MAMA - NASDAQ

Good afternoon, ladies and gentlemen and thank you for standing by. Welcome to Mama’s Creations Fourth Quarter and Fiscal Year 2024 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. This conference is being recorded today April 24, 2024, and the earnings press release accompanying this conference call was issued after the market close today. On our call today is Mama’s Creations’ Chairman and CEO, Adam L. Michaels; and CFO, Anthony Gruber. Before we get started, I’d read a disclaimer about forward-looking statements. This conference call may contain, in addition to historical information, forward-looking statements within the meanings of federal securities laws regarding Mama’s Creations. Forward-looking statements include, but are not limited to, statements that express the Company’s intentions, beliefs, expectations, strategies, predictions or any other statements relating to its future earnings, activities, events or conditions. These statements are based on current expectations, estimates and projections about the Company’s business base in part on assumptions made by Management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may and are likely to differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors discussed from time-to-time in this report and in other documents, which the Company files with the U.S. Securities and Exchange Commission. In addition, such statements could be affected by risks and uncertainties related to factors beyond the Company’s control. Matters that may cause actual results to differ materially from those in the forward-looking statements include, among other factors, the loss of key management personnel, availability of capital and any major litigation regarding the Company. Throughout today’s call, the Company may refer to adjusted EBITDA, a non-GAAP financial measure, which it believes better reflects the performance of the business on an ongoing basis. A reconciliation of adjusted EBITDA to its most directly comparable GAAP financial measure is included in today’s earnings release, which is available on the Mama’s Creations website under the Investors tab. And finally, this conference call contains time-sensitive information that reflects management’s best analysis only as of the date and time of this conference call. The Company does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of this conference call. And at this time, I’d like to turn the floor over to Chairman and CEO, Adam L. Michaels. Adam, the floor is yours.

