Q3 2023 The Real Good Food Company Inc Earnings Call
Speaker 1: Greetings and welcome to the real good foods third quarter 2023 earnings call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
Greetings and welcome to the real good foods third quarter 2023 earnings call.
At this time all participants are in a listen only mode.
Brief question and answer session will follow the formal presentation.
Speaker 1: If anyone's you require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this comes...
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.
Speaker 1: It is now my pleasure to introduce your host, Mr. Samari Benton of Vice President of FPNA. Thank you, Mr. Benton. You may begin.
It is now my pleasure to introduce your host Mr. Shamari Benton of Vice Vice President of our P&A. Thank you Mr. Burton you may begin.
Speaker 2: Good morning, and welcome to the Real Good Booms Company's third quarter 2023 earnings conference call. On the call today are Brian Freeman, Executive Chairman, Jerry Law, Chief Executive Officer, and Akshay Jagdal, Chief Financial Officer.
Good morning, and welcome to the real good food companies third quarter 2023 earnings conference call on the call today are Brian Friedman Executive Chairman, Gerry Law, Chief Executive Officer, and Akshay <unk> Chief Financial Officer.
Speaker 2: Our third quarter earnings release crossed the wire at approximately 80 AM Eastern time today.
Our third quarter earnings release crossed the wire at approximately <unk> eastern time today.
Speaker 2: If you have not had a chance to review the release, it's available on the investor portion of our website at www.realgoodfoods.com.
If you have not had a chance to review the release, it's available on the Investor portion of our website at.
<unk> got real good food Dot com.
Speaker 2: Before we begin, I would like to remind everyone that certain statements made on this call are forward-looking statements within the meaning of federal security laws and are subject to considerable risk and uncertainty.
Before we begin I would like to remind everyone that certain statements made on this call are forward looking statements within the meaning of federal securities laws and are subject to considerable risks and uncertainties.
Speaker 2: These four looking statements are intended to qualify for safe harbor from liability, established by the Private Security's litigation form act of 1995.
These forward looking statements are intended to qualify for safe Harbor from liability established by the private Securities Litigation Reform Act of 1995.
Speaker 2: All statements made on this call today, other than the statements of historical fact, are forward-looking statements and include statements regarding our projected financial results, including
All statements made on this call today.
Other than the statements of historical fact.
Forward looking statements and include statements regarding our projected financial results, including.
Net sales.
Speaker 2: Gross profit, gross margin, adjusted gross profit, adjusted gross margin, and adjusted EBADO, as well as our ability to increase our net sales from existing customers and acquire new customers. Introduce new products, compete successfully in our industry, implement our gross strategy, and effectively expand our manufacturing and production capacity.
Gross profit gross margin.
Adjusted gross profit adjusted gross margin and adjusted EBITDA as well as our ability to increase our net sales from existing customers and acquire new customers introduce new products compete successfully in our industry implement our growth strategy and effectively expand our mat.
These bacteria and production capacity.
Speaker 2: Forward-lifting statements made on this call represent management's current expectations and are based on information available at the time such statements are made.
Forward looking statements made on this call represent management's current expectations.
And are based on information available at the time such statements are made.
Speaker 2: Such statements involve a number of known and unknown uncertainties, many of which are outside the company's control and can cause future results, performance or achievements to differ significantly from the results, performance or achievements expressed or implied by such forward-looking statements.
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.
Speaker 2: 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.
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.
Speaker 2: Except as required by law, the company undertakes no obligation to update any forward-looking or other statements herein.
Except as required by law the company undertakes no obligation to update any forward looking or other statements herein.
Speaker 2: whether as a result of new information, future events, or otherwise.
Whether as a result of new information future events or otherwise.
Speaker 2: In addition, throughout this discussion, we refer to certain non-GAAP financial measures.
In addition.
Throughout this discussion we refer to certain non-GAAP financial measures.
Speaker 2: which refer to results before taking into account certain one time or non-reoccurring charges that are not core to our ongoing operating results.
Which refer to results before taking into account certain one time or non reoccurring charges that are not core to our ongoing operating results.
Speaker 2: and which we believe better flat the performance of our business on an ongoing basis.
Which we believe better reflect the performance of our business on an ongoing basis.
Speaker 2: Our non-GAAP financial measures, including adjusted gross margin and adjusted EBITDA, are referenced.
Our non-GAAP financial measures, including adjusted gross margin and adjusted EBITDA are reference.
Speaker 2: A reconciliation of each non- GAAP financial measure to its most directly comparable GAAP financial measure is included in our third quarter earnings release, which is available on our website under our investor tab.
A reconciliation of each non-GAAP financial measure to its most directly comparable GAAP financial measure is included in our third quarter earnings release.
Which is available on our website under our Investor tab.
Speaker 2: With that, it is my pleasure to turn the call over to the real good food companies executive chairman Brian Freeman.
With that it is my pleasure to turn the call over to the real good food companies Executive Chairman, Brian Freeman.
Speaker 3: Hey, thanks, Shemari. Good morning, everyone. And thank you for joining us today on our third quarter earnings call. I will briefly review our third quarter highlights and discuss the reasons we believe are well-positioned for long-term possible growth. Jerry will cover operation and actually will then review our financial results and outlook in more detail. After that, we'll open the call for questions.
Thanks, Mark Good morning, everyone and thank you for joining us today on our third quarter earnings call.
I will briefly review our third quarter highlights and discuss the reason we believe we're well positioned for long term profitable growth Jerry will cover operation Akshay will then review our financial results and outlook in more detail.
That will open the call for questions.
Speaker 3: Starting with our financial highlights for the third quarter, net sales are 55.6 million, an increase of 48% year-over-year, and an increase of 141% on a two-year stack basis, both of which represent a significant acceleration sequentially.
Starting with our financial highlights for the third quarter net sales were $55 6 million, an increase of 48% year over year and an increase of 141% on a two year stack basis.
Both of which represent a significant acceleration sequentially.
Speaker 3: Growth would have been even higher if we had been able to fill orders on time as consumption was up 90 percent, far exceeding shipment growth. For perspective, our consumption growth of 90 percent in the third quarter accelerated 80 points sequentially, and this momentum has carried into the fourth quarter.
