Q2 2024 Goodfood Market Corp Earnings Call
Unknown Executive: Good morning, ladies and gentlemen, and welcome to the Goodfood second quarter FY 2024 earnings and webcast conference call. At this time, all participants are in listen-only mode.
Good morning, ladies and gentlemen, and welcome to the good food second quarter FY 'twenty played before earnings webcast conference call. At this time all participants are in listen only mode. Halloween. The presentation. We will conduct a question and answer session instructions will be provided.
Unknown Executive: Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. Please note that questions will be taken from financial analysts only. If anyone has any difficulties hearing the conference, please press star followed by zero for operator assistance at any time.
At that time for you to queue up for questions. Please note that questions will be taken from financial analyst tell me. If anyone has any difficulties hearing the conference. Please press star followed by zero for the RP Vita assistance at any time I would like to remind everyone that this conference call is being recorded today April <unk>.
Unknown Executive: I would like to remind everyone that this conference call is being recorded today, April 16th, at 8 a.m. Eastern time. Furthermore, I would like to remind you that today's presentation may contain forward-looking statements about Goodfood's current and future plans, expectations, and intentions, results, level of activity, performance, goals, or achievements, or other future events or developments. As such, please take a moment to read the disclaimer on forward-looking statements on slide 2 of the presentation. Please be aware that during the call, presenters will refer to certain metrics and non-IFRS measures. Where possible, these measures are identified and reconciled to the most comparable IFRS measures in our MD&A.
At eight a M eastern time.
Furthermore, I would like to remind you that today's presentation may contain forward looking statements are both good fluids current and future plans expectations and intentions results level of activity for four months goals or achievements or other future events or developments or thoughts, let me take a moment to read the disc.
Weymer on forward looking statements on slide two of the presentation.
Please be aware that during the call present, just will refer to certain metrics and none I F. R. S measures.
Where possible. These measures are identified and reconciled to the most comparable I F. R. S 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 that I would now like to turn the meeting over their hosts for today's call China Sunfire Ravi.
Jonathan Ferrari: Finally, let me remind you that all figures expressed on today's call are in Canadian dollars unless otherwise stated. I would now like to turn the meeting over to your host for today's call, Jonathan Ferrari, Goodfood's Chief Executive Officer. Mr. Ferrari, you may proceed.
Speaker Change: Good food Chief Executive Officer, Mr. Ferrari you May proceed.
Jonathan Ferrari: Thank you. Hello everyone and welcome to the Goodfood Market Call Conference to present our financial results for the second quarter of the 2024 exercise. Claude Dumas, Good morning, everyone.
Thank you.
Speaker Change: To us it would be a pellicle quite honestly I've not seen good food brokers out there isn't anything else. He just said golf domestic that system and then get.
Hello to do Matt.
Speaker Change: Good morning, everyone and welcome to this call are good food market Corp to present, our financial results for the second quarter of fiscal 2024.
Jonathan Ferrari: And welcome to this call for Good Food Market Corp. to present our financial results for the second quarter of fiscal 2024, ended March 2nd. I'm joined on the call today by Neil Cuggy, Good Food's President and Chief Operating Officer, and Ross Aouameur, Chief Financial Officer. Our press release reporting this quarter's results was published earlier this morning. It can be found on our website and on CDAR.
Speaker Change: And then March 2nd.
Speaker Change: I'm joined on the call today by Neil Peggy Good Foods', President and Chief operating Officer, and Ross, Our Chief Financial Officer.
Speaker Change: Our press release reporting this quarter's results was published earlier. This morning. It can be found on our website and on SEDAR.
Jonathan Ferrari: I will now turn to slide three to review the highlights of this quarter. The second quarter marked our fifth consecutive quarter of positive adjusted EBITDA. Our teams have worked extremely hard to implement and maintain the necessary cost discipline that has enabled Adjusted EBITDA to reach a margin of 9% this quarter, for $3.5 million in total. In the last 12 months, adjusted EBITDA has reached $9 million for a margin exceeding 5%.
Speaker Change: I will now turn to slide three to review the highlights of this quarter.
Speaker Change: The second quarter marked our fifth consecutive quarter of positive adjusted EBITDA.
Speaker Change: Our teams have worked extremely hard to implement and maintain the necessary cost discipline that has enabled adjusted EBITDA to reach a margin of 9% this quarter for $3 $5 million in total.
Speaker Change: In the last 12 months adjusted EBITDA has reached $9 million for a margin surpassing five per cent.
Jonathan Ferrari: Comparing this figure to the $12 million adjusted EBITDA loss for the same LTM period a year ago shows the tremendous progress we have made in the past year in achieving and growing profitability. This strong level of profitability has enabled value creation for our shareholders through two key drivers, cash flow generation and leverage reduction. First, we have generated positive cash flows again this quarter, with adjusted free cash flow reaching $4.3 million in the first half of fiscal 2024.
