Innovative Food Hldgs Inc

Good afternoon and welcome to the Innovative Food Holdings first quarter 2024 earnings conference call. My name is Renee Wallerstein and I'll be monitoring 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 CFO. Throughout the conference, we'll be presenting both GAAP and non-GAAP financial measures, including, amongst others, historical and estimated EPS, adjusted EBITDA, which is net income before costs associated with amortization, depreciation, interest, and taxes. and excluding certain one-time expenses and adjusted fully diluted earnings per share, using the weighted average share as standing for the quarter ended 331.24. 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 call will contain forward-looking statements from our management made within the meaning of Section 27A of the Securities Act of 1933, as amended in Section 21E of the Securities and Exchange Act of 1934, as amended concerning future events. Words such as aim, may, could, should, projects, expects, intends, plans, believes, anticipates, hopes, estimates, goal, and variations of such words and similar expressions are intended to identify forward-looking statements. These statements involve significant known and unknown risk and are based upon a number of assumptions and estimates, which are inherently subject to significant risks, uncertainties, and contingencies, and many of them are beyond the company's control. Accurate results, including without limitation, the results of the company's growth strategies, operational plans, as well as future potential results of operations or operating metrics and other matters to be addressed by our management in this conference call may differ materially and adversely from those expressed or implied by such forward-looking statements. factors that could cause that could cause actual results to different materially include but are not limited to the risk factors described in other disclosures and can't contain in our filings with the securities and exchange commission including the risk factors and the other disclosures in our form 10k and our other filings with sec all of which are accessible on www.scc.gov except for the except to the extent required filings with sec all of our Sorry, except to the extent required by the law, we assume no obligation to update statements as circumstances change. With that, I would like to turn the call over to Mr. Bill Bennett. Please go ahead.

Thanks, Ranit. Hello, everyone, and good afternoon. I'm happy to welcome you to our Q1 2024 earnings call. Hopefully, you saw the press release this morning with some highlights from the quarter. We will also file our full 10Q shortly for your reference. As I've mentioned several times before, we remain in the stabilization phase of our three-phase plan. And as a reminder, I'm looking for two more milestones before I feel that we're out of our first phase. First, our return to strong revenue growth in our specialty food service business. And second, the sale of our Pennsylvania warehouse. But while we're waiting, we're not sitting still. We have many irons in the fire with a dedicated strategic growth budget. We're being conservative with headcount, but we're not hesitating to invest where needed to drive sales. With that said, I'm thrilled to report that our food service revenue barely peaked into positive territory in Q1. That was a huge reversal from our Q4 declines of 13.6%. And while Q2 will probably be our most challenging of the year, it demonstrates that we're on the right track and are steadily making progress towards our second phase of laying the foundation for growth and eventually our third phase of build and scale. With that introduction, let's jump into the results for the quarter. We're very proud of the strong results we delivered in Q1, with our key metrics all moving in the right direction. Revenue in our core specialty food service business returned to slight growth at 1.4%. Gross margin improved 174 basis points. SG&A decreased by 114 basis points. And our especially strong net income of $1.4 million compared to a loss of $2.8 million last year, of course, benefited from the gain on our real estate sale this year and from the comping of the executive separation costs from last year. But even after adjusting these out, our adjusted EBITDA grew from a negative $202,000 last year to a positive $469,000 this year, an improvement of $671,000 year over year. If you look back at our history, we usually lose money in Q1. In fact, we haven't had an adjusted profit in Q1 since 2019. Gary will go a bit deeper into some of the financials. As for our broader strategic initiatives, just a reminder that our goal is to sell off unproductive assets and reinvest our resources and efforts into growing our profitable food service business. Accordingly, in Q1, we consummated the sale of our subsidiary, the Haley Group. At the beginning of Q1 was also when we officially began the ramp down of our direct-to-consumer e-commerce business, which started to benefit the bottom line this quarter as our mix shifted to the food service side. While we've largely de-resourced the e-commerce business, we do continue to market it for sale, and given recent interest levels, we're confident we'll be able to sell the business soon. We're also continuing our marketing efforts for the sale of our Pennsylvania building, with a regular stream of inquiries and building tours conducted. Lastly, with our recent announcement of the new contract with Cheney Brothers, our integration efforts continue, and we expect orders to begin flowing in the next few weeks, and beginning to ramp as the year progresses. We're also about to kick