Mama's Creations, Inc. Q2 FY2020 Earnings Call

Company Representatives: Carl Wolf - Chairman, Chief Executive Officer; Matthew Brown - President, Chief Operating Officer; Larry Morgenstein - Chief Financial Officer; Greg Falesnik - IR, MZ North America

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to MamaMancini's Fiscal Second Quarter 2020 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. This conference is being recorded today, September 12, 2019, and the earnings press release accompanying this conference call was issued after market close today. On our call today are MamaMancini's Chairman and Chief Executive Officer, Carl Wolf; President and Chief Operating Officer, Matthew Brown; Chief Financial Officer, Larry Morgenstein; and Greg Falesnik, Managing Director 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 the 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 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 the 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 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 arrive after the date of this conference call. Further information concerning issues that could materially affect financial performance related to forward-looking statements contained in the presentation can be found in the company's periodic filings with the SEC. 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. Thank you everyone for joining us today. I like to welcome everyone to our second quarter 2020 financial results conference call. The second quarter of fiscal 2020 was highlighted by continued sales momentum as we aggressively market our products nationwide. To that end, we are very pleased with our progress with sales increasing 44% to $8.1 million in the second quarter which drove net income to a record $0.4 million. Our revenue growth was driven by both new placements, effective merchandising events and continued success of our multi-channel marketing efforts. Our successful multi-pronged marketing efforts include radio campaigns, social media efforts and continued work with QVC. I like to touch on a few of these now. We continue to see success in our SiriusXM radio advertising campaigns, as evidenced by the launch of our fourth campaign this year over Labor Day. The SiriusXM platform distributes up to 1,000 MamaMancini's commercials on all major talk and news channels reaching over 64 million consumers, an avenue which we have found as a cost effective way to drive shares across our various geographic locations with current and new customers to our products. 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 300,000 likes and continue to geo-target likely consumers who live within five miles of specific retail locations. As an example, we are presently using this medium to introduce our new pasta bowls in the Southeast. Our QVC efforts have been a notable success as well with Dan Mancini live pitches driving impressive sales on their platform. In the period from Labor Day, the first week of October, we are scheduled to introduce many new offerings and will be on air seven times, a notable increase from the number we have traditionally done. As many of you are aware, QVC is the world's largest direct-to-consumer marketer and is available in over 100 million homes throughout the US. Before turning the call to Larry to review the financials, I wanted to also touch on some of our recent successes as announced on September 10 with respect to product placement and special merchandising events in over 2,500 tier one grocery retailer locations nationwide. These customers include well-known names such as Publix Super Markets, Sam's Club, which is a division of Walmart Inc., Albertsons Companies and Tops Markets. Notably we expect these locations to generate an additional $800,000 to $1.1 million in quarterly revenue beginning in this, the third quarter of fiscal 2020. In addition we have the potential of adding 2,700 new locations with these retailers in the next six months, provided consumer acceptance is positive. Clearly this is a major opportunity for us and something we are very excited about as we move forward. The strong foundation we've established with the build out of our manufacturing capabilities, paired with our effective marketing efforts to-date have positioned us for a strong back half of fiscal 2020, which we firmly believe will help drive significant shareholder value as we move forward. Now before going further, I’d 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 2020. Larry.

Thank you, Carl. Revenue for the second quarter of fiscal 2020 increased 44% to $8.1 million, compared to $5.6 million in the same year-ago quarter. The revenue increase was primarily a result of increased sales with our largest customers, as well as new customer placements. A merchandising event with one customer during the quarter also contributed to the increase in sales. Gross profits totaled $2.7 million in the second quarter of fiscal 2020 compared to $2.1 million in the same year-ago quarter. Gross profits as a percentage of revenue in the second quarter of fiscal 2020 totaled 33.2% as compared to 36.5% in the same year-ago quarter, due to a change in product mix and cost of goods sold for the second quarter of fiscal 2020, including higher depreciation expense in comparison to the prior year comparable period, which negatively impacted gross profit by 2% of sales. As we grow our sales, we expect gross margins to increase as a result of manufacturing and plant efficiencies. Operating expenses totaled $2.2 million in the second quarter of fiscal 2020 compared to $1.9 million in the same year-ago quarter. Operating expenses increased primarily due to increases in postage and freight, commission expenses and royalty fees due to higher sales. Notably, operating expenses decreased as a percentage of sales from 34.2% to 27.6%. Net income for the second quarter of fiscal 2020 totaled $0.4 million or $0.01 per share as compared to a net loss of $0.2 million or loss of $0.01 per share in the same year-ago quarter. The increase in net income was primarily a result of higher sales and gross profit, lower operating cost as a percentage of sales and lower interest and amortization of debt discount expenses. Cash and cash equivalents totaled $635,000 as of July 31, 2019 as compared to $347,000 as of July 31, 2018. During fiscal 2020, the company repaid $0.8 million of its senior debt. Cash flow from operations for the six-month period of fiscal 2020 was $0.9 million as compared to $1.4 million in the same year-ago period. We do not anticipate raising additional capital and we are confident that the cash on hand is sufficient to sustain operations as we grow. Finally, before we wrap-up the financial section, I want to touch base on our payables, which stood at 32 days outstanding on a consolidated basis at July 31, 2019. This is a notable improvement when compared to 33.6 days payable as seen at January 31, 2019 and 53.3 days payable outstanding at July 31, 2018. We expect the payables outstanding to continue and improve throughout fiscal 2020 as we continue to extract better pricing and better terms from our vendors. This completes my comments. Let me turn over the call to Matt Brown, our President and Chief Operating Officer. Matt.

