Edible Garden AG Incorporated (EDBL) reported its third-quarter earnings for 2024, revealing a mixed performance with both advances and setbacks. CEO Jim Kras highlighted a gross profit increase and significant margin growth, despite a drop in quarterly revenue. The company's strategic product shifts and infrastructure improvements point to a potentially strong fourth quarter.
Key Takeaways
- Gross profit increased by $687,000 compared to the same quarter last year, with gross profit margin growing to 27.1%.
- For the first nine months of 2024, gross profit surged by $1.7 million, a 324% increase year-over-year.
- Revenue for Q3 decreased to $2.6 million from $3 million year-over-year.
- The company raised $5.65 million through a September S1 offering, paying down $3.2 million in debt and investing in working capital.
- Partnerships with Walmart (NYSE:WMT) and the launch of new products like Hydro Basil and Vitamin Whey on Walmart Marketplace.
- Sales growth in the Pulp Flavors line and the introduction of the Kick Sports Nutrition line.
- Decrease in selling, general, and administrative expenses to $2.2 million, reducing net loss to $2.1 million.
- A new production line in Grand Rapids has increased capacity, reducing the need for contract growers.
Company Outlook
- Anticipated strong Q4 with the potential to be one of the strongest in the company's history.
- Projected revenue impact of $215,000 delayed from Q3 expected in Q4.
- Substantial growth expected in the Sports Nutrition line in 2025, with new product launches and major retailer partnerships.
Bearish Highlights
- Q3 revenue fell to $2.6 million due to strategic exits from lower-margin products and hurricane-related disruptions.
Bullish Highlights
- Increased production capacity and strategic product focus set to drive potential Q4 growth.
- Streamlined operations and improved infrastructure to enhance gross margins and shareholder value.
Misses
- Revenue decrease in Q3 attributed to strategic product exits and Hurricane Helene.
- Net loss, although reduced, remained at $2.1 million.
Q&A Highlights
- CEO Jim Kras responded to Anthony Vendetti's questions about operational capacity and growth prospects.
- Emphasis on reduced reliance on contract growers and increased production capacity.
- Focus on core food products and exit from low-margin lettuce and floral businesses.
Edible Garden AG Incorporated (EDBL) remains focused on improving its financial position and gross margins through strategic product offerings and infrastructure enhancements. The company's pivot away from lower-margin products, coupled with its partnership expansions and product innovations, positions it for potential growth in the upcoming quarters. With the company's increased production capacity and reduced reliance on contract growers, Edible Garden AG is aiming to meet the rising demand and deliver increased shareholder value.
InvestingPro Insights
Edible Garden AG Incorporated's (EDBL) recent earnings report reveals a company in transition, with both challenges and opportunities ahead. InvestingPro data provides additional context to the company's financial situation and market performance.
According to InvestingPro, EDBL's market capitalization stands at a modest $1.28 million, reflecting its current position as a small-cap company. This aligns with the company's reported financial struggles and ongoing efforts to improve its market position.
The company's revenue for the last twelve months as of Q2 2024 was $14.77 million, with a revenue growth of 18.14% over the same period. This growth rate is encouraging, especially considering the reported Q3 revenue decrease, suggesting that the company's strategic shifts may be yielding positive results over the longer term.
However, InvestingPro Tips highlight some significant challenges facing EDBL. The company is operating with a substantial debt burden and may have difficulty making interest payments. This is particularly relevant given the recent $5.65 million raised through an S1 offering, of which $3.2 million was used to pay down debt.
Additionally, EDBL is quickly burning through cash, which could be a concern for investors considering the company's focus on infrastructure improvements and capacity expansion. The stock's high price volatility, as noted in another InvestingPro Tip, is evident in the reported price movements, with a -88.26% return over the past three months and a -98.49% return over the past year.
