Mama's Creations Inc (MAMA) 2023 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to MamaMancini's First Quarter Fiscal 2023 Earnings Conference Call. (Operator Instructions) This conference is being recorded today, June 15, 2022, and the earnings press release accompanying this conference call was issued earlier this morning. On our call today is MamaMancini's Chairman and CEO, Carl Wolf; President and COO, Matthew Brown; and CFO, Larry Morgenstein.

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 the forward-looking statements due to numerous factors discussed from time to time in this report and in 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. This call also includes the following GAAP measure, adjusted EBITDA, which is not a measure of financial performance under GAAP and should not be considered as an alternative to net income as a measure of financial performance. The company believes this non-GAAP measure one considered together with the corresponding GAAP measures, provides useful information to investors and management regarding financial and business trends relating to the company's results of operations. However, this non-GAAP measure has significant limitations in that it does not reflect all the costs and other items associated with the operation of the company's business as determined in accordance with GAAP.

In addition, the company's non-GAAP measures may be calculated differently and are therefore not comparable to similar measures by other companies. Therefore, investors should consider non-GAAP measures in addition to and not as a substitute for or superior to measures of financial performance in accordance with GAAP. For a definition and reconciliation of EBITDA to net income, its corresponding GAAP measure, please see the reconciliation table shown in the earnings press release that crossed the wire at market open today.

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. (Operator Instructions).

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, operator, and thank you, everyone, for joining us today. I'd like to welcome you to our first quarter 2023 financial results conference call. Since our last call was a few weeks ago, we are limiting our comments today. The first quarter of fiscal 2023 saw record first quarter revenues from MamaMancini's reinforced by our recent acquisitions and bringing us significantly closer to our goal of $100 million annualized sales run rate by year-end.

As shared in our fourth quarter fiscal 2022 earnings call a few weeks ago, we have a strong growing presence in the fresh prepared foods segment. To support these initiatives, we are focusing on product innovation based on customer feedback, creating promising favorites such as our new Original Meatballs in a Cup product which quickly sold out in its first ever QVC showing to better meet our customers' multifaceted needs. This product has the potential to efficiently service the exciting convenience store, supermarket and university foodservice opportunities.

On the financial front, with nonrecurring acquisition-related expenses largely behind us, we returned to profitability and are beginning to enhance margins by rapidly passing along price increases to our customers. From an industry perspective, this phenomenon is new and unique to the inflationary environment we find ourselves in, but it should serve to fortify our margin profile going forward, regardless of future commodity cost increases.

In addition, as commodity costs normalize and our import costs come down, we expect to further enhance long-term margins through the defense of our recent price increases. Our growing sales are a result of our high-quality and innovative new products and our effective multipronged marketing efforts, these have historically included radio campaigns, social media efforts and continued work with QVC.

I'd like to touch on a few of these now. As you already know, that we often hit 500,000-plus likes on our social media and some campaigns have several million views. Looking ahead to continue this momentum, we continue to see attractive multiples in the food product space, and we'll evaluate additional acquisition opportunities that are immediately accretive and have complementary products that are good candidates for our national distribution network.

In summary, the last several months were a time of foundation building for the year ahead from which our vision of MamaMancini's as the national platform company will emerge.

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 first quarter of 2023. Larry?

Thank you, Carl. Revenue for the first quarter of fiscal 2023 increased 111.7% to a record $21.8 million as compared to $10.3 million in the same year-ago quarter. The revenue increase for the quarter was primarily a result of the first quarter from the December 2021 acquisition of T&L Creative Salads Inc. and Olive Branch LLC.

Gross profits increased to $3.9 million or 17.7% of total revenues in the first quarter of fiscal 2023 as compared to $3.3 million or 32.4% of total revenue in the same year ago quarter.

The margin compression was caused by inflation raw materials, packaging and freight costs as well as lower margins in the T&L Creative Salads and Olive Branch business lines, partially offset by the lower overhead of the acquired businesses. Management believes the balance between inflated raw material costs and the company's price increases will normalize in the second quarter returning gross profits to its historical range.

Operating expenses totaled $3.6 million in the first quarter of fiscal 2023 as compared to $2.5 million in the same year-ago quarter. As a percentage of sales, operating expenses totaled 16.5% in the first quarter of fiscal 2023 as compared to 24.2% in the same year-ago quarter. Operating expenses in the first quarter increased mainly due to transportation rate increases, fuel surcharges and acquisition-related expenses.

Net income for the first quarter of fiscal 2023 totaled $0.1 million or $0.00 per share as compared to a net income of $0.6 million or $0.02 per diluted share in the same year ago quarter.

