Goodfood Market Corp.

Welcome to the Good Food Fourth Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. As a courtesy to others, we ask that you each participant limit yourself to one question and, if necessary, one follow-up. Instructions will be provided at that time for you to queue up for questions. Please note that questions will be taken from financial analysts only. If anyone has any difficulties hearing the conference, please press star followed by zero for operator assistance at any time. I would like to remind everyone that this conference call is being recorded today, November 11, 2020, at 8 a.m. Eastern Daylight Time. Furthermore, I would like to remind you that today's presentation may contain forward-looking statements about Good Foods' current and future plans, expectations and intentions, results, level of activity, performance, goals or achievements, or other future events or developments. As such, please take a moment to read the disclaimer on forward-looking statements on slide two of the presentation. I would now like to turn the meeting over to your host for today's call, Jonathan Ferrari, Good Food Chief Executive Officer. Mr. Ferrari, you may proceed.

Thank you.

Good morning, everyone, and welcome to this call for Good Food Market Corp., in which we'll present our financial results for the fourth quarter and fiscal year ended August 31, 2020. I am pleased to be joined on the call today by Neil Coggey, Good Food's President and Chief Operating Officer, and by Philip Adam, Chief Financial Officer. Our press release reporting fourth quarter results was published earlier this morning. It can be found on our website at makegoodfood.ca and on CDAR. Please be aware that we will refer to certain metrics and non-IFRS measures. Where possible, these measures are identified and reconciled to the most comparable IFRS measures in our MDNA. Finally, let me remind you that all figures expressed on today's call are in Canadian dollars unless otherwise stated. And now turning to slide three, which outlines our key financial highlights for the fourth quarter and fiscal year. Our exceptional results this quarter and year validate Goodfood's long-term business strategy and leading position in the e-commerce grocery and meal solutions markets. During this year and this quarter, we experienced tremendous growth, accomplishments, but also significant business and human challenges. While the second half of fiscal 2020 has been amongst the most difficult periods in our history, it was also the most rewarding. In addition to managing personal and family considerations, our employees worked tremendously hard to keep up with the essential needs of Canadians coast to coast while implementing enhanced safety protocols to keep our workforce and customers safe. To all Good Food employees, I want to say thank you. Our results this year in quarters surpassed our expectations. For the second quarter in a row, we are pleased to report net income and positive EBITDA, in addition to record levels on several key metrics. We are also very proud to report positive EBITDA for the full year, a first in our history and a clear demonstration of our business model strength. First, our annual growth in revenue outpaced our growth in subscribers by a factor of two, as our strategy to expand our product offering and provide larger share of our customers' grocery basket, combined with the new customer behavior trends, translated into larger basket sizes and more frequent orders. As such, our revenue for the year reached $285 million, a 77% increase. Second, our gross margin has continued to increase substantially, hitting 32.8% this quarter, a 6.1 percentage point year-over-year improvement, and 30.3 percent for the fiscal year, a 5.3 percentage point jump compared to last year. A decrease in incentives and credits, improvement in shipping costs driven by our Good Courier initiative, and increased density and automation investments contributed to the gross margin increase. We are very pleased to report our second consecutive quarter of net income and positive EBITDA. This reflects not only growth in revenue and gross margin improvement, but also an efficient operating leverage driven by our scale and higher order rates. We are also immensely proud of having achieved profitability for the full fiscal year on an EBITDA basis, with adjusted EBITDA reaching $4.7 million for the year, a margin of 1.6%. This margin represents an improvement of 11.7 percentage points compared to last year. Overall, our financial performance this quarter has been exceptional, driven by accelerated penetration of online grocery shopping. I will now turn to slide four to provide an e-commerce grocery market update. This year has been marked by a pre-pandemic and a pandemic period. Before the pandemic, the online grocery market was already set to take off, and its penetration amongst Canadian households was forecasted to grow significantly. Online grocery in Canada was expected to surpass the $3 billion mark by 2023, on the back of a 21% compound growth rate. Turning to slide 5, you can see that years of growth were turned into months, and that inflection point of the online grocery industry came much sooner, The online grocery market is now estimated to already be in the $6 to $8 billion range currently and expected to reach approximately the $25 billion mark by 2025, growing at a 56% compound growth rate. This acceleration of growth is driven by a sharp rise in first-time users as 55% of polled Canadians had purchased groceries online by March of this year. We are excited by these growth prospects, and our outstanding customer experience, and operating footprint positions, us uniquely to capitalize on these tailwinds and build leadership in the online grocery industry. Moving to slide six, here you can see the strategy we are executing to build this leadership on the back of robust unit economics. Our strategy is simple. We want to build a large subscriber base and gain market share, and we do that through ensuring a world-class experience for our members by increasing selection and flexibility, as well as investing in automation and density. That allows us to maximize our profitability per subscriber, which in turn allows us to add more subscribers. And so the wheel keeps rolling. This strategy is enabled and supported by very strong unit economics. Our average order value continues to grow sharply this year, with approximately 94% of revenue coming from subscribers with three or more orders. The increases in average order value and gross margin, combined with stable order rates and lower customer acquisition costs since March, equate with an industry-leading marketing payback period of just north of five months. Switching to slide seven for key business highlights. First, we delivered record financial results by responding to Canadian strong and sustained demand as they embraced online grocery shopping in a way that marks a pivotal and permanent shift in consumer shopping habits. As such, we generated record revenues and positive EBITDA for fiscal year and ended the year with a strong $107 million cash balance. Our strong performance throughout the year has been recognized by the capital markets as we have been included in the S&P TSX Small Cap Index and were selected to TSX 30 as a top 30 performing stock on the TSX. Second, in 2020, we have also taken the steps to support our growth trajectory with the leasing or construction of four facilities during the year. This footprint of purpose-built manufacturing and fulfillment centers, along with our new cloud kitchens for prepared meals, now reaches 590,000 square feet from coast to coast. Third, we further improved our members' experience through multiple customer-centric initiatives, including the ramp of Good Courier, which now delivers over half of our orders, and the launch of our mix and match platform, Good Food Flex, and our same-day delivery subscription, Good Food Wow. We also increased our product offering, from approximately 40 SKUs a year ago to approximately 400 SKUs currently. New product launches this quarter include staples such as 2% milk, butter, an increased variety of breads, proteins, snacks and desserts such as olive oil, candy, delicious pies. Finally, we deepened our bond with our community we have taken steps throughout the year to communicate with our ecosystem transparently. We made PP&E available and mandatory to our employees everywhere and provided meals to frontline healthcare workers, among others. On that note, I'll now turn the call over to Philippe to go over our financial performance.