Jamieson Wellness Inc.

Good afternoon, everyone. Welcome to the Jameson Wellness Conference call to discuss the financial results for the first quarter of 2024. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will be given at that time. Please be advised that the reproduction of this call in whole or in part is not permitted without written authorization from 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 first quarter results was issued this afternoon and a copy of the 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, a jury line should not be placed upon them. We refer you to all risk factors contained in Jameson's press release issued this afternoon and in filings with the Canadian Securities Administrators for a more detailed discussion of the factors that could cause actual results to differ materially from those projections and any forward-looking statements. The company undertakes no obligation to publicly correct or update the forward-looking statements made during the presentation to reflect future events or circumstances, except as it may be required under applicable security laws. Finally, we would like to remind listeners that the company may refer to certain non-IFRS financial measures during this dollar conference. 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. Thank you. Please go ahead, sir.

Thank you, Ina, and good afternoon, everyone. Thanks for taking the time to join us today. I'll begin with some comments on our Q1 performance, our key markets, and our strategic growth initiatives. Then Chris will provide a detailed review of the financials and outlook before I wrap up and we open the call for questions. Our first quarter revenue came in as anticipated across all our business units. Consumer consumption remains strong in our key markets as we continue to invest in our growing U.S. and China businesses while strategically managing the impact of our five-week labor interruption earlier this year which had an impact on our international, Canadian, and strategic partners' businesses. Despite the temporary impact of this labor interruption, our branded revenue increased by 7%, exceeding our expectations due to continued strength in China, which grew 120%, or 80%, on a pro forma basis, and in the U.S., where we drove 37% growth. As a result of the labor interruption, revenue in our Canadian and international business units temporarily declined, as expected, by 15 and 17% respectively. Shipments in these business units shifted to Q2 and our original expectations for the front half of the year and full year guidance still hold. In our home market of Canada, consumption continued to be strong and significantly outpaced shipments and market growth as we prioritized on-shelf availability leveraging a mix of in-channel and internal inventory, and continued to expand our leadership position. In prioritizing Jameson brand shipments and due to the previously announced transition out of a customer contract, as expected, strategic partner revenue was $16 million lower this quarter versus the same quarter last year. With all of these moving pieces we managed through, total consolidated revenue came in at the high end of our expectations at $128 million, or 6.4% lower than Q1 of 2024. These results reflect the resiliency of our diversified business model, a validation of our expansion strategy, and the dedication of our team to maintaining focus. The strategic actions that have begun to transform our business and significantly elevate our global presence help to offset temporary challenges in other areas of the business. Despite shipment pressures, consumer demand and our exceptional brands remain strong. consumers continue to be engaged in the category. In China, our 80% pro forma growth was driven by the strong demand of Chinese consumers for our brand and our investments in brand awareness, including our highly successful Chinese New Year campaign, featuring out-of-home advertising, a robust PR campaign, and social influencer support. In the U.S., our 37% growth in Q1 was also driven by continued consumer demand for our brand. along with new innovation and our continued investment in marketing and e-commerce. From a profitability perspective, consolidated normalized gross profit margins increased slightly over prior year, excluding the impact of the labor interruption due to the higher mix of branded sales. As anticipated, revenue in the quarter grew at a faster rate than adjusted EBITDA, which at $16.1 million was 34% lower versus a year ago and at the high end of our expectations. This reflects the impact of the labor interruption with Canada, international and strategic partnership and shifting into Q2 and ongoing investments in capabilities and brand building activities in the US and China. We entered 2024 in a position of strength and our latest results continue to illustrate the power of our platform and the effectiveness of our strategy for driving profitable, sustainable growth. In Q1, we continue to deliver strong growth rates in the US and China in both shipments and consumption, and in Canada and key international markets, we saw strong consumption growth despite the shift in shipments from Q1 to Q2 due to the labour interruption. Our strategy is working to ensure we profitably grow and drive scale in our new markets while ensuring our home market of Canada remains strong, grows and expands its leadership position. In summary, we executed two plans in Q1, performing in line with the upper end of our expectations. Our combined Q1 results and Q2 guidance, which Chris will speak to later, account for a shift in shipments due to the labor stoppage, and we are anticipating front half branded revenue growth of between 11 to 15%. Our strategic growth initiatives are continuing to gain traction, and we remain confident in our outlook for the balance of 2024. I want to thank the entire Jamison team for their hard work, dedication, and passion, for helping advance our purpose of inspiring better lives every day and for delivering another solid quarter. With that, I'm going to turn the call over to Chris to discuss the first quarter results in more detail. Chris, over to you.

