Q3 2024 Stryve Foods Inc Earnings Call
Speaker Change: Good afternoon everyone and welcome to the Strive Foods 3rd Quarter Fiscal 2024 Financial Results Conference Call. At this time, all participant lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press 0 for the operator. This call is being recorded on Wednesday, November 13, 2024. Now I would like to turn the call over to Will Pugh,
Senior Vice President of Accounting at
Will Pugh: Thank you, Operator, and welcome to the Strive Foods Fiscal Year 2024 Third Quarter Earnings Call. With me today are Strive's Chief Executive Officer, Chris Boever, and Chief Financial Officer, Alex Hawkins.
Will Pugh: Before we begin, I would like to remind everyone that part of our discussion today will include forward-looking statements that are pursuant to the safe harbor provisions of the Private Securities and Litigation Reform Act of 1995.
Will Pugh: These statements are not guarantees of future performance, and therefore undue reliance should not be placed upon them. We do not undertake to update these Fort Lincoln statements at a later date, and they only refer to today.
Will Pugh: In addition, today's call will include a discussion of non-GAAP financial measures including adjusted EBITDA and adjusted EPS. Non-GAAP financial measures should be considered as a supplement to and not a substitute for GAAP financial measures.
Will Pugh: We refer you to the Reconciliation of None Gap to the Nearest Gap measure included in today's earnings press release for further details.
Will Pugh: This call is being webcast and can be accessed through the audio link on the news and events page of the investor section at ir.stride.com. Also, the earnings press release is posted on our website and a copy of the release has been included in the form AK submitted to the SEC.
Speaker Change: With that, I would now like to turn the call over to Chris Beaver, Chris.
Chris Beaver: Thank you, Will, and welcome to everyone, and thank you for joining us today.
Chris Beaver: I'm excited to share that Strive Foods continues to make meaningful progress on our transformation driven by our commitment to delivering differentiated, premium, high-protein, low-sugar, no-preservative snacks.
for today's growing health conscious consumers.
Chris Beaver: The third quarter has been a period where proof points are emerging and accumulating supported by increasing consumer demand primarily from accelerating retail velocity.
Chris Beaver: Our focus on top-line growth, operational improvements, and productivity will continue to enable margin expansion.
Chris Beaver: We are a very different company today, with a much improved foundation. We have dramatically improved the food quality, unveiled upgraded packaging, created new brand positioning, based on shopper preferences,
Chris Beaver: Upgraded the talent and capabilities within the organization and streamlined the processes across the enterprise.
Chris Beaver: I firmly believe that we will delight our consumers, we will execute with our retail partners, we will gain market share, and we will achieve profitability.
Chris Beaver: Our improved food quality and brand position is achieving that vision.
Chris Beaver: With Velocity's growing, we will expand our retail distribution, focused on our prioritized and streamlined portfolio.
Chris Beaver: In addition, we see opportunities to grow through innovation, responsibly phasing in relevant, new, on-trend products such as our recently announced launch of High Stakes, our high-protein, human-grade, cut-treat brand.
Chris Beaver: which allows us to leverage our core expertise in another attractive category with a highly differentiated offering.
These efforts reflect our broader goal to create a diverse,
Chris Beaver: Sustainable Growth Engine or STRIDE, one that resonates across different segments and channels.
Chris Beaver: primarily driven by the significantly increased sell-through at retail and promotional efficiencies supported by our strategic pricing initiatives.
Chris Beaver: Additionally, our gross margins improved to 21.7% from 13.3% in the prior year period, underscoring our focus on product mix, pricing, and operational efficiencies.
Chris Beaver: The demand for our brand has exceeded our current ability to supply, not our capacity.
Chris Beaver: This challenge is being addressed with the recent capital raise combined with the numerous operational improvements we expect to see our service levels improve significantly on the current business.
Chris Beaver: Our productivity initiatives are generating as expected and we are unlocking efficiency and effectiveness in our logistics network. One significant development recently announced is our partnership with DOT Foods, the largest food redistributor in North America.
Chris Beaver: This partnership, set to begin in Q4 of 2024, enables us to leverage DOT's extensive distribution network and logistics expertise to streamline our supply chain, improve service levels, and ensure timely product availability for our growing footprint.
Chris Beaver: Scott Foods has an unmatched infrastructure that will enhance our fulfillment operations, allowing us to efficiently reach thousands of retailers and food service operators nationwide.
Chris Beaver: I am confident this collaboration will further strengthen our foundation for the upcoming year, supporting our growth and reinforcing our ability to meet rising consumer demand.
