Innovative Food Hldgs Inc

Good morning and welcome to the Innovative Food Holdings fourth quarter at fiscal year 2024 earnings conference call. My name is Renee Wallace 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 Shuprin, 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 way to average shares outstanding for the quarter ended 12-31-24. These measures are not calculated in accordance with GAAP. On the state of reconciliation of certain non-GAAP financial measures to their most directly comparable GAAP financial measures, the appearance of these precedents. I'd 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 and Section 21A of the Securities and Exchange Act of 1934 as amended for certain future events. Words such as aim, may, could, should, projects, expects, intends, plans, believes, anticipates, hopes, estimates, goals, and variations of such words. Similar expressions are intended to identify forward-looking statements. These statements involve significantly known and unknown risks and are based upon a number of assumptions and estimates. which are currently subject to significant risks, uncertainties, and contingency, and many of which are beyond the company's control. Actual results, including without limitation, the results of our 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 the conference hall may differ materially and adversely from those expressed or implied by such follow-up containment. Factors that could cause actual results to differ materially include, but are not limited to, the risk factors described and other disclosures contained within our filings, so that 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 which are accessible on www.sec.gov, except to the extent required by law, we assume no obligation to update same-day circumstances change. With that, I'd like to turn the call over to Mr. Bill Bennett. Please go ahead.

Hello, everyone. Good morning. I'm happy to welcome you to our Q4 and fiscal 2024 earnings call. I'm joined by our COO, Brady Smallwood, and our CFO, Gary Schubert. Today, we'll be discussing the results from our 2024 fiscal year, as well as the fourth quarter of 2024. You can read more detail about our results when we file our annual report and 10-K with the SEC in the coming weeks. As we reflect on 2024, I want to start by emphasizing just how much progress we've made on our path to eventually becoming a profitable $1 billion revenue company. When I joined IVFH, we laid out a three-phase roadmap to drive long-term success. Phase one, stabilization. We refocused the business, recapitalized the company, divested unprofitable operations, fixed gross margins, and restored financial health to the business. Phase two, laying the foundation for growth. We're now working to expand our core distribution business, optimize operations, and leverage strategic acquisitions to build a playbook for larger future growth. And finally, phase three, build and scale. Once our business model is well cemented, we will look to accelerate M&A, market expansion, and customer acquisition, driving our profitable flywheel forward. As we said last quarter, we can now confidently say that phase one is complete and we are well on our way with phase two. Over the past year, we have, one, divested all non-core businesses, including iGourmet.com and Mouth.com, reducing operational distractions and financial drag. Two, strengthened our financial position by selling our Florida headquarters and reducing our overhead structure. Three, refocused entirely on our core food service business, which saw organic revenue growth of 44.3% in Q4 2024. Four, successfully acquired Golden Organics and Loco Foods, bringing immediate revenue contributions and accretive profit. And five, launched a major national retail distribution partnership, which is already scaled and is now expanding, delivering game-changing revenue growth in a brand new sales channel for the company. And the results speak for themselves. Despite a year of significant transformation, this team is executing tremendously well. We delivered $72.1 million in revenue, up 2.5% year over year, despite the headwinds from the divested businesses. Gap net income improved by $6.1 million to $2.4 million, while adjusted EBITDA increased 18.1% to $3.2 million. These results are even more impressive when considering the upfront investment costs associated with our new retail business and the M&A integration. As we have now transitioned into phase two, our focus will be on driving profitable sales and successfully integrating our recent acquisitions. The two main actions you've seen from us so far in phase two include the launch of our retail business and our first steps forward in our M&A strategy. I'll spend a moment on each of these. First, our new retail business. We're very excited about this new business. As you can see in today's results, this new cheese business has driven a dramatic shift in our results, with organic revenue growing 44% in Q4. As we mentioned in last quarter's call, the business comes at low margins like any retail business does, while also including large startup costs in its first quarter of operation. but you can see that we are still controlling expenses carefully and ramping the business thoughtfully. Over time, you will see that while our gross margin rate comes under some pressure from this new business, the incremental dollars will be highly worthwhile. In addition to the positive results from the retail business, we're also excited by how this launch begins to de-risk our customer mix. For example, in Q4 of 2023, our largest customer made up 46.7% of our revenue. while in Q4 of 2024, that same customer made up just 33.9% of our revenue. Of course, this metric is also benefited by our recent acquisitions. We expect our continued focus on expanding sales channels will further de-risk our customer mix into the future. Now let's move to M&A. As we've said before, we have remained disciplined in searching out acquisitions that meet our four key investment criteria, One, profitability. The business must already be generating positive EBITDA and cash flow or have clear near-term opportunities to get there. Two, an attractive valuation. We seek acquisitions at three to five times adjusted EBITDA, ensuring a strong return on investment within five years before considering the impact of synergies. Three, operational synergies. The business must have exciting upside, bringing clear cost or revenue benefits. Four, right size for integration. We have focused on companies with five to $15 million in revenue, large enough to be impactful, but small enough for smooth integration. Both Golden Organics and Loco Foods fit these criteria well. They both have a deep, loyal customer base, a unique catalog that will unlock synergies for IVFH, and a well-known local brand. In fact, as we recently announced, the Loco Foods integration into Golden Organics into Golden Organic's Denver warehouse has already unlocked major efficiencies, reducing logistics costs by 60%, cutting driver hours by 50%, and eliminating $158,000 annual warehouse lease and property tax expense. As we continue our work to integrate these acquisitions into IVFH during 2025, we don't expect to make any additional acquisitions. As we're able to prove out the synergies and demonstrate a successful integration, we will look to apply our learnings to future potential acquisitions. I also wanted to update you on our legacy distributor dropship business. While this business continued to show softness in Q4, the trends improved versus Q3, and we continue to focus on returning that