Mama's Creations, Inc. (MAMA) Q1 2022 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to MamaMancini’s First Quarter Fiscal 2022 Earnings Conference Call. During today’s presentation all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. [Operator Instructions] This conference is being recorded today, June 14, 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 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 conference over to Greg to read a disclaimer about forward-looking statements. Please go ahead.

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 the 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 and 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 cause actual results to differ materially from those 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 of this 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 first quarter fiscal 2022 financial results conference call. We saw strong core sales growth in first quarter fiscal 2022, achieving record cash flow from operations, further fortifying our increasingly robust balance sheet. We had over $4.2 million in cash as of April 30th. While we saw a slight revenue decline from prior year due to large one time panic ordering by grocery store customers during the onset of the pandemic in early 2022, our core momentum has trended positively with the 45% growth in the quarter over a two-year period as we are well positioned to grow further as new placements begin to take hold later this summer. With business slowly returning back to normal, we announced new customer authorizations, both in terms of new locations and expansion of existing placements at several major nationwide retailer spanning 15,000 plus spots and retailer shelves. We are active in five major placements which are larger in size than past authorizations and represent from $3 million to $10 million plus annual sales potential per placement. We expect most of them to come into fruition with first shipments by late summer. Our business sees a significant degree of operating leverage, and our goal is to achieve a minimum of 20% operating profit on incremental sales. The recent rapid increases in commodity packaging and logistics costs are a factor in our management and we have increased our prices to reflect this. We expect prices to settle down by July or August, and in long-term that our margins will increase slightly. We are rapidly moving ahead on a new convenience store item meatballs and sauce in a cup. We are sending out prototypes this month and hope to have our first trial orders this summer. This represents an enormous sales opportunity to the Company with hundreds of thousands of addressable retail outlets. In addition, we expect to receive our first direct-to-consumer online sales through Amazon Fresh this summer. We believe that this will be a large opportunity for beyond our MamaMancini’s plant-based meatballs. With COVID, we had to discontinue our college and university solicitation program, which we now are reactivating. We originally contacted about 550 universities and colleges out of a base of 2,800, and we’re following up with 30 last winter. We hope to have new placements in several customers this fall. We anticipate that each customer placement will be between $100,000 and $500,000 per year, based upon our beta program at Boston College. Eventually, our goal is to have at least 100 college and university countries [sic] (campuses) across the country purchasing our plant-based and regular meatballs. We also have been sourcing business for our beyond and our own MamaMancini’s proprietary plant-based meatballs in convenience stores, supermarkets, and direct-to-consumer meal programs. We expect several first orders this summer. Our growing sales are result of our high quality and innovative new products, and our effective multi-pronged marketing efforts including radio campaigns, social media efforts and continued work with QVC. I’d like to touch on a few of these now. We continue to see success in our SiriusXM radio advertising campaign, having recently aired an estimated 1,000 MamaMancini’s commercials to celebrate the Centennial of Ana Mancini’s arrival in the U.S. We’re on all major talk and news channels, reaching potentially over 75 million consumers. On the social media side of things, we continue to maintain a robust reach, engaging new customers, encouraging repeat purchases. To date, we have over 500,000 likes and continue to geo target likely consumers who live within 5 miles of specific retail locations. Our QVC records have seen record success as well with Dan Mancini’s live pitches driving impressive sales on our platform. As an example, in the last two months, we have aired two 60-minute segments devoted solely to MamaMancini’s on QVC2. QVC has indicated to us a very positive increase in sales compared to prior year in 2021. In fact, this week, we will be airing 3 times on QVC live with Dan Mancini presenting. As many of you are aware, QVC is the largest direct-to-consumer marketer in the United States and is available in over 100 million homes. We hope to be uplisted to NASDAQ as long as our stock price closed above $2 per share through June 28th. This is above $3 per share for five consecutive days. We are very committed to the uplist, as we believe we will dramatically increase ownership opportunities to institutions and brokerage firms who’ve not been able to trade our stock on the OTC. Finally, before handing off the call to Larry, I would like to note that to further supplement our incredible growth, we advanced a significant internal effort to explore potential acquisitions, focusing on companies with complementing products in the perimeter of the supermarket, as well as exceptional operational and financial metrics. The ability to realize new distribution relationships and pushing existing products to our already robust distributor network all at attractive valuation as our chief goals. We hope to announce our first major acquisition within the next several weeks as we move through our due diligence process. If completed, this will dramatically increase our sales and EBITDA. We anticipate to finance the acquisition with our cash on hand and bank financing. In summary, we are pleased with our robust cash position and record cash flow from operations. When paired with our recent initial listing application with NASDAQ, I believe we are set for another strong year as our new placements come into effect this summer. I look forward to continued execution in the quarters ahead. I’d now like to turn the call over to Larry Morgenstein, our Chief Financial Officer, to whom -- to walk through some key financial details from the first quarter of 2022. Larry?

