Earnings Call Transcript - MAMA Q1 2022

Operator, Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to MamaMancini’s First Quarter Fiscal 2022 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. This conference is being recorded today, June 14, 2021, and the earnings press release accompanying this conference call was issued at the close of market today. On our call today is MamaMancini’s Chairman and CEO, Carl Wolf; President and COO, Matthew Brown; CFO, Larry Morgenstein; and Greg Falesnik, CEO 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. Please go ahead.

Greg Falesnik, CEO of MZ North America

Thank you, operator. Before we get started, I’ll read a disclaimer about forward-looking statements. This conference call may contain, in addition to historical information, forward-looking statements within the meaning of 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, and 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 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 cause actual results to differ materially from those 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 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 CEO

Thank you, Greg, and thank you, everyone, for joining us today. I’d like to welcome you to our first quarter fiscal 2022 financial results conference call. We saw strong core sales growth in the first quarter of fiscal 2022, achieving record cash flow from operations, further fortifying our increasingly robust balance sheet. We had over $4.2 million in cash as of April 30th. While we saw a slight revenue decline from the prior year due to large one-time panic ordering by grocery store customers during the onset of the pandemic in early 2022, our core momentum has trended positively with a 45% growth in the quarter over a two-year period as we are well positioned to grow further as new placements begin to take hold later this summer.

Larry Morgenstein, CFO

Thank you, Carl. Revenue for the first quarter of fiscal 2022 totaled $10.3 million as compared to $10.8 million in the first quarter of fiscal 2021 and $7.1 million in the first quarter of fiscal 2020. The decrease in revenue for the first quarter was a result of strong prior year sales due to one-time panic buying by large grocery chains around the onset of the COVID-19 pandemic, while sales over a two-year period increased approximately 45%.

Matthew Brown, President and COO

Thanks, Larry. While difficult to compare Q1 fiscal 2022 versus Q1 fiscal 2021 due to a once-in-a-lifetime pandemic, we continued to show strong production in the plant during this recent quarter. As we entered Q1 fiscal 2022, we experienced labor rate increases due to state mandated minimum wage adjustments. We were able to not only offset these increases but actually improve on our labor costs through improved use of our technology. Key pieces of cooking and packaging equipment were upgraded throughout the plant during the quarter and in turn enabled us to cut back on manual labor. In Q1 fiscal 2022, we began the exploratory process of expanding our cooking operation within the facility. We brought in a team of architects and engineers to review the plan and hope to break ground sometime in Q3 fiscal 2022. This additional cooking room will double our capacity for Stuffed Pepper filling and Bolognese Sauce production in anticipation of some large business for these items. The cost of the capital improvement is expected to be modest under $200,000 all in and has been anticipated in our budgets.

Carl Wolf, Chairman and CEO

Thank you, Larry and Matt. As I noted in my opening remarks, we continue to execute on all fronts and have laid the foundation for an incredibly strong summer. As we push forward into the summer and beyond, we expect to make continued financial progress driven by our upcoming placements on thousands of tier-1 retailer shelves. This, when combined with our continued success in closely managing operating expenses and what I expect will be a near-term update on our acquisition efforts, has positioned MamaMancini’s for a bright future. I look forward to providing further updates on our growth initiatives to shareholders in the near future. With that, I’ll turn it over to the operator.

Operator, Operator

Thank you, sir. We will now begin the question-and-answer session. Our first question is from Howard Halpern with Taglich Brothers. Please go ahead.

Howard Halpern, Analyst

Congratulations on another fantastic quarter, guys. First, I have a modeling question. Should we, going forward, think of a non-cash recognition tax rate of about 28% going forward in a number of quarters?

Carl Wolf, Chairman and CEO

I would say, yes.

Howard Halpern, Analyst

Yes? Okay. And with all what's coming online, especially in the second half as well with placements, do you expect some incremental increase in the SG&A expense to go along with, I guess, shipping and commissions going forward?

Carl Wolf, Chairman and CEO

We have two parts of SG&A expense. We have shipping and commissions in royalties and potentially demos, now that’s starting again. And then, we have fixed SG&A expense. That part of the variable SG&A expense is around 10% of sales.

Howard Halpern, Analyst

Okay. And with all that’s on your plate currently, especially with the addition possibly of the convenience stores, and colleges and universities, what kind of capacity do you currently have and what kind of capacity can you squeeze out of the plant at this point?

Greg Falesnik, CEO of MZ North America

It looks like Carl’s line has disconnected from the call.

Matthew Brown, President and COO

Okay. Let me take my speaker. Howard, your question was about the capacity at the facility with the expectation of oncoming volume?

Howard Halpern, Analyst

Correct.

Matthew Brown, President and COO

Well, I would say right now, the facility is in good shape and in good position with some of the advancements that we’re making in terms of the construction work. Again, we hope to have that completed before year-end fiscal year-end. And that will certainly give us an extra capacity. In addition, we are still actively working with co-packing options. We had a co-packing option pre-pandemic. Carl, you back on? I’m sorry.

Carl Wolf, Chairman and CEO

Yes. I got disconnected, maybe because I couldn’t answer that question…

Matthew Brown, President and COO

But also, as Carl alluded to, and I’ll let him certainly take.

Carl Wolf, Chairman and CEO

You can answer that question.

Matthew Brown, President and COO

No, I haven’t, Carl. But I was going to say that, in addition to what Carl had alluded to earlier, Howard, is that we are still investigating all opportunities for the Company, and we have been looking at potential acquisitions that are accretive to the Company. And in doing so, we are also looking for opportunities that will help our model, which includes the ability to bring on more capacity in that sense. So, not just co-packing but also through acquisition, we will earn extra capacity.

