Earnings Call Transcript - MAMA Q1 2021

Operator, Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to MamaMancini's First Quarter 2021 Earnings Conference Call. During today's presentation, all parties will be in listen-only mode. Following the presentation, the conference will be open for questions. Please note the call is being recorded. On the call today are MamaMancini's Chairman and CEO, Carl Wolf; President and COO, Matthew Brown; CFO, 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.

Greg Falesnik, Managing Director, Investor Relations

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 vary 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 the reports 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 arise after the date of this conference call. At this time, I'd like to turn the call over to Carl Wolf, the Company's Chairman and Chief Executive Officer. Carl, the floor is yours.

Carl Wolf, Chairman and Chief Executive Officer

Thank you, Greg, and thank you everyone for joining us today. I'd like to welcome you to our first quarter of 2021 financial results conference call. The first quarter of fiscal 2021 was a record quarter highlighted by revenue and net income growth, as we aggressively marketed our products nationwide as well as expanded our product line. To that end, we're very pleased with our progress with sales increasing 51% to a record $11.1 million and net income increasing 154% to a record $0.9 million in the first quarter. This growth was driven by new placements, effective merchandising and continued success of our multichannel marketing efforts, as well as some short-term higher volume due to COVID. Sales were very strong in the club stores network and in packaged products while sales in the fresh deli and hot bars were negatively affected. The fresh deli and hot bar businesses are recovering slowly and we expect to be back to normal levels in late summer. Overall, sales and margins were very positive. Because of COVID, there were a few new product placements in the quarter that we are now stepping up activity on as commerce is returning back to normal. We expect a number of new placements to occur late summer and fall, continuing our sales momentum. Our activity on food service, export to Canada, convenience store, college channel, direct-to-consumer channels, i.e., Amazon Fresh, etc., and Beyond Meat products were halted due to COVID. We are now beginning these activities again and expect to see significant progress later in the year. Our projections for the year have been altered to reflect this, but overall we are very strong for the year with our existing base and new customers in supermarkets and club stores. We expect a record year in sales and earnings with the second quarter strong compared to the prior year, but without the one-time COVID-related sales from the first quarter. However, we caution that with today's continually evolving macroeconomics, accurate forecasting of the future can be difficult. Our successful multi-prong marketing efforts include radio campaigns, social media efforts, and continued work with QVC. I'd like to touch on a few of these. We continue to see success in our SiriusXM radio advertising campaigns, as evidenced by the launch of sixth campaigns in calendar 2019. We launched a major new 11-week campaign in May of this year. The SiriusXM platform will distribute an estimated 4,000 MamaMancini's commercials on all major talk and news channels, reaching over 75 million customers, an avenue which we have found is a cost-effective way to drive sales across various geographic locations with current and new customers of our products. On the social media side of things, we continue to maintain a robust reach, engaging new customers and encouraging repeat purchases. Today, we have 300,000 likes and continue to 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 into supermarkets in the Southeast. Our QVC efforts have seen notable success. I just got a call and as I was on, we saw these live pitches driving impressive sales on their platform. Excuse me, one second — trying to end the call. We have recently increased our on-air presence notably and have seen encouraging growth as a result. 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 United States. In the month of April, QVC sold over $1 million of MamaMancini's products, a record. COVID-19 was a challenge for the Company, but we were able to efficiently run our operations without a shutdown. Fortunately, we were able to install safety measures significantly before our peers, which we believe helped mitigate the effects. In February, we initiated an operational review through 15/16 consultants and added senior management with the hiring of Steve Burns as Executive Vice President this quarter. Later in the call, Matt Brown will speak about results of this endeavor as well as the implementation of the NetSuite program later this year. We also dealt with higher beef pricing in the final weeks of the quarter, which continued into May and early June. We've been able to raise our prices and planned efficiencies have allowed us to weather margin erosion satisfactorily. Beef prices are expected to moderate in the next few weeks and we expect margins to continue to improve. 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 first quarter.

