The Real Good Food Company, Inc.

Ladies and gentlemen, greetings and welcome to the Real Good Food Company second 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 will now turn the conference over to Chris Webinar, VP of Investor Relations. Please go ahead, sir.

Good morning, and welcome to the Real Good Food Company second 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 second 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.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 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 Private Securities Litigation Reform Act of 1995. All statements made on this call today other than statements of historical fact, our 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 that differ significantly from 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 booking 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 2Q earnings release, which is available on our website under the Investors tab. 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, and thank you for joining us today on our second quarter earnings calls. I will briefly review our second quarter highlights and discuss the reasons we believe we're well positioned for long-term growth. Jerry will cover operations and Akshay will then review our financial results and outlook in more detail. After that, we'll open the call for questions. Starting with our financial highlights for the second quarter, net sales increased 65% to $30.8 million compared to $18.7 million in the second quarter last year. We are pleased with our second quarter sales performance and we expect sales in the second half of 2022 to be stronger than our previous expectations. And as such, we are raising our 2022 sales guidance to a range of 155 million to 160 million. Importantly, we still expect to be adjusted EBITDA positive in the fourth quarter of 2022 through our disciplined approach to managing costs and the ramp up of our new Bolingbrook facility. Second quarter sales grew 180% on a two-year stacked basis, which is an acceleration compared to 116% growth in full year 2021 on the same basis. Sales in the retail or measured channel increased 97% compared to the prior year period, driven by strong velocity gains of our core products, and to a lesser extent, new products and new customers. The unmeasured channel grew by 30% this quarter, generally in line with our expectations. Growth in the channel was slowed due to the timing of shipments and promotional events in the second quarter. We have clear visibility on upcoming promotional events and have secured incremental distribution in the unmeasured channel for the remainder of 2022. As a result, we expect unmeasured channel sales growth to accelerate significantly in the second half and to be better than our previous expectations. In addition to expected continued strong velocity and distribution of our current items in the unmeasured channel for the back half of 2022, we now expect to see our breaded poultry start to get on shelf regionally in the unmeasured channel towards the end of Q3. We feel good about where we are today with our innovation rollout and our optimism on breaded poultry is underpinned by the strong RGF Labs testing scores, positive retailer acceptance and feedback, and strong early velocity reads in the measured channel that I will go into greater detail in a few minutes. Next, let's take a step back and look at the current state of the health and wellness market, our total addressable market, and how our brand positioning is resonating with this broad consumer base. Our total addressable market is a $242 billion health and wellness industry, which according to SANS grew 6% year-over-year with an 8% three-year CAGR. The frozen health and wellness subcategory continues to outpace overall health and wellness, growing at a 9% three-year CAGR and approximately 6.5% year-over-year. Our brand promise has three primary claims, low carbohydrates and little to no sugar, high protein, and clean ingredients. Products with these attributes are growing well above the growth in our overall TAM. All considered, the categories we compete in remain highly relevant as evidenced by their large size and strong growth profile. Moreover, there are no signs of a slowdown despite the lapping of the pandemic bump and or an economic recession. As for our brand health, we track ourselves against four indicators, household penetration, repeat rates, social community growth and engagement, and velocity. Starting with household penetration, according to numerator data as of July 24, 2022, The Real Good Foods brand household penetration is 8.3%, up from 7.4% in March and 4.8% in June of last year. Our household penetration continues to rank second amongst all health and wellness frozen brands behind only Amy's, which as you're probably aware, is over a $500 million brand at retail. Increasing household penetration demonstrates how our brand position resonates and how quickly we have connected with a broad consumer base. Turning to repeat rates, they continue to accelerate, growing 16% year over year and in line with industry averages of 33% in the most recent data from the latest 52 weeks as of July 24, 2022. Regarding social community growth, we have been successful in growing the Real Good Foods community. In the second quarter, our social and digital teams continue to outperform. We generated over 4.5 million organic impressions and 82 million total brand impressions. We also acquired 25,000 new SMS text subscribers and added 27,000 followers on Instagram, bringing our total to over 430,000 Instagram followers. We continue to believe that using micro and nano influencers to spark peer to peer conversations is a better use of marketing dollars than traditional advertising. Based on our number of followers and subscribers, I can say it's working and it's efficient. This is reflected in the strong returns we get on our ad spending. Our returns on ad spending, as measured by third parties, average four to six times, which are significantly higher than our peers on average. Our retailer partners appreciate how we drive new consumers to the categories we participate in, and this grows categories rather than taking share. Our connection to our consumers also enables us to efficiently test demand for new products before they launch on shelf. This leads to greater household penetration and incremental category growth for not only us, but also our retailer partners. Lastly, let's focus on velocity. Over the last 12 weeks ending July 10th, 2022, according to SPANS, Real Good Foods brand velocity in the measured channel increased 50% compared to the prior year period. What's even more encouraging is that our baseline velocities also grew 52% versus a year ago. This is a signal our consumers are purchasing our products more frequently and our newly introduced products are working more productively. These strong brand health indicators underpin our confidence in achieving over $500 million in sales long term and what gave us confidence to make the investment to increase production capacity with our new facility in Bowling Brook, Illinois, which Jerry will touch on shortly. Moving to innovation, our strategy can be characterized as fewer, bigger, better, and faster. In 2022, we have launched crispy chicken shell tacos, high-protein, low-carb crispy tots, breakfast bites and bowls, and most recently, chicken nuggets and strips and multi-serve Asian entrees. Our breakthrough innovation with low-carb breaded chicken and high-protein tots can be used in multiple form factors, so we are excited about our initial launches. Our innovation can extend the brand into large, high-velocity categories, representing approximately $5 billion in retail sales in aggregate. We believe these categories are also ripe for disruption because there are very little to no healthy nutrient dense options on the market today that are craveable. Our versions of favorites such as orange chicken has very little sugar and carbs and is higher in protein. Thus far, I'm pleased with retailer acceptance and the early read on velocities are encouraging. We have commitments for 24,000 new total points of distribution for our new breaded poultry, breakfast innovation, and Asian multi-serve entrees that are filling in now through the end of the year. We had one large national retailer push shelf resets from Q2 into Q3, and we have our breaded poultry and multi-serve Asian entrees just now coming onto this retailer's shelves. We're only two weeks into the reset, and this is very early days. but I can report that our low-carb, high-protein chicken nuggets were the number two health and wellness item in the category last week and was in the top quartile of all frozen poultry and meat items. This includes conventional producers such as Tyson and Purdue. It's my expectation that our velocities have room to grow from where we are today as we begin to activate our digital launch campaign later this month and let our community know the products are available. In other retailers, we are seeing similar velocities that are two to three times our base products and in the upper quartile of our broader competitive set that includes conventional brands. In addition to the aforementioned 24,000 total points of distribution we've secured in the measured channel, we also recently got commitments from a customer in the unmeasured channel that gives us confidence that this category will be a meaningful contributor to our growth in 2023 and beyond. Now, I'd like to turn the call over to our CEO, Jerry Law, to provide an update on Bolingbrook and our operations more broadly.