Thank you, operator, and thank you to everyone for joining us today. I’d like to welcome you to our fourth quarter and fiscal year ‘24 financial results conference call. The fourth quarter saw a robust set of results in what is typically a seasonally slower quarter, highlighted by 17% revenue growth, a testament to our focus on driving long-term profitable growth. At its core, our goal of becoming a national one-stop shop deli solution is a direct reflection of a purposeful and patient plan to capture what is a generational change in our consumer preferences. A recent Market Force survey showed that more than 70% of consumers purchased prepared foods in the last 90 days, reflecting a busier lifestyle and tighter budgets due to ongoing food inflation. It's been 30 years since food ate up this much of consumers' incomes and with that, 43% of surveyed consumers are cutting back on restaurant meals, and the frequency of trips to the deli section of the grocery store are increasing. The deli prepared food space is one of the few areas of the grocery store increasing not just dollars, but also in volume terms. This has made deli prepared foods an attractive alternative to restaurants, requiring little to no preparation for what is, in our case, a high-quality meal made with simple ingredients your children can pronounce, at an attractive price point. Grocery stores are taking notice and expanding their deli prepared food sections, both in terms of in-store footprint and product selection, leading to the rise of the grocerant, a play-on words for grocery stores that are effectively becoming restaurant competitors through a growing grab-and-go food selection. About two-thirds of grocery industry executives polled by Deloitte saying that the fresh department is the most strategically important area for their sales growth during the next 12 months to 36 months and per a recent IRI Circana study, the number of new buyers of deli entree chicken products, our biggest business line today, is up 113% since the pandemic, with more than $200 million of increased sales. That's just one example of how the deli is growing. Circana, like many other firms, expect deli to outperform total food and beverage volume growth in the year ahead, but growing a deli case as a grocer isn't always easy. There are many fragmented regional deli prepared food vendors today who focus on narrow niches within the space, creating increased work for the grocer buyer to manage trucks, orders, promotions, just to name a few. A one-stop shop national player is needed and since we started our journey 18 short months ago, our approach has been highly appreciated and welcomed. So the opportunity we are facing is clearly significant. We're in the right place at the right time and with the right product portfolio. The Mama's Creations product offerings is, in my opinion, second to none in variety, quality and service. Grocers are recognizing that. So to me, Mama's was clearly the right vehicle to address this incredible opportunity. So, when I stepped into the CEO role in September 2022, our operations lacked the discipline I believe we needed. With the formation of our initial 3C strategy, we immediately set out to improve our cost, controls and culture, areas that in my opinion required the most attention. As we began to rebuild and strengthen the foundations of our business, we needed to go back to the proverbial gym and become brilliant at the basics. We quickly got to work, methodically addressing the biggest pain points across each of these areas and implementing key operational KPIs under the mantra of what gets measured, gets improved. The first was cost. Our gross margins were 11.9% in Q2 of fiscal '23 with significant potential that needed to be unlocked. The path to the approximate 30% gross margins we are realizing today took countless small improvements throughout the organization. From step change, freight and procurement efficiencies to implementing processes to reduce labor overtime, our operations run much more efficiently today than ever before. The improved margins and cash flow are being directly and immediately put back into further investment in CapEx, which will further drive down COGS even more, creating a virtuous cycle of higher and higher gross margins. Second were our controls. We immediately hired a new, well-seasoned CFO in Anthony Gruber concurrent with my appointment, as well as a brilliant controller, Peter Monsch [ph], under him. I have been sharing with you over the past 12 months the successful implementation of our NetSuite ERP, providing unparalleled visibility to our business, improving pricing, margins, inventory management and so much more. We also perfected account receivable management, which has drastically shrunk our working capital requirements. All contracts are now reviewed by Anthony and his team, driving consistency, and I'm not ashamed to say, more favourable terms for Mamas. The third C was culture, where we've implemented formalized HR processes for the first time, have formal employee handbooks in English and in Spanish, completed our first-ever performance management process, and the first-ever corporate-wide culture committee to ensure we are doing right by our employees at every level of the organization. My favourite most recently was the creation of our inaugural LOVE Awards, which stands for Living Our Values Every Day, helping to imbue every employee with the Mama's spirit. While I can tell you that it is personally rewarding to see our culture blossom and see the smile on our team's faces as I walk through our kitchens every day, I'm not doing this magnanimously. Our focus on culture is driving more production efficiency, higher retention, and higher quality of our products, because we're all pulling the wagon together. As my mentor told me many years ago, culture trumps strategy every time. With the successful evolution of our finance operations and HR organizations underway and financial results reflecting it, we have put in place the processes and culture to begin to accelerate growth. At our Investor Day in East Rutherford in February, we announced the introduction of a fourth C, Catapult, representing the investments we are making today to grow the business profitably at a faster rate. We are achieving this Catapult in three ways. The first is through good old-fashioned sales leadership. We had a single dedicated sales employee when I began, growing to five today. The importance of this more robust sales organization as we enter this summer cannot be understated. This is all in addition to our first ever online presence with our inaugural direct-to-consumer e-commerce website launched in November, further supplemented by a recent launch on Amazon.com. With our national physical footprint, coupled with our always-on online presence, our Mama's Beef and Chicken products are available 24-7, 365 to our consumers. The second is trade promotion, seeking to accelerate the velocities of our existing SKUs by driving trial and larger baskets. Combo buys with complimentary products, multi-buys of our family of products, and print and online circulars are just a few of the recent tactics we have used to deliver and then accelerate the growth you are seeing today and we are just getting started. Historically, our trade promotion efforts lack the discipline, formalized tracking, and a clear plan. With the hiring of Nick Powers, our head of trade, strategy and execution, and our first ever trade promotion employee, we now have all three of those. In time, we hope to grow our trade promotion spend from low single-digit percentage of revenue today to over 10% in the long term, reinvesting our production efficiency gains above our target gross margin in the high 20s range into increased trade promotion, and therefore driving higher revenue growth in time. This is a high ROI activity for us, and we will be vigorously testing and learning. Another recent IRI report highlighted that since the pandemic, average promo lifts in the deli are up 19 points, from 46% in 2019 to 65% last year, reinforcing that this is exactly where we want to spend. The third lever in Catapult is marketing. We hired Lauren Sella, our innovative Chief Marketing Officer, who I was fortunate to have worked alongside in my days at Mondelēz. In addition to strategic marketing activations, such as our radio features and our in-store advertising, we're enhancing our industry presence with a record attendance at industry conferences to put our products in front of buyers. Most recently, we gave away a year's supply of meatballs as part of a National Meatball Day, earning us incredible media mentions and inbound interest from consumers. With over 10,000 entries, we tripled our proprietary email list, quadrupled our Instagram followers for nearly no cost at all. Taking together, the goal of Catapult is to continue to drive up our average items carried, which stands at over seven items today from below five when I started, accelerating the existing velocities of our existing items and opening up new doors, building broad-based national distribution. With our new team and capabilities, we increased the likelihood of opening up entirely new channels, whether that's the convenience channel, e-commerce channel or major retail customers, such as Walmart or Target. Opening these could be impactful to our growth trajectory, hence our strategic CapEx investments to prepare for whatever the future may hold. We're investing mid-single-digit millions in CapEx this year, already paid for and funded from cash flow from operations, with the goal of improving automation at both of our production facilities, while concurrently building new in-house capabilities earlier in the value chain. These investments, paired with ongoing operational improvements, have the potential to move our gross margins into the low 30% range over the long term, while concurrently growing our trade promotion investments from low single-digit percentage of revenue today towards our long-term goal of 10%. As we continue to improve our internal processes firm-wide to become brilliant at the basics, while I am extraordinarily proud of this team, it is truly only the beginning. Together, we have quite a bit left to accomplish here. I firmly believe that we are building a more resilient and flexible organization that has the potential to deliver continued value creation to my fellow shareholders for years to come. With that, I'd now like to turn the call over to Anthony Gruber, our Chief Financial Officer, to walk through some key financial details from the fourth quarter and full year of fiscal 2024. Anthony?

