GURU Organic Energy Corp.

Welcome to the Guru Organic Energy Second Quarter 2024 Results Conference Call and Webcast, being recorded today, June 13, 2024, at 10 a.m. Eastern Time. At this time, all participants are in a listen-only mode. Following management's presentation, there will be a question-and-answer session with financial analysts. Instructions will be provided at that time for you to queue up for questions. If anyone has any 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, Angie Serath. For those who are following the webcast, you can turn the presentation to slide five. Guru has now achieved its fifth consecutive quarter of stop-line growth with net revenue of $8 million and a 19% increase in year-to-date net revenue to reach $15.1 million. This was achieved despite the inventory adjustments by our exclusive Canadian distributor, which impacted Q2 net revenues. U.S. sales were the primary driver behind the quarter's performance, increasing 143% to $2.7 million. Top performing channels were the Wholesale Club and Amazon, where Guru ranks as the number one organic energy drink. Our performance in the U.S. market is another indication that our differentiated brand has the potential to grow at a faster pace. Retail sales also performed well in Quebec and at select grocery banners in major urban centers in other Canadian provinces, which I'll discuss in more detail on the next slide. While our Q2 results were impacted by inventory adjustments by our exclusive Canadian distributor, underlying demand for our energy drinks remained strong in most of our sales channels. We're also seeing good momentum with the recent launch of Peach Mango Punch and our first zero-sugar product, Zero Wild Berry. These innovations delivered a record-breaking performance in a leading grocery banner, reaching a combined market share of 5.2% in the first few weeks. Turning to slide six, Guru continues to lead as one of the fastest growing brands in Canada, outside of Quebec, in both dollar and unit sales growth over the last 52 weeks. Consumer demand in both tracked and untracked channels grew 18% in the first half of the year. This result is backed by increased sales in the wholesale club and general merchandise channels, which reached a remarkable 32% market share in Quebec in the last 12 weeks. fueled by our excellent growth at Costco. We believe this strong performance will create new opportunities in other Canadian provinces. Another remarkable achievement is reaching 17% market share on Amazon in Canada. In addition, our latest innovations are performing at record levels. Zuru has gained over 2% market share in Quebec in the last two months, with the launch of Peach Mango Punch and Zero Wild Berries. This includes a combined market share of 3.2% of these two innovations, surpassing the performance of our fruit punch innovation last year. Major urban centers, such as Toronto and Vancouver, are showing a solid performance, outperforming their provincial counterparts, roughly doubling our market share in these urban areas versus remainder of province. This insight supports our strategic decision to focus on key urban hubs across Canada. As we look forward, our confidence in the Canadian market outlook through 2024 remains high, supported by the aggressive launch of two innovations, strong execution at the store level and robust displays programs nationwide, all complemented by targeted marketing programs and strategic brand ambassador partnerships. On the social media side, for example, we began using our new voice, along with our revitalized brand for the launch of Peach Manga Punch. This initiative achieved highest engagement to date, particularly in key urban centers such as Vancouver and Toronto, further validating our decision to target these hubs. Q3 2024 will also be the subject of our exciting brand revitalization coming to life. across our entire Guru line as the new packaging starts to appear at retail. Let's turn to our strong U.S. performance on slide seven. Q2 results in the U.S. were driven by continued strong performance on Amazon and our two rotational programs at Costco in Los Angeles and in the Midwest. Sales on Amazon more than doubled versus same period last year, driven by the recent launch of Fruit Punch and Peach Mango Punch. Nearly 50% of our customers on Amazon were repeat customers with very high levels of loyalty to the Guru brand. The number of Guru customers on Amazon is also steadily increasing each quarter as we continue to attract a growing number of new-to-brand consumers. On the retail side, we completed our two US rotational programs at Costco in Q2. Based on the valuable lessons we've learned, We are committed to further developing and strategically targeting the channel. By focusing our efforts here, we can continue to drive growth and confident that we will secure other rotations or roadshows in the future. Whole Foods Market listed Tropical Punch in over 500 stores nationwide in April. We believe this listing, along with the recent launch of Fruit Punch and Peach Mango Punch in many natural food banners, will help continue momentum in this segment and contribute to growth. This is supported by the latest SPINS numbers for the natural food channel, which show a 10% rise for the last 52 weeks period, and a faster 14% jump in the latest four weeks versus the prior period. Whole Foods' 52-week trend is also accelerating based on its most recent 12-week performance of 11%. Finally, in the fall, based on the most recent success of the launch of Zero Wild Berry in Canada, we will be launching, in the U.S., Zero Wild Berry, along with two new flavors. We have high expectations since the zero sugar category has performed extremely well in the U.S., and our two new products offer clear differentiation with natural caffeine, zero sucralose, and zero aspartame. I will now turn the call to Ingi to discuss our financial results in more details. Angie, over to you.

