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spk04: Welcome to the Jameson Wellness Conference call to discuss the financial results for the fourth quarter and full year of 2023. At this time, all participants are in 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 the company. As a reminder, today's call is being recorded. On the call today from management are Mike Pilato, President and Chief Executive Officer, and Chris Snowden, Chief Financial Officer and Corporate Secretary. Before I turn the call over to Mr. Pilato, please note that the press release covering the company's fourth quarter and full year 2023 financial results was issued this afternoon, and a copy of that press release can be found in the investor relations section on 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 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 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. 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.
spk02: Thank you, Alan, and good afternoon, everyone, and good evening and good morning to those listening overseas. Thanks for taking the time to join us for our Q4 and 2023 results. Last week, we successfully negotiated a new four-year employment agreement with our unionized manufacturing team in Windsor, Ontario, giving us clear visibility and stability as we continue to drive forward with our global growth strategy. The ongoing negotiations resulted in our earnings call this afternoon being a little later in the quarter than you have come to expect from us. We sincerely appreciate your understanding and patience as we prioritize bringing these important team members back to work as quickly as possible. I'm happy to be here today to share our 2023 performance in detail before turning it over to Chris for our quarter four financials and guidance for 2024 and 2025. Then I'll conclude with some additional color around our key operational and strategic initiatives before taking your questions. 2023 was another transformative year for Jameson and another year of profitable double digit growth. Accelerated share grains across our targeted markets reflected our continued strength and expanding scale. With global markets now settled post COVID-19, we ended the year with strong growth momentum at the consumer level across all branded business segments, proving that COVID-19 was an accelerator of category growth with many tailwinds still behind us. Our consolidated revenue grew 23.5% to over $676 million in 2023, the largest quarter of growth in the company's public history. We delivered growth across all segments led by Jamison Brands improving by 25.5% over the year. Our strategic partner segment was up 15.5% in 2023. And as a result, our adjusted EBITDA was over $138 million, up over $14 million or nearly 12% growth as we invested in our global growth pillars of the United States and China, including infrastructure and demand generating marketing. Our adjusted EPS came in at $1.55 per diluted share. flat to 2022 despite several specific items which flowed through to the bottom line, including our material investments in growth in China and the US, and higher interest rates and borrowing costs. These results clearly illustrate the strength of our strategy, our agility, and our ability to understand consumers globally as we continue diversifying our global footprint. At the same time, we are further expanding our 102-year-old market leadership position domestically here in Canada. By comparison, on the global stage, our position in China and the US is distinctly different than in Canada. Each are unique markets requiring local execution and go-to-market strategies tailored to each country's specific consumer trends and preferred channels. And we are extremely proud of the strong double-digit growth we delivered in both in 2023. Let's review each business unit in a little more detail, starting with Canada. The evolution of an over century-long commitment to excellence in our core Canadian market allows us to continue to leverage our position as the clear category leader and expand our position with share growth once again in 2023. A position we've built through consistent product innovation, strategic consumer marketing, and expanded distribution for decades. In 2023, we delivered another year of record-setting consumption in both units and dollars while once again growing market share. The health of the brand at the consumer level in Canada has never been stronger. Consumption significantly outpaced shipments in 2023 as customers recalibrated inventory levels in a post-COVID high cost of capital year beyond historic norms. We believe that through Q1 2024, impacted by our previously mentioned work stoppage, inventory levels have now been reset in the market to a new normal, and Canada will see sales growth more in line with consumption and historical expectations for the remainder of the year and beyond. In the U.S., with the Utheory integration now 100% complete, we are squarely focused on innovation, e-commerce, and further channel and market expansion opportunities. In 2023, our first full year of Utheory ownership, reported revenue was up 123% and over 17% on a pro forma organic basis, delivering the solid double digit growth we committed to. We executed on multiple fronts, both digitally through e-commerce and physically on on-store shelves. We see this business continuing to produce strong double-digit organic growth for the foreseeable future and have started 2024 off strong with some new distribution and new innovations hitting the shelf early. In China, we have come a very long way in mastering the complexities and nuances of doing business in this very different market, a market with highly engaged consumer in health, and one looking for high quality health products from foreign brands like Jameson. Our business in China was up over 80% in 2023 on a reported basis and on a pro forma basis grew more than 45% to over $50 million. Now with full ownership and control of the value chain, we are very optimistic about 2024 and the potential for future expansion and what has become the world's largest market opportunity in our industry. We also have the DCP team in our corner and with their deep local roots, knowledge and network, combined with some accelerated demand generation investment behind our recent momentum, we are confident we will see another year of exceptional growth in China and drive this business above $80 million in 2024 and past $100 million in short order. Internationally, where Jameson products are available in multiple markets, we drove incremental growth accelerated in Q3 and Q4, and we started to see consumption growth and market share growth across key markets where we are focused, partially offset in Q4 by some temporary shipping delays related to the Middle East conflict. With recent growth momentum behind us, we are confident in our ability to deliver another year of growth in this branded segment, led by some key and select markets. Turning to profitability, our normalized gross profit grew to $242 million in 2023, for a margin of 36%, consistent with the prior year, despite consolidating the inherently lower margin profile of Utheory for a full 12 months. Adjusted EBIT atop the $138 million for a margin of 20.4%, reflecting our growth and investments made throughout the year. All told, the prospects and projections for future growth are increasingly better every year, and I expect 2024 to continue this path. I'll pause here for Chris to add some of the financial details, and then I'll close with some context around our outlook and strategy for 2024 and beyond before taking your questions. Chris, over to you.
