Edible Garden AG Incorporated Q4 FY2024 earnings call

• In 2024, the company refocused on core herb business, exited lower margin categories like lettuce and floral, and launched shelf stable products and clean labeled sports nutrition line Kick. - Signed a non-binding letter of intent to acquire Narayan Group, a European producer of organic coconut and superfood products, which could expand international footprint and diversify offerings. - Expanded retail footprint in the US, distributing USDA organic herb line and new products. - Launched innovative products like Squeezables, pulp fermented sauces, Pickle Party pickle, and Kick Sports Nutrition. - Advanced agriculture innovation through nano bubble trials with Persea Group and NJIT, showing yield and cycle time improvements. - Included in the top 50 of the 2024 FoodTech 500, highlighting sustainable food innovation.

For the fourth quarter ended December 31, 2024, revenue was $3.9 million, a slight decrease from $4.1 million in 2023, driven by exit from lower margin floral and lettuce categories offset by growth in core herb portfolio. For the year ended December 31, 2024, total revenue was $13.9 million, a 1.4% decrease from $14 million in 2023, with a $1.7 million decline from lettuce and floral lines but a $1.8 million increase from core herb business (16.3% y-o-y growth). Cost of goods sold decreased by $1.7 million or 12.7% for the year due to vertical integration, gross profit grew 181.3% to $2.3 million, and gross margin improved from 5.9% in 2023 to 16.7% in 2024.

• Believes momentum from 2024 will carry into 2025, with vertically integrated model and product introductions driving growth toward profitability. - Anticipates ramping up top line growth now that transition from lower margin lines is mostly complete. - Sees potential for significant growth from the proposed acquisition of Narayan Group, including cross-selling opportunities and margin expansion. - Expects gross margin to continue improving as product mix shifts to higher margin items.

• Forward-looking statements are subject to risks, uncertainties, and assumptions as detailed in SEC filings. - Uncertainties in executing the proposed acquisition of Narayan Group, including integration challenges and market conditions. - Potential operational challenges in ramping up production and distribution for new products and retail partnerships.

Q: Just to focus a little bit on the gross margins, and then I'd like to ask a question about the proposed acquisition. On the gross margins, you mentioned that the actual gross profit increased this year, which is a step in the right direction. But for the fourth quarter, it was barely profitable. Was that due to an inventory write off? And the numbers you provided are excluding any inventory write offs due to obsolescence or any other reasons for the inventory write offs? And are those largely complete, do you believe?

A: There was kind of two components that drove that fourth quarter number. Part of it the majority of it was a ramp up in labor costs for the holiday season in early in Q1. We went into pretty heavy production mode for the holiday, and there were some increase in cost of good labor to support those efforts in the fourth quarter. I would say tilting more towards those costs in the fourth quarter was a bigger driver of the lower gross profit margin. So those Q: Just to reiterate what Nick said, yes, congratulations. That's a very impressive gross margin improvement. And the fact that it's such a short period of time that you achieved it in. I'm looking at the numbers, mean, I look at year to date numbers annually, you're approaching 20% there and you only did it for what part of the year. I'm just trying to understand a little bit though in terms of what the gross profit was in the fourth quarter. I mean, the drag doesn't really reflect what your full year was. So, can you speak a little bit about what maybe impacted it? I think you're on a trend here taking 20% and normalized. Is it fair to say you'd be more approaching 30% once everything kind of works through the system?

A: Yeah. I think that's fair. Think, look, I think we've got a target GP that's 35 to 40. We think that's definitely achievable as the product mix starts to sort of iron out with some of these more shelf stable products coming in at much higher rings as they would say, right? So, when you think about the fact that how many basil plants you have to sell versus how many jars of sports nutrition or pickles, it's considerable. Q4 was and we continue to invest in people. I think Anthony had asked this question earlier, and I'll hand over to Kos in a second to talk a little bit more about the nuts and bolts of the numbers. But it was really about Q4 tends to be our heaviest time of year. Obviously, in The States, it's Thanksgiving, Christmas, New Year's, and herbs are a big part of everybody's meals and parties. So, we see a considerable lift and we see it at some of our key retailers. And in this instance, Meyer does a huge what's called a holiday program that really kicks off in the middle of to the end of October all the way through the first week in January where we see a 10 times lift in volume coming out of the facility. So, this year was a combination of labor ramp up plus there were some items that we ended up having to pay a little bit more for because of the fires that were out in California. So, whether it was thyme or thyme or sage that were impacted, all of that sort of went into our cost of goods. The labor was a big piece of it that we ended up investing in to make sure that we nailed holiday because we knew that that drives kind of the next year. If you fall down during the holiday and you don't ship at 98% plus, that's the expectation from these retailers, whether it's Meyer or Walmart, which was in that facility this year as well. So that was really where that I look at it more of an investment knowing that this year, we're going to be a lot more prepared since this was the first year, Brian, that we had all of that program for both those major retailers in our Heartland facility. We didn't have the year before, we had outsourced it. So, we ended up making sure and left nothing to chance by making sure we had enough people. And that was a lot of what that expense was related to. Kos, do you have anything to add there?

A: I think you hit the highlights on the head, Jim. The COGS was certainly related to the ramp up in the labor component and the purchases component really drove the decline versus a year's trend. But I think this will normalize as we get through 2025, and we have a much better understanding, of our demand and how to how to properly adjust for those things from an inputs perspective.