Stryve Foods Inc. Q1 2023 Earnings Call
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Speaker 2: Good afternoon ladies and gentlemen, and welcome to the Strive Foods First Quarter Fiscal 2023 Financial Results Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please return to your seats.
Speaker 2: Please press star zero for the operator. This call is being recorded on Monday, May 15, 2023. Now I would like to turn the call over to Sandy Merton, three part advisors to make introductions and read the safe harbor statement. Please go ahead. Thank you operator and welcome to the Strife Foods first quarter earnings.
Speaker 3: 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.
Speaker 3: 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 2 and not a Substitute 4 GAAP.
Speaker 3: the Investor section at ir.strive.com. Also, the earnings press release is posted on our website. With that, I would now like to turn the call over to Chris Beaver. Chris?
Speaker 4: Thank you, Sandy. Welcome and thank you for joining us for our first quarter earnings call.
Speaker 4: We reported our 2022 year end results a few weeks ago, where I detailed the progress of our transformation, the changes in improvement in strategy, structure, process, culture, and capabilities are mostly in our rear view.
Speaker 4: We are now executing against the sizable opportunities in front of us, advancing into the next phase of our plan, growth, which leads to profitability. We are now executing against the sizable opportunities in front of us, advancing into the next phase of our plan. We are now executing against the sizable opportunities in front of us, advancing into the next phase of our plan.
Speaker 4: Special thanks to my strive team members, your commitment and efforts are appreciated and recognized.
Speaker 4: expanding our fast growing line up of carnicecats with a new flavor chipotle honey. We are also excited to be entering into the large and growing meat stick segment with the fastest growing brand in the jerky segment, Vacadeles, introducing two terrific offerings, Chili Lime and Habanero beef sticks. Vacadeles air dried sticks deliver important consumer benefits, higher grams of protein than the category leader, no sugar, no preservatives, only ingredients that consumers can pronounce and they taste great.
Speaker 4: With these attributes, it's no surprise that we now have a total of three flavors of carne second and two B-sticks available at approximately 10,000, 7,11 and Speedway locations across the country. That's about 80% of their footprint.
Speaker 4: Since the launch in mid-April, we are encouraged by the early indicators of the consumer response. The second announcement on April 20th was the capital raise of $4.1 million. $4.1 million.
Speaker 4: This was action to support our near-term distribution growth, shipping in Q2, driven by innovative platforms and extensions, our Folds of Honor partnership on the Strive brand, our new brand positioning and packaging to complement our strategy along with investment in quality.
Speaker 4: The portfolio has been rationalized and optimized.
Speaker 4: simultaneously we created and are now implementing and executing the strategic imperatives. We have been aggressively managing cost, investment, cash, and more. Our performance management plan supports those objectives, goals, strategies, and metrics.
Speaker 4: and the organization is executing now as one team.
Speaker 4: Enterprise-wide alignment is a key component as we become a true operating company.
Speaker 4: I am very pleased about the response from our retail partners to our new category strategy, which is designed to expand and grow the category.
Speaker 4: numerous distribution wins are being awarded across all classes of trade.
Speaker 4: I shared a slice of specific customer gains on the earnings release, those that are already in market.
Speaker 4: Numerous more have been awarded and will mention is very encouraging. We will update as additional retailers add new and or expand existing items to the category.
Speaker 4: once they are physically in store.
Speaker 4: The proof points outlined for growth are real and meaningful. The opportunities are abundant.
Speaker 4: We will have many more to communicate throughout the quarter and beyond.
Speaker 4: The new strategy is working and we are just getting started.
Speaker 4: We are focused on driving trial with strategic pricing, quality merchandising, in-store execution, labor-saving, retail-ready case packs, complimentary marketing messages, and display vehicles to include cause marketing initiatives with Folds of Honor, a Triotic Pack.
Speaker 4: We have built the foundation and we have proven that we are focused on building a great company that is maniacally managing costs, driving productivity, improving cash consumption, expanding margins, investing for return, and improving the growth of our economy.
