Barfresh Food Group (BRFH) Q3 2025 earnings call transcript

Good afternoon, everyone, and thank you for joining us for our third quarter 2025 earnings call. I'm extremely pleased to report that the third quarter marked a transformational period for BARFRESH, as we delivered our highest quarterly revenue in the company history, positive adjusted EBITDA, and completed a strategic acquisition that fundamentally enhances our business model and long-term growth trajectory.

Before I discuss our quarterly results, I want to highlight a pivotal development that occurred immediately following the quarter. The completion of our acquisition of ARPS Dairy in early October This acquisition fundamentally changes our business model providing us with own manufacturing capabilities that will drive top growth ARPS Dairy brings us an operational 15 square foot processing facility along with a 44 square foot state of the art manufacturing facility in Defiance Ohio that is nearing completion and expected to be fully operational in 2026 We have already commenced production at the existing facility and I'm pleased to report that the integration is proceeding smoothly with immediate benefits from enhanced supply chain control and operational efficiency.

Now turning to our third quarter results, revenue for the third quarter was $4.2 million, representing 16% year-over-year growth. This record performance was driven by several factors. Improved production consistency from our co-manufacturing partners, a successful start of the 25-26 school year with expanded distribution, and continued momentum with our pop-and-go 100% juice freeze pops in the lunch day part. We achieved this even though we faced additional manufacturing challenges and startup issues for our juice freeze pops at one of our co-packers.

The manufacturing capacity issues that constrained our first half performance are expected to be fully resolved by the end of the fourth quarter. Our two smoothie bottle co-manufacturing partners are now operating with improved consistency, and the inventory we built over the summer enabled us to service customer demand throughout the critical back-to-school period. We are in the process of bringing back customers who had temporarily removed our products due to spring supply constraints, with many reintroductions occurring in the fourth quarter. The 2025-2026 school year bid-in process has concluded with positive results. We've seen strong uptake across our existing Twist & Go portfolio, and our Pop & Go 100% juice freeze pops have gained meaningful traction with several large school districts, and we expect to add additional schools during the fourth quarter.

The Pop and Go product specifically addresses the lunch day part, a significantly larger market opportunity than breakfast, and early adoption rates are encouraging. We remain at only approximately 5% market penetration in the education channel overall, which continues to represent substantial runway for growth. Most significantly, I'm pleased to report that we achieved positive adjusted EBITDA in the third quarter, a major milestone that demonstrates the operational momentum we're building and validates our path to profitability. With the operational improvements we achieved in the first half of this year, combined with the transformational ARPS dairy acquisition, we raised our fiscal year 2025 revenue guidance back in September to a range of $14.5 million to $15.5 million, representing a 36% to 46% year-over-year growth.

More significantly, we issued preliminary fiscal year 2026 revenue guidance of $30 million to $35 million, representing a 126% increase compared to the high end of our fiscal year 2025 guidance. This substantial growth reflects the full-year contribution from ARPS Dairy, continued market penetration in the education channel, and the expansion of our Pop and Go product line. I will now turn the call over to our CFO, Lisa Roger, for a detailed financial review.

Thank you, Ricardo. Let me walk you through our third quarter financial results in detail. Revenue for the third quarter of 2025 increased to $4.2 million, representing our highest quarterly revenue in company history and 16% year-over-year growth. This record performance was driven by the consistent production capabilities we established through our co-manufacturing partnerships, enabling us to meet increased customer demand during the critical back-to-school period. Our operational improvements are reflected in our margin performance. Gross margin for the third quarter of 2025 improved to 37% compared to 31% in the first half of 2025. The improvement reflects better operational efficiency as our co-manufacturers reach full capability and more favorable product mix with higher margin products representing a larger portion of sales and reflects a return in performance to the adjusted gross margin of 38% achieved in the third quarter of 2024.

Looking forward, our recent ARPS dairy acquisition will create some near-term margin dynamics. We're transitioning BARFRESH production to the new facility to capture long-term operational efficiencies and scale benefits, which will involve typical startup and implementation costs that will temporarily impact BARFRESH margins. Additionally we continuing ARPS Dairy existing milk processing business which operate at different margin profiles than our core business but provides stable cash flow and diversification These are strategic investments in our long-term growth. We expect margin recovery once the BARFRESH transition is complete, and we fully optimize our expanded manufacturing capabilities. operating expenses remained well controlled as we scaled revenue. Selling, marketing, and distribution expenses were $941,000, or 22% of revenue, compared to $990,000, or 27% of revenue in the third quarter of 2024.

