Q1 2022 Tattooed Chef Inc Earnings Call
[music].
Greetings and welcome to tattooed chef first quarter 2022 conference calls.
Greetings and welcome to Tattooed Chef first quarter 2022 conference call. At this time, all.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn the conference over to your host Devin Sullivan Senior Vice President.
The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star 1.
I would now like to turn the conference over to your host, Devin Sullivan, Senior Vice President, Equity Group.
Equity group, Thank you and over to you.
Thank you. Good afternoon, everyone, and welcome to Tattooed Chef's 2022 First Quarter Financial Results Conference Call. On the call today are Sam Galletti, President and Chief Executive Officer, Sarah Galletti, Chief Creative Officer and the Tattooed Chef, and Stephanie Dykman, Chief Financial Officer.
Thank you good afternoon, everyone and welcome to tattooed chefs 2022 first quarter financial results conference call on.
On the call today are <unk>, President and Chief Executive Officer.
Sergey Leddy, Chief Creative officer in the tattooed chef and Stephanie Dykeman, Chief Financial Officer.
Matt Williams, the company's chief growth officer, will also be available for questions.
Matt Williams, the company's Chief growth Officer will also be available for questions.
Earlier this afternoon, the company issued its press release, a copy of which is available in the investor section of the company's website at www.tattooedchef.com.
Earlier this afternoon the company issued its press release, a copy of which is available in the investors section of the company's website at www Dot tattooed chef dot com.
Before we begin, I'd like to remind everyone that the prepared remarks contained forward-looking statements. Such statements involve a number of known and unknown uncertainties, many of which are outside the company's control and could cause future results, performance, or achievements to differ significantly from the results, performance, or achievements expressed or implied by such forward-looking statements.
Before we begin I'd.
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 could 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 companys filings with the securities and 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.
Important factors and risks that could cause or contribute to such differences are detailed in the company's filings with the Securities and Exchange Commission. Except as required by law, the company undertakes no obligation to update any forward-looking or other statements herein, whether as a result of new information, future events, or otherwise.
In addition, within the earnings release and in today's prepared remarks, adjusted EBITA as referenced it is important to note that this is a non-GAAP financial measure that the company believes is a useful metric that better reflects the performance of its business on an ongoing basis. A reconciliation of this non-GAAP financial measure to its most directly comparable.
In addition, within the earnings released and in today's prepared remarks, adjusted EBITDA is referenced. It is important to note that this is a non-GAAP financial measure that the company believes is a useful metric that better reflects the performance of its business on an ongoing basis.
A reconciliation of this non-GAAP financial measure to its most directly comparable GAAP financial measure is included in today's press release, which has also been posted on the company's website.
GAAP financial measure is included in today's press release, which has also been posted on the company's website.
With that said it is my pleasure to now turn the call over to <unk>, President and CEO Sam Galletti Sam. Please go ahead.
With that said, it is my pleasure to now turn the call over to Tattooed Chef's President and CEO , Sam Galletti. Sam, please go ahead.
Thank you Devin.
Given that we just reported our full year 2021 results in March, we will keep our remarks brief.
Given that we just reported our full year 2021 results in March we will keep our remarks brief.
Our first quarter performance and 2022 outlook reflect the resiliency of our model, the success of our investments and initiatives to meet growing consumer demand for plant-based food and the scope of the opportunities that we are pursuing.
Our first quarter performance and 2022 outlook reflect the resiliency of our model the success of our investments and initiatives to meet growing consumer demand for plant based food and the scope of the opportunities that we're pursuing.
The realities of COVID, along with global inflationary pressures, are inescapable.
Realities of Covid, along with global inflationary pressures are inescapable.
To mitigate their effects, we are investing in activities that support our vertically integrated operating model and advance our strategies of product, innovation, distribution, marketing, and strategic implementation.
Mitigate their effects, we are investing in activities that support our vertically integrated operating model and advance our strategy of product innovation distribution marketing and strategic M&A.
To be successful, we must continue to plan conservatively, adjust accordingly, and act with conviction, just as we've done since becoming a public figure.
Be successful we must continue to plan conservatively.
Accordingly, and accurate conviction, just as we've done since becoming a public company.
The initiatives we undertook in 2021 to increase our capacity, elevate our brand profile and expand our retail footprint are yielding results.
The initiatives, we undertook in 2021 to increase our capacity calibrate elevate our brand profile and expand our retail footprint are yielding results.
We delivered our best ever quarterly revenue since coming public in 2020 with 2022 first quarter net sales of 72 million.
We delivered our best ever quarterly revenue since coming public in 2020 with 2022 first quarter net sales of $72 million.
Branded product sales rose 21% from last year's first quarter and were driven by a significant increase in U.S. distribution points, increased volume at existing retail stores, and new product introductions.
Branded product sales rose, 21% from last year's first quarter.
