Good evening, and welcome to the Stryve Foods, Inc. First quarter 2022 earnings call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the one followed by the four on your telephone. If at any time during the conference you need to reach an operator, please press star zero. As a reminder, this conference is being recorded today, Thursday, May 12th, 2022. I would now like to turn the conference over to Sandy Martin, Investor Relations. Please go ahead.
Thank you, operator, and welcome to the Stryve Foods first quarter earnings conference call. With me today are Stryve's Chief Executive Officer and Co-Founder, Joe Oblas, and Chief Financial Officer, Alex Hawkins. Before we begin, I would like to remind everyone that part of our discussion today will include forward-looking statements which are based on our current expectations of future performance. Our actual results could differ substantially from these expectations. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them. We do not undertake to update these forward-looking statements at a later date, and they refer only to today, May 12th, 2022 . We refer you to today's earnings press release and the SEC filings filed by Stryve Foods, Inc. for a more detailed discussion of the risks that could impact future operating results and financial conditions.
In addition, today's call will also include a discussion of non-GAAP financial measures such as adjusted EBITDA. Non-GAAP financial measures should be considered as a supplement to, and not a substitute for, GAAP financial measures such as net income. We refer you to the reconciliation of non-GAAP measure to the nearest GAAP measure included in today's earnings press release for further detail. I would now like to turn the call over to Stryve's Chief Executive Officer and Co-founder, Joe Oblas. Joe?
Thank you, Sandy, and good afternoon, everyone. Before we move on to the first quarter results, I wanna take a moment and share with you some of the great successes we've had over the last four years. I founded Stryve with the mission to help Americans snack better and live happier and healthier lives. Since that time, we've developed and launched multiple brands, consummated three acquisitions, developed proprietary manufacturing capabilities, and pioneered an entirely new category, a category that we dominate. In the four years since founding the business, I've maintained a constant drive to build the best organization possible. As a creative career entrepreneur with a history of success in starting brands from scratch and taking them to scale, I have always believed in the importance of augmenting my skill set with complementary talent to support the evolution of the businesses I've grown.
Stryve has come a long way in those four years, and I'm excited to see the continued evolution, and I wake up every day excited to be part of something so groundbreaking. My passion for the business, our brands, and our people is unwavering. I am dedicated to making the right choices for all of our stakeholders and shareholders who have supported my vision as we've grown. Accordingly, acknowledging the opportunities before us, I wanna share that the board and I have been discussing succession planning over the last year and determining the best timing and approach of a CEO succession plan. We have built an incredible foundation with significant market penetration, vertically integrated production and distribution capacity, as well as a clear path to a strong leadership position in our category.
With this foundation in place, we think now is the right time to make this important transition at the C level. We, as a board, have appointed Chris Boever as Stryve's new Chief Executive Officer and Director effective May 23rd, 2022. We're excited to welcome Chris to Stryve later this month. He joins with a proven track record of strategic leadership, including more than 30 years of executive leadership in key consumer packaged food roles at Hain Celestial, Pinnacle Foods, Conagra Brands, and Hormel. As co-founder and fellow shareholder of Stryve, my passion around the business is to continue to drive sales, open new doors of distribution, work on product innovation, and focus more exclusively on all of these things. Capitalizing on the growth opportunities before us is vital to our success as a disruptor in the meat snack category.
As such, I'll be assuming the role of Chief Growth Officer. In this role, I'll be in a position to lead the things that I am truly passionate about and where I can add the most value. I'm thrilled to be leveraging my creative talents and vision to drive sales, product innovation, and further brand and market penetration. This is a big win for Stryve in my opinion. We asked Chris to join us today during our Q1 earnings call so that he would be able to share his why with you directly. Thank you, Chris, for joining us. We're excited to welcome you officially today, even though your start date is May 23rd. Chris, would you like to say a few things on today's call?
Thank you, Joe, and good afternoon, everyone. I am truly excited and honored to have the opportunity to lead the team at Stryve Foods. I admire what Joe and the company has accomplished, the vision and mission for a successful go-to-market launch strategy and the distribution of its popular brands in the better for you meat snack category. I also recognize the tremendous potential of growing the Stryve brand in a marketplace that is ready for this healthy snack alternative. These amazing products are accessing broader demographics and comparable healthy snack categories. I am proud of the things that we've accomplished at both Hain Celestial and Pinnacle, and I also look forward to working hard and making a difference at Stryve by seeking to drive profitable growth and to create significant value for shareholders. With that, I'll turn it back over to you, Joe.
