Guru Organic Energy Corp

TSX:GURU

Earnings Call Transcript

[Operator]

Welcome to the Guru Organic Energy Fourth Quarter and Year-End 2024 Results Conference Call and Webcast, being recorded today, January 23, 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 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 2024 Year-end Results Conference Call. Joining me this morning is our CFO, Ingy Sarraf.

Let's turn to Slide 5. Fiscal 2024 was a year of driving strategic optimization. During the year, we focused on driving sustainable growth and our return to profitability. Supported by enhancements in operational efficiency and disciplined cost management, driven by a robust performance in the U.S., which saw a 62% year-over-year growth. Net revenue grew by 3.3% and to $30.2 million, underscoring successful expansion and brand penetration efforts in priority markets outside of Canada. Our disciplined approach to cost management and pricing strategies continue to bear fruit as gross profit increased by 8.4% to $16.7 million and gross margin improved to 55.3%.

As a result of our ongoing efforts to streamline operations and reduce cost, we were able to achieve a 21.3% decrease in net loss in fiscal 2024. These achievements reflect the strength of our strategy to balance growth with financial discipline. Our efforts have laid a solid foundation for the future as we continue to navigate a competitive and evolving market. Turning to Slide 6. Innovation was central to our success in 2024, elated by the launch of our Zero Sugar line, GURU Zero addresses the rapidly growing demand for sugar-free energy drinks, which now account for more than half of the $23 billion North American energy drinking market. Like our other products, GURU Zero stands out as the only 0 sugar organic energy drink without sucralose and aspertame.

Through innovation, we are attracting more consumers to the brand and expanding our sales and reach in key growth markets, namely the online and wholesale club channels. In the U.S. We achieved record-breaking online performance in 2024, particularly on Amazon, supported by the strong reception of the Zero Sugar line in our targeted digital campaigns. The U.S. retail market also benefited from innovations in 2024 with continued double-digit retail scan growth in the natural channel and at Whole Foods. Starting in January until March, our Guru Zero line will benefit from additional exposure at select Costco stores in Southern California. In our core Quebec market, GURU solidifies its position as the undisputed leader in energy drink innovation. Launching the #1 energy drink innovation each year for the past 3 consecutive years. This piece has been instrumental and maintaining our coveted third place in the market share for energy drinks despite intense competition.

In 2024, Peach Mango Punch and Zero Wildberry, both deputed to exceptional consumer claim, reinforcing Go's reputation as a trusted, forward-thinking brand that continues to set the standard for innovation in the energy drink category. In Canada, we also deepened consumer engagement through initiatives such as our national Costco roadshows, which sampled over 450,000 units and provided valuable insights to guide future product development and distribution strategies. In 2025, we will introduce more better-for-you innovations with the goals of expanding our consumer base across North America. Turning to Slide 7. In 2024, we strengthened our leadership team and governance with the addition of new independent Board members will bring extensive experience in beverage and consumer packaged goods, marketing, digital transformation and operational excellence.

These changes ensure robust guidance as we expand our market presence in Canada and in the U.S. Our executive team has also been enhanced with the addition of Shingly Lee as our new VP of Marketing. Shingly's expertise is building high-growth brands has already contributed to refining our marketing strategies and enhancing consumer engagement.

More recently, we were thrilled to welcome Patrick Charbonneau as our new Executive Vice President of Sales. Patrick brings over 25 years of extensive leadership experience in the food and beverage industry, including key vice president roles at PepsiCo Canada. We're known for a strategic vision and ability to build high-performing teams, Patrick will oversee all sales activities for Guru in North America. His expertise will play a critical goal in achieving our growth objectives in 2025 and beyond.

