Edible Garden AG Incorporated (NASDAQ:EDBL) Q4 2022 Earnings Call Transcript

Edible Garden AG Incorporated (NASDAQ:EDBL) Q4 2022 Earnings Call Transcript March 25, 2023

Operator: Greetings, and welcome to the Edible Garden Fourth Quarter and Year-End 2022 Business Update Call. . I will now turn the conference over to your host, Mr. Ted Ayvas. You may begin.

Theodore Ayvas: Thanks, Ali. Good morning, and thank you for joining Edible Garden’s Year-end 2022 Conference Call and Business Update. On the call with us today are Jim Kras, Chief Executive Officer of Edible Garden; and Mike James, Chief Financial Officer of Edible Garden. Earlier this morning, the company announced its operating results for the year ended December 31, 2022. The press release is posted on the company’s website, www.ediblegardenag.com. In addition, the company filed its annual report on Form 10-K with the United States Securities and Exchange Commission this morning, 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 and 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 year-end 2022 and provide 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 expect, project, plan, believe, may, will, would, should, could, mission, strategy, potential, seek, strive 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 operation, 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 most recent annual filing on Form 10-K filed with the U.S. Securities and Exchange Commission. 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. With that, I will now turn the call over to Jim Kras. Jim?

James Kras: Thank you, Ted. Good morning, and thank you to everyone for joining us today. On behalf of the Edible Garden team, I want to extend our sincere gratitude to our investors for their unwavering support and belief in our vision. With your continued support, we are confident that we will achieve our goals and pave the way for building shareholder value. We are pleased to report that Edible Garden achieved year-over-year top line revenue growth for the third quarter in a row since our IPO last year. This notable success is a result of our strategic capital management and unwavering focus on building a strong Edible Garden brand. Despite a challenging economic climate, we have remained resilient and continue to deliver exceptional customer service while keeping our pricing relatively stable even during a period of unprecedented rapid inflation.

As a result, we believe we have gained a competitive advantage over many of our competitors who have struggled in this environment. In addition, we expect to see an increase in our margins once our Heartland Midwest facility is fully operational. With the continued dedication of the Edible Garden team, we believe that we will achieve positive cash flow later this year, marking a significant milestone in our journey as a public company. Our company’s distribution network is expanding rapidly with the addition of new retail partners in the Northeast, Midwest, Mid-Atlantic and Southeastern regions of the country. In addition, we are introducing new product categories and what we expect to be higher-margin products to the Edible Garden brand to meet our customers’ ever-evolving needs.

Photo by Markus Spiske on Unsplash

Our commitment to sustainability through our Zero-Waste Inspired mission has resonated with environmentally conscious consumers and our distribution partners contributing to the strong demand for our products. Among our achievements in the fourth quarter, we introduced complete salad kits to our product line. These greenhouse grown kits feature our popular sustainable, locally grown cut lettuce that come with all the ingredients necessary to make a complete salad. The first 3 kits in our lineup include a Caesar Salad Kit with baby romaine lettuce, a Crisp Ranch Kit with crispy green leaf lettuce and a Balsamic Vinaigrette kit with spring mix lettuce, with even more in development. The salad kits, which were created to align with current consumption trends and provide maximum convenience to consumers, were first made available at Meijer retail locations in the Midwest.

We also acquired the Pulp line of all-natural non-GMO preservative-free and sustainable gourmet sauces and chili-based products. This marks the company’s initial entree into the global sauces and condiments market, which is projected to grow from $172.8 billion in 2021 to $240.7 billion by 2028. According to research and markets, these fermented sauces, which elevate food flavors from bland to bold, were introduced at Natural Products Expo West 2023 earlier this month. The Pulp product line will initially launch a Whole Foods Markets Mid-Atlantic and Southeastern retail locations starting this summer 2023. The refrigerated section of the supermarket where the sauces will be located is typically adjacent to the produce section, which will enable Edible Garden to leverage its growing brand recognition and to capitalize on the demand for healthier and sustainable options.

