Mama’s Creations, Inc. (NASDAQ:MAMA) Q3 2024 Earnings Call Transcript

Mama’s Creations, Inc. (NASDAQ:MAMA) Q3 2024 Earnings Call Transcript December 12, 2023

Mama’s Creations, Inc. beats earnings expectations. Reported EPS is $0.05, expectations were $0.04.

Operator: Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Mama’s Creations Third Quarter Fiscal 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 December 12, 2023, 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 the 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. In addition, 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. 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 third quarter fiscal ‘24 financial results conference call. I’m very excited to be speaking with you all today, coming out of what was another strong quarter of consistently improving top and bottom line growth, representing even more evidence of what we believe is Mama’s true potential over the long term. We continued our reliable cadence of operational execution in the third quarter with strong double digit revenue growth and the year-over-year expansion of our gross margin profile by 460 basis points to 30.1%, validating our strategy and internal focus on our 3 Cs: Cost, Controls, and Culture. Both revenue and net income were up over 15% consecutively from the second quarter of fiscal ‘24, and we are now beginning to see the cumulative results from our efforts over the last year, ranging from our acquisition of CIF to formalizing and improving countless processes throughout the Company.

Taken together, I believe we remain on track to continue our cadence of planned, persistent, and profitable growth in the years to come. Our team has worked together to drive a significant turnaround in the business in the last year, changing everything, but no, including the name. We made countless small changes at every level of the Company, from operations, to logistics, to administration, implementing operational KPIs under the mantra of ‘what gets measured gets improved’. The results can be clearly seen in our gross margin profile, which improved from 11.9% in Q2 fiscal ‘23 to 30.1% today, as well as in our bottom line with our net income transforming from negative $700,000 in Q2 fiscal ‘23 to over $2 million today. Looking ahead into the next fiscal year, we see even more opportunities to further margin enhancement, particularly by leveraging strategic CapEx investments to build new in-house capabilities earlier in the value chain, improving automation at our production facilities and further building the capacity to support potential new Tier 1 national customers.

Taken together these initiatives will position us to invest surplus gross margin to into higher and more profitable trade promotion, which will serve as the rocket fuel for the next leg in our revenue growth trajectory. Early tests in trade promotion have driven promising results, and we look forward to right sizing our trade promotion investments in the quarters to come. At its core, our strategy and growth are being fueled by macro trends that continue to point in our favor. We are well positioned to capture share driven by the rapid shift in consumer preference towards deli prepared foods, which as a sector continued to grow in both price and volume. With the effects of the pandemic normalizing, food retailers are now investing heavily to increase space for the fresh-prepared, grab-and-go options, to differentiate themselves and appeal to the next generation of shoppers, capturing share from restaurants with healthy, high quality meals and creative new flavors at a favorable price point relative to takeout.

Research from the Food Marketing Institute, FMI reports Gen Zers and millennials consume grocery deli prepared foods more often, and both report they expect to increase food service purchases in the future. More than half of shoppers recently surveyed say grocery deli prepared foods represent a good value compared to eating out at a quick service or fast casual restaurant or ordering takeout. Grocers have noticed this undeniable macro trend with 64% of grocery executives polled by Deloitte, saying that the fresh department is the most strategically important area for their sales growth during the next 12 to 36 months, with FMI reporting that three quarters of food retailers are planning to increase the space they allocate to food service. In-home dining has become a source of respite for our consumers seeking to avoid the ever present impacts of inflation, with trailing 12 months in-home food inflation running at 2.1% as compared to more than double that at 5.4% for out-of-home occasions, all on top of what has already been aggressive inflation since COVID began.

We firmly believe prepared foods will continue to grow and take market share from the frozen, center aisle, and especially out-of-home occasions, creating a generational opportunity for deli prepared foods providers such as Mama’s Creations. As I’ve said before, realizing our goal of shaping Mama’s Creations into a one-stop shop for deli prepared foods has required a step change in our corporate structure in many ways. Throughout the third quarter, we remained laser-focused on the continuous foundational improvement of our 3 C strategy: Cost, Controls and Culture. Starting with cost. As is plainly visible in our margin profile, our new approach to cost management has driven noticeable savings across the organization, which has enabled our gross margin to grow from 12% when I started to this 30% range as you saw today.