off a test with a new potential large customer and on the cusp of launching a partnership with another large customer. We'll continue to issue press releases as these various relationships come to fruition. We also continue to make progress on potential M&A. So I wanted to take just a moment to outline how we're thinking about that process. The company hasn't made an acquisition in its food service business in over 10 years. So we're building a new muscle. For our first acquisition, we're taking a very conservative approach. We're looking for four key qualities in any business we would consider buying. First, a business that's already profitable. Second, a purchase price in the range of 3 to 5x adjusted EBITDA and a five-year payback period without considering synergies. Third, significant and obvious synergies that can be quickly addressed to further drive profit and cash generation. And four, small enough that we can purchase with cash, seller financing, and seller earnouts without issuing any significant new debt or equity while still being big enough to be worth our time. This means any potential targets are likely in the revenue range of $5 to $15 million. 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 our near-term profitability and returning to strong 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 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. And good afternoon, everyone. In each of the last two quarters, we discussed our profit-focused plan for our direct-to-consumer business, including actions we took in January that we said would result in lower sales but improve profitability. These actions drove sales from a year-over-year decline of 20% in Q4 to a decline of 42% in Q1. These sales trends are in line with our expectations and the decrease in expenses, especially marketing and wages, resulted in reduced losses in the direct-to-consumer business. This accounts for approximately half of the company's adjusted EBITDA growth for the quarter, which is a testament to our strategy of reducing losses in this segment that we're masking our profitable food service results. We continue to assess our strategic alternatives on this business. Our thorough process, guided by our independent advisors, has yielded multiple compelling options. As Bill mentioned, we're confident that we'll reach a decision soon. This week, we halted any new sales through our website, mouth.com, and we'll redirect customers to igormay.com so we can focus our streamlined resources on the larger business line through this transitionary period. On our specialty food service business, we are encouraged by the Q1 results on both sales and margin. I wanted to point out two of the largest drivers of the sales improvement that Bill mentioned. First was our airline distribution business, which accelerated by adding another large airline caterer with whom we believe we have a long runway. We will continue to build on this momentum by attending the upcoming Global Catering Expo in Germany, where we will be targeting a broader array of customers. Second was our artisan specialty foods business in Chicago, where we have added to our sales team, allowing us to saturate more of the greater Chicago metro area and add to our customer base. Also, as discussed in our last call, we have a major sourcing initiative underway, which will strengthen key categories, reduce our cost, and reduce prices to chefs. We have 40 new vendors with 500 plus items at varying stages of the setup process. This group of suppliers brings excitement to our catalog, which in turn brings inspiration and newness to the menus of our choosy chef customers. Our initial focus on fresh perishable items is making progress. We have new relationships with multiple seafood vendors on both coasts, a small lamb farm in the South, a Midwest farm producing Wagyu beef, and many others that are creating high quality, unique products. In many cases, this is the first time these small suppliers are working with non-local customers, and they're thrilled to have access to a national market. And our customers are pleased when they see how we can ship fresh, never frozen products directly to the restaurant in an efficient and safe way. The only thing more satisfying than watching a chef unboxing video of our products is witnessing the elevated dining experience it creates in their restaurants. Getting fresh product direct from the original source often necessitates working with small suppliers, and it's hard work to onboard and train them fully. We believe this hard work creates a competitive moat for the future of this business. In our collective experience at Walmart and Kroger, fresh categories have always been the number one focus of their merchandising organization. Fresh gets people in the door with higher frequency and has higher turns in most areas of the store. It's no different in food service. The choosy chefs we target build their menus around the proteins and produce they want to stand for. And this is where we will have the most differentiation versus status quo. As chefs round out their menu with essentials like grains, spices, oils, and other dry or frozen staples, we also have a quality offering there that helps us drive higher order size and loyalty. With that demand comes an ability to support growth at these small suppliers or to further diversify our supplier base. Either way, continuing to bring down our cost of goods and therefore the prices we can sell for. This cycle is what gives us business staying power in the long run. I look forward to sharing more information as we progress on our refocused professional chef plan. And with that, I'll hand the mic to our CFO, Gary.