Earnings call transcript: Challenges and Opportunities for Elf Nutrition in Q4 2024

Elf Nutrition (ELF) reported its earnings for the fourth quarter of 2024, revealing a decline in revenue and an increase in gross loss compared to the previous year. Despite these challenges, the company is making strategic moves to position itself for future growth, including product launches and market expansion efforts. The stock price remained stable at $0.01, though InvestingPro data shows a concerning one-year price return of -92.86%. According to InvestingPro’s Fair Value analysis, the stock appears fairly valued at current levels. The company’s overall Financial Health Score stands at 1.92, indicating FAIR condition despite operational headwinds.

Key Takeaways

• Elf Nutrition’s revenue decreased by 15% year-over-year.
• The company launched its first adult ready-to-drink product in Canada.
• Operational efficiencies were improved by reducing headcount and consolidating R&D activities.
• The company is expanding its retail presence and exploring strategic collaborations.

Company Performance

Elf Nutrition experienced a challenging fiscal year 2024, with revenue dropping to $8 million, a 15% decrease from $9.4 million in 2023. The company also reported a gross loss of $1.2 million, compared to a gross loss of $100,000 in the previous year. Despite these setbacks, Elf Nutrition is actively working to expand its market presence and streamline operations.

Financial Highlights

• Revenue: $8 million, down 15% from 2023.
• Gross Loss: $1.2 million, compared to $100,000 in 2023.
• Operating Expenses: $13.6 million, a 20% decrease from $16.9 million in 2023.
• Inventory Write-down: $2.2 million.

Outlook & Guidance

Elf Nutrition is focused on expanding its retail distribution, scaling production in Europe, and enhancing brand visibility. The company aims to improve its financial performance by increasing marketing efforts and driving product adoption. For FY2025, the EPS forecast is -$0.03, with revenue expected to reach $14.64 million. By FY2026, the company anticipates an EPS of $0.10 and revenue of $444.04 million.

Executive Commentary

"2024 has been a defining year for Elf Nutrition, marked by significant challenges and key decisions that will shape our future," said Hamital Yitzak, CEO. The company is prioritizing high return on advertising spend (ROAS) marketing channels due to limited budgets. Yitzak also emphasized the exploration of strategic avenues to enhance the company’s position.

Risks and Challenges

• Funding Constraints: The company addressed concerns about limited financial resources during the earnings call.
• Inventory and Distribution Challenges: Elf Nutrition is working to manage inventory write-downs and improve distribution efficiency.
• Regulatory Engagement: Ongoing discussions with the FDA regarding infant formula approval could impact future growth.
• Market Competition: The growing demand for plant-based nutrition presents both opportunities and competitive pressures.
• Shareholder Concerns: Stock performance and strategic direction remain key areas of focus for investors.

Elf Nutrition is navigating a complex landscape, balancing immediate financial challenges with strategic initiatives aimed at long-term growth. As the company continues to expand its product offerings and market presence, its ability to execute on these plans will be critical to its future success.

Full transcript - Else Nutrition Holdings Inc (BABY) Q4 2024:

Conference Operator: Greetings, and welcome to e. F. Nutrition’s Fiscal Year twenty twenty four Conference Call. At this time, all participants are in a listen only mode. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Alexandra Schultz, Investor Relations. Thank you. Please go ahead.

Alexandra Schultz, Investor Relations, Elf Nutrition: Good morning, and thank you for joining Elk Nutrition’s twenty twenty four fiscal year financial results and business update conference call. On the call with us today is Hamital Yitzak, Chief Executive Officer of E. L. S. Nutrition.

The company issued a press release today, 06/02/2025 containing its 2024 fiscal year financial results, which is also posted on the company’s website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at (212) 671-1020. The company’s management will now provide prepared remarks reviewing the financial and operational results for the year ended 12/31/2024. Before we get started, we would like to remind everyone that today’s call will contain forward looking statements that are based on current assumptions and subject to risks and uncertainties that could cause actual results to differ materially from those projected, and the company undertakes no obligation to update these statements except as required by law. Information about these risks and uncertainties are included in the company’s filings as well as periodic filings with regulators in Canada and The United States, which you can find on SEDAR and Elf Nutrition’s website.

With that, we will now turn the call over to Hamital Yitzak, Chief Executive Officer. Please go ahead, Hamital.

Hamital Yitzak, Chief Executive Officer, Elf Nutrition: Thank you, Alexandra, and thanks to everyone for joining us today. 2024 has been a defining year for Elf Nutrition, marked by significant challenges and key decisions that will shape our future. While this past year has been difficult, we believe the strategic actions we have taken will help position us for long term growth. Over the past couple of years and more so in 2024, our financial performance has been significantly impacted by a challenging cycle rooted in constrained funding capabilities. This external limitation initially forced us to operate with a very restricted marketing budget, which in turn hindered our ability to drive brand awareness and customer acquisition.

