George Kelly

George Kelly questioned the significant step-up in the 2026 CapEx guide to $25-$30 million, asking if it was for specific projects or maintenance catch-up, and if this figure is a new go-forward number. He also requested an update on the Trinity system rollout, including expectations, testing, and areas of excitement, and inquired if any average price per contract uplift from Trinity is baked into the 2026 guidance. Finally, he asked about the expected payment for M&A contemplated in the guide and the projected year-end net leverage.

Answer

John Enwright, SVP and CFO, explained that the increased CapEx includes both a catch-up on maintenance deferred in prior years and additional growth capital for cemetery development, confirming $25-$30 million is a good go-forward number. Carlos Quezada, CEO and Vice Chairman, added that the CapEx increase reflects giving back to managing partners after three years of debt reduction. Enwright stated that Trinity's rollout is anticipated for Q2, with pilot phases ongoing, and a broader funeral home rollout in Q3/Q4. Quezada acknowledged Trinity is behind schedule but highlighted its enhanced robustness with automation and AI. Enwright confirmed no sales performance uplift from Trinity is factored into the 2026 guide. For M&A, Enwright indicated a disciplined approach with EBITDA multiples between 7-9x and projected year-end net leverage between 3.9x and 4x.

George Kelly inquired about the increased capital expenditure guidance for 2026, asking if it relates to specific projects, maintenance, or growth, and if it represents a new go-forward number. He also requested an update on the Trinity system rollout, testing, and the level of excitement surrounding it. Additionally, he asked if any uplift to the average price per contract from Trinity is factored into the 2026 guidance and for details on the M&A contemplated in the guide, including expected payment and year-end net leverage.

Answer

John Enwright, Senior Vice President and Chief Financial Officer, explained that the CapEx increase is due to more maintenance and additional growth capital for cemetery development, confirming $25 million-$30 million as a good go-forward number. Carlos Quezada, CEO and Vice Chairman, added that this reinvestment follows a period where managing partners patiently allowed debt reduction. Mr. Enwright stated that the Trinity rollout is anticipated in Q2, currently in pilot phase, with no expected impact on sales performance factored into the 2026 guide. Mr. Quezada acknowledged delays but highlighted Trinity's enhanced robustness with automation and AI, expressing high excitement for its potential to drive sales average. Mr. Enwright noted that for M&A, they remain disciplined on multiples (7-9x EBITDA) and expect year-end net leverage between 3.9x and 4x.

George Kelly of Roth Capital Partners, LLC requested a detailed breakdown of the updated revenue guidance, questioning the drivers behind the increase. He also asked about the strategy to reignite cemetery growth to over 10% in the second half and inquired about the M&A pipeline's strength and future deal cadence.

Answer

CFO John Enwright attributed about half of the revenue guidance increase to acquisitions, offset slightly by divestitures, with the remainder from expected organic business improvement, particularly in Q4. CEO Carlos Quezada explained that cemetery growth will be driven by the completion of high-end inventory projects delayed in the first half, which will unlock large-dollar sales. President Steven Metzger described the M&A pipeline as "strong," stating the company is in several conversations but will remain selective to acquire high-quality assets and maintain a regular cadence of deals moving forward.

George Kelly sought details on the property being considered for monetization in Q2, including its size and potential proceeds. He also asked for confirmation on the visibility for the cemetery business returning to 10-20% growth in Q2, whether April's funeral trends continued the low single-digit growth in price and volume, and if there was any expected impact from tariffs.

Answer

CFO John Enwright estimated the Q2 property sale could generate around $6 million in proceeds, which is already factored into the company's guidance. CEO Carlos Quezada expressed strong confidence in the cemetery segment returning to 10-20% preneed property sales growth in Q2, citing the completion of development projects and resolution of inventory issues that affected Q1. Quezada also confirmed that April's funeral business continued the positive trend of low single-digit growth in both volume and pricing. Regarding tariffs, Enwright stated the impact is expected to be immaterial, at less than 10 basis points for the full year.

George Kelly of ROTH Capital Partners asked about the M&A environment, including valuation multiples and the company's pipeline, as it prepares to re-enter the market in 2025. He also sought a high-level outlook for the funeral business in 2025, specifically regarding pricing tailwinds and volume drivers like e-commerce. Finally, he inquired about major margin headwinds and tailwinds for 2025.

