GURU Organic Energy Corp.

Welcome to the Guru Organic Energy First Quarter 2024 Results Conference Call and Webcast, being recorded today, March 14, 2024, at 8.30 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 difficulties hearing 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, level of activity, performance, goals or achievements, or other future events or developments. As such, please take a moment to read the disclaimer on forward-looking statements on slide two of the presentation. I will now turn the call over to Carl 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, NG Seraph. For those who are following the webcast, you can turn the presentation to slide five. GRU has now achieved a fourth consecutive quarter of top line growth with solid retail channel sales in Q1, lifted by strong momentum online and in club wholesale. For comparison, Online and wholesale club markets in the U.S. are each the same size as the Canadian energy drink market. They are a growing proportion of Guru's net revenue with a strong potential for future growth. Across all three of our channels and where available, our latest innovations continue to bear fruit. This is led by our expanding punchline, which is very popular with consumers and will be reinforced by our updated brand positionings. As the year progresses, we will keep focusing on three sales channels and leverage our innovation pipeline. We will ensure our sales and marketing investments generate the best return on investment with the right tactics deployed through the right channels. Our 2024 priorities to grow sales and accelerate our return to profitability remain firmly on track. Net revenue has grown 43% this quarter. Net loss continued to decrease for the fifth quarter in a row over the same period a year ago. This is significant progress. Turning to slide six. Last week we upgraded our online presence with a new and improved transactional Guru Energy website. This site now offers better user functionality with more interactivity and simplicity. These enhancements are expected to increase consumer conversion. The site also showcases our sleek new can design and emphasizes energy-focused brand features, such as improved focus for our punch line and metabolism boost for our new Guru Zero line. We're happy to provide these additional functionalities to our Guru consumers. Turning to slide seven, In the coming weeks, there will be a lot of activity in Canada. First, in retail, we're introducing Peach Mango Punch across Canada, supported by in-store activation initiatives and a punchy marketing campaign. Second, we will be launching the innovation we hinted last quarter. This innovation is our Zero Sugar Organic Energy Drink, the first of our new Zero Sugar Metabolism Boost product line-up. This drink combines metabolism boosts from green tea extracts with a delicious wild berry flavor. We firmly believe that our long-awaited zero-sugar energy drinks will be welcomed by existing and potential consumers alike. The initial launch plan in the coming weeks will be in Quebec at retail locations and online across Canada. Looking at the wholesale club channel in Canada, we're extremely proud to have achieved permanent status at Costco in Quebec after successful rotational programs. Now, our products will be available on a regular basis. This is a meaningful foot in the door at Costco in Canada that hopefully will enable us to potentially break through outside of Quebec. Still on the topic of wholesale and now turning to the U.S. on slide eight. Q2 started on a strong note with two rotational programs at Costco in Los Angeles and in the Midwest. The first is carrying our 12-can variety pack comprised of tropical punch and fruit punch. And the other, our 15-can variety pack and complete punch lineup, including our peach mango punch. At retail, we began rolling out peach mango punch in natural food stores and other retailers in February. Whole Foods Market will lift Tropical Punch nationally in over 500 stores starting in April. This channel has shown consistent growth over the last 52 weeks. We believe that these new launches will boost the momentum and contribute to that growth. Traction on Amazon.com was particularly impressive last quarter, with an 89% increase in sales. This was mainly fueled by Black Friday, our fruit punch launch, and peach mango punch launch, including the variety pack. These launches drove repeat customers and helped us reach record levels of new-to-brand customer acquisition in January, surpassing Black Friday month, and we expect this trend to persist going forward. I will now turn the call to Ingi to discuss our financial results in more details. Ingi, over to you.

