Mama’s Creations, Inc. (NASDAQ:MAMA) Q4 2024 Earnings Call Transcript

Mama's Creations, Inc. (NASDAQ:MAMA) Q4 2024 Earnings Call Transcript April 24, 2024

Mama's Creations, Inc. beats earnings expectations. Reported EPS is $0.04, expectations were $0.03. Mama's Creations, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, ladies and gentlemen and thank you for standing by. Welcome to Mama’s Creations Fourth Quarter and Fiscal Year 2024 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 April 24, 2024, and the earnings press release accompanying this conference call was issued after the market close today. On our call today is Mama’s Creations’ Chairman and CEO, Adam L. Michaels; and CFO, Anthony Gruber. Before we get started, I’d read a disclaimer about forward-looking statements. This conference call may contain, in addition to historical information, forward-looking statements within the meanings of federal securities laws regarding Mama’s Creations.

Forward-looking statements include, but are not limited to, statements that express the Company’s intentions, beliefs, expectations, strategies, predictions or any other statements relating to its future earnings, activities, events or conditions. These statements are based on current expectations, estimates and projections about the Company’s business base in part on assumptions made by Management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may and are likely to differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors discussed from time-to-time in this report and in other documents, which the Company files with the 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. Throughout today’s call, the Company may refer to adjusted EBITDA, a non-GAAP financial measure, which it believes better reflects the performance of the business on an ongoing basis. A reconciliation of adjusted EBITDA to its most directly comparable GAAP financial measure is included in today’s earnings release, which is available on the Mama’s Creations website under the Investors tab.

And finally, this conference call contains time-sensitive information that reflects management’s best analysis only as of the date and time of this conference call. The Company does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of this conference call. And at this time, I’d like to turn the floor over to Chairman and CEO, Adam L. Michaels. Adam, the floor is yours.

Adam L. Michaels: Thank you, operator, and thank you to everyone for joining us today. I’d like to welcome you to our fourth quarter and fiscal year ‘24 financial results conference call. The fourth quarter saw a robust set of results in what is typically a seasonally slower quarter, highlighted by 17% revenue growth, a testament to our focus on driving long-term profitable growth. At its core, our goal of becoming a national one-stop shop deli solution is a direct reflection of a purposeful and patient plan to capture what is a generational change in our consumer preferences. A recent Market Force survey showed that more than 70% of consumers purchased prepared foods in the last 90 days, reflecting a busier lifestyle and tighter budgets due to ongoing food inflation.

A closeup of an attractive plate with a variety of healthy and delicious options offered by the company.

It's been 30 years since food ate up this much of consumers' incomes and with that, 43% of surveyed consumers are cutting back on restaurant meals, and the frequency of trips to the deli section of the grocery store are increasing. The deli prepared food space is one of the few areas of the grocery store increasing not just dollars, but also in volume terms. This has made deli prepared foods an attractive alternative to restaurants, requiring little to no preparation for what is, in our case, a high-quality meal made with simple ingredients your children can pronounce, at an attractive price point. Grocery stores are taking notice and expanding their deli prepared food sections, both in terms of in-store footprint and product selection, leading to the rise of the grocerant, a play-on words for grocery stores that are effectively becoming restaurant competitors through a growing grab-and-go food selection.

About two-thirds of grocery industry executives polled by Deloitte saying that the fresh department is the most strategically important area for their sales growth during the next 12 months to 36 months and per a recent IRI Circana study, the number of new buyers of deli entree chicken products, our biggest business line today, is up 113% since the pandemic, with more than $200 million of increased sales. That's just one example of how the deli is growing. Circana, like many other firms, expect deli to outperform total food and beverage volume growth in the year ahead, but growing a deli case as a grocer isn't always easy. There are many fragmented regional deli prepared food vendors today who focus on narrow niches within the space, creating increased work for the grocer buyer to manage trucks, orders, promotions, just to name a few.

A one-stop shop national player is needed and since we started our journey 18 short months ago, our approach has been highly appreciated and welcomed. So the opportunity we are facing is clearly significant. We're in the right place at the right time and with the right product portfolio. The Mama's Creations product offerings is, in my opinion, second to none in variety, quality and service. Grocers are recognizing that. So to me, Mama's was clearly the right vehicle to address this incredible opportunity. So, when I stepped into the CEO role in September 2022, our operations lacked the discipline I believe we needed. With the formation of our initial 3C strategy, we immediately set out to improve our cost, controls and culture, areas that in my opinion required the most attention.

As we began to rebuild and strengthen the foundations of our business, we needed to go back to the proverbial gym and become brilliant at the basics. We quickly got to work, methodically addressing the biggest pain points across each of these areas and implementing key operational KPIs under the mantra of what gets measured, gets improved. The first was cost. Our gross margins were 11.9% in Q2 of fiscal '23 with significant potential that needed to be unlocked. The path to the approximate 30% gross margins we are realizing today took countless small improvements throughout the organization. From step change, freight and procurement efficiencies to implementing processes to reduce labor overtime, our operations run much more efficiently today than ever before.

