Innovative Food Holdings, Inc. (PNK:IVFH) Q3 2023 Earnings Call Transcript

Innovative Food Holdings, Inc. (PNK:IVFH) Q3 2023 Earnings Call Transcript November 11, 2023

Ronit Wallerstein : Good morning, and welcome to the Innovative Food Holdings Third Quarter 2023 Earnings Conference Call. My name is Ronit Wallerstein, and I’ll be moderating today’s call. With me on today’s call for Innovative Food Holdings is Bill Bennett, our CEO; Brady Smallwood, our COO; and Richard Tang, our CFO. Throughout the conference, we will be presenting both GAAP and non-GAAP financial measures including, amongst others, historical and estimated EPS; adjusted EBITDA, which is net income before costs associated with amortization, depreciation, interest and taxes and excluding certain onetime expenses; and adjusted fully diluted EBITDA per share using the weighted average shares outstanding for the quarter ended September 30, 2023.

These measures are not calculated in accordance with GAAP. Quantitative reconciliations of certain of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today’s press release. I’d like to remind everyone that today’s call will contain forward-looking statements from our management made within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities and Exchange Act of 1934 as amendment concerning future events. Words such as aim, may, could, should, projects, expects, intends, plans, believes, anticipates, hopes, estimates, goal and variations of such words and similar expressions are intended to identify forward-looking statements. These statements involve significant known and unknown risks and are based upon a number of assumptions and estimates, which are inherently subject to significant risks, uncertainties and contingencies and many of which are beyond the company’s control.

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Actual results, including, without limitation, the results of our company’s growth strategies, operational plans as well as potential results — as well as future potential results of operations or operating metrics and other matters to be addressed by our management in this conference call may differ materially and adversely from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, the risk factors described and other disclosures contained in our filings with the Securities and Exchange Commission, including the risk factors and other disclosures in our Form 10-K for the year ended December 31, 2022, and our other filings with the SEC, all of which are accessible on www.sec.gov.

Except to the extent required by law, we assume no obligation to update statements as circumstances change. With that, I’d like to turn the call over to Mr. Bill Bennett. Please go ahead.

William Bennett : Thanks, Ronit. Hello, everyone, and good morning. I’m happy to welcome you to our second consecutive earnings call. I’m also glad to welcome our new COO, Brady Smallwood, to our call today. You’ll be hearing from him a bit later on in the call. We’ll be discussing the results from our third quarter of 2023, which was my second full quarter in the role of CEO of IVFH. Hopefully, you saw the press release this morning with some highlights from the quarter. We’ll also be filing our full 10-Q later today for your reference. As I outlined in our call last quarter, I want to start my comments today by reminding investors of some strategic context to the moment we’re in as a company. Our goal at IVFH is to grow shareholder value by building a company that delivers long-term profitable growth to our investors.

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Q&A Session

With my arrival at the company a few months ago, I outlined to our Board a 3-phased approach we are taking to build towards that goal. As a reminder, those statements are as follows: our first phase is focused on the stabilization of our business. We need to build credibility that we can consistently deliver a profitable business model and positive cash flow. This is why we’ve been focused so heavily on rightsizing our margins, expenses and uses of cash. We anticipate that this phase will last for my first year. We’re calling Phase 2 laying the foundation for growth, which will entail making several strategic moves to build a next-generation business model. We’re calling Phase 3 build and scale, when we’ll be prepared to make investments to scale the successful business models we’ve fully tested.

As we traverse this path, I think it’s helpful to remember that we are still squarely in our stabilization phase, but our commitment to investors is transparency and candor along that journey. With that introduction, let’s jump into results for Q3 2023. Our focus on improving profitability continued to make strong progress. Gross margins continue to show significant year-over-year growth of 568 basis points as we optimize our pricing strategy. SG&A increased by 3.8%, primarily due to onetime charges, which Rich will delve a bit deeper into. Lastly, our adjusted EBITDA improved to $887,673, an improvement of $397,184 versus last year. During the third quarter, our revenue declined by approximately 14% compared to the same period in 2022 as we work through the stabilization phase of our plan.

Our Professional Chef business was the main driver of the decline. As I said earlier, we want to continue to demonstrate that even in the face of the expected lower revenue this year, we are building a sustainable, profitable business model, and I think this quarter was a great example of the progress we’re making. Now I’ll turn some time over to Brady to talk through some of the specific improvements we’ve made to the operation of our business this quarter. Brady?

Brady Smallwood : Thanks, Bill. Let’s start with the Specialty Foodservice side of the business, which we call Professional Chef to help our teams focus on our end customer. Here, revenue declined 16% as we faced our first full quarter of lapping post-COVID reopening strength. We also saw foodservice market trends soften with Q3 experiencing the lowest comps in 2 years and industry pundits pointing to consumer headwinds, slowing inflation and a return to more normal seasonality as reasons for the slowdown. These headwinds, combined with our recent price increases and a change in the technology platform used by a key customer, have led to a smaller though significantly more profitable business for us. I’d also like to remind the group that our Professional Chef revenue is still up 29% compared to pre-COVID levels.

So we have held on to the majority of our post-COVID sales growth, but we are now operating with an improved business model. Now I mentioned some headwinds, but we also saw encouraging growth in some areas. This quarter, we expanded our geographic presence with a leading broadliner, signed a brokerage agreement that will support us pursuing opportunities in retail channels and started a relationship with a top airline catering brokerage. Opportunities like this abound in the roughly $1 trillion foodservice market, and our differentiated value proposition gives us confidence in Professional Chef’s future growth with both new and existing customers. Now moving to the e-commerce business. We continue to restrict marketing spend relative to historical levels.

And now that we’re lapping the start of this restricted marketing strategy in Q3 of last year, our e-commerce sales declines moderated to minus 0.7% versus minus 31% year-over-year in Q2. Our largest online brand, igourmet.com, where we have focused the most resources was flat on sales while materially increasing gross margins and increasing SG&A. Over the last 2 quarters, we conducted an end-to-end assessment of order level economics, customer lifetime value and other key e-commerce business factors. As a result, we have implemented tactics to boost margins, reduce shipping and packaging costs, optimize marketing channels and streamline our warehouse operations. E-commerce does continue to generate losses, but it’s good to see the progress the team has made to materially reduce those losses and enable the total company to return to consistent profitability.