Thank you, Carl, and good morning, everyone. Turning to slide nine. Net revenue in Q2 increased to $8 million from $7.7 million a year ago, despite inventory adjustments by our exclusive Canadian distributor. Sales in the U.S. grew by 143% to $2.7 million from $1.1 million in Q2 2022. driven by a significant increase in the wholesale club channel and on Amazon, where Guru ranks as the number one organic energy drink. In Canada, sales decreased to $5.2 million from $6.6 million in Q2 2023, primarily as a result of inventory adjustments at our exclusive Canadian distributor. Gross profit increased to $4.5 million from $4.1 million in Q2 2023. Gross margin rose to 55.8% compared to 53.1% for the same quarter last year, driven by pricing dynamics as well as a reduction in input costs. SG&E was $7.5 million compared to $7.1 million in Q2 2023. Selling and marketing expenses increased marginally to $4.9 million from $4.7 million in Q2 2023 as the company started the marketing campaign for the new products launched in Canada and supported the U.S. Wholesale Club rotational program with in-store activations. Net loss for the second quarter totaled $2.7 million, similar to the same quarter last year. The stable net loss primarily reflects the higher net revenues and gross profits realized in Q2 2024, offset by the launch of de-innovations. Adjusted EBITDA amounted to a loss of $2.7 million compared to a loss of $2.5 million for the same period last year. As at April 30, 2024, Google had cash, cash equivalent, and short-term investments of $28.2 million and unused credit facilities of $10 million. We believe that the ongoing prudent management of our financial resources will contribute greatly to our goal of an accelerated return to profitability.

Well, back to you for concluding remarks.

Thank you, Angie. Turning to slide 11. As we pursue growth, we will also accelerate our return to historical profitability. We have a long runway of self-funded growth. We are focused on strategically deploying resources and capital where we can deliver tangible results and a return on investment, which will drive our return to profitability. We will also continue to actively explore the untapped potential of online and wholesale club channels in Canada and in the U.S., which have delivered solid results over the last three quarters. Our innovation pipeline has been a growth driver and will continue to be a priority for us. Early reviews of our zero wild berries energy drink has been extremely positive, and we're looking forward to launching the full line of this zero sugar category in the fall in the U.S. Our 25 years in the business have shown the power of our strong and differentiated brand to drive unmatched customer loyalty as we convert and connect with consumers. Our job is to make sure we are focusing on the right channels and strategies for our brand to achieve this on a North American scale. We believe that we are on the right track to achieve our goals as we maintain our long-term objectives 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 touchtone phone. 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 with Stifel.

Please go ahead.

Hi. Good morning, guys. Good morning, Matthew. Good morning, Matthew. Carl, in your opening remarks, I believe you touched on your retail sales, all channels, and I think you said they were up 18% for the first six months. I was wondering if you can give us the performance of your retail sales for the quarter that you just reported.

Yes, retail sales for the quarter. The 18% is, just to make sure we're clear, Martin, the 18% is our estimates of consumer demand when we look at track and on-track channels for the company in total. Because as we discussed last quarter, there's a little bit of a channel shift as we are growing in untracked channels like Costco, Dollarama, and online on Amazon. So I think it's really important to set that. So for the quarter, if you're looking specifically at scan data for the quarter, that's the information you would want to have?

No, no.

Consumer demand for the quarter in Canada would be around 7% in Canada, much stronger in the U.S. obviously. Over 100% in the U.S.

Okay, just to be clear, your retail sales, all channels plus your online sales in Canada were up 7% in the quarter. Yep. Okay, cool. And is it fair to say that your market share... So when we look at your market share... You know, it's stable to down a little bit despite a significant entrant in the market. So, I mean, it looks to me like you've been able to defend your market share pretty nicely. How do you see your market share evolve for the remainder of the year? Just a bit of, you know, color that would be helpful.

Yeah, well, for sure. I think this is something that's really important to cover, and we're quite proud. Obviously, we're used to seeing our market share grow, and now we've seen more stability. If I look at the last two periods, Martin, the last two periods, our market share is at 4.6%, which is exactly the same as it was last year in Canada. So it's stability from a market share point of view in track channel. So this is scan. Obviously, if you add on track to this, we would be growing more. So that's the one thing that's important. Where this becomes, I think, remarkable is the fact that there has been several new entrants, right? There's not just one, but there has been six. So Canada used to be isolated from the other smaller brands or other new entrants from the U.S. Now they've all come to Canada, whether it's Celsius, Alany, Ghost, C4, Prime, Rainstorm. So considering six new brands have entered the market over the last year, Being able to maintain our market share is for us something that's really remarkable, especially when you look at other legacy brands, which have like Monster is down 3%, market share Red Bull is down 2%. So they have been the shareholders and we have been more resilient to that. I think the other piece that's important, obviously, where we have insights is when we look at our consumer share. This is looking at consumers and consumers who try our product, who have purchased over the past six months. And when we look at past consumers who have purchased Guru in the past six months, we're seeing a consumer share of 7%. So the brand is healthy. The brand is growing. There is a little bit of noise because of growth in on-track channel. Our success in Costco is creating some channel shifts. But overall, we're pleased with how our brand is resonating with Canadian consumers.

Okay, that's helpful. And then maybe my last question is just to – I'd like to get a clear understanding of your – the rollout of your products in the geographies because – There's a lot of moving parts, and I may be a bit, you know, I just want a bit of clarity. So you've got your peach mango innovation and your zero wild berry. I believe that we're launching Quebec. I would like to know when that's going to be launched in Canada. Also, when are these going to be launched in the U.S.? Now you've talked about a new zero sugar, two new zero sugar flavors that will be launched in the U.S., when are these going to be launched in Canada, Quebec, Canada? So if it'd be possible to just have a little bit of a timeline as to what's going to be launched when for the next year, that'd be super helpful.

Yeah, that's fair. That's our question.

