© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to the Goodfood First Quarter of Fiscal Year 2022 Financial Results Conference Call. [Operator Instructions] Please note that questions will be taken from financial analysts only. [Operator Instructions] I would like to remind everyone that this conference call is being recorded today, January 18, 2022, at 8:00 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. I would like to turn the meeting over to your host for today's call, Jonathan Ferrari, Goodfood Chief Executive Officer. You may begin.
[Foreign Language] Good morning, everyone, and welcome to this call for Goodfood Market Corp. to present our financial results for the first quarter of fiscal '22 ended December 4, 2021. I'm pleased to be joined on the call today by Neil Cuggy, Goodfood's President and Chief Operating Officer; and Jonathan Roiter, Chief Financial Officer. Our press release this morning reported our first quarter results which was published earlier this morning. It can be found on our website at makegoodfood.ca and on SEDAR. Please be aware that we 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. Now turning to Slide 3, which outlines the key highlights of our first quarter and up-to-date results of our recently launched 30-minute on-demand delivery service. We were pleased with our overall performance this quarter, which was the first full quarter since early fiscal 2020, in which COVID-19 restrictions had minimal impact on the daily lives of Canadians. Against this backdrop, the quarter's net sales of $78 million were stable versus the previous quarter, which benefited from strong demand in June as COVID-19 restrictions were still in place, offset by the expected seasonal lows and the lessening of COVID-19 restrictions during July and August. In addition, the positive momentum we saw with the return to sequential quarter-over-quarter active consumer growth and rebounding order rates positions us well as we head into the remainder of the year. As discussed at our last earnings call, during the first quarter, we began to take measures that we expect to lead to continued progressive improvements to our adjusted EBITDA margin versus our fourth quarter cost structure. As a result of improved efficiencies in our operations and SG&A cost improvements in the first quarter, our gross margin and adjusted EBITDA margin sequentially rose by 110 and 370 basis points, respectively, versus the previous quarter. Consequently, as we continue to implement efficiencies and cost containment initiatives, we expect to see progressive improvement in our quarterly adjusted EBITDA loss position as we initially work our way back to breakeven position and then towards our long-term 10% to 15% adjusted EBITDA goal. Finally, we are especially delighted with the launch of Canada's first vertically integrated 30-minute grocery and meal solutions delivery offering. Over the last 2 years, we have built the backbone and infrastructure to enable the fast delivery of groceries and meal solutions to Canadians. As you will recall, we launched our Goodfood WOW same-day or next-day delivery in the summer of 2020 and as aligned with our previously communicated strategy, we have consistently reduced delivery time since then going from a same-day basis to a few hours and today to in as little as 30 minutes. We are very excited to have, as of this week, 13,000 on-demand quarterly active customers placing orders growing at 15% weekly over the past 5 weeks with run rate sales before incentives and credits of $21 million. Torontonians and Montrealers are loving their experience as our Net Promoter Score consistently over 80 demonstrates. We celebrated the opening of our third local micro fulfillment center in Toronto last week and are excited to bring fast on-demand deliveries of Goodfood products to even more customers in the GTA. We will continue to grow our network and on-demand availability with 3 additional facilities to launch by the end of March and multiple prime new locations identified and being executed on. On that note, over to Jon Roiter to review our financial performance in detail.
