Company History and Overview
BranchOut Food Inc. (NASDAQ:BOF) is a leading food technology company that has pioneered the development and commercialization of its proprietary GentleDry™ dehydration technology. This innovative process allows BranchOut to produce a wide range of premium, healthy dehydrated fruit and vegetable-based products that address evolving consumer demands for nutritious, on-the-go snacks.
BranchOut Food was originally incorporated as Avochips Inc. in Oregon on February 21, 2017 and later converted to Avochips, LLC in November of the same year. In November 2021, the company converted to a Nevada corporation and adopted its current name, BranchOut Food Inc. The company's founding mission was to leverage innovative dehydration technology to create a new generation of fruit and vegetable-based snacks that outperform traditional drying methods.
BranchOut is engaged in the development, marketing, sale, and distribution of plant-based, dehydrated fruit and vegetable snacks and powders. The company's products have historically been manufactured by two contract manufacturers, one based in Chile and the other in Peru. BranchOut's dehydrated fruit and vegetable products are produced using a proprietary dehydration technology licensed from a third party. The company's customers are primarily located throughout the United States.
BranchOut's product portfolio includes its flagship BranchOut Snacks line of dehydrated fruit and vegetable chips, as well as its BranchOut Powders and BranchOut Industrial Ingredients offerings. The company's products are sold through various channels, including leading national grocery retailers, direct-to-consumer platforms, and the industrial food ingredients market.
In 2024, BranchOut made a strategic decision to vertically integrate its operations by opening a state-of-the-art 50,000 square foot production facility in Peru. This new facility, which commenced operations in October 2024, is equipped with three large-scale REV™ machines from technology partner EnWave Corporation, providing BranchOut with an estimated $40 million in annual production capacity at estimated 40-50% gross margins. Additionally, the company acquired a smaller REV machine for product development and customer sample purposes.
Financial Performance and Growth Trajectory
BranchOut's financial performance has been characterized by exceptional growth in recent years. For the nine months ended September 30, 2024, the company reported net revenue of $5.01 million, representing a 272% increase compared to the same period in the prior year. This surge in revenue was primarily driven by increased sales to the company's largest customer, a leading national warehouse club retailer.
Gross profit for the nine-month period ended September 30, 2024 was $768,690, a marked improvement from the $75,640 gross loss reported in the prior-year period. This increase in gross profitability was largely attributable to cost savings realized through BranchOut's transition to bulk shipping arrangements and the operational efficiencies gained from the new Peru facility.
While the company has incurred net losses in recent years as it has invested in growth initiatives, BranchOut is projecting a significant improvement in its financial performance. For the full year 2024, the company is estimating net revenue of approximately $8 million, more than double the $3.18 million in operating revenue reported in 2023. Additionally, BranchOut is on track to achieve positive cash flow starting in the first quarter of 2025, driven by the increased demand for its products and the cost efficiencies realized from its vertically integrated Peru operation.
Looking at the most recent fiscal year (2023), BranchOut reported annual revenue of $2.83 million, with a net loss of $3.93 million. The company's annual operating cash flow was negative $3.53 million, and its annual free cash flow stood at negative $3.65 million. In the most recent quarter (Q3 2024), BranchOut achieved quarterly revenue of $2.18 million, representing a 141% year-over-year increase compared to Q3 2023. However, the company still recorded a quarterly net loss of $1.27 million.
Diversified Revenue Streams and Expanding Partnerships
BranchOut's revenue is generated from a diverse mix of channels, including branded retail, private label, and industrial food ingredients. The company's largest customer is a leading national warehouse club retailer, which has significantly expanded its commitment to BranchOut's products over the past year.
In 2024, the warehouse club retailer increased the store count and overall projected sales of its third contract with BranchOut, tripling the original commitment. The new contract now has a value of approximately $1 million in annual sales and will offer BranchOut's private label products in 3,430 stores across the nation, up from an original store count of 1,400.
Additionally, BranchOut has made inroads into the lucrative industrial food ingredients market, signing a Letter of Intent with a leading distributor in this space. The company anticipates completing a Definitive Agreement in early 2025 that will include a minimum commitment of $5 million in sales for the year. This move aligns well with industry trends, as the global market for industrial food ingredients was valued at $335.32 billion in 2023 and is projected to reach approximately $511.33 billion by 2032, growing at a CAGR of 4.8%.
BranchOut has also established a strategic collaboration with the U.S. Army Combat Capabilities Development Command (DEVCOM) to enhance Meals Ready-to-Eat (MRE) through its proprietary GentleDry technology. Following successful shelf-life testing and sensory panels, the U.S. Army has selected two of BranchOut's products for field testing with live soldiers, a testament to the quality and innovation of the company's offerings.
