Greetings, and welcome to The Real Good Food Company Fourth Quarter 2022 Earnings Conference Call. At this all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, [indiscernible], Vice President of FP&A and Investor Relations. Thank you, [indiscernible]. You may begin..

Good morning, and welcome to The Real Good Food Company's Fourth Quarter 2022 Earnings Conference Call. On the call today are Bryan Freeman, Executive Chairman; Jerry Law, Chief Executive Officer; and Akshay Jagdale, Chief Financial Officer. Our fourth quarter earnings release crossed the wire at approximately 8 AM Eastern Time today.

If you have not had a chance to review the release, it's available on our Investor portion of our website at www.realgoodfoods.com. Before we begin, I'd like to remind everyone that certain statements made on this call are forward-looking statements within the meaning of federal securities laws and are subject to considerable risk and uncertainties.

These forward-looking statements are intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995.

All statements made on this call today other than the statements of historical fact are forward-looking statements and include statements regarding our projected financial results, including net sales, gross profit, gross margin, adjusted gross profit, adjusted gross margin and adjusted EBITDA as well as our ability to increase our net sales from existing customers and acquire new customers, introduce new products, compete successfully in our industry, implement our growth strategy and effectively expand our manufacturing and production capacity.

Forward-looking statements made on this call represent management's current expectations and are based on information available at the time such statements are made.

Such statements involve a number of known and unknown uncertainties, many of which are outside the company's control and can cause future results, performance or achievements to differ significantly from the results, performance or achievements expressed or implied by such forward-looking statements.

Important factors and risks that can cause or contribute to such differences are detailed in the company's filings with the Securities and Exchange Commission. Except as required by law, the company undertakes no obligation to update any forward-looking or other statements herein, whether as a result of new information, future events or otherwise.

In addition, throughout this discussion, we refer to non-GAAP financial measures, which refer to results before taking into account certain onetime or nonrecurring charges that are not core to our ongoing operating results and which we believe better reflects the performance of our business on an ongoing basis.

Our non-GAAP financial measures include adjusted gross margin and adjusted EBITDA are referenced. A reconciliation of each non-GAAP financial measure to its most directly comparable GAAP financial measure is included in our fourth quarter earnings release, which is available on our website under our Investors tab.

With that, it is my pleasure to turn the call over to The Real Good Food Company's Executive Chairman, Bryan Freeman..

household penetration, repeat rates, social community growth and engagement and velocities. Starting with household penetration, according to numerator data as of January 1st, The Real Good Foods brand household penetration is 8.4%. That's up from 7.6% in January of 2022.

This means approximately one in every 12 households in the United States has purchased our products in the last 12 months. Our household penetration continues to rank second amongst all health and wellness frozen brands behind only Amy's, a brand with over $500 million in retail sales.

Increasing household penetration demonstrates how well our brand position resonates and how quickly we have connected with a broad consumer base. We view this as a leading indicator of future growth. Turning to repeat rates. They continue to be in line with industry averages at 32% in the most recent trailing 52-week data as of November 1, 2022.

Regarding social community growth, we continue to grow The Real Good Foods online community. In the fourth quarter, our social and digital teams continue to outperform. We generated over 8 million organic impressions and 94 million total brand impressions.

We also acquired 22,000 new SMS text subscribers and added 38,000 followers on Instagram, bringing our total to over 460,000 IG followers. We continue to believe using micro and nano content creators to spark authentic peer-to-peer conversations is a better use of marketing dollars than traditional advertising.

Based on a number of followers and subscribers, I can say it's working and it's efficient. This is reflected in the strong returns we get on our ad spending, which averaged 4x to 6x as measured by third parties. That's far higher than our peers on average.

Our retailer partners appreciate how we drive new consumers to the categories we participate in, allowing Real Good Foods to truly grow the frozen category with consumers new to frozen foods rather than taking share from others. Our close connection to our consumers enables us to efficiently test demand for new products before they launch on shelf.

This leads to greater household penetration and incremental category growth, not only for us but for our retail partners as well. These strong brand health indicators underpin our confidence in achieving over $500 million in sales over the long-term. Now moving to innovation. Our strategy can be characterized as fewer, bigger, better and faster.

