Welcome to the Guru Organic Energy third quarter 2024 results conference call and webcast, being recorded today, September 12th, 2024, at 10:00 A.M. Eastern Time. At this time, all participants are in a listen-only mode. Following management's presentation, there will be a question and answer session with financial analysts. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press star followed by zero for operator assistance at any time. Guru's press release, MD&A, and financial statements are available in the investor 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. As such, please take a moment to read the disclaimer on forward-looking statements on slide two of the presentation. I will now turn the call over to Carl Goyette, Guru's Chief Executive Officer. Please go ahead.
Thank you, operator. [Foreign language] . Good morning, everyone, and welcome to our Q3 2024 earnings call. Joining me this morning is our CFO, Ingy Sarraf. Let's turn to slide five for those following on the webcast. This quarter, Guru continued to prioritize its return to profitability by maintaining strict cost controls, even in a challenging sales environment. Thanks to favorable market dynamics and reduced input costs, our gross margin increased significantly to 55.4%, up from 51.2% in Q3 of 2022 , allowing us to maintain stable gross profit despite a decline in revenue. These efforts have led us to a 50% reduction in our net loss over the last two years. While focusing on profitability, we face challenges that impacted our net revenue this quarter, primarily due to reduced shipments and decreased convenience store traffic.
However, year-to-date, our revenue and gross profits have grown by 6.9% and 11.6%, respectively. We continue to see growing demand for our products, particularly in the U.S. market, where sales increased by 74% year-over-year in the last nine months. We also achieved double-digit retail scan growth in our key channels, including Amazon, Whole Foods, and our retail channels in Quebec. Turning to slide 6. In Canada, we continue to build on our strong market presence, especially in Quebec. In this market, our latest innovations, Peach Mango Punch and Zero Wild Berry, have driven sales growth and increased our market share by more than one percentage point to 18.3% in units over the last nine months when considering tracked channels.
However, the market was marked by challenges related to the timing and execution of retail promotions, which affected our overall sales performance. Despite this, our strategic focus on key urban centers remains critical to our growth strategy, and we are seeing positive results. To further support our growth and engage consumers in Quebec, we have launched special promotions in grocery stores and Costco. Starting tomorrow, four packs of Fruit Punch and Peach Mango Punch will be available at a discounted price in most Quebec grocery stores, and 24 packs of Guru Original will be offered at CAD 32.99 in main Quebec Costco locations. In Canada, we will soon conduct our first Costco roadshow, featuring our Punch line in prime locations across the country. If successful, this could lead to new opportunities in this major sales channel. Turning to slide seven. Let's discuss our performance in the U.S. market.
Our U.S. operations continue to excel, with sales growing by 10.3% compared to the Q3 of 2023. The growth was fueled by our strong performance on Amazon, where Guru remains the number one organic energy drink. We are very excited about the upcoming launch of our Zero Sugar line in the U.S., which will include three popular flavors: Wild Berry, Wild Strawberry Watermelon, and Wild Ruby Red. This launch marks a significant milestone as we tap into the rapidly growing zero sugar segment, which now represents 50% of the $20 billion North American energy drink market. What sets Guru Zero apart is our commitment to offering a better-for-you energy drink experience with a zero-sugar, organic energy drink that contains no sucralose or aspartame, artificial sweeteners often associated with potential health risks.
Moreover, Guru Zero provides a metabolism boost, combining natural caffeine and EGCG polyphenols, making it the only zero organic energy drink on the market that aligns with the health-conscious demands of our up-to-date consumers. We are confident that this launch will further strengthen our position in the U.S. market now and in the future. Our ongoing efforts to optimize online sales have been validated by the significant momentum we experienced during the Prime Day event on Amazon.com, where we achieved a remarkable 76% growth over last year's Prime Day performance. This success reinforces our confidence in the upcoming Zero launch and the continued growth of our U.S. operations. Looking ahead, we see significant opportunity to further expand our success in U.S. urban centers. Our efforts in California have already begun yielding returns, particularly in Southern California.
This focused approach will allow us to leverage our experience in California to drive growth in additional key urban areas where our target consumers live. I will now turn the call over to Ingy Sarraf, our CFO, to discuss our financial results in more details. Ingy, over to you.
Thank you, Carl, and good morning, everyone. Let's turn to slide nine. Net revenue for Q3 2024 was CAD 7.9 million, down from CAD 8.9 million in Q3 2023, reflecting challenges in the Canadian market. Gross profit stood at CAD 4.4 million, with a gross margin of 55.4%, an improvement from 51.2% last year. This margin improvement was driven by better pricing dynamics and reduced input costs, allowing us to maintain a stable gross profit despite this revenue decline. SG&A expenses decreased by 13.2% to CAD 7 million from CAD 8.1 million in Q3 2023, primarily due to streamlined operations and lower marketing spend. These cost control measures helped us narrow our net loss to CAD 2.2 million this quarter, an improvement of 25.8% versus Q3 2023.
