The Real Good Food Company, Inc. (NASDAQ:RGF) Webcasted Corporate Presentation September 14, 2022 11:30 AM ET
Company Participants
Bryan Freeman – Executive Chairman and Chairperson of the Board of Directors
Akshay Jagdale – Chief Financial Officer
Gerard Law – Chief Executive Officer
Conference Call Participants
Robert Dickerson – Jefferies
Tim Chatard – Meros Investment Management
Jon Andersen – William Blair & Co.
Operator
Good day and welcome to the Real Good Foods Webcasted Corporate Presentation.
Today’s webinar is being recorded. Before we begin the formal presentation, I would like to remind everyone that statements made on this call and webcast, including those regarding future financial results and industry prospects, are forward-looking and may be subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the call. Please refer to the Company’s SEC filings for a list of associated risks, and we would also refer you to the Company’s website for more supporting industry information.
On the call today is Real Good Foods Executive Chairman, Bryan Freeman, and CFO, Akshay Jagdale. At this time, I would like to turn the webinar over to Bryan. Sir, please begin.
Bryan Freeman
Hey, good morning, everyone, and thanks for taking time to learn about our Company, Real Good Foods. With me today is our Chief Executive Officer, Jerry Law, and our CFO, Akshay Jagdale. The purpose of today’s call is to simply provide an overview on our Company and what we believe to be a significant opportunity in value creation. We’re not here to make any big announcements or any big changes to the business. This is really meant for those who are not familiar with our story to learn a little bit. We’ll try to keep our comments and get through the slides in 30 minutes or less, and then just open up this time for questions.
To begin with, I think it’s important to just review what we stand for, and really, why do we exist here? It’s really simple. Our mission is to make craveable, nutritious comfort foods that are actually good for you and have nutrition. For us, that means removing the carbohydrates and sugars and replacing it with protein. We know that if we can do that, we will help millions and millions of people live a healthier lifestyle.
Our brand commitment is real food you feel good about eating, and that’s really our north star. We know that if we can make the foods that we all love in a more nutritious way, we’re going to do good in the world and build up business pretty quickly and have a high growth business.
Next slide, we’ll show you how different our product design is from that of all others. What this slide is telling you, over on the bottom left, you’ll see brands that claim to be better for you, and then you’ll see conventional brands such as Hot Pockets or Stokers and they’re essentially the same. What I mean by that is, is when you flip the package over and you look at the nutritional fact pattern, you will not be able to tell the difference between the two. Loaded with carbohydrates, sugars, and very little protein is what you’ll find in a package of Amy’s or a package of Hot Pockets.
It’s our belief that the more of those products you eat, the more health problems you are inclined to encounter. For Real Good Foods, we’re delivering high protein, low carbohydrate, craveable comfort foods. There’s really no one else in the frozen food aisle doing that today and I think that’s why you’re seeing such high growth from us.
Let’s go to the next slide and just talk about the size of the category in general. Frozen food is a $55 billion, $58 billion category in the United States. It is growing at approximately a 6% CAGR, and within the health and wellness side of that, it’s got about 11% penetration, about a $9 billion business within health and wellness, and it’s growing at about a 9% CAGR.
When you think about Real Good Foods and the need state that we’re addressing, 42% of all U.S. adults suffer from obesity. The more carbohydrates and sugar you take in, the more that that’s going to happen. Over 33% of all U.S. adults are either pre-diabetic or had diabetes, according to the CDC. MPD will tell you that 57% of all U.S. adults tried to reduce their carbohydrates over the last 12 months.
Now, when you overlay that size of TAM against that of plant-based, just those afflicted with diabetes is two to three times bigger than folks who claim to want to reduce their meat intake on a weekly basis. It’s because of that large broad appeal, but yet no one is really providing those solutions for those folks in the frozen food aisle is why Real Good Foods, I believe, represents such a significant growth opportunity in the marketplace.
Let’s move on to the next slide. We are an innovative Company. It’s what fuels a lot of our growth, and it also fuels our community, which I’ll talk about in a minute, but the way we innovate I think is important. What you have seen us do in the past and what we will do in the future is we’ve come up with some breakthrough product design, and then from there, we will use it across multiple form factors, eating occasions, and themed products.
