Edible Garden Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
March 31, 2025

There are 7 speakers on the call.

Operator

Greetings, and welcome to the Edible Garden AG Incorporated twenty twenty four Fourth Quarter Business Update Conference Call. At this time, all participants are in a listen only mode and a question and answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Ted Avas, Investor Relations.

Operator

Sir, the floor is yours.

Speaker 1

Thanks, Ali. Good morning, and thank you for joining Edible Garden's fourth quarter and full year twenty twenty four earnings conference call and business update. On the call with us today are Jim Craft, Chief Executive Officer of Edible Garden and Costas Dafoulis, Interim Chief Financial Officer of Edible Garden. Earlier this morning, the company announced its operating results for the three months and year ended 12/31/2024. The press release is posted on the company's website, www.ediblegardenag.com.

Speaker 1

In addition, the company will file its annual report on Form 10 ks with the U. S. Securities and Exchange Commission later today, which can also be accessed on the company's website as well as the SEC's website at www.sec.gov. 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. Before Mr.

Speaker 1

Kress reviews the company's operating results for quarter and year ended 12/31/2024, and provides a business update, we would like to remind everyone that this conference call may contain forward looking statements. All statements other than statements of historical facts contained in the conference call, including statements regarding our future results of operations and financial position, strategy and plans and our expectations for future operations are forward looking statements. The words aim, anticipate, believe, could, expect, may, plan, project, strategy, will and the negative of such terms and other words in terms of similar expressions are intended to identify forward looking statements. These forward looking statements are based largely on the company's current expectations and projections about future events and trends that it believes may affect its financial condition, results of operations, strategy, short term and long term business operations and objectives and financial needs. These forward looking statements are subject to several risks, uncertainties and assumptions as described in the company's filings with the SEC, including the company's annual report on Form 10 K for the year ended 12/31/2024.

Speaker 1

Because of these risks, uncertainties and assumptions, the forward looking events and circumstances discussed in this conference call may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward looking statements. You should not reply upon forward looking statements as predictions of future events. Although the company believes that the expectations reflected in the forward looking statements are reasonable, it cannot guarantee future results, level of activity, performance or achievements. In addition, neither the company nor any other person assumes responsibility for the accuracy and completeness of any of these forward looking statements. The company disclaims any duty to update any of these forward looking statements except as required by law.

Speaker 1

All All forward looking statements attributable to the company are expressly qualified in their entirety by these cautionary statements as well as others made in this conference call. You should evaluate all forward looking statements made by the company in the context of these risks and uncertainties. With that, I would now like to turn the call over to Mr. Jim Kress, Chief Executive Officer of Edible Garden. Jim?

Speaker 2

Thanks, Ted. Good morning, and thank you to everyone for joining us today. 2024 was a pivotal year for Edible Gardens and I'm proud of the meaningful progress we made across the business. Our gross profit for 2024 grew an impressive 181.3% and our gross margin nearly tripled from 5.9% last year to 16.7% reflecting the strength of our core business and the successful execution of our strategic plans and vertical integration. In May of twenty twenty four, we made a strategic decision to refocus our operations around our core herb business and to launch a new launch new shelf stable products and a clean labeled sports nutrition line.

Speaker 2

That meant stepping away from some of the lower margin categories like lettuce and floral that weren't delivering accretive levels of profitability. In Q4 twenty twenty four, we repurposed and expanded additional shelf space at our leading Midwest retail partner to pre launch Kick Sports Nutrition into mass market. Associated with this launch, we stepped away from our legacy lower margin whey protein products. By narrowing our focus on our core herb portfolio and launching innovative shelf stable products, we have rationalized our product portfolio with a focus on higher margin, more profitable opportunities. We began to realize the benefits of these decisions in the second half of twenty twenty four with strong growth in our Herb portfolio, improved gross profit and a meaningful expansion in margins.

