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

Hello, everyone, and thank you for joining us today for the investor webinar with the Calmer Co. My name is [indiscernible], and I'll be the host for this session. Today's presentation will focus on the company's Q3 FY '25 performance, activities and strategic focus moving forward. We'll get started today by introducing today's speakers from our senior leadership team. So we've got the CEO and Founder, Zane Yoshida. Zane has pioneered the development of the world's highest quality car-out, serving as President of the Australian Fiji Business Council and leading the Karmako and the launch of its brands, Fiji Cara and Takuma across Australia, New Zealand, the United States, China and Fiji. Next, I'm pleased to introduce Chief Commercial Officer, Matt Call. Matt joined the Karmako with a background of more than 20 years of commercial leadership experience in the beverage industry with roles at Red Bull, Monster Energy and Super D. Also joining us today is Head of e-commerce, Andy Berger. Andy leads the Calmer Co's direct-to-consumer expansion with 2 decades of experience scaling e-commerce performance and using his background as a former senior buyer, Amazon to optimize the company's marketplace growth globally. As always, please remember that as a publicly listed company, the [indiscernible] is bound by ASX continuous disclosure obligations. So while the team will aim to be as informative as possible, there may be some limits on what can be discussed, particularly around forward-looking or commercially sensitive information. We'll close out the session with a short Q&A. So feel free to send your questions using the chat function during the presentation. And I'll return to moderate that at the end. With that, I'll hand over to Zane to kick things off now. Zane, all yours.

