Mr. Brian Meadows reports

SIMPLY BETTER BRANDS CORP. ANNOUNCES SECOND QUARTER RESULTS AT $23.6 M IN REVENUE WHILE INVESTING IN BRAND GROWTH AND CAPABILITY EXPANSION

Simply Better Brands Corp. has released its interim financial results for the three and six months ended June 30, 2023. All amounts are expressed in U.S. dollars unless otherwise noted. Certain metrics, including those expressed on an adjusted basis, are non-international financial reporting standards (IFRS) measures.

2023 second quarter key commercial achievements:

• Trubar protein bar: As a result of Trubar exceeding the bar category sales velocities at Costco, Trubar was able to access national distribution at Costco during the quarter. Supporting the continued expansion of the brand are four initiatives: manufacturing capacity expansion; continued omnichannel distribution growth with retailers like Sodexo; bar flavour extensions; and the entry into the $21.5-billion protein powder category in 2023, per Global Market Insights. Back-half 2023 commitments reflect a planned regional placement of a second and additional item in select Costco regions, as well as expansion into BJ's Wholesale, Circle K and Andretti Oil.
• PureKana Wellness: PureKana, a leading plant-based wellness brand, remained focused on its customer acquisition initiative, adding over 61,925 customers during the quarter and replenishing the sales funnel into a subscription model. To expand beyond human consumption, PureKana announced its 2023 entry into the $196-million hemp-based pet category (per Grandview Research) with offerings in with calming chews, hip and joint chews, and hair and coat drops. As an estimated 60 per cent of PureKana's loyal customers have pets, the growth opportunity is expected to be sizable.
• No B.S. Skincare: Originally, the No B.S. brand was sourced exclusively on-line at on the Livenobs platform and Amazon. In 2022, the brand entered 3,200 CVS Health stores for a back-to-school event and continues to maintain a on shelf presence in CVS's healthy skin section. Initial bricks and mortar success had the brand enter TJ Maxx in Q2, with a planned national launch into Walgreen's in Q4 2023. Sources of growth include omnichannel expansion supported by insight-driven innovation with an expanded facial acne patch portfolio (overnight pimple patch and acne patch plus retinol night cream) and a natural deodorant category entry.
• Vibez Wellness: The Vibez Wellness line was launched in November, 2022, to capture incremental millennial consumers on their preventative wellness journey. With an initial keto gummy supplement offering, the new brand has achieved $1.7-million in revenue with a gross margin of 73 per cent year to date 2023. Vibez's primary focus is non-CBD (cannabidiol) solutions into the weight management, focal acuity and healthy hair consumer need states. Through portfolio and channel expansion, Vibez is forecasted to exceed $7.0-million with an expected gross margin of 73 per cent in 2023.

"As our Q2 2023 financial and commercial results illustrate, we are positioned for continued revenue growth, profit improvement and debt reduction in 2023. Our strategic priorities remain to lead consumer-centric innovation and relentlessly acquire customers to these emerging brands by driving category and channel expansion. Even with our marketing and capability investments in Q2, we remain confident in delivering the current 2023 outlook of $80-million in revenue and $3-million to $4-million in adjusted EBITDA at a gross margin target range of 58 to 60 per cent," says Simply Better chief executive officer Kathy Casey.

Revenue for the second quarter of 2023 was $23.6-million, an increase of $6.7-million or 40-per-cent growth compared with $16.9-million in the second quarter of 2022. PureKana's second quarter revenue for the three months ended June 30, 2023, was $12.2-million, compared with $13.8-million for the comparable period in 2022 (decrease of $1.6-million or 11 per cent). PureKana's revenue decrease was driven by a reduction in profitable subscriptions during the quarter. PureKana invested heavily in marketing in the later part of the second quarter to increase new sales and subscriptions. Revenues have increased by approximately 50 per cent in the third quarter of 2023 to date over the comparable prior period. Tru's second quarter revenue for the three months ended June 30, 2023, was $9.0-million, compared with $2.0-million for the comparable period in 2022 (increase of $7.0-million or 350 per cent). Tru's strong sales performance in the second quarter was driven primarily by orders from Costco in the United States for a national promotion (multivendor mailers (MVM)) and from major retailers in Canada. No B.S.'s second quarter revenue for the three months ended June 30, 2023, was $200,000, compared with $800,000 for the comparable period in 2022. The major decrease was due to a later shipment planned to a large retailer for the third quarter of 2023, compared with a larger retailer product fill that occurred in the second quarter of 2022. BRN's (Vibez and Seventh Sense) second quarter revenue for the three months ended June 30, 2023, was $2.0-million, compared with $200,000 in the second quarter of 2022. Simply Better's other subsidiaries contributed $200,000 in the second quarter, compared with $100,000.

Simply Better's cost of sales increased in the second quarter relative to the comparable period 2022 by 11 percentage points due to a higher mix of retail sales (38 per cent of Q2 sales, compared with 12 per cent of sales in Q2 2022), which have lower gross margins than on-line sales. The company continues to manage its finished goods costs with co-manufacturers with the higher order volumes it has been able to place. Cost of goods sold for on-line sales (direct to consumer (DTC)) typically range in the low-to-mid 70s and retailer (business to business (B2B)) gross margins range in the mid-30s to higher 40s. Cost of goods sold was $9.9-million in the second quarter of 2023 (42 per cent of revenues), compared with $5.2-million (31 per cent of revenues) in the comparable period.

