As a reminder, this conference is being recorded. Before we begin, I'd like to remind everyone that statements made during this call that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated, including factors related to customer concentration, manufacturing scalability, capital requirements, competitive dynamics, and general market conditions. Listeners are cautioned not to place undue reliance on forward-looking statements, which reflect management's views only as of today. The company undertakes no obligation to update them except as required by law. For a full disclosure of the risks and uncertainties that may affect our business, please refer to our most recent filings with the SEC available at sec.gov and on our investor relations page.
It's now my pleasure to introduce John Dalfonsi, Chief Financial Officer. Please go ahead, sir.
Good afternoon. Welcome to BranchOut's first earnings call. We've had a lot of investors ask for an earnings call, so hence we're doing one. You know, having listened to earnings calls for 25 years, we asked everyone, How do you want us to conduct an earnings call? I think you find on a lot of earnings calls, the management just kind of regurgitates what's already in the filings. What people have asked for is kind of touch on the things in the 10-K we filed today that we feel we focus on. You know, it'll be handed over to Eric Healy to really talk about 2026. I think, you know, when you think about this company, we change dramatically every year, and we're already three months into 2026, so kind of past is not prologue here.
There's a lot of exciting things happening for 2026, where it's expected to be another big year. To jump right into the 10-K, I wanna talk about the income statement first. You know, there's some detail. You can look at it at your leisure on page 18 and 17. I'm gonna kind of talk about it. You don't need to be looking at it, but you might wanna take some notes. Our you know, our revenue, our net revenue went from $6.4 million to $13.7 million, but really the number I like to focus on is the gross. We had told people that we're gonna do $14 million in revenue this year, double. We did that. We did $14.3 million in revenue.
You know, you look at the gross margin and, you know, we kind of grappled with this. You see a 14.8% gross margin. Given this is a new plant, the ramp-up's significant, we really wanted to show people what we feel is the true gross margin. If you look on page 17 of the 10-K, we have a reconciliation of what GAAP gross margin is. We did an adjusted gross margin because, you know, although our gross profit was $2.034 million, you know, we have $414,000 in depreciation, which is a pretty high number. It's 20% of the gross margin, because, you know, all the machines are new. You know, these machines last much longer than the period in which they'll be depreciated.
I think they're depreciated over five, six, seven years and, you know, these machines last 15 years, 20 years. We feel that number is really overstated. We asked the accountant, Hey, this should be a 20-year depreciation. They pushed back and wanted to be a safer number. On this adjusted depreciation number, you know, you got the $2.034 million and back to 414 in depreciation. You know, one thing we constantly harped about last year is that because the plant had opened in January of 2025, and we were doing basically just-in-time manufacturing because we couldn't keep up with the orders. We did a lot of air freight that is substantially more than an ocean, you know, to the tune of 10, 20 times.
We spent $1 million on air freight. We kind of, in this reconciliation, we did this to show kind of our normalized gross margin. We added that back. Lastly, you know, a lot of questions about the tariff. Yes, we're due $348,000 from the government. We have no idea when we're gonna get it back, but we kind of put that back in the reconciliation to show an adjusted gross profit of $3.82 million. Again, this is on page 17 of the 10-K. That's a 27.8% gross margin. We feel there's another 10 points in there because Eric will talk about how we're fulfilling so many different orders, it impacts our capacity utilization. That's the first thing I wanted to talk about that was noteworthy to me.
You know, when we go to Q&A, you might wanna ask about it. You know, the second thing I want to talk about is if you look at our P&L, salary and wages, professional services, shipping and handling, you know, that's higher 'cause of the air shipping and advertising promotion, you know, are pretty steady. Our G&A went from $1.1 million to $3.48 million. If you look at page 19, there's a reconciliation. You know, we have this new term that we expense rather than let it go into the gross margin, another cost of sales number, idle capacity.
