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RG

Real Good Food Company, Inc. (RGF)·Q2 2023 Earnings Summary

Executive Summary

  • Q2 2023 net sales were $35.4M, up 14.8% year-over-year, with gross margin improving 598 bps to 13.6%; adjusted gross margin reached 28.2% and adjusted EBITDA loss narrowed to $(1.9)M .
  • Management reiterated FY2023 guidance of at least $200M revenue, ≥24% adjusted gross margin, and mid-to-high single-digit $M adjusted EBITDA; they introduced quarterly revenue guidance of $60–$65M for Q3 and $70–$77M for Q4, citing secured distribution and accelerating velocities; the company expects positive cash earnings in H2 .
  • Growth was led by the unmeasured channel (+61% y/y), with distribution doubling into Q3; measured channel inflected late in Q2 due to shelf resets, setting up back-half acceleration .
  • Margin expansion drivers include productivity initiatives, favorable commodities, and expected fixed-cost leverage as Bolingbrook ramp lifts utilization from ~40% toward 70–80% in H2; management highlighted labor cost reduction and overhead leverage as key H2 catalysts .

What Went Well and What Went Wrong

What Went Well

  • Unmeasured channel momentum: “unmeasured channel…up 61% year-over-year,” with distribution expected to double in Q3; eight high-velocity items across seven categories and two temperature states strengthen breadth and durability .
  • Margin improvement: gross margin rose to 13.6% (+598 bps y/y) and adjusted gross margin reached 28.2% (+619 bps y/y), reflecting productivity initiatives and favorable commodity costs .
  • Back-half revenue visibility and conviction: “We expect third quarter 2023 sales of $60–$65 million…and fourth quarter 2023 sales of $70–$77 million,” underpinned by secured distribution and predictable velocities; management emphasized confidence in transitioning to positive cash earnings .

What Went Wrong

  • Operating expenses elevated: total OpEx rose to $15.5M (+$3.3M y/y), driven by R&D and equity compensation, pressuring operating income (loss from operations $(10.6)M) and net loss ($(14.6)M)) .
  • Measured (retail) channel down y/y: softness tied to timing—shelf resets with only 12 days left in Q2 and lapping of unusually strong promos in the prior year; although 2-year stack was +56%, near-term y/y comps were negative .
  • Consensus benchmarking unavailable: S&P Global Wall Street consensus for Q2 2023 EPS/revenue/EBITDA was not retrievable for RGF, limiting external beat/miss framing for this quarter (we attempted retrieval; data unavailable).

Financial Results

MetricQ2 2022Q1 2023Q2 2023Q2 2023 Consensus
Revenue ($USD Millions)$30.8 $29.8 $35.4 Unavailable (S&P Global)
Gross Profit ($USD Millions)$2.4 $5.0 $4.8 Unavailable (S&P Global)
Gross Margin (%)7.6% 16.7% 13.6% Unavailable (S&P Global)
Adjusted Gross Profit ($USD Millions)$6.8 $10.0 $10.0 Unavailable (S&P Global)
Adjusted Gross Margin (%)22.0% 33.5% 28.2% Unavailable (S&P Global)
Total Operating Expenses ($USD Millions)$12.2 $15.7 $15.5 Unavailable (S&P Global)
Loss from Operations ($USD Millions)$(9.8) $(10.7) $(10.6) Unavailable (S&P Global)
Adjusted EBITDA ($USD Millions)$(3.3) $(1.1) $(1.9) Unavailable (S&P Global)
Net Loss ($USD Millions)$(11.1) $(13.7) $(14.6) Unavailable (S&P Global)
EPS (Basic/Diluted, $)N/A$(0.53) N/AUnavailable (S&P Global)

Segment/channel trends (not a GAAP “segment”):

Channel KPIQ2 2022Q1 2023Q2 2023
Unmeasured Channel Growth (y/y)N/ADeclined y/y due to promo timing; mid-teens ex-promo +61% y/y
Measured Channel (Retail)Q2’22 had promo-driven strength (93% growth referenced for prior year) Flat; set up for late-Q2/Q3 resets +56% 2-year stack; down y/y due to late shelf resets and prior-year promos
Total Distribution Points (TDPs)N/A~129k beginning-of-year baseline implied (context)171k at Q2 end; +23k vs 2022; ~+30k confirmed for H2

KPIs

KPIQ4 2022Q1 2023Q2 2023
Household Penetration (%)8.4% (Jan 2023) 8.3% (Mar 2023) 8.3% (Jun/Jul 2023)
Social/Brand ReachN/A3M organic impressions; 108M total; 466k Instagram followers 12.2M organic impressions; 77M total; 476k Instagram followers
Plant Utilization (Management-discussed)Ramp continuing Sub-40%; plan to double by year-end ~40% exiting Q2; target 70–80% in H2

Balance sheet snapshot (Q2 2023):

