Stryve Foods Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 14, 2023

There are 5 speakers on the call.

Operator

Afternoon, everyone. Welcome to the Stryfe Foods Second Quarter Fiscal 2023 Financial Results Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded.

Operator

Now I'll turn the call over to Sandy Martin, 3 party advisors to make introductions and read the Safe Harbor statement. Please go ahead.

Speaker 1

Thank you, operator, and welcome to the Strive Foods' 2nd quarter earnings conference 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 Securities Litigation Reform Act of 1995. Forward looking statements by their nature are uncertain and outside of the company's 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 press release for further detail. This call is being webcast and can be accessed through the audio link on the News and Events page of the Investors section at ir. Strive.com and the earnings press releases posted on our website. And with that, I would now like to turn the call over to Chris Beaver.

Speaker 1

Chris?

Speaker 2

Thank you, Sandy, and welcome and thank you for joining us for our Q2 earnings call. I have completed my 1st full year. I am proud of the significant accomplishments that the team has achieved. We are a new company, one that is now in excellent position to deliver against our full potential. We have transformed the company from 1 with a net loss of over $44,000,000 in the 12 months prior through our transformation to one that has improved that by $26,000,000 with the rate of material improvements each and every quarter.

Speaker 2

One that lost $11,400,000 in adjusted EBITDA last year in the second quarter, one that lost only $2,400,000 On $5,000,000 less in revenue, our pride is high. We are more determined than ever to build off the foundation created and the momentum we are generating. Upon reflection of my 1st year with Strive, it is important that we highlight several accomplishments from our transformation. We have streamlined prioritized the organization, better leveraging our talents and assets. We have simplified our portfolio consistent with our strategy, Eliminating approximately 2 thirds of our SKUs, we have executed 2 separate pricing actions, better reflecting inflation, restoring our gross margin potential.

Speaker 2

We have introduced and now embedded productivity into our culture that will continue to drive enhancements through our P and L. We have clear measurable goals, aligned cross functioning, Ensuring organizational focus. We have conducted research and are now leveraging consumer and customer insights To better understand what's working and what's not, we have listened to these insights, analyzed and are now acting in the voice of the consumer and customer. We have created and are launching new strategic brand positioning, clearly segmenting each brand, the role of each brand, Complementing the broader category with innovative solutions, we have addressed product quality, offering a consistent high quality consumer Ensuring we are not simply delivering better for you protein snacks, but also responsibly ensuring We are better for the planet. We have developed innovative capabilities, including a pipeline of ideas that are prioritized and focused For multi year growth and margin expansion, we developed and launched into the meat sticks segment On both STR1VE and Baccadeal's brands, in stick and bite form, which is over half the current categories dollar sales, I want to assure all stakeholders that we are maniacally focused on the management and oversight of costs, resources, investments, capital, debt and all aspects related to cash.

Speaker 2

In parallel, we have gained nearly a 20% increase in our total points of distribution, Improved our price mix by nearly 16% and have created momentum in our top line as evidenced by the most recent 12 week spin data, I am immensely appreciative of my teammates. We are energized and committed to the next phase of our journey, Delivering growth and profitability. In mid July, we provided preliminary financial highlights for the Q2 of 2023 and announced A reverse stock split that was effective on July 14. In line with our Q2 sales range, we reported net sales of $6,000,000 for the company's 2nd fiscal quarter that ended June 30th. We knew at the beginning of the year, we'd face a challenge we'd face challenges Forecasting with precision given our SKU rationalization, renovation, innovation agenda and distribution plans for 2023 Chuck Sapoz with Retailer and Category Dynamics.

Speaker 2

Lots of moving parts in our transformation over the 12 months. The new STRIVE has already started to demonstrate momentum in our business with meaningful opportunities in front of us. Our changes and improvements in strategy, structure, process, culture and capabilities have cleared the way for us growing sequentially. We continue to execute and has multiple sizable opportunities in front of us advancing into the next phase of our plan, growth, which leads to profitability. Since our last earnings call, we have been executing on 2 important and meaningful accomplishments.

