Guru Organic Energy Corp

TSX:GURU

Q2-2025 Earnings Call

[Operator]

Good morning. Welcome to GURU Organic Energy Second Quarter 2025 Results Conference Call and Webcast being recorded today, June 12, 2025, at 10:00 a.m. Eastern Time. [Operator Instructions]

GURU's press release, MD&A and financial statements are available in the Investors section of the website and on SEDAR+. 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. Please take a moment to read the disclaimer on forward-looking statements on Slide 2 of the presentation.

I will now turn the call over to Carl Goyette, GURU's Chief Executive Officer.

[Carl Goyette, executive]

Thank you, operator. [Foreign Language] Good morning, everyone, and welcome to GURU's fiscal 2025 second quarter results conference call. Joining me this morning is our CFO, Ingy Sarraf.

Let's turn to Slide 5. Q2 marked a pivotal quarter in our transformation journey, one that feels especially energizing for myself and the team. It's the quarter where we took back control of our destiny in Canada. With 100% focus on GURU, we now have a direct relationship with retailers, more agility, more control and more opportunity to go on the offense. We transitioned back to our direct distribution model in Canada, and the response from retailers has been very positive. Many are enthusiastic to work again with a local, agile and flexible partner, and they're ready to support and grow with us.

At the same time, we delivered recent record gross margins and strong U.S. growth, reinforcing our confidence in the model and our progress towards sustainable profitability. Our results showed clear progress. In the U.S., sales rose 38.9%, excluding last year's $1.4 million wholesale club rotations. Amazon U.S. hit a new monthly sales high in March and recorded 50% growth year-to-date. Repeat purchase rates increased to record levels, signaling strong brand loyalty. Whole Foods Market also hit 2 record months in the quarter. Amazon Canada saw 41% growth while GURU's website realized its best month of 2025 in May with 30% year-over-year growth.

Gross margins reached a recent record at 59.7%, driven by pricing discipline, reductions in promotions by our exclusive distributor and supply chain efficiencies. Net loss was nearly cut in half to $1.4 million, our second lowest since Q2 of 2021. And adjusted EBITDA loss improved 55% to $1.2 million. These results confirm that our business fundamentals are not only strong, but continue to improve. And our cash position remained as strong as prior quarters at $25.3 million with no debt plus $10 million in unused credit facility. These results underscore the strength of our brand, our disciplined approach to profitability.

Turning to Slide 6. Our Zero lineup continues to win with consumers. In Q2, we launched 2 new Zero sugar flavors in Canada. In June, we launched Strawberry Watermelon online in Canada and in Quebec retail stores just in time for the summer. Early results exceeded expectations, Wild Ice Pop outpaced GURU Original in its first weeks on the shelf, quickly becoming the top-performing GURU product in Quebec's leading convenience store chain, a strong signal of consumer demand for our Zero innovation. Our new products also are performing in the U.S. Zero Wild Berry is already outselling last year's Tropical Punch launch in Whole Foods in the U.S.

Turning to Slide 7. We officially launched our direct distribution model in Canada on May 22. This move marks our return to a proven model that fueled GURU's growth from 1999 to 2021, allowing us to invest smarter, respond faster and drive better execution at shelf with a singular focus on the GURU brand. All major retailers representing 98% of our volumes are now secured. We've built a robust network of over 25 distributors and brokers to reach retailers across the country. Most partners have already delivered their first orders in the past few weeks.

Field activation is well underway with over 120 sales professionals from our partners and internal teams, now representing GURU in stores nationwide. We are very confident in the long-term value of this transition in sales and distribution will unlock for GURU.

Turning to Slide 8. The U.S. market remains a major growth engine for GURU. Retail sales in Natural Channel and Whole Foods grew 26% year-over-year. Whole Foods posted its best 2 months streak. Our Zero Line continues to be a key growth driver in the U.S., helping expand both trial and loyalty. With stronger velocity, growing repeat rates and solid new products, we are building a foundation for sustainable growth in the U.S. As the only organic zero sugar energy drink with no sucralose and no aspartame, GURU continues to offer a unique better-for-you modern alternative in an industry still dominated by artificial ingredients and chemicals.

