Tattooed Chef Inc. (TTCF) Q1 2021 Earnings Call Transcript

Tattooed Chef Inc. (NASDAQ: TTCF) Q1 2021 earnings call dated May. 12, 2021

Corporate Participants:

Rachel Perkins — Investor Relations Officer

Salvatore Galletti — President and Chief Executive Officer

Sarah Galletti — Creative Director

Stephanie Dieckmann — Chief Operating Officer and Chief Financial Officer

Matthew Williams — Chief Growth Officer

Analysts:

George Kelly — Roth Capital Partners — Analyst

Rob Dickerson — Jefferies — Analyst

Presentation:

Operator

Thank you for standing by. This is the conference operator. Welcome to Tattooed Chef’s First Quarter 2021 Earnings Conference Call. [Operator Instructions] After the presentation there will be an opportunity to ask questions. [Operator Instructions]

I would now like to turn the conference over to Rachel Perkins, Investor Relations. Please go ahead.

Rachel Perkins — Investor Relations Officer

Thank you. Good afternoon, and welcome to Tattooed Chef’s first quarter 2021 earnings conference call. On the call today are, Sam Galletti, President and Chief Executive Officer; Sarah Galletti, Chief Creative Officer and the Tattooed Chef; and Stephanie Dieckmann, Chief Operating Officer and Chief Financial Officer; Matt Williams, Tattooed Chef’s Chief Growth Officer will also be available for questions.

By now, everyone should have access to the earnings release, which went out at approximately 4:05 PM Eastern Time today. If you’ve not had a chance to review the release, it’s available on the Investors portion of our website at www.tattooedchef.com. Before we begin, I’d like to remind everyone that the prepared remarks contain forward-looking statements. Such statements involve a number of known and unknown uncertainties, many of which are outside the Company’s control and can cause future results, performance or achievements to differ significantly from the results, performance or achievements expressed or implied by such forward-looking statements.

Important factors and risks that could cause or contribute to such differences are detailed in the Company’s filings with the Securities and Exchange Commission. Except as required by law, the Company undertakes no obligation to update any forward-looking or other statements herein, whether as a result of new information, future events or otherwise. In addition, within our earnings release and in today’s prepared remarks, adjusted EBITDA and adjusted EBITDA margin are referenced, and it’s important to note that these are non-GAAP financial measures that we believe are useful metrics that better reflect the performance of our business on an ongoing basis. A reconciliation of these non-GAAP financial measures, the most directly comparable GAAP financial measures are included in today’s press release, which has also been posted on our website.

And with that, it is my pleasure to turn the call over to Tattooed Chef’s President and CEO, Sam Galletti.

Salvatore Galletti — President and Chief Executive Officer

Thank you, Rachel and good afternoon. We appreciate everyone taking the time to join us on today’s call. It’s an exciting time at Tattooed Chef. I’ll begin today’s discussion with key business highlights, new distribution wins and our recent acquisition of foods in New Mexico. Then Sarah will discuss our marketing and innovation, and Stephanie will provide further detail on the financials.

We are off to a great start to 2021. First quarter revenue increased 59% to $53 million compared to the first quarter last year, driven by our Tattooed Chef branded products. Our branded sales, product sales for the first quarter of 2021 were a record $36 million or 69% of total revenue. That’s an increase of 105% compared to $18 million in the first quarter last year. We had originally anticipated it would take two to three years to reach 75% to 80% branded sales and we are proud that we are nearing that goal within six months of being public.

When we launched the brand in 2017, we recognized an opportunity to revolutionize the way consumers think about plant based food. The Tattooed Chef brand is for everyone and we attract consumers of all ages and demographics. It really resonates with both consumers and retailers and that has been apparent to our sales velocities and product launches to date. The club channel requires much higher volume to stay on shelf compared to conventional retail and we continue to exceed retailer expectation. This gives us confidence as we enter new channels like grocery and meet the sales thresholds.