spk01: Thank you, Mike, and good afternoon, everyone. In the fourth quarter, consolidated revenue increased by 14.3% to $220.4 million, driven by growth in both Jameson Brands and strategic partner segments. Jameson Brands revenue increased by 16% to $181 million. Domestic Canadian revenue grew by $5.2 million to $94.3 million, or 5.8%, reflecting record consumption levels outpacing shipments as a specific large retailer reduced inventories below historic levels and below our expectations. Utheory contributed $55 million to revenue or an 8.7% growth increase across all channels, driven by timing, continued demand for existing products, successful innovation, and distribution gains. China contributed $20.7 million to revenue, representing more than 90% growth on a pro forma basis. This reflects the seasonal impact of direct sales to consumers under our own distribution model, strong cross-border e-commerce promotional plans for our 11-11 Singles Day program, driven by investments on social media platforms. Our international business grew by 37% on a constant currency basis, driven by growth in Europe, partially offset by delayed shipments in the Middle East due to conflict. Our strategic partner revenues increased by $2.6 million, or 7%, reflecting timing of shipments and final orders on the closeout of a customer contract. Gross margins in Q4 were 35.9%, or 100 basis points lower than the previous year, impacted by the fair value amortization of acquired inventory. On a normalized basis, gross profit margins were consistent with the prior year. Within Jamison Brands, gross profit margins were 40.4%, or 41.8% on a normalized basis. Gross profit margin decreased by 60 basis points, largely due to category mix. During the last wave of COVID in the fourth quarter of 2022, immunity demand benefited our reported margins in the prior year. Gross profit margin in the strategic partner segment was 15.1%. compared to 15.9% last year. Margin was impacted by favorable production efficiencies and offset by customer mix. Selling general administrative expenses increased $9.5 million as a result of investment to support our strategic initiatives and marketing, plus $6.1 million in specified costs related to our Chinese distributor expansion and U Theory acquisitions, including our IT system implementation initiatives. Adjusted net earnings, which exclude specified costs, acquisition-related adjustments, and foreign exchange, were $28.6 million in the quarter, representing a year-over-year increase of approximately $2 million. Our adjusted earnings per diluted common share were 67 cents, an 8.1% increase compared to the prior year. A reconciliation of adjusted EBITDA and adjusted net earnings is provided in today's press release announcing the company's fourth quarter results. Turning to balance sheet and cash flow. We generated $26.1 million in cash in the fourth quarter from operations compared to $40.8 million in the year earlier period. Cash from operations before working capital considerations were $20.4 million in the quarter, down $8.7 million primarily as a result of our recent acquisition and investments in our IT systems. Cash generated from working capital decreased by $6 million, driven by the timing of payables and income tax payments in the quarter. We repurchased $29 million, or 970,200 common shares, through our normal course issuer bid in the quarter and distributed approximately $8 million in dividends. We ended the fourth quarter with $211.9 million in cash and available operating lines. Based on our strong cash flow and earnings, we have announced a dividend of 19 cents per common share payable on March 15th, 2024. Now turning to guidance, let me start first with our outlook for fiscal 2024, which we are initiating today. In fiscal 2024, we expect the following. Net revenue in the range of $720 million to $760 million, reflecting growth between 6.5 and 12.5% compared to 2023. Adjusted EBITDA in the range of $138 million to $144 million, an increase of up to 4.5% compared to the prior year. Adjusted earnings per fully diluted common share of between $1.55 and $1.65, representing an increase of up to 7% for the year. In addition, we expect to generate between $85 and $95 million in normalized cash from operations before working capital and specified items expected in the year. This outlook is based on several operational assumptions, which can be found in the MDA, including factors that may temporarily impact our earnings, as well as a strategic shift in our approach to drive accelerated growth in China and the United States. When we break down by business unit, we expect the following. Our Jameson brand segment to deliver revenue growth of 12% to 18% in 2024, driven by ongoing