Barfresh Food Group Inc.

Good afternoon, everyone, and thank you for participating on today's fourth quarter folio corporate update call for Barfresh Food Group. Joining us today is Barfresh Food Group's founder and CEO, Ricardo Delacoste, and Barfresh Food Group CFO, Lisa Roger. Following prepared remarks, we will open the call for your questions. The discussion today will include forward-looking statements, except for historical information herein. Matters set forth in this call are forward-looking within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements about the company's commercial progress, success of its strategic relationships, and projections of future financial performance. These forward-looking statements are identified by use of words such as grow, expand, anticipate, intend, estimate, believe, expect, plan, should, hypothetical, potential, forecast, and project. Continue, could, may, predict, and will, and variations of such words and similar expressions are intended to identify such forward-looking statements. All statements other than the statements of historical fact that address activities, events, or developments that a company believes or anticipates will or may occur in the future are forward-looking statements. These statements are based on certain assumptions made based on experience expected future developments, and other factors that the company believes are appropriate under the circumstances. Such statements are subject to a number of assumptions, risks, and uncertainties, many of which are beyond the control of the company. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date they are made. The contents of this call should be considered in conjunction with the company's recent filings with Securities and Exchange Commission, including its annual report on Form 10-K and quarterly reports on Form 10-Q and current reports on Form 8-K, including any warnings, risks, factors, and cautionary statements contained therein. Furthermore, the company expressly This claims any current intention to update publicly any forward-looking statements of this call, whether as a result of new information, future events, changes in assumptions, or otherwise. In order to aid in understanding of the company's business performance, the company is also presenting certain non-GAAP measures, including adjusted EBITDA, which are reconciled in a table in the business update release to the most comparable GAAP measures. The reconciling items are non-operational or non-cash costs, including stock compensation, stock issue for services, and gain or loss on the sale of derivatives. Maginot believes that the adjusted EBITDA provides useful information to the investor because it's directly reflective of the peer-to-peer performance of the company's core business. Now I'll turn the call over to the CEO of Barcash Food Group, Mr. Ricardo Delacoste. Please go ahead, sir.

Thank you, and good afternoon, everyone. I'm very pleased with our fourth quarter and full year results and our business accomplishments throughout 2021. Revenue in the fourth quarter was our highest quarterly revenue in company history, and the first time we had sequential growth from the third quarter to the fourth quarter, with revenue increasing 27% sequentially and 296% year over year. We ended the year with a record $6.7 million in revenue. up 161% from fiscal year 2020 and up 56% from fiscal year 2019. The increase in revenue was due to our ability to introduce our Twist and Go product across an increased customer base in the education channel and the gradual return throughout the year in sales of our single serve and bulk products compared to the COVID-19 affected prior year periods. These results were achieved in the face of supply challenges, preventing us from servicing some of our larger school districts and only servicing a subset of our other sales channels. We made the strategic decision last quarter to temporarily scale back servicing some of our larger school customers to prevent cancelled orders due to supply challenges and a negative impact to those relationships. Additionally, the total addressable market in the education channel is massive. We've only just scratched the surface of the over 98,000 schools and 14,000 school districts in the United States. We will continue to be aggressive in our pursuit of new school customers, both through our sales team and through our distribution partnerships. And we are beginning to see supply challenges slightly ease, so we will be able to re-engage with more of our existing customers in fiscal year 2022. Additionally, despite minimal sales from our higher margin single-serve and bulk products due to COVID and significantly higher supply chain costs in the second half of the year, we reduced core operating expenses for fiscal year 2021 with total G&A declining by 9% to $4 million compared to the prior year. This is on top of the 36% reduction we achieved in fiscal year 2020 over the prior year. We anticipate the elevated shipping and storage costs will continue into the first half of 2022. However, our planned increase in volume per load and higher sales volume, as well as taking advantage of more efficient distribution arrangements, will partially offset these costs. Additionally, we are buying more raw materials in advance, taking a closer look at all of our supplier relationships and, where possible, passing on price increases to help mitigate industry-wide cost increases. We have great sales momentum heading into 2022 as we entered the 2021-22 school year in double the number of school locations from the prior year and have continued to add to that customer base with the addition of 39 new school districts in the last three months. We also announced this past December that we had been awarded a five-year contract from the Army and Air Force Exchange Service for Twist and Go to be served to students in 76 military-based schools across nine countries overseas. The 76 schools served an average of 17,700 meals per day for a total of more than 3 million meals in 2020-21 school year. And most recently, we announced the distribution arrangement with the largest independently owned and operated Pepsi franchise bottler, G&J Pepsi Cola Bottlers. Twist and Go will now be distributed to G&J's customers through the same network that distributes well-known brands like Tropicana, Covita, and Naked Juice. Pepsi products are sold in practically every type of retail account across the United States, including schools. We believe this arrangement has incredible value, especially as we start to expand Twist and Go outside of the school channel. We hope this partnership can serve as a blueprint for the additional 80 independent bottlers to begin similar programs with Barfresh. The education channel has longstanding relationships with specific distributors, and in order for a beverage company to access those accounts, it must go through the distributor rather than the school or school district in most cases. We have a high rate of success with our products in the education channel, as they have been shown to significantly increase breakfast participation and have solid repeat consumption rates. And therefore, once we begin working with a distributor, it becomes a sticky business relationship and with significant barriers to entry. We have therefore made partnering with distributors, such as GNJ Pepsi, a focus of our sales strategy going forward. Another business tailwind for our company heading into the new fiscal year was a successful uplisting of our common stock to the NASDAQ capital market. This achievement followed years of hard work strengthening our balance sheet, dramatically improving our expenses and increasing our top line to ready ourselves for this financial milestone. We will now garner broader access to investors and it solidifies our place as a serious player in the beverage industry. Our growing position within the industry has also helped us attract the right talent, as seen with the announcement earlier this year in the hiring of Lisa Roger as CFO. Lisa has had extensive public company manufacturing experience and successfully managed all aspects of finance for numerous companies, including Fox Factory. Lisa has elevated our financial team to the next level and will be an integral part of our company's next chapter of growth. Now with that, I'll turn it over to our CFO, Lisa Roger. Lisa?