This means we're interested in innovation that is additive to growth, meaningful to the consumer and profitable. With that in mind, in 2023, we built new plant capabilities that enabled us to enter the refrigerated section. Our flautas are now on shelf and our low-carb, high-protein burritos will be on shelf in the second quarter of 2023.

Additionally, we plan on introducing a new set of refrigerated protein-centric meal solutions in the second half of 2023. You will continue to see us expand in the frozen category as we enter the handheld category this year with low-carb burritos, quesadillas and taquitos.

These are large incremental platforms capable of delivering and accelerating long-term sustainable growth. We also spend time and continual improvement in refurbishment of our existing items. We know today's consumer is always looking for what is new.

To that end, we have recently introduced a new Creamy Poblano Chicken Enchilada that uses an innovative new low-carb tortilla. Additionally, as we mentioned on our last earnings call, we are rolling out our new breakfast sandwiches, which feature a newly formulated fluffier bun.

Similarly, our bacon-wrapped stuffed chicken platform innovation will feature new flavor combinations, including [indiscernible] cheese with caramelized onions and for the holiday, bacon-wrapped cranberry and Brie-stuffed turkey breast.

All of this is to highlight the talented, highly focused team of food developers that work tirelessly to create craveable nutrient in foods. We know if we do that, we will have a massive positive impact on society while growing a large and profitable business.

I'd now like to turn the call over to our CEO, Jerry Law, to provide an update on Bolingbrook and our operations more broadly..

Thank you, Bryan. Good morning, everyone, and thank you for joining us on today's call. I'm pleased to report that our Bolingbrook, Illinois facility is continuing to ramp up its phased start of production. And I'm very proud of the team and how far we've come since opening the new facility.

Bolingbrook enables our entry into exciting new categories and gives us much needed capacity to meet the growing demand for our new and existing products. I was pleased with our margin performance in the fourth quarter, which came in above our expectations.

Lower raw material costs contributed to the improvement, but the margin performance also reflects the fact that the start-up blues that we experienced in the third quarter of 2022 are behind us. I am encouraged by the sequential improvement in efficiencies at Bolingbrook and continued performance at our City of Industry facility.

Moreover, we expect operating performance to improve further throughout 2023 driven by better efficiencies, lower labor costs, improved plant utilization and better overhead cost leverage.

Today, we have 8 production lines up and running in the Bolingbrook facility with capacity for approximately $200 million in sales with the ability to add another $50 million to $70 million of capacity in short order with limited CapEx investment.

We are in a good position capacity-wise to be able to meet incremental demand driven by distribution wins we have already secured. We will view the first quarter of 2023 as a transitory period with two-noteworthy events. First, the timing of large customer promotion moved to the fourth quarter of 2023 from the first quarter.

Second, we took the opportunity to reorganize our distribution footprint to enable further cost savings by simplifying our network and to better serve our customers.

Although this move cost us 300 basis points or $1 million in incremental costs in the fourth quarter, it's the right strategic move as it structurally lowers our costs and creates further flexibility in our manufacturing network.

We now have a large strategic partner servicing a majority of our customer base, simplifying our supply chain and significantly reducing touch points for the company. This transition will significantly lower our overall logistics costs and enable us to achieve our long-term target.

Products made in the new Bolingbrook facility will have structurally lower costs as compared to those made in our City of Industry facility driven by lower labor costs, higher throughput and Bolingbrook's proximity to lower cost raw materials, supplies and a major distribution hub.

Overall, we believe this new facility brings us closer to meeting our long-term goal of achieving $500 million in revenue while concurrently accelerating our margin improvement efforts.

We have already seen the impact Bolingbrook has had in terms of successfully relieving pressure on our City of Industry plant, which is operating above 100% capacity utilization throughout most of 2022. With the City of Industry plant running at more normalized operational levels, it has allowed us to focus on continuous improvement.

And in turn, we expect to further improve yields and drive new efficiencies. Specifically, conversion costs in our City of Industry plant for the fourth quarter were relatively flat sequentially but down approximately 700 bps of net sales, which is an acceleration from Q3 as compared to the average of preceding four quarters.

This improvement was driven primarily by improvement in labor costs. Before I turn it over to Akshay, I'd like to discuss our biggest catalyst as we exit the fourth quarter and move into 2023.

