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spk02: Good morning, and welcome to the Strive Foods Incorporated fourth quarter and year-end 2022 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Sandy Martin of Three Part Advisors. Please go ahead.
spk01: Thank you, operator, and welcome to the Strive Foods fourth quarter and full year earnings conference call. With me today are Strive's chief executive officer, Chris Beaver, and chief financial officer, Alex Hawkins. Before we begin, I would like to remind everyone that part of our discussion today will include forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements by their nature are uncertain and outside of the company's control. Actual results could differ materially from these expectations. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them. We do not undertake to update these forward-looking statements at a later date and they refer only to today. In addition, today's call will include a discussion of non-GAAP financial measures, including adjusted EBITDA and adjusted EPS. Non-GAAP financial measures should be considered as a supplement to and not a substitute for GAAP financial measures. We refer you to the reconciliation of non-GAAP to the nearest GAAP measure included in today's earnings press release for further detail. This call is being webcast and can be accessed through the audio link on the news and events page of the investor section at ir.strive.com. Also, the earnings press release is posted on our website, and a copy of the release has been included in the Form 8K submitted to the SEC. With that, I would now like to turn the call over to Chris Beaver. Chris?
spk06: Thank you, Sandy. Welcome, everyone, and thank you for joining us for our year-end earnings call. I will start today by discussing recent updates in our business from an operational standpoint in 2023. we are beginning to see traction in our growth agenda as numerous market and channel retail leaders have confirmed new and expanded distribution with our great quality, great products, and now even better merchandising than we will have ever experienced. I am highly encouraged by the broad acceptance of our new, better quality products, our first round of innovation, the packaging renovations, and our partnership with Full Diviner. When the board hired me to join Strive in May of 2022, the company was in the throes of a national promotional event with a large retailer. From a tonnage perspective, the 2022 second quarter was the largest in the company's history. This event resulted in outstanding brand exposure and consumer trial. It also led to organizational opportunities to learn and become better together. The level of customer takeaway in combination with the highest operational volume has prepared us for what the new Strive is, which is a focused, lean operating company that will deliver growth above the category and become profitable. In August of last year, I communicated our transformation plan, or Strive 2.0. that hit every aspect of our business. We have created a lean organization with better capabilities, improved the board composition, announced and executed a portfolio rationalization, strategically repositioning our core brands, delivered three new innovation platforms, and introduced our category growth solution to our valued retailers. Since then, we have unlocked quality, with a breakthrough that further separates our consumer promise from our category peers. We have executed value-based pricing, created and implemented a productivity program that will accelerate both gross margins and EBITDA. We are better focused and maniacal about reducing costs and improving cash conversion. The new 2.0 strategy impacted how we run our business. And today, we can see that these changes have made a material positive impact on the company's sales and marketing strategy with operational and productivity efficiencies that significantly lowered cash burn. This is a new company that is now better positioned, and we will deliver profitable volume growth. We will grow well above the category level. We will expand margins. and we will become profitable. I would like to thank all my Strive team members for their dedication and commitment to creating what is now a true operating company. We have accomplished an incredible amount in just a few short quarters. I am enthusiastic and confident about the new Strive. This is now our time to deliver for our retail partners, delight our consumers, and perform for our investors. Before I cover specific progress on initiatives, let me briefly reiterate our business and the unique positioning we have in the market. Stride Foods represents a collection of brands that hold a unique and differentiated position as a delicious, healthy snack alternative for consumers, especially lovers of traditional meat snacks. We start with high-quality steak, seasoned, air-dried, with minimal processing, Our unique process delivers a superior consumer experience of taste and texture, along with more protein per ounce than beef jerky. With no sugar, no water, no broth, no nitrates, no gluten, no MSG, nothing artificial. Truly all natural ingredients. Our products taste great. They are more nutrition and better for you. And our brands have a much broader appeal than traditional meat snacks. Consumers continue to search for healthier snacks that deliver higher nutritional value without compromising taste. Our high-quality, great-value brands are adding new consumers. We are innovators and we will further disrupt category norms, leading to higher category penetration and growth. Strive is now well-positioned to delight our expanding consumer base and, importantly, better positioned to collaborate with our valued retail partners on category growth solutions. I am pleased with the speed and progress we made in 2022 on our major transformation, results of