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Tattooed Chef, Inc. (TTCFQ)·Q1 2023 Earnings Summary

Executive Summary

  • Q1 2023 revenue was $59.1M, down 12.7% year over year due to a branded product decline with a major customer and higher trade promotions; sequentially, revenue rose from $51.4M in Q4 2022, with gross loss improving by $8.6M quarter-over-quarter .
  • EPS improved to $(0.23) vs $(0.25) in Q1 2022, while adjusted EBITDA loss narrowed to $(15.3)M vs $(16.0)M last year; operating expenses fell 37% YoY on cost-reduction initiatives .
  • Management guided FY 2023 net revenue to $200–$205M, expects sequential gross margin improvement in 2023, and targets ~$40M annual cost savings; however, breakeven adjusted EBITDA and cash flow neutrality were pushed back to Q3 2024 (from prior Q4 2023) .
  • Near-term risk flag: a nationwide cold-storage vendor outage has constrained shipments for ~2.5 weeks and is expected to affect Q2; magnitude not yet quantified, with impact cited across Walmart, West Coast Kroger, and Whole Foods .

What Went Well and What Went Wrong

What Went Well

  • Operating expenses decreased 37% YoY to $14.7M, driven by reductions in marketing, outside services, and stock-based compensation, reflecting execution on the cost-reduction plan .
  • Sequential improvement from Q4 2022: gross loss narrowed by $8.6M, adjusted EBITDA loss improved by $12.5M, and net loss improved by ~$35.7M excluding Q4’s goodwill impairment .
  • Management highlighted expansion outside the freezer aisle (refrigerated Oat Butter Bars; ambient Grain Free Tortilla Chips) and asserted new ambient products carry 2.5x typical frozen margins, supporting margin trajectory and the path to profitability .
    • “Our focus has shifted from growth to profitability... we remain confident in our ability to achieve cost savings of up to $40 million or more in 2023.” – CEO Sam Galletti .

What Went Wrong

  • Net revenue declined 12.7% YoY, driven by a $7.3M decrease in Walmart-branded products and higher trade promotion spend; gross profit swung to a $(4.1)M loss vs $4.1M profit last year due to inflationary pressures and increased trade spending .
  • Continued inflation in raw materials/packaging, higher labor/third-party services, and open plant capacity pressured COGS, contributing to negative gross results .
  • Liquidity remains tight (cash $3.5M at quarter-end; net cash used in operations $(5.7)M), and management is pursuing additional debt or equity financing amid a tougher rate environment .

Financial Results

MetricQ3 2022Q4 2022Q1 2023
Revenue ($USD Millions)$54.1 $51.4 $59.1
Gross Profit (Loss) ($USD Millions)$(3.9) $(12.7) $(4.1)
Operating Expenses ($USD Millions)$31.6 $44.5 $14.7
Net Loss ($USD Millions)$(38.5) $(54.7) $(19.0)
Diluted EPS ($USD)$(0.46) —$(0.23)
Adjusted EBITDA ($USD Millions)$(25.5) $(27.9) $(15.3)

Segment breakdown (Q1 2023):

SegmentQ1 2023 ($USD Millions)
Branded$31.7
Private Label & Other$27.4

KPIs and Operating Metrics:

KPIValuePeriod
SPINS/MULO: TTCF unit sales growth+12% units YoY; category down 10.6%12 weeks ending 4/23/2023
Total MULO growth+4%12 weeks ending 4/23/2023
Time-on-promotion−4.3%12 weeks ending 4/23/2023
Store count>24,000As of Jan 29, 2023 period, increasing by Q1 2023
CVS launch~6,000 stores (entrée bowls)Launching in Q1 2023
Walmart growth>50% sales growth YTD in Q1 2023 vs prior yearEarly Q1 2023

Balance sheet/cash flow highlights:

  • Cash $3.5M; line of credit drawn ~$4.0M (net) in Q1 2023; net cash used in operating activities $(5.7)M vs $(26.4)M in Q1 2022; capex ~$0.5M .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net RevenueFY 2023—$200–$205MNew guidance
Annual Cost SavingsFY 2023Up to ~$40M or more ~$40MMaintained
Marketing ExpensesFY 2023Reduce ~$15M vs 2022 $12–$17M (vs $25.6M in 2022)Refined
Operational/Automation SavingsFY 2023~$6M $6MMaintained
Promotional Program ReductionsFY 2023~$7M ~$7MMaintained
Gross Margin Trajectory2023—Sequential improvement expectedNew qualitative
Adjusted EBITDA Breakeven / Cash Flow NeutralCompany targetQ4 2023 Q3 2024Delayed
Q2 Operational RiskQ2 2023—Vendor outage expected to impact deliveriesNew risk disclosure

