Sean McGowan

Sean McGowan inquired about current pricing trends within the spirits industry and any potential limitations on MGP Ingredients' credit facility concerning the upcoming Penelope earn-out payment.

Answer

CEO Julie Francis noted that pricing in the Branded Spirits segment is generally rational, with some targeted adjustments for affordability. In Distilling, pricing is impacted by oversupply, but MGP is managing through partnerships. CFO Brandon Gall confirmed no limitations on the credit facility for the Penelope earn-out, highlighting strong bank group support and the option to use an acquisition holiday for covenant headroom.

Sean McGowan inquired about MGP Ingredients' pricing strategy across the industry and any limitations on the credit facility regarding the Penelope acquisition earn-out payment.

Answer

CEO Julie Francis noted that pricing is broadly rational, with some pockets of affordability issues addressed by smaller pack sizes. CFO Brandon Gall confirmed no limitations on the credit facility for the Penelope earn-out, highlighting bank group support and the option for an acquisition holiday.

Sean McGowan from ROTH Capital Partners sought clarification on the distinction between a 'paused purchase' and a 'canceled contract' for distilling customers. He also asked if the higher SG&A expense from incentive compensation would continue.

Answer

CFO Brandon Gall explained that a 'pause' refers to customers whose contracts ended and who are temporarily not renewing due to their own inventory levels, but with whom MGPI maintains strong, long-term relationships. He expressed confidence these partnerships will resume. Gall also confirmed that the higher SG&A as a percentage of sales is expected to persist in H2 due to the reinstatement of incentive comp, but highlighted that underlying SG&A is down 8% due to cost savings initiatives.

Sean McGowan asked if anticipated tariffs caused any pull-forward in customer demand for Distilling Solutions. He also questioned the better-than-expected performance of the Penelope brand, noting it seemed like a turnaround from more tempered expectations expressed in the previous quarter.

Answer

Brandon Gall, Interim CEO & CFO, stated they are not seeing any evidence of a demand pull-forward in Distilling Solutions related to tariffs. Regarding Penelope, he clarified that while expectations were high, they were tempered in Q4. However, the brand's strong Q1 performance, while not changing the full-year outlook yet, necessitated an accounting adjustment to the contingent liability. He reaffirmed strong optimism for the brand.

Sean McGowan of ROTH MKM questioned the company's confidence in the carrying value of its aged distillate inventory given the current market dynamics. He also asked about the potential impact of resuming European tariffs on MGP's business.

Answer

Brandon Gall, Interim President, CEO, and CFO, expressed confidence in the carrying value of the aged inventory, stating that it remains 'far below where market prices are' due to the company's scale and low-cost production. Regarding tariffs, he noted that MGP currently has very little direct exposure to Europe, so the impact is not significant in the 2025 guidance, though it's a factor being monitored for the long term.

Sean McGowan of ROTH Capital Partners asked if advertising spending as a percentage of revenue would increase in 2025 given the market headwinds. He also questioned whether the company's capital allocation priorities, specifically regarding M&A and share repurchases, have shifted due to the changing business outlook and stock price.

Answer

CFO Brandon Gall stated that the company plans to maintain its advertising investment for Branded Spirits at 14% to 16% of segment sales, viewing it as crucial for future growth. Regarding capital allocation, he confirmed that M&A remains a high priority. He noted that 2024 will be a 'high watermark' for CapEx and that both CapEx and whiskey put-aways will be reduced in 2025, which should be accretive to free cash flow. While share repurchases are an option, other priorities like M&A currently rank higher.

Sean McGowan asked about the reduction in cost of sales as a percentage of revenue, specifically if it was driven by one-off revenues like the Varnamtown sale. He also inquired about the expected timeline for Varnamtown's consumer viewership, trends in G&A expenses, the allocation of stock-based compensation, and the rationale behind the Q4 guidance implying deceleration despite strong Q3 performance.

Answer

Ryan Carhart, CFO of PodcastOne, confirmed that while margins were generally improving, Q3's cost of sales reduction included one-time benefits from sold items. Robert Ellin, Executive Chairman, noted that Varnamtown's release date is uncertain but highlighted the significant investment by the streaming partner and the potential for substantial revenue from original IP. Mr. Carhart stated that G&A is expected to remain stable, with the team doing more with existing resources, and clarified that approximately $1.4 million of stock-based compensation was allocated to cost of sales. Kit Gray, President and Founder, explained that the Q4 guidance reflects typical seasonal slowdowns in ad spending during the calendar year's first quarter, but still expects to outperform the prior year's Q4.