With these new additions, we are more than confident in our ability and the team's ability to take GURU to the next level of growth and profitability. Turning to Slide 8. After the close of fiscal 2024, we announced that our execution agreement with PepsiCo Canada will end on May 22, 2025. This transition will see us return to a proven direct distribution model, which has fueled growth for over 2 decades. This change presents an exciting opportunity to enhance our operational flexibility, strengthened retailer relationship and invest in more targeted brand-building initiatives. Simply put, it will allow us to invest more efficiently and responding more quickly to capitalize on sales growth opportunities. We are committed to ensuring a smooth transition for all stakeholders, including our retail partners and consumers as we resume direct distribution in Canada.

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. Let's turn to Slide 10. Fiscal 2024 demonstrated our ability to drive growth and effectively manage costs. which allowed us to increase net revenue by 3.3% to $30.2 million and reduced net loss by 21.3% to $9.4 million. Our focus on cost management continued in Q4 as gross margin improved to 57.1% on lower net revenue of 7.2%. The 6.9% year-over-year decline in Q4 revenue was offset by stable gross profit, which remained flat at $4.1 million. Our cost reduction activities showed renewed momentum in Q4 as SG&A expenses decreased by 18.8% to $6.8 million as a result of streamlining and efficiencies in sales and lower marketing spend. These combined cost reduction efforts resulted in a 28.1% improvement in net loss to $2.7 million compared to Q4 2023.

As of October 31, 2024, we maintained a strong financial position with $25.5 million in cash, no debt and a $10 million in unused credit facilities. With our disciplined financial approach, we believe we have ample financial resources to lead us into our next phase of growth and return to profitability. Carl, back to you for concluding remarks.

[Carl Goyette, executive]

Thank you, Ingy. Turning to Slide 12. As we look ahead to 2025, our primary focus remains on driving growth while preparing for the exciting opportunities that lie ahead. Fiscal 2024 demonstrated our ability to optimize operations, innovate and strengthen our market position. We made significant progress in reducing our net loss and improving our financial resilience. Providing a strong foundation for the next phase of Guru's journey. As we move into 2025, we will focus on: first, seamlessly transitioning our direct distribution model in Canada to enhance operational flexibility and improve retail relationships. Second, expanding the Zero Sugar line across premium retail and online platforms in both Canada and in the U.S., targeting urban centers where help conscious consumers are concentrated.

And third, maintaining disciplined cost management while selectively investing in initiatives that align with consumer preference and drive long-term growth. We look forward to returning to our proven direct distribution model in Canada in May, which will allow us to reestablish direct relationships with our retail partners, increase our operational agility and better align our distribution strategy with our long-term goals. We are fully prepared to make the transition seamless and ensure uninterrupted service and continued growth in the Canadian market. Our innovation pipeline for 2025 is more robust than ever, building on the success of our Zero Sugar line and other recent launches, we are preparing to introduce new exciting products that reflect the evolving preferences of our consumers.

These innovations will further reinforce our position as a leader in the better-for-you energy drink space. In addition, our strengthened leadership team brings a wealth of expertise and renewed focus on excellence. The contributions will be instrumental as we expand our market presence in key markets refine our marketing strategies and elevate the GURU brand to new heights. We remain steadfast in our mission to clean up the energy drink industry, offering high-quality organic products that resonate with today's health-conscious consumers. With our disciplined approach to cost management, strong focus on innovation and a clear vision for the future, we are confident in our ability to deliver sustainable growth and long-term value for our shareholders. We are energized by the opportunities that lie ahead and excited to continue this journey with all of you.

This concludes our formal remarks. I will now turn the call over to the operator for the Q&A.

[Operator]

[Operator Instructions]. And our first question today will come from Martin Landry with Stifel.

[Martin Landry, analyst]

Hi. Good morning, Carl and Ingy. My first question, Carl, is you've used to give us the performance at retail in Canada of your products during the quarter, all channels. So I was wondering if you can give us that metric, it helps out blur away the noise of the sell-in and sell-through and see a little bit better your performance at retail.

