Barfresh Food (BRFH) 14 Aug 192019 Q2 Earnings call transcript

Good afternoon, everyone, and thank you for participating on today's Second Quarter 2019 Corporate Update Call for Barfresh Food Group.

Joining us today is Barfresh Food Group's Founder and CEO, Riccardo Delle Coste; Joe Cugine, President; and Joseph Tesoriero, Chief Financial Officer for Barfresh Food Group.

Following prepared remarks, we will open the call for your questions.

The discussion today will include forward-looking statements except for the historical information herein, matters discussed on this call are forward-looking within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 including statement about the company's commercial progress and future financial performance.

These forward-looking statements are identified by the use of words, such as grow, expand, anticipate, intend, estimate, believe, expect, plan, should, potential, forecast and project among others. the the developments historical or that or occur than activities, that anticipates other statements. may or forward-looking events the in statements, statements fact of address will All are future company believes

are Such many forward-looking assumptions on are the that may expected number beyond experience, subject appropriate factors assumptions, on of under developments and other These company of made to the statements and are based of further the company are materialize. statements not based which certain believes uncertainties, these risks control circumstances. a and

are Commission update Investors its of guarantees are and recent cautioned by considered as warnings, that forward-looking any should the statements company required call on and Form Exchange future such reports Form is in and and contents publicly company's law. statements contained to The factors intend report with including not with XX-Q. the XX-K the on not annual obligated risk filings any does performance. Furthermore, the quarterly the except be Securities statements not conjunction of this cautionary in

order of also in The stock factors In measures, because on for investor including sale derivatives. the of certain the adjusted aid the in issued EBITDA company’s of and the primary flows these non-cash the the are comparable useful update table it most including measures. or directly services reflective EBITDA company. which adjusted to reconciled loss stock information provides presenting the and cash items the compensation, EBITDA, of non-GAAP that GAAP gain costs, reconciling company the and to business performance, to believes the business in is understanding released Management are

sir. turn the Group, CEO call the Barfresh ahead, Coste. Delle Founder Now, Food and Please to go will I Mr. Riccardo of over

our insights you channels second quarter, increase our review provide of which is the year. joining million additional to second sales and XX% everyone us. generated We last period we XXXX afternoon thank sales and quarter and review pipeline. a growing expanding call net our same our sales into today, $X.X Good On the results for will compared in accomplishments,

reduce the continued general second XX% quarters. the in a in expect improvement reduction to and administrative continued coming and quarter also We expenses with

for will strong for at XX% the our be margins expectation to were XX%. at last gross back percentage QX It gross comparable year’s Our half around to very that XXXX of compared first profit the XX%. half is

we expense better provide EBITDA, Adjusted Higher sales, first reporting for QX idea improved a quarter by reduced we this adjusted $XXX,XXX our you which G&A with cash of to and in translated margins are improve and improved flow. the to time EBITDA burn the as per QX cash reduced to from breakeven month see closer to in favorable to trend efficient us leverage $XXX,XXX cash QX. in flow continuing month our in and our We putting accelerating $XXX,XXX per improve platform. this continue

placements and forces significant expect is and over in facilities from XX second to school school increases year. the dining both XXX dining year we of and of customers, across customers, of contracted sign course and for make XXX the we our channels. channels, to second the quarter, increasing to over on school the armed facilities locations and in last up the locations to quarter all XXX. This military As end our military continue this new school In our over we military continued progress by

menu customer training serving and planning flavor at general. of proper we in shifted and have the in we expansion execution focus assistance gained in follow-up location. of equipment distributors, personnel the and This and to service efficiencies revenue and traction these timely As locations, entails improved offerings improvements channels, our have issues, setup grown responses improving per and to with

in over we the with We room penetrating military bases have these lot of a XX,XXX and stages U.S. in the and alone, channels early to XXX are of schools grow.

