Stryve Foods - Q1 2024

Executive Summary

• Q1 2024 was an operationally improved but liquidity-constrained quarter: net sales were $4.6M (down ~1% YoY), gross profit rose to $1.2M (22.1% GM vs. 20.7% LY), OpEx fell 22.7% YoY, and adjusted EBITDA loss improved to ($2.3M), the company’s best quarter on this measure to date.
• Management reiterated FY 2024 net sales guidance of $24M–$30M; they flagged beef cost volatility but cited early Q2 relief and continued mitigation levers. The packaging transition and quality upgrades are driving markedly higher retail velocities and should support distribution gains through 2024.
• Near-term overhang: liquidity. Cash was ~$0.4M at quarter-end; management extended/raised convertible bridge notes but explicitly said existing facilities cannot fully fund the working capital ramp needed for growth. Additional capital (e.g., further convertible notes) is likely, with a focus on minimizing dilution.
• Stock reaction catalysts: sustained velocity outperformance and new wins (e.g., Vacadillos rotation at Costco Southeast) versus the funding path to support inventory/working capital for a step-up in shipments; any concrete financing update would likely be a key narrative driver.

What Went Well and What Went Wrong

• What Went Well

  • Retail velocity meaningfully accelerated post packaging refresh: Stryve brand velocity up 24.7% (24 weeks), 35.7% (12 weeks), and 51% (4 weeks) in SPINS through March 24; packaging transition a little over halfway complete on shelves.
  • Unit economics/margins improved despite higher beef costs: gross margin rose to 22.1% (from 20.7%) on mix, manufacturing efficiencies, and cost control.
  • Distribution momentum: regained a Vacadillos rotation at Costco Southeast; early velocities are “very strong,” underpinning confidence in broader expansion opportunities.

• What Went Wrong

  • Liquidity remains tight: quarter-end cash ~$0.4M; the company needs third‑party capital to fund the working capital ramp aligned with velocity-driven growth and distribution resets.
  • Sales growth modest this quarter: net sales $4.6M, down ~1% YoY, in part due to choosing not to repeat a temporary display program from the prior year and the transition/quality reset pacing shipments vs. consumption.
  • Beef cost volatility persists; while early Q2 saw some relief, management still expects variability and is prepared to respond as needed.

Transcript

Operator (participant)

Good afternoon, ladies and gentlemen, and welcome to the Stryve Foods, Inc. Q1 2024 earnings call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star 0 for the operator. This call is being recorded on Tuesday, May 14, 2024. I would now like to turn the conference over to Mr. Will Pugh. Please go ahead.

Will Pugh (Investor Relations Representative)

Thank you, operator, and welcome to the Stryve Foods fiscal year 2024 Q1 earnings conference call. With me today are Stryve's Chief Executive Officer, Chris Boever, and Chief Financial Officer, Alex Hawkins. Before we begin, I would like to remind everyone that part of our discussion today will include forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1985. Forward-looking statements, by their nature, are uncertain and outside of the company's control. Actual results could differ materially from these expectations. These statements are not guarantees of future performance, and therefore undue reliance should not be placed upon them. We do not undertake to update these forward-looking statements at a later date, and they only refer to today. In addition, today's call will include a discussion of non-GAAP financial measures, including Adjusted EBITDA and Adjusted EPS.

Non-financial measures should be considered as a supplement to and not a substitute for GAAP financial measures. We refer you to the reconciliation of non-GAAP to the nearest GAAP measure included in today's earnings press release for further detail. This call has been webcast and can be accessed through audio link on the news and events page of the investors section at ir.stryve.com. Also, the earnings press release is posted on our website, and a copy of the release has been included in the Form 8-K submitted to the SEC. With that, I would now like to turn the call over to Chris Boever. Chris?

Chris Boever (CEO)

Thanks, Will. Good afternoon, and thank you for joining us today. The Q1 of 2024 marks the next phase of transformation for Stryve Foods. With the significant improvements we have made on cost, capabilities, process, and quality mostly behind us, we are excited and energized about the future. We are executing the strategy, supporting our vision to redefine the snacking category with healthier, high-protein solutions that meet the evolving needs of today's consumers. This quarter, we've seen significant progress in several strategic areas that are vital to our growth and operational efficiency. A standout achievement has been the success of our new packaging initiative, which has been instrumental in driving the exceptional year-over-year improvements in our retail velocity. The consumer response to our new packaging is exceeding our expectations. We are experiencing velocity improvements on each of our three brands, with the Stryve brand leading the way.

