Freshii Inc. Announces Third Quarter 2021 Results
TORONTO, Nov. 09, 2021 // GLOBE NEWSWIRE // - Omnichannel health and wellness brand, Freshii Inc. (TSX: FRII) (“Freshii”, the “Company” or “we”), today announced financial results for the third quarter ended September 26, 2021 (“Q2 2021”).
“In Q3, our restaurant network continued its sales recovery, with all store types showing sequential improvement vs Q2 2021 in recovering towards pre-pandemic 2019 sales levels, driven in part by continued digital momentum and our best menu innovation performance in years,” said Matthew Corrin, Chairman and Chief Executive Officer of Freshii. “Our tacos limited time offer, featuring cauliflower-based soft-shell tortillas, three protein options and a host of Mexican-inspired sauces and flavours, was met with a very positive response. The premium price point, which includes protein, and significant chips and queso add-on attachment drove cheque and profitability for our restaurants. Freshii’s evolved smoothie platform also contributed to the strong innovation performance, driving incremental smoothie sales mix. The evolved smoothie lineup included new flavours and add-ons and was made available in two sizes across the North American network. We saw many guests take advantage of the opportunity to ‘up-size’ their smoothie and to ‘add-on’ one of our premium additional ingredients.
While certain challenges remain in core urban markets that have traditionally relied heavily on ‘office lunch’ traffic, our suburban ‘drive’ locations, which make up approximately 55% of our North American traditional network, have recovered more than 90% of pre-pandemic sales levels through Q3 2021. We were also encouraged to see more locations reopen this quarter as government restrictions ease in many of our major North American markets. We expect the normalization for our downtown core locations to remain in progress into H1 2022, but overall, we are very pleased with the recovery trend of our network as a whole. We will continue to work with our franchise partners to navigate the challenges that remain, including through additional investments in sales driving and profitability focused store level initiatives - primarily by way of increased marketing investments and operating cost offsets - as we did in the third quarter.
Freshii’s omnichannel presence in the health and wellness space has also continued to expand. Last week, Freshii completed its acquisition of a majority interest in Natura Market, a fast-growing health and wellness ecommerce retailer that had revenues of over CAD $19 million in the trailing twelve months ended September 30, 2021. We have already begun to support Natura Market’s impressive existing management team, which remains in place following the transaction, as we work together to continue the strong growth the company has achieved to date.
Our consumer packaged goods (or ‘CPG’) division is also growing, with our two largest retail partners by sales volume, carrying our broadest assortment of products in dedicated Freshii branded coolers, reporting revenue growth of more than 75% in Q3 of 2021 vs Q3 2020 and new retail partners continuing to add Freshii listings to their shelves. For example, we have recently kicked off CPG test listings with both Healthy Planet in Ontario, and Whole Foods in British Columbia. In the third quarter, Freshii also added to our CPG and nutritional gummy product lineups, launching ‘Bye Bye Stress’ and ‘Super Mushroom’ nutritional supplement gummies both in-restaurant and online, to go with our ACV gummy offering. Freshii’s CPG team also rolled out seasonal pumpkin-spiced energii bites, tapping into the fall-themed ‘pumpkin-spiced’ trend, which were available in both Freshii restaurants and on CPG retail partner shelves.”
Acquisition of Natura Market
On November 1, 2021, Freshii completed its acquisition of 60% of the issued and outstanding common shares of Natura Market Ecommerce Inc (“Natura” or “Natura Market”) along with rights to purchase the remaining 40% of Natura Market’s shares through Q1 2025. Natura Market is a rapidly growing, founder-led online retailer with a Freshii-aligned mission of making on-trend, healthy products available at scale across Canada. Natura Market had sales of over CAD $19 million in the 12-month period leading up to September 30, 2021, representing an over 10% increase year over year. The addition of Natura Market significantly expands Freshii’s presence and capability in the delivery and digital commerce spaces.
Further details on the Natura Market transaction can be found in the Company’s news release, dated October 14, 2021, available on the investor relations section of the Company’s website and on Freshii’s SEDAR profile.
Financial Highlights for the Third Quarter2
- Same-store sales growth was 10.6% in Q3 2021 compared to the 13-week period ended September 27, 2020 (“Q3 2020”). Compared to the 13-week period ended September 29, 2019 (“Q3 2019”), the most recent corresponding period not impacted by the COVID-19 pandemic, same-store sales growth for Q3 2021 was (20.1%).
