MamaMancini's Holdings, Inc.
Q1 2022 Earnings Call Transcript

Published: 14 Jun 2021

[Operator:]

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to MamaMancini’s First Quarter Fiscal 2022 Earnings Conference Call. During today’s presentation all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. This conference is being recorded today, June 14, 2021, and the earnings press release accompanying this conference call was issued at the close of market today. On our call today is MamaMancini’s Chairman and CEO, Carl Wolf; President and COO, Matthew Brown; CFO, Larry Morgenstein; and Greg Falesnik, CEO of MZ North America, MamaMancini’s Investor Relations firm. I would now like to turn the conference over to Greg to read a disclaimer about forward-looking statements. Please go ahead.

[Greg Falesnik:]

Thank you, operator. Before we get started, I’ll read a disclaimer about forward-looking statements. This conference call may contain, in addition to historical information, forward-looking statements within the meaning of the federal securities laws regarding MamaMancini’s. Forward-looking statements include, but are not limited to, statements that express the Company’s intentions, beliefs, expectations, strategies, predictions and any other statements relating to its future earnings, activities, events or conditions. These statements are based on current expectations, estimates and projections about the Company’s business based in part on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may and are likely to differ materially from what is expressed or forecasted in forward-looking statements, due to numerous factors discussed from time to time in this report and other documents, which the Company files with the U.S. Securities and Exchange Commission. In addition, such statements could be affected by risks and uncertainties related to factors beyond the Company’s control. Matters that cause actual results to differ materially from those forward-looking statements include, among other factors, the loss of key management personnel, availability of capital and any major litigation regarding the Company. In addition, this conference call contains time-sensitive information that reflects management’s best analysis only as of the date of this time of this conference call. The Company does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of this conference call. At this time, I’d like to turn the call over to Carl Wolf, the Company’s Chairman and Chief Executive Officer. Carl, the floor is yours.

[Carl Wolf:]

Thank you, Greg, and thank you, everyone, for joining us today. I’d like to welcome you to our first quarter fiscal 2022 financial results conference call. We saw strong core sales growth in first quarter fiscal 2022, achieving record cash flow from operations, further fortifying our increasingly robust balance sheet. We had over $4.2 million in cash as of April 30th. While we saw a slight revenue decline from prior year due to large one time panic ordering by grocery store customers during the onset of the pandemic in early 2022, our core momentum has trended positively with the 45% growth in the quarter over a two-year period as we are well positioned to grow further as new placements begin to take hold later this summer.

[Larry Morgenstein:]

Thank you, Carl. Revenue for the first quarter of fiscal 2022 totaled $10.3 million as compared to $10.8 million in the first quarter of fiscal 2021 and $7.1 million in the first quarter of fiscal 2020. The decrease in revenue for the first quarter was a result of strong prior year sales due to one-time panic buying by large grocery chains around the onset of the COVID-19 pandemic, while sales over a two-year period increased approximately 45%.

[Matthew Brown:]

Thanks, Larry. While difficult to compare Q1 fiscal 2022 versus Q1 fiscal 2021, due to a once in a lifetime pandemic, we continued to show strong production in the plant during this recent quarter. As we entered Q1 fiscal 2022, we experienced labor rate increases due to state mandated minimum wage adjustments. We were able to not only offset these increases, but actually improve on our labor costs through improved use of our technology. Key pieces of cooking and packaging equipment were upgraded throughout the plant during the quarter, and in turn enabled us to cut back on manual labor. In Q1 fiscal 2022, we began the exploratory process of expanding on our cooking operation within the facility. We brought in a team of architects and engineers to review the plan and hope to break ground sometime in Q3 fiscal 2022. This additional cooking room will double our capacity for Stuffed Pepper filling and Bolognese Sauce production in anticipation of some large business for these items. The cost of the capital improvement is expected to be modest under $200,000 all in and have been anticipated in our budgets.

