The Calmer Co International Limited (CCO.AX) Earnings Call Transcript & Summary

Good morning from Brisbane, and good afternoon for our friends in Sydney and elsewhere. Welcome to the Q1 FY '26 webinar for the Calmer Company. Today, Matthew Kowal and I will be presenting on behalf of the Calmer Co. As you know, Matthew Kowal is the Chief Commercial Officer for the company. Welcome to our friends, investors and stakeholders. Thank you, Matt. So I'll kick off by revisiting the strategic pillars for the Calmer Company. If we can move to Slide 2, please, Matt. So with the communication to date with the Calmer Co, we speak to the 4 strategic pillars across the business. The first one is our regional sourcing, manufacturing excellence and innovation throughout the business. A lot of this operationally lies with management in Fiji. The second strategic pillar that we continue to update is direct-to-consumer channel in the business, including Amazon. The third strategic pillar is profitable and scalable retail. And the fourth exciting strategic pillar for the business, of course, is the wholesale bulk ingredients channel for the company. So I'll dive into more detail on the progress over the quarter as it relates to all of the pillars before we dive into more detail, particularly on the revenue generation pillars across the business that Matt will touch on. So with the strategic pillar 1, we've had -- we'll go back, Matt, I'll still continue with the updates with the pillars. We can go, yes. With the progress with strategic Pillar 1 over the quarter, speaking very broadly, we've been able to now import across the region, noble kava variety from Papua New Guinea, the Solomon Islands, and we're now in advanced discussions with exporters and growers from Vanuatu as well as Tonga. This gives us better flexibility with different product formulas, the input of raw materials based on different chemotype profiles and varying levels of potency as we look to launch new product formats, but also build on the exciting wholesale channel across the business. For instance, with some of the varieties that we're seeing in some of the testing that we're doing in-house, we see different types of kava coming in from regional areas with more application for daytime use or with other varieties for evening use as well. So it gives us that level of flexibility, like I said, with the different types of products that we're looking to bring to market shortly. We've spoken about stick packs as the next launch alongside the tincture format that we launched with Amazon USA as well as our flavored kava shots. To speak to more quality across the supply chain, I'm happy to also announce that Standards Australia have been working on a regional standard for Pacific kava quality, and they have done the initial research report looking at all the kava varieties across Pacific-growing nations. And of course, I'm happy to announce the fact that this is now coming together based on previous announcements we've made where Pacific heads of government have committed to the regionalization of Noble kava as it relates to growing, processing and subsequent export to meet international standards. So Standard Australia coming in to support this initiative on the quality side of things is very important, again, as we build a foundation for scale and success across all Pacific-growing countries. The other updates as it relates to pillar #1 is we've just completed the HACCP audit for the facility in Fiji. We also have progress with regards to in-house testing capability to further strengthen strategic pillar 1. Again, as we evolve into more meaningful channels that require a more stringent testing such as the wholesale channel working with existing partners like IMCD, having a comprehensive testing capability in-house will be a critical part of that ongoing success. So we are commissioning what's called GC-MS equipment in Fiji midway through this month. And this will allow us to receive very accurate results on kava raw materials coming into the factory, but also the standardized material that's going back out into export markets into various channels as well. Innovation continues across the business. Like I said, we've previously announced the stick packs that we're looking to launch before year-end. And the team have certainly sampled the latest iteration of the stick packs whilst in the U.S. together last week at SupplySide Global, and we are very excited to progress this to next steps. We've also been working with our partners, IMCD, on other new innovative formats that Matt potentially can touch on with his updates with the strategic pillars 2, 3 and 4. And they relate to exciting flavor formats that we might be looking to bring into the Australian market in the near term. Aside from that, manufacturing excellence with the ongoing strengthening with strategic pillar 1 with quality, we're looking to bring in external expertise to complement the quality team in Fiji to further strengthen our capabilities internally, particularly as we look to build momentum with the wholesale channel. So just more from a preparedness and readiness capability to add bench strength with the quality team out of Fiji. Aside from that, we are making very good progress on the Fiji Kava Bill. Just this week, the Fiji government have come to us as stakeholders in the industry for feedback on the draft Kava Bill and conversations that we've had recently at the Australia Fiji Business Forum with the Minister of Agriculture in attendance. We're looking at time lines potentially for a review of the Kava Bill in March 2026. So this is a very important milestone for the Calmer Company, particularly as we have been a pioneer in terms of quality and sustainable, traceable, high-quality Noble kava coming into the factory. It's a huge competitive advantage for us. But the Kava Bill really takes the compliance that is required by exporters, processors and growers to the next level. So it ensures that the kava coming through, whether being imported into Fiji and converted into finished products or kava coming in as raw materials from various provinces into our factory meets a high level of food safety compliance as a minimum before it is exported out of the country. So it gives us a huge competitive advantage given the fact that we are a food safety accredited site for the last 10 years. And with the pathway into the United States, particularly, we are also an FDA registered audited sites for the export of dietary supplements. So that's the update with strategic pillar 1. More broadly with strategic pillar 2, which is direct-to-consumer, including Amazon. Matt can dive into this in more detail once again, but the key highlights here really are the launch of our fijikava.com and takimai.com websites. Amazon continues with very strong momentum with the launch of our tincture formats as well as our ready-to-drink flavored kava shots. The key highlights with Amazon, particularly with the good work that Andy continues to do with the business is that we now have a meaningful split between both the FijiKava branded products as well as the Taki Mai branded products. We've pushed this out in announcements to the market where Taki Mai is now 40% split of our total revenue via that platform. More broadly, it's exciting to read news last week about the uptake of kava in the United States, particularly where 1 in 10 Americans in the last 12 months have now tried drinking kava in some format or the other. And again, given Matt's expertise in this area, moving on to strategic pillar 3 with profitable, scalable retail, we've really had a stellar quarter and scalable, profitable retail has been a big contributor to our success in Q1 FY '26. With strategic pillar 4, the team have just returned from the United States, having attended SupplySide Global. We also showcased our range of formats at the trade show, which included our water extracts, our new high-potency formats, but also more broadly, bulk cava ingredients that we are exporting out of Fiji as well into the United States and also into the Australian market. Again, Matt will dive into more detail with the excitement around the progress with the wholesale channel as well. Thank you, Matt. Let's move on to Slide #2, please. So the key highlights for the Calmer Co really are exceptional sales momentum, and the team are doing a stellar job across all the strategic pillars, which is supported by strategic pillar 1 with our regional sourcing, manufacturing and innovation capability. $2.4 million revenue was realized for the quarter, up 26% versus Q4 FY '25. Net cash outflows were $596,000, down circa 39% versus Q4 FY '25. Australian sales were, of course, still a large contributor to the $2.4 million for the quarter with $1.4 million generated by Australian sales. That's both with retail as well as by the direct-to-consumer and wholesale channels as well. U.S. sales are certainly moving in the right direction and now make up circa $936,000 for the quarter as well, up 20% versus Q4 FY '25. So certainly I think the key focus for the team is the road map towards breakeven. And with these results that we've been able to put together in a very short time frame since Matt's joined the company, Andy Burger has joined the company, demonstrates the capability internally and our focus and demonstration to move towards breakeven. Thank you, Matt, and over to you with the next slide.