which can be seen with our significant improvement in margins, lower operating expenses, and performance in measured channels. We have improved Q4 gross margins to 22.3% versus 11% margins in the prior year quarter. And once again, delivered the best quarter in the company history in terms of adjusted EBITDA. Our productivity initiatives are having an impact, which will accelerate meaningfully in Q2 and going forward. The progress across, up, and down the organization has delivered positive financial outcomes. I have and I will continue to work with our sales and marketing team on demand generation. and we are leveraging consumer, shopper, and retailer insights to better focus and prioritize resources against our core portfolio. We identified and implemented both renovation and incremental innovation opportunities that have been introduced to our customers and will soon be evident in the market. I am pleased and appreciative of our customers' response, which further validates our strategic plan. While we've been successfully gaining distribution in the past, we will experience larger and more meaningful distribution advancements in the coming quarters. We have executed our pricing strategy, and with the organizational foundation now in place, we will deliver quality revenue where we can invest for return and further grow. As I have consistently stated, our fact-based discipline demand agenda is clear, focused, intentional, and mindful of enterprise resources, including capital planning. Our team works hard to address known historical objections from retail partners, along with addressing consumer barriers from gaining big awareness and trial. We have exceptional-tasting, on-trend products that now will work harder for us at retail. The meat snack category offers large assortments with many brands, varieties, and sizes. This creates challenges for shoppers looking at the product or brand of choice. Brand innovation has been historically low in meat snacks compared to other categories. And as a newer brand, with a differentiated offering, it is crucial we express the features and benefits in an impactful, appealing, and structured manner. We have done that with our packaging renovations that will be in the market starting in late Q2. Our research confirmed that consumers need to quickly understand what's in the bag and why it is a better-for-you solution. Our new packaging accomplishes this by utilizing appealing food photography, maintaining trend-forward fashion branding, while further expressing our features and benefits in a simplified manner. Last year, we embarked upon a rapid SKU rationalization initiative that simplified and streamlined the portfolio, directing resources away from lower priorities that have less potential to ones that have greater potential and deliver better returns. We also added the nutrition business early in the fourth quarter last year. As you may recall, we successfully eliminated over 180 SKUs. That was a significant initiative for simplifying the enterprise. However, change of the scale was required. While executing this, we faced higher levels of inventory industry-wide, ultimately slowing the timeline for completing the initiative. We continue to execute on our promise to grow quality revenue and stay focused on the core of our portfolio. As I have stated previously, I have successfully implemented similar initiatives multiple times in my career. And while it's never easy, this has proven to be successful time and time again. The rationalization program impacted revenues in 2022. We booked inventory reserves to cover our sell-throughs from December that continued into Q1. Alex will discuss our full year results in a few moments and provide 2023 sales guidance. We are on a parallel path for renovation of our core portfolio, coupled with creating a funnel of innovation platforms for the future. Only price and package is important. so our renovation of packaging was unveiled in Q4. We are currently selling our category solution of these new offerings, and we are receiving very positive feedback and further excitement about our future. Our new packaging is securing win after win for us, resulting in significantly expanded distribution starting in Q2. Finally, we continue to see volatility and meet prices since last fall, but at a far less range of variance. As previously communicated, we have an enterprise-wide process where we review and adjust continuously, and we will take swift action when market dynamics in fact support it. We deliver the best value on a per gram of protein in the entire category. I expect that value will continue to impact consumer choices and will rise with the economic environment. We are marketing and informing the consumer on the value of our products, which is a direct result of our minimally processed, clean ingredient position. As I like to say, the consumer gets just lean and clean protein. There are no preservatives or fillers. Therefore, we deliver more protein for us. Protein is the number one reason a consumer purchases in the category. and we deliver the most. We continue to operate our business in a complex environment, and our strategies are more sophisticated today than a year ago. We have institutionalized our processes and procedures in order to build a world-class CPG company. Our commitment with Strive 2.0 is to deliver profitable growth with a mindset centered around zero waste. Embedded in our late 2022 renovation innovation projects, we have reduced materials use, redesigned formulas, products, and services to be less resource intensive. We've recaptured historical waste as a resource to manufacture new materials and products. This is the circular economic value approach that is now part of our culture. With that, I will turn the call over to Alex to discuss financial results and liquidity. I will come back to discuss progress on key initiatives.
