Mama's Creations, Inc. (MAMA) Q2 2027 Earnings Call Transcript

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to MAMAS Creation Second Quarter Fiscal 2027 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, Thursday, September 3, 2026, and the earnings press release accompanying this conference call was issued after the market closed today. On our call today is MAMAS Creations Chairman and CEO Adam L. Michaels and CFO Anthony Gruber. Before we get started, I'd like to note that some of the statements on this call will be forward-looking statements that reflect management's current expectations about future operating and financial results. Although management believes their expectations and assumptions are reasonable, they remain subject to significant risks and uncertainty, and actual results for future periods may differ materially from what is stated or implied during today's call. For more information, please refer to the forward-looking statement section in today's press release and the risk factors disclosed in the company's most recent Form 10-K and any subsequent reports it files with the SEC. Please also note that today's call will include a discussion of adjusted EBITDA, which is a non-GAAP financial measure. Important information, including required disclosures containing a reconciliation to the most directly comparable gap measure is also detailed in today's press release. At this time, I'd like to turn the call over to Chairman and CEO Adam L. Michaels. Adam, the floor is yours.

Thank you, Luke, and thank you to everyone for joining us today. I'd like to welcome you to our second quarter Fiscal 27 Financial Results Conference Call. The second quarter was another step change quarter for mamas. Thanks to the creativity of our sales team, the resilience of our operations team, and the increased capacity from the acquisition of Bayshore, we grew revenue 55% to $54.6 million and expanded adjusted EBITDA 69% to $5.5 million. Though the real story of this quarter is not the impressive growth rate, but the shape of it. Every single bottom line metric grew faster than revenue. Income from operations, adjusted EBITDA, and net income, which more than doubled. Overheads did not grow with the business. It shrank as a share of it. And gross margin turned back up sequentially as the items we launched in Q1 settled into steady-state production, with room still to run. Anthony will take you through the detail, but what I want you to hear is the sequence, because it is exactly the one we laid out three months ago. Invest into the launch, then harvest the leverage. And this team delivered without skipping even a beat on new distribution gains. Looking forward to potential future M&A, we also fundamentally changed the kind of transaction this company is capable of pursuing. Following our recent offering, we closed the quarter with over $138 million cash war chest and virtually no debt, supported by the strong operating cash flow the business generated on its own. Until now, the size of the opportunity we could chase was largely set by the size of our balance sheet. The dynamics have changed. We can pursue a creative M&A that brings incremental capabilities, capacity, or customer access into the platform, and we can do it from a position of strength. As always, regardless of the size of our increasing war chest, we will remain as steadfast and disciplined in our approach as we did when we started this journey four years ago. Before we get into the quarter itself, let me spend a moment on the macro trends because it keeps getting better. One of the earliest lessons I picked up in my career is that catching an existing current is far easier and far cheaper than trying to manufacture one of your own. In June, McKinsey published research naming the shift from restaurant to ready-to-eat grocery meals as one of the top themes reshaping the entire grocery industry. And I mean right up there with e-commerce, retail media, and even AI. Roughly, one in four consumers now buy grocery prepared food, specifically as a substitute for ordering from a restaurant, most often replacing quick service and fast casual occasions. And here's a line I keep coming back to. Prepared Foods, by far, the leading driver of trip frequency across every single section of the store. Not one of the drivers, the leading driver, which means that the strategic alignment we have with our retail customers is getting deeper, and our value to their business is only getting stronger. If that's not enough, GLP-1s are only accelerating it. Consumers are walking past the packaged snack aisle and reaching for a high-protein meal We continue to be in the right place at the right time with the right product portfolio. And now, finally, with a balance sheet to capture far more than our fair share. And then there is one that made me smile the most when I sent it to Chris and Lauren. The Wall Street Journal and Yelp have both now put a name to a consumer trend called GrandmaCore. Slow-cooked, simply-made family recipes, food that tastes like somebody who loves you made it. Yelp named it a 2026 dining trend. Rubik's Food found that 44% of consumers would rather a brand improve a familiar favorite than chase a trend. Fellow shareholders, we did not pivot into this. Anna Mancini carried her meatballs and sauce recipe through Ellis Island 105 years ago. For most brands, grandma core is a marketing stunt. For mamas, it is our founding principle. So, the current is strong, and the playbook we run has not shifted one iota. Cost, controls, culture, and catapult, our four Cs. Starting with our first C, cost, I am excited to report that thanks to Skip and his team, we officially opened the new expansion of the East Rutherford, New Jersey facility at the end of last month, nearly doubling frozen and refrigerated storage capacity, which will reduce our outside storage costs as well as increase logistics flexibility. In addition, as our associates come back from their Labor Day break, they'll be coming home to a new break room, locker rooms, and training spaces in our signature Mulberry color palette and our values on the wall throughout, thanks to Lauren and her team. Our New York facilities continue to merge and blur, sharing equipment and people across facilities. our new Walmart launches and recent Sam's launch would not have been possible without the Bayshore facility and our Bayshore associates. With the added volume of new items across Walmart, Sam's, Albertson's, and BJ's, the Bayshore facility continues to steadily improve towards our goal of margins being in line with our East Rutherford and Farmingdale gross margins as promised. Finally, continued improvements in below the line direct variable costs continue to be captured, as our first-half freight royalties and commissions percentage is below prior year. This allows our operating margins to show up exactly where it should. Operating expenses fell 160 basis points as a percentage of revenue year-over-year, and margins improved sequentially off the first quarter. All of this with plenty of room to grow. On gross margins specifically, in June we told you that labor and raw material inefficiencies tied to the startup of new packaging technologies and protein form factors were front-loaded investments, not a new normal. The second quarter was the first proof point. Margin improved sequentially to 24.0 percent from 23.6, while spending more trade in Q2 than in Q1 and spending over a million dollars more and high ROI trade versus prior year. We remain firmly on track with our mid to high 20% corporate gross margin target as those items move fully into steady state. Moving to controls, our second C, I am proud to share that we continue to invest in more data analytics to expand our Power BI efforts, now incorporating AI plugins, thanks to Melissa and Lauren. This is providing faster, more granular, connected information, delivering savings in materials, production efficiencies, and inventory