So to give you clarity, the zero line, so anything zero sugar will be launched in the U.S. in September of 2024, starting with online. So that's clear. So all of the zero sugar, so three new products launching in the U.S. in September. That's the first. Then the zero line, we're also going to launch in the rest of Canada next year. The date is not exactly set because obviously we're in discussions with our exclusive distributor to find the right timing for this. But it should be in the spring like our usual launches.

Is that clear, Martin? Yeah, and then your peach mango?

The peach mango has been launched everywhere. Peach mango is available in Canada and the U.S.

Okay, perfect. Okay, that's it for me. Thank you. Thanks.

Thanks, Martin.

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

Thank you. Good morning.

Hi, John.

Good morning. I want to better understand the inventory reductions and I guess what emerged this quarter. Can you quantify what that was and is this current level of inventory the new standard and if that's the case, should we expect this to be a headwind for the next three quarters?

Yeah. It's obviously a fair question. It's not always easy for us to understand all this because it's fair for our partners to adjust their inventories and they optimize all the time. So it's hard to predict. We don't have full visibility on this, but I would say that obviously 80% of the decline that we saw in Q2 is due to inventory adjustments. So you can kind of quantify that. I think that's the best I can give you. So if you look at the decline, 80% of that would be inventory adjustments. Okay. And then to your later part of your question, hard to say. It's really hard to say. We keep track of how much they ship versus what we ship to them. So that's kind of helpful. But sometimes there will be new variations whenever there's a new listing. So it's hard to predict. But we don't expect a huge shift in inventory moving forward. That I can tell you. But we did not anticipate this reduction in Q2. Hopefully, they increase a little bit more in Q3, which they did last year, but they may not do that this year. They have a lot more history with our brand. I guess they can be better at optimizing the level of inventories they need. As long as they don't run out of stock, they should be as efficient as possible. They're not, right? They always have enough. We're not facing out of stock. They're not running out of product. And they're trying to run a tight machine, which is fair for them.

Okay, that's helpful. I want to better understand the comment about accelerating a return to historical profitability. How should we interpret that? Does that mean lower SG&A returns? in the near or medium term, or are you referring to an expectation of accelerating sales growth? I wonder how it is we're supposed to interpret that and what kind of timeline you're thinking about.

Of course, we want profitability to come from growth. With our healthy growth margin, I think this is the primary driver for a return to profitability. But in the context of slower growth, then obviously we would reduce in SG&E. mainly from a sales and marketing investment, but we still have some room to optimize from an admin point of view. Despite the fact that we're a publicly traded company, we're trying to run this business in a very lean way. I don't know if Angie wants to comment on that, but she's the one driving the lean business.

Yes. I would just add that that's exactly also what you're seeing from a gross margin standpoint, where we're making sure as much as possible to review periodically and very often everything that has to do with our input costs and any fixed costs we have in place. So, yes.

Okay, and sticking with gross margin, can you talk about some of the puts and takes? It was up meaningfully. I wonder what you're expecting rest of the year given the rising cost of aluminum, but any thoughts there would be helpful.

Yeah, we've seen aluminum prices, to your point, rise in the past few years, pre- and post-pandemic. However, what we've put in place are annual contracts. So from a short-term standpoint, we're in good standing. Of course, it could impact us in the future, but we always look exactly for annual contracts or depending on what's going on with price to make sure we're sheltered from these. For the rest of the gross margin, yeah, we saw some, we're very proud of the improvements that we saw in Q2 and even from a year-to-date standpoint. And this is really a mix of pricing dynamic and also product mix and input cost. So we expect for the remainder of the year to be, you know, it could vary from a couple of points, but to be within the average that we've seen so far.

Does that help? Just to clarify, so back half of the year you figure can be around the average of year-to-date?

Yes. Exactly. Yes. Got it.

Okay. And then just one more, and it's a broader question on your thoughts with the zero sugar category. And I wonder, given what you've seen so far, could this offering for Guru evolve to the point where you have as many zero SKUs as you do traditional SKUs? And maybe that's a longer term timeline, but do you see an opportunity there given how incremental it is or how much demand there is for that category?

Well, one thing for sure is that there's a movement towards zero sugar. And that's true for all beverages. So I think that's... Now, would it come to a point where we have... It's hard to say right now. We're developing a line. We have three products that are ready to launch. They all taste great. And we think that this is enough to win in the short term. So having the punchline... which has been very successful for us with the focus functionality, having the zero line with the boost metabolism functionality, and having our original line to keep with the good energy. I think we have a robust portfolio to win in the short term, right? So in the longer term, I think it'd be fair to say that in the longer term, most innovations will come into zero sugar because this is where the market is going, right? So... But we don't plan on using sucralose and aspartame like our competitors are doing. We want to do zero sugar with healthy ingredients. And maybe that's why we came in a little bit later. We wanted to make sure we can develop healthy products that have zero sugar, and we have them now. And so far, if we look at the feedback from consumers on the wild berry in Quebec and their performance in wild berry in Quebec, it's very encouraging. Like, it's... Wildberry is now outselling Peach Mango from units per store per week. It's outselling in most banners. Peach Mango is growing fast. We think it's going to be more incremental. So, yes, we're very enthusiastic about the zero-sugar line, but it's hard to predict in the future. We'll be focused in the next year on making sure the line, both in Canada and the U.S., is a very big success, and we'll go from there.

Okay, very good. I will leave it there. Thank you very much.

