Simply Better Brands Corp

XTSX:SBBC

Earnings Call Analysis

Simply Better Brands Reports 124% Revenue Growth and Strong TRUBAR Expansion Plans

During the latest earnings call, Simply Better Brands celebrated a remarkable 124% year-over-year revenue growth, driven largely by their TRUBAR division, which expanded 156%. Total revenue reached $12.1 million, with TRUBAR contributing $11.5 million. The company maintains guidance for 2024, expecting revenues between $45 million and $50 million. Gross margins have increased from 40% to 50%, and they aim for a $100 million target in sales. TRUBAR products are on track to be in 15,000 stores, with plans for continuous distribution expansion and enhanced marketing efforts, indicating a strong future growth trajectory.

Strong Quarterly Performance

In the third quarter of 2024, Simply Better Brands reported an impressive total revenue of $12.1 million, marking a 124% increase from the $5.4 million achieved in the same period last year. The TRUBAR division was a standout contributor, with its revenue soaring 156% year-over-year, totaling $11.5 million compared to $4.5 million previously. This rapid growth indicates a strong demand for their products and effective market penetration.

Positive Outlook for TRUBAR

Erica Groussman, CEO of TRUBAR, expressed confidence in the brand's upward trajectory, targeting $50 million in revenue for 2024. The company aims to reach $100 million as part of its long-term strategy in a growing $6 billion market with a compound annual growth rate (CAGR) of 14%. Notably, adoption among major retailers such as Costco, Walmart, and Whole Foods has been pivotal in this growth, reflecting strong market validation.

Expansion and Distribution Wins

The company has successfully secured distribution in key national and regional channels throughout North America. By the end of 2024, TRUBAR expects to be present in 15,000 stores, underlining effective distribution strategies and expanding brand availability. Significant retailer relationships, fueled by an aggressive marketing strategy, have positioned TRUBAR for future successes.

Financial Stability and Investor Support

The balance sheet has seen substantial improvement, with a cash reserve of $3.5 million and an additional $10 million available through credit lines. This financial stability is crucial as the company plans to scale its operations and explores further funding avenues to support ongoing growth initiatives. The management team has taken steps to reduce debt, improving overall financial health considerably.

Margin Improvement and Profitability Goals

Gross margins have risen markedly, from 40% to 50% year-over-year, reflecting operational efficiencies as the scale of production increases. For 2025, Simply Better Brands anticipates maintaining EBITDA margins between 9% to 10%, with growth expected to push these margins into the 20% range as economies of scale materialize.

Innovative Product Pipeline

Groussman highlighted an exciting innovation pipeline, introducing new product varieties, including mini bars and seasonal flavors. These product developments cater to consumer preferences for healthier snacks while expanding the brand's product offering in the market. Strong performance on platforms like Amazon has demonstrated significant demand, with revenue growing from $40,000 at the beginning of the year to over $600,000 monthly.

Future Growth Strategies

Looking ahead, TRUBAR is focusing on international expansion and meeting the increasing demand in existing markets. The company plans to enhance marketing strategies, including influencer partnerships and retail promotions, to further accelerate market penetration. As they advance, the company remains optimistic about entering further retail fronts and increasing its presence in Canada, leveraging newly established distributor relationships.

Earnings Call Transcript 2024-Q3

[Pardeep Sangha, executive]

Thank you, everyone, for joining us today, and welcome to the Simply Better Brands Third Quarter 2024 Investor Webinar for the period ending September 30, 2024. This call is being recorded.

I trust that everyone has received a copy of our financial results press release that was issued today. Listeners are also encouraged to download a copy of our quarterly financial statements and management discussion and analysis from sedar+.com.

Please note, portions of today's call, other than historical performance, include statements of forward-looking information within the meaning of applicable securities laws. These statements are made under the safe harbor provisions of those laws. Please refer to today's press release and in our management discussion and analysis for our disclosure of risks and uncertainties.

We provide forward-looking statements solely for the purpose of providing information about management's current expectations and plans relating to the future. We do not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements or to reflect any changes in our expectations or any change in events, conditions, assumptions or circumstances on which any such statement is based, except as required by law.

We use terms such as adjusted EBITDA, gross profit and gross margin which are non-IFRS and non-GAAP measures. For more information on how we define these terms, please refer to the definition set out in our management discussion and analysis.

