Goodfood Market Corp.

Good morning, ladies and gentlemen, and welcome to the Good Food Q3 FY 2024 Earnings and Webcast Conference Call. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. As a courtesy to others, we ask that each participant limit themselves to one question and one follow-up. Instructions will be provided at the 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, July 16th at 8 o'clock a.m. Eastern Time. Furthermore, I would like to remind 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. Please be aware that during the call, presenters 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 MDMA. Finally, let me remind you that all figures expressed on today's call are in Canadian dollars, unless otherwise stated. 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 la telle conférence de marché Good Food pour présenter nos résultats financiers du troisième trimestre de l'exercice 2024, clos le 1er juin. Good morning, everyone, and welcome to this call for Good Food Market Corp to present our financial results for the third quarter of fiscal 2024, ended June 1st. I'm joined on the call today by Neil, Good Food's President and Chief Operating Officer, and Ross, Chief Financial Officer. Our press release reporting this quarter's results was published earlier this morning. It can be found on our website and on CIDAR. I will now turn to slide three to review the highlights of this quarter. Our team is pleased with the consistent growth and profitability that was again on display this quarter, which marked our sixth consecutive quarter of positive adjusted EBITDA. The sustained discipline our teams have implemented and maintained enabled adjusted EBITDA to reach a margin of 9.2% this quarter for $3.6 million. In the last 12 months, adjusted EBITDA margin has reached 6% for $9.3 million, which is 4.5 times the $2.1 million LTM adjusted EBITDA generated the same period last year. We are energized by the progress we have made and remain unwavering in our focus on profitability. This level of profitability has in turn driven consistency in our business's cash flow generation with adjusted free cash flow generated in four of the past five quarters and standing at $4.4 million this quarter or $8.7 million year to date. This represents a $12 million improvement compared to the first three quarters of fiscal 2023 and cements our commitment to growing the cash generation ability of our business. Supported by operating and business efficiencies that have driven gross margin consistently around the 40% mark, and SG&A expense reductions that reached $10 million compared to the first three quarters of fiscal 23. Our cash flow generation is poised to continue to grow and help provide further capital allocation flexibility. With this established and growing cash flow generation, we have reduced net leverage, measured as net debt divided by LTM adjusted EBITDA, from 8.2 turns last year to 2.1 turns today. Both by repaying bank debt and increasing profitability, we have meaningfully reduced the risk of our capital structure. With this improvement in leverage, we are giving ourselves the flexibility to invest in Goodfood's next phase of growth as we continue to enhance the economics of our meal kit offering and explore various avenues for growth. We are pleased with our financial performance, profitability, and cash flow generation in the first three quarters of this year, and we're excited to see the momentum created by the customer-centric initiatives our teams have developed and the rave reviews we are receiving from our members. Our teams have rolled out new recipes and partnerships that have created sparks of joy in kitchens coast to coast. More on that later. On that note, Ross will now go over our financial performance in greater detail. Thank you, John, and good morning, everyone.

Turning to slide four, you will see that net sales were $38.6 million for the quarter, a $3.6 million or 8% irreversible decline, and a $1.2 million or 3% sequential decline compared to the second quarter. This was the result of lower customer count as active customers were 105,000 driven by customer acquisition cost discipline, consumer spending softness, in addition to lower customer activity as early seasonality drove lower orders, especially during the month of May. Offsetting customer activity were larger basket sizes from ordering customers, as our net sales per active customer hit a high of $367 on the back of record average order value and growing number of portions purchased per basket. This was driven in part by our new protein customization, which led our members to customize their meals with premium proteins such as fresh salmon or organic chicken, as well as the addition of off-plan recipes like our value meals. As mentioned last quarter, current demand circumstances are challenging, and we expect to return to year-over-year organic growth when the consumer and macro headwinds abate. In the meantime, our focus remains on growing cash flow generation and disciplined unit economics investments. to ensure meaningful operating leverage as we continue working on building growth momentum. We will now turn to slide five to review our profitability levels. As John mentioned, we are pleased to have broad consistency and growth for profitability and have now delivered six consecutive quarters of positive adjusted EBITDA. Building on our operating improvements, gross margin reached a record 44% in the third quarter, a 300 basis points improvement compared to the same quarter last year. On the back of the record gross margin and consistently improving SG&A efficiency, we achieved $3.6 million of adjusted EBITDA this quarter for a margin of 9.2%, a 1.4% improvement year-over-year. This growing level of margin is the result of our internal initiatives aiming to drive the efficiency of our operation and our cost structure. As part of a regular review of processes and the marginal gains we can make, We have improved key operational and production metrics, such as labor proportion and last-mile shipping cost per order. Both metrics have shown an improvement upwards of 10% year-over-year, as we continue to drive a culture of continuous improvement. We also continue to focus on customers with strong unit economics, which also drives gross margin, highlighting our focus on profitable customers is the fact that our gross profit remained relatively flat year over year at around $17 million, while net sales declined 8% in that same period. We have also further increased our use of technology tools and built outsourcing efficiency initiatives that have enabled further growth and profitability through both leveraging software and external resources. Combined with our focus on most profitable products and customers, These structural improvements have driven an LTM-adjusted EBITDA of over $9 million. I will now move to slide 6 for a review of cash flows, capital expenditures, and leverage. Cash flows generated by operating activities were $4.5 million this quarter, a $1.3 million improvement compared to the same quarter last year. As profitability continues to grow and capital expenditures remain low given the relative newness in well-maintained assets, our adjusted free cash flows continue to grow and have now reached $4.5 million this quarter and $8.7 million year-to-date. As we outlined on our previous call, this free cash flow generation is enabling a reduction in debt, which, combined with growing profitability, have broadened our leverage from 8.2 turns in the third quarter last year to 2.1 turns this quarter. The deleveraging and cash flows generated highlight our disciplined approach to cost management and capital allocation and our commitment to long-term shareholder value. Turning to slide seven, you will find a summary of our performance this quarter. On balance, our Q3 results came in line with what we expected and described during our last earnings call. We are pleased with the sustained strength of our financial performance and satisfied with growing profitability on display again this quarter. Satisfy, however, does not mean complacent. While the majority of our financial KPIs, unit economics, and customer feedback metrics continue to show sustained improvement, we continue to strive for growth in both the top line and the bottom line. The positive free cash flow we have generated for the past five quarters and positive adjusted EBITDA in six consecutive quarters demonstrate our commitments and focus on growing profitability and cash. As we look to continue to build on the positive momentum our stable net sales displayed, we and generate growth, we are energized by the flexibility which opens up multiple avenues for growth. During the fourth quarter, we plan on pushing forward on the execution of the customer-centric initiatives John will describe in further detail shortly, and for those initiatives to be in place for our first quarter of fiscal 24, beginning in early September. As a reminder, our fourth quarter consists in large part of the months of June, July, and August, which are seasonal in nature as customers travel and spend more time outside of their homes. Overall, we remain disciplined and keep our focus on profitable growth, which puts us in a strong position to enhance our customers' value proposition every day and to continue delivering growing cash flows and look forward to accelerating that growth in profitability.