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Brendon Fischer

Thank you, Claudia. Jumping right into our financial performance. Revenue in the first quarter of 2025 was $2.5 million compared to $11.4 million for the same period in 2024. The decline was primarily driven by softening demand due in large parts to increased competitive pressure. Gross profit for the first quarter of 2025 was $1.1 million compared to $4.6 million for the same period in 2024.
Gross margin was 45% in the first quarter of 2025 compared to 41% in the year ago period. The decrease in gross profit was largely due to lower revenue, partially offset by lower cost of goods sold. The improvement in gross margin for the first quarter primarily reflects the lower cost of goods sold in the period.
Operating expenses in the first quarter of 2025 were $3.5 million compared to $3.7 million for the same period in 2024. The year over year reduction was largely the result of a decrease in bonus compensation and lower legal services expenses.
Net loss in the first quarter of 2025 was $2.6 million or a loss of $0.23 per diluted share compared to net income of $511,000 or $0.06 per diluted share for the same period in 2024. The decline reflects lower gross profit, partially offset by reduced operating expenses in Q1. Adjusted EBITDA in the first quarter of 2025 was negative $0.8 million compared to $2.5 million for the same period in 2024.
Moving to the balance sheet. We ended the quarter with cash and cash equivalents of $1.6 million compared to $3.7 million as of December 31, 2024.
Total debt, excluding operating losses was $2.7 million. However, subsequent to quarter end, we entered into exchange agreements with all of our outstanding noteholders with notes payable this year. Under the exchange agreements, existing notes were exchanged on a dollar for dollar basis for new notes maturing five years from the date of issuance.
The new notes are convertible at the option of the holder in whole or in part into shares of common stock based on our price per share equal to the average closing price of our common stock during the five trading days immediately prior to the execution of an entry into the new notes. With such conversion prices ranging from $0.62 to $0.63.
This concludes my prepared remarks. I'll now turn the call back to Claudia. Claudia?

