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spk01: Ladies and gentlemen, please stand by. Our conference will be getting started momentarily. Once again, please stand by. Our conference will be getting started momentarily. We do thank you for your patience. Please continue to stand by. Thank you. © transcript Emily Beynon © transcript Emily Beynon Please continue to stand by. Our conference will be getting started momentarily. We do thank you for your patience. Thank you. Hello, and welcome to the Very Good Food Company Q2 2022 earnings call. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host.
spk00: Thank you, operator. Good afternoon, everyone, and thank you for joining us today for the Very Good Food Company's second quarter financial results call. This is a prerecorded call. We invite you to email us with additional questions not covering during this earnings call at invest at verygoodbutchers.com. A replay of this call will be archived on the investor relations section of our website at www.verygoodfood.com forward slash investors. until September 16, 2022. Listeners are reminded that certain matters discussed in today's conference call or answers that may be given to questions asked may constitute forward-looking information and statements within the meaning of Canadian and U.S. securities laws, and they are subject to risks and uncertainties relating to Very Good Food Company's future financial or business performance. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ material from those described in these forward-looking statements. For a comprehensive discussion of the risks and uncertainties faced by Very Good Food Company, please refer to Very Good goods most recent financial information filed with the Canadian Securities and Exchange Authorities at www.cedar.com and as an exhibit to the form 20F filed with the SEC on May 26, 2022 and available at www.sec.gov. Please also note that on today's call, management will refer to adjusted EBITDA and adjusted general and administrative expense, which are non-IFRS financial measures. While Barry believes that these non-IFRS financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute to financial information presented in accordance with IFRS. For definitions and reconciliations of the non-IFRS measures discussed to the relevant reported measures under IFRS, please consult our Q2 2022 MD&A filed on CDAR with the SEC. I will now hand the call over to our Chief Executive Officer, Paramal Rana.
spk02: Thank you, Bradley. Hello, everyone, and thank you for listening to our Q2 2022 earnings call. I will begin by giving an overview of Q2 2022, addressing both challenges and milestones before passing it over to Prateek to review the numbers. Q2 2022 was a period of important transition for our company. As we implemented our strategy to, one, stabilize, two, right-side, and three, optimize the business. which we committed to early in the quarter as we endeavored towards profitability. We made notable progress on all three of these fronts, and while we still have a lot of work in front of us, we are better positioned today than we were three months ago. With respect to stabilization, in June we completed a $6.5 million USD financing, which provided us some level of short-term stabilization so we could focus on cost-cutting. It did not significantly improve our long-term cash position or provide us with extended cash runway. Pratik will address our current cash runway and our future financing efforts later on this call and how we are addressing these issues. During Q2, we also made important progress towards right-sizing the organization. In May, we made a strategic decision to cease regular operations at the Victoria Fairview and Patterson facilities and consolidate operations into the Rupert facility. We also closed our Victoria store during the quarter, and we no longer plan on opening the Mount Pleasant store. These closures are not just about right-sizing overhead reduction, but also about optimization, greater production efficiency, and long-term strategic vision. With a right-sized organization, we are now well-positioned to execute our long-term strategy which is focused on higher margin, US wholesale, and food service channels. During the second quarter, we also committed to limiting our e-commerce sales due to high digital marketing costs to acquire new customers, implemented initiatives such as causing non-critical capital expenditures, and lowered general and administrative expenses. I would now like to address the management changes we made throughout Q2 and more recently, during the current quarter. Early in the second quarter, we announced the departure of our co-founders, Mitchell Scott and James Davidson. As a result, three functional leaders were appointed to executive positions and served on a temporary executive committee. Jordan Rogers, formerly the head of Canadian sales, was appointed as chief commercial officer, and later in the quarter, with Matthew Hall's departure, After the initial implementation of our stabilization, right-size, and optimization initiatives, I was promoted to Chief Executive Officer to replace the interim co-CEO, Matthew Hall. Last month, during the current quarter, we also announced the appointment of our new Chief Financial Officer, Prateek Patel. Prateek has extensive leadership experience in finance and accounting. confident in his ability to lead our finance operations as we continue to optimize the business. Our management transitions have been necessary and we are now with the right team in place that will enable us to continue optimizing the business with focus on