Wildpack Beverage Inc.

Hi, everyone, and welcome to Wildpac's 2023 quarter one earnings call and live corporate webinar. This is Elijah Clare, Vice President, Investor Relations for Wildpac. Wildpac is listed on the Toronto Stock Exchange or the TSXV under the symbol CANS, C-A-N-S. Joining us today are Wildpac CEO Mitch Bernard, CFO Ryan Mason, and CGO Thomas Walker. At the end of this presentation, management will address questions. If you're interested in asking questions and haven't done so already, please forward them to invest at wildpackbev.com. We will answer them in a timely fashion. Please note this presentation is being recorded today, July 26, 2023, and will soon be made available on the company's website, investor.wildpackbev.com. Before we begin, please remember our comments and responses reflect management's views as of today, July 26, 2022, and that during the course of the call, management may make forward-looking statements. Our statements involve various known and unknown risks and uncertainties, which may prove to be incorrect, and actual results may 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. Our first quarter, 2023, results were announced prior to this webinar at all 5 p.m. Eastern time, July 25th, 2023, via press release and CDR filing. We encourage you to have the press release in front of you, which includes our financial results, metrics, and commentary. On the quarter and year, our all currency amounts discussed in the presentation are USD unless otherwise stated. Today's agenda will begin with Mitch providing an overview and highlights of the first quarter of 2023, followed by Ryan reviewing the financials to provide detailed insights into how our financial position is maturing to support our long-term strategy. And lastly, Thomas will discuss the growth in our sales. I'll now turn the presentation over to Wildpac's Chief Executive Officer, Mitch Bernard.

Thanks, Eli, and to all those who are joining us live and those that are going to listen to the reporting later. Thus far in 2023, leadership has remained focused on sales, co-packing operations, and financing. We set quarterly records in both confirmed sales orders and cans filled in the first quarter, which set us up well to complete a $25 million senior secured convertible financing with Santon following the close of the quarter. Confirmed sales orders reached record high in the second quarter of $22.9 million, which is approximately 116% year-over-year growth. Filled cans reached a record high in the first quarter of 7.8 million, which is approximately a 200% growth from the year prior. Confirmed sales orders and filled cans are an important leading indicator for our business because of how impactful operating leverage is in growing gross margin. A larger pipeline provides us greater flexibility as we scale utilization and filling demand is a heavy driver of demand in our decorating, brokering, and printing segments. With these initiatives meeting expectations, we have focused heavily on business infrastructure that connects confirmed sales orders to revenue, like inventory, shipping and receiving, project management, as a few examples. It's a good time to stop and pause and remind ourselves that what we're trying to do is solving an exceptionally challenging supply chain problem with no out-of-the-box solution. In fact, many businesses who have tried to master the complexities of the middle market supply chain have failed. Being an all-in supplier for more than 1,200 brands and almost 7,200 SKUs per year creates significant critical craft pressure, which if not managed perfectly can lead to errors, downtime, and elevated costs for not only us, but our partners. Fortunately, like most big problems, those who solve them are rewarded for their suffering with competitive advantages and disproportionate returns. We expect this disruption to be no different and all indications are there are that we're nearing the end of the tunnel and a speck of light is visible. We have typically focused on building solutions to these infrastructure bottlenecks in technology, so that we can replicate those as we scale across our business. We have also focused on developing those in line with the customer experience, which is congruent with what a 2023 business person's expectations are, that they're digital and simple. We strongly believe that the end state for a business like ours is that a customer primarily interacts with our system directly, and human intervention is only required to troubleshoot unpredictable problems. We remain steadfast in our commitment to turn this blue sky concept into a reality for our customers, and we're dedicated to doing the hard work and grinding the long yards that it takes to get there. Profit remains the only income statement metric that our leadership team talks about. With an increase in top line revenue driven by production throughput, we have seen expansion at the gross margin line beginning to flow through, which is the first step driving towards the focus of profitability. We know that gross margin has to expand substantially more to cover our generally stagnant SGA costs. Fortunately, that makes the profitability analysis mostly simple. Increased throughput on the existing fixed cost footprint. This focus has and will continue to take up most of management's bandwidth in the foreseeable future. The remainder will be spent on compression of the costs predominantly in the direct cost bucket. We have started to undertake requests for proposal across our supply chain, which have yielded some early wins, and we expect an ability to drive per unit costs down as our economies of scale continue to grow. The final thought that I will leave you with is that we've cultivated a culture at Wildpact that I believe is unrivaled in our industry for sure, and perhaps more broadly across many industries. We have a team of young, hungry, and immensely intelligent people across each segment of our business. Our tenacious pack first mentality has made things possible that most external observers said could never be done. Everything from installing a fully automated line in two weeks to rebuilding an entire division in a month. It probably sounds a little crazy, but I can honestly say that I love my 80-hour work weeks, mostly because I get to spend them with this team who truly inspire me every moment that we're together. We are building something special, and while I recognize it's taking a lot longer than we all hoped, I remain convicted that it will be worth the wait. With that, I'll pass it to Ryan, who will take you through the numbers, and then ultimately Thomas, who will give you some insights into our sales and growth. Thanks.

