Earnings Transcript for MMMB - Q2 Fiscal Year 2025

Operator: Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Mama's Creations Second Quarter Fiscal 2025 Earnings Conference Call. [Operator Instructions] This conference is being recorded today September 10, 2024, and the earnings press release accompanying this conference call was issued after the market close today. On our call today is

Adam Michaels: Thank you, operator, and thank you to everyone for joining us today. I'd like to welcome you to our second quarter fiscal '25 financial results conference call. The second quarter was highlighted by strong 14% broad-based revenue growth against a healthy backdrop of operational execution and a continued focus on our 4Cs

Anthony Gruber: Thank you, Adam. Revenue for the second quarter of fiscal 2025 increased 14% to $28.4 million as compared to $24.8 million in the same year ago quarter. The increase was largely attributable to successful pricing actions as well as volume gains driven by increased demand, successful trade promotions, same customer cross-selling of new items and new customer door expansion. Gross profit totaled $6.9 million or 24.2% of total revenues in the second quarter of fiscal 2025, as compared to $7.5 million or 30.3% of total revenues in the same year-ago quarter. The difference in gross margin was primarily attributable to significant commodity cost increases from historical averages, as well as non-recurring impact from construction surrounding the now mostly completed installation of strategic CapEx projects, which management estimates negatively impacted corporate gross margins by approximately 500 basis points. Operating expenses were flat at $5.3 million in the second quarter of fiscal 2025 as compared to $5.2 million in the same year ago quarter. As a percentage of sales, operating expenses decreased to 18.6% from 21.1% in the same year ago quarter. Operating expenses as a percentage of sales decreased due to lower payroll expense, insurance costs, professional fees and freight expenses. Net income for the second quarter of fiscal 2025 totaled $1.1 million or $0.03 per diluted share as compared to net income of $1.7 million or $0.05 per diluted share in the same year-ago quarter. Second quarter net income totaled 4% of revenue as compared to 7% in the same year-ago quarter. Adjusted EBITDA, a non-GAAP measure, totaled $2.7 million for the second quarter of fiscal 2025 as compared to $3 million in the same year-ago quarter. Cash and cash equivalents as of July 31, 2024, totaled $7.4 million as compared to $11 million as of January 31, 2024. The change in cash and cash equivalents was primarily driven by $3.5 million in capital investments and $2 million of debt paydown. As of July 31, 2024, total debt stood at $6.8 million. The cash forecast, coupled with our commercial lines of credit, reduced debt and a stronger balance sheet is preparing us well for whatever inorganic opportunities proactively or reactively come our way. Looking ahead, we believe that our normalized gross margin profile, not including major commodity fluctuations will continue to hover in the high-20% range. Our long-term goal leveraging strategic CapEx investments, procurement efficiencies and continuous operational improvements would be targeting margins consistently maintained in the low-30% range, while rightsizing our trade promotion investment from low-single-digit percent of revenue today, closer to our goal of 10%. Turning to adjusted EBITDA, our long-term goal is to achieve adjusted EBITDA margins in the teen's percentage range. This completes my prepared comments. And before we begin our question-and-answer session, I'd like to turn the call back to Adam for some closing remarks. Adam?

Adam Michaels: Thank you, Anthony. In summary, the quarter continued our cadence of purposeful and profitable growth, impacted by temporary construction-related pressures that are now largely behind us as of the middle of the third quarter. Looking ahead, there's a compelling and growing opportunity in the deli space as grocery stores invest in grab-and-go food offerings to inch into retail restaurant territory and inflation pushes consumers towards alternatives. In the past two years, we have built the team and company to become an innovative prepared foods leader in what is currently a fragmented market. We have several levers available to drive growth from new SKUs and existing customers to new Tier 1 customers, and continued investments in marketing and trade promotion to increase velocities of our existing in-store items. We also believe that supported by our strong balance sheet, attractively priced M&A opportunities in the industry to enable us to become a consolidator in a fragmented prepared foods market and emerge as a leading one-stop shop deli solution on a national scale. The fund has only just begun, and I look forward to speaking with you all in the year ahead. With that, I'll turn it over to the operator to begin our question-and-answer session. Operator?

Operator: We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Ryan Meyers with Lake Street Capital. Please proceed with your question.

Ryan Meyers: Hey guys, congrats on the nice quarter. First question from me. Just wondering if you can speak to what you're thinking about for revenue growth rate for the full year, especially now that we brought on large customers like Walmart? I know last quarter, you communicated double-digit growth rate as kind of the target for the year. But any commentary on that would be helpful.

