MAMA - NASDAQ

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Mama's Creations Second Quarter Fiscal 2025 Earnings Conference Call. [Operator Instructions] This conference is being recorded today September 10, 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 the 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 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 the company's 10-K and other documents, which the company filed 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. In addition, throughout today's call, the company may refer to adjusted EBITDA, a non-GAAP financial measure, which it believes provides helpful information to investors about 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. At this time, I'd like to turn the call 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 second quarter fiscal '25 financial results conference call. The second quarter was highlighted by strong 14% broad-based revenue growth against a healthy backdrop of operational execution and a continued focus on our 4Cs: cost, controls, culture and catapults. Our goal to emerge as a leading one-stop shop deli solution on a national scale is grounded in a purposeful, persistent and patient strategic plan to capture what is a generational change in our consumer preferences. A significant driver of this change has been the challenges and change in the restaurant industry, underlying by a seismic shift in consumer preferences. Inflation, consumers with less disposal income and rising labor costs are only some of the issues that have combined to challenge the ability of restaurants to run their businesses profitably and in turn, have forced them to raise prices. Food delivery, which was expected to improve restaurant sales, is increasingly turning away customers. Between the service fees, delivery fees and tips added off at checkout, the price of a meal on a third-party delivery app can be far higher than many consumers expect. Again, restaurant owners are often left to raise menu prices to cover service commission fees or risk losing out on convenience mining customers. Rising restaurant prices and inflation are bringing consumers back to the grocery store, but with higher expectations. They want an experience and to be excited about the quality products across multiple retailers and formats. In turn, grocery retailers have had to pivot quickly and differentiate to be able to cater to customers, including the introduction of new deli prepared meals, the shelf space of which continues to expand as our CFO, Anthony Gruber noted in an interview last month with the Wall Street Journal. Nearly three-quarters of households purchased deli prepared foods at least once during the 52 weeks ending October 7, 2023, according to the Power of Foodservice at Retail 2023, published by FMI-The Food Industry Association. The report also revealed an annual deli prepared purchase frequency of 9.8 occasions, $8.38 spent per transaction and yearly dollars spent per buyer of $82, up 7.2% based on Nielsen data. Compared to a year ago, 25% of consumers said that they've replaced quick service and fast casual restaurant meals with Foodservice at Retail, up 17% the year prior. The result of this substantial change in consumer preferences is being felt now in the grocery aisle. July's consumption report from IRI announced that deli again leads the perimeter on unit growth. The $30 billion deli-prepared subcategory was up 5% in dollars in July and up even more 5.2% in units. Prepared meats, a $6.2 billion subset of deli-prepared where we focus on the most, was up 10.5% over the last 52 weeks and up 11.9% in units. Consumers are seeking out new flavors and customers are seeking to meet their needs. Mama's one-stop shop strategy was and is tailor-made for this virtuous cycle of category growth. The opportunity we're 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 offering is, in my opinion, second to none in variety, quality and service, grocers are recognizing that. Since I joined as CEO in September of 2022, we have refocused to address this incredible opportunity. We formed an initial 3C strategy to improve our cost, controls and culture; areas that, in my opinion, required the most attention. We rebuilt and strengthened the foundations of our business and became brilliant at the basics. We methodically addressed the biggest pain points across each of these areas and implemented key operational KPIs under the mantra of, "What gets measured, gets improved." The first was Cost. Our gross margins were 11.9% in the quarter ending July 31, 2022, with significant potential that needed to be unlocked. The path to our targeted high-20s gross margin profile to countless small improvements throughout the organization. From step changes in freight and procurement efficiencies to implementing processes to reduce labor over time, our operations run much more efficiently today than ever before, being able to successfully navigate as we have recently seen with historically high north of $2 a pound of chicken prices, commodity headwinds that may come our way. The improved margins and cash flow are being directly and immediately put back into further investment in CapEx, such as the grills we installed in our Farmingdale facility over the last several weeks; doubling chicken capacity and increasing labor efficiencies through reduced over time, creating a cycle of higher and higher gross margins. Logistics management, which has been a highlight of our efficiency efforts, having been cut in half since