GURU Organic Energy Corp.

Welcome to the Guru Organic Energy Second Quarter Fiscal 2022 Results Conference call-in webcast, being recorded today, June 14, 2022, 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 with financial analysts. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulty sitting in the conference, please press star 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 CDAR. During the call, the company may refer to certain non-GAAP 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 of level of activity, performance, goals, or achievements, or other future events or developments. As such, please take a moment to read the disclaimer on the forward-looking statements on slide two of the presentation. I would now like to turn the call over to Carl Goyette, GURU's Chief Executive Officer.

Thank you, Operator. Bonjour à tous. Good morning, everyone, and welcome to our earnings call. Joining me this morning is our CFO, Indy Seraph. In our second quarter, we delivered our best Q2 top-line performance today, driven by a strong increase in overall sales volume despite the impact of COVID-19 in the first half of Q2, which delayed some certain marketing activities and opportunities to Q3. We also maintained sector-leading gross margin of 54%, which reflects our careful supply chain management and prudent pricing practices. During the quarter, we launched our first national marketing campaign of the year, Made in Plants, a six-week marketing campaign which included a comprehensive mix of out-of-home banners and digital content, in addition to in-store activations in major cities across the country. This made-in-plant campaign also proved to be the ideal outlet to officially launch our latest innovation, Guru Guayusa Tropical Punch across Canada. Following a successful launch in Quebec at the end of 2021, we were excited to bring Guayusa to a whole new and significantly larger market who was thirsty for new brews from Guru. Thanks to the continued support of PepsiCo Beverages Canada, Guayusa has reached over 50% weighted distribution in all accounts in a very short period of time. And in Quebec, Guayusa is currently ranked the number one innovation queue. While still anecdotal, some of our initial results have shown that we have grown from 0 to 2.5% market share over the last year in a leading national convenience balance. We also have access to a limited database of store-level market share information, where we see that Zulu has reached over 2% market share in over 100 of stores, and even reaching 4% in a large proportion of these. Furthermore, this last Friday we received some very positive news from our latest marketing research, which confirms that our targeted marketing investments are working as we continue to gain market share mainly from consumers converting from other brands and attracting new consumers to the category seeking a healthy alternative to chemical energy drinks. These initial market results show that our product and brand is well-received and gives us confidence in our strategy aimed at adapting and replicating our Quebec success across Canada. We know by experience it will take time and discipline to reach these levels of market share across all banners and channels, but we are on the right track. We are currently assessing our four-week campaign results with PepsiCo Beverage Canada, the first such program we worked together on. There has been a lot of good learning on both sides, and our goal is to keep setting the bar higher for future in-store sampling and activation. The next campaign plans to start in the coming days. During this past quarter, we also launched our new 500ml format in Quebec. which reached over 50% weighted distribution in the same timeframe, confirming our distributors' reach and execution strength. On product pricing, our previously announced price increase became effective on May 16th in Canada. It will ensure that we remain true to our price positioning in the market relative to peers and offset rising input and transportation costs, which will contribute to our ability to maintain our strong margins. This price increase is approximately 6 to 10% and is reflected on promotion and regular prices. Turning to the U.S., we generated strong demand at the consumer level during the quarter, as shown in our Q2 SPINS data with a 61% increase in consumer purchases in California quarter over quarter and 31% increase in the U.S. overall. Moreover, Net revenues increased sharply in Q2, driven by the availability of limited edition variety packs in 200 SAMS club locations in the U.S. The program, which is the first of its kind for us, is set to run for the next couple of months. While this may lead to other rotational program opportunities, it also represents an opportunity to increase brand awareness in a new channel. Our online activities also continue to perform well, growing over 60% in revenue compared to last year. I will now turn the call over to Angie, who will provide you with more details on our Q5 results. Angie, over to you.

