The Very Good Food Company Inc.
Q4 2021 Earnings Call Transcript

Published:

  • Operator:
    Greetings, and welcome to The Very Good Food Company Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jordan Rogers, Chief Commercial Officer. Thank you, Jordan. You may begin.
  • Ana Silva:
    Thank you, operator. Good morning, everyone, and thank you for joining us today for The Very Good Food Company's fourth quarter and fiscal 2021 financial results conference call. I am Ana Silva, President and Interim CFO. After these remarks, we will hold a live question-and-answer session. To submit a question, please log into the webcast via our website and click Ask A Question button. A replay of this call will be archived on the Investor Relations section of VERY’s website at www.verygoodfood.com/investors until April 30, 2022. Listeners are reminded that certain matters discussed in today's conference call or answers that may be given to questions asked constitute forward-looking statements within the meaning of Canadian and U.S. securities laws and they are subject to the risks and uncertainties relating to The Very Good Food Company’s future financial or business performance. These statements are based on management's current expectations and beliefs and involve risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. These risks and uncertainties are detailed in VERY’s Annual Information Form for the fiscal year ended December 31, 2021, filed with Canadian securities regulatory authorities and are available on VERY'S SEDAR profile at www.sedar.com and is also furnished on a report on 6-K with the SEC. Forward-looking statements made on this call are made only as of today and will not be updated as events unfold other than as required by applicable security laws. Please also note that on today's call, management will refer to adjusted EBITDA and adjusted general and administrative expenses, which are non-IFRS financial measures. While VERY believes that these non-IFRS financial statements provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with IFRS. For definitions and reconciliations of the non-IFRS measures discussed to the relevant reported measures under IFRS, please consult our 2021 MD&A filed on SEDAR and with SEC. I will start now by giving an overview of 2021 and Q4 2021 and discuss some of the milestones we have achieved along with some of the challenges. I will then go into more detail about our financial results and our plans for the near term. I am very proud of our teams and the milestones we were able to achieve last year despite the many challenges the organization faced. Our 2021 strategy is focused on 4 key areas
  • Jordan Rogers:
    We are grateful to have everyone on this call. My name is Jordan Rogers, and I have the privilege of serving on the newly formed executive committee as Chief Financial Officer. I have with me here today, Kevin, who is our newly appointed VP of Sales, North America. Parimal, who is assuming the role of VP of Operations; and Steven, our Financial Controller. Ana, who you heard from on the pre-recorded section of this call, was unable to attend this Q&A session. Our customers, employees and shareholders are critical to helping us achieve our long-term plans, which I will speak to briefly today. We see you, we hear you and welcome your feedback on a go-forward basis. In 2016, our company launched the Victoria public market with much fanfare and we sold out of our initial products in only a few hours. Our customers rewarded us by purchasing our line of innovative plant-based meat products made using authentic ingredients that taste great making plant-based eating easy, while positively impacting the planet. Fast forward to 2022, we have continued to deliver on our customer promise of making healthy, great-tasting burgers, sausages, Taco Stuff’er and seasonal items like the Beast. With strong repeat purchase orders, same-store sales growth and quarterly revenue increases, consumers can now enjoy our products in over 1,800 retail locations across Canada and the United States. Yet, there is still a lot more work to be done. Our VERY team members are at the heart of our business and our loyal consumers help us drive to be better every day. Our team has faced many challenges and shown resilience, agility and strength to overcome and deliver upon the many directives that were asked to them. At times, certain directives and decisions have led us away from the core of the business. Along the way, we have grown very quickly from 70 team members last year to over 200 this year. With growth, can come many opportunities and also challenges. Some of those challenges have led us to decisions that have taken us away from our plan. The executive committee members on this call today are determined not only to speak, but also to act upon our core values that lead to mutual respect in an obligation to be the best that we can be for our stakeholders. Our team has 3 immediate priorities
  • A - Janet Meiklejohn:
    So the first question, and Jordan, I think this ties back in with what you just concluded on, but it says with -- and this comes from an investor. With the change in leadership, with James as Head Chef and Chief Researcher, how is the team focusing on not only growing but also improving and innovating on the SKUs?
  • Jordan Rogers:
    Thank you. That's a great question. Our team is very strong in terms of not only back of house, but on the research and development side, and we're quite confident that we will be able to continue on with what James had provided and improve upon that driving us forward.