management. Our singular ERP system allows us to provide more visibility to our teams, real-time performance management, and benchmarking across each of our sites. Another great example of our controls is the impactful work that Alberto is doing with his procurement team. Since Alberto has joined, we have completely reimagined our supplier base. We have consolidated in some places and opened the Aputure in others. For example, recent changes with our packaging supplier base avoided a 12% increase in materials through vendor diversification and business migration. We've added three new beef suppliers, increasing our quality even further without increasing our costs, sharing the benefit with our customers and end consumers. Another huge benefit Alberto brought to the team is his experience with supply planning. The enhancements he has brought to Mamas is allowing us to add further safety stock levels to our top 10 items, facilitating absorption-based production, reducing our costs while increasing our customer service levels. Now, if that is not a win-win, I'm not sure what is. I will continue to simply repeat what I said last quarter. In an industry where food safety sits at the top of every conversation, the discipline this team demonstrates across all three facilities is nothing short of remarkable and nothing we ever take for granted. Our third C, culture. I am ecstatic to share that last month, Yoon Lee, our first ever Chief People Officer, joined us with over 25 years of experience building and leading high-performing organizations. I could not be more excited to partner with Yoon and the rest of the People operations team to maintain and enhance the same entrepreneurial passion and spirit that got us to where we are today. With Yoon coming on board, we've been able to supercharge our capability building. In Q2, we grew our team and our capabilities by onboarding more than a dozen new operational leaders in functions like food safety and quality assurance, enterprise safety, and production management, bringing new capabilities that did not previously exist within the organization and upgrading leadership across critical functions to strengthen the infrastructure required to support continued growth and scale. All of these hires bring energy, experience, and renewed engagement throughout our entire organization. I am so proud to add seats at Mama's dinner table and excited to see what our new family members can do. Another great example of culture is the new innovation lab that Chris and his team have built to wow and excite our customers in only a way Mama can. Appropriately and playfully called Mama's Secret Pantry, this is an experiential space that key partners will be invited to, to co-create and collaborate, to exceed and excite our consumers. I can't wait to share more about the space and, more importantly, the future wins coming out of this unique experience. We are not here just to win at the Prepared Foods game. We are truly redefining it. As Abby keeps reminding me, culture is not a destination. It is a mindset that needs love, attention, and reinforcement every single day. And I will say this about the quarter we just had. We raised more than $100 million on the strength of a proven story this team wrote with their own hands. The capital markets did not fund a theory. They funded a successful track record that was written down and codified four years ago by our over 600 associates. and for that, I am truly thankful. Our fourth and final C, Catapult. This is where the quarter really showed itself. I am honored to announce that next month, we officially launch, for the first time, in Banner Kroger. We will start in the Louisville division in over 100 stores with four items, three of which are chicken bottom SKUs. I cannot express how impressed I am with Chris and the sales team. We set an audacious goal literally three months into Chris's tenure to get into the top three food retailers in the country, and Chris and his team delivered ahead of schedule. The board and leadership team keep setting up the pins, and Chris and his sales team keep knocking them down. Congrats to the entire team. If that's not enough, we recently heard from Costco that we have been confirmed for a second-half multi-vendor mailer, MVM, their most productive promotion nationwide across all eight regions. To me, this is much bigger than just more revenue, which is forecasted to be ahead of prior year, but rather a testament and reinforcement of the terrific partnership Scott has built over the past four years. As a reminder, Scott has taken this business from about half a million dollars four years ago to over $25 million last year. Now that is a partnership. And having all eight regions eagerly sign up tells me that Anna Mancini's recipe is doing just fine west of the Mississippi. But I hope I don't make it seem that there's only one or two customers. In Q2 and upcoming in Q3, we have new placements launching and over a dozen new customers, new and existing. Over a dozen new placements launched in Q2 with more than 60% using chicken bottoms, and coming up in Q3, over two dozen new placements have already been approved. That is the one-stop shop model at work. In Q2, we scaled our marketing efforts while putting our most comprehensive launch support yet behind new distribution. Across our retail media platforms, attributed sales increased nearly 30% versus Q1, while delivering nearly 90 million impressions. Walmart continues to be a standout. As we increased our investment behind our expanded assortment, attributed sales were up more than 50% from Q1, while still generating a very healthy double-digit return on ad spend. What excites me most is that we're building a repeatable playbook around our launches. For our seven new Walmart items and our target beef meatball launch, the team surrounded the distribution with ratings and reviews, PR, retail media, social and influencer support. We generated more than 2.6 million potential impressions through earned media, collecting 225 product reviews to help build trust and conversion, and activating 50 micro-influencers. We also had our biggest presence ever at IDDBA this year, with our largest booth to date and a strong presence across the show floor. We had the opportunity to engage with nearly all of our major customers, not only around the breadth of what we could offer them today, but where we are going next. And for the first time, we shared early stage innovation concepts with customers, giving us the opportunity to bring their input into our innovation pipeline before those ideas ever reach the shelf. And finally, the team isn't limiting marketing to consumer activation. We tested strategically placed outdoor media in key markets in Q2 to excite our existing customers, as well as some prospective holdout customers. If you think FOMO is only afflicting Gregory and Alexander, you have not met the EVPs of some of our customers. Looking to the balance of fiscal 27, our priorities are unchanged. ramp the new branded introductions across Walmart and Target, keep executing it against our goal of net plus two SKUs in each of our top 10 accounts, pull efficiency, margin, and absorption through the three-plant network as recent launches reach steady state, and now, with over $138 million of cash on the balance sheet, put capital to work behind capacity and accretive M&A. Looking forward, the company I see in front of me bears very little resemblance to the one we ran even 12 months ago. Three plants, a broader and still expanding customer roster, a balance sheet with real firepower, and a team that has demonstrated in practice, not in theory, that it could integrate acquisitions and execute with excellence across the plan. Our line of sight to $1 billion in revenue has never been sharper, and I am convinced in our ability to compound profitable growth well into the future. 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 second quarter. Anthony?

