Stryve Foods – Another Failed SPAC Deal – Avoid

Beef Jerky (Trockenfleisch)

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On Monday, meat snack manufacturer Stryve Foods (NASDAQ:SNAX, NASDAQ:SNAXW) reported very weak fourth quarter results and provided a disappointing outlook for this year.

Just like the majority of recent SPAC deals, the company hasn’t lived up to expectations after completing its backdoor listing eight months ago.

Net sales in the fourth quarter were just $6.8 million, down 25% sequentially and even below the preliminary range of $7.0 to $7.5 million provided in the update filed with the SEC on December 30.

Gross margins suffered from significantly increased input costs for the company’s products, particularly beef and labor. As a result, consolidated gross margin decreased an eye-watering 2,500 basis points quarter-over-quarter to just 11.0%.

After recording negative free cash flow of $28.5 million for the first nine months of 2021, the company used an additional $11.2 million in Q4. Stryve Foods ended the year with a paltry $2.2 million in cash and $3.3 million in short-term debt that was originally scheduled to mature in Q4 but was later extended to January 31, 2022.

The company’s dire liquidity situation required a $35 million emergency capital raise in early January:

Stryve Foods, Inc., an emerging healthy snack and eating platform disrupting traditional consumer packaged goods (“CPG”) categories, and a leader in the air-dried meat snack industry in the United States, today announced that it has entered into securities purchase agreements with institutional investors for the issuance and sale in a private placement transaction priced at-the-market under Nasdaq rules of 10,294,118 shares of Class A common stock or, in lieu of Common Stock, pre-funded warrants, and accompanying warrants immediately exercisable to purchase up to 10,294,118 shares of Common Stock for a period of five years at an exercise price of $3.60 per share. The Common Stock and Warrants will be sold at a combined purchase price of $3.40. The Company expects to receive gross proceeds from the Offering of approximately $35.0 million before deducting placement agent fees and estimated offering expenses.

(…)

The Company intends to use the net proceeds from the Offering for working capital to support near term growth, capital expansion projects, including potentially increasing manufacturing capacity and adding manufacturing capabilities by building or procuring other manufacturing facilities and making other process improvements, and general corporate purposes, including marketing and sales initiatives and potentially repaying debt.

As the company has not yet filed its annual report on form 10-K, I would estimate net proceeds to the company of approximately $32 million after accounting for placement fees and related expenses.

According to statements made in the company’s Q4 shareholder report, Stryve Foods used the proceeds to pay off its senior bank debt and invest “heavily in working capital to support the upcoming retail distribution advances expected in the first half of 2022“.

Further, the company has bolstered its primary manufacturing facility in Madill, Oklahoma and is planning to build and/ or procure other facilities over the course of the year. Stryve Foods is also investing in product innovation, supply chain improvements, and expanding its marketing initiatives.

For Q1, the company expects only “modest” sequential growth (as compared to 50% expected by analysts) while projecting an “outsized” Q2 based on initial lay-in orders from major retailers paired with a particularly large initial order from Costco due to the company’s decision to support the launch with a significant coupon in Costco’s multi-vendor mailer (“MVM”).

Depending on the actual number of coupon redemptions, the company might experience substantial reductions to gross revenue.

Total net sales for 2022 are expected in a range of $43.0 to $48.0 million, substantially below the current analyst consensus of $62.9 million:

In response to today’s fundamentally changed macroeconomic, supply chain and digital advertising environment, we have refocused our energy from being almost exclusively focused on hyper-fast growth to instead accepting more sustained growth while being laser focused on operating more profitably across the board, in particular driving efficiencies in production and throughout selling, marketing and G&A expenses. And while the company continues to grow rapidly, enjoying record in-store velocity and increasingly widespread retail distribution, we are being more conservative in our management of expenses while continuing to invest in profit enhancing manufacturing, innovation and diversification.

The company anticipates continued gross margin pressure comparable to Q4 in the first half of the year, with recovery beginning in the second half of 2022 mostly based on anticipated, near-term price increases in the wholesale business.

Given the senior debt repayment, required “heavy” investments in working capital and substantial losses from operations, I would estimate the company’s cash balance at the end of Q1 to be around $10 million which would likely result in the requirement to raise additional capital by the end of Q2 at the latest point.

Bottom Line

Just like so many fellow backdoor IPOs, Stryve Foods has been falling well behind expectations with no near-term improvement currently in sight.

At this point, I would expect the company requiring additional capital by the end of Q2.

Given these issues, investors should remain on the sidelines or even consider selling existing positions until the company has secured additional liquidity and margins start to move back up.

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