So, as an example, when we cracked the code on how to remove high grain, high carbohydrate tortillas from Mexican food by replacing those grains and carbohydrates with chicken, you then saw us not only do enchiladas but go into products like lasagna and those sorts of items. The same is true with our breakthrough product design around a tater tots replacement. We used that system, and you see us bringing that into not only tater tots but our breakfast bowls as well as various entree solutions and bread carriers for our breakfast sandwiches. Now, as we go into 2022, you saw us come out with, which I’ll talk about in a minute, a novel breading system for our breaded poultry items. You see us now rolling that out across various platforms, such as Asian and in the future, other global cuisines.
Let’s go to the next slide. We’ll start talking about our product portfolio. The entree category represents close to 80% of our revenue, and it is growing. You see us with enchiladas, stuffed chicken, multi-serve Asian entrees, and single-serve entree bowls. We are in the top quartile of velocity, and we continue to see growth in those areas.
We think about Amy’s as a sort of a North Star. Amy’s is over a $0.5 billion business today. It took them 30 years to get there. We think that there’s significant growth opportunities for us to do the same. For breakfast, we launched 2.5 years ago our low carbohydrate, high protein breakfast sandwiches. They quickly became the number one better for you frozen breakfast entree in America.
So, what you saw us do this year is to begin to build a brand block in that category with our breakfast bowls, using our novel tater tots and also handheld breakfast bites. The all-other category, these are sort of opportunistic SKUs that we use to bring new users into our franchise. Pizza as an example is a high switching category. It’s a good way to attract new users to our brand, but in the all-other category, these are not what we consider strategically important SKUs. Next slide.
This slide means a lot to our retail partners. I will tell you that these metrics that you’re looking at, I’ve never seen before in my career of doing this for over 20 years. What it’s telling you is in the case of breakfast, over 80% of those who bought a product had not bought a frozen breakfast item in the prior 52 weeks. In entree, the same is true. It’s over 40% of all of our revenue that we’re generating for our retail partners. Those folks have not purchased a frozen entree in the prior 52 weeks.
When you can show your retail partners that you’re actually growing categories instead of simply taking share, they take notice of that. That’s why we believe we have permission to continue to extend in additional categories and also extend the number of SKUs in the categories we participate in.
I’ll talk a little bit about our distribution growth opportunity now, I guess, because when you think about an Amy’s, which I mentioned it’s over $0.5 billion in revenue, they have close to a million total points of distribution. Today, Real Good Foods only has about 155,000 points of distribution. We are in approximately 16,000 stores today. However, we’re under penetrated in those stores. We only average approximately nine items per store whereas Amy’s, as an example, is probably 40 SKUs to 50 SKUs.
We’re still in the very early innings of our growth journey, and as we continue to deliver incrementality to our retail partners as well as innovation, we like our chances of being able to increase our SKU count to get to our stated goal of $0.5 billion of organic growth in the next three to five years.
Let’s go to the next slide and I’ll talk a little bit about how do we efficiently drive new users to these categories, and I would say this is our secret sauce. Today, Real Good Foods has the largest social media followers, social media size of any frozen foods company in America, excluding ice cream. We have more followers and engagement than all Nestlé and Conagra brands combined.
I would really welcome you to go on Instagram, check us out at Real Good Foods, look at what’s going on there, look at the engagement, and then compare us to any other food brand you can think of—when you go into that frozen category, you’ll see that consumers really don’t care, there are no brands in frozen that consumers have an affinity to—and compare that to Real Good Foods. The other thing I’d welcome you to do is go onto our VIP Facebook group, where we just opened that a few months ago, and it quickly gathered 11,000 followers. These are folks that are highly engaged in the brand. It’s our North Star. It’s foundational to our business. It drives our innovation platform, and it would really give you a good sense of what makes Real Good Foods so unique and our ability to drive new consumers to the door.
Another number I’d call to your attention is today we have over 250,000 SMS subscribers. That’s important having that direct relationship and it gives us the ability to get the word out and drive demand to retailers. As an example, if a new product shows up in a retailer near you or near that area code of the cell phones, we’re going to push a text to you with the good news, and we’re going to drive demand to that shelf as the product’s coming on. Our retail partners know about this capability, and they value it.
Let’s now move on to our brand health indicators. These to me are foundational to the health of the business and it’s what I personally look at, at a high frequency.