As a result, revenue growth did not increase, further tightening our ability to reinvest in key areas such as marketing and product development. Compounding this issue, the reduced cash flow also limited our capacity to fund inventory manufacturing in advance, leading to a few stock shortages. It’s important to emphasize that these shortages were not due to production capacity constraints. Our facilities are fully capable of meeting demand, but rather a direct consequence of funding limitations. This cycle of constrained investment leading to missed revenue opportunities has been self reinforcing and addressing it remains a top priority as we work towards more sustainable financial footing.

We also acknowledge the disappointing trajectory of our stock performance. As a direct result of the funding structure available in the past couple of years, however, our foremost priority has been to safeguard the long term survivability and operational integrity of the company. In a period marked by challenges and volatility, our decisions, though difficult, were driven by the imperatives to ensure the company’s resilience and ability to emerge stronger, while the impact on shareholders’ value is not taken lightly, stabilizing the business and preserving its core capabilities were essential to creating a foundation for future recovery and sustainable growth. Despite these difficulties, we remain focused on making the right decisions to strengthen the company’s foundation. Specifically, we took decisive steps to optimize operations and reduce costs.

We anticipated for nearly half a year to receive a bridge funding to a long term non dilutive funding, which would have put us in a stronger financial position. But as this did not materialize, we acted swiftly to secure other funding and cut costs. Securing capital became key to sustaining operations and ensuring business continuity. Another key initiative has been optimizing production and improving supply chain efficiency. We are preparing to start manufacturing our powder formula also in Europe, which will offer multiple advantages, including lower production costs, improved margins and enhanced product quality.

Our European production will initially serve the Canadian market with plans to expand it into The U. S. In the near future. This transition is an important part of our broader effort to diversify manufacturing, mitigate supply chain risks, avoid tariffs and support our expansion to additional markets. We’ve also taken proactive steps to improve our cost structure.

This year, we made targeted reductions in headcount, aligning our workforce with current business needs while maintaining our focus on key growth initiatives. Further, by executing significant overhead cost reductions and undertaking critical housekeeping measures across the business. We eliminated operational inefficiencies, cut underperforming or unjustified roles and significantly reduced low ROAS marketing spend that no longer delivered meaningful returns. Additionally, we made the strategic decision to discontinue relationships with retail customers who did not contribute to our profitability. As a result of these decisive actions, we expect improved product margins and higher revenues.

Furthermore, we made the strategic decision to close our lab in Israel and consolidate research and development activities. This restructuring allows us to lower overhead costs while preserving our ability to innovate and develop new products. These cost saving measures are expected to improve our financial performance, enhance cash flow and increase operational efficiency. Despite our challenges, demand for plant based oxygen friendly nutrition continues to grow, and Elf Nutrition is well positioned to capture this opportunity. In fact, we continue to see success with our flagship toddler and kids nutrition products, and we recently introduced our first adult ready to drink product in Canada, marking our entry into the growing adult nutrition market.

With the first commercial production successfully completed, we anticipate long term stronger consumer adoption as we increase brand awareness depending on available marketing budgets. Additionally, our products are now available in over 600 Loblaw store, a major milestone in expanding retail distribution and increasing brand visibility. And in The U. S, we are gaining traction on the Walmart marketplace, allowing us to connect with a larger audience of parents and families seeking premium plant based nutrition solutions. We also recently announced the nationwide launch of our Kids RTD products in thousand Walmart retail stores.

This achievement marks a significant step forward in our retail strategy and speaks to the growing demand for clean label plant based nutrition. On the FDA front, regarding our infant formula, we are extremely pleased with the recent HHS and FDA teams launch of Operation Stork Speed, which is a pivotal initiative to expand infant formula options and strengthen supply chain resilience in The U. S. This effort aligns with our mission to cater the unmet need and bring clean label, whole food plant based, non soy, non dairy infant formula to American families. Through our dedicated efforts in Washington DC, including congressional engagement on FDA regulatory reform, we are making significant strides toward modernizing FDA guidance for plant based formulas.

We look forward to working closely with the FDA to establish a clear regulatory pathway, ensuring that parents have access to safe, high quality, and scientifically backed nutrition options. At e. F. Nutrition, we are committed to redefining early childhood nutrition with natural, minimally processed ingredients like almonds, buckwheat and tapioca, providing a healthier, sustainable alternative for families across the nation. In addition, supporting our efforts, we were recently featured in an OPEB in The Washington Times.