our team came together, reduced a further 40 basis points this quarter, driven by greater use of full truckloads versus less than truckloads, LTL, orders as well as stronger partnerships with our logistics 3PLs. Beyond COGS, we're building new capabilities in-house, which has allowed us to wean ourselves off of the higher professional services and support we relied on in the past, reducing our SG&A by 254 basis points versus prior year. Second, were our Controls. I've been sharing with you over the past year the successful implementation of our NetSuite ERP system, providing unparalleled visibility to our business; improving pricing, margins, inventory management and so much more. Lauren Sella, our incredibly agile Chief Marketing Officer, has taken over our new product development process, adding some needed end-to-end structure and possibly counterintuitively, allowing us to get new items out even faster, cheaper and more efficiently. New controls in quality are strengthening our policies and procedures, making us even prouder of our Grandma Quality manufacturing. Just last month, we added X-ray technology to our existing metal detection and are investigating cutting-edge PCR testing to ensure what comes into our plants is as safe as possible. We are also reaping the benefits of driving down complexity in our business. SKU rationalization is a major focus for us, driving down inventory, improving buying power, reducing waste and saving time. In our creative salads and all of branch businesses, for example, our efforts to-date this year have resulted in cutting over 150 SKUs or more than 35% of our portfolio, impacting only about 0.5% of our revenues. Massive complexity reduction without noticeably impacting our top line as much of these orders flowed back into our existing items. To further focus on these first two Cs, we recently appointed end-to-end supply chain leader, Skip Tappan, to the role of Chief Operating Officer, bringing over 30 years of experience to Mama's as a Senior Supply Chain Executive and significant end-to-end supply chain mastery from time with Gordon Food Service, Walmart, Campbell Soup and Procter & Gamble. Skip has strong strategic and tactical business planning skills and proven ability to deliver significant improvements in broad-based operating results; and will be focusing on supply chain optimization, business planning, cash flow and cost optimization, asset utilization and organizational capability building. While Skip's operational skills are laudable, it's his team and people skills that I am most excited to see take Mama's to the next level. The third C was Culture, where we implemented formalized processes and a company-wide culture committee to ensure we're doing right by our employees at every level of the organization. Our team has a passion for learning and everyone on our team is striving to do more. As such, we're starting to roll out various training programs from 101s straight out of Mama's Pantry to focused -- functional training depending on particular roles. As Sir Richard Branson once said, "Train people well enough so they can leave, treat them well enough so they don't want to." 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. With the successful evolution of our Finance, Operations and HR organizations underway and financial results reflecting this, 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 in trade promotion and marketing that we are making to grow the business profitably at a faster rate. Our 14% growth in the second quarter after 29% growth in Q1 and 17% growth in the quarter before that demonstrates with some help from new stores, new items and a little bit of trade rocket fuel, what type of growth is possible. Today, we have grown our sales leadership team, our first Catapult lever to 6 dedicated employees, which is especially important as we enter the new back-to-school reset window. The sales team now works more seamlessly with their operations counterpart and stronger demand and supply planning is delivering us enhanced service levels and lower logistics costs. I am proud how our new sales team has come together, and we will actively seek out additional sales talent in areas that can step change our growth. For the second quarter, I am so proud of the new doors our sales team opened up among dozens and dozens of new independents, mostly in the West, driving nearly 40% growth in that region. We are proud to add Costco North Cal, Spartan Nash, Freshtime and rallies to our family of customers. We also added more legacy products in existing customers, including Stop & Shop, Publix and Schnuck. In addition, we are cross-selling success of our new brands and existing customers, including Roundy's, a Kroger company, BJ's, Wakefern and Aldi. And starting next month, we're adding Walmart to our customer list with the addition of two new protein offerings at about 2,000 stores to start. Walmart was a major target for us this year and the achievement continues to reinforce what we say, we do. However, this is just the beginning. This represents a single product across two SKUs in about half the Walmart locations. We expect the same success we have had recently with our launches at Albertsons and QVC to be replicated at Walmart. And like Publix and BJ's and so many others, once we get our foot in the door, new additional items seem to always be requested. The second Catapult lever is trade promotion, seeking to accelerate the velocities of our existing SKUs by driving trial and larger baskets, combo buys