Stryve Foods, Inc.

Good afternoon, everyone. Welcome to the Strive Foods second quarter fiscal 2023 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist for pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note, today's event is being recorded. Now I'll turn the call over to Sandy Martin, three-part advisor, to make introductions and read the safe harbor statement. Please go ahead.

Thank you, Operator, and welcome to the Strive Foods second quarter 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 only refer 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 and the earnings press release is posted on our website and with that i would now like to turn the call over to chris beaver chris thank you sandy and welcome and thank you for joining us for our second quarter earnings call i have completed my first full year i am proud of the significant accomplishments that the team has achieved we are a new company one that is now an excellent position to deliver against our full potential We have transformed the company from one with a net loss of over $44 million in the 12 months prior to our transformation to one that has improved that by $26 million with a rate of material improvements each and every quarter. One that lost $11.4 million and adjusted even last year in the second quarter to one that lost only $2.4 million on $5 million less in revenue. Our pride is high. We are more determined than ever to build off the foundation created and the momentum we are generating. Upon reflection of my first year with Strive, it is important that we highlight several accomplishments from our transformation. We have streamlined, prioritized the organization, better leveraging our talents and assets. We have simplified our portfolio consistent with our strategy, eliminating approximately two-thirds of our SKUs. We have executed two separate pricing actions, better reflecting inflation, restoring our gross margin potential. We have introduced and now embedded productivity into our culture that will continue to drive enhancements through our P&L. We have clear, measurable goals aligned cross-functionally, ensuring organizational focus. We have conducted research and are now leveraging consumer and customer insights to better understand what's working and what's not. We have listened to these insights, analyzed, and are now actioning the voice of the consumer and customer. We have created and are launching new strategic brand positioning, clearly segmenting each brand, the role of each brand, complementing the broader category with innovative solutions. We have addressed product quality, delivering a consistent, high-quality consumer experience, utilizing process discipline, focusing on our core product. We have instituted a zero-waste culture, ensuring we are not simply delivering better-for-you protein stands, but also responsibly ensuring we are better for the planet. We have developed innovative capabilities, including a pipeline of ideas that are prioritized and focused for multi-year growth and margin expansion. We developed and launched into the meat sticks segment on both Strive and Vacadillo's brands in stick and bite form, which is over half the current category's dollar sales. I want to assure all stakeholders that we are maniacally focused on the management and oversight of costs, resources, investments, capital, debt, and all aspects related to cash. In parallel, we have gained nearly a 20% increase in our total points of distribution, improved our price mix by nearly 16%, and have created momentum in our top line, as evidenced by the most recent 12-week spins data, where we have delivered nearly 35% growth in measured channels. The amount of progress aggregately is impressive. I am immensely appreciative of my teammates. We are energized and committed to the next phase of our journey, delivering growth and profitability. In mid-July, we provided preliminary financial highlights for the second quarter of 2023 and announced a reverse stock split that was effective on July 14th. In line with our second quarter sales range, we reported net sales of $6 million for the company's second fiscal quarter that ended June 30th. We knew at the beginning of the year we'd face challenges forecasting with precision given our SKU rationalization, renovation, innovation agenda, and distribution plans for 2023 juxtaposed with retailer and category dynamics. Lots of moving parts. and our transformation over the 12 months. The new stride has already started to demonstrate momentum in our business with meaningful opportunities in front of us. Our changes and improvements in strategy, structure, process, culture, and capabilities have cleared the way for us growing sequentially. We continue to execute against multiple sizable opportunities in front of us, advancing into the next phase of our plan, growth. which leads to profitability. Since our last earnings call, we have been executing on two important and meaningful accomplishments. Recall