Goodfood Market Corp.

Good morning, ladies and gentlemen. Welcome to the Good Food first quarter of fiscal year 2023 financial results conference call. At this time, all participants are in the listen-only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up. Please note that questions will be taken from financial analysts only. If anyone has any difficulties hearing the conference, please press star zero for assistance at any time. I would like to remind everyone that this conference call is being recorded today, Tuesday, January 17, 2023, at 8 a.m. Eastern Standard 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, Jonathan Ferrari, Good Food Chief Executive Officer. Mr. Ferrari, you may go ahead, sir.

Thank you. Good morning everyone and welcome to this call for Good Food Market Corp. to present our financial results for the first quarter of fiscal 2023, ended December 3rd, 2022. I'm happy to be joined on the call today by Neil Cuggie, Goodfood's President and Chief Operating Officer, and Jonathan Reuter, Chief Financial Officer. Our press release reporting our first 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 MD&A. Finally, let me remind you that all figures expressed on today's call are in Canadian dollars unless otherwise stated. I will now turn to slide three, which reviews Goodfood's recent strategic developments. During the first quarter and in recent weeks, we have taken multiple key steps in our march towards profitability and growing positive cash flows. Through key strategic initiatives, we have made big strides towards achieving that goal. With the improvement in cost structure well underway, our attention will begin to turn towards generating top-line growth underpinned by our improved profitability. We are very pleased with the progress made on our two key pillars of cost structure improvement, which are one, consistent gross margin enhancement, and two, SG&A and footprint streamlining. Together, they have combined a substantial gross margin and adjusted EBITDA improvements this quarter. Zooming in on the two pillars, first, we have reached record gross margin this quarter, standing at 35.5% or 36.9% when adjusted for inventory write-offs related to the discontinuation of on-demand. Gross margin has benefited from the substantial simplification of our operations, and our price adjustments to match recent inflationary pressures. With our most recent price increase having been passed through in early January, we are confident that we have reached a level of pricing and operational labor and sourcing efficiency that will help drive profitability in the coming quarters. The second pillar is our continued SG&A and asset streamlining. This quarter, we have rigorously and consistently cut costs to improve profitability and cash flows. With additional headcount reductions and contract renegotiations, combined with lease exits this quarter and in recent weeks, we reduced our SG&A from $35 million in the first quarter last year to $22 million in the first quarter of this year. While our teams continue to work tremendously hard to reduce our SG&A further and implement efficiencies, we are nearing the cost structure that provides the springboard for adjusted EBITDA profitability as demonstrated by our 14% adjusted EBITDA margin improvement year over year. Looking forward to the remaining quarters of fiscal 2023, having now mostly completed the consolidation of all of our operations into two facilities located in Montreal and Calgary, we expect strength in our gross margin as well as reduced labor and other SG&A expenses and improved cash conversion to materialize throughout 2023. As a result, we are glad to reaffirm expected positive adjusted EBITDA in the second quarter of fiscal 2023. The improvement in profitability can be further amplified by new marketing initiatives we are implementing to spur growth. We have recently launched a series of delicious meals in collaboration with Alouette, a Toronto-based restaurant that was one of the first restaurants in Canada to receive a Michelin star last fall. In the coming weeks, we will also be launching a new VIP customer program, cementing our focus on acquiring and retaining customers with strong order profiles and a partnership with a Montreal-based Canadian athlete as an ambassador of our brand. Together, these initiatives will focus on taking our customer experience to the next level and increasing customer lifetime values while conveying our core purpose through a differentiated meal experience. Overall, we are excited with the consistent progress we have made to return to profitability and the marketing plans we have put in place to take our customer excitement about our core purpose and our meal kit offerings to the next level. On that note, Over to Jonathan Reuter to review our financial performance in detail.