with complementary 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 the growth you're seeing today. We're seeing tremendous results from these programs, such as Stop & Shop combo by circular with bottoni pasta. While we're happy with the revenue part of the circular, we find an added benefit with the promotion. The stores are actually more vigilant about ensuring our products on the shelf at all times, which drives further velocity. The third lever in Catapult is marketing. Lauren Sella, our innovative and tech-enabled Chief Marketing Officer, is driving strategic marketing activations, such as digital media and in-store advertising. Lauren's partnership with Dan and Scott during the Costco Roadshow created a multiplying effect, partnering with Instagram influencers to activate the events in the physical as well as the virtual world. The Roadshow was a success and our sauce is now confirmed for rotation in the Costco Northeast region. Congratulations team. We also received a Costco National Buy for our successful 3-pound branded meatball sleeves, picked up in six regions, two of which are new regions for us. Costco's high-volume warehouses are ideal venues for our products, while our strict focus on margins ensures each sales meets our requirements regardless of customer. Our team has recently engaged a digital marketing agency to catapult the Costco National Buy and other strategic customers, and we will be investing in geotargeting media to build awareness and drive retail. Additionally, we're continuing to leverage new marketing technologies, such as our custom QR code platform to further engage with our consumers. The Costco 3-pound meatball pack is the first item to carry a customer code and drives consumers to receive recipes, offers; and importantly, entry into our CRM database through e-mail capture. And finally, we're pleased to have been named a finalist in the deli business news beyond the Flavor Innovation Awards for our flame-grilled paninis. In the next month, we'll be able to share some additional exciting award news with you as well. Taken together, the goal of Catapult is to continue to drive up our average items carried, which increased this quarter again to 7.6%, 0.5 point more than last year and 0.25 point more than prior quarter. We will also continue accelerating the velocities of our existing items and opening up new doors to build broad-based national distribution. I promise we are just getting started. 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 additional major retail customers, such as our recent Walmart win, Kroger, Target, HEB, Food Lion and others. 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 million dollars 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 offset some of the commodity inflation -- price inflation and ultimately 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 today towards our long-term goal of 10%. Some recent examples I'm excited about are the installation of two new grills in our Farmingdale facility. This doubles our chicken capacity, which will allow for higher labor efficiencies through reduced over time as previously, our chicken grills were running effectively 20-plus hours a day. In addition, the installation of additional chicken processing equipment in-sources key value-added services that were previously outsourced, lowering our cost of goods and improving margins in what remains a difficult commodity environment. That being said, nothing worth doing is easy and the installation of these new chicken grills were no different. Significant construction took place at Farmingdale throughout the second quarter and the first half of the third quarter, which impacted margins by about 500 basis points in Q2, with that construction mostly concluded last week. We faced some degree of short-term pain from this, but for an incredibly -- incredible long-term gain that provides significant runway for our chicken business for years to come. These CapEx investments are incredibly important given the commodity pressures we're seeing today. From jumbo chicken breasts that were on the market for $1.16 a pound in January to a recent high of over $2 a pound, chicken prices are historically high. While not as extreme is chicken, beef prices are seeing continued upward pressure as well. We have been incredibly proactive and aggressive in addressing these trends through the aforementioned CapEx investments and successful pricing actions across the board, which will help us to weather the worst of the storm. As stated earlier, the intensive construction efforts in Farmingdale during the quarter had an impact of about 500 basis points on our gross margin. While we may be fairly differentiated in our ability to maintain margin strength in this commodity cost environment, our retail partners are well aware of these pressures that have been understanding of what is needed to combat these industry-wide headwinds together. As we continue to improve and build on our 4Cs, I'm incredibly proud of our team's accomplishments and believe we are only at the beginning of our journey. In 2023, we built the foundation of a more resilient and flexible organization. And now in 2024, we're using this foundation as the launch pad for purposeful and profitable growth to help create sustainable long-term value for our fellow shareholders. With that, I'd like to turn the call over to Anthony Gruber, our Chief Financial Officer, to walk us through some key financial data details for the second quarter of fiscal '25. Anthony?

