Mama's Creations, Inc. (MAMA) Earnings Call Transcript & Summary

Great. Well, thank you guys so much. Thank you for those listening as well. And hopefully -- and I apologize but for those here, hopefully we had a good tour. And we are well fed now that we tried a whole bunch of things. So really thank you guys so much, again, for making the time today. I hope you felt like I said, when this first started, the energy that our team has, I hope you got to really feel as you walk the tour, the capabilities that we have, I'm very lucky that I found my passion early in the food space. We're lucky, right? We don't make widgets. We make real food that you get the taste and you get to watch. And I think that hopefully, I think it brings to life where we are. Really, what I want you to leave with today and the team is here, we'll go through different things, but really 3 things that I hope I leave you with. The first one is we're in the right place. The macro trends, these are tailwinds for our business and getting better. That's the first thing. The second thing is we have this authentic story. You guys just got to spend a few hours with Dan, he's real. You shake his hand. He's still the guy that's bringing us the ideas, the stories and there is nothing like watching Dan in front of a buyer watching down on QVC, which what did you say 4:30 today? 4:30 today on QVC, I'm already pitching them. There's something really special and authentic about our story and differentiated. And third and lastly, hopefully, you leave with the fact that we now have a truly clear, compelling, consistent strategy that I believe could really work. That's the 3 things I want to get out of today. So if you go to Slide 2, obviously, our forward-looking statements, my favorite slide of the deck. There's more information on our website about that. So if we're going to talk about MamaMancini's, we have to start with Dan. Again, you guys had the opportunity to meet Dan, the authentic story that got it going 10 years ago. And as I mentioned, there's something just really special as we develop products. One of my favorite meetings is sitting with Chris, who you also met our executive chef and Dan every month at our Grandma quality meetings to make sure our existing products are truly Grandma quality, and it's our place to try some of the new items that we're playing around with. You guys tried today the general [ salads ] chicken. Yesterday, it was fun. We were making chicken fajitas, right? Because we're more -- we're very proud of the authentic Italian heritage that we started with but we're so much more than that today. And that's what you guys see, that's what our buyers see. That's what our consumers are starting to see. Our vision, quite ambitious. But we truly believe we get there. This is not a theory because we're already doing it. We said that we're going to start with that legacy and then we were going to continue to grow our breadth and depth of distribution. We said that we want to be this one-stop shop deli provider. That's why we made the acquisition of T&L. So we had meat balls. We had sausage and peppers. Now we're able to add salads, paninis, sandwiches, chicken, other items here. It's not just theory, we're actually doing it. We bought Olive Branch to continue to help and expand the aperture of the deli. We'll be -- I truly believe, and Steve will speak a little bit about this. I think there's just incredible organic runway. I think there's tons of runway, and I mentioned to you earlier around getting more -- my first passion is getting more items in existing stores. Why? We already have great relationships with them. They already know our quality. Our trucks are already going there. It reduces our overall unit cost. But we will continue to be opportunistic when we find companies that are immediately accretive to our business, when we find companies that bring not just a great brand, but actually real capabilities. T&L is awesome. We doubled our manufacturing footprint. We added capabilities. Those are the things that we're looking for, we'll be opportunistic on acquisitions. So I mentioned to you, those 3 things, right? The first one is the macro trends. The trends are changing. COVID, horrible, full stop. Full stop. What COVID did is it changed consumers' habits. This is those tailwinds. Consumers continue to want fresher, cleaner items from the consumer perspective. We have that. Consumers -- it's only getting worse, right? People do not have 6 hours to braise their own meat balls. They're looking for simplicity. And then unfortunately, as we're all feeling with the recession and inflation, I used to going out, any one of you get, I don't know, chicken parmesan, it's $20 if you go to a restaurant, $25 [indiscernible] where you are. You got to pay for gas, you got to pay for the glass of wine. You got to pay for the tip. [indiscernible] $9.99. Our product is the same -- Dan would yell at me. Grandma quality at a $9.99 price point. That's why we're winning from the consumer. From the customer -- from the retailer, it's a state we're actually able to help them in the same way. You guys know because of COVID and others, they just have labor challenges. They don't have time to put their food themselves. There are some places that don't have time to even package it themselves. We continue to evolve, and we have offerings that they have these kits that they could put it together. We make it for them, they could put it together. And equally, we have our meals for one, where literally all they're doing is taking it out and putting it right on the shelf. We're meeting the needs of our customers. We're providing that flexibility. I mentioned to you the acquisition of T&L and Olive Branch that happened back in December of '21. I'll tell you myself, it's exceeding my expectations. We have now opened the aperture for our salespeople to sell a broader array of offerings. We now have the manufacturing facilities. So we're now able to specialize. There are some things that we do in East Rutherford, there's some things that we do in Farmingdale. Now we're optimizing our operations. All the stuff we're doing back of the house now, we're sharing finance resources. We're sharing systems. It's awesome. I'm always the optimist. There's still much more to go. In a past life, I'd tell you, when I had this job at my last company, I couldn't even go to my CEO before I showed them a full integration plan, every single synergy, everything. He wouldn't even talk to me beforehand. I'm the optimist. We have all that opportunity now. We haven't captured all of those synergies. That's what we're doing every day today. So there's upside to where we are with the acquisitions. Management team. I'm really happy today. I know I get to speak to many of you guys at conferences. I'm sure all the wonderful one-on-one Zoom calls, which I get to meet you guys. Actually, I am so excited about today because you get to meet the team. I am nearly the mouthpiece for them because they're doing all of the amazing work and you get to meet with them today. A couple, so Scott, you haven't -- you didn't get to meet today because as you hope, every good salesman, he's out selling. The only other person that is missing is Anthony Morello, who leads our T&L and Olive Branch business. He had to be in Farmingdale today. But this is a team. You're going to