Freshlocal Solutions Inc. Announces its Third Quarter FY2021 Results

VANCOUVER, BC, Aug. 17, 2021 /CNW/ - Freshlocal Solutions Inc. (TSX: LOCL) ("Freshlocal" or the "Company") is pleased to report its financial results for the third quarter ended July 3, 2021. All amounts in this press release are in Canadian dollars.

"As we make our way through the second year of the pandemic, we have seen solid retention in our eGrocery customer base along with improving operating margins," stated Peter van Stolk, CEO of Freshlocal. "Building on the successful implementation of our FoodX eGrocery Management Solution in Europe during the quarter, we continue to pursue new client relationships for our FoodX solution here in North America as well as internationally."

Q3 FY2021 Financial Highlights

• Revenues were $37.2 million, a year-over-year increase of $0.9 million, or 2.4%
• Gross profit was $14.1 million, a year-over-year increase of $0.9 million, or 6.8%
• Consolidated Gross Profit⁽¹⁾ margin of 37.9% as at July 3, 2021, a year-over-year increase of 1.5%

Key Financial Information

All amounts in CAD $ millions except Active Customers, Average Order Size, and Same Store Sales	Quarter Ended			Fiscal Year-to-Date
	July 3, 2021 ($)	June 27, 2020 ($)	Change	July 3, 2021 ($)	June 27, 2020 ($)	Change
Consolidated
Revenues	37.2	36.3	2.4%	104.0	76.0	37%
Gross Profit(1)	14.1	13.2	6.8%	39.1	27.5	42%
Net gain (Loss)	4.8	(6.6)		(23.2)	(16.9)
Per share	0.11	(0.19)		(0.61)	(0.48)
Adjusted Operating Loss1	(5.0)	(1.4)		(9.8)	(7.8)
Cash Flow Used in Operations	(8.8)	1.1		(12.7)	(7.0)
eGrocery Business Segment
Revenues	28.1	28.5	(1.4%)	81.6	53.6	52%
Active Customers(1),(2)	29,826	34,355	(13%)	-	-	-
Average Order Size(1)	134	143	(6.3%)	132	127	3.9%
Blush Lane Business Segment
Revenues	9.4	10.6	(11%)	28.5	27.4	4.0%
Same-Store Sales(1)	(11%)	32%		4%	14%

The financial information above relating to the fiscal quarters ended July 3, 2021 and June 27, 2020 of Freshlocal should be read in conjunction with the unaudited interim condensed consolidated financial statements of Freshlocal for the three months and nine months ended July 3, 2021 and June 27, 2020, and the management's discussion and analysis of Freshlocal for the three months and nine months ended July 3, 2021 and June 27, 2020, respectively. Copies of these documents can be found on Freshlocal's profile on SEDAR at www.sedar.com.

(1)	This is a non-IFRS measure. Please refer to "Metrics and Reconciliation of Non-IFRS Financial Measures" at the end of this press release for further details.
(2)	The "Active customers" metric is based on the number of individual customer accounts that have completed an order on Freshlocal's eCommerce platform in the past 90 days, measured as of the period end noted.

Highlights for the Third Quarter of FY2021, and the Period Subsequent to Quarter End

