Earnings call transcript: Better Choice Q4 2024 reports improved net loss

Better Choice Company Inc. (BTTR) reported its financial results for the fourth quarter of 2024, highlighting a significant improvement in its net loss and operational efficiencies. Despite a 9% drop in annual net revenues to $35 million, the company managed to increase its gross profit margin by 650 basis points to 37%. The stock price saw a minor decline of 2.63% to close at $1.85 in the aftermarket session, though InvestingPro data shows the stock has gained over 12% in the past week. According to InvestingPro’s Fair Value analysis, BTTR currently appears undervalued.

Key Takeaways

• Net loss improved dramatically to $168,000 from $23 million the previous year.
• The Halo brand experienced a 26% increase in Q4 revenue year-over-year.
• Adjusted EBITDA loss improved by 78% to $1.9 million.
• Inventory was reduced by over 40%, contributing to operational efficiency.

Company Performance

Better Choice demonstrated resilience in a challenging market by improving its financial health and operational metrics. While annual net revenues fell by 9%, the company achieved a substantial reduction in its net loss, reflecting effective cost management and strategic focus on profitable channels. The pet food industry remains robust, driven by trends such as increasing pet ownership and premiumization. InvestingPro analysis reveals the company maintains a healthy current ratio of 2.38, indicating strong short-term liquidity, and holds more cash than debt on its balance sheet. (Discover 13 more exclusive InvestingPro Tips for BTTR.)

Financial Highlights

• Annual net revenues: $35 million (down 9% YoY)
• Gross profit margin: 37% (up 650 basis points)
• Adjusted EBITDA loss: $1.9 million (improved 78% YoY)
• Net loss: $168,000 (improved from $23 million)
• Cash and cash equivalents: $3 million
• Net working capital: $7.9 million (up 200%)

Outlook & Guidance

Looking forward, Better Choice plans to acquire SRx Health in April, aiming to position itself as a global health and wellness leader. The company is focused on profitable revenue growth, margin expansion, and strengthening working capital. It also plans to sell Halo Asia for $8.1 million, which will support its strategic objectives. InvestingPro analysts forecast revenue growth of 4.18% for the current fiscal year, though they don’t expect profitability in the near term.

Want deeper insights? Access the comprehensive Pro Research Report for BTTR, part of our coverage of 1,400+ US stocks, featuring detailed analysis and actionable intelligence for smarter investing decisions.

Executive Commentary

CEO Kent Cunningham expressed optimism about the company’s trajectory, stating, "Our momentum and optimism remain high as we enter 2025." CFO Nina Martinez emphasized the commitment to shareholder returns, saying, "We remain committed to delivering strong shareholder returns by executing our disciplined growth strategy."

Risks and Challenges

• Market Saturation: Increased competition in the premium pet food sector could pressure margins.
• Supply Chain Disruptions: Potential disruptions could affect product availability and costs.
• Economic Uncertainty: Macroeconomic pressures may impact consumer spending on premium pet products.
• Regulatory Changes: Changes in regulations, especially in international markets, could affect operations.
• Currency Fluctuations: Exchange rate volatility might impact international sales and profitability.

Better Choice’s strategic initiatives and operational improvements have set a positive tone for the future, with a clear focus on growth and profitability.

Full transcript - Better Choice Company Inc (BTTR) Q4 2024:

Conference Operator: Good afternoon, and welcome to the Better Choice twenty twenty four Fourth Quarter Financial Results Conference Call. All participants will be in listen only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Walter Pinto, Managing Director, KCSA Strategic Communications.

Please go ahead.

Walter Pinto, Managing Director, KCSA Strategic Communications: Thank you, operator, and welcome everyone to the Better Choice Company’s fourth quarter and full year twenty twenty four financial results conference call. Joining me today are Kent Cunningham, Chief Executive Officer and Nina Martinez, Chief Financial Officer. The company’s financial results press release has been posted to the Investor Relations section of the website and will be followed by a Form 10 K to be filed with the SEC on or before March 31. Please note that remarks made today may include forward looking statements subject to a variety of assumptions, risks and uncertainties. The company’s actual results may differ materially from those contemplated by such statements.

For a more detailed discussion, please refer to the note regarding forward looking statements in the company’s earnings release and SEC filings. Also during the call today, we will discuss certain non GAAP financial measures. Reconciliations of these non GAAP items to the most directly comparable GAAP financial measures will be provided by the company’s financial results press release and made available on the Investors section of the company’s website. I’d now like to turn the call over to Ken Cunningham, our Chief Executive Officer. Please go ahead, Ken.

