GURU Organic Energy Corp.

Welcome to the Guru Organic Energy Second Quarter 2023 DevOps Conference Call and Webcast. Being recorded today, June 14, 2023, at 10 a.m. Eastern Time. I'm all participants in the listen-only mode. Following the management's presentation will be a question-and-answer session with financial analysts. Instruction will be provided at time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press star. followed by zero for operator assistance at any time. Group press release MD&A and financial statements are available in the investor section of the website and on CDER. The one at all the company may refer to certain non-GAAP measures. Reconciliations are available in the 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, levels of activity, performance goals, or achievements, or other further 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 now like to turn the call over to Mr. Carl Goddien of Guru Financial Executive Officer. Please go ahead, sir.

Thank you, operator. Bonjour à tous. Good morning, everyone, and welcome to our earnings call. Joining me this morning is our CFO, Nji Sarath. For those who are following the webcast, you can now turn the presentation to slide five. First off, we are pleased with our results for this quarter on several levels. Peru's Q2 net revenue of $7.7 million was the best Q2 in our history, with C&E Fruit Punch having a strong impact on our performance. Our latest innovation, C&E Fruit Punch, was officially launched in Canada in March with our Punch Up Your Mind national marketing campaign. This campaign included in-store displays, promotions, and activations combined with digital, social media, and influencer engagement. As a result, Canadian Food Punch achieved remarkable results in its first month, including becoming the industry's most successful launch in the last two years, with over 3% market share in Quebec. Our targeted marketing campaign also helped grow sales velocities in major Canadian urban centres, which had a positive impact on our performance in Q2. Moreover, C&E Fruit Punch and Guayusa Tropical Punch are now ranked among the top three innovations in Quebec since the beginning of the year. We see this as a testament to our ability to create great tasting products for health-conscious energy drink consumers, which bodes well for our future product launches. Turning to slide six. During this last quarter, our marketing team, led by Raja Gaurar, our Chief Revenue Officer, took steps towards refining our marketing strategy based on last year's learning. We put more emphasis on building direct connections with consumers through our in-store activation, social media content, and influencer engagement. We expect this refined marketing strategy will be evidenced in our upcoming summer campaign. In addition to our national sponsorship activities with the Canadian Elite Basketball League, known as the CEBL, and the Amazing Race Canada. On May 24th, the 2023 CEBL season launched in Ottawa, where we had a first taste at sponsoring a major sports league for an entire season. We are really impressed with the CEBL organization and proud to partner with them. They have a real enthusiasm for the game and represent a growing basketball community. We are also thrilled to partner once again with The Amazing Race Canada for its ninth season. Following past success, this year will feature even more unique activations and opportunities to showcase our better-for-you energy drink brand across Canada. On top of our marketing initiatives, we've also been working to improve our in-store execution with our exclusive distribution partner, PepsiCo, and we see a clear improvement over last year. PepsiCo continues to work towards making our energy drinks more available to retailers and consumers in Canada. We are presently in 95% of convenience at gas stores and 77% of grocery and drugstores. We're also starting to increase our presence in the food service sector. Looking now at our U.S. operations, please turn to slide seven. As mentioned during last quarter's call, the U.S. offset strong comparables versus Q2 2022, which included a one-time large order from Sam's Club. The latter, combined with our change in strategy for the e-commerce channel, explains the U.S. operations contraction in Q2 of 2022. However, the true picture regarding our second quarter is that we have been working on developing the U.S. market through the natural food channel and the leading club channel retailers. For the natural food channel, it meant securing our leadership position by increasing our presence and sales velocities. As well, as mentioned last quarter, we delisted from stores in other channels that were not profitable. This strategy has allowed us to achieve the following results in the last 52 weeks. Over 18% growth in the natural food sector, beating the category growth of 9% for the year. Over 22% growth at Whole Foods, and the number one position in strategic natural banners in California. Since launching our Guayusa Tropical Punch innovation in the U.S., it is delivering strong results and is now ranked as the number one guru product in sales velocity in the natural food channel. The other portion of our strategy consisted of entering the wholesale club channel market. Following the success of our 2022 Fall Roadshow with Costco, We just started selling an exclusive format of Guayusa Tropical Punch in over 40 locations in Los Angeles for the three summer months. This rotational program will allow us to showcase Guayusa Tropical Punch to a larger market of better-for-you consumers and could open the doors to new opportunities in this channel. Turning now to online sales, our change in strategy showed improved profitability in Q2. Over the past several months, we have achieved a better return on investment and will continue to work on growing this segment's profitability. As mentioned before, this channel is complementary to our retail presence and distribution, which remains our core focus for growth. I will now turn the call to Ingi, who will provide you with more details on our financial results for the quarter. Ingi, over to you.

Thank you, Carl, and good morning, everyone. Turning to slide 9, net revenue for Q2 rose to $7.7 million from $7.6 million for the same quarter in 2022, mainly driven by increased sales velocities in Canada and the launch of Guru's newest innovation, K&N Fruit Punch. In Canada, sales increased by 21% or $1.1 million to $6.6 million versus the same period last year. and the company's national market share grew from February to April to a high of almost 5%. U.S. sales during the quarter decreased to $1.1 million from $2.2 million in Q2 2022, mainly due to the Sam's Club one-time program in Q2 2022. Gross profit totaled $4.1 million in Q2 2023, the same as last year. Gross margin decreased to 53.1% in Q2 2023 from 54.3% for the same quarter last year, mainly due to higher cost of goods sold and more promotional activity. SG&E was $7.1 million for Q2 2023, compared to $8.2 million for Q2 2022. Selling and marketing expenses decreased to $4.7 million from $5.2 million in Q2 2022, as Guru took a more targeted approach to its investment in sales and marketing campaigns during the quarter. General and administrative expenses decreased to $2.4 million from $3 million in Q2 2022 as a result of cost-controlled measures. Net loss for the second quarter was $2.6 million, or $0.08 per basic and diluted share, compared to a net loss of $4 million for the second quarter last year, or 12 francs per basic and diluted share. The improvement in our net loss position mainly reflects the decrease in costs associated with brand, field, and trade marketing activities. In Q2, adjusted EBITDA amounted to a loss of $2.5 million, a $1.2 million improvement from a loss of $3.7 million for the same period last year, mainly due to lower selling and marketing expenses and general administrative costs. As of April 30, 2023, Kuru had cash and cash equivalents of $40.7 million and unused credit facilities totaling about $10 million. Our prudent balance sheet management puts us in a strong financial position to continue self-funding our growth with the ability to deploy the right investments aimed at our return to generating sustained profitability. Carl, back to you for concluding remarks.