Thank you, Ricardo. I'm excited to be part of an innovative company like Barfresh and recognize all the incredible improvements Ricardo and his team have made to the business over the past few years and look forward to working with them at this exciting time in their company expansion. Now to discuss our results in more detail. Revenue for the fourth quarter of 2021 increased 296% to $2.5 million compared to $620,000 for the same period last year, and up 27% compared to $1.9 million in the third quarter of 2021. As Ricardo mentioned, this was our highest quarterly revenue in company history and the first time we had sequential revenue growth from the third quarter into the seasonally light fourth quarter. Revenue for the full year of 2021 increased 161% to a record $6.7 million, compared to $2.6 million for the full year of 2020. The fourth quarter and full year increase in revenue is the result of increased orders for our Twist & Go product in the school channel, as well as the gradual return in sales of our single-serve and bulk products. Gross margins for the fourth quarter of 2021 were 36%, compared to negative 4% for the same period last year. The negative gross margins in the prior period was due to the company realizing startup expenses related to launching Twist & Go and World's 100% juice concentrates, as well as COVID-related product write-downs. Gross margins for the full year of 2021 were 37% compared to 30% for the full year of 2020. The increase was due to the higher sales volume and product mix of our Twist & Go and World's 100% juice concentrates. As Ricardo explained, we, along with the entire industry, are experiencing inflationary headwinds that we expect to persist throughout fiscal year 2022. However, as outlined earlier, we have plans in place to help offset these headwinds, and with the expected increase in sales of our Twist and Go and World's products, along with the return of our higher-margin single and bulk-serve products, we expect gross profit margins for the full fiscal year 2022 to stay in the 30s. Our net income for the fourth quarter of 2021 improved to $130,000 as compared to a net loss of $1.4 million in the fourth quarter of 2020. Net income in the fourth quarter of 2021 benefited from forgiveness of a $568,000 PPP loan. G&A expenses for the fourth quarter of 2021 were flat at $1.1 million compared to the same period last year. While we experienced a significant increase in shipping and storage costs from the unprecedented market increases and labor shortages in the quarter, such additional costs were partially offset by lower R&D and personnel costs. Net loss for fiscal year 2021 improved to $1.3 million as compared to a net loss of $4.2 million in fiscal year 2020. G&A expenses for fiscal year 2021 decreased by 9% compared with the prior year. We expect the elevated shipping and storage costs to continue into the first half of 2022. However, our expected increase in volume per load and higher sales volume, as well as us taking advantage of more efficient distribution arrangements, will help partially offset these costs. For the fourth quarter of 2021 and full year 2021, our adjusted EBITDA improved to a loss of $67,000 and $1.2 million, respectively, as compared to a loss of approximately $1 million and $3.2 million for the same periods last year. Now moving on to our balance sheet. As of December 31, 2021, we had approximately $5.7 million of cash and $700,000 of inventory on our balance sheet, compared to $2 million of cash and $900,000 of inventory as of December 31, 2020. On June 3, 2021, we announced the completion of a private placement of approximately $6 million of common stock with no warrant coverage. In addition, We also negotiated conversion of approximately $700,000 and the retirement of approximately $800,000 of existing debt and interest. This transaction eliminated all prior convertible debt and related interest. Additionally, we had our second PPP loan for $568,000 forgiven in the fourth quarter of 2021. Now I will turn the call back to Ricardo for closing remarks.