Speaker 2

Recall our innovation launch of the Vakadeos brand, where we expanded our fast growing lineup of Conricica with a new flavor of Chipotle Honey, helping to make it the fastest growing brand in the Turkey segment. We also entered into the large and growing meat stick segment with Sacadillo's, introducing 2 terrific great tasting offerings, chili lime and habanero beef sticks. Macadillo's air dry beef sticks deliver important consumer benefits, Higher grams of protein, 14 grams with no sugar, no preservatives, only ingredients that consumers can pronounce versus the category leader, which delivers only 6 grams of protein with a very different ingredient panel. With these attributes, it's no surprise that we are encouraged by the consumer's response. Q2 was driven by innovative platforms and extensions, our Folds of Honor partnership on the STR1VE brand, our new brand positioning with the new package Starting to transition in store.

Speaker 2

Our portfolio has been rationalized and optimized simultaneously, And 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 the objectives, goals, strategies and metrics The organization is executing as one team. Enterprise wide alignment is a key component as we become a true operating company. I continue to be very pleased about the response from our retail partners to our new category growth strategy, Focus on assortment optimization.

Speaker 2

Many retailer category reviews are underway. Additional Distribution wins are being awarded across all classes of trade. We will continue to experience increases in distribution and velocity. As always, we will share those once active in store. Our new strategy is working and we are just getting started.

Speaker 2

We are focused on driving trial with better in store tactics along with a new compelling marketing campaign inclusive of Folds of Honor Patriotic PAC. We have built the foundation. We are proving that we are building a great company, one that responsibly manages costs, Drives productivity, expands margin, improves cash, builds brands, builds consumer loyalty, collaborates with retailers, Earn greater market share and invest strategically for return. We are growing and we will grow faster And we will deliver profit with that growth. We are starting to see the impact of changes are having in our numbers.

Speaker 2

We expect to grow at a rate well above the meat snack category with accelerating consumption, ultimately Earning more gains and market share. We will not grow at all costs. We are partnering with retailers Collaboratively executing on the fundamentals, distribution, shelving, merchandising and pricing, we will enhance margins with operational improvements. We will keep costs down and we are committed to delivering a profitable, innovative, growing company With the very best tasting, better for you offering this category has ever seen. We continue to beat the drum about a 0 waste culture.

Speaker 2

We now have several value generating initiatives where the team has discovered and are implementing ways to eliminate and monetize what was formerly known as waste, providing solutions that enhance our economic outcome and our environmental impact. In addition to 2 Tails Pet Treats, we are now selling shelf stable ingredients to manufacturers of ready to eat Kits or MRE Kits, both of these initiatives are proven to be incremental to our core business. As many of you know, prior to STRIVE, I had the privilege to be a part of successful turnaround and have learned what it takes ownership, Clarity, focus, discipline, engagement, teamwork, patience and consistency. The speed that we have progressed and are executing on cost, cash management, productivity, combined optimizing the portfolio, including the rationalization, Renovation and innovation of our multi brand portfolio has been truly impressive. We are delivering on each and everything I said we would, as I outlined our new strategy.

Speaker 2

We continue to set new quarterly records for company performance We have demonstrated that we deliver on our commitments. Our 2nd quarter was our 4th consecutive quarter of improved year over year operational and financial results with narrowed losses and improved adjusted EBITDA. Transformations of this magnitude, those that require fixing, creating and building Given our stage, distribution is and will be a significant growth driver, which creates variability in the timing and scale of revenue flows. As we continue to gain scale, Better visibility will be an outgrowth leading to increased predictability over time. With that being said, We continue to accelerate improvements in all we do, significantly narrowing the rate of losses with promise and expectation of profitability in the near future.

Speaker 2

With that, I'll turn the call over to Al.

Speaker 3

Thanks, Chris. As Chris shared, Q2 was our 4th consecutive quarter of improved year over year bottom line results. And we know that our turnaround actions and process improvements have begun to take hold across the organization. With a significantly improved Price value proposition on our new products, repeatable operational processes, better procurement of direct materials and improving yields, We are building a more stable and sustainable operating company. As part of that, we have materially reduced cash operating expenses and narrowed losses again this quarter.

