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[Audio Gap] And actual results could differ materially from actual events and those described in these forward-looking statements. Please refer to Freshlocal's earnings release and reporting documents issued today for a discussion of the risks and uncertainties associated with such forward-looking statements. On the call today, Simon will start with a review of the Q1 fiscal 2022 highlights. Adrienne will follow up with her Q1 fiscal 2022 financial details, and Simon will conclude today's prepared remarks with his outlook as we advance into fiscal 2022. With that, we'll open the lines up to any questions afterwards. I'll now turn the call over to Simon Cairns. Simon?
Thanks, Ian, and to those on the line as we discuss our Q1 results and provide an outlook for our business. I would like to open by noting the recent passing of Mr. Terry Vanderkruyk, Director of Freshlocal. Terry was a respected member of the team and his comradery will be missed by all. I would also like to welcome Mr. Douglas Harrison to the Board as of last Friday. Doug has extensive industry and leadership experience and is a proven operator in the grocery and logistics space. He is a welcome addition to the Board.As we turn to our results, this past quarter, we were impacted by COVID-related supply chain challenges, along with being impacted by the extensive BC and Alberta floods, as I will detail shortly. We will still feel some impacts related to the COVID supply chain challenges in the current quarter, but we are making very good progress towards our goal of being cash flow positive within the SPUD eGrocery segment this year. We expect to see cash flow positive results for the SPUD eGrocery related to our efforts in Q3. Additionally, we are making very good progress on our FoodX eGMS platform front. We are on track to launch in the second country with Carrefour in the first half of this year. We report our results in Canadian dollars and dollar references are to Canadian dollars unless otherwise stated. Q1 fiscal '22 revenues came in at $29 million, down 9.1% from the same period in fiscal year 2021. Our consolidated gross margin of $9.8 million for the Q1 fiscal '22 were below the $11.7 million in gross profit we posted in Q1 2021, and our consolidated gross margin percentage declined to 33.9% from 36.7% in Q1 last fiscal year. A number of factors impacted our financial results in the current Q1. The existing supply chain constraints and volatility experienced throughout the COVID-19 pandemic were further exacerbated by the extreme rain storms in Southern BC in mid-November, which caused severe flooding and mudslides and resulted in the closure of major ground transportation routes between the greater Vancouver area and the rest of BC and Western Canada. These conditions consequently delayed our shipments of inbound goods and hampered outbound customer orders, thus negatively affecting our stock levels, product offerings, inventory costs and customer deliveries. Further impacting our revenues were complications in capacity and supply chain relates to the latest variant of the COVID-19 pandemic. We continue to encounter labor shortages, some due to COVID-related illness, but also from overall tightness in the labor markets. The areas we find the most challenging are staffing for fulfillment of eGrocery orders via warehouse and delivery operations. We've incurred additional costs related to overtime for current staff and hired a contract labor to fill staffing gaps to ensure continuity of operations. Lastly, our results were impacted this quarter by comparisons to nonrecurring revenue in the comparable quarter last year from both a now retired third-party logistics partnership and also a consolidation of select retail operations in Alberta. The increase in cost of sales is primarily attributed to higher inventory costs associated with inflation and the increased procurement and transportation costs related to the BC floods.Inflation for December 2021 increased with the consumer price index for BC, increasing 3.9% across the category indexes and 4.1% for food compared to December 2020. These increases were partially offset by savings associated with the greater economies of scale and inventory management efficiencies achieved from the July 2021 merger of the company's Greater Vancouver fulfillment centers, optimization initiatives and scale-up of operations to meet demand and an active pricing strategy. These onetime impacts are now mostly behind us, but we will see some supply chain COVID-related challenges in the current quarter.The team is actively going forward and managing expenditures, optimizing operations and accelerating our growth strategies with a clear goal of being cash flow positive in our eGrocery sector this year. Adrienne will talk about how these impacts influenced our segmented results in a moment. But for now, turning to what we continue to see as an excellent opportunity to drive growth for Freshlocal, our FoodX eGrocery Management System, or eGMS, and a few comments on that. Our focus for the FoodX team is on solidifying our already strong relationship with Carrefour, one of the leading global grocers, by deploying our FoodX platform to support Carrefour's eGrocery initiatives in their key countries. Our first deployment started last year in Belgium and order volumes continued to grow. Carrefour continues to market its online grocery capabilities to its customer base through Belgium to support increased throughput for the