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spk04: Welcome to the Guru Organic Energy Fourth Quarter and Fiscal 2020 Results Conference Call and Webcast, being recorded today, January 21st, 2021, at 10 a.m. Eastern Time. At this time, all participants are in a listen-only mode. Following management's presentation, there will be a question-and-answer session open to financial analysts only. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference, Please press start followed by zero for operator assistance at any time. Guru's press release, MD&A, and financial statements are available in the investor section of its website and on CEDAR. During the call, the company may refer to certain non-ISRS measures. Reconciliations are available in its MD&A. Also note that all financial figures are expressed in Canadian dollars, unless otherwise indicated. I would also like to remind you that today's presentation may contain forward-looking statements about Guru'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 will now turn the call over to Carl Goyer, Guru's Chief Executive Officer.
spk01: Thank you, operator. Bonjour à tous. Good morning, everyone. And welcome to our first earning call as a public company. Joining me this morning is our CFO, NG Sarah. I am very proud of what Guru has accomplished in 2020 with record revenues of over $22 million. In Q4, sales grew over 50% compared to the prior year to reach $6 million, supported by gross margins above 60%. These results reflect our strong performance in our core markets and the consumer shift to better-for-you energy drink alternatives in the midst of an ongoing global pandemic. I would like to thank our employees for their dedication and good energy, as we like to say, and thank our suppliers and loyal customers for their continued support. The future is bright for Guru. This past fall, we completed a $34.5 million financing and became a TSX-listed company. We had incredible support from our shareholders, and we are very excited to now aggressively pursue our growth. We are committed to creating sustainable long-term value for our stakeholders as we fulfill our mission of cleaning up the energy drink industry. Several steps have been initiated since November in preparation for the important year ahead. This includes hiring key personnel in sales and marketing, launching our most significant consumer research to date, which will inform our strategic marketing decision, the launch of Guru Yerba Mate in Canada, and the hiring of Brand Momentum, a leading experiential and field marketing firm that will accompany Guru in our marketing plan in Ontario, Western Canada, and Atlantic Canada. We are also actively working on expanding the distribution of our products in the convenience, grocery, and drug channels. Discussions in Canada and the U.S. are ongoing, and we have several commitments for new placements between now and the end of spring of 2021. Furthermore, we are pleased with the performance of our online sales, which have experienced accelerated growth this past year, driven by evolving consumer behavior and demand for healthier functional products during the pandemic. We believe this will continue to be an important channel going forward with these consumer behaviors persisting post-pandemic. We plan to continue investing in consumer awareness and reach in this B2C channel. Finally, on the operational front, we have been proactive in ensuring that we have a flexible supply chain as we pursue our growth and as we monitor the impact of the pandemic. Our short-term objective is to significantly increase our presence in our key channels and the velocity of our sales. While this expansion will impact our short-term profitability given the required investment, it will help us achieve higher sustainable gains in the medium to long term. Our proven track record in Quebec and our success to date in California are proof of what we can accomplish, and we now have the means and a clear path forward to replicate this success on a much larger scale. I will now turn the call over to Ingi to discuss our results in more detail. Ingi, over to you.
