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spk05: Good afternoon, everyone, and thank you for participating on today's third quarter 2020 corporate update call for Barfresh Food Group. Joining us today is Barfresh Food Group's founder and CEO, Ricardo De La Costa, Director Joe Cugini, and Vice President of Finance, Rafi Lusserarian. 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 on 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 the use of words such as grow, expand, anticipate, intend, estimate, believe, expect, 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 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 materially vary 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 only speak of the date they are made. The contents of this call should be considered in conjunction with the company's recent filings with the Securities and Exchange Commission, including its annual report on Form 10-K and the 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 the understanding of the company's business performance, the company is also presenting certain non-GAAP measures, including adjusted EBITDA, which are reconciled in the table in the business update release to the most comparable GAAP measures. Management believes that adjusted EBITDA provides useful information to the investor because it is directly reflective of the cash flow of the company. Primary factors in reconciling these items are non-cash costs, including stock compensation, stock issued for services, and gain or loss on the sale of derivatives. Now I will turn the call over to the CEO of Bar Fresh Food Group, Mr. Ricardo De La Costa. Please go ahead, sir.
spk04: Good afternoon, everyone, and thank you for joining us. On our call today, we will review our third quarter 2020 results and year-to-date accomplishments. discuss our diverse sales channels and sales pipeline, and detail the improvements we've continued to make in our operating efficiencies. We have been operating our business in the new normal created by COVID-19 for the past eight months, and as discussed on our previous earnings calls, the pandemic has had a negative impact on our business. However, The agility in our business model has enabled us to make important changes and we expect our fourth quarter to be stronger this year than it was last year. Early into the pandemic, we made the decision to lean in heavily on the education channel as we saw an opportunity to not only be of assistance to our partners in this channel, but also saw an opportunity in expediting the launch of Twist and Go and a few months after, launching World's 100% Juice Concentrates. In early April, we launched Twist and Go, our new ready-to-drink smoothie into the education channel, where it was met with great initial success. Twist and Go opens up many more possibilities for us within this channel as it shortens the implementation window and allows us to work with complete school districts instead of just individual schools. Since its launch, we have signed on over 470 new school locations across 17 school districts. spanning a collective student body of over 300,000 students. In the three-week period alone in August, we announced 277 of these 470 school locations, and we have many more on the way. Additionally, we plan to market Twist & Go to additional sales channels, as we believe there will be an important place in the world for this product post-COVID. as specific food service channels begin to focus on healthy grab-and-go or pre-packaged food and beverages. Four months after launching Twist and Go, we also launched another new product into schools, Wells 100% Juice Concentrates. Wells is a five-to-one juice concentrate at a more affordable price point than our one-to-one bulk easy pour product. The product is stored and delivered ambient. opening up more opportunities for us as we work on strategic distribution partnerships to help accelerate sales within the education channel, like we have done with Smart Beverage, which I will discuss a little later in the call. Sales from Twist & Go and Wells helped offset some of the COVID-related losses in revenue from the temporary closure and reduced operations of our food service customers and accounted for roughly 40% of revenue in the third quarter. This occurred even though some schools were not fully open five days a week or consistently ordering product. So just imagine what revenues could grow to once we are post-COVID. The large majority of these sales will be incremental to the business that will be added to our existing product sales once we get back to normal. We are very bullish on the long-term opportunity and here are a couple of reasons why. We launched these products in the middle of a pandemic. and saw a great initial response as well as receiving constant feedback from many schools, particularly as we approach the new year and therefore expect once schools are back to normal, pre-COVID conditions will see an even greater ramp up in new customers. We expedited the launch of Twist and Go and therefore are still