Vancouver, British Columbia--(Newsfile Corp. - August 29, 2024) - good natured Products Inc. (TSXV: GDNP) (OTC Pink: GDNPF) (the "Company" or "good natured?"), a North American leader in eco-friendly food packaging, bio-based plastic extrusion and plant-based products, today announced its financial results for the three months ended June 30, 2024 ("Q2 2024").
Q2 2024 Highlights
Revenue of $16.0 million compared to $18.3 million for the three months ended June 30, 2023 ("Q2 2023") and $14.1 million for the three months ended March 31, 2024 ("Q1 2024").
Adjusted EBITDA1 of $0.5 million compared to $0.1 million in Q2 2023 and $0.2 million in Q1 2024.
Variable gross margin1 of 37% compared to 37% in Q2 2023 and 40% in Q1 2024.
SG&A expenses excluding one-time and acquisition related costs of $2.8 million compared to $3.4 million in Q2 2023 and $2.7 million in Q1 2024.
Cash used in operating activities of $2.5 million compared to $0.1 million generated in Q2 2023.
Ending cash balance of $1.4 million compared to $4.3 million at March 31, 2024.
Revenue in Q2 2024 increased by 14% compared to Q1 2024, which was offset by lower variable gross margin and lower SG&A expenses as a percentage of revenue to deliver stronger Adjusted EBITDA compared to Q1 2024. The decline in revenue on a year-over-year basis compared to Q2 2023 was primarily due the following factors: 1) a decision to discontinue a legacy petroleum-based Industrial business group product line and its associated revenue (the "Discontinued Product Line Revenue"); and 2) lower revenue from the large US food producer also highlighted in Q1 2024 (the "US Food Producer") that supplies major grocery retailers. Excluding Discontinued Product Line Revenue and the US Food Producer volume, revenue increased 10% in Q2 2024 compared to Q2 2023.
On June 28, 2024, the Company obtained an order from the Supreme Court of British Columbia (the "Court") under the Companies' Creditors Arrangement Act ("CCAA"), in order to restructure its financial affairs (the "Initial Order"). The Initial Order provides for, among other things: (i) a stay of proceedings in favor of the Company and (ii) the appointment of Alvarez & Marsal Canada Inc. as monitor of the Company (the "Monitor").
At a follow-up hearing on July 11, 2024, the stay of proceedings associated with the Initial Order was extended up to and including October 25, 2024 (the "Stay Extension"). The Stay Extension is intended to allow the Company to operate in the ordinary course under the protection of the Initial Order and implement a sale and investment solicitation process (a "SISP"). The Company's board of directors selected Capital West Partners (the "Sales Agent") to assist with the SISP, under the oversight of the Monitor, with a view to completing an investment or sale transaction as contemplated by the SISP (a "Transaction") for the benefit of the Company's stakeholders.
As part of the overall restructuring and as outlined in the Company's Q1 2024 press release dated May 30, 2024, good natured? intends to continue the prioritization of its most growth-oriented and profitable business groups and rigorously review operating capabilities and processes to identify transformative initiatives.
"Our Q2 2024 revenue results reflect our team's concentrated efforts to further diversify our customer mix to drive volume and progress on cost savings after one-time charges, and those savings now add up to $2 million for the first half of the year," stated Paul Antoniadis, CEO of good natured?. "I would like to personally thank our dedicated team and partners for their incredible support through the business restructuring and SISP, all while continuing to deliver service to our loyal customers and our eleventh consecutive quarter of positive Adjusted EBITDA1."
Q2 2024 Financial Overview Revenue for Q2 2024 decreased by 13% on a year-over-year basis to $15.97 million compared to $18.28 million for Q2 2023.
The Company's Packaging business group year-over-year revenue declined by 14% or $1.2 million, driven by organic growth that was more than offset by over 67% lower year-over-year volumes from the US Food Producer, moderately lower blended average selling prices amongst some other national packaging accounts, and to a lesser extent customer churn amongst small business customers who have been greatly impacted by current economic conditions. Packaging business group revenue for Q2 2024, excluding the US Food Producer, increased by 14%, or $0.78 million, compared to Q2 2023.