[Carl Goyette, executive]

Yes, absolutely, Martin. When I look at the latest -- I guess, the most reliable metric would be in the Nielsen numbers that we just got, right? So they're ending December 28. Right? In that case, we're flat in dollar sales versus last year in Canada, right? And this is not where we want to be, but this is considering increased competition over the last year. As you know, the new brands that came into the market. Only one of them has been -- seen some traction above 1% market share, but combined, they took a significant portion of the other market. right? So considering the increased competition, we felt pretty well.

[Martin Landry, analyst]

Okay. And then I'd like to move away from your results that you've published today and focus a little bit more of the upcoming transition of distributor. Is there a risk that Pepsi becomes less engaged as the end of the contract approaches. And is there a risk that you could lose some market share before the transition?

[Carl Goyette, executive]

Listen, it's a fair question to ask, but the reality is PepsiCo has always been very professional. We have a distribution agreement in place. And the clear direction for everybody, Martin, it is summarized in three words, right? Business as usual. Business as usual has been the strong communication from our teams to so PepsiCo made communication to all of their teams. It's business as usual with grew until May 1.

So I understand why you asked the question because it would be easy to fall into a is PepsiCo letting go on GURU, but it's not the case at all, and we're not seeing that. And they're professional, the reps are commission-based. As a business, they have every interest in selling more because GURU is a profit a brand for them, right? So they have every interest in selling more guru until the end. And they have legal obligations also to make sure that they maintain their obligations and their duties as the exclusive distributor for Canada until May 1. So fair question, but no, the short answer to your question is no, there's no risk.

[Martin Landry, analyst]

Okay. And then in your press release, you quoted saying that GURU is well positioned to return being profitable. So does the change in distributor accelerate your path to profitability?

[Carl Goyette, executive]

Yes, the reality is, regardless of a change in distributor -- this -- we were already on that path, Martin. We've been talking about this. GURU is always profitable prior to going public and prior to the patterns. So regardless of this transition, we would have been going back to profitability, right? Now this transition allows us to get back to that profitability faster. Mainly because of the higher gross margins, right? With a lot of banners, you're simply eliminating the middle man, right? So there's a middle man that was taking high margins, as you know, to do their work. And there's going to be an opportunity for us to recapture that margin.

Obviously, we're going to be investing in the sales force and building this. But overall, the short answer to your question is, yes, this will allow us to accelerate our return to profitability. And we aspire to show a profitable quarter as soon as possible. Not sure yet when this will happen, but we're in the modeling of this, and we will show our investors that we can get back to our historical profitability.

[Martin Landry, analyst]

Okay. That's great to hear. Is there a potential for you guys to put a breakeven EBITDA quarter in fiscal '25.

[Carl Goyette, executive]

That's the aspiration. It's always a tricky thing to balance, obviously, balancing growth. The one thing we want to make sure, right, is we -- this is a growth company. This is a growth -- as you know, we have big ambitions. So we want to make sure that when we take back our distribution and start working with retailers that GURU is back, right? It was back with aggressive merchandising in the market, aggressive promotions in the market to show everyone what we can do again. So we don't want to compromise this. So it's going to be a fine balance. But as you know, we've been balancing aggressively reducing our loss over the last few quarters, the last few years. We're going to continue doing that. But is it going to be possible in 2025? Or are we going to be able to wait is still to be determined, but you're going to see a profitable quarter from Google in the midterm.

[Operator]

And your next question today will come from Sean McGowan with ROTH Capital Partners.

[Sean McGowan, analyst]

I wanted to follow up on Martin's question about what to expect in terms of sort of Pepsi's performance. The last time around, there was logical understandable degree of choppiness to the revenue that was -- you got to fill the pipeline. Maybe trying to figure out what the level of profit level of inventory in the system is. So there was some weird comparisons this time around, as we approach that May 22 date, wouldn't it be -- would -- should we expect to see revenue in terms of shipments to pet decline because that's cleaning out their system and cleaning out their inventories.

[Carl Goyette, executive]

Ingy, do you want to take that one?

