Earnings call transcript: Innovative Food Hldg Q4 2024 shows growth

Innovative Food Holdings (IVFH) reported a strong performance in its Q4 2024 earnings call, highlighting significant revenue growth and operational improvements. The company, which is a key player in the specialty food distribution market with a market capitalization of $115 million, saw its total revenue increase by 19.2% for the quarter. Despite this growth, the stock price experienced a slight decline of 2.27%, closing at $2.15, as investors digested the mixed outlook for the coming years. According to InvestingPro data, IVFH has delivered impressive returns of 139% over the past year and 62% in the last six months.

Key Takeaways

• Q4 total revenue increased by 19.2%, with organic revenue growth at 44.3%.
• Annual revenue reached $72.1 million, a 2.5% increase year-over-year.
• The company achieved a GAAP net income of $2.5 million, recovering from a loss of $3.7 million the previous year.
• Operational efficiencies led to significant cost reductions, including a 60% decrease in logistics costs.

Company Performance

Innovative Food Holdings demonstrated robust performance in Q4 2024, with substantial revenue growth driven by its retail business and strategic expansions into new markets such as airline catering. The company’s focus on innovation, including AI-driven catalog growth and warehouse automation, has contributed to an impressive organic revenue increase of 44.3% for the quarter.

Financial Highlights

• Annual Revenue: $72.1 million, up 2.5% year-over-year.
• Q4 Revenue: Increased by 19.2%.
• GAAP Net Income: $2.5 million, a turnaround from a $3.7 million loss in 2023.
• Adjusted Net Income: $2.1 million, up from $1.3 million in 2023.
• SG&A Expenses: Reduced by $1 million.

Outlook & Guidance

Looking forward, Innovative Food Holdings aims to achieve $1 billion in revenue long-term, focusing on expanding its core distribution and optimizing operations. The company expects 25% organic growth in Q1 and plans to explore additional food categories and potential Nasdaq uplisting. However, the EPS forecast for FY2025 suggests a decline, indicating potential challenges ahead.

Executive Commentary

CEO Bill Bennett stated, "We are well on our way to eventually becoming a profitable $1,000,000,000 revenue company," highlighting the company’s ambitious growth targets. COO Brady Smallwood emphasized the benefits of streamlining operations, saying, "Streamlining the organization has enabled us to build better for the future."

Risks and Challenges

• Market Saturation: The specialty food market is competitive, and further expansion may face saturation risks.
• Macroeconomic Pressures: Economic downturns could affect consumer spending on specialty foods.
• Supply Chain Disruptions: Continued reliance on complex supply chains may pose risks.
• Execution Risks: Successfully integrating acquisitions and new business lines remains a challenge.

Q&A

During the earnings call, analysts inquired about the potential growth of the Amazon sales channel and the company’s M&A strategy. Executives also addressed expectations for improving margins in the cheese business, underscoring the focus on operational efficiency and strategic expansion.

Full transcript - Innovative Food Hldg (IVFH) Q4 2024:

Ronique Wallach, Call Moderator, Innovative Group Holdings: Good morning, and welcome to the Innovative Group Holdings Fourth Quarter and Fiscal Year twenty twenty four Earnings Conference call. My name is Ronique Wallach, and I’ll be moderating today’s call. With me on today’s call for Innovative, some holdings is Bill Bennett, our CEO, Bruce Wallach, our COO, and Carrie Shoopart, our CFO. Throughout the conference, we will be presenting both GAAP and non GAAP financial measures, including amongst others, historical estimated APS adjusted EBITDA, which is net income before costs associated with amortization, depreciation, interest, and taxes, and excluding certain one time expenses, and adjusted fully diluted earnings per share using the weighted average share outstanding for the quarter ended twelvethirty onetwenty four.

These measures are not calculated, no quarters with GAAP. On a stated reconciliation of certain of our non GAAP financial measures, and the most directly comparable GAAP financial measures of currency is press release. I’d like to remind everyone that today’s call will contain forward looking statements from our management made within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21A of the Securities and Exchange Act of 1934, as amended, concerning future events. Words such as aim, may, could, should, projects, expects, intends, plans, believes, anticipates, hopes, estimates, goals, and variations of such words. Similar expressions are intended to identify forward looking statements.

These statements involve significant known and unknown risks and are based upon a number of assumptions and estimates, and are currently subject to significant risks, uncertainties, and contingencies, and many of which are beyond the company’s control. Actual results, including without limitation, the results of our company’s growth strategies, operational plans, as well as future potential results of operations or operating metrics and other matters to be addressed by management in a conference call, may differ materially universally from those expressed or implied by such forward looking statements. Factors that could cause actual results to differ materially include, but are not limited to, the risk factors described in other disclosures contained within our filings with the Securities and Exchange Commission including the risk factors and other disclosures in the forms contained in other filings with the SEC, all of which are accessible on www.sec.gov. Except to the extent required by law, we assume no obligation to update statements as circumstances change. With that, I’d like to turn the call over to mister Bill Bennett.

Please go ahead.

Bill Bennett, CEO, Innovative Group Holdings (IVFH): Hello, everyone. Good morning. I’m happy to welcome you to our q four and fiscal twenty twenty four earnings call. I’m joined by our COO, Brady Smallwood, and our CFO, Gary Schubert. Today, we’ll be discussing the results from our 2024 fiscal year as well as the fourth quarter of twenty twenty four.