Thank you, Adam. Revenue for the fourth quarter of fiscal 2024 increased 17% to $26.7 million as compared to $22.8 million in the same year-ago quarter. Revenue for fiscal 2024 increased 11% to $103.3 million as compared to $93.2 million in the prior year. The increase was largely attributable to volume gains driven by same-customer cross-selling, effective trade and marketing promotion on existing SKUs to drive velocity gains and the acquisition of new customers. Gross profit increased 22%, $7.8 million or 29.3% of total revenues in the fourth quarter of fiscal 2024 as compared to $6.4 million or 28.2% of total revenues in the same year-ago quarter. Gross profit increased 56% to $30.3 million or 29.4% of total revenues in fiscal 2024 as compared to $19.4 million or 20.8% of total revenues in the prior year. The increase in gross margin was primarily attributable to successful pricing actions, normalization of commodity costs and improvements in procurement, manufacturing and logistics efficiencies. While we have seen some commodity price increases as of late, particularly chicken, we have been very proactive in addressing this, accelerating our CapEx to improve labor efficiency and move away from third-party upcharges, requesting price increases with customers across the board and leveraging new suppliers to drive even further procurement efficiencies. These price increases, when paired with our efficiency gains through recent CapEx investments to improve chicken processing capabilities, should offset some of this impact. Operating expenses totalled $5.9 million in the fourth quarter of fiscal 2024 as compared to $4.5 million in the same year-ago quarter. As a percentage of sales, operating expenses increased in the fourth quarter of 2024 to 21.9% from 19.9% in the same year-ago quarter. Operating expenses totalled $21.4 million in fiscal 2024 as compared to $16.6 million in fiscal 2023. As a percentage of sales, operating expenses increased in fiscal 2024 to 20.8% of sales as compared to 17.8% in the prior year. Operating expenses as a percentage of sales increased due to the addition of several new key hires who brought new and differentiated capabilities to the organization, as well as increased non-cash expenses, including depreciation, amortization and stock compensation expense. Net income for the fourth quarter of fiscal 2024 was $1.4 million or $0.04 per diluted share as compared to net income of $1.8 million or $0.06 per diluted share in the same year-ago quarter. Net income for fiscal 2024 was $6.5 million or $0.17 per diluted share as compared to net income of $2.3 million or $0.06 per diluted share in the prior year. The fourth quarter's net income totalled 5.3% of revenue, in line with management expectations in the mid-single-digit range. The fourth quarter of fiscal year 2023 was positively impacted by a one-time book-to-tax adjustment that improved net income by approximately $0.5 million. Historical net operating losses are now fully drawn down, and the company has begun paying standard tax rates on net income. Adjusted EBITDA, a non-GAAP term, increased 22% to $2.9 million for the fourth quarter of fiscal 2024, as compared to $2.4 million in the same year-ago quarter. Adjusted EBITDA increased 161% to $11.7 million in fiscal 2024, as compared to $4.5 million in the prior year. Cash and cash equivalents as of January 31, 2024, increased to $11 million, as compared to $4.4 million as of January 31, 2023. The increase in cash and cash equivalents was driven by $11.6 million in cash flow from operations in fiscal 2024, $3.3 million of which was used to pay down the company's debt. As of January 31, 2024, total debt stood at $8.7 million. This cash war chest, coupled with our favourable commercial lines of credit, reduced debt, and a stronger balance sheet is preparing us well for whatever inorganic opportunities proactively or reactively come our way. Looking ahead, we believe that our normalized gross margin profile, barring any minor commodity-related fluctuations, will continue to hover in the high 20% range. Our long-term goal, leveraging strategic CapEx investments, procurement efficiencies, and continuous operational improvements, would be targeting margins consistently maintained in the low 30% range, while right-sizing our trade promotion investments from low single-digit percent of revenue today, closer to our goal of 10%. Turning to net income, while we continue to target mid-single-digit net income margins, our long-term goal would be to improve to approximately 10% with adjusted EBITDA margins in the teens percentage range. This completes my prepared comments. Now, before we begin our question-and-answer session, I'd like to turn the call back to Adam for some closing remarks. Adam?

