Rocky Mountain Chocolate Manufacturing facility, Inc. (NASDAQ:RMCF) Q1 2025 Earnings Convention Name July 15, 2024 5:00 PM ET
Firm Individuals
Jeff Geygan – Interim Chief Government OfficerSean Mansouri – Investor Relations
Operator
Good night, girls and gents. Thanks for standing by. Welcome to at the moment’s convention name to debate Rocky Mountain Chocolate Manufacturing facility’s Monetary Outcomes for the Fiscal First Quarter 2025. At the moment, all contributors are in a listen-only mode. As a reminder, this convention is being recorded.
Becoming a member of us on the decision at the moment is the corporate’s Interim CEO, Jeff Geygan. Please be suggested that this convention name will include statements which might be thought of forward-looking statements underneath the Personal Securities Litigation Reform Act of 1995.
These forward-looking statements are topic to sure recognized and unknown dangers and uncertainties, in addition to assumptions that might trigger precise outcomes to vary materially from these mirrored in these forward-looking statements. These ahead trying statements are additionally topic to different dangers and uncertainties which might be described once in a while within the Firm’s filings with the SEC.
Don’t place undue reliance on any forward-looking statements that are being made solely as of the date of this name. Besides as required by regulation, the Firm undertakes no obligation to publicly replace or revise any forward-looking statements. The Firm’s presentation additionally consists of sure non-GAAP monetary measures, together with adjusted EBITDA, as supplemental measures of efficiency of the enterprise.
All non-GAAP measures have been reconciled to essentially the most straight comparable GAAP measures in accordance with SEC guidelines. You can see reconciliation tables and different necessary info within the earnings press launch and Type 8-Ok furnished to the SEC earlier at the moment, that are at present accessible on the corporate’s EDGAR web page on the SEC’s web site and might be accessible on the Firm’s investor relations part of its web site inside roughly 24 hours after this name has ended.
And now I’ll flip the decision over to the Firm’s interim CEO, Jeff Geygan. Jeff, please go forward.
Jeff Geygan
Thanks, and good night, everybody. We have been working via a transitional interval at Rocky Mountain Chocolate Manufacturing facility as we revamped the framework of our transformational plan and management crew assigned to execute it. My intention is to make the most of at the moment’s name to handle latest developments and to elaborate on the elements of our up to date three 12 months strategic plan.
Earlier than I proceed, I might wish to take a second to formally introduce myself, as this marks the primary event the place I’ve had the privilege of addressing our shareholders, workers and franchisees on this discussion board. My background consists of over three many years of expertise within the capital markets and funding administration, with an emphasis on strategic monetary evaluation, lively engagement, and supporting the execution of operational turnarounds.
In August of 2021, I used to be appointed to the Board of Administrators of RMCF, serving as Board Chair from Could of ’22 to June of ’24, the place I suggested prior management on the event of RMCF’s transformational plan.
Whereas the Firm achieved a number of key targets in the course of the preliminary launch of our strategic plan, together with the divestiture of the non-core U-Swirl frozen yogurt enterprise, earlier this 12 months, it turned clear to the board that changes to our strategic framework and govt crew can be essential to refocus the operational turnaround we have been looking for.
Recognizing the necessity for direct on-site management at our manufacturing facility, on Could 16, I made the choice to maneuver to Durango and step into the function of Interim CEO, relinquishing my duties as RMCF’s Board Chair in accordance with our governance insurance policies, whereas additionally taking a depart of absence from International Worth Funding Corp with a purpose to dedicate my full time and a spotlight to returning RMCF to profitability and long-term progress.
We’re within the closing phases of appointing a brand new CFO to guide our finance crew, one who will stay and work in Durango. We count on to launch extra particulars shortly. The mandate from the Board of Administrators is obvious. First, establish and rectify deficiencies in our prior multiyear technique to extra successfully construct in the direction of a worthwhile future for the enterprise.
Second, enhance our near-term liquidity place of the corporate. Third, return our retail retailer rely to progress as we exit fiscal ’25 and set up a basis upon which we will obtain our three-year progress goal. And eventually, oversee the reconstruction of a robust govt crew based mostly on-site in our Durango manufacturing facility who possess the talents to execute our strategic plan.
I will now develop upon the updates to our strategic plan and the latest groundwork we have laid to enhance our liquidity place. For these newer to our story, Rocky Mountain Chocolate Manufacturing facility is a decades-old Colorado enterprise that has developed notable model fairness, a loyal franchise base and generations of chocolate-loving shoppers.
Our enterprise technique is designed to higher align gross sales, advertising and marketing and manufacturing, which is able to in flip allow us to strategically develop our retailer community and improve our manufacturing throughput with focused capital investments. This alignment can even guarantee extra well timed supply of services to clients throughout every of our three gross sales channels, that are franchisee, e-commerce and specialty markets.