Thank you, Jonathan, and good morning, everyone. I will now turn to Slide 4, which provides details on our top-line performance. The first quarter net sales showed stability compared to the fourth quarter of fiscal '21. As a reminder, the fourth quarter includes the month of June, which was a [ near ] record month in terms of demand and the month of July and August, which were significantly impacted by both seasonality and the reopening of the Canadian hospitality industry as most COVID-19 restrictions had been lifted. As such, with average weekly orders in the first quarter of fiscal 2022, increasing 15% compared to July and August as active customers also returned to growth, net sales were stable at $78 million this quarter. As our evolution into an on-demand online grocer and meal solution provider continues, we expect orders and active customers to be driven by the adoption of our quick commerce delivery grocery and meal solutions. As mentioned by Jonathan, our launch of on-demand delivery only began in November and as a result, has had very limited impact on the first quarter results. As the existing micro fulfillment centers ramp up over the coming quarters and new ones are launched, we expect our [ on-demand ] strategy to progressively drive the majority of our top-line growth over the coming quarters and years. Please now turn to Slide 5, which looks at our profitability levels. This quarter's gross margin and adjusted EBITDA margin marked the beginning of our expected progressive improvement in profitability. Gross margin improved 110 basis points compared to the fourth quarter, driven primarily by improved efficiencies in our operations and SG&A and a more stable workforce driving productivity gains. Turning to adjusted EBITDA. Our margin improved 370 basis points, driven by the aforementioned gross margin improvement as well as selling, general and administrative cost reduction initiatives, which includes a multi-quarter headcount reduction effort expected to generate $11 million to $13 million of annualized savings compared to the fourth quarter of fiscal 2021. It is important to note that while we are committed to progressively narrowing our adjusted EBITDA loss in the coming quarters, our primary objective is to ensure we continue to invest and keep people, technology, product portfolio and customer acquisition efforts as we build out our national on-demand delivery platform, which we expect to be the driver of a return of an attractive sustainable net sales growth rate. As a result, in our pursuit to unlock and capture a disproportionate share of what we estimate can quickly become as traditional brick-and-mortar shopping is replaced with a superior on-demand value proposition a [ $30 ] billion on-demand grocery meal solution addressable market, the path to breakeven adjusted EBITDA will be achieved while balancing growth and profitability. Turning to Slide 6 for a review of cash flows and capital expenditures. Cash flows used in operations -- operating activities totaled $18.9 million this quarter compared to $23.7 million use of cash flows from operating activity in the fourth quarter of fiscal 2021. The improvement was a result of a smaller net loss and improved working capital management. We invested [ $12 ] million in capital expenditures this quarter. The capital invested was mainly related to equipment deposits, leasehold improvements to new and existing facilities and the build-out of parts of our technological platform. Some of these investments relate to footprint initiatives made last year with payments only going out this quarter. These investments are acting as a cornerstone to the build -- to build physical and technological infrastructure to support the scaling of our on-demand delivery network in Toronto and Montreal as well as the launch of on-demand and deliveries in Ottawa in the coming months. In addition, investments to open our digital platform to nonsubscribers are also part of our CapEx spend. In the coming year, we will continue to invest capital in building the on-demand grocery network and infrastructure that will enable superior customer experience and solidify Goodfood's position as Canada's leading vertically integrated on-demand grocery and meal solution provider. While these investments are paramount in building out our on-demand network and leadership, we expect the remaining CapEx for the year to be approximately $25 million. Lastly, we ended the quarter with cash and cash equivalents of $105 million in addition to revolver availability, which continues to provide significant balance sheet flexibility to execute on our growth strategy. Turning to our financial outlook. We viewed 2022 as an important [indiscernible] year on a couple of fronts. For most of the fourth quarter of 2021 and all of the first quarter of 2022, COVID-19 restrictions have been greatly relaxed throughout Canada. With essentially stable net sales over the past 2 quarters, our first quarter 2022 net sales are approximately 40% higher than our second quarter of fiscal 2020, which is our last comparable quarter pre-pandemic. Since the relaxation of COVID-19 restrictions in 2021, we've had a consistent and stable order level. As we look forward, we are excited about the upward momentum our on-demand grocery meal solution strategy is providing to our net sales base. Extrapolating the results of our first 2 micro fulfillment centers to the additional 4 launched or scheduled to be launched by the end of March and a stable weekly subscription order profile we have experienced, we are confident, we'll return to net sales growth as we continue to scale and roll out our MFC network. On that note, I will turn it back to Jonathan Ferrari to provide an update on our key business priorities and our on-demand strategy.
