TRUBAR Inc. (TRBR.V) Earnings Call Transcript & Summary

[Audio Gap] on our recent success and priorities going forward, and we will have Paul plus Henry moderate that discussion. Before moving forward, we've got some disclaimers that we need to bring your attention to. Please take note. And folks some of you are probably wondering why the change was needed. I'm going to try to summarize that question very simply. Sadly, former management team has not had the direction of the board, contrary to what the Board was asking, was dramatically increasing the marketing spend on one of our brands, the PureKana brand, in particular. And actually, that activity put the company in a position of financial distress. So we needed to make some changes. And as you see here in front of you, the first 60 days was very busy. We shut down 10 of 17 operating units within Simply Better Brands world. We reduced our operating overhead by 36%, reduced head count by almost 2/3 and moved forward with some activities that resulted in total stabilizing of the balance sheet of the company and allowing us to reposition all our resources behind TRUBAR and carry on with a couple of our other brands that you see here in front of you. The current portfolio is as you see in front of you are wonderful lineup of TRUBAR product and our next gen beauty line and plant-based wellness portfolio. The 2 small portfolio packages other than Tru Brands will deliver less than 10% of our revenue this year. And as such, we're not going to spend much time on it today. Instead, we're going to talk here about SBBC's hero brand, TRUBAR. As you can see here, it's been incredible what Erica has been able to accomplish with literally no resources and actually resources being taken out of her world to be focused on some of the other brands in the portfolio. You see almost 150% year-over-year growth. Again, with limited access if not no access to capital. It is our plan to maintain an accelerated growth rate over the next 12 to 18 months, as indicated here. Plan is simple, we will be expanding distribution, accelerating marketing and develop our pipeline of products. On item #1, you see in front of you the distribution expansion from -- well, actually, our old projection was 5,000 new retail locations this year. We're upping that to 9,500 as you see. And this brings our total to over 12,000 stores that we will be in by the end of the year. You see the stroke, the lines indicating our former forecast of 4,000 up to 6,500, 400 to 650 stores, 130 stores to 400. These are some of the incredible positive signals that are coming inbound about the retailers wanting to get our products on their shelves. You know particularly 1,000 stores we actually announced the actual name on that brand recently, and that's GNC. Let's go to next slide. Part 2 of our strategy, marketing acceleration. You see some of the key initiatives here in front of you. We've got lots of in-store activity as well as online activity that again, really wasn't very active until earlier this year. Section 3, the innovation pipeline is extremely strong. We've had some fabulous input from our world-class Board of Advisers and Board of Directors. We've developed these new flavors, bar sizes and also responded to some inbounds from retailers for specific innovation or activity in their stores. At this point, I'd like to bring your attention really to the master strategy that we are implementing at SBBC. In front of you here are some historic snap bar sector M&A activity that's happened over the last 5 years. You see some of the brands that I think are pretty well known, were bought by major conglomerates that significant deal multiple valuations. So our plan here at SBBC is really quite simple. It's built our brand and look to monetize the asset over the next 18, 24 months, while we continue to look for the next TRUBAR opportunity. Want to bring our attention now to the Board of Directors. Briefly a little bit about me and my background, for 30-some years, I've been guiding our investment activity at our family office here and we fly under the flying VRG Capital in conjunction with some other family offices here in Toronto. Bringing your attention to 3 restructurings that we led over the last 10 years or so, Healwell AI is very recent last year, a lot of success in that business today. DCM, incredible turnaround story led by one of my Board members, talking about him in a minute. Dominion Lending, we had to restructure a company called Founders Advantage to turn it into Dominion Lending. And Adrem Brands has actually been in our family for over 40 years. a portfolio of smaller brands in the OTC category. So lots of knowledge about this sector in our world. Now I'll move to our directors. Paul Norman, former President of Kellogg's, North America, he actually led the acquisition of RXBAR for Kellogg's. So lots and lots of institutional knowledge around the product category. Richard Kellam, who I mentioned earlier, runs DCM, DO over there and had a 20-year spectacular career at Mars before entering our world and was in charge of sales and marketing activities for some of the most iconic power brands in the world. You see them here. Along his travels, he met Mr. Walshe and recently asked him to help us out. And we're thrilled to have Mr. Walshe join our Board and provide some fabulous advice in regards to our marketing activity going forward. Of course, we have Erica, you'll meet her in a moment. Brock has been with us for 25 years at VRG, before that World Bank and Michael, his accounting background started at KPMG. There you have the team. And let's go to the next slide. Talk a little bit about our current market cap. So today, we're about 119 million shares out, and I want to highlight that the ownership structure involves management and directors owning 20-plus percent of this business. This was all bought with real dollars, my family, Erica's family, invested alongside our VRG partners and contributed 40% of the capital and the equity capital that we raised over the last year, the $11 million you see in front of you. And one of the key pieces of the puzzle here that came with the restructuring, was we were able to extinguish approximately $13 million of bank debt and account payable debt, by the way, of the Chapter 7 bankruptcy that we put PureKana into. Along the travels of recent time, we've also secured a $10 million or $10 million in new credit facilities with much more favorable rates than we've been able to access in the past. You see the stock performance here. It's been great, and thank you very much for all the support. We're looking forward to continuing to meet the success in the market. And I think without further ado, we'll move to our Q&A session and turn it over to you, Paul.