Thank you, Jack. Welcome, ladies and gentlemen, shareholders. It's my pleasure to present alongside my colleagues, Matt and Andy this afternoon, our Q3 FY '25 results, but touching on strategic pillars with my part of today's presentation with a webinar, before handing over to Matt to talk about more specifics around the strategic pillars and expanding on those and also bringing Andy into the discussion on the direct-to-consumer strategy, which involves Acuity as well as Amazon. Thank you, Matt. So I'm particularly excited to share with you the global Kava Root extract market size, which has reached $1.6 billion globally, highlighted by the I-Mark Group and certainly showing exciting growth through till 2033, growing at annualized growth of 14.11%. A lot of the growth drivers we're seeing and certainly highlighted in this industry research report is through food and beverage industry, increasing product utilization in cosmetics and personal care industry and extensive R&D activities, which we are also seeing, which will tie into one of our key strategic pillars that we'll touch on shortly. Some of the key factors propelling market demand for Kava globally. Thank you, Matt. So the strategic pillars for the Calmer Co starting with regional sourcing strategy, moving broadly across high-quality supply chain from farm to shelf, not just from PGi but across the Pacific. The second strategic pillar for us is the wholesale B2B market, and that involves broadening our bulk cover supply into U.S. market as well as increasing the portfolio of extracts that we currently sell through the Calmer Co. And we have some exciting news to share with you today, which really ties into the competitive advantage for the Calmer Co, and that's really leveraging supply chain and farm-to-shelf traceability and quality associated with that. The third strategic pillar for the business is, of course, direct-to-consumer, leveraging Acuity's scalable, AI-driven and cost efficiency to improve operational efficiency and acquisition with customers. The second part to that, of course, with Amazon is around selling Fiji Kava and Taki Mayi branded product formats on Amazon U.S.A. and Australia, demonstrating strong demand Yes. Not sure what happened there. I think the Internet had too much Kava last night, so it's slowed down a tad. Again, moving on to the strategic pillars and expanding on direct-to-consumer. I was just talking about the Amazon piece and of course, selling Fiji Kava and Taki Mayi products on Amazon, Australia and U.S.A. that demonstrate strong demand whilst maintaining higher margins. The fourth strategic pillar, again, which Matt will expand on is profitable retail and again, pushing through Fiji Kava and Taki Mayi branded products in key categories, expanding channels with a focus on higher margins. Thank you, Matt. So the first one is we've built a comprehensive supply chain right across Fiji for many years now. And certainly, in the thinking with developing the supply chain strategy across Fiji, it was ensuring that we work directly with farmers across 10 provinces in Fiji. Certainly, the thinking with a broad supply chain was to derisk against adverse weather and plan for scale. But more recently, with the confidence with the heads of the Pacific governments coming together midway through last year in Tonga committing to the harmonization of Noble Kava, particularly as it relates to growing processing and subsequent export to meet international standards. They launched something called the Regional Kava Development Strategy, which is a comprehensive plan put together by governments as well as the Pacific Islands Forum and the Pacific Community SPC with the Forum CAA working Group, which we also participated in. So it really serves as a global road map for establishing sustainable CAA supply, focusing very heavily on quality standards, innovation, regulatory improvements and market access and expansion. So to that end, we now have developed strategic relationships across the South Pacific, in Tonga, Vanuatu, the Solomon Islands as well as in Samo to complement our Fiji Kava supply chain. The exciting news around this as well is -- and this is something that the Fiji government have been working on for some time is the Fiji Kava. So Fiji Kava bill is a very important catalyst for further quality control with the Fiji Kava supply chain to meet those international standards. And it will reward companies like the Calmer Co who have been complying as a facility. We're an FDA registered audited facility. We're a HAP Australia registered audited facility, complying with various international standards, namely here in Australia, where Kava is regulated both as a complementary medicine as well as a food, but into the United States, also complying with dietary supplement standards for Kava in the United States. Thank you, Matt. So the first -- the second strategic pillar here is around the wholesale B2B channel mix. Currently, we have a long-standing relationship with IMCD, also known as Network Nutrition here in Australia. And we've been focused on selling through a high-quality standardized ingredient from farm to shelf using a water extract. We sell through IMCD for medicinal formats, dose-dependent formats and the pharma channel. I guess the limitation with the water extracts are that we are only able to achieve 10% potency of carboactones and 8% potency of carbolactones, respectively, using our proprietary process, utilizing fresh green Kava routes. So we've been working on some very exciting research over the few months, looking to bring to market a higher potency Kava extracts that our partners are seeing demand for in the market, and we're also seeing demand for in the market, particularly out of the United States. These include high-potency extracts, which we've developed, which are standardized with 30% carbrolactone using CO2 extraction methodology as well as 80% carbolactone CO2 standardized extracts, which we are looking to launch in Q1 FY '26. Thank you, Matt. The direct-to-consumer strategy, and again, like I touched on earlier, both Matt and Andy will build on this. But certainly, the consideration with the transition from Shopify to Acuity is a meaningful one, brings cost savings to the business, but also brings overall efficiency and scalability utilizing this platform. Firstly, the Acuity platform is there to control and convert our customers that we are targeting. It's all about educating consumers about Kava and telling our brand story, driving e-mail sign-up with first order discounts for content downloads, implementing bundling, upselling and subscriptions to increase average order value and lifetime value, but launching new SKUs first for early access exclusives. We also retarget visitors via Meta and Google ads, which builds loyalty increasingly via e-mail and SMS flows. The Amazon piece alongside Acuity as part of the direct-to-consumer strategy is all about scale and capture. -- optimizing listings using search engine optimization, A+ content and using the brand storefront that we have for both Fiji Kava and Taki Mai right now, using Amazon pay-per-click to capture intent-based traffic, leveraging Subscribe and Save for ongoing retention and using fulfillment by Amazon to win Buy Box and improve overall customer satisfaction. Thank you, Matt. So profitable retail, we've had very good success here in Australia with Cold supermarkets. We first launched the 50-gram SKU 2, 3 years ago and expanded on that with the introduction of our larger pack size, the 150-gram packs as well as our unflavored ready-to-drink formats that we sell across circa 600 to 800 stores in Australia. And we've recently announced very good news with Woolworths also arranging our 50-gram packs from June this year. And we also have entered the Quickstop convenience channel earlier this year, where we have our 50-gram packs as well as our Taki Mai shots available at checkout. And of course, in Fiji, we maintain visibility of brand via what we call the tourist channel, and we have 3 strategic relationships in the channel, which include Jacks of Fiji crowd stores and Tapoo stores, which are not just in major urban centers across the country, but also at duty-free on the way out at the airport and strategic locations in Nandi and Suva at tourist resorts such as the Sheraton, Westin, so on and so forth. Thank you, Matt. So the future outlook certainly is looking extremely encouraging for the Calmer Co. We've had sustained revenue growth through U.S. and Australia's expansion. We have a clear road map towards profitability with improved efficiency and cost controls. We are committed to innovation and ongoing consumer wellness through our market leadership, but building long-term investor value through strategic pillars that I touched on earlier and the execution of these and continuing our market dominance. Thank you, Matt. And I'll hand over at this stage to Matthew Call to take you through the key highlights and more. Thank you. Matt, you're on mute.