Joining me on the call today are the company's Chairman and CEO, Kingsley Ward, who will first provide an overview of the business and a financial summary of the quarterly results. And then we have Erica Groussman, Founder and CEO of TRUBAR, who will provide an update on TRUBAR, followed by Kingsley, who will come back with some closing remarks. Also joining us on the line today is Brian Meadows, the company's CFO, who will be available during the question-and-answer session, which will be at the end of the call.

And with that, let me turn the call over to Kingsley Ward, Chairman and CEO. Kingsley?

[J. R. Ward, executive]

Thanks very much, Pardeep. Just by way of a little quick background on me, I am with a firm by the name of VRG Capital, and we are a group of family offices, making private equity investments in three areas: health care, CPG, marketing services and financial services. And we've been operating for many decades, and we're very, very pleased to have simply better brands in the portfolio today and look forward to telling you more about our success here.

Next slide. So some highlights here, folks. Obviously, some pretty impressive numbers here with 124% year-over-year growth in the quarter. That's for total revenue. The TRUBAR division, which is really our main asset here now, the 156% that you see year-over-year growth. And we'll talk more about direct-to-consumer, explosive growth there and significant growth in our distribution network is also part of our results for the third quarter here. We've won significant new distribution channels that you see here, these iconic brands are all part of our ecosystem now, and we're onboarding inventory in a number of them and look forward to continued success selling through in these channels.

Next slide. So I think you all know, we have 3 operating divisions. The smallest is the plant-based wellness business. This is very small around $1 million, $1.5 million in sales. And we actually will be looking to divest of that small asset sometime this year and be fully out of the cannabis business by the end of this year. The NextGen Beauty business continues to grow, but it's a very small asset. We're talking $2 million, $3 million here. And it really is not a huge contributor to the overall picture here.

The story is all about TRUBAR. And to tell you more about the success we're having in that Brad, let's go to the next slide. We'll get to Erica in a minute. We'll touch on the financial performance, then turn things over to Erica. But you can see here, total revenue, $12.1 million versus $5.4 million. The numbers are fabulous for the TRUBAR division here, $11.5 million versus $4.5 million. Gross margin continues to improve, and we're making a little money along the way. And that's certainly our goal is to continue on the growth curve, but profitable growth will be the mandate here.

Next slide. So the balance sheet also has had significant improvement over the quarter. We currently have a cash balance of $3.5 million. We have funds available through our credit lines with Tier 1 bank $10 million today. We've reduced the amount of promissory notes, loans payable by $1.2 million in the quarter. We've -- the convertible debentures that we had in our world have all been converted to equity. And we've also added $3 million in promissory notes to help our working capital position and that was provided by myself, my partners at VRG and Erica. So continued evidence of strong cash support for this business from management and directors.

Next slide, please. Okay. Over to you, Erica. Please tell us about all the great success in TRUBAR. Erica, can you unmute?

[Erica Groussman, executive]

Oh my gosh, I was talking on mute. Sorry about that. Thank you so much. This is Erica Groussman, and I am the CEO and founder of TRUBAR. TRUBAR was really created because there was nothing on the market that tasted good. And my mom was a maven of fad diet. So I learned very early how important it is that you want something that tastes good, makes you feel good and makes -- just makes you feel good afterwards. It has clean ingredients, but the taste makes you going for it. So these are all vegan, gluten free, soy free, there's no sugar, alcohols, and we have very sexy packaging.

So TRUBAR, as Kingsley had mentioned, we were starved of capital, we've been starved of capital previously, and we still continue to grow $1 million, $10 million, $24 million, and now we're doing $50 million. We have a clear path to $100 million in this industry, it's a $6 billion industry with a 14% CAGR. We are on this clear path with clear plan of distribution expansion. We have Costco, Walmart, Whole Foods, Amazon, CVS, planning to go international as well as then we have a marketing acceleration program where we're doing really amazing things on the marketing front, and we have a clear innovation pipeline with lots of flavors that we're going to learn more about coming up.