- Royalty revenue and coordination fees totaled $4.0 million for Q3 2021, representing no change compared to Q3 2020.
- In Q3 2021, the Company opened 8 North American locations, certain of which had previously been classified as permanently closed but which have now opened again as COVID-19 pandemic impacts have abated. The Company permanently closed 7 North American locations in Q3 2021, resulting in net new store growth of 1 North American location in the quarter. Including non-North American restaurants, there was no change in Freshii’s total store count in Q3 2021.
- As at the end of Q3 2021, the Company had 372 locations open and operating across its network, representing an increase of 8 locations from the end of Q2 2021.
- As at the end of Q3 2021, the Company had 12 locations categorized as temporarily closed, primarily in airports, malls, and business districts that remain closed or quiet as a result of COVID-19 pandemic restrictions.
- System-wide sales were $42.0 million in Q3 2021, compared to $36.6 million for Q3 2020 representing an increase of $5.4 million. Compared to Q3 2019, system-wide sales in Q3 2021 decreased by $23.0 million.
- Adjusted EBITDA was $0.4 million for Q3 2021, compared to $0.5 million for Q3 2020.
- Net loss was $0.7 million for Q3 2021, compared to net loss of $0.2 million in Q3 2020.
- Free cash flow was $49 thousand for Q3 2021, compared to $0.5 million for Q3 2020.
Omnichannel Expansion
As set out above, the Company made a major step forward in its omnichannel journey in acquiring majority ownership of Natura Market on November 1, 2021. The Company’s CPG business line had a strong third quarter, expanding its points of distribution and refining its product offerings, as discussed above. The Company continues to dedicate effort to the growth of its health and wellness business lines, as a complement to its core business of providing great tasting, ‘better-for-you’, restaurant service.
Franchisee Incremental Investment Program
In the second quarter of 2021, the Company announced to our franchise partners that it would be making an additional investment in the system of approximately $1 million through the remainder of 2021. In Q3 2021, Freshii continued to make these funds available to help accelerate the sales recovery and profitability of our restaurants through and beyond the COVID-19 period. Through this extended investment program, the Company has continued to support its restaurant network in the following areas:
- Promoting guest adoption of Freshii’s new mobile app;
- incremental marketing and loyalty investments;
- operating cost offsets;
- the engagement of an enhanced customer experience program; and
- direct support for restaurants through sales driving and profit protecting initiatives, primarily by way of increased marketing investments and operating cost offsets.
The Company intends to continue to deploy resources to these areas, partially funded by the Company’s cost management initiatives, to continue to support our franchise partners and enable our brand to emerge from the COVID-19 pandemic in a position of strength.
Cost Base Management and Liquidity
The Company has maintained a strong stable cash position through the pandemic to date, with $37.1 million on hand as at Sept 26, 2021. As previously disclosed, Freshii is committed to maintaining adequate liquidity and financial flexibility throughout the COVID-19 pandemic and coming out of it, while also investing in strategic priorities across its restaurant, CPG and other divisions. We intend to continue to make efforts in order to maintain our strong cash position in the coming quarters while still reinvesting for growth across our business.
The Company also continues to assist franchise partners in managing their restaurant level cost base. In addition to direct support, the Company has implemented inventory management system improvements and labour productivity tools to help partners reduce waste and manage costs. Assisting our restaurants in controlling costs, while still delivering the quality service and products that our guests have come to expect, is key to protecting franchise partner profitability as the COVID-19 pandemic continues to challenge consumer traffic throughout 2021.
Normal Course Issuer Bid Program
In Q1 2021, the Company announced that the Toronto Stock Exchange (the “TSX”) had accepted the notice filed by the Company to make a normal course issuer bid (“NCIB”). The Company sought and received approval from the TSX to establish a normal course issuer bid to purchase up to 2,582,944 of its Class A subordinate voting shares, commencing on March 2, 2021. As of November 5, 2021, the Company has purchased 1,346,886 Class A subordinate voting shares since the commencement of the NCIB, at an average share price of $2.08.
Earnings Conference Call and Audio Webcast
A conference call to discuss Q3 2021 financial results is scheduled for November 9, 2021 at 8:30 a.m. Eastern Time.