[Ingy Sarraf, executive]

Yes, sure. So of course, we're investing with PepsiCo naturally, right, about the inventory transition plan. And without going into the details of that, we do see, of course, some nonmaterial, however, inventory reductions until the end, which would be logical. And we would be taking back some remaining inventory that they would have had to avoid any out of stock in retail because that's our main goal, right, making sure that our consumers can get our products and our retailers are well equipped. But of course, because the new distribution model is still being built and it's not yet complete. We don't know yet if there's going to be more inventory or less in the old versus new system. We don't anticipate, however, any huge fluctuations. But of course, Sean, as you know, we're always transparent with you guys and we'll keep you updated along the way, but we've been working on this for sure.

[Sean McGowan, analyst]

Outside of that, okay -- are you going to say something, Carl?

[Carl Goyette, executive]

No, I was going to add is we're probably going to find out a little bit more as we signed our new distributors. So let's say, in our Q1 update in March, we'll give you more color on this. Obviously, in June, we'll know exactly. But as Ingy said, maybe the one thing I would add is we have a joint business plan like we used to have, right, with PepsiCo and these will give you a transparency on inventory reductions at PepsiCo versus inventory build in a new system. And so it's -- right now, it's hard to say because it's really hard to model. But I think as always, we're going to give you full transparency.

And I think Martin asked the right question, like we're going to be looking at Scan data as well, which ultimately inventory variation is going to be important. But the real metric is how consumers when converts are consuming rate and how much go are they drinking.

[Sean McGowan, analyst]

Outside of that inventory question, are there any other balance sheet implications of the transition?

[Ingy Sarraf, executive]

Not at this point, no, we're not seeing any fiction. It's still early, but no, everything should remain close.

[Sean McGowan, analyst]

I wanted to ask a couple of questions from -- about the U.S. I'll put my MAGA hat on. That's Make America Great Again. So I can try that out, see how that works. All right. What are you doing -- what do you have to do to prepare for the impact or potential impact of tariffs?

[Carl Goyette, executive]

Yes. This has been a topic in the news this week. I'm really grateful for the GURU team who have been very agile and flexible in this, right? So the first thing when this was first announced, it felt a little bit server, but we took the threat really seriously. So what we did is we moved the -- we had decent inventory for the U.S., right? So proactively moved that inventory in our warehouses in the U.S., right? So this kind of isolated from the tariffs? So we moved -- so we have 5 to 6 months of inventory based on our forecast of sales in the U.S. that's already in the U.S.

The other thing that the team did is they started the discussions with -- they started discussions with our co-packers, right? Who also have -- we have different co-packers as you know that we talk to. Some of them are based in the U.S. So we started discussions with them. As you know, we have moved around between co-packers in the past. We know this is a process so that takes 3 to 4 months. We have co-packer there is capacity in the market right now. So we have co-packers who are ready to take on GURU and we'd be happy to go in the U.S. and producing more of production in the U.S. to avoid the tariffs. So obviously, we don't like that scenario, but we are fully prepared for it.

[Sean McGowan, analyst]

Okay. And then more broadly for the plans for the U.S., do you have any information on expansion plans with additional retailers in the U.S.

[Carl Goyette, executive]

Well, you saw, right, there's clear momentum in the U.S. and that we're very happy about that. Momentum in Amazon continues. So this is -- will continue to be a priority for us. It allows us to access the consumers wherever they are, right? The natural channel, as you know, plays a big role from a brand building perspective. to prepare consumers for the next generation of better-for-you energy drinks. Wholefoods has been doing extremely well lately. We saw a 50% increase last month in Whole foods versus last year. Lifetime continues for us to be great. They launched their Zero line, and it's already the Zero line in lifetime is already performing in the top Qs, right? So this is very encouraging things. So from this, there is more of a continuation and working -- putting more fuel on the fire where Google is performing well. We've been quite transparent about our Costco Road row, right?

