Innovative Food Holdings: Reports Q2-2023 Results

Bonita Springs / FL. (ifh) Innovative Food Holdings, a leading end-to-end DTC e-commerce platform and direct-to-chef platform that provides unique specialty foods through e-commerce offerings and multichannel partnerships, reported its financial results for the second quarter of 2023.

«During the second quarter, our revenue declined by 8.2 percent. Both our eCommerce and Specialty Foodservice businesses contributed to the declines, though both declined less than our expectations. On the eCommerce business, we continued to restrict marketing spend relative to historical levels as we improve the business model, leading to declines of 30.7 percent, in line with trends in the prior three quarters. Now that we’ve run four quarters of marketing cuts and revenue declines, we expect these revenue headwinds to subside in future quarters. On the Specialty Foodservice business, revenue declined 5.1 percent as post-Covid reopening trends normalized. This normalization, combined with our recent price increases and a change in the technology platform used by a key partner, have led to a smaller, though significantly more profitable business for us. We expect this Specialty Foodservice revenue softness to continue at a similar magnitude for the remainder of the year while our new growth plans begin to take shape. Our plan to improve the fundamentals of the company’s business model made significant progress, with gross margins increasing 377 basis points to 25.4 percent and SG+A decreasing 271 basis points to 24.2 percent, compared with Q2 of 2022. These improvements drove a USD 1.2 million improvement in net income to USD 13,471, and a USD 1.2 million improvement to adjusted Ebitda to USD 453,947, or 2.4 percent of revenue, marking the fourth consecutive quarter of year-over-year improved adjusted profitability, and our first profitable Q2 since 2019. Lastly, our strong financial performance resulted in USD 1.3M in positive operating cash flow, compared to USD 0.4 million of cash used in operating activities in Q2 2022, an improvement of USD 1.7 million,» stated Chief Executive Officer Bill Bennett.

«We also exit our second quarter with a dramatically reshaped balance sheet, enabled by the restructuring of our loans through Maple Mark bank, receiving a loan guarantee from the USDA, and receiving additional working capital from the USDA. As a result, we improved net working capital to a positive USD 4.5 million in the second quarter, compared to a deficit of USD 4.7 million in the prior quarter, an improvement in net working capital of over USD 9 million. As part of the transaction, Maple Mark has also increased our revolver by an additional USD 1 million. Due to the Company’s improved operations performance along with its restructured balance sheet, we believe that we now have adequate near-term liquidity to implement our business plan.»

Bennett continued, «It’s exciting to see the impacts of our plan begin to take shape as we see improvements in our capital structure, margins, expenses, and profit, and revenue declines less than we had expected. As we look forward, improving near term profitability and operating cash flow continue to be top priorities. This includes delivering continued improvements to gross margin by enhancing our product mix, building a more strategic pricing and promotional plan with supplier support, and reducing shipping expenses. We also remain committed to establishing a new lower baseline in SG+A expenses as we optimize our corporate structure, and proactively reduce spending on digital marketing programs.»

«Over the past five months as my tenure as CEO has developed, my level of confidence in the opportunity that lies ahead for IVFH continues to increase. We have a solid foundation, a passionate and committed team, and an industry with tremendous long-term potential. We recognize the importance of maintaining a laser focus on our top priorities in a complex economic environment to create a robust, profitable, and sustainable business model. As we navigate the ever-changing landscape of the food industry, we are confident in our ability to adapt, innovate, and capitalize on opportunities that will drive long-term shareholder value,» concluded Bennett.

Financial Results

Revenues in the 2023 second quarter decreased 8.2 percent to USD 18.8 million, compared to USD 20.5 million for the three months ended June 30, 2023. Second-quarter revenue was impacted by a 5.1 percent decrease in specialty foodservice revenue. Second-quarter eCommerce revenue was down 30.7 percent to USD 2.2 million from USD 3.2 million for the same period last year, as the Company continues to proactively reduce spending on digital marketing and improve the customer experience to drive marketing efficiency.

For the 2023 second quarter, gross margin as a percentage of sales was 25.4 percent, compared to 21.7 percent for the same period last year, primarily due to improved margin and mix management and lower shipping costs. For the 2023 second quarter, selling, general, and administrative (SG+A) expenses were USD 4.6 million, or 24.2 percent of revenue, compared to USD 5.5 million, or 26.9 percent of revenue for the same period last year. The USD 0.9 million, or 2.7 percent year-over-year reduction in SG+A expense was primarily the result of restructuring the Company’s marketing and advertising programs, as well as by overall cost-cutting efforts.

The Company recorded GAAP net income for the 2023 second quarter of USD 0.013 million, or USD 0.0 per share, compared to a GAAP net loss of USD (1.2 million), or USD (0.03) per share, in the prior year’s second quarter.

Adjusted Ebitda, a non-GAAP metric (see tables below), for the 2023 second quarter was USD 452,947, or USD 0.009 per share, compared to USD (714,718), or USD (0.015) per share, for the same period last year. Adjusted Ebitda accounts for the impact of non-core items including an addback for interest, taxes, amortization expense, expense on the extinguishment of debt, and stock related expenses in both 2023 and 2022.