Else Nutrition Holdings Inc.

Greetings. Welcome to ELF Nutrition's first quarter earnings call. At this time, all participants will be in listen-only mode. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note this conference is being recorded. At this time, I'll now turn the conference over to Alexandra Schultz with Investor Relations. Alexandra, you may begin your presentation.

Good morning, and thank you for joining ELS Nutrition's 2024 First Quarter Financial Results and Business Update Conference Call. On the call with us today is Hamital Yissek, Chief Executive Officer of ELS Nutrition. The company issued a press release today, May 15, 2024, containing its 2024 First Quarter Financial Results, which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at 212-671-1020. The company's management will now provide prepared remarks reviewing the financial and operational results for the three months ended March 31st, 2024. Before we get started, we would like to remind everyone that today's call will contain forward-looking statements that are based on current assumptions, and subject to risks and uncertainties that could cause actual results to differ materially from those projected, and the company undertakes no obligation 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 ELF Nutrition's website. With that, I will now turn the call over to Hamital. Chief Executive Officer, please go ahead.

Thank you, Alexandra, and thanks to everyone for joining us today. I'm proud of our strong start to 2024 with multiple significant retail partner announcements, all of which demonstrate our commitment to supplying dairy and soy-free alternatives to families around the world. Although we continue to experience temporary timing delays from certain large retailers, that impacted our revenue for the quarter, the outlook for the full year is extremely positive, and we have received very favorable feedback from both retailers and consumers, evidenced by the strong growth in our retail channels and the tremendous growth of our product sales through online channels, which I'll discuss more in a moment. Within our retail channels, we are performing very well in the U.S. and Canada, as evidenced by a rapid penetration of major retailers, including Giant, Costco.ca, Metro, Wegmans, Mayer, Big Y, Longo's, H-E-B, and more, and by the over 550 increase in store counts in Walmart. We are now serving 1,000 stores throughout North America, with a nationwide presence in all 50 states of the USA as a national brand. I'm also pleased to report that multiple new and existing retailers are onboarding our Kids Ready to Drink shakes in both vanilla and chocolate flavors. Given the fact we only launched this product line late last year, we believe this is a clear evidence of the traction that we are gaining. The increase in brand recognition as well as the extremely positive consumer feedback given its great taste, high nutritional value, and convenient packaging. Many recognizable retailers are bringing their RCD products to their shelves, including Costco Canada, AGB, Wegmans, Meijer, Big Y, Metro, Kroger, and more, enabling us to provide quality, client-based convenience shakes to families across North America. One of the best indications of the growing consumer demand is the acceleration in our Amazon sales, which grew 92%. and 330% within the U.S. and Canadian markets, respectively, compared to the same period in 2023. As I previously discussed in the last call, we are refocusing our efforts on online sales now, now that our retail expansion strategy is well underway and our out-of-stock issues are behind us. With a growing awareness of our broad product lines, we are steadily penetrating the enormous global kids' nutrition market, which is valued at $52 billion globally and $22 billion in North America, expected to reach global revenues of $86 billion by 2030. As a result, we anticipate meaningful revenue growth throughout 2024. Additionally, and as I spoke about in the last poll, We are well underway with the development and manufacturing of our adult ready-to-drink product line, which will leverage our growing brand awareness. This is a major milestone as it marks another first mover product, the first and only whole food complete nutrition drink for adults with added benefits of outstanding texture and taste with limited competition in the categories such as Ensure and Boost. Our new product provides a plant-based, clean label and also delicious alternative, cholesterol-free, with low saturated fats, easy to digest, which clearly differentiated from what's out there, positioning us to capture a meaningful share of the multi-billion dollar Complete Nutrition Shakes global market. We anticipate full commercial launch this summer and look forward to mirroring the early success of the Kids Ready to Drink product. Importantly, we recently announced the highly anticipated first commercial launch of our groundbreaking plant-based infant formula in Australia. This is a major milestone for the company as well as the industry. For a little bit of background, all infant formulas must meet the UMI Milk Nutritional Goals standard. And surprisingly, the current core ingredients in infant formula are ultra-processed and often cause problems for children. Dairy formulas, which have about 95% market share, are linked to allergic reactions and intolerance in about 40% of the infant population, meaning there is a massive undeserved need in the market. Dairy products may also contain antibiotics, hormones, and pesticides and cause major environmental issues. In addition, dairy-based formulas cannot stay in their whole form and must use highly processed derivatives of the milk. Soy