The Real Good Food Company, Inc.

Greetings and welcome to the Real Good Foods fourth quarter and full year 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Chris Bebinar, Investor Relations for Real Good Foods. Thank you. You may begin.

Good morning and welcome to the Real Good Food Company's fourth quarter 2021 earnings conference call. On the call today is Brian Freeman, Executive Chairman, Jerry Law, Chief Executive Officer, and Akshay Jagdale, Chief Financial Officer. You may access our fourth quarter earnings release, which we published at approximately 7 a.m. Eastern time today. If you've not had a chance to review the release, it's available on the investors portion of our website at www.realgoodfood.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 securities 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 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 Security 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 referred 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, including 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 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.

Hey, thanks, Chris. Good morning, everyone. We appreciate you joining us on our fourth quarter earnings call. Today, I will briefly review our fourth quarter financial highlights and discuss the key reasons we believe we're well positioned for long-term growth. Jerry will cover 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 up the call for your questions. Let's get into it. Starting with our financial highlights, we ended 2021 with strong financial results. Sales increased 129% to $25.6 million compared to the fourth quarter last year. We had strong growth in the club channel this quarter despite lapping our entry a year ago, driven by best in class velocities and distribution gains. And our retail channel growth continued to accelerate, growing by 105% this quarter, driven by exceptionally strong velocity gains in our core products and new customer wins. We also saw positive trends in our key profit metrics. Adjusted gross profit margin increased 120 basis points year-over-year and went up sequentially. Adjusted EBITDA margins also improved on a year-over-year basis despite higher operating expenses owing to the growth investments we are making. Although this quarter's results were in line with our guidance and growth was strong, we're not satisfied. we're in the early stages of penetrating our total addressable market and have more aggressively addressed our goal to be at pure average margins. As a result of this greater focus on margins, in part enabled by our investment in Bolingbroke, we have pulled forward our goal to be EBITDA positive by 12 months and have raised our EBITDA guidance for 2022. Moreover, we are doing this without sacrificing growth with our revenue guidance also increasing to 2022 and beyond. For 2022, we now expect revenue in the range of $140 to $150 million and expect first quarter revenue to be between $33 and $35 million. Akshay will go into greater detail in a few minutes. As you can see from our fourth quarter results and guidance, our growth is accelerating. Keeping up with demand for a brand has been one of our biggest challenges, and we believe we are still in the early stages of a robust long-term growth journey. We believe our brand has the potential to get to $500 million in sales and are updating our long-term guidance to reflect the same. What gives us conviction about this outlook are the positive trends we see with our four brand health indicators. These indicators are social community growth and engagement, household penetration, repurchase rates, and velocity. The Real Good Foods social community continued to grow. I've said in the past the sheer number of RGF followers is more than all of Nestle's frozen brands or all ConAgra brands combined, and we are growing. But besides scale, engagement is important. During the period, we saw recent Instagram posts attracting thousands of comments across more than 410,000 of our followers in the first few hours of posting. The average number of comments on each of our Instagram posts exceeds any of the top seven health and wellness brands in our category by five times. Our social media footprint allows us to connect with consumers and drive demand to the shelf, which leads to greater household penetration. For household penetration, according to Numerator, the Real Good Foods brand has a household penetration of 7.4%, almost double from a year ago. This is approximately one in every 13 U.S. households has our product. In fact, our household penetration now ranks number two amongst all health and wellness frozen brands, behind only to Amy's, which, by the way, is over a $500 million brand at retail. Keep in mind, we're only a little more than five years since our founding, and to be at these levels of household penetration is something we are proud of and speaks to the differentiated nature of our brand positioning and marketing. And despite rapidly growing household penetration, our repurchase rates are at 33%, which is in line with our peers. And finally, our velocity metrics are exceeding our expectations. According to SPINs, over the four-week period entering February 20th, Real Good Foods brand retail sales grew 73% year-over-year, which is an acceleration compared to 68% over the 12-week period and 22% over the last 52-week period. Growth is being driven primarily by baseline velocity growth and growth in core items. It should also be noted that our velocity growth in the first quarter occurred while we took pricing action. As such, thus far, we have not seen any negative impact to demand-related price elasticity. These strong brand health metrics are contributing to strong sales growth in retail takeaways. It is because of these brand health indicators that we have made the investment to increase capacity with our new manufacturing facility in Bolingbrook, Illinois. I'm happy to announce the facility is expected to start on time with production commencing later this month. This will enable us to match capacity with a long and short-term demand for our products that also significantly accelerate our margin enhancement efforts. Akshay will discuss the implications of this in more detail, but I'm pleased to report that we now expect to be EBITDA positive a full year ahead of schedule, owing to our bulletin book investment. Next, I will touch briefly on our 2022 innovation pipeline. As a reminder, our strategy can be characterized as fewer, bigger, better, and faster. We take a few shots at gold, but expect each shot to be material to our P&L and have truly meaningful new product designs. For 2022, we are focused on breaded poultry, Asian entrees, and expanding our breakfast platform. These are massive categories representing approximately $5 billion in retail sales in aggregate, but with very little to no healthy nutrient-dense options that are craveable. We've designed a unique breading system that is gluten-free, grain-free, reduces carbohydrates, has no added sugar, and increases proteins. This highly differentiated product design is poised to disrupt the category and provide consumers with a chicken nugget or chicken strip that they can feel good about serving to their families. We're excited about this launch and will be shipping products starting in April. For Asian-themed entrees, we have cracked the code in reducing carbohydrates and sugar and increasing protein on some of our favorite dishes, such as orange chicken, sweet and sour, and general soaps. It's my personal view that these dishes are our most craveable entrees to date, and as such, we're excited about this launch and we'll be shipping products starting in April. We believe our Asian and breaded poultry platforms could represent $100 to $200 million opportunity for real good food. We're also launching a potato tot substitute that provides protein and fewer carbs than traditional potato-based tots. Again, this is what we believe is breakthrough innovation that can be used in multiple form factors. To create a craveable pot that is high in protein and lower in carbs is not easy. We unlocked this and we're taking this innovation and using it to build out a line of breakfast bowls, which will add to our brand block in breakfast. Bowling Brook enables our entry into these categories and gives us much needed capacity to meet the growing demand for existing products. And now I'd like to turn the call over to our CEO, Jerry Law, to talk about Bowling Brook and operations more broadly.