  • Janet Meiklejohn:
    Okay. Thank you, Jordan. Question 2, I believe this is for Kevin. Following the increase in production capacities, how does Very Good Food intend to increase the number of stores carrying their product and how many new stores can be expected in Q2. If onboarding of new stores proves difficult, will high-margin SKUs be prioritized and which ones are those?
  • Kevin Callaghan:
    Great question, and thank you for allowing me to join this call. Let me tackle the first part. How does -- we intend to increase the number of stores carrying future capacity. Over the past year, our sales team has grown. We brought in 8 regional managers to cover North America, 3 in Canada and also 4 in the United States. Over that year, we have been hitting many opportunities and category reviews at major influential retailers. So with that, we are hitting every opportunity possible in the natural, conventional and also the club channels, providing the great products that the VERY brand offers. We've also hired a Director of Foodservice to kind of -- to manage this untapped channel for us. Michael Hoeksema joined the company 4 months ago, and he has already partnered with some key foodservice, I guess, outlets, that we hope to announce very soon. As for the next question -- part of the question, if onboarding the new stores proves difficult, how many SKUs -- or what will be our strategy in terms of SKUs. Onboarding has not been difficult. We've launched into the U.S. a little over 8 months ago. We have not even gone over a full cycle calendar year with the -- in the pre-recorded call, we've had much success in terms of launching into new stores. So the onboarding new stores have not proved difficult. And with the increased capacity that we've unleashed with Rupert and our other facilities, I look forward to filling those lines and making sure that they run at full capacity.
  • Janet Meiklejohn:
    Thank you, Kevin. Again, back to Jordan. With the cost-saving practices that are being implemented, why was the decision made so late on implementing them? Was it blocked from the CEO and leadership? Or was there another holdup? And going forward, how do you intend to make this process more transparent?
  • Jordan Rogers:
    Thank you. That's a great question. We're looking to understand this better as well internally, and we can provide some more information at a later date.
  • Janet Meiklejohn:
    Okay. Great. Then let's move on to the fourth question. Have the personal loans been reimbursed? And are the -- have the personal loans being reimbursed and where are we at on that process?
  • Steven Hoang:
    I think I can answer that, Steven here. So Mitchell Scott's personal loan has been reimbursed as of December 31 but the loan to the CRDO remains outstanding as of today. But however, on February 4, the company entered into a Share Pledge Agreement with the CRDO whereby the CRDO pledged 1 million common shares of the company. As of today, the pledged shares have not been disposed off by the company. And then if there's any additional details required, they should be -- they're definitely found in Note 14 on the financial statements.
  • Janet Meiklejohn:
    Thank you, Steven. And over to you, Parimal. It's perceived -- again from a -- a question from a private investor. It's perceived that you have too much capacity. Will you be closing the Victoria plant, Patterson plant and doing everything out of Rupert?
  • Parimal Rana:
    We are currently looking at the capacities of all 3 locations, assessing which plants could be consolidated based on financial stability. We want to make sure that we make the right decisions moving forward. And so we are going to take some time and not weeks or months, but fairly quickly here to decide on which locations can consolidate. We are also considering sort of the implications of leases at that point.
  • Janet Meiklejohn:
    Thank you. Again, another question from an investor. How much investor money was lost -- Steve, this probably goes to you. How much investor money was lost to Mitchell's pockets before he was terminated?
  • Steven Hoang:
    So exactly this compensation is disclosed publicly. I just want to reiterate that. Neither Mitchell or James were fulfilling the service as of their termination and the departure from the company. Any unexpected or unexercised options will expire within 90 days of their departure.
  • Janet Meiklejohn:
    Okay. And Jordan, I guess -- and this is another toughie, but I'll throw it over to you. How did you let the stock price drop so badly without trying to keep investor confidence?
  • Jordan Rogers:
    Yes. Indeed, that's a great question. I think the spirit that we're trying to move towards is being in front of our community and being as open and as available as we can.
  • Janet Meiklejohn:
    I'm not sure who this goes to, Jordan, again, it might be you. What is the strategy on the restaurants on a go-forward basis?
  • Jordan Rogers:
    Sure. I'm happy to tackle that one. So our Victoria restaurant has performed exceptionally well. We have tremendous 5 Star reviews, and we're really focused on that facility and have some exciting plans down the road for it, but we are focused on the Victoria restaurant for the time being.
  • Janet Meiklejohn:
    Great. And Steve, I think this one is over to you. Has the company already applied for an extension with NASDAQ virtually regarding the dollar requirement? If not, will reverse split be an option to maintain compliance with the requirement or are we considering -- or are you considering a delisting as a viable option?