Thank you, Zane. I think as Zane touched on, a really strong performance, building off a lot of the work that's being done earlier in the year, setting up some clear focus on the 3 channels. The big performers really in the last quarter was Coles and Woolworths, both in a performance growth point of view, but the full implementation of the price change, which has allowed us to really generate positive margins in a high brand awareness channel, delivering growth as well as to the bottom line. The other sort of significant activity comes from both a new product but new channel when we're looking into wholesale and particularly the opportunity that we've seen firsthand from our recent trip last week to the U.S. SupplySide Global in a bulk kava ingredient supply. So what we've seen in last quarter's results really were indicated with the amount of interest and leads that we were able to garnish last week. And that comes from everything from our kava bulk powders, kava water extraction, but also the new products brought to market with the CO2, which has been the bigger contribution to last quarter. I think the interesting element to have a look at is the opportunity that's now opening up with the U.S. When you take into account that we are currently not in any retail format in the U.S. and are focused very much online and wholesale. Their results versus the Australian volume is significantly impressive. A lot of it being harnessed right now through Amazon with good steady growth throughout the year. And I think as Zane touched on, we're now in a position in both U.S. and Australia, but in the U.S., particularly with Amazon, that we have 2 strong contributing brands, and this sets us up in a really strong position as we launch further consumer NPD that really appeals to the various target markets that have been addressed that are now consuming kava, everything from your RTD beverages, your stick packs which are on our NPD time line in the near future, to your traditional grind and the instant powders, giving us an opportunity to really address all the categories that are in growth with the ability that we have from a supply chain with rapid NPD, but also obviously being able to deliver that into the right categories quickly with the right partners. The second part that's really driving the growth in the U.S. is the establishment of our wholesale. Now currently this is particularly driven by our high potency ingredients which is our CO2 extracts, but also with the establishment of connections into bulk powders and further water extraction use across a variety of sub channels. As I said, the U.S. now represents 39% of overall revenue. And when you take into account, as I said at the start, that retail is only now being explored and considered for what comes in the future, we're in a really strong position there to take advantage of a market that continues to grow and its interest with Calmer. Zane, I'll jump back to you…