Thank you, Adam. Moving to the financial results, revenue for the second quarter of fiscal 2027 increased 55% to $54.6 million as compared to $35.2 million in the same year-ago quarter. The increase was primarily due to the ramp of the new branded items we launched with major retailers in the first quarter, item expansion at new and existing customers, and the contribution of the Bayshore acquisition. Gross profit increased 49.1% to $13.1 million, or 24% of total revenues, in the second quarter of fiscal 2027, as compared to $8.8 million, or 24.9% of total revenues in the same year-ago quarter. Importantly, the prior year did not include Bayshore as it was prior to the acquisition of the same. Gross margin improved sequentially from 23.6% in the first quarter as the new packaging technologies and protein form factors deployed to support our quarter one launches moved towards steady-state production. We remain on track toward our mid to high 20% corporate gross margin target. Operating expenses totaled $10.1 million in the second quarter of fiscal 2027, as compared to $7.1 million in the same year-ago quarter. As a percentage of revenue, operating expenses declined 160 basis points to 18.5 percent from 20.1 percent in the prior year quarter, demonstrating the improved operating leverage in our model as we scale. The change in absolute dollars was primarily attributable to the Bayshore acquisition. Net income for the second quarter of fiscal 2027 increased 100.9 percent to $2.6 million or six cents per diluted share as compared to net income of $1.3 million or three cents per diluted share in the same year ago quarter. Second quarter net income totals 4.7 percent of revenue as compared to 3.6% in the same year-ago quarter. Adjusted EBITDA, a non-GAAP measure, increased 68.9% to $5.5 million for the second quarter of fiscal 2027 as compared to $3.3 million in the same year-ago quarter. Adjusted EBITDA margin expanded to 10.1% of revenue from 9.3% a year ago. Turning to the balance sheet, cash and cash equivalents as of July 31, 2026 totaled $138.6 million as compared to $20 million as of January 31, 2026. The increase was primarily driven by $108.6 million of net proceeds from our July common stock offering, together with $11.9 million of cash provided by operating activities during the first six months of the fiscal year. As of July 31, 2026, total debt stood at $4.8 million. This balance sheet, combined with our credit facilities and strong cash flow generation, position positions us well to pursue the organic and inorganic growth opportunities that Adam described. 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.