Claudia Goldfarb

Thank you, Brendon. I'll focus on our three key strategies executing cost savings and cash conservation initiatives, expanding candy distribution and pursuing new category opportunities where our team has deep expertise.
First, we continue to carefully manage operating expenses to drive meaningful savings while maintaining our commitment to production, innovation and quality. In the first quarter, we reduced overhead by approximately $400,000 through targeted cuts related to our Mexico operations and labor reductions. We are targeting an additional $100,000 in savings during the second quarter.
We're also enhancing operational efficiency through smart automation. To support scalable growth without compromising quality, we implemented two custom-designed automated packaging machines. These systems partially replace our previously manual hand packaging process, reducing labor costs and increasing speed and consistency, while being specifically engineered to handle the fragility of our freeze-dried candy and preserve our product integrity.
Furthermore, we are evaluating opportunities to optimize our manufacturing footprint to better align with our current operational needs. As part of this strategy, we have decided to delay the deployment of freeze dryer 7 through 12 and until production demand warrant their activation.
This approach allows us to maintain maximum flexibility as we explore new category and geographic expansion opportunities. Similarly, given our current priorities and the need for greater visibility into long-term demand, we have postponed the activation of our two candy making machines.
Second, to conserve cash and strengthen our balance sheet on March 31, 2025, we revised the annual compensation for me and our Executive Chairman. Approximately 28% and 32% of our respective annual cash salaries will now be paid in company stock pursuant to the Sow Good 2024 stock incentive plan rather than cash.
Additionally, we've taken steps to bolster our short-term cash position by entering into exchange agreements with existing noteholders to push out upcoming maturities by five years incorporating certain conversion and redemption features. These agreements reflect the strong confidence our management team and noteholders have in our recovery plan, long-term strategy and future opportunities.
Turning to sales expansion. Q1 marked a period of meaningful reengagement and growing momentum through targeted retail promotions and key account wins. Albertsons grocery launched approximately 1,500 displays as part of their summer set with Halloween shipments also scheduled for late May. Kroger received seasonal Easter items, continuing our presence in key seasonal sets.
ACE hardware stores saw 50 locations order full displays in Q1 and with steady category expansion and encouraging early performance. Orgill mirrored our progress at ACE with positive initial demand and continued orders supporting our entry into the hardware retail channels. KeHE one of the largest US distributors will officially launch Sow Good in May through its new brand program. Winn-Dixie received initial shipments in Q1 and has already placed reorders indicating a positive consumer response.
Five Below launched our Chamoy and Cotton candy taffy in Q1 and thanks to both new product introductions and renewed velocity due to targeted retail promotions across our existing SKUs, we saw a 124% increase in orders compared to Q4.
Due to the strong performance, they've now added our Caramel Crunch SKU, which will launch in June. Although we paused the launch of our in-house the chew candy production we have successfully advanced with in-house production of our Caramel products in both traditional and freeze-dried format.
These are handcrafted using a limited selection of high-quality ingredients, completely free from dyes, artificial colors and artificial flavors. This initiative reflects our commitment to meeting the evolving expectations of today's consumers, who are increasingly seeking clean label better for you alternatives without sacrificing taste.
The demand for transparency, simplicity and ingredient integrity continues to shape purchasing decisions across the confectionery category. By prioritizing cleaner formulations, we are not only differentiating our brand but also positioning ourselves to lead within this growing segment.
We see this shift as a long-term opportunity to build trust, strengthen brand loyalty and future-proof our product portfolio in a competitive and evolving marketplace. Looking ahead, we are excited to continue innovating with cleaner ingredients while expanding our assortment, ensuring Sow Good remains synonymous with quality, transparency and innovation.
Internationally, we're excited to share that we launched our products in the Middle East during the first week of May through our partnership with explorer investments, a leading distributor in the Middle East.
While it's still early, initial orders exceeded expectations, and we anticipate having clear visibility into performance by early July. This expansion represents a significant growth opportunity. The Middle East freeze-dried market is still in its infancy with limited competition from high-quality brands and ample space for our market leader to emerge.
In Europe, while we've not yet launched as we continue to navigate regulatory requirements, we were optimistic about the long-term potential of the market. Our strong reception at ISM Germany earlier this year reaffirmed growing interest in premium freeze-dried products within this emerging and relatively untapped category.
We will continue to pursue opportunities to open this market, and we'll keep you updated as progress is made. Given the volatility of the emerging freeze-dried candy category, our management team has remained focused on identifying opportunities to further leverage our manufacturing expertise and proprietary freeze-drying technology.
As a result, we are planning to enter two high potential categories where we have deep expertise, beef jerky and freeze-fried yogurt snacks. Both product extensions will emphasize clean label, better for you ingredients, aligning with consumer demand for simple, high-quality formulations and supporting our long-term commitment to health conscious innovation. As previously shared, initial samples were met with very positive feedback from customers reinforcing our confidence in these extensions.
Building on that early enthusiasm, we've advanced R&D and remain on track to potentially launch both categories in the second half of the year. Currently, we're planning for yogurt melts to debut under the Sow Good brand, while beef jerky will launch under a new brand currently in development.
We're energized by the growth potential these new categories represent and encouraged by the strong early response. We look forward to keeping you updated as these initiatives progress. We're executing on multiple fronts, expanding domestically with new retail partnerships strengthening our distributor network and entering high-growth international markets.
With a good pipeline and continued emphasis on innovation, quality and cost discipline, we are confident in our ability to deliver sustainable long-term growth. While visibility into our revenue path is improving, it remains dynamic as is typical in emerging product category.
As previously shared, we expect Q2 to show modest improvement over Q1 as new partnerships begin to take hold. These early steps are laying the foundation for more meaningful growth in the second half of the year.
We remain focused on building a scalable, sustainable business with disciplined cost management in a fast-moving environment. While challenges still persist, we believe we're positioning ourselves to emerge stronger, more agile and ready to reassert our leadership through continued manufacturing excellence, innovation and thoughtful category expansion.
Operator, we'll now open the call for Q&A.

Question and Answer Session

Operator

(Operator Instructions)
George Kelly, Roth Capital.

George Kelly

Hey everyone, thanks for taking my questions. Maybe one for you, Claudia, just to start. You talked about in your prepared remarks seeing renewed consumer enthusiasm. So I guess the question is, could you share what you're seeing just in weekly or monthly velocities.
And how has that trended maybe over the last, I don't know, six weeks or longer. And then secondarily, how is your retail inventory position right now? Are you still kind of working through excess retail inventory with certain of your large partners?