First, I’ll start with household penetration. We have the second highest household penetration of any health and wellness frozen food brand in America, second only to Amy’s, and that’s with 8.3%. What that’s telling you is, is one out of 12 people in America have our product. That validates my initial comments around the size of the TAM and the broad appeal that our brand stands for. Of all the numbers I’m going to show you today, that number probably surprises me the most. To have that kind of penetration this early in our journey gets me very excited.
Secondly, as our repurchase rates are at 33%, those are in line with industry averages, and I would say that we’re ahead of the game, given the fact that we’re young and we’re putting new items on shelves at a high frequency. In some respects, I believe that number is actually understated, but we’re very pleased with those repurchase rates, and we’re seeing repeaters repeat on our products. Next slide.
Again, this just highlights where we stand versus others in the category from household penetration, and then check out the revenue associated with it. Again, we’re a young Company with large penetration, which means we have a lot of users looking for more food and more products from us and making it easier for them to get their hands on it. Next slide.
Yes, so this is obviously talking about distribution expansion, which I spoke of before. A long way to go here. Again, I think we’re probably in the second inning of our growth journey. Again, one other thing I’ll call to your attention is what makes Real Good Foods different from other brands is we participate in four categories today, whereas as an example, Amy’s is in two. Our view is, is if we just had a modicum of success in each of those categories, we think it’s an easier path to get to $0.5 billion quicker, better, and faster. Next slide.
Yes, so this is our growth bridge. As you’ll see, in the unmeasured channel, we’re well on our way, and we think we actually have an opportunity to exceed the $150 million mark. Retail sales are on target and where we would expect them to be. Really, a lot of it is distribution growth that we’ll see over the next two to three years. Next slide.
Obviously, we need capacity to fill this. The good news is we spent the better part of this year building out an incremental $250 million of capacity. When we went public in November, regular way, we used those proceeds to build this plant, and that plant, I’m pleased to report, due to the hard work of Jerry Law and his team, we have that plant up and running on time and on budget, and it has unlocked $250 million of capacity. As you probably are aware, the facility of City of Industry is getting us $100 million to $120 million in capacity. Frankly, I’d like to see that plant in the $85 million to $90 million capacity.
We have solved for the supply chain piece to get us through the next couple of years and deliver on the growth that we believe is possible with this brand. It’s also unlocked the products that we’re able to produce. If you go to the next slide, Bolingbrook is how we’re able to make this novel bread and poultry products, tater tots, etc. These are all big categories. We’re excited about breaded poultry, as an example. It’s approximately a $2 billion platform, but it’s also a very high velocity category, and I’ll talk to you about that in a minute.
With regard to Asian, let’s skip a few of these slides and we’ll just actually break it down. Let’s go two more slides, please. Yes, I wanted to highlight this opportunity. I have quite a bit of passion around this product. I don’t know about you, but I love orange chicken, [General Tso’s] (Ph). The problem is it’s loaded with carbohydrates and protein. What’s on the shelf today is InnovAsian’s Orange Chicken, 47 grams of carbohydrates, 21 grams of protein. Look, over the last five years, they’ve built that business from about $50 million to $240 million.
We think that we’ve unlocked and cracked the code on this and what you’re looking at is an orange chicken product with 3 grams of net carbohydrates and 8 grams of protein. You’ll see that start to show up in a shelf near InnovAsian. That’s good for our retail partners. We’ll grow the category. We think there’s a big opportunity there and the product tastes really, really good. Next slide.
On the breaded poultry, it’s surprising to me that when you go to buy chicken nuggets, a lot of moms and dads out there probably don’t feel real good about their kids eating it, and yet it’s supposed to be a convenient source of protein. Processed grains, 14 grams of carbohydrates, only 11 grams of protein is pretty standard for that category. We just launched our version of this: over 20 grams of protein, less than 4 grams of carbohydrates. They’re delicious. The taste, our target was for it to taste and deliver the Chick-fil-A experience. We believe we hit that.
When you go to the next slide, this is pretty exciting to me. We launched this item in the largest retailer in America just five weeks ago. We went from zero to the number one better for you health and wellness SKU in the category in less than four weeks. What I think’s even more important is we’re in the top 15% of all frozen meats and poultry in the category. We’re outselling the majority of Purdue SKUs, Tyson SKUs on shelf, and we’re averaging $90 per SKU per store.