We've kind of taken the idle capacity out of the cost of goods and put it in the G&A line for the time that the machines were idle, that was $1.2 million for the year. You see this loan receivable impairment of $401,000. That's not a customer. Before we had had the plants, we were making product in Chile. We had a loan receivable. You know, we had a loan to them. This was back in 2022, 2023, and they were unable to pay the loan, so we just wrote it off. It's really something from the distant past just to clean the balance sheet. R&D, you know, went up dramatically to $269,000 from $18,000.
It's just because, you know, Eric will talk about that we're testing so many new products and the cost of those we're putting into R&D. These were things that, you know, would have been in gross cost of sales otherwise. The last thing I want to talk about that I feel is noteworthy is the current liabilities on the balance sheet. You know, you kind of have this convertible note payable of $3.36 million. That's the cost of capital convertible loan. He's a great shareholder, the biggest shareholder. He's already converted $500,000 of that. So the point I'm making is that's all gonna be converted because it's at $0.75. When you look at our current liabilities, really, the only things that we'll be paying are the accounts payable.
You know, you got the accrued expenses in there, but and you know, the equipment note payables, that's the EnWave machine. That $3.3 million is the convertible loan, the accounting for it that will be converted. If you look at our current ratio, I'd take out that number because again, it's not a loan that's coming due, it's a loan that's going to be converted. That's the sum. Those are kind of the key things in my opinion of the 10-Q that I wanted to point out. Obviously, if you have questions about the 10-K, I keep saying 10-Q, 10-K, you can ask them or you can follow up afterwards with email to us at I think it's info@branchoutfood, and we'll be delighted to answer your questions.
Those are the 10-K comments, operator. If you wanna hand it over to Eric Healy for a summary of the business , 2026.
Thank you, John. Welcome, everyone. Happy to have our first earnings call with everyone here today. I'll give a brief update and then open up for questions. There's a lot of different things to touch on here. I am currently at our factory here in Peru, and kind of maybe a quick update on everything happening down here. We are installing our fourth production line right now, so that's very exciting for us. The installation is about done, and we'll have it online here probably middle to end of April. The exciting thing is it will be in a separate building on our property, and will open up the possibilities for us to do a lot of other products in addition to fruits and vegetables.
We have a line of different dairy-based products that we're gonna be able to do, and we can get into more of that later. We, you know, all of last year, like John said, it was our first year in the factory, so it was a chaotic year, but very exciting, and we're very proud of the number we put up and, you know, all the different customers that we're able to fulfill. We opened the plant with a backlog of orders from Costco, Walmart, and our big industrial partners. It was very much a just-in-time manufacturing schedule. You know, we probably scaled up a dozen or so different products as we were, you know, making them for the first time.
Because of that, there was a lot of inefficiencies, a lot of R&D costs, a lot of unutilized capacity. You know, it's just something you have to do the first year in the plant. You know, in parallel to making all these orders, we were developing the process, building out our supply chain, hiring key people. You know, it's a very new technology for everyone to learn, and we're really the first ones to kind of use it in this fashion. There's a lot of development effort that went into last year. All of last year we had calculated, roughly speaking, that our breakeven was about 40 metric tons -45 metric tons per month in production, and I think we probably averaged about 30. You know, what's exciting is this year we're getting a lot more efficient.
We're still developing some new products and scaling up some new products, but not to the same degree as last year. We're excited to announce that March was our first month. We hit 45 metric tons. A big achievement for the factory here. We still have a lot of low-hanging fruit, a lot of efficiency to be gained. We're probably at 50%-60% utilization of our machines, so there's still a lot to be gained there in addition to that. I'll switch over to kind of talking about the pipeline of sales and everything we have going on there. You know, the first year, the first two years really I should say, with our company here in this plant, we're being very opportunistic.
