Mama's Creations, Inc.

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to MAMAS Creations' third quarter fiscal 2025 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 16, 2024, and the earnings press release accompanying this conference call was issued after the market closed today. On our call today is MAMAS Creations Chairman and CEO Adam L. Michaels, and CFO Anthony Gruber. 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 federal securities laws regarding MAMA's creation. Forward-looking statements include, but are not limited to, statements that express the company's intentions, beliefs, expectations, strategies, predictions, or any other statements related 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 the foreligment statements due to numerous factors discussed from time to time in the company's 10-K 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 four leading 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 provides helpful information to investors about 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 Creation 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 call over to Chairman and CEO, Adam L. Michaels. Adam, the floor is yours.

Thank you, Operator, and thank you to everyone for joining us today. I'd like to welcome you to our third quarter fiscal 25 financial results conference call. The third quarter was highlighted by 10% broad-based revenue growth as we completed CapEx investments in our Farmerdale facility to double our chicken capacity, added world-class executive leadership, and a continued focus on our four Cs, cost, controls, culture, and catapult. Our goal to emerge as a leading one-stop-shop deli solution on a national scale is grounded in a purposeful, persistent, and patient strategic plan to capture What is a generational change in consumer preferences? Rising restaurant prices and inflation are bringing consumers back to the grocery store, but with higher expectations. They want an experience and to be excited about quality products across formats and flavors. In turn, grocery retailers have had to pivot quickly and differentiate to be able to cater to customers, including the introduction of new deli-prepared meals, the shelf space of which continues to expand. While Cercana forecasts volume growth in total retail food and beverage next year to be between 0% and 1%, Deli Prepared is growing at more than 5% today, and Mama's Creations is growing around 3x that fast, consistently and methodically gaining market share. So we are all in the right segment of the market with the right products at the right time. With this kind of growth, prepared foods have become the most important perimeter category for retailers and wholesalers. In a recent survey by Supermarket News, 66% of retailers and wholesalers said that they plan to increase their assortment of prepared foods in the year ahead, more than any other perimeter department. 38% of retailers and wholesalers said they plan to expand the space of their prepared foods, which was the most of any of the fresh departments. The plans to expand prepared foods can be explained very simply. It is grounded in the increasing sales and profitability of these areas of the store. 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 Mamas Creations product offering is, in my opinion, second to none in variety, quality, and service. Grocers are recognizing that. Since I joined as CEO in September of 2022, we have refocused to address this incredible opportunity. We formed an initial 3C strategy to improve our costs, controls, and culture, areas that, in my opinion, required the most attention. We rebuilt and strengthened the foundations of our business and became brilliant at the basics. We methodically addressed the biggest pain points across each of these areas and implemented key operational KPIs under the mantra of what gets measured gets improved. The first was cost. Our gross margins were 11.9% in the quarter ending July 31st, 2022, with significant potential that needs to be unlocked. The path to our targeted high 20% gross margin profile took countless small improvements throughout the organization. From step changes in freight and procurement efficiencies to implementing processes to reduce labor overtime, our operations run much more efficiently today than ever before. Being able to successfully navigate as we have recently seen with historically high chicken prices, commodity headwinds that may come our way. The improved margins and cash flow are being directly and immediately put back into further investment in CapEx, such as the grills we installed in our Farmingdale facility, doubling chicken capacity and increasing labor efficiencies through reduced overtime, creating a cycle of higher and higher gross margins. Beyond COGS, we're building new capabilities in-house, which has allowed us to wean ourselves off of the higher professional services and support we relied on in the past. Second, were our controls. I've been sharing with you over the past year the successful implementation of our NetSuite ERP system, providing unparalleled visibility to our business, improving pricing, margins, inventory management, and so much more. Just this quarter, we added new modules to our NetSuite system, including a warehouse management system, which is already delivering value, driving our inventory to its lowest level since our team came together, freeing up even more cash flow. New controls and quality are strengthening our policies and procedures, making us even prouder of our grandma quality manufacturing. Just recently, we added x-ray technology to our existing metal detection and are installing cutting edge PCR testing to ensure that what comes into our plant is as safe as possible. I want to share my congratulations to our teams across East Rutherford and Farmingdale facilities for successfully navigating our third-party audits this year, including two industry-recognized SQF audits, as well as two major customer audits. With scores of 97 and two 99s, we're incredibly proud of their accomplishments. That said, my mother did ask where that one outstanding point went. To further focus on our first two Cs, We recently completed the build-out of our industry-leading senior team. Chris Darling, our new chief commercial officer, brings over 20 years of experience in executive leadership from a storied career in the deli, where he led world-class commercial organizations at industry-leading firms such as Boar's Head, H-E-B, Ahold, and Albertsons. Most importantly, Chris knows how to build a