Answer

Executive Steve Metzger stated that the company has been cultivating relationships and building its M&A pipeline, focusing on larger, high-impact transactions similar to their successful acquisitions from 2019-2023. CEO Carlos Quezada detailed several 2025 funeral growth drivers, including the 'passion for service' program, an enhanced e-commerce strategy, and the continued ramp-up of the pre-arranged funeral sales program, which he described as being in its 'fifth inning.' He affirmed that the 30%+ consolidated EBITDA margin is sustainable, absent any major unforeseen economic events.

George Kelly from ROTH Capital Partners asked about other potential areas for efficiency gains beyond merchandise, the feasibility of achieving low 40% funeral EBITDA margins, the status of non-core asset sales, and the company's future pricing strategy.

Answer

CEO Carlos Quezada identified centralizing accounts payable and leveraging scale on technology as other efficiency opportunities. He affirmed that a 40%+ funeral EBITDA margin is a realistic goal for 2025. Executive Steve Metzger added that the company is pursuing divestitures of non-core assets and excess real estate, potentially generating $20-$30 million. Quezada concluded by highlighting the company's commitment to its pricing strategy and debt reduction.

George Kelly inquired about the strategic rationale and anticipated benefits of Prenetics' new 90-day subscription offering, including its impact on customer behavior and financial metrics.

Answer

Co-Founder and CEO Danny Yeung explained that the quarterly subscription, initially tested in the U.S., provides consumers with product savings and three months to experience noticeable benefits, which is expected to increase retention. He highlighted that it significantly increased average order value from $110 to $233 and shortened the payback period for customer acquisition costs, while also reducing logistics expenses.

George Kelly asked about the strategic reasoning and expected benefits of the new 90-day subscription offering, inquired about the timing and characteristics of two new SKUs planned for launch, and sought clarification on current IM8 revenue trends for January/February and whether the new products are included in the 2026 guidance.

Answer

CEO Danny Yeung explained that the quarterly subscription, initially tested in the U.S., offers consumers savings and three months of product, while benefiting Prenetics with upfront payments, reduced logistics costs, a doubled average order value (from $130 to $233), and a shortened customer acquisition cost payback period. He noted that the two new SKUs, expected by Q4 2026, will target large health and performance markets, but details are withheld for competitive reasons. Yeung confirmed continued strong momentum for IM8 in early 2026 and stated that the new products are not factored into the $180 million-$200 million revenue guidance.

George Kelly from Roth Capital Partners asked for a breakdown of Mama's Creations' organic growth in the quarter, specifically the split between volume and pricing. He also inquired about the progress and implications of the transition to a make-to-stock organization, including potential inventory impacts. Finally, he sought details on Crown's gross margin in Q3, the expected ramp to mid-20% range, and the outlook for the legacy business's gross margin.

Answer

Chairman and CEO Adam L. Michaels reported that organic growth was approximately 80% volume-driven and 20% price-driven, with pricing adjustments made to offset rising beef costs. He explained that the make-to-stock transition ensures consistent supply and improved service levels without requiring a retail inventory fill, representing a natural evolution for the company. Regarding gross margins, Mr. Michaels stated that while Crown's legacy business had lower margins, the integrated operations are showing week-to-week improvements, and he expects Bayshore's margins to align with corporate averages within 12-18 months, noting the legacy business is already much healthier.

George Kelly asked about the potential revenue capacity of Crown One Enterprises' manufacturing facility and the anticipated CapEx investment required to reach that capacity. He also sought more details on the performance of the panini SKU at Sam's Club, expectations for the back half of the year, and potential for additional products.

Answer

Chairman and CEO Adam L. Michaels stated that Sysco had recently invested $6 million into the Crown facility, so no major CapEx is anticipated. He estimated that the combined three facilities could easily double the current business revenue through increased efficiency and existing equipment. Regarding Sam's Club, he confirmed the chicken pesto panini is performing well, with expanded door counts and continued ordering, expressing interest in further partnership on paninis and highlighting the production flexibility gained from Crown's capacity.

George Kelly asked for specifics on the potential revenue capacity of Crown One Enterprises' manufacturing facility and any anticipated CapEx investments. He also inquired about the performance of the panini SKU at Sam's Club, expectations for the back half of the year, and the potential for additional products.