Now? Yes. So just coming on the financial highlights. I think the first to say that it's been encouraging to see the implementation of our strategy, as outlined by Zane, come through with some of these results in the step towards profitability. But I think the focus on reaching a better balance in product mix and also profitable promotion execution has really delivered some positive results around gross margins after promotion. And that's sort of flowed on, obviously, in reducing operation losses. I think -- and the key understanding is this is just the start and looking further ahead, these improvements to build on. There has been a small increase in top line rev and really directly related to that reducing spend and digital advertising. And look, where we see this not only being offset by moving forward with retail, U.S.A. online growth and wholesale growth, it's also a matter of our process as we step forward into a more efficient and effective D2C management with partners Acuity coming on board to manage the e-commerce side. I think as we break it down into those three channels and the three pillars that Zane spoke about, it's really nice to kind of see some positive response from the actions we're doing already. Wholesale, up 49%, and that's building on our current partners, IMCD and through to the Kava bar suppliers. But importantly, moving forward, it's combined with increased contact and formal discussions with potential new clients coming into the current quarter as we look at that new high potency opportunity. I think also when we look at Amazon U.S. and it's USD 40 million market, market, things are responding quickly to the great work that Andy is doing. I'll let him talk into detail about that a little bit later on. But also looking at that D2C AU, obviously, I spoke about the reduction in advertising spend, and we can see some effect on the revenue. But the really important thing is to actually see the effect on the gross margin after promotions has dramatically increased. So I think finally, talking to retail growth, and I think that's continued to perform. I think interestingly to understand the growth in shops. And as I said, another format added to what we're doing. And I think some good results, not only from promotional plan management, but also leaning in with Coles on improving inventory levels and order cycles. I think, obviously, Zane touched on the important addition in Q4 of this financial year of Woolworths coming on and what that means to us as a business, brand and category. Wholesale-wise, -- the evolution in our mix is really important to making sure that we're tapping into that overall global growth in Kava and not focusing singularly on one channel or one sale. We've had some great development in that B2B direct and distributor opportunity, particularly obviously in the growing Kava bar and hospitality category in the U.S. I think some important elements coming through in this quarter is the development of a dedicated B2B pathway, both through Amazon's own B2B platform, but also through a direct from warehouse ordering system. The big news that Zane sort of touched on is the development of the high potency and high value. extracts. I think the work that's going into that has already sort of shown some benefits, as I said, with an increased interest of customers coming to us for inquiries and how we look to take the opportunity that is actually getting presented with some of the tariff effects that are being placed on China, which up until now has been a key supplier of some of this extracts high-potency format. And that opens up into that brand owners, contract manufacturers and car buy distributors as well even more. From a D2C and retail product mix evolution, touched on earlier a little bit about the growth in shots here in Australia, which is really encouraging to kind of see the broadening of how people are consuming and therefore, opening up the opportunity for further growth. I think what that allows us to look at not only in Australia with Coles, but where we're looking to take that in the U.S. and particularly on Amazon.com with the launch of a range of products. But I'll take this opportunity to pass over to Andy and talk a little about what's coming on to the market over there through Taki Mai -- my and Fiji Kava and the reasons behind.

Awesome. Thanks, Matt. So in early February, we looked at the Amazon business, and we found out that we were already winning in the instant Kava space. And where we really needed to build a plan was on the traditional Kava space. And then obviously, in tinctures stick packs and all the flavored stuff. So what we ended up doing was we put a plan together very quickly, and we were able to grow sales in March to $180,000, which is a 60% year-over-year growth and a 20% quarter-over-quarter growth. The business, we've been very focused on this, Tay -- my traditional. That's actually the biggest piece of the Amazon business that we weren't fully engaged in. And we are winning the instant. So we need to win in the traditional. I would say at this point, we're very close to winning in traditional. And you can kind of see the details here. Tay -- my in January was a 6% of our sales share. In March, it was 16%. So we've doubled down on the traditional Kava and we will then launch new products here at the start of the new year. I'll send it back to you, Matt.

Just building on what we were chatting on before. Obviously, the opportunity that comes with Woolworths and the launch of the 50,000, similar in a process that we've done with Coles, the opportunity to then build on that with other SKUs quickly as the category is already developed here in Australia. I think the importance of the activity when we talk about retail is twofold. One, obviously, the focus on profitable channels and how we manage them and work well with our partners, but also utilizing their breadth of contact to drive awareness, trial and then ongoing use of the category, which benefits not only retail sales, but will fall back into broader industry and broader category, which we'll see online and across our omnichannel strategy. I'll pass back over to you...