Our portfolio of products from single serve bowls to vegetable blends to plant based pizzas offers retailers a variety of breakfast, lunch, dinner or snacking products. With our acquisition of New Mexico Food Distributors, Inc., and Karsten Tortilla Factory, LLC collectively referred to as Foods of New Mexico, we plan to expand further into the $20 billion Hispanic Southwest food sector and beyond. We acquired Foods of New Mexico for $35 million in cash and are incredibly excited about the growth opportunity. We will be immediately addressing the $1 billion frozen Mexican food category and we’ll also be launching our first ever refrigerated and ambient products. We believe the Mexican food space is lacking alternative plant-based options and this is exactly the type of acquisition we were looking for.

The two facilities total 118,000ft allowing us not only expand production capacity, but also diversify our manufacturing capabilities and grow our product portfolio in an accelerated rate. The Karsten facility is brand new, with extensive tortilla manufacturing capabilities and since it was never completed, we now have the ability to customize and tailor the existing footprint to our needs. Given our business is vertically integrated already, we are very comfortable manufacturing and plan to introduce more innovative products like alternative tortillas and plant based items. In two to three years, we believe, Foods of New Mexico can contribute up to $200 million in revenue annually. The focus going forward will continue to be our Tattooed Chef branded plant-based products.

We continue to successfully execute on our growth strategy to grow the Tattooed Chef brand in the categories in which we compete. At the end of 2020, branded products were nearly in 4,300 stores and had 23,000 points of distribution, and at the end of Q1, we were at 6,065 stores with 31,000 points of distribution. By the end of Q2, we expect to be an additional 1,162 stores with 8,000 new points of distribution including a number of larger grocery chains, which will expand upon in the moment.

Our new total store count by the end of the second quarter is 7,477 stores and 40,275 points of distribution. Based on where we are today and additional retailer commitments that we will realize in the back half of 2021, we are confident we can achieve our 2021 objective of 10,000 stores and 65,000 points of distribution for Tattooed Chef by year-end. In the club channel, we saw exceptional growth. Our Costco MVM in March with Acai Bowls was very successful. The Acai Bowl was featured on the [indecipherable] and placed in their ad that is mailed to each member for four week promotion. This gives the Tattooed Chef brand exposure to over 105 million Costco members across the country.

In Sam’s Club, we had for limited time offers in Q1 in addition to our four everyday items. In Q2, we have limited time offers including Tempura Green Beans with Vegan Wasabi Ranch and our Riced Cauliflower Burrito Blend. According to SPINS for the latest 12 weeks ending March 21, 2021, Tattooed Chef continues to experience double-digit growth of 10.8% in Sam’s Clubs significantly outpacing the frozen categories we compete in. For the 52 weeks ending March 21, 2021, Tattooed Chef was up 128% and is one of the fastest growing brands in the frozen category.

In the mass channel, latest 12 weeks through March 21, 2021, we saw a 477% growth, primarily driven by our launch of six new bowls at Target in mid-March. Our average ACV in the channel is 57.1 and it’s grown 5 times since the same time last year. We continue to see TDPs increase in the mass channel, which are up over 800% versus same time last year. Our launch in Target exceeded both ours and Target’s expectations. We saw extraordinary demand for the Tattooed Chef entree bowl line and beat our launch plan velocity expectations. Since launch the Tattooed Chef entree bowl line is averaging over $32 per SKU per store. Target said it was the most successful frozen food launch in the history of Target and collectively we have exciting plans to continue to drive trial and sales with the Target guests.

Last 52 weeks, we have grown 149% in mass channel and we expect this momentum to continue as our products are introduced to consumers throughout the year. In the grocery and natural channel, we continue to gain distribution with both national and regional retailers in the US. In addition to our distribution wins in Q1, we announced in March by the end of Q2, Tattooed Chef products will be on shelf at Whole Foods, Harris Teeter, Jewel, Smart & Final, and Nugget Markets in North Cal as well as a growing list of independent retailers. And in Q3, we already have commitments from multiple Albertsons divisions including Southwest, SoCal, NorCal and Intermountain, as well as H-E-B price shopper and Sprouts Farmers Market.