Sean McGowan from Roth Capital asked about the drivers behind the reduction in cost of sales as a percentage of revenue, specifically if it was due to one-time revenue events like the Varnamtown sale. He also inquired about the expected timeline for Varnamtown's consumer viewership, G&A cost trends, the allocation of stock-based compensation between G&A and cost of sales, and the rationale for the conservative Q4 fiscal year guidance despite strong Q3 performance.

Answer

Ryan Carhart (CFO, PodcastOne) confirmed that while there was a one-time benefit from certain sales, overall margins have been steadily improving due to operational efficiencies. Robert Ellin (Executive Chairman, PodcastOne) discussed the significant potential of original IP like Varnamtown, noting that it's now with a streaming partner and could generate substantial future revenue with zero additional cost. Carhart indicated G&A should remain stable short-term, with stock-based compensation being a factor, and clarified that about $1.4 million of stock-based comp came from cost of sales. Kit Gray (President and Founder, PodcastOne) explained that the Q4 fiscal year guidance reflects typical seasonal slowdowns in ad revenue post-calendar year-end.

The analyst asked about the rising cost of sales, the future trend of this metric, the nature of video podcasting including consumer interaction and advertising, and whether PodcastOne is undergoing staff reductions similar to its parent company.

Answer

The company stated that using stock-based compensation for talent helps margins and they expect the cost of sales as a percentage of revenue to gradually decrease from its current 90% level. They noted that nearly all shows have a video component, with about 70% being full video broadcasts, which is a major consumption format on YouTube, especially for younger audiences. Video ads are becoming more sophisticated, like mini-commercials. Regarding staffing, they have made some changes but attribute most efficiencies to new technology and platform migrations rather than significant staff reductions.

Sean McGowan from Roth Capital Partners, LLC inquired about the rising cost of sales, the impact of stock-based compensation, the percentage of shows suitable for video, consumer interaction with video podcasts, how advertising is implemented in video formats, and whether the company has undergone recent staff reductions.

Answer

CFO Ryan Carhart stated that using stock for talent payments helps the contribution margin and that he expects the cost of sales percentage to improve slightly from its current level. Co-Founder & President Kit Gray added that nearly all shows now have a video component, with about 70% being full video broadcasts. He described how ads are becoming more visually integrated, driving higher CPMs. Gray also confirmed some personnel changes have occurred due to operational efficiencies from new technology, with a focus on internal promotion.

Sean McGowan of Roth Capital Partners inquired about the significant increase in stock-based compensation and its connection to talent acquisition, the future outlook for G&A expenses, the performance of the Art19 deal, the trend in cost of sales, and whether the company's 20% revenue growth is outpacing the industry.

Answer

President Kit Gray confirmed the stock-based compensation increase is a strategic tool to attract and partner with talent, a unique advantage of being a public company. CFO Ryan Carhart added that while Q1 OpEx will see a slight reduction, the current stock comp level is a good run-rate indicator. Regarding the Art19 deal, Gray described it as highly successful, with operational efficiencies and strong revenue generation, noting they hit their minimum guarantee in April and are approaching the next tier. Carhart also stated that the contribution margin improved in Q4 and is expected to hold steady or get better. On growth, Gray emphasized a dual strategy of maximizing value from current partners and strategically acquiring new content, focusing on profitable growth rather than growth at any cost.

Sean McGowan of ROTH Capital Partners inquired about the advertising market's pricing trends following the election cycle, how podcasting's growing social influence affects talent negotiations, and the challenges and strategies for new show discovery.

Answer

Kit Gray, President, explained that advertisers who paused spending during the election are expected to return, creating a strong Q3 and Q4. He noted that while increased exposure can make talent more expensive, PodcastOne's services grow the overall revenue for shows, justifying the cost. For discoverability, Gray stated that joining a network is crucial for new shows and that diverse monetization options like programmatic ads, merchandise, and paywalls now allow smaller podcasts to become profitable.

Sean McGowan asked about the expected release dates for the 10-Qs for both LiveOne and PodcastOne. He also inquired about the sustainability of various cost buckets, including G&A and sales & marketing, at current levels for LiveOne, and the outlook for depreciation and amortization (D&A) and stock-based compensation (SBC) over the next several quarters. Furthermore, he sought more precise timing on when revenue from the 30M+ subscriber B2B deal would appear and its contribution to the $85M-$95M guidance. Finally, he asked about the conversion rate of ad-supported Tesla users to paid and the expected revenue growth from Tesla subscribers in the next fiscal year.

