Mama's Creations, Inc. (MAMA) Q2 2022 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to MamaMancini's Second 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, September 9, 2021, and the earnings press release accompanying this conference call was issued at the close of market today. On our call today is MamaMancini’s 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.

Thank you, operator. Before we get started, I’ll read a disclaimer about forward-looking statements. This conference call may contain, in addition to historical information, forward-looking statements within the meaning of federal securities laws regarding MamaMancini’s. Forward-looking statements include, but are not limited to, statements that express the Company’s intentions, beliefs, expectations, strategies, predictions or any other statements relating to its future earnings, activities, events or conditions. These statements are based on current expectations, estimates and projections about the Company’s business based in part on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may and are likely to differ materially from what is expressed or forecasted in forward-looking statements, due to numerous factors discussed from time to time in this report and other documents, which the Company files with the U.S. Securities and Exchange Commission. In addition, such statements that could be affected by risks and uncertainties related to factors beyond the Company’s control. Matters that may cause actual results to differ materially from those in the forward-looking statements include, among other factors, the loss of key management personnel, availability of capital and any major litigation regarding the Company. In addition, this conference call contains time-sensitive information that reflects management’s best analysis only as of the date and time of this conference call. The Company does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of this conference call. At this time, I’d like to turn the call over to Carl Wolf, the Company’s Chairman and Chief Executive Officer. Carl, the floor is yours.

Thank you, Greg, and thank you, everyone, for joining us today. I'd like to welcome you to our second quarter fiscal year 2022 financial results conference call. The second quarter of fiscal 2022 was highlighted by our rapid pace of growth, realizing a robust 17% revenue increase as compared to the same year-ago quarter. These sales figures were driven by our previously announced product placements, many of which began to ship in the second quarter. Profits were temporarily offset by elevated commodity and shipping costs as well as one-time extraordinary expenses related to our NASDAQ listing fee and additional shareholder meeting requirements. Our go-forward sales forecasts continue to increase and given our planned price increases, I would expect to see margin improvement by year-end. We are rapidly moving ahead on our new Grab-n-Go convenience store item, meatballs and sauce in a cup, we expect to begin trial orders with Tier-1 partners in the late fall. This represents an enormous sale opportunity to the company with hundreds of thousands of addressable retail outlets. In addition, we have initiated supply to Amazon Fresh representing our first direct-to-consumer online sales. We believe this will be a large opportunity for our – beyond our MamaMancini’s brand plant-based meatballs. This will start at a smaller count that could be significant with time based upon our cooperative marketing program with Amazon Fresh and historical comparables. During the early days of COVID in 2020, we had to discontinue our college and university towards these solicitation program, which we have now reactivated. We originally contacted about 550 universities and colleges out of a base of 2,700, and we are 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 colleges and universities across the country purchasing our regular or plant-based meatballs or other Italian items. We continue to see success in our SiriusXM Radio advertising campaigns. Currently, we are in the process of a nine-week campaign airing an estimated 3,000 MamaMancini's commercials to announce the availability of our large three-pound family pack at Club Stores. The campaign is on all major talk and news channels, potentially reaching over 75 million Sirius channel listeners. On the social media side of things, we continue to maintain a robust reach, engaging new customers and encouraging repeat purchases. To date, we have over 500,000 likes and continue to geo-target likely consumers who live within five miles of specific retail outlets. Our QVC efforts have seen record success as well with Dan Mancini's live pitches driving impressive sales on their platform. As many of you are aware, we have been nominated for 3 QVC Consumer Choice Awards: Best Meatball, Best Sauce and Most Trusted Brand. We have been chosen as food products for the month of September, featuring our 3-Cheese Beef and Turkey Meatballs in Traditional Italian Sauce. QVC is North America's largest direct-to-consumer marketer and is available in over 100 million homes throughout the U.S. and Canada. On July 15, 2021, we completed our uplisting to the NASDAQ Capital Market, a milestone for all MamaMancini’s shareholders that has been several years in the making. We expect that this will help elevate our public profile, expand our potential shareholder base and improve liquidity. I could not be prouder of our incredibly hard-working team, many of whom were featured when we rang the NASDAQ closing bell just a few short weeks ago. Finally, before handing the call off to Larry, I would like to note that to further supplement our incredible growth, we continue to advance a significant internal effort to explore potential acquisitions. Our focus is on companies with complimentary products in the perimeter of the supermarket, as well as exceptional operational and financial metrics. The ability to realize new distribution relationships and push an existing product through our already robust distributor network all at an attractive valuation as our goal. We hope to announce our first major acquisition in near-term as we move through our due diligence process. If completed, this would dramatically increase our sales and EBITDA. We anticipate financing the acquisition with our cash on hand and bank financing with the goal of minimizing any dilution. As a reminder, I myself, I am the largest shareholder of MMMB. In summary, we are pleased with our robust growth trajectory in the second quarter. We believe that we maintained significant potential to begin shipping several exciting new product placements to Tier-1 retailers over the near-term and believe we are poised for a return to margin expansion by year-end. I’d now like to turn the call over to Larry Morgenstein, our Chief Financial Officer to walk through some key financial details from the second quarter of 2022. Larry?

