NightFood Holdings, Inc. (OTCQB:NGTF) Investor Conference Call March 2, 2021 4:30 PM ET
Stuart Smith - Investor Relations
Sean Folkson - Chief Executive Officer
Conference Call Participants
Welcome listeners, shareholders and investors of NightFood Holdings, Inc, ticker symbol NGTF traded on the OTCQB. We thank you for joining us on this call today. This Investor Conference Call, where the company will be talking about its recent activities including some big news and we're going it about that announcement at the outset. But before we get started, I'd like to give you the forward-looking statements. Now the entire forward-looking statement can be found in any press release for the company or their filings with the SEC. All you need is that ticker symbol again, OTCQB: NGTF.
This current call may contain forward-looking statements, as that term is defined in Section 27A of the United States Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Statements covered in this call, which are not purely historical are forward-looking statements and include any statements regarding beliefs, plans, expectations or intentions regarding the future, including, but not limited to any products sold or cash flow from operations. And again the entire forward-looking statement can be found in those filings with the Securities Exchange Commission.
But without further ado, let's welcome the CEO of the company back, Sean Folkson. Sean, how are you today?
Great, Stuart. Happy to be here as always.
Well happy to have you here and today's a little different. Today you've got a big announcement that we want to discuss as well. Can we get the highlights straight from you as the CEO, before we jump into the rest of the call?
Sure. Absolutely before I forget, I do want to be sure upfront to thank the entire NightFood team not only the members internally Jenny Mitchell, our COO and Jim Christensen, VP of Ice Cream Sales. But really all of our vendors, manufacturing partners, brokers and sales people. They've been working so hard during - what's really been a very busy time for us, especially over the last couple of weeks. Helping us get set up for great 2021. Obviously, there's been a lot of news since our last call.
We've unveiled our new packaging, we've secured and announced distribution with UNFI which is the largest distributor of natural foods in the US. We've landed some additional independent supermarkets and planning for second year in our major existing retailers and of course last week. We had a big announcement which that NightFood is rolling into Walmart starting in April.
I mentioned something last week in the Telegram group and anybody who's not, who doesn't participate in that. They can get the link. I guess from any of our news releases and join that group. I'm pretty active in there. But I mentioned last week. The investors typically only get to see events unfold months after they happen. These public announcements Walmart's a great example. We knew about Walmart really since the summer of last year. But it got to a 99% confidence level in October and yet here we're not being able to announce and so, the end of February, that's just the way things go.
We've got announcement here that we were able to make little closer to real time and this is new. There's going to be a release going out in the morning before the market. But I wanted to make sure to announce it here on our investor call first and that news is that we've successfully secured a retail test with one of the world's largest hotel companies. So one of the largest global hotel companies, they're testing NightFood in their lobby shops. You know the stores where they sell all the snacks and the drinks, and the ice cream and the test is with the goal of national rollout, if the test is successful. Just about every hotel these days has a little shop in the lobby. Most of them sell ice cream.
We've been making hotel Stuart, I'm sure you remember I know - talked about in our previous calls. Was a major push for us pre-COVID and of course everything kind of froze there for a while? The hospitality industry and travel industry in particular got hit pretty hard and things are kind of returning back to normalcy I guess and I'm really excited today to announce that. We're already being sold in a handful of lobby shops in one of the world's largest hotel chains. It's a corporate level test. I want to point that out.
Our previous hotel distribution was all done at the operator level. It was the independent local operator deciding to put NightFood in their freezers. This is a corporate level test. So what that means is, we're in touch directly with headquarters. They're the ones making this decision to test NightFood, if they like the way the test goes. They can trigger distribution nationally coast-to-coast, in not just the banner that it's testing in. but theoretically in all of their banners and that's all done from a single point of contact and so we've been told that the test is successful. The likelihood is that we would be quickly rolled into all their locations and all the banners.