Adam Michaels: Yes. Thanks, Ryan. Yes, I think we're going to stick. Look, I'm really proud of the team. The team is doing everything. We told you what we're going to do, and we did it. I'd like to stick to this double digit. I don't know what's going to happen. I know they're changing rates, Presidential debate tonight. I just don't want to speak to where we are. But I feel good with what we committed to doing. And now we keep doing that quarter-after-quarter. So I'll stick to the mid-single digit -- the mid -- sorry, the double-digit number now.

Ryan Meyers: Got it. Makes sense. And then thinking about gross margin, so it sounds like there was a 500 basis point impact, which surprisingly that's kind of a rebound quicker than, I think, what we were expecting. So outside of that, the construction impact, is there any other headwinds that still remain basically asking you guys feel relatively confident you'll be up that high-20s in the second two quarters of the year?

Adam Michaels: Yes. No, thank you. And I really do appreciate you saying that, and I really want to give a shout out to the team in Farmingdale. The amount of construction is -- it is significant. So I really appreciate Anthony, Ray, the whole team that are doing the work there. I do believe they've done even better than we had planned. Really, there's only two things that keep me up at night; the construction, which, again, I was just there last week, it's looking beautiful. All four grills are up, and I'll be there tomorrow. So that's one, and that's towards the end. And then the second one is commodity prices. No one would have expected. I speak to anybody that will listen to me or I will speak to anybody at all that the chicken prices are just not going down. If you look at these charts, I don't know what's going on. It should be going down now. I mean, it does. Everyone is hoping it does. But those are the only two things that keep me up at night. The construction pretty much all done now and the commodities that, unfortunately, I don't have as much control over. I do say, sorry, I take that back. One thing that the Farmingdale team is doing so well is yes, commodities stink. But what we're doing is by bringing the trimming and tumbling ourselves, that's massively blunted that. So you guys could do your own math to see the massive commodity increase. You don't see that by any stretch of the imagination in our gross margin numbers. And that's a testament to what the team is doing to manage efficiencies better, overtime is down, labor is down, bringing in the trimming and tumbling, it's really pretty cool. So I appreciate you bringing it up. But yes, that's where we are.

Ryan Meyers: Got it. That makes sense to me. Thanks for taking my questions.

Adam Michaels: Absolutely, thank you.

Operator: Thank you. Our next question is from Eric Des Lauriers with Craig-Hallum Capital Group. Please proceed with your question.

Eric Des Lauriers: Great, thank you for taking my questions and congrats again on the new hire of Skip Tappan and the great news around Walmart and Costco. Super cool question here. So you mentioned that once you get into new doors, you seem to always get requests for new items, and we've certainly seen that over recent quarters here. My question is, how long does it typically take for customers to request new items? Is this sort of a three to six month thing or 12 to 18 months? Kind of any help you can give us there?

Adam Michaels: It's incredible. I will tell you. I swear to God, Tony, out west is doing an amazing job opening up our West Coast operations. You see that in just the sheer volume that is going out west. We just got into a new customer just one week or two ago, and they've already added two items. I swear to God, they haven't even received the first item that we gave them. So yes, it could take forever. Equally, I swear, we just got two new items into a customer that they haven't even received the first item, and that wasn't even planned. So I'm not sure. We don't know. The thing is, we're ready, right? That's why we have the capacity. That's why we have the agility. Just what we're able to accomplish at -- what we're able to accomplish in East Rutherford with Eric leading the charge there, it is the agility, Carlene, is just awesome. So I'm really proud of the team, and if you, the customer needs it, we will have it on the truck for you ASAP.

Eric Des Lauriers: That's great to hear. Just one quick one on the construction. So you mentioned it's largely behind. Could you just comment on sort of what does remain? And if you're a willing to an estimate on perhaps how much longer that construction may take?

Adam Michaels: Again, it's mostly completed now. Now it's the fine-tuning. I mean, it's literally-- that's great, I just said that. It's literally the fine-tuning of the grills. So the grills are working. The grills are producing chicken right now. Are they producing the same 100% that our two other grills are doing right now? No, they're not at that level yet. So it's the fine-tuning that takes a little bit of time. But again, we're talking about days and weeks, nothing more than that. And the hard sort of "scary stuff" of will the grill actually show up or will we get the town approvals? That is 100% past us now. Now it's just the fine-tuning.

Eric Des Lauriers: It's great to hear. Last question from me here. Just a comment on how C-store penetration is progressing. And then -- so relatedly, just any comments on how the in-a-cup offerings are trending as well?

