Analysis: Tattooed Chef (TTCF)

Hi Everyone,  I orginally made this post on my blog (http://tedinvests.com/posts/) and I'm now posting it on Utradea. Due to the word limit some of my orignal post was cut off and I encourage you to look at my whole post on my blog if you're interested in TTCF. I expect this company to double by next year Q4. Market Capitalization: $1.64 Billion Company Description Tattooed Chef is a leader in the plant-based foods space and a stock that I’m bullish on for the long-term. The plant-based food market is expected to grow at a compounded annual growth rate (CAGR) of 11.9% to reach $74.2 billion by 2027. Tattooed chef’s growth story revolves around them being able to expand SKU’s, gross margins, and innovate. Currently they have 38 branded SKU’s such as the organic acai bowl, cauliflower crust cheese pizza, and cauliflower mac & cheese bowl. You can find their products in Costco, Walmart, Sam’s Club, etc. What makes me so bullish on this stock is not only their pace of growth and innovation but their management team. As I’ve gone to various stores that hold Tattooed Chef products, I’ve noticed the number of SKU’s retailers are holding are starting to increase and their products are selling very well. Their Acai bowl especially is selling quite well at various locations. In this post we’ll be looking at their most recent fourth quarter and full year 2020 financial results to get an idea of where the company is heading. “We are successfully executing on our growth strategy and have kept the momentum going with a strong start to 2021. Based on current retailer commitments, we will increase store count by 41% and points of distribution of Tattooed Chef branded products by 35% by the end of the first quarter.” – Sam Galleti Financial Highlights for the Fourth Quarter of 2020 Compared to the Fourth Quarter of 2019 (The parts that I have highlighted are the parts that stand out and the points I will address) Revenue was $39.6 million, a 48% increase compared to $26.8 million in the prior year period Tattooed Chef branded product revenue was a record $23.9 million, an increase of 172% compared to $8.8 million in the prior year period. Net income was $41.5 million compared to net income of $2.2 million in the prior year period. The current period net income included a one-time tax benefit resulting from the Company’s change from an S-corporation to a C-corporation at the time of the reverse merger in October 2020. The restructuring in anticipation of the merger caused a step-up in the tax basis of intangible assets creating a deferred tax asset and a tax benefit of $39.3 million. Adjusted EBITDA was $3.7 million, or 9% of revenue, compared to $2.2 million, or 8% of revenue, in the prior year period.  Financial Highlights for Full Year 2020 Compared to Full Year 2019 Revenue was $148.5 million, a 75% increase compared to $84.9 million in the prior year  Tattooed Chef branded product revenue was a record $84.6 million, a 363% increase compared to $18.3 million in the prior year. Net income was $45.4 million compared to $5.6 million in the prior year. The tax benefit noted for the fourth quarter had the same impact on the full year net income. Adjusted EBITDA was $9.6 million, or 6% of revenue, compared to $6.9 million, or 8% of revenue, in the prior year. Note – Net income in this case looks impressive but is due mainly to the tax benefit they received. Some of the most important points/numbers to looks at: Revenue is up massively at a 75% increase year-over-year (YoY) and a 48% increase in Q4 2020 compared to fourth quarter 2019 – This revenue growth is massive, and we can expect revenue to continue growing double digits as they expand their number of SKU’s and points of distribution. Branded product revenue was a record $23.9 million (up 172% compared to the prior year’s quarter) – What some investors may not know is that this company sells both branded and private label products. The growth around their private brand is what investors want to see as those products command a higher gross margin. Adjusted EBITDA was up $2.7 million YoY – this is a number that will continue to increase and shows us the pace at which they can achieve profitability. Looking deeper into the report there are a few things to mention: Gross margin for the three months ended December 2020 was 17.4% compared to 14.4% in the three months ended December 2019. While the gross margin did increase when looking at the three months ended numbers, that number was slightly lower at 15.9% for 2020 compared to 16.1% for 2019. Although, this number shouldn’t worry us as the gross margin decline was mainly due to higher costs for raw materials related to Covid. As of February 22, 2021, Tattooed Chef’s cash and cash equivalents was $200 million. They have enough cash on their balance sheet to cover the debt that they currently have. Operating expenses increased from $12 million to $19.5 million in