Additionally, we are also seeing our early retailers expand our line into additional categories based on the success of the brand, which will increase the breadth of our distribution. We have strong momentum and expect our growth to continue given the wide space opportunities with new and existing customers and grocery, club, mass as well as our innovation pipeline and recent acquisitions. In 2021, we expect revenue between $235 million to $242 million, which Stephanie will expand upon in a few minutes.

In 2022, we now expect at least $300 million in revenue based on our distribution set success in grocery this year and our innovation pipeline, including the launch of our first ambient products, which we expect at the end of this year or early next year. We are building Tattooed Chef to be a generational brand. It is important we invest back into the business now to lay the foundation for future success. As we previously announced, we have partnered with NitroC, national marketing agency and are spending $15 million this year to increase Tattooed Chef brand awareness. Sarah will provide more details momentarily but we are pleased with our early success and launch of our first commercial last month.

Regarding production capacity, we are ramping up production and increasing capacity in both our facilities in California and Italy in order to meet our guidance in sales volume. The acquisition of Foods of New Mexico now adds another two facilities, giving us a total of over 75,000 square feet.

And now I’d like to turn the call over to Sarah, to discuss our innovation and our marketing efforts.

Sarah Galletti — Creative Director

Thank you and good afternoon everyone. Tattooed Chef is a brand committed to creating high quality, delicious plant based meals that connect with the next generation of consumers. Innovation is woven into the culture of our company and we are passionate about every product we make. We create food we want to eat and as consumers preferences change, so do ours. Fancy food does not have to be boring and with Tattooed Chef, it’s not. Our food is exciting, no longer for the 1% and it’s chef created.

At the end of Q1, we had a total of 42 Tattooed Chef branded SKUs and by the end of Q2, we will have 54. This includes five new 20 ounce plant-based multi-serve meals, Cauliflower spaghetti with plant based Bolognese, Sweet Potato Gnocchi with plant based butter and sage, Cauliflower Gnocchi Quattro Formagi, Chickpea pasta with plant based Sausage Ragu and Riced Cauliflower Burrito blend that are now available for purchase at Target stores nationwide. These skillet mills feature variety of our innovative plant based alternatives with plant based beef and sausage, plant based butter and alternative rice and pasta. These multi-serve meals are different yet familiar to consumers. They are truly nostalgic innovation.

We created our own pasta alternatives that we believe are better than anything else on the market today. Following our six bowls launched in Target in March, we also recently launched our new Pesto Harvest Bowl and a plant-based Hangover Bowl as well as a four pack of Cauliflower Mac & Cheese and our plant based burrito bowls at Target. This brings our total SKUs offered at Target to 17. Our plant based pizzas launched in mid-April exclusively at Myer stores and are gaining distribution in other retailers including United Supermarkets, Drool, and ATD in Q2.

We are continually bringing new ideas to the marketplace and with our acquisition of Foods of New Mexico, we have a pipeline of over 250 ideas for innovation including over 50 in the Hispanic Southwest food category. As Sam mentioned beginning in January, we kicked off our marketing efforts with the help of NitroC to increase our brand awareness as we grow our distribution. This year we are investing $15 million across digital video, connected TV, digital display, social media and search engine marketing. On April 5, we debuted our first 6 second and 15 second commercials of animated ingredients with live motion cinematography at some of our top selling products.

The commercials are now airing on a curated list of cable networks including Bravo, Food Network, CNN and CNBC as well as connected TV and digital media. We allocated a larger spend to be on cable networks and now have placements on some of the biggest shows. By the end of the 16 week campaign, we expect the commercials to reach over 80 million people seeking more plant based eating options. We are in the early innings of marketing and are excited to make Tattooed Chef a household name.

