BranchOut Food Inc. (BOF) Earnings

Management highlights

- New Customer Wins & Channel Expansion * Successfully converted a one-time Sam's Club product rotation to an everyday recurring order, which will return to stores in September. A second Sam's Club tropical mix product is scheduled for a January one-time rotation, with potential for conversion to recurring status. * Secured new Costco business including a successful mango chip test in the Bay Area, an upcoming organic apple chip launch, recurring pineapple chip reorders for the Southeast, and a first holiday season order for a new innovative cheesecake product in the Texas region. * Launched 5 SKUs of branded products at Target, and secured a test for dried cheese products at a large 9,500-door national retailer, with potential for $4–6 million in annual recurring business if the test succeeds. Dried cheese products will also launch in the convenience store channel. * Grew the industrial ingredient channel significantly, with 2026 full-year revenue projected to reach ~$7 million, up from $2 million in 2025, with further growth to over $10 million projected for 2027. - Plant Operations & Utilization * Historical production averaged 35,000 to 45,000 kilograms (35–45 metric tons) per month, representing 40–45% plant utilization. Booked new business will require ramping production to 70,000 kilograms per month, with peak months reaching 80,000 kilograms by the end of 2026. No additional hiring is required to meet this higher output. * At the new production and utilization level, management expects the business to reach and exceed breakeven profitability. * Management is evaluating bringing outsourced packaging in-house with ~$150,000 to $200,000 in capital expenditure, which would eliminate an estimated $1.5 million in annual outsourced packaging costs and improve margins. - Balance Sheet Health * The company holds $1 million in cash, which is continuously recycled into inventory to fulfill growing order volumes. Working capital is the primary capital need to support growth. * A $3 million convertible note payable from major shareholder Kauffman Capital is viewed as flexible friendly financing that will be extended until the company can secure a commercial bank revolving credit facility. Management considers the balance sheet healthy.

Guidance

- Full-year 2026: The company expects to produce over $20 million in product, but up to $2 million in revenue may slip to January 2027 due to delivery timing, resulting in full-year 2026 reported revenue of approximately $18 million. Current quarterly run-rate entering 2027 projects to over $30 million in annual revenue. - Q4 2026: Revenue is projected to reach $6–7 million, depending on end-of-year order shipment timing. Management expects this new revenue level to be sustainable moving forward, reducing historical revenue lumpiness. - Long-term margin: Management expects to hit the company's long-term 40% gross margin target as production utilization and raw material sourcing improve.

Segment performance

Branch Out Foods reported a net quarterly revenue of $4.45 million, with gross margin of 2% overall. Three primary product and customer segments contributed to revenue: 1. Costco: 20% of total revenue, with a 43% gross margin. 2. Microdried (industrial ingredient): 33% of total revenue, with a 3% gross margin. The low margin resulted from off-season premium pricing for organic and conventional strawberry raw materials to fulfill a large unexpected order. 3. Sam's Club: 31% of total revenue, with a 14% gross margin. The low margin reflected unexpected air freight costs and upfront marketing investment to secure the new recurring account.

Risks & headwinds

- Working capital constraints: The company may require a small amount of additional top-off capital to fund growing working capital needs as order volumes increase, which may come in the form of additional debt from Kauffman Capital or limited use of the company's existing shelf registration. - Revenue timing: Full-year 2026 revenue depends on when orders ship by December 31, with near-year-end orders potentially slipping to the next calendar year. - Uncertainty for 2027 revenue: While the company has a stronger base of recurring business than ever before, large unpredictable orders from retail club stores still create some visibility uncertainty for 2027 quarterly revenue.

Analyst Q&A

• Q: The company guided Q4 2026 revenue to $6–7 million. How much visibility does management have into sustaining or building this revenue level going into 2027? /

  A: Management notes far more visibility than ever before. The new recurring Sam's Club business alone provides an $8 million annual baseline that the company never had before. The growing industrial ingredient business also provides 6–9 months of forward visibility. While large Costco orders are still somewhat unpredictable, the company has a much stronger foundational base of business than in prior periods.\n\nQ: As production doubles to meet new demand, how much gross margin improvement can be expected over the rest of the year? / A: The plant was built for this higher utilization level, and product pricing was already set assuming reasonable utilization. This step up in output will cut per-unit overhead in half, unlocking the 30–40% gross margin range management has long targeted.\n\nQ: Are there specific granular drivers of the expected margin improvement? / A: Three key drivers will improve margins: 1) Raw material sourcing during peak season cuts strawberry costs in half, a major savings since raw materials make up 50% of total cost. 2) Process optimization of the air drying step will improve production flow efficiency. 3) Bringing packaging in-house is expected to add 5–7 percentage points to gross margin, with minimal capital expenditure required to move packaging operations in-house.