spk00: Alex.
spk03: Thanks, Chris. The second half of 2022 represented a turnaround for the business as we executed swiftly to restructure and retool shortly after Chris started. We successfully right sized expenses and focused operational efforts on securing ongoing retail distribution versus direct to consumer or episodic promotions. We know that expanding retail distribution is our best, most productive and sustainable path to profitability. This means that our major focus continues to be on increasing doors and placements at major retailers across all channels of trade, and supporting our most profitable revenues with responsible shopper marketing to drive trial and repeat with consumers. Our primary focus in the second half was to fix our broken pricing model and to improve our cost to produce to drive better and importantly profitable unit economics. These efforts as well as our skew rationalization project are how we have been able to transition the business to higher quality revenue starting in 2023. For the end of 2022, we experienced atypical order patterns from our retail and distribution customers that oddly didn't track the sell-through and consumption of our products by consumers. Notwithstanding orders related to new distribution pipeline fills, typical order patterns closely mirror the consumption of a brand's products off the shelves. In the fourth quarter of 2022, we saw orders and consumption diverge, which we believe indicates that retailers and distributors have been managing down their inventory levels of products across most categories, not specifically just targeting our brands. The net effect of this dynamic is twofold for our business. First, there is a negative impact to our net sales in the fourth quarter. This is primarily a timing issue, as we believe that once customers' inventories reach their targeted levels, orders should begin to track with consumption once again. And we've actually seen this play out late in Q1 of this year. Second, companies across most CPG categories in the U.S. markets during the fourth quarter implemented similar inventory rationalization initiatives. So, our ability to quickly monetize our slow-moving and obsolete inventory as planned was impacted due to the influx of goods in the market. Both dynamics have continued into the first quarter of 23, with signs of normalization occurring towards the end of the quarter. And as Chris mentioned, we have seen positive traction with new distribution wins this year, which will be the primary driver of growth in our business with secured wins resulting in step function growth beginning in the second quarter. Let me walk you now through the financial results for Q4. Net sales were $5.4 million compared to $6.8 million in the year-ago quarter. We estimate that approximately $10 million of last year's net revenue came from products, accounts, channels, that had been rationalized from our mix due to the changes in our operating model and go-to-market strategy. These rationalization decisions were based on an analysis of gross margins, net margins, and cash conversion of each product, account, or channel. We estimate that our rationalized base of quality core revenues as of the end of Q4 is about $5 million a quarter or $20 million annualized. That's really the base upon which we look to grow in 2023. Our gross profit for the quarter was $1.2 million, or 22.3% of net sales, compared to gross profit of $755,000, or 11% of net sales, in the year-ago quarter. Gross margins have improved meaningfully since our turnaround began, turning from negative in Q2 2022 to slightly over 22% for the second half of 2022. Recall that second quarter results last year included a large, limited time promotional event at a major nationwide retailer. Despite our improved unit economics in Q4, gross margins were negatively impacted by the reduced volumes in our plant, resulting in unabsorbed labor and overhead, creating a slight drag. This should be alleviated in Q2 of 23 as our quality volumes begin to ramp. Operating expenses for the fourth quarter were $5.5 million, which compares favorably to the prior year Q4 of $12.3 million, and sequentially from Q3 of this year of 2022 of $6.1 million. Our results in the second half of 2022 are a testament to the progress we've made on our cost mitigation strategies. We examined every area of spending throughout our business and identified ways to drive efficiencies eliminate unnecessary expenses, and focus on the highest and best use of each dollar. We previously committed to you that we would remove 50% of operating expenses in the back half, and we delivered. The resulting impact of our efforts was a 51% reduction in 2022 second half operating expenses compared to the prior year period, 55% reduction in Q4 alone. The fourth quarter net loss contracted to 4.5 million or 14 cents per share. This favorably compares to a net loss of 12 million or 58 cents per share in the prior