Jamieson Wellness Inc.

Everyone, welcome to the Jameson Wellness Conference call to discuss the financial results for the fourth quarter and full year 2021. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will be given at that time. Please be advised that the reproduction of this call, in whole or in part, is not permitted without written authorization from from the company. As a reminder, today's call is being recorded. On the call today for management are Mike Palato, President and Chief Executive Officer, and Chris Snowden, Chief Financial Officer and Corporate Secretary. Before I turn the call over to Mr. Palato, please note that a press release covering the company's fourth quarter and full year 2021 financial results was issued this afternoon, and a copy of that press release can be found in the investor relations section of the company's website. Please note that the prepared marks, which will follow, contain forward-looking statements, and management may make additional forward-looking statements in response to your questions. These questions do not guarantee future performance. and therefore undue reliance should not be placed upon them. We refer you to all risk factors contained in Jameson's press release issued this afternoon and in filings with the Canadian Securities Administrators for a more detailed discussion of the factors that could cause actual results to differ materially from those projections and any forward-looking statements. The company undertakes no obligation to publicly correct or update the forward-looking statements during the presentation to reflect future events or circumstances, except as it may be required under applicable securities laws. Finally, we would like to remind listeners that the company may refer to certain non-IFRS financial measures during this teleconference. A reconciliation of these non-IFRS financial measures was included with the company's press release issued earlier today. Also, please note that unless otherwise stated, all figures discussed today are in Canadian dollars, and are occasionally rounded to the nearest million. I will now turn the call over to Mr. Pallotto to get started. Please go ahead, sir.

Thank you, Sarah, and good afternoon, everyone. Thanks for taking the time to join us today to discuss our fourth quarter and full year 2021 financial results. I'll begin with some high-level comments about our business, a brief overview of our fourth quarter results, And then I'll turn it over to Chris to go through the financials and guidance in more detail. It's great to be talking with you today as we are reporting another strong quarter and year, reaching $100 million in adjusted EBITDA as we celebrate the 100th year of our Jameson brand. Brand growth momentum that lasts an entire century is rare. I'm humbled and privileged to be able to lead this company, surrounded by such an incredible team that continues to deliver and is charged with shaping our vision as we look to drive our leadership into the next 100 years. While the ongoing pandemic increased global consumer adoption of proactive health and wellness practices, Jameson established a strong connection with millions of consumers much earlier by being part of their daily lives for decades. The brand equity we built by staying true to our core values enabled us to drive exceptionally strong performance in 2021 and has positioned us for even greater growth potential long into the future. Fourth quarter results reflected continued progress across our three primary strategic initiatives. expanding our market-leading position in the domestic Canadian market, building a scaled brand in China, and leveraging the power of our platform to drive growth in other international markets. Our gross margin performance in Q4 was a major proof point for the strength of our operational excellence through a volatile supply chain period. Despite unprecedented supply chain and inflationary pressures, we were able to expand our consolidated gross profit margin by 150 basis points on a normalized basis. reflecting our ongoing focus on operational improvements, efficiencies, and cost management. Let me share some additional highlights from our strong Q4 results. Total revenue increased by 8% to $130 million, and adjusted EBITDA was up 15% to nearly $34 million. Growth was led by our domestic branded business, where revenue rose 11%, reflecting strong consumption, along with higher inventories to support seasonal promotional activities. Internationally, branded revenue increased 14% on a constant currency basis, as further strong growth in China was partially offset by the timing of strong replenishments to other regions earlier in the year. Our strategic partners revenue was in line with expectations and declined 2%, reflecting our planned production cadence as shipments were more front-end loaded in 2021 versus the prior year. We shared our initial 2022 guidance with you today as well. including our anticipation of revenue growth of plus 5% to 9%, with branded revenue of plus 6% to 10%, adjusted EBITDA