Jamieson Wellness Inc.

Thank you for standing by. This is the conference operator. Welcome to the Jameson Wellness Conference Call to discuss the financial results for the first quarter of 2025. As a reminder, all participants are in listen-only mode and the conference is being recorded. Please be advised that the reproduction of this call, in whole or in part, is not permitted without written authorization from the company. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then zero. 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. Palato, please note that a press release covering the company's first quarter 2025 financial results was issued this afternoon, and a copy of that press release can be found in the investor relations section of the company's website. Please note that the prepared remarks, which will follow, contain forward-looking statements, and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance and therefore undue reliance should not be placed upon them. We refer you to all risk factors contained in Jameson's press release issued this afternoon and in filings with the Canadian Securities Administrators for a more detailed discussion of 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. 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 would now like to turn the conference over to Mr. Palato. Please go ahead, sir.

Thank you, Gaylene, 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 Q1 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 first quarter, consolidated revenue increased by 14%, with growth in both of our segments and our brand and business exceeding our expectations. We also grew adjusted EBITDA ahead of revenue in the quarter, reflecting both sustained global demand for our products and our teams continued execution of our growth strategy. In China, our business expanded by over 50% as our brand awareness continues to grow. Our investments in demand generation drove growth in social commerce, retail, and cross-border channels. Our business on a key online platform in China nearly doubled in Q1, and successful Women's Day and Chinese New Year campaigns with a top key opinion leader drove more than 1.5 million consumer engagements in the quarter. In Canada, revenue increased by over 14% as strong consumption continued to outpace market growth, led by continued growth in e-commerce and club channels, while lapping lower shipments in Q1 2024 as a result of the labour disruption in this time period last year. International revenue increased by almost 30% in the quarter, driven by increased consumption in multiple markets around women's health and immunity campaigns, and the lapping of lower shipments at the same time prior year due to the work stoppage. In the U.S., we are on track to meet our growth expectations with the Utheory brand as we continue to expand with our new e-commerce partner. Growth in the quarter, driven by strong double-digit consumption increases, was offset by the impact of a large innovation pipe fill in Q1 2024, resulting in an expected shipment decrease of 13%. Utheory Innovation in 2024 was launched in the first half. This year, new product launches are concentrated in the second half of the year, and we will see the results of that beginning in Q3. In our strategic partner segment, revenue increased by almost 15%. New contracts that we secured in the fourth quarter began shipping, and we benefited from some timing of customer orders. It has been a busy start to 2025 at Jameson Wellness, and we have no intention of slowing down. Our 2025 innovation cycle kicked off with several new gummy products launched into the Canadian market to support women's health, digestive health, and immunity. The Utheory GLP-1 lineup, still in its early days, continues to grow in the US market. A new liver health product was launched in China, and we secured new distribution of sleep and prenatal support products in several of our international markets. In March, we successfully launched our new ERP system, which our team has been working hard on for several years to implement. Our new SAP system establishes a platform on which to grow our global operations while enhancing our visibility and improving data management, driving efficiency, and timely decision making. We are proud that the launch went smoothly with no disruption in manufacturing, shipments, or business as our continued focus on executional excellence was on full display. Also in March, we held our first Investor Day here in Toronto. We spent the day introducing the investment community to our very strong leadership team and dove into our strategy and growth aspirations. The event was live streamed and the recording is available to view on our website at jamesonwellness.com. Underpinning all of these projects and accomplishments is the need to ensure they are conducted in a way that is sustainable for our business and our planet. In the quarter, we released our second annual sustainability report, detailing our progress towards our 2030 and 2050 sustainability targets, and you can also find that on our website at jamisonwellness.com. We want to thank you for your support as we continue to deliver innovative natural health solutions and build on our foundation to drive profitable growth. Now let me turn it over to Chris to discuss our financial performance in more detail. Chris?

