Stryve Foods Q1 2023 Earnings Call Transcript

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May 15, 2023

There are 5 speakers on the call.

Operator

Afternoon, ladies and gentlemen, and welcome to the Stryfe Foods First Quarter Fiscal 2023 Financial Results Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer This call is being recorded on Monday, May 15, 2023. Now, I would like to turn the call over to Sandy Martin, 3 part advisors to make introductions and read the Safe Harbor statement. Please go ahead.

Speaker 1

Thank you, operator, and welcome to the Strive Foods' Q1 earnings conference call. With me today are Strive's Chief Executive Officer, Chris Beaver and Chief Financial Officer, Alex Hawkins. Before we begin, I would like to remind everyone that part of our discussion today will include forward looking statements that are made pursuant to the Safe Harbor provisions of the Private Actual results could differ materially from these expectations. These statements are not guarantees of future performance and therefore undue reliance We do not undertake to update these forward looking statements at a later date and they only refer to today. In addition, today's call will include a discussion of non GAAP financial measures, including adjusted EBITDA and adjusted EPS.

Speaker 1

Non GAAP financial measures should be considered as a supplement to and not a substitute for GAAP Financial Measures. We refer you to the reconciliation of non GAAP to the nearest GAAP measure included in today's earnings release for further detail. This call is being webcast and can be accessed through the audio link on the News and Events page of the Investors section at ir. Thank you. Also, the earnings press release is posted on our website.

Speaker 1

With that, I would now like to turn the call over to Chris Beaver. Chris?

Speaker 2

Thank you, Sandy, and welcome and thank you for joining us for our Q1 earnings call. We reported our 2022 year end results a few weeks ago, where I detailed the progress of our transformation, the changes and improvements in strategy, Structure, process, culture and capabilities are mostly in our rear view. We are now executing against the sizable Special thanks to my Strive team members. Your commitment and efforts are appreciated and recognized. Since that earnings call, we have announced 2 important and meaningful accomplishments.

Speaker 2

First, the innovation launch for the Vaca Dios brand, Expanding our fast growing lineup of carne seca with a new flavor chipotle honey. We are also excited to be entering Introducing 2 terrific offerings, chile lime and habanero beef sticks. Macadillo's air dried sticks Deliver important consumer benefits, higher grams of protein than the category leader, no sugar, no preservatives, Only ingredients that consumers can pronounce and they taste great. With these attributes, it's no surprise That we now have a total of 3 flavors of carne seca and 2 beef sticks available at approximately 10,000, 711 and Speedway locations across the country, that's about 80% of their footprint. Since the launch in mid April, We are encouraged by the early indicators of the consumer response.

Speaker 2

The second announcement on April 20 was a capital raise of $4,100,000 This was actioned to support our near term distribution growth, shipping in Q2, Driven by innovative platforms and extensions, our folds of honor partnership on the Strive brand, our new brand positioning and packaging To complement our strategy along with an investment in quality, the portfolio has been rationalized and optimized. Simultaneously, we created and are now implementing and executing the strategic imperatives. We have been aggressively managing costs, investments, cash and more. Our performance management plan supports those objectives, Enterprise wide alignment is a key component as we become a true operating company. I am very pleased about the response from our retail partners to our new category strategy, which is designed to expand and grow Numerous distribution wins are being awarded across all classes of trade.

Speaker 2

I shared a slice of specific customer gains on the earnings release, those that are already in market. Numerous more have been awarded and momentum is very encouraging. We will update as additional retailers add new and or expand existing items to the category once they are physically in store. The proof points outlined for growth are real And meaningful. The opportunities are abundant.

Speaker 2

We will have many more to communicate throughout the quarter and beyond. The new strategy is working and we are just getting started. We are focused on driving trial with strategic pricing, quality merchandising, Cause marketing initiatives with Folds of Honor Patriotic PAC. We have built the foundation and we have proven that we are focused on building a great company that is maniacally managing costs, driving productivity, Improving cash consumption, expanding margins, investing for return and growing in a manner that will deliver profitability. Drive 2.0 is addressing everything we do and how we do it.

Speaker 2

You are starting to see the impact the changes are having in the numbers. Our thoughtful and planned approach to growth, combined with the operational improvements, is our recipe for success. The foundation we have built in just a few quarters demonstrates that our simplified, prioritized agenda, sequenced and executed was what was and is required to drive value to all stakeholders. We expect to grow at a rate well above the meat snack category With accelerating consumption, ultimately earning gains in market share, we will not grow at all costs. We are partnering with retailers collaboratively to help them compete and grow their share.

