Goodfood Q1 FY 2026 Earnings Call - Business Stabilization and Margin Discipline Amidst Demand Pressure

Conference Operator: Good morning, ladies and gentlemen, and welcome to the Goodfood Q1 FY 2026 earnings call and webcast. At this time, all participants are in a listen-only mode. 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 0 for operator assistance at any time. I would like to remind everyone that this conference call is being recorded today, January 20, at 8:00 A.M. ET. 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. 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, Salim Bassoul. Mr. Bassoul, you may proceed.

Salim Bassoul, Executive Chairman, Goodfood: Thank you. Bonjour tout le monde. Bienvenue à l’appel conférence de marché Goodfood pour présenter nos résultats financiers du premier trimestre de l’exercice 2026 qui s’est clos le 6 décembre 2025. Good morning, everyone. Welcome to our Goodfood earnings call, in which we’ll present our results for the first quarter of fiscal 2026 ended December 6, 2025. Ross Aouameur, our Chief Financial Officer, is with me today. You can find our press release and other filings on our website and SEDAR, plus all figures on these calls are in Canadian dollars unless otherwise noted. Before we begin, this is my first earnings call as Executive Chairman, and I joined Goodfood with a clear mandate: stabilize the business, protect cash, and rebuild discipline. That work is underway. I also want to acknowledge the recent announcement by the Canadian Food Inspection Agency regarding the suspension of a license at our Montreal facility.

Food safety and regulatory compliance are non-negotiable for us. We worked constructively with the CFIA, addressed the identified issues, and the license has now been reinstated. We continue to work with the CFIA to close all pending issues and ensure we have all required licenses at all times. Let’s begin our review of the quarter with slide 3. Q1 went mostly as we expected and highlighted during the last call in late November. The meal kit category remains under pressure. Customer demand is muted, and we are not assuming a near-term recovery. In that environment, our focus is straightforward: protect margins, generate cash, and run the business with discipline at the current volumes. Against that backdrop, we delivered positive Adjusted EBITDA and positive Adjusted free cash flow in the quarter. These outcomes are the product of tighter cost controls, improved execution, and a deliberate focus on cash and margins.

That matters because it confirmed that this business can generate cash even at lower volumes when run with discipline. Gross margin increased by 270 basis points year over year, driven primarily by higher average order value and lower incentives as a percentage of sales. This is important because it demonstrates that even as volumes are lower, the operating model can remain resilient when we stay focused on unit economics and cost discipline. At the same time, we are clear-eyed about the top line. Net sales were down 21% year over year, largely reflecting fewer active customers and lower order rates. We intentionally reduced marketing and incentive intensity, and we are prioritizing profitable demand rather than chasing volume for its own sake. Two initiatives are helping us stabilize the business at today’s demand levels. First, Heat & Eat continues to build relevance by addressing convenience and value for customers.

Second, Genuinty is performing well and is contributing to the diversification of our top line. These initiatives are not a return to growth story. They are tools to improve revenue quality, basket economics, and cash generation while the category remains under pressure. With that, I will turn it over to Ross to walk us through the financials in more detail.

Ross Aouameur, Chief Financial Officer, Goodfood: Thank you, Salim, and good morning, everyone. I will begin on slide 4 with net sales and active customers. Net sales for the first quarter were CAD 27.5 million compared to CAD 34.7 million in the prior year period, a decrease of 21%. The decline was driven by fewer active customers and lower order rates, partially offset by higher average order value and the performance of Genuinty. Active customers ended the quarter at approximately 66,000. As Salim noted, we have been deliberate in reducing marketing and incentives. While this impacts customer count in the near term, it supports improved unit economics and margin protection. Importantly, as a result of that focus on quality cohorts and economics, net sales per active customers increased meaningfully year over year, reflecting record basket values in recent quarters and lower discounts.

This is consistent with our strategy to prioritize profitable demand and deepen wallet share among higher quality cohorts. I will now turn to slide 5 to discuss margins and profitability. Gross profit was CAD 11.6 million in Q1, on the back of gross margin improving to 42.3% from 39.6% a year ago. The improvement was primarily driven by a higher average order value and lower incentives as a percentage of sales, partially offset by higher fulfillment and shipping costs and lower fixed cost absorption on lower volumes. Adjusted EBITDA was CAD 1 million compared to CAD 1.6 billion in the prior year. The year-over-year decrease reflects lower net sales and lower scale, partially offset by gross margin improvement and disciplined SG&A spend. Net loss for the quarter was CAD 2.6 million compared to CAD 1.7 million a year ago, reflecting the same top line and scale dynamic.

Moving now to slide 6, cash flows from operating activities were positive at CAD 1.4 million. Capital expenditures remained low at approximately CAD 160,000, and adjusted free cash flow was CAD 1.2 million for the quarter. We continued to focus on cash generation, working capital discipline, and maintaining a conservative approach to investments. Overall, we generated positive adjusted free cash flow for seven of the past nine quarters, reinforcing a more stable financial foundation even as we adjust to current market dynamics driving a lower customer base. With that said, we have seen net leverage increase, and our focus will continue to be protecting the balance sheet and liquidity as we prudently evolve the business. Turning to slide 7, which summarizes our key financial metrics this quarter. Growing gross margin year over year has given our business the resilience needed to continue generating positive EBITDA and cash flows.