We expect our labor cost to continue to come down sequentially as Bolingbrook becomes a bigger portion of our production mix, further aided by continued efficiency gains at our City of Industry facility. We are confident in our ability to bring labor costs in line with industry standards of approximately 5%, 10% of sales.

To reiterate, we expect a major portion of this opportunity to flow through within the next 12 months as efficiencies are optimizing both plants and Bolingbrook becomes a bigger portion of our production mix. Additionally, higher sales will drive plant utilization rates higher and allow us to leverage lower overhead costs.

We expect these overhead leverage to drive a further 200 to 300 bps improvement in our 2023 margin profile. Lastly, Bolingbrook has enabled significant productivity savings that have already started to accrue as we move into 2023.

This includes the self-manufacturing of our chicken tortillas, cooked chicken that is used in our product fillings and our proprietary breading blends which, on a combined basis, are likely to drive approximately 200 to 400 bps of margin improvement.

As for direct materials inflation, the good news is that commodity costs remain favorable and point to a roughly 600 to 1,000 bps tailwind for 2023. In summary, although we walked away from some promotions in the fourth quarter that negatively impacted sales, it was all done with a keen eye on our margin targets.

We are pleased by our margin performance in the fourth quarter, which showed significant sequential improvement to the second highest margin in our company's history. We continue to expect 2023 adjusted EBITDA to be in positive mid-to-high single-digit millions of dollar range.

We have strong visibility into the drivers of our continued margin turnaround and feel confident in achieving our outlook. It's an exciting time at Real Good Foods and I am thrilled to report the tremendous progress our supply chain and operations teams have made, all in order to support our growing demand.

I still believe we are in the very early innings of growth and are well positioned to capture market share in the categories in which we compete. Now I'd like to turn the call over to Akshay, our Chief Financial Officer, who will walk you through our fourth quarter financials..

Thank you, Jerry, and good morning, everyone. Turning to our financial results, net sales in the fourth quarter were $35.7 million, an increase of 39% as compared to the fourth quarter of last year. Sales growth in the fourth quarter was primarily due to strong growth in our core products and the unmeasured channel.

In the unmeasured channel, growth accelerated in the fourth quarter to approximately 81% as compared to 77% growth in the third quarter. Sales growth in the unmeasured channel would have been significantly higher if it weren't for our decision to dial back promotions on certain non-core products to prioritize margins.

The strong 81% growth in this channel was driven by distribution gains and to a lesser extent, velocity increases.

As for 2023, we expect another stronger growth in this channel driven by expansion of our breaded poultry items starting in the first quarter of 2023, significant new distribution wins already secured as well as commitments to certain planned promotional events.

It is important to point out that our growth plan has always been significantly back half-weighted, but it is more so now due to the timing of certain promotional events moving from the first quarter to the fourth quarter of 2023.

Despite this change in promotional timing, we remain on track to achieve our 2023 sales target for the unmeasured channel. In the retail channel, growth slowed sequentially to 1% in the fourth quarter as we lapped 105% growth in the fourth quarter of 2021.

On a 2-year basis, our growth accelerated to 107% in the fourth quarter as compared to 49% in the third quarter of '22, 85% in the second quarter of '22 and 70% in the first quarter of 2022. Our growth in this channel continues to be driven by strong baseline velocities, while distribution has been flat to slightly up.

However, as Bryan mentioned, we have strong momentum on distribution wins and are bullish about our prospects for 2023. Three factors underpin our positive outlook for 2023 revenue growth. One, significant wins we have already secured. Two, strong baseline velocity growth, and three, exceptional new product velocities.

We have recently secured approximately 50,000 distribution points for our new items introduced in 2022, which represents an approximate 38% increase year-over-year in distribution points. Moreover, these new items have velocities that are already 3x to 8x our base business.

As such, these new distribution wins are likely to be materially additive to our overall sales growth in this channel, and we expect another strong year of growth in this channel in 2023.

Our fourth quarter gross profit was $4.9 million, reflecting a gross margin of 13.7% of net sales as compared to a gross profit of $1.3 million or a gross margin of 5% of net sales in the fourth quarter of last year.

The increase in gross margin was primarily due to lower commodity costs, continued strong operating performance at our City of Industry, California facility and improved efficiencies in our new facility in Bolingbrook, Illinois.