We intend to execute our strategic plan by empowering our workers, franchisees and co-branding companions with data-driven insights and analytics to enhance their merchandising, product assortment and buyer expertise. We have dedicated to enabling our franchisees to make well timed and well-informed selections to enhance retailer stage profitability and gross sales progress.
We consider our greatest and most fast income alternative lies with our present franchise retailer community, supporting our franchisees stays our primary precedence. To additional our dedication to bettering the franchisee expertise, we’re deploying devoted enterprise consultants who will go to our franchisees nationwide to implement enterprise optimization methods and supply insights meant to permit shops to function extra profitably.
For instance, we have to higher talk our industry-leading volume-based royalty fee program, which creates mutually helpful relationship that gives discounted royalty charges for franchisees that emphasize the preferred merchandise made in our Durango facility.
Our preliminary evaluation of the chance inside our retail retailer community is promising and we consider we will return to same-store gross sales quantity progress as we exit this fiscal 12 months on high of the 15% value improve to franchisees that went into impact on June 1st.
Along with bettering store-level economics, our whole community of shops should return to progress. Over the previous few months, we have initiated agreements for a number of new shops in addition to a newly designed kiosk idea that might be launched quickly.
A latest and necessary change to our growth technique has been to emphasise retailer transfers instead of retailer closures. Relatively than having a franchisee shut a retailer that we consider is in a good location however underneath operated, we’re now actively taking steps to maintain the situation and change the operator.
We have efficiently transferred possession of two legacy shops just lately. For fiscal 12 months ’25, we’re concentrating on web retailer progress, marking the top of our multi-year sample of retailer contraction.
This might be completed by opening new shops throughout eight strategic markets that we’ve got recognized, together with Boston, New York Metropolis, Atlanta, Chicago, Portland, Seattle and some others. These markets have been chosen based mostly upon handy distribution routes and favorable shopper demographics.
Past our retailer community, one other key progress alternative is inside our e-commerce channel and it is a essential and supportive gross sales channel with the chance to drive incremental income and construct larger model consciousness. Enhancing stock administration is crucial to the success of our e-commerce technique by internally have ample inventory of merchandise for our franchisees in addition to on-line clients.
At present, e-commerce accounts for simply 3% of whole income. We count on to considerably improve that blend over the subsequent three years. Moreover, our up to date strategic plan acknowledges the necessary function performed by our specialty market retailers and co-branded companions.
The presence of RMCF merchandise in shops like Costco not solely creates favorable economics for the Firm, however extra importantly providers means via which we will improve consciousness and attain of our merchandise with the last word objective of driving extra visitors to our franchise shops.
I might be remiss if I did not point out the synergies and model publicity created to work with our major co-brand associate, Chilly Stone Creamery, which incorporates greater than 100 places at the moment. Over the subsequent three years, we intend to develop these strategic relationships to additional drive model consciousness and throughput whereas increasing our toolset for stock administration.
Our mission to ship high-quality confectionery merchandise, together with seasonal nature of our enterprise, creates a difficult paradigm for aligning stock ranges with shopper demand. As we glance to extend our manufacturing output within the years to come back, these channels outdoors of our franchise community symbolize the means via which we will handle incremental stock produced outdoors of our conventional peak seasonal demand.
Increasing on this level, in addition to our manufacturing and provide chain concerns, to make sure, our efficiency in the course of the vacation season of fiscal ’24 didn’t meet our expectation and was a key issue that led to the implementation of lots of the strategic and organizational change I’ve outlined.
Sadly, the shortfall is attributable primarily to enterprise execution missteps, bottlenecks in our manufacturing output and basic inefficiencies throughout our provide chain. We deployed in extra of three million in CapEx in the direction of new tools and manufacturing effectivity investments over the previous 12 months, partly to handle these provide chain challenges, and we intend to proceed investing within the enterprise at a extra measured tempo to additional help and increase our prior investments, all designed to enhance product high quality, predictability and cost-effective manufacturing from our Durango facility.
We consider these investments will allow us to drive materials enhancements in our output, rising present capability in tandem with offering refinements throughout sourcing and procurement and can ship price financial savings as we scale our efforts. To finance these investments and initiatives, we’ll want to enhance our liquidity profile.
We’re at present negotiating agreements so as to add a number of million {dollars} of further liquidity via a mix of non-core asset gross sales, a brand new time period mortgage settlement and changing our present credit score facility. We’re additionally bettering our provide chain and logistics methods with the implementation of a brand new ERP system that can deepen our insights into operations and function a basis for a lot of of our data-driven initiatives.
It was obvious to our enterprise required a current-generation ERP answer that may present higher actual time insights into our manufacturing and enterprise operations. Our up to date ERP system will enhance our responsiveness on the manufacturing stage and can enable us to orient our manufacturing round our fastest-moving merchandise.