Thank you, Anthony. As I turn the page to the balance of fiscal 27, our priorities are consistent. First, we will continue to optimize the integrated three-facility network, pulling efficiency, margin, and capacity utilization forward. Second, we will press the accelerator on retail distribution, leaning into the Walmart, Target, and now Kroger ramps, while continuing to deepen our partnerships in the club channel with our upcoming Costco MVM, as well as the new Sam's Club and BJ's launches. And third, we will deploy the balance sheet we built to selectively pursue creative acquisitions that bring incremental capabilities, capacity, or customer access into the platform. The $40 billion deli-prepared foods category is large, still expanding, and remains highly fragmented. The consumer trends, fresher formats, higher quality protein, value-oriented meal solutions, and now a genuine cultural pull towards the food our grandmothers made continue to break into our direction. Retailers, in turn, want a partner who can simplify the deli-prepared meal space, deliver consistently at national scale and bring real innovation to the case. This is precisely the role Mama's Creations is built to play, and our long-term vision of becoming the leading national one-stop shop deli solutions provider has never felt more within reach. To our team across all three facilities, thank you for the energy, the ownership, and the relentless execution. And to our shareholders, including the many of you who joined us in July, thank you for your continued trust in our team. I have never been more convinced that the most exciting chapter of Mama's Creations is the one in front of us. With that, operator, let's open the line for questions.

Thank you. And at this time, we'll conduct our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. And your first question comes from John Anderson with William Blair. Please state your question.

Yeah, good afternoon everybody. Thanks for the questions. I thought I'd Start with, I guess, your announcement of achieving distribution with, I guess, kind of the third strategic account you were targeting, Kroger. Could you talk about how you kind of got there with the relationship, what the initial launch looks like, and how you're thinking about maybe the roadmap to building the relationship over time?

Yeah, thanks, John. Look, as always, you know, a tremendous team effort. Chris, you know, has great long-term relationships with Kroger well before him joining Mamas. You know, we speak often about having relationships at the top and then equally at the buyer level is another thing. And then it's another good example of actually some of the work that Lauren and Chris did partner together on from a marketing perspective we did some um some creative marketing around uh the the cincinnati area um and um you know and it worked out and uh again we've had some conversations chris has been talking that for some time um this is the type of stuff mama likes right let's start smaller let's start in one division let's start strong with the items that are uh great right are strong uh meatball items and chicken items that we know that have strong velocities, and then slowly, you know, slow and grow. So very excited. Again, you start small and you build out, and, you know, I think Kroger has maybe 13, Banner Kroger has about, let's call it about 1,300 locations. You know, start with 10% of the business and then work your way up. So really happy, really appreciative of all the work that Chris and the team have done to get here. And, again, I think this is something that's really important, and it's been the past four years here at Mama's. We tell you what we're going to do, and we do it. You know, we started three years ago. We said we'd get in one a year. Two years ago we did Walmart, last year with Target, and now with Kroger. Again, slow and steady. So, yes, very proud of the whole team.

Yeah, congratulations on that. But kind of sticking with important customers as well for a minute, I wanted to ask about the MVM with Costco in the second half. Is that – I guess that's a new kind of new disclosure. How recently did that kind of come together? And can you size it for us? Like, you talked about, you know, how that relationship has become a, you know, $25 million relationship as of last year based on the plans that you now have in place for the current year. How does this affect maybe the second half outlook and the Costco business in aggregate? Do we grow it this year, in other words? And what are any margin considerations that we should take into account as a result of this as well?

Yeah, no, absolutely. Again, another great team effort and just as much, and we all say it as a leadership team, just as much of the great sales work Scott, in this case, has been able to do, you can't do anything without operations and Skip and his whole team making sure that we can actually deliver and exceed expectations is just as important as getting it in. uh yep you know we we are speaking to the costco team you know if not every uh not every day certainly every week there's constantly rotations that i guess we don't even share all the time because it's it's constantly happening you know the mvm i don't know if it's technically started yet but we're in four of the regions right now and and we're not even talking about it um so great relationship yes we were we were voted in you know as you know well there's eight regions eight regions have to vote on it and we we got voted in for all eight regions I think we're probably in about four regions as we speak and by next month we'll be in all eight regions I did share that this rotation is forecasted plan to be bigger than last year which is great we'll have to see how things go and how the velocities keep moving. Another thing you know about us is, you know, we keep to our margin profiles and what's really important and what's, again, another thing that's just wonderful about the Costco partnership is it's not something that, you know, I know some companies will sell at a loss to get into Costco. That is not us whatsoever, as everybody knows. This is a great win for Costco's end consumers, great for Costco. Velocities keep moving higher and higher, and that's why you're seeing the repeat of the MVM and more and more rotations. So it's a great testament to Scott, the whole team, both sales and operations.

Great. One more. I'll get in the queue. you know it feels like at least relative to I guess our estimates for what that's worth that you know maybe the there was a little bit more opex leverage in the model this quarter a little less on the gross margin line are there some decisions plan decisions you're making there around how you're investing maybe a little moving some marketing dollars into trade based on the desire to support some of the branded launches, or am I over-reading that, that we're still kind of progressing as planned?

