Mama's Creations Inc (MAMA) 2022 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to MamaMancini's Second Quarter Fiscal 2022 Earnings Conference Call. (Operator Instructions) This conference is being recorded today, September 9, 2021, and the earnings press release accompanying this conference call was issued at the close of market today.

On our call today is MamaMancini's Senior's Chairman and CEO, Carl Wolf; President and COO, Matthew Brown; CFO, Larry Morgenstein; and Greg Falesnik, CEO of MZ North America, MamaMancini's Investor Relations firm.

I would now like to turn the call reference over to Greg to read a disclaimer about forward-looking statements.

Thank you, operator. Before we get started, I'll read a disclaimer about forward-looking statements. This conference call may contain, in addition to historical information, forward-looking statements within the meaning of federal securities laws regarding MamaMancini's. Forward-looking statements include, but are not limited to, statements that express the company's intentions, beliefs, expectations, strategies, predictions or any other statements relating to its future earnings, activities, events or conditions.

These statements are based on current expectations, estimates and projections about the company's business based in part on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may and are likely to differ materially from what is expressed or forecasted in forward-looking statements due to numerous factors discussed from time to time in this report and other documents, which the company files with the U.S. Securities and Exchange Commission.

In addition, such statements could be affected by risks and uncertainties related to factors beyond the company's control. Matters that may cause actual results to differ materially from those in the forward-looking statements include, among other factors, the loss of key management personnel, availability of capital and any major litigation regarding the company.

In addition, this conference call contains time-sensitive information that reflects management's best analysis only as of the date and time of this conference call. The company does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of this conference call.

At this time, I'd like to turn the call over to Carl Wolf, the company's Chairman and Chief Executive Officer. Carl, the floor is yours.

Thank you, Greg. And thank you, everyone, for joining us today. I'd like to welcome you to our second quarter fiscal year 2022 financial results conference call. The second quarter of fiscal 2022 was highlighted by our rapid pace of growth, realizing a robust 17% revenue increase as compared to the same year-ago quarter. These sales figures were driven by our previously announced product placements, many of which began to ship in the second quarter.

Profits were temporarily offset by elevated commodity and shipping costs as well as onetime extraordinary expenses related to our NASDAQ listing fee and additional shareholder meeting requirements.

Our go-forward sales forecast continue to increase. And given our planned price increases, I would expect to see margin improvement by year-end. We are rapidly moving ahead on a new grab and go convenience store item, meatballs and sauce in cup. We expect to begin trial orders with Tier 1 partners in the late fall. This represent an enormous sale opportunity to the company with hundreds of thousands of addressable retail outlets.

In addition, we have initiated supply to Amazon Fresh, representing our first direct-to-consumer online sales. We believe this will be a large opportunity for our Beyond or MamaMancini brand's plant-based need meat balls. This will start as a smaller account, though could be significant with time based upon our cooperative marketing program with Amazon Fresh and historical comparables.

During the early days of COVID in 2020, we had to discontinue our college and university solicitation program, which we have now reactivated. We originally contacted about 550 universities and colleges out of the base of 2,700, and we're following up with 30 last winter. We hope to have new placement in several customers this fall. We anticipate that each customer placement will be between $100,000 and $500,000 per year based on our beta program at Boston College. Eventually, our goal is to have at least 100 colleges and universities across the country purchasing a regular or plant-based meat balls or other Italian items.

We continue to see success in our SiriusXM radio advertising campaigns. Currently, we are in the process of a 9-week campaign, airing an estimated 3,000 MamaMancini's commercials to announce the availability of our large 3-pound family pack at club stores. The campaign is on all major talk and news channels, potentially reaching over 75 million Sirius channel listeners.

On the social media side of things, we continue to maintain a robust reach, engaging new customers and encouraging repeat purchases. To-date, we have over 500,000 likes and continue to geo target likely consumers who live within 5 miles of a specific retail outlet.

Our QVC efforts have seen record success as well with Dan Mancini's live pitches driving impressive sales on their platform. As many of you are aware, we have been nominated for 3 QVC Consumer Choice awards, Best Meatball, Best Sauce and Most Trusted Brand. We have been chosen as food products for the month of September, featuring our 3-cheese Beef and Turkey meatballs and traditional Italian sauce.

QVC is North America's largest direct-to-consumer marketer and is available in over 100 million homes throughout the U.S. and Canada.