Thank you, Carl, and good morning, everyone. Let's start with net revenue, which came in at a record Q2 of $7.6 million compared to 7.1 last year. This was driven by a 26% increase in volume overall as a result of higher velocity, new product launches, and increased points of sale in Canada as well as the rotational program in the U.S. Net revenue in Canada contracted despite volume growth in Q2 2022, reflecting our new distribution and sales model in Canada since the beginning of October. As a reminder, we have reduced our selling prices to our exclusive distributor last year to compensate them for the incremental services. U.S. sales represented about 28% of net revenues, and grew by 92% in U.S. dollars compared to the same period last year. Q2 gross profit totaled $4.1 million compared to $4.4 million a year ago. Gross margin was 54% compared to 55% in Q1 2022 and 63% last year. The decrease in gross margin versus last year was anticipated due to the change in our distribution sales and merchandising model, effective as of the end of last year. Gross margin was also slightly impacted by higher product costs driven by inflationary pressures on inputs and transportation costs. SG&A was $8.2 million compared to $5.5 million last year. Over 70% of the increase represents sales and marketing spend, notably the Made in Plants marketing campaign, Guayusa Tropical Punch Canada-wide launch, the 500ml format listing in Quebec, and the 4-pack listing across Canada. As mentioned in our Q1 remarks, in line with our methodical and prudent approach to our marketing spend, we chose to delay certain marketing activities planned for Q2 to Q3 in the context of COVID-19 restrictions across Canada in place for the first half of our quarter. Adjusted EBITDA was negative $3.7 million compared to negative $0.8 million a year ago due to higher sales and marketing expenses. Net loss for the second quarter totaled $4 million, or $0.12 per diluted share, compared to a net loss of $1.2 million, or $0.04 per diluted share, a year ago. As at April 30, 2022, our financial position remains very strong, with cash and equivalents and short-term investments of $52.8 million and unused credit facilities totaling about $10 million, allowing us to comfortably pursue our growth objectives, and the related investments required for our planned return to historical profitability. Carl, back to you for concluding remarks.

Thank you, Angie. Following two years of pandemic, Guru is thrilled to see a return to in-person events in Canada since the late spring. We're now moving full steam ahead, looking at summer calendars filled with good energy and activating all key consumer touchpoints. Last month, we announced our comprehensive summer sponsorship and sampling program, which includes over 30 events from May to September across Canada. A program that fully supports our rapid pan-national distribution and retail. The summer is now kicked off and we are excited to return to an environment where our liquid to liquid strategy can take on its full meanings. We are also excited to be an official sponsor of CTV's The Amazing Race Canada, Canada's most-watched summer series. This represents our first national sponsorship of this kind. As announced yesterday, our coast-to-coast summer marketing campaign, Good Energy for the Everyday, is set to run from June through August and features a strong mix of out-of-home TV and digital elements, in addition to in-store promotional activities at select locations across Canada. We believe that this type of integrated marketing campaign is key to build brand awareness in new markets while also solidifying our brand positioning in Quebec. We are continuously learning from our previous campaigns and activities and elevating our strategy accordingly. This enables us to constantly fine tune our ability to engage with key audiences so that we reach new health conscious energy drink consumers seeking healthier energy drinks across Canada. In this optic, our comprehensive summer campaign, Good Energy for the Every Day, is our most significant to date and will provide us with a solid baseline for future marketing programs and insights to adapt our future plans. Also, it's important for investors to understand that at Guru, we are prepared to play the long game and we will continue to act methodically and prudently manage our financial positions. We won't favor growth at all costs, but rather invest today to generate profitable and sustainable growth in the long term, like we did in our first 20 years. We have made tremendous progress on distribution in the last year in Canada. We will continue growing distribution while also increasingly shifting our focus to in-store execution, with the ultimate goal of converting awareness and distribution efforts into sales. We believe that our best chance to reach our long-term objectives will be through a step-by-step approach, a strategy that has worked very well for us in the past and that has enabled us to become the number one energy drink brand among adults under 25 in Quebec, the next generation of energy drink consumers. This will enable us to reach our ambitious but attainable goals. This concludes our formal remarks. I will now turn the call over to the operator for the Q&A.