Gross profit for the second quarter of 2023 was $13.7-million (58 per cent), compared with $11.7-million (69 per cent) in the second quarter of 2022. The gross profit margin was down 11 percentage points in the second quarter of 2023 over the gross profit in the comparable period, driven by a higher mix of B2B sales in the second quarter of 2023 (B2B was 41 per cent of Q1 2023 sales) compared with the second quarter of 2022 (B2B was 15 per cent of Q1 2022 sales).

Operating costs for the second quarter of 2023 were $18.4-million, an increase of $4.9-million (or 36 per cent), compared with $13.5-million in the second quarter of 2022. The majority of the operating costs increase incurred in the three months ended June 30, 2023, were marketing expenses ($13.4-million for Q2 or 73 per cent of operating expenses) and they increased $5.2-million over the previous year directly related to the increase in revenues for PureKana, BRN and Tru sales. There are three main categories of marketing expenses. They are: (1) on-line advertising; (2) e-mail marketing and social media; and (3) retailer promotional allowances. The first two categories of marketing expenses are directly related to DTC sales whereas the retailer promotional allowances are related to B2B sales. In the second quarter of 2023, on-line advertising accounted for 78 per cent of the marketing expenses, compared with 82 per cent in the comparable period in 2022. In the second quarter of 2023, e-mail marketing and social media accounted for 6 per cent, compared with 9 per cent in the comparable period in 2022. DTC sales in the second quarter of 2023 were roughly flat with DTC revenues in the comparable period 2022. Marketing expenses related to DTC were up by $3.5-million in the second quarter of 2023, compared with those in the second quarter of 2022, due to an increased push in the second quarter to acquire customers for PureKana and Vibez brands to rebuild its subscriber base for PureKana and to develop its subscriber base for Vibez. This investment in the customer base for PureKana and Vibez did result in increases in subscribers bases for these two brands during the second quarter and the benefits are expected to be seen in the third quarter.

Other expenses for the second quarter 2023 were $1.6-million, compared with other expenses of $400,000 in the second quarter of 2022, or an increase of $1.2-million. The main components in the second quarter of 2023 for other income and expenses were finance costs of $400,000 and losses from the remeasurement of warrant liabilities of $700,000.

The company incurred a net loss of $6.3-million for the second quarter of 2023, increased by $3.6-million over the loss in the first quarter of 2023, and is primarily related to the increase in operating expenses ($3.6-million) in the second quarter of 2023.

Non-IFRS (international financial reporting standards) measures (earnings before interest, taxes, depreciation and amortization (EBITDA) and adjusted EBITDA)

EBITDA and adjusted EBITDA are non-GAAP (generally accepted accounting principles) measures used by management that are not defined by IFRS. EBITDA and adjusted EBITDA do not have a standardized meaning prescribed by IFRS and therefore may not be comparable with similar measures presented by other issuers. Management believes that EBITDA and adjusted EBITDA provide meaningful and useful financial information as these measures demonstrate the operating performance of a business excluding non-cash charges.

The most directly comparable measure with EBITDA and adjusted EBITDA calculated in accordance with IFRS is net loss. The attached table presents the EBITDA and adjusted EBITDA for the three months ended June 30, 2023, and June 30, 2022, and a reconciliation of same to net income (loss).

The company had an adjusted EBITDA loss of $2.4-million for the three months ended June 30, 2023, a decrease of $3.3-million over the adjusted EBITDA of $900,000 for the comparable period in 2022. The primary driver for the adjusted EBITDA loss of $3.3-million for the second quarter of 2023 is the increase in cash operating expenses ($5.3-million), offset by increased gross profits ($2-million) compared with the prior period in 2022. The operating expense increase for the second quarter reflected investment in sales growth and automation of customer services in the PureKana and Vibez brands, as well as the Tru brand to drive sales growth. The marketing and customer services technology investments in the DTC brands are expected to result in benefits in the latter half of 2023 for PureKana and Vibez (more subscription revenues and lower customer services costs). For the investments in the Tru brand during the second quarter of 2023 (Costco MVM), the benefits are expected to materialize over the next 12 months for the Tru brand. The Costco MVM has brought significant awareness of the Trubar brand in mass, convenience and grocery categories. The company expects to be delivering Trubar beyond the mass category starting in the third quarter of 2023.

2023 outlook

The 2023 outlook remains unchanged:

1. The company's expectation for consolidated net sales to exceed $80-million;
2. The company expects gross margin as a percentage of net sales to be between 58 per cent and 60 per cent;
3. The company expects to achieve positive adjusted EBITDA in the range of $3-million to $4-million.

Conference details

A conference call to discuss the results is scheduled for the following day on Aug. 30, 2023, at 10 a.m. EST.

About Simply Better Brands Corp.

Simply Better leads an international omnichannel platform with diversified assets in the emerging plant-based and holistic wellness consumer product categories. The company's mission is focused on leading innovation for the informed millennial and generation Z generations in the rapidly growing plant-based, natural and clean ingredient space. The company continues to focus on expansion into high-growth consumer product categories, including plant-based food, clean ingredient skincare and plant-based wellness.

We seek Safe Harbor.