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spk02: Ladies and gentlemen, thank you for your patience. This conference will begin in one moment. Thank you. Thank you. Thank you. Good morning, ladies and gentlemen, and welcome to the Edible Garden third quarter 2022 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, David Waldman, with Investor Relations. Sir, the floor is yours.
spk03: Good morning, and thank you for joining Edible Garden's third quarter 2022 conference call. On the call with us today are Jim Crass, 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 September 30, 2022. The press release is posted on the company's website, 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, 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. Krause reviews the company's operating results for the third quarter of 2022, we'd like to remind everyone that this conference call may contain forward-looking statements. All statements other than statements of historical facts contained in this conference call, including statements regarding our future results of operations and financial position strategy and plans and our expectations for future operations, are forward-looking statements. The words anticipate, expect, project, plan, look forward, intend, believe, may, will, would, should, could, mission, and the negative of such terms and other words or 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, results 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 and its final prospectus for its IPO dated May 5, 2022, followed 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, it cannot guarantee future results, level of activity, performance, or achievements. In addition, neither the company nor 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 cautionary 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 Kress. Jim, please go ahead.
spk07: Thank you, David. Good morning, and thanks to everyone for joining us today. I'd like to begin by saying thank you to all of our investors for your continued support and confidence in the Edible Gardens story. On behalf of myself, the management team, and the board, we appreciate your support and want you to know that we believe the future is bright at Edible Gardens. We continue to generate solid year-over-year revenue growth and achieved a 12.5% increase in revenue for the third quarter of 2022 compared to the same period last year. This represents the second consecutive quarter of year-over-year revenue growth. We expect this trend to continue in subsequent quarters and believe we can, in fact, accelerate our growth by executing on our business strategy and prudently deploying the capital that we have raised to date. We are also building our distribution network by adding new retail partners to our network while expanding relationships with our existing partners, either by adding more of their retail locations to our network or by adding more SKUs to the retail locations where we currently sell our products. As an example, during the third quarter, we announced the expanded distribution of our sustainable hydrobasil with a major Northeast retailer, which has agreed to carry our product across 350 plus locations in the Northeast. During the quarter, we also announced an expansion of our Northeast distribution through Food Bazaar, a full service market with locations across New York, New Jersey, and Connecticut. With so much diversity among the customers and communities served by retail partners, we have been diligently working with the buying teams to better optimize the mix of SKUs at each of the retailers. The company is also working aggressively to drive Edible Garden to our goal of profitability. To this end, we continue to carefully manage our expenses and believe we have built a highly scalable business with an expansive distribution network that should benefit from higher margins, as we increase our growing capacity and throughput. We're also working diligently to offset some of the inflationary pressures that have impacted cost of goods across the industry. Specifically, we're working hard to further optimize the supply chain, leveraging the purchasing power that should come with increased sales and further enhance the product lines with new higher margin complimentary products. Our goal is either to develop or acquire these products where we could internally produce the ingredients while leveraging brand recognition and the retail distribution network that Edible Garden has built. Margaret Achievements in the third quarter, we acquired a five-acre greenhouse facility in Grand Rapids, Michigan, which will operate as Edible Garden Heartland. The location is ideal as it reduces our reliance on contract growers and places us closer to one of our largest distribution partners, Meijer. From this location, we plan to further build out our Midwestern distribution network. In addition to improved margins, the additional benefit of having this in-house production close to our retail partners is a reduction of food miles, shortening the time from farm to table, reducing spoilage, waste, and ultimately reducing our CO2 footprint. This is the type of initiative that supports our mission of providing zero-waste inspired, simply local, simply fresh produce to our retail partners and their customers. This new zero-waste inspired CAA initiative facility will also leverage our patented Green Thumb software in order to bring to market in a highly efficient manner our products. This facility is on track to begin operations by year's end, which should expand our capacity support up to an additional $20 million in annualized