on restaurant Puerto of Canada for signing new of to announced two the we month accounts, United Rico. the total and States, national XXX a and regional dining chains last our Moving locations across

is to in The locations XX rolling to the chain the chains second sandwich XXX made-to-order of rolling is third American Rico a and the quarter. out Puerto North planned rollouts XX the locations restaurant chain initial with out plus first for

potential these Each of opportunities the XXX beyond the expansion locations. customers has for additional initial

X,XXX We locations. rollout products into announced with QSR the of continue our the anticipate to previously National over

in-market of We is national testing the additional chains, QSR chains. have one which process with the largest restaurant also progressed one of in country's

we they optimistic become we prospects are further testing available. announce accounts in the are While and any about will our still cycle, as these developments

our we about to the talk in business, also which his will international very began have of expansion Cugine Joe in progress remarks. make As good

as September. the to years Finally, consulting work we want to current after support been many and Finance. the of the have hired of for filing level continue will Barfresh we wish his best and past as him as in basis reach seen We have Joe have his recent Joe from work in would tireless the as hard decision his on role our success X-K CFO. end I devotion Vice until a his Joe resign to thank continues President Loussararian you Tesoriero's regarding of over company. able September have and endeavors. to all of Raffi Joe not future a the we company four CFO without

turn things Joe? And Joe Tesoriero. let to over me with that,

established as the for truly and thank in alongside for forward everyone the we future. to you wish continued and success, four foundation years. has last company words. to pleasure you kind Thank work you, you, I Riccardo, have growth Barfresh and and supporting It Barfresh look my I Joe over Cugine the been the at the Barfresh’s the entire team

in the and channel quarterly of in year-over-year as and generated military our $X.X that, increase was of the increase compared The the the quarter Revenue headway with is an to second of well school move with XXXX. made And primarily in markets numbers. to as the $X.X for expansion regional let's the million national on accounts. XX% sales quarter million the result

over or as XX% margin. It's quarter XX%. including levels first in the significant our improvement cost driven was the that gross The margin strong profit factors be XX% expansion efficiencies the margin gross for gross margins the year product about half increase improving many representing of half mix. year’s in the to margin product will Our as back our expectation is volumes well similar prior as the by for profit

an During prior of $XXX,XXX the of XX% reduction in administrative general we the year. the second realized and quarter, expenses, improvement over net our

relocating implementing two and personnel reduce for We related new by a have annually. office $XXX,XXX implemented These our numerous services. cost reduction contract alone including will measures headquarters overhead measures fixed

our made with improving also This $XXX,XXX forward to structure or of second have shipping our redistribution arrangements. by XX%. chain warehouse savings supply changes of has We reducing in expense measure the already quarter yielded favor a number in significant

Shipping efficient as from quarter of year the revenue distribution continue of anticipate XXXX. cost sales shipping as expense to as use a to We of of expand XX% percentage in percentage second arrangements. the a the in the second more during improved we XXXX quarter these balance our of XX% of improve to

financial help better additional This metric in quarter to reporting non-cash investors an understand that release adjusted have items started included our EBITDA business in we update are our P&L.

Also loss EBITDA improvement second of is per of sequentially $XXX,XXX. a QX, of year, $XXX,XXX of QX for a during million $XXX,XXX operations an the $XXX,XXX $X.X this reemphasizing loss a was improvement use compared For compared which with improved with million, an month cash the as on of to adjusted comment worth as for quarter. $X.XXX it month, used of our quarter, in per $XXX,XXX month per Riccardo's or

and While expect have to forward. rate current is QX This continue items, which improvement be reducing G&A expanding profit expense. we gross by did representative some utilization of increasing to cash improve QX our upon, further will unusually high sales, driven run more going margin

the sheet, with balance to million $XXX,XXX of cash $X.X Turning of our and inventory. quarter ended we

And Joe? now President, with I'll call our over that, Cugine. the Joe turn to

you, Thank Joe.

