Q1 2022 Goodfood Market Corp Earnings Call
Well it comes at a good food first quarter of fiscal year 2022 financial results conference call.
At this time, all participants are in listen only mode.
Following the presentation, but we'll come back to a question and answer session as a courtesy to others, we ask that each participant limit themselves to one question and one follow up.
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I would like to remind everyone that this conference call is being recorded today January 18, 2022 at eight o'clock am eastern time.
Furthermore, I would like to remind you that today's presentation may contain forward looking statements about good foods current and future plans expectations and intentions results levels of activity performance goals or achievements or future events or developments.
As such please take a moment to read the disclaimer on forward looking statements on slide two of the presentation.
I would like to turn the meeting over to your host for today's call Jonathan Perry Good food Chief Executive Officer, you may begin.
Yeah.
Thank you.
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Good morning, everyone and welcome to this call for good food market Corp to present, our financial results for the first quarter of fiscal 'twenty. Two ended December 4th 2021.
I'm pleased to be joined on the call today by Neil Peggy Good Foods', President and Chief operating Officer, and Jonathan Reiter, Chief Financial Officer.
Our press release this morning.
Reported our first quarter results.
Which was published earlier this morning can be found on our website I'd make it through that see a and on SEDAR.
Please be aware that we will refer to certain metrics and non ifr S measures.
Where possible. These measures are identified and reconciled to the most comparable <unk> measures in our MD&A.
Finally, let me remind you that all figures expressed on today's call are in Canadian dollars unless otherwise stated.
Now turning to slide three which outlines the key highlights of our first quarter and up to date results of our recently launched 30 minutes on demand delivery service.
We were pleased with our overall performance this quarter, which was the first full quarter since early fiscal 2020 in which COVID-19 restrictions had minimal impact on the daily lives of Canadians.
Against this backdrop the core.
Net sales of $78 million were stable versus the previous quarter, which benefited from strong demand in June that's COVID-19 restrictions, we're still in place offset by the expected seasonal lows and the lessening of COVID-19 restrictions during July and August .
In addition, the positive momentum we saw with the return to sequential quarter over quarter active customer growth and rebounding order rates positions us well as we head into the remainder of the year.
As discussed at our last earnings call during the first quarter.
We began to take measures that we expect to lead to continued progressive improvements to our adjusted EBITDA margin.
Versus our fourth quarter cost structure.
As a result of improved efficiencies in our operations and SG&A cost improvements in the first quarter, our gross margin and adjusted EBITDA margin sequentially sequentially Rose by 110, and 370 basis points respectively.
Versus the previous quarter.
Consequently.
As we continue to implement it.
Efficiencies and cost containment initiatives.
We expect to see progressive improvement in our quarterly adjusted EBITDA loss position as we initially work our way back to breakeven position and then towards our long term, 10% to 15% adjusted EBITDA goal.
Finally, we are especially delighted with the launch of candidates first vertically integrated 30 minute grocery and meal solutions delivery offering.
Over two years, we have built the backbone and infrastructure to enable that fast delivery of groceries and meal solutions to Canadians.
As you will recall.
We launched our good food Wow same day or next day delivery in the summer of 2020 and is aligned with our previously communicated strategy we.
We have consistently reduced delivery times since then going from a same day basis. So a few hours and today two in as little as 30 minutes.
We are very excited to have as of this week 13000 on demand quarterly active customers, placing orders growing at 15% weekly over the past five weeks.
With run rate sales before incentives and credits of $21 million.
Toronto onions, and montrealers are loving their experience as our net promoter score consistently over 80 demonstrates.
We celebrated the opening of our third local micro fulfillment center in Toronto last week and are excited to bring fast on demand deliveries of good food products to even more customers in the GTA.
We will continue to grow our network and on demand availability with three additional facilities to launch by the end of March and multiple prime new locations identified and being executed on.
On that note.
Over to John Reuter.
To review our financial performance in detail.
Thank you Jonathan and good morning, everyone.
I'll now turn to slide four which provides details on our top line performance.
The first quarter net sales showed stability compared to the fourth quarter of fiscal 2021.