And this is promising. We started the Costco roadshow in L.A., as you know, a few weeks ago. We've performed well despite the unfortunate wildfires that were happening exactly as we were starting this, but we transformed this in some opportunities exact. So overall, this is the continuation in the strategy and the more momentum obviously opens up opportunities for other new listings and other retailers. But I wouldn't say our strategy is to go again on a big land grab and list and a lot of retailers. I think we're focused on growing velocity, growing velocity in the retailers we are already in. targeting the right consumers. I think if there's one thing to remain is that we -- both in Canada and the U.S., we now have a very good understanding of who the GURU consumer is, and we're going to be focused on that, right?

So both from a marketing perspective, focusing the right consumer with the right message, but also going to the retailers and distributors who are catering to those consumers. So it's a very true consumer focus.

[Sean McGowan, analyst]

Okay. Now with the transition in the distribution, I would imagine that the revenue growth in -- you're assuming flat units, the revenue growth in Canada would accelerate, right? You're just on at a higher price would you expect in 2025 that the U.S. would increase as a percentage of total revenue, given that kind of actually push that Canada is getting from the higher prices?

[Carl Goyette, executive]

Well, it will depend on our performance and Canada post PepsiCo. Obviously, we're optimistic, but it's too soon for us to give you that type of detail. What we're doing right now is we're modeling -- we're looking at our year in kind of 2 phases. There is a pre-PepsiCo transition, right, which is more of a business as usual model where we looked at this and say, okay, this is how we've been operating with PepsiCo here's what we expect. We have a joint business plan in place, and we want to make sure we deliver that joint business plan.

Then the second phase is really now in construction, because we obviously are having a lot of discussions with retailers, distributors, rebuilding our sales force. We are, as we have been -- as we said in our remarks, optimistic about regaining a direct relationship with retailers. We're already seeing opportunities with banners where we have seen gaps in the past to improve our performance. So we obviously think that we're going to do better managing retailers directly, and we're going to be gaining share in Canada. Now will Canada be growing at that point faster than the U.S. I would hope, right? And -- but I also would hope that we think U.S. is going to continue growing. So it's too soon. Unless Ingy, you want to add something in the modeling of this, but it's -- it would be unfair to give you guidance on this, Sean, because we haven't finished the modeling.

[Sean McGowan, analyst]

My last question is there's been a lot of attention in the industry lately on got health you're doing very well to Zero sugar, but there's all kinds of even more specific functional features added to some energy drinks mental focus as I said, gut health probiotics, prebiotics, et cetera. Would you be looking at any of these areas besides Zero Sugar?

[Carl Goyette, executive]

Innovation is a focus, Sean, right? So our innovations are performing really well year after year. So there's some -- if there's something we do well is innovation, and we're very proud of this. We don't tend to jump on the latest trend, right? We're waiting to see if -- because sometimes new brands come into the latest trend and it's not always science back to say the least. That's it. So we want to make sure that whatever claims we make are going to be science back. There's real transparency and authenticity that's built in our brand, and we want to use ingredients that are natural, that are time-tested and that efficacy has been proven, right?

So for example, CNE has been proven for centuries to improve performance on combined with caffeine. So CNE is an ingredient that we continue to use in right? We do have prebiotic fibers in our Zero line. We use them because we think in the Inulin fiber is a wonderful natural sweetener. We don't claim -- we don't make a prebiotic claim with it. Is it something that we could do in the future? Probably. One thing, the biggest trend right now is the Zero Sugar trend, and that's why it's a key focus for us, right?

The reality is there is a big Zero Sugar trend, but sharp products are full of sucralose and aspartame. And we think it's wrong, right? We obviously think it's wrong, and we want to use natural sweaters, and we think this is the future. So we're not going to make in sugar products with aspertame and sucralose, but we continue making great tasting natural products with Zero Sugar.

[Operator]

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

[Carl Goyette, executive]

I just wanted to thank everyone for attending and have a great day.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines, and have a wonderful day.