You can read more detail about our results when we file our annual report and 10 ks with the SEC in the coming weeks. As we reflect on 2024, I want to start by emphasizing just how much progress we’ve made on our path to eventually becoming a profitable $1,000,000,000 revenue company. When I joined IVFH, we laid out a three phase roadmap to drive long term success. Phase one, stabilization. We refocused the business, recapitalized the company, divested unprofitable operations, fixed gross margins, and restored financial health to the business.

Phase two, laying the foundation for growth. We’re now working to expand our core distribution business, optimize operations, and leverage strategic acquisitions to build a playbook for larger future growth. And finally, phase three, build and scale. Once our business model is well cemented, we will look to accelerate M and A, market expansion, and customer acquisition, driving our profitable flywheel forward. As we said last quarter, we can now confidently say that phase one is complete, and we are well on our way with phase two.

Over the past year, we have one, divested all non core businesses, including igourmet.com and mouth.com, reducing operational distractions and financial drag two, strengthened our financial position by selling our Florida headquarters and reducing our overhead structure three, refocus entirely on our core foodservice business, which saw organic revenue growth of 44.3% in Q4 twenty twenty four Four, successfully acquired Golden Organics and Loco Foods, bringing immediate revenue contributions and accretive profit. And five, launched a major national retail distribution partnership, which has already scaled and is now expanding, delivering game changing revenue growth in a brand new sales channel for the company. And the results speak for themselves. Despite a year of significant transformation, this team is executing tremendously well. We delivered 72,100,000 in revenue, up 2.5% year over year despite the headwinds from the divested businesses.

GAAP net income improved by $6,100,000 to $2,400,000 while adjusted EBITDA increased 18.1% to 3,200,000 These results are even more impressive when considering the upfront investment costs associated with our new retail business and the M and A integration. As we have now transitioned into Phase two, our focus will be on driving profitable sales and successfully integrating our recent acquisitions. The two main actions you’ve seen from us so far in Phase two include the launch of our retail business and our first steps forward in our M and A strategy. I’ll spend a moment on each of these. First, our new retail business.

We’re very excited about this new business. As you can see in today’s results, this new cheese business has driven a dramatic shift in our results with organic revenue growing 44% in Q4. As we mentioned in last quarter’s call, the business comes at low margins like any retail business does while also including large startup costs in its first quarter of operation. But you can see that we are still controlling expenses carefully and ramping the business thoughtfully. Over time, you will see that while our gross margin rate comes under some pressure from this new business, the incremental dollars will be highly worthwhile.

In addition to the positive results from the retail business, we’re also excited by how this launch begins to derisk our customer mix. For example, in Q4 of twenty twenty three, our largest customer made up 46.7% of our revenue, while in Q4 of twenty twenty four, that same customer made up just 33.9% of our revenue. Of course, this metric is also benefited by our recent acquisitions. We expect our continued focus on expanding sales channels will further derisk our customer mix into the future. Now let’s move to M and A.

As we’ve said before, we have remained disciplined in searching out acquisitions that meet our four key investment criteria. One, profitability. The business must already be generating positive EBITDA and cash flow or have clear near term opportunities to get there. Two, an attractive valuation. We seek acquisitions at three to five times adjusted EBITDA, ensuring a strong return on investment within five years before considering the impact of synergies.

Three, operational synergies. The business must have exciting upside, bringing clear costs or revenue benefits. Four, right sized for integration. We have focused on companies with $5,000,000 to $15,000,000 in revenue, large enough to be impactful but small enough for smooth integration. Both Golden Organics and Local Foods fit these criteria well.

They both have a deep loyal customer base, a unique catalog that will unlock synergies for IVFH, and a well known local brand. In fact, as we recently announced, the local foods integration into Golden Organics into Golden Organics Denver warehouse has already unlocked major efficiencies, reducing logistics costs by 60%, cutting driver hours by 50%, and eliminating $158,000 annual warehouse lease and property tax expense. As we continue our work to integrate these acquisitions into IVFH during 2025, we don’t expect to make any additional acquisitions. As we’re able to prove out the synergies and demonstrate a successful integration, we will look to apply our learnings to future potential acquisitions. I also wanted to update you on our legacy distributor dropship business.

While this business continue to show softness in q four, the trends improved versus q three, and we continue to focus on returning that business to growth. I have gone full founder mode now, having a team reporting directly to me. We’re dramatically expanding our pace of catalog growth through the application of new artificial intelligence tools, which we’ve identified as the largest and most effective growth driver we have. We’re also simultaneously growing our sales efforts through the hiring of new salespeople. In addition to focusing these new salespeople on growing our relationship at the distributor headquarters level, we’re also testing their deployment at the market level with deeper engagement with the distributors division leadership, driving education and awareness at the specific restaurant level.

The last thing I wanted to mention here is that we also continue to see strong growth with our new national distributor partner announced last spring, triple digit growth in our Amazon sales channel, double digit growth in our airline catering business, and double digit growth in our Chicago Artisan business. And we continue to have many different growth opportunities we are pursuing. In summary, we are very pleased to see our new growth businesses and acquisitions begin to materialize this quarter and demonstrate the profitable growth potential of the company. And we’re excited to see how these pieces continue to come together. With that, I’ll turn it over to Brady to talk through some of the specific actions we’ve taken in the operation of

Brady Smallwood, COO, Innovative Group Holdings (IVFH): our business this quarter. Brady? Thanks, Bill, and good morning, everyone. Last year, I spoke about our e commerce turnaround, which improved profitability, but didn’t offer a compelling long term path forward. That put strain on our 200,000 square foot warehouse and team in Pennsylvania, leaving uncertainty about the future of that facility.