Here are some of our major wins. This is across North America. We've gotten all of these distributions just in the past recent year. And we have more to come, but these are some really great wins. Not only do we have regional wins, but we've got national wins, and we're going to talk about the regional on the next slide. Here some of our regional wins that are huge. A lot of these are really influence or driven great stores that mean a lot. So even though they are smaller pockets, a lot of people look for them for their new and improved product and TRUBAR, once you try it, everyone is coming back for more.

Here's our international plan. So we are talking to international through Costco and other retailers. And we're really excited to be moving into these territories or continuing the conversation. So more to come on this. And here's our Amazon. So just in January, we were doing less than $40,000. And you can see that we've just increased over and over and over again. This is just with having inventory, with people trying it, with people who are signing up for monthly subscriptions, and we're doing over $600,000. So it's amazing to see what Amazon has done.

And then here's just some of our -- we've got -- for club, we've got Costco for retail. We're in full Foods, which is huge. We got National Whole Foods just a couple of months ago. They're a big gatekeeper for a lot of other places. And convenience, we're in many convenience stores across the nation, Amazon, Shopify, Walmart.com for e-commerce. And then for drug, we've got CVS and Shoppers Drug Mart. We are an asset-light model. So we have 3 3PLs across the nation, across the U.S. and Canada. We use brokers instead of multiple salespeople. We have a small lean team, and then we utilize brokers. And then we use Comans to build our ingredients, and we have 2 of them across the U.S.

We are currently working on our marketing acceleration program. and we have very exciting things happening with AI technology and Omnicon BBDO as our partner currently doing Facebook ads and different Instagram -- with influencers and a lot of really amazing, social-focused, influencer program. So it's very exciting to see.

Here's some of them. We just did give away with the Eras Tour and we got huge following from that. A lot of people were entering and taking pictures inside of different stores and purchasing. We're doing one with Whole Foods. And then, of course, we always are a part of the Prime Day promotions with Amazon.

And here's our innovation pipeline. So we're working on minis and different flavor packs, different pack sizes. As you can see, we've got some strawberry shortcake over there and birthday cake and a whole lot of macchiato, which we just actually launched nationally in Whole Foods as an exclusive flavor. So a lot of really new delicious flavors that are coming on the market, and these minis are phenomenal. There's a perfect little size. It really likes you want to come back for more.

We are also going to be doing some Costco roadshows to plan out our year for next year doing other flavors, with the new flavors that you just saw. We are going into 38 Sprouts. So that's going to be on the forager table, which is very exciting. That's like right when you walk through the store. We're going to be giving out a lot of mini bars at Walmart since we just launched Walmart nationwide and over 700 stores. We have -- we're planning to do some holiday collaborations at seasonal flavors. We're also working on kids bar, which is school friendly ingredients. So those moms who want to put it in their lunch boxes, now you can, and other pack sizes and bar sizes, of course.

Here are some fun pictures of us. That's me on Halloween and me in New York jumping up and down as well as we're going to be using those costumes at like different sporting events and runs and other activations. So we're really excited to get out there.

[J. R. Ward, executive]

Thanks very much, Erica, and thank you for the incredible job you are doing and it really is amazing what you've been able to accomplish. And then before we really got on the scene, it was a very, very difficult environment and yet you still continue to thrive and get us on this incredible track. So thank you for all the great work.

So closing up here, folks, we are focused really just on the TRUBAR build here, continuing the sales momentum. We've got a world-class group of folks advising us here. I think you've all seen the Board of Directors that we've assembled with deep, deep sector experience to help guide us down this road. We put the company now into a strong financial position to allow us to achieve the growth and we'll continue to build the balance sheet over time.

We've really put the restructuring in the rearview mirror, and we're focused on -- our focus is all about supporting Erica and the TRUBAR build. And we're very, very happy to report that we are very comfortable with our guidance for the remainder of the year, and we're looking at a wonderful 2025 for the company.

With that, I think we'll just go here to Q&A.

[Pardeep Sangha, executive]

[Operator Instructions] The first question comes from Gianluca Tucci of Haywood Securities.

[Gianluca Tucci, analyst]

So the company has been putting out their good cadence of updates on new stores for TRUBAR. Kingsley, I'm just wondering if you could give us an update as of today, how many stores are carrying TRUBAR? And how the company thinks about its current -- the penetration rate in terms of market coverage, in particular the U.S. for TRUBAR?