Thank you, Lisa. Now that we've closed the door on 2021, survived the struggles of the last two years, made lots of difficult decisions, making our company stronger. And finally, COVID-19 is in the rear view mirror. I'm truly proud of our team and excited for the future. We have right-sized our company. We uplisted to NASDAQ. We cleaned up our balance sheet. We have no debt. We have a strong cash balance and don't need to raise any new capital. We are approaching break even and expect to be profitable. We've added strategic distribution partnerships such as G&J Pepsi. Our existing products are starting to come back now that COVID is going away. Our national accounts are back in our pipeline and re-engaging. Our Twist & Go products have taken off and we're just scratching the surface. We achieved a record year and a record fourth quarter and you can expect more record quarters to come. Now with that, let's take your questions. Operator?

We will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2. We will pause for a moment as callers join the queue. The first question comes from Anthony Vendetti from Maxim Group. Please go ahead. Thanks.

So, Ricardo, you announced, I think, a significant retail distribution agreement with an independently-owned PepsiCo bottler for your Twist & Go product. Can you talk about what that could mean and whether you're having conversations with any other independent bottlers

Yes, we are having conversations with other independent bottlers. It's going well with G&J Peps. We've only just started, obviously. I think this is an important piece for us because it gives us additional options for a broader range of customers that we'll be able to serve the twist and go to. It won't just be the education channel, it'll be outside of the education channel as well. And it is also a difference between going through a distributor, a broad line distributor, and maybe the example I can give you is broad line distributors are really the delivery system for the product to get to the end customer. So there's not a great deal of selling that takes place by the broad line distributors. That part of the equation is left to us. and our team, where we go out and sell. Part of the attraction of the G&J Pepsi arrangement is that they own the relationship with their end customers. They're also selling products. So they are able to take over and assist with that selling part of the transaction, which obviously increases our potential more than what our own sales team could do.

Yeah, no, of course. In terms of this year, you know, when should that start gaining some type of traction where we could see, you know, potentially material revenues from this relationship? I assume it's mostly on the convenience store side, right?

No, it will be the education side as well. You know, Pepsi products, you know, whether it's the Frito-Lay products or the beverages or the juices, They're pretty much in every single school in the country. So it will also be the education channel. And you're going to see it pretty much now. And you're starting to see it already. We obviously had a significant increase in what's typically a slower quarter for us. That's going to continue. So, you know, I think the business has really turned the corner. And, you know, despite the challenges that we've had in the marketplace with, you know, no different than anybody else, supply chain issues and cost issues and labor issues and, you know, everything else that is going on, we're continuing to make very positive headway. And that will start to take – you'll see it in pretty much every quarter from here on out.

Yeah, no, that's great. But in terms of the, and obviously, as you just said, you know, it's going to help in terms of the delivery to the schools. But the convenience store opportunity is a new opportunity for you. And having someone like, you know, an independent Pepsi distributor certainly, I'm sure, helps. What do you, you know, what is that? What is that going to look like, though, on the convenience store side in 2022, since I know that that's a new area for you?