[Carl Wolf:]

Thank you, Larry and Matt. As I noted in my opening remarks, we continue to execute on all fronts and have laid the foundation for an incredibly strong summer. As we push forward into the summer and beyond, we expect to make continued financial progress driven by our upcoming placements on thousands of tier-1 retailer shelves. This, when combined with our continued success in closely managing operating expenses and what I expect will be a near-term update on our acquisition efforts, has positioned MamaMancini’s for a bright future. I look forward to providing further updates on our growth initiatives to shareholders in the near future. With that, I’ll turn it over to the operator. Operator?

[Operator:]

Thank you, sir. We will now begin the question-and-answer session. Our first question is from Howard Halpern with Taglich Brothers. Please go ahead.

[Howard Halpern:]

Congratulations on another fantastic quarter, guys. First, I have a modeling question first. Should we, going forward, think that non-cash recognition tax rate of about 28% going forward in a number of quarters?

[Carl Wolf:]

I would say, yes.

[Howard Halpern:]

Yes? Okay. And with all what’s coming online, especially in the second half as well with placements, do you expect some incremental increase in the SG&A expense to go along with I guess shipping and commissions going forward?

[Carl Wolf:]

We have two parts of SG&A expense. We have shipping and commissions in royalties and potentially demos, now that’s starting again. And then, we have fixed SG&A expense. That part of the variable SG&A expense is around 10% of sales.

[Howard Halpern:]

Okay. And with all that’s on your plate currently, especially with the addition possibly of the convenience stores, and colleges and universities, what kind of capacity do you currently have and what kind of capacity can you I guess squeeze out of the plant at this point?

[Greg Falesnik:]

It looks like Carl’s line has disconnected from the call.

[Matthew Brow:]

Okay. Let me take my speaker. Howard your question was about the capacity at the facility with the expectation of oncoming volume?

[Howard Halpern:]

Correct.

[Matthew Brown:]

Well, I would say right now, the facility is in good shape and in good position with some of the advancements that we’re making in terms of the construction work. Again, we hope to have that completed before a year-end, fiscal year-end. And that will certainly give us an extra capacity. In addition, we are still actively working with co-packing options. We had a co-packing option pre-pandemic. Carl, you back on? I’m sorry.

[Carl Wolf:]

Yes. I got maybe because I couldn’t answer that question…

[Matthew Brown:]

But also, as Carl alluded to, and I’ll let him certainly take.

[Carl Wolf:]

You can answer that question.

[Matthew Brown:]

No, I haven’t Carl. But I was going to say that, in addition to what Carl had alluded to earlier, Howard, is that, we are still investigating all opportunities for the Company, and we have been looking at potential acquisition that are accretive to the Company. And in doing so, we are also looking for opportunities that will help our model, which includes the ability to bring on more capacity in that sense. So, not just co-packing but also through acquisition, we will earn an extra capacity.

[Howard Halpern:]

Okay. And the convenience store opportunity, especially with the meatballs in a cup. Is that going to be about the same gross margin, or are you going to be able to get a little more gross margin out of that offering?

[Carl Wolf:]

I think, well, the issue you have is we have a beginning gross margin was about the same. But, as you get into higher production, the packaging cost should go down very substantially. Also, as we -- when you start something up, you have less efficiencies than you have later, but the margins should be about the same.

[Howard Halpern:]

Okay. And you would expect that the colleges, universities and convenience stores that first entrants into foodservice, that should be a growth driver in next fiscal year?

[Carl Wolf:]

College and universities will take a few years. My guess is we’ll do 3 to 5 -- if all goes well, we’ll do 3 to 5 by next fall. And then from there, we use the success story, maybe go to 20 the following year, and then really jump at that point. But we use the model -- we use the success model to move it on. We had very surprising, to me, interest in the first round a year ago for -- which was way beyond what I thought we would get on the initial solicitations.

[Howard Halpern:]

Okay. And one final one for me is, what are you seeing and what kind of success you’re having in kind of club store market and that potential growth opportunity?

[Carl Wolf:]

We are -- on (ph) front, we are doing very well at Costco. And we think we will expand the business very successfully there in steps. Costco is the big fish. If you can sell one item in Costco nationally, not on rotationally year round, it’s about $25 million in sales. Sell two, you have $50 million. So, we’ve been building our Costco business based upon success and a good model. So, we’re very positive in the long run that’ll be very, very substantial. That is one of the five opportunities I mentioned, from a relatively small business to a very large business. We also are soliciting Costco Kitchen, which is different department. So, our business right now at Costco is branded Costco Kitchen is white label, a similar type volume $25 plus million per item. All this is going on right now.

