Innovative Food Holdings: Reports Q3-2023 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 third quarter of 2023.

«During Q3-2023, we continued to focus on profit during our year of stabilization, with gross margins increasing 568 basis points to 28.2 percent. Overall, our performance in the third quarter drove a USD 124,987 improvement in net income to USD 134,733, and a USD 397,184 improvement to adjusted Ebitda to USD 887,673, or 5.1 percent of revenue, compared to 2.4 percent of revenue in Q3-2022, marking the fifth consecutive quarter of year-over-year improved adjusted profitability,» stated CEO Bill Bennett.

Bennett: «Our revenue declined by 13.8 percent, driven primarily by our Specialty Foodservice business sales declining by 16 percent, as we continued to focus on overcoming the headwinds created by a change in the technology platform used by a key partner, leading 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. This quarter included the establishment of our new sales team, the opening of several new customers, and the deepening of several existing customer relationships. The B2B sales cycle is long, but we are optimistic about how today’s efforts will drive results next year. On the eCommerce business, we continued to restrict marketing spend relative to historical levels as we improve the business model. We have now lapped four consecutive quarters of these marketing cuts, and the current quarter decline of only 0.7 percent (compared to declines of 20 percent+ over the last four quarters) indicates that the decline has subsided as we anticipated. That said, the e-commerce business continues to lose money, so we are now evaluating strategic alternatives for the business, with an eye towards eliminating the associated losses.»

«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. 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.»

Bennett added, «As announced earlier this year, we’ve used the last several months to conduct a full review of the company strategy. As an outcome to that work, we’ve made the decision to reallocate resources and capital from our long-term loss-making businesses, into our consistently profitable businesses, while reducing our debt, and causing zero incremental dilution to our shareholders. These moves will make a significant impact to our P+L as we reduce losses in e-commerce, allocate capital to profitable business growth, and reduce interest expense for the company. We will discuss more details of the strategy in today’s earnings call.

«Over the past eight 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 third quarter decreased 13.8 percent to USD 17.3 million, compared to USD 20.1 million for the three months ended September 30, 2023. Third-quarter revenue was impacted by a 16 percent decrease in specialty foodservice revenue. Third-quarter eCommerce revenue was down 0.7 percent to USD 1.8 million from USD 1.8 million for the same period last year, as the Company begins to lap the commencement of marketing cuts in the third quarter of 2022.

The following table sets forth IVFH’s revenue by business category for the months ended September 30, 2023, and September 30, 2022 (unaudited):

Q3-2023 % of Net Sales Q3-2022 % of Net Sales Change
Specialty Foodservice 14,775,073 85.3 % 17,630,515 87.8 % -16.2 %
E-Commerce 1,825,924 10.6 % 1,839,541 9.2 % -0.7 %
National Brand Management 340,577 2.0 % 336,766 1.7 % 1.1 %
Logistics 358,717 2.1 % 253,160 1.3 % 41.7 %
Total IVFH 17,300,291 100 % 20,059,982 100 % -13.8 %

For the 2023 third quarter, gross margin as a percentage of sales was 28.2 percent, compared to 22.5 percent for the same period last year, primarily due to improved margin and mix management and lower shipping costs.

For the 2023 third quarter, selling, general, and administrative (SG+A) expenses were USD 4.5 million, or 25.9 percent of revenue, compared to USD 4.3 million, or 21.5 percent of revenue for the same period last year. The USD 0.2 million, or 3.8 percent year-over-year increase in SG+A expense was primarily the result of USD 272,727 in connection with the quarterly revaluation of stock appreciation rights held by the Company’s Chief Operating Officer.

The Company recorded GAAP net income for the 2023 third quarter of USD 0.134 million, or USD 0.003 per share, compared to USD 0.009 million, or USD 0.000 per share, in the prior year’s third quarter.

Adjusted Ebitda, a non-GAAP metric (see tables below), for the 2023 third quarter was USD 887,673, or USD 0.018 per share, compared to USD 490,489, or USD 0.010 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.