Thank you, Mike, and good afternoon. In the first quarter, consolidated revenue increased by 14% to $146 million. This growth was driven by Jameson Brands, which exceeded our expectations with growth of 13.9%. We also grew our strategic partners segment with an increase of 14.9%. Looking deeper into our branded revenue growth by business unit, Jameson in Canada grew by 52.1% compared with Q1 2024, driven by digital commerce outpacing the market and continued growth in domestic retail and club channels. As expected, U Theory revenue declined by 13% as strong double digit consumption growth was offset by the timing of innovation with a large pipe fill in Q1 2024. For comparison, Q1 2025 revenue grew by 19.3% when compared with Q1 2023. Revenue in Canada increased by 14.3%, driven by consumption and pricing growth of 11.2%, and the timing impact on shipments from our Q1 2024 labour disruption. International revenue increased by 28.8%, driven by growth in the Middle East and Asia, contributing 18.3%, and 10.5% growth from the timing due to the labor disruption in the prior year. Consolidated gross profit increased by $12.4 million, while normalized gross profit increased by $10.4 million, mainly driven by higher revenues and increased margins. Gross profit in the first quarter of the prior year included non-recurring costs associated with the work stoppage previously mentioned. Consolidated gross profit margin increased by 440 basis points to 37.8% in the quarter, while normalized consolidated gross profit margin increased by 270 basis points. Margin improvement was primarily due to the branded volume-driven efficiencies and favorable channel mix. In the Jameson brand segment, gross profit increased by $12.7 million, while normalized gross profit increased by $10.4 million, mainly driven by revenue growth and higher branded margins. Gross profit margin in the Jameson brand segment increased by 520 basis points, while normalized gross profit margin increased by 320 basis points to 41.7%. mainly due to volume-driven efficiencies and favorable channel mix in China. In our strategic partner segment, gross profit margin decreased by 320 basis points to 9.8%, while normalized gross profit margin decreased by 160 basis points, mainly impacted by customer mix. In the quarter, selling general and administrative expenses of $49.6 million reflected an increase of 25.4%. Excluding the impact of specified costs, SG&A increased by $7.3 million, or 21%, mainly driven by investments in resources and marketing to grow our brands globally, most notably in China. Specified costs of $7.4 million are mainly comprised of IT system costs, and the donations to support communities impacted by the wildfires adjacent to our facility in California. Operating income in the third quarter increased by $2.1 million, driven by higher gross profit and partially offset by our investment in resources and brands. On a normalized basis, operating income increased by $2.8 million and adjusted EBITDA increased by $3 million or 18.6% to $19.1 million. Adjusted net earnings in the quarter was $5.9 million, or $2 million higher than the prior year. A reconciliation of adjusted EBITDA and adjusted net earnings is provided in today's press release announcing our first quarter results. Turning to the balance sheet and cash flow. In Q1, we generated cash from operations before working capital of $4.7 million, consistent with the prior year. Cash generated from working capital increased by $38.8 million, mainly due to the timing of customer collections, partially offset by higher planned inventories. Also in the quarter, we purchased for cancellation 348,160 common shares under our NCIB program for an aggregate consideration of $10 million and an average share price of $28.71. In Q1, we distributed $8.9 million in dividends and ended the quarter with $246.1 million in cash and equivalent available operating lines. Based on the strength of our cash flow forecasted in the year, we have announced a dividend of 21 cents per common share, or approximately $8.8 million in aggregate. The dividend will be paid on June 13th, 2025 to common shareholders of record at the close of business on May 30th, 2025. Now turning to the outlook. We maintain our outlook for fiscal 2025. In the second quarter, our guidance reflects shipment growth built upon a very strong growth in the second quarter of the prior year. In Q2, we expect the following. Revenue in the Jameson brand segment is expected to increase between 5% and 10%, comparing to exceptional growth in the second quarter of 2024, with growth of 17.2% as a result of the order backlog from the prior year work stoppage impacting that year's first quarter. Revenue in the strategic partner segment is expected to decrease between 20 and 30% due to existing customer order timing and innovation with several new programs shifting into the third quarter. Based on the factors noted, we expect consolidated revenue of between $185 and $195 million, contributing growth of up to 5%. We anticipate adjusted EBITDA to range between $32 and $34 million, or growth of up to 7.5%. Our 2025 guidance does not include any potential impact from tariffs imposed on trade between the United States and other countries. While we recognize the situation is constantly evolving, based on the currently announced tariff framework, we do not expect a material impact on our business or earnings guidance. As such, actual results may differ from those in this guidance due to unforeseen changes in trade policies or economic conditions. A complete discussion of our outlook for the second quarter and full year fiscal 2025, as well as factors impacting our expected performance, is included in the outlook section of our MD&A filed this afternoon. And with that, I will turn the call back to Mike for closing comments. Mike.

Thank you, Chris, and thanks everyone for joining us on the call today. We're very proud of our Q1 results and confident in our ability to continue to execute with excellence. Once again, I'd like to thank the entire Jamison Wellness team for their efforts this quarter as we continue to push forward with our purpose of inspiring better lives every day. Now we'll turn it over to Jaylene for questions and answers. Thank you.

Thank you. We'll now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We'll pause for a moment as callers join the queue. Our first question is from Derek Lazard with TD Cohen. Please go ahead. Can you hear me? Mr. Lizard, your line is open.

Yeah, can you hear me? Yeah, we can hear you, Derek. Oh, sorry about that. Good afternoon, everybody. Good afternoon. I just wanted to... Mike, you talked in your prepared remarks, you said branded exceeded your expectations. Now, was it all branded or was it mostly China? Yeah.

No, it exceeded our expectations pretty much across the board. I would say you theory met our expectations. As we said in those remarks, it was right kind of where we expected it. China over exceeded our expectations and international in Canada would have been just above kind of our high end expectations. So it was pretty widespread with you theory meeting expectations, Derek.