Claudia Goldfarb

George. Yeah. No, great questions. So what we're seeing is a slow increase in sell-through data in retailers. We were kind of at about 12, 13 units per door. Over the last few weeks, we've increased to 14. This past week, we increased to 16 units per door.
So just like our revenue recovery, which has been slow and steady, we're seeing that same kind of trend in retail environments. What we're hearing is that customers were really excited about the large CPG launches, and they wanted to try them. As they've tried them, the novelty has worn off, and they're returning to our brand because of our superior assortment and the quality of our products.
And week over week, we're starting to see that improvement in Circana data. I'll give you a great anecdote. Five Below, when we did the cotton candy, it was supposed to be a one and done order, was a limited edition run and it performed so well that they just placed a reorder for an additional 46,000 bags. And we're seeing that throughout retailers, ACE, Orgill where it was just going to be limited displays are now placing reorders for additional displays. So that's what we're seeing on the retailer side.
In regards to retailer excess inventory, Five Below was working through quite a bit of inventory. That has slowly gone away. We did some very targeted promotions at Five Below at HEB to get rid of the excess inventory. Those were successful, and so we're now returning to a normal reorder cadence with those customers.
So we're excited. There are still challenges, we're still working through reopening doors, but in our existing retailers with our existing customers, we're seeing a return to normal reorder cadences and excitement for the brand, especially our relaunches and I'm probably giving you more information than you want, but like the Caramel Crunch going into Five Below and other retailers, our innovation, our new product launches are being accepted incredibly well.
And I think that part of that is, a, they trust us as one of the pioneers in the category. So what we're coming out with these new products, they understand that it's coming in with a really quality freeze-drying process. And we're really focused on cleaner ingredients, which is also being received incredibly well. Like our Caramel Crunch, it's got six ingredients completely free of artificial dyes and flavors. And I do think that, that is going to be a really strong important component of our go-forward strategy.

George Kelly

That's all helpful information. And a few questions left for you. How many doors are you in currently?

Claudia Goldfarb

So that is changing, especially right now. We just did the Winn-Dixie launch. We did -- we're increasing in Orgill and ACE. So that's a very dynamic number. But --

George Kelly

Maybe at quarter end would be the better question?

Claudia Goldfarb

Yeah. So somewhere around 1,900, somewhere between 1,900 and 2,000 doors.

George Kelly

Okay. And then a separate topic. Your inventory grew again sequentially. And so A, how do you feel about the quality of that inventory? Is any of it heat affected or just generally thoughts there? And then what are your expectations for the next couple of quarters? How quickly can you work inventory down.

Claudia Goldfarb

So in regards to heat-affected inventory, that's really contained to two SKUs, the sweet worms and some of the peach perfect, I feel like we've identified and gotten rid of most of that inventory, there might be some stragglers here and there. In regards to the quality of the inventory or the salability of the inventory that we have remaining, we've got a two year shelf life on most of our products. So we've got time to work through it.
One of the things that we're trying to be really strategic about is like the sweet worms, the peach perfect that we want to work through at a quicker cadence looking for opportunities that we can do that overseas and focusing on new inventory that we bring in being those better for you ingredients, cleaner ingredients and kind of restocking with those product lines.
So that's where we are on inventory. It's going to take us a little bit of time to work through specifically the sweet worms, some of the peach product and those things, but we're actively working on it.

George Kelly

Okay. And then one last question for me is just about the competitive dynamics. Has any of the big guys that entered the space, do you feel that they're committed? Have you seen them pull back at any retailers? Or is the industry perhaps just not big enough for them to kind of stay interested? Or anything you've observed there? And then also, the smaller competitors that have been around for longer, have you seen any of those exit the space? And that's all I had. Thank you.