Thank you, Carl, and good morning, everyone. Turning to slide 10. Net revenue in Q1 increased by 43% year-over-year to $7.1 million. That marks the fourth consecutive quarter of net revenue growth versus a year ago. Sales in Canada grew 35% to $5.7 million, driven by increased sales velocity. In the U.S., sales grew 87% to $1.4 million, driven by ongoing online sales optimization and retail growth. Gross profit increased to $3.8 million from $2.7 million in Q1 2023. Gross margin was 52.9% compared to 53.7% for the same quarter last year, mainly due to increased promotional activity in Canada offset by less promotional activity in the U.S. SG&E was $6.1 million compared to $5.7 million in Q1 2023. As a percentage of net revenue decreased to 85% from 113% in Q1 2023. Selling and marketing expenses increased to $3.3 million from $2.9 million in Q1 2023. As we were more active on social media to promote our brand. Net loss for the first quarter decreased to $1.9 million compared to $2.6 million for the first quarter last year. Adjusted EBITDA amounted to a loss of $2 million compared to a loss of $2.6 million for the same period last year. As of January 31, 2024, Guru had cash, cash equivalents, and short-term investments of $31.2 million and unused credit facilities of another $10 million as we continue to exercise prudent financial management. Cara, back to you for concluding remarks.

Thank you, Angie. Turning to slide 12. Our positive momentum is carrying into Q2. To stimulate that momentum, we will continue to invest smartly in our core retail sales channel, but also pay attention to our online and wholesale club channels. These two additional growth drivers have remarkable upside potential, have boosted strong sales performance, and could become very significant to our revenue. As such, They deserve our attention. The bulk of our marketing spend will continue to be allocated to retail, in particular in urban areas where our brand resonates most. But as previously discussed, we will be extremely disciplined and selective in our investments in this channel by favoring a return on investment. Our innovation pipeline and new release products will also remain a priority for us. such as our Focus Punchline and our new Metabolism Boost Zero Sugar Energy Drink line. By increasing our flavor variety and emphasizing our Good Energy brand image, we hope to attract and switch more artificial energy drink consumers to the Better For You Guru brand. As we are pursuing our growth strategy, we're also working on reducing costs and accelerating our return to profitability in the coming years. In the next few quarters, we will continue to deploy our good energy strategically through actions we think will best connect with our target consumers. This will help us increase our North American market share gradually on our mission to clean up the energy drink industry. This concludes our formal remarks. I will now turn the call over to the operator for the Q&A.

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Martin Landry from Stifel. Please go ahead.

Hi, good morning, Carl and Angie.

My first question, I want to talk about your revenues in Canada. There is a bit of noise in your shipments on a year-over-year basis. So I was wondering if we could focus on sales at retail to get a better picture. You know, you give us your scan data for the last 12 months. I think they're up 8% year-over-year in Canada. I was wondering if you could give us the scan data for the quarter.

Yes, I can do that, Martin.

Remember, like we talked on the last call, looking only at scan data could be misleading if you would look only at Nielsen because there are some on-track channels that are growing fast, including Costco, including Dollarama, and also including online. So when we make a double calculation, we end up to a growth of consumption over the last quarter of around 25%, 28% in Canada. Mm-hmm.

Okay, so what you're saying is if we include your scan in the measured channel plus your sales in non-measured channels plus online sales, that would amount to an increase of 25% year-over-year in Canada for the quarter.

Yes, 28% if you want to be precise. There's obviously a little bit of calculations here, but you're close with 25%, 28%. Okay.

Okay. So then the question is, you know, if we normalize your shipments, does that mean that your inventory at PepsiCo has drawn down a little bit? How should we read your inventory levels at PepsiCo?

Indeed. Do you want to take that one? I know you made those calculations to normalize everything.

Oh, yeah, for the growth of our net revenues. Well, it aligns actually very closely or perfectly with the consumption levels. So if you normalize all that, our growth would be around 25%.

That's for Canada, yeah.

Yeah, well, yeah, total as well.

So let's just focus on Canada, though, because the Pepsi impact was only in Canada, right?

So for the retail part, right?

So I understand that the retail sales in Canada, including all channels, are up 28%. So I was trying to understand your shipments in Canada when they're normalized.

So if we look just at Canada alone for our net revenues from a retail standpoint, it would be up 20%. And this is where we see the promotional activity coming into play. That's being reflected in our gross margin as well.

Okay. And then spring is usually the period when retailers are doing their plan-a-gam reset. Cal, I was wondering if you could talk a little bit about how this new season is looking like for you in terms of shelf space at the retailers that have done their reset.

And that's specifically to Canada, Martin, or to both countries?

Yeah, if we could focus on Canada.