Speaker Change: Comparing this figure to the 12 month debt to the $12 million adjusted EBIT loss for the same LTM period, a year ago. It shows the tremendous progress we have made in the past year and achieving and growing profitability.
Speaker Change: The strong level of profitability has enabled value creation to our shareholders through two key drivers cash flow generation and leverage reduction.
Speaker Change: First we have generated positive cash flows again this quarter with adjusted free cash flow, reaching four $3 million in the first half of fiscal 2024.
Jonathan Ferrari: This improvement of over $11 million, compared to the first half of fiscal 23, cements our commitment to not only generate, but grow the cash generation ability of our business. Supported by operating and business efficiencies that have driven gross margin consistently around the 40% mark and an SG&A expense reduction that surpassed $9 million compared to the first half of fiscal 23, our cash flow generation is poised to continue to grow and help provide further flexibility over capital allocation.
Speaker Change: This improvement of over a $11 million compared to the first half of fiscal 'twenty three.
Speaker Change: It's our commitment to not only generate.
Speaker Change: It's not only generating cash flows, but growing the cash generation ability of our business.
Speaker Change: Supported by operating and business efficiencies that have driven gross margin consistently around the 40% Mark.
Speaker Change: And SG&A expense reduction that surpassed $9 million compared to the first half of fiscal 'twenty three our.
Speaker Change: Our cash flow generation is poised to continue to grow and help provide further flexibility over capital allocation.
Jonathan Ferrari: Second, with this established and growing profitability, cash flow generation, and capital flexibility, we have reduced net leverage measured as net debt divided by LTM adjusted EBITDA by 70%, from over eight turns nine months ago to just over two turns today. Both by repaying bank debt and increasing profitability, we have significantly de-risked our capital structure.
Speaker Change: Second with this established and growing profitability.
Speaker Change: Cash flow generation and capital flexibility, we have reduced net leverage measured as net debt divided by LTM adjusted EBITDA by 70%.
Speaker Change: From over eight turns nine months ago to just over two turns today.
Speaker Change: Both by repaying bank debt and increasing profitability, we have significantly derisked our capital structure.
Jonathan Ferrari: Again, our capital position provides flexibility to allocate capital across multiple growth avenues in the coming quarters and years. We are pleased with our financial performance, profitability, and cashflow generation in the first half of this year and are also encouraged by the improvement in the growth trajectory of our core meal kit business. This new delicious meal option, the new delicious meal options we have given our members, and the improved user experience we have delivered have driven the largest ever average basket size our customers have ordered in our 10 years of existence.
Speaker Change: Again, our capital position provides flexibility to allocate capital across multiple growth avenues in the coming quarters and years.
Speaker Change: We are pleased with our financial performance profitability and cash flow generation in the first half of this year and are also encouraged by the improvement in the growth trajectory of our core meal kit business.
Speaker Change: This new delicious meal option, the new delicious meal option, we have given our members and the improved user experience we have delivered.
Speaker Change: Driven the largest ever average basket size, our customers have ordered and our 10 years of existence.
Roslane Aouameur: Our year-over-year net sales progression is also improving, with a 5% year-over-year decline in sales this quarter, showing we are closing the gap to generating top-line growth while continuing to grow profitability and cash flows by focusing on profitable sales. With our profitability consistently growing, we firmly believe that relentlessly enhancing customer value will drive top-line growth, which, with our current cost structure, will, in turn, generate operating leverage and continue to grow cash flow. On that note, Russ will now go over our financial performance in greater detail. Thank you, John. And good morning, everyone.
Speaker Change: Our year over year net sales progression is also improving with a 5% year over year decline in sales. This quarter, showing we are closing the gap to generating top line growth, while continuing to grow profitability and cash flows by focusing on profitable sales.
Speaker Change: With our profitability consistently growing we firmly believe that relentlessly enhancing customer value will drive topline growth.
Speaker Change: That with our current cost structure will in turn generate operating leverage and continue to grow cash flows.
Speaker Change: On that note Russell I'll now go over our financial performance in greater detail.
Russell: Thank you John and good morning, everyone I will now turn to slide four which provides detail on detailed on our topline performance.
Roslane Aouameur: I will now turn to slide four, which provides details on our top line performance. Quarterly active customers during the second quarter were 117,000 compared to 124,000 in the same quarter of fiscal 23 and 124,000 in the previous quarter Q1 of fiscal 24. The sequential quarterly decline stems from holiday seasonality and slower customer activity at the beginning of the calendar year.
Quarterly active customers during the second quarter were 117000 compared to 124000 in the same quarter of fiscal 'twenty, three and 124000 in the previous quarter Q1 of fiscal 'twenty four distinct.
Russell: The sequential quarterly decline stems from holiday seasonality and slower customer activity at the beginning of the calendar year.