Thank you, Angie. Turning to slide 11, we are definitely in a better position than last year or even last quarter. G&E Foodpunch is driving further market share gains in Canada, and we have several exciting initiatives underway, namely the Feel Good Energy National Summer Marketing Campaign, and our sponsorship activities with the CBL and the Amazing Grace Canada, supported by a strong social media calendar and more unique activations all over the country. We believe that our refined marketing plan, current momentum with innovation, and a strong financial position will allow us to improve our performance going forward. Rest assured, we will remain strategic in our investments we make to increase Guru's brand awareness and capture market shares. We also expect more favorable results in the U.S. for the remainder of the year, as we continue to make strong inroads in the natural and club channels, driven mainly by Guayusa tropical punch and further planned innovation. In short, we remain focused to meet our objective of cleaning up the energy drink industry. This industry needs a transformation for the better, with healthier products that contain natural caffeine, zero aspartame, and zero sucralose. We are confident that Google will become the undisputed leader of organic better-for-you energy drinks in North America. We are excited by our long-term growth plan with a great team, solid partners, incredible products, and a strong differentiated brand. This concludes our formal remarks. I will now turn the call over to the operator for the Q&A.

I'll begin the question-and-answer session. To ask a question, we press star, the one on your touch-tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. This time we'll pause momentarily to assemble the roster. First question will be from Martin Lindry.

If it's default, please go ahead. Hi, good morning, Cal and NG.

Good morning.

Hi, Nafi.

I wanted to talk about Tianin a little bit. you're saying that it reached a 3% market share in Quebec after just one month. So I was wondering, Quebec is a mature market for you guys. And, you know, I was wondering if you could share what's your market share in Quebec in April versus last year to see, you know, if there's been a real boost or just a shift in product with the launch of Tianin.

Yes, of course, I can speak about that. First off, obviously, we're very pleased, Martin, with Tianin. We think we have a winner. It just speaks to what we can do with natural products, lower calories, added functionality with Tianin. The product has resonated really, really well. Uh, we think this is impressive by gaining, uh, having a new product at 3% market share, you know, compared considering we're, we're roughly a 15% market share brand in, in Quebec. I do have to be able to launch an innovation that reaches 3%, right. Which beats the innovation by our competitors that have 40% market share. I think it's remarkable. So to your specific question, um, where, as I said, in April, we had 15% market share. And if I look around the same period last year, we were hovering more around the 14, 13.9, 14. So if you look directly at this comparison in Quebec, we would have gained a total of 1% market share. But that fluctuates from month to month, right? What we're seeing right now is good trend on market share and good trend on scan data growth. We're happy with TNI driving the growth in Quebec.

It's certainly a nice success for you guys. Just again, trying to dig a little bit into that new product launch, has it translated into new clients for you guys? For instance, I know it's difficult for you to figure out what's being done in store, but online, Have you had a higher proportion of new clients ordering this quarter than usual?

The answer to this is yes. I don't have all the information specific to online, Martin. That's a good question. I know we did get a lot of incrementality because we were running different promotions on different sites for the launch. So we did acquire a lot of new consumers online. But I can't, I don't have the exact information on percentage of new consumers and all this, but yes, it was clearly driving incrementality. If I look at retail, then obviously we're, you know, in Quebec, we're near record levels in terms of market share. You know, the last time we had high market shares like this was when exactly when we launched with PepsiCo, there was a huge momentum with what you saw in the launch of PepsiCo in the fall of 2021. But since then, this is really great momentum that we're seeing. Obviously, the assumption is that a lot of that growth is coming from that T&E, but also improved execution, as I mentioned in my remarks. There's a lot of good things happening in the market right now for us, and T&E is one of them. But improved in-store execution is also driving the growth. Okay. Okay.

And so, so you've had like two successful launch, right? Guayusa and TNN. And I was wondering, so what's next? Or do you feel like your product portfolio is full? Do you still want to grow your portfolio? Do you want to get into other adjacent categories? Just trying to understand a little, because you seem to have been on pace with one new product introduction a year. Are you still going to keep that pace on a go forward basis?

I won't comment on exactly the pace, but what I will say is that we will continue on innovation. I think clearly we've demonstrated that we can be great at launching innovations, that consumers want innovation from the Guru brand. We will continue along the same lines. We will continue making plant-based products with natural ingredients. We will not start using sucralose or aspartame. Our products will remain clean because that's really our DNA. but there are still some opportunities to explore in different functionalities, different plants that will bring different functionalities, but also different needs for consumers. I don't want to steal too much of the thunder for competitive reasons, but yes, we have innovations in the plant, of course.

Okay, and maybe last question, if I may. Last quarter, you had talked about a highly promotional industry that impacted your retail sales. I was wondering if you can compare and contrast the promotional activity that you saw in Q1 versus what's happened in Q2.