Okay. Well, in Canada, as you know, the distribution and convenience is fairly complete. We're present in all the major convenience and gas banners. So there's not a lot of room to grow purely from a new banner point of view, but there's still a lot of room to grow from new innovations that are launching so gaining facings also a lot of room to grow within the stores as our reps and the pepsico reps go in and take some more space in the in the flex space install displays install fridges so it's more about optimization of the execution inconvenience and gas in the grocery the in the grocery channel and drug mass there's still more room to grow there are some banners that we are that we are listing in for example we We're listing in new banners. We're optimizing new listings. For example, there are some grocery banners that only have two streams of Guru where we're listing our new innovations from last year to this, including this year. So I would say that there is more room to grow in grocery drug mass purely from a distribution point of view. But there are some optimization and improvements in executions that can be done in both channels for sure.

Okay. And, you know, can you talk a little bit about your all commodity volume and your weighted distribution in the grocery drug and mass right now? What is it at?

Yes. So convenience and gas is close to, you know, it's in the 90s. And grocery drug mass is more in the 70%. And it varies by skew and stuff. So there is much more room to grow. much more room to grow in grocery drug mass.

Okay. And last question for me. You mentioned, Carl, that Q2 seems like the momentum is continuing into Q2. Is this in Canada as well? Yeah, just clarity on that comment.

Yeah, absolutely. Spring is always a good period for us when this is the period we're launching our innovations. And as we spoke in the past, innovations are really driving the growth. Somehow the fall months or the winter months are always slower for us, not just from a seasonality point of view. We spoke about that last quarter. It seems like our product is a little bit or our consumer is a little bit more seasonal now. and a little bit more occasional. But in the spring and in the summer, when our new innovations are coming out, they consume more. So if you look at the past few years, our scan data or retail sales have been always higher in the spring and summer months. So yes, momentum continues, especially with two innovations launching in Quebec. We're very optimistic.

Okay, perfect. Best of luck.

Thank you.

Thanks. Thank you, Maxime.

The next question comes from John Zamparo with CIBC. Please go ahead.

Thank you. Good morning.

Good morning, John.

Hi, John.

I wanted to start on your new SKU. And I wonder, can you talk about the timing of the launch across different channels and across different countries? When are we going to see this in all your various channels in Canada and U.S.?

Mm-hmm. I'm going to start by saying it's going to be launching next month in Quebec only. The rest is still TBD, so I can't tell you exactly when. There is negotiations going on right now on when this could be launching, both in the U.S. and in Canada. Obviously, easy to launch online, so it's launching online as well. Yeah, so more to come on that, John. But I think the bulk of our volume will be in the short term, will be in Quebec, or it's launching in a PepsiCo distribution system.

Okay, understood. And I wonder what led to the launch of this SKU. Is there some consumer insights you're looking at that led you to want to deviate a bit from your prior product portfolio? And are you contemplating more SKUs similar to this one?

Yes, this is the first of our zero lineup. So, yes, we are contemplating more SKUs. There are very clear trends that lead to zero sugar products. I think this is across the industry, but also more functionality, right? So, This is something that's been in the works for us for a long time. We worked on the R&D and development side to make sure that we could launch a zero sugar product that does not contain any artificial sweeteners because that's against our values and against what we do. But we now have a great tasting zero sugar product that also has additional functionality. So consumer insights are very, very clear. Calgary trends are also very, very clear. And it just allows us to dial up customers dial-up energy, dial-up flavor, dial-up functionality. So it's very much aligned with trends and where a brand is going.

Okay. That's helpful. Thanks. I wanted to get to your e-com business. If you want to sustain the pace of growth that you've reached to this point, are there incremental costs you'd need to incur to continue that?

No, it would be ongoing, continuously ongoing media spend and optimizing, you know, our system. But there's no additional fixed cost or anything incremental specifically to be done.

No, I would just add that we just invested in the new website to optimize that. So that's an investment we've made in the past, which will reap benefits in the future.

But go on with your follow-up question, John. He's our specialist on e-commerce.

I was going to ask, are we right to assume that those sales are at least margin neutral, if not margin accretive overall?

Yes, you are right.

