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RG

Real Good Food Company, Inc. (RGF)·Q1 2023 Earnings Summary

Executive Summary

  • Q1 2023 revenue was $29.8M, down 20.7% year-over-year due to promotional timing, while gross margin improved to 16.7% (adjusted gross margin 33.5%, highest in company history) .
  • Management reaffirmed FY2023 guidance: ≥$200M revenue, ≥24% adjusted gross margin, mid-to-high single-digit millions adjusted EBITDA, and positive cash flow from operations .
  • Operations remained underutilized (<40%), but management highlighted large distribution wins (~57,000 new points) and anticipated back-half ramp and utilization-driven margin leverage .
  • Wall Street consensus (S&P Global) for Q1 2023 EPS/revenue was unavailable; estimate comparisons could not be performed due to missing SPGI mapping.

What Went Well and What Went Wrong

What Went Well

  • Record adjusted gross margin: “Adjusted gross margins…were 33.5%, a 580-basis point improvement sequentially in the best quarterly adjusted margin in the company’s history.” — Executive Chairman Bryan Freeman .
  • Distribution momentum: “We have secured approximately 57,000 new distribution points…representing ~43% year-over-year increase” in measured channel; breaded poultry and enchiladas securing national/full distribution in unmeasured channel .
  • Commodity tailwinds and productivity: Management cites 600–1,000 bps margin tailwind if locking spot rates; ongoing productivity savings in Bolingbrook and City of Industry (self-manufacturing, throughput, reformulations) .

What Went Wrong

  • Revenue decline: Net sales decreased 20.7% year-over-year to $29.8M due to prior-year promotions that did not repeat in Q1 2023 .
  • Underutilization elevating costs: Plants were <40% utilized; with low utilization, reported margins lag adjusted margins and fixed overhead isn’t leveraged .
  • Higher operating expenses: Total OpEx rose to $15.7M (+$2.8M YoY), driven by R&D and equity compensation; net loss widened to $(13.7)M .

Financial Results

MetricQ3 2022Q4 2022Q1 2023
Revenue ($USD Millions)$37.6 $35.7 $29.8
Gross Margin (%)4.7% 13.7% 16.7%
Adjusted Gross Margin (%)15.8% 27.7% 33.5%
Net Loss ($USD Millions)$(13.12) $(11.83) $(13.68)
Diluted EPS ($USD)N/AN/A$(0.53)
Adjusted EBITDA ($USD Millions)$(3.76) $(0.70) $(1.18)
YoY Revenue Growth (%)+63.2% +39.2% −20.7%

Segment/KPI highlights:

KPIQ3 2022Q4 2022Q1 2023
Household Penetration (%)8.6% (Oct-22) 8.4% (Jan-23) 8.3% (Mar-23)
Baseline Velocity (Seq. change)N/AN/A+8% sequentially
New Distribution Points (measured/unmeasured)39,000 YTD (new products) ~50,000 secured for 2023 ~57,000 secured for 2023
Unmeasured Channel YoYN/A+81% in Q4 ~−35% in Q1 (promo timing)
Retail (measured) YoY+107% 2-yr stack +56% 2-yr stack; lapping promos Flat YoY; mid-single digits if including promo impact

Non-GAAP adjustments (Q1 2023):

  • Adjusted gross profit $9.97M; adjustments include start-up/idle capacity costs (+$4.99M) .
  • Adjusted EBITDA $(1.18)M; adjustments include start-up/idle costs (+$4.99M), share-based comp (+$1.94M), and other items .

Guidance Changes

MetricPeriodPrevious Guidance (Q4 2022)Current Guidance (Q1 2023)Change
Net SalesFY 2023≥$200M ≥$200M Maintained
Adjusted Gross MarginFY 2023≥24% ≥24% Maintained
Adjusted EBITDAFY 2023Mid-to-high single-digit $M Mid-to-high single-digit $M Maintained
Cash Flow from OperationsFY 2023Positive Positive Maintained
Long-term Net SalesLT~$500M ~$500M Maintained
LT Adjusted Gross MarginLT35% 35% Maintained
LT Adjusted EBITDA MarginLT15% 15% Maintained