fulfillment center that runs the FoodX platform. Online eGrocery is the core part of their larger publicly announced digital initiatives. In the Q1 quarter, we made great progress extending the FoodX platform into a second European country with Carrefour. As we outlined in our Q4 call in December, we've been able to leverage our experiences in Belgium to materially reduce the deployment cycle in the second country, delivering the solution in less than half the time as was required in Belgium. This means Carrefour will be operational in providing eGrocery services much more quickly. We remain well on track to complete this implementation and start conducting production orders out of both Belgium and the second country within the first half of calendar 2022. It is important to remember that the second country is significantly larger than the first country and therefore, represents a quicker ramp-up of order volume than our first deployment. Furthermore, the second country is large enough that there are additional opportunities to deploy FoodX in additional fulfillment centers within the second country. Our main focus is to operate effectively in the first fulfillment center in the second country, and then leverage that operational performance and technical competency to expand to additional fulfillment centers within the second country. Based on our initial findings, we believe the subsequent fulfillment centers in the second territory are similar in nature and scope to how FoodX is being deployed in the first fulfillment center. Final points coming out of Q1 and reinforcing my messages from our Q4 results, we're taking specific steps to improve our cash flow generation capabilities, in particular, in the SPUD eGrocery segment, which is core to building a successful future for this company. A few key areas of focus include aligning expenditure to priority, cost rationalization, disciplined pricing strategies in eGrocery and a core focus on increasing the average order size to increase revenue per order. We will continue to provide updates on these initiatives as we progress.Lastly, we took some solid steps to secure new financing, including our debenture offering, the EDC credit facility and our Technology Supercluster funding. I will note that Q1 fiscal 2021 finished on our seasonally lowest week of revenue for both the SPUD and Blush Lane retail operations, combined with the impact at both Christmas and New Year's statutory holidays on staffing costs. Mirroring Q1 fiscal 2022, we also repaid $2.7 million of the outstanding loan balance under the SVB debt facility. I'll pass the call to Adrienne now to speak more about our Q1 results and our financial position. Adrienne?
Thanks, Simon, and good morning, everyone. I'll share some of the main elements that impacted our results during the first quarter of fiscal 2022. As Simon outlined, revenues for the quarter came in at $29 million, which is 9.1%, a decrease from Q1 in fiscal 2021. Our gross margins declined to 33.9% from 36.7% in Q1 fiscal 2021. The main impact on our margin came from inflation. Some of this related to higher product costs due to the flooding, but much of it, as Simon mentioned, is due to overall cost inflation which also extended to our labor and transportation costs.We took several steps in the latter half of 2021 to strengthen our liquidity. In December, we closed a convertible debenture financing for a total of $13.9 million. Also in December, we secured a new credit facility for EDC for a total of $8.8 million, and we were awarded $800,000 in Technology Supercluster funding. As Simon noted earlier, we finished on our seasonally lowest week of revenue combined with the impact of statutory holidays on staffing costs. During Q1 fiscal 2022, we also repaid $2.7 million of the outstanding loan balance under the SVB Debt Facility. Cash balances reflected on our balance sheet do not include the EDC and Supercluster funding amounts announced. Next let's look more closely at the results within our 2 business segments. As a reminder, our eGrocery segment includes our SPUD.ca online eGrocery service and our retail operations in BC. This segment also includes, for now, our FoodX business, both our discontinued third-party logistics and new eGMS SaaS business. Our Blush Lane business segment includes our 4 brick-and-mortar retail locations located in Alberta. For our eGrocery segment, Q1 revenues were $21 million, which was a decline of 15.8% from Q1 fiscal 2021. As Simon mentioned earlier, we caused a large increase in customer and order activity for SPUD.ca due to strong COVID-related restrictions last year. And despite the recent effects of Omicron, overall, these restrictions were lower in Q1 fiscal 2021. On the asset customer front, our total for Q1 fiscal 2022 was 25,819, which is a slight decline of 2.7% or 715 customers from the Q4 fiscal 2021 active customer count of 26,534. We saw a reduction in our average order size to $123 as compared to $140 in Q1 of fiscal 2020, and flat to the average order size we obtained in Q4 2021. The decrease in average transaction size is primarily due to the following factors: the reduced availability of product offerings and capacity for customer orders due to ground logistics disruptions experienced during Q1 fiscal 2022 related to the BC floods and supplier constraints which reduced the visibility of stock on hand, leading to lower than usual average order size. In Q1, gross margins in eGrocery declined to 20.8%, which is 3.1 percentage points below Q1 fiscal 2021. The