Speaker 2

We will expand margins with operational improvements. We will keep costs down and we are committed to deliver a profitable, innovative, growing company With the very best tasting, better for you offering this category has ever seen. As we have previously shared, We have adopted a 0 waste mantra. We now have several value generating initiatives where the team has discovered and implemented ways to eliminate and monetize the waste, providing solutions that enhance our economic outcomes and environmental impact. In addition to Two Tails Pet Treats, we are now selling shelf stable protein ingredients to manufacturers of Meals Ready TO Eat Kits or MRE Kits.

Speaker 2

Both of these initiatives are supporting proof points that the new Strive delivers against our commitments. Later this month marks my 1st year with Strive. I have been a part of successful turnaround and have learned what is required to become a true operating company. The speed that we have progressed and are executing on cost and cash management, productivity, combined with optimizing the portfolio, which has included rationalization, renovation and innovation has been truly impressive. We are delivering on each and everything I said we would since I started and outlined our new strategy.

Speaker 2

We continue to set new records for the company performance And we have demonstrated that we will deliver on our commitments. Our first quarter was our 3rd consecutive quarter of improved year over year Operational and financial results with narrowed losses and improved adjusted EBITDA. We are reaffirming our net sales guidance for 2023 in a range of $28,000,000 to $34,000,000 We will keep you informed as we accelerate performance and share the many more proof points that are in our future. Now, I will turn the call over to Alex.

Speaker 3

Thanks, Chris. As Chris shared, Q1 was our 3rd consecutive quarter of improved year over year bottom line results and expanded margins, evidencing that our turnaround actions and process improvements have begun to take hold across the organization. With a significantly improved price value proposition on new products, repeatable operational processes, Better procurement of direct materials and improving yields, we believe we are building a more stable and sustainable operating company. As part of that, we have materially reduced cash operating expenses and narrowed losses again this quarter. We've also made further strides to establish a leaner, more productive organization with streamlined operations and better offerings, and we are well positioned to accelerate to profitability with the requisite growth in volumes.

Speaker 3

We believe that the Q2, although not there, will be an important proof point for the company as investors will begin to see what an impact increased volumes can have on our optimized fixed variable cost structure. As we messaged in our year end call a few weeks ago, we believe many retailers manage down inventory levels over the winter and holiday periods With orders diverging from consumption and as expected, we saw things to begin to normalize late in the Q1. As Chris mentioned, we have seen positive traction with new distribution wins this year, which will be the primary driver of growth in our business for the foreseeable future given that we are just beginning to scratch the surface of the retail market with our superior offerings. We continue to believe that the 2nd quarter will yield step function growth on a sequential basis due in large part to new distribution wins coming online. Let me now walk you through the financial results for Q1.

Speaker 3

Net sales were $4,600,000 compared to 7 point Acceleration starting in the 2nd quarter consistent with our guidance. Our gross profit for the quarter was 963,000 or 20.7 percent of net sales compared to gross profit of $1,100,000 or 15.1 percent of net sales in the year ago quarter. This is evidence of our pricing and productivity agenda taking hold that despite our volumes, we've shown a 560 basis improvement in our gross margin year over year. Recall that we intentionally reduced our volume through our multifaceted rationalization program to refocus the company on its quality core revenue streams. We believe that Q2 will represent the turning point where the transformative changes show up meaningfully in the gross profit numbers as our volumes Operating expenses for the Q1 were $5,200,000 which compares favorably to the prior year Q1 of $8,300,000 and sequentially from Q4 last year of $5,400,000 We continue to show progress in our cost elimination and mitigation strategies.

Speaker 3

We previously committed to you that we will remove 50% of operating expenses in the back half of twenty twenty two, which we actually exceeded and we have improved on that cost structure since those changes were made. In addition, we kicked off a project to optimize our footprint throughout the organization, including the headquarters. More to come on that in future calls. The 1st quarter net loss was $4,600,000 or $0.15 per share. This favorably compares to a net loss of 7,300,000 or $0.25 per share in the prior year quarter.

Speaker 3

Our loss per share amounts were impacted by the change in weighted average shares outstanding from 29,800,000 shares in last year's Q1 to 31,300,000 shares this year for Q1. The adjusted loss per share was $0.14 for the Q1, which compares favorably to the adjusted loss per share of $0.23 in the year ago quarter. Finally, our adjusted EBITDA loss for the Q1 was 3,500,000 In line with Q4 of 2022, our lowest adjusted EBITDA quarter in the history of the company, Q1's $3,500,000 compares favorably to the adjusted EBITDA loss of $6,300,000 a year ago. You can find the GAAP to non GAAP reconciliations at the end of today's press release. Turning to our balance sheet and financial position.