Answer

Chairman and CEO Adam L. Michaels stated that no major CapEx is expected for the Crown facility due to Sysco's recent $6 million investment, and that the combined three facilities could 'easily double our business' from the current $200 million run rate by leveraging efficiency and underutilized shifts. He confirmed the chicken pesto panini is performing well at Sam's Club, with expanded door counts and ongoing orders, expressing excitement for continued partnership and the paninis' strong overall performance.

George Kelly asked for specifics on the potential revenue capacity of Crown One Enterprises' manufacturing facility and whether significant capital expenditures are anticipated to reach that capacity. He also inquired about the performance of the panini SKU at Sam's Club, asking for more details on its success, expectations for the back half of the year, and the potential for additional products or other developments.

Answer

CEO Adam Michaels stated that Crown's facility is recently enhanced and expanded, with Sysco having invested approximately $6 million into it, meaning Mama's Creations anticipates no major CapEx. He suggested the combined three facilities could 'easily double our business' from current levels, leveraging not just physical space but also operational efficiencies and underutilized equipment from Crown. Michaels confirmed the chicken pesto panini is performing well at Sam's Club, leading to expanded door counts and continued ordering beyond its initial summer rotation. He expressed excitement for continued partnership on paninis and noted their strong performance across other retailers like Publix and Sheetz, providing production flexibility with Crown's added space.

George Kelly requested clarification on the company's refined M&A criteria, asked for details on Costco promotions and the broader club channel opportunity, and sought quantification of recent pricing actions.

Answer

CEO Adam L. Michaels explained that the core M&A criteria remain (deli-focused, own manufacturing) but have been refined by a full pipeline of inbound interest, making a West Coast presence less critical due to logistics improvements. He confirmed a strong, ongoing partnership with Costco and bullishness on the entire club channel, including new items at BJ's. CFO Anthony Gruber deferred quantifying the May pricing actions to a future call.

George Kelly of ROTH MKM inquired about the Q4 revenue growth composition between pricing and volume, the scale of planned price increases, and whether the company's fiscal 2026 outlook for double-digit revenue growth and expanding EBITDA margins remains intact.

Answer

CEO Adam Michaels stated that over 85% of Q4 revenue growth was volume-driven. He explained that pricing actions are taken continuously in response to commodity costs and can sometimes be in the low double-digits, implemented collaboratively with retail partners. Michaels reaffirmed the goal of consistent double-digit revenue growth and a long-term EBITDA margin target in the teens, with an expectation to be in the double-digits, barring extreme commodity volatility.

George Kelly inquired about the portion of the 10% revenue growth driven by pricing and asked about plans for future price increases. He also requested an update on the M&A environment and asked if the company would be able to accelerate trade spend in the next fiscal year.

Answer

CEO Adam Michaels clarified that pricing contributed only about 10% of the revenue growth, with volume driving the vast majority. He stated future pricing actions are very targeted on a small list of underperforming items, not broad-based. On M&A, he noted he has more time to focus on the pipeline but will not overpay. He confirmed that trade spend is already accelerating, as part of a 42% increase in marketing, R&D, and trade investment, and he plans to continue that trend.

George Kelly asked for a breakdown of revenue growth between price and volume, the timing for increased trade spend, the specific products launching at Walmart, and an update on the M&A pipeline.

Answer

CEO Adam Michaels stated that over 80% of the quarter's growth was volume-driven. He indicated that a significant ramp in trade spend toward the 10% of revenue goal is more likely in 2025, as protecting gross margin is the current priority. He deferred specifying the new Walmart products but confirmed they are proteins launching next month. On M&A, he said the pipeline is active but his recent focus has been on internal operational matters.

George Kelly of Roth Capital Partners, LLC inquired about the new paid voting contest, the materiality of recent licensing deals, the structure of the Miami hospitality venture, and the financial impact of the licensing commissions settlement.

Answer

CEO Ben Kohn detailed that the paid voting contest's initial sign-ups have already surpassed 50% of the total goal without marketing, with potential for millions in high-margin revenue. Regarding new licensing deals, he confirmed they exceed seven figures annually but declined to give forward guidance to protect brand health. Kohn described the Miami hospitality plan as an asset-light, high-margin partnership with a space already identified. COO & CFO Marc Crossman and CEO Ben Kohn explained the licensing commission settlement was an opportunistic move to reduce future expenses and improve margins starting in the current quarter.