On July 15, 2021, we completed our uplisting to the NASDAQ Capital Markets, a milestone for all MamaMancini's shareholders that has been several years in the making. We expect that this will help elevate our public profile, expand our potential shareholder base and improve liquidity.

I could not be prouder of our incredibly hard working team, many of whom were featured when we rang the NASDAQ closing bell just a few short weeks ago.

Finally, before handing the call off to Larry, I would like to note that to further supplement our incredible growth, we continue to advance a significant internal effort to explore potential acquisitions. Our focus is on companies with complementary products in the perimeter of the supermarket as well as exceptional operational and financial metrics. The ability to realize new distribution relationships and push an existing product through our already robust distributor network, all at an attractive valuation is our goal.

We hope to announce our first major acquisition in the near-term as we move through our due diligence process. If completed, this would dramatically increase our sales and EBITDA. We anticipate financing the acquisition with our cash on hand and bank financing with the goal of minimizing any dilution. As a reminder, I myself am the largest shareholder of MMMB.

In summary, we are pleased with our robust growth trajectory in the second quarter. We believe that we maintain significant potential to begin shipping several exciting new product placements as the Tier 1 retailers in the near-term and believe we are poised for a return to margin expansion by year-end.

I'd now like to turn the call over to Larry Morgenstein, our Chief Financial Officer, to walk through some key financial details from the second quarter of 2022. Larry?

Thank you, Carl. Revenue for the second quarter of fiscal 2022 totaled $12.1 million as compared to $10.3 million in the same year ago quarter. The increase in the revenue for the second quarter was a result of initial shipments as part of the company's previously announced new placement wins with Tier 1 retailers nationwide.

Gross profit totaled $3.4 million or 27.9% of total revenues in the second quarter of fiscal 2022 as compared to $3.1 million or 30% of total revenues in the same year ago quarter. The lower gross profit margin in the second quarter was due to higher inbound shipping and commodities cost, which passed on to existing customers on a time lag basis for the first 2 months of the quarter and fixed pricing for a short introductory period on new placements.

The company expects profit margins will improve by year-end as commodity prices normalize and higher production volumes will result in higher plant operating efficiencies, as well as the exploration introductory pricing with several customers.

Operating expenses totaling $2.8 million in the second quarter of fiscal 2022 as compared to $2.3 million in the same year ago quarter. As a percentage of sales, operating expenses totaled 23.1% in the second quarter of fiscal 2022 as compared to 22.2% in the same year ago quarter. Operating expenses in the second quarter were affected by significant onetime expenses, such as the company's NASDAQ uplisting and additional shareholder meeting requirements, increased shipping cost and higher directors' fees.

Pre-tax income for the second quarter of fiscal 2022 totaled $0.6 million as compared to $0.7 million in the same year-ago quarter. Net income for the second quarter of fiscal 2022 totaled $0.4 million or $0.01 per diluted share as compared to a net income of $0.7 million or $0.02 per diluted share in the same year-ago quarter. The decrease in net income was significantly attributed to an income tax provision of $145,439 recorded during the 3-month period ended July 31, 2021, as compared to $0 during the 3 months ended July 31, 2020.

Cash and cash equivalents as of July 31, 2021, were $4.3 million as compared to $1.7 million in the same year-ago quarter and $3.2 million as of January 31, 2021. The increased cash balance benefited from $0.2 million in cash flow from operations in the second quarter of fiscal 2022 and a total of $1.6 million fiscal year-to-date. We do not anticipate raising additional equity capital at this time and are confident that the cash on hand, combined with our cash generated from operations, each quarter will be significant, sustain our core operations as we go.

This completes my comments. I'd now like to turn over the call to Matt Brown, our President and Chief Operating Officer. Matt?

Thanks, Larry. Plant operations saw a record production for the period ending fiscal Q2 2022. Record production was met with higher commodity and packaging costs as well as increased shipping cost on all inbound logistics.

Despite these challenges, the one variable the plant could control was labor. As with fiscal Q1 2022, labor expenses decreased as a percent of production costs. This was accomplished through better management of personnel and adjustments to hourly schedules in addition to improved use of technology introduced in Q1 fiscal 2022.

The plant saw the introduction of a few new items during fiscal Q2 2022, including Sam's refrigerated family pack of meatballs and sauce. We also launched 10 new pasta kits for divisions within the Albertsons-Safeway family of stores. The plant was quick to respond to the ever-changing specs across these pasta kits as our customers fine-tune the products to meet their specific needs.