Well, if it would've been even higher if we had been able to fill orders on time as consumption was up 90% far exceeding shifting.
For perspective, our consumption growth of 90% in the third quarter accelerated 80 points sequentially and this momentum has carried into the fourth quarter.
Speaker 3: Acceleration sales growth is quarters driven by the unmeasured channel. Branded sales in the unmeasured channel were up 90% on a year-over-year basis and up 200% on a year-stack basis, both of which represent an acceleration. Both was driven primarily by distribution growth with double sequentially.
The acceleration in sales growth this quarter was driven by the Unmeasured channel.
Branded sales in the Unmeasured channel were up 90% on a year over year basis, and up 200% on a two year stack basis, both of which represent.
Elevation, plus was driven primarily by distribution growth, which doubled sequentially.
Speaker 3: We're particularly encouraged by the breadth of our offerings and the unmeasured channel, which spans seven categories, two temperature states, and three eating occasions.
We're particularly encouraged by the breadth of our offerings in the Unmeasured channel, which spans seven categories to temperature state and three eating occasions.
Speaker 3: As we exited the quarter and began the third quarter, we had approximately eight items in distribution, over 50% of the store base in this channel, which is more than double compared to a year ago.
We exited the quarter and began the third quarter, we had approximately eight items in distribution over 50% of its store base in this channel, which is more than double compared to a year ago.
Speaker 3: As a result, we expect unmeasured channel sales growth momentum to continue into the fourth quarter of 2023 in the NON. This includes national distribution of bread at poultry, appetizers, the NON trays as well as further expansion of our handheld, which include our clouded and burrito platforms and the refrigerated sections.
As a result, we expect unmeasured channel sales growth momentum to continue into the fourth quarter of 2023 and beyond.
This includes national distribution, I'm, breaded, poultry appetizers and entrees as well as further expansion of our handheld which include our cloud that's been burrito platform Frigerator section.
Speaker 3: To summarize the unmeasured channel and provide additional perspective, in 2021, we had two items that on a combined and annualized basis achieved 65% A, C, B. In 2022, we're good at three items with a combined and annualized A, C, B, 68%. Currently have eight items and distribution that participated seven categories in two temperature states. For perspective, we've never had more than four items authorized simultaneously in our history.
To summarize the unmeasured channel and provide additional perspective in 2020. One we had two items that on a combined and annualized basis achieved 65% ACB.
In 2022 figure to three items with a combined and annualized <unk>, 68%.
Currently have eight items in distribution I participated in seven categories in true temperature states for perspective.
Ever had more than four items off rise simultaneously in our history.
Speaker 3: All of this is to say that our strategy to expand it in new categories across two temperature states is working and creates a strong foundation for a durable, predictable growth business going forward.
All of this is to say that our strategy to expand into new categories across two temperature state is working and creates a strong foundation for durable predictable growth, but that's going forward now.
Speaker 3: Now turning to the retail channel performance, sales growth was 56% on a two-year stack basis and up 12% year-over-year. The year-over-year growth would have been even better if we were able to fill customer orders on time. From perspective, consumption grew 30%, far outpacing double-digit shipment. Both shipment and consumption growth significantly accelerated sequentially driven by distribution growth from the June shelf recess combined with higher velocity.
Now turning to the retail channel performance sales growth was 56% on a two year stack basis and up 12% year over year.
The year over year growth would have been even better if we were able to fill customer orders on time.
Perspective consumption grew 30% far outpacing double digit shipment, both shipments and consumption grow significantly accelerated sequentially driven by distribution growth in the gym shelf recess combined with higher velocity.
Speaker 3: The new products that we introduced recently have significantly higher velocities than our base products, which we expect will continue to drive significant overall brand velocity growth for the remainder of 2023. We expect strong double-digit growth in the channel for the remainder of the year.
The new products that we introduced recently have significantly higher velocity has been are based products, which we expect will continue to drive significant overall brand velocity go out for the remainder of 2023, we expect strong double digit growth in the channel for the remainder of the year.
Speaker 3: As of the third quarter end, our total distribution points were 187,000, which is an increase of roughly 58,000 total distribution points from the beginning of this year. In addition, we have roughly another 17,000 new distribution points confirmed for the fourth quarter of 2023, which if it's achieved would represent 58% growth from the beginning of this year.
As of the third quarter and our total distribution points for 187000, which was an increase of roughly 58000 total distribution points from the beginning of this year.
In addition, we have roughly another 17000, new distribution points confirmed for the fourth quarter of 2023 which if achieved would represent 58% growth from the beginning of this year.
Speaker 3: The product's gaining distribution include our global multi-serve entrees and bread and poultry, which has significantly higher velocities than our base, which we expect will continue to drive significant overall brand velocity growth for the remainder of 2023. We continue to expect strong double-digit growth in this channel for the remainder of
Products, gaining distribution include our global multi serve entrees and bright and poultry, which has significantly higher velocities not base, which we expect will continue to drive significant overall brand velocity growth for the remainder of 2023, we continue to expect strong double digit growth in this channel for the remainder of it.
Speaker 3: The aforementioned new distribution gains, combined with strong base business velocity, gives us confidence that we'll grow sales in 2024 to at least 245 million, representing growth of approximately 30 percent.
The aforementioned new distribution gains combined with strong base business velocity gives us confidence that we will grow sales in 'twenty 'twenty four two at least $245 million representing growth of approximately 30%.
Speaker 3: During not sure we'll stick to this in more detail, but I wanted to touch on our margins of this quarter once again and provide a high level view of how we see the remainder of the year shaping up.
Akshay will speak to this in more detail, but I wanted to touch on our margins. This quarter once again and provide a high level view of how we see the remainder of the year shaping up.
Speaker 3: Gross margins were 20.9% this quarter, which is a 1,614th improvement year over year and the second highest margin in our history.
Gross margins were 29% this quarter, which is a 1614 stepped improvement year over year and our second highest margin in our history.
Speaker 3: The year-over-year improvement in our margins is being driven by our productivity initiatives, an overall favorable commodity cost environment, as well as better plant utilization.
