Cherry Hill / NJ. (rgfc) The Real Good Food Company Inc., an innovative health- and wellness-focused frozen food company, reported financial results for its third quarter ended September 30, 2022.
Bryan Freeman, Executive Chairman, said: «The categories we compete in continue to grow and have historically performed even better in recessionary periods. Our brand health indicators remain strong, highlighted by continued growth in our brand’s industry leading household penetration rate, which increased to 8.5 percent this October. The new products we introduced this year (multi-serve Asian Entrees, Breaded Poultry and Breakfast Bowls) continue to gain solid traction as evidenced by strong velocity and the 39K distribution points we have secured and will be rolled out over the coming months. Each of these products help to modernize frozen foods with new options that are low in carbohydrates and sugar, high in protein, and made from gluten and grain free real ingredients. These delicious products are a result of our mission to make our favorite foods more nutritious and help our customers achieve a healthier lifestyle. With 1 in 12 US households buying our products, we know we are having a positive impact. I believe we will see this continue to grow in the future and that is why we see at least 30 percent growth to USD 200M in revenue for 2023.»
Gerard Law, Chief Executive Officer, added: «Our Bolingbrook facility continued to ramp production in the third quarter towards its expected USD 250-300 million capacity and is now in the final and most-efficient start-up phase. Gross margins in the third quarter were below our expectations owing in part to what I would characterize as startup blues at our Bolingbrook facility. We have largely worked through these start-up related issues and I am happy to report that in recent weeks production has significantly increased and efficiencies are nearing targeted levels. As we continue to improve plant efficiencies, implement automation and benefit from lower commodity costs, we expect gross margins to improve significantly in the fourth quarter and in 2023. In summary, we are well positioned to produce profitable growth and are committing to generating positive operating cash flow in 2023,» concluded Law.
Third Quarter 2022 Highlights
- Net sales in the third quarter increased 63.2 percent year-over-year to USD 37.6 million
- Household penetration increased to 8.6 percent in October 2022 compared to 6.1 percent in 10/2021
- Secured commitments for 15K new distribution points for our new products bringing YTD total to 39K
- New Bolingbrook facility start-up almost complete – currently in final and most efficient phase
Financial Results for the Quarter
Net sales grew 63.2 percent to USD 37.6 million in the third quarter of 2022, as compared to USD 23.0 million in the third quarter of 2021. The increase was primarily due to strong growth in sales volumes in the Company’s core product lines, driven by greater demand from existing retail and club customers, and to a lesser extent, new customers.
Gross profit decreased by USD 0.6 million to USD 1.8 million, or 4.7 percent of net sales, in the third quarter of 2022, as compared to USD 2.4 million, or 10.2 percent of net sales, in the third quarter of 2021. The decrease in gross profit was primarily driven by higher raw material costs, as well as an increase in plant manufacturing costs related to the start-up of the Company’s new manufacturing facility in Bolingbrook, IL – partially offset by a more favorable product mix weighted towards self-manufactured products, which carry higher margins. The Company believes the higher raw material costs have begun to normalize and will start to benefit margins beyond the third quarter of 2022.
Adjusted gross profit, a non-GAAP term, increased by USD 2.0 million to USD 5.9 million, reflecting an adjusted gross margin of 15.8 percent of net sales, in the third quarter of 2022, as compared to USD 3.9 million, or an adjusted gross margin of 17.1 percent of net sales, in the third quarter of 2021. The increase in adjusted gross profit was primarily due to the increase in net sales, including in the amount of products sold that were self-manufactured, as well as higher net price realization, partially offset by increases in manufacturing and raw materials costs.
Total operating expenses increased by USD 4.5 million to USD 12.4 million in the third quarter of 2022, as compared to USD 7.9 million in the third quarter of 2021. The increase in operating expenses was primarily driven by increased personnel expenses related to the build-out of the Company’s operations, finance and leadership teams and increases in research and development.
Adjusted Ebitda, a non-GAAP term, totaled a loss of USD 3.8 million in the third quarter of 2022, as compared to a loss of USD 2.7 million in the third quarter of 2021. The decrease in adjusted Ebitda was driven by lower gross profit, prior to the normalization in manufacturing costs observed subsequent to the end of the third quarter.
Loss from operations increased by USD 5.1 million to USD 10.6 million in the third quarter of 2022, as compared to USD 5.6 million in the third quarter of 2021. The increase in loss from operations was primarily due to the aforementioned increase in operating expenses.
Net loss increased by USD 1.3 million to USD 13.1 million in the third quarter of 2022, as compared to USD 11.8 million in the third quarter of 2021. The increase in net loss was attributable to the decrease in gross margin and increases in operating expenses described above.
Balance Sheet Highlights
As of September 30, 2022, the Company had cash and cash equivalents of USD 5.4 million (which includes USD 2.3 million of restricted cash) and total debt was USD 61.4 million. The Company believes that its cash balance and cash flow from operations – together with borrowing capacity under its credit facilities and the lowering of inventory on-hand to more normalized levels – is sufficient to fund the business for the foreseeable future.
The Company is maintaining its guidance for the year ending December 31, 2022:
- Net sales to be at the lower end of the guided range of approximately USD 155 million to USD 160 million, reflecting an increase of 84 percent to 90 percent as compared to 2021
- Adjusted gross margin in the range of 19 percent to 21 percent
- Adjusted Ebitda loss to be at the lower end of the guided range of approximately USD 7.0 million to USD 9.0 million
The Company is also providing preliminary guidance for the year ending December 31, 2023:
- Net sales of at least USD 200 million
- Adjusted gross margin of at least 24 percent
- Adjusted Ebitda in the mid-to-high single-digit millions range
Long-term, the Company continues to expect:
- Net sales of approximately USD 500 million
- Adjusted gross margin of 35 percent
- Adjusted Ebitda margin of 15 percent
The Company is not providing guidance for gross margin or net loss, the most directly comparable GAAP measures, and similarly cannot provide a reconciliation between its forecasted adjusted gross margin and GAAP gross margin and adjusted Ebitda and net loss without unreasonable effort due to the unavailability of reliable estimates for certain items. These items are not within the Company’s control, may vary significantly between periods and could significantly impact future financial results.