Thank you, Adam. Revenue for the second quarter of fiscal 2025 increased 14% to $28.4 million as compared to $24.8 million in the same year ago quarter. The increase was largely attributable to successful pricing actions as well as volume gains driven by increased demand, successful trade promotions, same customer cross-selling of new items and new customer door expansion. Gross profit totaled $6.9 million or 24.2% of total revenues in the second quarter of fiscal 2025, as compared to $7.5 million or 30.3% of total revenues in the same year-ago quarter. The difference in gross margin was primarily attributable to significant commodity cost increases from historical averages, as well as non-recurring impact from construction surrounding the now mostly completed installation of strategic CapEx projects, which management estimates negatively impacted corporate gross margins by approximately 500 basis points. Operating expenses were flat at $5.3 million in the second quarter of fiscal 2025 as compared to $5.2 million in the same year ago quarter. As a percentage of sales, operating expenses decreased to 18.6% from 21.1% in the same year ago quarter. Operating expenses as a percentage of sales decreased due to lower payroll expense, insurance costs, professional fees and freight expenses. Net income for the second quarter of fiscal 2025 totaled $1.1 million or $0.03 per diluted share as compared to net income of $1.7 million or $0.05 per diluted share in the same year-ago quarter. Second quarter net income totaled 4% of revenue as compared to 7% in the same year-ago quarter. Adjusted EBITDA, a non-GAAP measure, totaled $2.7 million for the second quarter of fiscal 2025 as compared to $3 million in the same year-ago quarter. Cash and cash equivalents as of July 31, 2024, totaled $7.4 million as compared to $11 million as of January 31, 2024. The change in cash and cash equivalents was primarily driven by $3.5 million in capital investments and $2 million of debt paydown. As of July 31, 2024, total debt stood at $6.8 million. The cash forecast, coupled with our 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, not including major commodity 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 rightsizing our trade promotion investment from low-single-digit percent of revenue today, closer to our goal of 10%. Turning to adjusted EBITDA, our long-term goal is to achieve adjusted EBITDA margins in the teen's percentage range. This completes my prepared comments. And 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. In summary, the quarter continued our cadence of purposeful and profitable growth, impacted by temporary construction-related pressures that are now largely behind us as of the middle of the third quarter. Looking ahead, there's a compelling and growing opportunity in the deli space as grocery stores invest in grab-and-go food offerings to inch into retail restaurant territory and inflation pushes consumers towards alternatives. In the past two years, we have built the team and company to become an innovative prepared foods leader in what is currently a fragmented market. 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. We also believe that supported by our strong balance sheet, attractively priced M&A opportunities in the industry to enable us to become a consolidator in a fragmented prepared foods market and emerge as a leading one-stop shop deli solution on a national scale. The fund 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?

