Branchout Food (NASDAQ:BOF) released second-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below.
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Summary
Branchout Food reported its highest quarterly revenue of $4.45 million, attributed to successful customer execution and innovative product offerings.
The company is ramping up production to meet increased demand, with a target of producing 70,000 kg to fulfill sales commitments, reflecting a significant step-up in revenue guidance for Q4.
Branchout Food secured a recurring order with Sam's Club, converting a successful one-time product rotation into continuous business, and anticipates further expansion opportunities.
The company faced margin pressure due to the high cost of raw materials during the off-season but expects improved margins by sourcing materials in-season and increasing plant utilization.
Future guidance suggests a strong Q4 with expected revenues of $6 to $7 million, potentially reaching $18 to $20 million for the year, with an emphasis on sustaining this level moving forward.
Full Transcript
OPERATOR
Greetings and welcome to the Branchout Food 2026 Q2 earnings and shareholder update call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. John Delfonsi, Chief Financial Officer.
Thank you, sir. You may begin.
John Delfonsi, Chief Financial Officer
Thank you. I'm going to start with a forward-looking statement and then talk about the agenda. So before we begin, I'd like to remind everyone that today's call contains forward-looking statements, including statements regarding outlook, guidance, and expectations for future performance. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those we discuss today. For a discussion of these risks, please refer to our most recent 10-Q and subsequent 10-K and other 10-Q filings with the SEC.
Forward-looking statements speak only as of today's date, and we undertake no obligation to update them except as required by law. We will also reference certain non-GAAP financial measures; reconciliations to the most directly comparable GAAP measures are available in today's press release and the appendix in any presentation. With that, I'm going to jump into the earnings call. Consistent with our other earnings calls, we have an agenda: we always like to go over a summary and recap of our strategy—that remains the same.
Eric will go through our customer summary, plant operations, and continual efficiency and margin improvement in the plant, and then sales prospects. Then I'll finalize it with a financial review of the quarter that was just released at market close. So, to go into our summary, just to highlight, we had a record—our highest quarterly revenue—of 4.45 million net; obviously the gross revenue was higher. Strong customer execution across all channels.
Key takeaway is we continue to execute our strategy of creating innovative products for customers to secure long-term business that's reoccurring and to create full utilization of our plant with a 40% margin target. That's always been our plan, and we feel we're making good progress toward that. One change is that you're seeing a big step-function up in our revenue guidance for the fourth quarter, and I'll go over full-year guidance when we get to the financial part.
But we're going to need to produce 70,000 kg, up from—you know, we were averaging 45—to meet the demands that are coming in terms of sales. And so Eric will talk a little more about that. So, Eric, I'm going to hand it over to Eric, who's going to go over the customer summary, plant operations and continued efficiency and margin improvement, and sales prospects. Perfect.
Eric Healy, Chief Executive Officer
Yeah. Thank you, John. This is Eric Healy, CEO of Branchout Food. Good afternoon, everyone. Excited to go through the last quarter and what we have coming up here. So Q3 was a fundamental improvement in the company in terms of the high-level revenue. As John mentioned, the breakdown of what we accomplished in that quarter is strategic to what we'll talk about here for Q4 and beyond. The big one was, of course, our Sam's Club product. We had the one-time rotation; the product went in and it sold extremely well. We met and exceeded their threshold, so we were successful in turning that over to an everyday, recurring order. We're currently building that order right now, and it will be continuous moving forward. So that's going to be back in the stores come September timeframe and continuously. The quarter itself, Q3, had some production that was first time. Some of the products in that production were kind of the first time we had really scaled them up and dialed in the product quality, the efficiency, and the attributes we wanted.
We also invested heavily in marketing that product in order to secure this follow-on business. There was some rapid shipping—kind of a lot of those things that we associate with customer acquisition in the beginning to secure that long-term business. So while we were happy with our record revenue, all these things are reflected in the margins for the quarter. In addition to that, the other big piece in that quarter that was, again, good on the revenue side, not so great on the margin side, was our industrial ingredient business.