I will now turn the call over to Ingy Sarraf, our CFO, to discuss our financial results in more detail. Ingy, over to you.

[Ingy Sarraf, executive]

Thank you, Carl, and good morning, everyone. Turning to Slide 10. Let's look at the numbers. Net revenue was $6.5 million. This reflects the planned transition away from our Canadian distributor and the absence of last year's U.S. Costco rotations. As mentioned in our Q2 press release, retail sales in Canada were temporarily impacted by order and shipment shortfalls. These challenges occurred ahead of our May 22 transition to a direct distribution model and led to short-term product availability issues at certain retailers. We do not expect these issues to continue in future quarters.

Gross profit reached $3.9 million with a margin of 59.7%, the highest in our recent history, reflecting our ability to grow profitably at scale. SG&A expenses dropped 26.2%, showing cost discipline. Net loss improved 46.5% to $1.4 million. Adjusted EBITDA loss was down by more than half at $1.2 million. These results underscore our focus on efficiency, execution and setting up for profitable growth. Our financial position remains solid. We ended the quarter with $25.3 million in cash and no debt. We also have $10 million in unused credit available. This gives us flexibility to continue investing in high-impact areas and to support our relaunch in Canada.

Turning to Slide 11. Looking ahead, our priorities remain clear: drive profitable growth in the U.S. through retail, natural and online channels; scale our Zero line with upcoming Costco rotations in Q4 in Canada and in the U.S.; execute our direct distribution model in Canada with excellence; and maintain cost discipline and expand margins. We're well on track to accelerate our return to profitability in the second half of the year.

With that, I'll now turn the call back over to Carl for closing remarks.

[Carl Goyette, executive]

Thanks, Ingy. Let's turn to Slide 13. We are proud of the progress we made this quarter. We are building a stronger, more agile GURU focused on long-term success. Consumers are choosing good energy and they're choosing GURU. Our mission to clean up the energy drink industry resonates more than ever with the modern energy drink consumers who are health conscious and demanding transparency and better ingredients.

Retailers are also responding. They're excited to work directly with us, move fast, execute and win together. With a simplified distribution model, a winning zero line and a disciplined approach to growth, we're ready to take the next steps. I also want to thank our team and all our new partners for their commitment, agility and belief in the power of choosing Good Energy, especially as we relaunch our Canadian sales and distribution operations.

Thank you for your continued support. Operator, we will now open the call for questions.

[Operator]

[Operator Instructions] Our first question is from Sean McGowan with ROTH Capital Partners.

[Sean McGowan, analyst]

My first question would be, if you could kind of square the scan data with the shipment decline. If this is just disruption from the transition, could we view this as maybe you would have had to take this product back if they had -- if you had shipped it to Pepsi and then they didn't sell it -- you're going to have to take it back anyway. So this really isn't something we wouldn't have seen anyway. You know what I'm asking?

[Carl Goyette, executive]

Yes. No, I agree, it deserves explanation. So I'll try to take you through a few facts to help you understand. So bear with me for a few bullet points, if you don't mind, Sean. First, this has nothing to do with inventory buyback, right? Because we -- at the time of the second quarter, our distribution agreement wasn't terminated yet, right? So this is not an inventory buyback. So for your first question on scan, right, when we look at tracked and untracked, we did see a decline in Q2 in our tracked and untracked by 6%, right? So there's a small decline there, and that is driven with -- by what we saw in other stocks at retail due to the shipment shortfalls and some of the promos, like Ingy mentioned, some of the promos that were not repeated this year by our exclusive distributor. So there was a bit of an impact there.