our innovation launch of the Vacadillo's brand, where we expanded our fast-growing lineup of carne seca with a new flavor of chipotle honey, hoping to make it the fastest-growing brand in the jerky segment. We also entered into the large and growing meat stick segment with Vacadillo's. introducing two terrific, great-tasting offerings, chili lime and habanero beef sticks. Baccadillo's air-dried beef sticks deliver important consumer benefits. Higher grams of protein, 14 grams, with no sugar, no preservatives, only ingredients that consumers can pronounce, versus the Category Leader, which delivers only 6 grams of protein with a very different ingredient panel. With these attributes, it's no surprise that we are encouraged by the consumer's response. Q2 was driven by innovative platforms and extensions, our Folds of Honor partnership on the Strive brand, our new brand positioning with a new package starting to transition in-store. Our portfolio has been rationalized and optimized simultaneously, and we created and are now implementing and executing the strategic imperatives. We have been aggressively managing costs, investments, cash, and more. Our performance management plan supports the objectives, goals, strategies, and metrics, and the organization is executing as one team. Enterprise-wide alignment is a key component as we become a true operating company. I continue to be very pleased about the response from our retail partners to our new category growth strategy. focus on assortment optimization. Many retailer category reviews are underway. Additional distribution wins are being awarded across all classes of trade. We will continue to experience increases in distribution and velocity. As always, we will share those once active in-store. Our new strategy is working, and we are just getting started. We are focused on driving trial with better in-store tactics along with a new compelling marketing campaign inclusive of Folds of Honor Patriotic Pact. We have built a foundation. We are proving that we are building a great company, one that responsibly manages costs, drives productivity, expands margins, improves cash, builds brands, builds consumer loyalty, collaborates with retailers, earns greater market share, and invests strategically for return. We are growing and we will grow faster and we will deliver profit with that growth. We are starting to see the impact the chains are having in our numbers. We expect to grow at a rate well above the meat snack category with accelerating consumption, ultimately earning more gain in market share. We will not grow at all costs. We are partnering with retailers collaboratively executing on the fundamentals, distribution, shelving, merchandising, and pricing. We will enhance margins with operational improvement. We will keep costs down, and we are committed to delivering a profitable, innovative, growing company with the very best tasting, better for you offerings this category has ever seen. We continue to beat the drum about a zero-waste culture. We now have several value-generating initiatives where the team has discovered and are implementing ways to eliminate and monetize what was formerly known as waste, providing solutions that enhance our economic outcome and our environmental impact. In addition to Two Tails Pet Treats, we are now selling shelf-stable ingredients to manufacturers of ready-to-eat kits or MRE kits, Both of these initiatives are proving to be incremental to our core business. As many of you know, prior to Strive, I had the privilege to be a part of successful turnarounds and have learned what it takes. Ownership, clarity, focus, discipline, engagement, teamwork, patience, and consistency. The speed that we have progressed and are executing on cost, cash management, productivity, combined with optimizing the portfolio, including the rationalization renovation and innovation of our multi-brand portfolio has been truly impressive we are delivering on each and everything i said we would as i outlined our new strategy we continue to set new quarterly records for company performance and we have demonstrated that we deliver on our commitments our second quarter was our fourth consecutive quarter of improved year-over-year operational and financial results with narrow losses and improved adjusted EBITDA. Transformations of this magnitude, ones that require fixing, creating, and building for a company our size, undoubtedly will create trappiness on timing of each and every metric, especially revenues, given our stage distribution is and will be a significant growth driver, which creates variability in the timing and scale of revenue flows. As we continue to gain scale, better visibility will be an outgrowth, leading to increased predictability over time. With that being said, we continue to accelerate improvements in all we do, significantly narrowing the rate of losses with promised and expectations of profitability in the near future. With that, I'll turn the call over to Al.

