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Tattooed Chef, Inc. (TTCFQ)·Q4 2022 Earnings Summary

Executive Summary

  • Q4 2022 was a weak quarter: net revenue fell to $51.4M, gross loss widened to $12.7M, and net loss was $54.7M driven by inflationary COGS and a $25.6M non‑cash goodwill impairment recorded in Q4 .
  • Management pivoted from growth to profitability, reducing Q4 operating expenses vs Q3 by ~$12M and sales/marketing by ~$5M; full‑year cost‑savings target was raised from $30M to up to $40M for 2023, with an earlier breakeven Adjusted EBITDA goal initially targeted for Q4 2023 then updated to Q3 2024 .
  • Retail expansion continued (Walmart SKU/store expansion, CVS entrée bowls, >24,000 stores), but higher trade spend, freight and packaging costs, and open plant capacity pressured margins in Q4 .
  • Wall Street consensus estimates were unavailable from S&P Global due to a data mapping issue; therefore beats/misses cannot be assessed (S&P Global estimates unavailable).

What Went Well and What Went Wrong

What Went Well

  • Raised 2023 cost‑savings ambition to up to $40M and executed early actions (workforce reduction, promotional spend cuts, automation), aiming to accelerate breakeven timing: “reach breakeven Adjusted EBITDA and become cash flow neutral during Q4 2023” (later revised to Q3 2024) .
  • Retail footprint expansion sustained momentum: “largest ever IRI MULO” in late Jan 2023; CVS launch (~6,000 stores); Walmart YTD sales growth >50%; points of distribution increased (Albertsons ~40,000) .
  • Strategic narrative reinforced: “Tattooed Chef holds a distinct position… vertically integrated, value‑added plant‑based food company,” focusing on efficiency, innovation, and profitability .

What Went Wrong

  • Q4 revenue and profitability deteriorated sequentially and year‑end cash was low: net revenue $51.4M, gross loss $(12.7)M, net loss $(54.7)M; cash ~$5.8–$6.0M at year‑end; continued need to raise capital .
  • Margin headwinds from inflation in raw materials, packaging, freight, and open capacity; trade/promotional spend remained elevated, depressing gross margin .
  • Non‑cash goodwill impairment of $25.6M recognized in Q4, reflecting worsened outlook and market conditions .

Financial Results

MetricQ2 2022Q3 2022Q4 2022
Revenue ($USD Millions)$58.110 $54.115 $51.393
Cost of Goods Sold ($USD Millions)$57.370 $58.010 $64.120
Gross Profit/Loss ($USD Millions)$0.740 $(3.895) $(12.727)
Operating Expenses ($USD Millions)$24.346 $31.572 $44.502
Net Income (Loss) ($USD Millions)$(26.437) $(38.496) $(54.726)
Adjusted EBITDA ($USD Millions)$(20.477) $(25.504) $(27.877)

Observations:

  • Revenue fell sequentially each quarter in 2H22; gross loss expanded sharply in Q4 on higher COGS and lower volumes .
  • Q4 operating expenses spiked due to the goodwill impairment (non‑cash), masking underlying OpEx reductions vs Q3 in cash categories .
  • Adjusted EBITDA deteriorated to $(27.9)M in Q4, consistent with volume and margin pressure .

Segment/KPI snapshots:

  • FY 2022 branded revenue: $117.9M; private label: $100.0M (no quarterly segment reporting) .
  • Retail locations: ~21,000 at Dec 31, 2022; >24,000 by Jan 29, 2023 .
  • Year‑end cash: $5.8–$6.0M; line of credit drawn: ~$20.3M at Dec 31, 2022 .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Millions)FY 2022$280–$285M $235–$245M (Nov 10 update) Lowered
Gross Margin (%)FY 20228–10% 0–3% (Nov 10 update) Lowered
Marketing Expense ($USD Millions)FY 2022$27–$32M $25.6M actual (disclosed) Lower than upper range
Revenue ($USD Millions)FY 2023—$200–$205M New guidance
Annual Cost SavingsFY 2023~$30M (Nov 10) Up to ~$40M (Mar 17) Raised
Breakeven Adjusted EBITDA timingCrossoverMid‑2024 (Nov 10) Q4 2023 (Mar 17) ; then Q3 2024 (May 15) Accelerated then deferred

Notes:

  • Management later filed FY 2022 results at $230.9M revenue (10‑K), slightly below preliminary and updated ranges .
  • Sequential gross margin improvement targeted in 2023; mix shift toward higher‑margin refrigerated/ambient products and lower promo spend are key levers .

