Mama's Creations, Inc. (MAMA) Q4 2019 Earnings Report, Transcript and Summary

Good morning and welcome to MamaMancini's Fourth Quarter and Fiscal Year 2019 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Joe Diaz of Lytham Partners. Please go ahead.

Thank you, Danielle and thanks to all of you for joining us to review the financial results of MamaMancini's Holdings for fiscal year 2019, which ended on January 31, 2019. With us on the call today representing the company are Carl Wolf, Chairman and Chief Executive Officer; Matt Brown, President and Chief Operating Officer; and Larry Morgenstein, Chief Financial Officer. At the conclusion of today's prepared remarks, we will open the call for question-and-answer session. Before we begin with those prepared remarks, we submit for the record the following statement. Statements made by the management team of MamaMancini's Holdings during the course of this conference call that are not historical facts are considered to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements describe future expectations, plans, results, or strategies and are generally preceded by words such as may, future, plan or planned, will or should, expected, anticipate, draft, eventually, or projected. You are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future results, events, or results to differ materially from those projected in the forward-looking statements, including the risks that actual results may differ materially from those projected in the forward-looking statements as a result of various factors and other risks identified in the company's 10-K for the fiscal year ended January 31, 2019 and other filings made by the company with the Securities and Exchange Commission. Forward-looking statements reflect management's analysis only as of today. The company undertakes no obligation to publicly release the results of any revision to these forward-looking statements. Let me now turn the call over to Carl Wolf, Chairman and Chief Executive Officer of MamaMancini's Holdings. Carl?

Thank you. Good morning. Thanks for joining us on today's call. We appreciate your continued interest in MamaMancini’s. As indicated in yesterday's press release, we achieved record revenue, net income, and income from operations, and EBITDA, while the financial results of fiscal 9 -- 2009 [ph] represented substantial increase in income from operations and net income from the prior fiscal year, we believe we set the stage in fiscal 2019 for improving financial and operational results in fiscal 2020 and beyond. During the year, we took significant steps to expand our manufacturing capacity and we planned the introduction of a number of new products and components that will be necessary to enter into the food service business. That market segment is approximately equal to the retail business where we currently compete. Our products are ideally suited for food service distributors, chain restaurants, convenience stores, health and eldercare institutions, college and universities, corporate commissaries and kitchens, casinos, and export distributors. Expanding into this segment is a highly logical progression where the major requirements from what we currently do Mr. Phil [ph] increased sales. We're very pleased to have hired Allan Sabatier, one of the leading sales and marketing executives at The Food Service space. His broad experience working with some of the largest food companies in the industry and the extra added benefit of us having worked together in a former life. There is great trust between us and we look forward to Allan’s contributions in the coming years. We believe we have the capacity and the products to fill the needs of this large market segment that essentially doubles our addressable markets. From an operational stand point, all of the work done in fiscal 2019 sets the stage for future success in two significant markets going forward. We're excited with the opportunities ahead. As relates to the financial condition of the company, we are pleased to have arranged a new working capital line and a five-year note with M&T Bank. We have in essence converted short-term liabilities into longer term obligations at substantially lower interest rates. With regards to the working capital line of credit, the rate will be LIBOR plus four points with a two year expiration and the $2.5 million five-year note will be LIBOR plus four points with repayments in equal payments over 60 months with no prepayment penalty. We are estimating we will initially be paying a 6.5% annum interest rate on the new financing versus an average of over 12.5% per annum on the prior financing it replaced. Clearly, we have significantly improved our balance sheet and working capital position with far more favorable rates. We are pleased to be working with M&T Bank. They are a highly regarded financial institution and we appreciate the confidence that M&T has invested in us. We look forward to growing our business and our relationship with M&T in the years to come. As relates to our ongoing strategic options review, we believe we are near the completion of the review. The review notwithstanding, we have continued to move forward and position the company for future success in whatever structure it may take. At this point, I'm going to turn the call over to our CFO, Larry Morgenstein for a review of the numbers. After Larry's comments, Matt Brown, our President and COO will provide his report on operation. We'll then open the call for your questions. Larry?