Now, I’ll turn it over to Stephanie to walk through our financials.

Stephanie Dieckmann — Chief Operating Officer and Chief Financial Officer

Thank you, Sarah, and good afternoon everyone.

In the first quarter of 2021, we continued on our growth trajectory. Revenue increased 58.8% to $52.7 million compared to $33.2 million for the prior year period. As Sam mentioned the revenue increase was driven by an $18.4 million increase in revenue of Tattooed Chef branded products. This now accounts for 69% of our total revenue. Gross profit in the first quarter was $13.7 million or 26% of revenues compared to $9.2 million or 27.9% for the prior year period. While gross margin declined year-over-year in the first quarter, we anticipate quarterly gross margin expansion throughout the rest of 2021, as we increase our volume.

On a sequential basis, first quarter gross margin increased 860 basis points compared to 17.4% in the fourth quarter of 2020, due to operational efficiencies. For our full-year 2021 guidance, we expect gross margin between 20% to 25% for the year. Operating expenses increased to $20.7 million in the first quarter of 2021 compared to $2.4 million in the prior year period. The increase in operating expenses was primarily due to $3.2 million of stock compensation, $2.6 million in marketing, $2.6 million in public company and new employee costs, and $1.9 million in promotional expenses to invest in customers and the brand through promotional offers.

During 2020 and into 2021, we have invested more in our management team, infrastructure, equipment and maintenance to support both the production facilities here and in Italy during our rapid growth that is expected to continue moving forward. We have also made significant investments with our customers in the form of promotion and marketing that we believe will benefit Tattooed Chef in years to come. We expect operating expenses to increase in 2021 to accommodate branded growth, invest in the Tattooed Chef brand and increase full year of public company costs.

Due to the increase in operating expenses, net loss was $7.9 million in the first quarter of 2021 compared to net income of $5.9 million in the prior year period. Adjusted EBITDA loss was $3 million in the first quarter of 2021 compared to adjusted EBITDA of $7 million in the prior year period. The decline was primarily due to the operating expenses that were previously mentioned. And we expect adjusted EBITDA to increase sequentially throughout the remainder of the year. As of March 31, 2021, we had cash and cash equivalents of $185 million.

Now turning to our outlook, we are reiterating our full year 2021 guidance provided in our recent M&A release which includes revenue in the range of $235 million to $242 million, an increase of 58% to 63% compared to 2020. This guidance implies 49% year-over-year growth on the base business to $222 million and $13 million to $20 million contribution from one of the two facilities in the Foods of New Mexico acquisition. This revenue guidance excludes any revenue contribution from the second facility that we refer to as Karsten because it is not currently in operation. We expect to update guidance again once production begins at that facility in the coming months.

We expect gross margins to be in the range of 20% to 25% as we increased scale and leverage operational efficiencies in our California and Italy facilities, and integrate Foods of New Mexico. We expect adjusted EBITDA in the range of $2 million to $4 million as we continue to invest in and promote the Tattooed Chef brand. We invest in people, labor, equipment and public company costs. Despite inflationary pressures, we expect sequential improvement in adjusted EBITDA as we progress throughout the year.

Lastly, we expect capital expenditures in the range of $15 million to $20 million. With that, we are now available to take your questions. Operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions] The first question comes from George Kelly of Roth Capital Partners. Please go ahead.

George Kelly — Roth Capital Partners — Analyst

Hi, everyone. Thanks for taking my questions. So I have a few for you. I’ll start with the New Mexico acquisitions that you just made. So, I was curious if you could help us understand the progression you gave the two to three year targets of — I forget exactly couple of hundred million. And so I was just curious if you could help us understand that progression. And when you’re going to start introducing your own branded items to that facility? And then the second part of your question is just about sizing the opportunity in tortillas. How big is that market? What’s the penetration with alternative kind of plant-based products, etc?

