Simply Better Brands Corp

XTSX:SBBC

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[J. R. Ward, executive]

Good afternoon, everybody. Thank you very much for joining us here today. My name is Kingsley Ward, and I am the Chairman and the CEO of Simply Better Brands, and it is my pleasure to welcome you all to our Second Quarter Update.

Our first piece of business here is traditional disclaimers, which I need to bring your attention to, and we'll have that on file. And our first item of business is around our significant addition of some experience and leadership to our Board. We've achieved some great milestones over the last 5 months, and I'm really, really too pleased to report that we've brought Erica, our wonderful Entrepreneur, Founder of TRUBAR on to our Board to help guide the company going forward. And another fantastic addition to our Board is a gentleman by the name of St. John Walshe who comes from the Omnicom world, with $15 billion advertising group. He was running the $3 billion group BBDO inside of Omnicom for many years. And through a relationship here, Richard Kellam on our Board. He was invited on, and he's been just a fabulous addition to the team.

And the other high-level news I'd like to report is that I decided to take on a full-time role here and permanent CEO of Simply Better Brands, and I'll continue to try to support the company and guide it going forward. It's been a busy, busy 5 months, and I am pleased to report though that we've basically -- all our restructuring activities have been completed, and we're monitoring and simply managing some of the final details of these significant pieces of the puzzle. Through the last 5 months, we've closed, as you see on the slide here, we've closed 10 of 17 divisions that has left us with a core portfolio of really 3 brand groups. We'll talk about that in a minute. We've reduced our overhead significantly and we've realigned all our effort to support our HERO brand TRUBAR. Slide?

You see here the TRUBAR, 7 different products that we offer, and that's expanding as we speak. We have this incredible business that Erica has built over the last 5 years or so. And really, she's done an incredible job considering the fact that she really had no resources under prior leadership. And until we really came in and restructured things, it was a very, very difficult build, but yet she was able to achieve a spectacular milestone of almost $25 million in revenue last year and got us on a clear guide path to $45 million to $50 million this year. So we'll continue to work with Erica on TRUBAR. We've got our smaller lines, the next-gen beauty line, No B.S. and our plant-based wellness lines that will continue to incubate while we also are looking for our next TRUBAR.

Other significant achievements have been made over the last 5 months with regards to enhancing our financial position. I'm going to ask Brian Meadows, our CFO, to walk you through some of the highlights of our success to-date.

[Brian Meadows, executive]

Thank you, [ King. ] The first slide, we're looking at the second quarter against the prior year. Revenue came in at $7 million, which was down from last year. Now the reason for the decrease was in our noncore brands, as we talked about earlier. TRUBAR being our flagship, it was ahead $0.3 million quarter-over-quarter. And our CBD brand was down $1.7 million. Reason for that is we were looking for profitable growth going forward with that business, and we found the affiliate marketing that we were doing was causing losses. So we've refocused the business. That's the big reason for the revenue drop.

Margin though, a good news story there, $3.3 million against $1.8 million prior year; 47%, an increase to 26 percentage points, and that's led again by the TRUBAR business, getting our COGS down. Looking at the net loss. So the key message there there, $7.1 million, but most of that is all related to fair value charges on our warrants and derivative liabilities. That was about $6.5 million of the $7.1 million for the loss. If you look at our adjusted EBITDA, positive quarter again, second one this year, $0.3 million, a $0.7 million improvement. So again, significant improvement in year-over-year margins with investments in growth. Next slide, please?

Looking at the 6-month results, came in at $21 million against $20.3 million. Again, the big -- the growth for TRUBAR, $3.1 million or 19%. And the other brands, mainly the CBD brands, as we talked about earlier, refocusing that business for profitability. That business declined $2.4 million. Margins for the 6 months came in at 35%, 4 percentage point improvement over the same time last year. Again, the net loss of $7.3 million, driven by the revaluation of warrants primarily. And on a 6-month basis, we have achieved adjusted EBITDA of $1 million against $0.1 million last year, $0.9 million improvement. Next slide, please?