Ladies and gentlemen, if you have a question or a comment at this time, please press the star, then the one key on your touch-tone telephone. If your question has been answered or you wish to move yourself from the queue, please press the pound key. Our first question comes from Martin Landry with Stifel.

Hi, good morning, Carl and Angie. Good morning. Hi, Martin. My first question is... I wanted to get a bit more detail about your large-scale activation that occurred in April with Pepsi. I believe Guru was the focus of Pepsi. I'm wondering if you can share any color and how that went, any tangible example of what they've done and the actual results.

Yes, sure. It was, as you said, it was our first period of first focus with our distribution partner, and it's been a great learning experience. There's some great results that we can share. But overall, I just want to say they are extremely collaborative to work with, and anytime we are facing opportunities, we collaborate very, very well. But on the front of a distribution, this period was our strongest shipment period after the initial month. Obviously, when we were loading up their inventories, it was stronger than this, but it was the biggest shipment to date. We also installed over 2,000 displays across the country, so this was significant. What else could I say? I think it allowed us, I guess the biggest point there is also that we realized that some of the materials we were using was great. Some of the materials we were using needed to improve, and we worked a full review of what we did in the port period or April to adapt our upcoming period, which is starting now for the month of July. So a lot of good learning, a lot of great execution across Canada. Some opportunities to do even better, like you would expect in the first period, but overall, a great first experience.

Okay, that's helpful. And during the quarter, you also activated your national marketing campaign, you know, around base energy. And... Wondering if you've started to measure the impact that's had on your brand awareness outside of Quebec. If there's anything you can talk to us about how your brand awareness is increasing in the rest of Canada, that'd be great. Sure.

I will add that we were using the Made in France campaign to support the distribution push that we were doing for our new SKUs, mainly the Iguayusa Tropical Punch, which was being expanded, we reached 70% weighted distribution across Canada. So yes, Maiden Plant was there to support this new innovation, but also the brand overall. And then, as I said in my remarks, we just got the results of what we do after every campaign, which is, we call this an ad tracker, where we track awareness, but we also track the full funnel. What I can say, what I can share is that awareness is continuing to move in the right direction. So that's the number one. The other thing that I can say is that we are still converting, bringing new consumers to the brand from two fronts, right? Most of the new consumers coming to the brand are coming from our switchers, basically switching from another brand. But there's still a large proportion of consumers who are coming to Google who are new to the category, which is fantastic news. The other thing that I can share is that consumers who have seen our ads are very positive about our brand attributes. So it's moving in the right direction in the sense that not only is awareness moving, but we don't see any bottlenecks of conversions down the funnel where we see people who see our ads, the people who become aware, they do consider our brand, they do try our brand, then they become regular purchasers of brands. So our brand funnel, converts really well from top to bottom of funnel, which is what we expected and what we've seen in other markets. But it's very reassuring to see that our marketing is working and it's doing the right thing. Now, obviously, this takes time before when this is happening, you're gaining consumers. It takes a while for us to see this in scan data. But as I said, also in my remarks, we're also seeing some impact in the scan data. Is that helpful in that thing?

Yeah, that is. Thank you, Cal. And then maybe my last question is on the remainder of the year. You're talking about accelerating your marketing activities, which were put on pause for some part of Q2. There's also the reopening of the economy. Pepsi is going to have a focus month with you in July. So how do you look at the revenue growth profile in the back half of the year I would expect that it's going to be much stronger than the first half when you look at it on a year-over-year basis. Would you agree with that?

