Guru Organic Energy Corp

TSX:GURU

Q3-2025 Earnings Call

[Operator]

Welcome to the GURU Organic Energy Third Quarter 2025 Results Conference Call and Webcast being recorded today, September 11, 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 its 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. Please go ahead.

[Carl Goyette, executive]

Thank you, operator. [Foreign Language] Good morning, everyone, and welcome to GURU's Fiscal 2025 Third Quarter Results Conference Call. Joining me this morning is our CFO, Ingy Sarraf.

Let's turn to Slide 5. Q3 2025 was a record-breaking quarter for GURU from top line to bottom line. We are very proud of GURU's team accomplishments in 2025. Through their hard work and dedication, we achieved these results much earlier than expected. Since taking full control of our Canadian distribution activities last quarter, we generated record net revenues of $10.4 million, a 32% increase versus last year. Gross margin was 71.3%, reflecting the benefits of our new business model and a onetime change in estimate related to the termination of our Canadian distribution agreement. Excluding this adjustment, gross margin was 65.9%, up from 55.4% last year. And for the first time since going public in 2020, we achieved profitability with a quarterly net income of $1.3 million, the highest in our history.

Turning to Slide 6. These results demonstrate that our model can deliver sustainable profitability while we continue to invest in growth. Our key drivers this quarter included strong execution of our Canadian distribution transition, positive momentum in the U.S., successful launches of our Zero Sugar innovations and operational discipline across SG&A and the supply chain.

Turning to Slide 7. In Canada, Q3 marked the successful execution of our transition back to a direct distribution model. By July, we had partnered with 27 distributors nationwide. Strong in-store activations and display contributed to record sales in July. Innovation launches, including Zero Ruby Red, Ice Pop and the Strawberry Watermelon supported increased consumer demand. This transition provides GURU with a closer relationship with retailers, stronger execution and greater agility moving forward.

Turning to Slide 8. The U.S. remains a very solid growth engine. Q3 sales increased 16.4% year-over-year to $1.8 million. Amazon had its best month ever in July with Prime Day sales up 96% in the U.S. compared to 2024 and up 40% in Canada. Consumer metrics were also positive with record total customer count and a significant bump in new-to-brand consumers. Innovation is gaining traction. Zero Wild Berry at Whole Foods is showing strong early velocity and is on track to become our #1 SKU at that banner. These results validate the U.S. strategy of focusing on innovation, velocity, loyalty and online strength. We also refreshed our brand identity, and it's resonating with consumers. This brand direction reinforces GURU's positioning and generates significant awareness and engagement. The Strawberry Watermelon campaign achieved engagement rates more than 3x above industry benchmarks. These activations translated into record Amazon sales, subscriber growth and gains in new-to-brand customers.

Turning to Slide 9. Behind the scenes, our supply chain team performed flawlessly. We scaled our operations to support the transition of our Canadian distribution while maintaining a 99.5% fill rate. And we launched Strawberry Watermelon on time and in full, demonstrating the resilience, agility and scalability of our operations during a major transition.

Turning to Slide 10. Looking ahead, in Q4, we successfully launched Island Breeze Punch in Quebec and online across North America. We also rolled out the 18-pack Zero variety pack in Costco. Early sell-through has exceeded expectations with replenishment orders already placed. These successes, combined with the U.S. expansion, direct distribution in Canada and continued brand activation position us for sustained growth momentum. Importantly, Q3 results demonstrate GURU's ability to deliver profitability through disciplined execution while investing in innovation and capturing the significant white space opportunity in the better-for-you energy drink category. Profitability is now within reach every quarter, unless we choose to invest to accelerate growth through targeted sales and marketing investments. That flexibility is our strength, considering our strong financial position with over $24 million in cash and no debt.

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

[Ingy Sarraf, executive]

Thank you, Carl, and good morning, everyone.

Turning to Slide 12. Here are the highlights of our financial performance in Q3. Let's start with our record revenue. Net revenue was $10.4 million, the highest in our history and up 32% year-over-year. This growth was driven by strong performance in Canada, innovative product launches and the replenishment of retailer pipelines following the end of our former exclusive distribution agreement. These results also include a onetime change in estimates related to the termination of this agreement. For the 9-month period, net revenue was $24.6 million, up 6.7% or 13.5% when excluding last year's U.S. club rotation.