Thank you, Matt. So this is really a summary of cash funding and runway with these next steps, which are critical to demonstrate success with some of the strategic pillars I touched on earlier. Cash on hand was $1.64 million leading into the end of the quarter. Inventory was strong with $1.47 million worth of with inventory pushing into the U.S.A. strongly this quarter and into Q1 FY '26. Funding, we have a rights issue underway at the moment to raise $2.2 million from our shareholders, which is currently in progress. So certainly, with cash at bank, additional funding that we're looking to seek to close midway through May. fully subscribed, the funding takes us out 12 months of runway or beyond based on further operational efficiency that we're bringing to the business, as I've discussed earlier. The factory upgrades are just about all complete. The final touch to the upgrade really is around the dryer, and that involves the installation of our larger 750 Kava transformer that we're currently waiting on that we hope to have on site over the next 4 to 6 weeks. This then completes the upgrades of our factory optimization, high level of automation as well that we have included as part of this upgrade to bring better efficiency, operational cost control and overall savings with headcount at the facility as well. So certainly, with that, with the new product launches, which are just around the corner right now, we are well positioned to capitalize on the recent momentum since Matt and Andy have joined, but push strongly ahead with confidence into wholesale and retail markets as well. These developments certainly place the business in a strong position to accelerate revenue growth and stay focused on the key objective collectively with the team that is achieving breakeven.

Thank you, Matt. Do you want to pass to questions now?

Yes. Let's move to questions, please, and then I'll summarize, I guess, the key points that we've discussed with today's webinar, please, Matt. Perfect. So yes, I've had a few questions submitted throughout the webinar as well as beforehand. The first one is, will the Trump tariffs, if they proceed as planned at 32% combined with the higher price for Green Kava, make the U.S. market an uneconomical one for Fiji Kava?

I'll answer that, if that's right. And certainly, with the Trump tariffs, we've seen them impact potentially Fiji at 32%. These have been dialed back for the next 3 months at 10% but certainly working very closely with the Ministry of Trade in Fiji and the trade representation in San Francisco. We've been pushing for CAVA's inclusion into something called a dietary ingredients list, not only focused on CAA, but key agricultural exports out of Fiji include Ginger and Chumriich, which certainly qualify as a dietary ingredient, which are exempt based on White House tariff exemptions that we've reviewed collectively. So certainly, again, at broadening supply chain across the region, we are certainly ahead in terms of impact to margin, considering the recent announcements by the Trump administration in the United States.

Perfect. Another one here. What are the main drivers to breakeven? And how much are you relying on U.S. growth to achieve breakeven and profitability?

Yes. Look, I think I've touched on the strategic pillars and the levers we need to pull in the business very quickly based on the opportunity at hand. Certainly, regional supply to hedge against any price volatility is a key consideration in the mix as we race towards a breakeven position. The profitable retail is another key consideration for the company, accelerating online growth, both by Acuity as well as on Amazon. We have the skill sets now to be able to deliver on that front. But most importantly, where I'm excited right now is the wholesale opportunity. And again, coming back to the Trump tariff question, this has opened up a huge opportunity for the Kava company. China has been hit with 125% to 145% tariffs and folks that we have relationships in the cargo industry right now in the U.S.A. are feeling the pain and have come to us for a solution over the short to medium term. And I believe we'll be able to accelerate our race to breakeven to include the wholesale opportunity for bulk co formats as well as high potency extracts, which are in huge demand right now.

Perfect. This one says, Matthew, welcome. It seems retail sales are growing at a faster rate than e-commerce in Australia. Currently, we have no retail presence in New Zealand. Is the company making any headway into that space?

I'll probably answer this in two steps. I mean, first of all, thank you for the welcome. I think the acceleration of any of the channels needs to be understood with the management of the advertising and the promotion within them. And as was discussed on making sure that they're both profitable, but then in a position through efficiency and good management to scale. And I sort of say that in a reference to online still being a key component. I think the opportunity in retail is one that we assess, again, going back to the strategic pillars. If there is a channel here in New Zealand, that is and a partner that is appropriate that we can do business with and ensure that we get the right profitable results. I can say that we're looking at it already in detail to make sure we take those opportunities.

Yes. Perfect. So revenue hit a peak last October and has been declining since. You put this down to a focus on higher marginal channels. What is the price difference between the higher and lower margin channels? And what do you feel are the challenges to get people to pay a little bit extra for the product?

Yes. Again, I'll probably jump in on this one. I think Again, putting it in context is always important. There's been a significant pullback on digital advertising spend, understanding that the efficiencies that we were getting out of that channel at that time weren't delivering on what we wanted to do for that road map to profitability. I think the overall mix of spend, a price strategy, I think, across all channels that allows all of them to flourish is important. And I think because of our supply chain and so our regional sourcing strategy, we'll put ourselves in a position that we can provide the best quality product at the best price, which ensures that anyone that is working in that category, both as a customer or a consumer will have the opportunity to see us as a market leader and therefore, will be putting us in the best position to sell more products moving forward.