formula, which has about 5% market share, also contains strong allergens, high levels of phytoestrogens, GMOs, and it cannot stay in its whole form of protein. So it must be chemically processed. In contrast to dairy and soy formulas, We have developed a plant-based infant formula that is both dairy and soy-free, meets regulatory standards, and has the desired composition, free of antibiotics, hormones, pesticides, GMOs, and heavy metals. There is zero chemical processing, and our product is made with minimally processed whole food ingredients, keeping proteins and other macronutrients intact. Our formula is clean label certified. and plant-based certified, with various patents protecting our innovative products. The global infant formula market continues to grow and is expected to reach $132.4 billion by 2026. And while consumers are looking for cleaner, more sustainable alternatives, the global plant-based food market is on the rise and is expected to reach $161.9 billion by 2030. We are at the forefront of this movement with our sustainable plant-based alternative infant formula, which creates a new market where there are no competitors. As I stated earlier, our first commercial launch was in Australia, which we're very proud of and worked very hard to get here. For the first time in the world, we have implemented our proprietary demineralization process, which enables our formula to reach the required limits of certain minerals to meet the infant formula global regulatory standards. I'd also like to note that we are continuing to work with the FDA to progress towards approval in the U.S. However, as with any regulatory body, even though we're doing everything we can on our end, the timelines and motivations are often outside of our control. Nevertheless, we are extremely excited about this initial launch in Australia as our first market and look forward to bringing an innovative and effective product to the market. We already started selling this follow-on formula product and product on Amazon Australia and on the healthylife.com AU. This is an e-store, part of the Woolworths Group, which is Australia's largest retailer. Another example of our international market expansion and commitment to becoming a recognizable global brand. Before I provide an overview of the financials, I'd like to discuss our manufacturing partners. We have secured three manufacturing partners, two in North America and one in Europe. We also signed an important powder manufacturing agreement as announced during the quarter, which should ensure and adequate supply of powder for our toddler and kids' products through the end of 2025. This is significant given the growing demand we are witnessing for our products. With our secured manufacturing partners, we are able to effectively supply all our retail and e-commerce platforms without worrying about out-of-stock issues that we had encountered in the past. We've also taken steps to ensure that we have adequate inventory and look forward to bringing our growing assortment to millions of families around the world. To support all of our progress, we are now implementing an aggressive marketing program that we believe will aid in gaining additional traction and recognition within the market. An example, we recently hired a new VP of Marketing that brings a tremendous track record and an amazing level of energy. We have also expanded the marketing team, which we believe will help us aggressively grow our brand recognition through traditional earned media, social media, influencers, and other channels. Overall, we're making huge strides in terms of product launches, implementing marketing programs, onboarding new retailers, as well as securing manufacturers. As a result, we believe we are extremely well positioned for continued growth throughout 2024 and beyond. Now, briefly review the 2024 first quarter financial results. Revenue for 2024 first quarter was 2.1 compared to 2.9 million for Q1 of 2023. While we are down compared to the same period last year, as I mentioned earlier, this is primarily attributed to delays in receiving anticipated customers' POs. I'd like to note there is an increasing demand for our products. And while revenue is down, this does not mean that retailers or consumers are dissatisfied with our product or that orders aren't coming in. We expect the second half of 2024 to show meaningful revenue growth as retailers and online distributors make additional orders during the year, while new retailers place initial stocking orders, all of which will support our growth. Importantly, I also mentioned earlier we are seeing strong revenue growth within the Amazon channel, which increased 92% and 330% within the U.S. and Canada, respectively, compared to the same period in 2023. It increased 13% and 65% within the U.S. and Canada, respectively, compared to the previous period of Q4 in 2023. We are now gearing up our e-commerce platforms, and have the necessary resources to enhance our growth throughout 2024. Finally, we continue to manage our expenses carefully and believe that by continuing to execute our business strategy, we are well positioned to accelerate our growth, drive higher margins, and achieve sustained profitability. Overall, we are encouraged by the outlook for the business as we continue to execute on our growth strategy, including raising product awareness, expanding our retail distribution, renewing our emphasis on our online sales, and launching the Adult Ready to Drink product line. To support all this, we have strong manufacturing partners with sufficient capacity to support our growth. At this point, I'd like to address questions that are coming from investors. Alexandra, please lead the Q&A session.