  • Cash & equivalents: $3.0M (incl. $2.3M restricted cash) .
  • Total debt: $102.1M .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2023≥$200M (Q1 reiteration) ≥$200M (Q2 reiteration) Maintained
Adjusted Gross MarginFY 2023≥24% ≥24% Maintained
Adjusted EBITDAFY 2023Mid-to-high single-digit $M Mid-to-high single-digit $M Maintained
Cash EarningsH2 2023Positive cash flow from operations (FY) Transition to positive cash earnings in H2 Clarified timing (H2)
RevenueQ3 2023Not previously given$60–$65M Introduced
RevenueQ4 2023Not previously given$70–$77M Introduced

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2022, Q1 2023)Current Period (Q2 2023)Trend
Bolingbrook ramp & utilizationFinal start-up phase; utilization to improve . Plan to double utilization from sub-40% by year-end .Target 70–80% utilization in H2; significant fixed-cost leverage expected .Accelerating ramp; utilization inflection in H2
Commodity costsNormalization aiding margins . Tailwind of ~600–1,000 bps; seasonal lows in Q1 .Favorable commodities continue; adjusted margin guidance maintained given seasonal cost increases (cheese/bacon) and mix/slotting .Still favorable; acknowledges seasonal headwinds
Channel growth (unmeasured)National/full distribution committed for breaded poultry; eight items across seven categories/two temperature states .Unmeasured +61% y/y; distribution doubling in Q3; breadth remains a differentiator .Ongoing strength; broader footprint
Retail measured channel57k new distribution points authorized; timing pushes resets to late Q2/Q3 .Late Q2 shelf resets; y/y down but 2-year stack +56%; strong back-half expected .Back-half acceleration set up
Pricing vs categoryCompetitors took ~20% price increases; RGF maintained discipline, reducing elasticity risk .Reinforced strategy; focus on value/differentiation (low carb, low sugar, high protein) .Consistent
Household penetration & brand health~8.3% penetration; strong social metrics .~8.3% penetration; social metrics increased (12.2M organic impressions) .Stable penetration; increasing reach

Management Commentary

  • Executive Chairman Bryan Freeman: “significant acceleration in sales growth…led by the unmeasured channel, which was up 61% y/y…we now have eight high velocity items…making Real Good Foods a leading brand…in the unmeasured channel” .
  • CEO Gerard Law: “Bolingbrook…continuing to ramp…on track to achieve our efficiency targets in the second half…higher utilization rates should drive significant fixed cost leverage…resulting in a significant increase in our gross margins for the second half of 2023” .
  • CFO Akshay Jagdale: “We expect Q3 sales $60–$65M…and Q4 $70–$77M…this revenue growth approximately doubles our plant utilization…reduces distribution and administrative costs as a percent of revenue…and we expect to generate positive cash earnings” .

Q&A Highlights

  • Distribution cadence and confidence: Management provided quarterly guidance due to strong conviction and visibility; distribution secured limits downside risk; velocities are based on items already on shelf .
  • Retail/club promo timing: Lapping prior-year promotions weighed on y/y comps; back-half promotions and resets expected, with gross-to-net stable in club due to high volume .
  • Refrigerated expansion: Handheld platform in refrigerated unmeasured channel performing strongly; measured-channel refrigerated rollout planned in back half .
  • Margin outlook clarity: Adjusted gross margin to moderate sequentially due to mix, seasonal input costs, and slotting; reported margins to converge higher on adjusted as utilization rises .
  • Household penetration and revenue bridge: ~8.3% penetration implies runway; unlocking more items per store and higher-velocity categories to increase household spend and revenue .

Estimates Context

  • S&P Global Wall Street consensus for Q2 2023 (EPS, revenue, EBITDA, estimate counts) was unavailable for RGF at the time of analysis despite attempted retrieval. As a result, beat/miss vs consensus cannot be formally assessed for this quarter. Where consensus framing appears (e.g., adjusted margin cadence), it reflects management’s discussion and industry context rather than SPGI figures .

Key Takeaways for Investors

  • Back-half revenue inflection is the principal catalyst: quarterly guidance of $60–$65M (Q3) and $70–$77M (Q4) is grounded in secured distribution and established velocities; monitor execution against this path to positive cash earnings in H2 .
  • Margin trajectory supported by utilization and productivity: as Bolingbrook ramps from ~40% toward 70–80% utilization, fixed-cost leverage, labor efficiency, and commodity tailwinds should lift reported margins materially toward adjusted levels .
  • Unmeasured channel breadth is a differentiator: eight items across seven categories/two temperature states with doubling distribution into Q3 underpin durable, incremental growth versus incumbents .
  • Retail measured channel set up for acceleration: late Q2 shelf resets and high-velocity SKUs (breaded poultry, multi-serve entrees) should drive strong double-digit growth in H2; watch consumption-to-shipment alignment .
  • Expense discipline and mix matter: elevated R&D supports innovation agenda; slotting and newer items can weigh on adjusted margins short term; expect overhead leverage as revenue scales .
  • Liquidity and balance sheet: Q2 cash $3.0M and debt $102.1M; credit facility amendment post-Q2 enhanced liquidity (per call); monitor working capital and inventory normalization as volumes ramp .
  • Trading implications: Near-term stock moves likely tied to confirmation of Q3/Q4 revenue cadence and margin progression; delivery against utilization and distribution milestones can re-rate cash generation narrative .