Asked about the new paid voting contest, the materiality and growth expectations from recent licensing deals, the structure of the planned Miami hospitality venue, and the financial impact of the licensing commissions settlement.

Answer

The company stated that the paid voting contest has exceeded initial expectations and is a key integration strategy. They declined to give specific forward guidance on licensing but noted new deals are significant and the focus is on quality partnerships driven by content. The Miami hospitality venue will be an asset-light model with a carefully chosen partner. The licensing commission settlement was an opportunistic move to reduce future expenses starting in Q3.

George Kelly inquired about growth and margin expectations for Honey Birdette, the product development timeline for the Byborg partnership, and the potential for new licensing categories like hospitality and gaming.

Answer

Executive Marc Crossman stated that Honey Birdette's sales comps will ease in Q2 and that a potential $1 million tariff impact is being offset by price increases. CEO Ben Kohn confirmed the Byborg partnership includes a $20 million annual minimum guarantee and that a shareholder vote on a related equity investment is scheduled for June 16. Kohn also detailed a strong growth pipeline for new licensing deals in gaming and hospitality, alongside ancillary revenue opportunities from the magazine, such as paid voting and calendars, expected to materialize in the second half of the year.

George Kelly from Roth Capital Partners, LLC asked for specifics on the planned March price increase, the potential revenue opportunity from Ignaton in the second half of the year, details on the Ignaton marketing launch, and clarification on the increase in G&A expenses during the quarter.

Answer

CFO Ned Preston clarified the price increase would be around $2 for monthly plans and that the G&A increase was due to one-time items like the biohacking conference. Executive Chairman Jirka Rysavy added that the price increase would affect over 80% of customers and that it was too early to forecast Ignaton revenue, with a larger launch planned for after Labor Day. Mr. Preston also noted Ignaton is now available for direct purchase online.

George Kelly from Roth Capital Partners, LLC asked for specifics on the magnitude of the planned March price increase, the potential revenue opportunity from Ignaton in the second half of the year, details on the Ignaton launch marketing plan, and clarification on whether a recent step-up in G&A expenses was due to one-time items.

Answer

CFO Ned Preston specified the price increase would be around $2 for monthly plans, in the mid-to-high teens percentage range, and confirmed the G&A increase was due to one-time items like the biohacking conference. Executive Chairman Jirka Rysavy stated it was difficult to forecast Ignaton's revenue but noted the launch would be larger than originally planned due to its initial success. He added that the launch would occur after Labor Day, with marketing plans still being finalized.

George Kelly of ROTH Capital Partners questioned if the softer Q2 outlook was exclusively due to the Marketplace business. He also requested more detail on the licensing opportunities James Colquhoun will pursue, including the focus on Igniton, and asked about the revenue from a recently discontinued business.

Answer

CEO James Colquhoun confirmed the softer Q2 forecast was entirely due to variance in the Marketplace business, stemming from travel issues in Egypt, and that the core business performance remains on track. He explained his new role will focus on media licensing for Gaia and technology licensing for Igniton, which he positioned as a quantum technology company. CFO Ned Preston clarified that the discontinued business represented $1.2 million in revenue in the prior year and will be broken out in the 10-Q.

George Kelly of ROTH Capital Partners inquired about the price increase from late 2024, asking how much of the member base it had affected and if retention metrics remained stable. He also asked for details on the planned 'Igniton' launch, including its timing, price point, and how it is factored into the 2025 revenue guidance.

Answer

Executive James Colquhoun stated that over half the price increase was realized by year-end, with the remainder flowing through until October 2025. He confirmed the churn impact was manageable and the net effect was positive. Executive Jirka Rysavy said the Igniton brand will be introduced in May/June and start selling in July. He noted that while direct courses ($1.1M in revenue) were discontinued, Igniton is expected to generate more than that in the second half of the year, but declined to provide a specific forecast.

George Kelly of Roth Capital Partners, LLC inquired about the reasons for the lowered comparable sales guidance, the status of previously planned price increases, the breakdown of EBITDA guidance, and the expected expense structure for the second half of the year.

Answer

CFO Scott Bowman attributed the softer comp guidance to weaker new patient trends, tougher year-over-year comparisons, and macroeconomic headwinds. He stated the company does not provide a breakdown of EBITDA guidance for continuing versus discontinued operations. CEO Sanjiv Razdan clarified that the company is pursuing 'dynamic revenue management' with smaller, more frequent price actions, such as the new 'kickstart plan,' rather than a single large increase.

