Q1 2024 Sow Good Inc Earnings Call
[music].
Hello, and welcome to Sogou with first quarter 2024 earnings Conference call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
To ask a question. During this session you will need to press star one on your telephone.
You would then your automated message advising your hand just race.
To withdraw your question. Please press star one again.
I would now like to turn the call over to Jacky cashier director of Investor Relations you may begin.
Yeah.
Good morning, everyone and thank you for participating in today's conference call to discuss so good financial results for the first quarter ended March 31st 2024.
Joining us today are so good co founder and CEO Claudia Goldfarb.
<unk> Chief Financial Officer, Brendan Fisher.
Certain statements made during this call are forward looking statements, including those concerning our financial outlook our market opportunities.
The impact of the global economic environment on our business. These statements are based on currently available information and assumptions and we undertake no duty to update this information except as required by law.
These statements are also subject to a number of risks and uncertainties, including those highlighted in today's earnings release, and our filings with the SEC.
Additional information concerning these statements and the risks and uncertainties associated with them highlighted in today's earnings release and in our filings with the SEC.
Copies are available on Sec's website or on our Investor Relations website.
Furthermore, we will discuss adjusted EBITDA and non-GAAP financial measure on today's call.
A reconciliation of adjusted EBITDA to net loss the nearest comparable non-GAAP financial measure discussed on today's call.
In our earnings press release at our Investor Relations website.
That I will turn the call over to Claudia.
Thank you Jackie and good morning, everyone. We appreciate you joining us today to discuss our first quarter 2024 financial results.
I want to start by thanking our so good team for their unwavering commitment is so good and our vision and creating one of the most innovative and disruptive companies and they can't be industry.
We are just beginning to scratch the surface of the innovative and disruptive power Freestor technology and are excited to continue to shake up the can be industry.
We achieved quite a few milestones since our year end call and are on track to deliver an exceptional 2024.
We delivered $11.4 million in revenue in the first quarter of 'twenty, four representing substantial year over year growth and a 20% sequential increase relative to the fourth quarter of 'twenty, three as well as $2.45 million and adjusted EBITDA with an adjusted EBITDA margin of 21.5.
5%.
Our strong first quarter financial results.
Straight that freeze dried kidney continues to grow as a category.
Our strategies of expanding internal production and co manufacturing capacity.
And in strengthening our distribution networks and continuing product innovation are working.
But before I delve deeper into our operational strides in the first quarter I want to highlight a key corporate milestone we recently achieved.
As we announced a few weeks ago, we have now up listed our stock to NASDAQ with our shares trading on the NASDAQ capital market as of May 2024.
Along with the uplift we completed a public offering of 1.38 million shares of common stock raising approximately $13 $8 million in the aggregate gross proceeds.
Our interim CFO Brendan Fisher will provide additional detail on the offering later in the call.
We believe our NASDAQ listing allows us to expand our investor base and market visibility, while driving improvements in liquidity and long term shareholder value.
We really look forward to leveraging the advantages of nasdaq's platform in support of our ongoing growth strategy.
Proceeds from the public offering places.
Excellent position to help us achieve our strategic objectives for 2024.
Our key objectives are to continue increasing our in house manufacturing production capacity.
<unk> and diversifying our distribution partnerships laying the groundwork for a strong marketing or branding strategy for the second half of this year.
Further disrupting the candy category with innovative treat.
For our Q1 production capacity, we surpassed our projections of four to 5 million units to over $4 5 million.
We accomplish this milestone by building a strong culture within so good that prioritizes manufacturing excellence.
And the efficiency as well as investing strongly in increasing our in house production capabilities and strengthening our co manufacturing relationships in China and Colombia.
We completed the installation of our fifth freeze dryer, which is now operational and our six three stars on track to becoming operational by third quarter of this year.
In addition, we recently placed deposits on three additional three stars which are expected to be operational within the next nine months.
As discussed on the last call, we strategically pause new customer onboarding in the third quarter of 23 to focus our efforts on growing our production capacity.