Well, one thing we would agree with is that we're going full steam ahead in terms of marketing. It's the beginning of the summer. We're obviously very optimistic about the summer and very optimistic about the impact of our marketing campaigns on the actual consumption of Google, right? As we said, it's more difficult than in the past to predict exactly our revenues because we don't control the distributors of wealth anymore, right? So there's always a transition here and until we've done a full round with PepsiCo, it's going to be more difficult to say exactly what we're going to say. But one thing that's for sure is that we're seeing our scan data accelerate. We're the fastest growing brand in Canada. Obviously, We think that, well, we always said that COVID-19 was negative for us. That's behind us, right? And we're going full steam ahead with marketing now that we have distribution in place and we're improving execution. So on all of this, I would certainly agree that we're optimistic about the summer and certainly optimistic that the scan data is going to move. How much of the scan data is going to translate in actual orders and impact our sales? At this point, I can't comment, but obviously very optimistic about the long-term perspective of what we're doing.

Okay. That's it for me. Thank you.

Thank you.

Our next question comes from Naman Sati with Florentin Bank.

Hey, good morning, Colin and Angie. How are you?

Good morning. Thank you.

Okay, thanks. So my first question is more on the volume side. It's very solid volume growth overall, but just wondering if you can provide some additional color on the volume growth within Canada. I saw that in the MDNA you've mentioned that there's growth in the volumes there, but just any color around that, and maybe if you can bifurcate that between how much of that is coming from the Quebec market.

Yeah, exactly. So from a volume growth, like we mentioned in the MDNA to your point, We grew, and we grew double-digit in growth in Canada. And of course, this is great news for us. It means we're continuing on our growth cycle. And like Carl mentioned, even what's even more reassuring is really when we look at the scan data, which is really consumption by our consumers, and it shows that we're growing the fastest and we're on a very healthy trend, and we're going even faster than our internal growth and shipments. As for the breakdown maybe between the rest of Canada and Quebec, what I can reassure you is that we're doing very well and we're seeing growth on both fronts, whether from the new innovation, whether from the velocity in store. So we're on our path, on the path. It takes time, but it's on a very successful path and we're very confident in the future. Carl, I'm not sure if you want to add anything.

Well, maybe I would just add that May, from a scan perspective, scan data, which is always a great measure, May was our best month as well. So the buildup from, obviously, we reduced marketing spend in the Q2, well, for half of Q2, but then we started doing the made-in-plats campaign, then had the PepsiCo first focus, and then we saw the results of this in the month afterwards in May. So yes, it's driving scan data, which ultimately drives shipments in Canada. So the trends, all the indicators are very positive, like NG mentioned.

Okay, now that's good to hear. And just a second question on the U.S. side. So actually I felt the results on the U.S. side were pretty good. So I remember you had mentioned in the last call where you had moved some of your staff from the Canadian market to the U.S. market. Is that this good result a component of that, or is there something else happening within that market? What's driving this growth on the US side?

There's a lot to say on the US, and it's all positive. There is certainly a big impact from the Sam's Club. Sam's Club was a big part of the growth in Q2, but the rest of the business was also going really well, both from when we look at ScanData again, when we look at Muleo, Whether it's natural accounts, where we are seeing very strong growth. When we're looking at our largest retailer, Whole Foods, performing extremely well. Some other banners, like Sprouts as well, where we have spin data doing well. Overall, California, like I said in my remarks, up 62% versus last year. So really, across the board, whether it's in the natural channel or in the conventional channel, Our conventional grocery channel, we're seeing some very positive. Now we did our first entry in the club channel where we also saw positive results of this. Now I can say there's a lot of positive. We said we would bring guaisa. Guaisa is going to be coming in September. So that's exciting stuff. But we also have some great activities lined up for the summer with our partners. We will be doing our first national end cap with Whole Foods. across the country. This is the first time we do this in every single Whole Foods. It's a massive display at the front of the store. That should help. We have some exciting stuff coming on the Club channel as well. I'll leave it at this, but overall, everything is very positive from a U.S. perspective.

Fair enough. Is it right to think that we should take Q2 as like a base year on which you'll gradually grow on sequential basis for the rest of the year, or will there be some fluctuations on the U.S. side? Just trying to get a sense of what's going on.

