Welcome to the Goodfood first quarter of fiscal year 2022 financial results conference call. At this time, all participants are in listen-only mode. Following the presentation, we will come back to question and answer session. As a courtesy to others, we ask that each participant limit themselves to one question and one follow-up. Instructions will be provided at that time for you to queue up for questions. Please note that questions will be taken from financial analysts only. If anyone has any difficulties hearing the conference, please press star followed by zero for operator assistance at any time. 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 two 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.
Thank you. Good morning, everyone, and welcome to this call for Goodfood Market Corp. to present our financial results for the first quarter of fiscal 2022 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 three, 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 CAD 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 customer 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 break even position and then towards our long-term 10%-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 two 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 five weeks, with run rate sales before incentives and credits of CAD 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 three additional facilities to launch by the end of March.
Multiple prime new locations identified and being executed on. On that note, over to Jonathan Roiter to review our financial performance in detail.
Thank you, Jonathan, and good morning, everyone. I will now turn to slide four, which provides details on our top line performance compared to the fourth quarter of fiscal 2021. As a reminder, the fourth quarter includes the month of June, which was a near record month in terms of demand, and the months 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 CAD 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 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 five, which looks at our profitability. This quarter's gross margin and Adjusted EBITDA margin mark 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 CAD 11 million-CAD 13 million of annualized savings compared to the fourth quarter of fiscal 2021.
It's 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 in key 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 CAD 30 billion on-demand grocery meal solution addressable market, the path to break-even Adjusted EBITDA will be achieved while balancing growth and profitability. Turning to slide six for a review of cash flows and capital expenditures.
Cash flows used in operating activities totaled CAD 18.9 million this quarter, compared to a use of CAD 23.7 million in cash flows from operating activities in the fourth quarter of fiscal 2021. The improvement was the result of a smaller net loss and improved working capital management. We invested CAD 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 build the 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 deliveries in Ottawa in the coming months.
In addition, investments to open our digital platform to non-subscribers 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 CAD 25 million. Lastly, we ended the quarter with cash and cash equivalents of CAD 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 view 2022 as an important transitory 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 two 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 by the upward momentum our on-demand grocery and meal solution strategy is providing to our net sales base.
Extrapolating the results of our first two micro-fulfillment centers to the additional four 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 will return to net sales growth as we continue to scale and roll out our MFC network. On that note, I will turn 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 seven. 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 three 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 three 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 two 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 two 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. The spokes, our 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 eight 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 are significantly ahead of expectations and already confirm both the product market fit that will drive exciting growth for years to come while providing attractive unit economics. I'll begin with three core metrics that provide visibility on the explosive growth we are seeing with our on-demand groceries and meal solution offerings.
Firstly, we now count after only eight weeks of launch over 13,000 on-demand active customers, a more than 50% increase, generating run rate sales before incentives and credits of CAD 21 million. Secondly, as shoppers order on average the equivalent of about eight baskets per quarter, nearly double the order frequency of our subscription plan, we have seen, thirdly, over the past five 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 three 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 shortly.
Since launch, we have seen the average basket size increase with average order sizes now in the CAD 65-CAD 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 begin by temporarily funneling a portion of our pre-planned 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 three deliveries per hour within a 3 km 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+ deliveries per hour, ultimately representing a delivery cost as low as CAD 4 per order.
Based on both the existing growth profile and unit economics we have seen with our first two 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 three 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+ micro fulfillment centers overall, providing roughly CAD 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 CAD 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.
Thank you. At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. Again, if you'd like to ask a question, press star one on your telephone keypad. Your first question comes from Martin Landry from Stifel. Please go ahead.
Hi. Good morning, guys. My first question, Jonathan, is just on your last comments. I just wanna 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 do you mean total company-wide revenue growth?
Hey, good morning, Martin. Yeah, 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. 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. 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. 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. What's happening here is we're responding to customer demand and a customer need to have our products distributed to our customers in a different channel. We're seeing a lot of potential on the on-demand side and stable orders on the weekly meal plan.
Okay. Maybe just a follow-up to that. I'm wondering if you can speak on the competitive dynamic of the meal kit business currently. You know, I understand that there's been a boost with COVID, but I'm wondering, you know, do you see your competitors being more aggressive to acquire customers? You know, did you lose market share in the meal kit business in Canada this fall?
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. On the 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.
It's really up to the customer to decide if they wanna sign up to a weekly meal plan and get the convenience of pre-scheduled orders or if they wanna engage with our meal kits and other products in a more flexible way. Ultimately, we think that these two distribution channels will serve as a catalyst for us to continue growing our overall meal kit portions across Canada.
Okay. Perfect. Thank you.
Your next question comes from Frederic Tremblay with Desjardins. Please go ahead.