working to set up distribution across the US for our new products and we will be able to service even more schools once that is fully in place. Post COVID, schools will have a permanent need for low-touch grab-and-go items that are reimbursable and can be served as a single-serve item. Twist-and-go requires minimal capital to be sold and distributed. We are optimising pricing and packaging formats that will work for all types of customers whilst maximising our margins. Barfresh continues to innovate and add to its product offerings and we believe Twist and Go and WELLS will dramatically increase our growth potential in the education channel and greatly accelerate wins across all 50 states and the 98,000 schools in the US. During this trying time, we have shown school administrators we have the capability and ingenuity to immediately address their needs. Additionally, within the education channel, we entered into a strategic relationship with Smart Beverage in August whereby they agreed to sell and distribute only Barfresh's full line of products to their 800 existing customers and 600 projected customers in the education channel. This relationship was not only attractive due to the customer reach, but also due to its fit with our strategic decision to begin reducing our focus from equipment management and service. Smart Beverage owns, operates and provides repair support for an extensive network of bun smoothie machines and has approximately 1,000 existing machines in operation and 3,000 machines ready for deployment. Smart Beverage will manage, maintain, store and deliver the equipment needed for Barfresh products to their new and replacement accounts in their regions. We expect in the current COVID-19 environment, this relationship will generate annually between $1 million to $2 million starting in the next 12 months. In a normal operating environment, excluding COVID, this relationship could generate upwards of 2 to 3 million annually. Additionally, we continue to tighten our costs. Prior to COVID, we had already begun to implement cost reduction initiatives, including reduced shipping and storage costs, a reduction in headcount, and the outsourcing of payroll and benefits. When COVID hit, We increased our focus on these initiatives and year-to-date have significantly reduced core operating expenses with a 40% or $2.2 million reduction in G&A compared to the prior year. We are forecasting for the next year a continued improvement in cash flow from the operations as we reduce operating expenses and add contracts with new school locations. I'll now review our financial results for the third quarter before I hand things over to Jo. Revenue for the third quarter of 2020 was $708,000 compared to $506,000 in the second quarter of 2020 and $1.6 million in the third quarter of 2019. The incremental increase in revenue is the result of initial and repeat orders for new product offerings in the rapidly expanding school channel. The decrease in year-over-year sales is from the decreased sales in the company's single-serve and bulk EasyPool products, which were directly impacted by COVID-19. Approximately 40% of the revenue for this quarter is solely from the Twist & Go and World 100% juice concentrates, showing that once we start to reopen our high-traffic, high-volume accounts, such as recreation and amusement parks, theatres and restaurants, we will have a dramatic increase in our top and bottom-line results. Gross margin for the third quarter of 2020 was 39%, compared to 23% for the second quarter of 2020, and last year's third quarter gross margin of 54%. The increase in gross margin on an incremental basis was primarily due to second quarter of 2020 expense related to product mix and the start-up expenses for the company's new products, Twist & Go and Wells 100% juice concentrates. Offsetting these costs was increased revenue in the third quarter of 2020. We expect gross profit margins for the fourth quarter of 2020 to be approximately 40%. During the quarter, we experienced a 41% reduction in general and administrative expenses driven by improvement in personnel and marketing and selling expenses from lower headcount and the renegotiation of certain sales commission agreements. For the third quarter, our operating loss was $836,000 as compared to $1.1 million for the second quarter of 2020 and compared to $950,000 for the third quarter of 2019. For the quarter, our adjusted EBITDA losses decreased to a loss of $596,000 as compared with a loss of $888,000 for the second quarter of 2020 and $602,000 in the third quarter of the prior year. Turning to the balance sheet, we ended the quarter with approximately $2.7 million of cash and approximately $832,000 of inventory. We believe the steps we are taking to reduce our overhead and the addition of new schools serving Twiston Go and Wells will allow us to navigate this pandemic and achieve profitability without the need for additional equity capital. I'll now turn the call over to our president, Joe Cugini, to discuss the sales channels. Joe? Thank you, Ricardo.