Answer

Ryan Carhart, CFO of LiveOne, stated that the 10-Qs should be released "tomorrow." He confirmed that G&A and sales & marketing expenses should be modeled forward at current or even lower levels, reflecting ongoing OpEx reduction efforts. For D&A, he anticipated "nothing material" beyond current levels, driven by Cap software, with a slight potential increase over the next year for new product coding. Stock-based compensation is expected to remain similar to this quarter, with potential increases depending on talent equity plan participation. Regarding the B2B deal revenue, Mr. Carhart indicated a test phase launch this quarter with a ramp next year, noting the $85M-$95M guidance is "very, very conservative." Rob Ellin, CEO and Chairman of LiveOne, added that only "nickels and dimes" from these deals are in the current guidance. Mr. Ellin reiterated that revenue from Tesla subscribers is absolutely expected to grow next fiscal year, highlighting the benefit of upfront cash from year-long subscriptions for debt repayment and balance sheet strengthening.

Sean McGowan from ROTH Capital Partners, LLC questioned the current ARPU, whether paying subscribers are ad-free, the revenue reporting segment for new TV shows, the timeline for other potential shows, and specifics on the new reality event. He also asked about the 10-Q filing date.

Answer

CEO Rob Ellin confirmed the current paying subscriber ARPU is $5 and the experience is ad-free. Revenue from the three initial true-crime shows will be booked in the PodcastOne segment, while the reality event revenue will be in the LiveOne segment. He described the reality show as an "Olympics-style" competition for reality stars. CFO Ryan Carhart stated the 10-Q would be filed the next day.

Sean McGowan sought clarification on the $5 ARPU figure, whether paying subscribers are ad-free, where revenue from new TV shows and the reality event will be reported, the development timeline for other potential shows, and the filing date for the 10-Q.

Answer

CEO Robert Ellin confirmed the $5 ARPU is current and that paying subscribers are ad-free. He explained that revenue from the three true-crime shows will be reported under PodcastOne, while the reality show revenue will be under LiveOne. The timeline for other shows is dependent on network greenlighting. CFO Ryan Carhart stated the 10-Q would be filed the following day. Ellin also confirmed the B2B revenue ramp is expected in fiscal Q3/Q4.

Sean McGowan from ROTH Capital Partners, LLC sought to clarify if the $5 ARPU is a current figure, whether paying subscribers are ad-free, where revenue from new TV shows would be booked, the development timeline for 20 potential shows, the format of the new reality show, and the 10-Q filing date.

Answer

CEO Rob Ellin confirmed the $5 ARPU is a current figure and paying subscribers are ad-free. He explained revenue from the three named true-crime shows would fall under the PodcastOne segment. He described the reality show as an 'Olympics' style competition for reality stars, with revenue booked at LiveOne. While no firm timeline was given for the 20 shows, he noted they are in active development. CFO Ryan Carhart added that the 10-Q was expected to be filed the following day.

Sean McGowan from Roth Capital Partners, LLC asked for clarification on the financial meaning of the '50% fill rate' in Tesla vehicles, the current number of paid subscribers, and the nature of the company's Web3 and crypto initiatives. He also inquired about the 10-K filing date, any changes in the types of B2B deals being pursued, and the evolution of the Tesla partnership.

Answer

Founder, Chairman & CEO Robert Ellin explained that the 50% fill rate refers to monetizing previously unfilled advertising inventory in Tesla cars, which sets the stage for converting free users to paid subscribers. He noted LiveOne has over 250,000 paid subscribers and aims to convert 25-30% of its 1.5 million ad-supported users. Regarding Web3, Ellin stated the initial focus is a podcast network with potential for tokenization, leveraging their large audience. He also highlighted that new B2B deals are with larger partners and that the evolved Tesla deal now provides valuable user data and branding. VP & CFO Ryan Carhart added that the 10-K filing is expected early next week.

Sean McGowan of Roth Capital Partners inquired about the monetization status of new ad-supported Tesla subscribers and questioned why gross margins were not lower given the associated music royalty costs. He also asked for a timeline on when revenue from other sources, like publishing and television, would become significant.

Answer

CEO Robert Ellin clarified that the ad-supported monetization was in its infancy, having launched only 30 days prior, with advertising revenue typically taking 90-120 days to ramp up. This short timeframe is why a significant negative impact on gross margin was not yet visible in the quarter's results. Regarding other revenue streams, Ellin highlighted positive momentum in the publishing business with a #1 song and the sale of a second TV show, stating that while not yet massive revenue drivers, they represent high-value, low-risk opportunities that could become extraordinary profit contributors if successful.

