Mama's Creations Inc
NASDAQ:MAMA
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Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to MamaMancini's Fiscal First Quarter 2020 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. [Operator Instructions]
This conference is being recorded today, June 14, 2019 and the earnings press release accompanying this conference call was issued prior to the market opening today on June 14, 2019. On our call today is MamaMancini's Chairman and CEO, Carl Wolf; President and COO, Matthew Brown; CFO, Larry Morgenstein; and Greg Falesnik, Managing Director 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 future-looking statements. Greg, please go ahead.
Thank you, operator. Before we get started, I'll read the 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. They include but are not limited to statements that express the company's intentions, beliefs, expectations, strategies, predictions or any other statements related to its future earnings, activities, events or conditions.
These statements are based on current expectations, estimates and projections about the company's business base 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 the 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 may cause actual results to differ materially from those in the forward-looking statements include among other factors, the loss of key management personnel, availability of capital and 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 and 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 arrived after the date of this conference call. Further information concerning issues that could materially affect financial performance related to forward-looking statements contained in this presentation can be found in the company's periodic filings with the SEC.
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.
Thank you. Thank you Greg and thank you everyone for joining us today. I'd like to welcome everyone to our first quarter 2020 financial results conference call. The first quarter of fiscal 2020 was marked by continued strong sales into supermarkets and club stores nationwide whilst laying the groundwork for our launch into large and growing food service market later this year.
In fact, the food service market is just as big if not bigger than the retail food industry we currently serve, which nearly doubles our addressable market. As part of these efforts, we continue to strategically build our capabilities to serve as a strong growth in our market such as significant improvements we've made in our manufacturing capabilities, which provide us with the ability to more easily introduce new products.
These operational improvements are further being bolstered by renewed marketing campaigns and the launch of several new products, such as our recently unveiled pasta bowl offering at Stop N Shop stores. MamaMancini’s simple, nutritious and delicious Italian food products resonate well with the ethos of leading supermarkets globally, and as a result, we expect continued growth in our already impressive base of national and regional customers, which include giants like Walmart, Sam’s Club, Costco and BJ’s Stores, among others.
Supporting our strategic initiatives is a strengthened balance sheet, which includes a $3.5 million working capital line and a $2.5 million five-year note at friendly terms with M&T Bank. As we look towards the second quarter of 2020 and beyond, we are expecting significant revenue growth via the introduction of new products and customers, while also using our cash flow from operations to reduce our senior debt. Ultimately, we strongly believe that the steps we have taken should provide us with strong sales growth in the second quarter of 2020, while also positioning us for significant shareholder value creation over the long-term. Well, I am proud of what our team has already executed upon this year and the stage is set for significant growth in several segments.
Now before going further, I like to turn the call over to Larry Morgenstein, our Chief Financial Officer, to walk through some key financial details from the first quarter of fiscal 2020.
Thank you, Carl. Revenue for the first quarter of fiscal 2020, totaled $7.4 million compared to $7.7 million in the same year ago quarter. The revenue decline was largely precipitated by the recognition of approximately $2.1 million of revenue as a result of a one-time major merchandising event, our largest customer, and one additional shipping week in the first quarter of fiscal 2019, which did not recur in the first quarter of fiscal 2020. Excluding these non-recurring events, period over period sales would have increased approximately 30% in the first quarter of fiscal 2020.
Gross profit totaled $2.4 million in the first quarter of fiscal 2020 as compared to $2.8 million in the same quarter a year-ago. Gross profit as a percentage of revenue in the first quarter of fiscal 2020 totaled 32.2%, as compared to 36.5% in the same year-ago quarter. As we grow our sales, gross margins are expected to increase as a result of newly implemented and planned manufacturing plant efficiencies. Operating expenses totaled $1.9 million in the first quarter of fiscal 2020 as compared to $2.3 million in the same year-ago quarter. Operating expenses decreased primarily due to higher depreciation expenses last year, as well as higher consumer demonstration expenses related to one-time major sales events last year.
