Earth Science Tech, Inc. (ETST) Earnings Call Transcript

Thank you, operator, and welcome to Earth Science Tech's Fiscal Third Quarter 2026 Earnings Conference Call. With me on the call today is Giorgio Saumat, CEO and Chairman of the Board, and Ernesto Flores, Chief Financial Officer. During the course of this call, management may make forward-looking statements regarding future events and the company's expected future performance. These forward-looking statements reflect Earth Science Tech's current perspective on existing trends and information, and can be identified by such words as expected, plan, will, may, anticipate, believe, should, intend and other words with similar meaning. Such forward-looking statements do not guarantee future performance and involve risks and uncertainties, including those noted in the Risk Factors section of the company's Annual Report on Form 10-K filed with the SEC and in subsequent SEC reports and press releases. Actual results may differ materially. The company's financial results and transformation plan press releases and today's discussion includes certain non-GAAP financial measures. Please refer to the non-GAAP to GAAP reconciliations, which appear in the press release and are otherwise available on our website. Now that our Form 8-K filed with our financial results press release provides a detailed narrative that describes our uses of such measures. The company declines any obligation to update its forward-looking statements, except as required by applicable law. Now I'd like to turn the call over to our CEO, Giorgio Saumat. Giorgio, please go ahead.

Good afternoon. Hello, everyone, and thank you for joining us today. We appreciate you guys taking the time to be with us and for your interest in Earth Science Tech. Before I turn it over to Mario and Ernesto to review our fiscal third quarter financial results, I want to spend a little time talking about where we are as a company, what we are seeing across the business, and why we're so excited about the direction we are headed. When we step back and look at the business today, what excites us most is how many positive forces are coming together at once. Business momentum is building across our platform, and we have launched a transformation plan that will evolve the company into a more institutional-ready public company with stronger governance and capital discipline. Putting these pieces together, we see a clear opportunity to materially expand our earnings power, attract new investors and drive long-term value creation. Over the past 3 years, we have been intentional in building a diversified platform of operating businesses that we believe can deliver strong growth and attractive margins. What is encouraging now is that we are seeing that strategy translate into real operating traction across multiple parts of the company. Several of our operating subsidiaries are now generating positive cash flow, which is a major milestone for us and reinforces the strength and resiliency of our business model. To put that in perspective, in fiscal 2024, we only had 1 subsidiary operating at positive cash flow. And today, that number has grown to 4 businesses. As these businesses continue to scale, we are realizing the benefits of the operating leverage in our business and margin expansion is beginning to take hold. One of the areas we are especially excited about is our telemedicine platform, Peaks Curative. In less than 1 year, Peaks has grown from early commercialization into a meaningful contributor to revenue, surpassing $2 million in annualized revenue, up from just $250,000 in the prior fiscal year, and emerging as a high-margin growth engine for the company. Peaks Curative or PeakNow.com embodies the type of opportunity we target, platforms where we can move quickly, execute efficiently and scale into long-term value drivers. We are also continuing to expand our geographic footprint. We currently have up to 12 additional state licenses pending between RxCompoundStore and Mister Meds, which we believe will significantly expand our addressable market and support continued growth across multiple business lines. While the third quarter included some nominal seasonal dynamics and temporary macro and supply-related headwinds, the underlying performance of the business remained consistent with expectations. Importantly, January and February have started strong, reinforcing the momentum as we move into the fiscal fourth quarter and underscoring the stability and scalability of our platform. Alongside the momentum in the business, we have launched a transformation plan that is designed to strengthen the company as a public enterprise, enhance transparency and governance and position us for long-term shareholder value creation. Over the past 3 years, we have transformed the company from one facing legacy financial and structural challenges into a streamlined, scalable operating platform. With performance improving and multiple subsidiaries now generating positive cash flow, the timing is right to raise the bar and evolve into a more institutional-ready public company. One component of the transformation plan is portfolio optimization. We are actively evaluating opportunities to divest noncore assets while consolidating certain subsidiaries under unified brands. We believe these steps will unlock operational efficiencies, simplify decision-making and materially improve margins over time. We are also enhancing shareholder engagement and transparency. Following the filing of our upcoming Form 10-K ended March 31, 2026, we plan to introduce a say-on-pay advisory vote and increase shareholder participation in capital structure decisions. As part of this commitment, matters related to our Series B preferred stock will be submitted to a shareholder vote, and I have voluntarily agreed to abstain from voting on this measure to ensure transparency and fairness. Finally, strengthening governance and aligning leadership incentives with shareholder interest is another important component of this plan. Mario, the Chief Operating Officer, and I have voluntarily voided our employment contracts and waived certain compensation components operating on an at-will basis until new agreements are negotiated after the July proxy process. The Board has also reduced its compensation and deferred certain contractual decisions, reflecting our commitment to fiscal discipline and long-term value creation. Collectively, these initiatives are expected to generate approximately $1.4 million in annualized cost savings for fiscal year ending March 31, 2026. Combined with the growth momentum across the business, these actions support a clear path to expand our earnings power materially and further strengthen the foundation for long-term growth. With the platform momentum and transformation initiatives underway, the foundation of the business is stronger than ever. I'll now turn the call over to Mario to provide a closer look at our third quarter operating results.