We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Ryan Meyers with Lake Street Capital. Please proceed with your question.

Hey guys, congrats on the nice quarter. First question from me. Just wondering if you can speak to what you're thinking about for revenue growth rate for the full year, especially now that we brought on large customers like Walmart? I know last quarter, you communicated double-digit growth rate as kind of the target for the year. But any commentary on that would be helpful.

Yes. Thanks, Ryan. Yes, I think we're going to stick. Look, I'm really proud of the team. The team is doing everything. We told you what we're going to do, and we did it. I'd like to stick to this double digit. I don't know what's going to happen. I know they're changing rates, Presidential debate tonight. I just don't want to speak to where we are. But I feel good with what we committed to doing. And now we keep doing that quarter-after-quarter. So I'll stick to the mid-single digit -- the mid -- sorry, the double-digit number now.

Got it. Makes sense. And then thinking about gross margin, so it sounds like there was a 500 basis point impact, which surprisingly that's kind of a rebound quicker than, I think, what we were expecting. So outside of that, the construction impact, is there any other headwinds that still remain basically asking you guys feel relatively confident you'll be up that high-20s in the second two quarters of the year?

Yes. No, thank you. And I really do appreciate you saying that, and I really want to give a shout out to the team in Farmingdale. The amount of construction is -- it is significant. So I really appreciate Anthony, Ray, the whole team that are doing the work there. I do believe they've done even better than we had planned. Really, there's only two things that keep me up at night; the construction, which, again, I was just there last week, it's looking beautiful. All four grills are up, and I'll be there tomorrow. So that's one, and that's towards the end. And then the second one is commodity prices. No one would have expected. I speak to anybody that will listen to me or I will speak to anybody at all that the chicken prices are just not going down. If you look at these charts, I don't know what's going on. It should be going down now. I mean, it does. Everyone is hoping it does. But those are the only two things that keep me up at night. The construction pretty much all done now and the commodities that, unfortunately, I don't have as much control over. I do say, sorry, I take that back. One thing that the Farmingdale team is doing so well is yes, commodities stink. But what we're doing is by bringing the trimming and tumbling ourselves, that's massively blunted that. So you guys could do your own math to see the massive commodity increase. You don't see that by any stretch of the imagination in our gross margin numbers. And that's a testament to what the team is doing to manage efficiencies better, overtime is down, labor is down, bringing in the trimming and tumbling, it's really pretty cool. So I appreciate you bringing it up. But yes, that's where we are.

Got it. That makes sense to me. Thanks for taking my questions.

Absolutely, thank you.

Thank you. Our next question is from Eric Des Lauriers with Craig-Hallum Capital Group. Please proceed with your question.

Great, thank you for taking my questions and congrats again on the new hire of Skip Tappan and the great news around Walmart and Costco. Super cool question here. So you mentioned that once you get into new doors, you seem to always get requests for new items, and we've certainly seen that over recent quarters here. My question is, how long does it typically take for customers to request new items? Is this sort of a three to six month thing or 12 to 18 months? Kind of any help you can give us there?

It's incredible. I will tell you. I swear to God, Tony, out west is doing an amazing job opening up our West Coast operations. You see that in just the sheer volume that is going out west. We just got into a new customer just one week or two ago, and they've already added two items. I swear to God, they haven't even received the first item that we gave them. So yes, it could take forever. Equally, I swear, we just got two new items into a customer that they haven't even received the first item, and that wasn't even planned. So I'm not sure. We don't know. The thing is, we're ready, right? That's why we have the capacity. That's why we have the agility. Just what we're able to accomplish at -- what we're able to accomplish in East Rutherford with Eric leading the charge there, it is the agility, Carlene, is just awesome. So I'm really proud of the team, and if you, the customer needs it, we will have it on the truck for you ASAP.

That's great to hear. Just one quick one on the construction. So you mentioned it's largely behind. Could you just comment on sort of what does remain? And if you're a willing to an estimate on perhaps how much longer that construction may take?

Again, it's mostly completed now. Now it's the fine-tuning. I mean, it's literally-- that's great, I just said that. It's literally the fine-tuning of the grills. So the grills are working. The grills are producing chicken right now. Are they producing the same 100% that our two other grills are doing right now? No, they're not at that level yet. So it's the fine-tuning that takes a little bit of time. But again, we're talking about days and weeks, nothing more than that. And the hard sort of "scary stuff" of will the grill actually show up or will we get the town approvals? That is 100% past us now. Now it's just the fine-tuning.

It's great to hear. Last question from me here. Just a comment on how C-store penetration is progressing. And then -- so relatedly, just any comments on how the in-a-cup offerings are trending as well?

Yes, the cups continue to do nicely. Not crazy, but continue to get momentum. We just saw if you guys are in the Northeast, Stop & Shop just took them. Not our original intention, but it's great that they have them and they're actually doing well. So I'm happy with the cups again, the cups are still more a C-store thing. C-store has been a little slower than I would have liked, I'll tell you. So we had some personnel transitions. I feel really good with where we are now. I feel even better with where we are right now. But that has held us back a little bit with the C-store work. So what's important is the C-store was sort of gravy on our internal plans. So it was small 1%, 2%. So yes, we want it. We will absolutely get it. But it's slower than we originally planned, and since it's a very small percentage of our business, it won't have a big of an impact on our annual…

Makes sense. Congrats again. Thanks guys.

