Else Nutrition Holdings Inc. (BABYF) Q4 2023 Earnings Call Transcript

Else Nutrition Holdings Inc. (OTCQX:BABYF) Q4 2023 Results Conference Call April 1, 2024 10:30 AM ET

Company Participants

David Waldman – Investor Relations
Hamutal Yitzhak – Chief Executive Officer

Operator

Greetings, and welcome to the Else Nutrition’s 2023 Financial Year Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, David Waldman, Investor Relations. Thank you, David. You may begin.

David Waldman

Good morning, and thank you for joining Else Nutrition’s 2023 fiscal year financial results and business update conference call.

On the call with us today is Hamutal Yitzhak, Chief Executive Officer of Else Nutrition. The company issued a press release today, April 1, 2024, containing its 2023 fiscal year 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 fiscal year ended December 31, 2023.

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 SEDAR and Else Nutrition’s website.

With that, we’ll now turn the call over to Hamutal Yitzhak, Chief Executive Officer. Please go ahead, Hamutal.

Hamutal Yitzhak

Thank you, David, and thanks everyone for joining us today.

Throughout 2023, we continued to make progress expanding our distribution network, launching new exciting products and growing our revenues. As a result, we are seeing strong revenue growth within both the U.S. and Canadian retail channels, which increased sequentially by 85% and 106%, respectively, over the third quarter of 2023.

As a result, we believe that we’re well-positioned for a strong year in 2024, especially during the second half of the year, as our new retail channels ramp up their orders and our new ready-to-drink products kick on top of the powder revenues.

As we look further ahead to 2025 and 2026, based on the overwhelmingly positive feedback, we’re getting from customers and retailers, we believe that we are getting closer to fulfilling our vision to become a major player in this market. Furthermore, with our new manufacturing partners in place, we have the capacity to ramp up our production to meet the anticipated demand and have reduced our cost to become profitable sooner. So turning to our results.

Our annual revenue increased by 10% to $9.4 million for the 2023 fiscal year, as we are actively selling products in over 14,000 stores, and have successfully launched our kids ready-to-drink product. While we did not meet our fourth quarter revenue guidance that we shared in our third quarter earnings update.

In the fourth quarter, we achieved revenue of $2.4 million a 38% increase compared to Q3 2023. This shortfall was mainly due to delays by certain stores in stocking our kids ready-to-drink products on their shelves, which we expected to commence during the fourth quarter.

As I mentioned earlier, feedback for the new kids ready-to-drink products from our retailer partners has been overwhelmingly positive and a delay does not mean they aren’t planning on ordering. We are working with large and very large regional and nationwide retailers, some that already agreed to carry our new product and others that plan to, but have not committed to a specific date yet. It is not uncommon for such retailers to shift or delay their schedules.

Importantly, the company has already built a robust distribution infrastructure in North America, and we expect to make use of it to lease the ready-to-drink line. As a result, we expect orders to ramp up with the addition of new stores in the coming quarters.

Moreover, we are gaining significant traction in the U.S. and Canadian markets with big box retailers across both grocery, drug and mass retailers accepting our products for their shelves and online stores including Walmart, CVS, Costco, Meijer, Wegmans, Metro, Giant, Stop & Shop, Sprouts, Fresh Thyme, Natural Grocers, Raley’s, Rouses and many more retailers across the U.S.

In Canada, partners such as Costco, Loblaws, Shoppers Drug Mart, Sobeys, London Drive, Metro and Whole Food Markets all carry out nutrition, ensuring national reach north of the border. We are now nationwide in both the U.S. and Canada. In addition, we officially launched our toddler product in the United Kingdom. This is a significant milestone for us, and demonstrates our commitment to executing on our strategic growth initiative.

By securing several distribution partnerships, our innovative plant based dairy free whole food toddler products have entered a multibillion-dollar market. In fact, the European baby food market is estimated to be in excess of US$17 billion in revenue in 2023. Within this market, the plant-based nutrition market is experiencing significant growth given the increased awareness of the benefits of animal free nutrition and other nutritional products such as ours.