The year over year improvement in our margin being driven by our productivity initiatives and overall favorable commodity cost environment as well as better plant utilization rates.
Speaker 3: On a sequential basis, our reported gross margins improved 725 bets, going to the increase of in sales, in course filing, better fixed cost leverage in the plants, which we expect will continue to the fourth quarter of 2023 and 2024, given the strong momentum.
On a sequential basis, our reported gross margins improved 725 deaths, owing to the increase in sales and corresponding better fixed cost leverage in the plants, which we expect will continue into the fourth quarter of 2023 and 2024, given the strong momentum.
Speaker 3: Adjustment of the dollar was 1.2 million, which was in the middle of the range we provided when we pre-announced a few weeks ago. Again, for the fourth quarter of 2023 and 2024, we see our plant legalization rates continuing to increase. The leverages are overhead and SGNN and is how we expect to see positive cash earnings in the fourth quarter of 2023 and 2024.
Adjusted EBITDA was $1 2 million, which was in the middle of the range. We provided when we pre announced a few weeks ago again for the fourth quarter 2023, and 2024, we see our plant utilization rates continuing to increase.
Leveraging our overhead and SG&A and as how we expect to see positive cash earnings in the fourth quarter of 2023 and 2024.
Speaker 3: Now, Jerry will expand on this later, but I want to talk about how we plan on accelerating our production growth to meet surges in demand on a couple of fast-growing items.
Now Terry will expand on this later, but I wanted to talk about how we plan on accelerating our production to meet surges in demand on a couple of fast growing on.
Speaker 3: The primary change we're making is to add incremental capacity that creates redundancy in areas where we are seeing the most demand.
Primary change, we're making to add incremental capacity that creates redundancy in areas, where we are seeing the most of the map.
Speaker 3: Capital required to do this is made possible in part from our recent equity race and we expect the improved uptime and incremental capacity for certain products to come online this month.
Capital required here. This was made possible in part from our recent equity raise and we expect the improved uptime and incremental capacity for certain products that come online that's not.
Speaker 3: Next, let's take a look at the current state of the health and wellness market and how our brand positioning is resonating with this broad consumer base.
Next let's take a look at the current state of the health and wellness market and how our brand positioning is resonating with a broad consumer base.
Speaker 3: According to Stan for the 52 weeks ending September 10th 2023 the 206 billion health and wellness industry grew 7% year over year in line with the 7% 3 year of Kager. Over the same period the 75 billion total frozen food category due 5%
Corina span.
52 weeks ending September <unk>, 2023, 206 billion health and wellness industry grew 7% year over year in line with the 7% three year CAGR.
Over the same period, the 75 billion in total frozen food category grew 5%.
Speaker 3: Several industry observers have called out the fact that category consumption trends have weakened in recent months as industry cycles the price increases during a relatively tough economic backdrop for consumers. We did not take significant pricing actions like our competitors and assets are not dealing with volume declines related to your own.
Several industry observers called out the fact, the category consumption trends have weakened in recent months as industry cycle price increases during a relatively tough economic backdrop for our consumers.
We did not take significant pricing actions like our competitors and as such are not dealing with volume declines related to elasticity.
Speaker 3: Another head when we believe frozen food brands are facing is their high glycinecology.
Another headwind, we believe frozen food brands are facing is there high quite scenic badge.
Speaker 3: According to NPD, the number one attribute consumers are looking for is to get away from sugar. In fact, according to Spend, there was a $4 billion switch away from higher sugar foods, to low sugar foods, and the last 52 weeks as of June 18th. This trend is durable, and it is accelerating.
According to NPD. The number one attribute of consumers are looking for it to get away from sugar and.
In fact, according to spin there was a $4 billion switch away from higher sugar low sugar foods in the last 52 weeks as of June 18th.
This trend is durable and it is accelerating.
Speaker 3: A further catalyst of this is the significant consumer interest in adoption of GLP1 drugs. A recent Morgan Stanley Alphwai study showed that 45% of the US adult population has interest in these drugs. The study also showed that those who are taking GLP1 drugs shift the way from shurley food and begin eating more poultry in protein-based foods.
A catalyst that is a significant consumer interest and adoption of G. L. P. One blocks.
A recent Morgan Stanley Alpha one study showed that 45% of U S. Adult population has interesting drugs. The study also showed that those were taken G. L. P. One glad shift away from sugary food and begin eating more poultry and protein based foods.
Speaker 3: Yet, when you walk the frozen through the aisle, it is difficult to find meal solutions that are not high in carbohydrates and sugar. We believe this is why our growth continues to accelerate while others are declining.
Yeah, when you walk the frozen food aisle, it's difficult to find meal solutions that are not high in carbohydrates and sugar.
We believe this is why our growth continues to accelerate while others are declining.
Speaker 3: For the latest 12 week sending October 8, 2023, RGS measured channel grew by 31%. On a dollar per store for week basis, our bread and poultry items are the highest philosophy health and wellness item in the US. Our single serve entree platform continues to post total points of distribution and velocity gains as we last won in two year trends.
For the latest 12 weeks ending October eight 2023, Rgs measured channel grew by 31%.
On a dollar per store per week basis, our breaded poultry items are the highest velocity health and wellness item in the U S. Our single serve entrees platform continues to post total points of distribution and velocity gains as we laugh one and two year trends at our multi serve entrees to continue to grow in both velocity and points of distribution.
Speaker 3: And our multi-surventory is continuing to grow in both velocity and point the distribution.
Speaker 3: We have the right item at the right time. And we plan to lean in even further in 2024. To that end, I'd like to spend a few minutes of our near-term innovation agenda.
We have the right item at the right time.
And we plan to lean in even further in 2024.
And I'd like to spend a few minutes on our near term innovation agenda.
Speaker 3: I'm pleased to report that our new breaded fish fillets and fish sticks have been accepted in approximately 1700 stores with the first ship this December . This our initial entrance into the $7 billion frozen fish category and we're pleased with the relatively fast acceptance of this new item with our retailer part.
I'm pleased to report that our new brand officially some fish tanks have been accepted and approximately 1700 stores with the first ship. This December.