Adjusted gross profit during the quarter was $9.9 million, reflecting an adjusted gross margin of 27.7% of net sales as compared to $4.5 million or 17.5% of net sales in the fourth quarter of last year.

We had expected margins in the fourth quarter to be higher than the third quarter, owing to lower commodity costs and efficiencies related to the Bolingbrook ramp-up.

However, margins came in above our expectations primarily owing to lower-than-expected direct material costs and to a lesser extent, greater than expected efficiencies related to the Bolingbrook ramp-up. As expected, we exited 2022 with structurally lower cost, particularly on the labor front.

Looking ahead to 2023 and beyond, we have a long runway of future productivity savings that will drive incremental margin expansion. Additionally, as Jerry mentioned, the cost of our key commodities has come down significantly in recent months.

And if you were to lock in our commodities at current spot rates, our margins in 2023 would be 600 to 1,000 basis points higher. Total operating expenses were $13.6 million as compared to $42.3 million in the fourth quarter of 2021.

Adjusted operating expenses increased by approximately $3.4 million to $12 million in the fourth quarter of 2022 as compared to $8.7 million in the fourth quarter of 2021.

The increase in operating expenses was primarily driven by increased personnel expenses related to the build-out of our company's operations, finance and leadership team as well as increased investments in research and development. Adjusted EBITDA totaled a loss of $700,000 as compared to a loss of $4.5 million in the fourth quarter of 2021.

This was below our expectations driven by two factors. One, lower-than-expected sales due to us walking away from a promotion that would have negatively impacted margins.

And two, as Jerry and Bryan mentioned, our decision to transition our distribution network to a new strategic partner, which resulted in a $1 million increase in our distribution costs this quarter. Now shifting to our balance sheet and cash flow.

As of December 31, 2022, we had cash and cash equivalents of $7.6 million and total debt of $73.2 million. Our total liquidity position was $37.6 million as of the end of the year.

Cash burn in the fourth quarter was approximately $8 million, a significant decrease as compared to $19 million in the third quarter of 2022 and $24 million in the second quarter of 2022. Of the $8 million cash burn this quarter, $1 million was related to core working capital.

We have strong visibility into our distribution gains in the upcoming shop reset cycle in May, which includes the national rollout of our breaded poultry items at a large mass retailer.

This significant inflection in our sales growth starting in May could result in a significant fixed cost leverage across our plant network and in G&A, propelling us to be closer to our goal of operating cash flow positive starting in the second half of 2023 and for the full year of 2023.

As such, we have sufficient liquidity to fund our current needs and execute the plan we have laid out. As a reminder, it's important note that the Bolingbrook facility and equipment is being leased with costs flowing through the P&L, and there's no incremental CapEx spending associated with that plant. Now turning to our outlook for 2023.

In 2023, we expect net sales of at least $200 million, adjusted gross margins of at least 24%, adjusted EBITDA in the mid-to-high single-digit range and positive cash flow from operations. Long-term, we continue to expect net sales of approximately $500 million, adjusted gross margin of 35% and adjusted EBITDA margin of 15%.

This concludes our prepared remarks. I would like to hand the call over to the operator to begin our Q&A session.

Operator?.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. Our first question is from Jon Andersen with William Blair. Please proceed with your question..

Hi. Good morning, everybody. I wanted to start with the fourth quarter sales, which were about $13 million below the low end of your guidance range. Was that all explained by the step back from promotion that you referred to in the quarter? I guess that's lower quality volume or lower margin volume that you decided to step back from.

Are there other things that also maybe didn't come in as strong as you had hoped? And is there additional, I guess, work that you need to do in thinking about volume that you may or may not pursue just given the economics of it? Thanks..

Hey, good morning, Jon. It was entirely due to making an inter-quarter decision to reduce our trade spend on a specific promotion. When we think about that, whether we want to do something or not, we think about it in 3 buckets.

One, is it strategic or is it worth the investment, is it a platform or an item that's worth investing against? Two, is it margin dilutive and obviously, third, does it hurt profitability? And in the case of what we looked at, we couldn't check any of these boxes.

And so we made the right decision because at the end of the day, we're here to put up improved margins and become profitable. In terms of our 2023 plan, I really don't see that happening on a go-forward basis in the future. What's driving our growth in 2023, as I'm sure you're aware, is our baseline velocities and the products that are profitable.