Sean McGowan's questions covered the competitive landscape for podcasts, the monetization of celebrity brands, and financial details. He asked if the podcast acquisition market was becoming more competitive, when to expect 'needle-moving' revenue from celebrity brands, and for clarification on the economics of the music publishing business. He also followed up on the G&A outlook and the 10-Q filing date.

Answer

CEO Rob Ellin characterized the podcast M&A market as having 'haves and have-nots,' stating that LiveOne is well-positioned to acquire small-to-mid-sized shows where competition is less intense. He pointed to early distribution wins for celebrity brands as a sign of progress and explained that owning 'half a song' refers to publishing rights, a business segment that grew 300%. CFO Aaron Sullivan reiterated that G&A expenses are expected to normalize and confirmed the 10-Q would be filed early the following week.

Sean McGowan asked about Celsius Holdings' international plans for Alani Nu and Rockstar Energy, and for an assessment of the overall international performance to date.

Answer

Chairman and CEO John Fieldly explained that Celsius Holdings recently hired a President of International Expansion and has been building a foundation in markets like Sweden, Finland, Australia, the U.K., Ireland, New Zealand, France, and Benelux. He noted that Australia has been a successful early expansion market, with Europe being foundational. Celsius is the initial international push, with opportunities for Alani Nu to follow, positioning international as a growth driver for years to come.

Sean McGowan asked about the international plans for Alani Nu and Rockstar Energy, and the overall performance of Celsius Holdings' international expansion efforts.

Answer

CEO John Fieldly highlighted international as a significant opportunity, noting the recent hiring of a President of International Expansion and the foundational work in markets like Sweden, Finland, Australia, and the UK. He emphasized leaning in further in 2026 with strategic investments, leveraging global health and wellness trends, and cited Australia as a successful early expansion market, with Celsius leading the initial push and Alani Nu opportunities to follow.

Sean McGowan asked for an update on international performance, inquiring how the market-by-market rollout is progressing relative to the company's initial expectations.

Answer

CEO John Fieldly described the international expansion as 'cautiously optimistic,' stating that the reception in new markets like the U.K., Ireland, France, Australia, and New Zealand has been better than initially expected. He emphasized that while the approach is strategic and cautious, the brand's acceptance has been strong. The focus for 2025 is on building out these core markets before expanding to additional ones in 2026 and beyond, leveraging global health trends.

Sean McGowan asked about the financial impact of promotional allowances on Q4 revenue and gross margin, and whether the current gross margin level is sustainable going forward.

Answer

CFO Jarrod Langhans acknowledged that contra revenue from promotions was elevated in 2024 but expects it to normalize. Regarding gross margin, he stated that while potential tariffs could push it to the high 40s, he believes the 50% level achieved for the full year is a 'solid number' and that the company has shown resilience in maintaining it. He deferred commenting on Alani Nu's margin profile until after the deal closes.

Sean McGowan from Roth Capital Partners, LLC inquired about the seasonality of the Irwin Naturals business, its historical SG&A and marketing spend, the potential for restructuring costs, and the details of the upcoming pro forma financial filings. He also asked why Costco dropped Irwin's products and sought clarity on whether Dr. Tobias was the only weak brand within the MRC segment.

Answer

Dayton Judd, Chairman & CEO, clarified that Irwin's business has less pronounced seasonality than FitLife's sports nutrition brands. He noted Irwin had minimal advertising spend during its bankruptcy, which FitLife plans to reintroduce. Judd confirmed no restructuring costs are expected and detailed the nature of the required abbreviated pro forma filings. He suggested Costco's decision was linked to a lack of promotional support during the bankruptcy and confirmed that while Dr. Tobias is the main issue in MRC due to falling session counts, the smaller skincare brands also face challenges from tariffs.

Inquired about the seasonality of the Irwin business, its historical marketing spend, future transaction and restructuring costs, the details of upcoming pro forma financial filings, the reason for Costco dropping Irwin products, and the specific performance issues within the MRC brands (Dr. Tobias and skincare).

Answer

Irwin's business has similar but less pronounced seasonality than FitLife's. Irwin had cut advertising during bankruptcy, which FitLife will restart. There will be additional transaction-related expenses in Q3 but no major restructuring costs. Pro forma financials for the acquired nutritional supplement business will be filed. The Costco US drop was likely due to a lack of promotional support during bankruptcy. Within MRC, Dr. Tobias is the main challenge due to declining traffic on Amazon, while the smaller skincare brands are also struggling with tariffs and being non-core.

Asked about the GNC relationship, MusclePharm's underlying volume performance given promotional accounting, the status of new product launches like beverages and bars, and the impact of tariffs.