Our initial entrance into the $7 billion frozen fish category and we are.
Pleased with the relatively fast acceptance of this new item with our retailer partners.
Speaker 3: I believe this is further evidence of how a grant physician that is leading the low glycemic consumer movement is resonating with retailers and consumers.
I believe this is further evidence of how our brand position, leading the local ischemic consumer movement is resonating with retailers and consumers.
Speaker 3: Second, our low-carbohydrate, high-protein flautas and burritos can now be found in the refrigerated section in mass retail. This is an example of taking success in the unmeasured channel and bringing it to the measured-slash-retail channel. We believe this can be a significant growth accelerator in the coming quarter.
Second our low carbohydrate high protein powders and burritos now be found in the refrigerated section in mass retail.
As an example has taken a success in the unmeasured channel and bringing it to the measured flash retail channel. We believe this can be a significant growth accelerator in the coming quarters.
Speaker 3: Third, we are launching our new low-sugar, low-carbohydrate barbecue pulled pork and pulled chicken entrees in approximately 1,900 stores and a national retailer in January with a first ship in December . As a reminder, conventional barbecue sauce proteins are loaded with sugar, while ours has only two grams of sugar per serving, and it's delicious.
Sure.
We're launching our new low sugar low carbohydrate bbq pulled pork and pulled chicken entrees and approximately 1900 stores and a national retailer in January with the first ship in December as a reminder, conventional barbecue sauce proteins are loaded with sugar, while ours is only two grams of sugar per serving and it's the law.
Speaker 3: Further, we reflanding new large customer and unmeasured channel that will be launching our frozen bacon wrap stuff chicken on tray and a prox phone 2000 stores in the first quarter.
Further we recently gained a new large customer in the unmeasured channel that will be launching our frozen bacon wrapped stuffed chicken entre and approximately 2000 stores in the first quarter.
Speaker 3: And some are, we have a lot of momentum going into 2024. And we continue to believe we have permission to achieve our state of goal of achieving at least 500 million in sales over the long term.
In summary, we have a lot of momentum going into 2024, and we continue to believe we have permission to achieve our stated goal of achieving at least $500 million in sales over the long term.
Speaker 3: I'd like to now turn the call over to our CEO Jerry Law to provide an update on Bullenbrook and our operations more.
I'd like to now turn the call over to our CEO Jerry law to provide an update on born in Brooklyn, Our operations more box.
Speaker 3: Thank you, Brian . Good morning, everyone, and thank you for joining us on today's call. Our bowling rook Illinois facility is continuing to ramp up production and we expect acceleration in the fourth quarter of 2023 through in my better attainment levels and a new friar coming.
Thank you Brian Good morning, everyone and thank you for joining us on today's call.
Our Bolingbrook, Illinois facility is continuing to ramp up production and we expect acceleration in the fourth quarter of 2023 driven.
Driven by better attainment levels, and a new fire coming online.
Speaker 2: We undershift a man in the third quarter and this drove shortfall relative to our guidance.
We under shipped demand in the third quarter and this drove shortfall relative to our guidance.
Speaker 2: To expand on what Brian said, we've taken measures to address this issue.
To expand on what Brian said, we've taken measures to address this issue.
Speaker 2: First, I am spending a considerable amount of my time in the facility to ensure the team has the support and resources it needs to execute the production.
First I am spending a considerable amount of my time in the facility to ensure the team has the support and resources it needs to execute the production plan.
Speaker 2: Our operational performance has improved and production growth has accelerated as a result.
Our operational performance has improved and production growth has accelerated as a result.
Speaker 2: Additionally, we are installing additional capacity for certain products so that we can handle surges and demands.
Additionally, we are installing additional capacity for certain products show that we can handle surges in demand.
Speaker 2: or 20.9% gross margin is particularly encouraging as we continue to be in the early stages of achieving our long-term efficiency target.
Our 29% gross margin is particularly encouraging as we continue to be in the early stages of achieving our long term efficiency targets.
Speaker 2: Our sales guidance calls for capacity utilization rates to increase to 70 to 80%. In the second half,
Our sales guidance calls for capacity utilization rates to increase to 70% to 80% and the.
Second half of 2023.
Speaker 2: Higher utilization rates to drive significant fixed cost leverage in the plants and enable our transition to positive cash earnings in the fourth quarter of 2023.
Higher utilization rates should drive significant fixed cost leverage in the plants and enable our transition to positive cash earnings in the fourth quarter of 2023.
Speaker 2: Adjust the gross margins, which assume full utilization, for 27.8 percent and point to the underlying margin profile of the business when the plants are fully utilized.
Adjusted gross margins, which assume full utilization or 27, 8%.
And point to the underlying margin profile of the business when the plants are fully utilized.
Speaker 2: We have been deliberate about building capacity ahead of the man. Reflecting all the hard work and investments made to get to this capacity up and running over the past 18 months.
We have been deliberate about building capacity ahead of demand.
Reflecting all the hard work and investments made to get to this capacity up and running over the past 18 months.
Speaker 2: Although we had some trouble filling orders in September , we are confident that the issues that led to the shortfall were transitory.
Although we had some trouble filling orders in September we are confident that the issues that led to the shortfall or transitory.
Speaker 2: The addition of new fry capacity, combined with continuing improvements in attainment levels, and uptime due to machinery redundancy on existing product lines, should help us catch up on the orders in the fourth quarter of 2023.
The addition of new Frac capacity combined with continuing improvements in attainment levels and uptime due to machinery redundancy on existing product lines should help us catch up on the orders in the fourth quarter of 2023.
Speaker 2: Further formula optimization in addition to raw material cost contributed to solid margin performance.
Further formula optimization. In addition to raw material costs contributed to solid margin performance this quarter.
Speaker 2: I continue to be encouraged by the sequential improvement in efficiencies of Bowlingbrook and City of Industry continues to perform well.
I continue to be encouraged by the sequential improvement inefficiencies at bolingbrook.
And city of industry continues to perform well.
Speaker 2: Moreover, we expect our operating performance to continue improve in 4Q23 and beyond.
Moreover, we expect our operating performance to continue to improve in <unk> 'twenty three and beyond.
