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RG

Real Good Food Company, Inc. (RGF)·Q3 2023 Earnings Summary

Executive Summary

  • Revenue accelerated 48% YoY to $55.6M but missed the company’s prior Q3 guidance ($60–$65M) due to under-shipping demand late in the quarter; GAAP gross margin expanded to 20.9% (+1,614 bps YoY), and adjusted EBITDA turned positive to $1.2M .
  • FY23 guidance was reset: revenue lowered to $185–$192M (from at least $200M) while adjusted gross margin was raised to at least 26%; Q4 revenue guided to $65–$72M and adjusted EBITDA $4–$6M .
  • Operations were the swing factor: management cited capacity constraints at Bolingbrook (under-shipped demand), but said issues were transitory with added fryer capacity and higher targeted utilization (70–80% in 2H23) to support Q4 growth and positive cash earnings .
  • Liquidity improved post-quarter via $15.4M net equity proceeds and a definitive $45M second-lien refinancing with PMC (reducing cash debt service by ~$6M annually and adding up to $15M of incremental liquidity) — a key near-term stock catalyst alongside execution on Q4 production ramp and FY23 margin delivery .

What Went Well and What Went Wrong

  • What Went Well

    • Strong demand and consumption: “consumption was up 90%, far exceeding shipment growth,” highlighting brand momentum and understocked retailers exiting Q3 .
    • Margin inflection: GAAP gross margin reached 20.9% (+1,614 bps YoY), second highest in company history; adjusted gross margin was 27.8%, supported by commodity tailwinds, productivity, and better utilization .
    • Channel breadth and distribution: unmeasured channel branded sales +90% YoY; total distribution points reached 187,000 with ~17,000 more confirmed for Q4, underpinning 2024 growth visibility .

  • What Went Wrong

    • Under-shipped demand drove a miss vs. management’s Q3 revenue outlook ($55.6M actual vs $60–$65M guide); orders skewed to late Q3, widening the gap between consumption and shipments .
    • Operating expense intensity: total opex rose to $20.5M (vs $12.4M LY) driven by R&D and distribution, weighing on operating loss despite margin gains .
    • Liquidity pressure pre-refinance: Q3 cash and equivalents were $2.0M (incl. $1.9M restricted), with total debt $108.3M before the November refinancing and October equity raise .

Financial Results

MetricQ3 2022Q1 2023Q2 2023Q3 2023
Revenue ($M)$37.55 $29.80 $35.36 $55.57
GAAP Gross Margin %4.7% 16.7% 13.6% 20.9%
Adjusted Gross Margin %15.8% 33.5% 28.2% 27.8%
Operating Expenses ($M)$12.42 $15.73 $15.45 $20.45
Loss from Operations ($M)$(10.65) $(10.74) $(10.64) $(8.86)
Net Loss ($M)$(13.12) $(13.68) $(14.59) $(13.12)
Diluted EPS ($)$(0.51) $(0.53) N/A$(0.50)
Adjusted EBITDA ($M)$(3.76) $(1.18) $(1.85) $1.16

KPIs and Balance Sheet Snapshot

  • KPIs

    • Household penetration: 8.8% (Sep-23) vs 8.3% (Jun-23) .
    • Consumption growth: +90% YoY in Q3; shipment +50% YoY; retailers exited Q3 under-inventoried .
    • Total distribution points: 187,000 at Q3-end; ~17,000 additional confirmed for Q4 .

  • Balance Sheet

    • Cash & equivalents: $2.0M at 9/30/23 (incl. $1.9M restricted) .
    • Total debt: $108.3M at 9/30/23 .
    • Post-Q3: $15.4M net equity proceeds; definitive $45M second-lien with PMC, reducing cash debt service by ~ $6M/yr and adding up to $15M in liquidity .

Versus Estimates

  • S&P Global consensus (EPS, revenue) was unavailable for RGF at the time of retrieval; as a proxy, the company missed its own prior Q3 revenue guidance ($55.6M actual vs $60–$65M guided) while adjusted EBITDA landed within the preannounced $0–$2M range .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($M)Q4 2023$70–$77 (10/10 prelim) $65–$72 (11/10 release) Lowered
Adjusted EBITDA ($M)Q4 2023$4–$6 $4–$6 Maintained
Revenue ($M)FY 2023≥ $200 (5/12, 8/11) $185–$192 Lowered
Adjusted Gross Margin %FY 2023≥ 24% (10/10 prelim) ≥ 26% (11/10 release) Raised
Adjusted EBITDA ($M)FY 2023Mid-to-high single-digit (5/12, 8/11) Low-to-mid single-digit Lowered
Revenue ($M)FY 2024≥ $245 ≥ $245 Maintained
Adjusted EBITDA ($M)FY 2024≥ $15 ≥ $15 Maintained
Long-term TargetsLT$500M sales; 35% adj GM; 15% adj EBITDA margin Reiterated Maintained
Cash Earnings2H23/4Q23“Transitioning to positive cash earnings in 2H23” “Positive cash earnings beginning in Q4 2023” Clarified timing