Answer

The GNC relationship is resolved and positive. Specific MusclePharm volume data was not available, but the promotional accounting was explained. The new ready-to-drink beverage launched in late March with good initial distribution. Tariff impacts are manageable, affecting products differently with a 0% to 11% cost increase.

Sean McGowan inquired about the current status of the relationship with GNC, asked for a gross-to-gross revenue comparison for MusclePharm to clarify the impact of promotional accounting, and requested an update on new product launches like beverages and bars.

Answer

Executive Dayton Judd stated that the relationship with GNC is resolved and "very, very positive." While unable to provide a gross-to-gross revenue comparison for MusclePharm on the call, he explained the accounting treatment for promotional discounts. He also noted that new beverage products launched in late Q1, with distributors and gyms beginning to carry them, and he expects a larger revenue impact in Q2. Judd also clarified the impact of potential tariffs, stating it ranges from 0% to 11% depending on the product.

Asked for details on the GNC dispute's impact on margins and sales, the sustainability of low MusclePharm margins, the reason for lower-than-expected operating expenses, and the potential impact of the current political administration on the supplement industry.

Answer

The GNC dispute hit Q4 revenue, with a sales catch-up expected in Q1; the net profitability of direct vs. corporate sales is still being analyzed. MusclePharm's low margins are an intentional investment in growth and will continue for now. No unusual items were identified in operating expenses. The company feels well-positioned for potential regulatory changes, having already moved away from ingredients like artificial colors.

Asked for clarification on the new shelf registration, details about the new MusclePharm Pro line (differentiation, margins, channel strategy), the financial health of brick-and-mortar retail customers, and whether a recent severance expense was added back to adjusted EBITDA.

Answer

This is the company's first shelf registration. The MusclePharm Pro line is a higher-end product for specialty retail with higher margins, launching exclusively with Vitamin Shoppe for 12 months. The company is aware of retail customer risks (e.g., Vitamin Shoppe's parent company bankruptcy) but has experience managing these situations and has taken steps to mitigate impact. The severance expense was added back to adjusted EBITDA under 'restructuring'.

Sean McGowan asked for clarification on the new shelf registration, details on the MusclePharm Pro line's differentiation and channel strategy, concerns about the financial health of retail partners, and whether a recent severance expense was added back to adjusted EBITDA.

Answer

Executive Dayton Judd confirmed this is the company's first shelf registration. He described the MusclePharm Pro line as a premium, higher-margin product for the "serious sports nutrition aficionado" in specialty retail, with an initial 12-month exclusive at Vitamin Shoppe. Regarding retailer health, Judd acknowledged the bankruptcy of Vitamin Shoppe's parent company but stated Vitamin Shoppe itself is stable and it's "business as usual." He expressed confidence in managing such risks, citing past experience. Lastly, he confirmed the severance cost was added back to adjusted EBITDA under the "restructuring" line item.

Sean McGowan of Roth Capital Partners, LLC inquired about the revenue contribution from the new Ready-to-Drink (RTD) beverage line, the nature and future trajectory of licensing revenue, the accounting treatment for the upcoming Mexico expansion, and any unusual operating expenses during the quarter.

Answer

CEO Jack Ross explained that RTD revenue was minimal at $148,000, primarily from Amazon, with significant retail launches expected in Q3 and Q4. He confirmed licensing revenue is 100% gross margin but will be 'bumpy' going forward, with none expected in Q3. Ross also clarified the Mexico expansion will be direct revenue. CFO Jaime Fickett noted that while professional and legal fees were higher due to public company costs, there were no significant one-time, non-recurring expenses.

The analyst inquired about the revenue contribution from the ready-to-drink (RTD) beverage line in the current quarter, the nature and future expectations for licensing revenue, the presence of any non-recurring expenses, the accounting treatment for the new Mexico operations, and the status of Flat Tummy revenue.

Answer

The company clarified that RTD revenue was minimal in the quarter ($148,000) but is expected to grow significantly in Q3 and Q4. Licensing revenue is expected to grow slowly and could be lumpy, with no new deals anticipated in Q3. Higher professional and legal fees related to being a public company were noted as unusual expenses for the quarter. The Mexico operations will be recorded as direct revenue, not a license deal. Flat Tummy revenue was described as steady with nothing new to report.

Sean McGowan inquired about the Q1 performance and 2025 outlook for the Ready-to-Drink (RTD) beverage segment, future trends for G&A expenses, and details on the Q1 licensing revenue, including clarification on new international markets.