Thank you, Anthony. Looking ahead, there's a compelling and growing opportunity in the deli space as consumer preferences shift towards fresh, deli-prepared foods. This is absolutely the right wave to ride. What you have seen us do in the past 18 months is strengthen and reinforce our boat and build an exceptional crew to sail these macro waves. We have several levers available to drive growth, from new SKUs and existing customers, to new Tier 1 customers and continued investments in marketing and trade promotion to increase velocities of our existing in-store items. These tailwinds, when paired with a robust landscape of attractively priced M&A opportunities, gives me confidence that Mama has the potential to serve as a consolidator in the fragmented prepared foods market and emerge as a leading one-stop shop deli solution nationally. The fun has only just begun, and I look forward to speaking with you all in the year ahead. With that, I'll turn it over to the operator to begin our question-and-answer session. Operator?

[Operator instructions] Our first question comes from the line of Ryan Meyers with Lake Street Capital Markets. Please proceed with your question.

Hey, guys. Thanks for taking my questions. Congrats again on another solid quarter. First question for me, just wondering if you could unpack the revenue growth a little bit and where you saw the biggest impact you guys called out in the prepared remarks, cross-selling sales velocities across new customers, marketing program. Just want to get a good feel for if that was pretty broad-based or if there was sort of one-off things that drove a lot of the revenue growth for the quarter.

Yeah, thanks, Ryan, and really credit to the team for putting it together. What I think I'd say is it was great and really broad-based. So, I'll tell you, probably three buckets. The first one I told you is for me, the greatest and most important thing is all about cross-selling in our products. We had really great success with some big players like Ahold and Albertsons. These are long-time Mancini's customers that we've actually sold in multiple chicken solutions to, whether it be the breaded chicken, whether it be some chicken strips, grilled, some flavoured chickens. So the first, I'm really proud of the cross-selling. Everything that we said we were going to do, the sales team has really delivered on it. The second bucket is new customers. So we're doing a good job bringing in some new independents in the West Coast. Remember, I was trying to sell in more on the West Coast. UC, and we spoke a lot about success that we're finding with Costco. We were in a number of regions at Costco at the end of last year, which was great. And then the third, and it started in the fourth quarter, is actually seeing the trade promotion. So Nick and Lauren are doing a great job there, and there were some good customers that we did. We have refrigerated end caps. Those are really powerful for us and we got to see a number of customers really kick it up a notch on velocity gains because of these promotions. So I think that trifecta really helped us across a number of customers.