Roslane Aouameur: As such, net sales were $39.8 million for the quarter, a 2.2 million or 5% year over year decline and a 700,000 or 1.7% sequential decline compared to the first quarter. This was the result of lower customer count and orders driven by consumer spending softness and GDP per capita reduction, offsetting customer activity with larger basket sizes from ordering customers as our net sales per active customer hit a high of $340 on the back of record average order value.
Russell: Net sales were $39 $8 million for the quarter at $2 2 million or 5% year over year decline and 700000 or one 7% sequential decline compared to the first quarter.
This was the result of lower customer count and orders driven by consumer spending softness in GDP per capita reduction ups.
Russell: Offsetting customer activity with larger basket sizes from ordering customers as their net sales per active customer hit a high of $240 on the back of record average order value.
Roslane Aouameur: With the current market circumstances, we expect to return to year-over-year growth, organic growth, when the macro headwinds abate. Our focus remains on growing cash flow generation and disciplined unit economic spending. We will now turn to slide five to review our profitability update. We are pleased to have now delivered five consecutive quarters of positive adjusted EBITDA. On the back of continuous operating improvement, gross margin reached a record 43% in the second quarter, a 230 basis points improvement compared to the same quarter last year. Highlighting our focus on profitable customers is the fact that our gross profit remained flat year over year at $17.1 million when net sales declined 5% in the same time period.
Russell: With the current market circumstances, we expect to return to year over year growth organic growth when the macro headwinds abate our focus remains on growing cash flow generation and discipline to unit economics spending.
Russell: We will now turn to slide five to review our profitability levels.
Russell: We are pleased to have not delivered five consecutive quarters of positive adjusted EBITDA.
On the back of continuous operating improvement gross margin reached a record 43% in the second quarter of 230 basis points improvement compared to the same quarter last year.
Russell: Highlighting our focus on profitable customers is the fact that our gross profit remained flat year over year at $17 $1 million, while net sales declined 5% in the same time period.
Roslane Aouameur: With the improved gross margin and consistently improving SG&A efficiency, we achieved $3.5 million of adjusted EBITDA this quarter for a margin of nearly 9% and a 1.7% improvement year over year. This growing level of margin is the result of our team's relentless work to enhance the efficiency of our operations and to sustain a lean and mean cost structure. In recent months, we have improved our key operational and production metrics and increasingly implemented tools, whether artificial intelligence or technology tools, that have streamlined our production process and led to substantial improvements in the productivity of our leaner teams.
Russell: With the improved gross margin and consistently improving SG&A efficiency, we achieved $3 $5 million of adjusted EBITDA. This quarter for a margin of nearly 9% and one 7% improvement year over year.
This growing level of margin is a result of our team's relentless work to enhance the efficiency of our operation and to sustain a lean and lean cost structure.
Russell: Recent months, we have improved our key operational and production metrics and increasingly implemented tools, whether it's artificial intelligence or technology tools that have streamlined our production process and led to a substantial improvement in the productivity of our team.
Russell: Combined with pricing optimization, and a focus on our most profitable products and customers. These structural improvements have driven an LTM adjusted EBITDA of $9 million.
Roslane Aouameur: Combined with pricing optimizations and a focus on our most profitable products and customers, these structural improvements have driven an LTM adjusted EBITDA of $9 million. We mentioned last quarter that we believe we clearly have a solid platform to sustain growing profitability. We can now add that everyone at Goodfood is relentlessly enhancing that platform to continue giving our customers more without requiring more resources. I will now move to slide six for a review of cash flows.
Russell: We mentioned last quarter that we believe to clearly have a solid platform to sustain growing profitability. We can now add that everyone. At good food is relentlessly enhancing that platform to continue giving our customers more without requiring more resources.
Russell: I will now move to slide six for a review of cash flows.
Russell: Capital expenditures on leverage.
Russell: Cash flows generated by operating activities were approximately $100000 in the quarter of $4 $5 million improvement compared to the same quarter last year.
As mentioned last quarter, one of the key reasons for the $3 8 million first quarter as CFO, what are the timing of large payment to English.
Roslane Aouameur: Capital Expenditures, and Leverage. Cash flows generated by operating activities were approximately $100,000 this quarter, a $4.5 million improvement compared to the same quarter last year. As mentioned last quarter, one of the key reasons for the $3.8 million first quarter CFO was the timing of large payments and invoices. That timing reversed this quarter as expected.
Russell: That timing reversed this quarter as expected.
Russell: Still its profitability continues to grow and capital expenditures remained low given the relative units of her outfit.
Russell: Adjusted free cash flows remain positive as they have been for three of our past four quarters, reaching <unk> $3 million and year to date and $7 $4 million in the past 12 months.
Russell: As John outlined its free cash flow generation.
Russell: Enabled a reduction in debt, which combined with our growing profitability have brought net leverage growth eight two turns in the third quarter last year to a manageable two four turns this quadrant.