Now our job is to grow the distribution on this high velocity, high opportunity item, and I think you’ll see us do that in the coming months and quarters. I could not be more pleased with the velocity on this item, and the feedback from the RGF community has been extremely positive. I think we have an opportunity to see the same happen with our Asian multi-serve entrees. Next slide.
Yes, so I’ll turn this over to Akshay and he can kind of walk you through the financial piece of the business and kind of give you where we are. Akshay?
Akshay Jagdale
Thanks. Bryan, before we get into the financials, can you also comment on breaded poultry and the distribution in the club channel, and then I can go with the financial part.
Bryan Freeman
Sure. We recently launched into one region in the Northeast with our breaded chicken strips. We are seeing similar performance there as we are on this slide. It’s still early days, but I really like what I see. As you’ve seen from the prior couple of years, the potential sales in that channel can spread very quickly. On average, it takes us about four months to six months to go from regional tests to full-time items. I like our chances, and I’m very pleased with the performance. If you happen to live in the Northeast, come and check us out over in your local club store.
Akshay Jagdale
Thanks, Brian. Just to take you through a few of these financial slides. This slide talks the summary of our 2Q results which were reported a few weeks ago. We had really strong top line growth, which has been a trend since we went public, where our growth is accelerating and that was part of the reason we went public. Our margins were better than The Street estimates out there and we were pleased relative to our internal targets. Actually, it was slightly ahead of our internal targets on an adjusted basis, and that’s despite a significantly inflationary environment that we’re experiencing along with all our food industry peers. We’re pleased with our 2Q results, and we remain on track to deliver on our guidance for the full year, which I’ll talk to in a second.
I also wanted to review the margin agenda and the margin journey that we’re on. Through the first half of this year, we had reported gross margins of 10.8%. We fully expect to get to 35% over the medium- to long-term, and the big buckets that drive that are direct labor and raw material costs. Just as an example, on direct labor, we started manufacturing our own products just in 2021, so we’re one year into that journey. We inherited a plant that was capital [Indiscernible]. We are investing capital in that plant, and we are going to see significant benefits on labor costs starting now.
As an example, one of our production lines had 50 to 55 employees [per] (Ph) line making our product, and now that same line will have 15 to 20. There’s a lot of these low-hanging fruit that we’re harvesting one at a time, and the new plant that we’re bringing online, Bolingbrook, is going to have a significantly lower labor cost because it’s fully automated to start off with. So, labor is a big unlock, and it’s starting now and should flow fully through our P&L over the next 12 to 18 months.
Then on the raw material side, we have some internal productivity measures and an agenda that we’re driving that’s going to get us to our targets, but it’s also important to keep in mind that two of our largest commodity exposures, chicken and cheese, have gone from all-time highs and peaked in June of this year to now being down from peak by about 50% and 25% respectively. So, the outlook is looking more favorable than it has over the last 18 months.
As Bryan said at the onset, we’re not here really to make any major announcements, but we are reaffirming our 2022 guidance and our long-term guidance. Those measures remain unchanged from what we had guided to just a few weeks ago: $155 to $160 million on the top line and Adjusted EBITDA loss of $7 million to $9 million. We continue to believe we can get to $500 million in revenue long term, organically: 35% gross margins and 15% EBITDA margins.
We thought it would be a good idea to provide some building blocks for 2023, and the way we think about it is as follows. Baseline velocities, strong growth in 2022 driven by accelerating baseline velocities. We expect that to continue in 2023, driven by improved mix, albeit at a slower rate than ’22.
Distribution, we started growing our distribution again just a few months ago, and we expect accelerated growth into 2023, driven by growth in our cold products, and also with the new products that we’re launching.
Then breaded poultry, we’ve talked a lot about it today, but it’s a $2 billion category. We think we have an opportunity to have a $100-$200 million business across the two channels. The early results are very encouraging. We think that’s going to be a major driver of our growth next year, and we’ll get more clarity on that over the next six months as we start to see how the product is repeating.
Labor costs, significant improvement is expected, and we’re starting to see results from the initiatives I had mentioned earlier, and with Bolingbrook growth becoming a bigger part of our mix, we expect labor costs to come down dramatically, especially compared to what we were seeing in the first half of this year.
