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spk00: everyone. Welcome to the Jameson Wellness Conference call to discuss the financial results for the third quarter of 2024. At this time, all participants are in a listen-lonely mode. Later, we will conduct a question and answer session, and instructions will be given at that time. Please be advised that 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 a press release covering the company's second quarter 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, and due 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 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... I will now turn the call over to Mr. Palato to get started. Please go ahead, sir.
spk05: Thank you, Angeline, and good afternoon, everyone. Thank you for taking the time to join us on the call today. I'll start with an overview of our Q3 performance and key growth activities. Chris will then review the financials in detail before I conclude our prepared remarks and open the floor to questions. In the third quarter, consolidated revenue reached $176 million, representing a 16% increase compared to the prior year. Our brands continue to resonate with consumers globally, with growth in all of our key geographies. Consumers continue to focus on improving their health and wellness with quality brands they can trust. And this is reflected in our branded revenue growth of 20% in the quarter. In Canada, revenue increased by 15% over Q3 2023 and a 4% growth year to date, driven by continued strong consumer consumption, pricing, and lapping of a customer inventory reduction in the same period last year. In addition to product innovations we discussed earlier in the year, such as an expansion of our Jameson gummies line and new and improved 100% complete multivitamins. In Q3, we launched two new Jameson sleep support products that are doing well and contributing to our innovation targets for the year. China revenue increased almost 82% in Q3 and 89% year to date, driven by our marketing and promotional investment strategy. Our dedicated team in China continues to work closely with our global consumer insights team to ensure Jameson is anticipating consumer needs and responding with product innovations to meet them. As a result, in Q3, we significantly outpaced category growth in both units and dollars and generated material gains in on-trend categories such as energy, immunity, bone health, and eye health. Utheory revenues increased nearly 6% on the quarter and 13% year-to-date, driven by consumer consumption, innovation, and new distribution. and partially offset by the initial stocking of product renovations in the prior year. Our Utheory brand continues to resonate with consumers, and in Q3 in particular, we drove double-digit growth of two of our products in the stress and energy categories, these two consumer needs states that continue to be on trend. International revenue increased 25% in Q3 and 17% year-to-date, driven by innovation and new distribution gains. This was a particularly exciting quarter for our international business as we grew in every region in which we operate. In our strategic partner segment, revenue was down by just over 5% as expected. Through the quarter, the team was focused on replacing our previously lost contract. We were pleased to have secured new partners during Q3 and expect to have new business begin shipping before the end of the year. From a profitability standpoint, consolidated normalized gross margins rose by 230 basis points due to substantial growth in branded sales during the quarter, and adjusted EBITDA rose by $2 million to approximately $34 million. With the successful Q3 behind us and the end of 2024 just around the corner, we remain committed to delivering on our strategic priorities. Our new integrated advertising campaign in Canada is reinforcing the Jameson brand's position as a leading vitamin mineral supplement brand. It is connecting consumers even more deeply with our brand and history of industry leading quality and trust through digital marketing, social media engagement, influencer partnerships, and engaging TV ads featuring our own facilities and team members. In 2025, we will expand this exciting campaign globally sharing these snapshots of Jameson's operations, people, and commitment to quality with new audiences worldwide. We are continuing to invest in brand growth in China and the US, as our high-quality products continue to gain the trial and trust of consumers in these markets. Distributor-partner collaboration has been integral to growth in our international business, and we are continuing to deepen our relationships with our distributor partners to support this fast-growing segment of our business. Thank you for your support as we continue to work towards delivering another successful year. Now, let me turn it over to Chris for a deeper dive into our financial performance.
