MamaMancini’s Holdings, Inc. — Form 10-Q Summary
Business context and reporting period. The filing is for the quarter ended October 31, 2019, covering the third quarter and first nine months of fiscal 2020. The company manufactures and distributes prepared meat products and is expanding its product range. Financial statements are unaudited. The filing uses the name MamaMancini’s Holdings, Inc.
Key financial results
| Metric | Three months ended Oct. 31, 2019 | Prior-year quarter | Nine months ended Oct. 31, 2019 | Prior-year nine months |
|---|---|---|---|---|
| Net sales | $9.27 million | $8.24 million | $24.73 million | $21.63 million |
| Gross profit | $2.90 million | $2.69 million | $7.96 million | $7.58 million |
| Gross margin | 31% | 33% | 32% | 35% |
| Operating income | $504,000 | $536,000 | $1.43 million | $1.22 million |
| Net income | $409,000 | $356,000 | $1.12 million | $470,000 |
| Net income per diluted share | $0.01 | $0.01 | $0.04 | $0.01 |
- Revenue and earnings: Sales rose about 12% in the quarter and 14% for the nine-month period. Nine-month net income more than doubled, helped by higher sales and lower other expenses.
- Margins and expenses: Gross margin declined in both comparisons. Management attributed the pressure to added depreciation from recent plant-capacity investment and product mix. Operating expenses rose 11% in the quarter and 3% year to date, but fell as a share of sales year to date, from 29% to 26%.
- Cash flow: Nine-month operating cash flow was $976,000, down from $1.65 million. Investing used $163,000, versus $1.03 million in the prior period; financing used $811,000. Cash was $611,000 at October 31, 2019, essentially unchanged from January 31.
- Liquidity: Current assets were $6.07 million and current liabilities $4.21 million, yielding working capital of $1.86 million, up $613,000 from January 31. Receivables, inventory, other receivables, and prepaid expenses increased.
- Debt and leases: At October 31, the company reported a $2.90 million balance on its M&T Bank line of credit and a $1.47 million gross term-loan balance. Related-party notes payable were $642,000. Finance-lease liabilities totaled $446,000; operating-lease liabilities totaled $1.53 million. Bank facilities are secured by business assets and subject to financial covenants; the CEO provides a limited guaranty.
Material changes, outlook, and risks
- Quarterly operating income declined despite higher sales, as gross margin contracted and operating expenses increased. Net income improved mainly because interest and debt-discount amortization expense fell. Year-to-date other expenses were also lower, partly because the 2018 comparison included about $112,500 of nonrecurring charges related to an earlier debt extension and modification.
- Management expects sales growth and expense control to support sufficient cash resources through the fiscal year ending January 31, 2020, but says additional funding may be needed to finance growth and strategic objectives. It cautions that financing may not be available on acceptable terms. No quantitative earnings or sales guidance is provided.
- Management expects higher sales to improve gross margins as plant efficiencies take effect. The company announced development of plant-based meatballs using Beyond Beef and an agreement with Beyond Meat, with sales expected to begin in the current quarter.
- Management cited competition, changing consumer demand, grocery-industry cycles, economic conditions, and food and beverage price volatility as risks. Three customers accounted for approximately 47%, 10%, and 10% of nine-month gross sales; customer concentration creates exposure to changes in major accounts.
- The company adopted the lease accounting standard in fiscal 2019, recognizing operating lease assets and liabilities; prior-period balance-sheet figures were not restated. It reported no litigation believed to have a material adverse effect and no defaults on indebtedness.
Important facts for investors to verify
- Whether sales growth converts into stronger operating cash flow, given higher receivables and inventory and lower year-to-date cash from operations.
- Whether plant utilization and efficiencies reverse gross-margin compression, including the effect of product mix and added depreciation.
- Availability and terms of funding, compliance with bank covenants, and repayment needs under the revolving credit facility.
- Customer concentration, the performance and timing of the Beyond Meat product launch, and the economics of the company’s growth initiatives.
- The effect of related-party debt and other related-party business relationships on future financing costs and cash requirements.