Goodfood Market Corp. (FOOD) Earnings Call Transcript & Summary

My name is Neil Cuggy, and I move that the special resolution authorizing an amendment to the company's certificate of incorporation in order to create an authorized class of an unlimited number of preferred shares issuable in series, with the rights and restrictions of each series to be determined by the directors of the company, the whole is set forth in Annex D of the management proxy circular be hereby approved.

My name is Jonathan Roiter, and I second the motion.

I now invite you to vote on the resolution. [Voting]

Since we have covered all of the topics on the meeting agenda, we will now pause for 1 minute in order to allow registered shareholders and proxy holders to vote if they have not already done so. I remind you that if you have already voted by proxy, it is not necessary to vote again. [Voting]

The voting period is now closed for all of the topics on the meeting agenda. [Foreign Language] As we have completed the business of the meeting, I will now ask for a motion to close the formal portion of the meeting before proceeding to the management presentation and then a question-and-answer period.

My name is Neil Cuggy, and I move that the meeting be closed.

And my name is Jonathan Roiter, and I second the motion.

I now declare the meeting terminated. We will now move to Slide 9 for our management presentation. In recent months, we have spent significant time thinking of the essence of Goodfood, our reason of being. Thinking back to our purpose and the problem Goodfood is looking to solve, we recentered ourselves around Goodfood's core purpose. Our mission is to spark joy by making cooking and eating a fun, exciting and enjoyable experience to help Canadians live longer by achieving a balanced and healthy diet and to enable our community to enjoy a healthier planet by offering planet conscious products that are sourced, packaged and delivered sustainably. As we continue to execute towards that ambitious purpose, we will look forward to a laser focus on our meal-kit experience and align our teams towards building Canada's most loved digital first food brand. We will now move to Slide 10 to review our recent strategic developments. During fiscal 2022 and the first quarter of fiscal '23, we have taken multiple key steps in our march towards profitability and growing positive cash flows. We are very pleased with the progress made on our 2 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 improvement over the year and this quarter. Zooming in on the 2 pillars. First, we have reached record gross margin in the first quarter, standing at 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. The second pillar is our continued SG&A and asset streamlining. This year and quarter, we have rigorously cut costs to improve profitability and cash flows. With additional headcount streamlining 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 of fiscal 2022 to $22 million in the first quarter of fiscal 2023. While our teams continue to work tremendously hard to reduce our SG&A further and consistently 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 in the first quarter of fiscal 2023. Looking forward to the remaining quarters of this year, having now completed the consolidation of our -- of all of our operations into 2 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. 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 Aloette, 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 as well as a partnership with a Montreal-based Canadian athlete as a brand ambassador. We will now move to Slide 11 to review our outlook for the year. Our near-term outlook continues to be dictated by 4 key drivers. First, the turbulence we experienced last year has led us to recenter ourselves around Goodfood's core purpose, as previously described. We have recentered our purpose around our joy sparking meal kits and have elevated our customer experience with recent initiatives. We are bringing our customer experience to the next level and look forward to generating growth with the aforementioned initiatives. Moreover, with our cost structure and gross margin now significantly improved, we believe we have achieved and we'll continue to achieve the improvement in unit economics, enabling us to scale up our growth initiatives further. Second, the cost structure initiatives we have completed and continue to execute on are expected to generate EBITDA profitability in the near term and drive positive cash flows. As we discussed, we have already seen great improvements in gross margin, reaching record levels and have improved our adjusted EBITDA margin by nearly 14 points year-over-year. We continue to face operating and market challenges, but our progress in reaching profitability, positive cash flows continues. Third, our balance sheet has been our key focus this past quarter. Following the previously announced tolerance entered into with our lenders, we are thrilled to have reached an updated credit facility that is adapted to our current needs. We appreciate the support of our banking partners as we continue to right size our cost structure to our current business model and scale. Beyond our credit facilities, we announced last quarter that our plan is to operate our business out of 2 main facilities in Montreal and Calgary. As such, we have exited the majority of our leased facilities and are actively looking to exit remaining leases and renegotiate commitments that would help simplify our balance sheet and further improve cash flows. Finally, we expect all our team's hard work and these initiatives to lead to continued improvement in financial performance in the upcoming quarters of fiscal 2023. We are pleased to confirm our expectation of positive adjusted EBITDA in the second quarter. And with these results, we are confident that we can expect to generate profitable growth and positive cash flows in the very near term. I will now turn it over to Jonathan Roiter, and we will move to Slide 13 to review our financial performance.

Thank you, Jonathan. Overall, Goodfood has seen its fair share of challenges this year. From consumer behaviors moving away from e-commerce purchases, a behavior that we believe is temporary in nature to challenging operating and capital market conditions on the back of macroeconomic forces not seen in over 40 years. We have faced headwinds that have made fiscal 2022 Goodfood's most difficult year since its inception. In the face of these challenges, we have not stood still. We have embarked on Project Blue Ocean to improve our cost structure and footprint and have had made the difficult decisions required to achieve the #1 -- our #1 goal, establishing profitable growth. The tough conditions faced this year led our team to step up and make significant progress to consistently improve the operating and financial performance of the company quarter after quarter. Through the series of operational and strategic initiatives implemented for the most part this year, our gross margin improved from 23% in the fourth quarter of last year to over 30% on an adjusted basis in the fourth quarter of this year and over 35% in the first quarter of fiscal 2023, while our adjusted EBITDA loss was improved from $18 million in the Q4 of fiscal '21 to $2 million this Q4 and Q1 of fiscal '23. We will now shift to Slide 14 to review our adjusted EBITDA margin goals. The growth of positive and growing adjusted EBITDA is well underway. With further cost structure enhancements and operating leverage through top line growth, our goal of reaching 10% to 15% adjusted EBITDA margin remains intact. By focusing our meal-kit offering with add-ons to spur bigger baskets, gain the economies of scales that growth can provide, we plan on maintaining our current gross margin levels. Combined with the rightsizing of our SG&A, the current level of gross margin provides a clear path to adjusted EBITDA margin in the double digits in the medium to long term. This concludes management's presentation, and we can now move to Slide 17 for Q&A.

We are now opening the question period. I would like to remind you that only shareholders and proxy holders are entitled to ask questions and that the instructions for asking a question appear on your screen. We will take a short break to allow you to ask your questions, if any, by following the instructions on your screen. As there are no further questions, we will now end the meeting. Thank you very much for your attendance today. [Foreign Language]

Ladies and gentlemen, as the meeting is now concluded, you may now disconnect. [Foreign Language]