Real Good Food Company Inc (RGF) 2021 Q4 法說會逐字稿

Greetings, and welcome to the Real Good Foods Fourth Quarter and Full Year 2021 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Chris Bevenour, Investor Relations for Real Good Foods. Thank you. You may begin.

Good morning, and welcome to the Real Good Food Company's Fourth Quarter 2021 Earnings Conference Call. On the call today is Bryan Freeman, Executive Chairman; Jerry Law, Chief Executive Officer; and Akshay Jagdale, Chief Financial Officer. You may access our fourth quarter earnings release, which we published at approximately 7:00 a.m. Eastern Time today.

If you've not had a chance to review the release, it's available on the Investors portion of our website at www.realgoodfoods.com. Before we begin, I'd like to remind everyone that certain statements made on this call are forward-looking statements within the meaning of federal securities laws and are subject to considerable risks and uncertainties.

These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements made on this call today, other than statements of historical fact are forward-looking statements and include statements regarding our projected financial results, including net sales, gross profit, gross margin, adjusted gross profit, adjusted gross margin and adjusted EBITDA as well as our ability to increase our net sales from existing customers and acquire new customers, introduce new products, compete successfully in our industry, implement our growth strategy and effectively expand our manufacturing and production capacity.

Forward-looking statements made on this call represent management's current expectations and are based on information available at the time such statements are made. Such statements involve a number of known and unknown uncertainties, many of which are outside the company's control and can cause future results, performance or achievements to differ significantly from the results, performance or achievements expressed or implied by such forward-looking statements.

Important factors and risks that could cause or contribute to such differences are detailed in the company's filings with the Securities and Exchange Commission. Except as required by law, the company undertakes no obligation to update any forward-looking or other statements herein, whether as a result of new information, future events or otherwise.

In addition, throughout this discussion, we refer to certain non-GAAP financial measures, which refer to results before taking into account certain onetime or nonrecurring charges that are not core to our ongoing operating results and which we believe better reflect the performance of our business on an ongoing basis.

Our non-GAAP financial measures, including adjusted gross margin and adjusted EBITDA are referenced. A reconciliation of each non-GAAP financial measure to its most directly comparable GAAP financial measure is included in our earnings release, which is available on our website under the Investors tab. And with that, it is my pleasure to turn the call over to Real Good Food Company's Executive Chairman, Bryan Freeman.

Thanks, Chris. Good morning, everyone. We appreciate you joining us on our fourth quarter earnings call. Today, I will briefly review our fourth quarter financial highlights and discuss the key reasons we believe we're well positioned for long-term growth. Gerard will cover our operations, and Akshay will then review our financial results in more detail. discuss our guidance and long-term financial targets. After that, we'll open up the call for your questions. Let's get into it.

Starting with our financial highlights, we ended 2021 with strong financial results. Sales increased 129% to $25.6 million compared to the fourth quarter last year. We had strong growth in the club channel this quarter despite lapping our intra a year ago, driven by best-in-class velocities and distribution gains and our retail channel growth continued to accelerate, growing by 105% this quarter, driven by exceptionally strong velocity gains in our core products and new customer wins.

We also saw positive trends in our key profit metrics. Adjusted gross profit margin increased 120 basis points year-over-year was up sequentially. Adjusted EBITDA margins also improved on a year-over-year basis despite higher operating expenses owing to the growth investments we are making.

Although this quarter's results were in line with our guidance and growth was strong, we're not satisfied. We're in the early stages of penetrating our total addressable market and have more aggressively addressed our goal to be at peer average margin.

As a result of this greater focus on margins and parts enabled by our investment in Bolingbrook, we have pulled forward our goal to be EBITDA positive by 12 months and have raised our EBITDA guidance for 2022. Moreover, we are doing this without sacrificing growth with our revenue guidance also increasing to 2022 and beyond.

For 2022, we now expect revenue in the range of $140 million to $150 million and expect first quarter revenue to be between $33 million and $35 million. Akshay will go into greater detail in a few minutes. As you can see from our fourth quarter results and guidance, our growth has accelerated.

