Welcome to the GURU Organic Energy second quarter 2023 results conference call and webcast, being recorded today, June 14th, 2023 at 10:00 A.M. Eastern Time. At all participants in listen-only mode. Following the management's presentation, will be a question and answer session with financial analysts. Instruction will be provided at time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press star, followed by zero for the operator, assistance at any time. GURU press release, MD & A, and financial statements are available in the investor section of the website and on SEDAR+. During the call, the company may refer to certain non-GAAP measures. Reconciliations are available in the MD & A. Also note that all financial figures are expressed in Canadian dollars unless otherwise indicated. I would also like to remind you that today's presentation may contain forward-looking statements about GURU's current and future plans, expectations and intentions, results, levels of activity, performance goals or achievements, or other further future events or developments. Please take a moment to read the disclaimer on forward-looking statements on slide two of the presentation. I'd like to turn the call over to Mr. Carl Goyette of GURU, Financial Executive Officer. Please go ahead, sir. Thank you, operator. Bonjour a tous. Good morning, everyone, and welcome to our earnings call. Joining me this morning is our CFO, Ingy Sarraf. For those who are following the webcast, you can now turn the presentation to slide 5. First off, we are pleased with our results for this quarter on several levels. GURU's Q2 net revenue of CAD 7.7 million was the best Q2 in our history, with Theanine Fruit Punch having a strong impact on our performance. Our latest innovation, Theanine Fruit Punch, was officially launched in Canada in March with our Punch Up Your Mind national marketing campaign. This campaign included in-store displays, promotions, and activations, combined with digital, social media, and influencer engagement. As a result, Theanine Fruit Punch achieved remarkable results in its first month, including becoming the industry's most successful launch in the last 2 years, with over 3% market share in Quebec. Our targeted marketing campaign also helped grow sales velocities in major Canadian urban centers, which had a positive impact on our performance in Q2. Moreover, Theanine Fruit Punch and Guayusa Tropical Punch are now ranked among the top 3 innovations in Quebec since the beginning of the year. We see this as a testament to our ability to create great-tasting products for health-conscious energy drink consumers, which bodes well for our future product launches. Turning to slide 6. During this last quarter, our marketing team, led by Rajaa Grar, our Chief Revenue Officer, took steps towards refining our marketing strategy based on last year's learning. We put more emphasis on building direct connections with consumers through our in-store activations, social media content, and influencer engagement. We expect this refined marketing strategy will be evidenced in our upcoming summer campaign, in addition to our national sponsorship activities with the Canadian Elite Basketball League, known as the CEBL, and The Amazing Race Canada. On May 24th, the 2023 CEBL season launched in Ottawa, where we had a first taste at sponsoring a major sports league for an entire season. We are really impressed with the CEBL organization and proud to partner with them. They have a real enthusiasm for the game and represent a growing basketball community. We are also thrilled to partner once again with The Amazing Race Canada for its ninth season. Following past success, this year will feature even more unique activation and opportunities to showcase our Better for You energy drink brand across Canada. On top of our marketing initiatives, we've also been working to improve our in-store execution with our exclusive distribution partner, PepsiCo. We see a clear improvement over last year. PepsiCo continues to work towards making our energy drinks more available to retailers and consumers in Canada. We are presently in 95% of convenience and gas stores and 77% of grocery and drugstores. We're also starting to increase our presence in the food service sector. Looking now at our U.S. operations, please turn to slide 7. As mentioned during last quarter's call, the U.S. offset strong comparables versus Q2 2022, which included a one-time large order from Sam's Club. The latter, combined with our change in strategy for the e-commerce channel, explains the US operations contraction in Q2 of 2022. However, the true picture regarding our second quarter is that we have been working on developing the US market through the natural food channel and the leading club channel retailer. For the natural food channel, it meant securing our leadership position by increasing our presence in sales velocities. As well, as mentioned last quarter, we delisted from stores in other channels that were not profitable. This strategy has allowed us to achieve the following results in the last 52 