Innovative Food Holdings, Inc. (IVFH) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Innovative Food Holdings Second Quarter of 2026 Earnings Conference Call. On today's call for Innovative Food Holdings is Gary Schubert, our Chief Executive Officer. Throughout the conference, we will be presenting both GAAP and non-GAAP financial measures, including, among others, adjusted EBITDA and adjusted fully diluted earnings per share. These measures are not calculated in accordance with GAAP. Quantitative reconciliations of certain of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's press release. I would also like to remind everyone that today's call will contain forward-looking statements from our management within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E 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 goal and variations of such words and 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, which are inherently subject to significant risks uncertainties and contingencies, 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 may differ materially and adversely 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 and other disclosures contained in our filings with the Securities and Exchange Commission, including the risk factors and other disclosures in our Form 10-Q and our 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. Unless otherwise noted, all results discussed today reflect continuing operations only. With that, I would like to turn the call over to Gary Schubert, Chief Executive Officer. Please go ahead.

Thank you, and good afternoon. I appreciate everyone taking the time to join us. I know our investors care about more than just a list of quarterly numbers. You want to understand what is changing inside the business, whether the work we are doing is producing results and where growth comes from. That is what I want to cover today. Over the last year, we have spent a lot of time simplifying the company and making the operating business more disciplined. That work is showing up in our margins, expense management and cash flow. We need to keep that discipline in place. At the same time, we need to put greater emphasis on generating sales and putting growth back on the top line. Revenue is the first number most investors will see in our Q2 results. So I want to address it directly. We delivered $13.1 million in revenue compared with $16.6 million last year a decline of 21.5%. The size of that top line decline can overshadow some of the progress happening inside the business. That progress is not yet large enough to offset revenue we lost, but it matters because it tells us what is working and where growth can come from. The downside came from 3 different areas. Digital channels declined 16.7% primarily reflecting the transition of our largest digital partner. National distribution declined 29.2%, reflecting specific customer and product program losses. Local distribution declined to 24% as we continue to work through the effect of prior customer attrition. There are also positives inside those revenue numbers. The rest of the digital portfolio grew. Locals rate of decline improved from Q1 and new business within our long-standing airline catering relationship, partially offset early program losses. None of that eliminates the total decline, but it gives us identifiable areas to build from. The operating discipline we have put into the business is also showing up financially. Gross margin improved by 50 basis points to 26.2% from 25.7%. Selling, general and administrative expenses declined by approximately $429,000 or 12.4% to $3 million from $3.5 million. We managed expenses better than we did last year and we remained profitable with operating income of $395,000, net income from continuing operations of $366,000 or $0.07 per diluted share. and adjusted EBITDA of approximately $579,000. Operating income, net income from continuing operations and adjusted EBITDA were lower than last year in dollar terms. Because the smaller revenue base produced fewer dollar gross profit dollars. At the same time, gross margin improved, SG&A declined and that continuing business remained profitable. That is the balanced read of a quarter, lower profit dollars, but better expense management and continued profitability while we work to rebuild sales. The cash results are just as important. Through the first 6 months, we generated $375,000 of operating cash compared with using $402,000 last year. Cash and cash equivalents increased to $1.8 million from $927,000 at year-end. Current liabilities declined to approximately $3.5 million and stockholders' equity increased to approximately $8.5 million. The change in current liabilities of stockholders' equity reflects in significant part, the sale of the Pennsylvania facility and repayment of associated debt. The $375,000 of operating cash is reported separately from those investing and financing transactions. That is a much better financial position than we had at year-end. We will continue to manage cash and working capital carefully, but we are doing that from a cleaner operating base while putting more management attention towards sales and growth. Digital is the clearest example of why the total revenue number does not tell the entire story. Within that decline, digital revenue, excluding our largest partner, increased 6.3% in the quarter and 8.4% through the first 6 months. The broader digital portfolio is growing. The pressure remains concentrated in the transition at 1 major relationship. That transition has taken longer and required more attention than we expected. We are moving eligible items out of the legacy environment, confirming that migrated items are live and transacting restoring items that did not transition cleanly or later became unavailable and correcting pricing or content issues that make an item uncompetitive. Let me be clear about why this work matters. The new platform is more competitive than the legacy environment. It gives us a better foundation for