Keeping up with demand for our brand is one of our biggest challenges, and we believe we are still in the early stages of a robust long-term growth journey. We believe our brand has the potential to get to $500 million in sales and are updating our long-term guidance to reflect the same.

What gives us conviction about this outlook are the positive trends we see with our 4 brand health indicators. These indicators are social community growth and engagement, household penetration, repurchase rates and velocity.

The Real Good Foods social community continued to grow. I've said in the past, a sheer number of RGF followers is more than all of Nestle's frozen brands or all Conagra brands combined, and we are growing. But besides scale, engagement is important. During the period, we saw recent Instagram posts attracting thousands of comments across more than 410,000 of our followers in the first few hours of posting. The average number of comments on each of our Instagram posts exceeds any of the top 7 health and wellness brands in our category by 5x. Our social media footprint allows us to connect with consumers and drive demand to the shelf, which leads to greater household penetration.

For household penetration according to Numerator, the Real Good Foods brand has a household penetration of 7.4%, almost double from a year ago. This is approximately one in every 13 U.S. households has a product.

In fact, our household penetration now ranks #2 amongst all health and wellness frozen brands behind only to Amy's which, by the way, is over a $500 million brand at retail. Keep in mind, we're only a little more than 5 years since our founding. And to be at these levels of household penetration is something we are proud of and speaks to the differentiated nature of our brand positioning and marketing.

And despite rapidly growing household penetration, our repurchase rates are at 33%, which is in line with our peers. And finally, our velocity metrics are exceeding our expectations. According to SPINS over the 4-week period ending February 20, Real Good Foods brand retail sales grew 73% year-over-year, which is an acceleration compared to 68% over the 12-week period and 22% over the last 52-week period.

Growth is being driven primarily by baseline velocity growth and growth in core items. It should also be noted that our velocity growth in the first quarter occurred while we took pricing action.

As such, thus far, we have not seen any negative impact to demand related price elasticity. The strong brand health metrics are contributing to strong sales growth in retail takeaway. It is because of these brand health indicators that we have made the investment to increase capacity with our new manufacturing facility in Bolingbrook, Illinois.

I'm happy to announce the facility is expected to start on time with production commencing later this month. This will enable us to match capacity with a long and short-term demand for our product to also significantly accelerate our margin enhancement efforts. Akshay will discuss the implications of this in more in detail, but I'm pleased to report that we now expect to be EBITDA positive a full year ahead of schedule owing to our Bolingbrook investment.

Next, I will touch briefly on our 2022 innovation pipeline. As a reminder, our strategy can be characterized as fewer, bigger, better and faster. We take a few shots on goal but expecting each shot to be material to our P&L and have truly meaningful new product design.

For 2022, we are focused on breaded poultry, Asian Entrees and expanding our Breakfast platform. These are massive categories representing approximately $5 billion in retail sales in aggregate but with very little to no healthy nutrient dense options that are craveable.

We designed a unique breading system as gluten-free, grain-free, reduces carbohydrate, has no added sugar and increases protein. This highly differentiated product design is poised to disrupt the category and provide consumers with a chicken nugget or chicken strips that they can feel good about serving to their families.

We're excited about this launch, and we'll be shipping products starting in April. For Asian [famed] Entrees, we have cracked the code in reducing carbohydrates and sugar and increasing protein on some of our favorite dishes, such as orange chicken, sweet and sour and general sows.

It's my personal view of these dishes are most craveable entrees to date, and as such, we're excited about this launch, and we'll be shipping products starting in April. We believe our Asian and breaded poultry platforms could represent $100 million to $200 million opportunity for Real Good Foods. We're also launching a potato type substitute that provides protein and fewer carbs than traditional potato-based types.

Again, this is what we believe is a breakthrough innovation that can be used in multiple form factors. To create a craveable bowl that is high in protein and lowering cars is not easy. We unlocked this and we're taking this innovation and using it to build out a line of breakfast bowls, which will add to our brand block and Breakfast. Bolingbrook is enables our entry into these categories and gives us much needed capacity to meet the growing demand for existing products.

And now I'd like to turn the call over to our CEO, Jerry Law, we talk about Bolingbrook is and operations more broadly.