No, you are a very good reader, musician and reader all at once, so impressive. No, you're absolutely right, so let's be very specific. We very intentionally moved about half a million dollars, that's a full point of margin, out of marketing into trade because we were seeing higher effectiveness and great returns, again, as you're seeing. So you're absolutely right. I could have easily increased gross margin a full point, legitimately, right? Half a million dollars, a little more than half a million dollars is about a point of gross margin. Our goal is long-term. I know this team and this team knows we have to deliver every 91 days for you guys, but we are we are building a billion dollar business and if that means that we're going to invest a little more this quarter i'll give you another number we spent more than a million dollars that's two points of margin we spent over a million dollars more in trade this year than we did last year again as long as we see the rois you guys know i am what gets measured gets improved we understand that the effectiveness of every promotion that we're doing if it does well we'll do it again. If it doesn't do well, we're not going to do it. But we are spending more on trade, more than a million dollars, more than we did last year, because we're seeing the effectiveness. And we will continue to invest behind the business to drive higher velocities, to exceed our customers' expectations so we could drive more items into the store, like you're seeing and um you know like my boys say um a little bit of fomo and we're chris chris is getting a lot of phone calls from customers saying hey why don't we have that item and that's a that's a wonderful thing yeah i appreciate that thanks for all the color uh congratulations and talk soon team effort your next question comes from george kelly with roth capital partners Please go ahead.

Hey, everyone. Thanks.

Just to start, I think I heard in your prepared remarks that Sam's Club took an additional item. Did I hear that right? And can you detail what the item was and when it went in?

Yeah. Again, great team effort. Again, this was another great example in partnership with operations. This was a new product for us, a panko chicken. That just went in i think literally i think this week possibly uh so it's probably not even through the whole system yet but uh yeah excited breaded uh chicken breast um as as you know full well since you've been with us the whole time this is a chicken bottom which you know is critical uh for us uh but yes really great example i'll give you another thing that's so special about this product yeah it no i'll just leave it a great great team effort so really happy with it so yes new item just came into to sam's and it's going in in all stores um let me get back to you on that i uh i forgot to ask chris that question uh the the the orders are are quite nice so i think so but uh let me uh let

me get back to you on that i'll get it from chris exactly how many stores okay sounds good and the next question on walmart um just hoping you could update us on number of stores and and how the velocities are progressing and just, you know, any kind of update on what you're seeing at Walmart and maybe if there's products that are working especially well or not working as well, all that would be helpful.

Yeah, I'm really happy with how things are going. I think I looked the last time and we're now over 2,300 stores. So I think when we first started, I think we said around 2,000. So I think we're now north of 2,300 stores. So definitely getting more stores, definitely seeing greater velocities good or bad you know the grilled chicken is just exceptional and that is always the the winner and we're seeing velocities literally go up every week it's crazy you know that we could see this you know there's some items that are not doing as well you know I still you know I'm supposed to my wife taught me I'm supposed to love all my children equally you know we have a sausage and peppers uh in the store we have a meatloaf in the store you know chris and i discussed we always know that at some point we want to uh take other some items out proactively actually and bring in items with higher velocities those items tend to you see a little lower velocity than our like beef meatballs and a cheese stuffed chicken meatballs So we definitely see all – actually, we have nine items in there. Chris and I, Chris speaks with his team all the time looking at it, and I promise you we are very proactive. It's not going to be Walmart that says, let's take this item out. It's going to be our team that says, hey, Walmart, I'm seeing – I have this better item for you. Why don't I just pop this one in, take this other one out?

So we're looking at that every week. okay understood I'll hop back in the queue thank you your next question comes from Ben Cleve with Stonex please take your question all right thanks for taking my questions and congratulations on a good quarter here um you talked about the flexibility you have uh with your balance sheet now uh for M&A ambitions and I'm wondering if you can elaborate on this a little bit I'm wondering first of all uh the degree to which the kind of smaller opportunity that you had been historically pursuing are just are just less enticing to you now that you have more flexibility and then also can you uh kind of distinguish between the characteristics of

some of the smaller operations that you were looking at versus the more transformative ones both in terms of the quality of the operations and the multiples that you have to pay well that's a lot ben thank you um so yeah i i think we understand you know we've done this a number of times as a team here, between the Chef Inspirational, Creative Salads, Crown, and obviously I've done one or two or more before coming here, integration takes work, takes effort, and quite honestly, it probably just doesn't make sense to buy a $25 million revenue company anymore. The great news is there's also lots of benefits to that, right? because some of the bigger companies have more capabilities. Remember, for us, it has nothing to do with revenue. It's all about capabilities. It's all about getting new customers. It's all about bringing in great culture with our people. And, yeah, what is wonderful about this last raise, and I've shared it when we did the raise, There were a couple companies that we were looking at that they said, yeah, sure, Adam, this is the grown-up table here next time. And by having the raise and everyone sees it, we get a call back. Actually, I was sort of just joking. I would love to talk to you. So I think it has brought us to a different place. The conversations that we have had, I will tell you, as great as, you know, Chris is doing in sales and Skip's doing in operations and Anthony and Lauren and the whole team, I'm keeping them busy. You know, I took Chris and Skip on a bit of a vacation over the past couple of weeks for a couple of tours of places. We're getting busy, which is wonderful. It's what we should be doing. but uh yeah it has to be meaningful it takes a lot of time for us to do the diligence it takes a lot of time so it just doesn't make sense to buy and i'm making up with that we're looking a little bigger but obviously anyone that knows me knows that uh just like how we manage our money just how we um look at multiples it doesn't matter how much money we have we are as as diligent as we were when we actually had no money. Sorry, we had negative $15 million of debt when Anthony and I first started.