Yeah, this was a big topic in our Q1 call, if you remember, mainly because of the impact that the four-pack promotions had, mainly in December. So we had mentioned that we were seeing a decline or a reduction in our growth in the scan data around December and January. The good news is that we've recovered from that. It's still a highly competitive, highly promotional environment. We saw the impact of the four-pack promotions more in December. Then we saw Monster launch a successful innovation as well in January, which had an impact. But if I look at our trend and how we've recovered, then we see Red Bull basically lost all the shares that they had gained to their four pack promotion. And we have gained back the share that we had lost during that period. So I wouldn't say that the aggressive in-store promotions are over. If you visit stores, you're going to see that it's a very competitive, very aggressive, but we have responded well with our own promotions. our improved execution, our improved increase of inventory at retail also to make sure that we can compete and just gain our fair share of those promotions. The positive on this is that the industry is growing. The industry is growing very positively in Canada. It's growing at 15%. So there is a lot of incrementality with all of these promotions and consumers are reacting well. The industry is growing. So I think that there is good news in this because everybody is growing, right? And even though we're growing in the 20s, it's hard to gain share because everybody is growing as well, right?

Does that answer your question?

Yeah, no, it does. It does. That's helpful. That's it for me. Thank you for the call. Okay, thanks. Thank you.

Thank you. Our next question will be from John Zalbarro of CIBC. Please go ahead. Thank you. Good morning.

Good morning.

Um, I wanted to come back. Hi, I wanted to come back to the topic of innovation and I get, you're not going to reveal your, your roadmap for the next year or two. Um, but I wonder if like philosophically you've seen the success of DNA and you've seen the success of Guayusa. Like, does that make you want to lean into innovation more, um, just on, on a more frequent basis? Um, I just wonder if this shifts your strategy moving forward, given the success of these products.

Well, the short answer is yes.

Every time we see we get a lot of taste of that success, it's like an adrenaline rush, right? Innovation. But we also need to be disciplined, right? We also need to manage our portfolio. We also need to make sure that we bring our distributor on board just to make sure that they understand the portfolio well. We need to own the space that we have with retailers, right? This is always a challenge. If it wasn't for retail, and then you'd say, well, then you could basically have an unlimited number of SKUs. But if we think about the retailers and if we put ourselves in the retailer's shoes, we also want to make sure that we are launching productive SKUs for them that are not only driving cannibalization, but are also growing the category and that retailers are happy with our velocities. So, yes, we want to launch innovation. We will be disciplined in the number of innovations and the number of SKUs that we launch just to make sure that we don't cannibalize too much. We have room to launch new innovations still in Canada. We have plenty of room to improve and increase innovations in the U.S. and online, obviously. So, clearly, this is, you know, Guayusa has been a success since T&E Food Pinch is a success. Yerba Mate was also a great success. So this is something that we love and that we want to repeat for sure. But we might try some different consumption occasions that I talked about. We're not going to go into different categories, but there is some specific needs that we think we can nail.

Okay. That's helpful. Is it generally a very costly exercise to for you to develop these innovations, or is it largely a similar margin profile, even once you bake in, one-time cost to develop something new?

Yeah, no similar margin profile. Obviously, sometimes some new novel ingredients sometimes will be a little bit more expensive, but if you assume some incrementality, it's great. The big cost is obviously the marketing campaign that comes with that. But the marketing campaign usually is beneficial for the whole brand. It just energizes the brand, revitalizes the brand every time, gives you a good reason to talk about the brand. So there's really halo effect in innovation on the way consumers perceive a brand as innovative and bringing new things to the market. I don't know, Angie, if you wanted to add anything on the gross margin profile of innovation?

No, very little fluctuations to your point.

Okay. On the SG&A side, in two parts to this, the G&A you brought down this quarter, you referenced some specific cost reductions. Is this quarter a reasonable run rate? And then on the other side, sales and marketing, I think the last 12 months it's just over $20 million you've spent. Is that what you're targeting for the next year or so or even on an ongoing basis?

For the G&E side, yes, like mentioned, we have some cost control measures, and it's really a mindset, right? So it's on many little things, and we will continue with that mindset moving forward. So, yes, it is our approach, and it's to, you know, go back to our past profitability. And for the rest of the SG&E, the sales and marketing, as you've seen in the past and as you know, you know, in the energy drink industry, the summer is really – our peak season, and that's where we're the most active, and as announced also yesterday with the CBL, with the amazing race, we will be very active in the coming months. So that you'll see, you know, using the same momentum as last year.

Okay, but maybe not an increase in dollar spending. Is that fair to say?

Hmm. No, you'll see some more activity, some more investment for sure.

Yeah, yeah. Now we're going to keep investing, John. Yes, yes. Like we see 2023 as an investment year where, you know, sales and marketing are fundamental to growing this brand. So keep in your model, you should be thinking about guru investing throughout the summer in sales and marketing, right? Obviously being very cost conscious, like Angie said, from a G&E point of view. But from a sales and marketing point of view, we will be doing another big push this summer just to make sure we grow this brand because we think that it has so much potential. So we're going to keep investing.

Okay. Understood. I wanted to touch on price. In particular, volumes in Canada, I think, grew around the same as sales. But I thought there was a moderate price increase year over year. So can you just help square that for me?

Yes. So yes, to your point, you're absolutely correct. There was a price increase. And yes, we were expecting that the dollar growth to be larger than unit growth. We're not yet seeing the full benefit of that. But of course, that takes time, right? And like we mentioned, there's many things that also are part of the price part, so the net sales. There's price promotions. There's also placement where, as mentioned, we need to continue investing in this brand. And one part of that is making sure that we're very present in store. So placement is key for a brand that's unknown in Canada still, you know, and the majority of the rest of Canada. So we will continue investing there. But this will show up more towards the year. You know, it's not something that shows up just in a quarter. So we're still looking at that in the mix of that.

Got it. Okay. And then just one more, and it's on capital allocation. you're getting closer to break-even, particularly when you factor in the interest revenue you bring in. I wonder how do you approach capital allocation if you end up with something like $20 or $25 million on the balance sheet and you're at a break-even level? What do you prioritize at that point? And in particular, do you look at something more material on the buyback?

