Q2 2023 Stryve Foods Inc Earnings Call

Good afternoon, everyone welcome to the strive for second quarter of fiscal 2023 financial results Conference call.

All participants will be in lesson only mode.

Should you need assistance. Please you know accomplished passenger pecina Starkey followed by zero.

After todays presentation, there will be enough to tune in to ask questions to ask a question. You May Press Star then one on your house John phone cause try your question. Please press Star then two.

Today's event is being recorded.

Now I'll turn the call over to Sandy Martin three part advisors to make introductions I'll read the Safe Harbor statement. Please go ahead.

Thank you operator, and welcome to the strike Foods second quarter earnings Conference call with me today are stripes, Chief Executive Officer, Chris Fever, and Chief Financial Officer, Alex Hawkins before we begin I would like to remind everyone that part of our discussion today will include forward looking statements that are made pursuant.

The safe Harbor provisions of the private Securities Litigation Reform Act of 1995 forward looking statements by their nature are uncertain and outside of the company's control actual results could differ materially from these expectations. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them.

We do not undertake to update these forward looking statements at a later date and they only referred to today. In addition, today's call will include a discussion of non-GAAP financial measures, including adjusted EBITDA and adjusted EPS non-GAAP financial measures should be considered as a supplement to and not a substitute for GAAP.

Financial measures, we refer you to the reconciliation of non-GAAP to the nearest GAAP measure included in today's earnings press release for further detail. This call is being webcast and can be accessed through the audio link on the news and events page of the investor.

<unk> and I are dot strive dot com and the earnings press release is posted on our website and with that I would now like to turn the call over to Chris fever, Chris.

Thank you Cindy and welcome and thank you for joining us for our second quarter earnings call.

I have completed my first full year I am proud of the significant accomplishments of the team has achieved we are a new company. One that is now an excellent position to deliver against our full potential we have transformed the company from one with a net loss of $44 million in the 12 months prior to our transfer.

The one that has improved that by 26 million with a rate of maturing improvements each and every quarter.

One that loss of $11 4 million, an adjusted EBIT last year in the second quarter.

Net loss of only $2 4 million and 5 million less in revenue.

Our pride is hot.

We are more determined than ever to build off the foundation created.

And the momentum we are generating.

Upon reflection my first year will drive it is important that we highlight several accomplishments from our transformation.

We have streamlined prioritize the organization better leveraging our talents and assets we.

We have simplified our portfolio consistent with our strategy of eliminating approximately two thirds of our skus.

We executed two separate twitchy actions better reflecting inflation restoring grows well.

Our gross margin potential.

We have introduced and now embedded productivity into our culture that will continue to drive enhanced enhancements through our P&L.

We have clear measurable goals aligned cross function, ensuring organizational focus.

We have conducted research and are now leveraging consumer and customer insights to better understand what's working and what's not.

We have listened to these insights analyze and right now actually in the voice of the consumer and customer.

Have created and are launching new strategic plan positioning.

Clearly segmenting each brand the role of each brand.

Complementing the broader category innovative solutions.

We have address product quality are.

Consistent high quality consumer experience utilizing process discipline, focusing on our core products we have.

<unk> instituted a zero waste culture, ensuring we are not simply delivering better proteins.

Also it responsibly, ensuring also responsibly, ensuring we are better for the planet.

Have developed innovative capabilities, including our pipeline of ideas that are prioritized and focused for multi year growth and margin expansion.

We developed and launched into the meat snack meat snacks segment.

On both thrive and back into those brands.

Nick and bite for them, which is over half the current category dollar sales.

I want us to all stakeholders that we are maniacally focused on the management and oversight of cost resources investments capital debt all aspects related to cash.

In parallel we have gained nearly a 20% increase.

Total points of distribution improved our price mix by nearly 16%.

Created momentum in our top one.

As evidenced by the most recent 12 week spins data, where we have delivered nearly 35% growth in measured channels.

The amount of progress aggregate Lee is impressive.

Immensely appreciative of my teammates we are energized and committed to the next phase of our journey.

Livery growth and profitability.

In mid July we provided preliminary financial highlights for the second quarter of 2023 and announced a reverse stock split that was effective on July 14th.

In line with our second quarter sales range, we recorded net sales of $6 million of the company's second fiscal quarter ended June 30th.

We knew at the beginning of the year, we face the challenge.

We faced challenges forecasting with precision given our SKU rationalization renovation innovation agenda and distribution plans for 2023 juxtaposed with retailer in category dynamics.

Lots of moving parts and our transformation over the 12 months.

