SOWG - Earnings call transcript Q1 2024

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Operator

Hello, and welcome to Sow Good's First Quarter 2024 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Jackie Keshner, Director of Investor Relations.

You may begin.

Jackie Keshner

Good morning, everyone, and thank you for participating in today's conference call to discuss Sow Good's financial results for the first quarter ended March 31, 2024.

Joining us today are Sow Good's Co-Founder and CEO, Claudia Goldfarb; and Interim Chief Financial Officer, Brendon Fischer.

on this outlook, forward-looking the our the economic during concerning including impact made global financial our market environment statements call statements, are those of Certain business. our opportunities and undertake law. based are information information and update currently These no required statements to by on duty as and available assumptions, we except this

filings including in today's earnings These statements a to highlighted subject SEC. number of and those our with are also risks the and uncertainties, release

associated statements filings Relations and website is the Copies Additional with information uncertainties release our them our website. in and in are concerning with earnings today's Investor these or on SEC's highlighted risks SEC. available and on the

net discussed earnings press Furthermore, is non-GAAP we website. of measure, our a loss, will on available comparable in our on at to financial the financial non-GAAP today's adjusted A nearest today's call measures discuss Relations Investor EBITDA, call. release EBITDA reconciliation adjusted

I call will over With the Claudia. to turn that,

Claudia Goldfarb

us appreciate in one and Jackie, candy want by you, Thank Good creating industry. financial thanking Good results. unwavering to most and our in quarter and team to innovative Sow joining good discuss vision our I start commitment Sow the everyone. companies We our first their XXXX for of you disruptive today morning, to the

a an the to up since exceptional shake milestones We track disruptive are We scratch the and deliver on and continue few to just call candy beginning innovative surface quite XXXX. and the achieved technology of to excited to our power of are are industry. year-end freeze-dried

'XX, well of adjusted with sequential fourth year-over-year adjusted in in representing increase as growth XX% $X.XX the a XX.X%. an We first as delivered million of quarter substantial revenue the margin $XX.X relative quarter to EBITDA 'XX, million and in EBITDA, of

product co-manufacturing to our working. a continuing internal distribution networks and grow Our that and strong and candy strategies our expanding quarter demonstrate category production innovation growing as of and capacity, that financial continues freeze-dried are results first strengthening

in strides want the key operational we our highlight a into milestone deeper delve corporate to I first I before But quarter, achieved. recently

now Nasdaq trading ago, of weeks million of Capital uplist, approximately $XX.X As proceeds. we Along to Market have common a public our of few shares we a XXXX. X, X.XX completed offering our in the uplisted shares stock with May million announced we aggregate on stock, the as raising Nasdaq with gross

We later Brendon CFO, to call. and interim We provide leveraging driving Nasdaq's liquidity Our allows will growth forward our the and while visibility support value. in to detail in base Nasdaq our believe offering look additional in expand our the strategy. improvements on really Fischer, advantages us investor ongoing of listing market shareholder long-term the of platform

public strategic our position The us offering objectives to in proceeds places help from for an the us XXXX. excellent achieve

diversifying capacity, and Our second our of are co-manufactured our partnerships, increasing for to the branding innovative key this objectives strong production further a in-house and strengthening groundwork the with and treats. candy for marketing half the disrupting category year, and distribution laying continue strategy

building a capabilities production units units. China over by increasing culture and Sow Colombia. strengthening prioritizes strongly investing accomplished For projections strong capacity, QX manufacturing we in excellence X.XX our our relationships our our to this as surpassed that X.X well and in of within co-manufacturing in-house Good million We efficiency million as milestone production and

is now quarter the We on and operational, this sixth by year. our third freeze track which completed installation of operational is to the of dryer, becoming fifth our dryer freeze

next X X In operational months. within which placed addition, to additional expected on deposits are we the freeze dryers, be recently

manage effectively groundwork and between third now laying this we production greater and our half determined smaller we call, our focus production year. of what new much 'XX, last the resulted customer third that in the the on-boarding on capacity. us in to expansion fourth on quarters strategically discussed achieved paused approach the Though relative efforts would support our this quarter of to second of to we sequential in growth growing As 'XX enable

