Edible Garden AG Inc Q2 FY2025 Earnings Call

Good morning, everyone, and welcome to the Edible Garden Incorporated 2025 Second Quarter Business Update Conference Call. Please note this conference is being recorded. I will now turn the conference over to your host, Ted Ayvas of Crescendo Communications. Ted, the floor is yours.

Thanks, Jenny. Good morning, and thank you for joining Edible Garden's Second 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 June 30, 2025. The press release is posted on the company's website, www.ediblegardenag.com. In addition, the company will file its quarterly report on Form 10-Q with the U.S. Securities and Exchange Commission, which will be available 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 ended June 30 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 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, 2024. 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 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 would now like to turn the call over to Jim Kras, Chief Executive Officer of Edible Garden. Jim?

Thanks, Ted. Good morning, and thank you to everyone for joining us today. The results that we reported this morning show that our strategy is working and that the disciplined decisions that we've made are delivering real impact. We've been intentional about focusing on higher-margin innovation-driven categories that align with where we see the market heading rather than trying to be everything to everyone. A year ago, we announced a strategic decision to exit 2 underperforming low-margin categories, lettuce and floral. While at the time, it was a difficult decision, we've since freed up resources to invest in areas where we can lead such as CEA informed better-for-you shelf-stable products that meet the growing demand for healthy and sustainable options. These choices are not just about improving margins. They're about building a portfolio that's more resilient, more adaptable and better positioned to serve consumers over the long term. We believe this strategy has rightsized our product portfolio, expanded capacity for our core portfolio and over time, will not only drive profitability but also strengthen our role as a trusted provider of wellness-focused solutions to consumers around the world. These results give us a solid foundation as we look ahead, and I'm excited to walk you through the highlights of the quarter. Private label products sold through major big box retailers delivered a standout second quarter performance, climbing 19.1% year-over-year. This growth was driven by expanded retail programs and strong sell-through of our sustainably grown CEA-produced herb products that continue to resonate with consumers seeking freshness, quality and sustainability. These results underscore the strength of our retail partnerships and our ability to capture share in higher-margin demand-driven categories. That momentum extended into our core produce category with hydroponic basil leading the way, growing 7.1% quarter-over-quarter, followed by potted herbs up 6.4% and wheatgrass up 4.1%. These results highlight the enduring appeal and consistency of our core offerings, supported by our controlled environment agriculture model, which delivers reliable quality, yield and sustainability advantages while exceeding major retailer fill rate expectations consistently delivering at 98% or better. In the second quarter, we made significant progress on our strategic priorities, innovation, brand expansion and operational sustainability. Furthermore, we've clearly defined our better-for-you market strategy. This is made up of 3 key pillars: our existing fresh produce and fresh condiments, farm formula supplementation and performance beverages. Our Fresh Produce segment posted unit growth, supported by new product introductions and ongoing consumer loyalty. A notable highlight was the launch of Kick, our Sports Nutrition line on Amazon, which expanded our digital marketing reach, introducing the brand to a broader and stickier customer base and strengthening our direct-to-consumer engagement. Early results from these efforts drove an increase in e-commerce sales, demonstrating both the scalability of our product portfolio online and the growing strength of our digital sales. We also advanced brand expansion initiatives with continued retail growth of Pickle Party, which is gaining strong consumer traction and celebrated the debut of the industry's first USDA organic hydroponic basil, further reinforcing our leadership in sustainable agriculture. Together with robust gains in our nonperishable lines, these achievements are diversifying our revenue streams, enhancing long-term portfolio resilience and positioning Edible Garden to capitalize on emerging opportunities. Internationally, revenue grew 66.5% as we secured new distribution partnerships and expanded retail placements in key global markets, providing a broader platform for sustained growth and global brand visibility. Demand for better-for-you CPG products continues to rise, creating a powerful tailwind for our business. Globally, the functional food and beverage market is projected to expand from $400 billion to $610 billion by 2030 according to Virtue Market Research. In the U.S., sales of natural, organic and functional products are expected to reach $386 billion by 2028, growing at roughly 5% annually for the Nutrition Business Journal. With a differentiated brand portfolio built around innovation, sustainability and wellness, we believe Edible Garden is well positioned to capture share in these large and fast-growing categories and benefit from these long-term trends. As these consumer preferences increasingly influence the fresh category, our produce business is equally poised to deliver exactly what today's shoppers are seeking: fresh, sustainably grown and high-quality products that align with their health and lifestyle goals. On the operational side, we took a significant step forward with the acquisition of NaturalShrimp aquaculture in Iowa, now operating as Edible Garden Prairie Hills. This site expands our R&D capabilities in aquaponics, supports year-round climate control production and brings with it a portfolio of patented water treatment technologies that recycle water, improve yields and reduce environmental impact. These patents are now part of our IP portfolio, giving us exclusive rights to advance aquaculture methods we can not only use at Prairie Hills, but potentially across our entire growing network, strengthening both our competitive position and our sustainability profile. The central Midwest location also gives us a real advantage in distribution, allowing us to get products to retailers faster, lowering our transportation costs and delivering fresher products to customers. And with plenty of room to grow, Prairie Hills provides the capacity and flexibility to scale production and roll out new product lines, making it a key driver of innovation, efficiency and long-term growth. The second quarter proved that our strategy is working, and we're just getting started with delivering growth in categories that matter most, expanding into high-margin opportunities and strengthening our leadership in sustainable innovation-driven food production. The acquisition of Prairie Hills adds powerful new capabilities in aquaponics, R&D and distribution that position us to scale faster, operate more efficiently and bring even more differentiated products to market. With strong market tailwinds, a growing portfolio of brands consumers love and the infrastructure to support our ambitions, we're entering the next phase of our growth story with confidence, momentum and a clear path to creating long-lasting value for our shareholders. With that, I'll turn the call over to Kostas Dafoulas, our Interim CFO, who will review the financial results for the quarter ended June 30, 2025. Kostas?