Speaker 2

We're confident that this momentum will carry into 2025 as our vertically integrated model with a more focused approach and product introductions will drive growth and move us closer to profitability. Total revenue for the year remained relatively flat reflecting our intentional decision to exit lower margin product lines as part of our strategic realignment. When you look at our core business on its own, revenue grew by $1,700,000 dollars or 16.3% year over year, which really highlights the strength of our focused approach. This shift hasn't just improved profitability, it's also made us more efficient operationally and help reduce our cost of goods, thanks to better use of our own facilities and increased buying power. With most of that transition behind us, we believe Edible Garden is now in a great position to ramp up top line growth and to stay focused on driving long term profitability.

Speaker 2

In addition, we made solid progress in 2024, strengthening our balance sheet through disciplined cost controls, successful capital raises and the execution of our operational realignment. Together, these efforts significantly improved our working capital, giving us more liquidity and greater financial flexibility. With this strong foundation in place, we believe we're now in a better position to operate more efficiently, move quickly and better in a better position to operate more efficiently and to move quickly on new opportunities and to reinvest with confidence in the highest growth areas of our business. It also gives us the ability to better leverage our capital, expanding our buying power, bringing down our cost of goods and setting the stage for accelerated growth as we head into 2025 and beyond. These strong results also highlight the broader impact of the operational improvements we've made ranging from the enhanced automation and data driven decision making to targeted investments in our patented agriculture technology.

Speaker 2

Combined with the benefits of our vertically integrated model, these efforts are helping us operate more efficiently and cost effectively across the board. As we expand our retail partnerships and continue refining our processes, we remain focused on driving sustained margin improvements and long term profitability, all while creating lasting value for our customers and shareholders. One of the most significant developments this year was signing a non binding letter of intent to acquire Narayan Group, a European producer of organic coconut and superfood products. This proposed acquisition marks a major step for an Edible Garden strategic growth plans. If completed, it would be a transformative move, expanding our footprint internationally and diversifying our product offerings in a meaningful way.

Speaker 2

What makes this opportunity even more compelling is Narayan's vertically integrated supply chain, which would give us greater control over sourcing, production and distribution, boosting efficiency, lowering costs and enhancing transparency. The transaction also has the potential to open new opportunities for clean labeled plant based ingredients in both North America and Europe, helping us scale the Edible Garden platform and reach new markets, a real cross selling opportunity. Edible Garden is continuing to grow its retail footprint across The U. S, strengthening our presence in key consumer markets by expanding distribution of our USDA organic herb line and new products. We're making our sustainably grown high quality products even more accessible to shoppers.

Speaker 2

This growth directly supports our strategy to meet the increasing demand for organic locally sourced products, while reinforcing our commitment to sustainability and innovation and controlled environment agriculture. Innovation continues to be a key driver of Edible Garden's growth strategy. One of the newest product launches, Squeezables, is a shelf stable line of stirring herb paste that extends life shelf life without sacrificing flavor and offering convenient better for you option for both consumers and retailers. Squeezables adds to Edible Gardens growing presence in the fresh condiments category, which also includes pulp in line of fermented gourmet sauces and chili products now available at Nature National retailers and Pickle Party, the world's first function pickle developed with the Herman Pickle Company. Together, these offerings reflect the company's focus on clean labeled ingredients, both flavors and sustainable sourcing.

Speaker 2

We've also expanded into the active lifestyle space with Kik, sports nutrition, a clean label lineup that includes protein powders, hydration mixes and formulas for both pre and post workout. Kik launched exclusively on Amazon through a strategic partner with e commerce expert, Piranha, gives us instant access to a global audience and helps drive brand awareness and engagement. And this is only the beginning. A traditional rollout is just around the corner to coincide with upcoming beach season. On the technology front, we advanced our work in agriculture innovation through nano bubble trials in partnership with Persea Group and NJIT.

Speaker 2

Early results showed up to a 55% increase in yield and a 30% reduction in harvest cycle time, highlighting the potential of this technology to revolutionize sustainable growing practices. We're exceptionally proud of Edible Gardens inclusion in the top 50 of the twenty twenty four FoodTech 500, which highlights global leaders at the intersection of food, technology and environmental responsibility. It underscores our growing reputation as a pioneer in sustainable food innovation. This recognition reflects the meaningful progress we've made through our commitment to innovation and sustainability across product development, operations and strategic partnerships. From launching shelf stable offerings like squeezables to expanding into the high growth categories with kick sports nutrition, we're meeting evolving consumer needs while advancing our sustainability goals.