Larry Morgenstein, Chief Financial Officer

Thank you, Carl. Revenue for the first quarter of fiscal 2021 increased 51% to a record $11.1 million compared to $7.4 million in the same year-ago quarter. The Company was able to increase its sales through new customers as well as its existing customer base. Gross profit increased 57% to $3.7 million in the first quarter of fiscal 2021 compared to $2.4 million in the same year-ago quarter. Gross profit as a percentage of revenue in the first quarter of fiscal 2021 totaled 34% as compared to 32% in the same year-ago quarter. Gross margin increased due to higher plant operations and efficiency and a net change in product mix. Note, the gross profit was negatively impacted by higher beef prices in the quarter as well, which we expect to subside next month. Operating expenses totaled $2.8 million in the first quarter of fiscal 2021 compared to $1.9 million in the same year-ago quarter. Operating expenses increased primarily due to increases in freight, commissions related mainly to higher sales, and professional fees related to increased investor relations initiatives. Net income for the first quarter of fiscal 2021 grew significantly to a record $0.906 million or $0.03 per share, as compared to net income of $0.356 million or $0.01 a share in the same year-ago quarter. The increase in net income was primarily attributed to an increase in sales of 51%, increased gross margin as a percentage of sales from 32% to 34%, a decrease in net operating expenses as a percentage of sales in addition to a decrease in interest expense. Cash and cash equivalents totaled $1.8 million as of April 30, 2020, as compared to $2.4 million as of January 31, 2020. The cash balance included $330,000 of PPP loan, which was returned in early May. We have paid down our five-year $2.5 million term loan note with M&T Bank to just $317,000, further strengthening our balance sheet. We do not anticipate raising additional capital and are confident that the cash on hand is sufficient to sustain operations as we grow. Finally, before wrapping up the financial section, I want to touch on our improved current ratio, which at April 30, 2020 stands at 1.52 as compared to 1.33 at April 30, 2019. That completes my comments. And now, I'd like to turn the call to Matt Brown, our President and Chief Operating Officer.

Matthew Brown, President and Chief Operating Officer

Thanks, Larry. Fiscal Q1 2021 will forever be remembered as the COVID-19 quarter. As the world changed around us, so did many manufacturing operations. As an essential manufacturer during this time, our plant managed to not only work through the pandemic, but to do so with record revenue and net income. COVID-19 forced us to change our operation during this quarter with regards to a number of key areas. With regards to personnel, we were able to achieve record production with fewer personnel in our production rooms. A portion of this was due to the success of key automation acquisitions during fiscal Q4 2020 that went into full operation in fiscal Q1 2021. On the flip side, we increased personnel with regards to COVID-19 safety. We hired full-time temperature checkers and a full-time sanitation crew that focus solely on the cleanliness of the plant, i.e., door handles, countertops and food contact surfaces to name a few. With regards to product mix, Carl alluded to it earlier; however, it's worth mentioning again that while our fresh deli and hot bar production saw a slowdown during the quarter, the need for club store assembly products as well as our retail package product line was in high demand and required the plant to adjust scheduling to better handle this swing in product mix. With regards to implementation of the NetSuite ERP managerial financial system, the pandemic shifted our focus for a few months while we directed our attention to the needs of our customers. We are now back to working on transitioning to this new system and expect it will go live by November. We have implemented some short-term strategies to gain efficiencies in the areas of production, scheduling and logistics, but expect to fully see results once we make the full transition to NetSuite. The plant made two strategic moves prior to COVID hitting us. The first was bringing in the consulting team of 15/16, a leading industry consulting firm. Through their initial efforts, we were able to shift some personnel hours, in turn saving us a few points against our cost of goods. In addition, they were able to source a much-needed position, a mechanical maintenance manager. This individual has been critical in keeping our machinery functioning at full capacity. This has drastically reduced our unscheduled downtime and has helped increase overall production. The second move was the hire of Steve Burns, our Executive Vice President. Steve has been in the position of Lead Director on the Board of Directors and we are pleased that he offered to lend his expertise in the area of finance, logistics and production, as we continue to strive towards greater efficiency and profitability in the plant. Steve had the difficult task of starting during a challenging quarter, but has been a key player in the record success that was achieved in fiscal Q1 2021. Steve continues to work with the NetSuite team on getting us up and running in addition to helping capitalize on opportunities to grow our QVC business with stronger margins. Raw materials saw the biggest fluctuation during the quarter, as our ground beef prices increased significantly with the challenges of the beef processing industry during this pandemic. As Carl mentioned, we were able to eventually adjust for this and increase our prices of our finished goods to our customers. The plant does expect to see a turnaround in these inflated prices over the course of the next month and hope that initial savings in labor from the 15/16 exercise that we've experienced, coupled with a return to normal raw material pricing, will greatly increase the plant's profitability. We are also working with Steve and with the 15/16 consultants on a redesign of our packaging room process with modest investments in key equipment to achieve dramatic efficiencies. At this point, I will turn the call back over to Carl for some final notes before wrapping the call up for Q&A.

Carl Wolf, Chairman and Chief Executive Officer

Thank you, Larry and Matt. As I noted in my opening remarks, we continue to execute on all fronts and we've laid the foundation for an incredible year. I am proud of the progress we've made in the first quarter and we'd like to thank our talented employees for their continued execution, enabling our sustained growth in a changing world. We look forward to continued revenue growth and margin expansion throughout the year, creating sustainable value for our shareholders, as we approach a potential up-listing in late 2020 or early 2021. With that, I'll turn it over to the operator for Q&A.