Thank you, Jonathan. And good morning, everyone. I will now turn to slide four, which provides details on our top line performance. Quarterly active customers in the first quarter were 148,000 compared to 254,000 in the same quarter of fiscal 2022 and 157,000 in the previous quarter. with the majority of the sequential quarterly decline stemming from the exit of good food on-demand offerings. Net sales were $47 million for the quarter, a 6% decline compared to last quarter. This quarter, as we continue on executing Project Blue Ocean, our focus on achieving profitable growth in the near term led us to continue focusing on our most profitable customer segments and product lines. As such, during the first quarter, we discontinued our on-demand offerings impacting our active customer count and net sales. We also streamlined our grocery and meal solution product offering, which also had an impact on net sales. Despite that, we are pleased to have kept net sales per active customer stable despite the smaller product offering. With our team's focus now solely on weekly subscription delivery method, returning to top-line growth is a key component of the next steps of our strategy and our initial focus will continue to be on our highest value existing customers. Please now turn to slide five, which looks at our profitability levels. We are pleased to report record gross margins this quarter, reaching 35.5% or 36.9% when adjusted for non-recurring inventory write-offs related to the discontinuation of products sold through our on-demand channel. The 1,160 basis point improvement compared to the same quarter last year underscores the momental effort made by our operations team to simplify our operations and enhance sourcing and fulfillment. Combined with price adjustments and reduced credit incentives, we believe these improvements are structural in nature and provide a strong platform to reach profitability and positive cash flows. The improvement in gross margin was also driven in part by discontinuing our on-demand footprint during the quarter, which also allowed for further reductions in SG&A. These improvements and cost reductions resulted in a $13 million adjusted EBITDA improvement year-over-year, or a 1,380 basis points adjusted EBITDA margin enhancement versus the same quarter last year, demonstrating our commitment to profitability. It is based on this progress that we continue to feel confident that we can achieve positive adjusted EBITDA in the second quarter of fiscal 2023. I will now move to slide six for a view of cash flows and capital expenditures. Cash flows used in operating activities after considering the $2 million spent on reorg and related costs came in at $4 million, a $15 million improvement compared to the same quarter last year. A lower net loss was the main driver of the cash flow improvement. Capital expenditures came in at less than $1 million, relating mainly to payments of completed projects and tech investments. This continues our consistent reduction of capital intensity when compared to last year's first quarter capex of $12 million. We will continue to improve our cash flows from our operations and look to reduce capital expenditures in the coming quarters to drive further cash flow improvements and are now expecting our full-year fiscal 2023 CapEx to be in the $4 to $6 million range versus the previously communicated $5 to $8 million range mentioned last quarter. As outlined on the bottom of the slide, our cash use defined here as the addition of cash flows from operating activities, cash flows from investing activities, and lease payments has decreased from $32 million in the fourth quarter of fiscal 21 to $6 million this quarter, an improvement of $26 million. This positive performance has been the result of growing profitability as well as lower capital investment. As we look forward through fiscal 23, we are expecting continued reduction in our cash use, and based on realized first quarter results and our expected positive adjusted EBITDA in the second quarters, we are approaching positive quarterly cash flows. In addition, in recent weeks, we've continued working with landlords of buildings that are no longer in use and are pleased with the progress we've made in finding mutual satisfactory solutions that are allowing us to terminate our long-term liabilities. These terminations sometimes carry relatively small termination costs well below the value of our lease liabilities, with these costs appearing in cash flow from operations and are viewed as reorganization-related costs. With these efforts, we have reduced annual lease payments by over $6 million. Lastly, we ended the quarter with cash to cash equivalent of $29 million, which we believe provides balance sheet flexibility to execute our cost reduction strategy and return profitable growth and positive cash flows. Turning to slide seven, you'll find a summary of our performance this quarter. Overall, we are encouraged with the progress made on our key focus this quarter, Improving profitability metrics. All profitability indicators have shown marked improvement in the first quarter, demonstrating our unrelenting work to return to positive adjusted EBITDA and cash flows. The record gross margin with the further streamlined S&A have positioned us very well to achieve positive adjusted EBITDA in the second quarter. And so we turn our focus to growing our top line to achieving proper growth in the coming quarters. So on that note, I'll turn it back to Jonathan to write