We are kind of saying yes to just about everything. We're out there in the market, trying to cast as wide a net as we can. That really helps us grow quickly with revenue at the expense, you know, sometimes of efficiency, but we're really trying to build that market as quickly as we can. You know, our Costco customer continues to build. We just got our chewy banana product, our Cinnamon Churro Chewy Banana in the L.A. region, so that's in there now. We have the first mango products. We have a Mango Chip that's going into the San Francisco Bay Area region, so that'll be in there in June. We have a pretty big reorder on our pineapple.
That's kind of our staple product so far, going back into the Southeast region. I'd say, you know, the strategy with Costco has been really hitting them with innovation, so a wide variety of different products and just really showing them our capabilities. We've developed a number of mixed products, so sort of mixed fruit in different kind of smaller form factors, multi-packs, and the strategy there is that actually gets us a product that fits into a whole nother category within Costco, so it gets us a second set of buyers that we can sell to. We have those products out right now, primarily will most likely be for the back to school timeframe.
We have probably, I'd say five different regions reviewing those, and we expect to get, you know, all those orders in for Q3. We'll, you know, we'll see how that goes. Again, the strategy there is we've done really well in the one category, or department, I should say, in Costco, and we've developed a whole nother line that will essentially double our kind of shots on goal, if you will, with that customer. We're happy with them. They continue to be a big part of our business. The other exciting, you know, I think this year is also about customer diversification. We are just about to deliver our very first order into Sam's Club. That's our biggest order to date.
It's about a $1.5 million order, and it will be going nationwide in Sam's Club for a, you know, it's an eight-week rotation. So that product is a mixture of our four of our five core fruits. So it's gonna be in one bag, it'll be a mix of pineapple, banana, apple and strawberry. It's a really, really great product, and it'll be on shelves there in May. That one, you know, we believe, or at least the buyer has told us that, if it does well, she will consider it as an everyday product. So we're really crossing our fingers there. If it does well, you know, that could turn into a very large, $10 million-$15 million SKU in that one retailer.
Sam's Club has had a lot of interest. We've really developed that relationship this year, and they love our innovation. They love the technology. We're really delivering on something that they've never seen before that they believe their members want. They're looking at other products for, you know, back to school timeframes. For us, it would be Q3. And then I believe they're gonna bring in the mango for end of the year. That would be on shelf for them in January. She has a lot of interest in that one. Just kind of cultivating that relationship. There's a lot of things brewing there. In addition to that, kind of out of nowhere, we connected with another department within Sam's Club, and they're reviewing our cheesecake product.
We have, you know, in partnership with EnWave, our technology partner, developed a dried cheesecake that's completely different than what we've done before, but it's very innovative and a really great product. We're looking at possibly delivering that to them in Q4 as well for holiday timeframes. Sam's Club's a big one. You know, kind of our third big customer is our industrial partner called MicroDried. They've been a very great partner. Launched a lot of ingredients, products with them last year and, you know, there's a lot of stuff teed up with them for this year as well. They're, you know, essentially getting our products in front of, you know, all the...
A lot of the big CPG manufacturers, like, you know, all the big names. They've already sort of developed that channel, and we're able to you know, partner with them in a very synergistic way and sell our products through there. They're actually down here at the plant with us this week, so we're planning a lot of great things with them. You know, beyond that, there's a lot of other things in the pipeline. We have a Walmart meeting coming up here probably end of April. They haven't set the date yet, but they again are really liking our innovation and what we can do. They've tasked us with creating a number of GLP-1 focused products.
They see this as an emerging trend where customers or their, you know, their customers are on this GLP-1 and looking for high fiber and high protein solutions. For us, that's a, you know, what we've offered them is a combination or a mix of different dried fruits with dried cheese products mixed together in different packaging formats, portion controlled formats. We have this meeting coming up, and we're gonna go out there into Bentonville and sample kind of our whole range of possibilities, and that'll be with probably four-five different department heads within their organization. We have a lot of, you know, we think that's gonna be very beneficial for us.