biggest impacts related to higher inventory and labor costs, both of which we are making efforts to either reduce directly or through passing cost increases during the form of higher product pricing. We are focused on evaluating our product pricing structure in response to inflationary pressures currently observed throughout our supply chain and are actively managing pricing throughout our network. We expect that the strategic changes we've made in the past summer, primarily the streamlining of our Vancouver eGrocery fulfillment operations to drive more efficiencies once we return to more normalized operating conditions. These changes are expected to reduce our facility overhead expenses, lower inventory costs and create routing and supply chain efficiencies. It is important to point out that we posted our second quarter booked revenues for our FoodX deployment in Belgium. I will note that included in our revenue is the recognition of $0.3 million of eGMS fees in Q1. This represents a full quarter of implementation fees that we will be recognizing over the extended 9-year life of the Carrefour contract for Belgium, and this is in addition to the variable SaaS-based fees -- SaaS fees based on GMV's business. The eGMS fees based on the deployment are currently included in our disaggregated revenues within the online customers portion. Shifting over to Blush Lane, which is our retail operations in Alberta, Q1 fiscal 2022 revenues were $8.5 million, which is 10.6% below Q1 of 2021. As I mentioned, our regions were far less restricted from a COVID lockdown perspective, so we performed relatively well against the lockdown in Q1 in fiscal 2021. The quarter also included a consolidation of 13 retail operations beginning in October 2021, translating to a decrease of $0.3 million of comparative revenues. Despite the decline in revenues and effects of inflation and other factors, Blush Lane posted gross margins of 33.1%, which were essentially flat as compared to Q1 2021. In Q1 fiscal 2022, we continued to invest in the FoodX platform. And with the start of recognizing eGMS revenues, technology development costs incurred began to be expensed in the SG&A line and was the driver in the increase of expenses as compared to Q1 2021. We will look to continue to refine our reporting as the FoodX business matures. I would like to echo Simon's words regarding Terry, and to them, my personal condolences to his family and friends. Terry was a strong believer in our mission and he will be missed. With that, I'll now turn things back over to Simon.
Thanks, Adrienne. As I conclude my prepared remarks today, I want to restate what we see as the most critical steps we need to take to strengthen our footing and deliver value to this company and to our shareholders as we advance through 2022. First, we are heavily focused on turning the eGrocery segment of our business through a combination of bringing focus and key goals and better performance in how we operate. We are targeting to be cash flow positive in our eGrocery segment this year. Secondly, we continue to expand into a second territory with Carrefour. We are live in Belgium and conducting production orders via our FoodX eGMS platform. We have leveraged that experience and deployment and expect to be deployed in a second much larger country within the first half of 2022. Thirdly, based on the operational performance of that last first deployment in the second country, our goal is to springboard to additional fulfillment centers within the second country. Lastly, the company recently announced and extended its partnership with Digital Supercluster to further the FoodX platform in areas of using technology to better manage food waste. Supercluster contributed $800,000 in additional funding to which we are grateful. Look for us to be -- more consistently pursue non-dilutive funding in the food waste, food security and climate change sectors as we align FoodX platform to both our eGrocery and eGMS customer sustainability goals and profit motives. Last note, just on the cash position at the end of the quarter, our cash balance is reflected on our balance sheet do not include the EDC and Supercluster fundamentals announced. Operator, we can turn it over to questions.
Operator?
For those waiting for the question, can you please hold steady? We seem to have a technology issue. Operator, we're ready to go to questions. Ian, are you able to contact the operator so we can go to questions, please?
Yes, I've reached out to him. Yes, he's signing back in right now.[Technical Difficulty]
[Operator Instructions] Our first question is from Luke Hannan from Canaccord Genuity.
Before I ask my questions, I just wanted to extend my condolences as well to you and the team and the Vanderkruyk family on Terry's passing. My first question, I guess, just a point of clarification, Simon. I think you had mentioned that you expect the eGrocery segment to be cash flow positive by Q3 of this year. First, is that -- that's Q3 of fiscal 2022, correct? And does that eGrocery segment that entails both the legacy SPUD.ca business as well as the eGMS business? Or is it solely just the SPUD.ca business?
So in Q3, first of all, and yes, it's the eGrocery core SPUD business.
Okay. So eGMS will not be cash flow positive by then?
Correct.
We'll start to look to assess the FoodX business matures to split out the businesses to give more clarity to everyone in plan.
Okay. Understood. So we'll get better disclosure to see exactly the development there on it being positive?
Yes. Yes.
