Delivra Health Brands Inc.

Good morning and welcome to the Deliver Health Brands, Inc. year-end 2022 results conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then 0. The information communicated by Delivera Brands Health Inc., the company, is intended solely for discussion purposes and are not intended as and do not constitute an offer to sell or a solicitation of an offer to buy any security and should not be relied upon by you in evaluating the merits of investing in any securities. The company believes the information communicated in this overview to be reliable but makes no warranty or representation, whether expressed or implied, and assumes no legal liability for the accuracy, completeness or usefulness of any information disclosed. Any estimates, investment strategies and views expressed during this conference call are based upon current market conditions and or data and information provided by unaffiliated third parties and is subject to change without notice. All forward-looking information provided during this conference call are given as of the date hereof and are based upon the opinions and estimates of management and information available to management as of the date hereof. Except as required by law, the company disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, events, or otherwise. I would now like to turn the conference over to Gord Davey, President and CEO of Delivera Brands, Inc. Mr. Davey, please proceed.

Good day, and welcome everyone to our first Shareholder Information Conference call. We are extremely pleased to be here with you today. My name is Gord Davey, and I'm the President and Chief Executive Officer of Delivera Health Brands. I am joined by our Chief Financial Officer, Jack Tassie. It has been a positive, transformational year for Deliver Health Brands. Today, we'll take you through our 2022 fiscal results, our strategic focus moving forward, and provide an understanding of our vision for 2023 and beyond. Just before we get into that, we'd like to share the excitement and celebration of our new name to Deliver Health Brands, who we are, why we are so relevant, and why our future is brighter than it has ever been. We're on a mission to change how people approach their health. Helping people take control of their health with alternative wellness solutions is what energizes our Deliver Health brand team. Our portfolio of innovative brands, Dream Water and Live Relief, provide solutions for common everyday issues like chronic pain, anxiety, and sleeplessness. Deliver Health brand products have allowed millions of consumers to reclaim their mobility, energy, and in turn their lives. Our consumers believe in and love our products as much as we do, and we are grateful to have such loyal brand champions in over 20 countries. This is just a start. Every day our team continues to design health and wellness solutions that will enhance lives everywhere. That leads to our vision. We are building a community of wellness naturally. This is followed by our mission. We are pioneering the alternative wellness space innovative products that bring relief to everyday health issues and enhance the quality of life. This is reinforced by our values, trust, passion, agility, drive, courage, and humility. Great products, great people, and great team with growing categories and sustainable, profitable growth. This is the foundation of Deliver Health Brands. Our products are in large categories and categories that are consistently growing. The sleep category is a $24 billion category that's growing at over 17%. The topical pain category is a $13 billion category growing at over 7.5%. And the cannabis category is exponentially growing, expanding, and people are being educated every day. Deliver Health brands are front and center with strong brands and proprietary IPs that include expanded innovation. We will now take you through our results, our strategies, and our outlook. A year has not been without risks and challenges, real challenges that every company like ours face. It is what you do in these challenging times that help define your future. There have been COVID outbreaks. which creates uncertainty and can slow momentum. There has been supply shortages, which test your systems. It tests your strategic planning and the agility in the marketplace. There's been inflation, which affects your margins. It affects capital markets and in turn the ability to reinvest back into your business. As well, it tests the elasticity of your brands. The war in Ukraine, creates uncertainty, and affects the level of spend with companies and individuals. We have been touched by these factors, not unlike other companies. In the throes of dealing with these challenges and risks, Deliver Health Brands has produced positive results. Jack will later take you through in more detail. However, here are the top line results. We've increased our net revenue by 2.3%. We've increased our gross profit margin to 32%, from 24% than it was 9% in 2020. We've decreased our SG&A expenses by 32% year over year. And most importantly, we've increased our EBITDA by 54% year over year. So we have higher revenues and higher margins with lower costs, which equal improved EBITDA. That's the right formulation. How did we accomplish this in 2022? Well, we accomplished it through focus channel strategies, through U.S. launch and expansion, through international growth, and through the execution of customer-specific programs. And how are we going to continue this in 2023 at an accelerated rate? Let me take you through our 2023 high-level strategies. We're going to continue with USA expansion through products, channels, and customers. We're going to continue with international growth through products, territories, and through improved customer base. We are going to accelerate our infused topical platforms through products, channels, territories, and customers. And we're also going to focus in on key partnerships through impactful consumer programs, through e-commerce expansion, and through innovation. And the key to all these strategies is the execution. We have the team and the products to accomplish this. These strategies support our long-term vision of more products in more areas with more customers. We'll do this through our current portfolio as well as M&A opportunities. We have completed our transition to a health and wellness company, and we are positioned for unprecedented growth. We are not without challenges, However, our team and our board are prepared to take on the challenges and bring long-term sustainable growth to Deliver Health Brands and our shareholders. Jack will take you through some detailed financials and a business overview. We appreciate your support in our vision of Deliver Health Brands.

Thank you.

