The Real Good Food Company, Inc. (Nasdaq: RGF) (“Real Good Foods” or the “Company”), an innovative, high-growth, branded, health- and wellness-focused frozen food company, today reported financial results for its second quarter ended June 30, 2022.
“I am pleased with our solid second quarter revenue growth driven by both new and existing customers,” said Bryan Freeman, Executive Chairman. “We have seen strong growth in retail grocery, exhibited by our sustained velocity momentum, as well as growth in the unmeasured channel. This gives us confidence in our updated outlook for 2022. We believe we are still in the early innings of growth and continue to pursue our mission to make nutritious comfort foods that are low in carbohydrates, high in protein, and made from gluten and grain free real ingredients more accessible to everyone, improve human health, and, in turn, improve the lives of millions of people.”
“Our new Bolingbrook facility continued to ramp production in the second quarter, and we are on-track to add approximately $200 million of incremental capacity by the end of this year. We believe this additional capacity will improve margins and profitability in 2022, enable us to achieve positive adjusted EBITDA in the fourth quarter of 2022, and meet our long-term goals,” said Gerard Law, Chief Executive Officer.
- Net sales increased 64.9% in the second quarter to $30.8 million
- Household penetration of 8.3% compared to 7.4% in March 20221
- Bolingbrook facility continues to ramp production and is expected to add approximately $200 million in incremental capacity by the end of 2022
(Net Sales comparison above is to the second quarter of 2021.)
Financial Results for the Quarter Ended June 30, 2022
Net sales increased 64.9% to $30.8 million compared to $18.7 million in the second quarter of 2021. This increase was primarily due to strong growth in sales volumes of our core products driven by greater demand from our existing retail and club customers and to a lesser extent new customers.
Gross profit decreased $0.3 million to $2.4 million, and was 7.6% of net sales, for the second quarter of 2022, compared to gross profit of $2.7 million, or 14.2% of net sales, for the prior year period. The decrease in gross profit was primarily driven by higher manufacturing costs related to the start-up of our new manufacturing facility in Bolingbrook, IL and the impacts of higher raw material costs. The increase in raw material costs was primarily due to supply chain pressures related to the impact of the pandemic, and was partially offset by the increase in sales of our self-manufactured products, which yield a higher margin, as well as higher net price realization. The decrease in gross margin was primarily due to the aforementioned higher manufacturing costs and the higher raw material costs.
Adjusted gross profit(2) increased $2.9 million to $6.8 million, reflecting adjusted gross margin of 22.0% of net sales, compared to $3.9 million, or 20.9% of net sales, in the second quarter of 2021. The increase in adjusted gross profit was primarily due to the increase in net sales, including in the amount of products sold that were self-manufactured, as well as higher net price realization, partially offset by increases raw material costs. The increase in adjusted gross margin was primarily due to the aforementioned higher net price realization partially offset by increases in raw material costs. Moreover, adjusted gross margin improved roughly 500 bps sequentially compared to 17.2% in the first quarter, which was ahead of our expectations and driven primarily by better net price realization.
Total operating expenses increased $5.4 million to $12.2 million, compared to $6.8 million, in the second quarter of 2021. The increase in operating expenses was primarily driven by selling and distribution expenses to support the growth of the business, increased personnel expenses related to the build-out of the Company’s operations, finance and leadership teams and increased investments in marketing and research and development.
Adjusted EBITDA(2) was a loss of $3.2 million compared to an adjusted EBITDA loss of $1.4 million in the second quarter of 2021. Sequentially, as compared to the first quarter of 2022, the adjusted EBITDA loss narrowed by approximately $100 thousand and adjusted EBITDA margin increased by 170 basis points. The sequential improvement in adjusted EBITDA and adjusted EBITDA margin was driven by improvement in gross margin, partially offset by the increase in administrative expenses.
Loss from operations increased by $5.7 million to $9.8 million compared to $4.1 million in the second quarter of 2021. The increase in loss from operations was primarily due to the aforementioned higher operating expenses.
Net loss increased by $5.2 million to $11.1 million compared to $5.9 million in the second quarter of 2021. Excluding expense related to share-based compensation of $1.7 million, net loss increased approximately $3.4 million during the second quarter of 2022 as compared to the prior year period.
Balance Sheet Highlights
As of June 30, 2022, the Company had cash and cash equivalents of $12.6 million, including restricted cash of $2.3 million, and total debt was $49.0 million3. Subsequent to the quarter end, the Company amended its credit facility to increase the capacity of its revolver to $75 million to provide it with even more flexibility. The Company’s cash balance of $12.6 million combined with its unused revolver capacity of $34.5 million, provides it with liquidity of $47.2 million, which the Company believes is sufficient to fund the business for the foreseeable future.
The Company is updating its guidance for the year ending December 31, 2022 and now expects:
- Net sales of approximately $155 million to $160 million, reflecting an increase of approximately 84% to 90% compared to 2021
- Adjusted gross margin in the range of 19% to 21%
- Adjusted EBITDA loss of approximately $7.0 million to $9.0 million
Long-term, the Company continues to expect:
- Net sales of approximately $500 million
- Adjusted gross margin of 35%
- Adjusted EBITDA margin of 15%
The Company is not providing guidance for gross margin or net loss, the most directly comparable GAAP measures, and similarly cannot provide a reconciliation between its forecasted adjusted gross margin and GAAP gross margin and adjusted EBITDA and net loss without unreasonable effort due to the unavailability of reliable estimates for certain items. These items are not within the Company’s control, may vary significantly between periods and could significantly impact future financial results.