There will be fluctuations. This is not a business that grows in full transparency. This is not a business that grows in a straight line rate. There will be ups and downs and stuff. What we really need to be looking at is, is this business really transforming? Is this the brand that's going to transform this industry? And obviously, there's going to be some quarters where we have some big wins. And then some quarters are going to be more difficult because we've seen this. We've been in this for 20 years. So it's a difficult business to play. It doesn't grow in a straight line. But what I'm telling you is fundamentally we're building a fantastic platform for future growth, both in Canada and in the U.S. Yeah. And then on Q2, I think Q2 is a great quarter for the U.S., but you can't take for granted that the SAMS Club, we're very transparent, SAMS Club is a rotational program. We may get some other rotational program, but you can't build this into a baseline when you start modeling this.

Okay, no, that's fair, and thanks for the color. That's it from my end. Thanks for taking my questions. Thank you so much. Thank you.

Our next question comes from Amr Asat with SGSOM Partners.

Hi, Colin, NG. Thanks for taking my questions. I just have a quick couple. I just want to piggyback on the U.S. I'm wondering, I mean, obviously very impressive growth, I'm wondering whether you're seeing any notable differences between the U.S. or maybe the California consumer and the Canadian one in general, be it in terms of, like, taste or product preferences, formats, and so on.

No. No real difference. And we look at that every time we do consumer segmentation, whether it's Quebec, Canada, or California, we see the exact same segments, the proportions between the segmented nothing significant. We segment the industry in five segments. There are two segments that resonate extremely well for the Guru brand, and these are the two segments that we target. There's a third segment that kind of adopts whatever is popular, which also is part of our mix. But no, there isn't really a big difference. What we might be able to say over the last two years is that our consumer, which is the more educated, white-collar, consumer, progressive consumer, has been more impacted by the COVID restrictions in Canada than they have in the U.S., right? Overall, our consumers have been more impacted by COVID. If you think of young professional university students and all this, they have been more impacted by COVID restrictions than, let's say, blue-collar consumers. And that's even more true in Canada than it has been in the U.S. So from that perspective, there is a difference. But from a consumer perspective, consumer preference, taste preferences, we don't see differences. And hence why we're very optimistic about the potential for this brand in the long term, both in Canada and in the U.S.

Okay, that's great color. Then I might have missed that in your prepared remarks. I was disconnected. Can you give us a sense of how the price increases are being received so far, or is it too early days?

No, it's not too early. Go ahead, Angie. I've been talking enough.

No, so up until now, it's been very well accepted, actually, and very well received. And like we had mentioned on the call, so maybe if you missed that part, the price increase we took was on May 16, and it was approximately 6% to 10%. And it was very similar and very much in line with the category leader, making sure our price positioning stays intact. And that's it. So now we're closely monitoring the situation to make sure it continues that way, right? Because we never want to be a barrier to entry. We want to be fairly priced. And at the same time, don't leave any opportunity on the table.

Fantastic. Then is it fair for me to assume that that 6% to 10% price increase sort of protects you from any margin erosion due to inflation.

Yeah, what we're seeing right now is, according to the way we've managed our inventory so far, a very careful assessment on that front and the impact of the gross margin. It should counterbalance that. So, yeah, so far, that's what we're seeing.

Fantastic. That's all I have for you.

Thank you very much.

Thank you, Amir.

Thanks, Amir. Our next question comes from John's empower with CIBC. Thanks.

Good morning.

Hey John.

I wanted to start on the Quebec market. Um, and it's not a massive decline in share, but it's the first time we've seen market share decline in Quebec since you've gone public. So would appreciate any commentary you can add there, particularly at a time when, when you're investing in this market and you've got the PepsiCo deal. Sure.

It's a good question, but honestly, John, it's a simple mistake, rounding error. We removed the decimal.

Yeah, that's my typo. I have to be honest, Carl. So it really is. I'm just going to butt in just because I feel bad. It's the same thing that we did with the growth margin, right? I'm showing you guys a 54% growth margin. In reality, it's 54.3. So we just kind of wanted to simplify the view, but there was no decline, rest assured. Sorry, Carl, go ahead.