Speaker 2: Driven by better efficiencies resulting in lower labor costs, improved plant utilization, and better overhead cost leverage.
Driven by better efficiencies, resulting in lower labor costs.
Improved plant utilization and better overhead cost leverage.
Speaker 2: Before I turn it over to Akshay, I would like to discuss the biggest catalyst for 2024. We continue to expect our labor costs to come down sequentially as Bolingbrook, which has structurally lower costs as compared to our city of industry facility, becomes a larger portion of our production mix and achieves our targeted efficiency.
Before I turn it over to Akshay I would like to discuss the biggest catalyst for 2024.
We continue to expect our labor cost to come down sequentially as bolingbrook, which has structurally lower cost as compared to our city of industry facility becomes a larger portion of our production mix and achieve our targeted efficiencies.
Speaker 2: Every incremental pound coming out of bowling brook is created to our labor question.
Every incremental pound coming out of Bolingbrook is creative to our labor costs.
Speaker 2: In addition, overall labor costs are further aided by continued efficiency gains at our City of Industry facilities.
In addition, overall labor costs are further aided by continued efficiency gains at our city of industry facility.
Speaker 2: We are confident in our ability to bring labor costs in line with industry standards from about 5 to 10% of sales over time.
We are confident in our ability to bring labor cost in line with industry standards of about 5% to 10% of sales over time.
Speaker 2: Additionally, higher sales will drive a step change in plant utilization rates and allow us to leverage lower overhead costs.
Additionally, higher sales will drive a step change in plant utilization rates and allow us to leverage lower overhead costs.
Speaker 2: We expect this overhead leverage to drive approximately five points and further improvement of our margin profile in 2024 as compared to the first half.
We expect this overhead leverage to drive approximately five points and further improvement of our margin profile in 2024 as compared to the first half.
Speaker 2: Lastly, our investments in Bolingbroke have enabled significant productivity savings.
Lastly, our investments in bolingbrook have enabled significant productivity savings.
Speaker 2: These include the self-manufacturing of our chicken tortillas, cooked chicken that is used in our product fillings, and our proprietary breading blends, which on a combined basis are likely to drive approximately 200 to 400 basis points of margin improvement.
These include the self manufacturing of our chicken tortillas cooked chicken that is used in our product fillings and our proprietary breading blends which on a combined basis are likely to drive approximately 200 to 400 basis points of margin improvement.
Speaker 2: As for direct materials inflation, the good news is the commodity costs are expected to remain favorable for the remainder of 2023.
As for direct materials inflation. The good news is the commodity cost are expected to remain favorable for the remainder of 2023.
Speaker 2: In summary, the sequentially higher sales levels that we are now guiding to in the fourth quarter, driven by distribution points already secured, mark an important inflection point for the business from a capacity utilization perspective and will enable us to meet our goal of transitioning to positive cash earnings in the fourth quarter of 2023.
In summary, the sequentially higher sales levels that we are now guiding to in the fourth quarter driven by distribution points already secured.
An important inflection point for the business from a capacity utilization perspective, and will enable us to meet our goal of transitioning to positive cash earnings in the fourth quarter of 2023.
Speaker 2: We are pleased by our margin performance this quarter, which showed significant improvement sequentially and year-over-year. We expect 2024 adjusted EBITDA to be in the positive mid-teens millions of dollars range and expect to generate positive cash earnings.
We are pleased by our margin performance this quarter, which showed significant improvement sequentially and year over year.
We expect 2024 adjusted EBITDA to be in the positive mid teens billions of dollars range and expect to generate positive cash earnings.
Speaker 2: We have strong visibility into the drivers of our continued margin turn around and feel confident in achieving our outlook.
We have strong visibility into the drivers of our continued margin turnaround and feel confident in achieving our outlook.
Speaker 2: It's an exciting time at Real Good Foods. We continue to provide focused support for the growing demand of our sales group has locked in by investing in talent, capabilities, and supply chain. I feel confident in our ability to effectively navigate the environment we are in to deliver results and build sustainable, long-term value for our shareholders.
It's an exciting time at real good foods, we continued to provide focus and support for the growing demand of our sales group has locked in by investing in talent capabilities and supply chain.
I feel confident in our ability to effectively navigate the environment. We are in to deliver results and build sustainable long term value for our shareholders.
Speaker 2: Now I'd like to turn the call over to Akshay, our Chief Financial Officer, who will walk you through our third quarter financials.
Now I'd like to turn the call over to Akshay, Our Chief Financial Officer, who will walk you through our third quarter financials.
Speaker 4: Thank you, Jerry. And good morning, everyone. Turning to our financial results, net sales in the third quarter were 55.6 million, an increase of 48% as compared to the third quarter of last year.
Thank you Jerry and good morning, everyone turning to our financial results net sales in the third quarter were $55 6 million, an increase of 48% as compared to the third quarter last year branded sales in the unmeasured channel increased by approximately 90% year over year in the third quarter.
Speaker 4: Branded sales in the unmeasured channel increased by approximately 90% year-over-year in the third quarter, primarily driven by distribution growth. Consumption in dollar terms was at an all-time high, more than doubling both sequentially and year-over-year, and far outpaced shipment growth.
Maryland, driven by distribution growth consumption in dollar terms or was that an all time high.
Doubling both sequentially and year over year and far outpaced shipment growth.
Speaker 4: As a reminder, consumption data is scanned sales at the cash register as measured by IRI.
A reminder, consumption data as scan sales at the cash register as measured by IRI.
Speaker 4: It is worth noting, again, that our consumption growth is highly incremental to the category, and the incrementality is higher than we had expected.
It is worth noting again that our consumption growth is highly incremental to the category and the.
Incrementally higher than we had expected.
Speaker 4: Expanding upon Brian's remarks, in the measured channel, our brand's overlap with the leading brand in breaded poultry was only 3.5%. The same is true in the unmeasured channel where our growth has been almost 100% incremental to incumbent brands.
Expanding upon Brian's remarks in the measured channel our brands overlap with the leading Brian and Brian Poultry was only <unk>, 5%.