A couple of other highlights we'd like to talk about financially. Private placements, we had a very successful offering in May of this year, brought in CAD 4 million. And on top of that, with the success of the business, we're seeing more and more warrants being exercised. And so far, we see CAD 1.5 million come in this year. This is really right up until the filings. Additionally, we've had a lot of success improving our debt facilities with -- we just finalized with a Tier 1 Canadian bank, a total of USD 10 million. These facilities materially reduce the cost of borrowing from 15 percentage points to around 9% per year. And then this is all secured to support TRUBAR's growth.

Lastly, subsequent to the quarter, the company secured CAD 3 million in promissory notes with the 2 of our Board members and an Associated Shareholder, which again, those proceeds were used to help us complete the facility with the Tier 1 bank as well as provide additional funds for TRUBAR's growth.

And with that, I'd like to turn over the call to Erica Groussman, the CEO of Tru Brands as well as a Board member to talk about our crown jewel. Erica?

[Erica Groussman, executive]

Thank you, Brian. Welcome, everyone. I just want to talk about our wins just for Q1 and Q2. We've had an amazing growth pattern. We're very excited about everything that's happening. As you can see, we have just been going in an amazing amount of doors and anyone who tries the BAR just falls in love and is very happy and can't wait to share it.

We've gone in more doors than we expected. And as you can see, we -- like [ Air One, ] just recently we launched, they are this very high-end grocery store in Southern California or GNC, which is nationwide, we're in over 1,000 doors. [ Sheets, ] which was a C-store, we did over 700 stores. So just gaining these distribution points is amazing for growth, and just noticing the BAR. So it's all very exciting. If you want to go to the next slide.

Here, we're talking about how we got into over -- we're going to be in over 12,000 stores and we have more coming. Everyone that we present to just is super excited about the BAR. Once they try it, they're even more excited. And with these vibrant colors, they know that they're going to do well on the shelves -- happening. We just went into Whole Foods for right now at about 63% of all Whole Foods market, which is so exciting walking into the store and seeing it. We will be at about 90% of all the whole food stores by the end of the month. and doing really well there. GNC, we launched just a couple of weeks ago. And then some other grocery stores and C-stores that we're going to be going into coming up here very soon. And we're just thrilled with all the momentum. It's becoming such a craze and just thrilled about it. If you want to go to the next slide?

So here, I'm just -- like I know I keep saying excited, but we're just thrilled at what has changed. We've got leadership here that's backing us up and giving us the funds. We have -- we're well capitalized now. So we have this plan in motion that we can actually execute on. And we are. And as you can see, we're going in all these doors. We're having amazing growth -- and it's just all very exciting. And we are committed to executing the plan of $40 million to $45 million -- or $45 million to $50 million, excuse me, in revenue for 2024. And we know that that's going to happen. So we're just very excited. And thank you, everyone, for joining and for your support. And hopefully, you go pick up a TRUBAR in your neighborhood store.

[J. R. Ward, executive]

Thanks, Erica. I'm going to appreciate those remarks. And I'm going to turn over the floor here to anybody that would like to ask any questions of the team here. I'll try and direct traffic as far as the answers. But we'll open the floor here to any questions, and we have some teammates here monitoring the boards if there's any ones that come in via text.

[Operator]

We have a question from Trevor. Trevor, if you can unmute your mic.

[J. R. Ward, executive]

Hi Trevor, are you with us there, sir?

[Unknown Analyst]

Kingsley, Erica, Brian, and [Technical Difficulty] and thanks for taking my question. I have a couple, if that's okay.

[J. R. Ward, executive]

Absolutely.

[Unknown Analyst]

I'd like to start off by asking about the market reaction today despite the outstanding improvements shown over the quarter and over the first half of the year, I can only deduce that some retail investors might be disappointed with the lack of sales growth when compared with Q3 '23. Should we expect the previous announced store additions to be reflected in sales over the second half of the year in order to meet that guidance that was just reiterated by yourself, Erica?

[Erica Groussman, executive]

Yes. I'll speak to that. So we've got amazing partners, and sometimes things just fall a little bit differently. So we are very excited about everything that's happening with the brand. Like we have extreme growth. And we know that our plan is to have the $45 million to $50 million, and we see no issues with that. So in a nice way of saying, it just happened to be where the quarter fell. So there is nothing to be worried about or.