business to growth. I have gone full founder mode now, having a team reporting directly to me. We're dramatically expanding our pace of catalog growth through the application of new artificial intelligence tools, which we've identified as the largest and most effective growth driver we have. We're also simultaneously growing our sales efforts through the hiring of new salespeople. In addition to focusing these new salespeople on growing our relationship at the distributor headquarters level, we're also testing their deployment at the market level with deeper engagement with the distributors division leadership, driving education and awareness at the specific restaurant level. The last thing I wanted to mention here is that we also continue to see strong growth with our new national distributor partner announced last spring. triple digit growth in our Amazon sales channel, double digit growth in our airline catering business, and double digit growth in our Chicago artisan business. And we continue to have many different growth opportunities we are pursuing. In summary, we are very pleased to see our new growth businesses and acquisitions begin to materialize this quarter and demonstrate the profitable growth potential of the company. And we're excited to see how these pieces continue to come together. With that, I'll turn it 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 morning, everyone. Last year, I spoke about our e-commerce turnaround, which improved profitability, but didn't offer a compelling long-term path forward. That put strain on our 200,000 square foot warehouse and team in Pennsylvania, leaving uncertainty about the future of that facility. But what unfolded in 2024 was truly remarkable. Our dedicated team in rural mountaintop Pennsylvania pivoted, expanded, and became even more efficient, now shipping more artisan products nationwide than ever before. We sold iGourmet.com last August and concluded the transition period in September. Just three weeks later, we fulfilled our largest ever purchase order, launching our gourmet cheese program at hundreds of retail locations across the US. We're encouraged by the customer proposition of our cheese business. We work across a broad network of producers and importers, maintaining an active assortment in the hundreds, allowing us to source nearly any cheese without being tied to a single brand or type. High labor costs, complex supply chains, and high waste can drive fresh products like artisan cheeses into premium, almost novelty price points. Centralizing processing in our SQF certified facility, now with automated cutting and packaging, And leveraging our 20 years of expertise in cheese can enable our customers to offer gourmet cheese at accessible prices without the added complexity or waste. Our retail business drove $5.3 million of revenue in Q4 alone, and we expect it to continue to drive material growth for us throughout 2025. Given our growing volume at the Pennsylvania warehouse and the need for flexibility, we've decided to retain control of the property rather than pursue an outright sale. While rising interest rates have made it challenging to secure acceptable terms, we're still actively exploring sale leaseback opportunities that align with our long-term strategy. Beyond retail, our airline catering business grew 16% and artisan specialty foods grew 13% as we invested more resources into our sales and support teams. This has led to a solid foundation of growth, more items, more customer locations, and bigger and more frequent orders. And in case you're wondering, we sell a lot more than cheese in these businesses. The strong growth of retail, airlines, and artisan more than offset the continued slowdown with our largest broadband distributor. While the diversification of our business is a good thing that reduces risk, Bill explained multiple growth opportunities we see in our Broadline business, with a particular focus on expanding our catalog, continuing to improve online content, and more deeply engaging with our distribution partners on our selling efforts. Regarding M&A, I want to highlight the actions we've taken since closing the Golden Organics and LocoFood distribution acquisitions in late 2024. First, we focused on retaining key vendors and customers, and we made strategic personnel changes to enhance operations. From there, we consolidated the warehouses, driving a two-thirds volume increase in the same footprint and eliminating LOCO's $158,000 lease and property tax expense. We cut logistics costs by relocating, including a 60% reduction in miles driven and a 50% reduction in driver hours. With the warehouse consolidation complete, Our next focus is back office integration and driving sales growth by unlocking synergies across all of IVFH. Across IVFH, broadening our catalog and selling seamlessly in multiple channels will be enabled by our continuous progress in technology. When we started, our operations were fragmented with multiple entities, disconnected tech stacks, and inefficiencies driven by past M&A. This complexity burdened our IT team, forcing them to focus on maintenance instead of transformation. Streamlining the organization has enabled us to build better for the future. I wanted to share a few recent examples. The first is data democratization. When I first arrived, there were no useful management reports and leaders are frequently making decisions in the dark. We have now fully transitioned to Power BI, giving every decision maker real-time granular insights that weren't possible before. This helps us move faster and make better calls. Next, we are using AI to efficiently improve our online presence. We built an MVP of a combined Golden Organics and Loco website in less than two weeks with one person working on a part-time. The biggest cost and time saving was using AI to optimize images in both portfolios, many taken with a cell phone, to create consistent quality, look, and feel with titles optimized for SEO. That process is now built out in an automation tool, Zapier, and can easily be triggered with a cell phone picture of future items we add. In fact, we've optimized images of over 6,000 different products with AI recently. Other AI models now write or improve much of our product content, and we have other AI use cases in the works. One more example is cross-company collaboration, which was a struggle in the past. To prepare for large growth initiatives last year, we needed a precise, coordinated effort with team members in at least six different states. We piloted the tool Asana for project management, and it worked so well that we're now rolling it out company-wide with triggered and automated workflows. For example, if I have a new product that we need to import from Europe, I can now just type in the name of the product, the date it needs to be on shelves, and hit submit. That triggers a 32-step workflow that automatically signs out tasks, collects important data points and documentation, and triggers the final approval step for me before we commit to any large purchase orders. Though this process can still last many weeks, when you have many products in various stages, it can be paralyzing or cause you to miss important details if you don't build a solution like this. Growing sales with reduced SG&A is supported by these tech-enabled processes, and it's a small example of what we mean when we discuss our platform. A single set of tools, reporting, technology, and processes that will be leveraged over and over again by each entity under our umbrella. Thank you, and with that, I'll turn the mic over to Gary to talk financials.