hear from all of us, just tremendous experience. And I think the thing I'm proudest of, I think we're like -- we're just -- we're growing together. There's, I think, just so much potential. Everybody was great before. I think they're greater now. We all have this common vision. We're all empowered to do great things. We have every Monday, we have a leadership team meeting. We get everything done there. I will tell you it's probably a thing that I love the most about my job now versus the job I've had in the past. In the past, we'd have a meeting. Great idea. That's definitely the right idea. Adam why don't you write a 10 slide deck, send it to 14 people, have 23 meetings and sometime next quarter, next year, 5 years from now, we'll actually implement it. We know you're right, but let's do all of that. Literally have a 10:00 meeting. No one call me at 10:00 on Mondays. Leadership team meeting every Monday morning 10:00, by 11 were done. Decisions are made. People are leaving taking action. That's the beauty of having the type of team that we have. So -- and I'm going to stop talking a little bit. Really, we have 3 pillars, why we really feel we're going to have this, why we could achieve this one-stop shop deli solution. It's built on 3 pillars, and there's nothing. I was taught early. There's nothing that works if you don't have a strong financial foundation. So what the team is going to do is walk you through these 3 pillars in our financial foundation today. And I apologize, I'm on Slide 8. I apologize. So the pillars we're going to talk about, first, I also know this in business. I don't need to go against the wave. I like riding a wave. Take a trend that's happening and accentuate it. Have the boat. My job is to create the capabilities to have the boat to ride the wave of macro trends. We'll talk about that for a couple of minutes. Tremendous growth opportunities. Steve will take you through the growth opportunities. Matt will take you through the operational efficiencies and then Anthony will close out with our financials super quick. So I meant to see the trends. Some of the trends that we think are most important, this is Slide 9. So the first thing is consumers are eating at home more. Unfortunately, because of COVID -- because of inflation, they're not able to go to restaurants as much. It's the first step. I've spent a lot of time in my past jobs, how does a recession work, how do consumers react to recessions? I spent literally 3 years, my only job was doing consumer insights and understanding what my 330 million friends were doing. The first step of a recession is people stop eating out, they eat at home. That helps us. The second step and actually one piece for that, what's actually unique this time around is because of COVID, no one has gone back. I mean look around and ask yourselves, even people going back to work, they're not going back 5 days a week. So every occasion that they're working from home, that's one more occasion for us to have that sale because what's happening is people are buying our products, they're buying extra of our products, they're eating it for dinner and then they're eating it for lunch in the next day because they don't have time to sit and make a sandwich or a salad. So the first element of recession is people actually start to eat at home. The second element, which is on the other end, and I'll get it back to the middle is people move from branded to private label. I've spoken to you guys about this before. We're both. We have the best of both worlds. In our legacy Mama's business, so not the T&L, not the Olive Brand, but in our legacy Mama's business, we're about 50-50 branded and unbranded. So we get that tailwind as well. The third step, I don't really want to talk about in a recession, which is people just stop eating. Let's hope we don't have to get to that and ask our monetary and fiscal policy to make sure that doesn't happen. The only other thing I'll talk about on this slide is just the time constraint is real. Consumers just don't have the time to make full meals. Think of yourselves. I remember when I used to work at home, literally, I just run down stairs, whatever is in the fridge and just ramp back up to my desk. Not cooking. That's the opportunity for MamaMancini's. Second element is, I spoke to you about just this -- how we're working with our customers. We continue to get stronger and stronger relationships with our customers. I spoke to you earlier about how -- now that we have more items with the T&L acquisition and the Olive Branch business, it makes it easier to have those conversations and provide more of an offering. Literally, I was just looking at this stuff this morning. If you look at the bottoms, we have more than 20 customers that are generating more than $1 million worth of sales. Nearly half of these were not on the page, if I would have created this page a year ago. That goes directly to your question, Bruce, on we're getting stronger in our existing customers. On top, I spoke to you about the new customers we have, not just any old customers, we're being very strategic. Roundys gets us more west to the Midwest. WinCo gets us even further west. These are areas that continue to strengthen the concentration of our offerings. Hackney, another great example of -- they are the ones that are helping us with our meat balls in a cup, getting into convenience channels, another area where there's more white space for us to play. I've spoken in the past about Publix and the strength that we have there. I know we spoke about it earlier with the meatball sub, just a great example of how we're continuing to work and partner with our customers. And then the last slide I'll talk about is on Slide 11, is building a foundation for growth. I don't know, I'll see if I get myself in trouble here. My job is to build capabilities, not for yesterday, not for today but for tomorrow. I will argue, you cannot tell me how well I'm doing now. You got to wait 3 years and see how well I did. For me, it's building capabilities, and that's where we're investing. Building new capabilities from finance. When I came in -- when I first came in, I said I'm not starting until we get a new -- I bring in my own CFO. We have an amazing controller that we just hired. I have never felt so comfortable with our finances before. I don't lose an ounce of sleep at night. I know exactly where I am at any moment of the day. What we're doing with our operations. This team just needed the resources, needed the commitment to lean in on this business. We now have dedicated resources. We're already seeing it. It's been a quarter, and we're already getting, what do we get 200 points of reduction on our logistics cost. Just give me the people, right, to dedicate the time, don't think of two $50 million businesses, we're $100 million business. It's incredible. And then the systems that we're putting in place to be able to understand, to be able to speak across our different businesses, to get a better understanding of how our products are moving through the system, how we're selling it to the DCs, to the stores. This is a massively high ROI with a relatively small commitment. So this is just a touch of what we're doing to build capabilities for the future. So with that, let me pass on to Steve who will talk to us about our growth opportunities. Thanks, Steve.

