MamaMancini’s Holdings, Inc. — Q1 FY2023 (quarter ended April 30, 2022)
The 10-Q reports the three months ended April 30, 2022, compared with the three months ended April 30, 2021. The company manufactures and distributes refrigerated and frozen prepared foods. Results include the first full quarter of T&L Creative Salads and Olive Branch, acquired in December 2021 for $14.0 million.
Financial highlights
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales | $21.83 million | $10.31 million |
| Gross profit / margin | $3.86 million / 18% | $3.34 million / 32% |
| Operating expenses | $3.60 million | $2.49 million |
| Income from operations | $261,000 | $852,000 |
| Net income | $104,000 | $632,000 |
| Operating cash flow | $(1.34) million | $1.34 million |
- Net sales increased approximately 112%, reflecting the acquisitions and modest growth at MamaMancini’s, Inc. The company cited cross-selling and product additions, particularly in club stores.
- Gross profit increased in dollars, but margin fell to 18% from 32%. Management attributed the decline to the acquired businesses’ lower-margin model and inflation in raw materials, packaging and freight outpacing price increases.
- Operating expenses rose 44% in dollars but declined to 16% of sales from 24%. Increases included freight, payroll, promotion, professional fees and insurance.
- Net income declined to $104,000 from $632,000. Higher interest expense related to acquisition financing and weaker gross margin weighed on results. The prior-year quarter also included $37,704 of net insurance-related other income.
- Cash and cash equivalents were $921,000 at April 30, 2022, versus $851,000 at January 31, 2022. Working capital was $4.19 million, up from $2.65 million. Current assets were $14.59 million and current liabilities $10.39 million.
- Operating activities used $1.34 million; investing activities used $174,000, mainly for equipment; financing activities provided $1.59 million, primarily from a $1.78 million net increase in line-of-credit borrowings.
Debt, liquidity and other notable items
- At April 30, 2022, the balance sheet reported a $2.54 million line of credit, $1.50 million current and $5.82 million long-term term loan, and a $3.04 million related-party promissory note. Finance lease liabilities totaled approximately $536,000. These figures exclude operating lease liabilities.
- The $7.5 million M&T Bank acquisition loan has monthly payments over a 60-month amortization period, matures in January 2027 and bears variable interest tied to SOFR and the company’s debt/EBITDA ratio. The $3.0 million seller note bears 3.5% interest, with annual principal payments of $750,000.
- The $4.5 million M&T working-capital line matures June 30, 2023, is secured by business assets and is subject to financial covenants. The filing says covenants were waived for the year ended January 31, 2022; it reports no defaults on indebtedness.
- Management said current and projected operations were expected to support cash requirements through June 16, 2024, but the company may need additional financing to fund growth. Management cautioned that financing may not be available on acceptable terms.
- Three customers accounted for approximately 25%, 10% and 14% of gross sales in the quarter, respectively. Approximately $758,000 of cash exceeded federally insured limits.
Outlook, risks and contingencies
- Management expected inflationary costs and price increases to begin balancing in the quarter ending July 31, 2022, with gross profit moving toward targeted levels. No quantified guidance was provided.
- The filing cites competition, changing consumer demand, grocery-industry cyclicality, economic conditions, and volatility in food and beverage prices as risks to sales and earnings. The company also identifies uncertainty in estimates, including inventory obsolescence and acquisition purchase-price accounting.
- Goodwill was $8.63 million; the company reported no goodwill impairment through April 30, 2022. The acquisition purchase-price allocation remained preliminary.
- The company disclosed ineffective disclosure controls and internal control over financial reporting, citing insufficient accounting staff and limited experience with a new ERP system. Management said these weaknesses had not affected reported results but could contribute to a material misstatement in future periods without remediation.
- No material litigation or additional insurance proceeds or costs related to the 2020 plant fire were reported for the quarter. The filing discloses related-party arrangements, including the seller note and a facility lease with an entity owned by a T&L subsidiary executive.
Important facts for investors to verify
- Whether margin recovery materialized after the quarter, given management’s expectation that pricing would catch up with input-cost inflation.
- Acquisition contribution, integration performance and the final valuation of acquired intangible assets and goodwill.
- Cash conversion, receivables and inventory growth, continued line-of-credit usage, and availability under the facility and its covenants.
- Progress remediating the disclosed control weaknesses and strengthening accounting and reporting capacity.
- The filing’s cash-flow comparison is inconsistent: the cash-flow statement reports $1.344 million of operating cash provided in Q1 2021, while MD&A gives $1.435 million in one passage. Investors should confirm the correct comparative figure.