With increased discipline and execution, this resilience provides the basis for consistent margin and cash flow protection in the current demand environment. At quarter end, cash and cash equivalents were CAD 11.8 million, and marketable securities were CAD 2.7 million, for a total of approximately CAD 14.5 million. As Salim mentioned, our priority is maintaining adequate liquidity and applying disciplined capital allocation to support operations and strengthen the business and balance sheet over time. With that, I will pass it back to Salim, who will talk about our outlook.

Salim Bassoul, Executive Chairman, Goodfood: Thanks, Ross. Let’s now turn to slide 8. This is where I want to spend the majority of my remarks because this quarter and this year are about making Goodfood simpler, more resilient, and more disciplined. First, let’s address operating environment and resilience. The meal kit remains under pressure. We are not building plans around a near-term rebound. Instead, we are focused on operating efficiently at current demand levels. That means protecting gross margin, staying disciplined on incentives, and continuing to drive a more flexible cost structure. We’ll prioritize actions that improve repeat behavior and customer experience without adding fixed cost back into the model. Second, leadership and execution. We are reassessing our talent needs and the way we are organized today to improve our decision-making process. Speed of execution and innovation. This process will be complete in the next 100 days.

When I joined, we also launched an operational review that is advancing well. The purpose of that review is to sharpen execution. We are tightening decision-making and accountability across the organization, simplifying processes, and aligning the business around cash flow and margin performance. Practically, that means focusing the product lineup on what customers value most, improving service reliability, and ensuring the organization operates with the right footprint and the right cost base for the volumes we see today. Third, portfolio evolution. We are evolving beyond a single product meal kit business. Heat & Eat and Genuinty are contributing to higher basket values, and sequential stabilization and diversification is helping mitigate pressure in the core meal kit business. Over time, we want a broader platform of brands that can benefit from our digital capabilities, procurement scale, and operational know-how.

But we will do this prudently and only where the economics are compelling. Fourth, capital allocation and the balance sheet. We ended the quarter with CAD 15 million of cash and marketable securities. At the same time, leverage is elevated. We do not ignore that. Liquidity and balance sheet protection are top priorities. Our near-term objective is simple: generate cash, preserve flexibility, and strengthen the balance sheet over time. Finally, when we talk about acquisitions, the filter is strict. We will remain highly selective. We’ll only pursue opportunities that are immediately accretive to cash flow and margin, strengthen the platform, and fit within our constraints or open broader avenues. Discipline on capital allocation is not a slogan. It is how we will manage this business. In closing, we continue to see pressure on the top line, and our internal data confirm that this is not a short-term fluctuation.

We are therefore running the business assuming continued pressure rather than a rebound. Some elements of our cost structure were built for a different scale of business, and we are also addressing that. Interest expense is a meaningful draw in cash flow, which reinforces why liquidity protection and balance sheet discipline are top priorities for us. As we look ahead, we are managing the business with a clear understanding of the pressures on cash flow, including continued top line softness, elements of our fixed cost structure that were built for a larger scale, financial costs that reduce flexibility, and the full cost of acquiring and servicing customers. These realities are precisely why our focus is on simplifying the model, improving unit economics, reducing structural drag, and allocating capital with discipline rather than optimism. With that, I will now turn it over to the operator for the Q&A.

Conference Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press the star followed by the one on your touch-tone phone. If you wish to cancel your request, please press the star followed by the two. If you’re using a speakerphone, please lift the handset before pressing any keys. Once again, that is star one should you wish to ask a question. Your question is from Frederic Tremblay from Desjardins. Your line is now open.

Ross Aouameur, Chief Financial Officer, Goodfood: Thank you. Good morning. Just within the new strategy, considering that the meal kit market is still challenging, what are some of the key elements that Goodfood wants to focus on to stabilize the business? Is it more on the product side, the marketing approach that would change? And also, if you could comment on, as best as you can forecast, what kind of timeline are we looking at in terms of executing that stabilization of the business? Is this more of a fiscal 2026 event, or are we thinking longer term than that? Thank you.

Management Representative, Goodfood: Yeah, thanks, Ted, for your question. So in terms of the first part of what it implies, I think it’s definitely making sure that when we look at our capital allocation and the returns we’re looking to get on some of our investments, including our marketing and other pieces of our SG&A, that that meets our criteria. So I think investing in marketing, making sure that the products we are servicing are the right products, making sure that the areas we’re servicing are the right areas, and that the footprint is adapted to that. So I think some of these items are somewhat obvious: the coupons, the marketing spend. Some of them will take a little longer, like making sure we have the right footprint in the right places. And I think from a product perspective, we’ve seen some good traction from Heat & Eat.