But what unfolded in 2024 was truly remarkable. Our dedicated team in rural mountaintop Pennsylvania pivoted, expanded and became even more efficient, now shipping more artisan products nationwide than ever before. We sold igourmet.com last August and concluded the transition period in September. Just three weeks later, we fulfilled our largest ever purchase order, launching our gourmet cheese program at hundreds of retail locations across The U. S.

We’re encouraged by the customer proposition of our cheese business. We work across a broad network of producers and importers, maintain an active assortment in the hundreds, allowing us to source nearly any cheese without being tied to a single brand or type. High labor costs, complex supply chains, and high waste can drive fresh products like artisan cheeses into premium, almost novelty price points. Centralizing processing and our SQF certified facility, now with automated cutting and packaging, and leveraging our twenty years of expertise in cheese can enable our customers to offer gourmet cheese at accessible prices without the added complexity or waste. Our retail business drove $5,300,000 of revenue in Q4 alone, and we expect it to continue to drive material growth for us throughout 2025.

Given our growing volume at the Pennsylvania warehouse and the need for flexibility, we’ve decided to retain control of the property rather than pursue an outright sale. While rising interest rates have made it challenging to secure acceptable terms, we’re still actively exploring sale leaseback opportunities that align with our long term strategy. Beyond retail, our airline catering business grew 16% and artisan specialty foods grew 13% as we invested more resources into our sales and support teams. This has led to a solid foundation of growth, more items, more customer locations, and bigger and more frequent orders. And in case you’re wondering, we sell a lot more than cheese in these businesses.

The strong growth of retail, airlines, and artisan more than offset the continued slowdown with our largest Broadline distributor. While the diversification of our business is a good thing that reduces risk, Bill explained multiple growth opportunities we see in our Broadline business with a particular focus on expanding our catalog, continuing to improve online content, and more deeply engaging with our distribution partners on our selling efforts. Regarding M and A, I want to highlight the actions we’ve taken since closing the Golden Organics and Loco Food Distribution acquisitions in late twenty twenty four. First, we focused on retaining key vendors and customers and we made strategic personnel changes to enhance operations. From there, we consolidated the warehouses, driving a two thirds volume increase in the same footprint and eliminating Loco’s one hundred and fifty eight thousand dollars lease and property tax expense.

We cut logistics costs by relocating, including a 60% reduction in miles driven and a 50% reduction in driver hours. With the warehouse consolidation complete, our next focus is back office integration and driving sales growth by unlocking synergies across all of IVFH. Across IVFH, broadening our catalog and selling seamlessly in multiple channels will be enabled by our continuous progress in technology. When we started, our operations were fragmented with multiple entities, disconnected tech stacks, and inefficiencies driven by past M and A. This complexity burdened our IT team, forcing them to focus on maintenance instead of transformation.

Streamlining the organization has enabled us to build better for the future. I wanted to share a few recent examples. The first is data democratization. When I first arrived, there were no useful management reports, and leaders were frequently making decisions in the dark. We have now fully transitioned to Power BI, giving every decision maker real time, granular insights that weren’t possible before.

This helps us move faster and make better calls. Next, we are using AI to efficiently improve our online presence. We built an MVP of a combined Golden Organics and Loco website in less than two weeks with one person working on it part time. The biggest cost and time saving was using AI to optimize images in both portfolios, many taken with a cell phone, to create consistent quality, look, and feel with titles optimized for SEO. That process is now built out in an automation tool, Zapier, and can easily be triggered with a cell phone picture of future items we add.

In fact, we’ve optimized images of over 6,000 different products with AI recently. Other AI models now write or improve much of our product content, and we have other AI use cases in the works. One more example is cross company collaboration, which was a struggle in the past. To prepare for large growth initiatives last year, we needed a precise, coordinated effort with team members in at least six different states. We piloted the tool Asana for project management, and it works so well that we’re now rolling it out company wide with triggered and automated workflows.

For example, if I have a new product that we need to import from Europe, I can now just type in the name of the product, the data it needs to be on shelves, and hit submit. That triggers a 32 step workflow that automatically signs out tasks, collects important data points and documentation, and triggers the final approval step for me before we commit to any large purchase orders. Though this process can still last many weeks, when you have many products in various stages, it can be paralyzing or cause you to miss important details if you don’t build a solution like this. Growing sales with reduced SG and A is supported by these tech enabled processes, And it’s a small example of what we mean when we discuss our platform, a single set of tools, reporting, technology, and processes that will be leveraged over and over again by each entity under our umbrella. Thank you.

And with that, I’ll turn the mic over to Gary to talk financials.

Gary Schubert, CFO, Innovative Group Holdings (IVFH): Thank you, Brady. Hello, everyone. As you may be aware, this wrap this Q4 wraps up my first year with company. It’s been a great year, and I’m excited to in to be in this position and help drive the organization’s growth potential. I will now share the financial highlights for 2024.

As Bill mentioned earlier, we made significant progress this year. For the fiscal year ended 12/31/2024, IVFH reported revenue of $72,100,000 a 2.5% increase compared to the 74 70 point 4 million dollars in 2023. Notably, our organic revenue growth, which excludes the impact of divestitures and acquisitions, was an impressive 11.4% for the full year. The revenue growth was particularly strong in Q4 with total revenue increasing 19.2% and organic revenue increasing 44.3%. These results reflect our strategic efforts to enhance our market presence and expand our customer base.