Thank you, Chris. Chris is an excellent addition to our executive team, and we're excited to create long-term shareholder value together. Chris will join us as we continue to make progress towards profitability without sacrificing our growth, and will help further solidify our position as the leader of our category. Turning back to our results for the first quarter, we have implemented a disciplined operating plan for Stryve with a path to profitability, and our progress was reflected in our first quarter results. Compared to the fourth quarter of 2021, we have reduced net losses by almost 40% to $7.3 million in the first quarter, and improved negative adjusted EBITDA by 41% to $6.3 million, compared to $10.6 million of negative adjusted EBITDA in the fourth quarter of last year.
In addition, we ended the quarter with a strong balance sheet, with approximately $28 million of positive working capital, including $13 million of cash and virtually no debt. We believe that we are positioned well with the proper balance of working capital and liquidity to execute on our plans. Based on investor feedback this quarter, we have reverted to our traditional earnings press release format instead of presenting information in a shareholder report so that investors can easily track our recent operating results, financial position, and cash flows against prior periods by providing easier access to financial tables, including the income statement, balance sheet, statement of cash flows, and a reconciliation of net loss to adjusted EBITDA. We believe this is the best way to quickly understand our progress and model our growth. Retail sales and in-store velocities remain strong.
In the 12 weeks ending March 20th of 2022, our Stryve brand's velocity in the MULO channel is up 103.2% versus the same period a year ago. Our sales and distribution processes are efficient and effective, as proven by our ability to rapidly ramp up retail locations, sales velocity, brand awareness, consumer engagement, and product line penetration. Offering our products through an omni-channel distribution strategy, including wholesale, direct-to-consumer, and private label, we think compounds the flywheel effect occurring, where small wins accumulate over time and create real momentum to keep the business growing. In a recent report from Packaged Facts, retail sales of the overall meat snack category are expected to rise by 12% in 2022. The category size is approximately $5 billion in the U.S., alone, so it is a very large opportunity for our company.
The data shows that better-for-you and premium meat snack sales have been growing at an even faster rate in the market than overall meat snacks. In fact, the category manager at Plaid Pantry, a marquee convenience retailer in the Pacific Northwest, recently went on record in an article about the growth in meat snacks and specifically remarked how well Stryve and Vacadillos have done for them. Our brands were the only ones mentioned by name. This kind of real-world third-party validation of our products and strategies is highly encouraging. While this is just one retailer's example, our sales team receives similar feedback regularly from retailers across the country. What we're doing is working. Our retail distribution gains and velocity growth across all of our retail brands is a testament to that.
During this emerging stage of our company, characterized by brand building and rapid growth, the key will be to maintain a sharp focus on optimizing cash consumption and reducing burn without sacrificing the growth opportunities before us. To communicate our progress as a rapidly growing company, paving the way in the emerging better-for-you air-dried meat snack category, not only will we continue to provide significant updates on sales and in-store velocities, but Alex and I also believe that providing visibility into the company's financial position and liquidity is critical. Our ability to manage growth prudently and not buy sales is a key to our ultimate success. This gets us to the root of our ability to manage this business and develop systems and processes for sustainable growth. Speed versus sustainability should not be a choice. Rather, speed plus sustainability is the goal.
We must be ready to evolve and transition as the business grows. We also must focus on product line and partnership economics along the way, and even more importantly, we must track cash flows carefully to ensure that we build a sustainable business, particularly in light of the macroeconomic climate. While we have seen a steady decline in beef commodity prices since the peaks of last fall. We have to focus on optimizing the things that are squarely in our control. We are optimistic that these prices will hold, but as we'll show in our Q1 results, our ability to affect change in the balance of our P&L is key to navigating a potentially volatile commodity market. With all of that as a backdrop, first quarter net sales grew by 8.6%, with wholesale revenues up 85% versus the same period last year.
