Q3 2020 Tattooed Chef Inc Earnings Call

Thank you for standing by this is the conference operator, welcome to the tattooed chess third quarter 2020 earnings call.

As a reminder, all participants are in listen only mode and the conference is being recorded.

I would now like to turn the conference over to Rachel Perkins Investor Relations. Please go ahead.

Thank you good afternoon, and welcome to <unk> third quarter fiscal two the other 20 <unk> earnings conference call on the call today are Sam Bloody President and Chief Executive Officer, <unk>, Chief Creative Officer, and attaching shop and shop carve out Chief Financial Officer by now everyone should have access to the earnings release, which went out of pocket.

Only four or five PM Eastern time today November nine two houses funny, if youve not had a chance to review the release, it's available on the investors portion of our website at Www Dot statute shop Dot com.

Before we begin I'd like to remind everyone that the prepared remarks contain forward looking statements such statements involve a number of known and unknown uncertainties. Many of which are outside the company's control and can cause future results performance or achievements to differ significantly from the results performance or achievements expressed or implied by such forward looking statements.

Important factors and risks that could cause or contribute to such differences are detailed in the company's multiple filings with the Securities Exchange Commission, except as required by law. The company undertakes no obligation to update any forward looking or other statements herein, whether as a result of new information future events or otherwise.

In addition, within our earnings release and today's prepared remarks, adjusted EBITDA and adjusted EBITDA margin are referenced it is important to note that these are non-GAAP financial measures that we believe are useful metrics that better reflect the performance of our business on an ongoing basis. A reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures are included.

Today's press release, which has also been posted on our website and with that it's my pleasure to turn the call over attaching shops, President and CEO Sandy.

Thank you Rachel and good afternoon, thanks for joining us today on our first earnings call as a public company.

As many of you know the business combination between Intel International and for merger to became effective on October 15th and we have changed the company name to try to Chats, Inc.

I'll begin today's discussion with our revenue highlights a brief overview of the company and why we believe we're positioned for long term growth Sarah will discuss our innovation and the recent launch of our E. Commerce sites and then Chuck will provide greater detail on the financials.

First our third quarter revenue highlights. We are pleased to report revenue increased 65% to a record 41 million compared to the third quarter last year.

This reflects the highest quarterly revenue level in our history. It is important to note that this growth was driven by our job to Cherokee branded products, our branded product sales for the third quarter accounted for 55% of the total or $22.6 million compared to 5.8.

And in the third quarter last year.

Year to date, we reported revenue of 108.9 million and 87% increase year over year.

We believe we are positioned to continue our exceptional growth trajectory based on the range of growth opportunities. We have we're also excited to have strengthened our balance sheet as a part of the business combination consummated on October 15th.

As part of the transaction, we received $111 billion cash, which will allow us to invest in the business to capitalize on those opportunities more aggressively and effectively than we might have as a private company.

Well, we don't intend to lay out all of these plans today you can expect to hear more about capital expenditures to enhance our ability to scale the business faster and more efficiently.

[noise]. Additionally, spending on marketing and brand awareness to ensure the tattooed chef will become recognized by more consumers and businesses.

Additional sales resources, both internal and external reduce debt on the credit line, and resulting interest expenses and strategic acquisitions in short our growth has been excellent and we believe we have many levers to pull to continue to expand this business to new heights.

For those of you who are new to our story, let me take you back a few minutes to discuss our business try to chip has a ball isn't it from an importer the time vegetables and products.

Highly disruptive lifestyle brand that is capturing significant market share and growing the frozen plant food segment with our delicious innovative and show pre created products, we started selling private label products into whole foods and trader Joe's 10 years ago, and then 2017, we pivoted.

Focus on plant based foods and stare created the top two chip brands.

Fast forward to today, where brand focused with established private label capabilities, secondly to retail mass and club channels with the 100 total skews.

We've been recognized by our retail customers for our innovative and diverse product offerings ability to deliver and our vertical integration of manufacturing that provides consumers with delicious plant based meals, including but not limited to entre Bulls eye. So you can smell the bulls vegetables.

Lands and plant based pizzas.

Innovation is woven into the culture of our company and Sarah will touch more on this story shortly.

We have had extraordinary growth with revenue up from 48 million in 2018 to 85 million to 2019 and year to date sales of almost 109 million and we are well positioned for continued long term growth.

We participate in the 55 billion U.S. frozen food category, a 380 billion market globally, and we are lined with many major food trends play.

Plant based clean label organic high protein and sustainably and ethically sourced we have had the products and capabilities to compete across multiple categories within frozen food.

Going forward our growth strategy is centered around expanding and increasing distribution of the tattooed shep branded products with new and existing customers.

Year to date our branded.