Speaker 2

We also introduced curbside recyclable pots as part of our sustainable packaging initiatives contributing to the elimination over 11,800 metric tons of CO2 emissions in the twenty twenty-twenty twenty four Walmart project gigaton. These achievements reinforce our vision for long term growth, stronger retail partnerships and continued leadership in building a more sustainable food system. I would now like to turn the call over to Costas Dufoulis, our Interim CFO, who will review the financial results for the three months and year ended 12/31/2024. Kostas?

Speaker 3

Thanks, Jim, and good morning, everyone. Starting with the fourth quarter of twenty twenty four. For the fourth quarter ended 12/31/2024, revenue totaled 3,900,000 a slight decrease compared to $4,100,000 for the three months ended 12/31/2023. The decrease was mainly driven by a loss of $400,000 related to our strategic exit from the floral and lettuce categories, offset by a growth in the core Herb portfolio. Cost of goods sold was $3,800,000 for Q4 twenty twenty four, flat from the year ago.

Speaker 3

Selling, general and administrative expenses were $2,700,000 for the three months ended 12/31/2024, slightly higher than the $2,600,000 for the same period in 2023. The slight increase was primarily driven by costs associated with our warrant inducement transaction in December. Net loss was $3,000,000 for the three months ended December 31, compared to net loss of $3,000,000 for the three months ended 12/31/2023. Net loss for the three months ended 12/31/2023 also include a one time non cash impairment expense of $700,000 related to legacy assets acquired from our predecessor company. Turning to the results for the year ended 12/31/2024.

Speaker 3

Revenue totaled $13,900,000 reflecting a 1.4% decrease compared to $14,000,000 for the year ended 12/31/2023. The decrease was primarily due to our strategic shift away from the lettuce and floral product lines, which accounted for a $1,700,000 decline in revenue. Additionally, sales in the vitamin business declined by $300,000 year over year as we move to refresh this product line with the launch of KICK Sports Nutrition. However, these declines were partially offset by a $1,800,000 increase in sales from the core Herb business, which saw continued growth of 16.3% year over year. Cost of goods sold decreased by $1,700,000 or 12.7% to $11,600,000 for the year ended 12/31/2024, compared to $13,200,000 in the prior year.

Speaker 3

The reduction in COGS was driven by decreased reliance on third party growers as Edible Garden Heartland became fully operational in 2024, enabling the company to internalize the production of its herb portfolio. The transition away from low margin floral and lettuce products resulted in cost savings of $4,100,000 partially offset by an increase of $2,400,000 in costs related to integrating these activities into the company's own facilities. Gross profit increased 181.3% or $1,500,000 to $2,300,000 compared with $800,000 in 2023. Gross margin improved significantly from 5.9 of sales in 2023 to 16.7% of sales in 2024, reflecting the company's efforts to streamline operations and focus on higher margin products along with a reduction in our reliance on third party growers. Selling, general and administrative expenses increased by $1,600,000 or 15.8% to $11,600,000 in 2024 compared to $10,000,000 in 2023.

Speaker 3

The increase was primarily driven by higher legal, audit and accounting fees related to capital market activities of 900,000 and severance costs of $700,000 following the departure of the Chief Financial Officer. Net loss for the year ended 12/31/2024, was $11,100,000 compared with $10,200,000 in 2023. This increase in net loss was primarily due to the rise of SG and A expenses and interest costs associated with the Cedar Advanced facilities that we executed in 2024, partially offset by improved gross profit. Net loss for the twelve months ended 12/31/2023, also included a one time non cash impairment expense of $700,000 related to legacy assets acquired from our predecessor companies. And with that operator, please open the line for questions.

Operator

Thank you. Thank you. We have a question from Anthony Vendetti with Maxim Group. Your line is live.

