Mr. Paul Antoniadis reports

GOOD NATURED PRODUCTS INC. ANNOUNCES FOURTH QUARTER 2023 RESULTS

Good Natured Products Inc. has released its financial results for the three months ended Dec. 31, 2023 (Q4 2023).

Q4 2023 highlights:

• Revenue of $18.6-million compared with $23.3-million for the three months ended Dec. 31, 2022 (Q4 2022), and $19.4-million for the three months ended Sept. 30, 2023 (Q3 2023);
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $100,000, compared with nil in Q4 2022 and $700,000 in Q3 2023;
• Variable gross margin of 35 per cent, compared with 33 per cent in Q4 2022 and 37 per cent in Q3 2023;
• SG&A (selling, general and administrative) expenses of $3.8-million, compared with $4.9-million in Q4 2022 and $3.4-million in Q3 2023;
• Cash used in operating activities was $2.5-million for the 12 months ended Dec. 31, 2023 (FY 2023), compared with $4.6-million generated for the 12 months ended Dec. 31, 2022 (FY 2022);
• Ending cash balance of $7.3-million compared with $11.9-million at Dec. 31, 2022.

Revenue in Q4 2023 declined by 4 per cent compared with Q3 2023, primarily due to two factors: (1) revenue declines by lower third party sales in the company's industrial business group as a result of lower average selling prices, and market demand levels that led to increased competitiveness and volatility. This was further exacerbated industry-wide by a return of low-priced offshore commodity products to the North American market, along with order volatility in the company's packaging business group, including the large United States food producer previously announced, that supplies major grocery retailers, which is aggressively reassessing product assortments and renegotiating vendor agreements to safeguard margins amid food inflation and shifting consumer spending patterns.

During Q4 2023, the company took actions to reduce its cost structure considering the above-mentioned changes in operating conditions, and continued to do so subsequent to quarter-end as overall market competitiveness and volatility is expected to continue in the coming year.

"Our Q4 2023 results have reinforced the strategic importance of driving a robust, profitable, and purposefully differentiated product and customer mix to be resilient against any one factor disproportionately impacting our results," stated Paul Antoniadis, chief executive officer of Good Natured. "Coupled with this, we continued the transformation into a lower operating cost structure. Given the factors encountered in Q4 2023, the team did a tremendous job managing costs to deliver positive adjusted EBITDA for the ninth consecutive quarter."

Q4 2023 financial overview

Revenue for Q4 2023 decreased 20 per cent to $18.6-million as compared with $23.3-million for Q4 2022. The packaging business group realized a year-over-year revenue decline of 4 per cent, driven by the addition of new customers and cross-selling new products to existing customers, offset by order volatility, a reduction in United States food producer shipments and lower blended average selling prices amongst national packaging customers. Industrial business group revenue declined by 34 per cent compared with Q4 2022.

Variable gross margin for Q4 2023 increased to 34.7 per cent compared with 32.8 per cent for Q4 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 24.7 per cent for Q4 2023 compared with 24.9 per cent for Q3 2022.

Selling, general and administrative expenses in Q4 2023 decreased by 22 per cent compared with Q4 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. Q4 2023 SG&A, excluding acquisition activity and one-time charges, declined 19 per cent on a year-over-year basis.

The company's adjusted EBITDA increased to $100,000 in Q4 2023 from nil in Q4 2022, as the decline in gross profit contribution was more than offset by the decline in SG&A, and fulfilment and logistics expenses.

The company incurred a net loss of $6.1-million in Q4 2023 compared with a net loss of $4.9-million in Q4 2022. Excluding changes in non-cash expenses such as share-based compensation, depreciation and amortization, one-time charges and gains, and foreign exchange, an increase in financing costs 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 FY 2023 was $2.5-million, compared with $4.6-million generated by operating activities for FY 2022. The company generated positive cash flow from its operations for FY 2023, excluding financing expenses, which increased 38 per cent compared with FY 2022. The company generated $800,000 in net cash from financing activities for FY 2023 and used $2.7-million in investing activities for FY 2023.

Cash balance as at Dec. 31, 2023, was $7.3-million, compared with $11.9-million as at Dec. 31, 2022, and $11.1-million as at Sept. 30, 2023. As at Dec. 31, 2023, net working capital was a $1.4-million deficit 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 part of this process, the company announced a proposal to amend the terms of its 7 per cent convertible unsecured subordinated debentures and called a meeting for debenture holders to vote on the proposed amendments on April 30, 2024. If passed, the amendments are expected to improve the company's financial flexibility, lower finance costs and strengthen its balance sheet. Further details are included in the press release dated April 11, 2024.

As at Dec. 31, 2023, the company's total asset to liability ratio was 1.10 compared with 1.22 as at Dec. 31, 2022.

The company's Q4 2023 financial statements, and management's discussion and analysis, are available on SEDAR+ and on the company's website.

The Good Natured corporate profile can be found its website.

About Good Natured Products Inc.

Good Natured is at the forefront of North America's shift toward sustainability, showcasing over 90 plant-based packaging designs, and an extensive portfolio of more than 400 products and services. These offerings are purposefully designed to reduce environmental impact by using more renewable materials, less fossil fuel and eliminating chemicals of concern.

Manufactured locally in the United States and Canada, Good Natured engineers and distributes a diverse range of bio-based products across various sectors, including grocery, restaurant, electronics, automotive and pharmaceutical, through both wholesale and direct channels.

The company is dedicated to providing an industry-leading customer experience in order to encourage the transition to renewable alternatives. By making it easy and affordable for businesses to adopt bio-based products and packaging, Good Natured aims to empower them to reach their sustainability objectives.

The associated table provides a reconciliation of net loss to adjusted EBITDA.

The associated table provides a reconciliation of variable gross profit to gross profit, and variable gross margin to gross margin.

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