of into today's growth which in significant diverse we from regional start at our I'll restaurant and us the national revenue have beginning accounts. many for call, discussing stated Riccardo of channels, the a translating As by is sales stream XXXX. revenue

national We over with with continue a locations. to expect a QSR X,XXX rollout

we will one of in QX chains the the began into tests and with largest restaurant dining extend companies U.S. QSR These During casual XXXX, top and testing QX.

chain Secondarily, six next Rico as sandwich stated the national to XX expectation in the before, in pour with locations Puerto the we've launched within with locations months. XXX

being In due exceeded America XX addition, execution are and great chain we to in national implemented Volume Barfresh in menu locations. expectations inclusion. that North another has

increased customers We the current pouring number our well these continue locations national drive to product of to at flavors expand number work to and as as locations with sales. of our regional the

resorts. ski QSRs, zoos, This dine casual operators, throughout and restaurants, theaters third-party expansion is

operator, stated in XX museums. first a national As new who in over and ranging past, we aquariums U.S., attraction across the the centers quarter, has from the signed zoos, third-party

are already year. and We of to locations their balance new this each system expect to rollout in XX% pouring month of

the channel; forecasted. on over Moving education school locations are now we to in XXX as

balance the a for attendance year. locations increase annual we XX through the convention, in that school the forward significant is K at and post-Barfresh year of the returning and now Moving expect school nutrition school

our watermelon no recently we of three product and As added, green introduced kiwi. channels, to with blue strawberry sales flavors, continue and raspberry, innovation we all new sugar provide

of continue adding we to additional during with important and that back especially half It's flavors be this year. channel we the the school provide will variety

We expanding make we servicing of improvement continue opportunity. these overall to in and are management accounts how the the

have his execution mentioned channel. in on opening improving the we in become Riccardo school comments, customer focused As acutely

days right to week, three equipment serving new week. both to improve counts Also the traffic and additional and per the pull-through each structure type placement the of is of product at keys in lines. Some per placement the channel critical flavor of pouring of times in school include additions sales balancing least school, menu

touch the channel. I’d like to on military

that is per great locations both sell and armed later XX they proved our high facilities in the are additional we We that internationally year. military since months XXX over in with they the dining to and The higher have pipeline locations announce to forces pour traffic product this sales domestically news revenue have currently year. expect U.S. annually

We placing the and once and execution maximize asset improve to right asset continue sales the is to by revenue our location opportunity our training better placed. providing and support per

and as the the We time And expand States. improved is to when from have our mentioned, asset to placed. is signed significant United a lastly, opportunity product delivered the we business Riccardo when turnaround have is the contract outside the

We have that. do just to begun

including Rico expect our in with Puerto countries addition region. chain, In to also we into our foreign products some the the sell expansion several into sandwich Pacific Asia to

near at and a expansion started We message good will is today expansion has report international the but future, the the pace. more on to in have that

increase both to multiple said and As revenues growing we superior a channels previously, the great working our indicator placements after growth for is and all foundation across we of with QX channels meets new expect our the strong that in revenue needs growing customer. have streams. deliver QX are across and QX a a sales success product

that I'll with to And it Riccardo. turn back

Joe. you, Thank

first acceleration all a for expansion. EBITDA. improvement new positioned look been our sales all as our filled the operating we our in wins across market margin factors and and well of of We fixed XXXX the and in come We The has our online. keeping entered adjusted execute overhead opportunities forward including with on updated the these reduction strong accomplishments to of both half new customer XXXX half channels, meaningful expenses back

Operator? let the questions. with for Now that, open me up call

session. time, this question proceed we'll with question-and-answer question. Our Investors. Please [Operator Ibex At you. with from be Borus comes Instructions] conducting a Justin your Thank first

Great, thanks guys.

