Name: Tattooed Chef, Inc. Q2 2022 Earnings Call
Start: 2022-08-08T21:01:00.000Z

Executive Summary

Q2 2022 revenue rose 15.6% year-over-year to $58.1M, but declined sequentially from Q1’s record $72.1M; gross margin compressed to 1.3% as finished goods freight reached ~$6.7M (~11.5% of revenue), driving a net loss of $26.4M and adjusted EBITDA loss of $20.5M .
The company reiterated FY22 revenue of $280–$285M and marketing/capex plans, but lowered FY22 gross margin guidance to 8–10% from 10–12% due to inflation and automation timing; management targets positive adjusted EBITDA by late 2023 .
Distribution momentum continued: >35,000 new points added in Q2 and Walmart expansion from 5 to 13 SKUs across ~2,000 stores (vs ~300), plus an expanded $40M ABL facility maturing in Sep-2025 that remained unused post-quarter .
Operational investments progressed (cold storage integration, robotics/automation, in-house food safety lab), but near-term margins remain pressured; pricing actions are planned for Q4 (low double-digit) to offset cost inflation .
Consensus estimates from S&P Global for EPS and revenue were unavailable for TTCFQ at this time; comparison to Street estimates could not be performed (we attempted retrieval, but data mapping was unavailable).

What Went Well and What Went Wrong

What Went Well

Distribution and brand reach: Added >35,000 points of distribution; retail presence expanded to ~17,200 locations; branded product revenue reached $33.9M (58.4% of total) in Q2 .
Strategic retail catalyst: Walmart expansion to 13 SKUs and ~2,000 stores provides national exposure and potential velocity uplift beginning by Oct 2022 .
Liquidity enhanced: UMB secured revolving credit facility increased to $40M and extended to Sep 2025; facility remained unused post-quarter, improving funding flexibility .
Management quote: “We generated a 15.6% increase in sales versus the second quarter of 2021 and remain on the path to profitability. We are confident that we will achieve positive adjusted EBITDA by the end of 2023.” — Sam Galletti .

What Went Wrong

Margin pressure: Gross margin fell to 1.3% as freight on finished goods rose to ~$6.7M (~11.4–11.5% of revenue); adjusted EBITDA loss widened to $20.5M .
Elevated operating expenses: OpEx increased 48.3% YoY to $24.3M driven by marketing, acquired entities’ costs, payroll, stock comp, and cold storage expenses .
Guidance reduction: FY22 gross margin guidance lowered to 8–10% from 10–12% given inflation and automation timing; revenue guide maintained, indicating top-line resilience but profitability delay .

Financial Results

Metric	Q4 2021	Q1 2022	Q2 2022
Revenue ($USD Millions)	$52.336	$72.064	$58.110
Diluted EPS ($USD)	$(0.17)	$(0.22)	$(0.32)
Gross Margin %	2.1%	11.3%	1.3%
Operating Expenses ($USD Millions)	$14.807	$24.793	$24.346
Net Loss ($USD Millions)	$(13.144)	$(17.551)	$(26.437)
Adjusted EBITDA ($USD Millions)	$(11.414)	$(13.380)	$(20.477)
Cash And Equivalents ($USD Millions)	$92.351	$57.417	$27.729
Long-term Debt ($USD Millions)	$0.716	$0.629	~$1.432

Segment breakdown and key items:

Segment / Item	Q4 2021	Q1 2022	Q2 2022
Branded revenue ($USD Millions)	$29.2	$43.5	$33.9
Branded % of total (%)	56%	60%	58.4%
Foodservice revenue ($USD Millions)	$4.2	n/a	n/a
Club sales y/y impact ($USD Millions)	n/a	n/a	(~$6.0) reduction y/y

KPIs and distribution:

KPI	Q4 2021	Q1 2022	Q2 2022
Branded SKUs (end of period)	78	90	n/a
Points of distribution added (quarter)	n/a	>10,000	>35,000
Total retail locations (end of period)	~14,000	n/a	~17,200
Total distribution points (TDP)	>100,000	n/a	TDP growth +131.2% (13w ending Jun 12, 2022)
ACV (U.S. MULO)	n/a	n/a	52.4% (YoY +45.9%)
SPINS/IRI consumption (Q2)	n/a	n/a	23.3 million; +140% YoY
Plant-based pizza growth (Q2)	n/a	n/a	+105.4% dollars; higher unit and dollar velocity vs peers

Non-GAAP adjustments (illustrative Q2): stock comp ($1.415M), FX forward loss ($2.049M), unrealized FX losses ($0.626M), ERP expenses ($0.179M), etc., reconciling to adjusted EBITDA .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	FY 2022	$280–$285M	$280–$285M	Maintained
Gross Margin %	FY 2022	10–12%	8–10%	Lowered
Marketing Expenses	FY 2022	$27–$32M	$27–$32M	Maintained
Capital Expenditures	FY 2022	~$20M	~$20M	Maintained