achieving profitability and growth. As we have said, our optimization effort is focused on streamlining the organization's mindset, culture, processes, tools, organizational design, as well as production. We have revisited our strategic initiatives with greater focus on efficiency and we are prioritizing measures and strategic initiatives that will support our long-term growth. I would like to point out that we are already seeing results related to our refocus on U.S. wholesale and food service channels and we expect this trend to continue in the current quarter. In May, we announced a listing of law block companies, which included availability of our Cajun sausage, Bratwurst sausage, and meatballs from our Butcher's Select line, as well as our Very Good Ribs and the Very Good Steak 2-pack. We have also had several important wins during the current quarter, including Vice Market, The Giant Company, and Mayer's. These listings within prominent U.S. market chains show important progress towards our goal of product availability in every major city in the United States. As of June 30, 2022, our products were in a total of 2,100 stores. During the second quarter, we made notable progress in our necessary transition, our refocus strategy, and our speed initiatives. We do recognize that the work is far from finished, and while we are in a better position today to focus on the path to profitability and growth, we still focus on further optimization of our business. Finally, I am excited to announce that last week, Veri was awarded the Food Network Supermarket Award for our cut above pork in the most noteworthy vegan newcomers category. I would like to give recognition to our R&D department for creating a fabulous product and for their leading innovation, an important cornerstone of our company, which is still very robust. Before I hand the call over to Prateek, I would like to take this opportunity to say that my appointment to lead our company is a great honor to me. Prior to joining Veri, I spent more than 25 years in the food manufacturing industry working for several industry leading companies. Here at Veri, I previously led our operations and know this company intimately from operations and market-facing perspective. I feel confident with our diverse portfolio of clean, healthy, plant-based alternatives and our strong brand. We will continue to gain recognition with vegan as well as flexitarian consumers, and that with our track record of innovation, we are well positioned to grow within a sizable and growing plant-based meat market opportunity before us. It is now my pleasure to introduce Prateek Patel, Chief Financial Officer, who will summarize Q2 2022 financial highlights. Thank you, Prateek. You may begin.
spk03: Thank you, Parmel. I would like to take this opportunity to say that I'm pleased to be here. It has only been a couple of weeks since I joined, and I can already see that VERI is an organization that is taking difficult yet important steps that will enable us to succeed. And now I'll cover some of the numbers. In Q2 2022, revenue was $1.5 million compared to $2.8 million in Q2 2021, representing a 46% decrease. Subsequently, revenue was down from $2 million Q1 2022 or 26%. The decrease in revenue was driven by a year-over-year decrease of $1.8 million in e-commerce sales, reflecting our stated intentions to focus on wholesale revenue. E-commerce orders fulfilled during the second quarter were at $381,000 down from $2.2 million in the same period of 2021, and down from $1.1 million in the previous quarter, Q1 2022. I would like to remind our shareholders that during the quarter, we made the strategic shift to focus on sustainable growth and a path to profitability, as opposed to solely focusing on top-line growth. As part of this shift, we decided to limit our e-commerce sales due to high digital marketing costs to acquire new customers. Wholesale revenue during the second quarter increased 117% to $987,000, compared to $455,000 in the same period of fiscal 2021. Sequently, wholesale revenue was up from $773,000 in Q1 2022 or 28%. General and administrative expenses during the second quarter decreased by 39% or $1.9 million to $2.9 million in Q2 2022 compared to $4.8 million in Q1 2022. Excluding share-based compensation and depreciation expense, adjusted general and administrative expense decreased by $1.6 million or 28% to $4 million in Q2 2022 compared to $5.6 million in Q1 The decrease in adjusted general and administrative expense was primarily driven by a decrease in salaries and wages. Marketing and investor relations expenses decreased by $1 million or 64% to $560,000 in Q2 2022, compared to $1.6 million in Q1 2022. On a year-over-year basis, marketing and investor relations expense decreased by 78% compared to $2.6 million in Q2 2021. The decrease in marketing and investor relations expense was mainly due to a decrease in marketing initiatives related to customer acquisition. Adjusted EBITDA was a loss of $7 million in Q2 2022 compared to $5.7 in Q2 2021 and $10 million in previous quarter Q1 2022. During the six months ended June 30, 2021, net cash used in operating activities was $14 million. As a result of the net loss for the period of $27.5 million, partially offset by a change in non-cash expenses related to share-based compensation of $14.6 million, finance expense of $764,000, depreciation of $841,000, and share and unit issued for service of $227,000. Net cash used in investing activities for the six-month and the June 30, 2021 period was $8.3 million due to capital expenditures and leasehold improvements incurred for the commissioning of Rupert