Mama’s Creations, Inc. (NASDAQ:MAMA) Q1 2025 Earnings Call Transcript

Mama's Creations, Inc. (NASDAQ:MAMA) Q1 2025 Earnings Call Transcript June 11, 2024

Mama's Creations, Inc. misses on earnings expectations. Reported EPS is $0.01 EPS, expectations were $0.02.

Operator: Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Mama's Creations First Quarter Fiscal 2025 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. This conference is being recorded today, June 11, 2024, and the earnings press release accompanying this conference call was issued after the market close today. On our call today is Mama's Creations’ Chairman and CEO, Adam L. Michaels, and CFO, Anthony Gruber. 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 Mama's Creations.

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 base, 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 the forward-looking statements due to numerous factors discussed from time to time in this report and in other documents which the company files with the US Securities and Exchange Commission.

In addition, such statements could be affected by risk 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, throughout today's call, the company may refer to adjusted EBITDA, a non-GAAP financial measure, which it believes better reflects the performance of the business on an ongoing basis. A reconciliation of adjusted EBITDA to its most directly comparable GAAP financial measure is included in today's earnings release, which is available on the Mama’s Creations website under the investors tab.

And finally, 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 advise 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 Chairman and CEO, Adam L. Michaels. Adam, the floor is yours.

Adam L. Michaels: Thank you, operator, and thank you to everyone for joining us today. I'd like to welcome you to our first quarter fiscal ‘25 financial results conference call. The first quarter was highlighted by robust 29% revenue growth, a testament to the power of our renewed focus on driving purposeful and profitable sales growth, our fourth C. Our goal to emerge as a leading one-stop-shop deli solution on a national scale is grounded in a purposeful and patient strategic plan to capture what is a generational change in consumer preferences. In the past two years, 93% of grocers have seen an increase in demand for fresh food, driven by consumers facing busier lives and tighter budgets due to ongoing inflation. Away from home, food inflation in April stood at 4.1%, continuing to significantly outpace at-home food inflation of only 1.1%.

If you look even closer to limited service restaurants where the deli competes more, you see it at nearly 5% over the last 12 months. This continues to perpetuate the sustained macro shift from out of home to in-home eating. Even relative to the high-growth perishables area of the store, Deli continues to have the best year-on-year dollar and unit growth within the perishables category. This has made deli prepared foods an attractive alternative to restaurants, requiring little to no preparation for what is, in our case, a high quality meal made with simple ingredients your children can pronounce and an attractive price point. The deli prepared food space is one of the few areas of the grocery store increasing not just dollars but also in volume terms.

In April, deli prepared grew an eye-popping 6.0%, driving the 12-month average to 5.4%. What is even more impressive and a more important metric for us is that units grew 5.7% in April and 3% L52. This highlights that the deli is truly growing, not just driven by price, but by servings. Research from Mintel shows that three in four consumers use the quality of a grocer's fresh products as a yardstick for assessing the overall quality of a store, with 41% of those surveyed saying their local grocery store is known for a deli prepared food that boosts its reputation. Grocery stores are taking notice with 84% of grocers expanding their fresh deli department offerings in the past two years, addressing not only entrees but the entire meal occasion, including sides.

They're expanding both in terms of in-store footprint and product selection, leading to the rise of the grocerant, a play-on word for grocery stores that are effectively becoming restaurant competitors through a growing grab-and-go and prepared foods meal selection. There are many fragmented regional deli prepared food vendors today who focus on narrow niches within the space creating increased work for the grocer-buyer to manage trucks, orders, promotions, just to name a few, a one-stop shop national player is needed. And since we started our journey 20 short months ago, our approach has been highly appreciated and welcomed. The opportunity we are facing is clearly significant. We are in the right place at the right time with the right product portfolio.

The Mama’s Creations product offerings are, in my opinion, second to none in variety, quality, and service. Grocers are recognizing that. Since I joined as CEO in September of 2022, we have refocused to address this incredible opportunity. We formed an initial 3C strategy to improve our costs, controls, and culture, areas that in my opinion require the most attention. We rebuilt and strengthened the foundations of our business and became brilliant at the basics. We methodically addressed the biggest pain points across each of these areas and implemented key operational KPIs under the mantra of what gets measured gets improved. The first was cost. Our gross margins were 11.9% in Q2 of fiscal ‘23 with significant potential that needed to be unlocked.

The path to our targeted high 20s gross margin profile took countless small improvements throughout the organization. From step changes in freight and procurement efficiencies to implementing processes to reduce labor overtime, our operations run much more efficiently today than ever before, being able to weather any commodity headwinds that may come our way. The improved margins and cash flow are being directly and immediately put back into further investments in CapEx, which will further drive down COGS even more, creating a virtuous cycle of higher and higher gross margins. Second were our controls. I've been sharing with you over the past 12 months, the successful implementation of our NetSuite ERP system, providing unparalleled visibility to our business, improving pricing, margin, inventory management, and so much more.