Thanks sir.

Thank you. Our next question is from George Kelly with ROTH Capital Partners. Please proceed with your question.

Hey, everybody. Thanks for taking my questions. So a few for you. First, your 14.5% growth in the quarter. I'm curious how much of that was pricing and what are your plans with respect to pricing in the back half of the year?

Thanks, George. Pricing was so more than about 80% of our growth -- of that revenue growth is all volume-driven. It's incredible. I don't think I've ever been in a company that so much of our growth is actually volume-driven. We have been taking pricing. We have been getting that and let's call it the 20%. I wish, a little bit of me wishes we could do a little more, 80% is a very impressive volume growth, but that's roughly where we’re at the 14%, I don't know, expect -- I'm happy with where the pricing that we've done is. If commodities could come down, if the chicken could come down, we're good. I have no -- we have no need. Obviously, you guys all read the same paper as I do. I think it's getting harder and harder to take price. So we were very intentional about that. We knew that I've done this once or 200 times in my lifetime, so we wanted to be some of the first to do it. And we did a whole bunch of it in January, February, March timeframe. I think it's going to be a lot harder going in the back half of the year. But I equally as long as chicken could stop going up, which it has -- it's plateaued. If it could start coming down, I don't foresee us needing to take price. Now that said, there's still the pricing that we took in the beginning of the year wasn't in the back of the year. So we'll get the benefit of the pricing for the next 12 months. But I don't expect to have to take more pricing as long as chicken comes down.

Okay, understood. That's helpful. And then next question on your trade spend. I understand the dynamic. You're waiting for your gross margin to rebound and it sounds like there's still going to be a bit of pressure from construction in 3Q, so is it fair to say that the real ramp in trade spend we should probably wait until calendar year '25? Or do you anticipate, I mean, is there still an opportunity this year to start to push on that more? And then the second question is, are you seeing anything with the spend that you have committed thus far? Are you seeing the return that you hoped for?

Yes. Absolutely. Great questions. While slightly disappointed, you're probably right. I think you're not going to see the aspirations that I have of 10% trade. You're not going to see this year by any stretch of the imagination. So I think you're going to see the ramp up more in the beginning of next year. You're probably right. Now, that said, one thing that's just incredible about having the trade talent here is you'd be surprised on how many programs we got for free. So there's a lot of folks that will tell you having branded items only is like the right answer. Remember, we have a mix of branded and private label. Well, the magic of private label is people invest -- the retailers invest for us without any cost to us. So we have seen tremendous, I would tell you a lot of the first-half of the year growth, a lot of it has to do with just great velocities growth from end caps, I told you about some of the club customers. What you're seeing us doing in Costco right now is just silly. Shout out to Scott for getting that done. You're seeing amazing stuff at Costco. A lot of the stuff that we're getting is free trade, for lack of a better word. So yes, I want to keep investing in trade. What's more important to me, you guys know I'm the margin guy, so I've been holding back and I'm not going to be putting a huge amount of money in trade if we don't have the gross margin to support it. So, yes, I think what you said there is right. From the returns that we've seen are just awesome. Even I mentioned earlier, Lauren, with some of our online, some of our digital programming we're seeing ROAs in the $3 or $5. Actually, one of our big customers are over $6 ROAs. So you give them $1, they give you $6-plus back. That's awesome. So we are very blessed. What gets measured, gets improved is even more in the trade area. I see the returns on every single trade program we do. There are some that we repeat, and I'm equally happy to find out things that don't work because that's not on our list for next year. So we are measuring that all the time.

Okay. And then two last quick ones. What products are launching at Walmart? And what are you seeing with respect to M&A? And that's all I had.