Okay. Great. That's helpful. My next question is just on where things stand today with regards to Belgium and capacity utilization. I'm trying to get a better understanding of where that stands currently? What the expected ramp is? And I'm assuming that as of today, you're starting to recognize revenue that's well above just the -- those implementation fees that you guys have amortized over the course of the next -- or that you will be amortizing rather over the course of the next few years. Like what is the utilization like right now? I know you probably can't get into specifics, but can you just give us any sort of directional color on where that is today? And where you expect that to go over the course of the fiscal year?
It has been a good steady ramp up. It is -- the facility is not at full capacity in terms of daily orders, but it has been a good steady ramp-up. There have been some impacts just in the ramp-up, obviously, around COVID. Every operation in the world right now is struggling to, for example, find drivers or supply chain issues. So it's been a responsible ramp-up in that trying to focus on really securing a solid NPS score with the end customer by sort of balancing available inventory, available deliverability and operability of the warehouse. So I expect sort of the ramp-up to sort of continue on a nice steady climb through the spring months, especially as we sort of start to see some of the COVID restrictions come down and a few other things. And then where I start to -- I think you'll start to see the fees combined between Belgium and the second country sort of in the second half of the year is where you'll start to sort of see more noticeable contributions directly related to that. But on the whole, I am satisfied with the steady ramp-up and the consistent sort of effort that Carrefour is making to have a really quality customer experience in Belgium. They actually just crossed over and beat their core scores very recently in the last 2 weeks, and that's been a real sort of reward for that team that's been working hard to manage the COVID constraints.
Got it. And Simon, you had touched on that subsequent rollouts within other facilities in the second country, there would be shorter timeframes for implementation just because of the learnings that you got from the rollout of the Belgium facility. Is that true just for Carrefour? Or can you be able to apply those learnings for subsequent rollouts for future customers as well?
It's both. So we've cut the implementation time going from Belgium to the second country by more than half. And then what we sort of see is in the sort of launch cycle in the second country is based on the information we have about the subsequent recreations we believe that we can cut the implementation plan in half again. And then collectively, that makes the platform and the operations associated with it more valuable and implementable in subsequent locations. Now as we go to, say, an additional customer beyond Carrefour, naturally some of the core requirements may change. So I don't expect to match the implementation time between, say, the second country's first and second facility. But I do expect, and we are planning on getting an implementation time that is significantly less than Belgium and on par with the transition from Belgium to the second country.
Okay. Got it. Last one for me, and then I'll pass the line. What -- where does the dialogue stand as of today with prospective customers in your U.S. segment? I know that focusing on the mid-market grocers within the U.S. was something that was a focus in the past. I'm just curious where those talks have progressed of late? And what factors, if any, external or otherwise have been impacting those stocks?
So right now, I am seeing a reinvigoration of the pipeline across a few different geographic markets, not just the U.S. to which I am pleasantly pleased with. Within -- you asked specifically about the U.S. So within the U.S., we are currently sort of seeing 2 types of opportunities. Opportunity number one is sort of similar to Belgium and that we would provide a solution that helps drive warehouse operations in the eGrocery segment. Another solution is actually providing parts of our platform to an existing sort of implementation where we can add an awful lot of value. I'm very interested in both because in the former, we're obviously -- that's what we've done so far, and we can leverage our skills and experience, and that's the nature of the platform sort of as it was built over the last 3 years. But I also very much like the latter because it's faster to market and we begin to sort of segment the platform into different modules. This gives us different ways we can implement faster path to cash flow, a great way to add value, much more lower risk overall in terms of being able to realize time to implement versus time to realize fees. And lastly, it also gives us an upsell path to future R&D. So for example, if we add value with one series of modules into an existing implementation, there's an opportunity given there's downstream to probably do the same with a second market.
Our next question is with Chris Li from Desjardins.
Maybe this might be a bit more difficult to answer, but are you able to tease out or break out for us these, I guess, temporary impacts from supply chain constraints and higher labor wages and et cetera, during the quarter? And in particular, I mean, the negative EBITDA, minus $6.6 million in the quarter. Exactly how much of that would you say are more temporary in nature? I'm just trying to get a fair sense of the underlying health of your eGrocery business during the quarter.
I think in terms of a temporary nature, the figure is around half. So it's sort of a onetime uncontrolled nature. I don't necessarily count the COVID-related impacts in the supply chain is onetime because I'm seeing those on an ongoing basis. And it varies into where we're at in the evolution of the pandemic. We have -- I mean everybody has a story about rising and falling infection rates and different variants, but I won't go into all that. But in terms of onetime natural disaster event and other things, it's rough and tough about half of the impact.
Okay. Sorry, Simon, just to clarify, so are you saying roughly half of the EBITDA loss performance this quarter was more onetime? Or I just want to clarify what you mean by half?