Got it. That's helpful. And then, if we think back to the Analyst Day, you guys gave the double-digit revenue growth target for 2025. I just want to get a feel for what the cadence of that will look like. Obviously, you will face easier comps in the first half of the year here. You're already almost through April, and then the comps obviously get a little bit tougher in the second half. But at the same time, you have the promotions and all the things that you just talked about coming through to the model. So I just want to get a good understanding for how we should be thinking about the revenue growth cadence throughout the year.

Yeah, you highlighted the right things. So I'd say a couple things. I think the first one is I would really hope and expect and see really progression in our acceleration. So remember, the sales team is just getting started. So many of them just came in, in the October, November, December time frame. So they learn where the bathroom is. They're learning their stuff and I really expect to, as the year goes on, to see a progression of growth. Now, again, you saw, and our business is a little bit seasonal. The hurdles get a little bit harder. Anthony and I are laughing ourselves as this new leadership team, but I do believe truly that this is just the beginning of our growth potential.

Got it. Thank you for taking my questions.

Our next question comes from the line of Eric Des Lauriers with Craig Hallum. Please proceed with your question.

Great. Thank you for taking my questions and congrats again on another strong quarter. First one from me. Yeah, no problem. First one from me, just on the trade promotion. Wondering if you can kind of expand a bit more about the level of trade promotion in the quarter. I think in the prepared remarks, you mentioned low single digit. You did also mention just in the, I think the first question there that trade promotion actually did start to kind of have an impact in Q4. So just wondering if you can help us understand the level of trade promotion and sort of how that trended throughout the year into Q4 and maybe how to think about that going forward. Just kind of if you could zoom into this low single digit comment a bit more, that'd be helpful. Thanks.

Yeah, thanks, Eric. I'd say a couple things. So the first one is it's still low single digits. It's better than it was before. It actually increased. I was really trying hard to get to 100%. We didn't quite get there on our numbers. I think we increased it about 85%. But it's still in the low, maybe just touching the mid-single digit numbers. It's a big impact though, right? So you see 17% growth. It's actually pretty good. Again, I do believe there's even more to come, but we did increase trade spend. You saw, we spoke about it in the Analyst Day. I was really happy for that growth, but it's still not to where we believe we could get to. I don't think we'll get fully there this year. Remember, Anthony mentioned that 10% target. I think we both mentioned that target. But again, it's still in the low to mid-single digits percentage growth, but it is interesting, and you guys do the math better than I do. I think it would add actually more than a point and a half to gross margins. I think like something like 166 base points. So if we're in, I think we closed in the 29% something range, we'd be well over the 30% range and again, I'll tell you, and I continue to tell you, analyst day, every day, I speak with everybody, this is what we're trying to do. We want to invest, accelerate to get this really profitable, strong growth, whether it be in trade, whether it be in marketing. I'm really proud. We increased marketing almost 80%, which I'm proud of. R&D, we increased a lot, right? Coming up with new items and investing more in research. These are all the things that are going to really step change our growth and you're just starting to see it now.

It's very helpful color. Certainly, 80% plus growth year-over-year is very impressive here. My next question, just looking for a bit of an update timing-wise on some of these CapEx projects. I think there was perhaps the comments of pulling some of these CapEx projects forward a bit with some of this chicken inflation that you're seeing. So obviously, we don't need to go through all of the pieces of equipment that you're ordering here, but maybe if you can kind of talk about the CapEx projects that you have to sort of increase capacity. You have others to get earlier in the value chain. Maybe if you could just kind of help us think high level of the timing of some of these projects and when you expect that impact to hit the numbers. Thanks.