Thank you. Good morning. First question for me, I was wondering if you could maybe dig a bit deeper in terms of the order composition in on-demand grocery, given the 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 products?
Hey, good morning. 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. 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 a third 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. 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. These are also high-margin products that are at larger average sale prices than a typical grocery products. 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. Thank you. 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're not you know previously weekly meal kit customers that have transitioned to on-demand. I guess related to that as well, what proportion of the addressable market of the two fulfillment centers does 13,000 customers represent? Like, what's your early penetration rate in your estimation?
In terms of the customers, more than half of them are completely new to Goodfood. The other metric I can share is within 10 weeks of launch, we've been able to fill about a third of the capacity of the MFCs that we built out. 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. That's really generating positive results on all of our underlying unit economic metrics. 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.
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 a radius around our MFCs, the 3 km radius that I mentioned in the script. Our intent is to be able to, as we continue to fill the capacity of the MFCs and build more density in the route, we expect to be able to get above five deliveries per hour, and so that'll represent somewhere around a CAD 4 delivery cost. Then the other two things that are important from a unit economics perspective, we talked a little bit about the positive retention.
Customers that are signing up within any given month are actually ordering more Goodfood deliveries in their second month. That's another really positive contributor to the unit economics, that negative churn. 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.
Thank you, and congrats on the early progress in on-demand.
Your next question comes from [Graeme Kreindler] with Eight Capital. Please go ahead.
Hi. Thanks for taking my question. 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 some established route density? Thanks.
Yeah. Good morning. Thanks for the question. I believe it was SkipTheDishes that announced the launch of 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. From a merchandising perspective and from a facilities build-out perspective, it looks a bit different than what we're building. Goodfood's intent is really to build a replacement to brick-and-mortar grocery stores. The footprint and merchandising is different. We also have eight years of operating experience as a team in scaling a supply chain and a network of physical fulfillment centers.
You know, in addition to having the expertise around running Goodfood 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. Between our operational capabilities, the technology we've built, our Goodfood 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. Over time, we believe we'll see 50% of our customers' weekly grocery shopping shift online to Goodfood's on-demand offering.
Got it. Thanks for that. Just for my follow-up, we're seeing inflation continue to accelerate here, and I know that Goodfood's historically been able to manage that, partially by rotating menu items and ingredients. I just imagine that's not as easy to do with grocery items given that customers are probably looking for some more consistency there. Is inflation more of a risk as the grocery business grows, and what can the company do to manage inflation and grocery SKUs specifically? Thanks.
Yeah, great question. 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 the early success that we've seen in on-demand. 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 gonna sell much more and ultimately deliver better value to customers and better margin to the company." Finally, you know, 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 two levers to offset a lot of that.
Thanks for the questions, guys.
Your next question comes from George Doumet from Scotiabank. Please go ahead.
Yeah, good morning, guys. I just wanted to ask you on the incentive costs to us for that CAD 20 million-CAD 21 million run rate number that you guys 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. Thanks.
Hey, good morning, George. Our current offer from a customer acquisition perspective on the on-demand new customer acquisition is, it's CAD 30 off the first two baskets. If you look at our average basket sizes, you know, it's around 45% off the first two baskets. Our customers on-demand are placing close to twice the number of orders per month that our Goodfood meal plan subscribers are placing. We're actually able to get through those incentives within the first month of customers signing up. Post those incentives we're selling. You know, there's no other specific ordering incentives that we're offering other than regular discounts at product level.
We're able to start earning a positive contribution margin on orders quite quickly within the first month.
We have about seven to eight orders per quarter per on-demand customer. It really compares quite favorably versus the unit economics of the meal kit subscription on a weekly basis.
Thanks for that, Jon. [crosstalk] Okay, sorry, go ahead.
Sorry, George, just to add to that. Similar to the early days of the meal kit offering, as we said, more than half the customers in the 13,000 have been new, net new to Goodfood, so that obviously drags down the margin in the early high-growth phase, and the overall margin for ODG is quite positive, but net lower than the overall business. 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. You know, the marketing team is churning through all the data to optimize that spend.
Okay. That's helpful. Thanks, guys. To your earlier discussion around kind of getting to that 5+ 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?
Yeah. 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 delivery cost. Batching will go into that quite a bit as well. In Toronto and Montreal over the last two days, we've had quite a bit of a snowstorm, so our batching has been very high, although our DPH has been very low because of the snowstorm.
The more we can batch, and the better optimization of our routing, the better the DPH will be. Like I said, we see it at core parts of the day already, and are optimistic we'll be able to hit that quicker and quicker with every new launch of our MFCs.
Great. Thanks, guys.
Your next question comes from Paul Treiber with RBC Capital Markets. Please go ahead.