• Freshlocal Shares Commenced Trading on the TSX: On April 16, 2021, Freshlocal announced the completion of its qualifying transaction which consisted of a reverse take-over of the Company. Following completion of the transaction, Freshlocal's common shares commenced trading on the TSX on April 21, 2021 under the symbol "LOCL".
• Execution of New SaaS Agreement in Europe: In April 2021, the Company completed the execution of a new SaaS agreement with Carrefour Group ("Carrefour") in the European territory.
• Successful Implementation of the FoodX Grocery E-commerce Solution in Belgium: On May 4, 2021, Freshlocal announced that its wholly-owned subsidiary, Food-X Technologies Inc. ("FoodX"), a leading end-to-end software solution for profitable online grocery fulfillment, reached an important milestone in its strategic partnership with Carrefour, a longstanding global leader in the grocery industry, with the commencement of operations of Carrefour's new e-commerce fulfillment centre in Belgium. This new facility has at its core the FoodX software-as-a-service (SaaS)-based eGrocery Management Solution (eGMS) to improve the productivity and profitability of operations, and the customer experience.
• New Strengths Added to the Company's Leadership and Advisor Teams: The Company successfully added new capabilities and accountabilities to its leadership during Q3 FY2021. Jason Boast joined FoodX in the newly created position of Vice-President, Product, bringing international product leadership experience to the group. As well, John Cornell was promoted to the role of Vice-President, Engineering, building on his success in delivering FoodX's first eGMS platform to Carrefour Belgium. Freshlocal also augmented the expertise of its Board of Advisors with the appointment of Doug Harrison subsequent to the end of the quarter.
• Advancing Product Capabilities within Both of its Business Segments: The Freshlocal team made important progress to build its customer base and improve its products and services:
• Expansion of its Business to Consumer eGrocery Offering – The Company continues to focus on expanding its product offering, utilizing the additional space available at its Trapp fulfillment facility.  Its selection of produce, grocery & liquor expanded from a total of 10,600 products at the end of Q2 FY2021 to a current offering of over 12,000 unique products.
• New features and improvements for its FoodX eGMS platform – Several initiatives to enhance the FoodX eGMS were advanced within Q3 FY2021 including efforts to increase operational efficiencies and fill rates, optimize inventory management to improve system efficiency, enhance transportation and fleet management capabilities, and update its eGrocery app to improve customer convenience.
• Core Focus on Securing New FoodX Clients: The sales pipeline for the FoodX eGMS continues to develop, with active discussions currently underway with several global retailers with annual sales exceeding $100 billion. 
• Strategic Changes to Company Operations: During Q3 FY2021 as well as subsequent to quarter end, Freshlocal leadership executed on a number of strategic changes:
• Consolidation of Greater Vancouver Fulfillment Centers – In July 2021, the Company completed the strategic merger of its two Greater Vancouver fulfillment centers. The facility consolidation will provide expanded access to its full 12,000 SKU product assortment to SPUD.ca's BC customers, and it is also expected to generate positive operational efficiencies through reduced facility overhead expenses, reduced on-hand inventory, and routing optimization.
• Cessation of 3PL Business – In June 2021, Freshlocal made the strategic decision to cease its third-party logistics operations from its Trapp fulfillment facility with the objective of focusing its efforts and resources toward the continued expansion of its FoodX eGMS platform. 
• Update on SVB Financing: In March 2021, the Company secured a revolving loan facility of up to $15.0 million with Silicon Valley Bank ("SVB"), the proceeds from which were to be used to fund the continued development of the Company's eGMS platform as well as for expansion and working capital purposes. Under the SVB debt facility, the Company is required to comply with certain financial covenants. As at July 3, 2021, the Company was in breach of two covenants – one related to the maintenance of a minimum liquidity coverage ratio, and the second related to the maintenance of minimum earnings before income tax, depreciation and amortization and non-recurring items acceptable to the bank ("EBITDA"). Under the SVB debt facility, if the Company is unable to obtain a waiver for these two breaches or reach an agreement with SVB to amend the credit facility, SVB will have the right to various remedies, including, but not limited to, the right to accelerate the maturity of the debt facility, and to modify various material terms and conditions within the debt facility, such as repayment and interest terms. 

As of the date of this release, the Company has not received a notice of default from SVB with respect to the breach of the two covenants referred to above. The Company is currently in discussions with SVB to amend these covenants or to obtain a waiver from SVB for the two breaches referred to above. There can be no assurance that SVB will agree to amend the debt facility or provide such a waiver; as a result, there is no assurance that the remaining funds under the credit facility will be available to the Company.