We had a very large opportunity with some strawberries—specifically organic and conventional strawberry—for our ingredient partner, and unfortunately they needed it during the off-season of when strawberries are available. So we ended up paying about 2x for the raw material, and that, of course, impacted our margins. But the good news is that has turned into a much bigger piece of business now going into Q4 and beyond. We have orders from them for the strawberry that we can now produce during the season, and with more foresight—getting these orders ahead of time during the season—we can contract the raw material and do it during the optimum time. So with that, we essentially spent some margin up front to secure the business, and we now have this recurring bigger piece of business. So there's a lot of that baked into Q3 that we want to explain, and we believe we were strategic in the way we went to bat there, setting us up for a very big Q4 and beyond. Beyond that, we had some Costco business that was first time. We had the mango chips in Costco Bay Area that did very well, among other things.
So Q3 was a successful quarter. We see it again setting us up for a very successful Q4 and beyond. That's the background of what we accomplished that quarter and what we believe this is going to do for us going into Q4. And really right now, as our factory is ramping up for these new orders, as John mentioned, we've always sort of averaged around 35 to 45 metric tons per month. We've talked about utilization quite a bit here and how important that is for our business.
Historically that's only been about, you know, maybe 40–45% utilization in our plant. With all these new orders that we have booked now, we are starting to ramp up our production output to 70. We have some 80,000-kilogram months coming up here before the end of the year, and this is all for booked business. Again, it's this recurring Sam's Club order, it's all this new industrial ingredient business. We have a lot of new Costco business as well. We're also launching into Target right now, as we've said recently in some press releases. We have five SKUs going in, branded, in Target. So there's just a lot of stuff coming online right now—a lot of new sales that are frankly very exciting—and, more importantly, getting our factory to that utilization level that we've always said that we need to get to for profitability. At these levels all of our models indicate that we should be break-even—beyond breakeven, really—and we believe that a lot of this business is now, instead of being kind of one-time big orders that come on and off, more recurring.
So that should really help our bottom line as well. It sets us up for a very exciting step function in revenue as well. We believe that Q4 should be around 6 to 7 million, depending on when some of the orders ship at the end of the year, but we think that we can sustain that level. The revenue moving forward shouldn't be as lumpy, and we should be able to sustain that level going forward. It's a very exciting time. We see we're at an inflection point right now.
This is really what we've been investing into the last two years since we opened our plant, and we're very, very proud of our team, both on the sales and ops side, for getting us to where we are here. So with that, John, I'll turn it over to you if you have anything else, and then we'll go into kind of future sales prospects beyond what we currently have.
John Delfonsi, Chief Financial Officer
Sure. What I want to do now is move to our actual 10-Q and our, you know, how we did for the quarter. You know what I always like to start with, if you've listened to these calls before, you know, the balance sheet, and if you look at our balance sheet, we have 8.1 million in current assets and 7.57 in current liabilities. But you have to take a closer look at this. You know, it shows we only had 200,000 in cash. But like I've said in other earnings calls, cash, accounts receivable, inventory — you got to look at them as one, because every dollar we have, we're rolling into orders because we're trying to keep up.
You know, one thing that has happened from day one since we've opened the plant is that we're getting more orders than, you know, we're getting. The orders are not a problem. We're getting a lot of orders. And then given that we're getting so many orders, it kind of turns into a just-in-time manufacturing. If you look at our inventory turn, you know, it's 3.3 million. You know, even if you take 14 million, which are, you know, kind of trailing sales, we're more at a, you know, you're looking at a 6 to 7 million dollar run rate right now.
The inventory turns are even faster, but, you know, they're less than 90 days. But remember this: the product is on the water for 60 days. So really cash instantly gets turned into inventory and then, you know, which gets turned into accounts receivable. So, for example, we have over a million cash on the balance sheet, you know, but that is getting recycled into inventory. So really our capital needs are all around working capital. So if you look at the current liabilities, the 7.7 really is a 4.7.