Howard Halpern, Analyst

Okay. And the convenience store opportunity, especially with the meatballs in a cup. Is that going to be about the same gross margin, or are you going to be able to get a little more gross margin out of that offering?

Carl Wolf, Chairman and CEO

I believe the initial gross margin is roughly the same. However, as production increases, packaging costs should decrease significantly. Additionally, starting a new process typically results in lower efficiencies than in later stages, but the margins should remain fairly consistent.

Howard Halpern, Analyst

Okay. And you would expect that the colleges, universities and convenience stores that are first entrants into foodservice, that should be a growth driver in next fiscal year?

Carl Wolf, Chairman and CEO

College and universities will take a few years. My estimate is that we’ll reach 3 to 5 institutions by next fall if everything goes well. From there, we can leverage our success to potentially expand to 20 the following year and see significant growth at that point. We had unexpectedly strong interest in the initial round last year, which exceeded my expectations from the initial solicitations.

Howard Halpern, Analyst

Okay. And one final one for me is, what are you seeing and what kind of success you’re having in kind of club store market and that potential growth opportunity?

Carl Wolf, Chairman and CEO

We are doing very well at Costco and believe we will successfully expand the business there in stages. Costco is a major player. If we can sell one item nationally at Costco year-round, it translates to about $25 million in sales. Selling two items would amount to $50 million. We have been developing our Costco business based on this success and a solid model, and we are very optimistic about its substantial growth potential in the long run. This represents one of the five opportunities I mentioned, transitioning from a relatively small business to a much larger one. Additionally, we are engaged with Costco Kitchen, which is a separate department. Currently, our business at Costco is branded as Costco Kitchen, which operates under a white label and offers similar volume, aiming for over $25 million per item. All of this is actively taking place.

Howard Halpern, Analyst

Okay. I guess, so that was my last one, one final one. How is the hot bar business coming back?

Carl Wolf, Chairman and CEO

Well, we sell whole foods for the hot bars. And that has been increasing incrementally each month since the first of the year and continues. So, I think it’ll be very substantial. I don’t think it’s anywhere near its potential yet. People are still a little reluctant. We also have finished other items for the hot bar. We now sell two. We presented three others to add to that. So, that is a very substantial business.

Operator, Operator

The next question is from Bill Lap, a private investor. Please go ahead.

Unidentified Analyst, Analyst

Hi, Carl and all. Yes, very good quarter. I think most of it’s been covered that I want to know. But number one, what is your borrowing capacity under your line of credit for an acquisition? What do you currently have?

Carl Wolf, Chairman and CEO

We are currently in negotiations regarding that. Our existing availability is either $10.5 million or $11.5 million. If everything goes well, there could be additional borrowings for any candidates that are acquired.

Unidentified Analyst, Analyst

Against their assets. Right?

Carl Wolf, Chairman and CEO

Yes.

Unidentified Analyst, Analyst

And you said you may be announcing something in the next couple of weeks. Would that be an LOI or a definitive acquisition agreement?

Carl Wolf, Chairman and CEO

An LOI, but from the LOI, we should go pretty fast.

Unidentified Analyst, Analyst

Okay. And on the uplisting, if the back continues, like it closed today at 3.20, four days if you’re over $3, you could be uplisted pretty quickly. Correct? Not waiting for…

Carl Wolf, Chairman and CEO

That’s correct.

Unidentified Analyst, Analyst

Okay. Well, looking forward to good things. It sounds very optimistic. Thank you all of you.

Operator, Operator

The next question is from Matthew Simms, a private investor. Please go ahead.

Unidentified Analyst, Analyst

Hey, guys. This is a question about one of the SEC filings. There was a prospectus filed last week, June 8th. It’s called Post-Effective Amendments for Registration Statement. I saw it mentioned an offering of about 6 million warrants. So, I wondered if you can talk a little bit about those warrants and the plan for them.

Carl Wolf, Chairman and CEO

Sure. The warrants were issued back in 2015, and some were issued even earlier, in 2013 and 2014. These warrants were already in place and were set to expire in November 2020. We aimed to convert those warrants into equity, which involved filing an S1 to make those shares available. The S1 filing needs periodic renewal, which is what you are observing now. There are no additional warrants; all have either been exercised or expired. Currently, there are about 800,000 options outstanding for the Board of Directors, management, and some key supplier relationships, with a few having been exercised this past quarter, though not significantly. This results in a very minimal overhang. At the moment, we have approximately 35.5 million shares and potential dilution of 800,000 shares, which would yield cash at $0.68 per share. Initially, we anticipated a dilution of around 37.5 million shares. It’s important to note that both Matt Brown and I, as the founders of the Company, have not received any warrants or options. While we have received warrants, we have also invested in the Company alongside others, but we have not been granted any operational options.

Unidentified Analyst, Analyst

Thank you, everyone. That was great.

Carl Wolf, Chairman and CEO

Thank you.

Operator, Operator

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

Carl Wolf, Chairman and CEO

Thank you. Thank you, operator. 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, marking on both coasts of the U.S. In the meantime, we will continue our efforts on a virtual basis. If interested in scheduling a meeting with management when we are in your region, please reach out to Lucas Zimmerman from MZ Group, our IR firm, to arrange. Thank you again for joining us today. We look forward to continuing to update you on our progress. I think that concludes our session today.

Operator, Operator

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