Thank you. I'll now turn to Slide 7. We are also excited with the developments that highlight the progress we made in our strategy to build Canada's first integrated on-demand online grocery network. The metrics we have observed since launch across adoption and retention rates as well as unit economics are ahead of our expectations, and we look forward to building on that early momentum. We will drive long-term shareholder value by executing on 3 core priorities: we want to, one, grow on-demand active customers; two, expand our on-demand coverage; and three, improve our profitability. Expanding on these 3 priorities. Firstly, we aim to build on the positive quarter-over-quarter sequential active customer growth momentum we observed this quarter increasing both the penetration of Goodfood and the frequency of orders placed by our shoppers. The 2 key catalysts to order growth are continuing to provide delicious, unique and differentiated grocery, meal kit and ready-to-eat products to our customers and growing the number of on-demand active customers.Secondly, to grow the number of on-demand active customers, we will expand our footprint of on-demand facilities, beginning with Canada's 2 largest markets, Toronto and Montreal. Our hub-and-spoke fulfillment model is well advanced, particularly at the hub level with manufacturing facilities in both the East and West Coast and a large-scale distribution center in Montreal, capable of handling expected midterm Eastern Canada demand. [ Bespokes ] are low CapEx, local micro fulfillment centers will grow in count as we look to increase the availability of our 30-minute delivery service to more Canadians. Thirdly, we will continue to focus on improving our profitability levels and look to achieve progressive improvements in margins. Our gross margin is showing progressive signs of improvement this quarter and efficiency initiatives have begun to yield results with a 370 basis point increase in adjusted EBITDA margin. As we continue to implement initiatives to offset the recent inflationary pressures and by growing orders and by extension net sales, we expect to make continued progress on adjusted EBITDA margin expansion. Turning to Slide 8, to share exciting recent developments in our on-demand strategy. The results we have seen since our November launch of on-demand grocery and meal solutions delivered in as little as 30 minutes, our significantly ahead of expectations and already confirmed both the product market fit that will drive exciting growth for years to come while providing attractive unit economics. I'll begin with 3 core metrics that provide visibility on the explosive growth we are seeing with our on-demand groceries and meal solution offering. Firstly, we now count after only 8 weeks of launch, over 13,000 on-demand active customers, a more than 50% increase generating run rate sales before incentives and credits of $21 million. Secondly, at shoppers order on average, the equivalent of about 8 baskets per quarter, nearly double the order frequency of our subscription plan. We have seen, thirdly, over the past 5 weeks, orders growth rates of 15% per week, providing the clearest indication of exponential size of the net sales opportunity in front of us. Similarly, let me share the 3 core metrics that are driving the attractive unit economics of our on-demand grocery and meal solution offering. Beginning with basket sizes. The larger the basket size, the more dollars are available to offset fixed costs that each order has such as the last-mile delivery, which I will come back to you shortly. Since launch, we have seen the average basket size increase with average order sizes now in the $65 to $70 range, well ahead of the global quick commerce competition. Our larger basket size is driven by our unique merchandising strategy that provides Canadians with both their daily groceries and delicious meal solutions while saving them time and money. The second metric when assessing unit economics is retention rates. Perhaps unsurprisingly, the Net Promoter Scores of over 80, which we saw, the customers that were part of the initial November cohort, they ordered more in December than they did in November, leading to an order retention rate of 110%. Thirdly, let me provide some color on last mile delivery or more specifically, the metric we are managing, deliveries per hour or DPH for short. When we open a micro fulfillment center, we began by temporarily funneling a portion of our preplanned subscription meal kit orders through the facility, providing immediate volume and positively impacting the site's delivery per hour. With the rapid order growth each of our MFCs are observing, we have already reached 3 deliveries per hour within a 3-kilometer radius. As we build out coverage in a given city and build density, we are well-positioned to achieve our at-scale target of 5-plus deliveries per hour, ultimately representing a delivery cost as low as $4 per order. Based on both the existing growth profile and unit economics we have seen with our first 2 micro fulfillment centers, I am pleased to announce the continued scaling of our network, beginning with our third local micro fulfillment center in the west of the GTA servicing Oakville, Mississauga and other neighborhoods, which we opened late last week. In addition, with 3 more facilities scheduled to open before the end of March, providing on-demand groceries and meal solutions to a growing number of Canadians, we are positioned to build a market-leading position. For the full fiscal year 2022, we believe we can launch 8-plus micro fulfillment centers overall, providing roughly $160 million of annual on-demand capacity, which will serve as the platform to return to year-over-year growth beginning as early as the summer or fall of 2022. In addition, we have built the internal infrastructure to support the growth of our network to more than $1 billion in sales by 2025. Our on-demand delivery initiative is off to a fast start and we are excited to see our catalyst for online grocery penetration, gain scale in the coming quarters and years. On that note, I will turn it over to the operator for the Q&A portion of this call.
[Operator Instructions] Your first question comes from Martin Landry from Stifel.