You got that 3 million dollar note payable — if you recall, that's Dan Kaufman at Kauffman Capital. And it's an 8% note. He's a friendly investor, he's the largest shareholder. He will extend that loan as long as need be to our ultimate goal, which is a revolving credit facility from a commercial bank. That's kind of what, you know, we did. Our AR is, you know, as strong as it gets with Costco and Walmart and Sam's Club and, you know, MicroDried — they're a billion-dollar family — and, you know, inventory is all sold.
And it lasts, you know, it has a long, long, long shelf life. So when I look at our balance sheet, I feel it's very healthy. I look at more of our current ratio — two to one, let's see. And that convertible note is Kauffman Capital's convertible note that will ultimately convert. He's converted some already. So that's kind of, in my opinion, the pertinent things to look at on our balance sheet. And then when you go to the income statement, you know, we basically had a 2% gross margin.
And there's, you know, the reason behind that is, you know, when you look at our product mix, Costco is 20% of the revenue. We actually did pretty well on gross margin — 43% — but MicroDried, which is 33% of our revenue, those were the organic strawberries where our gross margin was 3%. And like Eric said, when you buy these raw materials, you know, if you buy them in the off-season, it's the highest dollar you pay, which makes you think that, well, geez, you know, what we're moving to is buying raw materials during the high season and just making the products then.
And that saves 50% on the raw materials. And then the Sam's Club, you know, we had to air-ship — you know, we said we thought air shipping was out of the way — we had to air-ship that. So that gross margin was 14%. That was 31% of the revenue. So when you look at it all, plus the utilization — since we're running at 30 to 40% — what we had to absorb, it's kind of a break-even gross margin. But if you look further in, I think there's tremendous opportunity because just by buying in high season versus on the spot market, raw materials are 50% of our costs in Peru.
So, and then, you know, increased kilograms going to that 70,000. We don't need any further people to execute on 70,000 — so really no more hiring. So I think you're going to see stronger gross margins, and that I feel is the opportunity with this company. So those are kind of my high-level comments. The things that, you know, I feel are really important to take a look at. The last couple things I want to talk about is guidance. We're a little over 7 million for the six months and we got two quarters to go.
So that's to get something with a 2 in front of it. That's 13 to go, and we will make 20 million plus of product in the plant. The question is, is it delivered, you know, by December 31st? You know, might be, you know, a couple million dollars that don't kind of hit delivery — when we can invoice the customer — till January. So, you know, something with a 2 in front of it. Although we make something with a 2 in front of it in the plant, some of it might slip over.
So it might be a number closer to 18 for the year. But we're still getting orders and delivering them. So it's gonna be down to the wire. That's kind of my thought there. But I guess if you think about it, we've made that something with the 2 in front of it in the plant. If you look at our run rate based on our fourth quarter — 6 to 7, maybe it's 8, you know, maybe it's, you know, a little higher than that. We're clearly in the 30s with that run rate.
The last thing, you know, I get a lot of questions on is capital. You know, we've kind of, we've only issued 500,000 shares this year. That was with our ATM in January and February. We've had a lot of warrant exercises. And then Kauffman Capital has given us debt. You know, we may need some top-off capital. Might be a little more debt from Kauffman. You know, maybe, you know, we still got our room left on the shelf. So that may or may not happen.
But the bottom line, given it does, it's, you know, it's strictly to cover working capital and because of our growing orders. And, you know, those I feel are the pertinent things. So I'd like to hand it over for Q&A.
OPERATOR
Thank you. Well now,
Eric Healy, Chief Executive Officer
Sorry, let me go into the sales prospects. I got a few updates there if we can do that real quick.
OPERATOR
Yeah, go ahead.
Eric Healy, Chief Executive Officer
Yeah, so exciting stuff ahead. The Sam's Club order is just sort of our foot in the door with that retailer. So, you know, it's about, we believe, about an 8 million dollar recurring business based on the sell-through we had initially. We are only in half of the doors at this point, so we believe that if we continue to perform, there's an opportunity maybe mid next year to expand that door count pretty significantly. There's a category review coming up in March.