Adjusted EBITDA, a non-GAAP term, totaled $0.7 million for the first quarter of 2023 as compared to $1.1 million in the same year ago quarter.

Cash and cash equivalents as of April 30, 2022, was $0.9 million as compared to $0.9 million at January 31, 2022.

This completes my comments. I would like to turn the call over to Matt Brown, our President and Chief Operating Officer for an operations update. Matt?

Thanks, Larry. On the operations side of the business, fiscal Q1 2023 was about recertifications and new business. As mentioned on our 10-K call, the acquisition of T&L and Olive Branch required numerous trips between facilities to help learn the operations and meet the team. Q1 started with both facilities heavily involved in their annual Safe Quality Food audits or SQF. Both plants are SQF Level 2 facilities requiring detailed documentation of all production from pre-ops to in-ops to post-ops. Where in the past, the primary focus of these audits was on the facilities asset program or the flow of production and how we address critical control points, this year the focus has shifted to more emphasis on food safety. Good manufacturing practices, allergy control programs and lot traceability are being heavily scrutinized across food manufacturers nationally.

I am proud to say that both facilities passed with record scores of 98% and 99%. These scores are shared with all our major customers who are more inclined to do business with facilities that can demonstrate an ongoing ability to professionally and safely produce to their needs. In particular, our new ERP system was extremely helpful with regards to lot traceability and the speed and ease at which we can identify product-specific issues, should the need ever arise.

On the production front, both T&L and MamaMancini's operations continue to work together on sharing common raw material suppliers for protein and other volume items where our buying power enabled us to at least keep inflationary price increases to a minimum. While T&L battled chicken prices, MamaMancini's was working hard to keep beef prices in check. While no one can predict with certainty where the commodity market is heading, we have seen some signs that prices just might start be softening, and we can take advantage of better margins during this softening period.

At MamaMancini's, we have taken steps at further reducing our labor costs through the implementation of better technology to record the hours of our employees and, in turn, have reduced over time. We hope to continue to see tighter control in this area. Our new projects continue to take hold as we pick up new authorizations on our meals for 1 line as a quick refresher meals for 1 or MFO grew out of the post-pandemic needs of our supermarket partners to have access to ready-made meals due to labor shortages internally in their commissaries. Products include our mainstay Spaghetti and Meatballs, Chicken Parm, Chicken Fettuccini Alfredo and Sausage with Peppers and Onions, all are made available in a microwavable 14-ounce tray.

In Q1, we were asked by 1 of our retail chain partners to develop the product in a 28-ounce version with quick R&D work and some calls to our raw and packaging suppliers, we were able to turn this option around in less than 4 weeks. MamaMancini's in T&L had its first joined appearance at the recently attended International Dairy-Deli-Bakery Association, or IDDBA. The show took place in Atlanta and our joint participation was well received by buyers, purchasing agents and brokers who attended the show.

The meals for one and Meatballs in the Cup created tremendous buzz as well as our chargrilled chicken products. The show is an important 1 for us as it reminds existing customers of our commitment to quality and new offerings, while at the same time introducing the line to new potential customers. Speaking of new offerings in addition to the meals for one in Meatballs in a Cup, we brought along our brand-new Penne alla vodka, and it did not disappoint. We already have an order in production coming out of the show and hope to pick up new business with this item that is now available as part of the 14-ounce meals for 1 line.

Overall, setting aside a 2-year hiatus from the show due to COVID restrictions, this was 1 of the best attended shows for us in the past 5 years. We expect to see the rewards from our efforts over the next few months, with new authorizations and new orders.

That concludes my update. I will now turn the call back over to Carl for some final notes before wrapping up the call for Q&A. Carl?

Thank you, Larry and Matt. In summary, we continue to grow our national footprint while concurrently innovating on the product front, driving more SKUs per store. Our positioning as a national platform company is clear, and we continue to see attractive multiples for companies in food product space, providing an exciting pipeline of potential M&A opportunities as we see fit.

We are incredibly well positioned to create sustainable long-term value for my fellow shareholders, and I look forward to a strong cadence of operating execution in the quarters ahead.

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

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

Congratulations, great kickoff to your first quarter. In terms of gross margin. Do you anticipate that you're going to be able to get back into that 20% area in the second half of the year?

Well, we're -- yes. Right now, our adjusted EBITDA, which was a minor adjustment of $55,000 for acquisition expenses is running around 3.5% of sales. Our norm is around 8.5%. So most of that will come from gross margin. So we should see a 3% to 4% increase in gross margin. And as our sales grow, our expenses should come down. So we should be significantly above 20% as things normalize.