Thanks, Chris.

As Chris shared, Q2 is our fourth consecutive quarter of improved year-over-year bottom line results. And we know that our turnaround actions and process improvements have begun to take hold across the organization. With a significantly improved price value proposition on our new products, repeatable operational processes, better procurement of direct materials, and improving yields, we are building a more stable and sustainable operating company. As part of that, we have materially reduced cash operating expenses and narrowed losses again this quarter. We have also made further strides to establish a leaner, more productive organization with streamlined operations and better offerings, and we are well positioned to accelerate profitability with the requisite growth in volumes. As we messaged in our year-end call a few months ago, we believe many distributors and retailers managed down inventory levels beginning in the fourth quarter of 2022 with orders diverging from consumption. And as expected, we saw more normalcy in the second quarter of this year. But that's normalcy with respect to orders tracking consumption, not a restocking to historical inventory levels to be clear. And as Chris mentioned, we've seen positive traction with new distribution wins this year, which will be the primary driver of growth in our business for the foreseeable future, given that we are just beginning to scratch the surface of the retail market with our superior offerings. We continue to believe that it only takes just a few retail wins to yield step function growth on a sequential basis due to the size and scale of the category and our retail partners. Let's walk through the financial results for Q2. Net sales were $6 million compared to 10.9 million in the year-ago quarter. The year-over-year decline was what we expected for the second quarter, reflecting our rationalization of non-profitable revenues that occurred in the prior year period. Our gross profit for the quarter was $1.1 million, or 17.5% of net sales, compared to negative gross profit of $4.4 million in the year-ago quarter. This improvement on lower volumes underlines the importance of our decision to rationalize the non-profitable revenue streams. As a reminder, late last year, we intentionally reduced our volumes through a multifaceted rationalization program to refocus the company on its quality core revenue streams. This margin improvement is also further evidence of our pricing and productivity agenda taking hold. On a sequential basis, our net sales are up over 29% versus Q1 of this year. This reflects new distribution wins and our improved retail consumption data over the last few months. Operating expenses for the second quarter were 4.4 million, which compared favorably to the prior year Q2 of 11.5 million. and sequentially from Q1 of this year of $5.2 million. We continued to show progress in our cost elimination and mitigation strategies. We previously committed to you that we would remove 50% of operating expenses in the back half of 2022, which we delivered. This quarter, we eliminated 62% of our operating expenses versus the prior year period. And we have continued to improve on that cost structure while also improving our in-market performance this year. I would like to highlight and call out what could be an unexpected change for some investors to our interest expense from Q1 to Q2 of this year, which moved from approximately $400,000 to around $900,000 in Q2. This increase is primarily tied to the issuance of $4.1 million of notes and associated warrants in April of this year, which was compounded greatly by the accounting treatment of these warrants, which differs from how the company has accounted for its warrant issuances in the past. These warrants are separate financial instruments under GAAP accounting, and since they were issued in connection with a debt instrument, they are booked on the balance sheet using the relative value method and amortized similar to debt issuance costs into interest expense over time. This non-cash interest expense started in Q2 in the amount of $0.4 million and will be fully amortized by our fiscal year end. The second quarter net loss was $4.3 million or $2.05 per share. Recall that we implemented a 1 for 15 reverse split in mid-July, so our EPS reflects the impact with weighted average shares outstanding of $2.1 million for Q2. This favorably compares to a net loss of $16.4 million or $7.93 per share in the prior year quarter. The adjusted loss per share was $1.66 per share for the second quarter, which compares favorably to the adjusted net loss per share of $5.85 in the year-ago quarter. These adjustments are related to the non-cash interest expense associated with the warrants I just mentioned as well as stock-based compensation. Finally, our adjusted EBITDA loss for the second quarter was $2.4 million, our lowest adjusted EBITDA quarter in the history of the company. This compares favorably to the adjusted EBITDA loss of $11.4 million a year ago and represents a 32.2% improvement sequentially from Q1 of this year. You can find the GAAP to non-GAAP reconciliations at the end of today's press release. Turning to our balance sheet and financial position, at the end of the second quarter, we had approximately $320,000 of cash and cash equivalents with positive net working capital excluding cash and debt of $5.8 million with accounts receivable of $3 million and inventory of $8.4 million. Recall that we have a line of credit based on accounts receivable and inventory to support our liquidity needs. Since putting this line in place last fall, we've actively managed our amounts drawn at any time to mitigate interest expense to the extent we could, only drawing what we need when we needed it. We also launched an at the market equity offering in July of this year for the ability to raise up to $5.7 million in at the market equity sales to opportunistically support our liquidity needs as we navigate the final stages of our turnaround. As we discussed in our prior call, some substantial retail distribution wins for Q2 and the balance of the year were secured because of our new products and packaging. Accordingly, while we continue to build up newly packaged inventory, we trade through our existing inventory of legacy packaging, which helps to explain the steady inventory levels from Q1 to Q2 despite our initiatives to bring down inventory levels. We anticipate that once the transition is complete, that our inventory levels will come down over the balance of the year. Supported by our ATM facility and the debt financing last quarter, as well as our line of credit, with increased volumes, we expect cash consumption to decline as we take steps towards a self-sustaining model. We continue to focus on carefully managing our cash and working capital, as we judiciously oversee our business, executing with discipline, and planning to continue to strictly manage liquidity. As Chris mentioned briefly before, with the magnitude of our retail partners' scale and the slow return to normalcy with respect to their assortment planning cycles, there can be some uncertainty with respect to the timing and scale of new distribution coming online. These variables can create meaningful swings in our shipments for our business given our current low base and that our growth will be augmented by distribution in the near term. Accordingly, while we strongly believe with confidence that our product attributes and strong retail consumption data has and will result in new distribution and growth in shipments, our ability to precisely predict the timing of these flows presents a challenge. The nature of some of these opportunities are dynamic in terms of timing, and with the category's typical lead times, we may receive orders or changes to planned programs with short notice. This order variability is normal for the industry and not as material from our retailers' perspectives given their scale and the category size. However, given our low base, even variability with respect to a single promotion can make precisely forecasting a guidance range a challenge. While this variability can affect forecasting accuracy on shipments within the quarter or a year, it does not change our outlook for the overall trajectory of the business. As such, we feel that at this stage, it would not be prudent for us to provide continued top-line guidance that's time-bound. We will be suspending our current guidance and we will assess resuming forecasting at the appropriate time. While the lack of revenue guidance isn't ideal for our investor base, we do want to be transparent about these dynamics at play. That being said, in lieu of specific revenue guidance, we would like to direct investors to what we believe to be the best leading indicator of our near-term potential, our retail consumption data. We've previously discussed the 12-week data, but in the latest four-week spins data, that progress is accelerating. our retail sales are up 39.5% year over year, with our total distribution points up 19.5%, dollar velocity is up, and we are gaining share. And I should note, these trends have only barely begun to show the effects of our new packaging, which is specifically designed for retail conversion. With that, I would like to turn it back to Chris.