Thank you, Mitch. Our financials in Q1 reflect the improvements Mitch outlined we're building towards in the last earnings call. Revenues amounted to $12.61 million in the three-month period ended March 31, 2023, and $8.53 million for the three-month period ended March 31, 2022. Revenue increased approximately 48% through an increase in utilization and total volume. Plant utilization on the quarter was 39.3%. The 136% increase in manufacturing utilization to 39.3% in the three-month period ended March 31, 2023, comes from 16.6% in the comparable period in the prior year, which is a result of operational improvements and increased customer demand. Cost of sales amounted to $12 million in the three-month period ended March 31, 2023, and $8.49 million for the comparable period in the prior year. Cost of sales increased 41% due to increased throughput and in line with the overall increase in revenue. The company had a net loss of $5.52 million for the three-month period ended March 31, 2023, and $5.54 million for the comparable period in the prior year. The decrease in net loss period over period is the result of elevated gross profit from additional sales. As at March 31st, 2023, the company had a working capital deficit of $19.09 million, a cumulative deficit of $65.546 million, and cash and cash equivalents of $1.188 million. During the period ended March 31, 2023, the company incurred a net loss of $5.524 million and generated cash from operations of $458,000. Please review our filed first quarter financial statements for a complete review of all financial information. I'll now turn it over to Thomas Walker, our Chief Growth Officer, to discuss the company's additional first quarter achievements.

Thanks, Ryan. Good afternoon, everyone. Thanks for joining on the call today. Firstly, I would like to share some exciting updates about our sales performance. For the first quarter of 2023, we saw strong growth momentum as our customer confirmed orders grew 36.5% month over month, or quarter over quarter, sorry. This growth was primarily driven due to the continued growth in our co-packing and our brokering divisions. We've seen continued success with our business development team as we added 169 new customers over the period and saw our pipeline also increase significantly. We are seeing continued growth opportunities as we improve and grow our capacity and capabilities. Looking ahead, we are positive about the company's growth prospects. We have several new offering launches lined up for the rest of the year, and we continue to focus on expanding our brokering network and adding capacity to our co-packing division. Furthermore, we've also begun to focus on customer analysis to improve profitability and efficiency. This will help us continue to improve our profit margins in the coming quarters. Once again, I'd like to thank you for your continued support and commitment to our company. Our strong performance this quarter is the result of our strategic vision, our dedicated team, and our unwavering commitment to delivering exceptional products to our customers. We look forward to updating you on growth for the rest of the year. Eli, I'll turn it over to you.