Thanks, Bryan. Good morning, everyone, and thank you for joining today's call. Operationally, in 2021, we transitioned from a co-pack model to a self-manufacture model, where in over 80% of our sales are now being generated from self-manufactured assets, which has allowed us to improve our financial performance.

Our team continues to push hard to keep up with strong and accelerating demand for our products. We've improved the efficiency of our manufacturing process while more than doubling our production since the beginning of 2021.

Despite the significant increase in our production capacity, strong demand continues to outpace production. In fact, demand in the first quarter outpaced our internal capacity, and we had to rely on co-packers more heavily than is ideal to meet demand.

For all the reasons Bryan mentioned earlier, we have greater confidence in the long-term potential for our brand to get to $500 million in sales. Our new Bolingbrook is facility is going to start coming online in March. For perspective, our first production run is 6 months from the time we sign a lease, which is unprecedented and a part of why we win in the market. We are lean and action-oriented, allowing us to move faster than most organizations. We keep it real.

Bolingbrook is 2x the size of our existing City of Industry Facility and will have the capacity to produce approximately $275 million in sales out of this plant. Capacity will come on in phases, and we have built quite a bit of flexibility into the plant design, such that the plant is capable of producing a vast majority of our existing products as well as the new products Bryan has mentioned.

Within the next 6 to 9 months, we will have an incremental approximately $200 million in capacity with the availability to relatively easily and efficiently add another $100 million in capacity in short order after that.

For the first time since I joined RGF, we will be in a position where we cannot only meet 100% of the demand, but also leverage our best-in-class innovation and marketing teams to drive incremental demand and accelerate our growth even further.

Products made in this new facility will have structurally lower costs driven by lower labor costs, higher throughput and the plant's proximity to lower cost raw material supplies in our major distribution hub. Overall, we believe this new facility puts us in a position to meet long-term goal of $500 million in revenue and accelerates our margin enhancement strategy.

The added benefit of bringing Bolingbrook online is that it will leave pressure from our City of Industry Facility, which has been operating at over 100% utilization rates, resulting in some inefficiencies. We expect the City of Industry Facility to operate much more efficiently as Bolingbrook comes online.

Moving forward, our strategies are anchored in innovation, including improving existing products and launching new ones, expanding awareness, growing our distribution channels and investing in infrastructure and capacity so that we can continue to serve the real good foods market demand. With all of this exciting activity, we believe we are in the very early innings of growth and well positioned to capture the market share in the frozen categories in which we compete.

Now I'd like to turn the call over to Akshay Jagdale, our Chief Financial Officer, who will walk you through the fourth quarter financials.

Thank you, Jerry, and good morning, everyone. We're pleased with our fourth quarter financial results and the significant opportunities for growth ahead.

Net sales in the fourth quarter were $25.6 million, up 129% compared to the fourth quarter last year. Sales growth in the fourth quarter was primarily due to strong growth in our core products driven by expansion in the club channel and greater demand from existing retail customers.

Sales in the retail channel grew 105% compared to fourth quarter last year and drove majority of the growth in the quarter. This marks a major inflection point given that the club channel had been driving a majority of our growth prior to that.

We happen to be in the early stages of explosive growth in the club channel and as such, expect the club channel to continue to drive a disproportionate amount of growth near term. But our fourth quarter performance shows that our retail business growth has inflected and is on solid footing, and we can continue to build on this momentum in 2022 and beyond.

You can see this play out in the scanner data and consumption threads as well. This strong growth in the retail channel is being driven by recent new customer wins, expanded distribution with existing customers, continued strong velocity growth in core products and new product innovation.

We continue to expect strong growth in the retail channel in '22 albeit at a slower rate than what we reported in the fourth quarter. Club channel growth remained strong in the fourth quarter of '21 with sales growing 158% compared to the fourth quarter of last year, driven by distribution gains and strong velocities.

Recall that this is the first full quarter of lapping our launch in the club channel, which makes the 158% growth stand out that much more. We expect club channel growth to remain strong in future periods as we continue to expand our sales with existing customers and acquire new customers.