Thanks.

Thank you.

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

Thank you. Good morning. Good morning, Sean.

Hi, Sean.

Hi, Angie. I wanted to circle back to the inventory questions. Quite a bit of investor value destroyed this week, right? by inventory reductions from a certain distributor. So I'm just wondering, what do you think is triggering the timing now? This is a sophisticated company that has been in this business for a century or whatever. Why all of a sudden are they saying, well, are they seeing a slowing in the category? Do they think they just had too much? Or what do you think is driving that timing of this reduction in inventory? Yeah.

Yeah. I know you're referring to some of our competitors being impacted. It's hard to comment on that. For us, although it's having a big impact on a quarter-to-quarter, but on the long term, if you look at the absolute magnitude of this, considering the size of the PepsiCo business, it's a small adjustment for them. Although it's very significant when you look at a quarter for Guru, it's it's very, very small for PepsiCo, right? So I wouldn't try to read too much into it and I can't comment on this. All I could say is I think it's fair for them to optimize their business. And why would they, you know, if you're running a DSD machine, why would you carry more inventory than you need? For me, as long as they're, as I said, as long as they're not running out of stock and they have enough product to fulfill the orders for our retailers and our consumers, um, good for them if they can run the tighter inventory.

Obviously, we would love to be able to predict it. I would have thought that a year ago, they would have had a pretty good idea of how much they needed. I'm wondering what causes a change. More importantly, if they've made the adjustment now, echoing an earlier question, is it Is it going to be a heaven, or could you say, like, okay, it's done, and now the level of inventory is appropriate to what they see as the demand, and we wouldn't really be repeating this conversation in 90 days?

It's hard to say, right? Keep in mind we're in the spring. We carry a lot of brands, a lot of product. They're preparing for the summer. They might need the space for other brands. They need to make a space. More and more products are launching. The inventory, the warehouse space may not be growing as fast as the number of brands coming in. I don't know. We would have to ask them. We need to ask them. I really can't give you more information on that. Obviously, it's having an impact on our Q2 results, but in the long term and in our story... This is just a quarter, right? So we need to look at the long-term story and do we see the industry changing? Do we see consumers going for healthier products? Do we see Canadians going for Guru and other better-for-you beverage brands? Absolutely. So in the long term, this is what matters. In the short term, obviously, it's a little bit painful, but it's the nature of the business. This is extremely competitive and it's a complex industry.

Okay. Good segue to my next question, and that is that another thing that's come up again in the last couple of weeks that might have affected some of your competitors is concern over the ingredients. There was a study published in the highly reputable Daily Mail pointing to some energy drinks possibly as a fuel for colon cancer. There was another story of a guy who You know, I have liver problems. Who knows what else he was putting in his Celsius. But do you feel like the market is kind of moving toward your sweet spot here of, you know, coming to a recognition that, hey, you know, we've got to be a little bit more concerned about what we're putting in our body and, you know, the emergence of zero, et cetera. Do you feel like, you know, you just kind of you were so far ahead and the market is actually coming to you now?

Well, we can almost say, like, finally. We've been at this for 25 years, Sean. Like, this is down to our DNA, what we do in life, right?

We firmly believe that in the two weeks to change, it makes no sense that consumers are consuming artificial ingredients that come from a lab when really they can get the same benefits, the same taste, the same functionality from ingredients that come from nature, right? So this is what we do. This is what we believe. So obviously, I'm glad you're asking the question. So for me, like more noise around nasty ingredients and artificial energy drinks is positive, right? Obviously, I think there is an acceleration of this, mainly because of social media. Somehow, the algorithm on Instagram and TikTok seems to be loving this type of stuff. So if you just go on TikTok and Instagram and Google that, there is incredible In research, there's an increasing number of all sorts of very controversial information on energy drinks, right? Some of it is true, and to be fair, some of it is not true, right? Some of this information is exaggerated, but in reality, there's increased noise around the negative effects of artificial energy drinks. So obviously, we believe that in the long run, this is going to be beneficial for us because that's what we do, right? The other thing we do, which is obviously part of our social media strategy, we have access to tools that track consumer sentiment, right? So consumer sentiment and how they react. And we see that our brand sentiment and consumer sentiment about our brand is significantly more positive than any other brand. Consumers are really saying positive things around Guru and negative things around our competitors. Yes, I see the same industry news. I see the same articles, Sean. And every time I see them, I think it can only help fuel our growth. And it doesn't seem to be impacting the category so much because if you look at the category, the category is still growing. And we're glad the category is growing because this is ultimately going to give us more consumers to grab for a healthier alternative.

Okay. Thank you. Last question. This would be for NG, I think. Do you think there's – or can you quantify any kind of drive if there is any to the gross margin percentage increase that could be coming from channel shift? Is that a contributing factor?

Not so much. No, Sean, I wouldn't expect so much. Maybe very little, but nothing significant, really.

I would expect that it's really because of the product cost And the only thing about channel shift, no, I'm going to take that back. The only thing about channel shift is, yes, the pricing that we could sometimes be able to capture or demand in various channels. But other than that, it's mostly just the dynamic in the market and, of course, product mix from an input cost standpoint where we really work hard on as well.

Okay, great. Thank you very much.

Thank you.

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. Thank you, Annalise, for all your questions, and see you on next quarter.

