Jamieson Wellness Inc.

in the quarter. Utheory and Strategic Partners both have inherently lower profit margins, and given our over-delivery in both businesses, this is to be expected on a weighted average. As anticipated, revenue in the quarter grew at a faster rate than adjusted EBITDA, which at $24.5 million was up 17% versus a year ago. This reflects our ongoing efforts to expand our infrastructure and resources and invest in brand-building activities in the US and China, while ensuring our Canadian business remains healthy and grows its leadership position. We entered 2023 in a position of strength and our latest results continue to illustrate the power of our platform and the efficacy of our strategy for driving profitable, sustainable growth. The strategic actions that transformed our business and significantly elevated our global presence in the back half of 2022 continued to show material progress during the first quarter. At Utheory, our expansion and integration efforts are advancing swiftly across key functional areas. This is helping to drive synergies, commercial activity and revenue, and our significant performance in Q1 provides a strong indicator of our progress. We also began production of a new and improved Hero SKU and the new line of gummies we discussed last quarter, both being introduced to the market starting in Q2. Over the next several quarters, we will be focused on further leveraging core capabilities and strengths to drive revenue and profitability. Over the long term, we continue to expect our U.S. business to deliver consistent double-digit growth along with an improving margin profile. In China, we just completed the previously announced purchase of our distributor assets for approximately $26 million, meaning that as of May 1st, we are directly operating all of our sales, marketing, and distribution activities in the country. Given the strong momentum we are seeing in this massive $30-plus billion market, the timing could not be better from my perspective. We now fully control our brand and entire value chain in China, enabling us to create deeper connections with Chinese consumers, broaden the scope of our offering, and expedite our rate of growth. Our partnership with DCP Capital is on track to close in the second quarter, further supporting this transition. DCP's deep experience in China perfectly complements our capabilities and will help pave the way to strengthen and accelerate our market opportunities under our new operating model. Over the past several months, we've been focused on building a strong team in China. And in mid-April, we celebrated the official grand opening of our new larger Shanghai office with leaders from the Consulate General of Canada in Shanghai, government officials from the Putua District of Shanghai, leaders from the Canadian Chamber of Commerce in Shanghai, our future partners from DCP Capital, Mei Yi from our board of directors, and a few members of our corporate executive team all in attendance. It was an exciting day for us all at Jameson Wellness as we marked another milestone in the company's growing global presence. Given the size of the Chinese market, we continue to expect it will likely produce the highest average growth rates for Jameson for the foreseeable future. In summary, we had a solid first quarter that we are very proud of. Our strategic growth initiatives are continuing to gain traction, and we remain comfortable with our outlook for the balance of 2023. I want to take a brief moment to thank the entire Jamison team for their hard work, dedication, and passion for helping advance our mission of becoming the world's most successful and trusted health and wellness company and delivering another solid quarter. With that, I'm going to turn the call over to our CFO, Chris, to discuss the first quarter results in more detail.