As of July 31st, 2024, Guru had CAD 37.7 million in cash, cash equivalent, and short-term investments, along with unused credit facilities. This solid foundation provides us with the resources needed to strategically invest in growth opportunities while staying focused on our goal of returning to profitability. Carl, back to you for concluding remarks.
Thank you, Ingy. Turning to slide 11. As we look to the future, our primary focus remains on driving growth, accelerating our return to profitability. We've made significant progress in reducing our net loss, which improved by 18.3% to CAD 6.8 million in the first nine months of 2024 versus the same period in 2022. It is also worth noting that our net loss reduction initiatives have paid off, as we have reduced our year-to-date loss by over 50% in the last two years. This demonstrates our strong commitment to cost management and operational efficiency. We expect this net loss reduction to continue in the future as we gradually return to our historical profitability. We are confident that our disciplined approach to cost management, combined with our strategic investment in key growth areas, will position us well for sustained success.
We have also strengthened our leadership team with the addition of three new independent board members, Jeff Church, Anne-Marie Laberge, and Tyler Ricks, and the appointments of Xingli Liu as Vice President of Marketing. These strategic additions bring a wealth of experience and will play a critical role in driving our growth and ensuring robust governance as we move forward. Our innovation pipeline remains a key component of our growth strategy. The upcoming launches in the U.S., along with our packaging and messaging revitalization, will further solidify our position in this market, and we are excited about the potential these new products bring. We are adapting our marketing strategy based on new insights that have further clarified the Guru target consumer and the brand narrative that resonates with them.
We remain steadfast in our mission to clean up the energy drink industry, and we are energized by the opportunities that lie ahead. This concludes our formal remarks. I will now turn the call over to the operator for the Q&A.
We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are 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 will pause momentarily to assemble our roster. Our first question today is from Martin Landry with Stifel. Please go ahead.
Hi. Good morning, Carl and Ingy.
Good morning, Martin.
Good morning.
My first question, you know, there's a lot of dynamics at play during the quarter. There's some retail channels that are seeing some soft traffic patterns, and there's others that are doing well. And I was wondering if we could look at it on an aggregate basis. And, you know, it'd be interesting if you could share with us, you know, your retail sales in Canada during the quarter, all channels combined, so measured channels, non-measured channels, and online, if possible.
Yes, I can certainly give you that number and color around it, because I think it's the this, these channel shifts mainly driven by inflation and the consumer's wallet being squeezed. We've been talking about this for quite some time, right? I think the consumers are increasingly smart, and they're finding ways to save money. They're smart, and they're finding ways to save money when they are very loyal to their Guru brand, and there's some channel shifts that are happening. The overall number you're looking for when you're looking at tracked and untracked for Canada for the quarter, Martin, is -1%. There was a small decline in Canada in this quarter. It's growing in Quebec, but there's a small decline in Canada.
And if you wanna like, more color around that number, I'm happy to give you a lot more on what's happening from a retail dynamics point of view.
Okay, yeah, well, that'd be great. I mean, it's the first time that your retail sale declined in a little bit, so yeah, any color would be helpful.
Yeah. I'll start with our biggest market in Quebec, right? I think in Quebec, we're growing. We're still growing, but there is an interesting dynamic. What we're seeing is really small declines in the premium, what I would call premium retail banners, right? So that would include Costco, Petro-Canada, IGA, and Metro, where we're seeing some declines there, right? Obviously, this is offset by some really strong growth in Costco, growth in Dollarama, and in Walmart. But overall, this has impacted our growth, right? So that's the Quebec dynamic, still growing, but not at the pace that we have been growing in the past because, you know, Costco with Dollarama and Walmart are not growing as fast enough to completely offset the declines we're seeing in some of the premium banners.
In rest of Canada, it's a little bit different, right? Some of the declines are driven by... There's one chain that has been struggling more, right, for us, and it's Petro-Canada. Petro-Canada since last year. They had some system, IT system breach, and they were hacked last year, and since then, we've seen our sales start to decline, and it's by far the biggest offender. So there's something specific that we're fixing with Petro-Canada. They stopped all promotions after this, and they've changed their planograms to national planogram model. Anyway, without going into all the details, this impacted a lot our sales and the independent channel, right?
So there are the independent convenience stores in rest of Canada that have been really struggling with the consumer dynamics that we have seen. The difference with rest of Canada, though, is that we don't have a strong presence in discount grocers, in Dollarama, or we're not in Costco and Dollarama in rest of Canada. So we don't have that kind of discount channel to capture some of the outflows coming from premium retailers. So we're seeing a little bit more decline, obviously, in rest of Canada than we are seeing, and we're still seeing some growth, although a smaller growth in Quebec with these dynamics.
Great. That's very helpful. Thank you for the color here.
Yeah.
Uh.