Okay. And then lastly on SG&A, or specifically, I guess, sales and marketing, can you give a range of spending for this year? I mean, I think about this in two ways. You've you're trying to spend to spur more growth, but at the same time, on previous calls, you talked about finding some efficiencies and focusing more on ROI of sales and marketing spend. So I wonder if you could just give some goalposts of what the net increase might be on a dollar basis this year versus last year.

Yeah, for sure. So from a net basis on a total standpoint for the year, it would actually be a decrease versus last year. But of course, between quarters, this is where we'll fluctuate. And like Carl had just mentioned, right, we're launching two new innovations this quarter. So of course, our Q2, Q3, where we're launching this, and there's also the brand revitalization that's coming into play. This is where you'll see it a bit peaking. But overall, you'll see a decline.

All right, that's helpful. Yes, that's helpful. I'll leave it there. Thank you very much.

Thank you, John. Thank you.

The next question comes from Sean McGowan with Roth MKM. Please go ahead.

Good morning. How are you?

Good morning, Sean. Bright and early for you. Thanks for making the call.

Oh, my God. That's the earliest we've done it for you.

I'm up every day at 4 o'clock, so no problem. Can you, Carl, any comments on market share in various regions and any trends that you can share with us there?

Yes. Momentum, I think we're looking at it from, if you look overall, market share, there's slight growth, moderate growth in Quebec over the last few weeks, few months. Momentum continues in the rest of Canada. But as I said in my remarks, the momentum that we're seeing is mainly in urban areas and is driven mainly by grocery drug masks. So that's really what we're seeing. As more experience within the Canadian market, especially in English Canada, it's becoming more and more clear that urban areas like Toronto and Vancouver, especially in the grocery drug masses where we're seeing Momentum for the right consumer for our brand. So obviously when we look at the return on investment, we can expect us to put more focus there. The exciting piece also is the momentum that we're seeing obviously with Costco, both in Canada and in the U.S., but also what we're seeing on Amazon. So there is that that is exciting for us for the future prospects. Thanks.

Okay. Some of the other energy dream companies that I talked to made this comment, and you can even see it in the Nielsen data for the U.S., that there was maybe a bit of a slowdown in the month of January, picked back up in February. Did you see any of that in your markets?

Yes, we saw a bit of a slowdown on the industry in January. That's maybe a little bit more than previous years, but January was a better month for us. So we grew faster in the industry. For us, we had slower growth as we discussed last quarter in the fall. Like last year, mainly due to price competition and changes in behaviors around December and November. But now we're confident we're back to growing much faster in the industry.

Okay, that's helpful. And, NG, you commented on the gross margin being impacted by promotional spending, but are there any cross-currents or tail or headwinds regarding input costs? Like, you know, are you still getting a benefit from lower shipping, or are there any offsets to that?

Yes, exactly, Sean. There's no – it's actually pretty stable for us from a shipping standpoint and from all the other costs standpoint for now, so that's very good news. And we're also going into dry season. So even from a transport standpoint, it's even less expensive. So it's good news overall from a cost standpoint.

Okay, great. And last question I have, what portion of your total sales at this point can you share is in wholesale clubs? And are you in clubs other than Costco?

I don't know that number by heart, Sean. Maybe in Jihad. We've never disclosed this. In Quebec, it's starting to be significant, right, because we're permanent in Costco, right? So it's starting to be more significant in Quebec. And obviously, if you look at it this month in the U.S., because we're in two rotational programs at the same time in the Midwest and L.A., It would be a larger proportion of our sales. But then, as you know, this will fluctuate from month to month because, obviously, we're confident and hopeful that we will get other rotations. But we could have months in the U.S. where we have zero sales in the club and then have months where we have a few regions altogether. So it will fluctuate a lot. But, Angie, I don't know if you have anything more precise for Sean.

No, no, it's really in Q1, we had a bit, you know, because it's really starting in Q2 with Midwest and LA. So this is where you'll see the big bump up in proportion as well. So in Q1, I wouldn't say it's significant yet.

It's really... And are you in any of the clubs other than Costco? No.

Okay. All right.

Thank you very much, Dr. Shen. Thank you, Sean. Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Carl Goyette for any closing remarks.

Thanks, everyone, for attending. Have a great day. The conference has now concluded. Thank you for attending today's presentation You may now disconnect. Thank you. Bye. Bye.

