Innovative Food Hldgs Inc

Good morning and welcome to the Innovative Food Holdings fourth quarter 2023 earnings conference call. My name is Renee Wallerstein and I'll be moderating today's call. With me on today's call for Innovative Food Holdings is Bill Bennett, our CEO, Brady Smallwood, our COO, and Gary Schubert, our newly appointed CFO. Throughout the conference, we'll be presenting both GAAP and non-GAAP financial measures, including amongst others, historical and estimated EPS, adjusted EPS, which is net income before costs associated with amortization, depreciation, interest, and taxes. and excluding certain one-time expenses, and adjusted fully diluted EPS using the weighted average shares outstanding for the quarter ended 12-31-23. These measures are not calculated in accordance with GAAP. Quantitative reconciliation of certain of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's press release. I would also like to remind everyone that today's conference call will contain forward-looking statements from our management made within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities and Exchange Act of 1934 as amended concerning future events. Words such as may, aim, could, should, projects, expects, intends, plans, believes, anticipates, hopes, estimates, goals, and variations of such words and similar expressions are intended to identify forward-looking statements. These statements involve significant known and unknown risks and are based upon a number of assumptions and estimates which are inherently subject to significant risks, uncertainties, and contingencies, and many of which are beyond the company's control. Actual results, including with limitation, The results of our company's growth strategies, operational plans, as well as future potential results of operations or operating metrics and other matters that are to be addressed by our management in this conference call may differ materially and adversely from those expressed or implied by such forward statements. Factors that could cause actual results to differ materially include, but are not limited to, the risk factors described and other disclosures contained in our filings with the Securities and Exchange Commission, including the risk Factors and other disclosures in our Form 10-K and other filings with SEC, all of which are accessible on www.sec.gov. Except to the extent required by law, we assume no obligation to update statements as circumstances change. With that, I'd like to turn over the call to Mr. Biltman. Please go ahead.

Hello, everyone, and good morning. I'm happy to welcome you to our third consecutive earnings call. I'm joined by our COO, Brady Smallwood, and I'm also glad to welcome our new CFO, Gary Schubert, to our call today. You'll be hearing from them a bit later on the call. Today we'll be discussing the results from our 2023 fiscal year, as well as the fourth quarter of 2023, which was only my third full quarter in the role as CEO of IVFH. Hopefully you saw the press release this morning with some highlights from the quarter. We'll also be filing our full 10K later today for your reference. As I outlined in our call last quarter, I want to start my comments today by reminding investors of some strategic context to the moment we're in as a company. Our goal at IVFH is to grow shareholder value by building a company that delivers long-term profitable growth to our investors. With my arrival at the company last year, I outlined to our board a three-phase approach which we're taking to build towards that goal. As a reminder, those phases are as follows. Our first phase is focused on the stabilization of our business. We need to build credibility that we can consistently deliver a profitable business model and positive cash flow. This is why we've been focused so heavily on right-sizing our margins, expenses, and uses of cash. We anticipate that this phase will last for my first year. We're calling phase two laying the foundation for growth, which will entail making several strategic moves to build the next generation business model. We're calling phase three build and scale, when we'll be prepared to make the investments to scale the successful business models that we've fully tested. As we traverse this path, I think it's helpful to remember that we are still squarely in our stabilization phase, but our commitment to investors is transparency and candor along that journey. With that introduction, let's jump into the results for the fiscal year. If you've been following IVFH, you know what an important year of progress this has been for the company. Margins have improved. SG&A is down nearly a million dollars versus last year. We've sold one of our office buildings and exited the lease for another. We have 36 fewer employees than we had last year. That's a decrease in headcount of 28%. We've refinanced the company's debt with a guarantee from the USDA, dramatically extending the terms of our loans. We've refreshed the board, changed out the majority of our professional services providers, and hired a new experienced management team. We settled a significant five-year-old lawsuit for no cash out of pocket. We're posting our SEC filings on time, and we've recommenced earnings calls for the first time in years. We've announced our 110 strategic path towards a growing profitable company, which we're delivering on. We've sold off non-core assets to focus on our profitable businesses. We're communicating transparently and candidly. And while revenues have declined, we've openly forecasted that they would. And we've put in place an exciting pipeline of new growth opportunities, which will begin to materialize later this year. While our gap net loss for the year of 4.2 million doesn't appear strong, our efforts this year have led to an adjusted EBITDA of $2.5 million in 2023, a more than $2 million improvement over the prior year. We've given a full reconciliation of these adjustments in today's press release as we work to transparently provide a metric to track our operational progress. In Q4 2023, we continued our progress on stabilizing the company through critical decisions that set us up for success going forward. As you'll recall, during Q4, we announced our capital reallocation plan to sell off unproductive and non-core assets and to ramp down our e-commerce business. We've made strong progress on that plan so far. We sold our position in three different entities, Oasis Sales Corp, Organic Food Brokers, and Haley Food Group, the last of which consummated in Q1. We also sold off Plant Belly. You'll see these in our discontinued operations in the financial statements. We received an offer on our Florida office building, which we subsequently closed in Q1, and put our Pennsylvania building up for sale. We also put the remainder of our direct-to-consumer e-commerce business up for sale. Lastly, we've begun reviewing an interesting pipeline of potential M&A opportunities to expand our category breadth and our geographical spread. In the midst of these strategic moves, we continued working to stabilize the business. As expected, our revenue declined during Q4, driven by our specialty food service business sales declining by 13.6%, as we continue to focus on overcoming the headwinds created by the previously disclosed change in the technology platform used by a key partner. That said, with the majority of the first quarter of 2024 behind us, we are seeing roughly flat year-over-year revenue in our specialty food service business and expect to return to growth in the back half of the year. Q1 has already included the signing of a new contract with an existing large customer, Gate Gourmet, and exciting progress made in relationships with four large new customers. We expect all of these new relationships to begin contributing to revenue in the back half of the year. E-commerce was also a driver of our overall sales decline, with sales down 20.4%. This was expected given business restructuring initiatives. In line with previous disclosures during the quarter, we began cutting back on e-commerce assortment, marketing efforts, labor, and inventory in the planned ramp down of the business. Now to margin for Q4. Our GAAP gross margins declined by 65 basis points versus prior year, but our adjusted gross margins grew 30 basis points versus prior year with the difference being driven by e-commerce inventory write downs. This is a slowdown in the year over year trend, but it's consistent with Q3 margins. Looking at the business split, specialty food service gross margins continued to grow versus last year, while e-commerce gross margins declined as we began writing down and selling off inventory in preparation for the ramp down of the business. These trends will normalize as we complete the ramp down of the e-commerce business and as Professional Chef returns to revenue growth. Overall, our performance in the fourth quarter resulted in a gap net loss from continuing operations of approximately 1.6 million. but a positive adjusted EBITDA of 0.6 million, marking the sixth consecutive quarter of positive adjusted EBITDA. It's exciting to see the impacts of our plan beginning to take shape as we are seeing improvements in our capital structure, margins, expenses, profit, and business outlook. As we look forward, improving near-term profitability and returning to revenue growth continue to be our top priorities. We also remain committed to maintaining our new higher margin levels and establishing a new lower baseline in SG&A expenses as we optimize our corporate structure. As I said earlier, we want to continue to demonstrate that even in the face of the expected revenue declines, we are building a sustainable, profitable business model. And I think this quarter was a great example of the progress we're making. Now, I'll turn some time over to Brady to talk through some of the specific actions we've taken in the operation of our business this quarter. Brady?

