Stryve Foods, Inc. (NASDAQ:SNAX) Q1 2023 Earnings Call Transcript

Stryve Foods, Inc. (NASDAQ:SNAX) Q1 2023 Earnings Call Transcript May 15, 2023

Stryve Foods, Inc. beats earnings expectations. Reported EPS is $-0.14, expectations were $-0.16.

Operator: Good afternoon, ladies and gentlemen, and welcome to the Stryve Foods First Quarter Fiscal 2023 Financial Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct the question-and-answer session. [Operator Instructions] This call is being recorded on Monday, May 15, 2023. Now, I would like to turn the call over to Sandy Martin, Three Part Advisors to make introductions and read the Safe Harbor Statement. Please go ahead.

Sandy Martin: Thank you, operator, and welcome to the Stryve Foods first quarter earnings conference call. With me today are Stryve’s Chief Executive Officer, Chris Boever; and Chief Financial Officer, Alex Hawkins. Before we begin, I would like to remind everyone that part of our discussion today will include forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements, by their nature, are uncertain and outside of the company’s control. Actual results could differ materially from these expectations. These statements are not guarantees of future performance and, therefore, undue reliance should not be placed upon them. We do not undertake to update these forward-looking statements at a later date, and they refer only to today.

In addition, today’s call will include a discussion of non-GAAP financial measures, including adjusted EBITDA and adjusted EPS. Non-GAAP financial measures should be considered as a supplement to and not a substitute for GAAP financial measures. We refer you to the reconciliation of non-GAAP to the nearest GAAP measure included in today’s earnings press release for further detail. This call is being webcast and can be accessed through the audio link on the News and Events page of the Investors section at ir.stryve.com. Also, the earnings press release is posted on our website. With that, I would now like to turn the call over to Chris Boever. Chris?

Chris Boever: Thank you, Sandy, and welcome, and thank you for joining us for our first quarter earnings call. We reported our 2022 year-end results a few weeks ago where I detailed the progress of our transformation. The changes and improvements in strategy, structure, process, culture, and capabilities are mostly in our rear view. We are now executing against the sizable opportunities in front of us, advancing into the next phase of our plan, growth, which leads to profitability. Special thanks to my Stryve team members. Your commitment and efforts are appreciated and recognized. Since that earnings call, we have announced 2 important and meaningful accomplishments. First, the innovation launch for the Vacadillos brand, expanding our fast-growing lineup of Carne Seca, with a new flavor, Chipotle Honey.

We are also excited to be entering into the large and growing meat stick segment, with the fastest growing brand in the jerky segment, Vacadillos. Introducing two terrific offerings, Chili Lime and Habanero beef sticks. Vacadillos air dried sticks deliver important consumer benefits. Higher grams of protein than the category leader, no sugar, no preservatives, only ingredients that consumers can pronounce and they taste great. With these attributes, it’s no surprise that we now have a total of three flavors of Carne Seca and two beef sticks available at approximately 10,000, 7-Eleven and Speedway locations across the country. That’s about 80% of their footprint. Since the launch in mid-April, we are encouraged by the early indicators of the consumer response.

The second announcement on April 20 was the capital raise of $4.1 million. This was action to support our near-term distribution growth, shipping in Q2, driven by innovative platforms and extension, our full development partnership on the Stryve brand, our new brand positioning and packaging to complement our strategy along with an investment in quality. The portfolio has been rationalized and optimized. Simultaneously, we created and are now implementing and executing for strategic imperatives. We have been aggressively managing costs, investments, cash and more. Our performance management plan supports those objectives, goals, strategies and metrics and the organization is executing now as one team. Enterprise-wide alignment is a key component, as we become a true operating company.

I am very pleased about the response from our retail partners to our new category strategy, which is designed to expand and grow the category. Numerous distribution wins are being awarded across all classes of trade. I shared a slice of specific customer gains on the earnings release, those that are already in market. Numerous more have been awarded and the momentum is very encouraging. We will update as additional retailers add new and/or expand existing items to the category, once they are physically in-store. The proof points outlined for growth are real and meaningful. The opportunities are abundant. We will have many more to communicate throughout the quarter and beyond. The new strategy is working, and we are just getting started. We are focused on driving trial with strategic pricing, quality merchandising, in-store execution, labor-saving, retail-ready case pack, complementary marketing messages and display vehicles to include cause marketing initiatives with full divine patriotic pack.