[J. R. Ward, executive]

Right. So the total number of stores we currently are on track to be in is 15,000 by the end of the year. In terms of total penetration for the U.S. market, Erica, I don't know or Brian, if you have statistics on that. It's a massive market. You've got the $6 billion worldwide arena that we're playing in. And there's just a ton of room for growth. The category CAGR is at 14%, 15% point. So lots and lots of room for growth, if that's really what your question is about. Does that help on -- for your questions there?

[Gianluca Tucci, analyst]

Yes, yes. For sure, Kingsley. And then secondly, in terms of unit economics, how should we be thinking about margins as your store count continues to grow? It sounds like next year is going to be quite a growth year again on a store front perspective. I'm just trying to get a sense of how much torque or upside to margins, gross margins exist in the model as volumes expand?

[J. R. Ward, executive]

Yes. I think in general, you want to be thinking about a 50% sort of margin. Obviously, the club world, you're at a discount but you've got the huge volume weighing in. And Brian and his team have done -- and Erica have done just a great job of managing the margins upward. And we've gained -- Brian, help me out here, year-over-year what have you been able to achieve on margin improvement this year?

[Brian Meadows, executive]

Well, with my partner, Erica, who is pretty much involved in some of the negotiations, we've been able to move from 40% to 50%. So up 10%, and that's across all channels. And I think with the volumes that we're going to look at going forward, there's still room to get raw material prices down as well as Comans, we're optimistic about as well.

[Gianluca Tucci, analyst]

That's great, guys. And then just lastly, if you could provide us an update on your current production, I guess, capacity, Kingsley?

[J. R. Ward, executive]

Yes, there's no limit to the capacity, folks. We are using world-class Comans with very, very extensive deep, deep capabilities. So we could be -- we could easily ramp production well north of $100 million with our current footprint.

[Pardeep Sangha, executive]

Your next question comes from Noel Atkinson of Clarus Securities.

[Noel Atkinson, analyst]

Kingsley, Erica and Brian, well done in Q3. First off, so I just want to reiterate here. So you're maintaining your 2024 TRUBAR guidance for USD 45 million to USD 50 million of revenue. Is that correct?

[J. R. Ward, executive]

Yes, sir. Absolutely. Very comfortable with that.

[Noel Atkinson, analyst]

Okay. So that means that you're going to do somewhere between hopefully, $15 million to $19 million of revenue in Q4. I think that's the numbers. So it looks like you're seeing, hopefully, some acceleration, good acceleration into Q4. What are you seeing as the drivers for that?

[J. R. Ward, executive]

It's really just distribution expansion, Noel. As you know, we onboard these stores, building inventory in the stores and we're getting the turnover. I don't know, Erica, or Brian, if you've got any thoughts on overall sell-through? Anything to share there for Noel?

[Brian Meadows, executive]

I'll leave that one to you, Erica, the sell-through?

[Erica Groussman, executive]

Yes. Yes, we're just doing really well. We're nipping at our competitors' buts and sometimes we're superseding them. So in just the short time that we've been in some of the newer retailers, we're doing really well. So it's just refilling and continuing to build new doors.

[Brian Meadows, executive]

I'll just add a little bit to that. So we have an expected club event in the fourth quarter. To King's point, all the doors is starting to have more and more impact really every day, more and more purchase orders and e-commerce business is coming on very strong.

[Noel Atkinson, analyst]

And then related to the DTC, so are you involved? Are there significant events like Prime Day in Q4 still to come?

[J. R. Ward, executive]

Erica, have you got any thoughts on that market-wise?

[Erica Groussman, executive]

Yes, there is no Prime Day in Q4, but they do have Black Friday sales.

[Noel Atkinson, analyst]

Okay. Great. And then the last one for me before I jump back in the queue here. So the mini bar. So you're talking about giving away many bars at Walmart. Are you seeing that your retailers such as Walmart and some of these other large folks are opening up more shelf space for you in terms of being able to add SKUs?

[J. R. Ward, executive]

Erica, any thoughts on that?

[Erica Groussman, executive]

Yes, I'm not saying that, but we are trying to get more brand awareness, and that's what we're giving the mini bars away for, so that people can taste them and then go and purchase. So we're just trying to accelerate the purchasing process and the trial. But I'm not disagreeing with what you said. I'm just not agreeing with what you said.

