Miss On Revenue, FY Revenue Guidance Re-affirmed

Shares of the Tattooed Chef have tanked since the company announced their Q2 2021 earnings on August 12th, 2021. After meeting or exceeding revenue projections for their first two quarters as a publicly traded entity, the plant-based food company posted their first top line miss for Q2 - Wall Street analysts were expecting $54.05M, while Tattooed Chef posted $50.716M in revenue. This 6% miss was a disappointment for investors, who were expecting much more from a successful launch of products into Target stores nationwide. 

As stated on their Q1 earnings call, CEO Sam Galletti re-affirmed the full year revenue guidance of $235-242M. Year to date revenue sits at $103.398M so the company will have to post extremely strong Q3 and Q4 results in order to meet that yearly projection, $131.602M for the second half of the year (or $65.801M per quarter to hit the low-end estimate).

Gross margin guidance decreased to 16-22% from previous guidance of 20-25%

Declining EBIDTA Projections

The Tattooed Chef became a publicly traded company via a SPAC, special purpose acquisition company, Forum Merger II Corporation. In the original presentation to Forum Merger II investors, the EBIDTA projection for 2021 was $30M. Projections have continued to decline since Tattooed Chef started trading on the NASDAQ in October 2020, as illustrated below:

Now, as of Q2 ER, the company is projecting adjusted EBITDA of negative $14M to 17M for the full year of 2021. The company has attributed this update to "an aggressive plan of growing its brand through extensive marketing and promotional spending that has already produced significant revenue growth in both grocery and mass retail." CFO Stephanie Dieckmann on the earnings call stated that they expect "sequential improvement in adjusted EBITDA throughout the year."

Inflationary Costs Taking a Toll

Whether transitory or not, inflation has taken a toll on costs for the Tattooed Chef. The company has stated price increases in:

• Logistics cost
• Storage fees
• Legal and accounting fees
• Marketplace shortages in packaging costs

Specifically, the price of the wooden pallets used to move product along the food distribution chain have gone up 400% due to several factors, including extremely high demand and soaring lumber prices:

Source: https://www.bloomberg.com/news/newsletters/2021-07-15/supply-chain-latest-prices-for-wooden-shipping-pallets-are-soaring

Rising fuel costs, which in turn increase logistics costs, are also placing a damper on margins:

CFO Stephanie Dieckmann on inflationary concerns: "we have not had any challenges in getting raw materials at this point in time. We make sure that we diversify our suppliers, are tracking that, and are ahead of the game on that."

What's Cooking? New Revenue Opportunities

With the company's acquisition of Foods of New Mexico, additional manufacturing space is allowing for new opportunities. In addition to providing $4.3M of revenue, the existing manufacturing of tortillas will provide a new opportunity for the Tattooed Chef brand. Immediate opportunities include frozen burritos, enchiladas, quesadillas that will come under the Tattooed Chef brand and are expected to begin distribution in Q3 or Q4 of this year.

Also, a line of plant-based tortillas is in the works and could be in distribution in 4-5 months.

Finally, with the newly acquired manufacturing space, snacks are expected to begin production in the first quarter of 2022.

Chief Creative Officer Sarah Galletti announced on the call:

• Additional marketing spend into 2022
• 11 SKU portfolio created for food service
• Online subscription service launching later in the year

Outlook for the Tattooed Chef

The concern going forward is whether or not the company will be able to meet its revenue projections. Management has essentially stated in the call that they have received a number of "verbal commitments" from retailers that can't be put into official guidance. Personally, having listened to every presentation & earnings call, it seems that the management has a mantra of "underpromise & overdeliver."

In the near-term, it seems to be very gloom and doom. But for a young growth company, it may just end up being (pardon the expression) growing pains. The company maintains a strong cash balance of $140.2 million and has plenty of opportunity ahead. Certainly, the revenue miss and 4th EBITDA revision were disappointing. That news cannot be denied and is the reason for the stock's performance on Friday, August 13th as shares fell 16.25%

Announcements of new store distributions or product innovations won't help the stock recover; the proof will be in the pudding. The Tattooed Chef needs to keep with its plan to drive revenue and attract new customers, and it needs to show up in Q3 earnings.

This blog post represents my opinion and is not financial advice. I am not a financial advisor, just a rocket enthusiast. Always perform your own due diligence and any trades/investments you do is at your own risk. I hold shares of TTCF.

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