Thanks, Jim, and good morning, everyone. Revenue for the second quarter was $3.1 million compared to $4.3 million in the same period last year. The year-over-year decline primarily reflects our strategic decision to exit the floral and lettuce categories, which accounted for roughly $740,000 of the difference. While we haven't yet fully replaced the revenue from floral and lettuce, these categories carried high costs and low returns, and they didn't align with our focus on higher-margin opportunities. Gross profit came in at $634,000 compared to $1.6 million in Q2 of last year. The decrease was driven by changes in product mix, lower sales volume following the category exits and some margin pressure for increased investments in infrastructure and personnel. We view these investments as necessary to enhance scalability and improve efficiency over time. Selling, general and administrative expenses were $4.2 million compared to $2.7 million last year. The increase was mainly due to expenses related to the NaturalShrimp asset purchase and legal expenses related to an Oryon in our capital market activities in the quarter, along with increased labor and raw material costs. Net loss for the quarter was $4 million compared to $1.9 million in the same period last year, with the change largely reflecting the higher SG&A expenses. Over recent quarters, we have taken decisive steps to strengthen our balance sheet meaningfully, reduce leverage while enhancing our equity base. These actions position us to execute against our strategic priorities with greater financial flexibility. We closed the quarter with $2.8 million in cash and remain focused on driving inventory efficiency through improved production planning and optimized distribution, supporting both margin expansion and cash generation. And with that, operator, please open the line for questions.

Our first question is from Anthony Vendetti of the Maxim Group.

Jim or Kostas, I was just wondering if we could dive a little bit deeper into the numbers on private label, what percent is that a growing part of your business? What percent of your revenues is private label? And then I have a couple of follow-up questions.

Kostas, do you want to tackle this one together? I'll begin with a high-level overview, and any additional details you can provide regarding percentages would be appreciated. Our private label segment is a significant growth area for us. There has been a substantial shift in recent years, as you can see in the news, with retailers aiming to incorporate more natural brand equivalents into their private label offerings. Our private label business continues to expand notably. One advantage is that we save on marketing costs and other expenses typically associated with branded products since this is under labels like Meijer or Hannaford. We are also launching private label products in the largest grocery chain in the U.S. in Q4. This approach is advantageous because it involves minimal marketing costs, making it straightforward and efficient. Additionally, the contracts we have, like our three-year agreement with Meijer, provide both parties with security and commitment to the business. Overall, this segment has been performing well, and our team has executed effectively across all areas, with private label enhancing our relationships and creating further opportunities beyond just this business. The contracted nature of this business, along with low marketing costs, makes it a growing and accelerating part of our operations.

