Innovative Food Hldgs Inc

Good morning and welcome to the Innovative Food Holdings Second Quarter 2024 Earnings Conference Call. My name is Ronit 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 CFO. Throughout the conference, we will 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 shares outstanding for the quarter ended 6-30-24. 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 like to remind everyone that today's call will contain... Forward-looking statements from our management made within the meeting 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 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 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 without limitation, The results of the company's growth strategy, 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 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 the SEC. All of these 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 the call over to Mr. Bill Bennett. Please go ahead.

Thanks, Rene. Hello, everyone, and good morning. I'm happy to welcome you to our Q2 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. Accordingly, we mentioned last quarter that Q2 would be our toughest quarter of the year from a revenue perspective. And in fact, our Q2 results reflect those expectations. Total revenue declined 10.1%. 62% of this decline was driven by our intentional ramp down of the direct to consumer e-commerce business, which saw a 52.2% decline. 37% of the decline was driven by our specialty food service business, which declined 4.3%. We've continued to face headwinds with a large customer's technology platform transition, which we have very few levers to address, while the majority of the remaining core business continues to advance nicely. Our artisan specialty foods business in Chicago continues to grow in the high single digits, as does our business with Gate Gourmet. Between the growth in these other core businesses and the other incremental growth we're expecting, we continue to be on track to grow specialty food service revenue in the back half of the year. Let me offer a bit more color around the three buckets of incremental growth mentioned in the press release. First, we're making progress with the newly announced customers. We announced that one of these was a top five US broad line distributor. With this customer, we launched the business with our non-perishable items, which have gotten off to a strong start. And we were very excited to hear recently that they're now pulling in our perishables assortment, which will further accelerate our growth trajectory with them. As we've said before, this business has the potential over time to grow to be as large or larger than the business we have today with U.S. Foods, so it remains a top priority and area of focus for us. Second, we continue to uncover new opportunities to leverage our platform in new channels and with new customers. As an exciting example, we recently launched a 10-store test with one of the largest retailers in the U.S., where we are managing their gourmet cheese assortment. Similar to our other large customers, this sales channel would require little to no marketing, a very small amount of capex, and comes with a built-in base of customers. Retail does require lower margins than food service, but it also provides immediate scale since shelf space guarantees awareness and sales. This is a sales channel our leadership is deeply experienced in, so it's great to see our network and experience bring new opportunities to the company. It's also exciting to see that although we are selling off our IGourmet.com business, we can still leverage our cheese sourcing and processing capabilities to grow business in other sales channels. This opportunity, too, could be as big or bigger than the business we have today with U.S. Foods. Third, we're seeing growth from our reallocation of resources as we shift focus away from our consumer e-commerce business. These changes are driving sales increases at our business with Amazon, the airline caterers, and with our Chicago Artisan Specialty Foods business. Brady will speak to some more details here. Now, as our specialty food service business gets back to growth in the back half of the year, the progress we're making on margins and SG&A will start to bear fruit. We continue to pay close attention to our pricing and sourcing efforts. And while GAAP gross margins declined 41 basis points as we've been clearing out inventory related to the sale of the IGourmet.com business, our adjusted gross margins increased 36 basis points this quarter. Similarly, GAAP SG&A as a percent of sales weakened 62 basis points, but after removing non-cash expenses such as stock compensation and depreciation and amortization, it actually improved by 166 basis points. It's tough to achieve SG&A leverage while revenue is on the decline, yet we're achieving it with the scale of savings that we're delivering. What this means is that we're putting in place the right business model now that we expect will generate profit growth as our revenue returns to growth. Brady and Gary are going to speak to more details about the igramay.com transaction, but I just wanted to highlight here what an important strategic step forward this is for the company. In the six years that IVFH has owned our consumer e-commerce business, we've lost in excess of $12 million. To put that in context, that far exceeds our entire outstanding long-term debt as a company. Removing that profit headwind is a critical step in our evolution and turnaround efforts. When I got here, this was the main focus of the company's efforts. If you go read the press releases from that time period, everything was focused on the consumer e-commerce business, the people, the marketing dollars, the growth efforts. I remember a leadership team dinner early on in my tenure where the team was discussing a new growth idea for the consumer e-commerce business. I started pushing them on how much time they'd have to invest to bring it to life, how much it would actually drive in sales if we were successful, and ultimately how much money we'd make. And we agreed it would bring in less than $3,000. I couldn't believe I had eight people around a table brainstorming ideas for driving only $3,000 in profit on a business losing millions of dollars. But that's where they've been asked to focus. Contrast that with how we operate today. I sat through hours of our weekly Monday meetings this week, and not once did I hear anybody even mention the e-commerce business. We are fully focused on growing the profitable, meaningful parts of the food service business, and we're doing it with a third less people than we had a year ago. With the sale of iGourmet, we've now completed the divestiture of the businesses we set out to eliminate. Of the 10 operating businesses I inherited when I took this role, we now have closed or sold off six of them, including iGourmet, Mouth, Plant Belly, Grow Brand Management, The Haley Group, and Food Hatch. In fact, as a funny aside, I recently looked at the back of my business card where I have these brands listed and realized I need to remove six of the 10, as well as change our headquarters address on the front of the card. I guess it's time to get a new business card. I wanted to wrap up by thanking our board for facilitating the recent stock transactions to cover taxes on the leadership team's stock grants. It's great to see their continued support and confidence in the future of the company. Now I'll turn some time over to Brady to talk in more detail through some of the specific actions we've taken in the operation of our business this quarter. Brady?