Yeah, I mean, we're going to have a couple of new areas, Anthony. Expanding the Twist & Go product outside of the education channel to places like convenience will be one option. We're also going to look at different environments, such as office cafeterias, and the like, so the business and industry type locations. We will also be looking at retail, grocery supermarkets. That's in our plan for this year to start that process and dip our toe in the water with regards to that channel. Same, asking what do we think the numbers are going to look like specific to that category, it's too early to tell. We are literally just starting this process. This is a brand new relationship. It has started, so we do have kind of revenue that's beginning to percolate, but it is very early days. And I think we're also working our way through the best ways to merchandise the products in these different types of outlets and different channels. So we've got a great partner. to do that with, and they're helping us along the way. So we're really looking forward to growing that relationship.

Sure. Okay. Just on the, Ricardo, you said, and hopefully you're correct, that COVID is in the rearview mirror, at least for now. But you've dealt with, as many other companies and industries have dealt with, supply chain issues, and you went through all those. Do you feel now at this point that whatever disruptions that happened or whatever cost pressures either have leveled out or starting to abate, where would you categorize the supply chain issues or concerns that were out there? And if for some of those, those costs are going to be elevated, for a while, and have you considered combating any of that with price increases, and are you able to do that if necessary? Are you able to take some price? I guess is the question.

Great, great, great question. We're no different than anybody else, right? Prices are going up for literally everything, so different things are going up. in different proportions. We are taking whatever measures we can to try and mitigate the increases. So whether that's buying more, buying more in advance, contracting, you name it. We're looking at it and seeing how we can control and mitigate the increases. We have passed on some increases already. We're doing that wherever possible. We actually passed on a recent increase in the first quarter and that was pretty well received actually. So that tells us that there's good price elasticity out there with our customers and there's a real demand for the product despite the price increases. So that's reassuring. There still remains other challenges whether it's availability of certain ingredients or lead times that need to be managed, labour shortages. is an issue for everybody but we're managing and we're getting through so I think the team has done an amazing job to keep everything moving we've had our bumps in the road but we've managed to get over them there's no doubt that the numbers could have actually been higher there were orders that we couldn't fill in time despite the significant increases that we've had in revenue it actually could have been higher So we definitely have been affected by the issues that are going on out there. But I feel like the team's got a really good handle on what's going on and are constantly working on ways to mitigate it and keep things moving at reasonable prices. And the customers have also been really good. a great set of customers and the dialogue is very fluid. You know, there's a lot of pieces to the costs. It's not just the raw material costs and the cost of making the product. It's also, you know, the delivery costs, right? So while freight prices have been going through the roof, we've kind of been a little bit fortunate that our sales volume has also been increasing significantly and it's also been increasing significantly with concentration in particular markets as we've been growing the territories. So that's afforded us the ability to mitigate some of the higher price increases from the freight part based on having a higher volume going into a concentrated area. So again, we continue to be thoughtful about how we're going about growing our sales. That's also helping us. But we do have to deal with the reality of higher prices. All in all, I think we're in a great spot. The team is doing a great job. Hopefully you can tell we're incredibly excited about where we are and really what's around the corner for us.

And just lastly, I think Lisa mentioned this on her prepared remarks, but it sounds like the bulk serve channel is starting also to come back. I guess maybe if you could categorize that just a little bit more, would you say it's 20% back? Is it 50% back? How fast has that recovered?

Yeah, that's another really good question. Even within the education channel itself, the bulk products, by definition, they're designed to service a high volume of customers in a short period of time, which are therefore in close proximity, which is kind of like communal feeding, which has been the last kind of piece of the puzzle to come back in play from COVID-affected customers. And the reason for that is because there's been a big push for grab-and-go items, low touch, you know, in congregating areas, et cetera. So it has come back. It's still early, but it's most definitely coming back. I mean, even the beginning of this year, we saw, you know, keeping in mind that Q4 is normally our second slowest quarter of the year, and Q1 is traditionally our lowest quarter of the year. And in Q1, we've actually started to have customers coming back and reengaging with regards to our bulk service products. Some of our larger accounts and theme parks, attraction centers, places like Niagara Parks or the Statue of Liberty or these types of locations that were really affected by COVID and tourism and where they have a lot of people moving through those locations. They were really affected and when you have the seasonality as well, the bulk products and the smoothies are typically seasonal with a summer lens on that. They were really affected by last year. We've definitely seen that start to turn around. All those accounts are coming back and looking at adding locations and adding more. touch points and selling locations within their existing establishments, which is a great sign for what's to come for the summer as well.