Thank you, Carl. Good morning. The company reported income available to shareholders $550,000 or $0.02 per share and $28.5 million in revenue for 2019 versus income of $228,000 or $0.01 per share on revenue of $27.5 million in 2018. Revenue for the fiscal quarter ending January 31st, 2019 was $6.896 million or 11.9% decrease compared to revenues of $7.829 million the same quarter of 2018. Revenue generated during the fiscal year 2019 primarily increased $20.5 million as a result of selling more products in higher volume locations compared to $27.5 million in fiscal 2018. This represents a 4% increase. Fourth quarter 2019 gross margins increased by 2% of sales to 35% this year -- this past year 2019 from 33% in the prior year. This was caused by more favorable product mix. Total operating expenses for 4Q 2019 decreased by approximately $251,000 as compared to 4Q 2018. Part of this decrease was the reclassification differentiation as cost of goods sold expense rather than overhead expenses. As a result, gross profit in fiscal 2019 was reduced by this change in accounting classification by the equal amount. At the end of the fiscal year, the company is again seeking cash discounts for early payment terms. We continue to close -- closely monitor our spending and implement tight fiscal expense control oversight. We now operate our payables at 33.63 days outstanding on a consolidated basis at January 31, 2019. This compares to 35.03 days payables outstanding at January 31, 2018. The payables outstanding is subsequent and continue to improve through fiscal year 2020 as the full impact of the new financing with M&T Bank has given us opportunities to extract better pricing and terms from vendors. Operating income in 4Q, 2019, was 345,000. This was increased approximately by 95,000, up 38% compared to 4Q, 2018. Net income for 4Q, 2019, was $80,000 compared to $35,000 income in 4Q, 2018. Net income loss per share for fiscal 4Q fiscal 2019 was zero compared to zero in fiscal 4Q, 2018. Even though the income increased by 45,000 in prior year's quarter, the company was impacted negatively by the change in the banking relationships by approximately $148,000. Additionally, we had a credit of $40,000 due to favorable – due to an amortization of debt discount, as the management team was able to improve the company's bottom line for our shareholders. The company's cash position as of January 31, 2019, was $609,000. For the company, we reported an improved current ratio at January 31, 2019, of 1.34% versus 0.62% at January 31, 2018. This is non-GAAP measurement of performance and this relates to our current assets, divided by our total assets. The M&T Bank loan and working capital line stood at $2,414,000 and $2,612,000 respectively by January 31, 2019. The company's new financing has increased the company's working capital by $4,147,000 from prior year. The new financing has continued to improve our financial position, as we continue on into fiscal year 2020. This completes my comments. Let me turn over the call to Matt Brown, our President and Chief Operating Officer. Matt?

Thanks, Larry. A quick reminder for those who have not heard me talk about it over the past year, but fiscal 2019 was the year of plant expansion. For two quarters, I spoke about future plans to build out, expand within, upgrade equipment, all in an effort to increase our capacity, while at the same time make us more efficient in the production. By the beginning of the third quarter, we saw the work come to a completion and fiscal Q4, 2019, was the second full quarter to run under this new configuration. And quite honestly, I couldn't be happier with the results. To fully understand the capabilities of these renovations, we pushed modestly hard on production during Q4, 2019, despite the slower than expected sales. Efficiencies increased, while overall expenses decreased as a percent of production. So this in turn resulted in greater profitability as anticipated in the plant and for MamaMancini's overall, as is already been reflected in the numbers mentioned earlier by both Carl and Larry. We're not pushing production. The plant spent some valuable time working on a number of new items intended for Q1 fiscal 2020. These items included five new products, which we refer internally to as the pasta bowls, three new refrigerated retail packages and a new food service item for a major club chain. Two of these projects have already launched as per this phone call and we are extremely pleased with the feedback to-date. The third project is in production now and we actually anticipate that shipping out at the end of this week. In Q4, 2019, we turned on the lights to the state-of-the-art in-house laboratory, which was part of the build-out. And as I anticipated, we have already seen some of these savings. Year-to-date, we have achieved nearly 10,000 in savings by moving all outside micro lab testing to the in-house lab. As this quality control team gets more comfortable with the workings of the lab, we anticipate savings to be even greater. Overall, for 2019 fiscal year, I am pleased with the performance in the plant, the team worked hard. The numbers for fiscal 2019 show that. And as Karl pointed out earlier, while we spent a good part of fiscal 2019 preparing for it for production and did have some record breaking financials, we were really setting the stage for a strong fiscal 2020. And I believe we are already off to a strong start. At this point, though, I will turn the call back over to Carl.