spk03: Thank you, Carl. And bonjour a tous. Good morning, everyone. I'm excited to present for the first time to our shareholders, employees and stakeholders our financial results as a public company. Turning first to our Q4 results. Revenues increased 51% to 6.1 million compared to 4.1 million for the same period last year. The increase primarily reflects market share growth in Quebec. While they continue to recover, Sales in the U.S. were slightly lower, primarily due to the impact of the pandemic on consumer shopping patterns in the natural retail channel, where we are very present. Gross profit totaled $3.7 million, a 41% increase compared to $2.6 million last year. Gross margin was 61% compared to 65%. The decrease is primarily due to enhanced promotional activity that has been industry-wide and higher product costs driven by increased demand for ready-to-drink beverages. As Carl mentioned, we have been proactive in dealing with pandemic-related pressure on the supply of some raw materials in the ready-to-drink space and to support our future growth. We are intentionally maintaining higher inventory levels. We are also strengthening our supply chain by segmenting and shifting some of our production to different geographic areas, both in North America and Europe. We expect these pandemic-related margin pressures to remain in fiscal 2021. SG&E was 4.2 million, or 69% of sales, compared to 3.4 million, or 84% of sales, for the same period a year ago. The improvement as a percentage of sales reflects economies of scale and a more focused sales and marketing spend due to COVID. Adjusted EBITDA was negative 0.4 million compared to a negative 0.6 million last year. Net loss for Q4 was 3.1 million or 11 cents per share compared to a net loss of 0.7 million or 3 cents per share. The $2.9 million of the net loss reflects expenses related to the reverse acquisition of MiraX ahead of our GoPublic transaction. Guru has a strong financial position, which will allow us to fund our expansion activities. At year-end, we had cash and cash equivalents of $30.4 million and unused Canadian dollar and U.S. dollar denominated credit facilities totaling about $6.5 million. Looking now at our full fiscal year 2020 results. For fiscal 2020, we recorded a 26% increase in revenue to a record 22.1 million compared to 17.5 million in fiscal 2019. The increase was driven by market share growth in Quebec, partially offset by slightly lower sales in the US due to the impact of COVID-19. There's no doubt, that the pandemic impacted Guru in fiscal 2020. Prior to its onset, our revenues had grown 52% in Q1 2020 compared to the same period in 2019. Then, in Q2 and Q3, governments imposed restrictions on retailers, stay-at-home orders, and other measures to curb COVID spreads impacted consumer shopping behaviors, distributor and retailer operations, and ultimately, our sales. particularly in the U.S., with California taking measures very early on. But fairly quickly, we saw a recovery, and by Q4, our quarterly revenue growth was back up above 50%. As we enter 2021, the pandemic and government restrictions to curb its spread remain. This makes it difficult to assess what its continued impact on our business may be going forward. Certainly, reduced retail and store traffic due to various restrictions in place in many of our markets may impact short-term velocity. At the same time, we have seen a growth in our online sales and strong customer loyalty, reflecting the appeal of our brand. While the exact impact is hard to predict, we believe any negative impact will be temporary, and we have full confidence in the strength of our brand. and in our ability to achieve our near-term growth objectives. And importantly, on the supply chain front, we have taken proactive measures and have contingency plans in place to support our growth. Turning back now to fiscal 2020 results, annual growth profits increased by 22% to reach $14 million, compared to 11.5% and growth margin of 64% compared to 66% a year ago. Adjusted EBITDA was $1.4 million compared to $1.6 million last year, resulting in an adjusted EBITDA margin of 6% in fiscal 2020 versus 9% in fiscal 2019. Because of the reverse acquisition of Naira X, the company incurred a net loss of $2.2 million or $0.07 per share in fiscal 2020, compared to a net income of $0.7 million or $0.03 per share a year ago. However, excluding this transaction, Guru would have generated income before taxes of $0.7 million in 2020. I'll now turn the call back to Carl to discuss our strategy going forward.
spk01: Thank you, Angie. As outlined on slide 10, the market opportunity ahead for Guru is huge and ripe for the taking. Our strategy and near-term objectives are both clear and attainable, given the growing popularity of our brand and consumer demand for healthy alternatives in the $15 billion North American energy drink industry. We have three main sales channels in which we plan to continue growing. Convenience, which represents the highest sales velocity for energy drink category. Grocery and drug, with lower sales velocity but an increased focus on health and wellness products. And online sales. Quebec is our home base and our core market. We have 5,000 doors and over 13% market share. We are the fastest-growing energy drink in the market, disrupting the two largest legacy brands, and we are on track to maintain this path. Over the last year, we increased retail sales and convenience channels by 70%, with consumers continuing to respond to our differentiated brand and our product's clean list of organic, plant-based ingredients with a mainstream taste. Our aim is to double our sales in Quebec within the next four years. Supporting our growth through targeted marketing and promotional campaigns, as well as product innovation, will help us achieve this objective. The marketing launch of our new Guru Yerba Mate product in early November is one such example. After a strong spike in demand in response to our launch campaign in our own