Yeah. So, of course, our focus remains and will remain growing and cleaning up the energy drinking industry, right? That's our main mission. And most of our capital will go there, right? In marketing efforts to grow the Guru brand. But of course, we will remain open to opportunities. These opportunities have to align with our strategy, our values, and of course, what we stand for. So something healthy and anything that we would acquire if ever there was a great opportunity would have to be something that could migrate into the Guru brand at some point.

Okay, understood. That's helpful. I'll leave it there. Thank you.

Thank you. Thank you.

Again, if you have a question, please press star then one. Next question will be from Sean McGowan of Roth MKM. Please go ahead.

Good morning, Colin. Are you able to hear me okay? Yes, we hear you well. Hi, Sean. Hi. I was having some trouble with the subset earlier. Yeah, a couple questions. On the On gross margin, did this quarter come in ahead of your expectations? And if so, can you talk a little bit about any factors that did drive that? And do you see margins for the balance of the year staying above or at 53%?

So for gross margin coming in ahead or not, no, it didn't come in ahead of our expectations. we still believe that it's a very healthy, very strong gross margin with a 53.1. We could say that if we break it out, we'd say that half of it is really due to the cost of goods sold. And as mentioned, right, and I think we're starting to see it, there's improvements in terms of overseas transport, in terms of some of the ingredients that are improving in cost. However, The stock that we have on hand and we're selling currently is stock that was bought at higher prices. So we will be seeing these improvements later on, maybe towards the end of the year, right? From a gross margin staying, it's going to remain, as mentioned several times, and it's going to remain very strong in the early 50s. So it could fluctuate from quarter to quarter, right, depending on promotional activities and, like mentioned, the cost of goods sold that was bought prior being factored in. but it will remain very strong, and it will remain above 50%.

Okay, thank you. That's helpful. Now, in terms of revenue comparisons, you had some unusual factors that were affected last year's numbers that made the comparisons a little bit unusual, the Pepsi inventory and the Sam's Club. Do we have additional factors like that in the second half of this year, or should we see kind of better – sell, you know, better shipment growth that's more reflective of the kind of sell-through that you're seeing.

Yes, I would say that, yes, we're done with the anniversary, all the transition issues from a volume standpoint, from a shipment standpoint. So we should be seeing in the future much more parallel between shipment and scan. Of course, if there's any fluctuations or anything, we'll make sure to mention it. But, yeah, we should be seeing some growth on that front. Yeah.

If I may add to this, on the inventory level, Sean, we have better visibility on the PepsiCo side, and we're obviously looking at their inventory level. So far, we're at comparable levels versus last year, but our sales have grown versus last year. If we look at this and say this is a comfortable space, obviously we don't control what they might do. Remember, there was a bit of a surprise at the end of the year last year where they reduced their inventory, but we don't anticipate We don't anticipate that for now. And one thing that we will make sure we do is that whenever sales or shipments are very different than what we see in the scan data, then we'll make sure we'll give all of you some transparency on this so you guys can see this into your model. But right now, there's really nothing to the magnitude of the Sam's Club order or to the magnitude of the inventory reduction that we saw last year. We actually see some positives. We're in a much better position than last year. If you look at inventory levels at retail, if you look at the execution on the PepsiCo side, remember last year there were some staff shortages at the distributor level where we think that obviously we think this is an upside for this summer. We're starting the year in much better shape. We're very optimistic for July. July is going to be a focus period for us as well. We have a stronger portfolio, stronger team. Honestly, we're optimistic for the next future. I don't want you to raise all your expectations, but all I'm saying is that we're in a better spot. I think we're in a better position than we've ever been. We should be capturing a lot of that growth in the industry.

Okay. Thank you. My last question is on kind of the impact and phasing of the launch of C&E. So when exactly did you start, you know, getting that, you know, where in the quarter did that start hitting your revenue? And were the initial shipments of that product so strong that like replenishment in the next quarter might be an issue or is that not really an issue?

You want to take that one, NG, or one?

Yeah, so it started hitting our revenues very early in the quarter because we sell to PepsiCo, and then PepsiCo sells to the retailers, right, because it was activated in Stormwater towards April. But from a standpoint for the coming quarters, of course, there won't be the first fill-in, you know, the first pipeline fill. However, there's very strong demand, like we've mentioned, so we're seeing continuous demand for that product. So I don't believe that we will see –

major decline or anything it's the opposite we're seeing increased demand actually better than expected even on that product but we're good on the supply side also you know this is obviously that's not a problem we plan for it to be a success so we have plenty of inventory so whoever wants to buy cne they should go out we have plenty of inventory

Okay. Well, I look forward to being able to find that. Actually, on that point, when you talked about Costco in L.A., and I know that's not D&E, but is that only in that region, and how many stores do they have in that region? It's in L.A.

and Hawaii for now. It's only been a few days, but we're seeing a strong start, very happy with the results. So this is looking promising for the future. As you know, the Cup Channel, The Club Channel is a different animal, it's a different beast to be able to secure permanent listings, but we'd be happy to get many rotational programs across the United States to make sure that more consumers can discover the benefits of organic Better For You energy drinks.

Yes, and the Club Channel reminds you that permanent is a relative word. Yeah, exactly.

But it's important that whenever you go in, we have success, and that's what we're seeing so far.

We're having great success from the velocity point of view, from the sales point of view. So we're doing a lot of demos. Our team is there to amplify sales. Consumer feedback is really great, as usual, on that product. Consumers love Guayusa Tropical Punch, and obviously the plan is to bring C&E Food Punch products to you guys in the U.S. as well, right, and to bring this. I think this would be a perfect combination for Costco, obviously, to have the fruit punch and the tropical punch available at Costco would really be great.

Or even an assortment in an 18-pack, because that seems to be pretty good. Ah, yeah, I love it.

Costco shoppers love variety packs. Thank you.

Thank you. That concludes our question and answer session. I'd like to turn the call back over to Mr. Karl Kapieh for closing remarks.

Well, again, I just want to thank everybody for attending and wishing you all a great summer.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Thank you. Thank you. Bye. Bye.