I think it's important, Martin, maybe to, 'cause this is obviously, we're reacting to this, so we're improving our, you know, we spoke about our discounts in Costco that are coming up, road shows in Costco. We're just starting a new program with four-packs, so we're changing four-pack strategy, launching new four-packs in September. So these are all things that we're doing to kind of put in place to try and capture more of that consumer who's increasingly smarter, making the decisions to buy in bulk or buy in discount in discount grocery. So we wanna make sure we dial up our presence in these types of retailers to capture the good consumers in these channels.
Mm-hmm. Okay, and maybe, you know, you've talked about having a strong performance online. You've talked about Prime Day with Amazon. You know, I was wondering if there's any tidbits that you could share, you know, with us. I don't know, perhaps on new customers to the brand online, with at Amazon or repeat rates or any other metric that can help us better understand your performance there.
Yes, sure, Martin. I'll start, and Carl, if you want, you could add on. We're actually very happy with what's going on on Amazon. As you, Carl, just mentioned, right? We saw a movement towards discount, but online, what we're seeing are basket sizes are growing. So from a repeat rate, we have outstanding repeat rates of around 60%. And from new customers, what we're seeing is they're doubling as well, our new-to-brand that are coming in. So very encouraging and very happy to launch the Zero line as well this week on Amazon in the U.S.
Okay.
Yeah.
When you say your new customers doubling, you're seeing doubling on a year-over-year basis?
Yes, year-over-year, our new-to-brand are doubling. Yes.
Yeah. So this is really a case of, you know, loyal consumers repeating a lot, right? And bringing the consumers. So there's something with a broader assortment on Amazon, with more aggressive offers, marketing spend that's really effective, and the team dialing up the strat- the pricing strategy without going into detail. But there's something that's working there, and it's been working quarter after quarter. So to a point where we're the number one organic energy drink brand on Amazon, and we think there is a lot of potential to grow in that channel. So we're very excited about this one.
Cool. Angy, you know, your gross margin expanded a lot this quarter. I think you're up by 425 basis points.
Mm-hmm.
It's the largest expansion we've seen in a while.
Mm-hmm.
I was wondering, you did touch on some items, but I was wondering if you could quantify or give us a bridge?
Mm-hmm.
On the main buckets that explain this year-over-year margin expansion.
Yeah, for sure. We're very happy with this improvement, of course. So of course, I'm ready to give you a bridge. When we look at the gross margin improvement for the quarter, we say that one third of that is really due to our input cost improvement, and two thirds of it are really due to the pricing dynamics in the market and between the channels. So this is how we bridge it.
So sorry, I'm not too sure if I understand when you say market price dynamic.
Okay, it's really more the mix, well, between the pricing between the channels, so online and retail, and as well within each of these channels, pricing dynamics, i.e., the trade spend that we're doing. So pricing of our goods versus the promotions that we're doing. So that was beneficial this quarter.
Okay, and then, so which channel is more profitable for you? Is it retail or online?
From a gross margin standpoint, we see that online is a bit more profitable than the retail channel. However, there's costs then that come in later on, but from a gross margin standpoint, yes, it is. And from a year-to-date standpoint, really what's outstanding is really most of the uptick there, so improvement in the gross margin is really due to our input cost improvement. So that's something that we expect to continue as well.
When you say input costs, what—which? Can you be a little bit more precise?
Yeah.
Is it, is it your cans? Is it your?
Yeah, it's more of my, our raw material.
Okay.
Of course, transport as well was good, but it's really more driven from the input, the raw materials themselves.
Okay. Okay, and then maybe just last question, looking forward, I was wondering if you could comment a little bit on what you're seeing so far in Q4. You know, I understand there's some channel shift that don't seem to be changing in the convenience store channel. But could we see you guys return to revenue growth on a year-over-year basis in Q4?
As you know, Martin, we don't give forward guidance. We don't give forward guidance, but there's a lot of good things that we put in place, right? I think I just spoke from a retail point of view. I just spoke about what we're putting in place. We're starting this week, a first focus period with PepsiCo. So we are gonna see a lot of activities, both in Quebec and in the rest of Canada, to try and finish the year very strong. So that's from a retail point of view, and activity on four packs, roadshows in Costco. So I think that's the retail piece. We also shared some information on the momentum we're seeing in some banners in the US, so hopefully, there's no reason why this would stop.
So I think this is, this is very positive. And then from an online perspective, maybe, Ingy, you wanna jump in on the... You know, it's only a few days, but you wanna jump in on how Zero's performing so far?
Yes. So we just launched Zero on Amazon in the U.S., and we're seeing... Well, it's just been a couple of days, so of course, it's anecdotal, but we're seeing great pull. Like, Zero's performance so far is beating our previous innovation sales in a month's worth, in three days. So, we have great, great hopes and ambitions for this Zero lineup.
Great. Okay, congrats, and best of luck. That's it for me. Thank you.
Thank you.
Thank you.
This concludes our question and answer session. I would like to turn the conference back over to Carl Goyette for any closing remarks.
Thanks everyone for attending, and wish you a great day.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.