Our new ability to load share and produce leading products across our two facilities rather than having them each single sourced has established the framework to enable a much greater level of flexibility and agility that will ultimately provide us with both redundancy in production and lower costs. In addition, our significant investments in automation will position us to grow production capacity to support anticipated future Tier 1 customer wins, as well as to notably enhance margins which ultimately positions us to reinvest those gains in trade promotion, the rocket fuel for our growth. We are already harvesting the fruits or shall I say, proteins of our labor. For example, our gross margin saw an over 300 basis-point improvement year-over-year through significant procurement efficiencies, a further nearly 200 basis points through labor efficiencies as load sharing between facilities helped to drive reduced overtime.

While most other companies would be ecstatic for such results, our team only sees it as justification to double down on our 3 C strategy to capture more savings for us to reinvest. On the controls front, I’m proud to say that we delivered on time, in full with the transitioning of our T&L Creative Salads division over to our NetSuite ERP system. This means that our full company is now on the NetSuite platform, providing us with a vastly improved degree of actionable insights into the details of our operations. While not as sexy, we also implemented our new SEC reporting systems, Workiva, which automates processing, allows us to close our books faster and frees up our finance team to focus on more value-added activities. Having our financial, operational and sales analytics at the touch of a button is truly transformational, something we saw after integrating NetSuite at MamaMancini’s and Olive Branch.

As I’ve said before, what gets measured gets improved. We have proven it together over the past several quarters and these analytical capabilities that we are investing in in-house will continue to pay dividends for years to come. Another form of proof of our strategy comes from the response of our customers to our products. We recently heard from our QVC customers who once again voted MamaMancini’s products as number one in the “I Could Eat This Everyday, “Best Sauce” and “Best Smart Swap” categories during the recent 2023 QVC Customer Choice Food Awards. It is truly an honor to receive this level of recognition for the fifth year in a row, beating out countless superb food products offered on QVC, a testament to the joy of our products continue to bring to our QVC loyal consumers.

QVC continues to be a tremendous, profitable and incremental channel for us, which also serves as an efficient R&D and innovation real-time testing platform. Finally and most importantly, I am proudest of the cultural evolution my teammates and I are creating. This quarter, we launched our first-ever employee engagement survey with an impressive 80% participation rate. I have seen early results with our amazing VP of HR, Abbey Meeks, and she is already sharing with our leadership team the three specific actions we are going to commit to for our people. Abbey also helped us implement our first-ever performance management system. I was lucky enough to have a mentor early in my career, Jon Katzenbach, and he taught me that you can’t change your culture, you change behaviors and behavioral change leads to cultural change.

I am living that with my 250 colleagues every day at Mama’s, and I couldn’t be more excited for the renewed culture we are building together. We continue to invest in our people to further grow capabilities. And while not every hire gets a press release, we had several exciting appointments recently. Concurrent with the retirement of COO, Matt Brown, at the end of fiscal third quarter, we announced the planned evolution of our leadership team with two new Vice President of Operation appointments. Eric Felice was promoted to the role of Vice President of Operations, East Rutherford. Eric maintains over 25 years of operational experience, including over 10 years managing operations at our facility in East Rutherford, New Jersey. In addition, Ray Geer was promoted to the role of Vice President of Operations, Farmingdale.

Ray draws on over 30 years of operations experience, including nearly 10 years managing operations at our facility in Farmingdale, New York. I am fully confident that these tested leaders now managing operations, further supported by the superbly talented T&L Creative Salads Founder, Anthony Morello, and our tenured Chief Administrative Officer, Steve Burns, that we are well positioned to continue to realize exciting new operational synergies between our new facilities. I want to share congratulations to Eric and Ray, and thank Anthony and Steve for their continued leadership. With the successful evolution of our finance and operations organization, I committed to my fellow shareholders that building our sales and marketing organization would be our next area of focus.

I am proud to report that we again are successfully building differentiated capabilities ahead of schedule. We have nearly completed the build-out of our sales organization, growing from a single dedicated sales employee to five today, further supported by our Chief Marketing Officer and Head of Trade Strategy and Execution. Together, their goal is to continue to drive up our average items carried, accelerate our existing velocities and open new doors, building broad-based distribution. With our new team and capabilities, we increased the likelihood of opening up entirely new channels, whether that is the convenience channel, e-commerce channel, our major mass retailers such as Walmart or Target, opening these will be impactful to our growth trajectory, hence, our strategic CapEx investments to prepare for whatever the future may hold.

