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Infant formula group Bubs Australia (ASX: BUB) added a second shift at its factory in Deloraine, Victoria this week to keep up with surging demand in the US market, where sales rose by 498 per cent year-on-year in the December quarter to reach $13.7 million.
The US now represents 53 per cent of Bubs' gross quarterly revenue of $25.7 million - a figure that was also up 79.7 per cent.
Dedicating increased resources to the US market and better utilising the Deloraine manufacturing facility were two key tenets outlined in a strategic plan prepared in mid-2023 by then non-executive director and current CEO Reg Weine, against the backdrop of an attempted board spill backed by founder Kristy Carr which ultimately failed.
Operating cash outflows increased to $8 million to lift working capital for supporting US growth, which was up on the previous quarter but below the $13.5 million net cash expended in the same quarter in 2022.
The group also raised $17.4 million in capital during the period, and by the end of 2023 had 92 patients enrolled in a clinical trial as part of a permanent access process with the US Food and Drug Administration (FDA); a longer-term play aimed at consolidating Bubs' position in the market.
"USA market expansion remains our number one priority and despite the recent inventory shortages in the US, we grew our USA revenue by 20.8 per cent over Q1," says Weine.
"Sales of our Bubs goat formula continue to resonate with US consumers, and we continue to make meaningful progress on our US clinical trial.
"We have now commenced our second shift at our Deloraine manufacturing facility to meet the rapidly growing demand in the USA. This will double our daily production and will help mitigate the stock shortages we experienced at the end of the calendar year due to high customer demand."
The company reports factory utilisation has now reached 60 per cent at the facility, which the group paid $35 million for in 2019.
Meanwhile, gross revenue in Australia was down 4.5 per cent at $4.8 million, and gross revenue in China rose 4.5 per cent to $4.2 million.
"Our China reset is progressing well and we expect sales in H2 to exceed H1 and deliver mid-single digit revenue growth over FY23 for the full year," says Weine.
"Whilst our domestic ex-factory revenue was down 4 per cent on the prior corresponding period due to the timing of orders, our scan sales performance was very strong with Bubs scan sales growing 15.4 per cent versus the total market growth of 3.4 per cent for the quarter," he says, adding Bubs is now the fifth largest player in the infant milk formula (IMF) market.
"Bubs is on track to deliver its strategic plan and guidance for the full year and remains focused on continuing to responsibly manage capital to grow and maximise shareholder value."
At the time of publication, BUB shares were up 9 per cent at 12c, although this is still down 40 per cent over the past six months.
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