Operator, Operator

We will now begin the question-and-answer session. Our first question today comes from Howard Halpern with Taglich Brothers.

Howard Halpern, Analyst, Taglich Brothers

Congratulations, Carl and guys — a great quarter, great quarter.

Carl Wolf, Chairman and Chief Executive Officer

Thank you.

Howard Halpern, Analyst, Taglich Brothers

In the press release, you've talked about you had a spike in new customers, grocery store customers. Is there going to be an increase in some promotional activity to try to retain a portion of those new customers?

Carl Wolf, Chairman and Chief Executive Officer

The customers in the grocery store were mainly existing customers or expansion of our lines. So, we do not see a dramatic need for additional promotional activity.

Howard Halpern, Analyst, Taglich Brothers

And I guess in last week's webinar, you could talk about, I guess, direct-to-consumer and starting up again or starting Amazon, FreshDirect — is that going to be a profit center or more of a marketing tool or some combination of the two?

Carl Wolf, Chairman and Chief Executive Officer

Everything with us is a profit center. It will not be as profitable in the startup period, but eventually everything has to be a profit center in our company.

Howard Halpern, Analyst, Taglich Brothers

And in terms of — and I think you had talked about it being sometime maybe in August, but how do you envision with everything opening up again in August and beyond. Are you going to be able to get back into food service organizations as they begin to redeploy into their end customers? Are you targeting one specific area to get that launched?

Carl Wolf, Chairman and Chief Executive Officer

Well, we like the Italian food pizza and sandwich shop sector. However, we do not have major sales projections for the remainder of this year in food service. It takes a long time and it really puts us back to start again. So, we should see some modest business, but we really don't have it in our projections as of now.

Howard Halpern, Analyst, Taglich Brothers

Okay. And Beyond Meat, is that also just being delayed by your cost…

Carl Wolf, Chairman and Chief Executive Officer

Same thing.

Howard Halpern, Analyst, Taglich Brothers

A little bit on the financial side because I saw your 10-Q. How many warrants do you have left outstanding? And depending on the mix, how much money could that bring in later on?

Carl Wolf, Chairman and Chief Executive Officer

There are approximately, I think, 3.2 million warrants at $1.00, so that would bring in, if they're all exercised, $3.2 million. And then you have warrants at $1.50, which would be, I think, another 2.4 million warrants, which would be another $3.6 million, assuming the stock was at those levels. Combined, ideally speaking, that would bring in around $6 million.

Howard Halpern, Analyst, Taglich Brothers

Okay. And one final one about, as you continually make the improvements in the plant, approximately what is your estimate of CapEx expense for the year?

Carl Wolf, Chairman and Chief Executive Officer

CapEx expense should be around $400,000 to $500,000 and is handled through financing with M&T Bank for the most part at very favorable rates.

Operator, Operator

Our next question comes from David Snyder, a private investor.

David Snyder, Private Investor

My question is that, as your balance sheet has improved dramatically over the past 18 months as you've achieved profitability, net income and also free cash flow, are there some potential customers that are now willing to talk to you that wouldn't, let's say, about a year ago or so, now that you've proved that you've got staying power and you're growing maybe?

Carl Wolf, Chairman and Chief Executive Officer

I'd like to say yes, but that has not been our issue. Our balance sheet has not been a concern of our customers.

Operator, Operator

Our next question comes from Bernard Girma with DigiTech Strategy.

Bernard Girma, Analyst, DigiTech Strategy

Hi, Carl, first of all, congratulations on the quarter, you scored on every number and we got that $10 million quarter, which we'll be looking for a while. By the way, I would also appreciate having the conference call not at 6 o'clock in the morning for us on the West Coast. I'm sure Greg will appreciate that too, since he's my neighbor. Anyway, can you expand a little bit more on the exchange upgrade? You just touched it for two words at the end of your presentation. I didn't quite catch when you want to do it? What exchange are you looking for? And is it the same thing?

Carl Wolf, Chairman and Chief Executive Officer

We would be looking at NASDAQ. If that occurs, we think we'll have net worth requirements and we'll have to see what the stock price is at that time to meet those requirements as well. The advice we're getting from a significant number of people is that it will enhance the marketability of our shares and valuation.

Bernard Girma, Analyst, DigiTech Strategy

Yes, of course. So if you're looking at the beginning of next year instead?

Carl Wolf, Chairman and Chief Executive Officer

Either later this year or the beginning of next year.

Bernard Girma, Analyst, DigiTech Strategy

We are halfway through Q2. Can you give us any visibility on the quarter?