our customer With planned. capacity have begun new increasing as we resuming as on-boarding projected,

launch anticipated we new X,XXX customer progress launches increased the customers. their building, in Sow launch presence and with made displays with to early in in thrilled anticipated forecast XXX anticipated in X,XXX our for our include of summer SKUs new launch X,XXX stores beginning after Market anticipated existing in stores General at our Big X-Eleven and X outperforming in X anticipated at in nearly in SKUs initial in Kroger updates Dollar and May launch June, have Recent both and of X displays adding to are Good and stores X store Fresh Lots launch, SKUs X Ross launching exposure of an The in increases We stores in this SKUs SKUs our sales brand XXX-store June, of May, nearly summer, expansions Target of June. launching in

we of to detail, to our last up production sales. as early proud discuss Brendon Chief greater like very I in Interim milestones Officer, ramp Financial whose month. before goals Fischer, we announced continue would we our the achieve We're But introduce I and appointment

compliance joined June team companies. in with in public of our experience XXXX, first financial analysis, communications bringing years shareholder Brendon and and XX over leadership regulatory private

XXXX. investment the Compliance Management, founded an served Managing Officer advisory Sow he Director as CIO, Chief Good, of joining Fischer Before in firm Capital and he

He Mountain an Fund. & as Growth billion assistant known fund and was Boulder that portfolio Advisors, traded Rocky officer publicly at managing was Income the formerly $X.X previously investment a manager

time Brendon the in with company, candy. demand market us his the been freeze-dried for growth initiatives of instrumental has strategic in high helping Throughout advance support our

and that be call financial thrilled future the him first is I will the in through he our walk growth. to results. team part our now will of welcome Good Sow instrumental to beyond are quarter We

Brendon, over to you.

Brendon Fischer

pleasure the continue Thank and exciting during with leadership work join to Good's Sow this It's chapter. you, a Claudia. my company team

million compared Moving to approximately $XX.X the to Revenue XXXX in into year our prior financial the year-over-year quarter increased $XXX,XXX of performance. in period. first significantly

increased pivot to revenue quarter the approximately On increased fourth million driven generated line market a freeze-dried to sequential the capacity. strategic our growth $X.X be the our in the to expansion XXXX. meet over production quarter XX% ability of continues by production candy of our through of and demand growing top our Overall, basis, this

Gross first compared significantly to approximately $X.X $XXX,XXX quarter increased period XXXX profit of for million in the same to XXXX. in the

much our Relative gross compared comparison. Our at prior reflected XX.X% scale period. to was first quarter is operating margin quarter year increased of costs the XX.X%, labor related now last business year-over-year in and a first with margin the production greater to our in year,

increase capacity. And demand, to to production a we continue meet gross growing will operations these near-term investments invest expect order to In we to to provide quarterly in headwind our our margin.

same in Nasdaq. in $X.X scaled XXXX increase period driven invested Operating quarter the as business million process first listed by the anticipation in compensation and of higher were $X.X XXXX. we up was and compared to professional year-over-year in expenses The improvements expenses systems primarily for of services the on and million, being

XXXX. XXXX $XXX,XXX same improvements we a income period aim the XXXX. was $XXX,XXX Adjusted same loss The further the for approximately profitability quarter to in during to compared Net gross the million million the we and improved the of net quarter generated period over for $X.XX profit higher quarter, $X.X to of in coming EBITDA first of approximately for quarters the XXXX. improvement the reflects in compared drive to

completed from ended cash We by March equivalents million XXXX. XXXX of of sheet. balance in the compared $X.X was to the of in we and XXX,XXX new December This driven first as the and private cash million placement proceeds to approximately quarter $X.X a XX, equivalents in shares. increase of which with raised of $X.X XXXX, million Moving issuance cash primarily

during to XX, the we transaction. financial we additional actions To XXXX completed the and May On some the the period December of payable attached between April with had of XX, March Subsequent took issued a end warrant quarter further foundation. XXXX. provide background, to strengthen notes company company's XXXX, exercise warrants