Chris Beaver: Overall, the industry response to our initiatives has been encouraging and promising.
Chris Beaver: We deliver something different to the category, a contemporized and modernized set of brands that deliver shelf productivity in a highly expandable, consumable, attractive category.
Chris Beaver: The combined impact of our strategic initiatives, positions, and strides can not only drive top-line growth, but also to build a scalable, efficient model that supports and delivers long-term profitability.
Chris Beaver: We remain committed to these core pillars. Number one, grow the core, increase velocity, increase distribution, and drive household penetration.
Chris Beaver: Number two, add more. Through responsible innovation of relevant flavors, forms, and extending day parts and occasions.
Chris Beaver: Number three, flawless execution on how we serve our customers in the most efficient and effective manner.
Chris Beaver: Number four, lower our cost to serve, ultimately executing on our productivity agenda.
Chris Beaver: There's no doubt we have a clear path to profitability, and we are better and more uniquely positioned than ever before.
with our self-manufacturing footprint.
Chris Beaver: Our highly differentiated brand portfolio, which closely aligns us, like no other, to the list of on-trend consumer behaviors.
Chris Beaver: More Protein, Ultra-Convenient, Elimination or Reduction of Preservatives and Sugar, and the Emergence of the GLP-1 craze.
Chris Beaver: These important consumer dynamics provide a tailwind to outperform the categories in which we compete.
Chris Beaver: We will build consumer awareness. We will create greater availability in the marketplace by expanding distribution. And as new consumers try our brand for the first time, we will build on our established high level of repeat purchase behavior.
Chris Beaver: As we look to close 2024 and prepare for an ambitious 2025, I am encouraged by the momentum we've achieved and the solid foundation we have built.
Chris Beaver: Our strategic approach is delivering improved results and at an accelerated rate. And I believe the initiatives we have implemented will continue to produce strong growth well into the future.
With that, I'll turn it over to Alex.
Thank you, Chris.
Alex Hawkins: For the third quarter, we delivered net sales of 5.7 million, up 36.4% compared to Q3 of 23.
Alex Hawkins: While this growth is significant and a testament to our overall transformation, I should share that the demand for our products this quarter outpaced our ability to supply.
Alex Hawkins: This is not a function of capacity or supply chain constraints, but rather working capital to support the inventory the inventory build necessary to deliver on the demand for our products.
Alex Hawkins: We have and are continuing to take steps to try and solve this challenge. But suffice it to say, we believe that our run rate demand, based only on our existing distribution, is meaningfully higher than what we shipped this quarter.
Alex Hawkins: Importantly, this growth in demand has not been driven simply by increased distribution, but actually by a significant increase in the sell-through velocity of our products.
Alex Hawkins: The rate at which your products sell through on shelf at retail is one of the best indicators of the health of a consumer brand.
Alex Hawkins: This performance speaks to the strong consumer engagement and brand loyalty we're building through our improved product quality and packaging renovation.
Alex Hawkins: The new packaging is doing its job by driving trial with new consumers and the superior quality is what's driving the repeat.
Alex Hawkins: We're seeing our products perform exceptionally well in retail settings, and the consumption data shows it.
Alex Hawkins: Retailers across the country have taken note of our on-shelf performance and this data-backed shelf productivity story positions us favorably for additional distribution wins such as those we recently announced for early 2025.
Alex Hawkins: which will add our products to thousands of new locations nationwide.
Alex Hawkins: Moving down the income statement, we recorded over a 120% increase in gross profit for the third quarter year-over-year, achieving $1.2 million in gross profit in the current period as compared to $0.6 million in the prior year period.
Alex Hawkins: This increase in gross profit was driven by both volume and efficiency.
Alex Hawkins: with a gross margin of 21.7% compared to a gross margin of 13.3% in Q3 of the previous year.
Alex Hawkins: This 8-point improvement in margins reflects the significant strides we've made to optimize our product mix, enhance operational efficiencies, and strategically manage pricing.
Alex Hawkins: Since the beginning of our transformation, we have intentionally rationalized and refined our product offerings.
Alex Hawkins: Focusing on our highest demand, improving the profitability of the core portfolio through productivity and simplification, while also implementing cost savings initiatives across our production and procurement processes.
Alex Hawkins: As we scale our volumes with adequate working capital and more fully utilized labor and overhead, we expect to see further margin enhancements, which could happen as soon as early next year given the recently announced wins.
Alex Hawkins: Our operating expenses for the third quarter were $3.5 million, representing a 15.9% reduction compared to Q3 of 2023.
Alex Hawkins: This reduction is a direct result of our disciplined approach to expense management and operational efficiencies.