The improved margins and cash flow are being directly and immediately put back into further investment in CapEx, which will further drive down COGS even more, creating a virtuous cycle of higher and higher gross margins. Second were our controls. We immediately hired a new, well-seasoned CFO in Anthony Gruber concurrent with my appointment, as well as a brilliant controller, Peter Monsch [ph], under him. I have been sharing with you over the past 12 months the successful implementation of our NetSuite ERP, providing unparalleled visibility to our business, improving pricing, margins, inventory management and so much more. We also perfected account receivable management, which has drastically shrunk our working capital requirements. All contracts are now reviewed by Anthony and his team, driving consistency, and I'm not ashamed to say, more favourable terms for Mamas.

The third C was culture, where we've implemented formalized HR processes for the first time, have formal employee handbooks in English and in Spanish, completed our first-ever performance management process, and the first-ever corporate-wide culture committee to ensure we are doing right by our employees at every level of the organization. My favourite most recently was the creation of our inaugural LOVE Awards, which stands for Living Our Values Every Day, helping to imbue every employee with the Mama's spirit. While I can tell you that it is personally rewarding to see our culture blossom and see the smile on our team's faces as I walk through our kitchens every day, I'm not doing this magnanimously. Our focus on culture is driving more production efficiency, higher retention, and higher quality of our products, because we're all pulling the wagon together.

As my mentor told me many years ago, culture trumps strategy every time. With the successful evolution of our finance operations and HR organizations underway and financial results reflecting it, we have put in place the processes and culture to begin to accelerate growth. At our Investor Day in East Rutherford in February, we announced the introduction of a fourth C, Catapult, representing the investments we are making today to grow the business profitably at a faster rate. We are achieving this Catapult in three ways. The first is through good old-fashioned sales leadership. We had a single dedicated sales employee when I began, growing to five today. The importance of this more robust sales organization as we enter this summer cannot be understated.

This is all in addition to our first ever online presence with our inaugural direct-to-consumer e-commerce website launched in November, further supplemented by a recent launch on Amazon.com. With our national physical footprint, coupled with our always-on online presence, our Mama's Beef and Chicken products are available 24-7, 365 to our consumers. The second is trade promotion, seeking to accelerate the velocities of our existing SKUs by driving trial and larger baskets. Combo buys with complimentary products, multi-buys of our family of products, and print and online circulars are just a few of the recent tactics we have used to deliver and then accelerate the growth you are seeing today and we are just getting started. Historically, our trade promotion efforts lack the discipline, formalized tracking, and a clear plan.

With the hiring of Nick Powers, our head of trade, strategy and execution, and our first ever trade promotion employee, we now have all three of those. In time, we hope to grow our trade promotion spend from low single-digit percentage of revenue today to over 10% in the long term, reinvesting our production efficiency gains above our target gross margin in the high 20s range into increased trade promotion, and therefore driving higher revenue growth in time. This is a high ROI activity for us, and we will be vigorously testing and learning. Another recent IRI report highlighted that since the pandemic, average promo lifts in the deli are up 19 points, from 46% in 2019 to 65% last year, reinforcing that this is exactly where we want to spend.

The third lever in Catapult is marketing. We hired Lauren Sella, our innovative Chief Marketing Officer, who I was fortunate to have worked alongside in my days at Mondelēz. In addition to strategic marketing activations, such as our radio features and our in-store advertising, we're enhancing our industry presence with a record attendance at industry conferences to put our products in front of buyers. Most recently, we gave away a year's supply of meatballs as part of a National Meatball Day, earning us incredible media mentions and inbound interest from consumers. With over 10,000 entries, we tripled our proprietary email list, quadrupled our Instagram followers for nearly no cost at all. Taking together, the goal of Catapult is to continue to drive up our average items carried, which stands at over seven items today from below five when I started, accelerating the existing velocities of our existing items and opening up new doors, building broad-based national distribution.

With our new team and capabilities, we increased the likelihood of opening up entirely new channels, whether that's the convenience channel, e-commerce channel or major retail customers, such as Walmart or Target. Opening these could be impactful to our growth trajectory, hence our strategic CapEx investments to prepare for whatever the future may hold. We're investing mid-single-digit millions in CapEx this year, already paid for and funded from cash flow from operations, with the goal of improving automation at both of our production facilities, while concurrently building new in-house capabilities earlier in the value chain. These investments, paired with ongoing operational improvements, have the potential to move our gross margins into the low 30% range over the long term, while concurrently growing our trade promotion investments from low single-digit percentage of revenue today towards our long-term goal of 10%.

As we continue to improve our internal processes firm-wide to become brilliant at the basics, while I am extraordinarily proud of this team, it is truly only the beginning. Together, we have quite a bit left to accomplish here. I firmly believe that we are building a more resilient and flexible organization that has the potential to deliver continued value creation to my fellow shareholders for years to come. With that, I'd now like to turn the call over to Anthony Gruber, our Chief Financial Officer, to walk through some key financial details from the fourth quarter and full year of fiscal 2024. Anthony?