Have a great day. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. Thank you. Thank you. Bye. Thank you Welcome to the Guru Organic Energy Second Quarter 2024 Results Conference Call and Webcast, being recorded today, June 13, 2024, at 10 a.m. Eastern Time. At this time, all participants are in a listen-only mode. Following management's presentation, there will be a question-and-answer session with financial analysts. Instructions will be provided at that time for you to queue up for questions. If anyone has any 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, Njie Serath. For those who are following the webcast, you can turn the presentation to slide five. Guru has now achieved its fifth consecutive quarter of stop-line growth with net revenue of $8 million and a 19% increase in year-to-date net revenue to reach $15.1 million. This was achieved despite the inventory adjustments by our exclusive Canadian distributor, which impacted Q2 net revenues. U.S. sales were the primary driver behind the quarter's performance, increasing 143% to $2.7 million. Top performing channels were the wholesale club and Amazon, where Guru ranks as the number one organic energy drink. Our performance in the U.S. market is another indication that our differentiated brand has the potential to grow at a faster pace. Retail sales also performed well in Quebec and at select grocery banners in major urban centers in other Canadian provinces, which I'll discuss in more detail on the next slide. While our Q2 results were impacted by inventory adjustments by our exclusive Canadian distributor, underlying demand for our energy drinks remained strong in most of our sales channels. We're also seeing good momentum with the recent launch of Peach Mango Punch and our first zero-sugar product, Zero Wild Berry. These innovations delivered a record-breaking performance in a leading grocery banner, reaching a combined market share of 5.2% in the first few weeks. Turning to slide six. Guru continues to lead as one of the fastest growing brands in Canada, outside of Quebec, in both dollar and unit sales growth over the last 52 weeks. Consumer demand in both tracked and untracked channels grew 18% in the first half of the year. This result is backed by increased sales in the wholesale club and general merchandise channels, which reached a remarkable 32% market share in Quebec in the last 12 weeks. fueled by our excellent growth at Costco. We believe this strong performance will create new opportunities in other Canadian provinces. Another remarkable achievement is reaching 17% market share on Amazon in Canada. In addition, our latest innovations are performing at record levels, who has gained over 2% market share in Quebec in the last two months, with the launch of Peach Mango Punch and Zero Wild Berries. This includes a combined market share of 3.2% of these two innovations, surpassing the performance of our fruit punch innovation last year. Major urban centers, such as Toronto and Vancouver, are showing a solid performance, outperforming their provincial counterparts, roughly doubling our market share in these urban areas versus remainder of province. This insight supports our strategic decision to focus on key urban hubs across Canada. As we look forward, our confidence in the Canadian market outlook through 2024 remains high, supported by the aggressive launch of two innovations, strong execution at the store level and robust displays programs nationwide, all complemented by targeted marketing programs and strategic brand ambassador partnerships. On the social media side, for example, we began using our new voice, along with our revitalized brand for the launch of Peach Mango Punch. This initiative achieved highest engagement to date, particularly in key urban centers such as Vancouver and Toronto, further validating our decision to target these hubs. Q3 2024 will also be the subject of our exciting brand revitalization coming to life. across our entire Guru line as the new packaging starts to appear at retail. Let's turn to our strong U.S. performance on slide seven. Due to results in the U.S., we're driven by continued strong performance on Amazon and our two rotational programs at Costco in Los Angeles and in the Midwest. Sales on Amazon more than doubled versus same period last year, driven by the recent launch of Fruit Punch and Peach Mango Punch. Nearly 50% of our customers on Amazon were repeat customers with very high levels of loyalty to the Guru brand. The number of Guru customers on Amazon is also steadily increasing each quarter as we continue to attract a growing number of new-to-brand consumers. On the retail side, we completed our two U.S. rotational programs at Costco in Q2. Based on the valuable lessons we've learned, We are committed to further developing and strategically targeting the channel. By focusing our efforts here, we can continue to drive growth and confident that we will secure other rotations or roadshows in the future. Whole Foods Market listed Tropical Punch in over 500 stores nationwide in April. We believe this listing, along with the recent launch of Fruit Punch and Peach Mango Punch in many natural food banners, will help continue momentum in this segment and contribute to growth. This is supported by the latest SPINS numbers for the natural food channel, which show a 10% rise for the last 52 weeks period and a faster 14% jump in the last latest four weeks versus the prior period. Whole Foods' 52-week trend is also accelerating based on its most recent 12-week performance of 11%. Finally, in the fall, based on the most recent success of the launch of Zero Wild Berry in Canada, we will be launching, in the U.S., Zero Wild Berry, along with two new flavors. We have high expectations since the zero sugar category has performed extremely well in the U.S., and our two new products offer clear differentiation with natural caffeine, zero sucralose, and zero aspartame. I will now turn the call to Ingi to discuss our financial results in more details. NG, over to you.