[Noel Atkinson, analyst]

Okay. And one more quick thing there. Is that -- like is that an in-store giveaway, like one with every purchase? How does people get their hands on them?

[Erica Groussman, executive]

Yes, so anyone who purchases it's a grocery program. So if they order and they pick up in store or order and gets delivered, similar to like an Instacart. They will have it inside of their gift bag, inside of their bag that they get that.

[Pardeep Sangha, executive]

We've had a couple of questions from attendees coming in on the Q&A. [Operator Instructions] A couple of questions relating to Costco. So I'll put them in order here. So could you share an expected time line for international expansion with Costco?

[J. R. Ward, executive]

Erica, could you take that, please?

[Erica Groussman, executive]

Yes. We can't really share a time line quite yet, but it should be in the near future, very near future.

[Pardeep Sangha, executive]

Can you comment on any sort of promotions in Q1 for Costco products? I think you talked about doing a roadshow in Costco?

[Erica Groussman, executive]

Yes, we are going to be doing a roadshow. We will be doing -- and once we have more details on the exact weekends and locations, we will share that. But we will have the Tru team there at every location and showing, sharing, talking about TRUBAR and getting really the trial out there and excitement. So it should be quite the show.

[Pardeep Sangha, executive]

Another question here from attendee. You've had a remarkable distribution expansion this year. Are you expecting a similar rate of expansion in 2025? Or how do you see TRUBAR continuing to grow in 2025?

[J. R. Ward, executive]

Yes. So Erica, I'll take that because obviously, folks, we're not in a position to be giving guidance at this point. I would like to just say that our long-term goal is to continue our significant growth rate here and really, we're focused on getting to $100 million as fast as possible. We're building out the team. We have the capital to support the initiative, and the team is being built as we speak to deliver.

So that's what the focus is for 2025. And we're really just -- give us a little more time. We'll be up with some guidance probably in March with the Q4 numbers. So we just really can't speak to too much at this point.

[Pardeep Sangha, executive]

A question here with regards to expansion in Canada. You're doing a lot of work in the U.S. What are your Canada expansion plans?

[J. R. Ward, executive]

Erica?

[Erica Groussman, executive]

Yes. We are going to be really designating a lot of energy on Canada. We are hiring a new salesperson that will be heading that acceleration growth in Canada. So we did just launch Walmart, and we have some other stuff in the pipeline. So you'll see it if you're in Canada.

[J. R. Ward, executive]

And we also have that new distributor that's on board, right, the last, what, 60, 90 days?

[Erica Groussman, executive]

It's Acosta, yes.

[J. R. Ward, executive]

Yes. So it's a very significant distributor, one of the top 3 in the country. We moved from a small mom-and-pop earlier this year. and we're hoping that they can deliver some strong results in Canada.

[Pardeep Sangha, executive]

There's been a couple of questions that have come in asking about applying for a trade or a list on other exchanges such as the NASDAQ exchange. So if you can answer that one?

[Brian Meadows, executive]

Yes. Look, us, that's not an immediate future. Obviously, we have our U.S. OTC listing, and we are looking at upgrading that listing to the OTCQX. So we'll definitely look to expand some IR activity in the U.S. with that. But there's no plan in sight for a major U.S. exchange.

[Pardeep Sangha, executive]

Another question here from a listener. Do you have any sell-through data on any of the new stores you have won over the last little while? Are you getting any inclination from retailers that they want to continue to roll out the product in more stores?

[J. R. Ward, executive]

Erica?

[Erica Groussman, executive]

Like I just shared earlier, we are nipping -- we're superseding our competitors that are in the same space. So the bar is doing phenomenally well, and we're really excited to see what comes of that.

[Brian Meadows, executive]

Can I add one thing, Erica? So we're in our third year of Costco U.S. and that's been nothing but growth with Costco. It's a strong indicator of sell-through with one of the largest creditors in the world. I think they're in 40%, they do 40% of our business is U.S. and our business has just continued to grow with Costco. It's a great indicator and I think you're seeing that with some of your other retailers now.

[Pardeep Sangha, executive]

Question here with regards to Walmart. Are you expanding into more Walmart stores? What early signs of success are you seeing there? What's your future plans in Walmart?