That's helpful to hear that perspective.

Very good. Well, congratulations again on a great quarter and having a seat at the grown-up table, as you say. Thanks for taking my questions here.

I'll get back in queue. And just before the next one, since Chris is an overachiever, George, we're starting with 300 clubs with the Sam's breaded chicken.

Thank you, Ann. Your next question comes from Ryan Myers with Lake Street Capital. Please go ahead.

Hey, guys. Thanks for taking my questions. Congrats on another strong quarter. I'm wondering if you could just talk about what needs to happen in the back half of the year to trend toward that mid to high 20s gross margin target, maybe the kind of high 20s.

What would you need to see to get closer to that as we exit the year? yeah i mean look i think and and i like that it's consistent there's really three things that and again i hope we could all agree that 24 never enough for me but 24 is mid to high 20s um there's there's three things that are that placed us at that 24 this quarter the first one we mentioned earlier, right? We are investing in trade. We were very intentional to take half a million dollars of marketing and put it into trade. That's a point of margin. The biggest one, which we've been talking about for some time now, is we need to keep selling the bottoms, right? I just told you three of the four items at Kroger are chicken bottoms. The new Sam items, chicken bottoms. I It's a great problem to have. Chris and team are just too good at selling the tops, right? The portion chicken is just exceptional. And we just need to, as a percentage, just sell more and more of the bottoms. That's going to allow us to trim more, right? Operationally, we could trim. Skip and team could trim all day long. But we have to sell a higher percentage of the bottoms because we said a day of trimming, right? If there's five days in a week, a day of trimming is about a point of margin. we're probably still in that one to two days of trimming to me says that there's two to three more points we can get if we could just increase the percentage not the absolute money the absolute we've added i think we added more than 10 million dollars of chicken bottom sales uh versus last year which is an incredible job it's the percentage that we need to have and that that two to three points and then i think the third i'm so proud of the bayshore team we are moving really nicely probably ahead of where um anthony and i had planned i love what the bayshore team's doing they're still probably i'll make up a number roughly of a point of margin there to get that up to the corporate average so right then and there that's that's what four to five points right? One, two to three, and one. So that's four to five points. That says that we're 28, 29%. We need nothing special. We need nothing. We don't have to cure any major diseases. These are block and tackling things that if we can do right, we're absolutely there to do it. So hopefully that adds some color as to how the leadership team thinks about and makes trade-offs, right? So the trade, we make trade-offs. One thing that's great that Chris is doing now and makes you feel good that we can continue to trim, we can continue to sell more of the bottoms is we actually accidentally forget to bring the portion chicken when Chris pitches it, right? When we have tastings and cuttings, we accidentally forget the portions.

Everyone knows about it.

Literally, Chris sells stuff sight unseen. That's how amazing that is. But we are trying to do things. Another thing that Chris and team do is if we if you want the portion chicken, you have to at least buy chicken strips or you have to buy chicken meatballs or you have to buy MFOs with chicken or you have to buy the shredded chicken. Again, we have a great, you know, Lauren helps lead our MPD process. We have tons of chicken bottom items. That's another great thing that Chris and team do to increase the likelihood that we could continue to increase the chicken bottom percentage.

Got it. That's helpful. And then just lastly, as we think about the momentum across the business and the new placements you're expecting in Q3, how should we think about the growth rate in the third quarter and the fourth quarter? Obviously, we're now lapping the crown acquisition for the first time in a couple of quarters. So, you know, any commentary you can give us on how you're thinking about revenue growth. I mean, I know you've talked in the past that you're comfortable with double digits. Does that still apply? Just any commentary would be helpful.

Yeah, I'm not going to move off that. And, again, I think we're, I don't know, I think 17 for 17 on over-delivering our revenue targets. But, look, double digit, I hope you guys see from whether the Kroger stuff, whether the Sam stuff actually just all the the stuff that we already have you know Walmart is still we're not even our first full year of all the Walmart items I hope everyone feels and we feel internally this this makes us very confident that we could achieve that double digit that double-digit growth and what's important more important than any revenue growth is profitable growth And you guys know that about me as well. So, you know, we have still, we're still doing cleaning of our portfolio. There's still more stuff within possibly the Bayshore portfolio. But every day, this every quarter, this is something that Chris and Skip look at to drive more efficiency in our processes. And if that means losing a little bit of less profitable revenue so we can have a more profitable business, we hold hands together and we make the right decision. So it's profitable growth, increasingly profitable growth, that is the important question and the important thing that we focus on.