We are working with a European partner that has gotten our products in front of kind of all the major retailers in Europe, so Aldi and, you know, a number of others, primarily in the white label, private label business. There's a lot of interest there. They really like the products. That's, we believe that'll be a big part of our business to come this year. Kind of a long list of things like that. We have a chocolate company that's looking to buy our fruit to chocolate enrobe, and the projections they're giving us are pretty substantial. They're still developing the products and getting it in front of their customers.
We have a number of different dairy companies that we've been showing the dried cheese and the different, dried cheese with fruit mixes too, and there's a lot of interest in, having us make some products for them there. Yeah, that's, I think, kind of on the commercialization side. I should say I missed one thing, that's actually very exciting we haven't announced yet, but, we are getting five SKUs, it looks like, into Target for, I believe. I don't have timing yet, but it'll most likely be probably Q3 or second half of the year. Those will be branded. We're gonna be front and center, most likely on an end cap.
You know, it won't be a huge revenue driver, but we believe for the brand it's a great sales story, and it'll be something that we can leverage for other retailers. Very excited about that one as well. There's, you know, there's a number of those sorts of things in the pipeline that maybe are too early to talk about. But overall, you know, we believe that our sales pipeline is very full. It seems like the top of it keeps expanding as we, you know, as we get these products and samples out there. We're just really at the beginning here. Yeah, that's. I think that's pretty much it. Everything that's going on on that side of things. Happy to turn it over for any questions.
Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star two if you would 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 keys. One moment please while we pull for questions. The first question comes from the line of Michael Corrigan, a private investor. Please proceed.
Hey, guys. Sorry if I missed it, but were you guys putting any projections forth for Q1?
Yeah. We are not. You know, what I can say is I think our growth is gonna continue to be substantial. You know, there's a lot of sales in the pipeline, and they can all hit at once or they can take a little bit longer. It just really depends on kind of how these things hit. We believe, you know, for sure that there's a lot of growth coming, a lot of interest, but it's very hard to project on a near-term basis, you know, kind of exactly what's gonna hit and when.
You know, overall, though, we believe that this growth rate that we've seen will most likely continue at a, you know, a nice pace that we'll all be happy about.
This is John. Let me elaborate a little further. I like to look at it in half of years 'cause you'll have an order that will be April second. Like, we have a big order delivering on April second, so that's gonna be second quarter. It should have been first because our cargo is inspected at the port. Now that the tariffs have gone away, they're inspecting everything to generate revenue. That's kind of what the customs border patrol are doing. So at the border, things tend to be unpredictable. I'd say, you know, for the year, something with a two in front of it is what I feel is what we're looking at, for our annual. I think the first half will be, let's see, about 40% of the total sales.
You know, first quarter, you know, more on the lighter side. Second quarter, we already have our second quarter sales in the bag, 'cause, you know, those are all being produced right now and delivered, April, May, June. So 40% of somewhere with a two in front of it. Say, you know, 20, for example, 40% coming in the first half, 60% coming in the second half. That's kind of our rough handicap at the moment. We roughly projected 14, so we'll continually update that number as we close in on it 'cause we do have some visibility 'cause it's, you know, 90-day cycle from the day we start making an order to the day we get paid.
That's kind of as much guidance as we can give at the moment.
Yeah. There's some big ones out there that could hit, you know. We don't wanna promise them yet, but there's some big ones that could hit and be very positive for us. Thank you.
The next question comes from the line of Jonathan Masters with Masters Maritime Associates. Please proceed.
Yes, good afternoon. Question on the transportation. Sounded pretty significant. You said we're looking at a 15x-20x,
Lower price for transportation. Are we shipping strictly full container loads or are we doing the partials and no air freight right now?