We did experience a slight decline in gross margin dollars by $188,000 mainly due to inventory write offs and the ramp up of our lower margin retail business. However, this was more than offset by notable improvements in SG and A. Excluding noncash stock compensation and nonrecurring expenses, SG and A decreased by $1,000,000 driven by strategic divestments and cost reductions. Key areas of improvement included a $555,000 reduction in advertising expenses, a $279,000 decrease in depreciation expenses, a $227,000 reduction in office, facility, and vehicle expenses, and a $122,000 decrease in IT expenses. These changes were largely due to our decision to exit the direct to consumer ecommerce business and the sale of our Florida headquarters.

Additionally, payroll related expenses decreased by $272,000 mainly due to a lower annual incentive payout to our leadership and executive teams. Throughout the year, we recorded several gains and losses. We achieved a gain on sale of assets totaling $2,800,000, which included a $1,800,000 $1,800,000 from the sale of our headquarters building and $834,000 from the sale of intangible assets related to direct consumer ecommerce business. We also recorded a gain on sale of subsidiaries of $21,000 from the sale of the Hailey Group Inc. And gained other income of $6,000 from leasing space in our Mountaintop warehouse.

Overall, our non our total non operating income was $2,000,000 positively contributing to our financial performance. Turning to profitability, GAAP net income from continuing operations improved significantly, reaching $2,500,000 compared to a net loss of $3,700,000 in 2023. This translates to a GAAP net income from continuing operations per fully diluted share of 4.9¢ compared to a loss of 7.6¢ in 2023. Adjusting for nonrecurring items and noncash expenses, our adjusted net income from continuing operations also saw a substantial increase, reaching $2,100,000 compared to $1,300,000 in 2023. This results in adjusted net income from per fully diluted share of 4.1¢ up from 2.7¢ in 2023.

Now let’s dive into our cash flow analysis. Operating activities used $6,300,000 primarily due to changes in our working capital components. While this might seem like a large outflow, it’s actually a sign of a robust growth in strategic investments. Accounts receivable increased by $3,800,000 reflecting higher sales of our new large retail customer indicating strong demand and expanding market reach. Inventory increased by $1,900,000 driven by the acquisition of Golden Organics and Loco Foods as well as higher inventory levels to support the new retail customer.

This positions us well to meet future demand and capitalize on growth opportunities. Additionally, accounts payable and accrued liabilities decreased by $850,000 This decrease was primarily due to lower annual incentive payout recorded in 2024 but paid in 2025 and the elimination of accrued liabilities related to the divestiture of e commerce operations. This reduction in liabilities represents an outflow of cash as we settle these obligations. Following the sale of the ecommerce business, we no longer sell or service gift cards or subscription services, which was the largest contributing factor to the $791,000 decrease in deferred revenue. This decrease in deferred revenue also reflects an outflow of cash as we no longer receive advanced payments for these services.

Turning to our investment activities, we generated a positive cash inflow of $1,200,000 primarily driven by the sale proceeds of assets, offset by the acquisition of Golden Organics and property and equipment. Key investments and proceeds included $2,100,000 from the sale of our headquarters building, 617000 Dollars from the sale of certain intangible assets associated with igourmet.com, 1 point 2 million dollars of the acquisition of Golden Organics, and $317,000 from the acquisition of property and equipment. On the financing side, activities provided $2,000,000 primarily from the sale of $3,300,000 of common stock in the private offering we executed in December of twenty twenty four. This was offset by $228,000 of principal payments on financing leases and $96,000 in principal payments on notes payable. Looking ahead, I am pleased to announce that we are progressing with our plans to uplist the Nasdaq.

This move is expected to enhance our visibility in the market, attract a broader investor base, and provide greater liquidity for our shareholders. As part of our uplisting strategy, we have announced a company name change and a reverse stock split to meet the requirements of the Nasdaq. We do not currently have concrete dates to share publicly. We continue to make progress, and will make public announcements as we as the process advances. In summary, our financial performance this year reflects our strategic focus and growth and efficiency.

We are well positioned to capitalize on future opportunities and continue delivering on value to our shareholders. With that, I’ll hand it back to Bill to share his thoughts and lead us into the q and a session. Bill, over to you.

Bill Bennett, CEO, Innovative Group Holdings (IVFH): Thanks, Gary. Pretty awesome how you’ve driven our financial rigor after just twelve months in a role, and I’m so grateful you joined us here at IVFH. Hopefully, you all can see how well this team is executing. Lots of companies sacrifice profitability in order to grow quickly or alternatively, they choose to retrench and solely focus on profitability at the expense of growth. But I’m super proud of how we’re balancing growth with profitability that’s not easy to do.

With that said, we’re happy to take some Q and A, so I’ll turn it back to Ronit to moderate the q and a section for us.

Ronique Wallach, Call Moderator, Innovative Group Holdings: We’ll now move to the q and a section of this call. If you’d like to ask a question, please use the Zoom function to raise your hand or dial 9 if you’re calling in from the phone. Please limit your comments to one question and one follow-up if needed. Keep your comments professional and respectful. We’ve allocated approximately twenty minutes to this to the portion of this call.

JD, please unmute yourself.

JD, Analyst/Investor: Good morning. Congratulations on the great results. I’m sure there’ll be plenty of questions people asking about, some of the core and bigger opportunities, in retail and whatnot. I thought I’d just focus on a couple of the niche things. The, the Amazon business is kind of intriguing.

Is that just a niche opportunity or is that something that actually could be meaningful revenues and something you can leverage going down the road?