Private label sales were down 15% year-over-year, primarily attributable to the packaging supply chain. As expected, e-commerce or direct-to-consumer sales decreased based on planned reductions in marketing spend after the iOS changes in the fourth quarter. We have been judiciously managing costs, streamlining processes, and creating efficiencies throughout the business. When we compare our Q1 performance to Q4 of last year, we see that even with only modest sequential sales growth in the quarter, we significantly reduced our net loss by 39% and similarly reduced the negative adjusted EBITDA by 39% compared to the fourth quarter. Interestingly, the changes in commodities and our price increase strategy weren't the driving factors in our reduced loss in the first quarter. As we expect, both of those will bear fruit in the coming quarters.
Rather, it was the execution of our optimization plans that drove the results. Moving on to a discussion of our path to profitability. Alex and I, along with the entire management team, completed a bottoms-up reboot of our spending and operating plans given the changing landscape. We completed this exercise because we knew that while our sales and marketing strategies to grow sales, build our brands, and drive product velocities were working, the cost side of the business was not optimized for the new operating environment. Considering, for example, beef price volatility and the reduced effectiveness of the digital marketing engine we had relied upon in the past. In our view, the steps we've taken to optimize should not impede our ability to deliver meaningful growth.
We are not cutting into muscle, but rather we've evaluated our costs and investments based on their ability to generate profitable growth and returns, not purely based on their ability to generate sales. In summary, we mobilized the entire organization to challenge the status quo, rethink, and retool the business in order to create a sustainable growth engine better equipped to withstand continued uncertainty in global supply chains. We actually feel there are tailwinds supporting us versus only feeling the headwinds that we've had to endure for the past year and a half. Conveyed succinctly, our plan at the highest level is threefold. First, we are significantly reducing the company's monthly cash burn through the implementation of a 45-point action plan to rationalize non-essential department spending, optimize headcount, implement further automation, eliminate certain non-value-added activities, manage T&E, and insource where possible to reduce our reliance on third-party services.
Additionally, we plan to improve efficiencies and reduce costs through the consolidation of our fulfillment operations later this year. Second, we have built a pricing strategy to recover lost margin. Growth is good, but low margin growth is not sustainable in a volatile commodity market, and it is not what we plan to do moving forward. We have continued to take price increases, and we will begin to see the benefits of them in the second quarter and beyond. Further, we plan to systematically and continuously review potential price actions to ensure we're not caught in a margin-challenged position again. Third, we have developed a plan to drive growth in our highest margin channels. For example, we plan on recouping lost ground in our direct-to-consumer business through alternative means of marketing. However, our profitability analysis for online sales, adjusted for marketing, needs to provide a positive margin contribution.
Simple idea, but will require us to innovate ways to drive consumers to our sites in a cost-efficient manner. Additionally, we've seen great success in the launch of our Vacadillos brand, especially in the convenience channel. Leaning into Vacadillos and the convenience channel may allow us to drive material growth in a higher margin channel. We must be strategic with our channel growth and prudently manage how we affect that growth to drive profitability. After Alex discusses the first quarter results, I'll come back and provide more of the results of our path to profitability. With that, I will turn the call over to Alex Hawkins, our CFO, to further discuss our financial results.
Thanks, Joe. As Joe reported, first quarter net sales grew sequentially by 8.6% to $7.4 million. Looking at net sales by major channel, we showed year-over-year improvements in our wholesale business up 85%. Private label was down 15%. As expected, a decline in e-commerce down 51% versus the prior year. In the first quarter of 2022, we began laying in product to key points of distribution that we had secured in 2021. We saw the benefits of increased velocity and distribution across all of our retail brands. With Stryve outperforming in MULO, Vacadillos, specifically in convenience, and Kalahari in natural.
The significant year-over-year growth in our wholesale business has materially offset the pullback in DTC and private label, illustrating the power of our omni-channel business model. You will recall that in the fourth quarter of fiscal 2021, we discussed packaging supply chain constraints affecting our ability to supply key private label accounts. Some of these challenges bled over into Q1 2022 and contributed to the year-over-year decline. We have taken steps to diversify our suppliers and use smarter strategies to mitigate these challenges moving forward. We anticipate seeing growth in private label by virtue of these mitigating strategies, as well as having secured new marquee private label accounts that we believe should bear fruit beginning in Q4 of 2022. Our e-commerce sales contracted during the first quarter to yield $1.5 million in net sales.