weeks: Over 18% growth in the natural food sector, beating the category growth of 9% for the year. Over 22% growth at Whole Foods, and the number one position in strategic natural banners in California. Since launching our GURU Guayusa Tropical Punch innovation in the U.S., it is delivering strong results and is now ranked as the number one GURU product in sales velocity in the natural food channel. The other portion of our strategy consisted of entering the wholesale club channel market. Following the success of our 2022 fall roadshow with Costco, we just started selling an exclusive format of GURU Guayusa Tropical Punch in over 40 locations in L.A. for the 3 summer months. This rotational program will allow us to showcase GURU Guayusa Tropical Punch to a larger market of better for you consumers and could open the doors to new opportunities in this channel. Turning now to online sales, our change in strategy showed improved profitability in Q2. Over the past several months, we have achieved a better return on investment and will continue to work on growing this segment's profitability. As mentioned before, this channel is complementary to our retail presence and distribution, which remains our core focus for growth. I will now turn the call to Ingy, who will provide you with more details on our financial results for the quarter. Ingy, over to you. Thank you, Carl. Good morning, everyone. Turning to slide nine. Net revenue for Q2 rose to CAD 7.7 million from CAD 7.6 million for the same quarter in 2022, mainly driven by increased sales velocities in Canada and the launch of GURU's newest innovation, Guarana Fruit Punch. In Canada, sales increased by 21%, or CAD 1.1 million, to CAD 6.6 million versus the same period last year. The company's national market share grew from February to April to a high of almost 5%. U.S. sales during the quarter decreased to $1.1 million from $2.2 million in Q2 2022, mainly due to the Sam's Club one-time program in Q2 2022. Gross profit totaled CAD 4.1 million in Q2 2023, the same as last year. Gross margin decreased to 53.1% in Q2 2023 from 54.3% for the same quarter last year, mainly due to higher cost of goods sold and more promotional activity. SG&A was CAD 7.1 million for Q2 2023 compared to CAD 8.2 million for Q2 2022. Selling and marketing expenses decreased to CAD 4.7 million from CAD 5.2 million in Q2 2022 as GURU took a more targeted approach to its investment in sales and marketing campaigns during the quarter. General and administrative expenses decreased to CAD 2.4 million from CAD 3 million in Q2 2022 as a result of cost control measures. Net loss for the second quarter was CAD 2.6 million, or CAD 0.08 per basic and diluted share, compared to a net loss of CAD 4 million for the second quarter last year, or CAD 0.12 per basic and diluted share. The improvement in our net loss position mainly reflects the decrease in costs associated with brand, field, and trade marketing activities. In Q2, Adjusted EBITDA amounted to a loss of CAD 2.5 million, a CAD 1.2 million improvement from a loss of CAD 3.7 million for the same period last year, mainly due to lower selling and marketing expenses and general administrative costs. As of April 30th, 2023, GURU had cash and cash equivalents of CAD 40.7 million and unused credit facilities totaling about CAD 10 million. Our prudent balance sheet management puts us in a strong financial position to continue self-funding our growth, with the ability to deploy the right investments aimed at our return to generating sustained profitability. Carl, back to you for concluding remarks. Thank you, Ingy. Turning to slide eleven, we are definitely in a better position than last year or even last quarter. Guarana Fruit Punch is driving further market share gains in Canada. We have several exciting initiatives underway, namely the Feel Good Energy National Summer Marketing Campaign and our sponsorship activities with the CEBL and The Amazing Race Canada, supported by a strong social media calendar and more unique activations all over the country. We believe that our refined marketing plan, strength momentum with innovation, and a strong financial position will allow us to improve our performance going forward. Rest assured, we will remain strategic in our investments we make to increase GURU's brand awareness and capture market share. We also expect more favorable results in the US for the remainder of the year as we continue to make strong inroads in the natural and club channels, driven mainly by Guayusa Tropical Punch and further planned innovation. In short, we remain focused to meet our objective of cleaning up the energy drink industry. This industry needs a transformation for the better, with healthier products that contain natural caffeine, zero aspartame, and zero sucralose. We are confident that GURU will become the undisputed leader of organic, better for you energy drinks in North America. We are excited by our long-term growth plan with a great team, solid partners, incredible products, and a strong, differentiated brand. This concludes our