Retail sales velocity for the Stryve brand, as measured by SPINS data ending March 24, has increased at an accelerated rate of 24.7% over 24 weeks, up 35.7% over 12 weeks, and up an amazing 51% over 4 weeks. Retail velocity is an important metric, capturing the rate of sales per point of distribution. We are greatly exceeding the performance of the category, showcasing the shelf presence, consumer appeal, and market fit of our new and improved packaging design. As of now, we believe that the transition to the new packaging is a little over halfway complete on retail shelves. This ongoing rollout and supporting data will play a critical role in our ability to secure additional distribution. The positive reception and improved shelf presence has bolstered our position in the market, allowing us to expand our reach and enhance consumer engagement while earning more market share.

Moreover, we've achieved considerable improvements in the quality of our products through enhancements to our manufacturing processes. These changes have elevated the consumer experience, ensuring that our products not only look appealing on the outside but also consistently deliver on taste. We are gaining new users with our strategic position, and with our improved product quality, our confidence is high that repeat levels will also be high, ultimately fueling stronger velocities and brand loyalty. Alongside these product and packaging advancements, we have continued to drive efficiencies and productivity throughout the organization. Our focus on operational excellence has allowed us to optimize resources, reduce waste, and improve our overall cost structure. These efforts collectively contribute to our performance this quarter and set a strong foundation for growth and, ultimately, profitability. Our strategy will focus on leveraging the momentum we have built.

We aim to fully capitalize on additional distribution channels as a result of our improved retail performance. By increasing our distribution footprint, we not only expand our reach, but we also enhance our ability to positively impact the highly expandable meat snack category. I am pleased to share we have regained a rotation for the Vacadillos brand at Costco, Southeast Division, which is now available in the warehouse clubs. Early indicators are positive, demonstrated by, once again, strong velocities. As we look to the future, we have built a robust innovation pipeline that will further leverage our capabilities and capacity to enable even greater brand and category expansion. Certainly, there will be more to share on this front in the future. Operational excellence will remain a cornerstone of our strategy.

The efficiencies we've driven in our manufacturing processes will be built upon to ensure that we can scale effectively while managing costs. Our commitment to continuous improvement will involve further investments in technology and processes that enhance our agility while expanding margins. In summary, our strategy is centered on execution, growing our core, supported by operational excellence. These pillars will drive our performance in the near term and position us for future success in the evolving category and industry. Our goal is clear: to continue to deliver exceptional value to our consumers, partners, and shareholders while leading the way with the most highly differentiated, best-tasting products the better-for-you protein snacking category has ever experienced. With that, I'll turn it over to our CFO, Alex Hawkins. Alex?

Alex Hawkins (CFO)

Thanks, Chris. Good afternoon, everyone. I'm pleased to provide a detailed overview of our financial results for the Q1 of 2024, which reflect both our strong operational execution and strategic focus. This quarter, we reported net sales of $4.6 million. While this represents a slight decrease of approximately 1% compared to the same period last year, it is important to recognize the significant strides we have made in terms of profitability and market penetration. The marginal change in net sales is largely attributed to our strategic decision to enhance product quality and packaging, which initially slowed some of our traditional sales channels but has set the stage for enhanced performance as these initiatives continue to gain traction.

Additionally, the prior year period was benefited by a temporary display program that we elected not to pursue in 2024, as we have targeted our efforts towards securing more permanent distribution points and making better decisions with respect to how and when we look to promote our products. Ultimately, the increased sell-through of our products driven by our packaging enhancements and improved product quality, as well as some of the new distribution we have secured, largely made up for the display program and with more attractive unit economics. Our gross profit was $1.02 million for the quarter, with a gross margin of 22.1%, compared to $0.96 million in the prior year period with a gross margin of 20.7%.