Okay. And along that vein, with the operating expenses. The only really huge variable you see going forward is the freight and transportation costs, everything else should be pretty sustainable even as you ramp up to that $25 million in quarterly revenue?

Yes. Our SG&A without freight should be relatively go down as sales go up. Freight should be a direct variable sales. However, we've just added some logistics, admin support. So we think that there's a good possibility that freight will go down as a percentage of sales.

Okay. And in terms of your acquisitions of T&L and Olive Branch. Have you seen any real possibility of distribution into your national network? And has any occurred yet? Or what are you seeing on that front?

We've seen very substantial. We've already begun substantial distribution of T&L products into MamaMancini's network. We have other commitments, which will occur this summer that have already been authorized and first ships are actually coming this month. And then we have several additional likely occurrences. So we see very substantial sales coming from MamaMancini's expansion of T&L. And we see some opportunities as well for T&L expansion in MamaMancini's products.

Okay. And just a brief update on the Meatballs in a Cup. When do you anticipate the launch within the convenience stores?

Our packaging -- we need to expect a special technology for microwave ability. The QVC product was ship frozen. The product we sell gene stores are ship frozen and then defrost it. So we needed a different technology. So that is coming in mid-July, mid to early July, and we have first orders that we'll be shipping out. We have a lot of indicated interest and hopefully, we will have some substantial additional business. Right now, I think we have 3 commitments other than QVC. So we'll see what happens soon. But the reaction is tremendous.

(Operator Instructions) The next question comes from Bruce Martin with Still Lake Capital.

I have a quick follow-up on the last question and then 2 other questions. When you say adjusted EBITDA is now running at 3.5% are you saying that's what it's running now in the second quarter? And when you say normal ...

In the first quarter. Right.

And so when you say you're planning to get to normal, which is 8.5% does that incrementally slowly increase as the year goes on and if you hit that run rate in the fourth quarter or do you anticipate sooner than that or later than that? When do you -- what's the?

I would say close to it in the third quarter and should be by the fourth quarter. By the fourth quarter, we definitely hope to be running that $100 million in sales or more could be substantially more. And so that's $8.5 million EBITDA.

And as we -- a was just staying on that note, that 8.5-ish percent as "normal" is that a longer-term normal for you? Or do you see that growing beyond that as I look at.

The long term is 9% to 10% as we take efficiencies in our overheads.

And then my second question is on liquidity as you guys have obviously been investing in inventory and other working capital and there was a cash burn in the first quarter. How do we -- how comfortable or how do we think about liquidity as the year plays through here?

Sure. There was a reduction -- a substantial reduction in accounts payable in the first quarter, and we had because of very heavy sales increases, increases in inventory and receivables. That is stabilizing, and we should start seeing some positive cash flow going forward.

We anticipate an increase of our working capital bank line, which is now $4.5 million, going up to $5.5 million. And we have around $12 million as of the first quarter, we have around $12 million of assets supporting that. So we think our working capital needs are good. We'll be paying down some of our long-term debt, and we may look at some very modest increase in equity in the next few months, just as a safety valve.

Right. So -- and you've been -- this is my third question, which is you've been talking a fair bit. It feels like you've been talking more about M&A recently, and you've made a change to the Board level. So when you think about M&A going forward, is it safe to assume that, that would require an equity raise as opposed to debt or I presume?

Well, there's a whole -- there's 3 different ways you can handle it. One, you can get debt from the seller, two, depending on the numbers, we can get debt from outside capital. And three, it's by -- the 3 is debt is equity with the seller, and four is equity from the markets. So you have to look at each thing and the cash flow and make a decision. However, each acquisition should be significantly accretive to earnings per share.

And would you say all investors should expect to see another acquisition or 2 this year, this fiscal year or not necessarily?

I would say there should be this year, at least 1 more investment. And then we are -- we're growing so fast -- we want to absorb that. And then I think we'll come back on later this year. We do have opportunities available and the fact that the market has seen some margin compressions well for making acquisitions.

And is there anything you're targeting specifically? Is it additional products or additional distribution?

It's products more than distribution. And the key is to move products into our national network and also some distribution as well. So anyway, yes. But we have -- right now, we have focused upon fresh prepared foods, ready foods eat-at-home. So that has been our focus up to now. That's a growing category. And although in the last 2 years because of COVID, the center of the store has done much better -- but over time, as habits come back to normal, that will not be a growing area.

So as you've just seen in dry goods, a number of retailers have been -- have overstocked certain segments of their inventory because consumers are very rapidly move back to the old patterns. So the core part of the business for us is the take home prepared foods segment. If it's many, many things in today's lifestyle.

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, we will continue to be active in attending top investor conferences across the United States. And interest in scheduling and meeting with management when 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. Thank you.

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