Roslane Aouameur: Still, as profitability continues to grow and capital expenditures remain low given the relative units of our assets, our adjusted free cash flows remain positive, as they have been for three of our past four quarters, reaching $4.3 million year to date and $7.4 million in the past 12 months. As John outlined, this free cash flow generation has enabled a reduction in debt, which, combined with our growing profitability, has brought net leverage from 8.2 turns in the third quarter last year to a manageable 2.4 turns this quarter.
Russell: Deleveraging and cash flow generated to highlight our disciplined approach to cost management and capital allocation and our commitment to delivering long term shareholder value.
Russell: Turning to slide seven you will find our performance this quarter, a summary of our performance this quarter.
Russell: We're pleased with the sustained strength of our financial performance with growing profitability on display again this quarter.
Russell: The majority of our financial Kpis unit economics, and customer feedback metrics continue to show sustained improvement.
Russell: The positive free cash flow, we have generated in three of the past four quarters and positive adjusted EBITDA in five consecutive quarters, demonstrating the remarkable turnaround our teams work has helped achieve.
Roslane Aouameur: The deleveraging and cash flow generated highlight our disciplined approach to cost management and capital allocation in our commitment to delivering long-term shareholder value. Turning to slide seven, you will find our performance this quarter, a summary of our performance this quarter. We are pleased with the sustained strength of our financial performance, with growing profitability on display again this quarter. The majority of our financial KPIs, unit economics, and customer feedback metrics continue to show sustained improvement.
It also provides capital flexibility as we moved from operating with limited financial flexibility generating cash and paying down debt.
Russell: As we look to continue on that positive momentum our stable displayed and generate growth. We are energized by this flexibility and which open up multiple avenues for growth overall.
Russell: Overall, we remained disciplined and keep our focus on profitable growth, which puts us in a strong position to enhance our customer value proposition every day and to continue delivering growth growing cash flows and we look forward to accelerating that growth and profitability.
Jonathan Ferrari: The positive free cash flow we have generated in three of the past four quarters and positive adjusted EBITDA in five consecutive quarters demonstrate the remarkable turnaround our team's work has helped achieve. It also provides capital flexibility as we move from operating with limited financial flexibility to generating cash and paying down debt. As we look to continue on the positive momentum, our stable sales displayed and generated growth. We are energized by this flexibility, which opens up multiple avenues for growth.
Russell: John will now provide an update on our outlook.
Yeah.
John: Thank you Ross.
John: Moving to slide eight.
John: We have shared in recent quarters, our customers feedback and the delicious meals, our chefs or cooking up to incorporate our ratings that feedback.
Speaker Change: In the current challenging economic climate.
Speaker Change: Bruce whether young families are busy professionals increasingly want to prepare and eat healthy and delicious meals at home discovered new and buried ingredients and do so at a great value.
Speaker Change: We have taken that feedback in stride and brought into our assortment of healthy recipes with an expanded array of better for you protein options.
Jonathan Ferrari: Overall, we remain disciplined and keep our focus on profitable growth, which puts us in a strong position to enhance our customer value proposition every day and to continue delivering growing cash flows. And we look forward to accelerating that growth in profitability. John will now provide an update on our progress. Thank you, Ross.
A cleaner more intuitive digital products now also allows members to more easily browse and select from a wider variety of nutritious and delicious recipes.
Speaker Change: What's more our enhanced platform now allows members to customize their recipes by selecting from a variety of farm fresh proteins with a simple click of a button on a dropdown menu.
Speaker Change: As you may have seen we have continued adding Canadian flavor to our menu through partnerships with leading Canadian chefs. Most recently, we created unique mouthwatering recipes with Halifax based restaurant bicycle thief.
Jonathan Ferrari: Moving to slide eight, we have shared in recent quarters our customers' feedback and the delicious meals our chefs are cooking up to incorporate our raving fans' feedback. In the current challenging economic climate, our members, whether young families or busy professionals, increasingly want to prepare and eat healthy and delicious meals at home, discover new and varied ingredients, and do so at a great value. We have taken that feedback in stride and brought it into our assortment of healthy recipes with an expanded array of better for you protein options.
Speaker Change: Chef, Michael to Caito, and our very own chef Giordano combined to create meals are loyal fans absolutely loved.
Speaker Change: In addition to answering our members call.
Speaker Change: For a more health focused auctions and bringing Canadian deliciousness from coast to coast.
Speaker Change: We are also adding more value options through our lineup to give our members the ability to order with good food on any budget.
We will be expanding our rotation of delicious value meals at $10 99 per serving that combine our leading culinary creativity with our farm fresh ingredients.