And were driven by a significant increase in U S distribution points.
<unk> volume at existing retail stores and new product introductions.
We are focused on building demand for our products and attracting and retaining consumers to our brand.
We are focused on building demand for our products and attracting and retaining consumers to our brands.
During the first quarter of 2022, we added more than 10,000 points of distribution and branded SKUs rose to 90 from 78 at the end of 2021. We continue to expand our store count and now are available in more than 16,000 stores, tripling our store count since the same time last year. This has led to a doubling of our ACV as well to 54% of the U.S. MULO market.
During the first quarter of 2022, we added more than 10000 points of distribution and branded Skus rose to 90% from 78 at the end of 2021.
We continue to expand our store count and now are available in more than 16000 stores tripling our store count since the same time last year. This has led to a doubling of our ACB as well to 54% of the U S <unk> market.
Consumption data for the first quarter is measured by spins IRI continues to prove our strategies are working. We are the fastest growing health and wellness brand in the categories in which we compete, which include frozen appetizers and snacks breakfast entrees vegetables and plant based brewers.
Consumption data for the first quarter as measured by spins IRI continues to prove our strategies are working.
We're the fastest growing health and wellness brand in the categories in which we compete which include frozen appetizers that snacks breakfast entrees vegetables and plant based burgers.
And <unk>, our consumption and sales are up 49, 6% versus one year ago for example, and frozen breakfast foods, we grew retail dollars, 32% and remain the number one health and wellness brand as measured by spent.
In MULO, our consumption sales are up 49.6% versus one year ago. For example, in frozen breakfast foods, we grew retail dollars 32% and remain the number one health and wellness brand as measured by spins. In the frozen plant-based entree category, Tattooed Chef is now the second ranked health and wellness brand only behind Amy's Kitchen and growing the fastest of all the top five brands in the category.
In the frozen plant based entre category tattooed shaft is now the second ranked health and wellness brand only behind Amy's kitchen and growing the fastest of all the top five brands in the category.
Tattooed Chef Dollar Velocity and Unit Velocity in the same category are double that of the leading brand in the category.
Tattooed chef dollar velocity in unit velocity in the same category are double that of the leading brand in the category.
Frozen entrees remain one of the largest categories in the aisle, and we clearly have momentum and are taking market share.
Frozen entrees remained one of the largest categories in the aisle and we clearly have momentum and are taking market share.
Despite significantly higher domestic and international logistic costs, our gross margins rebounded from 2021 fourth quarter to 11.3%. And we remain on plan to achieve our annual gross profit targets of 10 to 12% for fiscal year 2022.
Despite significantly higher domestic and international logistic costs, our gross margins rebounded from 2021 fourth quarter to 11, 3% and we remain on plan to achieve our annual gross profit targets in 10% to 12% for fiscal year 2022.
We are confident we can continue to capture, share, and further establish our presence in the growing and global plant-based food market.
We are confident we can continue to capture share and further establish our presence in the growing and global plant based food marketplace.
Scale will help us achieve this goal. We currently operate five facilities comprised of approximately 315,000 square feet of manufacturing space.
Scale will help us achieve this goal. We currently operate five facilities comprised of approximately 315000 square feet of manufacturing space.
This includes our California facility, which also serves as our headquarters, our New Mexico operations, which we acquired in May 2021, Ohio, which we acquired in December 2021, and our facility in Presetti, Italy, where we grow much of product.
This includes our California facility, which also serves as our headquarters our new Mexico operations, which we acquired in May 2021, Ohio, which we acquired in December 2021, and our facility in <unk>, Italy, where we grow much much of product.
Today, we expect these facilities to generate $280 million to $285 million of revenue in 2022.
Today we expect these facilities to generate 280 to 285 million of revenue in 2022 with the capacity at present to produce upwards of 600 million in annual revenue over the next two to three years.
With the capacity at present to produce upwards of $600 million in annual revenue over the next two to three years.
Leveraging this scale is a key focus for 2022.
Leveraging the scale is a key focus for 2022.
We are focused on driving efficiencies and making the investments necessary to put us on a path to achieving long term sustainable profitability under the leadership of our COO Gaspar grassy, we are introducing automation and robotics across our company, our automation and robotics initiatives will allow us to improve.
We are focused on driving efficiencies and making the investments necessary to put us on a path to achieving long-term sustainable profitability. Under the leadership of our COO, Gaspar Gorasi, we are introducing automation and robotics across our company.
Our automation and robotics initiatives will allow us to improve operational efficiencies, increase production capacity, lower operating and labor costs, increase gross profit, and meet our long-term ESG strategy.
Operational efficiencies increased production capacity lower operating and labor costs increased gross profit and meet our long term ESG strategy.
We are also committed to fortifying our vertically integrated operating model by bringing certain capabilities in house.
We are also committed to fortifying our vertically integrated operating model by bringing certain capabilities in house.