year quarter. Also recall that our loss per share amounts were impacted by the change in weighted average shares outstanding from 20.6 million shares for the 2021 fourth quarter to 31.2 million shares in Q4 of 2022. Share count increases were due primarily to a capital raise that occurred in January of 2022. The adjusted loss per share was 13 cents per share for the fourth quarter and compares favorably to the adjusted loss per share of 55 cents in the year-ago quarter. Finally, our adjusted EBITDA loss for the fourth quarter was 3.5 million, which is our lowest adjusted EBITDA in the history of the company. Q4's 3.5 million compares favorably to the adjusted EBITDA loss of $10.6 million a year ago. You can find the GAAP to non-GAAP reconciliations at the end of today's press release. While we are pleased with our progress this year, and we are encouraged by our productivity initiatives to continue along this path for 2023. Turning to our balance sheet and financial position. At the end of the fourth quarter, we had approximately $623,000 of cash and cash equivalents with positive networking capital of $5.8 million. Note that we are actively managing the amounts drawn on our credit facilities to minimize interest expense. The amounts available to us on our line is largely dictated by our accounts receivable balance, which varies over time but should scale as we grow. The substantial response we've seen from retailers for our new packaging and product quality has been amazing to see. From that, we have secured very significant new quality distribution that will come online in Q2 of this year. Unfortunately, or fortunately, these retailers are looking for our new products, which were not present in our year-end inventories. Accordingly, we've had to and continue to build net new inventory to support this ramp while we work through our existing inventories through other channels. As a result of these positive developments, our liquidity position has been strained to a point where we think it's reasonably likely that our auditors issue their opinion qualified by a going concern if we do not secure additional financing in the near term. Fortunately, we have options, and we are navigating those in real time to optimize cost of capital and to maximize shareholder value in the long run. Further, this team believes so strongly in our path forward that collectively we plan to participate in funding a meaningful portion of the capital needed to bridge this ramp. We continue to focus on reducing the company's losses and are carefully managing cash and working capital. We are carefully overseeing our business, executing with discipline, and planning to continue to strictly manage cash and liquidity. Our inventory balance at the end of Q4 was $8.3 million, and accounts receivable balance was about $2.5 million. Notwithstanding this transition of inventory, which presents us with great opportunity while creating a pension or liquidity, we have made tremendous progress in reducing the cash consumed by our business in a very short period of time. And once our volumes ramp with this new distribution, we expect to see even more reduced cash consumption as we rapidly approach a self-sustaining model. With respect to guidance for the year, we expect full year net sales to fall within a range of 28 to $34 million with our first quarter representing the trough of our turnaround, but looking directionally similar to Q4 in both top and bottom line results. We do not expect to see significant revenue volatility in the remaining quarters at this time. While top line results in that range will show mostly flat to modest growth overall from 22 to 2023, Recall that our rationalized base is estimated to be approximately $20 million in net sales after removing the unprofitable revenues. That means we are anticipating growing our quality core by over 40% year over year. While the lower volumes have affected our gross margins in the short term due to lower plant utilization, it has allowed us to drive meaningful improvements throughout our supply chain. And as our plant volumes increase to support our distribution wins in Q2, we expect to see a several-point improvement in our gross margins. And subject to any externalities, we expect that with consistent volumes, gross margins continuing to scale into the mid-30s by year-end. This ramp in quality revenues from Q1 to Q2 requires an investment in working capital due to the inventory transition. We are addressing this dynamic and the implications to liquidity carefully to ensure successful execution because we believe that by doing so, we will be able to show a dramatically improved P&L and overall growth trajectory for the business. The estimates shared today assume we navigate these dynamics and are based on our view of today's macro climate and could be adjusted if we see material changes or volatility in macro conditions. With that, I would like to turn it back to Chris.