Our fourth quarter gross profit was $1.3 million reflecting a gross margin of 4.9% of net sales compared to a gross profit of $1.2 million or gross margin of 11% of net sales in the fourth quarter last year.

Adjusted gross profit during the quarter was $4.4 million, reflecting adjusted gross margin of 17.4% of net sales compared to $1.8 million or 16.2% of net sales in the fourth quarter last year. The $2.6 million increase in gross profit and 120 basis point increase in gross margins was primarily due to increase in net sales, including in the amount of products sold that were self-manufactured partially offset by increases in labor and raw material costs.

For perspective, direct material costs, which include packaging and raw materials, were up 10% on average for the full year 2021 with greater increases in the second half of the year. We believe most of the inflation is structural in nature and as such, have implemented broad-based price increases. The impact of these price increases did not materially impact fourth quarter results but are expected to take full effect starting in 1Q '22.

The goal of our pricing actions in '22 is to offset inflation on a dollar basis. We believe we can restore and further improve margins with a combination of higher pricing and a robust cost reduction efforts. Going forward, we expect gross profit improvement will be delivered to lower labor costs, improved volume leverage driving manufacturing efficiencies and material and packaging input cost reductions.

Total operating expenses were $42.3 million compared to $3.1 million in the fourth quarter of 2020, excluding equity compensation expense of $28.1 million which was incurred in connection with our IPO. Total operating expenses increased approximately $11 million in the fourth quarter. The increase in operating expenses was primarily driven by public company readiness costs selling and distribution expenses to support the growth of the business and increased investments in marketing and research and development.

Adjusted EBITDA was a loss of $3.9 million compared to an adjusted EBITDA loss of $0.8 million in the fourth quarter of 2020. The increased adjusted EBITDA loss was primarily driven by higher operating expenses partially offset by higher net sales and gross profit. The higher operating expenses include increased personnel expenses related to the build-out of the company's operations, finance and leadership teams, higher selling costs to support sales growth and increased investments in marketing to support brand growth.

Turning now to our outlook. We have completed a total budgeting process, which included the integration of Bolingbrook into our 2022 and long-term plan.

I will get into the specifics shortly, but overall, the additional Bolingbrook in our supply chain matrix gives us greater confidence in achieving our long-term sales target and significantly accelerates our margin and cash flow agenda.

Starting with our guidance for first quarter of 2022, which is not impacted by Bolingbrook. For the first quarter of 2020, we expect net sales of approximately $33 million to $35 million reflecting an increase of approximately 97% to 109% compared to the first quarter of 2021. Adjusted gross margins, we expect to be in line with the fourth quarter of 2021, adjusted EBITDA loss of approximately $2.5 million to $4 million.

Moving to our outlook for 2022 and the long term. We are updating our guidance to reflect the inclusion of Bolingbrook into our supply chain matrix. For 2022, we now expect net sales of approximately $140 million to $150 million, reflecting an increase of approximately 67% to 79% compared to 2021, up from 37% to 49% previously.

We expect adjusted gross margin in the range of 17% to 23% and adjusted EBITDA loss of $4 million to $11 million, up from a loss of $8 million to $15 million previously.

As for the long term, we now expect net sales of approximately $500 million up from 30% year-over-year growth previously. We now expect adjusted gross margins of 35%, up from 30% previously, and adjusted EBITDA margins of 15%, up from low teens previously.

Now shifting to our balance sheet and cash flow. As of December 31, 2021, we had cash and cash equivalents of $29.7 million and total debt was $22 million. In other words, we had a net cash position of $7.7 million. Since we went public, we have been operating this business under the assumption that we will not raise a dime more of capital. We have been working hard to put in place a plan to achieve this goal, and we believe what we have presented to you today puts us in a place to achieve this goal.

Our cash balance of $29.7 million, combined with our unused revolver capacity of $35.8 million, provide us with liquidity of $65.5 million, which is more than enough to fund our business for the foreseeable future.

As for our cash needs, it is important to note that the Bolingbrook facility and equipment is being leased with costs flowing through the P&L and no CapEx spending associated with that plan. Also, we now expect to be at least EBITDA breakeven in 2023 on an adjusted basis, a full year ahead of our previous plan with limited CapEx requirements in 2023.