market, Guru Yerba Mate currently ranks among our top products in terms of sales. This demonstrates our success in assessing trends and meeting consumer needs. Already available outside of Quebec, we expect Yerba Madre to become available in the U.S. this year. Growing our market share in Ontario, Western Canada, and Atlantic Canada is a key priority for us in the near term. We currently have 2,000 doors outside of Quebec. We had strategically delayed our expansion plans until we had the capacity to fund and execute an aggressive and successful launch. Now that we have the means to do so, our objective is to increase our doors by at least 3,000 during the spring of 2021, primarily in the higher velocity convenience channel. Negotiations with our large distribution partners are progressing well, and the marketing campaign that will support this expansion is also in development. Our objective is to achieve a 10% market share in the rest of Canada over the next five years. In the U.S., we have over 8,000 doors. a larger proportion of which are in the California Bay Area, where we have been very successful. California was chosen as a focus market for the U.S. given its demographics and the consumer profile, including strong demand for natural plant-based beverages. We will continue to push our growth in this market. We're actively working on expanding our distribution in the U.S. grocery and drug chains with a focus on health and wellness. This is progressing well, and we are at the final stages of distribution discussions with some of the top drugstore chains, which we expect will add over 2,500 doors. Lastly, our online sales have grown faster over the last year and continue to maintain their momentum. Our strategy is focused on reinvesting in customer acquisitions to grow our base and expand to other online retailers to extend their reach. We were built an inspiring and authentic brand since its founding in 1999 and a product with a clean list of organic plant-based ingredients. Our drinks offer consumers good energy that never comes at the expense of their health. And we are committed to achieving our mission of cleaning up the energy drink industry. We have a motivated and experienced team who is passionate about our mission, supported by a robust business model and a clear plan to execute our near-term growths. On the strength of our success in Quebec and California, growing demand for better-for-you energy drinks and more progressive and authentic brands grew us poised to gain significant market share in the years to come. Much work remains ahead, but we are ready and motivated to execute our near-term objectives and excited about the future as we embark on this new chapter as the industry disruptor. This concludes our remarks for today. I will now turn the call over to the operator for the Q&A.
spk04: Thank you. And as a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Again, ladies and gentlemen, to ask a question, press star one. We have a question on the line from Martin Landry with TESOL. Please go ahead.
spk00: Hi, good morning, Cal and NG.
spk01: Good morning.
spk00: Thank you for hosting this call and congratulations on your results. My first question, Cal, you're talking about in your MD&E that you've received commitments in both Canada and U.S. from retailers for lunches in 2021. Wondering if you can give us more color on these commitments. How many doors would that represent in each country and perhaps also the timing of such a rollout to these guys?
spk01: Of course. Martin, I can assure you that the process is really following its course. As I said, there are several commitments for new placements between now and the end of spring of 2021. So that's kind of the timeframe. Unfortunately, we're not quite ready to give you the exact number of doors and the exact name of the banners in US and Canada. due to the final negotiation points and to respect the confidentiality of our retail partners. But we're well on our way to meet the target that we established of over 3,000 doors in Canada and also over 3,000 doors in the U.S.
spk00: Okay. So just to be clear, do you expect to press release these wins when – when you get the green light to do so?
spk01: When we feel it's appropriate, yes, we will. Okay.
spk00: Okay. And, you know, your Q4 results, you know, are a little dated. You know, we're talking about the October quarter and your Q1 quarter is almost complete. You know, Ingi, you've talked a little bit about, you know, COVID and reducing velocity at some of the locations. But I'd like to hear a little bit more color around that, especially with COVID limiting gatherings during the holiday period. I'd like to hear a little bit more how that's impacted your sales.
spk03: That's a good question, Martin. Of course, I will not be providing any guidance on our results in Q1. However, I can for sure provide you color on the COVID impact. So as you know, there has been a complete shutdown in the province. That obviously has an impact. People are making less trips to store. They're buying larger formats, however, and multi-pass. And industry data is also showing us that very few households are buying all their groceries in the natural channel, where we're very present, for example, in the U.S. People are prioritizing much more a one-stop shop with fewer or no guests at home, of course. However, we do see on the other front that there's an evolving consumer behavior and demand for healthier, functional products during the pandemic. So while the exact impact of this is hard to predict, we believe that any negative impact will be temporary, and we're very confident with the strength of our brand and our ability to achieve our near-term objectives. We're also, as mentioned in the MD&E, we're taking proactive measures on the supply chain front, and we're also continuing our promotional activities and continuing to peg ourselves to market leaders, like we said we would do and we continue to do so. So I hope that answers your question.