spk01: Chris. Thank you, Mike. And good afternoon, everyone. In the third quarter, consolidated revenue increased by 16.3% to $176.2 million. This growth was driven by our Jamison brands as our marketing strategy in China and new integrated advertising campaign in Canada helped fuel strong consumer demand, resulting in an increase of 20% to $155 million to cycle against the closeout of previous revenue in the quarter. In strategic partners, as we continue to cycle against the closeout of a previous customer contract, revenue was $21.2 million in the quarter, an anticipated decline of 5.4%. Breaking down our branded revenue results in the quarter, Canadian revenue increased by 15.1%, driven by strong consumer consumption, pricing, and the impact of customer inventory reduction in the same quarter of the previous year. U Theory revenue increased by 5.7%, driven by consumer consumption, innovation, and new distribution, impacted by the timing of product renovations and innovations in the prior quarter. China revenue grew 81.7% on a constant currency basis, driven by our marketing and promotional investments. Jameson International revenue increased by 25.2% on a constant currency basis, driven by innovation and distribution gains. From a profitability perspective, consolidated gross profit increased by $16.4 million in the quarter, while normalized gross profit increased by $12.9 million. This was mainly driven by increased revenue and higher profit margins. Consolidated gross profit margin increased by 460 basis points to 38.4%, while normalized consolidated gross profit margins increased by 230 basis points. Margin improvement due to higher mix of Jameson branded sales and the amortization of fair value adjustments in the prior year. Within the Jameson brands, Gross profit increased by $17.6 million, while normalized gross profit increased by $14.1 million, mainly driven by revenue growth and higher branded margins. Gross profit margin in Jameson brands increased by 520 basis points, while normalized gross profit margins expanded by 250 basis points to 42.1%, primarily driven by growth in China and favorable category mix. In our strategic partner segment, gross profit margin decreased by 460 basis points to 10.9%, impacted by lower volumes impacting plant utilization and customer mix. In the quarter, SG&A expenses increased by 36.4% to $42 million. Excluding the impact of specified costs, SG&A increased by $10.4 million, mainly driven by $9.6 million in marketing investment to grow our brands and continue to prioritize our global expansion initiatives. Specified costs of $3.6 million in the quarter are mainly comprised of our IT system implementation costs. Operating income in the third quarter increased by $4.8 million, driven by higher gross profit and partially offset by increased investment in marketing. On a normalized basis, operating income increased by $2.2 million and adjusted EBITDA increased by $2 million to $33.9 million. Adjusted net earnings in the quarter was $15.8 million, or almost a million dollars higher than Q3 2023. 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, in Q3, we generated cash from operations before working capital considerations of $18.5 million, almost $1 million higher, mainly due to increase in our operating profits. Cash generated from working capital increased by $37.4 million due to the timing of accounts receivable collections, income taxes payable, and managed lower inventories. In Q3, we distributed $8.8 million in dividends and ended the quarter with more than $200 million in cash and available operating lines. Based on the strength of our forecasted cash flow this year, we've announced a dividend of 21 cents per common share or approximately $8.8 million in aggregate. This dividend will be paid on December 13th, 2024 to common shareholders of record at the close of business on November 29th, 2024. Now turning to our outlook. The investments we've made this year in digital and traditional marketing continue to provide returns and the consumer consumption remains strong across each of our primary markets. Based on these factors, we're iterating our outlook for fiscal 2025 while narrowing our full year guidance for fiscal 2024. Updates to our 2024 guidance include consolidated revenue is now expected to range between $725 and $755 million, an increase of between 7.2 and 11.7% from our previous range of 6.5 to 12.5%. We now expect Jameis and Brand's revenue to range between $620 and $645 million, an increase of 12.5 to 17% from our previous range of 12 to 18% growth. Strategic partner revenue is now expected to range between $105 and $110 million, a decrease of 12% to 16%, updated from our previous guidance range of 10% to 20% decrease. We have narrowed our range for consolidated adjusted EBITDA and now expect between $139 and $143 million, up to 3.6% growth. Adjusted diluted earnings per share of $1.57 to $1.63, up to 5.2% growth compared to the prior year. A complete discussion of our outlook for the fourth quarter and full year fiscal 2024, as well as factors affecting our expected performance, are included in our outlook section of our MD&A filed this afternoon. And with that, I will turn the call back to Mike for closing comments. Mike? Thanks, Chris.
spk05: In summary, our third quarter was marked by exceptional growth and innovation across all of our key markets. With a 16% increase in consolidated revenue, driven by Jameson Brand's strong performance and significant gains across multiple markets, we are poised for continued success. Our strategic investments and product innovations are resonating with consumers and driving our momentum forward. None of this would have been possible without our amazing Jameson Wellness team, who I would like to thank for their dedication to driving growth fulfilling commitments, and ensuring our high-quality products help to inspire better lives every day. Now, over to Angeline to go to Q&A. Thank you.