George Kelly asked if the refranchising process had slowed due to macro factors, requested the comp sales figure for April, and sought a breakdown of franchise versus corporate-owned comps for Q1. He also probed the potential financial impact of the new dynamic pricing strategy and asked when selling and marketing expenses would normalize.

Answer

Executive Sanjiv Razdan stated there has been no meaningful slowdown in the refranchising process. Executive Jake Singleton declined to provide an April comp figure but noted the corporate clinic comp was positive, though it trailed the franchise comp. Regarding pricing, Razdan indicated it could add double-digit millions to system-wide sales. Singleton clarified that the impact would be back-loaded to the second half of the year and that marketing expenses would likely begin to normalize in Q3.

George Kelly sought more clarity on the timing for completing the refranchising initiative, the stability of four-wall margins, the planned aggressiveness of price increases, and the development status of new services and retail products under the 'Joint 3.0' plan.

Answer

Executive Sanjiv Razdan stated the company aims to complete the complex refranchising process in the first half of the year. He noted that labor costs have been stable and the company is taking a thoughtful, 'dynamic' approach to pricing rather than aggressive hikes to protect value. Executive Jake Singleton quantified the pricing impact on comp guidance at 1.5% to 2%. Sanjiv Razdan clarified that new services ('Joint 3.0') are in an exploratory phase for the next 12-18 months, with the current focus on strengthening the core business.

George Kelly asked for details on upcoming pricing changes, the specific consumer headwinds that prompted a reduction in comp growth guidance, and an update on the refranchising process.

Answer

CEO Sanjiv Razdan explained that the immediate pricing change affects the walk-in rate to make recurring memberships more attractive, with all pricing levers under review. Executive Jake Singleton noted that comps cooled due to general economic headwinds and the election cycle. Regarding refranchising, Razdan stated he is still assessing the strategy, while Singleton added the process was slightly delayed to allow potential buyers to meet the new CEO.

George Kelly of Roth Capital Partners, LLC asked for more details on the 2026 nutrition retail launch, including distribution and product branding, the allocation of a $2.5 million restructuring charge, and the outlook for stabilizing the digital subscriber base.

Answer

Executive Chairman Mark Goldston detailed the retail strategy, which involves a major CPG sales firm and a phased rollout starting with a completely refreshed and rebranded Shakeology in Q1 2026. He noted more specifics would come in future calls. Interim CFO Brad Ramberg explained the restructuring charge was spread across all OpEx lines and that current levels represent a good run rate. CEO Carl Daikeler stated that digital subscriber retention has been stable and predictable, and he anticipates the robust upcoming content schedule will support this stability and future growth.

George Kelly asked for more details on the upcoming retail launch of the nutrition line, including distribution and product packaging. He also inquired about the allocation of restructuring charges, the future run rate for OpEx, and the outlook for stabilization and growth in the digital business.

Answer

The company has hired a major sales firm to manage the retail launch of a completely redesigned Shakeology product line in Q1 2026, starting with a limited rollout. The recent $2.5M restructuring charge was spread across all OpEx lines, and the current levels for tech and G&A are considered a stable run rate. The digital business is showing stable retention and conversion, with a strong upcoming content pipeline expected to support stability and a return to growth.

George Kelly of Roth Capital Partners, LLC inquired about pricing expectations for the back half of the year across business segments, particularly for bagged coffee at Walmart. He also asked for more specifics on the expansion in the club channel and the plans for the Salt Lake City property that is for sale.

Answer

CFO Matthew Amigh stated the company does not comment on future pricing but confirmed a pricing action on packaged coffee was executed in May across the wholesale market. CEO Chris Mondzelewski noted that the club channel is a significant opportunity and that BRCC now has programs with all three major club retailers. Regarding the Salt Lake City property, Amigh explained it is held for sale as the company seeks a more size-appropriate headquarters, with no change to the head office structure.

George Kelly requested more detail on the recent pricing actions, the extent of green coffee hedging for 2025 and 2026, and a breakdown of the FDM business growth, particularly for the largest customer versus other partners.