To further support our global expansion initiative, we announced that we are advancing a collaboration agreement with a non-SA. Though the letter of intent has expired, the parties are in the process of extending it for an additional binding period. And while I’m limited in what I can discuss at this time, we are continuing to progress conversations and believe this relationship could be transformative for our company.

Bear in mind that it is a very large company, and in many respects, we have limited control over the timeline. So we want to be careful in managing expectations. That said, we could not be more excited about the potential for this relationship.

Turning to our manufacturing, which had been a key vulnerability for us in the past, we have made significant progress and now have three main manufacturing partners, two in North America and one in Europe, ensuring we have an adequate supply of our products for distribution.

Importantly, we recently announced signing an agreement with our U.S.-based powder manufacturer. This agreement is extremely significant for us, as it materially reduces our cost of goods, and improves our margins, while securing essential powder production capacity to meet our growing product demand through the end of 2025.

In addition to the economic and supply benefits of this agreement, this facility’s manufacturing process was designed to better preserve the nutritional content of our product. Traditional powder manufacturers utilize a high heat, high energy process, which may compromise product integrity.

The new low heat method not only better retains vital nutrients, but also enhances the solubility and texture of the powder, setting a new standard for innovation. We believe this agreement further illustrates our ongoing commitment to offering the highest quality products available in the market and puts us at the forefront of a plant powder based nutritional products market.

More on manufacturing. We have a new powder packaging partner that offers faster processing, higher quality, and lower cost. This new partner will allow us to extend our product shelf life and to further reduce our cost of goods.

Now, I’d like to discuss our Kids Ready-To-Drink product, which was launched this year. Our innovative and delicious RTD product is made with clean, whole, and minimally processed ingredients designed to nurture kids growing bodies. This product is dairy and soy free, corn syrup and gluten free, contains 25 vitamins and minerals, contains less sugar than leading brands on the market, with a clean label and no GMO — non-GMO certification, no fillers and gums, no ultra-processed ingredients, and it’s very delicious, which is very rare in plant based drinks category.

Families are always on the move and its products bridge a gap in the market as it provides complete nutrition with all essential amino acids from the combination of buckwheat and almond, as well as a micronutrient profile to complement the nutritional needs of growing kids. Additionally, being packed in a single serving carton makes it extremely convenient. Partners that parents are appreciating the goodness, great nutrition, lower sugar, plant based, etcetera, while kids will love the taste. We’re very excited about the potential of this new product line.

Furthermore, given the great reception that we are witnessing with our kids ready-to-drink product, we’re developing an adult ready-to-drink line. We had a soft launch of the vanilla and chocolate flavors during the Natural Products Expo West in California in March. Many attendees that visited our booth during the event influencers, key opinion leaders, retail buyers, healthcare providers, and reporters that tasted our product really loved it and shared that it was tasty, nutritional and convenient.

We expect the commercial launch during the second half of 2024 and anticipate an even stronger reception as we have seen our kids ready-to-drink product. I look forward to providing additional updates as developments unfold.

While we already see improved traction and brand recognition in the market, we’re also implementing an aggressive marketing program. We believe that marketing will assist in building our brand and product awareness and accelerate our revenue growth. As many of you may know, we are working toward commencing a clinical study on our infant formula and have been progressing discussions with the FDA.

Regarding this, we have submitted the results of the preclinical studies to the FDA, which demonstrated proper growth, safety and nutrient bioavailability. We have also submitted the infant growth study protocol to the FDA for review. We’re working closely with the FDA to initiate the study in the shortest timeframe possible and will provide an update regarding timings as soon as possible.

Now, I’ll briefly review the 2023 fiscal year financial results. Revenue for the 2023 fiscal year grew 10% to $9.4 million, compared to $8.5 million for 2022. During the first half of 2023, revenues were relatively flat as a result of new retailers selling through their initial shipments. As they sold through inventory, we witnessed an impressive 38% increase in revenue from Q3 to Q4.