Adam Michaels: Yes, the cups continue to do nicely. Not crazy, but continue to get momentum. We just saw if you guys are in the Northeast, Stop & Shop just took them. Not our original intention, but it's great that they have them and they're actually doing well. So I'm happy with the cups again, the cups are still more a C-store thing. C-store has been a little slower than I would have liked, I'll tell you. So we had some personnel transitions. I feel really good with where we are now. I feel even better with where we are right now. But that has held us back a little bit with the C-store work. So what's important is the C-store was sort of gravy on our internal plans. So it was small 1%, 2%. So yes, we want it. We will absolutely get it. But it's slower than we originally planned, and since it's a very small percentage of our business, it won't have a big of an impact on our annual…

Eric Des Lauriers: Makes sense. Congrats again. Thanks guys.

Adam Michaels: Thanks sir.

Operator: Thank you. Our next question is from George Kelly with ROTH Capital Partners. Please proceed with your question.

George Kelly: Hey, everybody. Thanks for taking my questions. So a few for you. First, your 14.5% growth in the quarter. I'm curious how much of that was pricing and what are your plans with respect to pricing in the back half of the year?

Adam Michaels: Thanks, George. Pricing was so more than about 80% of our growth -- of that revenue growth is all volume-driven. It's incredible. I don't think I've ever been in a company that so much of our growth is actually volume-driven. We have been taking pricing. We have been getting that and let's call it the 20%. I wish, a little bit of me wishes we could do a little more, 80% is a very impressive volume growth, but that's roughly where we’re at the 14%, I don't know, expect -- I'm happy with where the pricing that we've done is. If commodities could come down, if the chicken could come down, we're good. I have no -- we have no need. Obviously, you guys all read the same paper as I do. I think it's getting harder and harder to take price. So we were very intentional about that. We knew that I've done this once or 200 times in my lifetime, so we wanted to be some of the first to do it. And we did a whole bunch of it in January, February, March timeframe. I think it's going to be a lot harder going in the back half of the year. But I equally as long as chicken could stop going up, which it has -- it's plateaued. If it could start coming down, I don't foresee us needing to take price. Now that said, there's still the pricing that we took in the beginning of the year wasn't in the back of the year. So we'll get the benefit of the pricing for the next 12 months. But I don't expect to have to take more pricing as long as chicken comes down.

George Kelly: Okay, understood. That's helpful. And then next question on your trade spend. I understand the dynamic. You're waiting for your gross margin to rebound and it sounds like there's still going to be a bit of pressure from construction in 3Q, so is it fair to say that the real ramp in trade spend we should probably wait until calendar year '25? Or do you anticipate, I mean, is there still an opportunity this year to start to push on that more? And then the second question is, are you seeing anything with the spend that you have committed thus far? Are you seeing the return that you hoped for?

Adam Michaels: Yes. Absolutely. Great questions. While slightly disappointed, you're probably right. I think you're not going to see the aspirations that I have of 10% trade. You're not going to see this year by any stretch of the imagination. So I think you're going to see the ramp up more in the beginning of next year. You're probably right. Now, that said, one thing that's just incredible about having the trade talent here is you'd be surprised on how many programs we got for free. So there's a lot of folks that will tell you having branded items only is like the right answer. Remember, we have a mix of branded and private label. Well, the magic of private label is people invest -- the retailers invest for us without any cost to us. So we have seen tremendous, I would tell you a lot of the first-half of the year growth, a lot of it has to do with just great velocities growth from end caps, I told you about some of the club customers. What you're seeing us doing in Costco right now is just silly. Shout out to Scott for getting that done. You're seeing amazing stuff at Costco. A lot of the stuff that we're getting is free trade, for lack of a better word. So yes, I want to keep investing in trade. What's more important to me, you guys know I'm the margin guy, so I've been holding back and I'm not going to be putting a huge amount of money in trade if we don't have the gross margin to support it. So, yes, I think what you said there is right. From the returns that we've seen are just awesome. Even I mentioned earlier, Lauren, with some of our online, some of our digital programming we're seeing ROAs in the $3 or $5. Actually, one of our big customers are over $6 ROAs. So you give them $1, they give you $6-plus back. That's awesome. So we are very blessed. What gets measured, gets improved is even more in the trade area. I see the returns on every single trade program we do. There are some that we repeat, and I'm equally happy to find out things that don't work because that's not on our list for next year. So we are measuring that all the time.

George Kelly: Okay. And then two last quick ones. What products are launching at Walmart? And what are you seeing with respect to M&A? And that's all I had.

