Wildpack Beverage Inc.

Hello, everyone, and welcome to WildPak Beverages' second quarter 2021 earnings call and live corporate webinar. This is David Vidalla from RBMG. WildPak is listed on the TSX Venture Exchange under the symbol C-A-N-S. Joining us today are WildPak CEO Mitch Barnard, their CFO Ryan Mason, and COO Chuck Sadlow. who will be going through WildPak second quarter earnings. This will include an overview of current operations, recent achievements, and upcoming milestones. At the end of the presentation, management will address questions. If you are interested in asking a question and haven't done so already, please forward them to wildpak at rbmilestone.com, and we will answer them in a timely fashion. Please note, This presentation is being recorded today, Tuesday, August 31st, and will soon be made available on the company's website. Before we begin, please remember that during the course of this call, management may make forward-looking statements. These statements are based on management's current expectations and beliefs and involve various known and unknown risks and uncertainties, which may prove to be incorrect and actual results could differ materially from those described in these forward-looking statements. Please refer to the text in Wildpac's press release and financial filings issued yesterday for a discussion of the risks and uncertainties associated with such forward-looking statements. Please note that the company is under no obligation to update any forward-looking statements discussed today, except as required by applicable law, and investors are cautioned not to place undue reliance on these statements. Lastly, RBMG is not a registered investment advisor or broker dealer. For more information, please visit rbmilestone.com. I will now turn the call over to Mitch Barnard, CEO of Wild Pack Beverage, Inc.

Mitch. Thanks, David. Good afternoon, everybody. Welcome to Wild Pack's Q2 2021 earnings webcast. I'm joined today by my CFO, Ryan Mason, and COO, Chuck Zadlow. Our Q2 results were announced yesterday at about 4 p.m. Eastern time being August 30th via press release and CDAR filing. Today, for reference, all currency amounts discussed will be in U.S. dollars unless expressly stated. Our second quarter was successful from a realized growth perspective by increasing revenue by 26% quarter over quarter. notably before any of our recently disclosed acquisitions hit our P&L. More importantly, though, we continue to establish the base from which Wildpac will realize on significant opportunities by building to solve the four primary problems for our customers and ultimately build on long-term strategic advantage. Those four problems that we've identified and set out to solve are number one, the lack of available manufacturing capacity, number two, Supply chain complexity due to disconnected services and vendors. Number three, high costs resulting primarily from shipping costs and production inefficiency. And finally, four, access to a sustainable RTD packaging alternative to plastic and glass. As these problems are solved in accordance with our strategic business plan through our build and buy investments, we expect to see ongoing sustained growth in our top line with a disproportionate increase to our bottom line. The key achievements of our second quarter, being those that moved us closer to solving these problems, include in the bucket of lack of manufacturing capacity, we completed our go public transaction, which creates a more efficient platform from an M&A and fundraising perspective to execute on our geographically diversified facility roll-up strategy. Our dedicated M&A team through a maturing assessment template entered into three letters of intent for new manufacturing facilities, which to date has materialized into two completed acquisitions, the first being our Marietta, Georgia location, and the second being our location in Longmont, Colorado. Our build team is designing, planning, and allocating capital to the addition of three decorating lines within existing facilities, which to date has resulted in the completion of a line in our Baltimore, Maryland facility, and the start of the build in our Las Vegas, Nevada facility. And finally, we've onboarded key experienced, skilled operational personnel, including Chuck Zadlow, our COO, who you will hear from shortly today, that have begun optimizing our existing operations to achieve increased throughput and simultaneously decrease scrap. Moving on to the customer supply chain complexity bucket, we successfully deployed a new ERP that binds all of our existing facilities into a single system creating the framework for new facilities and manufacturing lines to be integrated. We've onwarded key technological personnel, including Matt Cope, our director of technology, that have accelerated the development of our customer portal that will eventually provide our customers with unparalleled insights into their supply chain by integrating directly with our ERP and our external partners. And finally, we've internalized another aspect of our customer's vertical supply chain, by commencing construction on the Las Vegas printing division, which will result in the sleeves that are used in our decorating division to be designed, printed, and applied more effectively and in a much more timely manner. In the decreased customer total product cost bucket, we have moved from two to five facilities and seen our customers avail themselves on access to facilities on the east and west coast and in between to decrease shipping costs to market for finished goods. We've increased our total enterprise consumption of key inputs, such as aluminum cans, for example, which allows us to negotiate better pricing from our vendors, which can ultimately be passed on to our customers. And finally, we've moved filling, decorating, and standing aluminum can inventory into the same facilities, which removes the need for several shipments by our customers and thereby reduces their total product costs. And finally, in the addressing sustainability bucket, We've increased the market's manufacturing capacity for the aluminum can, which requires the least greenhouse gas emissions, has the highest recycle rates among consumers, and contains the highest recycled content with respect to glass and plastic. And finally, we've begun to develop operational ESG policy with the intention of reporting ESG KPIs commencing in 2022. Looking forward though, management remains relentlessly focused on our primary growth goals of reaching six facilities by the end of 2021 and 12 by the end of 2022. This growth is expected to primarily occur via acquisition as our growth team has a deep pool of targets identified in key geographic regions that are amenable to joining WILDPAC. Up to today, out of prudence related to the speed of our growth, management has not provided guidance except for that related to facility count over the next 16 months. We expect to be in a position where we can begin to provide guidance on key operating metrics, such as cans filled, cans decorated, cans brokered, on a 12-month forward-looking quarterly basis beginning in Q3 to 4 of this year. We will then follow that up with full guidance commencing in the first quarter of 2022. To conclude, WildPak is currently executing on time and on budget against its strategic business plan, by focusing entirely on building a platform that can integrate new facilities efficiently and comfortably handle operating them as our scale continues to accelerate via acquisitions. This is largely due to the spectacular individuals who have seen what WildPak is building and jumped in with both feet across every division of our business. Getting this many industry leaders and doers excited about middle market beverage manufacturing speaks to the fact that what we are striving to achieve