Selected Quarterly Consolidated Information
The following table summarizes our results of operations for the 13 and 39 week periods ended September 26, 2021 and September 27, 2020, respectively:
| For the 13 weeks ended | |||||||||||||
| (in thousands) | September 26, 2021 | September 27, 2020 | |||||||||||
| Amount | Percent of Total Revenue |
Amount | Percent of Total Revenue |
||||||||||
| Revenue | |||||||||||||
| Franchise revenue | $ | 4,373 | 75 | % | $ | 4,441 | 93 | % | |||||
| Company-owned revenue | 1,447 | 25 | 310 | 7 | |||||||||
| Total revenue | 5,820 | 100 | 4,751 | 100 | |||||||||
| Costs and expenses | |||||||||||||
| Cost of sales | 1,269 | 22 | 333 | 7 | |||||||||
| Selling, general and administrative | 4,341 | 75 | 3,887 | 82 | |||||||||
| Depreciation and amortization | 409 | 7 | 922 | 19 | |||||||||
| Share based compensation expense | 680 | 12 | 680 | 14 | |||||||||
| Total costs and expenses | 6,699 | 116 | 5,822 | 122 | |||||||||
| Loss before interest, foreign exchange & income taxes | (879 | ) | (16 | ) | (1,071 | ) | (22 | ) | |||||
| Interest income, net | 4 | - | 42 | 1 | |||||||||
| Foreign exchange loss (gain) | (21 | ) | - | 214 | 5 | ||||||||
| Loss before income tax expense | (862 | ) | (16 | ) | (1,327 | ) | (28 | ) | |||||
| Income tax expense (recovery) | (113 | ) | (2 | ) | (1,081 | ) | (23 | ) | |||||
| Net loss | (749 | ) | (13 | ) | (246 | ) | (5 | ) | |||||
| Currency translation adjustment | 19 | - | 5 | - | |||||||||
| Comprehensive income (loss) | $ | (730 | ) | (13 | %) | $ | (241 | ) | (5 | %) | |||
| For the 39 weeks ended | |||||||||||||
| (in thousands) | September 26, 2021 | September 27, 2020 | |||||||||||
| Amount | Percent of Total Revenue |
Amount | Percent of Total Revenue |
||||||||||
| Revenue | |||||||||||||
| Franchise revenue | $ | 12,736 | 84 | % | $ | 13,272 | 92 | % | |||||
| Company-owned revenue | 2,384 | 16 | 1,144 | 8 | |||||||||
| Total revenue | 15,120 | 100 | 14,416 | 100 | |||||||||
| Costs and expenses | |||||||||||||
| Cost of sales | 2,017 | 13 | 1,060 | 7 | |||||||||
| Selling, general and administrative | 12,491 | 83 | 13,610 | 94 | |||||||||
| Depreciation and amortization | 1,197 | 8 | 3,951 | 27 | |||||||||
| Share based compensation expense | 2,195 | 15 | 2,211 | 15 | |||||||||
| Total costs and expenses | 17,900 | 119 | 20,832 | 143 | |||||||||
| Income (loss) before interest, foreign exchange & income taxes | (2,780 | ) | (19 | ) | (6,416 | ) | (43 | ) | |||||
| Interest income, net | 11 | - | (10 | ) | - | ||||||||
| Foreign exchange loss (gain) | 189 | 1 | (233 | ) | (2 | ) | |||||||
| Income (loss) before income tax expense | (2,980 | ) | (20 | ) | (6,173 | ) | (41 | ) | |||||
| Income tax expense (recovery) | (281 | ) | (2 | ) | (1,826 | ) | (13 | ) | |||||
| Net loss | (2,699 | ) | (18 | ) | (4,347 | ) | (28 | ) | |||||
| Currency translation adjustment | 64 | - | (46 | ) | - | ||||||||
| Comprehensive income (loss) | $ | (2,635 | ) | (17 | %) | $ | (4,393 | ) | (30 | %) | |||
The following table summarizes our Consolidated Statement of Balance Sheet Information as at September 26, 2021 and December 27, 2020:
| (in thousands) | As at September 26, 2021 |
As at December 27, 2020 |
|||||
| Cash | $ | 37,091 | $ | 40,569 | |||
| Total assets | 57,418 | 63,238 | |||||
| Equity | 38,385 | 41,475 | |||||
The following table shows our cash flows information for the 13 and 39 week periods ended September 26, 2021 and September 27, 2020, respectively:
| For the 39 weeks ended | |||||||
| (in thousands) | September 26, 2021 | September 27, 2020 | |||||
| Net cash provided by operations | $ | (147 | ) | $ | 1,066 | ||
| Net cash used in investing | (377 | ) | (477 | ) | |||
| Net cash used in financing | (2,947 | ) | (332 | ) | |||