Product sales of 60.6 million represents 56% of the total revenue, making the first fiscal year. The tattooed shell branded sales will surpass passed a private label, we expect that split to continue to favor the branded product.

And reach as high as 75% to 80% branded in the next two to three years.

Our expansion in the club stores continues to grow in the U.S., particularly in light of the popularity of the type two CEB brand with branded skews tripling from five to 15. This year. In addition, we now have our branded products and approximately 50% of Wal Mart stores up from so.

<unk> percent earlier this year.

With our recent store count increases at Walmart and our new partnership with target, where our organic cost that you booked in cold brew and dark chocolate small depots recently became available we have added over 2500 and mass channels growing from 1500 stores to over 4000 stores.

Yeah.

In retail we continue to set the foundation for broad market expansion or increased store in skewed distribution honor on trade goes smoothly bodes infection vegetable blends has in Greece increased our points of distribution since September.

Further we are proud to share a new distribution partnership with KCI, a leading national distributor of natural and specialty food products. The partnership will give tattooed schuff distribution access to more than 30000 stores across the United States.

Catchy chapter has its historically been a very lean organization and it's important that as we continue to grow we hire the right team to navigate the growth effectively and efficiently. We have added talent two key areas such as sales both internally and externally.

Marketing E Commerce, social media and finance I am proud of the team we have in our assembly and I'm excited to lead our ambitious efforts it was.

Guards to cope with 19, we have been fortunate that depend Denmark has been had a minimal impact to our business. Despite partial remote working conditions. Our operations were deemed essential and all of our facilities are currently open and operating both in the U.S. and Italy, we continue to closely monitor the situation.

And now I'd like to turn the call over to Sarah to Douglas to discuss our innovation and the launch of our new E Commerce site.

Thank you and good afternoon, everyone I'm excited to be here today on the very first earnings call.

As the creator of the taxi chips brand I am extremely passionate passionate about every product that we create in connection to the consumer and marketing demands, we provide delicious approachable and innovative products not only to the growing group of consumers, who seek to adopt a plant based lifestyle, but also to the mainstream market.

Our success rate on products launch to date has been extraordinary and we have a growing pipeline of new ideas innovation is woven into the culture of the company and we have proven our ability to successfully create and manufacture it new products and food concepts. Today, we have an innovation pipeline of over 100 plant based ideas, we have a portfolio of Tata.

X. defeat any consumer for any occasion, whether that be a meal snack or side dish for breakfast lunch or dinner, making us an ideal supplier for retailers seeking to offer complete plant based portfolio.

When I did we recently launched as a plant based pizza ball with Pepperoni me from a proprietary tied to check formula that is gluten free that is a gluten free meat alternative retailer and customer feedback has been positive and has been doing well. We're excited about the alternative space and believe there's value in adding high protein plant based meat to our growing pot.

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We are ecstatic to now offer a direct to consumer option for consumers our ecommerce site with my just two weeks ago on October 26, and the initial response has been overwhelmingly positive. It is a very exciting milestone for tattooed shaft, allowing consumers nationwide to seamlessly shops and have their favorite products delivered right to their door.

Well it is too soon to tell the financial impact of E. Commerce on the fourth quarter or longer term. We are optimistic about the revenue profit and cash flow. This new growth channel will provide us. We also believe the ecommerce site will help accelerate our brand awareness consumer reach and will be synergistic with the sales we drive through traditional club and retail grocery stores.

The site acts as their own virtual supermarket aisle and it will provide rapid distribution on new innovation items [laughter] to support our distribution wins and the recent kick off of our ecommerce site. We will we will be launching a strategic marketing plan to boost brand awareness trial and revenue since starting the company. We have invested a very we have invested.

Did very little in marketing, having focused mainly on grassroots efforts and we believe now is the time to seize the opportunity and invest in marketing we intend to announce further details on our marketing plan in the coming months I'm proud of what our team has accomplished a recent hires in marketing graphic design and E. Commerce will help support our accelerated growth and bring a level of.

Talent and expertise needed to bring tied to check into more households, now I'll turn it over to Chuck to walk through our financials.

Thanks, Sarah and Hello, everyone.

I'm very happy to join you today since joining the company at the end of August it's been my pleasure working with Sam.

There are definitely in the rest of the talented team here that future.

I'm excited to be part of the family and look forward to the continued success and growth.

Our portfolio of innovative plant power products.

I'll now review, our third quarter fiscal 2020 financial result.

Revenue for the third quarter up 2020 was 41 million.

An increase of 65% versus the 24.8 million in the third quarter of 2019.

Year to date revenue of 108.9 million increased 87% year over year.

As Sam mentioned the impressive growth was driven by an increase in sale Apache shell branded products within existing club and mass customers.