  • Steven Hoang:
    Okay. Thank you. No, we have not placed for an extension as of yet. We have until July 10. And we're hoping that our new strategy will help us organically regain compliance. However, we're always committed to we bring all available options to resolve the deficiencies and are in compliance with the bid principle.
  • Janet Meiklejohn:
    Kevin, this is going to go over to you. And why has the company not been able to land a major grocery deal, will we clarify that one?
  • Kevin Callaghan:
    Okay. Yes. Great question. In terms of a major grocer deal, we've done a great job in establishing listings in Raley’s, Erewhon, Earth Fare, to name a few. As we go through the category review process, sometimes it takes time. We launched into the U.S. 8 months ago, where a majority of our category views at these major retailers happened in quarter 4 and quarter 1, 2022. As I can't report on some of the -- I guess, some of the decisions that have been made, I'm very excited to soon announce some of the partnerships where we will have listings very soon, and I look forward to those announcements.
  • Janet Meiklejohn:
    And I think this one probably goes to you as well. But what is a very good plan for pricing products in the future? The premium price seems to be a big barrier to wide-scale uptake.
  • Kevin Callaghan:
    Our strategy remains the same. The premium price compared to other meat alternatives, I think it is very much in line with whole food ingredients and our strategy of creating a premium product, does have, I guess, a premium price in to assay. So I think there is no change in strategy at this time.
  • Janet Meiklejohn:
    Okay. Great. Jordan, any feedback on the UK or China's marketing testing -- market testing?
  • Jordan Rogers:
    Yes. I think we took an exploratory approach in terms of looking at those markets to see where the opportunities were for us. At this current time, we have decided to put a pause on those opportunities and really dig into the North American expansion and lower hanging fruit at the time.
  • Janet Meiklejohn:
    Great. Thank you. Steve, this one, this is over to you. Does the company know how long its current runway is before it requires a further round of financing or feel like it can improve profitability enough to avoid that result?
  • Steven Hoang:
    Certainly, as a growth company, there is a need for capital. Although this should go along the way to getting us there as path to profitability, it will all be this year. As far as financing, we are certainly looking at all options, including certain debt facilities, but it really depends on the current market conditions.
  • Janet Meiklejohn:
    Thank you. Here's another tricky one, Jordan, I'm going to hand it over to you from a private investor, why was the CEO fired?
  • Jordan Rogers:
    Yes. Thank you for that question. We're not in a position to discuss employment. All I can say is that it was a strategy change.
  • Janet Meiklejohn:
    Great. And again, Jordan, this is probably over to you as well. How can Very Good Food expand their market share and at the same time, cut operating costs?
  • Jordan Rogers:
    I think we've done a lot of heavy lifting in terms of investing in our CapEx and facilities to get us there. So I think we're coming out of that heavy lifting that we've done and that excites me as we chase down a lot of opportunities that we have in front of us right now.
  • Janet Meiklejohn:
    Great. Thank you. So Kevin, I'm going to send this one over to you. And so the question again from a private investor is are fast food chains off the table now?
  • Kevin Callaghan:
    I would say that we're seeking out any opportunity or that fits the basis of our company and what we believe in. We hired Michael as our Foodservice Director and him to set the path of our foodservice strategy. So as we investigate these channels, we'll have to investigate the opportunities and what's best for the company.
  • Janet Meiklejohn:
    Great. Thank you. I think again, over to -- it's either between Jordan or Kevin. But what does the company see as the biggest opportunity for growth over the next fiscal year? Is it mostly from wholesale, number of locations? Or are there other opportunities? Kevin, that's probably you.
  • Kevin Callaghan:
    Absolutely, absolutely. Our focus is U.S. retail for 2022. That is going to be where a lot of our resources are geared to. Very Good Food Company creates products that can fit multiple categories and have multiple uses. There's a lot of value there. So in terms of growth, as of right now, U.S. wholesale will be the main growth for 2022.
  • Janet Meiklejohn:
    So here's one for Parimal that's quite straightforward. What are we producing in Patterson and Rupert as of right now?
  • Parimal Rana:
    Sorry, can you repeat the question?
  • Janet Meiklejohn:
    Sorry, what are we producing -- what are you producing at Rupert at this particular moment?