formal remarks. I will now turn the call over to the operator for the Q&A. I'll begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble the roster. First question will be from Martin Landry at Stifel. Please go ahead. Hi, good morning, Carl and Ingy. Good morning. Hi, Martin. I wanted to talk about theanine a little bit. You're saying that it reached a 3% market share in Quebec after just 1 month. I was wondering, Quebec is a mature market for you guys, and you know, I was wondering if you could share what's your market share in Quebec in April versus last year to see, you know, if there's been a real boost or just a shift in product with the launch of theanine? Yes, of course, I can speak about that. You know, first off, obviously, we're very pleased, Martin, with theanine. We think we have a winner, and it just speaks to what we can do with the natural products, lower calories, added functionality with theanine, and, you know, the product has resonated really well. We think this is impressive, like, gaining having a new product, a 3% market share, you know, considering we're roughly a 15% market share brand in Quebec, like, to be able to launch an innovation that reaches 3%, right? Which beats the innovation by our competitors that have 40% market share, I think is remarkable. To your specific question, we're, as I said, in April, we had 15% market share, and if I look around the same period last year, we were hovering more around the 14%, 14%, 13.9%, 14%. If you look directly at this comparison in Quebec, we would have gained a total of 1% market share. That fluctuates from month to month, right? What we're seeing right now is good trend on market share and good trend on scan data growth. We're happy with theanine driving the growth in Quebec. No, it's certainly a nice success for you guys. You know, just again, trying to dig a little bit into that new product launch, has it translated into new clients for you guys? For instance, I know you can't... It's difficult for you to figure out what's being done in store, but online, have you had a higher proportion of new clients ordering this quarter versus, than usual? The answer to this is yes. I don't have all the information specific to online, Martin. That's a good question. I know we did get a lot of incrementality because we were running different promotions on different sites for the launch, so we did acquire a lot of new consumers. I can't, I don't have the exact information on percentage of new consumers and all this, yes, it was clearly driving incrementality. If I look at retail, obviously we're, you know, in Quebec, we're near record levels in terms of market share. You know, the last time we had high market shares like this was when exactly when we launched with PepsiCo. There was a huge momentum with Guayusa and the launch with PepsiCo in the fall of 2021. Since then, this is really great momentum that we're seeing. You know, obviously the assumption is that a lot of that growth is coming from that theanine, but also improved execution, as I mentioned in my remarks, right? There's a lot of good things happening in the market right now for us, and theanine is one of them. Improved in-store execution is also driving the growth. Okay. You've had, like, 2 successful launch, right? guayusa and theanine. I was wondering, what's next? Do you feel like your product portfolio is full? Do you still wanna grow your portfolio? Do you wanna get into other adjacent categories? Just trying to understand a little, because you seem to have been on pace with 1 new product introduction a year. Are you still gonna keep that pace on a go-forward basis? I won't comment on exactly the pace, but what I will say is that we will continue on innovation, I think. You know, I think, you know, it's clearly, we've demonstrated that we can be great at launching innovations, that consumers want innovation from the GURU brand. We will continue along the same lines, right? We will continue making plant-based products with natural ingredients. We will not start using sucralose or aspartame. Our products will remain clean, because that's really our DNA. There are still some opportunities to explore in different functionalities, different plants that will bring different functionalities, but also different needs for consumers. I don't want to steal too much of the thunder, for competitive reasons, but, yes, we have, we have innovations in the plan, but, of course. Okay. Maybe last question, if I may. You know, last quarter, you had talked about, you know, a highly promotional industry that impacted your retail sales. I was wondering if you can compare and contrast, you know, the promotional activity that you saw in Q1 versus what's happened in Q2. Yeah, this was a big topic in our Q1 call, if you remember, right? Mainly because of the impact that the 4-pack promotions had, mainly in December. We had mentioned that we were seeing a decline or a reduction in our growth in the scan data around December and January. The good news is that we've recovered from that. It's still a highly