Okay, thanks. I'll pass it along. Thanks so much. Thanks.

Once again, if you have a question, please press star, then 1.

The next question comes from William Gregozeski from Greenridge Global. Please go ahead.

Hey, guys. I was just wondering if you could give an update on the military channel?

Yeah, sure. Hey, Bill. So the military channel is going well. It's definitely coming back. We're also expanding within the channel, within the military customers that we have different types of products. That was demonstrated with a five-year contract that we recently signed for the Twist and Go that's going to be in quite a number of schools on military bases overseas. So we're definitely fostering close relationships with Our military customers, they are also similar to what I was just describing with Anthony earlier. They use our bulk service products. So we are seeing that business starting to pick up as well. So we do have more communal feeding areas that are being opened. We have new bases that are being opened. So that is definitely improving.

Okay, great. And then with the supply chain, I mean, are you seeing anything where you guys might be able to get into national accounts at some point this year, or is it just too early to tell, to have enough volume to supply that?

I will tell you that we have reengaged. I will tell you that it's more than just having conversations. So we are definitely progressing with the national accounts. The exact timing of it, is touch and go, whether it will be this year. There may be something this year. Not sure of the scale, but there's definitely progress being made. And it's a big difference from last year. Last year, there was kind of conversations, but things were obviously still touch and go a little bit. It's definitely progressed this year.

The next question comes from Mark Nessitucci from Shea Capital. Please go ahead. Hey, Ricardo. Hi, Mark. How are you? Can you hear me?

Okay. Congrats. Great quarter. As you know, I've been a longtime investor and you've had a lot of headwinds over the years and you've done some terrific pivots. So I just thought if you don't mind, just indulge me on a few questions because As you know, you've been at this for an extremely long time, and you've gone from single serve to bulk pour to twist and go. You've brought in some great relationships, Pepsi, Unibel, Cisco. So I think it's important for me and I think probably the rest of the investor base. And Anthony started to touch upon it. So I just want to press you a little bit more on your short-term pipeline, your midterm, and certainly long-term in some of these verticals. So you've added a lot of schools. over the last few years. Can you just kind of recap on how many school districts, how many students does that cover? And if you could just put some brackets around that based on your intermediate term kind of target with that. I know you can't give a projection, but there must be a range. You can try to give us some math to kind of get to where you're thinking this could go in the short term, just based on the schools you have besides the next level of schools that you could potentially enter.

Yeah, sure. All right, so let's break this down a little bit. So as it relates to the schools and Twist and Go, because that's really what's at the forefront right now, right? We think that we're in about a 1.5% to 2% kind of penetration of our school accounts, right? So that's about 98,000 schools. Rough numbers now, right? But what's probably a little bit deceiving is that The run rate that you would have seen in, that's the run rate where we believe we are now, not as of Q4. So we believe that the number, as you start to extrapolate out, kind of an annualized number will be larger than what it is for Q4. Because we've got more locations and more customers in Q1 than what we had in Q4.

Right, okay, so 98,000 schools, how many students is that, and how many times a week do you expect them to be served?

Yeah, it ranges by school. Some of them are once a week, some of them are twice a week, some of them are once a month. It really depends by the school, and, you know, there's a lot of variables that go into that based on, you know, the demographic of where the school is, you know, how many students are at each school. That obviously makes a huge difference. So it's not really linear like that. That's why we think we're in about 1.5% to 2% market penetration with the numbers that we've got. And we believe there's an enormous runway, and we're seeing it, and we have some visibility ahead of additional customers that we expect to come on board and particularly as we get into the next school year as well. So we believe this is a huge channel for us. There's no reason why over a certain period of time, we couldn't be doing, you know, 30 to 50 million out of this channel alone. It really is.

That's what I was going to say. Cause if you're, if you're, I know it's, I know there's some seasonality, but if I kind of just extrapolate from fourth quarter to Q1, and the addition of the new schools, and let's assume you're at a 10 million plus type of run rate, you're saying it could be easily three to five times larger just in your short-term pipeline.