This not only provides us with more control, but is also designed to generate material cost savings.
This not only provides us with more control, but it is also designed to generate material cost savings.
For example, we are near completion of the construction of our in-house food and safety inspection laboratory within our California facility.
For example, we are near completion of the construction of our in House food Safety inspection laboratory within our California facility.
Our turnkey raw material and finished goods cold storage facility located in Vernon, California, became operational in April 2022.
Turnkey raw material and finished goods cold storage facility located in burn in California became operational in April 2022.
This facility will house refrigerated, frozen, and ambient goods. As we discussed on last quarter's call, we estimate that this facility will produce in approximately 50% annualized cost savings as compared to using third-party storage with initial savings expected to be realized in the current second quarter.
Facility will house refrigerated frozen and ambient goods as we discussed on last quarter's call. We estimate that this facility will produce an approximately 50% annualized cost savings as compared to using third party storage with initial savings expected to be realized in the quarter in.
In the current second quarter.
We are also diversifying our product mix outside of the freezer aisle to refrigerated and ambiance.
We are also diversifying our product mix outside of the freezer aisle to refrigerated and ambient.
This not only broadens our retail shelf space, but it also introduces products that carry lower production and shipping costs when compared to frozen products.
This not only broadens our retail shelf space, but it also introduces products that carry lower production and shipping costs when compared to frozen products.
Our New Mexico facilities commenced the production of Tattooed Chef burritos and quesadillas during the first quarter of this year and is slated to produce salty snacks by the end of 2022. Ohio is scheduled to commence production and distribution of our refrigerated Tattooed Chef oat butter bars in the second quarter of 2022.
Our new Mexico facility has commenced the production of <unk> burritos in case of deals during the first quarter of this year and is slated to produce southeast snacks by the end of 2022.
Ohio is scheduled to commence production and distribution of our refrigerated tapped your chip oat butter bars in the second quarter of 2022.
We are very proud of what we have accomplished.
We are very proud of what we have accomplished, and I am more excited and optimistic than ever about where we can take this grant in the years ahead.
I'm more excited and optimistic than ever about where we can take this brand in the years ahead.
Still, we are mindful that we are operating in an environment with more than its fair share of economic uncertainty. We will therefore take a measured approach to our growth, balancing expansion with prudent fiscal management and initiatives designed to deliver material ROI. We have to date operated with exceptional low leverage for a high growth company and will maintain that posture as we continue to expand our business and brand.
We are mindful that we are operating in an environment with more than its fair share of economic uncertainty. We will therefore take a measured approach to our growth balancing expansion with prudent fiscal management and initiatives designed to deliver material ROI we.
We have to date operated with exceptional low leverage for a high growth company and we'll maintain that posture as we continued to expand our business and brands.
I'd like to turn over the call to Sarah to discuss our innovation and marketing initiatives.
I'd like to turn over the call to Sarah to discuss our innovation and marketing initiatives.
Sarah.
We started off the year strong by introducing a slate of new products designed to satisfy everybody's plant-based size.
We started off the year strong by introducing a slate of new products designed to satisfy everybody's plan B side.
These delicious plant-based foods have been created to appeal to the nostalgia we all feel for our favorite childhood meals made in a sustainable, healthier way.
These delicious plant based foods have been created to appeal to the nostalgia it all.
Sales for our favorite childhood, Neil made in a sustainable healthier way for.
For example, our plant-based pizzas are one of the signature items that put Tattooed Chef on the map and continue to be some of our fastest turning SKUs.
For example, our plant based pizza is one of the signature items that put tattooed check on the map.
We need to be some of our fastest turning Skus America.
Americans on Pizza.
Frozen retail pizzas alone are a $6 billion business, up 9% year over year as of April 2021, according to IRI data.
Frozen retail pieces, allowing our $6 billion business up 9% year over year as of April 2021, According to IRI data.
This year, we are expanding the plant based pizza experience with both unique flavor profiles.
This year we are expanding the plant-based pizza experience with both unique flavor profiles
and nostalgic flavors. Some of my personal favorites are our new vegan wood-fired pizzas including the Rainbow State, Killer Bee, and Brock and Roll. Our innovation will allow consumers to experience different cuisines and flavors in a delicious, 100% vegan, wood-fired pizza, and we are excited to see them in the market.
And it sounds like flavors because of my personal favorites are music in wood fired pizza, including the Rainbow.
B and Bakken wrong, our innovation will allow consumers to experience different cuisines and flavors and a delicious 100% begin wood fired pizza and we are excited to see them in the market.
Our new frozen product categories include handheld burritos, both breakfast and all occasion, as well as quesadillas and Mexican entrees that incorporate a variety of tasty plant-based meat alternatives and ingredient combinations, such as the plant-based chorizo and egg burrito, the plant-based al pastor quesadilla, and plant-based chicken mole enchiladas.
