Buda Juice, Inc. 2026 Q2 Earnings Call

Please go ahead. Thank you, Dennis.

During today's call, Horatio Lonsdale-Hands, Buda's Chief Executive Officer, and Clint Bowers, Buda's Chief Financial Officer, will discuss Buda's financial and operational results that were reported this morning. Any forward-looking statements made during this conference call during the prepared remarks or in the question and answer session, whether general or specific in nature, are subject to risks and uncertainties that may cause actual results in the future to differ materially from those discussed on today's call. These risks and uncertainties include, but are not limited to, specific risks and uncertainties disclosed in Buda's periodic and annual SEC filings. Buda assumes no obligation to update any forward-looking statements or to update the factors that may cause actual results to differ materially from those that they forecast.

Please note that our earnings release is available on the investor relations page of the Buda Juice website and has also been filed on Form 8-K with the SEC. Finally, on this call, we will refer to non-GAAP measures, free cash flow and adjusted EBITDA. Please see our earnings release for an explanation of our use of non-GAAP measures and reconciliations to GAAP measures. With that, I'd like to turn the conference over to Horatio.

Thank you, Brian. Good morning to everyone, and I appreciate your taking the time to join us on our second quarter earnings call. This was a strong quarter for Buda, and I'm excited to have the chance to walk through. The second quarter was a real step forward for Buda. It came earlier than we told you to expect, because revenue grew 26.4% year-over-year to $4.5 million. On our last call, we said the step-up in growth would show up in the second half of the year, and it actually started in the second quarter instead. Two things drove that. Our core beverage business continued to grow organically with our existing customers. It picked up a partial quarter contribution from our second quarter expansion into 246 Walmart stores across nine states.

On top of that, we added the new product line to our Fresh Certified platform, UltraFresh dressings. I will come back to both of those in a bit. With that being said, we did absorb real pressure on gross margin this quarter. It was largely transitory, every piece of it identifiable, and most of it has an end date attached. Clint will walk you through all of the details rather than have me summarize it. Our third quarter started even stronger. Through the first six weeks, our preliminary unaudited net sales are up more than 40% year-over-year. Roughly half of that is coming from same-store sales, and the balance is primarily from Walmart and restaurants. That figure is preliminary and unaudited, and again, is only for the first six weeks of the third quarter.

Let me set up the context, because the context is what makes this more than just a good quarter. There is structurally a shift happening in the grocery juice category. For decades, it has been built around pasteurized UV shelf-stable juice sitting in a crowded cooler or in the center store aisle. Consumers are increasingly walking past it. What they respond to is truly fresh, clean label juice at a fair price, kept cold in the produce section next to the fruit it came from. Fresh is not a premium version of an old category. It behaves like a different category altogether. A daily staple bought by adults and children alike. We call it UltraFresh. We created it and several large retailers are now resetting their juice sections around it.

As customers experience UltraFresh, they come back to try new flavors and make it a larger portion of their beverage spend as they recognize its versatility as a beverage too. It is a value beverage with Buda Fresh products ranging from $1.47 to $5.99. The entire family can enjoy them. We believe there is a structural change in how this category gets merchandised. A beverage category worth roughly $57 billion a year and growing. Here is how quickly it is moving. In one recent installation at a new store for a large national retailer, our Buda Fresh section occupies about a third of the juice cooler. Based on early observations, we believe it may be outselling the entire pasteurized juice set beside it. I want to be careful with that. It is one store and one early read, and we are treating it as exactly that.

It is consistent with what we have seen in our established markets. When people are offered generally fresh juice at a fair price, they do not generally go back to pasteurized. Juice is the core of our UltraFresh value, but UltraFresh was never just about one bottle of juice. It is a capability, and our Fresh35° cold chain running end to end now home in the produce section and hard-earned trust with some of the largest retailers in the country. Building that took years, and it is generally difficult to replicate. It is the reason retailers came to us when they decide to move their juice section to fresh. Once you own it, you carry a great deal more than juice in that section, such as our dressing products.

What matters strategically is this, it is still part of the Fresh35° cold chain, sits in the same produce section, and serves the same customers and has the same buyers. It was contributing within weeks. We are already in conversations to bring our UltraFresh dressings to additional customers. Meanwhile, the core juice keeps expanding right alongside it. Buda Fresh is now in 246 Walmart stores across nine states. In those single-serve and multi-serve formats, merchandised in produce with an entry price of $1.47. That is mass market positioning at the largest grocery retailer in the world, and we hope it is a starting point rather than the end point. We would like to be in more stores with more items, and we are working on how to get that.

With our momentum accelerating, we believe UltraFresh has the opportunity to make Buda a truly national brand and place our products in grocery stores across America. The opportunity is enormous, and we are just getting started. With that, I hand it over to Clint.

Thanks, Horatio. Good morning, everyone. Second quarter revenue was $4.5 million, up 26.4% from $3.6 million. This increase came from organic growth in the core beverage business and a partial quarter of new sales from the Walmart expansion and new dressings business. As Horatio said, gross margin did have downward pressure this quarter, coming in at 36.6% versus 46.7% a year ago, a decline of 1,010 basis points. For context on what drove this pressure, I would like to detail it out. Roughly 320 of the 1,010 basis points came from paying a third party to co-pack the UltraFresh dressing while we built the capability in our Buda, Dallas plant. We considered this as part of the start-up cost of entering the category before we can make the product ourselves.

About 270 basis points came from inbound freight cost on the juice business, which ran well above their usual level due to elevated fuel prices. Roughly 100 basis points of additional labor costs for training and audit readiness work tied to our facility upgrades and customer expansions. 30 basis points or so in product and customer mix. Lastly, 290 basis points came from higher produce costs versus last year, mainly limes that were still elevated coming into the second quarter following the first quarter supply disruption we discussed last time. As we stated last quarter, those costs were starting to come down and did in fact return to normalized levels towards the end of the second quarter.

To clarify, when we remove the additional costs of our higher inbound transportation, co-packing costs, and additional labor investments made, we indeed arrive back to our historical gross margin levels above 40%, consistent with our expectations during last earnings call. With all that, as evidenced, the unit economics of the core business did not change this quarter. Now, to expand a bit more, these four items behave differently from each other. So let me talk through each one. First, the high co-packing costs for the dressing business will end when we move it to the Dallas plant. We are actively spending capital dollars on our Dallas facility for this brand-new line, and we expect to start production in the first quarter of 2027. We expect dressing margin and consolidated gross margin to improve as soon as it happens.