Salvatore Galletti — President and Chief Executive Officer

Thank you, George. This is Sam. So the first, the first part is that the way that we’re looking at is that the immediate opportunity obviously is with plant based burritos in July as case it is the facility is live, it’s running and tortillas are being manufactured today within the facility also. So the immediate opportunity and if we’re fortunate and we could get some distribution quickly will be third or most likely fourth quarter, I can see frozen food products being the first items that we hit the market with our Tattooed Chef brand, and it could be, they could end up be — Sarah is looking at a full line of entrees also to be able to increase the retail area, what — that our entree bullets are going in.

So there is tons of opportunity that is pretty immediate. It’s a function of just really getting all the — all the pieces of the items and packaging and production in place, but I think that within four or five months, we definitely could be hopefully getting some distribution out there. The next part of it would be the tortilla opportunity, which is actually just as quickly, it would be as the same as the frozen items because there is equipment already that has very large capacity that we can be entering that opportunity of plant based tortillas into the market pretty quickly.

And then the third part of it is the snack concept that we’re looking more towards a fourth quarter or actually even first quarter next year. And that is an additional whole another potential revenue stream of sales for Tattooed Chef products. So there is three different areas of potential revenue growth within this, and that’s why we’re so excited about this opportunity because of the diversification not only extending our frozen categories, but also now getting into ambient and into snacks.

As far as the second part of your question on the tortillas, so immediately we want to be utilized. We want to be utilizing our grain free concepts of plant-based tortillas right out of the gate with our, with our frozen line. So it would be very unique to the market and so besides us selling a plant-based alternative tortilla as a commodity which per se, it’s a commodity although there is very limited of that product in the market today, we would, we would take advantage of that same those that same opportunity for those tortillas to be able to utilize it in our existing — in the existing products that have created out there, but how Sarah always calls it you know nostalgic innovation. So it just lines out perfect for what Tattooed Chef is and the opportunity.

George Kelly — Roth Capital Partners — Analyst

Okay. That’s really helpful. And then different topic for the next question. So the branded sales in the quarter jumped quite a bit from where you ended last year. And I was hoping you could sort of help bridge I think it was a $13 million improvement in this year’s first quarter. So what if you could sort of break it down between your biggest club customers between new groceries between [indecipherable] could you help us understand where that jump came from?

Salvatore Galletti — President and Chief Executive Officer

So it’s still driven by our club successes. It’s been very minimal still on the opportunity of conventional retail except Target, we started to pick up some of those sales in the first quarter but it was minimal. And that’s why everybody always says about the question will come up about what’s up with guidance. Why aren’t you increasing guidance is because is that you have to, by the time that you get things approved and they get on shelf and they get distributed to Target, 1800 stores or whatever store count that you’re dealing with.

So before you get a full year’s worth of those sales. It takes time to really start hitting that number. So, this first quarter except for maybe a little bit of conventional the Target business, that was really so exciting has really been still driven by our basic accounts of club and some Walmart business.

George Kelly — Roth Capital Partners — Analyst

Okay. Okay, helpful. And then last question for me is just about gross margin. So maybe this is for Stephanie, but it’s been, it’s such a volatile margin just jumps around quarter to quarter. Is it going to — is your gross margin going to be more consistent this year or can you help it all there.

Stephanie Dieckmann — Chief Operating Officer and Chief Financial Officer

Yes. Gross profit margin will start to stabilize. It is a little high for Q1. But as we start to flow into Q2, Q3, Q4, it will be within guidance of 20% to 25% even with the acquisition of Foods of New Mexico, we will continue to see that across the board. There are some changes within Foods of New Mexico, that we will make within their product lines since they are really pro-packer and as we sell Tattooed Chef out of there, we expect everything to fall in line with our current guidance.

George Kelly — Roth Capital Partners — Analyst

Okay, thank you.

Stephanie Dieckmann — Chief Operating Officer and Chief Financial Officer

Thank you, George.