Industrial business group revenue declined by 14% compared to Q2 2023 as Discontinued Product Line Revenue negatively impacted Q2 2024 Industrial business group revenue by $1.7 million. Excluding Discontinued Product Line Revenue, the Industrial business group increased by 6%, or $0.43 million, in comparison to Q2 2023, which was driven by increase in volume offset by industry-wide declines in average selling prices as competitive pressure for commodity petroleum-based products continued to lower average selling prices.
Variable gross margin1 for Q2 2024 at 36.6% remained relatively consistent on a year-over year basis compared to 36.5% for Q2 2023. This is a result of tightly managed cost controls and productivity enhancements in the variable cost of products, despite raw material and other input costs experiencing some increases. Gross margin increased to 26.6% for Q2 2024 compared to 25.5% for Q2 2023.
Selling, general and administrative expenses ("SG&A") in Q2 2024 decreased by 10% compared to Q2 2023. The decrease in SG&A expenses reflects the Company's ongoing efforts to reduce operating costs, which was partially offset by an increase in one-time costs associated with the CCAA proceedings. SG&A excluding acquisition activity and one-time charges declined 18% on a year-over-year basis.
The Company's Adjusted EBITDA1 increased to $0.54 million in Q2 2024 from $0.05 in Q2 2023, largely due to gross margin improvements and reductions in SG&A.
The Company incurred a net loss of $1.0 million in Q2 2024 compared to a net loss of $3.6 million in Q2 2023. Excluding changes in non-cash expenses such as share-based compensation, depreciation and amortization, one-time charges and gains, and foreign exchange, an increase in financing costs and costs related to the CCAA proceedings were the primary reasons for the net loss in Q2 2024.
Cash Flow & Balance Sheet Overview Cash used by operating activities in Q2 2024 was $2.5 million compared to $0.1 million generated by operating activities in Q2 2023. The Company generated positive cash flow from its operations in Q2 2024 excluding financing expenses, which increased 19% compared to Q2 2023. The Company used $3.4 million in net cash from financing activities and $0.2 million in investing activities in Q2 2024.
Cash balance as at June 30, 2024 was $1.4 million compared to $7.3 million as at December 31, 2023. As at June 30, 2024, net working capital (deficit) was ($57.8) million compared to ($1.4) million as at December 31, 2023. The large increase in negative working capital deficit is due to all of the Company's debt being classed as current due to the CCAA proceedings.
As at June 30, 2024, the Company's total asset to liability ratio was 1.12 compared to 1.10 as at December 31, 2023.
As part of its strict focus on cost containment and during the CCAA proceedings, the Company has made the decision to not hold quarterly conference calls until further notice. Management is available to discuss these results or any general inquiry, with contact information listed below.
Additional information regarding the CCAA proceedings - including all of the Court materials filed in the CCAA proceedings - may be found at the Monitor's website: https://www.alvarezandmarsal.com/goodnatured.
Since the date of the Company's press release announcing the Initial Order on June 28, 2024, there have been no changes to the Company's transfer agent or to its board of directors, and the Company continues to comply with all of the disclosure requirements under the NEX Policy.
About good natured Products Inc. good natured? is at the forefront of North America's shift toward sustainability, showcasing over 90 plant-based packaging designs and an extensive portfolio of more than 400 products and services. These offerings are purposefully designed to reduce environmental impact by using more renewable materials, less fossil fuel, and eliminating chemicals of concern.
Manufactured locally in the US and Canada, good natured? engineers and distributes a diverse range of bio-based products across various sectors, including grocery, restaurant, electronics, automotive, and pharmaceutical via both wholesale and direct channels.
The Company is dedicated to providing an industry-leading customer experience in order to encourage the transition to renewable alternatives. By making it easy and affordable for businesses to adopt bio-based products and packaging, good natured? aims to empower them to reach their sustainability objectives.
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibilities for the adequacy or accuracy of this release.