spk00: The impact of COVID on our business took effect at the close of the first quarter. Specifically, our business was impacted by stay-at-home orders and dining bans at restaurants, causing our customers to temporarily close their doors or reduce operations, impacting the sales of our single-serve and bulk products. As Ricardo stated at the top of the call, we made quick decisions to expedite the rollout of the new products and lean into the education channel in order to offset the decline in revenue from our food service channels. While the duration of COVID is unknown, we expect our regional and national accounts will come back online once they resume normal operations and see consistent traffic patterns. Therefore, we are staying engaged with them especially with our QSR customers, so that we can resume our planned rollouts and be ready to meet their demand. Now to discuss the education channel. Twist and go and worlds have been our standout achievements during this time, and despite school closures, have already driven expansion of our number of school relationships. We also believe they have made us even more attractive to external parties, as evidenced by Barfresh becoming the exclusive line of beverages sold by Smart Beverage to their education customers. We are no longer constrained by only supplying one type of product at one price point to schools. We can now offer a range of products to meet varying schools' needs and budgets. For those larger school districts that require beverage dispensing equipment to feed a large number of students at one time, We can provide our one-to-one bulk EV4 product, recently enhanced with the addition of Wurlz 100% juice concentrates. And for smaller school districts whose size doesn't warrant a capital investment, we can now offer our bottled smoothie Twist and Go and do so with a shorter implementation window. The initial success of Twist and Go and Wurlz is impressive, especially when you put it against the backdrop of COVID. Once schools are back to operating under normal conditions and fully resumed feeding programs, we believe the education channel will continue its previous trajectory and become a massive revenue stream for our company. We believe there will be lasting effects from COVID, and one of them will be an increased focus on health and wellness, as well as low-touch grab-and-go single-serve items. We can offer consumers a great-tasting, low-touch, healthy beverage offering with Twisted Go and believe it will resonate outside of the education channel. And with that, I turn it back to Ricardo.
spk04: Thank you, Joe. We have accomplished a lot this year, especially given the COVID-19 pandemic. In a normal year, I believe these achievements would have driven significant growth in both our top line and bottom line. and we expect our fourth quarter of 2020 to be an improvement compared to the same period last year, even with most of our old business customers remaining closed or on limited service. This is a real sign of what's to come once things begin to normalise post-COVID. Some of these achievements include we rolled out two new beverage offerings within the Education Channel, Twist & Go and Wells. This is incremental to the business that will be added to our existing product sales once we get back to normal. We entered into our strategic relationship with Smart Beverage, opening us up to over 800 new school customers and an entire sales team dedicated to selling our products. We started to reduce our focus from equipment delivery, service and management as our relationship with Smart Beverage moves those responsibilities over to their team in their regions. We continue to drive our costs down. and continued our cost saving initiatives with a year-to-date reduction in G&A of 40% or $2.2 million over the prior year. And in the span of six months, we have signed on 470 new school locations across 17 school districts. And this isn't even scratching the surface as we have many more on the way that we are very excited about. We have created a lean, innovative company that can respond to our customers' changing needs and we stand ready to capitalize on all the accomplishments we have made this year once businesses start to resume their normal operations. We have been having very productive ongoing conversations with additional school districts and are working on some very significant opportunities in the school channel that we hope to be able to announce in the coming months. Now with that, let us take your questions. Operator?
spk06: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Anthony Vendetti with Maxim Group. Please go ahead.
spk03: Thanks. Hey, Ricardo. Hey, Joe. How are you? Good, how are you doing, Anthony? Good, good. So Twist & Go was 40% of third quarter revenues. What about World's? Is that separate or is that just getting started?
spk04: It was split about half-half between Twist & Go and World's.
spk03: Okay, got it. And then obviously you've been able to do – what you accomplished in third quarter in the face of a lot of school closures. Schools have opened back up to some extent, not completely, but have opened back up. Some are on a remote learning program. Do you – your fourth quarter, which you're expecting to be better than fourth quarter 19, is that including or is that under the expectation that schools remain open and that as you look forward – What are your plans if schools close again either post-Thanksgiving or post the holidays and then moving into the beginning of next year while we're waiting for the vaccine?