Although we did not meet the guidance provided in our Q3 earnings report, this was not due to lack of interest or demand. To the contrary, we were expecting certain orders to come in during the fourth quarter, which were simply deferred for reasons outside our control. Nevertheless, these orders are now starting to come in, and we expect additional retailers to sign on throughout 2024.

Most notably, as I mentioned earlier, we are seeing strong revenue growth within both the U.S. and Canadian retail channels, which increased sequentially by 85% and 106%, respectively, over the third quarter of 2023.

As discussed on our last call, we had adjusted our strategy to focus on brick and mortar retailers, which is clearly working. And while our short-term pivot was successful, we are now gearing up our e-commerce platforms, including Amazon, walmart.com, and others with the necessary resources to enhance our growth throughout 2024.

Finally, we continue to manage our expenses carefully and believe that by continuing to execute on our business strategy. We are well-positioned to accelerate our growth and drive higher margins reaching sustained profitability.

Overall, we’re encouraged by the outlook for the business. We’re now firing on all cylinders, launching our new RTD product line with positive consumer feedback, growing product awareness, expanding retail distribution, a renewed emphasis on our online sales and strong manufacturing partners with sufficient capacity to support our growth.

At this point, I’d like to address questions that come in from investors. David, please lead the Q&A session.

Question-and-Answer Session

Q – David Waldman

Thanks, Hamutal. Our first question is, understanding you are limited on what you can discuss regarding Danone, can you share any details around the geographies they plan to provide your products?

Hamutal Yitzhak

Yes. So, as I mentioned, we’re very limited in what we can share regarding Danone. However, we are in the process of extending the letter of intent for an additional binding period. And I can assure you, that conversations are progressing. Additionally, I cannot comment on geographies or products at this time, but we hope to share additional information regarding a definitive agreement in the near future.

David Waldman

Thank you. Our next question, why is the new powder manufacturing agreement so important?

Hamutal Yitzhak

Well, this agreement is very significant for the company as we are ensuring powder supply for multiple years, while materially reducing our manufacturing costs. Additionally, as they are based in the U.S., it is convenient for our U.S. and Canada retailers.

And packs most importantly is that we are using an innovative manufacturing process that better presents the nutrient content of our products while improving solubility and texture. We are very proud to have signed this agreement and look forward to working closely with them.

David Waldman

Thank you. Our next question, we haven’t heard much about the UK since the launch. Can you share an update?

Hamutal Yitzhak

Well, the launch is a major milestone for Else. It establishes our foothold in the $17 billion European market to be followed by entry into other countries. Currently, we have two distributors that specialize in natural food stores, mainly in the London area and one of them is nationwide. We’re now selling in a few dozen stores and have received favorable feedback thus far.

David Waldman

Thank you. Our next question, when can we expect a material update regarding the FDA?

Hamutal Yitzhak

Well, we’re 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 and formula composition requirements and we’ll keep our shareholders updated.

David Waldman

Thank you. That does conclude our Q&A session. And at this point, I’ll turn the call back over to Hamutal for closing remarks.

Hamutal Yitzhak

Thank you, David.

We’re very proud of the progress we have made during the year and in recent months. We’re truly setting a new standard in infant, toddler and kid nutrition and believe the traction we’re gaining in the market demonstrates the need for dairy and soy free alternatives.

In addition, retailers are continuing to accept our products for their shelf and online stores, enabling us to supply products to millions of families around the world. Given our success in 2023, we’re excited about the opportunities ahead in 2024.

Specifically, we are in discussions with additional large retailers who have expressed interest in supplying our products. We expect many more retailers onboarding within the next several months. Additionally, we had a soft noncommercial launch of our adult ready-to-drink product in March with very positive feedback.

We anticipate full commercial launch during the second half of ’24 and expect a similar response as our kids ready-to-drink product. And lastly, we’re implementing an aggressive marketing program which we believe will assist in accelerating our growth.

Overall, we believe 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 Else Pathway to what I’m sure will be a tremendous success. Thank you all for joining the call today.

Operator

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.