Ecommerce was just launched till October 26, but its.

Not included in our third quarter results.

A 30 minutes in the initial response in order to have been great and we're optimistic about potential.

Confident that the upcoming National marketing campaign will boost revenue across all channels as well.

During Q3, we made the business decision to grow brand awareness by participating in a digital promotions at Costco on our organic soluble.

This call is $1.4 million, which did not occur in the prior year period.

In return, we had exposure in all Costco stores across the United States, but roughly an eight week period.

This contributed to the point 7 million dollar gross profit decline between the period to 3.8 million for the three months ended September 32020 compared.

Compared to 4.5 million for the three months ended September 32019.

Gross margin in the third quarter of 2020 was 9.2% compared.

Compared to 18.2% in the third quarter of 2019.

For the nine months ended September 32020, gross profit increased $6.9 million.

The 16.8 million compare.

Compared to 9.9 billion for the nine months in the prior year.

Gross margin in the nine months ended September 32020 with 15.4%.

Paired with 17% in the nine months ended September 32019.

Operating expenses increased 4.8 million.

7.2 million so pretty much ended September 30, 2020 compare.

Compared to 2.4 million.

For the three months ended September 30 2019.

This was primarily due to 4.6 million and nonrecurring expenses related to the business combination.

As well as the point 6 million dollar increase in sales and marketing expenses.

Resulting from a shift in focus to building the pet to CEB brand had an initiative to accelerate sales the retail grocery store outlet.

As a percentage of revenue total operating expenses were 17.5% or the three months ended September 32020, compared to 9.5% for the prior year period.

Excluding the $4.6 million of transaction expenses operating expenses for the three months. Since September 30, 2020 would have been 2.4 million or only 5.8% of sales.

So when I looked at September 30, 2020, operating expenses increased 6.1 million to 11.6 million compared to 5.6 million for the nine months ended September 30 claim that thing.

Again, primarily due to the 4.8 million and nonrecurring expenses related to the business combination.

There's a lot of the 2.1 million increase in sales and marketing expenses, resulting of course shifting the focus of the tepid chef Brad.

And initiatives to accelerate sales to retail growth could slow.

As a percentage of revenue total operating expenses were 10.7% for the nine months ended September 32020.

Compared to 9.6% over the prior comparative period.

Excluding the $4.8 million of transaction expenses.

Operating expenses for the nine month in September 32020 would have been 6.9 million or 6.3% of sales.

We anticipate.

Dissipate operating expenses excluding transaction.

The increase as we expand our customer base.

Increased travel and selling schedule and built infrastructure to support operation as a public company.

Adjusted EBITDA 1.5 million for the third quarter decreased versus the 2.3 million in the third quarter last year.

The decrease in adjusted EBITDA was due to the lower gross profit from the Costco digital promotional program I spoke about a minute ago.

For the nine months ended September 30 2020.

Adjusted EBITDA increased by 5.9 million or 125.5%.

The 10 point Sixmillion compared.

Compared to <unk> point Sevenmillion in the nine months in the prior year.

The improvement in adjusted EBITDA was primarily the result of the increase in revenue burst.

Gross profit and operating beds.

Compared to the prior year period.

The full year EBITDA margin of 9.7%.

Despite the one type promotional effort the disruption from merger activity.

Navigating through the impressive growth is a true testament to the underlying earnings power of the pet to chip.

Following the completion of our business combination of October 15, 2020.

We now have cash on hand of approximately $95 million.

And only 5 million outstanding on our line of credit.

[laughter].

That's the fourth quarter were well positioned to continue our year over year growth.

We anticipate approximately 39 million in revenue in the fourth quarter, which would represent a 46% growth versus the 26.8 million in the fourth quarter of last year.

We also expect to continue to deliver bottom line profitability, despite increased spending on cost to scale the business.

Thats required to be a public company and investment such as marketing and brand awareness.

Despite these increased expenditures, we anticipate our adjusted EBITDA to be approximately 2.5 million for the fourth quarter.

Although it's difficult to look too far to the future. We believe we can increase our revenue another 50% and 2021 that exceed 220 million in revenue and deliver strong profitability, while investing in long term growth initiatives to enhance the business and overall shareholder value.

Yes.

With that I'd like to turn the call back over to Sam.

Thanks Chuck.

In closing our team has done a tremendous job throughout this extraordinary year and I'd like to thank all of them for their hard work and dedication.

We have had strong revenue growth year to date and see our opportunities for future growth with both new and existing customers and ecommerce heading into 2021, we believe tattooed chef is well positioned to increase brand awareness expand distribution and launch innovative products.

We look forward to speaking to you again at the Jefferies Bridgeville West Coast Consumer conference on November 16th.

Have a good day.

This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

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