As I mentioned a few minutes ago, commodity costs for our two largest exposures are down from their peak in June. Prices are down 40% to 50% on chicken and 20% to 25% on cheese. Both still remain above historical levels. We think the trend is going to continue to be a downward one. We’ll see how that plays out.
Lastly, Bolingbrook start-up, it’s on target. We continue to expect to be at an incremental $200 million in capacity by the end of the year. We expect to reach targeted efficiencies towards the end of ’22 and early ’23. It’s going to be a meaningful contributor to our margin expansion next year.
The next couple of sides, just talking about where we are and kind of the entry point. We think there’s a significant—it’s an attractive entry point but the data points here point to that. We’re trading at a little over one times revenue, which is well below the four to five times that CPG growth companies trade at and which is where we should trade at eventually as long as we continue to execute, so we think it’s a great entry point.
When you take that into the context of our growth relative to our peers, it becomes even more attractive, so you see over the last 12 months, we’ve more than doubled our business and none of our peers are coming anywhere close to that. So, we feel good about the entry points here and that’s part of the reason why we’re having this call.
The next two slides just talk about our background. I won’t spend too much time on this, but it’s fair to say, we have significant industry experience, and I’d say for a Company our size, we have more experience than you would typically see, but Bryan’s built and sold three brands successfully in his career and he’s a consummate networker in the emerging brand space, which down the road should pay dividends on M&A as well.
Jerry Law, our CEO, at 29 years in the frozen food industry, was the number two guy at J&J snack foods. He has managed a big platform, 16 facilities before, and has successfully rolled up 10 acquisitions.
My background is in equity research in the food space, and a good relationship with the institutional investor base as well.
We’re also proud of our Board that we’ve put together here. These are all first-class operators that are coming from really great backgrounds, Mark Nelson, ex-CFO, Beyond Meat; Deanna Brady, number two or three person at Hormel; and George Chappelle used to be the COO of AdvancePierre and was part of the SLT senior leadership team at Tyson, and now is the CEO of Americold. Then Gil B. de Cardenas, he’s the CEO of a really awesome privately held food business. We’re really proud of the Board that we’ve put together and they help us out daily.
So, I think that is the end of our prepared remarks. With that, I’d like to hand it back to the operator to open up the line for Q&A, and Bryan, Jerry, and myself are available for the Q&A session. Operator?
Question-and-Answer Session
Operator
Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. Our first question comes from the line of Rob Dickerson with Jefferies. Please proceed with your question.
Robert Dickerson
Great. Thanks so much. A few questions. Thanks for the presentation. I liked it.
I guess the first question for you, Bryan, just it sounds like that one slide you showed there, the chicken nuggets SKU, it seems like it’s performing exceptionally well and in pole position. The first question is just as you roll that out and you see that performance, do you think this upfront performance should obviously likely bode well for that distribution opportunity? Because there’s another slide where you say it’s still early days, you’ll have better visibility over the next six months in kind of where you could take that in incremental distribution, but my sense is like, if it’s doing well so far, you’re probably already speaking with retailers about getting further distribution.
Just kind of trying to get a sense of where the conviction is today around that go forward, almost near to medium term potential, just kind of that one SKU. First question.
Bryan Freeman
Sure. When you have velocity like this and you’re delivering incremental revenue for the retailer, for sure we’ll get the distribution. Unfortunately, in the retail business, they adhere to a certain reset cadence. Now, there are situations, and we’ll be as opportunistic as possible, where they will actually do a cut in, but it’s going to be choppy. The next opportunity’s probably Q1 to get some cut ins and going in that way.
That is not true in the unmeasured channel, so I think what we may see is unmeasured channel will outpace measured just because of the reset cadence. But look, we’ll get to where we need to go within the next six to nine months, regardless. There’s no replacement for velocity. [Indiscernible] SKU started at $65. I was impressed with that. We saw $90 last week. The retailers are adjusting their forecast to buy more, so we’ll see how it goes, but over time we’ll get there
Robert Dickerson
Then just as you touched on that one slide, when you kind of speak to drawing these new category buyers, obviously velocity is the primary metric they want to see but helping grow the category. So, I’m just curious, the work you’ve done internally, especially when you look at breakfasts. You’ve gone more category buyers are across, I guess, the different classifications.