This improvement is a direct result of our focused efforts on influencing product price mix, manufacturing efficiencies, and cost management, which have allowed us to better leverage our resources and reduce costs per unit. This result is even more meaningful given that prevailing beef prices for the quarter were considerably higher this year than they were in the year-ago period. But despite that dynamic, our transformation efforts still showed an improved gross margin. We do expect to see some continued volatility in beef prices for the foreseeable future. However, so far in the Q2, we're experiencing a welcome reprieve and hope to see that trend continue. Either way, we stand ready to respond strategically as we have shown we can do in the past. Operating expenses for the quarter were $4.0 million, down 22.7% from the year-ago period and down approximately 52% from the same period two years ago.

This is consistent with our transformation strategy in that we are continuing to find ways to pull cost out of the system and position ourselves for operating leverage as we scale with improved unit economics. Consequently, our operating income showed a significant reduction in losses, improving to a $3 million operating loss as compared to a $4.2 million operating loss in the same quarter last year. This 29% reduction in operating loss underscores our progress in optimizing our operational effectiveness and driving towards profitability. Our net loss for the Q1 was $3.9 million, which is a marked improvement from $4.6 million in the prior year period. In the Q1 of this year, we extended maturities of certain bridge notes put in place last April.

As part of that extension, certain warrants associated with those bridge notes were modified, and the accounting treatment for such modification was a one-time non-cash charge to other expense of $0.3 million in the current year period. Accordingly, our EBITDA loss on an adjusted basis for the Q1 of 2024 represents our best quarter ever at $2.3 million as compared to the adjusted EBITDA loss of $3.5 million in the year-ago quarter. That's a 35.2% reduction in our adjusted EBITDA loss on a year-over-year basis on roughly the same net sales figure. Our transformation efforts are working, and we expect to continue to see the benefits of those in the quarters to come. This performance is indicative of the underlying strength of our business model and the success of our strategic initiatives.

These results provide a solid foundation for sustained progress in our path to profitability and support our optimistic outlook for the remainder of the year. In assessing our balance sheet at the end of the Q1 of 2024, it's important to recognize the financial prudence we're exercising during this critical phase of our turnaround strategy. Our cash position is currently at approximately $0.4 million. This reflects a carefully managed liquidity strategy, emphasizing stringent cash conservation as we navigate through significant operational enhancements and the strategic realignments, which are now bearing fruit. Our liquidity constraints are being actively managed with rigorous controls on expenditure and enhancements in operational efficiency to extend our financial runway.

Additionally, we previously announced the closing of $1.6 million in convertible bridge notes last month, which we believe, along with our recently extended line of credit, have provided us with the ability to manage day-to-day operations in the near term and the near-term working capital ramp required by the success we're seeing in the market from our packaging. As we continue to navigate through these challenging financial conditions juxtaposed by our brand's success at retail, our focus is on strengthening our balance sheet through careful cash management, prudent expense control, and strategic financial planning. This disciplined approach is crucial as we work towards strengthening our financial position and ensuring long-term sustainability and growth. As we look forward to the remainder of 2024, acknowledging the current liquidity constraints we face, we are still committed to achieving our strategic goals and financial targets.

For the fiscal year 2024, we are reiterating our guidance for net sales. We project net sales to be in the range of $24 million-$30 million. This guidance is based on several factors, including the anticipated full rollout of our new packaging, expected improvements in retail velocities, and the execution of our capital plans. These factors are expected to drive increased sales volumes as the year progresses. We are rigorously controlling expenditures and optimizing operational efficiencies to ensure that our financial resources are aligned with our strategic priorities. This includes continuous efforts to improve our cost structure, enhance our manufacturing processes, and manage our inventory more effectively. While we are navigating through a period of significant financial prudence, our strategies are designed to lay the foundation for sustainable growth and improved profitability.

As we execute on our strategic initiatives and as our new packaging continues to gain traction in the market, we expect to see gradual improvement in our financial performance to an ultimate break-even point with the requisite volumes. We are optimistic about our ability to meet these targets and are committed to driving value for our shareholders through this disciplined financial management and our strategic growth initiatives. With that, I'll turn it back to Chris, our CEO, to share more about our strategic vision and the exciting opportunities ahead for Stryve. Chris?