[Howard Halpern:]

Okay. I guess, so that was my last one, one final one. How is the hot bar business coming back?

[Carl Wolf:]

Well, we sell whole foods for the hot bars. And that has been increasing incrementally each month since the first of the year and continues. So, I think it’ll be very substantial. I don’t think it’s anywhere near its potential yet. People are still a little reluctant. We also have finished other items for hot bar. We now sell two. We presented three others to add to that. So, that is very substantial business.

[Operator:]

The next question is from Bill Lap, a private investor. Please go ahead.

[Unidentified Analyst:]

Hi, Carl and all. Yes, very good quarter. I think most of it’s been covered that I want to know. But number one, what is your borrowing capacity under your line of credit for an acquisition? What do you currently have?

[Carl Wolf:]

Well, we’re negotiating that. We would have a total of either $10.5 million or $11.5 million on our existing availability. If all goes well -- and then, any candidate that’s acquired, there might be additional borrowings as well.

[Unidentified Analyst:]

Against their assets. Right?

[Carl Wolf:]

Yes.

[Unidentified Analyst:]

And you said you may be announcing something in the next couple of weeks. Would that be an LOI or a definitive acquisition agreement?

[Carl Wolf:]

An LOI, but from the LOI, we should go pretty fast.

[Unidentified Analyst:]

Okay. And on the uplisting, if the back continues, like it closed today, at 3.20, four days if you’re over $3, you could be uplisted pretty quickly. Correct? Not waiting for…

[Carl Wolf:]

That’s correct.

[Unidentified Analyst:]

Okay. Well, looking forward to good things. It sounds very optimistic. Thank you all of you.

[Operator:]

The next question is from Matthew Simms, a private investor. Please go ahead.

[Unidentified Analyst:]

Hey, guys. This is a question about one of the SEC filings. There was a prospectus filed last week, June 8th. It’s called Post-Effective Amendments for Registration Statement. I saw it mentioned an offering of about 6 million warrants. So, I wondered if you can talk a little bit about those warrants and the plan for them.

[Carl Wolf:]

Sure. The warrants were already issued in 2015. Those are -- and some before, I think 2014 -- 2013. So, those were warrants that were already existing and expiring by November 2020. Part of the -- we wanted those warrants converted into equity. So, part of that was to file an S1 which would make those shares readily available. The S1 filing has to be renewed periodically, and what you’re seeing is that. But, there is no additional. All those warrants have been either exercised or expired. They’re now outstanding about 800,000 options to the Board of Directors and management and some key supplier relationships. Some of them actually have been exercised this past quarter, not a major amount. But anyway, so there’s a very, very small amount of overhang. But right now, we’ll have -- we have about 30 -- I think about 35.5 million shares, and we have potential dilution of 800,000. Of course, we get cash in for an amount which is $0.68 a share. So, we get cash in on that as well. So, it is not, we -- originally, we thought there would be dilution of about 30 -- total of 37.5 million share or something. We think we’re headed against that. It should be noted that, Matt Brown and myself being the founders of the Company have not received any warrants or options. We have received warrants but we made investments in the Company along with everyone else, but we never -- we haven’t received any operational options.

[Unidentified Analyst:]

All right. Thanks, guys. That’s the last -- yes, that was great. Thanks.

[Carl Wolf:]

Thank you.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Carl Wolf for any closing remarks.

[Carl Wolf:]

Thank you. Thank you, operator. As a final note, once COVID-19 subsides, we will continue to be active in attending top investor conferences and investor non-deal road shows, marking on both coasts of the U.S. In the meantime, we will continue our efforts on a virtual basis. If interested in scheduling a meeting with management when we are in your region, please reach out to Lucas Zimmerman from MZ Group, our IR firm, to arrange. Thank you again for joining us today. We look forward to continuing to update you on our progress. I think that concludes our session today.

[Operator:]

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.