As a reminder, the fourth quarter includes the month of June which was a near record month in terms of demand in the month of July .
In August which were significantly impacted by both seasonality and the reopening of the Canadian hospitality industry as <unk>.
Most COVID-19 restrictions have been lifted.
As such with average weekly orders in the first quarter of fiscal 2022, increasing 15% compared to July and August as active customers also returned to growth net sales were stable at $78 million this quarter.
As our evolution into an on demand online grocer and meal solution provider continues we expect orders and active customers to be driven by the adoption of our quick commerce delivery of grocery and meal solutions.
As mentioned by Jonathan our launch of on demand delivery only began in November and as a result has had very limited impact on the first quarter results.
As existing micro fulfillment centers ramp up over the coming quarters and new ones are launched we expect our on demand strategy to progressively drive the majority of our topline growth over the coming quarters and years.
Please now turn to slide five which looks at our profitability.
This quarter's gross margin and adjusted EBITDA margin marked the beginning of our expected progressive improvement in profitability.
Gross margin improved 110 basis points compared to the fourth quarter, driven primarily by primarily by improved efficiencies in our operations and SG&A and a more stable workforce driving productivity gains.
Turning to adjusted EBITDA, our margin improved 370 basis points.
Driven by the aforementioned gross margin improvement as well as selling general and administrative cost reduction initiative initiatives.
Which includes a multi quarter head count reduction effort expected to generate 11, 11% to $13 million of annualized savings compared to the fourth quarter of fiscal 2021.
It is important to note that while we are committed to progressively narrowing our adjusted EBITDA loss in the coming quarters. Our primary objective is to ensure we.
We continue to invest and keep people technology product portfolio and customer acquisition efforts as we build out our national on demand delivery platform, which.
Which we expect to be the driver of a returned about attractive sustainable net sales growth rate.
As a result in our pursuit to unlock and capture a disproportionate share of what we estimate can't quickly become as traditional brick and mortar shopping is replaced with a superior on demand value proposition.
<unk> 30 billion on demand grocery mail solution addressable market.
To break even adjusted EBITDA will be achieved while balancing growth and profitability.
Okay.
Turning to slide six for a review of cash flows and capital expenditures.
Cash flows used in operations operating activities totaled $18 $9 million this quarter compared to $23 7 million use of cash flows from operating activities in the fourth quarter of fiscal 2021.
The improvement was the result of a smaller net loss and improved working capital management.
We invested $12 million in capital expenditures this quarter.
The capital invested was mainly related.
Two equipment deposits leasehold improvements to new and existing facility and the build out of parts of our technological platform.
Some of these investments relate to footprint initiatives made last year with payments only going out this quarter.
These investments are adding at the cornerstone to the build to build the physical and technological infrastructure to support the scaling of our on demand delivery network in Toronto and Montreal.
As well as the launch of on demand and deliveries in auto in the coming months.
In addition investment to open our digital platform to non subscribers are also part of our Capex.
In the coming year, we will continue to invest capital in building the on demand growth in network and.
In infrastructure that will enable superior customer experience and solidify good foods position as Canada's leading vertically integrated on demand grocery and meal solution provider.
While these investments are Paramount in building on our on demand networking leadership.
We expect the remaining capex for the year to be approximately $25 million.
Lastly, we ended the quarter with cash and cash equivalents of $105 million. In addition to revolver availability, which continues to provide.
Significant balance sheet flexibility to execute on our growth strategy.
Turning to our financial outlook. We view 2022 is an important transitory year on a couple of fronts for.
For most of the fourth quarter of 2021, and all of the first quarter of 2022, COVID-19 restrictions have been greatly relaxed throughout Canada.
With essentially stable net sales over the past two quarters. Our first quarter 2022, net sales are approximately 40% higher than our second quarter of fiscal 2020, which is our Alaska apparel quarter pre pandemic.
Since the relaxation of COVID-19 restrictions in 2021, we've had a consistent and stable order level.
As we look forward, we are excited by the upward momentum our on demand grocery meal solution strategy is providing to our net sales base.