All considered, we have ample liquidity to fund our current needs and execute the plan we have laid out today. With that, we are now available to take your questions. Operator?

(Operator Instructions) Our first question comes from the line of Jon Andersen with William Blair.

Congrats on the progress to date. I'll start with the outlook. For 2022, you obviously made progress on new business activity. It sounds like some of the innovation will be coming to market soon through the Bolingbrook expansion.

But the guidance raised kind of $25 billion or so at the midpoint for sales. I'm just wondering if you can give us a little bit more color on what's driving that? And kind of specifically new account wins, some of the innovation, we'd just like to get a little bit more of a handle on the components of that, that gave me the confidence to move the numbers to the current level?

Yes Jon, when you take our Q1 guidance run rate, it sort of hits the bottom end of the guidance for the full year that we're providing. And so to answer your question more directly, we continue to follow the discipline to not put innovation in a material way in forward guidance. And so you really don't see the full impact of Bolingbrook in our forward 2022 guidance that we're providing.

Okay. So just to be clear on that, your plans for Bolingbrook this year, it sounds like Line 1 will come up later this month and support the production of some of like the existing core items and some innovation.

But are you saying that any further developments at Bolingbrook beyond the addition of Line 1 and any innovation that may be placed later in the year is currently not in the guidance?

That's corrected. In a material way, we do not have innovation in the forward 2022 guidance.

Okay. Terrific. That's helpful. Can you talk about -- a little bit about the -- you have a new relationship the club portion of your business -- 2 relatively new relationships, but one newer. And I'm just kind of curious if there's an update on the performance of the 2 items that you have on the shelf there and if that looks like it's meeting or kind of exceeding expectations to date.

And then with respect to your longer-lived customer in club, if there's any update on kind of the feature or promotional plans with that kind of customer for 2022, that would be helpful.

We're pleased with the velocities across the board, frankly, across all customers and in both the measured and unmeasured channel. In fact, the growth that we're seeing in Q4 and in Q2, the majority of it was selling more products to the existing customer base with the current items. And with regard to promotions, I mean, we'll promote just as any other brand would promote with a normalized cadence across the year.

And we still believe that we're in the early stages of revenue and revenue growth in the unmeasured channel. We think that there's still quite a ways to go in the forward -- in 2022 and '23, frankly.

Akshay, did you want to fill in some gaps there?

Yes. Thanks, Bryan. Yes. So Jon, to give you a little more color on the numbers and the breakdown in our guidance and what's changed. You want to think of it as 65% or so of the change in our guidance is related to new distribution in the unmeasured channel. Only 15% or so is related to new products. And Bryan talked about that and the conservatism we have. It's appropriate at this stage. Another 15 -- 10% to 15% is the new club customer and the performance we're seeing there. We're pleased with where we are right now, and we think there's upside. But we've adjusted that.

And the remaining, let's say, 5% to 7% is related to better velocities in the base business. So as you've probably seen in the scanner data, velocities are really, really strong. We don't need them to continue to be at those rates for us to meet our guidance, right? So in the retail channel, if we grow 30% this year, we'll hit our numbers. So hopefully, that gives you some specifics on the guidance raise.

Yes, that's really helpful. I had a question about production in general. And obviously, this relates to Bolingbrook, but also City of Industry. Are you finding, and it may be too early to answer this, but are you finding that you have the ability to automate reduced labor content to the degree that you had expected kind of going into this process? So in other words, have you kind of proof-of-concept stuff enough that some of the initial assumptions around your ability to automate some of these novel ingredient systems and take labor content out that, that opportunity is at least intact relative to original expectations?

Yes. And before I pass that to Jerry, I'll remind you that the -- although the base systems are novel, the assembly of our products are not, what does that mean? In other words, rolling an enchilada or forming our products is not a novel -- it's not serial number 001 for that piece of equipment that will do it.

So we have a high degree of confidence. We've actually run some tests and I'll turn it over to Jerry on that. And that's really part of the thesis behind Bolingbrook.