My first question, Jonathan, is just on your last comments. I just want to make sure that I understood correctly. You said that you expect revenue growth to return this summer or the fall of 2022? I'm not sure, if I understood correctly, but is that -- did you mean total company-wide revenue growth?
Yes, if we look at the year-over-year comparisons, I would say what we're looking at is year-over-year revenue growth likely returning to the overall business this summer or this fall. If we look at our pre-COVID weekly orders, the business today on the weekly meal kit subscription continues to be about 40% above the pre-pandemic levels. So as we work through the quarter -- kind of the quarterly comparisons year-over-year throughout this year, we'll see the year-over-year growth return later in 2022. And I think the best way to think about our business is the weekly meal plan subscriptions are stable, profitable. We're really making sure that the weekly meal subscriptions are as profitable as possible to be able to fund our growth initiatives on the on-demand side. And on the on-demand side of the business, we're selling our meal kits, grocery products, prepared foods and we're really seeing explosive growth and really amazing traction from a customer perspective. So what's happening here is, we're responding to customer demand and the customer need to have our products distributed to our customers in a different channel. And so we're seeing a lot of potential on the on-demand side and stable orders on the weekly meal plan.
Okay. And maybe just a follow-up to that. I'm wondering, if you can speak on the competitive dynamic of the meal kit business currently? I understand that there's been a boost with COVID, but I'm wondering, do you see your competitors being more aggressive to acquire customers. And do you -- did you lose market share in the meal kit business in Canada this fall?
So I would say the competition continues to remain stable on the weekly meal plan side. There tends to be lower marketing activities during the summer months and then it tends to pick up in the fall and in the early winter. From a market share perspective, we believe that we've maintained our market share on the weekly meal kit subscription side. And on a longer-term perspective, we think that being able to offer our meal kits both through our weekly subscription and through our on-demand channels will allow us to grow the total number of meal kit portions that we're selling across Canada. So it's really up to the customer to decide, if they want to sign up to a weekly meal plan and get the convenience of prescheduled orders or if they want to engage with our meal kits and other products in a more flexible way. And ultimately, we think that these 2 distribution channels will serve as a catalyst for us to continue growing our overall meal kit portions across Canada.
Your next question comes from Frederic Tremblay with Desjardins.
First question for me. I was wondering, if you can maybe dig a [ little ] deeper in terms of the order composition in on-demand grocery given their significantly higher average order value than some of your peers? Is that mainly driven by customers adding meal kits or are they just in your opinion adding more of your private label grocery product?
Yes. So if you look at the key to making the economics work and to making on-demand deliveries profitable. One of the key indicators there is the basket size. And so, we're at 2x or 3x the basket size of other global on-demand peers. If you look at the breakdown of our on-demand basket, we're at about 1/3 of the basket that is meal kits, about a little bit over 50% of the basket is our grocery products and the remainder of it is our prepared ready-to-eat meals. So we're still in the early days, the composition can shift. But the fact that we have close to half the basket or 45% of the basket that's prepared meals and meal kits, it really gives us the opportunity to offer a differentiated basket to the customer versus what other competitors can offer. And these are also high-margin products that are at larger average sale prices than a typical grocery products. So the mix that we've developed in our merchandising is really unique in the market and it balances creating this differentiated customer offering that our customers are loving and making sure that the economics of the overall baskets can work from a unit economics perspective.
That's helpful. And just on the 13,000 active customers in on-demand. Do you have a sense of how many of those customers are totally new to Goodfood? Meaning that they are not previously weekly meal-kit customers that have transitioned to on-demand? And I guess related to that as well, what portion of the addressable market of the 2 fulfillment centers does 13,000 customers represent like what's your early penetration rate in your estimation?
