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spk02: 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, or 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. According to investors, are cautioned not to place undue reliance on these forward-looking statements, which speak only as 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, the quarterly report on Form 10-Q, and the current reports on Form 8-K, including any warnings, risks, factors, and uncertainty statements contained therein. Furthermore, the company expressively 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 is reconciled in the table of the business update release to the most comparable gap measures. Management believes that the adjusted EBITDA provides useful information to the investor because it is directly reflective of the cash flow of the company. The primary factors of 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 CEO of Barfresh Food Group, Mr. Ricardo Del Coste. Please go ahead, sir.
spk00: Thank you and good afternoon, everyone. On the call today, I will review our third quarter and first nine months ended September 30, 2021 results and discuss our outlook for the fourth quarter. Revenue for the third quarter of 2021 increased 173% to $1.9 million, compared to $708,000 for the same period last year, and up 48% compared to $1.3 million in the second quarter of 2021. The sequential and year-over-year increase in revenue is the result of increased orders for our Twist and Go product in the school channel. as well as the gradual return in sales of our single serve and bulk products, compared to the COVID-19 affected quarter last year. For the first nine months of 2021, revenue increased 118% to $4.2 million, compared to $1.9 million in the same period of 2020. This is already our best revenue year in the company's history. I'm really proud of our ability to achieve record third quarter revenue despite the fact that we were working against significant supply chain challenges due to manufacturing constraints and raw material wait times. We had an additional $200,000 of planned revenue in the third quarter that we were not able to capture as a result of our manufacturer's inability to supply us with product due to labor and raw material shortages. Additionally, while we entered this school year in double the number of locations from last year, we were not able to service all these locations in the third quarter. We made the strategic decision not to pursue orders from some of the larger school districts in order to preserve those relationships and not risk having to cancel their orders due to the supply challenges. Therefore, our results this quarter are not a true reflection of our robust school pipeline. However, we expect to activate more of the larger school districts in the new year once we are comfortable that our supply chain is able to support the additional schools. Gross margins for the third quarter of 2021 were 37% compared to 39% for the same period last year. Gross margins for the first nine months of 2021 were 38% compared to 41% in the same period of 2020. The decline in gross margins was due to the higher sales volume and product mix of our Twist and Go and Wells 100% juice concentrates, as well as higher raw material and packaging costs, some of which are the resulting factor of higher resin prices. We expect gross profit margins for the fourth quarter of 2021 to stay in the high 30s. And while we expect labour shortages to persist into the fourth quarter and possibly next year, The good news is on the raw materials front, we are starting to see resin prices fall, which will be favorable for our twist and go economics. Our net loss for the third quarter of 2021 improved to $507,000 as compared to a net loss of $878,000 in the third quarter of 2020. G&A expenses for the third quarter of 2021 increased 9% to $1.1 million. compared to $976,000 for the same period last year. The increase in G&A was primarily driven by a significant increase in shipping and storage costs from the unprecedented market increases and labour shortages in the quarter, which more than offset the lower R&D and personnel costs. Net loss for the first nine months of 2021 improved to $1.4 million. as compared to a net loss of $2.8 million in the same period of 2020. G&A expenses for the first nine months of 2021 decreased by 14% compared with the prior year period. 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 to partially offset these costs. For the third quarter of 2021 and the first nine months of 2021, our adjusted EBITDA improved to a loss of $225,000, a new record for the company, and $1.1 million respectively, as compared to a loss of approximately $600,000 and $2.2 million for the same periods last year. We achieved these improvements despite the backdrop of COVID-19 and a minimal return of sales from our single serve and bulk products and significantly higher costs. We fully expect to be at or very close to adjusted EBITDA breakeven in the fourth quarter due to higher revenue. As of September 30, 2021, we had approximately $6.4 million of cash and $1.2 million of inventory on our balance sheet, compared to $1.9 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 the 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 are currently working to have our second PPP loan for $568,000 forgiven and expect that to occur in the fourth quarter of 2021. Once this second PPP loan is forgiven, we expect to be debt-free. Now, to give you an update on our expectations for the fourth quarter of this year. Despite the industry-wide shortages and COVID-19 affected customers, we expect continued revenue improvement in the fourth quarter of 2021 and have already achieved revenue of approximately $1.8 million. which is a 300% increase compared to the full fourth quarter of last year and larger than the third quarter. Keep in mind our third quarter is historically our largest quarter of the year. This is the first time we have had sequential growth from the third to the fourth quarter. Since the start of the year we have seen continued improvement in sales each month from our school customers. which has helped offset the slower recovery of our bulk customers. The continued sequential revenue growth into the fourth quarter is especially meaningful given this is historically a seasonally lighter quarter for us from holiday school closures. We are now working with double the number of school locations we had last year, and as we start to see our supply chain challenges ease, we will begin to engage with those larger school customers that we haven't been able to service