Yeah, great question. Yes. Air freight versus just regular dry container can be 15%-20% higher, as you can imagine. Last year, because, you know, again, it was our first year in the plants, we were behind on orders. Our number one priority last year was not to ship something late to specifically Costco or Walmart. Because of that, we found ourselves air shipping just about all those orders. You know, changing, getting ahead, getting the products more dialed in and better understood, getting everything kind of figured out, going into this year, our goal is to not have to airship at all. We've had to a little bit already this year, but not anywhere near, you know, to the level we did last year.
Typically, we, you know, our goal is to ship everything by full dry container, and that's, you know, very efficient, right? We pay maybe $3,000 to get it from Peru up to Houston, and that's for, you know, six metric tons -10 metric tons of product. That was the whole model originally, right? The air shipping was just kinda to get us by last year.
Okay, very interesting. Yeah, we're also just a quick note. We're forming a little company now, Masters Munchies Marketing, and we're working in a couple of states right now with the marijuana retailer. Just a little note there.
Okay, great.
The next question comes from the line of Noel Atkinson with Clarus Securities. Please proceed.
Hi. Good afternoon. Thanks for taking our questions today. I was wondering if you could talk a bit about capacity utilization in your facility. You mentioned that you were bringing another production line online and, you know, what your capacity is for expansion within your current footprint there. Thanks.
Yeah, yeah. Great question. You know, the strategy again in the beginning here is we're saying yes to a lot of different things. With that, you know, we're not really telling our customers there's MOQs or, you know, anything to that level. We are doing a lot of different products. We're being very opportunistic, which means we're switching between different products frequently in our plant. We're ramping up a lot of new products frequently. Because of that, you know, the reason we're doing that is try to really build our customer base and our revenue in these early days aggressively. The downside of that is really utilization and efficiency.
Last year, we were seeing about a 50% utilization on the machines, and that was driven just by kind of everything I said, you know, high switching costs, trying to kind of learn the process and really develop the supply chain. A lot of that is reliant on our suppliers of all our raw goods and how we pre-process them and get them ready to go into the machines. We only see that as, you know, that's kind of the worst it's ever gonna be. You know, we did on average maybe 30 metric tons last year. We just got that up to 45 this month. I think we can probably get up to, you know, maybe 50 metric tons -60 metric tons on the current three machines we have.
The fourth machine coming online right now is the largest machine available, and so that'll increase that by another probably 40%. That could get us to, you know, 80 metric tons , roughly 80 metric tons. This is per month, I should say. Again, you know, if we wanted to be super efficient, we would only run, you know, one or two products every day continuously. Because we're trying to grow quickly and build a wide customer base, we're switching between a lot of customers. That's kinda how we think about it. We think that's a good strategy to, you know, build this early revenue and customer base.
Yeah. Let me put some numbers to this. I'm gonna use kilograms, Eric used tons. We feel 40,000 kilograms of plant production. You know, the average revenue per kilogram is, you know, $36-$37, pick the number. Our break even as a company is about that $14 million-$15 million, you could round it to $15 million of plant production. Then every $1 million. Your variable cost, your major variable cost after you covered all your overhead and, you know, corporate and all, is raw materials. Raw materials range from anywhere from 30% of revenue to 50%, let's call it.
You know, using that 40%, you got another 10% between the tariffs, which, you know, because of the exemption of tropicals, which are bananas, pineapples. We do a lot of tropicals on the plant. You know, our effective tariff rate will be 2%-3%. Then you have the ocean shipping, which, you know, we think is gonna be a nominal number. We do some packing of the branded products. I say for every $1 million in revenue beyond that $15 million a plant, is about a 40%-50% incremental contribution. That's the math we've kind of came up with about a year ago, and it's, you know, you kind of close in on it and you test it. It'll be interesting to see what the March numbers look like.
You know, did we make money in March? You know, I think we did. You know, if we do that two in front of it, you know, we'll make money this year. That's kind of how we put the plant production to profitability. Lastly, I want to say extremely scalable model. Eric was the only sales guy. It was Eric and one other person were the only sales guys who created the revenue last year. We have a chief, a person selling the cheese now, who ran a cheese company, and then we have a chief marketing officer. We have all the people we need to be a public company. Really the scalability, 'cause we use a broker network too, and our customers are big chunks of revenue at any given time.
