Mr. Jonathan Ferrari reports

GOODFOOD REPORTS FOURTH QUARTER AND FISCAL YEAR 2023 RESULTS WITH RECORD ANNUAL GROSS MARGIN AND ADJUSTED EBITDA DRIVING SIGNIFICANT IMPROVEMENT TO CASH FLOWS FROM OPERATIONS

Goodfood Market Corp. has released financial results for the fourth quarter and fiscal 2023, ended Sept. 2, 2023.

"We are pleased to have demonstrated our ability to generate consistent adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] profitability during fiscal 2023. On the back of operational improvements and continuous pricing optimization, our gross margin reached 38.2 per cent in the fourth quarter and a record 38.8 per cent annually, enabling a record annual adjusted EBITDA of $5-million and much improved cash flows," said Jonathan Ferrari, chief executive officer of Goodfood. "We are especially proud of our lean cost structure that, even in the face of seasonal fluctuations during the summer months, helped deliver positive adjusted EBITDA margin this quarter, a testament to our team's discipline and efforts," added Mr. Ferrari.

"As we look to fiscal 2024, we are energized to have concluded our third consecutive quarter with positive adjusted EBITDA and showing significant improvements to cash flows, underscoring the resilience and profit-generating ability of Goodfood. We are now focused on profitable growth initiatives centred around continuously reinforcing and growing our customer value proposition by increasing the size and relevance of our meal kit assortment and investing in digital product enhancements to help customers more easily find what they are looking for on our menu and add-ons selection. Through these growth initiatives, further unit economics improvements and cost structure enhancements, we are well positioned to continue growing cash flows and to deliver significant shareholder value," concluded Mr. Ferrari.

Results of operations fourth quarter of fiscal 2023 and 2022

The attached table sets forth the components of the company's consolidated statement of loss and comprehensive loss.

Variance analysis for the fourth quarter of 2023 compared with fourth quarter of 2022:

• The decrease in net sales is mainly driven by a decrease in the number of active customers partially offset by an increase in average order value as a result of larger basket sizes and sales price adjustments. The decrease in active customers is mainly driven by the company's focus on attracting and retaining customers that provide higher gross margins and by changing customer behaviours.
• Gross profit remained flat compared with the same quarter last year primarily due to improved food, production and shipping costs as a percentage of net sales driven by improved efficiencies as well as sales price adjustments offset by a reduction in net sales.
• The decrease in selling, general and administrative expenses is primarily due to lower wages and salaries and marketing spend driven primarily as a result of the company's Blue Ocean initiatives. Selling, general and administrative expenses as a percentage of net sales decreased from 37.4 per cent to 37.1 per cent.
• The decrease in depreciation and amortization expense is mainly due to the reduction in fixed assets and right-of-use assets in relation to Blue Ocean initiatives.
• The decrease in reorganization and other related costs mainly consist of lower external adviser fees and lower head count reduction costs as the company completed its Blue Ocean initiatives in the fourth quarter of fiscal 2023.
• The decrease in net finance costs is mainly due to lower interest expense on debt and lease obligations due to a lower debt balance and lower lease obligations in relation to Blue Ocean initiatives partially offset by higher interest expense on the debentures as the company issued convertible debenture in February, 2023.
• Despite the decrease in net sales compared with same quarter last year, net loss has decreased significantly mainly due to the fiscal 2022 impairment of non-financial assets, lower food, production and shipping costs, as well as lower wages and salaries and marketing spend in selling, general and administrative expenses.

Results of operations -- fiscal 2023 and 2022

The attached table sets forth the components of the company's consolidated statement of loss and comprehensive loss.

Variance analysis for fiscal 2023 compared with fiscal 2022:

