Bubs Australia Ltd (ASX: BUB) shares are catching the eye on Wednesday morning.

In morning trade, the small cap ASX stock is up a whopping 22% to 12 cents.

Why is this small cap ASX stock rocketing?

Investors have been bidding the infant formula company's shares higher today in response to the release of a strong quarterly update.

For the three months ended 31 December, Bubs reported group gross revenue of $32.9 million (net revenue of $28.7 million). This is a 42% increase on the prior corresponding period.

This reflects growth across all markets. USA gross revenue was up 26% to $17.2 million, China gross revenue rose 68% to $7.1 million, Australia gross revenue rose 32% to $6.3 million, and Rest of World revenue increased 92% to $2.3 million.

Another positive was that the company's gross profit margin increased to 48% for the first half, up from 38% in the prior corresponding period.

But potentially getting investors the most excited was its EBITDA for the first half of FY 2025. The small cap ASX stock reported positive EBITDA of $2.9 million for the six months. This is a solid turnaround from the $6.8 million EBITDA loss it recorded in the prior corresponding period.

In addition, it second quarter operating cash inflow was $3.9 million, which is up from a $13 million outflow in the same period last year. This left Bubs with $17.2 million in total cash and cash equivalents plus $5 million in undrawn debt facilities.

'Turnaround is gathering pace'

The small cap ASX stock's chief executive officer and managing director, Reg Weine, was very pleased with the company's performance during the quarter. He commented:

We are very pleased with the continued progress against our strategic pillars, and our turnaround is gathering pace with another strong quarter of performance which was aided by a strong US dollar.

Pleasingly, our focus on growth in multiple markets, led by the US, working capital discipline, cost-out initiatives, portfolio optimisation and a reduction in one-off expenses, has resulted in Bubs achieving positive operating cash flow of $3.9m in Q2 FY25. The cash flow in Q3 FY25 will likely fluctuate as we invest in working capital for the second half however, we expect to be cash flow positive in Q4 FY25.

Outlook

The infant formula company has reaffirmed its guidance for the full year.

It continues to expect revenue of $102 million, a gross margin greater than 40%, and EBITDA breakeven.