spk06: Thank you, Alex. We are pleased with the progress to date made on our STRIVE 2.0 plan, and we expect even more improvements in 2023. Although meat costs have somewhat stabilized, we continue to closely monitor and we will take price actions much closer to cost shifts. As I mentioned last quarter, we are using a different lens to evaluate our STRIVE value proposition and believe that our per ounce protein pricing is a much better approach to selling high quality meat snacks. Our approach is simple. We believe that increasing our availability to consumers starts with more distribution in stores, coupled with better consumer approachability with clear, understandable, compelling packaging that stands out on the shelf so shoppers quickly identify our products. we have created a much better billboard for our products. This will make our brands easier to find and provide the shopper clarity as to why our products are better tasting, healthier, and deliver more protein. Just one example of our consumer-focused approachability. Also, we have made significant progress on our productivity plans and delivered on our operating expense reductions for 2022. Consumption numbers are good in the most recent reporting periods and pricing hit the market in Q4 and is flowing through. As I mentioned, we continue to focus on zero waste and discovering creative ways to reduce waste and increase yield. After rapidly removing over 180 SKUs from our assortment, the quality of revenue has meaningfully improved. This was a difficult process, but necessary, and now allows us to focus on the core with a more streamlined assortment and merchandising plan to meet the demands of our retail partners. We have received very positive responses from our customers, and we are encouraged and expecting even more distribution gains in the coming quarters. During the last half of 2022, we've successfully rolled out a renovation and innovation agenda that is consumer-focused, highlighting our points of difference, and it is designated and is designed to enable growth and expansion at retail. We will continue to build on that momentum in the measured channels and maintain a focused discipline on execution. We have built a three-year internal outlook that prioritizes availability through distribution, approachability through packaging and marketing, and affordability with the supreme value we deliver. Our modeling forecasts contemplate growth rates for stride that greatly exceed the category. As we introduced last year, we are staying vigilant around quality growth, productivity, and disciplined execution and made progress on these initiatives since our last earnings call. First, we rolled out optimized assortment sizes and portions to meet consumers' wants and needs. We renovated our core while building out our innovation funnel. We are managing this responsibly and will phase in more growth drivers over time. Secondly, we developed and optimized packaging for retail store conversion the special attention to what's in the bag and the protein prongs. Customers were confused by the term built on, and we believe that this packaging now sets us apart from beef jerky and other healthy meat snacks. Third, we are currently driving cross-functional productivity and are focused on changing the culture of the entire organization. We are all operating like owners. Fourth, Our path to profitability includes final sell-through of the SKU reduction plan. Fifth, as I like to say, we are maniacal about our execution with highly engaged teammates that are accountable to us, to our retail partners, and to our shareholders. With just 10 months with the company, I am beginning to see momentum around our progress on sales, gross margin, operating expenses, and ultimately toward positive EBITDA and earnings. I am excited to work for a company that delivers highly differentiated, high quality, great tasting products with attributes that are unmatched by our peers. We have the most on-trend brands with significant growth potential. Our plan, along with the energy and commitment from our team, gives me the confidence and our ability to build an enduring franchise of great brands. As a fellow shareholder, I am fully aligned with all of our stakeholders as we focus on growing the core and executing on our operational and financial imperatives. With that, I would like to open the line for questions.
spk02: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on our touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Alex Furman from Craig Hallam Capital Group. Please go ahead.
spk04: Hey, guys. Thanks for taking my question. I wanted to ask about the new packaging and when we should expect to actually see that on shelves. I think you mentioned sometime late in the second quarter. It would be in market. When are consumers going to be seeing it and purchasing it on your website, and when should we expect consumers to see it on retail store shelves?
spk06: Good morning, Alex. Thanks for the question. We have the package on order. It's going to start being produced in the month of May, and it will start to ship to customers based on when their order patents hit. So it'll flow through to the shelf that inventories work their way through in the latter part of Q2. And be fully, I think, implemented in the market by the end of Q3 in that type of a range. So we've been pretty conservative on our outlook with our plan from a velocity improvement standpoint. So we believe that it's going to improve velocities as well, plus being a lot of the distribution points. We're really excited about this. We know it's going to have a big impact. It already is without even being there yet. And we're very excited about what this is going to do for our brands and our shoppers.
spk04: That's great to hear, Chris. Can you talk about, you know, how much of an increase in velocity are you expecting to see, you know, based on the research you've done so far into, you know, calling it things like steak slices instead of philtong? And is there, you know, a meaningful increase in velocities that's baked into the guidance that you gave for the year?
spk06: Yeah, we actually baked zero velocity increase into our plans. So we expect it will, but we've basically been factoring in the distribution as the driver for our growth. And as we learn and see the takeaway, especially early on at customers that will turn quicker, we'll get a really good, I think, understanding in fast fashion. And as we gain more distribution on a national basis, we'll be able to invest more with the consumer through marketing tactics and strategies that will bring greater awareness and ultimately improve velocity at the same time. So first we gotta get that distribution. We'll be obviously comparing the velocity change where we're at to where we will be. And then when we turn on additional marketing investment, based on getting that distribution level, we'll then have investment grade choices that will return on those marketing dollars and further amp up the impact of the velocity.