sense Just cash million. to last And expect $X more to last to when you long we're raise the of capital? might close regarding have give Can for? of cash. you getting like looks first a questions, some that our couple us how It

adjusted stage, month month this can a a a start QX. our of reduction reasons down in why also cash net see the That's wanted $XXX,XXX $XXX,XXX used at we one to the Justin, significant business to especially Look to a show significant very the and show shift. you of in as QX EBITDA from

improve. and expect We continue that to

improve. we're the we all just and we're of cost stronger its significantly more need overhead I described not any focusing the structure, the on mean the details terms cost within cash to really in getting well on money, raise to operating call in really in as you margin sales metrics as So much expecting to business, increasing. heard a whether to line top on general, the our has in its are expenses continue we've whether business the the and our as expect freight, as increased hold our

the helping position. So is together cash those factors coming really all

ball we're for Thanks I call and testing these Is have the you at end getting four anything And even tunnel? It made you with guess, but in or to a close there close some one-year or tell bit. light we're on to be so this generally things could speak wanted accounts? but I having to the two be the the little the more able into of appreciate the getting on can could that closer like and do seems line from zone. that. several us three national you that a we having time, we're in now we of same the think just see we're that just one-yard Or about moving still talking that national you major accounts, the a comments – accounts, same press not ago I to years two, script, on to running but that major the tough comments

that person have And am that levels, that taken done this would Look the enormous question. definitely it amount on of appreciate work very long I comment where where the to would but is us are. have to the to an a remains that fact we have Yes. we I Obviously, fair we are. get multiple to thought get last

We customers awaiting and approved we been the amount a that have have testing and significant we approved with the remain with rollout. done of

So that's on hand. one

is hand, one testing the of three accounts one pipeline. early increase as just we've our which largest markets dealt other example, increase in the of them, we're to additional month. extended On ones continued one but into those as even them, next an with, we've them, with some for of going Not as

continue just getting we that we're timing, terms and the closer. So to in is closer we that we continue the yes expect to should – rollouts it long of make are and good tooth progress, mean in and but

same comments delays months time XX appreciate terms definitely having of conversation. I the in don't expect the the So in be and to

revenues? And accounts are their national millions reduced? kind of tens could represent do think about you of Or rollout of been of on we that still talking scope the dollars own the has of

that for, changed. changed. multiples account you one the X,XXX hasn't It an chain anything we give idea, approved doing to with have other of has That If that hasn't this testing locations. already – we're been those

been all talking still and along. basis of significant extremely So the what size in we've about

we’ll later. comment. Okay. Thanks for something see than the Good Hopefully luck. sooner rather

Okay. Thanks Justin very much,

with Our [Operator with Dillion next question your Please comes Marc Hill Capital. question. proceed Nuccitelli Instructions] from

Hi, guys.

Hi, Marc.

Hi, Marc.

of certainly the But announcing Congrats the towards a accounts, streamlining, XX%. rationalizing business improving a and last be heels guys glad to see on national the job years over few more quite you few margins questions great done to of Justin's specific, just accounts. have

after You achieving XXX facility milestones education certain drew down XXX military. your installations, on

this on prior guidance verticals, to those quarter. each high You minimums gave seasonally those one were I some and know what of a is

the a issues, a last kind disconnect inventory of the can we to would be to sell-through. aside, few you accounts me all seems you appear but you the what had seems years in quarter? I for So sell-in over it of made just with try guys national even it better putting have reconcile the announcements it some have should know had management this

it that weren't really Yes. Look, so the to issues because what sell-through I Okay. how sprint understand we were focused, of customers, you service bit installation with little mind brand equipment to the what catch with a were instances, where new that a able details a were, up get to have out, of what a what the background been guess, even were, we the on question and of in kind way educational things is think that I moving, to we your we We to two even and answer of little there where and the within a first, were able new issues a give were, then it. the best of maybe Marc, lot to the the going, us they the We business. was get had bit kind let And we created in keeping product. rolled being information channel channels start was programs the new. these military were program