Our new frozen product categories include handheld burritos.
Breakfast and all occasion as well as Kcbs in Mexican entrees that incorporate a variety of P. C plant based meat alternatives and ingredient combinations such as the plant based <unk> and Ed Grito.
Plant based <unk> and plant based chicken mole enchiladas.
Mexican cuisine as a category is lagging behind others when it comes to plant-based innovation. Mexican food is now more popular than hamburgers in American dining. We see a true unmet need in this category and believe it is ready for a chef's modern take on traditional Mexican cuisine.
Mexican cuisine as a category is lagging behind others. When it comes to plant based innovation Mexican food.
Now more popular than hamburgers and American dining, we see a true unmet need in this category and believe it is ready for chefs modern take on traditional Mexican cuisine.
We are also significantly expanding our vegan line across several of our existing product portfolios by incorporating vegan eggs, cheese, and proprietary meat alternatives, including plant-based pork, into our meals.
We are also significantly expanding our <unk> line across several of our existing product portfolios by incorporating <unk> eggs cheese and proprietary meat alternatives, including plant based pork into a meal.
And finally, we are expanding beyond the freezer aisle with our refrigerated oat butter bar. We wanted to create a better bar than what is available today in terms of nutritional benefits and taste. We knew that we could compete by coming out with something different, yet familiar, and tap into the next trends of what consumers are looking to buy. This is one of the first bars made with oat butter and to be adaptogen-powered. The concept is Feed Your Mind, with a focus on brain fuel and reducing anxiety.
Finally, we are expanding beyond the freezer aisle with a refrigerated out better bar, we wanted to create a better bar than what is available today in terms of nutritional benefits.
We knew that we could compete by coming out with something different familiar and tap into the next trend with what consumers are looking to buy this is one of the first part.
Better MTBE adapters empowered the concept with feed your mind with a focus on greenfield and reducing anxiety.
<unk> today are still packed with sugar soy are filler ingredients that are not familiar to consumers.
Every ingredient in our bar has a purpose are tattooed Chuck Berger game for free gluten free non GMO campaign, no sugar alcohols and have between 12 to 15 grams of protein per bar.
In terms of our marketing efforts as we have shared in previous earnings calls our goal is to meet consumers, where they are across TV social channels retail and experiential event. In 2022, we are accelerating with the most aggressive marketing to date more than doubling our spend to build consumer awareness and engagement.
In Q1, we did a significant TV by reaching 280 million U S consumers.
We're pleased with the results to date as we saw an increase in household awareness growing from 11% at year end, 2021% to 17% at the end of Q1.
In addition to continuing our television advertising spend we rolled out new social campaigns and programming designed to expand our community build loyalty towards <unk> brand.
Awareness for our evolving product lines I will now turn the conversation over to Stephanie for a discussion of what our results.
Stephanie.
Good afternoon, everyone.
Ladies and gentlemen, the line for Stephanie Dykeman is disconnected, so you're trying to connect with Stephanie dykeman.
Please go ahead. Please stay connected thank you.
Yes.
Okay.
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Yes.
Yes.
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So ladies and.
And we have Stephanie dykeman online with us.
Mr. Eichmann. Please go ahead.
Yes.
We apologize everyone for the delay good afternoon, everyone revenue increased 37, 3% to $72 1 million during the first quarter.
Up from $52 5 million in the first quarter of 2021. This growth was driven by several factors, including a 21, 2% increase in tattooed chef branded products.
And to a lesser extent growth in private label.
First quarter revenues also benefited from $2 $9 million of advertising in relation to Costco sales that are not likely to recur later in 2022.
Cost of goods sold increased 41, 1% to $63 9 million in the first quarter of 2022 from $45 3 million in last year's first quarter due to higher revenue and inflationary pressures that resulted in a significant quarter.
<unk> over quarter increases in material costs logistic costs cold storage expenses and labor expenses.
Specifically, great path for fourth first quarter, 2022 were $10 million compared to $7 8 million first quarter 2021, there was a 2% increase as a percentage of legacy comparable sales.
As a result gross profit with $8 2 million or 11, 3% of revenue compared to $7 2 million or 13, 7% of revenue in Q1, 2021.
While gross profit declined from last year's first quarter. It was a significant improvement from the gross profit reported in the immediately preceding fourth quarter of 2021.
Sure.
As Sam mentioned, our new dedicated cold storage facility became operational in April 2022, and we expect to realize the associated cost savings. This quarter. We expect that gross margin will also be positively impacted as we transition the acquisitions in both new.
Mexico, and Ohio from private label co manufacturers and the manufacturing tattooed chef branded products during 2022 and 2023.
And as we expand our product mix into the refrigerated and ambient space.
Over the longer term our investments in automation will allow us to increase our production capacity improve yields and decreased labor cost within our current manufacturing footprint.