Thank you all for coming today. It's interesting. I was a founding investor in the company. And I was because Dan passed on my house one day and said Steve I'm starting a meat ball company, you should really be an investor. And I said, okay, let me try the meat ball and others. But what I fell in love with was the passion, the vision for developing a very important company. I was on the board of the company, lead independent director for many years. 3 years ago, we were at a Board meeting and I was listening to Matt present the opportunities that were in front of us and ahead of us simply, this really sounds like fun. So look [indiscernible] and I think the company probably needs help to get through this. So using my 24 years in Accenture, bringing companies together [indiscernible], putting in new capabilities, I felt I could do that with MamaMancini's. And here I am today talking about growth because we have various opportunities in front of us. We're very, very excited about it. Well, the first pivot is quality, right? MamaMancini's has always been about quality and quality sells. Quality works. Our customers recognize our brand, they recognize that our meat ball product is very strong. And they know MamaMancini's, both from an operational standpoint and from a product standpoint, it's quality and delicious. So with that, it is a natural for us to bring T&L's products, chicken and salads to our current customers. And we're very proud that they're responding. So you take a look at the fresh market here, where you can see both where our turkey meatballs -- excuse me, our beef meatballs are branded, our turkey meatballs and our chicken is not branded. They're both selling very well. And we get the same [indiscernible]. So diversity really works. We talked earlier, and Dan talked earlier about going to fresh market to discuss meatballs and 30,000 pounds, that we do 30,000 pounds. In year 1, while the business has got tenfold, in year 1, it was 500 and they went from 30,000 pounds to 170,000 pounds of meatballs selling and that was because of quality as opposed to the inferior product that they had before. So we're very excited about that. Cross-selling works. We're very excited about the expansion of our product line from T&L with our existing customers. Our chicken products are in fresh market Hannaford, Hackney. Our salad products, BJ's, Sam's and TOPS, it's because diversity works. It's a lot easier selling into existing customers with our great quality products. Breaking into new customers is very important core part of our strategy. But continuing the rollout, we've been more rapid in penetrating our existing customers with T&L products so far, we're going to continue to, while we continue to be innovative with our current products ourselves, such as the meal for ones and meatballs in a cup that you've already been talked about. And finally, we have a very specific and important, turning to page 15, approach to our product line, which is continue to diversify both organically and primarily organically to continue to find new products, build new products and get them to market. We now have proteins. We have our traditional MamaMancini's products. We've grown with salads and grains. We now sandwiches that you'll try later today. We will naturally go into soups and pizzas and other areas. MamaMancini, an Italian food maker, we can't say that sushi is going to be -- is Italian linked. So we may look towards others for very specific capabilities as long as they are a core part of our strategy. And that is that they're in the deli, that they're accretive to earnings, that they will expand our capabilities and they will expand our infrastructure. It would be great to have a facility, maybe on the West Coast to expand our geography, to be able to get our refrigerated products to market a little bit easier. However, our focus is to grow organically to continue to penetrate new customers, to continue our rollout with [indiscernible] stores and our penetration customers. But we will continue to look at opportunities again. Let me turn you over to Matt to talk about our operations.