Yeah. No, it's great. And my wife says I'm supposed to love both my children equally. I will tell you, I have so much to be proud of in this company and what we're doing and we've just been talking about the sales side. What we are doing, what we are transforming, what Ray and Anthony and Farmingdale are doing is just absolutely incredible. I welcome everybody to come visit. We spoke about the trimming and tumbling that is actually already in place, which is awesome. We're preparing for the new grills that are coming in. Our chicken stripper is already in place in East Rutherford. So I'm really liking exactly like you said, we accelerated these things. It's already in place. It's going to start to see some more value, obviously, in Q2 and then in Q3, you're not going to be able to keep up. But I'm very happy with all the equipment that's coming in. Massive improvements in automation. And you guys have seen some of it before. Just tremendous opportunity. And again, credit to the entire operations team, both in Farmingdale and in East Rutherford. I will tell you, it's ahead of even what I expected. We have built buildings within our building to prepare for a lot of this. Also, I should highlight just how amazing we get all of our certifications every year, right? SQF certifications. The team's just incredibly impressive numbers and so proud of what they've accomplished. So huge, tremendous opportunity for appreciation from an ops perspective. But yes, all that stuff is happening and literally in the building.

That's great to hear. My last question here, I was just looking for an overall update on the C-Store channel opportunity. I think on the analyst day, we kind of discussed that going after the distributors as opposed to the retailers themselves seem to kind of unlock some opportunities. So I'm just wondering if there's any update to share with the C-Store channel opportunity. Thanks.

Yeah. So you guys remember everything. So I wish I could tell you, I could have Lauren or Art answer the question, but I can't because they're actually at the Dot Show right now, which is a big distributor for us. They're actually at the show. They went to, I'm going to get it wrong, but the Trucker Show last month. I think Lauren and Art are spending a whole bunch of time together at these shows, all preparation. We're already getting some orders. So a lot of this growth, you're going to see in Q3, that the back to school time, we do see and we expected Art did a great job preparing us. There are for the big players, right? For the AM, PMs of the world, the 711s, the Wawas, they have real cut in times and a lot of it is during that August, September time period. So Art is seeing already a whole bunch of success. We all get to see the results, the revenue side in Q3. So I like what we're doing. There's still a whole lot more to do. Art keeps telling me I ain't seen nothing yet, which is awesome and I'm really happy with the cups. We actually have these really cool breakfast wraps, these paninis. So Art actually, not just has done a great job getting us set up for C-Store, he's actually been an important innovator in helping us look at our portfolio of what we have, say, guys, this is the stuff that would be really great for C-Store and if you tweak this a little bit, actually, we had these breakfast wraps that we had developed, but the packaging didn't work in a microwave because we were selling it, think of it normally just at the refrigerated section. He said, guys, we got to get microwavable packaging. So in the C-Store, they could just pop it into the microwave that's already in the C-Store. We were able to make that change. But I think that just highlights for you again, you bring in great talent that have been doing this. Art reminds me, 20-something years in C-Store, they're able to bring that knowledge. I think it was what Steve Jobs said, people bring in great people and tell them exactly what to do. The secret is actually bringing great people and let them tell you what to do. And that's what we're doing with Art and Nick and all the new folks that are coming in.

Our next question comes from the line of George Kelly with Roth MKM. Please proceed with your question.

So first question for you on your trade spend, I was curious, you've given that 10% target. I'm curious, how long do you think it's going to take to get there? And then part two of the question is, still on trade spend, can you give us specific examples of some promotions or different spending sort of measures that have been successful thus far? And where you could really kind of lean into as you're expanding your budget there?