revenue. We also plan to house a state-of-the-art research and development center focusing on improving existing products, developing new products, supporting innovations in plant-based protein and nutraceuticals, as well as applying advanced agricultural technologies. We'll also use Edible Garden Heartland as a research facility in partnership with University of Michigan's School of Environment and Sustainability, one of the leading sustainability research facilities in the United States, and the university's Herb Institute to offer students the opportunity to work directly with the Edible Garden team to develop and implement solutions for the environmental and sustainability issues that impact the food industry now and in the future by applying the power of sustainable CEA farming. In addition, Edible Garden Heartland will house the first commercial installation of Edible Garden's proprietary hybrid vertical growing system. We recently added three new greenhouse-grown salad kits to our list of available SKUs, all containing the company's locally grown, sustainable cut lettuce, along with dressing, croutons, cheese, and more needed to make a salad. All these ingredients are sourced from local suppliers. We are excited to offer our customer a salad kit solution where the main ingredient, the lettuce, is the same edible, garden-sustainable, and locally grown lettuce that our customers have come to enjoy. By offering greenhouse-grown salad kits, which were designed for consumer convenience and in alignment with consumer consumption trends, We believe we elevate and expand our presence within the CE category. Two of the salad kits have already launched in Meijer retail locations across the Midwest, and we currently have additional salad kits under development. By growing product closer to the distribution centers, these kits align well with our zero-waste-inspired approach to extending shelf life, reducing shrinkage, and reducing food miles, making this a win-win for our retail partners, the customers, and the environment. On one final but important note, I'd also like this opportunity to welcome Deborah Polowski to the Edible Garden board. Deborah brings more than 30 years of experience as a proven entrepreneurial business leader with a successful track record in corporate communications, capital markets, and business strategy. Her experience will be invaluable to the company as we continue to expand our footprint across the United States, add new distribution partners, and strengthen our communication strategy around the Edible Garden brand. So in summary, the agricultural sector faces a number of ESG challenges, which include climate change, responsible land use, water stewardship, pollution, and energy consumption. Our zero-waste inspired approach is facing these challenges head-on, utilizing innovative technology, advanced greenhouse growing technology, and local supply chains to increase yields, while at the same time reducing waste and containing costs. This allows Edible Garden to put theory into practice, better demand planning, bio-based packaging, and shrink-saving displays, leading to a reduced carbon footprint. Our sustainability approach continues to resonate well with both retailers and consumers who care about the environmental impact of the food supply chain. We believe this will allow us to further expand our distribution partner network and drive demand for our products, both of which should have a positive impact on shareholder values. Overall, we remain laser-focused on our revenue growth and expanding our distribution network while carefully managing expenses and increasing throughput of our facilities, which we believe will lead to long-term and sustainable profitability. I would now like to turn the call over to Mike James, Chief Financial Officer of Edible Garden, who will review the financial results for a three-month period ending September 30, 2022. Mike?
spk05: Thanks, Jim, and good morning. The company reported revenues of $2.8 million for the three months ended September 30, 2022, an increase of 12.5% compared to $2.4 million for the three months ended September 30, 2021. The increase represents growth we have experienced from our existing customer base. Costs of goods sold were $2.6 million for the three months ended September 30, 2022, compared to 2.3 million for the three months ended September 30th, 2021. The increase was primarily due to the increase in revenue. Selling general and administrative expenses were 1.9 million for the three months ended September 30th, 2022, compared to 1.2 million for the 2021 comparable quarter. The increase was driven primarily by higher payroll and compensation expense, as well as other public company expenses that were not incurred in 2021. Net loss for the three month ended September 30th, 2022 was 2.1 million or 24 cents per share compared to a net loss of 1.1 million or 28 cents per share for the 2021 comparable quarter. Turning to our balance sheet, we ended the quarter with approximately $2 million of cash and cash equivalents, which we believe provides us with sufficient liquidity to execute on our strategic plan and current growth strategies. We have maintained a clean balance sheet with manageable long-term debt of just $4.3 million as of quarter end. I would like to open up the call for questions. Operator, could you please assist with that?
spk02: Thank you. 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 speakerphone to provide optimum sound quality. Please hold while we poll for questions. Thank you. Our first question is coming from Anthony Vendetti with Maxim Group. Sir, please go ahead.
