Edible Garden AG Incorporated

Good morning, ladies and gentlemen, and welcome to Edible Garden's second quarter business update conference call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Mr. David Waldman, Investor Relations. David, over to you.

Good morning, and thank you for joining Edible Garden's second quarter 2022 conference call. On the call with us today are Jim Kress, 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 quarter ended June 30, 2022. The press release is available on the company's website at www.ediblegarden.com. In addition, the company filed its quarterly report on Form 10-Q with the U.S. Securities and Exchange Commission. this morning, August 15, 2022, 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 or would like any additional information about the company, please contact Crescendo Communications at 212-671-1020. Before Mr. Kress reviews the company's operating results for the second quarter of 2022, we'd like to remind everyone that this conference call may contain forward-looking statements. All statements are in statements of historical fact contained in this conference call, including statements regarding our future results of operations and financial positions, strategy, and plans, and our expectations for future operations or forward-looking statements. The words anticipate, estimate, expect, project, plan, look forward, intend, believe, may, will, should, could, outlook, and the negative such terms In other words, in 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, result of operations, 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 quarterly report on Form 10-Q, Its final prospectus for its IPO dated May 5, 2022, 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 and cannot guarantee future results, level of activity, performance, or achievements. In addition, either the company or 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 questionary 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'll now turn the call over to Jim Kras. Jim?

Thank you, David.

Good morning, and thanks to everyone for joining us today. We're very excited to be hosting our first earnings call and look forward to hosting these calls each quarter to keep our investors regularly updated on our progress. I'd especially like to thank all of you, our investors, some of whom have been with us from the beginning, those of you who may have invested in our crowdfunding, as well as investors that came through the IPO or subsequently in the open markets. On behalf of myself, the management team, and the board, we couldn't have gotten this far without you, and we appreciate it. And also, we could not be more excited about the outlook for the business. In terms of the quarter, we believe the results we reported this morning illustrate the traction that we are seeing in the market as evidence to buy our solid year-over-year sequential revenue growth, which does not reflect the deployment of the capital raised as a result of our successful IPO and the concurrent listing on the NASDAQ. Prior to the IPO, we were somewhat capital-restrained. With the IPO behind us, we now find ourselves in the early stages of prudently deploying the capital, which we believe will help further accelerate our capabilities, technology, and retail distribution, all of which we expect will further contribute to the growing brand awareness that Edible Garden is currently experiencing, especially among the increasing number of consumers that deeply care about the quality of the food they eat, the environment impact of the food supply chain, and where they shop. While we are pleased with the organic growth we continue to experience in our business, we are even more excited now that we have the capital necessary to further accelerate the expansion of our business. We now find ourselves in an even stronger financial position and believe we will start to realize significant benefits from these investments including margin expansion as we move into the second half of 2020 to and beyond. Among our achievements during the second quarter, we entered into a product development agreement with Nutricom, an established and trusted developer and contract manufacturer of nutritional products to develop a proprietary line of farm-to-formulant nutraceuticals and other food products to be distributed through the Edible Garden Network. New products will include vitamins, plant and whey proteins, and other zero-waste-inspired products that will utilize every part of the plant. Given their decades of experience, we are excited to work with them to manufacture and launch nutritional products with high-quality ingredients that will enable us to leverage our existing distribution channels. Their climate-controlled, state-of-the-art automated facility will help ensure cost-effective shipping and fresh products consistent with Edible Garden's approach. The facility is located in the Midwest and is in close proximity to one of our key customers, So this relationship with Nutri-Com is expected to enhance this already strong relationship with that customer. We are gaining significant traction with our retailers and consumers alike due to several factors. First, the utilization of advanced hydroponic farming methods provides our customers with high-quality products free from harmful pesticides and herbicides, residues, or contaminants. In addition, we avoid depleting natural resources by using renewable proprietary packaging materials that preserve the freshness of the product. This proprietary packaging technology has been shown to significantly increase the shelf life for some of our products, which is a win for both consumers and the retailers, as spoilage and waste are reduced and costs are lowered. To this end, we recently announced an expanded distribution agreement with major Northeast retailers to carry our sustainable HydroBasil across more than 350 locations in New York, New Jersey, and Connecticut. This represents an important expansion of our geographic footprint for this product, as well as further validation of our growing consumer appeal. In addition, we recently announced that we have further expanded our distribution network in the Northeast by adding Food Bazaar, a full-service supermarket with 28 locations across densely populated areas of New York, New Jersey, and Connecticut that receive high levels of foot traffic. Through this partnership, we have significantly grown our presence across the Northeast a primary market of ours with more than 12 million households, tightly packed into just three states, and we plan on adding additional locations in the future. In addition to direct relationships with retailers, we announced the addition of Hemingways, a premier Northeast distributor specializing in all-natural and high-quality foods. Hemingways will be introducing our products in over 30 new stores with plans to expand to over 200 stores near term. It's important to note that Hemingway's brings a long standing relationship for both independent retailers, as well as some of the big box retailers in the country. Equally important is the fact that they have established infrastructure that will support expanded geographic distribution. So to summarize, you can see we have accomplished a lot in a short time since our IPO. The results that we shared with you today demonstrate the acceptance of our zero waste inspired mandate by consumers concerned with sustainability, the elimination of waste, and the avoidance of harmful pesticides, herbicides, residues, or contaminants in the products they consume. Our mandate also resonates with our distribution partners who see the value we provide their retailers by utilizing our proprietary packaging materials that preserve freshness, reduce spoilage, and lower the cost of products they provide to their customers. Most importantly, our products taste great and they are good for you. If you haven't already, I would encourage you to find a local retailer carrying our products and try them for yourself. You won't be disappointed. While we find ourselves in a rapidly changing world where we expect the level of commitment to sustainability is only going to grow in importance, and we believe Edible Garden is well-positioned to step up and be an industry leader. According to Advantage Market Research, the global organic fruits and vegetable market is estimated to reach $69 billion by the year 2028, up from $39 billion in 2021. We believe we are in the right place at the right time, and we look forward to further expanding our distribution channels given the growing demand for products, which in turn we believe will make us highly profitable in the future. At Edible Garden, we believe in future farming now. I would like to turn the call over to Mike James, Chief Financial Officer of Edible Garden, who will review the financial results for the three-month period ending June 30, 2022. Mike, take it from here. Thanks, Jim.

