas. This is a thrilling time for us. I've visited the facility multiple times during our due diligence process, and it's impressive—they have a significant head start in this part of the industry. I believe we will achieve a lot with this opportunity.

Okay. And then are you able to provide what the revenues were for Natural Shrimp's in 2024? And then would this be gross margin accretive?

At the moment, the sales aspect of the business is quite minimal. I wouldn't say it's going to significantly contribute to margins based on their current operations. However, as we evolve and expand their business by utilizing some of the existing space, this large facility provides us with market penetration opportunities. There is considerable enthusiasm about developing new nutraceutical products from shrimp. For us, the existing operations have been more about demonstration and R&D. We plan to speed up the R&D efforts and start leveraging the facility to positively influence our margins in warehousing and logistics. In short, we’ll be able to use our distribution to enhance their current activities and sales, as well as utilize the facility space to achieve margin growth. I believe this will occur fairly quickly, contingent on the overall situation we have at our disposal.

Okay. And then lastly, switching back to Edible Gardens. Can you talk about the sports nutrition line, how that specifically did this quarter? And are you happy with that ramp? And do you expect that to continue in '25?

I'm thrilled. I really enjoy the business. People tend to be more engaged when they are working on something they love. After launching brands like Body Fortress, MET-Rx, and Pure Protein, we are now focusing on a new product line that is perfectly timed and aligns with our goals as a company. We recently secured distribution with a major retailer in the Midwest, and those orders were shipped in April, so they won’t show up in Q1 results. We have some significant launches planned in the near future, which makes me very optimistic. We've partnered with Nutracom to develop this new product, and our collaboration with them is strengthening. We are in a fantastic position, continuing to invest in personnel, infrastructure, and marketing support. We're adding more salespeople to enhance our marketplace presence and participating in key trade shows. I believe you will notice more from us soon. Our existing nutraceutical business has started to gain momentum, and it's an intriguing time in the market as different protein types are trending. The news clearly reflects this interest. It’s a prime moment to be engaged in our sector. While I wish to accelerate our progress, it’s also crucial to maintain the necessary infrastructure and integrity to uphold the strong relationships we have built with our retailers. We have consistently delivered at a high rate, excelling in fresh goods, which is challenging. If we can combine these strengths, leverage our store partnerships, and expand our presence in nearly every grocery store aisle alongside our growing online footprint, particularly with our relationship with Pirawna, which is now approved by Amazon, we'll be in a strong position. Overall, I'm very enthusiastic about the business and especially about Kick, as timing is often critical, and I feel we’re on the right track.

Our next question is coming from Nick Pincus of Forest Capital.

Congrats on the solid results and the positive shift in the product mix. You touched on this a bit but I was just hoping if you could elaborate some more on the drivers behind the sustained improvement in gross margin, particularly as you transition towards these higher-margin, shelf-stable products. But also specifically, what strategic initiatives are you pursuing to accelerate the growth of these product lines? And how do you see this part of the business developing going forward?

Thank you. Great question. Welcome, Nick. Look, it gets boiled down to kind of a few things. And for us, it's the continued investment in the company, starting with getting the right people that we continue to do and we continue to elevate the people that come into the business as we become more and more successful, allows us to drive innovation, build strong relationships, the right products, as I just mentioned about Kick, and have the right products at the right time and then the right support. That right support ties back to not only the products and the people but also investment in marketing and branding. So for us, this shift to just diversification of the portfolio on the heels of SKU rationalization, I think, has really positioned us to drive that gross margin top line which I think is going to be exciting coming into the second half as we start to gain traction with these products and get them into stores and get them online and get people trying them. We had a great trade show at Expo West with Pickle Party and we just came out of the show with a lot of excitement around that whole line which is just, like I said, functional and exciting. So right now, it's a great time to be at Edible Garden because it's exciting and the company is really evolving. And it's fun to watch the people who've been here with us and with management and with myself for the last decade, watch the company evolve and transform from one greenhouse and a handful of accounts to spreading out through the country and internationally and bringing in diverse products that people like and are relatable and the people who work are responding. So it's fantastic.

Well, we have now reached the conclusion of our question-and-answer session. I will now hand the call back to the management team for any final comments.

Sure. Thanks for joining us today. Q1 2025 marked a strong start to the year with clear progress on our strategy to focus on higher-margin non-perishable products. Brands like Kick, Pickle Party, Squeezables, Pulp, and Vitamin Way are gaining traction. And we're seeing early financial returns through improved margins and reduced losses. The recent acquisition of Natural Shrimp facility adds valuable R&D and operational capabilities, while supporting our commitment to sustainability and vertical integration. Combined with expanded retail relationships and growing e-commerce reach, we believe we've built a strong foundation for continued growth. We're confident in our path forward and excited about what's ahead. Thank you for your continued support.

Thank you very much. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. We thank you for your participation.

Thank you. Thank you, everybody. Bye.

Thanks, everyone.