The same is true in the Unmeasured channel our growth has been almost 100% incremental to incumbent Brad.
Speaker 4: Growth in the unmeasured channel is tracking ahead of our expectations, and we have strong momentum heading into 2024.
Growth in the Unmeasured channel is tracking ahead of our expectation and we have strong momentum heading into 2024.
Speaker 4: In the retail channel, growth was 56% on a two-year stack basis and up 12% Euro-Vier. The Euro-Vier growth would have been even better if we were able to fill customer orders on time.
In the retail channel growth was 56% on a two year stack basis, and up 12% year over year a.
The year over year growth would have been even better if we were able to fill customer orders on time.
Speaker 4: For perspective consumption grew 31% far outpacing shipment
For perspective consumption growth, 31% far outpacing shipments.
Speaker 4: Both shipment and consumption growth saw significant acceleration sequentially driven by distribution growth from the June shock reset combined with higher balac.
Both shipments and consumption growth saw significant acceleration sequentially driven by distribution growth from the June shelf reset.
Buying with higher velocity.
Speaker 4: The new products that we introduced recently have significantly higher velocities than our base products, which we expect will continue to drive significant overall brand velocity growth for the remainder of 2020.
The new products that we introduced recently have significantly higher velocity than our base products, which we expect will continue to drive significant overall, Brian velocity growth for the remainder of 2023.
Speaker 4: We expect strong double-digit growth in this channel for the remainder of the year.
Strong double digit growth in this channel for the remainder of the year.
Speaker 4: Although we have a strong innovation agenda for 2024 and are entering a few new adjacent categories like bread and fish, our focus is on growing distribution of existing products that are already performing well on shelves.
Although we have a strong innovation agenda for 2024 and are entering a few new adjacent categories like Friday fish.
Our focus is on growing distribution of existing products.
Performing well on shelf.
Speaker 4: A third quarter gross profit was 11.6 million, reflecting a gross margin of 20.9% of net sales, as compared to a gross profit of 1.8 million, or a gross margin of 4.7% of net sales in the third quarter of last year. The increase in gross margin was due to improve product contribution margins and part driven by lower commodity costs as well as productivity initiatives.
Our third quarter gross profit was $11 6 million, reflecting a gross margin of 29% of net sales.
In fact, our gross profit of $1 8 million or a gross margin of four 7% of our net sale in the third quarter of last year. The increase in gross margin was due to improved product contribution margin in part driven by lower commodity costs as well as productivity initiatives.
Speaker 4: Lower plant costs also contributed to margin expansion driven by better utilization rate.
Lower plant costs also contributed to margin expansion driven by better utilization rate.
Speaker 4: Gross margins should continue to improve sequentially as the higher revenue leads to better fixed cost absorption in the plan.
Gross margins should continue to improve sequentially as the higher revenue needs to better fixed cost absorption in the plants.
Speaker 4: Adjusted gross profit during the quarter was $15.5 million, reflecting an adjusted gross margin of 27.8% on net sales as compared to $5.9 million or 15.8% on net sales in the third quarter of last year.
Adjusted gross profit during the quarter was $15 5 million, reflecting an adjusted gross margin of 25, 8% of net sales as compared to $5 9 million or 15, 8% of net sales in the third quarter of last year.
Speaker 4: Productivity initiatives and lower-comI prices contributed to the Eurobeer increase in March.
Productivity initiatives and lower commodity prices contributed to the year over year increase in margin.
Speaker 4: Total operating expenses were 20.5 million in the third quarter as compared to 12.4 million in the third quarter of last year. Adjusted operating expenses increased by approximately 5.2 million to 15.9 million in the third quarter as compared to 10.7 million in the third quarter of last year. The increase in operating expenses was driven primarily by the increase in research and development costs and, to a lesser extent, higher distribution costs.
Total operating expenses were $20 5 million in the third quarter as compared to $12 4 million in the third quarter of last year adjusted operating expenses increased by approximately $5 2 million to $15 9 million in the third quarter as compared to $10 7 million in the third quarter of last year.
The increase in operating expenses was driven primarily by the increase in research and development costs and to a lesser extent higher distribution costs. The increase in R&D expense is to support the strong new product pipeline and commercialization aspects R&D costs tend to be lumpy on a quarterly basis depending on.
Speaker 4: The increase in R&D expense is to support the strong new product pipeline and commercialization efforts. R&D costs tend to be lumpy on a quarterly basis, depending on the level of new product activity, as well as the timing and scale of commercialization.
The level of new product activity.
Well as the timing and scale of commercialization.
Speaker 4: As for the increase in distribution costs, we transitioned a few large customers to our new distribution relationship in the quarter, which proved to be inefficient. This trend should reverse in the fourth quarter as we transition these customers back to more efficient distribution arrangements.
I saw the increase in distribution costs, we transitioned a few large customers to our new distribution relationship in the quarter, which proved to be inefficient.
And should reverse in the fourth quarter as we transition these customers back to more efficient distribution arrangement.
Speaker 4: Adjusted EBITDA totaled $1.2 million in the third quarter, as compared to a loss of $3.8 million in the third quarter of last year.
Adjusted EBITDA totaled $1 2 million in the third quarter as compared to a loss of $2 8 million in the third quarter of last year.
Speaker 4: cash burn pre-debt service of $2.2 million was the lowest in the company's history, improving $9 million sequentially in the third quarter.
Cash burn pre debt service of $2 2 million was the lowest in the company's history, improving 9 million sequentially in the third quarter.
Speaker 4: Several one-off factors negatively impacted our results and cash flow in the third quarter, including but not limited to the temporary spike of certain key commodities, as well as our inability to fill orders on time.
Several one off factors negatively impacted our results and cash flow in the third quarter, including but not limited to the temporary spike of certain key commodities as well as our inability to fill orders on time.
Speaker 4: Following the end of the third quarter, we completed a public offering of class A staff generating 15 million of net proceeds.
Following the end of the third quarter, we completed a public offering of class a stock generating 15 million of net proceeds.
Speaker 4: We intend to use the proceeds for general corporate purposes, including but not limited to investing in working capital to support the significant acceleration and growth. Acceleration and our sales growth starting in the third quarter is driving significant fixed cost leverage across our plant network and in GNA, propelling us to positive cash earnings.