Facility. In addition, we paid $1.3 million for the acquisition of the Cultured Nut and Lloyd James Marketing Group Inc. Net cash provided by financing activities for the six-month end of June 30, 2022, was $4.7 million. Net cash used in financing activities for the six-month end of June 30, 2021, was $3.2 million. During the six months ended June 30th, 2022, we recognized interest and accretion expense on the credit facility fee payable of $83,000 and interest expense of $229,000 related to the revolving line of credit and term loan. In Q2 2022, we incurred debt financing costs totaling $5.3 million, which will be amortized over the term of the credit facility at the effective interest rate. During the six months ended June 30th, 2022, we recognized accretion expense of the deferred financing cost of $1.5 million. As of June 30, 2022, the remaining carrying value of the deferred financing cost was $2.4 million. As of June 30, 2022, a total of $5.8 million was outstanding under the credit facility. On June 2, we closed the private placement offering with an institutional investor for gross proceeds of $8.2 million Canadian or $6.5 million USD. As of June 30, 2022, we were holding cash and cash equivalents $6.2 million, a reduction of $15.8 million from $21.2 million as of December 31, 2021. The decrease is primarily related to the company's prior commitments to capital expenditure and payables. As of August 15, our cash balance is approximately $3.2 million to settle current accounts payable and accrued liabilities of approximately $4.3 million. We will need to seek additional financing within the near term in order to fulfill our outstanding obligations and fund ongoing operations, and will be required to obtain subsequent financing by the end of September. To address liquidity, we have reduced cash outflows. We've reduced headcount, consolidated production to Vancouver, and limited capital expenditure. We are also continuing continually evaluating other alternatives of generating cash in the short term, such as disposing of non-core equipment and certain raw material inventory to extend current cash runway. I would also like to provide a brief update on our NASDAQ listing and the notice received in January for this year from the listing qualification department regarding our need to comply with the bid price rule. On July 11, 2022, we were granted an additional 180 days 180-day period for NASDAQ listing qualification department, or until January 9, 2023, to regain compliance with the minimum USD1 bid price required for continued listing on the NASDAQ capital market. We are evaluating all available recourse to regain compliance with the bid price rule, and we feel optimistic that we will be able to effectively respond to this requirement and maintain our NASDAQ listing. I will now turn the call over to Jordan, our Chief Commercial Officer, provide some more commentary on market outlook.
spk04: Thank you, Prateek. I will now talk about some of the important commercial highlights from our second quarter, as well as more recently, and would like to point to several of the positive indications we're seeing. We believe there's demand to co-manufacture products for brands in the natural and plant-based space. These opportunities are being explored as potentials to support further capacity utilization and increase revenues. Our innovation pipeline continues to be robust with innovations planned for 2023. We recently hosted a product ideation session with one of our core customers and are reviewing potential SKUs to meet this customer's needs. We are securing new and incremental shelf placement at our retail partners due to our innovative and value-added products that have clean ingredient decks, which is leading to increased consumer adoption. We executed an e-commerce summer sale with no CAC in conjunction with the reevaluation of the channel. Internally, we have determined that we can operate our e-commerce channel in select regions with no customer acquisition costs. We will examine the potential for additional seasonal promotions in 2022. Additionally, we continue to evaluate the e-commerce business on a monthly basis. We have set targets that we must meet for our e-commerce channel to continue But ultimately, our desire is to shift from an online presence to an in-store presence. In Canada, Q2 revenues grew by 117% compared to Q2 2021. We've surpassed 1,000 doors in Canada with recent listings in major accounts like Loblaws and natural and chain accounts in Eastern Canada. Our same-store sales continue to increase with the additional placement of our innovation SKUs, ribs, steak, and our butcher select lines. In Q2, we added 3PL distribution capacity across the United States, providing us with access and the ability to service major retailers that recently listed our products, including Wegmans, Giant, Meijer, Weiss, and additional natural and independent chain accounts, representing a total of 1,000 new doors coming on board. In food service, we focused on shoring up our team and have recently redeployed two members from our restaurant operations to the food service sales team to support our efforts. We've secured some initial distribution within the Canadian Food Service 3PL channels and have already seen repeat purchase orders.
spk00: Thank you, Paramel, Prateek, and Jordan. I would like to again remind our listeners to email invest at verygoodbutchers.com should you have additional questions related to this earnings report. Thank you for listening and have a good day.
spk01: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
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