It's a very scalable model from that perspective. Then lastly, in the plant, we have three other people, but you know, I think we pay $15 an hour. It's not a big hit to the revenue to add people.
Okay, great. Just one more question, if I may. You mentioned you were working on private label opportunities with European retailers. I think in the prepared remarks, you also talked a bit about opportunities that you're pursuing perhaps with MicroDried with CPG companies, like large CPG companies. When you're pursuing the CPG companies, is that on an ingredient basis, or are you also pursuing full branded private label product opportunities with those CPG companies?
Good question. The answer is both. Primarily what MicroDried does is they sell ingredients into the CPG companies. That's most of what we're doing now with them. We are through them and through some others, we're talking to probably, I'd say three or four different CPG companies about just private label some products for them, you know, essentially our current fruit and/or dairy products that we would make for them in snack format. Really it's both. The ingredient part was kind of how we started, but we're as we grow that, we're also getting into the private label for other companies as well.
Okay, great. Thank you very much.
As a reminder, if you would like to ask a question, please press star one on your telephone keypad. There are no further questions at this time, and I'd like to hand the call back over to John Dalfonsi.
Yeah, we did. Someone actually emailed me a question, so let me read it, Eric. You know, this is.
Yep.
Please talk about current and future capacity in terms of potential volumes when the operation gets to a point where most of the machines are dedicated to one or a few products. In other words, when are you not going to be experimenting and running small batches anymore, but expect a few, you know, bigger orders to run through the machine?
Yeah. Yeah, I mean, I think we'll, you know, we will likely end up with maybe two or three products that, you know, that we're running continuously, so some everyday products hopefully in Costco and/or Sam's Club, so that would make us very efficient. You know, it really depends on the product. If hypothetically we were to say, you know, the pineapple product is the only product we're doing and we're running that at full scale, have to do the math, but I think, you know, 100 metric tons, maybe a little bit more than that would be doable. I mean, it gets pretty efficient pretty quickly. But I don't know that that's reasonable. I think for the next few years, we'll likely still be experimental at least to a certain degree.
What our strategy is right now is we call it the core five. We've identified five products: pineapple, apple, mango, strawberry, and banana. We're really trying to optimize around those five. I think, you know, if we were to just do those five, we could get really efficient and potentially get to that maybe 100 metric tons. Yeah, maybe 100 metric tons.
Yeah. One more thing I want to say is the cheese. Eric, why don't you talk about how much more quickly the cheese-
Yeah, that's a good point. So-
Versus cheese. Yeah.
The dairy stuff is very new, so that's not really in any of our numbers yet. Our throughput is directly proportional to the starting moisture of the product. Fruits and vegetables are typically 80%-90% water. That's kind of what everything is modeled around right now. The dairy products are 30%-40% moisture. You know, you can do that math, but we can get probably around 3x, 2x-3x the throughput with these dairy products. The raw material is a lot lower cost just because we don't have to pre-process. You know, think about fruit, right? Ripen, peel, cut, slice, all these things.
We think that those products are really going to increase our margins and throughput even further than we had originally modeled.
Anyway, to move on to the closing comments. Thank you for joining the call. Please email us with any subsequent questions to info@branchoutfood.com. You know, thanks for being shareholders.
Yeah, we really appreciate it. This is just the beginning. We have, you know, this new technology is, we believe a game changer, and, we're just starting to get it out there. Everyone we show it to is, you know, retailers and customers alike, direct customers are just blown away by it and the, you know, the uniqueness of the products, the quality of the products. We're, you know, very excited about the next few years.
I'm sorry, the website is ir@branchoutfood.com, not info. ir@branchoutfood.com. Please, email any questions there if you have them. ir@branchoutfood.com.
Thank you. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.