Chris Boever (CEO)

Thank you, Alex. This quarter has been marked by significant enhancements across our operations, demonstrating our commitment to cost management. As we layer in growth, we will leverage our lower-cost network, leading us to a profitable outcome. These operational improvements are pivotal to our strategy for sustained growth and enhanced shareholder value. This quarter, we delivered solid results, driven primarily by significant improvements in our packaging and product quality. The sales team has been upgraded with experienced leaders and stronger broker partners. I fully anticipate an acceleration of growth in the coming quarters. The protein snack category continues to evolve, with increasing consumer demand for healthier and more sustainable options. We anticipate category growth, driven by evolving lifestyle trends and a greater emphasis on protein, health, and wellness.

Our products are well-positioned to meet these changing consumer demands thanks to their high nutritional value and alignment with current dietary trends, most notable reduction of sugar and free of preservatives. In conclusion, the outlook for Stryve Foods is optimistic. We are on a solid path, equipped with the right strategies, and ready to capitalize on the opportunities ahead. We are excited about what the future holds and believe that our focused approach will lead to accelerated growth and profitability. With that, I'd like to turn it over to the operator for Q&A. Operator?

Operator (participant)

Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press * followed by the number 1 on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press * followed by the number 2. If you're using a speakerphone, please lift your hands up before pressing any key. One moment, please, for your first question. Our first question comes from the line of Mike Grondahl from Northland Securities. Go ahead, please.

Mike Grondahl (Director of Equity Research)

Hey guys, thanks. Could you talk a little bit more about getting Vacadillos back in Costco? I think you said a Southeast Division. And the reason I'm asking is, you know, a couple years ago you guys got into Costco and it was highly promotional. You know, and you can argue maybe it wasn't priced appropriately. Can you just talk about Vacadillos getting into that region and kind of what you think pricing's going to look like and how you think this time around is maybe improved?

Chris Boever (CEO)

Yeah, Mike, thanks for the question. Look, it's been a long, you know, patient and consistent journey. But getting our unit economics actually accurate, right, and positioned properly then puts us in a position to now engage with a customer such as Costco to be able to deliver a complete solution that is priced properly for all parties to win. They're a club member, certainly Costco, and as well Stryve this time. So we've designed a program to give us an opportunity to show the great attributes that the Vacadillos brand has to the Costco shopper in that region. We have ongoing discussions with other regions. We have some early indicators. We just went in in the first week of May, so, you know, we're just basically seeing some of the early results and the velocities are very strong.

The pricing, the proposition, the value is tremendous for all, and we feel this is a win, win, win, and it's something that we can repeat, not only in that division but other divisions as we, you know, gain momentum.

Mike Grondahl (Director of Equity Research)

Got it. And then maybe just a follow-up question. Chris, what two things give you the most visibility on the revenue ramp the rest of the year? Is it, like, the improved packaging, the expansion of the distribution footprint, you know, expectations for repeat business or repurchases? I mean, what are the top two things that you are looking at that gives you comfort revenues are going to ramp?

Chris Boever (CEO)

First and yeah, thanks again. First and foremost, it's velocity. In all my 35+ years in the industry, I have never seen a velocity spike like I have from a package change that we're experiencing. Now, all three brands are all accelerating in velocity, but the Stryve brand went through the largest renovation and, we're seeing the largest increase in dollars per point of distribution that's going up from a velocity standpoint, significantly higher. In fact, as a result, it's, you know, creating, many opportunities, but with opportunities come challenges. So we were taken a bit by surprise as to the speed, and the immediacy of the, velocity improvements, and therefore we've had to pivot and, you know, catch back up. So ultimately, our shipments probably are a little bit below where consumption is, and we're catching up this quarter, on that.

So very, very optimistic, so much so that customers that we see direct reads from, you know, it's over 100% improvement in velocity on a like-to-like basis, which obviously will drive new discussions around expanding that distribution, either more stores within that retailer and/or more stores in the marketplace. So with that data comes a lot more fact-based category solutions that we can provide to the broader marketplace. Secondly, we've gotten our pricing, you know, pretty much positioned properly now after several rounds of pricing that we took over the last 20 months since I've been here. So I feel good about where we're at from a price and value perspective. We're being smarter and sharper about our promotional tactics that we participate in, and ensuring that they're in, you know, a good investment with a good return on it.