These insights from InvestingPro provide a more comprehensive view of EDBL's financial health and market performance, complementing the earnings report details. Investors considering EDBL may find value in exploring the additional 17 InvestingPro Tips available, which could offer further insights into the company's prospects and challenges.
Full transcript - Edible Garden AG Inc (EDBL) Q3 2024:
Operator: Good morning. And welcome to the Edible Garden AG Incorporated’s 2024 Third Quarter Business Update. At this time, all participants have been placed on a listen-only mode and we will open for questions following the presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Ted Ayvas of Crescendo Communications. Ted, the floor is yours.
Ted Ayvas: Thanks, Jenny. Good morning. And thank you for joining Edible Garden’s quarter ended September 30, 2024 conference call and business update. On the call with us today are Jim Kras, Chief Executive Officer of Edible Garden; and Kostas Dafoulas, Interim Chief Financial Officer of Edible Garden. Earlier this morning, the company announced its operating results for the three-month-ended September 30, 2024. The press release is posted on the company’s website, www.ediblegardenag.com. In addition, the company has filed its quarterly report on Form 10-Q with the U.S. Securities and Exchange Commission, 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. Kras reviews the company’s operating results for the quarter ended September 30, 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 this conference call, including statements regarding our future op -- 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 December 31, 2023. 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 rely 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 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. 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. Having said that, I would now like to turn the call over to Jim Kras, Chief Executive Officer of Edible Garden. Jim?
Jim Kras: Thanks, Ted. Good morning. Thank you to everyone for joining us today. We are pleased to report another strong quarter highlighted by an increase of $687,000 in gross profit for Q3 2024 compared to the same period last year. Our gross profit margin experienced significant growth, reaching 27.1% this quarter. This significant improvement reflects the consistent margin growth that has fueled our progress in recent quarters while marginally impacting our revenue growth in the second and third quarters. Furthermore, our gross profit for the first nine months of 2024 surged by $1.7 million, an impressive 324% increase over prior year. Our core business and fundamentals are stronger than ever, as demonstrated by a 55% increase in sales of cut herbs for the first nine months of 2024 compared to 2023. Revenue for the first nine months ended September 30, 2024, showed a slight year-over-year increase. Third quarter revenue for 2024 was down from the same period last year, driven by a strategic decision to phase out of lower margin products and categories. For example, in connection with phasing out our legacy floral business, at the Edible Garden Heartland Facility in Grand Rapids, we have installed new production lines to expand our capacity to drive the growth of our higher margin products. We believe these initiatives will help accelerate achieving our goal of sustainable cash flow and profitability. We also strengthened our balance sheet with our September S1 offering, raising approximately $5.65 million in gross proceeds. Part of these funds went towards paying down $3.2 million in debt due to 2025, helping to reduce our leverage and move us closer to achieving positive cash flow. Additionally, we invested in working capital ahead of the fourth quarter holiday season, putting us in a strong position to meet customer demand and peak season sales. Our partnership with Walmart continues to evolve in meaningful ways, including the debut of our sustainably grown Hydro Basil, featured in a custom-designed basil station that fits seamlessly into Walmart’s produce section without disrupting current plant. Additionally, we launched Edible Garden’s Vitamin Whey lines of whey and plant-based protein powders on Walmart Marketplace. This not only enhances accessibility for our Vitamin Whey products, but also lays the groundwork to expand our offerings on the platform with new products. We are confident our innovative products will resonate with the evolving taste of an expanding consumer audience. We believe this deepening collaboration with Walmart positions Edible Garden for revenue growth in 2024 and beyond. For our Pulp Flavors line of USDA organic, fermented and sustainable line of gourmet sauces experienced sales growth in the third quarter of 2024 as we continue to add to our existing distribution network, which includes prominent retailers such as Target (NYSE:TGT), Whole Foods, Meijer, Morton Williams, Dierbergs, Woodman’s, and