Thanks for those opening remarks and for setting the stage for this Q&A conversation. Over the next 20 minutes or so, I'll be asking Erica and King additional questions that dig into the TRUBAR story in a little bit more detail. We've received a number of questions submitted already in advance of the call, which I'll work from, but the lines are also open for those who wish to submit any questions, and we'll try to get to as many of those as we can over the next 20 minutes. I'm going to start with you, Erica, welcome. It's great to have you here in front of a large investor audience. I know you've been meeting with a lot of investors in small groups, but to have you and King here together in front of these larger groups really a great way to sort of dig more into the story. And so I want to go back, we talked a lot about current state and the future for TRUBAR. I want to step back a little bit to sort of the founding of this business as you were one of the co-founders and specifically, sort of what was your inspiration to get into this business in the first place?

Yes, of course. My mother was just some avid of fad diets. So I learned very early on about health and nutrition and how you want to feel good and what you're putting in your body. We want to start taste that, but then after you eat it, you want to make sure that your body feels good. So when I have my own family, I also wanted to give my children on-the-go snacks and healthy things and I just couldn't find it. There was nothing that tasted good and good for you. TRUBAR was started. We began glut free, soy free, there's no sugar alcohols and they taste amazing. They're the bar that you throw in your bag and you can't [indiscernible]. It doesn't get to the bottom the other one.

Great. So let's talk about the nutrition bar category and what's going on in that space. It's an exciting space. Anywhere you can go today, whether you're in a grocery store or a big box chain, whether you're on the go, in an airport, convenience stores, you see nutrition brands out there. What can you tell us about sort of where that category is today and where it's going?

Yes. We are super lucky. TRUBAR is part of a $6 billion market. And our category being plant-based has a 14% CAGR. So just a mixture of our bars being clean and delicious with a sexy packaging and [indiscernible]. It's just -- we are winning.

Well, I saw a stat the other day that was really interesting, which is about half of Americans today are having 2 to 3 snacks per day. And so think about that category and that kind of growth that's happening. And if you look back 20, 30 years, 3 quarters of Americans were having one or no snack at all during the day. So this sort of between meal time, if you will, the snack time, snacking has become a...

I am a snacker.

And there's many others with you. So this is -- this looks like a market that's here to stay. And we're in that plant-based sort of category, right, because there's a lot of other snack options out there, but this is a specific category, do you want to talk a little bit more about that?

Yes. Just the plant-based as a whole, it has a 14% CAGR. So we're very lucky to be in that. But there are many people who are snacking. We are more on the go than ever. I'm always on the go [indiscernible] you're just running around your work, whatever it is, everybody is kind of just like running around with snacks. So we're very lucky to be in this sector and especially being in the plant base.

And protein as well, which is something that a lot of people are looking for.

Yes. of course.

Great. King, next question for you. You invested in SBBC about 18 months ago. Thinking back to sort of getting into that investment, what sort of attracted you to the business? And sort of what are the sort of those early challenges you saw when you looked at? I know you mentioned a few things early on, maybe a little more detail about that.

Yes, sure, Paul. We did invest about 18 months ago and actually I think the business was on a real great growth trajectory path, heading for about USD 100 million revenue. We thought that the former management team was doing a fabulous job. And sadly, as time went on and a few quarters into us being a significant shareholder, it just became apparent that the spend on in particular the PureKana brand was excessive. And over time, without getting into too much detail, literally put the company in a very, very difficult financial position. And so we had to make the changes early in the year. And as I said, we moved really quickly. We always saw the opportunity with TRUBAR. And we are trying to, in board discussion, trying to bring more attention to it, but sadly, that former management just was not taking our lead there. And here we are today, lots and lots of great activity over the last 5 months. We're completely stable now, have been since really the start of the second quarter and balance sheet is in great shape, and we just look forward to continuing to support Erica, actually not only continuing because she wasn't supported all last year. So it's I guess, continuing to support Erica and TRUBAR in a much more significant way than last year.