Bill Bennett, CEO, Innovative Group Holdings (IVFH): Sure. Thanks for the question, Judy. I appreciate it. Yes. We keep mentioning it because we’ve sort of been surprised at the amount of growth we’ve seen there so far.

If you think about most of our sales channels on on the drop ship business, we have some kind of intermediary between us and that final customer when you think about the relationship with US Foods and Sysco and others. Right? Like, we don’t actually have ownership over that customer. We don’t have opportunities to market to them, and it really kind of makes the the growth of the business challenging. We don’t have as many growth levers as I’d like to have.

So when when we look at Amazon, we love the fact that we control everything. Right? I mean, it’s the whole platform is set up to be able to have perfect control over your assortment and your content and your pricing. And, you know, you can you can spend money in marketing and sponsor your products. We can build a whole, a whole store that’s dedicated to just our products and sort of tell our story.

Right? Like, it it just gives us a lot more control than we have on these other platforms. And so we’ve been leaning in there over the last year. We’re doing we’re we’re on pace to do just over a million dollars with it this year. So it’s it’s certainly not at the scale that retail is at this point.

But when you peruse Amazon, there is not a lot of stuff out there in line with what we can offer from our catalog. And so we do continue to believe that there’s a cool opportunity to sell more specialty food on Amazon. I I don’t want to overplay, like, how much we’re investing there. It’s it’s, in line with the revenue. We’ve got, you know, maybe half a person working on it, and, and and we think as we continue to leverage our platform, meaning getting our entire catalog up there that we’ll continue to see growth and it will be interesting to see where it goes.

JD, Analyst/Investor: Great. Great. Second question is just on the artisan business in Chicago. Sort of been, well, it had been neglected. It’s sort of, to my mind, an unsung hero, an opportunity to expand into other metros because it seems to be, at least in my mind, a very successful business model.

So maybe talk about growth within Chicago and also the opportunity maybe replicate that in other metro areas. Thanks.

Bill Bennett, CEO, Innovative Group Holdings (IVFH): Yes. Great question. So specialty food distribution is an interesting game because it has very high sort of barriers to entry. You know, to to get a warehouse and and imagine, like, entering a new market. Right?

You bring in your first few products, and you gotta have a place to sell those because food goes bad. Right? So you end up with I I call it a cold start problem. Right? It’s really hard to bring in enough inventory to attract a large number of customers quickly, but, without those customers, you can’t really justify bringing in enough inventory.

Right? So you sort of end up between a rock and a hard place, and that’s why, you know, the the way I look at the success of Artisan is that, yes, it’s a business model to copy, but probably through acquisition, not through, sort of starting from scratch in new markets. So and that’s sort of been the thesis behind Golden Organics and local acquisitions is that as we get those under the umbrella of IVFH and, you know, get them selling onto our other platforms on on, on the drop ship businesses, as well as pushing their own local growth that, you’re able to bring those synergies to these small businesses that didn’t exist before, right, because they were only selling there locally. So anyway, those are kind of some of the the early opportunities we see from a synergistic standpoint. The last thing I’ll say on Artisan is we added a salesperson there this year, and and and it drives growth.

I mean, it’s it’s simple, but when you put more salespeople in place, they find more opportunities. And, we’ve been very pleased with how, the people there get creative and and ambitious and go out and find new opportunities for us to sell. So we’ve got significantly more salespeople there. And at Artisan, we have five versus at Golden Loco, we’ve got, like, one and a half salespeople total. So, big opportunity too to continue investing in sales teams and, and building out sort of our platform structure on how we operate at the market level.

JD, Analyst/Investor: Great. Thank you. Keep up the great work, Bill.

: Thanks, JD. Appreciate it.

Ronique Wallach, Call Moderator, Innovative Group Holdings: The next question is from Barrick. Barrick, please unmute yourself.

Garrett, Analyst/Investor: Hey, Bill, Gary, Brady. Congratulations. Really impressive stuff out here.

: Thank you. Appreciate it.

Garrett, Analyst/Investor: Wanted to get an idea. Obviously, you’re doing a lot of optimization through acquisition. Now that those are inside the business, how are you guys leveraging the bidirectional synergies? And then how are you creating incentives inside the business verticals for these new managers that you just referenced?

Bill Bennett, CEO, Innovative Group Holdings (IVFH): Yeah. Sure. So for for those of you who might be new to the story, we we talked about bidirectional synergies in the press releases around those acquisitions. And and the thought process is that, you know, these companies have really just operated locally for many, many years. And so when we bring them on to our platform, you know, generally, we do see local growth opportunities for them, but the the bigger opportunity is to get them listed on our other selling platforms.

So on US Foods, on Cisco, on Amazon, and and help them build a drop ship business, where they didn’t have one before. And and the model here really goes back to what I was saying earlier on Artisan. Artisan does about $20,000,000 out of their building there in Chicago. Half of that goes out in drop ship. So only $10,000,000 gets delivered locally.

The other 10,000,000 goes out with, with FedEx shipments. So, you know, under that model, you’d hope that over time, we can get to a similar mix of drop ship business out of these new acquisitions and, and be able to drive significant growth and return on assets that, that didn’t exist there before. Right? So in these early days, you know, we’ve we’ve really focused first on the, the relocation of Loco Foods. We’re we’re super excited about the leader that we brought in when Golden was first acquired.

Tayshaun Jackson is his name. We talked about him in the press release. Super energetic, you know, team builder there that we’re we’re very excited to have in place. Poor guy, though. He was, you know, four weeks into his role, and we told him we were gonna make another acquisition to put under his company and that he needed to to work to relocate them down to Denver from Fort Collins.