So in terms of the customers, more than half of them are completely new to Goodfood. And the other metric I can share is within 10 weeks of launch, we've been able to fill about 1/3 of the capacity of the MFCs that we built out. So what we're seeing is because of the strong robust demand from the on-demand side, we're able to scale our MFCs more quickly than expected. And so that's really generating positive results on all of our underlying unit economic metrics. So from a profitability perspective, in addition to the average order value, we talked a little bit about the deliveries per hour, which is another key metric that's extremely important for the attractive unit economics. So from a deliveries per hour perspective, scaling more quickly and getting a significant amount of demand is allowing us to hit that 3 DPH number within the radius around our MFCs, the 3-kilometer radius that I mentioned in the script. And our intent is to be able to -- as we continue to fill the capacity at the MFCs and build more density in the route, we expect to be able to get above 5 deliveries per hour. And so that will represent somewhere around the $4 delivery cost. And then the other 2 things that are important from a unit economics perspective, we talked a little bit about the positive retention. So customers that are signing up within any given month are actually ordering more Goodfood deliveries in their second month. And so that's another really positive contributor to the unit economics that negative churn. So what we're seeing right now is in addition to the quick growth that we're talking about, all of the underlying economic metrics are progressing really well, and we're excited to keep you guys updated.
Congrats on the early progress in on-demand.
Your next question comes from Ty Collin with Eight Capital.
We're starting to hear about some food delivery companies building out dark stores and trying to expand into the grocery space. I'm just wondering, how would you characterize the threat from those players? And how will Goodfood compete against new entrants, who might already have a larger installed base and [indiscernible] density?
Thanks for the question. So we heard -- I believe it was SkipTheDishes that announced the launch of the dark stores. From the SkipTheDishes perspective, our understanding is that their focus is really on building a convenience-oriented basket, so kind of a more of a [ C ] store basket. So from a merchandising perspective and from a facilities build-out perspective, it looks a bit different than what we're building. So Goodfood's intent is really to build a replacement to brick-and-mortar grocery stores. And so the footprint and merchandising is different. We also have 8 years of operating experience as a team in scaling supply chain and a network of physical fulfillment centers. And so in addition to having the expertise around running good courier and having our own fleet of couriers across the country that can fulfill our logistics needs, we also have that experience in terms of supply chain and scaling. So between our operational capabilities, the technology we've built, our good courier fleet, and our differentiated merchandising, we think Goodfood is really in an excellent position to build a replacement to brick-and-mortar grocery shopping. And over time, we believe we'll see 50% of our customers' weekly grocery shopping shift online to Goodfood's on-demand offering.
Got it. And then just for my follow-up, we're seeing inflation continue to accelerate. I know that Goodfood has historically been able to manage that partially by rotating menu items and ingredients. I just imagine that's not [ anything ] to do with grocery items, given that customers are probably looking for some more consistency there. So it's inflation more of a risk as the grocery business grows? And what can the company do to manage inflation and grocery SKUs specifically?
Yes. Great question. So I think similar to what we had experienced early days of growth on the meal-kit side, we've been able to renegotiate volume discounts through some of the early success that we've seen in on-demand. So whatever we've been able to negotiate from our buying power, has mostly gone back into price. The other thing is obviously owning 80% of the SKUs in terms of private label branding gives us much more flexibility on how we can price products. We don't have Pepsi or Unilever telling us how to price the products. We're able to use our analytics to say, okay, at this price, we're going to sell much more and ultimately deliver better value to customers and better margin to the company. And finally, we -- over the long-term, as we've said in the meal-kit business as well as prices do go up for raw material and commodities, ultimately, we need to pass those prices on to consumers, but we think in the early days, we can use the first 2 levers to offset a lot of that.
Your next question comes from George Doumet from Scotiabank.
I just wanted to ask you on the incentive costs for that $20 million -- $21 million run rate number that you guys -- or revenue side that you guys quoted for on-demand. Maybe give us a sense a little bit in terms of what those incentive costs are and how they're trending, maybe?
So our current offer from a customer acquisition perspective on the on-demand new customer acquisition is -- it's $30 off the first 2 baskets. So if you look at our average basket sizes, it's around 45% of the first 2 baskets. Our customers on-demand are placing close to twice the number of orders per month that are Goodfood meal plan subscribers are placing. So we're actually able to get through those incentives within the first month of customers signing up. And then post those incentives, we're selling -- there's no other specific ordering incentives that we're offering other than regular discounts at product level. So we're able to start earning a positive contribution margin on orders quite quickly within the first month. And we have about 7 to 8 orders per quarter, per on-demand customer. So it really compares quite favorably versus the unit economics of the meal-kit subscription on a weekly basis. Maybe just add to.
But at that point, there's no real need -- okay. Go ahead. Sorry.