Well, short-term, medium-term, that's debatable, right? Really, there's a lead time to going through the mix. There's also... You know, there's also, we want to be doing this in a measured way from the perspective of given the challenges in the marketplace, right? So, you know, we do need to be measured in how we go after the customers, how we build capacity, where we're going, the pricing architecture that we're offering so that we maintain margin based on different parts of the country given the current backdrop of pricing and costs, inflationary pressures that we have. So I think that I just think that it's an enormous opportunity. And to be honest with you, that $30 to $50 million over a relatively, what I believe would be a short period of time, is very achievable given where we are and the market size of what we have. The other thing is the other products that we have are starting to come back. You talked about we've been at it for a long time. You're right. Unfortunately, we had a rollout that was planned for 2020, and it got shelved. So we couldn't help that with COVID, and that was after years of preparation, testing, and et cetera. We do have things that have come back in now and back in the pipeline, so it hasn't all been wasted from that perspective. So we just think all of that work that we've done historically, it will be incremental to the rest of the business as we get going. you know, we've taken the opportunity.

You had, you had, I'm sorry. Yeah. I recall you had things like, uh, theme parks and statue of Liberty. And I remember all of that, um, bulk poor single serve business was expected to generate five or 10 million. I mean, so you start, I mean, we're getting into the summer months. Are you starting to see some of them? I assume they're all opening, uh, with the kind of COVID, you know, petering out here and, vaccine and mask mandates dropping. I expect that to come back to.

Yeah, we weren't expecting five to 10 just from from that channel of theme parks, et cetera, but as the business as across the business of the single serve and the bulk products, it's definitely coming back. The existing customers, we've got a lot of the same customers that are either looking to increase their volumes or adding more locations, like I mentioned earlier. But I think in addition to, you know, we definitely also lost some customers, right? I mean, the pandemic, you know, also hurt some customers and they won't be coming back. But I think on the balance, we're going to be ahead of, we expect that, you know, by the end of this year, we're going to be, you know, with those other parts of the business, we'll be the equal or ahead on our historical, you know, customer base, right? not including what we add new. The incrementality is going to be the national accounts. They haven't gone away, and I think that's really one of the messages that we wanted to make sure was heard, and that is, yes, we've got a lot of great stuff happening on the new products moving forward, but we haven't lost the old part of the business. And that's what's really exciting for us, because a lot of work's being done there,

um over the years and it's going to be nice when that when that finally happens yeah i guess for me i i think if you could just shed a little bit more texture around that opportunity because you've been at this for the national accounts for certainly at least five years so i guess to me the question comes down to three factors a is the category the smoothie category still a critical part of their offering their menu b if they're going to work with you obviously the taste and the reviews of the product from your customers, obviously, is the most important thing. And then three, I know you spent a lot of time on making sure you had a lot of capacity to meet the needs of these national accounts. Otherwise, it wasn't going to work. And then maybe you can just add some texture on those three tenets.

Yeah, I mean, the capacity is always something that needs to be taken into consideration, and we need to ensure that we have it. at all times. Times do change, marketing teams change, ideas and taste preferences also change depending on who's in charge. That is some of what we're dealing with right now. We do have some development work that we're doing and it is around flavors. We are, as I mentioned, we are back in the saddle finally and we continue to make sure that we're able to cater for our large national accounts and we're working with them. It's all very real and I guess we've got colour on it now, we've got context of what they need and we're working to make those adjustments.

So, again, just to be precise, the category is still a desirable category that they want to be in?

In actual fact, the category of smoothies is actually growing. Okay. Thank you. We'll check that box.

Okay. So, number two, you said tastes have changed, but you've been able to modify, meet their recipe needs?

It's not really recipe needs. It's a bit of a process of developing flavors and testing them and making sure you have the right balance.

Okay. And then three, I know you had worked prior to COVID of setting up some big capacity in different parts of the country. I assume you still have those relationships and you think you'll be able to be in the same position if you get the green light from the national accounts?

Yeah, we have that same capacity set up currently, so there's no change on the capacity front. But, you know, we do have increasing capacity. Sorry, we do have increasing demand on the other products. So we're always looking for ways to be more efficient.