Operational Expansion and Vertical Integration
BranchOut's decision to vertically integrate its operations by opening a new production facility in Peru has been a transformative move for the company. The 50,000 square foot facility, which commenced operations in the third quarter of 2024, is equipped with three large-scale REV™ machines from technology partner EnWave Corporation, providing BranchOut with an estimated $40 million in annual production capacity.
The new Peru facility has enabled BranchOut to significantly improve its operational efficiency and cost structure. By bringing production in-house, the company has been able to capture higher gross margins, which reached 19% in the first quarter of 2024, a marked improvement from the negative 3% gross margins reported in the prior-year period.
In addition to the three large-scale REV™ machines, BranchOut has also acquired a 10kW REV™ machine from EnWave to be used for research and development, rapid product development, and production scale-up in response to new product requests from major retailers and large brands.
Navigating Supply Chain Challenges and Mitigating Risks
Like many companies in the food and beverage industry, BranchOut has had to navigate various supply chain disruptions and other macroeconomic headwinds in recent years. In 2023, the company faced challenges when its contract manufacturer in Peru, NXTDried Superfoods, became involved in a legal dispute with its landlord, resulting in the suspension of operations and BranchOut's temporary loss of access to the dehydration machine.
To mitigate the impact of this disruption, BranchOut was able to shift fulfillment of orders to alternative manufacturing sources, and subsequently made the strategic decision to open its own production facility in Peru. This vertical integration has not only allowed the company to regain control over its supply chain but has also enabled it to capture higher margins and better respond to changing customer demands.
Additionally, BranchOut has taken steps to diversify its customer base and revenue streams, reducing its reliance on any single customer or channel. While the company's largest customer, a leading national warehouse club retailer, currently accounts for a significant portion of its revenue, BranchOut has been successful in expanding its partnerships with other major retailers, as well as entering the industrial food ingredients market.
Product Portfolio and Market Positioning
BranchOut's primary branded products include BranchOut Snacks, which are dehydrated fruit and vegetable-based snacks such as Avocado Chips, Chewy Banana Bites, Pineapple Chips, Brussels Sprout Crisps, and Bell Pepper Crisps. The company also offers BranchOut Powders, including Avocado Powder, Banana Powder, and Blueberry Powder. In the industrial ingredients sector, BranchOut sells bulk avocado powder, dried avocado pieces, and other fruit powders and pieces under its BranchOut Industrial Ingredients line.
The company's use of proprietary dehydration technology licensed from a third party allows BranchOut to produce high-quality avocado and banana-based snack and powdered products. This technology gives BranchOut a unique advantage over competitors using conventional dehydration methods, positioning the company well in the growing market for healthy, innovative snack options.
Financial Position and Liquidity
As of September 30, 2024, BranchOut had $1.07 million in cash and working capital of $702,540. The company's debt-to-equity ratio stood at 4.61, indicating a significant reliance on debt financing. BranchOut's current ratio of 1.27 and quick ratio of 0.95 suggest that the company has adequate liquidity to meet its short-term obligations, though there is limited room for financial flexibility.
The company has incurred recurring losses and may need to raise additional capital to fund its ongoing operations and expansion plans. BranchOut's ability to manage its cash flow and potentially secure additional financing will be crucial for supporting its growth initiatives and achieving long-term profitability.
Outlook and Conclusion
BranchOut Food Inc. has demonstrated remarkable growth and innovation in the food technology space, leveraging its proprietary GentleDry™ dehydration technology to create a portfolio of premium, healthy dehydrated fruit and vegetable-based products. The company's strategic decision to vertically integrate its operations by opening a state-of-the-art production facility in Peru has been a game-changer, allowing BranchOut to improve its operational efficiency, cost structure, and responsiveness to customer needs.
With a diversified revenue mix, expanding partnerships with leading retailers and the U.S. military, and a clear path to profitability, BranchOut is well-positioned to continue its impressive growth trajectory. The company's innovative products, commitment to quality, and focus on operational excellence make it a compelling player in the dynamic food technology sector.
However, BranchOut faces challenges in terms of achieving consistent profitability and managing its financial position. The company's ability to continue its revenue growth while controlling costs and improving margins will be critical in the coming years. Additionally, successfully leveraging its new production facility in Peru and expanding its presence in the industrial food ingredients market will be key factors in BranchOut's long-term success.
As BranchOut continues to execute its growth strategy and capitalize on the increasing demand for healthy, innovative snack options, investors and industry observers will be closely watching the company's financial performance and market expansion efforts. With its unique technology and growing market presence, BranchOut Food Inc. remains an intriguing company to watch in the evolving landscape of food technology and healthy snacking.