Operating expenses rose to $24 8 million in the first quarter of 2022 from $14 2 million in last year's fourth quarter.
This increase was driven by $3 5 million increase in marketing expenses, a $2 4 million increase in operating expenses from acquired facilities. During later quarters in 2021, a $1 8 million increase in professional expenses, a $1 5 million.
The increase in payroll and recruiting expenses $1 1 million increase in finished goods cold storage expenses, which were offset by $2 million deep.
Decrease in stock compensation expense.
Net loss was $17 6 million or negative <unk> 22 cents per diluted share as compared to a net loss of $8 2 million or negative <unk> 11 per diluted share.
Adjusted EBITDA was negative $13 4 million in the 2022 first quarter compared to an adjusted EBITDA loss of $3 4 million in Q1 2021, the quarter over quarter variance was due primarily to the substantial increases in cost that resulted.
In lower gross margins as mentioned earlier, we continue to maintain a strong financial condition.
At March 31 2022.
Cash was $57 4 million and long term debt was 0.6 million net cash used in operating activities was $26 4 million.
$21 4 million of which was attributable to an increase in accounts receivable, reflecting significantly higher sales in Q1 2022.
Capital expenditures were $8 8 million and primarily reflected down payments made on new equipment for automation during 2022.
Our outlook for 2022 is unchanged, which we believe is appropriate given the persistent inflationary environment and backdrop of supply chain constraints, we expect 2020 to annual revenue of $280 million to $285 million gross margin.
10% to 12%.
Marketing expenses of 27% to 32 million and capital expenditures of $20 million, primarily focused on automation and robotics.
You all for your attention and I'll turn the conversation back to Sam.
Thanks, Stephanie.
Let's open the call for questions from our analysts.
Thank you.
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One moment, please while we poll for questions.
Yeah.
Thank you.
Our first question comes from the line of Brian Holland with Cowen and co.
Please go ahead.
Yes, thanks, good evening everyone.
The gross margin if I could.
Came around came in right around the midpoint of the full year guide.
As we look out over the balance of the year is it your expectation that <unk> would be the lowest gross margin quarter of the year just your latest thoughts on the cadence.
Around that would be helpful.
Our thoughts regarding the cadence for gross margin are this quarter will fall in line. We expect that next quarter will be roughly the same at with some pick up in Q3 and Q4 due to the cold storage facility that we put in place plus the automation and robotics that we've discussed in the operations.
Thanks.
Oh perfect.
Just on the Opex came in about 20% higher than I modeled im not sure what that looks like or what that looks like relative to internal plan, but is that the right number for a baseline here as we project out over the balance of the year definitely I. Appreciate you walk you through kind of the the line by line drivers of that increase but so.
Maybe it would be helpful to get some perspective on which of those numbers stay do any of those items sort of wear off as we go through the year.
So kind of a similar question around gross margin just focus on the Opex side.
So within the operations expenses, we had a couple of things that happened during Q1 2022, and one of them is that $2 9 million advertising that I mentioned and so that doesn't recur later in 2022, we had additional expenses.
In audit fees and legal due to the restatement that occurred for 2021 and then we also participated in Expo West and it was really important to us as tattooed shot to really be a big presence at that shell and so there were expenses that were set to really show up to Expo west and really bring.
Tattooed shaft to the floor on a spectacular way.
Okay. So appreciate that so then maybe said another way then.
If I ask whether Q1 gross margin would be the low watermark for.
For 2022, as Opex Q1, Opex sort of a high watermark for the year and that number could gradually sort of come down or should we be thinking about it roughly consistent with what we saw this quarter.
High market for the year.
I expect it to come down in Q2, Q3, and Q4 this year and we'll really see that stabilization in next quarter.
Okay I appreciate that and then just last one.
Cash flow and obviously Q1 with book faster than what I was forecasting a gross margin stable in Opex comes down maybe that helps a little bit less but just probably two questions. But it's definitely you said last quarter balance sheet would be sufficient to carry over the next couple of years I'm curious whether that still holds.
I guess with Sam <unk>.
You've made a couple of acquisitions over the past year Theres, obviously jump in marketing spend this year I'm hearing about the investments in technology and automation just kind of given the unprecedented inflation that we've seen you talked about being prudent can you just kind of give us some thoughts and some examples maybe about where you are trying to be nimble.
With this plan to sort of navigate what obviously is that.
Essentially unprecedented backdrop right now for CPG.
Hey, Brian Let me take cash first because I think the cash is incredibly important and then I'll turn it over to Sam.
On the cash flow, we look at cash burn I think that we really need to keep in mind that with the growth in revenue that our accounts receivable came up over $21 million as compared to Q4 2021, and then when you combine that with the $8 $8 million that we sit in down payments on capital expenditures.
In Q1, I think that when we start to talk about cash for in that kind of goes away at the $2 nine and marketing there are some other marketing expenses that are prepaid and that cash flow is not nearly as significant so we're still pretty.