Next, our record margin. Gross profit reached $7.4 million with a gross margin of 71.3%. Excluding the onetime adjustment, the underlying margin was 65.9% compared to 55.4% last year. Regarding expenses, SG&A was $6.3 million, down 9% from last year. Sales and marketing investments decreased by 16% as we continue to optimize our spend.

Turning to profitability. Net income was $1.3 million or $0.04 per share, a significant improvement over the $2.2 million loss reported last year, representing a net margin of 12.4%. Additionally, adjusted EBITDA reached $1.6 million in Q3 compared to a $1.5 million loss last year, reflecting revenue growth, margin expansion, including the change in estimates and cost discipline. On a year-to-year basis, net loss improved 79% to $1.4 million and adjusted EBITDA loss improved 90% to $0.7 million in the last 9 months.

Finally, cash and liquidity remains strong. We ended the quarter with $24.2 million in cash and short-term investments, no debt and $10 million in unused credit facilities, providing the flexibility to balance profitability with growth investments.

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 14. Q3 2025 was a defining quarter for GURU. During the quarter, we flawlessly executed a complex Canadian distribution transition, and we are now building strong momentum in the U.S. online and through innovation. In addition, we delivered record revenue, record gross margin and our first profitable quarter as a public company, proof that our model can generate substantial earnings while providing the flexibility to invest in growth whenever we choose. Above all, we now call all the shots. We are now better positioned than ever with a refreshed brand identity, a winning Zero Sugar line, a new strong Canadian distribution model, growing U.S. and online traction and a robust financial position.

This quarter proves our ability to achieve profitability while investing in growth. With expanding margins, energized partners and strong innovation tractions, we have full confidence in our strategy and our ability to scale GURU in this growing category. [Foreign Language], thank you.

Operator, we will now open the call to questions.

[Operator]

[Operator Instructions]. The first question is from Martin Landry with Stifel.

[Martin Landry, analyst]

Carl, and Ingy, congrats on your results, impressive revenue growth, very, very strong. And that's probably where I'd like to start with my questions. Obviously, at 30%, 31% revenue growth, there was a little bit of channel fill in there because I know you were out of stock starting -- you had some out-of-stock position starting the quarter.

So how can we look at your revenues in Canada and maybe normalizing for the channel fill? Is there any way you can help us out a little bit? I know it's hard to quantify, but is there any way you can help us out maybe understand what the proportion of the revenues were what you consider channel fill?

[Ingy Sarraf, executive]

Yes, for sure. So we did have, of course, some channel fill like you mentioned, but we also had some returns from our exclusive distributors since it was the end of the agreement. So all in all, we took back a similar amount that we sold in, so it nets out.

[Martin Landry, analyst]

So okay. And then your pricing has changed as well, right? We're not comparing apples-to-apples when we look at pricing this year versus next year. So of the revenue growth, what was the impact of the new pricing structure? Is that possible to parse that out?

[Ingy Sarraf, executive]

Yes, there is, for sure, a proportion that's due to the new pricing structure, like you mentioned. I think I like to look at it from a gross margin standpoint. And if we look at gross margin, when we look at, like we said, the 65.9%, the recurrent margin versus last year's at the same period, 55.4%. When you look at that, the difference between both, you could say that 2/3 of it is due to the change in business model, while 1/3 is really due to our optimization in pricing, the timing of our promotional periods. So that's the way I'd like to view it. Does that help you?

[Martin Landry, analyst]

Yes. Okay. We'll back it out into dollars offline. That's good. And then if we look on a go-forward basis, Carl, your distribution transition is completed. Trying to understand a little bit what's your reach right now in Canada? And how does it compare versus previously? I assume you may have lost a couple of doors, but some of them may be insignificant in terms of volume. So is it -- could you talk a little bit about your all commodity volume -- all commodity value right now versus last year?