in the range of $108 to $112 million, and adjusted diluting earnings per share in the range of $1.42 to $1.48. Our outlook emphasizes our confidence in the future and our continued commitment to delivering strong, consistent results that lead to significant shareholder value accretion. Our guidance reflects current and ongoing supply chain inflation pressures as well as anticipated increase to raw material, freight, and labor costs. We continue to manage these pressures to ensure we deliver our guided margin trajectory. We have multiple pathways to drive growth for the foreseeable future along with a highly leverageable global platform that resonates locally with consumers in each of the geographies in which we operate. Before I turn over the call to Chris, I also want to touch base on our significant efforts around ESG. Our vision at Jameson Wellness is to improve the world's health and wellness. We're very fortunate to manufacture and sell products that have a positive impact on physical health, but our definition of wellness also includes mental and social wellbeing. As a global organization, we believe it is our responsibility to help drive positive change in all these areas for our team members, as well as our consumers, stakeholders, partners, and communities around the world. In a recent report, we highlighted achievements in diversity, equity, inclusion, as well as additions and improvements to our governance practices. We also committed to a 50% emissions target reduction by 2030, and to establishing a formal action plan to reach net zero by 2050. These goals are aligned to the United Nations Paris Agreement goals, and as we enter our 100th year, projects have already begun to help us achieve them. We know this is not going to be a simple or straightforward process, but as we look to expand our leadership beyond this 100-year milestone, We believe it is the right thing to do, and we welcome the challenge of creating real and positive change. I also want to thank our entire team for their hard work, dedication, and perseverance to bring our vision to life every day for consumers around the globe. Your energy and passion for helping to improve the world's health and wellness helped us deliver another outstanding quarter and has positioned us for an even brighter future. We remain focused on health and safety of our team and our communities, and we continue to drive our brands forward into the next 100 years. With that, I'm going to turn the call over to our CFO, Chris, to discuss fourth quarter financial results in more detail. Chris, over to you.

Thank you, Mike, and good afternoon, everyone. As Mike discussed, physical and mental well-being remain the primary driver of our fourth quarter results. In the fourth quarter, revenue increased 7.9% to $129.8 million, driven by continued growth across our Jameson brands, partially offset by a modest decline in our strategic partner segments. Revenue for the Jameson brand segment increased 11.2% to $99.8 million, including 10.9% growth in domestic revenue due to continued strong point of purchase sales on an expanded customer base, as well as inventory replenishments to support seasonal promotional activities. International revenue for the Jameson brands increased by 14.1%, on a constant currency basis, and 12.6% on a reported basis, as growth in China was partially offset by the timing of strong replenishments to other regions earlier in the fiscal year. Revenue in our strategic partners segment decreased by 1.9% to $30.1 million, reflecting the timing of shipments and growth realized earlier in the year to smooth out the timing of demand on our manufacturing capacity. Revenue growth, improved operating efficiencies, cost recoveries drove gross profit margin improvements. On a normalized basis, gross margin increased 150 basis points, reflecting margin improvements in both segments and the mixed impact of proportionally higher sales in the Jameson brand segment, while partially offsetting negative mixed impact realized in previous quarters in the current fiscal years. The Jameson brand segment normalized gross profit margin improved by 50 basis points to 45.3%, driven by volume-driven efficiencies, cost recoveries, partially offset by continuing elevated costs reflecting the ongoing global supply challenges, sustained safety measures, and increased costs associated with our new third-party logistics model. Gross profit in the strategic partner segment increased by 130 basis points to 14.2% as a result of our improved operational efficiencies. Selling, general, and administrative expenses were $19.5 million in the fourth quarter, up $.9 million on a reported basis. Normalized SG&A was $19.3 million, up 7.2% or $1.3 million versus a year ago, reflecting additional resources to support strategic initiatives and our international marketing investments. Fourth quarter operating income increased by 27% to $28.9 million due to higher revenue and gross profit, along with lower fixed costs as a percentage of revenue. Operating margin increased by 330 basis