And so with expanded distribution of the new TPDs and the innovation that we have already built profitability in, we see 2023 really moving forward well..

Okay. And then, sticking with the 2023 sales view, I think in the prepared remarks, you referred to at least $200 million. And also that representing at least 30% growth. But just my back-of-the-envelope math, that would require at least 41% growth in 2023.

Am I thinking about that right based on the actual results delivered in 2022 that you would need 41% or better growth in 2023? And then, just if you could talk a little bit more about the drivers there. That's about $60 million of incremental business in 2023.

And how you see that kind of coming in either by channel, retail versus non-measured, perhaps velocity versus distribution to give us a little more sense of how that will -- how you're seeing that play out? Thanks..

Yes. To answer your first question, the good news is the products that we're getting expanded distribution on have anywhere from 4 to 6x greater velocity than our base business. So although we're -- we have 50,000 confirmed TPDs, they're far more productive points of distribution than what our base business is.

And that's why we're very confident of achieving the $200 million revenue number for the year. So I think that's a big factor. With regard to the difference between measured channel and unmeasured, our measured channel business, I couldn't be more pleased with it.

We have the greatest momentum I've seen since I've been here, both with retailers and with the consumer. Our velocities continue to outperform my own expectations, and retailers have noticed it. And that's why we continue to get new authorizations as we show our products.

And the other good news is those products run in Bolingbrook, which have a significantly better margin profile than our legacy products as well. So from that standpoint, it's one of those situations where what's selling well and what has retailers excited also has a very nice margin profile.

Does that answer your question, Jon?.

Yes, it does. I guess I could follow up with you on the growth rate. Again, it seems like it needs to be more like 41% in 2023 over [indiscernible]..

Yes. This is Akshay. Thanks for that, and thanks for pointing that out here. Our intention there, so we are reaffirming at least $200 million. And we are agreeing with you that, that implies at least 41% growth. So that was a miss on our part. We did not intend to indicate that there could be 30% growth.

It's going to be above 40% growth and at least $200 million in revenue. So thanks for asking that..

Okay. And the last one, the scanner data, I know it's very limited in, I guess, its ability to provide a complete view, particularly for your business, which has such a strong presence in non-measured channels. But the past couple and I typically, we don't want to put too much weight on any kind of 4-week or quad-week period.

But the first couple of months of the year, it looks like it hasn't really reaccelerated and maybe moderated further. How are you thinking about -- I mean, what are you seeing in the measured channels now? Because it sounds like, on the 1 hand, Bryan, you're excited about what you're seeing.

But it doesn't look like it's fully reflected in what's coming through the latest couple of months.

And then for the cadence of the year, can you give us some color around how you think about the cadence of 2023, both top line and bottom line, given the factors that you've talked about?.

Sure. Jon, there are a couple of important items that did not get -- new items that did not get picked up by IRI. But look, I mean let's take a step back here. I mean the 1-year comp are lapping over 100% growth year-over-year. And on a 2-year basis, we're at 107% growth, which is an acceleration over 50% of preceding 3 quarters.

But at the end of the day, come May and June, you're going to see a massive growth in consumption data due to the high productivity SKUs that are coming on shelf and as those 50,000 new TPDs come in. I mean, today, we're probably only at about 170,000 points of distribution.

With the reset cycles come in, in May, June, you have very high velocity SKUs, 50,000 points of distribution, you'll see a massive growth in the consumer IRI data..

Our next question is from Bill Chappell with Truist Securities..

Just wanted to follow up in particular, on the quarterly kind of what you're talking about of the change in promotion and just trying to understand the timing of that. I mean, I would -- I guess, several questions.

I guess, one, I would think you would have had a pretty good analysis of profitability kind of when you put the promotion and plan several quarters before. And then, so I'm just trying to understand why all of a sudden, it changed intra-quarter.

And then when this actually happened just because obviously, you last reported in November, and there wasn't really much comment about anything like this. So I'm just trying to understand the timing of this, why you didn't catch it sooner and why the metrics would have changed so quickly..

What I would say is we had an opportunity to pull back on the promotion intra-quarter, and we took it. And we did it because of our discipline. We are focused on improving our margins and being profitable and not growing just for growth's sake.