[Indiscernible] So cash used in operations was down 39% for the quarter. This is with inventory at hand at the end of Q1, which was circa $2 million. We announced to the market that we closed $700,000 of a 2-tranche convertible note with our top 10 shareholders. Alongside that, we also announced a strategic investor in the U.S.A. being Applied Food Sciences, taking up a significant chunk of that. Some history with Applied Food Sciences is they are a large food and beverage ingredients distributor. So having them come back into the company given their historical relationship with the Calmer Co prior to IPO is certainly very exciting, complementing the capability that IMCD brings to the table in our long-standing relationship with them as well. And IMCD has some good news, which we'll touch on with the wholesale channel update as well with the high potency formats. So if you look at the pivot in our strategy since the beginning of this year, we finished Q2 FY '25 at $2.1 million revenue. The refocus for the company was really developing and pushing ahead with an omnichannel approach. That did take a couple of quarters for us to realize the benefit of that. So we've come from a big turnaround in the last 12 months in that regard, coming back from $1.8 million revenue in Q3 FY '25 up to $1.8 million -- sorry, $2.1 million in Q4 FY '25 and up to $2.4 million now in Q1 FY '26. So very exciting times for the Calmer Co at the right time with overall interest in kava reemerging as a safer, healthy alternative for alcohol and really the control with net cash outflows and the discipline internally with the team as we head towards breakeven. Thank you, Matt.

I'll jump in again. Obviously a great result for us last quarter with retail. A lot of it coming off the heavy work in getting both Coles and Woolworths on board with the new pricing. But I think the really positive result here is not only has the pricing gone through, but growth has continued, showing the demand of kava into a retail space. We've been able to work with them closely and particularly with Coles, shape out a category now and into the future that has great margins and incremental growth for the retailer, but also showing the variation of size and the want of the consumer walking into as a destination for that retailer as well. That inversely then passes on to Woolworths. We've had some strong early results with the 50 grams, often hard to bring into a single SKU on to a retailer on their very busy shelves. Results to date have been very positive, which leaves us in a good position to be having discussions with them and demonstrating a significant growth we've had with Coles with the addition of the 150 gram, which takes up more than 55% of our revenue volume for retail and really show them the opportunity they have to expanding that incremental volume, which then leaves us in a significantly strong position in Australia across retail, also gives us some significant information on retail activities and how we can potentially roll those out into different markets, whether it's closer to home or, as I said, as we start looking over into [indiscernible]. Wholesale channel, do you want to touch on here Zane before I go into a bit deeper?

Yes, sure. So again, I think this is really building on the momentum with the previous announcements to the market on the new high-potency formats. And I guess the good news leading into SupplySide Global last week, Matt, was IMCD's commitment to launch these new high-potency formats standardized to 30%. We have been -- I use the word hamstrung with what we were able to do in the Australian market and certainly only being able to sell a water extract historically in Australia. And that was a hard sell into the United States given the availability of more high-potency formats. So now having the capability to broaden the range of offering via the wholesale channel using our CO2 extraction capability and deliver a high-quality, fully traceable, transparent ingredient with our supply chain, with our traceable app as well is very important. As we move into the momentum in the U.S.A. I touched on earlier, Matt, that 1 in 10 Americans have tried kava in some shape or form in the last 12 months. And the demand forecasted for the category is certainly growing at alarming rates over the next 5 years or so. So we are at the right time with kava and kava resurgence in the United States is very exciting. We had the opportunity to sample lots of products last week in Las Vegas at SupplySide Global. And we'll be very happy to use that as we understand the competitive matrix in this category, but also as we look to new products that we bring to market in the United States to support this very strong growing interest that we see largely being driven by the fact that kava is a proven clinical ingredient for reducing anxiety and has been available in Western markets for a very long time. But I think the Gen Z movement towards shying away from alcohol consumption is also a big contributor of demand for kava as a safer, healthier alternative. So it was really exciting with the sampling we did last week, Matt, and having seen the number of beverage formats already in the market, whether they be stand-alone kava ingredients or kava with kratom even, the momentum is certainly building. I've never seen such a huge range of product offerings. And I can say that the quality is very variable. So I'm very excited with our next steps in this space, particularly given our capability with the Calmer Company with a fully traceable ingredient. But like I touched on earlier with the strategic pillar 1, building capability internally through our in-house testing, but also strengthening the quality team in Fiji with very strong experience with folks that we're bringing in to build that capability as well.