Perfect. This one is saying, welcome, Andy. The company has made a conscious decision to reduce revenue from lower-margin channels and optimize ROAs at the same time. How do you plan to drive awareness and then sales of the new products in the e-commerce space with these constraints as well as other macro headwinds at the moment. Why are you launching tinctures, stick packs and shots in such a short time?

Yes. Well, first of all, thank you for the welcome. So the way that I'd categorize this is on the first question, we really have two funnels going on to get new-to-brand customers is what I'd call them. So we have -- we've hired Acuity, as we've talked about. They will be managing our retail websites, our branded websites. And we will work through a process with them on how to nurture our current clients, how to go get new clients and really how to optimize our search in some of the platforms like Facebook and Meta and that's one aspect of new-to-brand. The other aspect is we have 300 million customers that we can access through Amazon at this point. So new-to-brand is relatively, I'm going to say, easy at Amazon. The tools are vastly better than other website properties to capture specific new-to-brand sales against your spend. So we started to leverage that, I would say, in March as the first example of us performing at a good level. We still have some optimizations to do there. And then your second question, around tinctures, sick backs and shots. That market is about a $15 million market of the $40 million on Amazon this year that we haven't been playing in. And customers use KAVA in different ways. Not everyone is going to buy a powder and spend the time mixing it. A lot of people want convenience. A lot of people want a shot, a lot of people want tinctures. And so we've analyzed this market. We have the right to win in all of the products that we're launching. So we will launch those. And so that's why we're doing them quickly. And then around the headwinds, I think that was on the first question. I know that like the headwinds you might be talking about the tariffs and things like that. From a sales perspective, as you can see in March, we didn't see headwinds. So I would say it's business as usual for us, and we'll keep pushing forward.

Excellent. I'm just conscious of the time. I'm sorry, I won't be able to get to everyone's questions. But if you do have any more that we didn't get to, please feel free to reach out directly to the Co. I'm just going to pass back to Zane now to wrap us up.

Thank you, Jack. Thank you, Matt and Andy. I'd just like to conclude by summarizing the key points from today's webinar. And as we move towards breakeven, certainly, our focus is firmly on accelerating high-margin, scalable sales channels while leveraging recent structural improvements across the business. The first point I'd like to make is around the revenue mix evolving. Online D2C sales now represent 50% -- 55% of total revenue. Our retail and wholesale channels are growing fast, retail now at 36% and wholesale at 9%. This diversification strengthens resilience and positions us for sustainable scale. The second one, again, is the wholesale channel momentum. Wholesale revenue grew by 49% this quarter to $155,000. Strong inbound interest, as I've touched on earlier, from food and beverage brands, Kava bars and ingredient suppliers. Our high-potency extract line, which we launched in Q1 FY '26, will expand this opportunity further. The third point really is around retail channel expansion. And Calmer Co continues to increase orders for Taki Mai shots, I think in the quarterly results. From February to March, we saw an increase of 7,500 units over those 4 weeks. From June, as Matt touched on earlier, Woolworths will be ranging our Fiji Cava 50-gram instant Cava packs nationally with the exception, of course, with the Northern Territory. Together, these 2 partners represent access to 67% of Australia's supermarket sales volume. The fourth point I'd like to make is around direct-to-consumer acceleration in the U.S.A. and we do have an Amazon guru in our team with Andy Berger Amazon USA sales have hit $180,000 in March, which is 60% year-on-year, 20% quarter-on-quarter growth, very exciting, given that Andy has been behind the wheel, Matt's been behind the wheel as well here for 6 to 8 weeks. Taki Mai traditional Kava leads the charge, strong brand resonance and consumer traction. And we are seeing shifting consumer focus from traditional powders, which are currently 94% of our product mix to higher turnover SKUs, shots, stick packs and pinches, driven most importantly by what we're seeing is strong consumer demand. The fifth one is around margin and cost discipline. Gross profit margins rose to 61% net of promotions in Q3, strong result post promotion strategy recalibration across the business and across these channels. Operating loss reduced by 31%, showing clear cost discipline and business model improvement. Number 6 is the positioning for breakeven, $1.64 million in cash with $2.2 million entitlement offer underway. This provides 12 months' worth of runway for the business. And we already, like I said earlier, have $1.47 million worth of inventory across the business to service retail, wholesale and new U.S. product launches. The factory upgrades are just about complete, and we have certainly completed the new product formats that we're looking to launch on Amazon shortly, which really minimizes execution risk ahead. So if I can close with this, it is -- our strategic shift towards scalable, high-margin channels, particularly U.S. D2C, expanding retail partnerships and fast-growing wholesale gives us a clear path towards breakeven and long-term profitability. Thank you very much for -- ladies and gentlemen, for joining us on today's webinar. And I hope to engage with you and others over the course of the quarter.