Yeah, absolutely. Look, I tell you, I'd love to get it done by the end -- run rate by the end of this year. I probably won't fully get there. I think next year, we'll hit that number, that 10% number. So again, I promise I keep pushing. I promise I'm not ashamed to spend it. I know the ROI is there. There's still huge opportunities. I don't know if we'll get there fully by the end of the year, but certainly in next year. Some great trade programs. I really love what Nick and Lauren are doing around the diversity. So yes, I spoke to you about NCAP, which we've done. A couple that I really liked a lot. Different stores have, National Meatball Day or Italian Day. Italian Day is huge at Publix. It's actually their biggest program. We were highlighted. We were actually in the circular. They put us front and center for that Italian Day. So what you do is you're riding off the wave that they're doing for the entire store, right? So it accelerates and accentuates the programming. We did a great one. I really like these a lot. I'm sure you've heard from me, George, and others that I love multi-buys. I'm not a big fan of TPRs, temporary price reductions. I feel like that just subsidizes revenue. So Nick and Scott did a great job at Ahold, at Stop and Shop. They did a buy-and-sell thing. So it was buy, stop and shop fettuccine, Locatelli, which you know is a higher-end grated cheese, and Mama Mancini's Meatballs. Buy all three of them. I think it was like $13 or something like that and you saw a huge uplift of our product during that promotion. So I like that because, again, I'm riding other people's waves. I could do only so much myself. If I can take the entire store's Italian days, the entire country's national meatball days, the entire, obviously, Stop and Shop wanted to push harder because it was their private label fettuccine. How cool is that? I'm totally fine to ride other people's waves. So this is just an example, but I could go on forever.

Okay. No, that's great. That's helpful. Thank you. And then another question. I'm trying to reconcile the comment in your prepared remarks just about commodity pricing. And then reconciling that with the 10% spend, getting something close to that at the end of this year is a really rapid increase to that budget. And then I think you said that you still anticipate gross margin, even with all these investments and everything, of close to 30%. So just trying to understand the magnitude of the commodity inflation that you've seen, I think you highlighted in chicken. How should we think about all those factors at play, I guess?

Yeah, no, it's something we look at every day as a leadership team, every Monday. Remember, no one ever bothered me from 10 a.m. to 11 a.m. on Mondays when we have our leadership team meetings. You're seeing a lot. So actually, this whole year to date, chicken is up almost 50%, over 50%. Now, again, that's a piece of a piece of a piece of our overall costs, but it's significant. At times this year-to-date, beef has been up almost 30% at one point. Now, it's come back down, but for a couple of weeks, it's up there. So commodity is a lot. Now, the thing is, it's not about sitting back. I speak about all the time how we need to be proactive. So you and I started talking about all of this automation that we're putting in place and moving earlier in the value chain. We were talking about that last summer. Why? Because I knew this would happen. I knew that I don't want to be beholden to all these commodity prices. So that tempers, if not reverses some of the increases. We knew this was happening in early January. We have now officially taken price, communicated price to every single customer. This is not a sitting back waiting till we're now losing our shirts and then saying, Oh, by the way, can I get a penny off? We proactively went to them and shared all of those pricing, all pricing increases. Now, is it all in right now? Nope. Sometimes we get immediate. Sometimes we get stuff in a month or in two months. But again, hopefully you're seeing we're being proactive. What Eric and Ray have done in the plants, absolutely incredible on managing our labor, significant drawdown in overtime. Again, all these things and again, I keep going, all of these things are offsetting some of the commodity increases and that's what we have to do. Right. We are in the commodity business, but if we could be proactive, we could either offset some of it, if not offset all of it when the time comes.

Okay, excellent. And just one more, if I could, the M&A pipeline, I'm curious, you've said before that your expectation is that you'd complete one, or maybe it was at least one deal this year. I'm curious if you still think that's the case in like, as you're talking to people, is there a common sort of issue that is a hang up and causes nothing to happen? Maybe it's pricing, maybe it's something else. Just is there something that's repeated now that has caused you to not consummate any of these potential transactions?