spk00: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touchtone phone. You will hear a prompt that your hands has been raised. Your first question comes from Derek Lessard, from TD Cohen. Please go ahead.
spk02: Good afternoon, everybody. Good to hear your voices.
spk05: Hey, Derek. Nice to hear you, too. Can you hear us? We had a little bit of a glitch. I just want to make sure you can hear us.
spk02: No, I can hear you fine.
spk05: Perfect. Thank you.
spk02: So, yeah, congrats on a strong quarter. I just want to touch on youth theory. You're lapping out last year's big stalking event. Just could you maybe... talk about what the growth would have been excluding that event?
spk05: Yeah. Last year at this time, if you remember, we were shipping in some renovated products across from Q2 and into Q3 on those pipe fills. It would have been a low to mid double-digit growth rate, Derek, without that laughing.
spk02: Okay. That's helpful. And maybe just talk about some of the categories. I think you highlighted in the press release, innovation and new distribution as growth drivers. Can you just maybe talk about, maybe just add some color around those drivers?
spk04: Sorry, I just missed the first part of that, Derek.
spk02: Oh, yeah.
spk04: We're having a little bumpiness here. Sorry, try it again.
spk02: Yeah, no worries. I was just wondering if you could just maybe add some color about the innovation and new distribution growth drivers, Utheory specific.
spk05: Utheory in the quarter? Yeah. So, We have picked up some incremental distribution as we've talked about. We're slowly picking up distribution in channels outside, brick and mortar channels outside of our main customer from where we bought the business. And we're starting to see some of that distribution come to fruition. We've talked before about the expansion of distribution into some other club channels where we didn't play or club customers where we didn't play. We've expanded some offerings in online. We've expanded some offerings in the natural channel and continue to pick up pieces of distribution that we think are long-term sustainable pieces of distribution over time. From an innovation perspective, we have some sugar-free gummies that we've put out into the market. We have our ocean-friendly Omega that we launched earlier in the year that continues to ship. And then in Q4, which aren't in these numbers, but has started to ship out now, in the very early days to some retailers and online outlets in a test phase is our new GLP-1 products. So you'll be hearing a little bit more about those in the upcoming quarters.
spk02: Okay. And just maybe one follow-up and final one for me on the youth theory guidance for Q4. You said some of that growth is partially offset by new e-commerce business partnerships and and a customer inventory drawdown. Could you just maybe talk about what those two items are?
spk01: So the new partnership from an e-commerce perspective is a transition from a direct sales model through Amazon to a partner that takes title and uses AI capabilities to accelerate growth through e-com. That goes at a wholesale price versus a direct-to-consumer price, which accounts for the reduction in revenue but we accrue the same margin and profitability from that customer set. And then the reduction is just shift in timing from a promotional order pattern by one of our customers, shifting a little bit of volume into 2025. Okay. Thanks, Chris.
spk09: Thanks, Sarah.
spk08: Thank you.
spk00: The next question comes from Zachary Everchit from National Bank Financial. Please go ahead.
spk07: Hey, congrats on the quarter, guys. Thanks for taking my questions. Thanks, Zach. So narrowing China to closer to the top end of guidance must mean that things are going a little bit better than expected. Can you get into what's driving that, and do you have a good idea of customer stickiness with another quarter in the system?
spk05: Yeah, I mean, in China, we continue to see strong growth behind our investments and continue to see a category that continues to grow in China. Now, we are significantly outpacing that category in both units and dollars. You know, we talked before about this investment is one that is very variable in nature, right? It's got a lot of digital components to it where we can move money around or investment around based on what's working and As we talked about as well, China's like a real live model where our econ team, for example, can move levers on the spot live by hour, by day, by week. And as we see things that work better than other things, we're able to move some of that investment around. So it's the team just continuing to drive investment based on learnings and consumer insights we're getting in real time. So we'll continue to leverage that well into the future as we continue to build those capabilities. And we're quite quite pleased with what we're seeing in China. We are lapping much higher quarters now because we did see some of this growth really start to happen in late Q3 and into Q4 last year, if you remember. But we are setting ourselves up here for a very nice close in China and a very nice year that we're very proud of. When it comes to the stickiness, I know there's a lot of questions about that in a lot of our calls. We do have some measurements on that. We continue to refine those as well. We don't release that data publicly, but we are pleased with what we're seeing today. And as you see, the business is growing quarter after quarter after quarter. We're continuing to refine our understanding of what that baseline looks like versus incremental consumer base, and we'll continue to build off of that into the future.