Thank you, Gord. Good morning, everyone. This is Jack Tassos, CFO, Deliver Health Brands. Before providing the high-level financial overview and the commentary on operations, it is important to state that all commentary provided should be interpreted in the context of the latest financial statements and MD&A filed by the company. Overall, given the change in direction in the company's strategy over the last several years, this has translated into financial progress leading to a better overall financial performance. And to be more specific, this is when it comes to the company's adjusted EBITDA improvements over the last three years, which translates to lower monthly burn rate. And this is a financial achievement in reference to where the company was in prior years. Overall, the company gives significant attention to the following three internal key performance indicators or key result indicators. The first key indicator, which is to uncover potential in the U.S. and international markets for the company's Dreamwater brand and its associated SKUs, in addition to the Live Relief brand. Overall, the company made significant progress in managing its customer mix in fact, for both brands, the Dreamwater brand and the Live Relief brand, and will continue in doing so. The company is committed to working with customers on a win-win basis to make such relationships financially sustainable. Given the fact that our products are not commodities, but more of niche products, therefore competing in niche markets and working with specific customers makes more sense to the company in recognizing this fact and given this approach, we managed to improve our customer mix, and this led to improvements in margins year over year. Working with the right customer means that having the right sales fee structure that matches the amount of gross revenue generated. The focus will always be on increasing revenue, and this goes without saying. However, only revenue that can lead to maintenance or improvement in margins This applies to international markets as well, and thus we are seeing growth in our sales from the U.S. side of our business. In sum, an improved net revenue by 2.3% growth year over year is reasonable given the challenging business environments we are witnessing, and the company will continue in executing its strategies to penetrate existing markets and create new customers in new markets as well. This takes us to the second key performance indicator or key result indicator, which is maintaining and growing our gross profit and margin percentage from a percentage of course and dollar-wise perspective before ending at write-downs. Somebody has succeeded year over year, increasing its gross margin from 24% last year to 32% this year, including write-downs. The company had to write down approximately $989,000 last year in materials that were part of its previously sold cannabis businesses, in addition to other materials that were purchased in prior years. The company wrote off around $776,000 this year related to materials purchases in prior years that were not suitable for production of its existing hues for both brands, Greenwater and Liverly. Our write-downs went down year over year, and we are expecting the same pattern to continue into the future based on what we know today. Margins, margin percentages before write-downs went up from 37% last year to 42% this year, and this is related to supplier management and is driven by the change in customer mix as well. Company regards such margin percentages as financial achievements as well. This takes us to the third key performance indicator, which is year-over-year improvements in our adjusted EBITDA and burn for the objective of breaking even, and this goes without saying, every company's goal is to make profit and add a minimum break even in the short term. Given all of the above, companies' adjusted EBITDA of negative $2.8 million versus last year of negative 6.1 million and then the year before of 9.1 million in the red tells about a few good chapters of financial performance year over year and progress after the significant amount of restructuring the company went through. The 2.8 million in negative adjusted EBITDA and to the first time ever, this makes the result closer to breaking even, which is a significant milestone for the company and a clear indication of an increase in shareholder wealth year over year. To recap, the increase in adjusted EBITDA is the result of increases in sales margin and a reduction in GNA by 32% year over year. The company has been focusing on having the right amount of GNA so that sales and operations can continue to build on their progress year over year as the company is committed to delivering value in the long term versus making short-term cuts. That will expose the business to unnecessary risk in the short term. Given this assumption, the company's G&A at the moment, as of herein, seems in a balanced position to support future growth. Finally, a few observations related to the statement of financial position. As we've all seen from the statements, Current assets include an asset held for sale of $2.34 million, and this relates to our Lucky Lake facility that we are hoping to monetize in the near future. Second observation, there are no impairments to intangible assets, which includes our brands of Dream Water and Live Relief on the balance sheet, and this indicates strength in our brands and future possibilities and opportunities. The last observation, is lower year-over-year payables, and more specifically, lower trade payables of 26% due to settlements at a value lower than the fair value of the settlements. Overall, based on the results and the overview, we are hoping that performance of Delibra Health brands gets noticed by capital markets, given how the company embraced change, given the progress, and given the challenges that all companies are facing in their respective markets today. that relate to political instability, as an example, dealing with the aftermath of COVID, especially when it relates to inflation, talent acquisition and management, and finally, supply chain management. I'd like to thank everyone who joined us. Thank you for your support of both brands, Greenwater and Live Relief. And with this, I'll pass the floor to the operator to facilitate the Q&A session. Thank you and have a good day.

We'll now begin the question and answer session. To join the question queue, you may press star then 1 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 2. Once again, if you wish to ask a question, please press star then 1. Our first question is from Robert Trombley, who is a private investor. Please go ahead.

Yes, thank you. My question relates to the advanced transdermal technology, the patented technology. Is it the intention of the company going down the road to maybe royalty this out to another manufacturer instead of just using it internally?

If you can unmute me, that would be terrific.

Your line is unmuted, Mr. Davey.

Thank you so much. Robert, thank you very much for your question. And it's an important question as well. And if you have read some of our strategy documents, because it is certainly part of our strategy, we have a name for it called Project Mayo. And we definitely have... a vision of expanding this not only in our own country but internationally as well. So yes, there is an outlook to white label this as we go forward.

Okay, thank you.

Once again, if you have a question, please press star then 1.

We'll pause for a moment to see if anyone else would like to join the queue.

There appears to be no further questions, so this concludes the question and answer session. I'd like to turn the conference back over to Gaur Devi for any closing remarks.

Thank you so much. I really appreciate that. This is our first shareholder conference call, and we really appreciate everyone joining and taking the time to hear where we have been, where we are, and where we're going. We are excited with our pathway and our transition to a health and wellness company. We're excited about our future. We're committed to very sustainable growth and very rigorous financial responsibility and shareholder value. We look forward to the next chapter of Deliver Health Brands, and we thank you for all your support. We look forward to the next shareholder conference call. Thank you so much to everyone.

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