Thank you, Alex. We are pleased with our second quarter results, which gives us further confidence in our STRIVE 2.0 plan and our progression of operational and financial improvements for 2023. We have made significant progress on these initiatives that will be reflected in our growth rates moving forward. Our promise is to deliver a profitable, innovative growth company, one that delivers better-for-you protein snacks in a responsible manner that delights our consumers, collaborates and executes with our retailers and delivers for our shareholders. As the largest individual shareholder, I am fully aligned with the board and all Strive stakeholders. My confidence is high and my commitment is unwavering. With that, I would like to open the line up for questions. Operator?

Yes, thank you. At this time, we will begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble the roster. And the first question comes from Mike Grondahl with Northland Securities.

Hey, guys. Thanks. You know, I know you're not giving revenue guidance, but Can you say with any confidence will 3Q revenue be greater than 2Q?

I think what we'll see is, you know, a similar rationalized base, you know, in the back half of the year. And we'll see some new distribution coming online. But generally speaking, it'll be, you know, consistent with what we've seen in our rationalized base.

Got it. And then OPEX, does that sort of flatline from here? Is there more costs you can take out? You know, the $4.4 million was pretty low.

We think that there are more costs to take out. We've already taken some, and we're continuing to dig and turn over every stone. It's part of our strategy here is to identify areas that we can continue to streamline operations, become more efficient and more productive throughout the organization. And we're doing so in a manner that isn't sacrificing our retail performance.

Got it. And maybe just lastly, the ATM you set up in July, how much have you taken off that so far?

We'll be reporting that with more specificity in the coming filings, but we're opportunistically looking and managing that as we do with any other source of liquidity for the business.

Okay. Thank you, Mike. Thank you. Thank you.

Once again, please press star and then 1 if you would like to ask a question. All right. At this time, there are no further questions, so I'd like to return the floor to Chris Beaver for any closing comments.

Well, thank you for joining us, and thank you for your interest in our company. We will look forward to providing an update of our progress on our third quarter results in just a few short months. Have a great rest of your Monday, and thank you for your support of Strat.

Thank you. The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect your lines.