spk04: Sure. So all great questions, Anthony. And let me kind of paint the picture a little bit because I think this is really helpful for people to understand the climate that we're dealing with. Even though, so first of all, Q3 isn't really a particularly strong school quarter, right? Because it's actually, schools are on vacation at that point in time. They really don't come back to the back half of the quarter, right? So there's not really a large school contribution generally in Q3. Having said that, the current climate is very mixed. So we have some schools that are partially open, some that most are not open at all. A lot of them are actually doing remote learning still, where the majority of the remote learning. And I think it's even worth noting that up until the end of September, a lot of the school districts that actually run out of funds, government funds for the feeding programs, So the government didn't re-up that money until the end of, mid to end September. So, you know, we're dealing in an environment that is very choppy at the moment, right? Different scenarios are happening all over the country. One thing I will tell you is that we are having tremendous interest in the product and, you know, I think once some of the abnormalities melt away and some of those things are We have distributors that are carrying very large inventory balances of other products. So the ability to bring in new items at this time is quite challenging. That's something that will burn off as time goes by. We have some schools that are struggling in terms of remote learning versus in-school learning. Again, it's a bit of a mixed bag. Some of them are doing remote feeding, and if we kind of get the opportunities where they line up, then it works in our favor. Some of them work in our favor where the distributor can take in a new item, and if the school is closed and they're still doing remote feeding, then we're able to secure that sale, right? So it really does depend on the individual school district's situation. But I think something that's consistent across the board is that we're getting great feedback on the product. It really has solved a niche problem for a lot of the schools and administrators and it's a great tasting product that the kids love. We've got a number of large opportunities that we have been and we are still working on around the country. The good part about it is there's a lot of them. This isn't a situation where we're beholden to one individual customer by any stretch of the imagination. I mean, there's a lot of very, very large school districts across the country, and we're having a lot of dialogue with a lot of them. So as we continue to work through this process and identify the distributors and get the distributors set up, and a lot of them are like, I can't take it in right now. but we're getting ready for the new year, right? And they plan to order in the new year or even further out some of them. And then we have others that are able to do it now. So it really is a bit of a mixed bag across the spectrum. And as we look at, you know, if they do another shutdown, the good and the bad of that is that we are going into, you know, Thanksgiving and Christmas, which is typically the slowest part of the year for us. I don't really think it will affect us all that much because the majority of our other customers, whether it's our bulk or single serve, they're still closed. A lot of them are on either a very limited service or they're just flat out closed still. Some of our highest volume individual accounts are very high traffic area locations. So, you know, and they're the ones that are most affected by the shutdowns. Does that make sense?
spk03: Yeah, no, that makes sense. So you said you were having dialogue with a number of the school districts. Just to categorize your pipeline, would you say pipeline is 2X what it was prior to this year, 3X? What... What are the opportunities out there, even if they're not fully materializing because of the shutdowns and the remote learning? Is the opportunity growing to that kind of level, or is it just incrementally better?
spk04: No, the opportunities are like 6 to 7x easily. Okay. Easily. I mean, we've got individual districts that will do – multiples of what we did last year.
spk03: Okay. And those are conversations that are close to consummation where you're confident that once things open back up, a number of these will result in actual contracts, right? Yeah, that's correct. Okay. And then just lastly on the military channel, any update there on how that's going?