spk00: Yeah, thank you. Another question on the high product cost that you're quoting, to explain a little bit your gross margin decline. I believe, Angie, if I heard you correctly in your opening remarks, you're saying that you expect some of these pressure to subside this year. So are there any mitigating factors that could be implemented to bring back your margin in the 65% range, your gross margin, or perhaps not this year?
spk03: Yes. We're continuously working, finding ways to improve our gross margin. But like you could see, historically, our gross margin does vary all the time between 1% to 3%. Yes, there has been some pressure because of the shift, right, on ready-to-drink beverages from on-premise to off-premise. However, it still remains a very strong business, and like I mentioned before, we continuously are looking for ways to optimize. And that's why also we're holding higher inventories.
spk00: Okay. And then my last question is on the Yerba Mate, Carl. If I heard correctly, you're saying that this is your top-selling SKU right now in Canada. Are you seeing a cannibalization of some of your other products, or are you seeing that this SKU is bringing new consumers away from competitors? What's your read of the launch?
spk01: Our rate of the launch is that it's been very, very successful, as you know, Martin. It's not our top selling, it's among our top selling SKUs, right? So it's not our top selling SKU. But for us, where it ranks, it proves to be very successful, very happy with the marketing campaign that we were able to launch, both from a distribution point of view at retail, but also on reality TV with Expression Adobe and on social media and influencers. we were really able to create a successful launch, which created awareness very early on and a huge spike in demand. So for your question on cannibalization, we did gain share for sure when we launched this. We saw this in numbers. Cannibalization, it's too early still to say, to give you an exact and precise number on this. But what we know is we gained market share with Yerba Mate in the beginning of its launch.
spk00: Okay. That's it for me. Thank you very much. Thank you, Martin.
spk04: Thank you. Our next question comes from Sal Morana with Laurasian Bank Securities. Your line is open.
spk02: Good morning, Carl. Good morning, Angie. Good morning. Good morning. This is Noman on behalf of Noman from Laurentian Bank Securities. First of all, congratulations on the results. Some of my questions have already been answered. So again, thank you for taking my questions. I'll just start off with, so excluding the growth in Quebec in Q4, do you have an idea what the exact growth was in Canada in the quarter? Yes. Yes, go ahead.
spk03: yeah yeah for sure of course we do as you can see in our mdna we have the split the split between canada and the us so you have it you could just refer to the mdna and it's uh it's there but does that figure exclude the growth in quebec no total canada that's total canada-wise oh okay so um
spk02: So do you guys have any idea what the growth is excluding Quebec or is that a consolidated figure that the company provides them?
spk03: Yeah, exactly. We provide figures. Of course, we do understand our market at the various levels. We provide, however, revenues by geography, by Canada and the U.S. So I'll have to limit myself as that.
spk02: Okay, sure. No problem. Thank you. And when you refer to the higher sales in Canada in the quarter, was it? because of more doors in Quebec or was it because velocity increased in the already established doors?
spk01: I can take that one, Angie. Yeah, sales increased due to market share gains. As we mentioned, most of the gains in sales were driven by the Quebec market where we have near full distribution in Quebec. There is still small opportunities to increase door count in Quebec, but the growth in Quebec for the last few years, few months, has really been driven by market share increase, which drives velocity per door.
spk02: Okay, that's great. And my last question is about the wage subsidy. So I know you guys are not providing any guidance for now, but are you expecting similar kind of subsidies going forward in Q1 as well?
spk03: Well, we just used the subsidy, as you can see, in the beginning at the onset of spring 2020. For now, no, I can't give you any guidance, but no, we don't expect to use it.
spk02: Okay. Again, the rest of my questions have already been answered, so thank you again. Thank you.
spk00: Thank you.
spk04: Thank you. And this concludes our Q&A for today. I would like to turn the call back to Kargo yet for his final remarks.
spk01: Well, merci. Thank you again for joining us this morning. And please stay safe.
spk04: Once again, ladies and gentlemen, thank you for your participation in today's conference. You may now disconnect. Have a wonderful day.
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