distributors like KeHE and UNFI and more. According to Research and Markets, the global sauces and condiments market is projected to grow from $173 billion in 2021 to $240 billion in 2028. And Pulp is poised to meet the rising demand for bold, unique flavors that take meals from Bland to Bold. We also introduced our innovative Kick Sports Nutrition line, a premium range of performance products designed for today’s health-conscious athletes. Kick addresses the evolving needs of athletes who prioritize the quality impact of their nutritional intake. According to IMARC Group, the sports nutrition market is expected to grow from $55 billion in 2023 to $103 billion by 2032, fueled by an increasing demand for clean labels, personalized products that enhance performance, cater to dietary preferences, and offer convenient on-the-go options. With over 25 years of experience in sports nutrition and a track record of successful brand launches like Body Fortress, Pure Protein and Met-Rx, I’m confident that Kick Sports Nutrition is more than just a new product line. It’s going to set a standard in the industry. Our vision to redefine the category by delivering innovative, purpose-driven solutions that are better for you, that truly address the evolving needs of athletes is more important than ever. Edible Garden also received grants from the USDA Organic Certification Program, providing financial key support to help offset the cost of organic certification, processing and handling certifications. These funds will not only reduce expenses associated with maintaining our organic certification at our Belvidere, New Jersey, and Grand Rapids facilities, but also support research and development for new product innovation. As leaders in controlled environment agriculture, we are deeply committed to producing local, organic, and sustainable products, making organic certification a valuable asset for the business. These grants further strengthen our partnership with the USDA and align seamlessly with the company’s Zero-Waste Inspired mission. By utilizing these funds to drive R&D for new organic offerings, we look forward to exploring new opportunities to work together and to continue to lead the way in sustainable agriculture, ensuring that we make a lasting, positive contribution to the industry and the communities we serve. I would now like to turn the call over to Kostas Dafoulas, our Interim Chief Financial Officer, to review the financial results for the three months ended September 30, 2024. Kostas?
Kostas Dafoulas: Thanks, Jim, and good morning, everyone. Turning to our third quarter results, revenue totaled $2.6 million, compared to $3 million for the three months ended September 30, 2023. The decrease was primarily driven by our strategic shift away from the sale of lower-margin products and impact from weather events. Specifically, our strategic decision to eliminate the lettuce and floral categories accounted for a decrease of $597,000 in revenue. The impact of Hurricane Helene on our nutraceutical products resulted in the shift of $215,000 of revenue from the third to the fourth quarter. Cost of goods sold totaled $1.9 million for the three months ended September 30, 2024, compared to $3.3 million for the three months ended September 30, 2023. The decrease was primarily driven by our seasonally low sales in the current quarter, as well as the elimination of the use of large third-party growers that previously made up a material portion of our cost of goods sold. We saw continued strength in our gross profit margin as a result of this strategic decision to move away from low-margin categories. We delivered gross profit margin for Q3 2024 of 27%, our second straight quarter positive double-digit margin. Selling general and administrative expenses were $2.2 million for the three months ended September 30, 2024, compared to $2.4 million for the three months ended September 30, 2023. The decrease was primarily due to reduction in labor costs and professional fees, as we continue to find efficiencies in our cost structure. Net loss was $2.1 million or $0.65 per share, for the three months ended September 30, 2024, compared to a net loss of $2.4 million or $13.83 per share, for the three months ended September 30, 2023. Improvement in net loss was primarily driven by our gross profit margin expansion and lower SG&A, offset by other expenses. In closing, we are proud of the hard work our team has put into improving our gross margin and the strong execution we experienced this quarter. Our Q3 results demonstrate that our strategic shift in product mix and reduce reliance on third-party growers is paying off and we remain committed to a disciplined financial approach. And with that, Operator, please open the line for questions.
Operator: Thank you very much. [Operator Instructions] Thank you very much. Your first question is coming from Anthony Vendetti of The Maxim (NASDAQ:MXIM) Group. Anthony, your line is live.