traction in China and the United States, while further strengthening our domestic leadership position. In Canada, we expect revenue growth of 4% to 7.5% compared with fiscal 2023, reflecting market share gains realized in the prior year and continued consumer strength. Factors impacting this include the recovery of higher costs through in-market pricing. Our current margins reflect inflationary pressures since our last price increase in fiscal 2022 and the planned reductions in customer and distributor inventory levels in first quarter of 2024. Our youth theory revenue growth is expected to be between 13 and 20%, driven by strong marketing programs, product innovation, expanded e-commerce initiatives, and distribution gains in both U.S. and international markets. In China, accelerated growth behind our recent momentum translate to revenue growth of 60 to 80%, or approximately 45 to 60% pro forma growth, reflecting investments made to capitalize on emerging social e-commerce channels and further investments in marketing activities to drive brand trial and awareness. International revenue growth of between 5 and 15%, driven by continued growth in existing markets with the potential for geographic expansion and incremental innovation based on anticipated regulatory approvals. And strategic partner revenue decline of between 10 and 20% in 2024, reflecting the previously announced customer transition partially offset by new programs expected to launch in the second half. We expect EBITDA growth and EBITDA margin growth in 2024 to be impacted by the following. Gross profit margin to increase by 200 to 250 basis points. including an expansion of 150 to 200 basis points in the brand segment. Normalized SG&A to increase by approximately 20 to 35% this year, reflecting an increase in marketing spend of between 60 and 80% to drive further awareness in China and increase share and consumption in the United States. Adjusted EBITDA margins are expected to decline between 120 and 170 basis points. in 2024. To summarize, key factors impacting our fiscal 2024 results are as follows. A temporary reduction in manufacturing efficiency resulting from lower production volumes impacted by planned internal and customer branded inventory reductions and lower strategic partner volumes. A step change investment in brand building activities in both China and the United States. driving brand awareness to accelerate growth in these exciting markets. Now turning to first quarter guidance. On a consolidated basis in Q1 2024, we expect the following. Jameson's brand's revenue of $106 to $114 million, representing up to 6% growth. Strategic partner revenue year-over-year declines in Q1 of between 50% and 60%. Consolidated revenue decline of up to 14%, or between $818 and $128 million. Domestic, international, and strategic partner revenues in the quarter will be impacted by the result of our temporary closure of our unionized Windsor manufacturing facilities. This will result in a volume shift between the first and second quarter, with no full year impact as a result of the temporary closure. During the first quarter, we have prioritized and maintained consistent on-shelf availability for consumers, leveraging inventory positions both in channel, at our customers, and in Jameson Wellness. Consumer consumption in these markets remained very strong throughout the work stoppage. Our China and U.S. businesses were unaffected by the work stoppage, with expected strong momentum in both geographies during the first quarter. adjusted EBITDA of between $13 and $16 million based on reduced efficiency from our facility closure and as we increase our investments to maximize growth in the United States and China. To help investors better understand our long-term strategic aspirations and earning expectations, we are providing the following guidance for fiscal 2025 and expect the following. Consolidated revenue to grow between 8% and 15%, Branded revenue to grow between 10 and 15%, driven by balance shipments and consumption in Canada and accelerated growth rates in both the United States and in China. Adjusted EBITDA to grow between 10 and 17%, reaching approximately $155 to $165 million, driven by approved manufacturing efficiency with higher strategic partner and branded production volumes as production Volumes align with shipments. In addition, future investments in SG&A and brand marketing spend will align with branded revenue growth. A complete discussion of our outlook for both 2024 and 2025, as well as factors impacting our expected performance, is included in the outlook section of our MD&A, filed this evening. We encourage investors to read it in its entirety. With that, I'll turn the call back to Mike. Mike? Thanks, Chris.