Jonathan Ferrari: Our cleaner, more intuitive digital product now also allows members to more easily browse and select from our wider variety of nutritious and delicious recipes. What's more, our enhanced platform now allows members to customize their recipes by selecting from a variety of farm fresh proteins with a simple click of a button on a drop-down menu. As you may have seen, we have continued adding Canadian flavor to our menu through partnerships with leading Canadian chefs. Most recently, we created unique mouth-watering recipes with Halifax-based restaurant, Bicycle. Chef Michael Tocchetto and our very own Chef Jordana combined to create meals our loyal fans absolutely love.
Speaker Change: And clearly focusing on our customers' needs is beginning to yield results.
Speaker Change: Good food members are ordering the biggest baskets, we have ever sold.
Speaker Change: And any more portions of our recipe has been ever.
Speaker Change: These results are also shown in the momentum our sales have demonstrated bringing us closer to closing the gap to year over year growth with this quarter, representing the best year over year net sales evolution since 2021.
Speaker Change: Overall, we are pleased to continue consistently growing our profitability and cash generation.
Speaker Change: We have enhanced and will continue to enhance our customer value proposition and with consistent SG&A and operational discipline. We are in a strong position to continue growing our free cash flow at an attractive pace in fiscal 2024 and beyond.
Jonathan Ferrari: In addition to answering our members' calls for more health-focused options and bringing Canadian deliciousness from coast to coast, we are also adding more value options to our lineup to give our members the ability to order with Goodfood on any budget. We will be expanding our rotation of delicious value meals at $10.99 per serving that combine our leading culinary creativity with our farm fresh ingredients.
Speaker Change: On that note I will turn it over to the operator for the Q&A portion of this call.
Operator: Thank you Les.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the number one on your touch point it will be a prompt that your hand, that's been Grace should you wish to decline from the polling process. Please press. The star followed then number two if you are using a speaker phone please lift the hand.
Unknown Executive: Clearly, focusing on our customers' needs is beginning to yield results; members are ordering the biggest baskets we have ever sold, containing more portions of our recipes than ever. These results are also shown in the momentum our sales have demonstrated, bringing us closer to closing the gap to year-over-year growth, with this quarter representing the best year-over-year net sales evolution since 2021. Overall, we are pleased to continue consistently growing our profitability and cash generation.
Speaker Change: Before pressing any Keith.
Speaker Change: One moment. Please for your first question.
Speaker Change: Your first question comes from the line of Martin Landry from Stifel. Please ask your question.
Martin Landry: Hi, Good morning, guys and congrats on your results.
Martin Landry:
Martin Landry: In your opening remarks, you've.
Martin Landry: You've talked a lot about you know your cash generation.
Martin Landry: Potentially opening up new growth a portion of these.
Unknown Executive: We have enhanced and will continue to enhance our customer value proposition, and with consistent SG&A and operational discipline, we are in a strong position to continue growing our free cash flow at an attractive pace in fiscal 2024 and beyond. On that note, I will turn it over to the operator for the Q&A portion of this call. Thank you. Ladies and gentlemen, we'll now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touch phone.
Martin Landry: I was wondering if you didn't give us some example or colors or any ideas.
More details about what what do you what do you mean by new grown unfortunate east.
Martin Landry: Okay.
Speaker Change: Good morning MSA.
MSA: So yes, our key focus right now is to continue.
Speaker Change: Growing the cash flow generation.
Speaker Change: And paying down.
Some of the debt that we have on our balance sheet.
Speaker Change: I think that that remains the key short term focus and we're quite pleased with where our leverage ratio is ending up this quarter at a two times LTM EBITDA.
Unknown Executive: You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys.
Speaker Change: I think we're also being.
Speaker Change: Presented with some opportunistic acquisition.
Speaker Change: Acquisition opportunities.
Unknown Executive: One moment, please for your first question. Your first question comes from the line of Martin Landry from Stiefel. Please ask your question. Hi, good morning guys, and congrats on your results. In your opening remarks, you talked a lot about, you know, your cash generation potentially opening up new growth opportunities. I was wondering if you could give us some examples or colors or any ideas or more details about what you mean by new growth opportunities. Good morning, Matte.
Speaker Change: Certainly in the small business space, the high rates and the difficult consumer.
Speaker Change: Consumer environment have created.
Speaker Change: A situation, where there's a lot of motivated business owners that are looking.
Speaker Change: Looking to do deals.
Speaker Change: So we're taking a look at some of those opportunities and seeing if any of that could be a good fit the focus is on certainly being able to leverage good foods assets customer base.
Speaker Change:
Speaker Change: <unk> footprint and of course, making sure that there.
Speaker Change: Cash flow positive and accretive to our overall cash generation.
Speaker Change: Yeah.