Got it. That's great to hear. And congrats on the continued progress. And thanks for taking my question.

Thanks, Ryan. Your next question comes from Eric DeLaurier with Craig Hallam Capital Group. Please state your question.

Thank you for taking my questions. Congrats on another strong quarter here and all the continued momentum on these product wins. My first question here is kind of going back to the gross margin outlook. Obviously, chicken bottoms are a big driver of that. You mentioned 60% of the Q2 product placements use chicken bottoms. How should we think about the mix of these two dozen new product placements for Q3? How should we think about the mix of chicken bottoms for those?

So, again, what's wonderful is much of it is the chicken bottoms. It's something we focus on. I share the Q2 numbers. We have to see how Q3 goes. It's also the volume. So one thing that I will – not that we get challenged, but we have to see how it does. It's up to the end consumer, right? So Chris and team make sure that we are selling more bottom items in than top items, right, that we know. What we don't know is the velocity of those items and which one is going to sell more than the others. What has been happening, and again, such a horrible problem that I believe every publicly traded company wants, every company wants. The portion chicken, even though that's one versus the four bottom items, the velocities of that portion chicken item just moves at a lot faster pace. And that's where we run into the quote unquote challenge of the chicken bottom percentages not growing as fast as the... We are doing our job. We are, like I just mentioned, we don't sell in a top if the bottom doesn't come with it but we have to see how the items land from a velocity perspective I'm optimistic I feel good obviously the leadership team we know all the items that we're getting in I'm optimistic that we could continue to increase the percentage of the bottoms which will lead to again if I could just get one more percent right one more day of trimming, that gives me one more gross margin percent, which, you know, obviously would be really helpful. Another point I know, because Bayshore keeps getting better, I think we're going to be in exactly the position we expected to be a year ago. I think we're going to get one more at Bayshore.

And okay, so now that 24 is 25 and 26, and we feel good that just like we sequentially improved versus last quarter I feel good that we will sequentially improve in Q3 versus Q2 it's all very apple color I appreciate that on Costco congrats here it sounds like quite the win so you mentioned you expected to be larger from revenue perspective year over year it also mentioned that it's already started at least in some of the some of the regions If I recall, I think last year's was just around the holiday season, so a bit shorter here. Can you just comment on maybe the scope of this MBM compared to the one you had last year, whether that's a number of weeks or number of items, just any additional color there would be great.

Yeah, it's going to be roughly the same time. Actually, I think it's a little longer. I don't remember starting this early last time. And the other thing that's really important, and I want everyone to be proud of the MVM, I want everyone to be excited. I think the MVM is going to be actually at the same time as last year, the last two weeks of December or the beginning of January. I know everyone likes to see it in the print mailer. You're going to see that. What I see, but what's important is the business is so integrated now. Like I just told you, we're doing rotations before the MVM even starts. So I feel really good. Again, we mentioned from an MVM perspective, the order, the intention from Costco is that this is actually going to be bigger, right? We're already getting orders in. It is going to be bigger than last year. I think it's going to be a little longer, right? I don't remember it starting this early last year. But what's really important is this is continuing to strengthen the relationship. It stays in longer, right? If you remember what happened last time, the quote-unquote MBM was supposed to end in January, and some regions, you know, quote-unquote forgot, and they just kept buying into February. That's what we're looking to do, just like we spoke about last time. So we are an everyday item now in the Northeast. It doesn't come out. The MVM will, because of the promotion, there definitely will be more volume, but we're there every day. Same thing with the San Diego region. Try to make my parents happy. It's already in the Southeast now. So that's what's really important for it.

Yeah, certainly encouraging on all fronts on Costco. Thanks for taking my question. and congrats again.

Thank you. Your next question comes from Matt Curtis with DA Davidson. Please get your question.

Hi, good evening. Thanks for taking the question. I just had a question on Bayshore for starters. Could you bring us up to speed on where Bayshore's gross margin stands today relative to the other facilities? And I guess to ask it another way, how much of the the original margin gap has been closed at this point?

Yeah, so we don't have business P&Ls. So much of the stuff, and I think I mentioned earlier, the legacy Walmart stuff we're actually doing in Bayshore now and vice versa. Actually, the Shaw's shredded chicken we're doing in Bayshore. So we don't have a kind of line item. We run the business as one business. What we're seeing and why we're feeling confident is the absorption. So what was really big when we started was the Bayshore facility was a big facility. It was twice as large, or it still is, twice as large as our other facilities, and it didn't have the volume. What's been wonderful, thanks to our sales team, is we have filled up the Bayshore facility with more volume, which is lowering, as you understand, the overheads percentage. The other thing that's happening is the Bayshore legacy crown items, thanks to Alberto procurement team, we've gotten significant savings on beef and on chicken and on other ingredients. So the so what is, I believe, when I speak to you guys next quarter, that we won't see any of that. Again, more, like the words I said, the blurring, it's going to look one in the same. So directionally, that's how we're able to figure out where the margins are in the legacy facility.