Thank you, Carl, and good morning, everyone. Turning to slide nine. Net revenue in Q2 increased to $8 million from $7.7 million a year ago, despite inventory adjustments by our exclusive Canadian distributor. Sales in the U.S. grew by 143% to $2.7 million from $1.1 million in Q2 2022. driven by a significant increase in the wholesale club channel and on Amazon, where Guru ranks as the number one organic energy drink. In Canada, sales decreased to $5.2 million from $6.6 million in Q2 2023, primarily as a result of inventory adjustments at our exclusive Canadian distributor. Gross profit increased to $4.5 million from $4.1 million in Q2 2023. Gross margin rose to 55.8% compared to 53.1% for the same quarter last year, driven by pricing dynamics as well as a reduction in input costs. SG&E was $7.5 million compared to $7.1 million in Q2 2023. Selling and marketing expenses increased marginally to $4.9 million from $4.7 million in Q2 2023 as the company started the marketing campaign for the new products launched in Canada and supported the U.S. Wholesale Club rotational program with in-store activation. Net loss for the second quarter totaled $2.7 million, similar to the same quarter last year. The stable net loss primarily reflects the higher net revenues and gross profits realized in Q2 2024, offset by the launch of de-innovations. Adjusted EBITDA amounted to a loss of $2.7 million compared to a loss of $2.5 million for the same period last year. As at April 30, 2024, Google had cash, cash equivalent, and short-term investments of $28.2 million and unused credit facilities of $10 million. We believe that the ongoing prudent management of our financial resources will contribute greatly to our goal of an accelerated return to profitability.

Carl, back to you for concluding remarks.

Thank you, NG. Turning to slide 11, as we pursue growth, we will also accelerate our return to historical profitability. We have a long runway of self-funded growth. We are focused on strategically deploying resources and capital where we can deliver tangible results and a return on investment, which will drive our return to profitability. We will also continue to actively explore the untapped potential of online and wholesale subchannels in Canada and in the U.S., which have delivered solid results over the last three quarters. Our innovation pipeline has been a growth driver and will continue to be a priority for us. Early reviews of our zero wild berry energy drink has been extremely positive, and we're looking forward to launching the full line of this zero sugar category in the fall in the U.S. Our 25 years in the business have shown the power of our strong and differentiated brand to drive unmatched customer loyalty as we convert and connect with consumers. Our job is to make sure we're focusing on the right channel and strategies for our brand to achieve this on a North American scale. We believe that we're on the right track to achieve our goals as we maintain our long-term objectives 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 touchtone phone. 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 with Stifel.

Please go ahead.

Hi. Good morning, guys.

Good morning, Matthew.

Good morning, Matthew. Carl, in your opening remarks, I believe you touched on your retail sales, all channels, and I think you said they were up 18% for the first six months. I was wondering if you can give us the performance of your retail sales for the quarter that you just reported.

Yes, retail sales for the quarter. The 18% is, just to make sure we're clear, Martin, the 18% is our estimates of consumer demand when we look at tracked and untracked channels for the company in total. Because as we discussed last quarter, there's a little bit of a channel shift as we are growing in untracked channels like Costco, Dollarama, and online on Amazon. So I think it's really important to set that. So for the quarter, if you're looking specifically at scan data for the quarter, that's the information you would want to have?

No.

Consumer demand for the quarter in Canada would be around 7% in Canada. Much stronger in the U.S., obviously. Over 100% in the U.S.

Okay, just to be clear, your retail sales, all channels plus your online sales in Canada were up 7% in the quarter.

Yep.

Okay, cool. And is it fair to say that your market share... So when we look at your market share... You know, it's stable to down a little bit despite a significant entrant in the market. So, I mean, it looks to me like you've been able to defend your market share pretty nicely. How do you see your market share evolve for the remainder of the year? Just a bit of, you know, color that would be helpful.

Yeah, well, for sure. I think this is something that's really important to cover, and we're quite proud. Obviously, we're used to seeing our market share grow, and now we have seen more stability. If I look at the last two periods, Martin, the last two periods, our market share is at 4.6%, which is exactly the same as it was last year in Canada. So it's stability from a market share point of view in track channel. So this is scan. Obviously, if you add on track to this, we would be growing more. So that's the one thing that's important. Where this becomes, I think, remarkable is the fact that there have been several new entrants, right? There's not just one, but there have been six. So Canada used to be isolated from the other smaller brands or other new entrants from the U.S. Now they've all come to Canada, whether it's Celsius, Alany, Ghost, C4, Prime, Rainstorm. So considering six new brands have entered the market over the last year, being able to maintain our market share is for us something that's really remarkable, especially when you look at other legacy brands, which have like Monster is down 3%, market share Red Bull is down 2%. So they have been the shareholders and we have been more resilient to that. I think the other piece that's important, obviously, where we have insights is when we look at our consumer share. This is looking at consumers and consumers who try our product, who have purchased over the past six months. And when we look at past consumers who have purchased Guru in the past six months, we're seeing a consumer share of 7%. So the brand is healthy. The brand is growing. There is a little bit of noise because of growth in on-track channel. Our success in Costco is creating some channel shifts. But overall, we're pleased with how our brand is resonating with Canadian consumers.

Okay, that's helpful. And then maybe my last question is just to – I'd like to get a clear understanding of your – the rollout of your products in the geographies because – There's a lot of moving parts, and I may be a bit, you know, I just want a bit of clarity. So you've got your peach mango innovation and your zero wild berry. I believe that we're launching Quebec. I would like to know when that's going to be launched in Canada. Also, when are these going to be launched in the U.S.? Now you've talked about a new zero sugar, two new zero sugar flavors that will be launched in the U.S., when are these going to be launched in Canada, Quebec, Canada? So if it'd be possible to just have a little bit of a timeline as to what's going to be launched when for the next year, that'd be super helpful.

Yeah, that's fair. That's our question.