Thank you, Carl. Revenue for the second quarter of fiscal 2022 totaled $12.1 million, as compared to $10.3 million in the same year-ago quarter. The increase in revenue for the second quarter was a result of initial shipments as part of the company’s previously announced new placement wins with Tier-1 retailers nationwide. Gross profit totaled $3.4 million, or 27.9% of total revenues, in the second quarter of fiscal 2022, as compared to $3.1 million, or 30% of total revenues, in the same year-ago quarter. The lower gross profit margin in the second quarter was due to higher inbound shipping and commodity costs which were passed on to existing customers on a time lag basis for the first two months of the quarter, and fixed pricing for a short introductory period on new placements. The company expects profit margins will improve by year-end as commodity prices normalize and higher production volumes will result in higher plant operating efficiencies, as well as the expiration of introductory pricing with several customers. Operating expenses totaled $2.8 million in the second quarter of fiscal 2022, as compared to $2.3 million in the same year-ago quarter. As a percentage of sales, operating expenses totaled 23.1% in the second quarter of fiscal 2022, as compared to 22.2% in the same year-ago quarter. Operating expenses in the second quarter were affected by significant one-time expenses such as the company’s NASDAQ uplisting and additional shareholder meeting requirements, increased shipping costs and higher director’s fees. Pre-tax income for the second quarter of fiscal 2022 totaled $0.6 million, as compared to $0.7 million in the same year-ago quarter. Net income for the second quarter of fiscal 2022 totaled $0.4 million, or $0.01 per diluted share, as compared to a net income of $0.7 million, or $0.02 per diluted share in the same year-ago quarter. The decrease in net income was significantly attributed to an income tax provision of $145,439 recorded during the three-month period ended July 31, 2021 as compared to $0 during the three months ended July 31, 2020. Cash and cash equivalents as of July 31, 2021 were $4.3 million, as compared to $1.7 million in the same year-ago quarter and $3.2 million as of January 31, 2021. The increased cash balance benefited from $0.2 million in cash flow from operations in the second quarter of fiscal 2022 and a total of $1.6 million fiscal year-to-date. We do not anticipate raising additional equity capital at this time and are confident that the cash on hand combined with our cash generated from operations each quarter will be significant to sustain our core operations as we go. This completes my comments. I’d now like to turn over the call to Matt Brown, our President and Chief Operating Officer. Matt?

Thanks, Larry. Plant operations saw a record production for the period ending fiscal Q2 2022. Record production was met with higher commodity and packaging costs as well as increased shipping costs on all inbound logistics. Despite these challenges, the one variable the plant could control was labor. As with fiscal Q1 2022, labor expenses decreased as a percent of production costs. This was accomplished through better management of personnel and adjustments to hourly schedules in addition to improved use of technology introduced in Q1 fiscal 2022. The plant saw the introduction of a few new items during fiscal Q2 2022, including Sam's refrigerated family pack of meatballs and sauce. We also launched 10 new pasta kits for divisions within the Albertsons Safeway family of stores. The plant was quick to respond to the ever-changing specs across these pasta kits as our customers’ fine tuned the products to meet their specific needs. On the R&D front, Carl mentioned, but worth repeating, we are moving along with our handheld meatballs and sauce and a cup project and anticipate a trial run sometime in the next few months. This is exciting as it not only opens up a new avenue for us at MamaMancini's through convenience store retail, but also provides us with a new technology at the plant that we can see expanding into other product SKUs. We also began the exploratory in fiscal Q2 2022 for a fully prepared pasta kit that can sell refrigerated to those outlets that do not have the ability to prepare in store as we do with our current pasta kits. On the CapEx front, we continue to move forward on the additional cooking room project that was started in fiscal Q1 2022. While the world is currently backlogged on any and all building materials, we are still hoping to break ground before fiscal Q4 2022. This additional room will give us the needed capacity to increase our rice, Bolognese Sauce and other braised products currently in R&D. It is our hope that this room will help grow our business as we look towards next fiscal year. Finally, as Carl mentioned, we continue to look towards vertical integration through the acquisition of companies that not only align with our mission statement, but also align with our plant capabilities. As part of the due diligence process, I have been looking at the equipment and production processes of these companies to ensure that they will provide us not only with complimentary products, but also the ability to expand our East Rutherford products into these locations that are suitable to work with our asset programs and operating procedures. So at this point, I'd like to turn the call back over to Carl for some final notes before wrapping the call up for Q&A. Carl?

