Mama's Creations, Inc. Q3 FY2025 earnings call

• Cost: Completed CapEx investments in Farmingdale facility to double chicken capacity, improved freight and procurement efficiencies, and reduced labor overtime. - Controls: Implemented NetSuite ERP system, added warehouse management system module, enhanced quality controls with X-ray and PCR testing, and passed third-party audits. - Culture: Implemented formalized processes and a companywide culture committee, and rolled out an employee engagement survey. - Catapult strategy: Sales team optimized, trade promotion increased, marketing investment up 75%, and focus on new doors and SKUs. - CapEx: Completed Farmingdale facility construction, added grills to double chicken capacity, and upgraded equipment to insource services and lower costs.

In the third quarter of fiscal 2025, revenue increased 10% to $31.5 million compared to $28.7 million in the same period last year. Gross profit totaled $7.1 million, or 22.6% of total revenues. Operating expenses were $6.6 million. Net income was $0.4 million. Adjusted EBITDA was $1.7 million. Cash and cash equivalents as of October 31, 2024, totaled $9.3 million. Total debt stood at $6.3 million. The Prepared Foods segment is significant, with meatballs no longer being the biggest item sold, and over 47% of sales west of the Ohio River.

• Normalized gross margin profile expected to hover in the high 20% range long term, with a goal of low 30% through strategic CapEx, procurement efficiencies, and operational improvements. - Adjusted EBITDA goal is to achieve teens percentage range. - Trade promotion investments aim to move from low-single-digit percent of revenue to 10% long term.

• Commodity price fluctuations. - Construction-related risks. - Loss of key management personnel. - Availability of capital. - Major litigation.

Q: As we think about the revenue for the fourth quarter, obviously, traditionally we'll see a step down from the third quarter. Do you expect that trend will continue here in Q4 or are some of the recent customer wins with Walmart and even Costco enough to offset what we traditionally see here sequentially?

A: Thanks, Ryan. Actually, I think the sales team has done an incredible job, trying to fix that. I know historically we did have a little softer in Q4. Some of the things are still there, right? So think of Thanksgiving, people they take our products off-the-shelf for a week, put more turkeys there. Same thing for Christmas time, they take our products off and put more hams there. But what we're seeing is actually the sales team did a great job at getting some incremental rotations. I just mentioned earlier that our trade programs are getting a lot stronger, a lot deeper, a lot broader with respect to seeing the same Publix Sub Pub program. We're doing it again this in Q4. Definitely we've had more of these rotations of Sub Pub programs than we've had in the past. So maybe a little bit, but I certainly feel even more confident in Q4 this year than I did last year because of the great work the sales team is doing. And then equally I have to say the operations team to fulfill this is awesome as well. So I hope to tell you that not as strong as much of a pullback as it was in prior years.

Q: Thinking about the gross margins, it sounds like you called out the 400 basis point impact from the construction related costs and the remainder was commodity. Have you guys seen any improvements in the commodity pricing yet? And then as a follow-up to that, when do you think you'll see the full impact to the margin improvement from the recent CapEx project?

A: Yes. So sort of two questions in there. The first one is, are we done with all the construction stuff? And the answer is yes, absolutely. That impact, we did not see in November already and things are going well there. Commodity wise, it's still tough, but again I got to give credit to my team. So we're talking about so chicken for instance that has come down. So I think when I spoke to you last where if you were looking at the market numbers they're north of $2 Now it's close to $1.50. And I think that there's some slight improvement that could still be there. And then beef prices again equally, right, equally important to us. The team has done a great job at doing some working with our partners. You're seeing some really good top line numbers. That allows us to commit to partner with our suppliers to say look things are going really well here. If I could tell you that we're going to have this amount of volume can you get a better price on your side? And the answer is, yes. So not only do I see the numbers coming down a little bit for us, but because we have a better sense of our business and the business is doing better, we're actually able to capture some better procurement numbers, some better numbers on our costs. So I'm optimistic that Q4 and then going into next year, so Anthony Morello and team are doing a great job. I've spoken to you in the past about possibly looking at contracts for the year, right? These are not financial contracts. These are just actual we're going to take in X amount of chicken or beef for that matter as well. And if we're able to do that our suppliers are able to get us better rates. So I will tell you as challenging the markets are going to continue to be challenging next year and you could read the same stuff I am, potential things that impact tariffs. Obviously that doesn't impact us personally because everything we do is domestic, but that has a knock on effect on people that don't do that, right? Although there are some headwinds there, our team is doing an amazing job preparing for next year and we're already seeing some of the contract conversations that we're having a superior pricing model relative to this year. So I'm really optimistic going forward.