Okay. And I guess I'll still hit on, like, so China is substantially outpacing your four-year guide now. And curious why you're not maybe adjusting your guide. Is it just maybe out of increased conservatism, given the backdrop?

Yeah, I think what's important to remember in China is you've got two big windows of promotion. You have the June promotional window and the 11-11 promotional window in Q4. And I just think at this point, let's get through the next big promotional window, which is a very material part to the business, and we'll see where that lands and we can go from there. But with one quarter under our belt and it's the lowest quarter of the year, it's just not time to reflect anything greater than what we've called on the year.

Okay, totally fair. And maybe just one more for me. Could you just maybe talk about the progress that you're seeing from your U.S. e-commerce partnership?

Yeah, it's going very well. We're seeing substantial consumption increase. In the prepared remarks, you heard me refer to strong double-digit consumption growth in the United States over the first quarter. A good chunk of that was driven by our e-commerce partnership and some of the results we're seeing there. We're very pleased with it. That partner actually came into our board of directors meeting this week and did a full review, and we were quite impressed with where they've taken this business so far. Okay. Thank you. Thank you.

The next question is from Nevin Yochum with BMO Capital Markets. Please go ahead.

Hi, guys.

How's it going?

Good. Good. I was hoping we could start on the Jameson Brands segment. just in the domestic market. In Q2, you're obviously lapping a strong prior year quarter that benefited from the shift in revenue due to the labor disruption. Hoping you could maybe quantify the prior year benefit you received from that shift. And then, would you still expect to deliver year-over-year growth in the domestic market in Q2?

Yeah, I mean, we had a... If you go back to a year ago, we had a soft Q1 and a strong Q2 because of the work stoppage. And what's great is when we look at our Q2 expectations, and we don't guide by business unit on the quarter, but we do still expect some level of growth in Canada, even off of that strong growth a year ago. So, you know, I think in our consolidated revenue guidance that Chris shared with you, you see a range of between 5% and 10%. Canada would be on... the lower end of our expectation of growth for the quarter, but definitely still growing, and we continue to see strong consumption in Canada.

Okay, great. That's helpful. And then just still on Canada here, you talked about 11.2% in the quarter from volume and pricing. Are you able to break that down between volume as well as pricing? And then I believe last quarter you mentioned you weren't seeing any cost inflation in the Canadian business. and then didn't intend to take price this year. So if you could just give an update there as well.

Yeah, so the way to think about it is pricing would have driven kind of mid to high single digits of that growth number of, I think it was plus 11 that we quoted, and low single digits on units. Okay, great. Sorry, what was the second part of the question? Cost.

Yeah, just thinking about pricing for the rest of the year.

Yeah, I mean, there's been no real difference or increase in cost that we see. Typically, we lock in costs for a longer time frame, usually 12 to 24 months on most key ingredients, not all, but most. We haven't seen any material increases in costs from our last quarter that would lead to any pricing in this year that we see right now. As we always say, though, subject to change. If we were ever to see an increase, that would have a material impact. we would take pricing and we would protect our margins as we always have.

Great. Thanks for the details.

No problem. Thank you.

The next question is from Ryland Conrad with RBC. Please go ahead.

Hey, good afternoon, guys. Thanks for taking my questions. Just to start off, curious how your discussions with U.S. customers and strategic partners are going. I know you previously walked through some of the potential offsets or mitigating actions for potential tariff exposure there. So just any updates on progress there as well?

Yeah, I mean, based on the current tariff framework that's been announced, There is no impact on that business at this time. Based on the announcement of tariffs not impacting anything that falls under KUSMA, we've been now in a situation where the risk on strategic partners is not currently relevant. However, as Chris talked about in his prepared remarks, it is ever evolving and ever changing as we all know. So we'll continue to keep an eye on that. And if things were to change, we'll make sure we communicate with how we're feeling at that time.

Okay, great. And I know last quarter you mentioned you hadn't seen any kind of indications of trade-down activity. So just wondering if you've seen any kind of changes to consumer behavior in the U.S. or Canada, just given the elevated macro uncertainty.

We have not. I would say, though, based on consistency of, I'd say, probably the last eight to ten quarters we've been talking about this, maybe 12 quarters, we haven't seen a trade down, but we continue to see channels like e-commerce and club outpace traditional channels across all of our markets, to be honest. And I do believe that is a continued focus on the consumer to look for places where they can drive value or find value. I'd say the same holds true for the discount channels of a grocer, same type of trend that we're seeing.

Got it. Thanks.

You're welcome.

The next question is from Justin Keywood with Stiefel GMP. Please go ahead.