The hotel environment we've sold a little bit in the hotel environment. The product is sold well in the past. That coupled with the new packaging which I think is really going to work well in the hotel environment. I'm expecting a successful test. So again, this is news that's going to be out in the morning. But I wanted to make sure to announce it here on our quarterly investor call before the news crosses in the morning.
Well very good, exciting times and thank you very much for sharing that with us, Sean. Keep an eye out for that listeners and investors. Of course using that ticker symbol again NGTF. It will hit the presswire tomorrow as you just heard from Sean. Sean, now let's get your comments regarding the 10-Q for the company.
Sure, so I wanted to walk through a couple of things here about the most recently quarterly filings, walk through some of the numbers. So for the six months ended 12/31 which is the first two quarters of our fiscal year, which is June 30th fiscal year. For those six months, our gross sales were up 20% year-over-year and net revenue was up 62%. So gross sales through the first six months were about $460,000 on just over 146,000 pints, with net revenue of $174,000. And we announced on a recent investor presentation at the Emerging Growth Conference that we think we have a good shot and we're anticipating breaking $1 million in gross sales for this fiscal year that ends June 30th.
Now of course we can't really talk about revenue without talking about slotting. As of December 31st which again is halfway through our fiscal year, we had slotting of $183,591 for the fiscal year to-date which was down quite a bit from the previous year where we had about $270,000 in the first six months of slotting. So looking forward for the balance of fiscal 2021, so between January 1 and June 30 of this year. We don't expect a whole lot of additional slotting to hit the books.
In our filing we mentioned that we expect slotting for this fiscal year to come in under $250,000 total whereas last year it was just over $540,000 and again this current year while we said, we expect it to be under $250,000 it could be closer to $230,000 or even a little bit below that. So very little slotting expense here this quarter and next. Remember for anybody who's not familiar slotting, is when a retailer or distributor charges fees to a manufacturer for placement in their stores or placement in their warehouses sometimes. It's in the form of upfront cash, sometimes it's in the form of deductions from invoices or just free fills of products in for the stores.
And again, we've very little that going on currently. It's not a good thing or bad thing necessarily. I just wanted to make sure everybody is aware; it's a cost of doing business. There's certainly regional and national accounts that we're targeting. Where slotting expenses will be significant and depending on when we land those accounts. We should expect to see slotting go up again likely in fiscal 2022. It's just a cost of doing business, wanted to be sure to touch on that for everybody.
Another note here, we scaled back last quarter on our advertising and promotional activity. As we were targeting a production date for our new product in late January. But we knew that there might be some variance in that. So we scaled back on advertising and promotion last quarter because we wanted to use up all the inventory that we have. But run out and be caught in an out-of-stock situation. So the result of that plus the natural seasonality that comes in the ice cream business was a lower quarter in terms of gross sales and net revenues. We sold approximately 46,000 pints in the quarter for gross sales, were $143,000 and then net revenue of approximately $47,000. And it looks like we did a pretty job on our timing.
We only had one flavor go out of stock that was Cookies n' Dreams and that was for less than a week and that back order PO was already filled last week. So we're still in a tight inventory position with regard to the new product and the new packaging and as a result, we haven't yet turned back up our promotional activity to anywhere near where it will be in the spring. There are out there some in-store price promotions that are currently running a lot of times. Those are things you have to commit to several quarters in advance and it's our goal to only ship new products to any of our accounts from this point forward that is new product and the new packaging.
For e-commerce, we will still be using the old packaging and the old product until we're through this squeeze on inventory. With Walmart, there's no mention of Walmart in the queue because that distribution was announced after. But they did catch us a bit off guard with regard to the quantities. It looks like they're going to be needing from us and that's why we're continuing to hedge on inventory and so we have 100% visibility on that and we're able to get enough new product manufactured, in some flavors it's going to be tight for really the next month or two.
We're already scheduled production for March and production for April has also been schedule and now we're looking at our demands for May. So that covers the big hotel announcement. The financial items that I wanted to touch form the Q. So with that, Stuart. Let's open it up some questions.