Sorry, George, just to add to that. So similar to the early days of the meal-kit offering, as we said, more than half of the customers and the 13,000 have been new to Goodfood. So that obviously dragged down the margin in the early high-growth days and the overall margin for ODG is quite positive, but net lower than the overall business. So we're really excited about the progress we made on that side and the fact that it paid back much quicker is helping us reduce incentives over time. And the marketing team is turning through all the data to optimize that spend.
Okay. Okay. That's helpful. And to your earlier discussion around kind of getting to that 5-plus targeted deliveries per hour, I understand this is probably a difficult question to answer, but can you maybe give us a sense as to when you think we can get to those levels?
Yes. So we actually see those levels at certain times of the day already today. So we have very good confidence that we'll be able to continue to hit that for the overall business. Right now, as we said, we see it as a competitive advantage to be able to leverage our weekly meal-kit orders to break down our cost delivery and batching will go into that quite a bit as well in Toronto and Montreal, the last day as we said, quite a bit of snowstorms. So our batching has been very high, although our DPH has been very low because of the snowstorms. So the more we can batch and the better optimization of our routing, the better the DPH will be. But like I said, we see it a core part of the day already and are optimistic to be able to hit that quicker and quicker with every new launch of our MFC.
Your next question comes from Paul Treiber with RBC Capital Markets.
I just wanted to focus on margins and profitability for a second. The uptick here is directionally positive. When was it the plan to reach year-over-year revenue growth -- a positive year-to-year revenue but by the summer or the fall, now how should we think about cash flow and the timing for cash flow breakeven?
Paul, thanks for the question. Look, as Jon laid out, we see the top-line growth coming back in the summer and fall as our on-demand -- as we continue to see the explosive growth that we're seeing and as we continue to add additional micro fulfillment centers. Ultimately, we're going to be balancing the reinvestment in customer acquisition -- in our -- of our cash in acquisitions for our growth and ultimately as well as coming close to a breakeven from a cash flow perspective. So there's not a -- I'm not giving a clear timeline for that, but I would say that as we head into 2023 for the following year, we'll have a significantly larger revenue base. We'll have our fulfillment centers contributing from a positive perspective, at least the ones that have a longer tenure, contributing from a positive perspective from a cash flow perspective. And as a result, we'll start seeing the closure of the gap, if you will, of our current cash flow from operations. We're still working. There's still lots of room we can do on our working capital management. I think you probably saw in the first quarter improvements that we had versus our fourth quarter. So there's still continued improvement we can do there. And ultimately, continue to drive to get to a breakeven from a cash flow perspective as we look forward.
And from a cash perspective, I mean, you have $105 million on the balance sheet right now. How much is needed for the day-to-day operations? And then from a liquidity point of view, you have the revolver, how much is available on the revolver at the moment?
Paul, yes. So look, we have a significant amount of balance sheet flexibility. Ultimately, we can toggle our growth versus our cash spend. And so with the results that we're seeing with the 2 centers, the third one has just opened and the additional that we see by the end of March, we're really excited about the profile that we're seeing. And I think just as importantly, we're impressed by the unit economics that they're already delivering. So look, we're going to balance growth as well as the spend on cash or the use of cash. But with the additional $20 million on our revolver. There's still a lot of flexibility that we have from a balance sheet perspective. And as I talked about before, I think there's still some levers that we have on working capital management as well that will help.
And Paul, maybe just to add to that like the some of the CapEx that we had this quarter, as we mentioned in the script was from previous quarters and just working through the payment cycle some of the hub pieces of the network, so making sure that the [ DC ] is up and running in place, the [indiscernible] facility that we mentioned will be launching by March is our first automated micro fulfillment center. So those are some of the bigger CapEx spends which will start to reduce as a percentage of what we're overall spending in CapEx. And each MFC, we've subsequently launched and are in the process of launching has come down in terms of cost. We've been able to look at what customers care about and what we need to operate these things. So we have a lot more flexibility in launching that on 1 MFC per X number of days or weeks or months versus the larger kind of 6- to 9-month projects, which we've been investing in to support the scaling.
Thank you for speaking through those moving parts and explaining the flexibility there.
And your next question comes from Michael Glen with Raymond James.
I'm just -- a question on the SG&A cuts. I'm just wondering, like when you're looking at your SG&A line and you are making some cuts there, but at the same time, you're talking about this a very attractive growth opportunity in front of you. So how do you balance cutting SG&A and then growing other parts of the business at the same time? I'm just trying to understand that dynamic a little bit better.