On the R&D front, Carl mentioned but worth repeating, we are moving along with our handheld meatballs and sauce in a cup project and anticipate a trial run sometime in the next few months. This is exciting as it not only opens up a new avenue for us at MamaMancini's through convenience store retail, but also provides us with a new technology at the plant that we can see expanding into other product SKUs.

We also began the exploratory in fiscal Q2 2022 for a fully prepared pasta kit that can sell refrigerated to those outlets that do not have the ability to prepare in-store as we do with our current pasta kits.

On the CapEx front, we continue to move forward on the additional cooking room project that was started in fiscal Q1 2022. While the world is currently backlogged on any and all building materials, we are still hoping to break ground before fiscal Q4 2022. This additional room will give us the needed capacity to increase our rice, Bolognese sauce, and other brazed products currently in R&D. It is our hope that this room will help grow our business as we look towards next fiscal year.

Finally, as Carl mentioned, we continue to look towards vertical integration through the acquisition of companies that not only align with our mission statement, but also align with our plant capabilities. As part of the due diligence process, I have been looking at the equipment and production processes of these companies to ensure that they will provide us not only with complementary products, but also the ability to expand our East Rutherford products into these locations that are suitable to work with our asset programs and operating procedures.

So at this point, I'd like to turn the call back over to Carl for some final notes before wrapping the call up for Q&A. Carl?

Thank you, Larry and Matt. As I noted in my opening remarks, the business continues to fire on all cylinders. We have laid the foundation for an incredibly strong growth trajectory in the second half of the year. With our active acquisition efforts well underway, I firmly believe we are still in the early innings of MamaMancini's growth and increasing prominence as a public company.

We will continue to scale operations that have only begun our capital markets journey. We are poised for success on all fronts and look forward to seeing what the future holds for our brand.

With that, I'll turn it over to the operator to begin our Q&A session. Operator?

(Operator Instructions) Our first question comes from Howard Halpern with Taglich Brothers.

Congratulations on all the hard work and all the accomplishments in the quarter. In terms of -- can you talk, I guess, a little bit about expanding products or adding products to existing customers to increase the number of products on the shelves with those customers.

That is a major part of our activity right now as well as some new customers. So I can use Publix as an example, since I'm the key representative there. So Publix now has grown to about 1,300 stores, was about 1,100 3.5 years ago when we first started with them. So our pasta balls have done very, very well at Publix, and was on a voluntary basis per store, except for promotions. And a lot of the stores with limited help, we didn't have full distribution.

Publix has just given us full distribution in a forced planogram and has taken in 2 additional pasta ball items. Shipments have just begun. One is a family pack spaghetti and meatballs, and one is a lasagna roll up. So the volume has surprised all of us. And Publix, I think, in the next year, will become our #1 customer. So that is a perfect example of additional items.

Another situation is Albertson-Safeway. We started selling a few pasta balls. We now are authorized, I think, it's -- Matt, am I my correct, 14, and the typical -- each division makes their own decision and we're anywhere from 6 to 11 per division. So we -- so that is a key part of our business. So we're still -- we're probably at about 4 SKUs per chain and we now have 29 SKUs, plus an additional 15 or so SKUs just for QVC.

Okay. And also, what kind of progress is being made in terms of your rotations within club stores?

Well, club stores always will have rotations. So you pick up new items. The -- that Matt had mentioned our sleeved 3-pound pack at Sam's. That is actually a branded item. So you do a rotation. And then you're out and then you do a rotation again. What you do is you look at your numbers and see if they're satisfactory, and they appear to be very satisfactory.

So that same thing for Costco. And eventually, you hope to do more rotations than nonrotations. And in case Costco, you authorize by division.

Okay. And in terms of the new product, the meat ball in a cup, do you have a couple of convenience store customers lined up to do the trial at this point?

We do.

[And to what will that effect?]

That is verbally agreed. The trial is actually very substantial with one of them, very large. And we -- they're waiting for us. But you have to wait until you get your first order. But right now, it's been verbally approved.

The beauty of this product is that it's high in protein, relatively low in calories, taste -- very easy to prepare, and it is fully -- is very well branded for us. We're very -- it's priced competitively.