Answer

CFO Steve Kadenacy stated that pricing actions will follow competitors and be implemented in the second half of the year. He confirmed BRCC is 95% hedged for 2025 green coffee needs and is actively managing 2026. He noted the largest retail customer grew 3% due to aggressive promotional pricing, while the rest of the FDM channel grew 400% driven by new distribution. CEO Chris Mondzelewski added that the strategy is driving significant unit trial.

George Kelly asked for specific plans to stabilize the Direct-to-Consumer (DTC) business, its expected performance within 2025 guidance, the recent sales trend with the company's largest customer, and how barter transaction benefits will flow through the P&L.

Answer

CEO Chris Mondzelewski and CFO Steve Kadenacy addressed the questions. Mondzelewski explained the DTC strategy is to stabilize and grow the subscriber base rather than chase one-time buyers, noting subscriber churn has already stabilized. Kadenacy added that any DTC outperformance would be upside to guidance. Regarding the largest customer, Mondzelewski affirmed the relationship is strong, with Head of IR Matt McGinley clarifying sales grew 8% in 2024. Kadenacy explained that the barter media credits are an asset that will accrete into marketing expense when used, providing a cash-efficient boost to the P&L.

George Kelly requested more specific details on the efficiency opportunities available from the reservation system in 2026 and asked for the basis of the company's confidence in the new 'light rice' option's potential impact on sales.

Answer

SVP Benjamin Porten provided examples of reservation system efficiencies, such as simplifying the host's seating process from three terminals to one and observing faster table turns by bussers due to the 'psychological pressure' of promised reservation times. He explained that confidence in the 'light rice' option stems from its successful implementation in Kura Japan, which saw ticket growth. The feature is now possible due to new touch panels and has already rolled out to 50 U.S. restaurants in just ten days.

George Kelly inquired about the opportunity presented by the new 'Mr. Fresh 3.0' lid system and asked about the potential for the upcoming reservation system to drive comparable sales growth, beyond just cost savings.

Answer

Benjamin Porten explained that the new, more intuitive 'Mr. Fresh' lid, combined with a new tutorial video on the order panel, will significantly reduce server time spent explaining the system to new guests. Regarding the reservation system, he highlighted its potential to drive traffic by capturing the estimated 20% of guests who currently abandon the waitlist, noting that Japan's experience showed it helped smooth demand into shoulder periods.

George Kelly of ROTH Capital Partners questioned the company's confidence in its 17-18% four-wall margin target for 2025, given the Q1 results and negative recent comps. He also asked for an update on the potential impact of Chinese tariffs on new build costs and the performance of the six restaurants opened in Q1.

Answer

CFO Thomas Croal stated that confidence in the margin target comes from historical seasonality, as Q1 is typically the lowest-performing quarter, and a belief that they can tightly manage labor costs to achieve improvements. CEO Wook Kim addressed tariffs, noting significant uncertainty from vendors on equipment and material costs, and stated they might pause construction if prices do not stabilize. Regarding new store performance, both executives commented that it was too early for a definitive assessment, with results being a mix of average and above-average.

Inquired about the confidence in the full-year restaurant-level margin target despite a weak Q1, the potential impact of Chinese tariffs on new restaurant build costs and development pace, and the performance of the six restaurants opened in Q1.

Answer

Executives expressed confidence in the margin target, noting Q1 is seasonally weak and they will manage labor costs tightly. They acknowledged significant uncertainty around tariffs, stating they might pause new construction if costs rise too much, but are waiting for prices to stabilize. The performance of the newest restaurants is mixed and it's too early to judge.

George Kelly inquired about the drivers behind renewed consumer enthusiasm, asking for specifics on weekly sales velocities and current retail inventory levels. He also questioned the company's current retail door count, the quality of its on-hand inventory, and the evolving competitive dynamics with both large CPG entrants and smaller brands.

Answer

CEO Claudia Goldfarb reported a steady increase in sell-through, with units per door per week rising from 12 to 16, attributing this to consumers returning for Sow Good's quality after trying competitor products. She confirmed that excess inventory at key retailers has been cleared through targeted promotions and the company was in approximately 1,900-2,000 doors at quarter-end. Goldfarb addressed inventory quality by noting a two-year shelf life on most products and a strategy to work through older SKUs while introducing new, cleaner-ingredient items. Regarding competition, she stated many smaller players have exited and that large CPGs appear to be underperforming, possibly due to lower-quality co-manufacturing.