Claudia Goldfarb

No, thank you. Yeah, a lot of the small guys have exited the space. None of them were real competitors. And we've seen a huge inundation of the China product in especially like discount retailers and some of kind of the lower price point retailers, which has affected trial quite a bit.
But I think that consumers are smart, they're savvy and they're recognizing that the reason there's so much key product in some of those retailers is because it's cheap product. And they're returning to Five Below, an HEB and these other places and purchasing good quality product.
In regards to some of the larger -- sorry, one of the other smaller retailers that we've been kind of neck and neck, not retailers, brands that we've been neck and neck with. Looking through the Circana data, they've been affected by the large CPG companies entering the space, much more so than we have, and they aren't seeing the recovery that we are.
So again, I think that, that speaks to our assortment, our quality, the fact that we actually freeze dry our products ourselves as you may remember, we were co-manufacturing overseas last year. As of late last year, we no longer do that. Everything is now once again in our Irvine facility.
And you see that quality really speaking, coming through our product line. In regards to the large CPGs, I haven't heard anything from them or from retailers. Based on what I'm hearing from buyers, consumers and what I'm seeing in the data, I'm surprised that they're not performing better. I would have expected a stronger performance from them.
And we're seeing what we would consider some pretty substantial declines in their sell-through rate. And again, I think that, that has to do with the fact that who you choose to freeze dry your product really matters. How you freeze dry, how you package really matters.
And so I don't know if they're going to evaluate who their co-manufacturers are, I don't know if they're happy with what their performance is. But I think that there is definitely room for improvement on the quality of the product that's out there by some of those larger CPG companies.

George Kelly

Thanks.

Operator

(Operator Instructions)
[Igor Novyartsev, Lairs Capital].

Igor Novyartsev

Hello and thank you for taking my question. And I think a couple of questions already been answered. So I'm happy to hear that. One of the questions, I remember, Claudia, you mentioned that on the previous call that the Q1 will not be materially better in terms of sales of Q4.
However, we could say that it was materially better. So revenue has recovered somewhat by more than a $1 million. So was there a lot of sales right after the call? Did you ship a lot of product after the -- at the very end of March. So I'm just curious if something has changed in that respect.

Claudia Goldfarb

Igor, hi, great question. And yes, we saw much quicker recovery right after that call. And so reiterating what I said to George and on this call, A lot of consumers were really excited about trying some of the new launches on the market. And as those trials kind of happened, they said, you know what we're going back to Sow Good because we love their assortment, we love their quality. And we saw that in the last half of that quarter. And we're seeing that this quarter.
Recovery is still going to be slow. We recovered a little bit more than we anticipated in the first quarter. Second quarter is still going to be marginally better than the first quarter. Third quarter is still going to be marginally better than the second, but it's happening.
And we're excited to see it happening. And right now, we're incredibly focused on how do we sustain that momentum through targeted partnerships with our strong retailers and with really thoughtful, methodical product launches that are speaking to consumers and what they're looking for at this time.

Igor Novyartsev

Okay, thank you. My other question is, I think it's fair to say that you have six units and you have a significant spare capacity until your sales recover. What are your plans for the spare capacity can it be utilized in doing some private label or subletting it to somebody? Or what are your thoughts on that?

Claudia Goldfarb

Yeah. No, definitely. I hate having our machines idle. We want them to be operating, we want to keep our workforce at full force and so we're analyzing and looking for opportunities in all of the areas you just mentioned, home manufacturing, private labeling, we're excited about bringing yogurt melts into our product assortment both on the branded side and a private label side because, again, that's something that will help keep the machines fully utilized. And so nothing is off the table in regards to how to bring our utilization rates back up.

Igor Novyartsev

My final question, and I know it's sort of a difficult question. So obviously, your cash position has improved somewhat by converting some of the compensation into equity and I'm happy to see that given the circumstances, but it's still a little bit tenuous. Do you have any discussion to improve your cash position? What are your thoughts for the next couple of quarters? What are you planning to do?

Claudia Goldfarb

Yeah, definitely. As a management team, cash is an important conversation that we're having on a very regular basis. And converting some of our salaries from cash to stock, talking to our noteholders to push those notes out.
And we're going to keep evaluating every strategy we can on how to improve our cash position. What our primary focus at this time is, A, being really thoughtful and methodical about evaluating what our expenses are and converting our inventory to cash because that is the easiest way for us to improve our cash position.
We have plenty of inventory sitting in our warehouse that we need to work through and convert to cash because that's going to be the most meaningful way for us to improve the cash position.

Igor Novyartsev

Okay. Thank you so much, and I'm glad to see some green shoots in this quarter. So hopefully, we will see more green shoots in next quarter. So that's all the questions I have. Thank you, Claudia.

Claudia Goldfarb

Thank you. And I'm looking forward for more green as well. Everyone, thank you very much. I greatly appreciate you being on this call and being on this journey with us. We still have challenges ahead, but we're excited as we see our recovery strategy is taking hold. So have a great day, everyone, and again much appreciated.

Operator

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time for your participation.