What do you think that is? You’d think it’s as simple as a person walks down the aisle, doesn’t see what the person wants, they’re not buying the product. Now they walk down the aisle, they [Indiscernible] the box and they say, “Okay, I’m going to actually buy this category.” You see cereal. Now, I’m going to buy this breakfast biscuit.
Bryan Freeman
No. That incremental shopper we’re getting doesn’t even walk the aisle without us drawing them in there. That’s the magic. That’s the secret sauce of our digital platform. We’re able to drive new users to the category in a very efficient manner. That’s something that other brands in frozen don’t have. They don’t have that capability. We do it efficiently. Like if you looked at our marketing spend, it’s well below our peers. That’s just because of the efficiency that we have on our digital platform.
The way we activate it is through a network of approximately 1,500 content creators that are engaged with our brand. We send them the products, we don’t pay them, and they interact with the product, and they post. Through that network, we’ll generate over 10 million impressions and drive users to the store. It’s at a point now, Rob, where we’re getting over 10,000 clicks on our store locator per day. These are people trying to find our product.
So, that’s another sales piece to the retailers, and we’ll show them that data and say, “Hey, we need to get the products on the shelf. There’s demand outside.” But the idea that 10, 15 years ago, you’re going to make a clever looking package, stick it on the shelf, go buy some TV ads and everything’s going to be okay, that’s ridiculous. That doesn’t work. Brands are being built differently. We believe it’s built through content creation and being focused on specific need states of the consumer rather than demography, and it’s working real good.
Robert Dickerson
Super. Then I guess just lastly, actually kind of just check the box, a couple of comments in there around kind of a bit of cost visibility looks a little bit better with some inputs during the [deflate] (ph), I guess a little bit. Bolingbrook got through Phase 4 now. That seems like that’s up and running.
Is there anything as we think through the back half of the year that might offset some of maybe better than expected input costs? I’m just trying to gauge where you are today, let’s say relative to where you were just let’s say like a month ago when you kind of reiterated the guide, and you’ve reiterated the guide today, but it sounds like maybe there’s a little bit better conviction on that guide, given where costs are and given the performance on some of the new innovations. That’s it. Thanks.
Akshay Jagdale
Thanks, Rob. Yes, so a good question. Yes, we are reiterating the full year. We feel great about the full year. We know a lot more about the quarter now than we did a month ago. In terms of the cadence, we think it’s going to be closer to a 45/55 split between 3Q and 4Q. In absolute terms 3Q is still going to be significantly higher than 2Q and higher than 1Q as well, but the split is 45/55.
The distribution gains that we expected have happened, but they were a little bit later in the quarter and the new product contribution is heavier in 4Q. We don’t give quarterly guidance, but just at a high level, I think the splits are slightly different than I guess how you guys are thinking about it on The Street, but the full year, we feel great about. As far as margins go, again, I’d just reiterate what we have said previously, which is 3Q margins are going to be lower than 2Q because we had a significant inventory position as you know that we took to help with the transition of Bolingbrook.
That inventory is made from higher cost materials and the highest cost materials that are flowing through our P&L, so we still expect that to be the case. It’s going to be somewhat of a pronounced—a sequential move on margins in that regard, but we remain on track to be Adjusted EBITDA positive in 4Q, and our comments today were just more focused on sort of what does ’23 puts and take look like.
On the margin front, there’s a lot of headwinds that we experienced this year that are starting to turn into tailwinds, and we’ll start to see that flow through in the fourth quarter of this year and then into ’23, and commodities are going to be a big part of that. Just for some perspective, if prices stayed where they are today for all of ’23 for chicken and cheese, it’d be a several hundred basis point positive impact on margins for us, 300 to 500 basis points. If chicken prices were to normalize to historical levels, it’s almost a 10-point benefit to margins.
So, commodities have been a huge issue for the entire industry, but specifically for us, and specifically in chicken, and we’re starting to see some really positive trends in that regard.
Robert Dickerson
Okay, perfect. Thank you. I’ll pass it on.
Operator
Our next question comes from the line of Tim Chatard with Meros Investments. Please proceed with your question.
Tim Chatard
Hi, I’ve kind of got a few unrelated questions maybe you can help me out with but crossing various I guess sort of aspects of your story here I’ve never met with the company before.