Speaker 4

Thank you. Just to focus a little bit on the gross margins and then I'd like to ask a question about the proposed acquisition. So on the gross margins, you mentioned that the actual gross profit increased this year, which is a step in the right direction. But for the fourth quarter, it was barely profitable. Was that due to an inventory write off and the numbers you provided are excluding any inventory write offs due to obsolescence or any other reason for the inventory write offs?

Speaker 4

And are those largely complete, do you believe?

Speaker 3

Yes. So Anthony, there was kind of two components that drove that fourth quarter number. Part of it the majority of it was a ramp up in labor costs for the holiday season and early in Q1. We went into pretty heavy production mode for the holiday and there were some increase in cost of good labor to support those efforts in the fourth quarter. So I would say tilting more towards those costs in the fourth quarter was a bigger driver of the lower gross profit margin.

Speaker 5

Okay. So those So,

Speaker 2

Anthony, Q4 just to co tell that we was the first year that we had all of holiday, which is obviously peak business for the core herb business. So we ended up really ramping up labor to make sure that we could execute at the level that we executed with that, which is 98%, ninety nine % fill rate. So that's in order to service new Walmart business that had come on prior to Q4 that we were ramping up for and then obviously the Meijer business, which is substantial at that facility at at Harlan, but this is the first year that it was all in house and we left nothing to chance. So we made sure we staffed up appropriately to make sure that we could execute because we knew executing would drive obviously the future for us with both those retailers.

Speaker 4

Okay. And then in terms of the acquisition, Jim, you mentioned some cross selling opportunities. Can you specifically talk about which products do you believe there's cross selling opportunities with and what kind of margins does NERRY Foods have that in terms of gross profit and does that support your movement towards higher gross margin products overall as a company?

Speaker 2

They have two lines of businesses, right? They have they're very steeped in the coconut water, coconut oil business, which is a growing global business. They're number one supplier to Aldi and Aldi is one of the top grocery store chains in the world and fastest growing grocery store chain in The U. S. So that starts to give us some wherewithal there to start to make inroads not only to Aldi where we've done business in the past, but also into more coconut informed and developed products, whether it's coconut oils, waters, whatnot.

Speaker 2

And then you have superfoods, which is a combination of porridges and other types of products that are all organic and they're fully certified. So for us, what's nice is that starts to allow us to leverage the 5,000 doors here in The U. S. To start to bring those products in. I know they have a new pistachio butter product that they're coming out with as well.

Speaker 2

So really all about organic certified products that will help us expand the portfolio and we go into different parts of the stores leveraging, leveraging our relationships. In addition, when you have Kik, Kik is a sports nutrition brand, we would look to add some kind of coconut water, since it has such great hydration properties to that line. So the upside for us is dramatic here to be able to use some of those products on our platform. And then conversely, there's quite a few things that we offer that we could potentially bring over to Europe to plug into their 75,000 doors that they're in throughout Europe. Their margins are very healthy.

Speaker 2

We know that their cost of doing business there is less than ours. We know that they've been very efficient in the way that they source and manufacture. So for us, we're pretty excited about it. We know it's very complimentary, not only from product portfolio and cross selling, but also just from an operational strength and margin standpoint.

Speaker 4

So maybe just a follow-up then on the sports nutrition side of the business. You mentioned the movement to further scale that business within Edible. Where are you at with that as just Edible Gardens? And then maybe just talk about what the opportunity is in the sports nutrition category in 2025?

Speaker 2

Okay. So one last thing that I missed though, Narayan is also EBITDA positive. So when you start to look at the scale of putting the two companies together, not only from a margin expansion opportunity, it's going to allow us to be a much bigger company that within a pretty short period of time will be positive as a EBITDA positive as a totality of the business, especially with the trajectory we're on. So I just want to add that. As far as sports nutrition, that's a lot of my background.

Speaker 2

That's where I came from originally. It's pretty interesting the journey that we're on as its supplementation has become such a bigger part of the consumer's life. Obviously, sports nutrition, the dynamic is changing there. For years it was pseudoscience and getting bigger, stronger, faster. People weren't looking necessarily what was in the bottle.