So that's something that we, you know, we see as a good possibility that that could grow significantly. We have the second order that's going into Sam's that we've talked about as well. It's the tropical mix. So it's our core three tropical fruit chips — the pineapple, banana, mango — and that's going into a multi-pack format. So it's a very different eating occasion than the other product that's in there now. That product is a one-time rotation.
It'll be on shelf in January. So that one as well, though, if it performs, which we expect it to, could easily convert to an everyday item as well. So that's about a 2 million dollar order at the end of the year here that we hope turns into an everyday continuous order. The industrial ingredient partner and others in that space is also growing rapidly. We did about 2 million in 2025. We think this year will be close to 7 and next year could be 10 plus.
In that channel we're seeing a lot of adoption of our products. A lot of strawberry, as I mentioned. We're starting to do a bunch of blueberry. And then our tropical products — currently we're working on a couple different programs with some big CPG customers that are integrating them into their recipes of their products. So that's an exciting part of our business that continues to grow rapidly. So Costco — a lot of stuff going on with Costco. We have an organic apple chip that's going in here in a couple months, and then we have another order of the pineapple chips at the end of the year — four truckloads going into the Southeast. So that one keeps going; they keep reordering that. So that's a great proof point. We did just get an order last week actually for our cheesecake. So that's something we've been talking about for a long time. We're super excited about it. It's, you know, totally new, innovative products and Costco just committed to the first order of that.
So that'll be going in in time for the holidays this year in the Texas region. And we think it's, you know, it's very innovative. There's never been anything like it. And we expect that to do well and grow as well. So that's exciting. We are also getting our dried cheese products out there. That's a brand-new product line, but we've already got some traction with that. We have a very large retailer — they have about 9,500 doors across the country — that will be testing it here in the next couple months.
And if that test goes well, that would convert into an everyday business with them that could be anywhere between 4 to 6 million dollars annually. So it's another big, you know, big one there that could turn into something. So with that, we're going to take those dried cheese products — we're very bullish on them — and we're launching them in the convenience store channel. It's a channel that our sales team knows very well. We have experience there and we think there's a big opportunity there.
So with that, that's kind of all the big things. There's a lot of smaller opportunities or opportunities that aren't quite as close yet. But as John said in the beginning, new sales and new sales prospects have never been our problem. So we continue to bring these in. And right now it's really the focus on the plants to effectively double their throughput to deliver on what we have. So, yeah, so that's essentially what I got. Let's go ahead and turn it over to questions.
OPERATOR
Thank you. We'll now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please. We'll poll for your questions.
Our first question comes from the line of Ryan Myers with Lake Street Capital Markets. Please proceed with your question.
Ryan Myers, Analyst at Lake Street Capital Markets
Hey guys, thanks for taking my questions. You know, thinking about the 6 to 7 million dollar guide for the fourth quarter, you know, as we enter into 2027, how much visibility do you already have into sort of maintaining this level or building from that level going forward in the 27?
Eric Healy, Chief Executive Officer
Yeah, good question. So I would say a lot more than we've ever had before. So this Sam's Club every day is, you know, about a baseline of about 8 million annually. So that's a, you know, a new base business that we've never had. So we've always had this, you know, this very peaky, unpredictable revenue from club and others. So, you know, I'd say with that, there's also the ingredient business, and with our partners there, they give us pretty good foresight now.
We're getting very good at planning out, you know, six to nine months ahead. So, you know, there is still Costco that comes in and they'll hit us with big orders, and, you know, it's hard to predict that. But I do think we're moving in the right direction significantly. I can't say that we have 6 to 7 booked solidly into next year, but we're starting with a much better base business.
Ryan Myers, Analyst at Lake Street Capital Markets
Got it. That's helpful. And then as you guys look to double the production in, is there any way you can help quantify sort of the gross margin improvement that you expect to see from that as we progress through the rest of the year?