We expected the pullback based on our intentional reduction in inefficient digital marketing spend and fulfillment supply chain challenges. Although we began to see a reprieve from some of these fulfillment supply chain challenges towards the end of Q1. Additionally, like many other CPG businesses, we are seeing consumers increasingly return to brick-and-mortar stores in Q1 in numbers that appear to be approaching pre-pandemic periods. We anticipated this shift and pivoted certain spend away from digital and into more traditional in-store promotion midway through the fourth quarter of 2021. These decisions have helped support our Q1 results and we believe are laying the groundwork for continued growth in our business. Starting in the second half of 2021, commodity prices on beef soared.
As Joe mentioned, since that time, pricing has trended significantly down over the first four months of 2022, albeit still considerably higher than historical norms. Given our production and procurement cycle, the declining beef prices benefited only a portion of the first quarter. Accordingly, we reported sequential improvements in gross margins by 410 basis points versus the fourth quarter, up to 15.1%. This is clearly not where we want gross margins to be, as on a year-over-year basis, it's down over 20 margin points. This is primarily due to the commodity and wage inflation that we've discussed. Ultimately, we waited a quarter too long to begin taking price increases. However, we have since executed price increases across the portfolio and the vast majority of which have recently taken effect as of the date of this call.
That said, we anticipate that Costco sales and the success of the MVM coupon and program will likely put offsetting pressure on gross margins in the second quarter, muting some of the near term effects of these price increases. As such, absent any considerable commodity volatility moving forward, we anticipate seeing overall margins lift in the third quarter of 2022. Unit economics are key to unlocking the full earnings potential of our business. Maintaining them through systematic price action reviews will help ensure we protect them moving forward. We made significant progress in reducing our operating expenses relative to the rate of spend during the second half of 2021. Operating expenses were $8.3 million for the first quarter. This reflects a sequential improvement of $4 million from the fourth quarter and an improvement of $3 million from the third quarter.
Our focused approach to profitable growth and our optimized spending plans paired with disciplined management are demonstrating early wins toward profitability on the income statement that we hope to expand upon during the balance of 2022 in a material way. Finally, our adjusted EBITDA loss for the quarter was $6.3 million, an increase of approximately $0.4 million when compared to Q1 of last year, which yielded an adjusted EBITDA loss of $5.9 million, albeit under considerably more favorable operating circumstances than exist today. What's really exciting is to see a $4.3 million improvement in our adjusted EBITDA loss when we compare to the fourth quarter of 2021.
That improvement comes largely without the benefit of commodity relief nor our price increases, which makes us very optimistic about our ability to narrow our adjusted EBITDA and net losses considerably this year if conditions hold. We are laser-focused on reducing our losses and benefited by January's capital raise. We are carefully managing the deployment of our cash to grow working capital, invest in our facilities and fund operations. Referencing our cash flow statement in today's press release, you can see that we paid down debt and invested a considerable amount of inventory and accounts receivable. At the end of the first quarter, we were virtually debt free, had significant positive net working capital of approximately $28 million, and our cash balance was $12.6 million as of March 31st.
Given our disciplined approach to derive profitable growth and absent any externalities, we are comfortable that the company has adequate liquidity to fund its operations and obligations for the foreseeable future. Last quarter, we shared an abbreviated outlook with a range of 2022 net sales expectations of $43 million-$48 million. Additionally, we provided some color as to the cadence of those sales over the course of the year. Through the first quarter results, we are tracking to this guidance and see no need to modify or adjust this range. In summary, we believe these first quarter results are evidence that our plan is working. We are proud of our team's commitment to the continued execution of that plan which required many difficult decisions. In doing so, however, we have made material progress towards our goal, and the full benefits of our plan are yet to come.
With that, I would like to turn it back to Joe.
Thank you, Alex. Realigning our business around an optimized plan was an arduous process that required a number of difficult decisions, but it had to be done, and the company is stronger for it. We understand the importance of preserving capital and allocating our cash strategically so the business can grow rapidly and profitably with the goal of eventual self-funding. Given the last two years, businesses have learned that the future can be unpredictable, but we remain absolutely focused on continuing to execute our long-term strategic plans to grow this business and further our mission. We see a bright future ahead for Stryve Foods and are excited to continue growing the company and deliver value for our shareholders and our stakeholders. With that being said, we'd like to turn or open up the line for questions. Operator?