Alex Hawkins: Over the last two years, we have made concerted efforts to control costs, eliminating non-essential expenses, and streamlined our operations to focus on productivity.
Alex Hawkins: This discipline remains a cornerstone of our strategy as we drive towards sustainable growth and profitability.
Alex Hawkins: Adjusted EBITDA loss for Q3 was 1.7 million, marking a 31.5 percent improvement from the 2.5 million dollar loss in the prior year quarter.
Alex Hawkins: Our transformation efforts have yielded consistent quarter-over-quarter improvements in adjusted EBITDA, demonstrating that our strategy is working.
Alex Hawkins: And compared to two years ago, when our losses were more than double, this quarter's results show how far we've come in narrowing our losses through focused growth and efficiency.
Alex Hawkins: As we continue to gain scale and leverage our refined cost structure, we expect this positive trajectory to continue, moving us closer to our goals of profitability.
Alex Hawkins: In summary, the progress we're reporting this quarter reflects both the strength of our consumer demand and the disciplined financial approach that has guided our transformation over the last two years.
Alex Hawkins: By driving increased sell-through at retail, improving margins, and controlling expenses, we are establishing the foundation that can prime us for long-term success as we expand further into new distribution channels and categories.
Turning to our balance sheet and capital position.
Alex Hawkins: Securing the capital we need to execute on our plans is a key component of this last phase of the transformation.
Alex Hawkins: As we have shared, we have been working capital constrained for most of the last two quarters.
Alex Hawkins: We have been in market to remedy that challenge through raising equity in order to right-size the balance sheet and execute on our plans.
Alex Hawkins: The heightened demand in recent distribution wins we've secured reflects Strive's momentum and the appeal of our products in an expanding range of retail channels.
Alex Hawkins: This is a great position to be in. Our products are performing well. Our distribution footprint is expanding rapidly.
Alex Hawkins: We are actively exploring creative capital solutions and partnerships to support this next phase of growth.
Alex Hawkins: ensuring that we can capture every opportunity while maintaining financial discipline.
Alex Hawkins: As we look to the end of 2024, we remain encouraged by the underlying demand for our products and the traction we're seeing in the marketplace.
Alex Hawkins: At this time, we are not providing guidance for the balance of the year. It's worth noting, however, that our prior guidance was based on the assumption that we would secure sufficient working capital in Q3 to support our ability to fulfill demand throughout this year, the balance of the year.
Alex Hawkins: While our recent capital raise will help us to address these service challenges, we estimate the timing of the raise will serve to benefit shipments for the remainder of Q4.
Alex Hawkins: Looking into 2025, with the right capital base, we're optimistic that the strategic distribution wins coming online in Q1, along with our focus on operational efficiencies and cost management, will set us up for sustained growth with a clear path to profitability.
Speaker Change: With that, I'd like to turn the call back over to Chris for some additional comments.
Chris: Thank you, Alex, and thank you for all you do. In summary, 2.3 was another quarter of progress for Strive. As we continue to execute on our strategic priorities, the demand we are generating across all channels validates that our strategies are indeed working.
Chris: I want to thank our entire team and the Board of Directors for their hard work and dedication.
Chris: Transformations are not easy, but they are when done properly and executed flawlessly can create a lot of value. The tireless commitment and passion has been instrumental in the delivery of the massive improvements in our overall business.
Chris: As we look to the future, we are very excited and confident about the new stride. We are primed, prepared, and we are committed to achieve our full potential.
Chris: To our shareholders, I extend my gratitude for your continued support and belief in our vision.
Chris: That is what is required in consumer packaged goods. That is what is required to win in this category and we have a team assembled and a portfolio poised to execute against that promise. With that, I'd like to turn it over to the operator for Q&A.
Speaker Change: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number two. If you're using a speakerphone, please lift the handset before pressing any keys.
One moment, please, for your first question.
Speaker Change: Your first question comes from the line of Mike Grandel from Northland Security. Your line is now open. Please go ahead.
Hey guys, thanks.
Speaker Change: You know, Alex, can you speak at all to sort of
Speaker Change: What's the minimum incremental capital you need to get to break even?
Unknown Speaker, Unknown Speaker, Unknown Speaker,
Speaker Change: That's a great question. You know we, as folks probably saw
You know, when we've been out of market.
for the public raise that we've been trying to secure.
Speaker Change: S1 that that indicated $10 million of capital that we wanted to bring in a fresh cash along with the conversion of some debt.
