Barfresh Food Group (NASDAQ:BRFH) executives said the beverage company is entering a new phase of growth after completing the acquisition of Arps Dairy, a move management said addresses supply constraints that had limited the company’s ability to fulfill demand for its school-focused smoothie products.
Speaking at an LD Micro presentation, Riccardo Delle Coste, Barfresh’s founder, chairman, president and CEO, described the company as a manufacturer of ready-to-drink and ready-to-blend beverages, with a primary focus on the education channel. He said Barfresh generated $14 million in revenue last year, with a $2.1 million adjusted EBITDA loss and 22% margins. The company is now guiding for revenue of $28 million to $32 million and positive adjusted EBITDA of $3.2 million to $3.8 million.
School Smoothies Remain Core Product
Barfresh’s largest product category is its Twist & Go smoothie line, which Delle Coste said represents about 80% of the company’s volume and revenue. The products are designed for schools and meet both fruit and protein requirements under federal school meal programs, allowing schools to receive government reimbursement when the products are served.
Delle Coste said Barfresh worked directly with the USDA to create the drinkable smoothie category for the education market. He said the company’s products often rank as the No. 1 or No. 2 items students prefer and can increase breakfast participation by as much as 40% when added to school menus.
“The more students that take the breakfast, the higher the contribution the school gets from the government,” Delle Coste said, adding that schools are incentivized to offer products students like that also meet nutrition requirements.
The company also offers ready-to-blend single-serve smoothie pouches, bulk products for foodservice, concentrate blends and its newer Pop & Go 100% juice frozen pops. Delle Coste said the frozen pops meet the fruit requirement for schools and can be distributed through Barfresh’s existing frozen distribution network.
Arps Dairy Acquisition Addresses Supply Constraints
Delle Coste said Barfresh had struggled in recent years after losing a key supplier and was unable to meet customer demand despite having orders and menu placements. He cited a shortage of cultured dairy manufacturing capacity, driven in part by demand for products such as high-protein drinks and cottage cheese.
“We have been putting out fires, moving product around just to keep customers happy,” Delle Coste said during the question-and-answer portion. “Customers have been adding our product to their menus, and we haven’t been able to supply them.”
Barfresh acquired Arps Dairy, a dairy processing facility in Defiance, Ohio. Delle Coste said the acquired business primarily serviced processed milk and ice cream mix but had the infrastructure to begin producing Barfresh products immediately. The acquisition also included a new facility that was about 80% to 85% complete, along with a $2.4 million government grant to help finish the buildout.
Management said the acquisition should create synergies by reducing contract manufacturing tolling fees, ingredient costs, cold storage expenses and freight costs. Delle Coste said Barfresh expects to recapture about 85% of the tolling fee cost through margin accretion.
New Facility Expected to Expand Capacity
Barfresh is currently operating in the older Arps facility while working to improve throughput. Delle Coste said equipment being commissioned at the existing plant is expected to double to triple throughput under the current cost structure.
The company expects to move into the new 44,000-square-foot facility before the end of the year. Delle Coste said the new equipment should produce three to four times the current volume per shift while reducing labor by about 80%.
Once the new facility is operational, Delle Coste said Barfresh expects to use about 15% of its capacity while maintaining some supplemental contract manufacturing as needed. He said the company has also been approached about additional manufacturing opportunities because of the broader shortage in cultured dairy capacity.
Management Cites Limited Competition, Distribution Moat
Asked whether competitors filled demand while Barfresh was unable to service some accounts, Delle Coste said no. He said Barfresh created the category, worked with the USDA on approval criteria and has customer relationships and distribution already in place.
He also pointed to the company’s seven-year bid with Clark County, Nevada, which he described as the fifth-largest school district in the country, as an example of customer stickiness. He said Barfresh is also in Miami and other school districts across the country.
Delle Coste said the frozen supply chain creates a barrier for competitors because school foodservice requires products with enough shelf life to move through warehouses, distributors and individual schools. He said Barfresh distributes through broadline distributors including U.S. Foods, Sysco, Gold Star and Gordon Food Service, and also serves some schools directly by truckload.
Looking ahead, Delle Coste said the company plans to focus on expanding its core products, pursue new sales and evaluate additional channels beyond education, including hospitals and correctional facilities.
About Barfresh Food Group (NASDAQ:BRFH)
Barfresh Food Group, Inc develops, manufactures and distributes a line of fresh-frozen, portion-controlled beverage and breakfast products for the foodservice and retail channels. The company’s flagship offerings include smoothie base blends, pancake and waffle mixes, and related griddle products designed to deliver convenience, consistency and controlled portions. Barfresh products require only the addition of liquid and blending or mixing prior to service, catering to operators seeking quick-serve solutions without sacrificing quality.
Operating from a single, fully certified manufacturing facility in Miami, Florida, Barfresh adheres to strict quality and safety protocols throughout its production processes.