spk02: Our ability to navigate and deliver results like this in a constantly changing post-COVID environment on a global scale is a testament to the strength and resilience of our strategy and our team. I want to thank the Jameson team for their commitment and passion for helping advance our mission of becoming the world's most trusted health and wellness company and delivering another good quarter of solid growth. 2023 closed with great momentum at the consumer level across all major markets and brought a close to our acquisition integrations in both the US and China. We are now set up to seize the moment and drive accelerated growth in these new markets under Jameson management best practices and operating excellence. Earlier I mentioned the new four year employment agreement we reached with our unionized manufacturing team in Windsor Ontario. We anticipated negotiations could take some time based on negotiation trends across the country. The agreement reached as fair and competitive for all stakeholders and consistent with our values as an organization. We had contingency plans in place, and with production resumed, we are on track to continue meeting the high order fill rates we pride ourselves on. The final terms of the negotiated agreement came within our expectations. While a little more front-end loaded than anticipated, the impact of the new contract is reflected in the guidance Chris provided this afternoon. In closing, our growth initiatives remain on track. As the world continues to evolve, we continue to monitor and adapt to this macroeconomic environment. The pandemic significantly and permanently altered consumer behavior towards vitamins, minerals, and supplements, highlighting a continuing growing desire for proactive health management. Exciting tailwinds continue to build behind the category, from self-care to digital access to younger demographics entering the category, a shift to quality products, and trends like GLP-1s. As the market evolves, understanding these shifts will be crucial for brands to cater to changing consumer needs and preferences. We have learned so much over the past two years of transformation since acquiring Utheory in 2022 and our distributor assets in China in 2023. In 2024, we've hit the ground running in these key markets to optimize our strategy and maximize Jameson's long-term growth potential as a global company, pushing us closer to reaching our goal of $1 billion with speed. To maximize our potential in these markets, we need to make material demand generating and brand equity building investments to drive accelerated top-line growth while we have this consumer momentum. While some of this investment will be funded with efficiency driven by our highly profitable 102-year-old Canadian operation, we do not feel that this efficiency provides enough urgency or capital to take full advantage of this opportunity. The time is now. We cannot and will not shelve our enthusiasm or shy away from the strategic shifts and additional investments required for Jameson to become a global leader. It's a different environment post-COVID. The opportunities are plentiful. We have operational excellence, market expertise, and knowledge of the consumer, and we should be the first to grab this opportunity and continue to outpace growth in our key and high potential markets. We have to move with agility and decisiveness as we compete with larger, multinational, multi-category companies that are not as nimble as we are, and smaller entrepreneurial companies that are seeing the opportunities we see and moving towards them. We are setting ourselves up for long-term profitable growth and shareholder value by investing now. Thank you for your support and continued investment. I'm going to turn it over to Alan to moderate our Q&A.
spk04: Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press star 1 in your touchtone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. If you would like to withdraw from the question queue, please press star 2. If you're using your speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Derek Lazard of TD Com. Your line is already open.
spk05: Yeah, thanks, and good afternoon, everybody. I just wanted to maybe touch on the domestic revenue, which it came in a little bit below your original guidance for Q4. I think you touched a bit about in some of your remarks, but maybe could you just add some color around that shortfall? And I think you did mention in your prepared remarks that you expect consumption to better align with shipments going forward. So just maybe the timing of that.
spk02: Yeah, thanks, Eric. It's a great question. Domestic did come in a little bit below our expectations. What I would refer to, though, first and foremost, is the Canadian business has never been larger or healthier at the consumer level. We had significant consumption growth in the quarter in both units and dollars. We also had significant market share growth, which we're quite proud of as we expanded our market share position through the year. When it came to shipments in Q4, we talked about in Q2 and Q3, we started to see some retailers burning through inventory levels that were coming out of COVID a little higher than historical norms. What happened in Q4 is we had one major customer make a decision towards the end of the quarter that was not expected and really take their inventory levels down to what we would call historical lows, but also I would call it irresponsible lows. They are holding very, very little inventory. We're working closely with them right now to try to get that up to more reasonable levels to make sure that they can maintain on-shelf availability. But it really came down to one retailer that just made a choice towards the end of the quarter that did not align with our expectations going into the quarter when we put that guide out there. But consumption remains strong. Through Q1 with the work stoppage, we've seen a complete recalibration of inventory both in our internal warehouses as well as in market. We feel pretty confident that coming out of Q1 now all that burn is behind us and consumption and shipments will more closely align to expectations and historical norms.
spk05: Okay, thanks for that. And do you have an indication of what the, I guess, what the POS sales were domestically?