Net income for the first quarter of fiscal 2020 totaled $0.4 million, as compared to $0.3 million in the same quarter a year-ago. The increase in net income was primarily due to a result of lower interest and amortization of debt discount expenses. Cash and cash equivalents totaled $0.7 million as of April 30, 2019, as compared to $0.6 million as of January 31, 2019. During the first quarter of 2020, we repaid $325,000 of our senior debt, while also already paying down $240,000 in the fiscal second quarter of 2020. The new financing we secured, which includes a $3.5 million working capital line and $2.5 million five-year note are at friendly terms has supported our strategic initiatives which we believe will pay dividends as we move throughout the year, starting with strong sales growth in the second quarter of fiscal 2020. In addition, we continually closely monitor our spending and implemented tight fiscal expense controls.
Cash flow from operations for the first quarter of 2020 increased significantly to $0.7 million, compared to $0.1 million in the same year-ago quarter.
Finally, before wrapping up the financial section I want to touch base on our payables which stood at 3.7 days outstanding on a consolidated basis in April 30, 2019. This compares to 33.6 days outstanding of January 31, 2019 and 32.4 days outstanding at April 30, 2018. We expect the payables outstanding to continue improving throughout fiscal year 2020 as we continue to extract better pricing in terms for our vendors.
That completes my comments. Let me turn over the call to Matt Brown, our President and Chief Operating Officer. Matt?
Thanks Larry. A quick reminder for those who had not heard me talk about it over the past year, but for the last several quarters we have remained focused on plant expansion and efficiencies. With the necessary pieces in place we are now turning our focus for the remainder of fiscal 2020 towards expanding sales both in existing and new market segments. As we look towards the next quarter, we will expect to begin to see some of this sales growth unfold and we're very proud of the team for all the hard work to date.
Some of the things we focused on expanding are product offerings, upgrading our equipment and manufacturing capabilities and moving into new markets. On the product front, we initiated first production of several new products in Q1 such as the aforementioned pasta bowls by Carl for both retail and food service markets. Pasta bowls consist of spaghetti and meatballs, chicken parmesan over penne pasta, chicken alfredo over a fettuccine pasta, and a sausage pepper and onions also over a penne pasta. We have received encouraging feedback from a major restaurant chain for these pasta bowls and believe that these products will see wide adoption over time.
We also continue to expand our customer footprint. To that end in the first quarter of 2020 we commenced initial shipments of nine new products to newly acquired customers including Walmart, BJ’s Club Stores and Ahold, which we also know as Stop & Shop among other household names. As previously noted, we recently upgraded our equipment and expanded our production capabilities in a meaningful way all in an effort to increase our capacity while at the same time make us more efficient in production. This not only provides us with the ability to grow existing sales, but also move into other markets such as the large and growing food service market, which does present an incredible opportunity for MamaMancini's. I'll speak more on that food service market in the moment.
We are also proud to have finalized construction on our newly completed in house state-of-the-art laboratory, we intend to move all of our outside lab testing to this facility over time. Currently, we have moved all of the micro testing in house to this lab and continue to work towards the ability to run our nutritional analyses as well, which should save us somewhere in the range of 800 per analysis so over the course of the year that can be a substantial amount of savings. So in a nutshell our new production and lab efficiencies are expected to improve our margin profile while helping us to control quality and more rapidly expand.
Finally, as noted earlier, the food service market does present a significant opportunity for our company and one that we are aggressively pursuing. To that end in April, we hired Allan Sabatier, as our Vice President of Business Development to lead these efforts. The food service channel has the potential of being larger than the grocery store channel in which we currently compete and could more than double our addressable market. Allan brings a wealth of perishable foods industry experience to MamaMancini's, as a previous senior executive in sales and marketing for major food companies including Dole, Del Monte, Ready Pac Foods and ConAgra.
Allan will focus on developing business opportunities with food service distributors, chain restaurants, convenience stores, health and elder care institutions, colleges and universities, corporate commissaries and kitchens, casinos and export distributors worldwide. Collectively with our manufacturing expansion complete and new products hitting the shelves, we now have the capacity and breadth of products to efficiently compete in this segment and aggregate additional market share.
At this point, I will turn the call back over to Carl for some discussions on our marketing initiatives before wrapping up the call for some questions and answers. Carl?