Thank you. If you would like to register a question, please press the one followed by the four on your telephone. You'll hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. One moment, please, for the first question. The first question comes from the line of Alex Fuhrman with Craig-Hallum Capital Group. Please proceed with your question.
Great. Thanks very much for taking my question here. You know, wanted to ask about the retail expansion that is underway right now. Can you give us an update on where you stand with some of your big national accounts and what you really see as the pace of retail expansion coming as the year moves on?
That's a good question, Alex. This is Joe here, in case you don't recognize my voice. We see, you know, the same things that we've released in the past. I mean, we've now. You know, previously we announced that we were expanding with Walmart. Well, that expansion has taken place and, you know, we're very pleased with the results. We expanded at Target. We now have our products into Whole Foods. I mean, we're starting to see everything that we laid out in the past coming to fruition. We're very bullish that our sales team, which is fantastic and have performed at a very high level, that we have all the faith in the world that they will continue to execute to the plan.
It's really nice to see that not only are they focused on driving, you know, additional SKUs, additional store count, but we have really doubled down to make sure that it's accretive to us from a margin standpoint to have it go hand in hand. You know, it's nice to see everything kind of come together.
That's really helpful. Thanks, Joe. Then just curious, you know, I know you mentioned that in hindsight, you know, maybe you reacted a little bit late in raising prices. Do you think you've at this point kind of taken enough price action, assuming that beef costs don't, you know, go on to make new highs here? Just curious, you know, what reaction you've seen at the consumer level from higher prices. I imagine, you know, as budgets get stretched, you know, food and in particular, you know, better for you food that really contributes to a healthy lifestyle is probably not something people really significantly pull back on.
You know, on the other hand, your products are certainly a premium price point relative to, you know, some of the competing products with more artificial ingredients. Just curious, you know, have you seen any sort of a pullback in consumer demand as you've raised prices? Are there any kind of key price levels that you're gonna try to keep in mind? Any color there would be helpful.
That's an awesome question as well. Alex, you're very good at this. We, you know, first and foremost, were probably a little late in hindsight to aggressively taking price. Now, I will say, you know, me being the entrepreneur, and if you wanna, you know, maybe pin this more on me, I'm a big boy, I can take it. When you're growing a brand, it's really a, you know, it's kind of a challenge. You're very happy to get into your Walmarts, Targets, et cetera. You know, it's tough sometimes for the entrepreneur to go aggressively take price. Now, we had a bit more of a measured conservative plan, you know, in the outset. We obviously didn't know how long these meat prices were gonna stay.
Was it gonna be a short-term blip of, you know, a speed bump in the road? When we saw that it was gonna be seemingly much longer of a slog, we also wanted to let couple of the big guys come in there and set the bar for what kind of price could be taken. We wouldn't go in and try to cut ourselves too short. We had started hearing some horror stories of some very small brands going to some large retailers with some very aggressive price requests and were shown the door.
We wanted to make sure we threaded that needle where we continued to foster a relationship to be a good partner with our retailers, but also had to make them aware that, yes, we needed to take price and, you know, we got there and we've been successful doing it. Now, I will tell you that we see a lot of brands take price in increments. You know, you don't get it all in one day. You know, we have an aggressive plan and a consistent plan, and as we referenced earlier, we are going to be monitoring it consistently to make sure that we do not get into a situation again. Now, thankfully, the commodity prices have been cooperating with us to some extent, but they still are quite significantly above their historical norms.
We're not back into a perfect environment, but compared to last year, this is a whole lot better, and it really sets up nice for the future. Now, regarding, you know, the pull-through on our products, like we announced, our most recent data polls show very strong growth in velocity, both year-over-year and quarter-over-quarter on in-store velocity in MULO, natural, and the convenience channels. We're showing strong across the board, and we believe that's gonna continue, and that is in spite of reduced marketing spend, which is also very optimistic for us to see. Now, going back to another part of your question, talking about, you know, the economic environment that now we're starting to walk into because, you know, a pandemic and commodity craziness wasn't enough.