Thank you, Larry and Matt. Before we take your questions, let me say that, looking ahead, subsequent to the end of the fiscal year, we commence shipments of nine new SKUs to retail grocery customers including BJ's Club stores, Wal-Mart and Ahold. These are large customers that offer the potential for deeper integration into their large network of stores, most of the new authorizations being shipped this quarter are MamaMancini's branded products. We have continued a comprehensive marketing strategy to brand MamaMancini's during the first quarter of fiscal 2020. We ran up to 1,000 MamaMancini's commercials in the first quarter through the Easter and Passover holidays with Sirius XM. We will continue to advertise similar campaigns in seven more holiday periods throughout the year. We continued an aggressive MamaMancini's social media program on Facebook and Instagram and we now have close to 300,000 friends and individual posts have garnered up to 1 million views. Dan Mancini, our co-founder, regularly presented our MamaMancini's all natural authentic products live on QVC and has sold out many times in the last 18 months. QVC is the world's largest direct marketer to consumers. As I mentioned earlier, we hired Allan Sabatier as a Vice President of Business Development to initiate our entry into the food service segment. With the completion of our planned expansion during fiscal 2019, we now have the capacity to enter and compete in this additional segment where our products are ideally suited to gain market share. Chris Styler, our Executive Chef, along with Dan Mancini, have the ability to add new items that may meet the needs of the trade. Chris' 30 plus years of experience can be viewed by going to our recent press release on pasta bowls. Additionally, the restructuring of our balance sheet and the improvement of our working capital position will be a great benefit going forward. We believe the stage is set in fiscal 2019 for improving financial and operating results of fiscal 2020 and beyond… With that, let's open up the call for your questions.

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Howard Halpern of Taglich Brothers. Please go ahead.

Good morning, guys.

Good morning.

Hi, Howard.

First question, in regard to the fourth quarter, could you quantify the impact of not being in that in and out rotation during the holiday season?

That represented about $450,000 to $500,000.

Okay. And according to the press release, you expect that to return in next year's fourth quarter?

Or earlier in the year.

Okay. And in terms of the new customers, new product launches, is some of that going to be shipped in this next week and favorably impact first quarter results?

It will be a very modest impact from first quarter results. The major impact will be on second quarter results.

Okay. And in terms of moving into the food service area, could you give maybe a little more color in terms of the sales, sale cycle, what type of incremental cost that might be in selling and marketing process for you and --

Sure.

Can you get -- with some of the new products that might fit in there maybe a little bit higher margin products, if you could talk about that?

Our margins on an incremental basis are around 25% operating profit. So the margins are very satisfactory. As we grow, we have relatively fixed plan expenses and we have relatively fixed admin and marketing expenses. We do have variable expenses for trade sales commissions and merchandising activity. The food service industry is approximately the same as the supermarket industry in margins for us in the deli or prepared meals sector. So if we can garner additional business and keep our margins, it should be a 25% contribution on incremental sales. So the company is very leverage to get that -- in getting extra sales and adding to profitability. The cycle in the industry, as any other, is a period of time. Sometimes if things hit right and you're walk-in somewhere and you get an immediate order. Generally speaking, the cycle is anywhere from three and nine months. The incremental cost is under $200,000 at this point.

Okay. And I know we --

For the year.

For the year? Okay. And I know in the past, you've talked about hitting that $40 million annual run rate. Do you expect to achieve that run rate in one of the upcoming quarters in this fiscal year?

We're hoping to. That is our projections right now. But it's early in the year and it's dependent upon actually getting orders. Quite honestly, last year, Walmart, which is a major customer, we expected that to occur in -- during the last fiscal year and it was pushed off to the beginning of this fiscal year.

Okay. But all things considered, now the new…

All things considered, we expect to, yes.

Okay. And so return to double digit sales growth should be achievable this year?

Yes.

Okay. Well, thanks and keep up the good work. I like all of the plants and the infrastructures in place for the future sales growth.