spk02: Well, yeah, I mean, we have very, very clear numbers on what they were. What I can tell you is in Q4, we had double digit growth in both units and dollars in consumptions. And on the year we had mid single digits growth above 5% actually in both units and, and dollars in terms of consumption across the board. Okay. Thanks for that, Mike.
spk05: And maybe one last one for me before I requeue more specifically on the 2024 guide of a solid revenue outlook, but it looks like the spend on China and U S is this an acceleration over 2023? And, and I guess the, What were you expecting before heading into the year?
spk02: Yeah, so most of it is, there's really three things impacting the profit in 2024. Chris alluded to them. Number one is we did see a contract come off in our strategic partners business, which we've talked about before. In that division, that's a contract manufacturing made-to-order division. We have history of having contracts come out of our system. It takes us nine to 12 months to get new contracts into the system. We already have some, the decline from that contract loss will be partially offset in the back half of the year. And our team is currently negotiating with many possible customers in our pipeline to fill that back up for 2025 and hence the 2025 guide there. The second thing is based on the shutdown for five weeks in our manufacturing facility, and our need to reduce inventory off of our balance sheet, and the strategic partners contract coming off, we're not producing as much volume this year. So we're losing some of that efficiency that we typically see, and we expect that to come back in 2025 as consumption and shipments closely align. When it comes to investment, we are accelerating for growth in both China, most notably, and somewhat in the U.S. And if I point to anything on China, I would point to the fact that we had an absolutely killer successful year in our growth there. In 2023 we learned a lot through the year we took control of that business three months into the year and we have accelerated growth under our ownership. We previously talked about China growing in the range of 25 to 35% a year. And that guide on a pro forma basis that Chris just walked us through we're increasing that for 2024 to 45 to 60% growth and we're doing it behind some of this investment. We make money in China every day. We continue to make money there, but we need to grab this opportunity while we can and while we have the competitive advantages and the recent learnings we have in market. And that's really what's driving that. This investment in China in the short term, as we have this immense growth momentum behind us. Okay. Thanks.
spk04: Your next question comes from Ty Collin of Aid Capital. Your line is already open.
spk08: Hi, guys. Thanks for the questions. I wanted to follow up on Chris on your commentary around the cash flow for 2024. Just wondering if you could unpack what's behind the pretty substantial improvement you're expecting this year. And I know the numbers in the guidance are kind of X working capital and X some of those IT investments, but wondering if you could comment a little bit as well on what you expect out of working capital inventory and that IT spend as well.
spk01: Yeah, so we're expecting cash from operations before those specified items. I think we included specified items as a guide in the MD&A. I think it was $12 million in the range. So on a statutory basis, the guide would be you know, close to 75 to 85 million, rounding that to 10. We expect about a $20 million investment in working capital. That includes a significant reduction of inventory. And then we expect to invest about $15 million in capex in fiscal 2024. That leaves between 50 and $60 million in cash available to repay debt, pay dividends, or opportunistically buy back additional shares.
spk08: Okay, great. That's really helpful. And then maybe, I guess, shifting to the Canadian business, I'm just wondering if you could speak at a high level to any trends you're seeing around consumer behavior exiting 23 and into 24 here, any trading between retail channels, product categories, value tiers, and maybe tie that into higher market shares performed specifically against private label and more value brands.
spk02: Yeah, it's a great question, Ty. I think it's consistent with what we've talked about the last few quarters, which is really, we continue to see some channel shift for sure. We're seeing some channels outperforming others, most notably where consumers can find value, be it discount channel of the grocery accounts, and you hear them talking about that even in their earnings releases and how they're seeing the consumer shift to discount banners. We're seeing a continued growth and shift to club where consumers are looking for value per dose or per pill. And we continue to see high growth in e-commerce where consumers are out there looking to see where they can find value and where they can find the best deal. When it comes to trends across customers, it's really interesting to see that despite everything we hear from a macroeconomic perspective and despite everything we hear from a consumer perspective across most categories, In vitamins, minerals, and supplements, consumers continue to be engaged. Like I talked about a minute ago, Q4, we saw double-digit unit and dollar growth. And actually, the two businesses or two brands that are growing at the highest percentage and picking up share are the two more premium-priced products. It's ourselves and one of our competitors. So consumers continue to prioritize quality and continue to prioritize their health even during this time here in Canada, and it's great to see. The one thing I would say is we are seeing a little bit of private label It's not at the rate of us or the other competitor that I just discussed. They're really, though, taking it from another value player who has had some supply chain issues in the marketplace. They have some real out of stocks on the shelf, and they're an everyday value player, and they're trading off with private label right now.