The company in with prices allowing and/or the interest the prepayment reached of to of their amount these equal an the principal by accrued aggregate exercise partial an warrants. note holders' for warrants exercise holders agreement to

payable shares issued debt common reduced of stock, the the company interest result, and $X.X reduced $XX,XXX. a by As accrued was its was million and X,XXX,XXX company's by

of mentioned funding was $XX and offering working stock per expanding completed We gross tranches expenditures and early an proceeds to share, efforts, intend proceeds capacity, capital, offering general this week. expansion offering include underwriting of price and million earlier, approximately may yielding before shares offering a for commissions. use certain expenses from as which growth The million at of the discounts we and corporate indebtedness. production reducing of of for last closed marketing common Additionally, underwritten sales in our public the net capital Claudia and X.XX $XX.X purposes,

their turn support call for and would I prepared This our further remarks. to thank new look like my remarks. our the for to existing foundation to closing investors now growth. would We forward like Claudia? for to Claudia concludes and And back enhancing

Claudia Goldfarb

Thank you, Brendon.

we've have call over candy throughout SKUs in the first 'XX. since past rapid the few quarter discussed we X first quarters, made As and this launching our progress of

This on of SKU network, our store just retail trajectory. and customer is distributor our In meaningfully stages focusing freeze-dried our and candy, count. this of the growth year have expanded production and first our we just beginning infrastructure,

for coming As a close XXXX. of our we with like quarters, the quick overview to today's pillars call strategic I'd to look key

production capacity be in Our first and support foremost of to priority demand. our customer continues expanding

progress our our here continuing QX Xth agreement. online freeze of additional placing and our international freeze dryers, maintain through by co-manufacturing X orders expect bringing We this ramp an for to dryer year, to

any international This to in-house margins most the work aiming our demand larger for ability continue improve more to our and popular compromising optimize treats, meeting will us grow efficiencies. laborious our to and quantities of without other allow while SKUs, capacity our or our growing produce to of current

our we on fronts. We and these diversify customer advantageous SKU the continue portfolio, both maintaining have to breadth of base built

mentioned also the I holiday to earlier, retail later year. addition SKUs this planning and introduce launches to seasonal In we're

innovations updates We the will product over quarters. these on other coming new share and

this We consumer to our But demand, positive we organic velocity. category to creation fortunate the have strong support our social and been strategy leader, this general will later sales of position unveiling support develop translated This has and category year. calendar by treats this content the on maker cement comprehensive media reviews, organic a into our see as reception and marketing incredibly customers. be further

advantage across freeze-dried a building in establishing are all focused brand, distribution and the we our our distribution candy channels. date, production and strong diversifying through space scaling capabilities, on our To strategy

now We to place grew marketing any via before with further for significant eager investments in this branding. And foundation in these entry are we strengthen making operational to barriers growth, and our our moat primed marketing investments. economic and

you building and look the on our significant our base. portfolio, product and XXXX innovative our capacity us you forward with We much with have We more entered to today. thank production sharing very and momentum customer upon over for to quarters, trajectory expect with being updates coming continue our here

now we'll Q&A. open up Operator, for the call

Operator

question of [Operator Instructions] line ROTH. first with comes Kelly George the Our from

George Kelly

strong quarter. Congrats on a really

So with hoping the to questions, lot of go to growth. drive a this was back to partnerships I'm there's and I context in to, maybe retail guess, -- But retail the more was to announced. X growth X you queue. about how year, hop then And get door I'll hoping or I through. ask going that just going start much some new I you're

grow how curious So doors looking you numbers, much And for QX? did but many year-end? end you that points like specific guidance, at I have us round how distribution the should not give if using was just of by could or

Brendon Fischer

So don't may the have off head. I of it. count, you George, my Claudia, on top have it the door

Claudia Goldfarb

So year second around of somewhere the that. but half And numbers George, front significantly the X,XXX. in QX, this more I is have in the at of going end be to me, the of don't growth than

George Kelly

your more doubling So of door than count?