We intend to use the proceeds for general corporate purposes, including but not limited to investing in working capital to support the significant acceleration in growth acceleration on our sales growth starting in the third quarter is driving significant fixed cost leverage across our plant network.
G&A propelling us to pause it.
Net of cash on hand.
Speaker 4: Now turning to our outlook for the remainder of 2023 and 2024. For the three months ending December 30, 2023, we expect next sales to be 65 million to 72 million, or approximately 83% to 102% growth as compared to the corresponding quarter in 2022.
Now turning to our outlook for the remainder of 2023 and 2024.
For the three months ending December 31st 2023, we expect net sales to be $65 million.
72 million or approximately 83% to 102% growth.
As compared to the corresponding quarter in 2022.
Speaker 4: Adjusted EBITDA is expected to be between 4 million and fixed million.
Adjusted EBITDA is expected to be between 4 million and six.
<unk>.
Speaker 4: For the full year ending December 31st, 2023, we expect net sales to be in the $185 to $192 million range, or approximately 31 to 36% growth as compared to 2022.
For the full year ending December 31 2023.
Net sales to be in the $185 $92 million range.
Approximately 31% to 36% growth as compared to 2022.
Speaker 4: Adjusted gross margins are expected to be at least 24%, and adjusted either die is expected to be in the low to mid single visit million range. For the
Adjusted gross margins are expected to be at least 24% and adjusted EBITDA is expected to be in the low to mid single digit million range.
For the full year 2024.
Speaker 4: We expect net sales of at least $245 million, adjusted gross margin increasing one percentage to two percentage points as compared to 2023.
We expect net sales of Ethnie store on $45 million.
Adjusted gross margin, increasing one percentage to two percentage points.
Compared to 2023.
Speaker 4: an adjusted EBITDA of at least 15 million.
And adjusted EBITDA of at least $15 million.
Speaker 4: Long-term, we continue to expect net sales of approximately $500 million, adjusted gross margin of 35%, and adjusted EBITDA margin of 15%.
Long term, we continue to expect net sales of approximately 500 million.
Adjusted gross margin of 35% and adjusted EBITDA margin of 15%.
Speaker 4: In addition, we currently expect to reach positive cash earnings beginning in the fourth quarter of 2023 and to carry that trend forward into 2024.
In addition, we currently expect to reach.
Cash earnings beginning in the fourth quarter of 2023.
The carry that trend forward into 'twenty 'twenty four.
Speaker 4: This concludes our prepared remarks. I would now like to hand the call back over to the operator to begin the Q&A session. Operator.
This concludes our prepared remarks, I would now like to hand, the call back over to the operator to begin the Q&A session operator.
Speaker 1: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. The confirmation will indicate that you're
Thank you we will now be conducting a question and answer session.
I'd like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate that your line is in the question queue.
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Speaker 1: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
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One moment, please while we poll for questions.
Speaker 1: Thank you. Our first question comes from a line of just and thinned-or-end with B. Riley's securities. Please proceed with your question.
Thank you.
Our first question comes from the line of Jeff Van <unk> with B Riley Securities. Please proceed with your question.
Speaker 5: Good morning, everyone, and congratulations on your progress in Q3 and into Q4. I realize you touched on some of this in your prepared comments, but maybe we can drill down a little bit more, if you can give us a little more detail about the ramp in production at Bolingbroke so far in Q4, I guess where you are with the new fryer and any other equipment that may be.
Good morning, everyone and congratulations on your progress in Q3 and into Q4.
Realize you touched on some of this is Eric.
Comments, but maybe we can drill down a little bit more if you could give us a little more detail about the ramp in production at Bolling.
Bolling Brook, so far in Q4, I guess, where you are with the new fryer and any other equipment that may be needed.
Speaker 5: needed and then just sort of general efficiencies your experience in there so far in Q4 and where you are in terms of utilization and target one right-hand of Q4. Yeah you bet.
We needed and then just sort of general efficiencies you're experiencing there so far in Q4, and where you are in terms of utilization target run rate for end of Q4.
Yeah, you bet Hey, Jeff.
Speaker 3: You know, what we saw very late in Q3 is a pretty significant order flow, and we had the capacity to fill those orders. However, when we really pushed the plant to get it done, we felt
You know what we saw late very late in Q3 is a.
Right.
Any significant.
Order flow and we have the capacity to fill those orders. However, when we really push the plant to get it done.
We fell down and.
Speaker 3: You know, so what the way to solve for that is to create redundancy and frankly excess capacity.
You know so what the way to solve for that is to create redundancy and frankly excess capacity.
Speaker 3: And, you know, we've gone about doing that. And I think.
And we've gone about doing that and I think.
Speaker 3: so that it doesn't happen in the future. And to that end, I'll flip it over to Jerry because he's the one who's really been hands-on on that piece.
So that it doesn't happen in the future.
To that end I'll flip it over to Jerry because he's the one who's really been hands on that piece.
Speaker 2: yeah thanks trying to morning you know you i i think the way to think about it and that you know i i like our song when i associate it with the race core but you know we had a race core let's call the for rory and the ride
Yes, Thanks, Brian Good morning, Yeah, Yeah, I think the way to think about it in that you know I like car, so I'm going to associate it with the with the race car, but we had a race car, let's call. It a ferrari in the garage Cape.
Speaker 2: You know, capable of doing 200 plus miles an hour. You know, we've had it out on the track. We've been doing laps. We've been running pace car. Then we hit the accelerator so hard that we melted the tires. You know, the plants had to start running 2X.
Capable of doing 200, plus miles an hour.
We've had it out on the track we have been doing laps, we've been running pace car.
Then we hit the accelerator.
So hard.
That we met with the tires.
The plants had to start one in two weeks.
Speaker 2: So, to that point, you know, we're hardening the car, we're race time ready, not only have we really stopped melting the tires, we've put spares on the shelf as well. The last five, six weeks I've been there, you know, we've seen a 35% increase in breaded
So to that point you know we are hardening the core.
We're waste time ready.