Answer

Executive Jack Ross stated that RTD revenue was $30,000 in Q1 but is projected to reach approximately $2 million in Q2, driven by Amazon orders, with expansion focused on US and Canadian convenience stores. Ross noted that G&A expenses will increase slightly with new hires but should remain flat as a percentage of revenue. He also clarified that the company booked a one-time $1.5 million licensing fee for a new agreement in the United Arab Emirates, with royalty revenues expected to begin in Q4, and confirmed the new markets for Q4 are Australia and Taiwan.

Sean McGowan inquired about the source and value of AI-generated search traffic, progress with merchant engagement strategies, the status of re-engaging customer cohorts lost during the tech conversion, and the finality of the tax settlement in Italy.

Answer

CEO Dusan Senkypl described AI traffic as an incremental tailwind and detailed the 'micro-category' strategy for improving merchant partnerships. He noted overall results indicate progress in customer re-engagement without providing specific metrics. COO Jiri Ponrt clarified the Italian settlement is a verbal agreement pending statutory approval, after which reopening the market would be considered.

Sean McGowan of Roth Capital Partners, LLC asked about the source and value of AI-generated search traffic, progress on merchant engagement and repeat business, the status of re-engaging customer cohorts lost during the tech migration, and the finality of the tax settlement in Italy.

Answer

CEO Dusan Senkypl described AI traffic as an incremental tailwind, noting it's a small but rapidly growing channel where Groupon is well-positioned due to its unique inventory. He explained that merchant engagement is improving through a 'micro-category' focus and better data analytics. While not providing specific metrics, he confirmed meaningful progress in winning back lost customer cohorts. COO Jiri Ponrt clarified the Italy settlement is a verbal agreement pending final approval, which would resolve past tax cases, and that the company is considering all options for the market, including reopening.

Sean McGowan of Roth Capital Partners, LLC asked about the source and value of AI-generated traffic, progress on merchant engagement, re-engaging customer cohorts lost during the tech migration, and the finality of the tax settlement in Italy.

Answer

CEO Dusan Senkypl explained that AI traffic is an incremental tailwind and that Groupon is positioning itself as a key partner for AI platforms. He noted progress in merchant engagement through a data-driven "micro category" strategy. Regarding lost customers, he pointed to overall results as evidence of improvement. COO Jiri Ponrt clarified the Italy settlement is a verbal agreement that would resolve the issue if approved, and that reopening the business there is being considered.

Sean McGowan of ROTH Capital Partners requested an update on the turnaround in international markets like Spain and the status of the international website and mobile app migration. He also asked about the recent Gift Cloud sale, inquiring about the sale price, the potential for a one-time gain, and any restrictions on the use of proceeds from the convertible offering.

Answer

CEO Dusan Senkypl reported that international markets continue to improve, with Spain leading due to an 18-month head start on the transformation strategy. He stated the company is taking a cautious approach to the international app migration to ensure stability, providing no new timeline. On the Gift Cloud sale, Senkypl confirmed the price was at the high end of their expected range. CFO Jiri Ponrt added that up to €20 million of proceeds can be used to strengthen the cash position and that any gain will be reported in Q2 as a discontinued operation.

Sean McGowan inquired about the primary drivers behind the significant turnaround in U.S. local growth, the recovery of loyal customer cohorts, progress on the gifting initiative, and the relationship between user engagement and recent growth.

Answer

CEO Dusan Senkypl attributed the growth to the stabilization of technical platforms post-migration, a strategic shift to curated, high-quality deals, and improved merchant partnerships. He noted that while gifting grew to a low-double-digit share of orders during the holidays, the main growth drivers were improved platform conversion and customer acquisition. Senkypl confirmed that improving customer retention and purchase frequency is now the company's top priority for 2025.

Sean McGowan of ROTH MKM inquired about the underlying reasons why legacy customer retention rates in North America might not recover, the expected timeline for the international tech stack upgrade, and the plan for the remaining 2026 convertible notes.

Answer

Executive Dusan Senkypl explained that platform changes, such as password resets, created friction that may have permanently lost some legacy customers, though reactivation efforts are underway. He projected the international tech stack migration for the first half of 2025. Executive Jiri Ponrt added that the remaining $54 million of 2026 notes will be addressed later through refinancing or repayment, and the new note terms are not being offered to these holders.

Sean McGowan asked for an explanation of the year-over-year increase in operating expenses, particularly delivery and SG&A, and inquired about the forward-looking expectations for these lines. He also sought clarification on whether the guided Q2 gross margin pressure would be a year-over-year decline or simply lower than otherwise expected.