spk04: Yeah, it's a good question. I'm glad you actually brought that one up. So the military channel for the most part is probably operating at about a 15%, maybe 15%, maybe a little bit more of what we did last year, and that's primarily because most of the communal feeding areas are not doing the communal feeding, right? They're doing grab-and-go and meal pass-outs in the sense of not allowing the troops to congregate, et cetera. So, you know, we are still very much affected by that due to COVID. We are starting to see it, you know, improve a little bit, but it's still not there yet. So, again, you know, we expect that to get back to normal here in the new year, but, you know, we'll wait and see. You know, I think on the balance, though, What's really important for everyone to really understand is that we've got a lot of machines that are out there sitting in our customers, right? So as soon as things do come back up, we could have been profitable in Q3. And when you have a look at... We did 1.6 million last year in Q3. We did, of that 1.6, we only had about 400,000 contribution in this quarter. So that's, you know, 1.2 million lost sales from previous quarter from existing accounts. So, you know, we really could have broken even and made a profit this quarter had things have been... you know, not affected by COVID and then some. So I think that as we turn the corner here and things start to improve, you know, it's really exciting because we are going to have that other business come back online with the machines that we already have in our customers as well as the other customers, you know, start buying again.
spk03: Okay, great. I'll hop back into the queue. Thank you.
spk06: As a reminder, if you would like to ask a question... please press star 1 on your telephone keypad. Our next question comes from William Gregoski with Greenridge Global. Please go ahead.
spk02: Hi, guys. You mentioned you're staying engaged with the QSR customers. Can you give a sense as to what they're looking for? Are they waiting for a fully post-COVID environment, or are you guys talking to them about getting Twist & Go product into there, you know, sooner? Sure.
spk04: No, I think it's more a little bit of a wait and see, Bill. You know, it's a challenging time, and as you can see, you know, with the spikes that are going on all over the country at the moment, you know, some different regions going into further lockdown, I think it's just, you know, they've got other bigger fish to fry right now, right? And so, you know, it's more of a wait and see approach, and we expect to pick that up in the new year.
spk02: Okay. I assume the large corporate dining client you guys signed a while ago, is that all still pretty minimal as far as sales to that client right now?
spk04: Good question. The answer is yes in part to the business dining locations because obviously a lot of the offices and, again, same kind of deal, communal feeding areas are closed. However, and they've actually laid off a ton of people. However, that third party operator actually has other verticals, so other channels. And one of those channels is actually the education channel. And we are working with them on that. And just to put it in perspective, it is an incredibly large, they have an incredibly large presence. in the sector. So that's something hopefully we'll be able to talk a little bit more about in the coming months.
spk02: Okay, great. And then last question. If you're looking out, you know, what do you see, which channel do you see as the largest revenue contributor for 2021 and 2022? I mean, are we looking at an education story or do you think, you know, maybe by 22 food service will take over education?
spk04: I think that cumulatively, it could be pretty even coming out in 2022. But I think that Twist and Go and the education channel, you know, when we first started working on the Twist and Go product, The numbers for the Twist and Go could far outstrip any of the national accounts, both individually and collectively. So it's just a much larger opportunity for us, even though the QSRs are incredibly big. There's a lot more schools. It's a niche. It's reimbursable. And we're not beholden to any one customer. And I think, you know, As we come into the new year and we can demonstrate some of the individual large customers that we've been working on and really starting to deliver on those numbers, I think then it will become much more evident at the ability to ramp up this channel and this product category. Because really we haven't, we've been kind of launching the product with one arm tied behind our back, right? Whether it's for reasons of distribution, reasons of COVID, and what have you. So I think twist and go is going to outshine both of them, even in 21. And 22 may end up seeing it getting closer, but I think it's still going to be the star.
spk02: Okay, great. Thanks.
spk06: Next question, John Gavin. Please go ahead.
spk01: I don't know if this question has ever been asked. Has anybody ever thought about, you know, moving this into like grocery stores and big box stores? Is there possibly a play in those channels?
spk04: Yeah, hi, John. So the answer is yes. We actually developed the product to be retail ready. So if you ever are able to see our bottle or if you see it on the website, it's already developed and retail ready with barcodes, etc., So that is something that the company is reviewing and is working on, but, you know, at the right time.
spk01: Okay. Thank you. Thanks.
spk06: Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.
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