Sow Good Inc.
Q3 2023 Earnings Call Transcript

Published: 14 Nov 2023

[Operator:]

Good day, and thank you for standing by. Welcome to the Sow Good Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jackie Keshner. Please go ahead.

[Jackie Keshner:]

Thank you. Good morning everyone, and thank you for participating in today's conference call to discuss Sow Good's financial results for the third quarter ended September 30, 2023. Joining us today are Sow Good's Co-Founder, CEO, and Interim CFO, Claudia Goldfarb; and the company's Co-Founder and Executive Chairman, Ira Goldfarb. Certain statements made during this call are forward-looking statements, including those concerning our financial outlook, our market opportunities, and the impact of the global economic environment on our business. These statements are based on currently available information and assumptions, and we undertake no duty to update this information except as required by law. These statements are also subject to a number of risks and uncertainties, including those highlighted in today's earnings release and our filings with the SEC. Additional information concerning these statements and the risks and uncertainties associated with them is highlighted in today's earnings release and in our filings with the SEC. Copies are available from the SEC or on our Investor Relations website. Furthermore, we will discuss adjusted EBITDA, a non-GAAP financial measure, on today's call. A reconciliation of adjusted EBITDA to net loss, the nearest comparable non-GAAP financial measure discussed on today's call, is available in our earnings press release at our Investor Relations website. With that, I will turn the call over to Claudia.

[Claudia Goldfarb:]

Thank you, Jackie, and good morning, everyone. I do apologize for the delay. We were having some technical difficulties, but we ironed them out. I am thrilled to speak with all of you on our very first earnings call and share some really exciting updates that we hope you'll agree are so good. I will be happy to answer any questions at the end of the call. Sow Good has seen astronomical growth since launching our freeze-dried candy line earlier this year. Our third quarter revenue of $5 million highlights a robust increase on both a year-over-year and quarter-over-quarter basis, and it showcases the strength and acceleration of consumer demand for our freeze-dried candy. We have made continued investments in our production and operational infrastructure to support this momentum and facilitate the next stages of our growth trajectory. But before I dive into our progress and third quarter results, I want to give some insights into the Sow Good story and how we've come to where we are today. Our Chairman and Co-Founder, Ira Goldfarb, and I have spent the last 15-plus years specializing in freeze-dried food manufacturing, product development, formulating innovative go-to-market strategies and implementing best-in-class quality food systems. We established our previous company, Prairie Dog Pet Products, as the leading pet food and treat manufacturing company by identifying growing niche trends and making them an everyday item. In growing this business, not only did we fall in love with freeze-dried technology, but we also honed our ability to manage food manufacturing at scale and gained vital insights into the technology and demand dynamics behind freeze-dried products. After selling Prairie Dog to Kinderhook Industries in 2020, we knew we had only scraped the surface of freeze-dried technology's potential. Sow Good became publicly listed in January 2021 after we merged with an OTCQB listed company called Black Ridge Oil & Gas. After closing the merger, we changed the company name and ticker symbol to reflect our entrance into the freeze-dried CPG food products market. Our initial SKUs launched in the summer of 2021 and consisted of freeze-dried fruits, vegetables and other health food snacks. We've spent the last two years building our state-of-the-art manufacturing facility, which is one of our biggest differentiators from competitors. We custom built our freeze drier and 20,000 square foot plus freeze-dried facility in Irving, Texas, which became both an FDA registered and a Safe Quality Food's two certified facility. At each stage of our production process, we prioritized food safety, quality and operational efficiencies from tailoring our proprietary freeze-drying technology specifically to our products, to hand packaging our products to protect their structural integrity, to investing in dehumidifying equipment to prevent moisture reintroduction. To drive our expansion, we were actively evaluating additional product categories that we felt was primed for innovation. Earlier this year, our customers and retailers asked us about a certain novel food trend that was rapidly going viral on social media, freeze-dried candy. Seeing the significant opportunity to capitalize on this trend when no other major players have entered the space yet, we've leveraged our advanced manufacturing infrastructure and freeze-drying expertise to pioneer this category quickly and decisively. We launched our first nine candy SKUs in Q1 of this year and have seen monumental early results. Our quarterly revenue has grown sequentially from approximately $199,000 in Q1 to $1.3 million in Q2 and now $5 million in Q3. Demand continues to surge significantly, highlighting that freeze-dried candy is not a flash in the pan, but a stable category that is here today. With this strong market response, Sow Good is now focused entirely on freeze-dried candy. To facilitate these increased production demand, we completed construction on our second and third freeze driers in Q2 of this year, and we expect to have three additional freeze driers completed and operational by the first quarter of next year. Bringing these incremental freeze driers online is expected to double our production capacity from a current $35 million level to $70 million. To further expand production capacity, we have entered co-manufacturing agreements with third-party manufacturers, whose freeze-drying facilities meet our exacting production, sanitation and allergen control requirements as well as our food quality and safety standards. We are currently due to receive and evaluate the initial product test shipments from these arrangements over the coming weeks, and we'll focus on expediting subsequent shipments once we completed our quality control approval. From a sales perspective, we have facilitated our expansion through growing our B2B channel, where we initially distributed most of our products directly to our customers. We've quickly expanded our partner base to include retailers like Five Below, Target, [indiscernible], Circle K, Misfits Market, [indiscernible], Cracker Barrel and more. Our treats have consistently sold out and outpaced sales projection in these retailers. Notably, we have expanded our portfolio at Five Below from two to five SKUs after surpassing their initial sales forecast. We believe that the diversity of our retail channel is a strong competitive advantage for Sow Good, as our exposure to conventional specialty grocery, club and convenience stores gives us a large addressable market compared to food brands that are solely focused on the grocery channel. We expect our partnership pipeline to continue growing, both from expansions with current partners such as Five Below and Circle K and launches with the new partner. Our next major new partner launch will be with Kroger with our first shipment currently scheduled for late Q1 of 2024. As evidenced by our premium growing partner base and manufacturing capacity, we believe we have an early mover advantage in our ability to lead and compete in the freeze-dried candy space. Relative to competitors, many of whom are smaller or more locally focused, we believe our freeze-drying expertise and production expansion initiatives enable us to address current demand more effectively and stay agile with new product development. In addition to growing our candy product line to a total of 12 SKUs since our Q1 debut, we launched our new freeze-dried ice cream line, Crunch Cream, just last month. By leveraging our retail relationships and production and R&D capabilities, we believe we are well positioned to stay at the forefront of product innovation and dominate the freeze-dried candy market. Now that you have the Sow Good origin story and some of our key competitive advantages, I'll now provide a few financial highlights from our third quarter 2023 performance. Revenue