assortment, pricing, content, availability and growth, but a better platform does not create sales on its own. We have to use it to add vendors, add items, improve how those items are presented and create new points of distribution. We are not going to count an item as complete because it appears on a checklist, a chef has to be able to find it, buy it and receive it. That is the standard. As we complete that work, the employees who have been focused on repair can spend more of their time on growth. National Distribution had a different set of pressures. A new competitor won individual product programs from both of our airline catering customers. At the developing customer, the business declined over several quarters, and we lost the remaining relationship late in Q2. Because that happened late in the quarter, only part of the effect is reflected in Q2. That is volume we now need to replace. The position with our long-standing major airline catering customer is different. We lost specific programs during the initial competitive disruption, but we did not experience further material erosion through Q2. We also won new business that partially offset the earlier losses. The relationship remains active and important, and we continue to pursue additional opportunities with that customer. Following the loss of the developing customer, national distribution is too concentrated. We have disclosed that we are recruiting a Director of National Sales to broaden the pipeline across airline catering, other national catering relationships food manufacturers, retailers, bakeries and other accounts that can support meaningful volume. To put it plainly, we are looking for a hunter. This role is not about waiting for sales opportunities to find us. It's about going out, building the relationships and winning the business. we have managed expenses carefully, but this is an area where the right investment can create revenue and improve purchasing scale and warehouse utilization across the platform. Local distribution also remained below last year, but the rate of decline improved from approximately 31% in Q1 to 24% in Q2. That moderation is an early sign that the comparison is improving as early customer losses move through the numbers and we build the account base. The next step is to convert new account activity into recurring revenue and put local in a position to grow as we move toward the end of the year. One thing that may not be obvious from our reported channel results is the role Chicago and Denver play across the entire platform. These are not simply local distribution businesses. The warehouse assets also serve a broader distribution role while giving us the ability to generate and support local business in their own markets. Through the first 6 months, approximately $6.8 million or roughly half of our digital revenue was supported by product supplied through Chicago. Those sales are reported in digital channels, not local distribution, but they depend on the inventory, food safety and fulfillment capabilities in Chicago. That is where our physical footprint can help create growth. When the economics support it we can buy appropriate products at wholesale prices, improve cost and availability, hold specialty and low turn inventory that benefits from being sold across a broader customer base and fulfill those items through digital channels. At the same time, those same warehouses can support and grow local distribution by serving chefs and accounts in their market. We need both parts working together. Denver is beginning to support the same model. At June 30, 258 Denver sourced items have been added to digital channels and '19 had generated sales. By early August, that number had increased to 72 or approximately 28% of the listed assortment. The dollar contribution is still small, but the increase is in transacting items is evidence that the Denver assortment and fulfillment footprint can support more of the platform over time. IVFH is not simply a technology platform, and it is not simply a warehouse business. The opportunity comes from connecting the 2, especially food relationships, physical inventory and distribution capabilities and access to national digital channels. The more effectively we connect those assets, the more ways we have to generate revenue without building an entirely new infrastructure. I want to be clear about the direction from here. A more efficient foundation is not the end goal. We have to maintain financial discipline. We have to build while placing greater emphasis on generating sales. The job now is to make the work inside the business show up in total revenue. That means finishing the digital transition and getting eligible assortment selling. It means protecting and expanding our existing national relationships and building a broader national pipeline through a dedicated sales leader. It means converting local opportunities into recurring accounts and using Chicago and Denver across more channels. None of that happens simply because we want it to happen. It requires consistent execution. Q2 shows that the changes we have made are producing results in gross margin, expense management, operating cash flow and the balance sheet, while the continuing business remained profitable. The top line decline can overshadow that progress, but it does not erase it. Now we have to convert that stronger operating base into sales growth. That covers what I wanted to address today. We did not receive any investor questions by the submission deadline. So we will conclude without a Q&A session. I appreciate your time and continued interest in Innovative Food Holdings. We will stay focused on maintaining the discipline we have built, generating sales and converting our operating progress into top line growth. We look forward to updating you on that work next quarter. Operator, you may conclude the call.

Thank you. A replay of this call will be available on the company's website at www.ivfh.com. This concludes today's conference call. You now disconnect.