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spk00: Welcome to the Freshie Incorporated first quarter 2021 earnings conference call. At this time, all participants are in a listen only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Paul Hughes. Mr. Hughes, you may begin.
spk04: Thank you and welcome to Freshie's first quarter 2021 earnings conference call. Joining me today is Matthew Koren, our founder, chairman, and chief executive officer, and Daniel Haroun, chief financial officer. Please note that remarks in this conference call me certain information regarding our expectations, future plans, and intentions that may constitute forward-looking statements. I would refer you to our most recently filed management discussion and analysis, which includes a summary of the significant assumptions underlying such forward-looking statements and certain risks and factors that could affect our future performance and our ability to deliver on these forward-looking statements. The first quarter 2021 earnings release, the related financial statements, and the management's discussion and analysis are available on CDOT, as well as the investor relations section of Freshie's website at www.freshie.inc. All figures discussed on this conference call are in U.S. dollars, unless otherwise noted. Following our prepared remarks, we will open the line for questions. As we will not be conducting any follow-up calls this morning, we encourage you to use this question period to ask us any questions you might have about our results and our business in general. At this time, I would like to turn the call over to our CEO, Matthew Koren. Thanks, Paul. Good morning, everyone, and thank you for joining us today. In the first quarter of 2021, Freshie made solid progress towards our omnichannel strategy. Let's start with digital sales. In Q1, digital sales made up over 40% of all our North American traditional restaurant sales, a record quarter for our brand, and awesome progress over the last year. We are pleased with how our guests have continued to adopt the upgraded Freshie app with mobile app sales in the quarter up 129% year over year. The personalized Freshie app experience combined with the loyalty program and now the ability to get delivery directly through the Freshie app makes our platform attractive to any digital guest. And we are seeing that with sales trends and an app store rating of 4.6 out of 5 growing each quarter moving to our restaurant network as of the end of q1 2021 freshie had 358 locations open and operating and an additional 43 locations categorized as temporarily closed which dan will speak to in more detail shortly additionally as The pandemic continues to impact the restaurant industry. We continue to open restaurants, including our first location in Whistler Village, which is slated to open later this summer. With the pandemic and insight, we believe we're positioning the company for a strong development pipeline in the medium term, having recently added to our HQ teams, specifically in franchise development and store design and construction. In terms of our store level sales, office tower and mall locations will continue to be challenged until normalized traffic returns in urban core markets. And in our suburban locations, which makes up the largest segment of our restaurant network, we have continued to recover well and are currently performing at approximately 75% of pre-pandemic sales levels. I believe a contributing factor for our suburban sales recovery is the outstanding work of the Freshy menu team. In Q1, Dinner sales made up over 25% of our sales mix, which was a goal we set internally a year ago when we launched our dinner plate platform. We are continuing to focus on both lunch and dinner day parts, and this month we'll be launching Fresh Eat Tacos across North America. Our spin on tacos feature cauliflower-based soft shell tortillas and three protein options, One of the protein options is a shredded and spiced tofu blend called tofrito, as well as chips and hot queso. The hot queso is made with Greek yogurt and is absolutely incredible. A host of other Mexican-inspired sauces and flavors like chipotle chicken, salsa verde, Mexican street corn, and jalapeno are also part of the taco platform. As a note, two of Freshie's top-performing bowls are also Mexican flavor inspired. So we're very excited to bring more of these flavors into our menu offering through tacos. For our CPG division, our consumer packaged goods business continues to expand its points of distribution, in-store brand presence, and its product offering. In Q1, Walmart added new stores and new freshie products. We worked with our big box partner to put our energy bite product into a multi-pack box. Our three flavors of energy bites, which are proving to be a key driver of our CPG lineup, are also now available at over 80 Sobeys locations across Ontario. Through the balance of this year, we plan to launch new flavors of energy bites through additional points of distribution. In Q1, We also continue to upgrade the way our CPG products are displayed on retailer shelves. We've grown our store within a store branding presence, and there are now approximately 100 shell locations in Ontario, Alberta, and British Columbia that feature branded, dedicated, freshy coolers to display our products. We have similar installations at 23 on-route service centers in Ontario, where our presence this summer will also include outdoor highway pile-on signage, letting drivers know that they can get Freshies better for you on-the-go options when they pull in to refuel. Another avenue that our CPG division has also recently begun to develop is in the food service space. For example, we recently partnered with Sodexo to create branded Freshie CPG coolers at a number of hospital sites. bringing the fresh experience to locations that require a lighter footprint than a full restaurant build. Moving now to the third division of our omnichannel business, which we are classifying as direct-to-consumer division. Last quarter, we shared the