The Real Good Food Company, Inc.

Greetings. Welcome to the Real Good Foods third quarter 2021 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Chris Bevanor. You may begin.

Good afternoon, and welcome to the Real Good Food Company's third quarter 2021 earnings conference call. On the call today is Brian Freeman, Executive Chairman, Gary Law, Chief Executive Officer, and Akshay Jagdali, Chief Financial Officer. You may access our third quarter earnings release which we publish at approximately 4.05 p.m. Eastern Time today. If you have not had a chance to review the release, it's available on the investors portion of our website at www.realgoodfoods.com. Before we begin, I'd like to remind everyone that certain statements made on this call are forward-looking statements within the meaning of federal security laws and are subject to considerable risks and uncertainties. These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements made on this call today other than statements of historical fact are forward-looking statements and include statements regarding our projected financial results including net sales, gross profit, gross margin, adjusted gross profit, adjusted gross margin and adjusted EBITDA, as well as our ability to increase our net sales from existing customers and acquire new customers, introduce new products, compete successfully in our industry, implement our growth strategy and effectively expand our manufacturing and production capacity. Forward-looking statements made on this call represent management's current expectations and are based on information available at the time such statements are made. Such statements involve a number of known and unknown uncertainties, many of which are outside of the company's control and can cause future results, performance or achievements to differ significantly from the results, performance or achievements expressed or implied by such forward-looking statements. Important factors and risks that could cause or contribute to such differences are detailed in the company's filings with the Securities and Exchange Commission. Except as required by law, the company undertakes no obligation to update any forward-looking or other statements herein, whether as a result of new information, future events or otherwise. In addition, throughout this discussion, we refer to certain non-GAAP financial measures which refer to results before taking into account certain one-time or non-recurring charges that are not core to our ongoing operating results and which we believe better reflect the performance of our business on an ongoing basis. Our non-GAAP financial measures include adjusted gross margin and adjusted EBITDA are referenced. A reconciliation of each non-GAAP financial measure to its most directly comparable GAAP financial measure is included in our Q3 earnings release, which is available on our website under the Investors tab. And with that, it is my pleasure to turn the call over to the Real Good Food Company's Executive Chairman, Brian Freeman.

