Earnings Transcript for BABYF - Q3 Fiscal Year 2024

Operator: Greetings, and welcome to the Else Nutrition's Third Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode [Operator Instructions] At this time, I would like to turn the call over to Alexandra Schilt, Vice President of Crescendo Communications, the company's IR firm. Please go ahead, Alexandra.

Alexandra Schilt: Good morning. And thank you for joining Else Nutrition's 2024 third quarter financial results and business update conference call. On the call with us today is Hamutal Yitzhak, Chief Executive Officer of Else Nutrition. The company issued a press release today, November 14, 2024, containing its 2024 third quarter financial results, which is also posted on the company's website. 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. The company's management will now provide prepared remarks reviewing the financial and operational results for the three months ended September 30, 2024. Before we get started, we would like to remind everyone that today's call will contain forward-looking statements that are based on current assumptions and subject to risks and uncertainties that could cause actual results to differ materially from those projected, and the company undertakes no obligation to update these statements except as required by law. Information about these risks and uncertainties are included in the company's filings as well as periodic filings with regulators in Canada and the United States, which you can find on SEDAR and Else Nutrition's website. With that, I will now turn the call over to Hamutal Yitzhak, Chief Executive Officer. Please go ahead, Hamutal.

Hamutal Yitzhak: Thank you, Alexandra and thanks to everyone for joining us today. During the call today, I'll be discussing key areas of focus for Else Nutrition, our current challenges and our path forward towards sustainable growth. First, our revenue for the third quarter for 2024 was $1.8 million, representing 5% growth from the prior year, but a decline sequentially, which was a result of specific timing delays in order from key large retail partners. Although, we had expected our products to launch in these stores by now, these orders have been postponed, which has affected our anticipated revenue for the quarter. While such timing shifts are part of the complexities in working with large retailers, we remain confident in our positioning within these stores, and we are in active discussions to solidify our presence as soon as possible. Furthermore, limited marketing budgets have restricted our ability to fully support the visibility, and consumer demand generation we planned for our product lines, as a brand that is relatively new to the mass market, and markets its products to constantly changing new customers. We rely heavily on marketing, to drive brand awareness and product education, especially as we introduce new products like Ready-to-Drink. While we have been prudent with our marketing investments during this period, securing capital - will allow us to strategically allocate resources, to reignite our marketing efforts and create a stronger presence at the retail level. Towards this end, during the third quarter, we have been highly focused on executing on our financing strategy, which remains a critical part of our efforts to achieve a healthier capital structure, and accelerate growth. I'm pleased to report that the company has engaged with bankers on a non-exclusive best effort basis, to provide a short-term bridge funding, and a long-term straight debt. The non-dilutive straight debt, is to be repaid over a long period by the company. This long-term financing, should we succeed to execute, will be pivotal for us, allowing us to increase our marketing efforts, address immediate operational needs, assist the company to reach profitability, and begin optimizing our capital structure. It will replace the diluted convertible debt currently in place, which creates constant pressure on the stock. Furthermore in the past three quarters, we have implemented various cost cutting measures to reduce operational expenses and improve efficiencies across our business. So year-to-date, we had experienced a 12% decrease of operational expenses amounting CAD1.5 million. We are on track to reduce manufacturing costs in the next 18 months, by a significant amount, which if happens will improve our gross margin and allow us to reach breakeven by the end of 2026. Now turning to our product range and retail expansion, we're making significant strides in broadening our footprint, across key retail channels and bolstering our product pipeline with new launches. One most recent milestone, is our pilot in Costco Canada stores. If successful, this trial could pave the way for distribution over 100 Costco locations, across Canada and may also lead to a U.S. win later down the road. Additionally, we're in advanced discussions with a well-known mass retailer, regarding placement of our Ready-to-Drink Kids products in close to 900 U.S. stores still this year, or in early 2025. Put together, these two new initiatives could generate significant incremental revenue for Q4, 2024, further enforcing our growth trajectory, and expand our 2025 sales significantly. We also plan to perform the first commercial production run of our adult Ready-to-Drink product very soon, and plan to launch it in early '25 with several Canadian retailers that are already showing interest in carrying it. Production for the U.S. market is set to start in early 2025, with an anticipated rollout online and in stores thereafter. This expansion into new product lines will help us meet the increasing demand, we are witnessing from retail partners, providing us with the momentum to scale further in 2025. Now let me discuss our financials, for the third quarter of 2024. Revenue for the 2024 third quarter was $1.8 million, compared to $1.71 million for the third quarter of 2023, an increase of 5%. The company's gross profit in Q3 of '24, was minus CAD0.2 million mainly due to the conservative inventory write-off, compared to CAD1.2 million in Q2, 2024. Operating expenses, the company's gross profit in Q3, 2024, was minus CAD0.2 million, mainly due to conservative inventory write-off, compared to minus CAD2 million in Q2 of 2024. Company's quarterly operating expenses remained approximately at the same level in Q3 of '24, compared to Q3 of 2023, and stood on $3.6 million. Overall, we remain focused on building a sustainable, growth oriented business at Else Nutrition. While we're navigating some timing related challenges, our team is committed to securing the funding and partnerships needed to drive Else forward. Our goals for the remainder of this year, and into next year are to finalize our funding initiatives, increase our retail footprint, and strengthen our financial position. At this point, I'd like to address questions that come in from investors. Alexandra, please lead the Q&A session.