A - Stuart Smith
Well very good. Great questions once again, your investors always do a great job with that and first we're going to start with Adam. And his question is, how many Walmart stores are you going into, is this like a small regional test or a national rollout?
So we still haven't received the final store list. But the scope of this launch is definitely not, what I think anybody would ever classify as a regional test. In this business I mean everybody is always testing and learning together with our retail partners, that's just the nature of things. So there's always testing going on. But this is a full-on launch. We're rolling into a significant number of stores, significant number of regions.
Walmart has 4,800 stores. We're not going into all those stores. I don't know how frequently they ever do that. But we're going into a significant number. Not what I or I think anybody else would term to be a test.
All right, very good. Let's move on to another question. This one is from Joe and he wants to know the timeline for profitability and he also wants an update about non-dairy.
Sure, so. In our financial modeling, the profitability timelines vary, the big factors are obviously points of distribution, unit economics and of course unit velocity, which is how fast are the pints selling off the shelves. We've modeled many different scenarios based on these variables as well as a big variable is the hotel test. If it tests well, the chain put us is one banner, they'd put us in two banner, they'd put us in all their banners. And when that would happen and then what are the velocities and the unit economics of that environment.
So there's a lot of variables in the modeling. There are certain scenarios we've modeled that have us profitable in a 12-month or less than 12-month timeframe. There's others that have it more like 24-month timeframe. With regard to non-dairy, I get asked this a lot and I totally understand it. It's something we definitely want to do, when the time is right. I know dairy free, it's a hot growth segment and everybody is talking about. But remember it's really, really small as a percentage of the total ice cream market. Depending on the statistics you see, it's going to show up as less than 10% and in most cases under 5% of the total ice cream market.
It's growing very fast as a sub category. It's already to some extent overcrowded and there's going to be some shakeout. We want to dominate sleep friendly nutrition. We're not looking to start niche off of sleep friendly nutrition at this moment. I do definitely think that we will launch plant based as an extension at some point in the coming years and anticipate. It would most likely if you look at like the way Ben & Jerry's or Halo Top have done it. It's an addition; it's an extension on their line. I think that's more of the model that we would follow, not as a key focus like a so delicious or a So Delicious or an Oatly brand where all of our offerings are non-dairy.
We had non-dairy stuff and have non-dairy stuff in development. The samples were amazing; I didn't think non-dairy ice cream especially in a better for you format could be so good. We'll bring it to market, when the times right. Remember even with the massive growth projections and the accelerating growth that's going on right. Most experts, plant based does not project to be even 10% of the total ice cream market until probably 2025 to 2028 depending on other projections that you see. So it's growing faster and it's so really, really tiny.
All right, thank you for that Sean. Susan, would like to have you provide an update on MJ Munchies and the CBD/marijuana side of edibles?
Sure, so the FDA has taken longer than most people expected on the CBD side of things regarding companies and brands being able to use CBD as a food additive. I think a lot of people might not be aware at this time using CBD in conventional food or snack product. It's still specifically prohibited by the FDA and they've gone out of their way a couple of times in the last 15 months to make a point of that. As long as it is prohibited, we're not looking to bring any products to market in that space. We don't want to introduce any unnecessary risk into operation. We've got too much going on.
We're rolling into Walmart; we're hopefully going to be rolling into thousands of hotels here. We're not looking to muddy the waters here. There are opportunities. There are legal immediately either in the hemp space or THC infused edibles in certain states where those are specifically legal. We've always evaluating the evolving situation. We're in talks on and off with potential partners and I do think something is going to happen on that. But I don't have a timeline to share at this moment for anybody.
All right, very good. The next question comes from Harold and he says, now that we're in Walmart. Will it be possible for us to uplist to the Nasdaq?