transcends the actual business we operate within i would now like to turn it over to ryan mason our chief financial officer who will discuss our q2 financial results thank you mitch q2 was a strong quarter for wild pack beverage inc with an increase of 26 in revenue over quarter one 2021 a successful debenture issuance and our public listing revenues were 8.135 million and 6.433 million for the second quarter ended June 30th, 2021 and the first quarter ended March 31st, 2021 respectively. Revenue increased in the second quarter of fiscal 2021 due to filling and decorating volume improvements. Listing expense was $748,253 and nil for the second quarter ended June 30th, 2021 and the first quarter ended March 31st, 2021 respectively. Listing expense originates from the completion of the transaction with Ponderous Panda Capital Corp. Please reference note six in the interim condensed consolidated financial statements for the six month periods ended June 30th, 2021 and 2020. Positive adjusted EBITDA was approximately 184,000 and 156,000 for the second quarter ended June 30th, 2021 and the first quarter ended March 31st, 2021 respectively. Adjusted EBITDA increased in the second quarter of fiscal 2021 from Q1 due to initial throughput within the Las Vegas facility offsetting overhead expenses. The company had a net loss of $2.038 million and $888,770 for the second quarter ended June 30, 2021 and the first quarter ended March 31, 2021 respectively. The net loss increased in Q2 from Q1 2021 due to some alignment of salaries with the market value for comparable public entities, stock-based compensation, listing expenses, and interest on leased assets from operations. Our balance sheet remains strong with 40.467 million in total assets. The company had 15.02 million of cash and a networking capital surplus of 16.99 million. We continue to explore opportunities to minimize our interest payments in cash and enhance our liquidity to support our strategic growth goals. During the three months ended June 30th, 2021, the company raised 8.32 million in equity and another 15.20 million through a public offering of convertible debentures. These debentures have a four-year term maturing June 30th, 2025, 8% interest, which is payable quarterly. The proceeds in part were used to complete our public listing and in acquisitions of CraftPak LLC and Vertical Distilling LLC. I'll now turn it over to Chuck Sadlow, Chief Operations Officer, to expand on our efforts operationally.