Yes. Thanks, Bryan. What Bryan said is correct. We're confident in what we put out there. We have ran some trials. As a matter of fact, this week, we ran some trials on our bacon wrapped enchiladas to prove our proof of concept. We have equipment on order that will be arriving in April, that's the first line of that automation for the Bolingbrook facility.

So we're more confident than ever because we have -- now we've actually trialed the stuff our bowl line, we're getting ready to execute on that as far as that automation as far as breaded chicken and those products, we want to meet those out of the gate. So the degree of confidence in our ability to reduce the labor is strong.

And to be able to do it without impacted quality, performance or delivery times is right there with it. We're just outright confident that we're going to be able to execute on that in the short term. Hope that answers your question.

It does. It does. Last one for me. On the commodity or input cost, I guess, the situation. How should we think about 2022 and your visibility into your input costs, have you locked a certain portion of your key ingredients? Is there still exposure that we need to consider?

Yes. I would say that, as you know, we took pricing this quarter, and we feel good about where we are regarding labor and commodity, and we feel covered by that.

However, with the recent events in Eastern Europe, we're looking closely at fuel. And we will take price again and we will not hesitate if we see material input increases. If it all stays the same as we are -- as we sit today, we feel good that we've covered it with the pricing actions that we've taken. But again, we will not hesitate to move if we see continued pressure on commodity and fuel costs.

And the other piece is, again, we've got -- with the product optimization as well as the automation. We've got that coming as well in the pipeline.

And I know Akshay would like to add a few comments to this as well.

Yes. Thanks, Bryan. So just to give you a little bit more of a quantitative view on that. We saw high single to low double-digit inflation in 2021. Our guidance includes at the midpoint, mid-single digits inflation. But we have provided a range for gross margins, right?

So the bottom -- the way you want to think about the bottom end of our gross margin guidance is it takes into account contingencies for further inflation than what we have planned, plus any startup issues with Bolingbrook. So those 2 factors are included in the range that we provided for gross margin. So if we go worst-case scenario on both of those will end up at the bottom end of our guidance on gross margins, if that helps. And that includes no further pricing actions, which Bryan talked about, we're ready to take if that happens.

Our next question comes from the line of Rob Dickerson with Jefferies.

Great. A couple of quick questions. I guess, to the slide, I think about long-term opportunity, what you're pointing to is just the retail club is the opportunity. You've done extremely well so far in club, so growing club. And at the same time, you have nice innovation coming out this year. And on the go forward, especially driven by Bolingbrook.

So I'm just curious, I think I heard you say previously maybe some new business wins on the retail side. I'm just curious, my first question, just as you're talking to these retailers again, ex-club,selling them the velocities and the performance of the brand and the SKUs and then showing them your production capacity potential in addition to kind of the go-forward innovation pipeline? Like how are those conversations going?

It doesn't sound like you really have new line items within your revenue guide, let's say, in the back half of this year that are factoring in any sizable kind of ex-club retail gains.

You're right. We're in great position with retailers right now. The fact that we're up 105% year-over-year in the retail channel, puts us in a really good position. We're helping our retail partners grow and we're doing it with existing items. So that's a great setup as you go into the reset -- category reset season, which occurs in Q2.

I would say our conversations have gone extremely well in a variety of ways. So expanding our core products, our footprint and our core products because they're working. Those conversations are going well and then obviously bringing innovation to breaded poultry and multi-serve Asian. Those conversations are going well as well.

And Rob, I can tell you that we have orders in hand today and customer commitments for our innovation, both with breakfast bowls. Asian multi-serve Entrees and breaded poultry. So I like our chances and I like our outlook.

Okay. Perfect. And then maybe this is a question for you, Jerry. Just in terms of the phasing of the Bolingbrook build. You had that one slide that shows kind of Phase I through Phase V for 2022. Is that -- maybe just kind of explain kind of how that works like Phase I you have like one view and seems actually like arrive and you're able to produce more. And then as you get through the end of the year, once you hit like Phase 5, you have more SKUs? Or is it more just fully operational strategic plan, how this plays out in terms of how you build employee base or what have you? Just trying to get a little bit more color on kind of the differences in the pages for the year.