spk08: Okay, great. Thanks.
spk04: Your next question comes from George Dumais of Scotiabank. Your line is already open.
spk06: Yeah, good afternoon, guys. I think earlier, Mike, you mentioned you expect volumes to be down. And I think there's also some pricing you expect to take for 2024. Can you maybe give us a sense of how much volumes are going to be down and how much pricing is embedded in that guidance for the Canada piece?
spk02: Yeah, so just to be clear, we do not expect shipments to be down. We expect manufacturing units to be down. We're making less products. If you go back into the end of our quarter three and all through 2023, we're sitting on a lot of inventory coming out of COVID in our system internally. We have burned through a good chunk of that through Q1, and we will now maintain more normalized level of inventory, more in line with consumption. So the unit decline we talked about is manufacturing, not consumption, and that impacts the efficiency that we get out of our facilities short term. when we get through 2024 and back to a full match of manufacturing, shipping, and consumption in 2025. When it comes to pricing, we have not priced this business in two years. We have had some, obviously, inflation impact over that time, most notably heading into 2024. We are currently pricing the business in Canada. It depends by category. Every category is moving a little bit. On average, though, I'd call it you know, mid single digit price increases just above the midway part, midway point of single digits.
spk06: That's helpful. And I guess when you look at the year, the cadence, you guys gave guidance for Q1, but again, sticking with Canada here, how should we think of the recovery in revenues? Like as you go through Q2 to Q4, is it more equal weighted? Is it more back half? And ultimately what dictates if we land in the lower or in the upper end of the range for, again, for Canada? Yeah, Chris is going to take that.
spk01: Yeah, so it's going to be a one-for-one shift. We expect to be fully recovered from a refill in the second quarter. The one caveat there is from a strategic partner volume perspective, some of that recovery will tail into Q3, Q4. But from a branded volume perspective, both international and domestic Canada will be just a straight shift from Q1 to Q2.
spk02: Yeah, and I think the low end of the high end guide that you mentioned there, George, I'd say two things. One is as we put pricing in, we always like to put a broad range on how it will be accepted in market. We have a great history of passing on pricing. This is not a massive price increase. We have a great history of it being accepted by consumers based on the loyalty of our brand and the quality that we provide. But we did widen the range a little bit just to make sure that we capture any possible downside of that. As well as going into any year, we have big innovation plans, and those innovation plans can land above our expectations or below our expectations, and we build a wide range in there as well for Canada. But overall, I think it's a pretty strong guide. It gets us back to our historical norms, and we're pretty excited about the market share growth and the consumption growth we're seeing in Canada right now and the momentum we have here across the board. It's pretty exciting. Okay, that's helpful.
spk06: Can you maybe give us a sense of how many EBITDA dollars we're investing in China and in the US in 2024? And then I guess you guys did put out a 2025 guide. Does that embed at all a reduction in that level of investment?
spk01: No, it's all incremental. We're establishing a new baseline of investment that we will continue to grow off. When you talk about that marketing investment, I did talk about 60 to 80% marketing growth year on year. And that's embedded in the SG&A number I provided. Just give me half a second here while I pull it up. 20 to 35% SG&A growth. So when you compare that to top line growth from a brand perspective, it's between a five and 20% investment beyond the amount of top line growth from a brand's perspective.
spk06: Thanks, George.
spk04: Your next question comes from Zachary Evershed of National Bank Financial. Your line is already open.
spk07: Good evening, everyone, and thanks for taking my questions. I wanted to talk about the fairly material adjustments between the acquisition costs, IT implementation costs, and the post-closing adjustments for EU theory. It does sound like that last one might be one and done, but do correct me if I'm wrong. And can you give us an idea of what acquisition and IT implementation costs look like in 2024?
spk00: Give me half a second. I'm pulling up my chart here.
spk01: Do you want me to focus on the quarter or the full year? Both, please. Let's go to the full year to start here. So when we're talking about adjustments to earnings from operations, we have acquisition, divestiture and related costs. Those are transactional costs primarily related to our acquisition in China. That's about $8.4 million. We have an amortization of fair value adjustment that's related to the fair value of inventory acquired in our China distributor acquisition and is a non-cash item. We have our IT system implementation costs in the year of $7.7 million. From a guide perspective, we're guiding between $11 and $12 million in investments or in specified costs. and that is spread between IT implementation costs as well as strike-related costs in fiscal 2024. So that's the clarification on what we're expecting going forward. And then lastly, we had an acquisition-related purchase consideration adjustment, and that relates to a reduction in the contingent consideration expectation for U Theory, and that really is based on our accelerated investment in marketing and infrastructure to drive growth there and that's offset by some adjustments that go the other way against that that release of contingent consideration all related to the opening balance sheet as it relates to you theory on the date of acquisition gotcha thank you and then
spk07: In terms of capital allocation priorities, you guys did mention potential to buy back shares. Why still have that on the table when investment into China and the U.S. does seem so attractive?