during this time period. Additionally, we continue to pursue and win new school accounts both independently and by entering into strategic distribution relationships. We expect to announce some of these new relationships over the next few months. We expect to be close to break even adjusted EBITDA in the fourth quarter due to stronger revenue. We are also passing on price increases where possible, buying more raw materials in advance to improve costs and reviewing strategic supply relationships. We also see the opportunity for our Ready to Drink Twist and Go product to extend outside of the school channel and continue to work on these plans together with a number of new distribution partnerships that we expect to announce in the near future that will benefit all of our channels. We are starting to see small improvements in our supply chain, but believe now is an important time to review our overall manufacturing partnerships and determine areas to provide greater efficiencies and add additional capacity and strategic value as we expect significant greater volume for 2022. We are still in contact with national restaurant chains, regional QSRs and military customers. and expect as restrictions ease and businesses start to pick back up, we will see a greater return in not only our single serve but also our bulk products next year. We also need to be strategic in our approach and not bring on new customers we are not able to immediately service due to the significant supply chain challenges, namely raw material shortages and extremely long lead times. Once the supply challenges subside, we will be in a position to re-engage in a more meaningful way and hope this will be the case sometime early next year. We have a strong cash position and clean debt structure and are making progress on optimising our operations to further improve our operating expenses, which we believe will drive us closer to being break-even as early as the fourth quarter of this year. As a result of our revenue increases, cost reductions and margin improvements, we have significantly reduced our cash burn and expect this trend to continue into 2022. Our capital raise earlier this year had a secondary purpose, to increase the stockholders' equity in order to meet the listing requirements for a national exchange. We met those requirements and submitted our application in July and are underway in the uplisting process. As I'm sure you are all aware, there have been a record number of IPO and SPAC transactions this year that have inundated the national exchanges, which has caused our up listing process to take much longer than expected. However, we are in regular communication with our up listing agent and have provided all necessary documentation, leaving us hopeful that we are close to the end of the process with an up listing occurring soon. In closing, We have continued to deliver sequential and year-over-year revenue growth throughout this year setting company revenue records despite supply chain challenges that have curtailed the amount of product available to ship and expect another record fourth quarter. We have doubled our number of school locations to include major wins with some of the largest school districts in the country and are continually expanding our presence in this channel. The many improvements we have achieved so far this year has positioned us for strong, continued growth next year. I look forward to speaking with you all again when we announce our fourth quarter and full year 2021 results. Now with that, let us take your questions.
spk06: Operator?
spk02: We will now begin the question and answer session. To ask a question, you may press star then one on your phone. If you're using a speakerphone, please pick up your headset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster.
spk06: The first question comes from Matt Bullock with Maxim Group.
spk02: Please go ahead.
spk03: Hi, thanks for taking my questions. I was hoping you could just provide a little bit of an update to the single serve and bulk product segment, you know, maybe at a high level where they are in terms of pre-COVID levels and where you expect them to trend going forward through 2022. Yeah, sure.
spk00: So the single serve has actually started to come back. It's actually probably come back a little bit more so than the bulk product. primarily in summer was the strongest return mainly you know the businesses were starting to open back up again and the single servings actually helped that process the bulk products have taken a little bit of a slower path of to recovery back the reason for that being some of the accounts that we're in the bulk product itself is a bulk service item which means that it's a high capacity high volume throughput where people are generally congregated so even though some of the customers have come back for their general business the areas of the business that are particularly serving our product may not have reopened yet right and that's an that's give you a couple of examples let's say a military base for example where they've got the troops are going by and doing self-service the self-service area on a communal touch point may not be opened up yet but the single serve grab-and-go area is so we are we are starting to see more and more of those locations open up there is a little there was a little bit of product in the pipeline as well from the previous selling season
spk01: So we are seeing those areas of the business pick back up again. Okay, excellent.
spk03: That's excellent. And then I guess pivoting to Twist and Go, can you just provide a little bit more context around the progress you've had regarding retail distribution and if any of those supply chain disruptions have kind of pushed that out at all, or maybe what one of those partnerships might look like once the deal is reached?
spk00: Yeah, so we are still, it is still a work in progress. We are getting amazing traction in the education channel and we're really getting amazing feedback from the consumers and their parents too. We're probably getting messages every other day from a parent that's tried the product in a school and from the children that have tried the product and they go back and they bring it back to their parents and they say they love the product and the parents are reaching out to us asking us where they can buy the product in the grocery store. So it's definitely something that we're working on. We haven't got any definitive plans to announce just yet other than we are pursuing it and it is in the pipeline and we are actively working on it from a grocery store, a retail planning proposition.
