Else Nutrition (BABY.V), a company specializing in plant-based nutrition products, reported a 23% sequential increase in revenue for the second quarter of 2024 during their earnings call on August 14. The company's CEO, Hamutal Yitzhak, highlighted significant growth in the North American market and the successful onboarding of new key retailers. Despite challenges with stock price volatility and FDA regulatory hurdles for their infant formula, Else Nutrition remains optimistic about their growth strategy and upcoming product launches.
Key Takeaways
- Else Nutrition's Q2 2024 revenue rose to $2.6 million, a 23% increase from Q1 2024.
- Retail sales in the U.S. and Canada grew by 88% and 111% sequentially, respectively.
- Walmart (NYSE:WMT) added Else Nutrition products to an additional 600 stores, totaling 1,400 U.S. locations.
- The company's ready to drink (RTD) products were well-received, earning the Mom's Choice Award, and have entered several U.S. and Canadian retailers.
- Efforts to improve cost of goods have led to reduced production costs and improved product shelf life.
- Else Nutrition's infant formula launched in Australia, with plans to expand across the Asia Pacific region.
- The company's partnership discussions with Danone have stalled, but other strategic opportunities are being explored.
- Else Nutrition aims to be cash flow positive within 18 to 24 months.
Company Outlook
- The adult RTD product line is planned for a soft launch in Canada in Q4 2024, with a U.S. and Canada commercial launch in early 2025.
- Expansion of market penetration for the kids RTD product is a key focus for 2024.
- The company is exploring additional avenues, including lobbying and legal activity, to advance FDA discussions for their infant formula.
Bearish Highlights
- The company's stock price has experienced volatility, which management acknowledges but cannot control.
- Regulatory challenges have delayed the U.S. launch of the plant-based infant formula, with no clear guidance from the FDA.
Bullish Highlights
- Else Nutrition has secured listings with key retailers and military channels, such as NEXCOM, which could significantly impact revenue and reach.
- The company has begun a consumer sampling campaign, achieving a low customer acquisition cost.
- An aggressive marketing campaign has resulted in a 49% increase in U.S. e-store sales in Q2 versus Q1.
Misses
- The letter of intent with Danone has expired, and the process of adopting new products within such a large organization is lengthy.
Q&A Highlights
- Specific top-performing stores have not been disclosed, but Walmart, KE, and Unify are significant customers.
- The company is working towards being cash flow positive within the next 18 to 24 months.
- The adult RTD product line is expected to launch commercially in Canada in Q3 2024, with a U.S. launch to follow.
Else Nutrition continues to grow its presence in the North American market and beyond, with a focus on expanding its product lines and increasing its retail footprint. The company's efforts to improve cost efficiency and marketing strategies have already shown positive results, and despite regulatory challenges, the outlook for the company remains positive. Management is committed to driving growth and delivering shareholder value through strategic partnerships and innovative product offerings.
InvestingPro Insights
Else Nutrition's recent earnings call highlighted a promising sequential increase in revenue, yet it's important to consider the broader financial context of the company. According to InvestingPro data, the market capitalization of Else Nutrition stands at approximately $14.98 million, reflecting the size and scale of the company within its industry.
An InvestingPro Tip notes that analysts are expecting sales growth in the current year, aligning with the company's optimistic report of revenue increases. However, it's crucial to be aware that Else Nutrition is quickly burning through cash, which could impact its ambitious growth strategy and plans to become cash flow positive within the next 18 to 24 months.
InvestingPro data also reveals the company's stock price volatility, with a significant return over the last week of about 11.46%, yet a sharp decline over the last month by 28.2%, and an even steeper fall over the last three months of 55.57%. This volatility is a key consideration for investors and may contribute to the challenges faced by the company in maintaining investor confidence.
For those interested in a deeper dive into the financial health and future prospects of Else Nutrition, InvestingPro offers additional tips and insights. Currently, there are 15 more InvestingPro Tips available, which can provide valuable guidance for investors considering this stock. Access these insights by visiting the InvestingPro platform at: https://www.investing.com/pro/BABYF.
Full transcript - Else Nutrition Holdings Inc (BABYF) Q2 2024:
Operator: Greetings, and welcome to the Else Nutrition’s Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Alexandra Schilt, Vice President of Crescendo Communications, the company's IR firm. Thank you. You may begin.
Alexandra Schilt: Good morning. And thank you for joining Else Nutrition's 2024 second quarter financial results and business update conference call. On the call with us today is Hamutal Yitzhak, Chief Executive Officer of Else Nutrition. The company issued a press release today, August 14, 2024, containing its 2024 second quarter financial results, which is also posted on the company's Web site. 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. The company's management will now provide prepared remarks reviewing the financial and operational results for the three months ended March 31, 2024. Before we get started, we would like to remind everyone that today's call will contain forward-looking statements that are based on current assumptions and subject to risks and uncertainties that could cause actual results to differ materially from those projected, and the company undertakes no obligation to update these statements except as required by law. Information about these risks and uncertainties are included in the company's filings as well as periodic filings with regulators in Canada and the United States, which you can find on SEDAR and Else Nutrition's website. With that, we will now turn the call over to Hamutal Yitzhak, Chief Executive Officer. Please go ahead, Hamutal.