This approach resulted in smaller sequential expansion relative to what we achieved between third and fourth quarters of 'twenty three we determined that lane our production groundwork now would enable us to effectively manage and support much greater growth in the second half of this year.
With our capacity increasing as projected we are.
Canberra, assuming new customer Onboarding that's planned.
We are thrilled with the progress we have made with both existing and new customers.
Updates to our customer launches and expansions include adding five new skus and big lots in may and launching so good displays in 300 of their stores for increased exposure and brand building.
Anticipated launch of our display from 1897 Kroger stores beginning in early summer.
Anticipated increases in our target store presence to nearly 2000 stores. This summer after outperforming sales forecast in our initial 200 store launch.
Launching four skus at dollar general in May.
Anticipated launch of three Skus in the fresh market in June.
Anticipated launch of four Skus of nearly 8711 stores in June.
And an anticipated launch of three Skus at Ross in June.
Very proud of the milestones we continue to achieve as we ramp up production and sales.
But before I discuss our goals in greater detail I would like to introduce our interim Chief Financial Officer, Brendan Fisher Who's appointment, we announced early last month.
Brendan first joined our team in June 2023, bringing over 20 years of leadership experience in financial analysis.
Shareholder communication and regulatory compliance with public and private companies.
Before joining so good he served as CIO, managing director and Chief compliance Officer of Fisher Capital Management and investment advisory firm he founded in 2018.
He was previously an assistant investment officer and portfolio manager at Rocky Mountain advisers, managing a $1 $3 billion publicly traded fund that was formerly known as the Boulder growth and income fund.
Throughout his time with the company Brendan has been instrumental in helping US advance our strategic growth initiatives in support of the high market demand for freeze dried candy. We are beyond thrilled that he is part of the so good team and will be instrumental in our future growth.
I will now welcome him to the call to walk through our first quarter financial results Brendan.
Brendan over to you.
Thank you Gloria it's a pleasure to join so good leadership team and continue my work with the company during this exciting chapter.
Moving into our financial performance revenue in the first quarter of 2024 increased significantly year over year to $11 4 million compared to approximately 198900 in the prior year period.
On a sequential basis revenue this quarter increased approximately 20% over the $9 5 million generated in the fourth quarter of 2023.
For all of our topline growth continues to be driven by our strategic pivot to the production of freeze dried candy and our increased ability to meet growing market demand through the expansion of our production capacity.
Gross profit in the first quarter of 2024 increased significantly to $4 6 million compared to approximately $114900 for the same period in 2023.
Our first quarter gross margin was 46% compared to 57, 8% in the prior year period.
Relative to the first quarter of last year. Our business is now operating on a much greater scale with increased labor and related production costs reflected in our year over year margin comparison.
In order to meet growing demand, we will continue to invest in our operations to increase our production capacity and we expect these investments provide a near term headwind to quarterly gross margin.
Operating expenses in the first quarter of 2024 were $3 7 million compared to 1.0 million for the same period in 2023.
The year over year increase was primarily driven by higher compensation and professional services expenses as a scaled up the business and invested in systems and process improvements.
Patients are being listed on NASDAQ.
Net income for the quarter was approximately $510600 compared to a net loss of $1 4 million for the same period in 2023.
The improvement reflects the higher gross profit we generated during the quarter, we aimed to drive further profitability improvements over the coming quarters of 2024.
Adjusted EBITDA in the first quarter of 2024 improved to $245 million compared to approximately $171300 for the same period in 2023.
Moving to the balance sheet. We ended the first quarter of 2024 with cash and equivalents of $6 8 million compared to $2 4 million as of December 31, 2023.
This increase in cash and cash equivalents was primarily driven by a private placement we completed in March of 2024, which raised approximately $3 7 million in proceeds from the issuance of 515597 new shares.
Subsequent to the quarter end of March 31, 2024, we took additional actions to further strengthen the company's financial Foundation.
On April 13th we completed a warrant exercised transaction to provide some background. The company had issued notes payable was attach warrants during the period between December 2021, and May of 2023 to.