spk08: Thank you. Hey, Jim. Hey, Mike. How you doing? Hi, Anthony. How are you? Good, good. So just on the new facility, the one, the Heartland facility in Grand Rapids, Michigan, that has a capacity up to $20 million in annualized revenue. Right now, there's some legacy floral business there. Did that floral business contribute at all to revenue this quarter, or will it contribute to revenue in the fourth quarter before you switch it over more towards your... you know, your vegetables and herbs?
spk05: Do you want to answer that? I can answer it.
spk07: Do you want to go ahead?
spk05: Yeah, I'll answer that. We have a small crop of poinsettias that we're growing right now. They'll start shipping next week. They'll go out to the retailers. So we'll see some revenue, nothing major in the fourth quarter, and we should see the nice ramp up in Q1 of 2020, sorry.
spk08: Okay, so the ramp up of herbs and vegetables and stuff, that's more first quarter 23. Okay. And then contract growers, I know you've been using. With this facility, is it going to decrease the number of contract growers and therefore decrease some of your costs? And if so, how quickly will that transition occur?
spk07: I'll answer that one, Mike. Anthony, so the plan here is to continue to bring and spread business out across our facility with more and more business coming into Heartland. That will get our reliance off of the contract growers. We've got some really strong partners out there. We want to continue that. to service the business that we have coming in at the levels that we're known for. We continue to ship in the high 90s, something I'm very proud of, and our contract govers deliver on that. We're going to be obviously bringing product into Heartland, which will allow us to improve our margins as we vertically integrate. The good thing is demand for us is considerable. We'll be looking to bring in some additional business So there should be more than enough business to go around with the focus on bringing the most profitable business into Heartland so that we can impact and expand the profit component of the business.
spk08: Okay, great. And then in terms of switching gears a little bit to nutraceuticals, the Nutricom business, well, the agreement with Nutricom, Where is that in terms of development of, you know, your nutraceutical line, obviously very high-margin business on a gross margin basis relative to – Well, I was out with the CEO at Supply Side West last week.
spk07: We continue to look to develop the innovations, which I will – that will make this truly unique from the formula-style product lines. We are very involved with management over at Nutricom to develop this line. We are looking to launch that line in 2023, so we are on track as it relates to development. I'm genuinely excited about it, as I think it'll be a very compelling and interesting offering. to not only our buyers, but also to the consumer. And I think we're uniquely positioned as a brand, not only from a doors leverage and distribution standpoint, but I think from what it is that we stand for and how we're looking to do a sustainable, zero waste inspired line that I think really plays to kind of who we are and what people know us for. And I think if we can make that connection between being a purveyor of, and growing, you know, organic ingredients and then make that connection to finished goods. I think it should be an interesting offering. I think that will help set us apart and hopefully get some traction. So we are on track for next year's launch.
spk08: Okay, great. And then you mentioned in your press release and in your prepared comments about, you know, focus on moving to profitability and you mentioned reduced your SG&A to $1.9 million this quarter. Is that a sustainable run rate? Obviously, there might be some slight increases, but is that the new lower SG&A rate that we should work off of?
spk07: I think we're going to continue to focus on the SG&A. Primarily, the theory here is that as we increase revenue, the SG&A should stay relatively fixed since there's sort of a base level of service or staffing that's needed in order to manage business where it is right now. Based on the capacity, there is an incredible amount of additional SG&A that's needed in order to drive towards, let's say, you know, the $20 million that we think Heartland's capable of. And, you know, one thing that gets lost in the mix is obviously the Belvedere facility, which we continue to expand. So we've got a lot of exciting news coming up that will, you know, will continue to, you know, help us, you know, accelerate growth as well as, I think, continue to keep our eye on the bottom line and keep our, you know, or SG&A in line. So I would say the answer to your question is yes, but we'll continue to get the brightest and the best on board. We're augmenting with our relationship with the University of Michigan and things like that that are relatively low or no cost that continue to strengthen the team. So that's kind of how we're looking at it. I don't see that number increasing dramatically, if anything. We would look to continue to trim it.