Okay, got it. So, just maybe to ask a related question, at this point, how much unused capacity do you still have at Bayshore after supporting some of the recent launches that you talked about?

So, we certainly still have lots of capacity. We are, you know, we're not working seven days a week in all parts of the facility. We're not working actually 24 hours in all parts of the facility. So, there's definitely a lot more room. It's a function of the items that we sell in. what we do with them. So I still feel very good. Look, we're growing, which is great, but I'll stick to what I said last time, and nothing's really changed. We could pretty much double our business from last year with the current facilities we're in. The other one that I don't want to forget, and everyone's always welcome to come in, I really love. I got some good pictures for you. We are opening up, I mentioned, thanks to Shane and team, we doubled our East Rutherford facility this quarter. So a lot more cold storage, freezer storage, something I'm so proud of, a lot more room for our associates. So we have training rooms now. I'm so excited, Yoon and Abby and team. We're doing trainings, a much bigger cafeteria, walls of microwaves. So we definitely have a lot more room. What we have to keep doing is using it more efficiently. That is the key. So we just brought in two new ProSeal machines. So we have automated, again, for many folks that have started, if you guys have taken tours with me in our Farmingdale facility, we used to use pretty much hand sealers to seal. I'll give you an example, something like the Walmart chicken that we do. We literally used almost hand sealers, this machine. It was, sorry, let's call it a tabletop machine. We brought this ProSeal machine in. It's amazing. Literally, Milton and Lenny. We literally get done. What we used to be able to get done for a day By noon, we have it done. So it's not about the physical space. We have to continue to bring more automation in and use the space we have more efficiently. But we have room to grow. I'm not worried about that quite yet.

Okay, great. Sounds good. Thanks again, and congrats on the momentum.

Thank you. Your next question comes from Nick Sherwood with Maxim Group. Please state your question.

Hi, thank you for taking my questions. So seafood seems like it's a pretty important part of the prepared meals categories. How much of a priority are you putting on adding seafood capabilities when you're evaluating M&A options? And what do you see as some of the challenges of kind of integrating a product that would have a very different procurement and production infrastructure?

Yeah, no, great question. And for a guy who likes seafood, I'd like that very much. So there are a couple of things we have to do. First, what's wonderful, actually, Bayshore used to make seafood products. So they had some of the capabilities and obviously the know-how. It's not that easy in the sense that I'm sure, and I'm speaking out of turn here, but we need different HACCP plans, USDA approvals to get it back. But, you know, first of all, we have plenty of room to run. Remember, $40 billion category, as great as we're doing with beef and chicken and vegetables, Chris would be the first one to tell you that we still have tons of room to grow. But it's also, maybe that's an M&A opportunity. Maybe there are special, there's special equipment, there's special handling. um there's a company that i'm speaking to now that i know i i've seen uh there they have seafood items so maybe it's an m&a approach but it's absolutely something that um should make all of our investors feel good that wow these guys are doing this well and they're missing an entire segment right in seafood and you know when when when we are a billion dollars uh i have no doubts that there will be a seafood element to it.

Understood, yeah. I appreciate the detail. And then I noticed that you had expanded placements at Sheets. Can you kind of talk about how the opportunity and the convenience channel has progressed?

Yeah, no, it's... So actually, I'll tell you... So yes, we got some new stuff into Sheets. I think we have some new paninis coming in. But the Sea Store is still one, and Chris and I speak about it, you know that's one that I would have said a couple years ago it would have been easier we have the right partners right we have a distributor partners we now have the right portfolio of items we have these you know these paninis are doing exceptionally well we actually made smaller paninis now so it's better price point in addition to the ones that we have I told you about these wraps I I will still believe the meatballs in a cup solution somehow will come around for us. So we have the right third-party partners with distributors. We have the right portfolio. And, again, the team will keep trying. But, yeah, we're in some places, but there's still a lot of opportunity.

Well, thank you for answering my questions. I will turn to the queue.

Thank you. And at this point, we have no further questions, so I'll hand the floor back to Adam Michaels for closing remarks.

Thank you, Operator, and thank you again to each of you for joining us today. To close, the second quarter of fiscal 27 delivered on the promise we made in June. Revenue up 55%, net income up 101%, adjusted EBITDA up 69%, operating expenses down 160 basis points. Our first ever win at Kroger, another even bigger Costco MVM, and much, much more, all with a balance sheet carrying $138.6 million in cash. This is the output of the 4Cs operating system at work. The macro tailwinds and deli prepared continue. Our three-facility network is humming. Our balance sheet is built for a creative M&A, and our team is executing with real conviction. The course we have charted towards national Delhi leadership is set, and our commitment to that destination is unwavering. As always, we appreciate our shareholders' continued support, and we look forward to updating you on our progress in the quarters ahead. Thank you.

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you all for your participation.