Good afternoon, everyone. We appreciate you joining us on our first earnings call as a public company. It is nice to have the opportunity to meet many of you during the course of our roadshow. Jerry, Akshay, and I look forward to meeting more of you when we attend investor events in the coming weeks. As you're probably aware, last month, Real Good Foods completed an initial public offering, which was an important milestone for the company. The capital we raised from the IPO will provide the resources for long-term growth as we build and scale our business. I'd like to extend a special thanks to our passionate and dedicated team who made the IPO possible. Between our management and board of directors, we have assembled a leadership team with significant experience to scale this business. Finally, I want to stress that at Real Good Foods, we are executing what we believe is a robust long-term growth journey. And for that reason, we are providing 2021 and 2022 annual outlook and long-term financial targets, which Akshay will discuss in more detail. I will briefly review our first quarter financial highlights and discuss the key reasons we believe we're well positioned for long-term growth. Jerry will then cover innovation and our operations, and Akshay will then review our financial results in more detail, discuss our guidance and long-term financial targets. After that, we'll open the call up for your questions. So let's get into our three key results. We are pleased to report a strong third quarter. Sales increased 136% to 23 million compared to Q3 last year. We also saw positive trends in our key profit metrics. Adjusted gross profit margin increased over 400 basis points year-over-year. Adjusted EBITDA margins also improved on a year-over-year basis despite higher operating expenses owing to the growth investments we are making. Growth in the club channel accelerated this quarter despite lapping our entry a year ago. driven by best-in-class velocities and distribution gains. And our retail channel returned to growth this quarter, driven by exceptionally strong velocity gains in our core products. Although this quarter's results were at the high end of our preliminary estimate range and growth was strong, we are not satisfied. We're in the early stages of penetrating our total addressable market and are more aggressively addressing our goal to be at peer average gross margins. Now I'd like to take a few minutes to review our mission and highly differentiate a brand positioning. Our mission at Real Good Foods is to make craveable, nutritious comfort foods that are low in carbohydrates, higher in protein, and made from gluten and grain-free real ingredients, and make these items more accessible to everyone, improve human health, and in turn, improve the lives of millions of people. In other words, We're here to replace the sugar and carbohydrates that are in our favorite comfort foods with protein and do it in a delicious way that allows people to lead a healthier lifestyle by eating more of the foods they love. So to be clear, our brand stands for three things. One, real food. Each of the ingredients we use are not only clean and recognizable, but more importantly, they are what the consumer already has in their pantry or refrigerator, so they're relatable to everyone. loaded with protein. Each of our products is designed to be high in protein, and many of our products have as much as 2x more protein per serving than those of our competitor. And finally, number three, of course, low in carbohydrates. Many of our products have one-third the carbohydrates or even less than those of our competitors. And as a natural result of this grand promise, our products are grain-free and gluten-free, which is also important to our consumers who are looking to make healthier choices. We know that if we can deliver delicious, craveable food with these brand attributes, we're going to have a huge impact and hopefully change the world. Our mission means a lot to everyone inside Real Good Foods and our community of loyal consumers. And it also allows us to hire and attract like-minded people that care about what we're doing. So why does this matter? It matters because the Real Good Foods brand is addressing a huge and largely unmet consumer needs state. According to the CDC, approximately 13% of all U.S. adults are suffering from diabetes, 35% of U.S. adults are pre-diabetic, and 42% of us suffer from obesity. There are more than 100 million diabetic and pre-diabetic adults in the United States and over 100 million Americans who are considered obese. The American Diabetes Association recently reported that almost 40% of COVID deaths occurred with people who have type 1 or type 2 diabetes. There is a growing scientific consensus that lower carbohydrate intake can help reverse the trends of diabetes and obesity. This evidence is fueling consumer preferences for lower carb and sugar consumption. as well as higher protein content, all of which play to our strengths and constitute considerable tailwinds that we expect to help drive continued profitable growth. We compete in the $170 billion health and wellness industry, which is growing at 11% compound annual growth rate. We chose to enter the frozen food category first because it is ripe for disruption. Health and wellness products within the frozen food category represent only 16% of total category sales, compared to 23% on average across all categories in the grocery store, and 30% penetration in the refrigerated foods category. In other words, there are very few health and wellness options in the frozen food aisle, and we are here to change that. Our goal is to be the leading health and wellness brand within frozen. We expect over time the health and wellness frozen subcategory will continue to grow at a strong double-digit rate and outpace the overall frozen food category. And our brand strives to lead the charge to become a leading health and wellness brand in the category. So why are we winning? Our brand's highly differentiated positioning, our delicious products, the unique innovation model we leverage, the incrementality of our growth, and our digital activation model are the main reasons we are winning in the marketplace and will continue to do so. For example, during the 52-week period ending February 7, 2021, 90% of our growth in the breakfast category was incremental to the category. And this story holds true across our portfolio. In frozen entree bowls, 46% of our growth was incremental to the category. And in frozen prepared poultry, 82% of our growth was incremental to the category. We're driving incremental growth to the category and driving traffic for our retailer partners. In addition, today, Real Good Foods has the largest social media footprint in all of frozen food. For perspective, our social media footprint is larger than all ConAgra brands combined. Perhaps more compelling than our significant social media presence is our high level of engagement with our consumers. The average number of comments on each of our Instagram posts exceed any of the top seven health and wellness brands in our category by five times. This high level of engagement helps us cultivate and maintain authentic relationships with our consumer base and remain well attuned to our consumers' needs. I welcome you to begin following us on Instagram or other social media platforms and continue to engage with our community. Check out how we interact, our brand personality, and how passionate our community is about what we are doing. Our digital activation model is key to how we activate and drive demand to stores and one of the reasons our retailers continue to give us permission to grow our distribution across multiple categories. Moreover, digital remains critical to our strategy as click and collect shopping grows within retailers and fewer shoppers are setting foot in the store. Without a strong digital presence, consumers may not even know that a brand exists. Leveraging our digital activation model and allowing it to serve as a keystone in our business is a key advantage and reason for why we expect to continue to grow over the coming months and years. And now, I'd like to turn the call over to our CEO, Jerry Law, to review our innovation strategy and operations.