[Carl Goyette, executive]

Yes, of course. If you look at Canada from a Quebec perspective, where we're from and where we're very strong, I would say we're pretty much back to the same -- just at the same level of ACV. In the rest of Canada, English Canada, we're still rebuilding that. I don't have the exact number top of mind, but clearly, we did lose a few banners in this transition, some of which we're going to regain. We also lost some stores, lost some SKU. I would say that from a Quebec perspective, for example, when I look at scan data in Quebec in the scan data last month in August in convenience stores was roughly equal to last year.

So it means we've completely recovered from the impact of the transition that we mentioned in our Q2 call. From a grocery channel point of view, it's not a store count impact, right? So much. There is -- we lost a few stores in the transition, but we gained them back. But we still are working on assortment. We're still working on shelf space and reducing some of the out-of-stocks that we're seeing. It seems like the transition in the grocery channel is taking a little bit more work because this channel is a little bit more complex. We need to retrain the staff on making sure they take the orders, adjusting inventory.

So long answer, Martin, but it's not the same everywhere, right? I would say -- so the short answer is in Quebec, we're pretty much back to where -- the same levels of distribution. While in rest of Canada, there is impact. But as you mentioned, these were not the most productive doors. They were lower velocity doors, and they were not our first focus, obviously, [indiscernible] on this over the course of the next few weeks to recover on -- especially on the most productive doors that we had.

[Martin Landry, analyst]

And then maybe just last question. Just -- I don't know if -- did you -- were you talking about scan data for August? Or did I hear you correctly? Because...

[Carl Goyette, executive]

Yes.

[Martin Landry, analyst]

Okay, so that's post quarter end, right?

[Carl Goyette, executive]

Yes, post quarter end. Yes, if you remember, in Q2, we spoke about the impact of the transition leading up to -- there was significant out of stocks before the end of the distribution agreement, right? And so we -- that was impact in scan, we were transparent in that. And now we're actually happy to report that we've almost completely recovered from that, right?

And we have outstanding momentum with Costco, which is not tracked, as you know, right? So this is not something that's visible in the tracked channel, but our Zero Line right now is performing extremely well, and we're very excited about that. So this is something that's driving momentum in the business.

[Martin Landry, analyst]

Okay. So fair to say that the momentum is continuing in August and early September?

[Carl Goyette, executive]

Oh, yes, there is real momentum in the business right now.

[Operator]

The next question is from Sean McGowan with ROTH Capital Partners.

[Sean McGowan, analyst]

Carl, and Ingy, I want to follow up on a couple of Martin's questions on kind of the sustainability and unusual factors going in here. Can I ask you to repeat, Ingy, the 2/3, 1/3, what was the 1/3 due to?

[Ingy Sarraf, executive]

Yes. So when I look at gross margin differential between the same period last year and this year, the 65.9% versus last year's 55.4%. I had to explain that 10-point gap, I would say that 1/3 is due to our pricing and the timing of promotional activities and 2/3 is really due to the change in business model in Canada.

[Sean McGowan, analyst]

Okay. So I guess that raises the question then is what should we expect to be kind of a sustainable ongoing level, particularly in the light of pricing pressure maybe from some input costs, et cetera. I mean, is 65% plus kind of the new base level? Or is it -- are there some potential pullbacks from that?

[Ingy Sarraf, executive]

Yes. I would talk about a range and looking at our past life, right? Through the distribution agreement, we always range between the 62%, 63% to the 67% mark. So I'd say that it is within that range.

[Sean McGowan, analyst]

Okay. That's super helpful. And just to, again, clarify the comment that you gave to Martin's question. Are you saying that the channel fill effect was neutralized by the return? So there really is no net revenue impact of replenishment and that this really represents kind of this 31% or whatever or 35% in Canada really represents real demand?

[Ingy Sarraf, executive]

Yes. That's what I'm saying because of these 2 items, yes. Other than that, there was like we mentioned, the onetime adjustment with the exit of this agreement. So there was a onetime cleanup there, and that's the impact on the gross margin that I mentioned.