Extrapolating the results of our first two micro fulfillment centers. So the additional four launched or scheduled to be launched by the end of March and a stable weekly subscription order profile. We are experience. We are confident we returned to net sales growth as we continue to scale and rollout our MSC network.
On that note I will turn it back to Jonathan Ferrari to provide an update on our key business priorities and our on demand strategy.
Yes.
Thank you I'll now turn to slide seven.
We are also excited with the developments that highlight the progress we made in our strategy to build Canada's first integrated on demand online grocery network.
The metrics, we have observed since launch across adoption and retention rates as well as the unit economics are ahead of our expectations and we look forward to building on that early momentum.
We will drive long term shareholder value by executing on three core priorities.
We want to one grow on demand active customers to expand our on demand coverage.
And three improve our profitability.
Expanding on these three priorities.
Firstly, we aim to build on the positive quarter over quarter sequential active customer growth momentum we observed this quarter, increasing both the penetration of good food and the frequency of orders placed by our shoppers.
The two key catalysts to order growth are continuing to provide delicious unique and differentiated grocery meal kit and ready to eat products to our customers and growing the number of on demand active customers.
Secondly.
To grow the number of on demand active customers, we will expand our footprint of on demand facilities, beginning with candidates two largest markets Toronto and Montreal.
Our hub and spoke fulfillment model is well advanced particularly at the hub level with manufacturing facilities in both the east and West Coast and a large scale distribution center in Montreal capable of handling expected midterm Eastern Canada demands.
The spokes.
Our low capex local micro fulfillment centers will grow and count as we look to increase the availability of our 30 minute delivery service to more Canadians.
Thirdly, we will continue to focus on improving our profitability levels and look to achieve progressive improvements in margins.
Our gross margin is showing progressive signs of improvement this quarter and efficiency initiatives have begun to yield results with a 370 basis point increase in adjusted EBITDA margin.
As we continue to implement initiatives to offset the recent inflationary pressures and by growing orders and by extension net sales. We expect to make continued progress on adjusted EBITDA margin expansion.
Turning to slide eight to.
To share exciting recent developments in our on demand strategy.
The results we have seen since our November launch of on demand grocery and meal solutions.
Delivered in as little as 30 minutes are significantly ahead of expectations and already confirm both the product market fit that will drive exciting growth for years to come while providing attractive unit economics.
I'll begin with three core metrics that provide visibility on the explosive growth, we're seeing with our on demand groceries and meal solution offering.
Firstly, we now count after only eight weeks of launch.
Over 13000 on demand active customers more than 50% increase generating run rate sales before incentives and credits of $21 million.
Secondly.
As shoppers order on average the equivalent of about eight baskets per quarter.
Nearly double the order frequency of our subscription plan.
We have seen thirdly over the past five weeks.
Orders growth rates of 15% per week.
Biding, the clearest indication of exponential size of the net sales opportunity in front of us.
Similarly, let.
Let me share the three core metrics that are driving the attractive unit economics of our on demand grocery and meal solution offering.
Beginning with basket sizes the.
The larger the basket size the more dollars are available to offset fixed costs.
That each order has such as the last mile delivery.
Which I will come back to you shortly.
Since launch we have seen the average basket size increase with average order sizes now in the 65 to $70 range well ahead of the global quick Commerce competition.
Our larger basket size is driven by our unique merchandising strategy that provides Canadians with both their daily groceries, and delicious meal solutions, while saving them time and money.
The second metric when assessing unit economics is retention rates.
Perhaps unsurprisingly the net promoter scores of over 80, which we saw.
The customers that were part of the initial November cohort.
They ordered more in December than they did in November leading to an order retention rate of 100, 110%.
Thirdly.
Let me provide some color on last mile delivery or more specifically the metric we are managing deliveries per hour or dth for short.
When we open a micro fulfillment center, we begin by temporarily funneling a portion of our Preplanned subscription meal kit orders through the facility, providing immediate volume and positively impacting the site's delivery per hour.
With a rapid order growth each of our Mfc's are observing.