competitive, highly promotional environment. We saw the impact of the 4-pack promotions more in December than we saw Monster launch a successful innovation as well in January, which had an impact. If I look at our trend and how we've recovered, right, then we see Red Bull basically lost all the shares that they had gained through their 4-pack promotion, and we have gained back the share that we had lost during that period. I wouldn't say that the aggressive in-store promotions are over. If you visit stores, you're gonna see that it's a very competitive, very aggressive, but we have responded well with our own promotions, our improved execution, our improved increase of inventory at retail, also to make sure that we can compete and just gain our fair share of those promotions. The positive on this is that the industry is growing, right? The industry is growing very positively in Canada, it's growing at 15%. There is a lot of incrementality with all of these promotions, and consumers are reacting well. The industry is growing. I think that there is good news in this because everybody is growing, right? Even though we're growing in the 20s, like, it's hard to gain share because everybody is growing as well, right? Mm-hmm. Does that. Okay. Does that answer your question? Yeah. No, it does. It does. That's helpful. That's it for me. Thank you for the call. Okay, thanks. Thank you. Thank you. Our next question will be from John Zamparo of CIBC. Please go ahead. Thank you. Good morning. Good morning. Hi, John. I wanted to come back. Hi. I wanted to come back to the topic of innovation, and I get you're not gonna reveal your roadmap for the next year or two. I wonder if, like, philosophically, you've seen the success of tea and you've seen the success of guayusa, like, does that make you wanna lean into innovation more, just on a more frequent basis? I just wonder if this shifts your strategy moving forward, given the success of these products. Well, the short answer is yes. Right, it's, you know, every time we see, we get a lot of taste of that success, it's like an adrenaline rush, right? Innovation. We also need to be disciplined, right? We also need to manage our portfolio. We also need to make sure that we bring our distributor on board, just to make sure that they understand the portfolio. We need to own the space that we have with retailers, right? This is always a challenge. If, if it wasn't for retail, and then you'd say, well, then you could basically have an unlimited number of SKUs. If we think about the retailers and if we put ourselves in the retailers' shoes, we also want to make sure that we are launching productive SKUs for them that are not only driving cannibalization, but are also growing the category, and that retailers are happy with our velocities. Yes, we want to launch innovation. We will be disciplined in the number of innovations and the number of SKUs that we launch, just to make sure that we don't cannibalize too much. We have room to launch new innovations still in Canada. We have plenty of room to improve and increase innovations in the US and online, obviously. Clearly, this is, you know, it's guayusa has been a success, fruit, tea and fruit punch is a success. Yerba Mate was also a great success. This is something that we love and that we wanna repeat for sure. We might try some different consumption occasions that I talked about. We're not gonna go into different categories. There are some specific needs that we think we can nail. Okay. That's helpful. Is it generally a very costly exercise for you to develop these innovations or is it largely a similar margin profile, even once you bake in one-time costs to develop something new? Yeah. No, similar margin profile. Obviously, sometimes some new novel ingredients sometimes will be a little bit more expensive, but if you assume some incrementality, it's great. The big cost is obviously the marketing campaign that hits that comes with that. That's, the marketing campaign usually is beneficial for the whole brand. It just, you know, it just energizes the brand, revitalizes the brand every time, gives you a good reason to talk about the brand. There is, there's really halo effect in innovation on the way consumers perceive a brand as an innovative and bringing new things to the market. I don't know, Ingy, if you wanted to add anything on the gross margin profile of innovation? No. No? Very little fluctuations to your point. Yeah. Okay. On the SG&A side, in two parts to this, the G&A, you brought down this quarter, you referenced some specific cost reductions. Is this quarter a reasonable run rate? On the other side, sales and marketing, I think the last 12 months, it's just over CAD 20 million you've spent. Is that what you're targeting for the next year or so, or even on an ongoing basis? For, for the G&A side, yes, we like mentioned, we have some cost control measures, and it's really a mindset, right? It's on many little things, and we will continue with that mindset moving forward. Yes, it is our approach, and it's to, you know, go back to our path of