Speaker 2

They just wanted the results. I think people have come down to earth and realize that not only do you have to exercise and eat right, but it's also important to put the right supplements into your body. I think I've mentioned this on calls in the past and I know it's in my bio. I started at Nature's Bounty as a brand person, relaunching metrics and pure protein and Body Fortress, which is about $300,000,000 worth of business for them and to this day still is. With that said, KICK is really contemporary.

Speaker 2

It's clean labeled. We partnered with NutriCom. We've done, who I've been working with for going back twenty some odd years. And this is a real growth area and all the research substantiates that consumers are looking for. They're looking for supplements and they're looking for products that are better, cleaner labeled, better for you and that fit what their lifestyle is.

Speaker 2

And so for us, the growth is tremendous as a huge category. I think, I know the timing is strong for us and right, We're launching exclusively on Amazon. That was a pretty involved conversation in order to get that opportunity and to work with Toronto, which is out on the West Coast and works hand in glove with some of the biggest brands out there on Amazon. And so to be able to be in this position with the support of Amazon to launch in a category that Amazon does very, very well with. I know that one of the category leaders does over $200,000,000 just on Amazon alone on four skews of protein powder.

Speaker 2

So there's a lot of upside there. We just we're just introducing into traditional distribution right on the heels of the launch, you'll call it, I would say within the next six weeks, we'll be in our largest Midwest partner with Kix, with a traditional retail launch that's going to be, like I said, on the heels of Amazon launch. So we've already manufactured and are going to be turning on Amazon in the next two weeks, call it mid April. And then shortly after, we'll be ready for beach season in traditional retail, and then we'll be pushing out from there. So pretty excited about that part of the business.

Speaker 2

And then another line that we don't we haven't talked a lot about, which is and is the pickle line, pickle party line with Hermann's pickles. They've been making pickles for seventy five years for some of the biggest brands out there. We partnered with them to really put our spin on it fresh pickles that are refrigerated that appear in produce right along with the trucks that we currently have going into distribution. We've already lined up some big box opportunities with that coming out of an extremely successful, Expo West, where it's just a matter of having enough time in the day to cover off on the meetings that we have in order to deliver on the commitments that we have and the conversations that we have. So second half of twenty twenty five looks really bright with these new products.

Speaker 2

And now that we've got that base set with the core business where it's running correctly and the margins are there and things are only improving. And like I said, we made a significant investment in people on Q4 to make sure that we left nothing to chance so we could really drive the business this year and focus on top line. So I'm pretty bullish on where we're going.

Speaker 4

Hello? Okay. And then just lastly, as you focus on the higher margin products and exit some of the lower margin ones

Speaker 2

like Yes. We can hear you, Kostas. Yes. Anthony, can you hear me? Yes.

Speaker 2

Okay. Go ahead. Can you hear me? Yes. I can.

Speaker 5

So

Speaker 4

as you exit the I just focused on the higher margin products, exit some of the lower margin products like lettuce and the floral business, Are there any costs expected in the first quarter of twenty twenty five, '1 time charges related to the exiting of lettuce and the floral business or any other charges expected? I know there probably be some charges or costs associated with the proposed acquisition, but any costs associated with exiting the lettuce or floral business?

Speaker 2

And you're talking about just to reaffirm and I know that I think costs may have dropped off the line, but I can answer this question. So just to recap what you're asking in Q1 of twenty twenty five, are there any additional costs beyond what's associated with the lettuce and the floral business. Was that the question?

Speaker 4

Yes.

Speaker 2

Okay. We don't anticipate any. I mean, frankly, the business is pretty clean, excuse the pun. We've been able to get rid of some of these just lower margin, no margin businesses that provide us some top line revenue. But when you think about what we were able to accomplish last year, we were placing that revenue in a pretty short period of time.

Speaker 2

And we only had six months of benefiting from being more efficient, shedding the contract growers and driving that margin. And like I said, we look at the numbers that we put in this year with everything just in much better order, we're going to we should be able to drive that business. And like I said, I don't think we're going to see much drag in Q1. So, hey, Constance, I saw that you just jumped back on. Anthony's question was in regards to Q1 and any potential one time charges over and beyond anything associated with exiting the lettuce and floral business.

Speaker 2

So I said, you know, I wouldn't go ahead, yes, go. Sorry.