Salvatore Galletti — President and Chief Executive Officer

Thank you. Thank you, George.

Operator

The next question comes from Rob Dickerson of Jefferies. Please go ahead.

Rob Dickerson — Jefferies — Analyst

Great, thank you so much. Couple questions. So I guess for the team, you kind of went through a number of the retailers. Sounds like you may be getting some distribution Q2 in to Q3 based at our current portfolio, as I was trying to write it down I kind of missed it. Could you maybe just kind of go through how that works, and I know maybe in Q4 and Q1 right there are some products, you said you had like a lot of retailer or a lot of grocers for trial so what you’re saying today, it sounds like may be you pass some of that trial phase and then it sounds like maybe you’re getting some distribution and it sounds like part of that starts in Q2 and then flows into Q3, so maybe you just spend like couple of minutes just kind of walk you through those retailers again obviously just because it’s such a big piece here to your plan. Thanks.

Matthew Williams — Chief Growth Officer

Hey, Rob. This is Matt. So obviously the build that’s taking place is where, as we’re following the category reset cycle. And so what we like to share because there’s still a lot of moving parts on the retailer side as they’re coming out of COVID in terms of actually when they’re actually getting back into this process of doing full category reviews and so what we like to show is kind of where we’re seeing traction and what we’re getting commitments quarter by quarter. So clearly the first big win that we had in Q1 was Target. Right. And so we came out of the gate with six new SKUs of entree bowls with Target.

We actually did an emergency revision and that was because there was another supplier that they were doing business with that had some kind of some hanging on of COVID related issues in terms of production and so we actually accelerated our launch with them. That was a — that was initially going to take place in May, in the March and so that pulled forward that launch. And so that was really the first big hit that we had, we took on one of the other regional grocers Stop & Shop in the Northeast with a couple of SKUs and so we’re really doing two things.

We’re obviously gaining new customers. And so we have a list of those that we’ve kind of shared and I’ll walk you through more of those, but then it’s not only once we gain a customer, once we’re gaining the customers we’re able to go back and resell or sell into other categories that maybe that were not being reviewed when we started. And so as an example with Target, they saw the success of the brand with the entree bowls that now is leading into kind of them launching this line of family meal products as well. And so not only is this an ACV kind of gain for us, but it also becomes a strategy around building distribution points through added SKUs.

And so what you’re seeing in our build is not just new retailers coming on, it’s existing retailers, adding more SKUs because of the success of the brand, and how the brand is performing. And so that’s kind of what you’re starting to see as we shared with what we have in Q2, we’re seeing retailers coming on, like Jewel, we mentioned obviously Myer, we’ve got Smart & Final coming on, Whole Foods we communicated is obviously hitting, and so we’re seeing that flow through. And then as the reset cycles take place what we’re sharing with you is significant new gains that we’re getting in specific categories, but we know that that’s going to lead to future gains as well in other categories additionally too. So that’s how it plays out.

Salvatore Galletti — President and Chief Executive Officer

I’d like to add Rob that there has been no product that was launched in the first quarter that has been discontinued. The product isn’t even getting started yet on the shelf. So it is and with little information that we have already, as Matt mentioned, there is a real buzz and excitement that’s happening with the brand and obviously we have real numbers and data with Target, it was really just blew everybody out of the, out of the water. So we’re very excited about the success of what’s happening with our product and conventional retail as quick as it is.

Rob Dickerson — Jefferies — Analyst

Okay, good enough. And so then I guess totally to you your comment earlier Sam people asked like well then what’s in the guide. It’s not in the guide. I mean I guess what’s kind of being communicated is there is a reiteration of the guide this year right on the base into ’22. And then I guess like we should be thinking that there would be potential upside to that guide, right, depending on maybe when some of these new business wins occur. I’m just trying to cut it. Yeah, I think through the timing of — [Speech Overlap]

Salvatore Galletti — President and Chief Executive Officer

I do understand again we had, it was really a function of that when we came out with our guidance. It was really based on our assumption that because of the momentum and success that we had and these preliminary confirmations that we were verbally getting, but still, by the time these items get distributed nationally and they get the momentum behind them, it really, it’s really would take you really will take some time. So maybe later on this year, we’ll have a better snapshot of just how the distribution is going to where we can revisit it. But again, we’d like to stick with the guidance that we have.