Hamutal Yitzhak: Thank you, Alexandra. And thanks to everyone for joining us today. Before I discuss our progress during the quarter, I'd like to start by addressing shareholders’ concerns over our stock price. Unfortunately, and as many may know, we have no control over the stock price for day to day trading activities. And while we share our stockholders frustration, we're quite hopeful that our share price will be more reflective of the company's intrinsic value as we continue to execute on our growth strategy and achieve key upcoming milestones. I'd now like to discuss those milestones we intend to achieve, as well as the progress we've made during the second quarter of 2024. Our established product lines continue to grow in the North American market with the onboarding of several new key retailers, such as Wegmans, HEB, Meijer and the added stores and SKUs in existing customers, such as Walmart, Loblaws, Giant, Metro, Big Y, London Drugs and many more. Our retail sales increased 88% and 111% sequentially in the US and Canada respectively. Walmart added our products to an additional 600 stores nationwide. We are now selling in a total of 1,400 Walmart stores in the US. Canada is demonstrating similar traction. We already shipped ready to drink products to 850 Loblaw stores, as well as to Metro and London Drugs and onboarded walmart.ca, Walmart's online arm in Canada. We believe that entering walmart.ca will lead to entry into Walmart's brick and mortar stores in Canada, which would mirror our successful strategy in the US. Furthermore, we announced the listing with the Navy Exchange Service Command or NEXCOM that offers a variety of goods and services to active military personnel, retirees and certain civilians on Navy installations in the United States, overseas Navy bases and aboard Navy ships. This enables us to reach an extensive and diverse community, ensuring that those who serve and their families have access to high quality nutritious options. We're pleased to report that we have delivered the first shipment of our full range of products to NEXCOM's retail stores. Additionally, we believe this relationship can lead the way to additional contracts with other military channels, including the Air Force, which could significantly impact our revenue and reach. The success of our ready to drink products in the market has been marked by significant traction, underscoring its appeal and effectiveness. Since its launch, we have observed an increase in adoption, resulting in increased sales, reflecting strong consumer demand and positive reception. Positive reviews and testimonials further attest to its quality and reliability, enhancing our brand's reputation. In fact, our RTD products earned the prestigious Mom's Choice Award. This impressive market performance positions us favorably for future growth and expansion. Our RTD products already entered six US retailers and four Canadian retailers. We have begun a consumer sampling campaign across North America in an effort to increase our reach and find new customers. We shipped more than 2,300 kids RTDs and toddler full size samples in the US and 2,700 in Canada, achieving an impressive new customer acquisition cost as low as only $7. We also started an aggressive social media marketing campaign combining organic and paid for content. We've created over 250 new content assets during the quarter and as a result, saw a 49% increase in our US e-store sales in Q2 versus Q1. We also grew our targeted media campaign to further build brand awareness. We are also seeing an increase in deliverables, such as SMS, emails, et cetera, improving our loyalty and referral programs, obtaining premium placement of products and advertising materials and adding new influencers, altogether resulting in millions of impressions. Our efforts already increased conversion rates and online sales, demonstrating that our marketing efforts are effective. And I'd like to highlight that we only began our aggressive marketing during the first quarter of this year. Therefore, we believe we can achieve accelerated growth with further implementation of our strategy, increasing revenue and creating broader recognition of our brand. We've also made significant progress in improving our cost of goods, while improving our product quality. Specifically, with our new US powder plant and packaging partner, we significantly reduced production costs and improved product shelf life. We also plan to add a powder production and packaging facility in Europe still in 2024, which will offer additional cost savings and quality improvements. In addition, following the successful launch of our kids RTD products in the US and Canada and the completion of the development of our new RTD products for adults, we plan to produce the first commercial run of this product for Canada in Q3 2024. This is a very large category in North America and we will offer a very competitive better for you product line with lower sugar levels, high level of protein, clean and natural, delicious and price competitive products. We are convinced that this new product line will open new retail channels for us and will contribute significantly to the company's revenue and profits in the coming years. And lastly, we had the first commercial launch of our groundbreaking plant based infant formula in Australia. Australia was strategically selected due to its location in the Asia Pacific region, serving as the initial market for the planned expansion of our entire product line across the area. Both the infant formula and the toddler drink are currently available on Amazon (NASDAQ:AMZN) in Australia and on the Healthylife e-store, which is the online arm of Woolworths, Australia's largest retailer. And we plan to expand distribution through other online retailers and brick and mortar stores. We're very proud that our infant formula is free of antibiotics, hormones, pesticides, GMOs and heavy metals, which are increasing concerns among parents. The core ingredients, almonds, buckwheat and