Else Nutrition Holdings Inc.

Q1 2022 Earnings Conference Call

5/16/2022

spk00: Good day and welcome to the ELS Nutrition first quarter 2022 update conference call. I'd now like to turn the call over to Ben Shampian with Latham Partners. Please go ahead.
spk01: Hello, everyone, and thank you for joining us today for ELS Nutrition's first quarter 2022 conference call. With us on the call representing the company today is Hamiltali Skak, Else Nutrition's CEO. At the conclusion of today's prepared remarks, Hamilta will answer some questions that were sent to us by investors and other questions we think are relevant to investors as well. Before we begin with prepared remarks, just a couple of comments. Today's call will contain forward-looking statements that are based on current assumptions and subject to risk and uncertainties that could cause actual results to differ materially from those projected in and the company undertakes no application to update these statements except as required by law. Information about these risks and uncertainties are included in the company's filings, as well as periodic filings with regulators in Canada and the United States, which you can find on CDAR and else nutrition's website. Today's discussion will include adjusted financial measures, which are non-IFRS measures. These should be considered as a supplement to and not a substitute for IFRS financial measures. Finally, today's event is being recorded and will be available for replay through the webcast information provided in the press release. With that said, let me now turn the call over to Hamotal Ishak, CEO of Else Nutrition. Hamotal, please proceed.
spk02: Thank you, Ben, and good morning to all of you. We're excited to speak with you today for our very first quarterly conference call. So as background, today I'm going to provide an overview of our achievements for the first quarter of 2022 and update you on the opportunities that we believe will drive the growth in ELF going forward. The hard work of our entire team has positioned ELF nutrition well for growth in 2022 and beyond. Before I begin my remarks, about the first quarter, since this is our first public conference call, I wanted to take a step back and provide everyone a bit of an overview on our business. So ELSA has developed the first 100% plant-based non-dairy and non-soy formula that has the same nutritional composition as breast milk, like any other standard formula. Today, The only two options for infant formula are cow's milk-based or soy-based. We have a unique and exclusive IP-protected alternative in this $80 billion market. Our formula is a blend of almonds, buckwheat, and tapioca. It is produced from clean, whole food ingredients, as opposed to the rest of our industry who use highly processed ingredients. We are building out a portfolio of products centered on this novel nutrition formula. Our team of infant nutrition industry veterans led global brands operations in Israel and have developed and patented the world's first dairy and soy-free plant-based infant formula. ELF began selling in the U.S. market late 2020. In 2021, we scaled our business and created a robust platform for growth in 2022 and onwards. We have developed a proprietary and groundbreaking product line. We have proven the product's viability and superiority over existing potential competitors. We've built an entire ecosystem to support billions of dollars in potential sales and massive distribution infrastructures in North America. We're taking off now across all our channels, and we're building the science, advocacy, and communication of the scientific evidence that links plant-based nutrition and to healthy growth and development of infants, children, and later down the road also for adults. Financial results, now we'll review the first quarter financial results in detail. So with regards to revenues, in the first quarter we increased 26% quarter over quarter to 1.6 million. The robust results were due to the expansion of our toddler products across all channels and the introduction of new Kids Complete Nutritional Shake products line. I want to begin with our sales via Amazon, Amazon.com, which were particularly strong. Sales on Amazon for Q1 2022 increased 40% versus Q4 21, a significant acceleration from prior periods. Sales growth in that channel is coming from existing and new customers. In early April, the number of ELF subscribers on Amazon crossed 1,000. We are also seeing a great reception of our recent product launches. We're seeing our subscribers buying the new products, which tells us that ELF is gaining brand equity. Another interesting statistic is roughly 60% of our purchasers have purchased our products at least 10 times. We're excited to see that the acceleration in Amazon sales has continued in the second quarter. Importantly, Amazon now is accepting the purchase of ELS products by Electronic Benefits Transfer, EBT, the electronic system that allows a supplemental nutrition assistance program, SNAP, participants to pay for food using SNAP benefits. All these metrics give us the confidence that Amazon Channel will reach a million-dollar quarterly revenue run rate by the end of the second quarter. We're excited that our success with Amazon in the U.S. has convinced Amazon to take ELLs to Europe. I will speak about our entry