Good morning. The company reported revenues of $3 million for the three-month end of June 30, 2022, an increase of 7.5% or $208,000 as compared to $2.8 million for the three-month end of June 30, 2021. The increase represents growth we've experienced from our existing customer base. Cost of goods sold were $2.8 million for the three months ended June 30th, 2022, compared to $2.5 million for the three months ended June 30th, 2021. The increase of $322,000, or 13.1%, was due to higher packaging costs as a result of inflation, higher labor costs due to the effects of COVID had on the market, the labor market, and higher costs charged by our contract farmers. Selling general and administrative expenses were 2.7 million for the three-month end of June 30th, 2022, compared to 1.4 million for 2021 comparable quarter. The increase was driven primarily by higher payroll and compensation expense, which included $1 million of one-time transaction bonuses related to the completion of our IPO, as well as other public company expenses which were not included in 2021. Net loss for the three-month end of June 30, 2022, was $4.8 million, or $0.68 per share, compared to a net loss of $1.2 million, or $0.29 per share, for the 2021 comparable quarter. Turning to our balance sheet, we ended the quarter with approximately $5.7 million of cash and cash equivalents, which we believe provides us sufficient liquidity to execute on our current growth strategies. We have maintained a clean balance sheet with manageable long-term debt of $3.4 million. I would now like to open up the call for questions. Operator, can you please assist us with that?

Thank you very much. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on a speakerphone to provide optimum sound quality. Please hold while we poll for some questions. Thank you. Your first question is coming from Bill Jordan of TA Investments. Bill, please ask your question.

Thanks. Good morning, guys. I've been comparing Edible Gardens with your competition, and it appears that Edible Gardens sells at a large discount versus the competition. By that, I mean the market cap is a multiple of revenues. Do you know why such a large gap in that market cap as the multiple of revenues exists?

Jim, I'll take this one. Thank you for the question, Bill. That's one matrix that you can look at the company by. And, you know, we've looked at the competition that's out there, and Edible Garden has less than a one-time multiple of revenue for the market cap versus competition, which goes from 12 to 25. You know, other metrics that we look at are the large negative gross margins that our competition has been generating, the higher SG&A, the higher interest costs, more employees, So we believe that our fundamentals are much better than what the competition has. And we're going to continue to build our business how we have to, you know, grow, pick, pack and ship every single day. You know, when looking at it, you know, the investors should be looking at all the various different metrics that are out there. and, you know, at the end of the day, make their informed decisions. So I appreciate the question. Thank you very much.

Thanks for the answer. Appreciate it.

Thank you. Ladies and gentlemen, if you do have a question, please press star 1 on your phone keypad now. Okay, we appear to have no further questions in the queue. I will now hand back over to management for any closing comments.

Thank you, Opera. I appreciate it.

I would like to thank everyone for participating in our second quarter 2022 conference call. We believe the future is bright for Edible Garden, and we look forward to updating you on our progression next quarter. Thank you very much. Thank you.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.