But when we look at other indicators of demand, if you look at online, for example, in Canada, online is up 20% with Amazon up 26% in the quarter, right, more than that year-to-date. But where the hit was really in retail shipment, right? Retail shipments in the quarter were down 24%. So our distributors shipped a lot less cases this quarter than last year, especially in April towards the end of the distribution agreement where in April, the shipments were down 45% versus last year. So this is significant shipment shortfalls prior to the end of the agreement, but we expect this to be temporary, right? We don't -- we are now -- as we said, we have completed the transition. This is now behind us. We have 25 distributors that are ready to ship and push the sales of GURU. We have 120 reps when we combine our teams with our agencies to push sales and recoup hopefully, a lot of these lost sales.

[Sean McGowan, analyst]

Okay. That's helpful context. But what I meant when I was asking about buyback was not -- did it affect this quarter. It was more -- if you had sold more to Pepsi, would you have eventually had to buy that back anyway, like in a later quarter?

[Carl Goyette, executive]

No, no. In an ideal scenario, would have sold more to Pepsi because Pepsi would have shipped more, right? We had agreed to -- like prior to -- after the end -- after the notice of termination, we had looked at our business plans, and we had a joint business plan that called for a flat sales between -- for the last few months, and we saw these declines, right? So if PepsiCo would have shipped more, we would have sold more to them. And we had an agreement to take a few weeks back of inventory at the end anyway.

[Sean McGowan, analyst]

Okay. I appreciate that. Are there any other wholesale club rotation comp challenges coming up? Do we have year-over-year comparison challenges coming up from any of that?

[Carl Goyette, executive]

No, nothing significant. It was important for the U.S. in this quarter. Obviously, last year, if you look at the quarter last year, we made $2.7 million. Of the $2.7 million in the U.S., there was $1.4 million in the Costco and 2 Costco rotations. So that was very significant in Q2 last year. But if you remove that, all the indicators we look at in the U.S., as you saw in our remarks are growing. So -- but there's no other ones coming up for comp last year. Obviously, there's more coming for -- to increase our sales in the future, but nothing to comp from last year.

[Sean McGowan, analyst]

Okay. A couple of questions for you, Ingy. And operating expenses were down sequentially and year-over-year. If we look at like selling expenses, how much of that decline is the result of the sales decline? And how much of the decline is like a little bit more sustainable?

[Ingy Sarraf, executive]

No, I would think that it's actually very sustainable. It's really more a function of us making sure we're very efficient. Like we said, we've also looked at making sure that high-impact ROI activities are kept in place and removed the ones that were less beneficial. So we're learning from that, and we're actually getting much more effective and efficient in our approach. So it's very sustainable.

[Sean McGowan, analyst]

So do you think this dollar level of G&A is something we could expect to continue in the near term?

[Ingy Sarraf, executive]

Yes, the dollar level will, of course, grow a bit with the activities, more activities like -- that we will do. Like we said, there were some that were not done in the past quarter. So from an activity standpoint, it could grow a bit. But from a fixed cost and kind of the structure we have in place, yes, it will remain.

[Sean McGowan, analyst]

Right. Okay. Okay. And some of that activity, wouldn't that be more in selling than in G&A?

[Ingy Sarraf, executive]

Yes, in selling, of course, in SG&A, in the total SG&A, not in G&A. You're right.

[Sean McGowan, analyst]

Okay. And then last question, I just want to make sure I heard your kind of concluding comments, Ingy, correctly. Did you -- what comments did you make regarding achieving profitability? Did you do a forecast for the second half of the year?

[Ingy Sarraf, executive]

Of course, we always do forecast and always plan ahead. Just to give you some color, like we've said, right, in the past, we're returning back to profitability. So we're seeing that we're taking the right steps to get there in due time. And that's what we've been seeing with last quarter, which was the lowest loss since 2021. This quarter, the second lowest. So we're just taking the right steps to go back and make sure that we're returning to profitability and that this business is scalable like we've always done.

[Operator]

We have reached the end of our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

[Carl Goyette, executive]

Well, thank you, operator, and thanks, everyone, for joining and choosing Good Energy. Have a great day.

[Operator]

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.