Anthony Vendetti: Thank you. Good morning. So on the -- you’ve reduced significantly contract growers which obviously improves your gross margin significantly. So we’re glad to see that. But as you move into this quarter that we’re in right now, this is your busy season. Are you able to handle the demand this season with fewer contract growers than last season or do you have to rely on them to meet the demand? So, hey, Anthony. Good morning. So the answer is we don’t need the contract growers to service our demand. But we focus on infrastructure, GP improvement and the fundamentals of the business in the last two quarters, and it shows in sequential quarter-to-quarter GP improvement and dramatic improvement at that. That’s a result of bringing vertically integrating the facilities and adding more capacity. So we did -- this was, I believe, in the press release in my opening script. We put in another production line, state-of-the-art, made that investment there in Grand Rapids. I think what we see now is a strong signal to our retail partners that not only can we handle what we currently have, we can take on a lot more, and we can push out a lot more in the way of units. So our capacity is only sort of -- is only limited by our ability to process and putting in more and more lines as we continue to grow the business and right now, we’ve got significant capacity. Q4 is shaping up to be potentially our best quarter ever as a function of having that ability to do so. And now the platform is set, the fundamentals are set and we can take on more herbs, more new products, even more warehousing and cross-stocking that, once again, adds to that topline. So by trying to move out of these other products that were sort of legacy products that just really didn’t give us what we needed from a GP standpoint, we now can focus and build that core business. So we’re ready to run, and we’re pretty excited about it and it was a lot of hard work, excuse me, this past quarter to get into a position in order to get set for the volume that’s coming.
Anthony Vendetti: Okay. Great. And then can you just further quantify the impact from the hurricanes in Florida? How much of that revenue in total has moved from the third quarter to the fourth quarter?
Jim Kras: Well, it was $215,000 approximately. That was driven by a relationship that we have with a major big box, PriceMart. We supply a nutraceutical line for them. That business has been growing considerably over the last six months as they’ve been watching what we’re doing and I’ve had a relationship with them for decades, so they understand the investment we’re making in that segment of the business. And so they ship out of the Port of Miami. So unfortunately, we had a hurricane right at the end of the quarter and they closed the ports while people were evacuating and they weren’t bringing in any trucking. So, once again, $200,000 plus that gets pushed into the Q4 that we didn’t benefit from. And the Q4, there’s obviously additional orders that are teed up and that’ll ship by the end of the year as well on top of that $200,000 for PriceMart. So, that’s kind of unfortunately impacted it. Trust me, I wanted the trucks to roll and I can’t control weather.
Anthony Vendetti: Sure. Of course. So, as we look to 2025, what kind of growth can we expect from the Sports Nutrition line?
Jim Kras: Well, as I had mentioned, earlier, look, this is a great category. I grew up in the category. I worked at some big businesses, Nature’s Bounty being one of them, where I ran that part of the business for them and relaunched Met-Rx, developed some concept Body Fortress, which is $150 million line and also relaunched Pure Protein, which is probably another $100 million line. So, point being and they’re still around 15 years later, the trends are towards better for you. We have the right formulas. We have a fantastic partner in NutriComm that we’re just continuing to deepen our relationship with. They were the originators of some of the products like the Met-Rx White Box, which started the industry 25 years, 30 years ago. With that said, we’re already looking at commitments for a Kick and we haven’t even gone full-scale production. We’re driving a partnership with Amazon (NASDAQ:AMZN) to look to potentially coincide the launch with them, it was just with them last week. And so, for us, we’re expecting some significant growth. Obviously, we’re going to have to make product, and a lot of that you’ll see rolling out towards the tail end of Q1, I think, you’ll see a launch at a major big box that we have a deep relationship with, traditional retail. And like I said, I think we’ll coincide with Amazon on that, and then roll out with the likes of PriceMart internationally. So, I couldn’t be more excited about it. Like I said, I think putting behind us, fixing the core business and getting the greenhouses where they can operate and operate like manufacturing. I think we’re there, so now we can start focusing on a lot of these new products. We’ve got a line of paste herbs that we’re launching in Q1 as well. So, next year, I’m pushing my sales team to say, look, let’s start looking at not only Q1 and with these launches, but what are we doing to drive the business second half of next year. And so, I couldn’t be more excited about where we are. I feel like it’s been a pretty real -- pretty tough journey to get here. But we solved a lot of problems that others couldn’t and we were watching a lot of our competition on the CEA side sort of crap out and we’re positioned for more and more and more. And the calls have been coming in on all the businesses to ship. And so, like I said, I -- it’s been tough, but I’m excited. I mean, it truly is. I mean, so I hope that…
Anthony Vendetti: Yeah. It could…
Jim Kras: … answers that question, but I’m sorry, go ahead.