Speaker 3

Yes, I don't see any charges coming from those exits, Anthony. It's the growing equipment and stuff like that. We kind of took care of all those in 2023 and we can use those assets for other purposes, so nothing else there.

Speaker 4

Okay, great. Thanks for all the color. I'll hop back in the queue. Appreciate it.

Speaker 2

All right. Thank you.

Operator

Thank you. Our next question is apologies. Firstly, before we go ahead, if anybody We do have another question on the line from Nick Pincus with Forrest Capital. Your line is live.

Speaker 6

First off, congrats on the tremendous progress that you guys are making. You touched on this previously in the prior Q and A, but you benefited from only six months of the vertical integration implementation and it really is impacting the gross profit. Can you expand on your plans to leverage these improvements going forward?

Speaker 2

Yes. Thank you for the question, Nick. Yes. Look, we like I said, six months was when you think about how far we came in such a short period of time and where the business is now, we're really positioned to focus our energies on that top line growth, right? And so, last year was really, as I like to kind of say around the office was really about fixing the machine.

Speaker 2

And that was something that we were able to not only think about it, bring five acres up and running, put in more automation and be able to be ready for big capacity and output in Q4, all of that sort of had to happen pretty quickly last year as we were transitioning out of contract growers. So I'm really proud of what the team was able to accomplish. We were able to keep our reputation as someone who could pick, pack and ship at such a high rate, which is the expectation by all of these major big box retailers. All of that drives new opportunity and those new opportunities are coming to fruition now. So to have that, it's an ongoing process no matter what, but to have that kind of behind us and focused on the second half of this year and putting in these new products, which I think are the right products at the right time with the right pricing and the right formulas, I couldn't be more proud of how quickly the team has been able to rise to that occasion.

Speaker 2

And when you start to think about what makes smaller companies great and bigger companies, it's the ability to be the ability to go to market quickly to be able to react and there was something that was put into the release and into the script, which I believe was put in by cautious, which is he's got the he's somewhat new and he's not now he's a vet because he's been here and lived through it in the past year and has really impacted our business. But it's really about this ability to move quickly to take the capital that we have, we've strengthened the balance sheet and we can go after opportunities and really move on a dime, whereas bigger companies are going to they're going to they're just going to take a long time in the market. A lot of times the market opportunity passes them by or they don't have that opportunity of being a first market mover, which is something that I've always prided myself on and what I thought I brought to the table with my marketing background. And I think here that's what you're going to see is our ability to really stick and move, leverage off that.

Speaker 2

We're going to have some good base business growth that, but really it's the new products, the new accounts moving into the likes of big box retailers that are truly going to drive the volume. And so this is the first time since I've been involved in the business that I really feel like we can really put our energies towards growing the business with the right products, with the right margins. And I think we've got and I know we've got the right team. So last year was really still a, hey, let's we got to fix all of this before we can really start to run. And so that's where I think when you look at only six months, I mean, that's it's only six months.

Speaker 2

This year is going to be pretty compelling. And I'm pretty excited about between the new products, the opportunity with Narayan, which I think is very like minded companies that are looking to put great products out there with the right formulas and the right nutritionals at the right time. And having that manufacturing leverage now that we will have that we haven't had in the past because we didn't have it. And if we can do something accretive like Narayan, it's really going to accelerate the business and it's going to get really interesting really quick for us, which I think is great.

Speaker 6

I agree. I think you said it very well and this isn't really a question, but what I'm excited about is you've built a very impressive distribution platform, access to 5,000 plus stores, contracted business with Walmart, Meijer. And so now what I'm looking forward to is seeing how you guys could leverage that for the new products, Pickle Party, Pulp, Kick. So good luck.

Speaker 2

Well, I appreciate it. And that's always been a discussion, right? It's like one of the biggest assets going into this. And when you look at the fact that so many of our competitors, when you just look at CEA specifically, which is controlled environment agriculture, have gone out of business and they've raised in 10 times the money. And that's just not that's a real number 10 times and most recently the company had raised 20 times.