Kent Cunningham, Chief Executive Officer, Better Choice Company: Thank you, Walter, and thank you everyone for joining us today to discuss our fourth quarter and full year 2024 financial and operating results. I’m joined on today’s call by Nina Martinez, our Chief Financial Officer. I’ll give a business review of 2024 and Nina will then cover our financials in more detail. I’m pleased to report that our business delivered a strong performance in 2024 as we made significant progress in our turnaround strategy to improve profitability and lay the foundation for sustained profitable growth. For the full year, we delivered gross profit margin of 37%, representing an increase of over 600 basis points and our adjusted EBITDA loss of approximately $1,900,000 improved 78% year over year on annual net revenues of $35,000,000 Despite growing consumer uncertainty surrounding geopolitical and potential tariff impacts on the cost of everyday goods, the pet food category continues to show resiliency as pet ownership continues to increase and consumer spending continues to rise with the macro trends of pet humanization, premiumization and wellness underpinning industry growth.

Halo continues to offer a unique brand position for the health conscious consumer seeking the best nutrition for their pets. The brand’s performance was highlighted by an impressive fourth quarter revenue growth of 26% year over year. Our growth in the quarter was driven by 32% growth across Amazon and Chewy as we increased our focus and participation in Black Friday promotions across these platforms. This sales velocity is a key building block to revenue growth, but more importantly, long term growth as we increased the number of new to brand or first time consumers of Halo. As a result, we achieved our best quarter with Amazon since the first quarter of twenty twenty three.

We also successfully launched Halo on Chewy Canada in November. These results give us increased confidence that our strategic shifts are working and that we can continue to build consumer demand for the Halo brand domestically and abroad. As the pet consumer continues to shift to e commerce channels, we sharpened our strategy to ensure that we’re top of mind when and where they’re making their purchase decisions, offering the premium brand and benefits that highly engage pet parents demand. We continued to improve adjusted EBITDA in 2024, reducing SG and A by 22% year over year. This was driven by consistent operational improvements throughout the year in our demand forecasting, resulting in an over 40% reduction in inventory, while simultaneously improving service levels above 95% and a 4% improvement in direct cost per pound as we achieved operational leverage and scale through international volumes and worked with our manufacturing partners to achieve favorable supply turns.

Additionally, we’ve made continued progress reducing our short term obligation. This along with the $6,200,000 gain from extinguishing debt and accounts payable has positioned us to enter 2025 with a healthier balance sheet, including a working capital position of $7,900,000 We expect our financial health to fuel our continued top line momentum as an increased emphasis on e commerce platforms is expected to continue through 2025 and beyond. The generational shift in consumer buying habits continues to migrate online and the overall expansion of e commerce outpaces brick and mortar as pet parents increasingly turn to online retailers for convenience, selection and value. As a thirty year pioneer in premium natural pet nutrition, the Halo brand has become globally recognized and has got a strong consumer following, especially in the fast growing Asia market. Therefore, subsequent to year end, we signed several important transactions to provide future value for our shareholders.

First, we signed a definitive agreement to sell Halo Asia for $8,100,000 in total gross proceeds, which includes $6,500,000 in cash at closing, along with a 3% royalty on sales over the next five years, guaranteed by a minimum royalty payment of $330,000 per year or $1,650,000 in total. We also agreed in principle to a 5.5% royalty agreement in Asia with our existing partner on all sales of the Halo Elevate brand. When we close, which is expected to occur by the April, we’ll retain ownership of North American and rest of world ex Asia operations. In addition, the Board of Directors has approved a royalty distribution plan of up to 55% of the annual royalties generated by the Halo brand to be distributed annually to stockholders of record as of December 31 of the given year. These unique transactions underscore our commitment to delivering long term value to our shareholders from our Halo brand.

These plans will provide a consistent return to shareholders and reward those who have invested and believe in our vision. Our momentum and optimism remains high as we enter 2025. We will continue to further explore opportunities to provide shareholder value and we are confident in our ability to drive long term profitable growth. Now let me turn it over to Nina to take you through our financials in more detail.

Nina Martinez, Chief Financial Officer, Better Choice Company: Thanks, Kent, and good afternoon, everyone. I’ll begin by noting that our annual net revenues of $35,000,000 are down 9% as we knowingly and strategically exited non core sales channels to improve profitability and create operating leverage in the business. In the first half of the year, we continued to exit draining brick and mortar accounts and other distribution avenues, as well as closing an unprofitable direct to consumer business by the second quarter. Despite the expected consolidated revenues down slightly due to these strategic pivots, annual net revenue within our key digital platforms increased 8% year over year as we rebalanced our brand building investment from the unprofitable DTC business to our largest and growing e commerce customers, Chewy and Amazon. We also continued to drive increased consumer demand for the Halo brand globally, noted by 18% growth internationally.