Thank you, Bill. Good morning, everyone. Today, I'll provide some updates on a few of our major transformation initiatives, including e-commerce, resource reallocation, M&A, and sourcing. Since I joined, I've consistently shared updates on our evolving consumer-focused e-commerce business, and as highlighted in our recent press release, we signed a definitive agreement on August 5th with a strategic buyer for our last remaining direct-to-consumer business, iRMA. We anticipate closing by a month's end, followed by a one-month transition period, during which we'll temporarily serve as a third-party fulfillment provider for the buyer. The assets in this transaction primarily include digital assets and the customer base, while we retain our warehouse, supplier relationships, and inventory, which we can continue to leverage in our B2B sales channels. As Bill mentioned, shedding these brands has allowed us to reduce SG&A overall, but also reallocate resources to our food service business, where we see multiple opportunities for profitable growth. A prime example of this is the revitalization of our previously stagnant Amazon business focused on food service items. Until recently, our assortment was outdated, digital content was lacking, and pricing was poorly managed. This quarter, we shifted our Amazon expertise from eye gourmet to food service. Within weeks, we activated over 1,600 new items, updated product content and pricing, and ramped up customer service. The results have been immediate with the business now showing triple digit year over year growth. We have also seen positive results in our airline catering business, our entry into retail and artisan local distribution. When we strategically align resources to our growth opportunities, we execute better and realize more growth. This streamlining also positions us to redouble our M&A efforts. As Bill noted last quarter, it's been over a decade since the company's last acquisition in the food service sector. And we're being conservative in our approach to the next. Our leadership team has extensive experience in acquisitions. Collectively, we've been involved in more than a dozen acquisition negotiations or integrations at large companies. While our board has been involved in many more deals than that, especially in the micro-cap segment. This expertise underpins our prudent investment framework that Bill outlined last quarter, which to summarize was one, a business that's already profitable, two, fairly valued, not considering synergies, three, significant and obvious synergies, and four, the right size given our current size and cash position. We have reviewed dozens of deals and been in advanced talks with three different companies. We've passed on most for not fitting our framework. We do still have active M&A discussions, though, and our goal is to execute our first acquisition this year. Lastly, we have also continued to progress on our sourcing initiative to strengthen key categories, reduce our costs, and reduce prices to chefs. This project is still in early stages, but we have already been able to expand our fresh seafood offering and other specialty proteins, such as Wagyu beef, foie gras, and lamb. This has led to new restaurant relationships, and this new compelling assortment is at the center of pitches we're making to new, larger business customers. In summary, We're excited about both the organic growth and M&A opportunities that we see. And with our streamlined and focused organization, we're well poised to execute on these opportunities going forward. I'll now hand the mic over to Gary.