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Manufacturing ramp (Bolingbrook)On track to ramp; efficiency targets in 2H23; capacity enables category expansion Under-shipped demand; adding fryers; CEO on site; targeting 70–80% utilization in 2H23; redundancy to meet surges Improving execution after Q3 shortfall
Demand/consumption vs shipmentsMomentum building into 2H; unmeasured channel strength Consumption +90% YoY; orders back-end loaded; retailers under-inventoried exiting Q3 Strong demand; supply catching up
Product/category expansionBreaded poultry, handhelds; innovation agenda Breaded fish accepted in ~1,700 stores; refrigerated flautas/burritos; BBQ proteins in ~1,900 stores Broadening assortment
Pricing/commoditiesCommodity tailwinds aiding margins Continued commodity favorability; formula optimization supports margins Margin tailwinds
Liquidity/financingN/AEquity raise $15.4M; definitive $45M second-lien; lower cash interest, +$15M liquidity Strengthened balance sheet
Regulatory/legalN/ASEC voluntary information request in Sept-23 New disclosure item

Management Commentary

  • “Growth would have been even higher if we had been able to fill orders on time as consumption was up 90%, far exceeding shipment growth.” — Bryan Freeman, Executive Chairman .
  • “Our 20.9% gross margin is particularly encouraging… Adjusted gross margins…27.8% and point to the underlying margin profile…when the plants are fully utilized.” — Gerard (Jerry) Law, CEO .
  • “We have taken measures to address [under-shipped demand]… installing additional capacity… a new fryer coming on line… and a second fryer before year-end.” — Gerard (Jerry) Law .
  • “We expect net sales of at least $245 million [in 2024]… adjusted EBITDA of at least $15 million.” — Akshay Jagdale, CFO .

Q&A Highlights

  • Capacity ramp and equipment redundancy: Management described adding fryers and redundancies to prevent future shortfalls; CEO emphasized direct operational oversight and a 35% MoM increase in breaded poultry production from September to October .
  • Distribution and SKU expansion: Retailers want more high-velocity SKUs (breaded poultry, single-serve and multi-serve entrees); focus on refrigerated handhelds expansion in 2024 .
  • New category resets: Breaded fish and refrigerated meats set to ship in Dec/Jan to 1,700–1,900 stores; broader reset opportunities seen in the back half of next year .

Estimates Context

  • S&P Global consensus for RGF’s Q3 2023 EPS and revenue was unavailable at the time of retrieval; as such, a formal beat/miss vs consensus cannot be provided. The company did miss its own revenue guidance ($55.6M actual vs $60–$65M guided), while adjusted EBITDA landed within the preannounced $0–$2M range .
  • Given the FY23 revenue guidance cut to $185–$192M (from ≥$200M) and changes to adjusted EBITDA outlook, Street models likely need to align to the lower revenue and adjusted EBITDA trajectory, offset by higher adjusted gross margin (≥26% vs ≥24% prior) .

Key Takeaways for Investors

  • Demand > Supply in Q3: The story is not demand-limited; resolving capacity constraints (new fryers, higher utilization) is the key near-term execution driver and stock catalyst into Q4 prints .
  • Margin trajectory improving: GAAP gross margin up to 20.9% and adjusted GM 27.8% show structural progress from mix, efficiency, and commodities; FY23 adjusted GM raised to ≥26% despite lower revenue .
  • FY23 reset but Q4 inflection guided: Q4 revenue $65–$72M and adjusted EBITDA $4–$6M imply sequential volume/margin scale, with management targeting positive cash earnings in Q4 .
  • Strengthened liquidity lowers risk: $15.4M equity + $45M second-lien refinance reduces cash interest by ~ $6M/yr and adds up to $15M liquidity, extending runway for growth initiatives .
  • Multi-category expansion: Breaded fish, refrigerated handhelds/meats, and incremental poultry SKUs broaden distribution and velocity drivers into 2024 .
  • Watch list: execution at Bolingbrook, fulfillment vs consumption, SEC info request updates, and any delta to Q4/fiscal guidance on utilization and opex .