Welcome to the Guru Organic Energy First Quarter 2024 Results Conference Call and Webcast being recorded today, March 14, 2024 at 8.30 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 difficulties hearing 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, level of activity, performance, goals or achievements, or other future events or developments. As such, please take a moment to read the disclaimer on forward-looking statements on slide two of the presentation. I will now turn the call over to Carl 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, NG Seraph. For those who are following the webcast, you can turn the presentation to slide five. GRU has now achieved a fourth consecutive quarter of top line growth with solid retail channel sales in Q1, lifted by strong momentum online and in club wholesale. For comparison, Online and wholesale club markets in the U.S. are each the same size as the Canadian energy drink market. They are a growing proportion of Guru's net revenue with a strong potential for future growth. Across all three of our channels and where available, our latest innovations continue to bear fruit. This is led by our expanding punchline, which is very popular with consumers and will be reinforced by our updated brand positionings. As the year progresses, we will keep focusing on three sales channels and leverage our innovation pipeline. We will ensure our sales and marketing investments generate the best return on investment with the right tactics deployed through the right channels. Our 2024 priorities to grow sales and accelerate our return to profitability remain firmly on track. Net revenue has grown 43% this quarter. Net loss continued to decrease for the fifth quarter in a row over the same period a year ago. This is significant progress. Turning to slide six. Last week, we upgraded our online presence with a new and improved transactional Guru Energy website. This site now offers better user functionality with more interactivity and simplicity. These enhancements are expected to increase consumer conversion. The site also showcases our sleek new can design and emphasizes energy-focused brand features, such as improved focus for our punch line and metabolism boost for our new Guru Zero line. We're happy to provide these additional functionalities to our Guru consumers. Turning to slide seven, In the coming weeks, there will be a lot of activity in Canada. First, in retail, we're introducing Peach Mango Punch across Canada, supported by in-store activation initiatives and a punchy marketing campaign. Second, we will be launching the innovation we hinted last quarter. This innovation is our Zero Sugar Organic Energy Drink, the first of our new Zero Sugar Metabolism Boost product line-up. This drink combines metabolism boosts from green tea extracts with a delicious wild berry flavor. We firmly believe that our long-awaited zero-sugar energy drinks will be welcomed by existing and potential consumers alike. The initial launch planned in the coming weeks will be in Quebec at retail locations and online across Canada. Looking at the wholesale club channel in Canada, we're extremely proud to have achieved permanent status at Costco in Quebec after successful rotational programs. Now our products will be available on a regular basis. This is a meaningful foot in the door at Costco in Canada that hopefully will enable us to potentially break through outside of Quebec. Still on the topic of wholesale and now turning to the U.S. on slide eight. Q2 started on a strong note with two rotational programs at Costco in Los Angeles and in the Midwest. The first is carrying our 12-can variety pack comprised of tropical punch and fruit punch. And the other, our 15-can variety pack and complete punch lineup, including our peach mango punch. At retail, we began rolling out peach mango punch in natural food stores and other retailers in February. Whole Foods Market will lift Tropical Punch nationally in over 500 stores starting in April. This channel has shown consistent growth over the last 52 weeks. We believe that these new launches will boost the momentum and contribute to that growth. Traction on Amazon.com was particularly impressive last quarter, with an 89% increase in sales. This was mainly fueled by Black Friday, our fruit punch launch, and peach mango punch launch, including the variety pack. These launches drove repeat customers and helped us reach record levels of new-to-brand customer acquisition in January, surpassing Black Friday month, and we expect this trend to persist going forward. I will now turn the call to Ingi to discuss our financial results in more details. Ingi, over to you.