In summary, I firmly believe that we are well positioned to leverage the build-out of our supercharged sales team and a compelling product portfolio to take market share, continue to grow our SKUs per customer and ultimately become the premier one-stop shop deli solution provider in the United States. As we continue to improve our internal processes firm-wide to become brilliant at the basics we are building a more resilient and flexible organization that I believe can deliver sustainable value to our fellow shareholders for years to come. With that, I’d like to turn the call over to Anthony Gruber, our Chief Financial Officer, to walk through some key financial details for the third quarter of fiscal ‘24. Anthony?

Anthony Gruber: Thank you, Adam. Revenue for the third quarter of fiscal 2024 increased 11.5%, $28.7 million as compared to $25.7 million in the same year-ago quarter. The increase was largely attributable to volume gains driven by same-customer cross-selling, the acquisition of new customers and successful pricing actions. Gross profit increased 31.6% to $8.6 million, or 30.1% of total revenues, in the third quarter of fiscal 2024, as compared to $6.6 million, or 25.5% of total revenues, in the same year-ago quarter. The increase in gross margin was primarily attributable to successful pricing actions, the normalization of commodity costs and improvements in procurement, manufacturing and logistics efficiencies. Operating expenses totaled $5.9 million in the third quarter of fiscal 2024, as compared to $5.1 million in the same year-ago quarter.

As a percentage of sales, operating expenses increased in the third quarter of fiscal 2024 to 20.7% from 19.7%. 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. This figure includes a tripling of our marketing expenditures this quarter as we achieved many firsts for the Company and build out a best-in-class marketing program. Net income for the third quarter of fiscal 2024 increased 83% to $2 million or $0.05 per diluted share, as compared to a net income of $1.1 million or $0.03 per diluted share in the same year ago quarter. This quarter’s net income totaled 7% of revenue, in line with management expectations in the mid-single-digit range.

Adjusted EBITDA, a non-GAAP term, increased 67.6% to $3.5 million for the third quarter of fiscal 2024, as compared to an adjusted EBITDA of $2.1 million in the same year-ago quarter. Cash and cash equivalents as of October 31, 2023, were $5.6 million as compared to $4.4 million as of January 31, 2023. The increase in cash and cash equivalents was driven by $1.5 million in cash flow from operations in the third quarter of fiscal 2024, $1 million of which was used to pay down the Company’s debt. As of October 31, 2023, total debt stood just under $10 million. Looking ahead, we believe that our normalized gross margin profile will continue to hover in the high-20% range. Our long-term goal, leveraging strategic CapEx investments, procurement efficiencies and continuous operational efficiencies would be targeting margins consistently maintained in the low-30% range, while rightsizing our trade promotion investments.

One fact that I’d like to call out that we are quite proud of, is that top of the — on top of the 460 basis-point improvement in gross margins, we still were able to double our trade investment in the quarter. 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 for 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. Our ambition is to fortify and expand upon the robust groundwork and strategy presented here today, positioning us to continue to drive profitable growth and margin expansion. We will seek to reinvest our surplus gross margins as rocket fuel for our trade promotion budget, which we expect will ultimately snowball into increasingly robust revenue growth. Looking ahead, our near-term sales goals will be achieved by launching highly incremental products to further increase the SKUs per customer, introducing our products to new Tier 1 customers via our supercharged sales team, putting in place high ROI trade promotion programs to accelerate existing product velocities and further enhancing our margin through continuous operational improvements at every level of the organization.

We believe that this approach will not only position Mama’s Creations as a one-stop shop deli solution provider but drive sustainable shareholder value creation over the long term. With that, I’ll turn it over to the operator to begin our question-and-answer session. Operator?

See also 30 Most Peaceful Countries in the World Heading into 2024 and 20 Best Vodkas for a Moscow Mule.

Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of Ryan Meyers with Lake Street Capital. Please proceed with your question.

Ryan Meyers: Hey guys. Thanks for taking my questions. Congrats on another solid quarter. Obviously, it looks like we saw sequential revenue growth once again, along with sequential EBITDA growth. Just wondering if you can comment on how we should be thinking about Q4 and what sort of seasonality we should be expecting?