Anthony Gruber: Thank you, Adam. Revenue for the fourth quarter of fiscal 2024 increased 17% to $26.7 million as compared to $22.8 million in the same year-ago quarter. Revenue for fiscal 2024 increased 11% to $103.3 million as compared to $93.2 million in the prior year. The increase was largely attributable to volume gains driven by same-customer cross-selling, effective trade and marketing promotion on existing SKUs to drive velocity gains and the acquisition of new customers. Gross profit increased 22%, $7.8 million or 29.3% of total revenues in the fourth quarter of fiscal 2024 as compared to $6.4 million or 28.2% of total revenues in the same year-ago quarter. Gross profit increased 56% to $30.3 million or 29.4% of total revenues in fiscal 2024 as compared to $19.4 million or 20.8% of total revenues in the prior year.

The increase in gross margin was primarily attributable to successful pricing actions, normalization of commodity costs and improvements in procurement, manufacturing and logistics efficiencies. While we have seen some commodity price increases as of late, particularly chicken, we have been very proactive in addressing this, accelerating our CapEx to improve labor efficiency and move away from third-party upcharges, requesting price increases with customers across the board and leveraging new suppliers to drive even further procurement efficiencies. These price increases, when paired with our efficiency gains through recent CapEx investments to improve chicken processing capabilities, should offset some of this impact. Operating expenses totalled $5.9 million in the fourth quarter of fiscal 2024 as compared to $4.5 million in the same year-ago quarter.

As a percentage of sales, operating expenses increased in the fourth quarter of 2024 to 21.9% from 19.9% in the same year-ago quarter. Operating expenses totalled $21.4 million in fiscal 2024 as compared to $16.6 million in fiscal 2023. As a percentage of sales, operating expenses increased in fiscal 2024 to 20.8% of sales as compared to 17.8% in the prior year. Operating expenses as a percentage of sales increased due to the addition of several new key hires who brought new and differentiated capabilities to the organization, as well as increased non-cash expenses, including depreciation, amortization and stock compensation expense. Net income for the fourth quarter of fiscal 2024 was $1.4 million or $0.04 per diluted share as compared to net income of $1.8 million or $0.06 per diluted share in the same year-ago quarter.

Net income for fiscal 2024 was $6.5 million or $0.17 per diluted share as compared to net income of $2.3 million or $0.06 per diluted share in the prior year. The fourth quarter's net income totalled 5.3% of revenue, in line with management expectations in the mid-single-digit range. The fourth quarter of fiscal year 2023 was positively impacted by a one-time book-to-tax adjustment that improved net income by approximately $0.5 million. Historical net operating losses are now fully drawn down, and the company has begun paying standard tax rates on net income. Adjusted EBITDA, a non-GAAP term, increased 22% to $2.9 million for the fourth quarter of fiscal 2024, as compared to $2.4 million in the same year-ago quarter. Adjusted EBITDA increased 161% to $11.7 million in fiscal 2024, as compared to $4.5 million in the prior year.

Cash and cash equivalents as of January 31, 2024, increased to $11 million, as compared to $4.4 million as of January 31, 2023. The increase in cash and cash equivalents was driven by $11.6 million in cash flow from operations in fiscal 2024, $3.3 million of which was used to pay down the company's debt. As of January 31, 2024, total debt stood at $8.7 million. This cash war chest, coupled with our favourable commercial lines of credit, reduced debt, and a stronger balance sheet is preparing us well for whatever inorganic opportunities proactively or reactively come our way. Looking ahead, we believe that our normalized gross margin profile, barring any minor commodity-related fluctuations, will continue to hover in the high 20% range. Our long-term goal, leveraging strategic CapEx investments, procurement efficiencies, and continuous operational improvements, would be targeting margins consistently maintained in the low 30% range, while right-sizing our trade promotion investments from low single-digit percent of revenue today, closer to our goal of 10%.

Turning to net income, while we continue to target mid-single-digit net income margins, our long-term goal would be to improve to approximately 10% with adjusted EBITDA margins in the teens percentage range. This completes my prepared comments. Now, before we begin our question-and-answer session, I'd like to turn the call back to Adam for some closing remarks. Adam?

Adam L. Michaels: Thank you, Anthony. Looking ahead, there's a compelling and growing opportunity in the deli space as consumer preferences shift towards fresh, deli-prepared foods. This is absolutely the right wave to ride. What you have seen us do in the past 18 months is strengthen and reinforce our boat and build an exceptional crew to sail these macro waves. We have several levers available to drive growth, from new SKUs and existing customers, to new Tier 1 customers and continued investments in marketing and trade promotion to increase velocities of our existing in-store items. These tailwinds, when paired with a robust landscape of attractively priced M&A opportunities, gives me confidence that Mama has the potential to serve as a consolidator in the fragmented prepared foods market and emerge as a leading one-stop shop deli solution nationally.

The fun has only just begun, and I look forward to speaking with you all in the year ahead. With that, I'll turn it over to the operator to begin our question-and-answer session. Operator?

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