Do I put this in my pocket and it'll work? What do you think? If I just tuck it right there? Do you think the investor community will hear me? Yes. Okay. We'll keep it going like this?

[indiscernible]

Certainly depends on -- the question is, what is our organic growth rate? Our organic growth rate varies from year-to-year. We've sometimes grown by 10%, 15% and 20%. I believe our year-over-year is approximately 20% over the last 6 years. But I don't know -- but in terms of year-to-year, sometimes it could be 10%, sometimes it could be 30%. So it varies year-to-year.

Does that [indiscernible]?

With -- now T&L acquisition essentially doubled the size of our company. We, MamaMancini's is selling T&L products account for about 10% of their sales now go to MamaMancini's customers, but they have more than doubled in size this year from their previous revenues.

T&L [indiscernible]

We can take the rest of the questions [indiscernible]. Sorry. We have [indiscernible].

Okay. Let's do this, this way. So for those joining us through technology on my microphone here. I'm Matt Brown, the Chief Operating Officer at MamaMancini's. As a co-founder of the business, I have seen this business grow from, as Dan described, literally a pot of meat balls on my desk to what is now over 60,000 square feet of production space over 2 facilities, pumping out 1 million pounds of product out of each facility a week. So we have made certainly some strides since when I first cofounded this operation. When I was actually in the food service restaurant business, I used to have a quote that I use with my staff. I stole it from Stew Leonards from the rock outside their supermarket, which I love, which is rule #1, the customer is always right. And rule #2 is if the customer is ever wrong, we read rule #1. And that mentality kind of sunk into my staff in the restaurant business and made us successful there. So in operations, the quote that I'm fond of is one that is, the definition of insanity is doing the same thing over and over again and expecting a different result. Operations is about a continuous drive towards perfection knowing that when you finally achieve it, you find you are simply at a new level with more room for improvement. And that's kind of the mentality I take with my staff here now, that we're always looking to become better amongst ourselves and amongst the team. So we have a strong team across the street at MamaMancini's. You saw it today on the tour, and we have a strong team out in Farmingdale. It's my job as the Chief Operating Officer to make sure that we have actionable goals and for me to provide the team with the tools and resources necessary to achieve those goals. So with that, I will start with Slide 17 for those online. A great example of this is outbound freight. So as we began fiscal '23, we saw the price of gas steadily increasing and having a direct impact on our shipping costs. A few truck carriers that we were using saw this as an opportunity to not only increase our freight rates but in many cases, they took the liberties of adding additional surcharges that we really couldn't fight at the time. Also at that time, we had 3 part-time individuals here in East Rutherford working on freight and logistics and one part timer out in Farmingdale doing the same thing. And they were burdened on setting up our shipments with these carriers, mostly working with 2 or 3 carriers just out of convenience. We really didn't do too much shopping around at that time. But working together as a team in fiscal '23, we were able to collapse those 4 part-time positions into a dedicated full-time position. And with that dedicated time and resources now at our fingertips, this individual was able to triple the number of carrier options for us in the various lanes and ultimately create a competitive environment, which all but eliminated the surcharges that ultimately reduced the rates across all of our shipments. The second thing that was -- we were able to do here was by focusing on both East Rutherford and Farmingdale, this individual was able to consolidate shipments and increase our pallets per truck, ultimately reducing our cost per pallet. The ultimate goal here was to eliminate as many of the LTLs are less than truck load shipments and move us more into a truckload capacity, providing us with more efficient pricing. So by combining both Farmingdale and East Rutherford shipments, we gained some bargaining power. Where before we may have had multiple stops, I use BJ's as an example here, where Farmingdale might have been going to BJ's Rocky Hill location and also the [indiscernible] as well as our location here in East Rutherford going to both of them. BJ's was kind of dictating the terms in the days they wanted it. But by consolidating the shipments, we now had more bargaining power. So we were able to negotiate the dates that best worked for us knowing that we were delivering a much more sizable payload. This optimization in fiscal '23 has saved us over 200 basis points of operating expenses. I will switch to Slide 18. Another example of goals and savings can be found in labor. So one of the biggest hurdles in operations is the learning curve. When we first started out here 12 years ago, we had to learn how to make meatballs, how to make meatballs, how to make the sauce, and we had to learn how to make them in large quantities, and that took time to learn and technology and the process itself. So now 12 years later, we've been successful at drawing from a large pool of labor in the surrounding area and through training in rooms such as this. And going through time studies with each of our products that we produce, we've been able to rapidly develop much smaller groups of skilled labors, and in fiscal '23, this process drove over 100 basis points improvement in our cost of goods sold. Overtime is also a killer when it comes to operations growth. As we need to produce more, the simple process is to work our employees longer. Somebody asked me about how we do our shifts right now. And I mentioned that we do extended shifts with our employees. And over time, that could add up with a lot of overtime. This can be pretty costly when you're running 25 hours of overtime per employee. So with this training that we did above and getting the skilled labor down to a small set of group, a small subset, we are able to rotate in that additional labor throughout the week at straight time, not at overtime. And we don't lose any efficiency in the production because these are people who have been properly trained to do the jobs coming in. So there's no learning curves there. So in fiscal '23, my management team is successful to reduce overtime by 25%. Another benefit of labor utilization, and I think Adam mentioned this earlier, is the ability to work across the locations. Where we see ourselves as the meat ball expert here in East Rutherford, we know that not all the products that we produce are going to be best done in this facility. So we looked at Farmingdale and we looked at East Rutherford and we found that certain products are done more efficiently over there and certain products are done more efficiently over here. So as new sales opportunities arose in fiscal '23, we looked across the locations to determine where it was better fitting to make the product in terms of process and labor for those products. Lastly, Slide 19, we'll talk a little bit about CapEx. So this is all about looking to the future. I think Adam mentioned that. So while labor efficiencies are important, we recognize that technology can greatly help us with our capacity. As we continue to grow, there will be a need to improve our process with the aid of machines that can help us get to where we need to be. Adam and Anthony especially believe strongly in investing in high ROI CapEx opportunities as we present them to them that will improve our margins and our throughput. Perfect example, the spiral oven. For those who took the tour, you saw it. For those who are online, we have a fairly large continuous oven, which we call our spiral oven. However, that oven has reached its useful life and we have near-term opportunities that are mandating a replacement within 6 months. So we didn't even wait on that. I basically worked with my team and researched the technology. We traveled to Chicago, saw the equipment at some of the trade shows and we have already planned a replacement oven that is due in here shortly that will increase throughput by 40%. Assuming a 5-year useful life on that oven, we expect a 47% internal rate of return on that purchase. The other example I can give you is the chicken trimmer. So while T&L and Farmingdale are the experts in grilling chicken, and they make a tremendously fantastic real chicken product. What they don't have the capability of doing right now is creating chicken strips ahead of the time. Chicken breast, yes, chicken strips, no. So what we are looking at is and we are currently paying right now up to a 50% premium, purchasing that pre-trimmed chicken strip product fully cooked from an outside source. It doesn't need to be that way. So we are looking at this point with the folks out in Farmingdale at investing in a machine so that we could bring in that stripping opportunity to do it in Farmingdale and eliminate the need to go outside of the 50% increase to cost of the product. So these are just some of the things we're looking at and how we operate across the street. I was happy to be able to take some of you on the tour and our door is always open here 5 days a week, sometimes on weekends when Adam cracks the wood, and we're always happy to take people around on more tours if you're interested. So with that, I will turn it over to our Chief Financial Officer, Anthony Gruber.