Yeah, so a couple things. Yeah, thanks, George. So a couple things. First, just to clarify, I would love and we're doing a lot of work looking for targets this year. I'm not, I don't feel stressed about having to. It is actually not part of actually our algorithm that they we share with the board, got aligned with the board on. So the first thing is, well, yes, personally, I'd like to find and I'm actively looking for targets. It is not required to achieve the algorithm we have for this year. So that's just the first piece. The second piece is I am busy. We are -- I am getting a lot of calls, actually, thanks to lots of your friends and others. We're able to get a lot of people helping us looking for targets. I probably travel at least once a month on perspective targets. So the deal flow I like to see, I'll always take more. I'll never say no to more, but I do like the flow that that we're getting. The last piece directly to your point, I don't think there's anything that's hanging us up again. I am picky. I know exactly what we want as a company. Right about being in a deli west of the Mississippi with their own manufacturing and/or distribution. So I'm just not rushing to do something that I don't think is near perfect at a very attractive price and again, I've had this job before at Mondelēz and I certainly had a bigger checkbook. And there was certainly a lot more urgency. We were not growing organically at Mondelēz as much as we're growing here at Mama's. And if I don't find anything that's attractive at a great price, I will happily reinvest the money even. I hopefully you see our cash balance now. We're literally at zero on our drawdown of our credit line. I am happy to reinvest that for even further profitable growth internally. So hopefully that's helpful.

Yes. Thank you.

Our next question comes from the line of Anthony Vendetti with Maxim Group. Please proceed with your question.

Thanks. Yeah, just a couple of quick questions. On the new equipment, Adam, and I know you've gotten into detail on this, on the new equipment you're putting in, what is the incremental upside to operating margins when all that new equipment is installed and fully operational? And then also, if you could talk about the integration from the NetSuite ERP, where that's at and what's the incremental upside in terms of margins when that's fully up and running?

Yeah. So I'll go backwards since the last question I just remembered. So Steve is doing just an incredible job with NetSuite. So we are fully integrated now. Every part of our business, all pieces of the business are integrated and it's awesome. Biggest mistake this company has made is giving me access to everything that I could see on a Saturday or Sunday. Big mistake on their part, but that's okay. So the fidelity is there. We're already seeing improvements in our inventory management because you can see everything in real time. I love to see our bombs are being changed. Literally every time we buy some more cranberry sauce, the bomb changes in our products. So the real-time profitability is very powerful. It helped us. Remember I just told you we've taken price on almost every customer. NetSuite actually helped us do that. So I love what we're doing in NetSuite. There's still even more. Brian, who's part of Steve's team, is helping us with warehouse management. We have these super cool scanners now, stickers everywhere. You can't hide anything anymore. It's awesome. So I love what we're doing on NetSuite. For your first question, the automation is substantial, like really substantial. So again, a piece of a piece of a piece. If you just said super simply, and I'm going to simplify a lot, but we used to pay for chicken, I'm making up all the numbers, a dollar. We used to pay almost another dollar for them just to cut it up for us. Now we're doing that cutting. It's literally that much, 50%. Now is all that. Obviously, we now have to have the people to cut it. Anthony makes me pay for the depreciation of that machine. So I don't get that full 50%. But this is not 1% or 2%. This is double-digit savings. The stripper, the stripping machine, we used to have an entire team of people spending all day literally cutting by hand these chicken strips. Now this machine does 6,000 pounds an hour. It's massive. And oh, by the way, it's safer. All these people cutting by hand, I love that it's just safer. So this is a step change. This is not nibbling around the edges. This is step change improvement. Now, I have told you already, you guys are not going to see all of that. It's all going back or actually all plus $1 maybe is going back into seeing what you just saw. Trade up 85%, marketing up 79%, R&D was up almost 200%. That's where we're going to put it all back so we can accelerate growth.

Okay. So the margin improvements that you're already realizing from these capital equipment purchases and the new ERPs, all this is going back into accelerating the top line.

Absolutely. That's a great -- a little simple, but yes, that is a much closer -- yes, absolutely.

Okay, great. All right. I'll turn it back over to you, hop back in the queue. Thanks for all that color.

There are no further questions in the queue at this time. I would like to hand it back to management for their closing remarks.

Thank you, operator and thank you again to each of you for joining us on today's earnings conference call. Before I go, one ask. I am proud to share that our new retail paninis have been shortlisted as finalists for Deli Business Magazine's Inaugural Innovation Award Competition. For investors following the Deli space, I would encourage you to head to www.delibusiness.com to review the candidates and cast your vote however you see fit. With that, I will conclude. We look forward to continuing to update you on our progress as we strive to deliver value to my fellow shareholders and execute upon our vision of becoming a national one-stop shop deli solution provider. Thank you.