Answer

CFO Douglas McCurdy explained that the SG&A increase was due to upfront investments in personnel and marketing to support strategic growth initiatives. He stated the company would remain disciplined on expenses going forward. He also clarified that the expected Q2 gross margin compression is due to seasonal trade spend and promotional investments for the new functional beverage launch.

Sean McGowan asked for more details on Reed's new functional soda line, questioning its positioning within the non-alcoholic beverage industry and its specific functional benefits.

Answer

Executive Norman Snyder explained that the new line is a 'multifunctional' extension of Reed's plant-based heritage, designed to appeal to Millennial and Gen Z consumers. Snyder detailed that the products contain organic ginger, adaptogen-mushroom extracts for gut health and cognitive energy, and prebiotic fiber, positioning them as a multi-dimensional offering in the growing functional beverage space. He emphasized the products are low-sugar, low-calorie, and have received a positive early response from retailers.

Sean McGowan of Roth Capital Partners inquired about the company's immediate financial and operational execution, focusing on the speed of accessing its new credit facility to resolve inventory issues and boost revenue. He also asked for an update on the performance of the ready-to-drink (RTD) alcohol products and questioned the drivers behind the quarterly increase in SG&A expenses.

Answer

Executive Norman Snyder stated that the new capital would be accessible immediately, with a goal to be fully restocked by the end of the year to meet 2025 demand. He expressed confidence in retaining retail listings due to proactive communication with partners. Regarding the RTD line, Snyder described a successful 'slow build' strategy focused on expanding with existing retail partners. Executive Joann Tinnelly and Snyder clarified that the SG&A increase was partly due to the prior quarter's costs being artificially low from reversed accruals, and that underlying cost trends are improving.

Sean McGowan of ROTH MKM inquired about the Q2 gross margin performance and potential for future improvement, the full impact of freight cost reductions, the drivers behind higher G&A expenses, and requested more details on the new product line planned for a 2025 launch.

Answer

Executive Norman Snyder stated that Q2 gross margin met expectations with further room for improvement from ongoing cost-saving measures. He clarified that the full benefits of renegotiated freight rates and new co-packer efficiencies will be more visible in the second half of the year. Snyder attributed the G&A increase to non-recurring items like severance and legal fees, and elaborated that the 2025 product launch will focus on low-calorie, low-sugar, plant-based ginger beverages to meet current consumer trends.

Sought clarification on the 2025 G&A expense guidance, asked about recovering past Dartmouth royalties, the relative margins of NIAGEN IV and the future at-home injectable, the timing of the at-home kit, and the usage frequency of NIAGEN IV.

Answer

The G&A guidance of a $5-6M increase is over the reported 2024 number; the normalized operational increase is closer to $1-2M. The company will not seek to recover previously paid Dartmouth royalties. NIAGEN IV has higher margins, while the at-home injectable will likely have lower margins. The at-home kit is targeted for Q3. There is no data on repeat NIAGEN IV usage yet due to the recent supply shortage.

The analyst asked for clarification on revenue drivers, questioning why pharma-grade NIAGEN was cited as a major factor when food-grade NIAGEN sales grew more. He also asked about the potency comparison between IV and oral NIAGEN and if that data would be used for marketing.

Answer

The company explained that the NIAGEN IV launch has a strategic 'halo effect' that boosts e-commerce sales, making it a key growth driver beyond its direct revenue. The growth in food-grade ingredient sales was attributed to a partner's successful sales strategy on Amazon. While IV NIAGEN is many times more potent than oral capsules, comparative data is still being studied but is intended for future marketing use.

Inquired about the long-term impact of the NIAGEN Plus rollout delay, the growth dynamics of the NAD IV market, and the reasons for the revised spending guidance.

Answer

The company stated the rollout delay is not expected to affect mid-2025 targets. The existing NAD IV market is stagnant, but NIAGEN IV is positioned to expand it significantly, though projections remain conservative. The reduction in spending guidance is almost entirely due to postponing NIAGEN Plus-related infrastructure investments into 2025.

Asked about the initial stocking for new retailers, the rollout timeline across stores, whether Q1 gross margin was the year's low point, the performance of Amazon sales, the revenue impact of the 1,000mg SKU, and if the recent litigation ruling would significantly increase legal spending.

Answer

The initial purchase for new retailers is not overly dramatic and the rollout to all stores will be gradual. Q1's gross margin was strong and likely among the lower for the year due to mix. Amazon sales were up year-over-year despite a tough comparison. The 1,000mg SKU is slightly revenue accretive, cost-effective, and attracts new customers. The potential legal liability is not expected to meaningfully increase spending as it's covered in the G&A outlook.

Asked for details on headset market share by platform, clarification on Q4 gross margins and operating expenses, the nature of promotional spending, and an update on new product categories beyond headsets and controllers.

