Mama's Creations, Inc. Common Stock 2027 Q2 Earnings Call

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to Mama's Creations second quarter fiscal 2027 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, Thursday, September 3, 2026, and the earnings press release accompanying this conference call was issued after the market closed today. On our call today is Mama's Creations' Chairman and CEO, Adam O. Michaels, and CFO, Anthony Gruber. Before we get started, I would like to note that some of the statements on this call will be forward-looking statements that reflect management's current expectations about future operating and financial results.

Although management believes their expectations and assumptions are reasonable, they remain subject to significant risks and uncertainties, and actual results for future periods may differ materially from what is stated or implied during today's call. For more information, please refer to the forward-looking statements section in today's press release and the risk factors disclosed in the company's most recent Form 10-K and any subsequent reports it files with the SEC. Please also note that today's call will include a discussion of adjusted EBITDA, which is a non-GAAP financial measure. Important information, including required disclosures containing a reconciliation to the most directly comparable GAAP measure, is also detailed in today's press release. At this time, I would like to turn the call over to Chairman and CEO, Adam O. Michaels. Adam, the floor is yours.

Thank you, Luke, and thank you to everyone for joining us today. I would like to welcome you to our second quarter fiscal 2027 financial results conference call. The second quarter was another step change quarter for Mama's. Thanks to the creativity of our sales team, the resilience of our operations team, and the increased capacity from the acquisition of Bay Shore, we grew revenue 55% to $54.6 million and expanded adjusted EBITDA 69% to $5.5 million. The real story of this quarter is not the impressive growth rate, but the shape of it. Every single bottom-line metric grew faster than revenue. Income from operations, adjusted EBITDA, and net income, which more than doubled. Overheads did not grow with the business.

It shrank as a share of it, and gross margin turned back up sequentially as the items we launched in Q1 settled into steady state production with room still to run. Anthony will take you through the detail, but what I want you to hear is the sequence, because it is exactly the one we laid out three months ago. Invest into the launch, then harvest the leverage, and this team delivered without skipping even a beat on new distribution gains. Looking forward to potential future M&A, we also fundamentally changed the kind of transaction this company is capable of pursuing. Following our recent offering, we closed the quarter with over $138 million cash war chest and virtually no debt, supported by the strong operating cash flow the business generated on its own.

Until now, the size of the opportunity we could chase was largely set by the size of our balance sheet. The dynamics have changed. We can pursue accretive M&A that brings incremental capabilities, capacity, or customer access into the platform, and we can do it from a position of strength. As always, regardless of the size of our increasing war chest, we will remain as steadfast and disciplined in our approach as we did when we started this journey four years ago. Before we get into the quarter itself, let me spend a moment on the macro trends, because it keeps getting better. One of the earliest lessons I picked up in my career is that catching an existing current is far easier and far cheaper than trying to manufacture one of your own.

In June, McKinsey published research naming the shift from restaurant to ready-to-eat grocery meals as one of the top themes reshaping the entire grocery industry. I mean right up there with e-commerce, retail media, and even AI. Roughly one in four consumers now buy grocery prepared food specifically as a substitute for ordering from a restaurant, most often replacing quick service and fast casual occasions. Here's a line I keep coming back to. "Prepared foods, by far the leading driver of trip frequency across every single section of the store." Not one of the drivers, the leading driver, which means that the strategic alignment we have with our retail customers is getting deeper, and our value to their business is only getting stronger. If that's not enough, GLP-1s are only accelerating it. Consumers are walking past the packaged snack aisle and reaching for a high-protein meal instead.

We continue to be in the right place at the right time with the right product portfolio. Now finally, with the balance sheet to capture far more than our fair share. Then there's one that made me smile the most when I sent it to Chris and Lauren. The Wall Street Journal and Yelp have both now put a name to a consumer trend called Grandmacore. Slow-cooked, simply made family recipes, food that tastes like somebody who loves you made it. Yelp named it a 2026 dining trend. Rubix Foods found that 44% of consumers would rather a brand improve a familiar favorite than chase a trend. Fellow shareholders, we did not pivot into this. Anna Mancini carried her meatballs and sauce recipe through Ellis Island 105 years ago. For most brands, Grandmacore is a marketing stunt. For Mama's, it is our founding principle.