Thank you, Carl. Revenue for the first quarter of fiscal 2022 totaled $10.3 million as compared to $10.8 million in the first quarter of fiscal 2021 and $7.1 million in the first quarter of fiscal 2020. The decrease in revenue for the first quarter was a result of strong prior year sales due to one-time panic buying by large grocery chains around the onset of the COVID-19 pandemic, while sales over a two-year period increased approximately 45%. Gross profit totaled $3.3 million, or 32.4% of total revenues in the first quarter of fiscal 2022, as compared to $3.5 million, or 31.9% of total revenues in the same year-ago quarter. The decrease in gross profit in the first quarter is primarily due to lower chain sales this year. Operating expenses totaled $2.5 million in the first quarter of fiscal 2022, as compared to $2.5 million in the same year-ago quarter. As a percentage of sales, operating expenses totaled 24.2% in the first quarter of fiscal 2022, as compared to 22.9% in the same year-ago quarter. Operating expense in the first quarter remained approximately flat as compared to the same year-ago quarter. Pre-tax net income was comparable to prior year at $0.9 million as compared $0.9 million in prior year. Net income for the first quarter of fiscal 2022 totaled $0.6 million, or $0.02 per share diluted, as compared to a net income of $0.9 million, or $0.03 per share diluted, in the same year-ago quarter. The decrease in net income was attributable to a $250,000 non-cash amortization of an income tax benefit. Cash and cash equivalents as of April 30, 2021 were $4.2 million, as compared to $3.2 million as of January 31, 2020 (sic) [2021]. The increased cash balance benefitted from a record $1.4 million in cash flow from operations in the first quarter of fiscal 2022. 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 sufficient to sustain our core operations as we go. This completes my comments. I now would like to turn the call over to Matt Brown, our President and Chief Operating Officer. Matt?