spk07: Gotcha. Thank you very much. And then, obviously, you're very happy with the spend in China and the real-time data there. how does the return profile differ on the marketing spend in the U.S. versus the brand awareness spend in China?
spk05: Well, it's just a totally different model. I mean, when you look at the two businesses, you have, when you look at any of the countries, you have the most digitally enabled country in the world in commerce in China. So you do focus most of your spend around those digital channels, which do two things for you. They drive marketing, they drive awareness. They get your message out in front of consumers. They also give the consumers the ability to purchase with immediacy. So in China, with most of the investment being spent in that way, you really can reflect and revise and read the returns in real time. When you get to the U.S., it's more of a traditional market like Canada, where you're spending some of your investment on digital commerce, which is a portion of the business, but a lot more of your percentage on what would be more I would say traditional marketing and brand building, which comes with a different read in terms of ROI. What we do do as a company in all three markets is we do continually invest in what we call market mix analysis, which really gives us a return on all of the different marketing apertures that we have. We kind of do that backwards. So as the year closes, we'll look back over the year and figure out what spends drove the most returns what types of spends drove the highest return, and we'll do that by market, and then we'll revise our plans into the new year based on where we're getting the highest return. So our insights team work hard on those analysis and really unlocking opportunities for us to drive higher return as we invest.
spk09: Great, Collier. Thanks. I'll re-cue. Thanks, Matt.
spk08: Thank you.
spk00: The next question comes from Justine Keywood from Stiefel. Please go ahead.
spk03: Hi, thanks for taking my call. Maybe just a follow on on the China discussion. Any impact from the stimulus?
spk05: Hey, Justin, nice to hear from you. You know, nothing that we saw, like we didn't see anything material. The stimulus came out, which is great news for China, great news for consumers for sure. We did hear some good positive sentiment from our team in China that felt good about it. But no material impact to our business. Our business has continued to trend very positively. We've continued to outpace market growth. Our category has continued to resonate with consumers as the Chinese consumer continues to be engaged in health and wellness and proactive health. So nothing material that we could see or call out at this point.
spk03: Maybe a hard question to answer, but historically, has there been any correlation with stimulus and Jameson's business and increased vitamin sales? Are you talking China again? Sorry? Well, any region, for that matter.
spk05: No, I mean, our category has continued to show strength pre-pandemic, during the pandemic, post-pandemic, in the recent stimulus announcements in a country like China. Really, we have not seen change in the continued category growth as we see it. And in China, it's early days. I mean, that stimulus was announced not too long ago, and You know, we're just continuing to focus on what we can control, which is investing in the brand, resonating with consumers, driving innovation, driving distribution, and continuing to drive sales. If we see any material pick up due to something like stimulus, we'll call it out. But at this point, we have not. And historically, I can't recall at any point where we've seen anything like that.
spk03: Okay, thank you. And then we saw some pretty healthy cash generation in the quarter, 24 million cash from ops, where traditionally Q3 has been a working capital use. So just wondering if there was any dynamics there that accounted for, and then also in Q4 has historically always been Jameson's best quarter for cash generation. And should we expect the same this year?
spk01: We did have some time impact pulling cash into Q3 versus Q4. So we've maintained our guide from an 85 to $95 million normalized cash from operations and still feel very confident. But that's our full year target.
spk03: Great. And then just maybe one question with the new U.S. administration coming in. There is some speculation there could be some change in the nutraceutical space. Any initial observations there?
spk05: No, I mean, we don't have any additional color at this point. I'm not sure what you're referring to in nutraceutical changes. We have not seen anything that would concern us from a material perspective. You know, that U.S. business is a U.S. manufacturer. We manufacture in the U.S. We have manufacturing jobs in the U.S. In Irvine, California, we continue to invest in the U.S. economy, and we feel pretty good where we're positioned in the U.S. regardless of who's leading the administration in the U.S.