national brand, and particularly in the prepared meals solution space. He has already picked up the ball and is leading our fiscal year 26 planning. Hold on tight. I'm not sure Chris has ever planned anything small. Chris joined Skip Tappan, our chief operating officer, an end-to-end supply chain leader bringing over 30 years of experience with Gordon Food Service, Walmart, Campbell's Soup, and Procter & Gamble. In his first few weeks here, Skip has already had a deep impact on our business. bringing much needed structure to our staffing models to minimize overtime, which we are now moving from two extended shifts to a three shift model, as well as implementing rigorous project management and KPIs to our growing operations and implementations. Most importantly, Skip has a great attitude and a hands-on approach to management, which has ingratiated himself quickly to the team. With our world-class leadership team now in place, we are better positioned to fully optimize operations, execute on our catapult growth strategy, and begin to more rigorously evaluate, acquire, and integrate potential future M&A opportunities. I cannot stress enough the quality of our team that we have for a company our size. We are truly blessed. The third C was culture, where we implemented formalized processes in a company-wide culture committee to ensure we are doing right by our employees at every level of the organization. Our team has a passion for learning, and everyone on our team is striving to do more. We just rolled out our second annual employee engagement survey and are excited to see the results next month. 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. With a successful evolution of our finance operations and HR organizations underway and financial results reflecting this, 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 in trade promotion and marketing that we are making to grow the business profitably at a faster rate. Our continued success demonstrates with some help from new stores, new items, and a little bit of trade rocket fuel, what type of growth is possible? With the hiring of Chris Darling, the build-out of our sales leadership team, our first catapult lever, is now complete. The sales team now works more seamlessly with their operations counterparts, and stronger demand and supply planning is enabling enhanced service levels and lower logistics costs. I am proud of how our new sales team has come together, and we are actively seeking out additional talent in areas that can step-change our growth. The team delivered this quarter in spades, nicely balancing across our three growth pillars, driving average items carried at existing customers, such as four new items at BJ's, driving velocities of existing items, such as the successful Publix PubSub program, and getting into new doors, such as our first orders at Walmart and our national buy at Costco, opening up the Texas region and the Southeast region for the first time. From a humble Northeast authentic Italian meatball company, in two short years, meatballs are no longer our biggest item sold. And as of this quarter, over 47% of our sales are west of the Ohio River. Our one-stop shop deli solution is not a mantra or a tagline for a stress ball. It is our new way of working. The second catapult lever is trade promotion. seeking to accelerate the velocities of our existing SKUs by driving trial in larger baskets. Combo buys with complementary 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 the growth we have seen this year. This quarter saw our trade spend nearly triple sequentially, anchored by strong ROI programs at Publix with their PubSub program, as well as digital coupon programs at BJ's. BJ's is a great example of a strong program ROIs, but even stronger stickiness. After our successful digital promotion, our weekly volumes have consistently stayed nearly 40% higher than the pre-programmed volume, even though we have stopped promoting. On Instacart, another example, our ROAS, which is return on advertising spend, is consistently over $5 and only getting better. While we are happy with the revenue part of a circular promo, We find an added benefit with this type of promotion. The stores are more vigilant about ensuring our products are on the shelves at all times, driving even further velocity. The third lever in Catapult, led by Lauren Sella, our CMO, is marketing, which saw a 75% increase in investment this quarter, reflecting returns and norms and correcting historical underinvestment in this area. We had a significant step up in media investment in Q3, supporting with search the rollout of our new Walmart items, as well as our BJ items. In addition, we invested in promoting our three-pound jumbo meatball sleeve as part of the Costco National Buy, as well as marketing our Mama Mancini branded meals in public stores. This media was precisely targeted to Costco shoppers in the National Buy regions, as well as shoppers around the public locations through social, programmatic, and search campaigns. With the Costco national buy, we also ramped up our Instacart presence, and an impressive 70% of the sales through the platform in the quarter were new to brand, helping to bring in new buyers to our portfolio. We're also thrilled to announce that Mama's is being recognized by the industry for our innovation, having received two additional traded innovation awards. Our on-the-go cups won the prepared foods award, Spirit of Innovation Awards in the Alternative Channel category, and our Retail Paninis received the Convenience Store News 2024 Best New Product Award in the Deli category. These awards not only drive awareness of those specific products, but also bring additional valuable trade visibility to Mama's Creations. As we discussed last quarter, we're continuing to drive our convenience store channel penetration. In October, We are first-time exhibitors at the National Association of Convenience Stores, NACS, trade show in Las Vegas. We saw a lot of positive response to our offerings and are continuing the discussions with potential retailers. 