The new stride has already started to demonstrate momentum in our business with meaningful opportunities in front of us.

Our changes and improvements and strategy structure process culture and capabilities.

Cleared the way for us.

Growing sequentially.

We continue to execute multiple sizable opportunity in front of us advancing the next phase of our planned growth which leads to profitability.

It's our last earnings call, we have been executing on two important and meaningful accomplishments.

Recall, our innovation launch of the Internet of the Vaca deals brand, where we expanded our basketball and line up exactly with a new flavor Chipotle honey.

To make it the fastest growing brand in the jerky segment.

We also entered into a large and growing meat snack segment with factor D is introducing two terrific great tasting offering surely line and had been enrolled beef sticks.

Back in New York are drive these to deliver important consumer benefits higher Gramza poking 14 Grand.

No sugar no preservatives only ingredients that consumers can put out versus the category leader, which delivers only six grams of protein with a very different ingredient.

With these attributes it's no surprise that we are encouraged by the consumer response.

Q2 was driven by innovative platforms and extensions are folds of honor partnership on stride brand, a new brand positioning with the new package starting.

Starting to transition in store.

Our portfolio has been rationalized optimized simultaneously.

And we created and are now implementing and executing the strategic imperatives we.

We have been aggressively managing cost investments cash and more.

Our performance management plan supports the objective objectives goal strategy and metrics.

Organization is executing as one team.

Enterprise wide alignment is a key component as we become a true operating company.

I continue to be very pleased about the response from our retail partners to our new category growth strategy focused on assortment optimization.

Many retailer category reviews are underway.

Actual distribute distribution wins are being awarded across all classes of trade.

We will continue to experience increases in distribution and velocity.

As always we will share those one active in store.

Our new strategy is working and we are just getting started we.

We are focused on driving trial with better in store tactics, along with a new compelling marketing campaign inclusive of folds of honor patriotic pets.

We have built the foundation, we are proving that we are building a great company, one that responsibly manage costs drive productivity expands margin improves cash builds brand.

Consumer loyalty collaborates with retailers.

Greater market share and invest.

Strategically for return.

We are growing and we will grow faster and we will deliver profit.

With that growth.

You're starting to see the impact of changes are happening in our numbers.

We expect to grow at a rate well above the meat snack category with accelerating consumption ultimately earn even more gain in market share.

We will not grow at all costs, we're partnering with retailers.

Laboratory executing on the fundamentals distribution shelving merchandising pricing.

We will enhance margins with operational improvements.

We will keep costs down and we are committed to delivering a profitable.

As a growing company.

The very best tasting better for you offering this category has ever seen.

We continue to beat the drum about zero waste culture, we now have several value generating initiatives.

The team has discovered and implementing ways to eliminate and monetize what was formerly known as waste.

Providing solutions that enhance our economics and our environmental impact.

In addition to two kills pet treats we are now selling shelf stable ingredient.

Manufacturers of ready to eat.

Kit or M. R E kits.

Both of these initiatives are proving to be incremental to our core business.

As many of you know prior to strive I had the privilege to be a part of a successful turnaround.

Learn what it takes.

Ownership clarity focus discipline engagement teamwork patient.

And consistency.

The speed that we have progressed.

Executing on cost management and productivity combined with optimizing the portfolio.

<unk>, the rationalization renovation and innovation of our multi brand portfolio has been.

Really impressive.

We are delivering on each and everything I said, we would cause I outlined our new strategy.

We continue to set new quarterly records for company performance.

We have demonstrated that we deliver on our commitments.

Our second quarter was our fourth consecutive quarter.

Proved year over year operational and financial results.

With narrowed losses.

<unk> adjusted EBITDA.

Transformations of this magnitude.

Require fixing creating and building for a company our size.

Undoubtedly will create choppiness or timing of each and every metric, especially revenues.

Given our given our stage distribution.

Yeah and will be a significant growth driver.

Whats, great variability and the timing and scale of revenue flows as we continue to gain scale.

Better visibility will be an outflow leading to increased predictability over time.

With that being said.

We continue to accelerate improvements in all we do.

Inefficiently narrowing the rate of losses.

With prana and expectation of profitability in the near future.

With that I'll turn the call over to al.

Yeah.

Thanks, Chris.

It's Chris sure Q2 was our fourth consecutive quarter of improved year over year bottom line results.

And we know that our turnaround actions and process improvements have begun to take hold across the organization.

With a significantly improved price value proposition on our new products.

Peter BOLE operational processes, better procurement of direct materials and improving yields we are building a more stable and sustainable operating company.