Adam L. Michaels: Yes. Thanks, Ryan. Great team effort. Yes, I think like we spoke about last year and before Q4 is usually our softest quarter. So I think not many people are shopping on Thanksgiving Day and Christmas Day, and hopefully, people get to take some vacation. So, we do know, like you saw last year, it tends to be a little softer. I think we’re still shooting for — we said we’re going to continue to grow faster than the market and continue to gain share. We’re seeing that in the high single digits now between all of that, and we think we could continue to beat that.

Ryan Meyers: Got it. That’s helpful. And then just wondering if you can comment a little bit more on the new sales hire, what kind of productivity have you seen out of them, and then maybe if you can quantify how much new business they generated during the quarter? And then, if you have any sort of comments on how much business you think they can generate next year, whether it’s in terms of new customers or just overall revenue growth, it would be helpful to understand.

Adam L. Michaels: No, it’s actually incredible, Ryan. I wish everybody on this call could have joined me. So last week, we had our sales meeting. Our entire sales team and the extended team got together to plan out next year and talk about customers. It was — yes, you’re going to ask the questions about the numbers, and I’m totally great with that, and I’ll answer that, but it’s the culture, the energy that we’ve never had before. Literally, when I started, we had one salesperson. So, that was great and to see that excitement. From what’s going to happen, everything is going to happen. So brought in this great guy, Art, who has lived his whole life in the C store. We have a whopping total of $0 in the C store, we’re going to open that up next year, Andrew, with e-commerce, the work that Lauren Sella is overseeing in all of our marketing efforts.

These are real capabilities that we’ve never had before as a company, and I expect to see significant growth next year. Again, I continue to believe we’re going to [Technical Difficulty] is and continue to grow share. These folks are going to help us do that more confidently and at a higher rate than we would have without them. So new customers, new channels are going to be incredible. And again, Nick, who is leading all of our trade programming, we didn’t have those capabilities before. The level of analysis we’re doing now on ROIs on every single program we’re doing is unheard of in this company [Technical Difficulty]. So we know exactly what we’re doing. We know what to do more of, and equally because you’re not going to get it all right.

If you get it all right, you’re not trying hard enough. We know which ones aren’t going to work and why we’re not going to double down on them next year. So, it’s been perfect. It has actually exceeded my expectations, this whole sales team coming together, and I love it.

Ryan Meyers: That’s great to hear. And then last question for me. I know average SKU per customer was 7 last quarter. Did that trend higher during the quarter? And what is that currently standing at?

Adam L. Michaels: Yes, it’s good. So a year ago this time, it was at 6. We actually got it up to — it’s a little over 7 now. So what’s happening is we’re seeing new customers come in. You know when new customers come in — remember, this is a weighted average. So when a new customer comes in and like we said, they usually come in with just a couple of SKUs, ironically, that suppresses the average items carried. And even we overcame that and still got over 7 for that. The other thing is some of the customers that did really well this quarter tended to have fewer items because they had much more volume to it. But we continue to make progress. We did better than we did before, and I expect to do even more with our new sales team.

Operator: Our next question comes from the line of Eric Des Lauriers with Craig Hallum. Please proceed with your question.

Eric Des Lauriers: Great. Thank you for taking my questions. And congrats on another really impressive quarter here. My first question is a bit of a follow-up to the last question. So, we’ve seen year-over-year revenue growth accelerate from 5.9% in Q1 to now 11.5% in Q3. I was wondering if you could just help us understand the drivers of that acceleration. Obviously, there’s a number of things going on here. Presumably, increasing SKUs per store is having the biggest impact there. But if you could just kind of help flesh that out a bit? Are there any sort of velocity changes or new geographies to call out in addition to the increasing SKUs per store? Thanks.

Adam L. Michaels: Yes, absolutely. So, a couple of things. So first, what’s great is both of our major businesses, right, the legacy Mancini business and the new Creative Salads business, both of them grew double digits, which was great. So this is a — we’re all rowing the boat together. That was great to see. Actually, a super majority of the growth was volume-driven, which is awesome. So I was really happy to see that. So this is actual real sales. This is not a pricing thing, even though we were able to improve our gross margins in price. So we saw that as well. We did get to see great new customers that brought in, one that I’m really excited about, that I’m sure you guys know Albertsons. We just opened up a whole new division in North Cal, which is one of their biggest divisions with some of our chicken products.