Carl Wolf, Chairman and Chief Executive Officer

We really don't give guidance until late in the quarter. I think in the call script we said that we would have a very significantly positive quarter versus last year, continuing the momentum we have.

Bernard Girma, Analyst, DigiTech Strategy

I keep trying to ask you the same question every time and you always have the same response.

Carl Wolf, Chairman and Chief Executive Officer

Actually, Howard Halpern, who was the first questioner from Taglich Brothers, has been diligently doing market research on the Company, so you may want to look at his numbers.

Bernard Girma, Analyst, DigiTech Strategy

Okay. And one last question. The performance of Beyond Meat, how can you expand a little bit more on that?

Carl Wolf, Chairman and Chief Executive Officer

Well, it started slower than we had hoped. One was getting first the letters and then two COVID hit right in the middle of it. So, we have some business on it, but we really haven't hit the level we had hoped to yet. We're fully invested in expanding this. We have a number of programs, college programs, promotions and offerings to supermarket chains and of course QVC. So, we're now focusing on those opportunities.

Bernard Girma, Analyst, DigiTech Strategy

Do you have any contractual — sorry…

Carl Wolf, Chairman and Chief Executive Officer

Any contractual — excuse me…

Bernard Girma, Analyst, DigiTech Strategy

Contractual obligation under the contract?

Carl Wolf, Chairman and Chief Executive Officer

No.

Bernard Girma, Analyst, DigiTech Strategy

Okay, you have the target that you need to reach.

Carl Wolf, Chairman and Chief Executive Officer

No.

Bernard Girma, Analyst, DigiTech Strategy

Okay. Well, that's all I really have and again congratulations for the quarter.

Carl Wolf, Chairman and Chief Executive Officer

Thank you very much.

Operator, Operator

Our next question comes from Fred Orr, a private investor.

Fred Orr, Private Investor

Just quickly, you had talked about some orders going up into Canada that of course have been delayed by the pandemic. Are conditions such that those orders could move forward this quarter? Or is it still timing by…

Carl Wolf, Chairman and Chief Executive Officer

Try in another way — give it another month or so. I think we need another month or so before we really have a chance to look at it. We had intended orders, small orders, but the first ones starting in April were put on hold.

Fred Orr, Private Investor

Okay. And just one more question. You seem pretty confident about the continued margin improvement even though this quarter looks like it's going to be a full three months of higher beef prices. Am I interpreting your comments correctly that you are still looking for sequentially higher gross margin this quarter?

Carl Wolf, Chairman and Chief Executive Officer

We're hopeful of higher gross margins this quarter. It's just a little too early to tell. Beef prices are backing down — already starting to back down — and we believe that the basis of the higher prices was, in part, induced by consumers buying and stocking up, so retailers were temporarily out of stock and then stocked up. Plus, a number of plants weren't producing, either through actual cases of coronavirus or preventative measures that slowed the plants down. It's interesting at the height of this that steer prices were very, very low. So, if you could produce cuts of meat, you could buy the steers at extremely low prices and then get extremely high prices in the marketplace.

Fred Orr, Private Investor

Opportunity to vertically integrate on your own — anyway, thank you very much.

Carl Wolf, Chairman and Chief Executive Officer

You're welcome.

Operator, Operator

Our next question comes from David Snyder, a private investor.

David Snyder, Private Investor

As you know, besides being an owner, I'm stocking the end of the product and I think your stock price would double if you could just sell the sauce separately because I drink it for breakfast. All kidding aside, actually, have you thought about selling your sauce separately?

Carl Wolf, Chairman and Chief Executive Officer

We are in the process of doing that shortly.

David Snyder, Private Investor

So, that's a very good thing. And the other thing that I noticed is your cash collection cycle. The cycle is really extremely admirable. It's in the single digits from one quarter to the next and I'm just wondering, it's a very tight ship — how in the world do you manage that?

Carl Wolf, Chairman and Chief Executive Officer

We watch it very carefully. We are able to get into our major customers' portals to watch the cash flow. And if we see issues happening, we can act early.

David Snyder, Private Investor

All right. Well, everybody who I tell to try the product, they love it and they end up being a shareholder. So, I appreciate it. Thank you.

Operator, Operator

That concludes our question-and-answer session. I would like to turn the call back over to Carl Wolf for any closing remarks.

Carl Wolf, Chairman and Chief Executive Officer

Thank you. As a final note, once COVID-19 subsides, we will continue to be active in attending top investor conferences and investor non-deal road shows, marketing on both coasts of the U.S. In the meantime, we will continue with our efforts on a virtual basis. If interested in scheduling a meeting with management when we are in your region, please reach out to our IR firm MZ Group to arrange. Thank you again for joining us today. We look forward to continuing to update you on our progress. Thank you very much.

Operator, Operator

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