Good afternoon, everyone, and thank you for participating on today's first quarter 2022 corporate update call for Barfresh Food Group. Joining us today is Barfresh Food Group's Founder and CEO, Riccardo Delle Coste, and Barfresh Food Group's CFO, Lisa Roger. Following prepared remarks, we will open the call for your questions..

The discussion today will include forward-looking statements.

Except for historical information herein, matters set forth on this call are forward-looking within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995, including statements about the company's commercial progress, success of its strategic relationships and projections of future financial performance..

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Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements..

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The contents of this call should be considered in conjunction with the company's recent filings with the Securities and Exchange Commission, including annual report on Form 10-K and the quarterly reports on Form 10-Q and current reports on Form 8-K, including any warnings, risk factors and cautionary statements contained therein..

Furthermore, the company expressly disclaims any current intention to update publicly any forward-looking statements after this call, whether as a result of new information, future events, changes in assumptions or otherwise..

In order to aid in the understanding of the company's business performance, the company is also presenting certain non-GAAP measures, including adjusted EBITDA, which are reconciled in the table on the business update release to the most comparable GAAP measures..

The reconciling items are non-operational or non-cash costs, including stock compensation, stock issued for services, gain or loss on the sale of derivatives and other non-recurring costs, such as those associated with the company's recent Nasdaq uplist.

Management believes that adjusted EBITDA provides useful information to the investor because it is directly reflective of the period-to-period performance of the company's core business..

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

Good afternoon, everyone, and thank you for joining us for our first quarter 2022 earnings call. I'm pleased with the start of this fiscal year. Revenue in the first quarter increased 149% year-over-year to $2.5 million, despite continued supply chain issues impacting our ability to fulfill all immediate orders.

Our revenue growth was driven by continued success in the education channel with our Twist & Go products and also by an uptick in our single-serve and bulk products as we enter into the spring selling season and continue to see more and more of those customers reengage with us, following a hiatus from the pandemic..

It's encouraging to see these customer segments start to improve and more importantly, as we enter the upcoming quarter that we see a greater return of our single-serve and bulk customers.

Firstly, because they are a higher-margin product and will help offset the pressure from the supply chain; and secondly, because our education channel slows down in the second quarter with the school year coming to an end. Our diverse customer mix also helps to offset that seasonality..

Additionally, we have been expanding our customer base, driven by our strong product adoption and increased size of our sales team. We have continued to expand our footprint with new school locations as we tackle the massive opportunity in the United States with over 98,000 schools and 14,000 school districts.

And you can expect a number of new school announcements from us as we enter the new 2022/'23 school year..

We also have a number of distributors in our pipeline that we are building relationships with similar to the one we announced earlier this year with J&J Pepsi Cola bottlers.

As was also the case in the fourth quarter, our entire industry continued to face unparalleled supply constraints this quarter that included raw material shortages, increased labor and packaging costs and elevated transportation costs..

These costs impacted our ability to fully service all our clients and impacted our margins in the first quarter. As we enter the second quarter and look to the back half of the year, we believe we have initiatives in place to offset the majority of these issues.

These initiatives include freight and ingredient optimization, packaging and equipment improvements and price increases that went into effect at the end of the first quarter across a broad range of our products and customers..

We remain confident that the strong sales growth we are projecting matched with the initiatives we are continuing to implement to offset cost pressures will allow us to achieve more record sales quarters and improved margins in the back half of this fiscal year..

I'll now turn the call over to our CFO, Lisa Roger, to talk about the first quarter results in more detail.

Lisa?.

Thank you, Riccardo. Revenue for the first quarter of 2022 increased 149% to $2.5 million compared to $1 million for the same period last year. As Riccardo mentioned, we achieved year-over-year revenue growth despite our inability to fulfill all orders.

The year-over-year increase in revenue is the result of increased orders for our Twist & Go product in the school channel as well as the gradual return on sales of our single-serve and bulk products..

We believe the second quarter top line will be comparable to the first as we will be entering a seasonally-light selling quarter for our education channel and while seeing progress are still gradually ramping up with our single-serve and bulk customers.

However, we believe the back half of the year will be strong and expect to achieve record revenue growth for the full year 2022..

Gross margins for the first quarter of 2022 were 32% compared to 34% for the same period last year. The decline in gross margins was due to higher raw material and packaging costs as well as higher sales volume and product mix for our lower-margin Twist & Go products.

We expect gross margins to improve in the back half of 2022, as the pricing and other cost savings initiatives in various stages of implementation go into effect and as more customers of our higher-margin single-serve and bulk products reengage with us..

Our net loss for the first quarter of 2022 was $0.9 million as compared to a net loss of $0.6 million in the first quarter of 2021. G&A expenses for the first quarter of 2022 increased to $1.5 million compared to $0.8 million in the same period last year.

The increase in G&A was driven by a significant increase in personnel costs compared to the pullback we had in this area in the COVID-19 affected quarter last year as well as an increase in shipping and storage costs from the increase in revenue, coupled with the unprecedented market price and labor shortages in the quarter..

For the first quarter of 2022, our adjusted EBITDA was a loss of $547,000 as compared to a loss of approximately $437,000 for the same period last year. Adjusting for the increase in revenue, shipping and storage costs impacted adjusted EBITDA by approximately $80,000 and the decline in gross margins had a $60,000 impact..

Personnel costs increased by approximately $190,000. We believe more than half of these cost increase will be offset by the price increase implemented at the end of the first quarter, with the remaining costs offset by the other savings initiatives we are implementing..