Were pretty good as far as gas is concerned certainly for the next 12 months and probably longer than that without there being any concern also I'd like to remind everybody that we had zero point $6 million in long term debt, we're not a company out there thats big.
In financing our purchases whether it be our acquisitions our capital expenditures, we are working with our bank.
On a credit facility.
And that would be there as a safety net that made sense as we go through this year and next year into the future Sam do you want to take the other questions sure.
Hey, Brian how are you doing.
Good to hear.
The way.
The investment that we've already made here in captured chef since we started this is pretty.
With these acquisitions that we made is going to be we're at a place today, where we have all of this overhead now.
Guidance to be $2 80 to $2 85, well like Stephanie mentioned within this infrastructure now that we built out we could do like $600 million in sales is what our projections are so we went from this small privately held company and then we had to over spend to catch up to be a publicly.
<unk> traded company, but now we have all these acquisitions that we've made that we're just trying to ramp up here with Sarah's innovation. So we're not even selling any chips and we're not selling any bars and we're not really launched our Mexican food lion, except for some I mean, we still we started with the burritos in case of Ddos.
We're in Kroger and we've got some great distribution going but we feel that that is a tremendous opportunity in plant based Mexican food. So now we have all of this infrastructure that we're paying for everyday had a guidance of 200 to 285.
And within that infrastructure with now very minimal additional cost we could do so much more on revenue. So we built this platform and now we've got this infrastructure will continue to build this team. So so yes I mean.
If we werent here with these inflationary issues I mean, it would be so much more messing smooth, but it would be so much more of a interesting ride so now where theres a little bit of headwinds, but it's like.
We could win the way Im looking at this thing as we're doing what we're doing 400 $500 million in sales and now our increases our costs will increase minimally so we're going to be driving costs down increasing sales and so I really do believe that we have a really excellent opportunity here to.
<unk> gross margins.
We're not even discussing yet but.
We're really in the right position going forward here.
Thanks, I appreciate it I'll hop back in the queue best of luck.
Thank you.
Thank you. The next question comes from the line of Rob Dickerson with Jefferies. Please go ahead.
Great. Thank you so much.
That's sort of question.
The revenue side.
So I think I heard in the prepared remarks.
Around Costco and that might not repeat for the remainder of the year and then.
If I think about the guide for the year right.
What did that implies essentially you'd be doing kind of a similar.
Revenue run rate per quarter as you did in Q1.
So kind of I'm guessing.
There is kind of more in Q1 may be coming from costs, you may get a little bit less in Q2, but then it kind of comes back up.
The latter part of the year.
That's the first question is kind of what was the cost per piece and then the second piece was just.
In terms of the guide on the revenue side.
Does that include.
I'll ask what does that include does that only include current business kind of what's your visibility on current products does that include anything kind of on the innovation side with some of the Mexican based products or bars or what have you. Thanks.
Hey, Ralph it's Stephen here, so the $2 9 million that I mentioned for Costco was actually advertising expense.
It won't recur so it's actually in our operating expenses, but when we talk about the growth at Costco or things like that.
Also will come down some in Q2.
And in Q3, and Q4 not sequentially come down, but Q1 is always our biggest quarter with Costco, what we're looking at in Q2, and Q3 and Q4 and I am sure that Matt can add to this is the business that we generated last year with new retailers and with Skus and building onto that remember that.
We get the full year advantage of that this year, which we did not in 2021 and so we've got that built in there are some things coming up that we have vision and that we had four side of that are built in but for the most part it really existing business theres nothing out there that's hanging for our revenue goals. This year that could have been or maybe will.
Matt do you want to add to that.
Yes.
Obviously, we have commitments built into the latter part of the year that.
Have not obviously hit the market yet so we've obviously included that in the guidance.
Clearly the innovation pipeline that we're feeling.
With the Mexican entrees like Sam mentioned again, we have we have some commitments that were very that are that were.
Working towards getting ready for shipping obviously in Q3.
<unk> in Q4 as well as the end of Q2, and then also bars. So we've already started to gain commitment from our distributors as well as some early customer reads on bars being built into our plan as well we.
We don't have a lot of.
Revenue built in for the chips as of right now just due to timing.
But we do expect that to be part of our Q3 and Q4 numbers.
At some point as well.
I just like okay perfect.
Hi.
Rob just one additional thing Rob.
The one thing that.
People.
When we first came out and we were very.
Skewed towards club.
Yes.
There was like a lot of focus on Hey club is is could be fleeting.
It's really.
It's just it's one customer and it's so much volume and the stability from this company will be when we really are able to launch into all the different retail convention of retailers across the United States and that is really what was what people were looking from us to tap to chat and not be so dependent on Costco is to be.
Is to diversify our business and that's what's happened I mean, if I was in the earnings report, we said that last year. We were at 5000 stores and now we are in 16000 retail stores. So that's exactly what people were looking at is not to be so so.