The piece titled Operation Stork Speed will ensure babies get the nutrition they need, emphasizes the importance of modernizing the regulatory framework and accelerating approval pathways for clean label, client based alternatives like ours. This feature aligns with our broader mission and ongoing efforts in Washington where we’re actively engaging with policymakers and advocating for science backed updates to infant formula guidelines. It’s also timely coinciding with the national launch of Operation Stroke Speed, an initiative focused on improving infant formula safety and availability and enabling innovative options for unmet needs. These achievements demonstrate our commitment to expanding our product assortment and optimizing marketing strategies to drive further growth. Looking ahead, we are refocused on expanding our product portfolio, including increasing the availability of our recently launched adult RTD, increasing retail and online availability of our already successful products and strengthening our market presence across the world.

Now let me briefly discuss our financials, which are expressed in Canadian dollars. Revenue for the twenty twenty four fiscal year was $8,000,000 compared to $9,400,000 for the 2023 fiscal year, a decrease of approximately 15%. The company’s gross loss for the 2024 fiscal year was $1,200,000 compared to $100,000 for the 2023 fiscal year. The write down of inventories recognized in cost of sales during 2024 amounted to $2,200,000 If we eliminate this expense, the actual gross profit would be $1,100,000 representing 13% gross margin. The company’s operating expenses for the 2024 fiscal year was $13,600,000 compared to $16,900,000 for the 2023 fiscal year, a decrease of approximately 20%.

So as we look into 2025, our key priorities include expanding retail distribution and strengthening relationships with key retailers to increase availability both in store and online scaling production in Europe with plans to extend European manufacturing to serve The U. S. Market and enhancing brand visibility through marketing efforts, influencer collaborations and educational initiatives to drive greater adoption of our products. These steps will enable us to accelerate growth, expand our market presence and build a stronger foundation for the future. At this point, I’d like to address questions that come in from investors.

Alexandra, please lead the Q and A session.

Alexandra Schultz, Investor Relations, Elf Nutrition: Thank you, Hamital. Our first question is length of distribution have significantly decreased. Is this because of a more targeted approach to consumer demographics or simply a lack of demand?

Hamital Yitzak, Chief Executive Officer, Elf Nutrition: Well, some retailers did remove our products from their shelves. In 2024, we added several important retailers such as ATB and Mayer, and we continue to sell well at many retailers. Some retailers demographics just don’t have the same demand that we see at others. And some products are slower mover compared with others. And therefore, we see changes in the mix of products and stores.

We have big hopes that retail sales of our RTD and cereal products will grow in 2025, starting with our latest announcement of 1,000 stores at Walmart that starts to sell RTD. As discussed during the call, funding has been an issue for us. So with limited marketing budgets, we are focusing on the highest ROAS marketing channels.

Alexandra Schultz, Investor Relations, Elf Nutrition: Thank you. Our next question is revenue has declined and the existing cash burn rate requires the ongoing dilution of share value to pay for operations. Under these conditions, what is the rationale behind expanding as opposed to organically growing the successful core products such as the line of cereals, the Omega and both of the RTD shakes?

Hamital Yitzak, Chief Executive Officer, Elf Nutrition: Our cash burn rate has dramatically declined as a result of our overhead cost reduction and efficiencies made in the past two, three quarters. Our gross profitability has already improved and will take effect and expected further to improve in 2025. Our inventory issues are mainly as a result of insufficient funding for production and packaging, not lack of production capacity, as mentioned. We continue to work diligently to fix these issues and expect them to be less critical as 2025 progresses. In Canada, we expect to be in much better position in the coming weeks.

In The U. S, it will take a few more weeks to resolve most of the issues.

Alexandra Schultz, Investor Relations, Elf Nutrition: Thank you. Our next question is with such a large market and a product that is at its core a very healthy nutritional meal or supplement, how is it that you can’t attract enough customers to make a viable business?

Hamital Yitzak, Chief Executive Officer, Elf Nutrition: It is pretty simple. With a little to zero marketing budget, we had limited resources to promote our products. We have changed our approach to marketing, which we believe is more cost effective and efficient and expect this to improve in 2025 given the alternatives on the market. As mentioned, we are mainly focusing on high return on advertising spend marketing channels.

Alexandra Schultz, Investor Relations, Elf Nutrition: Thank you. Our next question, when will e. L. F. Start infant formula trials in The U.

S? And can the new HHS expedite this?

Hamital Yitzak, Chief Executive Officer, Elf Nutrition: Nearly one year ago, the company has started a lobbying campaign to enforce the FDA to reply to this to its unanswered questions with regards to the continuation of the clinical pathway. Recently, the FDA itself assigned two projects to the National Academies of Sciences, Engineering and Medicine, looking at challenges in supply, market competition and regulation of infant formula. These products aim to compare The U. S. Regulation for infant formula with regulations in other countries such as Europe and Canada, including a deep examination of the science regarding methodologies for assessing biological quality of protein, a preclinical study, and for assessing the ability of an infant formula to support normal physical growth.