Oh, thanks so much, and good morning. Just wanted to focus on margins and profitability for a second. You know, the uptick here is directionally positive. When, you know, was it the plan to reach year-over-year revenue growth, you know, a positive year-over-year revenue growth by the summer or the fall? Now, how should we think about cash flow, and the timing for cash flow breakeven?
Hey, 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 gonna be balancing the reinvestment in customer acquisition of our cash in customer acquisitions, so our growth, and ultimately, as well as, coming close to a breakeven from a cash flow perspective. You know, I'm not giving a clear timeline for that, but I would say that as we head into 2023, so 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. 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 could do on our working capital management. I think you probably saw in the first quarter improvements that we had versus our fourth quarter. 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.
From a cash perspective, I mean, you have CAD 105 million on the balance sheet right now. You know, how much is needed for the day-to-day operations? You know, from a liquidity point of view, you have the revolver. You know, how much is available on the revolver at the moment?
Hey, Paul. Yeah. Look, we have significant amount of balance sheet flexibility. You know, ultimately, we can toggle our growth versus our cash spend. With the results that we're seeing, you know, with the two centers, the third one that just opened and the additional that we see by the end of March, we're really excited by the growth profile that we're seeing. I think, you know, just as importantly, we're impressed by the unit economics that they're already delivering. Look, we're gonna balance growth as well as the spend on cash or the use of cash.
With, you know, additional CAD 20 million in our revolver, there's still a lot of flexibility that we have from a balance sheet perspective. As I talked about before, I think there's still some levers that we have on working capital management as well that will help.
Paul, maybe just to add to that, like 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 cycles on some of the hub pieces of the network, so making sure that the DC is up and running in place.
The Ottawa facility that we mentioned will be launching by March is our first automated micro fulfillment center. Those are some of the bigger CapEx spends, which will start to reduce as a percentage of what we're spending overall in CapEx. Each MFC we've subsequently launched and are in the process of launching has come down in terms of cost, since we've been able to look at what customers care about and what we need to operate these things. We have a lot more flexibility in launching one MFC per X number of days or weeks or months versus the larger kind of six to nine month projects, which we've been investing in to support the scaling.
Okay. Thank you for speaking through those moving parts and explaining the flexibility there. I'll pass along your thinking.
Your next question comes from Michael Glen with Raymond James. Please go ahead.
Hey, good morning. A question on the SG&A cuts, and 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.
Hey, good morning, Michael. I think that the best way to think about the business is through our two different distribution channels. 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. Excuse me. 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.
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. 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 two years, we've been laying the foundation of proving out the product market fit, proving out the economics, and making sure that our on-demand distribution channel is ready to scale.
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. 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'll improve EBITDA. And we also see continued path to improving our gross margin.
We're really being thoughtful about how we build our cost structure in order to balance that growth and profitability, like Jonathan Roiter alluded to.
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. Just on the balance sheet, just wanna go back to. I know that you do sit with reasonable financial flexibility, but the scope of investment has stepped up quite meaningfully over the past two quarters. Do you feel confident that you have enough capital available to get to where you wanna be with the micro fulfillment center build-out?
Yeah. Hey, Michael, it's Neil. 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 CAD 12 million of CapEx this quarter. That number will start to come down, and be much more flexible and nimble as we see opportunity. We, you know, we built a team now that can spin up an MFC in somewhere from four to eight weeks, in terms of visibility. As we said last quarter, less than CAD 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.
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 one that we've launched so far in the GTA, performs better than the first one. We anticipate that to be the case for existing city launches as well. The third and fourth and fifth should start to contribute at a faster rate than the first location in the market. With the underlying OpEx economics and unit economics that we're seeing, we feel pretty good.
The team's focused on reducing the CapEx spend and optimizing CapEx spend and the fact that we've built out a lot of the big chunks of the network. We feel good about the position.
Okay. The remaining CapEx for the year was indicated at CAD 25 million. That's over the next three quarters, correct?
Yeah, exactly. 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. Flexibility around the rest of the CapEx spend, and there's also some capitalizable tech and engineering spend in there. Yeah, that's what we would anticipate.
Okay, thanks.
Maybe I would just add, I mean, you'll see the progressive decline of CapEx over the course of the year as we transition to effectively an asset-light growth strategy, right? So each MFC is well under CAD 1 million, as Neil says. Second and third facility, the cost keeps on falling in terms of our CapEx as we fine-tune our execution. So ultimately what you're seeing is over the course of this year, a transition from hey, we built the hub, and as we build out the spokes, we're transitioning to an asset-light CapEx strategy.
Okay. Thanks for taking the questions.
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. For everyone else, we look forward to speaking with you again at our next quarterly call. Thank you.
This concludes today's conference call. You may now disconnect.