The company reached an agreement with these noteholders to exercise their warrants by allowing for the partial prepayment of principal <unk> accrued interest and in aggregate an amount equal to the exercise prices of the holders warrants.
As a result, the company issued $2 million 186250 shares of its common stock in the company is debt was reduced by $5 2 million and accrued interest payable was reduced by 98750.
Additionally, as Claudio mentioned earlier, we closed an underwritten public offering of 138 million shares of common stock early last week.
The offering was completed at a price of $10 per share yielding approximately $13 8 million in gross proceeds before operating expenses and underwriting discounts and commissions.
We intend to use the net proceeds from this offering for general corporate purposes, which may include capital expenditures for the expansion of production capacity funding working in growth capital, extending our sales and marketing efforts and reducing certain tranches of indebtedness.
We would like to thank our new and existing investors for their support and look forward to further enhancing our foundation for growth.
This concludes my prepared remarks, now with now like to turn the call back to Claudia for closing remarks.
Thank you Brendan as we've discussed throughout this call and over the past few quarters. We have made rapid progress in launching our first nine candy skus in the first quarter of 'twenty three.
Claudia: And just this first year of focusing on freeze dried candy, we have meaningfully expanded our production infrastructure, our retail customer and distributor network and our SKU and store count this.
This is just the beginning stages of our growth trajectory.
As we look to the coming quarters I'd like to close today's call with a quick overview of our key strategic pillars for 2024.
Our first and foremost priority continues to be expanding our production capacity in support of customer demand, we expect to maintain our progress here through bringing our six freeze dryer online by Q3 of this year placed.
Placing orders for an additional three three stars and continuing to ramp our international co manufacturing agreements.
This work to grow and optimize our in house and international capacity will allow us to continue meeting the growing demand for our current most popular skus.
Aiming to improve our ability to produce larger quantities of our other more laborious treat without compromising any of our margin to our efficiency.
We continue to diversify our customer base and SKU portfolio, maintaining the advantageous breadth we have built on both of these fronts.
In addition to the retail launches I mentioned earlier, we're also planning to introduce holiday and seasonal Skus. Later this year, we will share updates from these and other new product innovations over the coming quarters.
We have been incredibly fortunate to see the organic reviews content creation and general positive reception of our treat on social media by our customers.
Claudia: This consumer support has translated into strong organic sales velocity.
But to further support this demand.
This category and cement our position as the category maker and leader, we will be unveiling a comprehensive marketing strategy later this calendar year.
To date, we are focused on establishing our advantage in the freeze dried cannabis space through building, a strong brand scaling our production and distribution capabilities and diversifying our distribution strategy across all channels.
Grid this the economic moat before making any significant marketing investments.
And now with our operational foundation in place and primed for further growth.
We're eager to strengthen these barriers to entry via our investments in marketing and branding.
We have entered 2024 with significant momentum and expect to continue building upon our innovative product portfolio, our production capacity in our customer base.
We look forward to sharing more updates with you on our trajectory over the coming quarters and thank you very much for being here with US today, operator, we will now open up the call for Q&A.
Thank you.
Ladies and gentlemen, as a reminder to ask a question. Please press star one on your telephone and then wait to hear your name announce.
To withdraw your question. Please press star one again please.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of George Kelly with Ralph Your line is open.
Hey, everybody thanks for taking my questions.
And congrats on a really strong quarter.
So there's a lot to go through I'm going to ask maybe two or three questions and then ill hop back in the queue.
But I was hoping to start with.
With some of the retail new retail partnerships that you announced.
And I was I was hoping to just get more context about.
How much growth youre going to.
Drive this year.
Store growth. So I was I was curious if you could give us like how many doors or distribution points did you have at the end of Q1, and just using round numbers not looking for specific guidance, but how much should that grow by year end.
So George on the door count I don't have that I'll talk my head Claudia you may have it.
So at the end of Q1, George I don't have the numbers in front of me, but somewhere around 6500.
The growth.
In the second half of this year is going to be significantly more than that.
So more than doubling of your door count.
That's what we're anticipating.