Thank you, Larry and Matt. As I noted in my opening remarks, the business continues to fire on all cylinders. We have laid the foundation for an incredibly strong growth trajectory in the second half of the year. With our active acquisition efforts well underway, I firmly believe we are still in the early innings of MamaMancini's growth and increasing prominence as a public company. We will continue to scale operations and have only begun our capital markets journey. We are poised for success on all fronts and look forward to seeing what the future holds for our brand. With that, I'll turn it over to the operator to begin our Q&A session. Operator?

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

Congratulations on all the hard work and all the accomplishments in the quarter.

Thank you.

In terms of – can you talk, I guess a little bit about expanding products or adding products to existing customers to increase the number of products on the shelves with those customers?

That is the major part of our activity right now as well as some new customers. So I can use Publix as an example, since I'm the key representative there. So Publix now has grown to about 1,300 stores, was about 1,100 three and a half years ago when we first started with them. So our pasta bowls have done very, very well at Publix and it was on a voluntary basis per store except for promotions and a lot of the stores with limited help, we didn't have full distribution. Publix has just given us full distribution in a forced planogram and has taken into additional pasta bowl items. Shipments have just begun, one is a family packed spaghetti and meatballs, and one is a lasagna rollups. So the volume has surprised all of us and Publix, I think in the next year will become our number one customer. So that is a perfect example of additional items. Another situation is Albertsons Safeway. We started selling a few pasta bowls. We now are authorized. I think Matt, am I correct, 14. And the typical each division makes their own decision, and we're anywhere from six to 11 per division. So that is a key part of our business. So we're still – we'll probably add about four SKUs per chain and that represent – we now have 29 SKUs plus an additional 15 or so SKUs just for QVC for packaging.

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

Well, Club stores always will have rotations. So you pick up new items the – that Matt had mentioned the – our sleeved three-pound pack at Sam's, that is actually a branded item. So you do a rotation and then you're out and then you do a rotation again. What you do as you look at your numbers, and let's see if they're satisfactory and they appear to be very satisfactory. So that same thing for Costco, and eventually we hope to do more rotations than non-rotations, and in case of Costco, you're authorized by division.

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

We do.

And move that without exact verbal…

That is verbally agreed. The trial is actually very substantial with one of them, very large. And they're waiting for us. You have to wait until you get your first order. But right now, it's been verbally approved. The beauty of this product is that it's high in protein, relatively low in calories, tastes – very easy to prepare and it is very well branded for us and it's priced competitively.

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

So going to deli counters, I'm not sure about the – our plan with colleges and universities would be more of the top, but they would spoon it out. But you just…

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

Okay.

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

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

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

Okay. And just – and I know you…

I'm going to interrupt you. You have to remember in today's world of social media, et cetera, you make one mistake and it can go very viral. So it's a very defensive strikeout.

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

What happened is, is everyone is very aware. We're in a very, very – we never encountered a situation at least in the last 50 years or so. And so we had one wave, mainly if commodity price increases, which we passed along. We're now in a second wave of packaging and freight costs increases. We believe some of the commodity prices will come down and the freight will come down once there is more drivers. There's a tremendous shortage of drivers, and as a result of price hikes. So we now are in the process of raising our prices to reflect the higher freight and which is – believe it or not very substantial. And then we will see what happens, but they should come down. In other words, we'll get our price increases and we believe the elements underlying those prices will come down. So I would say by the end of the year we should see margins substantially higher, actually higher than prior.

Okay. I'll let someone else jump in. Thanks for the [indiscernible]. Thanks.

Thank you.

[Operator Instructions] Our next question comes from Jeff Kobylarz with Diamond Bridge Capital. Please go ahead.

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

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

Okay. All right. Can you comment about Walmart, and just how – if you're generating – getting progress with Walmart or if they're just kind of saying things stable. It’s interesting you mentioned that you expect Publix to be your largest customer in a year. So they would…

Walmart is stable. We have just begun a retail family pack with Walmart in 450 locations, mainly on the East Coast. The first orders are just coming in right now, that is successful. We'll expand into – that's branded into additional stores. We are selling Sam's Club and we have a very high anticipation of its selling additional items which starts out and test into Sam's Club. So that is the – we have – we’re in the middle of a – I'm talking about Sam's Club kitchen. We are in rotation at Sam's Club with sleeves, retail sleeve branded similar to the product we sell at Costco, it's a little different label, but it's basically the very similar product and that is doing very well. So the volume is nice. But it’s better – I think it's better the company grows the business on all cylinders and is diversified

Sure. It's impressive to hear about Publix doing so well with your products. Okay. That's all I have. Thanks very much.

You're welcome.

[Operator Instructions] I’m showing no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Carl Wolf for any closing remarks.

Thank you, operator. As a final note, once COVID-19 subsides, we will continue to be active 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.

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