Thanks Larry. For those of you who have listened to me talk at the year-end call and at the Q1 call fiscal 2020, I continue to speak of plant expansion and equipment upgrades, all in an effort to not only become more efficient in our production, but to better position ourselves for future sales growth. Q2 fiscal 2020 certainly proved that as Carl and Larry just noted. Sales are up versus a year ago and operating expenses are down as a percentage of those sales. What we produced in the second quarter, through the plant, we produced with no additional shifts required. You've also heard me talk about the right mix of products to obtain the best margins from the plant. In Q2, fiscal 2020 was the perfect opportunity to showcase this as our kit business, pasta bowls and other prepared in-store products continued to take off. With these new items we continued to expand our existing customer footprint. We recently announced new product placement or special promotional activity as Carl mentioned earlier in 2,500 tier 1 retail locations nationwide, including Publix, Sam’s Club, a division of Walmart, Albertsons Companies and Tops Markets. On another subject, I briefly spoke about our new hire Allan Sabatier back in April. Allan was brought on as our Vice President of Business Development and has been busy ever since. With a number of key contacts made from the recent IDDBA show in New Orleans Allan's been working closely with our friends north of the border. Canada is showing great signs of progress and is a region we can obtain very favorable pricing for our products. Samples continue to be sent to customers in Canada and the initial feedback has been very positive. We will provide further updates on these efforts throughout the year. Allan also continues to focus his efforts on chain restaurants, convenience stores, of which we will be in the next couple of weeks working at NACS or National Association of Convenience Store show, College University as he continues to work with corporate commissaries, casinos and food service distributors. While all these large prospects tend to move slowly relative to grocery stores, each win on this front will be incredibly impactful for us. Collectively we have our manufacturing expansion complete - with the manufacturing expansion completed and the new products hitting in the shelves, we now have the capacity and breadth of products to compete in this segment and to aggregate additional market share. So, at this point I would like to turn the call back over to Carl for some final notes before wrapping up with some Q&A. Carl.

Thank you, Larry and Matt. As I noted in my opening remarks, we’ve really laid the groundwork for the strong remainder of fiscal 2020. As we gear up for growth, we’ve continued to implement a comprehensive marketing strategy which we are very pleased with today. We set the stage for an incredible fiscal 2020, and I look forward to continue operational execution and shareholder value creation over the long term. With that, I will turn it over to the operator.

Thank you, sir. The first question comes from Howard Halpern with Taglich Brothers. Please go ahead.

Congratulations guys. Great quarter.

Thank you.

In terms of the growth that you had in this quarter, the $2.5 million increase in sales revenue. Could you break that down between new customers, your largest customers and the event that you had?

The merchandising event was less than 5% of total sales. The new customers and existing customers with new product had a great extent of the new business in the quarter. New customers started ramping up in the quarter and now are going into this quarter as we announced. Some of them are existing customers and what we found is much more prudent to do is to announce new customers when we shipped, and not announce when we expect to ship, because often it's pushed back or the case count changes or the placements change. So we hope in the very near future to make significant additional announcements. We also like to make announcements where we group the customers together, which very often customers don't like you to use their name.

Okay. In terms of the recent announcement, the over 2,500 grocery retail locations, what does that bring your total up to approximately in retail locations across the U.S.?

We’re still sticking with the 45,000 even though it's increased, because the key is the type of locations. So if you get into a club store the volume can be 30x higher than a traditional supermarket. So our mix is changing to higher volume locations with larger customers. So we're staying with the 45,000, and I'm not sure that’s a totally meaningful number.

Okay. And so in terms of the potential growth from that 2,500, what type of lead time, customer acceptance time? Is it a quarter or two quarters before you'll get a feel of whether you'll have that additional location added?

No, no that's not the case. We announced that it already ships; we shipped to each of those customers as part of a merchandising program. We haven't announced any proposed ships, so these are actual results.

Okay, now on postage and freight, was the increase in the quarter more one-time or is this going to be the new level approximately of increase for the next quarter or two? I think it was close to $300,000.

Well, the sales went up very substantially as part of it and postage and freight will go up with more sales. You don't necessarily get a tremendous savings for freight as a percentage of sales as we are pretty efficient. We did have a few customers where freight ran much higher than we would have liked and we have in this quarter figured out a way to save a lot of money for the company. So freight should be much more in line.

Okay, and could you talk a little bit more about your R&D in terms of new products? I know you've recently added pasta bowls and Meatball Pie and such, but are there any new items that we should be looking for either by the end of this year or into next fiscal year?

We have mentioned before that we are working on a plant-based product and as soon as we have definitive information we will—again, not something that would be proposed, it’s something that would be real. Once we are really in the business we’ll make an announcement.

Okay, thanks, and keep up the great work.

Okay.

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 I want to mention that we will be attending several Investor Conferences in September and October across the U.S. These include events in New York City, such as the Fall Investor Summit on this coming Monday September 16, The Diamond Equity Research Conference on September 25, the LD Micro, Big Apple Summit on October 7 in New York. We’ll be in the Microcap Rodeo in Austin, Texas on October 15 and 16. If interested in scheduling a meeting, please reach out to our IR firm MZ Group to arrange. Also I’d like to mention that the conference this coming Monday is at the Marriott Essex House. Thank you for joining us today. We look forward to continuing to update you on our progress.

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