So to give you clarity, the zero line, so anything zero sugar will be launched in the U.S. in September of 2024, starting with online. So that's clear, right? So all of the zero sugar, so three new products launching in the U.S. in September. That's the first, right? Then the zero line, we're also going to launch in the rest of Canada next year. The date is not exactly set because obviously we're in discussions with our exclusive distributor to find the right timing for this.

But it should be in the spring like our usual launches. Is that clear, Martin? Yeah, and then your peach mango?

The peach mango has been launched everywhere. Peach mango is available in Canada and the U.S.

Okay, perfect. Okay, that's it for me. Thank you. Thanks.

Thanks, Martin.

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

Thank you. Good morning.

Hi, John.

Good morning. I want to better understand the inventory reductions and I guess what emerged this quarter. Can you quantify what that was and is this current level of inventory the new standard and if that's the case, should we expect this to be a headwind for the next three quarters?

Yeah. It's obviously a fair question. It's not always easy for us to understand all this because it's fair for our partners to adjust their inventories and they optimize all the time. So it's hard to predict. We don't have full visibility on this, but I would say that obviously 80% of the decline that we saw in Q2 is due to inventory adjustments. So you can kind of quantify that. I think that's the best I can give you. So if you look at the decline, 80% of that would be inventory adjustments. Okay. And then to your later part of your question, hard to say. It's really hard to say. We keep track of how much they ship versus what we ship to them. So that's kind of helpful. But sometimes there will be new variations whenever there's a new listing. So it's hard to predict. But we don't expect a huge shift in inventory moving forward. That I can tell you. But we did not anticipate this reduction in Q2. So hopefully, you know, hopefully they increase a little bit more in Q3, which they did last year, but they may not do that this year, right? So they have a lot more history with our brand. We have more. So I guess they can be much more, they can be better at optimizing, right, the level of inventories they need. So as long as they don't run out of stock, they should be as efficient as possible. They're not, right? They always have enough. We're not facing out of stock. They're not running out of product. and they're trying to run a tight machine, which is fair for them.

Okay, that's helpful. I want to better understand the comment about accelerating a return to historical profitability. How should we interpret that? Does that mean lower SG&A in the near or medium term, or are you referring to an expectation of accelerating sales growth? I wonder how it is we're supposed to interpret that and what kind of timeline you're thinking about.

of course we want we want profitability to come from growth with our healthy gross margin i think this is the primary driving driver for return to profitability but uh in a context of slower growth and obviously we would reduce in sgna right mainly from a sales and marketing investments but we still have some room you know to optimize on an admin point of view despite the fact that we're a publicly traded company we're trying to run on this business on a very lean way in a very lean way right and I don't know if Angie wants to comment on that, but she's the one driving the lean business.

I would just add that that's exactly also what you're seeing from a gross margin standpoint, where we're making sure as much as possible to review periodically and very often everything that has to do with our input costs and any fixed costs we have in place. So, yes.

Okay, and sticking with gross margin, can you talk about some of the puts and takes? It was up meaningfully. I wonder what you're expecting rest of the year given the rising cost of aluminum, but any thoughts there would be helpful.

Yeah, we've seen aluminum prices, to your point, rise in the past few years, pre- and post-pandemic. However, what we've put in place are annual contracts. So from a short-term standpoint, we're in good standing. Of course, it could impact us in the future, but we always look exactly for annual contracts or depending on what's going on with price to make sure we're sheltered from these. For the rest of the gross margin, yeah, we're very proud of the improvements that we saw in Q2 and even from a year-to-date standpoint. And this is really a mix of pricing dynamic and also product mix and input cost. So we expect for the remainder of the year to be, you know, it could vary from a couple of points, but to be within the average that we've seen so far.

Does that help? Just to clarify, so back half of the year, you figure can be around the average of year-to-date?

Yes. Exactly. Yes.

Got it. Okay. And then just one more, and it's a broader question on your thoughts with the zero sugar category. And I wonder, given what you've seen so far, could this offering for Guru evolve to the point where you have as many zero SKUs as you do traditional SKUs? And maybe that's a longer term timeline, but do you see an opportunity there given how incremental it is or how much demand there is for that category?

Well, one thing for sure is that there's a movement towards zero sugar. and that's true for all beverages. So I think that's... Now, would it come to a point where we have... It's hard to say. Right now, we're developing a line. We have three products that are ready to launch. They all taste great, and we think that this is enough to win in the short term. So having the punchline, which has been very successful for us with the focus, um functionality having the zero line with the boost metabolism functionality and having our original line to keep with the good energy i think we have we have a robust portfolio to win in the short term right so in the longer term i think it'd be fair to say that in the longer term most innovations will come into uh will come into zero sugar because this is where the market is going right so But we don't plan on using sucralose and aspartame like our competitors are doing. We want to do zero sugar with healthy ingredients. And maybe that's why we came in a little bit later. We wanted to make sure we can develop healthy products that have zero sugar, and we have them now. And so far, if we look at the feedback from consumers on the wild berry in Quebec and their performance in wild berry in Quebec, it's very encouraging. Like, it's... Wildberry is now outselling Peach Mango from units per store per week. It's outselling in most banners. Peach Mango is growing fast. We think it's going to be more incremental. So, yes, we're very enthusiastic about this zero-sugar line, but it's hard to predict in the future. We'll be focused in the next year on making sure the line, both in Canada and the U.S., is a very big success, and we'll go from there.