And as a team, when we came together, we said, look, we can't check the three aforementioned boxes, and so we're going to make this move. The same is true on the logistics side. We took a look at our current matrix, and we know that our job to deliver at least 8% logistics cost in 2023.

And in order to deliver that, we knew we had to do a significant change to our matrix, and it cost us close to $1 million to do it. But now we're set up for 2023 to deliver on the results that we all expect to achieve in '23.

So the way I would think about it is you've got a management team here who's serious about becoming profitable and not growing for growth's sake..

No, and I understand that, not see anything wrong with the decision. I guess I would have thought that right now, if you have a promotion set for June, you have a pretty good idea or estimate or forecast what the sales, the profitability of that promotion would be.

So I'm just trying to understand, some of it was $13 million of sales, that seems like a pretty meaningful, some of it was already in place months in advance.

So I'm just trying to understand what changed intra-quarter to then pull the plug?.

I think it was really about our philosophy on how we're going to drive this business..

Yes. If I can add, Bill, I'd just say this should tell you that we're even more focused on margins than we ever were before. So if you look at what we've seen in the market, we're not getting credit for any of the sales growth or sales we're putting up anyway.

We've been focused on improving our profitability since we IPO-ed, we brought our profitability forward by over a year since what we'd said at the IPO. And this is just another step towards that journey. We're all about profitable growth. And if there's tough decisions we made even if they're intra-quarter, we're committed to making those..

Okay. I'll follow up on that.

And then on the transition costs of the distributor, was any of that one-time, I'm just trying to understand, were you taking back inventory from the former distributor? Was it just kind of termination fees or was it all this just all start-up costs, that incremental kind of cost in the fourth quarter just for going to the new distributor?.

Yes, it's one-time. And what you're really doing is moving a lot of your finished goods a second time because we needed to simplify where the inventory is stored, and you end up taking a hit in the quarter. So it's a one-time cost associated with simplifying our matrix and moving it all into the new supplier. And so that's a great setup for 2023..

Perfect. Thanks so much..

Our next question is from Rob Dickerson with Jefferies. Please proceed with your question..

Great. Thanks so much. I have a couple. First one, I guess, just to touch on gross margin. Clearly, it came in a little bit better in Q4. And then for the year came in, let's say, around 20%, 21%. The guidance is still at least 24%. It sounds like you have made maybe some incremental improvements through Q4.

And I think if I heard you correctly, even if I just take the low end of what input cost tailwind could be, assuming you locked it in now, that could change, but let's just take the low end and then take the low end of what op leverage would be, I mean -- and I'm excluding any mix shift in the factory line benefits, I get to like an 800 basis point tailwind, right? But let's say, even if you did 20% '22, it's not 24.

And maybe if you could just provide some clarity as to kind of what clearly could be maybe some upside in that gross margin in '23. I'll start with that..

Yes. Thanks for the question. This is Akshay. I'll take that one. So it's a great question, we have a long way to go in the year. Our commodity costs and commodity basket is not necessarily hedgeable, as you know, right on chicken and some other commodities. So things can move around, especially quarter-to-quarter.

And so there's an appropriate amount of conservatism built into our guidance. And given our history also, we wanted to make sure we put up the numbers before we adjust our guidance in either direction. So it's very early in the year. But what you're seeing is exactly fact-based.

And certainly, there's a significant tailwind on commodities that if it continues the way it is, certainly could lead to some upside for 2023..

Got it. Great. Good enough. And then, I guess, just coming back to the line of questioning around the shift in Q4 and focus on margin. I was out in California a few weeks ago at [indiscernible] a lot of people go to. So it's a lot of smaller companies, and the feel was clearly like everyone is trying to get to be EBITDA positive and cash flow positive.

That clearly matters, especially in this environment, not just from a perspective, let's say, of the market, but maybe a perspective of like survivorship, number one.

And then kind of my question though is, is that kind of a point of discussion that's increasingly come up with the retailers? And I ask this because not every company your size on a sales basis is clearly putting up the gross margin you just put up in Q4.

So then you say, okay, well, we're at 70,000 distribution points, I think, is what you said, and you secured 50,000 new. I mean, that's a big step, 70% increase, velocities are strong.