[Sean McGowan, analyst]

Okay. Okay. A couple of other cost questions. So sales and marketing was lower than I would have thought. Do you think that this either in dollars or as a percentage of revenue, is this kind of a normal level of sales and marketing spend?

[Carl Goyette, executive]

I would say, Sean, this will modulate. Obviously, this will modulate depending on every quarter. I think we're -- what we're very clear is that there is momentum in the business, and there's significant opportunities ahead of us. And we're in a strong financial position. So we will vary this depending on the quarter. So for example, in Q4, I just spoke about the momentum we have in Costco. We want to invest behind that to maintain that success. We just launched a very successful product, the Island Breeze Punch. So there is activation, there's media, there's aggressive promos that goes against this.

We will be aggressive in some promos, both in the U.S. and Canada this fall because fall for us is an important season, especially with our strength with students and university campuses. So it's hard for us to look and give you a clear guidance. Obviously, we want to make sure that profitability is always in sight. So we -- whenever we invest more, I think what we can commit is to give you full transparency on what we're going to be investing on and what opportunities we're tackling on, right? So obviously, this is where the money we have in the bank, this is where we want to invest, right? We want to invest in sales and marketing to go aggressively against growth. And so yes, we're in 2020 -- finalizing the 2026 plans right now. And we don't have -- we still intend to be very aggressive and pursue growth as much as possible.

[Sean McGowan, analyst]

Well, I'm just trying to adjust to life without parenthesis around the operating income numbers. So...

[Carl Goyette, executive]

Absolutely. We're trying to adjust to that as well without losing any growth opportunities...

[Sean McGowan, analyst]

So maybe I shouldn't put them in cold storage forever, but get ready to jettison them. Great. Taking a bigger picture look for a second, at least in the U.S., and I think this is true in Canada, the category over the last 12 months or 15 months or so has been kind of weird where it got surprisingly weak kind of in the summer months down to the point where it was actually negative for a period, at least scan data through Circana late last year and then came roaring back this year.

So what's your take on what's going on with the [ category ]? Why did it go down? And why has it come back so much?

[Carl Goyette, executive]

It's really hard to say, but there's no doubt that the category is on fire. There was a few months last year where it slowed down. I don't know if anybody knows exactly what happened at the time. I think some experts attributed it to some lower traffic in convenience stores that seems to have been resolved. But if I look at now and what we see for the future, I think innovation is clearly driving growth. Like if you look at innovation in Zero Sugar is what's driving pretty much all of the category growth. And this is driven by either perceived better for you or real better for you, like there are a lot of zero sugar products. Most of the zero sugar products that are growing are full of sucralose and aspartame.

Obviously, that's our difference. We don't use these chemicals. We use only healthy ingredients. So we think that we're going to benefit from that movement to zero sugar because people will look for better-for-you options, real better-for-you options. So innovations, move to zero sugar, move to healthier options. There's other theories around energy being closer in price point to soda, right? So the trade-up to energy is not as big as it used to. So that might explain why the category is growing so much. And then retailers are just embracing, I think overall, retailers are embracing the energy drink category, especially in CNG. They're seeing the growth. So they're giving it more space. They're giving it more promo, they're executing better. So all this combined just creates a very big growing profitable category that's ripe for disruption with better-for-you brands.

[Sean McGowan, analyst]

Great. And my last question is on -- we haven't heard the word tariff. Does it have any impact? Is there kind of a derivative negative or even a derivative positive to you guys on all this tariff? I understand it can change overnight and it will. But just talk generally about what you think the impact is, if there is any?

[Ingy Sarraf, executive]

Well, of course, the tariffs are causing some cost pressures. But thanks to the way we've adjusted all our sourcing and our stable freight nowadays, we've contained it so far. So our COGS are actually in a good position. And I know that they've also lifted some reciprocal Canadian tariffs recently. So that also helped us well on the ingredient side. So we're in good standing. If there's more pressure in the future, then we never know with the U.S. right now. But we're on the watch point, and we're doing well so far.

[Operator]

This concludes our question-and-answer session. I would like to turn the conference back over to Carl Goyette for any closing remarks.

[Carl Goyette, executive]

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

[Operator]

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