Erica, you must have felt that on the inside in those early days. Any reflections on that?

Yes, it was definitely a struggle. I mean we didn't have money to get inventory. There was no marketing dollars. I mean when I say no money for marketing dollars, we would spend minimum on like fees for Instagram ads. And when I say minimum, it's like $50 a month, like it was nonexistent. We were definitely starved. There was no oxygen. So it's really nice to have the Board that recognizes that this is an amazing brand and it just needs some cash and some capital and to be able to grow and blossom.

And that attention as well.

Yes.

Let's talk a little bit about the distribution expansion because the numbers we've announced this morning in our press release and that you mentioned, King, are really impressive. It was just a few months ago that we talked about 5,000 additional doors between now and the end of Q3. Today, we're out with an updated forecast of 9,500 additional doors over the course of this year. Can you give us a sort of a flavor who some of those new partners are? Because it's pretty exciting to really almost double.

Yes, we're super excited to share that. We are going into 6,500 CVSs. That's a pharmacy across the United States as well as about 600 Walmarts nationwide, more to come and over 500 Whole Foods. So we are going nationwide with Whole Foods and actually in your local store like the next couple of weeks, we're super excited about all of those.

Do you want to mention a little bit about Whole Foods being a category sort of gate you got to get through before other retailers?

Yes, Whole Foods is definitely a gatekeeper, a lot of people follow them. And -- it's just amazing. I'm just really excited to be able to give everybody what they want, right? Like a lot of people are having problems trying to find the bar. Now we're exploding into the market. So it's easier and more accessible for them to get it and new people to try it and it sounds they do pick on that.

Yes. I was recently in Denver where we had a really nice trial with Whole Foods, right and to now see it available across the U.S. across the whole platform, Whole Foods market is going to be really excited.

It's so excited.

We've talked a lot about retail, but maybe there's another channel that might be a little more under the radar that excites you. You've got an example of one of any other channels where you see good things for TRUBAR?

Yes. I mean we're blossoming in all avenues, but one thing that sticks out is our e-com. We recently launched into Walmart.com as well as Amazon. And we are just doing phenomenal. We're really -- we learned how to win on Amazon, and we had tremendous growth about 700% and it just keeps going up. And we're really dialed in and getting a lot of exposure there, and a lot of people are very excited.

I guess getting tapped into that algorithm within Amazon that allows you to win, I guess, it's been a key to that as well.

Absolutely, yes.

Great. So let's talk about the team. Obviously, we've talked a little bit about sort of how things have come together for the TRUBAR Brand. But there's a team behind that. Maybe you could talk about sort of what that team looks like.

Yes. So, we've got a couple of guys who've been in CPG and they're our sales team, they're amazing. I'm so lucky to have them. They have been in CPG for years and have a lot of experience. We're a tight knit group who actually like each other and communicate and we have a little chat conversations all time. It's great. They're amazing. And so my internal team is phenomenal. Beyond that, I got this board that King mentioned. And they have not only so much experience and knowledge behind them, they are actually active. Like I can call them, I can text them, they are there. Any time I want to bounce an idea anything there, which is just maybe price list or maybe nothing. And then we also have a great group of workers and distribution that we partnered with that are just phenomenal that are helping us grow and get to where we need to be and get it to everyone's hands.

I want to add to that, our finance team has done a great job. A, went through a very, very hectic period of time with restructuring and then supporting you with all this growth. And of course, there's a few other administration and operations people that deserve a lot of credit to keep the wheels in motion and we're looking at adding folks in all of those categories actually. So I want to make sure that we have the right people to support the growth.

Yes, definitely expanding, admit that.

Yes. I'm not going to dig into that a little bit more. In this morning's announcement, we talked about USD 5 million in additional credit facilities that we're bringing to the table. That's in addition to a $5 million credit facility we announced just 3 weeks ago. So combined USD 10 million to bring -- to support this business. I guess a sort of a sense of where those dollars will be invested sort of at a high level?

Yes, sure. I think if we go back to the slide, the 3-part slide about expanding the distribution network, expanding our marketing activity and the third part was marketing activity and the third is the innovation pipeline for us. So all that requires capital and with the help of our, some relationships, some bags have been brought to the table. Yes, we have new sources of capital available well at a significant discount to what the company had to pay during prior years when the balance sheet was nowhere near as strong as it is today.

So a lot of confidence really from the financial community.

Well 100% and the equity, of course, has helped us contributions that have come in over the last year or 2.