G&A expenses for the third quarter of 2025 were $844,000 compared to $705,000 in the same period last year. The year-over-year increase was primarily due to $214,000 in acquisition-related expenses associated with the ARPS dairy transaction. Excluding these one-time costs, G&A would have been down 11% year-over-year. Net loss for the third quarter of 2025 improved to $290,000 compared to a net loss of $513,000 in the third quarter of 2024.

The improvement was driven by increase in revenue and gross margin, partially offset by acquisition-related expenses. Adjusted EBITDA for the third quarter was a gain of approximately $153,000, representing substantial improvement from the prior year period loss of approximately $124,000. and demonstrating the operational momentum we're building. We expect to achieve positive adjusted EBITDA in fiscal year 2026 as we realize the full benefits of our integrated manufacturing model.

Turning to our balance sheet, as of September 30, 2025, we had approximately $4.4 million of cash and accounts receivable and approximately $1.1 million of inventory on our balance sheet. The ARPS Dairy acquisition was funded through our existing credit facility, and we continue to manage our liquidity through various measures, including receivable financing and our credit facilities. With the completion of the ARPS Dairy acquisition, we have significantly enhanced our balance sheet with valuable manufacturing assets, including an operational 15,000 square foot processing facility and a 44,000 square foot state of the art manufacturing facility that will be completed in 2026. Additionally, the $2.3 million government grant that has been preliminarily approved for ARPS Dairy will support the construction and equipment needs for the expanded facility.

Now I will turn the call back to Ricardo for closing remarks.

Thank you, Lisa. The third quarter of 2025 marks an inflection point for BARFRESH. We have not only delivered record financial performance and achieved positive adjusted EBITDA, but we have also positioned the company for unprecedented growth through our strategic The ARPS Dairy acquisition provides us with several strategic advantages. Direct control over a significant portion of our production capacity, enhanced operational efficiency, flexibility to innovate and scale new products more rapidly, and reduced dependency on third-party co-manufacturers, which has been a source of operational challenges and revenue limitations. As we look ahead, we have multiple drivers of growth. Our own manufacturing capabilities through ARPS Dairy, expanded capacity reaching significant scale with our new facility, and continued growth in our core education channel.

The integrated manufacturing model we are building through ARPS Dairy will enable us to pursue opportunities with improved economics and operational control. The guidance we've reiterated today of $14.5 million to $15.5 million for fiscal year 2025 and $30 million to $35 million for fiscal year 2026 reflects the transformational nature of our strategic initiatives and our confidence in executing our growth plan. More importantly, we expect the ARPS Vary acquisition to be accretive to earnings in fiscal year 2026, positioning us to deliver top-line growth and bottom-line profitability as we scale. We are building a scalable, profitable business model that positions us to capitalise on significant market opportunities while delivering sustainable long-term value creation for our shareholders. The operational improvements we've achieved, combined with the successful integration now underway with ARPS Dairy, positioned BARFRESH for a breakthrough period of growth and profitability.

We look forward to updating you all on our progress as we close out fiscal year 2025 and enter what we expect to be an exceptional growth year in fiscal year 2026 And with that I would like to open up the line for questions Operator Thank you.

Yes, so we've been staying in close contact with our customers and really communicating where things are at. That's the benefit of being able to have a broad broker network and our own sales team and the ability to let them know that we've just gone into our own manufacturing facilities and just building the relationships really to make them aware that we have got product coming down the pipe.

And that's really why we've been going back out to them and letting them know now that we've got manufacturing coming on board. They can start putting us back on their menus. And we've got a lot of that happening now in Q4 and more so even into Q1 of next year.

You mean in terms of the customer sales process or in terms of the production at the new facility?

Yeah, I mean, when we go back to the schools and they put us back on the menu, the sales go back immediately. We don't need to retrial the product. So it's more just about communicating when we have product available and then putting it back on the menu. So there's no need for, you know, trials to start over again. The sales process doesn't start over again. It's more just about them placing the orders and it goes back on the menu and the sales basically start immediately from when they place the orders.

Yeah, so we're working through that now. We've already been approved for a $2.3 million government grant, so we expect that to go toward the remainder of the fit-out for the construction of the new facility. We also have the existing facility that is operational where we're making product.

Yeah, there is a complete operational facility already in place. The plan is to move into the new facility out of the old facility. So a lot of the equipment would be going over, and if we need some new pieces to be upgraded as we move into the new facility, we'll address those at the time, and we may look at how we finance those at that point in time.