Borealis Foods Navigates Challenging Conditions, Focuses on Margin Expansion and Operational Efficiency

Borealis Foods, a pioneering food science and manufacturing company, has navigated a complex operating environment in 2024 as it continues to execute a strategic repositioning of its revenue base and customer portfolio. While total revenue declined compared to the prior year, the company made significant strides in improving profitability and operational efficiency.

Revenue and Customer Trends Borealis Foods reported net revenue of $27.7 million in 2024, an 8% decline from the previous year. This decrease was primarily driven by the company’s strategic decision to rationalize low-margin SKUs and reduce volume with mass retail partners, particularly Walmart, which accounted for 22% of total sales compared to 57% in 2023.

The company’s focus on higher-margin products and channels paid off, as gross profit improved to $2.2 million, compared to a gross loss of $1.3 million in the prior year. Net gross margin, less depreciation, increased from 9% to 16%, a 7% improvement year-over-year.

Product Mix and Margin Enhancement Borealis Foods’ flagship brand, Chef Woo - High Protein Ramen, generated revenue of $10.4 million, a 200% increase year-over-year, representing 38% of total gross sales. The company also launched its Food Service product line, which generated $3.75 million in revenue in its first year.

The shift towards these higher-margin offerings, combined with SKU optimization and enhanced operational controls, were key drivers of the company’s margin expansion. Gross margin less depreciation improved to 16% in 2024, compared to 9% in 2023.

Operating Expenses and SG&A Trends Sales, General, and Administrative (SG&A) expenses rose 21% year-over-year to $22.6 million, or 82% of net revenue, compared to 62% in the prior year. This increase reflected ongoing investments in organizational development, brand building, and customer acquisition.

Sales and Marketing expenses nearly doubled to $5.73 million, with a significant portion allocated to advertising and influencer/social media marketing to support the national launch of new products. Administrative expenses decreased by 1% to $12.75 million, driven by a decline in professional fees and the non-recurrence of one-time legal and audit costs from the prior year.

Stock-based compensation expense, related to the immediate vesting of stock options associated with the reverse recapitalization, totaled $1.3 million, representing non-cash charges related to long-term incentive programs.

Liquidity and Capital Resources As of year-end 2024, Borealis Foods had $0.65 million in cash, $1.97 million in accounts receivable, net, and $2.23 million in finished goods inventory. The reduction in cash was attributable to operating cash use, inventory build-up to support institutional accounts, and SG&A expenditures.

Following the company’s SPAC merger and public listing on Nasdaq, it did not receive any proceeds from the SPAC trust, as redemption totaled 100%. Additionally, Borealis Foods incurred substantial transaction-related costs, which placed immediate strain on available working capital.

This liquidity constraint limited the company’s ability to pursue new customer relationships, fund promotions, and invest in broader marketing initiatives. It also impacted the company’s ability to take advantage of quantity discounts for raw materials, which had a significant impact on gross margins.

Cash Flows Net cash used in operating activities for the year ended December 31, 2024, was $15.09 million, primarily driven by the net loss of $25.33 million, adjusted for non-cash charges. This represents an improvement from the $18.01 million used in the same period of 2023, as Borealis Foods benefited from enhanced gross profit due to the performance of high-margin products.

Net cash used in investing activities was $1.91 million for the year ended December 31, 2024, primarily attributable to purchases of property and equipment, offset by proceeds from the reverse recapitalization. This increase from $4.47 million in 2023 aligns with the company’s focused approach to capital expenditures.

Net cash provided by financing activities during the year ended December 31, 2024, was $10.03 million, driven by proceeds from convertible debt and additional credit facility utilization. This compares to $24.94 million in the prior year, largely attributable to the Reverse Recapitalization proceeds and debt restructuring efforts.

Going Concern and Future Capital Requirements Management has identified recurring losses and negative cash flows from operations as factors raising substantial doubt about Borealis Foods’ ability to continue as a going concern. The company is focused on executing strategic initiatives to drive revenue growth, manage expenses, and secure additional financing to address these risks.

As of December 31, 2024, Borealis Foods had cash-on-hand of $0.65 million and negative working capital of $13.61 million. The company expects that operating costs will decrease in future periods, as it incurred approximately $1.51 million of transaction expenses and $1.27 million in employee stock compensation expenses associated with the Reverse Recapitalization in 2024, which were non-recurring costs.

Management is actively pursuing several strategic and operational initiatives to improve liquidity and profitability, including continued efforts to reduce sales, general, and administrative expenses, as well as exploring financing options, such as equity or debt issuances, to strengthen the balance sheet.

Strengths and Weaknesses Borealis Foods’ key strengths include its focus on high-margin, branded products, such as Chef Woo - High Protein Ramen, and its successful launch of the Food Service product line. The company’s ability to improve gross margins through product mix optimization and operational efficiencies is also a notable strength.

However, the company’s liquidity constraints, which limited its ability to pursue new customer relationships, fund promotions, and invest in broader marketing initiatives, are a significant weakness. The non-recurring costs associated with the Reverse Recapitalization also weighed on the company’s financial performance in 2024.

Outlook Borealis Foods is navigating a challenging operating environment, but its strategic focus on margin expansion and operational efficiency has positioned the company for potential improvement in the future. The successful launch of higher-margin products, such as Chef Woo - High Protein Ramen and the Food Service line, provide a solid foundation for growth.

To address its liquidity concerns, the company is actively exploring financing options and implementing cost-cutting measures. If successful, these efforts could help Borealis Foods strengthen its balance sheet and invest in the marketing and customer acquisition initiatives necessary to drive long-term sustainable growth.

However, the company’s ability to continue as a going concern remains a significant risk, and its success will depend on its ability to secure additional financing and execute its strategic initiatives effectively. Investors should closely monitor the company’s progress in addressing its liquidity challenges and its ability to capitalize on the opportunities presented by its high-margin product portfolio.