points to 22.5%. Normalized for the specified costs in both the current and prior period fourth quarter, adjusted operating income increased by 16.7%, while adjusted operating margin improved by 170 basis points to 22.4%. Reported EBITDA increased 26.8% to $32.2 million, while adjusted EBITDA increased by 14.9%, to $33.8 million during the fourth quarter. Adjusted EBITDA margin increased 160 basis points to 26%, with gains in both segments reflecting general margin improvements as well as a positive contribution from the mixed impact in our Jameson brand segment. Net earnings of $20.2 million increased by 31.1% from a year ago due to higher revenue and improved margins. adjusted net earnings, which exclude specified costs in foreign exchange, increased by 16.3% to $20.5 million. Our earnings per diluted share was $0.48, and adjusted earnings per diluted share was $0.49 for the fourth quarter of 2021. A reconciliation of adjusted EBITDA, adjusted net earnings, is provided at the end of today's press release announcing the fourth quarter results. Now turning to the balance sheet and cash flow, We generated $34.3 million in cash from operations during the fourth quarter compared to $18.7 million in the year earlier. Cash from operational activities before working capital considerations of $24.5 million was 10.4% higher due to increased earnings in the quarter. Cash invested in working capital decreased by $13.3 million driven by the timing of receivables and accelerated inventory purchases realized earlier in the fiscal year. Capital expenditures during the fourth quarter were $5.4 million, mostly related to investments made in our manufacturing and packaging to expand our production capacity. We distributed approximately $6.1 million in dividends during the fourth quarter, and we ended the quarter with almost $133 million in available cash and operating lines with net debt of $142.4 million. Based on our strong cash position and earnings growth today, we have announced a dividend of 15 cents per common share for the upcoming quarterly distribution. Now turning to guidance, we are initiating our outlook for fiscal 2022 and anticipate the following. net revenue in the range of 474 to 491 million dollars representing top line growth of between five and nine percent this compares to 451 million dollars in revenue for fiscal 2021 reflecting strong demand for our branded products both domestically and internationally adjusted ebitda in the range of between 108 and 112 million dollars representing 8% to 12% growth over fiscal 2021, reflecting higher volumes and margins realized from our expanding operating efficiencies, while we anticipate passing along pricing in all business segments to recuperate the impact of higher raw material prices, transportation, and other input costs. Adjusted earnings per fully diluted common share of between $1.42 and $1.48. represent almost 8 to 12% growth over fiscal 2021. Additionally, I would like to note assumptions to assist you in your modeling. We anticipate the Jameson brand segment growth of between 6 and 8% in fiscal 2022, including 4 to 7% growth in our domestic brands, reflecting continued strong consumer demand on a higher post-pandemic baseline and the impact of retail replenishments throughout 2021, in addition to our continued focus on innovation and our 100th year anniversary marketing campaigns. International revenue growth of approximately 20% on a constant currency basis, driven by growth in China as we increase our local capabilities and brand investments in that market. In addition, revenue will continue to come from our existing markets as well as expansion across new geographies in our key regions. We expect strategic partners growth of up to 5%, reflecting new programs and pricing in that segment, and normalized SG&A increases of between 5% and 8%, reflecting investments in international marketing and our long-term growth opportunities in China. Stock-based compensation of between $5 and $5.5 million. Depreciation is expected to be $12 million, reflecting our capacity expansion projects competing. completed to date, and interest expense of between $5 and $5.5 million. Income tax rate of approximately 27%, reflecting the impact of our non-deductible stock-based compensation. And additionally, our guidance reflects an exchange assumption of $1.26 per US dollar, and an estimated fully diluted common shares of approximately 42.1 million shares. A complete discussion of our outlook and factors impacting our expected performance in 2022, including our guidance for the first quarter in fiscal 2022, is included in the outlook section of our MD&A that would be filed today. In closing, I would like to thank all of my colleagues here at Jameson for their dedication and time invested and their unwavering commitment to ensuring their consumers' needs are met. As the world continues to focus on their health and wellness, we are honored that the Jameson brand is trusted by consumers for the past 100 years and counting. With that, let me turn the call over to Sarah for Q&A.