We also perfected accounts receivables management which has drastically shrunk our working capital requirements. All contracts are now reviewed by Anthony and his team, driving consistency, and I'm not ashamed to say, more favorable terms for Mama’s. The third C was culture, where we implemented formalized processes and a company-wide culture committee to ensure we're doing right by our employees at every level of the organization. Our focus on culture is driving more production efficiency, higher retention, and higher quality of our products because we are all pulling the wagon together. To that end, I am proud to announce we recently nominated our first winners of the LOVE Awards, which stands for Living Our Values Every Day, recognizing employees who go above and beyond to imbue their work with grandma quality, no matter the position.

We will be sharing these with our internal team next week, and I'm incredibly proud of not only our first slate of LOVE Award winners, but everyone at Mama's Creations for the culture they are helping to build. With the successful evolution of our finance, operations, and HR organizations underway, and financial results reflecting this, we have put in place the processes and culture to begin to accelerate growth. At our Investor Day in East Rutherford in February, we announced the introduction of a fourth C, Catapult, representing the investments in sales leadership, trade promotion, and marketing that we are making to grow the business profitably at a faster rate. Our 29% growth in the first quarter after 17% growth in Q4 demonstrates, with some help from new stores, new items and a little bit of trade rocket fuel, what type of growth is possible.

Today, we have grown our sales leadership team, our first catapult lever to five dedicated employees, which is especially important as we enter the back-to-school reset window. In addition, last year we launched a direct--o consumer e-commerce website and recently launched nine new items on Amazon.com. With our national physical footprint coupled with our always-on online presence, our Mama's Beef and Chicken products are now available 24/7, 365 to our consumers. The second catapult lever is trade promotion, seeking to accelerate the velocities of our existing SKUs by driving trial in larger baskets. Combo buys with complementary products, multi-buys of our family of products, and print and online circulars are just a few of the recent tactics we have used to deliver the growth you're seeing today.

We are seeing tremendous results from these programs, such as a chicken combo buy at Stop and Shop during the much coveted Memorial Day weekend window. With the hiring of Nick Powers, our head of trade strategy and execution, we now have the discipline, formalized tracking, and a clearer plan for trade promotion. In time, we hope to grow our trade promotion spend as commodity inflation allows from low single-digit percentage of revenue today to over 10% in the long term, reinvesting our production efficiency gains above our targeted gross margin in the high 20s range into increased trade promotion and therefore driving higher revenue growth in time. This is a high ROI activity for us, and we will be vigorously testing and learning. The third levering catapult is marketing.

Lauren Sella, our innovative and tech enabled Chief Marketing Officer, is driving strategic marketing activations such as our radio features and our in-store advertising. In March we gave away a year's supply of meatballs as part of our successful National Meatball Day, earning us incredible media mentions and inbound interest from consumers. With over 10,000 entries, we tripled our email list, quadrupled our Instagram followers for nearly no cost at all. Lauren's partnership with Dan and Scott during the Costco Roadshow last month created a multiplying effect, partnering with Instagram influencers to activate the events in the physical as well as virtual world. Additionally, we have been partnering with our PR agency, resulting in numerous high ROI national and local consumer and trade earned media placements.

All in all, an incredible achievement from where we were a short 12 months ago. We are also enhancing our industry presence with a record attendance at trade conferences to put our products in front of buyers of both existing and new channels of business for us, like convenience and food service. Yesterday, I came back from three days partnering with our amazing sales, marketing, and R&D team at the International Dairy Deli Bakery Association, IDDBA 2024 Show, one of the most important trade shows in the industry. There, we took the opportunity to put our money, or shall I say meatballs and chicken breasts, where our mouth is and bring to life our one-stop shop vision. In Houston, we launched new pillars, including our first ever breakfast line, a dedicated entertaining platform, and new on-the-go solutions for our emerging convenience channel business.

We provided samples of three new breakfast wraps, retail-ready chicken breasts in vacuum packs, meatball entertaining sleeves for incremental occasions, and on the go, individually packaged gourmet paninis. For what it's worth, while it's literally only been three hours since our event close, I could tell you that there were no Mama’s samples left to bring home. Taken together, the goal of Catapult is to continue to drive up our average items carried, which stands at over seven items today from below five when I started, accelerating the velocities of our existing items, and now opening up new doors to build broad-based national distribution. With our new team and capabilities, we increased the likelihood of opening up entirely new channels, whether that's the convenience channel, e-commerce channel, or major retail customers such as Walmart or Target.

Opening these could be impactful to our growth trajectory, hence our strategic CapEx investments to prepare for whatever the future may hold. We're investing mid-single-digit millions in CapEx this year, already paid for and funded from cash flow from operations, with the goal of improving automation at both of our production facilities, while concurrently building new in-house capabilities earlier in the value chain. These investments, paired with ongoing operational improvements, have the potential to offset commodity price inflation, fluctuations, and ultimately move our gross margin into the low 30% range over the long term, while concurrently growing our trade promotion investments from low single digit percentage of revenue today towards our long term goal of 10%.