As Kent highlighted earlier, the momentum we realized in the fourth quarter with 26% net revenue growth year over year to $7,200,000 was notably driven by a 32% growth across our key digital platforms and more than doubling our Asia Pacific volume. In the fourth quarter, we also realized significant improvement in our gross margin to 36 driven by volume discounts. Full year gross margin increased over six fifty basis points year over year to 37%. This demonstrates our ability to scale efficiently and manage trade spend and cost effectively, particularly as we continue to invest in profitable core areas of our business and optimize our operations. We achieved scale in our current portfolio domestically through our Halo Holistic plant based diet as a leading brand in the vegan pet food sector and as well through our international volumes.

We significantly reduced operating expenses in 2024 with an overall SG and A reduction of 22%. This is a result of our ability to effectuate strategic cost saving initiatives to support our focus of sustainable growth. Our e commerce efforts are dedicated to our key accounts where we achieve higher and more effective returns on our marketing investment dollars, which provides significant operating leverage as compared to our historical direct to consumer business. Our asset light business model and the ability to utilize our outsourced manufacturing capabilities in a fully wholesale business provides us with the scale and leverage needed to satisfy consumer demand in a profitable way. A focus on continuing to improve effective marketing and brand investments with our largest e commerce partners coupled with proper management of an efficient and optimized portfolio of products are the key success factors we attribute to winning as a digital native brand in the competitive landscape of the pet food industry.

Our year to date GAAP net loss improved by 99% year over year to almost breakeven at a mere $168,000 loss compared to a $23,000,000 net loss in 2023. This positive trajectory was driven by a 10% increase in gross profit dollars and a 43% decrease in total operating expenses. Additionally, we successfully extinguished our senior term loan debt and cleaned up supplier obligation as a result of a successful litigation settlement, driving $6,200,000 gain on extinguishment of debt and accounts payable. Not only has this significant event driven positive EPS trajectory, but has also strengthened our balance sheet and enhanced our financial flexibility. Our annual performance ultimately resulted in EPS totaling $0.11 of loss per share, a significant improvement from the $32 of loss per share in 2023.

Furthermore, in Q4 alone, our adjusted EBITDA loss improved by 80% year over year to an approximately $700,000 loss, a testament to Halo’s vastly positive turnaround. These improvements highlight our focus on driving operational leverage and positioning Better Choice for profitability in the coming quarters. The full year adjusted EBITDA loss improved 78% year over year to a $1,900,000 loss compared to $8,400,000 of adjusted EBITDA loss in 2023. A table reconciling GAAP net loss to adjusted EBITDA loss can be found in our earnings release and our 10 ks to be filed on or before March 31 with the SEC. As for liquidity and capital resources, our cash and cash equivalents as of 12/31/2024 were $3,000,000 with 2,400,000 of borrowing capacity under our credit facility.

Our net working capital position increased over 200% from $2,500,000 in 2023 to $7,900,000 in 2024. Net cash used in operations totaled $4,400,000 driven by the pay down of our supplier obligations and non cash gain on extinguishment of debt offset by the reduction of our inventory balances. Net cash used in investing activities was $2,300,000 as we made investments into SRX Health Solutions prior to the anticipated merger in 2025. Net cash provided by financing activities was $5,500,000 driven by $4,700,000 in net proceeds from an equity offering in the third quarter as well as net draws from our credit facility. Our improved liquidity and working capital position is a direct reflection of our continued focus on stabilizing the business and rightsizing the balance sheet to lay the foundation for a successful turnaround.

Showcasing our third consecutive quarter of net loss and EPS growth and four consecutive quarters of gross margin expansion proves the strength and capabilities of our collaborative management team and our strategic pivots we’ve made to create this operational leverage in the business has far exceeded our expectations. In summary, we’re pleased with the strong results for the year and in particularly the recent quarter as we enter 2025 with growing momentum. With enhanced operations, a focused approach to key global markets and a strengthened brand portfolio, we are well positioned to capitalize on emerging markets within the pet health and specialty healthcare segments. Our focus will remain on driving profitable revenue growth, expanding margin and continuing to strengthen our working capital position to fuel growth. We remain committed to delivering strong shareholder returns by executing our disciplined growth strategy and driving lasting value.

With that, I’ll now turn it back over to Kent for closing remarks.

Kent Cunningham, Chief Executive Officer, Better Choice Company: Thanks, Nina. As many of you know, we’re in the process of completing our acquisition of SRx Health. Both the Better Choice and SRx Health shareholders unanimously approved the transaction, which we expect to close in April. Upon closing, Better Choice will emerge as a leading global health and wellness company, providing better products and solutions for pets, people and families. The combination of the two companies is expected to yield operational efficiencies and synergies, while providing near and long term growth opportunities that will drive sustainable organic growth for each respective business.

We look forward to updating everyone on further details on our strategic plans after the closing of SRX. I’d now like to open the call for questions. Operator?

Conference Operator: We will now begin the question and answer session. This concludes our question and answer session and the Better Choice twenty twenty four Fourth Quarter Financial Results Conference Call. Thank you for attending today’s presentation. You may now disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.