spk04: Okay, that is very helpful. Thank you for that. And then, you know, if I could ask lastly about inventory levels in the channel, it sounds like you started to normalize a little bit. How much more time is it going to take for inventory to normalize and to really see velocities match your sales volume? And, you know, kind of along the same lines, has it been – harder to get into new retail doors as long as potential target retailers have a lot of inventory in their own stores and warehouses?
spk06: Actually, I'll say that I think you're going to see that shift in Q2 because as we get distribution gain, the pipeline to fill that distribution is pretty substantial, especially when you're talking about national retailers that have thousands of stores where we'll be gaining multiple SKUs and Um, it's those, um, distributors and wholesalers where they have inventory already. If they're currently serving a retailer that need to work through their inventory, you know, and, uh, you know, first in, um, first out, um, basis. Right. Um, so I think you'll see it spattered, um, through the transition. Um, we're going to, um, be closely watching the ones that get there quickly. We're going to be working with, um, you know, certainly the, um, the retailers that are transitioning to their other third-party service providers and ensuring that we monitor and mitigate the speed of the transition. So I think it's going to be a mixed bag, but I believe that you'll start to see our shipments greatly exceed consumption as we fill the pipeline and build inventory with lots of new distribution points and expanded distribution with customers that currently carry us.
spk00: So it's going to be, I think, a catch-up in Q2. Okay. Thanks very much for that, Chris.
spk02: The next question comes from Mike Grondahl from Northland Securities. Please go ahead.
spk05: Hey, guys. Good morning. You talked a lot about new packaging, and I think you kind of described that a little bit, but you also mentioned new products, and improved product quality. Can you talk about some details on those two fronts?
spk06: Absolutely. Thank you for the question. First, from a packaging standpoint, we are obviously excited about what this presents. It also afforded us the ability to look at our capabilities without increasing any type of investment in capital to be able to produce products in different forms and packages. With that being said, we've now been able to unlock the ability to manufacture and sell sticks, which is half the category sales. We traditionally only had a stick under the Strive brand. We now have sticks under the Vacadillo's brand. You'll see that in market, the Vacadillo's redistribution on sticks starting to take place in Q2 as well, with a major leading QV insular operator. One example, perfecting our sticks and making it a viable investment-grade portion of the business. Reformulation and strive, a launch of back of deals. Second, taking our sticks and putting them into the most consumer-friendly way that they shop and consume snacks in multiple categories. We're carving them up into poppable bikes that are quarter-inch apiece, that are shareable, we can grade, we can return, and you can get a very, very good experience. So positioning that that way. The third way is to take those bites and utilize tools of honor and creating a skew balance between slice and bite that offers us a lot of exciting generation in the stores. And then finally, we talked a lot about waste and utilizing our waste. We've created a human-grade pet treat for training under a brand called Two Tails that we are now selling online and we're starting to present to retailers across many different channels. So that's all the innovation to complement the renovation. It's all tied together. We're going to be way more efficient and effective as well in our conversion cost because all of our bags will have a standard width. All of our bags will have a foil wrap to it, which delivers a much better consumer experience that we've tested and learned on our vacadil spray. There's unquestionably, no doubt now, that oxygen goes through, penetrates, and comes out and dries out our product throughout an aging shelf-life stage. That does not have the same impact as the floor polish. So by using food photography, expressing the deliciousness of what's in the bag, it is very clear whether it's thinly sliced steak, or Carneseca, whatever the brand has or represents, delivers us that opportunity to express it and then deliver a better quality experience. And then the last part of that is about being able to convert our operating model within our manufacturing facility even better. We've been able to unlock the ability to transition from dry into bag at a more rapid pace, delivering a much, much moister consumer experience now in a foil bag that holds that moisture better, ultimately delivering a two-pronged better consumer experience. So we're really excited about getting a new bag with the new improved better quality combination to the stores and into people's homes.
spk05: Got it. That's helpful. And I just want to make sure I'm clear. The new distribution gains, can you break that out maybe between new retailers or expanded existing retailers? How do we think of that increase that's coming broken out between kind of existing and new retailers?
