Barfresh Food Group Inc
NASDAQ:BRFH
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Barfresh Food Group Inc
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Good afternoon, everyone, and thank you for participating on today's First Quarter 2023 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. Expect for historical information herein, matters set forth on this call are forward-looking within the meaning of the safe harbor provisions 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. These forward-looking statements are identified by the use of words such as grow, expand, anticipate, intend, estimate, believe, expect, plan, should, hypothetical, potential, forecast and projects, continue, could, may, predict and will and variations of such words and similar expressions are intended to identify such forward-looking statements.
All statements other than the statements of historical fact that address activities, events or developments that the company believes or anticipates will or may occur in the future are forward-looking statements. These statements are based on certain assumptions made based on experience, expected future developments and other factors that the company believes are appropriate under the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of the company. 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.
Accordingly, investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date they are made. The contents of this call should be considered in conjunction with the company's recent filings with the Securities and Exchange Commission, including its annual report on Form 10-K, on 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 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 in the business update release to the most comparable GAAP measures. The reconciling items are nonoperational or noncash costs, including stock compensation, stock issued for services and other nonrecurring costs such as those associated with the product withdrawal and the company's NASDAQ uplist. Management believes that adjusted EBITDA provides useful information to the investor because it is directly reflective on the period-to-period performance of the company's core business.
Now I'll turn the call over to the CEO of Barfresh Food Group, Mr. Riccardo Delle Coste. Please sir, go ahead.
Good afternoon, everyone, and thank you for joining us for our first quarter 2023 earnings call. We had another quarter of strong customer adoption for our new smoothie carton format, which drove a 46% sequential increase in revenue over the fourth quarter of 2022. Revenue for the first quarter of 2023 was $2.1 million compared to $1.4 million in the fourth quarter of 2022.
We finished product testing and installing new equipment with our co-packer during the first quarter, which increased available carton capacity and led to the sequential growth in sales. Our co-packer is in the process of making engineering changes to the manufacturing line for our smoothie carton format and its completion is on track for the second half of 2023, which will increase capacity to approximately 25 million to 30 million units per year compared to 5 million in the first quarter.
It is our expectation for revenue to grow significantly as the capacity comes online, and we are projecting record revenue for fiscal year 2023. Additionally, increased sales of our new smoothie format helped drive margin expansion in the first quarter. Gross margins were 41% for the first quarter of 2023 compared to 30% in the prior year period and 36% in the fourth quarter of 2022. We expect modest margin improvement throughout the year, driven by price increases implemented at the beginning of this year, the continuation of our operational margin improvement efforts and increased sales of our higher-margin smoothie carton format.
As we've stated previously, this new format was created to be complementary to our bottle and not serve as a replacement. We believe there is a need for both formats in the education channel. As such, we are actively working to replace the lost bottle manufacturing capacity and are working on multiple options to find a partner with the right experience, infrastructure and available capacity.
In the interim, we have a robust sales force that has been strengthened over the past year as we have increased our national sales network by adding sales brokers specializing in the school market that are actively pursuing new school accounts and expanding our reach in the education channel.
We will have an even larger customer base to sell into once both our bottle and carton formats are at full capacity, setting our company up for long-term growth.
I'll now turn the call over to our CFO, Lisa Roger. Lisa?
Thank you, Riccardo. Revenue for the first quarter of 2023 was $2.1 million compared to $2.5 million for the first quarter of 2022 and a 46% increase compared to the $1.4 million in the fourth quarter of 2022. The year-over-year decline is a result of the loss of our largest bottle manufacturer, partially offset by increased orders of our smoothie carton format rolled out in the fourth quarter of 2022. We expect revenue will increase in the back half of this year as capacity for our smoothie carton format ramps, and we expect to achieve record revenue for fiscal year 2023.
Gross margins for the first quarter of 2023 were 41% compared to 30% for the first quarter of 2022 and compared to 36% in the fourth quarter of 2022. The increase in gross margins was due to the change in product mix as well as pricing actions implemented at the beginning of the fiscal year and our ongoing operational margin improvement efforts. We expect modest margin improvements throughout the year as a result of price increases and operational efficiencies.
Our net loss for the first quarter of 2023 was $910,000 as compared to a net loss of $895,000 in the first quarter of 2022. Selling, marketing and distribution expense for the first quarter of 2023 decreased to $667,000 compared to $675,000 in the first quarter of 2022. The slight decline was due to a decrease in storage and outbound freight expense this year as a result of the distribution efficiencies we implemented in 2022, partially offset by the cost to retain outside service providers including brokers specializing in the school market that were hired in the third quarter of 2022.