profitability. For the rest of the SG&A, the sales and marketing, I, as you've seen in the past, and as you know, you know, in the energy drink industry, the summer is really our peak season, and that's where we're the most active. As announced also yesterday, with our, the CTV, with The Amazing Race, we will be very active in the coming months, so that you'll see, you know, using the same momentum as last year. Okay. Um. Maybe not an increase in dollar spending. Is that fair to say? No, you'll see some more. No activity, some more investment for sure. Yeah, yeah. We're gonna keep investing, though. Yes. Yes. Like, we, like we see 2023 as an investment year, where, you know, sales and marketing are fundamental to growing this brand. Yeah. Keep, in your models, you should be thinking about GURU investing throughout the summer in sales and marketing, right? Obviously, being very cost conscious, like Ingy said, from a G&A point of view. From a sales and marketing point of view, we will be doing another big push this summer, just to make sure we grow this brand, because we think that it has so much potential, right? We're gonna keep investing. Okay. Understood. I wanted to touch on price. In particular, volumes in Canada, I think, grew around the same as sales, but I'd thought there was a moderate price increase year-over-year. Can you just help square that for me? Yes, to your point, you're absolutely correct. There was a price increase, and yes, we were expecting that dollar growth to be larger than unit growth. We're not yet seeing the full benefit of that, but of course, that takes time, right? Like we mentioned, there's many things that also are part of this, the price part, so the net sales. There's price promotions, there's also placement, where I've mentioned we need to continue investing in the, in this brand. One part of that is making sure that we're very present in store. Placement is key for a brand that's unknown in Canada still, you know, and the majority of the rest of Canada, so we will continue investing there. This will show up more towards the year, you know, it's not something that shows up just in a quarter, so we're still looking at that in the mix of that. Got it. Okay. Just one more, and it's on capital allocation. Yeah. You're getting closer to break even, particularly when you factor in the interest revenue you bring in. I wonder, how do you approach capital allocation if you end up with something like CAD 20 or CAD 25 million on the balance sheet and you're at a break-even level. Mm-hmm ... prioritize at that point? Mm-hmm. In particular, do you look at something more material on the buyback? Yeah. Of course, our focus remains and will remain growing and cleaning up the energy drink industry, right? That's our main mission. Most of our capital will go there, right? In marketing efforts to grow the GURU brand. Of course, we will remain open to opportunities. These opportunities have to align with our strategy, our values, and of course, what we stand for. Something healthy, and anything that we would acquire, if ever there was a great opportunity, would have to be something that could migrate into the GURU brand at some point. Okay, understood. That's helpful. I'll leave it there. Thank you. Thank you. Thanks, John Thank you. Again, if you have a question, please press star then one. Next question will be from Sean McGowan of ROTH MKM. Please go ahead. Good morning, Carl Goyette. Are you able to hear me okay? Yes. Yes. We can hear you well. Okay. Hi, Sean. I'm sorry. Yeah, hi. I was having some trouble with this earlier. Yeah, a couple questions. On the, on gross margin, did this quarter come in ahead of your expectations? If so, where, you know, can you talk a little bit about any factors that did drive that? Do you see, you know, margins for the balance of the year staying above or at 53%? For gross margin, it didn't come in ahead of our expectations. We still believe that it's a very healthy, very strong gross margin with a 53.1%. We could say that if we break it out, we'd say that half of it is really due to the cost of goods sold. As mentioned, right, and I think we're starting to see it, there's improvements in terms of oversea transport, in terms of some of the ingredients that are improving in cost. However, the stock that we have on hand and we're selling currently, is stock that was bought at higher prices. We will be seeing these improvements later on, maybe towards the end of the year, right? From a gross margin staying, it's gonna remain, as mentioned several times, and it's gonna remain very strong in the early 50s. It could fluctuate from quarter to quarter, right? Depending on promotional activities and, like mentioned, the cost of goods sold that were bought prior being factored in, it will remain very, very strong, and it will remain above 50%. Okay. Thank you. That's helpful. Now in terms of revenue comparisons, you had some unusual factors, you know, that were affecting last year's numbers that, you know. Mm-hmm ... maybe comparisons a little bit unusual, you know, the kind of