Claudia Goldfarb

anticipating. we're what That's

George Kelly

a partners? Okay. Like And discussion of little in much we much if on right. on more in kind many General know then how X-Eleven, you be do of doors, you in -- General. How just if if with I think you couple announced X-Eleven? and us X,XXX I -- similar SKUs a Dollar fill that -- how some And then I I will X-Elevens, could a detail could your heard believe. said you're Dollar could

Claudia Goldfarb

Yes.

So for all X-Eleven, anticipating we're X,XXX. X SKUs in

versus franchise are them of some know, you non-franchise. As

So anticipating. what for franchise for it's -- that's up non-franchise independent but the stores, the the we're operator, to

looking we're X with size. a SKUs. going be smaller bag to Dollar On to They're General, start

final So weight between X.X ounces. still sour going somewhere to going to bite. to a the solidifying X.X ounces they're bite be be is going a and and it's what to We're count sweet be,

George Kelly

do I is Okay. the have you much confidence And contracts? that guess, how all list or Or signed you visibility then on full gave, launches? that those

Claudia Goldfarb

They signed are contracts. all

George Kelly

one for Okay. then That's questions excellent. And of my you...

Claudia Goldfarb

POs, documents. we the signed have by on-boarding and contracts, we And have

George Kelly

Okay. Understood. press is above There EBITDA capacity and was though, gross and in the in to my was in estimate. cover about And then and infrastructure I wanted margin margin other gross investments quarter, And the margin. release topic language everything. well

So think to XXs back of long I get a kind margin guess it gross will trend over dip there's quarters? anticipated, And the question if of couple you is, do gross you expect the to do how high next a to take range margin? for where

Brendon Fischer

boost very really labor that's margins, great managing by as a mix only you We sales job A costs. drove had margin what question, strong the gross this during in one. Yes, the and happened. And George. the quarter really, a well, quarter, surprised strength did also of that things good of weren't couple helped we we so were was which the

Whether variable, especially that of the we're not its growing It's a we're there's market in are business, things with in. or lot infancy.

some expect on on sales those factors, X we'll the variability especially So mix.

new add tweak we that's mix going As sales to on customers, side. the kind things of

expect some margin in do that. we related variability to So

expect quarter, by shipping this last we driven QX. through all that know to up we how the primarily over were We haven't several experienced that in we from gotten expensive to the and expect statement flown recent market costs had yet, Those that that start situation, costs where freight income we shipping experienced in months, more the catch that increased we has fact the months. We some really margin additional on side. cost some the

we pressure expect there. some So do

to that And business, we growth of investing production in fact in going then the be to that the are combine phase are be investing going with labor. the capacity. we in We're

As of efficiency. come kind utilizing XXX% We're things to those going going and obviously them we're them. be into scale to online, have that not grow to into

pressure. to little lead bit to going near-term a that's So margin

for Now on where to mid- high that all term range out, in the probably XX% margin. gross we're ends looking somewhere near the

Operator

Our Craig-Hallum. the question Des with from comes next of line Lauriers Eric

Eric Des Lauriers

first Congrats is My question additional about dryers. just on freeze the very impressive overall here. to add results capacity

much guess, year continue at now the here. the to X for So by, your of you in X How space X freeze the months Irving, adding guidance within next and beginning do Texas I facility? dryers have

Brendon Fischer

way side, with -- we're growing business. put those We're -- capacity the Irving I it expansion space, we a we're space are have in on includes guess So the facility, increase in best freeze to is running going out a part square looking but dryers. footage. look the of we're to it the production We're -- the project,

Eric Des Lauriers

viewpoint new additional Okay. And facilities. just into increase could mentioned overall high here, plans. or next leads geographic looking In is get term. wondering about of facilities. there Just any for level all? footprint the in your sort I coming Where And my facilities? plans for on like guess sort XX-Q, are guess, just is new diversification capacity? that I facility of you facility adding us question kind kind for into at all packaging you thinking of near-term potential give how you're the overall you're to of this the any looking overall a Maybe through your facilities, near you of capacity Or