A - Alexandra Schilt: Thank you, Hamutal. Our first question is can you provide an update on the FDA?

Hamutal Yitzhak: Sure. While we are limited in what we can say beyond what we have publicly disclosed previously, I can say we are actively engaged in efforts, to move these discussions forward, and obtain a more definitive answer from the FDA on how to proceed. While the timeframe to, which this is completed is vague, we are optimistic in our approach and our ability to fill an unmet need for families. The process of filing a new infant formula notification is a multi-step one, containing data on safety of the ingredients, availability of the protein and clinical growth study. This is done by a series of animal and clinical studies. As the clinical study is a very complicated and expensive study, alignment with FDA on previous data and study protocol is needed. Though we prepared for the clinical study, the FDA has yet to approve the submitted data, and the study protocol. Moreover, the FDA itself is now reconsidering the required data for approving new infant formula, as part of its discussions following the infant formula crisis, and shortage faced starting in 2022. There is a project assigned to the National Academies reviewing regulatory process in other countries.

Alexandra Schilt: Thank you Hamutal. Our next question is how is the business in Canada doing?

Hamutal Yitzhak: We are progressing very fast in the last few weeks in Canada. Main highlights are the launch this summer of the Kids Ready-to-Drink in 850 Loblaw stores and the Kids Ready-to-Drink trial, recently started in 10 plus Costco Canada stores.

Alexandra Schilt: Thank you. And can you please provide an update on your online activities?

Hamutal Yitzhak: Yes, online continues to be a major part of our business. Amazon.com remains our largest sales channel, and we expect to grow it significantly next year. Walmart.com is our second largest online channel, with our own e-store, Thrive Market and iHerb steadily contributing as well. We added Walmart marketplace as a third Walmart channel, selling multipacks of the products sold in the other two channels, it's 1,250 stores and Walmart.com.

Alexandra Schilt: Thank you, Hamutal. That does conclude our Q&A session. At this point, I'll turn it back over to you for closing remarks.

Hamutal Yitzhak: Thank you, Alexandra. To wrap up, we remain devoted to our mission to build a sustainable, growth focused business at Else Nutrition. While we're addressing some timing challenges, we're fully committed to securing the funding, and partnerships essential to our long-term vision. As we close out this year and look to the future, our core objectives are clear, to complete our financing initiatives, broaden our retail footprint, and further strengthen our financial foundation. Looking ahead to 2025, we're enthusiastic about the opportunities on the horizon, including the launch of our adult Ready-to-Drink product line, and the expanded market penetration of our Kids Ready-to-Drink product. These initiatives, along with our focus on striving to operational excellence, position us for success, enabling us to deliver lasting value to our shareholders. I'd also like to express my sincere gratitude to our dedicated team and advisors. Their commitment and expertise, are the driving force behind our journey, and we're thrilled about what we can accomplish together. Thank you all for your time and support.

Operator: This concludes today's presentation. You may disconnect your lines at this time. Thank you for your participation.