Jonathan Ferrari: So yeah, our key focus right now is to continue growing cash flow generation and paying down some of the debt that we have on our balance sheet. I think that that remains the key short-term focus, and we're quite pleased with where our leverage ratio is ending up this quarter at two times LTM EBITDA. I think we're also being presented with some opportunistic acquisition opportunities. Certainly, in the small business space, the high rates and the difficult consumer environment have created a situation where there are a lot of motivated business owners that are looking to do deals. So we're taking a look at some of those opportunities and seeing if any of them could be a good fit.
Speaker Change: Okay. That's helpful.
Speaker Change: Refreshing as well.
Speaker Change:
Speaker Change: You know.
Speaker Change: During the during the quarter.
Speaker Change: You know one of your competitor has filed for bankruptcy protection.
Speaker Change: And you know they are in.
Speaker Change: <unk> been in transition and I think have been sold as a result, so I would assume they they've they've incurred a lot of disruption.
Speaker Change: And I was wondering if this quarter is representative of.
Speaker Change: Normal operating conditions.
Speaker Change: You know.
Speaker Change: What does that competitor much less active on the marketing front that allow you to maybe reduce it a little bit youre spending get better return on.
Jonathan Ferrari: The focus is certainly being able to leverage Goodfood's assets, customer base, and footprint and, of course, making sure that they're cash flow positive and accretive to our overall cash flow. Okay, that's helpful. It's refreshing as well.
Speaker Change: AD spending on your marketing spend can you comment a little bit on the competitive.
Speaker Change: And dynamic that occurred during the quarter.
Hey, Mark Thanks for the question.
Unknown Executive: You know, during the quarter, one of your competitors filed for bankruptcy protection, and you know, they've been in transition and, I think, have been sold as a result. So I would assume they've incurred a lot of disruption. And I was wondering if this quarter is representative of, you know, normal operating conditions.
Speaker Change: In the past.
Mark: Call. It six months nine months haven't exactly been normal operating conditions overall.
Mark: From a macro perspective.
Mark: In the DTC consumer landscape has seen a softness.
Speaker Change: I don't I don't think the specific situation you were referring to is having.
Mark: A big.
Mark: That's on our ability to acquire.
Mark: Acquire customers and retain customers.
I think there's still a there's still a sizable gap.
Neil Cuggy: Was that competitor much less active on the marketing front? Did that allow you to maybe reduce a little bit your spending, get a better return on your ad spend or on your marketing spend? Can you comment a little bit on the competitive dynamic that occurred during the quarter? Hey, Martin.
Mark: In sizing and any investment I'm, sorry, I'm not sure if it had a significant impact I think.
I can say is that both the previous company and and the acquiring company are good operators and we continue to believe.
Mark: I believe that they.
Mark: It will be a good player in the market.
Neil Cuggy: Yeah, thanks for the question. So I think the past, call it six months, nine months, haven't exactly been normal operating conditions. Overall, I think, from a macro perspective, everyone in the DTC consumer landscape has seen softness. I don't think the specific situation you're referring to has had a big impact on our ability to acquire customers and retain customers. I think there's still a sizable gap in size and in investment. So I'm not sure if it had a significant impact.
Mark: I don't think at this stage and at levels and scaled it affect our investments and our return on investment very very significantly.
Mark: Okay.
Speaker Change: And my last question.
Speaker Change: As more of a longer term.
Speaker Change: Outlook.
Speaker Change: You know you've generated.
Speaker Change: Your EBITDA margin I think around eight 9% its the highest.
Speaker Change: In a long time.
Speaker Change: You know is is this peak profitability in terms of margin for you guys are now I know you've reduced your costs a lot.
Speaker Change: You've pushed your gross margins high.
Neil Cuggy: I think what I can say is that both the previous company and the acquiring company are good operators, and we continue to believe that they will be a good players in the market. I don't think, at this stage and at levels of scale, it affects our investments and our return on investments very, very significantly.
Speaker Change: Is there still more juice in the system or or or are we going to need to see.
Speaker Change: Revenue growth not just the fixed cost.
Speaker Change: Absorption and result in margin expansion, just just a little bit of a discussion as to where do we go from here from from an EBITDA margin of eight 9% obviously.
Speaker Change: Knowing that theres huge seasonality in your business.
Speaker Change: Yeah.
Unknown Executive: And my last question is more of a longer-term outlook. You know, you've generated your EBITDA margin, I think around 8.9%. It's the highest in a long time.
Speaker Change: Thanks. Thanks for the question about that I think yes, I mean, we were constantly thinking about and.
Speaker Change: For as long as we've been a public company, we had been forecasting.
Speaker Change: Forecasting double digit margin potential I think we see that.
Unknown Executive: You know, is this peak profitability in terms of margin for you guys? I know you've reduced your costs a lot. You've pushed your gross margins high.
Speaker Change: Closer than than ever.
Speaker Change: The operating leverage that we see now with the cost base that we have in place and further improvements are in.