Speaker 3

We have also made further strides to establish a leaner, more productive organization With streamlined operations and better offerings and we are well positioned to accelerate profitability with the requisite growth in volumes. As we messaged in our year end call a few months ago, we believe many distributors and retailers Managed down inventory levels beginning in the Q4 of 2022 with orders diverging from consumption. And as expected, we saw more normalcy in the Q2 of this year, but that's normalcy with respect to orders tracking consumption, not a restocking to historical inventory levels to be clear. And as Chris mentioned, we've seen positive traction with new distribution wins this year, which will be the primary driver of growth in our business for the foreseeable future, given that we are just beginning to scratch the surface of the retail market with our superior offerings. We continue to believe that it only takes just a few retail wins to yield step function growth on a sequential basis due to the size and scale of the category and our retail partners.

Speaker 3

Let's walk through the financial results for Q2. Net sales were $6,000,000 compared to $10,900,000 in the year ago quarter. The year over year decline was what we expected for the Q2, reflecting our rationalization of non profitable revenues that occurred in the prior year period. Our gross profit for the quarter was $1,100,000 or 17.5 percent of net sales, compared to negative gross profit of $4,400,000 in the year ago quarter. This improvement on lower volumes underlines the importance of our decision to rationalize the non profitable revenue streams.

Speaker 3

As a reminder, late last year, We intentionally reduced our volumes through a multifaceted rationalization program to refocus the company on its Quality core revenue streams. This margin improvement is also further evidence of our pricing and productivity agenda taking hold. On a sequential basis, our net sales are up over 29% versus Q1 of this year. This reflects new distribution wins and our improved retail consumption data over the last few months. Operating expenses for the Q2 were $4,400,000 which compared favorably to the prior year Q2 of $11,500,000 and sequentially from Q1 of this year of $5,200,000 We continued to show progress in our cost elimination and mitigation strategies.

Speaker 3

We previously committed to you that we would remove 50% of operating expenses in the back half of twenty twenty two, which we delivered. This quarter, we eliminated 62% of our operating expenses versus the prior year period, And we have continued to improve on that cost structure, while also improving our end market performance this year. I would like to highlight and call out what could be an unexpected change for some investors to our interest expense from Q1 to Q2 of this year, which moved from approximately $400,000 to around $900,000 in Q2. This increase is primarily tied to the issuance of $4,100,000 of notes and associated warrants in April of this year, which was compounded greatly by the accounting treatment of these warrants, which differs from how the company has accounted for its warrant issuances in the past. These warrants are separate financial instruments under GAAP accounting and since they were issued in connection with a debt instrument, They are booked on the balance sheet using the relative value method and amortized similar to debt issuance costs into interest expense over time.

Speaker 3

This non cash interest expense started in Q2 in the amount of $400,000 and will be fully amortized by our fiscal year end. The 2nd quarter net loss was $4,300,000 or $2.05 per share. Recall that we implemented a 1 for-fifteen reverse split in mid July, so our EPS reflects the impact with weighted average shares outstanding of 2,100,000 for Q2. This favorably compares to a net loss of $16,400,000 or $7.93 per share in the prior year quarter. The adjusted loss per share was $1.66 per share for the Q2, which compares favorably to the adjusted net loss per share of $5.85 in the year ago quarter.

Speaker 3

These adjustments are related to the non cash interest expense associated with the warrants I just mentioned as well as stock based compensation. Finally, our adjusted EBITDA loss for the 2nd quarter was $2,400,000 our lowest adjusted EBITDA quarter in the history of the company. This compares favorably to the adjusted EBITDA loss of $11,400,000 a year ago and represents a 32.2% improvement sequentially from Q1 of this year. You can find the GAAP to non GAAP Reconciliations at the end of today's press release. Turning to our balance sheet and financial position.

Speaker 3

At the end of the Q2, we had approximately $320,000 of cash and cash equivalents with positive net working capital, excluding cash and debt of $5,800,000 with accounts receivable of $3,000,000 and inventory of $8,400,000 Recall that we have a line of credit based on accounts receivable and inventory to support our liquidity needs. Since putting this line in place last fall, We've actively managed our amounts drawn at any time to mitigate interest expense to the extent we could, only drawing what we need when we needed it. We also launched an at the market equity offering in July of this year for the ability to raise up to $5,700,000 in at the market equity sales to opportunistically support our liquidity needs as we navigate the final stages of our turnaround. As we discussed in our prior call, some substantial retail distribution wins for Q2 the balance of the year, we're secured because of our new products and packaging. Accordingly, while we continue to build up newly packaged inventory, We trade through our existing inventory of legacy packaging, which helps to explain the steady inventory levels from Q1 to Q2 Despite our initiatives to bring down inventory levels, we anticipate that once the transition is complete that our inventory levels will come down over the balance of the year.