Earnings Conference Call

The Company will hold a conference call today at 4:30 p.m. (eastern day time) to discuss its results. The call will be hosted by Peter van Stolk, Chief Executive Officer, and Adrienne Uy, Chief Financial Officer. Slides to accompany management's prepared remarks will be available to view via the webcast.

Details of the Earnings Conference Call:

When:	Tuesday, August 17th at 4:30 pm (eastern day time)
Registration:	Please use the following link: https://www.incommglobalevents.com/registration/q4inc/8447/freshlocal-solutions-q3-fy-2021-conference-call/
Webcast:	The webcast and presentation slides can be accessed at Freshlocal's website:  https://ir.freshlocalsolutions.com
Replay	A webcast replay will be available until September 17, 2021, at Freshlocal's website:  https://ir.freshlocalsolutions.com/events-and-presentations

About Freshlocal Solutions Inc.

Freshlocal Solutions Inc. is a Vancouver-based company that is building a leadership position in the provision of end-to-end grocery e-commerce solutions. The Company operates two primary businesses, FoodX and eGrocery, both of which support its corporate mission to leverage innovation and technology to create a sustainable and profitable food system for all. Food-X Technologies Inc. is Freshlocal's scalable end-to-end SaaS-based eGrocery Management Solution (eGMS) which is designed to meet the needs of large and small grocery retailers while providing profitable unit economics. The FoodX eGMS is the culmination of over 20 years of experience in online grocery and the company's proven track record of delivering efficiently, sustainably and profitably. The Company's consumer eGrocery business has expanded into one of Canada's largest online grocery companies, with a focus on delivering fresh, local, organic produce and groceries, along with exceptional customer experiences. Freshlocal serves the main urban markets in Alberta and British Columbia through its brick and mortar store locations operating under the Blush Lane and Be Fresh banners, as well as through SPUD.ca which is the Company's award-winning online eGrocery platform. Freshlocal's common shares are listed on the Toronto Stock Exchange under the symbol "LOCL". Please visit www.freshlocalsolutions.com.

Notice on Forward Looking Information

Certain statements and information herein, including all statements that are not historical facts, contain forward-looking statements and forward-looking information within the meaning of applicable securities laws. Such forward-looking statements or information include but are not limited to statements or information with respect to the strategic partnership between the Company and Carrefour including the ability of the Company to continue to perform the Company's obligations under the SaaS agreements with Carrefour, and that discussions regarding the FoodX eGMS with prospective customers will result in definitive SaaS agreements in the near future or at all, and the Company's expectations with respect to its ability to obtain a waiver or amendment under the SVB revolving loan facility. Often, but not always, forward-looking statements or information can be identified by the use of words such as "estimate", "project", "belief", "anticipate", "intend", "expect", "plan", "predict", "may", "should", or "will" and the negative of these words or such variations thereon or comparable terminology are intended to identify forward-looking statements and information.

With respect to forward-looking statements and information contained herein, the Company has made numerous assumptions including among other things, assumptions about general business and economic conditions of the Company and the market in which it operates. The foregoing list of assumptions is not exhaustive.

Although management of the Company believes that the assumptions made and the expectations represented by such statements or information are reasonable, there can be no assurance that forward-looking statements or information herein will prove to be accurate. Forward-looking statements and information by their nature are based on assumptions and involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements or information. These factors include, but are not limited to: risks associated with the Company continuing to perform its obligations under its SaaS agreements, the Company successfully entering into new definitive SaaS Agreements, the Company being able to obtain a waiver or amendment under the SVB revolving loan facility, the business of the Company; business and economic conditions in the eGrocery industry generally; the supply and demand for labour and other project inputs; changes in commodity prices; changes in interest and currency exchange rates; risks relating to unanticipated operational difficulties (including failure of technology or processes to operate in accordance with specifications or expectations, cost escalation, unavailability of materials and equipment, government action or delays in the receipt of government approvals, industrial disturbances or other job action, and unanticipated events related to health, safety and environmental matters); changes in general economic conditions or conditions in the financial markets; changes in laws; risks related to the direct and indirect impact of COVID-19 including, but not limited to, its impact on general economic conditions; the ability to obtain financing as required; and other risk factors found in the "Risk Factors" section of the Company's filing statement dated April 9, 2021 and the Company's  management's discussion and analysis for the three months and nine months ended July 3, 2021 and June 27, 2020, both of which are available on the Company's profile on SEDAR at www.sedar.com. The Company does not undertake to update any forward-looking information, except in accordance with applicable securities laws.