No, but now the market share is 14.2, right? So that's stable, so there's nothing to worry about. But the reality is that now that you're touching on market share, we don't often talk about market share because it's complex and it fluctuates from month to month and we don't want to be spending all our calls talking about this. But the reality, John, is we've been growing this brand in Quebec from 3% just a few years ago to 14% over the last, let's say, seven years. And we're even reaching 22%, 23% in some banners. So the overall growth trend for Guru is very strong. What we've seen is that we've seen during the COVID waves, and that's why we've been transparent about this, on the various COVID waves, we saw some more flattening in our market share, right? And that's why we dug into our consumers to say, why are we on a very strong growing trend, but whenever there's a COVID wave and more restrictions, we see that our market share, you know, becomes a little bit flatter or even declined by a few little percentage points and then basis points and then comes back, right? Our strongest period over the last few years has been when the COVID restrictions, were removed. For example, last October, November for us was very strong. Now last May, I just mentioned, it's also very strong. So right now, so we're seeing, we really noticed that COVID did have an impact. And that's why we're now optimistic that finally restrictions are gone. The sun is out. We have distribution. We have great execution with our partner. We're going into our largest marketing campaigns ever in the summer and in the fall. So obviously we think that market share is going to go up. So that's the first part on market share I wanted to cover with you because it's important and we don't often talk about this. Keep in mind also that dollar share is impacted by pricing. So if, for example, if a large competitor implemented their pricing before we implemented our pricing, market share is measured in dollars. So there could be, they may not be, let's say the large competitor may not gain volume, but because they took pricing, they might grow share. So when our price increase starts to be reflected, this will be corrected. And finally, we are also growing in some channels that are not measured, which is important. We've been growing very fast and very aggressive online, as you know, and this is not measured by market share. And we know that if we were measuring this, we would be significantly higher from a market share perspective online, whether it's online, whether it's food service. And there are some channels where we are gaining strength that are not measured. But overall, again, the long-term, I guess the key point is long-term, Guru is growing market share. It's the number one, it's the fastest growing brand in Canada. It's the number one energy drink brand in Quebec amongst the 18 to 25, right? So there's growth built in there, where especially if those young adults are starting to go out and spend more time outside and they need more energy. So overall, long-term, very positive.

Okay, that's all helpful, so thank you for that. I just wanted to clarify on the comment about May being particularly strong, is that referring solely to point of sale, or is that also referring to volumes shipped into your retail partners?

That's scan data. That's scan data when you look at scan data across Canada with our best period today. Obviously, over the long term, this all balances out. At some point, ultimately, if consumers are drinking goo, we will end up shipping more products. But as you know, in the transition year, there has been so many new doors, shifts from inventories of wholesalers to our exclusive distributors. There's been some pipeline sales. So there's a lot of moving parts when we look simply at our shipments. That's why in this call, we thought we'd give you a view on scan data.

Okay, understood. Just a couple more. On the distribution points, we typically get an announcement of an increase in doors. There was not one this quarter. Is that intentional? Has the focus kind of shifted to increasing awareness of the brand? And should we expect a pause in the growth of distribution points for the next few quarters?

No, it is.

It is intentional.

what we feel is a better measure, especially for Canada, is weighted distribution. And the reality is our distribution is pretty much complete in Quebec, with 94% weighted distribution in grocery drug mass and 99% in convenience and gas. So really, Quebec, from a distribution point of view, in the measured channels, is complete. Now there's some other opportunities outside of convenience and grocery drug mass. In the rest of Canada, we've also given the numbers where we say we're above 90% in convenience. There are still opportunities in grocery drug masks, but there hasn't been any significant change over the last quarter. There have been some doors that we announced that are being last quarter that have been implemented, but there is not a lot of new news from a new door point of view. So we think that this is a better measure when we look at average weighted distribution. That said, if we gain a new retailer at some point or we will mention this, but there wasn't anything significant with mentioning in this quarter, right? Same with the same with the us.