really So business a et got really refine better the a the to logistics few service planning to we times, spent into distributors, of that across cost installation cetera, board. and our within addition processes we've time the the last the in months lot so communication the the our digging with handle sell-throughs, over operating our structure, company the

and yes, wins, initial of and lot understand lot the getting are lot of been work of doing segments. accounts through start-up challenges a drivers a have of the customers So, we've we some those particular in kind these and what to had announced we've operating of process a trying

the launched example, in flavors. schools, we For two particularly

variety, within for varieties the school incredibly the important So flavor profiles need keep right. you is to because the you kids, need

going we flavors back some in introduced and feedback So as flavors again. spike we noticed pick noticed we sales the and was up that from and the and were – a of back we some new through, drop

there that identifying. are on So we're things that – are focusing are the that and like happening are we within business

have. better will So across I you is the already have and guide to customers we'll to We're going existing think continue seeing a what at better get internally, that that. we're that see we

go now. there to of school when not reordering can bit strong right? a got In we've significant drop vacation, ahead mean, the a quarter learning, the little a of the on a the new year. because second There where schools also start example. us from actually seasonality impact is is perfect the back from to get still is And load-in in we're again that sales actually schools for are they're the lift real we just when customers when to the I sales report opportunity that with customers we we

So going that what understanding really communicate in and there a that's more bottom process improvements as want identified cash. line, is most are able be helping thing are just because put is our to a but actually much going to business, of got hold happening it, not started well, think helping but and we're the that making got within I processes better doing we're and have things only to changes in business it's place like the that we the our that, on to we've that's and important result of top we've I – already not stronger efficient use we've better line the

Appreciate Okay. that.

So I – is military say customers if some talked million at your the extrapolate XXX prior combined. you revenues, a sell-through. installations and quarter new with I of I annualized on that know having mean, took installations fair of I then and doing least your be should mean, kind the a two to some about those couple of of education installations guidance XXX lower

So now? lag those not are all of seeing pouring many right announcing, you Are those there locations you time education assuming pouring in you a from installations... is are

pouring. We’re not

We’re of them. off been completely. have they mean, not pouring any I

at right now. we're not all So pouring

So just as that recommences. would be picking up now school

Okay.

So jump current your a September? you do expect sign big education third into from installations the installation, to more come you education expect quarter moving

installations. already I over to of being queue that without you We're in in expecting a significant XX XXX-something new the queue, be days. new next have kind done can in over now our installations even we the jump tell

anything that and So already on – queue. the new our for horizon that's what just include what's and doesn't ones, that we doesn't in include did

– in going mentioned white the I bit I keep and strong little to ton we mentioned this back these new little opportunities. for adding are in in of space Joe a accounts. a about about So still half the improving front is us of and a – that is year on channels, there a we're mean, international think very expecting we bit

– Some base they in of existing international going be customer those the opportunities their actually to here from U.S. are springboard

back stronger of the half a expect definitely year. we So

cash you getting on the again feel you've on a question, balance burned quarter. said, that I this cash, to million Justin's confident Joe back fair couple of done sheet... in mean, a amount you

went burn burn was Our XXX month. a XXX down a to – our

that revenue, then? of and the balance. your can – say that's third I fourth burn, net with should mean, you quarter running yes, look color understand some I on like not low but what a mean, I us you you're very your give

guidance, and Yes. going adding we're we're but Look, we significant you we is at all tell I mean, this can segments stage, customers what across giving lift. continue expect not a

burn we that And expect to cash improve more.

continue was think will and quarter really margin the more So sales continue. expense. good to got that's in opportunities continue G&A sales freight will we We in operating for to expand. and The and – drive going to we

going So we see down. that cash burn

Right.