We have already reached three deliveries per hour within a three kilometer radius.
As we build out coverage in a given city and build density.
We are well positioned to achieve our at scale target a five plus deliveries per hour ultimately representing a delivery cost as low as $4 per order.
Based on both the existing growth profile and unit economics, we have seen with our first two micro fulfillment centers I am pleased to announce the continued scaling of our network beginning with our third local micro fulfillment center in the west of the GTA servicing Oakville Mississauga and other.
Woods, which we opened late last week.
In addition, with three more facilities scheduled to open before the end of March providing on demand groceries and meal solutions to a growing number of Canadians.
We are positioned to build a market leading position.
Yes.
For the full fiscal year 2022.
We believe we can launch eight plus micro fulfillment centers overall, providing roughly $160 million of annual on demand capacity.
Which will serve as the platform to return to year over year growth beginning as early as the summer or fall of 2022.
In addition.
We have built the internal infrastructure to support the growth of our network to more than $1 billion in sales by 2025.
Our on demand delivery initiative is off to a fast start and we are excited to see our catalyst for online grocery penetration gain scale in the coming quarters and years.
On that note I will turn it over to the operator for the Q&A portion of this call.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad again, if you'd like to ask a question press star one on your telephone keypad.
Your first question comes from MS. Dana Landry from Stifel. Please go ahead.
Hi, good morning, guys.
My My first question Jonathan is just on your last comments I just wanted to make sure that I understood correctly, you said that you.
<unk> revenue growth to return in this summer or fall of 2022, I'm not sure if I understood correctly, but is that do you mean total companywide revenue growth.
Hey, good morning.
Yeah, if we look at the year over year comparisons.
I would say what we're looking at is year over year revenue growth.
Likely.
Turning to the overall business.
This summer or this fall.
If we look at our.
Pre COVID-19 .
Weekly orders.
The business today on the weekly meal kit subscription continues to be about 40% above the pre pandemic levels. So as we worked through the.
Quarter kind of the quarterly comparisons year over year throughout this year.
We will see the year over year growth returned later in 2022, and I think the best way to think about our business is.
The weekly meal plan subscriptions are stable profitable.
We're really making sure that the weekly at Neal subscriptions are as profitable as possible to be able to fund our growth initiatives on the on demand side.
And on the on demand side of the business, we're selling our meal kits grocery products prepared foods.
And we're really seeing explosive growth and really amazing traction from a customer perspective. So what's happening here is we're responding to.
Customer demand and a customer need to have our products disc.
And distribute it to our customers in a different channel and so we're seeing a lot of potential on the on demand side and stable orders on the weekly blood meal plan.
Okay.
And maybe just a follow up to that.
I'm wondering if you can speak on the competitive dynamic of the.
The meal kit business currently.
I understand that theres been a boost with COVID-19 .
Wondering.
Do you see your competitors being more aggressive to acquire customers and.
Do you did you lose market share in the <unk> business in Canada. This fall.
So I would say the.
Competition continues to remain stable on the.
Weekly meal plan side.
There tends to be.
Lower marketing activities during the summer months, and then it tends to pick up in.
In the fall.
And in the early winter.
From a market share perspective.
We believe that we have.
Maintained.
Our market share on the weekly meal kit subscription side.
And on a longer term perspective.
We think that being able to offer our meal kits, both through our weekly subscription and through our on demand channels will allow us to grow the total number of meal kit portions that were selling across Canada. So it's really up to the customer to decide if they want to sign up to a weekly meal plan and get the convenience of pre scheduled orders or if there.
I want to.
Engage with our meal kits and other products and a more flexible way and ultimately we think that these two distribution channels will serve as a catalyst for us to continue growing our overall meal kit portions across Canada.
Okay perfect. Thank you.
Your next question comes from Scott I think probably with Deutsche Bank. Please go ahead.
Thank you and good morning.
First question for me I was wondering if you can maybe.
Are they getting deeper.
In terms of the order competition and on the back.
And grocery given that significantly higher average order value than some of your peers.
Is that mainly driven by.