Speaker 4: and growing in a manner that will deliver profitability.
Speaker 4: Drive 2.0 is addressing everything we do and how we do it.
Speaker 4: You are starting to see the impact that changes are having in the numbers. Our thoughtful and planned approach to growth combined with the operational improvement is our recipe for success.
Speaker 4: The foundation we have built in just a few quarters.
Speaker 4: Demonstrates that our simplifies, prioritize agenda, sequence and executed was what was and is required to drive value to all stakeholders.
Speaker 4: We expect to grow at a rate well above the meat snack category, with accelerating consumption.
Speaker 4: Ultimately earning gains in market share.
Speaker 4: We will not grow at all costs. We are partnering with retailers collaboratively to help them compete and grow their share. We will expand margins with operational improvements. We will keep costs down and we are committed to deliver a profitable, innovative, growing company.
Speaker 4: With the very best tasting better for you offering, this category has ever seen.
Speaker 4: As we have previously shared, we have adopted a zero waste mantra.
Speaker 4: We now have several value generating initiatives where the team has discovered and implemented ways to eliminate and monetize the waste, providing solutions that enhance our economic outcome and environmental impact. In addition to the two-tails pet trees,
Speaker 4: We are now selling shelf stable protein and green juice to manufacturers of meals ready to eat kits or MRE kits.
Speaker 4: Both of these initiatives are supporting proof points that the new strife delivers against our commitments. Thank you very much.
Speaker 4: Later this month marks my first year with Strive.
Speaker 4: the speed that we have progressed.
Speaker 4: and are executing on cost and cash management productivity combined with optimizing the portfolio, which has included rationalization, renovation, and innovation has been truly impressive.
Speaker 4: We continue to set new records for the company performance, and we have demonstrated that we will deliver on our commitment. Our first quarter was our third consecutive quarter of improved year-over-year operational and financial results, with narrow losses and improved adjusted EBITDA.
Speaker 4: We are reaffirming our net sales guidance for 2023.
Speaker 4: 2023 in a range of 28 million to 34 million.
Speaker 4: We will keep you informed as we accelerate performance and share the many more proof points that are in our future.
Speaker 4: Now I will turn the call over to Alex.
Speaker 4: I will turn the call over to Alex. Thanks Chris.
Speaker 5: As Chris shared, Q1 was our third consecutive quarter of improved year-over-year bottom-line results and expanded margins.
Speaker 5: Evidenceing that our turnaround actions and process improvements have begun to take hold across the organization.
Speaker 5: With a significantly improved price value proposition on new products, repeatable operational processes, better procurement of direct materials, and improving yields, we believe we are building a more stable and sustainable operating company.
Speaker 5: As part of that, we have materially reduced cash operating expenses and narrowed losses again this quarter.
Speaker 5: We have also made further strides to establish a leaner, more productive organization with streamlined operations and better offerings than we are well positioned to accelerate to profitability with the requisite growth in volumes. We believe that the second quarter, although not there, will be an important proof point for the company.
Speaker 5: As investors will begin to see what an impact increased volumes can have on our optimized fixed variable cost structure.
As we messaged in our urine call a few weeks ago, we believe many retailers managed down inventory levels over the winter and holiday periods with orders diverging from consumption.
And as expected, we saw things to begin to normalize late in the first quarter. As Chris mentioned, we have seen positive traction with new distribution wins this year, which will be the primary driver of growth in our business 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 the second quarter will yield
step function growth on a sequential basis due in large part to new distribution winds coming online.
Let me now walk you through the financial results for Q1. Net sales were $4.6 million compared to $7.4 million in a year ago quarter.
These results are generally in line with what we expected for the first quarter, and we anticipate acceleration starting in the second quarter consistent with our guidance.