Thank you, Carl, and good morning, everyone. Turning to slide 10. Net revenue in Q1 increased by 43% year-over-year to $7.1 million. That marks the fourth consecutive quarter of net revenue growth versus a year ago. Sales in Canada grew 35% to $5.7 million, driven by increased sales velocity. In the U.S., sales grew 87% to $1.4 million, driven by ongoing online sales optimization and retail growth. Gross profit increased to $3.8 million from $2.7 million in Q1 2023. Gross margin was 52.9% compared to 53.7% for the same quarter last year, mainly due to increased promotional activity in Canada offset by less promotional activity in the U.S. SG&E was $6.1 million compared to $5.7 million in Q1 2023. As a percentage of net revenue decreased to 85% from 113% in Q1 2023. Selling and marketing expenses increased to $3.3 million from $2.9 million in Q1 2023. As we were more active on social media to promote our brand. Net loss for the first quarter decreased to $1.9 million compared to $2.6 million for the first quarter last year. Adjusted EBITDA amounted to a loss of $2 million compared to a loss of $2.6 million for the same period last year. As of January 31, 2024, Guru had cash, cash equivalents, and short-term investments of $31.2 million and unused credit facilities of another $10 million as we continue to exercise prudent financial management. Cara, back to you for concluding remarks.

Thank you, Angie. Turning to slide 12. Our positive momentum is carrying into Q2. To stimulate that momentum, we will continue to invest smartly in our core retail sales channel, but also pay attention to our online and wholesale club channels. These two additional growth drivers have remarkable upside potential, have boosted strong sales performance, and could become very significant to our revenue. As such, They deserve our attention. The bulk of our marketing spend will continue to be allocated to retail, in particular in urban areas where our brand resonates most. But as previously discussed, we will be extremely disciplined and selective in our investments in this channel by favoring a return on investment. Our innovation pipeline and new release products will also remain a priority for us. such as our Focus Punchline and our new Metabolism Boost Zero Sugar Energy Drink line. By increasing our flavor variety and emphasizing our Good Energy brand image, we hope to attract and switch more artificial energy drink consumers to the Better For You Guru brand. As we are pursuing our growth strategy, we're also working on reducing costs and accelerating our return to profitability in the coming years. In the next few quarters, we will continue to deploy our good energy strategically through actions we think will best connect with our target consumers. This will help us increase our North American market share gradually on our mission to clean up the energy drink industry. This concludes our formal remarks. I will now turn the call over to the operator for the Q&A.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Martin Landry from Stifel. Please go ahead.

Hi, good morning, Carl and Angie.

My first question, I want to talk about your revenues in Canada. There is a bit of noise in your shipments on a year-over-year basis. So I was wondering if we could focus on sales at retail to get a better picture. You know, you give us your scan data for the last 12 months. I think they're up 8% year-over-year in Canada. I was wondering if you could give us the scan data for the quarter.

Yes, I can do that, Martin.

Remember, like we talked on the last call, looking only at scan data could be misleading if you would look only at Nielsen because there are some on-track channels that are growing fast, including Costco, including Dollarama, and also including online. So when we make an adult calculation, we end up to a growth of consumption over the last quarter of around 25%, 28% in Canada. Mm-hmm.

Okay, so what you're saying is if we include your scan in the measured channel plus your sales in non-measured channels plus online sales, that would amount to an increase of 25% year-over-year in Canada for the quarter.

Yes, 28% if you want to be precise. There's obviously a little bit of calculations here, but you're close with 25%, 28%. Okay.

Okay. So then the question is, you know, if we normalize your shipments, does that mean that your inventory at PepsiCo has drawn down a little bit? How should we read your inventory levels at PepsiCo?

Indeed. Do you want to take that one? I know you made those calculations to normalize everything.

Oh, yeah, for the growth, for the growth of our net revenues. Well, it aligns actually very closely or perfectly with the consumption levels. So if you normalize all that, our growth would be around 25%.

That's for Canada, yeah.

Yeah, well, yeah, total as well.

So let's just focus on Canada, though, because the Pepsi impact was only in Canada. Yeah. So for the retail part, right? So I understand that the retail sales in Canada, including all channels, are up 28%. So I was trying to understand your shipments in Canada when they're normalized.

So if we look just at Canada alone for our net revenues from a retail standpoint, it would be up 20%. And this is where we see the promotional activity coming into play. That's being reflected in our gross margin as well.

Okay. And then spring is usually the period when retailers are doing their plan-a-gam reset. Cal, I was wondering if you could talk a little bit about how this new season is looking like for you in terms of shelf space at the retailers that have done their reset.

And that's specifically to Canada, Martin, or to both countries?

Yeah, if we could focus on Canada.