Okay, and then could you fill us in with a little more detail just on a couple of year.
Youre announced partner stellar general and 711.
How much I know youre in some seven elevens I believe like how much I think you said 8000 doors, if I heard that right.
How many skus will be in 711, and then if we can if you could do a kind of a similar discussion on dollar general.
Yeah. So for 711, we're anticipating four skus in all 8000 as you know some of them are franchise versus non franchise. So for the non franchise for the franchise stores.
Up to the independent operator, but that's what we're anticipating.
On.
Dollar General we're looking to start with two skus, they're going to be a smaller bag size, so theyre going to be somewhere between.
8% to one two ounces, we're still solidify what vinyl.
Speaker Change: Wait count is going to be.
And it's going to be a sour bite and a sweet bite.
Okay and then the full list that you gave is that all signed contracts or I guess, how much confidence or visibility do you have on those.
All signed contracts.
Okay. That's excellent and then one of the contracts we have.
The Onboarding documents.
Okay understood and then other topic I wanted to cover is gross margin and EBITDA margin.
There was language in the press release about it.
Investments in capacity and infrastructure and everything.
And.
And gross margin in the quarter was well above my estimate.
So I guess the question is where do you expect gross margin to trend over the next couple of quarters, and if theres a dip anticipated.
Do you think it'll take to get back to kind of high <unk> range for gross margin.
Yes, that's a great question George couple.
Couple of things that we were surprised by the strength of gross margin this quarter as well so you werent the only one.
And really what drove that was.
We had very strong sales mix during the quarter, which helped boost margins and we also did a really good job of managing labor costs.
Speaker Change: Whether or not.
We're growing business Theres a lot of things that are variable, especially with the market. We're in is an incentive fee.
We also expect some variability on those two factors, especially on the sales mix as we add new customers thats going to kind of tweak things on sales mix side.
So we do expect some variability in margin related to that we expect some additional margin from where we were this quarter driven by the fact that.
We had some increased costs that we experienced in recent months, primarily on the shipping cost side.
We all know the shipping freight situation now that market has gotten more expensive over the last several months.
Those costs that we experienced really havent flown through the income statement yet.
And we expect that to start to catch up in Q2. So we do expect some pressure there.
And then.
Combine that with the fact that we are in the growth phase of the business, we are going to be investing in labor, we're going to be investing in production capacity.
As those things come online, we're obviously not going to be utilized room at 100% efficiency for out to kind of grow into them at scale and to them. So.
That's going to lead to look at near term margin pressure now where that all ends out.
We're probably looking somewhere in the mid to high 30% range for the near term on gross margin.
Okay understood. That's really helpful. Thank you very much.
Rob Thank you.
Please standby for our next question.
Our next question comes from the lump Eric des <unk> with Craig Hallum. Your line is open.
Great. Thank you for taking my questions and congrats on the very impressive results there. Thank.
Thank you.
My first question just overall about <unk>.
Passenger to add additional freeze dryer, so far at the beginning of the year and now guidance for nine by.
Within the next nine months here how.
How much space do you have to continue adding freeze dryers and your Irving Texas facility.
So in the Oregon facility, we are running out of space, but were I guess, the best way to put it is we're growing business. We're look we're going to have space for those for insurers.
We're looking at as part of the project capacity expansion.
On the production side includes increase in square footage.
Okay.
Kind of leads into my next question here.
Overall facilities and the 10-Q, you mentioned youre looking for additional packaging facilities, maybe could just give us a high level on your overall facility plans where are you looking to.
Increase.
Capacity or get into new facilities.
I guess for any potential new facilities is this.
Sort of all coming through the.
The sort of viewpoint of adding capacity or is there any near term plans for geographic diversification at all just kind of wondering how youre thinking about your facility footprint overall in the near term.
Eric Great question and right now, we're really focused on the Dallas area.
After looking through different options that we had.
Going international going to outside of the Dallas area, We've decided to keep everything under one roof and so all of that production capacity is going to happen very close to where Irving Texas facilities currently located.