Thanks, Larry. While difficult to compare Q1 fiscal 2022 versus Q1 fiscal 2021, due to a once in a lifetime pandemic, we continued to show strong production in the plant during this recent quarter. As we entered Q1 fiscal 2022, we experienced labor rate increases due to state mandated minimum wage adjustments. We were able to not only offset these increases, but actually improve on our labor costs through improved use of our technology. Key pieces of cooking and packaging equipment were upgraded throughout the plant during the quarter, and in turn enabled us to cut back on manual labor. In Q1 fiscal 2022, we began the exploratory process of expanding on our cooking operation within the facility. We brought in a team of architects and engineers to review the plan and hope to break ground sometime in Q3 fiscal 2022. This additional cooking room will double our capacity for Stuffed Pepper filling and Bolognese Sauce production in anticipation of some large business for these items. The cost of the capital improvement is expected to be modest under $200,000 all in and have been anticipated in our budgets. On the COVID front. We finally began to see the light at the end of the tunnel. As essential food workers, we felt it important to get our entire staff vaccinated at the earliest opportunity. We are proud to say that our QC team personally drove all employees in shifts over the course of a few weeks to get everyone two shots of the Pfizer vaccine. Not only has this provided our employees with a level of protection against the virus, but has mentally relaxed many of whom experienced the worst of this pandemic while working in close quarters every day with their coworkers and while going home to their families at night with the added fear of infecting a loved one. Yet, the relaxing of the COVID restrictions and the fear of the virus had been replaced with a more recent fear that of the rising commodity costs. In Q1 fiscal 2022, we began to see the start of rising raw material costs with the first of our protein sources, beef, poultry and pork. These costs quickly expanded into all parts of the operation from packaging materials to produce, shipping, and yet even the cost of wood to make our pallets saw a dramatic increase. As we were aware of the potential for price inflation, we notified several key customers of these expectations early in calendar 2021. Hence to help offset this rapid increase in costs, we began the process of passing through these costs onto our consumers in the form of price increases. It is our hope and expectation that over the course of the next few months, this situation will reverse itself and we will again find ourselves with commodity pricing more in line with our model. We would expect over the long term to have a slight increase in margins as a result. Even before the rise of commodity and logistical pricing issues in the marketplace, the plant had begun the process of looking into centralizing our shipping procedures. We believe we can pick up a few points in margin by focusing our efforts on inbound and outbound freight that our communication with carriers and more focus on shipping lanes will enable us to negotiate from a position of strength as we continue this effort through Q2 fiscal 2022. Finally, we are nearing completion of the long-awaited upgrade to our accounting ERP system. We have been working very closely with our NetSuite consultants and hope to have a system and a team of administrators ready to go live within the next few months. We hope to pick up some efficiencies in purchasing, production planning and cost control as a result. And 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, we continue to execute on all fronts and have laid the foundation for an incredibly strong summer. As we push forward into the summer and beyond, we expect to make continued financial progress driven by our upcoming placements on thousands of tier-1 retailer shelves. This, when combined with our continued success in closely managing operating expenses and what I expect will be a near-term update on our acquisition efforts, has positioned MamaMancini’s for a bright future. I look forward to providing further updates on our growth initiatives to shareholders in the near future. With that, I’ll turn it over to the operator. Operator?

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Howard Halpern with Taglich Brothers. Please go ahead.

Congratulations on another fantastic quarter, guys. First, I have a modeling question first. Should we, going forward, think that non-cash recognition tax rate of about 28% going forward in a [Indiscernible] number of quarters?

I would say, yes.

Yes? Okay. And with all what’s coming online, especially in the second half as well with placements, do you expect some incremental increase in the SG&A expense to go along with I guess shipping and commissions going forward?

We have two parts of SG&A expense. We have shipping and commissions in royalties and potentially demos, now that’s starting again. And then, we have fixed SG&A expense. That part of the variable SG&A expense is around 10% of sales.

Okay. And with all that’s on your plate currently, especially with the addition possibly of the convenience stores, and colleges and universities, what kind of capacity do you currently have and what kind of capacity can you I guess squeeze out of the plant at this point?

It looks like Carl’s line has disconnected from the call.

Okay. Let me take my speaker. Howard your question was about the capacity at the facility with the expectation of oncoming volume?

Correct.

Well, I would say right now, the facility is in good shape and in good position with some of the advancements that we’re making in terms of the construction work. Again, we hope to have that completed before a year-end, fiscal year-end. And that will certainly give us an extra capacity. In addition, we are still actively working with co-packing options. We had a co-packing option pre-pandemic. Carl, you back on? I’m sorry.

Yes. I got [Indiscernible] maybe because I couldn’t answer that question…

But also, as Carl alluded to, and I’ll let him certainly take.

You can answer that question.

No, I haven’t Carl. But I was going to say that, in addition to what Carl had alluded to earlier, Howard, is that, we are still investigating all opportunities for the Company, and we have been looking at potential acquisition that are accretive to the Company. And in doing so, we are also looking for opportunities that will help our model, which includes the ability to bring on more capacity in that sense. So, not just co-packing but also through acquisition, we will earn an extra capacity.

Okay. And the convenience store opportunity, especially with the meatballs in a cup. Is that going to be about the same gross margin, or are you going to be able to get a little more gross margin out of that offering?

I think, well, the issue you have is we have a beginning gross margin was about the same. But, as you get into higher production, the packaging cost should go down very substantially. Also, as we -- when you start something up, you have less efficiencies than you have later, but the margins should be about the same.

Okay. And you would expect that the colleges, universities and convenience stores that first entrants into foodservice, that should be a growth driver in next fiscal year?

