Barfresh Food Group Inc. Common Stock 2026 Q2 Earnings Call

Please go ahead, sir. Good afternoon, everyone, and thank you for joining us for our second quarter 2026 earnings call.

I want to start with the big picture of where we stand. We are in the middle of transforming Barfresh from a company that depended entirely on third-party co-manufacturers into one that controls its own production. That work touches three parts of the business this quarter. Our commercial momentum in the education channel, the ramp of our existing Arps Dairy facility, and the construction of our larger facility in Defiance, Ohio. All three moved forward in the second quarter, though not all of them moved as quickly as we had hoped. I will walk through each one. Then Lisa will take you through the numbers in detail.

On the commercial side, this year is about stabilizing the business, bringing control of production in-house, earning customers' trust back, winning back the customers we had lost due to supply interruptions, and setting up for a great 2027. Revenue in our frozen beverage and food segment, consisting primarily of legacy Barfresh products, increased 9%, driven largely by contributions from Arps Dairy. Combined with the raw and processed milk segment, which added $2.9 million of revenue this quarter, the acquisition successfully delivered top-line growth and allowed us to reengage with customers to rebuild the legacy Barfresh business. We look forward to seeing the results of these rebuilding efforts materialize in the second half of 2026. Where we fell short was on the production side. This quarter's results landed below where we expected them to be.

The ramp at our existing Arps Dairy facility took longer than we had modeled. The extra cost that came with that slower ramp pulled down both our gross margin and adjusted EBITDA more than we planned for when we gave guidance back in May. Given where we are at the halfway point of the year, we have taken a more conservative view of how quickly we will reach normalized production. That is reflected in the revised full-year guidance Lisa will walk through in a moment. None of that changes how we think about the size of the opportunity in front of us once our manufacturing platform is fully up and running. That has not moved. Let me provide some additional detail behind that shortfall and what we are doing about it, starting with why we made the acquisition in the first place.

The Arps acquisition was a key strategic move because we had become reliant on co-packers. The broader shortage in cultured dairy manufacturing left us exposed. Some of our co-packers didn't renew their agreements, and others simply couldn't supply the quantities we needed. The Arps acquisition was necessary to ensure continuity of supply in an already challenged supply chain. That is exactly what it has delivered. We've been able to make our products and maintain our sales to our customers, which was our key objective for the year, to stabilize supply. That said, this has come at a higher cost than we initially anticipated due to the condition of the old Arps facility's infrastructure and equipment. Once we started running the volumes we needed, we tested the limits of some of that infrastructure and equipment, and we were forced to make the repairs necessary to run our products reliably.

That has taken more work and expense than we anticipated to get the facility operating at our required volume with our products. Those higher costs are what you are seeing show up in our margin and operating costs this quarter. I would also add some more color on the plant condition itself because it explains a lot of what happened this quarter. The facility was older, and the equipment and infrastructure needed more repair and attention than we had anticipated. Much of that only became apparent once we started producing our own products and once the ice cream volume began to increase. At that point, the plant could not reliably run both Barfresh products and the ice cream business at the same time without one affecting our ability to deliver the other.

As a result, the ice cream business was moved, and we are able to focus the plant's capacity and our improvement efforts on Barfresh products and on building the higher volume capability we will need for both product lines going forward. We expect to bring the ice cream business back once the rest of the production is fully stabilized and we are consistently hitting the volumes and efficiencies we expect. While this had a real impact on both our top line and bottom line this quarter, we see it as temporary and necessary in order to stay focused on our core branded products. The good news is we have made significant improvement in production throughput at the old facility, which is allowing us to service our customers, and we expect continued improvement through the back half of the year and right up through our move into the new facility.

Our team is working through equipment installation, training and process refinements, and finishing construction at the larger 44,000 sq ft facility in Defiance, Ohio, is central to that effort. We are working towards partial commissioning of the core products by the end of 2026, followed by the balance of products shortly after. We expect it to meaningfully improve our throughput, efficiency, and profitability once it is online. It remains our top operational priority. On the new facility specifically, we continue to work through the plans for completing construction and installation. We have a $2.4 million grant we have been approved for, which we need to spend before the end of the year, and we are on track to do that. We had planned to use the proceeds from the convertible note to pay off the mortgage on the property, and we have done that.

We now own the property and building free and clear. As we have always said, we still plan to obtain a new mortgage and additional equipment financing to complete the project. Costs on the project have increased more than we initially anticipated, and this remains a moving target. We may need to adjust our approach to make the economics work. That piece isn't finalized yet, and we are actively working through it. We expect margin to improve in the back half of the year as throughput increases at the old facility. Once the new facility is up and running, we expect significantly greater margin improvement, along with increased capacity for both existing and new products. Overall, we see this acquisition as a very important strategic shift for the business.

It ensured we could keep supplying our customers, which we have successfully done, and it allowed us to remove the majority of our co-packers. Once construction on the new facility is complete, this will put us in control of our own production, set us up for profitability, and give us many options for profitable growth. That covers the operational side. On the commercial side, the education channel is where we are putting our energy, and it remains our greatest near-term opportunity. We kept adding to our customer base this quarter. Several of our recent school wins began serving our portfolio during the 2025/2026 school year, with implementation expected across all their locations for the 2026/2027 school year. We expect to announce several additional new educational channel wins in the coming weeks and months as more of this year's bids close ahead of the new school year.