Most of that footprint is going to be used for production capacity and packaging capacity expansion.
With the remainder being.
Speaker Change: Raw material storage and all of the other things that you need to distribute the product.
Got it that's very helpful.
And then just last question from me here.
So in the press release you highlighted.
Big lots five new Skus.
Speaker Change: So good displays as well.
I think these displays are relatively new.
This is the first instance.
Display is getting them in at big lots.
And I guess, if not do you have any sort of early insight on the impact here and maybe just help us understand if this is more of like.
Thanks strategy to increase.
Velocity of your Skus or is this a way for you to.
Increase the number of Skus at a given retailer just any sort of color on the.
The impact of these displays will be great.
Definitely I think first and foremost brand building is one of the things that we're really focused going into the second half of 2024.
And so the displays are.
Incredibly colorful and really just speak to to our branding and marketing efforts.
But the strategy for them being in store is yes, definitely skew assortment expanding the SKU assortment, but velocity is definitely increasing they've been in just a few test.
Circle K seven elevens have outperformed expectations I don't have the exact numbers that I can share with you today.
Theyre going into big lots, there going into five below.
So probably by the next.
Earnings call, we'll have more color as to exactly how well, they're performing but initial test launches.
Have them performing very well.
Oh, that's great to hear thank you for taking my questions and congrats again.
Thank you. Thank you.
Please standby for our next question.
Our next question comes from the line of David <unk> with Trickle Research. Your line is open.
Fantastic quarter.
I'm just wondering.
If you can tell me how many skus there are now.
And kind of where you expect that to be.
Maybe as you exit the year and the other thing I'm curious about is just how we should think about SG&A going forward I know that you've kind of talked about having to.
Load the margin side of it a little bit with.
Expenses just for growth so I'm kind of wondering how that may impact <unk>.
SG&A as well.
Yeah. So right now we're sitting at about 14 Skus.
Speaker Change: We're going to end the year somewhere in the 20 range because we're launching.
Holiday Skus as well.
Those have been.
Just really well received I'm actually at a trade show in Indianapolis right now so.
We're getting to meet with retailers here I think you know as we go forward innovation is just a key cornerstone as to what we're going to be doing.
What is really just resonating with customers everywhere is.
We have a core kind of six products and then in addition to that.
New flavors novel flavors not novel.
Shapes are just been incredibly well received.
Yes.
Yes.
And to go on the operating question expense question on the SG&A side.
The thing to point out in this quarter is that we did this quarter, we usually pay bonuses.
Quarter $1 million that fell into this quarter that obviously you wont see in the next three quarters as more of a first quarter situation for us so.
As well as on the other G&A side.
When we pay the annual compensation for the board.
So youll see that fall out in the next couple of quarters until next.
Okay.
No.
Thank you.
Okay.
Okay.
Additional personnel as we build out our operations. So we'll have some increased from SG&A on that.
And then the other part of it is we'll have some increased rental expenses as to as we build out facilities to take on new facilities.
There are two big things that will increase in the near future.
And one other thing I'd point out.
Go ahead Glen.
Yeah, No I know historically as we've mentioned we've spent zero on marketing.
We've been able to do has been organic social media word of mouth and just having.
Really engaged.
Customer base.
Going forward that is going to change so youre going to see those expenses start popping up probably in the third quarter of this year.
And so that kind of <unk>.
Hence a problem supporting our retailers so that we continue to see the velocities, we're seeing on shelf.
So some greater investments in social media and probably some.
<unk> Influencer involvement on a go forward basis.
So that reminded me of another question I had.
Are you starting to see and you talked about the moat and you know you are talking about accelerating marketing.
Are you starting to see any sorts of <unk>.
Competitors.
The space is pretty new it seems like some sort of competitors talking about popping up here. There are is inevitable and obviously that's going to require they'd be able to scale. The business like you have but I'm just curious if you've seen.
Any sort of indications along those lines.
Yeah no definitely.
At the trade show.
<unk> competitors here.
And one of the things that has been reassuring as we've been here is that those moats that we've built a really effective.