So so much we're just club and that's what we've accomplished in the last year and we're very proud of that.
Alright.
And then.
Hi, Jess.
Kind of a basic question.
In your conversations with retailers now welcome you Im sure Theres, some skus, depending on the retailer that do better than other skus.
Yes have you expanded the doors, obviously want to be able to expand your total distribution points.
Every day you could.
Is it kind of a conversation that's occurring now.
Look this is what we've done so far we have new innovation.
Obviously, youre looking to take shelf right within the freezer.
It doesn't sound just kind of by your tone that theirs.
Very much pushback on the retailer side, they might not take 50, skus that are new but.
Obviously sounds like there is some reception to bringing in new skus off of the new innovation, while holding the ground with your other points of distribution.
Well, Rob just so this is yeah you know Matt go ahead, but you go ahead.
No I think Rob that is obviously the strategy.
Not only is it I mean I don't think it's just about them wanting to accept tattooed shelf Skus I think it's also that we are bringing skus.
And the doors that are kind of ripe for plant based innovation. So I think it's also not just the brand is is proving itself out where we are.
Jamie distribution, where we've gained distribution historically.
But we're also bringing innovation.
That's in line with what consumers are looking for so I think those are the two things that are really working in our favor.
Obviously, the Mexican line is.
Where we're really emphasizing the push now as well as breakfast.
These are like I said categories right for innovation with plant based.
And we're seeing a lot of early acceptance of that.
We had CRO overtake three skus kind of right out of the gate as part of our review.
100 stores, they're continuing to.
Be very bullish on the brand.
Our velocities when we enter these new categories, we obviously have to benchmark off of it.
Usually the market share leader.
In that case it was amy's.
And that that breakfast category.
REO category and worker.
Hunting right at kind of Amy's level in terms of velocity. So that is the model I mean, we still have a lot of runway in terms of.
Distribution and closing distribution gaps with customers, but it's really about the right SKU assortment and in reaching.
That target of 30 skus per per chain and we're already there we have four retailers right now.
In different parts of the country that are now carrying.
Over 30 Skus.
Sure Peter that is right that is now there.
Loans as well as.
Hey on the crude up in the northeast.
Okay.
So it's the strategy and and that's obviously us bringing continue to ring prep plant based innovation too to the freezer aisle.
Alright, great and if I can just sneak one kind of simple one for Stephanie.
In terms of the $21 million in the account receivable.
Chip.
I respect that number.
Changes.
Kind of.
Yes.
Bill.
Is there like it.
Timing is the timing visibility is severity when that reverses out or should we be thinking as you.
Post your revenues for Q2, we assume that there is the same level, let's say is Q1.
Got that.
It would still be kind of.
The piece of it within working cap.
Yes.
So when it comes to accounts receivable, we will see the accounts receivable come down some in Q2, it really had more to do with timing.
Promotions and things like that at Costco, which remember that we always participate in these things Costco runs organic months' Sam's club are unhealthy for you. During Q1, it's not really a tapering off of anything it just happens to be a very wonderful time in Q1 to be in plant based foods, particularly with everybody coming out of the holiday season, so that.
Being said, we will see accounts receivable come down some in Q2, but if we are starting to you revenue in these numbers than accounts receivable will be higher than it was at the end of Q4 2021, but not at this level in Q2, and we will start to stabilize in Q2 Q3 Q4 in that accounts receivable balance.
Okay makes sense. Thank you.
Thank you.
The next question comes from the line of George Kelly with Roth Capital Partners. Please go ahead.
Yes.
Hi, everybody can you hear me.
We can source okay, great. So first question for Stephanie.
Just to go back to the.
Earlier question about kind of cadence of growth.
Margin and operating expenses, so if I go through and run.
Those numbers it sounds like they both should.
Be helping EBITDA throughout the year and it sounded just with gross margin improvement in the operating expenses coming down like.
I guess the question is is there a chance of you reaching EBITDA breakeven.
Quarters this year could you.
Can you provide any kind of timing for your expectations around that.
Our expectations remain unchanged from what they were at the end of 2021, and which we believe that we start to see breakeven.
Positive adjusted EBITDA in the back half of 2023.
Don't feel that there will be a significant.
Loss on adjusted EBITDA as there is in Q1 due to some of our Frontloaded expenses that just occurred during Q1.
But we will start to see operating costs come down some because those Q1 expenses arent there that we already talked about and so we will see that Q2, Q3, and Q4, which would have a positive improvement on our adjusted EBITDA. We just don't think that it will get to breakeven in 2022, and we feel that it's more important still at this moment in time too.
They can spend the marketing money and continue to build that household awareness and get tattooed chef into distribution and we are still holding more inventory in our hands today than we would during a normal year with a ramp up in growth to help make sure that <unk> does not have supply chain issues that tattooed chef is able to be on the <unk>.