[J. R. Ward, executive]

Erica, maybe I'll add some color to that, all right?

[Erica Groussman, executive]

Yes. Of course.

[J. R. Ward, executive]

So folks in the first quarter, we referred to the fact that we -- this is not lineal sort of quarter-by-quarter growth that we're going to experience due to significant activities in some of the retailers, mainly Costco, with some very, very significant in-store promotional activities, significant chunks of revenue move into -- from quarter-to-quarter, and this is what's happened, and we see the second quarter here not giving everybody the indication that we're on a clear run rate to that $45 million to $50 million. We've been -- we've tried our best here to get this message out that we are very, very committed to our numbers. And we see Q3 and Q4 ramping in a way that we need it to ramp in order to achieve the guidance.

In regards to the stock, I think it's important to note a couple of items. Number one, we have a significant number of warrants that were associated with past activity prior to us really taking control of this business in the first quarter. And that -- when the stock had performed the way it did, that's drawn attention to these warrants -- the people that hold these warrants. And they're selling the stock and cashing in their warrant. So yes, we have $1.5 million, as Brian said, of capital into the business, but this is at $0.25, $0.45, $0.50 levels. And obviously, they're selling into the share -- the stock that was priced $0.80-plus at one point -- $0.90-plus at one point. So we've got that -- plus we've got some legacy shareholders that are not long-term shareholders that are also in our market. And so we got some selling pressure.

I want everyone on the call to know that we are extremely committed to working through this current selling and getting us back on track to the levels that we were trading at there for a few months. I hope that answers your question, Trevor.

[Unknown Analyst]

That does the detailed and excellent response. Can I ask a few questions about Costco now? Noting in your MD&A, it stated that the first stage of the role that was taking place in 4 of the Costco regions. Do you -- Erica, do you have any similar metrics to the one you provided for Whole Foods of the percentage at which you'll be national with Costco?

[Erica Groussman, executive]

So we actually should be in every single Costco store right now. If not, it should be in the next 2 weeks or so. But we pretty much are in every single store. They have them in their depot -- if that answers your question. Whether it's the old saver or the new flavor, there should be in.

[Unknown Analyst]

Okay. And based on the early indications with the new multipack, are you exceeding Costco's $1,000 per store per week hurdle?

[Erica Groussman, executive]

They are very happy with the results, and we're doing very well. It's a hot flavor profile.

[Unknown Analyst]

Awesome. And are you still selling 2 SKUs in any other regions?

[Erica Groussman, executive]

There might be in some of the areas, 2 SKUs, but just until the Cookie Dough and Donut have sold through.

[Unknown Analyst]

Okay. Great. And I'm seeing the word international appear more and more in your press releases. Do you have any updates that you could provide on that front? Any progress from the last webinar with respect to inbound calls from certain key customers.

[Erica Groussman, executive]

So we can't announce anything yet, but we are in good conversations.

[Unknown Analyst]

Okay. Great. And my last question will be with respect to Amazon sales. We've noticed that there's a couple of new SKUs being offered in the form of both an 8 and 14 pack for the "Oh Oh Cookie Dough" flavor. Could you discuss the rationale behind the sizes? And if you have plans to do the same for other flavors and/or additional innovations we can expect in the near future? [ We do have ] multiflavor?

[Erica Groussman, executive]

Yes. We're just trying to get different price points, right, to allow customers entry point as well as customers who know they love a flavor. We're also going to be rolling this out for other flavors and multipacks. We're just trying to create more real estate upon Amazon.

[Unknown Analyst]

And my last question will just be, you showed the pipeline for the first half of the year. How does the pipeline look for the second half of the year? And what can investors expect over the next few months?

[Erica Groussman, executive]

I'm not sure. Even better. I don't know if I can say that, but even better.

[J. R. Ward, executive]

Yes. I think maybe let me take the shot at answering that, Erica. So Trevor, look, bottom line here is those distribution points that those doors that I referred to in one of Erica's slides are moving with pace, some ahead of their original plans. And this is why we are very, very confident and excited about what Q3 and Q4 are going to look like in terms of financial profile. Does that help?