Our gross profit for the quarter was 963,000 or 20.7% of net sales compared to gross profit of 1.1 million or 15.1% of net sales in the year ago quarter. This is evidence of our pricing and productivity agenda taking hold.
that despite our volumes, we've shown a 560 basis point improvement in our gross margin year-to-year.
Recall that we intentionally reduced our volume through our multi-faceted rationalization program to refocus the company on its quality core revenue streams. We believe that Q2 will represent the turning point where the transformative changes show up meaningfully in the gross profit numbers as our volumes ramped significantly versus Q1.
and mitigation strategies.
We previously committed to you that we would remove 50% of operating expenses in the back half of 2022, which we actually exceeded. We were committed to you that you would remove 50% of operating expenses in the back half of 2022, which we really did not.
And we have improved on that cost structure since those changes were made.
In addition, we kicked off a project to optimize our footprint throughout the organization, including the headquarters, more to come on that in future calls.
The first quarter net loss was 4.6 million or 15 cents per share. This favorably compares to a net loss of 7.3 million or 25 cents per share in the prior year quarter. Our loss per share amounts were impacted by the change in weighted average shares upstanding from 29.8 million shares in last year's first quarter.
to 31.3 million shares this year for Q1. The adjusted loss per share was 14 cents for the first quarter, which compares favorably to the adjusted loss per share of 23 cents in the year ago quarter.
Finally, our adjusted EBITDA loss for the first quarter was 3.5 million. In line with Q4 of 2022, our lowest adjusted EBITDA quarter in the history of the company.
Q1's 3.5 million compares favorably to the adjusted EBITDA loss of 6.3 million a year ago. You can find the gap to non-gap reconciliation at the end of today's press release.
Q1's 3.5 million compares favorably to the adjusted EBITDA loss of 6.3 million a year ago. You can find the gap to non-gap reconciliation at the end of today's press release. Turning to our balance sheet in financial position.
At the end of the first quarter, we had approximately $377,000 of cash and cash equivalents with positive networking capital excluding cash and debt.
of 6.3 million, with a council receivable of 3 million and inventories of 8.3 million. Recall that we have a line of credit based on a council receivable and inventory to further support our liquidity needs. Since putting this line in place last fall, we have 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. As we discussed in our prior call, some substantial retail distribution wins for Q2 were secured because of our new products and packaging.
Accordingly, while we continue to build up newly packaged inventory to support these resets, we trade through our existing inventory of legacy packaging, which helps to explain the steady inventory levels we see from Q422 to Q123, despite our initiatives to bring down our overall inventory levels. We anticipate that once this transition is complete,
that our inventory levels will come down over the balance of the year. As Chris mentioned, we recently secured $4.1 million of debt financing for the near-term ramp-and-quality distribution. The $4.1 million financing is in the form of secured promise-wary notes that the boardnated to strive senior lenders.
and the notes of crew interest at a rate of 12%. Each lender received warrants to purchase one share of Class A common per 51.34 cents of principal outstanding, for a total of approximately 7.95 million warrants that are immediately exercisable.
at the strike price of 51.34 cents per share and will expire in three years and three months from the data issuance. Supported by this financing and our line of credit, with the acceleration of revenues, we expect cash consumption to decline as we take steps toward 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.
With respect to guidance for the year, we expect full year net sales to fall within a range of 28 million to 34 million with our first quarter sales representing the low point for the fiscal year.
While top line results in that range will show mostly flat to modest growth overall when comparing 2022 to 2023 recall that our rationalized run rate sales base was estimated to be approximately $20 million at the end of Q4 of 2022.
So that means with this guidance range that we anticipate growing our quality core business by over 40% year over year in 2023.
We continue to believe that we will drive meaningful improvements throughout our supply chain and as our plant volumes increase to support our distribution wind in Q2, we expect to see a several-point improvement in our gross margins.
In subject to any externalities, we expect that with consistent volumes and commodity pricing, gross margins continuing to scale into the mid-30s by year end.
With that, I would like to turn it back to Chris.
Thank you Alex.