Michael. So I think the best way to think about the business is through our 2 different distribution channels. And so from a weekly meal plan perspective, it's a stable, profitable distribution channel inside of the business. While the on-demand side is really what we're building and scaling up in terms of network and capturing the customer demand that we're seeing. So when we think about our SG&A improvements and reduction in some of the overhead, what we're doing is we're consolidating teams that are supporting the weekly meal-kit subscription in order to make it as profitable as possible. And we're also ensuring that we have the right skill set and the right teams in place to be able to scale up and grow our on-demand network and facilities. And so it's through that process of really making sure that the weekly meal plan is as profitable as possible that we're finding those efficiencies. The second piece is over the past 2 years, we've been laying the foundation of proving out the product market fit, improving out the economics and making sure that our on-demand distribution channel is ready to scale. And so as many of those foundational pieces are in place, as Neil alluded to, thinking about some of the hub distribution centers for our on-demand supply chain, the technology that we needed to implement in order to enable those real-time orders, as those projects deliver, even thinking about building the first [ 1,000 ] Goodfood private brand products. Some of the projects once completed also allow us to find some efficiencies in our cost structure. So it's a mix of those items and we still see more room to go in terms of being able to create more operating leverage in the business that will improve EBITDA. And we also see continued path to improving our gross margin. And so we're really being thoughtful about how we build our cost structure in order to balance that growth and profitability like Jon Roiter alluded to.
So the trimming you've done on SG&A is that largely complete at this point in time or is there more to happen?
They're not fully reflected in this quarter. But from an execution perspective, they're largely completed.
Okay. And just on the balance sheet, I just want to go back to -- I know that you said it's reasonable financial flexibility, but you are -- the scope of investment has stepped up quite meaningfully over the past 2 quarters. So do you feel confident that you have enough capital available to get to where you want to be with the micro fulfillment center build-out?
Michael, it's Neil. So as I was just mentioning to, I believe, it was George's question, the big pieces of the network are now built out and for the most part, paid for, which means the -- I think we had $12 million of CapEx this quarter. And that number will start to come down and be much more flexible and nimble as we see opportunities. So we built the team now that can spin up an MFC in somewhere from 4 to 8 weeks in terms of visibility. And as we said last quarter, less than $1 million of CapEx and OpEx required to get one of these things off the ground, plus we're improving that number quite a bit. So if you think about those numbers, the numbers that we're talking about in terms of launches for the rest of the year and flexibility that we have on the balance sheet, we feel like we're in a pretty good spot. We also see that every subsequent MFC or at least the second 1 that we've launched so far in the GTA performs better than the first 1 and anticipate that to be the case for existing city launches as well. So the third and fourth and fifth should start to contribute at a faster rate than the than the first location in the market. So with the underlying OpEx economics and unit economics that we're seeing, we feel pretty good. The team's focus on reducing the CapEx spend and optimizing CapEx spend and the fact that we have -- we've built out a lot of the big chunks of the network, we feel good about the position.
Okay. And the remaining CapEx for the year was indicated at $25 million, that's over the next 3 quarters, correct?
Yes, exactly. So we'll continue to -- you'll see some of the invoices and payments trickle in from some of the big pieces that we were talking about. Notably, the Ottawa facility, which will go live in the coming months and then flexibility around the rest of the CapEx spend. And there's also some capitalizable tech and engineering spend in there. So yes, that's what we would anticipate.
And maybe I would just add, I mean, you'll see a progressive decline of CapEx over the course of the year as you transition to effectively an asset-light growth strategy, right? So each MFC is well under $1 million, as Neil said, to the second and third cost of each facility. So second and third facility, the cost keeps on falling in terms of our CapEx we will fine-tune our execution. So ultimately, we're seeing is over the course of this year, a transition from, hey, we built the hub, and as we build up with transitioning to an asset-light CapEx strategy.
And there are no further questions at this time. I will turn the call back over to the presenters for closing remarks.
Thanks again for joining us on this call. We look forward to seeing some of you at our shareholder meeting this morning. And for everyone else, we look forward to speaking with you again at our next quarterly call. Thank you.
And this concludes today's conference call. You may now disconnect.