Expanding into a new product category is a significant step forward for the Edible Garden brand as it positions us into what we believe will be higher-margin products with extended shelf life. The launch of Pulp products line at Whole Foods Markets Mid-Atlantic and Southeastern retail locations also provides us with a further expansion of our already robust distribution network. Additionally, we added Morton Williams Supermarkets to our Northeast distribution network, which began carrying the Edible Garden product line in all of its locations in the New York metropolitan area. We also expanded our distribution with Gristedes and D’Agostino markets to sell an optimized assortment of Edible Garden products in 29 of their combined locations in Manhattan, Brooklyn and Westchester, New York.

These retail locations are ideally located in densely populated urban areas that receive high volumes of foot traffic in the New York City metropolitan area. Moreover, this expansion enabled us to deepen our penetration and improve our product placement within these retail locations. This past holiday season proved to be one of the most successful in the company’s history as we surpassed industry averages with an order fulfillment rate or a fill rate across all of our retail and distribution partners. Notably, we exceeded a fill rate of 100% in one of the country’s largest supercenter operators, strengthening our existing relationship with this key partner. Despite significant supply chain challenges, Edible Garden was able to deliver outstanding service and execution to our customers, further demonstrating our commitment to excellence.

By consistently exceeding our partner’s expectations, we have established ourselves as a reliable and trusted supplier to sustainably grown produce. The company continues to be committed to leveraging the latest technology to advance our strategy of increasing yields and maximizing the nutritional value of locally grown produce. Edible Garden recently forged at a research partnership with the New Jersey Institute of Technology, the USDA and the EPA to investigate the effects of nanobubble technology in controlled environment agriculture settings. The primary goal of this EPA funded research is to validate the potential benefits of nanobubbles for indoor agriculture and explore their impact on plant health, water usage, nutrient utilization and energy efficiency.

This research is particularly exciting to us as it has the potential to revolutionize plant nutrition and provide more nutritious plants with longer shelf lives. In addition, the partnership is well aligned with Edible Garden’s Zero-Waste Inspired missions which seeks to promote sustainable agricultural practices that reduce waste and conserve resources. If successful, the research project could have significant implications for Edible Garden’s product line benefiting not just the company but also consumers who prioritize health and sustainable food options. Our commitment to sustainability and innovation makes this partnership a significant step forward in the quest for more efficient and sustainable agriculture practices. Earlier this month, Edible Garden was recognized as one of the top agro food tech companies globally in this year’s FoodTech 500 final rankings.

Our Zero-Waste Inspired mission has been the driving force behind our success. Our team’s hard work and dedication, along with the implementation of innovative technologies such as our patented GreenThumb software and patent pending self-watering displays have enabled us to improve yield, reduce waste and optimize costs. We take pride in being acknowledged as 1 of the most promising agro food tech companies worldwide, and strive to maintain this position by building on our achievements and continuing to lead the way in the industry. I would like to now turn the call over to Mike James, Chief Financial Officer of Edible Garden, who will review the financial results for the 3-month and full year periods ending December 31, 2022. Mike?

Michael James: Thanks, Jim, and good morning. Looking at the fourth quarter financial results first, the company reported revenues of $3.1 million in the quarter, an increase of 10%, compared to $2.8 million for the fourth quarter of 2021. As Jim said earlier, this represents the third consecutive quarter of revenue growth since our IPO last year and represents growth from the existing customer base. Cost of goods sold was $3 million for the 3 months ended December 31, 2022 compared to $2.8 million for the 2021 fourth quarter. The increase was due to higher packaging costs due to inflation, higher labor costs due to a tight labor market and increases in rates charged by contract farmers. Selling, general and administrative expenses were $3.1 million for the 3 months ended December 31, 2022 compared to $1.7 million for the 3 months ended December 31, 2021.

