Jamieson Wellness Inc.

Everyone, welcome to the Jamison Wellness Conference call to discuss the financial results for the third quarter of 2023. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will be provided at that time. Please be advised that the reproduction of this call, in whole or in part, is not permitted without written authorization from the company. As a reminder, today's call is being recorded. On the call today from 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 this press release covering the company's third quarter financial results was issued this afternoon and a copy of this press release can be found in the investor relations section of the company's website. Please note that the prepared remarks which will follow contain forward-looking statements and management may make additional forward-looking statements in response to your questions. These statements 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 these 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 made 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. Pilato to get started. Please go ahead, sir.

Perfect. Thank you, Gaylene, and good afternoon, everyone. I'll begin with some high-level comments about the quarter and provide an overview of our key strategic initiatives. Chris will follow with a more detailed view of the financials and provide updates on guidance. We will then open it up for questions. We are very pleased with our third quarter results. Strong performances in the U.S. and China helped to drive top-line growth beyond our expectations. Quarter three saw our operations in the world's two largest markets of the U.S. and China grow nearly 90% and 70% respectively. At home in Canada, we saw continued strong POS growth of high single digits in both units and dollars. further building on our leadership position of the century-old and stable, highly profitable business that has helped fuel our global expansion. Total revenue was up over 9% to nearly $152 million as 15% of that growth came from our Jameson brand segment and was partially offset by expected lower strategic partners revenue. In Canada, Branded revenue declined 4.6%, which was in line with guidance around the timing of cold and flu replenishments back into the historically normal Q4 timing this year versus Q3 in 2022. Consumer consumption trends remained very healthy, reflecting continued strong demand for Jameson products as consumers continued to prioritize their health and wellness proactively. Jameson international revenues increased nearly 12% year over year, driven by new product launches and promotions in some key markets. Utheory, our U.S. business unit, delivered an exceptional quarter with revenue growth of over 88%, driven by innovation led by our new turmeric SKU, strength in e-commerce, as well as increased distribution points and some timing-related factors. We are very pleased with the momentum we are seeing in this important and strategic growth segment. In China, revenues grew 67% on a local currency basis, Growth in this market reflects expanding club distribution, the ongoing strength of consumer demand across retail and cross-border e-commerce, along with our transition to an owned distribution model. The strategic investments we have made in our China business this year will prove to be transformational over time, and to date are yielding strong financial results and better positioning in market for further expansion and profitable growth. Adjusted EBITDA increased 8% to nearly $32 million as volume growth and higher gross profit We're partially offset by the timing of planned investments around brand building initiatives in the U.S. and China to help set us up for long-term profitable growth. Our latest results provide further confirmation that the strategic plans we've executed over the past 18 months to accelerate and diversify our growth globally for the long term are working. For example, the majority of the primary functional areas of the U-theory business have integrated with Jameson, and we are making steady progress actioning on synergies to drive sales and margin improvements. Leveraging the value of Utheory's innovation and expanding distribution to drive scale continues to be one of the most accretive opportunities for us to capture. We're also very pleased to report on the early progress we've made in China under our new owned and controlled operating model. I had the privilege of visiting the team in Shanghai a couple weeks ago. To be together, collaborating as one Jameson team was a moment of pride for me personally, but more importantly, a significant milestone in our growth story and a testament to the determination of the team who has brought Jameson to consumers in the second largest vitamin mineral supplement market in the world. Underlining trends in VMS consumer demand remains strong, and we have a solid foundation with significant capacity to support future growth. And we're just getting started. Over the near term, we will continue to make investments in talent, infrastructure, and marketing to seize this great growth opportunity we have in China. As we look to close out the year, we've decided to make some adjustments to our guidance by updating the low-end range for Jameson brands and adjusting strategic partners' revenue. This is due to continuous positive consumer consumption trends for our brands and changes in strategic partners. Chris will provide more context shortly on these adjustments. In summary, after 25 consecutive quarters of growth, we are well positioned strategically, operationally, and financially to continue building on this great trend. We continue to execute against our expansion and acquisition integration plans and are confident in our ability to create significant value. Along with the same value creation opportunities today, we also announced that we are initiating a normal course issuer bid, which allows us to repurchase and cancel up to 4.1 million or 10% of our shares outstanding over the next 12 months. We believe that repurchasing our own shares is an attractive investment opportunity and a sensible way to return capital to our shareholders. With that, I'm going to turn the call over to Chris to discuss our third quarter results in more detail and our updated guidance. Chris, over to you.