[Unknown Analyst]

That does. Excellent.

[J. R. Ward, executive]

No problem at all. Appreciate your interest in the company here. We're still open for questions here, folks, and we've got some additional time. If anybody would like to ask an additional question, please go ahead. Anything new?

[Operator]

I think there's a question from a dial-in last digits, 5507. [Operator Instructions]

[Noel Atkinson, analyst]

It's Noel Atkinson from Clarus Securities. Can you hear me?

[J. R. Ward, executive]

Yes. Perfect.

[Noel Atkinson, analyst]

Okay. Great. So thanks so much for taking our questions this afternoon. We're nice to see sort of like a diversifying base of revenue here in the TRUBAR as you just go into the second half of the year. To that end, management has talked on prior calls about some pretty major wins. So Walmart, CVS, some other folks. So are you still looking to get those rolled out into those stores in the second half of this year?

[J. R. Ward, executive]

Yes. No, absolutely. I appreciate your interest here. We've mentioned those names in interviews. But until we are -- until we've delivered product to the stores, and we're on site. We're not in a position to actually formally announce the names. But all activities, as presented in the distribution expansion slides are well underway, and we are very comfortable that they will light up in Q3 and Q4.

[Noel Atkinson, analyst]

Okay. So we've also seen following on one of the prior questions talking about Amazon. So we've seen one of your SKUs -- at least one of your SKUs getting into the top 20 in this category in the U.S. market. We're seeing decent volume to good volume on pretty much every major box SKU. So can you talk about what you're doing to support the Amazon growth here?

[J. R. Ward, executive]

Erica, could you please take that question?

[Erica Groussman, executive]

Yes, of course. We are -- we have -- we're internally working on Amazon, and we are doing some ads just to make it show up better. And obviously, like we just spoke about the different pack sizes. So we're just gaining more real estate and more momentum on Amazon as well as creating more monthly subscriptions.

[J. R. Ward, executive]

Yes. And I would like to add -- I just want to add a little color to that comment, Noel, is -- this is what is so incredible about what Erica has done is literally we're on a run rate here to $50 million of revenue. And up until the last couple of months really, there's been basically no oxygen in the room for TRUBAR, both by way of capital to support inventory build and getting product into stores; and second, marketing. So every -- all these results today are exceptional considering literally, there's been no capital really deployed.

We are now deploying smaller amounts of capital. But as we develop here and put more dollars on the bottom line, we're going to shift more capital into the marketing function. We've also got some world-class folks around the table that are helping us with new activity planned for the fall here, both with social media and e-commerce.

[Noel Atkinson, analyst]

Okay. Great. And then my last question would just be sort of a follow-on to that. You're ramping pretty strongly on the revenue side for TRUBAR. Can you talk a little bit about sort of the infrastructure that you're adding -- to staffing to be able to support that and support the ongoing growth of those accounts?

[J. R. Ward, executive]

100%, great question. And absolutely, again, Erica had a team of 5 people really that were managing the business up until the last few months. And we are -- we've actually -- we're in the process of onboarding several new hires with deep, deep sector experience. We also have the consultant to onboard to help us flush out the needs from a software systems, not one, but several to run the business; and basically, be in a position for the company to really keep going beyond the $50 million points.

So 100% is, recognize that we needed to beef up the operations side of the equation, and we are absolutely doing that in addition to there's a number of resources that we are getting loaned to us from my firm VRG Capital. And all these various individuals are all contributing just to supporting Erica in this incredible drive, out on the front end.

[Noel Atkinson, analyst]

Okay. That's it for me.

[J. R. Ward, executive]

Thank you, sir. Appreciate your interest in the business. Thank you. Any further questions here?

[Brian Meadows, executive]

Not that I can see.

[J. R. Ward, executive]

Okay, folks, I think that's a wrap then for today. Again, I appreciate all your support, and we will look forward to chatting here in the near future. Have a wonderful evening.

[Brian Meadows, executive]

Bye now.

[Erica Groussman, executive]

Thank you. Bye.

[J. R. Ward, executive]

Thank you.