Mr. Paul Antoniadis reports

GOOD NATURED PRODUCTS INC. ANNOUNCES THIRD QUARTER 2023 RESULTS

Good Natured Products Inc. has released its financial results for the three months ended Sept. 30, 2023 (Q3 2023).

Q3 2023 highlights:

• Revenue of $19.4-million compared with $26.2-million for the three months ended Sept. 30, 2022, and $18.3-million for the three months ended June 30, 2023.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $700,000, compared with $800,000 in Q3 2022 and $100,000 in Q2 2023.
• Variable gross margin of 37 per cent, compared with 34 per cent in Q3 2022 and 37 per cent in Q2 2023.
• SG&A (selling, general and administrative) expenses of $3.4-million, compared with $4.6-million in Q3 2022 and $3.7-million in Q2 2023.
• Cash used in operating activities was $1.4-million for the nine months ended Sept. 30, 2023 (YTD 2023), compared with $500,000 generated for the nine months ended Sept. 30, 2022 (YTD 2022).
• Ending cash balance of $11.1-million compared with $11.9-million at Dec. 31, 2022.

Consistent with the company's outlook anticipating a slow normalization in its industrial business group and positive momentum in packaging revenue, Q3 2023 delivered an increase in revenue compared with Q2 2023. The company's packaging business group continued its growth trajectory, although comparisons are less pronounced on a year-over-year basis as the anniversary of the July, 2022, FormTex acquisition was lapped and there were some average selling price adjustments amongst the national packaging segment. Revenue declines in the industrial business group slowed in Q3 2023 compared with Q2 2023, and the company continues to expect more of its industrial capacity to be used in its own manufacturing facilities as packaging business group revenue increases.

"I'm very proud of our team's unwavering dedication to deliver an increase in revenue this quarter compared with Q2 2023, while also navigating challenging economic conditions," stated Paul Antoniadis, chief executive officer of Good Natured. "Our efforts over the past year to scrutinize and optimize SG&A and other costs are beginning to show results, as evidenced by the rebound in EBITDA this quarter. Our outlook remains positive for continued growth in our packaging business group, with an ongoing pipeline of opportunities taking us into next year."

Q3 2023 financial overview

Revenue for Q3 2023 decreased 26 per cent to $19.4-million as compared with $26.2-million for Q3 2022. The packaging business group realized year-over-year revenue growth of 4 per cent driven by organic growth, but with comparisons also reflecting the first full quarter of FormTex contribution and some average selling price adjustments, as mentioned above. Industrial business group revenue declined by 46 per cent compared with Q3 2022 and declined by 9 per cent compared with Q2 2023.

Variable gross margin for Q3 2023 increased to 36.6 per cent compared with 34 per cent for Q3 2022. The increase in variable gross margin reflects the higher mix of revenue from the packaging business group and productivity enhancements in the variable cost of products. Gross margin was 26.7 per cent for Q3 2023 compared with 27.2 per cent for Q3 2022.

Selling, general and administrative expenses in Q3 2023 decreased by 26 per cent compared with Q3 2022. The decrease in SG&A expenses reflects the company's continuing efforts to reduce costs through headcount reductions over the past 12 months, renegotiating terms across the company's service providers and suppliers, and through process improvements designed to reduce costs and/or improve productivity. Q3 2023 SG&A excluding acquisition activity and one-time charges, declined 21 per cent on a year-over-year basis. On an annualized basis, Q3 2023 SG&A would total $13.6-million as compared with the $17.9-million in the 2022 fiscal year, representing $4.2-million in run-rate cost savings.

The company's adjusted EBITDA declined 11 per cent on a year-over-year basis, but increased as a percentage of revenue to 3.6 per cent from 3 per cent in Q2 2023, reflecting the higher rate of expense reduction compared with revenue decline. Compared with Q2 2023, adjusted EBITDA improved almost 15-fold, demonstrating strong operating leverage as improved revenue and gross profit contribution were combined with the company's efforts to adjust its cost structures, as outlined above.

The company incurred a net loss of $3.2-million in Q3 2023 compared with a net loss of $2.1-million in Q3 2022. Excluding changes in non-cash expenses such as share-based compensation, depreciation and amortization, and foreign exchange, an increase in financing costs was the primary reason for the year-over-year increase in net loss.

Cash flow and balance sheet overview

Cash used by operating activities for YTD 2023 was $1.4-million compared with $500,000 generated by operating activities for YTD 2022. The company generated positive cash flow from its operations YTD 2023, excluding financing costs, which increased 55 per cent YTD 2023. The company generated $3-million in net cash from financing activities for YTD 2023 and used $2.3-million in investing activities for YTD 2023.

Cash balance as at Sept. 30, 2023, was $11.1-million, compared with $11.9-million as at Dec. 31, 2022, and $13.2-million as at June 30, 2023. As at Sept. 30, 2023, net working capital was $6.9-million compared with $10-million as at Dec. 31, 2022.

The company remains committed to exploring options that will enhance its ability to execute on strategic growth over the long term. This includes a focus on ways to restructure and renegotiate its debt obligations to reduce leverage and cash interest payments.

As at Sept. 30, 2023, the company's total asset to liability ratio was 1.17 compared with 1.22 as at Dec. 31, 2022.

The company's q3 2023 financial statements, and management's discussion and analysis, are available on SEDAR+ and on the company's investor website.

Q3 2023 results conference call

The company will hold a conference call to discuss its financial results for Q3 2023, hosted by Mr. Antoniadis, executive chair and CEO, and Kerry Biggs, chief financial officer, on Nov. 28, 2023, at 11 a.m. ET/8 a.m. PT.

Date:  Nov. 28, 2023

Time:  11 a.m. ET/8 a.m. PT

Toll-free:  1-888-886-7786

International:  1-416-764-8658

Conference ID:  22010070

Participants are asked to dial in 10 minutes prior to the start of the call.

A replay of the call will be available approximately two hours after its completion through to Dec. 12, 2023. The replay will be available by dialling 1-877-674-7070 or 1-416-764-8692 and by using the passcode 010070.

About Good Natured Products Inc.

Good Natured is passionately pursuing its goal of becoming North America's leading earth-friendly product company by offering the broadest assortment of plant-based products made from rapidly renewable resources instead of fossil fuels. The company is focused on making it easy and affordable for business owners and consumers to shift away from petroleum to better everyday products that use more renewable materials, less fossil fuel and no chemicals of concern.

Good Natured offers over 400 products and services through wholesale, direct-to-business and retail channels. From plant-based home organization products to certified compostable food containers, bio-based industrial supplies and medical packaging, the company is focused on making plant-based products more readily accessible to people as a means to create meaningful environmental and social impact.

We seek Safe Harbor.