Answer

The company responded that headset share is growing across platforms, Q4 gross margins will be in the upper 30s with higher promotional and marketing spend, and that new products like the RIFFMASTER and refreshed PC peripherals are performing well.

Questioned the decision not to raise full-year guidance despite strong market trends, inquired about the Q2 inventory catch-up, the sustainability of Q1 gross margins, a reference to a canceled tender offer, and the timing of the 10-Q filing.

Answer

The company is not raising guidance yet as the strong Q1 market was a positive surprise against their more moderate growth forecast, and the Q1 headset sell-in was intentionally low. Channel inventory will normalize in Q2. Q1 gross margin is sustainable, though Q2 may be slightly lower due to promotions. The tender offer reference is outdated, and the 10-Q was expected to be filed the same day.

Asked for details on the PDP acquisition, including business mix, revenue, and margins. Also questioned the Q4 revenue miss, the impact of promotions on gross margin, the deal's closing timeline, PDP's seasonality, and the combined company's pro forma CapEx and free cash flow.

Answer

PDP's business is nearly 50% controllers, with ~$100M in recent annual revenue and a ~14% adjusted EBITDA margin profile similar to Turtle Beach's improved core business. The Q4 miss was due to market softness and promotional activity to clear channels for new launches. Gross margins are expected to recover to the mid-to-high 30s. The deal closed on the day of the call. PDP's seasonality is similar to Turtle Beach's. Pro forma CapEx is ~$6M, with EBITDA less CapEx at $54-59M.

Asked for clarification on the 2025 revenue guidance, the path to achieving and sustaining positive EBITDA, the company's strategy for non-alcoholic beverages after discontinuing TapouT, and for an update on the Pulpoloco (CartoCan) packaging technology and its future applications.

Answer

The 2025 revenue guidance is $38M-$42M. The company expects to reach and maintain positive EBITDA starting in late Q2/early Q3 2025. They are not exiting the non-alcoholic category but are moving away from the TapouT brand specifically. The CartoCan paper can project is a key initiative, with plans to acquire a machine to lower costs and expand into new products like water, with this upside not yet factored into guidance.

Sean McGowan of ROTH Capital Partners asked for clarification on the 2025 revenue guidance range and whether the company expects to be EBITDA positive for the full year. He also questioned if positive EBITDA would be sustainable quarterly after reaching that milestone, the strategy for the non-alcoholic beverage category after TapouT, and the status of the innovative Pulpoloco paper can technology.

Answer

CFO Julius Ivancsits clarified the 2025 revenue guidance is $38M to $42M and projected a full-year EBITDA loss of $2M-$2.5M, with profitability expected in the second half. CEO Robert Nistico and President William Meissner affirmed that once achieved, positive EBITDA should be sustainable due to major retail chain rollouts. Nistico explained that while the TapouT brand is being discontinued, the company is not exiting the non-alc category and owns the successful liquid formula. He also detailed plans to use new capital for a deposit on a paper can manufacturing machine, which would drastically cut packaging costs and create new revenue opportunities, none of which are included in current forecasts.

Sean McGowan of ROTH Capital Partners inquired about the primary drivers of gross margin pressure, the rationale behind the full-year sales guidance which implies a potential slowdown from Q1's growth rate, and the long-term potential for gross margin improvement.

Answer

CFO David Guarino identified raw material costs, specifically the price of resin for plastic, as the most significant factor impacting gross margin, noting that these costs are beginning to decrease. CEO Frank Lazaran clarified that the current full-year guidance was set prudently and may be revised upwards if the strong sales trends from Q1 and July continue. Executive Director of Sales and Operations Frank Chessman added that he sees no ceiling on long-term gross margin, with future gains driven by operational efficiencies like optimized packaging, improved manufacturing processes, and renegotiated raw material costs, rather than relying solely on price increases.

Sean McGowan from ROTH Capital Partners asked for quantification of non-recurring costs impacting gross margin, clarification on the projected 3-5 percentage point gross margin improvement, the expected Q4 starting point for margins, and details on non-cash expenses.

Answer

President & CEO Ricky Wright and CFO David Guarino addressed the questions. Wright explained that recent margin contraction was due to millions in additional freight costs and front-loaded marketing expenses with Shaquille O'Neal. He clarified the projected 3-5 percentage point increase in gross margin for fiscal 2023 would lift it from around 34% to the 36-38% range. He also noted the company avoided any negative sales impact from supply chain issues. Guarino specified that the non-cash expenses in the quarter were primarily related to RQ and stock option expenses.