Adam Michaels: Yes. So the Walmart products are proteins. I'm going to hold off on that until it's going to be in market next month. So I promise you guys will see it. M&A. It's something that we continue to focus on. We have actually, Anthony and I have our list. It's a growing list of potential targets. Anthony's yelling at me on the number of NDAs we have to sign, but it's good. I'd like to see what we have. I will tell you, I have been spending more of my time than I would have expected on all the construction-related stuff and the commodity stuff. It is incredible to have Skip here. I'm so excited to have him as part of the team. Skip's here, yes, to continue to enhance the two facilities we have today. But we absolutely hired Skip because we're going to have five more facilities all over the country. And my wife says I have to be home every once in a while, so having Skip here is going to really help a lot. But I'm happy with the M&A pipeline, a little slower than I would have liked because focusing on internal stuff, but it is still absolutely 50% of our strategy.

George Kelly: Okay, thank you.

Adam Michaels: Thanks, George.

Operator: Thank you. Our next question is from Anthony Vendetti with Maxim. Please proceed with your question.

Nick Sherwood: Hi, this is Nick Sherwood speaking for Anthony. Good evening, gentlemen, congrats on the quarter. I just want -- my first question is how are you working with Walmart to promote the activation of your new SKUs?

Adam Michaels: Yes. So again, I don't want to share too much, but it's a combination of in-store and actually outside digital stuff. So I just mentioned some of the stuff that Lauren is doing. I could tell you on some of the Costco stuff we're doing, geotargeting, as people are either in the stores or are in the proximity to the stores. I just spoke about the QR codes that we're using, so you should expect similar type things on the Walmart launch.

Nick Sherwood: Understood. And can you go into any of the philosophy that went behind which stores were selected? 2,000, it's about half of Walmart stores. Was it, were you targeting specific regions where your products are already popular, or was it more on their side of which stores were chosen?

Adam Michaels: So it's a combination. You guys know, again on margin management. We wanted to focus -- we wanted to concentrate, in particular, DCs, right. If you have 5 items in every single DC around the world, that's definitely less efficient than being concentrated. So it was a combination. It was a partnership with Walmart on that.

Nick Sherwood: Okay. And then my last question is, do you know how many additional stores you're in and Costco, with the -- your first National Buy, and just some detail on if you expect any more of your products to be part of that National Buy program?

Adam Michaels: Yes. I mean, Costco has to be. I know, everyone is very excited about Walmart as we are. I would tell you Costco is even cooler in just the spectrum of things that we're winning in. We have just an incredible partnership with Costco. So if you think about it first, the most -- this is now the most regions we've ever been in, right? Six regions. We're in Texas as we speak. Everybody that's in Texas right now should be able to get our 3-pound meatballs have never been in that region ever in the history of the company. So the number of regions is incredible. The second thing is the number of items. So I mentioned to you. So the Roadshow that we did a couple months ago beat all expectations I personally had. I'll speak for myself. So we got the sauce in it. We got the National Buy. So the actual number of items before this team, this team of ours today, we only sold meatballs. Now we have sauce, sausage and peppers. I think you guys are going to be really happy with additional stuff that is going to come out imminently in our partnership with Costco. So the number of items is just magnificent. And then just the volume, the size. I mean, this National Buy is seriously legit relative to anything we've done in the past. So I love the fact that it's all of these different elements together. It's not just we have 1 product and it's doing really well, we have multiple products. It's not that we just have 1 region that's doing really well, we have multiple regions. That's what I think is. So it's very broad based, which I think is very important.

Nick Sherwood: And so, then you expect that National Buy to kind of begin affecting the top line with the Back to School resets? Or is that something that's already being underway.

Adam Michaels: Yes. Mostly in the -- it's most in Q4. So remember, what our Q4 is in November. That's where it's -- some of it's now, like I just told you, if you walk into, I think it's actually in North Cal as we speak. It's actually in LA as we speak. I think it's in the Midwest as we speak. It's in Texas as we speak. But the bigger ones, Southeast, the Northeast, those happen in Q4.

Nick Sherwood: Okay, thank you. Those are all my questions.

Adam Michaels: Great.

Operator: Thank you. This concludes our question-and-answer session. I will now hand the call back to Chairman and CEO, Adam L. Michaels, for his closing remarks. A - Adam Michaels Thank you, operator, and thank you again to each of you for joining us on today's earnings conference call. We look forward to continuing to update you on our progress as we strive to deliver value to our fellow shareholders and execute on our vision of becoming a national one-stop shop deli solutions provider.

Operator: Ladies and gentlemen, this does conclude today's conference. Thank you for your participation. You may now disconnect your lines at this time, and have a wonderful day.