As part of that we have materially reduced cash operating expenses and narrowed losses again this quarter.

We've also made further strides to establish a leaner more productive organization with streamlined operations and better offerings, and we're well positioned to accelerate profitability with the requisite growth in volumes.

As we messaged in our year end call a few months ago we.

We believe many distributors and retailers manage down inventory levels, beginning in the fourth quarter of 2022.

With orders diverging from consumption.

And as expected we saw more normalcy in the second quarter of this year.

But that's normal fee with respect to orders tracking consumption.

Not a restocking to historical inventory levels to be clear.

And as Chris mentioned, we've seen positive traction with new distribution wins, this year, which will be the primary driver of growth in our business for the foreseeable future given that we are just beginning to scratch the surface of the retail market with our superior offerings.

We continue to believe that it only takes just a few retail wins to yield step function growth on a sequential basis.

The size and scale of the category and our retail partners.

Let's walk through the financial results for Q2.

Net sales were $6 million compared to $10 9 million in a year ago quarter.

The year over year decline was what we expected for the second quarter.

Afflicting, our rationalization of nonprofit auble revenues that occurred in the prior year period.

Our gross profit for the quarter was $1 $1 million or 17, 5% of net sales compared to negative gross profit of $4 4 million in the year ago quarter.

This improvement on lower volumes underlines the importance of our decision to rationalize the nonprofit will revenue streams.

As a reminder, late last year, we intentionally reduced our volume volumes through a multifaceted rationalization program to refocus the company on its quality core revenue streams.

This margin improvement.

Is also further evidence of our pricing and productivity agenda, taking hold.

On a sequential basis, our net sales are up over 29% versus Q1 of this year.

This reflects new distribution wins, and our improved retail consumption data over the last few months.

Operating expenses for the second quarter were $4 4 million, which compared favorably to the prior year Q2 of $11 5 million and sequentially from Q1 of this year of $5 2 million.

We continued to show progress in our cost elimination and mitigation strategies.

We previously committed to you that we would remove 50% of operating expenses in the back half of 2022 which we delivered.

This quarter, we eliminated 62% of our operating expenses versus the prior year period.

And we have continued to improve on that cost structure, while also improving our in market performance. This year.

I would like to highlight and call out what could be an unexpected change for some investors to our interest expense from Q1 to Q2 of this year.

Which moved from approximately 400000.

To around $900000 in Q2.

This increase was primarily tied to the issuance of $4 $1 million of notes and associated warrants in April of this year, which was compounded greatly by the accounting treatment of these warrants which differs from how the company has accounted for its warrant issuances in the past.

These warrants are separate financial instruments under GAAP accounting.

Since they were issued in connection with the debt instrument. They are booked on the balance sheet using the relative value method and ammar amortize similar to debt issuance cost into interest expense over time.

This noncash interest expense started in Q2, and the amount of zero point $4 million and will be fully amortized by our fiscal year end.

The second quarter net loss was $4 $3 million or 2.52 0.0 $5 per share.

Recall that we implemented a one for 15 reverse split in mid July So our E. P. S reflects the impact with weighted average shares outstanding of $2 1 million for Q2.

This favorably compares to a net loss of $16 4 million or $7 93 per share in the prior year quarter.

The adjusted loss per share was $1.66 per share for the second quarter, which compares favorably to the adjusted net loss per share of $5.85 in the year ago quarter.

These adjustments are related to the noncash interest expense associated with the warrants I just mentioned as well as stock based compensation.

Finally, our adjusted EBITDA loss for the second quarter was $2 $4 million, our lowest adjusted EBITDA quarter in the history of the company.

This compares favorably to the adjusted EBITDA loss of $11 $4 million, a year ago and represents a 32.2% improvement sequentially from Q1 of this year.

You can find the GAAP to non-GAAP reconciliations at the end of today's press release.

Turning to our balance sheet and financial position at.

At the end of the second quarter, we had approximately $320000 of cash and cash equivalents with positive net working capital, excluding cash and debt of $5 $8 million with accounts receivable of $3 million and inventory of $8 $4 million.

Recall that we have a line of credit based on accounts receivable and inventory to support our liquidity needs.

Since putting this line in place last fall, we've actively managed our amounts drawn at any time to mitigate interest expense to the extent, we could only drawing what we need when we needed it.

We also launched an at the market equity offering in July of this year for the ability to raise up to $5.7 million in at the market equity sales to Opportunistically support our liquidity needs as we navigate the final stages of our turnaround.

As we discussed in our prior call some substantial retail distribution wins for Q2 and the balance of the year were secured because of our new products and packaging.