G&A expenses for the first quarter of 2023 were $994,000 compared to $823,000 in the same period last year. The increase in G&A was driven by an increase in personnel costs and stock-based compensation, resulting primarily from the modification of our 2022 performance stock unit program with partial cash settlements. For the first quarter of 2023, our adjusted EBITDA was a loss of approximately $544,000 as compared to a loss of approximately $546,000 for the first quarter of 2022 and compared to a loss of approximately $833,000 for the fourth quarter of 2022.
We expect sequential improvements in adjusted EBITDA throughout the remaining quarters of 2023.
Now moving on to our balance sheet. As of March 31, 2023, we had approximately $1.8 million in cash and approximately $1.1 million of inventory on our balance sheet compared to $3 million of cash and $1 million of inventory as of December 31, 2022.
Now I will turn the call back to Riccardo for closing remarks.
Thank you, Lisa. We are pleased with the initial success of our new smoothie carton format and are looking forward to extending our reach within the education channel this year as we increase capacity and are able to serve a growing number of customers. We are also focused this year on securing a new bottle manufacturer and continuing to expand our single-serve and bulk smoothie customer base.
We expect to finish the year with strong improvement on both our top and bottom line and generate record revenue and improved margins for fiscal year 2023.
And with that, I would like to open up the line to questions. Operator?
[Operator Instructions] Our first question comes from Anthony Vendetti with Maxim Group.
So I know after the fourth quarter conference call, which actually wasn't that long ago, you were talking about the discussions with the new potential bottle manufacturers. Has anything changed materially since then? Or are those discussions still ongoing? Or have you narrowed it down to a few that you're likely to contract with before the end of the year?
We are getting closer to finalizing something. We are zeroing in on one in particular that we've got some broad terms agreed with. It's continuing though. But we are definitely closer, and we definitely expect to have something solidified before the end of the year.
Okay. And then I guess on -- because of the recall, there was a little bit of disruption with your customers. I think you mentioned most of them understand that it wasn't your fault, it was the bottle manufacturer's fault. But how many of them did you lose? And have you already replaced them with new school districts? Maybe just talk a little bit about how that -- how those conversations went and what's the likelihood a, that you'll be able to get them back? Or b, you've been able to replace them?
Yes. Look, I mean, just generally, we have lost a large number of customers. Fortunately, for us, we have been able to get new customers with the carton product. And it will -- we will end up surpassing where we were on the balance overall. And as we are just continuing the dialogue with those other customers that have been affected, we do have a limited supply of bottles still available that we are trying to give to whichever customers we can service with that bottle volume.
But we are expecting to be back up and running as well with another bottle manufacturer. So it's a lot of ongoing conversations. The fact of the matter is that we were mid-season for the bids for the school year. So those customers that took us off the menu in the middle of the season are done, right? I mean we interrupted the supply. They've taken us off the menu, and that's kind of done, right? They've replaced the product with whatever else that was serving before.
So we'll revisit those accounts in the fall. And by then, we'll have hopefully much better visibility on the exact timing of the new bottle manufacturer. And that should then hope -- we should then hopefully have a much clearer picture of the bottle supply and being able to get those customers, hopefully, either back half of the year or into next year. We can hopefully start doing some repair work in terms of getting those customers back online.
Okay. And then just two other kind of questions before I turn it over. So the guidance that you -- the general guidance that you gave, I guess, at the end of the fourth quarter continues to be -- expect record revenues in fiscal '23 this year, year-over-year margin improvement.
And then more specifically in your management comments, margin expansion throughout 2023. So your margins came in greater than we expected this quarter, 41%. Continued margin improvement, so should we interpret that as a sequential improvement throughout the year on those gross margins?
I would say that it will be modest. And we could have a little bit of variation as we ramp Twist & Go further in Q4. So that will be offset by an increase in revenue. But some modest expansion in Q2 and Q3.
Yes. There's a couple of factors around that. One is, we're actually expecting some softening of some raw material costs in the back half of the year as well, which will help our margins. And in addition -- but counter to that as well is, we're obviously planning and hoping that the bottle volume is going to increase in the -- towards the end of the year as well. So that might even it out a little bit more. So there's a couple of factors there. But I think, as you mentioned, we kind of beat on the margin. We expect to keep it around this level with, I think, like Lisa mentioned, a slight -- maybe a slight improvement above that.
Okay. And then any update and then I'll turn it over, any update on consumer retail channel?
Yes. Look, given the issues that we've had with the bottle supplier, unfortunately, our retail plans are still on hold. We were hoping to have some significant progress by now as you know. But unfortunately, that's all on hold until we get the new bottle manufacturer sorted out.
[Operator Instructions] There being no further questions, that concludes the Q&A session. And this concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation. Have a great day.