into Europe a bit later. Now I want to speak on the retail channel. As of the end of April, ELLs products were sold in 1,250 units. brick and mortar stores, and five top-rated e-commerce sites. We began our retail rollout in late 2020 and have made significant progress thus far. We expect to triple our door count to roughly 4,000 by the end of 2022. Our retailers are experiencing solid and growing sales velocity of our products, and we're seeing growing reorders with many of those retailers. As an example, we began selling in Sprouts Farmer's Market in February 21, and in January 22, we announced that sales velocity had grown to 1.2 units per store per week, above the category average. As a result of the initial success they are seeing, Sprouts and many other retailers are expanding the shelf space and SKU count for health nutrition. Gross margins. The gross profit margin for the first quarter was 30%, compared to 16 for Q421. Operating expenses in the first quarter were $5.3 million versus $5.7 in the fourth quarter of 21. Balance sheet, we ended the first quarter with $19.8 million in cash, including restricted cash and short-term bank deposits. I give you some guidance regarding those metrics. Given our visibility, we are maintaining our second quarter 2022 revenue guidance of 1.85 to 2 million, representing quarter over quarter growth of 15 to 25%. The growth catalyst, I'd like to spend a few minutes to lay out our growth initiatives for 2022 and beyond. Some of these I touched upon earlier. So let's touch first at the retail expansion. Our products are currently selling in over 1,250 stores locations. Importantly, we are now selling on some of the most well-known online retailers such as Walmart.com and Kroger.com. We expect to roughly triple our door count in 2022 to over 4,000. doors, including well-known drugstore chains. Importantly, given the success of the many pilot programs with various retailers that began in 2022, we expect these retailers will begin and continue to increase the shelf space and SKU count allotted to ELS products. International expansion. Our international expansion will be a large focus for ELS in 2022. As I mentioned earlier, our success with Amazon in the US has prompted them to take ELF to their other markets. In Q2 2022, we will launch in Canada via Amazon Canada, our own e-store, and in natural food retailers and independents, regional grocery and drug retailers. In addition, in the second half of the year, we expect to enter the UK and Western Europe via Amazon, The population in Western Europe is roughly 300 million, similar to the size of the U.S. However, research and polling has shown that Europeans are even more conscious of healthy eating habits. And finally, maybe the largest market out there, China. We expect to start selling online in China cross-border in the second half of 2022. Products expansion. In 2022, we expect the product range to grow to over 10 products and over 20 SKUs. In 2020, we launched our toddler product. In 2021, we added our kids powder mix in four flavors line. And in 2022, we added two new lines, toddler omega and our super cereal line for babies from six months in four flavors. We view the success of additional products as important to the brand equity of ELF. FDA. I would like to provide some updates on our FDA approval process. As a reminder, our formulation is not yet FDA approved, and thus we do not offer an infant formula yet. We are working through the FDA approval process. We already completed the commercial development of our infant formula, and in Q4 2021, we concluded a successful preclinical safety study of our plant-based infant formula as part of the pathway to bring it to market. The study results demonstrated proper growth similar to dairy-based infant formula in a neonatal preclinical model, which is a key step on the approval path with the U.S. Food and Drug Administration, as well as with other regulatory authorities to demonstrate safety and nutrient bioavailability of the infant formula and its ingredients. The results of the study had and will be presented in three key scientific meetings focused on pediatric nutrition and will be published in scientific peer-reviewed journals. ELSI is in close communication with the FDA, sharing its plans and results to receive their guidance throughout the process of ELSI infant formula development. In 2022, we plan to continue our scientific research activity demonstrating the safety of the infant formulas as well as provide scientific clinical support to our entire product line. We will be running four additional clinical studies aimed to start in 2022, which will validate medical claims like tolerability and hypoallergenicity. Now for some concluding remarks. While Else Nutrition has achieved a lot in its short time as a public company, we're very excited about the growth prospects ahead of us. Our patent-protected unique product formulation is resonating with customers as well as healthcare providers. We are heavily focused on execution in order to maximize the massive growth opportunities ahead of us. I want to thank all of our employees for their hard work and dedication, as well as our investors who have supported us. With that said, I will answer some of our investors' questions and some questions that may be of interest to our investors.