Anthony Vendetti: Yeah. Last question on the gross margin side. It sounds like you particularly lettuce, but maybe there were other low margin products you’ve exited. Was that leverage from exiting the low margin products, such as lettuce, fully reflected in third quarter or is there additional leverage or ability to increase the gross margin from the level that you’re at right now?
Jim Kras: Well, I think, look, I think you’re, I mean, for us, it’s all about improving our margins, the efficiencies that we’re driving currently across the whole supply chain, leveraging every tool that we have in the toolbox is coming down to bear. And so the answer to your question is, you should see that gross profit continue to expand as we get stronger. And yeah, I mean, between, look, we’re not fully out of the lettuce business. We’re just not in the low or no margin lettuce business that we sort of had to serve some of the customers when we first started the business. The floral business for us, look, it’s an interesting business, but it’s just not our core business. And by just kind of pushing that aside and kind of eliminating it and focusing on the food business, which is what we’re in, once again, nothing against florals and flowers, like them, but at the end of the day, that’s really wasn’t our core business. We adhered to our commitment to the distributors that we took on when we bought the facility in Grand Rapids and we executed well and everybody moved on. And I’m sure if I wanted to do floor down the road, I could always pick up the phone and call them. But not our core business. It was a drag. I don’t like the competing crops in the greenhouse for a multitude of reasons. Now we’ve cleared the deck. I’ve got super capacity. The place looks gorgeous. I just had Meyer down there shooting it the other day for social media. We’re ready to run and I don’t have to worry about that business anymore. And it’s impacted the margin because it was just labor-intensive for what it was, moving pots. And it was just an old business that has never really been sort of automated and it’s seasonal, and it’s just not what we wanted to do and what I want to do. It’s all about core business, fundamentals, new products, leveraging the $5,000 an hour and to put more of the trucks that are running on produce, getting more on those trucks, improving the logistics. And like I said, you see it where we are right now and we just got started in the last quarter or two. I mean, and frankly, we’ve been able to get some real strong players to come in and help us really refine this. So I couldn’t be more excited about that.
Anthony Vendetti: Excellent. All right. Thanks for all that color, Jim. I’ll hop back in.
Jim Kras: All right. Appreciate it. All right. Thank you, Anthony. Take care.
Operator: Thank you very much. [Operator Instructions] Don’t appear to have anyone else. Waiting for questions. Just hang a second in case someone else does jump in. Okay. I don’t think we have any further questions. I will now hand back over to the management team for closing comments.
Jim Kras: Well, thank you for joining us today. We believe we have successfully streamlined our business, removing elements that previously constrained revenue, core operations and fundamentals are now helping and performing well. Based on current trends we are confident that the fourth quarter of 2024 will display significant growth in both margin and revenue, potentially make -- marking one of the strongest quarters in a row -- our company’s history. With a solid foundation and robust infrastructure in place we are well positioned not only to achieve strong results in the coming quarters, but also drive sustained growth and long-term value for our shareholders.
Operator: Thank you very much. This does conclude today’s conference. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your…
Jim Kras: Thank you.
Operator: …participation. Thank you.
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