Thank you, Ryan. As Mitch indicated earlier, second quarter was busy operationally as well. I'm excited to have joined the Wild Pack team and proud of the work we have accomplished, planting the seeds for long-term success and the growth of our organization. The past quarter's primary focus can be defined by three critical objectives. Targeted M&A, the build-out of operational capability, and the continued recruitment and development of our key leaders. Significant work this past quarter was taken to integrate our recent acquisitions to ensure minimal interruption and strengthen our culture, as well as improving a bit of each acquired organization. To date, our two recent acquisitions are cash flow positive, and we continue to prescribe operational improvements as needed to further growth. Operations buildouts continue to add capacity and capabilities that further enhance our ability to meet our customers' expectations while delivering meaningful improvement to the top and bottom lines. With the recent key hires in our operations leadership team, we have multiplied our ability to provide leadership and execution on future acquisitions and our continued capability and build-outs. I'm confident our early investments will only enhance our operations and lead to improved profitability. Our filling lines in Baltimore and Las Vegas and decorating lines in Baltimore and Sacramento continue to be improved by reducing downtime and labor hours. Our efforts here are ongoing and we will continue to allocate resources to projects that add value. During the quarter, the Las Vegas facility's second line was in the commissioning phase with intent of ramping up to 300,000 gallons a month upon its completion. We have yet to determine a timeline for adding a filling line at our Marietta location. However, we do see the Southeast region, the United States, the key market for our co-packing business. Our decorating business enjoyed record production numbers from both Baltimore and Sacramento, and my head is off to those teams for all their hard work to date. During the quarter, the company continued progress on the following planned expansions. installation of a second decorating line in the Baltimore facility, installation of a decorating line in the Las Vegas facility, and upgrades for the first line in Baltimore, including approved conveyance. The second decorating line in Baltimore, Las Vegas, and Marietta are on schedule and on budget. These new decorating lines each have expected monthly production in excess of 2 million cans and will require less manual labor than previous lines. Management has refined the decorating line design, reducing the number of OEMs, allowing for the development of a standard maintenance program. The standardization will reduce the complexity of our supply chains for sourcing various critical spare parts. Lastly, we are planning a pilot project to test an internal printing line to begin integrating production of our shrink sleeves, which are a component of our decorated cans, and that will improve margins in need times. management plans for initial printing production to begin December 2021.

Thank you, Chuck. Thank you, gentlemen. We will now begin the Q&A portion of this webinar. My first question is for Mitch and or Ryan. Would you like to elaborate on favoring spending on building geographic footprint versus increasing production capacity in Baltimore? As I assume there is some capacity constraint, is the addition of the second decorating line going to resolve that issue?

David, Mitch Bernard here. I'll answer that. Who is the question from just so that I could respond to their name?

On this one, I... Do not have their name in front of me.

Okay. Yeah, no problem. Just a second. No, that's all right. You can top it up at the end. So thanks a lot for the question. You know, when we're looking at all of our capital allocation decisions, we're guided by our strategic business plan always. That's our true north. And we really want to focus on doing every, all the things that we do are really focused on solving those four problems I identified earlier. With respect to the contemplation of adding geography versus isolated capacity, adding geography serves a higher priority in our strategic business plan. And it ultimately drives end product costs down for our customers by having a network of near end distribution facilities to select from as a manufacturing partner. So that creates a more enduring advantage for WildPak. And in capital allocation decisions, there's a heavier weighting a preference towards projects that provide enduring solutions to long-term problems versus near-term problems. In this very specific instance, the decision to add an additional decorating line to Baltimore was made because our decorating business operates on lead time norms that, because we've been so busy and seeing such overwhelming demand, we were starting to hit the upper limits of what we deem to be acceptable service standards. So that resulted in an atypical outcome to our capital allocation analysis. So again, while typically speaking, our capital decisions are skewed to the long term, there are going to be instances such as this one where we need to be nimble, allocate resources, solve near-term problems, which also drive sustaining success or growth towards solving those four strategic problems. problems that we're trying to solve for our customers.

Gotcha. Sorry, Mitch. That was from Ben Jekic of PI Financial. Okay. Thanks, Ben. Yeah. All right. Here's our next question from Sean McGowan of Roth Capital Partners. Is there anything in the results that is unusual or unlikely to repeat? Can you provide details on adjusted EBITDA? Clarify the current share count.

Ryan Mason speaking. Thank you for the question, Sean. The startup costs related to Las Vegas and the listing expenses are unlikely to repeat. In this management discussion analysis, we prepared adjusted EBITDA calculation, which normalized out the startup expenses related to the Las Vegas facility, which included maintenance staff overtime, travel, and equipment rental. We considered other startup expenses, but did not normalize for them, which included training expenses, salaries, wages, and benefits for production management and maintenance staff, production tools and supplies, and rent expense. And this would be for the during the ramp up period of the business. You can see the fulsome disclosure in the MD&A in section 1.5 for the full reconciliation of adjusted EBITDA. Our current share count is 66.854 million, and additional details can be included around compensation shares, warrants, RSUs, stock options, et cetera, in section 2.1 of the MD&A analysis.

Thank you, Ryan. We have now a few questions from Martin Landry Stiefel, and I'm going to ask them in a series, and here is the first one. Can you give more color on your most recent acquisition? How does the client base overlap with your existing relationships? And what is the potential for additional cross-selling opportunities?