We have built the foundation, and we have proven that we are focused on building a great company that is maniacally managing costs, driving productivity, improving cash consumption, expanding margins, investing for return and growing in a manner that will deliver profitability. Stryve 2.0 is addressing everything we do and how we do it. You are starting to see the impact, the changes are having in the numbers. Our thoughtful and planned approach to growth combined with the operational improvement is our recipe for success. The foundation we have built in just a few quarters, demonstrates that our simplified prioritize agenda, sequenced and executed was what was and is required to drive value to all stakeholders. We expect to grow at a rate well above the meat snack category with accelerating consumption, ultimately earning gains in market share.

We will not grow at all costs. We are partnering with retailers collaboratively to help them compete and grow their share. We will expand margins with operational improvements. We will keep cost down, and we are committed to deliver a profitable, innovative growing company with the very best tasting, better-for-you offering this category has ever seen. As we have previously shared, we have adopted a zero waste mantra. We now have several value-generating initiatives, where the team has discovered and implemented ways to eliminate and monetize the waste, providing solutions that enhance our economic outcomes and environmental impact. In addition to the Two Tails Pet Treats, we are now selling shelf-stable protein ingredients to manufacturers of Meals Ready to Eat kits, or MRE kits.

Both of these initiatives are supporting proof points that the new Stryve delivers against our commitments. Later this month marks my first year with Stryve. I have been a part of successful turnaround and have learned what is required to become a true operating company. The speed that, we have progressed and are executing on cost and cash management, productivity combined with optimizing the portfolio, which has included rationalization, renovation, and innovation has been truly impressive. We are delivering on each and everything, I said we would, since I started and outlined our new strategy. We continue to set new records for the company performance, and we have demonstrated that we will deliver on our commitment. Our first quarter was our third consecutive quarter of improved year-over-year operational and financial results with narrow losses and improved adjusted EBITDA.

We are reaffirming our net sales guidance for 2023 in a range of $28 million to $34 million. We will keep you informed as we accelerate performance and share the many more proof points that are in our future. Now, I will turn the call over to Alex.

Alex Hawkins: Thanks, Chris. As Chris shared, Q1 was our third consecutive quarter of improved year-over-year bottom line results and expanded margins, evidencing that our turnaround actions and process improvements have begun to take hold across the organization. With a significantly improved price value proposition on new products, repeatable operational processes, better procurement of direct materials, and improving yields, we believe we are building a more stable and sustainable operating company. As part of that, we have materially reduced cash operating expenses and narrowed losses again this quarter. We have also made further strides to establish a leaner, more productive organization with streamlined operations and better offerings, and we are well positioned to accelerate to profitability with the requisite growth in volumes.

We believe that the second quarter, although not there, will be an important proof point for the company as investors will begin to see what an impact increased volumes can have on our optimized fixed variable cost structure. As we messaged in our year-end call a few weeks ago, we believe many retailers managed down inventory levels over the winter and holiday periods with orders diverging from consumption. And as expected, we saw things to begin to normalize late in the first quarter. As Chris mentioned, we have seen positive traction with new distribution wins this year, which will be the primary driver of growth in our business for the foreseeable future, given that we are just beginning to scratch the surface of the retail market with our superior offerings.

We continue to believe that the second quarter will yield step function growth on a sequential basis due in large part to new distribution wins coming online. Let me now walk you through the financial results for Q1. Net sales were $4.6 million, compared to $7.4 million in the year ago quarter. These results are generally in line with what we expected for the first quarter, and we anticipate acceleration starting in the second quarter consistent with our guidance. Our gross profit for the quarter was $963,000 or 20.7% of net sales compared to gross profit of $1.1 million or 15.1% of net sales in the year ago quarter. This is evidence of our pricing and productivity agenda taking hold that despite our volumes, we’ve shown a 560 basis point improvement in our gross margin year-over-year.

Recall that we intentionally reduced our volume through our multifaceted rationalization program to refocus the company on its quality core revenue streams. We believe that Q2 will represent the turning point where the transformative changes show up meaningfully in the gross profit numbers as our volumes ramp significantly versus Q1. Operating expenses for the first quarter were $5.2 million, which compares favorably to the prior year Q1 of $8.3 million and sequentially from Q4 last year of $5.4 million. We continue to show progress in our cost elimination and mitigation strategies. We previously committed to you that we will remove 50% of operating expenses in the back half of 2022, which we actually exceeded and we have improved on that cost structure since those changes were made.