spk01: Well, we did note in our prepared remarks that we have $212 million in available cash and available funds. When we just look at the long-term value of our organization compared to the current trading, we have to consider it as a way to continue to drive value for investors.
spk07: That's it for me. I'll turn it over to Enrique. Thank you.
spk04: Ladies and gentlemen, as a reminder, if you have a question, please press star one. Your next question comes from John Zamparo from CIBC. Your line is already open.
spk09: Thank you very much. Good afternoon. I wanted to start on China. It's an interesting development, the strategic decision to increase investment there. I guess the backdrop of this is that growth on the top line in China has been really compelling as is with the existing level of spend. What causes you to want to invest disproportionately in that business? What is it that you saw over the past couple of quarters? especially since you have your private equity partner involved that made you want to do this, and why do you view it as a limited time opportunity?
spk02: Yeah, so I think a couple of things, John, and thanks for the question. I think we've seen exceptional growth in China over the last year in our brand, and I think what we're seeing, or I know what we're seeing, is consumers resonate with our brand at even a stronger level than we anticipated. We over-delivered our expectation on the year, and And in all honesty, right, there's a lot of skepticism in the marketplace on can we deliver our China number. We over-delivered our China number, and we did it in a way that is profitable and makes money on everything we sell there. And we saw this happening throughout the year. We saw our momentum building quarter after quarter as we own the business, and we see the consumer just getting more and more engaged in consumer health. We also see competitors across the marketplace seeing what we're doing and understanding that we currently have this competitive advantage in Our ability to move fast with our partner there and our ability to get products registered for in-market distribution and really pick up some brick and mortar distribution and sales there. And we want to strike now when we have this momentum and we have this competitive advantage in front of us and we need to move quickly. So that's really the driver. I mean, I think it's quite impressive that we had all the skepticism coming into the year. We over-delivered the expectation. We started talking about growing 25 to 35% a year in China, and now we're putting a guide out into the marketplace that's 45 to 60% of pro forma growth in that country as we invest there. So we're pretty excited about it. I think we saw the consumer just move quicker and with more speed to our brand, and we think that this has got great potential upside for us long term. When you talk about the step change in the ongoing basis, you know, we'll see how this year goes. We're going to get a lot of learnings. We're quite confident in our guide and quite confident in our number. I think what we're saying, though, is from here we'd expect to increase marketing more in line with the top-line growth and not exceed it, at least to the levels that we're seeing it exceed here, and at least not on a total consolidated basis that we're seeing here. We do have decent margins in China. We want to make sure that we grow those and we get them more in line with our expectations long-term for the rest of the business.
spk09: Okay, that's good color. Thank you for that. And then switching to the U.S., it sounds like maybe for some similar reasons, but it's an identical decision to invest more in that business, even though the sales numbers seem to be pretty compelling as is. So is it a similar concept of what you're seeing in the U.S., just consumer demand for the category resonating with your brand? I'm curious what you're seeing there that wants you to lean in on marketing spend in the U.S. as well.
spk02: Yeah, you know, again, we have a full year of ownership under our belt here. We had a lot of learnings in 2023. Again, a lot of skepticism from the market in terms of could we drive growth in the U.S. to what we thought we could. We put a guide out into the marketplace to start the year last year. I think $145 million to $155 million we delivered towards the top end of that guide and see momentum from a consumer perspective. We are investing in the U.S., but not at the level we are in China. So I would say separate the two. We're putting incremental marketing into that market. and putting good growth plans in 2024 of, I think, plus 13% to plus 20% on the year. We have great momentum coming out of Q3 and Q4 and into Q1. But the increased level of marketing into the U.S. on a percentage basis is not at the level it is in China. China, by far, is the bigger investor right now. Got it.
spk09: Okay. One housekeeping and then one other one. more broadly, the guide of 120 to 170 basis points of EBITDA margin decline in 24, can you say approximately how much of that just purely comes from mix?
spk01: From gross profit, Mick? You're talking EBITDA margin? EBITDA margin, sorry. EBITDA margin, yeah. Mix at the GP level or at the... EBITDA.