Correct.
Okay. So in other words, like if it weren't for those impact like your EBITDA loss would have been half of what it was?
Approximately, yes.
Approximately. Okay. Okay. That's helpful. And then maybe moving on to the current quarter, you mentioned, I mean, some of the challenges are lingering for a little bit longer. Just wondering from a cash flow perspective, I think in the last quarter, you reported it was like minus $10 million or $11 million in terms of cash outflow. This quarter, is that cash burn improving? And then maybe related to that is from a liquidity perspective, I know you do have the EDC facility to draw down. It may be just from a cash burn and from a capital raise perspective, what is your near-term outlook on those?
I think Simon made it clear that the strategy is to reduce the cash burn as we continue to progress this strategy forward. So we put a clear line in the sand in Q3 that we'll see SPUD business be cash flow positive. And so we'll continue to reduce the burn as we look forward in the overall liquidity. We've had positive discussions with SVB during this period and we'll continue to seek out new sources of funds that we need to grow the business.
Yes. I think that that's all sort of a very fair commentary is that we will be pursuing additional funds to support the business. But like on a day-to-day basis, without a doubt, our main thrust is on earning the cash flow burn and cash flow utilization in the core eGrocery segment and say we are targeting within Q3 to be cash flow positive.
Okay. That's helpful. And yes, I mean just follow up on that cash flow positive comments for Q3 for SPUD, how high is your confidence in achieving that? And just to ask, is it -- is your confidence based on the fact that a lot of the factors are within you control? Or is that -- part of that is predicated on maybe the industry continuing to grow? So how controllable is that for you guys to achieve cash flow positive in Q3 for SPUD?
I'm feeling good about the -- within the Q3 window. So there are a variety of factors that we are -- levers we are pulling. So it's on both sides of the equation. We are looking very closely at managing inventory, for example. Cost rationalization, headcount rationalization, that's all sort of on the cost side. And then on the growth side, we do have a reinvigorated sort of growth plan centered around spud. In particular, thrust is around average order size because just trying to avoid some complications related to warehouse and driver labor and COVID issues and things like that, it's more beneficial for the company and shareholders if we can boost up the value per order versus incremental orders. Incremental orders are also good, but that's key. And then you also sort of see us focus heavily on retention and other efforts like refer-a-friend for example. And so it's both sort of the growth and the cost savings levers, and I'm very pleased with the initial steps on the growth side, although I think that there's a lot more we can do there. Where we've taken the most action though over the last month is definitively on the cost management and measure side, and that's where I'm starting to see very good initial forward-looking results.
Okay. That's helpful. And maybe just last one for me before I pass on the line. Just again, with respect to the quarter, how much did cost inflation outpace the retail price inflation for the quarter?
So I think we indexed retail inflation at 4.1%. So I would say it's similar or slightly higher. But that's something we can follow up with you if you want, Chris.
Okay. And maybe the follow-up on that is, I guess, as you mentioned that you are going to be looking at maybe changing your repricing structure. Can we expect that for the rest of the year that you're able to essentially offset most of the cost inflation that you're seeing? And that's probably the other reason that you expect to be cash flow positive that you get more pricing?
Correct. We do have a very active pricing strategy looking at all sort of key segments of, say, merchandise blocks and assortment blocks that we have. So we are looking very, very closely at that on a continuous basis because, as you know, the current inbound month-to-month price fluctuations are like unprecedented in modern times. So it is something that we are looking at very, very closely on a daily basis. That's key for us because it's part of managing towards being cash flow positive later this year.
There are currently no further questions registered at this time. [Operator Instructions] There are no additional questions at this time. So I'll pass the conference back over to the management team for closing remarks.
Thank you to everybody for coming in and joining today's call and looking to our Q1 results. Just again, sort of the key takeaways right now is in terms of the cash balance that's reflected on our balance sheet at the end of the quarter, it did not include the Supercluster funding amounts. Additionally, we are heavily focused on being cash flow positive in the -- by the eGrocery sector this year and look for us to expand into a second country related to FoodX within the first half of this year, with fees starting to flow through in the second half of the year. And then, lastly, look for us to have a more concerted effort around non-dilutive funding related to food security and food waste optimization as part of the FoodX platform. That's the key things that we'll be driving towards in the current quarter and subsequent quarters. Thank you, everybody, for coming out today. I appreciate your comments and your questions. Thank you.
That concludes the Freshlocal Solutions' Q1 FY 2022 Results Conference Call. Thank you for your participation. You may now disconnect your lines.