The increase was primarily driven by higher payroll and compensation expense, as well as other public company expenses that were not incurred in 2021. Net loss was $3 million or $9.31 per share for the 3 months ended December 31, 2022 compared to a net loss of $2.1 million or $12.76 per share for the 3 months ended December 31, 2021. Turning to the results. For the year ended December 31, 2022, revenues totaled $11.6 million, an increase of 10% compared to $10.5 million for the year ended December 31, 2021. The increase represents the growth from the existing customer base. Cost of goods sold was $11.2 million for the year ended December 31, 2022 compared to $9.9 million for the year ended December 31, 2021. The increase was due to higher packaging costs due to inflation, higher labor costs due to a tight labor market and higher costs charged by contract farmers.

Selling, general and administrative expenses were $9.4 million for the year ended December 31, 2022 compared to $5.6 million for the year ended December 31, 2021. The increase was primarily driven by higher payroll and compensation expense which included onetime expenses related to the completion of our IPO, as well as other public company expenses that were not incurred in 2021. Net loss was $12.5 million or $48.68 per share for the year ended December 31, 2022 compared to a net loss of $5.5 million or $39.28 per share for the year ended December 31, 2021. Per share amounts have been adjusted to reflect all stock splits. Before turning the call back over to the operator for questions, I would like to take a moment to discuss the successful offering we completed in February of 2023, which generated roughly $10.2 million in gross proceeds.

The offering was important as it allowed us to secure the necessary funding to accelerate the expansion of our business. With this funding, we are confident in our ability to execute our business plan and achieve sustainable long-term growth. I would now like to open up the call for questions. Operator, can you please assist us with that?

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Q&A Session

Operator: . Our first question is coming from Anthony Vendetti with Maxim Group.

Jeremy Pearlman: This is actually Jeremy on the line. So just a couple of questions from our end. I mean, first, could we talk maybe a little bit more about your distribution network? How many stores are you currently in, where in the U.S. is that, are those stores primarily located? And then what are your plans for 2023 to increase the distribution increase to your store count?

James Kras: Thank you, Jeremy. This is Jim Kras. Currently, we’re north of 4,000 stores. We are looking — we are primarily concentrated, call it, East of the Mississippi, Midwest, Northeast, and we’re making inroads into the Southeast vis-a-vis Whole Foods. The plan is to continue to strengthen our distribution might in the Northeast, in the Midwest with adding store counts with major retailers, as well as more additional local smaller regional chains. We’ll be looking to expand with some of the larger big boxes kind of outside of that region as we move forward, and you’ll see some of that happen over the next few months.

Jeremy Pearlman: Okay. Great. And then just piggybacking off that, I know you mentioned that you have your Grand Rapids, Michigan greenhouse. You completed the first phase of that, and I think you had commenced the second phase. Where are you in the process of that?

James Kras: We are in very, very good shape. We are in the final stages of bringing that online. And I would think that you would see that online in the next 30 days, if not .

Jeremy Pearlman: And does that include — I know you mentioned that you put in a request to get a USDA organic certification. Is that something that you expect…

James Kras: It’s all completed, and we just — our kind of our final go-ahead. We’re in pretty good shape, we’re in very good shape actually, and so that should all sort of dovetail nicely with a launch within the next 30 days.

Jeremy Pearlman: Okay. Great. And then just remind us, I think you said that you have about the capacity for that greenhouse is about $20 million in annualized revenue. And I know you mentioned a couple of times on the call in the financial section about how some of the contract growers were increasing the costs were — is this going to allow you to sort of maybe offset or just replace some of those contract growers once this greenhouse is up and running at full capacity?

James Kras: It will let us offset. So some of our grower — our contract growers will stay in place. They do a very nice job for us, we have agreements in place, and then some of this will allow us to bring on additional business at a much higher margin since margin for us will be much higher since we’ll be fully vertically integrated.

Jeremy Pearlman: Okay. Great. And then in that capacity, is that something that you’re going to have to know — is that something that you could — once it’s online, you think you’ll be able to have that ready to go right away with buyers or is that something you’re going to have to add to your distribution increases? Hopefully throughout 2023, you’ll be able to supply those new stores or new customers with output from this greenhouse.

Michael James: It will — there’ll be somewhat of a ramp-up, but the thing will be in a very good position to take on some existing business as well as definitely integrating the new business, I think, very fluidly.