Speaker 3

At the end of the Q1, we had approximately $377,000 of cash and cash equivalents with positive networking capital, excluding cash and debt of $6,300,000 with accounts receivable of $3,000,000 and inventories of 8,300,000 Recall that we have a line of credit based on accounts receivable and inventory to further support our liquidity needs. Since putting this line in place last fall, we have actively managed our amounts drawn at any time to mitigate interest expense to the extent we could, only drawing what we need when we needed it. As we discussed in our prior call, some substantial retail distribution wins for Q2 were secured because of our new products and packaging. Accordingly, while we continue to build up newly packaged inventory to support these resets, We trade through our existing inventory of legacy packaging, which helps to explain the steady inventory levels we see from Q4 2022 to Q1 2023, despite our initiatives to bring down our overall inventory levels. We anticipate that once this transition is complete that our inventory levels will come down over the balance of the year.

Speaker 3

As Chris mentioned, we recently secured $4,100,000 of debt financing for the near term ramp in quality distribution. The $4,100,000 financing is in the form of secured promissory notes subordinated to Strive senior lenders And the notes accrued interest at a rate of 12%. Each lender received warrants to purchase one share of Class A common per $0.5134 of principal outstanding for a total of approximately 7,950,000 warrants that are immediately exercisable at the strike price of $0.5134 per share and will expire in 3 years 3 months from the date of issuance. Supported by this financing and our line of credit, with the acceleration of revenues, we as we judiciously oversee our business, executing with discipline and planning to continue to strictly manage liquidity. With respect to guidance for the year, we expect full year net sales to fall within a range of $28,000,000 to $34,000,000 with our Q1 sales representing the low point for the fiscal year.

Speaker 3

While top line results in that range will show mostly flat The modest growth overall when comparing 2022 to 2023, recall that our rationalized run rate sales base was estimated to be approximately $20,000,000 at the end of Q4 of 2022. So that means with this guidance range that we anticipate growing our quality core business by over 40% year over year in 2023. We continue to believe that we will drive meaningful improvements throughout our supply chain and as our plant volumes increase With that, I would like to turn it back to Chris.

Speaker 2

Thank you, Alex. We are pleased with our Q1 results, which gives us further confidence in our STR1VE 2.0 plan and our progression of operational and financial improvements for 2023. We will gain awareness, trial and penetration with our simplified and clear demand generation strategy. A brand and channel segmented approach that amplifies our benefits, optimizes our priorities and delivers the consumer and shopper a more findable presence in store with an improved experience at home or on the go. We expect STR1VE to outperform the category in terms of growth.

Speaker 2

Thanks to our focus on branding, quality, Productivity and execution. We made significant progress on these initiatives that will be reflected in our growth rates moving forward. Our promise is to deliver a profitable, innovative, growth company, one that delivers better for you protein snacks in a responsible manner that delights our consumers, collaborates and executes with our retailers and delivers for our shareholders. As the largest individual shareholder, I am fully aligned with the Board and all Strive stakeholders. My confidence is high and my commitment is unwavering.

Speaker 2

With that, I would like to open the line for questions. Operator?

Operator

Thank Your first question comes from Alex Fuhrman with Craig Hallum. Please go ahead.

Speaker 4

Hey guys, thanks very much Congratulations on some of the big distribution wins that you've announced recently. Wanted to ask about the Composition of your revenue guidance for this year, it sounds like when all said and done on the top line, Revenue is going to be something around $30,000,000 which is what you've done the last 2 years in a row now. But if I'm hearing everything Correctly with these new wins with 711 and Whole Foods and Speedway, it sounds like the way you're going to get to that $30,000,000 is probably going to look a lot different than what you've done the last couple of years. So can you talk about what this year is going to look like compared to The last couple of times you've done $30,000,000 of revenue and how might the business not to get too far ahead of themselves and look into next year, but With the base of doors that you're going to do that revenue this year, how might you be positioned for growth in future years?

Speaker 2

Hey, Alex, thanks for the question. I'll take a first stab at it and then Alex, you can add some color. With the fast turnaround that we've done in the organization to really right size the organization and be just absolutely disciplined Around every single investment or cost that impacts the organization, we have moved in a parallel path to reposition for some significant demand generation. I've been doing this for a while and be able to do both of those at the same time is pretty amazing. So as we were doing it, we're now out basically informing and selling and consulting with our retail partners to Get more distribution in more stores with more brands and better location.

Speaker 2

So as you see the year unfold, We anticipate that you'll see it rise up sequentially each quarter with the Q2 as we said being one that's going to be a big inflection point from Q1 to Q2. You'll also see versus historical the behavior of chasing volume at any cost, which will not be repeated. We are a for profit company in business and so are our retail partners and we aim to be able to deliver category solutions that deliver for both of us, for both of our shared consumers and shoppers. So as we continue to gain more and more customers and they come online, Many we already know, they're already in the bag and closed. They just haven't shipped yet and then in stores.