Customers, adding mill kit or R&D, just in your European adding more of your private label grocery products.
Hey, good morning.
Yes. So if you look at the key to making the economics work and to making on demand deliver.
Deliveries profitable.
One of the key indicators there is the basket size and so we're at two or three ex the basket size of other global on demand peers.
If you look at the breakdown of our on demand basket.
We're at about a third of the basket.
That is a meal kits.
About.
A little bit over 50%.
The basket is our grocery products.
And the remainder of it is our prepared ready to eat meals. So we're still in the early days the composition can shift, but the fact that we have.
Close to half the basket or 45% of the basket, that's prepared meals and meal kits.
It really gives us the opportunity to offer a differentiated basket to the customer versus what other competitors can offer and these are also high margin products.
That.
Alright, larger average sale prices than a typical grocery products. So that the mix that we've developed in our merchandising is really unique in the market.
And it balances at creating this differentiated customer offering.
That our customers are loving and making sure that the economics of the overall baskets can work from a unit economics perspective.
That's helpful. Thank you and just on the.
There are 13000 Act.
Active customers in an on demand.
You have a sense of how many of those customers are totally new to good kuhn, meaning that they're not.
Previously, we cream yogurt customers that have transitioned to on demand and I guess related to that as well.
What proportion of the.
Addressable market of the two fulfillment centers.
13000 customers represent like what's your.
Our early penetration rate in your in your estimation.
So in terms of the customers.
More than half of them.
Completely.
You too good food.
And the other metric I can share is.
Within 10 weeks of launch we've been able to feel about a third of the capacity of the mfc's that we've built out.
So what we're seeing is.
Because of the strong robust demand from the on demand side, we're able to scale, our mfc's more quickly than expected.
So that's really generating positive results on all of our underlying underlying unit economic metrics.
So from a profitability perspective in addition to.
The average order value.
We talked a little bit about the deliveries per hour, which is another key metric that is extremely important for the attractive unit economics.
So from a from a deliveries per hour perspective, scaling more quickly and getting.
A significant amount of demand is allowing us to hit that three dth number.
A radius around our mfc's the three kilometer radius that I mentioned in the script.
And our intent is to be able to as we are.
Continue to fill the capacity of the MFC has had built more density in the route.
We expect to be able to get above.
Five deliveries per hour and so that will represent.
Somewhere around a $4 delivery cost.
And then the other two things that are important from a unit economics perspective.
We talked a little bit about the positive retention so.
Customers that are signing up within any given month or actually ordering.
More good food deliveries and their second month.
And so that's another really positive contributor to the to the unit economics of that.
A negative churn.
So what we're seeing right now is in addition to the quick growth that we're talking about all of the underlying economic metrics are progressing really well and we're excited to keep you guys updated.
Thank you and congrats on the early progress and on demand.
Your next question comes from Thai Collins with eight capital. Please go ahead.
Yeah.
Hi, Thanks for taking my question.
We're starting to hear about some food delivery companies building out a dark stores and trying to expand into the grocery space I'm. Just wondering how would you characterize the threat from those players and how we'll get to compete against new entrants you might already have a larger installed base and as an established route density.
Yes. Good morning, Thanks for the question.
So.
We.
<unk> heard I believe it was skip the dishes.
That announced.
The launch of dark stores.
From the skip the dishes perspective, our understanding is.
That their focus is really on building a convenience oriented basket. So a kind of a more of a C store basket.
So from a merchandising perspective and from.
A facilities Buildout perspective, it looks a bit different than what we're building.
So good foods intent is really to build.
A replacement to brick and mortar grocery stores.
And so the the footprint and merchandising is different.
We also have.
Eight years of operating experience as a team in scaling.
Supply chain and a network of physical fulfillment centers and so.
In addition to.
Having the expertise around running good core year and having.
Our own fleet of corridors across the country that can fulfill our logistics needs.
We also have that experience in terms of supply chain and scaling so between our.
Our operational capabilities the technology, we've built a good core of your fleet and our differentiated merchandising.
Good food is really in a in an excellent position.