Rob Dickerson — Jefferies — Analyst

Okay. No, I think that clarifies it, it’s people won’t ask, right. It’s just a matter, right that is a big question getting new business wise, the revenue stands, but it’s essentially like you have your own internal projections. You’re comfortable with those relative to the guide and then had a yeah, like other stuff and other hit in Q4 that it hits in Q4 but got bumped the Q1. Okay. I got it. And then I had the other question is just kind of on the EBITDA lines more mechanical is there is a loss in Q1 really driven by this SG&A expenses, sounds like gross margin might not be as high, but still high, not as high as Q1, still high on a year-over-year basis you go through the year, EBITDA has improved sequentially off of Q1. So I guess kind of the core question is, so does that — does that SG&A expenses going to essentially stay the same so may be part of just that sequential improvement in EBITDA is really being driven by revenue if that makes sense.

Stephanie Dieckmann — Chief Operating Officer and Chief Financial Officer

Yes. So let me answer that Rob. So we would be looking at the EBITDA the adjusted EBITDA more importantly, and the operating expenses, I think it’s important for us to note that there were some items in that adjusted EBITDA that are not recurring and won’t happen every quarter. But we did accelerate some things over the timeline into first quarter to take advantage of some promotional opportunities that we felt were important to help build the Tattooed Chef brand with new and existing customer and those won’t exist every quarter, they were planned throughout the years.

Some of those expenses just hit in the first quarter. So, you will not see operational costs well with revenue, operational cost kind of at where they’re at right now. As you will see some consistency within those, as we digest Foods of New Mexico. We know where adjusted EBITDA is going to land for the end of the year. But remember that we still need to get in there, we still need to look at cost segregation studies and things like that. So there is some depreciation, amortization and those types of things. But those won’t affect adjusted EBITDA.

Rob Dickerson — Jefferies — Analyst

Okay, cool, makes sense. And then I guess lastly I had somebody asked me I thought it’s good question. That’s my last question. So I think you said on the call quickly, you said it kind of gives us even more conviction and comfort in reaching at least $300 million in revenue in ’22 right. I know I’m pretty sure you threw out the $300 million revenue number previously but then you’ve made an acquisition, which obviously helps that that revenue number. I feel like I kind of have to ask you that had two people actually asked me about that but I feel like you kind of circles back to your prior comment around ’21, right. Like you had your own internal projections for ’21. Obviously that also had your own internal projections for ’22 and as kind of maybe some of the business flows through speaking that the grocers yes, actually just got to feel better about those internal projections. Is that kind of sense there?

Salvatore Galletti — President and Chief Executive Officer

It’s absolutely, you nailed it, I mean it’s like we to tie what you were saying in we — it was always a function of, like our facilities because we’re producing our products that we sell. And so we look at our production facilities and we say, hey, where are we and but and so based on our assumptions we came out with the ’22 and then for us and we know that for us to continue to grow you know, unless we became a marketing company, we would need to do M&A and the beautiful thing about the Foods of New Mexico facility. Is that is that we didn’t have to pay some crazy multiple because it was a branded product, because we have our brand.

And so it was — so we get this incredible facility that is an existing facility that’s operating with over 300 people that has all the food licenses and just raring to go that now, we could, we could bring our brand and we can now exactly what I was trying to accomplish is to be able to increase our revenue and the guidance that I suggested, based on M&A that is our model as a manufacturer to be able to control our destiny. So it is exactly what you just said and what I was hoping to hear in that.

