The Real Good Food Company, Inc.

Greetings and welcome to the Real Good Food Company first quarter 2022 earnings conference 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 Bevinor. Thank you, and over to you.

Good morning, and welcome to the Real Good Food Company's first quarter 2022 earnings conference call. On the call today are Brian Freeman, Executive Chairman, Jerry Law, Chief Executive Officer, and Akshay Jagdali, Chief Financial Officer. You may access our first quarter earnings release, which we published at approximately 7 a.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 securities law 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 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, 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 Q1 earnings release, which is available on our website under our investors tab. And with that, it's my pleasure to turn the call over to the Real Good Food Company's Executive Chairman, Brian Freeman.

Hey, thanks, Chris. Good morning. Thanks for joining us today on our first quarter earnings call. Today, I will briefly review our Q1 financial highlights and discuss the reasons we believe we're well positioned for long-term growth and profitability. Jerry will cover our operations, and Akshay will then review our financial results in more detail and discuss our full year of guidance. After that, we'll open up the call for your questions. Starting with our financial highlights for Q1, we started 2022 with strong financial results. Net sales increased 124% to $37.6 million compared to $16.8 million in the first quarter last year. Growth in the unmeasured channel accelerated to 200% this quarter despite lapping broad distribution a year ago, driven by best-in-class velocities and distribution gains. Retail channel growth was 78% this quarter, driven by strong velocity gains in our core products. We expect growth in the retail channel to accelerate in the coming months as we introduce new products and grow the distribution of our existing core products. Our retail business, which is 100% branded, is on pace to achieve approximately $100 million in net sales on a run rate basis, which is an important milestone. However, we continue to believe our brand is still in the early stages of growth and has a long runway ahead. Additionally, we continue to make progress towards our plan to be at peer average margins despite significant cost headwinds. Gross margins this quarter were in line with our expectations, and we continue to expect significant improvement in the second half of 2022, driven primarily by our investment in our Bolingbrook facility, productivity initiatives, and better net price realizations. As such, we are updating our guidance for 2022 to reflect a strong start to the year and our expectations for a better second half of 2022. For 2022, we are raising our revenue guidance to be in the range of $150 to $160 million compared to $140 to $150 million previously and narrowing our adjusted EBITDA loss range to a loss of $4 to $9 million. Although inflation continues to be a headwind, we have good visibility into our cost structure and have greater conviction in our productivity agenda, which is underpinning our competence and our updated guidance. Furthermore, we now expect to be adjusted EBITDA positive in the fourth quarter of 2022. Actually, we'll go into greater detail in a few minutes. As you can see from our first quarter results and guidance, our growth continues to be strong, but we're not satisfied. Keeping up with demand for our brand has been one of our biggest challenges. And with Bolingbroke getting capacity in Q2 and Q3, we believe we are still in the early stages of a robust long-term growth journey. We reiterate our belief that our brand has the potential to get to 500 million in sales. What gives us conviction about this outlook are the positive trends we continue to see with our four brand health indicators. These indicators are household penetration, repeat rates, social community growth and engagement, and velocities. Starting with household penetration, according to Numerator, the Real Good Foods brand has a household penetration of 8.3%. We're up from 7.4% in March. This is approximately one in every 12 U.S. households has our product. In fact, our household penetration now ranks number two amongst all health and wellness frozen brands behind only Amy's, which 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 speaks to how our brand position resonates with a broad consumer base within a large total addressable market. And despite rapidly growing household penetration, our repeat rates are 33% and in line with our peers. Turning next to social community growth, the Real Good Foods community has continued to grow. In the first quarter, our social media platforms generated more than 18 million targeted impressions through various digital tactics, propelling our retail success on shelf. Rather than traditional advertising, our tactics are based on authentic, compelling peer-to-peer conversations through thousands of micro and nano influencers. This is an efficient way to build engagement and loyalty through conversations, DMs, reels, TikTok videos, SMS, texts, and the like, without burning millions of dollars in inefficient ad spend. I've said in the past this capability is rare, and the sheer number of RGF followers is greater than all frozen food brands owned by Comagra combined, and the same is true for Nestle. But besides scale, engagement is important. During the period, we saw recent Instagram posts attracting thousands of comments across more than 421,000 of our followers in the first few hours of postings. 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. So why does this matter? It matters because this unique capability enables us to drive new users to the categories we participate in and also efficiently feed demand for new products before they come on shelf. This leads to greater household penetration and incremental category growth for our retailer partners. When we help grow categories, Our retail partners win, and we win. This gives us permission to continue to expand our offerings and our distribution. A recent example of this is our national launch of our new grain-free, low-carb, high-protein crispy shell tacos into more than 10,000 new distribution points. It's still early days, but we are pleased with the initial velocities we are seeing for the item and our community's enthusiasm for it. And finally, velocities. Our velocity metrics are exceeding our expectations. According to Spence, over the 12-week period ending March 20th, Real Good Foods brand retail sales grew 68% year-over-year, which is a significant acceleration compared to 30% 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 broad-based pricing actions. Thus far, we've not seen any negative impacts to demand related to price elasticity. These strong brand health indicators underpin our confidence in achieving over $500 million in sales and are what gave us confidence to make the investment to increase capacity with our new manufacturing facility in Bolingbrook, Illinois. The facility began production in March of our new breaded poultry offerings and the phase production ramp up is on place and on plan to add approximately $200 million in incremental capacity by the end of the year. This will enable us to match capacity with the long and short term demand for our products and also significantly accelerate our margin improvement efforts. Jerry will discuss the ramp up in more detail, but we continue to expect to be EBITDA positive in 2023. a full year ahead of schedule owing to our Bolingbroke investment. Next, I will briefly touch on our 2022 innovation pipeline. As a reminder, our strategy can be characterized as fewer, bigger, better, and faster. For 2022, we're focused on breaded poultry, Asian multi-serve entrees, and expanding our breakfast platform. This is meaningful innovation that will extend our brand in a massive high-velocity category. representing approximately $5 billion in retail sales in aggregate. These categories are all ripe to be disrupted by our brand promise because there is very little to no healthy, nutrient-dense options on the market today that are craveable. For poultry, we've designed a unique breading system that is gluten-free, grain-free, reduces carbohydrates, and has no added sugar, and it increases proteins. This delicious and highly differentiated product design is poised to 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 are happy to report that we started shipping these new products this quarter. Customer acceptance of our new products has been strong so far, and we'll have a good read on consumer acceptance and velocities over the next few months. In addition to chicken strips and nuggets, We are also introducing our new line of Asian entrees that come in multi-serve and single-serve format. Unlike conventional orange chicken, sweet and sour, and general sows, our versions of these favorites have very little sugar and carbs and are higher in protein. We believe our Asian and breaded poultry platforms represent $100 to $200 million opportunity, and because our product is highly differentiated, our retailer partners have shown enthusiasm to bring these to shelf. We will see this play out over 2Q and 3Q. We are 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. We are taking this innovation and using it to build out a line of breakfast bowls, which will add to our portfolio and facings in breakfast, as well as a new plant-based offerings and entrees. Bolingbroke 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 Bolingbroke and operations more broadly.