Great. Thanks a lot for the commentary and the insight, Thomas, Mitch, and Ryan. One thing that we do want to point out is that our statements are filed with CDAR. CDAR is currently undergoing an upgrade, so... We've been assured that they will be published imminently. We will publish them on our website as well after this call. We do have one question from Corbett Lockman, investor. Comment here, impressive growth of sales, production volume, plant utilization, and customer orders in quarter one, 2023. Revenue is up 50% compared to Q1, 2022, but total revenue was 44% less than total cost. Realistically, how will WildPak become cash flow positive this year? Mitch, I don't know if you have any insight into that. I can take that.

So, you know, if you look at the quarter over quarters as revenues growing, especially in the called like fixed asset based sections of our business, co-packing and decorating. You saw gross margin expand. And so as we drive those throughputs up on those assets without increasing the overall cost of those assets, which again, most of them are fixed. So they won't expand as we continue to throughput because obviously there's extra utilization capacity on those assets. You should see gross margin continue to expand. So realistically, like I said, kind of in my portion of the, For us, we know that the key to unlocking the gross profit that we need to cover are, again, quasi-stagnant. SG&A costs is to grow gross margin, and the way that we do that is through throughput. So that's the main focus. The trend line of profitability is approximately $60 million of revenue per year, which we're trending towards. Obviously, if you look at the last couple of quarters and you plot it, You can see that trend line. And with operating in the low 40% utilization universe on our fixed asset base, there's lots of room for us to achieve that goal. So the long and the short of it is we need to put more cans through our fixed assets, which will increase gross margin as a percentage and obviously as a complete number, which covers your SG&A and therefore that takes you to cash flow positivity.

Thanks, Mitch. Um, another question from, uh, Sean McGowan at Roth MKM partners, um, asks plant utilization. Um, you know, I was kind of been tracking on the KPIs has been 40 to 41% thus far in Q2. Do you have a target for the second half? Um, I don't know if, uh, Mitch, you want to have some comments on that?

Yeah, I can do that. Um, No, we haven't guided, you know, what we plan or utilize. Obviously, we're trying to grow it at a rate that, like I again said in the presentation, that the infrastructure around it can handle. Because ultimately, you know, we could turn a switch with our demand curve right now and try to produce, you know, a lot more cans. But the infrastructure around it, frankly, isn't sophisticated enough to do that. So while we're not guiding, I think, you know, we're on an annual basis, we're hoping for in the mid-60s coming out of 2023. So that gives you a good idea of what we think will happen by the end of the year. How that hits in Q3 versus Q4 obviously is largely up to how quickly we can scale the infrastructure. But it's in and around a 2% to 5% per month kind of growth rate in the second half of the year is what we're looking at to get to that goal. And obviously, There are some differences with utilization as we press release, we increase the capacity of our Baltimore plant on the co-packing side, which has some impact on on what theoretical call it can throughput could be, which impacts utilization, but it doesn't increase materially the overall cost structure because it's within the same facility. So the utilization curves will be a little bit different, but really like looking at the amount of production that we're doing, I think is a really good way to look at it because you can backwards your way into that 60 ish million dollar

revenue run rate that's relevant. Great. Thanks so much for the comments, Mitch.

I'm just going to hop over and see if anybody else has got anything in the chat here. Another follow-up question from Sean. It's just asking, can you quantify how much gross margins would go up for kind of like every, talk about the operating leverage of that utilization and what you would expect there? It's not linear, but if you have, I don't know if Ryan or Mitch, if you have comments there.

Yeah, no, I think we're going to hold back on commentary on that because like I said, I think that, no, it's a bit of a fluid calculation. So yeah, I don't really want to comment on it because it wouldn't be a well-thought-out answer. We can do some thinking about it and decide if it makes sense to guide as it relates to that expansion, and then we can get back to you. But off the cuff, A, I don't know the answer, and B, I don't know that we want to do it because of how fluid it can be.

Definitely.

Thanks so much. That's the cap on the questions that we have in externally. Once the Financials are made live on our website. If there are any additional questions, we encourage you to use the email address, invest at wildpackdev.com. We will respond to those questions. We're happy to set up calls and we appreciate the continued support. With that, we will conclude the call. Thanks so much.