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2022, Q4 2022)Current Period (Q1 2023)Trend
Cost Reduction & EfficiencyAnnounced plan targeting ~$30M annual savings by YE2023; automation line additions; reduced promotional spend and OpEx sequentially into Q4 2022 37% OpEx reduction YoY; pursuing ~$40M savings; ERP integration and automation emphasized Improving execution
Product Innovation (Refrigerated/Ambient)Slated refrigerated/ambient launches in 2023 Oat Butter Bars launched; ambient chips shelved at Target (Q2 start); ambient margins ~2.5x frozen Expanding into higher-margin
Supply Chain & CostsInflation in labor/freight/packaging; cost pressure in 2022 Vendor cold-storage outage affecting shipments (Walmart/Kroger/Whole Foods); open capacity cited Mixed headwinds persist
Capital RaisingIntends to raise debt/equity capital Actively pursuing financing; UMB relationship; exploring transactions Ongoing need
Retail DistributionExpanded Walmart presence; broader points of distribution >24k stores; CVS launch (~6k); Walmart >50% YTD growth in Q1 Broader footprint

Management Commentary

  • “We reduced total operating expenses by 37%, or $8.6 million, in Q1 2023 compared to the first quarter of 2022… improved our gross loss by $8.6 million [and] narrowed our net loss and Adjusted EBITDA loss” – CEO Sam Galletti .
  • “Our focus has shifted from growth to profitability… achieve cost savings of up to $40 million or more in 2023… reach breakeven Adjusted EBITDA and become cash flow neutral during the third quarter of 2024” – CEO Sam Galletti .
  • “Branded sales were $31.7 million… Private label and other revenues decreased 4.4% to $27.4 million Q/Q due to discontinuation of certain food service items… Gross loss was $4.1 million… Operating expenses declined by $8.6 million or 37%” – CFO Stephanie Dieckmann .
  • “New ambient items come in at such a higher margin… our innovation… is 2.5x what our typical frozen margins are” – CEO Sam Galletti .
  • “Tattooed Chef is a branded food product of the future… nostalgic comfort foods… better-for-you… driven on social media to core consumers” – CCO Sarah Galletti .

Q&A Highlights

  • Vendor outage: Nationwide cold-storage partner outage (~2.5 weeks) impacting shipments, including Walmart, West Coast Kroger, Whole Foods; Q2 impact expected but not yet quantified .
  • Margin path: Leaner operations (staff reductions, middle-management cuts), automation, SKU rationalization, shift to higher-margin categories, product-by-product margin optimization .
  • Innovation economics: Ambient innovations cited at ~2.5x frozen margins, supporting profitability while keeping R&D costs low given in-house manufacturing .
  • Financing: Company pursuing multiple financing avenues; maintains relationship with UMB; market environment more challenging; updates to be communicated when ready .
  • Guidance confidence: Revenue mix confidence across private label, club, and conventional retail; conservative approach given category declines and contrarevenue impact at Costco promotions .

Estimates Context

  • Wall Street consensus (S&P Global) for Q1 2023 revenue and EPS could not be retrieved due to missing SPGI mapping for TTCFQ; therefore, comparisons vs consensus are unavailable at this time [GetEstimates error].

Key Takeaways for Investors

  • Sequential improvement off Q4 2022 lows: revenue up, gross loss narrowed by $8.6M, adjusted EBITDA improved by $12.5M, and OpEx sharply reduced, evidencing tangible progress on cost actions .
  • FY 2023 revenue reset to $200–$205M with an emphasis on profitability over growth; expect sequential gross margin improvement as automation, SKU rationalization, and trade spend optimization take hold .
  • Higher-margin strategy: expansion into refrigerated/ambient products with materially better margins (management cites ~2.5x frozen), a key lever for margin recovery in 2023–2024 .
  • Near-term operational risk: vendor outage likely to pressure Q2 shipments and reported revenue; monitor resolution timing and any quantified update from management .
  • Liquidity watch: modest cash, continued operating cash burn, and active pursuit of financing raise execution risk; track progress on capital actions and balance sheet stability in upcoming filings .
  • Guidance timing shift: adjusted EBITDA breakeven/cash flow neutrality delayed to Q3 2024 from prior Q4 2023, reflecting conservative stance and category trends; assess credibility via sequential margin prints and OpEx control .
  • Retail distribution tailwind: >24k stores, CVS rollout (~6k), and Walmart YTD growth, but promotion costs and contra-revenue dynamics remain a headwind to reported margins .