[J. R. Ward, executive]

Erica?

[Erica Groussman, executive]

Yes. We are doing really well in Walmart as of right now since we got launched early. We do not have more doors that we're going into immediately, but I'm sure that we will in the near future, and we're doing very well. So we just launched, like we said, not even 8 weeks ago.

[J. R. Ward, executive]

I just want to highlight for everybody on the call that we're only in 700 Walmart stores. We will be focusing some marketing initiatives like Erica mentioned earlier on all Walmarts. Because the opportunity, obviously, if we can sell through in the 700 that we're in, there's the 4,000 store footprint that is open to us to expand into. So it's going to get a lot of attention in 2025.

[Pardeep Sangha, executive]

Question here about your mini TRUBARs, when will they become available? What's the timing on the minis?

[J. R. Ward, executive]

Erica?

[Erica Groussman, executive]

Yes. It should be probably Q2 that you should start seeing them, Q2 to Q3.

[Pardeep Sangha, executive]

A couple of questions have come in with regards to Amazon. So you can kind of lump all those together, Amazon sales, Prime Day promotions and just providing an update on Amazon and your direct-to-consumer in general?

[Erica Groussman, executive]

Amazon is going really strong. We have that slide. We started in the beginning of the year at $40,000 and now we're over $600,000 a month, very, very strong. We're just about to start carrying up Canada now. But I can't say enough amazing things. I think that in the coming year, it's going to grow phenomenally. So we're having a very strong growth within our D2C.

[J. R. Ward, executive]

Target, Erica, I think we've been talking about trying to get to $1 million a month in 2025.

[Erica Groussman, executive]

Yes. I think that in -- starting in January, we should be on our way. We should have a run rate of $10 million.

[J. R. Ward, executive]

So a little less than $1 million a month, folks.

[Pardeep Sangha, executive]

A question from an attendee. What is your current plan for social media influencers, especially anyone with 1 million or larger followings?

[J. R. Ward, executive]

Erica, do you want to start on that?

[Erica Groussman, executive]

Yes. So we've had a lot of organic just from people seeing it, trying it, who have 1 million, 2 million, 3 million, 5, 6 million even have posted and done stories on Tru, just commenting on how they love them. Organically, not even any affiliation really. But we do plan to have other -- really getting it out there and sending out some influencer boxes to build brand awareness with them and hope that they'll get behind it, and I'm sure they will. So do you want to throw more color on that?

[J. R. Ward, executive]

Yes. I just think we also are in a much better position than you were 3 quarters ago to actually put some marketing dollars in that bucket. That's certainly our intention. So we're looking forward to hopefully having some impact in that influencer community.

[Pardeep Sangha, executive]

A financial-related question. Do you have any working capital challenges or any other payment terms that you have to be looking out for?

[J. R. Ward, executive]

No, not at all, folks. As I said, today, we have $3 million, almost $3.5 million, almost $4 million of cash on the balance sheet. We've got these lines of credit. We're looking at expanding the lines of credit to facilitate the significant growth. But Brian has just done a great job of managing the balance sheet and onboarding these new facilities, and we have 0 working capital issues, none at all.

[Pardeep Sangha, executive]

Another financial-related question. On your $100 million sort of target, what does the profitability profile look like, operating model looks like when you're further in the future?

[J. R. Ward, executive]

Yes. Brian, do you want to take that one, sir?

[Brian Meadows, executive]

Let's say at the gross margin level, we talked about 50% average. So as we diversify away from our Costco base, which is lower margin, we do think we're going to be getting towards, say, high 40s, 50s. When we look at EBITDA margin because we are investing in growth, we're trying to balance investing in growth and still maintaining some level of profitability. So for next year, at least, we're probably 9% to 10% EBITDA level. And we do think that's going to expand in the future just with better economies of scale that could be in the 20s.

[Pardeep Sangha, executive]

That's all the questions that we have. I'll turn it over to Kingsley Ward now for any closing comments.

[J. R. Ward, executive]

Well, thanks very much, Pardeep. And I'd like to thank you all for tuning in today. We look forward to continuing our build here of the TUBAR brand and the Simply Better portfolio of products, and we'll look forward to chatting with you with Q4 results, year-end results. Thanks again. Bye for now.