Earnings Call Themes & Trends

TopicQ2 2022 (Aug 8)Q3 2022 (Nov 15)Q4 2022 (Context via Mar 17 update)
Pricing actionsFirst broad price increase planned in Q4; “low double‑digit range” to catch up to market 10% branded price increase took effect end of Sept; expected to aid margins Price increases flowing through; early indications of improved retail sell‑through
Supply chain & inflationFreight ~11.4% of revenue; broad inflation in food/packaging; building inventory to avoid disruption Labor/freight 34.1% of revenue; new facility raised fixed costs; negative gross margin Open capacity and inflation continued to pressure Q4 COGS; focus on automation and ERP
Retail/customer mixWalmart reset toward core categories; gaining national distribution; Target/Kroger expansion Tier‑1 club pullback (Sam’s) and promo accounting reclass hurt revenue; diversifying customer base CVS entrée bowls launch (~6,000 stores); Walmart expansion (13 SKUs, broader store base)
Cost reductionsMarketing cadence heavy in H1; plan to moderate; ABL expanded to $40M Announced ~$30M 2023 savings (marketing −$15M, automation −$6M, cold storage −$2M, promo −$7M) Raised savings to up to ~$40M; workforce reduction and product rationalization underway
Liquidity/capitalUntapped $40M ABL; capex ~$20M focused on automation Intends to raise debt/equity; evaluating options; inventory drawdown as a cash lever Year‑end cash ~$6M; pursuing multiple capital paths urgently

Management Commentary

  • “We believe that the steps we are taking will help… realize annual cost savings of approximately $30 million by year end 2023 and achieve positive EBITDA and cash flow by or around mid‑year 2024.” — Sam Galletti, Q3 release .
  • “We did it in one fell swoop… we’re kind of in that low double‑digit range [price increase]… still keeping us in line… with competitive brands.” — Matt Williams, Q2 call .
  • “Largest ever IRI MULO… CVS bowls (~6,000 stores)… Walmart expansion with early results indicating >50% sales growth YTD.” — Mar 17 business update .
  • “Tattooed Chef holds a distinct position… vertically integrated, value‑added plant‑based food company… optimizing efficiency and utilization to unlock inherent profitability.” — Mar 17 update .

Q&A Highlights

  • Tier‑1 club pullback: Management detailed Sam’s Club SKU/promo pullbacks and Walmart reset timing impacts; diversification to reduce reliance on single accounts .
  • Profitability path: Levers include pricing, vertical integration, automation, labor savings; target for positive EBITDA by end of 2023 (subsequently revised) .
  • Liquidity: Active exploration of debt/equity; inventory reduction and asset sales considered; strong relationship with ABL lender highlighted .
  • Gross margin trajectory: Near‑term target was “positive gross margins,” with 2023 guidance to be provided once initiatives stabilized .

Estimates Context

  • Attempts to retrieve S&P Global consensus for Q4 2022 revenue and EPS failed due to a Capital IQ mapping issue (S&P Global estimates unavailable). As a result, beats/misses vs consensus cannot be assessed for this quarter.

Key Takeaways for Investors

  • Sequential deterioration in Q4 underscores urgency of execution: revenue down to $51.4M and gross loss widened; watch near‑term trading for any capital‑raising headlines given year‑end cash ~$6M and ongoing funding needs .
  • Cost‑reduction credibility improved with tangible cuts (promo/marketing/SG&A) and automation, but margin recovery depends on price realization, mix shift to higher‑margin refrigerated/ambient, and utilization gains .
  • Retail distribution breadth is a medium‑term positive (Walmart, CVS, Albertsons), yet category headwinds and reduced promo intensity may temper near‑term sell‑through; monitor scan data and base velocities .
  • Non‑cash goodwill impairment ($25.6M) signals a reset of expectations; focus on cash EBITDA, operating cash flow, and working capital execution in 2023 .
  • Watch execution on guidance: 2023 revenue $200–$205M and ~$40M annual savings, with “sequential gross margin improvement” as a KPI for thesis validation .
  • Liquidity risk remains a key overhang; any successful financing at acceptable terms would be a catalyst, while delays could pressure sentiment .
  • With estimates unavailable, internal benchmarks (sequential gross margin and Adjusted EBITDA improvement, inventory reduction, and trade spend normalization) should anchor performance tracking in the near term .

Citations:

  • Q4 select financials and sequential comparison
  • Q3 2022 results and drivers
  • Q2 2022 results and commentary
  • Nov 10, 2022 outlook revision and savings plan
  • Mar 17, 2023 business update, raised savings, retail expansion, cash
  • FY 2022 10‑K revenue and impairment
  • FY 2022 retail locations