George Kelly asked about the strategy behind entering the freeze-dried yogurt and beef jerky categories, the nature of the recent sales recovery, and the company's plans to manage and reduce its significant inventory balance.

Answer

Executive Claudia Goldfarb explained that the new product categories leverage existing management expertise and target markets ripe for cleaner-ingredient alternatives, requiring minimal capital expenditure for a second-half launch. She stated that the sales recovery is driven by both new retail partnerships and stabilized velocity in core accounts, which have worked through excess inventory. Regarding the $20.3 million in inventory, Goldfarb noted its two-year shelf life and temperature-controlled storage, clarifying the reduction strategy is focused on aggressively opening new retail doors rather than discounting.

George Kelly inquired about the state of retail inventory levels beyond the heat-affected products. He also asked for data on the broader freeze-dried candy category's velocity and whether it was showing signs of slowing. Finally, he questioned the potential size of the private label opportunity and if the company would consider co-manufacturing for other branded companies.

Answer

Executive Claudia Goldfarb stated that reorders for products unaffected by heat remain strong. She believes the freeze-dried candy category is entering a 'steady state' after the initial frenzy, but acknowledged that the melted product issue has made it difficult to get a clear read on everyday velocity. Regarding private label, Goldfarb confirmed they are actively pursuing opportunities with retailers that operate exclusively in that space to utilize production capacity. However, she clarified that they are not currently considering co-manufacturing for other brands to avoid diluting the Sow Good brand's strong presence.

George Kelly questioned the 2025 plan for growing penetration of the Asteria manufacturing facility and sought to understand management's confidence in the 2% to 4% procedure revenue growth guidance, given recent negative trends.

Answer

CFO Robert Peterson confirmed there have been no production issues with the Asteria facility and that the company plans to expand its penetration throughout 2025 in a measured way to avoid clinic disruption. Regarding guidance, Peterson acknowledged potential risk to the 2-4% procedure growth target but reiterated confidence in the overall full-year revenue and EBITDA guidance. CEO Bret Christensen added that while the timing of results from commercial changes is hard to predict, they have a clear line of sight to achieving their goals.

George Kelly inquired about the 2025 gross margin outlook, the penetration of internally manufactured pellets from Asteria, and whether clinic churn had increased. He also asked about changes in patient behavior and the growth trajectory for the Amazon supplements business.

Answer

Executive Marc Beer confirmed that benefits from the Asteria acquisition are included in the 2025 guidance but did not provide a specific gross margin target. He and CFO Robert Peterson stated they have not seen an increase in clinic churn, attributing the slowdown to lower new clinic growth, not existing customer loss. Regarding supplements, Beer noted the guidance reflects the overall slowdown in new clinic 'quick starts' and that the Amazon channel itself is progressing well.

George Kelly sought more clarity on the Asteria state licensing timeline and the expected percentage of volume conversion. He also asked for more specific commentary on the confidence behind the forecast for procedure revenue to reaccelerate in 2025.

Answer

CFO Bob Peterson confirmed they are on track with Asteria, having licensed approximately 30 states that align with core markets. CEO Teresa Weber added that some states like California have longer, less predictable timelines. Regarding 2025, Weber expressed confidence by noting that prior to the software rollout and hurricanes, the company was already seeing the accelerated growth it had projected. Peterson affirmed that focusing on key growth drivers sets them up well for 2025.

George Kelly asked for more specific guidance on the potential gross margin compression in early 2025, the initial sales velocity of the newly upsized liquid creamer, and whether the coconut milk powder supply issue represents a long-term growth ceiling for the company.

Answer

CFO Anya Hamill reiterated the full-year gross margin guidance of 'high 30s' but declined to provide quarterly specifics, confirming a willingness to trade margin points for top-line growth. President and CEO Jason Vieth stated it was too early for sales data on the new liquid creamer but noted the transition was executed exceptionally well. He clarified that the coconut supply issue is not a long-term ceiling, as Laird is 'barely scratching the surface' of total available supply, and the bottleneck was a temporary issue related to qualifying high-quality suppliers, which is now being resolved.

Asked about the performance of the new Scorpios in Bodrum, the opening timeline for the Tulum location, feedback from member satisfaction surveys, and any changes in member attrition.