Thanks, Bill. I want to first provide an update on the evolution of our e-commerce business. As I discussed in our Q3 call, our main goals were to boost margin, reduce shipping and packaging costs, optimize more marketing channels, and streamline warehouse operations. We also established a firm guardrail of keeping our marketing spend flat year over year, even if immense sales could decline. Largely due to the higher cost of acquiring customers online and the flat marketing spend, we experienced revenue declines of 20.4% in our consumer e-commerce business. But our profit actions continued and drove what we consider a successful quarter as it relates to our strategy. We took various actions such as streamlining our gift bundle offering to optimize dollar profit, upgrading shipping on fewer orders, continuing to save from consolidating shipping carriers, and decreasing our labor hours per order. As we moved past the busy holiday season, we took further planned profit actions in January, which resulted in the reduction of some corporate, customer service, and warehouse positions, the elimination of marketing spend, the winding down of one of our properties, Mouth.com, and a data-driven optimization of our remaining assortment. These actions substantially reduce any losses from e-commerce as we pursue a more viable business model, in particular, a model in which e-commerce supports growth opportunities in Professional Chef. Now, pivoting to Professional Chef, our sales declined by 13.6% in Q4. This is a moderation to the 16.2% decline we saw in Q3, and in Q1, we are now trending about flat year-to-date. Since professional chef is our focus going forward, this is the most important business to keep an eye on. We've recently signed a new contract with Gate Gourmet, our second largest customer, which deepens their relationship and locks in terms that are important to the company. We have historically been an ad hoc supplier to Gate Gourmet, but we are now integrated into their quarterly menu cycle, giving us more opportunities to engage and sell to this critical partner. Bill also mentioned four new important customers we're building relationships with. These are customers where previously we either had insignificant businesses or no business at all, but where we now have much larger strategic initiatives. Three of them represent some of the largest broad line distributors in the country, and one represents another large airline caterer. While I'm excited about the sales we get from these new relationships, I'm most excited by what they mean for our value proposition. The progress demonstrates that more customers see the value in our offering, and the company has significant upside as we continue to develop these sales channels. As we've been building out our customer base, we've also been conducting a broad assortment assessment, which resulted in a new strategic initiative to add new vendors and products, which will help us to strengthen key categories, reduce our costs, and reduce prices to chefs. Our first focus is to strengthen our perishable offering, which is of paramount importance to chefs. While perishables is the category the company was founded upon, we now do less than 10% of our revenue in perishables, so it represents significant upside for us. As an example, we've recently onboarded a premier supplier of seafood to restaurants in New York City. We also recently onboarded a fantastic new seafood provider in Alaska, who we will enable to ship to chefs all over the country. These products were not previously available to chefs in other parts of the country, but now through our partners, a restaurant in the middle of the country could have access to fresh New England striped bass, live scallops and shell, or live sea urchins, and Alaskan black cod, wild-caught king salmon, or spot prawns, all shipped the day after they were caught. This sourcing effort is hard work for which we are uniquely positioned due to our history of sourcing and distributing top quality items from small farms, boats, and ranches. In summary, we are so far pleased with the organized transition away from small dollar consumers, and we look forward to delivering results in the professional chef business as we continue to unlock more resources. With that, I'll turn the mic over to Gary.