Synergy CHC Corp. (Uplisting) Q1 2025 Earnings Call Transcript

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May 15, 2025

There are 5 speakers on the call.

Operator

Good morning, everyone, and thank you for participating in today's conference call to discuss Synergy CAC Corporation's Financial Results for the First Quarter Ended 03/31/2025. Joining us today are Synergy CEO, Jack Ross CFO, Jamie Fickett and Greg Robles with Investor Relations. Following their remarks, we'll open the call for analyst questions. Before we go further, I would like to turn the call over to Mr. Robles as he reads the company's safe harbor statement.

Operator

Greg, please go ahead.

Speaker 1

Thanks, Marvin. Good morning, and thanks for joining our conference call to discuss our first quarter twenty twenty five financial results. I'd like to remind everyone that this call is available for replay and via a live webcast that will be posted on our Investor Relations site at investors.synergychc.com. The information on this call contains forward looking statements. These statements are often characterized by terminologies such as believe, hope, may, anticipate, expect, will, and other similar expressions.

Speaker 1

Forward looking statements are not guarantees of future performance, and the actual results may be materially different from the results implied by forward looking statements. Factors that could cause results to differ materially from those implied herein include, but are not limited to, those factors disclosed in the company's SEC filings under the caption Risk Factors. The information on this call speaks only as of today's date, and the company disclaims any duty to update the information provided herein. Now, I would like to turn the call over to the CEO of Synergy, Jack Ross. Jack?

Speaker 2

Good morning, everyone. Thank you for joining us today to discuss Synergy's performance for the first quarter of twenty twenty five. We are very pleased to report a 30% growth in earnings per share year over year, marking our ninth consecutive quarter of profitability. Additionally, we have expanded our EBITDA margins significantly to 24.1% compared to 19.7% in the prior period. This performance highlights the strength of our operating model and the ongoing discipline around cost management.

Speaker 2

Before we get into the results, I want to highlight a few exciting business developments that the team has been working diligently on. First, as an update on our international expansion. We have entered into a three year license agreement for the Focus Factor brand with a company in The United Arab Emirates, which allows Focus Factor to expand its global reach. We expect the licensee and their designated territory to begin generating revenue by the fourth quarter. Looking ahead, we plan to expand our global presence by adding new licensees in selected markets where Synergy does not currently operate and does not intend to establish a direct footprint.

Speaker 2

Additionally, we have incorporated a wholly owned subsidiary in Mexico and we are working on onboarding our manufacturing partners and customers, which includes Costco and Walmart. We expect this initiative to start generating revenue early in the third quarter. We still intend to open Australia and Taiwan markets early in the fourth quarter with Costco being the lead customer for both regions. Second, I would like to provide an update on our RTD beverage progress. We have hired an industry veteran with over ten years of experience in the beverage and convenience store industry.

Speaker 2

He is set to join our team on May 26. We expect him to add significant growth to our beverage business starting almost immediately. Since our last call in March, we now have opened more than 400 additional convenience stores in Canada, doing business with Metro, En route, INS markets to name a few. Moving forward, we will continue to grow our Canadian and US convenience store business for our RTD beverages. We are pleased to report that during the second quarter, we received nearly $1,000,000 of purchase orders from Amazon for our RTD products.

Speaker 2

These orders represent strong momentum through the second quarter. We expect to be in full rollout mode with Amazon and other major retailers in the back half of the year. Third, we have entered into a long term supplier agreement for Focus Factor products, which will have significant cost saving benefits to Synergy. This arrangement has changed our capital needs from Synergy buying and owning the inventory for the Focus Factor brand to the supplier now owning the inventory and shipping directly to our customers. Lastly, we also have entered into two term sheets to refinance our debt that we expect to close as soon as possible, which is expected to accelerate free cash flow in the business in the near term and extend our debt maturity date into 2029.

Speaker 2

With the terms that are currently being presented, this refinancing will alleviate more than $10,000,000 of principal payments in 2025. Before passing the call over to Jamie, I want to touch briefly on tariffs as we know this evolving situation is on top of the mind of all investors. Synergy purchases all its products from suppliers in their representative countries, meaning all products sold within a country are produced in that country. While we may see some impact from tariffs on certain ingredients, we do not expect to have any material impact on our business. With those updates, I'd like to turn the call over to our Chief Financial Officer, Jamie Fickett.

Speaker 2

Jamie?

Speaker 3

Thank you, Jack. I'll now review our financial results. For the first quarter of twenty twenty five, net revenue was $8,200,000 compared to $9,400,000 in the year ago quarter, reflecting a 13% decrease year over year. This decline was primarily driven by a one time sell in to one customer during 2024 that did not repeat in 2025. Gross margin for the first quarter was 75.4% compared to 72% in the same quarter last year.