Welcome to the Guru Organic Energy Second Quarter 2023 Develops Conference Call and Webcast. Being recorded today, June 14, 2023, at 10 a.m. Eastern Time. I'm all participants in the listen-only mode. Following the management's presentation will be a question-and-answer session with financial analysts. Instruction will be provided at time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press star. followed by zero for the operator assistance at any time. Group press release MD&A and financial statements are available in the investor section of the website and on CEDAR. If you want to call the company, refer to certain non-GAAP measures. Reconciliations are available in the 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, levels of activity, performance goals or achievements, or other further 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 now like to turn the call over to Mr. Carl Godier, a GURU financial executive officer. Please go ahead, sir.

Thank you, operator. Bonjour à tous. Good morning, everyone, and welcome to our earnings call. Joining me this morning is our CFO, Ndi Sarraf. For those who are following the webcast, you can now turn the presentation to slide five. First off, we are pleased with our results for this quarter on several levels. Zuru's Q2 net revenue of $7.7 million was the best Q2 in our history, with T&E Fruit Punch having a strong impact on our performance. Our latest innovation, T&E Fruit Punch, was officially launched in Canada in March with our Punch Up Your Mind national marketing campaign. This campaign included in-store displays, promotions and activations combined with digital, social media, and influencer engagement. As a result, Canadian Food Punch achieved remarkable results in its first month, including becoming the industry's most successful launch in the last two years, with over 3% market share in Quebec. Our targeted marketing campaign also helped grow sales velocities in major Canadian urban centres, which had a positive impact on our performance in Q2. Moreover, C&E Fruit Punch and Guaizot Tropical Punch are now ranked among the top three innovations in Quebec since the beginning of the year. We see this as a testament to our ability to create great tasting products for health-conscious energy drink consumers, which bodes well for our future product launches. Turning to slide six. During this last quarter, our marketing team, led by Rajat Gaurar, our Chief Revenue Officer, took steps towards refining our marketing strategy based on last year's learning. We put more emphasis on building direct connections with consumers through our in-store activations, social media content, and influencer engagement. We expect this refined marketing strategy will be evidenced in our upcoming summer campaign. In addition to our national sponsorship activities with the Canadian Elite Basketball League known as the CEBL, and the Amazing Race Canada. On May 24th, the 2023 CEBL season launched in Ottawa, where we had a first taste at sponsoring a major sports league for an entire season. We are really impressed with the CEBL organization and proud to partner with them. They have a real enthusiasm for the game and represent a growing basketball community. We are also thrilled to partner once again with The Amazing Race Canada for its ninth season. Following past success, this year will feature even more unique activations and opportunities to showcase our Better For You energy drink brand across Canada. On top of our marketing initiatives, we've also been working to improve our in-store execution with our exclusive distribution partner, PepsiCo, and we see a clear improvement over last year. PepsiCo continues to work towards making our energy drinks more available to retailers and consumers in Canada. We are presently in 95% of convenience and gas stores and 77% of grocery and drug stores. We're also starting to increase our presence in the food service sector. Looking now at our U.S. operations, please turn to slide seven. As mentioned during last quarter's call, the U.S. offset strong comparables versus Q2 2022, which included a one-time large order from Sam's Club. The latter, combined with our change in strategy for the e-commerce channel, explains the U.S. operations contraction in Q2 of 2022. However, the true picture regarding our second quarter is that we have been working on developing the U.S. market through the natural food channel and the leading club channel retailers. For the natural food channel, it meant securing our leadership position by increasing our presence and sales velocities. As well, as mentioned last quarter, we delisted from stores in other channels that were not profitable. This strategy has allowed us to achieve the following results in the last 52 weeks. Over 18% growth in the natural food sector, beating the category growth of 9% for the year. Over 22% growth at Whole Foods, and the number one position in strategic natural banners in California. Since launching our Guayusa Tropical Punch innovation in the U.S., it is delivering strong results and is now ranked as the number one guru product in sales velocity in the natural food channel. The other portion of our strategy consisted of entering the wholesale club channel market. Following the success of our 2022 Fall Roadshow with Costco, we just started selling an exclusive format of Guayusa Tropical Punch in over 40 locations in Los Angeles for the three summer months. This rotational program will allow us to showcase Guayusa Tropical Punch to a larger market of better-for-you consumers and could open the doors to new opportunities in this channel. Turning now to online sales, our change in strategy showed improved profitability in Q2. Over the past several months, we have achieved a better return on investment and will continue to work on growing this segment's profitability. As mentioned before, this channel is complementary to our retail presence and distribution, which remains our core focus for growth. I will now turn the call to Ingi, who will provide you with more details on our financial results for the quarter. Ingi, over to you.

Thank you, Carl, and good morning, everyone. Turning to slide nine, net revenue for Q2 rose to $7.7 million from $7.6 million for the same quarter in 2022, mainly driven by increased sales velocities in Canada and the launch of Guru's newest innovation, K&N Fruit Punch. In Canada, sales increased by 21% or $1.1 million to $6.6 million versus the same period last year. And the company's national market share grew from February to April to a high of almost 5%. U.S. sales during the quarter decreased to $1.1 million from $2.2 million in Q2 2022, mainly due to the Sam's Club one-time program in Q2 2022. Gross profit totaled $4.1 million in Q2 2023, the same as last year. Gross margin decreased to 53.1% in Q2 2023 from 54.3% for the same quarter last year, mainly due to higher cost of goods sold and more promotional activity. SG&E was $7.1 million for Q2 2023 compared to $8.2 million for Q2 2022. Selling and marketing expenses decreased to $4.7 million from $5.2 million in Q2 2022, as Guru took a more targeted approach to its investment in sales and marketing campaigns during the quarter. General and administrative expenses decreased to $2.4 million from $3 million in Q2 2022 as a result of cost control measures. Net loss for the second quarter was $2.6 million, or $0.08 per basic and diluted share, compared to a net loss of $4 million for the second quarter last year, or 12 francs per basic and diluted share. The improvement in our net loss position mainly reflects the decrease in costs associated with brand, field, and trade marketing activities. In Q2, adjusted EBITDA amounted to a loss of $2.5 million, a $1.2 million improvement from a loss of $3.7 million for the same period last year, mainly due to lower selling and marketing expenses and general administrative costs. As of April 30, 2023, Kuru had cash and cash equivalents of $40.7 million and unused credit facilities totaling about $10 million. Our prudent balance sheet management puts us in a strong financial position to continue self-funding our growth with the ability to deploy the right investments aimed at our return to generating sustained profitability. Carl, back to you for concluding remarks.