Thank you, Matt, and thanks, everybody, for joining us in person or remotely. I'm Anthony Gruber. Adam is definitely right about bringing somebody in pretty quickly on the finance side as I followed him by about a week of full-time employment. He started a week before me. He got to get on the first earnings call and he brought me in right away to go through and shore up the financial strength of the organization. So here on Page 21. So it's all about margins. Margins, margins, margins, and then margins. At the end of the day, I haven't seen any company save themselves and bring themselves to profitability by expense reduction. It's about creating margin and creating the opportunity to develop cash flow and invest back into the business. It starts by setting the right price with our customers. It's about knowing what the input costs are and we're a premium product. We do have some pricing power because we have that -- the product that's very clean. Again, the meatballs have 6 ingredients in them, people reading that label, happy to buy them in the stores because they know it's not filled with a whole bunch of preservatives and additives. Price pack architecture. So I think you could see in the room and maybe online, if you search around a little bit, we have different size of products as well. So it's about pricing in the Costco, pricing at a lower price per ounce than, for instance, our meatballs in a cup, which is kind of our smallest product level. It's making sure we optimize our margin in every product that we sell. With margins, I would say, we're always willing to grow and we want to bring the sales levels up higher, but it always has to be where we're making money. It has to be accretive. We have to make margin. The competitive shelf price, again, goes back to our premium product. We're able to put a good price on there and be competitive on the shelf. And people look at us as kind of a bargain sometimes because at the end of the day, the ingredients again, very few ingredients, very clean, people are comfortable bringing that home to feed the family with. Pricing promotion and commodity risks. So where we're looking at margins, we're making sure that [indiscernible] prices and which direction they're going and looking to build in that promotion cost as well. So we could take dollars and put that back into the marketing and marketing of our different businesses and our brands. Managing operational costs. So I think you heard Matt talking about the scale that we're working with now. And we're not a $50 million company, we're a $100 million company now. We're able to basically look at things from a different perspective rather than sending out half loads of or have truckloads of products, we're able to speak with our customers and sell them products that are from T&L or from Olive Branch and are from Mama's and we're able to put that all in one truck and satisfy the customer needs, becomes as efficient from our side on the freight costs and it becomes efficient from the customer as well. Now they're unwinding on truck instead of 3 or 4 trucks to get the same amount of product into their warehouse. Purchasing and logistics, I just talked about the logistics piece. But purchasing, procurement, we're not looking at purchasing for Farmingdale alone or for East Rutherford alone, we're looking at what are the prices for everything making larger purchases and having those products go directly to the location we need. We need to use our size to get leverage. Dedicated resources. I think you heard Adam speaking about that a little bit earlier. And yes, we need to focus on specific areas of the business. So for instance, we bring in an organization, we buy a company like T&L, and we have a MamaMancini's already in place. What we want to do is put everybody on the same platform and working off of the same systems so that we're not inefficient. Our choice is NetSuite. What we will be doing and have done already is kind of consolidating the areas that we become experts in. So we don't want to be collecting receivables in 3 locations, 3 locations, whatever it may be, we'll have a specific group that will collect receivables. On the payable side, the same piece holds true. We want to consolidate that and do the payables in one system and amongst all the organizations. It's kind of a shared office -- a shared back office structure. And I come from a background of doing things like that, bringing in brands and putting them on an administrative structure that lets the front-end thrive and keeps the cost down and makes us very good at what we do. KPIs. We track these consistently. We actually go through on a weekly basis to see not only where our sales are for the month but what do we think our profitability will be at the end of that month? Where is our margin sitting for the month? Are there changes in input costs? Are there things that we can make better that -- quite frankly, can we go to our customers and go and say, listen, commodity prices rising this much, we need some more money for the product. And we need to -- want to give you that quality product that you're used to getting it. we want to provide it to you, but there's input costs that have gone up. And we've been able to leverage this system, and we could see it in the -- going from the second quarter of '23 to the third quarter of '23. We went from 11.9% margin to 25.6%. It's a pretty dramatic increase. We can consistently look at these numbers and try and drive that margin. Again, it's about margin. Cost saving is not going to bring us profitability, margin well. On the customer level as well, all the different customers that their profitability levels went up. So we're quite proud of that. And in quite a short period of time, we were able to optimize that. Going to Slide 22. Got to drive SG&A efficiencies. I spoke a little bit about it in the last slide. I think Matt spoke about it, talking about both freight, he was talking about manpower in the plant and investing in CapEx. We want to make sure that we just consistently grow the business and grow it profitably. One of the big things that we look at is we know with our customer base, there are things called chargebacks, where they're giving us a price for our product. But any time we don't do something according to the way they want it done or maybe they have a marketing fund or another way, they basically withhold payment from us kind of reduce our gross invoice to them, 2%, 3%. That's what basically causes margin erosion. We want to make sure we're on top of those right away. We understand the core reason why we're getting these deductions, fix the issue, use those dollars then to promote our business. Those dollars that maybe our customers are putting in their pocket, we want to keep and we want to use it to promote our business. And that's where the deductions basically will feed the trade promotion. Accounts receivable feeds into all of this, we want to collect as quickly and as efficiently as possible. And again, if we're collecting on a $50 million business, it's different than collecting on a $100 million business. We start to have some leverage. We start to have some expertise in dealing with the department -- the customers that we're dealing with and making sure that we understand, again, what are some of those areas that they can dilute our margin by, and work with those and fight those and make sure that we take those dollars and put them back into the business. Shared services, I talked about. It's a platform that I believe strongly in. It's basically becoming experts in those -- all those areas I talked about. So I talked about AR. I talked about IP, goes with reporting as well. So producing those financial statements, producing the information and the management information we need in order to run the business. So it gives us that management information of what's selling, what's the margin on every specific product to every specific customer and to make sure that we consistently are creating margin by looking at those particular opportunities. Logistics. We talked about so many times already, I'm not going to beat this one anymore. But we know the efficiencies that we have there already and the efficiencies that we could still get in that arena. Procurement is another area that we can just leverage the strength of the organization. We go out and purchased another company, accretive to earnings, kind of the criteria that we've spoken about before. We're going to bring them into the fold on all of these pieces, procurement being one of the main ones, where we're not, again, purchasing for a $50 million company, a $50 million company and a third $50 million company, but purchasing on everybody's behalf for a $150 million company, will bring us efficiencies of scale will get us better service from our vendors as well. And then building capabilities, pricing and promotion. So if we get those margins, we can promote our product well and make sure that we're working with our customers to show them what we're bringing to the table and how we can move product and make a margin for them as well. They want a product that moves and they want to make money on the product that we're selling them. Data analytics. It's -- we're working with an outside firm now that is going to be giving us information from the point of sale. We're going to know what's selling. We're going to know what's on their shelves. We're going to know what's in their back of the warehouse or in the deli or the commissary to understand where is there opportunity for them to sell more, where is our opportunity to sell more, are they missing sales? And we will bring that up to them as well. Consumer -- customer insight labs. This is just going straight out to the customer. This is actually tastings that we had today. For those of you on remotely, unfortunately, you didn't get a chance to consume some of the great food that we had here. But we always look forward to getting feedback. And the feedback we get mostly very positive. If there's something that somebody has to say that isn't positive, we're going to take that, and we're going to learn from it. Going on to Slide 23. We want to optimize cash. That again is margin driven. In order to drive cash, we need to make margin, and we need to be profitable. So in the last -- going from the second quarter to third quarter, we produced a good amount of cash, and we were able to pay down debt as well. That's our goal consistently, is to drive down that cash -- drive up the cash position, drive down the debt position. If we go out and we're looking at some other opportunities, we may look at some more debt opportunity to purchase those organizations. And then we'll go through this process again. We'll integrate them in. We'll generate cash flows, and we'll continue to drive cash and lower the debt position. The dedicated resources that I talked about, looking at AP, looking at AR, looking at the financial reporting, it's to use those to drive the cash conversion cycle, to get those dollars in the door quicker from our customers and to get better terms with our vendors. With the strength again of a larger organization, we get buying power out of that. We get negotiation power out of that, we're going to use that to our advantage. And of course, access to friendly debt capital. So we use our friendly neighborhood bank, as Steve Leonard says. So I think he's on a commercial for M&T now. M&T is our banker. We have an extremely good relationship with them. I'd probably speak with my Executive VP over there, probably 2, 3 times a week, just to give them insights on the business, get them comfortable with what we're doing, what we're investing in, how our financials look. We've been able to overcome our covenants and continually do better. And there's some wording in our debt structure where the better we do on covenants, the lower our interest rate goes. So every time we click up there, it clicks down our interest, which is another lever that we have in order to generate cash, avoid interest. And I'm talking to them about some other opportunities that we'll have -- to make ourselves more efficient and to offset some of the rising interest cost that everybody is facing these days. And with that, I'll turn it over to Adam for [indiscernible]. Thank you, Adam.