Speaker 3

The increase in gross margin was primarily driven by a favorable product mix. Operating expenses for the first quarter were $4,200,000 compared to $5,000,000 in the year ago quarter. The decrease of 15% in operating expenses reflects our ongoing focus on managing costs effectively while continuing to invest in key growth initiatives. Income from operations was $1,900,000 an increase of 8% compared to $1,800,000 in the first quarter twenty twenty four. Net income for the first quarter was $876,000 or $0.10 per diluted share compared to $580,000 or $08 per diluted share in the year ago quarter.

Speaker 3

This represents a 30% increase in earnings per share year over year, reflecting the successful execution of our strategic growth initiatives and cost management. EBITDA for the first quarter was $1,980,000 compared to $1,850,000 in the first quarter of twenty twenty four, up 7%. Moving to our balance sheet. As of 03/31/2025, we had cash and cash equivalents of $177,900 compared to $687,900 as of 12/31/2024. Inventory was $2,300,000 at the end of the first quarter compared to $1,700,000 at the December.

Speaker 3

At 03/31/2025, we had $31,300,000 in total liabilities, which compares to $33,000,000 in total liabilities at 12/31/2024, which is a decrease of $1,700,000 in the first quarter. For the three months ended 03/31/2025, our cash used in operating activities was $823,000 compared to cash used in operating activities of $858,000 at 03/31/2024. The decrease was primarily attributable to an increase in inventory and a decrease in accounts payable and accrued expenses offset by a decrease in receivables. Now I will turn the call back over to the operator.

Operator

Thank you. At this time, we'll conduct a question and answer session. And our first question comes from the line of Sean McGowan of Roth Capital Partners. Please proceed.

Speaker 4

Good morning. Thanks for taking the questions. My first question would be on RTD beverage. So how much was in the quarter and kind of what are the plans for the rollout for the remainder of the year?

Speaker 2

Yes, Sean, Thank you for the question. So if you sort of look at synergies budget, we didn't have really anything planned for the first quarter. We did $30,000 of RTD revenue in the first quarter. In the second quarter, with what's happened already with Amazon, we expect to do about $2,000,000

Speaker 4

Okay. And in terms of kind of geographic territories and other distribution channels, what's the plan for the balance of the year?

Speaker 2

For RTDs?

Speaker 4

Yeah, yeah, in terms of adding new stores and new customers.

Speaker 2

Yeah, primarily just in Canada and The US at this point, and nothing's changed from you know, the major customers that we are targeting, meaning convenience stores, obviously, we're gonna go back to Costco and the rest of the retailers that we already have in our system that we sell our current bills to.

Speaker 4

Okay. And then a question on expenses. So the job there. They came in below, where I thought, but would you say this G and A level is going to rise through the year? Is this, something we should expect to see consistently through the year?

Operator

So

Speaker 2

G and A, we will have a couple of headcount, ads, if you will, to G and A, but I think it'll be, you know, as a percentage, it will probably be pretty flat.

Speaker 4

Okay. And then my last question was, what was the licensing revenue that you booked in the first quarter there? Is that Is that something you've talked about before? Thought that was stuff that we would expect later in the year.

Speaker 2

Yeah, so that's, as mentioned in my dialogue on the call here, we signed a licensee for The United Arab Emirates that we've received a fee for $1,500,000 for that territory, and we will pursue other territories that way that we don't plan on having a footprint ourselves in, if you will. So expanding our global reach, basically.

Speaker 4

So in the future, that for at least that particular contract that would be just based on the actual revenue. This is just sort of a startup fee.

Speaker 2

That's correct. Okay. In the fourth quarter, they got a bit of registration timeline, to start generating revenue, but we expect to generate start generating revenue in the fourth quarter.

Speaker 4

Okay. Thank you. Just one more clarification. Did you mention Australia and Thailand? Were those the two countries you

Speaker 2

expected? Taiwan.

Speaker 4

Taiwan. Okay. Thank you. Thank

Operator

you. At this time, I'm showing no questions. I'll now turn the call back over to Mr. Ross for closing remarks.

Speaker 2

Thank you. We'd like to thank everyone for joining our earnings call, and we look forward to speaking with you when we report the second quarter results in August. Thank you.

Operator

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Key Takeaways

  • Strong profitability: Q1 EPS grew 30% year-over-year to $0.10, marking the ninth consecutive profitable quarter while EBITDA margin expanded to 24.1% from 19.7%.
  • International expansion: Signed a three-year UAE license for Focus Factor (revenue expected in Q4), established a Mexican subsidiary for Q3 sales, and plans to launch in Australia and Taiwan via Costco in Q4.
  • RTD beverage momentum: Hired an industry veteran, added 400+ Canadian convenience stores, secured nearly $1 million in Amazon Q2 orders, and anticipates about $2 million in RTD revenue this quarter with further U.S. rollout.
  • Supply and capital efficiency: Entered a long-term supplier agreement for Focus Factor that shifts inventory ownership to suppliers, reducing capital needs and improving cash flow.
  • Debt refinancing: Negotiating term sheets to extend debt maturities to 2029, which will defer over $10 million in principal payments in 2025 and accelerate free cash flow.
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Earnings Conference Call
Synergy CHC Corp. (Uplisting) Q1 2025
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