Thank you, Angie. Turning to slide 11, we are definitely in a better position than last year, or even last quarter. C&E Foodpunch is driving further market share gains in Canada, and we have several exciting initiatives underway, namely the Feel Good Energy National Summer Marketing Campaign, and our sponsorship activities with the CBL and the Amazing Grace Canada, supported by a strong social media calendar and more unique activations all over the country. We believe that our refined marketing plan, current momentum with innovation, and a strong financial position will allow us to improve our performance going forward. Rest assured, we will remain strategic in our investments we make to increase Guru's brand awareness and capture market shares. We also expect more favorable results in the U.S. for the remainder of the year, as we continue to make strong inroads in the natural and club channels, driven mainly by Guayusa tropical punch and further planned innovation. In short, we remain focused to meet our objective of cleaning up the energy drink industry. This industry needs a transformation for the better, with healthier products that contain natural caffeine, zero aspartame, and zero sucralose. We are confident that Google will become the undisputed leader of organic better-for-you energy drinks in North America. We are excited by our long-term growth plan with a great team, solid partners, incredible products, and a strong differentiated brand. This concludes our formal remarks. I will now turn the call over to the operator for the Q&A.

I'll begin the question and answer session. To ask a question, we press star, the one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. This time we'll pause momentarily to assemble the roster.

The first question will be from Martin Lindry.

If Steve will please go ahead. Hi, good morning, Cal and Angie.

Good morning.

I wanted to talk about Tianin a little bit. you're saying that it reached a 3% market share in Quebec after just one month. So I was wondering, Quebec is a mature market for you guys. And, you know, I was wondering if you could share what's your market share in Quebec in April versus last year to see, you know, if there's been a real boost or just a shift in product with the launch of Tianin.

Yes, of course, I can speak about that. First off, obviously, we're very pleased, Martin, with Tianin. We think we have a winner. It just speaks to what we can do with natural products, lower calories, added functionality with Tianin. The product has resonated really, really well. We think this is impressive, having a new product at 3% market share, considering we're roughly a 15% market share brand in Quebec, to be able to launch an innovation that reaches 3%, which beats the innovation by our competitors that have 40% market share. I think it's remarkable. To your specific question, as I said, in April, we had 15% market share. And if I look around the same period last year, we were hovering more around the 14, 13.9, 14. So if you look directly at this comparison in Quebec, we would have gained a total of 1% market share. But that fluctuates from month to month, right? What we're seeing right now is good trend on market share and good trend on scan data growth. So we're happy with T&E driving the growth in Quebec.

I know it's certainly a nice success for you guys. And just again, trying to dig a little bit into that new product launch, has it translated into new clients for you guys? For instance, I know it's difficult for you to figure out what's being done in-store, but online, Have you had a higher proportion of new clients ordering this quarter than usual?

The answer to this is yes. I don't have all the information specific to online, Martin. That's a good question. I know we did get a lot of incrementality because we were running different promotions on different sites for the launch. So we did acquire a lot of new consumers. Uh, but I can't, uh, I don't have the exact information on percentage of new consumers and all this, but then yes, it was clearly driving incrementality. If I look at retail, then obviously we're, you know, in Quebec, we're near record levels, uh, in terms of market share. You know, the last time we had high market shares like this was when exactly when we launched with, with PepsiCo, there was a huge momentum with Guayusa and the launch of PepsiCo in the fall of, of 2021. But since then, uh, since then, this is, this is really great momentum that we're seeing. So, you know, obviously the assumption is that most of the, a lot of that growth is, is coming from, uh, from that T and E. But also improved execution, as I mentioned in my remarks, right? There is, there's a lot of good things happening in the market right now for us. And T and E is one of them, but improved in store execution is also driving, uh, driving the growth. Okay.

And so you've had like two successful launch, right? Guayusa and TNN. And I was wondering, so what's next? Or do you feel like your product portfolio is full? Do you still want to grow your portfolio? Do you want to get into other adjacent categories? Just trying to understand a little because you seem to have been on pace with one new product introduction a year. Are you still going to keep that pace on a go-forward basis?

I won't comment on exactly the pace, but what I will say is that we will continue on innovation. I think clearly we've demonstrated that we can be great at launching innovations, that consumers want innovation from the Guru brand. We will continue along the same lines. We will continue making plant-based products with natural ingredients. We will not start using sucralose or aspartame. Our products will remain clean because that's really our DNA. but there are still some opportunities to explore in different functionalities, different plants that will bring different functionalities, but also different needs for consumers. I don't want to steal too much of the thunder for competitive reasons, but yes, we have innovations in the plan, of course.

Okay, and maybe last question, if I may. Last quarter, you had talked about a highly promotional industry that impacted your retail sales. I was wondering if you can compare and contrast the promotional activity that you saw in Q1 versus what's happened in Q2.