So he’s had his hands full managing the relocation. And, and now that that’s complete here in just the last couple weeks, we’re starting to shift our attention more to those synergies. So, the it’s the way we’ve talked about these synergies is they’re they’re just the reason they’re appealing is they’re not that complex. Right? And we’re gonna the capital investment is going to be a card table and a label printer along with some cardboard boxes, and that’s gonna be enough to get him up to speed on the drop ship business.

We’ve gotta go through the assortment and make sure that everything’s sort of ready to go into boxes. You know, they’ve historically packaged their products in a way that it’s it’s more suited for kind of local delivery. And so we’re revisiting the whole packaging process. We’re looking at our labeling and branding because they haven’t leaned super heavily into the Golden Organics brand historically, and we think there’s an opportunity to to carve out a nice presence for that as we put it on these other platforms. And then lastly is, you know, a lot of what they sell is actually in big, you know, 40 or 50 pound bags, kind of big commodities.

And so we need to ramp up their, what we call repacking operation, which is breaking down those big bags into smaller bags that are more conducive to a drop ship business. So lots of sort of minutiae to work through their logistics and tactical pieces that need to be in place to be able to harness those synergies that we’re looking for. But the team is up for it and excited, and, and that’s really what we’ll be working on for the rest of this year.

Garrett, Analyst/Investor: That’s awesome, Bill. Thanks. And then if you don’t mind, one more. You know, you’ve talked about in the past creating this franchise type of model where you could have this repeatable process for scalability. If we want to focus in on what’s called Golden Organics and Loco, have you guys standardized pricing packages and just, you know, distribution automation, how everything’s going down the line?

Is that now standardized from start to finish?

Bill Bennett, CEO, Innovative Group Holdings (IVFH): Not not yet, but we’re in the process. So and that’s that’s literally what what phase two is as I described that in kind of the upfront comments. It it takes time to build a playbook like that, and that’s exactly what we’re doing. You know, it’s interesting because, like, these these are still small businesses that we’ve acquired so far, and, of course, you don’t wanna load them up with a bunch of overhead. And so we’re trying to use our headquarters personnel to do things like create a pricing framework that, that the acquisition can work within that we know will hit the profitability outcomes we’re looking for.

Brady talked about using Asana to automate processes and handoffs and make sure that things don’t fall through the cracks. We’re working on applying that same type of technology down to the entity level and helping them be efficient and have the technology in place there too. We were I I mentioned the sales team at Artisan that I think is a sort of best in class model that we need to go replicate now at Golden and Loco and, you know, think through the right incentive plans for those salespeople and, you know, how we set up regions and territories and what the reporting structure all those things. Right? We wanna get to where we’re not reinventing the wheel with each acquisition, but we’ve got a package that we, in the future, can implement quickly because in this phase, we spent time developing it and testing it and and getting confident in our ability to to execute it.

The last piece I wanna mention there is the the data and reporting that Brady mentioned. You know, most of these small companies were operating off of QuickBooks, and and had very little kind of reporting and insights in the type of data they had access to. We’re bringing in our Power BI platform and, all the, like, automated automatically generated insights that are coming out of that to be able to sort of direct the leader of that business on where to focus first and, and again help them operate as efficiently as possible. So the the goal is really on these acquisitions to sort of maintain that that local and regional feel. You know, Tay that we hired, is intentionally a Denver native, has grown up there.

So he’s got deep connections and friendships and business relationships that he can lean on, that makes it feel like a local business while still bringing some, you know, national company scale and know how and technology to play to be able to be as as efficient as possible. That’s sort of how we’re thinking about those, but I’ll I’ll just reemphasize what I said in my opening comments, which is, you know, this year is really about figuring that out, and we don’t intend to do any other, acquisitions in the near term because our focus needs to be on developing that playbook.

Garrett, Analyst/Investor: Awesome. Thanks, Bill. Congratulations again. Great job, guys.

: Thanks, Garrett. Appreciate it.

Ronique Wallach, Call Moderator, Innovative Group Holdings: The next question is from Christian. If you can please unmute yourself.

Christian, Analyst/Investor: Yeah. Hello, everyone. Thank you for taking my questions. I have three questions. First, on the ramp up of the cheese business, I think it was Gary who just mentioned that it impacted, the cross margin

: due to

Christian, Analyst/Investor: its lower margin. Should we expect that to improve as the ramp up progresses? And what kind of cross margin should we anticipate for this business once the ramp up is complete?

Bill Bennett, CEO, Innovative Group Holdings (IVFH): Yeah. Sure. So we do expect it to improve. We’re not gonna release a specific number for our target there, but we do expect it to improve. If you think about in early days of running that business, everything’s inefficient.

Right? It’s it’s essentially a startup. We’ve never done this kind of production of of cheese at the scale that we’re doing now today. And now you’re actually seeing the the revenue come out of the business. You can get a sense of, of how big this business is.

You know, we bought brand new machines that we’ve never used before. We’re, cutting cheese at scale that we’ve never done before. We’re using packaging equipment we haven’t used before. And that’s all very different than the old business for mygourmet.com, which was, you know, cutting for one customer at a time a hundred dollar average order value. Right?