One example is our new x-ray machine technology, a replacement for the industry standard metal detectors used in food facilities to ensure we're truly meeting the highest standards in everything we do. Costco, for example, has realized the superiority of this method and has begun to require their food vendors to phase in x-ray machines, something we have wasted no time in doing. My wife and I have two boys, and while I know they both love each other, an opportunity doesn't go by where competition and a little healthy debating is not happening. Our sales and operations team, like two brothers, continue to push themselves to stay ahead of one another. Sales is doing their part, opening new doors, getting more items into existing doors, and deploying intentional high ROI trade to accelerate velocities.

In the background, our operations team is doing a great job doing their part. I've shared with you the automation and value chain enhancements that are already being implemented. Ray and his team are also stretching their legs, adding new sales office space in Farmingdale, across the street from our existing factory, allowing every critical inch of our factory to be production generating. Equally, in East Rutherford, Eric and his team are deep in negotiations to stretch their arms and expand into the third third of space that we share a wall with. Taken together, we are intentionally, prudently, and cost-effectively expanding into spaces immediately that won't meaningfully disrupt daily operations nor drive noticeable reductions in absorption.

As we continue to improve and build on our 4 Cs, I am incredibly proud of our team's accomplishments and believe we are only at the beginning of our journey. In 2023, we built the foundation of a more resilient and flexible organization. And now in 2024, we are focusing on purposeful and profitable growth to help create value for our shareholders. With that, I'd now like to turn the call over to Anthony Gruber, our Chief Financial Officer, to walk through some key financial details from the first quarter of fiscal ‘25. Anthony?

Anthony Gruber: Thank you, Adam. Revenue for the first quarter of fiscal 2025 increased 29% to $29.8 million as compared to $23.1 million in the same year-ago quarter. This increase was largely attributable to enhanced distribution from strong club rotations and accelerated velocities from incremental trade promotions. In addition, revenue benefited from healthy and measured volume gains driven by continued cross-selling of new products into the company's broad base of existing customers. Growth profit increased 17% to $7.5 million, or 25% of total revenue, in the first quarter of fiscal 2025 as compared to $6.4 million or 27.6% of total revenue in the same year-ago quarter. The change in gross margin was due to some earlier than traditional commodity price increases that pick up perennially in the warmer months, particularly chicken.

We saw this coming and have been proactive in addressing this, accelerating our CapEx to improve labor efficiency and move away from third-party upcharges, requesting and receiving approvals for price increases with customers, and leveraging new suppliers to drive even further procurement efficiencies. These accepted price increases, when paired with our efficiency gains through recent CapEx investments to improve chicken processing capabilities, should offset much of this impact in the second quarter and should fully dissipate in the back half of the year. Operating expenses totaled $5.8 million in the first quarter of fiscal 2025, as compared to $4.4 million in the same year-ago quarter. As a percentage of sales, operating expenses increased marginally in the first fiscal quarter of 2025 to 19.4% from 19.2% in the same year-ago quarter.

Operating expenses as a percentage of sales increased slightly due to the addition of several key hires brought new and differentiated capabilities to the organization, as well as increased non-cash expenses, including depreciation, amortization, and stock compensation expense. Net income for the first quarter of fiscal 2025 totaled $0.6 million or $0.01 per diluted share as compared to net income of $1.4 million or $0.04 per diluted share in the same year-ago quarter. First quarter net income totaled 1.9% of revenue, impacted by a one-time charge to operating expenses of $0.9 million, $0.5 million of which was non-cash stock compensation expense to rectify for certain options purported to be granted by the company in 2018 and 2019 during the term of the former management team.

Excluding the one-time charge, net income totaled $1.5 million or 4.9% of revenue. Adjusted EBITDA, a non-GAAP measure, increased to $2.5 million for the first quarter of fiscal 2025 as compared to $2.5 million in the same year-ago quarter. Cash and cash equivalents as of April 30th 2024 increased to $13 million as compared to $11 million as of January 31st 2024. The increase in cash and cash equivalents was driven by $3.6 million in cash flow from operations in the first quarter of fiscal 2025. As of April 30, 2024, total debt stood at $8.3 million. This cash forecast, coupled with our favorable 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 goals, leveraging strategic CapEx investments, procurement efficiencies, and continuous operational improvements would be targeting margins consistently maintained in the low 30% range, while right-sizing our trade promotions, investments 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 teens' percentage range. This completes my prepared comments. Now before we begin our question-and-answer session, I'd like to turn the call back to Adam for some closing remarks.

Adam?

Adam L. Michaels: Thank you, Anthony. Looking ahead, there's a compelling and growing opportunity in the deli space as grocery stores invest in grab-and-go offerings to inch into restaurant territory and inflation pushes consumers towards alternatives. In the past 20 months, we have built a team and company to become a clear, 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 investment in marketing and trade promotions 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 can enable us to become a consolidator in the fragmented prepared foods market and emerge as a leading one-stop-shop deli solution on a national scale.

The fun 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?

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