Speaker 2

We are we have relationships aren't just about, hey, I know the buyer, it's about performing, when we make an investment like we did in Q4, in people to drive in stocks and ship rates that we get you get the theory is you'll get rewarded for that down the road and we have and we continue that and we have a seat at the table at major retailers and we make the investment in the shows and in the marketing and the advertising so that we can not only sell it in, but sell it through. So I'm like I said, we're there. It's taken years, frankly, Nick, to get there. And we're there now. And like I said, it's we're at a great inflection point and I'm pretty thrilled.

Speaker 2

Okay. Great work. I appreciate it. Thank you.

Operator

Thank you. We have a question from Brian Kennedy with Capital Markets. Your line is live.

Speaker 5

Yes. Good morning, Jim.

Speaker 2

Again, Good morning, Brian. How are you? Good morning. How are

Speaker 5

you? We're good. We're good. Just to reiterate what Nick said, yes, congratulations. That's a very impressive gross margin improvement.

Speaker 5

And then in the fact that it's such a short period of time that you achieved it in. I'm looking at the numbers. I mean, when I look at year to date numbers annual, you're approaching 20% there and you only did it for what part of the year. I'm just trying to understand a little bit though in terms of what the gross profit was in the fourth quarter. I mean, it dragged.

Speaker 5

It doesn't really reflect what your full year was. So can you speak a little bit about what maybe impacted it? Because I think you're on a trend here taking 20% and normalized. Is it fair to say you'd be more approaching 30% once everything kind of works through the system?

Speaker 2

Yes, I think that's fair. I think, look, I think we've got a target GP that's 35% to 40%. We think that's definitely achievable as the product mix starts to sort of iron out with some of these more shelf stable products coming in at much higher rings as they would say, right? So when you think about the fact that how many basil plants you have to sell versus how many jars of sports nutrition or pickles, it's considerable. Q4 was when we continue to invest in people, I think Anthony had asked this question earlier and I'll hand over to Casas in a second to talk a little bit more about the nuts and bolts and numbers, but it was really about Q4 tends to be our heaviest time of year.

Speaker 2

We have it's here in the it's obviously in The States, it's Thanksgiving, Christmas, New Year's and herbs are a big part of everybody's meals and parties. So we see a considerable lift. And when we see it at some of our key retailers and in this instance, Meijer does a huge what's called the holiday program that really kicks off in the middle of to the October all the way through the first week in January, where we see a 10 times lift in volume coming out of the facility. So this year was a combination of labor ramp up, plus there were some items that we ended up having to pay a little bit more for because of the fires that were out in California. So whether it was time or time or sage that were impacted.

Speaker 2

All of that sort of went into our cost of goods, but the labor was a big piece of it that really we ended up investing in to make sure that we nailed holiday because we knew that that drives kind of the next year. If you fall down during the holiday and you don't ship at 98% plus, that's the expectation from these retailers, whether it's Meijer or Walmart, which was in that facility this year as well. So that was really where that I look at it more of an investment knowing that this year we're going to be a lot more prepared since this is the first year, Brian, that we had all that program for both those major retailers in our Heartland facility. So So we didn't have the year before we had outsourced it. So we ended up making sure and left nothing to chance by making sure we had enough people.

Speaker 2

And that was a lot of what that expense was related to. Constance, do you have anything to add there?

Speaker 3

I think you hit the highlights on the head, Jim. The COGS was certainly related to the ramp up and those the labor component and the purchases component really drove kind of the decline versus the year's trend. But I think this will normalize as we get through 2025 and we have a much better understanding of our demand and how to properly adjust for those things from an inputs perspective.

Speaker 5

Well, that's great. Thanks guys. I mean, sorry, go ahead, Jim. May I finish up?

Speaker 2

No, I just want to make it look, the reality is there's some room for improvement there at the facility. We brought in a new production manager who ran the program. It was his first program. And like I said, we probably overstaffed to make sure we didn't have any problems. And look, I'll take responsibility for that because I hang our hat on our operational excellence as it relates to our ability to fill orders.