In addition, we kicked off a project to optimize our footprint throughout the organization, including the headquarters. More to come on that in future calls. The first quarter net loss was $4.6 million or $0.15 per share. This favorably compares to a net loss of $7.3 million or $0.25 per share in the prior year quarter. Our loss per share amounts were impacted by the change in weighted average shares outstanding from 29.8 million shares in last year’s first quarter to 31.3 million shares this year for Q1 The adjusted loss per share was $0.14 for the first quarter, which compares favorably to the adjusted loss per share of $0.23 in the year ago quarter. Finally, our adjusted EBITDA loss for the first quarter was $3.5 million, in line with Q4 of 2022, our lowest adjusted EBITDA quarter in the history of the company.

Q1’s $3.5 million compares favorably to the adjusted EBITDA loss of $6.3 million a year ago. You can find the GAAP to non-GAAP reconciliations at the end of today’s press release. Turning to our balance sheet and financial position. At the end of the first quarter, we had approximately $377,000 of cash and cash equivalents with positive net working capital, excluding cash and debt of $6.3 million with accounts receivable of $3 million and inventories of $8.3 million. Recall that we have a line of credit based on accounts receivable and inventory to further support our liquidity needs. Since putting this line in place last fall, we have actively managed our amounts drawn at any time to mitigate interest expense to the extent we could, only drawing what we need when we needed it.

As we discussed in our prior call, some substantial retail distribution wins for Q2 were secured because of our new products and packaging. Accordingly, while we continue to build up newly packaged inventory to support these resets, we trade through our existing inventory of legacy packaging, which helps to explain the steady inventory levels we see from Q4 2022 to Q1 2023, despite our initiatives to bring down our overall inventory levels. We anticipate that once this transition is complete, that our inventory levels will come down over the balance of the year. As Chris mentioned, we recently secured $4.1 million of debt financing for the near-term ramp in quality distribution. The $4.1 million financing is in the form of secured promissory notes subordinated to strive senior lenders and the notes accrue interest at a rate of 12%.

Each lender received warrants to purchase one share of Class A common per $0.5134 of principal outstanding for a total of approximately 7.95 million warrants that are legally exercisable at the strike price of $0.5134 per share and will expire in three years and three months from the date of issuance. Supported by this financing and our line of credit, with the acceleration of revenues, we expect cash consumption to decline, as we take steps toward a self-sustaining model. We continue to focus on carefully managing our cash and working capital as we judiciously oversee our business, executing with discipline and planning to continue to strictly manage liquidity. With respect to guidance for the year, we expect full year net sales to fall within a range of $28 million to $34 million, with our first quarter sales representing the low point for the fiscal year.

While top line results in that range will show mostly flat to modest growth overall, when comparing 2022 to 2023, recall, that our rationalized run rate sales base was estimated to be approximately $20 million at the end of Q4 of 2022. So that means with this guidance range, that we anticipate growing our quality core business by over 40% year-over-year in 2023. We continue to believe that we will drive meaningful improvements throughout our supply chain and as our plant volumes increased to support our distribution wins in Q2, we expect to see a several point improvement in our gross margins. And subject to any externalities, we expect that with consistent volumes and commodity pricing, gross margins continuing to scale into the mid-30s by year-end.

With that, I would like to turn it back to Chris.

Chris Boever: Thank you, Alex. We are pleased with our first quarter results, which gives us further confidence in our Stryve 2.0 plan and our progression of operational and financial improvements for 2023. We will gain awareness, trial and penetration with our simplified and clear demand generation strategy, a brand and channel segmented approach that amplifies our benefit, optimizes our priorities and delivers the consumer and shopper a more findable presence in-store with an improved experience at home or on the go. We expect Stryve to outperform the category in terms of growth. Thanks to our focus on branding, quality, productivity and execution. We’ve made significant progress on these initiatives that will be reflected in our growth rates moving forward.

Our promise is to deliver a profitable, innovative growth company, one that delivers better-for-you protein snacks in a responsible manner that delights our consumers, elaborates and executes with our retailers and delivers for our shareholders. As the largest individual shareholder, I am fully aligned with the Board and all Stryve stakeholders. My confidence is high and my commitment is unwavering. With that, I would like to open the line for questions. Operator?

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Q&A Session

Operator: Thank you. Ladies and gentlemen, we will now conduct the question-and-answer session. [Operator Instructions] Your first question comes from Alex Fuhrman with Craig-Hallum. Please go ahead.

Operator: [Operator Instructions] There are no further questions at this time. Chris Boever, please proceed.

Chris Boever: Thank you for your interest in our company. We look forward to providing an update of our progress on our second quarter results in a few short months. Have a great evening. Thank you.

Operator: Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.