So the basic technology that you’re using to I guess replace carbohydrates is kind of one of the basic questions. You’ve got a couple of slides in there where you talk about essentially it looks like replacing wheat or grains with manufactured proteins of some kind. Is there any more detail or just so for a layman who doesn’t do this for a living? How would you explain kind of what some of the basic technologies are?
I noted that you had you had specified lupin bean as part of this technology. I’m not familiar with that, but I have talked with other companies using lentils and peas and various other legumes as sort of protein replacements, but lupin bean is one I have never run across. Is there anything that you can do to kind of wrap that up in a bundle for somebody like me?
Bryan Freeman
Sure. So, lupin bean is a material that is very high in fiber and very high in protein. It allows you to deliver on a net carbohydrate basis very low values relative to rice or wheat. We take that material, and we’ll combine it with other ingredients to make a tater tot replacement. We also use it for a shell to make a handheld 1.5-ounce breakfast bite. On the inside will be sausage, egg, and cheese; on the outside is basically, it’s like a tater tot wrapped around it. It’s a beautiful material actually. Not a lot of people are working with it at this time. We’ve got a really robust team of committed, talented people with culinary backgrounds first, and food science second. That’s one of our platforms.
Then you’ll see us take that knowledge and we’ll spread it around various form factors as we go about it. With regard to trying to figure out a replacement for a flour tortilla, for a corn tortilla, we were able to take chicken, bind it using Parmesan cheese, and making it very thin. The initial thought was pretty simple. Chicken Parmesan is delicious, but how do we make a healthier version of that, so here comes the lasagna, here comes—you slice it thin enough, you can turn it into a tortilla.
Then finally, it’s really novel what we’re doing with our breaded poultry. We removed all the grains and carbohydrates from it. We’re using chickpea flour but getting that chickpea flour to bind to the protein and make it crunchy took a lot of work. Once we cracked the code, we knew we had a winner. My prior companies that I’ve been involved with and helped lead, big chicken nugget processors. I’m very familiar with the category, and I just felt like we had a winner once that came about.
So, now you see us taking that and not only making chicken nuggets and chicken strips, but we’re taking that and moving it into, as you heard, multi-serve entrees. We think that there’s an opportunity in snack and appetizers using that same technology and doing boneless wings. When we say our innovation’s fewer, bigger, better, that’s how we think about it is how do we figure out a breakthrough technology or product design, and then focus on it to get it right, and then find ways to deploy it across multiple eating occasions, day parts, and form factors?
Does that answer your question?
Tim Chatard
Yes, that’s so helpful. I was just Googling lupin bean here while you were talking and just trying to learn more about it. I’ve talked to companies who have a lot to do with lentils and some of that’s grown in Canada, some of it’s shipped from India. How do you get it? How do you not get it? How do you ship it? Lupin bean is a new one to me. I’m just taking note of some of these things. Have you mentioned how much you’re spending on Bolingbrook?
Bryan Freeman
Yes, Akshay, you can kind of walk through the Capex spend?
Akshay Jagdale
Yes, so in terms of the capital spending, we’re funding all of our investment via leases for Bolingbrook including the actual plant. The plant is leased. That lease was signed on October 1 of last year, and the plant started operating March of this year. That was a record time, and we’re really proud of that, but the plant itself is leased and the equipment in the plant is also leased. The total cost is roughly—I’d say roughly, total commitments, if you look at the lease payments for the building and you combine the equipment it’s around $40 million on the Capex side.
Tim Chatard
Okay, so $40 million. I guess whenever anybody mentions leases to me, I have to pull out a textbook because the accounting on the leases runs through the balance sheet, it runs through the cash flow statement, and it runs through the income statement and all in different amounts at different times. Not being an accountant, will you have a Capex of $40 million in 2022 then or is that not…
Akshay Jagdale
No.
Tim Chatard
Yes, I didn’t think so.
Akshay Jagdale
No. Yes, so very simply—hopefully I can simplify this, but there’s no Capex. We have a lease on our balance sheet and all the costs for all intents and purposes are flowing to our P&L, and 85% of the costs flow through COGS and 15% through the interest line, but it’s a finance lease, essentially, the way it flows through our P&L.
Tim Chatard
Got you.
Akshay Jagdale
Does that help?
Tim Chatard
Okay. Yes, that’s helpful. Do I have time for one more or should I get back in the queue? I’m not sure what…
Akshay Jagdale
Go for it.