So that that’s really what you’re seeing in that first quarter of performance on the retail business is that learning curve that we’re going through. As Brady mentioned, we are deep in the details and deep in the weeds of every single process of that entire business as we are pushing to improve. So we have strong confidence that you’ll continue to see improvement in the gross margin in that business and in the drag it has on the overall company numbers. But of course, I’ll continue to say I do expect that it being a retail business, it’s always going to be at a lower gross margin than, than the rest of our businesses. Did you have a second question, Christian?

Christian, Analyst/Investor: Yes. Sorry. I muted myself. My second question is, you mentioned in the press release 25% organic growth in q one, so year to date. How was this, growth distributed across your different business areas?

So which categories contributed what percentage to this growth you mentioned?

Bill Bennett, CEO, Innovative Group Holdings (IVFH): Yeah. So we’ll speak to q one results a lot more in detail when we get to, to releasing the financials for q one. I the reason we included that is we just wanted to give you a sense that, like, you know, the the huge organic growth we saw in q four was really due to the launch of the retail business and filling the the supply chain. But that, you know, 25% growth is still significant. We expect that to continue on through the year as, you know, until we get to lapping the initial launch of that retail business.

So, I we’re not gonna release more details yet at that point, but, fortunately, q one results are not too far away.

Christian, Analyst/Investor: Okay. And finally, regarding the retail business, another question. Can you share anything about potential expansions into new categories beyond cheese and, maybe that you will add additional retailers. If there’s anything you can already share about your plans, I would really appreciate it.

Bill Bennett, CEO, Innovative Group Holdings (IVFH): Yeah. Sure. So, you know, we used I I’ve talked about this before. We used a broker to help us find this retail business, and that really goes back to our mentality around, being thoughtful with overhead. Right?

We didn’t go hire a whole sales team, with no business to manage, to just go out and and prospect for us. We hired a broker who, for $30,000 a year or something like that, was out there pounding the pavement looking for opportunities for us. So the benefit of that is that now that we’ve got this business in place, the broker we’re using has a national footprint. So now we’ve, we’re partnering with them to develop and pitch this, you know, not the exact same business, but the sim a similar capability to other retailers. So, you know, the the main capability is centralization of labor as Brady talked about today.

Right? Typically, when a when a grocer has a, a gourmet cheese business at retail level, it’s very expensive between the waste and the labor that they, expend at the at the store level. They just can’t get through a whole wheel of cheese and it’s incredibly expensive. I know this from my Kroger days. And so what we’re pitching now is for the retailers to take advantage of this centralized production capability we have, to to be able to more profitably operate their gourmet cheese category.

And and then like you said, we’re also continuing to work on additional categories that could be a good fit for retail, and this broker is helping us push forward all those different opportunities. So definitely nothing to announce yet, but it is why we announced that new airline business this last week. So we’re leveraging all the same equipment, the same sourcing capabilities, the same people at the warehouse to now run this new airline first class cheese plate business, and we expect to continue to push more into that as well. So, you know, it doesn’t all have to be retail. We want to be able to leverage the warehouse and the, and the equipment to pursue cheese opportunities, and and then gourmet foods opportunities anywhere we can.

Christian, Analyst/Investor: Okay. Okay. Thank you, Bill. Gotcha.

Bill Bennett, CEO, Innovative Group Holdings (IVFH): Thanks, Christian. Appreciate it. Alright. Let me go to a couple, texted questions I got, in the chat here. So, from Michael Richardson, just a question on the Pennsylvania property.

It seems very nice. Is it normal to take this long to close the deal? Or are there thoughts of maybe keeping the property since we are considering a leaseback and growing the cheese business so rapidly? I’m wondering if maybe keeping the property might be better now, but curious to your thoughts on that. Yeah.

That that’s exactly how we’re thinking about it, Michael, and and, you know, Brady spoke a little bit to this. But, it it we were definitely surprised how long it took to to sell it. We initially hoped to sell it before we even landed this retail business. I think in hindsight, it’s worked out very well that we didn’t because it helped us to ramp the retail business very quickly since we had all the personnel and equipment in place already. You know, now looking forward, we we do still we are still interested in doing a sale leaseback and and, getting the cash out of that building.

But frankly, with the increase in interest rates in the last, you know, late last year, we had several interested parties, but the the terms we were being offered were just not, favorable enough for the company. And and this this is the largest physical asset that IVFH owns. And so we wanna be very thoughtful with, any big decisions we make there and not, you know, not not tie ourselves up for too long without a, you know, commensurate financial benefit. So, we’re gonna continue to seek a sale leaseback and, you know, rates have come down again in the last few weeks and and perhaps that changes the situation. But for now, we definitely need to maintain control of the facility because of that, that cheese business and don’t anticipate that changing anytime soon.

Another texted question from Curtis Nolan. Could you elaborate on the timing, size, and breadth of the opportunities that you’re seeing for acquisitions across the nation? How many per year? What size companies do you think might be in the sweet spot for IVFH? If it’s too early to say, then when do you see this beginning to ramp up more?

Yeah. So I alluded to this a little bit earlier, but I’ll just reiterate. I don’t think we’ll make any acquisitions this year until, unless something perfect falls in our laps, which, of course, could always happen. But, you know, for now, we need to focus on developing that playbook so that future acquisitions can get integrated more quickly and more efficiently than we expect to be able to on these first two. That said, we do always kind of keep a line in the water and have various outlets that bring opportunities to us as they might appear.

