Barfresh Food Group Inc.

Good afternoon, everyone, and thank you for participating on today's second quarter 2023 corporate update call for Barfresh Food Group. Joining us today is Barfresh Food Group's founder and CEO, Ricardo de la Costa, and Barfresh Food Group's 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 underscore 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 the 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 statements of historical fact that address activities, events, or developments that the 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 take undue reliance on these forward-looking statements, which speak of which speak only of the date they are made. The contents of the score should be considered in conjunction with the company's recent filings with the Securities and Exchange Commission, including such its annual report on Form 10-K and quarterly reports on Form 10-Q and current reports on Form 8-K, including any warnings, risk factors, and cautionary statements contained therein. Furthermore, the company expressly disclaims any current intention to update publicly any forward-looking statements after this call, whether as a result of new information, future events, changes in assumptions, or otherwise. In order to aid in the 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 issued for services, and other non-recurring costs, such as those associated with product withdrawal and the company's NASDAQ uplist. Management believes that adjusted EBITDA provides useful information to the investor because it is directly reflective of the period-to-period performance of a company's core business. Now, I will turn the call over to the CEO of Barfish Group, Mr. Ricardo de la Costa. Please go ahead, sir.

Good afternoon, everyone, and thank you for joining us for our second quarter 2023 earnings call. As expected, the second quarter was challenging as we worked to regain school customers lost as a result of the issues with our largest bottle manufacturer and to get added back onto school menus before the end of the school year. The good news is that in the current quarter, we converted some of these customers over to our carton format and have been added back to some of their menus for the 23-24 school year commencing this quarter. We gained new customers for the upcoming school year and we more than doubled our production capacity for our smoothie carton format, thus setting us on a path to achieve sequential and year-over-year revenue growth in the third quarter. We are halfway through the third quarter and have already secured over $1.6 million in revenue and expect to end the quarter in the range of $2.6 to $3 million as compared to $1.5 million in the second quarter of 2023 and $2.4 million in the third quarter of 2022. We also expect to be approximately adjusted EBITDA breakeven for the third quarter and achieve positive adjusted EBITDA for the fourth quarter of 2023. This quarter, we were able to maintain margins close to the prior year period at 31% and expect modest margin improvement in the back half of the year as carton capacity continues to expand and expect to be in the high 30s to low 40s. Our smoothie carton co-packer has completed the engineering changes required to increase the capacity and is in the process of hiring additional personnel required to meet our current and growing demands. Once fully staffed, we will have production capacity of approximately 25 to 30 million units annually for our smoothie cartons alone. And it is our expectation that revenue will grow significantly as the capacity comes online and we expect to achieve record revenue for fiscal year 2023. In addition to increased production of our smoothie carton format, I'm excited to share that we are in the contracting stage with a new bottle co-manufacturer that we expect to be up and running by the beginning of next fiscal year. Finding a partner with the right experience, infrastructure and available capacity was not an easy task and we are fortunate to have found a co-manufacturer that checks all three. We believe exiting fiscal year 2023, we will have an even more robust customer base and will now have the manufacturing capabilities necessary to service that base today and as it grows in the future. Our focus for the back half of this year will be continuing to work with our carton co-manufacturer to ramp up carton production to an annual run rate of 25 to 30 million units by the end of fiscal year 2023. Working with our new bottle manufacturer to have them up and running by the beginning of fiscal year 2024 and continuing to advance our operational margin improvement efforts. Our goal is to exit fiscal year 2023 back to the growth trajectory we were on last year before we ran into the issues with our largest bottle manufacturer. I'll now turn the call over to our CFO, Lisa Roger. Lisa?

Thank you, Ricardo. Revenue for the second quarter of 2023 was $1.5 million compared to $2.8 million for the second quarter of 2022. The year-over-year decline is a result of limited supply caused by the loss of our largest bottle manufacturer of Twist & Go. As Ricardo stated, we have already secured over $1.6 million in revenue for the third quarter and are heading into our heavy selling season. We expect to end the quarter with revenue between $2.6 million and $3 million. For the full year, we expect to achieve record revenue as capacity and demand continue to ramp for our smoothie carton format. Gross margins for the second quarter of 2023 were similar to the prior year end at 31% and 32% for the second quarter of fiscal years 2023 and 2022 respectively. We expect modest margin improvement throughout the back half of the year as a result of product mix as smoothie carton sales increase. Our net loss for the second quarter of 2023 was $742,000 as compared to a net loss of $716,000 in the second quarter of 2022. Selling, marketing, and distribution expense for the second quarter of 2023 decreased 11% to $625,000 compared to $701,000 in the second quarter of 2022. The decline was primarily due to a 21% decrease in storage and outbound freight expense this year as a result of the decline in revenue, partially offset by the cost to retain outside service providers, including brokers specializing in the school market that were hired in the third quarter of 2022. G&A expenses for the second quarter of 2023 decreased 39% to $493,000 compared to $802,000 in the same period last year. The decrease in G&A was driven by a decrease in personnel costs and stock-based compensation resulting primarily from the confirmation and recognition of our 2021 COVID-related tax credit. A reduction in headcount resulting from technology-driven administrative efficiencies. and reversal of previously recognized compensation under our 2023 performance stock unit program. For the second quarter of 2023, our adjusted EBITDA was a loss of approximately $617,000 as compared to a loss of approximately $431,000 for the second quarter of 2022. We expect to be approximately adjusted EBITDA breakeven for the third quarter of 2023 and achieved positive adjusted EBIT after the fourth quarter of 2023 as a result of increased sales volume, gross margin improvements, headcount reductions taken late in the second quarter of 2023, and relatively fixed operating costs with the exception of outbound freight. Now, moving on to our balance sheet, as of June 30th, 2023, we had approximately $1 million in cash and approximately $1 million of inventory on our balance sheet compared to $3 million of cash and $1 million inventory as of December 31, 2022. Now I will turn the call back to Ricardo for closing remarks.