Chris, over to you. Thank you, Mike, and good afternoon. In the first quarter, revenue increased by 31.9% to $136.7 million, driven by growth in both Jameson Brands and Strategic Partner revenues. Jameson Brands revenue increased by 30% to $108.1 million in the first quarter. Domestic Canadian revenue grew by almost 2.5% as consumer consumption outpaced shipments in the quarter. This is typical due to the seasonal influx of shipments in the fourth quarter to support promotions and cold and flu season. The increase includes the impact of our prior year second half price increase as well. Our U-theory acquisition contributed $22.2 million of branded revenue driven by strong consumption, promotional timing, and growth in our e-commerce business. This increase was offset by a continued drawdown of customer inventory ahead of our HeroSKU innovation launching in the second quarter. In China, we saw continued momentum with 36.6% growth in the quarter, reflecting strong consumer demand in cross-border e-commerce, our continued expansion in domestic retail channels, and the removal of COVID-19 restrictions. Revenue in China this quarter represents the final period of sales through our third-party distribution model as we transition to direct sales to consumers and retailers. in the second quarter. In our international markets, revenue declined by 15.5% as expected, reflecting slower declines in Eastern Europe as consumption patterns in that region have begun to stabilize, and the impact of timing of promotional replenishments in the Caribbean and in Southeast Asia regions offset by strength in the Middle East. Our strategic partner revenues increased by 37.9%. 39.7%, or $8.1 million, reflecting pricing and the timing of customer orders while overlapping a softer Q1 2022. Gross profit margins decreased by 110 basis points, driven by mixed factors, including the over-delivery of expectations in you theory and strategic partners, both of which have inherently lower margin profiles. Within Jameson Brands, gross margin profile, sorry, gross profit margins declined by 230 basis points to 40.5%, reflecting the lower gross profit margin profile of the U Theory brand and seasonally low volumes recognized in the acquired business, as well as lower planned Q1 production and product mix within the base business. Gross profit margin in the strategic partner segment increased by 510 basis points to 16.5%, reflecting favorable customer mix and volume driven by operating efficiencies while pricing offset higher supply chain and input costs. Selling, general, and administrative expenses increased by $10.8 million versus last year, excluding the impact of specified costs and the addition of U-theory SG&A increased by $1.5 million, or 7.3%, largely reflected global expansion initiatives, marketing, and infrastructure to support our growth in China and in the U.S. Specified costs of $3.5 million included acquisition-related costs and our IT system development and implementation costs. First quarter operating income decreased by 3.7%. or $0.6 million due to the specified costs for our acquisition and ERP improvements and investments in SG&A offsetting the impact of higher revenues and gross profits. On a normalized basis, first quarter operating income increased by 13%. Reported EBITDA increased by 4.7%, while adjusted EBITDA increased by 17% to $24.5 million, reflecting higher volumes in gross profit offset by specified costs and investments in SG&A. Adjusted EBITDA margin decreased by 230 basis points to 17.9%, mainly due to the inclusion of the U3 margin profile and mix of strategic partner volumes in the quarter. As expected, net earnings decreased by 27.5% to $7.1 million, and adjusted net earnings which excludes specified costs in foreign exchange, decreased by 18% to $8.8 million, both from higher borings to support our acquisition and higher prevailing interest rates impacted by our seasonally low volume quarter. Our earnings per diluted common share were 17 cents and adjusted earnings per diluted common share were 21 cents, a 19.2% decrease compared to the prior year, due to the reasons I just noted and the impact of shares issued within our U3 transaction. A reconciliation of adjusted EBITDA and adjusted net earnings is provided in today's press release announcing the company's first quarter results. Turning to the balance sheet and cash flow, we generated $7.9 million of cash from operations in the quarter compared to $17.1 million in the year earlier. Cash from operations before working capital considerations was $2.2 million lower due to specified acquisition and ERP-related costs impacting statutory earnings in the quarter. Cash generated from working capital decreased by $6.9 million in the quarter, driven by the timing of collections and temporarily higher inventory within our youth theory and strategic partner businesses. In the quarter, we had capital expenditures of $2.3 million, and we distributed approximately $7.1 million in dividends. We ended the first quarter with approximately $124.8 million in cash and available operating lines. Based on our strong cash flow position and earnings today, we have announced a dividend of 17 cents per common share. The dividend will be paid on June 15th, 2023, to common shareholders of record at the close of business on June 1st, 2023. Now turning to guidance. We maintain our outlook for fiscal 2023 and the underlying assumptions for revenues and margins across all of our segments are unchanged from what we shared with you at the start of the year. Our guidance includes the following. Net revenue in the range of $670 to $700 million, reflecting annual revenue growth of 22%, to 28 percent, adjusted EBITDA in the range of $140 to $146 million, an increase of 13 to 18 percent compared to the prior year, and adjusted earnings per fully diluted common share of between $1.62 and $1.72, an increase of between 5 and 11 percent compared to the prior year. Now with that, let me share some additional perspectives on the second quarter specifically. We anticipate Jameson brand revenues to increase by almost 50 to 60% as follows. The domestic business up to 3% growth as consumer demand continues to outpace shipments in the quarter impacted by the timing of cold and flu shipments. Acquired revenues of 40 to $44 million in our youth theory business based on shipments to support. seasonal promotional campaigns, and initial shipments of our new innovations launching in the quarter. 50% to 70% growth in our China business, reflecting the step-up to distributor-level pricing, as well as continued stronger demand in cross-border e-commerce and our new domestic Chinese club distribution. $9.2 to $10.2 million in our international business, based on stabilized consumption in Eastern Europe and the timing of customer inventory replenishments in the prior year. Strategic partner revenues are expected to increase between 35% and 45%, reflecting the timing of available production and pricing. We anticipate normalized SG&A to increase approximately 55% to 65% in the quarter, reflecting the acquisition of U Theory, added resources, accelerated marketing investment, and a transition to our own business distribution model in China. A complete discussion of our outlook for the full year fiscal 2023, as well as factors impacting our expected performances included in the outlook section of our MD&A. Our MD&A was filed this evening. In closing, I would like to thank the entire Jameson Wellness team for their continued commitment and hard work as we execute against our strategic plan and deliver value for our stakeholders. With that, let me turn the call back to our operator, Aisha, for Q&A.

Thank you. We will now begin the question and answer session. To join the question queue, you may press star, then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star, then 2. The first question comes from Derek Lessard from TD Cohen. Please go ahead.