[Operator:]

Thank you. [Operator Instructions] And we'll take our first question from David Lavigne from Trickle Research. Your line is open.

[David Lavigne:]

Hi, everybody. Quite stunning quarter. You don't see that very often. I'm wondering if you could -- I just want to clarify, by the end of Q1 next year, you should have six driers, correct?

[Claudia Goldfarb:]

That's correct.

[David Lavigne:]

Okay. So, the other thing I'm wondering is could you go back over -- you read some of your customers, and I think there were some new ones in there that maybe haven't shown up in some of the announcements. Could you just go through those again?

[Claudia Goldfarb:]

Kroger is launching in the first quarter of next year. We've recently launched into Circle K. So that might be what you're thinking of, David?

[David Lavigne:]

Yeah. That was one of them. I thought the -- yes, I think those are the -- probably two that I haven't heard. So, can you speak to the issue of whether the Circle K relationship, did that come through one of the larger C-store distributors, or is that something you did directly?

[Claudia Goldfarb:]

That is something that came through one of our distributors.

[David Lavigne:]

Okay. And I guess my last question is in some of the other announcements, you kind of alluded to some international sales. Is that something that you're willing to expand on a little bit, or not so much?

[Claudia Goldfarb:]

David, right now, what we're really focused on is increasing our production capacity. We are completely sold out. And so, international expansion is definitely that's on the horizon. As soon as we're able to meet all the consumer demand here in the U.S., ramp up our production capacity and then move on into international markets.

[David Lavigne:]

Okay. So, now you just brought me down another path. So, I just want to make sure I understand this right. So, you have -- with 6 driers, that's going to be -- that's going to put you at a capacity of $35 million to $70 million. And I realize that sort of is a function of product mix. But -- so in addition to that, you're also out signing co-packaging agreements as well, which sort of, I guess, should give us some sense of a roadmap to where you plan on being 12 months from now. Is that a fair assessment?

[Claudia Goldfarb:]

That is a fair assessment.

[David Lavigne:]

Great. Once again, stellar quarter. Thank you.

[Claudia Goldfarb:]

Thank you, David.

[Operator:]

Thank you. [Operator Instructions] Thank you. And I am showing no further questions from our phone lines. I would like to turn the conference back over to Claudia for any further closing remarks.

[Claudia Goldfarb:]

Thank you. And everyone, thank you very much for attending the call today. We look forward to speaking with our investors and analysts when we report our fourth quarter and our full year results in March. Have a good day, everyone.

[Operator:]

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.