My

Brady Smallwood, COO, Innovative Group Holdings (IVFH): hope is

Bill Bennett, CEO, Innovative Group Holdings (IVFH): that once we’ve nailed this playbook and can come back to investors and demonstrate the huge returns that we’ve generated from these first two acquisitions, then it becomes a no brainer to accelerate M and A. And at that point, I think we’ll have a we’ll articulate a much more clear m and a strategy to the market. You know, at this point, I don’t make sense for us to make lots of acquisitions like we’ve done or if it’s to, to pick up the size and do fewer big acquisition. But, you know, as you can imagine, with our long term goal being getting to a billion dollars in revenue, that’s it’s likely gonna require m and a, and, and that’s why this kind of phase two is so important so we can nail that entire process. Yeah, I got a lot of a lot of questions here in the chat, so I’ll just keep going.

So from Varuk Kutnik, bravo, creating synergistic platforms. How do we assemble a group of businesses that generate bidirectional synergies within a single platform? Each acquisition must be a highly strategic asset, enhancing the platform, making the whole greater than the sum of its parts, not just a financial play. Yeah. Exactly.

This is exactly how we’re thinking about it, Verik, because, you know, if if we only bought companies because of their financials and we were just gonna leave them alone as a as a pure investment play, then, you all could probably do that just as well as we could, and and that’s not probably a good use of our time. Right? So the the deployment of capital to to acquire a company has to be because we’ve got a platform that we’re plugging it into. And and and the idea is if you get, if we can nail these synergistic opportunities in a bidirectional way like I’ve mentioned, that means that we’re really we’re growing the acquisition not only through listing their catalog on our other sales channels, but also vice versa. So if if Golden Organics can sell our drop ship assortment locally to their base of 200 customers, then we’re growing, you know, both that business there locally as well as growing our drop ship channel.

So all those things need to work together, and that’s that’s what will really demonstrate, I think, an exciting future for M and A strategy. But all that to be figured out during this phase two, and that’s why we’ve been very overt in communicating that we have a lot to learn during this phase. Alright. From, Anthony Parala, could you speak to what the cadence of the cheese business is expected to be throughout the calendar year? So this is our first calendar year on the cheese business.

So, we we’re not gonna release any details on exactly how we expect it to proceed. But in general, the gourmet cheese category is does skew towards the holidays. Right? So, that was actually quite nerve wracking for us as we launched the business because, you know, we our first shipments were in in October and, you know, right before the holiday started. So there was no kind of warm up period.

We we were kind of straight to the big leagues in servicing this retailer during the holidays. So typically, summer is the slowest, holidays are the fastest, and everything else is sort of average. So more to come as the quarters progress, but keep in mind with the recent expansion that we announced with this retailer that, you know, that that’s gonna probably distort some of those trends as well because, we we’ve now, you know, we’re now in more stores than we were over the holidays. And, hopefully, as as we’re successful in that, those kinds of opportunities continue to materialize. Okay.

And then, last direct message I have here is from Michael S. Quick question. What exposure, if any, does IVFH have to the on again, off again tariff environment? Thanks. Yes.

So good question. I figured somebody would ask about this. You know, so far, the tariffs, of course, have been on Mexico, Canada, and China. And those three markets are not tremendous sources of product for us. So, I did hear just yesterday, we just got our first price increase, that was tariff related on some oysters that we import from Canada.

So, you know, tiny, tiny part of the business, so not, you know, material at all, but, interesting to see it actually come through for the first time. I would say overall, our business pretty heavily skews to imports from Europe, especially the cheese business. And so that, that region we’re watching very closely for the tariff how the tariff situation progresses. And, you know, like like you’ve heard from any other companies, if, if tariffs come through, then we just, you know, wholeheartedly pass them through to our customers. We’re a middleman in this and there’s no reason to try to absorb those.

And I think fortunately, we operate in fairly premium categories that are less price sensitive than something more basic. And so it’s it’s not something we’re incredibly worried about this year, but definitely watching closely and making sure that we’re managing it as best we can. Got one more from, Andrew Rem at Odinson Partners. On the second acquisition, can you comment on normalized revenue post integration? I’m assuming you may walk away from some business.

Yeah. So I think there’s a lot to be seen there still. Like I mentioned, we’ve focused mostly on the relocation at this point and not on pulling on any growth levers. We really need to get the businesses stabilized and, sort of operating together under one roof there in Denver. One of the interesting things that that we knew we had to take on when we acquired the business is that it it you know, local foods wasn’t doing very well, when we acquired them.

So there was a lot of back payments that had to be caught up on to their vendors. And because of the nature of that business, it’s it’s local foods distribution. Right? Anything that’s produced in the state of Colorado is what they focus on. So those vendor relationships are critical to keeping the entire business model intact.

And so, you know, we took that as as an opportunity to get them up, you know, paid up to date as quickly as possible and make sure that those, those relationships were strong. And and now we’re sort of shifting our focus to growth and, and sort of where we go from here. So, I I haven’t seen any early indicators of of specific customers that we need to, you know, intentionally drop. But as we get to know that customer base, further, we’ll definitely learn more and and keep you updated. Alright.

I think we went over our time, but, thank you for all the questions. That was great. Last quarter, I think we had one or something like that. So it’s great to have a little more interaction. Appreciate the awesome attendance.

I think we had 59 attendees today, which is a new record for us. So, it’s it’s awesome to have such engagement for everybody. It’s inspiring to see all the interest. And as always, we’re happy to make ourselves available to connect with investors who have further questions about publicly available data. Please reach out to Gary Schubert whose contact info is included in our press release if you’d like to schedule a touch base.

Take care, and we look forward to continuing to update you all on the progress of our strategy at our Q1 update this spring. Thanks all and have a great day.

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