Okay. Well, in Canada, as you know, the distribution and convenience is fairly complete. We're present in all the major convenience and gas banners. There's not a lot of room to grow purely from a new banner point of view, but there's still a lot of room to grow from new innovations that are launching, so gaining facings. Also, a lot of room to grow within the stores as our reps and the PepsiCo reps go in and take some more space in the flex space, install displays, install fridges. So it's more about optimization of the execution, inconvenience, and gas. In the grocery channel and drug mass, there's still more room to grow. There are some banners that we are listing in. For example, we We're listing in new banners. We're optimizing new listings. For example, there are some grocery banners that only have two streams of Guru where we're listing our new innovations from last year to this, including this year. So I would say that there is more room to grow in grocery drug mass purely from a distribution point of view. But there are some optimization and improvements in executions that can be done in both channels for sure.

Okay. And, you know, can you talk a little bit about your all commodity volume and your weighted distribution in the grocery drug and mass right now? What is it at?

Yes. So convenience and gas is close to, you know, it's in the 90s. And grocery drug mass is more in the 70%. And it varies by SKU and stuff. So there is much more room to grow. much more willing to grow and grow through drug mass.

Okay. And last question for me. Just on, you mentioned, Carl, that Q2 seems like the momentum is continuing into Q2. You know, is this in Canada as well? Or, yeah, just to clarity on that comment.

Yeah, absolutely. Spring is always a good period for us when this is the period we're launching our innovations. And as we spoke in the past, innovations are really driving the growth. Somehow the fall months or the winter months are always slower for us, not just from a seasonality point of view. We spoke about that last quarter. It seems like our product is a little bit or our consumer is a little bit more seasonal now. and a little bit more occasional. But in the spring and in the summer, when our new innovations are coming out, they consume more. So if you look at the past few years, our scan data or retail sales have been always higher in the spring and summer months. So yes, momentum continues, especially with two innovations launching in Quebec. We're very optimistic.

Okay, perfect. Best of luck.

Thank you.

Thanks. Thank you, my friend.

The next question comes from John Zamparo with CIBC. Please go ahead.

Thank you. Good morning.

Good morning, John.

Hi, John.

I wanted to start on your new SKU. And I wonder, can you talk about the timing of the launch across different channels and across different countries? When are we going to see this in all your various channels in Canada and U.S.?

Mm-hmm. I'm going to start by saying it's going to be launching next month in Quebec only. The rest is still TBD, so I can't tell you exactly when. There is negotiations going on right now on when this could be launching, both in the U.S. and in Canada. Obviously, easy to launch online, so it's launching online as well. Yeah, so more to come on that, John. But I think the bulk of our volume will be in the short term, will be in Quebec, or it's launching in a PepsiCo distribution system.

Okay, understood. And I wonder what led to the launch of this SKU. Is there some consumer insights you're looking at that led you to want to deviate a bit from your prior product portfolio? And are you contemplating more SKUs similar to this one?

Yes, this is the first of our zero lineup. So, yes, we are contemplating more SKUs. There are very clear trends that lead to zero figure products. I think this is across the industry, but also more functionality, right? So, This is something that's been in the works for us for a long time. We worked on the R&D and development side to make sure that we could launch a zero sugar product that does not contain any artificial sweeteners because that's against our values and against what we do. But we now have a great tasting zero sugar product that also has additional functionality. So the consumer insights are very, very clear. Calgary trends are also very, very clear. And it just allows us to dial up dial-up energy, dial-up flavor, dial-up functionality. So it's very much aligned with trends and where a brand is going.

Okay. That's helpful. Thanks. I wanted to get to your e-com business. If you want to sustain the pace of growth that you've reached to this point, are there incremental costs you'd need to incur to continue that?

No, it would be ongoing, continuously ongoing media spend and optimizing, you know, our system. But there's no additional fixed cost or anything incremental specifically to be done.

Yeah, I would just add that we just invested in a new website to optimize that. So that's an investment we've made in the past, which will reap benefits in the future.

But go on with your follow-up question, John. He's our specialist on e-commerce.

I was going to ask, are we right to assume that those sales are at least margin neutral, if not margin accretive overall?

Yes, you are right.