It builds relevance, as we mentioned on the call. So how do we make sure that that value perception that the customer sees in Quebec can be expanded further? So I think that’s the piece on what will be done, I think intrinsically anyway. Extrinsically, I think you can look at Genuinty as a category that’s performing well. And I think opportunities like that, when the capital allocation criteria are met, are interesting, and we’ll be looking to be disciplined, but also to execute on them rather quickly. And I think in terms of timing, I think some of it is already in place. Some of the decisions that we’ve made, we’ve already put in place in terms of where we put our marketing dollars, in terms of our incentives. Some of them will be coming over the course of the year.

We all want to do it as quickly as possible. I think we want to do it in a disciplined manner, in a manner that works and sustains in the long term, not just in the short term. So I think those are the key pieces to think about when we’re talking about what and when.

Ross Aouameur, Chief Financial Officer, Goodfood: Okay, great. Thanks for that. Maybe switching to cost a little bit. Are you seeing?

Management Representative, Goodfood: Sorry, just one thing, Fred. Sidney wanted to add something. He’ll go ahead. Apologies. Okay, sorry.

Salim Bassoul, Executive Chairman, Goodfood: I think, as you all know, fixes take focus. Focus takes time. And I think we see the turnaround. It’s a pure turnaround here, and it basically should happen within the next 18 months. And we should most probably set up a sustainably outperforming company within the next 18 months. This is not a one quarter to two. We’re not chasing calendar. We’re chasing results, and results take time.

Ross Aouameur, Chief Financial Officer, Goodfood: Okay. From a cost perspective, are you seeing cost inflation on ingredients? And if so, what kind of measures are you implementing to counter that and protect margins?

Management Representative, Goodfood: Yeah, I think inflation on the food side is not quite as rampant as it was 18, 24 months ago. It is still present. So I think we’re managing that from some of the items we select, some of the items we put in place. I think we haven’t done any price increases in quite a while in over 18 months and maybe even 24 months. So I think we have that flexibility, but we also want to make sure that the value we’re providing with the customer makes sense, especially in the current landscape that businesses are feeling with their inputs, but customers are also feeling in their wallets. So I think we’ll keep that in mind. I think for this quarter, we’ve had some additional costs related to the CFIA, some shipping from out west into eastern Canada, into Ontario. So that’ll impact Q2 more specifically.

But overall, from an inflation perspective, things are better than they were 18, 24 months ago. Still some challenges to it.

Ross Aouameur, Chief Financial Officer, Goodfood: Okay. And then maybe last topic for me on, I guess, the balance sheet and capital allocation. Just wanted to get your thoughts on, or further details on, how you see balancing the growth by acquisition ambitions, let’s call them, and the relatively tight financial position of the company, considering current leverage and upcoming venture maturity. Just wanted to get some additional thoughts on capital being allocated to M&A in that context.

Management Representative, Goodfood: Yeah, of course. When we mentioned setting our restrictions during the call, we do refer to our balance sheet and some of the restrictions that apply based on the capital structure. I think we’re going to look to make sure that we structure the transactions in a way that fits within our balance sheet, and then if opportunities that are more significant come to life and come to market, I think we’ll look at options that are beyond what’s currently in our capital structure.

Ross Aouameur, Chief Financial Officer, Goodfood: Okay, and then maybe last question, Salim or Ross. Have you identified or can you share maybe some of the sectors or geographies of interest? I assume we’re going to move away from the legacy meal kits a little bit from an M&A perspective, but is there anything in particular that catches your eye or opportunities that you’re seeing in the pipeline in certain sectors that you can share today?

Management Representative, Goodfood: I think there’s a few areas. Dismissing fully meal kits, given what we just said on the market, makes a lot of sense. There could be some synergistic opportunities, so we won’t fully dismiss those, but of course, we want something that has some pretty strong criteria on that front. I think more broadly, definitely adjacencies to what we do. We want to leverage our platform, whether it’s the digital platform, the infrastructure, physical, and technological. So we’re looking for adjacencies, not necessarily within food, but around the food and beverage network. So some businesses could be attractive beyond that, and we won’t leave a stone unturned to find the right fit. I think from a geographical perspective, North America makes a lot of sense just from a proximity perspective.

And given Salim’s experience in both building on the food processing, on the equipment side, and doing it across North America, that’s something we can look at. And Salim, go ahead.

Salim Bassoul, Executive Chairman, Goodfood: Yeah, I think our M&A strategy is still in its infancy. We’re looking at using our operating know-how, our ability to leverage our technology because Goodfood has good technology, and figuring out where we can take our capabilities, our expertise, the strength of our brand, and be able to leverage it across a platform that gives us synergies, quick integration, and accretion from day one.

Ross Aouameur, Chief Financial Officer, Goodfood: Okay. Thank you both for taking the questions.

Management Representative, Goodfood: Thank you, Fred.

Conference Operator: Thank you. There are no further questions at this time. Please proceed with the closing remarks.

Salim Bassoul, Executive Chairman, Goodfood: Thank you for joining us on this call. We look forward to speaking with you again at our next call. Thank you so much. Bye-bye.

Conference Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.