College and universities will take a few years. My guess is we’ll do 3 to 5 -- if all goes well, we’ll do 3 to 5 by next fall. And then from there, we use the success story, maybe go to 20 the following year, and then really jump at that point. But we use the model -- we use the success model to move it on. We had very surprising, to me, interest in the first round a year ago for -- which was way beyond what I thought we would get on the initial solicitations.

Okay. And one final one for me is, what are you seeing and what kind of success you’re having in kind of club store market and that potential growth opportunity?

We are -- on [all] (ph) front, we are doing very well at Costco. And we think we will expand the business very successfully there in steps. Costco is the big fish. If you can sell one item in Costco nationally, not on rotationally year round, it’s about $25 million in sales. Sell two, you have $50 million. So, we’ve been building our Costco business based upon success and a good model. So, we’re very positive in the long run that’ll be very, very substantial. That is one of the five opportunities I mentioned, from a relatively small business to a very large business. We also are soliciting Costco Kitchen, which is different department. So, our business right now at Costco is branded [Indiscernible] Costco Kitchen is white label, a similar type volume $25 plus million per item. All this is going on right now.

Okay. I guess, so that was my last one, one final one. How is the hot bar business coming back?

Well, we sell whole foods for the hot bars. And that has been increasing incrementally each month since the first of the year and continues. So, I think it’ll be very substantial. I don’t think it’s anywhere near its potential yet. People are still a little reluctant. We also have finished other items for hot bar. We now sell two. We presented three others to add to that. So, that is very substantial business.

The next question is from Bill Lap, a private investor. Please go ahead.

Hi, Carl and all. Yes, very good quarter. I think most of it’s been covered that I want to know. But number one, what is your borrowing capacity under your line of credit for an acquisition? What do you currently have?

Well, we’re negotiating that. We would have a total of either $10.5 million or $11.5 million on our existing availability. If all goes well -- and then, any candidate that’s acquired, there might be additional borrowings as well.

Against their assets. Right?

Yes.

And you said you may be announcing something in the next couple of weeks. Would that be an LOI or a definitive acquisition agreement?

An LOI, but from the LOI, we should go pretty fast.

Okay. And on the uplisting, if the back continues, like it closed today, at 3.20, four days if you’re over $3, you could be uplisted pretty quickly. Correct? Not waiting for…

That’s correct.

Okay. Well, looking forward to good things. It sounds very optimistic. Thank you all of you.

[Operator instructions] The next question is from Matthew Simms, a private investor. Please go ahead.

Hey, guys. This is a question about one of the SEC filings. There was a prospectus filed last week, June 8th. It’s called Post-Effective Amendments for Registration Statement. I saw it mentioned an offering of about 6 million warrants. So, I wondered if you can talk a little bit about those warrants and the plan for them.

Sure. The warrants were already issued in 2015. Those are -- and some before, I think 2014 -- 2013. So, those were warrants that were already existing and expiring by November 2020. Part of the -- we wanted those warrants converted into equity. So, part of that was to file an S1 which would make those shares readily available. The S1 filing has to be renewed periodically, and what you’re seeing is that. But, there is no additional. All those warrants have been either exercised or expired. They’re now outstanding about 800,000 options to the Board of Directors and management and some key supplier relationships. Some of them actually have been exercised this past quarter, not a major amount. But anyway, so there’s a very, very small amount of overhang. But right now, we’ll have -- we have about 30 -- I think about 35.5 million shares, and we have potential dilution of 800,000. Of course, we get cash in for an amount which is $0.68 a share. So, we get cash in on that as well. So, it is not, we -- originally, we thought there would be dilution of about 30 -- total of 37.5 million share or something. We think we’re headed against that. It should be noted that, Matt Brown and myself being the founders of the Company have not received any warrants or options. We have received warrants but we made investments in the Company along with everyone else, but we never -- we haven’t received any operational options.

All right. Thanks, guys. That’s the last -- yes, that was great. Thanks.

Thank you.

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. Thank you, operator. As a final note, once COVID-19 subsides, we will continue to be active in attending top investor conferences and investor non-deal road shows, 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 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. I think that concludes our session today.

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