That’s the clinical study. On March 25, the USAJS launched Operation Stork Speed, which is an initiative aimed at ensuring the safety, nutritional adequacy and resilience of infant formula in The United States. The operations focuses amongst other points on encouraging the development of new, safe and nutritious infant formulas as well as a plan to issue a request for information, RFI, to start the first comprehensive update and review of infant formula nutrients since 1998. This review aims to ensure that infant formulas meet current nutritional standards and address any gaps in scientific research related to health outcomes associated with formula feeding. These efforts are designed to support the health and well-being of infants and young children, ensuring they have access to safe and reliable nutrition.

With respect to the recent changes in the HHS and FDA approach to the infant formula industry, the company believes that its new infant formula offering will be reconsidered by the FDA and the unanswered questions will be answered and the lobbying efforts will eventually lead to the FDA’s approval to start the clinical studies.

Alexandra Schultz, Investor Relations, Elf Nutrition: Thank you, Hamatah. Our next question is, I have been a shareholder for years and have seen my investment evaporate. As the share price is an indicator of shareholder confidence and reflective on management, what changes can be expected for management to perform for shareholders and turn the valuation of the company positive?

Hamital Yitzak, Chief Executive Officer, Elf Nutrition: We understand and appreciate the concern regarding the company’s share price and its impact on shareholder confidence. As mentioned during the call, funding constraints have significantly impacted our ability to accelerate growth. However, over the past two, three quarters, management has undertaken a series of decisive actions to stabilize and revitalize the company. These actions have been designed to heal the business at its core, optimize operations and position us for long term growth, including cost restructuring and operational efficiency improvements, focused commercial efforts to expand our distribution footprint and drive revenue growth, product innovation, particularly in the adult nutrition category, addressing a significant and underserved market, refining our go to market strategy to better connect with our consumers and enhance brand visibility, strengthening partnerships and retail channels to expand both online and in store presence. These steps are part of a broader turnaround strategy aimed at restoring shareholder value and rebuilding trust in the marketplace.

While we recognize that results may take time to reflect in the share price, we remain committed to transparency and execution.

Alexandra Schultz, Investor Relations, Elf Nutrition: Thank you. Our next question, have there been discussions with larger corporations to either partner with e. F. Or take control?

Hamital Yitzak, Chief Executive Officer, Elf Nutrition: Yes. We are actively exploring multiple strategic avenues to enhance the company’s position. This includes strategic collaborations with international corporates, which may provide both operational and market expansion synergies, mergers and acquisitions, opportunities to accelerate growth and scale. Our goal is in evaluating these paths is to unlock maximum value for our shareholders, while positioning us for sustained growth in a competitive market.

Alexandra Schultz, Investor Relations, Elf Nutrition: Thank you. Our next question. We get the news reports that are positive events such as Amazon Canada has adult RTD available, but they are false leads. Why the misdirection? Can you please be more transparent?

Hamital Yitzak, Chief Executive Officer, Elf Nutrition: We understand the frustration surrounding perceived false leads in recent announcements. We strive to maintain open and honest communication and regret any confusion caused. To clarify, the adult ready to drink nutrition product has been available for several months on our official website healthnutrition.ca. It is also available and selling on amazon.ca as well, at six packs and in 24 packs. We recognize the importance of timely and reliable updates and are continuously working to improve how we communicate product launches and strategic progress to our valued shareholders.

Alexandra Schultz, Investor Relations, Elf Nutrition: Thank you, Hamital. That does conclude our Q and A session. At this point, I’ll turn it back over to you for closing remarks.

Hamital Yitzak, Chief Executive Officer, Elf Nutrition: Thank you, Alexandra. In 2024, we faced significant challenges, including limited marketing resources, inventory shortages and funding constraints, which impacted revenue growth. In response, we took strategic steps to optimize operations, reduce costs and secure necessary capital to maintain business continuity. With these issues behind us, we are focused on scaling distribution, increasing brand visibility and driving innovation in 2025. These efforts will enable us to enhance our market presence, improve financial performance and establish a stronger path forward.

We appreciate the support of our investors, partners and loyal customers who believe in our mission to revolutionize plant based nutrition. Thank you for joining us today and we look forward to sharing more exciting updates in the near future.

Conference Operator: Ladies and gentlemen, this concludes today’s event. You may disconnect your lines or lock off the webcast at this time and enjoy the rest of your day.

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