To build a replacement to brick and mortar grocery shopping.
And over time, we believe we will see.
50% of our customers.
Weekly grocery shopping shift online to good foods on demand offering.
Got it thanks for that and then just for my follow up.
We're seeing inflation continue to accelerate here and I know that <unk> historically been able to manage that partially by rotating menu items and ingredients.
That's not as easy to do with grocery items given that customers are probably looking for some more consistency there. So as inflation more of a risk is the grocery business grows and what can the company do to manage inflation in grocery skus specifically thanks.
Yes, great question.
So I think similar to what we had experienced early days.
On the market side, we've been able to.
Renegotiate volume discounts through.
Through some of the early success that we've seen and on demand. So whatever we've been able to negotiate for her from our buying power as mostly gone back into enterprise.
The other thing is obviously owning.
80% of our Skus in terms of private label branding gives us much more flexibility on how we can price products, we don't have.
Pepsi or Unilever, telling us how to price the products, we're able to.
Use our analytics to say, okay. At this price were going to sell.
Much more and ultimately deliver.
Better.
Value to customers and better margin.
To the company.
And finally.
We over the long term as we've said in the meal kit business as well as prices do go up for raw material and commodities and ultimately we need to pass those.
Rice's onto consumers, but we think in the early days, we can we can use the first two leavers to offset a lot of that.
Thanks for the questions guys.
Your next question comes from George <unk> from Scotiabank. Please go ahead.
Yes. Good morning, guys I just wanted to ask you on on the incentive cost to us.
For the 20 million $21 million run rate number that you guys revenue side that you guys quoted for on demand, maybe you can give us a sense a little bit in terms of what those incentive costs are and how they are trending maybe thanks.
Hey, good morning, George.
So that our current.
Offer.
From a customer acquisition perspective on the on demand.
New customer acquisition.
Is.
It's $30 off the first two baskets.
So if you look at our average basket sizes.
It's around.
45% off the first two baskets.
Our customers are on demand are placing.
Yeah.
Close to twice the number of orders.
Per month that are good food meal plan subscribers are placing so we're actually able to get through those.
Sensitives.
Within the first months of customers signing up.
And then.
Post those incentives were selling there is no other.
Specific ordering incentives that.
That we're offering other than regular discounts at a product level.
So we're able to.
Start, earning a positive contribution margin on orders.
Quite quickly within the first month.
And we have about seven to eight orders.
Per quarter.
For on demand customer.
So it really compares quite favorably versus the unit economics of the meal kit subscription on a weekly basis.
Okay. Thanks for that Jonathan.
There is no real need okay. Okay, sorry go ahead.
Sorry, George just to add to that so.
Similar to the early days of the meal kit offering.
As we said more than half of the customers and the 13000 net Utica foods, so that obviously dragged down the margin.
In the in the early high growth as in the overall margin for <unk> is.
It's quite positive, but net lower than the overall business or we're really excited about that.
The progress we made on that side and the fact that it paid back much quicker.
Hoping us reduce incentives over time.
The marketing team is turning through all the data to optimize that spend.
Okay.
Okay. Okay. That's helpful. Thanks, guys.
To your earlier discussion around kind of getting to that five plus.
Targeted deliveries per hour.
And this is probably a difficult question to answer but can you maybe give us a sense as to when you think.
We can get to those levels.
Yeah.
Yeah. So.
We actually see those levels at certain times of the day already today. So we have very good confidence that we'll be able to.
Continue to.
To hit that for the overall business.
Right now as we said, we see it as a competitive advantage to be able to leverage our weekly meal kit orders too.
To break down our cost of delivery.
And.
And batching, we'll go.
Into that quite a bit as well.
In Toronto and Montreal over the last two days, we've had quite a bit of snowstorms. So are our batching has been very high although our deviation has been very low because of the snowstorm. So tomorrow, we can batch.
And.
The better optimization of our routing.
The better the D ph will be like.
I said, we see it we see it a core parts of that they already have.
Are optimistic we'll be able to hit that quicker and quicker with every new launch of our MFC.
Great. Thanks, guys.