Thank you. Thank you, Larry and Matt. As I noted in my opening remarks, we really laid the groundwork for a strong remainder of fiscal 2020. As we gear up for growth, we've continued to implement a comprehensive marketing strategy, which we're very pleased with today. Among these initiatives are running up to 1,000 MamaMancini commercials in the first quarter, which were run through Easter and Passover holidays with SiriusXM. Commercials will run on such channels as Fox News, MSNBC, CNN, Headline News, the Howard Stern Channel, ESPN and up to 10 other channels. Sirius has a reach of 60 million across the U.S. and Canada as well.
We will continue to run similar campaigns in five more holiday periods including the past Memorial Day weekend throughout the year. These include 4 of July, Labor Day, Thanksgiving, and the holiday period. We also continue an aggressive MamaMancini’s social media program on Facebook and Instagram.
So I am pleased to announce that we have close to 300,000 followers and our individual posts have got up to one million views. We can geo-target consumers or retailers within a five mile radius to help generate traffic for new items, promotions or special events. Another avenue we have aggressively pursued is direct to consumer marketing, such as the work we are doing regularly with QVC, the world's largest in this category. Dan Mancini, Co-Founder has promoted our natural authentic products up to six times per month and many of them have resulted in selling out in the past 18 months. As an example, our first time offering pasta sauces in jars in May. QVC is seen in 100 million homes across the country. We have set the stage for an incredible fiscal 2020 and look forward to continue operational execution and shareholder value creation over the long-term.
Now before wrapping the call up, I wanted to take this opportunity to invite any and all investors to a luncheon with tastings of our products on June 26, 2019 from 11:45 a.m. to 12:00 p.m. Eastern Time. The luncheon will be held at our corporate offices, located at 355 Meadowlands Parkway, East Rutherford, New Jersey, 07073. If you are interested in attending, please be sure to register by June 24, 2019, you can do so by e-mailing our Investor Relations firm, MZ Group at the following, MMMB@mzgroup.us.
With that, I'll turn it over to the operator. Operator?
Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Howard Halpern with Taglich Brothers. Please go ahead.
Congratulations. Great start to the year, Carl.
Thank you.
In terms of – you’re talking about significant growth in the second quarter year-over-year, will we also see sequential growth from the first quarter $7.4 million?
Yes. Well, we're only six months into the second quarter, but on a very preliminary basis, it looks like we'll see sequential growth in the second quarter over the first.
Okay. And now as you started to basically lay the groundwork for the food service market, what are some of the – I guess, early or initial segments that you're targeting that will bear fruit, I guess, first, is it distributors? Is it a college market? Can you talk a little bit about the sequence of events, I guess that you hope to achieve in the food service market?
Basically what you do is you set up a sales network first, an organization to sell to that market, then within each geographic area or national sales representatives. They then look at each of those various segments. So let's say you appoint a sales network in the New York metropolitan area or the Northeast, they'll look at all of those sub-segments. We are putting a special attention on convenience stores and we'll be at a major industry event in October on a convenience store show and we'll be participating in that show.
So for now our opportunities are open and we are in the process of more than exploring them. However, it does take a considerable amount of time and our projections do not show substantial increase sale in our projections for the year until this fall. And then even then, it will take a good year to really ramp this up.
However, as in many other sales situations, sometimes you just happen to have an event that falls out of the sky as you're making a presentation by saying, this is exactly what I need, ship next week. So you can't count on those. But anyway, we're being very conservative in our projections.
Okay. And with new products are you still – are you working on additional new products to continually evolve your portfolio?
We're working on plant products for – plant-based products in meatballs and Italian meatloaf and other areas which we hope to develop in the near future.
Okay. One, I guess financial question in there in the gross margin, the cost of sales segment, what is approximately the level of depreciation that is occurring because of all the plant improvements that were made?
We have about $180,000 a quarter in depreciation right now. And in prior years, it was classified at – most of it was classified as an operating expense, right. And starting in the third quarter of last year, we classify that as a cost of goods. So if you were to compare operating expenses and gross profit, you had a change of about $150,000 from last year.
Well, keep up the great work and I look forward to future reports.
Thank you.
This concludes our question-and-answer session. I would now like to turn the conference back over to Carl Wolf for any closing remarks.
I just would like to mention that our sales with our largest customers have increased year-over-year about over 20%, excluding the one-time merchandising events of last year. So our core business appears to be very strong. And with that, I'd like to thank everyone for coming and I'm looking forward to update you on our next quarter.
This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.