Okay. If I remember correctly, you had over 100 million units of capacity. I know different, whether it's single serve, bulk pour, or twist and go. Is that still the case? Correct. Okay. Okay. So, yeah, just to touch, you know, on Anthony's point about this partnership with J&G. I mean, they wouldn't be taking on your product unless they, again, you checked all the boxes here, and they must be excited about what that opportunity could look like. So they must have given you a sense of what they think the unit volume could look like. Could you, I mean, can you shed some color from their perspective on how big they're excited about this retail opportunity?

I mean, they're excited enough to take it on board with the other products they have and the other products that they have are in the category. We're literally being put on the truck side by side, brands like Tropicana, Covita, and Naked Juice. I guess they feel like it's a strong enough proposition to put us alongside those products on their trucks. It is very early days.

No, I understand. I'm pretty confident. They don't take on these products unless they think they could be not just tens of millions. I got to believe they think the product category could be over 100 million opportunity in dollar amount. I'm not saying it's going to be there today, but I don't think they're taking you on to be a sideshow for a $10 million opportunity, correct?

Yes, that's a fair comment.

Okay, just finally, and I apologize for occupying a lot of time. Lisa mentioned about only expecting about, I guess, mid-30s gross margin. What is your – I know you were in the 40 to 50 range prior to COVID. What is your target, maybe, looking out to 2023? What do you hope to get back to as far as long-term gross margins?

Hi, this is Lisa. I can address that. You know, we are having some inflationary pressures in the first quarter, as is the whole industry. And there is a bit of a lag in passing some of that on to customers, although we've had good success, as Ricardo mentioned earlier. You know, there's some seasonality to the business as well, as far as product mix. And with that said, I would say for the full year 2022, we expect to be in the mid-30s, just with some seasonal variations.

Okay, but would you hope to get that back into the 40s looking out in the future between prices and supply chain?

I would say given the product mix, it could creep up into the higher 30s, maybe into the 40s back where it was. We are working on some initiatives to close that gap, but we also want to be a little bit conservative given the backdrop that we're in right now.

No, I understood. We're all very sensitive to pricing in this environment, so I completely understand. Ricardo, I'm sorry. I just thought of something. Your penetration with this twisting obviously is a superb product, and we've tried it over here. That came on the heels of the USDA, and that really helped you accelerate that penetration. Can you maybe just talk about that for a moment and begin how that's helped you with whether it's military or schools, or is that leading to other opportunities? because you're meeting all those criteria?

I mean, the mere fact that we meet the USDA requirements, the products, it's a healthy product, right? So there's no added sugars. It's real fruit. It's real protein from the, you know, we've made the yogurt. It's got live cultured yogurt. So the product profile is great. So it's been very well received everywhere. You know, when we started the product, it was during COVID. So there were a ton of restrictions on us in being able to get the product out and get to customers. And to be honest, we're really only, even at the end of last year, we still had some challenges in being able to get distribution and get out to customers. And that was one of the biggest challenges that we have isn't that we have customers that like the product, it's getting it to them. And when you have a look at kind of where the gaps are, We have to get the product into the broad line distributors. That doesn't just happen. They're full. There's a shortage of labor. They've got their own price and cost pressures. There's minimum requirements and minimum delivery and turn needs before they'll take on the product. It's kind of a chicken or the egg situation. How can you have the volume if you haven't been able to get the product into the market yet? we've really been operating with like one arm tied behind our back and I think as what you'll start to see is as we start to get more volume and more distribution pieces the numbers are going to really start to increase and that's what's incredibly exciting from our side because we're starting to see that penetration we're starting to see these new distributors open up and it's making a huge difference and there's still tons of poor you know there's still a lot of areas around the country that we don't even have any penetration in yet. So as we strategically go after various areas of the country, there's a really big opportunity ahead for us.

That's great. Maybe just on that topic, I know you received a strategic investment from Unibel many years ago. I know you're dealing with a lot here in the States. I can't imagine taking on anything in Europe, but Is there anything to talk about as far as how they're helping you with some of these supply chain issues or potentially expanding into Europe?

They've been a great partner. They continue to be a great partner, helping us with many different things, whether it's our introduction into retail that they're helping us with and we're working with them on closely, or whether it's supply chain or manufacturing, et cetera. they've been incredibly helpful and they're a great partner to have. We're very proud to have them at the table. Very thankful.

All right, Ricardo, thank you again. I know I took up a lot of your time. I appreciate you getting to my questions.

My pleasure. Thanks.

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