Your next question comes from Paul Cheng with RBC capital markets. Please go ahead.
Alright, thanks, so much and good morning.
This focus on margins and profitability for a second.
Uptick here is directionally positive win with the plan to reach year over year revenue growth.
A positive year on year of writing about by the summer to fall.
Should we think about cash flow and the timing for cash flow breakeven.
Hey, Paul Thanks for the question.
Look as John laid out.
You see the top line grew.
Growth coming back in the summer and fall as our on demand.
As we continue to see the explosive growth that we're seeing and as we continue to add additional micro fulfillment centers.
Ultimately.
We're going to be balancing.
The reinvestment in customer acquisition.
And our cash and cash for acquisitions, so our growth and ultimately as well as.
Come in close to a breakeven from a cash flow perspective. So there is not I am not giving a clear.
A timeline for that but I would say that as we head into 2023 for the following year.
Have a significantly larger revenue base.
We'll have our fulfillment centers.
Contributing from a positive perspective at least the ones that have a longer tenure.
<unk> from a positive perspective from a cash flow perspective, and as a result, we will start seeing.
The closure of the gap if you will of our current cash flow from operations. We're still working there's still lots of room, we can do on our working capital management.
You probably saw in the first quarter improvements that we had.
Versus our fourth quarter. So we're still continuing improvement we can do there and ultimately.
Continuing to drive to get to a breakeven from a cash flow perspective.
As we look forward.
And.
Cash perspective, I mean, you have $105 million on the balance sheet right now how much is needed for the day to day operations.
And then from a liquidity point of view.
You have the revolver, how much is available on the revolver.
At that at the moment.
Hey, Paul Yes, so what we have.
Significant amount of balance sheet flexibility Ulf.
Ultimately, we can toggle our growth versus our cashback and so with the results that we're seeing.
With the two.
Two centers the third one that just opened and the additional that we see by the end of March.
We're really excited about the growth profile that we're seeing and I think just as importantly, where we're impressed by the unit economics that they are already delivering.
Look we're going to we're going to balance.
Growth as well as the spend on cash or the use of cash, but with the additional $20 million on our revolver Theres still a lot of lot of flexibility that we have to a balance sheet perspective, and as I talked about before I think theres still some levers that we have on working capital management as well that will help.
Yes.
And Paul maybe just to add to that.
Some of the Capex that we had this quarter as we mentioned in the script was from previous quarters and just.
Working through the payment cycles on some of the the hub pieces of the network, so making sure that the DC is is up and running in place.
The Ottawa facility that we mentioned, we'll be launching by March.
As our first automated micro fulfillment center.
Those are some of the bigger capex spends which will start to.
To reduce as a percentage of what our overall spending in Capex and.
And each each MFC we've.
We have subsequently launched and are in the process of launching has come down in terms of cost as we've been able to.
Look at what what customers care about and what we need to operate these things. So we have a lot more flexibility and launching <unk>.
One one MFC per X number of days or weeks or months versus the larger kind of six to nine month projects, which we then invest.
Investing in two to support the scaling.
Okay. Thank you for it.
Speaking through those moving parts and explaining the flexibility there.
That's one thing.
And your next question comes from Michael Glen with Raymond James. Please go ahead.
Hey, good morning.
A question on the SG&A cuts.
Just wondering like when Youre looking at your SG&A line and you are making some cuts there but at the same time you are talking about.
That's a very attractive growth opportunity in front of you so how.
Do you balance cutting SG&A and then.
Growing other parts of the business at the same time and I'm, just trying to understand that dynamic a little bit better.
Hey, good morning, Michael.
So I think the best way to think about the business is through our two different distribution.
Distribution channels and so from a weekly meal plan perspective.
It's a stable profitable distribution channel inside of the business while the on demand side is really what we're building and scaling up in terms of network and.
Capturing the customer demand that we're seeing.
[noise] excuse me so.
When we think about.
Our SG&A improvements and reduction in some of the overhead what we're doing is we're consolidating teams.
That are supporting the weekly meal kit subscription in.