Tim Chatard
The comments that you were making on the content creators was interesting: 1,500 unpaid content creators that you’re sort of leveraging to spread the word about the product is quite interesting. I’m just curious if you could just give me—do these content creators then, are these folks that you somehow have on an email list that you send samples to that then create video content that gets uploaded to TikTok, Instagram, Facebook? I’m just curious exactly kind of how that works on the ground. Where does this stuff show up?
Bryan Freeman
Yes, that’s exactly right. If you go on the various social media platforms, you can just see it first-hand what’s going on. I think the key takeaway I would say is, it’s all done in-house in terms of managing and activating these folks. We don’t use agencies. That’s one of the learnings I have had in my prior career, seeing millions of dollars destroyed trying to hire third parties to do this. What I’ve learned and what we’re doing, we have an internal team that manages each vertical based on need states. There are community organizers activating it.
The other key piece I would say is micro and nano content creators have a greater trust and engagement with their communities. We think it’s far more valuable to engage with folks that may only have 10,000 followers than to engage with somebody who may have millions. Millions will get you a short-term burst of awareness, but it will not get you engagement and it won’t move the needle. That’s our view. And so it’s working for us and we’re doing it in a very efficient way from a spend standpoint.
Let’s go on to additional questions with the time that’s left.
Operator
Our next question comes from the line of Jon Andersen with William Blair. Please proceed with your question.
Jon Andersen
Hi, everybody. Nice presentation. Thanks for that. Most of my questions have been asked and answered, I guess.
I would like to understand, you’re growing so rapidly, which is terrific on the one hand, and you’re also kind of moving into new categories, so expanding the number of SKUs that you’re offering in the portfolio, and that introduces more kind of complexity into the operations of the organization.
I was just wondering, Bryan, if you could maybe comment on where you sit today with respect to the organizational capabilities and the talent that you have on board and just kind of the bandwidth to support the growth that you’re expecting, not just this year, but obviously into 2023 and 2024. Because one of the areas sometimes we see companies get kind of caught up with that are growing as rapidly as you are is just execution becomes more of a challenge.
Any thoughts around that and what you’re doing to mitigate that risk would be super helpful.
Bryan Freeman
Sure. I’m going to turn this over to Jerry after a couple of initial comments.
I feel really good about where we are from a G&A standpoint. I think you’ll see us leverage it next year. I think that the reason for that is how we operate. We’re flat over here. We don’t build silos. We characterize ourselves internally as being blue collar type of folks, that we get in the weeds, and we get into it, and we enjoy it. I’ve seen organizations, Jon, that overbuild, and they actually slow down, and they accomplish less. We don’t want to be that way. What I mean by overbuild, overbuilding personnel.
We don’t believe in that model, but Jerry, if you want to comment on your view, that would be great.
Gerard Law
Yes, sure, Bryan, thanks. Hey, Jon. How are you doing? I was blue collar for 30 years and we’re really executing the same play. We’re boots on the ground players in the plants. We have added people in key positions in operations, distribution, purchasing, HR over the past several months, but key to what Bryan said is we are not overstaffed. Sometimes the bureaucracy that comes with that overstaffing slows down the entire matrix. We are avoiding that.
I hear what you’re saying on being overtaxed. I feel right now we’re in a good spot. We brought Bolingbrook up, which helped City of Industry. City of Industry, for a period of time, was overcapacity and constrained in shipping at all costs, where we’ve been able to slow that down now that we have some capacity online in Bolingbrook. Really seen a bright set of players emerge and that plant really turn around in a big way.
We feel the same in Bolingbrook. They’re going through the start-up curve right now, which is not easy, but I feel like we’re adequately staffed and we’re proud of the players we have in there. We have some really strong USDA players in there that have helped us get over the hump. I guess, long story short, is I feel like we’re adequately staffed at this time to handle the innovation and the growth that we have in the current plan. As time goes on, we will prudently add folks to help us execute the plan. I feel like we’re in good shape with that respect. Does that cover what you were looking for?
Jon Andersen
Yes. Very helpful. I appreciate it. That’s all I have for the moment. Again, thanks for the update.
Gerard Law
Thanks, John.
Operator
There are no further questions at this time. This concludes today’s virtual webinar. Thank you for your participation.
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