Thank you, Mike, and good afternoon, everyone. In the first quarter, consolidated revenue was $128 million, 6.4% lower due to the labor interruption, a shift in volume into the second quarter, and the wind down of a previously discussed strategic partner contract. These headwinds were offset by the expansion of our U Theory brand across the U.S. and the acceleration of our growth in China. As a result, Jameson brand revenue increased by 6.7% to $115.3 million, while our strategic partner revenue was almost 56% lower in the quarter. Breaking this down, Revenue in Canada was 14.7% lower than the prior year's first quarter, reflecting the labor disruption as we prioritized on-shelf availability and drew down inventory and channel, and shifted some shipments into the second quarter. Consumer engagement within VMS remains high. As a result, consumer consumption remains strong, at the top of our full-year growth expectations, while significantly outpacing shipments in both units, and dollars in the quarter. Growth in the U.S., or our U Theory segment, was strong at 37%, contributing $30.4 million in branded revenue, driven by our investments in brand equity and continued success and innovation, including our reformulated turmeric SKU and our recently launched ocean-friendly Omega product. In China, our increased investment in brand equity and awareness drove strong demand, while our new social e-commerce marketing drove trial. In China, we reported revenue growth of 126.4% or 80.2% on a pro forma basis, factoring in the timing of our distributor acquisition in the prior year. In our international business unit, as a result of the labor disruption and as anticipated, revenue declined by 17.2%. During the quarter, we prioritized shipments by market, ensuring availability, while we shifted some volume of shipments into the second quarter. As expected, revenue in our strategic partner segment decreased to $12.7 million, reflecting the wind down of a customer contract and our prioritization of branded production throughout the first quarter due to our labor disruption. Adjusting for incremental labor relations costs associated with the labor disruption, normalized gross profit decreased by $2.5 million, while normalized gross profit margin increased slightly by some 50 basis points due to a higher mix of branded sales. Within the Jameson brand segment, gross profit came in at $41.1 million, or 35.7% of sales. Margins were $2.7 million lower year over year. On a normalized basis, gross profit grew slightly, while margin of 38.5% was 200 basis points lower, reflecting the impact of lower volumes and reduced efficiencies, as well as the timing of price increases in Canada, which will positively impact results beginning in the second quarter. Gross profit in the strategic partner segment decreased by $3.1 million to $1.7 million, and gross profit margin decreased by 350 basis points, impacted by customer mix, lower volume, and planned utilization. SG&A expenses increased by $7.2 million compared to the prior year. The 22% increase primarily reflects our investment in brand equity, which included support for our product innovation and product launches in the US, such as our ocean-friendly Omega, and increased social selling to drive brand awareness in China through the use of influencers and campaigns tailored towards the Chinese market. Specific costs in Q1 include $3 million related to our IT system implementation expenses and $1.7 million tied to the labor relations and other related fees. First quarter operating income was $13.2 million lower year over year as a result of the factors discussed, including the investment in SG&A and marketing. On a normalized basis, first quarter operating income was $8.7 million and adjusted EBITDA decreased to $16.1 million, reflecting primarily the investments made to drive brand awareness in China and in the U.S., and the lower shipments due to the five-week labor stoppage in Q1. Adjusted net earnings in Q1 was $3.9 million, excluding specified costs and foreign exchange, and the resulting adjustment earnings per diluted common share was nine cents. A reconciliation of adjusted EBITDA and adjusted net earnings is provided in today's press release announcing the first quarter results. Turning to the balance sheet and cash flow, we generated cash from operations before working capital considerations of $4.6 million, lowered to the timing factors impacting volumes and higher levels of investment to build our brands in the US and China. Cash invested in working capital increased by $6.8 million in the quarter, driven by the timing of accounts receivable collections and changes in payables during the quarter. In the quarter, we invested $1.4 million in property, plant, and equipment. We repurchased $1 million in Jamison stock, approximately 30,000 common shares, and distributed approximately $7.8 million in dividends. We ended the quarter with approximately $193.9 million in cash and available revolving credit facilities. Based on our cash position and forecast, we have announced a dividend of 19 cents per common share, or approximately $8 million in aggregate. The dividend will be paid on June 14th, 2024 to common shareholders of record at the close of business on May 31st, 2024. Now turning to guidance. Consumer consumption continues to be strong globally, and we are maintaining our previous expectations with most of our strategic growth pillars in the United States and China. In Canada, consumer consumption continues to outpay shipments, while retailers have begun to build back some inventory. We are maintaining our previous disclosed guidance for full year fiscal 2024 and expect the following for the second quarter. Consolidated revenue in the range of $178 to $188 million, an increase of 6% to 12%, a 14% to 21% increase in revenue in Jameson brand segments, to approximately $152 to $162 million. A decrease of 20 to 30% in revenue in our strategic partners segment, reflecting our transition out of the customer contract and the timing of orders. Adjusted EBITDA to range from $29 to $33 million. This reflects investments to drive brand awareness and growth in the U.S. and China, and shipment timing in Canada and international impact. now resolved work stoppage in our Windsor tablet and manufacturing facility in Q1. And with that, I'll turn the call back to Mike for closing comments.