Earnings Call Themes & Trends

Topic	Q4 2021 (Mar-16)	Q1 2022 (May-9)	Q2 2022 (Aug-8)	Trend
Supply chain & inflation	Freight/container costs $31.3M in 2021; GM impacted; GM in Q4 at 2.1%	Inflation raised COGS; cold storage expected to mitigate	Finished goods freight ~$6.7M (~11.4–11.5% of revenue); GM 1.3%	Persistent pressure; mitigation via vertical integration, cold storage, automation
Automation & robotics	$20M 2022 capex plan across facilities	Enterprise-wide automation underway; complete by end-2022	Automation/robotics initiatives; completion targeted by end of Q2 2023	Expanding scope; timeline extends
Pricing strategy	Not highlighted	Not highlighted	Low double-digit price increase planned for Q4 across retailers	New lever to offset inflation
Distribution expansion	National retail growth; ~14,000 doors; >100,000 TDP	+10,000 points added; Mexican items commenced	Walmart expansion to ~2,000 stores and 13 SKUs; +35,000 points added	Accelerating breadth
Liquidity & credit lines	Cash $92.4M; minimal debt	Cash $57.4M	ABL expanded to $40M; unused; maturity Sep-2025	Liquidity bolstered despite cash draw
Product innovation	Pipeline ~250 products; bars/pizzas; Mexican items	Branded SKUs to 90; Mexican food production started	30+ new products; first run of refrigerated oat butter bars; lab completed	Continued innovation

Management Commentary

“We continued to increase revenue year-over-year, expanded our channel presence, and elevated the Tattooed Chef brand, all while investing in strategic capacity… We generated a 15.6% increase in sales versus the second quarter of 2021 and remain on the path to profitability… positive adjusted EBITDA by the end of 2023.” — Sam Galletti .
“Cost of goods sold rose… due to an unprecedented rise in domestic and international freight costs… Freight on finished goods was roughly $6.7 million… ~11.4% of total revenue this quarter.” — Stephanie Dieckmann .
“We did reduce our gross margin expectations for the year to 8% to 10% from 10% to 12%… maintaining full-year revenue outlook of $280 million to $285 million.” — Stephanie Dieckmann .
“We will be nationally distributed at [the largest U.S. retailer]… built into our forecast for the second half.” — Matt Williams (later formalized via Walmart expansion) .
“We did [pricing] in one fell swoop… low double-digit range… to help offset expenses while keeping shelf pricing in line.” — Matt Williams .

Q&A Highlights

Back-half revenue drivers: H2 uplift from new category resets (Mexican entrees/burritos), Q4 pricing actions, and national distribution with the largest U.S. retailer, now confirmed as Walmart .
Gross margin cadence: Margin compression in Q2 driven by lower revenue against fixed costs and inflation; margins expected to improve as revenue rises in Q3/Q4 and initiatives scale .
Liquidity and cash burn: Cash outflows to moderate in H2; ~$10M remaining cash outlay for capex and marketing; expanded $40M ABL provides flexibility; facility unused post-quarter .
Pricing magnitude: Low double-digit price increase planned in Q4 to catch up with market and offset costs while maintaining competitive shelf pricing .
Path to positive EBITDA: Levers include pricing, vertical integration (insourcing ingredients), automation/robotics to reduce labor and improve throughput, and revenue growth execution .

Estimates Context

Street consensus (S&P Global) for EPS and revenue was unavailable for TTCFQ (data mapping not present). We attempted retrieval but could not access S&P Global estimates for Q2 2022 and adjacent periods; therefore, we cannot assess beat/miss vs consensus at this time.

Key Takeaways for Investors

Distribution momentum is a near-term catalyst: Walmart’s SKU/store expansion and >35k added points of distribution should lift H2 revenue and retail velocity; monitor early sell-through and replenishment .
Cost inflation remains the primary headwind: Freight/logistics at ~11–12% of revenue and broader COGS pressures compressed Q2 gross margin to 1.3%; margin recovery hinges on pricing, scale, and operational initiatives .
Guidance quality: Revenue guide maintained despite margin pressure; gross margin lowered to 8–10% reflects realism on inflation and automation timing; watch Q3/Q4 margin trajectory vs plan .
Liquidity runway improved: $40M ABL (unused) extends runway to Sep-2025; watch covenant thresholds for EBITDA progression and fixed charge coverage starting in 2024 .
Execution priorities: Deliver Q4 pricing, scale automation/robotics, and ramp new facilities (incl. Albuquerque acquisition) while sustaining brand marketing ROI; these are critical to reaching positive adjusted EBITDA by late 2023 .
Mix evolution: Branded share stayed ~58–60% of revenue; continued mix shift to branded SKUs and ambient/refrigerated entries could support margin uplift longer-term .
Risk-monitoring: Track freight normalization, inventory levels, promotional intensity, and the cadence of automation deployment; any delays could pressure FY22 margin targets .

Tattooed Chef, Inc. (TTCFQ)·Q2 2022 Earnings Summary