Yeah, this was a big topic in our Q1 call, if you remember, mainly because of the impact that the four-pack promotions had, mainly in December. So we had mentioned that we were seeing a decline or a reduction in our growth in the scan data around December and January. The good news is that we've recovered from that. It's still a highly competitive, highly promotional environment. We saw the impact of the four-pack promotions more in December. Then we saw Monster launch a successful innovation as well in January, which had an impact. But if I look at our trend and how we've recovered, then we see Red Bull basically lost all the shares that they had gained to their four-pack promotion. And we have gained back the share that we had lost during that period. So I wouldn't say that the aggressive in-store promotions are over. If you visit stores, you're going to see that it's a very competitive, very aggressive, but we have responded well with our own promotions. our improved execution, our improved increase of inventory at retail also to make sure that we can compete and just gain our fair share of those promotions. The positive on this is that the industry is growing. The industry is growing very positively in Canada. It's growing at 15%. So there is a lot of incrementality with all of these promotions and consumers are reacting well. The industry is growing. So I think that there is good news in this because everybody is growing, right? And even though we're growing in the 20s, it's hard to gain share because everybody is growing as well, right?

Does that answer your question?

Yeah, no, it does. It does. That's helpful. That's it for me. Thank you for the caller. Okay, thanks. Thank you.

Thank you. Our next question will be from John Zambarro of CIBC. Please go ahead. Thank you.

Good morning.

Good morning.

Um, I wanted to come back. Hi, I wanted to come back to the topic of innovation and I get, you're not going to reveal your, your roadmap for the next year or two. Um, but I wonder if like philosophically you've seen the success of DNA and you've seen the success of Guayusa. Like, does that make you want to lean into innovation more, um, just on, on a more frequent basis? Um, And I just wonder if this shifts your strategy moving forward, given the success of these products.

Well, the short answer is yes.

It's, you know, every time we see, we get a lot of taste of that success. It's like an adrenaline rush, right? Innovation, but we also need to be disciplined, right? We also need to manage our portfolio. We also need to make sure that we bring our, our distributor on board just to make sure that they understand the portfolio and We need to own the space that we have with retailers. This is always a challenge. If it wasn't for retail, and then you say, well, then you could basically have an unlimited number of SKUs. But if we think about the retailers and if we put ourselves in the retailer's shoes, we also want to make sure that we are launching productive SKUs for them that are not only driving cannibalization, but are also growing the category and that retailers are happy with our velocities. So, yes, we want to launch innovation. We will be disciplined in the number of innovations and the number of SKUs that we launch, just to make sure that we don't cannibalize too much. We have room to launch new innovations still in Canada. We have plenty of room to improve and increase innovations in the U.S. and online, obviously. So, clearly, this is, you know, Guayusa has been a success, T&E Fruit Pinch is a success. Yerba Mate was also a great success. So this is something that we love and that we want to repeat for sure. But we might try some different consumption occasions that I talked about. We're not going to go into different categories, but there's some specific needs that we think we can nail.

Okay. That's helpful. Is it generally a very costly exercise? for you to develop these innovations, or is it largely a similar margin profile, even once you bake in, one-time cost to develop something new?

Yeah, no similar margin profile. You see sometimes some new novel ingredients sometimes will be a little bit more expensive, but if you assume some incrementality, it's great. The big cost is obviously the marketing campaign that comes with that. But the marketing campaign usually is beneficial for the whole brand. It just energizes the brand, revitalizes the brand every time, gives you a good reason to talk about the brand. So there's really halo effect and innovation on the way consumers perceive a brand as innovative and bringing new things to the market. I don't know, Angie, if you wanted to add anything on the gross margin profile of innovation?

No, very little fluctuations to your point.

Okay. On the SG&A side, two parts to this. The G&A you brought down this quarter, you referenced some specific cost reductions. Is this quarter a reasonable run rate? And then on the other side, sales and marketing, I think the last 12 months it's just over $20 million you've spent. Is that what you're targeting for the next year or so or even on an ongoing basis?

For the G&E side, yes, like mentioned, we have some cost control measures and it's really a mindset, right? So it's on many little things and we will continue with that mindset moving forward. So yes, it is our approach and it's to go back to our past profitability. And for the rest of the SG&E, the sales and marketing, as you've seen in the past and as you know, in the energy drink industry, the summer is really... our peak season, and that's where we're the most active. And as announced also yesterday with the CBL, with the amazing race, we will be very active in the coming months. So that you'll see, you know, using the same momentum as last year.

Okay. But maybe not an increase in dollar spending. Is that fair to say?

Hmm. No, you'll see some more activity, some more investment for sure.

Yeah, yeah. No, we're going to keep investing, John. Yes, yes. Like we see 2023 as an investment year where, you know, sales and marketing are fundamental to growing this brand. So keep in your models. You should be thinking about investing throughout the summer in sales and marketing, right? Obviously being very cost conscious, like Angie said, from a G&E point of view. But from a sales and marketing point of view, we will be doing another big push this summer just to make sure we grow this brand because we think that it has so much potential. So we're going to keep investing.

Okay. Understood. I wanted to touch on price. In particular, volumes in Canada, I think, grew around the same as sales. But I thought there was a moderate price increase year over year. So can you just help square that for me?

Yes. So, yes, to your point, you're absolutely correct. There was a price increase. And, yes, we were expecting that the dollar growth to be larger than unit growth. We're not yet seeing the full benefit of that. But, of course, that takes time, right? And like we mentioned, there's many things that also are part of the price part, so the net sales. There's price promotions. There's also placement where, as mentioned, we need to continue investing in this brand. And one part of that is making sure that we're very present in store. So placement is key for a brand that's unknown in Canada still, you know, and the majority of the rest of Canada. So we will continue investing there. But this will show up more towards the year. You know, it's not something that shows up just in a quarter. So we're still looking at that in the mix of that.

Got it. Okay. And then just one more, and it's on capital allocation. you're getting closer to break-even, particularly when you factor in the interest revenue you bring in. I wonder how do you approach capital allocation if you end up with something like $20 or $25 million on the balance sheet and you're at a break-even level? What do you prioritize at that point? And in particular, do you look at something more material on the buyback?

Yeah. So, of course, our focus remains and will remain growing and cleaning up the energy drinking industry, right? That's our main mission. And most of our capital will go there, right? In marketing efforts to grow the Guru brand. But of course, we will remain open to opportunities. These opportunities have to align with our strategy, our values, and of course, what we stand for. So something healthy and anything that we would acquire if ever there was a great opportunity would have to be something that could migrate into the Guru brand at some point.