launch of our apple cider vinegar gummies, or ACV gummies, in-store. Now, guests can order our ACV gummies inside the location on the Freshie app and through our new direct-to-consumer e-commerce platform. We are encouraged by early KPIs on this first launch, and you should expect more direct-to-consumer wellness products to launch and integrate through our omnichannel network in coming quarters. Our omnichannel strategy is taking shape. And before I pass the call off to Dan, I'll just highlight that even as we've invested in system profitability programs through this traffic challenge period, ongoing system improvements, menu innovation, and our omni-channel business line expansion, we have continued to maintain the strength of our balance sheet. With over $31.2 million USD on hand as of the end of Q1, The company remains in a position to accelerate our business as traffic returns to our restaurants. Finally, I'd like to thank all of our dedicated franchise partners and HQ team members for their hard work and commitment over the last quarter. It's all of you that will help ensure that we come out of this pandemic stronger than ever, and I'm incredibly proud to work alongside of you every day. I will now turn the call over to Dan, our CFO, for some additional remarks. Thanks, Matthew, and good morning, everyone. I'll provide a financial update on the quarter, drawing comparisons to Q1 of 2020 and also versus Q4 of 2020, which is a much more comparable quarter given the impact of the pandemic in our major markets. For the first quarter, system-wide sales were 23.3 million, which represents a decrease of 37% versus Q1 of 2020. with same-store sales down 18.5% versus Q1 of 2020, which, as a reminder, had approximately three weeks of significant impact as a result of the onset of the pandemic across our major markets. A clearer comparison is versus Q4 of 2020. With Q1 2021 system-wide sales, we're down approximately 1% versus Q4 of 2020, as significant government restrictions continued, resulting in a reduction of recreation and retail mobility in Canada, according to Google data. While mobility across Canada, our largest market, declined in Q1 2021 versus Q4 2020, we were encouraged that our same-store sales did not decline by the same extent in Q1 2021 versus Q4 2020. We believe our progress across our new fresh digital platform was a significant factor in partly offsetting this decline in mobility as sales on the platform were up 129% compared to Q1 2020. We remain optimistic that we will see traffic improve once government restrictions are expected to ease in the second half of 2021. I'd like to spend some time on our restaurant network and provide an update on our portfolio. We entered 2021 with 334 locations open and operating and 77 locations temporarily closed for a total of 411 locations. We opened seven net new locations in the quarter and had 17 closures for a net production and store count of 10 sites. Breaking down the 17 closures further, only two of those locations were open and operating at the end of Q4 2020 And then we worked with our franchise partners to exit 15 of the previously temporarily closed locations, which were not open and operating and recording revenue during the first quarter. We were encouraged that of the 334 locations that were open and operating at year end, we only had two of those sites closed despite a very challenging quarter of government restrictions, especially in our major Canadian markets. We do end Q1 with 43 temporarily closed locations, largely consisting of strong Canadian urban office locations, locations outside of North America, and strong non-trad North American locations, such as airports and universities. We will continue to work with our partners on a site-by-site basis to evaluate these locations for reopening planning and remain optimistic the majority of these locations will reopen once traffic returns. I'll now touch on some of the key highlights from our income statement in the quarter and we'll compare to Q4 of 2020, which is a more comparable quarter as previously mentioned. Our Q1 revenues were $2.9 million, down $0.1 million, or 3%, versus Q4 of 2020. SG&A for the quarter was $3 million, which, other than certain one-time costs, represents a decrease of $0.2 million versus Q4, as we continue to be very disciplined about cost control, even as we reinvested back into the business through a number of initiatives to support our small business franchise partners, as we have done throughout the pandemic. The company continued to benefit from Canadian government wage subsidy initiatives in Q1, which are recorded as a reduction to SG&A. In terms of profitability, we continue to be focused on the long-term health of our business, and positioning our company and our franchise partners to emerge from this period on stronger footing than we entered it. As a result, our focus is not solely on maximizing short-term profitability, but rather includes making sound investments to accelerate our recovery and be in the strongest possible position to meet our guests' needs as traffic recovers. In the first quarter, we reported negative adjusted EBITDA of 0.4 million, which was flat to Q4 of 2020. We also reported negative free cash flow of 0.4 million for Q1 and improvement of 0.1 million versus Q4 of 2020. As we have consistently discussed, we will continue to make smart, sound investments back into the system for the long term, while being focused on cost control to fund these investments wherever possible. On that note, we were pleased that we maintained our cash position of approximately 31 million USD at the end of the first quarter, largely in line with where we were when the pandemic began to impact our industry in North America in March of 2020. As Matthew mentioned, we believe the progress we are making against our omnichannel strategy will position us on strong footing for the expected recovery in the second half of 2021 and over the long term. At this time, we'd now like to pass the call back to our operator to take any questions you have.