Speaker 3

Supported by our ATM facility and the debt financing last quarter, As well as our line of credit, with increased volumes, we expect cash consumption to decline as we take steps towards a self sustaining model. We continue to focus on carefully managing our cash and working capital as we judiciously oversee our business, executing with discipline and planning to continue to strictly manage liquidity. As Chris mentioned briefly before, With the magnitude of our retail partners' scale and the slow return to normalcy with respect to their assortment planning cycles, There can be some uncertainty with respect to the timing and scale of new distribution coming online. These variables can create meaningful swings in our Accordingly, while we strongly believe with confidence that our product attributes and Timing of these flows presents a challenge. The nature of some of these opportunities are dynamic in terms of timing And with the category's typical lead times, we may receive orders or changes to planned programs with short notice.

Speaker 3

This order variability is normal for the industry and not as material from our retailers' perspectives given their scale and the category size. However, given our low base, even variability with respect to a single promotion can make precisely forecasting a guidance range a challenge. While this variability can affect accuracy on shipments within the quarter or a year, it does not change our outlook for the overall trajectory of the business. As such, we feel that at this stage, it would not be prudent for us to provide continued top line guidance that's time bound. We will be suspending our current guidance and we will assess resuming forecasting at the appropriate time.

Speaker 3

While the lack of revenue guidance isn't ideal for our investor base, we do want to be transparent about these dynamics at play. That being said, In lieu of specific revenue guidance, we would like to direct investors to what we believe to be the best leading indicator Of our near term potential, our retail consumption data. We've previously discussed the 12 week data, But in the latest 4 week SPINS data that progress is accelerating. Our retail sales are up 39.5% year over year With our total distribution points up 19.5%, dollar velocity is up and we are gaining share. And I should note, these trends have only barely begun to show the effects of our new packaging, which is specifically designed for retail conversion.

Speaker 3

With that, I would like to turn it back to Chris.

Speaker 2

Thank you, Alex. We are pleased with our 2nd quarter results, which gives us further confidence our STR1VE 2.0 plan and our progression of operational and financial improvements for 2023. We have made significant progress on these initiatives that will be reflected in our growth rates moving forward. Our promise is to deliver a profitable, innovative growth company, one that delivers better for 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.

Speaker 2

My confidence is high and my commitment is unwavering. With that, I would like to open the line up for questions. Operator?

Operator

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

Speaker 1

Hey guys, thanks.

Speaker 4

I know you're not giving revenue guidance, but Can you say with any confidence will 3Q revenue be greater than 2Q?

Speaker 3

I think what we'll see is a similar Rationalized base in the back half of the year and we'll see some new distribution coming online. But

Speaker 4

Got it. And then OpEx, does that sort of flat line from here? Is there more cost you can take out? The $4,400,000

Speaker 2

was pretty low.

Speaker 3

We think that there are more costs to take out. We've already taken some and we're continuing to dig and turn over every stone. It's part of our strategy here is to identify areas that we can continue to streamline operations, More efficient and more productive throughout the organization, and we're doing so in a manner that isn't sacrificing our retail performance.

Speaker 4

Got it. Then maybe just lastly, the ATM you set up in July, How much have you taken off that so far?

Speaker 3

We'll be reporting that with more Specificity in the coming filings, but we're opportunistically looking And managing that, as we do with any other source of liquidity for the business.

Speaker 2

Okay. Thank you, Mike.

Operator

Thank you. All right. At this time, there are no further So I'd like to return the floor to Chris Beaver for any closing comments.

Speaker 2

Well, thank you for joining us and thank you for your interest in our company. We will look forward to providing an update of our progress on our Q3 results in just a few short months. Have a great rest of your Monday and thank you for your support of STRATA.

Operator

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

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Earnings Conference Call
Stryve Foods Q2 2023
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