Unknown Executive: Is there still more juice in the system, or are we going to need to see revenue growth now to improve fixed cost absorption and result in margin expansion? Just a little bit of a discussion as to where we go from here with an EBITDA margin of 8.9%. Obviously, knowing that there's huge seasonality in your business. Thanks.
Driven by efficiency, our AI investments or things like that well just kind of make that dream, even more of a reality in the not so distant future. So a lot of leverage going forward and you know some of the.
Speaker Change: Vision and growth opportunities that John mentioned I think could.
Neil Cuggy: Thanks for the question. I think, yeah, it's something we are constantly thinking about. And, you know, for as long as we've been a public company, we've been forecasting double-digit margin potential. And I think we see that closer than ever. The operating leverage that we see now with the cost base that we have in place and further improvements driven by efficiency or AI investments or things like that will just kind of make that dream even more of a reality in the not-so-distant future.
Speaker Change: It could help on that front as well.
Speaker Change: Yes, I hope that gives you a good direction.
Speaker Change: Okay.
Speaker Change: Okay. Thank you I'll add as well.
Speaker Change: We continue to be focused on.
Automating and implementing technology within our processes and so I think the the EBITDA margin improvement from here is it unlikely to come from our growth in the in the gross margin, but more from efficiencies on on the G&A side, and that's primarily coming from implemented.
Neil Cuggy: So a lot of leverage going forward and, you know, some of the acquisitions and growth opportunities that Jon mentioned could help on that front as well. Yes, I hope that gives you a good idea of where we're heading. Okay, thank you.
Speaker Change: Technology automation.
Speaker Change: And you know AI providers that can help us reduce our cost basis.
Speaker Change: It also helps improve the consistency of our execution and really the simplicity of our operations. So we're excited to continue implementing that going forward.
Neil Cuggy: I'll add as well, Matt, as we continue to be focused on: transcripts provided by Transcription Outsourcing, LLC. The EBITDA margin improvement from here is unlikely to come from a growth in the gross margin but more from efficiencies on the GNA side. And that's primarily coming from implementing technology automation and AI providers that can help us reduce our cost basis. It also helps improve the consistency of our execution and really the simplicity of our operations. So we're excited to continue implementing that going forward. Okay, that's helpful. Thank you guys. Our next question comes from the line of Frederick Tremblay from Dischardens. Please ask your question. Thanks.
Speaker Change: Okay. That's helpful. Thank you guys.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Frederic Tremblay from discharging. Please ask your question.
Frederic A. Tremblay: Thanks, maybe we can start with a quick follow up on the previous answer just on the second automation that you mentioned, who.
Frederic A. Tremblay: Does that change the capex outlook for the company and our Capex has been pretty modest in recent quarter any changes there given.
Speaker Change: It's economic Imation investments or initiatives that you just mentioned.
Speaker Change: Yes, I think the automation mentioned it is more not a machine in terms of cross the Ts and work within the corporate functions and less on the operating side.
Speaker Change: So meaning tools that help automate some of our workflows for order processing or floor.
Speaker Change: For.
Speaker Change: Certain investments in whether its in marketing whether it's in other tools that we have it its less about machinery I.
Unknown Executive: Maybe we can start with a quick follow-up on the previous answer. Just on the tech and automation that you mentioned, does that change the CapEx outlook for the company? You know, CapEx has been pretty modest in recent quarters.
Speaker Change: I think it doesn't really change your capex outlook very much do I think we're always on the lookout for them really high ROI quick payback.
Speaker Change: Capital investments.
Speaker Change: That fit within within our budget and what we're looking to achieve operationally, but the automation references with more supply on the corporate side.
Neil Cuggy: Any changes there given, take an automation investment or initiative that you just mentioned. Yeah, I think the automation mentioned is more automation in terms of processes and work within the corporate function, less on the operating side. So meaning tools that help automate some of our workflows for over processing or for certain investments in, whether it's in marketing, whether it's in other tools that we have; it's less about machinery.
Speaker Change: Okay. Thanks for that and then maybe just thinking about you know potential ways to further increase the basket size here, maybe specifically on the add on products, how many add on products.
Speaker Change: Right now and what percentage of an average basket to add on.
Speaker Change: Representing a free and then I guess the follow up to that is where do you think those metrics could potentially grow our add on products. I guess are a key component of outgrowing the baskets.
Neil Cuggy: I think it doesn't really change your CapEx outlook very much. So I think we're always on the lookout for really high ROI, quick payback, capital investments that fit within our budgets and what we're looking to achieve operationally, but the automation reference was more on the corporate side. Okay, thanks for that. And then maybe just thinking about, you know, potential ways to further increase the basket size here, maybe specifically on the add-on products. How many add-on products, you know, do you have right now?
The future or is it more about adding more selection around the actual milk at site.
Speaker Change: Yeah. Thanks for that question, Fred I think right now we're in a in about the 150 different add on products available on the site. What we've been focusing on recently is trying to provide more value through bundling.