Thank you, Giorgio, and good day, everyone. I'll take a few minutes to walk through our third quarter operating results and provide some additional context behind the numbers. Revenue for the third quarter was $8.4 million, up 14% from $7.4 million in the same period last year. This growth was primarily driven by higher product sales across the platform. And as Giorgio mentioned, this quarter is typically our seasonally softest. So this performance is consistent with the expectation and a reflection of the stability in our business. Gross profit was $6.4 million, representing a 76.3% gross margin and an increase of 71 basis points versus the same quarter last year. The improvement reflects both higher sales volumes and the operating leverage inherited in our platform. We continue to see strong margin expansion as the business scales and efficiencies take hold. Operating expenses for the quarter were $5.1 million compared to $4.9 million in the third quarter of fiscal year 2024. The increase was primarily driven by higher marketing and office expenses, but primarily offset by a decrease in salaries. These investments support ongoing growth initiatives, including product expansion and geographic licensing. Net income was $910,000 or $0.31 per diluted share compared with $206,000 or $0.01 per diluted share in the same period last year, an increase of 341%. The improvement reflects both higher revenues and continued operational disciplines across the business. For the third quarter, adjusted EBITDA was $1.03 million compared to $206,000 in the prior year. This reflects improving earnings quality of the company and operational leverage we continue to capture across multiple subsidiaries. And now I'll turn the call over to Ernesto to provide more color on the third quarter financials and balance sheet. Ernesto?

Thank you, Mario. Turning over to cash flow and balance sheet. As of December 31, we had $416,000 in cash on hand and working capital of $773,000. While cash on hand declined from $1.5 million at the end of March, that primarily reflects strategic investments in inventory, stock buybacks and asset acquisitions to support growth as well as ongoing operational activity. Importantly, we remain debt-free and continue to generate positive cash flow with over $1 million for the 9 months ending December 31, 2025. In addition, we repurchased and retired 1.1 million shares during the quarter and a total of 3.7 million shares for the first 9 months of the fiscal year. These purchases reflects our ongoing commitment to disciplined capital allocation and returning value to our shareholders. In summary, the third quarter reflects a business that continues to demonstrate stability, scalability and improving earnings quality. Even in a seasonally softer period, we delivered solid year-over-year revenue growth, expanded gross margins and generated positive operating cash flow year-to-date. That concludes my review of the third quarter financials. I'll now turn the call over to Giorgio for his closing remarks before we open the call for questions.

Thanks, Ernesto. As we look ahead, our focus is on execution. We are concentrating capital on our highest return subsidiaries, simplifying the portfolio through divestiture of noncore assets and strengthening governance and capital discipline across the organization. We believe these actions position Earth Science Tech to expand earnings power and evolve into a more institutional-ready public company. With that, operator, please open the call for questions.

Our first question of the day comes from Richard. The question is, when do you anticipate that additional states will be operating under RxCompound?

I'll take that call. So Richard, we have several applications out with RxCompoundStore -- sorry, with Mr. Meds actually. Mr. Meds should have approximately 12 states when it's all said and done, about 8, probably in the next 2 months. RxCompoundStore has 3 licenses out right now, and those should probably happen in the next same time frame, about 2, 3 months.

Okay. And our next question again is from Richard. Is an employee stock incentive program being considered?

I'll take that. Richard, at this time, we're not considering it. That's not to say we may not in the future. It's just that at least from my perspective, I prefer not to be diluting the stock. And my preference is to pay our employees well. And then if they decide that they want to own piece of the company, let them buy it on their own. It also makes our accounting easier for Ernesto. But yes, I mean, it hasn't been an issue to date, and I don't think at this time that it's something that we are considering.

Okay. And our next question today is from Daniel. Are there any current plans or intentions to pursue an uplisting of the company's stock?

Okay. The simple answer is yes. I think, though, that opens up the next question, which you didn't ask, but which is where are we going to uplist? And I think that, that's something that most likely, at least I will be approaching the Board to include in the proxy documents, some sort of questions, kind of get the shareholders' input as to where we would like to uplist. Going to a national exchange is expensive and also may have some other things that we may need to do before. And then we can always stay on OTC markets and move up to either QB or QX. But again, that's something I think I'd like to get the shareholders' input in July to figure out where does everybody really want to go.

Okay. And the next question comes from Thomas. The question is, can you provide an update on how DOConsultations, Villas Health and Magnefuse are performing relative to the expectations and projections set at the time of their acquisition last year?

I'll take this one, Mario. Okay. So DOConsultations is performing pretty much as expected. It's a little bit of a different line than Peaks. But really when we acquired DOConsultations, what we wanted them to do was come in and provide support for Peaks and help them grow, and they've done that. Villas Health is a similar situation. You can't really value those -- that acquisition of Villas Health solely on the numbers, right? It's a brick-and-mortar. And I think they're doing well. They're covering their costs and they're needing a little bit of profit here and there. But their biggest value, and I think Mario would agree with me, is that, they have been a very important part of building out [ MOC Teladoc ], which is our doctor network, which should be going live sometime in the next month, I think, or 2. And as soon as that goes live, it should be accretive immediately to our bottom line. They've played an instrumental role in that and in building out that doctor network. So I think over time, the value of Villas and DOConsultations will be noted in the growth of MOC Teladoc. As far as Magnefuse, I can tell you, I know it's a little bit out of our industries that we're typically in. However, I can say that in December and January, it's been cash flow positive and bringing money back to the holding company. So in that respect, to do that in less than a year for any acquisition, I think, is a positive. So I think that they have outperformed our expectations.