spk06: Well, on average today, we have two items in 16% of the ACV. We will see rapid expansion of both those metrics, as well as total points of distribution. As we all know, every distribution point is not equal. Some retailers turn this category at a faster velocity. Therefore, their distribution point is worth more, and they deliver higher volume per point of distribution. So you're going to see a combination of expansion in the natural channel. You're going to see C-store expansion. you're going to see much further penetration in the grocery channel, which historically has approached this category as a bit more of a profit generator. And therefore, we have positioned appropriately our health and wellness position because every retailer has some sort of strategy around providing the best, healthiest assortment for their shoppers, which we hit the center of the fairway on. So I think you're going to see expansion in every channel. You're going to see better merchandising support as well, which is spearheaded and lifted by the Folds of Honor partnership. Patriotism is a big deal. Retailers really get behind that. Everybody else in the category from our competitors have different strategies for how they're connecting. Nobody's used the red, white, and blue. So we're excited about our positioning as well as giving back to a great organization at the same time. and giving the consumer the best absolute experience that they will have as an option available to them. All that combined together, you're going to continue to see in-store execution metrics that are better and significantly ramped up, starting in Q2 to a shipment and build out and rolling into Q3 and beyond. All retailers' timing is very different on when they review and prioritize this category. So we're on cycle. We're gaining a lot of yeses. which gives us the absolute confidence with zero doubt that we know that the distribution is coming because we've already seen and earned the acceptances. And now it's about executing those, getting those shipments out, ensuring we've got our shelving position right, our pricing right, all those fundamentals around the core that we talked about, around executing against those fundamentals, and then really getting that uplift from better merchandising. So we're really excited about the expanded distribution with current customers and new total points of distribution where we didn't even exist. Then the third way is the number of stores that stock your product. So if we were already authorizing, let's just say we're in 10% of their stores with one SKU and we go to 50% of the stores with that same SKU, it just gets more ACV within that particular retailer's you know, area of coverage. So you're going to see all different components of ways that you're going to see distribution growing for us. And it won't happen overnight. You'll see it continue to build and accelerate. And in my experience in consumer packaged goods, when you start to get momentum and the numbers become even more favorable and highly impactful and favorable, the momentum will continue and we will continue to experience more and more. We have so much white space. We're so lowly distributed today, which gives me even more excitement and, you know, jump in my step because I can see how once we get this thing out and about, that this thing will continue to grow and compound in the material life. So I think you're going to see it across all specters and you'll be able to see it in the reporting data as we begin to roll into the latter parts of Q2. Our new product, again, will be packaged in the latter part of May and starting to ship in June to retail partners and distributors and wholesalers.
spk05: Thank you. Got it. Hey, last question from me, and I'll point it at Alex. Alex, how much capital do you need to execute this plan and the increase in inventory to ship?
spk03: No, it's a great question. You know, I think we spent a lot of time analyzing this and scenario planning to say, you know, we have a first mover advantage. The market seems to be primed and it's very accepting of our products. Is now the time to lean in a bit more in sales and marketing to continue to fund and drive that for 24 and 25's benefit? Or given that we're going to need to tap, you know, some external financing here, do we look to bring in, you know, just what we need right now to execute against this ramp and continue to operate, you know, lean and mean? And I think where we've come out is that, you know, to execute against the plan as we see it right now to ramp these Q2 distributions, distribution wins, it's probably a $3 million to $4 million gap. need to bring into the business. And we're working a number of different avenues to bring that in. We have options on the table, and we're looking to maximize long-term shareholder value as we evaluate these. And as I mentioned, we've got a meaningful portion of that coming from the team here.
spk05: Got it. Got it. Well, hey, thanks for giving us a little bit of
spk06: color there and good luck in 23 guys thank you this concludes our question and answer session I would like to turn the conference back over to Chris Beaver for any closing remarks thank you operator and thank you all for listening in this morning this is an exciting time for us this is an inflection point like I have anticipated and now I'm even more excited about it's about time to really deliver on all the potential that we have in front of us, and we are up for the challenge. We're excited about the momentum that is clearly starting to build, and we know that the future is very bright. So I'm fully committed to this. Our team is committed to this, and our board is highly supportive. I believe our stock price is a great value, and I continue and will continue to invest in this company because I believe, and I hope you do as well. Thank you for your time and we will be talking to you all soon. Have a great day.
spk02: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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