Mr. Jonathan Ferrari reports

GOODFOOD REPORTS SECOND QUARTER RESULTS INCLUDING $40 MILLION OF NET SALES, $1.4 MILLION OF NET INCOME AND $3.5 MILLION OF ADJUSTED EBITDA1

Goodfood Market Corp. has released its financial results for the second quarter of fiscal 2024, ended March 2, 2024.

"The first half for fiscal 2024 showcased the efficient operating foundations we have laid, enabling adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] to grow and reach a total of $9-million over the last 12 months. These results have driven two key vectors of value creation: cash flow generation and deleveraging. This quarter marks the second quarter in a row with positive adjusted free cash flow and our last 12 months have delivered adjusted free cash flow of more than $7-million. In the past nine months, we have also reduced our total net debt to adjusted EBITDA ratio nearly 70 per cent from eight times nine months ago to a little over two times now. Combined, the cash flow generation and improved leverage help better position Goodfood to manage its capital structure and consider various capital allocation options as we strive to generate growth and enhance shareholder value," said Jonathan Ferrari, chief executive officer of Goodfood.

"As we look forward to the second half of this fiscal year and beyond, we are encouraged by the results our growth strategy is beginning to yield. Sales were stable quarter-over-quarter and the 5-per-cent year-over-year decline is the most stable performance achieved since the fourth quarter of fiscal 2021, despite a challenging macroeconomic backdrop and soft consumer spending. We continue to work to enhance our customer value proposition and our initiatives have begun bearing results. Our members' average basket size was the highest ever this quarter and we see improvements in our customers' feedback metrics. As we continue to augment our value proposition, we are focused on growing our top line, conscious that this represents a key element in continuing to grow cash flows and to deliver shareholder value," concluded Mr. Ferrari.

Results of operations -- second quarter of fiscal 2024 and 2023

The associated table sets forth the components of the company's interim condensed consolidated statement of income and comprehensive income.

Variance analysis for the second quarter of 2024 compared with second quarter of 2023:

• The decrease in net sales is primarily driven by the decrease in the number of active customers, as the company focuses on customers providing stronger unit economics, partially offset by an increase in average order value as a result of price optimizations, increased variety in the meal-kit offering, and a focus on meal-kit offerings with ready-meal solutions and grocery products as add-ons.
• The slight decrease in gross profit primarily resulted from a decrease in net sales, as well as higher credit and incentives as a percentage of sales, partially offset by lower food costs and production costs as a percentage of net sales, driven by improved inventory management reducing waste, lower production labour cost and price optimizations. Gross margin increased mainly due to operational efficiencies driving lower food and production costs, as well as pricing optimization, partially offset by an increase in credits and incentives as a percentage of net sales.
• The decrease in selling, general and administrative expenses is primarily due to lower marketing spend, as well as lower wages and salaries, utilities and maintenance, and insurance expenses primarily resulting from the company's costs-saving initiatives. Selling, general and administrative expenses as a percentage of net sales decreased from 36.9 per cent to 34.9 per cent.
• The decrease in reorganization and other related gains is mainly due to higher net gains in fiscal 2023 as a result of termination of leases following the company's cost-reduction initiatives compared with a net gain on reversal of impairment resulting from a sublease agreement concluded in the second quarter of fiscal 2024.
• The decrease in depreciation and amortization expense is mainly due to the reduction in right-of-use assets following exiting facilities as part of the company's cost-reduction initiatives.
• The improvement in net income is mainly the result of operational efficiencies reducing food costs and product costs, as well as lower wages and salaries in cost of goods sold, and lower depreciation and amortization expense, partially offset by a lower net sales base, and lower reorganization and other related gains.