the year ending December 2020. That increase is primarily due to costs resulting from increased headcount and wages to manage the increase in revenue. That increase was expected as revenue growth often times translates to operating expenses growing as well. Recent Development Tattooed Chef came out and said they’re launching 6 new products at Targets nationwide. I believe that this partnerships points to the strength of the brand. The 6 new products include the cauliflower mac & cheese bowl, cauliflower pizza bowl, veggie hemp bowl, buddha bowl, plant based burrito bowl, and the enchilada bowl. “We’re thrilled to continue expanding our product line at Target, bringing our innovative, plant-based dishes to even more people around the country,” said Sarah Galletti, Founder and the “Tattooed Chef.” “Whether you’re a vegan or trying to incorporate more plant-based food into your daily routine, we’re making food that’s simple to prepare, delicious and feels good to eat.” Guidance The guidance that Tattooed Chef gave us is positive and they’re expecting to continue that double digit revenue growth. The numbers that they gave us are: Revenue of $222 million, an increase of 49% compared to fiscal year 2020. Gross margin in the range of 20% to 25%. Adjusted EBITDA in the range of $8 million to $10 million; and Net income in the range of $2.5 million to $5 million. Other points to mention that were not in the earnings report: Up until recently the growth that this company has seen was achieved with NO investment in marketing and branding which points to the strength of their brand. This company is vertically integrated with over 200k sq. feet of manufacturing capacity and that number is expected to double again in 2021. Management CEO and President – Sam Galleti Sam Galleti has 35 years of experience in the food industry and he’s served multiple investor and operational roles within seafood, breaded vegetables, salsas and dips, grilled chicken, and organic foods companies. With the connections and experience that Sam Galleti boasts, I have no worries about this company having trouble expanding. Sam understands the space that he is operating in and as investors we can be fairly sure he will lead this company to further success. The Tattooed Chef and the chief creative officer – Sarah Galleti Sarah Galleti is the creator of the “Tattooed Chef” brand. She joined the company alongside her dad in 2014 and started the shift to plant-based. Formerly she was a chef in Italy. As we can tell by the growth in this company, Sarah is extremely innovative. Chief Operating Officer – Stephanie Dieckmann Stephanie joined the Tattooed Chef team in 2017 and has over 12 years of experience in the food industry. Formerly, she was the CFO of APPA Fine Foods. Stephanie’s experience in the food industry will help this company manage operations as they continue to grow in the future. Chief Growth Officer – Matt Williams Matt joined the Tattooed Chef team in 2020. He has over 25 years of experience in consumer-packaged goods (CPG) which includes roles in Dean Foods, Coca Cola, and PepsiCo. While Matt is new to the team, he has extensive experience in CPG which will be a great asset to Tattooed Chef as they continue to expand into retailers. What could go wrong For any company their are a number of things that could go wrong and cause their stock to dwindle. In terms of TTCF the most important things that could go wrong include low demand for new SKU’s, the demand for plant-based foods slows down, and the cost of raw materials significantly increases. If those two headwinds are to occur then a whole host of other problems come with it. 1. Demand for plant-based foods slows down – While demand for plant-based foods has been growing at a fast pace as shown by the 11.9% CAGR in the sector, their is a potential for people to simply not care for such foods anymore. Problems with demand can hinder any business but especially young companies which don’t have the resources to adapt quickly much of the time and are likely to get bought out or simply fail. 2. Costs of raw materials continues to go up drastically – Inflation is expected by many investors as the FED has printed trillions of dollars for stimulus. What is yet to be seen is if that inflation will significantly inpact TTCF in terms of raw material costs. While we can speculate as to what the outcome will be, TTCF has managed to still grow adequately even with supply side constraints as a result of COVID. 3. Demand for new SKU’s is low – This point seems rather obvious and doesn’t need much of an explanation. If TTCF can’t innovate as it has done in the past, it will fail to meet the demands of the consumer. Although, we can have confidence that Sarah Galleti will continue to create new SKU’s that capture the attention of the consumer. Sarah has the creative edge that has helped advance this company from small private label food to branded plant-based foods.