Everywhere, we can possibly put in at this time George.
Okay, Okay, Great Hey, George George This is Sam.
I just wanted to jump in here too.
I think it's really unique about.
About the company is that we have so many levers to be able to pull from to increase our gross margins by being a manufacturer. If we were a typical brand that was getting co pack, we wouldn't be able to buy the capex and the equipment and the robotics, we wouldn't be able to get our own cold storage is.
To be able to save money, we wouldn't it's not just raising our price to fix all and potentially <unk>.
Rising ourselves out we have so many more we have so much more opportunity in so many more levers to pull on that we do really think we're going to be profitable by the end of next year and this company be between all of the things that are going on and then increasing our sales with all the different because as we discussed in the past.
As the chips the bars, they command a higher gross margins and frozen also so there's so many there's so many ways that we believe that we can be profitable in this in the company.
Okay. Okay, and then next question.
So $43 million I think was the number for branded in the quarter can you two questions about that can you quantify the contribution from foods in new Mexico and Belmont in that branded line was there any in the second question.
Is.
If you are running now at about a $200 million premium business annualized.
How quickly should we expect.
Those acquired businesses how meaningful.
Well the contribution from them once they start selling more branded I mean should it be a material number for second half of this year 2023.
So as of right now George the branded products out of New Mexico, and Ohio are very little to the overall tattooed chef Brad we're still in the process of converting those facilities over to tap These Jeff Matt and his team are out there working hard I can promise you that an kroger did see the first loss of the breeders in case the deal.
During Q1 that were made in our new Mexico facility, but those are things that come into play more so in the back half of this year and certainly by 2023. Please remember that the bar that we talk about wealth macro, Ohio and the continued entre lives for the plant based Mexican food.
We'll come out of new Mexico.
And I guess just more broader gannett.
I'm going to try one more time, but how quickly.
Once they are up and running and it sounds like you have good early distribution youre getting good reception from retailers and show these products, but I mean is this going to be.
Yes.
Within a couple of years.
Curious.
Okay.
I don't want to put time I guess two quick.
What does it look like right now you can sort of fill in any detail just about how quickly they should ramp.
I would say that by next year in new Mexico for sure should be a serious contributor both in the.
New Mexico food distributor facility and in the Carson facility Carsten will be up and running later this quarter and that's of course, where we've talked about salty snacks and things of that nature, but I think that thats really more 2023 as Matt mentioned earlier on this call, we haven't really baked that into our guidance for this year and as.
As we want to say, Hey plant based bar will be ready to make them at the end of Q2, but I don't know how much meaningful to the overall annual revenue that those borrowers will have in 2022 and 2023 I think is where we'll see the real contribution I think overall, if you were to ask each of US individually, we would have a different idea of what that product mix should be between.
Kathy Jeff brand and private label, but I think that where we truly want to see is between 75% 80% branded.
With the remainder being private label.
Okay, and then last question for me.
Curious if you've taken much price and do you feel like pricing is in a good place now and then the second part of that is.
Have you seen much sort.
Sort of shifting consumer.
Consumer behavior buying patterns, just based on where your prices are currently set.
So I'll take private label pricing and the demand that over to Matt some of the others.
So we've taken pricing very selectively on some existing private label on some existing co manufacturing business. We continue to look at our structure and determine the role that price can play to improve our margins. While also taking into account the future automation and robotics that we're putting in and what we can do on our side too.
We can really evaluate where pricing needs to come through Matt do you want to talk about tap you sharpen our.
Our demographics and what our buyers what the consumer's looking forward.
Yes, I think that first George we have seen some of the market share leaders in our space, obviously take pricing.
Have been.
Very close to that and monitoring our pricing as it relates to our.
Okay category and kind of how we stack up to them obviously geographically.
Clearly trade is an area that we're very focused on as a way to mitigate a wholesale price increase at this point in order to drive effectiveness in terms of our overall.
Promoted pricing, so that's really where we're focusing today.
But as you would expect as we've seen.
Pricing kind of move North we do obviously see that our market share is gaining we had our best consumption period.
Of our company's history in Q1.
Obviously that is very positive and we expect that as pricing does.
Continuing to move north toward that that will obviously benefit us because we have been one of the higher priced brands within the space, where we sit today.
Okay. That's helpful. Thank you.
Thank you.
Thank you.
Ladies and gentlemen, we have reached the end of question and answer session.
I would like to turn the call back to Sam <unk> for closing remarks.
Yeah.
Thank you everyone for your participation today, we have a number of conference appearances scheduled over the next month, including event sponsored by Cowen and company Oppenheimer Jefferies.
Forward to telling our story at these events and hope to see some of you there have a great day everyone.
Thank you. This concludes today's conference you may disconnect your lines at this time and thank you for your participation.
Yes.
Okay.
Okay.