All right. That's helpful. And then, um, last one for me, the, the Sam's club, um, relationship you have, you mentioned it's rotational. Can you say what the duration of that program is and when it ends, do you, do you just switch products or do you lose that shelf space entirely?

No, you typically you lose that shelf space entirely. And we this is something we've seen with other club retailers in the past and in Canada where they try it has nothing to do with success or failure, right? It does. Obviously, the more success you have, the more chances of having another rotational program. But the reality is the club channels operate this way. They bring a new brand for certain season because they think this is an opportunity for the consumer. And they're very clear upfront that this is a rotational program. They're going to get sales from us, but don't expect this to be a permanent thing. Obviously, the better we do, the more chances we have. The beauty with this is that this is not only a sales channel. We see from research that this is the right consumer. The natural consumer and the progressive consumer tend to shop more in the club channel. It's also a great way for us to generate trial and build awareness for our brand. And then those consumers who buy us right now in Times Club can always find us in other retailers, for example, like Whole Foods, where we see a lot of interaction for consumers between Whole Foods and Club, for example.

Okay, understood. That's all for me. Thank you very much.

Thank you.

Great. Thanks.

Our next question comes from Sean McGowan with Roth Capital Partners.

Good morning, Sean.

Thank you. Hi. Good morning. Hi, Sean. Hi, Angie. I have a couple of questions. I'll start with the marketing spend commentary. Sounds like you spent less in the quarter, perhaps, than you had initially intended because of COVID restrictions. But are we shifting that same dollar spend to later in the year, or you're just going to resume the spending but not necessarily spend what you would have spent in the second quarter in later quarters?

I'll take that one. So, yeah, we will be, like we said, right, we're launching our largest campaign ever, actually, this summer. And we're unleashing all this great energy. So, yeah, we will be, of course, spending, investing these funds in the coming quarter. So Q3, exceptionally, for sure, will be much larger because this is where everybody is deconfined. And especially in Canada, it's a big change, like we said, to our consumers. So we're going ahead and going full steam ahead.

Okay, but you would have expected that anyway. So I guess what I'm asking is are you now going to spend more, you know, kind of money that you didn't spend in the second quarter will now be spent in the third?

Yes, we will be going. Yeah, it's a much bigger campaign. So, yeah, it's bigger than originally planned, of course, yes.

Okay. Okay. Yeah, this is an all-out summer campaign. We want to be very clear with you that this is, now that we have this foundation from the distribution point of view and an execution foundation with our distribution partner, we want to give this a big, big shot over the summer. So we have an outstanding marketing campaign firing on all cylinders across all touchpoints, and we certainly did not want to limit that for the summer. obviously the commitment we're making is that in the fall we will be analyzing all of this to understand which what is working best and where what would what do we dial up and what we dial down and also take the learning we have from from from quebec but next quarter will be an exceptional quarter from a sales and marketing point of view and you can probably expect that to reduce down and go back to more of our methodical approach in the future okay thank you um

Related to that marketing shift in spending, it's kind of a chicken and egg question. Do you think that that shift had an impact on revenue, or was it more like, well, we don't want to spend the money now if we still have COVID restrictions? Do you think that that shift actually had a negative impact on revenue in the second quarter?

Yes. I think the biggest impact was COVID, but reducing spend obviously reduces sales. which proportions, then it's very difficult because we will never know if we would have invested this money, how much return we would have gotten on it. We just didn't think it was smart to be investing the money when our consumers are in stay-at-home orders and stuff like that. So it's almost like preaching in the desert. Might as well invest that money in the summer, which we feel is much smarter to do in the context.

On the impact of COVID, do you have some sense of how much you know, that would have affected revenue in the second quarter? You know, how much do you think was, you know, was kind of lost because your consumer was not, you know, not going to work or staying at home?

Yeah. We don't have the exact, I think we could, we don't have this top of mind. Reality is we look, we can see, we obviously have visibility on scan data and we're seeing when COVID restrictions happen. We see, so we could probably calculate that. We would have to come back to you. We never looked at it this way, to be honest, Sean.