Speaker 2

And so I don't think you're going to see that this year now that we will have a year under our belt. We have a full year plus of the facility operating. The lines won't be new and new to the people. And I fully expect Q4 to outperform Q4 of this past year because we just won't have some of those hurdles. I made sure that we didn't have to.

Speaker 2

It's all about

Speaker 5

the investment growth. And I think the fact you were able to I mean, this is what I wanted to highlight a little bit because you did so much in such a few months to have such a strong margin for the whole year. You can just see that kind of trending for 2025. It should be very, very strong. So we look forward to that.

Speaker 5

Look forward to increased revenues too. I think you got a lot of great initiatives there to certainly increase the upline. So you guys are well on your way. I noticed that your financials, you paid down some debt. So that was nice to see that you've got that rolling in the right direction.

Speaker 5

You got just a little bit of debt left. So that's and I take that's on your fixed assets, your greenhouse facilities.

Speaker 2

Primarily, yes, that's I mean, that's good debt, right? That's lower interest debt. We've got a little bit of receivable debt out there, that we'll be working through this year. But like I said, we're in a great spot and the team has done a great job. And frankly, Costas has done a great job.

Speaker 2

I think he deserves a lot of credit as well as just allowing me to focus on new products and some of the things that I know that I do well to drive revenue. It's I'm excited to get after it this year. And I'm less worried about,

Speaker 1

I

Speaker 2

don't know what the right phrase is, but it's just like I'm less worried about certain things, more focused on driving the business because that's what I enjoy to do. And I think driving that top line and this Narayan opportunity I think is huge. And I think really will change the dynamic and really put an interesting face on Edible Garden. I think position us differently in the eyes of some of the bigger players out there since like I said, we're so quick to market. There's a real strong team in Slovenia where Narayan is based that I think is going to help deliver some really interesting products into the platform and the shared platform.

Speaker 2

So I think growth could be exponential moving forward now that we can focus on that growth versus worrying about contract growers and constant negotiation on a lot of stuff. So being vertically integrated now really gives us a lot of strength and we're not carrying a lot of debt to your point, which is just gives us a lot of flexibility and we had a nice cash balance going into the year. So that takes some of that worry away.

Speaker 3

Yes, I think you hit the main points, Jim. We kind of in Q4, we did pay out pay down about $3,200,000 in debt to kind of shore up the balance sheet, which was kind of put us in a really good position entering to 2025 from a balance sheet perspective. We're looking to make smart investments like we mentioned in the Kik line and others along with this Narayan transaction, which I think could be really transformative for us in 2025.

Speaker 5

I know you've got a nice cash balance going in from last year, so that shows really well. The last point I just want to make or ask and this is just the you see all these metrics working in the right direction, I just don't understand the market cap of edible. This company to me looks really well undervalued. You've got tremendous customer base. They're hard to get.

Speaker 5

You've made investment to keep the customers as you pointed out there. That's just a tremendous investment to get those customers and keep them and they're worth a lot of money. So I'm looking forward to seeing what you guys are going to do this year in terms of, I guess, investor relations and letting the world know about this terrific growth opportunity because I mean that this market cap today it's ridiculous compared to what your business is really doing. So congratulations.

Speaker 2

Thank you.

Speaker 5

Thanks.

Operator

Thank you. As we have no further questions on the lines at this time, I would like to hand it back over to management for closing remarks.

Speaker 2

Thank you. Thank you for joining us today. We've demonstrated that we can grow intelligently by prioritizing higher margin categories, investing in sustainability, leveraging vertical integration and embracing technology that are shaping the future of agriculture. And we're not just getting and we're just getting started with our Heartland facility, fully transitioned to growing our herbs products line in house, cleaner more strategic product mix and global expansion opportunities on the horizon, we're heading into 2025 with strong momentum, a clear vision, a solid foundation to drive long term shareholder value. We're excited about what's ahead and we remain committed to our delivering value for our customers, our partners and our shareholders.

Speaker 2

Thank you very much and have a good day. Thank you for the support.

Operator

Thank you, ladies and gentlemen. This does conclude today's call. You may disconnect your lines at this time and have a wonderful day and we thank you for your participation. Thanks.

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Earnings Conference Call
Edible Garden Q4 2024
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