Thank you, Mike, and good afternoon, everyone. In the third quarter, revenue increased 9.1% to $151.5 million, driven by growth in Jameson Brands, partially offset by expected decline in strategic partners. Jameson Brands' revenue increased by 15%, to $129.1 million, driven by growth in the US and China. Domestic revenue declined by 4.6% as consumer consumption continued to outpace shipments, while overlapping a high promotional and elevated cold and flu shipments in the prior year's third quarter. Our U3 segment contributed $33 million of branded revenue growth, or 71% pro forma growth, led by innovation, driven consumer demand, continued strength in e-commerce, and distribution gains. Timing was also a factor, with some orders shipped earlier than anticipated as a result of our distribution gains. In China, our transition to an own distribution model helped drive revenue growth of approximately 67% on a constant currency basis. On a pro forma basis, China revenue increased 24.8%, reflecting strong consumer demand in cross-border e-commerce and new domestic club distribution. Our international business unit revenue grew $8.1 million, up 11.8%, reflecting product launches and promotions. Our strategic partner revenue decreased by 16.2% to $22.4 million, reflecting the timing of orders, which included a discontinued contractual agreement with a partner for strategic purposes. Gross profit margin decreased by 110 basis points on a reported basis and increased by 120 basis points on a normalized basis, driven by a proportionate higher mix of Jameson Brands revenue. Reported cost of goods sold includes a $3.5 million adjustment to the fair value of inventory acquired from our Chinese distributor. Within Jameson Brands, gross profit margin declined by 340 basis points to 36.9%, or by 70 basis points on a normalized basis to 39.6%, reflecting the lower gross margin profile of our youth theory business, along with specific category mix in the quarter. Gross profit margin in our strategic partner segment increased by 32, 320 basis points, to 15.5%, reflecting customer mix. Excluding the impact of specified costs, SG&A increased by $4.3 million, or 18.3%, reflecting the acquisition of Utheory in the prior year, and investments to establish our on-the-ground presence in China, including marketing and promotional costs to drive brand building, trial and awareness. specified costs of $2.8 million comprised of IT system implementation costs and costs associated with our Chinese expansion. Third quarter operating income increased by 16.2% to $19 million as a result of higher revenues and gross profit, while investments in expanded marketing and SG&A initiatives were offset by lower acquisition and divestiture related costs. On a normalized basis, third quarter operating income increased by 7.4%. EBITDA increased by 17.3% to $25.5 million, reflecting higher revenue and gross profit. Adjusted EBITDA expanded by 8% to $31.9 million. Adjusted EBITDA margin decreased by 20 basis points to 21%. as we prioritize certain SG&A and marketing investments in the US and China. Excluding specified costs and foreign exchange, adjusted net earnings increased by 5.4% to $15 million, and adjusted earnings per diluted common share was 35 cents. Net earnings decreased by 28.6% to $7.8 million. Earnings per diluted common share were 18 cents, reflecting higher interest costs and the timing of cash flow associated with our DCP partnership investments. A reconciliation of adjusted EBITDA and adjusted net earnings is provided in today's press release announcing the third quarter results. Turning to the balance sheet and cash flow, we used $14 million in cash from operations in the third quarter compared to $20.6 million in the prior year. Cash from operations before working capital considerations was $17.7 million or $1.3 million higher due to increased earnings in the quarter excluding the impact of a non-cash accretion of preferred shares year-over-year. Cash invested in working capital decreased by $5.3 million in the quarter driven by timing of accounts receivable collections partially offset by changes in payables in the prior year. In the third quarter, we invested $1.7 million in capital and distributed approximately $8 million in dividends. We ended the quarter with over $222 million in readily available cash and liquidity. Based on our consistent growth and an ability to generate cash, we have announced a 19-cent dividend per common share, an increase of 12% versus the prior year, or approximately $8 million in aggregate. The dividend will be paid on December 15th, 2023 to common shareholders of record at the close of business on December 1st, 2023. In conjunction with our earnings released today, we announced that we've received approval from the TSX to commence a normal course issuer bid. This gives us the opportunity to repurchase for cancellation up to 10% of our public float common shares over the next 12 months. In the fourth quarter, we intend to use cash generated from operations to support the repurchase of up to a million Jameson Wellness shares. On an ongoing basis, after prioritizing organic growth opportunities, we will consider repurchasing shares as a component of our capital allocation process while maintaining responsible debt levels. This is an attractive use of capital while current trading multiples of our common shares remain substantially below our long-term trading range. Now turning to guidance. As a result of strong consumer consumption trends and the Jamison Brands and Strategic Partners segments, we are lifting the lower end of our previously announced revenue range, and we are maintaining our adjusted EBITDA margin and EBITDA expectations. Changes in guidance include... We now expect fiscal 2023 revenue on a consolidated basis to range between 680 and $690 million, an increase of 24 to 26%, up from the previous range of 22 to 26%. We maintain our guidance on adjusted diluted earnings per share from between $1.56 to $1.63, up 5% compared to the prior year. Our guidance continues to reflect investments in marketing, resources, and infrastructure to support strategic growth opportunities in the United States and in China. Changes to the Jamison brand guidance include the following. Revenue is expected to increase from 24 to between 26 and 28%, driven by the following growth factors. Jameson Canada revenue is expected to grow 3 to 4%, narrowed from 2 to 4%. U Theory revenue between $150 to $155 million, or approximately 15 to 19% growth on a pro forma basis, increased from our previous range of $145 and $155 million, driven by product innovation, expanded e-commerce initiatives, and distribution gains. Jameson China revenue growth of approximately 75%, or at the high end of our previous guided range, of 65 to 75%, reflecting consumer demand across cross-border e-commerce and distribution gains in domestic retail channels, as well as a transition to our own distribution model. This translates to growth of 30% on a pro forma basis. Jameson International revenue growth of between 5 and 10% from our previous range of flat to 10%, reflecting the shipment of newly registered products, despite a post-COVID-19 government slowdown of registrations, impacting timing of entry into new markets. Revenue in the strategic partner segment is expected to increase by approximately 15%. at the low end of our previous guidance reflecting pricing upside offset by the wind down of a current third party branded product branded third party branded contract fourth quarter revenues are expected to increase by approximately five percent in our strategic partner business compared with the fourth quarter of 2022. a complete discussion of our outlook for the third quarter and our full year fiscal 2023 as well as factors impacting our expected performance, are included in the outlook section of our MD&A filed this afternoon. In closing, I would like to thank the entire Jamison Wellness team for their continued commitment and hard work as we continue to deliver high-quality products and brands that consumers trust, while executing on our strategic plan and returning value to all of our stakeholders. With that, now let me turn the call back to our operator, Gaylene, for Q&A.