Unknown Executive, Luke Weil
Speaker Change: and and ultimately that's about what we're looking for it's probably a little bit less than that some cushions aggressive for a minimum but a little bit less now we just brought in 2.9 that counts towards that so it's probably in around six
Unknown Speaker 0.01.01
Speaker Change: and this will likely be a multi-staged raise at this point. You know, we had gone out and looked to secure it in one fell swoop, but I think the path we're on now is to go out and incrementally bring it in in a multi-step process to support the business at the right time.
Yeah, I wanted to add, Mike, the
Speaker Change: The track record we've established has been to always be in position and discover and deliver the funds needed to, you know, continue to run the business.
Speaker Change: With most of this in the rearview mirror and a lot of upside in front of us, it's imperative that we continue the progress on the balance sheet. While this is one step in the right direction, we are resolute and we are confident that we will continue to secure the resources required.
and needed to be able to fuel this business.
Speaker Change: Got it. You know, I know you got that capital kind of roughly midway through the quarter. Can we expect sequential growth in 4Q to close out the year?
Speaker Change: Yes, absolutely. I'll go first Alex and then you come on top. We anticipate a very strong fourth quarter. While we won't be fully recovered because of the timing of the infusion and where we are at midpoint of the quarter,
Speaker Change: But I can assure you it's going to be significant and meaningful growth year over year. We certainly can get close if not exceed.
Speaker Change: 100% growth for the quarter year over year and there aren't too many CPG companies and there certainly isn't anybody in our category that's delivering that kind of you know impressive performance.
Speaker Change: Our brands and our units, SKUs if you will, per point of distribution, are working hard for us at retail. Our velocities continue to grow. Our demand continues to accelerate. In fact, exceeding some of our original projections.
Speaker Change: But with, you know, some challenges in the capital market and us
Always put in the shareholder first.
We wanted to be disciplined.
Thoughtful and responsible on, you know, closing out the
Unknown Executive, Luke Weil
Speaker Change: Certainly the connection to the consumer, certainly a very attractive category, certainly a far better executing machine that works cross-functionally in a highly efficient and effective manner.
Speaker Change: and we're responsibly managing cash like this company has never done before.
Speaker Change: With that being said, it's a good problem, but it's still a problem. We will continue to solve it like we always have in scrappy means as well as You know strategic advancements Alex maybe you want to add some additional color to the to the growth fourth floor
You know the the demand for our products is there
Speaker Change: Right. What we're seeing consistently the past two quarters is demand.
Speaker Change: Driven by consumption, not necessarily driven by new distribution, driven by consumption off-shelf.
Speaker Change: putting our, you know, potential net sales, you know, half a million to a million dollars higher than what we've been able to deliver. And that's been a function of the working capital.
Speaker Change: Now we've got the working capital in to kind of right size us to that existing distribution demand that we have. And so we'll basically get, you know, the balance of Q4 benefit of that, but the first half of Q4 we didn't.
Speaker Change: And we've got to make sure that we get the cash in the door and continue to get the cash in the door to support that growth in the future. But overall, the demand right now is meaningfully higher than what we've been able to deliver and what we will deliver ultimately in Q4.
Speaker Change: Yep, so really really strong growth year over year. Definitely strong growth is anticipated, projected, and expected.
Sure, and then just thinking about the model.
Speaker Change: You know, 10 million of revenues, roughly 30-35% gross margin, is that still ballpark break-even?
If you can get to that level.
Speaker Change: Our gross margin profile is likely going to be a bit more attractive than that at those levels. You're talking about on a quarterly basis, 10 million in net sales in a quarter. Based on our current mix and our current unit economics, we should have more attractive gross margins than that. We should be, you know,
Speaker Change: High, high 30s is what we would expect, potentially even low 40s, depending on the exact mix.
Speaker Change: and based on the productivity we have throughout the P&L and the operating leverage that we're going to see
Speaker Change: It's still generally, you know, in the ballpark, you know, we should get there. Our target is to try and get there, you know, less than 10 million for net sales, you know, in between nine and 10 is where we would like to get to, to be able to see that inflection point on a adjusted EBITDA basis.
Got it. Okay. Hey, thanks guys.
Thank you, Mike.
Unknown Speaker 05. Yeah. Unknown Speaker 05.
Speaker Change: As a reminder, if you wish to ask a question, please press star one.
Speaker Change: Thanks to all of you for continued support and belief in STRIVE.
Speaker Change: We are energized by the progress and potential and we are laser focused on executing. We look forward to updating you on our continued achievement in the quarters to come and the continuing of this exciting journey together.
Speaker Change: I wish you all a happy and healthy holiday season. Each day, don't be a jerky.
Thank you.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.