Eric Healy, Chief Executive Officer
Yeah, you know, it's a great question. So we've always, you know, we built a very large plant. Right. And we built this plant assuming that we would get to this level, and we got there pretty quick. Right. So we've always priced our products. When we go to the customers or go into retail, we price our products. There's two considerations. There's what is the market willing to accept? So we kind of look at, like, products on the shelf or kind of competitive products in the space.
And then it's also, and then we look at our costs. But we've always had to assume, you know, that that plant is fully, is utilized to a reasonable degree. Right. So we haven't actually gotten there yet. And this will be the first time where the plant is at the utilized level that we've always sort of assumed when we price the products to retailers. So, you know, we've always said 30 to 40 margins. And I think this will sort of unlock. You'll kind of see the model come to, come to life as we intended it to.
So before, you know, earlier this year, right, only utilizing the plant at about 40% with all the overhead costed in there, it's, you know, there's a lot of overhead that goes into the products that will effectively be cut in half. So it's hard to quantify. But, you know, I believe that once the plant is fully utilized, you'll, you know, we'll start seeing some of those margins that we've always talked about.
John Delfonsi, Chief Financial Officer
Yeah. To give a little more—yeah, Ryan, I can. I want to give a little more granularity to that because we're spending a lot of time on this. Number one is, you know, produce is about 70% of our total cost, so we really don't have a lot, you know, very little overhead. We have six people and then, you know, you kind of have your non-cost of goods, you know, that's more of the, you know, the packaging, you know, the things, the shipping, you know, expenses from the time it leaves the plant to the customer.
So first of all, the raw material is 50% of the cost. And if you think about it, these orders are sporadic. They're just-in-time orders. So you got to buy on the spot market, you're paying double. Like, for example, the, you know, the strawberries were $2 a kilogram; on the high season, get them for a dollar a kilogram. So now that we have this everyday business we can do, you know, we could plan, you know, the strawberries for a dollar a kilogram.
That's 50, you know, it's 100% savings, and also just, you know, sourcing in general as we focus on the core five, which are strawberry, banana, pineapple, apple, mango. You know, we can really, really, really focus on buying in high season and bringing those costs down. So that's going to be a big impact. We're seeing it already. You know, secondly, you know, just, you know, production flow—you know, you got to air-dry these products before you put them in the EnWave machine.
You know, there's a very tight standard deviation of kind of moisture that you could put into the EnWave machine. So, you know, optimizing the air-drying process, which, you know, we're well underway with that. And the last thing I'd say is packaging. You know, we can package inside the plant and save a significant amount of money. You know, we think five, six, seven points right there. So those are just things that scratch the surface. So the way to kind of think about this is you have this plant that opens; everything's coming at once. Now, a year and a half in, you know, we're kind of under our belt and now really looking at how to utilize it and how to get the margins up. So, so that's a little more granularity. Hope that helps.
Eric Healy, Chief Executive Officer
Is really exciting. We, we didn't mention that earlier, but, you know, it's a pretty obvious thing for us to do. It's not a very technically challenging operation. But if you look at our numbers, by the end of 2026, we will probably have spent a million five on outsourced packaging needs that we've had for our retail products. So with maybe, you know, 150, 200 grand in capex, we can bring all of that in-house for next year. And we, you know, we're looking at doing that.
It's, you know, to date it's been more about focusing on, you know, what we do best down there is dehydration, but we feel like we're in a good place now to bring that in, and I believe it's going to be a pretty big unlock with our margins.
Ryan Myers, Analyst at Lake Street Capital Markets
Okay, got it. Thanks, guys.
OPERATOR
Thank you. There are no further questions at this time. I'd like to turn the call back over to Mr. Delfonsi for any closing remarks.
John Delfonsi, Chief Financial Officer
Thanks for joining, and we look forward to the next quarter. Thanks for your time.
OPERATOR
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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