spk01: Does that make sense? Absolutely. Thank you.
spk03: My last question would be, is there a timeline we should expect for the 10Q to be filed?
spk06: 10Q should have been filed by now.
spk03: Okay, got it. Thank you very much.
spk06: Okay, great. Thanks. Our next question comes from Mike Donley with IBEX Investors. Hello? Thanks.
spk04: it'll be completed is it going to be by the end of the year just a little bit more color on the up listing would be helpful sorry Mikey cut out I didn't catch all that question oh you mentioned that you submitted an application in July to uplift to a national exchange can you give us some more color as to when you hope it to be completed is it by the end of the year is it q1 yeah look I mean
spk01: I think everyone, you know, this is something that's been experienced by everybody. There's considerable delays in everything that's been going on.
spk00: We submitted the application some time ago.
spk01: I can tell you that we have completed everything that was requested of us in terms of submitting documents, etc. It is, you know, we believe we've met all the financial requirements, hence why we did the capital raise.
spk00: We believe it's Very close now. We are in contact with them. It's possible that it will happen before the end of the year. It's very possible, but it may trick over into the next year, but it is very possible that it could happen before the end of the year.
spk06: Great, thanks. Fingers crossed it happens by the end of the year. Absolutely. Again?
spk02: If you have a question, please press star, then one. Our next question comes from William Rogalski with Green Ridge Global. Please go ahead.
spk05: Hey, Ricardo. How much revenue was from the education channel in the third quarter as a percent to your total?
spk03: It's probably about a little bit over half to two-thirds.
spk00: Right now. But, you know, I think something to keep in mind is that, you know, the education channel is across multiple fronts, number one, both the bulk and the Twist & Go product. But we're also just scratching the surface, right? I mean, we're still dealing with the effects of COVID, both in the bulk product and the Twist & Go product. and you know our hope and our real aim is to be doing you know serious multiples from where we are now i mean we're not really we haven't been dealing with a lot of the the largest of the accounts you know purely for supply chain challenge issues um so we really are just scratching the surface from where we're at even within these channels okay and then you mentioned not not distributing to all the schools you've signed to date
spk05: what percent that you've signed in terms of just number of schools or size of schools by student are you distributing into now versus what you're unable to because of the supply chain?
spk00: Well, I think it's not necessarily that we sign them up, right? There's no essential contract per se, but what ends up happening is we end up having the product available for them to put on their menus and we agree a deal structure for them to included as part of their menu plan. We're simply avoiding any of the large accounts and really negotiating and giving pricing for some of those larger accounts because the volume that's required in a very short period of time for when they place the menu, it just becomes too challenging for the business to manage given the current environment of the supply chain issues. And they're quite extensive. You know, everything from trucking and shipping to getting the raw materials at all, let alone the actual price increases that are coming along with that. So, you know, it's really difficult to give you an exact percentage of those that we're not, you know, as it relates to the rest of the business, because some of those accounts could be as much as our total business right now. I mean, there's some significant accounts out there that we've been working with that... that are very large, and one account could be as big as what we're doing right now in our total business. So I think that there's a lot of exciting stuff around the corner for us, particularly when the supply chain challenges ease, and we're obviously really looking forward to that, and we're trying to plan as much as we can, but we do need to still deal with the realities of what's going on out there.
spk05: Okay, so that really just applies to what would be new schools not existing like the LA School District or something like that, correct?
spk00: Yeah, so that's probably a good example where we haven't supplied them during this period. And that's a great example of an account that hasn't been supplied during this period. And it's a real volume, it's a real significant volume requirement there for an account like that. and at probably less expensive prices as well. So we are definitely guiding the business towards the more profitable accounts that have less of a requirement on the supply chain.
spk05: Okay, and last question was, what's the percent of twist and go in the third quarter, and where do you see that as a percent of total sales a year from now? if it's even possible to project that.
spk00: Yeah, a year from now would be very difficult to project also because we've got the other parts of the business and we also expect the other parts of our business to come back and, you know, particularly with the national accounts, et cetera, coming on strong, we obviously have some expectations around that for next year. So, you know, right now we're probably sitting at about 60%, 65%, maybe a little bit more with the twist and go as it stands.
spk06: Okay, all right, thank you. Thanks very much. Again, if you would like to ask a question, please press star, then one. This concludes the question and answer session.
spk02: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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