Speaker Change: Different meal occasions, and different bundles that are that help customers see value in the <unk> and the add on selection above and beyond just that grocery selection that we were trying to build out a couple of years ago, but I think you'll continue to see us focus on kind of meal occasion.
Neil Cuggy: And what, roughly, what percentage of an average basket do add-ons represent roughly? And then, I guess the follow-up to that is, where do you think those, you know, metrics could potentially grow? Are add-on products, I guess, a key component of growing a basket in the future, or is it more about adding more selection around the actual milk itself?
Speaker Change: Bundles and meal occasion grocery items that are that help add value to our customers lives.
Speaker Change: We will continue to invest in digital product enhancements that help our customers get exposed to the add on products and increase that would be I think the majority of it will be I think will come from <expletive>.
Speaker Change: Different meal kit additions as well so we will continue to add.
Neil Cuggy: Yeah, thanks for the question, Fred. I think right now we have about 150 different add-on products available on the site. What we've been focusing on recently is trying to provide more value through bundling and different meal occasions and different bundles that help customers see value in the add-on selection above and beyond just that grocery selection that we were trying to build out a couple years ago. I think you can continue to see us focus on kinds of meal occasions, bundles, and meal occasion grocery items that that help add value to our customers' lives.
Speaker Change: Talked about value a value plan enhancements different standalone products bundling on the meal kit side. So there's a lot more.
Speaker Change: Generally I think that we can grow a L D on that side.
Speaker Change: The business in today.
Speaker Change: It's.
Speaker Change: Percentage of revenue, but it's a high NPS driver for a lot of our loyal customers.
Speaker Change: That that order with us.
Speaker Change: On a regular basis.
Speaker Change: Okay, great. Thanks for that and last question for me just on the SG&A. So.
Speaker Change: The decrease in SG&A in Q2 was primarily attributed to lower marketing spend as well as.
Neil Cuggy: We will continue to invest in digital product enhancements that help customers get exposed to the add-on products and increase AOV. I think the majority of AOV, I think, will come from different meal kit additions as well.
Speaker Change: I don't know where wages are utilities and insurance expenses I imagine that.
Speaker Change: Savings and salaries utilities, and insurance are pretty sticky, but I mean, what about the marketing spend when should we expect the company or should we expect the company to be potentially more aggressive on the marketing front.
Speaker Change: Okay.
Neil Cuggy: So we'll continue to add value, we talked about value plan enhancements, different standalone products, and bundling on the meal kit side. So there's a lot more opportunity, I think, that we can grow AOV on that side of the business.
Speaker Change: It comes always with discipline on unit economics, I think we are our marketing spend in our marketing budgets are here, they're trying to find them.
Speaker Change: If you think of our unit economics, it basically how much lifetime net sales and gross profit we make out of a customer that we acquire them.
Speaker Change: And acquiring that customer is sort of the first of the two.
Neil Cuggy: It's, you know, it's a small percentage of revenue, but it's a high NPS driver for a lot of our loyal customers that order with us on a regular basis. Okay, great. Thanks for that. Last question for me on SG&A. So the decrease in SG&A in Q2 was primarily attributed to lower marketing span as well as, [inaudible] I think it means it comes always with discipline on unit economics. I think we are always marketing spend, and our marketing budgets are clear; they're clearly defined.
Denominator and in that return so we got to make sure that we're very disciplined on that denominator to keep our return targets on track I'm.
Speaker Change: So I think as you know we.
Speaker Change: We are.
Speaker Change: Able to spend more on marketing a win win that denominator is is that a level that's logical and.
Speaker Change: And.
Speaker Change: So I wouldn't say that we're necessarily going to increase.
Speaker Change: Marketing spend significantly, but I think it'll definitely be driven by the ability to generate the unit economics that we target.
Speaker Change: Okay. That's helpful. Thanks for taking the questions.
Speaker Change: [noise].
Alright, that's it for the questions today, thanks for joining everyone and we look forward to speaking with you again at our next call.
Neil Cuggy: I think if you think of our unit economics, it's basically how much lifetime net sales and gross profit we make from a customer that we acquire. And acquiring that customer is sort of the first denominator in that return. So we have to make sure that we're very disciplined on that denominator to keep our return targets on track. So I think, you know, we are able to spend more on marketing when that denominator is at a level that's logical and, and, So I wouldn't say that we're necessarily going to increase marketing spend significantly, but I think it will definitely be driven by the ability to generate the unit economics that we target.
Speaker Change: Thank you ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Neil Cuggy: Okay, that's helpful. Thanks for taking the time to ask the question. All right, that's it for the questions today. Thanks for joining us, everyone. And we look forward to speaking with you again on our next call. Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. (inaudible)
Speaker Change: Okay.
Speaker Change: Yes.
No.
Speaker Change: [music].
Speaker Change: Hum.
Speaker Change: <unk>.