Not only have we really stopped melting tires, we put spares on the shelf as well.
The last five six weeks ive been there.
We've seen a 35% increase in grid.
Speaker 2: Bread and Poultry, September over October . And just remember my background and my history. I come from a hardcore ops and manufacturing background, and that's my specialty. I can get teams to make this.
Bret poultry September over October and.
And just remember my background and my history I come from a hardcore ops and manufacturing background and that's that's my specialty I can get teams to make those machines dance.
Speaker 2: As Brian mentioned, we've added redundancies to approve the uptime and schedule attainment. Additionally, we have more friars coming in. We have a friar that will arrive sometime next week and be online in short order, and we have a second friar coming in before the end of the year. I think I want to also remind everyone that the lines that we're adding are relatively capped low capex.
As Brian mentioned, we've added redundancies to approve the uptime and schedule attainment.
Additionally, we have more fryers coming in we have a fryer that will arrive sometime next week and be online in short order and we have a second fryer coming.
Coming in before the end of the year and you know I think I want to also remind everyone that the lines that we're adding or relatively low capex.
Speaker 2: You know, we have the core of the plant built. You know, I would think of it in terms that we built the office out and we're adding a couple more printers to the office and that sort of terms. So, you know, so we're executing the plant were comfortable, you know, with our capacities, you know, both before and after these changes. And, you know, the future is in order for us. I hope that covers the question. So, you know, we have the core of the plant built, you know, so we have the core of the plant built.
We have the core of the plant Bill.
You know I would think of it in terms that we built the office out and were adding a couple more printers to the office in that in that sort of terms. So.
Yeah. So we're executing the plan we're comfortable.
With our capacities.
Both before and after these changes and the future is is in order for us I hope that covers the question for you.
Speaker 5: That's really helpful and great to hear. And then maybe we can just shift a little bit to kind of what you're existing larger retail customers are telling you they want most in terms of additional screws and then plan for door extension in those. And then maybe if you can just touch on ramping distribution into new retailers or new doors.
That's really helpful and great to hear.
And then maybe we can just shift a little bit to kind of work.
What your existing larger retail customers are telling us they want most in terms of additional skus.
And then plan for for door expansion in those and then maybe if you can just touch on ramping distribution into new retailers and new doors.
Speaker 3: Yeah, you know, it's kind of straightforward and simple when you...
Yeah.
You know, it's not a straightforward and simple when you.
Speaker 3: have SKUs with very high velocities and are also bringing in.
Have skus with very high velocity and are also bringing in new consumers to the category. So you are helping.
Speaker 3: new consumers to the category, so you're helping a retailer grow their category, then usually they want to just lean in with you. And so specifically, Jeff, where I see expanded distribution in the categories you currently participate in.
A retailer grow their category.
You know usually they want to just lean in with you and so specifically, Jeff where I see.
Expanded distribution in the categories you currently participate in.
Speaker 3: is there's obviously an opportunity to add skew count in the breaded poultry door.
Is there's obviously an opportunity to add SKU count and the breaded poultry door.
Speaker 3: The same is true in the single serve Entrez door as well as the multi-serve Entrez door. So, you know, I think that as you see increased points of distribution next year.
The same is true in the single serve entre door as well as the multi serve.
Entre door. So no I think that as you see increased points of distribution next year, you'll really see us kind of build out the <unk>.
Speaker 3: you'll really see us kind of build out the SKU selection because we're helping them grow the community.
New selection because.
No.
We're helping them grow the category.
Speaker 3: The other thing that I wanted to call attention to is, you know, we see a pretty nice opportunity on the refrigerated section of the store as well.
The thing that I I wanted to call attention to as you know, we see a pretty nice opportunity on the refrigerated section of the store as well and that's going to be a focus of ours going into 2020, Florida.
Speaker 3: And that's going to be a focus of ours going into 2024 to
Speaker 3: you know, expand our handheld business and sauce meats business in the refrigerated category in the upcoming quarter.
Expand our handheld business and source meats business into refrigerated category the upcoming quarters.
Speaker 5: Okay, and then you mentioned the fish launch. I think you said December or your ship, you're starting to ship in December and then that will start to actually hit shelves in January , is that correct? Yes.
Okay, and then you mentioned an official launch I think you said December are your shifts you are starting to ship in December and then that will start to actually hit shelves in January is that correct.
Yes, that's that's correct.
Speaker 3: The famous crew on our sauce meets platform
The same is true on our sauce meats platform.
So and you know that skewed the store counts are are significant.
They are in the range of 1700 1900 stores nationally.
And having a national footprint for that allows our social media folks to really lean in on our platforms as well and we'll see how velocity shape up next year once they are on shelf.
And if he just to follow up on that ask the sell throughs are pretty good and this is for example, when would the next sort of resetting would that be a jewelry set for that do you think or how should we think about that.
You know I would be thinking back half of next year.
Its windows resets would occur.
Okay fair enough I'll take the rest offline thanks for taking my questions.
Thank you Jeff.
Thank you.
We have reached the end of our question and answer session and with that thank you for participating you may now disconnect.
Before we before we disconnect.
I wanted to make a few comments on our recent.
That a deal that we.
At.
Put in place.
Wanted to just call attention to it and make a few comments first of all our overall strategy.
Over the last several months has been really to strengthen our balance sheet and we've done that in a couple of ways one with the recent equity raise.
And two.
<unk>, putting in some debt instruments that do two things one reduce our cash interest cost and to increase liquidity and so what we're we're pleased to announce that our long term partner P. M. C financial services has really been with us since the beginning.
Has made the decision to move forward with a new $45 million.
That piece that.
You know well has the potential we see it as essentially reducing our cash interest cost of that.
Much of $6 million.
Annually and it will also increase our liquidity by as much as a $15 million. So we think that that's a really positive.
<unk>.
And we look forward to.
You know completing that.
The deal in the upcoming days not weeks and we'll get more into it when we when we pull that together I view that as very positive development for the best and look forward to.
Reporting our fourth quarter results next year and I hope everyone has a great Thanksgiving so with that.
Have a great day and thanks for taking time today. Thanks.
Thank you.
This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation.
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