  • Parimal Rana:
    Thanks for the question. Rupert produces a line of select items, which includes the meatballs, the bangers, the burgers as well as legacy products, steak, ribs, hot dog, British Banger, Smokin' Banger, pepperoni and the two burgers. And Patterson is currently producing 1 item, and that's the Taco Stuff’er.
  • Janet Meiklejohn:
    Okay. Great. Jordan, I think it's at you. What is the status of the previous founders as shareholders of the company and what influence do they have on the Board composition and appointment of senior management?
  • Jordan Rogers:
    Yes. Thanks, Janet. I think that is a question we're seeking to understand and learn better internally, and we'll be in a better position to provide some more information at a later date.
  • Janet Meiklejohn:
    Great. Another question from a private investor. I'm not sure who takes this. But are you going to continue to expand the Meatball line to get you into new accounts since it won taste awards such as making the sweet and sour meatballs.
  • Jordan Rogers:
    Yes, I'll take that one. So the Meatballs won a NEXTY award. The NEXTY award is an award given out to an exceptional product at Expo West in Anaheim, California. The Meatball is a fan favorite, and we continue to see same-store sales growth on the product. We also feel it is a everyday product with a lot of versatility and we're excited about the prospects for it.
  • Janet Meiklejohn:
    Great. And again, we touched on this question at the very beginning. So I -- and obviously, it hasn't been completely cleared up. So I'm going to throw out a similar question from another investor. There hasn't been any mention on product development, more SKUs. Is there a search going on for an R&D officer and what is currently in the pipeline."
  • Jordan Rogers:
    Yes. I'll take that one, Janet. So as I mentioned earlier, our focus on short-term priorities while renovating our core portfolio, we have an exceptional team, a very talented back-of-house chef and individual who has a deep restaurant development experience, not to mention a solid R&D team led by Celeste Trujillo, who is formerly of Daiya and we're confident in their ability to take us forward and where we need to go.
  • Janet Meiklejohn:
    Thank you, Jordan. And I think back to you again. Is the strategic review and options to be bought out with a larger company in the space being explored?
  • Jordan Rogers:
    Yes. Thank you for that question. I think that's something again, we're looking to understand better internally, and we can provide more information at a later date.
  • Janet Meiklejohn:
    And Steve, as the company has been able to scale up production, have the gross margins had a noticeable improvement?
  • Steven Hoang:
    Yes. So that's -- so, thank you for the question. That's definitely something that we see in Q3 and Q4 with the scale-up of the Rupert facility. We've seen an increase in gross margins over the last couple of quarters.
  • Janet Meiklejohn:
    Okay. And I think the -- and we're pretty much running down on questions. So if anybody else wants to get them, please go ahead now. But Steve, at this point in time, this is the last question. What are the projected timelines for breakeven and return to profitability? Is there a year by which we could expect this to occur?
  • Steven Hoang:
    Yes. Thank you for the question. Again, the team is still evaluating all forecasts just to show in the breakeven time at this moment.
  • Janet Meiklejohn:
    Great. So I'll just -- I'll give it -- a few seconds here, I'm just going through the last question. I think at this time, I think all of the questions that have been -- oh, okay. Here's -- okay, here's -- oh now, they're all coming in. Okay, sorry about that. So another one from a shareholder. Steve, I think this is for you. What is the CEO compensation plan? And is it tied to the stock price? And if not, why?
  • Steven Hoang:
    As of right now, I don't have any insights into the CEO compensation plan. But again, we'll update or it will be posted and filed accordingly.
  • Janet Meiklejohn:
    How many -- Parimal, this is for you. How many production shifts are running now?
  • Parimal Rana:
    We are currently running 2 production shifts in Rupert and 1 production shift in Victoria and Patterson.
  • Janet Meiklejohn:
    And then Jordan, this might be a good question to say, from an investor is for us to wrap up on, which is what can you say to give investors confidence to continue to invest in your company?
  • Jordan Rogers:
    That is a great question to end this session, and we really take a heart at these questions and appreciate them. So thank you. I think the fact that we have amazing products that taste great, that have really been validated in the market through same-store sales growth with authentic ingredients. And as climate change and world issues become more precarious, our brand offers a solution to our consumers, and they continue to validate it. So I'm really excited with our great products. And also what we have in the R&D pipe, which has generated a lot of retailer excitement. And I think we're really just getting started yet. We have a lot of work to do. And we're excited to have everyone on this very good journey with us.
  • Janet Meiklejohn:
    With that, I think we'll close out this call. Operator, could you help us with that?
  • Operator:
    Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.