spk00: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question is from Luke Hanan with Canaccord Genuity. Please proceed with your question.
spk02: Thanks. Good morning. My first question is just on the cadence of sales throughout the quarter. I imagine it was probably a bit more restricted and muted in January and February, sort of during the peak of lockdowns. But I would imagine it sort of improved throughout the quarter, maybe in regions where there were less lockdowns. Can you just give a little bit more color on what that looked like?
spk04: Sure, Luke. I think it's a good question. It really does depend on the store type and the jurisdiction across our major markets. I would say for the most part, January was quite soft as some of our major markets entered a pretty strict lockdown. We did see some improvement more in some of our suburb locations as the quarter progressed. And then, as you know, the majority of our provinces in Canada are now in stricter lockdowns. restrictions into the second quarter. And so obviously that's something that we're working closely with our franchise partners on.
spk02: Got it. And then in those regions where maybe restrictions aren't as prevalent as maybe they were previously where, you know, these restrictions or things are maybe a little bit more open now, what are you seeing? And specifically, obviously traffic I would imagine would be a bit better. Are you seeing any different behavior from the customer in terms of check size or frequency of visits, anything relating to that?
spk04: I would say we definitely see traffic run in line with mobility. And as we started to look at that data closer, we see quite a correlation there. And so obviously when there's a market that has restrictions move, many provinces and states have different tiers and frameworks for restrictions. But as restrictions start to pare back, we do see traffic improvement. I would say that the constant that we continue to see, and it's really the strength of the digital platform, is an increase in average check. And as we continue to see more and more guests interact with us from a digital nature, we see more items in the order, more add-ons to the entrees. And we're optimistic that that strength in check will carry through post-pandemic versus, say, 2019 levels. And that's another reason why the app is such an important catalyst for growth for us.
spk02: Got it. Switching gears here, if we think about the 25% dinner penetration How do you view that, I guess? Is that sort of where you expect that day part to be over time, just as a percentage of the overall sales? Or do you see headroom, actually? Do you see maybe a bit more runway to be able to expand that? And if you do, I guess, see runway to expand that, what would be sort of the key drivers there? Would it be menu innovation? Would it just be greater awareness? What would be some of the elements that you would consider there?
spk04: In terms of the level of sales in the dinner day part, it's a level that we're really pleased with. For the long period of time, the brand has wanted to build steps into the second day part, and we firmly believe that the dinner is the best day part for that, especially because many of our customers were already... enjoying the current menu offering at dinner without us necessarily going to actively innovate and market towards that day part. And plates in Canada was the first step in us really starting to take a step into dinner. And I think we'll continue to innovate across products that can be enjoyed both at the lunch and dinner day part. We do see that dinner is a little bit more of a delivery-focused day part, and we do expect some of that trend to continue, maybe not to the same extent as it has been in the pandemic. But again, coming back to Matthew's prepared comments of having in-app delivery functionality, we really think helps position us to grow further in the dinner day part. At this point in time, we're actively planning for future innovation that can do well at the dinner day part, but also serve our Monday to Friday office lunch customer as well. So we're pretty optimistic about the dinner day part, but absolutely not taking our eye off lunch.
spk02: Got it. Last one for me, and then I'll pass the line. I think one of the things that you had called out in the press release was the success of the Freshie Juice Cleanse that you guys would have done as part of your sort of New Year's resolution program. How do you, I guess, build on that? Are there other similar types of events or periods throughout the year where maybe you can introduce similar types of offerings or even the juice cleanse? Like, how do you see expanding on that theme, I guess, going forward?
spk04: Yeah, it's a great question. Our marketing team did a fabulous job in bringing to life a really relevant product when more and more people are at home and planning these types of activities. And we saw really good results in that early January period. And it's definitely going to be a product that we think we can bring back to customers at moments in time and not just wait for that annual New Year's resolution period. And so definitely more to come there.
spk02: Okay. That's it for me. Thanks.
spk00: Thank you. As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad at this time. Ladies and gentlemen, we have reached the end of the question and answer session. I will now turn the call over to Matthew Horne for closing remarks.
spk03: Thanks, Alex, for moderating this morning, and thanks for everybody joining us. And we will look forward to updating you again next quarter. Have a great day.
spk00: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation. Have a great day.
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