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TedInvests

Apr 6, 2021

-7.00%

Change % Since Posting

20.14

Price When Posted

-1.41

Change Since Posting

TTCF

Tattooed Chef Inc - Class A

18.73

-0.55
-2.85%
Current Price

Analysis: Tattooed Chef (TTCF)

bullish

Hi Everyone, 

I orginally made this post on my blog (http://tedinvests.com/posts/) and I'm now posting it on Utradea. Due to the word limit some of my orignal post was cut off and I encourage you to look at my whole post on my blog if you're interested in TTCF. I expect this company to double by next year Q4.

Market Capitalization: $1.64 Billion

Company Description

Tattooed Chef is a leader in the plant-based foods space and a stock that I’m bullish on for the long-term. The plant-based food market is expected to grow at a compounded annual growth rate (CAGR) of 11.9% to reach $74.2 billion by 2027. Tattooed chef’s growth story revolves around them being able to expand SKU’s, gross margins, and innovate. Currently they have 38 branded SKU’s such as the organic acai bowl, cauliflower crust cheese pizza, and cauliflower mac & cheese bowl. You can find their products in Costco, Walmart, Sam’s Club, etc. What makes me so bullish on this stock is not only their pace of growth and innovation but their management team. As I’ve gone to various stores that hold Tattooed Chef products, I’ve noticed the number of SKU’s retailers are holding are starting to increase and their products are selling very well. Their Acai bowl especially is selling quite well at various locations.

In this post we’ll be looking at their most recent fourth quarter and full year 2020 financial results to get an idea of where the company is heading.

“We are successfully executing on our growth strategy and have kept the momentum going with a strong start to 2021. Based on current retailer commitments, we will increase store count by 41% and points of distribution of Tattooed Chef branded products by 35% by the end of the first quarter.” – Sam Galleti

 

Financial Highlights for the Fourth Quarter of 2020 Compared to the Fourth Quarter of 2019

(The parts that I have highlighted are the parts that stand out and the points I will address)

  • Revenue was $39.6 million, a 48% increase compared to $26.8 million in the prior year period
  • Tattooed Chef branded product revenue was a record $23.9 million, an increase of 172% compared to $8.8 million in the prior year period.
  • Net income was $41.5 million compared to net income of $2.2 million in the prior year period. The current period net income included a one-time tax benefit resulting from the Company’s change from an S-corporation to a C-corporation at the time of the reverse merger in October 2020. The restructuring in anticipation of the merger caused a step-up in the tax basis of intangible assets creating a deferred tax asset and a tax benefit of $39.3 million.
  • Adjusted EBITDA was $3.7 million, or 9% of revenue, compared to $2.2 million, or 8% of revenue, in the prior year period. 

 

Financial Highlights for Full Year 2020 Compared to Full Year 2019

  • Revenue was $148.5 million, a 75% increase compared to $84.9 million in the prior year
  •  Tattooed Chef branded product revenue was a record $84.6 million, a 363% increase compared to $18.3 million in the prior year.
  • Net income was $45.4 million compared to $5.6 million in the prior year. The tax benefit noted for the fourth quarter had the same impact on the full year net income.
  • Adjusted EBITDA was $9.6 million, or 6% of revenue, compared to $6.9 million, or 8% of revenue, in the prior year.

Note – Net income in this case looks impressive but is due mainly to the tax benefit they received.

Some of the most important points/numbers to looks at:

  1. Revenue is up massively at a 75% increase year-over-year (YoY) and a 48% increase in Q4 2020 compared to fourth quarter 2019 – This revenue growth is massive, and we can expect revenue to continue growing double digits as they expand their number of SKU’s and points of distribution.
  2. Branded product revenue was a record $23.9 million (up 172% compared to the prior year’s quarter) – What some investors may not know is that this company sells both branded and private label products. The growth around their private brand is what investors want to see as those products command a higher gross margin.
  3. Adjusted EBITDA was up $2.7 million YoY – this is a number that will continue to increase and shows us the pace at which they can achieve profitability.

Looking deeper into the report there are a few things to mention:

  1. Gross margin for the three months ended December 2020 was 17.4% compared to 14.4% in the three months ended December 2019. While the gross margin did increase when looking at the three months ended numbers, that number was slightly lower at 15.9% for 2020 compared to 16.1% for 2019. Although, this number shouldn’t worry us as the gross margin decline was mainly due to higher costs for raw materials related to Covid.
  2. As of February 22, 2021, Tattooed Chef’s cash and cash equivalents was $200 million. They have enough cash on their balance sheet to cover the debt that they currently have.
  3. Operating expenses increased from $12 million to $19.5 million in the year ending December 2020. That increase is primarily due to costs resulting from increased headcount and wages to manage the increase in revenue. That increase was expected as revenue growth often times translates to operating expenses growing as well.