We count on to deploy our new ERP system this fall forward of the vacation season. We’re additionally within the strategy of launching a brand new POS system throughout our community of franchise shops. To-date, we have put in 24 models with a further 51 shops scheduled to be put in inside months. We count on to have over 100 shops utilizing our new POS by fiscal year-end. This can present further insights for our enterprise consultants as they proceed to have interaction with operators to enhance retailer stage gross sales and profitability.
All of that is being managed underneath the regular hand of our Senior Vice President of IT, Ryan McGrath, who has carried out a wonderful job remaining on schedule and inside price range. In closing, I might wish to share a couple of monetary and operational targets we have established for each the 12 months forward and the three years out.
Exiting fiscal ’25, we consider we will return to a 20% gross margin. We count on our whole retailer footprint to return to progress in fiscal ’25 whereas returning to adjusted EBITDA profitability as we exit the 12 months. Trying forward three years to the conclusion of fiscal 12 months ’27, we consider we will generate gross margins within the vary of 25% to 30% pushed by a mix of constant income and quantity progress, disciplined working expense management and franchise retailer growth.
When mixed with return to income progress, elevated retailer rely and prudent OpEx administration, we consider the enterprise can generate a ten% to 12% adjusted EBITDA margin in fiscal ’27.
Earlier than I open the decision to Q&A, I might wish to reiterate a couple of key themes. Regardless of the latest important challenges that necessitated a broad vary of senior administration departures and a strategic realignment, we’ve got a well-conceived strategic plan that we count on to result in a renewal of progress.
The steps I’ve outlined refining our strategic framework, strengthening our liquidity place, upgrading our management crew, increasing our retail and e-commerce presence and investing in manufacturing and provide chain enhancements are all geared toward driving sustainable progress and profitability to boost shareholder worth.
The corporate continues to have a well-recognized model, a loyal shopper following and a resilient buyer base. We’re assured the initiatives we have begun to implement since I arrived in Durango will place us to realize our future targets and return Rocky Mountain Chocolate Manufacturing facility to a state of sustainable and worthwhile progress.
I need to thank our Board of Administrators for his or her help throughout this difficult time. I might additionally like to acknowledge our senior management crew in Durango and past who’ve been excellent of their help, insights and intensely laborious work in serving to to stabilize our enterprise and have interaction wholeheartedly in a newly developed strategic path ahead.
Operator I will now take questions.
Operator
Thanks. Girls and gents, earlier than we open the decision for stay Q&A, the corporate wish to deal with questions which were obtained through e-mail over the previous week. I might now like to show the decision over to Sean Mansouri, Rocky Mountain Chocolate Manufacturing facility’s Exterior Investor Relations Advisor.
Sean Mansouri
Thanks, Latif, and thanks to everybody who submitted questions over the previous week and at the same time as just lately over the previous hour after issuing our outcomes. So our first query to handle right here, Jeff, what is the present standing of the seek for each a everlasting CEO and CFO?
Jeff Geygan
Thanks, Sean. We’re transferring ahead with each searches and count on to have bulletins shortly.
Sean Mansouri
Okay, and may you develop in your highest priorities for capital allocation within the subsequent 12 to 36 months?
Jeff Geygan
Yeah, after all. Investing in manufacturing facility in Durango to enhance price effectivity and uptime operations, persevering with to construct out our distribution system and committing to develop retailer rely with multiunit operators whereas investing in our model and retailer design.
Sean Mansouri
Nice. And might you develop upon the product combine that you just consider will assist to reinvigorate gross sales and develop gross margins? What are your quickest transferring and highest margin merchandise?
Jeff Geygan
Yeah, positive. Our hottest objects are milk pecan bears, peanut butter pails, and English toffee, all of that are high-volume objects. It is best to provide lengthy runs of our fashionable objects, all of which have main revenue margins will drive larger gross sales penetration throughout our system by making certain we’ve got our hottest merchandise in all places and accessible in stock to fulfill demand.
Sean Mansouri
Nice. And the way are you interested by the geographic growth technique for Rocky Mountain Chocolate manufacturing facility?
Jeff Geygan
We’re targeted on growing markets by which there are favorable demographics and simply expandable distribution lanes resembling say Boston, New York Metropolis, Atlanta or Seattle, Portland and on into California.
Sean Mansouri
Okay. And final query right here. What’s the Board’s long run imaginative and prescient for the RMCF model, the franchisees, and the manufacturing operations?
Jeff Geygan
Yeah, nice query. To develop a best-in-class franchise providing based mostly upon a broad community of shops persevering with to offer premium confectionery merchandise supported by expanded e-commerce gross sales.
Sean Mansouri
Nice. Latif, that wraps up the Q&A that got here in through e-mail. If you would like to open it up for stay Q&A please.
Operator
Sure, sir. [Operator Instructions] This does conclude at the moment’s convention name. You could now disconnect your telephone strains at the moment and have an exquisite day. Thanks on your participation.
Query-and-Reply Session
Finish of Q&A