Okay, very good. I will leave it there. Thank you very much.

Thanks. Thank you.

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

Thank you. Good morning. Good morning, Sean.

Hi, Sean.

Hi, Angie. I wanted to circle back to the inventory questions. Quite a bit of investor value destroyed this week, right? by inventory reductions from a certain distributor. So I'm just wondering, what do you think is triggering the timing now? This is a sophisticated company that has been in this business for a century or whatever. Why all of a sudden are they saying, well, are they seeing a slowing in the category? Do they think they just had too much? Or what do you think is driving that timing of this reduction in inventory? Yeah.

Yeah. I know you're referring to some of our competitors being impacted. It's hard to comment on that. For us, although it's having a big impact on a quarter-to-quarter, but on the long term, if you look at the absolute magnitude of this, considering the size of the PepsiCo business, it's a small adjustment for them. Although it's very significant when you look at a quarter for Guru, it's very, very small for PepsiCo, right? So I wouldn't try to read too much into it and I can't comment on this. All I could say is I think it's fair for them to optimize their business. And why would they, you know, if you're running a DSD machine, why would you carry more inventory than you need? For me, as long as they're, as I said, as long as they're not running out of stock and they have enough product to fulfill the orders for our retailers and our consumers, um, Good for them if they can run the tighter inventory, right? Obviously, we would love to be able to predict it.

Go ahead. I would have thought that a year ago they would have had a pretty good idea of how much they needed. And, you know, so I'm wondering what causes a change. And a follow-up, more importantly, if they've made the adjustment now, you know, again echoing an earlier question, is it Is it going to be a heaven, or could you say, okay, it's done, and now the level of inventory is appropriate to what they see as the demand, and we wouldn't really be repeating this conversation in 90 days?

It's hard to say. Keep in mind, we're in the spring. We carry a lot of brands, a lot of product. They're preparing for the summer. They might need the space for other brands. They need to make a space. More and more products are launching. The inventory, the warehouse space may not be growing as fast as the number of brands coming in. I don't know. You would have to ask them. You need to ask them. I really can't give you more information on that. Obviously, it's having an impact on our Q2 results, but In the long term and in our story, this is just a quarter. So we need to look at the long-term story and do we see the industry changing? Do we see consumers going for healthier products? Do we see Canadians going for Guru and other better-for-you beverage brands? Absolutely. So in the long term, this is what matters. In the short term, obviously, it's a little bit painful, but it's the nature of the business. This is extremely competitive and it's a complex industry.

Okay. Good segue to my next question, and that is that another thing that's come up again in the last couple of weeks that might have affected some of your competitors is concern over the ingredients. There was a study published in the highly reputable Daily Mail pointing to some energy drinks possibly as a fuel for colon cancer. There was another story of a guy who You know, I have liver problems. Who knows what else he was putting in his Celsius. But do you feel like the market is kind of moving toward your sweet spot here of, you know, coming to a recognition that, hey, you know, we've got to be a little bit more concerned about what we're putting in our body and, you know, the emergence of zero, et cetera. Do you feel like, you know, you just kind of you were so far ahead and the market is actually coming to you now?

Well, we can almost say, like, finally. We've been at this for 25 years, Sean. Like, this is down to our DNA, what we do in life, right?

We firmly believe that in the two weeks to change, it makes no sense that consumers are consuming artificial ingredients that come from a lab when really they can get the same benefits, the same taste, the same functionality from ingredients that come from nature, right? So this is what we do. This is what we believe. So obviously, I'm glad you're asking the question. So for me, like more noise around nasty ingredients and artificial energy drinks is positive, right? Obviously, I think there is an acceleration of this mainly because of social media. Somehow, the algorithm on Instagram and TikTok seems to be loving this type of stuff. So if you just go on TikTok and Instagram and Google that, there seems to be In research, there's an increasing number of all sorts of very controversial information on energy drinks, right? Some of it is true, and to be fair, some of it is not true, right? Some of this information is exaggerated, but there's increased noise around the negative effects of artificial energy drinks. So obviously, we believe that in the long run, this is going to be beneficial for us because that's what we do, right? The other thing we do, which is obviously part of our social media strategy, we have access to tools that track consumer sentiment, right? So consumer sentiment and how they react. And we see that our brand sentiment and consumer sentiment about our brand is significantly more positive than any other brand. Consumers are really saying positive things around Guru and negative things around our competitors. Yes, I see the same industry news. I see the same articles, Sean. And every time I see them, I think it can only help fuel our growth. And it doesn't seem to be impacting the category so much because if you look at the category, the category is still growing. And we're glad the category is growing because this is ultimately going to give us more consumers to grab for a healthier alternative.

Okay. Thank you. Last question. This would be for NG, I think. Do you think there's – Oh, can you quantify any kind of drive if there is any to the gross margin percentage increase that could be coming from channel shift? Is that a contributing factor?

Not so much. No, Sean, I wouldn't expect so much.

Maybe very little, but nothing significant, really. I would expect that it's really because of the product cost. And the only thing about channel shift, no, I'm going to take that back. The only thing about channel shift is, yes, the pricing that we could sometimes be able to capture or demand in various channels. But other than that, it's mostly just the dynamic in the market and, of course, product mix from an input cost standpoint where we really work hard on as well.

Okay, great. Thank you very much.

Thank you.

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. Thank you, Annalise, for all your questions, and see you next quarter. Have a great day.

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