Speaker 2

So you'll see that continue to grow Starting in Q2 in the consumption numbers, we'll inform you when product starts showing up in retail As a courtesy to our retail partners, we would never want to let them let their competition know what's going on in their stores and when it would be happening. So we can assure you that there's a lot of new wins coming on board for many, many very well recognized retail banners out there. We are just getting started. There's many more in the works. And as we continue to close more, we'll see that acceleration happen.

Speaker 2

Momentum is a beautiful thing and momentum is starting to build and that's when we will, I think, take it to the next level and you'll see that continue to grow. We will not repeat and chase big, big programs and basically create negative value destroying outcomes for our shareholders and company. So we're going to be really disciplined. We're going to do it the right way, and we're going to build this foundation Stronger and stronger, and then we'll keep building to the next level, the next level and then to the skyscraper that we're going to create. Thank you for that question.

Speaker 2

Alex, if you can add any other color, that would be great.

Speaker 3

Sure. Just as far as Rough channel commentary, direct to consumer e commerce was a very material portion of the business historically, Anywhere in the 30% to 40% in net sales range. As time has gone on, as we've shared before, That market has just fundamentally changed and became not the right way for us to drive value and to grow this business. And so we shifted our efforts to this wholesale retail distribution, getting out there and building The market potential there is significantly higher, and it's more valuable revenue and more profitable revenue in the long run on a bottom line basis. And so there has been a shift there from a channel standpoint and we'll continue to see that, as the growth potential of retail distribution, is just so much more significant than online.

Speaker 3

Online is still something that we'll pursue, But it's not going to be a core driver of our business or our growth moving forward. We're really focused on retail distribution.

Speaker 4

Okay. That's really helpful. Thanks both of you. And then just kind of follow-up tying some of that together. I mean, what is the path Over the next couple of years to $50,000,000 and beyond of revenue look like, I mean, is it just a matter of Getting the product in more doors, is it conceivable that you could get kind of up to a $50,000,000 revenue level In the doors that you're already in and have just announced with a little bit more velocity, just if you could kind of unpack the growth algorithm of how you get from here to a more meaningful revenue level.

Speaker 2

Yes. Thanks again, Alex. We are anticipating providing some longer term Guidance and ranges and how we're going to deliver the thresholds that we'll be breaking through, or you can do it in a simple math. There's About $5,000,000,000 in measured channels category sales, about $10,000,000,000 is estimated for the total category, including not measured. Today, we have about a half a share, and that's with our current offerings.

Speaker 2

With the renovation, with the innovation, with the known distribution gain, We anticipate gaining and earning a significant increase in share. We've been very conservative in velocity estimates and improvements from our new packaging, which we expect to start to be shown in the marketplace late in Q2, but certainly into the back half. We are very confident based on our research and working with retailers as well that we're going to see a velocity increase. So even if everything remained equal and we didn't gain distribution points, we're pretty confident we will gain share. With that being said, we're gaining TDPs Very, very high value distribution customers, which represent a lot of the ACV.

Speaker 2

Today, we have about 16% ACV with under 2 SKUs on average, and we have a half a share. We aim to certainly Rise up to a significant level above that and the math would play out that you get

Speaker 3

a 3 share, you get a 5 share, you get

Speaker 2

a 10 share, you can do that even if the category was flat And we got nothing from measured channel. So we see a lot of potential here, a lot of potential to break through some of those It's numeric thresholds that you outlined, whether it be the $30,000,000 to the $50,000,000 to the $100,000,000 and way beyond that. We've got an innovation agenda that will Supplement and fall in line behind our current renovation innovation that we're currently deploying in the marketplace. Some of them you'll start to see in the show In the coming months and others are still concepts ready to be developed and launched in concert with retailers engagement versus just creating SKUs and then proliferating and creating more complexity for the sake of chasing that revenue growth. We're going to be mindful because we're not going

Speaker 3

to leak it on the

Speaker 2

back end. We're going to be operators. We're going to collect and connect Our demand growth to our supply response and ensure that while we're growing, we're expanding margins at the same time and operating very efficiently as to not only expand gross margins, but to maintain and hold our cost structure, so we deliver that profitable outcome. Alex, if you have anything else you'd like to share on that?

Speaker 3

Sure. I would just say, as we've guided a lot, Q2 is going to be a very different looking quarter for us once we report. And I think you're going to see The impact that just a few key retailers, right, Can have on our top line performance. And that is still not even scratching the surface of the overall Market potential that Chris was just walking through. And I think that you'll get a really clear sense in just a couple of months of how quickly This can grow because of our load base.

Speaker 4

Okay. That's really helpful. Thanks, Alex. Thanks, Chris.

Speaker 3

There are

Operator

no further questions at this time. Chris Beaver, please proceed.

Speaker 2

Thank you for your interest in our company. We look forward to providing an update of our progress and our Q2 results in a few short months. Have a great evening. Thank you.

Operator

Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your

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Stryve Foods Q1 2023
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