Thank you, Anthony. And thank you, Matt and Steve. I'm so happy that you guys had a chance to meet the rest of the leadership team. Really, again, hopefully today, and we're going to have a Q&A in a minute, but really want to you with these 3 things, again. The macro trends, you see it. I gave you the data behind it. You guys see it yourself every day. These are the right trends to ride for our business. Second thing is you met with Dan, you're seeing some of these things already. I thank Steve for giving us more [indiscernible] how we're doing growth. This is a truly differentiated offering. It's an authentic story. And then lastly, you see it all from our line of operation. How we manage finance. I can tell you, myself, personally, I think I've taking for granted in the past, everyone do cash conversion cycle, everyone had a tattoo on their whatever part of their body that, of course, I mean I was brought up, you manage AR, you manage AP, you manage inventory. I would get destroyed, if I didn't know every single one of those numbers and our numbers were going down, right? Cash conversion cycle, you went down. It's got to be going down every single quarter. I feel great with Anthony here. We're doing that. We're managing things, the KPIs he spoke about. Every week, we know where we are at all times, not just the what, the data, which don't take for granted. Just so what? What does that data actually mean? And now what actions are we going to take with it. The fact that you have the data means nothing if you don't take action against it. And I think and I hope you feel that clear and compelling story and strategy that is going to be with us for some time now. So with that, I'll open it up to questions. And then Luke, please let me know if there's online.

Mr. Bruce?

Question for Anthony. When you look at plan to growth on like [indiscernible] take a number, $200 million [indiscernible] their gross margin, so this is what we [indiscernible] this is what we should [indiscernible] so when were you talking [indiscernible].

We look at it at every level that you just talked about.

[indiscernible]

The question was, do we look as we're growing to have different targets for margin, for net income, for EBITDA? And yes, we do. At each of those levels, we have a targeted percentage. And as we grow and as we combine our resources, we anticipate leveraging those to keep those notching up even when we become $300 million or $400 million, I'm hypothesizing down the road right now. But I think we're still going to be looking for that leverage in order to manage the margins, make them better. Again, we want to push sales but we want to do it profitably. So we have different percentages that we have [indiscernible].

Yes, I agree with [indiscernible]. Just more specific to your question. So what we said publicly is that we want to be in that mid-20s for gross margin. That's the target that we have been laying out, achieved that last month -- last quarter. Expect to continue to do that. As we get better and better, I think you're going to see it within that number, mid- to high, it's going to continue to move up. As we continue to drive better price realization, better operations and then get more and more efficient with overheads. I won't be bashful that I want to build capabilities. So I'm not going to hit my targets by cutting overhead such that we have no people left. I'm very passionate for those capabilities. So very specifically, mid-20s for gross margin and high-single digits for bottom line margin.

What do you think -- what's your bottom line?

So EBITDA margins are saying high-single digits. EBITDA, yes.

Last quarter [indiscernible] think about the building [indiscernible]

Yes, total -- I absolutely believe that quarter was a good quarter, and I believe that we could do even better.

[indiscernible]

So I think that -- so a couple of elements. The first one is from a utilization perspective, I would argue that we're roughly around 50% utilization. So we don't need anything immediately tomorrow. So that's one. Two is that the CapEx that we do need is going to come from cash flow from operations. We're not short on cash. Anthony told you how great our relationship is with our bankers. We just raised another $1 million of our line of credit. I'm not worried. All of our CapEx is going to come from cash flow from operations. And then the third thing I'd tell you very directly is we went to the Board with our plan with a few million dollars of capital -- CapEx that we have approved that is going to hit our algorithm for our business next year and actually the next couple of years. And now it's a matter of actually Matt and team coming back on where we have our laundry list of the things that we want to spend. I'll see a few million dollars of capital every year that we're going to be investing in.

[indiscernible]

Ship inspirational foods yes.

[indiscernible]

24% stake, yes.

[indiscernible]

No, it actually will improve our margins. So you're absolutely right. So the T&L business, the way it's set up is the gross margins are a bit lower because what we have -- it has a different sales model. They use chef [indiscernible]. We use chef inspirational foods for that. If -- we took a 24% stake this year because amazing company, strong capabilities, experts in selling. If we were to acquire the other part of that, all of that margin would actually go to T&L, so it increased our gross margin. Absolutely.