Results of operations -- year-to-date fiscal 2024 and 2023

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

Variance analysis for the year-to-date 2024 compared with same period of 2023:

• The decrease in net sales is primarily driven by a decrease in the number of active customers, partially offset by an increase in average order value as a result of price optimizations, increased variety in the meal-kit offering, and a focus on meal-kit offerings with ready-meal solutions and grocery products as add-ons. This net sales decrease can also be explained by the company's decision to discontinue its on-demand offering. 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.
• The slight decrease in gross profit primarily resulted from a decrease in net sales, as well as higher credit and incentives as a percentage of sales, mostly offset by lower food, production and fulfilment costs as a percentage of net sales, driven by improved inventory management reducing waste, lower production labour cost, and lower packaging and shipping costs. Gross margin increased mainly due to operational efficiencies driving lower food and production costs, as well as pricing optimization, partially offset by an increase in credits and incentives as a percentage of net sales.
• The decrease in selling, general and administrative expenses is primarily due to lower wages and salaries, utilities, maintenance, operating leases, and software expenses, as well as lower marketing spend driven primarily by the company's cost-saving initiatives. Selling, general and administrative expenses as a percentage of net sales decreased from 42.1 per cent to 35.4 per cent.
• The decrease in depreciation and amortization expense is mainly due to the reduction in right-of-use assets following exiting facilities as part of the company's cost-reduction initiatives.
• The decrease in reorganization and other related gains is mainly due to higher net gains in fiscal 2023 as a result of termination of leases and headcount reduction costs compared with a net gain on reversal of impairment resulting from a sublease agreement concluded in fiscal 2024.
• The decrease in net finance costs is mainly due to lower interest expense on lease obligations in relation to the company's costs saving, lower interest on debt as a result of a lower debt balance, as well as lower debt renewal fees in fiscal 2024, partially offset with higher interest expense on debentures in relation to the company's $30-million convertible debentures issued in February, 2023.
• The decrease in net loss is mainly due to lower wages and salaries in cost of goods sold, and in selling, general and administrative expenses, as well as lower food costs, lower utilities and maintenance, operating leases and software expenses, and lower marketing spend, partially offset by a lower sales base.

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, the company 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 complete a unique food experience for customers.

Goodfood believes there is runway for additional penetration of meal kits into Canadian households, as evidenced by 2023 and 2024 industry research estimating the Canadian meal-kit market to grow at a compound annual growth rate (CAGR) in the mid-teen percentage points through 2028. The company 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 endeavour to capture an outsized share of the Canadian 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 five consecutive quarters of positive adjusted EBITDA, which on a last 12 months basis stands at $9-million. The substantial rise in adjusted EBITDA has led to significant adjusted free cash flow improvement, which has now been positive in three of the company's last four quarters. The improved adjusted EBITDA and adjusted free cash flow on the back of stable net sales highlights the cost discipline the company has shown in improving its operational efficiency, reducing its selling, general and administrative expense, and consistently enhancing its unit economics. These improvements help position Goodfood 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 the company's sustainability practices.

To grow Goodfood's customer base, the first step is building customer acquisition cost-efficiencies to enable adding more active 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. Goodfood 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 driven a reduction of the company's customer acquisition costs since the fourth quarter of fiscal 2023, and improved the profitability and unit economics of customers.

A key driver that can enhance order frequency is product variety. In addition to launching the company's 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, Goodfood 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, Goodfood has provided and continues to provide more choice of proteins to its customers, with the launch of upsells and upcoming launch of customization within the company's meal-kit recipes, allowing customers to swap or double the proteins included in their chosen recipes. With these initiatives, Goodfood 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 the company offer perfectly portioned ingredients that save from food waste, it also constantly looks to simplify its supply chain by removing middle-men 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 the company's deliveries. Goodfood'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, Goodfood is currently testing the potential for multichannel partnerships that can broaden Goodfood's customer reach and resilience.

The company's strategic execution to drive profitability and cash flows continues to position Goodfood for growth and profitability, underpinned by consistent improvement in adjusted EBITDA and cash flows. Coupled with the company's unrelenting focus on nurturing its customer relationships, profitable growth remains its 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 significantly colder or 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 April 16, 2024, at 8 a.m. Eastern Time. Interested parties can join the call by dialling 1-289-514-5100 (Toronto or overseas) or 1-800-717-1738 (elsewhere in North America). Access the webcast and view the presentation on the company's website.

Parties unable to call in at this time may access a recording by calling 1-888-660-6264 and entering the playback passcode 24585 followed by the pound key. This recording will be available until April 23, 2024.

A full version of the company's management's discussion and analysis (MD&A), and consolidated financial statements for the second quarters ended March 2, 2024, and March 4, 2023, will be posted on SEDAR+ later today.

About Goodfood Market Corp.

Goodfood Market 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 its 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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