Answer

The new Scorpios in Bodrum opened in June and is expected to perform well over time, similar to the Mykonos location. The Tulum opening is delayed due to a hurricane and is now expected next year. Members continue to want unique experiences and great service, areas where the company is focused and seeing improved satisfaction scores. Member retention remains consistent.

George Kelly of Roth Capital Partners asked about the performance of the new Scorpios location in Bodrum and the opening timeline for Tulum. He also inquired about feedback from member satisfaction surveys, specifically on areas for improvement, and whether there have been any changes in member attrition rates.

Answer

CEO Andrew Carnie stated that Scorpios Bodrum opened successfully in June and is expected to build momentum, similar to the Mykonos location. He noted the Tulum opening is delayed to most likely next year due to construction pauses. On member feedback, he said members want continued focus on great service and unique experiences, and confirmed that member retention has remained consistent.

George Kelly followed up on consumer spending, requesting a quantification of the improvement in in-house spending from January to April. He also inquired if member surveys had revealed any specific, actionable insights to address the observed spending weakness.

Answer

CFO Thomas Allen quantified the trend, stating that like-for-like in-house revenue improved from down high-single digits in January to down low-single digits by March and April. CEO Andrew Carnie added that member surveys have been generally positive and attributed the spending weakness to macro factors rather than specific service issues, reiterating the company's focus on enhancing the overall member experience.

George Kelly followed up on consumer spending, requesting quantification of the improvement in in-house spending from January to April. He also inquired if member surveys revealed any specific issues the company is addressing to combat spending weakness.

Answer

CFO Thomas Allen quantified the trend, stating like-for-like in-house revenue improved from down high-single digits in January to down low-single digits by March and April. CEO Andrew Carnie added that member surveys are generally positive and the spending weakness is viewed as a global macro trend, so the company's focus remains on enhancing the overall member experience.

Asked about the financial contribution and long-term growth strategy for the Scorpios brand, and inquired about the future growth plans, product assortment expansion, and margin potential for the Soho Home business.

Answer

Executives are excited about the two new Scorpios locations opening this year and have plans for further expansion in subsequent years. For Soho Home, they see significant growth potential by expanding the product assortment into new categories like outdoor furniture and lighting. The business is digital-first, which supports a higher profit model, and its margins grew substantially in 2023.

George Kelly of Imperial Capital inquired about the potential for a price increase, given the time of year, and asked about the progress of consumer-facing ancillary revenue streams. He also questioned if the company had sufficient capacity to focus on consumer initiatives amid other integration challenges.

Answer

CEO Rick Stollmeyer stated that while they are not pre-announcing any price changes, strong ARPS growth from upselling to higher tiers may make a broad price increase unnecessary, though it remains an option for next year. He highlighted promising consumer-side progress, citing a 40% year-over-year increase in MINDBODY app bookings in October. He affirmed they are actively testing and modeling the expansion of consumer marketing efforts for 2019, balancing growth with profitability.

George Kelly requested specific metrics on dynamic pricing adoption, learnings from consumer marketing tests in select cities, and an update on the launch of the web-based consumer marketplace.

Answer

CEO Rick Stollmeyer stated that several thousand businesses have opted into dynamic pricing, with business adoption being the main focus for growth. He shared that consumer marketing tests successfully drove app downloads, re-engagement, and inbound business leads. He confirmed the web version of the MINDBODY app was scheduled to launch by the end of summer.

George Kelly asked for early observations on consumer behavior with the new app, if the upcoming web version will offer the same products like dynamic pricing, and for an update on international payments integration.

Answer

CEO Rick Stollmeyer reported that early results from the new app are encouraging, with increased discovery and rebookings. He clarified the web version, launching next quarter, will focus on new user acquisition by leading with compelling offers like dynamic pricing that don't require immediate registration. He also mentioned a major payments integration project is underway to enable card-present solutions in the English 8 countries by year-end.

George Kelly asked for an update on international payments integration, a breakdown of mobile bookings between the MINDBODY app and branded apps, and whether the upcoming consumer website would feature non-promoted bookings.

Answer

CEO Rick Stollmeyer stated that the company expects to have full card-present and card-not-present payment processing in all eight core English-speaking countries by the end of 2018. For the mobile booking breakdown, he directed the question to a slide in the investor deck. He also confirmed the new consumer website will initially lead with promotional products.