Accordingly, while we continue to buildup newly packaged inventory, we trade through our existing inventory of legacy packaging, which helps to explain the steady inventory levels from Q1 to Q2 despite.

Despite our initiatives to bring down inventory levels.

We anticipate.

Once the transition is complete that our inventory levels will come down over the balance of the year.

Supported by our ATM facility and the debt financing last quarter as well as our line of credit.

With increased volumes, we expect cash consumption to decline as we take steps towards a self sustaining model.

We continue to focus on carefully managing our cash and working capital as we as we judiciously oversee our business executing with discipline.

And planning to continue to strictly manage liquidity.

As Chris mentioned briefly before with the magnitude of our retail partners scale and the slow return to normalcy with respect to their assortment planning cycles.

There can be some uncertainty with respect to the timing and scale of new distribution coming online.

These variables can create meaningful swings in our shipments for our business given our current low base and that our growth will be augmented by distribution in the near term.

Accordingly.

While we strongly believe with confidence that our product attributes and strong retail consumption data has and will result in new distribution and growth in shipments.

Our ability to precisely predict the timing of these flows presents a challenge.

The nature of some of these opportunities are dynamic in terms of in terms of timing.

And with the categories typical lead times.

We may receive orders or changes to planned programs with short notice.

This order variability is normal for the industry.

And not as material from our retailers perspective, given their scale and the category size.

However, given our low base.

Even variability with respect to a single promotion.

Can make precisely forecasting a guidance range challenge.

While this variability can affect forecasting accuracy on shipments within the quarter or a year.

It does not change our outlook for the overall trajectory of the business.

As such we feel that at this stage it would not be prudent for us to provide continued topline guidance that's timed out.

We will be suspending our current guidance and we will assess presuming forecasting at the appropriate time.

While the lack of revenue guidance isn't ideal for our Investor base, we do want to be transparent about these dynamics at play.

That being said in lieu of specific revenue guidance, we would like to direct to direct investors to what we believe to be the best leading indicator of our near term potential.

Our retail consumption data.

We've previously discussed the 12 week data.

But in the latest four week spins data that progress is accelerating our retail sales are up 39, 5% year over year with our total distribution points up 19.5% dollar velocities up and we are gaining share.

And I should note. These trends have only barely begun to show the effects of our new packaging, which is specifically designed for retail conversion.

With that I will now.

To turn it back to Chris.

Thank you Alex we are pleased with our second quarter results, which gives us further confidence in our strive to point out a plan.

Our progression operational and financial improvements for 2023.

We have made significant progress on these initiatives that will be reflected in our growth rates moving forward.

Our promise is to deliver a profitable innovative growth company, one that delivers better for Ya protein snacks in a responsible manner that the light circumstances collaborate and execute with our retailers and delivers for our shareholders.

As the largest individual shareholder I am fully aligned with the board and all strides stakeholders my confidence is high and my commitment is on wavering.

With that I would like to open the lineup for questions.

Operator, yes. Thank you at this time, we will begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

If youre using a speakerphone please pick up your handset before pressing the keys.

She was try your question. Please press Star then two.

At this time, we will pause momentarily to assemble the roster.

And our first question comes from Mike Grondahl with Northland Securities.

Hey, guys. Thanks.

You know I know, you're not giving revenue guidance, but.

Can you say with any confidence with three Q revenue will be greater than two Q.

Yeah.

I think what we'll see is.

You know.

A similar rationalized base.

You know in the back half of the year and.

And and we will see some new distribution coming online, but generally speaking it'll be you know consistent with what we've seen in our rationalized base.

Got it and then.

Opex does that sort of flat line from here.

Are there more cost you can take out the.

The $4 4 million was what.

Really law.

We we think that there are more cost to take out we've already taken some and we're continuing to dig in turn over every stone.

That's part of our you know our our strategy here is to identify areas that we can continue to streamline operations become more efficient and more productive throughout the organization and we're doing so in a manner that isn't sacrificing our retail performance.

Got it and then maybe just lastly.

The a T M. You set up in July how much did you take it off that so far.

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

Okay.

Okay.

Thank you Mike. Thank you and once again, please press star and then Wonder if you would like to ask a question.

Uh huh.

Okay.

Alright at this time there are no further questions. So I'd like to return the Florida Crisp hero for any closing comments.

Well, thank you for joining us and thank you for your interest in our company.

We'll look forward to providing an update of our progress on our third quarter results in just a few short months.

Have a great rest of your Monday, and thank you for your support of strike.

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

Yeah.