[indiscernible]

Absolutely. So when we made the first 24% stake, we actually have the option. We have the option to buy the remaining this year.

[indiscernible]

That's a good thing. Yes.

[indiscernible]

Yes. And I apologize again. The question was. what do we think about sales? How hard is it to sell in with competitors and the like? So I would actually tell you, and I think I mentioned this earlier before we got on the call, I actually don't even think [indiscernible] that's not fair. Thinking about my customers is probably the fourth or fifth thing that we're thinking of. And the reason for that is the growth of the space that we're playing in right now, stores are actually open -- they're actually increasing shelf space. It's a pretty unique situation, right? Think of the last time a shelf-stable company got a call from one of their retailers saying, hey, we added more shelf space. That was not what's happening. That is happening in our space. So what I believe we need to show is that we have a high-quality product with great service. That's what's getting us in the door, and that's what's selling. It is only accelerating that because now our sales team had more items to sell. I mentioned this earlier that before if I wanted to be kind of tough on us, we're a one-trick pony, right? We sold meatballs and maybe we sold some sausage and peppers, if that's not what they're into, I had nothing else to sell. Now I have 3,700 things that I could tell if I really want to, and that's what's -- literally, I just got a phone with our sales guy this morning, our head of sales this morning, Scott. He said he has never been this busy. And I don't know, Matt, you've been here -- we literally have not -- I'm telling you I'm going to get beat up. I don't know if it's Chris is in the room there. So our chef who, of course, overseas, there is nothing more important than quality. The most senior guy on our team. He is responsible for overseeing the sampling. That's how important samples are, never been busier.

[indiscernible]

8 years? Yes, Chris has been here 8 years. So I will tell you, my concern is not getting the calls right now. My concern is to get the samples out. We stay as high as humanly possible on the quality of our products, the service of our products and the rest will take care of itself. Our product is so good, the rest will take care of itself.

[indiscernible]

Yes. So the question is, what does our sales team look like? So we actually have different pieces of our sales team. So obviously, we have in-house folks. You mentioned earlier, we have CIF because it's so important to us as an additional sales force for us. And then we also have for some of our key customers, a broker network as well. So we are making sure that our time, the 24 hours in a day is not the hindrance for ourselves. We are able to map the entire country, all of our key customers, whether it be through our broker network, our external partners or our own internal partners.

[indiscernible]

Roughly, my estimate is roughly 50% utilization. Obviously, just to make sure, obviously, if I asked Matt to make 2.4 ounce meatballs all day long, we're at 10% utilization. If I ask him to make the meals for one and 47 varieties of it, he'll kill me. And then two, our utilization is at 80%. So it's a function of what our utilization.

I think the simplistic answer I gave to people on my part of the tour was that we're running with the one shift. And it's very easy to just in simple manner say, well, if we got a second shift of that time line, over the same number of days you will double your capacity. So a simple way to look at it is, yes, we're running 50% capacity. But to Adam's point, it's all about the mix of what you're doing over at that plant. Some items, we can run all day long. Lower margin item or a higher margin item. It all depends on the mix. But the reality is, is that production capability is at about 50% capacity.

Great. My question is what year [indiscernible]

So the great -- so let me try to answer and please hold me down to as best as I can answer. So the question again is how much runway do we have? So the first thing I had -- the first thing I will say is, even though we're at 50% capacity right now, Steve's #1 job is the factory of the future. So the most important guys on the team, his main responsibility is building that strategy, that factory of the future. So when do we actually need that next facility? Now, I would tell you, and again, I'm going to give you just rough estimates. For the next 3 years, based on our growth rates, we're not going to need a new facility. The reason why I can't give you an exact number, the spiral oven that you just saw. It increased utilization -- it increases efficiency by 40%. The seen exact footprint. If you wouldn't I wouldn't -- I'll speak for myself, I wouldn't have known the difference if I didn't have to sign some sort of document. That's why -- where I don't think it's as easy as, okay, you're at 50%. Double the production, therefore, you're at 100%, but just you know that's not the way that it works. But I will tell you, I feel very comfortable and please challenge me, easily the next 3 years, not maybe 5, but let's call it 3 years, we should not have a problem from a utilization perspective. And the CapEx, again, it's important. And any CapEx that we do to make things even more efficient, is going to be paid for by capital cash flow from operations. How did I do? I could keep going. Okay. I'm trying.

[indiscernible]

What was the -- but that includes what we already have. I'm saying incremental. I'm saying an increment, we have put into the budget for next year an additional few million dollars of additional CapEx, new CapEx.

[indiscernible]

Not yet. We could see about doing that in the next earnings call.

[indiscernible]

Yes. So the question is, where are we in the margin progression? What inning are we in, in baseball? I would say we're actually in the first 3 innings, if not even early in that point. And let me give you a couple of examples. The first one is when we first came -- when I first came in the past few months, we took all of our pricing that we believe that we needed. I will tell you, we got near all of it in. If anything, actually, [indiscernible] back was, why did you take so long to even ask for it. We did not see that in Q3, right, because it took time to come in. Everything pretty much happened by the end of last month. So all of that price realization you didn't see, that's one. Two is from an operations perspective, Matt and team, they're just -- they're putting all of that in place. You heard some of it. I think that there's still a tremendous amount to go. I think from an SG&A perspective, I mentioned to you earlier that we're in the early innings of integration, the work that Steve is doing with bringing NetSuite to our T&L and to our Olive Branch business. It's going to be wildly helpful. Anthony's team in leveraging the synergies from a finance perspective, you're going to see those as well. But I'd probably tell you definitely in the first 3 innings, if not even on the early end of that.