tapioca, have a 65% lower carbon footprint and requires zero chemical processing, keeping proteins intact. We believe this first commercial launch is a critical stepping stone for launching our infant formula in other major markets, including the United States. And while we previously received approval from the IRB and submitted the preclinical study results to the FDA in the first quarter of 2023, we were in continuous discussions with the agency regarding study protocols, preclinical studies and formula composition. But it's still not received confirmation from the FDA nor did they provide critical replies to some pivotal questions regarding the preclinical study, leaving the company with no guidance as to how to proceed. This is, as you may understand, limiting us from moving forward. In the meantime, we have decided to explore additional avenues to advance our discussions, including lobbying and legal activity. We also are now exploring a pathway to progress with infant formula clinical approval in Europe. Unfortunately, I cannot provide a timeline to which this will be completed. But I'd like to highlight that we believe our formula meets the FDA standards and the company is ready to commence the clinical trial for our formula, however, this is a new category of formula. And while we believe it will address a very important unmet need, the regulatory agency will appropriately provide caution to novel formulations, especially, for instance, a very vulnerable population. And before I briefly discuss our financial results, I would like to touch on our previously announced letter of intent with Danone. As some may know, our letter of intent has expired. Danone is a very large organization and furthering discussions to adopt any products, including ours, is a lengthy process. Additionally, macro political events may also be delaying any inclusion of our new product -- of new products. We intend to progress discussions as appropriate, however, we are also exploring additional opportunities where we can partner with strategic and recognizable companies to provide access to additional markets and families around the world. Now let me discuss our financials for the second quarter of 2024. Revenue for the 2024 second quarter was $2.6 million compared to $2.12 million for the first quarter of 2024, a significant sequential increase of 23% as a result of strong growth within our US and Canadian retailers, which increased 88% and 111% sequentially respectively. The company continues to execute on its plans to increase gross profitability. The gross profit in Q2 of 2024 increased to 10% compared to minus 2 gross loss in Q2 of ‘23. The company decreased its operating expenses in Q2 ‘24 to $3.4 million compared to $4.2 million in Q2 of 2023 by becoming more efficient while increasing revenues. Finally, we remain diligent in managing our expenses and are confident that adhering to our business strategy will enable us to accelerate growth, improve margins and attain sustained profitability. Overall, we're optimistic about the future of our business and we continue to execute on our growth strategy by enhancing product awareness, expanding retail distribution, focusing on online sales and launching the adult RTD product line. To support these initiatives, we have established robust partnerships with manufacturing partners who possess the capacity to support our growth. At this point, I'd like to address questions that come in from investors. Alexandra, please lead the Q&A session.
A - Alexandra Schilt: Thank you, Hamutal. Our first question is, given the traction with retailers, who are the top performing stores?
Hamutal Yitzhak: Well, historically, we have not disclosed results on specific retail stores. In addition, this answer can vary given the timing and number of shipments as a result of the unique needs of each location. So while I cannot specifically comment on top performing stores, I'd like to highlight again the revenue from the US and Canadian retailers have increased 88% and 111% sequentially, demonstrating our strong performance in the North American market. I can also add that the most significant customers at this point are Walmart, KE and Unify.
Alexandra Schilt: Our next question is, when do you expect to be cash flow positive?
Hamutal Yitzhak: We are working aggressively to be cash flow positive and believe we can obtain this within 18 to 24 months.
Alexandra Schilt: And when will the adult ready to drink product be launched?
Hamutal Yitzhak: The first commercial production is planned for the Q3 of 2024, followed by a soft launch in Canada in Q4 of 2024. We expect to commercially launch the product line in the US and Canada in early 2025, and believe we will witness significant sales from this product similar to our kids RTD line.
Alexandra Schilt: Thank you, Hamutal. That does conclude our Q&A session. So I will pass it back to you for closing remarks.
Hamutal Yitzhak: Thank you, Alexandra. We are proud of the strong quarter and are confident that we're establishing a new benchmark in infant, toddler, kids and soon adult nutrition. The traction we are gaining in the market highlights the growing demand for dairy and soy free alternatives. Additionally, our products are increasingly being accepted by retailers for both their shelves and online platforms, allowing us to reach millions of families globally. We are excited about the opportunities that lie ahead in 2024, including the launch of our adult RTD products and the expansion of market penetration for our kids RTD product introduced late last year. Overall, we believe we are well positioned for continued success and are committed to delivering value to our shareholders. I would also like to extend my gratitude to our dedicated team of employees and advisors whose efforts are instrumental in guiding us towards that promises to be a remarkable success. Thank you all for joining the call today.
Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
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