Absolutely. And sort of reinforcing that the opportunity was very clear. We had recognized that before the event [indiscernible] really ran home to us with 2 key things are constant at the stand and at the show and people really looking for a stable supply where they've seen in the market there was a real struggle, then combined with a real understanding of the quality, understanding where that was coming from, the traceability. So the market is there growing, obviously, from a consumer point of view, which is then feeding up into the wholesale side. We're now in a position where we are doing some significant work in pillar 1 to allow us to provide the products with the service that is required by these larger businesses. And at the same time, looking at some really smart strategic partnerships like the ones we have with ICD, which is going to allow us to take these products to market in the most efficient and rapid way while there's an opportunity right there in front of us. So really exciting times. It's one of those areas of the market that's in growth. And obviously, we're developing a new product line. So lots of opportunities, lots of learnings along the way, but we've got some incredible people now internally and second to none in the industry. So now we can sort of see over the next couple of quarters, we're going to really focus hard on what the U.S. and the wholesale channel allows us to see and look to replicate and grow what we've currently done in the last quarter.

So certainly, to conclude with today's Q1 FY '26 webinar and updates, we are making very strong tangible progress towards breakeven. We are at the right place at the right time as it relates to momentum and global demand for kava. We previously announced to the market that the global demand for kava concluded at circa USD 1.6 billion for 2024. Our forecasted growth was 14% CAGR through until 2033, where we conclude at circa $5.6 billion market size. So this is in the existing markets in which we operate, which are largely intra-Pacific trade, U.S.A., New Zealand and Australia. So there is still a lot of potential upside given the fact that there's only 1 in 10 Americans that have tried kava in the last 12 months. And certainly, if we look at the decline of alcohol consumption in these key markets as well, I think alcohol consumption in the United States has been at a 93-year low. So kava fits in very nicely as a healthier substitute. And given the fact that it is a clinically proven ingredient, again, I'll come back to the triangular effect with reduction in anxiety certainly helps with a better sleep. And the anecdotal feedback we're receiving via our pillars 2, 3 and 4 are certainly pointing towards folks coming back to buy cava over and over because they are having a better sleep. They're feeling more relaxed. And they are shying away from alcohol. So these are the key drivers pushing forward global demand for kava. The focus remains the same as we previously communicated to the market, where we're making tangible progress towards breakeven with a record quarter, both from a revenue point of view, but also in terms of net cash outflows in the business. So a very exciting time. We're very excited to demonstrate our results in Q2 FY '26 and beyond as we take next steps to reach breakeven for the Calmer Company and beyond. Beyond that, we've also put out an announcement today on the transition of our Chairman. We believe that this is a very critical time given the focus with the business, with the United States. John Homewood has done a very fantastic job with the turnaround with the team in the last 12 months, strengthening our performance, our capability internally across pillars 2, 3 and 4. But I'm super excited to welcome Jim in as the Chairman to take the helm and lead us into the United States given his vast experience. I mean it was so evident at the show in Vegas last week, Matt, we're trying to walk the show with Jim. Just every 2 minutes, everyone is stopping him for a chat. And he's just so popular right across the industry. And I see him being a great leader as we really push ahead with very strong growth in the United States in the coming months and coming years. That's all. Thank you.

We'll take some questions as well. And I'll turn across here just because we don't have Joe today hosting this webinar, Matt. So I'll read out some of these questions that have come through. And maybe the first one, I'll push to you. "There has been talk about higher potency CO2 products being used in the wholesale and nutraceutical market with good success. Is there a plan to bring CO2 higher potency products to the direct-to-consumer products or 150 gram packs and RTDs, for example?"