spk02: So I would answer this. You're talking EBITDA, right, John? Yeah. Yes.
spk01: No, but we guided for gross profit margin to increase 200 to 250 basis points. So that entire EBITDA decline is based on the accelerated investment in SG&A and marketing.
spk09: Okay. My broader question on... is on GLP-1s, and you referenced it during the call. I know you're bullish on this for the VMS industry. I think it's an interesting angle to GLP-1s. Can you give any updated thinking or additional data on this that you've seen and how it might benefit your industry and the company as well?
spk02: Yeah, so we continue to follow GLP-1 trends very closely, and we have for some time. What's interesting about us is We have one of the world's leading researchers of GLP-1s and obesity. He's been doing it for 35 years on our board for the last 10 years. He leads our scientific advisory board. His name is Dr. Lou Aroni out of Cornell in the United States. He's very embedded in our scientific decisions here, and he's been educating us on GLP-1 and the research he's been seeing around these trends for some time. What I can tell you is we believe that this is a long-term trend for the category. We believe that the trend comes in the side of supporting consumers who are on GLP-1, taking GLP-1 medications. We have a tremendous amount of insights from consumers now. We have a tremendous amount of insights from our scientific advisory board. We are currently finalizing the development of a line of support products for GLP-1 consumers. We are currently presenting those to customers to gain their feedback. We're bringing that feedback back into our scientific team and our marketing team. We'll finalize what those products look like. and hopefully have some more news on that in the coming quarters. I don't want to commit to a quarter right now because it's moving. It's moving with speed. It's moving with urgency. But we have started to talk about it to some customers to gain their feedback and what they're looking for, and we will circle back with some products, I'd say, in the midterm, in 2024. Understood. That's interesting.
spk09: Okay. I'll leave it there. Thank you very much. Thank you. Thank you.
spk04: Your next question comes from Justin Keywood of Stifel. Your line is already open.
spk03: Good afternoon. Thanks for taking my call. Just coming back to the capital allocation decision, we saw the business deleverage in the quarter. I believe it's two times net debt to EBITDA. Understand the investments in China and the U.S. and the NCIB. But doing the math, there's still expected to be some cash generation in 2024. Is there any attention to additional M&A, including into the U.S. or other markets?
spk01: I think that's certainly still on the table, Justin. But from a guide perspective, that obviously would not include a hypothetical.
spk03: Right. And would you be targeting potential assets in the U.S. in tuck-in nature, or is this more of a medium-term scenario in getting the business to the $1 billion goal?
spk01: I think when we look at our current short-term priorities, I think with this guidance, we are prioritizing organic growth and really driving this business forward. Certainly if the right opportunity came along, we look at both category expansion in the US as an opportunity, a category where U Theory currently does not play, where it would take us longer to expand to that category through innovation, or we would look at mature markets in Europe or potentially Asia to continue to grow the Jameson brand in an area where it's less likely for us to grow organically based on the fact that investment would require it and time would be required to create scale in that particular geography.
spk03: Understood. And on the NCIB, is there a target amount of capital that you plan to deploy this year or amount of shares that you intend to buy back? Thank you.
spk01: We have not put a target for 2024 out. We did with the A few shares that were acquired in the first quarter right after the year end, we did hit our million share buyback target for the fourth quarter and a couple of days. But we're leaving that open in early 2024 as we see how cash generation comes in and the business performs.
spk03: Thank you for taking my call.
spk01: Thank you. Thank you.
spk04: Your next question comes from Zachary Evershed of National Bank Financial. Your line is already open.
spk07: Thank you. Just one quick follow up. Is the mild winter weighing on 2024 given the soft flu season? And is there an assumption of a return to historical patterns baked into 2025 guidance?
spk02: Yeah, like I talked about a little earlier, we have not seen a slowdown in our business at the consumption level with the mild winter. We have seen growth expand across many categories. It's not just being driven by immunity. Immunity is pretty stable through the period. We've seen continued strong growth in the back half in the quarter and into this year on things like energy, some of the mineral products. We've seen... Fish oil doing quite well. We've seen multivitamins doing well. We've seen sleep and joint health continue to do well. So again, coming out of COVID, we saw consumers really spread their usage out across multi-categories. We're seeing that continued growth across the board. I think when it comes to normalizing consumption and shipments and historical norms, that would all be built into Q2 on in this year and then into 2025 for sure. Thank you very much.
spk07: That's it for me.
spk01: Thank you.
spk04: There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and you may now disconnect.
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