Goodfood Market Corp.

Good morning, ladies and gentlemen, and welcome to the Good Food Q4 2023 Earnings Conference Call and Webcast. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. As courtesy to others, we ask that each participant limit themselves to one question and 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 22nd at 8 a.m. Eastern Time. Furthermore, I would like to remind you that today's presentation may contain forward-looking statements about GoodFeed's 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. Bonjour à tous et bienvenue à l'appel conférence de marché Good Food pour présenter nos résultats financiers du quatrième trimestre de l'exercice 2023, clos le 2 septembre. Good morning everyone and welcome to this call for Good Food Market Corp. to present our financial results for the fourth quarter of fiscal 2023, ended September 2nd. I'm joined on the call today by Neil Cuggy, Good Food's President and Chief Operating Officer, and Ross Aouameur, Chief Financial Officer. A press release reporting this quarter's 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. I will now turn to slide three to review the highlights of this quarter and year. We are pleased to continue building on our profitability momentum by delivering a third consecutive quarter of positive EBITDA and record EBITDA for the full fiscal year. This performance demonstrates our commitment to build on our improved financial performance to generate growing profitability and cash flows. In the fourth quarter, we delivered positive adjusted EBITDA of $1 million a margin of 2% during our seasonally weakest quarter. Operational efficiencies we have worked to gain in addition to continuous pricing optimizations drove robust gross margins with gross profit stable year over year on a lower net sales basis. Combined with unwavering SG&A discipline, the improved gross margin has led to strong EBITDA performance. For fiscal 2023, We are also pleased to report our largest ever positive adjusted EBITDA performance of $5 million, or a margin of 3%, compared to an EBITDA loss of $41 million, or negative margin of 15% last year. This successful turnaround and record performance stems from the operational efficiency gains, as well as our focus on consistently improving our unit economics over time through enhancements to our customer value proposition. On the SG&A side, we have reduced annual non-marketing SG&A by $34 million this year, enabling a cost structure that can consistently drive growth in our profitability metrics. Our marketing efficiency initiatives have also begun bearing fruit as our customer acquisition cost has decreased by double-digit percentage points compared to the same period last year and to the early quarters of this fiscal year. The efficiencies our team have been laser focused on achieving are key to Goodfood's profitable growth. Both in recent months and into the future, we continue to build on the momentum we've created by consistently strengthening our customer value proposition to increase the stickiness of our customer base and unlock new TAM. We have increased and continue to increase our assortment of delicious recipes. We are investing in the user experience on our digital platforms. while doubling down on sustainability and building inspiring partnerships with good food brand ambassadors and brand partners. More on that later. Overall, we are lean, mean, and disciplined, which puts us in a strong position to continue delivering EBITDA growth and look forward to accelerating that growth in profitability. On that note, Ross will now provide additional details on our financial performance. Over to you, Ross.

Thank you, John, and good morning, everyone. I will now turn to slide four, which provides details on our top line performance. Quarterly active customers during the fourth quarter were 116,000 compared to 157,000 in the same quarter of fiscal 22 and 119,000 in the previous quarter this year. with the majority of the sequential quarterly decline stemming from seasonality. The relatively mild decline in the context of the seasonally impacted quarter is the result of successful re-engagement campaigns that have driven a broader set of customers to place orders. Net sales were $37 million for the quarter, a $5 billion sequential decrease compared to the third quarter. This figure was the result, again, of the seasonally lower order rate and customer base, offset by larger baskets containing more recipes and add-ons. Net sales per active customer were roughly in line year over year and declined sequentially, driven by the lower order rate typical for the summer months. We will now turn to slide five, which looks at our profitability level. We are pleased to now have delivered three consecutive quarters of positive adjusted EBITDA. On the back of continuous improvement in gross margin, which reached 38% in the fourth quarter, and 990 basis points improvement compared to the same quarter last year, we achieved $1 million of adjusted EBITDA this quarter for a margin of nearly 2%, a 6% improvement year over year. This level of profitability in the fourth quarter underscores the efforts made by our teams to simplify and enhance the efficiency of our operations. Combined with pricing optimization and a focus on our most profitable products and customers, these improvements have now shown to be structural in nature and provide a solid platform to sustain growing profitability, as evidenced by the gross profit in dollars remaining again stable year-over-year on the overnight sales basis. The increased gross margin combined with the implemented G&A savings provide the lean cost structure enabling to maintain consistent EBITDA profitability, even in seasonal quarters like this one, or in quarters with increased marketing activity, as is the case in the current first quarter. I will now move to slide six for a review of cash flows and capital expenditures. Cash flows used by operating activities were $2 million, an $11 million improvement compared to the same quarter last year. The reversal from positive CFO in the third quarter of this year to negative CFO this quarter is driven by the nature of our working capital as we pay invoices stemming from the higher volume third quarter and the lower volume fourth quarter. Still, the substantial improvement compared to last year is mainly the result of improved profitability. Capital expenditures came in again at less than a quarter million dollars, relating mainly to capitalized labor of tech investments and payments of minor maintenance work. This continues our consistent reduction of capital intensity when compared to last year's fourth quarter capex of five million dollars. As a measure of our cash generation ability, we introduced this year a metric that combines our cash flow from operations and capital expenditure. That metric is free cash flow. As you can see here, when adjusting for restructuring-related outflows, we used $1 million of free cash flow in the seasonal fourth quarter, an $11 million improvement compared to last year. This performance has been the result of growing profitability as well as lower capital investments and underscores our disciplined approach to cost management and capital allocation, and our commitment to delivering long-term shareholder value through substantial free cash flow generation. Turning to slide 7, you will find a summary of our performance this quarter and fiscal year. Overall, as John mentioned, we are energized with the results of our team's hard work, which has driven record gross margin and adjusted EBITDA this year. Both on an annual and quarterly basis, profitability indicators have displayed the material improvement and consistent strength year over year, demonstrating our unwavering commitment to profitability and cash flow. Focusing on this fiscal year, we are very pleased to report our largest ever annual adjusted EBITDA, standing at nearly $5 million and a margin of 3%. This strong performance is underpinned by a structurally strong gross margin, which also hit an annual record of 39%. These levels of profitability have translated into an $87 million improvement in adjusted free cash flows, well on our way to consistently generating and growing positive free cash flows. This year's financial performance provides the ideal launchpad for a plan to generate profitable growth for years to come and generate significant shareholder value.