Yes. So just sticking with the financial aspect, we did get a question in from Noel Atkinson at Clarus. Noel is asking if we're expecting TRUBAR to contribute to SBBC being EBITDA positive in 2024, tell us sort what the expectations.

Yes, the answer is absolutely, yes. We are -- the whole plan is around profitable growth. So 100% without a doubt the SBBC division will be making a significant positive contribution on the EBITDA front to the mother ship, if you will. And we are not really spending much capital outside of the TRUBAR world right now. So 100%, we will be positive EBITDA this year.

Big Investment Erica, with the scaling up of the brand, how are you feeling about the manufacturing capacity we have on the TRUBAR?

Yes. We have 2 state-of-the-art facilities that we have no problem scaling up to $150 million with what we have currently put in place. There's no rush in there at all.

So significant room for capacity expansion are there.

Yes.

World-class contract manufacturers that are completely, completely dialed into all the back-end operations of this business that we are thrilled, lucky to have them, and we're thrilled about the great work that you and the teams are doing.

You can put your head on the pillow at night now. I know that your manufacturing is doing okay. Let's talk about international expansion because part of the announcement today, we talked about this new financing being put in place to support not only the North American growth but also internationally. What can you tell us about our aspirations, if you will, internationally for TRUBAR?

We are -- well, we have this amazing partner in Costco that we've just had such amazing success around the years and they have 14 regions outside of the United States. And so we are in discussions talking to them about doing because we did in the U.S. there. And so we'll see more to come, but we're definitely excited to see the outcomes.

And certainly having Costco U.S. here and all the programs we have and this international rollout going on now, you've got confidence in the brand?

Absolutely. With the success that it's had, right? Like you can do on the fact that we've been very successful and have multiple...

Just to add to that, it's not only are we keen to get moving to the international arena, but they are actually contacting you, right? And wanting to light up programs in a few jurisdictions literally as we speak, very exciting. Obviously, Costco is incredibly well-run organization and they are the reason for our existence, right? They gave us the shot here, Canada first to get us going and then really supported the growth in the U.S. for us.

Let me put the final question to you, King, and that's about sort of future if you will. And you alluded to it a little in your opening, but I just wanted to come back to the question around value creation for SBBC going forward and what investors can expect?

Yes, sure, Paul. Look, the plan is really simple. We want to continue to invest to accelerate the growth of the TRUBAR brand. We're going to look to initiate a monetization sometime probably 18 to 24 months from now is what we've been talking about. And according to our esteemed board members, got deep, deep sector expertise, when you hit around $100 million sales, you get on the big boys radars. So we'll probably be approached or we have lots of bankers that we know that could help us with lighting up a process. And it's really simple. You do the math. You saw that I think we could look to 3x, 4x revenue, a year or more out, multiplied to that math. And you're talking about possibly a new sky scenario on the stock of $3 to $4, and I want to stress, we will be distributing the majority of that cash. We invested some of it in our search for the next TRUBAR which has -- we've had lots of conversations around, and we'll continue to explore for that. But that's the simple plan here, Paul. And I don't think we'll be deviating far from.

Great. Well, leaving us with some really interesting prospects looking going forward, King. I want to thank everyone for joining us this morning. We look forward to presenting our midyear results in about a month's time in August and stay tuned for further developments, and I hope we can have another conversation like this with you Erica and you King going forward. And with that, we'll go ahead wrap up the call.

We have a couple of dial-in calls if you can.

Okay.

Yes. right. We have one call from 5417. You're still on the line. I will unmute your mic. I think he just dropped off, so he might have not. And then we have one other caller with a question, Trevor. I will unmute your mic.

Congratulations Kingsley on your appointment to the permanent CEO role. And congratulations, Erica, on your continued success. I know you're wrapping up. I just wanted to comment noting on your 18- to 24-month exit time line. Where does the innovation pipeline play into that? Will you have a chance to release those different products that you've featured on the slide show?

Yes. I think absolutely, would be the simple answer. These initiatives are teed up over the next 6 to 12 months? Yes. So you'll see those products come in to the market and certainly help us with the significant growth trajectory that we're on. So obviously, this is going to be something that the board will have to assess is the ultimate timing for looking for an exit. But -- our -- we have complete consensus that we think that will be the time table for us to look to sell the brand. And as I say, between now and then look for the next TRUBAR and maybe we could be lucky and find a couple. So thank you for your question. I hope that answers it.

Any other new questions?

No further questions.

Okay. We'll go ahead and wrap up. And again, thank you, Erica and King for this conversation.

Thanks for being here, Paul.