The current is strong, and the playbook we run has not shifted one iota. Cost, controls, culture, and catapult, our four Cs. Starting with our first C, cost. I'm excited to report that thanks to Skip and his team, we officially opened the new expansion of the East Rutherford, New Jersey facility at the end of last month, nearly doubling frozen and refrigerated storage capacity, which will reduce our outside storage costs as well as increase logistics flexibility. In addition, as our associates come back from their Labor Day break, they'll be coming home to a new break room, locker rooms, and training spaces in our signature Mulberry color palette and our values on the wall throughout, thanks to Lauren and her team. Our New York facilities continue to merge and blur, sharing equipment and people across facilities.

Our new Walmart launches and recent Sam's launch would not have been possible without the Bay Shore facility and our Bay Shore associates. With the added volume of new items across Walmart, Sam's, Albertsons, and BJ's, the Bay Shore facility continues to steadily improve towards our goal of margins being in line with our East Rutherford and Farmingdale gross margins as promised. Finally, continued improvements in below the line direct variable costs continue to be captured as our first half freight, royalties, and commissions percentage is below prior year. This allows our operating margins to show up exactly where it should. Operating expenses fell 160 basis points as a percentage of revenue year-over-year, and margins improved sequentially off the first quarter. All of this with plenty of room to grow.

On gross margin, specifically, in June, we told you that labor and raw material inefficiencies tied to the start-up of new packaging technologies and protein form factors were front-loaded investments, not a new normal. The second quarter was the first proof point. Margin improved sequentially to 24.0% from 23.6%, while spending more trade in Q2 than in Q1 and spending over $1 million more in high ROI trade versus prior year. We remain firmly on track with our mid to high 20% corporate gross margin target as those items move fully into steady state. Moving to controls, our second C. I am proud to share that we continue to invest in more data analytics to expand our Power BI efforts, now incorporating AI plugins thanks to Melissa and Lauren.

This is providing faster, more granular, connected information, delivering savings in materials, production efficiencies, and inventory management. Our singular ERP system allows us to provide more visibility to our teams, real-time performance management, and benchmarking across each of our sites. Another great example of our controls is the impactful work that Alberto is doing with his procurement team. Since Alberto has joined, we have completely reimagined our supplier base. We have consolidated in some places and opened the aperture in others. For example, recent changes with our packaging supplier base avoided a 12% increase in materials through vendor diversification and business migration. We've added three new beef suppliers, increasing our quality even further without increasing our costs, sharing the benefit with our customers and end consumers. Another huge benefit Alberto brought to the team is his experience with supply planning.

The enhancements he has brought to Mama's is allowing us to add further safety stock levels to our top 10 items, facilitating absorption-based production, reducing our costs while increasing our customer service levels. If that is not a win-win, I'm not sure what is. I will continue to simply repeat what I said last quarter. In an industry where food safety sits at the top of every conversation, the discipline this team demonstrates across all three facilities is nothing short of remarkable and nothing we ever take for granted. Our third C, culture. I am ecstatic to share that last month, Yoon Lee, our first-ever Chief People Officer, joined us with over 25 years of experience building and leading high-performing organizations.

I could not be more excited to partner with Yoon and the rest of the people operations team to maintain and enhance the same entrepreneurial passion and spirit that got us to where we are today. With Yoon coming on board, we've been able to supercharge our capability building. In Q2, we grew our team and our capabilities by onboarding more than a dozen new operational leaders in functions like food safety and quality assurance, enterprise safety, and production management, bringing new capabilities that did not previously exist within the organization and upgrading leadership across critical functions to strengthen the infrastructure required to support continued growth and scale. All of these hires bring energy, experience, and renewed engagement throughout our entire organization. I am so proud to add seats at Mama's dinner table and excited to see what our new family members can do.

Another great example of culture is the new innovation lab that Chris and his team have built to wow and excite our customers in only a way Mama can. Appropriately and playfully called Mama's Secret Pantry, this is an experiential space that key partners will be invited to co-create and collaborate, to exceed and excite our consumers. I can't wait to share more about the space and, more importantly, the future wins coming out of this unique experience. We are not here just to win at the prepared foods game. We are truly redefining it. As Abbey keeps reminding me, culture is not a destination. It is a mindset that needs love, attention, and reinforcement every single day. I will say this about the quarter we just had. We raised more than $100 million on the strength of a proven story this team wrote with their own hands.