Yes. And just to add, Anthony, sorry, to what Jim said, kind of we started down this private label path about a year ago with the contract that Jim mentioned with Meijer. And we've seen kind of now some positive results from our efforts in partnering with these retailers, particularly Meijer, as Jim referenced, which is probably the largest piece of private label and is seeing some great growth. It's about 19% in dollars and about 22% in units. So I think we're going to start capitalizing on that relationship and augmenting it across other retailers going forward as we're receiving other opportunities. This is sort of one of the main drivers that we're looking to replace the lost revenue from categories we exited last year and pretty optimistic for the back half of '25.

Okay. Great. Maybe that's a good segue into the lost revenue, and then I'll have just a quick follow-up on the vitamin supplement business as well as with natural shrimp. So first, you mentioned there's about $740,000 in lost revenue this quarter from exiting the lower-margin floral and lettuce business. But the revenue difference between this quarter and last quarter was about $1.2 million. So what accounted for the remaining shortfall? And which part of the business or categories were not...

You're correct that floral and lettuce contributed significantly to that change. We also experienced some softness in the condiments business, but it's not a major part of our revenue. The rest of the shortfall can be attributed to the launch of our new sports nutrition line, Kick Sports Nutrition. Consequently, we're phasing out our legacy vitamin whey products, which has also resulted in a slight decline during this transition. We're noticing flat and somewhat soft year-over-year comparisons in our core herb portfolio. However, as we move into the second half of the year with Kick becoming available and partnering with several retailers, we are confident that the lost revenue will be compensated by these new opportunities and more that are upcoming.

Okay. And these opportunities in terms of Kick Sports Nutrition, are these the higher-margin products, correct?

Yes, that's right. We announced a partnership that we're starting to work with Amazon to put these on e-commerce channels as well. So I think with the refresh of the brand tied in with our better-for-you promise to our customers, we're really excited about the opportunity, and we have a lot of attention online via Amazon on these new products. So I think combined with our marketing efforts there, we're expecting acceleration in that category.

It brings a lot of value, and I mentioned it during the call. First, it's a large facility, spanning 6.2 acres. We recently rebranded it as Edible Garden Prairie Hills. This facility is centrally located, just a few hours from major retailers in the Midwest, including Target’s significant distribution centers. This allows us to enhance our presence and extend our reach further west towards the coast, while also leveraging and expanding our Midwest facilities. Additionally, there's a patent portfolio associated with it that will assist in water treatment, reduce our costs, and improve our sustainability profile. We have ambitious plans for this facility, aiming to not only drive research and development but also to establish it as a sustainability hub featuring next-generation products that are higher margin and align with our partnerships. While I can't go into too much detail, this development is quite significant. We are collaborating with one of the main retailers to create a facility that will support their private label nutraceutical business, along with our branded products and any new business we acquire. This is a multifaceted, large facility with a dedicated workforce eager to welcome Edible Garden and invigorate it. I believe this facility is exceptional and will greatly enhance our capabilities, and we've already begun that process. I'm happy to answer any further questions regarding this or any specifics, Anthony.

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

First off, congrats on the progress that you're making in executing the new business strategy. My first question, just in terms of the seasonality, we're traditionally very seasonal with Thanksgiving and the holidays driving significant revenue. And I was just wondering if you can give us a little bit of color around what you're anticipating in the fourth quarter.