In order to make it as profitable as possible and we're also ensuring that we have the right skill set and the right teams in place to be able to scale up and grow our on demand network and facilities.
So.
Through that process.
Really making sure that the weekly meal plan is as profitable as possible that we're finding those efficiencies. The second piece is over the past two years, we've been laying the foundation.
Proving out the product market fit.
Proving out the economics, and making sure that our on demand distribution channel.
Is ready to scale and so as many of those foundational pieces are in place as Neal alluded to.
Thinking about some of the hub distribution centers for our on demand supply chain.
The technology that we needed to implement in order to enable those real time orders.
As as those projects deliver.
Even thinking about building the first.
1000.
Good food private brand products.
Some of the some of the projects once completed also allow us to find some efficiencies in our cost structure. So it's a mix of those items.
And we still see more room to go in terms of being able to create more operating leverage in the business that will improve.
EBITDA.
And we also see continued path to improving our gross margin.
And so.
We're really being thoughtful about how we build our cost structure in order to balance that growth and profitability like John writer alluded to.
Some of the trimming you've done on SG&A is that largely complete at this point in time or is there Martin Martha happened.
They are not fully reflected in this quarter.
But from an execution perspective, they are largely completed.
Okay and.
Just on the balance sheet just wanted to go back to I know that you do sit with reasonable financial flexibility, but you are right.
The scope of investment has stepped up quite meaningfully over the past two quarters. So.
Do you do you feel confident that you have enough capital available to get to where you wanted to be.
The micro fulfillment center build out.
Yeah.
Yeah, Hey, Michael It's Neal.
So as I was just mentioning to believe those George's question.
The big pieces.
Of the network are now built out and for the most part are paid for.
Which means the I think we had 12 million of Capex this quarter.
And that number will start to come down.
And be much more flex.
Flexible and nimble as we see opportunity. So we we felt the team now that can spin up.
NMFC and somewhere from from four to eight weeks.
In terms of visibility.
And as we said last quarter.
Less than a million dollars of Capex and opex required to get one of the things off the ground plus we're improving that number quite a bit. So if you think about those numbers.
Or is that we're talking about in terms of launches for the rest of the year.
And add flexibility that we have on our balance sheet, we feel like we're in a pretty good spot.
We also see that.
At every subsequent MF.
MFC or at least the second one that we've launched so far in the GTA.
Performs better than the first one and we anticipate that to be the case for act for existing city launches as well so the third and fourth and fifth should.
You should start to contribute at a faster rate than me.
In the first.
Location in the market so.
With the underlying Opex economics and unit economics that we're seeing we feel pretty good.
The team our team's focus on reducing the capex spend and optimizing capex spend and.
And in fact that.
We have that we built out a lot of the big chunks of the network.
We are we feel good about the.
The position.
Okay.
The remaining capex for the year was indicated at $25 million that's over the next three quarters correct.
Yes, exactly so we'll continue to you'll see some of the.
The invoices and payments strict learn from some of the big.
Pieces.
That we were talking about.
Notably the Ottawa facility, which will go live in the coming months.
And then flexibility around the rest of the Capex spending and there is also some.
Some capitalized both tech and engineering spend in there so that's what we.
And we would anticipate.
Okay. Thanks, and maybe I would just add I mean, youll see the progressive decline of Capex over the course of the year as we transition to two effectively an asset light growth strategy right. So each MFC.
Well under $1 million as Neil said each of the second and the third cost of each facility. This up second and third facility the cost keeps on falling in terms of our capex.
Fine tune our execution. So ultimately what you are seeing is over the course of.
This year a transition from hey, we built the hub and as we build out the Oaks.
Transitioning to an asset light capex strategy.
Okay. Thanks for taking the questions.
And there are no further question at this time I will turn the call back over to the presenters for closing remarks.
Okay.
Thanks again for joining us on this call.
We look forward to seeing some of you at our shareholder meeting this morning and for everyone else. We look forward to speaking with you again at our next quarterly call.
Thank you.
This concludes today's conference call you may now disconnect.
[music].
The host has ended this call goodbye.
My question so it looks.