Thanks, Rob. I'm going to give you a rainbow color that way you can really get we can get a true understanding here. So our phased approach to bringing up the lines limits our start-up blues or exposure to startup blues. And I've been -- I used to have 50 lines, 50-plus lines been through hundreds of product start-ups and/or line start-ups.

And I think I stepped on every rig in the backyard. And big bang is hard to pull off. And that was really our thesis out of the gate is we didn't want to do a big bang. We didn't want to do a greenfield. We did a brownfield. And then we did a phased approach to limit our exposure in. And the phased approach is one line at a time -- one, what I call spiral, but essentially one set of lines at a time.

The first one is already installed. It's running. We're running it ahead of our start-up date to break it and exercise it and understand what kind of start-up blues we're going to have. That's a novel approach rather than waiting for the startup date to turn the thing on and see if it breaks. We're breaking it ahead of time, like a pre-break.

And we intend to do that over the next several months with each of these larger lines coming up. We have -- we're operators, obviously, we're blue-collar guys. I'm a plant guy. I've been at the plant. But it feels like almost every week over the last several weeks ahead of the start-up.

And we brought in experienced operators. We have an SVP in ops -- of ops that we got out of a harsh side that's really strong. We've already hired in a good portion of our people. We signed that lease in October 1, by mid November we had already hired ops managers, distribution people, food safety people, office people. So we've had these folks in there doing our training for quite a long time. And I think that, that is another curve changer. A lot of times, I watch companies and they bring folks in a week or 2 before production instead of letting them stay on staff.

So while we've been exposed to that expense, it will really smoothen out that start-up curve on the first line. So we're confident that first line mechanically will be up and from our people point will be up. The USDA has already done the walk through to the plant. They have a high degree of rigor and we've been going through the motions with them. We're confident that we're getting through that process, and we already do have our establishment number and those sort of things done.

Employee training starts up as far as line folk. We have next week, you start about employee training. It actually exercise and aligns with product and bringing that training up.

So when I think about that whole curve and the dynamic that we could possibly have where some companies bring up something new and then it's -- they're in the 15-minute drill, what I call where it's 15 minutes more until we start, we're going to have product out the door this month.

And we said we were going to do that. And by golly, we're doing it. And then over the next months, through summer, we'll be staging these lines in an orderly manner that allows us not to go down the rabbit hole of resource constraints with respect to people, and we expect that startup to occur in a reasonably orderly fashion.

We're going to have something break, I mean, everybody does, but I don't expect the catastrophe happening at the plant. Does that cover what your question was?

Yes, no. That's great. Because if I might flow that into my last question, just maybe this is for all of you. I mean it sounds like you're just being very careful, obviously, not just with the operational build of the new facility, but also kind of how you think about what the real potential is on the revenue and profit side for the year. So there's not real new innovation necessarily in the guide, right?

And you're not putting in the guide some big new business win, let's say that you could get in the back half. It might not happen, but if it happens, it's not in there. It sounds like you're going and saying, okay, we're being very careful in how we're projecting the build of the new plant. And if we're getting to Phase III and maybe we have a new business win in Q3 or what have you in that new business win, is a function of some of the new innovation coming out of Bolingbrook, then yes, we could do better than the guide. But given this is a new plant, we're being careful and how we're phasing the build, we're not factoring a lot of that in. Is that fair?

And I just asked because I remember if I go back to last quarter or 2 quarters ago, it was -- once you report Q4, we'll have much better visibility on Bolingbrook. So we'll see what the guide is at that point in time. But it also sounds like you're being very careful with what you put in the guide from Bolingbrook. I know there's a lot in there, kind of long winded, but I don't know if that makes sense as a question. Just try to clarify.

No, it does. I think you're thinking about it in the right way. Akshay, Jerry, please feel free to comment on it, but I agree with how Rob's thinking about it.

Yes. Fair enough. Rob. Just -- Yes, sorry. I think you summarized it well. I'll just give you a few more nuggets and some data. But listen, we've always said that we're going to be very prudent with how we guide. We're -- every company, the environment that we're operating is a tough one. We are bringing on a big plant.

So if you look at our guidance for revenue, as Bryan mentioned and what we've said all along is our current facility -- existing facility can do $140 million in sales. So we are fully taking into account contingencies of start-up blues.