Yeah, Mitch Bernard here. I'll answer that one. Thanks a lot, Martin. The two guiding principles in all acquisitions, including the two that we've just closed on, is that... A, they need to be located in key geographic regions, and B, we need them to be accretive on a pre-synergy basis in kind of all reasonable sensitivity ranges. The interesting thing that we've noticed in kind of getting to the second point of your question is that, and frankly, what we've noticed, it lends itself as support for our overarching thesis around shipping cost attribution for our customers, really driving vendor selection. is that we've seen a significant customer overlap with targets, including those that we've acquired. This makes sense when you think about it from 10,000 feet, because a lot of our larger customers are nationally distributed brands that work with a number of manufacturing partners in geographic regions near end distribution to reduce shipping costs. Patrick Baur, And that's what we've seen, and so there is a you know overlap with those large customers in the acquisitions that we've completed and some that we're looking at. Patrick Baur, So this you know really you know it's it's kind of exciting for us because it provides strong evidence that you know our thesis. Patrick Baur, That we can leverage existing relationships for more work in new regions, because you know our partners are already operating in those regions. You know, it's a great benefit to our M&A strategy and it also provides our customers with the added advantage of shrinking their vendors and simplifying their supply chain. So it's really a win-win for us and our customers and really supports our growth strategy.

Great answer. All right, here's Martin's second question. Are you finding it difficult to staff your facilities? One of your strategies is to increase capacity by adding production shifts. There has been significant media attention about labor shortages and how are you coping with that situation?

I'll take that question. This is Chuck Zadlo speaking. Yeah, so to date, we have not been impacted by labor shortage. Our talent acquisition strategy really offers competitive compensation and benefits, and we've really worked hard to foster a great culture at Wild Pack that allows us to attract and retain talent across our operations. You know, lastly, we saw essential worker status for our business, which allowed our employees access early on to vaccines during the COVID lockdowns, and that enabled us to keep operations running. That really, you know, limiting our pandemic-related turnover allowed us to be on great footing for 2021.

Thank you, Chuck. Martin's last question. With regards to your... With regards to your... consolidation strategy, are you seeing other consolidators in the mid-market space currently which you could bump into during your bidding processes?

Mitch Bernard, again, I'll answer that. In short, we're not. We haven't yet been in a competitive process, and the targets that we have in the pipeline uh if they're you know leading indicators we don't envision that we will in the near term in fact you know having proprietary deal flow uh internally generated by our m a team is one of the keys to our m a strategy success the you know the reason why i think we're having a lot of success in that space um and specifically why we're not going to a lot of people is that you know the middle market beverage manufacturing space is You know, difficult to assess from an M&A perspective, unless you're deeply immersed into its intricacies. And that seems to be creating a meaningful barrier for non-traditional or sorry, I guess, traditional non-industry consolidators from entering and competing with us on, you know, acquisitions. So originally, kind of to move along that point, we had thought that this was going to change as we moved up the value chain and were up the ladder to larger, more profitable targets. And we kind of thought that we'd be finding ourselves in bigger bidding processes with more competition, which would drive up multiples. But as of today, and again, only speaking to the pipeline that we're looking at right now, that thesis has actually been disproven. And we think that You know, we see a very clear runway of potential targets in non-competitive processes over the next 16 months.

OK. All right. Well, that concludes the Q&A portion of the call. I will now turn it over to Mitch for any closing remarks.

Yeah. Thanks, David. Really appreciate you moderating. And thanks to everybody and specifically my colleagues for joining me today and everybody who tuned in to listen and those that will listen later on. But most importantly, I want to congratulate the entire wild pack team on a successful second quarter. We've been, you know, accelerating at a very rampant rate. We've been asking a lot of our folks and you know they've been delivering on all accounts and you know this success is really, you know, more attributed to them than the people that are on this right now. We're very excited about. the acquisitions that we've announced and what they're going to do following this quarter, both being cash flow positive from the get-go, those being the Georgia and Colorado acquisitions. And we do anticipate a modest phased-up expansion of those facilities over the coming quarters. We intend to record an updated investor presentation in the near term, which we will put on our website. And we look forward to continuing to update You know, everybody on this call and those that listen to it on our ongoing build and buy strategic advances and the, you know, existing five operating facilities that we currently have in the U.S. So I'd like everyone to have a great day. And David, that terminates the call.

All right, well, thank you, Mitch, Ryan, and Chuck. And thank you, everyone, for joining today's webinar. Today's webinar recording will soon be made available on WildPak's website. If you have any additional questions that have not been addressed on this webinar, please feel free to email us at wildpak at rbmilestone.com. Again, that's wildpak at rbmilestone.com. Thanks again. You're now free to disconnect.