| Net increase (decrease) in cash | $ | (3,471 | ) | $ | 257 | ||
The following table reconciles EBITDA, Adjusted EBITDA, free cash flow, free cash flow conversion, Adjusted Net Income to the most directly comparable IFRS financial performance measure:
| For the 13 weeks ended | For the 39 weeks ended | ||||||||||||||
| (in thousands) | September 26, 2021 | September 27, 2020 | September 26, 2021 | September 27, 2020 | |||||||||||
| Net loss | $ | (749 | ) | $ | (246 | ) | $ | (2,699 | ) | $ | (4,347 | ) | |||
| Interest income, net | 4 | 42 | 11 | (10 | ) | ||||||||||
| Income tax expense (recovery) | (113 | ) | (1,081 | ) | (281 | ) | (1,826 | ) | |||||||
| Depreciation and amortization | 409 | 922 | 1,197 | 3,951 | |||||||||||
| EBITDA | (449 | ) | (363 | ) | (1,772 | ) | (2,232 | ) | |||||||
| Adjustments: | |||||||||||||||
| Share-based compensation expense(1) | 680 | 680 | 2,195 | 2,211 | |||||||||||
| Foreign exchange (gain) loss | (21 | ) | 214 | 189 | (233 | ) | |||||||||
| Other adjustments(2) | 199 | - | (541 | ) | 2,121 | ||||||||||
| Adjusted EBITDA | 409 | 531 | 71 | 1,867 | |||||||||||
| Constant currency remeasurement | - | (58 | ) | - | (200 | ) | |||||||||
| Adjusted EBITDA on a constant currency basis | $ | 409 | $ | 473 | $ | 71 | $ | 1,667 | |||||||
| Less capital expenditures | 360 | 48 | 513 | 528 | |||||||||||
| Free cash flow | $ | 49 | $ | 483 | $ | (442 | ) | $ | 1,339 | ||||||
| Free cash flow conversion | 12.0 | % | 91.0 | % | (622.5 | %) | 71.7 | % | |||||||
| Net loss | (749 | ) | (246 | ) | (2,699 | ) | (4,347 | ) | |||||||
| Adjustments: | |||||||||||||||
| Share-based compensation expense(1) | 680 | 680 | 2,195 | 2,211 | |||||||||||
| Foreign exchange (gain) loss | (21 | ) | 214 | 189 | (233 | ) | |||||||||
| Other adjustments(2) | 199 | - | (541 | ) | 2,121 | ||||||||||
| Related tax effects(3) | (227 | ) | (237 | ) | (488 | ) | (1,086 | ) | |||||||
| Adjusted Net Income (Loss) | $ | (118 | ) | $ | 411 | $ | (1,344 | ) | $ | (1,334 | ) | ||||
Notes:
(1) In the 39 week periods ended September 26, 2021 and September 27, 2020, the Company granted RSUs to executive officers, management, and employees of the Company in conjunction with an annual employee grant.
(2) For the 13 and 39 week periods ended September 26, 2021, non-recurring expenditures related to the acquisition of Natura Market. Also included in the 39 week period ended September 26, 2021, franchise fee revenue, net of related commissions, resulting from a change in the Company’s estimated future performance obligations. The inclusion of this revenue is a one-time occurrence and so has been removed for purposes of calculating Adjusted EBITDA. For the 39 week period ended September 27, 2020, represents certain professional fees associated with one-time investments in the Company’s growth strategy.
(3) Related tax effects are calculated at statutory rates in Canada or U.S. depending on the adjustment.
The Company’s condensed consolidated interim financial statements for the 13 and 39 week periods ended September 26, 2021 and September 27, 2020 and the relevant Management’s Discussion and Analysis documents, are available under the Company’s profile on SEDAR
_______________
1 This is a non-IFRS measure. Please refer to the “Non-IFRS Measures and Industry Metrics” section included later in this news release.
2 System-wide sales, same-store sales growth, EBITDA, Adjusted EBITDA, North American stores and free cash flow are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. See “Non-IFRS Measures and Industry Metrics” and the table reconciling such measures to the most directly comparable IFRS financial performance measure, included later in this news release.
SOURCE Freshii
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