Now moving to our balance sheet. As of March 31, 2022, we had approximately $4.5 million of cash and $900,000 of inventory on our balance sheet compared to $5.7 million of cash and $700,000 of inventory as of December 31, 2021..

Now I will turn the call back to Riccardo for closing remarks. .

Thank you, Lisa. We are pleased that Q1 has set a new baseline revenue number for the company, especially given that Q1 is traditionally the lowest revenue quarter of the year and given the industry-wide supply challenges that we have not been immune to.

I believe we are well positioned to manage through them and we'll exit this fiscal year with an improved top and bottom line..

Q1 sales alone were approximately 40% of all of 2021 full year sales and will continue to grow. We are entering the spring and summer quarters where we expect a greater return of our pre-COVID customers. We continue to work on cost and efficiency improvements. We are continuing to work on strategic partnerships.

We now have a new full team on board, and we expect to finish the year with strong improvements to both our top and bottom line. I believe we are off to a successful start to the year, and we are just beginning to hit our stride of the company..

Now with that, let's take your questions.

Operator?.

[Operator Instructions] Our first question is from Anthony Vendetti of Maxim Group. .

So a couple of questions, Riccardo. You signed the agreement with -- the distribution with Pepsi bottlers.

Any other independent Pepsi bottler? Are you having discussions with any other sign up since last quarter? And can you talk a little bit about how that distribution is going with the first one?.

Yes, that one is just getting started. I mean it has been only 6 weeks, 5 or 6 weeks since we last kind of got together. It's progressing, and we are in conversations with others. .

Okay. And then I know you're looking at convenience stores. Where are you in the potential move into the supermarket channel? Is that still early stage? Or is that a plan... .

It is still early stage. We've got a lot of white space in front of us. And as you can kind of see, we have -- we've been dealing with some of the supply chain challenges, the same as everybody else. And we've made a lot of changes and improvements, and we continue to look for ways to make further improvements.

Even the price increase that we provided was really at the end of the first quarter, so we didn't get the maximum impact for that. So as it relates to the grocery product, it is still in the works and just a little bit earlier than what we would have hoped. .

Okay. And then obviously, supply chain issues, raw material inflation impacts your cost of goods sold. You mentioned you've been able to implement price increases.

Have the price increases been able to completely offset your input costs, partially offset -- and then what's been the response from clients? Any pushback? Or have they said that makes sense everyone is seeing price increases?.

Yes. Good question. Mixed bag all around. So we haven't been able to fully offset the cost increases with the price increase, and we were never intending to do so. We are -- and we also did implement that price increase at the end of the first quarter. But we do expect between the price increase and some of the other initiatives that we have underway.

It will probably more than offset -- that will actually more than offset the cost increases. So the silver lining from what's kind of happened in the marketplace is that it's really forced us to do a deep dive on our costing structure.

And I think that by the time we're finished, it's going to end up yielding some very positive results for the company from what we have underway. .

Just to dig a little further, you said mixed bag.

So the clients that are pushing back, what's been -- what's been their concern? Obviously, the price increase is the concern, but what's been the pushback? Are they saying if there's going to be too much of a price increase, they're going to go elsewhere or they're not able to absorb it because they don't think they can pass it along themselves.

I'm just trying to understand what the pushback?.

Yes. For the most part, it's been -- hasn't been an issue. It really hasn't. There are the occasional accounts, just like anything where you hit a little bit of a resistance or maybe it's just price increase [ fatigue ] because it's not just us, right, it's everybody that's giving price increases.

So I think for the balance and the vast majority, it really hasn't been an issue. And we've been able to take price pretty easily, actually. .

The next question is from William Gregozeski of Greenridge Global. .

You mentioned that you're seeing the old single-serve and bulk customers coming back online.

Can you roughly quantify, I mean, what percent of the ones you have sent product to in the past are taking product again now?.

That's a good question. We're really just starting to see the orders coming through and the engagement has definitely ticked up. I would probably say, we're maybe at like the 70% mark, but it's still pretty early in the spring. As we get deeper into the summer and later into the spring, I think that will continue to improve.

It really just -- it's just started and it's been great to actually see not only the orders have been picking up, but there's actually been a fair amount of outreach from customers seeking us out and seeking the product, again, even where maybe in some territories where distributions dropped off because people had closed down or what have you, and they're still seeking us out through new distributors or some of our other distributors or even direct.

So I would say we're probably at about a 70% mark right now, but it's definitely growing. .

Okay.

And is that about the same in the military channel?.

Yes, very similar actually. The military is probably a little bit further along or it's coming back a little bit more because they seem to be turning on all at once. And they did have a little bit of a close down when we had that COVID [ spur ] at the end of the year. .

Okay. And you've mentioned in the past that you could have had more sales, if you had more product.

How are you guys doing with getting enough to send out to customers that want the product?.

Yes, great. That's a great question. So we've really been doing an enormous amount of work on our supply chain, both capacity -- production capacity with co-packers as well as ingredient sourcing, alternative suppliers as well. And we have opened up the additional capacity. So we've sold that capacity issue.

And we've also located and sourced additional vendors for products that have now closed the gap for what we see as at least the balance of the year in the foreseeable future now. So we have taken a look at all those critical and high-risk ingredients and put contingency plans in place as well as contracts.

So we feel very good about where we're at right now with both the ingredient sourcing and the capacity. And we've got some additional initiatives that are in the pipeline right now that's going to only further enhance that and also contribute to lowering our cost of goods.

These issues have forced us to take a hard look at the business and it's going to yield an incredibly positive result for us. .

[Operator Instructions] Ladies and gentlemen, we have reached the end of our Q&A session. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day..