Recent Development

Tattooed Chef came out and said they’re launching 6 new products at Targets nationwide. I believe that this partnerships points to the strength of the brand. The 6 new products include the cauliflower mac & cheese bowl, cauliflower pizza bowl, veggie hemp bowl, buddha bowl, plant based burrito bowl, and the enchilada bowl.

“We’re thrilled to continue expanding our product line at Target, bringing our innovative, plant-based dishes to even more people around the country,” said Sarah Galletti, Founder and the “Tattooed Chef.” “Whether you’re a vegan or trying to incorporate more plant-based food into your daily routine, we’re making food that’s simple to prepare, delicious and feels good to eat.”

Guidance

The guidance that Tattooed Chef gave us is positive and they’re expecting to continue that double digit revenue growth. The numbers that they gave us are:

  • Revenue of $222 million, an increase of 49% compared to fiscal year 2020.
  • Gross margin in the range of 20% to 25%.
  • Adjusted EBITDA in the range of $8 million to $10 million; and
  • Net income in the range of $2.5 million to $5 million.

Other points to mention that were not in the earnings report:

  1. Up until recently the growth that this company has seen was achieved with NO investment in marketing and branding which points to the strength of their brand.
  2. This company is vertically integrated with over 200k sq. feet of manufacturing capacity and that number is expected to double again in 2021.

Management

CEO and President – Sam Galleti

Sam Galleti has 35 years of experience in the food industry and he’s served multiple investor and operational roles within seafood, breaded vegetables, salsas and dips, grilled chicken, and organic foods companies. With the connections and experience that Sam Galleti boasts, I have no worries about this company having trouble expanding. Sam understands the space that he is operating in and as investors we can be fairly sure he will lead this company to further success.

The Tattooed Chef and the chief creative officer – Sarah Galleti

Sarah Galleti is the creator of the “Tattooed Chef” brand. She joined the company alongside her dad in 2014 and started the shift to plant-based. Formerly she was a chef in Italy. As we can tell by the growth in this company, Sarah is extremely innovative.

Chief Operating Officer – Stephanie Dieckmann

Stephanie joined the Tattooed Chef team in 2017 and has over 12 years of experience in the food industry. Formerly, she was the CFO of APPA Fine Foods. Stephanie’s experience in the food industry will help this company manage operations as they continue to grow in the future.

Chief Growth Officer – Matt Williams

Matt joined the Tattooed Chef team in 2020. He has over 25 years of experience in consumer-packaged goods (CPG) which includes roles in Dean Foods, Coca Cola, and PepsiCo. While Matt is new to the team, he has extensive experience in CPG which will be a great asset to Tattooed Chef as they continue to expand into retailers.

What could go wrong

For any company their are a number of things that could go wrong and cause their stock to dwindle. In terms of TTCF the most important things that could go wrong include low demand for new SKU’s, the demand for plant-based foods slows down, and the cost of raw materials significantly increases. If those two headwinds are to occur then a whole host of other problems come with it.

1. Demand for plant-based foods slows down – While demand for plant-based foods has been growing at a fast pace as shown by the 11.9% CAGR in the sector, their is a potential for people to simply not care for such foods anymore. Problems with demand can hinder any business but especially young companies which don’t have the resources to adapt quickly much of the time and are likely to get bought out or simply fail.

2. Costs of raw materials continues to go up drastically – Inflation is expected by many investors as the FED has printed trillions of dollars for stimulus. What is yet to be seen is if that inflation will significantly inpact TTCF in terms of raw material costs. While we can speculate as to what the outcome will be, TTCF has managed to still grow adequately even with supply side constraints as a result of COVID.

3. Demand for new SKU’s is low – This point seems rather obvious and doesn’t need much of an explanation. If TTCF can’t innovate as it has done in the past, it will fail to meet the demands of the consumer. Although, we can have confidence that Sarah Galleti will continue to create new SKU’s that capture the attention of the consumer. Sarah has the creative edge that has helped advance this company from small private label food to branded plant-based foods.

 

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7 min

40.00

Target Price

10/ 10

Confidence

1-3 Years

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