Matthew Williams — Chief Growth Officer

And Rob I’d add, I mean, if I could add, I mean one of the things that I would also share is that this space you know $1 billion in revenue for frozen food Mexican food products. We know exactly where we can fit and the thing that I think is great is that consumers are already gravitating towards this kind of nostalgic innovation comfort food that comes from the Mexican food category to the Tattooed Chef brand. I mean the Tattooed Chef brand some of our best selling SKUs as we’ve launched in the market today are some of the SKUs that our Mexican-style products.

I mean the product that’s flying off of the shelves at Target is our new burrito bowl that Sarah has created, which is phenomenal and so people are now looking to us to bring great tasting, creative plant based Mexican food to the marketplace, and they’ll be looking for us to kind of lead that charge. And so it’s kind of that we’ve been testing it and I think that we’re comfortable with what’s going on with that SKU, what’s going on with the Sam’s with the burrito blend even our original enchiladas bowl that this is a place that people expect us to bring great tasting products. And I think that is really exciting.

Rob Dickerson — Jefferies — Analyst

Right. And then if I could just sneak one quick one for Stephanie just on cost inflation, if you like, and stressed assets could we ask this of every food company right now. It’s just you’re in growth phase. Right. There’s obviously a lot of inflation, a lot of different commodities, freight, you name it. Is there, is there anything that’s sticking out to you that could it could actually be just inflationary on the cost side, on the COGS side. I guess one and then two is just as you do grow so it doesn’t sound like there’s any type of sourcing issue of certain products or ingredient. That’s it, thank you so much.

Stephanie Dieckmann — Chief Operating Officer and Chief Financial Officer

So of course we’re seeing inflation, everybody seeing inflation, we were, it would be residual for us to say that we’re not. And on the side, yes, the announcement for corn, retail Mexican street corn. I understand why people might think that it could be a concern, we are contracted in with the year along pricing. It has been confirmed, and so as long as the price of corn regulates at some point in time in the next 12 months, which I’m convinced that it will then we would turn around and we would see things come back in line before we were due to contract the next time and that’s some of the ways that we try to combat inflation in general, when it comes to cost of goods sold.

But on top of that being vertically integrated helps us because we manage that cost within our manufacturing facility, not just for the raw materials. If we see an increase in raw materials, and we’re making strides when it comes to direct labor by the purchase of equipment and utilizing a lower cost for direct labor per cell unit, then we can absorb some of those costs. And we have a little more control than if we were utilizing a co-manufacturer or a co-packer because we would get there inflation cost within their raw materials, their labor challenges and that would just follow-up to ours. We are confident that if we continue to see inflation for cost of goods sold that if we were to approach our customers later closer to that 12-month mark and inflation were still high that we would be better received at that moment in time.

If there was necessary price adjustment. Then we would be, if we turn around tomorrow. And so we are bracing for the impact of that, we are monitoring it closely and we’re paying attention to our raw materials. We have not had any challenges in getting raw materials at this point in time, but we make sure that we diversify our suppliers and that we’re tracking that and that we’re ahead of the game on that. So it’s very important to us as manufacturers to be able to control that ourselves. It’s part of why we’re so excited about New Mexico.

Rob Dickerson — Jefferies — Analyst

Got it. Awesome. Thank you so much.

Stephanie Dieckmann — Chief Operating Officer and Chief Financial Officer

Thank you.

Salvatore Galletti — President and Chief Executive Officer

Thank you.

Operator

This concludes the question-and-answer session. I would like to turn the conference back over to the management for closing remarks.

Salvatore Galletti — President and Chief Executive Officer

Thank you for joining us today. We are off to a strong start to 2021 and have an incredible opportunity to grow the Tattooed Chef brand. We have increased capacity and sales, expanded gross margins and closed on a strategic acquisition. We have done everything we said we would and we believe we’re just getting started. I look forward to speaking to you again at several upcoming investor conferences in our second quarter earnings call in August. Have a great day.

Operator

[Operator Closing Remarks]