Metrics and Reconciliation of Non-IFRS Financial Measures

Freshlocal uses metrics and non-IFRS financial measures for which a complete definition is presented below and for which a reconciliation to financial information in accordance with IFRS is presented later in this section. These measures should be considered as a complement to financial performance measures in accordance with IFRS and to provide further understanding of Freshlocal's operating results from management's perspective. They do not substitute, are not superior to them and do not have any standardized meaning prescribed under IFRS and therefore may not be comparable to similar measures as presented by other issuers.

Non-IFRS Metrics	Definition
eGrocery Average Order Size	The eGrocery Average Order Size ("AOS") is defined as total sales net of returns and credits, divided by the number of orders made for the period. The Company believes that AOS is a useful metric for readers because it is indicative of eGrocery adoption, consumers expanding their share of purchases made online and the strength of our online consumer business.
Active Customers	Based on the number of individual customer accounts that have completed an order on our eCommerce platform in the past 90 days, measured as of the period end noted.
Same-Store Sales	Retail segment sales from the same location for stores in operation in that location in both periods.
Non-IFRS Financial Measures	Definition
Adjusted Operating Loss	Adjusted Operating Loss represents net income or loss before net finance expenses (income), transaction expenses, depreciation and amortization expense, stock-based compensation expense and other expenses (income). We believe that this is a more representative measure to monitor the Company's operational results.
Gross Profit	Gross Profit represents revenue net of returns and credits less cost of sales.

The financial information has been prepared in accordance with IFRS. However, financial measures used, namely adjusted operating loss, total asset, less cash and cash equivalents as well as net indebtedness for which a reconciliation is presented in the following table, do not have any standardized meaning under IFRS and could be calculated differently by other companies. Those measures may not be comparable to similar measures described by other companies, as IFRS does not have standard definitions for these measures. These measures should be considered as a complement to IFRS measures and for further understanding of the Freshlocal's operating results. Users should use these non-IFRS measures in conjunction with the IFRS financial statements for each applicable period. 

This section presents a reconciliation of financial information in the unaudited interim Condensed Consolidated financial statements of Freshlocal for the three months and nine months ended July 3, 2021 and June 27, 2020 to non-IFRS measures used in this press release.

The following tables summarize non-IFRS measures used in this press release for the three months and nine months of Freshlocal ended July 3, 2021 and June 27, 2020.

Adjusted Operating Loss 

Period ended (In thousands of Canadian dollars)	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
	3 months ($)				9 months ($)
Net gain (loss) and comprehensive gain (loss)	4,848		(6,633)		(23,222)		(16,949)
Net finance expense	(18,185)		3,205		2,088		5,645
Depreciation and amortization expense	1,535		1,432		3,910		2,720
Stock based compensation expense	169		590		795		744
Transaction Expense	6,620		-		6,620		-
Other Expense	(10)		-		(10)		-
Adjusted operating gain (loss)	(5,023)		(1,406)		(9,819)		(7,840)

Gross Profit

Period ended (In thousands of Canadian dollars)	July 3, 2021	June 27, 2020	July 3, 2021	June 27, 2020
	3 months ($)		9 months ($)
Revenue	37,164	36,308	103,972	$75,995
Cost of sales	(23,073)	(23,117)	(64,859)	(48,511)
Gross Profit	14,091	13,191	39,113	27,484

 

SOURCE Freshlocal Solutions Inc.

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