Well it's certainly going to help. I mean look we're exploring the path to an uplist. It's a process. It's something that's always been on our roadmap and certainly as we do expect substantial growth coming up and as we work towards that growth and towards profitability uplisting remains a goal for us. There's many advantages to be on a major exchange in background where we're constantly working to position ourselves to meet those criteria and hopefully that's something we'll be able to accomplish here in the short-term in the future for everybody.
All right, very good. Bill wants to know, why do all social media accounts have the old packaging still? When will it switch over and more important, when will the new packaging be on the shelf?
Yes, definitely the second part is the more important part. I think earlier today we switched over on the social media account to the new packaging. The first production run with the new packaging was just completed and started to ship out to retailers last week. We made the decision not to switch the social media, I guess graphics and icons to the new branding too early because that's what we're advised by our social media team, Circle Media because that's not what is on shelf yet. And we certainly didn't want to put that up before we were even shipping.
It could be weeks even though we shipped to an account last week. It could still be weeks. It could be month, month and a half for certain flavors before the new packaging hit the shelves because the retailers already have inventory. So we didn't want to make that change too early. But you should start seeing the new pints on shelf really this month for certain flavors and certain retailers and again, I think I mentioned earlier we are working to not have to ship anymore of the old packaging out. We need to make sure that we have new packaging for Walmart. We need to have new packaging for the hotels.
Again we're going to need a little bit more product or maybe a lot more product for Walmart than we originally thought. And the most important thing is to get the new packaging on shelves. So anybody who's ordering online at e-commerce, I know that's one of our goals is to get the new product we've made some tweaks to the formulation to make the product shipped better, stand up to the dry ice better. But those e-commerce people may have to wait as the most important situation is our retail supermarkets, Walmart and hotels.
All right, very good Sean. This is our last question and it comes from Kyle and he's quoting you, he says, Sean has referred to 2021 as a transformative year. Can you get into more detail about what you expect from 2021, Sean?
Yes, I used the word transformative because I feel like there's two kinds of growth, one is the incremental growth which is what we've seen, sales numbers are growing, more stores, more doors, more revenues, things like that. And that's doing the same things, doing them better. Right. A little better and a little better. And then there's bigger changes that can happen and these changes - these bigger ones are not really incremental. But what I would call transformative and it puts the company in a whole different path and in a different position going forward and really kind of change the stage that the company is in.
I made that statement before the Walmart announcement. But obviously long after I knew Walmart was coming. Landing an account like Walmart, that gives you an instant retail footprint from coast-to-coast, developing a secondary vertical like hotels that could facilitate rapid distribution into thousands of non-traditional outlets, potential partnerships with global CPG companies. These are the kinds of transformational events some of which have already been secured obviously and some of which are at various stages of conversations. These are the kinds of things that really change how a company is viewed, change our access to capital, changes our ability to project the future and path to profitability.
Another example operationally would be from being a product that has a pretty good sales velocity and improving that a little bit compared to having a product that starts to fly off the shelves to the point where retailers can't keep it on shelf anymore which something that happened with Halo Top a few years with their packaging redesign because that changes the whole conversation with the category managers of the other supermarkets that were not in.
So these are kinds of opportunities we have this year. I know I named a few of them. I'm guessing there's one or two that I'm forgetting. But I believe we're going to see some of these things on top of Walmart which has already been secured that comes to fruition here in 2021 and then you go from being an upstart to just grinding it out, trying to find your place in the world and you transform into a company that's earned a spot at the table, that demands a place on shelves, in the hotels, in the supermarkets, in the freezers at home and again the future at that point becomes more clear and it really changes the way everybody looks at you.
We've got a big year ahead in my eyes. Hopefully out there can understand and share my excitement over what's to come here in 2021.
Well Sean as I said at the outset of the question that was our last question. I want to thank you for your time here today and I want to thank you on behalf of your shareholders and investors for answering their questions. Thanks for your time today, Sean.
Thank you so much, Stuart. I appreciate that.
All right for Sean Folkson and this is Stuart Smith saying thanks so much for tuning and don't stop sending in those questions. Keep NGTF high up on your radar and watch list.