I'll give you an anecdotal story one of the 711 buyers walked into the booth yesterday, and we're like Hey, what you want to try that a new SKU, we were launching and she said no I don't like freeze dried candy.
We said okay.
Which ones have you tried that you haven't liked and she said well I have never tried yours I've tried to competitors of yours. We said, okay. That's the issue come on Ed give.
Give our stuff or try and she's like Oh, Wow now I get why everyone keeps telling me that the only candidate to carry is so good.
<unk>.
Those those modes quality focusing on production capacity in production excellence have really proven to be effective.
The marketing spend is just so that we can continue to.
Kind of scream that from the rooftops there is a difference.
With so good candy that is apparent at first bite and so once.
Once we get.
Correct.
Those moats are just going to continue to become much more effective.
That's great. Thank you.
Thanks, Dave.
Speaker Change: Thank you.
As a reminder, ladies and gentlemen that start one wanted to ask a question. Please.
Please standby for our next question.
Speaker Change: Our next question comes from the line, Steve Emerson with Emerson Investment Group. Your line is open.
Thank you for a great quarter and excellent call.
What kind of revenue run rate to us four and a half.
In pieces.
Capacity at this time.
And thirdly mill Youre right.
Run rate pieces.
Okay.
Yes, so we're not giving any specific guidance on revenue.
Don't reveal kind of our unit pricing for competitive reasons.
But you can kind of back into that $4 5 million that we had a capacity.
Kind of refer that back to our revenue to get an idea of where we are on a unit basis.
Speaker Change: Perfect, obviously, because we don't sales.
Sales in capacity don't always match up.
But kind of what we're expecting from.
I can't talk about revenue cadence, but.
I can point you to our production capacity cadence that we provided before where we expect to see that capacity ramp up to $7 2 million units in two Q $9 million in <unk> and $9 6 million in Q4, which gets you to that 30 million number for the full year now what you really need to do is adjust for the fact that theres going to be a delay between when new capacity comes on.
Online and the potential for new sales to occur, but really what we're looking for is to see it.
Our growth cadence for revenue this year that we do on the production capacity line.
Thank you very much.
Youre welcome.
Speaker Change: Thank you ladies.
Please standby for our next question.
Our next question comes from the line of Greg Kit with Pinnacle Fund your line is open.
Hi, Cody and Brendan congratulations on a great quarter.
Greg.
Kind of following up on Steve's question is there a way to think about how much of the.
In the first quarter was fulfilled through internal.
Owned manufacturing versus come in.
Well again, we're not going to be providing that type of detail, but I mean, you can look again.
Capacity chart, we had.
Speaker Change: That should give you a general idea of where we are.
Speaker Change: As you.
Let's start to ramp with a lot of these customers you talked about Kroger and dollar general.
711.
Speaker Change: <unk> marketing Ross and then expansions with some existing <unk> do you think that that mix could change to be slightly greater than 50% come in while you're waiting for some of your additional freeze drivers to come online.
Yeah.
Speaker Change: And yet at the end of the day, we're going to make sure. We can service our customers and whether that's going to be from domestic production or they come in.
Speaker Change: However, the situation in the short term, but it can make sure we get product to customers. So we do expect some variability and I think the bigger thing to kind of think about as longer term is that we want to grow their domestic side of the business.
And in control of that type of manufacturing for us So I would expect over the long term.
Co manufacturing, obviously is going to be a part of our business going forward, but we're going to be getting into bigger and bigger share coming from domestic as we grow the business.
Thank you that was very helpful.
No problem.
Thank you.
Ladies and gentlemen, I'm showing no further questions in the queue I would now like to turn the call back over to Claudio for closing remarks.
Well. Thank you everyone for being a part of this call. We greatly appreciate it we're incredibly excited as to where we are right now and where the rest of this year is going to take us and we look forward to giving you. Another upkeep date in three months.
Ladies and gentlemen that concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].
Okay.
Speaker Change: Okay.
Speaker Change: Okay.
[music].
Speaker Change: Sure.
Okay.
[music].