Yes. So the Walmart products are proteins. I'm going to hold off on that until it's going to be in market next month. So I promise you guys will see it. M&A. It's something that we continue to focus on. We have actually, Anthony and I have our list. It's a growing list of potential targets. Anthony's yelling at me on the number of NDAs we have to sign, but it's good. I'd like to see what we have. I will tell you, I have been spending more of my time than I would have expected on all the construction-related stuff and the commodity stuff. It is incredible to have Skip here. I'm so excited to have him as part of the team. Skip's here, yes, to continue to enhance the two facilities we have today. But we absolutely hired Skip because we're going to have five more facilities all over the country. And my wife says I have to be home every once in a while, so having Skip here is going to really help a lot. But I'm happy with the M&A pipeline, a little slower than I would have liked because focusing on internal stuff, but it is still absolutely 50% of our strategy.

Okay, thank you.

Thanks, George.

Thank you. Our next question is from Anthony Vendetti with Maxim. Please proceed with your question.

Hi, this is Nick Sherwood speaking for Anthony. Good evening, gentlemen, congrats on the quarter. I just want -- my first question is how are you working with Walmart to promote the activation of your new SKUs?

Yes. So again, I don't want to share too much, but it's a combination of in-store and actually outside digital stuff. So I just mentioned some of the stuff that Lauren is doing. I could tell you on some of the Costco stuff we're doing, geotargeting, as people are either in the stores or are in the proximity to the stores. I just spoke about the QR codes that we're using, so you should expect similar type things on the Walmart launch.

Understood. And can you go into any of the philosophy that went behind which stores were selected? 2,000, it's about half of Walmart stores. Was it, were you targeting specific regions where your products are already popular, or was it more on their side of which stores were chosen?

So it's a combination. You guys know, again on margin management. We wanted to focus -- we wanted to concentrate, in particular, DCs, right. If you have 5 items in every single DC around the world, that's definitely less efficient than being concentrated. So it was a combination. It was a partnership with Walmart on that.

Okay. And then my last question is, do you know how many additional stores you're in and Costco, with the -- your first National Buy, and just some detail on if you expect any more of your products to be part of that National Buy program?

Yes. I mean, Costco has to be. I know, everyone is very excited about Walmart as we are. I would tell you Costco is even cooler in just the spectrum of things that we're winning in. We have just an incredible partnership with Costco. So if you think about it first, the most -- this is now the most regions we've ever been in, right? Six regions. We're in Texas as we speak. Everybody that's in Texas right now should be able to get our 3-pound meatballs have never been in that region ever in the history of the company. So the number of regions is incredible. The second thing is the number of items. So I mentioned to you. So the Roadshow that we did a couple months ago beat all expectations I personally had. I'll speak for myself. So we got the sauce in it. We got the National Buy. So the actual number of items before this team, this team of ours today, we only sold meatballs. Now we have sauce, sausage and peppers. I think you guys are going to be really happy with additional stuff that is going to come out imminently in our partnership with Costco. So the number of items is just magnificent. And then just the volume, the size. I mean, this National Buy is seriously legit relative to anything we've done in the past. So I love the fact that it's all of these different elements together. It's not just we have 1 product and it's doing really well, we have multiple products. It's not that we just have 1 region that's doing really well, we have multiple regions. That's what I think is. So it's very broad based, which I think is very important.

And so, then you expect that National Buy to kind of begin affecting the top line with the Back to School resets? Or is that something that's already being underway.

Yes. Mostly in the -- it's most in Q4. So remember, what our Q4 is in November. That's where it's -- some of it's now, like I just told you, if you walk into, I think it's actually in North Cal as we speak. It's actually in LA as we speak. I think it's in the Midwest as we speak. It's in Texas as we speak. But the bigger ones, Southeast, the Northeast, those happen in Q4.

Okay, thank you. Those are all my questions.

Great.

Thank you. This concludes our question-and-answer session. I will now hand the call back to Chairman and CEO, Adam L. Michaels, for his closing remarks. A - Adam Michaels Thank you, operator, and thank you again to each of you for joining us on today's earnings conference call. We look forward to continuing to update you on our progress as we strive to deliver value to our fellow shareholders and execute on our vision of becoming a national one-stop shop deli solutions provider.