And is this the type of product, if it's successful with the convenience stores, will it easily flow into the college and university scene or possibly the deli counter of…

It will go into deli counters. I'm not sure about the -- our plan with colleges and universities would be more of the top, but they would spoon it out. You just gave us an idea. Gave us an idea.

Howard, this is Matt jumping. I was going to say -- Howard, this is Matt jumping in. I think that the concept behind the cup is that this would be geared towards a quick heat and serve. So in convenience stores that have a heating microwave system, that's what the cap is designed for. So universities, it's a good idea. Yes, they have commissaries where the students can keep these products up in the microwave very quickly and take them to class.

But we should mention that in a number of convenience stores, we're looking at the product being on a heated basis and grab and go, similar to hot sandwiches. There is a very, very big market for high-protein, low carbs.

In terms of the acquisition, I know you've talked about the revenue EBITDA, but Matt talked about something, I guess, that's important as part of the due diligence. Does taking out the machinery and the operation also include like the health and safety and how fast you can get that to you -- your level of health and safety is, your certifications?

Well, absolutely, but we really wouldn't look at anybody unless they had the health and safety than that to start. It's too big a risk. The only applicable candidates are ones that already have very significant health and safety standards already in effect.

Okay. And just -- and I know you…

I'm going to interrupt you. You have to remember in today's world, the social media, et cetera, you make one mistake and it can go very viral. So it's a very -- that's a strike out.

Okay. And I know you sort of addressed it in your opening comments with the gross margin, but will there be a slight incremental, couple of little ticks in the third and fourth quarter and then have a much more easing of gross margins as we go into next year?

What happened is, as everyone is already aware, we're in a very, very -- never encountered situation, at least in the last 50 years or so. And so we had one wave mainly of commodity price increases, which we passed along. We're now in a second wave of packaging and freight cost increases. We believe some of the commodity prices will come down, and the freight will come down once there is more drivers. There's a tremendous shortage of drivers. And as a result, price are highs.

So we now are in the process of raising our prices to reflect the freight, higher freight, which is, believe it or not, very substantial. And then we'll see what happens, but they should come down. In other words, we'll get our price increases, and we believe the elements underlying those price will come down. So I would say by the end of the year, you should see margins substantially higher -- actually higher than prior.

(Operator Instructions) Our next question comes from Jeff Kobylarz with Diamond Bridge Capital.

Just curious about the college and universities, your efforts there. Did you say that you have a test, a trial with a college this fall?

Well, we've been selling, started with Boston college 2 years ago, and they've been our beta, and it has done extremely well. And then last fall, we began a major campaign to solicit other -- not last fall, the fall of 2019. And any case, that went to shambles, we had about 30 university college with significant interest. This year, we started again around May, and yet it still has been late. So right now, we have 5 to 7 interesting prospects. We'll probably have a few this fall. It was definitely a state of confusion still in that area, but it represents a tremendous potential for the company. And it's in addition to Boston College.

All right. Can you comment about Walmart? And just how have you generated -- getting progress with Walmart? Or if they're just kind of staying stable? It's interesting, you mentioned that you've got Publix to be your largest customer in a year. So they would…

Walmart is stable. We have just begun a retail family pack with Walmart in 450 locations, mainly on the East Coast. The first orders are just coming in right now. If that is successful, we'll expand into -- expand into additional stores.

We are selling Sam's Club, and we have a very high anticipation of its selling additional item, which starts out testing to Sam's Club. So that is the -- we have -- we are in the middle of a -- I'm talking about Sam's Club Kitchen. We are in rotation at Sam's club with sleeves, retail sleeves branded, similar to a product we sell at Costco, a little -- it's a little different label, but it's basically a very similar product, and that is doing very well. The volume is nice, but it's better -- I think it's better if the company grows the business on all cylinders and is diversified.

Sure. It's impressive to hear about Publix doing so well with your products.

(Operator Instructions) Showing no further question, this concludes our question-and-answer session. I would like to turn the conference back over to Carl Wolf, for any closing remarks.

Thank you, operator. As a final note, once COVID-19 subsides, we will continue to be active and attending top investor conferences and investor non-deal roadshows, marking on both coasts of the U.S. In the meantime, we will continue our efforts on a virtual basis. If interested in scheduling a meeting with management, and we are in your region, please reach out to Lucas Zimmerman from MZ Group, our IR firm to arrange.

Thank you again for joining us today. We look forward to continuing to update you on our progress.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.