Good afternoon. Thanks for taking my call. Just on the Canada branded growth, wondering if you're seeing any market share gains with the Buy Canada trend and if that showed up in Q1 or if you anticipate that to be impactful in Q2 and going forward?

It's hard to say where the growth is coming from, Justin. I definitely think there's probably some tailwind there. I would remind people, though, that a lot of our category is made in Canada. I mean, the top two players in the country are both Canadian. Private label is all obviously Canadian brands that are owned by the retailers as well. So I think you're seeing a little bit of lift maybe in the consumption growth, but I don't think it's anything material or anything that will be sustainable for the long term here. In our category. In our category.

Great. And then cash generation was really strong in Q1, where typically I think it's a muted cash generation quarter. Correct me if I'm wrong. Was there anything unique to account for that? And how should we look at working capital use for the remainder of the year?

We continue to be on track for our guide of cash from operations on a full year basis. You'll see a shift in the timing of cash flow this year where with just a couple of specific customers had extended terms. Those terms have been changed and we're looking for an accelerated collection of cash which which has impacted Q1 specifically, but will not impact the company significantly going forward. So we would expect cash use in working capital in Q2 and Q3 as we build for the busiest, the busier Q4, and then a drawdown in inventory and another generation of cash in Q4.

Understood. And that leads me to my final question, just on capital allocation. 10 million used for share buybacks, which I think is relatively high compared to historically. How should we be looking at capital allocation and use of cash as far as share buybacks, dividends, or potential M&A?

Yeah, so we're going to continue to invest in our stock as the price remains competitive and well below historic trading trading ranges from a multiple perspective. You'll see that share buyback continue into the second quarter. Beyond that, we will assess it on a quarter by quarter basis. We will continue to return capital through our dividend. And we have obviously a very strong balance sheet and ample room to continue to invest in the business and grow the business where we see fit.

Great.

Thank you very much. Thanks, Justin.

Once again, if you have a question, please press star then one. The next question is from Zachary Evershed with National Bank Financial. Please go ahead.

Good evening, everyone. Congrats on the quarter. Thanks, Zach. Thanks, Zach. I wanted to hammer on that China outperformance. Was this more of a one-time hit you got in an advertising strategy, or is this a repeatable pattern that you've invested in?

I referred in my remarks about an increase in brand awareness. We have not put in a one-time hit in Q1 of an increase in demand generation. It all now has been moderated to last year's increase, and then demand generation investment in the year is more at the level or just below the level of revenue growth that we expect. We believe that we're starting, and it's the early days, but really to see some of that brand awareness come through in a way that is repeatable and a way that is building loyalty. It's really hard to measure it at this point. It's really hard to measure data in a country like China that is extremely fragmented. I mean, you know, when you talk about e-commerce in a country like Canada or the United States, you're talking about one or two platforms that are very measurable. When you're talking about China, you're talking about dozens of platforms that we're interacting with, and it's really hard to get really detailed data on them and put it together. But we do feel really good about Q1. We do feel really good about the baseline business that's building there. We do believe we're really starting to see some of the benefits of the investment we made in 2024 continuing into 2025.

Makes sense. Thanks. And then that similar question on the uptick in gross margins from the favorable mixed shift, also something that you foresee going forward?

I think that was more a result of year-on-year factors. We still hold true to our guide of approximately 150 basis points of margin growth in totality for the company full year.

Thank you. I'll read you. Thanks, Zach.

The next question is from Tanya Armstrong, Whitmore, with Canaccord Genuity. Please go ahead.

Hey, congrats, guys, on the phenomenal quarter. Just one for me here. China, in your prepared remarks, you mentioned something about a doubling of business on a key online channel. Can you talk to how material that one channel is to the overall China strategy and what drove that doubling?

Yeah, it is one of our top three platforms. I would say that. As I talked about a few minutes ago, we participate in a couple dozen or more platforms, but it is one of our top platforms. I think it kind of plays into Zach's question, which is it is a platform that is one of the more traditional e-commerce platforms and doesn't grow based on key opinion leader investment. So it's numbers like that and a platform like that that start to show us that the baselines are improving, the repeats seem to be coming in, and that we're building a sustainable brand in China based on the investments that we've made to drive trial over time.

That's great. Thanks so much, Mike. Thanks, guys.

You're welcome. Thank you.

We have a follow-up from Zachary Evershed with National Bank Financial. Please go ahead.

Hey, thanks, guys. Just a quick one on the ERP implementation. Do you think IT system implementation costs will normalize now, or are there still a couple quarters of post-implementation startup costs?

So we will have additional costs in Q2 as we drive continued efficiency through the system. And then we move on to our U.S. business. So you'll see a leveling down of those investments throughout the year, and then you'll see a step up as we move back to focus on implementing the same system in our U.S. business.

Got you. Thanks. I'll turn it over. Thanks, Seth. Thank you.

This concludes the question and answer session and today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.