spk08: Excellent. Thanks for the update. I'll hop back in the queue. Appreciate it.
spk07: Thank you, Anthony.
spk02: Once again, if you have any questions or comments, please press star 1 on your phone at this time. Our next question is coming from Ben Johnson with VKC Capital. Please go ahead.
spk04: Hey, guys. First, congratulations on the record-strong quarter. Can you provide more color on the partnership with the University of Michigan?
spk06: Sure. Thank you, Ben.
spk07: Our partnership with University of Michigan, the plan is to really have that be a long-term resource that allows us to continue to bring in fresh young minds that have an eye on sustainability, understand and want to be part of the zero waste mission that we have at Edible Garden. I couldn't be more thrilled already. We've started to onboard some of the students, and I know that my team is exuberant as it relates to just getting people in who have an interest and who are applying there.
spk06: and their spirit towards what it is that we're looking to accomplish.
spk07: And that's always nice to get some fresh blood into the company of people who, you know, who have an appreciation for what it is that we're looking to accomplish. So the relationship with University of Michigan, I think, is a great start to us being able to align ourselves with top research facilities. You know, University of Michigan is very well-funded. has a keen eye on technology, obviously their business school is well known, and this combination of partnership of their students and then their resources, and obviously they're just wherewithal, which will allow us to tap into that and leverage that in order to make ourselves better, as well as hopefully providing key value to the students. We will be working with other universities, and not only in the area, but probably throughout the country, to continue to put an eye on getting better and being able to do better by using people who, like I said, have the education, the resources, and the spirit to push forward and try to improve what it is that we do and leverage the CEA technology that we have as well as not only how we grow, but how we approach things.
spk01: I think this is just the start of what I think you're going to see are going to be some interesting relationships. Unlike our competitors, I think
spk06: we've really uh continue to align ourselves with the future and leverage technology and continue to innovate and i think having young students come in to help us do that i think is exciting so thanks as a follow-up you talk about using technology to differentiate the company from other cea companies could you elaborate on the technology that you use such as green them
spk07: Sure. You know, Green Thumb is a patented software system that allows us to go to market in a much more fluid manner than our competitors. It's focused on cutting waste throughout the supply chain and continuing to optimize at different points through the process. One of the things that I'm very proud of, and I think continues to separate ourselves from a lot of our competitors, is our focus not only on how we go to market, and we continue to work on increasing yields, increasing efficiencies on the growth side, and that'll be a lot of what you see happen as we continue to deepen the relationship with some of these universities, as well as some of the in-house innovations like our hybrid grow wall that will be coming online next year. But also we continue to focus on our customers and help them get better at selling our products so that they throw less out. So whether it's our self-watering displays that are patent pending that would help improve the quality and extend the life of our plants so that we sell more of them and throw less of them out. do some of the other innovations like some of the bags and packaging that we use that either use less materials and we innovate that way as far as reducing plastics or having technology in let's say our bags that have the ability to extend the life of the cut herbs inside of them as a function of allowing ethanol and gas to escape through micro holes in the bag. So we continue to focus our energy twofold, how we're growing and how we're going to market, and then how are we selling and enabling our customers to sell more because they have a higher quality product and that we are helping them reduce shrink on their end, which is a pain point for them. I think that's where we've been a good partner across the board, not only with, I think, the growers and supporting them, driving yield and doing what should be done next as far as innovation, but also our customers and our consumers who ultimately buy a better-looking plant and hopefully it lasts long and they use it.
spk06: So everybody sort of benefits throughout the supply chain as we continue to innovate from greenhouse to grocer, as I like to say. Thanks.
spk04: And once again, congratulations on another strong quarter.
spk01: Appreciate it. Thanks, Ben. Thank you.
spk02: As there appear to be no further questions in the queue, I will hand back to management for any closing comments you'd like to finish with.
spk07: Thank you. I would like to thank everyone for participating on our third quarter 2022 conference call. We believe the future is bright for Edelberg Garden and look forward to updating you on our progress next quarter. Thank you and have a great day.
spk02: Thank you, ladies and gentlemen, and this does conclude today's conference call. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation.
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