Okay. Thank you. The gross margin in the second quarter, pretty good, given the revenue. Do you think that this is the level of gross margin that we should expect for the balance of the year, in terms of percentage of sales?

Yeah, I think that it's going to be in the same range. It's going to be in the early... lower to mid-50s, you know, like we have today. So I think it could fluctuate, right, because inflation is still full steam ahead. Of course, our inventory strategy is helping us very much, and we're looking at this constantly, but it could fluctuate by one or two basis points.

Okay. I'm going to circle back to an earlier question on the Volume in Canada, your answer on Canada was double digit, but double digit covers everything from 10% to 99%. You caught that, Sean. Yeah, I would say that the volume goal from a shipment standpoint was around 15%, and from a scan was much higher than that.

Okay. We're talking about Canada. Sean, yes. Yes. Totally.

Thank you. And, you know, we're still kind of getting used to the new world on this distribution impact on revenue. Would you expect that we will see year-over-year increase in revenues in Canada in the third quarter?

Yeah, I'm expecting for sure year-over-year increase, you know, like volume growth. From a revenue standpoint, we're still getting used to it. Like you said, it's very much a transition year. So we're adjusting to that. There's the price increase that's coming into effect as of May 16th, right? We said it came into effect. It's really, it's not that easy to predict because of the pipeline filled this year, but also last year, right? When we had started the expansion in rest of Canada. So I can't say at the time.

Okay. It also depends on the effectiveness. The beauty with our marketing investments is that we know they work. We also know that it doesn't work instantly. It's not like you put a marketing dollar and you get a marketing dollar back. Obviously, the more effective our marketing is and the quicker the marketing investments have an impact, then obviously the more we're going to see this. But there are a lot of things that we're doing for the first time. For example, we're really excited about the Amazing Race and we think we have a fantastic partnership there. We just don't know how quickly this is going to translate into sales. We know this is going to have an impact on awareness and consideration because of the program we have. How quickly will this translate into actual scan data? Very hard to predict at this point. But we know that this is, again, this is the right thing to do for the brand. It's the right thing to do for the long term. How much of an impact these marketing investments will have in Q3 versus the following quarters is hard to predict. On top of the fact that there are so many moving parts in a transition year like this, when you're moving from a distribution model in a new market to another distribution model in a new market with new retailers, I think you can appreciate how difficult it is for us to forecast versus in the past.

Okay, thank you for that. And my last couple, two kind of related questions on your comments on the clubs. And I hear you loud and clear that the clubs are notorious for, you know, for being in and out and maybe coming back and not. It's pretty unpredictable. But my two questions are, one, do you have plans with some of the other club retailers that might, you know, kind of smooth out that as a channel? Second, any sign or indication that sales through the clubs are having an adverse impact on sales in other channels? No capitalization?

On the second part, no. No indication that it's having any impact on other channels. So that's easy. On other clubs, IAM and the team is very keen on clubs. So certainly we will be putting a lot of effort on this because it's not only for us, a great sales channel, but we also really strongly believe that this is a great brand-building channel because of the consumer profile in the Club channel. When you look at the largest organic food retailers and you look at the profile of consumers in Club, it's exactly aligned to our consumers. Now, finding the right price point with the right marketing installation, with the right rotation in Club, there's you know how it's not necessarily an easy channel, but it's certainly an outstanding opportunity, and we will be attacking it.

Right. Well, I'm sure you noticed that Celsius went from zero at Costco to almost 20% of their sales in Costco, so it can have a pretty big impact.

Yeah. And there are many brand examples like this. There are many brands, especially in the organic plant-based pedigree, that have had outstanding success in the club channel. Now, when that will happen, we can't count it.

Okay. Thank you very much. Thank you.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Carl for any closing remarks.

Well, I want to thank everyone for joining the call, and I wish everybody a summer full, full, full of good energy. That's it for us.

Thank you so much. Ladies and gentlemen, so let's conclude today's presentation. You may now disconnect and have a wonderful day.