• The decrease in net sales is primarily driven by a decrease in the number of active customers, the company's decision to discontinue its on-demand offering partially offset by an increase in average order value due to sales price adjustments and focus on meal kit offerings. The decrease in active customers is mainly driven by the company's focus on attracting and retaining customers that provide higher gross margins, also by changing customer behaviours.
• The decrease in gross profit primarily resulted from a decrease in net sales partially offset by lower production costs and food costs as a percentage of net sales costs driven by improved efficiencies.
• The decrease in selling, general and administrative expenses is primarily due to lower wages and salaries and marketing spend driven primarily by the company's Blue Ocean initiatives. Selling, general and administrative expenses as a percentage of net sales decreased from 43.2 per cent to 39.1 per cent.
• The decrease in depreciation and amortization expense is mainly due to the reduction in fixed assets and right-of-use assets in relation to Blue Ocean initiatives.
• Reorganization and other related (gains) costs in fiscal 2023 mainly consist of gains on termination of leases partially offset by loss on disposal of non-financial assets and head count reduction costs while fiscal 2022 costs mainly consist of external advisers relating to the company's reorganization plan.
• The increase in net finance costs is mainly due to the company's $30-million convertible debentures issued in February, 2023, partially offset by lower interest expense on lease obligations in relation to Blue Ocean initiatives.
• Although net sales have decreased compared with same period last year, net loss has decreased significantly mainly due to the reduction in selling, general and administrative expenses driven by cost reduction initiatives as well as improved gross margin driven by improved operational efficiencies. In addition, net loss has decreased due to the significant reduction in impairment of non-financial assets.

EBITDA, adjusted EBITDA and adjusted EBITDA margin

For the 13 weeks ended Sept. 2, 2023, adjusted EBITDA margin improved by 5.7 percentage points compared with the corresponding period in 2022 mainly driven by stronger adjusted gross margin and lower selling, general and administrative expenses due to a lower salary base and other cost reduction initiatives. The improved adjusted EBITDA margin was partly offset by a lower net sales base.

For the 52 weeks ended Sept. 2, 2023, adjusted EBITDA margin improved by 18 percentage points compared with the corresponding period in 2022 mainly driven by stronger adjusted gross margin and lower selling, general and administrative expenses mainly due to a lower salary base and other cost reduction initiatives. The improved adjusted EBITDA margin was partly offset by a lower net sales base.

Free cash flow and adjusted free cash flow

For the 13 weeks ended Sept. 2, 2023, adjusted free cash flow improved by $10.5-million compared with the corresponding period in 2022 mainly driven by lower net loss resulting primarily from lower salary base and other cost reduction initiatives as well as lower investments in capital expenditures as new facility rollouts were concluded in fiscal 2022, and fiscal 2023 was focused on maintenance and technology projects.

For the 52 weeks ended Sept. 2, 2023, adjusted free cash flow improved by $86.6-million compared with the corresponding period in 2022 mainly driven by lower net loss resulting primarily from lower salary base and other cost reduction initiatives, lower investments in capital expenditures as new facility rollouts were concluded in fiscal 2022, and fiscal 2023 was focused on maintenance and technology projects.

Financial outlook

Goodfood's core purpose is to create experiences that spark joy and help its community live longer on a healthier planet. As a food brand with a strong following from Canadians coast to coast, it is focused on growing the Goodfood brand through its meal solutions, including meal kits and prepared meals, with a range of exciting Goodfood branded add-ons to be explored and complete a unique food experience for customers.

The on-line meal solutions market continues to grow rapidly and meal kits are now estimated to have reached approximately $1.4-billion (U.S.) in size in Canada as part of the $123-billion Canadian grocery industry, with a penetration of only 4.8 per cent of households (see annual information form for details). Goodfood believes there is substantial runway for additional penetration of meal kits into Canadian households, as evidenced by industry research estimating the Canadian meal kit market to grow at a 16 per cent compound annual growth rate between 2023 and 2027, to reach a market size of $2.5-billion (U.S.). Goodfood believes that consumers' willingness to simplify their weekly meal planning combined with their desire for joyful, exciting and nourishing food experiences at home while reducing food waste provides for significant room to increase on-line food delivery penetration.

Before scaling the company's efforts to capture an outsized share of the meal solutions market, Goodfood's focus has been and continues to be on further improving and growing cash flows. The company is pleased to have now reported three consecutive quarters and a first full year of positive adjusted EBITDA and have driven an adjusted free cash flow improvement of $87-million this year in addition to turning in positive adjusted free cash flows in the third quarter to the tune of $4-million. Having improved adjusted EBITDA and adjusted free cash flows on the back of lower net sales highlights the cost discipline the company has shown in improving its operational efficiency and selling, general and administrative expense reductions. This improvement positions Goodfood ideally to turn its focus to growth and to finance this growth with internally generated cash flows.

During fiscal 2024, Goodfood will focus on key growth pillars to drive growth in top line and, most importantly, in profitability and cash flows: 1) customer growth; 2) order frequency increase; 3) basket size enhancement; and 4) continue to enhance its sustainability practices.