Thank you, Hamital. Our first question is, What marketing programs have you implemented and when do you expect to see the benefits of them?

We're excited about the new marketing efforts and have hired experienced marketing professionals to assist with our efforts. The new employees are highly motivated and eager to get the else brand more noticeable within the market. As an example, we added a new VP of marketing, which I mentioned earlier. We've also expanded the marketing team In the short time since they joined, we have already seen a meaningful impact from these efforts. We're significantly expanding our storytelling and consumer connection points through various programs, including revamping our affiliate marketing program through the Vast Awin Network, establishing a tribe of influencer affiliates on TikTok to actively drive new brand followers and drive purchases on our newly established TikTok shop, driving consumer demand and brand awareness through targeted paid social and search campaigns on Google and Meta with aggressive trial including offers to add new customers acquisition, overhauling our retention marketing campaigns with brand new email and SMS flows to strengthen customer attachment, loyalty, and repurchase rates, establishing PR presence, with a new PR theorem coupled with paid advertorials in key publications. We drove hundreds of new content pieces through unique partnerships with key momfluencers, pediatricians, nutritionists, and registered dieticians.

Thank you, Hamitam. Our second question, understanding you have secured manufacturers, Can you ensure you have enough supply to provide to the various retailers, including the online platforms that are increasing?

Yes, we're very proud of the relationship we've built with our manufacturing partners. As a result, we have worked tirelessly to ensure that we can efficiently supply for retailers and online partners. So, yes, we feel very confident we have sufficient manufacturing supply to support our growth for the foreseeable future. We are building a three-plus-month inventory program to make sure of that. We may run into supply chain delays occasionally and delays in Amazon's receivings, but overall, this problem is behind us.

Thank you. Can you provide any initial feedback received from the infant formula in Australia?

So, as we just launched in Australia, we cannot provide real feedback yet. But we are filling a much needed gap in this market. There is no real competition to a whole plant-based infant formula in this market.

Thank you. When do you expect to be cash flow positive?

We are working aggressively to be cash flow positive and believe we can obtain this within 12 to 18 months.

Thank you. When can we expect a material update regarding the FDA?

We are continuing intensive discussions with the FDA, providing all the required answers and information, but also posing questions on our end. We are working towards aligning with them on the final preclinical studies and formula composition requirements, and we'll continue to keep our shareholders updated.

Thank you, Hamital. That does conclude our Q&A session. At this point, I'll turn it back over to you for closing remarks. Thank you, Alexandra.

We're very proud of our strong start to 2024, as I just mentioned, and I believe we are truly setting a new standard in infants, toddlers, kids, and soon adult nutrition. We believe the traction we are gaining in the market demonstrates the need for a dairy and soy-free alternative. In addition, retailers are continuing to accept our products for their shelves and online stores, enabling us to supply products to millions of families around the world. We believe there are many opportunities ahead in 2024 that we intend to take advantage of, including the launch of our adult ready-to-drink products, as well as increasing market penetration of the kids' ready-to-drink products that were launched later last year. We have positioned ourselves for ongoing success and look forward to continuing to execute for our shareholders. I'd also like to thank our dedicated team of employees and advisors for facilitating Elk Tapway, what I'm sure will be tremendous success. Thank you all for joining the call today.

This will conclude today's call. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.