[indiscernible]

Yes, absolutely. So the question is where -- what is our sort of margin philosophy? I guess, I'm trying to make it succinct, where we want to be. So I would actually tell you that I think we're actually upside down on our margin. So -- and I love the words you just used, which was our price is a little bit higher than the commodity meatballs. We do not want to play there. This team and please challenge me, we are not commodity meatballs. So you look at the ingredients of the traditional frozen meat balls and some other meat balls. We don't want to play there. I will tell you again, I think that we are massively underpriced. When I first came in here, I will tell you that you're starting to see on the shelves what I believe is a better price, and we are still below most of our what I would deem our competitors are. So I feel very good. I'm thinking about every single customer, everything from the grocers, our club channel, I'm actually still slightly disappointed in where our pricing is. We are -- and it's not even -- I would say we're not even a premium player. We are a fresh, clean, better-for-you offering. There's always going to be commodity meatballs at half the price in the freezer, may or may not even be the first ingredient. Water is definitely the second ingredient, and I will give you a meatball if you can name the last 10 items that are on that ingredient list, you probably couldn't even pronounce them correctly. We do not want to play there. Same thing with our chicken. Our chicken is spectacular. Literally, without exaggeration, our chicken is flame grilled. It is the size of this whole room, it's how we make our chicken. I did not know this before I started, but most -- at least certainly a whole chunk of chicken out there that you and I eat, those beautiful grill marks. They're literally fake. They are literally painted on. Yes. mechanically separated chicken, like what the heck is that? So I'm very -- hopefully, you saw that my heart moved up a little bit on the question. I'm happy to see -- every company, every brand that I've been a part of, it has been core -- has to be proud. Yes, we'll stop.

[indiscernible]

You want to talk about the -- do you want to talk. You want to answer the question?

Okay. Sorry. So yes, absolutely, so we track it every single week. Our 2 biggest commodities that we look at every single week is our chicken and our beef. Chicken was the sickest rollercoaster you've ever been a part of at Six Flags. Over the summer, we usually are chicken is in the, let's call it, $2 range. It was up to $3.64 at one point over the summer. Now it's back down to a reasonable level. It's actually -- for our modeling, it's actually slightly below where we think it will be. And we took that into account as we model our fiscal year '24 plan. We believe it's going to go up. Actually, Anthony Morello, our team is the brainchild behind that. And guess what? Past 2 weeks, it's now starting to creep up. Same thing with beef prices around $2 range, if you were just to go by the same bulk that we bought. We expect that to go up a little bit, and that's built into our modeling. The way we did pricing, and this is another real difference, I think, from today versus in the past, we did not set our prices based on cost. Cost is an element to it, but we didn't [indiscernible] based on cost, and we didn't do it at where the cost is right now. We've created a way such that now, yes, if price goes up another $0.10. Am I happy about it? No. But do we have to change our prices because of it? No. So hopefully, that's helpful on where we see beef and chicken prices going.

[indiscernible]

We can look at it. Absolutely. It's definitely...

We already -- to that question, we actually kind of do already. Whole Foods, which is one of our major accounts, their request for the ingredients are slightly different than some of our other customers. So where they have what they call a gap meat program where we have to be antibiotic-free. That's a different classification of ground beef coming in that we get that from a separate supplier, a little bit higher cost beef. The cheese that goes in is a little bit higher cost cheese. But because of that, we're able to command a slightly higher premium price for that product with them. It's part of a private label program with them. But again, we're able to command a higher price because it's command a higher price degree.

That's good. I think it's -- and again, we're a leadership team, and I hope they would -- you could catch them afterwards and challenge me on this. We're a team. We decide together, right? This is a democracy here. For me, based on my experience, what I think is great about this company is that every single household, over 200 million households in America could eat our products. I've been in businesses before where I had to talk about Kale or Kombucha or whatever these sort of fringier items are, and you just have to be realistic, this it is not going to be an every household in America. I would challenge extra credit if you could tell me which household in America does not eat meatballs or chicken or grilled vegetables or sandwiches or salads, or olive. I truly believe we could be in every store in America, at every household in America. I love the idea of potentially premium, but I do want to stay in a place that everyone in America can eat our product. I truly believe that's where we can be. Bruce is getting his money where -- I'm telling you guys -- sorry, we'll do the next [indiscernible]

[indiscernible]

Not yet. Obviously, this just happened, as you guys saw just last week or 2 weeks ago, but it's certainly something that I'm sure will be spoken about over the coming weeks and months.

[indiscernible]

Whatever he did and [indiscernible] whatever he would do, obviously, he would have to publicly disclose. He's more than a 5% owner in the company. So you got -- everyone would know at the same time.

[indiscernible]

I'm not sure I know what the standard is, what the industry is. We have certain ROIs that we have for ourselves based on what our cost of capital is and where we're having our spending. But I mean, again, I'll give you a specific example. You saw the spiral oven, we were looking for about a 50% ROI and that's the IRR, and that's what we got for it based on where we want to be. Good. Any questions from the field? Luke, is there any -- do they ask questions? Okay.

Does it make sense not [indiscernible] with respect to the over the last next quarter [indiscernible]. Does it make sense to have it totally different [indiscernible]?

Yes. We said that. So I actually, at the last earnings call, and I intentionally mentioned that we are a one-stop shop deli solution. We're not the one-stop shop Italian heritage solution. So yes, you will be seeing from us, we're doing some work. Obviously, stick to the room we're in and how I was brought up, we've already gone into the field, and we want to be consumer-driven as to what resonates with them. So we've actually already started that work. Good. Well, guys, thank you again. First of all, thank you to my team. Every guys. Can you come out, [ Carlin ], [ Emma ], [ Chris ]? Please come out. Thank you guys so much. I really appreciate it. Thank you guys for coming today. Please, you guys did your job, you asked lots of questions which I appreciate. There may or may not be a surprise coming out now after you guys stretch your legs. But with that, thank you guys very much, and excited to continue the story with you. Thank you, guys. Bye.

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