To grow its customer base, the first step is building customer acquisition cost-efficiencies to enable adding more customers to the Goodfood platform every week with the same investment. In recent months, the company has completed a thorough review of and made significant adjustments to its acquisition channels. It has also made and continues to make investments in its digital product to elevate the customer experience by reducing friction and enhancing ease of use. Combined with reactivations of previous Goodfood members, these initiatives have reduced the company's customer acquisition costs substantially in the fourth quarter and improved the profitability and unit economics of customers as evidenced by the consistently increasing sales generating ability and profitability of its customers.

A key driver that can enhance order frequency is product variety. In addition to launching its VIP program, which rewards high-frequency customers, Goodfood has increased the diversity of its recipe and ingredient offering to provide additional choices to enhance order rate. With a focus on better-for-you products like organic chicken breasts, organic lean ground beef, bison, sustainably raised steelhead trout, and paleo and keto meals, combined with exciting partnerships with first-rate restaurants, the company plans on offering a growing and mouth-watering selection to customers to drive consistently increasing order frequency.

The dollar value of the baskets the company's customers are building is also increasing and Goodfood is building a differentiated set of meal kits, ready-to-eat meals and grocery add-ons to provide Canadians with an exciting on-line meal solutions option and increasingly capture a larger share of their food wallet. In addition, the company has provided and continues to provide more choice of proteins to its customers, with the launch of upsells and coming launch of customization within its meal kit recipes allowing customers to swap or double the proteins included in their chosen recipes. With these initiatives, the company aims to provide customers with an array of options to easily make their meals better and their baskets bigger.

Goodfood is also continuously looking to enhance its sustainability initiatives by prioritizing planet-friendly options. Not only does it offer perfectly portioned ingredients that save from food waste, it is also constantly look to simplify its supply chain by removing middlemen from farm to kitchen table. This year, Goodfood is also offsetting carbon emissions on deliveries and introducing packaging innovations that have helped it to remove the equivalent of 2.4 million plastic bags annually from its deliveries. The company's goal is clear: build a business that helps its customers live healthier lives on a healthier planet.

In addition to focusing on these key pillars of top-line growth, the company is currently testing the potential for multichannel partnerships that can broaden Goodfood's customer reach and resilience.

With the steps it has taken, Goodfood's strategic execution to drive profitability and cash flows continues to bear fruit, underpinned by consistent improvement in adjusted EBITDA and cash flows. Coupled with its unrelenting focus on nurturing its customer relationships, profitable growth remains the company's top priority. The Goodfood team is fully focused on building and growing Canada's most loved millennial food brand.

Trends and seasonality

The company's net sales and expenses are impacted by seasonality. During the winter holiday season and the summer season, the company anticipates net sales to be lower as a higher proportion of customers elect to skip their delivery. The company generally anticipates the number of active customers to be lower during these periods. During periods with warmer weather, the company anticipates packaging costs to be higher due to the additional packaging required to maintain food freshness and quality. The company also anticipates food costs to be positively affected due to improved availability during periods with warmer weather.

Conference call

Goodfood will hold a conference call to discuss these results on Nov. 22, 2023, at 8 a.m. Eastern Time. Interested parties can join the call by dialling 1-416-764-8658 (Toronto or overseas) or 1-888-886-7786 (elsewhere in North America).

Parties unable to call in at this time may access a recording by calling 1-877-674-7070 and entering the playback passcode 955532 followed by the pound key. This recording will be available until Nov. 29, 2023.

A full version of the company's management's discussion and analysis (MD&A) and consolidated financial statements for the fourth quarters ended Sept. 2, 2023, and Sept. 3, 2022, will be posted on SEDAR+ later today.

About Goodfood Market Corp.

Goodfood is a leading digitally native meal solutions brand in Canada, delivering fresh meals and add-ons that make it easy for customers from across Canada to enjoy delicious meals at home every day. The Goodfood team is building Canada's most loved millennial food brand, with the mission to create experiences that spark joy and help the company's community live longer on a healthier planet. Goodfood customers have access to uniquely fresh and delicious products, as well as exclusive pricing, made possible by its world-class culinary team and direct-to-consumer infrastructures and technology. Goodfood is passionate about connecting its partner farms and suppliers to its customers' kitchens while eliminating food waste and costly retail overhead. The company's administrative offices are based in Montreal, Que., with production facilities located in the provinces of Quebec and Alberta.

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