And then lastly, the next thing that's going to drive a lot more growth for us, and compound that velocity will be expanded distribution. As you know, we're a pretty lowly penetrated brand. We've got lots of white space to capture distribution, and with that, lower penetration should drive significant improvements in our growth outlook, not even diluting the velocity and where we're currently at because we're still, we're still such a new, new business, if you will. So I think all those things compounded, and when we get new people to try the product for the first time, the experience that they're going to get with the new and improved quality that we've unlocked is just exceptional.

So we believe repeat levels are going to be at an all-time high for our brand, which we're already pretty decent, from our experiences that we've had, you know, in our early days online where we can see subscriptions and, you know, you know, consumer engagement and repeat, etc., etc., from our online business. But to see the actual velocities pop like they have as quickly, we know new consumers are coming into the franchise, trying us for the first time, and we are very confident that the quality and consistency that they're going to experience now is the best that we've ever delivered and we think the category's ever seen, with 50% more protein than the leading jerky, which is the number one reason consumers come to the category.

Delivering with total convenience and portability, with no preservatives and very little to no sugar, depending on which variety you're selecting, gives us an incredible amount of confidence that the taste, the consistency, and the positive experience will yield repeat purchases and stronger brand loyalty. So, we're very optimistic now and excited about what the next phase is going to be to be able to go out now and, you know, confidently, fact-base-wise, drive a complete category solution for our retail partners.

Mike Grondahl (Director of Equity Research)

Maybe last question for Alex. Alex, can you know, you did these bridge notes in the quarter. You know, can you finance, kind of keep this going as the revenue ramps, supply the working capital that's needed? Just some insight, your comfort with being able to do that.

Alex Hawkins (CFO)

It's, we don't have the installed capacity, like, installed borrowing capacity today to fund the full working capital ramp that's going to be required for us to hit, you know, what we know is coming. Like Chris said, this has happened, you know, the velocities happened quickly. We're catching back up. A lot of the way that we're going to see growth is through new distribution, and that can tend to be lumpier growth, right, where you have a distribution reset and all of a sudden you're shipping to a significantly more amount of stores, which requires a significant bump in your inventory. So the way our existing line of credit works today, it doesn't tie to that exactly, and so we will need to bring in some amount of capital. These convertible bridge notes are an example of that.

And we're going to continue to look for ways to, in the most prudent way possible, with the least amount of dilution possible, fund our business, to get to a, you know, self-sustaining model, you know, once we have the requisite volumes for that. But can we finance it today off of our existing facilities? No, we can't. There'll need to be some sort of third-party infusion, whether it's additional convertible bridge notes or something else. You know, I think that's evident in the guidance kind of that we're giving and the balance sheet as we have it today.

Mike Grondahl (Director of Equity Research)

Hey, to execute on this through the end of 2024, do you have a rough range of what's needed?

Alex Hawkins (CFO)

We do. We haven't disclosed that publicly right now, and we hope to provide some updates on that in the near future.

Chris Boever (CEO)

Got it. So one thing we've done exceptionally well is always find a solution. We are actively working on solutions that's going to continue to fuel this really positive momentum that we've created to, you know, really delight the consumers, you know, fulfill and meet and exceed our customer expectations and deliver for our shareholders. One thing we've always done, since I've been here, is find a way to certainly close those gaps on an as-needed basis in the most prudent and efficient and scrappy and effective manner. Rest assured, that's on our hit list of things to accomplish in the coming periods, and we fully expect to, you know, be able to continue to drive this momentum now that the marketplace is very excited about.

Mike Grondahl (Director of Equity Research)

Hey, thanks, guys.

Chris Boever (CEO)

Thanks.

Operator (participant)

Thank you. Just a reminder, should you have a question, please press * followed by the number 1 on your touch-tone phone. There seems to be no further questions at this time. I'd now like to turn the call back over to Mr. Boever for final closing comments.

Chris Boever (CEO)

Well, I certainly want to express our gratitude to all of our stakeholders for the continued support and belief in Stryve Foods. As we've discussed today, we are making substantial progress across all fronts, from operational improvements to strategic market expansion and certainly financial discipline. We remain dedicated to delivering on our promises, driving value for our shareholders and exceeding the expectations of our customers. We are very enthusiastic about the future of our company, and I look forward to sharing our continued progress in the upcoming quarters. Thank you once again for joining today's call. Eat steak. Don't be a jerky. Thank you.

Operator (participant)

Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.