We had a slide prepared for us back in 2019 that showed the historical trends of snacking in the face of recessionary periods. Both times, both of the most recent recessions, snacks outperformed the market and were very favorable during recession as well. Most notably, meat snack performance was very strong in recessionary periods. We feel very good about the future where we are. We love the idea of where we're going. We're very excited to have Chris join the team. We think he complements us, and like I've told our board and worked very closely with the board, we are gonna do everything we can to make sure he is highly successful.
Great. That's really helpful, Joe. Thank you for all the commentary.
You're welcome.
The next question comes from the line of Mike Grondahl with Northland Securities. Please proceed with your question.
Hey, guys. Good afternoon. The $13 million in inventory at the end of March, can you kinda give us a sense of what's shipped out of that? Have you started at Costco? And what should we think of as sort of a normal inventory level for you guys going forward?
Sure. Hey, Mike. We've definitely had a working capital build, you know, through the first quarter as we prepared for the Costco MVM program, as we've shared before. As we shared on our last call when we provided our revenue guidance, we were going to have a pretty outsized Q2 by virtue of this Costco MVM program. I think what we're seeing in inventory is an elevated level as that is beginning to ship out, right? Now that inventory is a lot of that inventory is largely in the market and moving forward, but we are just in the early stages of shipping that, you know, as of March 31st, quarter-end numbers. We'll likely see it pull back a touch from that.
By and large, you know, we're gonna continue to invest in our working capital to support our distribution gains across the board.
Got it. You talked about being, I think, a lot more disciplined on the e-commerce side. Do you sort of see sales flattish there with 1 Q? Are you close to ramping up a little bit more spend there?
Mike, it's Joe, by the way. Back in the fourth quarter when the iOS change happened, return on ad spends, you know, for not just us, pretty much everybody, collapsed. That marketplace just became, you know, a place to burn money and not really get the kind of result that we were looking for. I know a lot of brands are pivoting. We are pivoting and have pivoted as well, and we are seeing traction, and our return on ad spend right now is significantly better than it's been. Our plan now is to push forward. Can't lay out the entire plan that we're putting forth right now on the e-com side, but we have some very, what we feel, very attractive plans to boost our e-com without, you know, raising the cost on acquiring customers.
It is always gonna be an important part of our business, but we gotta do it profitably, and we're going to. It's an area where we get a lot of data and a lot of information, and we're starting to put that to work. Just for an anecdote, which blew my mind. I'm seeing a lot of brands now even go back to things like direct mail which I literally thought died 20 years ago. It's just an interesting environment. The good thing is that those that can pivot and be nimble are gonna succeed. Those that are stuck in the old ways or those that think they can spend their way through this, it's not gonna work. We're being very creative, and we've got a good team that's all in lockstep to not sacrifice growth.
That's a channel clearly we wanna grow in, and we're gonna do that. We're just gonna do it smartly.
Got it. Have you said what your average price increase has been over your portfolio?
No, we haven't. You know, it's obviously channel specific, customer specific. I will tell you that if we were out there, we'd have retailers wanting to do bad things to us.
Sure.
If that was to get loose.
Fair. Maybe one for Alex. Just, you know, really good job on the operating expenses. The $8.3 million, do you guys look at that as a base to move forward from? It kind of just goes up with inflation or maybe a little bit more marketing spend. How do we think about the $8.3 million in the next couple quarters?
Well, you know, as Joe mentioned, and we touched on throughout the call, we have done a full bottoms up reboot of how we think about our P&L in light of just the changing landscape. We are doing everything that we can to execute against that plan and take the steps that we need to improve the profitability of this business. While we can't get into too many specifics on the exact components of that plan, what I can tell you, and echo what Joe said, our entire team is lockstep in this plan, and we are making progress every single day towards our goals.
Well, nice improvement 4Q to 1Q. That's for sure. Cool. Well, hey, thanks, guys.
Thanks, Mike.
There are no further questions at this time. I will now turn the presentation back to the host.
Thank you, everybody, for your interest in our company. We look forward to providing an update of our progress when we report second quarter results in August. Take care and have a great end to your week.
That does conclude today's conference. We thank you for your participation and ask that you please disconnect your line.