Q4 is incredibly important for our business. We have two main areas: the Edible Garden branded fresh produce and the vitamins and supplements. For both areas, Q4 is crucial, starting in early November and lasting through mid-January, with significant holiday programs. We've been working to improve our efficiency and stabilize our labor costs, which helps us anticipate revenue growth. Our business in this area is expanding, with preorders showing a notable increase for Q4, and we're also bringing in new accounts that will enhance our produce section. I'm very optimistic about a robust Q4, and compared to last year, we are in a much stronger position given the stability in our workforce. We've effectively partnered with outsourcing efforts, particularly in Michigan, leading to a committed workforce that is easier to manage. We've also invested heavily in our facilities, upgrading refrigeration and production lines, which positions us well to add more business without significant cost increases. In the vitamins and supplements area, we've transitioned to a more modern product line, and we're seeing positive results, especially with partners like Amazon, Meijer, and PriceSmart. Our international business is thriving, largely due to PriceSmart. The transformation is leading us towards higher profit margins, especially as Q4 is a significant quarter for vitamins and supplements, aligning with New Year's resolutions. A considerable portion of dietary supplements is sold in the early part of the year, peaking in January, and we're already preparing those orders for timely shipment. Overall, I expect a fantastic Q4, and despite the challenges we've faced, we're ready to capitalize on this opportunity.

That's great, and it's very encouraging. You also touched on this a bit earlier, and it was clearly a big announcement regarding Kick and its launch on Amazon. But I'm just wondering, can you expand on the status of that and your plans for the line and growth and other stuff?

The situation is improving, which is positive. Unfortunately, in this reporting period, we just launched in mid-May, giving us only a month of data to analyze. Although the numbers are significant from a small base, the business is still growing. We've allocated resources to it and partnered with Pirawna, and we have strong support from a buyer at Amazon who is interested in healthier products and aware of where the category is headed. This support from Seattle is advantageous, as it is an important category for them. Our success in staying relevant and their backing, along with our investments in resources, is crucial. We are starting to see returns, which have been encouraging as the business continues to grow and attract new customers. We've invested in various channels, including social media and paid media on platforms like AdWords to enhance engagement and trial. The positive online reviews are a testament to our efforts. We're also introducing two new items, a pre-workout and post-workout product, both positioned as healthier options. These will be launching in about 45 days at PriceSmart and other retailers, as well as online at Amazon. This development not only helps us stand out but also diversifies our product lineup. The retail metrics are strong, and the margins look good. Our manufacturing partner is supporting us effectively. As we move forward, this will foster innovation and enhance other private label opportunities in the vitamin supplement sector. It's really uplifting to see how Edible Garden has excelled in the challenging produce category. It gives us confidence in what we can achieve with more shelf-stable products, driving innovation forward. I'm genuinely pleased with our current standing and the progress we've made over the past few years to position ourselves as leaders.

That's fantastic. And lastly, you mentioned the international business being up. Can you just expand a little bit on how those markets fit into the longer-term growth plans?

Well, what's great about it is, look, it's hard to ship basil from Michigan or Iowa or New Jersey to the Caribbean or South America, right? It's not going to make it unless it's dried or processed. So we have our limitations geographically and based on transportation, how much we can sort of stretch outside of certain areas with the greenhouses without putting a greenhouse up. And we all know that our competitors who are no longer around, most of them know they tried to build greenhouses everywhere, and then they just kind of ran out of gas because they either didn't have the relationships or the revenue where the CapEx was so high, and we've been so prudent with our money repurposing facilities. We've proven that with our Heartland facility in Grand Rapids and servicing Meijer in the Midwest and now what we're doing out in Iowa. But the reality is the shelf-stable products, whether it's the vitamins and supplements, which has driven the majority of that growth that you see and the growing demand globally for protein. And once again, all you have to do is read the papers to see that people are bringing in more and more protein. People want better-for-you products, and they're reading labels. They don't want some of these nasty ingredients and preservatives. So if we can meld that freshness with shelf-stable products, and position our products to capture that demand, we're going to not only see that stay side, but internationally. And we see that, like I said, on the vitamins and supplements. And I think that's just the start. We're working on some very interesting new products that should align with other types of products that extend outside of vitamins and maybe even more into functional foods. We see that with Pickle Party and some of the big box opportunities there. But all those products, because they're more shelf-stable, allow us to have more global reach with them and partner with some of these more bleeding-edge retailers like a PriceSmart that's trying to bring in goods to their different markets that are on trend and that they know that consumers want beyond the U.S. So super excited about that part of the business. It's been on fire lately, and I don't see it stopping, which is awesome.

Well, we appear to have reached the end of our question-and-answer session. I will now hand back over to the management team for their closing comments.

Thank you very much.