the PepsiCo inventory and the, and the Sam's Club. Do we have additional factors like that in the second half of this year, or should we see, you know, kind of better, sell, you know, better shipment growth that's more reflective of the kind of sell-through that you're seeing? Yes, I would say that, yes, we're done with the anniversary, all the transition issues from a volume standpoint, from a shipment standpoint. We should be seeing, in the future, much more parallel between the shipment and scan. Of course, if there's any fluctuations or anything, we'll make sure to mention it. Yeah, we should be seeing some growth on that front. If I may add to this one, on the inventory level, Sean, we have better visibility on the PepsiCo side, we are obviously looking at their inventory level. So far, you know, we are at comparable levels versus last year, our sales have grown, right, versus last year. We look at this and say, this is a comfortable space. Obviously, we don't control what they might do. Remember, there was a little bit of a surprise at the end of the year last year, where they reduced their inventory, we don't anticipate that for now. One thing that we will make sure we do, is that we whenever sales or shipments are very different than what we see in the scan data, then we'll make sure we'll give you, all of you some transparency on this, so that you guys can see this into your model. Right now, there's really nothing to the magnitude of the Sam's Club order or to the magnitude of the inventory reduction that we saw. Mm-hmm ... last year. We actually see some positives. Yeah, we're in a very- Mm-hmm. We're in a much better position than last year. If you look at inventory levels from at retail, if you look at the execution on the PepsiCo side, remember last year, there were some staff shortages at the distributor level, where we think that obviously, we think this is an upside for this summer. We're starting the year in much better shape. We're very optimistic for July, where July is gonna be a focus period for us as well. We have a stronger portfolio, stronger team. Honestly, we're optimistic for the next future. I don't want you to raise all your expectations, but All I'm saying is that we're in a better spot, and I think we're in a better position than we've ever been. We should be capturing a lot of that, a lot of that growth in the industry. Okay, thank you. My last question is on kind of the impact and phasing of the launch of Theanine. When exactly did you start, you know, getting that? You know, where in the quarter did that start hitting your revenue? Were the initial shipments of that product so strong that, like, replenishment in the next quarter might be an issue, or is that not really an issue? You wanna take that one, Ingy, or one? It started hitting our revenues very early in the quarter, because we sell to PepsiCo, and then PepsiCo sells to the retailers, right? Because it was activated in store more towards April. From a standpoint for the coming quarters, of course, there won't be the first, the first fill-in, you know, the first pipeline fill. However, there's very strong demand, like we've mentioned, so we're seeing continuous demand for that product. I don't believe that we will see a major decline or anything. It's the opposite. We're seeing increased demand, actually better than expected, even on that product. We're good on the supply side also. You know, this is. Yes, it's not a problem. We plan for it to be a success, so we have plenty of inventory. Whoever wants to buy Theanine, they should go out. We have plenty of inventory. I look forward to being able to find that. On that point, when you talked about Costco in L.A., and I know that's not Theanine, but, is that only in that region, and how many stores do they have in that region? It's in L.A., and it's in L.A. and Hawaii for now, right? It's only been a few days, but we're seeing a strong start, very happy with the results. This is looking promising for the future. You know, as you know, the club channel is a different animal. It's a different beast to be able to secure permanent listings. We'd be happy to get many rotational programs across the United States to make sure that more consumers can discover the benefits of organic, better for you energy drinks. Yes, the club channel reminds you that permanent is a relative word. Exactly. It's important that whenever you go in, we have success, and that's what we're seeing so far, right? We're having great success from a velocity point of view, from a sales point of view. We're doing a lot of demos. Our team is there to amplify sales. Consumer feedback is really great as usual on that product. The consumers love Guayusa Tropical Punch. Obviously, the plan is to bring Theanine Fruit Punch to you guys in the US as well, right? I think this would be a perfect combination for Costco, obviously, to have the Fruit Punch and the Tropical Punch available at Costco would really be great. Even an assortment in an 18 pack, 'cause that seems to be a pretty- Yeah, love it, huh? Which operators love.