Claudia Goldfarb

the of great going had area. different right really roof. through we now, one decided to going international, on After under we've that Dallas outside focused Eric, looking everything we're options keep Dallas question. the And area,

going remainder the where and need packaging production footprint used for you And being facility to other expansion with to to so material production raw things storage Irving, that very distribute going capacity all capacity Most that close and of of capacity all the of currently is located. be that the happen is our product. Texas to is

Eric Des Lauriers

helpful. then very That's just me it. from Got last And question here.

displays So highlighted the Lots, SKUs Good in as Big press and new well. release, X you these Sow

I new. think the these relatively these displays getting Lots? at Is instance and in are Big of them displays first this

increase early of Or to these here? if your would insight retailer? impact at for have impact number way you strategy of Just great. help sort understand of the if And any increase this more a the us is color velocity displays SKUs like of to of this maybe sort any is you on the And do a not, SKUs? given be I of just guess, on a

Claudia Goldfarb

Yes. Definitely.

I is going brand focused XXXX. think, really of we're first that into things building second and one foremost, half of the the

And so the really displays efforts. branding speak and are just incredibly colorful to and our marketing

is numbers can definitely assortment, expectations. I assortment, SKU They've in today. the X-Elevens but increasing. I SKU But been don't that velocity have definitely them exact strategy you yes, is, Circle just share few in the being have a outperformed the store test. for K, with expanding

They're going They're Lots. into Five Below. going Big into

probably exactly them they're how by the so well. color call, But well have performing. initial next we'll more very have And earnings as performing launches test to

Operator

with the of from comes Research. question David Next Trickle line Lavigne

David Lavigne

you many and I'm of we And kind kind should margin think if how to is it you that where to how you thing the little talked the curious year. growth. about SKUs just of other load going side know the as I'm expenses you about wondering a expect can exit bit with having SG&A that just maybe tell just forward. I be me for are about of now

I'm well. impact SG&A So that and as how of thinking wondering may kind

Claudia Goldfarb

Yes.

the we're end XX at We're XX received. well really now, just the year about have SKUs. going been because well. Those sitting SKUs range launching holiday right somewhere So to we're in as

at in a actually now. trade show I'm right Indianapolis

retailers here. with meet to getting we're So

addition we are doing. really just shapes incredibly novel we're core key flavors, that, to customers think with cornerstone of received. have is just we as just be is novel forward, in well going products. go being everywhere a kind resonating a to And I is What what flavors, as innovation then X new to

-- we're yes. where that's So

Brendon Fischer

side. things bonuses. in on of -- that couple question is the Yes. point we did quarter And we SG&A to on to is the this go paid A a this quarter question expense operating usually out --

So that that X $X.XX this obviously, fell situation this we into million the quarter first us. for next quarters. It's more is quarter about see a of in won't

to take ] the annual we [ G&A So side, the as other for on Board. compensation that usually as well the when it's account pay

you'll of build adding in as operations. next additional our next out quarters the fall until see couple we personnel that So out [indiscernible]

we'll on that. So some have from increase SG&A

out of expenses the then we build have other and facilities new rental on too part And is some take as facilities. it we'll increased

So will I'd And the -- point go thing in those other are increase Claudia. out big yes, near X future. one that things ahead,

Claudia Goldfarb

Yes. marketing. mentioned, on a spent to No. And social organic historically, media, we've X as able has we've do base. engaged really we've Everything been just word-of-mouth and been customer having

is to that forward, Going going change.

going of start in year. quarter see you're those So up expenses probably this to popping third the

probably know that ] that the retailers from media, in [ investments so basis. and on I small continue seeing we greater see velocities influencer social so And we're shelf, our some sounds supporting some go-forward a involvement on to comprehensive