spk03: Thank you for taking my questions.
spk05: Thanks, Justin.
spk01: Thanks, Justin.
spk00: Thank you. The next question comes from Niven Yokim from BMO Capital Markets. Please go ahead.
spk06: Thanks. Good evening, guys. Good evening. I'm hoping to start on the domestic market. Solid bounce back here in Q3. Just trying to understand the growth a little bit better. Can you parse out the benefit from the prior year customer inventory reduction and then the amount you would have received from price and underlying consumption growth?
spk05: Yeah, I look at it this way. Let's start with consumption. So when we priced the business in Q2, we had that all pass through the consumers. We had to recover some incremental costs that we've seen over the last couple of years. And really what we're seeing today from a consumption perspective, we saw it in the quarter, is kind of low double-digit dollar growth and kind of low to mid single-digit unit growth. So when you take that and you look at what we lapped last year, there's like kind of mid-single-digit lapping of an inventory burn that you add on top of that, and that's how you get to 15% growth.
spk06: Okay, perfect. That's helpful. And then I believe in the domestic market in Q4, you're also referencing a customer inventory reduction the prior year. Can you provide a bit more detail on what happened there and then the magnitude of this impact?
spk05: Yeah, what we're referencing in Q4 is we're again in Q4 lapping some burn that we saw a year ago. So we should see another strong quarter in Canada where we see continued consumption growth based on pricing and continued volume growth, as well as we're lapping more burn that happened in Q4 a year ago if you go back to our releases from Q4. So it's going to be a continuation in terms of the types of build that we see from pricing, unit consumption growth, and then lapping and inventory burn.
spk06: Okay. And then lastly, just on the strategic partners segment, taking a look at the margins, there's a few one-time items impacting this year. How are you thinking about the margin progression in 2025? Could you potentially be back to prior year levels, or would it be a multi-year growth period to get back to 2023 margins?
spk01: So we have new contracts starting in Q4 as well as in early 2025. As that volume takes place, as we continue to drive volume within our soft gel facility, those margins will repair. But I wouldn't expect them to be back to 2023 levels for some time.
spk09: Okay. Thanks, guys. Great. Thanks, Evan. Thank you.
spk00: As a reminder, if you wish to ask a question, please press star one. The next question comes from Zachary Everchad from National Bank Financial. Please go ahead.
spk07: Hey, again. So the NCIB expired yesterday. Any plans to renew to keep your options open, or is that over and done with?
spk01: Yeah, the renewal of that is in process, and we'll have a press release announcing the renewal of that shortly.
spk07: Perfect. Thanks. On the political side of the spectrum, any concerns on tariff disruptions, or do you guys pretty much avoid cross-border shipments entirely?
spk05: I mean, there's a lot of moving pieces right now in terms of where this could all go. We're continuing to monitor it. We cross many different borders, obviously. We're an international global company. As I talked about, though, from the U.S. business, like It's very immaterial what we would produce outside of the U.S. business in the U.S. We're a manufacturer in the U.S. Almost everything we sell there is made there. Raw materials for that business are not sourced from places that we have concern today. We continue to monitor any type of tariffs in and out of Canada. However, there's a lot of moving parts here, Zach, because we import raw materials, we manufacture, we export finished goods. We're just going to continue to monitor its early days, and we don't know what any impacts will be because we don't know what the tariff situation will be. What we can tell you is in prior times when tariffs came up and tariffs came to the forefront, our category was not affected. We typically are a health benefit product. We fall under some essential categorization depending on the times and where it's coming from, but we have not had impact in the past, and we don't anticipate any material impact at this time, but we'll continue to monitor it. We also do a lot of multi-sourcing, multi-supplier sourcing. We're able to move our sourcing around for a lot of the things we buy, and we'll continue to leverage that as a risk mitigation plan into the future.
spk07: Great answer, thanks. And just one last one on the IT system implementation. How's that going?
spk01: Everything is absolutely 100% on track with implementation planned for Q1 2025.
spk07: Thank you very much. I'll turn it over.
spk08: Thanks, Zach. Thank you.
spk00: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now
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