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 offset some of the commodity price fluctuations and ultimately 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%. After six long months of construction, I can now say our Farmingdale facility is construction hat-free. I will be the first to tell you that it did not go as planned, and we all learned a lot about town permitting, limited pride equipment providers have in their trade, and the quality of their installations. While there are so many things I'm excited about with the recent hiring of Skip, it's the structure and project management that Skip will bring to our next CapEx expansion that makes me feel even better about what's to come. But as they say, it is all behind us, and we continue to march forward. We now have two new grills in our Farmingdale facility. This doubles our chicken capacity, which will allow for higher labor efficiencies through reduced overtime, as previously our chicken grills were running effectively 20-plus hours a day. We also were able to upgrade our existing grills with new parts, which have increased their reliability substantially. In addition, the installation of additional chicken processing equipment insources key value-added services that are previously outsourced, lowering our cost of goods. And in the case of chicken, it has the potential to lower our costs by close to a full dollar per pound and improve margins of what remains a difficult commodity environment with chicken prices still nearly 50% higher year over year. We have been learning how to effectively trim our chicken, balance sales of the various chicken output cuts to maximize how much we can trim, and expect it to start to make a more meaningful impact in our margin profile early next year. That being said, nothing worth doing is easy, and the installation of these new chicken grills were no different. As previously discussed, the conclusion of significant construction at Farmingdale bled into the first half of the third quarter. While it is now complete, that pain impacted margins by about 400 basis points in the third quarter, with all construction now completed. The team has already done a great job bouncing back, and results from November have already seen this impact being fully reversed. These CapEx investments are incredibly important, given the commodity pressures we're seeing today. From jumbo chicken breasts that were on the market for about $1 per pound in January to a recent high over the summer of $2 a pound, it is now stabilizing around $1.50 a pound, still nearly 50% higher than prior year at this time. We've been incredibly proactive and aggressive in addressing these trends through the aforementioned CapEx investments, labor management improvements, and successful pricing actions across the board, with only a select few necessary pricing actions remaining, which will help us to weather the worst of future storms. While we may be fairly differentiated in our ability to maintain relative margin strength in this unprecedented commodity cost environment, our retailer partners are well aware of these pressures and have been understanding of what is needed to combat these industry-wide headwinds. As we continue to improve and build on our four Cs, I am incredibly proud of our team's accomplishments and believe we are only at the beginning of our journey. In 2023, we built the foundation of a more resilient and flexible organization. And now, in 2024, we are investing in the CapEx upon this foundation. Position us for a high level of purposeful and profitable growth in the year ahead as we strive to create sustainable long-term value for our fellow shareholders 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 for the third quarter of fiscal 25 Anthony Thank You Adam

Revenue for the third quarter of fiscal 2025 increased 10% to $31.5 million as compared to $28.7 million in the same year-ago quarter. The increase was largely attributable to successful pricing actions as well as volume gains driven by increased demand, successful trade promotions, same-customer cross-selling of new items, and new customer door expansions. While we continue to take appropriate pricing actions, still over 90% of our growth is volume-driven. We have continued to gain share in all nine quarters since this team has been together. Gross profit totaled $7.1 million, or 22.6% of total revenues, in the third quarter of fiscal 2025, as compared to $8.6 million, or 30.1% of total revenues in the same year-ago quarter. The difference in gross margin was primarily attributable to significant commodity cost increases from historical averages, as well as non-recurring impact from construction surrounding the now-completed installation of strategic CapEx projects at the company's Farmingdale facility. Management estimates construction pressures negatively impacted corporate margins by approximately 400 basis points with additional pressures coming from chicken pricing. These construction challenges are now firmly behind us as we saw a step change improvement in our preliminary unaudited November gross margin profile, fully reversing the construction headwinds seen in Q3 with significant room for further growth. Operating expenses were $6.6 million in the third quarter of fiscal 2025, as compared to $5.9 million in the same year-ago quarter. As a percentage of sales, operating expenses were 20.8% as compared to 20.7% in the same year-ago quarter. Operating expenses as a percentage of sales were relatively flat, driven by further freight efficiency improvements of an additional 90 basis points versus prior year, offset by a 75% increase in marketing spend versus prior year, an area of historical underinvestment to help drive repeatable and profitable growth. Net income for the third quarter of fiscal 2025 totaled $0.4 million, or $0.01 per diluted share, as compared to net income of $2 million, or $0.05 per diluted share, in the same year-ago quarter. Third quarter net income totaled 1.3% of revenue as compared to 7% in the same year-ago quarter. Adjusted EBITDA, a non-GAAP measure, totaled $1.7 million for the third quarter of fiscal 25 as compared to $3.5 million in the same year-ago quarter. Cash and cash equivalents as of October 31st, 2024 totaled $9.3 million as compared to $11 million as of January 31st, 2024. The change in cash and cash equivalents was primarily driven by $5 million in capital investments and $2.5 million of debt pay down year to date. Partially offset by working capital improvements, as third quarter cash flow from operations increased 23.7% year over year. As of October 31st, 2024, total debt stood at $6.3 million. This cash war chest, coupled with our 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, not including major commodity 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 low single-digit percent of revenue today, closer to our goal of 10%. Turning to adjusted EBITDA, our long-term goal is to achieve adjusted EBITDA margins in the team's 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.