your all direction, that. sheet, I pretty It you're understand, certainly balance running in that low it's feels especially in down, and like those Going appreciate you? of cash we again opportunity front but a looking on at

of our I actually at look with Okay, mean end position rate cash based on the day, we the decreasing. feel confident our burn

large these business? Okay. forward? and Can announcements big the be of structure, business? Goldstar, very announced getting end I'll probably you're are are is Pepsi, are years, to I not these they two helping is part your you partnerships mean, companies These clearly some but more going all – you very performing? over mean, distributors I that Or significant some the questions strategic national be driving on should I who Who performing? your that going grow big probably they commissioned accounts, suppose you've just

learnings Yes. them. Sure, that of along go is look, we a build There out. you lot partnerships start when with

Some system, some to perform work the take others better and into than time right.

the sense tell and along makes and changes we also making So growing for is the way partners they also to continue you with and work parties. can in both of that are what all working with developing them. And learning means ours, with that them of them sense still I

exactly we've that. done And

them we'll no. and together is make answer of has the the for we answer will that changes beginning to going So yes. and grow to And well forward, identify been what relationship. continue we how the from work some works with them the is continue and do us partnerships, rosy to with it and these But continue

them can we're So the in this all with a to fortunate partnership that's we of out at have really ask us. segment, table and

I Okay. for national been hearing we've years. beat dead not I on just accounts, many a horse guess to this guess,

but are So or moving sounds just to working Nobody clarify nobody with not anymore, walked three as said, ones. two has interested five away significant you is very correct? forward like what as has many we're in basically that and

for corporations you When There there testing, they we've that different consumer these companies ideation flavor Okay. And do testing plant clarify, they we want to testing, name you working there that they for understand the the and to testing I is now and part their of has just business from can two in-market testing, these own for with development is that are testing, them alpha it. development different throughout Every say, testing doing do stems company can testing. is beta large could they years are – Beta this process. relationship multinational when their has of sensory big testing. they testing group testing, fairly do packaging every to do been most testing, do internal metrics use focus it options, own trying can new is is everybody. menu types protocols, They company can different. ops really many

Well, question Okay. you my concluded is kind exactly. that’s of

said Are basically final be we we fall. So the testing going top on testing point? this before you've exactly Just your we flavor at What done you had on in can the in in that approval specific is in testing? execution actual one are – still market testing? national exact Are launch? you two accounts,

flavor of market [indiscernible] a This for more No. completed. been Market testing execution has in-market pricing, positioning, flavor, is kind the preference.

completed where and some we points. consumers test different price took the their back wanted, now added set flavor adjusted we So with of one that one that's types going in just out, some in

So with of that's just right we're right one those now where with as example. an at now

before – rollout usually I you actual kind phase when that am if early are testing So tweaking again the tweaking the the like product? can a of and and that items, last reading menu adjusting of if a typical pricing sounds lines, you phase a the you between do

This This testing the product. is... is early in no by means

potential rollout? a More

That is our expectation.

Okay. going are And the QSR the announced just that there on for you large there? is in marketing Or window? more testing some you any fall, other waiting

are additional more SKUs marketing we Waiting testing. work No with on for looking as to actually some window well. and them

– And a they did need big to did before launch in – spring they launch can have they launch summer the or they...

Yes, that’s we're really that waiting something we're them. for –

the and they are are products So queue. their approved in

for So some window. we're just waiting marketing

any protein launching stuff precedence smoothies? meat new over this Has of beyond taken

smoothie meat if I’ve a beyond but... idea I has item, because a but no not got their versus affected program, beverage item imagine it's food

on every appear does so? large substitutes focused It QSR is meat very this

Yes.

Thank Okay. you, your time. Appreciate Thanks for it. taking guys. up

right, All thanks.

to Coste for closing We end Riccardo I'd have reached over call the of the session. question-and-answer comments. like to the turn Delle

joining everybody and events us unfold. updating look forward as some and for great day. a new Have Thank everyone. to exciting you we Thanks,

This today's concludes conference.

at You we time your may disconnect your this participation. thank and you lines for