We don't expect those, but if they do happen, our guidance already incorporates that. As it relates to new products, as Bryan mentioned, not a material inclusion in our guidance, and we think that's prudent because we don't know what the repeat rates are going to be. We have orders.

So that's how we're thinking about it. And we never -- we'll only include a new customer when we have them signed up. So that's also accurate how we put it. But I think it's prudent given where we are today and the environment we're operating in.

Our next question comes from the line of George Kelly with ROTH Capital Partners.

Congrats on all the momentum. So first question for me is just about new products development. And I was curious, so big new products here this year in 2022, is there anything kind of uniquely special about this year? Or is this just kind of a regular year and we should anticipate more platform products in 2023 and beyond? Is this just kind of a regular cadence of big new products.

Our strategy is always fewer, bigger, better. And so from that standpoint, we're not a company that's just going to throw 30 or 40 items against the wall and see what sticks. But -- and so it's very thoughtful how we go through our innovation process.

I think that the team, the culinary team, the food science team that we have has really hit their stride. And so I would expect additional breakthroughs what we call breakthrough innovation in the coming years. And we're going to -- our model is a very fast one.

Our innovation model is such that we have a cross-functional team that works together from day one, and then we roll it through our RGF Labs, which is a group of about 100 invitation-only people from our community representing various need states.

And we run those prototypes through them and get feedback and we iterate from there. And I think that's one of the unique factors that we use to increase our success rate. But to answer your question, the answer is yes. But the innovation will be in a way that is meaningful in our view, how do we reinvent as an example, the frozen potato door, load it with carbohydrates, very little nutritional value in frozen french fries and tater tots.

And that's how we think about it. Once we unlock that and crack the code on it, then we find ways to use that innovation beyond just that category. And it's a great example with the tots, we take that innovation now, and we're now building breakfast bowls. So where conventional items have a bunch of potatoes in it, which brings a lot of carbohydrates per serving. We then use that tot to increase our brand block and Breakfast. So that's how we think about innovation. You'll see this as a continual thing as we move forward in the years.

Okay. Great. That's helpful. And then 2 quick modeling questions. First, on the commentary about hitting EBITDA breakeven next year. Just curious if that could actually happen in any quarters this year. I just -- as I walk out with the guidance that you gave, it seems like you'll probably be getting pretty close to that by the fourth quarter.

So that's the first question. And then second question on the model is -- the difference between GAAP and adjusted gross margin, when should that converge? And what's still going to be left in that kind of adjusted number in 2022? And that's all I had.

I'll take that, Bryan. So let me start with your last question. First, in 2023, reported and adjusted gross margins will converge pretty significantly. We'll have maybe a $2 million difference between the 2. So it will be immaterial. And why is that, right?

I mean, so the main add-back is unabsorbed overhead. And as you can see, as we're bringing this big plant online, and we're going to absorb only a portion of that overhead this year. So that's what's the main driver of the difference this year.

And then if demand continues to be strong, which we expect it to be, and we hope we can even accelerate from here because we have the capacity, we will absorb that overhead. And once we absorb that overhead, that add back goes away. And so that's -- that will converge almost fully in '23. And it will definitely be in 0 in '24 but that's how we see that trending.

As far as EBITDA positive, listen, we're committing to 2023 being EBITDA positive. We're very early in the year right now. Certainly, we have some internal goals and stretch goals to be at those levels sooner. But we're not ready to commit to that in a quarter this year and especially given some of the risk factors that are out there that have been discussed today like inflation, freight, et cetera, we just don't feel comfortable doing that.

And we don't give quarterly guidance. I mean we've been doing it since we went public to help, but it's not our policy to continue to give quarterly guidance every quarter. And we will absolutely give annual guidance.

So as a result of those factors, I mean, we're not willing to commit. But generally, the one thing is for sure, we have been focused solely, really, since we went public on making sure this business is profitable and profitable ASAP. And that's what we're driving towards.

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Freeman for any final comments.

Thank you, everyone, for joining us today, and we look forward to getting back together in May and also seeing you at investor conferences in the near future. Thanks again.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.