Earnings Call Themes & Trends

TopicQ3 2022Q4 2022Q1 2023Trend
Plant utilization & efficiency“Startup blues” at Bolingbrook; ramp nearing final phase Efficiency improved; 8 lines running; capacity for ~$200M sales; labor/overhead tailwinds expected Plants <40% utilized; plan to double utilization by year-end; significant margin leverage with volumes Improving utilization; margin leverage building
Commodity costsHigher RM costs; normalization expected post-Q3 Costs down; tailwind 600–1000 bps Seasonally low in Q1; expected moderate in Q2; still YoY tailwind Favorable vs 2022, normalizing seasonality
Distribution gains39k new points (new products) ~50k new points secured ~57k new points; national/full distribution wins in unmeasured channel Accelerating; category breadth widening
Guidance/tonePreliminary 2023 guide; positive op cash flow in 2023 Reaffirmed FY2023 guidance Reaffirmed; conservative stance on adjusted margins despite strong Q1 Consistent; conservative on margins
Liquidity & cashSufficient funding; borrowing capacity Liquidity $37.6M; plan to be op cash flow positive in H2 2023 Revolver availability; inventory build; plan to turn op cash flow positive in H2 Adequate liquidity; working capital elevated

Management Commentary

  • “Adjusted gross margins…were 33.5%…best quarterly adjusted margin in the company’s history.” — Bryan Freeman, Executive Chairman .
  • “Our Bolingbrook…facility is continuing to ramp up production, and we are on track to achieve targeted efficiencies in the second quarter.” — Gerard Law, CEO .
  • “We now have greater conviction in meeting our 2023 revenue target of at least $200 million due to incremental wins…approximately 57,000 new distribution points…” — Bryan Freeman .
  • “We expect overhead leverage to drive approximately 10 points in further improvement in our margin profile in the second half of 2023.” — Gerard Law .
  • “Adjusted EBITDA…loss of $1.1M…includes significantly higher-than-normal R&D costs…Cash flow from operations is expected to be positive in 2023.” — Akshay Jagdale, CFO .

Q&A Highlights

  • Guidance conservatism: Management maintained ≥24% adjusted gross margin despite Q1 adjusted margin of 33.5% due to seasonal commodity costs and new item mix; reiterated utilization, labor, and overhead as key drivers for H2 margin lift .
  • Distribution clarity: Detailed incremental wins in measured (global multi-serve entrees, breaded poultry) and unmeasured channels (national rollouts in appetizers/entrees/breaded poultry); velocity assumptions remain disciplined (no aggressive gains baked into guide) .
  • Liquidity and inventory: Revolver availability sufficient; inventory build and $8M working capital usage were timing/new product-related; opportunistic commodity purchases (e.g., bacon) to benefit margins .
  • Household penetration and spend: ~8.3–8.4% penetration; opportunity lies in more items per store to raise household spend (benchmarks ~$60 for peers vs ~$10 currently) .
  • Marketing approach: Efficiency via micro/nano influencers; maintain low marketing spend until meaningful EBITDA-positive; focus on profitability before stepping up paid media .

Estimates Context

  • S&P Global consensus estimates for Q1 2023 EPS and revenue were unavailable due to missing SPGI company mapping for RGF; no estimate comparisons could be performed.

Key Takeaways for Investors

  • Mix shift and productivity drove a step-change in margins; adjusted gross margin hit 33.5% with plants ~<40% utilized, implying significant upside as utilization improves .
  • Back-half setup is strong: ~57k new distribution points, broader category presence (7 categories, two temperature states), and national/full distribution wins in unmeasured channel .
  • FY2023 guide reaffirmed; management’s conservative stance on adjusted margins reflects seasonal commodity patterns and growth investments, not deterioration in underlying margin power .
  • Near-term trading focus: Watch for utilization ramp and sequential gross margin uplift; H2 cash flow inflection depends on timely shelf resets and execution against secured distribution .
  • Medium-term thesis: Scale economics from Bolingbrook, labor/overhead leverage, and productivity savings (self-manufacturing inputs) should structurally expand margins toward long-term targets .
  • Risk monitor: Promotional timing variability, commodity volatility (especially chicken), and working capital management as growth accelerates .
  • KPI momentum: Household penetration ~8.3%, baseline velocities +8% sequentially, with expanding item count likely to increase spend per household over time .