We are pleased with our first quarter results, which gives us further confidence in our strived 2.0 plan and our progression of operational and financial improvements for 2023. We will gain awareness, trial and penetration with our simplified and clear demand generation strategy.
A brand and channel segmented approach that amplifies our benefits, optimizes our priorities and delivers the consumer and shopper a more findable presence in store with an improved experience at home or on the go. We expect strife to outperform, outperform the category in terms of growth.
Thanks to our focus on branding, quality, productivity, and execution. We've 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 and a responsible matter that the lights are consumers, elaborates 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. 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 for questions. I would like to open the line for questions.
confidence is high and my commitment is unwavering. With that, I would like to open the line for questions. Opera.
Thank you. Ladies and gentlemen, we will now conduct the question into answer session. Should you have a question, please press the star, followed by the one on your touch tone phone. You will hear a three-tone prompt acknowledging your request. If you'd like to withdraw your request, please press the star followed by the two. If you are using a speaker phone, please lift the handset before pressing any keys.
Your first question comes from Alex Furman with Craig Hallum. Please go ahead. Hey guys, thanks very much for taking my question and congratulations on some of the big distribution wins that you've announced recently. I wanted to ask about the composition of your revenue guidance.
for this year uh... you know it sounds like what when all said and done on the top line revenue is going to be you know something around thirty million dollars which is you know what you've done the last two years in a row now but if i'm if i'm hearing everything correctly with these new
winds with seven eleven and whole foods and speedway it sounds like the way you're going to get to that thirty million dollars is probably going to look a lot different than what you've done the last couple of years so can you talk about you know what this year is going to look like compared to the last couple of times you've done
thirty million dollars of revenue and how might the business you know not to get too far ahead of themselves and look into next year but you know with with the base of of doors that you're going to do that revenue this year you know how might you be positioned for growth in future years
Hey Alex, thanks for the question. I'll take a first stab at it and then Alex, you can add some color. With the fast.
turn around that we've done in the organization to really right size the organization and be just absolutely disciplined around every single investment or cost that impacts the organization. We have moved an apparelil path to reposition for some significant demand generation.
I've been doing this for Ohio and be able to do both of those at the same time is pretty amazing. So as we were doing it, we're now out, you know, basically informing and selling and consulting with our retail partners to get more distribution and more stores with more brands and better locations.
So as you see the year unfold, we anticipate that you'll see it rise up sequentially each quarter. With the second quarter, as we said, being one that's going to be a big inflection point from Q1 to Q2. You'll also see versus historical the behavior of chasing volume at any cost, which will not be repeated.
We are a for-profit company in business and so are our retail partners and we aim to be able to deliver category solutions that deliver for both of us, for both of our shared consumers and shoppers. So as we continue to gain more and more customers and they come online, many we already know they're already in the bag and closed. They just haven't shipped it and then in stores.
So you'll see that continue to grow starting in Q2 in the consumption numbers. We'll inform you when a product starts showing up in retail as a sort of C2R retail partners. We would never want to let them let their competition know what's going on in their stores and when it would be happening.
So we can assure you that there's a lot of new winds coming on board from many many very well recognized Re-kill banners out there, but we are just getting started. There's many more in the in the works and as we continue to close more We'll see that acceleration happen We'll meant them the beautiful thing and momentum is starting to build
And that's when we will, I think, take it to the next level and you'll see that continue to grow. But we will not repeat and chase big, big programs and basically create negative value destroying outcomes for our shareholders and companies. So we're going to be really disciplined. We're going to do it the right way.
and we're going to build this foundation stronger and stronger and then we'll keep building the next level, the next level and to the skyscraper that we're going to create. Well, thank you for that question. I'll see if you can add any of the color that would be great. Sure, just as far as rough channel commentary, you know, eat.