spk01: Thank you, Ahmad Tal. We have some questions for you. First, you're seeing great success with Amazon. Can you share some analytics and what is Amazon telling you regarding your business?
spk02: Well, Amazon in the US is telling us that we perform well compared to our competition. For example, our customers buy more products and more often than the competition. and that 16% of our customers buy more than 10 times compared to 9% of our competition. As a result, revenues on Amazon.com increased by 40% quarter over quarter in the first quarter of 2022, and we expect to continue at a similar and even higher growth rate in the second quarter of 2022, reaching a quarterly revenue run rate of $1 million Canadian dollars, Supporting this growth, the number of subscribers on Amazon.com crossed the 1,000 mark in early April.
spk01: Thank you. You have had a few product launches in recent months, most recently the Super Cereal and Toddler Omega, which was aimed to be more affordable and extend current customer base to broader audiences. What have you seen in terms of the reception of these new products?
spk02: So we only have very preliminary data about the cereal as we launched on Amazon just a couple weeks ago, although from what we see, numbers are growing very fast and interest by new retailers is massive. We also see strong interest from large grocers that did not engage with us before we announced the Super Cereal product line. But we do have data on Omega showing that in six weeks, Only on Amazon, we already sold more than 1,000 units in a very high conversion rate. So it seems like we have a new rising star here.
spk01: Great. International expansion is a big focus for you in 2022. Western Europe, Canada, and China. Can you provide some specifics on the timing and any challenges in the launch process?
spk02: So we will launch in Canada in Q2. Products are already in place in terms of production. They're now being packaged and ready to ship to the Canadian market. So we'll be launching in Canada online and in stores. We will launch in the UK, Europe, and cross-border China in the summer. We face many challenges from the need to develop and manufacture tailored products for the local regulation and market needs to supply chain challenges. Finding the right channels and partners is a big focus for us currently.
spk01: Thank you. Let's move on to the FDA. In regards to the FDA approval process, what is the timing of the approval and what would an approval mean to the company?
spk02: The process to get an approval for the new infant formula in the U.S. is multi-step one, and the safety of the ingredients and the formula must be demonstrated in a series of studies, including an infant growth safety study. We already completed successfully some preclinical studies and are moving forward in the process of creating the data for the submission for the FDA review. Once all data is submitted, the FDA review may take approximately a few months. We don't know exactly what is the timeline for them. If everything goes smoothly and the clinical study ends by the end of 2023, we may estimate that by some time in 2024, we will have an answer from the FDA. Once the FDA reviews our new infant formula notification and has no objections, we may market the infant formula in the States as well as in other countries. And that has a great significance to the company because it will be the first one to have ever had such a product, which is dairy and soy-free infant formula in the entire global market. That's the significance of it.
spk00: Great. Can you talk about the formula shortage and what else it's doing to help the situation? Yeah, the shortage situation is quite troubling.
spk02: As a company, we're quite sensitive to the needs of babies and young mothers, and we're working on all fronts to try to alleviate some of the pressure, specifically as providers of a dairy and soy-free solution, which might be the only alternative to sensitive babies. We have been in talks with new retailers as well as various mothers' groups, letting everyone know about our products, benefits, and the opportunity to use it as an excellent alternative to many of the brands in shortage. We've also approached the FDA to see how we can help responsibly, knowing that our formula is not yet certified as an infant product yet, though already gained some significant safety data. While not our intention, but this unfortunate situation does shed positive light, and else as an alternative to some of the large formula players.
spk01: Okay, great. My thanks to everyone for participating on today's call. We look forward to hopefully speaking with you all shortly.
spk00: Thank you. The conference is now concluded. Thank you for attending today's event.
Disclaimer

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