Non-GAAP Financial Measures
We have included in this press release a discussion of the Company's variable gross profit, variable gross margin, SG&A excluding acquisition activity and one-time charges, and adjusted EBITDA all non-GAAP measures, for Q2 2024, Q2 2023, and Q1 2024 to provide, what management believes, is a meaningful comparison of the Company's performance in Q2 2024. These non-GAAP measures do not have standardized meanings, and therefore may not be comparable to similar measures presented by other issuers. Variable gross profit, variable gross margin, SG&A excluding acquisition activity and one-time charges, and adjusted EBITDA are more fully defined and discussed in the Company's Q2 2024 Management's Discussion and Analysis under the heading "non-IFRS financial measures", which is available on the Company's SEDAR+ profile at sedarplus.ca and on the Company's investor website at goodnaturedproducts.com/pages/investor.
The following table provides a reconciliation of net loss to adjusted EBITDA for the periods ended:
3 Mon Ended June 30
2024
2023
+/-
Net loss for the period
$
(966
)
$
(3,582
)
-73%
Share-based compensation
390
394
-1%
Depreciation
570
613
-7%
Depreciation in COGS & SG&A
538
530
2%
Financing costs
1,983
1,796
10%
Foreign exchange loss (gain)
275
143
92%
Loss due to restructuring
1,566
-
-%
Gain on debenture conversion
(4,219
)
-
-%
Acquisition related expenses & one-time charges
529
278
90%
Deferred income taxes recovery
(125
)
(125
)
-%
Adjusted EBITDA1
541
47
1051%
The following table provides a reconciliation of variable gross profit to gross profit and variable gross margin to gross margin for the periods ended:
3 months ended June 30
2024
2023
+/-
Revenue
15,970
18,282
-13%
Variable cost of product
10,132
11,602
-13%
Variable Gross Profit1
5,838
6,680
-13%
Variable Gross Margin %
36.6%
36.5%
Fixed factory overhead
1,589
2,012
-21%
Gross profit
4,249
4,668
-9%
Gross margin %
26.6%
25.5%
The following table provides a reconciliation of selling, general and administrative expense excluding acquisition activity and one-time charges:
SG&A % of Revenue Excluding Acquisition Activity & One-Time Charges1
18%
19%
SG&A Wages % of Revenues
12%
12%
Cautionary Statement Regarding Forward-Looking Information
This news release contains forward-looking information within the meaning of securities laws including statements related to Company plans, focuses and outlook for 2024.
By their nature, forward-looking statements involve known and unknown risks, uncertainties, changes in circumstances and other factors that are difficult to predict and many of which are outside of the Company's control which may cause our actual results, performance or achievements, or other future events, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.
Forward-Looking information contained in this news release is based on our current estimates, expectations and projections regarding, among other things, future plans and strategies, projections, future market and operating conditions, supply conditions, end customer demand conditions, anticipated events and trends, general market conditions, the economy, financial conditions, sales volume and pricing, expenses and costs, and other future conditions which we believe are reasonable as of the current date. Important factors that could cause actual results and financial conditions to differ materially from those indicated in the forward-looking statements include, but are not limited to: future capital needs and uncertainty of additional financing, risks relating to general economic, market and business conditions and unforeseen delays in the realization of the Company's plans, risks related to the loss of key manufacturing equipment, capability or facilities, the performance of plant-based materials and the ability of the Company's products and packaging to meet significant technical requirements, changes in raw material supply and costs, labour availability and labour costs, fluctuations in operating results, and other related risks as more fully set out in the Annual Information Form of the Company and other documents disclosed under the Company's filings at sedarplus.ca. The reader should not place undue importance on forward-looking information and should not rely upon this information as of any other date.
If relying on the Company's forward-looking statements and information to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. The Company has assumed that the material factors referred to herein will not cause such forward-looking statements and information to differ materially from actual results or events. However, there can be no assurance that such assumptions will reflect the actual outcome of such items or factors.
Other than as required under securities laws, we do not undertake to update this information at any particular time.
All forward-looking information contained in this news release is expressly qualified in its entirety by this cautionary statement.
1 A non-GAAP financing measure. Please refer to the "Non-GAAP Financial Measures" below for an explanation of these measures and reconciliation to the Company's financial results reported in accordance with GAAP.