Direct to consumer e-commerce was a very material portion of the business historically, anywhere in the 30 to 40% in that sales range. As time has gone on, as we've shared before, that market has just fundamentally changed and became not the right way for us to drive value and to grow this business. And so we shifted our efforts.
to this wholesale retail distribution, getting out there and building the market potential there is significantly higher and it's more valuable revenue, more profitable revenue in the long run on a bottom line basis. And so there has been a shift there from a channel standpoint and we'll continue to see that.
as the growth potential of retail distribution is just so much more significant than online. Online's still something that we'll pursue, but it's not gonna be a core driver of our business or our growth moving forward, we're really focused on retail distribution.
Okay, that's really helpful. Thanks both of you and then just kind of follow up, you know, tying some of that together. I mean, what is the path, you know, over the next couple of years to 50 million and beyond of revenue look like? I mean, is it just a matter of, you know, getting the product in more doors?
You know, is it conceivable that you could get, you know, kind of up to a $50 million revenue level in the doors that you're already in and have just announced, you know, with a little bit more velocity? Just, you know, if you could kind of unpack the growth algorithm of how you get from here to a more meaningful revenue level. So, you know, what brand is the $400 million is not the best sort of financial database data right now? So, you know, what brand is the best sort of financial database data right now?
Yeah, thanks again. We are anticipating providing some longer term guidance and ranges and how we're going to deliver the thresholds that will be breaking through. But you can do it in a simple math. There's about 5 billion in measured channels category sales, about 10 billion estimated for the total category, including not measured. Today, we have about a half a share.
And that's with our current offering.
With the renovation, with the innovation, with the known distribution gain, we anticipate gaining and earning a significant interest in share.
We've been very conservative in velocity estimates and improvements from our new packaging, which we expect to start to be shown in the marketplace, leading Q2, but certainly into the back half. We are very confident based on our research and working with retailers as well that we're going to see a velocity increase.
So even if everything remained equal and we didn't gain distribution points, we're pretty confident we would gain share. With that being said, we're gaining TDPs at very, very high value distribution customers, which represent a lot of the ACV. Today, we have about 16% ACV with under two skis on average.
and we have a half a share. We aim to certainly rise up to a significant level above that. And the math would play out of that. You get a three share, you get a five share, you get a 10 share, you can do that even if the category was flat. And we got nothing from Measure Channel. So we see a lot of potential here, a lot of potential to break through some of those.
You know, numeric threshold that you outlined, whether it be the 30 million to the 50 to the 100 million and way beyond that. We've got an innovation agenda that will supplement and fall in line behind our current renovation innovation that we're currently deploying in the marketplace. Some of them you'll start to see in the show in the coming months and others are still concepts ready to be...
developed and launched in concert with retailers engagement.
versus just creating SKUs and then proliferating and creating more complexity for the sake of chasing that revenue growth. We're going to be mindful because we're not going to leak it on the back end. We're going to be operators. We're going to collect and connect our demand growth to our supply response and ensure that while we're growing,
We're expanding margins at the same time and operating very efficiently as a team to not only expand gross margins, but to maintain and hold our cost structure so we deliver that profitable outcome.
Alex, if you have anything else I'd like to share on that. Sure, I would just say, as we've guided a lot, Q2 is going to be a very different looking in quarter for us once we report. And I think you're going to see.
the impact that just a few key retailers, right, can have on our top line performance. And that is still not even scratching the surface of the overall market potential that Chris was just walking through. And I think that you'll get a really clear sense in just a couple of months.
of how quickly this can grow because of our low base. Okay, that's really helpful. Thanks, Alex. Thanks everyone.
of how quickly this can grow because of our low base. Okay, that's really helpful. Thanks, Alex. Thanks, Chris. Appreciate the responses.
Thank you. Thank you. As a reminder, should you have any questions? Please press the star followed by the web. There are no further questions at this time. Chris Beaver, please proceed.
Thank you for your interest in our company. We look forward to providing an update of our progress, our second core results, and a few short months. Have a great evening. Thank you.
Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and I say you please disconnect your lines.