David Lavigne

question seen along obviously, of see scale reminded you like indications pretty that see marketing. had. about you up sort -- the moat you and those new, lines. any So the like seems to require curious of here But you if are have. to the accelerating is inevitable. And any and that some there popping mean that's talked it you're Are and -- me able another just Are you've -- starting sort I to I'm sorts about to talking be they'd competitors? business competitors talked going mean, I now is of you I starting space of

Claudia Goldfarb

as the trade story. built moats one definitely. is been an really been that those has of we've here effective. that reassuring that At show, give anecdotal things And the seeing I'm I'll you No, are here. competitors we Yes.

the that everyone One And I try like, yours. candy haven't okay, Good. new want stuff that's tried our okay, I've of liked? And like that to We walked to SKU launching? the which don't yesterday. she's you I give competitors said, tried oh, were We hey, we we're why booth ones no, she said, candy. try. me she And now X-Eleven on yours. the said, like, a into Sow said, oh, buyers you freeze-dried in, well, get telling I've carry have And of keeps the tried a Come is only wow, the issue. never you

quality, So scream difference we spend is focusing and can of is production to the really from with that capacity that first proven those apparent a on is effective. continue excellence moats candy at marketing that bite. There be just of production Sow rooftops. The to so have Good kind

those become think And so to going once just I to we moats more [indiscernible] really get much continue effective. are

Operator

line Instructions] next Emerson Steve with Our the Group. question Emerson from [Operator of Investment comes

J. Emerson

revenue rate does run XX kind X.X at And capacity What pieces? run the million time of rate year-end this pieces million represent?

Brendon Fischer

Yes.

can of of are reveal our -- on a refer don't we giving not specific and competitive had any obviously, not kind kind in where unit don't that always million that to up. into that to we're perfect, guidance of revenue, going get But revenue because we we we kind back and sales pricing idea and our an on X.X match So don't be capacity basis. capacity back for of to reasons. It's unit you

and what we million our can't that from can -- in before, X about kind number talk provided ramp production XQ, you you But we're million XQ to to units gets the cadence, that that but full expect of for X.X expecting year. we've cadence revenue where to I capacity to point up in million in see XX X.X capacity million which QX, I

that do that to a is what production we there's fact when comes adjust Now what for side. new to the the going occur. for really is on cadence we're need sales to But you and looking new between for online really, to the for a capacity revenue this capacity delay potential growth similar see year do be

Operator

question the Kitt Pinnacle line comes Fund. of next with Gregg from Our

Gregg Kitt

co-man? was following of to on great fulfilled Claudia Kind up owned about there a through manufacturing Steve's quarter. is internal a way much how and question, Brendon, congratulations of first business the quarter versus think the on in

Brendon Fischer

detail. the that general we're again going you a chart should I and had, give Again, look you to capacity we can we of idea But production where type to that are. of providing not be mean,

Gregg Kitt

lot to you some customers, of change could Dollar waiting for As General, be your freeze Fresh ramp think to additional some then a and that, than to XX% and Do of X-Eleven, Kroger you're mix greater Ross, come Market you dryers existings. co-man, these slightly and expansions you start with online? that with while talked about

Brendon Fischer

Yes. can At make end going And just that's product domestic sure the customers. of going we're co-man, we situation the in be day, our we whatever the production service to to get or the to we're going whether to sure customers. from the short term, make

we So variability. do some expect

think the And and to own thing term business, of domestic of for of the to want is about that think I kind type the to control bigger side us. is manufacturing longer grow that we

grow obviously going term, So our coming we business the bigger domestic going a to going to expect I be co-manufacturing the part the forward. as share business. is the would over a But we're long from bigger be of getting and

Operator

to the no further like Ladies showing and would for turn queue. in I'm back closing questions over the remarks. Claudia call gentlemen, I now to

Claudia Goldfarb

months. thank everyone, another rest look X in is a going greatly this we for you, now Well, take forward of update and us. incredibly appreciate to excited where We We're part are call. where you the to giving this it. of being year to we right And as

Operator

that you gentlemen, today's call. Thank conference for your and participation. Ladies concludes

now may disconnect. You

Sow Good (SOWG) 15 May 242024 Q1 Earnings call transcript