I'm just curious when you speak with your retailers is kind of pointing to this profitability maybe vis-a-vis some other smaller companies helping you actually really secure that new distribution on top of the velocity that you're able to show with the new products?.

Rob, we're at approximately 170 points in distribution with 50,000 points confirmed. The conversation with retailers is all about, are we helping them grow the category? In other words, is our revenue incremental, our bringing new users into the category, that's number one.

Number two, how are the velocities of your items performing compared to the rest of the category? You can check those two boxes, that typically means you'll get expanded distribution and growth for the business. And I can tell you that our products perform the top quartile of other products in the door.

And in some cases, like in the case of breaded poultry, we're in the top 10%, 12% of all products in the frozen meat section. And we're obviously driving new users because of our brand attributes and our digital community.

So because of that, that's why we have permission to grow, why they're giving us expanded distribution and frankly, why new temperature states are being presented -- opportunities that new temperature states are being presented to us. It's not lost on me that it's a big move going into the refrigerated section. We built that plant capability.

It's being in the -- having the opportunity to go to the perimeter of the store is a big deal. And our first product out is a big success. So I just love the set up for 2023. And that's why you hear us with such conviction around our guidance for the year..

All right. Great. And then maybe just one quick one, just kind of what you're speaking to on the refrigerated side, maybe if you could just quickly refresh my memory, apologies on kind of what that one new item is in refrigerated.

I know you called out the protein-based burrito, but then there is some commentary around entering kind of protein-based entrees.

So anything you have, I guess, one on the refrigerated side then two, kind of are there other incremental SKUs in the pipeline on protein-based entrees that are kind of within the guide and the new distribution in the back half of this year. That's it..

You bet. So we launched with flautas. We've got burritos coming alongside of it. You'll see our burrito show up in April. There is nothing in the guide with regard to protein-based meal solutions. But now that we have that capability, the team has developed those items. They're commercial ready. They're not in the guide.

We're not going to put them in the guide for '23. But nonetheless, I'm very excited about it. We see a big opportunity over there..

Our next question is from George Kelly with ROTH MKM. Please proceed with your question..

Hi, everybody. Thanks for taking my question. First one for you, just on your full year revenue guide. You said in the prepared remarks just how back half-loaded it would be. So just hoping if you can quantify that at all.

I mean, is like a 60-40 split reasonable or any other way that you can help us understand how that growth will ramp throughout the year..

I think that's directionally accurate. When you consider the reset timing of the category, George, I think that's directionally right. What's also exciting is, when you look at that, think about what our run rate will be as we exit 2023 and what that means. I know it's still early to talk about '24.

But think about how that will look as we exit '23, it's pretty exciting for the company..

Absolutely. Yes. Thanks. And then, second question for me. On your balance sheet, what is the current rate on your debt? And to get to that I'm assuming that your model calls for solid kind of operating cash flow profitability in the back half. But to get there, how much more do you expect to tap into your revolver? And that's all I had. Thank you..

You bet.

Akshay, would you mind taking that?.

Sure. Yes. So our cost of debt is in a low double digits now with the rates where they are and how high they've gone in the last few months. But keep in mind that our revolver is PIK, paid in kind, so it does not impact our cash, it impacts our availability.

And as you saw probably a couple of weeks ago, we did an amendment and expanded our credit facility, which essentially created at least $20 million more in liquidity for us, which is big one, especially in this environment.

As far as your question on how much will we use, I mean, we're not giving free cash flow guidance, especially not for the first two quarters. But what I tried to say in my remarks is, we've got this big reset happening with a very large retailer here in May, like literally a month away.

And our gross margins were already at 14% when we're 50% utilized. So think about the fixed cost leverage and what impact that's going to have on our margins and also on our cash flow. So we're maintaining our guidance for operating cash flow positive for the full year.

And we also said here starting in May, June, we should start to be operating cash flow positive as well. So we remain on track to achieve that and a lot of it's going to come from better utilization and everything else that we're doing to improve margins..

Got you. Thank you..

Endof Q&A:.

Thank you. There are no further questions at this time. I'd like to hand the floor back over to Executive Chairman, Bryan Freeman, for any closing comments..

Thank you for joining us on this fourth quarter call. I look forward to updating you on our progress on our upcoming call on Q1. Thank you and have a good day..

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation..