Hello, LD Micro. Thank you for joining us today. Today we have Riccardo presenting for Barfresh Food Group.
Thank you very much. Hi, everyone. It's been a minute since we've presented at LD Micro, it's nice to be back here. For some of you that may be new to the story, Barfresh is a manufacturer of ready-to-drink and ready-to-blend beverages, mainly smoothies, predominantly focused in the education channel. We're gonna go through a bit of our product, our portfolio, where we've been, and where we're going. To give you a quick snapshot, last year, $14 million in revenue with a $2.1 million loss adjusted EBITDA with 22% margins. Looking forward to this year's guidance of $28 million-$32 million in revenue with a $3.2 million-$3.8 million adjusted EBITDA positive.
What made that up predominantly is an acquisition that we completed last year, at the end of last year, and we'll dive into that a little bit more. The results from last year were really driven by our lack of supply of product, which we're gonna talk about. That problem has really been solved through the acquisition, which is also driving the results for this year in conjunction with the business that we acquired. We're in a very strong market. The healthy food space is growing at a 5% CAGR, whereas the smoothie market's double that, at 10% growth. Obviously everyone's health and wellness is growing and just continues to gain pace, so we're in a great spot in the market. Product portfolio, ready-to-drink, ready-to-blend.
We have the Twist & Go smoothies, which are in several formats, individual serves of a 7.6 oz, and we have a bulk serve as well. We have some concentrate blends and single-serve pouches, again, for smoothies and juice bases. Then our more recent addition is our Pop & Go, 100% juice, frozen pops. Again, this is also for the education channel. We really created this space for the drinkable smoothie. We created the product specifically for the education channel. This product was not approved for the school market until we created it. We worked directly with the USDA. It meets two criteria. It meets the protein requirement and the fruit requirement, and the government reimburses the schools based on serving our products in the school market. This is our largest product category, representing about 80% of our volume and revenue.
We have single-serve packs as well, which is our original product, ready to blend, single serve, 5 oz of water, one pack makes one smoothie, more foodservice driven. We have an easy pour bulk product as well. Again, foodservice. All our brands are foodservice as it stands today. Our more recent addition is our 100% juice freeze pops. These are a really exciting addition to the product portfolio. It layers onto our existing frozen distribution channel, our existing customers, our existing broker network that we have set up nationwide. We actually believe that over time, this could actually be one of our leading products. Has a much larger application.
It meets the fruit requirement. Every time the schools offer it to the kids, it's 100% of the fruit serving that they need to serve to the children. They're fun. We're in diverse sales channels, everything from education, military, recreation, amusement, third-party operators like Compass, Sodexo, et cetera, and business industry, and some small quick-serve restaurant chains as well. The education channel for us is an enormous opportunity with a lot of white space. 131,000 schools, 13,000 school districts in the marketplace, with the only product out there that does what we do. As I mentioned, we fill two components. That's the fruit requirement and the yogurt, which is the protein requirement for the kids in schools.
We're at a very small penetration in the marketplace. We have really struggled over the last couple of years since losing one of our key suppliers, manufacturers, to supply product to the customers. We've had the demand. We've had customers asking for it, orders being placed. We simply have not been able to deliver because we did not have the supply chain. There's a huge shortage in the marketplace for what's called cultured dairy manufacturing. I'm sure everyone's familiar with the high protein drinks, cottage cheeses, you name it, right? That's put a significant strain on what's available capacity for manufacturing for products like ours, which have the yogurt component in it.
Even when we thought we'd signed up a new co-packer to make our product, they were still inundated with so many other orders that they still couldn't supply on what we needed. We finally bit the bullet and did the acquisition, which is what we're gonna talk about. Our product has huge demand pent up. We're in a probably low to, you know, mid-single digit market penetration with a lot of opportunity. The product, when offered in schools, right? To understand how the schools get reimbursed, the schools get reimbursed by the government based on how many students participate in the breakfast program, for example. The more students that take the breakfast, the higher the contribution the school gets from the government, right?
If the kids don't like the products that the schools are offering, then they don't get the participation, and then they don't get the reimbursement. The reimbursement doesn't just cover the cost of the product. It also covers their operating costs. The schools are incentivized to have products that the kids like that meet the requirements, 'cause the more they do that, the higher the funding reimbursement they get. Our products typically rate number one or two products that the kids love. I mean, who's not gonna love a strawberry banana smoothie, right? Typically, we see increases of up as much as 40% in increased participation with the schools, with the kids, when it's offered on the breakfast menu.
It's a huge selling point not just for the kids, but for the people making the decision to add it to the menu, and that's typically the nutrition directors at the schools that are determining the menus for the entire school district. We continue to get great feedback. We've also added our Pop & Go to the menu offerings to the schools. We already have the whole infrastructure set up, distribution, supply chain, and the sales team on the ground, and the relationships with the end customers as well. Barfresh is literally turning the corner. The last several years we've really struggled with being able to grow the business because we literally couldn't sell any more product.
We've tried all sorts of things in terms of making product in our downtime, to build up for the busy time, and that's how we ended up getting some additional sales growth out of our, out of our sales, but really we're capped. Late last year we did a transformative acquisition. Okay? We acquired Arps Dairy. It was a dairy processing facility in Defiance, Ohio. The acquisition included an existing operating business which mainly serviced processed milk and ice cream mix, but they had the infrastructure and the bones to be able to make our products immediately, right? We saw it as a great fit.
In addition to that, they owned a new facility which they had built about 80%-85% complete, and they had a $2.4 million government grant that was in the works that still hadn't been fully awarded. We came in, we ended up picking up the business and the property less than its fair market value. Plus, we got a $2.4 million government grant to complete the build-out of the facility. We currently use or have been using contract manufacturers, the acquisition's gonna provide significant synergies to us. The biggest one of all is the contract manufacturing tolling fee that we have been paying to the contract manufacturers.
Based on our estimates from the contract manufacturing tolling fee that's paid to them, we should be able to recoup about 85% of that cost, just from our own margin accretion. In addition to that, ingredients, cold storage, and freight reductions are all additional synergies that we expect to gain, and this is what's contributing towards the $3.2 million-$3.8 million positive adjusted EBITDA that we're expecting for 2026. In addition to that, what we have spoken about is, there's a huge shortage in the marketplace for cultured dairy manufacturing. That's what drove us to doing the acquisition. That problem exists for many other brands that are still out there that can't do an acquisition or unable to find one, right? Currently, we're operating in the old facility.
We're able to get product out and serve our customers' needs, which is already a huge tick for us. We expect two very significant jump ups, one we're working on right now, which is improving the throughput at the plant with the old plant. We have equipment being commissioned. We're expecting about a double to triple the throughput with the existing cost structure once new equipment's installed. Before the end of the year, we expect to be in the new facility, the new 44,000 sq ft facility, before the end of the year. With that, there'll be new equipment going in, which is larger, faster. We expect that to produce an additional 3x to 4 x the amount of volume in the same shift with about an 80% reduction in labor.
We're gonna get a double whammy in the new facility, significantly more throughput and significantly less labor cost to go with that. The plan is to work on our core products, build our core product portfolio, which carries about a 40+ margin, 40%+ margin with it, grow that product portfolio. As I mentioned, there's a huge shortage of cultured dairy manufacturing. Even as we stand here today, we have been approached by many opportunities for additional manufacturing opportunities, which we see as greater opportunities into the future. We're building an enormous base and really a new platform for us to grow from. As I mentioned, you know, we're really integrating our manufacturing platform. We're gonna have the ability to produce a lot of product, a lot of revenue.
We'll probably be operating at about 15% of our capacity once we're set up in the new facility by the end of the year. In addition to that, we will still maintain some supplemental contract manufacturing as we need it. That's it. Questions?
How much PPE is on the balance sheet after integration of the acquisition?
Sorry, couldn't hear that.
How much PPE is on the balance sheet after integration of the acquisition, both facilities?
I'd say about, all in, it's maybe about $7 million.
Lisa Roger, our CFO.
Yeah.
Current facility and the new facility?
Current facility we don't know.
Okay, got it.
Yeah. [This watch facilities] with one of the main we're breaking down one that's old.
And is that-
Moving into one in.
Is that gross or net?
Net.
Net?
Yeah.
$7 million.
Yeah.
But for forty-four thousand square foot, so
Yep.
It's not fully built out, so I mean, it's kinda more permitted. That facility is that we would wanna get up and about permitted.
Thanks.
I wasn't sure if you were implying that if you gain access to that traditional facility that comes with the grant money, if you would also fulfill your orders and grow your business, but also sell to the other markets that.
Oh, 100 -
Are free for this?
100%. I mean, we, for the last several years, we have not been able to actively sell. We have been putting out fires, moving product around just to keep customers happy. Customers have been adding our product to their menus, and we haven't been able to supply them. For the first time.
You would focus on your company.
100%.
Growing and selling to others.
100%.
Okay.
Yeah. I mean, we haven't even scratched the surface yet. You know, once this is up and running, and we've already just started.
Yeah.
we'll be aggressively going after new sales, growing our existing product portfolio, looking at new channels that our products can go into, because really we're just in education right now. There's a ton of other channels that we could be really successful in once we have available supply.
