Jamieson Wellness Inc.

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.

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.

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.