Okay. And then lastly, on SG&A, or specifically, I guess, sales and marketing, can you give a range of spending for this year? I mean, I think about this in two ways. You've You're trying to spend to spur more growth, but at the same time, on previous calls, you talked about finding some efficiencies and focusing more on ROI of sales and marketing spend. So I wonder if you could just give some goalposts of what the net increase might be on a dollar basis this year versus last year.

Yeah, for sure. So from a net basis on a total standpoint for the year, it would actually be a decrease versus last year. But of course, between quarters, this is where we'll fluctuate. And like Carl had just mentioned, right, we're launching two new innovations this quarter. So of course, our Q2, Q3, where we're launching this, and there's also the brand revitalization that's coming into play. This is where you'll see it a bit peaking. But overall, you'll see a decline.

All right, that's helpful. Yes, that's helpful. I'll leave it there. Thank you very much.

Thank you, John. Thank you.

The next question comes from Sean McGowan with Roth MKM. Please go ahead.

Good morning. How are you?

Good morning, Sean.

Bright and early for you. Thanks for making the call.

Oh, my God. That's the earliest we've done it for you.

I'm up every day at 4 o'clock, so no problem. Can you, Carl, any comments on market share in various regions and any trends that you can share with us there?

Yes. Momentum, I think we're looking at it from, if you look overall, market share, there's slight growth, moderate growth in Quebec over the last few weeks, few months. Momentum continues in the rest of Canada. But as I said in my remarks, the momentum that we're seeing is mainly in urban areas and is driven mainly by grocery drug masks. So that's really what we're seeing. As more experience within the Canadian market, especially in English Canada, it's becoming more and more clear that urban areas like Toronto and Vancouver, especially in the grocery drug masses where we're seeing Momentum for the right consumer for our brand. So obviously, when we look at the return on investment, we can expect us to put more focus there. The exciting piece also is the momentum that we're seeing, obviously, with Costco, both in Canada and in the U.S., but also what we're seeing on Amazon. So there is that that is exciting for us for the future prospects.

Okay. Some of the other energy dream companies that I talked to made this comment, and you can even see it in the Nielsen data for the U.S., that there was maybe a bit of a slowdown in the month of January, picked back up in February. Did you see any of that in your markets?

Yes, we saw a bit of a slowdown on the industry in January. That's maybe a little bit more than previous years, but January was a better month for us. So we grew faster in the industry. For us, we had slower growth as we discussed last quarter in the fall. Like last year, maybe due to price competition and changes in behaviors around December and November. But now we're confident we're back to growing much faster in the industry.

Okay, that's helpful. And, NG, you commented on the gross margin being impacted by promotional spending, but are there any cross-currents or tail or headwinds regarding input costs? Like, you know, you're still getting a benefit from lower shipping, or are there any offsets to that?

Yes, exactly, Sean. There's no – it's actually pretty stable for us from a shipping standpoint and from all the other costs standpoint for now, so that's very good news. And we're also going into dry season. So even from a transport standpoint, it's even less expensive. So it's good news overall from a cost standpoint.

Okay, great. And last question I have, what portion of your total sales at this point can you share is in wholesale clubs? And are you in clubs other than Costco?

I don't know that number by heart, Sean. Maybe in Jihad. We've never disclosed this. In Quebec, it's starting to be significant because we're permanent in Costco. So it's starting to be more significant in Quebec. Then obviously, if you look at it this month in the U.S., because we're in two rotational programs at the same time in the Midwest and L.A., It would be a larger proportion of our sales. But then, as you know, this will fluctuate from month to month because, obviously, we're confident and hopeful that we will get other rotations. But we could have months in the U.S. where we have zero sales in the club and then have months where we have a few regions altogether. So it will fluctuate a lot. But, Angie, I don't know if you have anything more precise for Sean.

No, no, it's really in Q1, we had a bit, you know, because it's really starting in Q2 with Midwest and LA. So this is where you'll see the big bump up in proportion as well. So in Q1, I wouldn't say significant yet.

It's really... And are you in any of the clubs other than Costco? No.

Okay. All right.

Thank you very much. Talk to you soon. Thank you, Sean.

This concludes our question and answer session. I would like to turn the conference back over to Carl Goyette for any closing remarks.

Thanks, everyone, for attending. Have a great day.

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