Okay, understood. That's helpful. I'll leave it there. Thank you.

Thank you. Thank you.

Again, if you have a question, please press star then one. Next question will be from Sean McGowan of Roth MKM. Please go ahead.

Good morning, Colin. Are you able to hear me okay? Yes, we hear you well. Hi, Sean. Hi. I was having some trouble with the subset earlier. Yeah, a couple of questions. On the On gross margin, did this quarter come in ahead of your expectations? And if so, can you talk a little bit about any factors that did drive that? And do you see margins for the balance of the year staying above or at 53%?

So for gross margin coming in ahead or not, no, it didn't come in ahead of our expectations. we still believe that it's a very healthy, very strong gross margin with a 53.1. We could say that if we break it out, we'd say that half of it is really due to the cost of goods sold. And as mentioned, right, and I think we're starting to see it, there's improvements in terms of oversea transport, in terms of some of the ingredients that are improving in cost. However, The stock that we have on hand and we're selling currently is stock that was bought at higher prices. So we will be seeing these improvements later on, maybe towards the end of the year, right? From a gross margin staying, it's going to remain, as I mentioned several times, and it's going to remain very strong in the early 50s. So it could fluctuate from quarter to quarter, right, depending on promotional activities and, like I mentioned, the cost of goods sold that was bought prior being factored in. but it will remain very strong and it will remain above 50%.

Okay. Thank you. That's helpful. Now, in terms of revenue comparisons, you had some unusual factors, you know, that were affected last year's numbers that, you know, made the comparisons a little bit unusual, you know, the kind of the Pepsi inventory and the Sam's Club. Do we have additional factors like that in the second half of this year, or should we see, you know, kind of better, um, you know, better shipment growth that's more reflective of the kind of sell-through that you're seeing.

Yes, I would say that, yes, we're done with the anniversary, all the transition issues from a volume standpoint, from a shipment standpoint. So we should be seeing in the future much more parallel between shipment and scan. Of course, if there's any fluctuations or anything, we'll make sure to mention it. But, yeah, we should be seeing some growth on that front. Yeah.

If I may add to this, on the inventory level, Sean, we have better visibility on the PepsiCo side, and we're obviously looking at their inventory level. So far, we're at comparable levels versus last year, but our sales have grown versus last year. We look at this and say, this is a comfortable space. Obviously, we don't control what they might do. Remember, there was a bit of a surprise at the end of the year last year where they reduced their inventory, but we don't anticipate We don't anticipate that for now. And one thing that we will make sure we do is that whenever sales or shipments are very different than what we see in the scan data, then we'll make sure we'll give all of you some transparency on this so you guys can see this into your model. But right now, there's really nothing to the magnitude of the Sam's Club order or to the magnitude of the inventory reduction that we saw last year. We actually see some positives. We're in a very much better position than last year. If you look at inventory levels at retail, if you look at the execution on the PepsiCo side, remember last year there were some staff shortages at the distributor level where we think that obviously we think this is an upside for this summer. We're starting the year in much better shape. We're very optimistic for July. July is going to be a focus period for us as well. We have a stronger portfolio, stronger team. Honestly, we're optimistic for the next future. I don't want you to raise all your expectations, but all I'm saying is that we're in a better spot. I think we're in a better position than we've ever been. We should be capturing a lot of that growth in the industry.

Okay. Thank you. My last question is on kind of the impact and phasing of the launch of C&E. So when exactly did you start, you know, getting that, you know, where in the quarter did that start hitting your revenue? And were the initial shipments of that product so strong that like replenishment in the next quarter might be an issue or is that not really an issue?

You want to take that one, NG, or one?

Yeah, so it started hitting our revenues very early in the quarter because we sell to PepsiCo, and then PepsiCo sells to the retailers, right, because it was activated in Stormwater towards April. But from a standpoint for the coming quarters, of course, there won't be the first fill-in, you know, the first pipeline sale. However, there's very strong demand, like we've mentioned, so we're seeing continuous demand for that product. So I don't believe that we will see – a major decline or anything. It's the opposite. We're seeing increased demand actually better than expected even on that product.

But we're good on the supply side also. Yes, that's not a problem. We plan for it to be a success, so we have plenty of inventory. So whoever wants to buy C&E, they should go out. We have plenty of inventory.

Okay. Well, I look forward to being able to find that. Actually, on that point, when you talked about Costco,

in l.a and i know that's not the need but um is that only in that region and how many stores do they have in that region it's in l.a and that's why it's in l.a and hawaii for now right and it's only been a few days but they were seeing a strong start very happy with the results so this is this is looking promising for the future you know as you know the club channel the club channel is a different animal it's a different beast to be able to secure permanent listings but We'd be happy to get many rotational programs across the United States to make sure that more consumers can discover the benefits of organic better-for-you energy drinks.

Yes, and the Club channel reminds you that permanent is a relative word.

Exactly. But it's important that whenever you go in, we have success, and that's what we're seeing so far.

We're having great success from the velocity point of view, from the sales point of view, so We're doing a lot of demos. Our team is there to amplify sales. Consumer feedback is really great, as usual, on that product. Consumers love Guayusa Tropical Punch. Obviously, the plan is to bring C&E Fruit Punch to you guys in the U.S. as well. I think this would be a perfect combination for Costco, obviously. To have the Fruit Punch and the Tropical Punch available at Costco would really be great.

Or even an assortment in an 18-pack, because that seems to be pretty good. Ah, yeah, I love it.

That's what shoppers love, variety packs. Yes. Thank you.

Thank you. That concludes our question and answer session. I'd like to turn the call back over to Mr. Karl Kapieh for closing remarks.

Well, again, I just want to thank everybody for attending, and wishing you all a great summer.

Conference is now concluded. Thank you for attending today's presentation. You may now disconnect.