Okay.
So-
Hospitals, for example.
Hospitals, correctional facilities, you name it.
I've been a shareholder way too long.
Yeah. Thank you. Thank you for your patience.
What?
Thank you for your patience.
I'm excited about seeing this group potential because it's been a struggle.
Mm-hmm. It has.
I just wanna congratulate you on getting here. This is a major step.
Thank you. Yeah. It's a pivotal moment for the company. you know, our ability to now actively Our issue's never really been able to sell, to be honest. We've been able to sell the products that we've come up with and brought to market. Supply chain's been the biggest issue in terms of manufacturing. Now that we're in control of that, we can fix it, and we can get what we need, and we have an enormous opportunity in front of us. Go ahead.
Did you experience any competition filling the supply when, or filling the demand when, your company wasn't able to actually service those accounts that you?
No, no. This is one of the huge benefits of being the leader in this category. We created the space. This product was not approved before. We got it approved with the USDA. The USDA used our product as the gold standard for the approval criteria in the approval documents. You know, we're definitely first in the market. We don't really see anyone else nipping at our heels. We've got all the distribution tied up. We've got the customer relationships already there. We're already on so many bids all over the country. Just to give you an example, we recently announced that we won a seven-year bid, right, with Nevada, with Clark County, which is the fifth-largest school district in the country. That's seven years that we're on that bid that no one else can even look at, right?
We have a very sticky business, very sticky customers. We've been fortunate in that respect because that's afforded us the opportunity to stumble and still go back to the customers, and they've been quite receptive, right? Fortunately, enough, that's because we've got a great product, and the kids love it, and it really solves a problem and a need for the operators that are using it. Yep.
I mean, other people could make the product.
Sure.
Are you selling it at a lower price than they would accept?
Why would they come into this market because they can obviously see what the USDA wants and hit it.
Great, great question.
Why would they want to come into this space?
It is a lot more complicated than it looks. Let me tell you few of the reasons why. The reason why we've been able to succeed in this product portfolio is because we built it off the back of our other frozen beverage portfolio. The reason why that's important is because we were able to utilize our existing routes that we already had with our frozen smoothies that weren't school approved, but were going into the broadline distributors already, right? The frozen supply chain is a huge unlock because without that, you cannot move the product efficiently around the country. The frozen product is a non-starter, to be honest, because if you don't have a frozen product, then it doesn't survive the shelf life required to be able to service the education channel.
From when you make it to when it goes into the warehouse, to when it goes to a distributor, to when the distributor has to hold the inventory to then deliver it to all the schools, you could be looking at close to a month in supply chain movement of the product, right? You can't have a fresh product. Fresh product's off the table, right? To be able to have a frozen product, you need to have a frozen supply chain, and a lot of these other establishments aren't set up for that frozen supply chain. Already you have a natural moat around the product. The product IP and how we develop the product as well is very important because it's a freeze-thaw product, right?
It's a challenging formulation to come up with, and again, it's a lot of learnings that have come over the, over the years from doing that. Is it possible? The answer's yes, absolutely. We've got a huge head start. We've got a moat around us. We've got all the relationships, and we're already on a ton of bids all over the country.
Sorry, I missed the beginning of your first part of the presentation, but do you use an intermediary distributor like Dot Foods, or are you fully vertically integrated?
No, we use, we have a number of different distribution options. We do use Dot Foods for some, and we're actually reviewing some other options for this channel with them at the moment. We mainly serve as broad line distributors, U.S. Foods, Sysco, Gold Star, you know, GFS, all these kinds of, all the big ones nationwide. There are some schools that we also serve direct, where they take a truckload at a time, for example. Yep.
Because you work with broadliners, I know in the food service space, sometimes they will want a private label offering, right, for you to supply a private label offering for them.
Yeah, we wouldn't do that. We wouldn't do that for.
You already have those direct sales contacts with those.
100%, yeah. We own this space. We own the space that we're in. Yep.
What school districts are you in now that we know about?
I mean, the most recent one that we just announced is Clark County, so they cover all of Nevada, for example. You know, we're in Miami as another example. We're in schools all over the country. Yep.
Looking into the future.
Yep.
When you mentioned the 40% gross margins, is that off of net sales or gross sales? Is there any discounting or things that are backed out when you sell it directly?
Yeah, we count the net sales. We have other variables.
Okay.
Like, you know, discounting for, you know, marketing through the broadliners and things like that.
What is that gap % between gross sales and net sales?
I think we're sitting right at seven.
Okay, it's not like 10%.
No, it's about three. Yep. Okay, great. Any other questions? Great. Thank you.