Thank you.

[Operator Instructions] The next question comes from Fred Orr [ph], Private Investor. Please go ahead.

Good morning everybody. I'm curious as to what you think has been the major obstacle to achieving greater penetration with your long relationship supermarket customers. And secondly, it appears that there's been very little same store. And now -- because now your growth forecast appears to be related primarily to new customers and new products. And I don't mean to be --- and fairly critical, but the sales numbers don't indicate that there's been much penetration in some of your older relationships with Kroger Safeway and Sam's Club and others that were showing us customer relationships in your presentations a couple of years ago.

I'm sure our major customers have shown sales growth year-over-year in the last several years and appears to be accelerating in the first quarter substantially with our major customers. So…

Carl, can I interrupt for a moment. How do you reconcile that with a mere 4% sales growth last year?

There was some -- during the year, there was -- as we said there were some in and out and there was a significant change in inventory build. Sales were up, which are -- is not a final sales out of the customer, one. Two…

Okay. Thank you.

…there was one major customer that has been discontinued, which represented about 5%, 6% of sales…

Okay.

…it had nothing to do with our product. It had to do with a merchandising decision as to changing the whole setup. Our products performed very well. So that affected our business as well. And as we mentioned the in and out, but overall our business with existing customers is positive. And also we had a couple of other in and out with our major -- a few major customers, we mentioned last year we had a major merchandising event. So, that was another factor that affected sales, so. And I think that…

Okay, great. Thanks very much.

Okay. So anyway so there are other variables whether you're in a merchandising event or not, but our core business appears to be growing very significantly with its major existing customer.

Thank you very much. That shed a lot of light on what I perceive on the surface to be a very strong growth year and very inconsistent year in terms of year-over-year growth rate…

Yes.

…sequential bouncing around. It's really hard to get a handle on where revenues are heading with all those moving parts, and loss of a customer is, obviously, a significant event, and of course the other items just compounded that the negative impact of that. So, now I can see that on the remaining base, you seem to be doing quite well. Thank you very much.

Thank you. Okay.

And I will turn it back over to Mr. Diaz for his questions. Thank you.

Before we end the call, Carl, I wanted you to comment on margins now that all of the capacity expansion work was done last year and some of the things that are setting up the company for 2020 and beyond. Tell us a little bit about your feel for margins in terms of different sales levels, now that perhaps overhead is generally fixed. What's your sense of where margins are heading.

In the last year, starting in the third quarter, we moved depreciation from G&A expense into a cost of good expense. It was accounting decision by our auditors and that has a result of lowering our gross profit substantially approximately, I think $300,000, which was 1% for the year but 2% per quarter. So when you see 35 versus 34, 35 versus 33, you really have to add two points to the improvement in gross profit. As our sales increased, our gross profit should increase as we have a substantial amount of our manufacturing expenses that are fixed and the type of business we’re anticipating adding to our company are not conducive to significant overhead increases. Likewise, as I mentioned before our SG&A expenses, we have about 14%, 15%, which are valuable sales but the other percent is relatively fixed. So as a result when you combine the two, our goal is to increase operating profit by about 25% for each incremental sale. Thus, if we can increase our sales $10 million, we will increase our profit by about $2.5 million. I stated in the past that we hope to get to $15 million in sales. That is still our goal and our projections for -- internal projections for the year, because of the modest long lead times in start-up and food service; it really is not a significant factor in those projections. So as hopefully as food service comes along, we will see a significant bump in sales at least by the end of the year and that's not in that $40 million number that we gave to Howard as our goal for the end of the year. So, if we can get to $50 million in sales run rate, you would add another $2.5 million. So, we would move our EBITDA up from $2.3 million to $7.5 million. So, that is our goal. And if you compare other food companies, they have a valuation substantial times EBITDA, so our goal is right now to get that moving and now get the business very profitable.

All right. Carl, thank you. I want to give the audience an opportunity here what are your thoughts on that. I think that we are at the point now where the Q&A session is concluded. Any closing remark Carl that you would like to make?

No, I'd just like to thank everyone for participating in today's call. We look forward to talking with you again to review the results of the second fiscal quarter. Have a great day. Thank you.

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